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[2019] ZASCA 49
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Ratlou v Man Financial Services SA (Pty) Ltd (1309/17) [2019] ZASCA 49; 2019 (5) SA 117 (SCA) (1 April 2019)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 1309/17
In
the matter between:
PHASWANA
STEPHEN
RATLOU APPELLANT
and
MAN
FINANCIAL SERVICES SA (PTY)
LTD RESPONDENT
Neutral
citation:
Ratlou v Man Financial
Services
(1309/2017)
[2019] ZASCA 49
(01 April 2019)
Coram:
Lewis ADP, Swain and Dambuza JJA and
Carelse and Matojane AJJA
Heard:
07 March 2019
Delivered:
01 April 2019
Summary:
Lease agreement – whether a
settlement agreement constituted a credit transaction in terms of the
National Credit Act 34 of
2005 (the NCA) – underlying rental
agreements excluded from provisions of the NCA as they were large
transactions concluded
with a corporate entity and secured by a
suretyship – on a literal interpretation of s 8(4)
(f)
of the NCA the settlement agreement constituted a credit transaction
– results of that so absurd that it could not have been
intended by the legislature – inimical to the purposes of the
NCA – provisions of the NCA did not apply – cross-appeal
succeeded.
ORDER
On
appeal from
:
Gauteng
Division of the High Court, Johannesburg (Wepener J sitting as court
of first instance):
1 The appeal is dismissed with costs,
such costs to include the costs of two counsel.
2 The cross-appeal succeeds with
costs, such costs to include the costs of two counsel.
JUDGMENT
Dambuza
JA (Lewis ADP, Swain JA and Carelse and Matojane AJJA concurring):
Introduction
[1]
The central issue in this appeal is whether a settlement agreement is
governed by the provisions of the National Credit Act
34 of 2005 (the
NCA) when the underlying contracts – the rental of trucks to a
corporate entity – and a suretyship
in respect of the leases –
are not governed by the Act. The court a quo held that it was.
[2]
On 28 July 2016 MAN Financial Services, SA (Pty) Ltd (MAN) launched
an application in the Gauteng Division of the High Court,
Johannesburg (high court), (Wepener J), against Phapho Nkone
Transport (PNT), a registered company, together with its director,
Mr
Stephen Ratlou (Mr Ratlou), claiming payment of R4 269 278.79
and interest, based on an acknowledgment of debt. The
high court
refused to grant judgment on the basis that the settlement agreement
was a credit agreement within the meaning of the
NCA and that MAN was
obliged to comply with s 129 of that Act, which it had failed to do.
The high court granted an order in the
following terms:
‘
1
. . .
2
Against the second respondent [the appellant in this appeal, Mr
Ratlou]:
2.1
the settlement agreement annexed as annexure JN13 to the founding
affidavit is made an order of court.
2.2
the application is postponed sine die.
3
The applicant [the respondent in the appeal Man Financial Services,
SA (Pty) Ltd, MAN] may not set this matter down until:-
3.1
it has complied with the provisions of Section 129(1)(a) as read with
Section 130
of the
National Credit Act 2005
;
3.2
It has upon completion of the remedies referred to in
Section
129(1)(a)
of the NCA, if restored to or otherwise, become entitled to
resume its application.
4.
The Applicant is to pay the Second Respondent’s costs incurred
in opposing this application.’
Mr
Ratlou obtained leave from this court to appeal against this order.
Essentially he only sought to have para 2.1 of the order
set aside,
that is, the declaration that the settlement agreement was an order
of court.
[3]
Subsequent to the granting of leave to appeal by this court, MAN
obtained leave from the high court to cross-appeal against
paras 3
and 4 of the high court order in terms of which it was ordered to
comply with the provisions of the NCA and pay the costs
of the
application.
[4]
At the hearing of the appeal, counsel for MAN informed this court
that MAN had complied with the relevant portions of the order
and had
obtained a judgment against Mr Ratlou in the amount claimed. However,
it was intent on pursuing the cross appeal, arguing
that the
settlement agreement on which its claim was based, was not governed
by the NCA. I agree that although a judgment by this
court on the
issue will have no practical effect in so far as the parties are
concerned, the finding by the high court that the
agreement was
governed by the NCA on which paras 3 and 4 of the court order were
founded, raises a discrete legal point of public
importance that
would affect settlement agreements concluded in the future.
[1]
[5]
On appeal, the parties were in agreement that a determination of the
cross appeal in MAN’s favour would dispose of the
appeal and
entitle MAN to judgment as sought. If the issue was decided in Mr
Ratlou’s favour MAN would concede the appeal.
The cross-appeal
will therefore be determined first.
Background
[6]
During 2013 Mr Raltlou acquired PNT together with its business. He
then became its director. At the time PNT was leasing five
heavy duty
trucks and trailers from MAN. On 24 October 2013, Mr Ratlou executed
a deed of suretyship in favour of MAN to secure
the lease agreements
relating to the five trucks. Those lease agreements expired sometime
during 2014. The suretyship, as a general
covering security in
respect of PNT’s debt to MAN, remained in place.
[7]
In December 2014 PNT and MAN concluded seven new rental agreements in
relation to seven heavy-duty trucks and trailers hired
by PNT at
specified monthly rental amounts. A few months after the conclusion
of these agreements PNT defaulted on the monthly
rentals. On several
occasions thereafter Mr Ratlou re-negotiated the rental payment
dates, only for PNT to default on the renegotiated
payment dates.
Ultimately, on 30 April 2015, MAN repossessed the seven trucks and
trailers. The amount then outstanding on all
the rental agreements
was R4 915 043.98. The trucks and trailers were sold to
third parties and the proceeds were credited
to PNT’s rental
accounts. However there remained a shortfall in the amount of
R4 400 000.
[8]
On 28 September 2015, MAN, PNT and Mr Ratlou concluded the settlement
agreement (also referred to as an acknowledgement of debt,
AOD) in
relation to the shortfall. Clauses 4 and 5 of that agreement
provided that:
‘
4.
PN Transport [PNT] and Stephen [Mr Ratlou] will jointly and severally
the one paying the other to be absolved pay an amount of
R4 400.000.00 (Four million four hundred thousand Rand) together
with interest at Absa Bank Limited’s prime lending
rate as
publicized from time to time from date calculated daily and
compounded monthly from date of signature of this agreement
to
payment in full.
5.
Payment of the aforesaid amounts will be made by way of 60
consecutive monthly payments payable as follows:
5.1
6 x monthly payments of R50 000.00 (fifty thousand Rand) each,
the first payment to be made on/or before the 07
th
day of November 2015, followed by 5 consecutive monthly payments of
R50 000.00 each payable on the 07
th
day of each consecutive month.
5.2
Followed by 54 monthly payments of R98077.00 (Ninety eight [t]housand
and seventy seven Rand), payable from the 07
th
day of May 2016.’
[9]
This meant that PNT and Mr Ratlou were to liquidate the outstanding
debt in the manner set out above. However they defaulted
once more –
the payment dates specified in the settlement agreement were again
not honoured.
In
the high court
[10]
On 28 July 2016, MAN instituted the proceedings against PNT and Mr
Ratlou, based on the settlement agreement and the suretyship
executed
in October 2013, for payment of the amount owing. In its defence, PNT
pleaded that the rental agreements which formed
the underlying causa
for the settlement agreement had been ‘dependent’ on a
‘supply agreement’ which it
had with a mining company,
ASA Metal/Dilakong Chrome Mine. The allegation was that in terms of a
further oral agreement between
the parties (PNT, MAN and Mr Ratlou),
if the supply agreement were to cease or collapse, the rental
agreements would also come
to an end. The contention was that this
oral agreement constituted a resolutive condition to the rental
agreements. When ASA Metal
‘did not honour the supply
agreement’ the rental agreement ceased and MAN was not entitled
to any payment from them.
[11]
Regarding the suretyship, Mr Ratlou contended that it was not open to
MAN to rely on it as it had been executed in relation
to the initial
five trucks and their rental agreements which had since terminated.
MAN contended that, in its terms, the suretyship
was a continuing
agreement and was ‘barely a year old’ when the second
batch of trucks was acquired.
[12]
The high court correctly found that the original rental agreements
did not fall within the ambit of the NCA. This is because
they were
large agreements concluded with a juristic person. The aggregate
quantum of instalments of each agreement exceeded the
R250 000
threshold. In addition, because the NCA did not apply to the
underlying agreements, it also did not apply to Mr Ratlou’s
suretyship. The high court however found that, although the seven
rental agreements to which the settlement agreement related did
not
fall under the NCA, the settlement agreement constituted a new
credit
agreement
within the meaning of the
NCA. MAN had failed to give prior notice of the impending action to
PNT and Mr Ratlou as it was obliged
to do in terms of the provisions
of
s 129
of that Act. By this time PNT was in liquidation, with the
result that the court postponed the application as against it, but
granted
the order as set out above in respect of Mr Ratlou.
[13]
In reaching the conclusion that the settlement agreement was a credit
transaction, the high court reasoned that, unlike the
underlying
rental agreements, in the settlement agreement Mr Ratlou was ‘no
longer described or bound as surety’. He
was liable jointly and
severally together with PNT for the amount outstanding. Further, the
settlement agreement read that it was
in full and final settlement of
the applicant’s claims against Mr Ratlou and PNT. It therefore
ended the relationship between
the parties in so far as the rental
agreements and the suretyship were concerned. It was a
transactio
or compromise which created between the parties a new relationship
with consequential rights and obligations. None of the parties
was
entitled to enforce the rights and obligations emanating from the
underlying rental agreements.
Submissions
on appeal
[14]
Mr Ratlou contended that it was not competent for the high court to
make the settlement agreement an order of court because
none of the
parties sought an order in those terms, and he was not warned that an
order in those terms would be made. The prejudice
he suffered as a
result of the court order was that para 2 thereof detracted from the
relief granted in terms of paras 3 and 4
of the order. The order was
ambiguous and ‘self- destructive’. He would now also not
be able to raise defences that
would have been available to him under
the NCA such as ‘reckless lending’.
[15]
It was not in dispute that at some stage during the proceedings in
the high court MAN had, by way of an amendment to its notice
of
motion, sought to have the settlement agreement declared an order of
court. However, by the time of the hearing of the application,
the
proposed amendment had been abandoned.
[16]
In the cross-appeal, MAN conceded that on a literal interpretation of
s 8(4)
(f)
of the NCA the settlement agreement met the
definition of a credit transaction. That section provides that:
‘
(4)
An agreement, irrespective of its form but not including an agreement
contemplated in subsection (2) constitutes a credit transaction
if it
is
…
(a)
…
(f)
Any
other agreement, other than a credit facility or a credit guarantee,
in terms of which payment of an amount owed by one person
to another
is deferred, and any charge, fee or interest is payable to the credit
provider in respect of –
(a)
the agreement; or
(b)
that amount has been
deferred.’
However
it was submitted that, where, as in this case, the underlying causa
to the settlement agreement did not constitute a credit
agreement as
envisaged by the NCA, the agreement did not fall within the ambit of
the NCA.
[17]
Counsel for MAN also submitted that in any event the settlement
agreement was a credit guarantee to which the provisions of
the NCA
did not apply for the reasons stated by this court in
Shaw
& another v McKintosh & another
.
[2]
[18]
Mr Ratlou persisted in the argument that the settlement agreement, as
a new and independent contract, extinguished the underlying
causa and
Mr Ratlou’s status in relation to the debt was altered to that
of a co-principal debtor. The provision of the NCA
therefore applied.
Discussion
[19]
Mr Ratlou argued that the underlying causa for the compromise in the
form of the settlement agreement cannot be examined for
the purposes
of determining whether the acknowledgment of debt falls within the
parameters of the NCA. This is simply because the
underlying causa
has been extinguished by the compromise. The argument is artificial.
If the underlying causa did not fall within
the parameters of the
NCA, then its compromise in terms of the settlement agreement, cannot
logically result in the agreement being
converted to one that does.
[20]
In this regard the express reference in the AOD to the underlying
causa – the rental agreements is of vital significance.
Clause
3 of the AOD provides that the agreement is ‘in full and final
settlement of MFS’s [Man Financial Services]
claims against PN
Transport and Stephen [Mr Ratlou] with regard to the agreements
listed’ therein.
[3]
It was not
in dispute that the accounts listed in the AOD related to the rental
agreements. The compromise therefore remained linked
to the
underlying causa, being the rental agreements. The artificiality of
ignoring them is self-evident.
[21]
A purposive interpretation and not a literal interpretation of s
8(4)
(f)
of
the NCA is required because it is quite clear that the NCA was not
aimed at settlement agreements. Its application to them will
have
devastating effect on the efficacy and the willingness of parties to
conclude settlement agreements and thereby curtail litigation.
.
[22]
As is evident from the portion of the settlement agreement set out
above it provided for payment of the amount owed in deferred
instalments and interest was payable in terms thereof. As I have
said, on a literal interpretation the settlement agreement meets
the
definition of a credit transaction. This is so even though the
underlying lease agreements did not constitute credit agreements
as:
they were large agreements; the rental was payable in advance and not
deferred; ownership of the trucks would not pass to PNT
at the end of
the lease term; and Mr Ratlou’s suretyship was not governed by
the NCA. Further, on a literal interpretation
of s 8 (4)
(f)
of
the NCA, a settlement agreement concluded in relation to a delictual
claim would immediately fall within the ambit of the NCA.
As
submitted on behalf of MAN this could never have been the intention
of the legislature. The consequence would be absurd for
agreements of
settlement in respect of non-contractual claims.
[23]
The purposes of the NCA are set out in s 3 of that Act. Section 2
thereof provides that the NCA must be interpreted in a manner
that
gives effect to such purposes. Under s 3 the purposes of the Act are
‘to promote and advance the social and economic
welfare of
South Africans, to promote fair, transparent, competitive,
sustainable, responsible, efficient effective and accessible
credit
market and industry and to protect consumers.’ Therefore the
NCA is concerned with the advancement of money or granting
of credit
in the main, to individual consumers.
[4]
[24]
MAN’s reliance on three cases in which our courts have used the
purposive approach in determining whether the NCA was
applicable to
settlement agreements, is well placed. In
Grainco
(Pty) Ltd v Broodryk NO & others
[5]
the court
found that although the settlement agreement referred to deferral of
payment and interest the agreement did not constitute
a credit
transaction because the underlying transaction was a damages claim in
respect of which the plaintiff, by agreement, afforded
the first,
second, and third defendants deferrement of payment. It was held that
the transaction did not fall within the business
of moneylending and
the furnishing of credit, in the ordinary sense of the word. The NCA
was not intended to encompass an underlying
causa of the postponement
of payment of damages.
[25]
In
Hattingh
v Hattingh
[6]
a settlement
agreement in which two brothers terminated their business
relationship and provided for payment of R6,6 million in
annual
instalments of R734 000,00 together with interest on the capital was
found not to fall within the ambit of the NCA. The
court found
specifically that there had been no credit provider-consumer
relationship. This and the parties’ intention viewed
against
the background of the objects of the NCA showed that it could not
have been the intention of the Legislature that an agreement
such as
the impugned agreement should be regarded as a credit agreement.
Although the one brother, prima facie, fell within the
definition of
a credit provider as intended in the NCA it could not – given
the purpose and the context of the NCA –
have been the
intention of the Legislature that the brother would be regarded as a
credit provider subject to the obligations imposed
by the NCA.
[26]
In
Ribeiro
& another v Slip Knot Investments 777 (Pty) Ltd
[7]
it is found
that the underlying causa remained extant despite settlement and that
the two agreements were interdependent. In this
case the underlying
agreement was a damages claim pursuant to the repossession and
re-sale of the vehicles. There was also no credit
provider –
consumer relationship and the settlement agreement and the underlying
agreements were interdependent. There can
only be one conclusion,
that the NCA was not designed to regulate settlement agreements where
the underlying agreements or cause,
would not have been considered by
the Act.
[27]
Having found that the legislature never had the intention that the
NCA be applicable to all settlement agreements in terms
which accord
with the determination of credit transactions, in particular to the
agreement concluded by the parties in this case,
it is not necessary
to deal with the alternatives to MAN’s main argument. I may,
however indicate, in respect thereof as
well, that the effect of the
sudden unintended conversion of a non-consumer/non-credit provider
relationship into one governed
by the NCA and the chill effect that
would have on settlement of disputes would still hold considerable
weight. As was submitted
on behalf of MAN, parties who were never
credit providers, such as a once off lesser, would suddenly find
themselves unable to
enforce the terms of their settlement agreement,
for want of registration or due assessment or a lessee for
creditworthiness.
[28]
Consequently the settlement agreement in this appeal did not fall
within the ambit of the NCA. MAN had no obligation to comply
with the
provisions thereof prior to enforcing its terms. It will be recalled
that the parties agreed that a determination of the
cross appeal in
MAN’s favour, namely that the acknowledgement of debt did not
constitute a credit transaction as defined
in the NCA, would dispose
of both the appeal and the cross appeal in MAN’s favour.
[29]
The following order is granted:
1 The appeal is dismissed with costs,
such costs to include the costs of two counsel.
2 The cross-appeal succeeds with
costs, such costs to include the costs of two counsel.
_________________
N Dambuza
Judge of Appeal
APPEARANCES
For
Appellant: D D Swart
Instructed
by:
Machobane
Kriel Inc., Johannesburg
Symington
De Kok Attorneys, Bloemfontein
For
Respondent: A Gautschi SC (with him C van der Merwe)
Instructed
by:
Webber
Wentzel, Johannesburg
Stefan
De Beer Co., Bloemfontein
[1]
Qoboshiyane NO & others
v Avusa Publishing Eastern Cape (Pty) Ltd & others
[2012] ZASCA166;
2013 (3) SA 315
(SCA) para 5.
[2]
Shaw &
another v McKintosh & another
2019 (1) 308.
[3]
At para 8.
[4]
See the preamble to the NCA.
[5]
Grainco
(Pty) Ltd v Broodryk NO & others
[2009] ZAFSHC 143; 2012 (4) SA 517 (FB).
[6]
Hattingh
v Hattingh
[2010] ZAFSHC 173; 2014 (3) SA 162 (FB).
[7]
Ribeiro
& another v Slip Knot Investments 777 (Pty) Ltd
[2010]
ZASCA 174
;
2011 (1) SA 575
(SCA).