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De Jure

On-line version ISSN 2225-7160
Print version ISSN 1466-3597

De Jure (Pretoria) vol.45 n.3 Pretoria  2012

 

ARTICLES

 

Judicial oversight for sales in execution of residential property and the National Credit Act

 

Geregtelike toesig by eksekusieverkope van residensiële eiendom en die Nasionale Kredietwet

 

 

Elmien du Plessis

BA (International Relations), LLB, LLD (Stell) Senior Lecturer in Private Law, University of Johannesburg

 

 


OPSOMMING

Praktiese uitvoering word gegee aan 'n hofbevel wanneer 'n huis in eksekusie verkoop word. Verkope in eksekusie stel 'n party in staat om 'n hofbevel teen 'n skuldenaar af te dwing. So 'n afdwinging is belangrik vir regswerking. Die Nasionale Kredietwet 34 van 2005** is uitgevaardig om (meestal) prosedurele beskerming te bied aan skuldenaars, terwyl sake soos Jaftha v Schoeman en Gundwana v Steko Development verg dat howe geregtelike toesig het by bevele wat lei tot verkope van huise in eksekusie. Die pad tot hier was lank en soms deurmekaar. Howe het geworstel met die vraag of 'n bevel om 'n huis te verkoop in eksekusie sonder 'n hofbevel inbreuk maak op die grondwetlike reg tot toegang tot genoegsame behuising. Verskillende howe het tot verskillende gevolgtrekkings gekom. Alhoewel die probleem meestal opgelos is deur die Jaftha en Gundwana beslissings, is die sake waarin die howe met die vraagstuk geworstel het steeds belangrik om in die toekoms die howe te help om 'n balans te vind tussen die regte van die skuldeiser om haar hofbevel af te dwing, en die skuldenaar se grondwetlike regte.
In die artikel word die impak van die Nasionale Kredietwet op die skuldeiser se vermoe om 'n hofbevel te bekom teen 'n skuldenaar, sowel as die mees belangrike sake tot Gundwana wat handel oor die skuldeiser se vermoe om so 'n bevel af te dwing, bespreek. Die fokus is op hoe die hof die mededingende regte moet opweeg.


 

 

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* This article is based on a paper that was prepared for, and presented at, the Annual Banking Law Update of the University of Johannesburg, held in Johannesburg 2012-05-23. I thank Prof Jannie Otto for clarifying the NCA and the process (and leading me to the "aha!" moment); Elizabeth de Stadler for making sure that I'm not talking too much nonsense as far as the NCA is concerned and Bafana Ntuli for his enthusiastic research assistance. Any remaining faults and shortcomings can only be attributed to my own stubbornness.
** 'n Nie-amptelike vertaling van die Nasionale Kredietwet 34 van 2005 is beskikbaar by http://www.vra.co.za/index.php?option=com_content&view=category&layout=blog&id=3&Itemid=3 (red).
1 Campbell v Botha 2008 ZASCA 126.
2 34 of 2005.
3 2005 2 SA 140 (CC).
4 2011 8 BCLR 792 (CC).
5 This article will not discuss the possible theoretical explanations or validations for the courts' decisions. This has been done elsewhere. See Van der Walt "Property, social justice and citizenship: property law in post-apartheid South Africa" 2008 Stell LR 325 (drawing on Fox's study on the "home interest of occupiers",         [ Links ] where, in terms of a new organising framework in property theory, it should be possible to balance the home interest of occupiers with the commercial interest of the creditors); Davis & Klare "Transformative constitutionalism and the common and customary law" 2010 SAJHR 403 (on the fundamental changes that Jaftha made to common-law understandings).         [ Links ]
6 2011 8 BCLR 792 (CC).
7 S 3 NCA. Although the NCA was assented to by the President in 2006, it came into operation in bits and pieces. The sections relevant to this paper came into operation on 2006-06-01. In Firstrand Bank v Seyffert 2010 6 SA 429 the court made it clear that the NCA does not create a "debtor's paradise" (par 10). In Firstrand Bank Limited v Maleke; Firstrand Bank Limited v Motingoe; Peoples Mortgage Ltd v Mofokeng; Firstrand Bank Limited v Mudlaudzi 2010 1 SA 143 (GSJ) the court made it clear that consumer legislation introduced new forms of protection for debtors in South Africa. This should help to balance the inequalities in bargaining power between large credit providers and credit seekers. The NCA further provides assistance and protection for previously disadvantaged individuals in the property market by trying to level the playing field.
8 S 1 NCA.
9 Otto & Otto The National Credit Act Explained (2010).
10 Otto & Otto 11.
11 According to National Credit Regulator v Nedbank Ltd 2009 6 SA 295 (GNP) the credit counsellors fulfils a statutory function and must therefore answer all the court's questions. See Otto "Die oorbelaste skuldverbruiker: die Nasionale Kredietwet verleen geensins onbeperkte vrydom van skulde nie" 2010 TSAR 399 402.
12 Otto & Otto ed 61.
13 S 86(7)(a) NCA.
14 S 86(7)(b) NCA.
15 S 87 NCA. See Otto & Otto 62 for a discussion on the section.
16 The magistrates' courts' jurisdiction is unlimited in this instance. See National Credit Regulator v Nedbank Ltd 2009 6 SA 295 (GNP).
17 S 86(8)(b) NCA.
18 S 86(7)(c)(ii) NCA.
19 S 129; Otto & Otto 12.
20 For a discussion on over-indebtness see Otto 2010 TSAR 399.
21 S 79 NCA. See Otto & Otto 59.
22 S 85 NCA. See Otto & Otto 59 for a discussion on the section.
23 S 86 NCA. See Otto & Otto 59 for a discussion on the section.
24 S 86(2) NCA. There was an initial dispute whether the debtor's application for debt review in terms of s 86 NCA was stayed at the moment when the credit provider informs the debtor of her default in terms of s 129(1)(a) NCA or when summons is issued in terms of s 129(1)(b) NCA. See Otto National Credit Act Explained (2006) 85 fn 25; Boraine & Renke "Some practical and comparative aspects of the cancellation of instalment agreements in terms of the National Credit Act 34 of 2005: (Part 2)" 2008 De Jure9; Otto "Over-Indebtedness and Applications for Debt Review in Terms of the National Credit Act: Consumers Beware - Firstrand Bank Ltd v Olivier Case " 2009 SA Merc LJ 272 277; Coetzee The impact of the National Credit Act on Civil Procedural Aspects relating to Debt Enforcement (LLM dissertation 2009 UP) 85-88; Roestoff et al" 'The Debt Counselling Process - Closing the Loopholes in the National Credit Act 34 of 2005" 2009 PER 247 260; Firstrand Bank Ltd v Olivier 2009 3 SA 353 (SEC). For a different opinion, see Standard Bank of South Africa Ltd v Hales 2009 3 SA 315 (D). The matter was however settled in Nedbank v National Credit Regulator2011 3 SA 581 (SCA) where the court ruled that once a s 129(1)(a) NCA notice was delivered in terms of a specific credit agreement, the consumer cannot apply for debt review for that specific agreement anymore, due to s 86(2) NCA.
25 S 130(1)(a) NCA. See Otto & Otto 103 for a more in-depth discussion. If the consumer applied for review in terms of s 86 NCA, the credit provider can only apply for the termination of such debt review after 60 days. If, after such termination, the credit provider seeks to enforce the agreement in terms of ss 129-133 NCA, the magistrate's court hearing the matter may order for the review to resume on the conditions that the court deems just in the circumstances in terms of s 85(10) NCA. In Collett v Firstrand Bank Ltd 2001 4 SA 508 the court ruled that if an application was made for a debt review in terms of s 86 NCA, a credit provider may only terminate the debt review in terms of s 86(10) NCA if the consumer is in default. In this case the credit provider can also not enforce the agreement, because the consumer is not in default. Should the consumer be in default, the credit provider can enforce the agreement by complying with ss 129, 130 NCA, provided that the consumer did not make application for debt review in terms of s 86(1) NCA. If you are confused by now, you are in good company. Willis J in Firstrand bank v Seyffert supra stated that "[a] court is forced to go round and round in loops from subsection to subsection, much like a dog chasing its tail".
26 See Otto & Otto 103 for a discussion of the word "may" in s 129(1)(a) NCA. The court in Absa Bank Ltd v Prochaska t/a Bianca Cara Interiors 2009 2 SA 512 (D) par 35 stated that the notice was a prerequisite before legal proceedings could be instituted. See also Standard Bank v SA Ltd v Van Vuuren 2009 5 SA 557 (T).
27 For a discussion of the word "enforce" see Otto & Otto 103. For purposes of this paper "enforce" would refer to the credit provider enforcing any of its remedies and not just payment of money or an obligation in terms of the agreement. In ABSA Bank Ltd v De Villiers 2009 3 SA 421 (SEC) the court held that s129(1)(b) NCA only gives the credit provider the right to commence with legal proceedings to enforce an agreement unless it complied with the notice requirement of s 129(1)(a) NCA and the requirements of s 130 NCA.
28 S 65(2) NCA provides that in the absence of a prescribed mode of delivery, the consumer can choose. It can either be in person at the credit provider's business premises; at any other place designated by the consumer; by ordinary mail (R 1 GN 489 GG 28864, 2006-05-31 provides for delivery by registered mail - see Otto & Otto 103, 105.); by fax; by email; by printable web-page.
29 Sebola v The Standard Bank of South Africa CCT 98/11 Date of Hearing: 2012-02-14,
30 Provided that it is more than 20 days after the consumer defaulted.
31 This refers to goods sold in terms of an instalment sale, secured loan or lease.
32 S 130(1) NCA.
33 Van Heerden in Guide to the National Credit Act (ed Scholtz) (2008) 12-29.
34 S 79(1) NCA.
35 See Otto 2010 TSAR 399 for cases on over-indebtness before 2009.
36 Gundwana v Steko Development CC2011 8 BCLR 792 (CC).
37 32 of 1944
38 R 36(1) Magistrates' Courts Rules.
39 See in general chapter IX Magistrates' Court Act 32 of 1944.
40 S 66(1) NCA. Certain categories of property are protected from such a sale, such as necessary beds and furniture, food for one month etc. "Property" in terms of s 65J, 72 Magistrates' Courts Act 32 of 1944 (MCA) includes certain incorporeals.
41 32 of 1944
42 S66(1)(a) MCA states: Whenever a court gives judgment for the payment of money or makes an order for the payment of money in instalments, such judgment, in case of failure to pay such money forthwith, or such order in case of failure to pay any instalment at the time and in the manner ordered by the court, shall be enforceable by execution against the movable property and, if there is not found sufficient movable property to satisfy the judgment or order, or the court, on good cause shown, so orders, then against the immovable property of the party against whom such judgment has been given or such order has been made.
43 32 of 1944.
44 Jaftha v Schoeman; Van Rooyen v Stolz 2005 2 SA 140 (CC).
45 Jaftha v Schoeman; Van Rooyen v Stolzsupra par 16. Once the property is sold, the judgement debtor can either vacate the premises voluntarily, or stay on. If the judgement debtor chooses to remain on the premise, she will be "holding over" and the new owner would have to evict her in terms of the provisions of the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act 19 of 1998 (PIE). R 36(1) Magistrates' Courts Rules provided, before Jaftha that "[t]he process for the execution of any judgment for the payment of money, for the delivery of property whether movable or immovable, or for the ejectment shall be by warrant issued and signed by the clerk of the court and addressed to the sheriff".
46 Jaftha v Schoeman; Van Rooyen v Stolzsupra par 15. If a warrant is obtained and the occupier remains in the house, the occupier will be deemed an unlawful occupier that must be evicted in accordance with PIE.
47 Jaftha v Schoeman; Van Rooyen v Stolz supra par 15.
48 32 of 1944.
49 Idem.
50 Where immovable property is sold in execution certain publicity principles must be adhered to. The execution creditor must, after consulting the sheriff, prepare a short description of the property (such as where it is situated) along with the date and time of the sale. The creditor must then publish this notice in a newspaper in the district where the property is situated, as well as in the Government Gazette (r 43(6)(c) Magistrates' Courts Rules). This must be done between 5 and 15 days before the sale. In certain circumstances a sale in execution can be impugned even after delivery of movables or registration of immovable properties to sales made "in good faith and without notice of any defect" - s 70 Magistrates' Courts Act 32 of 1944 (MCA). Once immovable property is sold in execution, the sheriff is empowered to take the necessary steps to effect registration of transfer (S 68(4)-(5) MCA). A judgment debtor can in such instances ask to impeach the sale in execution if he can show that the purchaser acted in bad faith or the purchaser had knowledge of the defect at the time of purchase. Also, if the principle of legality is violated, the sale in execution will be null and void because the sheriff had no authority to transfer ownership to the purchaser. Campbell v Botha supra; Menqa v Markom 2008 2 SA 120 (SCA).
51 2005 2 SA 140 (CC).
52 Idem.
53 The debts were not more than R250. Reference is also made to Ms Jaftha's poor health, poverty and very basic education (par 3), and Ms van Rooyen's lack of education and unemployment status.
54 Jaftha v Schoeman; Van Rooyen v Stolz supra parr 4, 5.
55 32 of 1944.
56 Jaftha v Schoeman; Van Rooyen v Stolz supra par 6.
57 Ibid par 13.
58 Ibid par 17.
59 32 of 1944.
60 Jaftha v Schoeman; Van Rooyen v Stolzsuprapar 18. They also attacked s 67 MCA on the grounds that it recognises basic necessitates that is needed for survival, but that it does not provide similar protection for the protection of the judgment debtor's house.
61 Jaftha v Schoeman; Van Rooyen v Stolzsuprapar 19.
62 Ibid par 31.
63 Ibid par 34.
64 ibid par 40.
65 idem.
66 ibid par 41.
67 ibid par 42.
68 ibid par 56.
69 This is not a closed list, see Jaftha v Schoeman; Van Rooyen v Stolz supra par 56.
70 ibid par 57.
71 ibid par 58.
72 ibidpar 60.
73 idem.
74 ibidpar 59.
75 ibid par 53.
76 ibidpar 55.
77 idem.
78 See Menqa v Markom supra for the possible implication of the fact that this order also applies retrospectively. in Menqa Zondi J held that the declaration of invalidity of s 66(1)(a) MCA in Jaftha applied retrospectively and that a warrant of execution obtained prior to Jaftha without judicial oversight was invalid. It is for the reason that the warrant of execution issued by the clerk of the court, without judicial oversight, was invalid. Since the sale in execution was invalid, title could not pass to Manqa, and Markom could for that reason recover his property by way of the rei vindication (par 12). A further question in the High Court was whether the sale could be impeached based on s 70 MCA which provides that "[a] sale in execution by the messenger shall not, in the case of movable property after delivery thereof or in the case of immovable property after registration of transfer, be liable to be impeached as against a purchaser in good faith and without notice of any defect". S 70 is restricted to defects at the time of purchase, and not between the time of purchase and transfer (par 16). Further, if the sale in execution was a nullity, then it did not serve to pass title to the purchaser (or successors in title), which means that the judgement debtor as owner can claim back the property using the rei vindication (par 9).
79 Jaftha v Schoeman; Van Rooyen v Stolz supra par 64.
80 Property is secured by a mortgage bond when the mortgagor contracts with the mortgagee to pass a mortgage bond over specified immovable property in favour of the mortgagee. The mortgagee then acquires a real right in the property of the mortgagor, allowing it to sell the immovable property in execution to recover outstanding moneys should the mortgagor not pay her debts. See Badenhorst, Pienaar & Mostert Silberberg and Schoeman's Law of Property 5 ed (2006) 361.
81 The judge also felt that the respondents had enough time to raise the issue of access to adequate housing but failed to do so.
82 Body Corporate of Sunninghiill ParPark v Nobumba 2005 ZAECHC 9 par 33.
83 2005 5 SA 610 (C)
84 Standard Bank of South Africa Ltd v Snyders and eight similar cases2005 5 SA 610(C) par 2
85 Ibid par 3.
86 Ibid par 4.
87 "Whenever a defendant is in default of delivery of notice of intention to defend or of a plea, the plaintiff, if he or she wishes to obtain judgment by default, shall where each of the claims is for a debt or liquidated demand, file with the Registrar a written application for judgment against such defendant: Provided that when a defendant is in default of delivery of a plea, the plaintiff shall give such defendant not less than 5 days' notice of his or her intention to apply for default judgment"
88 Standard Bank of South Africa Ltd v Snyders and eight similar cases supra par 12.
89 Idem.
90 The summons in this case made no reference to s 26(3) Constitution.
91 For this the plaintiff relied on Jaftha where the one factor that could be taken into account was whether the defendant willingly put his house up as security for the debt (par 17).
92 Standard Bank of South Africa Ltd v Snyders and eight similar cases supra par 22.
93 Idem.
94 2005 (6) SA 462 (W)
95 Nedbank v Mortinson 2005 6 SA 462 (W) parr 1-2.
96 Nedbank v Mortinson supra par 3.
97 Ibid par 22.
98 Ibid par 23.
99 Nedbank v Mortinsonsuprapar 24.
100 Ibid par 25.
101 Ibid par 26. Such an order must be brought to the attention of the court that will consider the default judgment de novo without the onus on the debtor.
102 The court finds it impractical that 300 to 400 applications for default judgements of this nature be heard in open court. In this context the court re-iterates that "[w]here the judgement debtor willingly puts his or her house as security for a debt, a sale in execution should ordinarily be permitted, absent to abuse of court procedure" (par 28).
103 Ibid par 27. The court also regarded the view that "summons should contain a suitable allegation to the effect that the facts alleged by it [...] are sufficient to justify an order in terms of s 26(3) of the Constitution" to be "no more than allegations relating to the existence of the loan, that the full amount of the loan has become repayable by virtue of the debtor's default and the loan has been secured by immovable property which has been specially hypothecated". These facts, the court found, is the same that is used in a non-excipiable summons for this relief (par 32).
104 Par 33.
105 Nedbank v Mortinson supra par 38. In Nedbank Limited v Mashiya 2006 4 SA 422 (T) the defendants owed R17,379.10 in terms of mortgage bonds. Nedbank claimed payment and an order to declare the property executable. In light of Mortinson, the application was referred by the Registrar for consideration in terms of r 31(5)(b)(vi) Uniform Rules. Bertelsmann J made it clear in this judgment that the information in the affidavit based on the requirements set down in Mortinsonneeds to be reliable (par 52).
106 Ibid par 39.
107 ABSA Bank Ltd v Ntsane 2007 3 SA 554 (T) confirmed this.
108 2006 2 SA 263 (SCA)
109 The court started with an explanation of why "[t]he mortgage bond is an indispensable tool for spreading home ownership", and highlighting the fact that loans secured by mortgage bonds amounted to almost R500 billion in Aug 2005 (par 1).
110 Standard Bank of South Africa Ltd v Saunderson 2006 2 SA 263 (SCA) par 2.
111 Ibid par 3.
112 bid par 16.
113 Ibid par 15.
114 Ibid par 17.
115 Standard Bank of South Africa Ltd v Saunderson supra par 18. The court also accepts (without deciding) that execution against mortgaged property could conflict with s 26(1) Constitution, but that such a conflict would be the exception. For this the court again rely on a comment made in Jafthathat "in the absence of abuse of court procedure [...] a sale in execution should ordinarily be permitted against even a home bonded for the debt sought to be reclaimed" (par 19).
116 Ibid par 20.
117 Standard Bank of South Africa Ltd v Saunderson supra par 21.
118 Ibid par 23.
119 Ibid par 24. In reaction to Saunderson, in Campus Law Clinic v Standard Bank of South Africa 2006 6 BCLR 669 (CC), the Campus Law Clinic approached the Constitutional Court in the public interest to clarify the circumstances in which a court or court official will permit a creditor to sell immovable property to recover money owed to it in terms of a mortgage bond. The Campus Law Clinic questioned the constitutionality of s 27A Supreme Court Act 59 of 1959 and r 31 Uniform Rules, none of which was before the High Court or the Supreme Court of Appeal. The Constitutional Court did not grant the Campus Law Clinic leave to appeal because the challenge involved statutory provisions and rules of the court, and the record of appeal was not enough for a full consideration of all the issues relevant to the matter. Central to the inquiry was what precautions must be taken to ensure that the right of access to adequate housing is taken into account at the execution of immovable property. The court did acknowledge that there was uncertainty about the situation created by the Jaftha and Saunderson judgments (par 18), as well as the different directives and judgments of the high courts, but did not rule on it since the appeal was dismissed on different grounds.
120 2007 3 SA 554 (T).
121 The court later refers to the arrears amount as "piffling, particularly when the status of the plaintiff as part of a multi-billion Rand international financial conglomerate is taken into account". ABSA Bank Ltd v Ntsanesupra par 18.
122 ABSA Bank Ltd v Ntsanesupraparr 1-10.
123 ABSA Bank Ltd v Ntsanesupra par 22. The court compared the actions of the bank to the likes of William Shakespeare's Shylock character in The Merchant of Venice.
124 Ibid parr 69-70.
125 Ibid par 71.
126 Ibid par 72.
127 Ibid par 83.
128 Ibid par 8.
129 Cleaver J in First Rand Bank Limited v Swarts 2010 ZAWCHC 35 relied on Saunderson's emphasis on a right to adequate housing, and the emphasis Saunderson placed on the property owner that willingly bonded their property to the bank for capital (par 3). The court also found that over-indebtness was not proved (par 7).
130 2010 1 SA 143 (GSJ).
131 Firstrand Bank Limited v Maleke; Firstrand Bank Limited v Motingoe and Another; Peoples Mortgage Ltd v Mofokeng and Another; Firstrand Bank Limited v Mudlaudzi supra par 2.
132 Firstrand Bank Limited v Maleke; Firstrand Bank Limited v Motingoe and Another; Peoples Mortgage Ltd v Mofokeng and Another; Firstrand Bank Limited v Mudlaudzi supra par 3. This is relevant since the NCA in its preamble and s 3 makes it clear that it is "designed to render assistance and protection to the previously disadvantaged section of the population who wish to enter the property market".
133 Ibid par 5.
134 Ibid par 8.
135 The court deems this a possibility based on Jafthaand in terms of s 73(1) Magistrate's Court Act 44 of 1945.
136 Changing Tides 17(Pty) Ltd vScholtz2010 SAECPEHC 3 par 1.
137 Ibid par 3.
138 Of the NCA.
139 Changing Tides 17 (Pty) Ltd v Scholtz supra par 4.
140 Ibid par 6.
141 Ibid parr 9-13.
142 Ibid par 15.
143 Ibid par 16.
144 Ibid par 23.
145 Ibid par 24.
146 2011 8 BCLR 792 (CC)
147 Gundwana v Steko Development CC2011 8 BCLR 792 (CC) par 2.
148 Ibid par 5.
149 Ibid par 6.
150 With the 2003 writ.
151 Gundwana v Steko Development CCsupra par 9. She also approached the court for leave to appeal against an eviction order granted to Steko.
152 Gundwana v Steko Development CCsuprapar 42.
153 Ibid par 43.
154 Ibid par 42.
155 Chief Lesapo v North West Agricultural Bank [1999] ZACC 16 already ruled that the judicial process guaranteed in s 34 Constitution also applies to the attachment and sale of a debtor's property.
156 Ibid par 44.
157 Ibid par 50.
158 Ibid par 52.
159 Ibid par 53.
160 Ibid par 54.
161 Idem.
162 Ibid par 55.
163 This was confirmed in Mkhize v Umvoti Municipality 2012 1 SA 1 (SCA).
164 Mkhize v Umvoti Municipality 2012 1 SA 1 (SCA) par 25.
165 In this context it is important to remember that s 130(2) NCA states that if a house is sold in execution and it does not cover all the outstanding debts, the creditor is not allowed to attach more property to recover the outstanding debt.