Caveat – have you registered as a credit provider?

April 1st, 2020
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Fourie v Geyer (NWM) (unreported case no MKP27/2018, 22-8-2019) (Petersen AJ)

Credit agreements feature quite prominently in mainstream litigation. Of much relevance is the current legal position relating to the registration as a credit provider. The Supreme Court of Appeal (SCA) confirmed that where a credit agreement exceeds the threshold set out in s 42(1) of the National Credit Act 34 of 2005 (the NCA), a person is required to register as a credit provider by virtue of the unambiguous text of s 40 of the NCA. The current threshold prescribed for the registration as a credit provider is ‘nil’. Consequently, where credit is advanced in terms of an agreement – by a person who is not registered as a credit provider – such an agreement stands to be declared unlawful and unenforceable, regardless of the amount advanced.

The current legal position relating to registration as a credit provider played out in the recent case of Fourie v Geyer (NWM) (unreported case no MKP27/2018, 22-8-2019) (Petersen AJ). The applicant in this case launched an application for payment of approximately R 1,3 million plus interest at the rate of 18% per annum. The underlying cause of the claim was an acknowledgment of debt concluded in favour of the applicant by the respondent, in August 2015, in respect of three amounts:

  • R 461 000 for outstanding rentals;
  • R 270 000 for the respondent’s indebtedness to the bank, which was settled on his behalf by the applicant;
  • R 100 000 in respect of commission due to the applicant arising from the sale of an immovable property.

The respondent raised a point in limine wherein he contended that the acknowledgment of debt is tantamount to a credit agreement, which renders it subject to the NCA. The reasoning adopted is that payment under the acknowledgment of debt was deferred for 60 days from date of signature with interest levied at the rate of 18%. The respondent also submitted that notwithstanding the rental and commission amounts, two previous loans made to him by the applicant, for amounts of R 143 000 and R 344 000 respectively, when considered with the bank loan amount, exceeded the then threshold of R 500 000. It was, therefore, argued that the applicant was obliged to register as a credit provider. His non-compliance rendered the agreements unlawful in terms of the NCA.

The applicant submitted that the acknowledgment of debt was not an arm’s length transaction due to the applicant’s 18-year relationship with the respondent and previous loans made to the respondent’s wife and daughter. It was further submitted that even if the acknowledgment of debt was found to be a credit agreement, none of the capital amounts exceeded the then applicable threshold of R 500 000, at any given time.

In deciding whether the transaction was concluded at arm’s length, the court held that the acknowledgment of debt has salient features of a credit agreement in that it identifies a capital amount, which attracts interest, payments are deferred, collection fees are levied, and non-payment could trigger litigation accompanied by litigation costs on the punitive attorney and client scale. Consequently, it was held that the relationship between the parties, which underpins the acknowledgment of debt, overwhelmingly demonstrates anything but a familial relationship. The agreements, which gave rise to the acknowledgment of debt were clear business transactions, which were advantageous to the applicant and clearly concluded at arm’s length.

The next issue before the court was whether the three transactions in the acknowledgment of debt exceeded the then threshold of R 500 000, which would have required the applicant to register as a credit provider. The court formulated a three-fold inquiry to answer this question:

  • Do the three amounts in the acknowledgment of debt constitute credit agreements within the meaning ascribed in the NCA?
  • Do the two previously settled loan agreements, considered in conjunction with the three amounts in the acknowledgment of debt, or any of such amounts that may found, constitute credit agreements?
  • Does the acknowledgment of debt constitute a credit agreement within the ambit of the meaning of a credit agreement in the NCA?

The court found that the rental and commission amounts can be safely discounted as not being due as a result of credit agreements and while the bank loan amount falls squarely within the ambit of the meaning of a credit agreement, it does not meet the then threshold of R 500 000. The previous loans, having been settled cannot be considered for the purposes of s 40(1).

In addressing the final inquiry as to whether the acknowledgment of debt constitutes a credit agreement, the court held that s 8(4)(f), which defines a credit agreement, is clear and unambiguous. Section 8(4)(f) provides that a credit agreement is any agreement 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.

The court held that the only requirement under s 8(4)(f) is that payment owed to another is deferred with charges, fees or interest. As the acknowledgment of debt was concluded for the capital sum of
R 831 000, this amount exceeded the then threshold of R 500 000. The court ruled that the point in limine must be answered in favour of the respondent. As the applicant was not registered as a credit provider, the court held that the acknowledgment of debt, as a credit agreement, stands to be declared unlawful.

While the court pronounced that the applicant may find a remedy by claiming under the law of unjustified enrichment, it is noteworthy that to prove such a claim would be a more onerous exercise than to rely on a credit agreement. The fact that a credit agreement is declared invalid and unenforceable simply because a credit provider was not registered at the time of the loan leaves much room for abuse by persons seeking to evade their obligations under the credit agreement. This creates the unintended consequence of going against the very purpose of the NCA, which is to promote equity in the credit market, by balancing the respective rights and responsibilities of credit providers and consumers.

Suhail Ebrahim LLB (summa cum laude) (UKZN) is a candidate legal practitioner at Shepstone and Wylie in Durban.

This article was first published in De Rebus in 2020 (April) DR 27.

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