Ashmal v Esa 2016 (2) SA 195 (SCA)

/ / News, 2018, Banking Law


The Respondent entered into a loan agreement in favour of the Appellant. In terms of this agreement, the Appellant bought medical equipment from the Respondent and, in return, drew a number of blank cheques in favour of the Respondent. Contemplated in the amounts of said cheques was a “participating share of the profit”, to be determined by the Appellant at his sole discretion, that would be acquired upon the resale of the medical equipment. At the time that such agreement was entered into, however, the Respondent was not a registered credit provider and, as such, did not meet the requirements of Section 40(1)(b) of the National Credit Act 34 of 2005 (the “Act”). As the Appellant had countermanded the cheques, they were later dishonered by the bank when presented by the Respondent for payment.

The Respondent instituted provisional sentence proceedings in the KwaZulu- Natal High Court. The Court decided that the Agreement was not a secured loan agreement as defined in Section 8(4)(d) of the Act and therefore, the Act did not apply. Consequently, the provisional sentence summons was granted in favour of the Respondent.

Subsequently, the Appellant took the matter on appeal. In accordance with Section 4(5)(a) of the Act – which specifies that a credit agreement entails credit being granted and the imposition of a ‘fee, charge or interest’ in respect of the deferred repayment, for the use of the credit – it was argued that the monies advanced by the Respondent were loans. It was further contended that the agreed profit share amounts in respect of the loans functioned as “a use consideration”, thus qualifying as a ‘charge’ for the use of money owed, as envisioned in Section 8(4)(f) of the Act.

In light of the above, the Appellant argued that the cheques (as part of the loans) constituted “credit agreements” and were subject to the provisions of the Act, and consequently, as the Respondent was not a registered credit provider, he had breached Section 40(1)(b) of the Act. Thus, as Section 89(2)(d) states that a credit agreement is unlawful if the credit provider was not registered at the time that the agreement was entered into. It was argued, in essence, that due to the Respondent’s non-compliance with the Act, no iusta causa existed for payment by cheque and accordingly, the cheques could not found provisional sentence.


The term “charge” is not defined in the Act. Nevertheless, taking into account the Act’s overall objectives of consumer protection against hidden costs, the parties are required to quantify the charge and specify the manner in which it is to be paid when they determine their contractual terms and conclude the credit agreement. However, the profit shares, as envisioned by the parties, had no fixed repayment date, were not guaranteed and ran the possibility of not eventuating. Furthermore, as the amount was to be determined by the Appellant at his sole discretion, the profit share also failed to meet the requirement of fixed quantification. Thus, said profit share did not qualify as a charge under the Act. As a result, the loans did not amount to credit agreements, in terms of Section 8(1) of the Act, as no charges were attached to them. As such, the Respondent was not required to register as a credit provider.

The Court upheld the decision of the court a quo, holding that the cheques in repayment of a loan are exempted from the operation of the Act and that the Respondent was entitled to invoke the provisional sentence procedure to enforce his claims.


This case highlights that non-compliance with the provisions of the National Credit Act will not constitute a basis for the argument that no iusta causa exists for payment by cheque.

Written by Lyndsey Strachan and supervised by Charlotte Clark, 30 July 2018

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