This blog post was co-authored by Neshalia Nayagar, Trainee Associate.

On 10 February 2025, the Supreme Court of Appeal dismissed an appeal by a lending bank. The appeal related to whether an acknowledgement of debt, incorporating a power of attorney (AOD/POA) that was concluded by the bank, with Mr Serfontein and Mr Serfontein senior, was a supplementary agreement for the purpose of ss 90(2)(c) and 91 of the National Credit Act, 2005 (NCA) and whether the provisions of the AOD/POA were unlawful.

The bank granted Mr Serfontein an overdraft facility which was secured by covering bonds over immovable property and a suretyship agreement by Mr Serfontein senior. Mr Serfontein defaulted on his repayment obligations which led to settlement negotiations between the bank and the Serfonteins.  Those negotiations resulted in the conclusion of an AOD/POA between the Bank and the Serfonteins. The AOD/POA provided (i) that the Serfonteins acknowledged that they were indebted to the bank, (ii) that the bank was authorised to sell the immovable property of the Serfonteins and (iii) that the NCA did not apply to the AOD/POA.

The bank, in accordance with the AOD/POA, concluded a sale of the immovable property to a third party and requested that Mr Serfontein vacate the immovable property. The Serfonteins disputed that the sale was market-related.

In considering whether the AOD/POA was a supplementary agreement, as defined in the NCA, the court held that it was evident that the AOD/POA dealt with the same subject matter as the overdraft and suretyship agreements. The court’s view was based on the purpose of the AOD/POA which was to record (i) that the Serfontein’s were indebted to the bank under the overdraft and surety agreements, (ii) that they had defaulted on the debt, (iii) that the amount outstanding was due and payable and (iv) that it regulated the recovery of debt by giving the bank the irrevocable right to sell the immovable property. Therefore, the underlying agreements (being the overdraft and surety agreements) were linked to the AOD/POA and therefore the AOD/POA was supplementary in nature.

Since it was found that the AOD/POA was a supplementary agreement, the court had to determine whether any of its provisions fell within the prohibitions listed in section 90(2) of the NCA. The exclusion of the applicability of the NCA in the AOD/POA was found to be in contravention of section 90(2)(a)(i) as a clause whose effect was to defeat the purposes or provisions of the NCA. The bank’s irrevocable ability to execute against the immovable property, without resort to court processes, fell within the prohibitions contained in section 90(2)(k) and (j) of the NCA which prohibits the granting of such a power of attorney or appointing the credit provider as agent of the consumer except for s 102 purposes.

The AOD/POA could not be severed thus making it impossible to render the other provisions of the AOD/POA lawful. As a result, the court declared the AOD/POA unlawful and the deed of sale of the property void from the outset.

This judgment is not authority that all settlement agreements or acknowledgment of debts fall within the ambit of the NCA as this question involves examining the relationship between the underlying cause and the settlement agreement or acknowledgment of debts and the effect of the agreements.

The case is Absa Bank Limited v Johan Serfontein and Another (740/2023) [2024] ZASCA 11 (10 February 2025).