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

• Jurisdiction: South Africa

Investec Bank (Pty) Ltd v GVN Properties CC and Others
1999 (3) SA 490 (W)

1999 (3) SA p490

Citation	1999 (3) SA 490 (W)
Case No	31353
Court	Witwatersrand Local Division
Judge	Wunsh J
Heard	January 26, 1999
Judgment	January 26, 1999
Counsel	JS Andropoulos for the plaintiff; No appearance for the defendants

Flynote : Sleutelwoorde

Mortgage — Validity of — Variation of finance charges — Provision in bond permitting bank unilaterally to vary interest rate from time to time valid and enforceable — Decisions to contrary based on failure to C appreciate realities in banking industry.

Headnote : Kopnota

The plaintiff in an unopposed application for summary judgment claimed repayment of amounts advanced under a written loan agreement and amounts disbursed under a covering mortgage bond which secured the defendants' indebtedness, plus interest and costs. A clause of the D bond read as follows: 'Finance charges on all amounts secured in terms of this bond will, unless otherwise specifically agreed, be reckoned at the current rate charged by the bank from time to time in respect of the relevant facility.' In NBS Bank Ltd v Badenhorst-Schnetler Bedryfsdienste BK and Another 1998 (3) SA 729 (W) ([1998] 3 B All SA 382) and NBS Boland Bank Ltd v E One Berg River Drive CC and Others 1998 (3) SA 765 (W) ([1998] 3 B All SA 276) it was held that such a clause (namely one which provided that the bank could at any time vary the rate of interest) was unenforceable.

In determining the validity of the clause in casu, the Court (following Boland Bank Bpk v Steele 1994 (1) SA 259 (T); Nedbank Ltd v Capital Refrigerated Truck Bodies (Pty) Ltd and Others 1988 (4) SA 73 (N); Standard Bank v Friedman F 1999 (2) SA 456 (C) ([1999] 1 B All SA 142); ABSA Bank Ltd v Deeb 1999 (2) SA 656 (N) (1998 CLR 421) and Kabwand Pty Ltd and Others v National Australia Bank Ltd 1969 ATPR 40-950) took into account the impact on banks of changing economic circumstances, the volatility and fluctuations in financial markets, the changing cost of money depending on the prevailing market conditions and the rate of interest charged by other banks and financial institutions. Failure or G inability to adjust the interest rate would place an unbearable burden on banks, which could threaten the existence of the financial or banking industry. Having fixed rates of interest in respect of long-term loans could give rise to banks' demise. Unduly restricting banks in their business activities could only negatively affect the growth of the country. Moreover, the discretion of a bank to vary H interest rates had to be exercised reasonably in the sense that it had to take into account the rate customarily levied by the bank at that particular time in respect of that class of customer. Banks would only adjust the rate of interest payable to the extent that it was justified on reasonable grounds. Furthermore, competition between financial institutions was more than adequate protection to the consumer against the charging of unreasonable interest. In a competitive environment I banks would act almost in concert in determining the rate of interest payable and thus would not exercise their discretion in an unfettered manner. A rate of interest conforming with general movements in the bank's interest rate had to be read into any rate variation clauses in a bank's lending documents. (At 494D/E - G, 495E/F - F/G, 493E - G, 495D - E and 497H/I - I/J, paraphrased.)

NBS Bank Ltd v Badenhorst-Schnetler Bedryfsdienste BK and Another 1998 (3) SA 729 (W) J

1999 (3) SA p491

729 (W) ([1998] 3 B All SA 382) and A NBS Boland Bank Ltd v One Berg River Drive CC and Others 1998 (3) SA 765 (N) ([1998] 3 B All SA 276) criticised and not followed.

The Court accordingly held that the clause in casu was enforceable, and that summary judgment had to be granted as prayed. (At 499H - I and 500A.)

Cases Considered

Annotations B

Reported cases

ABSA Bank Ltd v Deeb 1999 (2) SA 656 (N) (1998 CLR 421): followed

ABSA Bank Bpk v Saunders 1997 (2) SA 192 (NC): referred to

Boland Bank Bpk v Steele 1994 (1) SA 259 (T): followed

Kabwand Pty Ltd and Others v National C Australia Bank Ltd 1969 ATPR 40-950: followed

NBS Bank Ltd v Badenhorst-Schnetler Bedryfsdienste BK and Another 1998 (3) SA 729 (W) ([1988] 3 B All SA 382): criticised and not followed

NBS Boland Bank Ltd v One Berg River Drive CC and Others 1998 (3) SA 765 (N) ([1998] 3 B All SA 276): criticised and not followed

Nedbank Ltd v Capital Refrigerated Truck D Bodies (Pty) Ltd and Others 1988 (4) SA 73 (N): dictum at 75C - D followed

Standard Bank of South Africa Ltd v Friedman 1999 (2) SA 456 (C) ([1999] 1 B All SA 142): followed.

Case Information

Application for summary judgment. The facts appear from the reasons for judgment.

J S Andropoulos for the plaintiff. E

No appearance for the defendants.

Judgment

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

1999 (3) SA p492

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...