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[2011] ZAWCHC 474
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First National Bank v Adams and Another (11945/2011) [2011] ZAWCHC 474; 2012 (4) SA 14 (WCC) (23 September 2011)
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE HIGH COURT, CAPE TOWN)
REPORTABLE
CASE
NO: 11945/2011
In
the matter between:
FIRSTRAND
BANK LTD
…................................................................................
Plaintiff
and
BURTON
ADAMS
…..............................................................................
First
Defendant
CHARLENE
MICHELLE ADAMS
…........................................................
Second
Defendant
CORAM:
D M DAVIS J
JUDGMENT
BY: DAVIS J
FOR
THE PLAINTIFF: ADV L LIEBENBERG
INSTRUCTED
BY: KG DRUKER & ASSOCIATES
FOR
THE RESPONDENTS: MR H L H JOUBERT
INSTRUCTED
BY: JOUBERT ATTORNEYS
DATE
OF HEARINGS: 15 AUGUST 2011
DATE
OF JUDGMENT: 23 SEPTEMBER 2011
IN THE HIGH COURT
OF SOUTH AFRICA
(WESTERN CAPE HIGH
COURT, CAPE TOWN)
CASE
NUMBER: 11945/2011
DATE:
23
SEPTEMBER 2011
In
the matter between:
FIRST
NATIONAL
BANK
…....................................................................
Plaintiff
and
B
ADAMS
…...................................................................................
1
st
Defendant
C
M ADAMS
…..............................................................................
2
nd
Defendant
JUDGMENT
DAVIS,
J
:
Introduction:
This
matter initially came before this court as an application for
summary judgement. When it was heard on 15 August 2011, it
was
opposed, essentially, on the basis that negotiations between the
parties, as are envisaged, broadly expressed in terms of
the
National Credit Act 34 of 2005 ("the Act") were
contemplated. The case for summary judgment would, in essence,
have
meant that the mortgaged property, being a domestic home, would have
been executable and accordingly the defendants would
have lost their
abode without any further negotiations.
Given
the present economic climate, which is likely to endure for the
foreseeable future, courts are increasingly confronted with
the
difficult decision of ordering people who have few resources to give
up their homes. The issue is compounded by the provisions
of the Act
which, as has been often noted, is not an exemplar of drafting which
would make litigation both certain and relatively
easy.
Be
that as it may, the Act has a clear purpose as expressed in section
3 thereof:
"To
promote and advance a social and economic welfare of South Africans,
promote a fair, transparent, competitive, sustainable,
responsible,
efficient, effective and accessible credit market in the industry
and to protect consumer..."
The
consumer is protected in particular by way of a mechanism:
"...
for resolving over indebtedness based on the principles of
satisfaction by the consumer of all responsible financial
obligations."
In
addition section 3(i) of the Act provides for:
"a
consistent and harmonised system of debt restructuring, enforcement
and judgment which places priority on the eventual
satisfaction of
all responsible consumer obligations under credit agreements."
In
short, the Act seeks to ensure that obligations which have been
incurred by consumers, are discharged to the satisfaction of
the
credit provider, but, in circumstances where the interests of the
consumer are considered; hence, instead of the consumer,
such as in
the present case losing their key asset, a restructuring mechanism
is established and can be utilised to achieve a
necessary balance
between competing interests of consumer credit provider.
So
much for the problem and the legislative framework within which the
problem must be solved.
Factual background
I
turn briefly to turn with the applicable facts. On 10 May
2010,
the defendants attended the offices of the plaintiff, in terms of a
section 86(11) application. The relevant debt counsellor
declared
the defendants be over-indebted. On 6 July 2010, the debt counsellor
compiled a proposal which was then sent to plaintiff.
On 7 July
2010, the plaintiff responded to the debt counsellor's proposal,
confirming that it was not acceptable and indeed making
a
counterproposal. It is necessary to refer to this letter, where
plaintiff sets out its reasons for rejecting the rearrangement
of
the proposal and suggests the following:
"We
suggest a repayment proposal of 240 months that will be accepted on
total balance outstanding of R450 476,47 at an interest
rate of
8.85% and an instalment of R3 441,13 for the first 24 months.
Thereafter, R4 753,15 is to be paid over the remaining
216 months
(including insurance of R514.11). Should the counterproposal be
amenable, you are informed that none of the existing
respective
rights and obligations of the original credit agreement/loan
agreement are waived or amended. All rights and obligations
remain
fully enforceable in the event that the consumer is in default of an
agreed rearrangement proposal."
From
the papers, I was not able to ascertain any further exchange of
correspondence between the plaintiff and the debt counsellor.
The
debt counsellor generated an application in terms of section 87 of
the Act on 23 July 2010 and the matter was set down for
hearing on
25 January 2011. Plaintiff opposed this application and filed a
notice of opposition on 11 January 2011. This application
was
postponed on two occasions; initially, to 21 March 2011 and later to
24 August 2011. I do not have any information as to
the outcome of
the application which should have been heard on 24 August 2011;
suffice to say that the plaintiff terminated the
debt review process
on 6 June 2011 and issued summons on 14 June 2011.
What
interrupted the hearing for summary judgment, was an application,
which was brought in terms of section 86(11) of the Act,
to the
effect that, irrespective of the validity of the termination as I
have set it out, plaintiff should be ordered to resume
the debt
review process on conditions stipulated by the court. In order to
determine the validity of this application, it is
necessary, albeit
briefly, to refer again to the Act.
The Act
Section
86 of the Act provides that a consumer may apply to a debt
counsellor to have that consumer declared to be over-indebted.
The
debt counsellor then conducts a debt review and an assessment, at
the end of which process she may conclude that the consumer
is or is
not over-indebted. In a situation where there is over-indebtedness,
she may recommend that the obligations be rearranged.
It
is important to take account of the menu for rearrangement as set
out in section 86(7)(c) of the Act. This section provides
that when
the consumer is over-indebted, the debt counsellor may generate a
proposal, recommending that the Magistrate's Court
may make either
or both of the following orders:
"(i)
that one or more of the consumer's credit agreements be declared to
be reckless credit, if the debt counsellor has concluded
that those
agreements appear to be reckless, and;
(ii)
that one or more of the consumer's obligations be rearranged by:
(aa)
extending the period of the agreement and reducing the amount of
each payment due accordingly.
(bb)
postponing, during a specified period, the dates on which payments
are due under the agreement.
(cc)
extending the period of the agreement and postponing during a
specified period the dates on which payments are due under
the
agreement, or;
(dd)
recalculating the consumer's obligations, because of contraventions
of Part A or B of Chapter 5, or Part A of Chapter 6."
A
recommendation is then made to the Magistrate's Court, which may, in
terms of section 87, order the rearrangement of these obligations
in
terms of the alternatives set out in section 86(7). Where a debt
counsellor decides that the consumer is not over-indebted,
the
consumer is entitled to make application himself or herself to the
Magistrate's Court for a rearrangement order.
In
terms of section 130(4)(c) of the Act, if a court determines that a
credit agreement is subject to a pending debt review, it
must
adjourn proceedings to enforce the agreement in the final
determination of the debt review. If the agreement is subject
to a
debt review rearrangement order and the consumer is in compliance
with the order, then in terms of section 130(4)(e), the
court must
dismiss any action or application to enforce the agreement.
The
question which arose in this case, was that, as I have already
indicated, plaintiff terminated the debt review process. It
followed
the provisions of the legislation and, applied for summary judgment.
Nothing was raised on the papers before me to suggest
that the debt
review was still being considered at the time or that it had not
been terminated.
The defendants'
case
The
submission put before me by Mr
Joubert
,
who appeared on behalf of the defendants, was to the effect that the
court had a discretion to grant a further application in
terms of
section 86(11). In this connection, he referred to a judgment of
Murphy
,
J in
Changing
Tides 17 (Ptv) Limited v Grobler and Grobler
(unreported
judgment of the North Gauteng High Court, 2 June 2011). The judgment
provides a luminous exposition of the relevant
provisions and is
extremely useful in determining the powers which a court, placed in
the situation of this court, has to deal
with such an application.
In
his judgment,
Murphy
,
J referred to the Supreme Court of Appeal judgment in
Collett
v Firstrand Bank
(2011)
ZA (SCA) 78, in which the court, per
Malan
,
JA, distinguished between a situation where a consumer is in default
in terms of the credit agreement and where the consumer
is not so in
default. When a consumer is not in default, he or she may apply for
review and the credit provider may not terminate
the review in terms
of section 86(10), because that section gives the right to terminate
the debt review only where the consumer
is in default. Where a
consumer is in default, the credit provider may enforce the
agreement once the debt review (as occurred
in this case) is
terminated in terms of the section.
Malan
,
JA, at para 12, says:
"A
sounder approach is to recognise the express words of section
86(10), which gives the credit provider a right to terminate
the
debt review in respect of the particular credit transaction under
which the consumer is in default and only when the consumer
is in
default, at least 60 business days after the application for a debt
review was made. It must be emphasised that it is only
when the
consumer is in default that the credit provider has this right... If
the consumer applies for debt review before he
is in default, the
credit provider may not terminate the process, but if the consumer
is in default, the consumer is entitled
to a 60 business days'
moratorium, during which time the parties may attempt to resolve
their dispute."
The
Supreme Court of Appeal also held that this right to terminate a
debt review process, must be viewed within the context of
section
86(11) of the Act, which provides:
"If
a credit provider who has given notice to terminate a review is
contemplated in subsection (10) proceeds to enforce the
agreement in
terms of Part C of Chapter 6 of the Magistrate's Court hearing, the
court may order that the debt review resume
on any conditions a
court considers to be just in the circumstances."
On
the basis of this finding and the approach adopted by the Supreme
Court of Appeal in the
Collett
case,
Murphy
.
J, at para 18, held:
"Once
a debt review has been terminated under section 86(10), and the
credit provider seeks to enforce the agreement either
in the High
Court or the Magistrate's Court, such court may order the debt
review to resume. This means that a court to whom
the debt
counsellor or the consumer has applied in terms of section 87(1) to
rearrange the consumer's obligations, has no such
jurisdiction, it
is only the court hearing the matter in the proceedings to enforce
the agreement that may order the results
from the debt review."
It
is, therefore, on the basis of the reasoning adopted by
Murphy
.
J, that a court, in a position similar to this court, can decide
whether there is any benefit to postponing an application for
summary judgment in order to determine the advantages of a further
debt review. In order to do so, a court would have to take
into
account the nature of the dispute, the manner of participation of
both parties in negotiations, that is that they acted
in good faith
in an attempt to resolve the outstanding obligations and further,
the prospect of a rearrangement that, within
the parameters of the
Act, can ensure the discharge of the obligation.
It
appears that this approach can be followed by a court confronted
with a dispute such as arises in the present case. As
Murphy
,
J held:
"As
section 130(1)(a) of the Act provides that a credit provider may
approach a court for an order to enforce a credit agreement,
if at
that time the consumer has in default under that agreement for at
least 20 business days and at least 10 business days
have elapsed
since the credit provider delivered the notice to the consumer in
terms of section 86(10) or section 129(1) as the
case may be."
In
other words, the point highlighted by
Murphy
,
J, is that because of the extraordinary nature of summary judgment
(see in particular the description of summary judgment by
the
Supreme Court of Appeal in
Joobioob
Investments (Ptv) Ltd v Stocks Mavundla Zek Joint Venture
2009
(5) SA 1
(SCA) at paras 10-11) there is a discretion available in
terms of the Act, for the court,
mero
motu,
to
consider whether to adjourn a summary judgment application, afford a
consumer an opportunity to provide an argument that the
debt review
should be resumed. It is precisely this approach that I adopted and
which has given rise to the hearing this morning.
Evaluation
Before
I proceed any further, I want to pay tribute to both Mr
Joubert
,
and Ms
Liebenberg
,
who appeared equally ably on behalf of the plaintiffs, for their
considered arguments which I found extremely helpful in resolving
a
not uncomplicated matter. As Ms
Liebenberg
correctly
contended, there had been a process of negotiation in this case. It
was not as if the plaintiff simply rejected any
and all proposals.
So much is evident from the letter to which I made reference of 7
June
2010.
There
is however a further proposal on the table at present. It is this
proposal which aims to provide a justification for the
application
before this court and which is accompanied by an affidavit by the
debt counsellor, Ms Noor.
In
her affidavit, Ms Noor submits as follows:
"I
have considered the financial position of the respondents and I have
found that taking the present circumstances into
consideration, that
they area able to increase their payment to the PDA by 15%. For this
reason, I have increased the instalment.
The property mortgage which
is the primary residence of the respondents when the application was
launched was opposed by the
third respondents. I have until date
hereof not received the opposing affidavit... I am prepared to
negotiate with the providers
to increase the instalment if the
consumer can cut on his expenses. At present it would be difficult,
but I anticipate that their
financial position will improve. If,
however, the property is declared executable, I am of the opinion it
will be more expensive
of the respondent to rent the place than it
would be to keep the existing property. As matters stand, the 15%
increase per annum,
respondent will be able to keep the property."
In
essence the argument is that a proposal has been formulated, which
could be the subject matter of further negotiations and
as a result
of which, Mr
Joubert
urges
me to grant an order postponing the summary judgment application,
referring the matter for a resumption of debt review on
any
conditions that I might so stipulate. Recall that there are
parameters in terms of which a court may act in exercising this
discretion. In the first place, as I have noted, there must be a
balance struck between the interests of the consumer and the
interests of the credit provider. Were it to be otherwise, the
entire system of credit provision in this country, would either
collapse or be subjected to significantly increased costs as credit
providers seek to recoup the consequent risks of an unregulated
or
disproportionate dispensation.
A
proposal has to take place within the parameters of the Act and, in
particular, in terms of section 86(7)(c). An examination
of the
proposal, which is attached to the papers, indicates that certain
instalments will be paid over a period of 279 months.
The reason
that the proposal can achieve completion within the 279 months, is
because an interest rate, which initially in terms
of this proposal
has set at 8.85%, is to be reduced throughout the period to
2%.
Without
this reduction, the proposal cannot succeed in ensuring the
discharge of the obligation and, therefore, would make no
significant impact, save for an inevitable further application at
some later date when the debt has not been discharged.
But
the 2% interest charge, so crucial to this proposal, falls outside
of the Act for the reasons I have indicated, namely that
there is no
legislative basis to reduce the interest rate pursuant to such a
proposal. A proposal can extend the time period
for payment or the
proposal can have a window in terms of which payments are not made,
in order to give the consumer an opportunity
to generate liquidity
which will allow payments to resume. However the proposal cannot be
based on a reduction of the contracted
interest rate. When this
factor is taken into account, there is no proposal on the table
which would alter the position from
that which was rejected after an
exchange of correspondence and, by implication, negotiations in
terms of an offer and counter
offer which took place in 2010 in
terms of the letters to which I have already made reference.
Mr
Joubert
contends
that, if I were to postpone the matter in order to allow debt review
to resume, further negotiations could be placed
upon the table, new
ideas may be generated, a further payment schedule could be
structured by the defendants and accordingly
the debt review may
bear fruit. Some measure of flexibility, he argued, should be
adopted in dealing with the protection of domestic
property. Most
certainly, I must take account of the all considerations which are
set out in a decision of a Full Bench of this
Division in
Standard
Bank of South Africa Limited v Bekker & Others
(case
number 6628, 6635, 6644, 7032 and 7047/2011 judgment 25 August
2011), but this judgment, in my respective view, does no
more than
provide a very carefully considered set of factors which had been
approved in a number of decisions of the highest
courts of this
country and which must be followed before granting an order which
would have the effect of denying a consumer
immovable property,
being a domestic home. There is nothing in this judgment which
provides further assistance to defendants.
At
the same time as I indicated, a court can only exercise its
discretion to permit debt relief negotiations to continue by way
of
a consideration of that which is available on the evidence, namely
whether negotiations took place in good faith, what is
the nature of
the dispute and, to what extent is there an outstanding debt.
Obviously the larger the debt, the bigger the problem
and the more
difficult it is to resolve it by way of negotiations. Furthermore,
the financial viability of the proposal which
is put on to the table
in order to justify the application must be examined.
I
had postponed this matter to give the defendants an opportunity to
come forward, together with a debt counsellor if necessary,
and
indicate some basis by which negotiations could continue. What has
in effect happened, is that the proposal which was rejected
a year
ago, has been recycled. Nothing new is placed before this court.
Nothing effectively has been put up, notwithstanding
the
opportunities given to defendant, which would indicate to this court
as to how negotiations could now be successful. Further,
there is no
valid proposal because all that has occurred is that the period of
payment has been extended by way of a reduction
of the interest
rate.
After
anxious consideration, it appears to me that the application in
terms of section 86(11) of the Act must be dismissed. Accordingly
I
dismiss that application.
It
follows that I am faced with an application for summary judgment.
Whilst I am not going to order any costs incurred in opposing
the
application in respect of section 86(11) of the Act and the various
hearings that have flowed therefrom, I am obliged, on
the basis of
the evidence available to me, to grant the application for summary
judgment in the terms that have been set out.
For
this reason, summary judgment is granted against the first and
second defendants, jointly and severely, the one paying, the
other
to be absolved as follows:
Payment
of the sum of R484 889,85.
Interest
on the said sum of R484 889,85 at the rate of 7.85% per annum,
calculated daily and compounded monthly arrears as from
16 May 2011
to date of payment.
An
order declaring the mortgage property, namely erf 11133, Grassy
Park in the City of Cape Town, Cape Division, Western Cape
Province, especially executable.
Costs
on a scale as between attorney and client, including collection
commission.
DAVIS, J