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[2014] ZAWCHC 122
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Parow Motorhandelaars (Pty) Ltd v Parker (17638/2012) [2014] ZAWCHC 122 (18 August 2014)
REPUBLIC OF SOUTH
AFRICA
IN THE HIGH COURT
OF SOUTH AFRICA
(WESTERN CAPE
DIVISION, CAPE TOWN)
Case
No: 17638/2012
DATE:
18 AUGUST 2014
Before: The Hon.
Mr Justice Binns-Ward
In the matter
between:
PAROW
MOTORHANDELAARS (PTY)
LTD
........................................
Plaintiff
And
NAUSHAD
PARKER
.........................................................................
Defendant
JUDGMENT
DELIVERED: 18
AUGUST 2014
BINNS-WARD J:
[1] This matter
concerned an action by the plaintiff, which is a credit provider
registered in terms of the
National Credit Act 34 of 2005
, for
payment of an amount allegedly owed to it by the defendant in terms
of a credit agreement transaction. The claim was for
the payment of
the balance of a loan advanced to the defendant against the security
of a mortgage bond over immovable property.
There was a claim in
reconvention by the defendant for repayment of all or part of the
payments made by him to the plaintiff in
terms of the transaction.
The claim in reconvention was predicated on the alleged voidness of
the credit transaction.
[2] The terms of the
loan agreement provided for the repayment of the loan, which was
subject to interest at 21,5% per annum calculated
daily on the
outstanding balance and capitalised monthly, to occur by means of 60
fixed monthly instalments in the amount of R15
015 each. The total
amount expected to be payable by the defendant to the plaintiff over
the term of the loan was recorded in
the contract as R900 900.
According to the plaintiff, the defendant had paid an amount
totalling R515 444, 70 by 30 August 2012,
when by that stage his
payments should have totalled R705 705. The defendant testified that
he had in fact made payments totalling
a greater amount than that
acknowledged by the plaintiff, but he was unable to establish the
amount involved because certain cash
payments made by him to the
plaintiff’s debt collector (identified only as ‘Maurice’)
had not been receipted.
[3] The agreement
also provided that the plaintiff would be entitled to claim the whole
amount outstanding at any time in the event
of the defendant
defaulting on any monthly instalment. It is not in dispute that the
defendant did default on his monthly instalments
and the plaintiff
has exercised its right to claim accelerated payment. The agreement
provided that a certificate signed by a
manager of the plaintiff
would constitute prima facie proof of the amount owed by the
defendant under the agreement. A certificate
of the nature thus
provided for was annexed to the plaintiff’s summons. It
certified that the defendant was indebted to
the plaintiff in the sum
of R308 567,18 as at 31 August 2012. The amount so certified is the
amount claimed by the plaintiff in
the action, together with interest
thereon calculated on daily balances and capitalised monthly to date
of payment. The plaintiff
also sought an order declaring the
mortgaged property (which is not the defendant’s primary
residence) directly executable.
[4] According to the
tenor of the summons the amount of the loan advanced to the defendant
was in the sum of R550 000. The tenor
of the summons was consistent
with the terms of deed of agreement. The defendant denied having
received a loan in the sum of R550
000. He alleged that only the
amount of R400 000 had been advanced to him. The evidence adduced on
behalf of the plaintiff indeed
confirmed that an amount considerably
less than R550 000 had been advanced, but the amount actually lent
remained in dispute at
the trial.
[5] The defendant
testified that he had dealt with the then managing director of the
plaintiff company, the late Mr AJ van der Merwe,
in concluding the
loan agreement. He said that Van Der Merwe had paid him the sum of
R400 000 in cash, which he had taken from
a strong room at the
plaintiff’s business premises. The evidence given by Van der
Merwe’s daughter, who had succeeded
him in charge of the family
business, but who had not been directly privy to the dealings between
her late father and the defendant,
was that she had been able to
ascertain from the company’s records that credit in the capital
amount of R418 000 had been
advanced to the defendant. She testified
that an amount of R18 000 had been credited at the defendant’s
instance to a mortgage
bond account in the company’s books
relating to a property registered in the name of the defendant’s
wife and that
a further amount of just over R70 000 had been paid on
the defendant’s behalf to a firm of attorneys to settle an
outstanding
debt on another mortgage bond, including the attorneys’
costs in respect of that transaction. The balance had been paid to
the defendant.
[6] The defendant
testified that he had queried the discrepancy between the amount of
the loan indicated in the loan agreement and
the associated security
bond (viz. R550 000) and the much lower amount advanced to him. He
said that Mr van der Merwe had told
him that the difference was
‘pasella’ – by which was understood a benefit for
the plaintiff, as credit provider,
in consideration for making the
credit available. In conventional parlance that would have been
described as an ‘initiation
fee’, or by some such similar
term.
1
It is the sort of consideration that the
National Credit Act requires
to be separately identified in a credit agreement of the nature
concluded between the plaintiff and the defendant. It is also
a
consideration that, when it is permissible, is limited in amount in
terms of the National Credit Regulations, 2006. The evidence
of Van
der Merwe’s daughter confirming that the defendant had received
a much lower amount of credit than that indicated
in the written
contract, taken together with the agreed payment terms, which were
plainly directed at the recoupment of an amount
tallying with the
redemption of a loan of R550 000, strongly support the probability of
the truth of the defendant’s evidence
concerning the
stipulation by Van der Merwe of an unrecorded consideration.
[7] It is therefore
probable that Van der Merwe acted in fraud of the
National Credit Act
by
disguising the consideration as part of the loan ostensibly made
to the defendant. The amount entailed - whether it be R150 000,
as
the defendant’s evidence would have it, or R132 000, according
to the plaintiff’s current managing director - exceeds
by a
considerable margin the maximum (R5 000) allowed in terms of the Act
and regulations in respect of initiation fees; see
ss 101
and
171
of
the Act read with reg. 42 of the National Credit Regulations, 2006.
[8] The defendant
did not pertinently plead the aforesaid unlawful characteristic of
the credit agreement in his plea, although
he did plead that he had
received only R400 000 and that ‘Van der Merwe had indicated
that he retained R150 000 for costs’.
The illegality was
identified in the evidence. It is something that the court cannot
overlook and must take into account mero
motu in the discharge of its
duty to apply the law, cf. CUSA v Tao Ying Metal Industries and
Others
[2008] ZACC 15
;
2009 (2) SA 204
(CC);
2009 (1) BCLR 1
(CC) at para. 68. The
plaintiff’s counsel, quite correctly, did not seek to argue to
the contrary. He submitted that the
appropriate manner of dealing
with the situation would be to excise the notional provision and to
treat the loan agreement as having
been altered to provide for a loan
of R418 000, with no initiation fee. In this regard he called in aid
s 90(4)
of the
National Credit Act.
2
He
stressed that notwithstanding the tenor of the claim pleaded in
the summons, the claim had in fact been calculated on the basis
of
the enforcement of a R418 000 loan simpliciter. I have referred to
the offending characteristic of the agreement as a ‘notional
provision’ because there is no actual provision for an
initiation fee, or any other permissible charge. Acceding to the
adoption of the course contended for by the plaintiff’s counsel
would therefore entail altering the written agreement to
provide for
a loan in a lesser amount, rather than excising a provision. Whether
it would be appropriate to do so will be considered
presently.
[9] The defendant
pleaded a number of other non-compliant features of the loan
agreement to support the conclusion contended for
that the agreement
was ‘void ab initio, alternatively contra bonis [sic] mores and
voidable, alternatively unlawful’.
I do not propose to
traverse them all. The defendant’s counsel conceded that some
of the complaints were so technical as
to be trivial. What is
important, in my view, is that the quotation provided in purported
compliance by the plaintiff with
s 92(2)(b)
of the
National Credit
Act (the
agreement in issue being a ‘mortgage agreement’,
as defined, and thus a ‘large credit agreement’)
materially
misrepresented the sum of the loan, it fraudulently failed
to disclose the credit costs and the total cost of the proposed
agreement,
and it did not set out the proposed distribution of the
amount intended to constitute the principal debt. For essentially
the
same reasons the loan agreement also did not comply with the form
requirements in
s 93
of the Act read with reg. 31 of the National
Credit Regulations. I shall consider the effect of this later in the
judgment.
[10] The defendant’s
pleaded reliance on
s 89
of the
National Credit Act was
misplaced.
That provision makes credit agreements concluded in a given
circumstances unlawful, and requires a court to declare
any such
agreement to be void ‘from the date the agreement was entered
into’, that is ab initio. The credit transaction
in issue in
the current matter was not entered into in any of the circumstances
given in
s 89(2)
, and the section is thus of no application.
[11]
Section 90
of
the Act, in terms of which a court may sever unlawful provisions from
a credit agreement or ‘alter it to the extent required
to
render it lawful’ or declare it to be unlawful ab initio and
declare it void or unenforceable
(s 90(4))
, also does not appear to
be of application because the power provided to the court there vests
only in respect of agreements containing
provisions of the nature
itemised in
s 90(2).
The non-compliant features of the agreement in
issue in the current matter do not fall under any of the categories
given in
s 90(2)
, save possibly that the provision of the loan as
being one for R550 000, when it was not, might be regarded as a
provision of the
character contemplated in
s 90(2)(a)
, namely one
with the general purpose or effect of defeating the purposes or
policies of the Act; deceiving the consumer; or subjecting
the
consumer to fraudulent conduct.
[12]
Section 164(1)
of the
National Credit Act provides
:
Nothing in this Act
renders void a credit agreement or a provision of a credit agreement
that, in terms of this Act, is prohibited
or may be declared unlawful
unless a court declares that agreement or provision to be unlawful.
The defendant has
pleaded that the agreement is liable to be declared unlawful and, in
his claim in reconvention, has claimed such
a declaration. The
wording of
s 164(1)
is unusual. Ordinarily, contracts prohibited by
a statute are treated as void, whereas prescriptive provisions
unaccompanied by
sanctions for non-compliance are treated as
directory, and non-compliance therewith will not necessarily result
in the contract
being void; cf. e.g Sutter v Scheepers
1932 AD 165
at
173-174 and also, generally, the discussion in RH Christie and GB
Bradfield, Christie’s Law of Contract in South Africa
6ed at
351-358 s.v. Statutory illegality and unenforceability.
[13] On what basis
then is a court to determine whether a credit agreement that is
non-compliant with the statute in the respects
that I have described
is void for illegality?
Section 164(1)
appears to vest a discretion
in the court whether to declare a non-compliant contract (other than
one identified in
s 89(2))
void or not. To that extent,
s 164(1)
is
consistent with the legislature’s intention as expressed in
s
90(4).
That in turn begs the question of by what criteria the
discretion falls to be exercised; the determination of whether an
agreement
should be declared void obviously cannot be arbitrary. In
my view the extent to which overlooking the non-compliance would
result
in the thwarting or undermining of the objects of the Act
would be the most material consideration. The possibility of curing
the non-compliant characteristics of the agreement by severance would
form part of the consideration. Ordinarily, a court would
lean in
favour of upholding the contract, unless by doing so it would
materially prejudice the purpose of the Act. The essence
of the
approach that I consider to be appropriate is captured in the
observation by Van den Heever JA in Messenger of the Magistrate’s
Court, Durban v Pillay
1952 (3) SA 678
(A) at 682C-E:
The cardinal rule is
still that stated in Standard Bank v Estate van Rhyn,
1925 AD 266
at
p. 274: 'After all, what we have to get at is the intention of the
Legislature' or as Viscount CAVE, L.C., observed in Salford
Guardians
v Dewhurst,
1926 A.C. 619
at p. 626: 'I base my decision upon the
whole scope and purpose of the statute, and upon the language of the
sections to which
I have specially referred. . . .'
An agreement that
would in substance materially frustrate the purpose of the statute
would fall to be declared unlawful and void.
The provision of
s 2(1)
of the Act, which enjoins that the ‘Act must be interpreted in
a manner that gives effect to the purposes set out in
section 3
’
also supports the approach I propose to adopt.
[14] The long title
of the Act demonstrates that its purposes include the promotion of a
fair and non-discriminatory marketplace
for access to consumer credit
and for that purpose to provide for the general regulation of
consumer credit and improved standards
of consumer information, the
prohibition of certain unfair credit practices and the establishment
of national norms and standards
relating to consumer credit. These
declared objects are fleshed out in
s 3
of the Act, which carries the
subheading ‘Purpose of Act’ and bears quoting in full.
It provides:
The purposes of this
Act are to promote and advance the social and economic welfare of
South Africans, promote a fair, transparent,
competitive,
sustainable, responsible, efficient, effective and accessible credit
market and industry, and to protect consumers,
by-
(a) promoting the
development of a credit market that is accessible to all South
Africans, and in particular to those who have historically
been
unable to access credit under sustainable market conditions;
(b) ensuring
consistent treatment of different credit products and different
credit providers;
(c) promoting
responsibility in the credit market by-
(i) encouraging
responsible borrowing, avoidance of over-indebtedness and fulfilment
of financial obligations by consumers; and
(ii) discouraging
reckless credit granting by credit providers and contractual default
by consumers;
(d) promoting equity
in the credit market by balancing the respective rights and
responsibilities of credit providers and consumers;
(e) addressing and
correcting imbalances in negotiating power between consumers and
credit providers by-
(i) providing
consumers with education about credit and consumer rights;
(ii) providing
consumers with adequate disclosure of standardised information in
order to make informed choices; and
(iii) providing
consumers with protection from deception, and from unfair or
fraudulent conduct by credit providers and credit bureaux;
(f) improving
consumer credit information and reporting and regulation of credit
bureaux;
(g) addressing and
preventing over-indebtedness of consumers, and providing mechanisms
for resolving over-indebtedness based on
the principle of
satisfaction by the consumer of all responsible financial
obligations;
(h) providing for a
consistent and accessible system of consensual resolution of disputes
arising from credit agreements; and
(i) providing 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.
[15] As mentioned,
the plaintiff’s counsel submitted that the court should merely
exclude the disguised fee or charge from
consideration and treat the
contract as a loan for R418 000. Counsel was contending in substance
for a form of severability.
I do not accept that it is as easy as
that. Firstly, the postulated exercise does not constitute severing
the bad from the good
in the usual sense by excluding an
objectionable provision. It does not consist of putting a blue
pencil through parts of the
agreement and treating the contract as
constituted by what is left. It consists rather of altering the
ostensible contract to
provide for a loan of R418 000 rather than one
for a loan of R550 000. On its own that might not appear to be
pushing the envelope
too far, but the exercise is not that simple.
The postulated exercise would entail making a quite different
contract from that
which the parties in fact entered into. It would
entail treating the contract as one for a loan of R418 000 with no
initiation
fee or other charges, instead of one for a loan R418 000
with an initiation fee or charge of R132 000, together with interest.
It is evident that the very considerable fee levied for extending
the credit was a material consideration in the late Mr van der
Merwe’s conclusion of the contract on behalf of the plaintiff.
He probably would not have entered into the transaction,
but for the
fee consideration. To treat the contract as if the consideration had
not been stipulated would be to make a quite
different contract for
the parties to that which they actually concluded; and moreover, one
that they never intended to make themselves.
In my view the effect
of the illegal stipulation of a fee in an amount many multiples of
the maximum permitted charge is something
that cannot properly be
avoided and it therefore must be taken into account with the other
features of non-compliance in determining
whether the conclusion of
the contract in question so subverted the objects of the statute as
to constrain the conclusion that
its validity should not be
countenanced.
[16] There is not
only the stipulation of a fee in an amount grossly in excess of what
the statutory regime permits to be taken
into account, there is also
the manner in which the contract was formulated so as disguise the
fee as part of the ostensible capital
debt. This formulation was in
fraud of the Act and it subverted or was fundamentally inimical to a
number of the statutory objects:
(i) it was inimical to the purpose
of consumer protection reflected in the requirement that contracts be
in the prescribed form
so that credit receivers might understand
exactly how their debt is structured; (ii) it manifested a gross and
objectionable exploitation
by the plaintiff of the imbalance of
negotiating power between consumers and credit providers, at odds
with the purpose expressed
in s 3(d); (iii) it was irreconcilable
with the promotion and advancement of the social and economic welfare
of the defendant;
(iv) it was inimical to the promotion of a fair,
transparent, responsible and accessible credit market and industry
and (v) by
misrepresenting the true character of the contract, it
militated against the accurate reporting of consumer credit
information
(cf. s 69 of the Act). In my view it would be
inconsistent with upholding the apparent intention of the legislature
manifested
in the provisions of the statute to recognise the validity
of a contract that tends to undermine and frustrate the purpose of
the
Act to the material extent that I have identified. In the result
the mortgage agreement in the current case falls to be declared
unlawful and void ab initio. The plaintiff’s claim will
therefore be dismissed with costs.
[17] I would not
have struck the contract down if its only shortcoming had been an
omission to set out the distribution of the principal
debt, but the
undesirability of the plaintiff’s failure to comply with that
regulatory prescription was illustrated in the
course of the trial,
at which it was in dispute how the credit advanced to the defendant
had been allocated. Scope for this type
of uncertainty and the
disputes to which it is liable to give rise would be minimised were
compliance made with the prescribed
requirement of setting out the
distribution.
[18] It is necessary
in the light of the conclusion to which I have come to determine the
defendant’s claim in reconvention,
as amended. It is in the
nature of a condictio ob turpem vel iniustam causam. It falls to be
determined applying the flexible
approach of fairness and equity
enjoined in Jajbhay v Cassim
1939 AD 537
, in which the common law on
the par delictum rule was relaxed so as to facilitate the ability of
the courts to do simple justice
between man and man. The defendant
has claimed repayment of the amount which it is common cause he paid
under the purported agreement.
To accede to that claim would plainly
be inequitable, for the defendant has obtained the benefit of the
money that was advanced
to him by the plaintiff. In my view justice
would be done were he to be awarded the amount that he has paid to
the plaintiff over
and above that received by him in terms of the
purported agreement. In that regard I preferred the evidence of Ms
van der Merwe
who testified that he had received credit in the sum of
R418 000 to that of the defendant. Ms van der Merwe was able to
describe
the allocation of the credit advanced, whereas the defendant
was vague. The defendant’s counsel did not challenge the
evidence
of Ms van der Merwe in any effective way. Her
reconstruction of the defendant’s account in the detail set out
in exhibit
A at pp 45-46 was not shown to be inaccurate in any way.
The award to be made in favour of the defendant shall thus be in the
sum of R97 444,70, being the difference between the sum of R515
444,70 paid by him to the plaintiff and the sum of R418 000 received
by him from the plaintiff.
[19] The following
orders are made:
1. The mortgage
agreement purportedly entered into between the plaintiff and
defendant on 19 September 2008 is declared to be unlawful
and void ab
initio.
2. The plaintiff’s
claim is dismissed with costs.
3. The defendant’s
claim in reconvention is upheld in the amount of R97 444,70, together
with interest thereon at the prescribed
rate of 9% per annum from
date of judgment to date of payment.
4. The plaintiff is
ordered to pay the defendant’s costs of suit in the claim in
reconvention.
A.G. BINNS-WARD
Judge of the High
Court
Before: Binns-Ward
J
Hearing: 12
August 2014
Judgment: 18
August 2014
Plaintiff’s
counsel: A. Heyns
Plaintiff’s
attorneys: Fourie, Basson & Veldman
Parow
Defendant’s
counsel: M. Basson
Defendant’s
attorneys: McClusky Attorneys
Parow
1
‘
Initiation
fee’ is defined in
s1
of the
National Credit Act to
mean:
‘
a fee in respect of costs of
initiating a credit agreement, and-
(a) charged to the consumer by the credit
provider; or
(b)
paid to the credit provider by the consumer upon entering into the
credit agreement
’
.
2
Section
90(4)
provides:
‘
In any matter before it respecting a
credit agreement that contains a provision contemplated in
subsection (2), the court must-
(a) sever that
unlawful provision from the agreement, or alter it to the extent
required to render it lawful, if it is reasonable
to do so having
regard to the agreement as a whole; or
(b) declare the entire
agreement unlawful as from the date that the agreement, or amended
agreement, took effect,
and
make any further order that is just and reasonable in the
circumstances to give effect to the principles of
section 89
(5)
with respect to that unlawful provision, or entire agreement, as the
case may be
’
.