Seaworld Frozen Foods (Pty) Ltd v Butcher's Block and Another (CA 122/2011) [2011] ZAECGHC 67 (24 November 2011)

9

NOT REPORTABLE

IN THE HIGH COURT OF SOUTH AFRICA

EASTERN CAPE DIVISION – GRAHAMSTOWN

Case No: CA 122/2011

Date Heard: 18/11/2011

Date Delivered: 24/11/2011

In the matter between

SEAWORLD FROZEN FOODS (PTY) LTD .................................Appellant

and

THE BUTCHER’S BLOCK ..............................................First Respondent

JAMES MACKENZIE .................................................Second Respondent

APPEAL JUDGMENT

REVELAS J

[1] This is an appeal against an order of a magistrate sitting in the Civil Court in Port Elizabeth, postponing the trial proceedings before him sine die, and ordering the appellant (the plaintiff) to “comply and register with the National Credit Regulator” as a credit

provider in terms of the National Credit Act, 34 of 2005 “the Act” before the trial may be proceeded with.

[2] The appeal is unopposed and the respondents (the first and second defendants in the court a quo) have filed a notice indicating that they abide the outcome of this appeal. For ease of reference I will refer to the parties as they were in the magistrate’s court proceedings.

[3] The plaintiff instituted an action against the first and second defendants for an amount of R88 802.12, which it claims was the balance of the purchase price of goods (food products) allegedly sold and delivered by the plaintiff to the first defendant, who refused to pay the aforesaid amount. The second defendant is the manager of the first defendant whose liability arises according to the plaintiff, because he bound himself as surety and co-principal debtor with the first defendant for the fulfilment of all obligations of the first defendant to the plaintiff. The first defendant also applied for purchasing on credit from the plaintiff and the parties concluded an agreement to that effect, signed on 25 July 2005, and incorporating the deed of suretyship in question.

[4] In response to the plaintiff’s unsuccessful application for summary judgment, the second defendant averred that the first defendant had paid to the plaintiff, the amounts totalling R147 403.98 and was not indebted to it in any way. In their subsequent plea to the summons, the defendants similarly averred that any obligation towards the plaintiff had been discharged by them and they challenged the reconciliation document, which the plaintiff furnished as proof of the debt, and attached as an annexure to its particulars of claim. They also pleaded that the second defendant who signed the credit agreement, never intended to execute a deed of suretyship in favour of the plaintiff when he did so.

[5] The goods were indeed sold and delivered as alleged by the plaintiff. That was admitted. The defendants also raised a special plea, namely that the credit application or agreement referred to, constituted credit agreement within the meaning contemplated in section 8 of the Act which agreement may not be enforced until such time as the plaintiff had complied with the relevant provisions of the Act. The non-compliance complained of was:

(1) The plaintiff’s alleged failure to follow the procedures set out in section 129 and section 130 of the Act (notice to the debtor with proposals how to deal with the debt, and the lapse of certain periods after notice);

(2) The plaintiff’s failure to register itself as a credit provider in terms of sections 40(1)(a) of the Act, which has the effect of rendering the credit agreement unlawful, and thus unenforceable.

[6] Section 40(1)(a) reads as follows:

“40. Registration of credit providers. – (1) A person must apply to be registered as a credit provider if –

that person, alone or in conjunction with any associated person, is the credit provider under at least 100 credit agreements other than incidental credit agreements; (emphasis added)

the total principal debt owed to that credit provider under all outstanding credit agreements, other than incidental credit agreements, exceeds the threshold prescribed in terms of section 42(1)”.

[7] Section 40(4) of the Act provides that the non-registration of a credit provider would result in the unlawfulness of any credit agreement entered into by such a credit provider, as contemplated by section 89 of the Act.

[8] The plaintiff argued that the credit agreement between itself and the first defendant was an incidental credit agreement and therefore it was not required to registered in terms of the Act. The parties were ad idem that the plaintiff was either party to more than 100 agreements or that the total amount owing in terms of those agreements exceeded R500 000.00 (the threshold referred to in section 42(1)).

[9] The magistrate found that the plaintiff had complied with sections 129 and 130 of the Act, but only after the action had been instituted and ordered the plaintiff to pay the defendants costs on a scale as between party and party as from the date on which the plaintiff first failed to comply until the time it had complied, which was in March 2011.

[10] The crucial finding of the magistrate, which is the only finding which is at issue in this appeal, was that the credit application (or credit agreement) in question was not an incidental agreement, but a credit facility, and therefore the plaintiff was obliged to apply for registration as a credit provider and submit proof of registration. When the magistrate ordered a postponement for this purpose, he also ordered costs against the respondent.

[11] In section 1 of the Act, an incidental agreement is defined as:

“An agreement, irrespective of its form, in terms of which an account was tendered for goods or services that are to be provided to a consumer over a period of time and either or both of the following conditions apply:

a fee charge, or interest became payable when payment of an amount charged in terms of that account was not made on or before a determined period or date; or

two prices were quoted for settlement of the account, the lower price being applicable if the account is paid on or before a determined date, and the higher price being applicable due to the account not having been paid by that date”.

[12] The credit agreement between the parties obliged the plaintiff to sell goods on credit to the first defendant and the latter’s obligation to pay the plaintiff for the goods, was deferred for thirty days, which is the defined period in the agreement itself.

[13] The agreement also makes provision for the payment of interest in the event of payments not being made timeously by the first defendant. The interest payable upon late payment is set at the maximum rate of interest as determined by the repealed Usury Act, and payable from time to time, with monthly calculations, in advance, as from the due date of payment.

[14] The aforesaid terms of the agreement, which provides that interest only becomes payable when the amount charged has not been paid timeously, i.e. within thirty days of purchase, in my view, fall squarely within the definition of an incidental credit agreement.

[15] The definition of a credit facility, which the magistrate held the agreement in question to be, is to be found in section 8(3) of the Act and reads as follows:

“(3) An agreement, irrespective of its form but not including an agreement contemplated in subsection (2) or section 4(b)(b), constitutes a credit facility if in terms of that agreement.

a credit provider undertakes-

to supply goods or services or to pay an amount or amounts, as determined by the consumer from time to time, to the consumer or on behalf of, or at the direction of, the consumer; and

(ii) either to –

defer the consumer’s obligation to pay any part of the cost of goods or services, or any part of an amount contemplated is sub-paragraph (i) and

any charged, fee or interest payable to the credit provider in respect of –

any amount deferred as contemplated in paragraph (a)(ii)(aa); or any amount billed as contemplated in paragraph (a)(ii)(bb) and not paid within the time provided in the agreement”.

[16] The deferment of the consumer’s obligation to pay part of the purchase price as meant in section 8(3)(a)(ii)(aa) of the Act does not find application. The agreement provides for the deferment of the entire debt for thirty days. It also does not provide for a decrease in the amount due (discount), if payment is made timeously.

[17] The agreement in question was headed “Application for Credit Facilities”. This title may have contributed to the learned magistrate’s finding that the agreement was a credit facility (which would require the plaintiff to register as a credit provider), as opposed to an incidental agreement, which it indeed was.

[18] In JMV Textiles (Pty) Ltd v De Chalain Spareinvest 14 CC and Others [2011 1 All SA 318 (KZD), Wallis J (as he then was), also considered a plaintiff’s obligation to register as a credit provider in terms of the Act. In that matter, the plaintiff agreed to sell fabrics to the first defendant on credit, for a fixed price, payable within sixty days. The second and third defendant’s bound themselves as sureties and co-principal debtors with the first defendant for its obligations in terms of the agreement.

[19] In the present matter, which is based on virtually the same facts as in JMV Textiles, the expectation of the parties to the agreement was also that the full price of the goods would be paid each month as it falls due. There was no fee payable for this and no entitlement to pay less than the full amount each month.

[20] As the learned judge in paragraph [15] of the JMV Textiles judgment at 323, put it:

“The obligation to pay interest flows from default in making timeous payment, not from the legitimate decision not to pay the full amount that is due each month”.

[21] Wallis J also observed the following about the type of agreement under consideration in the matter before him (also in paragraph [15]), which observation applies equally to the one which is the subject-matter of this appeal:

“This type of transaction is so wholly distinct from those that are manifestly intended to fall within section 8(3) that the language should not be stretched to encompass it. Even if it does, I am mindful of the warning given by De Villiers ACJ in Town Council of Springs v Moosa and Another 1929 AD 401 at 417 that:

‘An interpretation clause has its uses, but it also has its dangers, as it is obvious from the present case. To adhere to the definition

regardless of subject-matter and context might work the gravest injustice by including cases which were not intended to be included’.

In my view, section 8(3) is directed at the provision by credit providers of charge cards and credit cards and similar arrangements and not at conventional sales on credit. It accordingly does not cover the transactions before me”.

[22] The learned judge concluded that an incidental credit agreement could not also be a credit facility.

[23] In paragraph [17] of his judgment the learned judge, when comparing a credit facility to an ordinary contract for sale of goods on credit, made the very important point that in the latter instance, it is not the intention underlying the transaction that the supplier will profit from the interest charged. The interest is levied in order to compensate the seller in the event of receiving a late payment which may have certain prejudicial commercial consequences for the seller. That would be an incidental credit agreement. This category of agreements are ordinary contracts for goods sold on credit which people would enter into as part of their day-to-day activities, such as for example with their butcher or pharmacy, or which students will enter into with their bookshop. With regard to these commonplace agreements Wallis J observed in paragraph [18] of his judgment: “It would be surprising to discover that all these institutes are credit providers required to register in terms of the NCA”. It could never have been the intention of the legislator to burden ordinary businesses to register as credit providers when they sell their goods on account to regular customers.

[24] The magistrate’s findings in the present matter clearly cannot survive the reasoning in JMV Textiles. The learned magistrate ought to have found that the contract between the parties was one for goods purchased on credit, which fell in the category of an incidental agreement and that the plaintiff was accordingly not obliged to register as a credit provider in terms of section 40(1)(a) of the Act.

[25] Accordingly, the appeal is upheld with costs.

__________________

E Revelas

JUDGE OF THE HIGH COURT

Beshe J: I agree.

__________________NG Beshe

Counsel for the Appellant: Adv T Zietsman

Oasis Chambers

Port Elizabeth

Instructed by: Greyvensteins Attorneys

St Georges House

104 Park Drive

Counsel for the Respondent: No Appearance

Date Heard: 18 November 2011

Date Delivered: 24 November 2011