National Credit Regulator v Opperman and Others

• Jurisdiction: South Africa
• Judge: Mogoeng CJ, Moseneke DCJ, Cameron J, Froneman J, Jafta J, Khampepe J, Nkabinde J, Skweyiya J and Van Der Westhuizen J
• Judgment Date: 10 December 2012
• Docket Number: CCT 34/12 [2012] ZACC 29
• Hearing Date: 21 August 2012
• Counsel: S Budlender for the applicant. M McChesney for the first respondent. K Pillay for the fourth respondent.
• Court: Constitutional Court

Van der Westhuizen J (Mogoeng CJ, Moseneke DCJ, Khampepe J, Nkabinde J and Skweyiya J concurring): E

Introduction

[1] The central issue is whether s 89(5)(c) of the National Credit Act [1] F (NCA) is consistent with the right not to be arbitrarily deprived of

Van der Westhuizen J (Mogoeng CJ, Moseneke DCJ, Khampepe J, Nkabinde J and Skweyiya J concurring)

property, recognised in s 25(1) of the Constitution. [2] The Western Cape A High Court, Cape Town (high court), found that it was not, because it denies an unregistered credit provider the right to restitution of money lent out, without affording a court the discretion to consider whether restitution would be just and equitable. The high court declared the provision to be constitutionally invalid. This court has to determine whether the order of constitutional invalidity should be confirmed. B

[2] The National Credit Regulator (NCR) appeals against the declaration of constitutional invalidity. The first respondent, Mr Opperman, opposes the appeal and asks this court to confirm the order of the high court. The second respondent, Mr Boonzaaier, and the third respondent, C the Minister of Finance, did not file opposing papers in this court. The fourth respondent, the Minister of Trade and Industry (minister), opposes the confirmation of the order.

[3] The questions to be answered are:

(a)

What is the correct interpretation of s 89(5)(c)? D

(b)

Does s 89(5)(c) deal with property for the purposes of s 25(1)?

(c)

Does the provision amount to arbitrary deprivation of property?

(d)

Does it contain a constitutionally permissible limitation of the right protected in s 25(1)? [3]

(e)

Depending on the above, what is the appropriate remedy? E

Background

[4] Mr Opperman is a Namibian farmer. In 2009 he lent his friend, Mr Boonzaaier, a total sum of R7 million for property development in Cape Town. They concluded three written loan agreements. Mr Opperman F was not registered as a credit provider at the time of providing the loan as required by the NCA. [4] He was not in the business of providing credit, was unaware of the requirement to register and had no intention of violating the NCA. [5] When the dates for the repayment of the loans had

Van der Westhuizen J (Mogoeng CJ, Moseneke DCJ, Khampepe J, Nkabinde J and Skweyiya J concurring)

A passed, Mr Boonzaaier informed his friend that he was unable to meet his obligations.

[5] Mr Opperman applied for the sequestration of Mr Boonzaaier's estate in the high court. This application was unopposed and a provisional B order was granted. On the return date the court — of its own volition (mero motu) — raised concerns about the provisions of the NCA, and refused to grant a final order. It postponed the sequestration proceedings and extended the rule nisi to enable the parties to prepare argument to address its concerns.

C [6] Counsel for the first respondent subsequently amended the notice of motion to include a challenge to the constitutionality of s 89(5) of the NCA. This resulted in the joinder of the NCR, the Minister of Finance and the Minister of Trade and Industry as parties to the proceedings. The Minister of Finance did not take an active part in the proceedings before the high court or this court.

High court D

[7] The high court found that the loans concerned were 'credit agreements' in terms of the NCA. [6] The first respondent, as the lender, was a 'credit provider' and the second respondent, as the borrower, was a E 'consumer' under the NCA. [7]

[8] Section 40 of the NCA requires certain credit providers to register F with the NCR. [8] Because Mr Boonzaaier's total principal debt exceeded

Van der Westhuizen J (Mogoeng CJ, Moseneke DCJ, Khampepe J, Nkabinde J and Skweyiya J concurring)

the R500 000 threshold, prescribed in terms of s 42(1) of the NCA, [9] the A high court held that Mr Opperman was required to register. Since he was not registered, the credit agreement was unlawful. Section 89(5) [10] stipulates how unlawful credit agreements must be dealt with by courts.

[9] The high court found s 89(5)(a) to mean that the credit agreement B is void and that it bars Mr Opperman from recovering any of the money lent out, either under the agreement or on the basis of unjustified enrichment of Mr Boonzaaier. According to the high court, the object of s 89 was to discourage the provision of credit outside the regulatory framework provided by the statute. That objective is legitimate, particularly as applied to those who are in the business of providing credit. The C high court stated that the NCA's most important objectives are to protect vulnerable consumers and abate the inequality between credit providers and consumers. [11]

[10] The high court found that there was insufficient reason to deprive D the first respondent of his right to restitution of the money lent. Thus s 89(5)(c) provides for an arbitrary deprivation of property in breach of s 25(1) [12] of the Constitution. It further held that the provision could not be saved under s 36(1) [13] of the Constitution as a reasonable and justifiable limitation of the right not to be arbitrarily deprived of E

Van der Westhuizen J (Mogoeng CJ, Moseneke DCJ, Khampepe J, Nkabinde J and Skweyiya J concurring)

A property. The high court held that s 89(5)(c) was inconsistent with s 25(1) and thus constitutionally invalid.

Positions of the parties before this court

B [11] The NCR submits that s 89(5)(c) can be interpreted in a manner that is consistent with the Constitution. The provision does not allow for arbitrary deprivation. The interpretation of the high court was incorrect. Mr Opperman supports the high court's reasoning and asks this court to confirm the declaration of invalidity. The minister submits that s 89(5)(c) does not infringe s 25(1). Although it results in deprivation, C the deprivation is not arbitrary because there are sufficient reasons for it. In the alternative, the minister submits that s 89(5)(c) can be read to include a residual discretion and when read in that way, there is no arbitrary deprivation. If, however, this court finds that the section were unconstitutional, the minister invites us to suspend any declaration of D invalidity, during which time an interim reading-in should apply.

Interpreting the provision: common law and context

[12] Common-law rules on unlawful agreements and enrichment originated E centuries ago and have been shaped by court decisions over time and set out by academic authors. [14] The introductory part of s 89(5) indicates an awareness of the existence of common-law rules in this area by stating that the rest of the provision follows 'despite any provision of common-law'. [15]

F [13] Mr Opperman claims that his common-law action for restitution is denied by s 89(5)(c). The legislature may of course codify, deviate from, change, or abolish parts of the common law. The Constitution is the supreme law of the land. The common law and statute law must be consistent with it. The crucial question in this case is not whether or how far the provision deviates from the common law, but whether it is G inconsistent with s 25 of the Constitution. However, a basic understanding of the common-law position regarding unlawful contracts and enrichment is necessary to grasp the purpose, meaning and effect of s 89(5)(c).

H [14] Lawfulness is one of the requirements for a valid contract. Unlawful contracts are void from the outset (ab initio) and cannot be enforced. If

Van der Westhuizen J (Mogoeng CJ, Moseneke DCJ, Khampepe J, Nkabinde J and Skweyiya J concurring)

one party fails to perform as agreed, the other cannot successfully A compel him or her to perform. [16]

[15] A party who wants to claim the restitution of money paid or goods delivered in pursuance of an unlawful agreement cannot do so under B the agreement and must make use of an action based on the unjustified enrichment of the receiver. [17] Professor Visser describes the basic function of the law of unjustified enrichment as 'to restore economic benefits to the plaintiff, at whose expense they were obtained, and for the retention of which by the defendant there is no legal justification'. [18] The enrichment action relevant to this matter is the condictio ob turpem vel C iniustam causam. Its requirements are generally described as follows: ownership must have passed with the transfer; the transfer must have taken place in terms of an unlawful agreement; [19] and the claimant must tender the return of what he or she received. [20]

[16] In order to be successful, ordinarily the party who claims on the D basis of unjust enrichment must be free of turpitude and show that he or she has not acted dishonourably. This is the par delictum rule. [21] The underlying principle is that the law should discourage and deter illegality; it should not render assistance to those who defy it. [22]

[17] Even under Roman law this rule was at times applied in a nuanced E way by evaluating and comparing the degree of turpitude of both parties involved in the transaction. In Roman-Dutch law the rule was applied more strictly. However, since Jajbhay v Cassim [23] South African courts have been prepared to relax the par delictum rule, to prevent injustice or to satisfy the requirements of public policy, by taking fairness considerations F into account. The rule is thus not an absolute bar to a claim for restitution. [24] Definite requirements as to when the rule should be relaxed have not been stated, but courts have emphasised their freedom

Van der Westhuizen J (Mogoeng CJ, Moseneke DCJ, Khampepe J, Nkabinde J and Skweyiya J concurring)

A to reject or grant an unjust enrichment claim on the facts before it by exercising a discretion. [25]

[18] A credit agreement entered into by an...