Absa Bank Limited v Johan Serfontein and Another

ABSA Bank granted Mr J Serfontein (first respondent) an overdraft facility in July 2003, which was secured by four mortgage bonds over his immovable property (Portion 3 of Farm Welverdiend 92). His father, Mr J H Serfontein (second respondent), signed a deed of suretyship as co-principal debtor. By August 2016, the debt had ballooned to over R6.2 million. Following negotiations in 2019, the Serfonteins signed an Acknowledgement of Debt incorporating a Power of Attorney (AOD/POA) on 17 March 2019, acknowledging a debt of R7,131,019.14 plus interest. The AOD/POA gave ABSA an irrevocable power of attorney to sell the immovable property immediately, without a court order (parate executie). Clause 13 of the AOD/POA expressly stated the agreement was not subject to the NCA. ABSA proceeded to sell the property for R6 million in September 2021. The Serfonteins then launched a high court application to declare the AOD/POA and the subsequent deed of sale void.

• Whether the AOD/POA was a 'supplementary agreement' within the meaning of section 91(2) of the National Credit Act
• Whether the AOD/POA contained provisions unlawful under section 90(2) of the NCA
• Whether the Serfonteins were 'required' or 'induced' to sign the AOD/POA within the meaning of section 91(2)
• Whether the high court properly exercised its discretion under sections 89(5) and 90(4) in declaring the entire AOD/POA void ab initio, rather than severing unlawful provisions
• Whether a post-default power of attorney granting parate executie is permissible under the NCA

The appeal was dismissed with costs. The high court's order was upheld, which declared: (1) the AOD/POA void from the date it was entered into (17 March 2019); (2) the agreement of sale of the property to the Francois Els Trust void ab initio; (3) the Registrar of Deeds prohibited from registering transfer of the property; and (4) ABSA liable for costs of the application and counter-application.

The binding legal principles established are: (1) An acknowledgment of debt that deals with the same subject matter as the underlying credit agreement (the extension and repayment of credit) and is intrinsically intertwined with it constitutes a 'supplementary agreement' under section 91(2) of the NCA. (2) A provision in a supplementary agreement granting an irrevocable power of attorney allowing a credit provider to execute against immovable property immediately and without a court order is unlawful under section 90(2) of the NCA, as it defeats the Act's purposes and contravenes constitutional protections against arbitrary deprivation of property (section 25(1)) and eviction without court order (section 26(3)). (3) Pre-constitutional common law principles permitting post-default parate executie powers (as recognized in Bock and Iscor) are superseded by the NCA's statutory regime where the agreement falls within the ambit of the Act. (4) A provision expressly excluding the application of the NCA to a credit-related agreement is unlawful under section 90(2)(a)(i) as it defeats the purposes and policies of the Act. (5) Presenting a debtor with the choice between signing an agreement containing unlawful provisions or facing litigation and possible sequestration constitutes 'requiring' or 'inducing' within the meaning of section 91(2). (6) Where unlawful provisions permeate an entire supplementary agreement such that severance would not leave a valid, implementable agreement, the court must declare the entire agreement void ab initio under sections 89(5) and 90(4).

The Court made several non-binding observations: (1) Not all settlement agreements or acknowledgments of debt fall within the ambit of the NCA - the test is whether the underlying agreement falls within the Act and whether the settlement agreement deals with the same subject matter (following Ratlou). (2) The Court noted that existing common-law principles may still have application outside the NCA's ambit, but declined to elaborate further as it was unnecessary for the case. (3) The Court addressed ABSA's concern that a broad interpretation of 'induce' would have a chilling effect on settlement of disputes, observing that this fear was 'more apparent than real' because inducement alone does not invalidate an acknowledgment of debt - it is only unlawful if it induces agreement to prohibited provisions under section 90(2). (4) The Court noted that every case involving acknowledgments of debt must be decided on its own facts. (5) The Court observed that the misleading cross-reference in section 89(2)(c) to section 91(a) was due to the drafters of the National Credit Amendment Act 19 of 2014 overlooking the need to amend the cross-reference when section 91 was substituted.

This judgment is significant for several reasons: (1) It confirms that acknowledgments of debt and settlement agreements concluded in the context of credit relationships governed by the NCA are 'supplementary agreements' subject to the Act's prohibitions. (2) It establishes that pre-constitutional common law principles permitting post-default parate executie powers (allowing creditors to execute against property without court process) cannot survive the NCA's consumer protection framework and constitutional property protections. (3) It emphasizes that parties cannot contract out of the NCA through ouster clauses. (4) It provides guidance on the meaning of 'require' and 'induce' in section 91(2), clarifying that presenting debtors with the choice between signing an agreement with unlawful provisions or facing litigation constitutes inducement. (5) It demonstrates the courts' willingness to strike down entire agreements where unlawful provisions permeate the agreement, rather than permitting severance. (6) It reinforces the NCA's purposes of protecting consumers and balancing power imbalances between credit providers and consumers. The judgment serves as an important warning to credit providers that they cannot circumvent the NCA's consumer protections through settlement agreements containing provisions that would be unlawful if included in the original credit agreement.