Consumer protection now debtor protection? Acknowledgments of debt and the National Credit Act

August 1st, 2012
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By Brendon Hess

In Carter Trading (Pty) Ltd v Blignaut 2010 (2) SA 46 (ECP) the Eastern Cape High Court in Port Elizabeth concluded that an acknowledgment of debt (AOD) falls within the ambit of s 8 of the National Credit Act 34 of 2005 (NCA) and therefore constitutes a credit agreement as envisaged by the Act.

This article focuses on whether this interpretation and application of the provisions of the NCA to an AOD give effect to the purposes of the Act as required in s 2 of the NCA.

Section 2(1) of the NCA requires that the Act must be interpreted in a manner that gives effect to the purposes of the Act as set out in s 3.

Section 3 provides that the purposes of the Act are to promote and advance the social and economic welfare of South Africans; to promote a fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market and industry; and, in essence, to protect consumers of credit.

The court in the Carter Trading case, after applying s 8(4)(f) of the NCA to the terms of the AOD in question, concluded that, as an AOD is an agreement in terms of which payment is deferred and, at least, a fee or charge is payable, an AOD is ‘exactly what is envisaged’ in s 8(4)(f) of the NCA to be a credit agreement.

In para 18 of the judgment, the court (without considering s 3) held that, for this reason alone, the AOD, in its opinion, clearly fell within the ambit of the provisions of s 8 of the Act and, therefore, constituted a credit agreement as envisaged in the NCA.

The court’s application of s 8(4)(f) results in the anomaly that a thief who admits liability for money stolen and offers to repay the amount owed in instalments plus interest in terms of an AOD will be protected by the NCA if such offer is accepted by the plaintiff.

Could it be that the legislature, through the working of the NCA, intended venturing into the realm of the law of civil procedure and requires of a plaintiff seeking to rely on the terms of an AOD to inter alia do a credit assessment on the thief/debtor before entering into an AOD or for the plaintiff to register as a credit provider if the thief/debtor’s AOD is for a principal debt of more than R 500 000 or to give a thief/debtor the right to request reasons from the plaintiff for refusing to accept his offer to pay the debt in instalments in terms of an AOD?

In the law of civil procedure, an AOD is defined in s 57(2) of chapter VIII of the Magistrates’ Courts Act 32 of 1944 (as amended) as a debt recovery procedure in terms of which a plaintiff may request default judgment against the debtor if the debtor has failed to pay the debt in terms of such AOD.

The Carter Trading judgment, read with s 172 of the NCA, has resulted in s 57 (especially s 57(2)) of the Magistrates’ Courts Act being subordinate to the debt enforcement provisions of the NCA, as s 172 of the Act states that, where the provisions of s 57 of the Magistrates’ Courts Act are in conflict with the debt enforcement provisions of the NCA, the provisions of the NCA shall prevail to the extent of such conflict.

Therefore, a plaintiff relying on an AOD would not be entitled to apply for default judgment against the debtor in terms of s 57(2) of the Magistrates’ Courts Acts and – before being entitled to proceed – would first have to comply with the provisions of the NCA by inter alia drawing the default to the notice of the debtor and proposing that the debtor refer the AOD to a debt counsellor, alternative dispute resolution agent, consumer court or ombud with jurisdiction, with the intent that the parties agree on a plan to bring the payments under the AOD up to date (s 129 of the NCA).

It is absurd to think that a thief in these circumstances could end up in the consumer court relying on his rights as a consumer.

As the law stands, a plaintiff relying on an AOD is a credit provider and has to conduct a credit assessment on the debtor before entering into an AOD in order to avoid falling foul of the provisions in the NCA dealing with the consequences of reckless credit, which could result in the court setting aside all or part of the debtor’s rights and obligations under the AOD in terms of s 83(2) of the NCA.

Further, the plaintiff is obliged to apply to be registered as a credit provider in terms of s 40 of the NCA if the plaintiff, alone or in conjunction with any associated person, is the credit provider under at least 100 credit agreements (other than incidental ones) or the total principal debt owed to the plaintiff under all outstanding credit agreements exceeds the threshold of R 500 000.

Should the plaintiff fail to register as a credit provider and then enter into an AOD, the AOD is unlawful in terms of s 89 (2)(d) of the NCA and the court must declare the AOD void as from the date that the agreement was entered into. The plaintiff must then refund the thief/debtor any money paid by the thief/debtor to the plaintiff with interest at the rate set out in the AOD. All purported rights of the plaintiff under the AOD to recover any money paid or goods delivered to the thief/debtor would either be cancelled or forfeited to the state in terms of s 89(5)(c) of the NCA. (Note that s 89(5)(c) was declared unconstitutional by the High Court in the case of Opperman v Boonzaaier and Others (WCC) (unreported case no 24887/2010, 17-4-2012) (Binns-Ward J), but the declaration of invalidity has not yet been confirmed by the Constitutional Court. The matter, cited as National Credit Regulator v Opperman and Others Ltd, is due to be heard on 21 August.)

The question to be asked is, even though an AOD falls within the ambit of s 8 of the NCA, does the interpretation and application of the NCA to an AOD give effect to the purposes of the Act?

In the unreported judgment of the Free State High Court in Grainco (Pty) Ltd v Broodryk NO and Others (FB) (unreported case no 1300/2009, 18-5-2009) (Cillié J) the court considered the application of the NCA to an AOD in terms of which the underlying causa was a claim for damages. The court concluded that:

[D]it nooit die bedoeling van die wetgewer kon gewees het om so ‘n transaksie te tref nie. Sodanige uitleg van die Wet sou tot ‘‘absurdity so glaring that it would never have been contemplated by the legislature’’’ (‘[I]t could never have been the intention of the legislature to affect such a transaction. Such an interpretation of the Act would lead to an “absurdity so glaring that it would never have been contemplated by the legislature”.’).

The court in this matter came to its conclusion by basing its decision on the underlying cause of the AOD and differentiating between ‘skulderkennings vir geldleningstransaksies’ (acknowledgments of debt for money-lending transactions) and ‘skulderkennings vir skadevergoedingseise’ (acknowledgments of debt for claims for damages). However, it is clear from reading the Carter Trading judgment and s 8(4)(f) of the NCA that the criteria for a credit agreement relate to the terms of the agreement in question and not the underlying causa of such agreement.

Therefore, even though the underlying causa for an AOD may be a claim for damages and/or money stolen, the terms of such an AOD could still fall within the ambit of s 8(4)(f) of the NCA and be regarded as a credit agreement in terms of the Act. The terms of the AOD will meet the requirements in s 8(4)(f) of the NCA, regardless of its underlying causa, if the AOD is an 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 in respect of the agreement or the amount that has been deferred. The absurdity continues to exist, despite the court’s approach in the Grainco case.

It is therefore my view that, in considering the interpretation and application of s 8(4)(f) of the NCA to an AOD, it is important to bear in mind the purposes of the NCA, especially that the legislature intended to regulate agreements between credit providers and consumers and not agreements between ‘credit providers’ and debtors.

An AOD is an agreement concluded by a debtor and not a consumer. The AOD is a debt recovery procedure in terms of the law of civil procedure and should not be regarded as a credit agreement as envisaged in the NCA, regardless of its terms and/or underlying causa.

Brendon Hess BCom LLB (Stell) is a candidate attorney at Cluver Markotter Inc in Stellenbosch.

This article was first published in De Rebus in 2012 (Aug) DR 26.

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