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[2020] ZASCA 31
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FirstRand Bank Ltd v McLachlan and Others (394/2019) [2020] ZASCA 31; 2020 (6) SA 46 (SCA) (1 April 2020)
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
In the
matter between:
Reportable
Case
No: 394/2019
FIRSTRAND BANK
LIMITED
APPELLANT
And
MINETTA CECILIA
PETRONELLA
FIRST RESPONDENT
MCLACHLAN
ROSHEN
MAHARAJ
SECOND RESPONDENT
KOMARIE
MAHARAJ
THIRD RESPONDENT
ABSA
BANK
LIMITED
FOURTH RESPONDENT
STANDARD
BANK OF SOUTH AFRICA
FIFTH RESPONDENT
WESBANK
LIMITED
SIXTH RESPONDENT
Neutral
citation:
FirstRand Bank Ltd v McLachlan
and Others
(394/2019)
[2020] ZASCA 31
(01
April 2020)
Coram:
SALDULKER, SWAIN, SCHIPPERS and MBATHA JJA
and EKSTEEN AJA
Heard
:
12 March 2020
Delivered:
01 April 2020
Summary:
National Credit Act 34 of 2005 (NCA) –
debt review – rescission of order for debt review granted in
the magistrate’s
court – monthly instalment insufficient
to cover interest – debt review order void – rescission
order not appealable.
ORDER
On
appeal from:
Gauteng Division of the High
Court, Johannesburg (Tsoka, Windell JJ and Reyneke AJ, sitting as
court of appeal):
1. The appeal is upheld with costs, including the costs of two
counsel.
2. The order of the court below is set aside and replaced with the
following order:
‘
The
appeal is dismissed with costs.’
JUDGMENT
Mbatha
JA (Saldulker, Swain and Schippers JJA and Eksteen AJA concurring)
[1]
This appeal raises two issues: firstly, the powers of the
magistrate’s court in making a debt review order in terms of s
86(7)
(c)
(ii) of the National Credit Act 34 of 2005 (the NCA);
and secondly, whether the rescission of a debt review order, by
virtue of
it being null and void, is appealable.
[2]
On 25 November 2011 the magistrate’s court, Westonaria
(the magistrate’s court) granted a debt review order in terms
of s 86(7)
(c)
(ii) in favour of the second and third
respondents (the respondents), Roshen and Komarie Maharaj. The
respondents complied with
the order until June 2017, when the
appellant (the bank) brought an application for the rescission of the
order in terms of rule
49(8) of the Magistrates’ Court Rules on
the ground that it was void
ab origine
. The magistrate upheld
the application and rescinded the debt review order. In an appeal to
the Gauteng Division of the High Court,
Johannesburg, the order of
the magistrate was set aside. The present appeal, with the special
leave of this Court, is against the
order of the high court.
[3]
The facts giving rise to the appeal are common cause. In or
about September 2006 the bank and the respondents entered into a
written
Grant of Loan Agreement (the Loan Agreement), in terms of
which the bank advanced an amount of R2.1 million to the respondents
to purchase an immovable property secured by a mortgage bond. The
monthly instalment was fixed at R20 335,07, inclusive of 10,05
per
cent interest per annum calculated daily and compounded monthly. The
interest was variable at the instance of the bank.
[4]
In 2010 the respondents found themselves in a financial
predicament as a result of which they lodged an application for debt
review
in terms of s 86 of the NCA with the first respondent (the
debt counsellor), who prepared a debt repayment proposal. The
proposal
was duly referred to a magistrate (the debt review court) in
terms of s 86(8)(
b
) of the NCA. A debt review order was
subsequently granted as set out earlier. In granting the debt review
order the debt review
court did not, however, adopt the repayment
proposal submitted by the debt counsellor.
[5]
In terms of the order, the respondents were declared to be
over-indebted and their obligations were re-arranged. With regard to
the Loan Agreement, the monthly instalments were reduced to R8 185,50
per month and the period was extended to 261 months. There
was some
dispute as to whether the debt review court also varied the interest
rate, which was fixed at 12,55 per cent for the duration
of the
repayment period and, if so, whether the bank had agreed to the
rates. Both the magistrate and the high court found, however,
that
the interest payable immediately prior to the debt review order had
been fixed in terms of the Loan Agreement at 12,55 per
cent and that
there had accordingly been no change in the interest rate. This issue
is not decisive in the present appeal and I
shall accept the finding
of the courts below for purposes of this judgment.
[6]
The effect of the debt review order, however, was that the
monthly instalment would not even cover the monthly interest accruing
on the outstanding balance. A calculation of interest alone on the
balance due on 25 November 2007, calculated at 12,55 per cent,
would
have required a repayment of almost R22 000 per month, substantially
more than the R8 185,50 which was ordered by the court.
In order to
achieve a payment of R8 185, 50 per month as stipulated in the debt
review order, the interest rate would have to be
reduced to 4,5 per
cent per annum. In the result, it was factually impossible for the
respondent to service the interest on a monthly
basis, let alone the
capital amount owed. The consequence of this order was that the debt
owing under the Loan Agreement has grown
to more than R3 million
since the granting of the debt review order. Self-evidently, at the
conclusion of the repayment term a
substantial amount will remain
due.
[7]
In October 2016 the Western Cape Division of the High Court
delivered judgment in
Nedbank Limited v Jones and Others
[2016]
ZAWCHC 139
;
2017
(2)
SA 473
(WCC). In
Jones
the following order was made:
‘
A. A magistrate's court hearing a matter in terms
of
s 87(1)
of the
National Credit Act 34 of 2005
, does not enjoy
jurisdiction to vary (by reduction or otherwise) a contractually
agreed interest rate determined by a credit agreement,
and any order
containing such a provision is null and void.
B. A re-arrangement proposal in terms of
s 86(7)
(c)
of the
National Credit Act that
contemplates a monthly instalment
which is less than the monthly interest which accrues on the
outstanding balance does not meet
the purposes of the
National Credit
Act. A
re- arrangement order incorporating such a proposal is ultra
vires the
National Credit Act and
the magistrate's court has no
jurisdiction to grant such an order.’
The
judgment in
Jones
prompted
the application for rescission which was founded firmly on the
conclusions in
Jones
.
[1]
The appellant contended that it first became aware of the nullity of
the debt review order when the judgment in
Jones
was delivered and that the application for
rescission was therefore brought within the one year period provided
for in
rule 49(8).
This contention was upheld in the high court and
is not disputed in the present appeal.
[8]
It is accordingly necessary first to consider the merits of
the conclusion in
Jones
. This requires an interpretation of
the NCA. The principles which find application to the interpretation
of statutes are well settled
and were summarised in
Natal Joint
Municipal Pension Fund v Endumeni Municipality
.
[2]
In the case of the NCA,
s 2(1)
enjoins a court when interpreting the
NCA to do so in a manner that gives effect to the purpose of the Act
as set out in s 3 thereof.
[9]
The NCA was promulgated against the background of a history of
inequality in bargaining power which often resulted in large credit
providers imposing their will, unreasonably, upon vulnerable credit
consumers. The purpose of the NCA, broadly speaking, is therefore
to
promote a fair, transparent, competitive, sustainable, responsible,
efficient, effective and accessible credit market and industry.
[3]
It provides for the protection of credit consumers against the
historical abuses by credit providers in a manner articulated in
ss
3(a)-(i). For purposes of the present inquiry three of these
protections are of particular significance. Section 3(d) is directed
at promoting equity in the credit market by balancing the respective
rights and responsibilities of credit providers and consumers.
Sections 3(g) and (i) are directed pertinently at the protection of
over- indebted consumers. Section 3(g) seeks to protect over-indebted
consumers by providing mechanisms for resolving their
over-indebtedness ‘based on the principle of satisfaction by
the consumer
of all responsible financial obligations’. In
similar vein s 3(i) seeks to protect consumers by ‘providing
for a consistent
and harmonised system of debt restructuring,
enforcement and judgment, which places priority on the eventual
satisfaction of all
responsible consumer obligations under the credit
agreement’.
[10]
Sections 86-88 set out the procedure for the debt review of a
consumer who is found to be over-indebted as envisaged in s 79 of the
NCA.
[4]
Where a debt counsellor has found the consumer to be over-indebted
they may issue a proposal recommending that the magistrate’s
court make an order:
‘
(ii) that one or more of the consumer’s
obligations be re-arranged by –
(aa)
extending the period of the agreement and
reducing the amount of each payment due accordingly;
(bb)
postponing during a specified period the
dates on which payments are due under the agreement;
(cc)
extending the period of the agreement and
postponing during a specified period the dates on which payments are
due under the agreement;
or
(dd)
’
[5]
A debt review court may, pursuant to such a proposal,
‘make an order re- arranging the consumer’s obligations
in any
manner contemplated in s 86(7)
(c)
(ii)’.
[6]
[11]
The legislature’s declared purpose with the procedure
set out in ss 86 and 87 is to provide a mechanism for resolving
over-indebtedness
based on the principle of satisfaction by the
consumer of all responsible financial obligations (s 3
(g)
).
Debt counsellors (in terms of s 86(7)
(c)
) and magistrates (in
terms of s 87 (1)
(b)
(ii)) are mandated to seek an equitable
balance between the respective rights and obligations of credit
providers and consumers
(s 3
(d)
) in order to establish a debt
restructuring and enforcement which places a priority on the eventual
satisfaction of all responsible
consumer obligations assumed under
the credit agreements (s 3
(i)
). Responsible obligations in the
context of the Act, are all those obligations lawfully undertaken
[7]
under a credit agreement which are not reckless as envisaged in s
80.
[8]
It has not been suggested that the Loan Agreement was either reckless
or unlawful.
[12]
Two features emerge from these provisions as they appear in
their context within the scheme of the NCA. Firstly, the debt review
court is empowered to ‘re- arrange’ (s 86 (7)
(c)
(ii))
or ‘restructure’ (s 3
(i)
) the consumer’s
obligations under the credit agreement. It is not empowered to alter
or amend the obligation. Hence, in
Norris
Goosen J held that
‘a re-arrangement order does not, and cannot, extinguish the
underlying contractual obligations’.
[9]
This conclusion must be endorsed.
[13]
Secondly, in re-arranging the obligations the debt review
court is enjoined to do so with due deference to the legislative
purpose
articulated in ss 3
(d)
,
(g)
and
(i)
of
the NCA.
[14]
The obligations undertaken in this matter are twofold.
Firstly, the repayment of the capital sum advanced and secondly, the
payment
of interest at the agreed rate on the outstanding balance of
the capital from time to time.
[15]
The point of departure in any re-arrangement must of necessity
be the provisions of the NCA and in particular s 3 as set out
earlier.
Where s 86(7)
(c)
(ii)
(aa)
empowers a magistrate
to re-arrange the debt repayment by extending the period and reducing
the monthly instalments ‘accordingly’
it envisages a
reduction in the monthly instalment, with a concomitant extension of
the repayment period, which would have the
effect that all the
obligations assumed under the credit agreement would be satisfied at
the conclusion of the extended period.
[16]
In
Seyffert and Seyffert v FirstRand Bank Limited
[2012]
ZASCA 81
this Court considered a proposal by a debt counsellor which
had been rejected by a credit provider. It held:
‘
The proposal envisaged payments from October 2009
when the balance owing was apparently R203 786,18 and, clearly, even
with regular
payments of the suggested instalment, the debt would not
have been discharged within that period. Close examination of the
proposal
reveals that it is based on the monthly instalment being
used to discharge some of the interest as it accumulated with no
payments
being made in respect of the capital amount of the loan. In
the result there would be a balance of R28 898,64 still due in
September
2029. Not even the accumulating interest (which the debt
counsellor set at 10 per cent per annum) would have been covered by
payment
of the proposed instalments.’
[10]
It
proceeded to conclude:
‘
Their restructuring proposals were simply, as the
court below found, “devoid of economic rationality”, and
would have
left a substantial part of the debt unpaid.’
[17]
These remarks are equally apposite to the debt review order in
this case. For the reasons set out earlier a debt review order which
does not result in the satisfaction of all responsible obligations
assumed under the credit agreement during the repayment period
does
not meet the purposes of the NCA. In the result I agree with the
conclusions reached in
Jones
which must be endorsed.
[18]
Reverting to the facts of this case, the debt review court did
not specify in terms of which sub-provision of s 86(7)
(c)
(ii)
it purported to act. Counsel on behalf of the respondents, however,
acknowledged that the order purports to be in accordance
with s
86(7)
(c)
(ii)
(aa)
. As recorded earlier the debt review
court did not make an order in accordance with the proposal of the
debt counsellor. Rather,
it reduced the monthly instalments
substantially from that proposed by the debt counsellor and extended
the period for repayment
beyond that which the debt counsellor had
envisaged. The reduction of the monthly instalment was so substantial
that it does not
remotely cover the monthly interest due in terms of
the order. Such an order does not serve to protect the interests of
the consumer
who would, at the end of the period, be left with a
substantial debt which they would in all likelihood be unable to pay.
The debt
review order is therefore
ultra vires
the provisions
of the NCA and was accordingly void
ab origine
.
[19]
The high court, considered, however, that whereas the debt
review order was issued prior to the judgment in
Jones
, the
findings of the court in
Jones
were of no application at the
time when the debt review order was made. In this respect the high
court erred. Neither the findings
in
Jones
nor in
Norris
created new law. These judgments merely pronounced on the meaning
of the NCA, as it was promulgated in 2005.
[11]
Before us counsel for the respondents did not contend otherwise. The
reasoning of the high court can therefore not be sustained.
In the
result the rescission order was correctly granted.
[20]
By virtue of the conclusion to which I have come on the first
issue the appealability issue pales into insignificance. I shall
accordingly
deal briefly with this aspect.
[21]
The law on which judgments are appealable is settled. I am in
full agreement with the counsel for the appellant that the rescission
order granted by the magistrate’s court was not appealable in
terms of s 83
(b)
of the Magistrates’ Court Act 32 of
1944. It was an interlocutory order, which placed the parties back in
the position in
which they were before the re-arrangement order was
granted. This Court in
HMI Healthcare Corporation (Pty) Ltd v
Medshield Medical Scheme and Others
[2017] ZASCA 160
stated in
para 18:
‘
It is plain that a rescission order does not have
a final and definitive effect. In
De Vos v
Cooper & Ferreira
this court expressed
the view that “[s]o ‘n bevel [that is, a rescission
order] het immers nie enige finale of beslissende
uitwerking op die
geskilpunte in die hoofgeding nie”. The rescission order simply
returns the parties to the positions which
they were in prior to the
ex parte order being granted.
De Vos
relied
inter alia on
Gatebe v Gatebe
and
Ranchod v Lalloo
. In
Gatebe
, De Villiers JP
held:
“
The order therefore does not dispose of the main
case or of any of the issues in the main case, and therefore has not
the effect
of a definitive sentence in this behalf. It still remains
to consider whether it has not the effect of a definitive sentence in
that it causes irreparable prejudice. Here again it seems to me to be
clear that an order merely rescinding a default judgment
does not
cause irreparable prejudice, for in the definitive sentence the
effect of the decision can obviously be repaired.”’
(Footnotes omitted.)
[22]
The judgment sought to be appealed by the respondents lacked
any of the attributes in the
Zweni v Minister of Law and Order of
the Republic of South Africa
1993 (1) SA 523
(AD);
[1993] 1 All
SA 365
(A), (536B-D) where the court ruled against the appealability
of the interim order made by the court of first instance. It held
that the interim order should be tested against (i) the finality of
the order; (ii) the definitive rights of the parties; and (iii)
the
effect of disposing of a substantial portion of the relief claimed.
Therefore, the reliance by the court a quo in
Slabbert v MEC for
Health and Social Development, Gauteng
[2016] ZASCA 153
, was
misplaced. The door is still open to the respondents to approach the
magistrate’s court for a determination of a new
debt review
order.
[23]
I turn to the costs of the appeal. The respondents counsel
submitted that, in the event that the appeal is upheld, this Court
should
make no order as to costs as the prosecution of the appeal was
in the public interest. This could not be the case as the matter
rested on the interpretation of the provisions of the NCA. The
respondents could have withdrawn their opposition to the appeal
to
minimise costs, but pursued the appeal to the date of the hearing.
The respondents could have abided by the decision of this
Court, if
they felt that it was in the public interest, but failed to do so.
For these reasons, the respondents should be ordered
to pay the
appellant’s costs, including the costs of two counsel.
[24]
In the result, I make the following order:
1
The appeal is upheld with
costs, including the costs of two counsel.
2
The order of the court
below is set aside and replaced with the following order:
‘
The
appeal is dismissed with costs.’
___________________
Y
T MBATHA
JUDGE
OF APPEAL
Appearances
For
appellant: A Gautschi SC (with him B Stevens and J Chanza)
Instructed
by: CF Van Coller Attorneys, Germiston
Symington
& De Kok, Bloemfontein
For
respondents: J C Viljoen
Instructed
by: Morgan Attorneys, Johannesburg
Du Toit
Lamprecht Incorporated, Bloemfontein.
[1]
See also Nedbank Limited v Norris and Others [2016] ZAECPEHC 5; 2016
(3) SA 568 (ECP).
[2]
Natal Joint Municipal Pension Fund v Endumeni Municipality
[2012]
ZASCA 13
;
[2012] 2 All SA 262
(SCA); 2012 (4) SA 593 (SCA) at
603F-604B this Court stated:
‘Interpretation is the process of attributing meaning to the
words used in a document, be it legislation, some other statutory
instrument, or contract, having regard to the context provided by
reading the particular provision or provisions in the light
of the
document as a whole and the circumstances attendant upon its coming
into existence. Whatever the nature of the document,
consideration
must be given to the language used in the light of the ordinary
rules of grammar and syntax; the context in which
the provision
appears; the apparent purpose to which it is directed; and the
material known to those responsible for its production.’
See also Theron v
Premier, Western Cape
[2019] ZASCA 6
para 19-21.
[3]
Section 3 of the NCA provides:
‘Purpose of Act
The purposes of this Act are to promote and advance the social and
economic welfare of South Africans, promote a fair, transparent,
competitive, sustainable, responsible, efficient, effective and
accessible credit market and industry, and to protect consumers,
by
–
(a) promoting the development of a credit market that is accessible
to all South Africans, and in particular to those who have
historically been unable to access credit under sustainable market
conditions;
(b) ensuring consistent treatment of different credit products and
different credit providers;
(c) promoting responsibility in the credit market by –
(i) encouraging responsible borrowing, avoidance of
over-indebtedness and fulfilment of financial obligations by
consumers;
and
(ii) discouraging reckless credit granting by credit providers and
contractual default by consumers;
(d) promoting equity in the credit market by balancing the
respective rights and responsibilities of credit providers and
consumers;
(e) addressing and correcting imbalances in negotiating power
between consumers and credit providers by –
(i) providing consumers with education about credit and consumer
rights;
(ii) providing consumers with adequate disclosure of standardised
information in order to make informed choices; and
(iii) providing consumers with protection from deception, and from
unfair or fraudulent conduct by credit providers and credit
bureaux;
(f) improving consumer credit information and reporting and
regulation of credit bureaux;
(g) addressing and preventing over-indebtedness of consumers, and
providing mechanisms for resolving over- indebtedness based
on the
principle of satisfaction by the consumer of all responsible
financial obligations;
(h) providing for a consistent and accessible system of consensual
resolution of disputes arising from credit agreements; and
(i) providing for a consistent and harmonised system of debt
restructuring, enforcement and judgment, which places priority on
the eventual satisfaction of all responsible consumer obligations
under credit agreements.’
[4]
Section 79(1) provides:
‘Over-indebtedness
(1) A consumer is over-indebted if the preponderance of available
information at the time a determination is made indicates that
the
particular consumer is or will be unable to satisfy in a timely
manner all the obligations under all the credit agreements
to which
the consumer is a party, having regard to that consumer's –
(a) financial means, prospects and obligations; and
probable propensity to satisfy in a timely manner all the
obligations under all the credit agreements to which the consumer is
a party, as indicated by the consumer's history of debt repayment.
[5]
Section 86(7)(c)(ii).
[6]
Section 87(1)(b).
[7]
Sections 89-91 provide for unlawful agreements and provisions
contained in a credit agreement which would be unlawful.
[8]
Section 80(1) provides: ‘Reckless credit
(1) A credit agreement is reckless if, at the time that the
agreement was made, or at the time when the amount approved in terms
of the agreement is increased, other than an increase in terms of
section 119(4) –
(a) the credit provider failed to conduct an assessment as required
by section 81(2), irrespective of what the outcome of such
an
assessment might have concluded at the time; or
(b) the credit provider, having conducted an assessment as required
by section 81(2), entered into the credit agreement with
the
consumer despite the fact that the preponderance of information
available to the credit provider indicated that –
(i) the consumer did not generally understand or appreciate the
consumer's risks, costs or obligations under the proposed credit
agreement; or
(ii) entering into that credit agreement would make the consumer
over-indebted.’
[9]
Norris para 44.
[10]
Seyffert para 10.
[11]
See Finbro Furnitures (Pty) Ltd v Registrar Deeds Bloemfontein and
Others
[1985] ZASCA 71
;
[1985] 4 All SA 388
(AD);
1985 (4) SA 773
(A) at 804D.