Asmal Ahmed v Essa Mahamed Haroon Noor

The respondent advanced loans to the appellant for the purchase and resale of medical equipment and a sectional title unit. The appellant gave the respondent undated blank cheques as payment, with the respondent's name, signature and crossing inserted by the appellant. The amounts and dates were to be inserted by the respondent as instructed by the appellant. Each cheque would include a 'participating share of the profit' from the transactions, to be determined by the appellant at his discretion. The respondent was not registered as a credit provider under the National Credit Act 34 of 2005. When the cheques were presented for payment, the appellant countermanded payment and they were dishonoured. The respondent instituted provisional sentence proceedings based on the dishonoured cheques. The appellant defended on the basis that the cheques were security for loans that constituted credit agreements under the Act, and that the respondent was required to comply with sections 40(1), 129 and 130 of the Act before commencing proceedings.

• Whether the loan agreements constituted credit agreements under the National Credit Act 34 of 2005
• Whether the profit shares constituted 'charges' as contemplated in sections 1 and 8 of the Act
• Whether the cheques were pledged or ceded as security making them secured loans under the Act
• Whether the respondent was obliged to register as a credit provider under section 40(1) of the Act
• Whether the respondent was required to comply with sections 129 and 130 of the Act before instituting provisional sentence proceedings
• Whether provisional sentence was competent in respect of the dishonoured cheques

The appeal was dismissed with costs, including the costs of two counsel where employed. The provisional sentence granted by the KwaZulu-Natal High Court in favour of the respondent was upheld.

For a loan agreement to constitute a credit agreement under the National Credit Act 34 of 2005, any charge, fee or interest payable must be quantified and specified when the contractual terms are determined and the agreement is concluded. Indeterminate profit shares that are not guaranteed, have no fixed repayment date, and whose value is to be determined solely at the borrower's discretion do not qualify as a 'charge' under sections 1 and 8 of the Act. A cheque that has been properly drawn and issued constitutes a distinct contract in writing from the underlying transaction. Where cheques are given for repayment of loans that are not credit agreements under the Act, the holder for value of dishonoured cheques is entitled to institute provisional sentence proceedings without complying with sections 40(1), 129 and 130 of the Act. The provisions requiring registration as a credit provider (section 40(1)) and pre-litigation notice (sections 129 and 130) presuppose the existence of credit agreements and do not apply where there are no such agreements.

The court observed that the National Credit Act is not a model of clarity and that a significant number of its provisions are fraught with ambiguity and vagueness, as attested by the scores of court decisions interpreting its various provisions. The court also commented that it made no sense that section 4(5)(a) would distinguish between a cheque for payment of goods or services and one for repayment of a loan by exempting only the former from the operation of the Act, suggesting that both classes of cheques should similarly be excluded from the Act's ambit. The court noted that one of the Act's overarching objectives is to ensure that parties to a credit agreement, especially the consumer, are fully aware of the actual risks and liabilities involved in the proposed undertaking, and that this requires certainty regarding the cost of the proposed credit.

This case clarifies the scope of application of the National Credit Act 34 of 2005, particularly regarding what constitutes a 'charge' under the Act and when loan agreements fall within its ambit. It establishes that for a charge, fee or interest to bring a loan within the definition of a credit agreement, there must be certainty regarding the cost of credit at the time the agreement is concluded, consistent with the Act's consumer protection objectives. The case confirms that indeterminate, discretionary profit-sharing arrangements do not constitute charges under the Act. It also reinforces the principle that cheques constitute distinct contracts in writing from underlying loan agreements, and that provisional sentence proceedings based on dishonoured cheques that do not arise from credit agreements are not subject to the notice requirements and other provisions of the National Credit Act. The judgment highlights interpretational challenges with the Act and emphasizes that the Act's provisions must be interpreted purposively in light of its consumer protection objectives.