A proper interpretation of the National Credit Act 34 of 2005 (the NCA) often continues to bewilder, especially when considering aspects of the ‘cancellation’ or ‘reinstatement’ of a credit agreement as envisaged in s 129(3) and (4). However, there appears to be light at the end of the tunnel of ‘debt enforcement’.
The High Court recently made a significant ruling in the case of Standard Bank of South Africa Ltd v Botes t/a JHLS Botes Vervoer (NWM) (unreported case no: M85/2015, 13-9-2015) (Landman J). The court stated that the NCA does not regulate cancellation of a credit agreement and, thus, common law cancellation prevails. It further draws the proverbial line in the sand, whereafter a consumer can no longer reinstate the credit agreement.
During 2012 the Standard Bank of South Africa Ltd (the applicant) and Botes t/a JHLS Botes Vervoer (the respondent) concluded nine instalment sale agreements (the agreements) in terms of which, inter alia, the respondent purchased various vehicles (the assets) and undertook to make fixed monthly payments.
During 2014 the respondent reneged on his monthly instalment obligations causing the applicant to dispatch several debt enforcement notices for each agreement in terms of s 129 of the NCA to the respondent. These notices were delivered to the respondent on 28 March 2014.
Pursuant to and in consequence of the notices, the applicant and respondent, on 30 April 2014, entered into a re-payment plan to afford the respondent the opportunity to liquidate the arrears (the repayment plan).
The repayment plan, inter alia, contained a lex commissoria (common law cancellation clause, alternatively an inter pellatio provisor was applied).
The respondent, almost immediately after the conclusion of the repayment plan, breached its terms by failing to make payment, thereby necessitating the applicant to cancel the repayment plan to institute proceedings for the recovery of the assets.
On 5 February 2015 the applicant’s attorneys addressed a letter to the respondent informing him that he was in ‘breach of the agreements by failing to make timeous payment of the arrears and monthly payments’.
The letter of demand records the following:
It called on the respondent to rectify his breach within 10 days from date of the letter.
The respondent was informed that in the event of his failure to settle the arrears and remedy his breach, the applicant elected to –
– enforce the applicant’s indebtedness in terms of the respective agreements;
– cancel all the respective agreements without any further notice; and
– proceed with legal action for return of the respective assets and subsequent shortfall damages.
The respondent failed to remedy his breach and the agreements were consequently cancelled on 23 February 2015. The respondent never completely purged the arrears.
On 17 March 2015, after the agreements were cancelled and legal action instituted, the respondent tendered payment of the arrears.
Basis of opposition
The respondent opposed the application on, inter alia, the following grounds –
The respondent maintained that the agreements had to be re-instated against his tender for payment of 17 March 2015. The respondent relied on the provisions of s 129(3) of the NCA.
Does the NCA oust common law cancellation?
The court had to consider the following –
what is ‘cancellation’ in terms of the NCA, the validity of relying on a lex commissoria or does the NCA dictate this procedure and thus ousts the common law provisions;
were the agreements validly cancelled; and
was it necessary to dispatch second s 129 notices?
Section 123 of the NCA encapsulates when an instalment sale agreement may be cancelled before it expires:
‘(1) A credit provider may terminate a credit agreement before the time provided in that agreement only in accordance with this section.
(2) If a consumer is in default under a credit agreement, the credit provider may take the steps set out in Part C of Chapter 6 to enforce and terminate that agreement’ (my italics).
The respondent contended that s 129 read with s 130 of the NCA restricted the applicant’s right to enforce a common law cancellation. The respondent relied on a dictum in Mhlongo v MacDonald 1940 AD 299 at 310 which reads: ‘… where an Act creates an obligation and gives a special and particular remedy for enforcing it, the remedy provided by the statute must be followed and it is not competent to proceed by action at common law’.
The court accepted the applicant’s argument that there must be a contractual basis for the cancellation of a credit agreement. The respondent relied on ABSA Bank Ltd v Havenga 2010 (5) SA 533 (GNP) and similar cases, which reads that there must be ‘a right vesting in the credit provider’ before it may cancel a credit agreement.
The court held that a credit provider may rely on a lex commissoria to cancel a credit agreement but is obliged first to comply with ss 129 and 130 of the NCA as enjoined by s 123.
The court held that the NCA restricts the effectiveness of the lex commissoria/common law cancellation by permitting a consumer to purge the default before cancellation by paying only the arrears and other default administration charges before cancellation. The right to cancel an agreement is lost once all arrears are paid and the applicant would then be obliged to deliver new notices in terms of s 129. If a credit agreement has been cancelled it may not be revived. In this instance the arrears were never liquidated.
The line in the sand – when the consumer cannot reinstate
Compliance with the payments in terms of a payment plan agreement is intended to purge the default, and may thus lead to the remedying of the default as contemplated by s 129(3). Until then, the consumer remains in default, albeit one that prevents the credit provider from acting on it.
‘129. Required procedures before debt enforcement –
Subject to subsection (4), a consumer may at any time before the credit provider has cancelled the agreement, remedy a default in such credit agreement by paying to the credit provider all amounts that are overdue, together with the credit provider’s prescribed default administration charges and reasonable costs of enforcing the agreement up to the time of the default was remedied.
A credit provider may not re-instate or revive a credit agreement after –
(a) the sale of any property pursuant to –
(i) an attachment order; or
(ii) surrender of property in terms of section 127;
(b) the execution of any other court order enforcing that agreement; or
(c) the termination thereof in accordance with section 123’ (my italics).
Section 129(3) of the NCA utilises the term ‘cancelled’. The court found that according to the usual cannons of interpretation, it may properly be inferred that the legislature meant to use ‘cancel’ or ‘cancellation’ in its common law contractual sense but with the added requirements of s 129 notices (see also: Standard Bank of SA Ltd v Mbane (ECM) (unreported case no 58/2015, 23-4-2015) (Majiki J) and Sieg Eiselen ‘National Credit Act 34 of 2005: The confusion continues’ (2012) 75.3 THRHR 386 at 396).
The court held that the respondent’s tender for payment was not the equivalent of reformative action as contemplated by s 129(3) of the NCA; actual payment by the respondent of all arrears was required.
The court further held that s 129(3) of the NCA affords a consumer the opportunity to re-instate an agreement only if it has not been cancelled; a consumer is thus precluded from reinstating an agreement after its cancellation, which is reinforced by s 129(4) (as amended with effect from 13-3-2015), which prohibits a credit provider from reinstating a credit agreement it had previously cancelled.
In casu the court held that the agreements were validly cancelled, confirmed same and granted relief for the return of the assets.
The respondent applied for leave to appeal this judgment. The court granted leave directly to the Supreme Court of Appeal. The appeal lapsed and unfortunately this judgment has thus not been subjected to appellate division muster, although successfully applied in several other matters.
The legislature meant to use ‘cancel’ or ‘cancellation’ in its common law contractual sense, but within the added requirement of s 129 of the NCA.
The NCA affords a consumer the opportunity to reinstate an agreement only if it has not been cancelled.
A payment plan constitutes an extension of the original default and such default is remedied only once a consumer has made payment of all arrears.
The line in the sand is drawn when the credit provider validly cancels the credit agreement.
When a credit provider and consumer entered into a payment plan, a default is only remedied once a consumer has made a final payment in respect of all arrears and only under such circumstances will a credit provider again be obliged to comply with ss 129 and 130 of the NCA. Thus when a consumer has received a s 129 notice, concludes a payment plan and is still in the process of remedying a default, the s 129 notice is still operative until all the arrears described in it have been discharged.
Elzaan Potgieter is a final year law student and candidate attorney at Stupel & Berman Inc in Johannesburg.
Additional note from the author:
The recent judgment in the Constitutional Court (Nkata v FirstRand Bank Limited and Others (The Socio-Economic Rights Institute of South Africa as Amicus Curiae) (unreported case no CCT73/2015, 21 April 2016) (Cameron J) relates to the judgment in the article below (Standard Bank of South Africa Ltd v Botes t/a JHLS Botes Vervoer (NWM) (unreported case no M85/2015, 13-8-2015) (Landman J). The two judgments, although distinguishable on the facts – are ad idem on the law.
Nkata supports the legal principle (confirmed in the Botes matter) that a credit agreement can only be reinstated in terms of s 129(3) before the credit provider has cancelled the agreement (see, inter alia, para 110 of Nkata).
In Botes s 129 had been complied with and the arrears were never purged. It was found that there was no reason to send a further s 129 notice pursuant to the breach of the payment plan, as the arrears had not been purged. Valid cancellation took place – which drew the line in the sand – whereafter reinstatement in terms of s 129(3) was no longer possible.
In Nkata the arrears were purged pursuant to a settlement agreement and thus the agreement reinstated in terms of s 129(3) – prior to the line in the sand or proper cancellation by the credit provider – who did not comply with s 129 on a factual level.