By Jonathan Robert Hol

Some months ago I came across an interesting decision of the Supreme Court of Appeal (SCA) in Vesagie NO and Others v Erwee NO and Another (SCA) (unreported case no 734/2013, 19-9-2014) (Gorven AJA), while assisting a colleague on a matter he was faced with. Notwithstanding the importance of the decision, there is much unfamiliarity with the decision. The decision deals with the sale of shares and the application of the National Credit Act 34 of 2005 (NCA) to such transactions. While I must stress that the SCA was fully correct in their decision and reasoning for such decision, I feel the substantive effect thereof will be as hard felt as with the well-known Ndlovu v Ngcobo, Bekker and Another v Jika 2003 (1) SA 113 (SCA) decisions in respect of Prevention of Illegal Eviction applications, which decisions have been the bane of most property owners. (See also, letters 2014 (Dec) DR 4; practice note ‘Step-by-step guide to residential housing eviction proceedings in the magistrate’s court’ 2016 (July) DR 26; and feature article ‘Having a slice of PIE – understanding the Act’ 2016 (Oct) DR 24.)

The Vesagie matter

In the Vesagie matter the appeal turned on whether an agreement of purchase and sale, which provides for interest to be payable on deferred payments amounted to a credit transaction under s 8(4)(f) of the NCA. In such a case, unless the party extending the credit is registered as a credit provider in terms of
s 40 of the NCA, the agreement is unlawful. The consequence of such a finding was that the court would be required to declare the agreement null and void ab initio.

The facts surrounding the case were as follows: The first two appellants, as trustees of the BEN Trust, were nominated by the third appellant as the purchasers under an agreement for the sale of shares and loan accounts in various companies. The third appellant concluded an agreement to this effect with the respondents as trustees of the ACE Trust. The third appellant, in his personal capacity, guaranteed the performance of the trustees of the BEN Trust. The shares and loan accounts were transferred to the first and second appellants. Payment of R 750 000 was made under the agreement. However, no further payments were made. The respondents sued the appellants for the balance of R 14 250 000, interest and costs. By the time of the trial, the only live issue between the parties was whether the agreement constituted a credit transaction as envisaged by s 8(4)(f) of the NCA. It was agreed that, if the court found that the agreement fell within the ambit of s 8(4)(f) of the NCA as a credit transaction, the claim should fail because the ACE Trust had not registered as a credit provider in terms of s 40 of the NCA. Conversely, if the court found that the agreement did not amount to a credit transaction, the ACE Trust would be entitled to judgment as prayed.

Section 8(4)(f) reads as follows:

‘An agreement, irrespective of its form but not including an agreement contemplated in subsection (2), constitutes a credit transaction if it is –

…

(f) any other agreement, other than a credit facility or credit guarantee, in terms of which payment of an amount owed by one person to another is deferred, and any charge, fee or interest is payable to the credit provider in respect of –

(i) the agreement; or

(ii) the amount that has been deferred.’

The parties were ad idem that the agreement was not one contemplated in s 8(2) of the NCA, nor was it a credit facility or a credit guarantee and did not attract a charge or fee. The only issue was whether it provides that interest is payable in respect of the amount for which payment has been deferred.

The trial court found that the agreement did not provide for interest to be paid in respect of the amount for which payment was deferred and that the agreement was, therefore, not a credit transaction. As a result, the court held that it was enforceable by the respondents. On appeal it was held that the agreement provided for the payment of interest on the deferred payments in terms of the agreement.

The SCA interestingly dealt with the caution of the court a quo in declaring such transactions within the ambit of the NCA and capable of being set aside as null and void ab initio. The SCA held that the finding of the ‘… court a quo that to interpret the agreement “in such a manner that it would be rendered invalid due to the fact that it is struck by the provisions of section 8(4)(f) of the National Credit Act, will lead to unbusinesslike or oppressive consequences”. Far from leading to unbusinesslike consequences, the payment of interest on a deferred payment is a routine provision in business agreements. This is all the more so when the merx has been transferred and the purchaser has the use and enjoyment thereof without full payment having been made, as is the case in the present matter. As to oppressive consequences, the learned judge held that such an interpretation would require the respondents to refund the R 750 000 paid to them without recovering the shares transferred by them to the appellants. One cannot, without more, make a finding that this would be oppressive. The respondents have had the benefit of the use of the shares and loan account. There is no evidence as to what that benefit might have been worth. I can therefore find no warrant for such a conclusion. It is so that
s 89(5)(b) in terms provides for the refund of any money received by the credit provider. The section which previously provided that the credit provider could not recover any performance made under the agreement has been struck down as unconstitutional.’

The SCA concluded that the agreement in question was a credit transaction as envisaged by s 8(4)(f) of the NCA and was accordingly void ab initio. The parties were required to make restitution of any performance, which took place pursuant to the agreement. Section 89(5) of the NCA required a court to order that an agreement is void as from the date it was concluded if it is rendered unlawful by the NCA. The appeal was upheld with costs and the agreement was declared null and void ab initio.

Possible exclusions

While the Vesagie decision appears to raise many concerns for those involved in the commercial realms, the position is not as dire as it appears in the above decision. The NCA does assist and provide certain exceptions to the application of the NCA to certain transactions or consumers. In this respect, some exclusions can be found in s 4 and it provides:

‘4(1) …, this Act applies to every credit agreement between parties dealing at arm’s length and made within, or having an effect within, the Republic, except –

(a) a credit agreement in terms of which the consumer is –

(i) a juristic person whose asset value or annual turnover, together with the combined asset value or annual turnover of all related juristic persons, at the time the agreement is made, equals or exceeds the threshold value determined by the Minister in terms of section 7(1);

…

(b) a large agreement, as described in section 9(4), in terms of which the consumer is a juristic person whose asset value or annual turnover is, at the time the agreement is made, below the threshold value determined by the Minister in terms of section 7(1).’

Therefore, in terms of s 4(1)(a)(i) of the NCA; if the consumer (or purchaser under a sale and purchase agreement) is a juristic person whose asset value or turnover, apart or together exceeds the threshold (presently R 1 million), the NCA will not apply to such party and accordingly the NCA will be excluded from the transaction and the supplier (or seller under a sale and purchase agreement) will not be required to register as a credit provider. Therefore, the agreement will not be void ab initio for failure to register as a credit provider under the NCA.

Section 4(1)(b) provides a further exclusion; that where the consumer (or purchaser under a sale and purchase agreement) is a juristic person whose asset value or turnover, apart or together does not exceed the threshold of R1 million and the agreement entered into amounts to a large credit agreement (being a mortgage agreement; or any other credit transaction except a pawn transaction or a credit guarantee) and the principal debt under that transaction or guarantee falls at or above the higher of the thresholds, presently R 250 000, the NCA will not apply to such transaction and the supplier (or seller under a sale and purchase agreement) will not be required to register as a credit provider nor will the agreement be void ab initio for failure to register as a credit provider under the NCA.

A further exception is contained in wording of s 4(1), being a transaction ‘at arm’s length’ will not be subject to the NCA. The NCA sets out in s 4(2)(b), when parties are not dealing at arms length and provides as follows:

‘4(2)(b) in any of the following arrangements, the parties are not dealing at arm’s length:

(i) a shareholder loan or other credit agreement between a juristic person, as consumer, and a person who has a controlling interest in that juristic person, as credit provider;

(ii) a loan to a shareholder or other credit agreement between a juristic person, as credit provider, and a person who has a controlling interest in that juristic person, as consumer;

(iii) a credit agreement between natural persons who are in a familial relationship and –

(aa) are co-dependent on each other; or

(bb) one is dependent upon the other; and

(iv) any other arrangement –

(aa) in which each party is not independent of the other and consequently does not necessarily strive to obtain the utmost possible advantage out of the transaction; or

(bb) that is of a type that has been held in law to be between parties who are not dealing at arm’s length.’

Therefore, and provided the above main exceptions are present, the concern of applicability of the NCA and registration as a credit provider should not be evident and the seller (in terms of the sale and purchase agreement, especially in relation to shareholding) would not be required to register as a credit provider should the sale and purchase agreement make provision for deferred payment and should such deferred payments attract any interest, fee or charge (as defined in the NCA).

The Vesagie decision has all but ensured that in order to avoid registration as a credit provider when disposing of shareholding in an entity and the application of the NCA to such a transaction, that such purchases are to be facilitated through a special purpose vehicle/entity to meet the juristic person criteria, and furthermore, to qualify under a large credit agreement in order to utilise the exception contained in s 4(1)(b) of the NCA or if the purchaser is a juristic person with an annual turnover or asset value in excess of the threshold. The days of natural persons purchasing shareholding under a sale and purchase agreement where payments are deferred and interest applicable, are behind us, unless there is compliance with the NCA and the seller registers as a credit provider.

Jonathan Robert Hol LLB (Unisa) is an attorney at Marais Attorneys in Johannesburg.

This article was first published in De Rebus in 2016 (Nov) DR 34.