Nedbank Ltd v Jones and Others 2017 (2) SA 473 (WCC)

By Bouwer van Niekerk and Ashley Seckel

The South African economy has predominantly been spared from the horrible truths of reckless and abundant credit based on derivatives and speculation without value. Thankfully the South African regulatory systems made sure of that, and we should be grateful for these systems that have been put in place by legislation and have been overseen by the Reserve Bank (notwithstanding the recent misguided attempt by the Public Protector of all institutions to alter its primary function), the Ministry of Finance and credit providers themselves.

From a legislative point of view, the main driver of these systems is the National Credit Act 34 of 2005 (the Act), a piece of legislation that was promulgated in 2007 and that significantly and forever changed the way consumers and credit providers approach the applying for, and granting of, credit in South Africa (SA). The Act promotes (among others) the development of a credit market that is accessible to all South Africans, the consistent treatment of different credit products and different credit providers, responsibility in the credit market by encouraging responsible borrowing and avoiding over-indebtedness, and discouraging the granting of reckless credit and contractual defaults by consumers (s 3 of the Act).

As noble as the promotion of these notions are, it remains inevitable that consumers will run into financial difficulty, and when they do, they invariably default on their monthly credit repayments. For this eventuality the Act introduced us to the concept of debt review – an application that is (as a rule) brought by a debt counsellor (DC) after a consumer has applied to have his or her debts that exist in terms of a credit agreement reviewed in terms of s 86 of the Act. Such an application is brought after the DC has satisfied himself or herself that the consumer is over-indebted, namely, that based on the preponderance of available information available at the time, the consumer is/will be unable to satisfy his or her obligations under all credit agreements to which he or she is a party in a timely manner after considering the consumer’s financial means, prospects and obligations (s 79 of the Act).

After considering such an application, a magistrate’s court may (among others) make an order rearranging the consumer’s obligations in any manner contemplated in s 86(7)(c)(ii) (s 87(1)(b)(ii)). Simply put, the magistrate may make an order –

• extending the period of the credit agreement and reducing the amount of each payment due;
• postponing the dates of which payments are due under the credit agreement; and/or
• recalculating the consumer’s obligations because of contraventions of certain parts of the Act.

So what happens if a magistrate’s court makes orders it is not empowered to make by the Act? The judgment of Nedbank Ltd v Jones and Others 2017 (2) SA 473 (WCC) dealt specifically with this question.

Brief summary of the facts

In this case, the first and second respondents (the consumers) were in dire financial straits, they being indebted to more than ten different creditor providers, including the applicant (the bank).

The bank had concluded a home loan agreement with the respondents for the amount of R 1,1 million, which had to be repaid over a period of 336 months in instalments of R 10 491 at a variable interest rate of 10,9% per annum.

Having considered their financial predicaments, the consumers’ DC brought an application to the magistrate’s court to review their debts.

After finding that the consumers are indeed over-indebted, the magistrate, ostensibly relying on s 87, proceeded to re-arrange their debt owed to the bank by varying the monthly instalments (to R 4 007,06) and the fixed interest rate (to 10,4%), and made provision for an open-ended repayment period.

Perturbed, the bank (some five years later) applied to have the magistrate’s court order rescinded on the basis that the magistrate exceeded the scope of his powers in re-arranging the consumers’ debt.

The High Court was not persuaded by the bank’s application for condonation for the late launching of the rescission application; it held that it would not be in the interest of justice to do so, as doing so would create a commercial nightmare and be prejudicial to the consumers.

However, the High Court did entertain the raised issue of ultra vires insofar as the magistrate’s courts application of s 87 of the Act is concerned, and whether the magistrate exceeded the scope of his powers.

The following orders were made:

• A magistrate’s court hearing a matter in terms of s 87(1) of the Act, does not enjoy jurisdiction to vary (by reduction or otherwise) a contractually agreed interest rate determined by a credit agreement, and order containing such a provision is null and void.
• A re-arrangement proposal in terms of s 86(7)(c) of the Act that contemplates a monthly instalment, which is less than the monthly interest, which accrues on the outstanding balance does not meet the purpose of the Act. A re-arrangement order incorporating such a proposal is ultra vires the Act and the magistrate’s court has no jurisdiction to grant such an order.

Observational remarks

Many attorneys when launching actions or applications for the foreclosure on immovable properties or the repossession of motor vehicles have been confronted with the defence by consumers in either applications opposing summary judgment or in opposing papers that the credit agreement relied on is under debt review. Invariably, this defence has been upheld. No more. The effect of this judgment is that such a defence will not pass muster. Great news for credit providers?

Maybe, and maybe not. Many credit providers, especially commercial banks, take greater pride in their reputation than in their success rate in foreclosing on immovable properties or their ability to repossess vehicles. For it is not the business of credit providers – and specifically commercial banks – to sell immovable properties in execution or store vehicles for the purpose and the spes of auctioning them off.

So what must credit providers do? We suggest that credit providers give consumers an option: Either the consumer consents to a variation of the order, thereby increasing the interest rate and monthly instalments to the satisfaction of the credit provider, or the credit provider collects on the credit agreements in the manner it sees fit. In doing so, the credit provider upholds the moral high ground without coming over as weak. Because consumers should have a sense of security and comfort when dealing with credit providers, but in the same vein, credit providers should feel comfortable in exerting their security.

Bouwer van Niekerk BA (Law) LLB (Stell) Post Grad Dip Labour Law (UJ) Cert Business Rescue Practice (UNISA & LEAD) is an attorney and Ashley Seckel LLB (UJ) is a candidate attorney at Smit Sewgoolam Inc in Johannesburg.

This article was first published in De Rebus in 2017 (Oct) DR 33.