By Harold Smit and Sabina Ismael Essa
On 21 April 2016 the Constitutional Court (CC) delivered a very important judgment in the matter of Nkata v FirstRand Bank Limited and Others (The Socio-Economic Rights Institute of South Africa as Amicus Curiae) (CC) (unreported case no CCT73/2015, 21-4-2016) (Moseneke DCJ).
In the way that Nkandla dominated the political scene during the previous two years, it can be assumed that the Nkata matter will be mentioned whenever the National Credit Act 34 of 2005 (NCA) is applicable.
The judgment predominantly dealt with the interpretation of subss 129(3) and 129(4) of the NCA and also made important comments with regard to s 129.
These comments dealt with the effect of judgments obtained and execution, specifically, with regard to mortgage loan agreements.
The most important word dealt with, is the meaning of ‘reinstatement’ with specific reference to s 129(3).
Interestingly, the court deviated from the normal format of judgments in that:
All the judges agreed that subss 129(3) and (4) creates an option for a debtor to pay the full arrears and certain other amounts and it would have the legal effect of the reinstatement of an accelerated mortgage loan agreement. No consensus is therefore necessary with regard to the second agreement that is concluded in law as soon as all arrears are paid.
It is our view that the court predominantly relied on the introduction and purpose of the NCA. The court then found that in all disputes – which relates to the NCA – the first few sections of the Act should be consulted and decisions, which will produce a result envisaged in the purpose and definitions section of the NCA should be taken.
The majority of the court found that:
– all amounts that are overdue;
– together with the credit providers permitted default charges; and
– reasonable costs of enforcing the agreement up to the time of reinstatement.
Cameron J stated in para 22 that Rogers J, in the Western Cape Division of the High Court in Cape Town, found that reinstatement took place when, what would have been the arrears, had been paid and that the debtor did not have to pay the full accelerated outstanding indebtedness.
The High Court found that the costs debited against Ms Nkata’s bond account with regard to costs incurred and previous rescission proceedings and cancelled sales in execution should have at least been taxed or agreed.
In para 26, Cameron J referred favourably to the finding of Rogers J that Ms Nkata did not have to intend to reinstate the credit agreement. She also did not have to signal to the bank any intention to do so. This was because reinstatement takes place ‘by operation of law if the consumer as a fact makes the payments contemplated by section 129(3).’
The SCA found that the bank had already executed the default judgment in terms of s 129(4) by the time Ms Nkata paid her arrears. It found that when the property was sold at the sale in execution, execution took place.
It was then stated that everybody at the CC hearing agreed that the finding of the SCA was wrong.
It should also be noted that the SCA found that any amendment to an agreement in terms of the NCA, needed to be recorded in writing and signed as envisaged in s 116 of the NCA.
In para 33, Cameron J stated that interpretation of the NCA raised constitutional issues, and held that Ms Nkata did not deal with or contest the banks exposition and calculations in the schedule to its affidavit with regards to the payments made by herself and the costs debited against her bond account. It was then stated that the High Court treated it as common cause that she had paid her bond account arrears but not any legal costs owing to the bank. It was stated that it was on that basis that the High Court adjudicated the application and on which Cameron J found that the costs of enforcing the judgment were not paid.
In para 48, Cameron J held that: ‘“Payment” has always been understood in our law to mean “the delivery of what is owed by a person competent to deliver to a person competent to receive”’ and referred to authorities stated by Innes CJ in Harrismith Board of Executors v Odendaal 1923 AD 530 at 539.
It is then stated that ‘payment means the “satisfaction of performance” of an obligation’ (at para 49).
Cameron J held that he could not conclude that the bank, in debiting Ms Nkata’s bond account, made a tacit representation that it waived to receive full payment of the costs incurred in the litigation, which must be distinguished from the default costs.
In para 53 it states that: ‘We agree on this fundamental premise: In interpreting section 129(3), we must bear in mind the NCA’s aims. The statute tells us what they are and how they are, to be achieved. It aims to protect consumers by “promoting equity in the credit market by balancing the respective rights and responsibilities of credit providers and consumers”’.
Cameron J then made it clear that he and Nugent AJ differed from the majority judgment, specifically only with regard to the litigation costs debited against the account of Ms Nkata.
The majority found that since the costs had not been taxed or agreed, they could not have been considered reasonable, hence they were not due and payable (at para 54).
It was then mentioned that the majority found that in those circumstances, the consumer is required to do no more than pay the outstanding arrears to reinstate the credit agreement.
Cameron J then seemed to differ from the view of the majority that stated that the bank, if it wanted to recover the costs of enforcing the credit agreement from the consumer, must take proactive steps to tax or agree on the costs before the amount can be considered as reasonable costs.
In para 55, Cameron J stated that the bank did not want to recover the costs of enforcing the agreement from the consumer at all. ‘It was quite content to capitalise those costs for its, and Ms Nkata’s convenience’.
Very important in interpreting the NCA is para 63 of the judgment of Cameron J, where he refers favourably to the words of Mhlantla AJ in Kubyana v Standard Bank of South Africa Ltd 2014 (4) BCLR 400 (CC):
‘It deserves re-emphasis that the purpose of the [NCA] is not only to protect consumers, but also to create a “harmonised system of debt restructuring, enforcement and judgment, which places priority on the eventual satisfaction of all responsible consumer obligations under credit agreements.”’
In paras 92 and 93, Moseneke DCJ repeats that the overarching objects of the NCA and the narrower purpose of s 129(3) and what it lays down.
It was then stated that s 2 of the NCA enjoins the court to interpret the provisions of the NCA in a way that gives effect to its purposes as described in s 3.
Moseneke DCJ, in para 96, again states: ‘In sum, the Act is “a clean break from the past” and encourages dialogue between consumers and credit providers’.
It is furthermore stated that the Kubyana matter, as well as in the matter of Sebola and Another v Standard Bank of South Africa Ltd and Another 2012 (8) BCLR 785 (CC), the court relied on Sebola to make the point that the provision aspires ‘to facilitate the consensual resolution of credit agreement disputes’ (at para 97).
It is our personal view that the court will soon find that it is imperative that the bank makes sure that the s 129 notice reaches the consumer, because it is an important view that the NCA wishes to afford an opportunity to the consumer to apply for debt restructuring and/or approach the credit provider to create dialogue to resolve disputes.
In this article, we will remain with the present judgment and not deal with the poor postal service that South Africa is faced with and the continuous strikes and post office lock down because landlords did not receive their rent.
In para 100, Moseneke DCJ stated that subss 129(3) and (4) have introduced a novel relief of reinstatement, which parts ways with the debt collection measures of old and he could have stated that it parts ways with the basic contractual principals of consensus if a new agreement is reached between two parties.
The court stated that once the consumer makes specified overdue payments, the agreement is reinstated.
In para 104, Moseneke DCJ held: ‘The clear import is that for purposes of reinstatement, the consumer is the protagonist. She may disclose her design to the credit provider but she is not compelled to give notice to or seek the consent or cooperation of the credit giver.’
In para 105, it is stated again that: ‘The reinstatement occurs by operation of law’.
In para 121, the majority found that the credit agreement was indeed reinstated when Ms Nkata settled her bond arrears in full, being outstanding capital and interest. The court then found that at that point, the banks legal costs were not due and payable. The court held that: ‘It is undisputed that the bank had not given Ms Nkata notice of the nature and extent of the legal costs. It had not demanded their payment properly or at all. Also, the legal costs were not shown to be reasonable’.
In para 121, the majority held that: ‘[T]he bank chose to be the sole arbiter of the extent of the legal costs and one-sidedly debited the costs against the bond account of Ms Nkata.’
The majority agreed with the High Court that it could not be expected of the consumer to take proactive steps to find out what the costs, for reinstatement to be effected, would be. The consumer could also indeed not be expected to start taxation or to reach agreement with the credit provider on the quantification of these costs.
Conclusion
We submit that many authorities exist and that all lawyers always know that before costs can be recovered from a defendant, taxation had to take place or an agreement had to be reached on the costs in terms of prescribed tariffs. We can, however, understand that counsel for the bank, in the Nkata matter, endeavoured to uphold the validity of the sale in execution and was forced to argue that the parties should accept that the costs debited against the bond account were reasonable, which appeared to be the view of Cameron J and Nugent AJ.
The bank argued that the word ‘execution’ used in s 129(4) meant the attachment of the property.
The majority appeared to find, in para 136, that Ms Nkata paid the credit provider all amounts that were then overdue, together with default charges. For these reasons, the High Court correctly ordered that the default judgment and writ of execution ceased by operation of law, to have any force or effect as from 8 March 2011 when the arrears were paid. It found that the payment of the arrears reinstated the credit agreement.
Harold Smit BCom (UP) LLB (Unisa) and Sabina Ismael Essa LLB (Wits) are attorneys at Smit Sewgoolam Inc in Johannesburg.
This article was first published in De Rebus in 2016 (July) DR 28.
