The current economic climate has resulted in a proliferation of "cash strapped" consumers. Accordingly the purchase of a vehicle is very rarely a cash transaction. The obvious alternative is an instalment sale agreement, whereby the vehicle is paid off over a period of time.

As a credit agreement, an instalment sale agreement is subject to regulation by the National Credit Act 34 of 2005 (NCA). The terms of the agreement are generally standard, providing for repayment of the capital plus interest, provided that upon the consumer's default, the credit provider is entitled to cancel the agreement and repossess and sell the vehicle in order to defray the outstanding balance owed by the consumer.

With credit agreements such as instalment sale agreements now being regulated by the NCA, the consumer is protected from abusive credit providers by a number legislative provisions providing for a plethora of consumer rights.

But what happens when these protective provisions have the effect of unilaterally altering the terms of a credit agreement to the consumer's detriment?

This was the very issue before the court in the matter of ABSA Bank Limited vs Pieter de Villiers and the Magistrate for the District of Simonstown (Case No 15692/07). The matter involved an application by a credit provider to repossess a vehicle purchased on instalment sale.

The court was charged with determining whether the provisions of the NCA entitled the credit provider (applicant) upon default by the consumer to apply for a final order authorising attachment of the vehicle, without requiring the credit provider to first issue summons for cancellation of the agreement.

In terms of the common law principles of law of contract, restitution, which in the context of the aforementioned matter constituted repossession of the vehicle, is the normal result flowing from the cancellation of a contract, and accordingly a credit provider seeking to repossess a vehicle upon default would be required to claim and successfully obtain cancellation of the agreement prior to attachment of the vehicle.

The applicant argued that the provisions of the NCA which deal with "Debt procedures in a court", "Repossession of goods" and "Surrender of goods", automatically entitle a credit provider to obtain a final order of attachment of the goods upon default of the consumer, whereafter the credit provider is obliged to realise the goods in accordance with the provisions of the NCA, and that the aforementioned provisions accordingly had the effect of introducing a procedure at variance with the common law.

In terms of the established principles of statutory interpretation, an intention on the part of the legislature to change the common law must be clearly expressed in the relevant legislation. Apart from the fact that such an intention had not been clearly stated, the court found that the applicant's interpretation of the provisions of the NCA upon which it had relied were foreign to the principles of our common law and inconsistent with the declared aim of the legislature, namely "to provide for a consistent and harmonised system of debt enforcement in which the consumer's rights are protected".

In coming to the aforementioned conclusion the court examined the effect that such an interpretation would have on the consumer. In a nutshell, the effect would be that credit providers would no longer be required to prove that the consumer had breached his obligations before repossessing the asset.

In addition, the credit provider would be placed in final and permanent possession of the asset while the consumer would remain liable to pay the monthly instalments until such time as the vehicle had been realised, which realistically may take some time.

The applicant has made application for leave to appeal the decision to the SCA. The effect of the decision on appeal may be far reaching. By upholding the appeal, credit providers offering credit on instalment sale will be able to reap the benefit of saving the time and legal costs associated with issuing summons for cancellation of the credit agreements, while the consumer will be left in the untenable position of being dispossessed of the asset purchased, while remaining liable to make monthly payments until the asset is sold, something which is completely left in the hands of the credit provider.