Contracting parties that fail to comply with the Act when concluding credit agreements face dire consequences as the Act was promulgated primarily to protect the rights of consumers. When concluding any agreement, it is therefore important for contracting parties to make sure that either the Act does not apply to the agreement or if the Act applies, that their business is fully compliant with the Act.
The Act has such wide-reaching application and may apply to a contract even when you least expect it. A prime example is in the case of Ratlou v MAN Financial Services (2019) ZASCA 49 in which the Supreme Court of Appeal (SCA) had to determine whether the Act applied to a settlement agreement concluded by the parties in circumstances where the underlying agreements to which the settlement agreement related, were not governed by the Act.
On 28 July 2016, MAN Financial Services (MAN) launched proceedings against Ratlou and Phapho Nkone Transport (PNT), a business owned by Ratlou, for a claim of R4,269,278.79 based on a settlement agreement. The High Court ruled that the Act was applicable to the settlement agreement and MAN was obliged to give notice in terms of s129 read with s130 of the Act, and MAN failed to do so.
The High Court, in reaching its decision, found that although the underlying agreements did not fall within the ambit of the Act, as such agreements were large agreements concluded with a juristic person, the settlement agreement constituted a new credit agreement which fell within the meaning of the Act. It was this finding, among others, that the SCA was called upon to determine.
In considering the matter, the SCA commented that the High Court correctly found that the underlying agreements did not fall within the ambit of the Act. The SCA further acknowledged that if regard was had to the terms of the settlement agreement and upon a literal interpretation of s8(4)(f) of the Act, the settlement agreement appeared to fall within the ambit of the Act, as in terms of s8(4)(f) of the Act:
“(4) An agreement, irrespective of its form but not including an agreement contemplated in subsection (2) constitutes a credit transaction if it is
(f) Any other agreement, other than a credit facility or credit guarantee, in terms of which payment of an amount owed by one person to another is deferred, and any charge, fee or interest is payable to the credit provider in respect of –
(a) the agreement; or
(b) that amount has been deferred.”
The importance of questions the SCA was called upon to consider was confirmed when the SCA stated that the issues on appeal raised a discrete legal point of public interest that would affect settlement agreements concluded in the future.
MAN, in opposition, argued that although upon the literal interpretation of s8(4)(f) the settlement agreement fell into the category of credit agreements, the underlying causa to the settlement agreement did not constitute a credit agreement as envisaged in the Act, and therefore, the settlement agreement did not fall within the ambit of the Act.
The SCA agreed with this argument and found that:
“A purposive interpretation and not a literal interpretation of section 8(4)(f) of the Act is required because it is clear that the Act was not aimed at settlement agreements. Its application to them will have devastating effect on the efficacy and the willingness of parties to conclude settlement agreements and thereby curtail litigation.”
In reaching its conclusion, the SCA considered the judgments of Grainco (Pty) Ltd v Broodryk NO & others  ZAFSHC 143, Hattingh v Hattingh  ZAFSHC 173, and Ribeiro & another v Slip Knot Investments 777 (Pty) Ltd  ZASCA 174. In consideration of these judgments, the SCA concluded that the Act was not designed to regulate settlement agreements where the underlying agreements or causa, would not have been considered by the Act. Therefore, the SCA found that the settlement agreement in the appeal did not fall within the ambit of the Act.
The SCA concluded that to apply the Act differently would result in parties being reluctant to settle disputes outside of court, which would in turn result in the court rolls being overburdened with disputes in terms of the Act, as well as parties being dragged into litigious proceedings that they neither foresaw nor had the financial means to defend.