Motor Finance Corporation (Pty) Ltd v Jan Joubert and Others (GNP) (unreported case no A629/2013, 19-8-2013) (Chetty  and Ebersohn AJJ)

By Bouwer van Niekerk

A potentially far-reaching decision regarding the considerations that magistrates have to keep in mind when making debt relief and re-arrangement orders was handed down in August 2013 in the Gauteng North High Court in Motor Finance Corporation (Pty) Ltd v Jan Joubert and Others (GNP) (unreported case no A629/2013, 19-8-2013) (Chetty  and Ebersohn AJJ).

In this case the appellant, a credit provider, appealed against a decision by the magistrate’s court in terms whereof the second and third respondents, the consumers, were declared over-indebted, their monthly repayment obligations were to be lowered and the period of repayment of those debts were to be extended following an application in terms of s 86(8)(b) of the National Credit Act 34 of 2005 (the NCA) by the first respondent, a debt counsellor.

The appeal was upheld, and the order consisted of, among others, the following:

‘The Magistrate is directed to reconsider the application for debt relief and re-arrangement to the debt owed by the second and third respondents to the appellant in terms of sections 86, 87 and 88 of the National Credit Act, 34 of 2005, with due consideration to:

1. Whether the second and third respondents should be ordered to return the motor vehicle, being the subject matter of the credit transaction, in order that it may be sold to set off such amounts that are due and payable to the appellant’ (my italics) (at para 23).

In considering the argument as to whether the second and third respondents should retain possession of the vehicle and, in making the aforesaid order, the court considered the judgments in Pelzer v Nedbank Limited 2011 (4) SA 388 (GNP) and Standard Bank of South Africa Ltd v Newman (WCC) (unreported case no 27771, 15-4-2011) (Binns-Ward J).

I have difficulty with both the reasoning behind making the order, as well as the order that was in fact made.

In the Newman judgment, in which the plaintiff (the credit provider) applied for summary judgment in the form of an order directing the defendant (the consumer) to deliver to the plaintiff a motor vehicle, the court had to consider whether the object of debt review and restructuring is to enable a consumer, in terms of an instalment sale agreement, to continue in possession and use of a credit provider’s property after the relevant contract has been cancelled. The court found this not to be the case and, among others, directed the defendant to forthwith deliver the vehicle to the plaintiff.

What, in my opinion fundamentally, distinguishes this judgment from the Motor Finance Corporation judgment is the fact that the instalment sale agreement in the Newman judgment was cancelled prior to the application for debt relief and rearrangement, whereas in the Motor Finance Corporation judgment no mention is made of the cancellation of the instalment sale agreement. This is significant, since an application for debt review cannot bring about the reinstatement of a cancelled agreement; the cancellation remains intact and the consumer will have lost the right to possession of the motor vehicle (BMW Financial Services (SA) (Pty) Ltd v Donkin 2009 (6) SA 63 (KZD)).

However, if the instalment sale agreement has not been cancelled, the court (in particular the magistrate’s court) can, in my opinion, not by its own accord order the return of the motor vehicle in a debt review application in terms of s 86(8) of the NCA.

In the Pelzer judgment, which was an application for the rescission of a default judgment, the court had to consider whether a debt review procedure lapses because of non-compliance with the time periods of the National Credit Regulations. What is relevant from this judgment (and this extract was also quoted in the Motor Finance Corporation judgment at para 17) was that the court held (at para 6.3) that a consumer’s ‘liability to repay does not disappear, neither is he [or she] entitled to hang on to the goods which are the subject matter of the agreement, whilst not paying. On the contrary, the goods must be sold to reduce the debt’.

I am of the opinion that this was an obiter finding and could not have been used as authority for the court in the Motor Finance Corporation judgment in making the order under discussion. The court in the Pelzer judgment was not required to decide on a magistrate’s court (or any court’s) ability, or otherwise, to order the return of goods that is the subject matter of a credit agreement in order to reduce the outstanding debt in terms of that credit agreement when considering an application for debt review in terms of s 86(8) (or ss 83 or 85 for that matter) of the NCA.

That said, my biggest difficulty with the court finding is that it was unable to find any basis to support the reasoning or conclusion reached by the court a quo (ie, the magistrate’s court) that the consumers ought to retain possession of the motor vehicle.

Section 86(7)(c) of the NCA dictates the orders that a magistrate’s court may make in considering a debt review application. The orders are:

• One or more of the consumer’s credit agreements may be declared to be reckless credit, if the debt counsellor has concluded that those agreements appear to be reckless.
• One or more of the consumer’s obligations may be re-arranged by –

– extending the period of the agreement and reducing the amount of each payment due accordingly;

– postponing during a specified period the dates on which payments are due under the agreement;

– extending the period of the agreement and, for a specified period, postponing the dates on which payments are due under the agreement; or

– recalculating the consumer’s obligations because of contraventions of part A or B of chap 5, or part A of chap 6.

The magistrate’s court is a creature of statute – it does not have an inherent discretion when it comes to making orders; it has to abide by the legislation that governs its powers to make specific orders.

Section 86(7)(c) of the NCA does not empower the magistrate’s court to order the return of the subject matter of a credit agreement (in the above case the motor vehicle) in order for it to be sold to set off such amounts that are due and payable to the credit provider. The court in the Motor Finance Corporation judgment therefore had to look no further than s 86(7)(c) of the NCA to find a basis on which the consumers were entitled to retain possession of the motor vehicle. This section simply does not make provision for such an order to be made.

Moreover, the magistrate’s court was not asked to consider an application wherein relief was sought in the form of ordering the return of the motor vehicle. In my opinion the magistrate’s court would simply be acting ultra vires in making such an order when considering an appropriate order in restructuring the debts of the consumers.

If this order is followed in the magistrate’s court, it will be interesting to see how it will be executed.

Bouwer van Niekerk BA LLB (US) Post Grad Dip (Labour Law) (UJ) Cert Business Rescue Practice (Unisa and LEAD) is an attorney at Smit Sewgoolam Inc in Johannesburg.

This article was first published in De Rebus in 2014 (March) DR 41.