A settlement agreement concluded outside South Africa between a foreign company and a person resident in the United Kingdom that was concluded completely outside the South African credit market and has no bearing on accessibility to credit by South Africans or the nature of credit products available within South Africa does not “have an effect within” South Africa and is consequently not regulated by the National Credit Act (NCA).

In Sunrock Limited v Louis and Others, a settlement agreement was concluded with the object of settling litigation between the applicant and the first respondent in the high court of England for the repayment of a loan extended by the applicant to the first respondent.

The applicant applied for orders enforcing the settlement agreement in South Africa to realise the security that was furnished for its performance. The settlement agreement was concluded in England and the principal obligations to which it gave rise was to be performed in Britain. A mortgage bond had to be registered in South Africa in favour of the applicant over a trust’s immovable property for the ultimate purpose of affording security for the performance of the suretyship obligations undertaken by a South African trust in terms of a deed of surety executed in England. One of the grounds of opposition was that the settlement agreement was a credit agreement and was void because the applicant was not a registered credit provider.

Does the credit agreement have an effect within South Africa?

The court was faced with the question whether a party providing credit in this context should be regulated by South African legislation. A credit agreement is so regulated if it “has an effect within” South Africa.

The objects of the NCA would be easily subverted if the exclusion from the NCA of credit agreements concluded outside the country is not qualified. The expression “having an effect within”, considered in isolation and without due regard to the context, is vague and potentially of extremely wide import. Basic principles of statutory interpretation and purpose require, however, that its meaning within section (4)(1) of the NCA is determined with regard to its context. Context includes the language of the provision and, more widely, the scope and objects of the statutory instrument concerned. The NCA must be interpreted in a manner that gives effect to the purpose set out in section 3.

The court held that furnishing security for payment of a foreign debt by a South African property owning trust cannot be a basis for regarding the NCA as applicable to the credit transaction on the ground of the credit agreement having an effect within South Africa. Section 8(5) of the NCA itself excludes the application of the NCA to credit guarantees for credit transactions to which the NCA does not apply.

The qualification “or having an effect within” the Republic appears to be directed at bringing within the ambit of the NCA credit agreements that are concluded extra-territorially but which are performed materially as if they had been concluded within the Republic. For example, an instalment sale agreement concluded in Namibia in terms of which the goods concerned are to be supplied to, used by and paid for by the customer in South Africa is regulated by the NCA. Despite the agreement being concluded outside South Africa, the material effect is within the country.

In addition, the assets of the trust, which is a juristic person under section 1 of the NCA exceeded the section 7(1)(a) threshold, so the NCA did not apply to it.

The trustees were directed to pay the outstanding debt to the applicant because the settlement agreement was valid.