Bayport Securitisation Limited and Another v University of Stellenbosch Law Clinic and Others (Case no 507/2020)  ZASCA 156 (4 November 2021)
On 4 November 2021 the Supreme Court of Appeal (SCA) handed down a judgment which provides indispensable certainty on the issue of legal fees chargeable to enforce credit agreements. This required an analysis of the relevant provisions of the National Credit Act, No. 34 of 2005 (the NCA), which according to the SCA ushered in a host of new forms of protection for consumers.
The SCA essentially had to place a construction on “collection costs” as defined in section 1 of the NCA and to decide whether “collection costs” referred to in Sections 101(1)(g), read with s 103(5) of the NCA, includes all legal costs pre and post judgment.
If so, the legal fees would be subject to the requirement contained under section 103(5) of the NCA which provides that the aggregate interest, fees and charges, including collection costs, as covered in the NCA, cannot exceed the unpaid balance of the consumer’s principal debt at the time of the default.
The LSSA has always held the view that legal fees do not form part of the collection cost. The Western Cape High Court however rejected this view. The said Court found that “collection costs” include all legal fees and are subject to section 103(5) of the NCA. The LSSA resolved to take the judgment of the Western Cape High Court on appeal to the SCA. As a professional interest organisation, the LSSA is pursuant to its constitution obligated to ‘at all times, also have regard to broader interests of the public whom the profession serves, and to endeavour to reconcile, where they may conflict, the interests of the profession and the public’. The SCA upheld the LSSA’s appeal.
The SCA reiterated that South African courts have recognised the distinction between collection costs and litigation costs. To this extent, the courts have recognised that a legal practitioner (attorney) who executes the recovery mandate through a legal process, is remunerated through costs awarded by the court, which costs are subject to maximum tariffs prescribed under law. The costs are awarded to successful litigants and it provides them some indemnification for having incurred the legal costs in pursuing legal action.
The SCA illustrated that if the legal fees cannot exceed the unpaid balance of the consumer’s principal debt, it would severely limit a court’s discretion to make appropriate cost orders, including punitive cost orders in the event of frivolous litigation that may deserve reprimand.
The SCA engaged in a delicate judicial balancing exercise which confirmed the well-established distinction between collection and litigation costs. This in turn recognise the need for credit providers to approach the courts for appropriate relief, including, when successful, cost orders that are subject to maximum tariffs prescribed by law.
The LSSA would like to thank its legal team, Andre Bloem from Rooth Wessels Attorneys, Advocate MA Badenhorst SC and Peter Skein Attorneys.