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[2015] ZAWCHC 129
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Plastomark (Pty) Ltd v CK Injection Moulders CC and Another; In re: Ultrapolymers (Pty) Ltd v CK Injection Moulders CC and Another (19065/2015) [2015] ZAWCHC 129 (1 September 2015)
REPUBLIC OF SOUTH ARICA
IN THE HIGH COURT OF
SOUTH AFRICA
(WESTERN CAPE DIVISION,
CAPE TOWN)
Case No: 19065/2015
DATE: 01 SEPTEMBER 2015
In the matter between:
PLASTOMARK (PTY)
LTD
....................................................................................................
Applicant
And
CK INJECTION MOULDERS
CC
............................................................................
First
Respondent
WAYNE BRIAN
ISAACS
........................................................................................
Second
Respondent
Case No: 10966/2015
ULTRAPOLYMERS (PTY)
LTD
............................................................................................
Applicant
And
CK INJECTION MOULDERS
CC
...............................................................................
First
Defendant
WAYNE BRIAN
ISAACS
...........................................................................................
Second
Defendant
JUDGMENT DELIVERED ON 01 SEPTEMBER
2015
RILEY, AJ
[1] The applicants in the above matters
have brought applications for summary judgments against the
respondents jointly and severally
for payment of the amounts of R221
673-00 and R307 732-00 respectively plus interest.
[2] It is common cause that the first
respondent has been placed in liquidation and that the second
respondent bound himself as
surety and co-principal debtor jointly
and severally with the first respondent for all the debts of the
first respondent on 31
July 2006 and 14 October 2009 respectively.
In both matters the respondents do not aver that they do not owe any
money at all
in respect of the goods sold by the applicants to the
first respondent.
[3] In both matters the second
respondent has opposed the relief on the basis that applicant has not
complied with the provisions
of the National Credit Act 34 of 2005
(‘the NCA’). According to the second respondent the
applicants are credit providers
in terms of the NCA and are required
to carry out a financial assessment to determine the extent or amount
of credit that an applicant
for credit can afford before entering
into an agreement with such applicant. That in the present
instances, the applicant’s
failure to perform an affordability
assessment of the second respondent at the time of the conclusion of
the agreement in 2009
and more so in 2015, has resulted in the
applicants making themselves guilty of entering into a reckless
credit agreement. According
to the second respondent, there was a
duty upon the plaintiff ‘to consider whether the first
defendant’s debt repayment
history, existing financial means,
prospects and obligations, and whether a new credit agreement would
cause the first defendant
to become over indebted’.
[4] Mr Fisher who appeared on behalf of
the respondents, contended that the extension of credit to the first
defendant in 2015 amounted
to reckless lending and that the
respective debts would therefore either become fully and or partially
unenforceable. He contended
that once it has been established at
trial that applicant had indeed failed to take into account the first
defendant’s annual
turnover, its debt repayment history, and
the fact that a new agreement would cause first defendant to become
over-indebted, that
a court may in all probability set aside all or
some of the first defendant’s obligations to repay the debt
under the ‘reckless
agreement’.
[5] Mr Newton contended that neither of
the respondents could rely on the NCA for protection as first
respondent was a juristic
person and that it was not covered by the
NCA and that in so far as the second respondent was concerned he had
bound himself as
surety and co-principal debtor jointly and severally
with first respondent for the debts of first respondent and he could
therefore
not escape liability nor was he entitled to be afforded any
protection in terms of the NCA.
[6] The NCA covers a wide variety of
credit agreements including direct personal loans, loans secured by
mortgage bonds, overdrawn
cheque accounts, credit cards, rendering of
services, sales and leases of movable goods and credit guarantees.
Section 4(2)(b)
of the NCA provides that save for certain exemptions,
the Act applies to all credit agreements between parties dealing at
arm’s
length and made within or having an effect within the
Republic. According to Scholtz et al, Guide to the
National Credit
Act, at
para 8.1, the most common examples of contracts between
parties who are not at arm’s length, are credit agreements
between
family members who are dependent on each other and loans or
other credit agreements between a juristic person and or a partner
who has a controlling interest in that juristic person.
[7]
Section 3
of the NCA provides that
the purposes of the Act are inter alia, to:
a) provide responsibility in the credit
market by encouraging responsible borrowing, avoidance of
over-indebtedness and fulfillment
of financial obligations by
consumers;
b) discourage reckless credit-granting
by credit providers and contractual default by consumers, and
c) address and prevent
over-indebtedness of consumers, and provide mechanisms for resolving
over-indebtedness based on the principle
of satisfaction by the
consumer of all responsible obligations.
[8] Accordingly a natural person who
enters into a credit agreement governed by the NCA and who at a later
stage becomes over-indebted
may be granted debt relief in the form of
debt restructuring. It is also accepted that when the consumer
entered into a credit
agreement without a prior credit assessment
having been done or when, despite the conduct of such or assessment,
the consumer did
not understand his risks, costs and obligations
under the agreement, the credit may be regarded as having been
granted recklessly.
Should this be the case such an outcome may lead
to the setting aside of the consumer’s rights and obligations
under the
reckless credit agreement or to the suspension of the said
agreement.
[9] Section 79(1) of the NCA provides
that a consumer is considered over-indebted ‘if the
preponderance of available information
at the time or 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’.
[10] When making the determination,
regard is had to the consumers:
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 he is a party,
as indicated by the consumer’s history of
debt repayment. (See Sections 79(1)(a) and 79(1)(6))
[11] The reason for taking into account
the factors mention in Section 79(1)(a) and (b) is that a consumer
might have been perfectly
able to afford the credit when he entered
into the credit agreement but become over-indebted at a later stage,
as a result of for
e.g. being retrenched at work.
[12] It is now generally accepted that
over-indebtedness relates to existing inability to satisfy
obligations but also extends to
future inability. According to
Scholtz at Al, Guide to the
National Credit Act at
para 11.3.2 ‘a
determination of general over-indebtedness is not made retrospective
to the time the credit agreement was
entered into, but only at the
time at which the issue of over-indebtedness is raised.
Over-indebtedness at the time the agreement
was entered into is
relevant only when reckless credit-granting is being investigated as
the course of over-indebtedness’.
[13]
Sections 85
of the NCA empowers
the court to declare and relieve over-indebtedness and
Section 86
provides for an application for debt review which review is to be
conducted by a debt counsellor. A consumer may also raise the
issue
of over-indebtedness after the credit provider has proceeded to
enforce a credit agreement in respect of which they have
defaulted.
See Firstrand Bank Limited v Oliver 2009(3) SA 353 (SEC) 360D –F.
[14] The NCA further seeks to
discourage reckless credit granting by credit providers by
introducing peremptory pre-assessment requirements
and imposing
severe sanctions in certain instances of reckless credit-granting.
Section 81(2)(a)
and (b) provides that to avoid reckless
credit-granting, a credit provider is not entitled to enter into a
credit agreement without
first taking reasonable steps to assess:
a) the proposed consumers –
(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 repayment history as a
consumer under credit agreements;
(iii) existing financial means,
prospects and obligations; and
(b) 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.
[15] It is common cause that first
respondent is a juristic person.
Section 78(1)
which falls under
Part D
, of the NCA (which deals with over-indebtedness and reckless
credit), specifically provides that this part does not apply to a
credit agreement in respect of which the consumer is a juristic
person. It follows that the provisions of the NCA cannot and do
not
apply to the agreements entered into between the applicants and the
first respondent and accordingly first respondent cannot
avail itself
of the protection afforded under Sections 78 to 88 of the Act.
[16] Mr Fisher argued strongly that the
second respondent should escape liability and be afforded the
protection provided under
Section 78 to 88.
[17] Section 4(c) of the NCA provides
that ‘this Act applies to a credit guarantee only to the extent
that this Act ‘applies
to a credit facility or credit
transaction in respect of which the credit guarantee is granted, …’
[18] In both instances the second
respondent entered into the suretyship agreements in terms whereof he
undertook to bind himself
in favour of the plaintiff for all the
debts of the first respondent which may at any time become owing. He
signed the suretyships
as surety and co-principal debtor. It is
trite law that a person who has bound himself as surety and
co-principal debtor is, so
far as the creditor is concerned, a surety
who has undertaken the obligations of a co-debtor, his obligations in
the latter respect
are co-equal in extent with those of the principal
debtor and thus of same scope and nature, he is liable with him
jointly and
severally. See Caney’s, The Law of Suretyship
Sixth Ed – C R Forsyth and JT Pretorius p. 56. The surety does
not
undertake a separate independent liability as a principal debtor.
In Ideal Finance Corporation v Coetzer 1970(3) SA 1 (A), the
AD, in
interpreting the meaning of the word ‘purchaser’ in a
sale under a hire purchase agreement under Section 18
of Act 36 1942,
held that a surety is not entitled to the protection afforded by the
section to a purchaser. The court held further
that although the
surety in terms of the usual agreement binds himself as surety and
co-principal debtor, he cannot because of
that be regarded as a
purchaser or co-purchaser under the contract. In Neon and Cold
Cathode Illuminations (Pty) Ltd v Ephron
1978(1) SA 463(A) at 472B -
C the AD clarified the distinction between liability as a ‘surety’
and liability as a ‘surety
and co-principal debtor’. The
court held that ‘generally the only consequence …that
flows from the surety also
undertaking liability as a co-principal
debtor is vis-à-vis the creditor he thereby tacitly renounces
the ordinary benefits
available to a surety such as those of
excussion and division and becomes jointly and severally liable with
the principal debtor.’
[19] In terms of Section 8(5) of the
NCA a credit guarantee is an agreement in terms of which a person
binds himself to satisfy
on demand another consumer’s
obligation in terms of a credit facility or credit transaction which
is subject to the NCA.
If it is so that the NCA applies to credit
facilities and credit transactions and credit guarantees, then it
must be that the
definition of credit guarantee covers guarantees
relating to all other agreements that fall within the definitions of
‘credit
facility’ or ‘credit transaction’.
Section 8(5) however clearly refers to ‘a credit transaction to
which
the Act applies’.
[20] In Firstrand Bank Ltd v Carl Beck
Estates (Pty) Ltd and Another 2009(3) SA 384(T) the applicant sought
summary judgment in
the High Court for the first respondent's
arrears on a mortgage bond, as against both the first respondent and
its surety (the
second respondent), jointly and severally. In
resisting the application, the respondents alleged three defences:
(1) the applicant
had failed to comply with the provisions of the
National Credit Act 34 of 2005 (NCA) by failing to give notice to
each of them
in terms of s 129 of the NCA prior to commencement of
legal proceedings; (2) the amount claimed by the applicant was
incorrect
in as much as it failed to take into account a single
payment made by the first respondent after issue of summons; and (3)
the
applicant had given no advance warning of changes in the variable
interest rates agreed to be levied on the capital amount of the
first
respondent's indebtedness. With regard to (1), the second respondent
contended that he was covered by the NCA, and therefore
entitled to
notice in terms of s 129(1), on two bases: (i) his obligations arose
in terms of a credit guarantee as set out in s
8(5); alternatively,
(ii) he was a consumer in his own right. As to (3), it was common
cause that the bond agreement entered into
between the parties
provided for variable rates of interest to be charged on the capital
sum and that it required 'written notice'
to be given to the
mortgagor of any increase in or reduction of interest rates.
In dealing with the defences raised by
the second respondent Satchwell J held as follows:
‘[21] The second respondent
signed as surety and co-principal debtor. The right enforceable by
applicant against second respondent
arises from the contract of
suretyship. The contract between applicant and second respondent is
separate and distinct from the
bond agreement between applicant and
first respondent, – although it is accessory to it.’ The
second respondent is
not a consumer and did not receive credit. He
is a guarantor of a consumer’s obligations to a credit giver.
Second respondent’s
contractual relationship with the applicant
remains ancillary to the main agreement between the applicant and the
first respondent.
[22] The authorities on this point are
clear. A surety who has bound himself as surety and co-principal
debtor remains a surety
whose liability arises wholly from the
contract of suretyship. Signing as a surety and co-principal debtor
does not render a surety
liable in any capacity other than a surety
who has renounced the benefits of excussion and division. As De
Villiers CJ stated
‘the use of the word ‘co-principal
debtor’ does not transform the contract into any other than
suretyship’.
[23] Second respondent could not be and
was not sued in his capacity as co-principal debtor, since his
liability to the bank remains
that of surety who has renounced
certain rights. This position is correctly referred to by the
applicant in its summons.
[24] In the result, the second
respondent is sued as a guarantor to the obligations of the first
respondent in terms of a credit
transaction to which the NCA does not
apply. He cannot claim that he is entitled to have received a notice
in terms of section
129 of the NCA.’
[21] I agree with the sound principles
hereinbefore referred to by Satchwell J and I find that they are
equally applicable to the
second respondent in the present matters.
It is clear that a credit guarantee falls within the ambit of the NCA
only when the
consumer’s obligation in terms of a credit
facility or transaction which is secured is subject to the NCA.
Since the second
respondent is a person who stood surety for a
juristic person he cannot argue that the NCA applies to him and he
cannot therefor
avail himself of the protections afforded by the NCA.
There is accordingly no merit in the defences raised by the
respondents
and they are accordingly dismissed.
[22] Considering that the first
defendant has been liquidated and the relief that is sought is only
against the second defendant
there is no reason not to grant the
relief as sought.
[23] In the result the following orders
are made against the second defendant only:
1. Under Case No 10965/15 the second
defendant is ordered to pay the plaintiff the sum of R221 673-00;
2. Interest on the said amount of R221
673-00 at the rate of 9% per annum (nominal annual compounded monthly
in arrears) a tempore
morae to date of final payment;
3. Costs on the attorney and client
scale;
4. Under Case No 10966/15 the second
defendant is ordered to pay plaintiff the sum of R307 732-00;
5. Interest on the said amount of R307
732-00 at the rate of 9% per annum (nominal annual compounded monthly
in arrears) a tempore
morae to date of final payment;
6. Costs on the attorney and client
scale.
RILEY, AJ