Vesagie NO & others v Erwee NO & another

On 24 October 2008, the third appellant concluded an agreement with the respondents as trustees of the ACE Trust for the purchase of shares and loan accounts in various companies. The first two appellants, as trustees of the BEN Trust, were nominated as purchasers. The purchase price was R15 million, with R5 million payable after 12 months and the balance after 18 months. Paragraph 2.2 of the agreement provided that "interest shall be levied at prime minus 1%". The shares and loan accounts were transferred to the appellants. Payments totalling R750,000 were made but no further payments followed. The respondents sued for the balance of R14,250,000 plus interest and costs. The central issue was whether the agreement constituted a credit transaction under s 8(4)(f) of the National Credit Act 34 of 2005, specifically whether interest was payable on the deferred payments. The ACE Trust had not registered as a credit provider under s 40 of the Act.

• Whether the sale agreement constituted a credit transaction in terms of s 8(4)(f) of the National Credit Act 34 of 2005
• Whether the agreement provided for interest to be payable on deferred payments
• The proper approach to interpreting contractual provisions, including the application of the maxim 'ut res magis valeat quam pereat'
• Whether an unregistered credit provider can enforce a credit transaction
• The consequences of a credit transaction being unlawful due to non-registration of the credit provider

1. The appeal was upheld with costs, including costs consequent upon the employment of two counsel where employed. 2. The order of the trial court was set aside and replaced with: (a) The claim is dismissed with costs; (b) The agreement (Annexure "A" to the plaintiff's particulars of claim) is declared null and void ab initio.

An agreement for the sale of shares that provides for deferred payment of the purchase price and requires the payment of interest on such deferred payments constitutes a credit transaction in terms of s 8(4)(f) of the National Credit Act 34 of 2005. Where the seller is not registered as a credit provider in terms of s 40 of the Act, the agreement is unlawful and must be declared null and void ab initio in terms of s 89(5) of the Act. In interpreting contracts, the maxim 'ut res magis valeat quam pereat' (that a contract should be upheld rather than destroyed) cannot be used as a point of departure; it may only be applied after ordinary principles of interpretation have been applied and the agreement is found to be ambiguous but reasonably capable of a meaning which will not invalidate it. The maxim cannot be used to justify an interpretation contrary to the clear terms and probable intent of the parties.

The court observed that payment of interest on deferred payments is a routine provision in business agreements, particularly where the purchaser has received transfer of the asset and has use and enjoyment thereof without full payment. The court rejected the trial court's finding that interpreting the agreement as a credit transaction would lead to unbusinesslike or oppressive consequences. Regarding the concern that respondents would have to refund R750,000 without recovering the shares, the court noted that without evidence of the benefit the appellants derived from use of the shares and loan account, one cannot conclude this would be oppressive. The court referenced that the previous provision (s 89(5)(c)) preventing credit providers from recovering performance under unlawful agreements had been struck down as unconstitutional in National Credit Regulator v Opperman 2013 (2) SA 1 (CC).

This case is significant for establishing clear principles regarding the interpretation of sale agreements in the context of the National Credit Act. It clarifies that: (1) an agreement for the sale of shares providing for deferred payment with interest constitutes a credit transaction under s 8(4)(f) of the National Credit Act; (2) the maxim 'ut res magis valeat quam pereat' cannot be used as a starting point in interpretation but only applies after ordinary interpretive principles reveal ambiguity; (3) conduct of parties in acting upon an agreement may be used to resolve ambiguity; and (4) failure to register as a credit provider renders credit transactions void ab initio. The judgment reinforces the mandatory regulatory framework of the National Credit Act and demonstrates the serious consequences of non-compliance, even in commercial transactions between sophisticated parties. It serves as a warning to parties extending credit in any form to ensure compliance with registration requirements.