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IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, PRETORIA

In the matter between:

CASE NO: 60059/2013

2017/08/02

NOT REPORTABLE

NOT OF INTEREST TO OTHER JUDGES

REVISED

SUIDWES LANDBOU (PTY) LTD t/a SUIDWESFIN                                               Applicant

and

JOHANNES PETRUS JACOBUS JANSE VAN RENSBURG                                Defendant

JUDGMENT

MURPHY J

[1] The plaintiff ("SWL") carries on business as a financier of farmers and farming activities and is registered as a credit provider in terms of section 40 of the National Credit Act[1]("the NCA").

[2] The defendant is a farmer and owner of several farms in North West province.

[3] SWL and the defendant concluded three credit agreements in late August 2012. These were:

3.1. A term loan in terms of which SWL financed the consolidation and repayment of the defendant's existing debts with ABSA Bank in the amount of R3 million to be repaid over a 15 year period.

3.2. A production loan in terms whereof the plaintiff financed the production of a maize crop and a sunflower crop in the amount of R800 000 plus a monthly overdraft of R50 000, repayable from the proceeds of the crops not later than September 2012.

3.3. A livestock loan for R94 000 so as to enable the defendant to improve his cattle, sheep and goat herds by purchasing bulls and rams.

[4] As security for the loans, bonds were registered in favour of SWL over eleven properties owned by the defendant.

[5] SWL paid the agreed amounts to the defendant who then used the loans to settle his existing debt with ABSA, cultivate a maize and sunflower crop and purchase the required bulls and rams for his herd.

[6] The defendant made some payments in respect of the amounts due, but began to default with the consequence that in September 2013, SWL instituted action for recovery of the full amounts owing under the loans being R3 281 2572,23; R649 198,14; R64 085,21 and R104 786,88 together with interest at variable rates per year from 1 July 2013 and an order declaring the eleven immovable properties affected as security as executable.

[7] The amounts due in terms of the agreements and the interest rates claimed are not in dispute. The sole defence relied upon by the defendant at trial is that the credit was granted to him recklessly as contemplated in section 80 and 81 of the NCA.

[8] Section 81(2) of the NCA provides:

"A credit provider must not enter into a credit agreement without first taking reasonable steps to assess -

(a) the proposed consumer's-

(i) general understanding and appreciation of the risks and costs of the proposed credit, and of the rights and obligations of a consumer under a credit agreement;

(ii) debt re-payment history as a consumer under credit agreements;

(iii) existing financial means prospects and obligations; and

(b) whether there is a reasonable basis to conclude that any commercial purpose may prove to be successful, if the consumer has such a purpose for applying for that credit agreement."

[9] Section 78(3) of the NCA provides that "financial means, prospects and obligations" with respect to a consumer or prospective consumer, includes income received by the consumer, the financial means, prospects and obligations of other adults with whom income and obligations are customarily shared and if the consumer has or had a commercial purpose for entering into a credit agreement, the reasonably estimated future revenue flow from that business purpose.

[10] Section 80(1) of the NCA reads:

"A credit agreement is reckless if, at the time that the agreement was made, or at the time when the amount approved in terms of the agreement is increased.....

(a) the credit provider failed to conduct an assessment as required by section 81(2), irrespective of what the outcome of such an assessment might have concluded at the time; or

(b) the credit provider, having conducted an assessment as required by section 81(2), entered into the credit agreement with the consumer despite the fact that the preponderance of information available to the credit provider indicated that-

(i) the consumer did not generally understand or appreciate the consumer's risks, costs or obligations under the proposed credit agreement; or

(ii) entering into that credit agreement would make the consumer over-indebted."

[11] In terms of section 83(2) of the NCA, if a court declares that a credit agreement is reckless because the credit provider failed to conduct an assessment - (section 80(1)(a)), or does so because the credit provider entered into a credit agreement when the information indicated the consumer did not appreciate the risks etc.-(section 80(1)(b)( 1)), the court may make an order setting aside all or part of the consumer's rights and obligations under the agreement, as the court determines just and reasonable in the circumstances or may suspend the force and effect of the credit agreement. If the court declares that a credit agreement is reckless in terms of section 80(1)(b)(ii) of the NCA, where the preponderance of information indicated that entering into the credit agreement would make the consumer over-indebted, in terms of section 83(3) of the NCA, the court may not set aside the agreement, but may only suspend the force and effect of the credit agreement and restructure the consumer's obligations, provided it concludes that the consumer remains over-indebted at the date of its order.

[12] In paragraph 5 of his plea, the defendant pleaded that the credit agreement was a reckless credit agreement because SWL failed to conduct an assessment as required by section 81(2) of the NCA in that it failed to take reasonable steps to assess: i) the defendant's debt re-payment history as a consumer under credit agreements; ii) the defendant's existing financial means, prospects and obligations including the reasonably estimated future revenue flow from the proposed farming activities; and iii) whether there was a reasonable basis to conclude that the proposed farming operations would prove successful. In this latter regard it was alleged that SWL failed to have proper regard to the soil conditions on the farms, and the sustainability, cash flow, income and expenditure of the farming enterprise. In the alternative, it was alleged that SWL entered into the credit agreements with the defendant when the preponderance of information available indicated that entering into the credit agreements would make the defendant over-indebted. In short, the defendant relied upon section 80(1)(a) of the NCA and section 80(1)(b)(ii) of the NCA. However, in his opening address defendant's counsel narrowed the challenge under section 80(1)(a) of the NCA to a claim that SWL had entered into the credit agreement without first taking reasonable steps to assess the defendant's existing financial means, prospects and obligations and whether there was a reasonable basis to conclude that the defendant's commercial purpose in entering into the credit agreement would prove successful, as contemplated in sections 81(2)(a)(iii) and 81(2)(b) of the NCA.

[13] In other words, with regard to the plea that SWL failed to conduct an assessment as required by section 81(2) of the NCA, the defendant accepted that an assessment was done but contended that the plaintiff did not do a reasonable assessment.

[14] The defendant sought an order dismissing SWL's action with costs, alternatively that the agreements be declared reckless and be set aside, and further alternatively an order declaring that the defendant is over-indebted and suspending the force and effect of all the agreements and restructuring the defendant's obligations.

[15] The defendant bears the onus to establish that credit was recklessly granted.[2] Accordingly, given that no other matter was in issue, the defendants had the duty to begin and led his evidence first. It will however be convenient to consider the evidence of the witnesses who testified on behalf of SWL first. Two witnesses testified for SWL, Mr Louis Botha, its credit manager and Mr Jacques Schoeman, an agricultural economist who compiled an assessment before the loans were granted.

[16] Mr Botha testified that SWL had a prior relationship with the defendant before he transferred to ASSA, and had provided him financial support in the past. The defendant approached SWL in 2011 with a request that it assist him repay this long term loan with ABSA to allow for a re-structuring on more favourable re­ payment terms. He had a cash flow problem and needed the loan to be restructured over a longer repayment period on more manageable terms.

[17] Botha instructed Mr Schoeman of Terratek ( a company associated with SWL) to do an assessment of the cash flow and liquidity of the defendant's operations in order to check if the defendant could meet the repayment obligations. In addition, Botha had regard to the defendant's balance sheet, the available security for the proposed loans and the defendant's other financial statements. From the latter he observed that the defendant had not been in arrears with his loan repayments to ABSA. He noted also that the defendant had sold one of his farming properties in order to reduce the capital amount of the ABSA loan.

[18] Botha was particularly satisfied with the asset to liability ratio reflected on the defendant's balance sheet which indicated an acceptable degree of solvency, which he confirmed by means of a deed office search. On a discounted valuation the defendant possessed assets valued at approximately R8,5 million and liabilities of R3,9 million giving a solvency ratio of 2.15 which was within the norm accepted by the SWL credit policy.

[19] Botha commissioned Schoeman to do a sustainability analysis to ensure that the cash flow sistuation would ensure that the defendant could service the three proposed credit agreements. The 2011 income statement reflected that the defendant had made a net income of R526 338 in that year, after taking account of debt repayments Mr Botha felt that fact taken together with the defendant's net asset position would not pose any risk of over-indebteness.

[20] In this regard, it is important to note that the loans from SWL, although approximately R4 million in total, only increased the defendant's indebtedness by just over R1 million in that the bulk of the credit advanced was used to repay the existing loan with ABSA. That loan was not strictly for commercial purposes as contemplated in section 81 (2)(b) of the NCA and thus did not require an assessment of whether there was a reasonable basis to conclude that the underlying commercial purpose would be successful. The purpose of the loan was to pay off existing debt.

[21] The credit agreements which required reasonable steps to be taken to assess the defendant's existing financial means, prospects and obligations and whether there was a reasonable basis to conclude that any commercial purpose may prove successful were the production loan of R800 000, the overdraft facility and the livestock loan of R94 000.

[22] Mr Jacques Shoeman performed a comprehensive assessment, did detailed calculations, visited the farm and satisfied himself that the farming operation was sustainable and that the defendant could afford to repay the credit to be advanced. In general, Schoeman was convinced that granting the long term loan would enable the defendant to improve his cash flow and the granting of the production loan and the animal stock loans would assist in improving income stream.

[23] The only evidence led by the defendant was that given by his expert Mr Janse van Vuuren, an agricultural economist who in his report offered trenchant criticism of Schoeman's assessment.

[24] Schoeman testified that if credit was advanced to plant 100 hectares of maize and 80 hectares of sunflowers, livestock was replaced to assist in the increase of milk production and allowance was made for R84 000 per annum from the sale of chickens, there would be a net income surplus of R270 000, meaning that the loan could be serviced. The restructuring he had in mind involved replacing 20 cows in the dairy herd, purchasing 3 bulls and 5 rams, purchasing a new tractor and tine equipment, and planting the crops.

[25] Mr Janse van Rensburg was sceptical about this restructuring action plan. Firstly, he expressed doubt whether the maize crop could yield 3,5 tons per hectare as projected; secondly, he felt many expenses had been omitted from the calculations, thirdly, no provision was made for the financing of the additional cows for the dairy or the additional equipment. He projected a net loss position of R313 906. However, under cross-examination he conceded that certain expenses included in his calculations in relation to silage insurance, marketing costs, repairs and maintenance and drawings could be left out of consideration. He also accepted that his projected loss of R138 000 in respect of broiler income was not justified and that a net income of R84 000 was possible. The net effect of these concessions on Mr Janse van Vuuren's own calculations was that there would be a positive cash flow of R112 135 after the servicing of all the defendant's debt.

[26] Likewise, there was nothing to gainsay the evidence of Schoeman and Botha that maize yields in the area averaged between 3-5 tons per hectare and that the projected net income of R98 000 from maize was not unrealistic.

[27] Mr Janse van Vuuren also conceded that the defendant could have repaid the loans by the sale of his various immovable properties. The defendant had financial means beyond his income and expenditure. His "prospects" include the prospects of improvement to his financial position through the liquidating of his assets, something which quite evidently influenced Mr Botha in recommending approval of the loans.

[28] Moreover, Mr Janse van Rensburg conceded that if the crops yielded as anticipated (3,5 tons per hectare for maize and 1,25 tons per hectare for sunflowers) the production loan could have been fully repaid from the crop yield.

[29] Finally, Mr Janse van Rensburg accepted that the equipment replacement would have been self-financed through sales of old equipment and that the dairy herd replacement would have been effected from the existing heifers and thus the cash flow position would not have been impacted by these requirements.

[30] In the premises, given Mr Janse van Vuuren's concession that the production and livestock loans could have been repaid from the proceeds of the crops and, if need be, the realisation of the defendant's immovable properties, together with his overstatement of the operational expenses and understatement of the broiler income, the criticism of Shoeman's assessment is not sufficiently well­ founded for the conclusion to be reached that SWL did not take reasonable steps to assess the defendant's existing financial means, prospects and obligations and whether there was a reasonable basis to conclude that the defendant's commercial purpose may succeed. A proper assessment was conducted, there was a reasonable prospect that the crops would yield satisfactory income, which, supplemented by the dairy and the broiler income, would have been sufficient to service the loans. Moreover, advancing the credit did not make the defendant over-indebted. His solvency position remained sound by reason of his good net-asset position.

[31] In the premises, the defendant has not discharged his onus that the credit was recklessly granted and SWL is entitled to the relief sought in the particular of claim.

[32] Orders are therefore granted in terms of prayers 1, 2, 3, 4 and 5 of the particulars of claim.

JR MURPHY

JUDGE OF THE HIGH COURT

Date Heard: 14 - 16 February 2017

Counsel for Applicant: Adv F Terreblanche SC

Instructed by: Symington & De Kok, c/o Le Grange Inc

Counsel for Defendant: Adv E Furstenburg

Instructed by: Grimbeek van Rooyen & Ass, c/o VZLR

Date of Judgment: 2 August 2017

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