Jan 24,2013 / News / Legal Brief

The Constitutional Court yesterday upheld a judgment by the Western Cape High Court that the provisions of section 89(5)(c) of the National Credit Act 34 of 2005 (“the NCA”) is unconstitutional. The provision obliges courts, in a case of an unlawful credit agreement, to order that the credit provider’s rights under the agreement be cancelled or forfeited to the state.
This decision of unconstitutionality by the Constitutional Court is most welcome. The Courts’ discretion in deciding these types of cases will create a healthy tension between the consumer’s claim for a refund of money paid to the credit provider, and the creditor’s enrichment claim against the consumer.


A persons who provides or grants credit, alone or in conjunction with any associated person, in at least 100 credit agreements or in excess R500 000 (other than in terms of incidental credit agreements), may in terms of the NCA do so only if registered as a credit provider. If such a person was unregistered at the time when a credit agreement was concluded, then that credit agreement is unlawful.
Section 89 of the NCA provides that if a credit agreement is unlawful, then a court must order that all the purported rights of the credit provider under that credit agreement to recover any money paid or goods delivered to, or on behalf of, the consumer in terms of that agreement are either cancelled or, if the Court concludes that cancelling those rights in the circumstances would unjustly enrich the consumer, forfeit to the State.
Consequently the Free State High Court (“FSHC”) held in Cherangani Trade and Investment 107 (Pty) Ltd v Mason NO and Others unreported case no. 6712/2008 that the credit agreement in question was unlawful because at the time of the conclusion of the agreement the credit provider was not registered, had not applied for registration and was not in possession of a clearance certificate. The FSHC accepted that the provisions of section 89(5) of the NCA are peremptory and that the Court only had a discretion to decide whether or not the consumer would be enriched by the cancellation of the credit provider’s rights. The FSHC held that there was no doubt that the consumer in that case would have been so enriched, and accordingly declared the credit provider’s rights to recover payment from the consumer forfeit to the State.
Conversely, the Western Cape High Court (“WCHC”) in Opperman v Boonzaaier unreported case nr 24887/2010 declared on 17 April 2012 that section 89(5)(c) was inconsistent with section 25 of the Constitution as it permits the arbitrary deprivation of a person’s property.
On 10 December 2012 the Constitutional Court delivered a judgment confirming the WCHC’s aforesaid declaratory order that section 89(5)(c) of the NCA is constitutionally invalid.
The Constitutional Court held that if section 89(5)(c) of the NCA is declared invalid, the common law position regarding unlawful contracts would prevail until the legislature replaces it.
The unlawful agreement would accordingly be void and the credit provider would be able to claim successfully from the consumer on the basis of unjustified enrichment, if the requirements of the action are met.
This could include the consideration by the Courts of the circumstances of each case and especially the degree of blameworthiness of the unregistered credit provider, in order to reach a just outcome.

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