Standard Bank of South Africa Ltd v Kallides (1061/2012) [2012] ZAWCHC 38 (2 May 2012)

Republic of South Africa

IN THE HIGH COURT OF SOUTH AFRICA (WESTERN CAPE HIGH COURT, CAPE TOWN)

Case No: 1061/2012

Before: The Hon. Mr Justice Binns-Ward

In the matter between:

THE STANDARD BANK OF SOUTH AFRICA LIMITED …................................................Plaintiff

and

PANAYIOTIS KALLIDES …..............................................................................................Defendant

JUDGMENT DELIVERED: 2 MAY 2012

BINNS-WARD J:

[1] This matter came before me in the Third Division consequent upon an order made by Dlodlo J on 5 April 2012 in the following terms:

(a) The summary judgment .application is postponed sine die and must be reinstated only after the determination of an application in terms of Section 85 of the National Credit Act 34 of 2005, scheduled to be heard on 16 April 2012.

(b) The costs shall be determined in due course.

[2] The proceedings before Dlodlo J were an application for summary judgment by the plaintiff bank in an action in which it claimed payment of the outstanding balance of a loan advanced by it to the defendant against the security of a mortgage in its favour over the immovable property of the defendant, as well as an order declaring the hypothecated property directly executable. The underlying agreement is a credit agreement to which the provisions of the National Credit Act ('the NCA') apply. The summons in the action was not elegantly drafted, but it would appear from the allegations therein that the debt in issue had been the subject of a debt review in terms of s 86 of the NCA. This much can be inferred from the allegation that the bank had delivered notices in terms of s 86(10) of the NCA terminating the debt review.

[3] In the affidavit which he made in opposition to the summary judgment application the defendant averred that he and his current debt counsellor, Mr Barkenhuizen, had 'caused an application in terms of s 85(a) of [the NCA] to be brought against the [plaintiff]'. He indicated that the application would be 'issued and served' simultaneously with the delivery of his opposing affidavit in the summary judgment proceedings. He then went on, as follows, to set out what he described as "his 'bona fide defense (sic)' to the application for summary judgment:

4.1. I submit that I have acted in good faith towards the Applicant/Plaintiff at all times during the Debt Review process by maintaining regular payments to it in accordance with my Debt Counsellor's debt restructuring proposal as is evident from annexure "PK1".

4.2. I submit that 1 am over-indebted as 1 cannot pay my creditors monthly and my income exceeds my expenses.

4.3. 1 first approached Michelle Bernice Alexander ("Alexander"), purportedly a Debt Counsellor of B3 Debt Counsellors, on approximately 09 June 2010. She found me over-indebted and furnished me with a debt restructuring proposal and instructed me to commence payments in respect of that debt restructuring proposal.

4.4. I made regular monthly payments in terms of the debt restructuring proposal into the trust account of Johan ScHeepers Attorneys as per the instruction of Alexander.

I made the following payments:

09.06.2010- R 400.00 (debt counsellors fee)

17.06.2010-R 3 500.00 (debt counsellors fee)

03.08.2010-R 9130.00

15.09.2010-R 9130.00

15.10.2010-R 9 200.00

18.10.2010-R 10 000.00

15.12.2010-R 10 000.00

15.01.2011-R 10 000.00

4.5. From the above it is clear that I made payments in the total sum of R57 460.00 during the period 3 August 2010 to 15 January 2011 for distribution towards my creditor providers as per the recommendations.

4.6. I however became suspicious that payments weren't being made to my credit providers by-Alexander and/or Johan Scheepers Attorneys and from February 2011 took over the payments. I made direct payments to my credit providers as per the debt restructuring proposal.

4.7. From February 2011 onwards when I took it upon myself to make payments to the credit providers, I accordingly made payments totalling R 95 138.33 (from 22 February 2011 to 19 January 2012) as per the recommendation directly to the individual creditors.

4.8. Frustrated with the lack of action by Alexander and her failure to fulfil her obligations. I consulted with my new Debt Counsellor,

Simon Barkenhuizen, on 12 December 2011. He found me to be prima facie over-indebted.

4.9. The institution of the above action by the Applicant/Plaintiff was as a result of Alexander and/or Johan Scheepers Attorneys' failure to fulfil their distribution obligations and 1 am now seemingly paying the price for their negligent actions.

These averments, of course did not make out a defence; they did, however, make out a basis for asking the court to exercise its discretion against granting summary judgment.

[4] The application, purportedly made in terms of s 85 of the NCA, was brought by way of interlocutory proceedings in the action. The principal affidavit filed in support of the application was made by Mr Barkenhuizen. After reiterating the evidence set out in the passage from the defendant's opposing affidavit in the summary judgment proceedings quoted above, Mr Barkenhuizen continued as follows, at para.s 12-29 of his affidavit:

12. From the above it is clear that the Consumer made payments in the total sum of R57 460.00 during the period 3 August 2010 to 15 January 2011 for distribution towards his creditors as per the recommendations. It is also clear from the above that the Consumer in fact contributed more than what was recommended when he was able to do so, which was intended to be distributed accordingly and reduce the debts quicker than initially projected. It had subsequently turned out that the aforesaid amounts had not been distributed by Alexander and/or Johan Scheepers Attorneys as was required of them as will be explained more fully hereunder.

13. The Consumer suspected that payment was not being made to his credit providers and took it upon himself to make payment to his individual credit providers directly from February 2011 onwards, as per the recommendation. In accordance with the recommendation, the Consumer accordingly made payments from 22 February 2011 to 19 January 2012 directly to the individual creditors totalling R94 138.33. A copy of the Consumer's bank account statement for this period reflecting same is attached hereto marked Annexure "SHB4".

14. The Consumer initially made the distribution payments in accordance from the list of creditors given to him by Alexander and over [?time] managed to pay off the debts to the following creditors:

[the names of a number of creditors were listed]

15. In regards to the City of Cape Town account, the Consumer had to make a separate arrangement, not falling within the scope of the debt review application. It might be prudent at this point that Alexander and//or Johan Scheepers Attorneys initially held out to the Consumer that this account will be included in the debt review application.

16. As from 18 January 2012, Consumer Protection Excellence, being a registered payment distribution agency ("PDA") and the PDA whose services Debt Counselling 4 U CC acquired to assist the Consumer in distribution of the payments to the Credit Providers, have been distributing the relevant payments of the Consumer to the applicable Credit Providers.

17. During or about 27 January 2012 the Consumer received a summons from the Respondent in regard to account number 362491968, which was a result of Alexander's failure to make payments timeously to the credit providers.

18. It may be of importance to note that:

18.1. No objections have been received from the remaining creditors in regards to the payments that the Consumer had made personally since February 2011; and

18.2. The institution of the above action by the Respondent/Plaintiff was as a result of Alexander and/or Johan Scheepers Attorneys failure to fulfil their distribution obligations and the Consumer is now seemingly paying the price for their negligent actions.

19. As is stated above, it had subsequently transpired that:

19.1. Johan Scheepers Attorneys received the payments from the Consumer, yet Johan Scheepers Attorneys and/or Alexander failed to make payment to the credit providers either in part of at all. After having done a more thorough investigation, it has become clear that tt * total sum distributed by Johan Scheepers Attorneys ar»'or ' Alexander was R25 690.17 leaving a shortfall of approximately R 31 769.83.

19.2 Alexander issued a Notice of Motion (without a Founding Affidavit) in respect of the Consumer's Debt Review Application in the above Honourable Court under case number 42151/2010 [the deponent evidently meant proceedings under that case number in a magistrate's court] and purportedly set the matter down for hearing on 3 February 2011. My attorneys of record advise, which advise I accept, that it was ascertained from the court file cover and contents, that the incomplete application was never served on the Credit Providers and was not on the court roll on 3 February 2011.

20. Although ignorant of the legal processes and procedures, the Consumer became increasingly concerned that the matter had not been adjudicated by the ... Court and attempted to contacted Alexander numerous times to ascertain the reason why his matter had not yet been finalized and was on each occasion told that Alexander was in the process of negotiations with the credit providers.

21. In light of the lack of fmalisation of the matter, the Consumer became increasingly concerned that Alexander was not fulfilling her professional duties, which was confirmed on 16 November 2011 when the Consumer received a Summons from Nedbank in respect of a credit agreement for monies advanced, under account number: 8000472268801.

22. Frustrated with the lack of action by Alexander and her failure to fulfil her obligations, the Consumer consulted with me on 12 December 2011 in my capacity as a Debt Counsellor.

23. The Consumer advisedirie arthe~ aforesaidconsultation rhatnebeiieVed^that he'was over-indebted and informed me that he was unable to satisfy all of his debt obligations under the credit agreements in a timely manner and also informed me on the history of the matter, as well as Alexander's previous involvement, or lack thereof, prior to the issuing of the summons.

24. After evaluating the Consumer's alleged state of over indebtedness and any prospects for responsible debt re-arrangement, 1 determined that the Consumer indeed appears prima facie to be over indebted within the ambit of the provisions of section 79(1 )(a) of the Act, in that:

24.1 The Consumer will be unable to satisfy in a timely manner all the obligation sunder all the credit agreements to which the Consumer is a part)', having regards to the Consumer's:

24.1.1. Financial means, prospects and obligations, and

24.1.2. Probable propensity to satisfy in a timely manner all obligations under credit agreement to which the Consumer is a party, as indicated by the Consumer's history of debt repayment.

24.2. After deducting his minimum living expenses from his net income it became clear that the Consumer's total monthly debt payments exceeded the remainder of his net income.

25. The Consumer's net income was calculated by deducting from the gross income, statutory deductions and other deductions that were made as conditions of employment.

26. The Consumer's minimum living expenses were based on a budget provided by the Consumer, adjusted by myself to the guidelines issued by the National Credit Regulator.

27. The Consumer's financial position is more fully set out in annexure "SHB5" attached hereto. ALLEGATION OF OVER-INDEBTEDNESS

28. As stated above, the Consumer has averred that he is over-indebted.

29. For reasons stated hereinabove, 1 too respectfully submit that the Consumer appears prima facie to be over-indebted and is a suitable candidate for Debt Review process, which process he has been denied through no fault of his own.

[5] Section 85 of the NCA provides:

Court may declare and relieve over-indebtedness

Despite any provision of law or agreement to the contrary, in any court proceedings in which a credit agreement is being considered, if it is alleged that the consumer under a credit agreement is over-indebted, the court may-

(a) refer the matter directly to a debt counsellor with a request that the debt counsellor evaluate the consumer's circumstances and make a recommendation to the court in terms of section 86 (7); or

(b) declare that the consumer is over-indebted, as determined in accordance with this Part, and make any order contemplated in section 87 to relieve the consumer's over-indebtedness.

[6] There is nothing in the wording of s 85 of the NCA that contemplates the making of an application in order to invoke its operation. On the contrary, the trigger to the operation of s 85 is the allegation in the context of any court proceedings in which a credit agreement is being considered that the consumer in terms the agreement is over-indebted. The allegation in question would be one made integrally in the context of pending proceedings in which the terms or existence of a credit agreement is relevant. It might be made either in a pleading, or an affidavit, or even in the course of viva voce evidence. The wording of the provision, which has a wide import (cf. Ex parte Ford and Two Similar Cases 2009 (3) SA 376 (WCC), especially at para.s 9-12) holds in contemplation the intervention of the courts in the course of proceedings, incidentally and mero motu, in circumstances in which the criteria provided in terms of the section are present. A court would act in terms of the provision in such a caseif it were of the view that the achievement of the objects of the statute and the just determination of the matter in hand would be assisted by such an intervention. While it would, of course, be open to any party to the proceedings to argue or suggest that the court should act in terms of s 85, the provision does not contemplate a substantive application to that end.

[7] The process under s 85 of the NCA falls to be contrasted with that in terms of s 86 of the Act, in which the over-indebted consumer has the right, subject to the Act, to initiate debt review proceedings, and ultimately to apply, in the manner expressly provided, for a debt re­arrangement order. One of the considerations to which a court will have regard in determining whether to act in terms of s 85 would be the reason for a consumer's failure to have availed of s 86. The scheme of the Act is directed at striking a balance between the rights of credit providers and consumers.1 One of the stated objects of the legislation is to encourage the fulfilment by consumers of their contractual obligations.2 It was not the intention of the legislature that the machinery of the Act be used to provide a basis for consumers to wilfully or negligently delay, or unreasonably thwart the enforcement by credit providers of their contractual rights. This much is demonstrated, for example, by the fact that a consumer who is in breach of its payment obligations under a credit agreement and who, in consequence, is given notice by the credit provider in terms of s 129(l)(a) of the NCA is precluded by the provisions of s 86(2) of the Act from thereafter submitting the affected debt for review in terms of the provision. So too, a credit provider is entitled to terminate a pending debt review by notice in terms of s 86(10), if a debt re-arrangement order has not been obtained within 60 business days of the consumer's application for debt review and the consumer is in default in terms of the credit agreement. Another provision in point is s 88(3), which allows a credit provider, without further ado, to resort to enforcement of its rights in respect of a credit a^»ement if the consumer is in default of a debt re-arrangement agreement or order.

[8] Sections 85 and 86 of the NCA are both to be found in Part D of ch. 4 of the Act. The process contemplated in terms of both provisions is directed at obtaining the consideration of a recommendation by a debt counsellor in terms of s 86(7) and/or the making of an order of the nature provided for in terms of s 87(1) of the Act. Notwithstanding the breadth of the opening words to s 85 of the NCA, reference to the broader context of the statute impels the conclusion that the section was not intended to provide a basis for a repetition of the process already provided for in terms of s 86, or to draw back within the ambit of debt review debts already excluded therefrom by the operation of other provisions of the Act, such as s 86(2), s 86(10) or s 88(3). To construe s 85 otherwise would be conducive to the most unwholesome circularity, at odds with basic principle - interest rei publicae ut sit finis litium.

[9] In Collett v Fir strand Bank Ltd 2011 (4) SA 508 (SCA), at para. 11, it was observed that one of the differences between debt review under s 85 and that under s 86 is that in terms of the former the credit provider does not have the right to terminate the review. This is no cause for surprise as the process under s 85(a) occurs at the instance and under the direction of the court and once an order is made under s 85(b), enforcement proceedings by the credit provider might ensue only in the circumstances provided in terms of s 88(3) of the NCA.

[10] It is common cause in the current matter that the debt in respect of which the plaintiff seeks to exact payment in the action had been the subject of debt review in terms of s 86 of the NCA. The allegation that the review was terminated by the plaintiff in terms of s 86(10) is not challenged in the affidavit opposing summary judgment, or in the affidavits made in support of the application purportedly made in terms of s 85 of the NCA. Thus, quite apart from the consideration that s 85 does not contemplate dedicated application proceedings as aprecursor to its operation, the circumstances are such as in any event, for the reason given in the preceding paragraphs, to exclude its application.

[11] The conclusion reached in respect of the application of s 85 does not, however, leave the defendant remediless. It is evident from the passages in the affidavits quoted above that the defendant has, apparently through no fault of his own, not enjoyed the rights and benefits which the NCA should have afforded him. It would be not be just and equitable in the peculiar circumstances that summary judgment be given against him without his being afforded procedural redress. Section 86(11) provides the basis upon which the indicated redress can provided. It goes as follows:

If a credit provider who has given notice to terminate a review as contemplated in subsection (10) proceeds to enforce that agreement in terms of Part C of Chapter 6, the Magistrate's Court hearing the matter met}' order that the debt review resume on any conditions the court considers to be just in the circumstances.

By means of an interpretative reading in, the Supreme Court of Appeal has determined that the reference in s 86(11) to 'the Magistrate's Court' includes the High Court. See Collett supra, at para. 17. (It is odd that an application in terms of s 86(11) falls to be brought only after the institution of enforcement proceedings by the credit provider. One would have thought that it

would have been commercially more efficient and indeed more consonant with the stated objects of the Act to have required the consumer to make the application within the interval afforded between the giving by the credit provider of notice of termination and the date provided in terms of s 130(l)(a)3anc" HREF="#sdfootnote3sym">3 upon which the credit provider is able thereafter to institute enforcement proceedings, unless during that time the consumer had remedied its default. The peculiarity is, however, by no means the only one of the statute's idiosyncrasies; cf. Nedbank v The National Credit Regulator [2011] ZASCA 35, 2011 (3) SA 581 (SCA). at para. 2.)

[12] In the event I propose thus to treat the application purportedly made in terms of s 85 of the NCA as one in substance made in terms of s 86(11). It would be just, in my view, to make the resumption of the debt review subject to the right of any of the defendant's creditors, if he is at the time in default in terms of the relevant agreement, to terminate the review by notice, in the manner prescribed in terms of s 86(10), at any time after the elapse of 60 business days from the date of the order if, by the date on which any such notice is given, a plan of debt re-arrangement has not been voluntarily agreed upon, or an order in terms of s 87(1) of the NCA has not been made. Section 130(4)(c)(i) of the NCA seems to allow that in such an eventuality proceedings against the defendant under the pending action could be resumed. I should perhaps record that the plaintiff bank did not oppose the application, quite properly in my view. There will be no order as to costs.

[13] The alleged conduct of the debt counsellor initially engaged by the defendant and the alleged default by the attorney entrusted with the defendant's funds for the purposes of payment distribution must be investigated, and if established, appropriately dealt with by the responsible authorities. Directions to this end will be included in the order that is to be made. The conscientious discharge by debt counsellors of their statutory functions is essential to the effective functioning of the NCA. It behoves the National Credit Regulator to fulfil its supervisory role so as to ensure that debt counsellors who do not discharge their functions professionally are promptly deregistered, or otherwise appropriately sanctioned.

[14] In the result the following order is made:

(a) It is ordered, in terms of s 86(11) of the National Credit Act 34 of 2005, that the debt review proceedings commenced by Michelle Bemice Alexander of B3 Debt Review on behalf of the defendant, including the application for debt re­arrangement instituted in the magistrate's court under case no. 42151/2010, shall be resumed under the aegis of the defendant's current debt counsellor, Simon Hendrik Barkenhuizen of Debt Counselling 4 U CC.

(b) The resumption of the debt review in terms of paragraph (a) shall be subject to termination by any of the defendant's creditors by notice given in the manner prescribed in terms of s 86(10) of the National Credit Act at any time after the elapse of 60 business days from the date of this order, if, by the date upon which any such notice is given, he is in default in terms of the relevant agreement and a plan of debt re-arrangement has not been voluntarily agreed upon, or an order in terms of s 87(1) of the Act has not been made.

(c) In the event that the plaintiff terminates the resumed debt review in the manner and circumstances contemplated by paragraph (b), it may re-enlist the summary judgment application that was postponed sine die in terms of the order made by Dlodlo J on 5 April 2012.

(d) The Chief Registrar is directed to forward a copy of this judgment to the chief executive officer of the National Credit Regulator and to the Director of the Cape Law Society so that those institutions may investigate the allegations of misconduct against Michelle Bernice Alexander as debt counsellor and Johan Scheepers Attorneys made in the affidavits in these proceedings by Simon Hendrik Barkenhuizen and Panayiotis Kallides.

(e) There shall be no order as to costs.

A.G. BINNS-WARD

Judge of the High Court

1Sees 3(d) of the NCA.

2See s 3(c) (g) and (i) of the NCA.

3In which the reference to s 86(9) is a drafting error; the obvious intention having been to refer to s 86(10).