National Credit Regulator v Finbond Mutual Bank and Another (NCT/26629/2015/140(1)) [2016] ZANCT 43 (19 September 2016)

IN THE NATIONAL CONSUMER TRIBUNAL

HELD IN CENTURION

CASE NUMBER: NCT/26629/2015/140(1)

In the matter between:

THE NATIONAL CREDIT REGULATOR

APPLICANT

And

FINBOND MUTUAL BANK

1ST RESPONDENT

GUARDRISK INSURANCE COMPANY LIMITED

2ND RESPONDENT

Coram:

Prof T Woker (Presiding Member)

Prof J M Maseko (Member)

Prof B. Dumisa (Member & Deputy Chairperson)

JUDGMENT

APPLICANT

1. The Applicant in this matter is the National Credit Regulator, a juristic person established by section 12 of the National Credit Act 34 of 2005 (the Act).

2. The Applicant is an independent, juristic person responsible for inter alia monitoring the consumer credit market to ensure that prohibited conduct (as defined in the Act) is prevented or detected and prosecuted.

3. At the hearing held on 13 September 2016, the Applicant was represented by Ms Nthupang Magolego?

RESPONDENTS

4. The 1st Respondent is Finbond Mutual Bank, a mutual bank as contemplated in the Mutual Banks Act 124 of 1993 and a registered credit provider with registration number NCRCP6172 whose physical address is at Bank Forum Building, Cnr Vearle and Fehrsen Streets, New Muckleneuk, Pretoria.

5. The 2nd Respondent is Guardrisk Insurance Company Limited, a short-term insurer, registered in terms of the Short-term Insurance Act, 53 of 1998 and a provider of short-term insurance products.

6. The 1st Respondent arranges credit life insurance for its customers with the 2nd Respondent.

7. At the hearing held on 13 September 2016, the 2nd Respondent was represented by ADV MD Kuper SC.

8. There was no appearance by the 1st Respondent at the hearing held on 13 September 2016 as this hearing dealt with points in limine raised by the 2nd Respondent only.

APPLICATION

9. This is an application in terms of Section 140 (1) of the Act in which the Applicant is seeking certain orders against the Respondents which relate to the cost of credit life insurance which consumers are being charged when they obtain loans from the 1st Respondent.

10. The Applicant is of the view that the cost of this credit life insurance is unreasonable as contemplated in section 106 (2) of the Act.

POINTS IN LIMINE

11. The 2nd Respondent has raised certain points in limine regarding this application which are as follows:

First point in limine: the referral of the 2nd Respondent to the Tribunal is defective as the 2nd Respondent is not a credit provider as defined in the Act and is thus not capable of contravening section 106(2) of the Act.

Second point in limine: the Applicant acted ultra vires in joining it to the referral because it could not have reasonably believed that the 2nd Respondent committed prohibited conduct. Consequently, the referral, insofar as it pertains to the 2nd Respondent was not made in accordance with the requirements of s140 of the Act.

Third point in limine: the Tribunal has no jurisdiction to entertain the referral as it pertains against the 2nd Respondent.

12. At a prehearing held on 20 May 2016 it was agreed that the Tribunal would hear argument relating to these points in limine first, at a separate hearing, before proceeding to deal with the main matter.

13. The hearing into the points in limine was held on 13 September 2016.

14. This judgment relates to the points in limine raised by the 2nd Respondent only and is based on the heads of argument submitted by the parties as well as oral presentations made by the 2nd Respondent and the Applicant.

15. The 1st Respondent did not attend the hearing.

APPLICABLE SECTIONS OF THE ACT

16. S 106 (1) of the Act provides that a credit provider may require consumers to maintain credit life insurance during the term of their credit agreement.

17. S 106 (2) then provides that a credit provider must not offer or demand that the consumer purchase or maintain insurance that is unreasonable or at an unreasonable cost to the consumer, having regard to the actual risk and liabilities involved in the credit agreement.

ISSUES TO CONSIDER

18. Although the 2nd Respondent has raised three points in limine, the crisp question which needs to be decided by the Tribunal is whether s106 applies to the 2nd Respondent, a short-term provider of insurance products.

19. It was common cause that the 2nd Respondent is not a credit provider as defined in the Act.

RESPONDENT’S ARGUMENTS

20. The Respondent argued that

a. the wording of section 106 indicates that it only applies to credit providers and therefore only an act and/or omission of a credit

provider may constitute a contravention of section 106 (2) of the Act.

b. It was common cause that the 2nd Respondent is a short-term insurer and a provider of insurance products and that no aspect of its business involve any of the activities which are set out in the definition of a credit provider in the Act.

c. As the 2nd Respondent is not a credit provider,

(1) it cannot act in contravention of the Act hence it cannot engage in prohibited conduct;

(2) the Applicant cannot refer a party to the Tribunal when the party has not engaged in prohibited conduct; and

(3) the Tribunal has no jurisdiction to hear the matter against the 2nd Respondent as it has jurisdiction to deal with matters relating to prohibited conduct.

21. S 106 (1) is a permissive section in that it allows credit providers to require consumers to obtain and maintain credit life insurance for the duration of the loan. This permission is then qualified by s 106 (2) in that credit providers may not offer or demand that consumers obtain insurance that is unreasonable or at an unreasonable cost to consumers. This section is clearly directed at the conduct of credit providers only and not at the conduct of other entities not referred to in the section.

APPLICANT’S ARGUMENTS

22. The Applicant argued that:

a. it has jurisdiction over the 2nd Respondent by virtue of the relationship which exists between the two parties.

b. The 1st and 2nd Respondent have entered into an intermediary agreement with the 1st Respondent acting as an intermediary for the 2nd Respondent in originating the credit life insurance.

c. The 1st Respondent is responsible for the administration and management of the accounts, introducing short term credit protection insurance

business and for collecting premiums.

d. The Applicant as an administrative body has certain implied powers to carry out the express powers that are conferred on it by the Act.

e. S 16 (1) (f) of the Act empowers the Applicant to monitor trends in the credit market including trends relating to the provision of credit insurance and it can require insurers to provide certain reports.

f. By virtue of these powers, the Applicant has a regulatory authority and power to monitor the 2nd Respondent on all aspects of credit insurance in terms of the Act as the insurer under the 1st Respondents credit agreements.

g. The express powers given to the Applicant would be rendered meaningless if they do not come with the implied power to take action against non-compliance with provisions of the Act by insurers and this could not have been the intention of the Legislature.

h. An interpretation that the Act does not apply to the 2nd Respondent would lead to an absurdity which the legislature could not have intended.

i. The 2nd Respondent is vicariously liable for the wrongful actions of its intermediary. This contention is supported by the provisions of the Short Term Insurance Act 53 of 1998 which states that a provision of an agreement, which purports to exempt short-term insurer from liability for the actions, omissions or representations of a person acting on its behalf in relation to a short-term policy is void.

j. It is trite law that a company may incur vicarious liability for the delicts of its directors, officers, servants and agents.

Vicarious liability includes the liability of principal for the authorised or ratified acts of its agents. The principal is bound together with his duly authorised agent to reimburse the person who suffers as a result of the agent’s delict.

k. The Tribunal’s authority to deal with the matter arises from its authority to make any appropriate order to give effect to a right under the Act for prohibited conduct.

RESPONDENTS’S REPLY

23. In reply to the Applicant’s arguments regarding implied authority the Respondent referred to a number of authorities where the issue of implied powers is dealt with.

a. The common-law test was formulated by Steyn JA in Lekhari v Johannesburg City Council 1956 (1) SA 552 (A) at 567 A-C where the court held that

… in order that such a power may be implied, it is not sufficient that its existence would be reasonably ancillary or incidental to the exercise of an express power in the sense that it would be useful in giving effect to that power. It must be reasonably necessary for that purpose. The test is not mere usefulness or convenience, but necessity. There must be a need of sufficient cogency to rebut the presumption that the Legislature, in conferring the power relied upon, intended to authorise legislation affecting the subjects of the State and not the State itself in its judicial organs. Nor must the implied power be extended beyond the requirements of the occasion. What can be dispensed with without defeating the object of the express power or preventing its exercise in a reasonably effective way is not to be implied

b. Cora Hoextra in Administrative Law in South Africa 2nd ed explains:

Just as the power to make omelettes must necessarily include the power to break eggs, so the power to build a dam may include the power to expropriate property or to remove silt. It is well accepted that the power to make regulation implies the power to withdraw it – in instance of implication by virtue of an inherent relationship – and that ‘a prohibition to let carries a prohibition to hire by virtue of a mutual relationship. It has been held too that a power to suspend municipal counsellors is reasonable necessary to carry out the express function of investigating corruption or fraud.

c. Devenish, Govender and Hulme point out in Administrative Law and justice in South Africa (334-345) that implied powers must flow from other parts of the statute and must be reasonable and necessary and not merely useful or convenient.

d. In Moleah v University of Transkei 1998 (2) SA 522 (TK) the court pointed out that an implied power must be a logical consequence or logically necessary for the exercise of a power which has been conferred on an administrative body.

24. The Respondent argued that whilst the express power in section 16 (1) (f) may imply a power to compel a recalcitrant insurer to produce the requisite information; this is a far cry from an implied power to assume jurisdiction over an entity that is not a credit provider.

25. As far as the absurdity argument is concerned the Respondent argued that the fact that the Act does not confer authority on the Applicant to perform regulatory functions over the 2nd Respondent does not mean that the Act and its purpose will be frustrated. Regulation of the 2nd Respondent and other insurance entities is provided for in other legislation where compliance is monitored by the Financial Services

Board. Therefore it is unnecessary to read into the Act a meaning which brings the 2nd Respondent within the Tribunal’s jurisdiction.

26. The 1st Respondent is subject to the Applicant and Tribunal’s jurisdiction and such relief as may be appropriate may be ordered in

favour of the affected consumers against the 1st Respondent.

27. The issue of vicarious liability relates to who or which entity is liable for particular conduct. The fact that one entity may be vicariously liable for the conduct of another does not confer jurisdiction of the Applicant or the Tribunal over that entity.

The Act is clear that the entity at which s106 is directed is the credit provider and not other entities.

CONSIDERATION

28. As stated above, the critical issue which the Tribunal must decide is whether the reference to credit provider in s 106 of the Act can be extended to include the 2nd Respondent in this matter.

29. It is common cause that the 2nd Respondent is not a credit provider but is instead a provider of short-term insurance.

30. S 106 states that a credit provider may require a consumer to maintain credit life insurance but that it may not require the consumer to purchase or maintain insurance that is unreasonable. The Act clearly refers to the conduct of a credit provider and not to the conduct of a provider of short-term insurance.

31. Whilst the Act grants the Applicant limited powers to request certain information from insurers and to monitor trends in the insurance

market, it does not confer general jurisdiction over the conduct of insurers. In answering questions from the Tribunal the

Applicant agreed that if there was no relationship between the 1st and 2nd Respondent and if the consumer had elected on their own to approach an insurer for credit life insurance (which they are permitted to do under the Act) the Applicant would have no jurisdiction to judge the conduct of the insurer. It is therefore only by virtue of the relationship between the parties which grants the Applicant its authority.

32. The Tribunal is of the view that this cannot be how the Act must be interpreted. Insurers either fall within the ambit of s106 regarding the cost of insurance or they do not.

33. S 106 clearly refers to the conduct of credit providers and if they require consumers to purchase or maintain insurance that is

unreasonable or at an unreasonable cost to consumers, it is credit providers that are engaging in prohibited conduct and not other

entities.

34. In the circumstances the Tribunal finds that the reference to credit providers in s106 cannot be extended to include other entities that are not credit providers

35. ORDER

36. The points in limine are upheld and the referral of the 2nd Respondent to the Tribunal is dismissed.

37. There is no order as to costs.

[Signed]

____________________________

Prof T Woker

Tribunal Member.

Dated 19 September 2016

Prof J Maseko (Tribunal Member) Prof B Dumisa (Tribunal Member & Deputy Chairperson) concurring