National Credit Regulator Appeals Court Ruling On Unlawful Credit Deals

Eva Smith (Attorney) @ Lucid Living

The National Credit Regulator has appealed against the Western Cape High Court decision which in April declared a section in the National Credit Act inconsistent with the right to property.
The National Credit Regulator asked the court not to confirm the invalidity of section 89(5)(c)(i) and 89(5)(c)(ii) which deal with consequences of unlawful credit agreements. In terms of this section, the courts must order that all the purported rights of an illegal credit provider to recover the money be cancelled. It also states that in circumstances where the court has deemed such cancellation to enrich the consumer unjustly, those rights of recovery must be forfeited to the state.

The Constitutional Court is expected to provide clarity on the meaning and reach of this section, which also affects people who usually do not conduct money lending as a business. The court also needs to explain whether the sections give the courts a discretion not to annul a credit agreement.

The sequestration application was brought by Filippus Opperman against Jacobus Boonzaaier based on certain written loan agreements totalling R7m.

Mr Boonzaaier was unable to repay those loans. Mr Opperman was not a registered credit provider in terms of the act.

Mr Opperman contended that if the court did not have a discretion whether or not to make a cancellation or forfeiture order, as provided for in terms of section 89(5)(c) of the act, the result was an arbitrary deprivation of property. The court agreed with this contention and declared in April that the section was inconsistent with the right not to be deprived of property and thus invalid.

The National Credit Regulator argues before the Constitutional Court that a court retained some discretion under the section to decline to make an order of cancellation or forfeiture in terms of section 89(5)(c)(i) or 89(5)(c)(ii).

“Once this is so, no constitutional difficulty arises,” counsel for the National Credit Regulator said in his submissions.

If the section was unconstitutional, the court ought to have read words in the section to create the discretion the high court found absent.

The minister’s legal representative, said if the court made any order of constitutional invalidity, it should suspend that order for two years so as to afford the legislature an opportunity to amend the act.

Mr Opperman’s advocate, said the section provided for the credit provider’s rights of recovery to be cancelled and where such cancellation was deemed by the court to enrich the consumer unjustly, those rights of recovery must be forfeited to the state.

She said there could be no discretion for the court to decline to make one or the other order.

The Constitutional Court will hear the matter next month.