The Free State Division of the High Court recently handed down judgment in the case of Mbombi and Another v BMW Financial Services SA (Pty) Ltd, where it decided upon the applicability of the National Credit Act 34 of 2005 ("the NCA") to a principal debt arising out of a motor vehicle instalment sale agreement as well as a corresponding suretyship obligation.
Background
On 22 September 2021, BMW Financial Services South Africa (Pty) Ltd ("BMW") and Ignite Services CC entered into an instalment sale agreement in terms of which BMW sold a BMW X6 M50i motor vehicle to Ignite Services CC on credit, subject to the repayment of a total principal debt of ZAR2 155 400.56 in 71 monthly instalments and a residue payment of ZAR600 901.90. On the same day, Sifiso Ndiya Mbombi executed a suretyship agreement binding himself to BMW as surety and co-principal debtor together with Ignite Services CC for the due and punctual payment of all debts and obligations owed to BMW in terms of the instalment sale agreement.
On 22 May 2023, BMW issued summons against Mr Mbombi and Ignite Services CC ("the applicants"), cancelling the instalment agreement and seeking judgment against the applicants for repossession of the motor vehicle and payment of the arrears due in terms of the instalment agreement. The applicants failed to enter an appearance to defend the action, whereafter BMW made an application for default judgment, which was granted on 23 November 2023, confirming cancellation of the instalment agreement, repossession of the motor vehicle and granting BMW leave to apply for damages.
The applicants thereafter brought a two-part application to court: Part A entailed an urgent application to stay the execution of a warrant to repossess the motor vehicle which was issued pursuant to the grant of default judgment, whilst Part B applied for a recission of the default judgment granted in favour of BMW.
In the applicants' founding affidavit, they contended that this transaction fell within the scope of the NCA, and therefore, BMW was required to deliver a notice in terms of section 129 prior to issuing a summons. Ignite Services CC did not receive this notice. Furthermore, whilst Ignite Services CC admitted defaulting on its monthly instalments, it denied that its account was in arrears when default judgment was granted, as five further payments had been made by it. As such, the appellants argued that a default judgment had been erroneously granted.
In response, BMW argued that Ignite Services CC had failed to make due and punctual monthly payments since December 2022 and consequently fell into arrears, which was never fully settled. Further, they served the section 129 notices at the applicants' respective domicilium addresses and thereafter issued summons lawfully cancelling the instalment sale agreement. The payments made subsequent to this cancellation were irrelevant, as an agreement cannot be revived once cancelled.
Analysis of the relevant law by the High Court
The High Court noted that in order to succeed in the recission of a judgment under Uniform Rule of Court 42(1)(a), an applicant must show that the judgment was erroneously granted in the absence of any party affected thereby. An order will be erroneously granted if the court was unaware of a fact which existed at the time of its issue, which would have induced the court not to grant judgment if they had been aware of it. Once an applicant establishes that the judgment was erroneously granted, it is not necessary to show a bona fide defence or show good cause for the rescission.
The High Court thereafter examined the provisions of the NCA and noted the following:
- Section 4(1)(a) provides that the NCA does not apply to a credit agreement if the consumer is a juristic person whose asset value or annual turnover, at the time the agreement is made, equals or exceeds the current threshold value of ZAR1 million.
- Section 4(1)(b) provides that the NCA does not apply to a 'large agreement', as described in section 9(4) read with section 7(1)(b), which includes credit agreements wherein the principal debt equals or exceeds ZAR250,000.
- Section 8(5) provides that an agreement, irrespective of its form, constitutes a credit agreement if a person undertakes to satisfy upon demand any obligation of another consumer in terms of a credit facility or credit transaction to which the NCA applies. This would accordingly include suretyship agreements provided the principal debt arose from a credit agreement subject to the NCA.
The High Court also made reference to the judgment in Firstrand Bank Ltd v Carl Beck Estates (Pty) Ltd and Another where it was held that even if the asset value or annual turnover of the principal debtor is below the threshold value of ZAR1 million, the credit agreement giving rise to the principal debt will be exempted from the NCA in terms of section 4(1)(b) if the principal debt arose from a 'large agreement'. In this regard, the High Court highlighted that the motor vehicle instalment sale agreement in this matter was for an amount of ZAR2 155 400.56, and therefore constituted a large agreement, which falls outside the scope of the NCA. Since the NCA was not applicable to the credit agreement which gave rise to the principal debt, the suretyship agreement concluded by Mr Mbombi also did not constitute a credit agreement under the NCA.
The High Court concluded that BMW were therefore not obliged to give notice to the applicants in terms of section 129 of the NCA. Further, BMW had lawfully cancelled the instalment sale agreement by the issuing of the summons on the applicants' respective domicilium addresses., As of the date of service of the summons, the applicants had defaulted and were in arrears. The further payments made by the applicants were inconsequential as "the legal nexus of lawful possession had been terminated and default judgment was correctly granted for the repossession of the motor vehicle". The High Court accordingly dismissed the applicants' application with costs.
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