Recent court decisions that affect you and your finances

Published Dec 6, 2021

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WORDS ON WEALTH

There have been a handful of court judgments with relevance to consumers in the past few weeks, so I thought it fitting to summarise each case for you. They’ve got to do with tax, credit, and insurance.

TAXPAYER CONFIDENTIALITY

The South African Revenue Service (SARS) says it will appeal a November 16 High Court decision that found that laws that entrench taxpayer confidentiality were unconstitutional. The matter, Arena Holdings Pty Ltd t/a Financial Mail & Another v SARS & Others, revolved around whether, in exceptional circumstances, journalists may access an individual’s (in this case, former President Jacob Zuma’s) tax records.

Judge Norman Davis ruled that sections of the Tax Administration Act and the Promotion of Access to Information Act, which allow for absolute taxpayer confidentiality, were unconstitutional, saying there had to be a public-interest exception to these provisions. The matter will now proceed to the Constitutional Court to be decided once and for all.

SARS is appealing the order and opposing its confirmation by the Constitutional Court. In a recent statement it says: “The judgment as it currently stands, if left unchallenged, would undermine the sacrosanct principle of the confidentiality of taxpayer information, which is the bedrock upon which the work of SARS and other international revenue authorities is based.”

Says SARS Commissioner Edward Kieswetter: “SARS will defend the principle of confidentiality on behalf of every single taxpayer. Every taxpayer is equal before the law, and we will apply the laws relevant to SARS without fear, favour or prejudice.”

NATIONAL CREDIT ACT UPDATES

Johann Scholtz and Lerato Lamola-Oguntoye from law firm Webber Wentzel report that there have been two important case law developments under the National Credit Act (NCA).

1. Capitec Bank Ltd v Mahlangu and Another (October 25, 2021). The Mpumalanga High Court dismissed an appeal by Capitec against a magistrate’s court decision that found the bank guilty of reckless lending to Thulani Mahlangu from KwaMhlanga in Mpumalanga.

According to the NCA, a lender must establish your monthly income and household expenses and do an affordability assessment before granting you credit. Capitec lent R98 728 to Mahlangu in May 2013. The credit period was 64 months, with a monthly instalment of R2 782.

According to the affordability calculation done by Capitec, Mahlangu's salary was R8 111 and his household income R5 000. Mahlangu's disposable income was determined to be R5 656 and the household’s combined disposable income was R6 574. The loan was approved based on Mahlangu's disposable income of R5 565. Capitec did not ask Mahlangu for any documentary proof of the household income of R5 000.

When Mahlangu became over-indebted, he went to a debt counsellor for relief. The debt counsellor took the case to court.

Capitec argued that it was not necessary to obtain any proof of household income, because Mahlangu had qualified for the loan based on an assessment of his own individual income. The bank also relied on section 81(4) of the NCA, which states: “It is a complete defence to an allegation that a credit agreement is reckless if: (a) the credit provider establishes that the consumer failed to fully and truthfully answer any requests for information made by the credit provider as part of the assessment required ...; and (b) a court or the Tribunal determines that the consumer’s failure to do so materially affected the ability of the credit provider to make a proper assessment.”

Scholtz and Lamola-Oguntoye say: “The main issue in dispute was whether the credit provider had an obligation to assess and investigate the consumer's disclosure that there was household income. The court held that Capitec did have this obligation. It noted that the magistrate’s court did not find that Mahlangu had failed to answer questions fully or truthfully … Capitec's duty to properly assess the consumer's financial means exists irrespective of whether a consumer answered any questions fully or truthfully.

“The section 81(4) defence does not extinguish a credit provider's obligation to assess a consumer's financial means. An interpretation which allowed the defence to take away the credit provider's obligation to assess a consumer's financial means would negate the purpose of the NCA.”

2. Bayport Securitisation Ltd and Another v University of Stellenbosch Law Clinic and Others (November 4, 2021). The Supreme Court of Appeal upheld an appeal against a Western Cape High Court decision that “collection costs”, which refer in the NCA to one of the costs associated with a credit agreement, included legal costs in the event of litigation by a credit provider against a defaulting debtor.

The Act states that the interest, fees and charges, including collection costs, which accrue during the time a consumer is in default may not exceed the unpaid balance of the principal debt at the time of default.

The Western Cape High Court interpreted “collection costs” to include all legal fees incurred by a creditor in pursuing a case against a defaulting debtor, as well as in the execution of a judgment.

Scholtz and Lamola-Oguntoye say: “The Supreme Court of Appeal concluded that a finding that collection costs included legal costs would oust or severely fetter the discretion of a court to make court orders, including sometimes-necessary punitive costs orders. The court rejected this interpretation of the NCA, which placed a maximum limit on legal costs, as this would 'lead to some glaring absurdities'.”

LIFE vs NON-LIFE INSURANCE

In a post in Norton Rose Fulbright’s Financial Institutions Legal Snapshot weekly newsletter, Patrick Bracher outlined a case to come before the Financial Services Tribunal brought on appeal by clients of Constantia Insurance Company after the Prudential Authority (PA) had ruled in favour of Constantia Insurance.

Many clients of Constantia Insurance were left without cover after their policies ceased when legislation changed around what types of cover long-term and short-term insurers could offer under the Insurance Act of 2017, which replaced large parts of the Long-term and Short-term Insurance Acts.

“Prior to the conversion of its short-term licence to a non-life licence under the Insurance Act, the insurer underwrote accident and health policies with what are now both life and non-life risk components. Under the Insurance Act, non-life insurers are only permitted to conduct accident and health policies insuring costs or loss of income (not “policy benefits”) on a disability or death event caused by an accident (not illness or death from other causes),” Bracher says.

He says the PA pointed out that the accident and health policies could not be legally underwritten under the non-life licence. “It directed the insurer to offer each policyholder a replacement policy with a personal accident death policy and discounted individual funeral products. The insurer was not directed to continue to extend or provide each policyholder with health benefits because that would be illegal. The policies were not cancelled; they lapsed because the insurer was no longer permitted to conduct that business. Running off the policies was not legally possible - they would then endure until the death of the last surviving policyholder, some of whom were younger than 40.”

The PA’s decision was upheld.

PERSONAL FINANCE

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