By Arno Duvenhage

The judgment of the Constitutional Court (CC) in Nkata v FirstRand Bank Ltd 2016 (4) SA 257 (CC) resulted in a paradigm shift within the legal fraternity and in the manner in which credit providers approach collections.

The impact of the Nkata judgment has prompted this article. This article will focus on ss 129(3) and 129(4) of the National Credit Act 34 of 2005 (NCA), as amended by ss 32(a) and 32(b) of the National Credit Amendment Act 19 of 2014 (the Amendment Act). It will specifically consider and comment on the principle that a consumer may reinstate a credit agreement as an operation of law, as enunciated by the CC in Nkata.

Section 129(3) and (4) of the NCA prior to the Amendment Act

These sections read as follows prior to its amendment –

‘Subject to subsection (4), a consumer may

(a) at any time before the credit provider has cancelled the agreement re-instate a credit agreement that is in default by paying to the credit provider all amounts that are overdue, together with the credit provider’s permitted default charges and reasonable costs of enforcing the agreement up to the time of re-instatement; and

(b) after complying with paragraph (a), may resume possession of any property that had been repossessed by the credit provider pursuant to an attachment order.

(4) A consumer may not re-instate a credit agreement after –

(a) the sale of any property pursuant to –

(i) an attachment order; or

(ii) surrender of property in terms of section 127;

(b) the execution of any other court order enforcing that agreement; or

(c) the termination thereof in accordance with section 123’ (my italics).

Principles enunciated by the CC in Nkata

In the first footnote of the main judgment, Cameron J recognised that the litigation in Nkata, preceded the amendments to the NCA, which came into operation on 13 March 2015.

Therefore, when the CC handed down judgment on 21 April 2016, it acknowledged that the NCA had been amended. It appears that the CC reasoned that it was ultimately asked to consider a matter on appeal, which matter, had been decided by the High Court on 16 January 2014. Accordingly, Nkata had been litigated in a court of first instance prior to the effectual amendment of the NCA on 13 March 2015.

In the majority judgment, Moseneke DCJ states unequivocally that an interpretive task is undertaken (at para 92 read with para 99) to clarify the purpose of reinstating a credit agreement in terms of ss 129(3) and (4).

In essence, the majority judgment reasoned as follows:

• The purpose of s 129(3) is to urge consumers to pay their overdue amounts, default charges and legal costs to their lenders and, in turn, consumers in good standing are rewarded with reinstatement of the credit accord and the return of their attached property (at para 100).
• The court observed at the outset that ss 129(3) and (4) start with what a consumer may or may not do (at para 104) and, therefore, the clear import is that for purposes of reinstatement of a credit agreement, the consumer is the protagonist.
• The reinstatement occurs by operation of law because the wording of the provision is clear that the consumer’s payment in the prescribed manner is sufficient to trigger re-instatement (at para 105).
• Reinstatement holds the benefit that a consumer may reclaim possession of attached property. For most consumers that would be the pressing purpose of bringing arrears up to date (at para 106).

Amendment of the NCA by s 32(a) and (b) of the Amendment Act

On 13 March 2015 and in terms of the Amendment Act, the amended NCA became effective. Sections 129(3) and (4) currently read as follows:

‘Subject to subsection (4), a consumer may at any time before the credit provider has cancelled the agreement, remedy a default in such credit agreement by paying to the credit provider all amounts that are overdue, together with the credit provider’s prescribed de­fault administration charges and reasonable costs of enforcing the agreement up to the time the default was remedied.

(4) A credit provider may not re-instate or revive a credit agreement after –

(a) the sale of any property pursuant to –

(i) an attachment order; or

(ii) surrender of property in terms of section 127;

(b) the execution of any other court order enforcing that agreement; or

(c) the termination thereof in accordance with section 123’ (my italics).

Material differences between the wording of ss 129(3) and (4) pre- and post NCA amendment

From the above expose of the position pre- and post-amendment of the NCA, it appears that legislature has effected the following changes:

• Instead of a consumer being able to ‘reinstate’ a credit agreement, the consumer may now ‘remedy a default’;
• Section 129(3)(b), which allowed for the repossession of property held pursuant to an attachment order, has been repealed in its entirety and does not appear in the amended NCA.
• The amended s 129(4) entails the substitution of the word ‘consumer’ with the words ‘credit provider’. Consequently, a credit provider, rather than a consumer, appears to be afforded the ability to reinstate or revive a credit agreement, save in specific instances, which are indicated in subs (a) – (c).

Application of amended ss 129(3) and (4) to credit agreements

Determining the extent to which the amended provisions apply to credit agreements is not a mere formality.

In an attempt to achieve brevity, the following interpretational aspects are noteworthy:

• The transitional provisions, as contained in s 4 of sch 3 to the NCA, provides a ‘table of application’. This table indicates that the amended ss 129(3) and (4), which form part of ch 6 of the NCA, applies fully to pre-existing credit agreements from the effective date.
• The Supreme Court of Appeal – in the recent judgment of Kaknis v Absa Bank Ltd, Kaknis v MAN Financial Services SA (Pty) Ltd [2017] 2 All SA 1 (SCA) – had to consider, inter alia, whether s 4 of sch 3 of the NCA validated or justified the retrospective application of s 126(B)(1)(b)(ii) of the amended NCA.
• The court in the Kaknis case, after showcasing divided trains of thought on the interpretation of s 4 to sch 3 of the transitional provisions of the NCA, stated in its majority judgment per Van der Merwe JA:

‘In this context the meaning of item 4 of schedule 3 is plain. It simply makes specified provisions of the NCA applicable to certain credit agreements that had been entered into before the commencement of the provisions’ (see para 39).

Taking a simplistic view, ss 129(3) and (4) of the amended NCA became applicable and/or effective on 13 March 2015.

Therefore, any legal dispute regarding these two provisions, dealt with in a court/tribunal of first instance from 13 March 2015, should be approached and considered based on the wording introduced by ss 32(a) and (b) of the Amendment Act.

However, it should be kept in mind that the reinstatement of a credit agreement is subject to the settlement of arrears and legal costs (duly demanded). Therefore, due to the CC determining that reinstatement occurs ex lege, the date on which the relevant arrears were settled will have an impact on whether the NCA pre- or post-amendment applies.

Applying amended ss 129(3) and (4) to principles enunciated by CC in Nkata

When the interpretation and reasoning of the CC in Nkata, in finding that reinstatement of a credit agreement occurs by the operation of law, is applied to the amended ss 129(3) and (4), the following becomes apparent:

• The wording of the provisions which the CC relied on, to justify reinstatement by operation of law, has now been reformulated by legislature and showcases material changes.
• There is an intentional substitution by legislature of the word ‘reinstate’ with the word ‘remedy’. From a simple definition perspective, the words ‘reinstate’ and ‘remedy’ cannot be attributed the same meaning or effect within the context of s 129(3).
• The CC regarded s 129(3)(b) of the NCA (now entirely repealed) as an important cog in the reinstatement wheel. It having enabled consumers to make the required payments and be rewarded with the reinstatement of the credit agreement and return of their attached property. The resumption of possession of property has now been entirely excluded by legislature.
• It is distinctively more difficult to conclude that a consumer is the protagonist for purposes of reinstatement, as the wording of the relevant provisions are no longer as clear as they were when interpreted by the CC.

Alternative interpretation

On a plain reading of the amended ss 129(3) and (4), an alternative interpretation could reason as follows:

• The legislature intends to allow a consumer to remedy his or her default prior to cancellation, termination or enforcement of the credit agreement.
• Once such default is remedied, it no longer includes an opportunity for the consumer to claim the resumption to possession of repossessed property.
• A consumer can no longer be regarded as the sole protagonist. It appears once a default is remedied by a consumer, only a credit provider can facilitate the reinstatement of such a credit agreement.
• The credit provider may only reinstate or revive a credit agreement in the absence of the exceptions set out in s 129(4)(a) – (c).
• Reinstatement by operation of law is precluded by the amended ss 129(3) and (4) of the NCA.
• Therefore, the principles confirmed by the CC in Nkata, to the extent that it relates to the automatic reinstatement by law of credit agreements, does not apply to the current NCA.

Problematic aspects to an alternative interpretation

An alternative interpretation has not been the subject matter of any judicial interpretation to date.

In contrast, an interpretation that, the reinstatement of a credit agreement occurs by the operation of law, holds legal authority and certainty as a result of the Nkata trilogy.

Unfortunately, the NCA has not defined the words ‘reinstate’ or ‘revive’. This begs the question, what procedure (if any) has legislature envisaged, to facilitate the reinstatement or revival of a credit agreement by a credit provider vis-á-vis a consumer who has remedied his or her breach?

If the reinstatement of a credit agreement is at the sole discretion of the credit provider, alternatively part of a consultative process and excludes an opportunity for a consumer to resume possession of his or her repossessed property, can it be said to hold any tangible benefit for a consumer in the credit market?

For an interpretative analysis of the ambiguity created by the amendments to ss 129(3) and (4) of the NCA, the article by R Brits ‘The “reinstatement” of credit agreements: Remarks in response to the 2014 amendment of section 129(3)-(4) of the National Credit Act’ (2015) 48 De Jure 75, is an absolute necessity.

Role of legal practitioners in advising on ss 129 (3) and (4) and the reinstatement mechanism

The ever changing legal playing field created by the NCA and the economic pressures experienced by both credit providers and consumers, invariably raises the stakes regarding legal advice in this sector.

Sections 129 (3) and (4) can have predominantly one of the following two effects:

• Benefit a defaulting consumer by allowing him or her to thwart either the –

– continuation of litigation proceedings;

– enforceability of any court orders in favour of the credit provider; and

– sale of any repossessed property.

• Benefit a credit provider by not being compelled to reinstate a credit agreement and thereby retaining its –

– capacity to litigate the matter to finality;

– obtain or retain court orders in its favour; or

– selling repossessed property to a third party without any concerns of possible invalidity of such sale.

I submit that the following considerations may be helpful when having to advise on the applicability of ss 129(3) and (4):

• Determining the suggested date on which the arrears were settled and advising on whether the NCA pre- or post-amendment applies.
• Considering the cancellation, termination or enforcement of the credit agreement in terms of s 129(4)(c) juxtaposed with the trite principles of cancellation or specific performance in terms of the law of contract (see Standard Bank of South Africa Limited v Botes t/a JHLS Botes Vervoer (NWM) (unreported case no M85/15, 3-9-2015) (Landman J)).
• Should the credit agreement have been validly cancelled, terminated or enforced prior to the settlement of arrears, the reinstatement of such credit agreement will be precluded in terms of both the pre- and post-amendment NCA.
• In the instance that the credit agreement has not been validly cancelled, terminated or enforced it needs to be determined whether the wording of ss 129(3) and (4) pre- or post-amendment applies.
• Should it be established that the wording, as introduced by ss 32(a) and (b) of the Amendment Act apply, it would be apposite to advise clients, inter alia, that –

– the wording that introduced the so called reinstatement mechanism, has changed;

– the wording is open to interpretation and has not been the subject matter of judicial interpretation; and

– the wording may or may not, re-balance the rights and obligations between consumers and credit providers within the context of ss 129(3) and (4) of the NCA.

Conclusion

The CC judgment in Nkata is authority from our highest court and stands to be applied within the parameters that it provides for. However, when considering the principle of reinstating a credit agreement as an operation of law, the legal fraternity and especially South African courts should be cautious in uniformly applying the principles of Nkata without considering and interpreting ss 129(3) and (4) of the NCA as it stands today.

See also –

• David Mohale ‘Protection offered by s 129 of the National Credit Act’ 2016 (July) DR 23;
• Harold Smit and Sabina Ismael Essa ‘Nkata: The court’s interpretation of s 129 of the NCA and the meaning of “reinstatement”’ 2016 (July) DR 28; and
• Gian Louw ‘Banks beware: Reinstatement of mortgage loan agreements’ 2016 (July) DR

Arno Duvenhage LLB (NWU) LLM (UP) SARIPA Diploma Insolvency (UP) Cert Law of Banking and Financial Markets (Wits) is a pupil advocate at the Pretoria Society of Advocates in Pretoria. This article expresses the individual view of its author.

This article was first published in De Rebus in 2017 (July) DR 26.