IN THE HIGH COURT OF SOUTH AFRICA 

WESTERN CAPE HIGH COURT, CAPE TOWN
Reportable

						Case No.: 24190/2009

 In the matter between:

and

TRUSTEES FOR THE TIME BEING OF THE COE 

FOR THE FIRST, SECOND & 
THIRD RESPONDENT:        		ADV M HARRINGTON

REPORTABLE

In the matter between:

and

JUDGMENT

The    application    for    summary   judgment    was    opposed, essentially on the following bases by the defendants:

2.	The extent to which the provision of credit by plaintiff constitutes so called "reckless credit", especially insofar as no assessment, as required by section 81(2) of the Act, was carried out and insofar as third defendant was a student, earning no income at the time that the credit was granted.

Summary Judgment

In the present dispute, there is a question of law that needs to be determined. Following the authorities, it appears to me that this Court needs, at the very least, to determine the nature of these legal defences and their justification, in order to further determine whether this is a matter which is appropriate for the grant of summary judgment or for a referral to trial. With these preliminary remarks, I turn to deal with the question of reckless credit.

Reckless Credit

Section 81 is headed "prevention of reckless credit". Subsection (1) provides:

"When applying for a credit agreement and while that application is being considered by the credit provider, the prospective consumer must fully and truthfully answer any requests for information made by the credit provider as part of the assessment required by this section."

Subsection (2) indicates what assessment is required:

"A credit provider must not enter into a credit agreement without first taking reasonable steps to assess:
(a) The proposed consumer's -

(iii) existing financial means, prospects and obligations.
(b) Where there is a reasonable basis to conclude that any commercial purpose may prove to be successful if the consumer has such a purpose for applying for that credit agreement."

Subsection (4) is also relevant to this dispute.  It provides:

"For the purposes of this Act, it is a complete defence to an allegation that the credit agreement is reckless if:
(a) The credit provider establishes that the consumer failed to fully and truthfully answer any request for information made by the credit provider as part of the assessment required by the section.
(b) a Court or the tribunal determines that the consumer's failure to do so materially affected the ability of the credit provider to make a proper assessment."

The borrower states that
11.1	he undertakes his risks and costs, as well as his rights and obligations under this agreement;
11.2	entering into this agreement will not cause him to become over-indebted as contemplated in the National Credit Act;
11.3	
11.4	the bank has given the borrower a pre-agreement statement and the Quotation.

81(4) now came to the assistance of plaintiff as credit provider.

Summarised, plaintiff's case is that defendants are not able now to put up the defence it has set out when their financial position was confirmed in terms of the agreement. In particular, clauses 11.2 and 11.3 were not fully and truthfully answered and hence section 81(4) provides a full defence to plaintiff. Accordingly, in Mr Jonker's view, the plaintiff had complied with its obligations in assessing the financial position of first defendant. This was further confirmed in the conveyancer's certificate of compliance which was attached to the papers.

"A provision of a credit agreement is unlawful if: 
(a)    Its general purpose or effect is to;

(b)    it directly or indirectly purports to:

(aa) do anything that is unlawful in terms of this Act; or
(bb) fail to do anything that is required in terms of this Act."

In this context, a considerable debate took place between counsel about the purposes of the Act. Section 3, as is now the case with modern forms of legislation, sets out the purpose and application of the Act. To the extent that it is relevant, section 3 provides:

"The  purposes of this Act are 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 consumers by:

by;

While the Act may not be classified purely as a piece of consumer protection, it seeks to strike a balance between the interests of a credit provider and the borrower, to ensure a measure of fairness and equity within the credit market, and, further, to prevent reckless credit agreements from being concluded, which, in turn, place the credit market in considerable jeopardy, of which a court can now take judicial cognisance, given the financial and banking crisis that has engulfed the world economy since 2008.

In my view, section 81(2) was designed to bring about some balance between the credit provider and borrower and to give teeth to the Act's purpose of ensuring that reckless credit does not take place.

Section 81(2) informs the credit provider of its duties. In this connection it needs to assess the proposed consumer's general understanding and appreciation of the risks and costs of the proposed credit, of their rights and obligations. It thus needs to assess the debt repayment history, the borrowers' existing financial means, prospects and obligations. Compare this purpose to clause 11. Clause 11 refers to over-indebtedness, but that is where the clause begins and ends. There is no indication as to whether, in terms of clause 11.3, a request for information was made of any of the defendants by and on behalf of the plaintiff, leading up to the conclusion of this agreement; that is a request for information which would have ensured that the credit process was undertaken in terms of the three pronged  set  of inquiries contained  in section
81(2)

Section 81(4) needs to be read together with section 81(2). It clearly gives the credit provider a defence in terms of the overall purpose of the Act, to ensure fairness to both parties in circumstances where the consumers fail to fully and truthfully answer any request for information made by the credit provider as part of its assessment. But, if an assessment was not undertaken in the first place, then section 81(4) is of no relevance.

"[Many people in this country conclude contracts without any bargaining power and without understanding what they are agreeing to. That will often be a relevant consideration in determining fairness. This Court must, however, operate on the basis of the evidence that was presented to the High Court and that is now before us. There is no admissible evidence that the contract was not freely concluded, that there was unequal bargaining power between the parties or that the clause was not drawn to the applicant's attention. There is nothing to suggest that the contract was not freely concluded between the parties with equal bargaining power, or that the applicant was not aware of the clause. On the contrary, the indications are that he was aware of the time limits... [This was a case dealing with a time limitation clause in an insurance contract.] The contract required him to submit a written claim with the respondent within 30 days of the accident, but he submitted his written claim within at least eight days of the accident through his insurance broker. I am unable to conclude that the 90 day period allowed to the applicant to sue is so unreasonable that its unfairness is manifest and that, therefore, its enforcement would be contrary to public policy." (para 65-67).

"I do not believe that the judgment held or purported to hold that the enforcement of a valid contractual term must be fair and reasonable, even if  no   public   policy   consideration   found   in   the
Constitution or elsewhere is implicated." (para 50)

In this case, sitting as a judge dealing with an application for summary judgment, it may well be that the defendants can produce evidence before a trial court to suggest that these clauses were not properly drawn to their attention and that the factors as set out by Ngcobo, J in para 65-66 were applicable to the present dispute.

"Determining whether or not an agreement was contrary to public policy requires a balancing of competing values...Reasonable people, irrespective of any philosophical or political bent, might disagree whether any particular value judgment was 'correct', i.e. more acceptable."

The learned Deputy President also notes that:

These are important affirmations of the inherent contested nature of adjudication, particularly with a legally all embracing Constitution in which an inquiry into values is deeply imbricated in the judicial process. But invoking the Constitution should not be seen or employed as a bland jurisprudential war cry. Rather it behoves a court to engage with public policy in express terms, guided by the objective normative    value    constitutional    system    referred    to    in

Given, the nature of the three dominant values, freedom, , equality and dignity read together with the history from which the Constitution has asked the country to journey, South African law needs to come to terms with the economic and social reality that prevails in our country. (Barkhuizen at para 64). That includes an understanding that all too many people are completely or partially illiterate, possessed of poor education, have no access to legal advice or social power. In so many ways therefore legal relationships are imposed upon them, so that freedom to act cannot simply be assumed.

For all of these circumstances, it appears to me that the defendant has placed before this Court a defence sufficient to raise issues which could only be determined by a trial court. Therefore, summary judgment is dismissed with costs, the plaintiff, of course, is granted leave to proceed by way of trial, but given its approach to date, a costs order is appropriate.