Investec Bank (Pty) Ltd v GVN Properties CC and Others

• Jurisdiction: South Africa
• Judge: Wunsh J
• Judgment Date: 26 January 1999
• Citation: 1999 (3) SA 490 (W)
• Docket Number: 31353
• Hearing Date: 26 January 1999
• Counsel: JS Andropoulos for the plaintiff No appearance for the defendants
• Court: Witwatersrand Local Division

Wunsh J:

Because of the controversial nature of the issue I deal with I would have preferred to have had the opportunity to prepare a written judgment. However, there are several applications on today's roll in which the same issue arises and the F outcome of which is governed by what I am about to say.

This is an unopposed application for summary judgment against the first defendant for the repayment of the balance of amounts advanced under a written loan agreement and amounts disbursed under a covering G mortgage bond which secures the first defendant's indebtedness, interest and costs and against the other two defendants for the same relief pursuant to a suretyship signed by them.

The plaintiff seeks also an order that the hypothecated property be declared executable.

Clause 3.4 of the bond reads: H

'Finance charges on all amounts secured in terms of this bond will, if not otherwise specially agreed, be reckoned at the current rate charged by the bank from time to time in respect of the relevant facility.'

The bond was executed on 23 January 1996. The loan agreement was signed on 25 September 1996 and has the following, inter I alia, in regard to interest and finance charges:

'2.1 The borrower shall pay interest on the capital balances outstanding from time to time at the rate specified in the transaction schedule which rate shall be as indicated on the transaction schedule

. . .

2.1.3

a variable rate determined in accordance with 2.4 . . . J

Wunsh J

. . .

2.4 If the rate specified in the transaction schedule is a variable A rate, then the borrower agrees that the lender may, in its sole discretion, amend the variable rate at any time and from time to time provided that -

2.4.1

where the provisions of the Usury Act 73 of 1968 as amended ('the Act') are applicable, then such rate shall not exceed the maximum rate determined in accordance with the said Act; B

2.4.2

where the provisions of the Act are not applicable, the rate shall be amended by the lender to take account of any alterations in the cost to the lender of making any advances or any other market considerations relevant to the lender.'

The transaction schedule includes: C

'3. Finance charge rate (see clause 2 of the loan agreement) 18,50% variable, calculated daily and compounded monthly.'

The summons claims interest at 22,5% per annum from 18 November 1998. Ex facie the papers the Usury Act does not apply to the loan. Section 15(g) of the Act, when read with D Government Notice 506, published on 7 April 1995, exempts from its application inter alia a moneylending transaction in terms of which the principal debt exceeds, on the date on which the transaction was entered into, R500 000. This is less than the sum of the loans in this case.

In two judgments in this Division ('the WLD decisions') the Court considered the validity and enforceability of a provision in a mortgage E bond in favour of NBS Bank Ltd and NBS Boland Bank Ltd, effectively the same party, which included (there were immaterial differences in describing the mortgagee):

'Notwithstanding anything to the contrary herein contained the bank may at any time and from time to time increase or decrease the F rate of interest per annum on all amounts owing to or claimable by the bank in terms of this bond to the rate determined by the bank as payable for the class of bonds into which this bond falls',

this being subject to any statutory limit and the bank having the right, if the rates were increased, to adjust the monthly instalments paid by the mortgagor. G

In NBS Bank Ltd v Badenhorst-Schnetler Bedryfsdienste BK and Another 1998 (3) SA 729 (W) ([1998] 3 B All SA 382) Stegmann J held that:

'. . . (W)hen the parties to a moneylending transaction wish to agree that the interest rate or finance charge rate is to be variable from time to time during the term of their contract, the contract will H not be valid to the extent that it purports to empower one of the parties alone to vary the finance charge rate from time to time, arbitrarily or in his own discretion. To be valid and enforceable an agreement that the interest rate or finance charge rate is to be variable from time to time must define objectively ascertainable criteria according to which the time when, and the amount by which, the interest rate is to be varied can be ascertained without reference to I the will of either the moneylender or the borrower.'

(At 736H - 737A.) The learned Judge did not refer to the judgment of Van Dijkhorst J in Boland Bank Bpk v Steele 1994 (1) SA 259 (T). In that case the relevant provision of a bond read as follows:

'Die verbandhouer mag te eniger tyd by wyse van skriftelike kennisgewing aan die verbandgewer die rentekoers verhaalbaar kragtens hierdie verband asook die J

Wunsh J

voorwaardes vir terugbetaling van die rente A en kapitaal wat betref tye waarop betaalbaar en bedrae van paaiemente, wysig of aanpas.'

(At 273G - H.) Van Dijkhorst J summarised the effect of the clause as follows (at 273I - J):

'Die klousule verleen aan die eiser die reg om eensydiglik by wyse van skriftelike kennisgewing sonder beperking die rentekoers B verhaalbaar kragtens die verband, die tye waarop rente betaal moet word, die bedrae van rentepaaiemente, die tye waarop kapitaal terugbetaal moet word en die bedrae van kapitaalterugbetalings te wysig of aan te pas.'

He upheld the enforceability of the power to vary (at 276F - H):

'Myns insiens is die rede waarom hierdie soort klousules in C verbandaktes geldig is, 'n oorweging wat ook by die onderhawige klousule 17 van toepassing is. Dit is dat die reg die uitgangspunt het dat by die uitleg daarvan die benadering gevolg moet word wat eerder tot geldigheid as tot ongeldigheid van die klousule aanleiding gee. Indien die algemene beginsels wat ek reeds behandel het in gedagte gehou word, is ek van mening dat klousule 17 nie uitgelê moet word dat dit 'n onbeperkte willekeurige diskresie aan die eiser bank D verleen om die rentekoers so hoog as hy wil op te skuif en die paaiemente op onredelike wyse te vervroeg nie. Dit moet uitgelê word dat dit onderhewig gestel word aan die beperking dat die bevoegdheid op redelike wyse uitgeoefen moet word. Wat redelik is sal noodwendigerwys bepaal word met inagname van die koerse en gebruike wat in die ope mark van toepassing is op dié soort verbande in dié soort omstandighede.' E

Stegmann J also did not refer to Nedbank Ltd v Capital Refrigerated Truck Bodies (Pty) Ltd and Others 1988 (4) SA 73 (N), where Milne JP upheld a discretionary variation power in the case of an overdraft and made an observation obiter with regard to other moneylending transactions in the following passage (at 75C - D): F

'Be that as it may, the principle appears to me to be correct - a fortiori where, as here, the promisee does not have an unlimited option. The maximum of the rate of interest is fixed by the law and, in any event, the discretion may have to be exercised reasonably in the sense that it must take into account the rate customarily levied by the bank at that particular time in respect of that class of customer. It is, presumably, for these reasons that the G customary provision in mortgage bonds to the effect that the mortgagee may increase the rate of interest from time to time up to a stated maximum has never been challenged (to the best of my knowledge) as being unenforceable. In my view, there is no reason why such a provision should not be enforceable.'

(My emphasis.)

In NBS Boland Bank Ltd v One Berg River Drive CC and H Others 1998...