SA Taxi Securitisation (Pty) Ltd v Lennard (CA166/2010) [2010] ZAECGHC 131; 2012 (2) SA 456 (ECG) (21 October 2010)

IN THE HIGH COURT OF SOUTH AFRICA

(EASTERN CAPE, GRAHAMSTOWN

Case no: CA 166/2010

In the matter between:

SA TAXI SECURITISATION (PTY) LTD ….................................Appellant

and

DICK LENNARD ….......................................................................Respondent

JUDGMENT

D. VAN ZYL J:

In terms of section 86 (1) of the National Credit Act 34 of 2005 (“the Act”) a consumer may apply to a debit counsellor in the prescribed manner and form to be declared over-indebted. A consumer is over-indebted

if the preponderance of information available at the time indicates that the consumer, having regard inter alia to his or her financial means, prospects and obligations, is or will be unable to satisfy in a timely manner all the obligations under a credit agreement to which that consumer is a party (See section 79 (1) read with regulation 24 (7)(a)-(c).) Upon acceptance of an application in terms of section 86 (1) the debt counsellor must determine, within the prescribed manner and time whether the consumer is over-indebted. (Section 86(6)) If the debt counsellor reasonably concludes that the consumer concerned is over-indebted, he or she may issue a proposal recommending that the Magistrates’ Court make one or both of the following two orders:

“(i) that one or more of the consumer’s credit agreements be declared to be reckless credit, if the debt counsellor has concluded that those agreements appear to be reckless; and

(ii) that one or more of the consumer’s obligations be re-arranged by-

(aa) extending the period of the agreement and reducing the amount of each payment due accordingly;

(bb) postponing during a specified period the dates on which payments are due under the agreement;

(cc) extending the period of the agreement and postponing during a specified period the dates on which payments are due under the

agreement; or

(dd) recalculating the consumer’s obligations because of contraventions of Part A or B of Chapter 5, or Part A of Chapter 6.”

The debt counsellor is required to refer the matter and his recommendation to the Magistrates’ Court who must then conduct a hearing in terms of section 87. Although section 86 does not state this in explicit terms, in the case of National Credit Regulator v Nedbank and Others 2009 (6) SA 295 (ENP) at page 304 B the Court per Du Plessis J found that section 86 (8)(b) contained a hiatus in this regard and by necessary implication the debt counsellor must “refer the matter to the Magistrate’s [sic] Court with the recommendation” as envisaged in section 86 (8)(b). Section 87 (1) provides that when the Magistrates’ Court conducts a hearing it must have regard to the debt counsellor’s proposal, the information before it and the consumer’s financial means, prospects and obligations. Having conducted a hearing the said Court may then:

“(a) reject the recommendation or application as the case may be; or

(b) make -

(i) an order declaring any credit agreement to be reckless, and an order contemplated in section 83 (2) or (3), if the Magistrate’s

[sic] Court concludes that the agreement is reckless;

(ii) an order re-arranging the consumer’s obligations in any manner contemplated in section 86 (7) (c) (ii); or

(iii) both orders contemplated in subparagraph (i) and (ii).”

The respondent in the present matter applied in terms of the aforementioned provisions of the Act to be declared over-indebted. The application was accepted by a registered debt counsellor as envisaged in the Act, a certain Mr Strydom. He notified the respondent’s credit providers, including the appellant, that the respondent had applied to be declared over-indebted. He subsequently determined that the respondent was over-indebted as envisaged in section 86(6) and recommended that his obligations must be rearranged by “extending the period of the agreement and reducing the amount of each payment accordingly.” He completed the relevant form as prescribed by the regulations issued in terms of the Act and send it to all affected credit providers.

According to Strydom agreement could not be reached with all the credit providers regarding the rearrangement of the respondent’s obligations. As a result an application was launched in the Magistrates’ Court for the district of Uitenhage wherein the following relief was sought:

“1. That the Applicant be declared over-indebted in terms of Section 79 of the National Credit Act, 34 of 2005.

2. That Master Your Money be appointed as the Debt Counselor;

3. That the Applicant’s debt obligations be restructured as set out in Annexure “C”.

4. That payment of Credit Providers, as re-arranged, be made through an accredited payment distribution agent registered with the

National Credit Regulator.

5. That all parties bear own costs for this Application.”

The respondent in the present proceedings, being the affected consumer, was cited as the applicant. The application was opposed by the appellant and two objections were raised. The first was that the respondent did not have locus standi to bring the application. The second objection related to the lack of service of the papers in the application on the appellant. The Magistrate considered the objections raised to the application and found no merit therein. As a result he declared the respondent to be over-indebted and inter alia ordered the respondent’s obligations to be rearranged in the manner recommended by Strydom. The appellant thereupon, after receipt of the Magistrate’s written reasons, lodged an appeal to this Court against the order. The grounds of appeal are that that the Magistrate ought to have found that in proceedings contemplated in section 86 (7)(c) the relevant debt counsellor must be cited as the applicant as opposed to the consumer, and that he erred in finding that there was proper service of the application on the appellant.

At the hearing of the matter counsel for the appellant, in my view quite correctly so, did not seek to place any reliance on the last ground of appeal. Instead, in addition to the first ground of appeal, he submitted that the Magistrate exceeded his powers by ordering, not only that the amount of each monthly payment due by the respondent be reduced, but also that the interest rate payable by the respondent in terms of the credit agreement be reduced from 25% to 15,5%.

The issue of locus standi was raised on the strength of the judgment in the case of National Credit Regulator v Nedbank and Others 2009 (6) SA 295 (GNP). In that case the Court per Du Plessis J concluded inter alia that although a debt counsellor who refers a matter to the Magistrates’ Court fulfils a statutory foundation and is not a litigant in the ordinary sense, he, and not the consumer is the applicant in proceedings envisaged in section 86 and 87 of the Act. On a reading of the judgment it is clear that this finding followed primarily upon the conclusion that a Magistrates’ Court to which a matter has been referred to under section 86 fulfils a judicial, as opposed to an administrative function. Consequently, insofar as the Act or the regulations do not prescribe a procedure for the referral of a matter as contemplated in section 86, the Magistrates’ Courts Act 32 of 1944 and the rules thereto must apply. The debt counsellor must consequently approach the said Court by way of application proceedings in terms of rule 55 of the rules of the Magistrates’ Court and in the prescribed form.

On a reading of the Act and having regard to its purpose and the scheme thereof, it is in my view doubtful that it was intended that the referral of a matter and the holding of an enquiry envisaged in section 86 (7)(c) read with sections 86 (8) (b) and 87 (1) were to be subjected to the procedures and formalism required by the rules of Court. I however do no find it necessary to

decide the issues raised by the first ground of appeal. The reasons therefor are twofold: The first is that if it is accepted that proceedings such as the present are to be brought within the rules of the Magistrates’ Court and that strict compliance therewith is required, the incorrect citation of the consumer as the applicant and any other technical difficulties with regard to the form of application, are matters that could, in the circumstances have been rectified without much difficulty. It is clear from the Magistrate’s reasons for judgment that at the time of the launching of the proceedings the respondent and the debt counsellor were unaware of the judgment in the National Credit Regulator case on which the appellant subsequently relied in its answering papers (the reason is that the said judgment was delivered and the application was filed on the same day.) By virtue of its wide powers of amendment, a Magistrates’ Court is inter alia empowered to substitute a party if it would cause no prejudice to the other party. (See Harms Procedure in Magistrates’ Courts at para 3.5 and the authorities referred to.). The second reason is that the issue raised by counsel at the hearing of the appeal is dispositive of the matter. The fact that it was not pertinently raised before the Magistrate and was not a ground of appeal, does not in my view constitute an obstacle to the consideration thereof. The reason is that it raises a point of law that can be determined on the papers as they stand.

On a reading of section 87 (1) it is clear that the Magistrates’ Court does not have the power to make any order other than those listed in paragraphs (a) and (b) thereof. If it is found that a consumer is over-indebted as determined by the debt counsellor and a recommendation that the consumer’s obligations be rearranged is appropriate in the circumstances, then the said Court is empowered to make one or more of the orders contemplated in section 86 (7)(c)(ii). In the present matter Strydom’s recommendation was that the respondent’s obligations arising from the credit agreement concluded with the appellant were to be rearranged by “extending the period of the agreement and reducing the amount of each payment due” as envisaged in sub-paragraph (aa) of section 86 (7)(c). It is however clear from Strydom’s proposal and the calculations that instead of reducing the amount of each payment due each month by spreading the payment thereof over an extended period as envisaged in sub-paragraph (aa), he achieved a reduction in the payments by reducing the interest rate agreed to in the agreement.

Consequently, by ordering that the respondent’s obligations be rearranged “as per Annexure A to the application, by extending the periods of the agreements and reducing the amount of each payment due accordingly”, the Magistrate effectively ordered not only that the monthly payments be reduced, but also that the interest rate be reduced to 15.5%.

I agree with the respondent’s submission that in doing so the Magistrate acted outside his powers. An order envisaged by section 86 (7)(c)(ii) constitutes a variation of the terms of the credit agreement. Sub-paragraph (aa) of the said section in terms of which both the recommendation and the order was clearly made authorises the Court to extend the period of payment and reduce the amounts of each payment due “accordingly”. It makes no reference to any other terms of the credit agreement. What sub-paragraph (aa) provides for is debt relief to an

over-indebted consumer by extending the period of payment thereby resulting in a reduction of the payments without reducing the actual amount owing by him or her in terms of the relevant agreement. The wording thereof is clear and unambiguous and is in my view not capable of any other interpretation. It accordingly does not permit the Magistrates’ Court to reduce the interest rate applicable to an agreement in order to provide debt relief to a consumer. (See Van Heerden Guide to the National Credit Act (Lexis Nexis) at para 11.3.3.2). It also follows that as the debt counsellor’s scope for making a proposal as envisaged in section 86 (6)(c) is inextricably linked to the powers of the Magistrates’ Court in section 87 of the Act, he or she cannot recommend what the said Court is not empowered to order.

Accordingly, the Magistrate in the present matter acted ultra vires and the order must be set aside. The correct course in my view would be to remit the matter to the said Magistrate to consider, on notice to the appellant, (i) an application for an amendment of the notice of motion and the substitution of the respondent by the debt counsellor Strydom as the applicant in the proceedings, (ii) to allow Strydom to make further recommendations with regard to the respondent’s obligations in terms of the credit agreement and, (iii) thereupon to enquire afresh into the matter as envisaged in section 87 (1) of the Act.

Insofar as costs of the appeal are concerned, I am of the view that an appropriate order in the circumstances of the matter would be one of no order as to costs.

In the result the following order is made:

(a) The appeal is upheld and the order granted by the Magistrate on 2 February 2010 insofar as it relates to the appellant, is set aside.

(b) The matter is remitted to the Magistrate to deal with the matter as envisaged in paragraph [11] of this judgment.

(c) There will be no order as to costs.

D. VAN ZYL

JUDGE OF THE HIGH COURT

Dambuza J : I agree.

N. DAMBUZA

Matter heard on : 15 October 2010

Judgment delivered on : 21 October 2010

Counsel for the Appellant : Adv ARG Mundell

Instructed by : Marie-Lou Bester Inc

35 Saxonwold

JOHANNESBURG

c/o Messrs Neville Borman & Botha

22 Hill Street

GRAHAMSTOWN