Destri Joseph Malcolm Ferris and Another v FirstRand Bank Limited and Another

In October 2007, Mr and Mrs Ferris borrowed money from FirstRand Bank to purchase their home, secured by a mortgage bond. They fell into arrears and in February 2009 applied for debt review under section 86(1) of the National Credit Act 34 of 2005. In March 2009, their debt counsellor made a repayment offer to FirstRand which was not accepted. In September 2009, the debt counsellor applied to the Magistrate's Court for a debt-restructuring order. In April 2010, FirstRand attempted to terminate the debt review under section 86(10), but later conceded the notice was not properly delivered. On 30 April 2010, the Magistrate's Court granted a debt-restructuring order declaring the Ferrises over-indebted and rearranging their obligations. The order stipulated that the original credit agreement would be fully enforceable if breached. By 7 May 2010, the Ferrises defaulted on the restructuring order. FirstRand then issued summons for enforcement in June 2010. The Ferrises defended but failed to make discovery on time. On 9 November 2011, default judgment was granted in favour of FirstRand. On 23 May 2012, more than six months later, the Ferrises applied for rescission of the default judgment, blaming their attorneys' negligence. The High Court dismissed the application, finding no basis for rescission. Leave to appeal was refused by both the High Court and the Supreme Court of Appeal. The applicants then applied to the Constitutional Court for leave to appeal, filed late.

• Whether condonation should be granted for the late filing of the application for leave to appeal
• Whether the requirements for rescission of a default judgment under Rule 42(1)(a) of the Uniform Rules of Court were met
• Whether a credit provider may enforce a credit agreement after breach of a debt-restructuring order without further notice under the National Credit Act
• Whether substantial compliance with a debt-restructuring order is sufficient to prevent enforcement
• Whether the requirements for rescission under Rule 31 and the common law were met
• Whether it is in the interests of justice to grant leave to appeal

1. Condonation granted. 2. Leave to appeal refused. 3. No order as to costs.

Once a debt-restructuring order made under section 86(7) of the National Credit Act has been breached by the consumer, the credit provider is entitled to enforce the original credit agreement without further notice to the consumer, in terms of section 88(3)(b)(ii) of the Act. Section 129(2) expressly excludes the requirement to send a section 129(1) notice for credit agreements subject to debt-restructuring orders. The wording of a debt-restructuring order that stipulates the original agreement will be "revived and fully enforceable" upon breach reinforces this entitlement. A defectively delivered section 86(10) notice (purporting to terminate debt review) does not prevent enforcement where the credit provider is independently entitled to enforce based on breach of the debt-restructuring order. For rescission under Rule 42(1)(a), a default judgment must have been "erroneously sought or erroneously granted" - a purely dilatory defence (such as absence of notice where enforcement is otherwise lawful) does not establish such error. For rescission under the common law or Rule 31, an applicant must show: (a) reasonable explanation for default, (b) bona fides, and (c) a bona fide defence with a prima facie case on the merits. An attorney's negligence does not necessarily constitute a reasonable explanation for default.

The Court observed that the good faith requirement in section 86(5)(b) of the National Credit Act for participating in debt review proceedings is aimed at parties reaching agreement on debt restructuring before a debt-restructuring order is needed. Once such an order is granted, reaching agreement is no longer necessary and the good-faith requirement becomes irrelevant. The Court noted its general wariness of deciding issues raised for the first time on appeal, in relation to the "substantial compliance" argument which was raised for the first time in the Constitutional Court hearing. The Court suggested that even if substantial compliance with a debt-restructuring order were an appropriate standard (which it doubted), payment of only R1,000 out of almost R9,000 owing would not constitute substantial compliance. The Court commented that granting relief to the applicants would merely delay the inevitable as FirstRand would remain entitled to enforce the loan, and there was no evidence the applicants could comply with either the debt-restructuring order or the original loan terms.

This case provides important clarification on the operation of the National Credit Act's debt review and debt-restructuring provisions. It establishes that once a debt-restructuring order is breached, a credit provider may enforce the original credit agreement without further notice to the consumer, subject only to the requirements in section 88(3)(b)(ii). The judgment clarifies that the section 129(1) notice requirement does not apply to debts subject to debt-restructuring orders (per section 129(2)), and that breach of such an order independently entitles enforcement regardless of whether a section 86(10) termination notice was properly given. The case also confirms the high threshold for rescission of default judgments, requiring satisfaction of Rule 42(1)(a) (judgment erroneously sought or granted) or the common law/Rule 31 requirements (reasonable explanation for default plus bona fide defence). It demonstrates the Constitutional Court's willingness to address important issues in credit law even where there are procedural irregularities, while maintaining strict requirements for granting relief where applicants lack merit and have not been candid with the court.