THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 1309/17
In the matter between:

PHASWANA STEPHEN RATLOU
APPELLANT

and

MAN FINANCIAL SERVICES SA (PTY) LTD
RESPONDENT

Neutral citation: Ratlou v Man Financial Services (1309/2017) [2019] ZASCA 49 (01 April
2019)

Coram:
Lewis ADP, Swain and Dambuza JJA and Carelse and Matojane AJJA

Heard:
07 March 2019

Delivered:
01 April 2019

Summary:
Lease agreement – whether a settlement agreement constituted a credit
transaction in terms of the National Credit Act 34 of 2005 (the NCA) – underlying rental
agreements excluded from provisions of the NCA as they were large transactions
concluded with a corporate entity and secured by a suretyship – on a literal interpretation
of s 8(4)(f) of the NCA the settlement agreement constituted a credit transaction – results

of that so absurd that it could not have been intended by the legislature – inimical to the
purposes of the NCA – provisions of the NCA did not apply – cross-appeal succeeded.
_____________________________________________________________________

ORDER
______________________________________________________________________

On appeal from: Gauteng Division of the High Court, Johannesburg (Wepener J sitting as
court of first instance):

The appeal is dismissed with costs, such costs to include the costs of two counsel.
The cross-appeal succeeds with costs, such costs to include the costs of two
counsel.
______________________________________________________________________

JUDGMENT
______________________________________________________________________

Dambuza JA (Lewis ADP, Swain JA and Carelse and Matojane AJJA concurring):

Introduction
[1] The central issue in this appeal is whether a settlement agreement is governed by
the provisions of the National Credit Act 34 of 2005 (the NCA) when the underlying
contracts – the rental of trucks to a corporate entity – and a suretyship in respect of the
leases – are not governed by the Act. The court a quo held that it was.

[2] On 28 July 2016 MAN Financial Services, SA (Pty) Ltd (MAN) launched an
application in the Gauteng Division of the High Court, Johannesburg (high court),
(Wepener J), against Phapho Nkone Transport (PNT), a registered company, together
with its director, Mr Stephen Ratlou (Mr Ratlou), claiming payment of R4 269 278.79 and
interest, based on an acknowledgment of debt. The high court refused to grant judgment
on the basis that the settlement agreement was a credit agreement within the meaning of

the NCA and that MAN was obliged to comply with s 129 of that Act, which it had failed to
do. The high court granted an order in the following terms:

‘1
. . .

Against the second respondent [the appellant in this appeal, Mr Ratlou]:
2.1
the settlement agreement annexed as annexure JN13 to the founding
affidavit is made an order of court.

2.2
the application is postponed sine die.
The applicant [the respondent in the appeal Man Financial Services, SA (Pty) Ltd,
MAN] may not set this matter down until:-
3.1
it has complied with the provisions of Section 129(1)(a) as read with Section
130 of the National Credit Act 2005;
3.2
It has upon completion of the remedies referred to in Section 129(1)(a) of
the NCA, if restored to or otherwise, become entitled to resume its
application.
4.
The Applicant is to pay the Second Respondent’s costs incurred in opposing this
application.’
Mr Ratlou obtained leave from this court to appeal against this order. Essentially he only
sought to have para 2.1 of the order set aside, that is, the declaration that the settlement
agreement was an order of court.

[3] Subsequent to the granting of leave to appeal by this court, MAN obtained leave
from the high court to cross-appeal against paras 3 and 4 of the high court order in terms
of which it was ordered to comply with the provisions of the NCA and pay the costs of the
application.

[4] At the hearing of the appeal, counsel for MAN informed this court that MAN had
complied with the relevant portions of the order and had obtained a judgment against Mr
Ratlou in the amount claimed. However, it was intent on pursuing the cross appeal,
arguing that the settlement agreement on which its claim was based, was not governed by
the NCA. I agree that although a judgment by this court on the issue will have no practical
effect in so far as the parties are concerned, the finding by the high court that the
agreement was governed by the NCA on which paras 3 and 4 of the court order were

founded, raises a discrete legal point of public importance that would affect settlement
agreements concluded in the future.1

[5] On appeal, the parties were in agreement that a determination of the cross appeal
in MAN’s favour would dispose of the appeal and entitle MAN to judgment as sought. If the
issue was decided in Mr Ratlou’s favour MAN would concede the appeal. The cross-
appeal will therefore be determined first.

Background
[6] During 2013 Mr Raltlou acquired PNT together with its business. He then became
its director. At the time PNT was leasing five heavy duty trucks and trailers from MAN. On
24 October 2013, Mr Ratlou executed a deed of suretyship in favour of MAN to secure the
lease agreements relating to the five trucks. Those lease agreements expired sometime
during 2014. The suretyship, as a general covering security in respect of PNT’s debt to
MAN, remained in place.

[7] In December 2014 PNT and MAN concluded seven new rental agreements in
relation to seven heavy-duty trucks and trailers hired by PNT at specified monthly rental
amounts. A few months after the conclusion of these agreements PNT defaulted on the
monthly rentals. On several occasions thereafter Mr Ratlou re-negotiated the rental
payment dates, only for PNT to default on the renegotiated payment dates. Ultimately, on
30 April 2015, MAN repossessed the seven trucks and trailers. The amount then
outstanding on all the rental agreements was R4 915 043.98. The trucks and trailers were
sold to third parties and the proceeds were credited to PNT’s rental accounts. However
there remained a shortfall in the amount of R4 400 000.

[8] On 28 September 2015, MAN, PNT and Mr Ratlou concluded the settlement
agreement (also referred to as an acknowledgement of debt, AOD) in relation to the
shortfall.  Clauses 4 and 5 of that agreement provided that:

1 Qoboshiyane NO & others v Avusa Publishing Eastern Cape (Pty) Ltd & others [2012] ZASCA166; 2013
(3) SA 315 (SCA) para 5.

‘4.
PN Transport [PNT] and Stephen [Mr Ratlou] will jointly and severally the one paying the
other to be absolved pay an amount of R4 400.000.00 (Four million four hundred thousand
Rand) together with interest at Absa Bank Limited’s prime lending rate as publicized from
time to time from date calculated daily and compounded monthly from date of signature of
this agreement to payment in full.
5.
Payment of the aforesaid amounts will be made by way of 60 consecutive monthly
payments payable as follows:

5.1
6 x monthly payments of R50 000.00 (fifty thousand Rand) each, the first payment
to be made on/or before the 07th day of November 2015, followed by 5 consecutive monthly
payments of R50 000.00 each payable on the 07th day of each consecutive month.

5.2
Followed by 54 monthly payments of R98077.00 (Ninety eight [t]housand and
seventy seven Rand), payable from the 07th day of May 2016.’

[9] This meant that PNT and Mr Ratlou were to liquidate the outstanding debt in the
manner set out above. However they defaulted once more – the payment dates specified
in the settlement agreement were again not honoured.

In the high court
[10] On 28 July 2016, MAN instituted the proceedings against PNT and Mr Ratlou,
based on the settlement agreement and the suretyship executed in October 2013, for
payment of the amount owing. In its defence, PNT pleaded that the rental agreements
which formed the underlying causa for the settlement agreement had been ‘dependent’ on
a ‘supply agreement’ which it had with a mining company, ASA Metal/Dilakong Chrome
Mine. The allegation was that in terms of a further oral agreement between the parties
(PNT, MAN and Mr Ratlou), if the supply agreement were to cease or collapse, the rental
agreements would also come to an end. The contention was that this oral agreement
constituted a resolutive condition to the rental agreements. When ASA Metal ‘did not
honour the supply agreement’ the rental agreement ceased and MAN was not entitled to
any payment from them.

[11] Regarding the suretyship, Mr Ratlou contended that it was not open to MAN to rely
on it as it had been executed in relation to the initial five trucks and their rental agreements
which had since terminated. MAN contended that, in its terms, the suretyship was a

continuing agreement and was ‘barely a year old’ when the second batch of trucks was
acquired.

[12] The high court correctly found that the original rental agreements did not fall within
the ambit of the NCA. This is because they were large agreements concluded with a
juristic person. The aggregate quantum of instalments of each agreement exceeded the
R250 000 threshold. In addition, because the NCA did not apply to the underlying
agreements, it also did not apply to Mr Ratlou’s suretyship. The high court however found
that, although the seven rental agreements to which the settlement agreement related did
not fall under the NCA, the settlement agreement constituted a new credit agreement
within the meaning of the NCA. MAN had failed to give prior notice of the impending action
to PNT and Mr Ratlou as it was obliged to do in terms of the provisions of s 129 of that
Act. By this time PNT was in liquidation, with the result that the court postponed the
application as against it, but granted the order as set out above in respect of Mr Ratlou.

[13] In reaching the conclusion that the settlement agreement was a credit transaction,
the high court reasoned that, unlike the underlying rental agreements, in the settlement
agreement Mr Ratlou was ‘no longer described or bound as surety’. He was liable jointly
and severally together with PNT for the amount outstanding. Further, the settlement
agreement read that it was in full and final settlement of the applicant’s claims against Mr
Ratlou and PNT. It therefore ended the relationship between the parties in so far as the
rental agreements and the suretyship were concerned. It was a transactio or compromise
which created between the parties a new relationship with consequential rights and
obligations. None of the parties was entitled to enforce the rights and obligations
emanating from the underlying rental agreements.

Submissions on appeal
[14] Mr Ratlou contended that it was not competent for the high court to make the
settlement agreement an order of court because none of the parties sought an order in
those terms, and he was not warned that an order in those terms would be made. The
prejudice he suffered as a result of the court order was that para 2 thereof detracted from
the relief granted in terms of paras 3 and 4 of the order. The order was ambiguous and

‘self- destructive’. He would now also not be able to raise defences that would have been
available to him under the NCA such as ‘reckless lending’.

[15] It was not in dispute that at some stage during the proceedings in the high court
MAN had, by way of an amendment to its notice of motion, sought to have the settlement
agreement declared an order of court. However, by the time of the hearing of the
application, the proposed amendment had been abandoned.

[16] In the cross-appeal, MAN conceded that on a literal interpretation of s 8(4)(f) of the
NCA the settlement agreement met the definition of a credit transaction. That section
provides that:
‘(4) An agreement, irrespective of its form but not including an agreement contemplated in
subsection (2) constitutes a credit transaction if it is
…

(a) …
(f) Any other agreement, other than a credit facility or a 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 –
(a) the agreement; or
(b) that amount has been deferred.’
However it was submitted that, where, as in this case, the underlying causa to the
settlement agreement did not constitute a credit agreement as envisaged by the NCA, the
agreement did not fall within the ambit of the NCA.

[17] Counsel for MAN also submitted that in any event the settlement agreement was a
credit guarantee to which the provisions of the NCA did not apply for the reasons stated by
this court in Shaw & another v McKintosh & another.2

[18] Mr Ratlou persisted in the argument that the settlement agreement, as a new and
independent contract, extinguished the underlying causa and Mr Ratlou’s status in relation

2 Shaw & another v McKintosh & another 2019 (1) 308.

to the debt was altered to that of a co-principal debtor. The provision of the NCA therefore
applied.

Discussion
[19] Mr Ratlou argued that the underlying causa for the compromise in the form of the
settlement agreement cannot be examined for the purposes of determining whether the
acknowledgment of debt falls within the parameters of the NCA. This is simply because
the underlying causa has been extinguished by the compromise. The argument is artificial.
If the underlying causa did not fall within the parameters of the NCA, then its compromise
in terms of the settlement agreement, cannot logically result in the agreement being
converted to one that does.

[20] In this regard the express reference in the AOD to the underlying causa – the rental
agreements is of vital significance. Clause 3 of the AOD provides that the agreement is ‘in
full and final settlement of MFS’s [Man Financial Services] claims against PN Transport
and Stephen [Mr Ratlou] with regard to the agreements listed’ therein.3 It was not in
dispute that the accounts listed in the AOD related to the rental agreements. The
compromise therefore remained linked to the underlying causa, being the rental
agreements. The artificiality of ignoring them is self-evident.

[21] A purposive interpretation and not a literal interpretation of s 8(4)(f) of the NCA is
required because it is quite clear that the NCA was not aimed at settlement agreements.
Its application to them will have devastating effect on the efficacy and the willingness of
parties to conclude settlement agreements and thereby curtail litigation. .

[22] As is evident from the portion of the settlement agreement set out above it provided
for payment of the amount owed in deferred instalments and interest was payable in terms
thereof. As I have said, on a literal interpretation the settlement agreement meets the
definition of a credit transaction. This is so even though the underlying lease agreements
did not constitute credit agreements as: they were large agreements; the rental was
payable in advance and not deferred; ownership of the trucks would not pass to PNT at

3 At para 8.

the end of the lease term; and Mr Ratlou’s suretyship was not governed by the NCA.
Further, on a literal interpretation of s 8 (4)(f) of the NCA, a settlement agreement
concluded in relation to a delictual claim would immediately fall within the ambit of the
NCA. As submitted on behalf of MAN this could never have been the intention of the
legislature. The consequence would be absurd for agreements of settlement in respect of
non-contractual claims.
[23] The purposes of the NCA are set out in s 3 of that Act. Section 2 thereof provides
that the NCA must be interpreted in a manner that gives effect to such purposes. Under s
3 the purposes of the Act are ‘to promote and advance the social and economic welfare of
South Africans, to promote fair, transparent, competitive, sustainable, responsible, efficient
effective and accessible credit market and industry and to protect consumers.’ Therefore
the NCA is concerned with the advancement of money or granting of credit in the main, to
individual consumers.4

[24] MAN’s reliance on three cases in which our courts have used the purposive
approach in determining whether the NCA was applicable to settlement agreements, is
well placed. In Grainco (Pty) Ltd v Broodryk NO & others5 the court found that although the
settlement agreement referred to deferral of payment and interest the agreement did not
constitute a credit transaction because the underlying transaction was a damages claim in
respect of which the plaintiff, by agreement, afforded the first, second, and third
defendants deferrement of payment. It was held that the transaction did not fall within the
business of moneylending and the furnishing of credit, in the ordinary sense of the word.
The NCA was not intended to encompass an underlying causa of the postponement of
payment of damages.

[25] In Hattingh v Hattingh6 a settlement agreement in which two brothers terminated
their business relationship and provided for payment of R6,6 million in annual instalments
of R734 000,00 together with interest on the capital was found not to fall within the ambit
of the NCA. The court found specifically that there had been no credit provider-consumer
relationship. This and the parties’ intention viewed against the background of the objects

4 See the preamble to the NCA.
5 Grainco (Pty) Ltd v Broodryk NO & others [2009] ZAFSHC 143; 2012 (4) SA 517 (FB).
6 Hattingh v Hattingh [2010] ZAFSHC 173; 2014 (3) SA 162 (FB).

of the NCA showed that it could not have been the intention of the Legislature that an
agreement such as the impugned agreement should be regarded as a credit agreement.
Although the one brother, prima facie, fell within the definition of a credit provider as
intended in the NCA it could not – given the purpose and the context of the NCA – have
been the intention of the Legislature that the brother would be regarded as a credit
provider subject to the obligations imposed by the NCA.

[26] In Ribeiro & another v Slip Knot Investments 777 (Pty) Ltd7 it is found that the
underlying causa remained extant despite settlement and that the two agreements were
interdependent. In this case the underlying agreement was a damages claim pursuant to
the repossession and re-sale of the vehicles. There was also no credit provider –
consumer relationship and the settlement agreement and the underlying agreements were
interdependent. There can only be one conclusion, that the NCA was not designed to
regulate settlement agreements where the underlying agreements or cause, would not
have been considered by the Act.

[27] Having found that the legislature never had the intention that the NCA be applicable
to all settlement agreements in terms which accord with the determination of credit
transactions, in particular to the agreement concluded by the parties in this case, it is not
necessary to deal with the alternatives to MAN’s main argument. I may, however indicate,
in respect thereof as well, that the effect of the sudden unintended conversion of a non-
consumer/non-credit provider relationship into one governed by the NCA and the chill
effect that would have on settlement of disputes would still hold considerable weight. As
was submitted on behalf of MAN, parties who were never credit providers, such as a once
off lesser, would suddenly find themselves unable to enforce the terms of their settlement
agreement, for want of registration or due assessment or a lessee for creditworthiness.

[28] Consequently the settlement agreement in this appeal did not fall within the ambit
of the NCA. MAN had no obligation to comply with the provisions thereof prior to enforcing
its terms. It will be recalled that the parties agreed that a determination of the cross appeal
in MAN’s favour, namely that the acknowledgement of debt did not constitute a credit

7 Ribeiro & another v Slip Knot Investments 777 (Pty) Ltd [2010] ZASCA 174; 2011 (1) SA 575 (SCA).

transaction as defined in the NCA, would dispose of both the appeal and the cross appeal
in MAN’s favour.

[29] The following order is granted:
1 The appeal is dismissed with costs, such costs to include the costs of two counsel.
2 The cross-appeal succeeds with costs, such costs to include the costs of two counsel.

_________________
N Dambuza
Judge of Appeal

APPEARANCES

For Appellant:
D D Swart

Instructed by:

Machobane Kriel Inc., Johannesburg

Symington De Kok Attorneys, Bloemfontein

For Respondent:
A Gautschi SC (with him C van der Merwe)

Instructed by:

Webber Wentzel, Johannesburg

Stefan De Beer Co., Bloemfontein