It just got much harder to litigate consumers into bankruptcy

After Western Cape High Court gave Standard Bank the boot.
Some lawyers bend over backwards to have their cases land up in the high court, seemingly because they'll earn much more than they would in a magistrate's court. Image: Moneyweb

One of the most shocking legal abuses in the country is the practice of suing consumers in the high courts for the recovery of outstanding loans. Customers are being sued by the banks in these courts for arrear amounts as low as R6 000, and high court judges have complained long and loud about the unnecessary traffic this brings them.

It’s not so much the loan arrears that kills you, it’s the legal bill.

The National Credit Act (NCA) requires that disputes over credit agreements are brought before the magistrates’ courts, where the allowable legal costs are a fraction of that in the high courts. The drafters of the NCA did this to make justice accessible to all, and affordable.

But that’s not happening in practice. Banks and their lawyers are hauling cases that properly belong in the magistrates’ courts to the high court where they can lump obscene legal costs onto the consumers’ accounts.

High courts are where money is to be made

There’s simply no money for lawyers in fighting cases in the magistrates’ courts, so they use every trick in the book to make sure their cases land up in the high court. Most times they seem to get away with it, and some judges seem curiously more prone to playing along with this than others.

Moneyweb is in possession of information on one case, where a consumer has been lumped by the bank with a R180 000 legal bill, all over the recovery of arrears of about R20 000 (and even that is in dispute). The legal bill is nine times the arrears claimed, but that’s a story for another day. Had this case been brought before the magistrates’ court instead of the high court, the legal bill would have been less than R15 000.

Consumer activists have argued for years that the practice of suing in the high court violates constitutional rights of access to justice, and the intention is to bankrupt consumers through litigation.

That will now become a whole lot harder.

A sharp-eyed court registrar in the Western Cape High Court recently put Standard Bank to the boot after it sued six customers for the recovery of vehicle loans. The registrar noticed that in all six cases, Standard Bank’s own agreements specified the magistrates’ court as having jurisdiction in the event of a dispute, and referred the matter for a hearing in open court.

Acting Judge Thulare of the Western Cape High Court agreed, and transferred the matters to the magistrates’ courts, where they should have been in the first place. “The parties agreed to protect the defendant against the unnecessary use of the more expensive forum (court), that is, the hardship of being subjected to unnecessary and expensive proceedings often far out of town,” reads the judgment.

Stephan van der Merwe, senior attorney at the University of Stellenbosch’s Law Clinic, says this is a major victory for consumers: “It is encouraging to see that the registrar refused to rubber-stamp a default judgment [where the consumer puts up no defence] without applying [their] mind to the matter, as has so often been the case in the past. One of the main reasons that we have seen such rampant abuse of debtors and consumers in this country has been as a result of unscrupulous creditors exploiting the good nature – or lack of legal knowledge – of court clerks and registrars to obtain these judgments, without proper consideration of the merits or for any due process.”

This is not the first time banks have had to be reminded from which table they can eat.

Given the choice between KFC and Tasha’s, they have routinely chosen Tasha’s, leaving the consumer to pick up the tab. Van der Merwe says the latest ruling by Thulare follows a similar 2019 ruling in the Eastern Cape High Court in Nedbank v Gqirana, which determined that “the Magistrate Courts to be the Court of first adjudication of all NCA matters to the exclusion of the High Court as a Court of first adjudication save only in the event that there are unusual or extraordinary factual or legal issues raised which in the opinion of the High Court warrant them being heard first heard in the High Court”.

Violation

But in the Western Cape High Court judgment issued last month, Standard Bank was found to be violating its own written agreements in choosing to bring the cases to the high court, never mind the NCA.

Consumer and legal activist Leonard Benjamin says there remains considerable confusion over which court has jurisdiction in credit agreement disputes, but that this “confusion” is deliberately propagated by the banks. In truth, the law is abundantly clear, he says.

Read: The days of banks suing you in the high court are over

“Essentially, Section 29 of the NCA says a magistrates’ court has jurisdiction in respect of any matter entailing the enforcement of a credit agreement. It does not matter what amount is being claimed,” says Benjamin.

“The mere fact that it is a credit agreement means it must be heard in the magistrates’ court. In other words, even a credit agreement in which the outstanding amount being claimed is R10 million can be heard in the magistrates court. The so–called ‘consent to Magistrates’ Court jurisdiction clause’ is a throwback to pre-NCA times, when the clause was actually required. In a credit agreement it is simply superfluous.”

Logic

“In my view, the agreement is as to which forum must be used by the parties. This is akin to an arbitration clause in an agreement. Should one of the parties sue in a court instead of subjecting the matter to arbitration, the other party to the agreement can rightfully ask for the court to direct that the matter be resolved by arbitration,” says Benjamin.

“This approach recognises that the parties must be held to their contracts, which is exactly what the judge in this case did.”

Which court has jurisdiction over credit agreements is no trifling matter.

Tens of thousands of homes and vehicles have been repossessed since 2008, because the exorbitant costs associated with arguing cases in the high courts has deterred consumers from opposing the matter.

It turns out these cases should not have been brought in the high courts in the first place. This has made it unaffordable for consumers to challenge matters, particularly when relatively small amounts of arrears form the basis of the claim.

Van der Merwe says this latest judgment is another victory for consumers, though it beggars belief that disputes over which courts have jurisdiction have to be argued at all.

Stellenbosch University’s Law Clinic has successfully waged several legal cases on behalf of consumers, and in December 2019 won a landmark case in the Western Cape High Court that stops credit providers unlawfully loading consumer accounts with interest and other charges. The case also provides legal certainty on what charges are allowable.

The next time you get summonsed to a high court over a credit agreement, flash this ruling in the judge’s face. It might just save your bacon.

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Good. Now return all those previous cases that were illegally referred to High Court be reheard in Magistrates’ Courts. And order those High Court lawyers to return their ill-gotten gains; with interest at the same rates they charged, of course.

Agree. This judgement should make lawyers who do ‘collections’ think twice – no longer the sweet honeypot for fees. All I now want is for appeals to cost orders in HC, to be amended to awarding costs on MC scale

Well done to the “sharp-eyed court registrar in the Western Cape High Court”. I think that a judgement for costs against Standard Bank would also be in order to punish them for bringing those cases to the wrong court. Then, perhaps a relook at a lot of older cases where the matters were heard in the high court instead of the Magistrates courts should be reassessed and the banks made to refund the excessive costs imposed to the consumers in the interest of Justice. The attorneys involved should also be cautioned about their questionable behaviour with the withdrawal of their registration should they be caught doing any similar action again.

Another case of the major banks trying to be “clever” when all the public need is for them to concentrate on delivering a low cost, efficient and ethical banking service. Why is senior management allowing the legal hacks to play high stakes poker with the bank’s cash, after all they are not going to win every case taken at great expense to the High Court? The answer is simple, the senior management teams have no idea of what is going on in their banks. Get out of your ivory towers and spend some time on the front line experiencing the woeful service delivery your customers receive and then do something about it rather than planning how to spend your excessive bonuses.

The process to recover levy arrears in sectional title units needs to be streamlined. Cases go on forever and levies are under pressure.

Unfortunately, this article contains so many assumptions and generalisations that it requires a full rebuttal.

Briefly, however: the bank and the lawyer have an SLA (providing for fixed fees and timelines) which cannot be complied with in many of the magistrates courts.

How is the fixed SLA with lawyers ‘our’ problem? Fix the SLA. Paying legal fees triple the debt amount in most cases is just not right.

The article is baited to catch lots of comments. I agree a full response (by Standard Bank and/or its lawyers) would be useful but is unlikely.

In the interim, though, perhaps you can expand on your brief explanation? I understand how the point you make might be factually correct, but is it not irrelevant given that the law (apparently) requires such matters to be dealt with in magistrates courts? Should the banks not cut their cloth by working with lawyers and SLAs that fit the (apparent) legal constraint?

Somebody in Standard Bank should lose their job for allowing their employer to enter a gunfight with nothing more than the bank’s blue plastic shield.

Mandinean, thanks for your reply. It was generally accepted that the High Court and Magistrate’s Court had concurrent jurisdiction in NCA matters, until the Eastern Cape judgment the article refers to.

The crux of the Western Cape judgment appears to be that Standard Bank did not comply with their own agreement. That was a bad oversight by the bank’s lawyers.

Banks and their lawyers prefer to collect debt in the High Court because then its court processes and expectations can be standardised. If you have to sue out of five different courts you theoretically need five different law firms.

Every magistrate’s court works differently and has different requirements. Even individual magistrates often change their minds from week to week, resulting in delays and extra costs.

Some sit only once a week with a restricted number of matters for that day. You are lucky to get a date within six months for a straightforward case.

I deal with one court where it can take up to two months just to have a summons issued.

The High Court starts on time. Not so in many magistrates courts. If a magistrate is ill – often the case on Mondays – there is a risk that your matter will not be heard at all.

This paragraph in the article is inappropriate and out of touch: “Banks and their lawyers are hauling cases that properly belong in the magistrates’ courts to the high court where they can lump obscene legal costs onto the consumers’ accounts.”

The following comment is untrue: “One of the main reasons that we have seen such rampant abuse of debtors and consumers in this country has been as a result of unscrupulous creditors exploiting the good nature – or lack of legal knowledge – of court clerks and registrars to obtain these judgments, without proper consideration of the merits or for any due process.”

An NCA matter must be referred to a magistrate. Clerks of the magistrates courts do not deal with those.

Or this? “Tens of thousands of homes and vehicles have been repossessed since 2008, because the exorbitant costs associated with arguing cases in the high courts has deterred consumers from opposing the matter.”

There is almost never a defence against a bank’s claim: the money is owed, simple as that. These cases are rarely opposed even in the magistrates courts. The “access to justice” argument doesn’t fly.

My understanding is that the SLA between the bank and the law firm have fixed fees for each step in the procedure. The bank will pay its lawyer this fee regardless of whether matters proceed in the High Court or the magistrates court.

The bank wants to repossess the car or auction the house, as the case may be. That is where the bank is guaranteed some return on the loss. Then bank still loses out and gains nothing from incurring extra legal costs.

Christoffel – the Law Clinic’s case of December 2019 ruled that interest plus legal costs may not exceed the original capital debt.

And – – – – – according to you it can not be changed or amended? Time for a court to rule these ‘agreements’ poor people have to sign invalid.

Thanks for the explanation.

When you approach a financial institution for a loan you sign an agreement recording your rights and obligations and the institution’s rights and obligations.

The institution agrees to lend you a sum of money for the purchase of the vehicle of your choice and you agree to pay it back in instalments. If for whatever reason you do not comply with your obligations then the agreement will stipulate what you can do and the institution may do.

If you do not surrender the vehicle and want to keep it without paying back the institution then the institution will have to take you to court to recover the vehicle and the balance of the amount due to it. Our law does not allow them to repossess the vehicle without a court order – unlike some other jurisdictions.

Once all the legal and regulatory requirements of the NCA have been met – there are many all in favour of the consumer – then the institution has an election whether to proceed out of the magistrates’ court of the high court. They would prefer to go out of the magistrates’ court because it is cheaper and ought to be less involved however this is not the case for many reasons.

Matters where there is little or no prospect of success are much easier to defend and drag out in the Magistrates’ court – hey if we can continue to use the vehicle without paying for it and hope that the claim will go away then why not!

If you can find a magistrate who will nip the matter in the bud and point out to the defendant that he/she/it needs to comply with the terms of the agreement (what they agreed to do when they approached the institution for the money) or return the vehicle then that judgment is likely to be appealed and wind up in the high court or the SCA or the Constitutional court.

If Msholozi can do it then why not me!

If however the matter is commenced in the high court then one is more likely to get an attorney/advocate/judge wisely advising the defendant that he/she/it has little prospects of success and that it would be in the defendant’s best interests to make peace with the bank, that the defendant comply with their obligations/promises in terms of the agreement or return the vehicle and make arrangements to settle any shortfall.

The present case is a pyrrhic victory.

Those with any knowledge of the very real difficulties faced by the financial institutions in getting consumers to comply with their obligations/promises and failing which having to resort to litigation, will know that this article does not present the real picture.

Yes we all like to rail against the banks and financial institutions who are presented as heartless and grasping but next time you approach one of them for finance (no gun to your head here) you might understand why they make you jump through so many hoops and why the cost of credit and interest rates are high.

The financial institutions only litigate as a last resort, after having exhausted all avenues in their attempts to engage with the defaulting consumer and trying to reschedule the debt.

You can’t borrow money from your friends or business associates because of the NCA and soon there may only be loan sharks who will lend you money.

Actions have consequences. All this will do is ensure that high risk clients are charged more interest or alternatively they are refused credit.

This article is pointing out that the legal costs are disproportionate to the actual sum owed and is further exasperating the problem.

Nobody can argue that a consumer that is liable to repay a loan , shouldn’t pay it back.

There should be an express way to deal with these things. Let the banks repo based on a quick judgement if needs be. But the only winners here are the lawyers

There is another factor which is not mentioned. Unfortunately, the quality of the Magistrates is not what it used to be. It is therefore not only a matter of costs, but also, from the banks’ point of view, the perception that the law will be applied better in the High Courts.

Good. Source of the problem in most cases…..reckless lending.

Banks should stop lending to high risk consumers and also ensure the individual does not have numerous other loans, mostly unsecured before taking them on as customers.
Reckless lending is what is causing all this trouble.

Reckless spending is at the root of the problem.

This is an emotional article. Not based on facts or real life experiences. The cases mentioned here are obviously errors and is not the norm.

The reason lawyers and banks prefer the high courts is because the magistrate courts are a shambles at best. They certainly do not do this for the cost orders.

Defaulting consumers are also not innocent in these default cases.

Perhaps the judges that heard all these cases in high courts should be sued in their personal capacities for having presided over cases that should have initially been heard in lower courts. We don’t want taxpayers to be liable for such costs

After all, if non-executive directors can be held personally liable for company law contraventions, why not justices?

The law in question, section 25(1) of the Supreme Court Act 59 of 1959, prohibits civil lawsuits against a judge except with the permission of the court in which the judge sits.

This law requires revisiting.

If I borrow u money – the very least u can do as a honorable human is pay that capital back to the me. Anything else is scumbag behavior.

End of comments.

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