Collett v FirstRand Bank Ltd

• Jurisdiction: South Africa
• Judge: Mpati P, Brand JA, Maya JA, Malan JA and Tshiqi JA
• Judgment Date: 27 May 2011
• Citation: 2011 (4) SA 508 (SCA)
• Docket Number: 766/2010
• Hearing Date: 04 May 2011
• Counsel: SA Collett for the appellant. PF Louw SC (with GTS Eiselen and N Konstantinides) for the respondent. AE Franklin SC (with A Govender) for the National Credit Regulator as amicus.
• Court: Supreme Court of Appeal

Malan JA (Mpati P, Brand JA, Maya JA and Tshiqi JA concurring):

[1] This appeal concerns the construction of s 86(10) and (11) and s 87 of the National Credit Act 34 of 2005. Eksteen J sitting in the Eastern Cape High Court, Grahamstown, granted summary judgment [*] against the appellant in an amount of R677 254,92 with interest and H costs, and made an order declaring certain immovable property executable. The action was based on a mortgage bond hypothecating the property declared executable. A 'mortgage agreement' is a 'credit transaction' and the NCA applies to it. [1]

[2] The appellant was in default with her repayments under the bond I and by reason of her failure to pay any or all of the agreed instalments the whole of the outstanding amount became due. On 4 January 2010 she

Malan JA (Mpati P, Brand JA, Maya JA and Tshiqi JA concurring)

A applied for debt review in terms of s 86(1). The application was made to Gerhard Stoltz Debt Counsellors, and the respondent was notified of it the same day. On 15 February 2010 Stoltz advised the respondent that the application was successful and that the debt obligations of the appellant were in the process of being restructured. A debt-restructuring B proposal was circulated to all the appellant's credit providers, including the respondent. None of the credit providers accepted the proposal. On 29 March 2010 Stoltz referred the matter to the East London magistrates' court in terms of s 86(8), for an order that the appellant be declared overindebted; that her debt commitments be rearranged; that the credit agreements of those credit providers who terminated their C reviews under s 86(10) be resumed and be included in the debt review; and for costs.

[3] After the matter had been referred to the magistrates' court, and on 7 April 2010, that is, more than 60 days after the appellant's application, D the respondent terminated the debt review insofar as it related to the mortgage bond. It did so pursuant to the provisions of s 86(10). The hearing before the magistrates' court in terms of s 87, set down for 10 June 2010, was postponed to 12 August 2010. Summons was issued on 21 June 2010 and served on the appellant on 1 July 2010.

E [4] Section 86 sets out the procedure to be followed by the debt counsellor on receipt of a consumer's application for debt review. Section 87 concerns the rearrangement of a consumer's obligations and the powers of the magistrates' court to which the matter has been referred. Sections 86 and 87 are contained in Part D of Ch 4 of the NCA, which is entitled 'Over-indebtedness and reckless credit'. The procedure F when applying for debt review is contained in s 86 and has been described elsewhere. [2] The sections referred to read as follows:

'86(10) If a consumer is in default under a credit agreement that is being reviewed in terms of this section, the credit provider in respect of that credit agreement may give notice to terminate the review in the G prescribed manner to —

(a)

the consumer;

(b)

the debt counsellor; and

(c)

the National Credit Regulator,

at any time at least 60 business days after the date on which the consumer applied for the debt review.

H (11) 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 may order that the debt review resume on any conditions the court considers to be just in the circumstances.

87 Magistrate's Court may re-arrange consumer's obligations

I (1) If a debt counsellor makes a proposal to the Magistrate's Court in terms of section 86(8)(b), or a consumer applies to the Magistrate's Court in terms of section 86(9), the Magistrate's Court must conduct

Malan JA (Mpati P, Brand JA, Maya JA and Tshiqi JA concurring)

a hearing and, having regard to the proposal and information before it A and the consumer's financial means, prospects and obligations, may —

(a)

reject the recommendation or application as the case may be; or

(b)

make —

(i)

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

(2) The National Credit Regulator may not intervene before the Magistrate's Court in a matter referred to it in terms of this section.' C

Section 88 deals with the effect of debt review or a rearrangement order or agreement. [3]

[5] In her affidavit opposing the application for summary judgment the appellant did not deal with the merits of the respondent's case, but only questioned the respondent's right to have instituted action. She stated: D

'As I applied for debt review prior to the applicant issuing summons against me, and furthermore, as my debt counsellor has referred my application to the magistrates' court prior to the plaintiff's summons and within the prescribed 60 business day period, it should be clear the plaintiff did not have the right to issue summons against me.' E

[6] The question to be decided is therefore whether a credit provider is entitled to terminate a debt review in terms of s 86(10) after the debt counsellor has referred the matter to the magistrates' court for an order envisaged by s 86(7)(c) (and s 87(1)(b)), and while the hearing in terms of s 87 is still pending. In the court below Eksteen J held in the F affirmative. The conclusion of the court below is supported by several provincial division judgments. [4] However, as has become typical of the jurisprudence developing around the NCA, there is a host of decisions

Malan JA (Mpati P, Brand JA, Maya JA and Tshiqi JA concurring)

A that have taken a different view. [5] It is not possible to do justice to all the considerations advanced in these conflicting decisions. [6] They deal with the approach to take when construing the NCA; the question when the entitlement to terminate the debt review arises and ends; and the meaning of s 86(11), in particular, which court may order a resumption B of the debt review which was terminated.

[7] The view that the credit provider may not terminate the debt review after referral to the magistrates' court is perhaps best articulated by Griesel J speaking for the full court in Wesbank, A Division of FirstRand Bank Ltd v Papier (National Credit Regulator as Amicus Curiae). [7] He quite C correctly pursued a contextual approach to the legislation. [8] He referred to Part D of Ch 4 of the NCA as introducing the concepts of 'over-indebtedness and reckless credit' and stated that:

'The object of this part of the Act is to provide protection and assistance to an over-indebted consumer in an environment that encourages participation in good faith by both parties. The mechanisms provided D by the Act are contained in ss 85 – 88 and consist of debt review, on the one hand, and debt re-arrangement, on the other.' [9]

Proceeding on this basis he held that s 86(10) dealt with one aspect of the elaborate process as described in the heading to s 86, 'Application for E debt review'. This process commences with an application by the consumer in terms of s 86(1), followed by the notification of the application by the debt counsellor to all credit providers and credit bureaux. [10] The consumer and each credit provider must then, as is required by s 86(5), comply with the requests of the debt counsellor and participate in the debt review in good faith.

F [8] The debt counsellor must within 30 days determine whether the consumer 'appears to be over-indebted'. [11] If he determines that the consumer is not overindebted he must reject the application [12] and

Malan JA (Mpati P, Brand JA, Maya JA and Tshiqi JA concurring)

advise the consumer of his right to approach the court directly in terms A of s 86(9) within 20 business days. [13] Where the debt counsellor determines that the consumer appears to be overindebted, he must [14] 'issue a proposal' recommending that the magistrates' court make any of the orders provided for by s 86(7)(c) (and s 87(1)(b)). Griesel J concluded that a referral in terms of s 86(7)(c) sets in motion a 'debt B re-arrangement by the court', as opposed to a 'voluntary re-arrangement' in terms of s 86(8)(a). Because neither the NCA nor the regulations contain any time period within which the referral to court must be made, he opined that, having regard to the context, the answer became clear: C

'The process of debt review requires of the debt counsellor to determine, within 30 business days, whether or not a consumer is overindebted. If not, the debt counsellor must advise the consumer of his or her right to approach the court within a further 20 business days for the necessary order. This leads me to the conclusion that the period of 60...