THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

JUDGMENT

Case no: 234/10

AFRICAN DAWN PROPERTY FINANCE 2 (PTY) LIMITED
Appellant

and

DREAMS TRAVEL AND TOURS CC
First Respondent
ISMAIL HASSEN AMOD
Second Respondent
MOHAMMED AMOD NO
Third Respondent
FAATIMA MIA NO
Fourth Respondent

____________________________________________________________

Neutral citation:
African Dawn Property Finance 2 (Pty) Ltd v
Dreams Travel and Tours CC

(234/10) [2011] ZASCA 45 (30 March 2011)

BENCH:

PONNAN, TSHIQI and MAJIEDT JJA

HEARD:

14 MARCH 2011
DELIVERED:
30 MARCH 2011

SUMMARY:
Interest – rate of - in terms of the common law must amount to extortion or

oppression or something akin to fraud to constitute usury – common law

rule not inconsistent with the spirit, purport and objects of the Constitution.

______________________________________________________________________

ORDER
______________________________________________________________________

On appeal from:
South Gauteng High Court (Johannesburg) (Saldulker J sitting as

court of first instance).

The appeal succeeds with costs, including those consequent upon the
employment of two counsel.
The order of the court below is set aside and in its stead is substituted the
following:
‗a. The application is dismissed with costs.
b. The counter application succeeds with costs.
c. It is ordered:
That the First Applicant, the Second Applicant, and the Ismail Amod Family
Trust (No. IT8815/04) represented by the Second, Third and Fourth Applicants
in their capacities as the duly appointed trustees (―the Trust‖), jointly and
severally, the one paying the other(s) to be absolved, but subject to 2
hereunder, pay to the Respondent:

1.1 the sum of R3,900,247.50;

1.2 interest on the aforesaid sum of R3,900,247.50 calculated at the rate of

6.5% per month a tempore morae from 1 July 2009 to date of payment;

1.3 costs of suit on the attorney and client scale.
That the liability of the Trust in terms of 1 above is limited to the security held
by the Respondent under:

2.1 covering mortgage bond B038860/08 registered over Erf 12018 Lenasia

Extension 13 Township, Registration Division IQ, the Province of Gauteng,

in extent 680 square metres, held under deed of transfer T49903/2005;

and

2.2 covering mortgage bond B037987.08 registered over Erf 11954 Lenasia

Extension 13 Township, Registration Division IQ, the Province of Gauteng,

in extent 800 square metres, held under deed of transfer T50215/2005.
That the following immovable properties registered in the name of the Trust
are declared specially executable for the liability of the Trust in terms of 2
above:

3.1 Erf 12018 Lenasia Extension 13 Township, Registration Division IQ, the

Province of Gauteng, in extent 680 square metres, held under deed of

transfer T49903/2005;

3.2 Erf 11954 Lenasia Extension 13 Township, Registration Division IQ, the

Province of Gauteng, in extent 800 square metres, held under deed of

transfer T50215/2005.‘

______________________________________________________________________

JUDGMENT
______________________________________________________________________

PONNAN JA  (TSHIQI and MAJIEDT JJA concurring):

[1] Over a century ago Innes CJ stated in Reuter v Yates.1
‗The law of Holland prohibited excessive usury; and the courts of this country, administering that law, will
refuse to enforce contracts shown on due inquiry to be usurious and extortionate in their nature. But our
law does not in my opinion define any particular rate of interest as being necessarily usurious; it does not
fix a limit up to which interest is legitimate and proper, and beyond which it becomes illegal and
excessive. That must depend upon the circumstances of each case. Usury is a good defence; the
difficulty arises in deciding when a contract is usurious and when it is not. And that difficulty is not to be
solved by a mere reference to the rate of interest agreed upon; it requires a careful inquiry into all the
circumstances surrounding the transaction which is challenged. And the onus in my opinion is upon the
person who sets up the defence, to satisfy the court upon the facts that it is applicable and sufficient.‘
The difficulty that the learned Chief Justice alluded to arises in this appeal, which
involves the question as to whether the rate of interest levied in respect of a money
lending agreement is usurious. The South Gauteng High Court (per Saldulker J) held
that it was. The high court accordingly declared the relevant provisions of the written
agreement pertaining to interest to be ‗unlawful and contrary to public policy‘ and
substituted in its stead a rate of interest that it thought ‗fair‘ and ordered each party to
pay its own costs. The present appeal serves before this court with the leave of
Boruchowitz J.

[2] The issue arises for determination against the following backdrop: According to
the second respondent, Mr Ismail Hassen Amod (Amod), the sole member of the first
respondent, Dreams Travel and Tours CC (the CC), he approached a number of
registered banks on behalf of the CC during 2008 for ‗bridging finance‘. Those
applications were declined because of, as he put it, ‗the credit crunch under the present
economic climate‘. He then turned to a private financier Gateway Capital Ltd (Gateway)

1 Reuter v Yates 1904 TS 855 at 856.

for a loan of R5 million. Gateway declined the application but with the approval of Amod
forwarded the loan application to the appellant, African Dawn Property Transfer Finance
2 (Pty) Ltd (African Dawn).

[3] African Dawn conducts business as a short term financier and is a registered
credit provider in terms of s 40 of the National Credit Act 34 of 2005 (the NCA). The
main business of African Dawn, according to its director, Pierre Bezuidenhout
(Bezuidenhout) ‗comprises short term secured finance, including bridging finance‘. He
describes bridging finance as ‗a form of short term secured finance, the distinguishing
feature thereof being that the repayment of the loan facility is effected from a specific
source of funds‘.

[4] Bezuidenhout states that following upon the referral of the loan application to
African Dawn, he discussed the application with Amod, who informed him that the
moneys were urgently required by the CC to fund the importation into South Africa of a
consignment of branded jeans. The market for such jeans, according to Amod, was
seasonal and it was therefore important for the CC to place the order for those jeans as
soon as possible. Indeed, in the loan application itself, the loan is stated to be for an
‗import and export deal to be done‘ and three to four months is reflected as the period
for which the loan is required. Further, various immovable properties were listed as
‗security available for required facility‘. Those properties included Amod‘s own
residential property in Glenvista, Johannesburg and certain trust properties. The trust in
question is the Ismail Amod Family Trust. The beneficiaries of the trust are the children
born of the marriage between Amod and Faatima Mia. The trust is represented in these
proceedings by its trustees Mr Mohammed Amod NO (the third respondent) and Ms
Faatima Mia NO (the fourth respondent).

[5] To properly consider the loan application, African Dawn sought and obtained
certain additional information from Amod including a copy of the trust deed, letters of
authority of the trustees of the trust and a copy of the most recent annual financial
statements of the CC. On 6 June 2008 African Dawn wrote to Amod informing him that

it had approved the CC‘s loan application in the amount of R5 million plus costs and
stipulated the security that it required. Amod was asked to confirm whether the loan
terms were acceptable to the CC. Certain discussions then ensued and on 11 June
2008 draft documents including the loan agreement and suretyships (to be signed by
Amod in his personal capacity and the trustees on behalf of the trust) were dispatched
to Amod by African Dawn. After considering the draft documentation, Amod requested
that the suretyships to be furnished on behalf of the trust be amended so as to limit its
liability to R9 million. Moreover, he requested that such liability be restricted to mortgage
bonds to be registered over two - instead of three (as had originally been mooted by
African Dawn) - of the trust‘s immovable properties. African Dawn acceded to those
requests and duly amended the suretyship agreements, which were then dispatched to
Amod on 12 June 2008.

[6] Amod, on behalf of the CC, confirmed his acceptance of the terms of the loan as
negotiated and on 17 June 2008 the CC (as borrower) and African Dawn (as lender)
concluded a written loan agreement. In terms of that agreement African Dawn lent and
advanced the sum of R5 175 162.80 (inclusive of a raising fee, an agent‘s commission,
the costs of the drafting of the loan agreement and other documents and the bond
registration costs) to the CC. Clause 3 of the loan agreement provided:
‘3.1
This loan plus interest thereon would be repaid by the Borrower to the Lender upon the following
date and in the following amounts:

3.1.1

30 June 2008
-
R112,128.53

3.1.2

31 July 2008
-
R258,758.14

3.1.3

31 August 2008
-
R258,758.14

3.1.4

30 September 2008
-
R258,758.14

3.1.5

31 October 2008
-
R258,758.14

3.1.6

30 November 2008
-
R258,758.14

3.1.7

17 December 2008
-
R5, 321, 792.41‘
The CC sought to discharge that obligation by furnishing African Dawn with seven post-
dated cheques.

[7] Clause 4 of the agreement headed ‗Interest‘ provided:

‗4.1
The parties agree that interest will be charged on the loan and calculated at the rate of 5% per
month from the date that the loan was advanced.
4.2
In the event of the loan amount plus interest not being repaid within the required time period and
on the dates as per 3.1 above, the Borrower shall become liable to pay interest on the loan amount at a
rate of 6,5%, calculated from the date that any payment due as per 3.1 and is not paid on the required
date.
4.3
In the event of the Borrower paying an amount greater than the amount recorded in paragraph
3.1 above, the Borrower shall remain obliged to make any and all payments thereafter in the same
amounts as recorded in paragraph 3.1 and shall only be entitled to reduce the amount after obtaining the
Lender‘s prior written consent.‘

[8] Further, in terms of the agreement the closed corporation warranted that:
‗10.1
. . . it has an annual income in excess of one million rand and/or assets in excess of one million
rand and furthermore that its nett monthly income is sufficient to repay the loan upon the terms contained
herein.
10.2
. . . it has obtained independent financial and legal advice prior to entering into this agreement
and that it understands the contents and consequences thereof.‘

[9] The CC‘s obligations were secured by way of an unlimited suretyship by Amod
personally and a limited suretyship by the trust. In terms of those deeds of suretyship
each of Amod and the trust bound and interposed themselves as a surety and co-
principal debtor in solidum for the CC‘s indebtedness to African Dawn. And pursuant to
the agreement, mortgage bonds were registered in favour of African Dawn over two of
the trust‘s properties in the amounts of R5 million and R4 million, respectively.

[10] On the instructions of Amod, African Dawn paid the net value of the loan to the
CC, 1 Time Import and Export and LCG in the amounts of R1 410 000, R2 277 305 and
R1 312 695, respectively. Although fairly substantial payments were effected by the CC
to African Dawn, all too frequently they were not effected timeously. Since August 2008
interest in the higher amount of 6.5% per month has been applicable to the loan and as
at 30 June 2009 the former was indebted to the latter in the sum of R3 900 247.50
together with interest thereon at the rate of 6.5% per month.

[11] On 26 June 2009 the respondents caused an application to be issued out of the
South Gauteng High Court. They sought an order:
‗1
Declaring that the agreement  . . . alternatively, clauses 4.1 to 4.3 and 6.1 thereof to be unlawful
and contrary to public policy.
Alternatively to paragraph 1 above, declaring that interest payable on all outstanding amounts
arising from the agreement to be 15,5% per annum, alternatively, the maximum rate permissible in terms
of the National Credit Act.
Costs of this application only in the event of the Respondent opposing this application.
Granting to the Applicants further and alternative relief as may seem just to this Honourable
Court.‘

[12] Amod who deposed to the affidavit in support of the application stated:
‘38
This is usurious and against public policy. It is unlawful. I submit that the Court should sever
these provisions from the contract.
As such the provisions are void.
THE NATIONAL CREDIT ACT 34 OF 2005
. . .
I point out further that in terms of the National Credit Act 34 of 2005 specifically regulation 42, a
copy of which is attached marked F, 5% interest per month may only be levied on short term credit
transactions which are transactions where a deferred amount is under R8 000-00 (Eight Thousand Rand)
(see regulation 39(2)).
The Respondent was not in law therefore entitled to charge 5 to 6.5% in respect of the contract in
issue.
Interest may not exceed the rates provided for in the Usury Act 73 of 1968. In this regard it must
be pointed out that the Usury Act was repealed by s 172(4)(a) of the National Credit Act 34 of 2005 (the
NCA), with effect from 1 June 2006. Item 5 of s 3 of the NCA provides that a maximum annual finance
rate set in terms of the Usury Act and in effect immediately before the effective date (ie, 1 June 2006)
continues in force despite the repeal of the Usury Act, until the Minister (ie, the Member of the Cabinet
responsible for consumer credit matters) first prescribes a maximum rate of interest in terms of s 105.
Section 105 of the NCA came into operation on 1 June 2007. My calculation is that the maximum rate of
interest is 28% in terms of the formulae for calculation.
THE COMMON LAW
In any event I am advised and so submit that the court has a discretion to reduce the interest rate
under the common law. The rate of interest charged by the Respondent is excessive, unconscionable and
against public interest.
I submit that the Court should exercise its discretion in the Applicants‘ favour.

The trust property is designed for the benefit of my minor child. It will all but be lost if the
Respondent is allowed to enforce the agreement.
The Respondent took advantage of the vulnerable position the Applicants found themselves in.
The loan was designed to pay staff and to rescue the business. Staff of the First Applicant may lose their
jobs as it is impossible to retain them. The First Applicant has staff members who all are married and
have dependants to support.‘

[13] In addition to opposing the application, African Dawn caused a counter
application to be filed, seeking an order:
‗1
That the First Applicant, the Second Applicant, and the Ismail Amod Family Trust (No. IT8815/04)
represented by the Second, Third and Fourth Applicants in their capacities as the duly appointed trustees
(―the Trust‖), be and are hereby ordered, jointly and severally, the one paying the other(s) to be absolved,
but subject to 2 hereunder, to pay the Respondent:
1.1
the sum of R3,900,247.50;
1.2
interest on the aforesaid sum of R3,900,247.50 calculated at the rate of 6.5% per month a
tempore morae from 1 July 2009 to date of payment;
1.3
costs of suit on the attorney and client scale.
That the liability of the Trust in terms of 1 above is limited to the security held by the Respondent
under:
2.1
covering mortgage bond B038860/08 registered over Erf 12018 Lenasia Extension 13 Township,
Registration Division IQ, the Province of Gauteng, in extent 680 square metres, held under deed of
transfer T49903/2005; and
2.2
covering mortgage bond B037987.08 registered over Erf 11954 Lenasia Extension 13 Township,
Registration Division IQ, the Province of Gauteng, in extent 800 square metres, held under deed of
transfer T50215/2005.
That the following immovable properties registered in the name of the Trust are declared specially
executable for the liability of the Trust in terms of 2 above:
3.1
Erf 12018 Lenasia Extension 13 township, Registration Division IQ, the Province of Gauteng, in
extent 680 square metres, held under deed of transfer T49903/2005;
3.2
Erf 11954 Lenasia Extension 13 Township, Registration Division IQ, the Province of Gauteng, in
extent 800 square metres, held under deed of transfer T50215/2005.
Granting to the Respondent further and/or alternative relief.‘

[14] The high court concluded:
‗In the result I make the following order:

Clauses 4.1 to 4.3 and 6.1 of the agreement, marked annexure ―A‖ to the founding affidavit of
Ismail Hassen Amod, is declared to be unlawful and contrary to public policy.
The first applicant is ordered to pay to the respondent the capital loan plus interest at the rate of
28% per annum, provided that the payments already made by the first applicant to the respondent, be
first appropriated to interest and then to capital.
In the event of the first applicant failing to pay the outstanding balance due and owing to the
respondent within 30 days from the date of this order, the respondent shall be entitled to approach the
court on these papers for further relief.
Each party is to pay its own costs.‘

[15] Contracts valid in form are prima facie enforceable in South African law and
effect will be given to them unless grounds for their avoidance are proved (per Didcott J
in Roffey v Catterall, Edwards & Goudré (Pty) Ltd2). But, as Cameron JA correctly
observed, our Constitution ‗requires us to employ its values to achieve a balance that
strikes down the unacceptable excesses of freedom of contract, while seeking to permit
individuals the dignity and autonomy of regulating their own lives‘.3 Indeed, on appeal to
it (Barkhuizen v Napier)4 the majority of the Constitutional Court (per Ngcobo J) made
that much clear in these terms (para 57):
‗On the one hand public policy, as informed by the Constitution, requires in general that parties should
comply with contractual obligations freely and voluntarily undertaken. This consideration is expressed in
the maxim pacta sunt servanda, which, as the Supreme Court of Appeal has repeatedly noted, gives
effect to the central constitutional values of freedom and dignity. Self-autonomy, or the ability to regulate
one‘s own affairs, even to one‘s own detriment, is the very essence of freedom and a vital part of dignity.
The extent to which the contract was freely and voluntarily concluded is clearly a vital factor as it will
determine the weight that should be afforded to the values of freedom and dignity.‘

[16] Our courts have however recognised that pactum sunt servanda is not a holy
cow (Bredenkamp v Standard Bank).5 As Ngcobo J observed in Barkhuizen (para 87):
‗Pacta sunt servanda is a profoundly moral principle, on which the coherence of any society relies. It is
also a universally recognised legal principle. But the general rule that agreements must be honoured

2 Roffey v Catterall, Edwards & Goudré (Pty) Ltd 1977 (4) SA 494 (N) at 503H.
3 Napier v Barkhuizen 2006 (4) SA 1 (SCA) para 13.
4 Barkhuizen v Napier 2007 (5) SA 323 (CC).
5 Bredenkamp v Standard Bank of South Africa Ltd 2010 (4) SA 468 (SCA) para 37.

cannot apply to immoral agreements which violate public policy. As indicated above, courts have
recognised this and our Constitution re-enforces it.‘
And, thereafter Harms JA in Bredenkamp (para 38):
‗This court in Sasfin consequently restated the obvious, namely that our common law does not recognise
agreements that are contrary to public policy. Our courts have always been fully prepared to reassess
public policy and declare contracts invalid on that ground. Determining whether or not an agreement was
contrary to public policy requires a balancing of competing values. That contractual promises should be
kept is but one of the values.‘

[17] Here the CC is a juristic entity whose asset value and annual turnover at the time
of the loan agreement exceeded the threshold value determined by the Minister in terms
of s 7(1) of the National Credit Act (NCA). The NCA therefore does not apply to the loan
agreement (s 4(1)). The effect of the loan agreement not being governed by the NCA is
that there is no statutory limitation on the interest payable in terms of the agreement.
Moreover, as the principal debt under the loan agreement exceeds R500 000, the loan
agreement was not subject to the Usury Act (s 15(g)). It follows that the maximum
annual finance rate set in terms of the Usury Act likewise does not apply. That
notwithstanding the high court held:
‗Having regard to all of the aforegoing, I find that the rate of interest charged by the respondent is
usurious given the reality of the situation the first applicant found itself in, the inherent inequality in the
bargaining power. It is harsh, excessive and against public policy. The respondent was not entitled to
charge 5 to 6.5% interest per month in respect of the loan it advanced to the first applicant. 60% per
annum is per se gross and unreasonable being more than twice that of the last declared maximum
permissible interest rate chargeable to a debtor or borrower and four times more than the permissible
prevailing legal interest rate. 78% is for the same reasons excessive.‘

Having considered the applicants‘ proposition with regard to the rate of interest, in my view, the rate of
28% per annum is fair and clearly ameliorates the harshness of the interest rate as set out in clause 4.1
to 4.3 read with 6.1, in favour of an interest rate that does justice to both parties. Consequently the rate of
interest at 28% per annum is just and equitable in the circumstances. This court is therefore entitled in the
interest of public policy to declare paragraphs 4.1 to 4.3 and 6.1 of the loan agreement to be unlawful and
contrary to public policy. The first applicant has proposed that each party pay its own costs. In the
circumstances of this case it appears to be a fair proposition.‘

The rate of 28 percent per annum was fixed by the high court with reference to ‗the
maximum annual finance rate set in terms of the Usury Act prior to its repeal‘. In that the
high court may have misdirected itself, for as it had earlier observed:
‗The Usury Act 73 of 1968 was repealed and replaced with the National Credit Act (NCA) with effect from
1 June 2007. The loan agreement is not governed by the NCA nor would it have been subject to the
Usury Act.‘

[18] Moreover, although the agreement falls outside the scope of the NCA, it is
instructive to note that for ‗short term credit transactions‘6 – being a transaction in
respect of a deferred amount at the inception of the agreement not exceeding R8 000
and in terms of which the whole amount is repayable within a period not exceeding six
months – the maximum rate of interest fixed by the legislature is five percent per month.
Thus even if one were to assume in the high court‘s favour that it was justified in its
resort to the NCA and the Usury Act as aids in the determination of public policy it
should not have lost from sight the provisions relating to short term credit transactions.
Those provisions, most notably the loan period of six months and the interest rate of five
percent per month, resonate more strongly with the transaction encountered here than
the provisions relied upon by the high court.

[19] In this case whether or not the transaction was usurious fell to be determined in
terms of the common law, which does not fix a rate of interest beyond which a
transaction becomes usurious. In SA Securities, Ltd v Greyling,7 Wessels J held:
‗From the fact that there is no standard rate it follows that the amount of interest is in itself no criterion. It
may, however, be an element in considering whether a transaction is or is not usurious. The Court has
allowed as much as sixty per cent., and in his judgment in Reuter vs Yates, Mason, J., saw no reason
why an amount of ninety per cent. should not be allowed. It seems difficult to see how or where a limit can
be fixed. If ninety per cent. can be allowed, why not ninety-one? If ninety-one, why not ninety-two; and so
on to 120 per cent. Therefore, the mere fact that the amount of interest seems high is not sufficient to
make the transaction usurious. What then is there in a transaction which makes it usurious? If it is not the
mere amount of interest, what other circumstances are there? A great deal has been said by various
judges with regard to ―the circumstances‖. It is very difficult for me to find any definite principle upon which

6 Regulation 39(2).
7 SA Securities Ltd v Greyling 1911 TPD 352 at 356.

a case of usury has been or can be decided. I think the most you can say is that the transaction must
show that there has been either extortion or oppression, or something which is akin to fraud. I do not think
we can put the principle any higher that that. Therefore in each case we have to decide whether there has
been extortion, oppression, or any actions akin to fraud.‘

[20] In arriving at that conclusion Wessels J stated that it was not necessary for the
court to inquire minutely into what the Roman Dutch law was in respect of usury for that
had been done in Dyason v Ruthven.8 In Dyason, the judges after elaborately tracing its
history, held that usury to be a good defence to an action founded on an agreement to
pay interest, must involve extortion amounting to fraud. Indeed, in Merry v Natal Society
of Accountants,9 De Villiers JA affirmed that principle in these terms:
‗In South Africa the common law has always been that in order to render a transaction usurious, it must
be shown that it is tainted with oppression, or extortion, or something akin to fraud (Dyason v Ruthven (3
Searle 282); Reuter v Yates (1904, T.S. 855); South African Securities v Greyling (1911, T.P.D. 352).‘

[21] In this case the high court observed:
‗The applicants do not contend that there is anything present in the loan agreement and/or the
circumstances under which it was concluded which amounts to extortion or oppression akin to fraud. The
applicant‘s case is that the ―rate of interest charged by the respondent is excessive, unconscionable and
against public interest‖.‘
That one would have thought would have been the end of the enquiry. But, it was urged
upon this court and the one below that the common law rule is inconsistent with our
Constitution and that we consequently are under a duty to develop the common law to
reflect the changing, social, moral and economic fabric of the country.10

[22] The common law derives its force from the Constitution. It is thus only valid to the
extent that it complies or is congruent with the Constitution. Every rule has to pass
constitutional muster. Public policy and the boni mores are now deeply rooted in the
Constitution and its underlying values. And our courts are indeed enjoined to develop

8 Dyason v Ruthven 3 Searle 282.
9 Merry v Natal Society of Accountants 1937 AD  331 at 336.
10 Carmichele v Minister of Safety and Security & another (Centre for Applied Legal Studies Intervening)
2001 (4) SA 938 (CC).

the common law, if this is necessary.11 As it was put in City of Tshwane Metropolitan
Municipality v RPM Bricks12
‗That power is derived from ss 8(3) and 173 of the Constitution. Section 39(2) of the Constitution makes it
plain that, when a court embarks upon a course of developing the common law, it is obliged to ‗promote
the spirit, purport and objects of the Bill of Rights‘ (S v Thebus 2003 (6) SA 505 (CC) para 25). This
ensures that the common law will evolve, within the framework of the Constitution, consistently with the
basic norms of the legal order that it establishes (Pharmaceutical Manufacturers Association of South
Africa; In re Ex parte President of the Republic of South Africa 2000 (2) SA 674 (CC) para 49). The
Constitutional Court has already cautioned against overzealous judicial reform. Thus, if the common law
is to be developed, it must occur not only in a way that meets the s 39(2) objectives, but also in a way
most appropriate for the development of the common law within its own paradigm (Carmichele v Minister
of Safety and Security 2001 (4) SA 938 (CC) para 55).‘

[23] In S v Thebus & another,13 Moseneke J stated:
‗It seems to me that the need to develop the common law under s 39(2) could arise in at least two
instances. The first would be when a rule of the common law is inconsistent with a constitutional
provision.  Repugnancy of this kind would compel an adaptation of the common law to resolve the
inconsistency. The second possibility arises even when a rule of the common law is not inconsistent with
a specific constitutional provision but may fall short of its spirit, purport and objects. Then, the common
law must be adapted so that it grows in harmony with the ―objective normative value system‘ found in the
Constitution.‘

[24] In this case there is no suggestion that the common law rule in question is
inconsistent with a specific constitutional provision. Rather, as best as I can discern the
argument, it is that the common law rule falls short of the spirit, purport and objects of
the Constitution.  Faced with such a task, a court is obliged to undertake a two-stage
enquiry. First, it should ask itself whether, given the objectives of s 39(2) of the
Constitution, the common law should be developed beyond existing precedent. If the
answer to that question is a negative one, that should be the end of the enquiry.  If not,
the next enquiry should be how the development should occur and which court should
embark on that exercise. (See S v Thebus para 26.) Had that exercise been undertaken
by the high court, the first enquiry would, in my view, have yielded a negative response.

11 Manong & Associates (Pty) Ltd v Minister of Public Works & another 2010 (2) SA 167 (SCA).
12 City of Tshwane Metropolitan Municipality v RPM Bricks 2008 (3) SA 1 (SCA) para 20.
13 S v Thebus & another 2003 (6) SA 505 (CC) para 28.

[25] Notwithstanding the authority of Merry v Natal Society of Accountants, which was
clearly binding on it, the high court ignored the ‗oppression or extortion or something
akin to fraud‘ requirement. It simply jettisoned that requirement without embarking upon
the first enquiry postulated by Thebus, namely, whether the common law should be
developed beyond existing precedent. Nor did it interrogate what yardstick should be
substituted in its stead. The high court‘s point of departure appeared to be that a rate of
interest of either 60 or 78 percent per annum was, without more, per se usurious and
thus contra bonos mores. With respect to the high court that approach cannot be
endorsed.

[26] At common law there is no fixed customary rate that can be described as a
standard rate beyond which it can be said that a transaction becomes usurious. Rates
of interest vary with the nature of the financial transaction, the social and economic
standing of the parties, the risks and so on. In the absence of any proof or allegation to
the contrary, it must be assumed, I would imagine, that the loan was worth the rate of
interest fixed to the borrower. One looks in vain for a declaration by a court that at
common law any particular rate of interest is the only legal rate. For, the rate of interest
levied depends upon various factors, not least the risk to the lender, which in turn is
usually dependent upon whether the creditor is well or ill-secured. And, it can hardly be
disputed that inasmuch as profit varies and fluctuates, so too must interest, which by its
very nature is representative of profit. I thus hesitate to say that a court by a mere
decision or a series of mere decisions can authoritatively declare what shall be the rate
of interest which, without more, upon being exceeded, shall amount to usury. To declare
to be usurious a bargained interest beyond a certain rate may well amount to a court
legislating by judicial decree.

[27] The CC‘s attack invites us to reconsider the correctness of the common law
principle endorsed by Merry. We are obliged to do so in terms of Constitution. To that
end we have to undertake the first enquiry postulated by Thebus. I do not believe that
the attack by the CC can succeed. Weighty considerations of commercial and social

certainty render the common law principle as sound today as it was when first
articulated over a century ago. Constitutional considerations far from detracting from it
appear to enhance it. For as I have attempted to show, what comes to be branded with
the opprobrious appellation ‗usurious‘ may well depend on the whim of a particular
judge. That, I daresay, would run counter to the spirit, purport and objects of our
Constitution. Harms JA made precisely that point in Bredenkamp (para 39) when he
said:
‗A constitutional principle that tends to be overlooked, when generalised resort to constitutional values is
made, is the principle of legality. Making rules of law discretionary or subject to value judgments may be
destructive of the rule of law.‘

[28] It bears restating that our Constitution and its value system does not confer on
judges a general jurisdiction to declare contracts invalid on the basis of their subjective
perceptions of fairness or on grounds of imprecise notions of good faith.14 Nor does the
fact that a term is unfair or that it may operate harshly, of itself lead to the conclusion
that it offends against constitutional principles. In my view it is essential that the law
which makes a transaction usurious should be clear and explicit. The general rule
endorsed by Merry does precisely that. It, moreover, restrains over-zealous judicial
intrusion in the sphere of contractual autonomy - a real and meaningful incident of
freedom. It permits coercive interference by a court only in circumstances where a party
to a contract can show either extortion or oppression or something akin to fraud. That, I
daresay, is consistent with the balance that has to be struck between, on the one hand,
the liberty to regulate one‘s life by freely engaged contracts and, on the other, the
striking down of the unacceptable excesses of freedom of contract.15 It also accords
with the notion that judges should approach with restraint the task of intruding upon the
domain of the private powers of citizens.

[29] I therefore conclude that the common law rule is not inimical to the values that
underlie our constitutional democracy and that if any stipulation for interest be attacked
as being liable to reduction on the ground of usury, it can only be done by offering proof

14 Napier v Barkhuizen para 7.
15 Napier v Barkhuizen para 12 and 13.

of extortion or oppression or something akin to fraud. It is indeed so that what amounts
to extortion or oppression or something akin to fraud may not be capable of easy or
exact definition. The same holds true of our attempts to define that expression of ‗vague
import‘16 - public policy. Those difficulties notwithstanding our courts have not shrunk
from the duty of declaring a contract contrary to public policy when the occasion has
demanded it.17

[30] I turn now to consider – as the high court should have done - whether the CC has
discharged the onus resting upon it of showing that the applicable interest rate was
usurious, in the sense that it amounted to extortion or oppression or something akin to
fraud. To once again borrow from Innes CJ (Reuter v Yates at 858):
‗It comes then to this — in deciding whether the defence of usury has been sustained, and whether the
lender has taken such an undue advantage of the borrower, has so practised extortion and oppression,
that his conduct, being akin to fraud, disentitles him to relief, the Court will examine all the circumstances
of the case. It will not only look at the scale at which interest has been stipulated for, but will have regard
to the ordinary rate prevalent in similar transactions, to the security offered and the risk run, to the length
of time for which the loan was given, the amount lent, and the relative positions and circumstances of the
parties.‘

[31] In arriving at its conclusion that the interest levied was usurious, the high court
reasoned:
‗All of the aforegoing, clearly, in my view demonstrates that the first applicant was subjected to the
dictates of the respondent. In this way, the respondent was able to unilaterally dictate the terms of the
loan agreement. The respondent was prepared to lend and advance to the first applicant the amount of
R5 million at the interest rate as set out in clause 4.1, to 4.3 (as read with clause 6.1), a rate that was not
negotiable, a rate of interest that was 5% per month (60% per annum) and 6.5% per month on default
(78% per annum.)
. . .
The applicants have confined their case to an attack on the interest rate provided in these clauses. No
other terms of the loan agreement have been subjected to scrutiny. The applicants have established an
inequality of bargaining power between the first applicant and the respondent justifying an interference by
this court in the ―contractual bargain‖ struck by the parties.

16 Per Innes CJ in Law Union & Rock Insurance Co Ltd v Carmichael’s Executor 1917 AD 593 at 598.
17 Sasfin (Pty) Ltd v Beukes 1989 (1) SA 1 (A).

. . .
The first respondent was not indigent but needy. A situation that many South Africans sometimes find
themselves in, because of the prevailing socio-economic climate. Because they are cash-strapped, they
are desperate and in such circumstances have no freedom to negotiate the interest terms of the loan
advanced to them and may be taken advantage of by moneylending institutions. Borrowers must be
protected from lenders who exploit them by charging interest at exorbitant rates.‘

[32] With respect to the learned judge none of those key factual findings survive
scrutiny. First, no case was established on the papers that the CC was ‗subjected to the
dictates of [African Dawn]‘. If anything the evidence establishes, as I have shown
earlier, that Amod did indeed negotiate terms with African Dawn and further warranted
that the CC had sought and obtained independent legal and financial advice. Amod is
deliberately cagey and evasive in his founding affidavit as to precisely why each of the
registered banks that were approached declined the loan application. He states that it
was on account of the ‗credit crunch‘. Whether that is something that he surmised or
was told by the relevant bank officials he does not divulge. If the latter, no corroboration
is offered. Second, the CC was not an uninformed and vulnerable borrower. It chose,
unsolicited by African Dawn, to approach the latter and did so without any inducement
or compulsion. There was full disclosure by African Dawn at the outset of the terms of
the loan including the securities required and the interest payable. This was not a trap
for the unsuspecting or the unwary. The CC was thus free to walk away or to turn to
some other lender if it considered the terms offered by African Dawn oppressive. Third,
the CC was not as the high court put it ‗needy‘.  As appears from its annual financial
statements for the year ending 28 February 2007 its turnover was R49.9 million, its
retained income was R9.3 million and it was possessed of total assets of R13.1 million.
The reference to ‗cash-strapped‘, ‗desperate‘ South Africans who may be taken
advantage of, is thus plainly inapposite. Those borrowers find protection in the NCA.
Although it bears emphasising that for some borrowers, who are usually the most
vulnerable of this country‘s citizenry, the NCA has fixed a rate of interest that is not
dissimilar to that encountered here – five percent per month. No doubt what influences
that rate of interest is probably the heightened risk and increased administrative burden
to lenders.

[33] In this case the CC sought and obtained a sizeable loan to exploit a commercial
opportunity available to it. Once again Amod is evasive. He does not make full and frank
disclosure as to precisely why the loan was sought. Counsel for the CC submitted that
the purpose of the loan was irrelevant. I do not agree. If it was to turn a profit, as
appears to be the case, that would be a relevant consideration. No doubt from the CC‘s
perspective the anticipated profit may have caused the interest rate to pale into
insignificance. Insofar as that aspect is concerned we are left to speculate. Why that
should be so, is not explained, for all of that information was peculiarly within Amod‘s
knowledge and had he chosen to play open cards with the court (which he plainly did
not) he ought to have divulged. Nor was any evidence adduced as to what rates of
interest are being levied by other similarly placed short term financiers for loans of that
magnitude. We are thus left in the dark as to what the prevailing industry norm is for a
loan of the kind encountered here. The effect of such failure is that the high court called
in aid an inapposite yardstick, namely the rate fixed by the legislature, in its
determination of the matter. After all, as is evident from the judgment of the
Constitutional Court in Barkhuizen v Napier,18 if evidence is required to determine
whether a contract is in conflict with public policy or whether its enforcement would be
so, the party who attacks the clause at either stage must establish the facts.

[34] What we do know from the papers is that the money was required urgently and
what Bezuidenhout does tell us in his answering affidavit is that African Dawn was
willing to and did in fact advance the moneys to the CC prior to the mortgage bonds
being registered. Further, according to Bezuidenhout:
‗[I]n the event of a bridging financier, such as [African Dawn], granting a loan facility to a borrower whose
application to a bank has been declined, the risk associated with such loan (i.e. the risk of such loan
being irrecoverable) is invariably high. The cost of such loan, in the form of the interest rate charged, in
order to justify the high risk assumed by the bridging financier, is accordingly also high.
. . .
[T]he cost to the bridging financier of funding is also high. Unlike banks, due to the prohibition contained
in the Banks Act, 1990 short-term financiers are not permitted to engage in deposit taking activities and

18 Paras 66, 84 - 85 and 93.

accordingly are unable to utilise funds received from depositors in the provision of loan funding. Bridging
financiers are accordingly required to fund the loans through equity and loan capital, the cost of which is
high.
. . .
. . . An important factor impacting on the nature and scope of the security required by the Respondent, as
well as the interest rate at which it was prepared to grant the loan, was that the Respondent had not
previously conducted business with the First Applicant and/or Amod. From a risk assessment perspective
the fact that the First Applicant was a first time borrower increased the risk of the loan as there was no
prior trading history between the Respondent and the First Applicant whereby the Respondent was able
to assess the credit worthiness, performance and general risk profile of the First Applicant.‘
All of those were weighty considerations. None received appropriate recognition in the
judgment of the high court. They ought to have.

[35] If the CC could point to any particular circumstances which showed that the
transaction was not an ordinary one, those ought to have been given due weight. But it
failed to do so. Under those circumstances no facts were disclosed which ought to have
induced the high court to afford the CC the relief that it sought. Courts should not – as
the high court did – interfere with a bargain deliberately entered into by two parties
dealing at arms‘ length with each other merely because it subjectively believes that the
rate of interest stipulated was unfair. Amod is a man conversant with business. The rate
of interest no doubt is high, but it may not be incommensurate with the risk that African
Dawn ran in advancing its money to the CC. There are no circumstances here that
show either extortion or oppression or anything akin to fraud, and, therefore I do not
believe that the high court was entitled to say that the transaction is a usurious one.It
follows that the appeal must succeed.

[36] In the result:
The appeal succeeds with costs, including those consequent upon the
employment of two counsel.
The order of the court below is set aside and in its stead is substituted the
following:
‗a. The application is dismissed with costs.
b. The counter application succeeds with costs.

c. It is ordered:
That the First Applicant, the Second Applicant, and the Ismail Amod Family
Trust (No. IT8815/04) represented by the Second, Third and Fourth Applicants
in their capacities as the duly appointed trustees (―the Trust‖), jointly and
severally, the one paying the other(s) to be absolved, but subject to 2
hereunder, pay to the Respondent:

1.1 the sum of R3,900,247.50;

1.2 interest on the aforesaid sum of R3,900,247.50 calculated at the rate of

6.5% per month a tempore morae from 1 July 2009 to date of payment;

1.3 costs of suit on the attorney and client scale.
That the liability of the Trust in terms of 1 above is limited to the security held
by the Respondent under:

2.1 covering mortgage bond B038860/08 registered over Erf 12018 Lenasia

Extension 13 Township, Registration Division IQ, the Province of Gauteng,

in extent 680 square metres, held under deed of transfer T49903/2005;

and

2.2 covering mortgage bond B037987.08 registered over Erf 11954 Lenasia

Extension 13 Township, Registration Division IQ, the Province of Gauteng,

in extent 800 square metres, held under deed of transfer T50215/2005.
That the following immovable properties registered in the name of the Trust
are declared specially executable for the liability of the Trust in terms of 2
above:

3.1 Erf 12018 Lenasia Extension 13 Township, Registration Division IQ, the

Province of Gauteng, in extent 680 square metres, held under deed of

transfer T49903/2005;

3.2 Erf 11954 Lenasia Extension 13 Township, Registration Division IQ, the

Province of Gauteng, in extent 800 square metres, held under deed of

transfer T50215/2005.‘

_________________
V M  PONNAN
JUDGE OF APPEAL

APPEARANCES:

For Appellant:

P T Rood SC

C C Bester

Instructed by:

Petersen Hertog & Associates

Sandton

Matsepes Attorneys

Bloemfontein

For Respondent:

N A Cassim SC

F A Boda

Instructed by:

Yousha Tayob Attorney

Johannesburg

McIntyre & v d Post

Bloemfontein
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

30 March 2011

STATUS

Immediate

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

African Dawn Property Finance 2 (Pty) Ltd v Dreams Travel and Tours CC
(234/10) [2011] ZASCA 45 (30 March 2011)

Media Statement

Today the Supreme Court of Appeal (SCA) upheld an appeal by African Dawn Finance 2
(Pty) Ltd (African Dawn), a short term financier and registered credit provider, against a
judgment of the South Gauteng High Court (Johannesburg) that held that a money lending
agreement was usurious.

In June 2009, the respondents being Dreams Travel and Tours CC (the CC), Ismail Hassen
Amod (Amod) and the Trustees of the Ismail Amod Family Trust applied to the South
Gauteng High Court, for an order that the loan agreement entered into between them and
African Dawn, be declared unlawful. They contended that the rate of interest of 5% or 6.5%
(in the event of default) per month, fixed by the agreement was unlawful and contrary to
public policy. African Dawn opposed the application. It, moreover, filed a counter application
seeking payment of the outstanding balance and for certain properties that had furnished as
security to be declared executable.

Amod, the sole member of the CC, had approached several banks in an attempt to secure a
loan for R5 million. Those applications were declined. Amod then approached a private
financier, Gateway Capital Limited, who rejected the application but referred it to the African
Dawn. African Dawn was informed by Amod that the CC was in desperate need of funds to
secure a consignment of branded jeans, to meet the demands of a seasonal market. Certain
immovable properties were furnished as security for the loan which included amongst others
the immovable properties of the Trust represented by its Trustees.

African Dawn, upon receiving the financial statements relating to the CC and the Trust,
approved a loan in the sum of R5 million plus costs. Before concluding the agreement on
behalf of the CC, Amod requested that the suretyship to be furnished on behalf of the trust, be
amended so as to restrict the Trust’s liability to R9 million and further that such liability be
confined to mortgage bonds to be registered over the two – instead of three - of the trust’s
immovable properties. African Dawn duly complied and a written loan agreement was
concluded, whereafter the appellant advanced the sum of R5 175 162.80 to the CC, which
was payable within 6 months. The CC furnished African Dawn with seven post dated cheques
in repayment of the debt. Both Amod and the Trustees on behalf of the trust bound

themselves as sureties and co-principal debtors for the CC’s indebtedness. The loan
agreement provided that interest shall be charged at the rate of 5% per month but in the event
of the loan amount plus interest not being paid on time then interest at the rate of 6.5% shall
be levied. Despite the CC making substantial payments, they were not effected timeously and
as a result interest came to be levied on the principal debt at a rate of 6, 5 per cent per month.

The high court held that the interest clauses contained in the agreement were unlawful and
contrary to public policy. The SCA found that in light of the fact that the CC is a juristic entity
whose asset value and annual turnover at the time of the loan agreement exceeded the
threshold value determined by the Minister in terms of s 7(1) of the National Credit Act (NCA),
neither the NCA nor the Usury Act governed the loan agreement and that accordingly there
was no statutory limitation on the interest payable in terms of the loan agreement. The SCA
held whether or not the transaction was usurious could only be determined with reference to
the common law. At common law, a usurious transaction is one which is tainted with
oppression or extortion or something akin to fraud. The CC, however contended that the
common law rule was inconsistent our Constitution and that the common law had to be
developed to accord with the spirit, purport and objects of the Constitution. According to the
SCA, faced with such a task, a court is obliged to embark on a two-stage enquiry: first, it
should ask itself whether, taking into account the objectives of s 39(2) of the Constitution the
common law should be developed beyond existing precedent. If the answer is a negative one
that should be the end of the enquiry. If not, the next enquiry should be how the development
should occur and which court should embark on that exercise. The SCA held that had this
exercise been undertaken by the high court the first enquiry would have yielded a negative
response.

The SCA found that no case had been established for the conclusion that the CC was
subjected to the dictates of the appellant. In fact Amod had warranted in the agreement that
he had sought independent legal and financial advice. The SCA stated that Amod in his
founding affidavit had been evasive on why each of the banks declined the initial loan
application. The SCA took the view that the CC was neither uninformed nor a vulnerable
borrower. The SCA held that whilst the rate of interest was high it was not necessarily
incommensurate with the risk to which African dawn was exposed as a lender. The SCA
further held that as there were no circumstances that indicated that there was any oppression,
extortion or something akin to fraud on the part of the African Dawn the transaction was not
usurious. The SCA accordingly ordered the respondents jointly and severally to pay to African
Dawn the outstanding balance of R3 900 247.50 together with interest at the rate of 6,5 per
cent per month a tempore morae from 1 July 2009 to date of payment and declared certain
properties executable..

--- ends ---