SANSOM V MARS AND OTHERS
[By: CHARLES GEEL ]
It has been a long time coming, but for the first time in 2 years, the Debt Counselling Industry received a favourable and very well considered judgement by the full bench of the Western Cape High Court, consisting of Judges Allie, Fortuin and Dolamo.
Facts in brief:
After the Easter Cape judgement of Nedbank v Norris early 2016 (“the Norris case”) and that of Nedbank Limited v Jones and Others WCC, October 2016 (the Jones case) several Magistrate’s in the Western Cape, refused to grant an order where there has been a reduction in interest rates, notwithstanding Credit Providers agreeing to such a reduction.
According to my opinion:
- The facts of these 2 cases were extreme and not your norm and differ vastly from most Debt Review Applications currently lodged at Magistrate’s Courts. For the sake of brevity, I refrain from elaborating on the facts of these 2 cases.
- The Courts never emphatically excluded the possibility of a consent order with regards to reduced interest rates.
The above untenable situation was – and still is – exasperated by the inability of the NCR to enforce the reduction of interest rates by Credit Providers in accordance with the Code of Conduct in its own Circular 2 of January 2015. Questions to the mentioned authority with regards to the non-enforcement of its own Circular, has sadly been met thus far with absolute silence.
THE SANSOM CASE
In support of her judgement, Allie, J delivered many very important and insightful statements, a few which, I shall enlist hereunder:
- That the case of Nedbank vs Jones is not authority for a Magistrate to refuse to make consent orders proposed;
- That, to mediate the competing interest of consumers and credit providers, the courts must consider the extent to which a proposal by a debt counsellor achieves a mediated settlement with due regard to the amount of the debt, the extent of the over-indebtedness, the financial means of the consumer and the period within which the debt will be amortised;
- “Interest and ancillary costs form an integral part of indebtedness and ought to be taken into consideration when decisions are made on how payments can best be arranged”;
- That the Norris and Jones cases had been selective in its interpretation of the purposes of the Act as set out in Section 3 of the National Credit Act (“the NCA”);
- The honourable Judge Allie also referred to the conclusion in the Constitutional Court decision in Sebolo, where the following was stated:
““A major overhaul of previous credit legislation was essential. This was also necessary because low-income consumers relied increasingly on commercial credit and many were becoming swamped with debt. Reform came with the passage of the Act in 2005. It is weighty legislation, both in size and impact. It consists of 173 sections, together with three schedules and regulations. The statute ‘represents a clean break from the past and bears very little resemblance to its predecessors ”.
- “Accordingly, draft orders, with the consent of consumers and credit providers, once filed with the court, ought to be made order of the court”;
- The honourable Judge was also clear in her finding that, when a Magistrate reduces the instalment, he or she consequently also reduces the amount apportioned to payment of interest without necessarily declaring a reduction in the interest rates.
- “Indeed if interest rates could never be reduced in rearrangements orders, consumers would find themselves unable to extinguish their indebtedness because they would be saddled with the same interest rate during the extended period as they would, had the original credit agreement instalments, not been re-arranged”; (my underlining)
- “The extended duration of the credit arrangement would cause undue hardship to consumers and credit providers alike if it were not open to them to agree on a reduced rate of interest for a specified time.”
- “The Act does not expressly impose an obligation on the Magistrate’s Court to ensure that the reduced payment should cover the interest portion of the agreement. The purpose of the Act as articulated in Section 3 however requires the court to decide the terms of re-arrangement by embarking upon an exercise whereby the competing interests of consumers and credit providers are mediated. In short, the court is bound to adjudicate in a manner which will result in achieving the purposes of the Act; ((my underlining)
- Very importantly, Allie, J goes on to declare and find that changing interest rates is implied where the duration of a credit agreement is extended and the instalments varied: “In the exercise of its power to extend the duration of the credit agreement and to vary the amount of instalments payable by the consumer, the Magistrate’s Courts implicitly has the power to vary the rate of interest payable for the duration of the period of debt review.” (my underlining).
- “…there are instances in which a magistrate, after duly applying his/her mind to all the relevant factors, will be required to vary the duration…, the instalments due and payable that forms part of the indebtedness …to achieve an equitable and fair result for the parties.”
The full outcome and result of the Sansom judgement, will probably only be defined in future cases either before Magistrates or Judges of other Divisions.
However, it is abundantly clear that:
- An Order incorporating the reduction of interest rates by consent, is permissible;
- The restructured payments need not necessarily cover the monthly interest.
In my opinion and interpretation of Allie, J’s judgement, I could argue that the Court can order a reduction of interest rates, even without consent of the Credit Providers. I base this on her findings as set out in para 7 to 11 above.
Only time will tell.