University of Stellenbosch Legal Aid Clinic and Others v Minister of Justice and Correctional Services and Others

• Jurisdiction: South Africa
• Judge: Mogoeng CJ, Moseneke DCJ, Bosielo AJ, Cameron J, Froneman J, Jafta J, Khampepe J, Madlanga J, Mhlantla J, Nkabinde J and Zondo J
• Judgment Date: 13 September 2016
• Citation: 2016 (6) SA 596 (CC)
• Docket Number: CCT 127/15 [2016] ZACC 32
• Hearing Date: 03 March 2016
• Counsel: GM Budlender SC (with Anton Katz SC and S Margardie) for the first applicant. D Potgieter SC (with L Dzai) for the first respondent. PF Louw SC (with K Pillay) for the fourth to seventeenth respondents. N Unterhalter SC (with DE Loggerenberg SC, ARG Mundell SC and KS Hofmeyr) for the eighteenth respondent. J Brickhill and E Webber for the amicus curiae (the South African Human Rights Commission).
• Court: Constitutional Court

Jafta J: D

[1] This matter involves an application for confirmation of an order of invalidity made by the Western Cape Division of the High Court [*] and an appeal against certain parts of that order. The High Court declared that certain specified words in s 65J(2) of the Magistrates' Courts Act [1] (the Act) were inconsistent with the Constitution and invalid to the extent E that they fail to provide for judicial oversight over the issuing of an emoluments attachment order against a judgment debtor. A further declaration was granted to the effect that s 45 of the Act does not permit a debtor to consent in writing to the jurisdiction of a magistrates' court other than that in which that debtor resides or is employed.

[2] The declaration of invalidity was submitted to this court for confirmation F as required by the Constitution and relevant legislation. [2] Section 172(2) of the Constitution stipulates that an order of constitutional invalidity of an Act of Parliament made by the High Court has no force and effect unless it is confirmed by this court. Furthermore, the section also authorises a party with a sufficient interest to appeal against such G order. In other cases, an appeal to this court may be pursued only with its leave.

Parties

[3] The first applicant is the University of Stellenbosch Legal Aid Clinic (Law Clinic), a law clinic established by the University of Stellenbosch H and registered with the Cape Law Society, in terms of the Attorneys Act. [3] The Law Clinic provides free legal services to indigent persons. Its clients are mainly labourers on farms in the Cape Winelands area and

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A low-wage earners in Stellenbosch and Paarl. Its areas of interest are debt relief, farm evictions and family matters. Recently the Law Clinic has expended a significant portion of its resources on cases involving debt relief and exploitative lending practices. Currently the Law Clinic assists more than 200 people a month with advice in respect of orders issued to attach their wages to pay judgment debts, obtained by credit providers.

B [4] The second to sixteenth applicants are individual clients of the Law Clinic. Twelve of them reside in Stellenbosch, two in Paarl and one in Macassar. They all had emoluments attachment orders issued against them by clerks of the court employed in various magistrates' offices, many of which are located far away from where the applicants reside and C work.

[5] The respondents who participated in these proceedings are first, the Minister of Justice and Correctional Services, who is charged with the responsibility of administering the impugned Act. The other respondents D are Flemix & Associates Inc Attorneys that represent a number of small credit providers. These credit providers were cited individually in the High Court. I will refer to them collectively as the Flemix respondents. The Association of Debt Recovery Agents NPC (the Association) was joined as a respondent in the High Court. The Association represents debt collectors and contributes no less than three directors to the board E of directors of the Council for Debt Collectors. It is a member of the Credit Industry Forum which advises the Minister of Trade and Industry on certain matters relating to the debt-collection industry. It also advances members' interests at relevant statutory and non-statutory bodies and actively participates in the process of drafting legislation that impacts on the interests of the members. Its members vary from debt F collectors, law firms specialising in debt recovery, credit providers and other service providers in the industry.

Legislative background

[6] For a better understanding of the issues, it is necessary first to set out G the statutory framework and its background. Like in many developing countries, the commercial credit industry in South Africa is huge. The affidavit filed by the Flemix respondents shows that as at June 2013 this industry supported 20 million credit consumers out of a population of 52 million. At the time the total debtors' book was estimated at R1,47 trillion, of which R168 billion comprised unsecured H debts.

[7] However, during the apartheid era, commercial credit was mainly available to the white minority. Credit provision and debt collection were taken as purely commercial legal matters subject to the sanctity of contracts with the corollary that a failure to repay a loan constituted a I breach of contract. This breach entitled the credit provider to enforce the contract through litigation. An order obtained from that litigation would authorise the credit provider coercively to attach and sell the debtor's assets to satisfy the judgment debt.

[8] Then, advancing credit to debtors was dependent mainly on the J whims of the credit provider who could impose whatever conditions it

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wished for within the bounds of the statute. [4] But the relevant statutes did A not govern the court process in terms of which credit agreements were enforced. These matters were regulated by ordinary rules of procedure. The number of cases relating to debt collection grew in the seventies and exceeded the capacity of the courts to adjudicate them in the normal way. This was compounded by the fact that litigation was expensive and B credit providers passed the risk to debtors by including in the agreement a term that imposed liability on the debtor to pay the creditor's costs on the highest permissible scale. [5]

[9] In the majority of the cases that reached the courts, debtors had no legal defences to the creditors' claims. Financial hard times would be the C reason for their default in repaying their loans. The bulk of these matters went through courts undefended but at a huge cost to the debtor.

[10] In an amendment that came into force in January 1979, Parliament amended the Magistrates' Courts Act to provide for an expedient method of debt collection. Debtors were empowered to consent to D judgment and pay in instalments. [6] Of the five sections of the chapter introduced by the amendment, only three are important for present purposes. The first is s 55, which defines 'debt' as a liquidated sum of money. This definition notably delineates the scope of debts to be enforced in terms of the chapter which is devoted to debt recovery. E

[11] The second provision is s 57. This section provides for the first type of procedure for the payments of debt in instalments without the involvement of the courts. The section empowers debtors to admit liability in writing at the time they receive a letter of demand from the creditors. The admission must be accompanied by an offer to pay the F debt in instalments, together with costs and collection fees. The debtor must also agree that in the event of her failure to pay, the creditor shall without notice to her be entitled to apply for judgment in respect of the balance.

[12] If the creditor accepts the offer, it must notify the debtor in writing. G For as long as the debtor pays the agreed instalment, no litigation would ensue. In the event of breach, the creditor may submit a written request for judgment to the clerk of the court who shall enter judgment in favour of the creditor and order the debtor to pay the judgment debt in specified instalments. The creditor must then notify the debtor about the judgment which is treated as a default judgment. H

[13] The other important provision is s 58. It mandates the debtor to consent to judgment and an order for payment of the judgment debt in instalments. Upon receipt of a letter of demand or summons, the debtor I

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A may consent in writing to judgment in favour of the creditor and also agree to an order of court for payment in specified instalments. On the written request of the creditor, the clerk of the court shall enter judgment in favour of the creditor and order the debtor to pay the judgment debt in instalments. In both instances, judgment is granted by the clerk of the B court.

[14] If the debtor in either procedure pays the instalments diligently, after the order by the clerk of the court, the matter is put to rest. But if the debtor defaults, execution of judgment at the instance of the creditor becomes necessary. It is however convenient first to outline the relevant provisions of the National Credit Act [7] and examine the impact on the C procedure set out above, before considering provisions on execution.

National Credit Act

[15] The democratic dispensation rendered legislation that governed the credit markets ill-suited to an economy open to the entire population. D The black population was afforded the opportunity to participate in the financial credit market, both as creditors and consumers of credit. The democratic government realised that the credit market was the lifeblood of economic development. This is because credit enabled consumers to acquire assets like houses, cars and furniture which they E could not afford without credit finance. Many overextended themselves in debt they could not repay. Unscrupulous and reckless credit providers also entered the market and offered small loans without any form of security, in contrast to banks. In return they charged exorbitant interest which raised the amount owing rapidly within a short span of time, with disastrous consequences for debtors who perpetually remain in the hole F of debt.

[16] Parliament intervened by passing the National Credit Act and by so doing overhauled the previous credit legislation. This legislation came into effect in three phases. The objects of the National Credit Act are G to —

'promote and advance the social and economic welfare of South Africans, promote a fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market and industry, and to protect...