amicus curiae - sale-in-execution - National Credit Act - Constitutional Court

SERI was admitted as amicus curiae in Nkata v First Rand Bank Limited. The case interrogates the reinstatement of credit agreements. Section 129 of the National Credit Act (“NCA”) allows a consumer to reinstate a credit agreement after a judgment enforcing the credit agreement has been granted by a court.

The aim of section 129 of the NCA is to allow a consumer an opportunity to redeem herself after defaulting on a credit agreement payment, through the mechanism of reinstating the credit agreement by paying the outstanding monies and costs of enforcement of the credit agreement. After a credit agreement has been reinstated the consumer continues to meet her obligations in terms of the agreement and the credit provider continues to receive the monthly payments.  At the heart of reinstatement is keeping a credit agreement alive between a consumer and a credit provider.

The outcome of the case has a potentially broader impact.  At present, if a consumer defaults on a payment, the credit provider can obtain an order against her.  Such an order often provides that the property secured by the credit agreement can be sold at a sale in execution. Despite her paying the outstanding amounts the order remains alive and at any given stage if she defaults again the bank can use the same judgment to sell her home in execution.  The effect of section 129 is that if the consumer reinstates the agreement, the judgment granted against her is no longer alive.  The bank cannot use it against her anymore and would have to approach a court afresh for a new order based on a new default. 

Section 129(4) provides a cut-off point after when reinstatement can no longer occur. First Rand Bank (FRB) requests an interpretation of section 129(4) that will ensure this cut-off point is at the earliest stage of an execution process.  SERI contends that on a proper interpretation of section 129(4) a consumer can reinstate an agreement until much later in the execution process, specifically until a payment has been received after a sale in execution.

The applicant in the matter, Ms Nomsa Nkata, was a credit consumer in terms of a credit agreement with FRB.  Ms Nkata defaulted on payments made on a bond agreement.  FRB obtained a court order against her in which her property – her home – was declared specially executable.  Ms Nkata did two things after this order was granted.  The first is that she paid the outstanding monies and continued to pay her monthly installments in terms of the credit agreement.  The second is that Ms Nkata and FRB entered into a settlement agreement after the court order was granted.   The settlement agreement provided that she would pay the monies she owed and FRB would not sell her home in execution.  Ms Nkata paid the outstanding monies.  Despite this, FRB sold her home in execution. 

Ms Nkata approached the High Court which held that as she had reinstated the credit agreement, FRB could not have sold her home in execution.  FRB appealed against this judgment to the Supreme Court of Appeal (“SCA”). The SCA held in FRB’s favour and held essentially that the Ms Nkata did not meet the requirements of section 129 in order to reinstate the credit agreement.  She appealed this decision to the Constitutional Court.

The court heard the matter on 19 November 2015.

The issue before the Constitutional Court is whether Ms Nkata’s credit agreement was reinstated or not. In terms of section 129(3) of the NCA, a consumer who has defaulted on their payments may reinstate the credit agreement by paying the arrears together with the credit provider’s permitted default charges and the reasonable costs incurred by the credit provider in enforcing the credit agreement. However, section 129(4) provides for instances where a credit agreement may not be reinstated. These include instances where property has been sold pursuant to an attachment order (section 129(4)(a)(i) or where property has been sold in the execution of any other court order enforcing the credit agreement (section 129(4)(b)).

The case raises the proper interpretation of section 129(3) and (4) of the NCA. With regard to 129(3), the question is whether a credit agreement can simply be reinstated by operation of law if the consumer complies with the requirements of the section or whether the consumer must communicate her intent to reinstate the credit agreement.

The questions that arise in relation to section 129(4) are‑

  • Whether property sold pursuant to a judgment directing a consumer to pay all the outstanding monies to a credit provider and declaring the property specially executable falls under section 129(4)(a)(i) or section 129(4)(b)?
  • At which point can a credit agreement no longer be reinstated? In particular, if a property is sold pursuant to an attachment order (in terms of section 129(4)(a)(i), when is the moment of sale? Alternatively, where a property is sold pursuant to any other court order enforcing the credit agreement (section 129(4)(b), when is the moment of execution?

Ms Nkata argues that her credit agreement was reinstated by operation of law when she paid all the outstanding arrears in 2011 and that the moment of execution for a property sold in the execution of any other court order enforcing the credit agreement is when the new purchaser pays the purchase price.

FRB argues that reinstatement cannot take place by operation of law. Instead, a consumer must communicate her intention to reinstate a credit agreement. This, it submits, will allow the consumer to be apprised of all the outstanding monies together with the permitted default charges of the credit provider as well as the reasonable costs incurred by the credit provider in enforcing the credit agreement.

With regards to section 129(4), FRB argues that section 129(4)(b) is the appropriate section and that the moment of execution takes place when the gavel falls at a public auction.

SERI’s submits that a plain reading of section 129(3) makes clear that a credit agreement is reinstated by operation of law.

The majority of the Constitutional Court agreed with all of SERI’s submissions. Deputy Chief Justice Moseneke held that section 129 (3) of the National Credit Act must be interpreted in favour of the values of fairness and equality. This meant that a consumer could not be expected to give notice of an intention to exercise a right she does not know she has; that the bank should not be able to resist reinstatement for non-payment of costs it had not quantified; and that a consumer should be able to revive her credit agreement right up until someone else has bought and paid for the property on which the agreement is secured. 

The Court found that Ms. Nkata’s loan agreement had been reinstated, and set aside the sale of her home.

  • SERI's press statement (21 April 2016) here.
  • Constitutional Court Judgment (21 April 2016) here.
  • SERI's heads of argument here.
  • SERI's practice note here.
  • SERI's list of authorities here.