NEDBANK LTD AND OTHERS VS THE NATIONAL CREDIT REGUALTOR AND ANOTHER 2011 (3) SA 581 (SCA) case
(A short analysis of the practical implications of )
Article by listed attorney: NICOLENE SCHOEMAN
The National Credit Act 34 of 2005 (the”NCA)”) has dramatically changed the legislative landscape of credit agreements in South Africa. Unfortunately, due to inconsistencies contained in the wording of the NCA and various conflicting High Court decisions since its commencement, some legal uncertainty has been experienced in the implementation of the NCA. In the Nedbank case the court went further and stated that: “Unfortunately, the NCA cannot be described as the best drafted Act of Parliament which was ever passed, nor can the draftsman be said to have been blessed with the draftsmanship of a Chalmers. Numerous drafting errors, untidy expressions and inconsistencies make its interpretation a particularly trying exercise.”
However, the Supreme Court of Appeal has now addressed a number of ambiguous provisions contained in the NCA, which should alleviate the uncertainty to some degree.
Issues to be considered by Court:
2.1 Which mandatory steps must be followed by a creditor before a credit agreement may be enforced through the court process;
2.2 Reconciling the procedure set out in the NCA with that in the magistrate’s court; and
2.3 The question whether section 103 (5) of the NCA abolished the common law in duplum rule.
As a foundation, the court agreed that the notice stipulated in section 129 (1)(a) is a required first step before legal proceedings can commence. It also accepted that it did not exclude debt review, but does exclude the specific agreement in terms of which notice has been given.
Thus, once this notice has been given, a debt review process can no longer be implemented. Based on this, the court stated that section 86(2) should be understood to exclude debt review for the areas in which the debtor had defaulted.
Section 86(7)(c) allows the debt counsellor to determine that the debtor is over-indebted and to recommend either or both orders to the Magistrates Court without a hearing or service. Once the Magistrate’s Court has conducted a hearing, during which they would consider the financial means, prospects and obligations of the debtor, it may implement the orders explicitly detailed in section 87. This implies that neither a Rule 55 aplication nor a service is required before the section 87 related hearing.
In the event of a dispute regarding section 86(7)(c), the court felt that Rule 55 of the Magistrate’s Courts Rules was structured in such a way that would ensure effective resolution, albeit that section 86(8) omits any reference to 86(7)(c). Because the court can adapt the wording of an Act to ensure that it remains true to its initial intent, it was able to state that Rule 55 must be complied with in section 86 and 87 proceedings.
Finally, it was prescribed that the SCA judge the effect of section 103 (5) of the NCA on the common law in duplum rule.
The common law in duplum rule states that once the unpaid interest is equal to the outstanding capital, no further interest may be charged. This was to safeguard debtors from excessive charges and complete financial devastation.
It was stressed by the court that section 103(5) is purely a credit agreement under the NCA. This means that the provision is related to all the costs set out in sections 101(1)(b) to (g). This means that once the sum of the initiation fees, service fees, interest (contractual and default), costs of any credit insurance, default administration charges, and collection costs exceeds the outstanding capital the creditor may no longer charge for them.
Nicolene Schoeman, Schoeman Attorneys (Cape Town)