Case Notes: The Incorrect Understanding of an Incidental Credit Agreement Leads to Undesirable Consequences: JMV Textiles Ltd v De Chalain Spareinvest

• Jurisdiction: South Africa
• Author: Sarah-Lynn Tennant
• Pages: 123-134
• Date: 25 May 2019
• Published date: 25 May 2019
• Citation: (2011) 23 SA Merc LJ 123

The Incorrect Understanding of an Incidental

Credit Agreement Leads to Undesirable

Consequences: JMV Textiles Ltd v De Chalain

Spareinvest

SARAH-LYNN TENNANT

University of South Africa

1 Introduction

The National Credit Act 34 of 2005 (the ‘NCA’), which took effect on 1

June 2007, applies to ‘every credit agreement’ (s 4(1)), being a credit facility

(s 8(1)(a)), credit transaction (s8(1)(b)), credit guarantee (s8(1)(c)), any

combination of the above (s 8(1)(d)), and an altruistic agreement (ss10 and

11). With regards to a ‘credit transaction’, s8(4)(b) of the NCAstates that an

incidental credit agreement is a form of a credit transaction. From this it is

clear that an incidental credit agreement is a credit transaction which, in turn,

is a credit agreement under the NCA.

Section 1 of the NCA def‌ines an ‘incidental credit agreement’as an

agreement where a credit provider renders services or goods to the consumer

and the credit provider issues an account stipulating the required date of

payment. Should the consumer not pay on the specif‌ied date, the credit

provider charges the consumer a fee, charge or interest or a higher amount:

this higher amount means that two prices are quoted for settlement of the

account with the lower price being applicable if the account is paid before the

specif‌ied date and the higher price being applicable if the account has not

been paid by that date. The fee, charge, interest or a higher amount may only

be recovered in accordance with s 5(1)(a) of the NCA (levied only in terms of

ss101 (dealing with the cost of credit) and 105 (stipulating the maximum

rates of interest, fees and charges) of the NCA) and on condition that the

parties reached an agreement before the goods or services were supplied (see

s 5(3)(b)).

Once an agreement has met this def‌inition of an incidental credit

agreement, s5 of the NCA applies stating (in subs (2)) that an incidental

credit agreement comes into existence only 20 business days after f‌irst

charging a fee, charge, interest or higher amount, and that the NCA will then

apply in a limited manner in accordance with those sections listed in subs (1).

Despite the clarity on the nature of an incidental credit agreement given in

ss 1, 5 and 8 of the NCA, the decision in JMV Textiles (Pty) Ltd v De Chalain

Spareinvest 14 CC & Others (2010 (6) SA 173 (KZD)) suggests that there is a

misunderstanding relating to the interpretation and application of these

provisions of the NCA of an incidental credit agreement. The Court’s main

123

(2011) 23 SA Merc LJ 123

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