Last year, the High Court of South Africa, North West Division, Mafikeng (the “Court”), was tasked to consider an application for the payment of an amount of R1 303 120.05 plus interest thereon in terms of an acknowledgement of debt (the “AOD”) concluded between friends in or during August 2015.
The applicant launched an application against the respondent for payment in terms the AOD wherein the respondent acknowledged that he was indebted to the applicant for a capital sum of R831 000.00 (the “Capital Sum”) plus interest thereon at 18% per annum. In terms of the AOD, repayment was deferred for a period of 60 days.
In a point in limine, the respondent contended that the AOD was tantamount to a credit agreement, which rendered the AOD subject to the National Credit Act No. 34 of 2005 (the “NCA”) and, as such, the applicant should have been registered as a credit provider in terms
of section 40 of the NCA.
Having regard to the aforegoing, the respondent contended that because the applicant was not registered as a credit provider, the AOD is unlawful to the extent provided for in section 89 of the NCA.
The applicant submitted that the financial assistance provided to the respondent did not fall within the ambit of the NCA as the AOD was not concluded at arm’s length as envisaged by section 4(1) of the NCA. In this regard, the applicant emphasised his 18 year relationship with the respondent.
Furthermore, the applicant contended that even if the Court were to find that the AOD is subject to the NCA, under all the credit agreements wherein the applicant advanced funding to the respondent, the credit agreements did not exceed the R500 000.00 threshold, as was applicable at the time, at any given time. In terms of section 40(1) of the NCA, before its amendment, as applicable to the current matter, only credit providers with an aggregate number of credit agreements exceeding the threshold of R500 000.00 were required to register as such.
Having regard to the applicant’s submission that the transactions relevant to the AOD were not concluded at arm’s length, the respondent highlighted the findings in De Bruyn NO and Others v Karsten1, which supported the respondent’s contention that the AOD is indicative of the applicant striving to obtain the utmost advantage when regard is had to the formally drafted nature of the AOD which seeks to recover not only capital amounts but interest and costs of litigation on the punitive scale.
The Court considered, inter alia, the question whether the relationship between the applicant and respondent was a mutually symbiotic relationship to the benefit of both parties, or premises on commensalism with only one party benefiting from the relationship through
obtaining an unfair advantage. Having regard to the relationship between the parties, the Court found that a common sense assessment of the relationship demonstrates that the mere fact that the parties were friends, who just happened to engage in business dealings, where one friend advanced loans to the other in times of need, does not, detract from the
fact that in so doing they were transacting at arm’s length. Furthermore, from a legal perpective, and adopting a pragmatic approach to the AOD, the Court found that it is clear that the AOD has the salient features of a credit agreement at arms length to the extent that the AOD identifies a capital amount which attracts interest, payments are deferred, collection fees are levied and non-payment could trigger litigation accompanied by litigation costs on a punitive scale.
In its consideration of whether or not the AOD constituted a credit agreement within the ambit of the meaning of a credit agreement in the NCA, the Court found that the description of a credit agreement in section 8(4)(f) of the NCA is clear and unambiguous and no distinction or qualification is given to “any other agreement”. The only requirement is that it relates to the payment of an amount owed by one person to another which payment is deferred with charges, fees or interest being payable in respect of the agreement.
The Court reiterated the finding of the Sumpeme Court of Appeal in De Bruyn NO and Others v Karsten that the requirement to register as a credit provider is applicable to all credit agreements once the prescribed thredhold is reached, irrespective of whether the credit provider is involved in the credit industry and irrespective of whether the credit agreement is a once-off transaction.
The Court held that the AOD was for the Capital Sum which, on its own, exceeded the threshold of R500 000.00 applicable at the time that the AOD was concluded and, therefore, the applicant was requierd to register as a credit provider in terms of section 40(1) of the NCA.
Accordingly, the Court held that the credit agreement, the AOD, stands to be declared unlawful, however, the applicant is not without remedy as he retains his right to claim restitution based on unjustified enrichment, which position was confirmed by the Constitutional Court in National Credit Regulator v Opperman and Others2.
As of 11 November 2016, the Minister of Trade and Industry prescribed that the threshold is nil and, as such, all persons who intend to provide credit in terms of a credit agreement must register as credit providers to prevent such credit agreements from standing to be declared unlawful.
Written by Kerry Theunissen and Wade O’Connor