Credit providers will take comfort from the judgment of the Supreme Court of Appeal ("SCA"), delivered on 4 November 2021, in Bayport Securitisation Limited ("Bayport") v University of Stellenbosch Law Clinic.
The SCA had to deal with the proper interpretation of "collection costs" as defined in section 1 of the National Credit Act, 2005 (the "NCA") and whether collection costs referred to in section 101(1)(g) of the NCA, as read with section 103(5), included legal fees.
Bayport and the Law Society of South Africa appealed against a judgment of the Western Cape High Court, which, among others, held that:
- collection costs as referred to in section 101(1)(g) of the NCA included all legal fees incurred by the credit provider to enforce the monetary obligation of a consumer under a credit agreement charged before, during, and after litigation; and
- section 103(5) of the NCA applied for as long as the consumer remained in default of his/her credit obligations from the date of default to the date of collection of the final payment owing, irrespective of whether the judgment in respect of the default had been granted or not;
Section 101(1) of the NCA limits the ability of the credit provider to the collection of the following:
- principal debt;
- initiation fee;
- service fee;
- cost of any credit insurance;
- default administration charges; and
- collection costs.
Section 103(5) of the NCA provides that the aggregate interest, fees and charges, including collection costs, which accrue during the time that the consumer is in default may not exceed the unpaid balance of the principal debt at the time of default.
The Western Cape High Court had interpreted collection costs to include all legal fees incurred through the employment of attorneys and advocates, as well as the execution of the judgment.
The SCA did not agree with this and highlighted that our courts have over many years drawn a distinction between collection costs and litigation costs.
The SCA was influenced by the rule of interpretation that unless the intention to do so is clearly reflected in a statute, whether expressly or by necessary implication, a statute should not be interpreted to alter the common law more than is necessary.
It made the point that the fact that the Superior Courts Act, the Magistrates' Court Act and the Debt Collectors Act prescribed maximum tariffs supported its view that a distinction needs to be drawn between collection costs and legal fees.
It further pointed out that to hold that collection costs include legal costs would be to oust or severely impact on the discretion of a court to make appropriate cost orders including punitive cost orders (where necessary).
The SCA held that if the legislature intended collection costs to include legal costs, the legislature could easily have said so.
The respondents before the SCA alleged that excessive costs were being charged in the context of micro loans and emoluments attachment orders and this favoured the interpretation adopted by the Western Cape High Court. The SCA held that even if it is true that excessive costs were being charged, it cannot be addressed by a strained interpretation of section 103(5). Instead, it would be for the legislature to deal with this by way of an amendment to the NCA.
The SCA also held that after a judgment has been granted against a consumer, usually only interest accrues on the judgment debt, save for necessary disbursements and charges allowed in terms of the relevant tariff. Section 103(5) did not apply post-judgment.
This case is yet a further example of the ineloquent drafting of the NCA and while the object of the NCA is largely to protect consumers, the interest of credit providers should not be overlooked. Credit providers have an important role to play in society and without them many of us would not be able to own homes or cars.
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