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[2014] ZAWCHC 158
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Absa Bank Limited v Trustees for the time being of the Johan Rademan Family Trust NO.1 and Others (12046/2010) [2014] ZAWCHC 158 (28 October 2014)
REPUBLIC
OF SOUTH AFRICA
IN THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
Case
No: 12046/2010
DATE:
28 OCTOBER 2014
Before:
The Hon. Mr Justice Binns-Ward
In
the matter between:
ABSA
BANK
LIMITED
..............................................................................................................
Plaintiff
And
THE TRUSTEES FOR THE TIME
BEING OF THE
JOHAN
RADEMAN FAMILY TRUST
NO
...................................................................
1
First Defendant
JOHANNES
GERHARDUS FREDERICK
RADEMAN
..............................................
Second
Defendant
CATHERINA
WILHELMINA
RADEMAN
....................................................................
Third
Defendant
JUDGMENT DELIVERED ON 28
OCTOBER 2014
BINNS-WARD
J:
[1]
The plaintiff is a
commercial bank. It is also a registered credit provider in terms of
the National Credit Act 34 of 2005 (the
NCA). The trustees of
the Johan Rademan Family Trust No. 1, cited collectively, are the
first defendant. It is common ground
that the trustees are the second
and third defendants. They are husband and wife. They are sued
in their personal capacities
as the second and third defendants,
respectively, by reason of their having stood surety in favour of the
plaintiff for the debts
of the trust. The relevant deeds of
suretyship, in terms of which the second and third defendants
undertook unlimited liability
as sureties and co-principal debtors
in
solidum
in respect
of any present or future liability by the trust to the plaintiff,
were executed before the NCA was enacted. The
plaintiff has
sued for the recovery of R3109606,66, together with interest thereon
from 17 November 2009, that is alleged to be
due and payable to it by
the trust, and thus also the sureties, in terms of two loan
agreements. The trust’s liability in
terms of the loans is
secured by a mortgage registered over certain fixed property owned by
the trust. The plaintiff also
seeks an order declaring the
property directly executable.
[2]
The loan agreements
fall to be treated as one in the sense that there is a consolidated
balance. The claim is therefore for
a single amount. The
contractual arrangement provides that a certificate signed by any
manager of the plaintiff will serve
as
prima
facie
proof of the
amount owed by the trust. A certificate of the nature
contemplated by the contracts was annexed to the summons.
It
certifies that as at 16 November 2009, the first defendant was
indebted to the plaintiff in the sum of R3 109 606,66.
During the trial evidence was produced in terms of
s 15(4)
of
the
Electronic Communications and Transactions Act 25 of 2002
, which
confirmed the calculation of the aforementioned amount. The evidence
concerning the computation of the claim was left unchallenged
by the
defendants.
[3]
The second of the
aforementioned loan agreements (in terms of which an additional
credit facility of R2600712 was made available)
was concluded during
November 2007 after the commencement of the NCA. The original of the
deed of the second agreement of loan
was destroyed in a fire at the
storage facility at which it had been deposited for safekeeping by
the plaintiff. There was
some dispute between the parties as to
its form. The plaintiff amended its particulars of claim at the
commencement of trial
to rely on a document that included a
pre-agreement statement and quotation of the nature required in terms
of
s 92(2)
of the NCA. It was evident, however, from the
evidence of the attorney who had been responsible for supervising the
signature
of the relevant contracts and attending to the registration
of the mortgage bond that the executed deed of loan agreement was a
version that bore his office stamp endorsement ‘Kli
ë
nt
Afskrif’. A copy of such document was contained from
p. 34 of exhibit A. It did not incorporate a pre-agreement
statement and quotation.
[4]
The defendants’
counsel argued that the plaintiff was not entitled to rely on the
concluded second loan agreement because
its amended pleading had been
predicated on a different document. There was no merit in the
contention. There is no
difference in the terms of the
contract, whichever of the two documents is considered. The
plaintiff’s cause of action
is the agreement, not the document
recording it. It was undisputed that the deed of contract had
been destroyed. Oral
evidence to prove its form and content was
thus permissible; cf. e.g.
Absa
Bank Ltd v Zalvest Twenty (Pty) Ltd and Another
2014 (2) SA 119
(WCC). That evidence has identified the form of
the deed of contract that was used to have been that of the document
at p.
34 of exhibit A. The defendants have not been prejudiced
by the conflict between the evidence and the plaintiff’s
pleading
as to the form of the deed. The issue of the form of
the deed was fully explored at the trial,
[1]
in the course of which the correctness of the defendants’
allegation that there had not been a pre-agreement statement and
quotation was established. That aspect was indeed the only
relevance of the difference between the two unsigned deeds in
contention because, as mentioned, there was no material difference in
the terms of the agreement which both pro forma documents
were
drafted to record.
[5]
The defendants
contended that the absence of a pre-agreement statement and quotation
rendered the loan agreement void. It
was submitted that all the
plaintiff might be entitled to was some form of unjust enrichment
remedy that had not been claimed in
the action. Those arguments
were misplaced in my view.
[6]
The NCA provides
expressly in
s 89
what makes for a credit agreement that is
‘unlawful’ and which a court must on that account find to
be void.
An agreement that is non-compliant with
s92(2)
or the
prescribed requirements as to form in terms of s 93 of the Act
read with regulation 31 of the National Credit Regulations,
2006,
does not fall on that account within the category of agreements
identified in s 89. The absence of a pre-agreement
statement and quotation furthermore did not result in the agreement
that was concluded containing any provision categorised as
‘unlawful’
in terms of s 90(2) of the Act. (In terms of s 90(4)
of the Act, a court is obliged to declare
an ‘unlawful
provision’ as defined to be void and to sever it from the
agreement or alter it to the extent necessary
to render it lawful,
alternatively to declare the whole agreement void as a consequence of
the unlawful agreement. Presumably,
the whole agreement will be
declared void only if the court is unable to save it by severing or
altering the unlawful provision.)
Section 164(1) of the NCA
provides that ‘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.’
[7]
As I remarked recently
in
Parow
Motorhandelaars (Pty) Ltd v Parker
[2014] ZAWCHC 122 (18 August 2014) at para 13,
[2]
‘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’. My researches
suggest that my judgment in
Parow
Motorhandelaars
is
the only judgment thus far in which a superior court appears to have
discussed the import of s 164(1). I discussed
at
para 12-14 of that judgment the criteria by which the discretion
vested in terms of the provision might be exercised.
In short,
a court would be inclined to declare an agreement void in terms of
the provision if the alternative of allowing it to
stand would
materially subvert or frustrate the objects of the statute.
Otherwise, a court would be inclined to adhere to
the well
established legal policy in favour of upholding the existence of a
contract as far as possible.
[8]
The defendants relied
on the various instances of non-compliance by the plaintiff with the
requirements of the NCA as matters of
form. I heard no evidence
as to how the defendants may have been prejudiced by the any of
defects identified and am unable,
by myself, to conceive how they
could have been. The Act is in certain respects identifiably
aspirational. There is
express indication in s 57, for
example, that technical non-compliance with the statute by a credit
provider is likely to
result in the credit providers deregistration
only if the registrant ‘repeatedly’ contravenes the Act.
The contract
in issue in the current matter was concluded only a few
months after the commencement of the Act and it is evident that the
plaintiff’s
representatives were still using pro forma contract
documentation of pre-statute vintage. Even then, it did not
result in
the concluded contract being ‘unlawful’ within
the meaning of the Act or in any of its provisions being
unlawful.
[3]
In the absence of demonstrable prejudice to defendants as a
consequence of its non-compliant characteristics, there is no
reason
to declare the contract void, with the result that it is saved by
s 164(1) of the Act.
[9]
The defendants also
pleaded that the second loan had constituted the reckless extension
of credit by the plaintiff in the sense
apprehended by the provisions
of Part D of Chap. 6 of the NCA. Those provisions
require, insofar as currently relevant,
that a credit provider must
not enter into a credit agreement without first taking reasonable
steps to assess 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 that a credit provider must not enter
into a reckless credit agreement with a prospective
consumer.
[4]
The extension of credit is ‘reckless’ if it would result
in the consumer becoming ‘over-indebted’
within the
meaning of the NCA. That state occurs if 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.
[5]
[10]
At the relevant time
the NCA left it to the credit providers to determine for themselves
‘the evaluative mechanisms or models
and procedures to be used
in meeting [their] assessment obligations …, provided that any
such mechanism, model or procedure
result[ed] in a fair and objective
assessment’.
[6]
In the current case the evidence was that the ability of the second
and third defendants to service the loan had been considered
by an
official of the plaintiff before the loan was approved. The
official had regard to the disclosed disposable income
of the
defendants as well their credit history before approving the second
loan. The official, Diederick Cloete, who testified
at the
trial, indicated that the plaintiff undertook affordability
investigations before extending credit quite independently of
the
requirements of the NCA and in the ordinary course as part of its
commercial risk assessment in respect of credit transactions.
He was satisfied that the defendants would be able to service
repayment instalments of about R33 000 a month out of their
declared disposable after tax income of approximately R57 000 a
month. He confirmed that the repayments were calculated
on the
basis of a consolidation of the two loans.
[11]
The second and third
defendants did not give evidence at the trial. Indeed, the
defendants closed their case without adducing
any evidence. It
has not been shown how the assessment undertaken by the plaintiff was
inadequate in any respect. It
has also not been shown that at
the time the agreement was entered into the plaintiff should
reasonably have appreciated that concluding
the contract would render
any of the defendants over-indebted, as defined.
[12]
The defendants’
counsel argued, however, that the evidence showed that the trust did
not generate any income and that it was
evident on that account that
it could not afford to borrow. In my view the contention is
quite cynical. The argument is practically,
commercially, and legally
untenable. It should be remembered that notwithstanding the
rather arbitrary and puzzling characterisation
of a trust having
three or more trustees as a ‘juristic person’ in terms of
s 1 of the NCA, a trust in fact does
not have a legal
personality and in all its dealings is represented by and manifested
in its trustees. Having regard to the
apparent character of the
trust in issue as a ‘family trust’,
[7]
it was entirely reasonable of the bank to assess its ability to
service the loan with regard to the income of its trustees in the
context of the willingness of the latter to stand as sureties and
co-principal debtors. Were the position to be held to be
otherwise, the widespread practice of natural persons to hold
principal places of residence and holiday homes and the like through
trusts would be unsustainable. Many such trusts have less than
three trustees and do not generate income and would thus be
unable -
if the NCA were to be interpreted and applied as the defendants’
counsel would have it - to obtain loans against
the security of the
property registered in their names, with the result that they would
not be able to acquire the properties in
the first place.
Nothing in the declared objects of the NCA justifies interpreting the
statute to have that practical or
commercial effect.
[8]
[13]
The final defence that
has to be considered is the contention that the deeds of suretyship
executed by the second and third defendants
in favour of the
plaintiff for the debts of the trust did not apply to the second loan
advanced after the commencement of the NCA
and had been intended only
to apply in respect of the first loan. The plaintiff’s
counsel argued that the defence flew
in the face of the plain wording
of the deeds and could not be countenanced save in the context of a
defence by the second and
third defendants that the deeds fell to be
rectified. The argument is well founded in my view. A
second string to the
defence was that if the suretyships held good
they foundered on the basis of non-compliance with the NCA in respect
of credit advanced
to the principal debtor after the commencement of
the Act. There is no merit in that contention either in my
view.
The relevant ‘credit guarantees’, to use the
vocabulary of the statute, were in place before the commencement of
the
Act. There was no fresh conclusion of a credit agreement by
the second and third defendants; the suretyships executed by them
in
2001 were continuing covering suretyships. The only effect of
the introduction of the Act on the existing credit guarantees
was
that they could be enforced only after compliance by the plaintiff
with the requirements of chapter 6 of the Act. The
defendants
were also entitled at an earlier stage to have applied, should they
have thought fit, for debt review in terms of Part
D of chap. 4 of
the Act. Insofar as the reckless credit provisions may,
notwithstanding the finding just made, have applied
to the
suretyships, the defence that the second and third defendants sought
to raise on that ground could not be sustained for
the same reasons
as those discussed in relation to the claim on the principal debt.
[14]
In the result, judgment
is granted in favour of the plaintiff against the defendants jointly
and severally in terms of prayers (a),
(b) and (d) of the particulars
of claim, as amended. An order is granted in terms of prayer
(c) declaring Erf 581 Outeniqua
Strand in the Municipality of Mossel
Bay held by deed of transfer T64374/2001 to be directly executable in
satisfaction of the
judgment. The plaintiff is ordered to pay
the costs of the application to amend its particulars of claim on an
unopposed
basis as well as the wasted costs, if any, occasioned by
the postponement of the trial on 20 October 2014. The costs awarded
against
the plaintiff shall be taxed on the party and party scale.
A.G.
BINNS-WARD
Judge
of the High Court
[1]
Cf. e.g.
Shill
v Milner
1937 AD
101
at 105 and
F v
Minister of Safety and Security and Others
2013 (2) SACR 20
(CC) at para 128.
[2]
The judgment is accessible on the SAFLII website
[3]
Provisions which amounted to waivers
of common law defences in conflict with the provisions of regulation
32 of the National Credit
Regulations 2006 may be severed without
any constraining effect on the plaintiff’s claim.
[4]
Section 81 of the NCA.
[5]
Section 79 of the NCA.
[6]
See section 82 of the Act, which has since been
substantially revised in terms of 24 (a) and (b) of the National
Credit Amendment
Act 19 of 2014, which is yet to be brought into
operation.
[7]
Cf.
Land and Agricultural Bank
of South Africa v Parker
2005 (2) SA 77
(SCA) ([2004]
4 All SA 261)
at para 23-25.
[8]
See s 2(1) read with s 3 of the NCA.