This appeal concerned section 129(3) of the National Credit Act (the NCA) and whether a default in a credit agreement can be remedied by payments made by a third party and not by, or on behalf of, the consumer itself.
The First Respondent, Firstrand Bank Limited t/a RMB Private Bank (RMB), advanced R30 million to the First Appellant, Mr Mostert, in terms of a loan agreement concluded during March 2005. The loan was repayable in monthly instalments. The Third and Fourth Appellants, trustees of the Carpe Diem Trust bound the Trust to RMB as surety and co-principal debtor. The suretyship was supported by the registration of a first mortgage bond over the property in favour of RMB. The property is the primary residence of Mr Mostert and his family, and is owned by the Trust,
Mr Mostert defaulted on payments and in March 2010 a written settlement agreement was concluded providing for specified payments to settle the arrears by 1 March 2011. Mr Mostert further ceded all his shares in CSHELL 347 (Pty) Ltd to RMB and authorised RMB to sell the shares in the event of default of the settlement agreement.
The settlement agreement was not complied with and on 12 September 2011 RMB obtained judgment against Mr Mostert and the Trust for the full outstanding amount and the property was declared specially executable. The Appellants brought an application to the Western Cape Division, Cape Town for an order prohibiting RMB from executing the judgment against the property. The application was dismissed and the Appellants appealed to the Supreme Court of Appeal.
The Appellants contended that RMB was not entitled to execute the judgment as the loan agreement had been reinstated in terms of s 129(3) of the NCA by payment of the arrears on 31 May 2013 (the 2013 payment) or during 2015 (the 2015 payments). Section 129(3) of the NCA provides a unique and extraordinary remedy whereby, a consumer may, prior to the credit provider cancelling the credit agreement, remedy a default reinstating such agreement. A consumer’s credit agreement can only be reinstated through payment made by the consumer itself or on the consumer’s behalf.
The 2015 payments constituted the proceeds of the CSHELL shares paid to RMB as a result of it enforcing its security. RMB acknowledged that the 2015 payments did settle the arrears, however, were made by a third party and not by or on behalf of Mr Mostert. RMB thus denied that the loan agreement had been reinstated.
The legal issue is whether default in a credit agreement may be remedied in terms of s 129(3) of the NCA by payment that was not made by or on behalf of the consumer in respect of that credit agreement.
To determine whether the 2015 payments had settled the arrears and reinstated the credit agreement, the SCA interpreted s 129(3) of the NCA in the context of s 129 as a whole and in line with the primary objective of the NCA, to protect consumers by providing a fair and equitable credit market. It was concluded that the language of s 129(3) is clear and for purposes of reinstatement, the consumer must be the protagonist. It is thus clear that where payment of arrears does not emanate from the consumer’s boa fide effort to resolve the dispute, s 129(3) will not protect the consumer.
The 2015 payments were made as a result of RMB’s conduct of enforcing its security and ensuring that the proceeds of the sale of the CSHELL shares (which had previously been pledged to RMB as security for the loan agreement) were paid to RMB. It was thus held that the 2015 payments were not made by or on behalf of Mr Mostert, but resulted from RMB’s enforcement of its rights against a third party. Consequently, the 2015 payments did not remedy Mr Mostert’s default in the loan agreement.
This case considered the interpretation of s 129(3) of the NCA and found that a consumer may remedy a default in a credit agreement by payment made by or on behalf of the consumer. Where a credit provider follows up on its security independently of the consumer, such payment will not remedy the default and reinstate the agreement. Where payment does not emanate from the consumer’s bona fide effort to resolve the default, but from the credit provider having had to enforce its rights against a third party, the consumer is not deserving of the protection of s 129(3).
Written by Wesley Pons and supervised by Charllotte Clarke, 25 May 2018