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Afrisure Finance and Another v Lechaka and Others, Makhulong Multi Finance (Pty) Ltd t/a B. Blue Financial Services v Nona and Others, Select Management Services Lesotho (Pty) Ltd v Ratlali and Others (C of A (CIV) 29/09, C OF A (CIV) 30/09, C of A (CIV)

Media Neutral Citation: 
[2010] LSCA 28
Judgment Date: 
22 October, 2010

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IN THE COURT OF APPEAL OF LESOTHO


C of A (CIV) 29/09


In the matter between:



AFRISURE FINANCE

and

EEZY MANAGEMENT SERVICES …............APPELLANTS

v


MANEO LECHAKA AND 36

OTHERS …............................................RESPONDENTS



C OF A (CIV) 30/09


MAKHULONG MULTI FINANCE

PTY (LTD) trading as B. Blue

Financial Services ….....................................APPELLANT


v


MALIBUSENG ‘NONA AND 70

OTHERS …............................................RESPONDENTS




C of A (CIV) 31/09


SELECT MANAGEMENT

SERVICES LESOTHO (PTY)

LTD …...............................................APPELLANT


v


MANYAOENE RATLALI

AND 51 OTHERS …......................RESPONDENTS



CORAM: SMALBERGER, JA

MELUNSKY, JA

FARLAM, JA


HEARD : 6 OCTOBER 2010

DELIVERED: 22 OCTOBER 2010


SUMMARY


Money Lending – whether payslips evidencing deductions from Government servants’ salaries to be paid to money lenders are receipts for the purposes of section 9 (1) of the Money Lenders Act, 1989 – whether company whose payroll deduction code was ceded to a licensed money lender carried on business as a money lender without being licensed – whether initiation, administration, collection and membership fees and insurance premiums charged to borrowers and paid to lenders prohibited under section 20 (1) of the Act.


JUDGMENT

FARLAM JA:

Introduction

[1] The issues which arise for decision in the three appeals before this Court are of great importance for all involved in the micro-lending industry in Lesotho, whether as borrowers or money lenders. They relate to the interpretation of certain provisions of the Money Lenders Act 1989, as amended by Act 6 of 1993, and the application of those sections to the standard form or typical money lending agreements to which the three licensed money lenders before the court are parties.


[2] In what follows I shall refer to the Money Lenders Act as amended, as ‘the Act’. (When it was enacted it was called an Order but was renamed an Act in terms of section 2 of Act 6 of 1993.)


[3] The parties to the appeals are 160 borrowers (37 in civil appeal 29/09, 71 in civil appeal 30/09 and 52 in civil appeal 31/09), who were the applicants in the High Court and are the respondents in the three appeals, and three money lenders, licensed as such in terms of section 3 and 4 of the Act, viz Afrisure Finance (which I shall call ‘Afrisure’ and whose correct name, it appears from the papers, is Afrisure Personal Financial Advisors Lesotho (Pty) Ltd) in civil appeal 29/09, Makhulong Multi Finance (Pty) Ltd, trading as B. Blue Financial Services (which I shall call ‘Blue F.S.’) in civil appeal 30/09 and Select Management Services Lesotho (Pty) Ltd (which I shall call ‘SMS’) in civil appeal 31/09, who are the appellants. Another appellant, Eezy Management Services (Pty) Ltd (which I shall call ‘EMS’), which is not licensed as a money lender under the Act, is the second appellant in civil appeal 29/09.


[4] The High Court orders against which the appellants have appealed were made on 21 October 2009 by Monapathi J, who had heard together the applications which were brought as matters of urgency by three groups of borrowers, each against the money lender from which they had borrowed money, and in one of which EMS was cited as an additional respondent. All the borrowers are Government employees who had authorized the Treasury to deduct the instalments allegedly due to the money lenders from their monthly salaries under stop-order instructions and to pay over the amounts deducted to the lenders from which they had borrowed money.




[5] In each application the Accountant General, the Attorney-General and the National Treasury were cited as additional respondents.


[6] Monapathi J granted an order in all three applications in substantially the same terms, save that in the case dealt with in civil appeal 29/09 he made orders against Afrisure and EMS and included a paragraph in which it was declared that EMS is not entitled to have deductions made in its favour from the borrowers’ salaries ‘in as much as it has not been licensed as a money lender’.



Orders made in court a quo

[7] In the first two paragraphs of the orders granted by Monapathi J the learned judge (in paragraph 1) dispensed with the ordinary rules relating to the modes and periods of service due to the urgency of the matters and (in paragraph 2) interdicted the Accountant General and his subordinate officers and the National Treasury ‘from continuing to deduct monies in repayment of the loans and incidental charges from [the borrowers’] salaries in favour of the lenders [and in the case in which it was a party EMS]’. In the cases where Blue FS and SMS were the respondent money lenders the words ‘pending final determination of this application’ were included at the end of the paragraph. They were not included, however, in the application against Afrisure and EMS. This omission in the order appears to have been due to an oversight because in his judgment the judge, in dealing with the orders he was making, simply said: ‘It is clear that the application succeeds including for those relief that are under further and alternative relief’. I am not quite sure what the words from ‘including’ mean but assume that what he intended was not correctly recorded.


[8] The other paragraphs in the orders read as follows:


2. The 2nd respondent and/or all officers subordinate to him, as well as the 4th respondent are interdicted from continuing to deduct monies in repayment of the loans and incidental charges from applicants’ salaries in favour of the 1st respondent pending final determination of this application.


3. The 1st respondent’s incidental charges, amount of costs or expenses relating to the loans or proposed loans to the applicants are declared null and void and unlawful.


4. The interest charged by the 1st respondent in respect of the loans it granted to the applicants and which is in excess of 25% per annum is declared null and void and unlawful.


5. It is declared that the 1st respondent is not entitled to recover charges in respect of administrative fee, insurance and initiation fee from the applicants in as much as the said charges are in conflict with the terms of the Money Lenders Order No. 25 of 1989.


6. It is declared that the 1st respondent’s continued running of its business of money lending without giving receipts to applicants for every payment made to it on account of a loan and/or of interest thereon is unlawful.


7. The 1st respondent is ordered to pay costs of this application.’


In the order against Afrisure and EMS the reference to the ‘1st respondent’ in paragraphs 3, 4, 5, 6 and 7 is changed to ‘1st and 2nd respondents’ (with corresponding adjustments because the order was directed against two respondents).


[9] A further paragraph (paragraph 8) is added. It reads as follows:


8. The 2nd respondent is not entitled to have deductions made in its favour from applicants’ salaries in as much as it has not been licensed as a money lender.’


Events before present hearing

[10] In their notices of appeal the appellants raised a number of technical defences including the assertion that the matters were not urgent.


[11] When the appeals come before this Court during the April session the parties requested a postponement to this session so that they could prepare statements of case to enable this Court to give a definitive judgment on the substantive issues arising for decision in the appeals. The parties have placed agreed statements of case before the court in each appeal and the parties have also filed supplementary heads of argument. The technical defences have not been persisted in and the contention that the matters are not urgent is no longer advanced – quite correctly in my view: see Commissioner, South African Revenue Services v Hawker Air Services (Pty) Ltd 2006 (4) SA 292 (SCA) at 299F – 300G (paras 9 to 11).


Relevant Statutory Provisions

[12] Before the relevant facts and the issues arising for decision are summarised it is necessary to say something about the provenance of the Act and to set out its provisions in so far as they are material.


[13] The Act re-enacts for Lesotho the provisions of two British Acts, the Money-lenders Act, 1900 (63 & 64 Vict. c. 51) and the Moneylenders Act, 1927 (17 & 18 Geo. 5 c. 21), which in terms of section 19 (1) and (2) of the 1927 Act are to be construed as one. These Acts have since been repealed in the United Kingdom and replaced by the Consumer Credit Act, 1974 (1974 c. 39). Before the repeal they were taken over in many parts of the British Commonwealth, including New Zealand, the various states in Australia and a number of what were then British colonies in Africa, including Nigeria and Ghana.


[14] The provisions of the two British Acts have been the subject of numerous decisions of the English courts, which are conveniently summarised in Halsbury, The Laws of England, 3 ed, vol 27 at pp 18 – 46 and in The Digest, 1983 reissue, vol 34 at pp 572 – 597.


[15] The sections of the Act which are relevant in these appeals read as follows:


2. In this Order [now Act], unless the context otherwise requires,

……


interest” includes any amount, by whatever name called in excess of the principal, paid or payable to a money-lender in consideration of or otherwise in respect of a loan;

………..

money-lender” includes every person whose business is that of money-lending or who advertises or announces himself or holds out in any way as carrying on that business whether or not that person also possesses or earns property or money derived from sources other than the lending of money and whether or not that person carries on the business as a principal or agent; …


principal” means in relation to a loan the amount actually lent to the borrower.’



(The definition of ‘money-lender’ is taken over from section 6 of the 1900 Act. The definitions of ‘principal’ and ‘interest’ are based on the definitions in section 15 of the 1927 Act.)


6 (1) Where in any proceedings in respect of,

  1. any money lent by a money-lender after the coming into operation of this [Act]; or


  1. any agreement or security made or taken after the coming into operation of this [Act] in respect of money lent either before or after the coming into operation of this [Act],


it is found that the interest charged exceeds the rate of 25% per annum, or the corresponding rate in respect of any other period, the court shall presume for the purposes of section 13 that the interest charged is excessive and that the transaction is harsh and unconscionable, but this subsection is without prejudice to the powers of the court under section 13 where the court is satisfied that the interest charged, although not exceeding 25% per annum, is excessive.’



(This subsection is based on section 10 (1) of the 1927 Act.)


9 (1) A money-lender shall give a receipt for every payment made to him on account of a loan or of interest thereon and every such receipt shall be given immediately the payment is made.

……


(4) A money-lender who fails to comply with any of the requirements of this section shall not be entitled to enforce any claim in respect of any transaction in relation to which the default shall have been made.’



(This section is not based on any section in the 1900 and 1927 Acts, but its wording is the same as the wording of section 19 (1) and (4) of the Nigerian Money Lenders Ordinance (Consolidated Ordinances of Nigeria, c.136).)


(13)(1) Where,


  1. proceedings are taken in any court by a money-lender for the recovery of any money lent after the coming into operation of this [Act], or the enforcement of any agreement, or security made or taken after the coming into operation of this [Act]; and


  1. there is evidence which satisfies the court that the interest charged in respect of the sum actually lent is excessive, or that the amounts charged for expenses, inquiries, fines, bonus, premium, renewals or any other charges, are excessive, and that, in either case, the transaction is harsh and unconscionable, or is otherwise such that a court of equity would give relief.


the court may,


(i) reopen the transaction, and take an account between the money-lender and the person sued;


  1. notwithstanding any statement or settlement of account or any agreement purporting to close previous dealings and create a new obligation, reopen any account already taken between them;



  1. relieve the person sued from payment of any sum in excess of the sum adjudged by the court to be fairly due in respect of such principal, interest and charges, as the court, having regard to the risk and all the circumstances, may adjudge to be reasonable; and


  1. if any such excess has been paid or allowed in account by the debtor, may order the creditor to repay it and may set aside either wholly or in part, or revise or alter any security given or agreement made in respect of money lent by the money-lender and if the money-lender has parted with the security, may order him to indemnify the borrower or other person sued.


(2) Any court in which proceedings might be taken for the recovery of money lent by a money-lender may,


  1. at the instance of the borrower or surety or other person liable, exercise the like powers as may be exercised under this section, where proceedings are taken for the recovery of the money lent; and


  1. notwithstanding any provision or agreement to the contrary, entertain any application under this [Act] by the borrower or surety, or other person liable,


notwithstanding that the time for repayment of the loan, or any instalment thereof, may not be due.

……..’


(This section repeats the provisions of section 1(1) of the 1900 Act).



14. A person who,

……….

(b) carries on business as a money-lender without having in force a money-lender’s licence authorising him to do so;

………….


commits an offence ….’



(This section repeats the provisions of section 1(3) (b) of the 1900 Act.)


15. A person who deals in or participates in any business or activity by way of obtaining from or advancing money to the general public which business or activity is not specifically authorised by this [Act] or any other written law commits an offence and is liable on conviction to a fine of M2,000-00 or to imprisonment for a period of 2 years.’



20 (1) Any agreement between a money-lender and a borrower or intending borrower for the payment by the borrower or intending borrower to the money-lender of any sum on account of costs, charges or expenses incidental to or relating to the negotiations for or the granting of the loan or proposed loan shall be void and unenforceable.


(2) If a sum is paid to a money-lender by a borrower or intending borrower as for or on account of any such costs, charges or expenses, that sum shall be recoverable as a debt due to the borrower or intending borrower, or in the event of the loan being completed, shall, if not so recovered, be set off against the amount actually lent and that amount shall be deemed to be reduced accordingly.’



(The words in italics do not appear in the text of section 20(1) as printed in the Government Gazette but they are included in the text of section 12 of the 1927 Act, on which section 20 is based. The subsection as printed in the Gazette is not grammatical and does not make sense. Counsel for the parties were agreed that it is permissible and indeed necessary for the italicised words to be read into the section as printed. This approach is clearly correct.)



Loan Agreements between Afrisure and its borrowers


[16] In addition to providing for repayment of the capital sum lent and interest at 25 per cent per annum, the agreements concluded between Afrisure and the 37 borrowers provided for payment by each borrower of an ‘initiation fee charged upfront’ (which in the loan agreement annexed to the founding affidavit in the Afrisure application amounted to M12 090 in respect of a loan amount of M15 500). Each loan agreement also incorporated a stop-order instruction to the Accountant of the National Treasury to remit payment from the salary of the borrower to Afrisure. It appears from the statement of case that in addition to interest at 25 per cent per annum and the initiation fee Afrisure also charges the borrowers the administration fee of 2.5 per cent per month charged by the National Treasury and/or the Accountant General and, in some cases at least, an amount for insuring the loans of the borrowers.


[17] The agreement annexed to the founding affidavit provides for repayments over a period of 36 months totalling M34 275-98 in respect of a total loan of M15 500-00.


[18] Afrisure did not give the borrowers receipts after each payment but the borrowers received monthly payslips from the National Treasury reflecting the amounts deducted from their salaries in respect of the loan repayments. The deductions were made by the Accountant General and/or the National Treasury by virtue of a payroll deduction code registered in the name of EMS, the second appellant in civil appeal 29/09.


[19] In the affidavit filed on behalf of Afrisure and EMS it is stated that EMS entered into a service agreement with the Lesotho Public Service Staff Association (LEPSSA) to source a funder to facilitate micro-lending to LEPSSA’s members. Thereafter EMS approached several licensed money-lenders to negotiate terms with them on LEPSSA’s behalf. Finally it concluded an agreement on LEPSSA’s behalf with Afrisure. As Afrisure did not have a deductions code for civil servants, EMS ceded to Afrisure its ‘right title and interest in and to’ a deduction code granted to it by the Ministry of Finance and Economic Planning to recover loans advanced to LEPSSA members. In the same affidavit it was denied that EMS is a money-lender and the statement is made that it acted as a facilitator between LEPSSA, Afrisure and the Treasury.


Loan agreements between Blue FS and its borrowers.


[20] According to the statement of case each of the agreements concluded between Blue F S, the appellant in civil appeal 30/09, and the 71 borrowers who are the respondents in that appeal, provided for ‘administration fees in respect of the evaluation of the loan application and the drafting of all relevant documentation’. In the statement of case it is further stated that where loans are repayable over a period of more than six months Blue F S ‘insists that credit life insurance be taken out’ and that the ‘once-off’ premiums charged by the insurer are charged as costs against the borrowers who are liable for payment thereof, none of these costs ending up ‘in the pocket of [Blue F S]’. In addition a 2.5 per cent ‘initiation fee’ (‘more aptly described’, says the statement of case, ‘as a collection fee’) is charged in each case by Blue F S ‘for the fees claimed by the National Treasury as collection fees pertaining to the deducting of monies from employees and accounting thereof to [Blue F S].’


[21] In this case also no receipts were issued by Blue F S itself in respect of payments received but the monthly payslips provided by the borrowers’ employer to the borrowers indicated in each instance the amount deducted from their salaries as well as the outstanding balance owing to Blue F S at the relevant date.


[22] In the affidavit filed on behalf of Blue F S it is stated that before it commenced business in Lesotho it arranged for a deduction scheme by way of a stop-order facility to be put in place and the Accountant General granted the necessary approval. It was also stated that the administration fees and other expenses charged by Blue FS to its borrowers are charged separately from interest.


[23] Attached to the founding affidavit in the application brought against Blue FS is a typical loan agreement concluded between Blue FS and a borrower. The loan amount applied for and granted is M15 100-00. (The amounts in the agreement are expressed in rands but I assume that malutis were intended.) The ‘administration fee’ is reflected as being M3 775-00, an amount of M1 415-63 is recorded as being in respect of ‘insurance’, M13 623-18 in respect of ‘interest’ and M847-80 in respect of the ‘initiation fee’. The agreement records the ‘total debt’ as M34 761-60, repayable over 36 months in 36 instalments of M965-60. (The agreement does not state the rate of interest charged and is thus unenforceable under section 7 (1), read with (2) (c), but as the borrower under the specimen agreement is not one of the respondents and the point is not taken by them it need not be dealt with further in this judgment.)


Loan agreements between SMS and its borrowers


[24] Attached to the statement of case relating to civil appeal 31/09 SMS is a copy of a typical loan agreement concluded between SMS on behalf of an unnamed principal and a borrower, which is stated (in clause 4.4) to be subject to a suspensive condition to the effect that the borrower ‘subscribes to the Select Membership Scheme of benefits by concluding a membership agreement with [SMS].’


[25] The membership agreement, which is also attached, provided for a ‘membership fee’, which is deducted from the loan amount applied for by the borrower so that the amount paid to him or her is correspondingly reduced. The total amount repayable under the loan agreement is the loan amount applied for (i.e., the amount paid to the borrower plus the membership fee) and interest ‘on principal’ at 25 per cent per annum. In addition the agreement provided for the employer to deduct from the borrower’s salary not only the instalment to be paid over to SMS but also the amount charged by the employer for collection of the instalment being 2.5 per cent thereof. In the loan agreement the amount is described as follows in the definition of ‘Government commission’:


the rate of collection commission due to the Government of Lesotho, which amount shall not form part of the Loan Amount, and shall be collected by [SMS] from the Borrower and paid to the Government of Lesotho in its capacity as agent [of the lender, i.e. SMS’s unnamed principal] in terms of this Agreement.’


[26] In the agreement attached to the statement of case the loan amount applied for was M6 217-61, of which M5 000-00 was paid to the borrower and M1 217-61 was in respect of the membership fee. The ‘interest’ payable was reflected as M873-76, with the result that the ‘total amount payable’ was reflected as M7 091-37. The monthly instalment deducted from the borrower’s salary amounted to M590-95 and an additional amount of M15-15 was deducted each month being ‘Amount charged by the Employer for collection’ being 2.5 per cent. The total monthly deduction was accordingly M606-10. (This amount was described in the Government Salary Deduction form signed by the borrower as an ‘instalment’ and as a deduction to be made from his monthly remuneration ‘to assist [SMS]’.) In the statement of case it is recorded that in making the deduction ‘save for that part which represents the fee charged by the Employer for collection of the monthly instalment in terms of the Loan Agreement, the Employer acts as [SMS’s] agent.’

[27] The membership agreement entitles the member to what was described as ‘exclusive access to the Product Offerings’. Clauses 7, 8 and 9 of the membership agreement deal with these ‘Product Offerings’ as follows:


7. The Company offers a range of products from selected suppliers at beneficial rates including, but not limited to, Unit Trust Investments, Credit Life and Funeral Insurance Cover, Retail Loans, Product Distribution of selected high value items, and Money Transfer / Remittance (“the Product Offerings”.)



8. The Member may be required to pay suppliers or designated third parties directly in respect of the Product Offerings selected by the Member as determined by the Company from time to time.


9. The Company undertakes to use its best endeavours to facilitate, secure, arrange and/or provide financing to Members at market related rates relative to the Member’s creditworthiness, insurance on financing provided relative to the Member’s risk profile. Using its best endeavours in relation to an obligation in this Agreement means that the Company shall do all things as are or may be necessary or desirable so as to comply with or satisfy that obligation unless the Parties agree that it is not reasonable to take the action or assume that obligation, but shall not be responsible to the Member should any Product Offering be declined by a third party supplier.’


[28] In Clause 3.7 of the loan agreement the borrower agrees that his payslip will ‘serve as a receipt (as provided for in section 9 of [the Act]) for every deduction made from his Remuneration in regard to this Agreement.’


Issues in the appeals

[29] Counsel for the parties were agreed that the issues arising for decision in the three cases are the following:


(a) Is the second appellant in civil appeal 29/09, EMS, a money lender and, if so, did its participation in the money lending contracts involving the 37 borrowers in that case render those contracts unlawful and unenforceable?


(b) Did the payslips received by the borrowers in all three cases constitute receipts for the purposes of section 9 (1) of the Act and, if not, were the money lending contracts in respect of which receipts should have been given rendered illegal and unenforceable as a result?


(c) Were the initiation fees, administration fees and insurance premiums deducted from the borrowers’ salaries in civil appeal 29/09, the administration fees, the ‘once-off’ credit insurance premiums and the initiation fees deducted from the borrowers’ salaries in civil appeal 30/09 and the membership fees and the collection fees deducted from the borrowers’ salaries in civil appeal 31/09 rendered void and unenforceable by section 20(1) of the Act and, if so, can the capital and interest be claimed in transactions in which those costs, charges or expenses have been stipulated for?


(d) Has excessive interest been claimed with the result that the court may exercise its powers to reopen the transaction in terms of section 13 (1) (b) and (2)?


(a) Is EMS a money-lender?


[30] In my opinion this question must be answered in the negative.

[31] It has been decided in England under section 6 of the 1900 Act that it is a question of fact in each case whether a person is carrying on the business of money lending, some degree of system or continuity in money lending transactions being required: see, e.g., Kirkwood v Gadd 1910 AC 422 (HL); [1908-10] All ER Rep 768 (HL). In the present case there is no evidence that EMS ever lent money, whether as principal or acting as agent for another, to anyone. Counsel for the respondents contended, however, that the fact that its deduction code was being used to secure the repayment of loans to Afrisure meant that EMS was dealing in or participating in the money lending business and reference was made to section 15 of the Act. It was also submitted that EMS ‘is a party to money lending transactions whether as a principal or as an agent, it facilitates the lending of money by an admitted money lender and it acts as the admitted money lender’s debt collector.’


[32] I do not agree that EMS can be said to have dealt in or participated in a money lending business in contravention of section 15, but even if it did so that would not constitute it a money lender. Section 15 must be read in conjunction with section 14 (b), which penalises the carrying on of business as a money lender without being licensed. It follows that the conduct prohibited by section 15 does not include the carrying on of business as a money lender.


[33] I am prepared to assume that it is open to this court to hold that EMS acts as Afrisure’s debt collector. (I say this because the stop order instruction annexed to the founding affidavit in the application against Afrisure and EMS authorizes the Treasury to remit payment of the amount deducted to EMS.) I do not think, however, that that takes the borrowers’ case any further on this point because a person who collects a debt due to a money lender under a money lending transaction is clearly not a money lender.


(b) Were the payslips receipts given by the money lenders to the borrowers?



[34] In my view this question must be answered in the affirmative. It is clear that a money lender’s obligation to give receipts is not a strictly personal one which cannot be discharged by someone acting as his agent and giving a receipt on his behalf. In my view it must be accepted that in making the deductions and in issuing the payslips reflecting the deductions the Treasury or the Accountant General was acting as agent for the money lender concerned. Once a deduction was made the money deducted was being held for the money lender, who had accordingly in the eyes of the law been paid the amount so held.


[35] The indication on the payslips relating to the deductions constituted acknowledgements by the lenders’ agents that this had happened and were receipts as required by section 9(1): cf the definitions of receipt given in Stroud’s Judicial Dictionary, 4 ed, vol 4 at pp 2278-9 and Jowitt’s Dictionary of English Law, 1 ed, at p 1481. The remaining question is whether the receipts were issued on the appellants’ behalf.


[36] In civil appeal 31/09 the borrowers admitted in the statement of fact that the Treasury was the lender’s agent. In civil appeal 29/09 the existence of the deduction code which was ceded to the lender before money was lent to any of the respondents and in civil appeal 30/09 the arrangement by Blue F S with the Treasury relating to the deduction scheme in my view indicated that even without the express admission on this point made by the borrowers in civil appeal 31/09 one can safely accept that the deductions were made and the reflection thereof in the payslips was effected by the Treasury as the lender’s agent. It follows that non-compliance with the requirements of section 9 (1) has not been established.


[37] Although a failure to give receipts would in my view have rendered the money lending transactions unenforceable (see Kamusu v Baba-Egbe [1956] AC 539 (PC); [1956] 3 All ER 266 (PC), a decision of the Privy Council on section 19 of the Nigerian Money Lenders Ordinance), as receipts were given, the transactions were not rendered void and unenforceable. It follows that paragraph 6 of the orders made in the three cases in the court a quo must be set aside.


(c) (i) Were the various fees, insurance premiums and collection charges rendered void and unenforceable under section 20 (1) and (ii) if so, did that render the whole money lending transaction in each case void and unenforceable?


[38] ] (i) In my view this question has to be answered in the affirmative. In each case it is clear that the charges in question were incidental to or at the very least related to the granting of the loan. If the borrower had not agreed thereto the loan applied for would not have been granted. Section 20 (1) renders agreements by borrowers to pay such costs, charges or expenses to the lender void and unenforceable. It is clear from the facts set out earlier in this judgment that the costs, charges and expenses presently under discussion are covered by the language of the section. The possibility that in return for the membership fees payable under the money lending contracts in civil appeal 31/09 certain benefits might have been received (upon which I make no finding) and that the scheme cannot, as counsel for SMS correctly argued, be regarded as a simulation or a disguised transaction, does not alter the position. The fact is that these expenses had to be incurred by all persons intending to borrow from SMS. They are therefore covered by the wording of the sub-section.


[39] It is clear from section 20 (2) that the fact that these ‘costs, charges or expenses’ are void and unenforceable does not invalidate the lenders’ rights to have the capital and legally permitted interest repaid under the money lending contracts.


(d) The possible application of section 13 (1) (b) and (2).


[40] In view of the conclusions to which I have come on the previous issue the question arising under section 13 (1) (b) and (2) falls away once it is accepted that all of the costs, charges and expenses cannot be claimed due to the provisions of section 20 (1). Nor is there any allegation by the respondent that the interest rate on the capital sum was excessive or unconscionable.


Relief to be granted

[41] It follows from what I have said that the appeals succeed to the extent that paragraphs 6 of the orders made in the three cases on appeal will have to be deleted. In so far as paragraph 4 is concerned, the interest charged in respect of the unenforceable costs, charges and expenses was clearly invalidly deducted from the borrowers’ salaries and the total amounts deducted in respect of interest will have to be adjusted. This will result in a reduction of the principal sum. A reformulated paragraph taking these factors into account will have to be substituted for paragraph 4 of the orders of the court a quo.


[42] It is clear that the interim interdict granted in paragraph 2 of the orders made in the court a quo has fallen away, as the applications have been finally determined. I trust, however, that in future when the Accountant General and his subordinate officers and the National Treasury make deductions from the salaries of the respondents in the three appeals pursuant to the stop orders signed by them only amounts due in respect of the capital and interest adjusted in the light of what is said in the previous paragraph will be deducted.


[43] In the case of some borrowers it may be that when the amounts wrongly deducted have been set off in terms of section 20 (2) against the amount actually lent, the resultant calculation will indicate that the lender is actually indebted to the borrowers. Clearly no deduction from such borrowers’ salaries will be appropriate.


[44] It is clearly desirable that steps be taken as soon as possible to ascertain what amounts are legally due to or by the borrowers and that the National Treasury and the Accountant General be informed so that when deductions are made the necessary set offs are taken into account. The parties would be well advised to consider agreeing on the appointment of a suitably qualified person, such as an accountant, to make a study of the relevant payslips and the loan agreements and to calculate what is legally owed by or to each borrower, and in the case of those borrowers who still owe amounts to the lenders, what deductions should be made each month.


Costs

[45] The second appellant in civil appeal 29/09 has been successful and is entitled to a costs order in its favour. For the rest the appellants and the respondents have been successful on some points and unsuccessful on others and no order should be made as to their costs. The orders made as to costs in these matters are provisional and made on the understanding that parties dissatisfied therewith may within ten court days after this judgment is delivered apply to the Registrar of this Court for a day to be fixed by the President for hearing argument by this Court or for him to call for written arguments on the question of costs, in accordance with the practice outlined in a case such as Thompson v South African Broadcasting Corporation 2001 (3) SA 746 (A).


Orders

[46] In my view it will be preferable to substitute for the orders made in the three applications (except as regards the first two paragraphs which are no longer relevant) orders redrafted in the light of this judgment and the specific charges imposed by each lender.


[47] The following order is made:


1. The appeals succeed in part and the paragraphs following on paragraph 2 in the orders made in the court a quo are set aside and the following paragraphs are substituted therefor:

A. In C of A (CIV) No. 29/2009:


3. The initiation fees and the administration fees charged to the applicants by the first respondent and the charges made by it for insuring the loans of the applicants are declared illegal and unenforceable in terms of section 20 (1) of the Act.



4. The interest charged to the applicants by the first respondent on (i) the initiation fees and (ii) the administration fees and (iii) the charges made for insuring the loans of the applicants was invalid and wrongly deducted from the applicants’ salaries.



5. The amounts, if any, due by each of the applicants to the first respondent in respect of principal and interest or by the first respondent to each of the applicants in respect of amounts overpaid to it, as the case may be must be recalculated and adjusted accordingly in the light of this judgment.


6. The first respondent is ordered to pay the applicants’ costs.


7. The application brought against the second respondent is dismissed with costs, such costs to be paid jointly and severally by the applicants.’


B. In C of A (CIV) No. 30/2009:


3. The initiation fees and the administration fees charged to the applicants by the first respondent and the charges made by it for insuring the loans of the applicants are declared illegal and unenforceable in terms of section 20(1) of the Act.


4. The interest charged to the applicants by the first respondent on (i) the initiation fees and (ii) the administration fees and (iii) the charges made for insuring the loans of the applicants was invalid and wrongly deducted from the applicants’ salaries.


5. The amounts, if any, due by each of the applicants to the first respondent in respect of principal and interest or by the first respondent to each of the applicants in respect of amounts overpaid to it, as the case may be, must be recalculated and adjusted accordingly in the light of this judgment.


6. The first respondent is ordered to pay the applicants’ costs.’



C. In C of A (CIV) No. 31/2009:


3. The membership fees charged to the applicants by the first respondent in respect of the membership agreements concluded between the applicants and the first respondent and the deductions made from the applicants’ salaries in respect of their employers’ collection charges are declared illegal and unenforceable in terms of section 20 (1) of the Act.



4. The interest charged to the applicants by the first respondent on the membership fees referred to in paragraph 3 was invalid and wrongly deducted from the applicants’ salaries.



5. The amounts, if any, due by each of the applicants to the first respondent in respect of principal and interest or by the first respondent to each of the applicants in respect of amounts overpaid to it, as the case may be, must be recalculated and adjusted accordingly in the light of this judgment.



6. The first respondent is ordered to pay the applicants’ costs.’


2. The respondents in civil appeal 29/2009 are jointly and severally ordered to pay the second appellant’s costs on appeal.


3. Save for paragraph 2, no order is made in respect of the costs of the appeals.


_____________________

I G FARLAM

JUSTICE OF APPEAL


I agree:

_____________________

J W SMALBERGER

JUSTICE OF APPEAL


I agree:

_____________________

L S MELUNSKY

JUSTICE OF APPEAL




JUDGMENT

MELUNSKY, JA

[1] I agree with the judgment of my brother Farlam and the orders proposed by him. I consider it helpful, however, to refer to certain provisions of the Act relating to the various charges – lawful and unlawful – levied by money lenders. This may, I trust, clarify submissions made before us to the effect that some sections of the Act are inconsistent and indeed, irreconcilable with others.


[2] First, the definition of interest needs to be dealt with. Interest includes any amount in excess of the principal sum which is paid or payable to a money lender in consideration of a loan or “otherwise in respect of a loan.” Although the definition may be wide enough to include obligations which are mere shams, such as initiation fees, administration fees and the like, as well as costs or charges which purport to provide the borrower with illusory or insubstantial benefits, charges of this nature would normally not be payable and, if paid, would be recoverable from the money lender. The list, however, is not exhaustive for it would also include genuine or actual charges or costs if paid in consideration of a loan or otherwise in respect of a loan. The latter category of costs and charges might be permissible if not in conflict with section 20 (1) but will be regarded as, or deemed to be, interest if paid or payable in consideration of a loan or otherwise in respect thereof. Thus the interest charged on the principal coupled with the deemed interest should not exceed 25% per annum. Moreover the charges would have to be reasonable and not excessive to avoid the transaction from being harsh and unconscionable in terms of section 13(1)(b).


[3] Second, to be permissible under section 13(1) (b), the amounts charged under that section would have to comply with the following:


  1. The charges would have to relate to actual costs or expenses legitimately incurred by the money lender;


  1. The charges may not be excessive or result in the transaction becoming harsh and unconscionable; and


  1. They may not be incidental to or relate to the negotiations for or the granting of the loan or proposed loan in conflict with the provisions of section 20 (1).


[4] Finally, it is to be observed that an agreement relating to the costs, charges or expenses referred to in section 20 (1) will be void and unenforceable whether or not such charges have been actually incurred by the money lender and irrespective as to whether they are reasonable or excessive.


[5] I also draw attention to the superficial and inadequate manner in which both parties dealt with the second appellant’s involvement in the transaction in C of A 29/09. Very little detail was supplied in relation to the cession or to the “deal” that was “closed” between the two appellants. Nothing was said about any benefits that accrued to the second appellant and no documents were annexed. The respondents, too, adopted a somewhat supine attitude. In particular no attempt was made to obtain any
documents in terms of Rule 34 (11) or (14). I mention this matter to emphasise the concern that I have about the casual way in which practitioners not infrequently draft application papers. This sometimes results in this Court having to decide a matter with insufficient information before it, to the detriment of one or both parties, but I need say no more for the purposes of this appeal.

______________________

L.S. MELUNSKY

JUSTICE OF APPEAL

I agree:

______________________

J.W. SMALBERGER

JUSTICE OF APPEAL

I agree:

_____________________

I.G. FARLAM

JUSTICE OF APPEAL



FOR APPELLANTS


(In 29/2009 ) : Adv M.E. Teele KC

and Adv S. Ratau


(In 30/2009) : Adv J.P. Daffue SC


(In 31/2009) : Adv A. Subel SC

and Adv D. Marais


FOR RESPONDENTS: Adv K.E. Mosito KC and Adv M. Rafoneke