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[2000] ZASCA 175
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Bekker and another v Oos-Vrystaat Kaap Koöperasie Beperk (211/98) [2000] ZASCA 175; [2000] 3 All SA 301 (A) (26 May 2000)
Case
number 211/98
IN
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
In the
matter of
G
F H V BEKKER
First Appellant
A
J N BEKKER
Second Appellant
and
OOS-VRYSTAAT
KAAP
KOöPERASIE
BEPERK
Respondent
CORAM
: Vivier,
Nienaber, Harms, Schutz JJA and Farlam AJA.
DATE
OF HEARING
:
12 May 2000
DATE
OF JUDGMENT
: 26
May 2000
Validity
of conclusive evidence clause in co-operative society statute –
where
no written objection by member within three months – when
additional finance charges recoverable under sec 4(1) –
whether
finance charges recoverable despite non-compliance by creditor with
sec 10(6)
J U D G M E N T
/
FARLAM
AJA
:
FARLAM
AJA
:
[1] In
this matter the respondent co-operative society instituted action in
the Eastern Cape High Court against the appellants
for payment of an
amount alleged to be due upon a running account which was initially
operated by a company G B A van Ginkel
(Edms) Bpk (“the
company”), of which the appellants were the directors and
shareholders and in respect of which they
bound themselves as
sureties and co-principal debtors.
[2] After
hearing evidence the trial court (Zietsman JP) granted judgment in
favour of the respondent against both appellants,
jointly and
severally, in an amount of R392 683,33 (being the amount
alleged to be due under the running account); interest
thereon at
a rate of 24.75% per annum, such interest to be capitalised monthly
from 1 April 1995 to date of payment, and costs
on the scale as
between attorney and client, together with interest thereon at the
current legal rate from the date of taxation
to the date of payment.
[3] The
respondent co-operative society came into existence on 11 August
1993 upon the amalgamation in terms of sections 165
and 166 of the
Co-operatives Act 91 of 1981, as amended, of two co-operatives,
Oos-Vrystaat Koöperasie Bpk (“OVK”)
and Albert
Koöperasie Bpk (“AKB”).
[4] The
appellants are two farmers, each of whom conducted separate farming
operations in his own name and who are both members
of the
respondent co-operative society. Before the amalgamation between
OVK and AKB they were members of AKB. The accounts
which they
have with respondent in their individual capacities are not in
issue in this case. What is in issue, as appears
from what has
been said already, is the account of the company of which they were
the directors and shareholders.
[5] The
company was the owner of two farms known as Fonteintjie and
Komkommerhoek, which were situated in the district of Steynsburg.
Although, as has been said, its two directors and shareholders were
at that stage members of AKB, it was not. Despite this
fact it
applied in July 1988 to AKB for a production credit of R180 000
in order to enable it to produce a crop of wheat
on its two farms.
At the end of the application was provision for a suretyship
contract which was signed by both appellants
as sureties and
co-principal debtors in favour of AKB in respect of the company’s
obligations The application for a
production credit was approved
by AKB.
[6] In
February 1989 the company applied once again to AKB for a
production credit, this time to enable it to grow crops of
sunflowers, manna, lucerne and wheat on its farms. Once again the
appellants signed as sureties and co-principal debtors and
the
production credit applied for was approved by AKB.
[7] On
3 March 1989 the appellants signed a separate deed of suretyship in
favour of AKB in respect of the debts of the company,
which was
limited to R210 000,00, plus interest, costs and certain other
expenses, as well as any attorney and client costs
incurred by AKB
as a result of the institution of legal proceedings against the
company or the appellants for any amount covered
by the deed.
[8] Further
agreements for production credits were concluded between the company
and AKB each year thereafter and this state
of affairs continued
until December 1991 when an amount in excess of R443 000 was
owed by the company to AKB in terms of
the then current production
loan and it was assumed by both the appellants and AKB that the
latter had a statutory pledge over
the crops on the farms in terms
of section 173 of the Co-operatives Act 91 of 1981, as amended,
relating to the amount owed
to it by the company in respect of this
loan.
[9] When
the company’s application to AKB for a production credit had
been granted the company was not accepted as member
of AKB, it not
being the policy of AKB to accept companies as members. Usually
when AKB allowed its facilities to be used
by non-members the
credit conditions were more stringent than in the case of members.
I say “usually” because it
appears from the evidence
that companies all of whose shareholders and directors were members
of AKB were more readily allowed
to trade with and use the
facilities of the society. Such a company was for practical
purposes treated as a partnership with
its members being the
partners, and its separate corporate identity being ignored. The
society allowed it all the privileges
and facilities of a member and
charged it interest at the rates charged to members and not at the
higher rates charged to non-members.
At the same time the society
accepted that a company allowed to trade with it on terms available
to members and not available
to non-members would be bound to the
same rules and obligations applicable to members and would thus be
bound,
mutatis
mutandis
( regard being had to the fact that the company was not a member and
could thus not vote at meetings of the society), in terms
of the
statutes and rules of the society.
[10] One
of the requirements applicable to members in the regulations of AKB
was that a member’s life would be insured
so as to cover the
outstanding amount owing from time to time by that member to AKB so
that that amount would be paid immediately
to the society on the
member’s death. The insurance was arranged by AKB and the
member’s account was debited with
the premiums payable in
respect thereof. In the case of a partnership the life of each
partner was insured to cover the full
amount of the debt.
[11] The
company was dealt with in this manner by AKB. The accounts
rendered by AKB to the company show quite clearly that
it was dealt
with on the same terms as members were. The same rates of interest
were charged as were charged to members. Although
the interest
rates charged by the respondent were initially not reflected in the
monthly statements, from July 1994 they were.
These statements
were checked regularly by the first appellant and he never queried
them or objected to them. The lives of
the two appellants were
insured as though the company was a partnership whose partners were
members of AKB. The statements
sent to the company reflected as
debits the premiums payable from time to time in respect of
insurance. To these debits no
query or objection was raised.
[12] It
is clear from the accounts submitted to the company that compound
interest was charged. The rates of interest charged
varied from
time to time. This was because from time to time the directors of
the society determined the rates of interest
to be charged in
respect of members’ accounts. Their decisions were arrived at
after they had determined what money the
society would require to
enable it properly to perform its functions, the aim being not to
make a profit for the society but
to obtain the maximum benefit for
the members.
[13] The
Credit Policy of AKB provided (in paragraph 13.1 and 13.2) that the
rate at which interest was charged on accounts
was determined from
time to time by the board of directors and that interest was
capitalised monthly.
[14] Accounts
which were not paid on due date were classified as overdue and were
transferred to different account categories
in respect of which
higher rates of interest were charged. This was determined by the
board of directors in terms of the society’s
statute. The
interest charged in respect of these overdue accounts exceeded the
annual finance charges determined from time
to time in terms of sec
2 of the Usury Act 73 of 1968, as amended.
[15] In
December 1991 the appellants sold their shares in the company to one
De Lange and it was a term of the contract between
them and De Lange
that the crops on the farm would be released from the statutory
pledge to which it was assumed they were subject.
The appellants
accordingly approached representatives of AKB and two written
agreements were entered into between the appellants
and AKB, one of
which was annexed to the respondent’s declaration as D2, while
the other was annexed to the appellant’s
plea as V1. Both
were signed on behalf of AKB on 4 December 1991 and by the
appellants on 6 December 1991.
[16] Two
documents were prepared since the buyer of the shares in the
company was not satisfied with the release of the pledge
terms
contained in the first document, with the result that a further
document was also concluded. They must be read together.
[17] The
contract D2, as far as is material, reads as follows:
“
NADEMAAL die Skuldenare
[appellants] Direkteure is van die Maatskappy . . . welke belange
nou verkoop is aan ene D M DE LANGE
. . .
EN NADEMAAL die Skuldenare
hulleself verbind het ten gunste van die Skuldeiser [i.e AKB] as
borg in solidum vir en as mede-hoofskuldenaar,
gesamentlik en
afsonderlik vir [the company].
EN NADEMAAL die Skuldeiser `n
pandreg gehad het oor die oeste . . . en aangesien die Skuldeiser
afstand gedoen het van die pandreg,
NOU DERHALWE kom die partye
soos volg ooreen:
1.
Die Skuldenare sal nog
aanspreeklik wees vir enige bedrag wat verskuldig is deur [the
company] . . . in terme van die borgstelling
wat deur die Skuldenare
onderteken is en soos hierbo uiteengesit.
2.
Die Skuldenare onderneem om die
bedrag verskuldig soos volg terug te betaal:
2.1 OP 31 DESEMBER 1992 ‘n
bedrag van R340 000,00 synde ‘n bedrag wat aan die
Skuldenare betaal word in terme
van [the contract of sale with De
Lange] en
2.2 Op 31 DESEMBER 1992 ‘n
bedrag van R40 000,00 synde rente [which was to be paid to
them by De Lange]
2.3 Die Skuldenare bevestig
hiermee dat hulle tans `n eis het teen VOLKSKAS BANK BEPERK en
indien hierdie eis slaag sal die Skuldenare
`n bedrag van R70 000,00
aan die Skuldeiser betaal sodra die fondse aan hulle oorbetaal word.
3.
.
. .
4.
. . .Indien die bedrae soos
genoem in paragraaf 2 hierbo wel vereffen word sal die partye `n
verdere ooreenkoms aangaan met betrekking
tot die vereffening van
die balans dan nog verskuldig.
5.
Indien die genoemde
Koopooreenkoms gekanselleer word . . . bevestig die partye hiermee
dat die Skuldeiser . . . nie afstand sal
doen van die pandreg nie en
sal die pandreg bly voortbestaan.”
[18] The
contract V1, as far as is material, reads as follows:
“
NADEMAAL die Skuldeiser
[AKB] ‘n produksielening aan die Skuldenaar [the company]
toegestaan het . . .
EN NADEMAAL die Skuldeiser `n
pandreg het daaroor . . . en die Skuldenare [the appellants] erken
dat [the company] `n bedrag van
R443 693,12 verskuldig is aan
die Skuldeiser in terme van die lening wat toegestaan is en nademaal
die Skuldenare die eiendom
waarop die bogenoemde gewasse geproduseer
word en waarop die Skuldeiser `n pandreg het . . . verkoop het aan
[De Lange]
NOU DERHALWE kom die partye
soos volg ooreen:
1.
Die Skuldeiser onderneem en
doen hiermee afstand van die pandreg . . .
2.
Die Skuldenare onderneem
hiermee om voldoende sekuriteit te verskaf aan die Skuldeiser vir
die bedrag nog verskuldig soos hierbo
genoem . . .
3.
Die partye bevestig hiermee dat
die borgstelling wat beide die Skuldenare onderteken het as borg vir
die bogenoemde Maatskappy
nog van krag bly en aanvaar die Skuldenare
aanspreeklikheid vir die
bogenoemde skuld van die
Maatskappy in terme daarvan.
4.
Die partye bevestig verder dat
die Skuldeiser en Skuldenare bevredigende reëlings getref het
vir die terugbetaling van die
bedrag verskuldig en dat die
Skuldeiser slegs die Skuldenare aanspreeklik sal hou vir die skulde
van die Maatskappy soos hierbo
genoem.”
(According
to the evidence the appellants sold to De Lange their shares in the
company and not the company’s property as
stated in the
preamble to the contract V1. Nothing turns on this point.)
[19] At
the trial the respondent relied, in order to prove its case against
the appellants, on clauses in the various statutes
of AKB and the
respondent which provided that if within a certain period of time
after a statement had been posted to a member
and the member
concerned had not objected in writing against any debit or credit
appearing on the statement, it would be considered
for all purposes
that the contents of the statement were correct and it would in any
legal proceeding be conclusive evidence
that the goods and services
mentioned therein were provided by the society to the member and
that the debit and credits appearing
on the statement were correct.
(The relevant clauses were paragraph 112(3) of the 1982 statute of
AKB (in which the relevant
period was three months), paragraph 114
(3) of the 1991 statute of AKB (in which the relevant period was
six months) and paragraph
116 (3) of the 1993 statute of the
respondent (in which the relevant period was three months and the
written objection had to
be sent to the society by registered post).
)
[20] In
attempting to prove its case against the appellants the respondent
also relied on a clause printed on the statements
forwarded to the
company from 31 March 1990 onwards which provided as follows:
“
Indien skriftelike
beswaar nie binne 1 (een) maand vanaf datum van maandstaat by die
koöperasie ingedien word nie, sal die
gegewens op die
maandstaat as korrek aanvaar word. Daarna sal die bewyslas op die
debiteur rus.”
[21] Zietsman
JP held that the conclusive evidence clause in the statutes of AKB
and the respondent was incorporated in the
contract between the
company and the society, and that it was valid and could be invoked
against the appellants. As it was
common cause that such
objections to the statements as were raised were dealt with at the
time, and that the appellants did not
object during any of the
relevant periods either orally or in writing to any other items in
statements received from AKB and
after amalgamation from the
respondent he held that (subject to arguments raised under the
Usury Act, which arguments he dealt
with and rejected later in his
judgment) the statements sent to the appellants which contained
debits covering the amount claimed
from the appellants constituted
conclusive proof of the amount owed to the society and were binding
on the appellants.
[22] Zietsman
JP also held that if he was wrong about the effect of the conclusive
proof clauses in the statutes the shifting
of onus clause printed on
the statements of account from 31 March 1990 had been acquiesced in
by the appellants and was binding
on them. On this basis also he
found against the appellants.
[23] Details
of the arguments raised on behalf of the appellants under the Usury
Act, which were also rejected by Zietsman JP,
appear from the
judgment to be delivered by Harms J A where the appellants’
contentions in this regard, which were
repeated in this Court,
are considered.
[24] Zietsman
JP also rejected two other arguments advanced on behalf of the
appellants: firstly, that the company had been
overcharged by the
AKB in respect of a centre point which it had purchased from the
society in 1985 and that the company was
entitled to have the amount
overcharged and the interest debited thereon deducted from the
respondent’s claim; and, secondly,
that the amounts which
were owing by the company were paid to the respondent by the State,
under what was referred to as the
State Guarantee Scheme, when the
State, after OVK amalgamated with AKB, paid to the respondent an
amount of R3,7 million in respect
of the overdue amounts owed to
AKB by its members.
[25] On
appeal before this Court counsel for the appellants attacked the
judgment of the court
a
quo
on the following grounds.
that
the conclusive evidence clauses in the statutes of AKB and the
respondent were not binding on the company (and therefore
on the
appellants who were not sued
qua
members in respect of the amount owed by the company) because it
was not a member of the society and was accordingly not bound
by
the terms of the society’s statutes;
that,
if those clauses were binding on the company and the appellant as
persons who were liable to the society for its debts,
they were
invalid as being
contra
bonos mores
and unenforceable;
(c) that the shifting of onus
provision printed on the society’s statements from 31 March
1990 was not binding on the company;
that
if the shifting of onus provision was binding on the company the
onus so shifted to the company was not transferred to
the
appellants when they assumed liability for the debts of the company
in respect of its account with the respondent;
that if the onus of proof
rested upon the respondent to prove the amount owing to it by the
company and it was not entitled
to rely on the conclusive evidence
clauses, it had not succeeded in showing that it was entitled to
judgment against the appellant;
that
AKB had overcharged the company in respect of the centre point
sold to it in 1985 and that the company was entitled to
have the
amount of the overcharge and the interest debited in respect of it
deducted from the amount claimed by the respondent;
that the State had discharged
the debt owing by the company to the respondent when it paid the
sum of R3,7 million to the respondent,
after the amalgamation
between OVK and AKB, in respect of overdue amounts owed to AKB
by its members;
that
the respondent lacked what was called
locus
standi
in the matter to enforce its claim against the appellants because
according to the evidence of its general manager it had ceded
its
claim against the appellants to the Land and Agricultural Bank of
South Africa and had accordingly divested itself of its
claim
against the appellants;
that the respondent was not
entitled to recover finance charges in respect of the amount
provided for in the agreements D2 and
V1, in terms of which the
appellants assumed liability for the debts of the company, because
these agreements constituted instruments
of debt as contemplated in
sec 2(9) of the Usury Act, and no finance charges were disclosed
therein;
that the method of charging
interest or finance charges adopted by AKB and the respondent and
the capitalisation thereof was
in effect in conflict with the
provisions of sec 4 of the Usury Act;
that
in view of the failure by AKB and the respondent over a period of
some five years to comply with the provisions of sec
10(6) of the
Usury Act, the finance charge rates which were varied from time to
time by the board of directors of the society
were not recoverable
as it would be against public policy for the courts to come to the
assistance of a party seeking to
recover interest charged in
contravention of the provisions of sec 10(6); and
that
the court
a
quo
erred in granting an order for costs on the scale as between
attorney and client.
[26] In
support of his submission that the conclusive evidence clause was
not binding on the company, counsel for the appellants
relied on
the fact that the company was not a member of the respondent or,
before amalgamation, of AKB. He submitted further
that it was not
treated as a member in that no shares were issued to it and in the
event of the members being required to make
a contribution no
potential contribution would have been owing by it. He submitted
further that the mere fact that the respondent
and, before
amalgamation, AKB chose to operate the account of the company in
the same manner as the accounts of members were
conducted did not
per
se
render the company bound by the provisions of the various statutes.
[27] In
rejecting this submission in the court
a
quo
Zietsman JP said the following:
“
The company’s
account was in all respects dealt with in the same way as any other
member’s account and I have no doubt
in the circumstances that
it was the intention of the parties, and their tacit agreement, that
this should happen, that the company
would be bound by the statute
and regulations of the society like any other member, that its
accounts would be debited with interest
in the manner and at the
rate applicable to members and that it would be liable for all other
expenses for which members were
liable. The fact that shares in
the society were not issued to the company does not in my opinion
indicate that it was the
intention of the parties that the company’s
accounts should be treated differently from that of members. It
was not treated
differently, and the fact that no query or objection
was raised to the accounts sent regularly to the company in my
opinion confirms
the fact that both parties intended, and accepted,
that the company would be treated on the same basis as any other
member of
the society.”
[28] I
agree with these views. In granting the company terms as
advantageous as those granted to members the company must be
taken,
in my view, to have intended what one may call the disadvantages
connected therewith, including the conclusive proof clause,
to apply
as well, and it was clear, in my opinion, that the appellants must
have had the same intention. Certainly if one
applies the test for
the implication of a tacit term, what the parties would have said to
the more imaginative bystander who
had asked them, when the contract
was being concluded, whether the conclusive proof clause would
apply, the answer would clearly
have been in the affirmative.
[29] The
next question to be considered is whether the conclusive proof claim
is valid.
[30] Counsel
for the appellants based his attack on the validity of this clause
on the decision of this Court in
Ex parte Minister of Justice: In re Nedbank Ltd v Abstein
Distributors (Pty) Ltd and Others and
Donelly
v Barclays National Bank Ltd
,
1995 (3) SA 1
(A), in which it was held that a conclusive proof
clause (i e a clause providing for a certificate of balance to
constitute
conclusive proof of indebtedness) in favour of a creditor
in an agreement, in terms whereof the creditor is to be the author
of the certificate of balance issued under the clause, was
contra
bonos mores
and therefore void, regardless of the content of the agreement in
which it bound itself. (In what follows I shall refer to
that
decision as “the
Abstein
Distributors
case”.) Two conclusive proof clauses were considered by this
Court in the
Abstein
Distributors
case. Both were contained in deeds of suretyship signed in favour
of banks. Each of them provided for the indebtedness of
the
principal debtor in respect of whom the deed of suretyship had been
signed to be “determined and proved” by a
certificate of
an official of the bank (in one of the deeds a general manager or
the manager of a branch, in the other “any
manager or
accountant”) and for the certificate to be binding on the
surety and to be conclusive proof of the amount of
the surety’s
indebtedness.
[31] The
factor present in this case, that the debtor has a period during
which the statement is not binding or conclusive in
which he or she
can raise such objections as he or she has to the statement, and if
he or she does so, the statement does not
become conclusive, did
not arise for consideration in the
Abstein
Distributors
case
and the case is clearly distinguishable in consequence. In essence
the clause presently under consideration is the counterpart
of
clauses commonly encountered in, for example, insurance contracts
which provide that a claim under the contract must be instituted
within a certain time. Such contractual time bars relating to the
institution of claims are valid; why should a clause providing
for a
time bar relating to the raising of a defence or objection be
invalid? Indeed, if demonstration were required of the desirability
of such a clause in certain contexts, there could be no better
demonstration than is afforded by the almost endless litigation
in
this case over events which had taken place many years before.
[32] When
this point concerning contractual time bars was put to the
appellants’ counsel he changed tack and argued that
the period
of three months after which any defence to the debits in a statement
was time-barred was too short. There are several
problems with
this submission. Firstly, it was not raised in the court below so
that the respondent did not have the opportunity
to lead evidence at
the trial to show why three months was a reasonable period in the
circumstances. Secondly, the clause in
question , being part of
the statute of the society, would have had to have been adopted by a
special resolution passed by the
votes of not less than two thirds
of the members present at a general meeting of the society, which
had been convened by a notice
in which particulars of the proposed
resolution introducing the clause were specified, if it did not form
part of the original
statute (see secs 32 and 130 of the
Co-operatives Act 91 of 1981 as amended). In other words, if the
period of the conclusive
proof clause in the present case had been
considered unfair and unreasonable by the members who would be
affected by it, they
could have opposed its introduction, if it was
not part of the original statute, or voted to amend it if it was
part of the original
statute.
[33] I
am accordingly satisfied that the conclusive proof clause under
consideration in this case is valid and binding on the
company and
the appellants.
[34] As
the full amount of the respondent’s claim against the
appellants is covered by the conclusive proof clauses to
which I
have referred it is not necessary to decide whether the shifting of
the onus provision printed on the company’s
statements from 31
March 1990 was binding on the company or on the appellants.
[35] As
regards the contention that the company was entitled to have the
amount of the alleged overcharge which took place in
1985 and the
interest debited in respect thereof deducted from the amount of the
respondent’s claim, it is clear that any
claim for repayment
which the company may have had against AKB for repayment of
amounts allegedly overcharged had become prescribed
at least by
March 1992. This was because all amounts allegedly due by the
company to AKB, including the amount charged (or
overcharged) in
respect of the centre point, had been paid by March 1989. It
follows that the company was not entitled after
March 1992 to claim
repayment or a deduction in respect of the alleged overpayment.
[36] The
appellants’ contention that the company’s indebtedness
to the respondent was discharged when the State paid
R3,7 million to
the respondent in respect of the overdue amounts owed to AKB by its
members is in my view without merit. The
onus was on the
appellants to establish that the State made the payment in the
appellants’ name and in their discharge:
see
Froman
v Robertson
1971 (1) SA 115
(A) at 124 H. It is clear from the evidence that,
as Zietsman JP put it in his judgment, it remained the task of the
society
to attempt to recover from its members the amounts owed on
the overdue accounts in respect of which the State made the payment
referred to. That being so, it has not been established that
the State made the payment on behalf of the appellants and
in order
to discharge their indebtedness.
[37] The
appellants’ defence based on the respondent’s alleged
lack of
locus
standi
resulting from the cession of its claim against the appellants to
the Land and Agricultural Bank was not raised in the plea.
The
point was not explored in depth at the trial and it was accordingly
not necessary for the respondent to prove what the
terms of the
alleged cession to the Land and Agricultural Bank were or whether,
if the claim had in fact been ceded, it had not
been ceded back to
the respondent before summons was issued. In the circumstances the
point cannot be upheld.
[38] The
contentions advanced by the appellants’ counsel under the
Usury Act 73 of 1968, as amended, must, in my view,
be rejected for
the reasons set out in the judgment prepared by Harms J A, which I
have had the advantage of reading and with
which I agree.
[39] The
final point argued by counsel for the appellants relates to the
order made by Zietsman JP that the appellants pay the
costs of the
action on the scale as between attorney and client. In his
judgment in support of his decision he referred to
a deed of
suretyship signed by the appellants in December 1993 in which they
bound themselves as sureties and co-principal debtors
for an alleged
partnership between G and A Bekker, and in which they undertook to
pay costs on the attorney and client scale,
should they be sued on
the deed of suretyship. The court
a
quo
found that no such partnership came into existence and it was
accordingly submitted on behalf of the appellants that the court
a
quo
erred in granting the order for payment of costs on the scale as
between attorney and client.
[40] In
reply counsel for the respondent drew attention to the fact that the
appellants accepted liability to pay costs on the
scale as between
attorney and client not only in the deed of suretyship to which the
court
a
quo
referred
but also in a number of other contracts they signed all of which
afforded a basis for the costs order made in the court
a
quo
:
these included the original application for production credits.
[41] In
view of the fact that appellants had not placed the court in
possession of facts and circumstances which supported their
objection to the making of an order for costs on an attorney and
client scale and there was nothing to show that the agreement
to pay
attorney and client costs was inequitable or oppressive or that the
conduct of the respondent so rendered it, there is
no basis for the
Court to exercise the discretion vested in it by section 5(1)(e) of
the Usury Act to refuse to order costs to
be paid on the attorney
and client scale despite the fact that the appellants had agreed
thereto. See
SA
Permanent Building Society v Powell and Others
1986 (1) SA 722
(A).
The
following order is made:
The
appeal is dismissed with costs, including those occasioned by the
employment of two counsel.
______________________
I G Farlam
VIVIER
JA)
NIENABER
JA)
HARMS
JA)
CONCUR
SCHUTZ
JA
HARMS JA
HARMS JA:
[1] This judgment deals only with questions arising
from the provisions of the Usury Act 73 of 1968 and should be read
against
the factual background set out in the judgment of Farlam
AJA.
[2] It is common cause that the major portion of the
respondent's claim consists of interest on the overdue account.
Interest
is an element of “finance charges”, the subject
matter of the Act. In the plea and counterclaim, the appellants,
apart from a general allegation that interest was charged in
contravention of the Act, relied upon one particular provision of
the Act, namely that the monthly capitalisation of interest was in
contravention of s 2 (5). In their particulars for trial,
the
appellants refused to amplify the general allegation save by
referring to sections 2, 4 and 5 of the Act. At the pre-trial
conference, however, their case was said to be the following (my
summary):
interest
was levied at rates in excess of those provided by the Act;
interest
was capitalised in contravention of s 2(5);
interest
continued to be levied after the conclusion of the agreements V1
and D2 despite the absence of any provision in these
documents,
being instruments of debt, for payment of interest.
That these were the issues in relation to the Act
became clear from the supplementary particulars for trial. In the
event, the
court a quo found against the appellants on (a) and (b),
a decision which was not challenged on appeal.
[3] As far as (c) is concerned, it may be useful to
refer to s 2(9) at the outset:
“Save in respect of a debit balance in a cheque account with a
banking institution as defined in section 1 (1) of the Banks
Act,
1965 (Act 23 of 1965), and subject to the provisions of sections 4,
5 and 5A, no person shall in respect of a money lending
transaction
or a credit transaction or a leasing transaction stipulate for,
demand or receive from a borrower or credit receiver
or lessee
finance charges not disclosed in an instrument of debt.”
An ''instrument of debt” means -
“a written contract or agreement or other document containing
the terms and conditions of any contract or agreement in
connection
with a money lending transaction or a credit transaction or a
leasing transaction.”
(Section 1. This is the current definition which was
introduced by way of amendment by s. 1 (b) of Act 30 of 1993. The
definition
as it was on 6 December 1991 - the date of D2 and V1 -
was not different in any material respect.) In short, finance
charges
that have not been disclosed in a written instrument of debt
may not be recovered. An instrument of debt need not be a contract
but may, for instance, be any document forming part of a series of
documents containing the terms and conditions of the contract.
Thus, an account which reflects the terms of an oral agreement may,
conceivably, fall within the definition. So, too, in this
case, the
statutes, credit policy and minuted decisions of the boards of
directors of the co-operatives concerned.
[4] Point (c) was based upon the appellants'
assumption that the two agreements of 6 December 1991amounted to a
novation or replacement
of the existing indebtedness of the company
and the appellants as sureties and that their intention was to free
the appellants
by agreement of any obligation to pay further
interest. The court below found against the appellants and held
that the original
debt remained and that the statute and rules of
the co-operatives continued to apply to the indebtedness and
governed the running
of interest. There is no reason to interfere
with these findings. The idea that there was a release from the
existing obligation
to pay interest was, on the evidence, an
ex
post facto
lawyer's point. There was
therefore no reason for D2 and V1 to have contained the applicable
interest rate. They were not conceived
as self-contained agreements
existing on their own.
[5] It is noteworthy is that it was never the case of
the appellants that the company's obligation to pay interest fell
foul of
s 2(9). Instead, they relied upon an oral agreement
allegedly entered into when the first production loan was negotiated
between
ABK and the company in relation to interest. Their
evidence in this regard was rejected. In other words, the question
whether
there was an instrument of debt for purposes of s 2(9) was
never in issue and was not investigated. The plea falls foul of the
rule that if the illegality does not appear ex facie the
transaction, it and the circumstances founding it must be pleaded
(
Yannakou v Apollo Club
1974 (1) SA 614
(A) 623G-H;
F & I
Advisors (Edms) Bpk v Eerste Nasionale Bank van Suidelike Afrika Bpk
[1998] ZASCA 65
;
1999 (1) SA 515
(SCA) 525H-526C). What the appellants did was to
direct attention in one direction and then attempt to canvass
another matter
(
Imprefed (Pty) Ltd v National
Transport Commission
1993 (3) SA 94
(A)
107G-I;
Stead v Conradie
[1994] ZASCA 147
;
1995 (2) SA 111
(A) 122A-J).
[6] The objection against the capitalisation of
interest reared its head in a form different from that pleaded.
Some background
material is necessary to understand the issue. The
respondent and its predecessor both had provisions in their statutes
which
permitted their boards of directors to determine the rate of
interest on outstanding accounts. Credit policies were accordingly
adopted. They provided that interest would be capitalised monthly.
This meant that such interest became due as and when it
was
debited. Accounts fell into arrears at different times: current
accounts after 90 days, farming accounts after six months
and
production loans at the end of the production season. In other
words, to take an example, although a current account became
overdue
only after 90 days, interest thereon was debited and capitalised
monthly. The appellants argue that interest could only
have been
capitalised after the lapse of 90 days.
[7] For this submission they rely on s 4 of the Act:
“(1) If a borrower . . . fails to pay
any amount
which
is owing by him to a moneylender . . . in connection with a money
lending transaction . . .,
upon the date when such amount is
payable
, or if a borrower . . . enters into an agreement with a
moneylender . . . to defer the payment of an amount which is owing
by
him as aforesaid to the moneylender . . ., the moneylender . . .
shall thereupon be entitled to recover from the borrower . . .
an
additional amount in respect of finance charges, which shall be
calculated by reference to
(a) the total amount which is payable but is unpaid;
(b) the term during which the default continues or the term for
which payment is deferred as aforesaid, as the case may be;
and
(c) the annual finance charge rate at which finance charges on the
outstanding balance of the principal debt are, in terms
of the
instrument of debt, calculated during such term.”
(Emphasis added.)
[8] Interest is, to use the words of the provision, an
amount owing in connection with a money lending transaction. As
soon
as it is debited, it becomes due and payable. The fact that
the capital amount is not yet repayable does not mean that interest
is not payable. It is therefore perfectly permissible to capitalise
interest in the manner adopted in this case.
[9] Overdue amounts were transferred to a special
overdue account which bore a higher rate of interest. The
appellants, as the
court below found, failed to prove that this rate
exceeded the higher rate permitted by s 4. It was not suggested
that the court
erred in its approach to onus - it relied on
Reuter
v Yates
1904 TS 855
- nor that its factual
findings were incorrect in this regard. In this context, rather
obliquely, the appellants also sought
to argue the absence of an
instrument of debt as required by s 4(3), but the findings in the
context of s 2(9) are equally applicable:
the matter was not an
issue in the court below.
[10] The final argument relates to the provisions of s
10(6):
“If agreement has been reached upon a variable finance charge
rate in terms of section 2B (3) and no notice in writing
of any
alteration of such rate and the date upon which that alteration
shall commence has in advance been delivered or sent through
the
post by a moneylender, credit grantor or lessor to a borrower,
credit receiver or lessee, the moneylender, credit grantor
or lessor
shall at the first reasonable opportunity but not later than three
months after the date upon which the alteration
of the finance
charge rate has commenced, deliver or send through the post to the
borrower, credit receiver or lessee a written
notice of such
alteration and the date upon which that alteration has commenced.”
It is common cause that, at least for a period, the
respondent's predecessor had failed to give the required notice of
increases
in the rate of interest. This breach, according to the
appellants, frees them from an obligation to pay interest so levied.
The same argument was rejected in
Absa Bank
Bpk v Saunders
1997 (2) SA 192
(NC)
198B-202J. I agree with the conclusion there reached. The Act
draws a clear distinction between civil and criminal remedies.
For
instance, s 2 prohibits the recovery of finance charges if they
exceed the prescribed maximum or are not disclosed in a
written
document. Cf also ss 4 and 5. Section 10 (6), however, merely
imposes an obligation upon the moneylender to do something.
The
inability to recover is not part of the penalty. Should the change
of interest rate be visited by a nullity, it would mean
that the
borrower will not be entitled to the advantage of reductions not
communicated. By way of comparison regard can had
to s 10 (1): it
places a duty on the lender to provide or send a copy of the
contract to the borrower. Failure to do so can
hardly disentitle
the lender from recovering the loan.
[11] It follows that there is no merit in the various
defences raised by the appellants under the Usury Act.
_____________________
L
T C HARMS
JUDGE
OF APPEAL
AGREE:
VIVIER
JA
NIENABER
JA
SCHUTZ
JA