REPUBLIC OF SOUTH AFRICA
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Case number178/04
Reportable
In the matter between:
ABSA BANK LIMITED APPELLANT
and
JOHANNES JACOBUS IZAK STEPHANUS
LOMBARD RESPONDENT
CORAM
: SCOTT, STREICHER, FARLAM, CLOETE et VAN
HEERDEN JJA
HEARD: 11 MARCH 2005
DELIVERED
: 30 MARCH 2005
SUMMARY: Debtor and creditor – money lending transaction – whether lender
reasonably exercised discretion to vary applicable interest rate.
________________________________________________________
JUDGMENT
________________________________________________________
FARLAM JA
2
[1] This is an appeal against a judgment of De Vo s J, sitting in
the Pretoria High Cour t, who dismissed a cl aim in reconvention
brought by the appe llant, Absa Bank Limited, against the
respondent, Dr JJIS Lombard, for pa yment of an amount of R51
796-60, with interest and costs.
[2] The respondent had brought a claim against the appellant for
R187 130-51, being the am ounts he alleged he had overpaid to
the respondent in the mistaken belief that they were due under a
written loan agreement conclude d in January 198 8 between the
appellant’s predecessor in title, the Trust Bank of Africa Limited,
and himself. The appellant’s res ponse was that t he amounts in
question had been owed by the res pondent and that the
respondent still owed money under the loan agreement, which it
claimed from him in its claim in reconvention.
[3] The loan agreement which formed the basis of both the claim
in convention and the claim in re convention was, as I have said,
concluded between th e respondent, as borrower, and the
appellant’s predecessor, as lender, in January 1988. The
respondent borrowed an amount of R259 995-60 to which was
added an amount of R4 -40, being stamp duty , resulting in a
principal debt of R2 60 000-00. The respondent undertook to repay
this sum, together with intere st at 15.55 per c ent per annum
3
subject to such increase or de crease in the interest rate as the
Bank might in its exclusive discreti on from time to time determine,
in 120 equal monthly instalment s of R4 282-71. (The agreement
uses the expression ‘finansieringsko ste’ but I shall speak in this
judgment of ‘interest’. ) According to the agreement the total
amount to be paid by the res pondent was R513 925-20, being
made up of the principa l sum, R260 000-00, and the total of the
interest charges, calculated at 15.55 per cent per annum.
[4] The loan agreement form used by the respondent and the
appellant’s predecesso r to record their agreement had two
alternative clauses dealing with the interest payable. The clause
which was the alternativ e to the clause chosen by the parties and
which was deleted on the form pr ovided for an interest charge
equal to the prime commercial bank lending rate as charged by the
Trust Bank of Africa Limited, plus a certain percentage, per year
(the exact figure to be inserted). Among the other clauses in the
agreement was one in which th e respondent expressly abandoned
the benefits of the following exceptions: non numeratae pecuniae,
non causa debiti, errore calculi, revision of accounts and no value
received.
[5] Acting purportedly in terms of the provision in the agreement
relating to the applic able interest rate, whic h I have referred to in
4
para 4, the appellant’s predecessor and the appellant itself from
time to time raised the interest rate payable by the respondent.
Over the period 15 February 1988 to 15 July 1997 the respondent
paid the appellant an d its predecessor by stoporder amounts
totaling R701 055-71. Believing that the clause in the agreement
purporting to confer upo n the lender the right in its exclusive
discretion to raise or lower the interest rate was invalid, the
respondent brought a condictio indebiti against the appellant,
claiming, as I have said, R187 130-51, being the difference
between the total he had paid, viz R701 055-71, and the amount
payable under the agre ement without any incr ease or decrease in
the interest rate as initially stipulated, viz R513 925-20.
[6] In its plea the appellant denied that the clause relating to the
applicable interest rate was invalid. It pleaded further that it was a
tacit, alternatively an im plied, term of the agr eement that its power
to vary the interest rate had to be exercis ed in a reasonable way
with due regard to the rates and usages which would be applicable
to similar agreements in the o pen market from time to time,
alternatively with due regard to the fixed and acknowledged
commercial practice of banking institutions in respect of similar
agreements. It pleaded further t hat it and its pr edecessor had
raised the interest rate appl icable to the agreement in a
5
reasonable way as set out earlier in its plea. It also denied that the
respondent had paid any amount which was not owed.
[7] In its claim in reconvention the appellant repeated the
allegation in its plea that it and its predece ssor had validly varied
the applicable interest rate from time to time and alleged that the
respondent still owed it an amount of R51 796-60 in terms of the
agreement as validly varied by it and its predecessor.
[8] In his plea to the claim in reconvention the respondent
averred that the appellant and it s predecessor had not exercised
the discretion conferred upon them in a reasonable way. This was
because, although the rate had been increased from time to time
by the same percentage as increases in the prime lending rate, it
had only on one occasion decreased the rate when the prime
lending rate fell.
[9] The pleadings in this case we re closed before this court
delivered its judgment in NBS Boland Bank Ltd v One Berg River
Drive CC; Deeb v Absa Bank Ltd and Friedman v Standard Bank
of SA Ltd 1999 (4) SA 928 (SCA), in which it was held that clauses
similar to the interest rate prov ision in the agreement presently
under consideration were valid, but that the discretion thereby
conferred had to be exercised arbitrio boni viri, ie reasonably. In
consequence of this decision it became clear that the respondent’s
6
claim in convention, based as it wa s on the alleged invalidity of the
interest rate provision, could not succeed. It was accordingly not
surprising that th e respondent withdrew hi s claim in convention
and tendered the wasted costs occasioned thereby at the rule 37
conference held between the parties before the trial began.
[10] At the same conference it wa s agreed by the parties that, on
15 January 1988 when the loan agreement was concluded, the
prime lending rate was 12.5 pe r cent per annum a nd that it rose
steadily from that date until 11 October 1989 when it reached 21
per cent. During substantially the same period the interest rate
payable under the agreement stea dily increased until the rate
charged the respondent on 1 Novemb er 1989 was 2 4.05 per cent.
On the day the agreement was conc luded the rate payable by the
respondent was 3.05 per cent above prime, which was also the
difference between the rate charged the respondent and the prime
rate on 1 November 1989. The parties also agreed on the
correctness of a schedule setting fo rth the prime rate, the rate
charged the respondent and the difference between the two during
the period from the conclusion of the agreement and the last
payment by the respondent on 15 July 1997. This sc hedule is as
follows:
7
DATE PRIME RATE RATE
CHARGED
MARGIN
ABOVE
PRIME
15/01/88 12,5 15,55 3,05
24/01/88 13 15,55 2,55
10/03/88 14 15,55 1,55
01/04/88 14 16,55 2,55
05/05/88 15 16,55 1,55
16/05/88 15 18,05 3,05
29/07/88 16 18,05 2,05
08/09/88 16 19,05 3,05
03/11/88 18 19,05 1,05
14/11/88 18 21,05 3,05
28/02/89 19 22,05 3,05
08/05/89 20 22,05 2,05
22/05/89 20 23,05 3,05
11/10/89 21 23,05 2,05
01/11/89 21 24,05 3,05
02/04/91 20 24,05 4,05
01/10/91 20,25 24,30 4,05
28/03/92 19,25 24,30 5,05
06/07/92 18,25 24,30 6,05
12/11/92 18,25 23,30 5,05
23/11/92 17,25 23,30 6,05
22/03/93 16,25 23,30 7,05
01/11/93 15,25 23,30 8,05
28/09/94 16,25 23,30 7,05
22/02/95 17,50 23,30 5,80
03/07/95 18,50 23,30 4,80
[11] The respondent stated at the ru le 37 conference that his
objections related to the intere st charged duri ng the period 15
January 1988 to 3 July 1995 and that he did not know what
interest rates were charged by the appellant after 3 July 1995. In
the minutes of the conference it is recorded that the parties
differed as to who bore the onus in respect of the appellant’s claim
8
in reconvention.
[12] The respondent testified at the tria l that, in orde r to secure
the loan of R260 000 he received from the Trust Bank of Africa Ltd
in January 1988, he passe d a bond in favour of the bank over
certain immovable property, whic h was worth about R600 000. In
addition the bank had, as further security, an assurance policy of
about R260 000 and cession of the debtors of a liquor store he had
sold. He said that the value of the land ov er which the bond was
passed in favour of the bank rose during the period. He also stated
that as far as he knew there wa s nothing which made him what he
called a high risk for the bank.
[13] In my view the evidence giv en by the respondent which I
have summarized, read with th e contents of the schedule (the
correctness of which was agreed by the parties) constituted a
prima facie case that the appellant an d its predecessor had acted
unreasonably in failing to reduce the applicable ra te when the
prime rate fell. (It was common caus e at the trial that if the margin
of 3.05 per cent above prime had been maintained throughout the
respondent would have already discharged his indebtedness to the
appellant in January 1998.)
[14] The appellant led no ev idence to rebut this prima facie case.
The only witness who testified on its behalf, Mr NJJ Janeke, the
9
manager of its national administra tive division, was unable to
provide any reasons as to why the applicable rate had not been
adjusted downwards, to keep it at about 3.05 per cent above
prime, as the prime rate fell, re gard being had to the fact that the
risk of non-recovery from the re spondent remained constant or
even decreased over the period.
[15] In his argument the appellant’s counsel referred to the
evidence of Mr Janeke that all the payments made by the
respondent were always appropria ted first to the payment of
interest and thereafter to the payment of capital and that he had
calculated that all interest up to a nd including 14 Ju ly 1997, that is
to say also interest in respect of the period concerning which the
respondent complained, had been paid by him. The amount of R51
796-20 claimed in reconvention accordingly, so he submitted,
related to the capital owing, in an amount of R45 171-90, and
interest for the period 15 July 1997 up to and including 26 January
1998, in an amount of R6 624-20.
[16] He contended that two issues arose for decision:
(a) the appellant and its pr edecessor properly exercise its
discretion when it did not lowe r the interest rate when the
prime rate fell, although they did raise it when the prime
rate rose? and
10
(b) did the appellant ha ve to prove that it and its
predecessor exercised their di scretion reasonably or was
it for the respondent to show that the discr etion was not
reasonably exercised?
[17] The appellant’s counsel submitted that the first issue should
have been decided in favour of the appellant becaus e the interest
the respondent was complaining ab out did not form part of the
amount claimed in the claim in reconvention. He sought support for
this submission in the ju dgment of this Court in ABSA Bank Bpk v
Janse van Rensburg 2002 (3) SA 701 (SCA) in which the bank
had sued for payment of the debit balance on an overdrawn bank
account. The defenda nt had disputed the bank’s claim and
instituted a claim in reconventi on on the ground tha t the bank had
in the past levied too much interest. The claim in reconvention was
for a debate of account to which it was held the respondent was
not entitled. His true remedy would have been a condictio indebiti,
which had prescribed. The defendant had had no objection to
interest debits levied on his account after 28 March 1992, his
objection being aimed at intere st debits before that date. From the
evidence it appeared that he had paid all the interest in respect of
the period concerning which he co mplained, ie the period before
28 March 1992. The judgment of the Court was delivered by Brand
11
JA who said (para 13 at 707 C-G):
‘Ek kan my nie met die Hof a quo se uitgangspunt waarvolgens die appellant
die juistheid van elke rentedebiet voor 28 Mei 1992 moes bewys,
vereenselwig nie. Die juiste vertrekpunt is myns insiens dat die respondent se
oortrokke rekening op ’n stadium na 28 Maart 1992 ’n nulbalans getoon het.
Aangesien die respondent geen beswaar het teen enige bedrag wat na 28
Maart 1992 teen sy rekening gedebiteer is nie, staan die bedrag wat die
appellant eis in wese onbetwis. Die respondent se enigste verweer is dat die
appellant voor 28 Maart 1992 bedrae teen sy rekening gedebiteer het waarop
hy nie geregtig was nie. Die “skuld” wat hierdie debiete verteenwoordig het, is
egter intussen deur betaling uitgewis. Dit verskyn nie meer op die respondent
se rekening nie, die appellant maak nie meer op betaling daarvan aanspraak
nie en hy hoef dit derhalwe ook nie te bewys nie … Waarop dit neerkom, is
derhalwe dat die respondent, op sy weergawe, voor 28 Maart 1992
onverskuldigde betalings aan die appellant gemaak het omdat hy verkeerdelik
geglo het dat hy daarvoor aanspreeklik is. Op hierdie weergawe was die
respondent se remedie om sy onverskuldigde betalings met die condictio
indebiti terug te eis. Die feit dat die verskillende transaksies tussen die partye
op ’n lopende rekening plaasgevind het kan aan hierdie onderliggende
basiese beginsels geen verskil maak nie.’
[18] The appellant’s counsel sought to apply th e principles laid
down in the Janse van Rensburg case to the fact s of this case,
even though this case did not concern a current account where
there were ongoing debits and cr edits, with the account at some
12
stage having a nil balance, but rather with a loan agreement where
money was advanced at the time of the initial transaction and not
thereafter, the subsequent debits being in respec t of interest only.
Counsel argued that this case s hould not be deci ded on the basis
of an unreasonable exercise of discretion as regards the period up
to and including 14 July 1997 because all interest up to and
including that date ha d been paid and that it was clear that the
respondent was not complaining about the interest levied during
the period from 15 July 1997 up to and including 25 January 1998.
He contended further that the evidence regarding the respondent’s
risk profile was thus irrelevant.
[19] In respect of the second is sue he subm itted that the
respondent bore the onus of establishing an unreasonable
exercise of the discreti on to determine the inte rest rate. He relied
in this regard on the fact that the respondent had specifically
waived the legal exceptions of non causa debiti and errore calculi.
He submitted on the strength of Cohen v Louis Blumberg (Pty) Ltd
1949 (2) SA 849 (W) that the effect of such a waiver is to put the
onus of proving the defence on the debtor. (In what follows I shall
assume, without deciding, that this submission was correct.)
[20] In my view the argument advanced on behalf of the appellant
in respect of t he first issue cannot be accepted. I think that the
13
learned judge in the Court bel ow correctly held that the Janse van
Rensburg case was distinguishable in that this case did not relate
to a current account with deposi ts and withdraw als and a nil
balance at some stage. In my opini on it is not correct to attempt to
draw a line through 14 July 1997 and to say th at because all
interest had been paid up to and incl uding that date the case could
not be decided on the basis of an unreas onable exercise of a
discretion before that da te. If the appellant or its predecessor had
unreasonably exercised their disc retion before that date, by
charging interest at a rate more th an 3.05 per cent above prime
where the risk had no t changed, as the re spondent alleges, then
some of the money purportedly allocated to the payment of interest
should and would have gone to the payment of capital. This is
because it is common cause between the parties that payments
made by the res pondent have to be alloc ated in accordance with
the legal rules relating ther eto and where a payment made
exceeded the in terest payable at that stage the balance thereof
had perforce to be allocated to capi tal. It will be recalled in this
regard that it is common cause that if the interest rate had never
`gone above 3.05 per ce nt above prime the whole amount owing
under the loan agreement would ha ve been paid off by January
1998. It is accordingly necessary to consider whether the appellant
14
and its predecessor ex ercised the discreti on conferred by the
interest rate provision in the agre ement in a reasonable way. As I
have stated earlier a consideratio n of this questi on leads to the
conclusion based on the fact that the prima facie case referred to
was not rebutted that the discretion in ques tion was not exercised
reasonably.
[21] The following order is made:
The appeal is dismissed with costs.
……………..
IG FARLAM
JUDGDE OF APPEAL
CONCUR
SCOTT JA
STREICHER JA
CLOETE JA
VAN HEERDEN JA