In the case of Uys NO and others v The National Credit Regulator and another, the Supreme Court of Appeal ('SCA') recently heard an appeal from the Gauteng Division of the High Court which upheld the findings of the National Consumer Tribunal ('Tribunal') concerning alleged breaches of the National Credit Act 34 of 2005 ('NCA') by a private company, Loans Acceptable Funding (Pty) Ltd ('LAF'). The SCA considered the nature of credit agreements as defined in the NCA, as well as whether 'disguised or simulated' agreements may be concluded in a manner which avoids the provisions of the NCA.
Background
In 2018, following two complaints received from individuals alleging improper conduct by LAF, the National Credit Regulator ('NCR') initiated an investigation and concluded that LAF had been acting as an agent and/or intermediary for the Cornelis Family Trust ('the Trust'). Both complainants owned fully paid-up immoveable properties and had approached LAF to obtain cash loans, against their immoveable property serving as security for repayment of the loans. Upon refusal of said loans, they were referred by LAF to the Trust for an alternative solution.
Thereafter, following negotiations between these parties, the Trust – unbeknownst to the complainants – actually purchased their immoveable properties in a sale agreement, whilst simultaneously concluding a lease agreement with the complainants at a monthly rental. In terms of this lease agreement, the complainants were provided with an option to repurchase their immoveable property from the Trust (subject to the monthly rental being timeously paid) and this option needed to be exercised within 1 year from the date of the sale and lease agreements.
According to the complainants, they believed that they were entering into loan agreements with the Trust in which their immoveable properties served as security. It was never their intention to sell their properties to the Trust, which, they contended, was not a registered credit provider and thus had contravened several provisions of the NCA. Following this investigation, the NCR approached the Tribunal, which agreed with its findings that these impugned transactions constituted 'credit agreements' as defined in the NCA, and given that the Trust was not a registered credit provider, they were void and fell to be set aside. Upon appeal to the Gauteng Division of the High Court, the full court confirmed the findings of the Tribunal but granted leave to appeal to the SCA.
The matter before the SCA
The primary issues for consideration before the SCA was firstly whether these impugned transactions constituted 'credit agreements' as defined in the NCA, and secondly, whether they were disguised or simulated agreements concluded on specific terms to avoid the provisions of the NCA.
The SCA noted from the outset that section 8(4)(f) of the NCA provides that a credit agreement entails any agreement in terms of which "payment of an amount owed by one person to another is deferred, and any charge, fee or interest is payable to the credit provider in respect of the agreement, or the amount that has been deferred". Standard loan agreements typically fall within this definition. Section 8(2)(b) of the NCA, on the other hand, provides that a lease of immoveable property is not a credit agreement, irrespective of its form.
Did the Impugned Transactions constitute Credit Agreements
The SCA held that the impugned transactions did not create or suggest any legal obligations on the complainants to repay the purchase price of the immoveable properties to the Trust. Rather, the transactions merely granted an option to purchase the property, which could be exercised by the individual provided certain conditions were met. As such, there was no basis to conclude that any of the impugned transactions qualified as credit agreements in terms of the NCA.
Were the agreements disguised or simulated agreements concluded on specific terms to avoid the NCA?
The NCR argued that there were several peculiar features of the impugned transactions, which made no commercial sense unless these transactions were credit agreements in disguise. This included, amongst others, the fact that none of the 'lease agreements' required payment of a deposit; the purchase price of the immoveable property was far below its market value and corresponded to the amount the complainants wished to borrow from the Trust; and the Trust used advertising materials which offered consolidated loans for homeowners.
These allegations were by the Trust, who argued that it is not unusual for a deposit not to be included in a lease agreement; there are various commercial reasons for selling properties below their market value, as well as a denial of the use of any such loan advertising materials.
The Trust further highlighted that, during the negotiation process, the properties were transferred and registered into the name of the Trust, which required the full participation of the complainants, including the submission of title deeds of their properties and the signing of the relevant transfer documents.
The SCA quoted with approval the judgment of the then Appellate Division in Commissioner of Customs and Excise v Randles Brothers and Hudson Limited, which held that a transaction is not necessarily a disguised one because it is designed for the purpose of evading a prohibition in an Act.
The SCA held that there is nothing impermissible about arranging one's contractual or business affairs in order to avoid the provisions of the NCA. Further, in order to succeed in proving a simulated agreement, the parties must have both agreed and intended to disguise their transaction to appear as a sale and leaseback agreement, whilst in reality, their transaction would be a loan agreement. However, if the available evidence indicates that one of the parties genuinely intended to conclude a different type of agreement, and not disguise it as another type of agreement, then there can be no finding of a simulated agreement.
The SCA concluded that there was no evidential basis for the Tribunal or the full court to conclude that the impugned transactions were simulated credit agreements, nor actual credit agreements as defined in the NCA.
The SCA accordingly upheld the appeal with costs and set aside the judgment and order of the Tribunal.
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