Christoffel Petrus Wolmarans N O and Others v The Standard Bank of South Africa Limited

The Wolmarans Kinder Trust (the trust) stood as surety for Mr Wolmarans' overdraft facility (account 040743268) governed by the National Credit Act 34 of 2005 (the Act). The trust also concluded two medium-term loan agreements with Standard Bank (accounts 040727688 and 371832152) which were not governed by the Act as the trust was a juristic person with annual turnover exceeding the Minister's threshold. When the appellants defaulted, the bank required them to sign two settlement agreements (in February 2019 and October 2020) which modified interest rates, repayment terms, granted powers of attorney for property sales, and provided for enforcement after only 7 days' notice. Both settlement agreements were made orders of court. When the appellants defaulted on the second settlement agreement, the bank sought judgment on all accounts. The appellants counter-applied to declare the settlement agreements void under the Act and to rescind the court orders. The high court granted judgment against the trust on all three accounts and declared 12 properties executable, dismissing the counter-application.

• Whether the National Credit Act applies to a suretyship granted by a juristic person (trust) in respect of a credit agreement governed by the Act, despite the trust's turnover exceeding the statutory threshold
• Whether the settlement agreements constituted unlawful supplementary agreements in terms of sections 89(2)(c), 90(2)(f) and 91(2) of the Act
• Whether a credit provider can enforce settlement agreements without complying with the debt enforcement procedures in Chapter 6, Part C (sections 129-130) of the Act
• Whether the settlement agreements contained provisions that would be unlawful if included in a credit agreement
• Whether court orders making unlawful settlement agreements orders of court should be rescinded and set aside
• The proper interpretation of section 4(2)(c) of the Act regarding the application of the Act to credit guarantees

The appeal was upheld in part. The Supreme Court of Appeal set aside the high court's order and substituted it with an order that: (1) The settlement agreements of 11 February 2019 and 16 October 2020 are declared void insofar as they relate to account 040743268; (2) The claim against the trust and Mr and Mrs Wolmarans in respect of account 040743268 is dismissed; (3) Judgment is granted against the trust for R2,098,021.87 with interest at 7.5% per annum from 25 June 2021 in respect of account 040727688; (4) Judgment is granted against the trust for R1,920,000 with interest at 8.45% per annum from 25 June 2021 in respect of account 371832152; (5) Further claims are dismissed; (6) The court orders of 21 February 2019 and 12 November 2020 are rescinded and set aside; (7) The bank is directed to pay two thirds of the appellants' costs in the high court; (8) The bank is directed to pay the costs of the appeal.

The binding legal principles established are: (1) In terms of section 4(2)(c) of the National Credit Act, the Act applies to a credit guarantee (including a suretyship) to the extent that the Act applies to the underlying credit facility or credit transaction, regardless of whether the guarantor is a juristic person whose turnover exceeds the Minister's threshold under section 4(1)(a)(i). (2) Settlement agreements that deal with the same subject matter as the main credit agreement - by modifying credit terms, interest rates, repayment schedules, and enforcement mechanisms - constitute supplementary agreements as defined in National Credit Regulator v Lewis Stores. (3) Supplementary agreements that would be unlawful if their provisions were included in a credit agreement are prohibited by section 91(2) and are void under section 89(2)(c) and 89(5). (4) Credit providers cannot circumvent the peremptory debt enforcement procedures in sections 129-130 of the Act by concluding settlement agreements that provide for enforcement after shorter notice periods. (5) Court orders making unlawful settlement agreements orders of court are incompetent and should be rescinded as they do not accord with the Constitution, the law, and public policy. (6) The accessory nature of suretyship under common law is preserved by the Act - if enforcement provisions apply to the principal debtor, they apply to the same extent to the surety under section 4(2)(c).

The court made several non-binding observations: (1) The court noted that although it did not need to decide the issue definitively, there are strong arguments that settlement agreements must comply with sections 129-130 enforcement procedures, as permitting circumvention would undermine the Act's protective purposes. (2) The court observed that the high court expressed the view that 'a strong argument may be made out that no notice as contemplated by s 129 was required' in relation to Mr and Mrs Wolmarans, but chose to 'err on the side of caution'. The Supreme Court of Appeal did not need to resolve this definitively given its other findings. (3) The court commented that the settlement agreements contained numerous other unlawful provisions beyond those specifically analyzed, noting 'this list is not exhaustive'. (4) The court noted that parties 'contracting outside of the context of litigation may not approach a court and ask that their agreement be made an order of court' (quoting Eke v Parsons), emphasizing that there must be some practical and legitimate advantage. (5) The court observed that in the interest of finality, it was urged to determine which properties should be declared executable, but declined to do so, noting this enquiry 'is best left to be pursued before and investigated fully in the high court' as insufficient information was provided.

This case is significant in South African credit law for: (1) Clarifying that section 4(2)(c) of the National Credit Act applies the Act to credit guarantees to the same extent it applies to the underlying credit agreement, regardless of whether the guarantor is a juristic person exceeding the Minister's threshold. This protects the accessory nature of suretyship. (2) Establishing that settlement agreements that modify credit terms, interest rates, and repayment schedules are supplementary agreements subject to the Act and cannot be used to circumvent the Act's consumer protection provisions. (3) Confirming that credit providers cannot avoid the peremptory debt enforcement procedures in sections 129-130 by concluding settlement agreements, even when made orders of court. (4) Reaffirming that courts must not 'mechanically rubber-stamp' settlement agreements and that unlawful agreements cannot validly be made orders of court. (5) Illustrating the extensive consumer protections in the Act, including prohibitions on various contractual terms, and the consequences of including unlawful provisions. This judgment significantly limits credit providers' ability to use settlement agreements and powers of attorney to achieve enforcement outside the protective framework of the National Credit Act.