IN THE HIGH COURT OF SOUTH AFRICA JUDGMENT

Transcription

1 Reportable: YES / NO Circulate to Judges: YES / NO Circulate to Magistrates: YES / NO Circulate to Regional Magistrates: YES / NO IN THE HIGH COURT OF SOUTH AFRICA (Northern Cape High Court, Kimberley) In the matter between: Case Nr: 2150/09 Date heard: 22/10/2010 Date delivered: 05/11/2010 JEANETTE GESINA ELIZABETH BEETS PLAINTIFF and JOHANNA MAGDALENA SWANEPOEL DEFENDANT Coram: MAJIEDT AJP JUDGMENT MAJIEDT AJP: 1] This is an exception against the plaintiff s particulars of claim that it does not disclose a cause of action. The exception is premised on the following bases: 1.1] That the plaintiff s claim for money lent and advanced to the defendant ( the excipient ) is based on a credit agreement as defined in the National Credit Act, 34 of 2005 ( the Act ). It is not in issue that the transaction constitutes a credit agreement as defined in the Act. I shall therefore henceforth refer to it accordingly. 1.2] That the plaintiff does not aver in her summons and

2 particulars of claim that there has been compliance with the provisions contained in sections 129 and 130 of the Act and consequently no cause of action is disclosed therein. 2 2] The kernel of the issue on exception is therefore simply whether, absent an averment in the particulars of claim regarding compliance with the said sections, the pleading is rendered excipiable for failing to disclose a cause of action. An aspect which I raised at the hearing, viz whether the Act is applicable at all to the credit agreement, requires a more detailed discussion of the facts than may otherwise have been necessary. It appeared to me, from the heads of argument and counsel s initial oral submissions, that the parties were initially ad idem that the Act is indeed applicable to the credit agreement. Plaintiff s counsel, Mr. Coetzee, unsurprisingly seized the opportunity to argue that it was not, after I had raised the point with Mr. Zietsman, for the excipient. 3] Plaintiff s claim is based on a written, alternatively oral, agreement in terms whereof she allegedly lent and advanced the sum of R ,00 to the excipient. A written agreement between the parties, signed during January 2008, is attached to the particulars of claim. The agreement appears to have as its objective assisting the excipient to acquire and take transfer of certain seaside property. The precise details are not important, but the following facts are germane to determine whether the provisions of the Act apply to the credit agreement (and a fortiori whether the exception has any merit):- 3.1] There is a family relationship between the parties

3 P a g e 3 the plaintiff is the excipient s mother. 3.2] A very generous interest rate of 4% below the prime lending rate on the loan was agreed upon by the parties. This interest is payable monthly from date of registration of the property into the excipient s name ( the registration date ) until the plaintiff s death (she was born in 1929). 3.3] Highly favourable repayment terms were agreed upon. The excipient must, over and above the aforementioned monthly interest, pay the sum of R ,00 to a granddaughter of plaintiff within a period of 90 days from the registration date. 3.4] Plaintiff would amend her will in respect of this loan so that the full loan amount would become a bequest to the excipient on condition that the abovementioned payment to the granddaughter is made as stipulated. 3.5] As security for the loan the excipient would arrange for a second mortgage bond to be passed over the property in favour of the plaintiff. 4] In the particulars of claim no reference whatsoever was made to the Act, more particularly compliance with sec 129 and sec 130 thereof. The plaintiff alleged that the defendant was in breach of the agreement by failing to: 4.1] Pay the sum of R ,00 to the granddaughter,

4 4.2] Register the second bond in plaintiff s favour, and 4.3] Pay the monthly interest payments. 4

5 P a g e 5 It was averred further that: Eiseres het op 22 Januarie 2009 en per vooruitbetaalde geregistreerde pos aan die verweerderes kennis gegee dat betaling van die rente vanaf 30 Julie 2008 tot 31 Desember 2008, synde die bedrag van R , binne 7 dae vanaf 22 Januarie 2009 te betaal en nieteenstaande die aanmaning is verweerderes in versuim om die bedrag te betaal. I intend dealing first with the question whether the Act applies to the present credit agreement and if so, whether the particulars of claim is rendered excipiable in the absence of an averment that there has been compliance with the provisions contained in sec 129 and 130 thereof. IS THE ACT APPLICABLE TO THIS CREDIT AGREEMENT? 5] It was common cause that the loan constitutes a credit agreement as envisaged in sec 8(4)(f)(ii) of the Act 1. The Act applies to every credit agreement between parties dealing at arm s length 2. The term arm s length is circumscribed for purposes of greater certainty in sec 4(2) (b). For present purposes the provisions of sec 4(2)(b)(iii) and (iv) are relevant. They read as follows: (2) For greater certainty in applying subsection (1)- (b) in any of the following arrangements, the parties are not dealing at arm's length: (iii) a credit agreement between natural persons who are in a familial relationship and- 1 Sec 8(4)(f)(ii) reads as follows: (4) An agreement, irrespective of its form but not including an agreement contemplated in subsection (2), constitutes a credit transaction if it is- (f) any other agreement, other than a credit facility or credit guarantee, in terms of which payment of an amount owed by one person to another is deferred, and any charge, fee or interest is payable to the credit provider in respect of- (ii) the amount that has been deferred. 2 Sec 4(1)

6 (aa) are co-dependent on each other; or (bb) one is dependent upon the other; and (iv) any other arrangement- (aa) in which each party is not independent of the other and consequently does not necessarily strive to obtain the utmost possible advantage out of the transaction; or (bb) that is of a type that has been held in law to be between parties who are not dealing at arm's length; 6] I could not find any reported judgments on these provisions, nor did counsel refer me to any. Mr. Coetzee, for the plaintiff, submitted that this was not an arm s length transaction, given the family relationship between the parties and the very favourable repayment and interest rate terms. It does not appear as if sec 4(2)(b)(iii)(aa) or (bb) apply here, since no co-dependence on each other or dependence of the one on the other can be discerned from the pleadings. It is trite that regard must be had to the pleading itself to determine excipiability no facts may be adduced to make such a determination 3. The facts set out in the plaintiff s particulars of claim must be accepted as correct unless they are palpably false 4. No co-dependence or dependence can in my view be inferred from the transaction itself. One can deduce from the pleading that the plaintiff who, as stated, is of advanced age, preferred to obtain a monthly income from the interest payments and a donation to her granddaughter as quid pro quo for the loan, instead of the acquisition of seaside property 5. A concomitant inference to be drawn further is that the excipient on the other hand, who is much younger 6, was keen to acquire the property on the very favourable terms agreed upon. The following question 6 3 Vijoen v Federated Trust Ltd 1971(1) SA 750 (O) at Voget and others v Kleynhans 2003(2) SA 148 (C) at para 9. 5 Part of the preamble in the agreement reads as follows (translated from Afrikaans): And whereas (the plaintiff) is desirous of rather earning a monthly income from the R ,00 as aforementioned instead of acquiring shared ownership of the property... 6 She was born in 1970

7 P a g e 7 that arises is whether sec 4(2)(b)(iv)(aa) or (bb) may find application to this set of facts. 7] One must for purposes of sec 4(2)(b)(iv)(aa) accept that, although family, the parties are indeed independent of each other. No other inference presents itself on the papers. It also seems to me that, given their respective circumstances, they strove to gain the utmost possible advantage from the agreement. The plaintiff, almost 80 years of age at the time of the agreement, was content to receive the interest payments 7 and to be in a position to arrange a donation of R ,00 to her granddaughter, as set out above. The excipient, about half the plaintiff s age, was keen to acquire shared ownership of the seaside property on quite favourable terms. 8] The wording of sec 4(2)(iv)(aa) is a codification of the dictum of Trollip JA in Hicklin v Secretary for Inland Revenue 8 where the learned Judge describes the arm s length criterion as follows: "It connotes that each party is independent of the other and, in so dealing, will strive to get the utmost possible advantage out of the transaction for himself " 9. In that case, the court was considering the meaning of that criterion as contained in sec 103(1)(ii) of the Income Tax Act, 58 of The arm s length criterion has been considered in various areas of the law which I discuss next. Sec 4(2)(b)(iv)(bb) also pertinently requires a consideration of the types of arrangements which have been held in law to be between parties who are not dealing at arm s length. 7 Approximately R4 500,00 per month (1) SA 481 (A) at 495 A-B. 9 See: Scholtz et al: Guide to the National Credit Act at 4-3. A similar definition can be found in para 7.1 of Practice Note No 7 of 6 August 1999 relating to sec 31 of the Income Tax Act, 58 of 1962.

8 Scholtz et al 10 refer to the following decisions where this concept has been considered. 8 9] In respect of the valuation of property in a claim for compensation for expropriated land, King J defined arm s length transactions as follows in Opera House (Grand Parade) Restaurant (Pty) Ltd v Cape Town Municipality 11 :... sales in the open market by a willing seller to a willing buyer ] In a tax appeal relating to the taxation of forsaken interest on the unpaid price of shares sold to trusts, Froneman AJA held in Commissioner, South African Revenue Service v Woulidge 12 that: A notional commercial arms length transaction on interest would assume a lender who would insist on payment of the interest he charges and a borrower able to pay that interest. 11] In Cooper and Another NNO v Merchant Trade Finance Ltd 13 the matter concerned an intention by a debtor to prefer one of his creditors above another as contemplated in sec 29(1) of the Insolvency Act 14. Zulman JA held that parties act at arm s length where no relationship other than that of debtor and creditor exist between them ] To the above can be added the following further authorities. In Commissioner for Inland Revenue v Malcomess Properties (Isando) (Pty) Ltd 16 Nicholas AJA emphasized the factor of the 10 Ibid (2) SA 670 (C) at 681 J (1) SA 68 (SCA) at para (3) SA 1009 (SCA). 14 No 24 of At para [1991] 4 All SA 145 (A) at 152 A.

9 P a g e 9 independence of parties in negotiations to conclude that they were dealing at arm s length with each other. In Income Tax case no , Davies J referred with approval to the definition propounded by Trollip JA in Hicklin supra, which is the leading authority on what an arm s length transaction is in our law. 13] Applying these criteria to the present matter, one can draw the following conclusions: the parties are in fact and in law independent of each other; the fact that they are related to each other does not detract from this. As indicated above, they strove to gain the maximum possible benefit from the transaction for themselves. In this regard one has to take into account the parties unique circumstances as set out above. Interest was to be paid, albeit at a favourable rate. When the excipient allegedly breached the repayment terms, a demand was made, followed by the issuing of summons. In the result, I am satisfied that this was indeed an arm s length transaction to which the provisions of the Act apply SATC 305

10 THE EXCIPIABILITY OF THE PLEADINGS 10 14] The general approach in respect of the excipiability of pleadings has largely been dealt with in para 6 above. An exception must raise a substantive question of law which may have the effect of settling an issue between the parties 18. A pleading will only be excipiable if no possible evidence led on the pleadings as they stand can disclose a cause of action 19. Exception is an appropriate way of settling a point of law 20. The excipient must prove that on every interpretation which the Court may attribute to the particulars of claim, it remains excipiable ] The primary object of the Act is to protect consumers 22. This does not, however, mean that the interests of creditors and credit providers must be overlooked 23. Sec 3(d) pertinently provides as an object of the Act:... (to protect consumers by) promoting equity in the credit market by balancing the respective rights and responsibilities of credit providers and consumers. 16] The relevant parts of the notice provisions at issue here, viz sec 129(1)(b) and 130, read as follows: 129 Required procedures before debt enforcement (1) If the consumer is in default under a credit agreement, the credit provider- (b) subject to section 130 (2), may not commence any legal proceedings to enforce the agreement before- 18 Murray & Roberts Construction Ltd v Finat Properties (Pty) Ltd 1991(1) SA 508 (A) at 514 F-G. 19 Mckelvey v Cowan N.O. 1980(4) SA 525 (Z) at 526 H. 20 Du Preez v Boetsap Stores (Pty) Ltd 1978(2) SA 177 (NC) at 181 D-E. 21 Theunissen en andere v Transvaalse Lewendehawe Koöp Bpk 1988(2) SA 493 (A) at 500 E; Stewart and Another v Botha and Another 2008(6) SA 310 (SCA) at para Sec Jaftha v Schoeman and others; Van Rooyen v Stoltz and others 2005(2) SA 140 (CC) paras 42 and 51.

11 P a g e 11 (i) first providing notice to the consumer, as contemplated in paragraph (a), or in section 86 (10), as the case may be; and (ii) 130 meeting any further requirements set out in section 130 Debt procedures in a Court (1) Subject to subsection (2), a credit provider may approach the court for an order to enforce a credit agreement only if, at that time, the consumer is in default and has been in default under that credit agreement for at least 20 business days and- (a) at least 10 business days have elapsed since the credit provider delivered a notice to the consumer as contemplated in section 86 (9), or section 129 (1), as the case may be; (b) in the case of a notice contemplated in section 129 (1), the consumer has- (i) not responded to that notice; or (ii) responded to the notice by rejecting the credit provider's proposals; and (c) in the case of an instalment agreement, secured loan, or lease, the consumer has not surrendered the relevant property to the credit provider as contemplated in section 127. (2) In addition to the circumstances contemplated in subsection (1), in the case of an instalment agreement, secured loan, or lease, a credit provider may approach the court for an order enforcing the remaining obligations of a consumer under a credit agreement at any time if- (a) all relevant property has been sold pursuant to- (i) (ii) an attachment order; or surrender of property in terms of section 127; and (b) the net proceeds of sale were insufficient to discharge all the consumer's financial obligations under the agreement. (3) Despite any provision of law or contract to the contrary, in any proceedings commenced in a court in respect of a credit agreement to which this Act applies, the court may determine the matter only if the court is satisfied that- (a) in the case of proceedings to which sections 127, 129 or 131 apply,

12 the procedures required by those sections have been complied with; 12 (b)... (c)... (4) In any proceedings contemplated in this section, if the court determines that- (a)...; (b) the credit provider has not complied with the relevant provisions of this Act, as contemplated in subsection (3) (a), or has approached the court in circumstances contemplated in subsection (3) (c) the court must- (i) adjourn the matter before it; and (ii) make an appropriate order setting out the steps the credit provider must complete before the matter may be resumed; (c)... (d)... (e)... 17] In analysing these provisions, Wallis J opined in Munien v BMW Financial Services (SA) Pty Ltd and Another 24 that: The question is not so much one of the underlying policy and purpose of (the Act), but as to where the balance is to be struck between credit provider and consumer when it comes to the giving of notices under the Act. 25 In Rossouw v First Rand Bank Ltd 26 Maya JA held that:... sections 129(1)(b)(i) and 130(1)(b) make (the delivery of a notice) a peremptory prerequisite for commencing legal proceedings under a credit agreement and a critical cog of a plaintiff s cause of action (emphasis added). In that case the Court found that the credit provider (the Bank) had not complied with the notice provisions. Its summons read as (1) SA 549 (KZD). 25 At para Unreported, SCA case no 640/09, [2010] ZASCA 130, delivered on 30 September 2010.

13 P a g e 13 follows: 27 The plaintiff is a registered credit provider as defined in terms of s 40 of the National Credit Act, 34 of 2005 and has complied with s 129(2) and 130 of the said Act. Copies of the notices in terms of the abovementioned sections are (annexed hereto as annexures) A and B respectively. In the present matter there are no such averments. 18] The authors of Guide to the National Credit Act, supra, express the view that a credit provider must make the allegations regarding compliance with the sui generis preenforcement procedures contained in section 129(1), with the provisions of section 130(1) and (3)(a) to (c) and, when applicable, with section 130(2), otherwise a court may refuse to determine the matter. 28 The notice in sec 129(1)(b)(i) has been referred to as a sine qua non for enforcement of the debt 29. Similar pre-enforcement notice requirements can be found in other statutes, e.g. sec 19(1) of the Alienation of Land Act 30. It is settled law that these are peremptory requirements and, as a general rule, a plaintiff suing on a cause of action arising in circumstances where these statutes apply, must aver compliance with the applicable notice provisions 31. These types of statutory peremptory pre-enforcement notices differ from notices preceding actions against State entities, e.g. the police or other organs of state. In the latter regard, sec 3(1)(a) of the Institution of Legal Proceedings Against Certain Organs of State Act 32 requires that notice of intention to sue be given before the institution of action. 27 At para At J.M. Otto, The National Credit Act Explained, at No 68 of Compare generally Miller v Hall 1984(1) SA 355 (D & CLD). 32 No 40 of 2002

14 Condonation may be sought for the lack of compliance with a peremptory notice to sue-requirement 33, while no such condonation provisions can be found in statutes containing peremptory preenforcement notice requirements. It has been held that condonation can be sought for non-compliance in the first mentioned types of cases even in instances where summons has already been issued 34. This means that in such instances the requirement of written notice as a precondition to instituting action is not an absolute bar 35. Put differently, compliance with the notice requirement is not part of the cause of action. In my view the converse holds for a statutory preenforcement notice it forms part of the cause of action; absent such a notice no legal enforcement is possible ] A plaintiff must in my view aver compliance with these sections in the summons or particulars of claim to disclose a cause of action where the suit is based on a credit agreement to which the Act applies. It is a material averment, the absence whereof would render the pleading excipiable. Without the requisite notice, a claim cannot be enforced. Sec 129(1)(b) is clear and unambiguous that proceedings cannot be commenced unless the requisite notice has been given. 20] Mr. Coetzee advanced the argument that a special plea and not exception, is the appropriate procedure which the excipient should have followed in this matter. He relies on a passage in Makhanya v University of Zululand 36 for this submission. The passage reads as follows: 33 Such as in sec 3(4)(a) of Act 40 of 2002, supra. Cf Minister of Agriculture and Land Affairs v CJ Rance 2010(4) SA 209 (SCA) at para Dauth and Others v Minister of Safety and Security and others 2009(1) SA 189 (NC); Minister of Safety and Security v De Witt 2009(1) SA 457 (SCA). 35 Minister of Safety and Security v De Witt, supra at para (1) SA 62 (SCA) at para 29

15 P a g e 15 [29] Jurisdictional challenges will be raised either by an exception or by a special plea, depending on the grounds upon which the challenge arises. There will be some cases in which the jurisdiction of a court is dependent upon the existence of a particular fact (often called a 'jurisdictional fact'). Where the existence of that fact is challenged it will usually be in a special plea, and the matter will proceed to a factual enquiry confined to that issue. In other cases the existence or otherwise of jurisdiction to consider the case will appear from the particulars of claim and in those cases the challenge will be raised by an exception. In such cases a court that considers the challenge might not even be aware of whether or not the plaintiff intends raising any defence at all to the claim. But in both cases the issue must necessarily be disposed of first, because upon it depends the power of the court to make any further orders." 21] This dictum does not assist the plaintiff at all, ad contrarem, it lends force to my views expressed in the preceding paragraph that compliance with the sections must be averred in the particulars of claim. The difference between an exception and a special plea is primarily to be found in the fact that whereas a special plea always introduce new matter which must be proved by evidence, an exception does not 37. Thus, for example, prescription will be raised by way of special plea with facts set out in support thereof, whereas lack of jurisdiction will be raised by an exception, on the particulars of claim as it stands. The excipient correctly in my view proceeded by way of exception to attack the particulars of claim as it stands. 22] Mr. Coetzee submitted further that substantive and not procedural law must be pleaded and that the averment that demand has been made (see para 4 above) is adequate. This submission can be dismissed without more. For the reasons set out above, the particulars of claim must contain compliance with the notice requirements. 23] The authoritative definition for a cause of action is as follows: 37 Daniels: Beck s Theory and Principles of Pleading in Civil Actions, 6 th ed at 152.

16 16 Now as to the meaning of the words 'if the cause of action arose wholly within the district', in the Magistrates' Court Act, I may refer to an English case in which the meaning of similar words in an English statute was construed. In the case of Read v. Brown (22 Q.B.D. 131) it was necessary to construe the words: 'Cause of action arising wholly or in part within the city of London or the liberties thereof.' Lord ESHER, M.R., said: 'What is the real meaning of the phrase 'cause of action arising in the city'? It has been defined in Cook v. Gill (L.R., 8 C.P. 107) to be this: 'every fact which it would be necessary for the plaintiff to prove, if traversed, in order to support his right to the judgment of the Court. It does not comprise every piece of evidence which is necessary to prove each fact, but every fact which is necessary to be proved. It has been suggested to-day in argument that this definition is too broad, but I cannot assent to this, and I think the definition is right.' This definition was adopted by the Cape Provincial Division in the case of Belfort v. Morton (1920, C.P.D. 589), and in my opinion it was rightly so adopted ] In instances where a claim is based on statutory provisions and the statute containes an express prohibition, the plaintiff must prove such facts as are necessary to rely on the prohibition failing which, the particulars of claim would not disclose a cause of action 39. The same principle applies to statutory peremptory pre-enforcement notices in my view. 38 McKenzie v Farmers Co-operative Meat Industries Ltd 1922 AD 16 at IS & GM Construction CC v Tunmer 2003(5) SA 218 (W) at 220 D-I.

17 P a g e 17 25] In the premises I find that: 25.1] The credit agreement was an arm s length transaction to which the Act applies, and 25.2] The particulars of claim does not disclose a cause of action since it does not contain averments that there has been compliance with sections 129 and 130 of the Act. 26] That leaves the question of costs. Mr. Coetzee submitted that if the exception is upheld costs should be costs in the cause. He argued that the trial court may eventually conclude after hearing evidence, that this was not an arms length transaction. I think this is indeed a sensible approach which I intend to follow. 27] The following order is issued: 27.1] The exception is upheld. 27.2] The plaintiff s particulars of claim is set aside. 27.3] The plaintiff is granted leave, if so advised, to file an amended particulars of claim within 15 days from date hereof. 27.4] Costs will stand over for determination at the trial.

18 18 SA MAJIEDT ACTING JUDGE PRESIDENT NORTHERN CAPE DIVISION Adv W Coetzee for the Plaintiff instructed by Van de Wall and Partners, Kimberley Adv PJ Zietsman for the Defendant instructed by Engelsman Magabane Inc., Kimberley