South Africa: a debtor’s paradise or not?
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In terms of Section 86(10) of the National Credit Act No. 34 of 205 (“the NCA”), where a consumer is in default under a credit agreement that is being reviewed in terms of that Section, the credit provider in respect of that agreement may give notice in the prescribed manner to the consumer, to terminate that review, to the debt counsellor and the National Credit Regulator, at any time at least 60 business days after the date on which the consumer applied for debt review. Section 86(11) provides that if a credit provider has given such a notice to terminate a review and proceeds to enforce the agreement, the Magistrate’s Court hearing the matter (the debt review application) may order that the debt review resumes on any conditions the court considers to be just in the circumstances. These two sections came under discussion in a recent matter of Firstrand Bank Limited t/a First National Bank vs Seyffert and Another and Similar Cases. In an unreported judgment of Willis J in the Gauteng South High Court, Johannesburg, the Bank applied for summary judgment against the defendant. In each instance the Bank sought recovery of a debt secured by a mortgage bond registered over immovable property occupied by the defendant and which, according to the wording of the court, was situated in a “comfortable, affluent or middle class” area. The defendant claimed that the credit agreement relevant to the respective action was subject to debt review in terms of the NCA. The Bank claimed that notice to terminate the debt review had been given in terms of Section 86(10) of the NCA. What the court had to adjudicate on was: • Whether, due to the notice given to terminate the debt review in each instance, the debt review matters are properly before a Magistrate’s Court? • What the impact of Sections 86(10) and 86(11) will be on the matter? and • Whether the debt review applications and Section 86(11) will be able to resuscitate the terminated debt review applications in favour of the defendants as Section 130(3) of the NCA determines that a court is prevented from determining a matter in respect of a credit agreement to which the NCA applies if it is “pending before” a debt counsellor? Willis J indicated that the court had to come to a decision as to whether a “debtor, who has made an application for debt review ... (may), by the simple expedient of making of such an application, indefinitely frustrate the enforcement of a debt to which he or she has no real defence and where no serious effort is being made to enter into some sensible arrangement for the rescheduling or re-arrangement of his or her debt (as is provided for in the NCA)?” The court indicated that the defence raised by the defendant was “cryptic to the extent of coyness” and “devoid of economic rationality” and that the defence was “flimsy”. In this case the defendant’s proposal to the consumer in the debt review application entailed that half of the bond payments would be paid initially and then later, it was proposed, four times the offer would be paid. There was no indication before the court as to where the additional three times the original instalment would come from and the court found that, as a result, the offer was “devoid of economic rationality”. The court also found that although the NCA was designed to protect consumers, it was not intended to make South Africa a “debtors’ paradise” as a debtors’ paradise would not last long. In coming to the conclusion that summary judgment should be granted in favour of the Bank, the court stated that: “(credit providers), have, since time immemorial, pursued three objectives in the conduct of their business: i) To recover the money lent (credit provided); ii) To recover their costs and expenses in operating their business; and iii) To make a profit.” The court further held that the parties had to show good faith to one another and sensible, fair and reasonable proposals were to be put to the credit provider in an attempt to actively engage to find a realistic proposal to the consumers financial proposals. The court applied the so-called “trite” principles relating to summary judgment applications as set out in the matter of Breitenbach vs Fiat SA and reaffirmed that a court must, in a summary judgment application, take a holistic, rational and fair approach to each matter. The court reiterated the statement made in the matter of R vs Secretary of State for the Home Department: ex parte Daly that “context is everything”. The court stated that it was not good enough for a consumer, being pursued for a debt for which he did have a substantive defence, to adopt, as so often happens, a so-called “catch-me-if-you-can attitude”. The court then reiterated that each case must be adjudicated on its own facts and circumstances and concluded that summary judgment should be granted against the debtor. It is hoped that, in light of this judgment, the courts will continue to carefully consider defences raised by consumers as far as debt review is concerned and will not allow frivolous defences aimed at frustrating credit providers indefinitely to be upheld. The judgment is welcomed from a credit providers’ perspective. Hopefully then, South Africa will not become a “debtors’ paradise” after all! |
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| 3/06/2012 | ||
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The firm practises directly in several Southern African countries and through long-established associates in others.
