Rulings end bully tactics

HIGH COURT: SENDS BANKS TO LOWER COURT

Judgment could produce ‘seismic change’ in how banks pursue arrears on debts.

Two major cases have gone against the banks this month, making it much harder for them to litigate financially distressed clients into surrender. In the High Court in Johannesburg, judges ordered that repossessed homes be sold at auction with reserve prices in all but exceptional circumstances. Thus, dispossessed homeowners get to keep a portion of the equity they’ve built up.

Then, just over a week ago, judges from the High Court in Pretoria found banks were clogging the justice system by hauling matters into the high court that properly belonged in magistrate’s courts.

The Pretoria court told the banks to take their cases to the lower courts, which had “monetary jurisdiction”.

Legal advisor Leonard Benjamin said: “If applied throughout the country, as it should be, and taken together with the recent full-bench judgment in the Johannesburg high court, this judgment will bring about a seismic change in how the banks pursue home loan debts against debtors.”

The case involved eight defendants being sued by four major banks for arrears of between R7 700 and R20 000. The court ruled these cases belonged in the lower courts, where legal costs are much lower.

In court papers, the banks explained their aversion to the lower courts: they’re inefficient, plagued by delays and there’s a lack of uniformity in the granting of orders.

Magistrates are reluctant to declare properties specially executable (they can be sold at auction).

Further, execution orders expire after one year. In the high courts, they don’t.

Thus, once banks have obtained an execution order in the high court, they can pressure a client to catch up on arrears.

The next time the client falls into arrears, the banks can sell the property at auction without having to approach the court again.

In the magistrate’s court, the bank would have to approach the court for a fresh execution order after a year.

The banks argued that the high courts and magistrate’s courts have “concurrent jurisdiction” and therefore they shouldn’t be prevented from bringing their cases to the higher court.

The judges disagreed, saying banks didn’t have an automatic right to a particular court, but to a fair hearing before a court or tribunal.

Another problem for the banks is that money judgments issued by the lower court become stale unless execution takes place within three years. This doesn’t apply in the high courts.

“The judgment now gives debtors an opportunity to defend matters in the magistrate’s courts,” says Benjamin.

“For too long, the banks have consciously used the high courts to discourage debtors from defending the proceedings brought against them ...

“This tactic has been successful and has allowed the banks, in many cases, to obtain judgment on defective summonses and even on nonexistent documents.”

In future, banks will have to argue why cases should be heard in the high courts if they properly belong in the magistrate’s courts.