It hasn’t been a good month for the banks in court. Two major cases have gone against them, making it much harder for them to litigate financially distressed clients into surrender.
The first was in the Johannesburg High Court when a full bench of three judges ordered that repossessed homes must be sold at auction with reserve prices in all but exceptional circumstances. This means dispossessed homeowners get to keep a portion of the equity they have built up over the years. Previously, no reserve prices were permitted when properties were sold at auction, resulting in some properties being sold for next to nothing.
Then, just over a week ago, a full bench of the Pretoria High Court found that banks were clogging the justice system by hauling matters into the high court that properly belonged in the magistrates’ courts. The Pretoria court decided it had seen enough and told the banks to take their cases to the lower courts, which had “monetary jurisdiction”.
“If applied throughout the country, as it should be, and taken together with the recent full bench judgment in the Johannesburg High Court, this judgment (in the Pretoria High Court) will bring about a seismic change in how the banks pursue home loan debts against debtors,” says legal advisor Leonard Benjamin.
There is a misperception that magistrates courts’ monetary jurisdiction is below R300 000. “This is not correct,” says Benjamin. “This judgment applies to all credit agreements that are subject to the National Credit Act (NCA), regardless of the size of the debt. This seems to be in line with the legislature’s intention that proceedings relating to the enforcement of credit agreements should be brought in the lower courts to protect debtors from exorbitant legal costs. Unfortunately, as a result of poor drafting, this intention was not properly reflected in the NCA.”
The case involved eight defendants being sued by all four major banks for loan arrears of between R7 700 and R20 000. The court ruled that these cases belonged in the lower courts, where legal costs are much lower. The ruling is a major victory for those campaigning for universal access to justice, such as the Legal Resource Centre, SA Human Rights Commission (SAHRC) and the Lungelo Lethu Human Rights Foundation (LLHRF).
In their court papers, the banks explained their aversion to the lower courts: they were inefficient, plagued by delays, and there was a lack of uniformity in the granting of orders. Furthermore, debtors raised “unnecessary queries” and magistrates were reluctant to declare properties specially executable (meaning they could be sold at auction). In cases involving motor vehicles, these assets depreciated rapidly, and the banks say they need swift and effective judicial action to recoup their loans.
Another crucial reason why banks are loathe to bring cases to the magistrates’ courts is that execution orders expire after one year. In the high courts, these orders do not expire. This means once banks have obtained an execution order in the high court, they can pressure a defaulting client to catch up on arrears. The next time the client falls into arrears, the banks can sell the property at auction without having to approach the court again. In the magistrates’ court, the bank would have to approach the court for a fresh execution order after a year, assuming the property had not been auctioned during that time.
The banks have argued that the high courts and magistrates’ courts have “concurrent jurisdiction” and therefore they should not be prevented from bringing their cases to the higher court. The judges disagreed, saying the banks did not have an automatic right to a particular court, but to a fair hearing before a court or tribunal.
Another problem for the banks in terms of the Magistrates’ Courts Act is that money judgments issued by the lower court become stale unless execution takes place within three years of the judgment. This does not apply in the high courts. It means that the banks will have to act much sooner to enforce the magistrates’ court judgments.
“The judgment now gives debtors an opportunity to defend matters in the magistrates’ courts,” says Benjamin. “For too long, the banks have consciously used the high courts to discourage debtors from defending the proceedings brought against them. This is highlighted by many cases where debtors living in Johannesburg have been sued in the Pretoria High Court. This tactic has been highly successful and has allowed the banks, in many cases, to obtain judgment on defective summonses and even on non-existent documents.”
The SAHRC provided evidence in the case on behalf of the defendants. It argued that by bringing cases before the high court, distressed debtors were prejudiced by the high legal costs. It said banks often brought cases before the Pretoria court when the client lived in Johannesburg, adding extra costs for travel and accommodation each time a court visit was required. Banks’ attorneys charge around R4 000, which is added to the client’s account, for preparing a high court summons instead of the R700 that the magistrates’ court tariff allows them.
“Is there not an obligation on financial institutions to consider the cost implications and access to justice of financially distressed people when a particular forum is considered?” asked the SAHRC in its court papers.
The Legal Resources Centre, which represented the SAHRC as a friend of the court, says the ruling has far-reaching implications in affirming South Africans’ right of access to justice, by reducing the costs of defending matters in the lower courts.
The banks claimed that bringing cases before the high court did not constitute an abuse of process. “We beg to differ,” write the judges, “if impecunious litigants are denied proper access to justice, [and] if the High Court is incapable of dealing properly and effectively with its workload, due to this practice, it must constitute abuse.”
The court chastised the banks for clogging the justice system with their cases and urged a change in their approach. The Pretoria High Court had almost 100 000 new cases in 2016, up from 74 000 in 2012. All this was handled by just 40 permanent judges and 23 acting judges, who had to work after hours and weekends in writing judgments and trial preparation. The situation was somewhat better in the Johannesburg High Court, which handled about 50 000 cases in 2017, split between 38 permanent judges and 24 acting judges.
In future, banks will have to argue why cases should be heard in the high courts if they properly belong in the magistrates’ courts.