Phaladi V Lamara – Western Cape High Court
Withdrawing from Debt Review
When a person applies to a Debt Counsellor for help with their debt then the Debt Counsellor notifies the NCR (who in turn notify the credit bureaus). The NCR keep a register of consumers who are under debt review.
If a consumer owes more than they can afford to pay for their household expenses and debts at the end of the month then the person is Over Indebted. The Debt Counsellor tells the court that they think the person is over indebted and the court makes a declaration of over indebtedness. Only a Court or the NCT are able to do this. Neither the NCR, Debt Counsellor or Credit Bureau have authority, under the National Credit Act, to declare someone officially over indebted.
Sometimes a consumer who has been under debt review may want to leave the process early since they can now afford to pay all their debts normally or have paid up all their debts. They might then want to be legally declared no longer over indebted so that they can once again get access to credit.
This may be necessary since credit bureaus may not believe a Debt Counsellor when they tell them the consumer is no longer over indebted or the consumer may have abandoned the debt review process midway but still have managed to correct their financial situation.
There have been a number of court cases on the topic and recently there was yet another in the Cape Town High Court which has many people concerned. The case is Phaladi v Lamara and was heard during January 2018 by the honorable Justice Binns-Ward.
‘The case covered applications by Mr Phaladi and Ms Moshesha to be declared not over indebted after having been in debt review’
Phaladi v Lamara
The case covered applications by Mr Phaladi and Ms Moshesha to be declared not over indebted after having been in debt review. They were however never declared over indebted by a Magistrates court as the applications never went to court. They were registered with the NCR and on the Credit Bureaus and through a voluntary arrangement (allowed for by the NCA) have paid off their debts.
The ruling mentions several other similar cases in Gauteng and Cape Town. In some of those cases, the courts made rulings that the consumers were not over indebted in order to help the consumer and exercise authority to remedy the lack of guidance in the NCA. In the Phalandi V Lamara ruling, the court said: Its powers do not extend to improving legislation by providing measures or remedies that the statutory enactments do not afford,… to do so would be in effect to assume a legislative function and thereby trench impermissibly on the domain of the legislative branch of government.
Since Debt Review is then created by the NCA specifically it is then necessary for the NCA to explain how someone is declared no longer over indebted. As the Act stands only at the start of the process can a consumer be said to not be over indebted. Nothing is included about what happens after this point. Since this is not included in the Act, the court found it was not able to make such a ruling and neither could a Magistrates Court (and that such a function should be administrative and not judicial in any case).
‘they do not qualify for relief under that provision, they are remediless. The courts are not empowered to craft a remedy that the statute does not allow for.’
The honourable Justice expressed disappointment that when the NCA has been amended in the past this issue has not been rectified along with other obvious numbering issues. Rather many guidelines have been issued. During the case the NCR’s non binding guideline on the topic was raised and the court simply mentioned that it was non binding and held no authority. Refering to the NCR guideline the ruling says: ‘In short, the NCA just does not make provision for the sort of application conjured in paragraph 4.2 of the Explanatory Note.’
What Does it Mean?
The ruling for these consumers means that they are stuck as being shown as under ‘debt review’ even though their debt has been reviewed, has been voluntarily restructured and has been paid up. Until the credit bureaus remove the listings they will be prevented from gaining access to new credit (which may be a constitutional right).
We asked attorney Wessel Symington, of Steyn Coetzee who practices in the Western Cape, for some additional information on what this all means. He said: “Since the inception of the NCA, the courts have been tasked with interpreting the purpose and effect of the Act and the various sections therein. In Nedbank v NCR the court stated: “ Numerous drafting errors, untidy expressions and inconsistencies make its interpretation a particularly trying exercise”. The impact of these inconsistencies has adversely affected the debt review industry and more so the consumers. The latest contrary views between the NCR withdrawal guidelines and various High Court judgments has been another example thereof.’
He then told us that: “In the Phaladi judgement the High Court states that an application to be declared not over indebted is just not possible. The Trace-Ann Less judgement, of 22 September 2017 however, has a contrary view regarding the court’s jurisdiction in declaring a consumer no longer over indebted. The question that remains unanswered is when and by whom a declaration of over indebtedness must be made, either through judicial oversight or by a Debt Counsellor issuing a Form 17.2?”
Mr. Symington said that this whole issue reminds him of the quote in FirstRand Bank Ltd v Seyfert which says: ‘A court is forced to go round and round in loops from subsection to subsection, much like a dog chasing its tail”. He grimaced and said that: “hopefully the dog will catch its tail soon with these contradictions”.
The NCR are revisiting their guideline on this topic but this case shows that these issues clearly need to be addressed in amendments to the NCA, such as are currently being discussed by the Portfolio Committee on Trade & Industry (where this and other issues have totally been ignored).