Pretoria - The Western Cape High Court has ruled that an advocate who borrowed R2.5 million from his friend, doesn’t not have to pay back the balance of over R1.5m as the friend had no authority to loan money under the National Credit Act (NCA).
The parties were previously close friends. The advocate, who is admitted but non-practising, served as a trustee of the friend’s trust accounts.
In 2015, the advocate approached his friend, who had recently sold his house and asked to borrow money from him. The friend sent him R2.5 million by way of five unequal instalments.
After receiving the money, he drew up an acknowledgement of debt indicating how the money would be paid back with interest, which brought the amount to over R 3.8m.
Aside from the loans, the friend further paid R750 000 as an investment to an entity which was controlled by the advocate. The money was for a property development in Gauteng. In return, he stood to gain a 20% shareholding.
In 2018, the advocate had paid back over R2.1m and requested that he be granted a discount on the debt. The friend offered to reduce his debt by R1.4m, if he settled the amount which was outstanding in a lump sum by a certain date, a proposal the advocate refused to accept.
After numerous attempts to get back his money, the friend approached his attorneys to recoup the outstanding balance, which had now accumulated interest as well as the R750 000.
The advocate denied liability and said his friend was not registered under NCA, and he also failed to conduct an assessment of him to determine whether he was in a financial position to enter into such loans and repay them.
However, in 2019, after a long back and forth, the advocate paid back R965 000.
Not happy with the amount, the friend approached the court in 2020 and wanted a balance of over R1.5m to be paid back to him. The matter proceeded to arbitration, and it was ruled that the advocate had to pay back the money.
The advocate took the ruling on review, saying the arbitrator had misdirected herself in her ruling.
In court, Judge Mark Sher acknowledged that the two had signed agreements indicating how the loan would be paid back, and this constituted credit agreements in terms of the NCA. However, he stated that the NCA provides that a credit agreement is unlawful if, at the time when it was made, the credit provider was unregistered.
“In this regard, when the loans were advanced in 2015, the act provided that a credit provider was to be registered if the total outstanding principal debt owing in terms of a credit agreement exceeded a prescribed threshold of R500 000.”
Judge Sher added that if he were to agree for the advocate to pay back the money, he would be encouraging credit providers not to register.
“It would encourage them to subvert the Act simply by getting the consumers to whom they provide credit, at excessive rates of interest, to sign agreements whereby any dispute would be referred to arbitration.”
He set aside the arbiter's decision which had ordered the advocate to pay back the money and ordered both parties to pay for their legal costs.
IOL