First Rand Bank Limited v Barrett and Another (81205/2014) [2015] ZAGPPHC 1058 (19 May 2015)

IN THE NORTH GAUTENG HIGH COURT, PRETORIA

[REPUBLIC OF SOUTH AFRICA]

CASE NUMBER: 81205 / 2014

DATE: 19/6/2015

NOT REPORTABLE

NOT OF INTEREST TO OTHER JUDGES

FIRSTRAND BANK LIMITED APPLICANT

AND

HARRY WILLIAM BARRETT 1st RESPONDENT

MATILDA BARRETT 2nd RESPONDENT

JUDGMENT

MAVUNDLA J,

[1] This is an opposed summary judgment application, brought by the applicant against the respondents, for payment of an amount of R547 814. 96, with further ancillary relief.

[2] The applicant's claim arises from a mor tgage loan agreem ent concluded by the parties, secured by a mortgage bond repayable in monthly installments of R5537, 68. It is common cause that the respondents were in default of their monthly installments payment.

[3] It is common cause that the respondents applied for debt review on the 29 April 2014. The debt counselor Mr. Russell Clifford Dickson submitted a restructuring proposal to the respondents' creditors on the 13 August 2014[1] What was available

for distribution to the creditors was an amount of R8513. 04. In terms of the restructured proposal, the applicant was to be paid an amount of R3 987-95 per month with the first installment date of payment to be at the end July 2014.

[4] The applicant terminated the respondents' debt review by way of notice in terms of section 86(1) on the 3 and 7 October 2014. The applicant proceeded to issue summons against the respondents on the 9 November 2014. On the 27 November 2014 the respondent's application for the re-instatement of the debt review was dismissed by the Magistrate Court in Springs.

[5] The respondents entered an appearance to defend the action. The applicant brought a summary judgment application. That very

application for summary judgment was opposed by the respondents and served before Legodi J on the 17 February 2015, who found that: "the applicant prematurely proceeded to issue a letter of termination of debt review in terms of s86(1) on the 3 and 7 October 2014; and prematurely issued summons on the 10 November 2014."Legodi J proceeded to resort to s130 (4) and postponed sine die the summary judgment application and directed the applicant to comply with the statutory notice in terms of the Act, which has since been done. The summary judgment application was reinstated and served before this Court.

[6] It is trite that the only way a defendant can successfully avoid summary judgment being granted against him, is to satisfy the court by way of an affidavit, that he has a bona fide defence to the action. He must disclose fully the nature and grounds of the defence and the material facts relied upon. The Court does not have to decide on a balance of probabilities whether the defence has been fully disclosed. Neither does the Court approach the matter as it would, during trial. It must content itself that the defence so disclosed, would make the applicant's case not unassailable during the trial; vide Tesven CC and Another v South African Bank of Athens 2000 (1) SA 268 (SCA) at 275H-276F citing inter alia, M aharaj v Barcla ys Bank Ltd 1976 (1) SA 418 (A) at 426A-426E.

[7] The respondents contended that the Payment Distribution Agency ("PDA") was appointed by the debt counsellor to provide its functions of management, administration, operation, regulation and supervision of payment, clearing and settlement systems with the applicant, and was not the agent of the consumer. The delay and short I non-payment were not a direct result of negligence on the part of the respondents, so it is contended. The respondents further contended that the plan was part of the debt review process, and while the process is under way, one cannot institute legal proceedings. The respondents further contended that it was not shown how in terms of s86(10) they fell in default in terms of the reviewed credit agreement as payments have been made in terms of the proposed plan.

[8] The respondents contend that in terms of the proposed restructured repayment plan, they were to pay the applicant an amount of R3987. 95 per month and the first payment were to be made end of July 2014. The first collection installment date was end May 2014. The first and second installment was distributed towards the debt counselors and legal fees. The total amount available to creditors, from the third installment, per month after various fees, was R7821. 89. They were making payment in accordance with the restructured repayment plan. At the time the debt review was terminated they were not in default and it was therefore not competent for the applicants to issue notice in terms of section 86(10). In this regard they have attached annexure "HB3" which is a list of payments they effected to the Payment Distribution Agency, namely:

8.1 End May 2014 payment 5 and 6 June 2014: total R8513. 04;

8.2 End June 2014 payment made 3 July 2014: R8513.04;

8.3 End July 2014 payment made on 4 August 2014: R8513.04;

8.4 End July 2014 payment made on 28 August 2014: R8513.04;

8.5 End September 2014 payment made on 27 September 2014: R8513.04;

8.6 End October 2014 payment made on 3 November 2014: R8513.04;

8.7 End November 2014 payment made on 28November 2014: R8513.04;

8.8 End December 2014 payment made on 29 December 2014: R8513.04.

[9] Section 86(10) of the NCA provides that:

"If a consumer is in default under a credit agreement that is being reviewed in terms of this section, the credit provider in respect of that credit agreement may give notice to terminate the review in the prescribed manner to-

(a) the consumer;

(b) the debt counsellor;

(c) the National Credit Regulator,

at any time at least 60 business days after the date on which the consumer applied for the debt review."

[10] In the matter of Collett and Firstrand Bank [2] the Supreme Court of Appeal held that the credit provider cannot terminate the debt review after referral to the Magistrate. The Supreme Court of Appeal further pointed out that a consumer who is over-indebted or finds himself in financial constrain, "may apply for debt review in terms of s86(1) whether or not he is in arrears under any particular credit agreement. Where he is not in default of any of his obligations, the credit provider is unable to terminate the process because s86 (10) gives the right to terminate the debt review only where the consumer is in default. In such a case the credit provider must await the hearing in terms of s87. Neither can the credit provider proceed to enforce the credit agreement because the consumer is not in default. Where the consumer, however, is in default the credit provider is entitled to enforce the credit agreement provided the consumer has not made application for debt review pursuant to s 86(1) and the credit provider has complied with the requirements of s129 and 130. In terms of s 86(2) an application for debt review concerning a particular credit agreement may not be made if the credit provider has 'proceeded to take the steps contemplated in section 129 to enforce that agreement."'

[11] The Supreme Court of Appeal in Collett and Firstrand Bank (supra ) further held that, where the consumer has applied for a debt review before the credit provider has proceeded to enforce the credit agreement, the consumer and the credit provider are obliged to, as s 86(5) requires not only to comply with any reasonable request by the debt counselor to facilitate an evaluation of the consumer's over-indebtedness and the prospects for responsible debt restructuring but also to participate in good faith in the review and negotiations.

[12] In casu, the applicant terminated the debt review between 3 and 7 October 2014 and issued summons on 9 November 2014 before the finalization of the debt review process at the Magistrate Court on Legodi, quite correctly found that the termination of the debt review and issue of summons were premature.[3]

[13] In casu, the respondents made certain payments to the PDA. However it would seem that after deductions for the legal fees, what remained f or distribution was an amount of R7821. 89, clearly falling short of the amount of R8513. 04. In the matter of Nedbank v Thamson[4] the Court held that Payment Distribution Agency ("NPDA") is a payment distribution agency approved by the National Credit Regulator (the "NCR") an d is not the agent of the consumer but of the counselor. Where the consumer has been effecting payments, but there was shortfall as the result of the deductions of the legal fees from such payments, it cannot be said that the consumer was in default, for purposes of s88. In my view, the applicant has not shown that the respondents were in default when it took the premature decision to terminate the debt review. On the contrary, I conclude that the respondents were not in default. If I am wrong on this aspect, which is not conceded, the shortfall of the respondent's payments as determined by the counselor, were negligible and did not warrant the termination of the debt review, but an accommodative approach.

[14] Similarly, in casu, the contention of the respondents was that the shortfall was as the result of the deduction of various legal fees on the part of the PDA. In my view, there is merit in the respondents' contention that the termination of the debt review by the applicant was not in good faith because there was no effort to comply with s86(5) which requires not only compliance with any reasonable request by the debt counselor to facilitate an evaluation of the consumer's over-indebtedness. On the contrary the applicant opposed even the reinstatement of the debt review application.

[15] It needs mentioning that according to the respondents the PDA failed to timeously remit Form 17.2 to the applicant once the proposal was calculated, and this failure contributed towards the applicant taking a decision to terminate the debt review. In my view, any remissness on the part of the PDA should not be visited on the respondents.

[16] The respondents have, however, not disclosed a defence on the merits. In the Collett[5] matter the Supreme Court of Appeal held that:

"[18] As was said in Joob Joob Investments (Pty) Ltd v Stocks Mavundlo Zek Joint Venture[6]:

'summary judgment procedure was not intended to 'shut (a defendant ) out from defending', unless it was very clear indeed that he had no case in the action. It was intended to prevent sham defences from defeating the rights of the parties by delay, and at the same time causing great loss to plaintiffs who were endeavoring to enforce their rights.'

Over-indebtedness is not a defence on the merits. However, because of the extraordinary and stringent nature a court has over-riding discretion to refuse an application for summary judgment. It would be proper for the defendant to raise termination of the debt review by reason of the credit provider's failure to participate or its bad faith in participating when the application for summary judgment is made. These issues may be raised, not as defence to the claim, but as request to the court not to grant summary judgment in the exercise of its over-riding discretion."

[17] The relevant bonded property forming subject matter of the loan agreement is the primary residence of the respondents. They stay in this primary residence together with their two minor children and the first respondent's elderly parents. In my view, the granting of summary judgment would invariably precipitate the eventual attachment and execution and sale of the primary residence of the respondents and deprivation of their constitutionally enshrined right to housing[7] and dignity [8]. In the circumstances of this case, where the respondents have made an effort to pay whatever little they can afford, the Court should be slow in granting summary judgment, but rather exercise its over-riding discretion in favour of the respondents.

[18] The counselor in his restructured plan had determined payment to the applicant in an amount of R3987. 95. In the matter of Changing Tides (Pty) Ltd v Grobler[9] Murphy J held that: "Once there has been termination of debt review under section 86(10), it is for the enforcing court to decide in terms of section 86(11) if there will be benefit in a further debt review." Masipa J in Standard Bank of South Africa Ltd v Panayiotts[10] cautioned that it is undesirable for the High Court to be bogged down with restructuring of debt repayment when there was another structure designed for that purpose. I take note of the fact that at the Magistrate Court did not decide whether the respondents were over-indebted. Masipa J further held that a consumer, who claims to be over-indebted, should not keep the commodity forming subject of the indebtedness but rather should sell it to alleviate his indebtedness. [11] I am of the view that it would be in the interest of both parties, not to grant the summary judgment and dismiss it, to afford respondents to reconsider their position and sell the property, and settle their debts from the proceeds.

[19] In the result the application for summary judgment is dismissed with costs.

_______________________

N.M. MAVUNDLA

JUDGE OF THE HIGH COURT

DATE OF HEARING : 07 / 05 / 2015

DATE OF JUDGMENT : 19 I 05 I 2015

APPLICANT'S COUNSEL : ADV M. RILEY

BRIEFED BY HACK STUPEL and ROSS

RESPONDENTS' COUNSEL : ADV KERRY HOWARD

BRIEFED BY STANILAND ATTORNEYS

[1] Paginated page 78 paragraph 1 1 of the founding affidavit i n support of application for debt rev iew at the magistrates court in Springs.

[2] 2011 (3) ALL SA 585 (SCA) 592 para [11].

[3] Vide para 5 supra and Collet decision supra

[4] 2014 (5) SA 392 (GJ) 2014 (5) SA p395.

[5] Supra at para[l 8]

[6] [2009] ZASCA 23: 2009 (5) SA I (SCA) para 31 [also reported at [2009] 3 ALL SA 407 (SCA)-Ed]: Changing Tides (Pty) Lid v Groh/er 2012 (3) ALL SA 518 (GNP) at 525 para [27]

[6] [2009] ZASCA 23: 2009 (5) SA I (SCA) para 31 [also reported at [2009] 3 ALL SA 407 (SCA)-Ed]:

Changing Tides (Pty) Lid v Groh/er 2012 (3) ALL SA 518 (GNP) at 525 para [27]

[7] Section 26, Act I 08 of 1996.

[8] Section I 0 Act I 08 of 1 996.

[9] 2012 (3) ALL SA 518 (GNP) at 525c. .

[10] 2009 (3) SA 363 at 369 para [30]-[31].

[11] In Standard Bank of South Africa Ltd v Panayiotts at 366 para [10].