Desert Star Trading 145 (Pty) Ltd and Another v NO 11 Flamboyant Edleen CC and Another

• Jurisdiction: South Africa
• Judge: Navsa JA, Cloete JA, Ponnan JA, Ebrahim AJA and K Pillay AJA
• Judgment Date: 29 November 2010
• Citation: 2011 (2) SA 266 (SCA)
• Docket Number: 98/2010
• Hearing Date: 10 November 2010
• Counsel: FH Terblanche SC (with JE Smit) for the first appellant. MC Erasmus SC for the second appellant. A Bester for the first and second respondents.
• Court: Supreme Court of Appeal

Ponnan JA (Navsa JA, Cloete JA, Ebrahim AJA and K Pillay AJA concurring): G

[1] 'Neither a borrower nor a lender be' is Polonius' counsel to his son Laertes in Shakespeare's Hamlet (Act 1, Scene 3). 'For loan' as Polonius explains, 'oft loses both itself and friend, [a]nd borrowing dulls the edge of husbandry.' Increased consumption, a desire-based need for credit, attractive borrowing options and alluring methods of repayment have all H contributed to many of us not living our lives by that aphorism. Our modern consumer-driven society does however come at a cost. As recently as 2005 it was reported that South Africa's consumer debt crisis was costing the country around R12 billion annually and that 40 % of households nationally were experiencing financial difficulty, as they were unable to meet loan repayments to microlenders and other service I providers. [1] The protection of the consumer has become a common feature in many legal systems. Many countries have adopted consumer-

Ponnan JA (Navsa JA, Cloete JA, Ebrahim AJA and K Pillay AJA concurring)

A protection legislation to regulate credit grantor – credit consumer relationships, because they can and do give rise to abuse and exploitation. [2] Given the borrower's weaker economic position [3] (that is usually why a loan is being sought), he or she is often helpless in the face of contracts — particularly standard form contracts presented by the lender. B To borrow from Voet:[4]

'A needy debtor, pressed by tightness of ready cash, will readily allow any hard and inhuman terms to be written down against him. He promises himself smoother times and better fortune before the day put into the commissary term, and thus hopes to avert the harshness of the agreement by payment; though such a hope, quite slippery and C deceptive as it is, not seldom finds nothing at all to encourage it in the aftermath.'

[2] Consumer credit legislation is usually the means by which credit grantor – credit consumer relationships are regulated. The main purpose of consumer legislation is said to be the protection of the consumer from D exploitation. [5] But as Monica L Vessio points out:

'What is equally, if not more important, is an actual balancing of the interests of both credit consumers and credit grantors. The reason for the emphasis on this balance is that over-protecting the consumer may result in the investor (credit grantor) withdrawing his funding from the consumer credit market, due to the fact that the general administrative E expenses of making credit available, no longer proves a lucrative venture due to stringent consumer laws. Another feature of the over-protection of the consumer may be the passing-on of administrative costs to the consumer. A subtle balance needs to be obtained. The risk of over-protecting the consumer could prove detrimental. ' [6]

F That balance has been sought to be achieved in this country by the enactment of the relatively recent National Credit Act 34 of 2005 (the NCA), which seeks, according to its Preamble, inter alia, to —

'provide for the general regulation of consumer credit and improved standards of consumer information; . . . prohibit certain unfair credit and credit-marketing practices; to promote responsible credit granting and use G and for that purpose to prohibit reckless credit granting. . .'.

[3] Against that backdrop I turn to the facts in this case. Unable to raise a loan from any of the established banking institutions, but being desperately in need of financial assistance, Mr George Ehlers (Ehlers) turned to small private lenders, although, as he put it, he knew he 'was H going to pay a heavy price for the loan'. One such private lender to whom Ehlers turned during 2007 was Desert Star Trading 145 (Pty) Ltd (Desert Star),

Ponnan JA (Navsa JA, Cloete JA, Ebrahim AJA and K Pillay AJA concurring)

the first appellant. Not being creditworthy he did not A qualify for the loan that he sought. The loan application was then revised and resubmitted in the name of his son, Mr Eugene Ehlers (Eugene). The amount lent and advanced together with interest and costs by Desert Star to Eugene was the sum of R859 600. On 8 June 2007 Eugene acknowledged his indebtedness in writing to Desert Star B and undertook to effect repayment of that sum within 12 months of that date. The agreement provided that in the event of the loan remaining unpaid after 8 June 2008 then the interest would be recalculated with effect from the date of the agreement at the rate of 1,5 percent per week compounded. As security for the loan, Ehlers, in his capacity as the C sole member of the first respondent, No 11 Flamboyant Edleen BK (the CC), bound it as a surety and co-principal debtor in favour of Desert Star, in respect of the indebtedness of Eugene. And as further security a security bond was registered in favour of Desert Star over an immovable property, the sole asset of the CC. Eugene failed to repay the loan and as at 30 May 2008 his indebtedness to Desert Star stood at R1 253 000. D

[4] In the meanwhile, on 29 January 2008, Ehlers approached another small private lender, the second appellant, Bridging Advances (Pty) Ltd (Bridging) for a loan. This time the application was made in the name of his wife, Lèone Ehlers. A written agreement was concluded in terms of E which Bridging loaned and advanced the sum of R160 053 (being R150 000 plus interest and costs) to Ms Ehlers. Here as well Ehlers bound the CC as a surety and co-principal debtor in favour of Bridging for the indebtedness of Ms Ehlers. And, as further security a mortgage bond was registered in favour of Bridging over the Ehlers family home which was registered in the name of Ms Ehlers. Sporadic payments in the F total sum of R41 000 were effected by the Ehlers to Bridging, but given the annual interest rate of 42,2 percent applicable to the loan, the outstanding balance had grown by 6 February 2009 to R205 363,55.

[5] On 30 May 2008 Desert Star caused a notice in terms of s 69 [7] of the G Close Corporations Act [8] to be served on the CC, claiming payment of the outstanding amount within 21 days. Bridging took a similar step on 3 February 2009. In each instance the s 69 notice pointed out that a failure to timeously comply with the statutory demand would have the result that the CC would be deemed to be unable to pay its debts...