Required steps prior to institution of action: Credit providers’ position

Required steps prior to institution of action: Credit providers’ position

Section 129(1) of the NCA requires that, before a credit provider may institute proceedings against a defaulting consumer, it must draw the default to the notice of the consumer in writing and make proposals as to ways in which the consumer can bring payments up to date. Registered mail is listed as one of various means by which the required notice may be delivered. On face value the credit provider is deemed to have properly ‘delivered’ the notice to the consumer upon dispatching it by registered mail.

However, in the matter of Sebola v Standard Bank 2012 (5) SA 142 (CC) the Constitutional Court held that proof of mere dispatch was not enough. In addition, there had to be proof of receipt at the post office to which the notice was dispatched. Therefore, prior to instituting action, the credit provider is required to send a Section 129(1) notice by registered mail and obtain ‘track and trace’ reports showing that the notice was indeed received by the correct post office. Only then may it enforce the credit agreement.

Yet another step was added in Absa Bank Ltd v Mkhize and two similar cases 2012 (5) SA 574 (KZD). The plaintiff (Absa) instituted action and subsequently applied for default judgment to enforce its rights under written agreements of loan on which the defendants had defaulted. Absa had sent Section 129(1) notices to the correct post offices and attached ‘track and trace’ reports to the summons. The ‘track and trace’ reports showed that, although notification had been sent to each respondent, they had not collected the notices. As the Court knew for a fact that the respondents had not received the notices, it considered that the effect of the judgment in Sebola was that it was required to adjourn the proceedings and make orders setting out the steps that it considered necessary for Absa to take before it could re-enroll the matters. This stems from its interpretation of Sebola that the Court must be satisfied on a balance of probabilities that the consumer did in fact receive the required notice.

The Court proceeded to postpone the hearing sine die and ordered Absa to re-send the Section 129(1) notices setting out information in addition to the normal requirements. Furthermore, the Court ordered that the application for default judgment had to be accompanied by evidence on oath establishing to the best of the plaintiff’s ability that the required notice was indeed provided to the defendants. The costs incurred by these additional requirements were to be paid by Absa.

Absa applied for leave to appeal to the Supreme Court of Appeal (SCA), contending that it was entitled to immediate default judgment resulting from its compliance with all the necessary steps required by the NCA and the Sebola judgment. Leave was granted, only for the appeal to be eventually struck from the roll following a majority ruling to the effect that the order in question was not appealable.  Although the position adopted in the court a quo remains unchanged, the dissenting judgment prepared by Lewis JA and Zondi AJA nonetheless provides valuable insight.

The dissenting Judges found that the order in dispute was indeed appealable and that they would have dismissed the appeal. Absa argued that the result effectively hindered the credit provider from enforcing credit agreements even in cases where the consumer purposely failed to collect the notice from the post office in an attempt to escape or delay liability. This also placed a heavier burden on the credit provider, which would heighten the cost of credit and affect the pockets of not only credit institutions but also consumers. The dissenting Judges acknowledged this fact, but found that the High Court interpreted the Sebola matter correctly and that such interpretation must stand even though the effect may be unfortunate.

In conclusion, the current legal position is that the credit provider (as opposed to the consumer) bears the risk of non-delivery. There still exists no established list of precise steps required from the credit provider as the Court must be satisfied that the consumer did indeed receive notice; taking the circumstances of each particular case into account and making any order it deems appropriate.

Johan Loubser, Candidate Attorney


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