Once-off credit agreements and registration as a credit provider in terms of the NCA

March 1st, 2019
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Du Bruyn NO and Others v Karsten (SCA) (unreported case no 929/2017, 28-9-2018) (Nicholls AJA) (Shongwe ADP, Makgoka, Schippers JJA and Mokgohloa AJA concurring)

By Rebecca Walton

In the recent judgment of Du Bruyn NO, the Supreme Court of Appeal (SCA) was tasked with determining whether a credit provider to a once-off credit transaction – who is not a regular participant in the credit industry – is obliged to register as a credit provider in terms of the National Credit Act 34 of 2005 (the NCA).

Facts

In 2013, the respondent sold his interest in three entities (two private companies and a close corporation) in terms of the three sale agreements for a globular amount of R 2 million. The purchaser in terms of the first and second agreements was DBF Trust, and the purchasers in terms of the third agreement were Vaal Steam Black Empowerment Trust and one other person.

The same terms of payment were applicable to all three agreements: A deposit of R 500 000 was to be paid, with instalments of R 30 000 to be paid on a monthly basis, subject to identical amortisation table for a period of five years and interest to be levied on the deferred amount.

At the date of conclusion of the sale agreements, the respondent was not registered as a credit provider, however, he was successfully registered some eight months later.

The appellants ultimately defaulted on the instalment payments, and the respondent successfully applied to the Gauteng Division of the High Court for payment of the balance of the purchase price in the sum of R 1 133 169,39. Leave to appeal this decision was granted by the court a quo, and came before the SCA in the case under discussion.

Issue

It is common cause that the three sale agreements were agreements in terms of s 8 of the NCA and fell within the ambit of application of the NCA. The issue before the SCA was whether the respondent was obliged to register as a credit provider in terms of the NCA in light of the fact that he was not a regular participant in the credit industry and that the agreements in question constituted a once-off transaction.

Judgment

The court a quo’s decision was one in a string of conflicting judgments following the decision in Friend v Sendal 2015 (1) SA 395 (GP). In the Friend case, the court held that the requirement to register as a credit provider in terms of s 40(1) of the NCA was directed only at regular participants in the credit industry, and did not apply to single transactions where credit was provided, notwithstanding the fact that such an agreement may be a credit agreement in terms of the NCA.

The court a quo found itself bound by the ratio in the Friend case but granted leave to appeal. The SCA found itself enjoined with the correct interpretation of s 40(1) of the NCA.

The court in the Friend case relied on the purpose of the NCA, which is ‘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.’

The SCA found that, while the approach in the Friend case was pragmatic and sensible, it was difficult to marry the interpretation with the unambiguous text of the NCA. The SCA followed the approach to interpretation of statutes clarified by Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA), which cautioned judges against the temptation to substitute what they regarded as reasonable, sensible or business-like for the words actually used. The point of departure was always the language of the provision itself.

Section 40(1) of the NCA provides that ‘[a] person must apply to be registered as a credit provider if the total principal debt owed to that credit provider under all outstanding credit agreements, other than incidental credit agreements, exceeds the threshold prescribed in terms of section 42(1)’.

The SCA held that it is difficult to reconcile the interpretation of the court in the Friend case with the language, context and purpose of the provision. The legislature has set thresholds that trigger the obligation to register where a single transaction is in excess of the prescribed amount. To conclude that the NCA did not apply to a once-off transaction or to those who were not regular participants in the credit industry conflicts with a plain reading of the text of the statute.

The SCA held that the only possible conclusion, which could be drawn is that the requirement to register as a credit provider is applicable to all credit agreements once the prescribed threshold is reached, irrespective of whether the credit provider is involved in the credit industry and irrespective of whether the credit agreement is a once-off transaction.

At the time of conclusion of the agreement, the applicable threshold in terms of s 42(1) of the NCA was R 500 000. The amount in terms of the credit agreements exceeded the prescribed threshold, and the respondent was, therefore, obliged to be registered as a credit provider at the time of conclusion of the agreements. Due to the respondent’s non-compliance with the NCA’s requirement to register, the agreements were null and void, and the appeal succeeded.

Conclusion

As of 11 November 2016, the threshold prescribed by the Minister of Trade and Industry in terms of s 42(1) is nil. This means that currently every person who provides credit in terms of a credit agreement, which is not excluded from the application of the NCA by any other provisions thereof, must register as a credit provider. Such an interpretation, although correct, arguably widens the scope of application of the NCA beyond what is practical. The SCA itself acknowledged in the final remarks of its judgment that this is an ‘imperfect solution’ to problematic legislative drafting, which it is up to the legislature to remedy.

Rebecca Walton BA Law LLB (Stell) is a legal practitioner at Veronica Douglas Inc in Cape Town.

This article was first published in De Rebus in 2019 (March) DR 26.

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