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[2011] ZAWCHC 1
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Standard Bank of South African Ltd v Kelly and Another (23427/2010) [2011] ZAWCHC 1 (25 January 2011)
Republic
of South Africa
IN THE HIGH COURT OF SOUTH AFRICA
(WESTERN CAPE HIGH COURT, CAPE TOWN)
Case No: 23427/2010
In the matter between:
THE STANDARD BANK OF SOUTH AFRICA LIMITED
…..........................................
Plaintiff
and
GEOFFREY WILLIAM KELLY
….....................................................................
First
Defendant
DEIDRÉ BERNADETTE KELLY
….......................................................
Second
Defendant
Summary:
Debtor and Creditor -
National Credit Act 34 of 2005
– ‘reckless credit agreement’ concluded as a
consequence of credit provider’s failure to undertake adequate
credit risk assessment as required by
s 81(2)
of the Act - relief to
consumer which court may grant in such circumstances.
Practice – Summary judgment –nature of
facts which consumer opposing summary judgment application in terms
of uniform
rule 32(3)(b)
should set forth in order to establish
existence of ‘bona fide defence’ to the credit
provider’s claim on grounds
that consumer entitled to relief
in terms of
s 83(1)
and (2) of the
National Credit Act 34 of
2005
by reason of credit having been extended recklessly.
______________________________________________________________
JUDGMENT
Delivered on 25 January 2011
______________________________________________________________
The plaintiff has applied for summary judgment against the
defendants in the sum of R1 062 612,64, together with interest
thereon
at 10% per annum from 12 August 2010, being the amount due
to it in terms of a loan advanced to the defendants against the
security
of a mortgage over Erf 18133, Kuils River. The transaction
qualifies as a ‘credit agreement’ within the meaning of
the National Credit Act, 34 of 2005, (‘the NCA’). The
defendant does not dispute the conclusion of the agreement,
or the
amount that is claimed by the plaintiff. It opposes the summary
judgment application on the ground that the provision
of the credit
in question was ‘reckless credit’ within the meaning of
the NCA. Section 81(3) of the NCA provides
that a credit provider
must not enter into a ‘reckless credit agreement’ with a
prospective consumer.
It is apparent from the averments in the opposing affidavit that the
credit agreement in issue in the current action is only
one of seven
related agreements concluded by the defendants with either the
plaintiff, or one or the other of two other major
banks. These
agreements were concluded in the context of the acquisition by the
defendants of seven erven in the Kuils River
area ‘as
investments’ in early 2008. Each of these erven was purchased
for the sum of R435 000. The intention, according
to the first
defendant, was that ‘the monthly bond/loan repayments would,
to an extent, have been subsidized by monthly
rental received from
the letting of the properties’. The mortgage bond in respect
of the loan currently in issue was registered
on 26 March 2008.
The institution of the action was preceded, as required, by notice
by the plaintiff to the defendants in terms of s 129
read with
s 130 of the NCA. The unchallenged allegations in the
particulars of claim suggest that the defendants did not
respond to
such notice by referring the claim to a debt counsellor, as provided
in terms of s 86 of the NCA, with a view
to an application
being made for debt review or to have the agreement declared
reckless.
The essence of the ground of opposition to the application for
summary judgment lay in the provisions of s 81(2) of the
NCA,
which impose an obligation on every credit provider ‘not [to]
enter into a credit agreement without first taking reasonable
steps
to assess-
a) the proposed consumer’s-
i) general understanding and appreciation of the
risks and costs of the proposed
credit
,
and of the rights and obligations of a consumer under a credit
agreement;
ii) debt re-payment history as a consumer under credit agreements;
iii) existing financial means, prospects and obligations; and
whether there is a reasonable basis to conclude that any commercial
purpose may prove to be successful, if the consumer has such
a
purpose for applying for that credit agreement’.
Subject to subsections 82(2)(a) and 82(3),
neither of which appear to find application in the current matter, a
credit provider
‘may determine for itself the evaluative
mechanisms or models and procedures to be used in meeting its
assessment obligations
under
s 81
,
provided that any such mechanism, model or procedure results in a
fair and objective assessment’; see s 82(1) of the
NCA.
The defendants allege that the credit provided to them by the
plaintiff was extended without an adequate enquiry having been
undertaken either into their ability to service and repay the debt,
or into the viability of the property speculation enterprise
for
which the relevant credit facility had been sought. In terms of
s 80(1)(a) of the NCA, a credit agreement made in
circumstances in which the credit provider has failed to comply
with its aforementioned obligation under s 81(2) of the
Act is
‘reckless’.
The defendants’ allegations of reckless credit were advanced
notwithstanding the provisions of the following clause in
the
standard terms and conditions of the mortgage agreement, which
appeared immediately above their signatures to the agreement:
I/We confirm that:
The quotation/cost of credit (“Part A”)
and the terms and conditions (“Part B”) have been fully
explained
to me/us and that I/we understand my/our rights and
obligations, and the risks and costs of the loan.
I/we have been informed that I/we can refer any
further questions I/we may have to you at any time.
I/we accept the offer of the loan contained in Part A
and the related terms and conditions in Part B, and confirm that:
I/we can afford the capital and interest payments and
the fees referred to in this Agreement.
Since application to you for the loan offered in Part
A:
there has been no deterioration in my/our financial
position; and
I/we have not applied for or taken up any additional
credit.
To the best of my/our knowledge and belief, I am we
are not aware of any existing or pending land claim in terms of the
Restitution
Land Rights Act No. 22 of 1994 against the
property(ies) reflected in clause 14.1 of Part A. I/we undertake to
notify the Bank
immediately if I/we become aware of such a claim.
I/We confirm that I am/we are not under debt review,
nor have I/we applied for debt review, as at the date of signature
this Agreement
by me/us (natural persons only).
I am/we are aware that I/we must not accept this
Agreement unless I/we understand my/our rights and obligations, and
the risks
and costs of the loan.
(The use of bold font is taken from the original.)
In the event that the credit agreements were indeed reckless, as
alleged by the defendants, the provisions of s 83 of
the NCA
would arise for consideration by the court. Insofar as currently
relevant, s 83 of the Act provides:
Court may suspend reckless credit agreement
1)
Despite any provision of law
or
agreement
to the
contrary, in any court proceedings in which a
credit
agreement
is being considered, the court may declare that the
credit agreement is reckless, as determined in accordance with this
Part.
2)
If a court declares that a
credit agreement is reckless in terms of
section
80(1)(a)
or 80(1)(b)(i), the court may make an order-
a) setting aside all or part of the consumer’s
rights and obligations under that agreement, as the court determines
just and
reasonable in the circumstances;
or
b) suspending the force and effect of that credit
agreement in accordance with subsection (3)(b)(i).
3) …..
4) …..
It is evident, on a consideration of s 83(3)(b),
that an order in terms of s 83(2)(b) of the NCA can be made only
after
an investigation by the court into whether or not the consumer
is over-indebted at the time of the relevant court proceedings. Any
determination of over-indebtedness would fall to be made with regard
to the criteria and on the basis set out in s 79 of the
NCA.
1
Inasmuch as the employment of the permissive word ‘may’
in s 83(1) of the NCA suggests that the court is not
obliged to
declare that a credit agreement which qualifies as reckless in terms
of the aforementioned provisions to be such,
the determination
whether or not to make such a declaration if the agreement in
question is susceptible to being so stigmatised
must be governed by
a consideration of the relevant objects of the statute with a view
to assisting towards their achievement
and, in that context, the
purposefulness of making either of the orders contemplated by
s 83(2)(a) or (b). The
court is unlikely to make any
order relieving the consumer of its obligations if the result would
be the unjust enrichment of
the consumer at the expense of the
credit provider. The release of a consumer from all or part of the
obligations undertaken
in terms of a reckless credit agreement will
in general be informed by the statute’s policy of promoting
equity in the
credit market and by the consideration of assisting
the consumer to fully repay responsibly undertaken debt at the
expense, if
necessary and appropriate, of subordinating the rights
of reckless creditors. These considerations cannot be addressed in a
vacuum.
The appropriate course will be determined on an assessment
by the court of the peculiar facts of each case. This means that the
court will have regard not only to the transaction as one qualifying
in the abstract as reckless credit in accordance with the
concept as
defined in the Act, but also to its peculiar character and effect in
the context of the consumer’s overall credit
exposure assessed
on the basis contemplated by s 79 of the NCA.
The claims in the current matter qualify on the face of the
allegations made in the summons as claims falling within the ambit
of Uniform Rule 32(1), with the result that the plaintiff was
entitled to apply, as it has, for summary judgment. It is evident
from the aforegoing that it would be inappropriate, however, to
grant summary judgment in favour of a credit provider-plaintiff
in
circumstances in which there was a prospect that the
consumer-defendant would be able to obtain a declaration in its
favour
that the subject credit agreement constituted reckless
credit, together with attendant relief by way of an order in terms
of
s 83(2) of the NCA. To grant summary judgment against the
defendant in the postulated circumstances would, by closing the
doors of the court, be to deny it the benefits intended by the
legislation to be available to the recipients of reckless credit.
For the reasons described in the preceding paragraph, whether or not
there is a prospect that the consumer-defendant might obtain
relief
in terms of s 83 is dependent on the facts. In the context of
opposing an application for summary judgment on the
grounds that an
adequate risk assessment did not precede the conclusion of the
credit agreement, and that a consequent entitlement
has arisen to a
declaration that the credit agreement was reckless and an attendant
order in terms of s 83(2) of the Act,
the defendant is
therefore required to set out the pertinent facts in support of
his/her opposition in the manner required by
Uniform Rule 32(3).
What Rule 32(3) requires in cases in which a defendant opposes an
application for summary judgment in the manner contemplated
by
paragraph (b) of the sub-rule has been discussed in a number of
authoritative judgments. In that regard it suffices to
refer to
Corbett JA’s oft-quoted exposition in
Maharaj v
Barclays National Bank Ltd
1976 (1) SA 418
(A) at 426A-E
2
:
[O]ne of the ways[
3
]
in which a defendant may successfully oppose a claim for summary
judgment is by satisfying the Court by affidavit that he has
a
bona
fide
defence to the
claim. Where the defence is based upon facts, in the sense that
material facts alleged by the plaintiff in his summons,
or combined
summons, are disputed or new facts are alleged constituting a
defence, the Court does not attempt to decide these issues
or to
determine whether or not there is a balance of probabilities in
favour of the one party or the other. All that the Court
enquires
into is: (a) whether the defendant has ‘fully’ disclosed
the nature and grounds of his defence and the material
facts upon
which it is founded, and (b) whether on the facts so disclosed the
defendant appears to have, as to either the whole
or part of the
claim, a defence which is both
bona
fide
and good in
law. If satisfied on these matters the Court must refuse summary
judgment, either wholly or in part, as the case may
be. The word
‘fully’, as used in the context of the Rule (and its
predecessors), has been the cause of some judicial
controversy in the
past.
It connotes,
in my view, that, while the defendant need not deal exhaustively with
the facts and the evidence relied upon to substantiate
them, he must
at least disclose his defence and the material facts upon which it is
based with sufficient particularity and completeness
to enable the
Court to decide whether the affidavit discloses a
bona
fide
defence
.
(See generally,
Herb
Dyers (Pty.) Ltd. v Mohamed and Another
,
1965 (1) SA 31
(T);
Caltex
Oil (SA) Ltd v Webb and Another,
1965
(2) SA 914
(N),
Arend
and Another v Astra Furnishers (Pty) Ltd
,
[1974 (1) SA 298
(C)] at pp. 303-4;
Shepstone
v Shepstone
,
1974
(2) SA 462
(N)). At the same time the defendant is not expected to
formulate his opposition to the claim with the precision that would
be
required of a plea; nor does the Court examine it by the standards
of pleading. (See
Estate
Potgieter v Elliot
,
1948 (1) SA 1084
(C) at p. 1087;
Herb
Dyers
case,
supra
at p. 32.)
(The significance of the underlined sentence was
recently emphasised in
Joob Joob Investments (Pty) Ltd v
Stocks Mavundla Zek Joint Venture
2009 (5) SA 1
(SCA)
at
footnote 11.)
The first defendant made the following relevant averments in the
opposing affidavit made on behalf of both defendants:
‘
[T]he credit application in
respect of the loan that forms the subject matter of this action was
done in its entirety through a
so-called bond originator…with
very limited
financial information
and
at no stage were either myself or Second Defendant contacted or
approached by any representative of the Plaintiff in order to
do, or
complete, the statutory assessment. Both myself as well as Second
Defendant subsequently requested information and documentation
from
Plaintiff regarding the Loan Application and any assessments done, to
no avail.’ (para. 15)
‘
Had Plaintiff done a proper
peremptory pre-assessment, it should have realized that we…would
be, or would have become, over-indebted
by the granting of the loans.
To the best of our
knowledge
, no such
pre-assessment took place, or could have taken place with the limited
financial information furnished, prior to the granting
of the loans.’
(para. 17)
‘
We were never made aware of
the risks and costs of the proposed credit, and the rights and
obligations of a consumer under a Credit
Agreement.’ (para. 18)
‘
Furthermore our existing
financial means, prospects and obligations were never
fully
examined before the granting
of the loans.’ (para. 19)
‘
I therefore submit that this
court should declare the Credit Agreements to be reckless in terms of
Section 80(1)(a) of the
[NCA] based on the fact that no credit
assessment was done, alternatively in terms of Section 80(1)(b)(i)
and/or (ii) in that
if
the necessary credit assessments were indeed done
,
neither Second Defendant nor I understood the risks, cost and
obligations under the Agreement/s.’ (para. 21)
(Underlining added for emphasis.)
It is apparent from the first defendant’s averments that he is
not certain that an adequate assessment was undertaken.
He speaks of
‘limited financial information’ having been provided,
but he does not give any indication of what that
information
encompassed. He seems to have in mind a prescribed form of
assessment as a statutory requirement, when, as has been
shown with
reference to the relevant provision of the NCA,
4
there is no applicable binding format for the required assessment.
5
On the broad-brush allegations made in the opposing affidavit, the
court is unable to make any determination whether there is
any
cogent basis upon which a trial court might accept that the
financial information provided by the defendants was inadequate
to
enable an adequate assessment by the credit provider.
There is also no explanation in the opposing affidavit of how the
alternative claim that ‘if the necessary assessments
were
indeed done’, the defendants did not understand ‘the
risks, costs and obligations under the Agreement/s’
can be
advanced in the face of the declaration signed by the defendants,
quoted in para. , above. The defendants have made
no attempt
whatsoever to explain why their written confirmation to the credit
provider that ‘the risks and costs of the
loan’ had been
‘fully explained’ to them should not be accepted at face
value, or how they came to sign an
acknowledgment of their awareness
that they should not accept the agreement unless they understood
their rights and obligations,
and ‘the risks and costs of the
loan’.
Furthermore, there is no information in the opposing affidavit to
indicate on what basis a court might be persuaded to embark
on the
debt review that would be necessary before it might grant any relief
under s 83(2)(b) of the NCA, or as to why it
might consider it
just and reasonable to set aside all or part of the defendants’
obligations as permitted in terms of
s 83(2)(a) of the Act.
In the circumstances the defendants have not set out
the
material facts upon which their defence is based with sufficient
particularity and completeness to satisfy the court that
a
bona
fide
defence has been disclosed.
It remains to be considered whether notwithstanding the inadequacy
of the opposing affidavit the court should nevertheless exercise
its
inherent discretion in defendants’ favour and refuse summary
judgment. I am not persuaded that there is any basis to
assist the
defendants in this regard; and indeed the defendants’ counsel
did not contend that there was. The relief that
the defendants would
be able to obtain consequent upon a declaration of reckless credit
is of the nature that they would have
been apply for themselves
after receipt of the notice sent to them by the plaintiff in terms
of s 129 of the NCA. In the
absence of any explanation of their
failure to have done so, it would be unfair to the plaintiff to deny
it the relief, by way
of summary judgment, to which it is on the
face of matters entitled, merely on the vague and speculative
premise that the defendants
might, if given a further opportunity,
later succeed in obtaining a declaration of reckless credit together
with effective ancillary
relief.
Although unnecessary in the light of the
concl
usion reached that the defendants have not said enough
to avoid summary judgment, I shall for completeness deal briefly
with the
principal argument advanced in support of the application.
The plaintiff’s counsel placed heavy reliance on the
provisions
of the clause in the standard terms and conditions of the
credit agreement, quoted in para. , above, read with s 81(4)
of the NCA. Section 81(4) of the NCA provides:
For all purposes of
this
Act
, it is a complete defence to an allegation that a credit
agreement is reckless if-
a) the credit provider establishes that the consumer
failed to fully and truthfully answer any requests for information
made by
the credit provider as part of the assessment required by
this section; and
b) a court or the
Tribunal
determines that the consumer’s failure to do so materially
affected the ability of the credit provider to make a proper
assessment.
While the content of the clause relied upon by the plaintiff’s
counsel does suggest that some form of risk assessment by
the credit
provider preceded the conclusion of the credit agreement, it gives
no indication of the content of such assessment.
Furthermore, the
content of the credit agreement gives no basis for a finding by the
court in terms of s 81(4) of the Act
that the defendant
answered any questions in connection with the assessment
untruthfully or incompletely, or that any such flaws
in the
information provided by the defendant materially affected the
ability of the plaintiff to make a proper assessment. The
plaintiff’s endeavour to rely on s 81(4) of the NCA
therefore could not have succeeded; certainly not at this stage
on
the facts currently apparent.
The following orders will issue:
Summary judgment is granted in favour of the plaintiff against the
first and second defendants, jointly and severally, the
one paying
the other being absolved.
Mora
interest shall be payable on the judgment debt at the
rate of 10% per annum from 12 August 2010 to date of payment.
The defendants are furthermore directed, jointly and severally, to
pay the insurance premiums on the mortgaged property, Erf
18133
Kuils River, in the amount of R173,63 per month from 12 August
2010 until such time as the judgment debt arising
out of the terms
of paragraphs 1 and 2 of this order has been paid in full,
alternatively, until transfer of the immovable
property to a third
party consequent upon its sale in execution, whichever event occurs
first.
The mortgaged property, Erf 18133 Kuils River, in the City of Cape
Town, Division Stellenbosch, Western Cape, held by deed
of transfer
no. T21109/2008 is declared directly executable.
The defendants shall be liable to pay the plaintiff’s costs
of suit on the scale as between attorney and own client.
A.G. BINNS-WARD
Judge of the High Court
Date of hearing: 11 January 2011
Date of judgment 25 January 2011
Plaintiff’s counsel Adv. T Carter
Defendants’ counsel Adv. HE De la Rey
Plaintiff’s attorneys Kevin Moodley and Associates
83 Castle Street
Cape Town
Defendants’ attorneys De la Rey Attorneys
Marais Crescent
Durbanville
MacGregor Stanford Kruger
Buitengracht Street
Cape Town
1
Section
79 of the NCA provides:
79
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
(b) 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.
(2) When a determination is to be made whether a
consumer is over-indebted or not, the person making that
determination must apply
the criteria set out in subsection (1) as
they exist at the time the determination is being made.
(3) When making a determination in terms of this
section, the value of-
(a) any credit facility is the settlement value at
that time under that credit facility; and
(b) any credit guarantee is-
(i) the settlement value of the credit agreement
that it guarantees, if the guarantor has been called upon to honour
that guarantee;
or
(ii) the settlement value of the credit agreement
that it guarantees, discounted by a prescribed factor.
2
Cf.
also
Tesven CC v SA Bank of Athens
2000 (1) SA 268
(SCA) ([1999]
4 All SA 396)
at
para.s [22]-[25].
3
The
other way is by providing security, as contemplated by Uniform Rule
32(3)(a).
4
Section 82(1)
of the NCA, described in the second part of paragraph , above.
5
There
is no suggestion in the papers that the defendants’ property
investment was financed in terms of a ‘developmental
credit
agreement’ as described in s 10 of the Act.