11 Jun 2012

Defaulting Debtors Must Be Notified Of Pending Legal Action

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Eva Smith (Attorney) @ Lucid Living

Consumers have a right to contest debt judgments against them when there was no proof that they had been informed of a default, the Constitutional Court ruled yesterday.

Until now, it was sufficient for credit providers to show that they had sent notices to defaulters’ addresses before starting recovery proceedings. It did not matter if the notices were received or not.

The judgment comes as a relief to the Banking Association of SA, which had feared that the court would order personal service of notices to debtors.

The court said credit providers must show proper delivery of the notice in terms of section 129(1) of the National Credit Act by proving registered dispatch to the addresses of defaulters, and that it had reached an “appropriate” post office for delivery.

In this case, Shadrack Sebola and his wife Nombeko Sebola concluded a credit agreement with Standard Bank in November 2007 for a bond of just over R1m on their house. The agreement specified a post office box in North Riding, Johannesburg, to which letters, statements and notices could be delivered.

When they fell into arrears in 2009, the bank’s attorneys sent a section 129 notice, warning of their default, to that address. But the Sebolas never received it because it was erroneously diverted to the Halfway House Post Office.

The bank obtained a default judgment against the Sebolas in September 2009, and the couple then fought them all the way to the Constitutional Court.

In a ruling refusing the rescission of the default judgment last year, South Gauteng High Court Judge Phillip Boruchowitz said the matter had been “authoritatively settled” by the Supreme Court of Appeal. The Sebolas then appealed to the Constitutional Court, which yesterday set aside the high court order.

The Constitutional Court also ordered the bank to pay the Sebolas’ costs in the high court and in the Constitutional Court.

In a majority judgment yesterday, Justice Edwin Cameron said where the notice was posted, mere dispatch was not enough.

“This is because the risk of nondelivery by ordinary mail is too great. Registered mail is in my view essential. Even though registered letters may go astray, at least there is a high degree of probability that most of them are delivered,” he said.

He said the mishap with the Sebolas’ notice showed that proof of registered dispatch was not enough. “The statute requires the credit provider to take reasonable measures to bring the notice to the attention of the consumer, and make averments that will satisfy a court that the notice probably reached the consumer, as required by section 129(1),” Justice Cameron said.

“This will ordinarily mean that the credit provider must provide proof that the section 129 notice was delivered to the correct post office.”

Justice Cameron said credit providers must obtain a post-dispatch “track and trace” printout from the Post Office’s website. The “track and trace” service enabled a dispatcher who had sent a notice by registered mail to identify the post office at which it arrived. This could be done quickly and easily.

Standard Bank spokesman Ross Linstrom said: “We welcome the decision and the directions provided by the Constitutional Court, which we intend to abide by. The judgment is self explanatory”.

He added that Justice Cameron’s findings fully explain what is required from credit providers who choose to serve Section 129 notices by way of registered mail.

The judgment read: “Where the credit provider posts the notice, proof of registered dispatch to the address of the consumer, together with proof  the notice reached the appropriate post office for delivery to the consumer, will in the absence of the contrary indication constitute sufficient proof of delivery.”

If in contested proceedings a consumer states a notice did not reach them, the court must establish the truth.

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