Flemix & Associates Inc. News Letter

APPEAL: STELLENBOSCH LEGAL AID CLINIC and OTHERS // MINISTER OF JUSTICE and OTHERS

On 8 July 2015 Judge Desai delivered his judgment in the widely publicized emoluments attachments orders case. Flemix & Associates Incorporated, the seventeenth respondent in this case, together with certain credit providers cited as respectively the fourth to eleventh respondents and the thirteenth to sixteenth respondents, were collectively referred to in the proceedings as the Flemix Respondents.

The case tested certain aspects of the collection of overdue unsecured loans through the magistrates' courts. The two main issues decided upon revolved around the constitutionality of certain parts of section 65J of the Magistrates' Court Act 32 of 1944 ("MCA"), and the consent to the jurisdiction of a magistrates' court of a district other than that in which a debtor resides or is employed.

The Flemix Respondents have received advice to the effect that, pending the hearing of this matter by the Constitutional Court, all of the orders of Desai J are suspended; alternatively, are of no force or effect. The principals in this case were always destined to be decided upon by the Constitutional Court. The judgment of Desai J was always understood to be the first step in this judicial journey.

Should the judgment be upheld it will effectively end the process of the granting of EAO’s by consent. Debtors will be forced to appear in court and apart from the additional costs for debtors our courts also do not have the capacity to deal with this. The only other alternative for legal collections will be the issuing of warrants for execution against the movable property of debtors, an inhumane and very expensive process for debtors. The result of this will have a devastating effect on the unsecured lending industry as creditors will not extend credit if there is not an efficient way to collect bad debts, resulting in poor people effectively being denied the right to credit. The court have also not taken the economic impact of the absence of an efficient EAO collection system into account, as set out in the report by Econometrix that formed part of the court papers.

At first the media was caught in the web of sensation: the poor victims of emolument attachment orders (EAOs) on the one hand, supported and allegedly funded by millionaire businesswoman and wine producer Wendy Appelbaum – and the alleged cold-hearted debt collectors on the other. It seemed like the human rights violations so many a debtor apparently had to endure as victims of an EAO, having no other choice but to indebt themselves – for the sake of mere survival – was just too good a story to ignore.

Widely publicized quotes from Appelbaum, explaining her involvement in the case, put fuel to the media fire: “They (indebted farm workers) had lost their dignity, they had lost everything – their constitutional and civil rights – and it just made me unbelievably angry,” which moved her to “mobilising my networks” to have the EAOs granted against these workers’ salaries declared null and void. The sad irony in this is that these “indebted farm workers” often earn minimum wages, often from millionaire employers, forcing them to apply for credit to survive. One of the Applicants is an employee on Mrs Applebaum’s farm and his income was disclosed in the court papers.

The Flemix Respondents lodged an appeal/s in the above matter against orders 2, 3, 4, 6, 7 and 8 of the judgment delivered by Desai J in the Western Cape High Court on 8 July 2015.

These orders as well as the desired outcomes on appeal/s can be summarized as follows:

Order 2 declares parts of section 65J (2) (a) and (b) of the Magistrates’ Court Act unconstitutional and invalid to the extent that they fail to provide for judicial oversight over the issuing of emolument attachment orders by Clerk of the courts against a judgment debtor that has consented thereto in writing;

Desired outcome: That the provisions contained in section 65J(2) allowing a clerk to grant EAO’s where a debtor has consented thereto is not unconstitutional, especially in view of the amendment of Rule 12(5) compelling the referral of such applications to a magistrate for judicial oversight. In the alternative, that should the order of the court-a-quo be upheld on appeal that such order shall have no retrospective effect.

Order 3 declares that section 45 of the Magistrates’ Court Act read with sections 90 and 91 of the National Credit Act does not allow a consumer to consent to the jurisdiction of a court other than the court where the consumer permanently resides or is employed;

Desired outcome: That sections 90 and 91 of the NCA have no application post the Section 129 notice being served on the consumer and as such does not limit the consumer’s right to consent to the jurisdiction of a court once the debt enforcement process commences for purposes of the consent judgement and installment order being granted against the consumer. In the alternative, that should the order of the court-a-quo be upheld on appeal that such order shall have no retrospective effect.

Order 4 urges some of the Applicants to take whatever steps they deem necessary to alert debtors as to their rights in terms of the judgment;

Desired outcome: that this order is set aside.

Orders 6 to 8 relates to Flemix’ s counter application that was dismissed, the cost order granted as well as the directive that a copy of the judgment be forwarded to the Law Society of the Northern Province.

Desired outcome: that these orders are overturned and or set aside.

The Chief Justice of the Constitutional Court issued the following directions:

1. The matter is set down for hearing on Thursday 3 March 2016.

2. The US Legal Aid Clinic and others were ordered to file their Heads of Argument in support of their application for the confirmation of Order 2 by 30 October 2015.

3. Flemix needs to file its Heads of Argument on the merits of its opposition to the confirmation of Order 2 and its Heads of Argument on the merits of its appeals against Orders 2, 3, 4, 6, 7 and 8 by 13 November 2015.

4. The US Legal Aid Clinic and others need to file their Heads of Argument in opposition to the appeals by 27 November 2015.

We respectfully believe that the judgment of Desai J is wrong and Flemix is confident that it will be overturned by the Constitutional Court. The practical effect of the judgment will have a devastating effect on the credit industry and could cost the South African economy billions of rands.