The Impact of the National Credit Act 34 of 2005 on the Enforcement of a Mortgage Bond: Sebola v Standard Bank of South Africa Ltd 2012 5 SA 142 (CC)

When a mortgagor is in default and the mortgagee wants to enforce the debt the National Credit Act (hereafter the NCA) may apply. A credit agreement may be enforced in court by a credit provider against a defaulting debtor only once the requirements of sections 129 and 130 of the NCA have been adhered to. If a mortgagor (who is a protected consumer in terms of the NCA) is in default, the mortgagee must deliver a section 129(1) notice to the consumer, thereby drawing the default to the attention of the consumer. For a number of years there has been uncertainty about the interpretation of section 129(1) and how it affects the execution procedure in the case of a mortgage bond over immovable property. The recent Constitutional Court judgment of Sebola v Standard Bank 2012 5 SA 142 (CC) overturns, to my mind, the more reasonable approach to such notices in Rossouw v Firstrand Bank Ltd (2010 6 SA 439 (SCA)). It was held in Sebola that before instituting action against a defaulting consumer, a credit provider must provide proof to the court that a section 129(1) notice of default (i) has been despatched to the consumer's chosen address and (ii) that the notice reached the appropriate post office for delivery to the consumer, thereby coming to the attention of the consumer. In practical terms the credit provider must obtain a post-dispatch "track and trace" print-out from the website of the South African Post Office. There is now a much heavier burden on a bank to ensure that proper proof is provided that the notice was sent and delivered to the correct address. Consequently it places another hurdle in the path of a mortgagee who wishes to foreclose.


Introduction
When a mortgagor is in default and the mortgagee wants to enforce the debt, the National Credit Act 34 of 2005 1 may apply. If the mortgagor (who is a protected consumer in terms of the NCA) is in default, the mortgagee must deliver a section 129(1) notice to the consumer thereby drawing the default to the attention of the consumer. 2 Sections 129(1) and 130(1) of the NCA are of cardinal importance and provide for the procedures that should be followed by a credit provider before debt enforcement can take place. They provide as follows: Section 129 Required procedures before debt enforcement (1) If the consumer is in default under a credit agreement, the credit provider -(a) may draw the default to the notice of the consumer in writing and propose that the consumer refer the credit agreement to a debt counsellor, alternative dispute resolution agent, consumer court or ombud with jurisdiction, with the intent that the parties resolve any dispute under the agreement or develop and agree on a plan to bring the payments under the agreement up to date; and (b) subject to section 130 (2), may not commence any legal proceedings to enforce the agreement before -(i) first providing notice to the consumer, as contemplated in paragraph (a) (ii) meeting any further requirements set out in section 130. [My emphasis] Section 130 Debt procedures in a Court (1) Subject to subsection (2), a credit provider may approach the court for an order to enforce a credit agreement only if, at that time, the consumer is in default and has been in default under that credit agreement for at least 20 business days and -(a)at least 10 business days have elapsed since the credit provider delivered a notice to the consumer as contemplated in section 86 (9), or section 129 (1), as the case may be; (b) in the case of a notice contemplated in section 129 (1), the consumer has-(i) not responded to that notice; or (ii) responded to the notice by rejecting the credit provider's proposals; and (c) in the case of an instalment agreement, secured loan, or lease, the consumer has not surrendered the relevant property to the credit provider as contemplated in section 127. [My emphasis] In the recent Constitutional Court judgment of Sebola v Standard Bank of South Africa Ltd 3 it was held that before instituting action against a defaulting consumer, a credit provider must provide proof to a court that a section 129(1) notice of default (i) has been despatched to the consumer's registered address and (ii) that the notice reached the appropriate post office for delivery to the consumer, thereby coming to the attention of the consumer. 4 In practice the credit provider must obtain a postdespatch "track and trace" print-out from the website of the South African Post Office. 5 The Sebola judgment overturned an earlier interpretation of the section 129(1) notice in Rossouw v Firstrand Bank Ltd. 6 After the Sebola judgment there is a heavier burden on a credit provider to ensure that the notice is sent and delivered to the defaulting debtor. The credit provider has to prove on a balance of probabilities that the notice was delivered and came to the attention of the defaulting consumer. Sebolas' immovable property specifically executable. 7 An appeal against the judgment of a single judge of the same court was dismissed by a full bench of the High Court. 8 The High Court refused to grant the rescission application prepared by the Sebolas in September 2009. Both the single judge and the full bench had to deal with the question of whether or not a section 129(1) notice read with section 130 of the NCA requires that a defaulting consumer should actually receive the notice.

Background
Mr and Mrs Sebola signed a mortgage home loan agreement in November 2007 with Standard Bank and received a loan of R1 312 000. 9 Standard Bank secured the loan with a mortgage bond over the Sebolas' home. The Sebolas chose their home address in the mortgage home loan agreement for jurisdiction and address purposes to which "any legal proceeding" were to be served, and they declared that "letters, statements and notices may be delivered" to a post office box in North Riding. where it was held that proof of despatch by the credit provider to the consumer's chosen domicillium address is sufficient to comply with the requirements of section 129(1). Proof that the consumer had received the notice therefore was not required. The Sebolas applied for leave to appeal to the Constitutional Court by submitting that the Supreme Court of Appeal failed to accord sufficient weight to constitutional principles in light of the NCA's objectives. 25 Leave to appeal was granted.

The judgment of Sebola
The Sebolas on appeal argued that the Bank had not complied with the notice requirements of section 129(1). The Constitutional Court therefore analysed this section of the NCA. The purpose of the NCA is pursued through the "consensual resolution of disputes arising from credit agreements". 32 A section 129(1) notice plays an essential role in achieving this purpose by requiring a credit provider to draw a defaulting consumer's attention to the fact that he may pursue the assistance of a "debt counselor, alternative dispute resolution agent, consumer court or ombud" 33 with the objective of reaching an agreement with the credit provider. 34 The important question that had to be determined in Sebola was whether or not a credit provider should prove that the section 129(1) notice came to the notice (attention) of the consumer. 35 Judge Cameron emphasised that section 129(1) cannot be interpreted in isolation, but must be read with section 130(1)(a). 36 The judge referred to three issues which should be considered: First, a credit provider's obligations, on the one hand, and what he is permitted to do, on the other, cannot be established without interpreting both provisions. 37 Judge Cameron 38 explained that: Section 129 prescribes what a credit provider must prove (notice as contemplated) before judgment can be obtained, while section 130 sets out how this can be proved (by delivery). 30 In Rossouw v Firstrand Bank 2010 6 SA 439 (SCA) 32 appeal judge Maya held that the legislator's main objective with the Act was to "protect the consumer from exploitation by credit providers by, inter alia, preventing predatory lending practices; to ameliorate the financial harm which a consumer may suffer where unable to meet his obligations under a credit agreement and generally to achieve equity in the lending market by levelling the playing field between parties who do not have equal bargaining power". Secondly, both sections require that written "notice" must be given to a consumer, but do so in different ways. 39 Section 129(1)(a) provides that a credit provider "may" "draw the default to the notice of the consumer" 40 and section 129(1)(b) provides that a credit provider "may not commence legal proceedings" to enforce the credit agreement before a notice as contemplated in section 129(1)(a) has been provided to the consumer. Section 130(1) provides that 10 business days must pass from the time that "the credit provider "delivered" a notice to the consumer as contemplated … in section 129(1)" before a credit provider is allowed to commence with court proceedings to enforce the credit agreement. 41 Section 130(1)(a) explicitly refers back to section 129(1). 42 The third important issue is that the two sections have different focuses but achieve the same end result, namely, the delivery of a notice to a defaulting consumer as contemplated in section 129(1). Section 129(1)(a) focuses on the defaulting consumer and entitles him to a "notice" with a specific contentthe credit provider therefore "may" provide him with such a notice. Section 129(1)(b) obliges the credit provider to give such notice because he "may not" commence with proceedings against a defaulting consumer unless this notice has been given, 43 while section 130(1) places an obligation on the notice-provider to "deliver" such a section 129(1) notice. 44 Judge Cameron 45 gave the following substantiation of his conclusion that a credit provider must "deliver" such a notice to a consumer: No means of direct proof lies within the reach of a credit provider who wishes to enforce an agreement. It is for this reason that section 130 imposes on the credit provider the obligation to 'deliver' the notice. Therefore, when a credit provider has given notice to a consumer in terms of section 129(1), he must provide proof and satisfy a court that this notice was "delivered" to the consumer. Judge Cameron 46 admitted that determining the meaning of Section 65 Right to receive documents (1) Every document that is required to be delivered to a consumer in terms of this Act must be delivered in the prescribed manner, if any. (2) If no method has been prescribed for the delivery of a particular document to a consumer, the person required to deliver that document must -(a) make the document available to the consumer through one or more of the following mechanisms -(i) in person at the business premises of the credit provider, or at any other location designated by the consumer but at the consumer's expense, or by ordinary mail; Section 65(2) assists in the quest of determining the meaning of "delivered" mentioned in section 130(1), because it is applicable in circumstances where "no method has been prescribed for the delivery of a particular document to a consumer" as in section 130(1). 48 Section 65(2) points out that "if no method has been prescribed for the delivery of a particular document to a consumer", the document must be made "available" to the consumer through one of the mechanisms provided in section 65(2)(a) by the person who is obliged to deliver the reliable means" than ordinary mail, since there is no practical way to prove that a document sent by ordinary mail has been received by the addressee. The judge therefore concluded that the despatch of a section 129(1) notice by registered mail to a specified address is required for delivery in terms of section 130(1)(a). Judge Cameron 53 agreed with this point of view but added that more weight and certainty needs to be attached to section 130(1)(a) read in conjunction with section 129(1).
To comply with the requirements of these sections, more than mere "despatch" of the notice is necessary. Bearing in mind the high importance given to a section 129(1) notice, the judge held that for a section 129(1) notice to be effective, the credit provider should take reasonable measures to bring the notice to the attention of the consumer. He must therefore present proof that the notice "on a balance of probability reached the consumer". 54 The judge held that this will normally mean that a "credit provider must provide proof that the notice was delivered to the correct post office". 55 In practical terms this means that a credit provider will have to acquire a postdespatch "track and trace" print-out from South Africa's Post Office website. 56 This "track and trace" print-out will enable the credit provider to determine which post office received the notice that was sent by registered mail. The credit provider's summons or particulars of claim must declare that the notice was delivered to the applicable post office and that the notification slip was delivered to the consumer. Such a notification slip notifies a consumer that a registered item was received for his collection. 57 Should a consumer aver that the notification slip sent by the post office was not received or was not collected, a court must determine, regardless of If a consumer avers that he did not receive a section 129(1) notice, proceedings will be stayed and will resume only after the steps that a credit provider should follow have been complied with. 67 Therefore non-compliance with the requirements of section 129(1) notices will not be fatal, but will only delay court proceedings.
Eiselen 68 argues that to enable a credit provider to comply with this heavier onus, all section 129(1) notices must be delivered by registered post. I agree with Eiselen and should like to add that if delivery by registered post is sanctioned as one of the methods of delivery by the consumer, the credit provider should also make an extra effort to deliver the notice by ordinary post to the consumer's domicilium address.
Such a notice will then serve as delivery to a consumer who ignores the notification by registered letter. It is clear that compliance with section 129(1) is of the utmost importance. Therefore, when a credit provider increases the probabilities of the notice coming to the attention of the consumer, the chances of compliance improve.
Both Eiselen 69 and Otto and Otto 70 made the following suggestions that will assist a credit provider when the requirements of Sebola need to be followed. First, when proceedings are stayed due to non-compliance with section 129(1), at least 10 days should pass before a credit provider attempts to deliver a notice again. Secondly, when proceedings are stayed and a consumer decides to refer the matter to a debt counsellor in terms of section 129(1)(a), such proceedings should not resume before that procedure has been completed. 71  confirmed by the contradictory high court decision in Mkhize. 77 In this judgment the court held that ordinary mail is more reliable than registered mail, since the percentage of registered mail that is returned undelivered is much higher than ordinary mail. This view differs from conclusion in Sebola that registered mail is more reliable than ordinary mail. The authors agree with the viewpoint in Mkhize that held that when a section 129(1) notice was sent with registered post and the delivery was unsuccessful due to the consumer not collecting the letter, "there is a high degree of probability that the consumer has avoided delivery". Consequently the reason why registered mail will more frequently be returned undelivered might be the consumer's "avoidance tactic", which places a credit provider in a very