2 The National Credit Act
The NCA was enacted:
[t]o promote and advance the social and economic welfare of South Africans, promote a fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market and industry, and to protect consumers.
The NCA covers various credit agreements and their contents, including a mortgage agreement, and aims to prevent over-indebtedness of consumers. This is done by forcing credit providers to evaluate the creditworthiness of a prospective consumer before extending credit. If credit was granted, and the consumer is unable to pay her debts, the NCA further provides that such a consumer may apply for debt review and a rescheduling of debts.
Section 86 of the NCA provides for instances where a consumer may apply for debt review before a notice of default was given to her by the credit provider. The debt councillor then does an extensive review and evaluation of the consumer’s obligations to determine whether she is over-indebted. In terms of section 86 such a counsellor can come one of to three conclusions. Firstly, the counsellor can reject the application because the consumer is not over-indebted. Secondly, the counsellor can find that although the consumer is not over-indebted, she is experiencing problems in paying her debts punctually. In this case the counsellor can recommend a voluntary agreement between the parties to reschedule the debt or, if that fails, make a recommendation to the magistrate’s court. The court can then either declare the agreement reckless or order rearrangements of the debts. Thirdly, if the counsellor finds that the consumer is over-indebted, the counsellor can either recommend to the magistrate’s court that one or more of the agreements be declared reckless, or that one or more of the consumer’s obligations be rescheduled.
If the consumer is in arrear and a credit provider wishes to enforce the agreement, the consumer must first be notified of her default and informed that she should seek advice. Only after the lapse of a certain period, will the credit provider be allowed to take legal steps. If the credit provider takes legal steps and ends up in court, one of three things can happen. Firstly, the contract may be cancelled due to the consumer’s breach and the goods will be sold and the outstanding debt be paid with the proceeds. Secondly, the court can find that reckless credit was granted and either suspend the agreement or part of the agreement or set aside the consumer’s obligations. And lastly, the court may find that the consumer is over-indebted and may make an order to reschedule the debt.
Over-indebtedness occurs when a consumer is unable to fulfil her obligations in terms of all her credit agreements on time, with regard to her financial means, prospects, obligations and history of debt repayment. Debt review can be initiated either by the court in any court proceedings where it is alleged that the consumer is over-indebted, or by the consumer herself.
A section 86 application may not be made once the credit provider takes steps to enforce the credit agreement in terms of section 129 of the NCA. Once the credit provider notifies the consumer of her default in terms of a section 129 notification, the credit provider must wait 10 business days before it can enforce the agreement (provided that the consumer was in default for more than 20 days).
In terms of section 129(1)(a) a credit provider may inform the consumer of her default before it can enforce the agreement. The mode of service of such a notice can be elected by the consumer. The constitutional court ruled that section 129(1) requires that such a notice must be properly delivered to the consumer (for example with registered mail and proof that it was delivered at the relevant post office for collection).
Once at least 10 business days have lapsed and the consumer has not responded to the notice or responded to the notice by rejecting it and the consumer has not surrendered the goods herself, the credit provider may approach the court. Unlike the case of an instalment agreement, secured loan or a lease, if a credit provider wishes to enforce its rights in terms of a mortgage agreement, the credit provider may approach the court for an order to enforce the remaining obligations if the net proceeds from the sale did not discharge the consumer of all her financial obligations.
The NCA therefore added some procedural guards before a consumer’s house can be sold in execution, in that a credit provider must first notify the consumer of her default and her right to consult with a debt counsellor. It also provides that an over-indebted consumer herself can apply for debt review to possibly ward off any legal action a bank may otherwise have. This may well, in some situations, prevent the house from being sold in execution, giving the consumer a second chance. A councillor can declare a consumer over-indebted if the information available at the time indicates that the consumer will be unable to satisfy (in a timely manner) the obligations under all her credit agreements. Whether this is the case is determined by reference to the consumer’s financial means, prospects and obligations as well as the consumer’s tendency to pay her debts under all her credit agreements as indicated by her history of debt repayment. This is a substantial inquiry.
When the debtor is not successful in terms of the NCA the creditor can ask that the agreement be enforced and the house sold in execution. This is done in either a magistrate’s court or a high court.
3 Executions Before Jaftha and Gundwana
Section 66(1) of the Magistrates’ Courts Act provides that when a magistrate’s court gives judgment, and that judgment has not been complied with, then a warrant of execution may be issued for the delivery of property or the payment of money, or for ejectment. When the order is for the payment of money, there are several remedies available to the judgment creditor. This article will focus on the remedy of property attached and sold in execution, more specifically, immovable property. Section 66(1)(a) of the Magistrates’ Courts Act provides that a warrant of execution may be issued against movable property and in certain circumstances against immovable property of the judgment debtor that may in turn be sold in execution.
In terms of section 66(1)(a) of the Magistrates’ Courts Act, the Sheriff will call to the home of the judgment debtor and attach movable property to settle the debt. If there is not sufficient movable property, the Sheriff issues a nulla bona return to state that there is not enough movable property to settle the debt. Before Jaftha, the clerk of the court was then obliged to issue a warrant of execution against the immovable property if she was satisfied that there are insufficient movables to satisfy the judgment.
Rule 36 of the Magistrates’ Courts Rules dealt with the situation where the judgment in the plaintiff’s favour was not satisfied. The judgment creditor’s attorney would prepare a warrant that is issued and signed by the clerk of the court and addressed to the Sherriff who then attached and sold the property in execution.
Where the original judgment was entered into by consent or default, the court was not involved in the process of issuing a warrant. In other cases, execution was only issued with leave of the court, sought at the same time as the granting of the judgment. The effect of the old rule 36(7) of the Magistrates’ Courts Rules was that judicial oversight only occurred at the initial hearing, since the application of the process of execution occurred with the granting of the judgment.
From the aforementioned rules the following needs to be noted. In terms of the old section 66(1) of the Magistrates’ Courts Act and rule 36(1) of the Magistrates’ Courts Rules, once a nulla bona return is issued or at a judgment by consent of default, the clerk of the court was the only person involved in issuing a warrant of execution against the immovable property of the judgment debtor. It should also be noted that such a sale in execution could take place once the judgment creditor complied with all the formalities, with no guarantee that the judgment debtor was actually aware that such a sale was imminent. It is mainly these two problems that caused some constitutional concerns with the execution of immovable property.
Rule 45(1) of the high courts’ Uniform Rules of Court, is the equivalent of section 66(1)(a) of the Magistrate’s Courts Act. It provides that, unless the immovable property was specially declared executable by the court, or in a judgment granted in terms of rule 31(5) by the registrar, a nulla bona return is required before immovable property can be executed. Therefore, if a home was executed based on a default judgment or a nulla bona return, no judicial oversight took place. These sections created problems and the questions arose whether the judgment debtor’s right to adequate housing is not infringed in the process.
4 Case law
4 1 Jaftha v Schoeman; Van Rooyen v Stoltz
Jaftha v Schoeman; Van Rooyen v Stoltz was the first case to question the constitutionality of the execution of residential (immovable) property acquired with state subsidy without judicial oversight. In the Jaftha case
the two appellants incurred a small debt at a local shop. Not having enough movables to satisfy the debt, the sheriff sold their houses in execution.
Jaftha and Van Rooyen launched proceedings in the Cape High Court asking that the sales in execution be set aside and to get interdicts to prevent the transfer of the houses in the purchasers’ names. The crux of their argument was that sections 66(1)(a) and 67 of the Magistrate’s Court Act was unconstitutional.
The High Court dismissed the argument stating that once the sheriff issued a nulla bona return, then the clerk of the court had to, in terms of rule 36, issue and sign a warrant of execution against the immovable property.
On appeal the appellants argued that the State and private parties had a duty not to interfere unjustifiably with their existing right to adequate housing as guaranteed in section 26(1) of the Constitution. For the same reason they argued section 66(1)(a) of the Magistrate’s Court Act was unconstitutional as it allowed for the unjustifiable removal of their right to access to adequate housing. A person who acquired a house by state subsidy and whose house is sold in execution is prejudiced in that they will be barred from receiving such assistance in future again.
The respondents in turn argued that the measures were reasonable and justified because section 66(1)(a) was part of a scheme and that sections 62 and 73 provided sufficient protection for debtors who wanted to avoid their homes being sold in execution.
The court per Mokgoro J found that section 26(1) of the Constitution contains a negative obligation to not interfere to the right to access to housing, and that this applies to private parties (such as banks) as well. A measure that permits the deprivation access to adequate housing obviously limits the rights in section 26(1). Such a deprivation to the right to adequate housing cannot easily be justified in terms of section 36 of the Constitution since “[i]t is difficult to see how the collection of trifling debts in this case can be sufficiently compelling to allow existing access to adequate housing to be totally eradicated”.
That being said, Jaftha does not mean that every sale in execution arising from a small debt will be unreasonable and justifiable, and therefore it is important to consider the facts of each case to ascertain the reasonableness of the execution. If the hardship caused by the execution outweighs the advantage to a creditor, it will be unreasonable. Of course, the reverse can also be true. The “consideration of the legitimacy of a sale in execution must be seen as a balancing process”. What is laid on the scales are, on the one hand, that the judgment creditor obtains payment and on the other hand, the judgment debtor’s interest in security of tenure of his home. If the sale in execution would leave the judgment debtor homeless, the balancing process must be even more careful.
The court listed factors that should be taken into account when balancing the interest of the parties. These factors are the size of the debt; the circumstances in which the debt arose; the financial situation of the parties; whether the debtor is employed or has another source of income to pay the debt; and the availability of alternative methods of debt recovery.
The court, unable to set down the situations where such a sale in execution would be justifiable or not, ruled that judicial oversight over the execution process in the magistrate’s court is needed. This will allow the magistrate to consider all the relevant circumstances of a case in order to decide where there are good reasons to order execution. This does not need prompting by a debtor. To provide for this judicial oversight, the court ordered that “a court, after consideration of all relevant circumstances, may order execution” be read into section 66(1)(a) before the words “against the immovable property of the party”.
The implication of Jaftha is that if the Sheriff has issued a nulla bona return, the judgment creditor needs to approach the court to seek an order to permit execution against immovable property.
The facts of Jaftha (losing a home to a small debt) makes it easy for one to accept that in such circumstances the courts should have judicial oversight to protect the debtor’s right to adequate housing. It is clear that the right of adequate housing in this instance weighs more than the right of the creditor to enforce his (small) debt.
After Jaftha the question arose: what to do in circumstances where a bank issued summons against borrowers that defaulted on repayment of loans voluntarily entered into? This situation is different because judgment debtors in this case wilfully give the bank a limited real right (of security) in their property.
4 2 Body Corporate of Sunninghill Park v Nobumba
A few months after Jaftha, the Eastern Cape High Court was asked to review a decision by a magistrate that refused to authorise a warrant of execution against immovable property where a body corporate obtained judgment against Nobumba for arrear levies.
Plasket J distinguished this case from Jaftha on the bases that in Jaftha the debts were very small and that the appellants would lose their homes (acquired through state subsidy), and that if they sold their sectional title unit and the debt paid to the body corporate, they would still be able to buy another dwelling with the residue. In casu the body corporate’s interest in enforcing the debt outweighs the interest of the respondents (to not have judgment against them).
The case illustrate how the court, when applying the Jaftha balancing test, will look at the interest of both parties. The court also made it clear, without saying it in so many words, that the right to access to housing does not mean any housing, but adequate housing. Since Nobumba could still buy a decent house with the residue of the sale of the sectional title unit, the court felt that this did not infringe on his right to housing.
4 3 Standard Bank of SA Limited v Snyders
In Standard Bank of SA Limited v Snyders the 9 defendants all owe money to the bank in terms of a bond. Standard Bank served summons on each of the defendants, and in all nine cases the defendant did not give notice to defend, in some Standard Bank filed a written application with the registrar for a default judgement in terms of rule 31(5)(a) of the Uniform Rules. The registrar however claimed not to have the power to grant an order declaring the immovable property executable because of Jaftha. Standard Bank then enrolled the matters in the High Court. In casu the court had to rule on the situation pertaining to default judgements under rule 31, and secondly whether defendants should have been made aware of their rights in terms of section 26 of the Constitution.
The court did not feel it necessary to declare rule 31 invalid, since, according to the Cape High Court, “[a]ll that is required is that it be interpreted in a practical and sensible manner”. This, the court found, is inline with the purpose of the rules of the court, namely “to expedite the business of the courts”. Rules must therefore be interpreted “to enable litigants to resolve their differences in as speedy and inexpensive a manner as possible”. The court found that rule 31(5) did not exclude the powers of the court and that the court can deal with the matter if referred by the registrar or the defendant.
The second issue is whether the defendants should have been notified of their rights under section 26 of the Constitution. Standard Bank argued that these cases can be distinguished from Jaftha because the mortgage bonds signed by the debtor contains a specific clause where the debtor agrees that his property may be declared executable should they default on the payment. The court ruled that, before the Constitution an order to declare property executable was simply a procedural step, but due to Jaftha and the Constitution this “is no longer simply a matter of procedural law”. Section 26(3) introduced a pre-requisite for granting such an order, by placing an obligation on the courts to now consider all the relevant circumstances in a case. The court solved the matter in terms of the general principles of pleading. This entails that the bank must comply with section 26 of the Constitution, and in the summons show that the facts alleged by the bank will justify an order in terms of section 26 of the Constitution.
In the Snyders case the Cape High Court added the requirement that the plaintiff must, in its summons, contain a suitable allegation to the effect that the facts alleged by it are sufficient to justify an order in terms of section 26(3) of the Constitution. It also ruled that if the execution order is asked in terms of section rule 31 (default judgment) no judicial oversight is needed, since expediency of the process is important.
4 4 Nedbank v Mortinson
Joffe J did not agree with the Snyders case. In the Witwatersrand local division Nedbank v Mortinson rule 45(1) of the Uniform Rules was challenged. After Mortinson defaulted on his bond payments, Nedbank applied for execution of his home in terms of a default judgment. Since the registrar was aware of the Jaftha case, he doubted his competence to declare the hypothecated property executable and required that the matter be set down for a hearing in court.
The court stated that not in all instances the question of violation of section 26 will be relevant as commercial property is sometimes hypothecated as security. The court accepts without going into it that a declaration to execute residential property in terms of rule 31(5) is a limitation of section 26 constitutional rights, and went on to consider whether this is a justifiable limitation in terms of section 36(1) of the Constitution.
In answering the question the court noted that “the smaller the amount the greater the need for careful scrutiny and the more compelling the reasoning in the Jaftha judgment that the limitation is not reasonable and justifiable”. This implies that the cases in the magistrates’ courts probably warrant more careful scrutiny.
The second distinction the court made between the facts in casu and Jaftha is that the sale in execution of hypothecated property should be treated differently because “the debtor has participated in a commercial transaction and has willingly utilised his or her immovable property as security and thus put it at risk”.
Thirdly, the court found that the Uniform Rules as opposed to the Magistrates’ Courts Rules have a safeguard to protect the debtor, since, the court can reconsider a judgment or direction given by the Registrar within 20 days after the concerned party acquired knowledge of the judgement or direction. The debtor should be aware of this rule because he “who participate in economic activity to the extent of hypothecating immovable property” would in normal circumstances have access to legal advice. For those instances where such an assumption would not be true, the court found that a rule of practice that prescribes to the Registrar to include the provisions of rule 31(5)(d) should suffice.
The court had no difficulty to find, based on the above, that where a debtor specifically hypothecated his immovable property and there is no abuse of court procedure, that the limitation on one’s access to housing is justifiable in terms of section 36(1) of the Constitution. The court found that rules of practice to alert the Registrar to assist him to determine abuses and to refer those applications to the consideration by the court.
On rule 45(1) and the issue of writs after immovable property has been declared executable by the Registrar the court ruled that if the Registrar declared immovable property executable, then the writ may be issued. If the writ was issued after the movables were insufficient to satisfy the debt, then the Jaftha judgment is applicable as there is no basis on which the judgement can be distinguished. To remedy this defect the words “and a court, after consideration of all relevant circumstances, has authorised execution against the immovable property” must be inserted after “movable property” in rule 45(1).
The court attached a lot of weight to the debtor’s presumed knowledge of the law - if the debtor can enter into mortgage agreement, he must be able to participate and bear the consequences of such agreement. The Johannesburg court ruled that even if the amount falls within the jurisdiction of the magistrate’s court, the Registrar must refer all cases where hypothecated property is sought to be declared executable to be heard in the open motion court. Magistrate court’s execution requires careful scrutiny because the debts will be relatively low most of the times, while in the High Court the debtor seems to be protected by the Uniform Rules. According to Mortinson, therefore, default judgments does not require judicial oversight, while executions based on a nulla bona return, will be bound by Jaftha.
4 5 Standard Bank of South Africa Limited v Saunderson
Standard Bank of South Africa Limited v Saunderson gave the Supreme Court of Appeal the opportunity to clarify the situation in the High Court. In Saunderson Standard Bank requested the payment of the outstanding bond amounts. The debtors did not respond to the summons and Standard Bank applied for default judgement, requesting the Registrar to order the immovable properties executable.
The court from the outset made it clear that a mortgage bond might be treated differently from the Jaftha scenario by emphasising that it is an agreement that is entered into freely through which the borrower
compromise their rights of ownership. This curtailment of the right of property “penetrates the rights of ownership”, and the “bond-holder’s rights are fused into the title itself”.
The court placed a lot of emphasis on the mortgage bonds as instrument of security and the fact that the law will give effect to its terms. The purpose of a mortgage bond is to allow the secured creditor to ask the court to execute against immovable property immediately.
The court highlighted that Jaftha does not imply that section 26(1) would be compromised in every case where execution is levied against residential property, but that only a writ of execution that deprives a person of “adequate housing” (a relative concept, according to the court) would violate section 26(1) and would therefore need justification in terms of section 36(1). In cases where poor people are evicted from their state subsidised homes, this answer seems obvious, but the question is whether every threat of ownership of a house would constitute an infringement of section 26(1). Just because the court in Jaftha found this to be the case, not all residential property will be protected by section 26(1). The court found that, unlike in Jaftha, in Saunderson “the property owners [...] have willingly bonded their property to the bank to obtain capital. Their debt is not extraneous, but is fused into the title to the property”. The defendants should therefore show that the execution order would infringe their right to adequate housing, and only then the bank would have to justify the grant of orders. The court also emphasised that just because the property is residential property does not automatically mean that there was an infringement of section 26(1).
The court held that the registrar is entitled to dispose of the application for orders of execution in terms of a default judgment. The defendant can then raise the alleged infringement of section 26(1) that the plaintiff will then have to justify. When the defendant raises a defence (formally or informally), the registrar is in any case in terms of rule 31(5) obliged to refer it to a judge sitting in an open court. However, the court as a “safety net” ordered that the defaulting debtor (of an execution based on mortgage) should be informed, when action is initiated, that his section 26(1) rights might be infringed.
In Saunderson the Supreme Court made it clear that the sanctity of contract (mortgage agreements voluntarily entered into) and the fact that a mortgage bond is so closely linked to the title of the house that the execution orders (based on a default judgment) do not need judicial oversight. Rule 31(5) that allows for matters to be referred to a judge in an open court, as well as informing a debtor at the summons of his section 26(1) rights, provides sufficient protection of such a debtor’s section 26(1) rights.
4 6 ABSA Bank Ltd v Ntsane
In ABSA bank Ltd v Ntsane the bank applied for default judgment against the defendants, claiming the sum of R62 042,43 being the principle sum under a mortgage bond registered over the immovable property of Ntsane. At date of application the defendants were only R18,46 in arrears. Based on the Mortinson judgment, the court heard the application to declare the property executable in the open motion court. From the outset the court made clear that the “decision to enforce the bond appeared morally and ethically questionable”.
Bertelsmann J noted that “[a]djudication between conflicting interest in a society that is governed by a democratic constitution involves the continuous weighing up of competing rights”. The rights in casu were the bank’s right to commercial activity (and to enforce agreements) versus the right to access to adequate housing. During such a weighing up process the proportionality of the harm against the judgment debtor must weighed against the harm the bank may suffer if the agreement is rendered “commercially ineffective” (what was protected in Saunderson). In casu the court was of the opinion that the arrear amount was so trifling that the bank in effect lost its right to accelerate the bond upon non-payment. This is also because alternative means were available to pay it (such as execution against movable assets), or plaintiffs selling the house on the open market. The court may, in such instances, refuse to grant execution against an immovable property if the result will be “iniquitous or unfair” for the homeowner.
The Ntsane judgment, like with Jaftha, makes it easy to accept that judicial oversight in some instances leads to fairer results. Here was a clear abuse of the court procedure (preferring execution to alternative means of recovering a trifling debt). It was a modest home executed for a small debt. The fact that Ntsane is not a first time owner means that he will not qualify for state subsidy of a house and that the sale of his house will therefore limit his access to adequate housing.
4 7 Firstrand Bank Limited v Maleke; Firstrand Bank Limited v Motingoe; Peoples Mortgage Ltd v Mofokeng; Firstrand Bank Limited v Mudlaudzi
In Firstrand Bank Limited v Maleke; Firstrand Bank Limited v Motingoe; Peoples Mortgage Ltd v Mofokeng; Firstrand Bank Limited v Mudlaudzi the Registrar referred the matters to an open court in terms of rule 31(5)(b)(vi) and the Mortinson judgment. All four applications dealt with a situation where the amount claimed fell within the jurisdiction of the Magistrate’s Court but was placed before the Registrar of the high court. All the defendants further averred that they complied with sections 129 and 130 of the NCA.
All the defendants were historically disadvantaged individuals. The bonds were paid in instalments on relatively small loans and had been paid regularly for the past 13+ years. The arrears were relatively minor. The section 129 letters of demand that were sent did not expressly warn the defendants that their homes could be sold in execution (and that they might lose it and be evicted) if they did not respond, since this was not required by the act.
The court considered the fact that the defendants paid their instalments regularly and dutifully, and that, should their homes be sold in execution, the banks would benefit from their capital grown while the arrears were relatively minor. The fact that the defendants may have received the excess of the outstanding balance when the property was sold did not protect the execution debtor, since the credit provider had no incentive to sell the property for more than the outstanding debt. There was also no guarantee that the excess would be enough to enable the debtor to purchase a new home.
Instead, the court found that the defendants were ideal candidates for debt councillors in terms of section 85(a) of the NCA. The problem in this case was that, with default judgments there are normally no allegations of over-indebtness before the court. Thus, when a court is considering credit agreements in terms of rule 31(5) in the absence of the debtors it cannot apply the remedies provided in section 85. Section 86(2) actually prevents a referral to a debt counsellor once the credit provider instituted steps in terms of section 129 of the NCA. This not being done in the Maleke case, the court could not assist the defendants in protecting their homes in terms of the NCA. The only manner in which the defendants could be afforded protection would be if the matters were re-instituted in the Magistrate’s Court.
In Maleke the court weighed the interest of the bank in obtaining judgment with the prejudice the debtor may suffer if the house was sold. The fact that the debts were relatively small, that the bank would benefit from the capital growth of the house and that the house would probably not be sold at market value all played on the court’s decision.
The court’s comments about the role which the NCA plays in the process is also interesting. The court started off to emphasise that the NCA specifically aims at protecting previously disadvantaged individuals. It explicitly mentions that the section 129 notice does not warn a debtor of the possible infringement to the right to adequate housing. Lastly, the court in effect warned banks that if the problem can be solved by appointing debt councillors and making alternative arrangements for repayment that the banks must do that.
4 8 Changing Tides 17 (Pty) Ltd v Scholtz
Changing Tides 17 was also an application for summary judgment where the plaintiff sought judgement for the payment of a sum of money, and an order to declare certain immovable property executable. Scholtz, however, applied for debt review in terms of section 86 of the NCA, and was found to be over-indebted. Four months later the plaintiff gave notice in terms of section 86(10) to terminate the debt review process. The debt counsellor issued an application in the Port Elizabeth Magistrate’s Court. At the time of the High Court application, the matter was still pending in the Magistrate’s Court. Three months later, the plaintiff issued summons. Scholtz raised the defence that, in terms of section 86(11) of the NCA even if a credit provider gave notice to terminate a review and continue to enforce an agreement, the Court can still order that the debt review process resume.
The court considered the nature of the debt review process and concluded that during the entire process the Magistrates’ Court must provide judicial oversight. The court also emphasised the credit provider’s (plaintiff’s) right to terminate the review process after at least sixty days had lapsed. Should the credit provider apply for such a termination, the Magistrate’s Court may order it to resume if it is just in the circumstances. In this case the court ruled that it was only the Magistrate’s Court that provided judicial oversight over the debt review process that could make such and order, since it had all the information required to exercise such discretion.
The court then considered the question whether an order declaring the property hypothecated executable would be justified in light of the Jaftha judgement. Scholtz did not place any information in front of the court pertaining to the nature of the residence. The court mentioned that the fact that Scholtz was declared over-indebted may in certain circumstances show that such an order would not be justified, but felt that due to the haste of declaring Scholtz over-indebted and the lack of evidence before the court, that a summary judgement was justified.
Changing Tides 17 is important because it shows how the NCA overlaps with declaring a house executable. Here the debtor had the initial protection of the NCA (by being declared over-indebted). That protection fell away when the creditor applied for termination of the debt review process which led for the application of an execution order. If the debtor, at the granting of the execution order, wanted added protection in terms of Jaftha, he had to put the necessary facts in front of the court to convince the court that his right to access to housing would be infringed. Mere over-indebtedness would not be enough.
4 9 Gundwana v Steko Development CC
Gundwana v Steko Development CC is the case the clears up most of the confusion regarding selling residential property in execution in terms of the Uniform Rules. In Gundwana the Constitutional Court had to decide whether the Registrar, in the course of ordering default judgement under rule 31(5)(b) of the Uniform Rules, may grant an order to declare mortgaged property specially executable. Gundwana contended that the power of the registrar was constitutionally invalid.
In 2003, the registrar granted default judgment against Gundwana’s property after she had failed to make payments on her bond, and declared the property executable. A writ of attachment was issued to give effect to the execution order. The bank, however, did not act on this and Gundwana continued to make (irregular) payments. In August 2007 the applicant learned that her property would be sold in execution. Upon hearing this, she contacted the bank and promised that she would pay the outstanding moneys and made a payment. The house was nonetheless sold in execution to Steko Development and the property was registered into Steko’s name. Gundwana sought rescission of the 2003 default judgement.
The Bank argued that neither the person of the applicant nor her property fell within the Jaftha protection. The court rejected this argument on the grounds that “the constitutional validity of the rule cannot depend on the subjective position of a particular applicant ... [i]t is either objectively valid or not”. The court also found that it was impossible to determine whether the applicant fell into that category based on the summons alone.
The bank then argued that, unlike in Jaftha, the applicant voluntarily placed herself at risk by entering into a mortgage agreement. The court rejected this argument by questioning whether such an applicant also accepted that the mortgage debt may be enforced without a court sanction; waived her right to access to adequate housing or eviction in terms of sections 26(1) and (3) of the Constitution; had the mortgage enforced even in bad faith. This could only be remedied by an evaluation of the facts of each case, which must be done by a court.
The court rejected the bank’s argument that the registrar can set the matter down in an open court, or for either of the parties to set the matter down for reconsideration based on the premise that execution of a person’s home all require evaluation. With this the court overturned the judgements of Saunderson and Mortinson but commented that the practical directions given in both cases were valuable.
The court found that in light of constitutional considerations judicial oversight was needed but cautioned that these considerations did not mean that the judgment creditor was no longer entitled to execute upon the assets of a judgement debtor (especially to satisfy a judgement sounding in money). It means that when it does execute against immovable property, due regard should be taken of the impact that this can have on a debtor’s right to access to adequate housing. This is especially so “[i]f the judgment debt can be satisfied in a reasonable manner without involving those drastic consequences” then “that alternative course should be judicially considered before granting execution orders”.
The court in conclusion acknowledged that execution was part of normal economic life, but that the “disproportionality between the means used in the execution process” to get the payment for the debt and “other available means” might lead to problematic results. “If there are no other proportionate means to obtain the same end,” the court concludes, “execution may not be avoided”.
To remedy this, the court ordered amendment to the rules (retrospectively) to provide that a writ may only be issued once a court considered all the relevant circumstances.
In Gundwana the Constitutional Court settled the situation in the High Courts by emphasising that the Constitution requires a weighing of interests. These interests can only be weighed by a court. It is then the court’s task to look at all the relevant factors to decide whether granting an execution order will infringe on a debtor’s right to adequate housing, and whether this restriction is justifiable. This is possible by balancing the interest of the parties. Such “judicial scrutiny in every case should hold no terrors [since] [t]he level of enquiry will vary from case to case and will always be dependent on the circumstances”.
