Onelaw - Case Study by OneLaw

Considering debt collection mechanisms in South Africa: An evaluation of selected contentious issues

Funded by OneLaw Debt Recovery Systems Prepared by Business

Enterprises

the

University

Pretoria (Pty) Ltd University of Pretoria Law Clinic, Faculty of Law May â&#x20AC;&#x201C; October 2013

Summary

Mandate

Principles

Common questions

Contentious issues: Findings

Recommendations

Part 1 – Mandate

11 15

Introduction

Rationale for the research

Objectives of the Study

3.1 Substantive outcomes

3.2 Execution

3.2.1

Logistics

3.2.2

Method, methodology & limitations

3.2.3

Execution of the project: Phase 1

3.2.4

Execution of the project: Phase 2

3.2.5 4

3.2.4.1 Data set A

3.2.4.2 Data set B

3.2.4.3 Data set C

3.2.4.4 Interviews

Execution of the project: Phase 3

Terminology & Abbreviations

Part 2 – Framework 1

Industry Profile: Debt in South Africa

35 37 40 40

1.1 Economic position

1.2 Political position

1.3 Legal position

Debt Collection Profile: Recovery Procedures in South Africa

2.1 Introduction

2.2 Principles

Part 3 – Challenges

Common questions

Fundamental aspects

II | P a g e

2.1 Issue 1 2.1.1

73 Discussion

2.2 Issue 2

2.3 Issue 3

2.4 Issue 4

Framework for relationship between parties

Additional preliminary comments to consider

Jurisdiction

Introduction

Conceptualising the issue

2.1 Type of proceedings

2.2 Area of jurisdiction

2.3 Section 65

2.4 Section 45

101

2.5 Monetary value and geographical scope

102

Discussion

104

3.1 Perspective 1: Consent from all parties

105

3.2 Perspective 2: Section 65J(1) provides the only jurisdiction indicator for issuing emoluments attachment orders

111

3.3 Perspective 3: Where the underlying agreement is subject to the NCA, section 90 and 91 of the NCA prevails over section 45 of the MCA

112

Outcomes

117

Summary: Jurisdiction

122

Uniformity and standardisation in courts

123

Introduction

123

Legislative framework

124

Practical application

127

Summary: Uniformity

136

Oversight

138

Introduction

138

The issues

139

Discussion

141

Comparable remedy

147

Discussion

159

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Rescission and amendment of emoluments attachment orders

160

Summary: Oversight, rescission and amendment

165

Interest, fees, costs & charges

166

Introduction

166

Interest

167

2.1 Introduction

167

2.2 Legal framework

170

Fees, costs and charges for the account of the consumer

176

3.1 Introduction

176

3.2 Section 65J(10) commission

178

3.2.1

Introduction

178

3.2.2

Determination of issues

178

3.2.3

Summary

184

3.3 Legal fees

186

3.3.1

Introduction

186

3.3.2

Legal framework

189

3.2.4

Practical application

198

3.2.5

Summary

205

Part 4 – Causes and outcomes of various mechanisms

209

Part 5 – Conclusion and recommendations

210

Part 6 – Sources

213

Source persons

213

Books

214

Articles & commentary

215

Legislation & Rules

216

Case law

216

Reports & theses

218

Media reports

219

Other

220

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Don’t ever take a fence down until you know why it was put up Robert Frost – 1874-1963

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Summary This is a summary of the most important aspects of the report and is intended for orientation purposes only. The technical nature of the report necessitates that the full report be perused.

1 Mandate The research commissioned was concerned with the technical issues relating to the debt collection mechanisms. The purpose is to identify negative outcomes and the root causes thereof through primary and secondary research methods. The outcome of this study is to present a report to OneLaw Debt Recovery Services in which thoroughly researched and considered legal frameworks are presented. The purpose of developing the frameworks is to substantiate the recommended remedial actions for inter alia the preidentified challenges that have been recognised as obstacles in the efficiency and credibility of the debt collection process. The following aspects were included into the research mandate: The interpretation of section 45 of the Magistrateâ&#x20AC;&#x2122;s Courts Act with regard to its application in practices relating to the obtaining of emoluments attachment orders by consent in South Africa; The interpretation of section 65J of the Magistrateâ&#x20AC;&#x2122;s Courts Act with regard to its application in practices relating to the obtaining of emoluments attachment orders in South Africa; The issue of magisterial oversight over the emoluments attachment order process; The supporting documentation that should be required when considering a section 57/58 consent to judgment and a request for an emoluments attachment order; The aspects relating to the rescission or amendment of emoluments attachment orders such as lowering the instalment amount and the requirements to comply with the procedural requirements set by law to allow for inter alia due process; The interpretation and understanding of section 103(5) of the NCA and the common law in duplum with regard to agreements that are subject to emoluments attachment

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orders, with specific attention given to credit agreements, the position prior to and after the obtaining of judgment and whether legal costs are included or excluded in the rule; The amount and breakdown of legal costs that could reasonably be asked for by a claimantâ&#x20AC;&#x2122;s attorney against a debtor in the emoluments attachment order process; The position with regard to the 5% employerâ&#x20AC;&#x2122;s commission as provided for in section 65 including who is entitled to retain the percentage, by whom is it payable and whether parties can agree contractually to have another party pay this commission; The legal positions of the parties to the emoluments attachment order process including a critical analysis of their rights, duties and the legal relationship between the parties; and The ascertainment and investigation of alternative processes in place (such as writs/warrants of execution and section 65 procedures, such as financial enquiries), including a study of the positive and negative effects and outcomes of these alternatives to garnishee orders. The scope of the study did not extend to non-law or soft law options such as call centres and payroll assignments, although reference was made to these options where these processes had a direct impact on the formal collection procedures. The research was therefore primarily concerned with the reasons for the irregularities or negative outcomes of debt collection mechanisms and not necessarily with the identification of negative outcomes through an audit or interviews relating to garnishee files and case studies. The purpose was to gather, analyse and evaluate the data in order to present recommendations to address root causes such as legislative ambiguity, based on researched legal and factual data. The research data was compiled through desk and field research. The field research included interviews with industry stakeholders and role-players. The scope of the research did not extend to the impact of garnishees on a specific income group or industry such as employers and payroll officers. The research was undertaken over a period of six months (May to October 2013). The geographical scope of the study insofar as interviews, discussion groups and seminars/ conferences were concerned, was limited to the following areas re Eastern Cape (East London), Free State (Bloemfontein), Gauteng (Pretoria (Centurion), Kempton Park,

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Tembisa, Johannesburg and Vanderbijlpark), Mpumalanga (eMalahleni, Nelspruit and Witrivier) and North-West (Potchefstroom and Hartebeespoortdam (Kosmos)). The statistics that were considered included samples from all nine provinces.

2 Principles The research team followed a principle-based approach to evaluate contentious issues. The following principles were identified: Principles relating to the constitutional dispensation and common law heritage of South Africa o

Constitutional principles including procedural guarantees

Pacta sunt servanda

Principles relating to the substantive nature of debt collection o

Debtor to honour repayment of debt

Notice and opportunities to repay

Fairness in dealing between parties

Judicial oversight

Re-imbursement for work done and disbursement

Procedural economy

Legality

3 Common questions The following aspects were discussed as the outcomes of these influenced the approach followed in respect of the contentious issues: Issue 1 The nature and effect of consents to judgment, whether in terms of sections 57 or 58, the judgment itself and the subsequent emoluments attachment order. Acknowledgement of liability and consent to judgment

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Two alternatives presented itself: First alternative The acknowledgement of debt is seen as a credit agreement with all the rights and obligations bestowed on the parties by the National Credit Act. This, if viewed as a new agreement, may novate or attempt to novate the contractual relationship between the parties. Second alternative The acknowledgement of debt and consent to judgment is merely a procedural mechanism that entitles the creditor to obtain judgment and access procedural devices to effect execution. In this regard, the original agreement is the point of departure and the rights and obligations therein as regulated by the National Credit Act, if applicable. The importance of this consideration can be summarised as follows: The application of the NCA, including its substantive and procedural requirements relating to entering into and enforcing the agreement as set out in the acknowledgment of debt, on the acknowledgement of debt as well as the request for judgment; The effect of the judgment on the relationship between the parties and on postjudgment rights and obligations in respect of the rate of interest (in terms of the agreement or interest in terms of the Prescribed Rate of Interest Act 55 of 1975); the application of section 103(5) or in duplum etc. Issue 2 The ability of parties to regulate the relationship between them by way of contract and in a manner that differs from the legislative provisions – the socalled ‘contracting out of legislation’. Four indicators with examples are presented for consideration: First indicator This indicator has two sections: The legislative provision clearly states that it cannot be amended or waived by way of agreement. Section 103(5) is an example: “Despite any provision of the

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common law or a credit agreement to the contrary, the amounts contemplated in section 101(l)(b) to (g) that accrue during the time that a consumer is in default under the credit agreement may not, in aggregate, exceed the unpaid balance of the principal debt under that credit agreement as at the time that the default occurs.”

The legislation has a specific provision as well as a general provision in terms of which parties may deviate from the specific provision. An example would be section 65J(1), which regulates jurisdiction in terms of legislation, and section 45, which regulates consent to the jurisdiction of a court which would ordinarily not have jurisdiction. Second indicator The legislation does not make provision for the aspect that the parties wish to regulate between themselves. An example would be date of payment of the debt. Third indicator There is no legislative provision which precludes the parties to contract on different terms as set out in the legislation, but the agreement is in direct contrast to the provisions of the legislation. An example would be section 65J (10): “Any garnishee may, in respect of the services rendered by him in terms of an emoluments attachment order, recover from the judgment creditor a commission of up to 5 per cent of all amounts deducted by him from the judgment debtor’s emoluments by deducting such commission from the amount payable to the judgment creditor”. The

debtor then consents to repay all collection costs, which would include the 65J(10) commission and same is for his or her account. Fourth indicator The more problematic indicator is where there is no legislative provision which precludes the parties to contract on different terms as set out in the legislation and the agreement is not in contrast to the provisions of the legislation but amplifies same. An example would be where the debtor consents to pay attorney and client costs instead of party-and-party costs. Issue 3 The regulatory scope of the NCA;

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Two alternatives presented itself: First alternative The NCA only regulates the relationship between the parties insofar as it relates to the rights and obligations of the parties pertaining to the credit extended. In this regard, apart from the preliminary enforcement measures set out in the agreement and the NCA in sections 129 and 130, the proceedings relating to the enforcement of the agreement are regulated by the relevant legislation and rules regulating the conduct of proceedings in court. Second alternative The provisions of the NCA prevail throughout the proceedings, whether judicial or extra-judicial proceedings as the cause of action is based on a credit agreement. Issue 4 Practical issues, not necessarily related to the legal framework, were also considered. In this regard, the outcomes of the specific debt collection mechanism were often found to be related to practical outcomes. Some specific examples include the following: The section 65A procedure cannot effectively be implemented if the court does not issue the notice prior to the court date set out on the document; The section 65A enquiry cannot effectively be implemented if the debtor does not appear in court or does not bring proof of income and expenditures to court; If the sheriff cannot gain access to the premises and the debtor, notices and court processes cannot be served on the debtor. This includes documents to initiate the process of debt collection or remedial action such as warrants of arrest where a debtor is in wilful default of notice to attend court. This also pertains to the behaviour of role-players. Interviewees consistently noted that the obstructive and ignorant behaviour of industry stakeholders, whether wilful nonadherence to clear legislative guidelines or as a result of incompetency and lack of knowledge, were within the top three root causes of negative outcomes of the debt collection process. In this regard, the root cause is not necessarily founded in the legislation and amendments to same may not remedy the position.

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4 Contentious issues: Findings Jurisdiction 1. Section 45 is not applicable to section 65J even if all the parties, including the garnishee, consent to the jurisdiction of the specific Magistrate’s Court. Section 45 is subservient to section 28, which is in turn subject to the provisions of section 65 of the MCA. Reliance on section 45 of the MCA is not correct and enforceable within the context of section 65J (which contains a specific jurisdictional provision) in a similar fashion as section 45 is correct and enforceable within the context of section 28. Section 45 is, however, applicable to sections 57 and 58 proceedings as the latter do not have specific jurisdictional provisions. Section 28 regulates the choice of forum in respect of consents to judgment and section 45 allows consent to the jurisdiction of a court other than a court set out in section 28. However, the internal requirements regarding proper agreement/ consent as well as the timing of the consent in respect of the proceedings already instituted or about to be instituted, must be strictly adhered to. Where the underlying cause of action in respect of which the consent to judgment is given is governed by the National Credit Act, consent to jurisdiction where this is not within the boundaries of section 90(2)(k) is disallowed. 2. Section 90 and 91 are applicable to enforcement proceedings and disallows reliance on section 45. It is submitted that the NCA only ceases to apply when judgment is granted. All proceedings prior to same such as section 57 and 58 consent to judgment is governed by the NCA and such a consent is akin to a document prohibited by section 91. In this regard, section 45 may also not be valid in respect of section 57 and 58 proceedings. 3. From a legislative point of view it is submitted that these links should be extended to accommodate capacity constraints in the courts especially in courts where the main payroll offices of major companies with many workers are. In this regard, a consistent approach by all courts in necessary to avoid abuse of the process e.g. choice of an ‘easy’ forum and be solely intended to relieve institutional pressure (and expedite the process). A legitimate link should exist between the court and the cause, whether this is the jurisdiction of the debtor or that of the employer or that of the garnishee administrator where the emolument attachment order is outsourced. As noted above, challenges to emoluments attachment

orders

are

initiated

either

the

debtor

the

garnishee 7|Page

administrator. There is a need for clarity on this matter in respect of a declaratory order, test case or arguing of a stated case. Uniformity 1.

Although

attorneys

specialising

debt

collection

must

adhere

the

requirements set by court within the field of their specialisation, incidences where the requirements are obstructive and negate the purpose of the process cannot be to the benefit of the parties. It is noted that courts have discretion and that processes exist for review of court official’s decisions. The clerk of the court may be taken on review to a magistrate in terms of section 13 of the MCA and magistrates in terms of section 24 of the Supreme Court Act. Due notice is taken of the potential of these remedies to be costly and time consuming, especially review to the Supreme Court. However, decisions of the Supreme Court set precedents which may clarify the matter and deter obstructive behaviour, if found to be so. Oversight, rescission and amendment 1.

Prior to the implementation of magisterial oversight and additional requirement in respect of rescissions and amendments, proper impact assessment studies need to be undertaken in respect of court capacity constraints, additional costs to the debtor and creditor and prejudice to parties though delayed or obstructed access to justice.

The issue of oversight is broader than just magisterial oversight where the purpose is to curb abuses and irregularities. Abuses and irregularities are possible throughout the life-span of emoluments attachment orders and courts are only involved to a limited extent.

Costs, fees, charges & commission The following issues were specifically noted: The emoluments attachment order does not stipulate the costs to be added to the amount owed as the document only sets out certain judgment costs, the amount for which judgment was granted and the interest rate. In respect of an order for costs, the document will often state that costs are payable (sometimes ‘to be taxed’ is added) and on which scale. In this regard, the following information is needed on the emoluments attachment order:

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The amount for which the judgment was granted;

The interest component where this was included into the judgment amount;

The rate at which interest is granted annually and the amount upon which it is to be calculated;

o o

The instalments to be deducted from the debtorâ&#x20AC;&#x2122;s emoluments; The first date of payment;

The projected costs if all deductions are made timely and accurately;

The number of instalments;

The date when the last payment is due.

It is important to note that non-payment or underpayment will affect both the interest charged, costs charged in following-up on payments and the number of instalments due (as well as the payment period). Should this realise, additional costs could be easily motivated and verified by documentary evidence. However, information in this regard will prevent over-charging or over-deducting and provide a basis for the employerâ&#x20AC;&#x2122;s liability in terms of section 34 of the Basic Conditions of Employment Act where the deductions are not ceased when the instruction is received to do so. On an ancillary note, some interviewees also noted that inclusion of the consent to judgment would be beneficial when serving the order on the employer as this, together with the judgment granted and emoluments attachment order. This would allow for the employer or garnishee administrator to verify whether judgment was entered correctly in respect of amount, interest and costs as well as refreshing

debtors

memory

respect

the

document

where

emoluments attachment order is disputed. Some attorneys have introduced a maximum allowable cost recovery on collection costs. This relates either to all debts or categorised according to the capital amount to be collected. The recommendation in this regard is to make a similar approach applicable to a definite category of small debts to the consumer

(which

should

include

tracers,

debt

collectors

and

legal

practitioners) but excluding actual expenses incurred. The cap on the collection of these costs from the consumer should be in relation to the capital of the outstanding debt. A specific cap e.g. debts where the capital amount is less than R1 000 should be clearly set out. Emoluments attachment orders would not be a viable option for debts where the legal costs, interest

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and commissions (5% in terms of section 65J(10) and 10% collection commission in terms of item 3(b)) will exceed the capital amount by a 100%. This would impact greatly on the short-term and unsecured lending market as seen in Part 1 above. Therefore, for outstanding capital debts below R1 000 the repayable amount due to legal costs (just to obtain judgment, cause the order to be implemented and monitor repayment) would in all probability equal or exceed the capital especially where interest and other commissions are charged and added. o

There is a need to list examples of necessary and unnecessary costs;

There is a need for civil recourse, other than repayment of overcharged fees, which should in essence also include an interest component. Recourse to the Law Society in respect of unprofessional conduct may not always have a positive pecuniary outcome as no penalties can be imposed on the attorney. Similar penalties to schedule 2 of the BCEA may be considered along with increased capacity of taxing masters to refer unlawful bills of costs to a magistrate to impose the penalty.

An impact assessment report is needed if considering change to the costs taking into account the vested interests of all the parties as well as the principles set out above. Section 65J(10) commission 1.

A consumer can only agree to pay the commission if there is proper and informed consent that is specifically stated in agreement. In this regard, it is submitted that the attention of the debtor should be drawn to the provisions of section 65J(10).

The common questions in this regard are the impact of the judgment and whether parties may contract out of the legislation. The impact of the judgment is important as the applicability of the NCA is a core consideration in respect of the rights and obligations between the parties where a credit agreement is at stake. The provisions of the NCA are particularly restrictive when cost of credit and the consumerâ&#x20AC;&#x2122;s liability towards the credit provider is concerned. This further impacts the importance of the wording of the judgment and whether specific requests for

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10 | P a g e

judgment ‘clauses’ should be inserted prior to the judgment creditor being able to rely on same. 3.

In general, the point of departure is again the relationship between the parties, which may be contractual or legal. If the agreement, prior to judgment, is in contrast with the contents of the judgment, it cannot be followed. However, it can be argued that the agreement between the parties is similar to a third person paying on behalf of another and in the absence of a specific legislative prohibition, this may be allowable.

Legal fees 1.

It was also noted that an emoluments attachment order is not a viable option for very small debts as the costs often exceed the amount recovered. The one example where the amount to be recovered was equal or less than R1 249.99 serves as a case in point. The amount recovered by the attorneys on their fee structure for this category of debt is R947.44. The fees plus vat equals R697.57, the disbursements R215.00 and the percentage claimed for drafting the account R34.88. These exclude commissions and interest.

5 Recommendations The following recommendations are made: 1. Introduce a maximum allowable cost recovery on collection costs. This can either be extended to all debts or made applicable to a definite category of small debts to the consumer (which should include tracers, debt collectors and legal practitioners) but excluding actual expenses incurred. The cap on the collection of these costs from the consumer should be in relation to the capital of the outstanding debt.

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A specific cap e.g. debts where the capital amount is less than R1 000 should be clearly set out. Emoluments attachment orders would not be a viable option for very small debts where the costs, interest and commission would exceed 100% of the debt to be recovered. 2. Amend the format of the emoluments attachment order to allow for additional information to be provided to the garnishee. This would allow for the employer to ascertain when the debt is paid up: The amount for which the order is granted will be the point of departure to calculate the interest and the costs. The request for judgment, judgment and emolument attachment order format should be amended to provide for the classification of the construction of the judgment amount in order to indicate which part of the judgment amount is capital and which interest. This relates to the amount for which judgment is requested and excludes the interest requested after judgment e.g. if judgment is requested for R 3000 of which the outstanding capital is R 2000 and R 1000 is interest that has already accrued, this should be stipulated to avoid interest on interest. 3. The institutional capacity constraints in courts should be addressed as a matter of great urgency. Predictability and consistency in respect of legitimate requests for judicial assistance is cardinal. Training alternatively practice directives in respect of the following aspects is needed for all levels of personnel of the judiciary dealing with debt collection: a. The purpose of the stages of debt collection and the role of the judiciary/ different officials in each of these stages should be clarified. In this regard, queries on reckless credit and assessment of same should be effected at judgment stage and not at the stage where judgment was already obtained and the request is to issue an emoluments attachment order. b. The practicality of requesting documents/ reality of debt collection e.g. the request for the original documentation where a credit agreement was entered into under a legislative regime where the storage of said agreements was not necessary or mandatory; the different forms of reckless credit and when these assessments can be made e.g. reckless credit does not apply to an agreement entered into prior to June 2007.

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c. The scope of the discretion of the court (and guidelines to exert same) in respect of debt collection in order to prevent the courts becoming ‘a law upon themselves’. 4. An overall regulatory body for debt collection is needed in a similar frame as the UK Office of Fair Trading. South Africa regulates the individual and not the mechanism, which has resulted in a fragmented system. Attorneys are regulated by the respective Law Societies and the regulation is limited to unprofessional or unethical conduct. Debt Collectors are regulated by the Debt Collectors Council whilst the National Credit Regulator regulates credit providers. The difference is that the NCR is also responsible to regulate the credit market which allows for a more comprehensive approach to regulation. In this regard, a body to regulate all aspects of debt collection and with the authority to issue guidelines (see e.g. the OFT guidelines in respect of letters of demand) is needed within the framework of market conduct regulation. This may need attention within the development of the twin-peaks approach to regulation to incorporate same into the developing framework instead of developing a new body. It is submitted that additional registration and compliance reports not form part of the regulatory body’s regime in order to lessen the already hefty compliance burden on industry role-players who have to be registered with either of the bodies mentioned above and comply with various legislative requirements in any event.

The body should have

investigative and subpoena powers and be a body of investigation and redress. 5. In the light of the above, judicial oversight is not recommended. Whilst some legislative changes may assist with clarifying issues, curbing abuses and dealing with irregularities, proper enforcement is necessary especially as many of the irregularities are not directly related to the debt collection process. This includes a point of reference for consumers to deal with suspected irregularities. The aspects that concerns and a body tasked with oversight should be industry-based with proper powers and resources. 6. The legitimate grounds for jurisdiction should be clarified i.e. whether a section 45 consent to jurisdiction is allowed as well as the correct interpretation of concepts such as ‘place of business’ etc as lack of guidance in this regard annuls the concept of a legislative ratio jurisdictions. However, it is submitted that these links should be extended to accommodate capacity constraints in the courts especially in courts where the main payroll offices of major companies with many workers are. In this regard, a consistent approach by all courts in necessary to

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avoid abuse of the process e.g. choice of an ‘easy’ forum and be solely intended to relieve institutional pressure (and expedite the process). A legitimate link should exist between the court and the cause, whether this is the jurisdiction of the debtor or that of the employer or that of the garnishee administrator where the emolument attachment order is outsourced. As noted above, challenges to emoluments attachment orders are initiated by either the debtor or the garnishee administrator. 7. Declaratory orders or test cases are needed to clarify matters. 8. Intervention by the Law Societies is necessary in order to provide clearer guidelines in respect of allowable fees, especially within the contexts of being ‘reasonable’ and ‘necessary’. Furthermore, clarity is needed in respect of the interest rate that can be ordered by the court such as 5% per month on a shortterm agreement upon which the consumer has defaulted, effectively extending the repayment period or 15,5% in terms of the Prescribed Rate of Interest Act.

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Part 1 â&#x20AC;&#x201C; Mandate 1 Introduction Research into the South African Debt Collection industry was commissioned by OneLaw Debt Recovery Systems (OneLaw) and contracted with Business Enterprises at the University of Pretoria (BE). The research team was sourced from the University of Pretoria Law Clinic's Research and Short Courses Section. OneLaw develops, provides and manages debt recovery systems. These range from and include debt collection platforms for use by collection attorneys as well as commercial trade in debts for profit. Business Enterprises at the University of Pretoria is a company wholly owned by the University of Pretoria which provides contracted research services and products to both the public and private sector. BE acts as a facilitator between the business world and the University of Pretoria. The University of Pretoria Law Clinic provides gratuitous legal services to indigent members of the community and professional training to candidate attorneys as part of the compulsory statutory internship preceding admission as an attorney. In addition, experiential training is provided to final-year law students through the practical law curriculum incorporating supervised real-life client interaction. The Research and Short Courses Section at the clinic presents short courses to members of the public on credit and debt related matters. It further undertakes desk and empirical research on the daily impact and effect of the law on economic, political and social aspects relating to the South African community.

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Debt recovery has become a specialist industry in the South African financial services sector and it has also become big business. The mass unsecured lending segment of the financial services sector is dependent on efficient and cost effective debt recovery processes. The creditor's interest in expeditious debt collection processes must however be balanced against the interest of the debtor who may be exploited by efficient but soulless debt collection practices. Debt recovery has a clear social dimension and it is therefore unavoidable that it would attract the attention of government. The debt recovery service industry has indeed over time become highly regulated by sometimes overlapping pieces of legislation, such as the Magistrates' Courts Act of 1944, the Debt Collectors Act of 1998 and the National Credit Act of 2005. ~ Louw 2013

2 Rationale for the research Debt collection is an integral part of commercial trade and as such, subject to state regulation in a similar fashion to trade and credit extension. 1 However, in South Africa, government policies and legislative principles are becoming the norm when evaluating any relationship between parties in a trade and industry sphere. 2 As such, the conduct of industry role players is increasingly measured against the principles embodied in e.g. the Constitution and legislation such as the National Credit Act. The measured conduct has, in turn, prompted reconsideration of some statutory provisions where it was considered to be irreconcilable with the constitutional and consumer credit framework for South Africa. Three examples relating to the Magistrates’ Courts Act deserve mention namely section 58 in African Bank v Additional Magistrate Myambo, 3 section 65 in Coetzee v Government of RSA 4 and section 66 in Jaftha v Schoeman. 5

Louw 2013 (1) par 1.

See e.g. Sebola and Another v Standard Bank of South Africa Ltd and Another 2012 (5) SA 142 (CC), available at http://www.saflii.org/cgi-bin/disp.pl?file=za/cases/ZACC/2012/11.html&query=sebola%20 and%20another%20v%20standard%20bank%20of%20south%20africa%20ltd.

African Bank Ltd v Additional Magistrate Myambo N.O. and Others 2010 (6) SA 298 (GNP), available at http://www.saflii.org/cgi-bin/disp.pl?file=za/cases/ZAGPPHC/2010/60.html&query=african%20bank%20 ltd%20v%20 additional%20magistrate%20myambo, related to matters that the clerk of the court and magistrate need to consider in respect of consents to judgment in terms of section 58 in order to protect debtor’s rights in terms of the National Credit Act.

Coetzee v Government of RSA; Matiso and Others v Commanding Officer, Port Elizabeth Prison and Others 1995 (4) SA 631 (CC), found that imprisonment for civil debt infringed the delinquent debtor’s constitutional rights. The remedy available to a creditor in respect of ‘imprisonment’ now only relates to the offence of contempt of court.

Jaftha v Schoeman and Others; Van Rooyen v Stoltz and Others 2005 (1) BCLR 78 (CC), available at http://www.saflii.org/cgi-bin/disp.pl?file=za/cases/ZACC/2004/25.html&query=Jaftha%20v%20Schoe man%20and%20Others, found that judicial oversight is necessary in the light of the judgment debtor’s

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Within the current framework, there seems to be a move towards allocating substantive normative considerations when applying laws and procedures to measure the conduct of parties. An example is where parties’ conduct is viewed as unconscionable or morally reprehensible when using the full benefit of the law in charging consumers for costs e.g. where legal or collection costs are calculated per the allowable legislative tariff but are disproportionate to the primary debt owed to the credit provider. Although this is lawful, industry role-players may frown upon the practice. In the absence of clear outcomes, these practices as embodied in legislation had, at most, broad underlying policies of access to justice and due process or fairness, reasonableness and necessity in costing of services rendered. The prominent catalysts of over-indebtedness, dire economic circumstances and inability of consumers to adequately protect themselves, duly supported by statistical evidence, has focused the attention of many on the consumer credit extension industry. In particular, “[t]his is as a result of financial institutions’ failure to uphold the principles of responsible lending, a situation that was deemed the prime cause of high levels of indebtedness”. 6 The counter-reaction of industry and government is in one respect observable in the manner in which debts are now collected, particularly in the light of the recent investigations into irregularities and abuses pertaining to debt collection mechanisms such as emoluments attachment orders. 7

3 Objectives of the Study 3.1

Substantive outcomes

The research is concerned with the technical issues relating to the debt collection mechanisms. The purpose is to identify negative outcomes and the root causes thereof through primary and secondary research methods. The outcome of this study is to present a report to OneLaw in which thoroughly researched and considered legal frameworks are presented. The purpose of developing the frameworks is to substantiate the recommended remedial actions for inter alia the pre-identified challenges that have been recognised as obstacles in the efficiency and credibility of the debt collection right to adequate housing in terms of section 26 in order to render the Magistrates’ Courts execution proceedings against immovable property constitutional. 6

Chipeta & Mbululu “The effects of the national credit act and the global financial crisis on domestic credit extension: empirical evidence from South Africa” April 2012 (5(1)) Journal of Economic and Financial Sciences 215 216.

See Part 2 par 1 below.

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process. Although the brief allowed for the list of issues to be supplemented as the research progresses, the additional issues were too closely related to the challenges set out below to warrant separate consideration. The following aspects were included into the research mandate and are repeated hereafter: 8 The interpretation of section 45 of the Magistrate’s Courts Act with regard to its application in practices relating to the obtaining of emoluments attachment orders by consent in South Africa; The interpretation of section 65J of the Magistrate’s Courts Act with regard to its application in practices relating to the obtaining of emoluments attachment orders in South Africa; 9 The issue of magisterial oversight over the emoluments attachment order process; The supporting documentation that should be required when considering a section 57/58 consent to judgment and a request for an emoluments attachment order; The aspects relating to the rescission or amendment of emoluments attachment orders such as lowering the instalment amount and the requirements to comply with the procedural requirements set by law to allow for inter alia due process; The interpretation and understanding of section 103(5) of the NCA and the common law in duplum with regard to agreements that are subject to emoluments attachment orders, with specific attention given to credit agreements, the position prior to and after the obtaining of judgment and whether legal costs are included or excluded in the rule; The amount and breakdown of legal costs that could reasonably be asked for by a claimant’s attorney against a debtor in the emoluments attachment order process; The position with regard to the 5% employer’s commission as provided for in section 65 including who is entitled to retain the percentage, by whom is it payable and whether parties can agree contractually to have another party pay this commission; 8

Some minor adjustments were made to facilitate reading of the mandate and to reflect the full scope of the term of reference e.g. in duplum and section 103(5) of the National Credit Act where, previously, reference was only made to in duplum.

This is a very broad research question and is dealt with throughout the report.

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The legal positions of the parties to the emoluments attachment order process including a critical analysis of their rights, duties and the legal relationship between the parties; 10 and The ascertainment and investigation of alternative processes in place (such as writs/warrants of execution and section 65 procedures, such as financial enquiries), including a study of the positive and negative effects and outcomes of these alternatives 11 to garnishee orders. The scope of the study did not extend to non-law or soft law options such as call centres and payroll assignments, although reference was made to these options where these processes had a direct impact on the formal collection procedures. The research was therefore primarily concerned with the reasons for the irregularities or negative outcomes of debt collection mechanisms and not necessarily with the identification of negative outcomes through an audit or interviews relating to garnishee files and case studies. The purpose was to gather, analyse and evaluate the data in order to present recommendations to address root causes such as legislative ambiguity, based on researched legal and factual data. The scope of the research did not extend to the impact of garnishees on a specific income group or industry such as employers and payroll officers.

3.2

Execution

3.2.1 Logistics The research was undertaken over a period of six months (May to October 2013). The geographical scope of the study insofar as interviews, discussion groups and seminars/ conferences were concerned, was limited to the following areas re Eastern Cape (East London), Free State (Bloemfontein), Gauteng (Pretoria (Centurion), Kempton Park, Tembisa, Johannesburg and Vanderbijlpark), Mpumalanga (eMalahleni, Nelspruit and 10

This is a very broad research question and is dealt with throughout the report.

As indicated below, the choice of wording proved to be incorrect. Various execution mechanisms exist within a specific factual framework and to label these methods as ‘alternatives’ is short-sighted and shows a lack of understanding of the debt collection and execution process. The mechanisms are often used in conjunction with one another. Section 65E illustrates the three execution mechanisms i.e. warrant of execution in respect of movable, immovable or incorporeal property; attachment of a debt in terms of section 72 and an emoluments attachment order vis-a-vis the method of obtaining same i.e. through judgment or after a financial enquiry, the latter which can result in a ‘manner of payment’ order and be undertaken even where the execution mechanism such as an EAO was not successfully complied with. See Part 3 below.

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Witrivier) and North-West (Potchefstroom and Hartebeespoortdam (Kosmos)). The statistics that were considered included samples from all nine provinces. The research team comprised of the following researchers, who are both duly admitted attorneys: Jani van Wyk (Project Leader & Primary Researcher) janie.vanwyk@up.ac.za/ +27 (0)12 420 4155 Heléne Davidtsz (Researcher) helene.davidtsz@up.ac.za/ +27 (0)12 420 5670

3.2.2 Method, methodology & limitations Method & methodology Primary and secondary research methods were used through field and desk research. The desk research included references to legislation, case law, research reports, media reports, academic journal articles, theses and dissertations. This method allowed the research team to gather information which preceded the current milieu (historical development), identify obstacles and prepare for the field research. The desk research formed the basis of the hypothesis formulated by the research team and allowed for the preliminary findings to be tested against the current practical experiences of the interviewees. In particular, the team strived to consult with persons dealing with debt collection on a daily basis in order to prevent the study from becoming a black-letter law analysis. The interviews proved to be of exceptional value to point out the difference between the written documents perused during the desk research and the practical implementation of specific procedures. 12 The project protocol and interview guidelines were approved by 12

A case in point which illustrates the importance of consulting with people in practice and obtaining different perspectives from role-players is discussed in detail in Part 3 hereunder, but briefly set out for purposes of this discussion. The issue related to the question of whether debtors appear in the ‘debtor’s court’ when notified as such in terms of section 65A. According to written reports (see e.g. Haupt & Van Sittert Safari into garnishment of wages 13 February 2013 7) the incidence of debtors appearing in the court when requested is low, rendering the section 65 process ineffective. Interestingly, when discussing the matter with Magistrates in three different provinces, it was consistently noted that debtors do appear. The incidence of appearance was consistently calculated at 70% or higher. In contrast, debt collection attorneys consistently noted that debtor’s do not appear. During the last interview conducted with a magistrate who had also been a practising attorney, it was noted that, as an attorney, the experience was the 1 out of 10 debtor’s appeared whilst, as a magistrate, the experience was that 7 out of 10 debtors appeared. The interviewee ascribed this discrepancy to the changing economic circumstances of South Africans. In addition, it was reported that the warrant of arrest is ‘contentious’ as it is ‘extremely traumatic for a debtor, who may be locked up in a holding cell at a police station’. During interviews, it transpired

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the Ethics Committee of the Faculty of Law, University of Pretoria. Participants were not obliged to contribute to the research and not all organisations approached to participate did so. In this study, sample size was not so relevant as the problems were substance driven. The core issues seemed to be ring-fenced i.e. generally speaking the challenges that were identified during the desk research, were consistently noted/confirmed by participants during the field research. The interviewees for the project consisted of magistrates, civil clerks of the court, sheriffs, attorneys, debt counsellors, debt collectors, garnishee administrators and garnishee auditors. Some organisations approached for interviews declined to participate or initially indicated that they were willing to participate but ultimately did not. This was particularly relevant to the regulatory bodies/ industry organisations approached. The composition of the interviewees was strategically chosen to present perspectives from the creditor, debtor and third party specialists. Limitations Many potential interviewees were contacted but did not participate. The approach followed by the team was to phone the offices and explain the purpose of the research to the head of the section dealing with matters relevant to the research. The offices were then asked whether they would be willing to participate and the scope of the participation was explained. The team member did not request the representative to provide an immediate answer but requested an e-mail address to forward a summary of the project outcomes and the scope of participation. Where no response was received within a reasonable time, the request was followed by an e-mail and phone call whereafter no further action was taken. Where the offices had indicated their willingness to participate, further e-mails were sent and phone calls made to set a time and date for the interview, but after reasonable attempts, no further action was taken as this was interpreted as reluctance to participate. Potential interviewees declined to participate for the following reasons: The offices were not interested in participating;

that the warrant of arrest is seldom issued and the incidence of actually arresting a debtor is very low. The sheriff will rather warn the debtor to arrive at his or her offices or at court where the person will be handed to the clerk of the court. This process was generally viewed as effective in securing the presence of the debtor at court. The interviewees consistently noted that the involvement of the South Police Service is scarce as the members of the police will generally not concern themselves with civil matters. The members are also not trained in dealing with the matter.

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The information forwarded to the offices was not read and the purpose of the interaction misunderstood even after explaining the issues; The information was not escalated from the contact person to the person that had to decide whether the offices would participate despite multiple requests; No responses were received despite multiple attempts; Workload and staff impairments resulted in the unavailability of some participants although a willingness to participate in future research was expressed; Delays, whether through resources or lack of attention, prevented the timely participation of potential interviewees; Time constraints, especially in the light of the logistical issues set out above â&#x20AC;&#x201C; in this regard, some organisations were approached as early as June and July and had either not responded by October 2013 or not performed as indicated; The current developments and multiple stakeholders involved in investigating the abuses and irregularities in the debt collection sphere could also account for the unwillingness or unavailability of potential participants. Potential participants could have been involved in confidential research pertaining to the same topic or have negative perspectives of the research funders which caused them to decline to participate. Time and budget constraints further limited the scope of the research. In this regard, the input of interviewees and data analysed, even though consistent in many aspects, cannot be viewed as representative of the industry and all its role-players. It is therefore important that proper empirical research and consultation with all stakeholders precede any implementation of the recommendations referred to herein, especially throughout the various socio-economic and geographical strata of South Africa.

3.2.3 Execution of the project: Phase 1 The first phase of the project was executed through desk research. The objectives of this phase were to: Identify the relevant debt collection mechanisms to be the subject of the study. A preliminary list of mechanisms was drafted for the study with the caveat that these

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could be reduced based on criteria determined in consultation with OneLaw or its representatives, supplemented if and where the research team deems it necessary. It was not necessary to amend or supplement the initial list which referred to the following debt collection mechanisms: Section 57 and 58 acknowledgements of debt and consent to judgment; Section 65 enquiries; Section 65 J emoluments attachment orders; Writs/warrants of execution for movable property; Writs/warrants of execution for immovable property. Identify

the

benefits

(positive

outcomes)

the

identified

debt

collection

mechanisms; Identify the issues, difficulties and/or irregularities pertaining to each of the mechanisms through secondary research methods; List the identified issues under each subject head and determine whether the root causes of these are based in legislative failures such as ambiguity or lacunae, interpretive differences and/or irregular implementation of legislative provisions; and Research and argue the legal framework that underlies the negative issues identified in order to provide clarity in respect of the rationale thereof, the correct legal position and to substantiate the recommendations for remedial action. The scope of the study was delineated through set parameters as it was limited to the debt collection mechanisms set out in acts of parliament. Specifically, debt relief remedies such as debt review, insolvency processes such as sequestration or repayment schemes in terms of which the debtor effects payment were excluded. Although these mechanisms, in practical terms, also effect debt collection to some extent, these were beyond the scope of this study. As mentioned above, the study was not concerned with non-law or soft law alternatives such as call centres/ payroll assignments, etc. The study was further limited to secondary identification of irregularities and was not concerned with independent identification of irregularities through an audit of garnishee files or payroll offices. As noted above, the research was not concerned with the impact of garnishees on persons (employees, employers and payroll officers) and entities but

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specifically related to the legal framework of debt collection. However, as the impact on the legal subjects has been a cause for concern in recent times, irregularities were duly noted in order to provide for a thorough understanding of the issues at hand. Ancillary to the report, basic assumptions and conclusions that refer to the impact of certain legislative provisions and the manner of the implementation thereof had to be drawn from the collected data. In instances where these were central to the investigation, it was duly noted e.g. the relationship between the parties, the allowable and charged costs and the impact on the courts and legal system.

3.2.4 Execution of the project: Phase 2 The second phase of the project comprised of field research through primary research methods. The research proposal initially only involved interviews held with industry role-players, but unexpectedly also included statistical information made available and sourced from Flemix and Associates Incorporated dated 19 July 2013. An explanation of the three data sets as well as an extract from the raw data is provided hereunder for purposes of contextualisation. The statistics related to the machinery of the courts in granting section 57 and 58 judgments as well as emoluments attachment orders.

3.2.4.1

Data set A

Data set A showed the waiting periods in days for different courts as recorded for 2012 in order to obtain judgments and emoluments attachment orders. Data concerning 24 courts were provided: Court

Waiting period for judgment and EAO in 2012 (days)

Beaufort West

27.54

Beaufort West

Bela-Bela

Boksburg

Brits

Christiana

Durban

East London

Ekangala

Empangeni

Ermelo

Hankey

Jansenville

Johannesburg

Kempton Park

Kimberley

Mitchells Plain

Modimolle

Motherwell

Phuthaditjhaba

Pretoria

Temba

Thabazimbi

Uitenhage

Winburg

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3.2.4.2

Data set B

Data set B showed the practices and policies of the courts to which the data related. The data related to 524 offices of courts. 13 This data set was only relevant insofar as reliance of courts on section 45 consent to jurisdiction was measured, although the inferences are questionable as set out in the report. The other variables were either so low (15 and below) or high (523 and above) that no useful inferences could be drawn. In the premises, the following variables were used with 1 indicating that the variable was relevant to that particular court and 0 indicated that it was not relevant to the court: The court requires that the emoluments attachment order be granted in the court of the employer (Require Local EAO);

The court allows section 45 consents to jurisdiction for section 57 & 58 judgments (Allow Section 45); The court will grant a judgment where a section 57 admission of liability and consent to judgment was signed by the debtor (Allow Section 57); The court will grant a judgment where a consent to judgment in terms of section 58 was signed by the debtor (Allow Section 58); The court requires that the attorney causing to issue the emoluments attachment order for and on behalf of the creditor provide an address within the 15km radius of the court as set out in the Magistrates' Courts Rules i.e. requiring a local correspondent to be appointed where the instructing attorney does not have an office within the 15km radius. In some instances, such as in urban areas, no firm is situated within the 15km radius set by the rules of court (Require Address In Radius); The court allows an electronic signature on the application for the emoluments attachment order and does not require a handwritten signature (Allow Electronic Signature).

The data, when compared to the lower courts list provided by the Department of Justice at http://www.justice.gov.za/contact/lowercourts_full.html, site accessed 27 October 2013, were categorised according to the ‘office’ names and not necessarily according to ‘district’.

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Court

Boksburg

Require

Allow

Require

Allow

Local EAO

Section 45

Section 57

Section 58

Address In

Electronic

Radius

Signature

Aberdeen

Ekuvukeni

Khutsong

Mtubatuba

Seshego

Acornhoek

Elandslaagte

Kimberley

Mtunzini

Seymour

Addo

Elliot

King William’s Town

Muden

Simon’s Town

Adelaide

Elliotdale

Kirkwood

Murraysburg

Skukuza

Alexandra

eMakhazeni

Klerksdorp

Musina

Smithfield

Alexandria

eMalahleni

Klipplaat

Mutale

Somerset East

Alice

Emgwenya

Kliptown

Namakgale

Somerset West

Alicedale

Emlazi

Knysna

Ncotshane

Soshanguve

Aliwal North

Empangeni

Koffiefontein

Ndwedwe

Soutpan

Amanzimtoti

Ermelo

Kokstad

Nebo

Soweto

Amersfoort

Eshowe

Komga

New Hanover

Springbok

Amsterdam

Esikhawini

Koppies

Newcastle

Springfontein

Athlone

Estcourt

Koster

Newlands

Springs

Atlantis

Evander

Kranskop

Ngcobo

Standerton

Atteridgeville

Excelsior

Kroonstad

Ngqamakhwe

Stellenbosch

Babanango

Ezakheni

Krugersdorp

Ngqeleni

Sterkspruit

Balfour [EC]

Ezibeleni

Kuilsriver

Ngwelezane

Sterkstroom

Balfour [MP]

Fauresmith

Kuruman

Niewoudtville

Steynsburg

Barberton

Ficksburg

Kwa Thema

Nigel

Steytlerville

Barkly East

Flagstaff

KwaDukuza

Nkandla

Stilfontein

Barkly West

Fochville

KwaMashu

Nkowankowa

Strand

Batho

Fort Beaufort

Kwambonambi

Nongoma

Strydenburg

Beaufort West

Fouriesburg

KwaMhlanga

Northam

Stutterheim

Bedford

Frankfort

KwaMsane

Noupoort

Sutherland

Bela‐Bela

Fraserburg

Kwangwanase

Nqutu

Swartruggens

Bellville

Ga‐Kgapane

KwaNobuhle

Nsimbini

Swellendam

Benoni

Galeshewe

Laaiplek

Nsuze

Tabankulu

Bergville

Ga‐Nala

Ladismith

Ntuzuma

Tarkastad

Bethal

Ganyesa

Lady Frere

Nyanga

Taung

Bethlehem

Ga‐Rankuwa

Lady Grey

Oberholzer

Temba

Bethulie

Gariepdam

Ladybrand

Odendaalsrus

Tembisa

Bholothwa

Garies

Ladysmith

Ogies

Thabazimbi

Bishop Lavis

Gelvandale

Laingsburg

Orkney

Thembalethu

Bityi

George

Lebowakgomo

Orlando

Theunissen

Bizana

Germiston

Lehurutshe

Ottosdal

Thohoyandou

Bloemfontein

Gingindlovu

Lenasia

Oudtshoorn

Thulamahashe

Bloemhof

Giyani

Lenyenye

Paarl

Tiyani

Bluedowns

Glencoe

Lephalale

Palm Ridge

Tonga

Boesmansriviermond

Gluckstadt

Libode

Parow

Trompsburg

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Boksburg

Goedemoed

Lichtenburg

Parys

Tseki

Bonnievale

Goodwood

Lindley

Paul Roux

Tsheseng

Booysens

Graaffâ&#x20AC;?Reinet

Loeriesfontein

Paulpietersburg

Tshilwavhusiku

Boshof

Grabouw

Louis Trichardt

Pearston

Tshitale

Bothaville

Grahamstown

Louwsburg

Peddie

Tsomo

Botshabelo

Graskop

Loxton

Perdekop

Tulbagh

Brakpan

Greytown

Luckhoff

Petrus Steyn

Turton

Brandfort

Griquatown

Lulekani

Petrusburg

Tzaneen

Brandvlei

Groblersdal

Lusikisiki

Phalaborwa

Ubombo

Bredasdorp

Groblershoop

Maclear

Phalala

Uitenhage

Breyten

Groot Marico

Madadeni

Philippolis

Umbumbulu

Brits

Hammanskraal

Madikwe

Philipstown

Umzimkulu

Britstown

Hankey

Magudu

Phoenix

Umzinto

Brixton

Hanover

Mahlabatini

Phokeng

Uniondale

Bronkhorstspruit

Harding

Mahwelereng

Phungashe

Upington

Bultfontein

Harrismith

Makwane

Phuthaditjhaba

Utrecht

Burgersdorp

Hartswater

Malamulele

Piet Retief

Van Zylsrus

Bushbuckridge

Hatfield

Malmesbury

Pietermaritzburg

Vanderbijlpark

Butterworth

Heidelberg [GP]

Maluti

Piketberg

Vanrhynsdorp

Cala

Heidelberg [WC]

Mamelodi

Pinetown

Ventersburg

Caledon

Heilbron

Mankweng

Plessislaer

Ventersdorp

Calitzdorp

Hendrina

Mapumulo

Pofadder

Venterstad

Calvinia

Hennenman

Marquard

Polokwane

Vereeniging

Camperdown

Hermanus

Marydale

Pomeroy

Verulam

Cape Town

Hertzogville

Mashishing

Pongola

Victoria West

Carnarvon

Hillbrow

Matatiele

Port Alfred

Viljoenskroon

Carolina

Himeville

Mbazwana

Port Elizabeth

Villiers

Cathcart

Hlabisa

Mbibana

Port Nolloth

Villiersdorp

Centane

Hlanganani

Mbombela

Port Shepstone

Virginia

Ceres

Hlobane

Mdantsane

Port St Johns

Volksrust

Charlestown

Hluhluwe

Mdutjana

Porterville

Vosburg

Chatsworth

Hobhouse

Meadowlands

Postmasburg

Vosloorus

Christiana

Hofmeyr

Mecklenburg

Potchefstroom

Vrede

Clarens

Hoopstad

Melmoth

Praktiseer

Vredefort

Clocolan

Hopefield

Memel

Pretoria

Vredenburg

Cofimvaba

Hopetown

Meyerton

Pretoria North

Vredendal

Colenso

Howick

Mid Illovo

Prieska

Vryburg

Colesberg

Humansdorp

Middelburg [EC]

Prince Albert

Vryheid

Coligny

Ikageng

Middelburg[MP]

Queenstown

Vuwani

Cornelia

Impendle

Middledrift

Qumbu

Wakkerstroom

Cradock

Indwe

Midrand

Ramsgate

Warden

Cullinan

Ingwavuma

Mitchells Plain

Randburg

Warrenton

Dannhauser

Inkanyezi

Mkhuhlu

Randfontein

Wasbank

Daveyton

Inyoni

Mkobola

Reddersburg

Waterval

De Aar

Itsoseng

Mmabatho

Reitz

Weenen

Dealesville

Ixopo

Modimolle

Richards Bay

Welkom

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27 | P a g e

Delareyville

Izingolweni

Mogwase

Richmond [KZN]

Wellington

Delmas

Jacobsdal

Mokopane

Richmond [NC]

Wentworth

Devon

Jagersfontein

Molteno

Rietfontein

Wepener

Dewetsdorp

Jamestown

Montagu

Riversdale

Wesselsbron

Donnybrook

Jan Kempdorp

Mooi River

Robertson

Westonaria

Douglas

Jansenville

Mookgophong

Roodepoort

White River

Dududu

Jeppe

Moorreesburg

Rosendal

Whittlesea

Dukuza

Johannesburg

Morebeng

Rouxville

Williston

Dullstroom

Joubertina

Mossel Bay

Rustenburg

Willowmore

Dundee

Kabokweni

Motherwell

Sabie

Willowvale

Dunnottar

Kagiso

Mothibistad

Sannieshof

Winburg

Durban

Kakamas

Mount Ayliff

Sasolburg

Winterton

Dutywa

Kareedouw

Mount Fletcher

Schweizer-Reneke

Wolmaransstad

Dzanani

Kathu

Mount Frere

Scottburgh

Wolseley

East London

Keimoes

Moutse

Sebokeng

Worcester

Edenburg

Keiskammahoek

Mpumalanga

Secunda

Wynberg [WC]

Edenvale

Kempton Park

Mqanduli

Sekhukhune

Zastron

Edenville

Kenhardt

Msinga

Selosesha

Zeerust

Eerstehoek

Kestell

Mthatha

Senekal

Zwelitsha

Ekangala

Khayelitsha

Mtontsasa

Senwabarwana

3.2.4.3

Data set C

Data set C provided the different types of documents requested by court staff and the number/ copies of the documents so requested before emoluments attachment orders would be granted. The data related to 396 courts and were provided in the same document as data set B. Therefore, the courts (of which the office names were used as point of departure) highlighted under data set B were excluded from data set C as the information provided in respect of these courts were in terms of data set B only. The variables listed hereafter were coded so that '1' indicated that the variable was relevant to that particular court and 0 indicated that it was not relevant to the court. The first three variables (i.e. the request for judgment, emoluments attachment order to be issued by the court and the civil certified extract of judgment) also indicated the number of copies needed. In this regard, a numerical value higher than 1 was indicated in the column. The manner in which the data was captured in order to ease the analysis thereof allowed the assumption that where a '1' was noted in the column (i.e. the number of copies was not necessarily indicated), it warranted the inference that at least one copy was needed of the specific document. In this regard, this data set provides a conservative reflection on the documentary proof to be provided to court.

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The following variables were listed with descriptions where this is not self-explanatory: Request for judgment Emoluments attachment order Section 65J(2)(b) certificate Civil certified extract of judgment Court cover sheet (for court file) Original contract Copy of contract Affidavit – Copy of contract but no original available Affidavit – Missing contract and no copy available Section 129 letter Proof of postage of Section 129 letter Letter to employer regarding of intent to issue EAO Proof of postage of letter to employer regarding intent to issue EAO Section 57 letter to debtor of acceptance of offer Letter to debtor re confirmation of judgment Proof of postage of letter to debtor re confirmation of judgment Income & expenditure Certificate of balance (COB received from creditor setting out outstanding balance) Statement setting out breakdown of handover amount Attorney's statement of account Affidavit – Compliance with NCA NCR certificate Contract payslip (payslip in terms of contract of employment on date of contracting) Payslip (payslip on date of signing of the documents provided by the tracer) Consultant report (report by the tracer with details such as where the debtor was encountered) Consultant invoice (invoice for payment of the tracer) Affidavit of service – signed by the tracer under oath to confirm that the tracer did meet with the debtor

3.2.4.4

Interviews

In terms of the mandate, the interviewees were to include debt collectors including both independent collectors and agents of credit providers, garnishee administrators and garnishee auditors, attorneys, clerks of selected lower courts of South Africa, magistrates, presiding officers of selected small claims courts, registrars of higher

29 | P a g e

courts, judges, sheriffs and entities that have instituted investigations into the irregularities pertaining to debt collection mechanisms such as the National Credit Regulator, Law Society of South Africa, Task Team on Garnishees and, where possible, the Department of Justice and Constitutional Development and the National Treasury. The participation of the above identified role-players was subject to their availability and willingness to participate in the study, and some requests for participation were disregarded by persons approached for interviews. In particular, the research team did not succeed in securing the participation of the entities who had instituted investigations into the irregularities pertaining to debt collection mechanisms, judges and registrars and presiding officers of selected small claims courts. Interviewees were also informed that their specific contribution to the research would not be revealed unless a preference in this regard was expressed. Therefore, the report is presented as anonymously as possible with due regard to the wishes of the participants. The informed consent form is attached hereto as Annexure A. The purpose of this phase was to obtain information on the issues set out above in paragraph 3.1 and to: Discuss the benefits (positive outcomes) as well as the negative outcomes of the identified debt collection mechanisms; Ensure that the list of outcomes is comprehensive and discuss root causes of negative outcomes of debt collection methods; Ascertain the perspectives of the interviewees on the negative outcomes of debt collection methods; Identify and discuss the reasoning behind the approach of role players to negative outcomes of debt collection methods in the debt collection industry; Identify and discuss the steps taken by role players to negate or support negative outcomes of debt collection methods in the debt collection industry; and Elicit debates on mechanisms to address negative outcomes of debt collection methods. Three sets of interview guidelines were drafted but only one used. Specific guidelines were drafted for the Law Society of the Northern Provinces and the North Gauteng High

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Court and these entities ultimately did not participate in the research. The following guideline was used: Guideline A (General) Emolument attachment orders: 1. Do you think that section 45 of the Magistrate’s Court Act (i.e. that parties can consent to the jurisdiction of a specific Magistrate’s Court) has an impact on practices relating to the obtaining of garnishees in the country (i.e. on the provision that an emolument attachment order must be obtained within the jurisdiction of the employer of the employee)? 2. What do you think about the issue of magisterial oversight over the emoluments attachment order process? 3. What supporting documentation do you think should be required when considering sections 57/58 consent to judgment and application for emoluments attachment orders? 4. What do you think about aspects relating to the rescission or amendment of emoluments attachment orders such as lowering the instalment amount and the requirements to comply with the process to allow for inter alia due process? 5. What is your interpretation and understanding of in duplum (or section 103(5) of the National Credit Act) with regards to agreements that are subject to garnishee orders, with specific attention given to: a. Credit agreements, b. The position prior to the obtaining of judgment, c. The position after the obtaining of judgment, and d. Whether legal costs are included or excluded in the rule. 6. In your opinion, what are the amount and breakdown of legal costs that could reasonably be asked for by a claimant’s attorney against a debtor in the emoluments attachment process? 7. What do you think is the position with regard to the 5% employer’s commission as provided for in section 65 including: a. Who is entitled to retain the percentage, b. By whom is it payable, and c. Whether parties can contract to have another party pay this commission; 8. What do you think is the legal positions of the parties to the emoluments attachment process including: a. Their rights, b. Their duties, and c. The legal relationship between the parties; 9. What do you think is the root causes of the problems associated with emoluments attachment orders: a. Is it ambiguity in the legislation and how would you propose this be addressed?

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b. Is it unethical or fraudulent practices by industry role players and how would you propose this be addressed? 10. How has industry addressed the issues pertaining to emoluments attachment orders? Alternatives 11. What are the alternative processes available, such as: a. Section 57 and 58 acknowledgement of debt and consent to judgment; b. Section 65 A enquiries; c. Section 65 J emolument attachment orders; d. Writs/warrants of execution of movable property; e. Writs/warrants of execution of immovable property. 12. What are the benefits (positive outcomes) of the identified debt collection mechanisms? 13. What are the issues, difficulties and/or irregularities pertaining to each of the identified alternatives? 14. What are the positive and negative effects and outcomes of these alternatives to emoluments attachment orders: a. Does the alternative have the same effect in obtaining the objective of debt collection? b. Is it efficient with respect to time, human resources and costs? c. What makes the alternative better than an emolument attachment order? d. What makes the alternative worse than an emolument attachment order? e. Can the alternative be used in conjunction with an emolument attachment order to make the debt enforcement more effective? Please motivate your answers thoroughly as the researchers are just as interested in your reasoning as your answers.

Guideline B (Law Society) 1. What are the issues relating to debt collection mechanisms that your offices have been alerted to? 2. Which of these are abusive practices and which relate to ambiguities regarding the mechanisms? 3. Which mechanisms/ protocols does your organisation have in place to deal with these issues/ references? 4. Why do you have these mechanisms/ protocols in place and have they been effective i.e. what have the outcomes of the application of the mechanisms/ protocols been? 5. What do you think needs to be improved to create an effective debt collection industry and why? 6. What is your opinion on the relevant developments â&#x20AC;&#x201C; statutory and industry related â&#x20AC;&#x201C; regarding debt collection mechanisms specifically execution of immovable property, the national credit act and emolument attachment orders? We are particularly interested in the regulatory role that your organisation fulfils.

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Guideline C (North Gauteng High Court) Aspects to be discussed: 1. The principles upon which debt collection and debt collection procedures are based; 2. The role of the participants in the industry, especially within the framework of contracting out of legislation and adhering to legislative provisions; 3. The role of judicial and regulatory oversight in the debt collection industry; 4. An open discussion on challenges that your offices have experienced within the debt collection sphere and the steps that you have taken to overcome these challenges; 5. An open discussion on the challenges that the debt collection industry (all role-players including credit providers, debt collectors, attorneys and consumers/ debtors) experiences and that you have observed as the judiciary.

Source persons The following persons participated in the research through personal interviews, group discussions and/or written submissions: Attorneys & legal advisors Bentley B

Bentley Attorneys, Durban

Bester V

Attorney, Human Resources, Goldplatz

Brandt B

Potgieter & Beeken Attorneys, eMalahleni

Coetzee S

S D Coetzee Incorporated Attorneys, East London

De la Guerra E

S D Coetzee Incorporated Attorneys, East London

Earle S

Haupt & Earle Attorneys, Mbombela

Fritz S A

Deputy Head Legal, Chamber of Mines

Hebrard C

Attorney, Solomon Holmes Attorneys, Johannesburg

Horn A

Potgieter & Beeken Attorneys, eMalahleni

Various (4)

Gerhard van der Merwe Attorneys, Mbombela

Magistrate’s Courts: Magistrate, Clerk and/or Taxing Master Various (5)

Magistrates, Johannesburg Magistrate’s Court

Du Plessis H

Magistrate, Tembisa Magistrate’s Court

Joubert V

Magistrate, Mbombela Magistrate’s Court

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Eckley C

Magistrate, Potchefstroom Magistrate’s Court

Kirsten M

Magistrate, Potchefstroom Magistrate’s Court

Pieterse A

Civil Clerk and Taxing Master, Mbombela

Sheriffs’ offices Myers H

Witrivier/ Nsikazi

Van Nieuwenhuizen H

eMalahleni

Mosikili J

Potchefstroom

Tayob A

Kempton Park North, Tembisa & Midrand

Scheuer M

Pretoria East

Britz L

Pretoria East

Garnishee Administrators/ Auditors Various (10)

DMC (Pty) Ltd

Niclas N

Garnishee Audit Services (Pty) Ltd

Van Heerden F

Garnishee Audit Services (Pty) Ltd

Various (3)

Summit Financial Services

Registered Debt Collection Agency Steenkamp O

HMP Financial Services

Goosen R

HMP Financial Services

Van Zyl K

HMP Financial Services

Molefe J

HMP Financial Services

Opinions were obtained from two counsel on consents to jurisdiction as well as the interpretation and implementation of the common law in duplum and section 103(5) within the context of emoluments attachment orders. The two counsel were Advocate Piet Louw SC of the Johannesburg Bar and Advocate Leon Dicker of the Pretoria Bar. The brief for their opinions are set out hereunder in the sections discussing the topics of the opinions.

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3.2.5 Execution of the project: Phase 3 Phase three related to the analyses of the data and the writing of the report. The report was initially to be structured as set out below and according to the mandate. However, during the course of preparing the report, the research team observed that the core issues of the research became obscured by discussions and inclusion of ancillary information purported to support the framework and argument of the issues under investigation. It is further submitted that the client (and intended beneficiary of the research) has a basic understanding of the debt collection mechanisms. In this respect, reiteration of the process as set out in the relevant legislation was avoided as far as possible. This approach further allows for a high-level and in-depth consideration of the issues at hand within a manageable frame of information content. For a basic discussion of debt collection mechanisms, emoluments attachment orders and the irregularities thereto (with examples), the report titled “The incidence of and undesirable practices relating to "garnishee orders" – a follow up report” prepared by the University of Pretoria Law Clinic (team consisting of Ms Charlotte van Sittert as Project Leader and Researcher and Mr Franciscus Haupt as Consultant) for GIZ can be referred to. This report is also the primary source referred to for practical examples such as bills of costs for warrants of execution and abuses where the basic points are illustrated as could be ascertained from case studies. The point of departure for primary research of this report is the experiences of practitioners in the credit industry and consistent reference is made throughout the report to the views, perspectives and approaches of persons working in the industry. This would prevent the report from becoming a mere black letter law analysis. The structure of the report has therefore been amended as set out hereafter. Initial mandate: The report is preceded by an executive summary; The first part of the report relates to the research mandate; The second part of the report was initially intended to consist of the following: A brief (handbook style) summary the current legal framework for debt collection in South Africa for orientation purposes; The identified issues with debt collection and the grouping thereof under legislative failure, interpretative difficulties and irregular implementation;

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The sequence of issues identified followed and divided into subchapters based on the different debt collection mechanisms; and A comprehensive argued discussion with a set conclusion on the legislative failures and interpretative difficulties. As indicated above, this report is not concerned with irregular implementation such as over-charging, etc. although this may be noted as such if it is as a result of a legislative failure or interpretative difficulty. A report on the irregularities pertaining to garnishees has already been commissioned by a different stakeholder; The chapter was further intended to compare and analyse the data obtained during interviews in order to substantiate the arguments set forth in the discussion; The third part of the report was intended to consist of an analysis of the remedial actions identified and proposed by role players including a discussion of the positive and negative aspects of the proposed actions; and The

fourth

chapter

was

intended

include

the

conclusion

and

final

recommendations. Amended structure: The report is preceded by an executive summary; The first part of the report relates to the research mandate; The second part of the report firstly discusses the economic, political and social setting of South Africa as far as credit a focal point. The contents of this part were carefully selected from various sources in order to form the foundation for the legal discussion. It further provides a brief view of the context within which any recommendations made to address the identified challenges should function. Thereafter, the third part sets out the challenges as per the mandate and are dealt with directly. Reference to the relevant sections of the regulating legislation is made throughout the discussion. Where relevant, the alternative most suited to address the challenge (or which would hypothetically become the mechanism of choice in the absence of e.g. an emoluments attachment order process) is discussed in this regard. This contextual approach includes:

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The identified issues with debt collection and the grouping thereof under legislative failure, interpretative difficulties and irregular implementation; The comprehensive argued discussion with a set conclusion on the legislative failures and interpretative difficulties. As indicated above, this report is not concerned with irregular implementation such as over-charging, etc. although this may be noted as such if it is as a result of a legislative failure or interpretative difficulty. A report on the irregularities pertaining to garnishees has already been commissioned by a different stakeholder; A comparison and analysis of the data obtained during interviews in order to substantiate the arguments set forth in the discussion; and An analysis of the remedial actions identified and proposed by role players including a discussion of the positive and negative aspects of the proposed actions. The fourth part is a reported analysis of the perspectives and experiences of the interviewees in respect of the debt collection industry as well as a discussion of the plausible root causes of adverse outcomes of the process. The

fifth

part

the

report

chapter

sets

out

the

conclusion

and

final

recommendations and the sixth part the research sources; Annexures B1, B2 and B3 contain the opinions of counsel and Annexure C the list of potential interviewees contacted but who did not participate. Annexure C is intended for the attention of the client only as it relates to the mandate of the research team. No negative inferences were drawn from potential intervieweesâ&#x20AC;&#x2122; decisions not to participate in the research.

4 Terminology & Abbreviations The terminology used to describe the various role players and debt collection procedures will be specially phrased in order to facilitate the reading of this report. Debt collector

A person who collects the debt through use of a recognised debt collection mechanism such as an emolument attachment order. This could be an

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attorney

statutory

debt

collector

the

creditor’s internal debt collection official. Statutory debt collector

A debt collector registered with the Debt Collectors Council and complying with the prescriptions set out in the Debt Collectors Act.

Attorney

A person duly admitted by order of the High Court and allowed to practice as such in any part of the Republic in accordance with the Attorneys Act 53 of 1979. This term will also generally be used to describe

candidate

attorney,

unless

specific

reference is made to a candidate attorney. In this regard, the reference is deemed to refer to the person completing (a) his or her mandatory year(s) of articles under contract with an admitted attorney who has the right to be a principal to the candidate attorney or (b) at a Law Clinic as part of a year of community service. Emolument attachment order

An emolument attachment order is an order granted in terms of section 65J of the Magistrates’ Courts Act in terms of which an employer is obliged to deduct a specified amount from the employee debtors’ wages/ salary and pay that amount to the judgment creditor prior to paying the salary/ wages to the debtor.

Tracer

A person that approaches the debtor personally to deliver documents to the debtor and explain same e.g. a section 129 notice provided in terms of the National Credit Act 34 of 2005. The tracer also negotiates payment arrangements and/or obtains consents to judgments etc.

The following abbreviations are used interchangeably with the full reference: Banking Association of South Africa

BASA

Basic Conditions of Employment Act 95 of 1997

BCEA

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Commission for Conciliation, Mediation and Arbitration

CCMA

Debt Collectors Act 114 of 1998

DCA

Emoluments Attachment Order

EAO

Law Society of South Africa

LSSA

Law Society of the Northern Provinces

LSNP

Magistrates’ Courts Act 32 of 1944

MCA

Magistrates’ Courts Rules

MCR

National Credit Act 34 of 2005

NCA

National Credit Regulator

NCR

NCR Consumer Credit Market Report

CCMR

NCR Credit Bureau Monitor

CBM

Statistics South Africa

StatsSA

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Part 2 – Framework 1 Industry Profile: Debt in South Africa A macro-view of debt, debt collection and debt repayment shows many economic, social, political and legal facets. It is intricately linked with the creditor and consumer, who are the primary stakeholders in debt, although less intimately involved in managing and directing the debt collection procedures. The credit-debt relationship between the creditor and debtor is based in a legally-enforceable contractual agreement of rights and obligations. From a pure legal perspective, the basic requirements for a recognised contract are that parties, who are in law duly capacitated to act, reach consensus with regard to determined rights and obligations, to enter into a lawful contract which poses the possibility to be performed and, where prescribed, the contract complies with legal formalities. 14 The crux of a contract is that it is founded in law and that judicial remedies are available to assist with enforcing compliance. 15 However, as debt collection has a legal obligation at heart, the primary value is the recovery of a pecuniary benefit i.e. value to which the creditor’s estate is entitled. In this regard, the process of debt collection is often extensive prior to the actual institution of legal enforcement proceedings. Some creditors engage with the debtor as soon as first default occurs, arranging for rescheduling of payment where needed in order to maximise returns. Extra-judicial steps such as referral to debt collectors who engage with the debtor further to obtain payments may be favoured prior to judicial enforcement and especially where the legal options are limited. In this regard, processes that effect expeditious and continuous payments at a low cost to the creditor, is favoured. Recovery of debt is entirely dependent on the objective ability of the debtor to repay the debts. Whilst an inclination or willingness to either pay or avoid creditors maliciously, the stark reality is that recovery of debt from a debtor who has no income or assets will be a futile and expensive exercise when considering the outcome. Uncertainty relates to whether the debtor’s financial circumstances will improve and, if so, whether optimal enforcement in order to attain the main objective of fiscal return will again destabilize a potential fragile consumer. The further consideration is whether the creditor can afford 14

Hutchison (ed) The Law of Contract in South Africa 2009 6.

Hutchison (ed) 2009 7.

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the loss of income from a business perspective and bear the costs of attempts to recover the debt, especially where the services of external professionals such as attorneys are employed. In this regard, notwithstanding the law of obligations, debt collection has a very real social and economic impact on a micro (consumer) level. In light of the above, the landscape of debt collection changes when the perspective changes and in order to substantiate the principled approach and subsequent remedies set out below, the following section presents a brief overview of selected perspectives.

1.1

Economic position

As at June 2013, the South African Credit Industry supported 20.21 million credit active consumers, 16 out of a human population of approximately 52 million. 17 The credit bureaus held records in excess of 43.72 million for individuals, of which 46.2% were credit-active. 18 The remaining 53.8% records were not credit-active and the information held related to identification of the individual. The number of accounts was recorded at 71.20 million. 19 An analysis of consumer credit data indicated that 52.0% of credit-active consumers' records were in good standing (10.52 million), whilst the number of accounts in good standing totalled 73.5% (52.33 million). 20 The total outstanding gross debtor's book as at June 2013 equalled R1.47 trillion of which R168.06 billion (11.46%) comprised of unsecured debts and R870.71 million (0.06%) of short-term agreements. 21 It must be noted that the information only reflects that of credit providers who are required to be registered in terms of the National Credit Act and therefore excludes lenders with less than 100 credit agreements or of which the value of the credit agreements (excluding incidental credit agreements) is less than R500 000.00 in debts outstanding under credit agreements. 22 Furthermore, only credit

CBM June 2013 1, available at http://www.ncr.org.za/publications/Consumer%20Credit%20Report/cbm_ 2ndQ/CBM%20June%202013.pdf, site accessed 27 October 2013. The information contained in this publication is based on information held by registered credit bureaus as per the provisions of the NCA.

StatsSA October 2012 available at http://www.info.gov.za/aboutsa/people.htm and http://www.statssa. gov.za/Census2011/Products.asp, site accessed 17 July 2013. The source reported 51.8 million in 2012, hence the reference to ‘approximately’ as this may logically have changed in the interim.

CBM June 2013 2.

CBM June 2013 1.

CBM June 2013 2 & 3.

CCMR June 2013 1, available at http://www.ncr.org.za/publications/Consumer%20Credit%20Report/ ccrm_2ndQ/CCMR%20Q2-Changes,%20F.pdf, site accessed 27 October 2013.

CCMR June 2013 2.

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providers with annual disbursements exceeding R15 million is expected to report on a quarterly basis to the National Credit Regulator. 23 Credit providers with annual disbursements less than R15 million, are expected to provide annual returns. 24 The distribution of credit extended is set out in the following table, depicting the credit granted per industry: 25

CCMR June 2013 4: Credit per industry

The term 'other credit providers' refer to pension backed lenders, developmental lenders, micro-lenders, agricultural lenders, insurers, non-bank mortgage lenders and securitised debts. 26 25.2% were unemployed as at the first quarter of 2013 when considering the 33.2 million of the population who are estimated to be between the ages of 15 and 64. 27 Approximately 8 million of the 13.6 million employed persons 28 were estimated to be employed in the formal sector. 29 The following data is reflected in the South African Reserve Bank's Quarterly Bulletin for June 2013: 30

CCMR June 2013 2.

CCMR June 2013 4.

CCMR June 2013 1.

Stats SA Quarter 1 2013 Statistical Release P0211, available at http://www.statssa.gov.za/publications/ P0211/P02111stQuarter2013.pdf, site accessed 17 July 2013: “The Quarterly Labour Force Survey (QLFS) is a household-based sample survey conducted by Statistics South Africa. It collects data on the labour market activities of individuals aged 15 years and above who live in South Africa. However, this report only covers labour market activities of persons aged 15 to 64 years.”

SARB Quarter 2 (June) 2013 19, available at http://www.resbank.co.za/Lists/News%20and%20Publicatio ns/Attachments/5772/01Full%20Quarterly%20Bulletin%20-%20June%202013.pdf, site accessed 27 August 2013.

GIZ 2013.

SARB June 2013 19.

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Stats SA: Labour Market Statistics

9.69 million consumers reportedly had impaired records (48.0%) 31 whilst the number of impaired accounts totalled 18.87 million (26.5%). 32 16.78 million enquiries received by credit bureau on consumer records related to tracing or was made for debt collection purposes. 33 This indicated a 10.7% quarter-on-quarter increase (i.e. when compared to the period ending March 2013) and a 26.9% increase when compared to the period ending June 2012. 34 The following table illustrates the number of applications received and rejected by registered credit providers: 35

CCMR June 2013 4: Applications received and rejected

In the light of the reported proximity between unsecured lending, emoluments attachment orders and unscrupulous debt collection practices, 36 as well as the 31

CBM June 2013 1.

CBM June 2013 3.

CBM June 2013 4.

CCMR June 2013 4.

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recommendations set out below, the following graphs serve to illustrate the span of the unsecured and short-term lending market within the broad parameters relating to reporting requirements set out above. The first set of tables sets out the unsecured credit and short term credit granted respectively in relation to the gross monthly income of individuals (number of agreements). The second set illustrates the rand value for these types of agreements and the third set the number of agreements per size. 37 Unless specifically indicated as otherwise, the discussion relates to the NCR data for the second quarter of 2013. The data relating to the number of agreements in relation to level of income of consumers illustrate that approximately half of the unsecured credit extended are to consumers with gross income equal to or less than R10 000. Whilst the year-on-year analysis shows a decrease of 12.79%, the favoured extension to this income group has not changed. A similar position is reflected for short-term credit extension; although the percentage share of credit extended to persons with gross income equal or less than R10 000 is notably higher at 62.44%.

CCMR June 2013 15: Unsecured loans number of agreements when considering gross monthly income of individuals

Various interviewees noted this – during many interviews, when generally asked what the major issues were which negated the success of the debt collection process, reckless credit and behaviour of stakeholders were noted. One interviewee was of the opinion that unlawful credit extension processes led to unlawful debt collection practices and adjusted the company’s debt collection policies accordingly. See also Moneyweb (author: Malcolm Rees) ‘Mines to investigate garnishees’ 3 April 2013 available at http://www.moneyweb.co.za/moneyweb-economic-trends/mines-to-investigate-garnishees, site accessed 25 July 2013 and Moneyweb (authors: Malcolm Rees, Dane Volker) ‘Garnishees ‘exploit all South Africans’ – Webber Wentzel’ 15 August 2013 available at http://www.moneyweb-financial/garnishee s-exploit-allsouth-africans-webber-wentzel, 28 August 2013.

CCMR June 2013 15, 16 & 18.

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CCMR June 2013 18: Short term agreements number of agreements when considering gross monthly income of individuals

The following two tables reflect that the largest segment in value of unsecured credit is extended to the income group with a gross income that exceeds R15 000 (45.61%). The lowest income group, in respect of which the highest number of agreements was entered into, reflects 34.24% in respect of the value distribution re share of credit granted. In respect of short term credit agreements, the lowest income group reflects a value share of 49.45% of the share of credit granted and the highest income group 30.82%.

CCMR June 2013 16: Unsecured loans rand value of agreements when considering gross monthly income of individuals

CCMR June 2013 18: Short term agreements rand value of agreements when considering gross monthly income of individuals

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The next set of tables reflects the number of agreements in relation to the value of the agreements. The data for the unsecured credit agreement category reflects that the most credit agreements were entered into where the value of the agreement was higher than R15 000 (31.35%). The second highest number of agreements entered into were valued equal or less than R3 000 (24.42%). The data pertaining to short-term agreements reflects an overwhelming 48.61% extension of credit to the value of R1 000 or less. The second lowest value category (exceeding R1 000 up to and including R2 000) provides the value of choice for the second highest number of agreements (27.80%) entered into with consumers.

CCMR June 2013 15: Unsecured loans agreements number per agreement size

CCMR June 2013 18: Short term agreements number per agreements size

The debt-to-disposable income ratio of South African households is reported at 75.8%. 38

Reported on 10 September 2013 by Fin 24 at http://www.fin24.com/Economy/SAs-housholds-remainvulnerable-20130910, site accessed 12 October 2013: “The South African Reserve Bank's quarterly measure of household sector credit growth slowed further from 9.2% year-on-year in the first quarter to 7.9% in the second. Nominal disposable income growth slowed from 8.6% to 7.8% over the same two quarters. The net result was a rise in the household debt-to-disposable income ratio from a first quarter’s 75.4% to 75.8% in the second quarter.”

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The following tables set out a judicial perspective on civil debt: 39

STASSA July 2013 2

STASSA July 2013 4

STASSA July 2013 6

http://www.statssa.gov.za/Publications/P0041/P0041July2013.pdf Statistics of Civil Cases for Debt July 2013 2, 4 & 6.

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STASSA July 2013 3

It was interesting to note that two of the magistrates’ courts of different provinces interviewed indicated, out of their own volition i.e. without being prompted to provide an opinion on same, that the incidence of civil litigation in respect of debt is declining. 40 The reasons provided for these opinions, however, differed from the use of ‘contingency agreements’ to ‘economic circumstances’. In one instance, the interviewed magistrates indicated that the prevalence of debtors in the section 65 courts was probably due to 40

Interviews dated 9 & 18 September 2013.

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their changed economic circumstances. This aspect will be elaborated below, but it was also interesting to note that two attorneys’ firms indicated that they preferred ‘softcollections’ i.e. call centres and debit order payments as it proved to be more resource effective (in respect of time and human resources when considering the returns) over the court processes to collect debt. One was an established firm and the other a firm whose intentional expansion into the debt collection arena is relatively recent.

1.2

Political position

Credit extension has always been a core feature of any sovereign economy. In South Africa,

multiple

comprehensive

and

high-impact

consumer/

business

protection/

rehabilitation statutes were introduced in the past five years – the National Credit Act, 2005; Consumer Protection Act, 2008 and Companies Act, 2011. An increased awareness of the vulnerability of the consumer and the creditor has developed on both a national and international scale. 41 However, in the context of credit extension, the introduction of the legislation has not been effected without the due recognition of the economic importance of both parties to the credit agreement. This has resulted in policy trade-offs between access to credit and state protection of vulnerable (both in terms of education, bargaining positions and income) consumers. 42 It seems as if there is a growing realisation that the phases in the life-span of a contract are intricately linked and that the consumer credit health throughout the contract is important in order to effect returns. This necessitates that 'credit providers [should] take a longer-term view on their products and services' 43 and engage with a struggling consumer in a constructive manner. 44 The extension of credit can be directly relevant to the need and requirements for the enforcement of the contractual obligations, hence the interrelation between extension of reckless credit and debt collection. 45 The behavioural strategy of credit providers differs depending on a variety of factors. Some may tolerate high-risk lending consumer profiles, i.e. enlarging the 'net' when it 41

Interviews dated 18 & 19 September 2013.

DTI Making Credit Markets Work 2004 paras 1.12-1.14, available at http://www.ncr.org.za/publications/ Background_NCA_ docs/Credit%20Law%20Review.pdf, site accessed 27 October 2013.

DTI 2004 par 4.14.

Interview 8 August 2013.

Various interviews, specifically 8 August 2013.

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comes to credit extension to a larger number of consumers by strategizing a high-risk appetite. The risk profile of the consumer will then be reflected in the interest rate, which can be up to 60% per annum, excluding any further charges and costs, if the loan is classified as a short-term credit agreement. The risk of default is ameliorated by both the higher interest rate as well as the performance of non-defaulting portfolios and that of the consumer who does perform in terms of the contract prior to default. In this regard, lesser reliance is necessarily placed on debt collection strategies or fast and guaranteed mechanisms such as emoluments attachment orders are used. On the other hand, more conservative credit providers who have lower risk-appetites may select clients more carefully. In this regard, access to credit is restricted to credit users that do not fall within the scope of the profile set for a low-risk consumer. The risk of default is lessened, but a reasonable expectation also exists that debt collection mechanisms will be notably successful. The 2004 consumer credit policy noted that investment risk and uncertainty is exacerbated where debt collection mechanisms are expensive and the returns uncertain or disappointing. 46 This particularly pertains to lowincome consumers. 47 It is therefore arguable that compliance with legal and ethical standards during the preenforcement phase (contracting phase) may directly influence the contract enforcement phase. One interviewee indicated that the company maintains a strict professional understanding between the debt collector, credit provider and legal representative. 48 The debt collector and legal representative are actively involved in the development and monitoring of the contracting phase of the credit provider to ensure that proper disclosure and affordability assessments are done. The debt collector is further the only collector for the particular credit provider in order to be in a position to take responsibility (especially reputational responsibility) for the debt collection practices. The use of in-house tracers trained by the debt collector further facilitates quality assurance and reduces the risk of abuse and irregularities. However, even though the legislation is clear, neither compliance with legislative provisions nor fairness in dealing between parties is guaranteed at these phases.

DTI 2004 par 14.3.1.

Interview 8 August 2013.

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A modern credit-based economy should facilitate broad access to credit at affordable rates through the widest possible range of credit products (secured and unsecured) inspired by a complete, integrated and harmonized commercial law system designed to promote – affordable, transparent and reasonably predictable mechanisms to enforce unsecured and secured credit claims by means of individual action (e.g. enforcement and execution) or through collective action and proceedings (e.g. insolvency). In view of the time, cost and uncertainty of enforcement actions, there is limited reliance on the courts. It should be noted that South Africa requires resort to the courts for any orders to repossess security, movable or immovable, unless parties agree to determine possession between themselves. Delays in the operation of the court system may result in depreciation of asset values. Delays may be attributed more to the institutional aspects of the administration of justice than to the procedural rules. An exception to the prohibition of out-of-court enforcement refers to intangible assets and movable goods which are not in possession of the debtor, in which case it is possible to establish contractual mechanisms for the enforcement of the secured claim. ~ World Bank June 2012

Within the South African context, thoughtless intervention in order to curb abuses without a proper consideration of the role of the abused mechanism and the root causes of the abuse can have dire consequences. Where options for effective contract enforcement are limited, undesired lending practices may increase due to the need for increased numbers of consumers to alleviate the burden of non-performing and nonrecoverable portfolios i.e. large numbers of 'up-front' consumers, small rates of recovery and incidences of consumer subsidisation. The alternative to the above is restricted credit extension as the debt collection process is not as effective as should be. Undesirable mechanisms of debt recovery such as 'card and pin' or reliance on unscrupulous lenders for 'easy' money may become more widespread than it already is. In essence, due compliance with legislative provisions may disadvantage the complying credit providers and debt collectors from a competitive point of view. The focus on debt recovery, whilst a prominent feature under consideration when the National Credit Act was developed and drafted, was amplified in August 2012 when investigations into the Marikana strike and the repercussions thereof shed some light on the financial state of the participating mine workers. 49 Over-indebtedness, reckless credit extension, credit extension policies and debt collection methods became the focal point for massive (and multiple) investigations and attempted remedial action. 50 The following

See e.g. Moneyweb 3 April 2013. Also see the commentary on this article where it was indicated that a relation between over-indebtedness/ emoluments attachment orders and the Marikana strike cannot be sustained.

See e.g. Polity.org.za (author: Manie van Schalkwyk) ‘SA: Statement by Manie van Schalkwyk, Credit Ombud, on task team established to investigate garnishee orders in credit industry’ 27 February 2013

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investigations and/or industry actions were undertaken in the August to August 2012 – 2013 period: The major retail banks, Banking Association of South Africa, National Treasury, South African Reserve Bank and Financial Services Board met in August and October 2012. Ultimately, the Banking Association and Minister of Finance released a joint statement in November 2012 in which a commitment to combat over-indebtedness was expressed as well as an undertaking not to utilize garnishee orders as a method of debt collection. 51 Treasury announced its intention to abolish garnishee orders. 52 A NISC Task Team (National Industry Steering Committee) with Credit Ombud Manie van Schalkwyk as Chair was created in order to draft Codes of Conduct for roleplayers in the emoluments attachment order sphere. 53 The Banking Industry (through the medium of BASA) is in the process of finalizing a framework to inter alia provide for emoluments attachment orders to be the last available option to collect delinquent debts. 54 Other investigations by the National Credit Regulator, Department of Justice and Constitutional Development, attorney's firm ENS and other stakeholders have been undertaken. 55

available at http://www.polity.org.za/article/sa-statement-by-manie-van-schalkwyk-credit-ombud-ontask-team-established-to-investigate-garnishee-orders-in-credit-industry-27022013-2013-02-27, site accessed on 22 July 2013. 51

http://www.treasury.gov.za/comm_media/press/2012/2012110101.pdf, site accessed 27 October 2013; Moneyweb (author: Pravin Gordhan and BASA) ‘Joint statement by the Minister of Finance and the chairperson of the Banking Association of South Africa’ 1 November 2012, available at http://www.money web.co.za/money web-financial/joint-statement-by-the-minister-of-finance-and-the, site accessed 27 October 2013; Moneyweb 3 April 2013. However, also see Mail & Guardian (author: Chantelle Benjamin) ‘Debt control: A political hot potato’ 16 August 2013 http://mg.co.za/article/2013-08-16-00-debt-controla-political-hot-potato, site accessed 27 October 2013, reporting that ‘[t]he statement was later retracted by Basa’.

Polity.org.za 27 February 2013.

Polity.org.za 27 February 2013; Moneyweb 3 April 2013; Mail & Guardian 16 August 2013.

BD Live (author: Gillian Jones) ‘Abuse of garnishees to be reined in’ 26 August 2013 http://www.bdlive.co .za/business/financial/2013/08/26/abuse-of-garnishee-orders-to-be-reined-in, site accessed 27 October 2013.

Finweek ‘Garnishee orders: continued abuse and exploitation’ 31 October 2012 http://finweek.com/2012/ 10/31/garnishee-orders-continued-abuse-and-exploitation/, site accessed 27 October 2013; Financial Mail (author: Stafford Jones) ‘Garnishee orders set to hit debt-strapped consumers’ 31 January 2013 http:// www.financialmail.co.za/economy/local/2013/01/31/garnishee-orders-set-to-hit-debt-strapped-consu

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However, although there have been extensive media coverage relating to emoluments attachment orders, the reports have been restricted to statements relating to uncovered irregularities, the number of garnishees and the estimated number of illegal/ irregular emoluments attachment orders and the intended actions to be taken. Up to now, apart from publishing the intended amendments to the Magistrates' Courts Act, no concrete solutions or logical conclusion of the attempts of all the abovementioned parties have been released into the public domain for commentary. Although it has been shown through various research reports that abuses are rife, the statistical evidence upon which the allegations of the number of irregularities, illegal emolument attachment orders and abuse is based, has not been released into the public domain. 56 On a higher level, government policy makers are consistently concerned with the indebtedness and social welfare of the inhabitants of this country. 57 In a similar fashion, the right and ability to recover responsible credit debts has been recognized in legislation that has consumer protection as one of its core objectives. The draft policy framework for consumer credit published in May 2013, 58 reiterates that “as a policy of the NCA was always to balance the respective rights and obligations of consumers and credit providers, this approach has encouraged the consideration of the economic interests of all stakeholders in a responsible manner. So, for example, while a consumer may apply through the process of debt review for re-scheduling of debts, the rights of credit providers to ensure ultimate settlement of the consumer’s obligations have remained”.

mers, site accessed 27 October 2013; Moneyweb (author: Ryk van Niekerk, Malcolm Reese) ‘State concerned over garnishee abuse’ 27 February 2013 http://www.moneyweb.co.za/ moneyweb-2013-bud get/state-aware-of-garnishee-abuse-and-reckless-lendin, site accessed 27 October 2013. 56

The allegations of irregular garnishees have ranged from statements noting that 'garnishees ‘exploit all South Africans’ – Webber Wentzel' (Moneyweb 15 August 2013) to percentages ranging from 95% (Debtfree DIGI ‘SA’s New Apartheid – Debt Slavery for 50% of SA Workers’ 26 August 2013 available at http://debtfreedigi.co.za.sas-new-apartheid-debt-slavery-for-50-of-za-workers/, site accessed 28 August 2013) to 10-15% (Polity.org.za 27 February 2013). See also Business Report (author: Ann Crotty) ‘Garnishee orders escalate woes for cash-strapped consumers’ 26 August 2013 http://www.iol.co.za/ business/news/garnishee-orders-escalate-woes-for-debt-stressed-consumers-1.1567846#.Um02b9VAHIU, site accessed 27 October 2013, reporting 3 million garnishees of which 85% are estimated to be illegal.

See e.g. the policy documents in respect of the National Credit Act – prior to the implementation fo the NCA (Making Credit Markets Work, 2004) and prior to the proposed amendments to the NCA (Draft National Credit Act Policy Review Framework, 2013).

GG 36504 of 29 May 2013, GN 559 Draft National Credit Act Policy Review Framework, 2013 par 1.8.4.

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1.3

Legal position

Debt collection is a collective term which can be interpreted to include every step, whether directly related to legal proceedings or not, used to collect a debt due to a creditor. 59 It can, in a broad sense, refer to both lawful and unlawful proceedings ranging from administrative tasks to physical intimidation and illegal repossessions of assets. 60 This wide term will include the participation of both legal professionals, the judiciary, other court officials as well as registered debt collectors, ‘in-house’ collectors for creditors or lay persons with informal training. 61 However, where debt collection is regarded in a manner restricted to judicial processes, this relates to mechanisms founded in procedural laws, 62 although it may not necessarily be reserved for the services of qualified legal practitioners. The legal framework for debt collection is set out in the South African common law and various statutes. The constitutional dispensation has resulted in many traditional principles and mechanisms conforming to a changed regime based on an open and democratic society. 63 In a similar fashion, consumer protection legislation have codified and reinforced principles relating to fairness and reasonableness in usable formats. The section hereafter is concerned with the current legal framework for debt collection in South Africa and is intended to provide a broad overview of the available mechanisms for orientation purposes. However, the basic principles underlying the regime need to be discussed in order to provide a foundation for the discussion that follows.

Du Plessis & Goodey Practical Guide to Debt Collection 2003 1.

Du Plessis & Goodey 2003 1.

Preamble, Constitution. See also Campbell “The in duplum Rule: Relief for consumers of excessively priced small credit legitimised by the National Credit Act” South African Mercantile Law Journal 2010 (22) 1: “Contract provisions that are contrary to public policy, as fortified by constitutional values, may be declared unenforceable”.

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2 Debt Collection Profile: Recovery Procedures in South Africa 2.1

Introduction

A principle-based approach was followed when evaluating and reporting the findings of the research. The principles were identified through desk and field research and divided into two categories. The first related to the principles of civil procedure and the second to the substantive nature of debt collection. The negative outcomes of debt collection mechanisms, as identified through the course of the research, will be listed at a later stage and categorised under legislative failure, interpretative difficulties and irregular implementation.

2.2

Principles

Principles relating to the constitutional dispensation and common law heritage of South Africa Basic principles underlie the South African civil procedural law. 64 The principles are both constitutionally entrenched or gained from the common law heritage. 65 The Constitution introduced certain procedural guarantees such as access to courts and due process (fair trial), albeit for either civil or criminal litigation. 66 It also introduced basic human rights which is applicable to societal interaction and, in relation to contracts for purposes of this discussion, to pacta sunt servanda and public policy. Ngcobo J in the Constitutional Case of Barkhuizen v Napier 67 set out the following guidelines: “[29] What public policy is and whether a term in a contract is contrary to public policy must now be determined by reference to the values that underlie our constitutional democracy as given expression by the provisions of the Bill of Rights. Thus a term in a contract that is inimical to the values enshrined in our Constitution is contrary to public policy and is, therefore, unenforceable.

Theophilopoulos et al Fundamental Principles of Civil Procedure 2012 2-3.

Theophilopoulos et al 2012 2-3.

Theophilopoulos et al 2012 2-3; De Vos “The impact of the new constitution upon civil procedural law” Stellenbosch Law Review 1995 (1) 34; De Vos “Civil procedural law and the constitution of 1996: an appraisal of procedural guarantees in civil proceedings” Journal for South African Law 1997 (3) 444.

2007 (5) SA 323 (CC) paras 29 & 30, available at http://www.saflii.org/cgi-bin/disp.pl?file=za/cases/ZA CC/2007/5.html&query=barkhuizen%20v%20napier, site accessed on 27 October 2013. In footnote 12, the court refers to section 1 of the Constitution: “The Republic of South Africa is one, sovereign, democratic state founded on the following values: (a) Human dignity, the achievement of equality and the advancement of human rights and freedoms.”

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[30] In my view, the proper approach to the constitutional challenges to contractual terms is to determine whether the term challenged is contrary to public policy as evidenced by the constitutional values, in particular, those found in the Bill of Rights. This approach leaves space for the doctrine of pacta sunt servanda to operate, but at the same time allows courts to decline to enforce contractual terms that are in conflict with the constitutional values even though the parties may have consented to them.â&#x20AC;?

Two notably entrenched principles of civil procedure deserve mention. The first is the principle of audi et alteram partem which embodies the principle to inform and to be informed of the case upon which the litigant has to answer. 68 In civil procedure, the rules of court pertaining to clarity in drafting and remedies available such as exceptions, 69 etc. serves as examples. However, various recent policy developments relating to consumer protection begs the consideration (ranging from legality to morality) of the degree of protection of the opposing party: To which extent, apart from considerations of fairness and due process, do the parties need to protect the affairs of the opposing party? 70 The second principle relates to the access to impartial judicial/ tribunal oversight over a matter which incorporates a value judgment (in respect of reasonableness) when considering duration and costs of litigation. 71 Principles relating to the substantive nature of debt collection Debtor to honour contractual repayment of debt 72 The basic principle that underlies debt collection is that the debtor should repay the debt and that mechanisms should exist to incentivise repayment. This basic principle further underlies various practices such as contractual agreement of payment by the debtor of any and all costs, fees and charges incurred by the creditor in the course of collecting the debt. The rationale is that the non-adherence by the debtor to the contract should not adversely impact the creditor financially when recovering the debt. 73 However, in the 68

Theophilopoulos et al 2012 3.

In terms of the rules of court, a party must make out a proper cause of action in its pleadings in such a comprehensive manner that the opposing party knows what the case against it is and upon which it has to answer. If this is not clear, the opposing party may raise an exception (e.g. where no cause of action is made or the pleading is vague and embarassing/ bad in law) which may lead to the pleading's amendment or even the failure of the party's case in court.

See e.g. Business Report 26 August 2013.

Theophilopoulos et al 2012 3.

Submissions received 19 September 2013.

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context of pacta sunt servanda recent developments in consumer protection relating to consumer contracts are of importance and considerations of fairness in contracts under the Consumer Protection Act need to be considered. In respect of substantive fairness in contracts, this form of fairness can either be ascertained objectively (‘generalised’) or with reference to the debtor’s individual circumstances (‘individualised’). 74 An argument can be made out that the debtor should be treated reasonably when considering the debt, interest accrued and costs incurred and that incidences where the debtor repays the capital multiple times over, is unreasonable and unfair. Notice and opportunities to repay In general, the phases of debt collection including collection of unsecured or short term debts as implemented by creditors and collectors, often allow for engagement with the debtor

and

multiple

opportunities

effect

payment. 75

Judicial

debt

recovery

mechanisms are, under these circumstances, methods of last resort. The creditor implements an in-house debt recovery process, whereafter outsourcing of recovery services, including tracing services, to debt collectors takes place. If the informal negotiations with the debtor fail, the matter is referred for judicial collection, either via the debt collector or from the creditor to the attorney. The necessary documentation e.g. section 57/ 58 and consents to emoluments attachment orders are drafted and obtained by the debt collectors, which may in a similar fashion as attorneys and after amendments to the Debt Collectors Act, recover fees for this service. Processing of these documents to obtain judgment and issue the emoluments attachment order is, however, restricted to the services of attorneys. Recorded incidences have been noted where the

Various interviews. See also Intercontinental Exports (Pty) Ltd v Fowles 1999 (2) SA 1045 (SCA), available at http://www.saflii.org/cgi-bin/disp.pl?file=za/cases/ZASCA/1999/15.html&query=intercontinental%20 exports%20%28pty%29%20ltd%20v%20fowles. At par 27, the court notes the following with respect to costs: “By stipulating for attorney and client costs a party seeks even greater indemnity for costs incurred through having to pursue a claim in court.” See also the reference to Sapirstein and Others v Anglo African Shipping Co (SA) Ltd 1978 (4) SA (A) 14: “The purpose of an award of costs is to indemnify a party ‘for the expense to which he has been put through having been unjustly compelled either to institute or defend litigation, as the case may be’ ...and, if a contracting party wants to ensure that he is fully indemnified against such expenses, there is in my view no reason why he should not be entitled to stipulate that such costs be, if incurred, should be paid on the attorney and client scale”.

Stoop “The concept ‘fairness’ in the regulation of contracts under the Consumer Protection Act 68 of 2008” June 2012 212-213, available at www.academia.edu/2444498/The_concept_fairness_ in_ the_ regulation _of_contracts _under_the_Consumer_Protection_Act_68_of_2008, site last accessed 7 September 2013.

It seems as if creditors where a depreciating asset is involved as a form of security, is more inclined to proceed to judicial enforcement through summons, judgment and execution after preliminary -discussions with the debtor failed. Interviews 12 June, 8 August & 19 September 2013.

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duration of process to interaction with the debtor, from initial default to ultimate judgment, has exceeded half a decade. 76 The debtor further has to receive statutory notices of default, informing him or her of default, the extent of the default, the rights of the debtor and the intention to proceed with further legal steps. 77 The rules of the court prescribe that certain information has to be on the court documents informing the debtor of the nature of the matter and the steps that he or she subsequently has to take. 78 The sheriff is further tasked by legislation to explain any documentation served on the debtor to the latter. 79 In this regard, the option of using sections 57 and 58 consents to judgment through personal interaction with the debtor versus directly issuing summons and taking default judgment needs to be considered. On a basic tariff (party- and- party) basis for a debt less than R12 000, the costs will, conservatively calculated on necessary documentation to obtain judgment, compare as follows: 80

Section 57/58

Summons (undefended action resulting in default judgment)

Taking of Instructions

R98.00

Taking of Instructions

R98.00

Section 57(1)/ (3) or Section 58(2) letter

R30.00

Section 56 letter of demand

R29.00

Admission of liability in terms of section 57 or Consent to judgment in terms of section 58

R79.00

Summons

R98.00

Notice in terms of rule 12(2)

R47.00

Judgment

R98.00

Total

R272.00

Total

R109.00

Investigation by University of Pretoria Law Clinic, reference to report used with permission but subject to request from copyrightholder to remain anonymous. Hereinafter referred to as ‘UPLC Investigation’.

See e.g. rule 4 of the Magistrates’ Courts Rules, section 56 of the Magistrates’ Courts Act and section 129 of the National Credit Act.

See e.g. sections 5 – 6 of the Magistrates’ Courts Rules as well as the pro forma notices in Annexure 1 to the MCR.

See also the informative explanation on the duties of the sheriff drafted and obtained by the Sheriff for Kempton Park North, Tembisa and Midrand included below.

The costs of the sheriff and ancillary costs to serve/ send the relevant documentation to the debtordefendent is ommitted from this calculation. As will also be noted below, it was noted the it seems as if costs are primarily incurred up to the point of obtaining an emoluments attachment order, whereafter it would be reasonable to incur only collection commission in the absence of further default on the side of the garnishee or debtor.

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However, in practical terms, the debt collection process necessitates that many more steps be taken as this process is initiated where the debtor has indicated an intention not to repay the debt. In this instance, the above documents are not sufficient to incentivise payment without multiple communications to the debtor to encourage repayment. 81 Fairness in dealing between parties 82 This aspect has two core issues for purposes of this discussion. The first is a legal perspective and relates to procedural and substantive fairness in contracts. 83 This is discussed in more detail under the part dealing with the contractual relationship between the parties. In short, procedural fairness relates to the establishment of the contract and has bearing on aspects such as informed consent and disclosure in respect of the contents of the contract. 84 The use of plain and understandable language when dealing with a debtor is core to consumer protection. The following ‘promise to pay’ serves as an example: 85

During the interview of 8 August 2013, the interviewees discussed the behaviour of defaulting debtors and mechanisms that work to incentivise payment. The first aspect that was highlighted for the specific firm was that the debtor is kept informed of all steps in the process. When the company receives the instruction to collect the debt, the debtor is informed of same via sms and invited to contact the company to make repayment arrangements. However, it was consistently noted that very view debtors do so. Those that contact the company usually dispute the debt and the personnel then assist the debtors to deal with the dispute with the creditor. The debtor is then telephonically contacted and a personal meeting scheduled. The company has found that debtors keep to payment arrangements where these arrangements were made face-to-face at a place and time of the debtor’s choosing when compared to telephonic arrangements (call centres). The company further employs personnel of different ages, race, culture and language to assist with dealing with diverse debtors.

This has manifested in various forms. See e.g. Draft National Credit Act Policy Review Framework, 2013 par 1.2.2: “The NCA has made progress in promoting its key policy aims: ‘A fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market and industry’”; Draft National Credit Act Policy Review Framework, 2013 par 12.3.1.1: The “overlaying policy recommendation” is to “[e]ncourage fair and responsible lending and borrowing”; Stoop 2012 211: “Legislative control in the form of fairness legislation was accordingly the only option. This lead to the enactment of the Consumer Protection Act, that regulates fairness in consumer contracts, under the right to fair, just and reasonable terms and conditions”.

Stoop 2012 212-213.

Stoop 2012 213 re ‘transparency’.

Interview 8 August 2013.

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The second relates to the evaluation and analysis of challenges in the debt collection sphere and the influence of the evaluation and analysis on the recommendation of solutions to address the root causes of the challenges. Some examples would suffice to illustrate the point: A consumer that applies for credit whilst being over-indebted and knowingly misleads the credit provider in this regard, is the cause of his or her own financial situation. As such, the consumer should still not be taken advantage of or subjected to abuses or irregularities such as overcharging or overreaching. 86 Case studies 87 have shown that legal practitioners and debt collectors have in certain instances overcharged consumers. Legal assistance or intervention is also expensive and, depending on the agreement with the consumer and the cost-level such as attorney and client costs, can have a detrimental effect on the financial position of the consumer. As such, this does not allow for an argument rebuffing the value of some procedures and the remuneration due to experts for services rendered. 88

Group discussion 3 September 2013.

See GIZ 2013.

Kotzé “Debt collection – repealing ss 57 and 58 of Magistrates’ Courts Act will be short sighted” De Rebus September 2013.

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From the institutional point of view, while South Africa benefits from a very professional and qualified judicial system at the level of the High Court, some concerns have been noted with respect to the operation of the judicial system in enforcement cases, especially where regarding the Magistrates’ Court and the auxiliary staff working for the courts. The performance of courts varies, but it is important to develop de facto specialized courts in commercial law. The courts need more resources, especially at the level of the Magistrates’ Courts and in the auxiliary staff, and judges would benefit from more training opportunities ~ World Bank 2012

It must also be taken into account that consumer’s/ debtor’s circumstances are unique to the individual. In this regard, a one-size fits all approach may prejudice consumers that

fall

outside

the

broad

blue-print

the

defaulting

consumer.

Whilst

‘reasonableness’ may be a consideration when dealing with struggling consumers, the following aspects need to be considered: 89 A consumer that borrowed money in a responsible lawful manner, i.e. compliant with the provisions of the National Credit Act and other relevant legal principles, should endeavour to pay back the loan and the creditor should not be prejudiced in having to take steps to recover the loan; The total amount repayable, inclusive of interest, costs, fees and charges should be proportionate to the amount owed and should be structured in a manner that ensures the financial sustainability of the consumer. This approach considers two scenarios: A consumer who borrows R1 000 should not repay R15 000 and a consumer with a certain monthly income should not be requested to pay an instalment that leaves him or her without sufficient funds to meet basic living expenses. 90 Furthermore, a considered approach takes notice of a propensity to default on an unaffordable instalment as well as the protective measures of legislation such as the NCA and common law rules such as in duplum. In the premises, affordability guidelines should be guidelines in order to allow for adjustment in the case of a deserving consumer. Judicial oversight 91 Judicial supervision has become a core issue where the protection of constitutional rights is at stake during the debt collection process. 92 Some of the first challenges that resulted in amendments to the Magistrates’ Courts Act were Coetzee v Government of RSA and 89

See Part 3 ‘Interest, Costs, Fees & Charges’ below.

Interview 15 July 2013: The interviewees summarised the position well – the consumer should repay that which he or she owes and still be able to live with dignity. It is obvious that this approach necessitates that the unique position of each consumer be taken into account.

Submissions received 19 September 2013.

Theophilopoulos et al 2012 364 et seq.

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Jaftha v Schoeman and Others. Whilst the first related to the imprisonment of debtors for civil debts, the second decision found that the process in terms of which the clerk of the court could authorise the execution of immovable property without a magistrate investigating whether same would infringe on the debtor’s right to adequate housing (section 26 of the Constitution) was unconstitutional. The purpose of the oversight is to ensure that the ‘execution will be reasonable and justifiable in the circumstances’. 93 From a purely legal perspective, a similar consideration may be applied under section 25 of the Constitution, which is the right not to be arbitrarily deprived of property. 94 However, although this consideration regarding ‘property’ applies to the consumer and credit provider, a discussion of same is beyond the scope of the mandate. 95 A further aspect that should be kept in mind is that effective access to the judiciary necessitates funds and for many consumers it is not a feasible (or viable) option to defend especially with regard to the legal costs associated therewith. An inquisitorial approach, whereby the court can assist a debtor with accessing the system (e.g. completion of documents and in questioning all parties in order to ascertain true facts 96), may be necessary in order to provide for effective judicial oversight within the context of debt collection and without adding further to the burden of the indebted consumer. However, the capacity and independency of the courts need to be constantly kept in mind. As will be noted below, some courts that follow the approach of Minter N.O. v Baker 97 are de facto only allowing for emoluments attachment orders to be granted after a financial enquiry has been held and where no consent was given by the debtor in respect of an emoluments attachment order. This is under circumstances where the court would be involved in the process, whether by way of enquiry or trial, prior to issuing an 93

Theophilopoulos et al 2012 365.

An in-depth discussion of arbitrary deprivation of property will not be undertaken – authors such as Prof André van der Walt, Prof Lienne Steyn and Dr Reghard Brits have written extensively on this topic.

Within the context of this report, the applicability of this topic to the consumer and credit provider was duly noted by Prof van Heerden.

This approach was suggested by an interviewee (17 October 2013) in respect of rescissions/ amendments of emoluments attachment orders – a similar approach to maintenance/ domestic violence cases where the clerk of the court assists the claimant and the court follows an approach similar to section 65A financial enquiries.

Minter N.O. v Baker and Another 2001 (3) SA 132 (WLD) (see also University of Natal, Pietermaritzburg v Ziqubu 1999 (2) SA 128 (N)). The court in Minter was concerned with the information available in respect of the affordability of the instalments in the absence of participation by the debtor – see p 184: “Counsel referred us to the case of University of Natal, Pietermaritzburg v Ziqubu 1999 (2) SA 128 (NPD). Ziqubu’s case is distinguishable from the instant case in that the judgment debtor had agreed that she was in a position to liquidate the judgment debt in certain monthly instalments. This, the court found, amounted to a consent to an order. We have stressed that the instant case is not one where the judgment debtor has himself assessed his financial position and has submitted an offer which he considers he can afford".

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emoluments attachment order. The court therefor indicated that the only manner in which an emoluments attachment order could be correctly issued in the absence of consent to the issuing of an emoluments attachment order is where the court becomes involved e.g. a financial enquiry. 98 The main criticism against legislative regulation of court oversight remains the capacity of the courts to deal with these matters in a timely and competent manner. Integration with other sections of the legislation such as the jurisdictional provisions that the order should be issued in the court of the employer (with a concomitant interpretation that this is where the main place of business/ payroll office of the employer is situated) must also then be taken into account as a scenario may easily present itself where the employee is resident and employed at a branch office such as Bloemfontein and the payroll office in Cape Town. The result would be that the employee is tasked to travel to Cape Town in order to present him- or herself to court. Re-imbursement for work done and disbursements 99 In this regard, it will be sensible to take note of the vested interests of the various stakeholders and role-players in this industry. If due notice is not taken of role-players’ potential bias in properly considering the successes and failures of a process, the agendas of stakeholders may intentionally or unintentionally influence the identification of root causes. Financial motives are of primary importance. It may be assumed that stakeholders would argue that a process in which they have a business and financial interest is successful without considering whether it is actually a reality. Remuneration for services rendered is core to any business economy. In the context of legal work undertaken to collect debt, especially within the legal framework where set procedural steps are required along with formal documentation to assist the court to

Minter N.O. v Baker and Another p 178: “From the papers before us, it seems that appellant, in seeking to recover the judgment debt, decided to proceed directly under the provisions of section 65J without recourse to any enquiry into the first respondent’s financial position under section 65A and without any prior offer having been submitted by the judgment debtor. Whether this procedure, in the circumstances of this case, is competent remains to be seen. The appellant does not rely on any written offer to pay the judgment debt in specified instalments and a consequent order by the clerk of the court to pay the debt in specified instalments or otherwise as contemplated by section 65 of the Act. The circumstances under which the amount of R351,76 was paid are not stated. Furthermore, as there has been no enquiry into the first respondent’s financial affairs there is no court order under section 65A(1) requiring the first respondent to make payment in instalments or otherwise.”

LSSA “Comments by the Law Society of South Africa (LSSA) on the working document: Magistrates’ Courts Amendment Bill relating to amendments to sections 36, 57, 58, 65, 65J and 86” 2013 par 1.7; Interview 12 June 2013.

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consider the request for judgment or emoluments attachment order, it is trite that the amount to be collected does not impact on the work that has to be done. 100 In this regard, a three-way balancing act is necessary when considering the policies underlying debt collection in respect of remuneration. Firstly, there is a need for certain steps to be taken that ensure procedural and substantive fairness towards parties involved in legal proceedings. Secondly, the intricacies involved necessitate the involvement of third-party specialists such as attorneys. Thirdly, the debtor should be treated reasonably and fairly with regard to the repayment amount, which necessitates a further consideration of the amount owed, amount collected for the benefit of the creditor and the costs, fees and charges incurred to collect the debt. The fees allowed in terms of legislation have been reduced. The activation of the regional court’s civil jurisdiction has opened the door for institution of legal proceedings in a cheaper forum as the monetary jurisdiction of this court is R300 000. 101 Furthermore, the threshold for use of the lowest magistrate’s court scale tariff (A) has been increased to R12 000. The Debt Collectors Act now also allows debt collectors who are not admitted attorneys to undertake work previously reserved for attorneys and allowing the collectors to charge for these services at tariffs according to the magistrates’ court tariff. This has increased the competition between these two occupations. Whilst attorneys have been trained and are required to have a degree qualification, no statutory educational requirements pertain to debt collectors although these collectors need to be registered with the Debt Collectors Council. The regulation of both debt collectors and

100

See Part 3 below for four examples of bills of costs.

101

Jurisdiction of Regional Courts Amendment Act 31 of 2008. Kotzé 2013: “[T]he new magistrates’ courts rules, the introduction of the regional court and changes to the scales in the fee structures have seriously affected attorneys. Not only have claims from R 100 001 to R 300 000 now been included in the regional courts’ jurisdiction, resulting in much lower fees for attorneys handling these claims on a party-and-party basis, but, due to the fact that the fee scales have changed, most debt collectors and attorneys dealing with claims for amounts that used to fall under scale B or C now have to do the same work on scale A tariff, resulting in huge losses for the firms”. Kotzé continues to illustrate that the argument offered to counter these losses has been that the difference should be collected from the creditors, but unfortunately their positions have also been overlooked in making this proposal. This was also reiterated during the interview of 8 August 2013. Many creditors are small businesses or professional sole practitioners, for example, medical practitioners. Considering that a medical practitioner has a small claim of less than R 1 000, it does not seem like much but, if he or she has 50 or a 100 debtors owing R 1 000 each it is quite a considerable amount. These professionals look for attorneys or debt collectors who are willing to collect these debts on the basis that all the legal fees should be collected from the debtor, which – in all fairness – is understandable.

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As I have already indicated, most creditors are not geared towards debt collecting as they actually expect their debtors to pay their debts on the agreed dates. However, experience has shown that debtors do not pay on time or out of their own free will. They have to be reminded and coaxed into paying their debts. This is a very time consuming, and strangely enough, psychological activity. The type of administrative process does not fall within the scope of the ordinary day-to-day dealings of most creditors in the commercial world. It may also become very expensive if creditors were to employ the services of attorneys to perform this task. Although claim enforcement is a very specialised operation, it is not of such a difficult or legal nature that it requires the services of highly trained specialists, such as qualified lawyers ~ Scott 2002

attorneys, especially with regard to fees and conduct, has been attended to over the past fifteen years. 102 The success of effective debt collection from a business perspective has as its basic principle the following: “Collections is measured by clients in terms of money collected v money spent on attorneys”. 103 In order to reduce business costs and increase business profitability, the effectiveness of “[a]utomation and management of workflow” 104 is of cardinal importance. Therefore, it needs to be taken into account that at present most collection costs, including the 5% commission referred to in section 65J(10), are recovered from the debtor and that amendments to these will impact the creditor. Furthermore, automation and reliance on systems in order to improve work-flow has its own unique challenges such as system-errors. Procedural Economy 105 The process of debt collection should be expeditious, inexpensive and uncomplicated. 106 In this regard, standardisation and certainty as to the process and its requirements are important. 107 The expectation of unproblematic debt collection relies on the assumption that citizens will abide 108 by the legislative provisions and judicial intervention i.e. that

102

Scott “Claim enforcement (debt collection)” South African Mercantile Law Journal 2002 (14) 491 494. Contra to the statement quoted in the textbox, Du Plessis & Goodey 2003 1 noted that “[d]ebt collection in the narrow sense of the word means the legal proceedings against a debtor by a creditor or the collection of the debt due to the creditor. While such legal proceedings may, in theory, be taken by anyone, including the creditor himself, the proceedings prescribed in the Magistrates’ Courts Act, 32 of 1944 and its rules are difficult for a layman to apply for reasons which will appear later”. See the related discussion in respect of rescissions and amendments to emolument attachment orders in Part 3 below.

103

Bentley Seminar: Debt Collection Bloemfontein 2013.

104

Bentley 2013.

105

Submissions received 19 September 2013.

106

Interview 12 June 2013.

107

Interview 12 June 2013.

108

Yssel “Alice in the debtor’s court” De Rebus February 1999.

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the rule of law will not be undermined. It is further assumed that transgressions would and should be suitably punished. 109 An effective debtor-creditor regime is dependent on an efficient enforcement system. 110 In order to incentivise the promotion of access to credit for deserving candidates, credit providers need to be adequately ensured that a workable remedy is at hand to deal with the delinquent debtor. 111 Although not all debtors are mala fide, effective enforcement mechanisms can benefit both the defaulting consumer and the credit provider, especially where the proper mechanisms are in place to protect the rights and interests of both parties in a timely manner. 112 A debtor can also be adversely affected, economically, socially and psychologically 113 by a slow-paced process. From a pecuniary point of view, lengthy pre-legal procedures which delay matters whilst interest, costs and fees run, especially where the credit provider exhausts internal measures to the extent that it may take years for a matter to land before an attorney for final enforcement is not conducive to proper debt collection. A slow-paced process also affects the financial state of a creditor. 114 The costs of expensive debt collection procedures for small debts is not objectively worth it for creditors although this may have a big impact on their financial positions e.g. a medical practitioner with 100 outstanding debts of R350 each. These would equal R35 000 but, if the costs are properly taxed, the creditor will be held responsible for the practitioner’s full bill of costs as drawn for each agreement. However, to avoid a culture of non-payment, many creditors would still proceed with the debt collection process.

109

Yssel 1999.

110

The law should provide a proper ‘reliable’ framework for same – see World Bank Report of the observance of standards and codes – Insolvency and creditor rights South Africa June 2012.

111

It was noted during interviews that the lack of proper debt enforcement mechanisms may result in increased restrictive access to credit as credit providers will only extend credit to ‘safe’ consumers in order to minimise the risk of non-payment. Others indicated that the cost of credit may increase as consumers who are ‘higher risk’ consumers will only be able to access credit at high interest rates in order to balance the risk that they pose for the credit provider.

112

Interview 12 June 2013: During this interview, the attorney indicated that there is often a delay, a lengthy period of time, between the default of the debtor and the final enforcement steps taken by the attorney – this can be up to a couple of years. During this time, the credit provider would exhaust internal mechanisms, trace the debtor and obtain signed section 56 and 129 letters, section 57 and 58 documents, acknowledgements of debt and confirmation of details of the debtor. The credit provider may often even receive sporadic payment and ultimately refer the matter to the attorney.

113

Scott 2002.

114

Comment: Van Heerden 2013.

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Legality Many of the recent reports on abuses and irregularities seemingly pertain to unlawful or unethical market conduct. However, whilst the uncovered abuses have been widely reported and discussed, similar reports have not been released on any remedial actions undertaken or results of actions that were purportedly undertaken. 115 The following abuses/ irregularities, founded in non-compliance with legislative provisions or legal principles, have been reported. In particular, the follow-up report on irregularities pertaining to emoluments attachment orders identified in 2013 (for GIZ), identified the following issues, repeated verbatim hereafter: 116 Uncertainty regarding the interpretation of jurisdiction and the in duplum rule and/or Section 103(5) of the National Credit Act; Lack of uniformity in the court processes followed by different Magistratesâ&#x20AC;&#x2122; Courts when granting orders which leads to forum shopping; Shortcomings in the statutory process with no provision for affordability tests; Service of emoluments attachments orders; 117 Irregular deductions affecting the repayment period, interest as well as costs charged; Payroll offices stopping deductions too soon or too late with costs and interest consequences; Fees being charged for statements of account whilst the Act provides for free statements of account to be delivered on reasonable request; Debtors paying instalments with no prospect of settlement resulting in debtors being caught in a debt spiral with no likelihood of rehabilitation; Lack of cap on amount that can be deducted resulting in employees being left without sufficient means for his own and his dependantâ&#x20AC;&#x2122;s maintenance; Charging of excessive fees, incorrect calculation of interest and outstanding balances and non-admissible charges being levied;

115

E.g. Law Society of the Northern Provinces, National Credit Regulator, Edward Nathan Sonnenbergs Attorneys and Summit Financial Services.

116

GIZ 2013 Executive Summary.

117

This related to service in a manner not sanctioned by the MCA and/or MCR including served effected by a person other than the messenger of the court as per section 65J(3).

ÂŠ BE at UP 2013 | www.be.up.co.za

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Granting of reckless credit and multiple deductions from employees’ salaries; 5% commission payable to employer paid by employee instead of credit provider; Lack of knowledge and fraud by clerks of court – currently court officials at two magistrates’ courts are under investigation for the issuing of fraudulent orders; Apportionments of payments not complying with Section 126 of National Credit Act. Not all the irregularities identified in the 2013 GIZ report are relevant to this report. The following aspects were sourced from various research reports, written sources and put forward during the course of this research. The issues were categorised into irregularities (this indicates wrongfulness but does not necessarily involve a form of wilfulness), abuses (which indicates unlawfulness with an element of wilfulness) and ambiguities (which indicates differing opinions as to the interpretation, meaning and/or scope of a particular aspect relating to debt collection): 118 Abuses Overcharging of legal fees: ‘Overcharging’ and ‘overreaching’ are two terms used to describe unlawful or unethical behaviour by legal professionals. Overcharging refers to the charging of professional fees for services that were not rendered or expenses not duly undertaken. This is unlawful behaviour as the client remunerates the professional for a fraudulent indebtedness whilst under the impression that there is a legal basis for the fees to be charged. Overreaching refers to the extensive costing of fees and expenses in a manner that is unfair, unreasonable and unnecessary; Non-adherence to the law: This includes unlawful behaviour such as granting of reckless credit in contravention of section 81 of the NCA, non-adherence to section 103(5)/in duplum or service of the emoluments attachment order is done by a person other than the messenger of the court; Other costs: Interest and fees are unreasonable in proportion to the debt owed and may be illegal; 118

See e.g. the approach of Marais “A commentary on section 103(5) of the National Credit Act” 2011 6-7: “[T]he interpretation of statutes is not a matter of personal preference, e.g. whether the interpreter is in favour of consumer protection or in favour of the rights of credit providers. The same principle would apply in respect of commentary on judgment of the Courts – an approach based in legal principles is called for. It has now become settled law that statutory interpretation should accord with that which promotes the general legislative purpose underlying a statutory provision. In ascertaining the purpose of the statutory provision, wider contextual considerations may be invoked, even where the language is unambiguous – the so-called ‘purposive construction’ of statutes. Applying a purposive construction to a statue does not, however, imply a neglect of the language used. The words used must be understood in their popular sense as used in ordinary parlance, yet balanced by the context in which they are used, i.e. a ‘context-based, purposive approach’.”

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Collection of the debt: Irregular/ improper deductions by creditors; Fraudulent behaviour such as fake signatures; Manipulating debtor and employers’ lack of ability to discern between or lack of ability to validate legal documents such as letters of demand and summonses. Irregularities Unnecessary costs imposed by courts that are recovered from the debtor; Even though the consumer has the right to information, same is not provided unless the consumer requests the information is given e.g. pre-agreement disclosure. The ultimate effect is that, for a consumer to exercise his or her rights, he or she must know about it before hand; Lack of appreciation of basic business principles; 119 Charges and costs for account of debtor; Irregular/ improper deductions re time & amount especially where arrear and multiple deductions are subtracted from the debtor’s emoluments at once; Incompetency of payroll officers. Ambiguities Section 45 vis-à-vis jurisdiction, otherwise known as ‘forum shopping’; The practical implementation of in duplum and section 103(5); Standardisation/ uniformity with respect to court documents and procedures; Information re details of emoluments attachment orders; Repayment by debtors even though there are no settlement prospects e.g. interest component exceeds the monthly instalment payable by the debtor; Contracting out of legislation such as agreeing that the debtor would fund the commission due to the garnishee in terms of section 65J(10); Proper consent including repercussions where lack of consent is averred. Throughout the report, the point of departure over and above the legal framework was a business approach. There is also a realisation that there are no quick fixes 120 and that 119

Datnow “Section 65: attorneys and creditors face a poor harvest” De Rebus June 1998. See also Matlala “Contract contrary to public policy: The cash loan debacle De Beer v Keyser 2002 1 SA 827 (A), 2002 1 All SA 368 (A)” Journal for South African Law 2003 (4) 797.

120

Datnow 1998.

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any solution proposed should address the root cause of the challenges instead of only dealing with the manifestation of the problem i.e. not just the ‘symptoms’ but the ‘disease’. In this regard, it is also important that consideration of the benefits of a specific procedure is not neglected due to the abuses or irregularities in the process. The following comment of Du Plessis J in African Bank Ltd v Additional Magistrate Myambo N.O. 121 serves as a case in point: “The section 58-procedure is a particularly cost-effective and speedy one. The advantages of cost effective and speedy debt collection are self evident. Provided that the provisions of section 58 and those of the NCA are applied properly and with due regard to the parties' rights, it is in the interests of credit providers, of consumers and of justice that the procedure be utilised. The purposes of the NCA are set out in section 3 thereof.”

To illustrate this, the following examples of jurisdiction, costs and interest are used: Subject

Rationale

Impact on consumer

Jurisdiction:

It is easier to obtain emoluments

The

attachment

protection of the law where there are

Forum-shopping

whether

orders

because

in the

some

courts

does

not

enjoy

the

are

irregularities in the process to obtain the

bribed, the officials are incompetent

order insofar as a proper execution of

and only stamp the documents without

duties by the court official can prevent

properly

the

request

this – this is not necessarily related to

has

limited

the forum of choice (it can be done

requirements. Alternatively the correct

deliberately) but same may be relevant

choice

and/or

considering

officials

consumer

the of

court

where the correct jurisdiction is used –

emoluments attachment order due to

forum

disallows

the court official is the root cause and

the unattainable requirements of the

not the choice of jurisdiction.

court i.e. the creditor cannot comply with requirements especially where the court requests documentation in order to ‘exercise’ its discretion and which requirements are not founded in law (e.g.

requiring

reckless

credit

assessment for a pre-2007 debt).

This

only

impacts

consumer

who

wishes to challenge the order – if the debt is owed and the order correctly obtained,

there

rationale

challenge the jurisdiction. The root cause is therefore a need for a mechanism to deal with challenges in a manner that

Main reason: The services rendered by

does not prevent the consumer from

the

challenging an order due to financial

attorney

effective

creditor gets results

and

the

constraints (which may not be the only constraint as many consumers lack the necessary financial and legal knowledge and will need assistance)

121

P 9.

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Costs: High legal fees

Services rendered come at a cost and

The consumer cannot be rehabilitated

is the income for an economically

and ‘start fresh’. This is relevant where

viable business

the mechanism of collection does not

Greed i.e. maximising profit to an extent that it becomes unreasonable when considering the principles set out above

have

the

effect

that

the

debt

eventually repaid. Where the debt is owed,

although

flows

from

the

agreement with the creditor, to the collector of the debt it has the effect of

Non-adherence

legal

shifting the indebtedness from creditor to

provisions and principles as adherence

creditor. The root cause is therefore a

(due to non-enforcement) gives an

lack

unfair advantage to competitors 122

rationalising

Over-regulation

basic

and

lack

enforcement creates an environment conducive

‘underground’

enforceable costs

economic/

business

guidelines

whilst

taking

principles

into

account.

debt

collection mechanisms in order to be profitable Interest: Wrong calculation

System errors, inability of system to

Consumer

calculate interest correctly, outdated

cause

behavioural

systems

(unwillingness

enforcement.

system

implications)

this or

has

update

over-charged. and

The

root

lack

financial

non-adherence

principles due to no monitoring of interest calculated (whether this is borne out of lack of knowledge or unmanageable work-load or lack of proper work ethics) Maximising

income/

return

for

the

creditor in a manner not supported by law

the

detriment

the

consumer Over-deducting from

No monitoring of payments or Lack of

The consumer repays more than he or

salaries

communication as to when debt is paid

she owes. The root cause is behavioural

up or payroll officer does not take note

and lack of enforcement of compliance.

of communication to stop payments Lack of efforts to stop payments when the debt is paid up Maximising

income/

return

for

the

creditor whether legally due or not

122

See e.g. Draft National Credit Act Policy Review Framework, 2013 paras 2.2.8.2.2.2. & 2.3.10.2.1 .

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Part 3 – Challenges This part will follow the issues identified in the project mandate and will be divided into subparts based on the different challenges. A comprehensive considered discussion is presented with a set conclusion on the legislative failures and interpretative difficulties. As indicated above, this report is not concerned with irregular implementation such as over-charging, etc. although this may be noted as such if it is as a result of a legislative failure or interpretative difficulty. A report on the irregularities pertaining to garnishees has already been commissioned by a different stakeholder. The chapter will compare and analyse the data obtained during interviews in order to substantiate the arguments set forth in the discussion.

1 Common questions Many of the research questions were linked by way of a common thread. In the premises, the team had to research the core issues that manifested as the terms of the research mandate. An example is the following: Section 65J(10) provides as follows: “Any garnishee may, in respect of the services rendered by him in terms of an emoluments attachment order, recover from the judgment creditor a commission of up to 5 per cent of all amounts deducted by him from the judgment debtor’s emoluments by deducting such commission from the amount payable to the judgment creditor.”

In this regard, the legislation is clear: 1. The garnishee has a right to recover a commission for the services in respect of the implementation of the emoluments attachment order; 2. This commission is recoverable from the judgment creditor; 3. The commission is capped at 5% of the instalment deducted from the debtor’s wages. However, one of the research questions pertained to the following: The position with regard to the 5% employer’s commission as provided for in section 65 including who is entitled to retain the percentage, by whom is it payable and whether parties can agree contractually to have another party pay this commission.

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The legislative provision clearly states that the garnishee (employer) is entitled to retain the percentage and that this percentage is payable by the judgment creditor. However, the legislation is silent as to whether parties can contractually agree that the percentage is payable by the judgment debtor. In this regard, the core issue is whether the legislation provides for a scenario where the parties can ‘contract out of legislation’ by causing the debtor to fund the percentage payable to the garnishee.

2 Fundamental aspects The following issues were central to the investigation:

2.1

Issue 1

The nature and effect of consents to judgment, whether in terms of sections 57 or 58, the judgment itself and the subsequent emoluments attachment order. Two alternatives presented itself: Acknowledgement of liability and consent to judgment 123 First alternative The acknowledgement of debt is seen as a credit agreement with all the rights and obligations bestowed on the parties by the National Credit Act. 124 This, if viewed as a new agreement, may novate or attempt to novate the contractual relationship between the parties. 125 123

See e.g. Louw 2013(1) par 64 et seq; Friedman & Otto ““Section 103(5) of the National Credit Act 34 of 2005 as inspired by the common-law in duplum rule (1)” 2013 (76) THRHR 132 (May).

124

See Van Heerden “The impact of the National Credit Act 34 of 2005 on standard acknowledgements of debt” Journal for Contemporary Roman-Dutch Law 2011 (74) 644 654: “Due to the elements of deferral and charging of interest, fees and other charges in a standard acknowledgement of debt and in the absence of any express or implicit indication to the contrary, it would thus seem an inescapable conclusion that standard acknowledgements of debt entered into with natural person consumers and small juristic persons who conclude small or intermediate credit agreements fall within the category of credit transactions envisaged by section 8(4)(f) of the NCA”. See also Friend v Sendal (A973/2010, 24425/2009) [2012] ZAGPPHC 162 (3 August 2012), available at http://www.saflii.org/cgi-bin/disp.pl?file =za/cases/ZAGPPHC/2012/162.html&query=friend v sandal.

125

See Van Heerden 2011 658: “One may of course wonder whether the mere fact that a further ‘credit agreement’ is extended to a consumer who is already unable to pay his debts and is clearly either overindebted or likely to become so in future would not constitute reckless credit. The answer to this predicament would most probably be that the acknowledgement of debt should be viewed in substitution of the previously unpaid debt in respect of which it is entered, with the effect that such debt cannot be added to the over-indebtedness calculation together with the amount owing in terms of the acknowledgement of debt”.

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Second alternative The acknowledgement of debt and consent to judgment is merely a procedural mechanism that entitles the creditor to obtain judgment and access procedural devices to effect execution. 126 In this regard, the original agreement is the point of departure and the rights and obligations therein as regulated by the National Credit Act, if applicable. The importance of this consideration can be summarised as follows: 127 The application of the NCA, including its substantive and procedural requirements relating to entering into and enforcing the agreement as set out in the acknowledgment of debt, on the acknowledgement of debt as well as the request for judgment; The effect of the judgment on the relationship between the parties and on postjudgment rights and obligations in respect of the rate of interest (in terms of the agreement or interest in terms of the Prescribed Rate of Interest Act 55 of 1975); the application of section 103(5) or in duplum etc. Under certain circumstances, a judgment may novate a debt. The following extract from Fedsure Participation Mortgage Bond Managers (Pty) Ltd and Another v Sandlundlu (Pty) Ltd 128 summarises the position: [26] It is common cause that Fedbond compounded interest from that day and it also varied the interest rates in accordance with the provisions of the mortgage bond. It claimed to do so by virtue of the provisions of Clause 5 of the mortgage bond. In seeking to justify this, Mr Pammenter submitted that the aforesaid judgment did not novate the mortgage bond in so far as it related to the question of interest. In support of this submission he relied on the judgment of Farlam JA in MV Tirupati; MV Ivory Tirupati and Another v Badan Urusan Logistik (aka Bulog) 2003(3) SA104 (SCA). At paragraph 28, Farlam JA held that a judgment “does not terminate the antecedent obligations or those things that were accessory to it, such as pledges, sureties and interest.” At paragraph 30 he held that: ‘Although an original cause of action may continue to exist in a reinforced and strengthened form, a judgment … may also give rise to a new and independent cause of action enforceable between the same parties in another court’. In Trust Bank of Africa Limited v Dhooma 1970(3) SA304 (N), Fannin J held, at 310 A-C: “It does seem to me to be a 126

Louw 2013 (1) par 67.

127

Sources: Van Heerden 2011 & Louw 2013 (2).

128

(AR409/12) [2013] ZAKZPHC 54 (18 October 2013) paras 26-28, available at http://www.saflii.org/cgibin/disp.pl?file= za/cases/ZAKZPHC/2013/54.html&query=attorney%20fee.

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somewhat artificial view of the position to regard a judgment as, in all circumstances, having the effect of a novation. In some cases of course, it does have precisely that effect, where, for example, a Plaintiff obtains a judgment for cancellation of a contract and for damages. Thus, in this case, had the judgment been one declaring the contract between the parties to have been at an end, with an order that the Defendant return the vehicle to the Plaintiff and pay the Defendant a sum of money, it could quite realistically be said that the judgment wholly replaced and thus novated the contractual rights and liabilities of the parties inter-se. But in a case like the present, where the only purpose of the judgment is to enable the Plaintiff to enforce certain rights, by means of execution if need be, without in any way affecting other rights arising out of the contract, it seems more realistic to regard the judgment not as novating the former, but as strengthening or reinforcing them. The right of action will have been replaced by a right to execute, but the enforceable right remains the same.’ [27] This judgment was cited with approval in Swadiff (Pty) Ltd v Dyke, NO 1978(1) SA928 (AD). At 944 F Trengrove AJA (as he then was) held: ‘I respectfully agree with the views expressed by Fannin J, in Trust Bank of Africa Limited v Dhooma … in the passage quoted above. In a case like the present, where the only purpose of taking judgment was to enable the judgment creditor to enforce his right to payment of the debt under the mortgage bond by means of execution, if need be, it seems realistic and in accordance with the views of the Roman Dutch writers to regard the judgment not as novating the obligation under the bond, but rather as strengthening or reenforcing it. The right of action, as Fannin J puts it, is replaced by the right to execute, but the enforceable right remains the same.’ [28] In both the Trust Bank and Swadiff cases, the relief sought was for specific performance of obligations in terms of a contract. Hence the exception referred to by Fannin J did not apply. It is however noted that in casu Fedbond expressly cancelled the loan agreement. This is precisely what was referred to in the Trust Bank and Swadiff cases. Accordingly the judgment of 5th August 2002 novated Fedbond’s contractual rights. As a result, Fedbond had no right to vary the rate of interest nor did it have the right to capitalize any interest in the absence of a Court order permitting same.”

2.1.1

Discussion

The process An emoluments attachment order is preceded by a court judgment, which in turn is preceded by a due debt owed by the debtor to the creditor. If the debt is founded in a credit agreement to which the NCA applies, the latter will govern the contractual relationship between the parties insofar as the contents of the contract and conduct of the parties are concerned.

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The research is primarily concerned with non-litigious matters such as section 57 and 58 consents to judgment. The debtor who defaults in terms of the credit agreement may admit liability and reach a repayment agreement with the creditor or its representative. The debtor may either consent to judgment in the event where he or she defaults on the ‘new’ agreement in terms of section 57 or consent to immediate judgment in terms of section 58 of the MCA. Both mechanisms of resolving the lis between the parties may include repayment of the debt in instalments as well as a clause inferring liability on the debtor for the collection costs of the creditor. The following is a brief comparison between the section 57 and 58 procedures: 129 Similarities Section 57 forms part of chapter viii of the

Section 58 forms part of chapter viii of the Magistrates’

Magistrates’ Court Act which deals with the

Court Act which deals with the recovery of debts.

recovery of debts. Provides for debt enforcement proceedings and

Provides

for

debt

enforcement

payment of debt in instalments.

proceedings

and

Differences In the recovery procedures for the collection of

In the

liquidated

and

liquidated debts. Consent to judgment or to judgment

and an order for payment of judgment debt in

undertaking

debts. to

Admission pay

debt

of in

liability

instalments

recovery

procedures

for

the

collection of

otherwise.

instalments.

Procedure provides for the payment of a debt in

Procedure is more streamlined. The debtor has already

instalments as the result of an offer received from

consented in writing to judgment in favour of the

a debtor in response to a letter of demand or

creditor for the amount of the debt and the costs

summons.

claimed in the letter of demand or summons.

If the debtor fails to comply with the offer,

The debtor consents to judgment as well as the

judgment can be obtained in terms of the offer.

payment of the judgment amount in instalments.

Debtor gets two chances. The first chance is to

The creditor can immediately obtain judgment and an

admit liability and pay the amount of the debt and

order that the judgment debt be paid in instalments if

the costs claimed in the letter of demand or

there are a copy of the debtor’s written consent to

summons. The second chance is when debtor

judgment and a copy of the letter of demand if no

failed to pay and is ordered by the court to pay.

summons has been issued.

First a letter of demand as a consequence of

There is an immediate consent to judgment.

which debtor may make an offer to repay the debt

129

Louw 2013 (1) paras 24-25.

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instalments

i.e.

conditional

consent

judgment Only if debtor fails to comply with the terms that

The clerk of the court enters judgment on the written

he offered to the creditor, can the creditor

request of the creditor or his attorney accompanied by

approach the court for an order in terms of the

a copy of the letter of demand, if no summons has

offer.

been issued, and the debtor’s written consent to judgment.

The first aspect that needs to be considered is whether the judgment granted by the court, which is considered in terms of both sections 57 and 58 to be ‘default judgments’ novate the debt or strengthens the contractual relationship between the parties. 130 In respect of the effect of a judgment, Louw remarks as follows: 131 “In conclusion I should say something more about my view on the nature of a judgment. As I have pointed out above, much turns on the proper classification of a judgment – does it merely confirm the underlying debt and provide procedural benefits or does it in fact novate that debt so that as between debtor and creditor and any third party the legal bond is no longer one of contract but one imposed by the judicial process? I do not think that it is an either or situation. Those who argue that a judgment debt is nothing but an enforcement of the underlying debt place much store in the fact that securities are not lost when a judgment debt is pronounced. This does not dictate the nature of the judgment but constitutes a tacit term in the relevant security agreement (be that suretyship or some other form of security). If there is, for example a suretyship then ordinarily the accessory liability of the surety would terminate once the principal obligation is terminated and if it is terminated by a judgment then the suretyship terminates.

It would be wrong to argue that

because the suretyship survives the judgment, the judgment cannot terminate the principal debt. From a dogmatic point of view the judgment can terminate the principal debt and all that then happens with the accessory agreement is that a term is read into it to the effect that it does not terminate if the principal debt terminates as a result of a judgment but that it is then accessory to the judgment debt. I think it is wrong to argue that because the suretyship agreement lives beyond a judgment therefore the principal debt must also survive the judgment. Militating against the idea that the debt created by compact survives a judgment is the very clear rule that a creditor and a debtor cannot by agreement have a judgment set aside, at will, and only because the debtor has paid the creditor. It has repeatedly been held that to do so would amount to a falsification of the past. If this is so then I fail to see how it can be denied that a court order is something vastly different in nature and effect from an agreement between parties.

130

In this regard, it must also be noted that both consents include an admission of liability (acknowledgement of debt). See Van Heerden 2011 644 et seq or a discussion of whether an acknowledgement of debt is a credit agreement for purposes of the National Credit Act.

131

Louw 2013 (2) par 95-97.

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Moreover, the court and not the parties is in overall control of the execution of the orders of the court.

It is true that a judgment creditor can waive the benefits of a judgment debt, but the

judgment stands. The NCA cannot prescribe how a judgment debt must be enforced or not enforced, what a judge or a magistrate may include or disallow in a judgement debt. The NCA, including section 103(5), does not operate post judgment.”

Naudé is of the opinion that novation is not a given result when judgment is entered as ancillary agreements such as guarantees do not cease to exist. 132 It does, however, bring about a new cause of action. 133 This is particularly relevant when considering whether reliance can be placed on contract clauses not specifically dealt with in the judgment, such as payment of the section 65J(10) commission by the debtor for and on behalf of the creditor. 134 In comparative terms, the powers and duties of the relevant court official i.e. magistrates and clerks of the courts, also need to be considered. In the matter of African Bank Ltd v Additional Magistrate Myambo N.O., the court acknowledged that the NCA impacted the manner in which courts deal with requests for judgment in terms of section 58 of the MCA. The first important aspect that the court set was that the clerk of the court, even though the latter has the power to grant an order that is deemed to be a default judgment/ order of court, is not the court. 135 In the premises, the duty of the clerk of the court when receiving a request for judgment is to ascertain whether the request is formally in order and whether there are any concerns relating to the creditor’s ‘entitlement to judgment’. Whilst the clerk of the court cannot ‘finally refuse’ an application that is apparently in order, the matter can be referred to a 132

Hutchinson (ed) 2009 377. This approach is consistent with that of Christie The Law of Contract in South Africa 5th ed 2006 454-455.

133

Hutchinson (ed) 2009 377. See also MV 'Ivory Tirupati' and Another v Badan Urusan Logistik; [2003] 1 All SA 55 (SCA) par 31, available at http://www.saflii.org/cgi-bin/disp.pl?file=za/cases/ZASCA/2002/155. html&query=mv ivory tirupati.

134

As will be discussed below, the timing of the consent becomes relevant in respect of whether a party can agree to pay a debt on behalf of another prior to the debt actually becoming due. An example is payment of section 65J(10) commission, which only becomes due once a valid emoluments attachment order is served and implemented by the garnishhee, after judgment was given by a court/ clerk of the court. Custom Credit Corporation (Pty) Ltd v Shembe [1972] 3 All SA 489 (A) 498: “Our Courts have recognized the right of a party to sue for relief on a condition to be fulfilled after issue of the Court’s order. Thus, for instance, an order for interest after date of judgment up to the time of compliance with the order is usual. SOLOMON, J.A., in Symmonds’ case, supra, recognized the right of a litigant to sue for damages not yet accrued at the date of the issue of summons. By allowing the adoption of the ‘double-barrelled’ procedure the Courts have sanctioned the institution of a claim based upon a cause of action which will only arise conditionally upon an event occurring subsequent to judgment, i.e., the defendant’s failure to comply with the Court’s first alternative order.”

135

P 24. The judgment dealt only with section 58 of the MCA and not section 57.

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magistrate for consideration, particularly as a magistrate has additional powers by virtue of the provisions of the NCA. 136 The magistrate, as a ‘court’ (section 58 requests qualify as ‘court proceedings’) may investigate in respect of the aspects noted in Myambo. These listed below may overlap with that which the clerk of the court must consider, although the clerk may not investigate those aspects referred to by the NCA and reserved for ‘court proceedings in which a credit agreement is being considered: 137 Compliance with the MCA and the NCA; o

Section 58 including use of the correct forms in terms of the MCR;

Section 129 and a true copy of the section 129(1)(a)notice;

Letter of demand or summons as referred to in section 58 in which compliance with the NCA is alleged;

Alleged compliance with section 130 of the NCA including no reaction as contemplated in section 129 on the notice so required.

The applicability of the NCA on the underlying cause of action i.e. whether the debt arises from a credit agreement to which the NCA applies; The incidence of reckless credit granting or not in respect of the underlying cause of action; o

Section 83 of the NCA

Any allegation of over-indebtedness of the defendant; 138 o

Section 85 of the NCA

Proof of compliance with the NCA where applicable and/or requested; o

The creditor is registered as a credit provider with the NCR or allegations why no registration is necessary or was necessary at the time of granting the credit;

136

P 16 et seq.

137

P 30 et seq, specifically p 40 -43. See also pp 16 – 18 (selected extracts): “In my view the use of the word "shall" in section 58 limits the clerk of the court's discretion in the sense that, if the application is formally in order, the clerk of the court has no discretion finally to refuse judgment. That does not mean, however, that the clerk of the court may not refer to the court an application that is formally in order. Put differently, the word "shall" in section 58 means that clerks of the court have the discretion to do one of three things. They can refuse judgment. They can grant judgment if the papers are formally in order. If the papers are formally in order but the clerk of the court has reason to question the plaintiff's entitlement to judgment, the clerk of the court must refer the matter to the court in terms of rule 12(7). This interpretation of section 58 ensures that the court retains a measure of oversight over a procedure whereby clerks of the court grant judgments so to speak in the court's name. … The NCA calls for the careful balancing of the rights and interests of consumers against those of credit providers. Such balancing is best performed by the courts. … If a clerk of the court has any uncertainty as to whether granting judgment against a consumer might be in conflict with the NCA, and with protective measures in particular, the clerk of the court must refer the matter to the court”.

138

This presupposes an opportunity for the defendant to alledge over-indebtedness – this would be difficult in the event of a default judgment.

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The manner in which the debt/ amount claimed is calculated and whether this is in compliance with the provisions of the NCA;

This may be done by way of affidavit.

In terms of the Myambo-judgment, a request for judgment is founded on a cause of action,139 which may be in respect of a credit agreement to which the NCA applies. 140 The effect of a successful request, i.e. granting of judgment in the terms requested and allowed in terms of the relevant legislation, is that the matter becomes res judicata. 141 In the premises and in order to provide for proper judicial oversight, it is necessary that the court be empowered to intervene in an appropriate manner where the consent/ request for judgment approach is taken. Louw argues two approaches. 142 The first argument supports the contention that the judgment eliminates the original cause of action i.e. the underlying debt alternatively facilitates the creation of a parallel obligation. The second is in respect of the reinforcement of the contract with the primary outcome of accessing procedural remedies in enforcing the debt. The first contention is supported by Swadiff (Pty) Ltd v Dyke NO 143 and the second by E A Gani (Pty) Ltd v Francis. 144 Ultimately, he comes to the following conclusion: “I do not believe that it is wise to deal with these issues in the abstract and it is imperative to analyse actual and concrete relationships between creditors and debtors in order to determine whether a judgment debt, in a concrete case, constitutes a new debt or whether it merely assists

139

The request for judgment is founded on a cause of action i.e. the credit agreement – see p 12. consent judgment has the effect of causing the cause of action to become res judicata – see p 14.

140

See e.g. p 28.

141

Pp 13-14: “Section 58(1) created a procedure whereby a plaintiff can obtain judgment. The function of the written consent is to obviate the need for the plaintiff to prove the claim based on the underlying legal relationship. Once the clerk of the court grants judgment by consent, it has the effect of a judgment by default granted by the court in respect of the cause of action set out in thesummons or the letter of demand. The consent judgment renders that cause of action res judicata.”

142

Louw 2013 (2) par 67 [“The Appellate Division gave this approach its stamp of approval in Swadiff (Pty) Ltd v Dyke NO. In Swadiff’s case it was expressly held that a judgment does not extinguish the underlying debt, but rather confirms it, quantifies it in appropriate cases and strengthens it in a number of ways, most notably with regard to prescription and a creditor’s right to levy execution in order to satisfy the debt”]; par 73 [“In E A Gani (Pty) Ltd v Francis Goldstone and Kirk-Cohen JJ referred to the Swadiff decision but nevertheless held that the judgment against the principal debtor ‘created a new kind of indebtedness against him which include(d) the amount owing under the original contract and interest as well as costs of suit …’ “]. See also the summary in Fedsure Participation Mortgage Bond Managers (Pty) Ltd and Another v Sandlundlu (Pty) Ltd referred to above.

143

1978 (1) SA 928 (A).

144

1984 1 SA 462 (T).

The

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in the execution of the underlying loan agreement. The terms of the contract between the parties may shed light on this issue and so may the steps taken by the creditor.

If the creditor, for

example, cancelled the agreement it would go without saying that the later judgment obtained by the creditor would be a new legal bond between the parties with the consequence that section 2 of the Prescribed Rate of Interest Act would apply to it without any NCA limitation. If, however, judgment is sought on the basis that the creditor merely requires the machinery of the State to collect the debt so that the judgment is obtained only to assist in debt collection, a different result may emerge namely that no novation took place, no separate legal bond was created, but that the underlying debt was merely strengthened. No mora interest would then be in issue.”

145

The relevance of the above brief discussion to emoluments attachment orders and the respective roles of the stakeholders in the process, is related to the outcomes of each stage of the debt collection process. Sections 57 and 58 are mechanisms to obtain judgment on a cause of action founded in a credit agreement. Section 65 J orders and writs of execution are concerned with executing the judgment forceably where the judgment debtor does not adhere to the court order or prefers the mechanism of enforcing the court order through an emoluments attachment order. The discussion also impacts the issue of magisterial oversight as it considers the role of the court in these two stages of debt collection, namely judgment and ordering execution of the judgment. Interviewees indicated that some courts ‘re-interrogated’ a request for an emoluments attachment order in the same lines as for a request for judgment e.g. reckless credit assessment, etc. This approach does not take into account that the court that issued the judgment must have done the same and the outcome is not of consequences as any discrepancy should have been discovered at the judgment stage. Some interviewees, where relevant to their business, consistently perceived the lack of standardisation in courts and the multiplicity of the documents requested by a particular court, as obstructive in respect of costs and time. It must also be noted that ‘consent’ to judgment does not remove the protection of the NCA in respect of both debtor and creditor. 146 The comparative process is trial where the matter is defended and in this regard, the court would properly ‘interrogate’ the claim of the creditor. In the light of the protective measures of the NCA of which the parties may not be aware of, there are no grounds to argue that the court in section 57 or 58

145

Louw 2013 (2) paras 86-88.

146

African Bank Ltd v Additional Magistrate Myambo p 18 et seq.

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proceedings should be any different. 147 Debt collection has become a specialised and regulated industry, not only in respect of the person who collects the debt (whether attorney or debt collector) but also in respect of the legislative provisions protecting debtor-consumers and balancing the interests of consumers and credit providers. In the premises, where the process requires proper administrative compliance from role – players, same cannot be disparaged under the frame of resource-efficiency pertaining to time and costs. However, where the requirements are of such a nature that it effectively bars deserving cases by delaying access to justice in terms of remedial action, intervention is needed. Many concerns noted by interviewees were also borne out of a distrust of other roleplayers in the industry whether based in doubt in terms of integrity (belief that bribes are taken), incompetency (no investigation is undertaken as the clerk of the court does not have the ability to identify the signs of reckless credit or non-adherence to section 103(5)). Credit assessments may be requested at point of request for an emoluments attachment order, in order to investigate possible reckless credit granting, where this should have been properly investigated at the stage of granting the judgment. 148 This can be seen as an unnecessary delay with time and cost implications. A request for a salary slip where there is doubt whether the judgment debtor can afford the instalment which is to be deducted, would be more appropriate to the stage of proceedings i.e. the manner of execution.

2.2

Issue 2

The ability of parties to regulate the relationship between them by way of contract and in a manner that differs from the legislative provisions – the so-called ‘contracting out of legislation’. Four indicators with examples are presented for consideration: First indicator This indicator has two sections: The legislative provision clearly states that it cannot be amended or waived by way of agreement. Section 103(5) is an example:149 “Despite any provision of the 147

African Bank Ltd v Additional Magistrate Myambo p 18 et seq.

148

Interview 12 June 2013.

149

See also Louw 2013 (1) paras 42 & 45.

210

See Louw 2013 (1) par 44.

211

See also Van Heerden 2008 Perspectives on jurisdiction in terms of the National Credit Act 34 of 2005 Absa Bank Ltd v Myburgh case no 31827/2007 (T) (unreported); Nedbank Ltd v Mateman; Nedbank Ltd v Stringer 2008 4 SA 276 (T) Journal of South African Law 840.

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90. (1) A credit agreement must not contain an unlawful provision. (2) A provision of a credit agreement is unlawful if (a) its general purpose or effect is to (i) defeat the purposes or policies of this Act; (ii) deceive the consumer; or (iii) subject the consumer to fraudulent conduct; (b) it directly or indirectly purports to (i) waive or deprive a consumer of a right set out in this Act; (ii) avoid a credit provider's obligation or duty in terms of this Act; (iii) set aside or override the effect of any provision of this Act; (iv) authorise the credit provider to (aa) do anything that is unlawful in terms of this Act; or (bb) fail to do anything that is required in terms of this Act.”

Section 90(k)(vi) of the National Credit Act disallows a contractual clause that has the following as its core outcome: “[I]t expresses, on behalf of the consumer a consent to the jurisdiction of the High Court, if the magistrates’ court has concurrent jurisdiction or any court seated outside the area of jurisdiction of a court having concurrent jurisdiction and in which the consumer resides or works or where the goods in question (if any) are ordinarily kept.”

Section 91 of the National Credit Act, headed “supplementary requirements and documents” reads as follows: “A credit provider must not directly or indirectly require or induce a consumer to enter into a supplementary agreement, or sign any document, that contains a provision that would be unlawful if it were included in a credit agreement or directly, or knowingly permit, any other person to do anything referred to in this section on behalf or for the benefit of the credit provider.”

Section 95, headed “changes, deferrals and waivers” reads as follows: “The provision of credit as a result of a change to an existing credit agreement, or a deferral or waiver of an amount under an existing credit agreement, is not to be treated as creating a new credit agreement for the purposes of this Act if the change, deferral or waiver is made in accordance with this Act or the agreement.”

An agreement is defined as follows in section 1: “‘agreement’ includes an arrangement or understanding between or among two or more parties, which purports to establish a relationship in law between those parties”.

The NCA disallows clauses pertaining to the enforcement of the agreement, such as presigned blank enforcement documents in the credit agreement. 212 However, where the factual situation arises that validates that enforcement steps be taken against the defaulting debtor, the preliminary steps such as the section 129 letter of demand and timing (section 130) of enforcement are regulated by the NCA. The procedures to collect the debt are, however, set out in the MCA. It is therefore plausible that, as consent to jurisdiction of a specific magistrate’s court can only be validly given in respect of proceedings that have been instituted or are on the verge of being instituted, the 212

See sections 90 and 91 of the NCA.

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consent in terms of section 45 is ancillary to the enforcement proceedings and not to the agreement. However, in the light of the definition of ‘agreement’ in the NCA in respect of an ‘arrangement or understanding’ ‘establish[ing] a relationship in law between those parties’, it is conceivable that consent between parties in respect of section 45 seems to be of consequence under this definition. Louw argues that section 91 is not of consequence to the section 45 argument as it is “on a completely different level and serves a completely different purpose that the original credit agreement did. It is also entered into long after the credit agreement”. 213 Unfortunately, the comment is not further developed. Van Loggerenberg, in Jones & Buckle, argues that the interaction between section 45 of the MCA and section 90 of the NCA is ambiguous as two possible interpretations exist depending on which section prevails where matters are within the factual parameters for section 45(1) i.e. the matter has been instituted or is on the verge of being instituted. 214 Dicker compares the position under the NCA with its predecessor, the Usury Act and highlights that section 90 of the NCA and section 45 of the MCA regulate the same factual scenario. 215 The impact of section 90 and 91 on section 65J proceedings (in the event that the conclusion reached above is incorrect and section 45 is hypothetically applicable to section 65J orders) will depend on whether the underlying cause of action ‘remains’ after judgment was granted or whether the regulation of the NCA ceases upon the granting of

213

Louw 2013 (1) paras 30 & 31. Dicker 2013 at paras 5.4-5.7 disagrees and is of the opinion that section 45 is disallowed by sections 90/91 within the context of section 57/58. However, both counsel agree that section 45 cannot be used within the context of section 65J. See Louw 2013 (1) par 45 and Dicker 2013 par 6.11.

214

Jones & Buckle 296-297.

215

Dicker 2013 par 4.8.5.2: “In view of the unlimited monetary jurisdiction of the magistrates’ courts with regard to credit agreements as defined in s 1 of the NCA, the consents to the monetary jurisdiction formerly found in agreements under the Credit Agreements Act are no longer necessary. And as to consent to jurisdiction over the person of a consumer, s 90 deals with much the same ground as s 45. The cardinal difference in approach, however, is that s 45 allows a consent in certain limited circumstances (found in the proviso to s 45(1)); while the intent of s 90 is to restrict credit providers to the court where the consumer resides or works or where the goods in question (if any) are ordinarily kept. Otto is of the view that this has not been achieved, because of careless drafting. Nevertheless, although various commentators have correctly pointed to inconsistencies and what may loosely be called “loopholes,” what is clear is the intent that in actions based upon credit agreements, the court where the consumer resides or works or where the goods in question (if any) are ordinarily kept is the one clothed with jurisdiction." Footnotes ommitted.

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judgment. 216 Prior to judgment being entered, it is submitted that the NCA is applicable for the reasons set out below. Firstly, the discussion in African Bank Ltd v Additional Magistrate Myambo deserves mention. The relevant parts can be summarised and interpreted as follows: 217 Section 58 of the MCA and the provisions of the NCA interact. In the case of a discrepancy, section 172(1) and schedule 1 to the NCA provide that the provisions of the NCA will prevail over section 58. The provisions of the NCA can be applicable to causes of action which underlie reliance on section 58 of the MCA. In this regard, the principles and the provisions of the NCA should be applied to both the substantive and procedural aspects of the matter before the court; Section 58, prior to granting a request for judgment, is concerned with a cause of action set out in the summons or letter of demand. The cause of action may be a credit agreement to which the provisions of the NCA applies, which will result in the provisions of the NCA becoming applicable to the section 58 proceedings prior to entering judgment. The underlying cause of action becomes res iudicata when judgment is entered; A judgment by the clerk of the court, after proper adherence to the provisions of the NCA, is deemed to be a default judgment granted by the court. The clerk of the court can ascertain whether the NCA is applicable to the request and whether certain procedural requirements set out in the NCA such as sections 129 and 130, have been complied with. Other matters requiring further investigation, such as reckless credit or adherence to section 103(5) should be referred to the court in order to interrogate the matter if needed. In terms of the judgment, compliance with sections 129 and 130 is necessary prior to approaching the court/ clerk of the court for judgment in respect of section 58. These are procedural requirements. Jurisdiction is also a procedural requirement although it can be intricately linked with substantive aspects of the matter. It is therefore probable that all the procedural prescriptions with respect to civil proceedings set by the NCA will be applicable to enforcement proceedings and not just selected parts. Choice of forum is

216

See the discussion in Part 2 in respect of the effect of a judgment.

217

These were gathered from the whole of the judgment and in this regard reference is not made to specific pages of the judgment.

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as important a preliminary consideration as completion of the cause of action from a procedural point of view. 218 It is submitted that the provisions of sections 90 and 91 pertain to clauses in respect of the credit agreement and supplementary agreements. However, in the light of the dictum in McLaren v Badenhorst that section 45 does not require an agreement and can be validated where the Plaintiff alleges same in the pleadings, 219 it would be absurd to require that the consent be given in a manner that does not simulate an agreement. In this regard, it is important to ascertain the scope of regulation of the NCA and the impact that court proceedings governed by the MCA has on a credit agreement. As set out above, section 29 is subject to the provisions of the NCA insofar the ‘cause of action’ is a ‘credit agreement’. It is also stated that ‘action’ includes ‘action in reconvention’ and the applicability of this section to ‘non-actions’ may be questioned. The NCA further has, as one of its outcomes, the construction of a harmonised debt enforcement regime and devotes sections to regulating debt enforcement as a result of breach of contract. The contents of credit contracts is therefore not the sole governing aim of the NCA and in this regard it does encroach on the provisions of other legislation, notwithstanding the provisions of section 2(7): “2(7) Except as specifically set out in, or necessarily implied by, this Act, the provisions of this Act are not to be construed as (a) limiting, amending, repealing or otherwise altering any provision of any other Act; (b) exempting any person from any duty or obligation imposed by any other Act; or (c) prohibiting any person from complying with any provision of another Act.”

Sections 90(2)(k)(vi)(bb) and 45(1) are aligned in purpose insofar as a general consent to the jurisdiction of the Magistrate’s Court is concerned. There is clearly no conflict between these sections. However, section 90 clearly prohibits a contractual clause where the consent to jurisdiction is to a specific magistrate’s court that fall outside the boundaries set out in the subsection itself. It is trite law that a contractual clause expressing consent to a specific magistrate’s court where no lis exists between the parties is null and void within the parameters of section 45(2) in any event. In this regard, sections 91 and 45(2) seemingly regulate a similar outcome and in this regard, it is submitted, that section 91 does not prohibit a consent to a specific magistrate’s court 218

In respect of jurisdiction, see Theophilopoulos et al 2012 44 and in respect of completing the cause of action see African Bank Ltd v Additional Magistrate Myambo p 20.

219

Jones & Buckle 297.

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as long as the court to which the parties consent fall within the parameters of section 90. However, this will only be applicable to sections 57 and 58 in the light of the specific jurisdictional indicators set out in section 65J as these provisions operate ex lege and no agreement between the parties are applicable (therefore excluding the scope of section 90). 220 Sections 45 and 90/91 are concerned with agreements between the parties with regard to the jurisdiction of the court to adjudicate the lis between the parties.

The NCA also extends the jurisdiction of the MCA and Magistrates in various manners e.g. sections 85-87 and 164. Sections 90 and 91 are applicable to enforcement proceedings and disallow reliance on section 45. It is submitted that the NCA only ceases to apply when judgment is granted, after which the ordinary civil rules pertaining to civil judgments prevail. All proceedings prior to same such as section 57 and 58 consent to judgment are governed by the NCA and such consent is akin to a document prohibited by section 91.

4 Outcomes Some creditors have raised concerns regarding the potential “reputational risk” involved when conferring jurisdiction upon a court by virtue of section 45 and specifically where there is no jurisdictional link as set out in section 65J. The “reputational risk” pertains to allegations of abuse of process such as the following: The consumer cannot easily query the validity or contents of the order or rescind an emolument attachment order where the court in which the order was granted is situated far from the jurisdiction of the employer; 221 The legal representative may have to appoint a correspondent where the emolument attachment order is issued from a court other than the local court within whose jurisdiction the offices of the practitioner is situated. This results in additional costs for the account of the consumer; and There is often no discernible link with the court in which the emolument attachment order was granted, which has resulted in rumours of bribery or lack of 220

See also Dicker par 5.6.3 in respect of consent initiated by the consumer. He argues that section 90 and 91 will only be circumvented if initated by the consumer but states that this is unlikely as even the slightest hint from the credit provider or its attorney may be construed as ‘inducement’ as contemplated by section 91.

221

Haupt & Van Sittert 2013 10.

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proper attention to the validity of the orders by the court personnel i.e. forum shopping. Legal firms justify the utilization of section 45 from a practical perspective i.e. that structural impediments experienced through involvement with certain Magistrates’ Courts restrict the successful and timely collection of debt. The impediments include numerous

requirements

obtain

orders

(economy

the

process),

different

requirements in different courts (lack of standardisation and uniformity) and uncertainty as to whether the order will be issued due to an inability to predict the manner in which the court will exercise its discretion (lack of certainty). Data set A & C The first graph sets out the time that it takes to obtain a judgment and emoluments attachment order in 24 courts. The second graph illustrates that there does not seem to be a correlation between courts that allow section 45 consents and courts that do not in respect of expeditiousness. The courts indicated in blue do not allow section 45 consents whilst the courts marked in red do. It must be noted that the sample is not representative of the courts in South Africa as it is too small. It merely illustrates that courts with both long and short waiting times may allow section 45 consents to jurisdiction. However, whilst these maybe true of the courts at a time prior to obtaining the information, many courts indicated that consents to jurisdiction are not allowed anymore. Officials that deal with emoluments attachment orders in a court may also differ from time to time – one interviewed court official indicated that consent to jurisdiction in terms of section 45 is not tolerable within the framework of section 65. The official’s perspective is that section 65 specifically regulates all aspects regarding emoluments attachment orders, including the choice of forum. The data that reflect in the graphs below, however, indicated that the court did allow section 45 consents. The sample sizes for data set B and C were 524 and 396 respectively. Of these courts, 21 courts allowed section 45 consents to jurisdiction. If reliance is placed on the data, allowance of consent to jurisdiction is not as wide-spread as reported. However, anecdotal evidence suggests that compliance with section 65J(1) is not common and four possible explanations exist, which may indicate that the issue with choice of forum is much wider than just section 45: Clerks of court are not attentive to the choice of forum, whether due to lack of knowledge, competency, work overload or attitude. In the premises, EAOs may be

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issued even in the absence of consent or any other ratio jurisdictionis. In this regard, the legal representative is, in our opinion, misleading the court in creating the illusion that the court has jurisdiction to issue the order where no jurisdictional link exists. Courts allowed section 45 consents, but are now changing their policies. Issued EAOs may therefore still reflect incorrect courts, but data on the number of courts authorising acceptance of consents to jurisdiction shows declining numbers. In a similar fashion, clients may recently be instructing attorneys to refrain from using courts other than those authorised by section 65J(1) due to reputational risk; The data differs in one court, depending on which court official deals with the matter – this is plausible where no set policy is applicable to the particular court; Anecdotal

evidence

suggesting

reliance

section

has

been

incorrectly

interpreted. If applicable, a distinction should therefore be made on whether it suggests that use is often made of section 45 or just whether there is non-compliance with section 65J(1) upon perusing emoluments attachment orders. In this regard, it is also important to note that one court may issue many emoluments attachments orders which may lead to e.g. 1 out of 10 orders being issued in the correct court, but only 3 or 4 courts used to obtain the EAO in a court different that the one required by section 65J(1). The purpose of this illustration is to indicate that clarity is needed in respect of reliance on section 45 when it comes to section 65J orders. The legitimate grounds for jurisdiction should be clarified i.e. whether section 45 consent to jurisdiction is allowed as well as the correct interpretation of concepts such as ‘place of business’ etc. as lack of guidance in this regard annuls the concept of a legislative ratio jurisdictionis. In this regard there may be a need for a declaratory order following a stated case. Although, if courts consistently disallow section 45 and require proper jurisdiction as set out in section 65J(1), this would not be necessary unless the contrary is true i.e. that section 45 is applicable to section 65J orders. The discussion relating to uniformity in courts is intricately connected with consent to jurisdiction. Where the judicial process is obstructed by court officials and effectively disallows a creditor the remedy of the emoluments attachment order where it is duly warranted in law, attention is needed as this may be construed as an abusive practice from the side of the judiciary.

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Average times over period of a year from date of submitting to court to date of positive receipt in attorney's office

250 232.29

200

Days

150

100

87.74 66.41

62.96

50 27.54 7.88

12.23

18.37

12.64

17.42

21.95 6.63 10.00

25.81 24.54

19.31 9.27

3.48

32.37

31.73 7.26

11.13

4.60

13.36

Courts

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Blue indicates that no consent to jurisdiction is allowed and Red indicates that consent to jurisdiction is allowed

250 232.29

200

Days

150

100

87.74 66.41

62.96

50 27.54 7.88

12.23

18.37

12.64

21.95

17.42 6.63

10.00

25.81 24.54

19.31 9.27

3.48

32.37

31.73 7.26

11.13

13.36 4.60

Courts

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5 Summary: Jurisdiction 1. Section 45 is not applicable to section 65J even if all the parties, including the garnishee, consent to the jurisdiction of the specific Magistrate’s Court. Section 45 is subservient to section 28, which is in turn subject to the provisions of section 65 of the MCA. Reliance on section 45 of the MCA is not correct and enforceable within the context of section 65J (which contains a specific jurisdictional provision) in a similar fashion as section 45 is correct and enforceable within the context of section 28. Section 45 is, however, applicable to sections 57 and 58 proceedings as the latter do not have specific jurisdictional provisions. Section 28 regulates the choice of forum in respect of consents to judgment and section 45 allows consent to the jurisdiction of a court other than a court set out in section 28. However, the internal requirements regarding proper agreement/ consent as well as the timing of the consent in respect of the proceedings already instituted or about to be instituted, must be strictly adhered to. Where the underlying cause of action in respect of which the consent to judgment is given is governed by the National Credit Act, consent to jurisdiction where this is not within the boundaries of section 90(2)(k) is disallowed. 2. Section 90 and 91 are applicable to enforcement proceedings and disallows reliance on section 45. It is submitted that the NCA only ceases to apply when judgment is granted. All proceedings prior to same such as section 57 and 58 consent to judgment is governed by the NCA and such a consent is akin to a document prohibited by section 91. In this regard, section 45 may also not be valid in respect of section 57 and 58 proceedings.

From a legislative point of view it is submitted that these links should be

extended to accommodate capacity constraints in the courts especially in courts where the main payroll offices of major companies with many workers are. In this regard, a consistent approach by all courts in necessary to avoid abuse of the process e.g. choice of an ‘easy’ forum and be solely intended to relieve institutional pressure (and expedite the process). A legitimate link should exist between the court and the cause, whether this is the jurisdiction of the debtor or that of the employer or that of the garnishee administrator where the emolument attachment order is outsourced. As noted above, challenges to emoluments attachment orders are initiated by either the debtor or the garnishee administrator. There is a need for clarity on this matter in respect of a declaratory order, test case or arguing of a stated case.

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Uniformity and standardisation in courts 1 Introduction The term of reference that is applicable to this discussion is the following: The supporting documentation that should be required when considering a section 57/58 consent to judgment and an application for an emoluments attachment order; This

research

question

discussed

under

the

heading

‘uniformity’

and

‘standardisation’ as this is the core issue giving rise to a need for clarity. Clarity is needed in respect of the information that could be anticipated and put before the court to expedite the process and reduce queries from court. Lack of uniformity and standardisation in courts were consistently noted by legal practitioners as a cause of frustration. Specifically, the following issues were noted: Sections 57, 58 and 65 are intended to be fast, cost-effective and relatively straightforward. Delays and queries increase time and cost for the parties; 222 Unpredictability of the process with regard to success or not. This was also perceived as an issue regarding competency, work over-load and attitude – clerks of court were reportedly refusing orders without due reason or perceived as being obstructive for reasons not attributable to the legal requirements for the issuing of orders; 223 Requesting information that the plaintiff/ judgment creditor cannot supply; 224 Deviance from the guidelines set out in the relevant legislation, resulting in ‘each court having its own requirements’ – this issue is intricately linked with the ‘discretion’ of the court. Interestingly, this issue also manifests in some courts requiring specific formats, drafted by the court itself, in which documents should be provided. 222

This includes interest that runs to the detriment of the debtor, legal costs and unpaid debts on the books of the creditor.

223

Some attorneys (interview 12 June 2013) noted that the clerk of the court, in wielding the ‘power’ of issuing orders or not, needed to be treated overly nice and polite otherwise the order would not be issued or consistent queries delayed and frustrated the process.

224

The case of African Bank Ltd v Additional Magistrate Myambo illustrates this point where a reckless credit assessment was required by the court although the agreement was entered into prior to the implementation of the NCA. Under the previous consumer credit regulation regime, reckless credit was not a recognised concept.

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Requests, even though these embody all the information necessary, will not be issued as it is not in the correct format or not ‘recognised’; 225 Evaluating issues at the stage of a request for an emoluments attachment order, where this should have been done at the stage of requesting judgment e.g. whether credit was recklessly granted or whether the credit provider was duly registered, if required, with the NCR at the time of granting the credit; 226 Different internal court policies were also reported as a cause for forum shopping. 227

2 Legislative framework The following table sets out the requirements that may be requested by the court as per the MCA, MCR, 228 NCA and case law such as Myambo in respect of the documentation that the plaintiff/ judgment creditor must provide to the court. 229 The full section or rule is not restated and all references are to the contents of the complete section or rules. The graphs and table under subheading 3 further compare the requirements of data set C with the legislative requirements to isolate those documents requested by courts in addition to those prescribed by legislation. The table also provides motivation for

225

This issue is discussed in detail below, but at this stage it is important to note that this is not unique to debt collection. The same was noted in debt review matters – see NCR An assessment of debt counselling 2012, summary available at http://www.ncr.org.za/index.php?option=com_content&view=article&id=152, site accessed 27 October 2013. The full report was not released in to the public domain and in the premises, the suggestions for reform in that report is referred to herein with permission of the NCR.

226

This approach may indicate a lack of trust between courts. One specific example, not given in relation to this topic specifically, but potentially relevant was that some courts would not grant emoluments attachment orders if the judgment which is the subject matter of this form of execution was not granted by the same court. Practical discrepancies arise where the court that should issue the order in terms of section 65J(1) refuses to do so in the absence of a local judgment and other courts decline to issue the order due to lack of jurisdiction.

227

GIZ 2013. During various discussions, incidently or to ascertain why certain courts would be preferrable to others, attorneys noted that some courts were ‘closed’ (i.e. it was almost impossible to obtain an order) whilst others ‘stamped anything’ (i.e. the documents were not perused properly). Others noted that in some courts, especially where the court was situated in an area where there were no large businesses e.g. Johannesburg or Cape Town, the clerks of the court were not overloaded and had more time to spend on emoluments attachment orders. In another instances, specifically pertaining to section 65 fianncial enquiry, the attorneys noted that prior to the appointment of more clerks, the turnaround time for court docuemtns were so long that the court only returned the document after the court date set out on the document had been passed. This necessitated re-issuing of the document and resubmission to court with a new date. Other attorneys preferred to use the court where their offices were located in order to direct the whole process from their offices without having to appoint a correspondent (see also the founding affidavit in the Balakista –case referred to above).

228

Specifically Rules 4(1)(a),(2),(4),12(5), 12(6), 12(6A), (7).

229

See also Theophilopoulos et al 2012 pp 33, 34, 40-41, 247-248 & 394-395.

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documents that interviewees noted should be included for purposes of assisting the court to evaluate the request. 230 Section 57

Section 58

Section 65J

Request for judgment

Notice of judgment by registered

Section 57(2) & Form 5A

Section 58(1) & Form 5B

post Section 57(3) & Section 58(2)

Copy

demand

summons

Copy

demand

summons

setting out cause of action (nature

and amount of claim) and alleging

and amount of claim) compliance

compliance with NCA (specifically

with NCA (specifically section 129

section 129 & 130)

& 130)

Section 129 and a true copy of

the section 129(1)(a)notice

Alleged compliance with section

130 of the NCA including no

reaction

contemplated

section 129 on the notice so

required

required.

Affidavit iro compliance with law

Affidavit iro compliance with

where no summons

law where no summons

Original agreement or affidavit

where no original

Confirmation of compliance with

Confirmation

legislation

with

(rules

–

whether

summons or not)

legislation

Section 65J(2)(a)

section 129 on the notice so

Consent to EAO by debtor

compliance (rules

–

whether summons or not)

Section 57(2)(1)(a), Rule 4(1)(a)

Section 58(1)(a), Rule 4(1)(a) &

& 4(2) & 4(4) & 12(6) & 12(6A)

(b) & 4(2) & 4(4) & 12(6) & 12(6A) & Myambo

Admission of liability by defendant Section 57(2)(1)(b)

Consent to judgment by defendant signed by debtor and two witness

Judgment or extract Section 65J & Rule 45(1)

Section 58(1)(b) & Rule 4(3)

230

Ultimately, the court is responsible for ascertaining whether there is proper entitlement prior to wielding its judicial power – see e.g. Campbell 2010 10: “There are various ways in which the in duplum rule can be enforced in order to ensure its application in practice – by the courts, consumers and their legal representatives. The courts have a duty mero motu to raise the illegality of interest claimed in contravention of the in duplum rule, if this is clear from the facts, even if the in duplum rule was not pleaded. It is not clear whether the courts are aware of this. This approach has been given added impetus by the proscriptive nature of s 103(5). The court is, however, not required to speculate or piece together a defence on behalf of the defendant from mere fragments of evidence”.

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Copy of acceptance of offer by

In terms of Myambo, the court

plaintiff or plaintiffâ&#x20AC;&#x2122;s attorney

may require (even by way of affidavit):

Section 57(2)(1)(b)

EAO Section 65J(3) & Rule 46(2) Form 38

Information

regarding

the

applicability of the NCA on the underlying cause of action i.e. whether the debt arises from a credit agreement to which the NCA applies; The incidence of reckless credit granting or not in respect of the underlying cause of action (section 83 of the NCA) Proof of compliance with the NCA where applicable and/or requested: o

The creditor is registered as a credit provider with the NCR or allegations why no registration is necessary or was necessary at the time of granting the credit;

The manner in which the debt/

amount

claimed

calculated and whether this is in compliance with the provisions of the NCA. Myambo pertained to section 58, but may be relevant for section 57 as well Affidavit or affirmation of non-

Registered

compliance

specified in section 65J(2)(b)(i)

with

accepted

offer

letter

with

contents

with calculation of balance claimed where payments were made since the offer Section 57(2)(c)

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Affidavit

affirmation

with

contents as specified in section 65J(2)(b)(ii)

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3 Practical application Data set C The following graphs illustrate the variance in number and contents of documents required and allowed in the sampled courts (out of the 396 courts listed) to obtain an emoluments attachment order. The first graph illustrates the number of documents that should be provided to the court prior to the issuing of an emoluments attachment order. The maximum number of documents that need to be attached is 18 and the lowest 6. For some courts, no standardised information was available. The second and third graphs illustrate the requirements of the courts and indicate which documents seem to be important for courts to peruse prior to issuing an emoluments attachment order. The following are the documentation/requirements of the courts and the top ten documents (376 courts or more) are noted in bold below: Document

Source

231

Request for judgment

Sections 57(2) & 58(1)

Emoluments attachment order

Section 65J(3)

Section 65J(2)(b) certificate

Section 65J(2)(b)(ii)

Civil certified extract of judgment

Rule 46(1)

Court cover sheet (for court file)

Unknown

Original contract

Rule 12(6)

Copy of contract

Allowance based on Rule 12(6)

Affidavit â&#x20AC;&#x201C; Copy of contract but no original available

Rule 12(6)

Section 129 letter

Technically compliance need only be alleged but where this is done by way of affidavit, it is practice to attach proof. A copy of the letter would easily show compliance

231

Sources: MCA, MCR, NCA, African Bank Ltd v Additional Magistrate Myambo, Theophilopoulos et al 2012.

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Proof of postage of Section 129 letter

Proof of compliance with section 129

Letter to employer regarding of intent to issue EAO

Unknown

Proof of postage of letter to employer regarding intent to

Unknown

issue EAO Section 57 letter to debtor of acceptance of offer

Section 57(2)(b)

Letter to debtor re confirmation of judgment

Sections 57(3) & 58(2) & 65J(2)(b)

Proof of postage of letter to debtor re confirmation of

Section 65J(2)(b)(ii); Confirmation of

judgment

compliance with sections 57(3) & 58(2)

Income & expenditure

Unknown

Certificate of balance (COB)

Section 57(2)(c)(i) & 65J(2)(b)(ii); Myambo and evaluating entitlement of plaintiff to amount

Statement setting out breakdown of handover amount

Section 57(2)(c)(i) & 65J(2)(b)(ii); Myambo and evaluating entitlement of plaintiff to amount

Attorney's statement of account

Unknown

Affidavit â&#x20AC;&#x201C; Compliance with NCA

Rule 12(6A)

NCR certificate

Rule

12(6A)

[compliance

with

legislation] Contract payslip

Unknown

Original contract

Rule 12(6)

Payslip

Unknown

Consultant report (TP cover sheet)

Unknown

Consultant invoice

Unknown

Affidavit of service

Unknown

It is important to note that the court has a discretion to grant judgment and the clerk of the court should refer any potential order to a magistrate should there be cause for

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concern. 232 In respect of documents that could reasonably be requested by the court, the court could in theory request any document related to the request before it in order to clarify any questions as to the entitlement of the creditor to judgment in the terms set out in the request. This relates to substantive and procedural compliance with legislation relating to the cause of action such as: 233 Compliance with provisions of the NCA where the NCA mandates a court to deal with these incidences such as reckless credit and over-indebtedness; Validation of the cause of action before the court such as o

Compliance with the legislation when the credit agreement was entered into; and

Incidences where non-compliance is a ground for an order nullifying or voiding an agreement or contract clause; 234

Legislative restrictions on recovery of amounts such as section 103(5) where the creditor has no legal entitlement to amounts that exceed the prescribed threshold set in section 103(5) or amounts not set out on section 101(1); Procedural requirements such as the provisions of section 129 and 130 of the NCA and proof thereof. It is trite that there should be proper compliance with the procedural requirements of the MCA, MCR and Forms. Furthermore, courts query discrepancies that may be noted from the documentation such as differing signatures on the original credit agreement and the consent to judgment or where the witnesses sign at different addresses as the debtor. Requesting payslips or informing employers of emoluments attachment orders may be pro-active behaviour (i.e. facilitating an affordable instalment or proper implementation of the order) but these are not founded in law and may delay the process. The creditor or his attorney is not obliged by law to verify whether the debtor can afford the instalment consented to although it could be argued that the debtor should be assisted to offer a sustainable instalment. Otherwise, this will delay the process after the first instalment is deducted and where the debtor does not have enough funds available after 232

African Bank Ltd v Additional Magistrate Myambo e.g. p 18.

233

These are aspects that the attorney need to verify in any event prior to requesting judgment.

234

See sections 89, 90, 91 and 164 of the NCA iro unlawful contracts and contract clauses.

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deduction of the instalment to maintain him or herself and any dependants. Creditors should be aware that each debtorâ&#x20AC;&#x2122;s circumstances and ability to pay differs. If the procedure in terms of section 57 and 58 is properly applied within the parameters of the MCA and NCA, problems with the EAO such as rescission or amendment and unrelated requests such as reckless credit assessments at EAO stage, can be avoided. The first graph hereunder illustrates the different requirements and the number of courts that require the specific document. The sample size was too large to include the specific names of the courts in relation to the number of documents required. In this regard, the courts are represented by numbers on the horizontal axis. This graph illustrates that the majority of courts have ten requirements for obtaining judgment and an emoluments attachment order. The specific documents required are set out thereafter and this pertains to 70% of the sampled court offices. 20 18

Number of documents required

16 14 12 10 8 6 4 2 0 0

100

150

200

250

300

350

400

Courts Number of requirements of different documents by courts

The second graph set out below illustrates the number of courts requiring a specific document. 279 out of the sample size of 396 (70.45%) have similar requirements which are set out after the following two graphs. The third graph illustrates those documents that are either required or not required by all of the courts in the sample size.

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450 400

396 396 396 396

396

392

376 379 379

377

Number of courts

350 300 250 200 150 100 50 0

49 18

27 0

Documents required Number of courts requiring a specific document

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450

Number of courts

400

396

350 300 250 200 150 100 50

Document required/ not required Different documents required by 100% of the sampled courts

70% of courts required only the documents stated hereafter. In this regard, there does seem to be some uniformity although this may exclude queries on the matter after request: Two copies of Request for Judgment Four copies of the Emoluments Attachment Order Section 65J(2)(B) Certificate Three copies of the Certified Extract of Judgment Court Cover Sheet Original Contract Copy of Contract Affidavit – Copy of Contract Section 129 Letter NCR Certificate The next graph illustrates the documents in respect of which there is deviation from the standard and the frequency thereof. It should be noted at this stage, that it is uncertain whether these ‘deviations’ occurred as queries on files or as a set requirement on all files.

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Number of courts that require the document

50 40

30 20 10 0

18 8

10 2

Document required Documents in respect of which there is a deviation from the standard and the number of courts deviating

The following graph illustrates the documents not necessarily required by the ‘standard’ courts, but requested by other courts nevertheless. It also indicates the incidences of courts requiring these documents. 20.5

Number of courts

19.5 19

18.5 18 17.5

16.5 16 15.5 Court Cover Sheets

Original Contract

Certified Copy of Contract Documents required

Affidavit Copy of Contract Deviations from the standard

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The following graph illustrates the number of courts that deviate from the standard as compared to the total number of courts in the sample size when categorised according to province. 80

70 60

50 40 30

22 16

20 10

Number of Courts in Sample

Number of Deviating Courts Deviations per province

The following illustrate the different requests from courts:

235

Submissions received 19 September 2013.

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4 Summary: Uniformity Although attorneys specialising in debt collection must adhere to the requirements set by court within the field of their specialisation, incidences where the requirements are obstructive and negate the purpose of the process cannot be to the benefit of the parties. It is noted that courts have discretion and that processes exist for review of court officialâ&#x20AC;&#x2122;s decisions. The clerk of the court may be taken on review to a magistrate in terms of section 13 of the MCA and magistrates in terms of section 24 of the Supreme Court Act. Due notice is taken of the potential of these remedies to be costly and time consuming, especially review to the Supreme Court. However, decisions of the Supreme Court set precedents which may clarify the matter and deter obstructive behaviour, if found to be so.

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Training for role players: 236 •

Interaction between the Department of Justice, the National Credit Regulator and Law Society of South Africa should be encouraged to draft uniform requirements for role players as well as proper courses and workshops. This can also be effected through presentations at magistrates’ meetings;

•

Magistrates and clerks of the court should also be provided with circulars on important developments in the industry;

•

Court officials should be allowed to have input into the uniform requirements in order to limit the current situation where a clerk or magistrate still requires additional information or documents in his or her court;

•

The value of training by persons in the field e.g. senior clerks and magistrates and on-going day to day office training cannot be underestimated, provided that persons are trained on the correct legal positions. In this regard, communication between role-players is also important to reduce friction and frustration;

•

Attitude adjustment and stricter regulation where parties are acting mala fides e.g. strict enforcement of correct legal position e.g. documents required;

•

Logistical assistance with regard to human and capital resources is of extreme importance to clerks and magistrates in order to relieve the strain that the current economic situation has brought about;

•

Refusal of costs on attorney and client scale should be considered where parties unnecessarily delay the process.

236

Sourced and adapted marginally from NCR 2012 298-299.

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Oversight 1 Introduction The part of the mandate that relates directly to this section is the following: The issue of magisterial oversight over the emoluments attachment order process. This particular suggestion was forwarded by the Department of Justice in proposed amendments to the Magistrates’ Court Act to remove the possibility of consenting to an emoluments attachment order without a form of financial enquiry as envisaged in section 65. 237 The remaining mechanism, upon removal of consent and mere application for an order in terms of section 65J(2)(b), will solely be authorisation by the court as set out in the second part of section 65J or in e.g. sections 65A, 65E and 74 of the MCA. Therefore, distinctions need to be drawn in respect of the purpose of the court and the stage of the proceedings. Execution is only plausible after a judgment has been granted. Section 65J is a form of execution, as are warrants of execution against movable, immovable and incorporeal property and section 72 garnishee orders. In the premises, the court’s intervention would be akin to the position in respect of section 66 of the MCA, however, the basis for this intervention is section 26 of the Constitution. The enquiry as envisaged in section 65 generally either precedes the granting of an emoluments attachment order or is in lieu of non-satisfaction of an emoluments attachment order. It is not a manner of court-assisted execution and it is submitted, not comparable to the granting of an emoluments attachment order. However, the term of reference relating to rescission and amendment of the emolument attachment order is also discussed under this heading as the context is related to the discussion relating to oversight: The aspects relating to the rescission or amendment of emoluments attachment orders such as lowering the instalment amount and the requirements to comply with the process to allow for inter alia due process. 237

The most important consideration in this regard is elaborated on below, but concerns the capacity of courts to deal with the additional proposed burden without becoming an obstruction to obtain justice and relief. See also The Times (authors: Aarti Narsee & Jan Bornman) “Justice delayed by shortage of magistrates” 29 October 2013, available at http://www.timeslive.co.za/thetimes/2013/10/29/justicedelayed-by-shortage-of-magistrates, site accessed 29 October 2013.

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2 The issues The rationale for the suggestion re magisterial oversight is threefold. However, all three cardinal issues pertain to behavioural and educational aspects: Non-adherence to legislative provisions and lack of literacy. It must also be noted that interviewees indicated that they interacted with parties that did follow the process correctly whilst others did not. In the premises, specific behaviour or conduct cannot be interpreted as relevant to all role-players within a specific part of the industry e.g. attorneys. 238 Firstly, abuses in the process necessitate a form of oversight as investigations into irregularities have consistently noted that some role-players do not adhere to the relevant legislative provisions and prejudice industry stakeholders in the process. These range throughout the life-cycle of the debt collection process and range from wilful nonadherence to ignorance about the law. An example is non-adherence to the provisions of the NCA such as non-adherence to the provisions of section 103(5). Secondly, the lack of proper informed consent by a debtor, who may or may not be literate, financially literate or ‘legal-wise’, has prompted a need for judicial or impartial governance as a protective measure. An example is where the debtor is under the impression that the emoluments attachment order is a ‘court debit order’ and is unaware that the employer will be involved, the order will be served by the sheriff which may attach the assets of the employer where the latter fails to adhere to the court order and that the instalment will be deducted by the employer from his or her salary. Thirdly, the inability of parties to deliver certain outcomes envisaged by the legislation due to practical considerations or discrepancies in the legislation is an issue. An example in this regard is the following subsections of section 65 in respect of when it is determined whether the judgment debtor will have sufficient funds available for his or

238

During some interviews, parties were requested to comment briefly on the working relationship between themselves in respect of the following groupings e.g. administrators and attorneys, sheriffs and attorneys, magistrates and clerks of the court. It was noted that some attorneys ‘get it right’/ ‘work with us’ whilst others were described as obstructive in the sense of ‘talking down’ to the other party (especially with regard to costs) or not providing the requested information or not providing information as detailed as requested. Some magistrates and clerks were described as ‘not getting along’ whilst most indicated that a good relationship existed between the clerks and the magistrates. In these courts, the parties were described as working together, training each other and assisting in each other with queries – this was a two-way line of communication with clerks assisting magistrates with queries on aspects that the clerk dealt with on a daily basis and the magistrate assisting clerks.

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her own maintenance and that of his or her dependants (this is also dependant on the measures used in respect of obtaining the emoluments attachment order):

239

Section 65J(6) reads as follows: “If, after the service of such an emoluments attachment order on the garnishee, it is shown that the judgment debtor, after satisfaction of the emoluments attachment order, will not have sufficient means for his own and his dependant’s maintenance, the court shall rescind the emoluments attachment order or amend it in such a way that it will affect only the balance of the emoluments of the judgment debtor over and above such means”.

Section 65J(2)(b)(ii) reads as follows: “An emoluments attachment order shall not be issued unless the judgment creditor or his or her attorney has first filed with the clerk of the court an affidavit or an affirmation by the judgment creditor or a certificate by his or her attorney setting forth the amount of the judgment debt at the date of the order laying down the specific instalments, the costs, if any, which have accumulated since that date, the payments received since that date and the balance owing and declaring that the provisions of subparagraph (i) have been complied with on the date specified therein”.

The three issues are also intricately linked as can be ascertained from the following example provided by an interviewee: The debtor consents to an instalment which he or she cannot afford (or which would be extremely difficult to maintain) due to pressure from the attorney who has a minimum acceptable instalment as instruction from the judgment creditor. The debtor does not realise, understand or know that he or she is free to object to an unreasonable instalment and the intimidating behaviour of the legal representative due to professional pressure to perform in a satisfactory manner can amount to abuse of the process. Alternatively, as section 58 consents to judgment are often (this was noted by more than one interviewee) enforced as if these were section 57 consents (i.e. the debtor is first given the chance to keep to the consent as a payment arrangement and upon default judgment is taken) or blank enforcement papers are signed unlawfully at the time of granting of the credit, consumer/ debtor’s circumstances may have changed adversely since agreeing to a specific instalment.

239

This relates to the court’s approach in Minter N.O. v Baker and Another on p 183 in the context of section 65J(6): “We consider that the intention of that subsection is plain. It is readily conceivable that the financial position of a judgment debtor may change for the worse after he has consented to an order for payment in instalments or the court has made such an order after enquiry, or after an emoluments attachment order has been served. Subsection 65J(6) allows the court to come to the assistance of a judgment debtor if that happens. It is understandable that the onus would be on the judgment debtor to demonstrate that he will not have sufficient means for the maintenance of himself and his dependants; for, the order would not have been made in the first place had it not been for his earlier consent or a decision by a court after an enquiry has been held. Furthermore, the relevant information would be peculiarly within the knowledge of the judgment debtor.”

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3 Discussion It is therefore of cardinal importance to ascertain exactly what the function of the magistrate should be and which irregularities the suggested oversight should curb. It is also important to be realistic in evaluating whether magisterial oversight would indeed be able to meet the expected outcomes and whether it would be effective. Most interviewees, with the exception of debt collectors and attorneys, were in favour of magisterial oversight. The two main concerns sustaining this presupposition were the following: Behaviour Stakeholders were not honest and truthful: o

Debtors would not fully disclose their income and expenses and either overextend themselves or promise a lower amount whilst being able to afford a higher amount;

Role-players such as tracers did not accurately explain what an emoluments attachment order is and what the implications thereof were.

Role-players did not adhere to the legislative requirements such as proper compliance with the NCA. Lack of knowledge Many debtors are financially illiterate or do not know their rights and obligations. They are also easily manipulated to over-extend themselves or prejudice themselves by consenting to debts and costs. All debtors also do not monitor and manage their debts; Attorneys do not have all the information necessary to assess the debtorâ&#x20AC;&#x2122;s financial position when deciding on an affordable instalment to propose â&#x20AC;&#x201C; there is also no provision which allows the attorney to obtain the information apart from a cooperating debtor. Reliance is placed on the debtor (who is not under oath), the tracer (who must obtain this from a co-operating and truthful debtor) and/ or the credit provider (which may have the information, but which may be outdated).

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The two main concerns of debt collectors and attorneys were: Debtor’s ‘procedural’ default: Experience with section 65 financial enquiries has shown that debtors do not attend court when requested to do so. Without the debtor present, the process can be delayed indefinitely. This may be exacerbated where personal service of a notice to appear at court is required. Debtors do not bring the requested proof of e.g. income and expenses with them to court, necessitating postponement – the challenges in this regard are discussed below; Courts may not have the capacity to deal with every application for an emoluments attachment order as expected. 240 This also included a concern that presiding officers may be overly cautious when it comes to debtors to the detriment of creditors.

Expectation

Assessment of expectation

The courts will have the capacity for the

Empirical research pertaining to constraints in courts is needed.

transfer of this duty from the clerk of the

Many studies have found that there are severe capacity

court to the magistrate

constraints in the courts, both in respect of resources and competency, which undermines the ability to properly execute the allocated functions. 241

Deal with irregularities

pertaining

underlying cause of action e.g. reckless

A judgment has already been granted at the stage of an application for an emoluments attachment order

credit or prescribed debt Refusing the EAO will not address the core issue as other debt Refuse EAO

collection mechanisms may be used such as requesting a writ of execution to attach movable property The court will have to be able to also rescind the order

Evaluate adequacy of ‘consent’

This would be akin to the section 65 debtor’s court procedure which magistrates use

Question debtor under oath The challenges with this process is set out below

Evaluate affordability of ‘instalment’

The court will have to rely on the debtor and creditor to provide the information, necessitating postponement and warning to

240

Empirical research is needed in this regard otherwise the lack of capacity will bar access to justice for deserving judgment creditors where no other mechanism for collecting the debt is viable.

241

WorldBank 2012, NCR 2012, etc.

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Question debtor under oath and look at

appear at court where the debtor does not adhere to this

income and expenses

Evaluate legality of ‘costs’

The process may become time consuming with costs raised for the account of the debtor especially where the matter is postponed and where various parties are called 242 Raising and recovering costs is a post-judgment and post-EAO action and the court does not have any control over this when the parties leave the court

Curb post- judgments and post- EAO

The court will not be able to oversee the process and conduct of

abuses

parties at this stage

such

overcharging

the

consumer

Curb fraud and unlawful behaviour such

It was extremely informative to ascertain from interviewees what

as faked signatures or signing of blank

the value of certain documents was, especially in the light of

pre-enforcement documentation or at

some

stage of applying for credit

documents was unreasonable. 243 The required documentation is

interviewees’ perception that

the

request for these

discussed below. For purposes of this discussion it is important to note that the court will then not only be requested to interrogate the debtor, but also peruse and verify the documentation. This may have time and cost implications which will be for the account of the debtor if an order for costs is made in favour of the creditor.

In the light of the abuses and irregularities surrounding emoluments attachment orders, there seems to be a renewed move towards oversight of emoluments attachment

242

In terms of 169 of the NCA, a credit provider may be requested to appear in court to answer questions about the credit agreement: “169 (1) In any proceedings in any court for the recovery of debt in terms of a credit agreement, if the consumer (a) alleges that the cost of credit claimed by, or made to, the credit provider exceeds the maximum permitted by the Act; and (b) requests that the credit provider be called as a witness to prove the amount of debt claimed to be owing, the court must not give judgment until it has afforded an opportunity for the consumer to examine the credit provider in relation to the debt claimed to be owing, unless it appears to the court that the consumer’s allegation is prima facie without foundation, or that examination of the credit provider is impracticable”.

243

The term ‘unreasonable’ must, however, be qualified to a specific context and the example of the request for an original contract is a case in point: Where the credit agreement was entered into prior to the implementation of the NCA, credit providers did not necessarily keep the original agreement. In some instances, contracts become misplaced. Where no copy exist or a copy is not acceptable to the court, the creditor is effectively barred from accessing this particular remedy. The MCA and rules of court have moved towards oversight in requests for judgments, section 65 proceedings and execution against immovable property but the mechanism for obtaining an emoluments attachment order other than after a section 65 enquiry, does not provide for magisterial oversight..

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orders. 244 Initially, the submissions related to magisterial oversight and same can be observed from the proposed amendments to the Magistratesâ&#x20AC;&#x2122; Courts Act. However, when the scope of the oversight is considered, and in particular, the timing of the incidences of the irregularities reported the type of oversight and the scope thereof would need to be expanded. This means that, if the irregularities reported are rooted in the pre-order or post-order phase, the functionality of judicial intervention should be reconsidered. The point of departure for protective measures should be considered at this stage. If the rationale for judicial oversight (i.e. in the form of magisterial intervention in a financial enquiry setting) is founded in the constitutionality of the process (such as section 25), the developments in respect of section 26 of the constitution should be considered. However, in the light of the consent of the debtor, this may be problematic and solely applicable where the debtor has not consented to an attachment of earnings. The second consideration should be whether it is to curb abuses and in this regard it should be considered whether the court is the correct forum (and properly empowered) to effect same. Two aspects deserve mentioning here. The first is that many challenges to emolument attachment orders necessitate the involvement of a third party specialist such as an attorney. The debtor may not have the funds to procure the services if the employer is not willing to assist as well. Unless the issue falls under the jurisdiction of the regulatory bodies (discussed below), there is no mechanism for the debtor to effectively address the issue. Many of the gross irregularities such as overcharging or duplicate emolument attachment orders only realise or can be addressed after the emolument attachment order has been implemented. Aspects such as the capital-interest component etc can be ascertained by the court or the official tasked with issuing the order. Courts do not have the capacity to deal with irregularities pertaining to emolument attachment orders outside the scope of legal intervention set out in the relevant legislation. For irregularities outside the scope of the court, even if there is judicial oversight over all matters, an alternative needs to be developed. The second issue is again related to the jurisdiction of the court and the powers to grant remedial orders. Consumer protection legislation such as the Consumer Protection Act and the National Credit Act regulate the contractual relationship between the parties if these statutes are applicable. The practical effect of judicial intervention is 244

See e.g. the proposed amendments/ working document in respect of the Magistratesâ&#x20AC;&#x2122; Courts Act.

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that the protection afforded is removed due to the court order. The discussion of the impact of a court order on the workings of section 103(5) hereunder serves as a case in point. It is doubtful whether the court has the knowledge or authority to include fairness principles e.g. relating to costs, into the court order. The court can only make orders as to legitimate claims (e.g. where the NCA prevents the recovery of costs from the debtor, the order can only be made in respect of the monies that may be recovered, such as the mora interest. Cost orders after judgment cannot be reduced through reliance on the terms of the NCA as it is submitted that the NCA does not apply to regulate the postjudgment relationship between the parties. The NCA mandates the court to make certain orders (see e.g. sections 130 and 164 of the NCA). 245 This does not only relate to magisterial oversight – particularly as the capacity constraints of the courts are well-known. 246 It seems clear that, if the irregularities of emoluments attachment orders are as wide-spread as reported, oversight in some or other form is necessary. However, a word of caution as to costs, especially where additional role-players are introduced into the market, as improper regulation could lead to additional financial burden to the consumer. The majority of the issues seemingly relate to market conduct and the inability of regulatory bodies to intervene with appropriate investigation and sanctioning. 247 The jurisdiction of regulatory bodies differs e.g. the National Credit Regulator is tasked with the regulation of the credit industry and can only deal with matters to which the National Credit Act applies. On the other hand, the Law Societies are tasked with governing the conduct of attorneys and firms, but only in respect of unprofessional conduct. The governance is therefore ‘person’ specific and no regulatory body exists that can assess emoluments attachment orders in a holistic manner. Furthermore, the person will often need professional assistance where the NCR refuses jurisdiction (e.g. attorney’s costs) as

245

See the discussion on the impact of the judgment in Part 3 par 1 above. The manner of oversight is framed within the context of a section 65 enquiry, however this is to be contrasted with the form of oversight required when considering an application to declare immovable property specially executable. This is often done by way of affidavit, but with reference to EAOs, in the absence of documentary evidence, the information required may fall exclusively within the personal knowledge of the debtor. See e.g. the requirements set in Firstrand Bank Ltd v Folscher and Another and Similar Matters 2011 4 SA 314 (GNP), available at http://www.saflii.org/za/cases/ZAGPPHC/2011/79.pdf.

246

Delays may be attributed more to the institutional aspects of the administration of justice that to the procedural rules.

247

Kotzé 2013.

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well as the Law Society (e.g. whether attorney’s costs are included in section 103(5)) as it is not unprofessional conduct such as overcharging. 248 Haupt and Van Sittert 249 indicate that “the exclusion of the discretion and supervision of presiding officers in the granting of and determination of the deductions to be made comes at a heavy price. In many instances, clerks of the court lack the necessary knowledge and skill or information to effectively and efficiently administer these orders. This is particularly true where reliance is made on section 65J(2)”. Unfortunately, the aforementioned statement does not take into account that many of the irregularities do not manifest or are not rooted in the process of obtaining emolument attachment orders. Furthermore, neither the clerk of the court nor the magistrate will be able to pick up on irregularities solely on the papers required by legislation before the court. The example of a fraudulent signature is used although courts have developed procedures to limit abuse insofar as is possible. An example of such procedures is the request for original documentation or limiting the clerks of the court who may grant emolument attachment orders in order to ensure familiarity with signatures between officers of the court. In this regard, fraudulent court signatures are lessened as deviations are duly noted when the papers are received by the relevant court official. However, in some instances a thorough investigation necessitating documents reflecting the original signature of the debtor and, potentially the services of a hand-writing expert is needed. Requiring same will increase the time and costs of the process. Simply referring the matter to a magistrate will not increase the ability to ascertain fraudulent behaviour without also increasing the procedural burden of the process. An interviewee indicated that the issue is not necessarily who executes the duty, but that the person or official who does it is competent to do so. 250 It must, however, be noted that clerks of the court and magistrates have different powers. The competencies granted in terms of the NCA to ‘the court’ i.e. the magistrate serve as an example. 251 Anecdotal evidence suggests that some clerks of court are not competent, do not understand the process or have the skills to establish whether or not there are

248

Example provided during interview 15 July 2013.

249

Haupt & Van Sittert 2013 11.

250

Interview dated 10 September 2013.

251

The court in African Bank Ltd v Additional Magistrate Myambo took due notice of this difference.

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irregularities present. 252 Reports on other clerks, notably where the clerks are also the taxing masters, indicate that the magistrates were confident in the ability of the clerks. The magistrates often relied on them for guidance on matters specifically within the scope of the clerks’ everyday duties.

4 Comparable remedy The further alternative submitted is to allow for the court to issue an emoluments attachment order only after a financial enquiry has been held. 253 This would in essence require a section 65A enquiry 254 prior to issuing an emoluments attachment order. The concept of a debtor’s court, conforming to the audi alteram et partem principle and allowing for the court to interrogate the debtor in order to, theoretically, impose an order that is structured to fit the circumstances of the debtor is sound. Section 65A makes provision for the debtor to appear in front of a magistrate in the so-called 'debtor's court' for a financial enquiry. The purpose of the appearance and enquiry is to allow the judgment creditor, in the presence of the magistrate, to question the judgment debtor on his or her financial circumstances in order to ascertain whether there are funds available to repay the debt towards the judgment creditor. The MCA governs the procedure to notify the relevant parties as well as the respective rights and obligations of the debtor. In terms of a section 65A(1) notice a judgment debtor may be summoned to appear before the Magistrates’ Court in chambers on a specified date to enable the court to 252

In the minority judgment of African Bank Ltd v Additional Magistrate Myambo [2010] ZAGPPHC 105 (delivered in September 2010 and available at http://www.saflii.org/cgi-bin/disp.pl?file=za/cases/ZAGPP HC/2010/105.html&query=myambo), the court noted at paras 8 & 9 that “I am concerned that a number of clerks of the court may not refer matters to the magistrate simply because they are overwhelmed by the process, or too busy to give it the attention it requires or, as unfortunately sometimes happens, are not mindful of how significant a part they play in ensuring that the provisions of the Act, especially with regard to the element of fairness and protection of the consumer/debtor, are complied with by the creditors. In the circumstances, I would qualify the sentence in the majority judgment: ‘they can grant judgment if the papers are formally in order’ (emphasis added), by adding the phrase, after ‘in order’; ‘and the clerks of the court have no reason to question the plaintiff's entitlement to the judgment’. The addition of this phrase would, in my view, highlight, in the mind of the clerk of the court, that formal qualification of the application for consent judgment is no deterrent to the clerk of the court's referral to the magistrate.” This procedure is an option in terms of sections 65A and 65E but is not mandatory prior to obtaining and emoluments attachment order. A financial enquiry can even be held where a debtor fails to make payment even though an emoluments attachment order was issued.

253

Summary of submissions: Department of Justice. Also see Coetzee et al 2008.

254

Sources: Written submissions provided by Haupt & Van Sittert as received for purposes of report titled Safari into Garnishment of Wages 13 February 2013 commissioned by Corporate Rebels; interviews dated 1 August 2013, 9, 18 & 19 September 2013; Bentley Seminar: Debt Collection 2013; Bentley De Rebus 2013; Van Sittert & Haupt 2013, Kotzé 2013.

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enquire into the financial position of the judgment debtor and to make such an order as the court may deem just and equitable. The purpose of the procedure is therefore to hold a financial enquiry in order to obtain an order for payment of the judgment debt in instalments. The notice is drawn up and signed by the judgment creditor and his/her attorney, issued by the clerk of the court and served by the sheriff. The court which has jurisdiction is the court where the debtor resides or carries on business or is employed. Where the judgment debtor is a juristic person, the court that has jurisdiction is the court of the district where the registered office or main place of business of the juristic person is situated. The clerk of the court may not issue a section 65A(1) notice where the minutes of the original court proceedings do not show that the judgment debtor was personally present or represented by an attorney when the original judgment was awarded or no warrant of execution was personally served on the judgment debtor. In these circumstances the judgment creditorâ&#x20AC;&#x2122;s attorney must first deliver a section 65A(2) letter by registered post to the judgment debtor. The judgment creditorâ&#x20AC;&#x2122;s attorney must furnish proof to the court of postage of the letter to the judgment debtor. Where the judgment debtor is in permanent employment, the section 65A(2) letter may also include a reference to section 65J which makes provision for an emoluments attachment order. The inclusion of such a reference will amount to a notice for the purposes of obtaining an emoluments attachment order as set out in section 65J(2)(b). Failure to appear when commissioned to do so is a criminal offence and the judgment debtor can be arrested for contempt of court. Even so, the practical implementation of the process is unfortunately circumvented by human behaviour. In terms of section 65A of the MCA, a debtor can on notice from a creditor be requested to appear before a magistrate in order for the latter to conduct a financial enquiry into the affairs of the debtor. This procedure allows for the court to investigate the circumstances of the debtor in order to ascertain whether there are funds available to repay a debt owed to a creditor and order that this be done, where possible, by way of reasonable instalments affordable to the consumer. However, this procedure is dependent on the following: 1. The enquiry must be requested by the creditor;

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2. The enquiry must come to the notice of the debtor and the debtor must understand what is expected of him or her (e.g. when and where to attend and which documents to bring along) as well as the repercussions of non-compliance with the notice (e.g. contempt of court resulting in arrest and penalty); 3. The debtor must attend the enquiry, which includes that the debtor should be available at the date of the enquiry i.e. be able to take leave from work and travel to court; 4. The debtor must provide the information needed to conduct the enquiry in a feasible manner i.e. true proof of income and expenses, etc.; 5. The creditor or its attorney must be present at the enquiry, which involves legal costs. The following procedures are available where the above procedure is lacking or the circumstances do not present itself as needed to be effective: 1. Most magistrates require personal service of the section 65A notice (notice of the enquiry) or positive proof that the notice and the contents of the notice came to the attention of the debtor e.g. service on someone resident in the same household; 2. The creditorâ&#x20AC;&#x2122;s legal representative has the option of requesting that a warrant of arrest be issued for the delinquent debtor. In this regard, the option exists for the debtor to contact the attorney to make payment arrangements or to arrange for the enquiry to be postponed to a date when the debtor will be able to attend; 3. If the debtor fails to appear at the court the legal representative for the creditor may request that a warrant be issued for the arrest of the debtor. The debtor will then be arrested by the sheriff or warned to present him- or herself at court to explain his or her contempt of court. The following potential problems have been reported and affect the effectiveness of the procedure: 1. The capacity of the courts to deal with financial enquiries in a timely manner; 2. The ability and willingness of the debtor to understand and react to the notice to attend the financial enquiry â&#x20AC;&#x201C; this includes lack of knowledge, cognitive function

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to understand the notice and the repercussions thereof, ignorance, financial inability to attend the enquiry, physical inability to attend the query, family and employment responsibilities; 3. The financial and legal literacy of the consumer to understand the options available to him or her in respect of payment arrangements (especially where options regarding amount, repayment period with resultant cost-implications are available to the debtor); 255 4. The ability of the sheriff to effect personal service on the debtor (especially the ‘professional debtor’) where this is a non-negotiable requirement of the court based on the magistrate’s discretion. 256 This may also apply in a similar fashion to service of the warrant of arrest. Difficulties, which have cost implications as payment is either further delayed or multiple attempts to serve the notice is necessary, include: a. Additional effort by the sheriff to attempt service at different times of the day and multiple efforts may be needed (the debtor is ultimately responsible to settle the expenses, but the attorney needs to carry the costs in the interim); b. Service (where the debtor is employed) by large companies, mines and employers where access cannot be gained onto the premises makes personal service extremely difficult or impossible. 257 The sheriff has the statutory mandate to demand access but may be subject to cumbersome (in respect of time) safety precautions whereafter the debtor has to be located (such as a miner that is employed underground). This necessitates assistance from the employer especially where same employs a large majority of debtors and the scenario repeats itself on a recurring basis; c. It may be a point of embarrassment for the debtor to be served with a notice to attend a financial enquiry into his or her affairs as a result of 255

Some debt collectors present the debtor with repayment options based on a variation of instalments and repayment periods. The debtor then has the option of choosing an option which he or she finds acceptable and implementable within the framework of his or her lifestyle and financial abilities.

256

Written submissions on a random sample of 46 files examined. See, however, the perspectives of magistrates and sheriffs on effecting ‘personal knowledge’ below.

257

Regarding service in general, it was interesting to note that one attorney’s firm indicated that they do not do collections where the employer is a mine as a result of the perceived impenetrable difficulties associated with the process.

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non-payment of debt at his or her place of employment and in front of his or her co-workers, peers, superiors and employer; d. Legal representatives seldom ‘serve’ the notice as it has time and cost implications. 5. The presence of the debtor at the enquiry with all the necessary documentation – it was interesting to note that the magistrates interviewed in two different provinces consistently noted that the percentage of debtors who do not appear for the financial enquiry is low (this ranged from one court stating that the percentage of non-complying debtors was in the single digits, to another estimating

non-appearance

20%).

direct

contrast

the

aforementioned, attorneys and sheriffs noted that the percentage of noncomplying debtors is very high (70/80 to 90%). When the discrepancy was put to interviewees in subsequent interviews, it could not be explained – one interviewee who had been an attorney prior to becoming a magistrate indicated that, as an attorney, the appearance of debtors was estimated at 1 out of 10, whilst as a magistrate, the incidences of appearance were 7 out of 10. 258 The interviewee attributed this to the current economic circumstances of debtor. During this interview it was also noted, when asked about the ‘use’ of the section 65 ‘debtor’s court’, that this court was often used and ‘full’. The question was asked in response to allegations that the section 65 court was not effective. The following reasons are purely speculative as, indicated above, the interviewees were unable to provide a reason for the discrepancy when it was put to them:

258

A case in point which illustrates the importance of consulting with people in practice and obtaining different perspectives from role-players is discussed in detail in Part 3 hereunder, but briefly set out for purposes of this discussion. The issue related to the question of whether debtors appear in the ‘debtor’s court’ when notified as such in terms of section 65A. According to written reports the incidence of debtors appearing in the court when requested is low, rendering the section 65 process ineffective. Interestingly, when discussing the matter with Magistrates in three different provinces, it was consistently noted that debtors do appear. The incidence of appearance was consistently calculated at 70% of higher. In contrast, debt collection attorneys consistently noted that debtor’s do not appear. During the last interview conducted with a magistrate who had also been a practising attorney, it was noted that, as an attorney, the experience was the 1 out of 10 debtor’s appeared whilst, as a magistrate, the experience was that 7 out of 10 debtors appeared. The interviewee prescribed this discrepancy to the changing economic circumstances of South Africans. In addition, it was reported that the warrant of arrest is ‘contentious’ as it is ‘extremely traumatic for a debtor, who may be locked up in a holding cell at a police station’. During interviews, it transpired that the warrant of arrest is seldom issued and the incidence of actually arresting a debtor is very low. The sheriff will rather warn the debtor to arrive at his or her offices or at court where the person will be handed to the clerk of the court. This process was generally viewed as effective in securing the presence of the debtor at court. The interviewees consistently noted that the involvement of the South Police Service is scarce as the members of the police will generally not concern themselves with civil matters. The members are also not trained in dealing with the matter.

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a. ‘Non-appearance’ could be interpreted differently, with interviewees potentially interpreting a ‘non-appearance’ with a reason e.g. inability to obtain leave from employment as an ‘appearance’ as it was not wilful neglect; b. Magistrates deal with various firm’s enquiries whilst the attorney’s firms only have a select few debtors to deal with on a daily basis; c. Parties have vested interests and account for these in their answers or equate the effort to obtain payment (e.g. the effort of issuing warrants, postponing enquiries v requesting judgment in terms of section 58 and the issuing of an emolument attachment order on consent obtained from the debtor) with the success of the process; d. The above represent perspectives and no empirical research is available on the attendance of debtors of the debtor’s court to provide a scientific foundation for either of the perspectives. e. Empirical research (necessitating assistance from courts and attorneys) on the following aspects will be the only way of objectively ascertaining whether the concerns of the industry is valid: 1. Notices issued 2. Debtors who appear at the first court date as stipulated in the notice; 3. Debtors with whom arrangements are made or who make arrangements

and

respect

which

attendance

not

necessary; 4. Debtors in respect of whom writs of arrest are issued; 5. Debtors who appear as a result of a warning or writ; 6. Subsequent

non-attendance

debtors

who

had

already

appeared in court before.

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Two further aspects relating to section 65 enquiries are of importance: Service on specific persons including personal service on the debtor Many of the challenges set out in this section also relate to service of documents by sheriffs in general i.e. summons, notices, etc. The practices of sheriffs to effect service are also applicable to documents other than emoluments attachment orders. Access to premises Sheriffs consistently noted that service at premises which have strict security are problematic. In light of legislative change, the sheriff also does not have the power to enter the premises without a person present on the premises anymore. These include: Security complexes and apartment buildings, which either have security personnel who are under strict orders not to let uninvited persons onto the premises, gates with no manner of contacting someone inside, unidentifiable or unreachable body corporate representatives; Large working premises with inherent dangers such as mines and power stations. In these circumstances, legislation and safety guidelines may necessitate that safety gear be worn or safety/ induction training be undertaken prior to granting admission to sections of the complex. When the sheriff is then allowed to enter, the person has to be found – and the challenges in locating the person may differ from working underground, hiding from the sheriff or working shifts. 259 Sheriffs have then indicated that they have to wait for the person outside the premises, which is time-consuming and may not fall within their ordinary working hours; In rural areas, finding a specific address where stands are allocated is problematic and may necessitate assistance by local inhabitants. Information In terms of section 65J(3) “an emoluments attachment order shall be prepared by the judgment creditor or his attorney, shall be signed by the judgment creditor or his attorney and the clerk of the court, and shall be served on the garnishee by the messenger of the court in the manner prescribed by the rules for the service of process”.

259

An interviewee indicated that debt collection matters where the debtor was employed at a mine was, as a matter of policy, not undertaken by the business as it was extremely difficult to locate the person.

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Companies where the document, such as the emoluments attachment order, must be served on a specific department may also require repeated attempts as the document may contain the address of the company, but not specify the specific department or that department’s address. Similarly, the instructions from the attorney would not specify the department or person upon which service is to be effected, necessitating the sheriff to ascertain this. Incomplete information such as personnel numbers or correct spelling of the name and surname of the judgment debtor on an emoluments attachment order caused employers/ garnishees to refuse to accept service. Incorrect information, such as addresses, etc further delay the process. Sheriffs seemingly also provide information to assist parties in making informed decisions on whether to proceed with execution, etc. One sheriff provided an estimation to attorneys of removal and storage costs as well as the amount for which the attached assets would ordinarily sell at an auction. The legal representative could then decide whether to proceed with a sale in execution and the sheriff requested a deposit where there was an expected loss after sale. It was noted that the success of sales in execution depended on the economic circumstances and geographical location of the debtor. Some debtors are also in the position to settle the debt and the attachment therefore serves the purpose of motivating the debtor to settle the debt. The following is an example of a general notice by a sheriff to attorneys where the debtor resides in the Tembisa area:

Personal knowledge instead of personal service Interviewees noted that courts required personal service and that this delayed the process where the debtor could not be located. However, when consulting with magistrates and sheriffs, it seemed as if a practical discretionary approach was taken by some. In this regard, the focus was on obtaining evidence that the debtor obtained knowledge of the document. In many instances the assistance of the community was given. Firstly, the so-called ‘same-roof’ service was an option. An interview indicated that the sheriff’s offices working hours were from 8.00 to 16.30. Debtors residing in rural areas were not at home during these hours. Therefore, the document was left at the correct

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address at e.g. a relative (grandparent/ spouse). The sheriff also obtained the relative’s cell phone number, possibly the cell phone number of the debtor and/or a work address from the relative. The relative was then tasked with giving the document to the debtor. The sheriff would phone the relative the next day to ascertain whether the document reached the intended person. When interviewing the magistrate’s court for the area in which the sheriff worked, the magistrate indicated that this form of service, as long as there was proof/ confirmation that the document reached the debtor i.e. personal knowledge, was acceptable (although not necessarily strictly in accordance with the legislative provisions governing service). Another sheriff had set up a point within a township where members of the township would collect post and notices. This was further managed by a person who knew the inhabitants of the township and would call the person to come and collect the document. Some magistrates indicated that service, which utilises technology, should be an option available when serving documents – the focus was on the personal knowledge of the debtor about the proceedings rather than the method of service. Process to compel attendance Some interviewees (sheriff’s offices) indicated that they seldom arrested persons where they failed to attend court. Magistrates noted that debtors made arrangements with the attorneys as they could e.g. now obtain leave from work. Others noted that debtors did not appear in court as they could not risk losing their employment and that it was costly to attend court for some who had to travel. In this regard, attorneys did not always request warrants to be issued. 260 One interviewee noted that magistrate’s would at most warn the debtor (e.g. section 65A(8)) and that actual imprisonment only happened after repeated contempts. Reliance on the assistance of the South African Police Service is apparently rare as the members of the police are not concerned with civil matters and lack the knowledge to understand their roles in respect of section 65 warrants of arrest. Another interviewee indicated that the court ordinance was rarely available or wanted to ‘take’ the person – in this regard the person was often requested to meet the sheriff at the court on an agreed time and

260

One magistrate had, however, chanced upon a practice where attorneys would obtain warrants of arrest after the debtor had made an arrangement and would then refer the debtor to the warrant when the debtor did not make payment. This matter was personally taken up with the attorneys and measures tightened in respect of these warrants.

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date (often before the court began) whereafter the person was handed to the clerk of the court. Some sheriffs indicated that a meeting was scheduled with the debtor at the sheriff’s office whereafter the attorney was also informed. Attempts were then made to resolve the matter without having to go to court. 261 One of the problems is that the debtor is brought to court by the sheriff but the attorney is not present and cannot address the debtor to resolve the matter. 262 Most interviewed sheriffs indicated that they did inform the attorney that the debtor had been warned to meet the sheriff at court or at his or her office, but one other indicated that he did not work for the plaintiff but for the court. In this regard, the sheriff only informed the attorney that the debtor had been located by way of a sheriff’s return which was stamped by the clerk of the court upon handing the person to the clerk. The return was thereafter submitted to the attorney. One sheriff’s office also indicated that they made extensive use of technology such as faxes and emails to inform attorneys of developments in a timely and expeditious manner. Sheriffs therefore confirmed that they did serve section 65 A notices, section 65 warnings/ warrants of arrest and that there were problems with serving the documents. They also confirmed that debtors did not attend court which necessitated the warnings. However, practical steps (of which some are noted above) are taken to overcome these problems, expedite the process, minimise the trauma of arrest for the debtor and ‘to get the job done’. In respect of knowledge of proceedings, two sheriffs in different provinces and without any prompting by the interviewer used the example of Labour (CCMA) matters. In respect of these matters, the first document in the proceedings need not be served by the sheriff. The order, which is the last document, or writ of execution is served by the sheriff and the following observations were made:

261

An interviewee of a sheriff’s office consistently noted that the people in the area of his jurisdiction did not ‘like’ the court. He further noted that this was one of the reasons why interpleader proceedings had a very low success rate – where the person was informed that he or she had to go to court to show his or her title with regard to the property, it seldom happened.

262

Bentley “Separating the baby and the bath water – Garnishee and emoluments attachment orders” De Rebus March 2013.

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At this stage, it is often the first time that the respondent/ defendant is confronted with the matter and becomes aware of it; Many problems appear at this stage such as wrong identity â&#x20AC;&#x201C; one example that the sheriff used was that the order to attach assets had been granted against a person who had not employed the applicant/plaintiff but was only the manager/ foreman of the business that employed the claimant. This point serves to illustrate the necessity of the sheriff in serving documents. Anecdotal evidence suggests that persons who are not sheriffs attempt to serve emoluments attachment orders (or orders framed as such but which is in reality notices or other documents) or attorneys simply faxed these orders to the sheriff. Many sheriffs have, however, built up a repertoire with the community in order to train them on who the sheriff is (many sheriffs are well known and identifiable in small communities) and what the sheriffâ&#x20AC;&#x2122;s powers etc are. Many lay persons including employers are not properly informed about sheriffs which facilitate abuses of the process. It is logical that the language proficiency (and language barrier where knowledge of the English language is not adequate) be taken into account. This example is phrased in legal terms and can even be simplified further. There is also no indication of where the court is:

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5 Discussion There are further time and cost implications to execute the process effectively especially in the light of the efforts to incentivise persons to adhere to the legal prescriptions. An overall regulatory body for debt collection may be needed in a similar frame as the UK Office of Fair Trading which governs debt collection as well as licensees in this respect. 263 Alternatively, improved co-ordination between regulatory bodies is needed, which may further necessitate expanded mandates. 264 South Africa regulates the individual and not the mechanism, which has resulted in a fragmented system. 265 Attorneys are regulated by the respective Law Societies and the regulation is limited to unprofessional or unethical conduct. Debt Collectors are regulated by the Debt Collectors Council whilst the National Credit Regulator regulates credit providers. The difference is that the NCR is also responsible to regulate the credit market which allows for a more comprehensive approach to regulation. In this regard, a body to regulate all aspects of debt collection and with the authority to issue guidelines (see e.g. the OFT guidelines in respect of letters of demand) is needed within the framework of market conduct regulation. This may need attention within the development of the twin-peaks approach to regulation to incorporate same into the developing framework instead of developing a new body. The World Bank recommended, in respect of the debtor-creditor regime that in “South Africa, it appears appropriate to focus on the safeguarding of the legislative

263

The OFT has the authority to issue guidance notes and guidelines. These notices embody the OFT’s interpretation and explanation of legislation and list practices that the OFT regards as undesirable and other practices the OFT wishes to see adopted. The notices do not have legal force but provides guidance as to the OFT’s view of legislation and in respect of unfair or improper conduct. It is therefore a threshold against which an entity can measure its conduct, especially with regard to that which is acceptable for a credit institution with a consumer credit license from the OFT. The OFT has issued the following credit sector specific guidance notes to date: debt collection, debt management (and credit repair services), second charge lending, irresponsible lending, mental capacity guidance for creditors, credit brokers and intermediaries. The OFT has regulatory duty in respect of the credit industry, including the authority to curb practices which, though not necessarily rendered unlawful legislation or prone to sanction but which may adversely affect consumers and/or the industry – see Goode RM (full reference to considered parts set out in bibliography).

264

In this regard, a list of set behavioural patterns could be isued by the Law Societies, in consultation with the NCR. These may be in respect of aspects relating to debt collection where, if attorneys are involved, would validate investigation by the Society e.g. section 103(5) or in duplum especially as the Law Societies’ committees should have intricate knowledge of attorney’s costs.

265

At present, established organisations structured like the Credit Ombud or National Debt Mediation Association are probably best suited to fulfill such a need although proper funding, human and other resources and proper support will be needed.

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gains made in implementation, and to improve the systems on the basis of the elements that are already in place.” 266 It is submitted that additional registration and compliance reports do not form part of the regulatory body’s regime in order to lessen the already hefty compliance burden on industry role-players who have to be registered with either of the bodies mentioned above and comply with various legislative requirements in any event. The body should have investigative and subpoena powers and be a body of investigation and redress. In the light of the above, judicial oversight in all instances is not recommended although the issue of consent was more often than not met with disapproval by interviewees of the judiciary and administration. Whilst some legislative changes may assist with clarifying issues, curbing abuses and dealing with irregularities, proper enforcement is necessary especially as many of the irregularities are not directly related to the debt collection process. This includes a point of reference for consumers to deal with suspected irregularities. The aspects that concerns and a body tasked with oversight should be industry-based with proper powers and resources.

6 Rescission and amendment of emoluments attachment orders Subsections 65J(5), 65J(6), 65J(7) and 65J(8)(b) provide as follows: “(5) An emoluments attachment order may be executed against the garnishee as if it were a court judgment, subject to the right of the judgment debtor, the garnishee or any other interested party to dispute the existence or validity of the order or the correctness of the balance claimed.” “(6) If, after the service of such an emoluments attachment order on the garnishee, it is shown that the judgment debtor, after satisfaction of the emoluments attachment order, will not have sufficient means for his own or his dependant’s maintenance, the court shall rescind the emoluments attachment order or amend it in such a way that it will affect only the balance of the emoluments of the judgment debtor over and above such sufficient means.” “(7) Any emoluments attachment order may at any time on good cause shown be suspended, amended or rescinded by the court, and when suspending any such order the court may impose such conditions as it may deem just and reasonable.”

266

World Bank 2012 23.

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“(8)(b) An employer on whom a certified copy referred to in paragraph (a) has been so served, shall thereupon be bound thereby and shall then be deemed to have been substituted for the original garnishee, subject to the right of the judgment debtor, the garnishee or any other interested party to dispute the existence or validity of the order and the correctness of the balance claimed.”

In terms of the current position, various legal and non-legal checks and balances exist to address problems with emoluments attachment orders. Should all parties execute their duties in a competent manner, the following considerations apply: The clerk of the court receives the request for judgment and emoluments attachment order with supporting documentation. The clerk should peruse the documents and, even where the requests seem formally in order, may refer it to the court. 267 The court may, in terms of Myambo, as and when applicable, investigate aspects relating to the cause of action in respect of consents to judgment; The garnishee and/or garnishee administrator may, if competent and knowledgeable, peruse the emoluments attachment order and query the existence, validity or correctness of the balance claimed. The debtor or any other interested party may also question the existence, validity or correctness of the balance claimed; Over and above all, the attorney for the creditor is bound to act in an ethical and lawful manner and may be removed from the roll of practicing attorneys, held civilly and criminally liable if found to have acted unethically and/or unlawfully. During interviews, with the exception of one, interviewees stated that incidences where the debtor could not afford the instalment deducted in terms of the court order and which, in theory necessitated amendments to the order through a court process, were low. Magistrates, attorneys and garnishee administrators indicated that the parties would agree internally on a reduced instalment supported by recent payslips and proof of income

and

expenditure.

Where

garnishee

administrators

negotiations were channelled through their officers.

268

were

involved,

the

Consumers/ Debtors were not

267

Where the cause of action is a credit agreement which is subject to the provisions of the National Credit Act, the rules of the Magistrate’s Court provide that the matter should be referred to the Magistrate in terms of rule 4 incorporating subrules 12(6), (6A) and (7). Some interviewees are of the opinion that these rules are ultra vires.

268

It was also noted that referral of cases where the intervention of a specialised organisation such as the Credit Ombud was necessary, had to be done (or at least the application completed) by the debtor. This posed its own challenges although the garnishee administrator assisted the debtor and sent the completed form to the organisation.

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interviewed and submissions cannot be made in respect of their perspectives and experiences. At most, reliance is placed on assumptions/ observations by interviewees. It also transcribed from interviews with garnishee administrators that challenges to the order were seldom initiated by the employer, but mostly by the debtor or administrator handling that specific employer group and channelled to the attorney for the judgment creditor. Although the interviewed personnel of administrators were competent in their knowledge of the law, the interviewees did indicate that the co-operation received from attorneys differed. In respect of aspects entirely in the domain of the law, such as legal costs and requests for detailed statements, some attorneys were perceived as being obstructive. However, the interviewees indicated that most attorneys, when supplied with proper proof of income and expenses, were inclined to negotiate reduced instalments. In this regard, the matter was not necessarily channelled through court as there were costs involved. However, as this is in contrast with a due court order, adherence is solely based on partiesâ&#x20AC;&#x2122; goodwill. Magistrates also reported low incidences of applications for amendments where the emoluments attachment order was not in connection with a section 74 administration order. In these instances, some applications for amendments were observed. During one of the last interviews, two magistrates proposed a possible solution to address rescissions and amendments. 269 The proposal was based on the process to obtain orders such as domestic violence interdicts or maintenance orders where the process is extremely simple and no legal representation is needed. The clerk of the court assists persons in this regard. The magistrates indicated at this stage that many debtors appearing in court in terms of section 65 were not represented in any event, sworn in and questioned by the magistrate. Where the creditorâ&#x20AC;&#x2122;s attorney questioned the debtor, the court would supervise the questioning. Two aspects need to be considered. The first is whether the court/ clerk of the court will have the capacity to assist debtors in a manner that is fair and equitable to both the debtor and creditor. It must be noted that similar abuses pertaining to bribery, incompetency, etc currently ascribed to clerks of the court may very well manifest within this context as well. The powers of the clerk of the court must also be considered within the scope of the nature of the emoluments

269

This proposal was not researched further and aspects such as competency of clerks to assist debtors without prejudicing either the rights of the debtor or that of the creditor as well as capacity constraints will need to be properly attended to prior to implementing any process in the suggested lines.

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attachment order. In this regard, as section 65 specifically refers to ‘court’, it is submitted that the clerk will only be in a position to assist the person to complete the necessary forms and attach the required supporting documentation, but that the actual rescission or amendment be effected by a magistrate after due consideration of prejudice to the debtor and/or creditor. This remedy would necessitate standard documentation. The second aspect pertains, again, to a consideration of the aspects that should be considered at a specific point of the process. It is submitted that section 65J(6) is counter-productive when considering the progress of the process to obtain an emoluments attachment order as the affordability of the instalment is challengeable after the emoluments attachment order has been served on the garnishee. An interviewee indicated that a recent income and expenditure sheet should be provided to the court prior to authorising payment in specific instalments. In this regard, affordability of instalments can be dealt with prior to actual prejudice to the debtor. 270 If this approach is taken, with due consideration that it will involve additional costs for the account of the debtor (which is due and payable upon rendering of the service to obtain the necessary information) and may delay the process in initially obtaining an emoluments attachment order, only a change of circumstances or irregular orders will be plausible reasons for amendments/ rescissions. Provision is made for judicial oversight in consent judgments in respect of agreements to which the NCA applies/ requests for judgment in terms of sections 57 and 58. In terms of Rules 12(5) & 12(7) 271 of the MCR: 272 “(5) The registrar or clerk of the court shall refer to the court any request for judgment on a claim founded on any cause of action arising out of or based on an agreement governed by the National

270

It must be noted that there are foreseeable challenges to this, such as: Obtaining documentation from debtors, especially where these are not readily available such as proof of monthly expenses and necessitate intensive co-operation from the debtor or requiring debtors to be truthfull (whether adding expenses or forgetting about certain expenses). Other problems pertain to costs – if tracers are employer, their services are recovered from the debtor as an expense. The importance of using properly trained tracers cannot be overstated as information can be obtained from the debtor in this regard. However, the time from when a debtor consults with a tracer up to actual enforcement of the agreement may be lenghty as many attorneys enforce a section 58 consent like a section 57 – the debtor is again given the opportunity to comply with the agreement and upon default, judgment is taken. This may result in information not being up to date anymore.

271

Rule 12(7) is made applicable to section 57 and 58 proceedings by rule 4(4).

272

See also African Bank Ltd v Additional Magistrate Myambo. An interviewee noted that this rule may be ultra vires but that it is necessary. Sections 57 and 58 empower the clerk of the court to grant judgment but it may be referred to court (in respect of section 58 see Myambo).

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Credit Act, or the Credit Agreements Act, 1980 (Act No. 75 of 1980), and the court shall thereupon make such order or give such judgment as it may deem fit.” “(7) The registrar or clerk of the court may refer to the court any request for judgment and the court may thereupon— (a)

if a default judgment be sought, call upon the plaintiff to produce such evidence either in writing or oral in support of his or her claim as it may deem necessary;

(b)

if a judgment by consent be sought, call upon the plaintiff to produce evidence to satisfy the court that the consent has been signed by the defendant and is a consent to the judgment sought;

(c)

give judgment in terms of plaintiff’s request or for so much of the claim as has been established to its satisfaction;

(d)

give judgment in terms of defendant’s consent;

(e)

refuse judgment; or

(f)

make such other order as it may deem fit.”

A court deciding on whether to grant judgment may therefore request information in accordance with authority granted to it by the NCA. 273 The magistrate also indicated that there are incidences of consumers signing of blank enforcement documentation at the time of credit-granting. In this regard, consumers’ circumstances would have changed i.e. the consumer defaulted on the agreement, and the original instalment agreed to (if inserted at all) would not necessarily be affordable. Magistrates also indicated that they perused the original credit agreement, not only for purposes of comparing signatures, but also to obtain an idea of the original instalment in terms of the credit agreement for purposes of instalments now payable after default of the consumer. However, current circumstances preceded by over-indebtedness, loss of employment, divorce or death of a spouse cannot be ascertained without additional information.

273

See Myambo in respect of the powers of the clerk of the court and that of the court itself. In respect of financial information, see the approach of the court in Minter N.O. v Baker and Another quoted extensively above.

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7 Summary: Oversight, rescission and amendment Prior to the implementation of magisterial oversight and additional requirement in respect of rescissions and amendments, proper impact assessment studies need to be undertaken in respect of court capacity constraints, additional costs to the debtor and creditor and prejudice to parties though delayed or obstructed access to justice. The issue of oversight is broader than just magisterial oversight where the purpose is to curb abuses and irregularities. Abuses and irregularities are possible throughout the lifespan of emoluments attachment orders and courts are only involved to a limited extent. The ordinary civil procedural principles relating to due process would apply in respect of rescission and amendment, however, use of these options is often not viable for the consumer when considering the time, difficulty and cost implications.

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Interest, fees, costs & charges 1 Introduction The terms of reference in the mandate that relate to this section are the following: The interpretation and understanding of in duplum with regard to agreements that are subject to emoluments attachment orders, with specific attention given to credit agreements, the position prior to and after the obtaining of judgment and whether legal costs are included or excluded in the rule; The amount and breakdown of legal costs that could reasonably be asked for by a claimantâ&#x20AC;&#x2122;s attorney against a debtor in the emoluments attachment order process; The position with regard to the 5% employerâ&#x20AC;&#x2122;s commission as provided for in section 65 including who is entitled to retain the percentage, by whom is it payable and whether parties can contract internally to have another party pay this commission; The following scheme illustrates the parties to the debt collection process who may have a claim to the funds of the debtor, whether as a capital or interest debt, fee, cost, commission or charge.

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2 Interest 2.1

Introduction 274

In terms of public policy and legislation, defaulting consumers are protected from credit costs that may accumulate indefinitely in the absence of the ability of the consumer to cure his or her default. 275 In terms of the common law, the in duplum-rule prohibits a creditor in any agreement where interest is charged on a capital amount from recovering arrear interest where the sum of the interest that has become due and payable equals that of the capital sum. 276 The amount that may be recovered at the time that the maximum amount allowable in terms of the in duplum-rule is reached i.e. the arrear and unpaid interest equal to the outstanding capital amount, is calculated with reference to the capital amount at the time when the interest equals that amount. The common law in duplum only applies to unpaid and arrear interest and is applicable to any agreement where a capital sum and interest is applicable. Furthermore, once the debtor has made payment, however small, which reduces the total unpaid interest to below the allowed cap, interest can accumulate again until the maximum is reached again. 277 The same principle applies to section 103(5) of the NCA. Section 103(5) of the NCA is applicable to credit agreements to which the NCA applies. In terms of this section, all costs of credit mentioned in section 101 that accrues (i.e. paid or unpaid) is included to calculate the maximum allowable amount payable by the debtor after he or she has defaulted on a credit agreement. The outstanding principal amount is calculated at the date of the default of the consumer. The amount for which the consumer is liable after he or she has defaulted on a credit agreement (this section overrides the contractual terms between the parties) may not exceed twice the outstanding principal amount i.e. the outstanding principal amount when the debtor defaults and accumulated costs of credit equal to the outstanding principal amount. However, 274

The in duplum rule has been discussed by many authors and various sources were researched in respect of this part of the report, including Louw 2013 (2); Dicker 2013; Campbell 2010; Friedman & Otto 2013 91); Friedman & Otto “Section 103(5) of the National Credit Act 34 of 2005 as inspired by the common-law in duplum rule (2)” (2013) 76 THRHR 361 (August); Kelly-Louw “The statutory in duplum rule as an indirect debt relief mechanism” South African Mercantile Law Journal 2011 (23) 352; Vessio “A short discussion on the effects of the in duplum rule upon commencement of litigation and after judgment: a view both ‘inside’ and ‘outside’ the National Credit Act” Obiter 2010 725; Nedbank Ltd and Others v National Credit Regulator and Another 2011 3 SA 581 (SCA), available at http://www.saflii.org/cgi-bin/ disp.pl?file=za/ cases/ZASCA/2011/35.html&query=Nedbank%20v%20National%20Credit%20Regulator; Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd 1998 (1) SA 811 (SCA) 834 B-E, available at http://www. saflii.org/cgi-bin/disp.pl?file=za/cases/ ZASCA/1997/94.html&query=oneanate.

275

See e.g. Nedbank Ltd and Others v National Credit Regulator and Another par 37.

276

Nedbank Ltd and Others v National Credit Regulator and Another paras 36 & 37.

277

Nedbank Ltd and Others v National Credit Regulator and Another paras 36 & 37.

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“Section 103(5) is not a code and embodies no more than a specific rule applicable to specific circumstances, that is, to credit agreements subject to the NCA. It is thus a statutory provision with limited operation.”

278

The following is a very basic visual comparison of the effect of section 103(5) vis-à-vis the common law in duplum rule. A more detailed comparison is set out thereafter. 6 5 4 3 2 1 0

Principal amount at time of default for purposes of 103(5)/ Outstanding capital amount at time that double is reached for purposes of in duplum Common law in duplum Section 103(5)

Section 103(5) of the National Credit Act 34 of 2005 introduced a statutory limit on amounts that may be recovered by virtue of a credit agreement which is subject to the provisions of the Act. In Nedbank Ltd v National Credit Regulator, 279 the court held that “once the amounts referred to in section 101(1)(b)-(g) that accrue during the period of default, whether they are paid or not, equal in aggregate the unpaid balance of the principal debt at the time the default occurs, no further charges may be levied”. The consequence of this judgment appears to be that two of the sub-rules of the common law in duplum rule do not apply to debts owing under credit agreements that are regulated by the Act. The first aspect of the common law rule that does not apply is that interest may not exceed the outstanding capital amount of a loan (debt) as at date of default. This is

278

Nedbank Ltd and Others v National Credit Regulator and Another par 38.

279

Paras 38 & 49.

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The operation of the common-law in duplum rule is suspended pendente lite, where the lis is said to begin upon service of the initiating process. This has the effect that interest which has stopped running because it has reached the amount of the unpaid capital will start to run again from the time the credit provider institutes legal proceedings. It is therefore possible that the arrear and unpaid interest may exceed the outstanding capital, because of the suspension of the in duplum rule pendente lite. The basis for the in duplum rule, namely that it is in the public interest that borrowers should be protected from exploitation of lenders who permit interest to accumulate, falls away when a lender institutes proceedings in a court to enforce the agreement. The lender under these circumstances is taking steps to prevent interest from accumulating further. Although this aspect is not explicitly dealt with in Nedbank v National Credit Regulator or the court a quo, it seems that the commonlaw position does not apply to section 103(5). The Supreme Court of Appeal only referred to Nedbank’s views and remarked: “Nedbank appears to have conceded that the suspension of the rule pendente lite was done away with by s 103(5)… Section 103(5) stipulates that despite any provisions of common law the charges that accrue during the time that a consumer is in default under the credit agreement may not exceed the unpaid balance of the principal debt. Although a matter might be pending before a court, the consumer will still be in default under a credit agreement as required by section 103(5) and the credit agreement will, it is submitted, not be able to rely on the common law position with the effect that the limitation continued in section 103(5) will apply pendente lite” ~ Friedman & Otto 2013

because it is now not only interest but interest together with the other items noted in section 101(1)(b)-(g) that may not exceed the unpaid capital amount at date of default. The second aspect of the common law rule that does not apply is that interest paid during the period of default may run again up to the limit set by the outstanding debt. This is so because the rule now is that the aggregate of all amounts debited may not exceed the maximum allowable threshold. The consequence of the use of the term “aggregate” is that the amounts paid cannot be deducted in that only the amounts debited may be added up, only non-paid amounts make up the “aggregate”. The common law in duplum rule has yet another two sub-rules. The first is that the rule is suspended when legal proceedings are instituted against the debtor. 280 The second is that once judgment has been granted, interest may run again until it reaches the capital amount outstanding in terms of the judgment. 281 Counsels’ briefs

280

Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd 834 B-E. See also Nedbank Ltd and Others v National Credit Regulator and Another par 37. In particular, see Campbell 2010 6: “Thus, eg, when unpaid interest reaches the equal of the unpaid capital during the course of litigation, it has been held that the in duplum rule is not applicable, and a debtor is not protected ‘pendente lite against interest in excess of the double’.The rationale for this finding is that a debtor is not being exploited when a creditor is being kept out of pocket with the assistance of delays inherent in legal proceedings. Upon judgment being given, interest on the full amount of the judgment debt (including any interest for which judgment has been granted) commences to run afresh”.

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were therefore concerned with the application of section 103(5) with regard to the following aspects: 282 Whether the common law principles relating to in duplum have been outlawed in instances where the causa is a credit transaction governed by the NCA; If not, have the abovementioned two common law rules have been outlawed by the rule in section 103(5); The impact of regulation 47: Whether, if the Act does not apply to post-judgment interest, the regulations can make the provisions of section 103(5) applicable; Whether a sanction, if any, may be visited upon a credit provider for a breach of section 103(5) and which sanction would be applicable; and Whether section 103(5) includes collection costs due to a debt collector or an attorney.

2.2

Legal framework

The agreement between the debtor and the creditor will govern the rights and the obligations of the parties. 283 This is supplemented by any applicable legislation which may prescribe rights and obligations that cannot be waived. 284 In terms of section 103(5), the liability of the consumer to the credit provider is limited and no legal right to recover revenue that exceeds the maximum allowable limit set by section 103(5) when applicable, exists. “However, one of the policy considerations underlying section 103(5) and the common law in duplum rule is that creditors should be deterred from being sluggish to enforce agreements while a debtor is in an unbearable position where his debt got out of hand. Forcing consumers who are hopelessly over-indebted to reconsider their financial position through initiating the enforcement proceedings may well be the most responsible course of action.” 285

281

Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd 834 E.

282

The briefs differed to some extent from the terms of reference and the opinions are therefore attached to this report as the research team did not express an opinion apart from that which was directly relevant to this report.

283

Scott 2002 491.

284

An example is section 90(2) of the National Credit Act.

285

Friedman & Otto 2013 (2) 366.

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The problem with the granting of judgment is, even though the interest rate is often lowered to 15,5%, that it negates the protection of the National Credit Act in respect of the capping of interest and costs through the provisions of section 103(5). Differences and similarities between section 103(5) and the common law in duplum rule: 286 Differences In duplum

Section 103(5)

Based in common law

Based in legislation, diverges from the common law

Applicable to interest only

Applicable to all prescribed costs of credit

Outstanding capital

Unpaid balance of the principal debt

Time

reaching

double

â&#x20AC;&#x201C;

then

calculate

At time of default

outstanding capital Unpaid and arrear interest

Paid and unpaid and arrear costs of credit that accrue during time of default

Allocation of payments can be agreed upon by

Section 126 regulates allocation of payments

parties Suspended pendentee lite when enforcement

No suspension

proceedings are instituted Similarities Judgment affects the implementation Restrict freedom to contract Interest does not lose its character Debtor protection is at the core of the rule

286

Friedman & Otto (1) 141-144.

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In the discussion below, based on the terms of reference, the process of debt collection is segmented as follows: Terms of reference: “The interpretation and understanding of in duplum with regard to agreements that are subject to emoluments attachment orders, with specific attention given to credit agreements, the position prior to and after the obtaining of judgment and whether legal costs are included or excluded in the rule”

Preagreement

Soft Collections

Default

Hard Collections

Judgment & Execution

Agreement

Default - Institution of Legal Proceedings

Agreement - Default

Judgment - Execution

The following table therefore illustrates the breakdown:

Process

Phase A

Section 103(5)

In duplum

Applicable

Institution of legal

Continuously applied

Suspended pendente

proceedings

from Phase A

lite

Default

–

Remarks

institution of legal proceedings

Phase B

–

judgment Interest

may

accumulate

Phase C

Judgment

–

Terminated

execution

Applicable judgment amount

Phase

costs/

In duplum applicable to

included

judgment amount

judgment

and

interest in

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Default Section 103(5) becomes applicable when the consumer is in default under a credit agreement to which the NCA applies. The section remains applicable until one of the following factual scenarios realises: 1. The consumer’s ‘default’ is cured. This is interpreted to mean that the consumer manages to reach a point in time where he or she would have been had the default not occurred and the pecuniary situation is as if no default occurred. In this regard, all arrear costs of credit must have been satisfied; 2. The credit agreement is no longer at stake i.e. where a judgment is given, the point of reference of the consumer’s default is no longer the credit agreement. In the premises, the institution of legal proceedings does not negate any of the requirements of section 103(5). This is in stark contrast to the position under the common law, where the institution of legal proceedings ‘suspended’ the operation of the in duplum rule. 287 As the NCA governs contracts between parties, section 103(5) is applicable to the pre-judgment period and will influence the amount for which judgment may be obtained: “As was pointed out above, the SCA held that in the light of the provisions of the NCA, there is no longer a contractual entitlement to interest, or to the other charges, except as allowed for by s 103. The latter section now expressly forms part of the credit agreement and defines the obligations of the parties as to interest and the other charges.” 288 Judgment “Therefore as soon as judgment is given to enforce the debt, which has the effect that the contract comes to an end, the consumer is no longer under default under a credit agreement and any default thereafter will, it is submitted, be default in respect of a judgment debt and interest will commence to accrue afresh in terms of the common-law in

duplum

rule.

The

operation

section

103(5)

will

therefore,

under

these

circumstances, be brought to a halt as soon as there is a judgment in legal proceedings

287

Kelly-Louw 2011 357-358, Friedman & Otto (1), Margo and Another v Gardner, Gardner and Another v Margo and Another 2010 (6) SA 385 (SCA), available at http://www.saflii.org/cgi-bin/disp.pl?file=za/ cases/ZASCA/ 2010/110.html&query=margo%20v%20gardner.

288

Dicker 2013 par 13.2.

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for the recovery of the debt. It will be default in respect of the judgment debt and not default under a credit agreement as required by section 103(5).” 289 The common law in duplum is applicable to judgments. Two perspectives exist on the effect of a judgment on the contractual terms of the agreement i.e. to which extent reliance can be placed post-judgment on pre-judgment agreed terms, but for purposes of 103(5) and in duplum it is submitted that the application is the same. The judgment is not a credit agreement even where it strengthens the contractual terms between the parties and grants access to the procedural remedies pertaining to execution. It does, however, impact the requirements set for the application of section 103(5). In this regard, the discussion pertaining to the nature and scope of the judgment is not applicable to this discussion. What is of relevance is the following noted by Kelly-Louw: 290 “Courts agree that the common-law in duplum rule affects the running of interest on a judgment debt. However, there is often disagreement on which amount the interest on a judgment debt should be calculated – the capital amount originally lent (i.e, principal debt) and costs awarded in terms of the judgment or on the full amount the judgment was granted for (i.e, capital amount originally lent plus the accrued interest before judgment). Schulze has expressed the view that interest begins to run from the date of judgment on the judgment debt as a whole, irrespective of the size of its interest component. The in duplum rule then applies again to the judgment debt as a whole, the policy consideration being that after the judgment is obtained, the credit provider must execute and bring to a close the accumulation of interest. This is also in line with the view of the Supreme Court of Appeal in Standard Bank v Oneanate Investments. So, once judgment is granted, the interest starts running on the judgment debt again and the common-law in duplum rule affects the running of that interest and prevents unpaid interest from reaching the level of the unpaid judgment debt.”

Legal costs Louw is of the opinion that legal costs are not included in section 103(5). His reasoning is as follows: 291 “To my mind the NCA, by sections 101(1)(g) and 103(5), does not apply in terms or by necessary implication to the institution of legal action against the consumer in order to legally collect a debt. “Collection costs” as used in section 101(1)(g) refers exclusively to collections that are subject to 289

Friedman & Otto (1) 145-146.

290

Kelly-Louw 2011 7. Louw 2013 (2) also deals with this theme extensively.

291

Louw 2013 (2) par 136 -140. Footnotes inserted in brackets.

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the NCA i.e. in the period before legal representatives are appointed. It seems to me that this must be the logical conclusion of section 101(1) dealing with items that may legitimately be included in a credit agreement. This item concerns collection costs. A credit provider can thus require a consumer to pay collection costs that are incurred whilst the contract is still subject to the regime of the NCA. What is important in this regard is to note what the NCA does not authorise to be included in a credit agreement and thus excludes from a credit agreement. The NCA does not authorise an agreement that the debtor must pay the creditor’s attorney and client costs or attorney and own client costs that are incurred after a matter has been handed to attorneys. This is of fundamental importance because it shows that the legislature turned its face against the inclusion in credit agreements of clauses that can only ever apply after a matter has been handed to attorneys. The significance of this is, I think, that the legislature clearly intended that the default position insofar as the scale of costs that may be granted at the judgment phase must be ordinary party and party costs and that a court may only grant costs on the attorney and client and attorney and own client scales where the particular case warrants such an unusual order. In other words, there must now be reason for a court to grant attorney and own client costs. In short, the parties may not by their agreement fix the scale of costs that a court may order. I can find nothing in the NCA to suggest that courts no longer have the function to order that costs must be paid by the losing debtor. I can find nothing in the NCA that shows that courts no longer have the power to order judgment and execution costs. In fact, as I read regulation 47 the existing position is entrenched. The regulation merely says that legal judgment and execution costs may not exceed the actual costs incurred by a credit provider.

In other words, a credit

provider cannot claim costs purely on the back of an agreement or by convention but the costs must actually be incurred. Secondly, the regulation does no more than to say that the costs that are recovered may not exceed the costs that may be fixed in terms of any of the pieces of legislation listed in this regulation which, to my mind, is nothing but a simple reference to the concept of taxation. In other words, the regulation says no more than costs can only be recovered if actually expended and costs recovered may not exceed duly taxed costs. [I do not wish to be understood that all costs must always be taxed, but they may not exceed what would otherwise be the “taxed limit”.] Regulation 47 does, indeed, make reference to “collection costs” as concept but, I repeat, the Minister cannot define concepts that are not defined in the NCA and, in any event, it is clear that the context of regulation 47 refers to “legal judgment and execution costs” and not to “soft collection costs”. In my view section 103(5) has not brought an end to the judgment creditor’s right to obtain an order of costs and such an order does not form part of the collection costs meant in section 101(1)(g).”

This term of reference is, strictly speaking, not relevant to post-judgment costs as there is a judgment. It is applicable to pre-judgment costs as it refers to the costs incurred by the credit provider in collecting on the debt. It is submitted that the contents of the

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judgment will be of importance – the costs not specifically mentioned in the judgment, if it was pre-judgment costs, will be included for purposes of section 103(5).

3 Fees, costs and charges for the account of the consumer 3.1

Introduction

Creditors have the option of outsourcing debt collection or claim enforcement activities for a variety of reasons. 292 These can range from internal lack of resources 293 to considerations of client relations. 294 Within the framework of the National Credit Act, the fees, costs and charges that may be recovered from the debtor are limited through specification (section 101) and amount (section 103(5)). This applies to pre-judgment debts, or those debts incurred prior to judgment and which do not relate to the costs recoverable in terms of the cost order granted by the court. Within the broader framework of legal costs, costs are limited by legislation, rules of law societies and to costs actually incurred. The basic consideration that an account must be fair, reasonable and necessary also finds application. In particular: The tariff set out in the Magistrates’ Courts Rules is the point of departure. It was noted that, where the recovery of attorney and client costs are authorised by the order, the bill of costs is usually 30% more than the tariff. The guidelines set out by each Law Society determine what is chargeable by an attorney. The Law Society may also have specific views on undercharging. Many attorneys realise that clients do not find it viable to instruct an attorney to recover debt. It may be in their business interests to charge a set or reduced amount per case and rely on volumes in order to be profitable. Although some writers have argued that 292

Scott 2002 491 et seq.

293

Scott 2002 491 & 493 notes that “these institutions offer specialised services towards which creditors are not geared… These entities are organised administratively in such a way that it is financially and in terms of the allocation of time far more expeditious for them to enforce claims than for the creditors who are basically not geared towards performing these services”.

294

Scott 2002 494 states that “[f]or psychological reasons most creditors prefer not to deal with their debtors personally at this stage and most debtors find it embarrassing to continue their business relationship with their creditors after they have had to deal with them personally in order to ensure payment of their debts”. During the interview conducted on 8 August 2013, the interviewee noted that the manner in which the debt collector set about to collect the debt was of paramount importance where preservation of the relationship between the debtor and creditor was of consequence to both parties.

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e.g. charging the maximum commission is exploitative and anti-competitive, 295 ‘undercharging’/ ‘undercutting’ may be “frowned upon as touting”. 296 A limitation on legal fees may assist a debtor who will not be able to fully satisfy the debt as per the emoluments attachment order; The legal costs recovered must be expenses actually incurred and for services actually rendered. In this regard, personal attention to each case is necessary otherwise the conduct of the attorney will amount to overcharging; It is further noted that the charges should be necessary in advancing the case. A case in point is where the debtor is phoned to thank him or her for payment and then subsequently charged for the call; It is further submitted that the expenses should be reasonable. Legal costs are a source of contention for many and accounts have been labelled legal, but immoral. 297 This view was shared by many interviewees as the debtor is responsible for the costs. It is doubtful whether the same perspective would apply where the creditor was responsible for the costs. On the other hand, the default of the debtor is the reason for the costs. If this view is shared by the Law Societies, consideration should be given to drafting new guidelines after conducting a proper impact assessment study as the outcome will affect the remuneration due where the services of third party specialists are solicited. In this regard, an interviewee noted that there should be a minimum amount which limits the option of emoluments attachment orders to debts that exceed this minimum amount. 298 The rationale for this proposal is based on the costs to the debtor where an emoluments attachment order is obtained. If the minimum costs that may be charged in terms of the lowest tariff set out in the Magistrates’ Courts Rules, where costs are calculated on an extremely conservative scale is exceeded by the outstanding debt, obtaining an emoluments attachment order should not be an option. Some attorneys have indicated that they limit their costs so that it never exceeds the capital amount of the debt. As set out above, undercharging may be seen as a form of touting and the perspective of the Law Societies should be obtained in this regard. 295

See e.g. Buchner & Hartzenberg 2013.

296

Theophilopoulos et al 2012 401.

297

Polity.org.za 27 February 2013.

298

Interview 22 August 2013.

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However, this will effectively mean that the short term agreements less than R 1000, which comprise the highest percentage of these agreements, will probably be excluded. In terms of the MCA, specifically section 65J(10), provision is made for a special form of commission payable to a garnishee (employer). This is over and above the costs allowed in terms of the tariff to the MCR and in relation to section 65J proceedings.

3.2

Section 65J(10) commission

3.2.1

Introduction

The terms of reference that pertains to this section is the following: The position with regard to the 5% employer’s commission as provided for in section 65 including who is entitled to retain the percentage, by whom is it payable and whether parties can contract internally to have another party pay this commission;

3.2.2

Determination of issues

Section 65J(10) provides for a commission of 5% payable to the employer (garnishee) by the judgment creditor for the implementation of the emoluments attachment order. The legislation specifically provides that the employer can recover this amount from the judgment creditor. “Any garnishee may, in respect of the services rendered by him in terms of an emoluments attachment order, recover from the judgment creditor a commission of up to 5 per cent of all amounts deducted by him from the judgment debtor’s emoluments by deducting such commission from the amount payable to the judgment creditor.”

The legislation is clear that the employer has a legislative right to recover the 5% commission and the judgment-creditor has an obligation to remunerate the garnisheeemployer for his or her services. The judgment-creditor therefore funds the 5%. In the absence of an agreement to the contrary, the legislative provision will be the default position and the debtor cannot be held liable or fund the 5%. The first question is whether the judgment creditor and judgment debtor may contractually agree that the judgment debtor will remunerate the garnishee-employer out of his or her own funds. The second question is whether the agreement and its terms are governed by the NCA and whether the section 65J(10) commission will qualify as ‘commission’ referred to in

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section 101(1)(g) as ‘collection costs’ and by necessary inference in section 103(5). Note that ‘collection costs’ in this regard is with reference to a credit agreement and not with respect to the costs for which the creditor is liable. 299 The third question is whether the reference to ‘collection fees’ in section 57(1) includes the commission referred to in section 65J(10). In practice, the following two occurrences with variations are found: 1. In terms of the relevant labour legislation, the employer may only make certain deductions from the remuneration due and payable to the employee. 300 Where the section 65J(10) commission is actually recovered by the employer (there are recorded cases where the employer did not deduct the commission) 301 the following can happen: The employer deducts the 5% from the instalment and pays the remaining amount over to the judgment creditor or the latter’s attorney. The judgment creditor’s attorney credits the account of the debtor for either the full amount of the instalment deducted from the employee’s salary as per the court order or credits the account of the debtor for the actual amount received i.e. the instalment less the 5% commission so deducted. In terms of the first version where the debtor is credited for the full amount although the instalment received is less, underscores the practice as intended by the legislator: The judgment creditor is responsible for the actual payment of the commission. However, two further complications arise from this practice. The Law Society of the Northern

299

Marais 2011 27.

300

Basic Conditions of Employment Act 75 of 1997 – Section 34 reads as follows: “Deductions and other acts concerning remuneration. – (1) An employer may not make any deduction from an employee’s remuneration unless – (a) subject to subsection (2), the employee in writing agrees to the deduction in respect of a debt specified in the agreement; or (b) the deduction is required or permitted in terms of a law, collective agreement, court order or arbitration award. (2) A deduction in terms of subsection (1) (a) may be made to reimburse an employer for loss or damage only if – (a) the loss or damage occurred in the course of employment and was due to the fault of the employee; (b) the employer has followed a fair procedure and has given the employee a reasonable opportunity to show why the deductions should not be made; (c) the total amount of the debt does not exceed the actual amount of the loss or damage; and (d) the total deductions from the employee’s remuneration in terms of this subsection do not exceed one quarter of the employee’s remuneration in money. (3) A deduction in terms of subsection (1) (a) in respect of any goods purchased by the employee must specify the nature and quantity of the goods. (4) An employer who deducts an amount from an employee’s remuneration in terms of subsection (1) for payment to another person must pay the amount to the person in accordance with the time period and other requirements specified in the agreement, law, court order or arbitration award. (5) An employer may not require or permit an employee to – (a) repay any remuneration except for overpayments previously made by the employer resulting from an error in calculating the employee’s remuneration; or (b) acknowledge receipt of an amount greater than the remuneration actually received.”

301

GIZ 2013.

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Provinces’ Rules 302 require that proper accounting records are kept with a corresponding duty to accurate recount to the client. Specifically, Rules 68.1.2 and 68.1.3 stipulate respectively that the records should reflect ‘entries from day to day of all moneys received and paid by it on its own account’ and ‘particulars and information of all moneys received, held and paid by it for and on account of any person’. Rule 68.3 states that there should be a clear differentiation on the accounting records between the operations relating to the trust and business account of the attorney’s firm respectively. The following is further of particular importance: 303 “Accounting to clients Every firm shall within a reasonable time after the performance or earlier termination of any mandate account to its client in writing. Each account shall contain – details of all amounts received by it in connection with the matter concerned, appropriately explained. A firm shall ensure that the total amount of money in its trust banking account, trust investment account and trust cash at any date shall not be less than the total amount of the credit balances of its trust creditors; ensure that no account of any trust creditor is in debit.”

In practical terms, this would necessitate that dual accounting systems be operated – one to reflect the actual amounts received in the trust account and dispensed to the client and another to calculate the payments due by the debtor, the repayment period and the interest, costs, etc. chargeable on the debtor’s account. This is an aspect that should be taken up with the relevant Law Societies in order to ensure that this is allowable. The alternative option would be for the creditor to reimburse the commission to the employer independently and after payment was received. However, it is submitted that this will be an additional administrative burden on all parties involved. 2. In terms of the second version, the judgment creditor is not responsible for the payment of the commission as the debtor in reality funds the 5%. This may be by way of a contractual clause in which the debtor undertakes to pay all collection costs which is interpreted to include the section 65J(10) commission. The employer recovers the commission directly from the debtor and the debtor is not credited for the full amount deducted from his or her salary, but for the instalment less the commission deducted. In this regard, it cannot be argued that the creditor remunerates the employer and recovers same from the debtor as the 302

Rules 68-69, available at http://www.northernlaw.co.za/Documents/rules_of_law_society/rules_of_ law_society_20121129.pdf, site accessed on 1 October 2013.

303

Rules 68.7 & 68.7.1, 69.3.1 & 69.3.2. Own emphasis.

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instalment received is treated as a full payment. The result is that the accumulative commission allowable in terms of section 65J and the tariff to the Magistrate’s Courts Act and Rules is 15% - 5% recoverable by the employer in terms of section 65J(10) and 10% recoverable by the collector, whether in terms of Table B Part 1 Item 3(b) 304 if it is an attorney or Annexure B to the Regulations of the Debt Collector’s Act 305 if it is a registered debt collector. The Magistrates’ Courts Act and the Debt Collector’s Act allow for a similar collection commission, although the maximum amount recoverable is significantly higher in the case of debt collectors (R407.00) than that of the attorney (R300.00). Both statutes also provide that recovery of the commission limits additional charges to be levied or will be in substitution for certain charges that may be debited to the debtor’s account. Some

writers have

questioned

the method

of section

65J(10)

as a

form

reimbursement due to the employer for the implementation of a duty imposed by third parties. 306 The two proposed alternatives noted by Van Loggerenberg are to either charge the account of the judgment debtor for the ‘additional administrative expenses’ of the employer or consider the emoluments attachment order in a similar fashion as deductions that the employer is tasked with ex gratia such as taxes, contractual obligations in terms of the employment contract, etc. 307 The primary concerns for the creditor is that the legislation makes provision for the commission to be payable by the judgment creditor and not the debtor. 308 The point of departure for these concerns is centred on the default of the debtor: The behaviour of the debtor of non-payment is the cause for the emoluments attachment order and the resultant costs. 309 The costs and

304

“3. The following shall be allowed in addition to the fees laid down in the Tariff to this Part: A fee of 10% on each instalment collected in redemption of the capital and costs of the action, subject to a maximum amount of R300,00 on every instalment. Where the amount is payable in instalments the collection fees shall be recoverable only on payment of every instalment. Such fees shall be in substitution for and not in addition to the collection fees prescribed in paragraph 13 of Part 1 of Table A”.

305

“On receipt of an instalment (one or more) in redemption of the debt inclusive of instalments made directly to the client: A fee of 10% of the instalment received, subject to a maximum amount of R407,00. No additional fee shall be charged for any attendance in connection with the receipt or payment of any instalment”.

306

Jones & Buckle 443.

307

Jones & Buckle 443.

308

Jones & Buckle 443.

309

Jones & Buckle 443.

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charges levied in the debt collection process are not for the pecuniary benefit of the creditor, but for third parties tasked with collecting the debt. 310 There does not seem to be a prohibition against consenting to pay the obligations of a third party (an example in this regard would be a suretyship, although the latter applies where the primary debtor (if the agreement does not make the surety a co-principal debtor as well) fails to meet its contractual obligations). In this regard, where the debtor consents to pay the 5% (and is aware of the fact that he or she is not under any obligation to do so as the legislation stipulates that this is to be recovered from the creditor), it cannot be faulted from a legislative perspective of contractual freedom. However, aspects such as reasonableness and fairness are applicable where the 5% contributes

escalate

the

indebtedness

the

debtor

indefensible

disproportionality to the original debt due. It may also be argued that a provision as such is now, in the light of recent developments and consumer protection contra bonos mores. However, the impact of the NCA deserves mention in respect of costs that the consumer becomes liable for. In terms of section 100(1), “[a] credit provider must not charge an amount to, or impose a monetary liability on, the consumer in respect of – (a) a credit fee or charge prohibited by this Act; (b) an amount of a fee or charge exceeding the amount that may be charged consistent with this Act; (c) an interest charge under a credit agreement exceeding the amount that may be charged consistent with this Act; or (d) any fee, charge, commission, expense or other amount payable by the credit provider to any third party in respect of a credit agreement, except as contemplated in section 102 or elsewhere in this Act”. 311

The critical question is therefore whether the NCA is applicable to the agreement in terms of which the debtor consents (usually included in the acknowledgement of debt/admission of liability together with the consent to judgment) to pay the 5% commission for and on behalf of the credit provider to the employer. In terms of section 101(1), “[a] credit agreement must not require payment by the consumer of any money or other consideration, except – (g) collection costs, which may not exceed the prescribed maximum for the category of credit agreement concerned and may be imposed only to the extent permitted by Part C of Chapter 6”. 312

310

Jones & Buckle 443.

311

Own emphasis.

312

Part C of Chapter 6 is concerned with ‘debt enforcement by repossession or judgment’.

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The NCA does not authorise consent to pay the section 65J(10) commission apart from the general reference to the MCA in Rule 47. This means that the liability to pay the 5% needs to be founded in legislation (which it is not) or as per the court judgment (which ordinarily only reflects the exact wording of the section). It is therefore submitted that, where the credit provider does not credit the consumer with the full amount of the instalment deducted in terms of the emoluments attachment order, the credit provider is in default under the court order in the absence of a clear agreement to the contrary. In practice, the employer recovers the amount from the debtor by deducting the 5% and transferring the further amount to the attorney of the credit provider. In this regard, the right of the employer to recover the 5% from the credit provider is extinguished, but the debtor has a right of recovery against the creditor for the 5% as there is no legal debt in respect of the 5%. It does not seem plausible that parties can contract out of judgment terms and it seems fraudulent to do so due to the ignorance of the debtor. In light of the above, the following considerations are relevant to conclude this issue: It is submitted that, in the light of the scope of the National Credit Act which pertains to credit agreements and not post-judgment wage execution orders, 313 sections 101, 101 and 103(5) is not applicable to section 65J emoluments attachment orders; The commission only becomes payable after judgment and after issuing of an order in terms of section 65J when the garnishee executes its duties as per the emoluments attachment order; Although a party may waive the benefits to a judgment, parties cannot agree that a judgment ceases to exist; 314 After judgment and upon issuing a section 65J order, section 65J(10), which is often copied as such onto the emoluments attachment order, becomes applicable; It is submitted that section 65J(10) regulates the position post-judgment unless the debtor agrees to fund the 5% explicitly and after judgment – this is particularly relevant as the obligation and corresponding entitlement to payment of the 313

The National Credit Act does have application to sale of property (e.g. sections 127,131, etc) which is not relevant for purposes of this discussion.

314

Louw 2013 (2) par 96-97. With reference to the NCA, Louw notes at par 97 “The NCA cannot prescribe how a judgment debt must be enforced or not enforced, what a judge or a magistrate may include or disallow in a judgement debt. The NCA, including section 103(5), does not operate post judgment.”

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commission as set out in section 65J(10) only becomes due and payable after an emoluments attachment order was lawfully issued, served and implemented; It will then amount to an agreement to pay the ‘debt’ of a third party but the debtor is not obliged to do so. In the premises, all the requirements for voluntary consent to pay the 5% for and on behalf of the judgment creditor is necessary where the garnishee recovers the commission; Mere deduction of the 5% without the informed consent of the debtor may amount to unfair enrichment or more serious allegations such as fraudulent behaviour; In the case of a judgment conforming to the wording of section 57 in respect of which ‘collection’ fees are payable by the debtor, it would have to be ascertained whether the commission in terms of section 65J(10) can be construed as collection fees. In the light of comparable sections such as the inclusion of ‘commission’ into collection costs in section 101(1)(g) of the NCA or into the tariff for legal fees in terms of the MCR, it is plausible that this commission may be included. 315 However, as this commission only ‘accrues’ (to use the words in Nedbank Ltd and Others v National Credit Regulator and Another) after judgment, it may not be an issue if section 103(5) is not applicable post-judgment even though payment of the commission is required by the credit provider in terms of the agreement between the parties. It is questionable whether the clerk of the court has the legislative authority to order the debtor, in lieu of the agreement, to include an amended version of section 65J(10) into the emoluments attachment order. A further agreement may be necessary. The rationale for this is to ensure that the debtor understands that this is a liability of the credit provider which, in terms of legislation, is payable to the garnishee-employer. The debtor also needs to understand that there is no legislative provision forcing him or her to consent to payment of the section 65J(10) commission.

3.2.3

Summary

1. A consumer can only agree to pay the commission if there is proper and informed consent that is specifically stated in agreement. In this regard, it is submitted that the attention of the debtor should be drawn to the provisions of section 65J(10).

315

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2. The common questions in this regard are the impact of the judgment and whether parties may contract out of the legislation. The impact of the judgment is important as the applicability of the NCA is a core consideration in respect of the rights and obligations between the parties where a credit agreement is at stake. The provisions of the NCA are particularly restrictive when cost of credit and the consumer’s liability towards the credit provider is concerned. This further impacts the importance of the wording of the judgment and whether specific requests for judgment ‘clauses’ should be inserted prior to the judgment creditor being able to rely on same. 3. In general, the point of departure is again the relationship between the parties, which may be contractual or legal. If the agreement, prior to judgment, is in contrast with the contents of the judgment, it cannot be followed. However, it can be argued that the agreement between the parties is similar to a third person paying on behalf of another and in the absence of a specific legislative prohibition, this may be allowable.

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It is thus clear that interpretation of the National Credit Act obliges a purposive approach as required by section 2(1). That it was the legislature's intention to keep the cost of credit as low as possible for the consumer is apparent in various provisions of the act, such as the regulation of interest and limitation of initiation fees. The legislature did not intend to limit only the direct cost of credit but also ancillary costs occasioned by related matters. It is submitted that it is for this reason that the act devotes part A of chapter 7 to alternative dispute resolution as a means of achieving settlement of disputes other than by means of debt enforcement in a court, which is an adversarial and often significantly more costly procedure. It is also for this reason that section 129(1)(a) requires that a credit provider must, as a required procedure before debt enforcement in a court, first propose to a consumer that the consumer approach a debt counsellor, alternative dispute resolution agent, consumer court or the ombud with jurisdiction with the intent that the parties resolve any dispute under the agreement or develop and agree on a plan to bring the payments under the agreement up to date. That the legislature was not ignorant of the costs occasioned by litigation, also appears from provisions such as section 90(2)(k)(iv), which prohibits a clause in a credit agreement embodying consent to a pre-determined value of costs relating to enforcement of the agreement except to the extent that is consistent with chapter 6. The statutory limitation of the in duplum rule contained in section 103(5) of the act may also have a limiting effect on legal costs. It is submitted that when interpreting the act these contextual considerations should be borne in mind ~ Van Heerden 2008

3.3

Legal fees

3.3.1

Introduction

The purpose of debt collection is to collect outstanding debts from a delinquent debt through various judicial and extra-judicial methods. 316 The success of the process is mostly evaluated by the amounts collected in the form of settlement of the debt, as this is the primary outcome of debt collection. However, the following principles are of importance when legal costs are considered: 317

316

Du Plessis 2003 1.

317

In this respect, only costs recovered by legal representatives for their own account is discussed. He following is an example from an Admission of liability and Consent in terms of Section 57 and 65J of the Magistrate's Court Act 32 of 1944 which authorises a pre-judgment collection commission for which the legislation does not make an allowance (only section 65J(10) allows for a commisisn in this regard after judgment and after an emoluments attachment order was granted): â&#x20AC;&#x153;I hereby authorize my employer to deduct and transmit on a monthly basis, the amount set out in paragraph 3 above and to pay same to the judgment creditor c/o the attorney acting on behalf of the Plaintiff in this matter, and also to deduct the 5% commission allowed in Law that is payable by me to my employer, until the full outstanding amount has been settled.â&#x20AC;?

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Efficiency in respect of time: The time within which the debt is collected. An extended period of collection of debt increases the interest payable (and ultimately the outstanding balance) by the debtor, which is to the detriment of the consumer especially where the instalment is not sufficient to cover the interest component. The result is that, although this is to the pecuniary benefit of the creditor as well as the attorney collecting

commission

each

instalment, the debt

will

either be

extinguished over an extensive period of time or not at all. Effectiveness in respect of the purpose and intended outcome of debt collection: Full repayment of the debt owed. Therefore, the process of debt collection will only be successful if the debtor can repay the debt within a reasonable period of time. The process of debt collection was not intended to continue indefinitely (no expectation of comprehensive settlement through repayment) and a process which does so, is in essence unsuccessful; 318 Efficiency in respect of input and output: The costs, charges and fees should not exceed the amount owed to the creditor. The purpose of debt collection has as an outcome recovery of the debt owed to the creditor and is contra-indicative if the cost of the process exceeds the amount in respect of which the proceedings were instituted in the first place. This is an example of an adverse outcome even where the costs are not for the account of the creditor but that of the debtor if the latter has consented to pay same. The core issue is that the outcome does not make economic/ business sense where the process itself is of more pecuniary value than the outcome. As will be illustrated below, the above principles are embedded in various safe-guards within the process. However, bridging the space between principle and practice has proven to be challenging. It will be shown that some attorneys draft an account for each individual case following tariff and/or attorney and client scales. Others have developed either a set bill of costs in respect of each case whilst other attorneys have scaled costs in accordance to the capital recoverable through the process. Adherence to the guidelines set out in the legislation and rules of the Law Societies (and indirectly the basic principles) is to a large extent wholly dependent on the integrity of the persons controlling the process and the costs. This is particularly challenging when considering the potential capacity and competency constraints in courts in respect of taxation if necessitated for all debt collection matters. Furthermore, bodies established in respect of overseeing a particular industry, such as attorneys, can only review bills of 318

The rationale behind the common law in duplum rule serves as a case in point.

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costs where same is referred to the organisation. This necessitates knowledge on the part of the debtor or another interested party to recognise discrepancies or potential abuse. Apart from behavioural obstacles to consistent cost allocation, potential variables such as the following influence the costs in respect of individual cases, complicating set rules: The meaning of ‘necessary’ within the context of costs. Linking ‘necessary’ steps to whether the outcome of the process is reached, can be ambiguous. No list of unnecessary or necessary actions exist to facilitate ascertainment or for purposes of guiding professional behaviour. An example is various attempts at phoning a potential garnishee prior to reaching the garnishee in order to verify employment. Whilst only the last call has a positive outcome in taking the process a step further to reach payment, the question is whether the other four attempts were necessary and can be billed against the account of the debtor. In this regard, a positive outcome cost approach may be necessary within the context of debt collection i.e. only where the action has been successful in taking the matter further such as actually reaching the employer and obtaining some information. The incidences of timely and accurate payment. Late payments or underpayments by a debtor and subsequent garnishee influence the length of the repayment period as it influences both the interest that accumulates as well as the period of which these become repayable. As will be noted below, an administrative burden in implementing the emoluments attachment order is the lack of certainty in respect of the repayment period. This is largely attributed to the lack of information relating to the costs that will be charged during the lifetime of the order. However, interviewees did note that some attorneys were providing repayment plans together with the order which facilitated implementation and monitoring of the order. This will allow for calculation of interest and the repayment period in order to effect timely ceasing of deductions when the order has been complied with. The inability to monitor a debtor’s account where parties are not obliged to act in good faith in providing information upon and in accordance with requests. Section 65J(4)(b) allows for “[t]he judgment creditor or his attorney, at the reasonable request of the garnishee or the judgment debtor, [to] furnish him or her free of charge with a statement containing particulars of the payments received up to the date concerned and the balance owing”. Reportedly, this does not discourage costs to be charged in respect of the

statement as the provision is interpreted as only prohibiting charges for the statement itself. The parties are also not obliged to provide a detailed statement, necessary to

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examine for unlawful costs. Furthermore, no indication is given of what the term ‘reasonable’ refers to, which is open for different interpretations. Changes to the tariffs will be effective from 15 November 2013. 319 Any drastic changes to costs, including capping of fees will necessitate an impact assessment prior to implementation as this may impact both creditor and debtor.

3.3.2

Legal framework

In terms of the wording of Regulation 47 it seems as if this regulation further limits the amounts that the creditor can recover in respect of a credit agreement, to the applicable legislation. 320 However, as mentioned above, section 103(5) is not applicable to postjudgment costs which are governed by the tariffs in the Rules of Court as well as the guidelines set by the Law Societies. 321 At most, pre-judgment costs will be subject to section 103(5). It is common practice for parties to agree that the creditor may recover legal costs on attorney and client scale from the debtor. As indicated by Smalberger JA in Intercontinental Exports (Pty) Ltd v Fowles 322 courts retain a discretion to provide an 319

GG Number 36913 of 1 October 2013, GN 760, RG 10032. This includes changes to the threshold amounts e.g. changes in respect of the threshold amount for Table A Part I for scale A from R12 000 to R7 000.

320

Dicker 2013 par 15. Van Loggerenberg in Jones & Buckle refer to Item 13 of Part 1 of Table A of Annexure 2 to the Rules and Rules 33(5)(a)(i) and (5)(c) in respect of ‘collection fees where a judgment debt is payable by instalments’. The author also notes in respect of subrule 33(5)(b) ‘between attorney and client’ “[i]n relation to proceedings other than those under ss 74 and 74A-74W the question of attorney and client costs is governed by s 80(2)” – Jones & Buckle Rule 33-8 [Service 2, 2012].

321

Many interviewees were of the opinion that costs can only be recovered as governed by legislation postjudgment. However, clerks issue orders stipulating attorney and client costs and these bills of costs are duly taxed by taxing masters in a similar fashion as a bill of cost in a trial. (or not taxed but changed)

322

Paras 25 -27: “The basic rule is that, statutory limitations apart, all costs awards are in the discretion of the court. The court’s discretion is a wide, unfettered and equitable one. It is a facet of the court’s control over the proceedings before it. It is to be exercised judicially with due regard to all the relevant considerations. These would include the nature of the litigation being conducted before it adn the conduct of the parties (or their representatives). A court may wish, in certain circumstances, to deprive a party of costs, or a portion thereof, or order lesser costs that it might otherwise hace doen as a mark of its displeasure at such party’s conduct in relation to the litigation. Is it to be precluded by agreement from doing so? A court should not be obliged to give its imprimatur to an order of costs which, in the circumstances, it considers entirely inappropriate or undeserved. In my view, as a matter of policy and principle, a court should not, an must not, permit the ouster of its discretion because of agreement between the parties with regard to costs. Because a court exercises its discretion judicially, not capriciously, it would normally be bound to recognise the parties’ freedom to contract and to give effect to any agreement reached in relation to costs. But good grounds may exist, depending upon the particular circumstances, for following a different course. This might result, on a proper exercise of discretion, in a party being deprived of agreed costs, or beign awarded something less in the way of costs than that agreed upon. As pointed out in Sapirstein’s case supra at 14C, the purpose of an award of costs is to indemnify a party. By stipulating for attorney and client costs a party seeks even greater indemnity for costs incurred through having to pursue a claim in court.”

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order as to costs in line with the agreement between the parties. If a proper rationale exists for the agreement, 323 the proceedings before the court and the conduct of the parties do not necessitate a departure from the contractual agreement between the parties, the court would ordinarily give effect to the understanding between the parties in respect of costs. 324 The default of the debtor necessitates that the creditor approach the court to enforce the debtor’s obligations. In the premises, the creditor ‘indemnifies’ itself by way of an agreement against costs incurred by the delinquent behaviour of the other party to the contract. 325 The terms in which the judgment is therefore drafted, pertaining to costs, is important. A distinction needs to be drawn between pre-litigation and post-judgment costs. In terms of section 19 of the Debt Collector’s Act, a debt collector (which excludes an attorney) may only recover costs in terms of the DCA – not provision is made for an equivalent to attorney and client costs. Marais notes that pre-litigation costs (i.e. collection costs other than post-judgment costs) cannot, in the absence of an agreement, be recovered from the debtor. 326

In the premises, these costs, as recovery thereof is governed by a

contractual relationship between the parties, will be subject to the restrictions imposed by section 103(5). 327 This position is in contrast with an ex lege obligation for recovery of costs, which is the default position in the absence of an agreement between the parties. 328 Ordinarily, each party is responsible towards his or her own legal representative to pay the representative’s remuneration and expenses incurred in rendering legal services whether the matter was successfully resolved or not. 329 Payment is usually governed by an attorney and client agreement which may also incorporate the client’s mandate to the attorney. The agreement will specify which scale of fees will be due and payable by the client to his or her attorney. It can either be per action/ services rendered such as consultation or drafting court documents or on an hourly basis. In respect of specific actions, the default position is the tariff (party-and-party scale) set out in the Rules of the Magistrates’ Courts. 330 The agreed position is attorney and client scale, which allows 323

Intercontinental Exports (Pty) Ltd v Fowles paras 26 & 27.

324

Intercontinental Exports (Pty) Ltd v Fowles par 26.

325

Intercontinental Exports (Pty) Ltd v Fowles par 27.

326

Marais 2011 32.

327

Marais 2011 40.

328

Marais 2011 40.

329

See Cilliers Law of Costs September 2013 par 4.02.

330

Rule 80(1) of the MCR.

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for actions not set out in the tariff but nevertheless necessary in order to bring the proceedings to its logical conclusion. Attorney and own client costs are per agreement for each hour of work or part thereof undertaken on the client’s matter by the attorney. 331 A further general rule of costs is that a successful party may recover costs from the unsuccessful party if the court grants an order to this effect. 332 The order will either not specify the scale (the default position is party-and-party) or may specifically state that costs of the successful party is payable on a party-and-party scale. Granting an order for attorney and client costs, 333 may be done by the court where the parties have agreed that costs will be payable on the higher scale. 334 The following principles are therefore applicable: •

The Magistrates’ Courts Act and Rules of Court are the primary sources for the regulation of the costs that may be charged and recovered in respect of section 65J proceedings. 335 The Act also regulates the persons that may recover fees in terms of section 80;336

•

The MCR contain the actual actions and costs on a party-and-party scale that are recoverable in respect of specific proceedings, which is the default position in respect of costs that may be recovered by one party from another upon the granting of an order to pay the opposite parties’ costs; 337

•

The Rules set by the four provincial Law Societies in respect of professional fees supplements the tariff in the MCR in respect of attorney and client costs. These are the costs that may be recovered by the attorney from the client and includes

331

Theophilopoulos et al 2012 404.

332

See Cilliers Law of Costs September 2013 paras 2.03 & 2.08 .

333

Rule 80(2): “(2) As between attorney and client, the clerk of the court may in his discretion (subject to the review hereinafter mentioned) allow costs and charges for services reasonably performed by the attorney at the request of the client for which no remuneration is recoverable as between party and party and for which no provision is made in the rules”. A magistrate’s court does not have the capacity to grant an order for attorney and own client costs – see Theophilopoulos et al 2012 404 and Cilliers 2013 par 15.02.

334

See Intercontinental Exports (Pty) Ltd v Fowles paras 22, 24, 26-27. See also Cilliers 2013 par 4.06 for examples of attorney and own client costs.

335

Rule 80(1) provides as follows: “Costs to be in accordance with scales and to be taxed—(1) The stamps, fees, costs and charges in connection with any civil proceedings in magistrates’ courts shall, as between party and party, be payable in accordance with the scales prescribed by the rules.”

336

Van Loggerenberg in Jones & Buckle 566 submit that the subsection referring to ‘any civil proceedings’ only apply to litigious matters and not to non-litigious matters.

337

Theophilopoulos et al 2012 403 -404.

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charges not provided for in the tariff. 338 However, debtors often consent to pay attorney and client costs and where the judgment confirms same, the creditor recovers these costs from the debtor as well. Apparently, an estimate of 30% above tariff is a general indication of the amount recoverable in terms of the attorney and client scale; •

Legal costs need to have been actually incurred (services actually rendered) if recoverable on an action/ service basis. 339 The alternative is a contingency fee agreement upon a specified success reached in the proceedings but various formal requirements such as registration of the contingency fee agreement at the relevant Law Society and caps on the total amount recoverable, exist; 340

•

Costs in respect of legal proceedings may only be recovered (i.e. executed upon by way of a judicial remedy to enforce payment on the grounds of a judgment) from another party in terms of a judgment term to this effect. 341 If the judgment or order stipulates costs on a party and party scale or does not specify the scale such as attorney and client costs, the default position will be taken and the attorney can only recover costs from the debtor on a party-and-party scale. The remaining amount due will have to be recovered from the creditor in terms of the agreement between the creditor and his or her or its attorney;

•

Any bill of costs must be fair, reasonable and necessary; 342

•

Costs, charges, fees, services rendered and disbursements/ expenses incurred may only be recovered once from the debtor i.e. where the garnishee is

338

See Cilliers Law of Costs September 2013 par 4.02: “In the narrow and more technical sense, the term is applied to those costs, charges and expenses as between attorney and client that ordinarily the client cannot recover from the other party”.

339

See e.g. Rule 33(6).

340

See the Contingency Fees Act 66 of 1997, De la Guerre v Ronald Bobroff & Partners Incorporated and others [2013] JOL 30002 (GNP) and Rules of the various Law Societies.

341

The court has a discretion to award costs. It is submitted that, where the debtor agreed to pay the creditor’s costs and fails to do so, the creditor will have to institute action to recover same if this matter was not dealt with in a judgment.

342

See also the guidelines in respect of attorney and clients costs set by Law Societies e.g. Rule 81 of the Rules of the Law Society of the Northern Provinces. It is notable that reference to “necessary” is continuously found in both the MCR and Society’s Rules which prompts the consideration that a legal representative must take an economic approach to finalising a matter. This consideration should cause practitioners from maximising income throuhg unnecessary costs. In this regard, a list of necessary and unnecessary costs should be drafted by the industry/ Society as a general guideline. Taxing masters play an important role in curbing abuses but, unfortunately, not all bills of costs are taxed (only one bill is often allowed by taxing masters). The capacity of courts is a concern as is the high level of competency necessary to adequately supervise legal costs from a judicial perspective. See also Christie 2006 354-355 in respect of excessive attorney’s fees.

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remunerated for its services through an administrative fee, the attorney for legal services rendered and collection commission, the creditor may not also recover costs from the debtor for same; •

Projected costs are subject to variables such as accurate timing and consistent payments as well as what is allowed by the taxing master of each court. 343

Various costs are set out below to illustrate the different items that can be charged. Some attorneys have taken the initiative to either cap their fees or calculate same in accordance with the capital amount recoverable. However, it is submitted that the debtor, having agreed to pay all liabilities of the creditor in respect of collection costs, is only liable insofar as the creditor is liable. In the premises, the capped fees should indirectly benefit the debtor as well. 344 The following rules are applicable to section 65 proceedings: 33. Costs.— (1) The court in giving judgment or in making any order, including any adjournment or amendment, may award such costs as it deems fit. (5) (a) In district court civil matters, the scale of fees to be taken by attorneys as between party and party shall— (i) be that set out in Table A of Annexure 2 in addition to the necessary expenses; (ii) in relation to proceedings under section 65, 65A to 65M, inclusive, and 72 of the Act and all matters ancillary thereto be that set out in Parts I and II respectively of Table B of the said Annexure; and (iii) in relation to proceedings under section 74 and 74A to 74W, inclusive, of the Act and all matters ancillary thereto be that set out in Part III of Table B of the said Annexure. (b) The scale of fees referred to in paragraph (a) (iii) of this subrule shall also be the scale of fees to be taken between attorney and client in relation to proceedings under section 74 and 74A to 74W, inclusive, of the Act. (6) Save as to appearance in open court without counsel, the fees in subrule (5) shall be allowable whether the work has been done by an attorney or by his or her clerk, but shall, except in the case of the fee referred to in paragraph 13 of the general provisions under Table A of Annexure 2, be 343

Interviews/ informal discussions.

344

Although this may be perceived as altruistic, many clients (creditors) are reportedly not keen to ‘throw good money after bad debt’. Capping fees to creditors may be a smart business move, creating competition between practitioners but may also not be tolerated by Law Societies under their touting provisions. However, some creditors have agreements that legal practitioners may recover all fees recoverable in terms of law from the debtor although the fees for which the creditor is liable, is capped. It is submitted that the liability of the debtor for costs is directly related to the liability of the creditor towards the legal practitioner. The purpose of an agreement to pay the other party’s costs is in essence to indemnify the deserving party against any punitive outcome of having to resort to legal intervention to recover debts duly owed to the creditor (see Intercontinental Exports (Pty) Ltd v Fowles par 27).

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allowable only in so far as the work to which such fees have been allocated has in fact and necessarily been done. (14) (a) The costs of issuing any warrant of execution or arrest shall, where they are payable by the party against whom the warrant is issued, be assessed by the registrar or clerk of the court without notice and inserted in the warrant. (b) The costs payable by the judgment debtor in respect of any proceedings under section 65 or 65A to 65M inclusive, or 72 of the Act shall be inserted by the judgment creditor or his or her attorney on the face or reverse side of any process issued under either of those sections and assessed by the registrar or clerk of the court before issue. (c) The registrar or clerk of the court may refuse to issue any process under section 65 or 65A to 65M, inclusive, or 72 of the Act in which the costs are not inserted or inserted but not according to tariff. (21) If a party consents to pay the costs of another party, the registrar or clerk of the court shall, in the absence of an order of the court, tax such costs, as if they had been awarded by the court. (22) Value added tax may be added to all costs, fees, disbursements and tariffs in respect of which value added tax is chargeable.

The

following

proceedings:

345

extracts

set

out

the

tariff

applicable

section

65J

345

Interviewees (e.g. 9 September 2013) noted that post-judgment/ EAO the costs were regulated by the tariff to the MCR. Others (e.g. 28 October 2013) noted that a consumer can agree to pay attorney and client costs as long as he or she were properly informed as to what this entails. The interviewee also indicated that the collection commission provided for in item 3(b) was only allowable in terms of the amount collected for capital and costs and does not pertain to interest. As indicated below, the wording of e.g. Rule 81 of the Law Society of the Northern Provinces seems to disallow fees (attorney and client) where a tariff in respect of the actions pertaining to debt collection is set in ‘law’. Debt collection is specifically regulated by the MCR, which allows for some discrepancy when considering the reference to ‘tariff’ and ‘law’ in Rule 81.

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Annexure 2 Table B Part I

Annexure 2 Table A Part IV (only items 1 – 5 applicable)

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Annexure 2 Table B Part I

Rules of the Law Society of the Northern Provinces (as an example) Rule 81 (own emphasis) 81. ATTORNEY AND CLIENT CHARGES 81.1.1 Subject to the provisions of rule 81.5 a member to whom any claim of whatever nature is handed for collection may in addition to any professional fees (e.g. the charges for any proceedings in a court of law) charge reasonable attorney and client charges: For the guidance of members the following attorney and client charges have been prescribed by the council as being reasonable attorney and client charges for purposes of this rule, but this shall not be construed as prohibiting a member from departing from the prescribed charges, either upwards or downwards, in appropriate circumstances. 81.1.1.1 (a) In the case of the member originally instructed before the granting of a judgment and also in the case of every member who receives instructions thereafter, but before the granting of a judgment, instruction charges ofâ&#x20AC;&#x201D; (i) R100 for claims of R1 up to R1 500; (ii) R200 for claims over R1 500 up to R5 000;

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(iii) R300 for claims over R5 000 up to R10 000; (iv) R400 for claims over R10 000. [Para. (a) amended by GG 32905 of 27 January 2010.] (b) In the case of every successive member who receives instructions after the granting of judgment, instruction charges of— (i) R100 for claims of R1 up to R1 500; (ii) R300 for claims over R1 500. [Para. (b) Amended by GG 32905 of 27 January 2010.] (c) R50 for every necessary letter or telegram written or received and for each necessary attendance. [Para. (c) amended by GG 32905 of 27 January 20i0.] (d) R90 for every 10 minutes or part thereof every necessary consultation with a debtor. (Para. (d) amended by GG 32905) 81.1.1.2 Collection commission at the rate of 10 per cent on the amount collected, subject to a recommended maximum amount of R1 000 for each payment or instalment, provided that where the member recovers commission from the debtor, either in terms of any law or in terms of a contractual obligation, he/she shall credit his/her client therewith to the extent of, but not exceeding the collection commission debited to his/her client. Collection commission covers all attendances and work done in connection with the receipt of a payment and accounting to a client in respect of a payment. [R. 81.1.1.2 amended by GG 32905 of 27January 2010.] 81.1.2 The charges set out in rule 81.1.1.1 and 81.1.1.2 shall be made only in respect of professional services rendered in cases where no tariff is prescribed by any other law. 81.2.1 In the case of final recovery or repossession of movables in terms of a hire purchase agreement, a suspensive sale agreement, a lease or any other contract of a like nature, a member shall, subject to the provisions of rule 81.2.3 in addition to any professional fees, charge collection commission, calculated in accordance with the provisions of rule 81.1.1.2 on the value of the movables so recovered or repossessed. 81.2.2 The value referred to in rule 81.2.1 shall be the value fixed on the movables by a court of law at a final judgment or the value fixed on the movables by an appraiser. 81.2.3 Where the total unpaid amounts owing under the agreement are less than the value of the movables recovered or repossessed or no value has been fixed on such movables by the court or by an appraiser the collection commission shall be calculated on the total unpaid amounts and not on the value of the movables. 81.3 The council may make general rulings regarding the application of this rule and the circumstances under which and the extent to which members may deviate- from the provisions of this rule. 81.4 Rules 81.1 to 81.3 are applicable to claims in respect of which a magistrate’s court has jurisdiction.

In terms of the provisions of rule 81.1.2, it seems as if the provisions of Rule 81.1.1.2 cannot be applicable where the tariff prescribed in the MCR allows for a comparable commission to be charged. In this instance, the provisions of Annexure 2 Table B Part I Item 3(b) are relevant. It is submitted that the cap on collection commission set in this

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item cannot be exceeded. The rules of other Law Societies may differ. However, Item 3(b) does not contain a similar prohibition to Rule 81: “Collection commission covers all attendances and work done in connection with the receipt of a payment and accounting to a client in respect of a payment”. This prohibition specifically relates to charges to debtors

for

various

“attendances”

which

escalate

costs.

Strict

supervision

and

enforcement is needed to prevent abuse of this discrepancy between the tariff and rules. It is submitted that the tariff should contain a similar provision to clarify the matter. Collection commission is charged in respect of collecting the instalment and additional charges directly related to this action would in reality amount to double charging. Collection commission cannot justifiably be charged for only receiving payment (often electronically) into the attorney’s trust account as tariff/ attorney and client scale are both action/ item based. It must therefore include some positive action intricately linked to the collection by the attorney, such as acknowledging receipt of payment, accounting/ reporting to client and updating records. The action of recovering costs should consistently be motivated by necessity with a specific and tangible outcome.

3.2.4

Practical application

The following are examples provided re bills of costs in debt collection matters of various attorneys. The first is a full bill of costs and the second sets out the items and expenses recovered by the particular attorneys depending on the amount recoverable. This is an initiative which provides an example of proportionality. The graphs thereafter illustrate the scale of the individual costs proportionate to the category of debt as well as those costs which escalate in accordance with an escalated debt and those (e.g. drafting an emoluments attachment order) that stay the same notwithstanding an increased debt. Details

Fees

Expenses

Taking instruction to obtain judgment (Rule 81 fee)

R 150.00

Taking instruction to obtain EAO (Fee as per tariff)

R 100.00

Request ITC report and Perusal thereof

7.00

Instruction to service provider –Debtor Tracing & Confirmation of Employment

50.00

19.00

(Rule 81 fee) Debtor Tracing & Confirmation of Employment Perusal of Tracing & Confirmation of Employment Report

R 280.00 R

50.00

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Drafting, Perusal and signature of Notice ito S 129 of the NCA

50.00

Attendance to posting of Notice ito S129 of the NCA

12.00

Drafting, Perusal and Posting of Letter of Demand (S 56)

29.00

18.56

42.00

8.14

Necessary telephone call by consultant – Act 114 of 1998 (3 x R15 k+ VAT)

46.14

Signature of AOD, etc at debtor’s place of work – Act 114 of 1998 (R150 + VAT)

R 171.00

Other necessary expenses not specifically provided for by Consultant- Act

15.00

54.00

Printing and Posting of Trace Pack for Consultation with debtor (14 pages x R3) Receipt and perusal of Trace Pack for Consultation with debtor (14 pages x R7.00)

98.00

Consultation with debtor for payment arrangements – Act 114 of 1998 (R37 + VAT)

Consent to Judgment

79.00

Attendance of delivering Request for Judgment to Clerk of Court

12.00

Section 57/58 Judgment per tariff

98.00

Attendance on collecting Judgment from Clerk of Court

12.00

Perusal for confirmation that judgment is granted

7.00

Drawing, perusal & signature of Notice to Defendant in terms of Section 57(3)

56.00

Attendance on posting of Notice in terms of Section 57(3) per registered post

30.00

EAO Fee as per tariff

R 131.00

Attendance on making of copies to file and keep (5p x R3)

15.00

Attend to payment of invoice of Courier/Correspondent

12.00

Correspondent/Courier attendance

12.00

Instruction to Sheriff

19.00

Correspondence to employer (Rule 81 fee)

50.00

Correspondent/Employer attendance

12.00

Attendance on payment of Sheriff’s return of Service

12.00

R 18.56

R 116.70

R 149.90

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Perusal of Sheriff document confirmation of service

14.00

Telephone costs

SUB TOTAL

R1 117.00

Vat @ 14%

R 156.38

Sub Total

R1 273.38

Plus Expenses

R1 083.00

TOTAL AMOUNT DUE

R2 356.38

60.00

R1 083.00

In other examples, the following items were due and payable, depending on the capital amount recoverable: 346

< 1 249.99 category 1

1 250.99 <

1 500<

2 000<

1 499.99

1 999.99

2 499.99

category 2

category 3

category 4

5–8

Taking instructions