Unconstitutionality of s 89(5)(c) of the National Credit Act

February 1st, 2013

National Credit Regulator v Opperman and Others (CC) (unreported case no CCT 34/12, 10-12-2012) (Van der Westhuizen J)

By Mapula Sedutla

At issue in the Opperman case was whether s 89(5)(c) of the National Credit Act 34 of 2005 (NCA) was consistent with the right not to be arbitrarily deprived of property in s 25(1) of the Constitution.

In the court a quo (with the citation Opperman v Boonzaaier and Others (WCC) (unreported case no 24887/2010, 17-4-2012) (Binns-Ward J)) the Western Cape High Court, per Binns-Ward J, held that s 89(5)(c) was constitutionally invalid. In the present case, the Constitutional Court was called on to confirm the order of constitutional invalidity.

The majority of the court, per Van der Westhuizen J (Mogoeng CJ, Moseneke DCJ, Khampepe, Nkabinde and Skweyiya JJ concurring), confirmed the order of invalidity.


In 2009 the first respondent, Opperman, lent the second respondent, Boonzaaier, R 7 million for property development after concluding three written loan agreements. However, the second respondent was unable to repay the debt and the first respondent applied for the sequestration of his estate. During these proceedings, concerns about the constitutionality of s 89(5)(c) of the NCA arose.

This section provides that a credit provider loses his right to reclaim money lent to a consumer if he was not a registered credit provider in terms of the Act at the time of making the loan. In terms of s 40 of the NCA, a person who is a credit provider under at least 100 credit arrangements or to whom the total principal debt owed in terms of all outstanding credit agreements exceeds the threshold prescribed in terms of s 42(1) of the NCA (currently R 500 000) must apply to be registered as a credit provider. Failure to do so renders the credit agreement unlawful and void.

The first respondent was not registered as a credit provider as he was unaware of the requirement.

The High Court held that s 89(5)(c) was contrary to s 25(1) of the Constitution as it permitted arbitrary deprivation of property by denying the credit provider any claim against the consumer for the repayment of the money without leaving courts with a discretion to decide otherwise.

The Constitutional Court

In the Constitutional Court the applicant, the National Credit Regulator (NCR), appealed against the declaration of constitutional invalidity. The first respondent opposed the appeal and asked the court to confirm the High Court’s order of invalidity. The second respondent and the Minister of Finance did not file opposing papers in this court, while the Minister of Trade and Industry (the Minister) opposed confirmation of the order of invalidity by the court.

The NCR submitted that s 89(5)(c) could be interpreted in a manner consistent with the Constitution and, when so interpreted, it provided courts with a discretion whether or not to deny the credit provider a right to recover the money. It argued that the provision did not, therefore, allow for arbitrary deprivation of property.

The Minister submitted that the section did not infringe s 25(1) of the Constitution as the deprivation provided for was not arbitrary. The Minister alternatively submitted that s 89(5)(c) could be read to include a residual discretion, thus there would be no arbitrary deprivation.

Like the High Court, the majority of the court held that the provision resulted in arbitrary deprivation of property in breach of s 25(1) of the Constitution. Further, the deprivation was not a reasonable and justifiable limitation of the right.

The provision compelled a court to declare an agreement such as the one in this matter void and order that the unregistered credit provider’s right to restitution be cancelled or forfeited to the state, with no discretion to keep the restitution claim intact. Removing the unregistered credit provider’s restitution claim deprived him of property, the court held. Further, the court held that the reason provided for such deprivation was insufficient and the means used to achieve the purpose of the provision disproportionate.

According to the court, a person claiming compensation of money lent as a result of an unlawful agreement could not do so under such agreement and must make use of an action based on unjustified enrichment. In terms of the par delictum rule, in order to be successful, the party who claims on the basis of unjust enrichment, must show that he has not acted dishonourably.

A credit agreement entered into by an unregistered credit provider unaware of the requirement to register – such as the first respondent – was a good example of an unlawful credit agreement where the credit provider did not act dishonourably.

The court held that, if the interpretation of s 89(5)(c) of the NCA was correct – that it provides that ‘the rights of the credit provider under the agreement to recover money paid or goods delivered to the consumer must either be cancelled, or forfeited to the state if the consumer would be unjustly enriched, regardless of turpitude or other factors relevant in a fairness or public policy inquiry’ (at para 18) – the section differed significantly from the common law by taking away a credit provider’s right to restitution.

In terms of the effect of the judgment, the court held that the order of invalidity would not have any effect on cases already finalised. Further, the common law position regarding unlawful contracts will prevail until the legislature replaces s 89(5)(c). ‘The unlawful agreement would be void and the credit provider would be able to claim successfully from the consumer on the basis of unjustified enrichment, if the requirements of the action are met. This could include the consideration of the circumstances of each case and especially the degree of blameworthiness of the unregistered credit provider, in order to reach a just outcome,’ the court held at para 85.

The appeal was dismissed and the order of constitutional invalidity was therefore confirmed. The applicant was ordered to pay the first respondent’s costs.

Minority decision

In a dissenting judgment, Cameron J (Froneman and Jafta JJ concurring) held that the approach of the majority involved reasoning that the provision was constitutionally invalid only by ignoring words critical to its meaning.

Those words were ‘under that credit agreement’, which could not be ignored and which rendered the provision ineffectual. The minority would not have confirmed the order of invalidity, instead stating:

‘There is then no particular constitutional imperative to squeeze a meaning from the provision. Rather, we must accept the words of the provision for what they say, even at the cost of accepting that the provision is ineffectual. It is better, in my view, to acknowledge the drafting error, and to leave parliament to correct it.’

Mapula Sedutla, mapula@derebus.org.za

This article was first published in De Rebus in 2013 (Jan/Feb) DR 56.

De Rebus