Option Deals (Pty) Ltd v National Credit Regulator (A350/19) [2020] ZAGPPHC 433 (25 August 2020)

SAFLII Note: Certain personal/private details of parties or witnesses have been redacted from this document in compliance with the law and SAFLII Policy

IN THE HIGH COURT

OF SOUTH AFRICA

(GAUTENG DIVISION, PRETORIA)

(1) REPORTABLE: NO

(2)

OF INTEREST TO OTHERS JUDGES: NO

(3)

REVISED

Case number: A350/19

OPTION DEALS (PTY)

LTD

Appellant

NATIONAL CREDIT

REGULATOR

Respondent

JUDGMENT

Kollapen, J

Introduction

[1] This is an appeal in terms of Section 148(2) of the National Credit Act 34 of 2005 ("the Act") following the judgment of the National Consumer Tribunal ("the Tribunal") delivered on the 15th of September 2019 after the matter had been referred to it by the Respondent in terms of the Act.

[2] The crux of the issue before the Tribunal was whether a series of transactions the Appellant had concluded with various consumers were credit agreements as contended for by the Respondent or agreements of purchase and lease as the Appellant sought to argue.

The background facts

[3] The Respondent is established as a juristic person in terms of the Act and has the power to receive and investigate complaints with regard to compliance with and contraventions of the Act. It has also the power to refer

matters to the Tribunal which in turn has the power to adjudicate possible contraventions of the Act and make appropriate orders.

[4] In relation to this matter the Respondent received two complaints from consumers Ms Catarino and Mr Chukwumenzie with regard to their dealings with the Appellant. In both instances the consumers allege that they were in need of financial assistance and approached the Appellant for such assistance.

[5] In the case of Ms Catarino she says that after approaching the Appellant she entered what she believed was a loan transaction with the Appellant for an amount of R15 000.00, repayable over three months using her vehicle as security. She says that as a result of falling behind with her payments, the Appellant repossessed her motor vehicle without following any legal procedures. She estimates the value of her vehicle at the time to have been R85 000.00.

[6] In the case of Mr Chukwumezie he says that he too was in need of a loan and approached the Appellant. He used his vehicle to secure a loan of R21 000.00 and says that despite paying R15 000.00 towards his debt, the Appellant wold not give him a new agreement with a new principal debt . He alleged that even though he paid R25 000.00

he was advised that the amount of R21 000.00 still remained outstanding.

[7] The Respondent in both instances initiated and appointed inspectors to carry out the investigation contemplated in the Act. The inspectors could not locate the Appellant at the address appearing on the consumers contract but managed to make contact with one Shawn de Bruyn. He advised them that he and one Vivien de Klerk were the "in house liquidators" of the Appellant.

[8] De Bruyn informed the investigators that the Appellant’s business involved the buying, selling and tenting of vehicles to consumers and the investigation carried out revealed that the following was the modus operandi of the Appellant:-

"5.2 The Respondent populates a document entitled "PRE- AGREEMENT DISCLOSURE FORM" wherein 5 confirmations are made:

5.2.1 That the agreement the consumer is entering into is for the sale of their asset to the Respondent;

5.2.1 That the consumer will be given 90-day cooling off period within which they may "cancel" the sale agreement should they wish to do so;

5.2.3 That the consumer will also be afforded the opportunity to remain in possession of the asset for the duration of the cooling-off period subject to the consumer complying with the standard terms and conditions of the lease as set out in the standard lease agreement;

5.2.4 If the consumer elects not to remain in possession of the vehicle and thereby enter into the lease agreement, then the consumer is required to pay the Respondent "storage" fees; and,

5.2.5 As long as the consumer has not breached any terms of the lease agreement he/she may "cancel" the sale agreement within the cooling-off period by paying back the purchase price and any amount owing in terms of the lease agreement, or the "storage" fees if the consumer has elected not to enter into the lease agreement.

5.3 The Respondent would then populate a document titled: "SALE AGREEMENT FOR MOVABLE ASSETS ("Sale Agreement") which contains the details of the consumer and the Respondent, a description of the motor vehicle and details of the contract. The purchase price of the asset is set out on the second page of this document, at paragraph 3. On page 5 and at paragraph 7 of the Sale Agreement, provision is made for the motor vehicle to remain in the possession of the consumer subject to the Respondent’s lease agreement.

5.4 The Sale Agreement, further on page 5 and at paragraph 9, sets out a "COOLING OFF OPTION". In terms of this clause, the consumer has a 90 day cooling off period within which time they may "cancel" the sale agreement by returning the purchase price and any amounts outstanding in terms of sub paragraph 9.2. Sub paragraph 9.2 makes the cooling off right subject to adhering to the lease agreement if applicable, and further if the consumer does not remain in possession of the asset, they have

to pay a daily storage fee of R100.00 (One Hundred Rand)

5.5 On the same day, and at the same time as signing the aforesaid document, the consumer signs an "AGREEMENT FOR THE

LEASE OF AN ASSET" ("Lease Agreement") to lease the motor vehicle which is the subject of the Sale Agreement at a set amount for a period of 90 days, and subject to the terms and conditions set out in that agreement."

The Appellant does not substantially dispute that this was the modus operandi it followed.

[9] In the founding affidavit in the proceedings before the Tribunal, deposed to by Ms Jacqueline Peters, the Manager in the Investigations and Enforcement Department of the Respondent, she alleges that the transactions the Appellant entered into with the consumers were simulated transactions. She says that while formally and on the face of them, the agreements appear to reflect an intention to enter into a sale agreement followed by a lease with an option to cancel the sale, this was not the true intention of the parties.

[10] She argues on behalf of the Respondent that in truth and reality the agreements were credit agreements and that what in reality happened between the Appellant and the consumers was the following :-

"6.3.1 Respondent advances loan funding to the consumers. The "purchase price" described in the agreements in question is not truly a purchase price, but in reality constitutes the loan funding advanced by the Respondent to consumers;

6.3.2 Alternatively, where a consumer elects not to remain in possession of the vehicle, the "storage costs" are not truly a storage charge, but in reality constitutes the interest accruing on the loan amount advanced;

6.3.4 The "purchase price" payable under the "option" agreement is also not truly a purchase price, but in reality constitutes the capital to be repaid on the loan amount advanced; and

6.3.5 The vehicle serves as security for the consumer’s indebtedness to the Respondent."

[11] In support of this stance, the Respondent states that both Ms Catarino and Mr Chukwumezie said that they had approached the Appellant to secure a loan and not to sell their vehicles. In addition it says that the 90 day cooling off period supports its view that this was not a true sale as well as the storage fee of R 100.00 per day.

[12] The inspectors also had sight of other consumer files of the Appellant and found that the purchase price was far below the market value of the vehicles in question and was in all instances the amount which the consumer needed to borrow.

The Respondent further contended that in all the instances sampled, the consumer elected to remain in possession of the vehicle and that the risk did not pass to the Appellant on the conclusion of the alleged sale. They point out that in all the cases sampled, the daily storage fee or the lease fee works out to exactly 30% of the purchase amount.

[13] Finally the Respondents contended that the model advanced by the Appellant simply does not make business sense in that it suggests that a consumer will sell a vehicle they own for well below market value only to then rent the vehicle back at a huge rental amount. On the other hand they ask why the Appellant would purchase a vehicle but not take possession of it

and that the transactions were credit agreements and only make sense on that basis.

[14] The Respondent argued that the "purchase price" was the loan funding, the "lease amount" the interest payable and the storage costs also interest payable but interestingly in none of the cases sampled did the consumer opt to have the vehicle remain with the Appellant.

[15] The Respondent also prepared a table that sought to demonstrate how in each instance of the consumer files sampled the lease fees were exactly 30% of the purchase price.

Annexure Purchase Price Lease Fees per day Lease Fees (30 days) Percentage Total Fees (90days) C R18 500.00 R185.00 R5550.00 30% R16650.00 D1 R202 500.00 R2025.00 R60750.00 30% R182250.00 D2 R62 500.00 R625.00 R18750.00 30% R56250.00 D3 R32500.00 R32500 R9750.00 30% R29250.00 D4 R67500.00 R675.00 R20250.00 30% R60750.00 D6 R80000.00 R800.00 R24000.00 30% R72000.00 D7 R47500.00 R395.83 R11874.90 30% R35624.70 D8 R202500.00 R2025.00 R60750.00 30% R182250.00 D9 R20000.00 R200.00 6000.00 30% 18000.00 D10 R102500.00 R717.50 R21525.00 30% R64575.00 D11 R21000.00 R200.00 R6000.00 30% R18000.00

[16] They accordingly sought an order before the Tribunal that would declare that the agreements which purported to be purchase, sale and lease agreements were simulated transactions and were in fact credit agreements and that in addition the Appellant acted in contravention of various provisions of the Act including that the Appellant was not registered as a credit provider,

that in engaged in reckless credit, that it did not issue the consumer with a pre-agreement statement and quotation, that it charged interest in excess of the maximum amount prescribed by the Act as well as other contraventions.

[17] In opposing the relief sought before the Tribunal, the Appellant confirmed that its business model was the sale and lease of vehicles and denied that it operated as a credit provider and says that the contracts of sale and lease entered

between the Appellant and the consumers were precisely that.

[18] In the case of Ms Catarino it says that she voluntarily handed the vehicle to the Appellant after she had defaulted on her payments in terms of the lease agreement. They also deny that the value of the vehicle was R85 000 .00 but

do not suggest what its value was prompting the Respondent in reply to file a valuation which suggested that the vehicle was valued at R83 000.00 at the time of the transaction.

[19] The Appellant said the business model it used was advantageous to consumers in that they did not have the burden of having to go through the entire process of trying to find a buyer and removed the risk of selling the vehicle privately.

The findings of the Tribunal

[20] In considering whether the transactions in question were credit agreements dressed up as sale and lease agreements or not, the Tribunal articulated two legal principles that found application and required consideration. Both those principles were dealt with by the Supreme Court of Appeal in Roshcon (Pty) Ltd v Anchor Body Bulders CC and Others ( 2014 ZASCA40) :-

a) Firstly, parties to an agreement may decide to structure their agreement in a particular fashion and to find their true intention, one has to have regard to the particular facts and not to particular legislation.

b) Secondly and beyond ascertaining the intention of the parties the test should require and examination of the commercial sense of the transaction.

[23] The Tribunal concluded that the transactions were credit agreements and not sale and lease agreements and in doing so found made the following findings :-

"26.3 In this present case, the consumer does not seem to have been ad idem on the matter of signing a sale and lease agreements;

26.3.1 The consumer claims to have understood the transactions they were signing as secured credit agreements;

26.3.2 Whereas the Respondent conveniently took a position that these were sale agreements and lease agreements;

26.3.3 The element of genuineness addressed by Innes CJ in Zandberg v Van Zyl and Dadoo case was thus conspicuously missing here.

26.3.4The Tribunal can thus not accept the Respondent’s position that they were acting entirely within their rights in trying to contract out of the Act through these simulated credit agreements.

[24] The Tribunal made the following order :-

"32.1 The Respondent is declared to have engaged in prohibited conduct in terms of Section 150(a) of the Act;

32.2 The Respondent is declared to have unlawfully operated as a credit provider, in repeated contraventions of Section 40(1), 40(3) and 89(2)(d)

32.3 The Respondent is interdicted from entering into any further credit transactions with consumers whilst it remains unregistered as a credit provider;

32.4 All the credit agreements entered into between the consumer, and the Respondent are declared reckless;

32.5 The Tribunal further orders that the Respondent appoint an independent auditor at its own cost, whose appointment shall be subject to the prior written approval of the Applicant, to identify and establish;

32.5.1 All credit agreements which the Respondent entered into in the past 3 (three) years;

32.5.2 The names and contact details of all consumers who entered into all such agreements;

32.5.3 The loan amounts advanced under all such credit agreements, the total amounts paid by each consumer to the Respondent under all such credit agreements (and thereby calculate the total amount paid by each consumer over and above the loan amount advanced to all consumers);

32.5.4 The vehicles which the Respondent has taken transfer of as title holder and / or an owner under all such credit agreements;

32.5.5 The vehicles which the Respondent has repossesses under all such credit agreements and, of such vehicles, the vehicles which the Respondent is still in possession of and which the Respondent has disposed of as well as the value received following such disposals;

32.6 Once the Auditor’s Report has been compiled, the Respondent will, at its own cost and within 30 days of receipt of the Auditor’s Report:

32.6.1 Return all the repossessed vehicles to consumers or, where the Respondent has already disposed of such vehicles; the Respondent must pay each consumer the difference between the gross proceeds from the sale of the vehicle ad the loan amount advanced by the Respondent (less any amounts paid to the Respondent by the consumer);

32.6.2 Refund all consumers all amounts paid by the consumers to the Respondent over and above the loan amounts advanced by the Respondent to such consumers;

32.6.3 Transfer the registration as title holder and / or owner of all vehicles back into the names of consumers;

32.7 Once Para 35.6 (sic) above has been complied with, the Respondent is to provide the Auditor’s Report, together with a written report to the Applicant, detailing the identity of the consumers, the refunds made, the vehicles returned, and registrations transferred back to consumers. These reports are to be provided to the Applicant within 120 one hundred and twenty days after the Tribunal order has been obtained.

32.8 The Respondent ,must, within one hundred and eighty (180) days after the Tribunal order has been obtained , pay an administrative fine of the R1 000 00 (one million Rand) to the bank account of the National Revenue Fund: Banking Details are as follows:

Bank Name

:The standard Bank of South Africa

Account Holder : Department of Trade and Industry

Branch Name : Sunnyside

Branch Code :05100

Account number : [….]

Reference

:NCT/128364/2019/140(1) AND Name of Person or Business making payment

32.9 There is no order as to costs.

[25] It is against this order which the Appellant appeals against in terms of Section 148(2) of the Act .

Analysis

[26] In Roshcon the Court made reference to what Innes J said in Zandberg v Van Zyl 1910 AD 302, at 309, in respect of the test to be applied when considering an agreement which may or may not be said to be a simulation. It said the following:-

"The foundation of our law in regard to simulated transactions is the classic statement by Innes J in Zandberg v Van Zyl that:

‘Now, as a general rule, the parties to a contract express themselves in language calculated without subterfuge or concealment to embody the agreement at which they have arrived. They intend the contract to be exactly what it purports; and the shape which it assumes is what they meant it should have. Not infrequently, however (either to secure some advantage which otherwise the law would not give, or to escape some disability which otherwise the law would impose), the parties to a transaction endeavour to conceal its real character. They call it by a name, or give it a shape, intended not to express but to disguise its true nature. And when a Court is asked to decide any rights under such an agreement, it can only do so by giving effect to what the transaction really is: not what in form it purports to be. The maxim then applies plus valet quod agitur quam quod simulate concipitur. But the words

of the rule indicate its limitations. The Court must be satisfied that there is a real intention, definitely ascertainable, which

differs from the simulated intention. For if the parties in fact mean that a contract shall have effect in accordance with its tenor, the circumstances that the same object might have been attained in another way will not necessarily make the arrangement other than it purports to be. The inquiry, therefore, is in each case one of fact, for the right solution of which no general rule can be laid down."

[27] In CSARS v NWK 2011 (2) SA 67 (SCA) para 55 Lewis JA postulated the test as follows:

"In my view the test to determine simulation cannot simply be whether there is an intention to give effect to a contract in accordance with its terms. Invariably where parties structure a transaction to achieve an objective other than the one ostensibly achieved they will intend to give effect to the transaction on the terms agreed. The test should thus go further, and require an examination of the commercial sense of the transaction …."

[28] Thus it seems that in considering the issue as to whether the transactions in question were sale and lease agreements or credit agreements the following must occur :-

a) The Court must give effect to what the transaction is and not what in form it purports to be

[29] In this regard the documents prepared by the Appellant and signed by the parties that the agreements were a sale and lease agreement cannot be dispositive, as that would simply mean that form would invariably trump over substance. The terms of the agreement which provides an unusual 90 day cooling off period, the purchase consideration being set considerably below market (in the case of Ms Catarino it would have been about 25% of market), the vehicle despite being sold remaining in the possession of the seller who continued to carry the risk in the vehicle and finally in all cases that were sampled the "lease" costs were exactly 30% of the "purchase price", all require consideration.

[30] All of these features which are unusual in an ordinary sale and lease transaction strongly point in my view to the transaction not being a purchase and sale agreement but rather a credit transaction.

b) The Court must be satisfied that there is a real intention definitely ascertainable, which differs from the simulated intention

[31] The evidence of Ms Catarino and Mr Chukwumenzie was that they approached the Appellant for financial assistance and neither of them say it was with the intention of selling their vehicle. While this is disputed by the Appellant it is done so purely on the basis of the written agreements of sale and lease and certainly on the evidence as a whole it cannot be said that

there was a mutual intention to enter into a sale and lease agreement and simply putting up agreements cannot be said to be dispositive of the question as to the intention of the parties.

[32] If indeed there was the common intention to enter into a sale and lease agreement it is a matter of great con-incidence that the lease period is for 3 months which is the same period the consumers say is the loan repayment period; it is also a matter of great coincidence that the lease period / loan period is the same as the cooling off period. This would easily

facilitate the re-purchase of the vehicle by the seller once the loan has been repaid. All of this in my view points, compellingly in the direction that the real intention was to enter into a credit agreement as opposed to a sale and lease agreement.

c) The Court must enquire into the commercial sense of the transaction

[33] There are a number of features why the transaction simply does not make commercial sense. Firstly why would Ms Catarino sell a vehicle worth over R 80 000.00 for R 18 500.00 and then receive only R 15 000.00 (one assumes

the difference was taken up in administrative and other costs). She then has to pay over R 5 500.00 per month to lease the vehicle she has sold and at the end of the 3 month period she would be left without a vehicle and would have used virtually all the proceeds of the "sale" to pay the lease costs of the vehicle for three months. It simply makes no commercial sense irrespective from which perspective one views it.

[34] It would have made simple commercial sense for Ms Catarino to have sold the vehicle to a dealership where in all likelihood she would have received considerably more as a purchase consideration. It is not clear why the transaction with the Appellant was described by it as advantageous in that the seller would not have to go through the process of trying to find a buyer privately. It is not clear what advantage the Appellant offered in comparison to motor vehicle dealers. On the contrary the consumer was severely disadvantaged by the transaction that was structured by the Appellant as I have demonstrated above.

[35] In all the circumstances the Tribunal was correct in finding that the transaction of sale and lease was a simulated one designed to hide the true nature of the agreement which was a credit transaction. On that basis it was entitled to make the further findings it made with regard to the various contraventions of the Act.

[36] There is in my view no basis to interfere with the findings as the order of the Tribunal and the appeal accordingly falls to be dismissed.

[37] I make the following order:-

The appeal is dismissed with costs.

N.J

KOLLAPEN

JUDGE OF THE HIGH COURT, PRETORIA

I concur.

L.C.

HAUPT

ACTING JUDGE OF THE HIGH COURT, PRETORIA

APPEARANCES: The appeal was decided on the papers and the heads of argument filed, the parties agreeing to dispense with an oral hearing in accordance with the Practice Directives regarding Court operations during the extended Covid 19 lockdown.

Heads of argument filed on behalf of Appellant: Adv BC Stroop SC

Instructed by:

De Klerk Marais Inc

Heads of argument filed on behalf of Respondent: Adv L Kutumela

Instructed by:

Dlamini Attorneys

DATE OF JUDGMENT:

25 August 2020