Introduction:
South Africans are among the most highly indebted people in the world. With the unemployment rate showing no signs of improvement, there is no end in sight for this crisis. Persistent socio-economic issues are also exacerbating the situation. The widespread indebtedness of the majority has been recognized by the government for some time, leading to various legislative efforts to try address the issue. The promulgation of the National Credit Act in 2005 is one of these initiatives. However, despite these efforts and interventions, over-indebtedness and the inability to repay loans remain significant problems. This situation places financial institutions that provide loans in a precarious position.
For society to function, it is necessary for loans and credit to be advanced to qualifying individuals and institutions. However, there is never a guarantee that the borrower—whether a person or an institution—will be able to repay the loan in full. Thus, creditors take on risk, albeit calculated and mitigated. A recent Pretoria High Court judgment highlights the difficulties creditors face when debtors fail to repay their loans and underscores the importance of preservation orders. This article aims to demonstrate how preservation orders may assist creditors in navigating the challenges of a struggling South African economy.
Facts:
In the recent High Court judgment, the bank (“Applicant”) financed a motor vehicle for the First Respondent, which was used for commercial purposes as a tour bus. One of the contractual terms stipulated that if the First Respondent failed to satisfy any terms of the agreement, the bank would be permitted to cancel the agreement and reclaim or repossess the vehicle. After making some payments, the First Respondent fell into arrears. The bank then invoked that term of the contract and filed an application seeking a preservation order. It is worth noting that there was already an action instituted regarding the return of the vehicle. The bank raised concerns that the vehicle might be destroyed or depreciate in value, among other concerns.
Requirements for the preservation order:
Relying on established legal principles, the court stipulated the following requirements for granting a preservation order: first, the normal requirements for an interdict application must be met. In addition, two further requirements must be satisfied: (1) the property related to the interdict application must be the same property that is the subject of the pending action, and (2) the application and the action must involve the same parties.
In summary, the requirements for a “normal interdict application” are: the applicant must have a clear or apparent right to the property in question; there must be a reasonable apprehension of irreparable harm if the interim relief is not granted; the balance of convenience must favour the granting of interim relief; and there must be no satisfactory alternative legal remedy available to the applicant.
Defences:
The First Respondent raised the following defences in challenging the application: first, the Applicant’s application was not legally permissible because there was an action pending in which the Applicant sought similar relief. Second, the vehicle is comprehensively insured, so the Applicant would not suffer financial loss if the vehicle were destroyed while awaiting the hearing of the action. Third, the Applicant had not satisfied the requirements for an interdict application. Lastly, the Applicant had failed to prove that the vehicle was subject to more than normal “wear and tear.”
Outcome and reasons thereof:
The court found in favour of the Applicant and granted the preservation order. It held that the fact that the vehicle was still being used as a tour bus was sufficient proof that it was subject to more than normal wear and tear. Furthermore, since the court found that the deponent to the First Respondent’s answering affidavit lacked locus standi, the application remained unopposed. As a result, the court deemed it unnecessary to delve into the requirements and defences raised. However, the court noted that, despite the lack of locus standi, it was still of the view that the defences that the First Respondent tried to raise were inadequate.
Conclusion:
Preservation orders may very well be a lifeline for creditors in a highly indebted South African population, especially given the current delays in the courts. For example, it would not have helped the Applicant in this case to wait for the hearing of the action, which would only take place in 2028 (date allocated). The financial exposure for the bank would have been significant. Creditors should, where feasible, consider such applications to alleviate the challenges they face. However, it is equally important to properly assess the prospects of success before proceeding.
