THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Case No: 20003/2014

Reportable

In the matter between:

Firstrand Bank Limited
Appellant

and

Raymond Clyde Kona                                                                    First Respondent
Amie Gertrude Kona                                                                 Second Respondent

Neutral Citation: Firstrand Bank v Kona & another  20003/2014  [2015] ZASCA 11
(13 March 2015)

Coram: Mpati P, Cachalia and Mbha JJA and Van der Merwe and Meyer AJJA

Heard:
26 February 2015

Delivered:  13 March 2015

Summary:   National Credit Act 34 of 2005 – interpretation of s 88(3) – existence of
debt re-arrangement order not a bar to the grant of a sequestration order.
Court – precedent and stare decisis – observance of doctrine mandatory.

___________________________________________________________________

ORDER

On appeal from:  North Gauteng High Court, Pretoria (Phatudi J sitting as court of
first instance):
(a)
The appeal succeeds with costs, which costs shall be paid out of the joint
estate of the respondents as part of the costs of sequestration.
(b)
The order of the court a quo is set aside and replaced with:
‗The joint estate of the respondents is placed under final sequestration.‘
__________________________________________________________________
JUDGMENT

Meyer AJA (Mpati P, Cachalia and Mbha JJA and Van der Merwe AJA
concurring)
[1] This is an appeal against an order of the North Gauteng High Court, Pretoria
(Phatudi J) on 7 March 2014 discharging a provisional order of sequestration of the
joint estate of the respondents, who are married in community of property.  The
appeal is with leave of the high court.
[2] It is common cause that the appellant has a liquidated claim against the
respondents.  As at 26 August 2011 their indebtedness to the appellant amounted to
R953 903.48 plus interest thereon at the rate of 7.30 per cent per annum.  The
indebtedness arose as a result of an overdraft facility the appellant had granted to
the respondents pursuant to the conclusion of a written loan agreement on 7 August
2006.  The facility was subsequently increased.  The moneys borrowed from the
appellant were secured by a first and a second mortgage bond registered in favour
of the appellant over an immovable property owned by the respondents and in which
they reside.  The National Credit Act 34 of 2005 (the NCA) applies to the loan

agreement.  The appellant is a ‗credit provider‘ and each respondent a ‗consumer‘ as
contemplated in s 1 of the NCA.
[3] During the year 2008 the respondents applied to a registered debt counsellor,
Mr Rael Zimmerman, for a debt review in terms of s 86(1) of the NCA.  They
submitted an application, as required in terms of reg 24(1)(a) read with Form 16 of
the regulations promulgated in GN R489, GG 28864, 31 May 2006 (the NCA
regulations) to the debt counsellor.  The debt counsellor dispatched notices dated 25
July 2008 in accordance with s 86(4)(b) read with reg 24(2) and Form 17.1 to credit
bureaux and the respondents‘ credit providers that were listed in their application,
advising them that the respondents have applied for debt review in terms of s 86 of
the NCA.  He conducted an assessment in terms of s 86(6) and concluded that the
respondents were over-indebted.  He thereafter sent further notices dated 3
September 2008 in accordance with reg 24(10) and Form 17.2 to credit bureaux and
the respondents‘ credit providers advising them that the respondents‘ application for
debt review had been successful and that their debt obligations were being
restructured.
[4] The proposal which the debt counsellor made to the respondents‘ credit
providers, including the appellant, reflects a substantial monthly shortage of their
income over their expenditure.  The debt counsellor recommended that the period for
payment in respect of each credit agreement be extended and that the monthly
payments be reduced accordingly.  He also recommended that the interest accruing
on the debt owed to the appellant be reduced to a rate of 5 per cent per annum.
Interest reductions in respect of other debts were also recommended.  The appellant
was one of the credit providers which did not consent to the debt counsellor‘s
proposal.
[5] The debt re-arrangement order proposed was put before the Magistrate‘s
Court, Alberton, in terms of s 86(7), read with ss 87 and 79 of the NCA, by means of
a substantive application.  BMW Financial Services (SA) (Pty) Ltd and the appellant
opposed the application.  On 20 August 2009 the magistrates‘ court issued an order
declaring the respondents to be over-indebted and re-arranging their obligations in
accordance with the debt re-arrangement proposed by the debt counsellor.
(Whether the reduction in contractually agreed interest rates renders the debt re-

arrangement order invalid as contended for by the appellant is a matter that needs
not be decided in this matter.)  The respondents failed to effect proper and punctual
payment to the appellant of the reduced monthly instalments due to it in terms of the
debt re-arrangement order.
[6] Because the respondents were in default under the loan agreement and with
their obligations in terms of the debt re-arrangement order, the appellant adopted the
stance that it was entitled to enforce its rights and securities under the loan
agreement and mortgage bonds in terms of s 88(3) of the NCA.  Section 88(3) reads
as follows:
‗Subject to section 86(9) and (10), a credit provider who receives notice of court proceedings
contemplated in section 83 or 85, or notice in terms of section 86(4)(b)(i), may not exercise
or enforce by litigation or other judicial process any right or security under that credit
agreement until-
(a) the consumer is in default under the credit agreement;
and
(b) one of the following has occurred:
(i) An event contemplated in subsection (1) (a) through (c); or
(ii) the consumer defaults on any obligation in terms of a re-arrangement agreed
between the consumer and credit providers, or ordered by a court or the Tribunal.‘
(Section 86(4)(b)(i) referred to in s 88(3), read with reg 24(2) and Form 17.1, enjoins
a debt counsellor to notify all credit providers listed in a consumer‘s application that
the consumer has applied for debt review in terms of s 86 of the NCA.  The
references in s 88(3) to other provisions of the NCA are not presently relevant.)
[7] The appellant accordingly instituted an action against the respondents in the
North Gauteng High Court on 20 January 2011 claiming payment of the sum of R923
911.72, interest thereon at the rate of 7.30 per cent per annum from 1 January 2011,
an order declaring the immovable property executable and costs on the scale as
between attorney and client.  The action was defended and the respondents
successfully resisted summary judgment.
[8] On 5 March 2012 the appellant launched an application for the sequestration
of the respondents‘ joint estate.  It relied on the outstanding indebtedness as at 26
August 2011 of R953 903.48 and interest thereon at the rate of 7.30 per cent per
annum.  The respondents opposed the sequestration application, and answering and

replying affidavits were exchanged.   On 5 August 2013 the opposed application for
the provisional sequestration of the respondents‘ joint estate was heard by Van
Oosten J.  His judgment was delivered on 8 August 2013.  He issued an order
provisionally sequestrating the respondents‘ joint estate and a rule nisi calling upon
the respondents and all other interested parties to show cause on the return day why
the provisional order should not be confirmed.
[9] On 19 September 2013 the respondents launched an interlocutory application
in which they sought to set aside the provisional order.  The appellant filed an
affidavit in opposition to this application.  I need not express any view on this
somewhat unusual procedure that was adopted.  It was not objected to by the
appellant.  On 7 March 2014 Phatudi J made an order setting aside the provisional
order, discharged the rule nisi and ordered the appellant to pay the respondents‘
costs.
[10] In setting aside the provisional sequestration order the high court held that an
application by a credit provider for the sequestration of a consumer‘s estate
constitutes ‗other judicial process‘ in terms of s 88(3) of the NCA by which the credit
provider exercises or enforces a right under the credit agreement between itself and
the consumer.  The words ‗other judicial process‘, so the high court held, mean ‗any
motion proceedings including sequestration applications‘.  The high court also
inferred from the appellant‘s ‗papers and submissions made‘ that it ‗opted to pursue
the recovery of the debt by way of insolvency proceedings‘.  The high court further
held that a debt re-arrangement order contemplated in s 86(7)(c)(ii) of the NCA,
unless and until set aside by a competent court, constitutes a bar to the compulsory
sequestration of a consumer‘s estate.
[11] The appellant‘s purpose in applying for the sequestration of the respondents‘
estate may well have been to obtain payment of its debt.  However, Solomon JA said
this in Estate Logie v Priest 1926 AD 312 at 319:
‗It appears to me that it is perfectly legitimate for a creditor to take insolvency proceedings
against a debtor for the purpose of obtaining payment of his debt.  In truth that is the motive
by which persons, as a rule are actuated in claiming sequestration orders.  They are not
influenced by altruistic considerations or regard for the benefit of other creditors, who are

able to look after themselves.  What they want is payment of their debt, or as much of it as
they can get.‘
A credit provider‘s motive is irrelevant to the question whether sequestration
proceedings are proceedings to ‗exercise or enforce by litigation or other judicial
process any right or security‘ as characterized by s 88(3) of the NCA.  (See  Investec
Bank Ltd & another v Mutemeri & another 2010 (1) SA 265 (GSJ) paras 27-28;
Firstrand Bank Ltd v Evans 2011 (4) SA 597 (KZD) paras 23-24.)
[12] In Naidoo v ABSA Bank Ltd 2010 (4) SA 597 (SCA) para 4 this court held ‗that
sequestration proceedings are not in and of themselves ―legal proceedings to
enforce the agreement‖ within the meaning of s 129(1)(b)‘.   In this regard Cachalia
JA said the following:
‗Mr Reddy's submission, as I understand it, implicitly contains a concession that
sequestration proceedings are not in and of themselves ―legal proceedings to enforce the
agreement‖ within the meaning of s 129(1)(b). That his concession is correct is clear from
the recent judgment in Investec Bank Ltd and Another v Mutemeri and Another, where
Trengove AJ concluded that an order for the sequestration of a debtor's estate is not an
order for the enforcement of the sequestrating creditor's claim, and sequestration is thus not
a legal proceeding to enforce an agreement.  He did so after carefully considering the
authorities which have held that – ―sequestration proceedings are instituted by a creditor
against a debtor not for the purpose of claiming something from the latter, but for the
purpose of setting the machinery of the law in motion to have the debtor declared insolvent‖ -
they are not proceedings ―for the recovery of a debt‖.  The learned judge's reasoning
accords with this court's description of a sequestration order as a species of execution,
affecting not only the rights of the two litigants, but also of third parties, and involves the
distribution of the insolvent's property to various creditors, while restricting those creditors'
ordinary remedies and imposing disabilities on the insolvent - it is not an ordinary judgment
entitling a creditor to execute against a debtor.‘
(Footnotes are omitted.)
[13] The same reasoning, as was pointed out by Wallis J in Evans, para 25-
‗. . . also led Trengove AJ to conclude that sequestration proceedings are not proceedings
―in respect of a credit agreement‖ within the meaning of s 130(3) of the Act, or an endeavour
to exercise or enforce by litigation or other judicial process any right or security under the
credit agreement as referred to in s 88(3) of the NCA.‘

Wallis J, bound to accept the authority and the binding force of a decision of this
court as he was, followed these conclusions and the reasoning by which they were
arrived at and added-
‗. . . that it avoids what would otherwise be the very odd conclusion, that the NCA operates
to preclude credit providers from sequestrating the estates of their debtors, but does not
prevent other creditors from doing so.  If sequestration of a person's estate, while they are
under debt review, was to be rendered impermissible, there appears to be no sound reason
why it should be available to creditors who are not credit providers under the NCA.
Conversely, there is no obvious reason why credit providers should be a class of creditor
excluded from invoking the mechanisms of the Insolvency Act.‘
[14] I conclude, therefore, that an application by a credit provider for the
sequestration of a consumer‘s estate in which it relies on its claim in terms of a credit
agreement to qualify as a creditor for the purpose of instituting sequestration
proceedings does not constitute ‗litigation or other judicial process‘ by which the
credit provider exercises or enforces any right or security under the credit agreement
within the meaning of s 88(3) of the NCA.  An application for the sequestration of a
consumer‘s estate is thus not precluded by the prohibition on the institution of
proceedings envisaged in s 88(3) of the NCA.
[15] Recognizing that the provisions of s 88(3) constitute no bar to the institution of
sequestration proceedings implies further that the existence or validity of a debt re-
arrangement order is immaterial to an application for sequestration of the
consumer‘s estate, unless the debt re-arrangement order is raised as a circumstance
for the court to exercise its discretion in favour of the debtor.  (See Evans, paras 29-
37.)  Circumstances that would have justified the high court to have exercised the
discretion vested in it in terms of s 12(1) of the Insolvency Act 24 of 1936 in favour of
the respondents are absent.  There is no evidence that establishes that the
respondents‘ debts would be paid within a reasonable time.  On the contrary, the
evidence shows that the respondents did not comply with the terms of the debt re-
arrangement order and that the payments made to the appellants in terms of that
order did not even discharge the monthly interest accruing on the debt.
[16] Finally, I consider it necessary to express a view on the high court‘s
conclusion that a debt re-arrangement order contemplated in s 86(7)(c)(ii) of the

NCA constitutes a bar to the compulsory sequestration of a consumer‘s estate,
unless and until set aside by a competent court.  That conclusion is premised on the
erroneous finding that an application for sequestration seeks to enforce the credit
agreement, and is in conflict with this court‘s interpretation in Naidoo.  It
misconstrues the nature and effect of a debt re-arrangement order.
[17] As was said by Wallis J in Evans, para 35-
‗[t]he effect of a debt re-arrangement order is to place a moratorium on credit providers
pursuing their contractual remedies, for so long as the debtor complies with the terms of the
debt re-arrangement order. Once it is recognised that an application for sequestration is not
the enforcement of the credit agreement, it must follow that any moratorium to claiming
payment, under the credit agreement that exists by virtue of a debt re-arrangement order, is
not a bar to the grant of a sequestration order.‘
[18] The moratorium is lifted by operation of law - and accordingly without the
need to have the debt re-arrangement order set aside - once the consumer is in
default of the relevant credit agreement and is in default of the debt re-arrangement
order.  In Firstrand Bank Ltd v Fillis 2010 (6) SA 565 (ECP) para 16, Eksteen J, in
construing s 88(3) of the NCA, stated that-
‗[i]t follows . . . that once the jurisdictional requirement set out in s 88(3)(a) co-exists with any
one of the jurisdictional requirements set out in s 88(3)(b), the credit provider is at liberty to
proceed and to exercise and enforce, by litigation or other judicial process, any right or
security under his credit agreement, without further notice.‘
[19] Both the Constitutional Court in Ferris & another v Firstrand Bank Ltd 2014 (3)
SA 39 (CC) para 16, and this court recently in Jili v Firstrand Bank (763/13) [2014]
ZASCA 183 (26 November 2014) para 22, cited with approval the passage in Fillis
quoted above.  Moseneke ACJ, in delivering the unanimous judgment of the court in
Ferris, said the following:
‗[14] . . . Once the restructuring order had been breached, FirstRand was entitled to enforce
the loan without further notice. This is clear from the wording of the relevant sections of the
Act. Section 88(3)(b)(ii) does not require further notice — it merely precludes a credit
provider from enforcing a debt under debt review unless, among other things, the debtor
defaults on a debt-restructuring order.  Moreover, s 129(2) expressly stipulates that the
requirement to send a notice under s 129(1) is not applicable to debts subject to debt-
restructuring orders.‘

[20] Leach JA in Jili, para 25, concluded that-
‗. . . the appellant‘s default under the debt re-arrangement order entitled the respondent,
without further ado, to proceed to recover the motor vehicle in question from her.‘
[21] The decision of this court in Naidoo and that of the Constitutional Court in
Ferris were referred to in the judgment of the high court.  The legal principles
enunciated in the two decisions were binding on that court and precluded it from
arriving at any of the three conclusions to which I have referred.  The statement of
principle by Didcott J in Credex Finance (Pty) Ltd v Kuhn 1977 (3) SA 482 (N) that is
thus concisely summarised in the headnote to that judgment is in point:
‗The doctrine of judicial precedent would be subverted if judicial officers, of their own accord
or at the instance of litigants, were to refuse to follow decisions binding on them in the hope
that appellate tribunals with the power to do so might be persuaded to reverse the decisions
and thus to vindicate them ex post facto.  Such a course cannot be tolerated.‘
[22] The Constitutional Court, in Camps Bay Ratepayers’ and Residents’
Association & another v Harrison & another 2011 (4) SA 42 (CC), paras 28-30,
expressed itself in no uncertain terms about observance by courts of the maxim
stare decisis or the doctrine of precedent.  Brand AJ, in delivering the unanimous
judgment of the court said:
‗Considerations underlying the doctrine were formulated extensively by Hahlo & Kahn [Hahlo
& Kahn The South African Legal System and its Background (Juta), Cape Town 1968) at
214-15].  What it boils down to, according to the authors, is: '(C)ertainty, predictability,
reliability, equality, uniformity, convenience: these are the principal advantages to be gained
by a legal system from the principle of stare decisis.'  Observance of the doctrine has been
insisted upon, both by this court and by the Supreme Court of Appeal.  And I believe rightly
so. The doctrine of precedent not only binds lower courts, but also binds courts of final
jurisdiction to their own decisions. These courts can depart from a previous decision of their
own only when satisfied that that decision is clearly wrong. Stare decisis is therefore not
simply a matter of respect for courts of higher authority. It is a manifestation of the rule of law
itself, which in turn is a founding value of our Constitution.  To deviate from this rule is to
invite legal chaos.‘
(Footnotes are omitted.)
[23] The formal and substantive requisites for a final sequestration order have
been established.  There are no circumstances that warrant the exercise of a court‘s

discretion in favour of the respondents.  The high court should have sequestrated the
joint estate of the respondents.
[24] In the result the following order is made:
(a)
The appeal succeeds with costs, which costs shall be paid out of the joint
estate of the respondents as part of the costs of sequestration.
(b)
The order of the court a quo is set aside and replaced with:
‗The joint estate of the respondents is placed under final sequestration.‘

___________________
PA Meyer
Acting Judge of Appeal

APPEARANCES
For Appellant:

L Meintjes
Instructed by:

Rorich Wolmarans & Luderitz Inc, Pretoria

Symington & De Kok, Bloemfontein

For Respondent:

SS Cohen

Instructed by:
Ledwaba
Attorneys
c/o
Phukubye
Attorneys, Pretoria

Moroka Attorneys, Bloemfontein
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

FROM

The Registrar, Supreme Court of Appeal

DATE

13 March 2015

STATUS

Immediate

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

Firstrand Bank v Kona & another (20003/2014) [2015] ZASCA 11

MEDIA STATEMENT

Today, the Supreme Court of Appeal (SCA) upheld the appeal by Firstrand Bank (the appellant) and
set aside the order of the North Gauteng High Court, Pretoria. In the result, the joint estate of
Raymond Clyde Kona and Amie Gertrude Kona (the respondents) was placed under final
sequestration.

The issue before the SCA was whether s88 (3) of the National Credit Act (the Act) prevented a credit
provider from applying for the sequestration of a consumer where that consumer was the subject of a
debt-rearrangement order.

The appellant had a liquidated claim of around R950 000 against the joint estate of the respondents.
The provisions of the Act applied to the relevant transaction and the appellant was a ‘credit provider’
and the respondents were ‘consumers’ for the purposes of the Act. In 2009, the respondents were
declared over-indebted by a magistrate’s court and their debts were re-arranged. Subsequently, they
failed to meet their obligations to the appellant in terms of the debt-rearrangement order. The
appellant accordingly sought to have the joint estate of the respondents sequestrated.

The respondents argued that the appellants were prohibited from applying for their sequestration in
terms of s 88(3) of the Act, which provides inter alia that a credit provider who has received notice of
an application for debt review may not ‘exercise or enforce by litigation or other judicial process any
right or security under [an affected] credit agreement’ unless certain conditions are met. The court a
quo upheld the respondents’ argument, and ruled that a sequestration application constituted ‘other
judicial process’, that the appellant intended to pursue recovery of the debt through sequestration

proceedings, and that a debt-rearrangement order under the Act, unless and until set aside by a
competent court, constitutes a bar to the compulsory sequestration of a consumer’s estate.

The SCA, referring to a number of cases previously decided both by itself as well as by the
Constitutional Court, held that there was clear authority to the effect (i) that sequestration proceedings
are not treated as ‘other judicial process’ for the enforcement of a credit agreement for the purposes
of the Act, and that s (88)(3) therefore does not impose a bar on the institution of sequestration
proceedings; (ii) that the motive of the appellant in applying for sequestration is irrelevant in this
context; and (iii) that the moratorium imposed by the debt-rearrangement order is automatically lifted
once the conditions in s88 (3) are met. It is not necessary to have the moratorium lifted by court
order. Therefore, the decision of the court a quo was incorrect and was set aside.

The SCA further expressed its displeasure with the court a quo, which referred to a number of cases
which were binding on it but nevertheless came to a conclusion contrary to those decisions and the
established law. The SCA reaffirmed the importance of the principle of stare decisis and the binding
nature of precedent, and held that the high court should not have ruled as it did.

--- ends ---