FirstRand Bank Ltd v Maleke and Three Similar Cases

• Jurisdiction: South Africa
• Judge: Claassen J
• Judgment Date: 20 August 2009
• Docket Number: 637/2009, 638/09, 09/8830 and 09/8941
• Hearing Date: 26 May 2009
• Counsel: V Fine for the applicant. Respondents in person.
• Court: South Gauteng High Court, Johannesburg

CJ Claassen J:

F [1] On Tuesday 26 May 2009 there came before me four unopposed applications in Motion Court Two. The applications were of a similar nature, making it convenient to deal with them simultaneously in one judgment.

[2] The similarity of these applications is indicated by the following G characteristics:

1.

The applicants were banking institutions and registered credit providers pursuant to the provisions of the National Credit Act 34 of 2005 (the Act).

2.

The defendants were all private individuals and historically disadvantaged H persons. [1]

3.

In each case, application for default judgment pursuant to the provisions of rule 31(5) of the Uniform Rules of Court, was placed before the registrar of this court.

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4.

The registrar referred each application to open court, as the amount A claimed fell within the jurisdiction of the magistrates' court.

5.

Each claim was based on a loan agreement of money secured by a mortgage bond registered over immovable property. Thus the underlying agreements constituted credit agreements as defined in s 8 of the Act. [2] B

6.

In each case the plaintiffs applied for payment of the accelerated outstanding balance due on the loan agreement, together with an order declaring the immovable property executable, and costs on an attorney and client scale.

7.

In each case the plaintiffs averred that they had complied with the provisions of ss 129 and 130 of the Act. C

8.

In each case service of the summons was effected at the chosen domicilium address, being the property which had been hypothecated as security for the loan.

9.

In each instance the property was used as the defendant's residence. D

10.

The actual arrears of instalments triggering the entitlement to claim the accelerated outstanding balance were relatively small amounts varying between R2000 and R5000, except in the Peoples Mortgage Ltd case, where an amount of R76 036,91 [3] was alleged to be in arrears.

11.

In each instance the summons advised the defendants that s 26(1) E of the Constitution of the Republic of South Africa, 1996 accorded everyone the right to have access to adequate housing, and, should the defendants claim that the order for execution will infringe that right, they are to place information supporting such claim before the court. In none of the cases did any of the defendants place any such information before the court. F

[3] The National Credit Act has been the subject of a series of recently reported cases. [4] The common denominator expressed in these cases is

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A that the Act is a piece of consumer legislation which introduces new forms of protection for debtors in South Africa, both rich and poor. It seeks to balance the inequalities arising from unequal bargaining power between the large credit providers on the one hand and the credit seekers on the other. This much is evident from the preamble [5] to the Act and its B purposes, as set out in s 3 thereof. [6] The Act is further designed to render

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assistance and protection to the previously disadvantaged section of our A population who may wish to enter the property market. [7] The Act levels the playing field between a relatively indigent and unsophisticated consumer and a moneyed and well-advised credit provider, and attempts to limit the financial harm that the consumer may suffer if he/she is unable to perform in terms of the credit agreement. [8] I also, respectfully, B agree with the succinct and insightful overview of the Act as set out by Bertelsmann J in Absa Bank Ltd v Myburgh (supra). [9]

[4] In the applications before me the registrar referred the matters to open court in terms of rule 31(5)(b)(vi) [10] of the Uniform Rules of Court. This is in line with a rule of practice laid down by the full court of this division in the case of Nedbank Ltd v Mortinson C 2005 (6) SA 462 (W) ([2006] 2 All SA 506) at 473 in para 33.2 where the following was stated:

'All applications for default judgment where the creditor seeks an order declaring specially hypothecated immovable property executable, where the amount claimed falls within the jurisdiction of the magistrate's D court, shall be referred by the Registrar for consideration by the Court in terms of Rule 31(5)(b)(vi).'

The need for the aforesaid rule of practice arose from the judicial concern that execution orders, where small amounts are claimed, require judicial oversight and scrutiny, prior to such orders being granted. E

Applicants' papers

[5] The reason for reserving my judgment in these four similar, unopposed applications arises from my concern that an injustice may be done to the absent defendants if the orders, declaring their immovable properties executable, are granted. This concern arises from the following F facts and circumstances which appear from the applicants' own papers:

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1.

A All the defendants are historically disadvantaged individuals falling within the definition of the Act. The dates of birth, gathered from the mortgage bonds, are as follows: Maleke 1939; Motingoe 1966 and 1967; Mofokeng 1943 and 1961; Mulaudzi 1962. All of them were born substantially before 1993 and, therefore, laboured B under the disadvantages of the previous dispensation. It is quite evident that the Act extends particular protection to individuals such as the defendants.

2.

The defendants had been paying instalments in reduction of the bonds, respectively, for periods of 17 years, 14 years, 19 years and 13 years, prior to falling into arrears. The significance of these facts C is that the defendants have, of necessity, acquired a valuable equity in the increased market value of the properties. The court must be astute to take cognisance of this fact and the consequence of granting default judgment: the loss of such equity to the defendants!

3.

The relatively small loans required to purchase the immovable D properties, as stated in the bond documents, indicate that the capital growth, accumulated over the years since the loans had been granted, must have made the properties significantly more valuable than the outstanding balances: Maleke loan R38 510,00 - o/b R16 948,89; Motingoe loan R72 000,00 - o/b R81 642,52; Mofokeng loan R33 500,00 - o/b R76 036,91; Mulaudzi loan E R72 000,00 - o/b R44 403,20.

4.

The applicants' papers disclose that the arrears were relatively minor. Agreement after negotiation between the parties (eg extending the remaining period of the bond and reducing the monthly instalment), alternatively, reliance on the protection afforded the F defendants in ss 85 and 86, could easily have resulted in a satisfactory solution whereby the applicants ultimately receive full payment of the bonds and the defendants retain their homes. This would have been possible due to the minor arrears, which are: Maleka R4189,62; Motingoe R4969,37; Mofokeng arrears inconclusively proved; Mulaudzi R2358,93. These arrears are trifling in their G amounts and significance to the applicants. The prejudice that would be suffered by the defendants in potentially losing their properties, would be disproportionately large compared to the minor prejudice to the applicants in being denied immediate payment of the outstanding balances on the bonds. A delay in the H payment of the full outstanding balances, due to a refusal to grant the execution orders, would not harm them in any way, whereas such execution would constitute a permanent setback to the relatively indigent and historically disadvantaged defendants.

5.

The monthly instalments due on the respective bonds were I R245,00, R876,00 and 937,80, except in the Peoples Mortgage case where the monthly instalment is unknown. These relatively small monthly instalments are indicative that the defendants all fall within the category of 'low income persons' as contemplated in s 13(a)(ii) of the Act. Although this section imposes a duty upon the National Credit Regulator to promote a fair credit market, the courts are to J reflect in their judgments the pursuit of the same ideal.

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6.

The letters of demand sent to the defendants in terms of s 129 of the A Act, do not expressly warn the defendants that their homes will be sold in execution, potentially leading to the loss thereof due to their eviction, should they fail to respond to such letters. This is so, presumably, because the Act does not require such letters to contain a warning of this nature. The absence of such a warning does, B however, place an additional burden of careful oversight on the court, before granting judgment. A relevant consideration in this regard is that historically disadvantaged persons who are unsophisticated may not sufficiently appreciate this danger upon receipt of the letters of demand. Their failure to refer their matters to a debt counsellor may, therefore, be the result of this lack of understanding. C Because of this potential threat, the courts are to be particularly vigilant in avoiding injustices which may be perpetrated in the application of the provisions of the Act, in order to prevent, as far as is possible, 'unfair . . . conduct by credit providers'. [11] The absence of the defendants before court does not diminish but rather increases this duty resting upon the courts. D

Other considerations

[6] There are further general considerations which are relevant to a proper adjudication of the applications for default judgments, which do E not necessarily appear from the applicants' papers. These are:

1.

The protection afforded consumers in the Act who are faced with letters of demand addressed to them in terms of s 129 is not generally known to a large portion of the public, in particular historically disadvantaged persons. Such ignorance may often be...