Picture: THINKSTOCK
Picture: THINKSTOCK

THE Constitutional Court has declared as constitutionally invalid a National Credit Act provision that 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.

The question before the court was whether section 89(5)(c) of the act was consistent with the right not to be arbitrarily deprived of property. The Western Cape High Court found in April that it was not, because the act denied an unregistered credit provider the right to restitution of money lent out, without affording a court the discretion to consider whether restitution would be just and equitable.

The section provides that a credit provider does not have the right to reclaim money lent to a consumer if it was not a registered credit provider in terms of the act at the time the loan was made. The act requires a credit provider to register if more than R500,000 is lent. Failure to register renders the credit agreement unlawful and void.

In this case, Filippus Opperman lent his friend Jacobus Boonzaaier R7m in 2009 to help him develop property in Cape Town. When the due date for repayment had passed, Mr Boonzaaier said he was unable to meet his obligations. Mr Opperman then applied for the sequestration of Mr Boonzaaier’s estate.

The application was not opposed and Mr Opperman succeeded in obtaining a provisional order. However, the high court declined to make a final order because of certain concerns regarding the act.

Writing for the majority, Judge Johann van der Westhuizen said the Constitutional Court previously found significant ambiguity in section 89(5)(c) and stated that it was "difficult to fathom exactly what is taken away from the applicant and exactly what is forfeited to the state".

He said section 89(5)(c) resulted in the deprivation of Mr Opperman’s property because it extinguished his right to claim restitution based on unjustified enrichment, without leaving any discretion to a court to consider a just and equitable order under the circumstances.

Judge van der Westhuizen said it was preferable for the legislature to address the problematic content of the provision comprehensively, rather than for a court to venture into patchwork legislating.

In a dissenting judgment, Judge Edwin Cameron said he would decline to confirm the high court’s order of invalidity, but would acknowledge the drafting error and leave Parliament to correct it.

Judge Cameron said the phrase "rights ... under that credit agreement" was central to the phraseology of the provision. "It cannot in my view be ignored. At the same time, its inclusion renders the provision incoherent and ineffectual."

He added that the phrase was incoherent because a right to restitution did not derive from a contract.

"It arises from the very fact that a contract is invalid," he said. "Restitution as a remedy lies outside the parties’ agreement, precisely because their agreement has failed."