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THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

REPORTABLE
Case No:
38/2013

In the matter between:

ASMAL AHMED

Appellant

and

ESSA MAHAMED HAROON NOOR

Respondent

Neutral citation: Asmal v Essa (38/2013) [2013] ZASCA 62 (14 May 2014)

Coram:
MPATI P, LEWIS, MAYA, SHONGWE JJA and MATHOPO AJA

Heard:
14 March 2014

Delivered: 14 May 2014

Summary: National Credit Act 34 of 2005 – whether loan agreements are credit agreements in
terms of the Act – unregistered lender given undated blank cheques for repayment
which included participating profit shares to be stipulated by borrower – cheques
dishonoured upon presentment – loan agreements not credit agreements and profit
shares not „charges‟ under ss 1 and 8 of the Act respectively – cheques constituted
distinct contracts in writing and provisional sentence competent – holder for value of
cheques not obliged when suing the borrower for provisional sentence to comply
with s 40(1) and s 129 read with s 130 of the Act.

__________________________________________________________________
ORDER

On appeal from: KwaZulu-Natal High Court, Pietermaritzburg (Seegobin J sitting as
a court of first instance):
The appeal is dismissed with costs including the costs of two counsel where employed.
__________________________________________________________________
JUDGMENT
__________________________________________________________________
MAYA JA: (MPATI P, LEWIS JA, SHONGWE JA, MATHOPO AJA concurring)

[1] The central issue in this appeal is whether the respondent was obliged to comply
with the provisions of ss 40(1), 129 and 130 of the National Credit Act 34 of 2005 (the
Act) before instituting provisional sentence proceedings based on cheques drawn in his
favour in respect of loans he advanced to the appellant. The cheques were dishonoured
when presented for payment because the appellant had countermanded payment. The
KwaZulu-Natal High Court (Seegobin J) answered the question in the respondent‟s
favour. It decided that the Act did not apply to the parties‟ loan agreements mainly
because they were not secured loans as defined in the Act. Consequently, the court
below granted provisional sentence against the appellant in respect of the money
claims1 based on the cheques. The appeal against that judgment is with the leave of
this court.

1 R470 000 (less R350 000 subsequently paid) under Case No 7317/10, R1 875 000 under Case No 7785/10 and
R1 290 000 under Case No 7786/10, together with interest and costs.

[2] The parties‟ contractual relationship and the circumstances surrounding the

exchange of the cheques were matters of strenuous dispute in the court below.
According to the respondent, the appellant gave him the cheques as payment for the
loans he advanced to him for the purchase and resale of medical equipment to hospitals
and a sectional title unit. The amounts and dates on the cheques, which would be
inserted by the respondent when so instructed by the appellant, would each include a
„participating share of the profit‟ made by the appellant on these transactions. The
profit share amounts would be determined by the appellant at his discretion. The
appellant, on the other hand, contended that the loans were advanced not to him but to
Yashen Satyendra Persadh for whom he stood surety. Because Persadh did not have a
cheque account, repayments to the respondent would be effected by an electronic
funds transfer or a cheque provided by the appellant. The undated cheques were not
meant to be deposited and served merely as proof of the loans. When the loan amounts
requested and advanced increased in time, the respondent required acknowledgements
of debt from Persadh and  deeds of suretyship from the appellant in respect of loans
above R1 million, which were duly executed. Signed copies were not, however,
furnished by the appellant as attachments to his answering affidavit.

[3] The following facts were not disputed. The respondent was not registered as a
credit provider in terms of the Act.2 The appellant inserted the respondent‟s name,
signed and crossed each cheque. He then marked two of the cheques „not transferable‟
and one „not negotiable‟. The amounts and dates thereon were, however, inserted by
the respondent and the dates represented the time when payment of each of the

2  The definition of  „credit provider‟ is set out in s 1 of the Act which reads in relevant part
„“credit provider”, in respect of a credit agreement to which th[e] Act applies, means–
…
(e) the lender under a secured loan;
…
(h) the party who advances money or credit to another under any other agreement ….‟

relevant amounts was due. The respondent held the cheques for value and drew them
on his First National Bank banking account. Each of the cheques was presented for
payment in accordance with its tenor. The cheques were, however, dishonoured
because the appellant had countermanded payment. As the bank had no obligation to
honour them, notice of dishonour as regards the appellant was accordingly dispensed
with under s 48(2)(c)(v) of the Bills of Exchange Act 34 of 1964.

[4] The appellant defended the proceedings on the basis that the cheques were
given as security for the repayment of underlying loans which, on a proper
interpretation of s 8(4)(d) of the Act, amounted to „secured loans‟ as envisaged therein.
As s 4(5)(a) expressly excludes the use of cheques as a means to pay for goods and
services rendered from the operation of the Act, but says nothing about cheques as a
method for repayment for secured loans, it had to be presumed that there was no
intention to exclude the latter. Alternatively, continued the argument, the loans fell
within the ambit of s 8(4)(f) of the Act because the portion of the profits from the
transactions in respect of which the loans were advanced, which the respondent was to
receive, constituted „a charge‟ as envisaged in that section. Because of the
respondent‟s failure to comply with the relevant provisions of the Act, provisional
sentence could, therefore, not be granted.  It was also argued that to exclude
dishonoured cheques from the ambit of the Act would allow unscrupulous creditors to
avoid the measures built into the Act to protect consumers.

[5] As indicated above, the court below was not persuaded by the appellant‟s
contentions. It found that the Act did not apply to the transactions because the
respondent did not retain the cheques as contemplated in the Act‟s definition of a

„secured loan‟. This was so, held the court, because when the appellant delivered the
cheques to the respondent, he did not pledge or cede the cheques but promised that
they would be honoured. In the court‟s opinion, to hold that the cheques could be
pledged as security under the Act would mean that cheques in respect of loans were
subject to the Act. This, in turn, would materially alter the common law applicable to
provisional sentence which treats transactions based on cheques as totally distinct from
those based on underlying agreements and entitles the creditor to elect which cause of
action to pursue. And the legislature could not have intended such a result, at least not
impliedly, and would have expressly said so if it did. The court below further held that
a „charge‟ under the Act had to be known to both parties before they concluded the
agreement; an element missing in this case. The court below concluded that as the
respondent, who was not obliged to register as a credit grantor under the Act, elected
to proceed on the cheques which were not subject to the Act, he was entitled to seek
provisional sentence without complying with the notice requirements of ss 129 and 130
thereof.

[6] The issues narrowed significantly on appeal before us. The appellant wholly
conceded the respondent‟s version of the facts, wisely so, in my view, having regard to
the manifestly poor quality of his own account. The essence of the case now argued on
his behalf was the following. The moneys advanced were loans and the profit share
amounts upon which the parties agreed constituted „a use consideration‟ for the said
loans. In light of s 4(5)(a) of the Act, the loan transactions constituted credit
agreements. A credit agreement, as defined in the Act, entails credit being granted and
the imposition of a „fee, charge or interest‟ in respect of the deferred repayment, for
the use of the credit. The profit shares qualified as a „charge‟, one of the three wide
terms used in s 8(4)(f) of the Act to describe payment for the use of money owed.

Therefore the loans, of which the cheques were part and parcel, constituted credit
agreements and were subject to the provisions of the Act. And because the respondent
was not registered as a credit provider, in breach of s 40(1)(b) of the Act, the credit
agreements were unlawful and thus void in terms of s 89(2)(d). The cheques could not
found provisional sentence in the circumstances.

[7] It is well-recognized that a cheque that has been properly drawn and issued
constitutes a contract in writing, which enjoys the characteristic of negotiability, and
must be founded on a justa causa debendi, or reasonable cause in order to be valid and
enforceable.3 The obligation to pay, represented by the cheque, which generally arises
from some transaction (contractual or otherwise), is dependent upon the validity of that
underlying transaction.4 Thus if, for example, the underlying transaction is voidable,
illegal or there has been a failure to perform, a claim by the payee for enforcement of
the contract will not succeed.5  The validity of the underlying loan agreements
concluded by the parties here therefore bears some relevance for the enforcement of
the obligations arising from the cheques and the competence of the provisional
sentence relief in that exercise.

[8] The Act defines a „credit agreement‟ widely. In s 1 it describes it as an
„agreement that meets all the criteria set out in section 8‟. The relevant parts of s 8, in
turn, provide:
„(1) Subject to subsection (2), an agreement constitutes a credit agreement for the purposes of this
Act if it is–

3  Froman v Robertson 1971 (1) SA 115 (A) at 120F-G; Lutzkie & another NNO v Zenith Concessions Ltd 2003 (6)
SA 643 (SCA) para 6.
4  Ibid.

(a) a credit facility, as described in subsection (3);
(b) a credit transaction, as described in subsection (4);
(c) …
(d) Any combination of the above.
(2) …
(3) An agreement, irrespective of its form but not including an agreement contemplated in subsection
(2) or section 4(6)(b), constitutes a credit facility if, in terms of that agreement–
(a) a credit provider undertakes–
(i) to … pay an amount or amounts, as determined by the consumer from time to time, to the
consumer or on behalf of, or at the direction of, the consumer; and
(ii) either to–
(aa) defer the consumer‟s obligation to … repay to the credit provider any part of an
amount contemplated in subparagraph (i); or
(bb) …; and
(b)  any charge, fee or interest is payable to the credit provider in respect of–
(i) any amount deferred as contemplated in paragraph (a)(ii)(aa); or
…
(4) An agreement, irrespective of its form but not including an agreement contemplated in subsection
(2), constitutes a credit agreement if it is–
…
(d) … a secured loan
(f)  any other agreement, other than a credit facility or credit guarantee, in terms of which payment of
an amount owed by one person to another is deferred, and any charge, fee or interest is payable to
the credit provider in respect of–
(i) the agreement; or
(ii) the amount that has been deferred.‟

[9] Common to all the forms of a credit agreement, including credit facilities and
credit transactions, is the requirement of payment of a „charge‟, „fee‟ or „interest‟ as

5  Above, fn 3.

envisaged in ss 8(3)(a)(ii) and 8(4)(f)(ii), respectively. The terms „charge‟, „fee‟ and
„interest‟ are, however, not defined in the Act. Bearing in mind that the statutory
context of s 8 (and indeed all the provisions of the Act) is important in the
interpretation of its provisions, it is clear from their ordinary meaning and the context
in which the terms are used that they were meant to cover any consideration or
payment to be made by a credit borrower to a credit provider for the use of credit
under the auspices of the Act. Regard must also be had and effect given to the objects
and purposes of the Act, set out in s 3, in interpreting its provisions.6 Among these
purposes is the promotion of „a fair, transparent, competitive, sustainable, responsible,
efficient, effective … credit market and industry and the [protection of] consumers by
… promoting responsibility in the credit market by … encouraging responsible
borrowing, avoidance of over-indebtedness and fulfilment of financial obligations by
consumers … promoting equity in the credit market by balancing respective rights and
responsibility of credit providers and consumers … addressing and correcting
imbalances in negotiating power between consumers and credit providers by …
providing consumers with adequate disclosure of standardised information in order to
make informed choices‟.

[10] Apart from these objectives, the general tenor of the whole Act makes clear that
one of its overarching objectives is to ensure that the parties to a credit agreement,
especially the consumer, are fully aware of the actual risks and liabilities involved in
the proposed undertaking. For example, ss 100 to 106 of Part C of the Act deal with
„Consumer‟s liability, interest, charges and fees‟. The sections make provision for
„cost of credit‟ which entails the specific types of fees, interest, credit insurance and
default administration charges that a credit provider may impose. They also prescribe

6 In s 2(1) of the Act.

the maximum amounts and the methods by which such amounts must be computed,
which the credit provider may not change unilaterally. The painstaking detail of these
provisions leaves no doubt that certainty regarding the cost of the proposed credit is
imperative. Sections 80(1) and 81 of the Act, which deal with reckless credit, are
similarly couched. They require the credit provider to conduct an assessment to ensure
that the consumer „understands or appreciates‟ the risks, costs or obligations under the
proposed credit agreement.

[11] These measures are obviously intended to protect the consumer from any hidden
costs that may arise from the credit agreement and to ensure that he or she has an
opportunity to consider the precise risk and cost involved before binding himself or
herself. In that case, the parties must quantify the charge, fee or interest and specify the
manner in which it is to be paid when they determine their contractual terms and
conclude the credit agreement. It must follow that the indeterminate profit shares
agreed upon by the appellant and the respondent, for which no date of repayment was
fixed, which were not guaranteed and could well not even have eventuated, and whose
value, if any, was to be determined by the appellant at his sole discretion, cannot
qualify as „a charge‟ under the Act. The submission made on the appellant‟s behalf
that whether a loan is a credit agreement within the meaning of the Act depends not on
its outcome but on its nature – ie what makes the loans credit agreements is the fact
that „extra money was asked for their use‟ regardless of whether that „extra money‟ in
the form of profit shares was not specified or ultimately paid, as it was put – simply
has no merit. Thus, the loans were not credit agreements as envisaged by the Act if no
charges attached to them.

[12] In the light of this finding, the court below correctly rejected the submission that
the loan agreements concluded by the parties were secured loans. A „secured loan‟ is
defined in s 1 of the Act as „an agreement, irrespective of its form but not including an
instalment agreement, in terms of which a person … advances money or grants credit
to another, and … retains, or receives a pledge or cession of the title to any movable
property or other thing of value as security for all amounts due under that agreement‟.
It is clear from the facts (and it was wisely not contended otherwise in argument before
us) that the cheques were not pledged or ceded to the respondent, a finding made also
by the court below. They were issued by the appellant with the intention that they
would be honoured on due presentment and, if they were dishonoured, that the
appellant would compensate the respondent as holder.7

[13] The appellant‟s reliance on the respondent‟s non-compliance with the provisions
of s 40(1) of the Act is yet another non-starter. According to the section, a person must
apply to be registered as a credit provider if he or she „alone or in conjunction with any
associated person, is the credit provider under at least 100 credit agreements … or the
total principal debt owed to that credit provider under all outstanding credit agreements
… exceeds the threshold [of R500 000] prescribed in terms of s 42(1)‟. These
provisions require the existence of credit agreements to kick in. As pointed out, there
were none here. The respondent, therefore, had no obligation to register as a credit
provider in the circumstances.

[14]  He similarly had no duty to comply with ss 129 and 130 of the Act before
commencing litigation against the appellant. The general import of these provisions is

7 Froman v Robertson above at 121 F.

that the credit provider is proscribed from commencing any legal proceedings against a
consumer, who is in default under a credit agreement, to enforce it, before first giving
the consumer written notice thereof and before the lapse of time during which the
consumer has failed to respond thereto or has rejected the credit provider‟s proposals.
These provisions also presuppose the existence of a credit agreement and cannot apply
if there is none.

[15] The appellant‟s case can find no support from s 4(5)(a) either. In terms of these
provisions „[i]f a person sells any goods or services and accepts, as full payment for
those goods or services … a cheque or similar instrument upon which payment is
subsequently refused for any reason … the resulting debt owed to the seller by the
issuer of that cheque or charge does not constitute a credit agreement for any purpose
of th[e] Act‟. I agree with the court below that it makes no sense at all that the
provisions would distinguish between a cheque in terms of which payment for goods or
services is to be effected and one in terms of which repayment of a loan is intended by
exempting only the former from the operation of the Act. Simple logic dictates that
both classes of cheques should similarly be excluded from the ambit of the Act. Suffice
it to point out the notorious fact that the 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.

[16] All the indications are that the parties had no intention whatsoever of concluding
credit agreements and bringing their dealings within the scope of the Act. The
respondent was fully entitled to invoke the provisional sentence procedure to enforce
his claims, which are disputed merely on technical grounds. And the reasoning of the

court below and the conclusion it reached cannot be faulted. The appeal must
accordingly fail.

[17]  In the result, the appeal is dismissed with costs including the costs of two
counsel where employed.

____________________

MML Maya

Judge of Appeal

APPEARANCES

APPELLANT:

KJ Kemp SC (S Alberts)

Instructed by:

K Maharaj Inc., Durban

Honey Attorneys, Bloemfontein

RESPONDENT:
CJ Hartzenberg SC

Instructed by:

Ganie & Co., Pietermaritzburg

Symington & De Kok, Bloemfontein

THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

From:
The Registrar, Supreme Court of Appeal
Date:
14 May 2014
Status:
Immediate

Please note that the media summary is intended for the benefit of the media and does not
form part of the judgment of the Supreme Court of Appeal.

Asmal v Essa (38/2013) [2013] ZASCA 62 (14 May 2014)
The Supreme Court of Appeal today dismissed, with costs, an appeal from the KwaZulu-
Natal High Court, Pietermaritzburg. The central issue in the appeal, brought with the SCA’s
leave, was whether the respondent was obliged to comply with the notice provisions of the
National Credit Act 34 of 2005 (the Act) before instituting provisional sentence proceedings
based on cheques drawn in his favour in respect of loans he advanced to the appellant.
The cheques were dishonoured when presented for payment by the respondent because the
appellant had countermanded payment.
The high court found in the respondent’s favour, on the basis that the Act did not apply to the
parties’ loan agreements mainly because they were not secured loans as defined in the Act.
Consequently, the court granted provisional sentence against the appellant in respect of the
money claims  based on the cheques. The appeal against that judgment is with the leave of
this court.
On appeal the appellant argued that the money advanced to him by the respondent constituted
loans and the profit share amounts upon which the parties agreed in addition to the repayment
of the loan amounts constituted ‘a use consideration’ for the said loans. Therefore, in light of
the Act the loan transactions constituted credit agreements, in the sense that credit was

granted and a ‘fee, charge or interest’ imposed in respect of the deferred repayment, for the
use of the credit. The profit shares qualified as such a ‘charge’. As the respondent was not
registered as a credit provider in breach of s 89(2)(d) of the Act, the credit agreements were
unlawful and thus void. The cheques could not found provisional sentence in the
circumstances.
The SCA held that it is clear from the tenor of the Act that one of its overarching objectives is
to ensure that the consumer is fully aware of the actual risks and the cost of the proposed
credit so as to be protected from any hidden costs that may arise from the credit agreement.
Accordingly, the SCA held that it must follow that the indeterminate profit shares agreed
upon by the appellant and the respondent, for which no date of repayment was fixed, which
were not guaranteed and could well not even have eventuated, and whose value, if any, was
to be determined by the appellant at his sole discretion, cannot qualify as ‘a charge’ under the
Act. The high court was thus correct that the loans did not constitute ‘secured loans’ in terms
of the Act.
The SCA concluded that as the Act is not of application to the loans agreements, its notice
requirements are not applicable. The respondent was thus fully entitled to invoke the
provisional sentence procedure to enforce his claims which were disputed merely on
technical grounds.