The material facts of the present matter can be summarised as follows:
• The Appellants (Mr Du Bruyn and his wife) were business owners, laying their trade in the sealing off of industrial leaks. The Appellants’ business operation was facilitated though three inter-related entities;
• The Respondent (Mr Karsten) shared both a professional and personal relationship with Mr Du Bruyn and was groomed to take over the business from Mr Du Bruyn upon his retirement;
• However, in 2012 the relationship between Mr Du Bruyn and Mr Karsten deteriorated, and the decision to end the business relationship between the parties was taken;
• Consequently, an agreement for the purchase of Mr Karsten’s shares in the three entities was concluded. The agreement culminated in three separate sale agreements, the total value of which amounted to Two-Million rand;
• The terms of the three sale agreements were identical, particularly in relation to payment of the purchase price. In respect of the aforementioned, payment was to be effected as follows: (i) a deposit of Five-Hundred Thousand Rand payable on 1 May 2013, (ii) thereafter instalments of Thirty thousand Rand payable monthly, and (iii) that interest would be levied on the deferred amount. Accordingly, the aforementioned agreements were signed on 26 April 2013;
• The sale of share agreement envisaged a covering bond being registered by the appellants’ and in order to facilitate same, Mr Karsten was required to register as a credit provider in terms of S40 of the National Credit Act (34 of 2005) (“the Act”);
• Pursuant to the above, Mr Karsten was duly registered as a credit provider in terms of the above, Mr Karsten was duly registered as a credit provider in terms of the Act. However, his registration occurred on 27 November 2013, after the conclusion of the respective sale agreements; and • By September 2014, the appellants had breached the sale agreements and defaulted on the instalments owing to Mr Karsten.
As a result of the abovementioned facts, Mr Karsten instituted proceedings for payment of the balance of the purchase price as a consequence of the breach of the sales agreement .
In his defence to the aforementioned claim, Mr Du Bruyn argued that the sale agreements were null and void, as Mr Karsten had not registered as a credit provider at the time the respective sale agreements were concluded.
The court a quo, granted judgment in favour of Mr Karsten for the balance of the purchase price. The rationale for the court’s finding was the precedent set by the full bench of the High Court in Friend v Sendal 2015 (1) SA 395 (GP), where the court held that the provisions of the NCA apply to those in the credit market and not particularly to once-off / single arm’s length transactions.
In casu, the SCA was thus called upon to decide whether the precedent set in the Friend case was correct, and the effect of this enquiry on the case before it.
In determining the issue in the present matter, the court easily deposed of the preliminary enquires namely; whether the agreement constituted a credit agreement at arms-length and turned its attention to the main enquiry into whether S40 of the Act applied to so called “once-off” or “single transactions”.
The court in its interpretation of S40 of the Act (versus the ratio of the Friend case) held as follows:
“There can be no doubt that the approach adopted in Friend is pragmatic and makes good sense. However, it is difficult to marry this interpretation with the unambiguous text of the NCA”
According to the court, and its interpretation of S40, the determining factor of whether one must register as a credit provider is the amount of the credit provided and whether that amount exceeds the threshold prescribed in terms of S42(1) of the Act.
Pursuant to the above, the court rejected the argument that the Act does not apply to once-off and/or single transactions as contented by the respondent and held that the legislature set the threshold as the trigger for the obligation to register as a credit provider.
In conclusion the court found that the extension of credit in the present circumstances exceeded the threshold at the time (Five-Hundred Thousand), and therefore the respondent’s failure to register as a credit provider before the conclusion of the respective agreements rendered same unlawful for non-compliance with S40 of the Act.
This case serves as a reminder that credit agreements concluded whereby the party providing the credit facility has not registered as a credit provider are unlawful.
Furthermore, the court was instructive in clarifying that the above is applicable to those participants in the credit market as well as to single or once-off transactions.
Additionally, the court clarified that the test for whether one needs to register as a credit provider is whether the amount of credit exceeds the threshold established in terms of S42 of the Act.
It is worth noting that the threshold as of 11 November 2016 has been set at Nil, therefore strictly speaking any extension of credit (as envisaged in the act) requires the provider of same to register as a credit provider to ensure said agreement is not unlawful.
Written by Sethu Khumalo Checked by Omphile Boikanyo