AAA Investments (Pty) Ltd v Micro Finance Regulatory Council and Another

• Jurisdiction: South Africa
• Judge: Du Plessis J
• Judgment Date: 27 May 2004
• Docket Number: 30335/2002
• Court: Transvaal Provincial Division
• Counsel: G J Marcus SC (with him A C Dodson) for the applicant. P F Louw SC for the first respondent. J H Dreyer SC (with him A N Oelofse) for the second respondent.

Du Plessis J:

Section 15A of the Usury Act 73 of 1968 ('the Act') provides as follows: F

'The Minister [of Trade and Industry] may from time to time by notice in the Gazette exempt the categories of money lending transactions, credit transactions or leasing transactions which he may deem fit, from any of or all the provisions of this Act on such conditions and to such extent as he may deem fit, and may at any time in like manner revoke or amend any such exemption.'

Acting in terms of this section, on 1 June 1999, the Minister of Trade and Industry (who is the second respondent in G this application) promulgated [1] Government Notice 713 (GN 713). GN 713 exempts certain money lending transactions from most of the provisions of the Act. The category of money lending transactions so exempted is defined in a schedule to GN 713. For present purposes it is sufficient to note that H certain loans that do not exceed R10 000 ('micro-loans') fall within the category. Paragraph 2 of GN 713 provides:

'The category of money lending transaction is exempted on the conditions that -

(a)

the entity concluding the category of money lending transaction is registered as a lender with a regulatory institution; I and

(b)

the lender shall at all times comply with this notice.'

I shall deal with the first condition in the next paragraph. As regards the

Du Plessis J

second condition, GN 713 defines [2] 'this notice' as including Annexure A to the notice. Annexure A comprises, so the heading informs, A 'Rules for purposes of exemption under s 15A of the Usury Act'.

Regarding the second condition of exemption, GN 713 defines a 'regulatory institution' (with whom lenders must register in accordance with the condition) as B

'a legal entity having a Board of Directors which has, amongst other directors, equal and balanced representation between consumers and the money lending industry and which is approved by the Minister in writing and published in the Government Gazette as having the capacity and the mechanisms in place effectively to . . .',

and then follows a list of functions that the entity must be able to fulfil. C

On 16 July 1999 the second respondent (to whom I shall refer as 'the Minister') announced by way of Government Notice 911 [3] (GN 911) that the first respondent had been approved as a regulatory institution in terms of GN 713. The first respondent is an association incorporated under s 21 of the Companies Act 61 of 1973. The founding members of D the first respondent were the Association of Micro Lenders, the Banking Council of South Africa, the Consumer Institute of South Africa, the Department of Trade and Industry, the Housing Consumer Protection Trust, Khula Enterprise Finance Ltd, the Legal Resources Centre, the Micro Enterprise Alliance, the National Housing Finance Corporation Ltd and the South African Reserve Bank. E

The applicant advances, in return for interest, loans of up to R3 000 with a maximum loan repayment period of six months. It thus is a micro-lender that seeks to operate under the exemption provided for in GN 713.

The first respondent's memorandum empowers it 'to make and F enforce rules to be complied with by money lenders advancing small loans registered with the company . . .'. Purporting to act under that power, the first respondent's board of directors on 24 June 1999 adopted a set of rules. There is a definition clause in the rules wherein the term 'Rules' is defined as 'the Rules set out herein, including the Rules in the Annexure to the Usury Act Exemption . . . which shall for all purposes constitute part of the Rules, G and including any Rules prescribed by the council from time to time'. In short, the first respondent adopted rules and incorporated therein the rules contained in Annexure A to GN 713. [4] The rules, like the rules in the Annexure to GN 713, are in the nature of regulations with which lenders seeking to take advantage of the exemption must comply. H

When the Minister approved the first respondent as a regulatory institution, the latter had already adopted the rules. Since the approval, the first respondent has been applying its rules in the course of its regulatory functions. The first respondent adopted a revised set of rules that it put into effect on 1 July 2002. I

Du Plessis J

In this application the applicant primarily seeks an order declaring the revised rules 'invalid, unlawful and unconstitutional'. As will A become clear, the nature of the attack on the revised rules is such that, if successful, the initial rules will by the same token also be invalid. Accordingly, the applicant seeks a similar order regarding the first respondent's first set of rules. The applicant further seeks ancillary relief. As against the Minister the applicant seeks an order reviewing and setting aside his decision to approve the revised rules. B

The relief sought against the Minister may be disposed of immediately. In the papers the Minister contends that the first respondent has the power to make the rules. He is, according to the papers, of the view that he need not formally approve rules that the first respondent makes. While the Minister clearly approves of the C first respondent's rules, he did not in any formal way take a decision to approve either the initial or the revised rules. There is no administrative action on the part of the Minister to set aside. The relief sought against the Minister cannot be granted. I shall deal with the costs implication later. D

I now proceed to deal with the attack on the revised rules. The applicant contends that the revised rules constitute an unconstitutional and unlawful assumption by the first respondent of legislative power. The respondents' answer to this contention is two-fold. Firstly, the respondents contend that the first respondent's memorandum [5] empowers it to make rules that moneylenders registered with it must comply with. E Secondly, the respondents contend that the first respondent's rule-making power is founded in contract as follows. Moneylenders registered with the first respondent are not members of the latter, but to the extent that the provisions of the memorandum (and the rules) for that reason do not bind moneylenders, para 1 of the revised rules (and of the initial rules) provides that the rules F

'together with the registration application form completed by the lender on application (for registration), the registration renewal form completed by the lender annually and the registration certificates issued pursuant thereto by the council shall comprise the agreement between the council and the lender'. G

The opposing contentions raise the following question: When it made the revised rules, was the first respondent exercising a public power to legislate or was it making its own domestic rules to which lenders bind themselves by contract?

If the first respondent was exercising a public power to legislate, the fact that its memorandum empowers it to make rules is of no consequence. A private entity cannot empower itself to exercise H public power to legislate. That is so because the rule of law is a founding principle of the Constitution of the Republic of South Africa Act 108 of 1996 (see s 1(c) [6] of the Constitution; Pharmaceutical Manufacturers Association of SA and Another: In re Ex parte President of the Republic of South Africa and Others 2000 (2) SA 674 (CC) (2000 (3) BCLR 241) at paras [19] and I

Du Plessis J

[20]. See also the discussion in Fedsure Life Assurance Ltd and Others v Greater Johannesburg Transitional A Metropolitan Council and Others 1999 (1) SA 374 (CC) (1998 (12) BCLR 1458) at paras [40], [56] and [58]. As regards the power to legislate, s 43 of the Constitution provides:

'Legislative authority of the Republic

In the Republic, the legislative authority - B

(a)

of the national sphere of government is vested in Parliament, as set out in s 44;

(b)

of the...