The High Court in Pietermaritzburg has confirmed that an acknowledgment of debt for the clawback of broker commissions is not an agreement in terms of the National Credit Act (NCA).
Momentum Metropolitan Life lodged an appeal against an order granted by the Magistrate’s Court in Durban in favour of an adviser who sold Momentum’s insurance products.
The broker, Aroon Lakhoo, was employed as a financial adviser by Tescon Financial Advisors, which was part of Plan Smart Trade (Pty) Ltd. In 2012, Tescon ceased selling Momentum products and became a franchise within Discovery.
Lakhoo was paid more upfront commission than he was proved to have earned, and he was obliged to reimburse Momentum these amounts, which formed the subject matter of the acknowledgement of debt, which Lakhoo signed in May 2010.
The acknowledgement of debt provided for periodic payments. When Lakhoo ceased making payments in March 2018, Momentum instituted action in the Magistrate’s Court for the payment of R124 914.69.
The magistrate found that the acknowledgement of debt was valid and binding on Lakhoo.
Although all the other issues of fact and law were decided in favour of Momentum, the magistrate raised on her own initiative (mero motu) that the acknowledgement of debt was subject to the NCA.
She concluded that the court could not enforce the agreement because it was not fully compliant with the NCA. As a result, she granted an order of absolution.
The High Court said it was uncertain whether the absolution order resulted from the failure to prove that Momentum was a registered credit provider or from the lack of a proper investigation into whether Lakhoo was overindebted.
Applicability of the NCA
The court reviewed several key cases that clarify when the NCA applies.
In Ratlou v Man Financial Services (Pty) Ltd, the Supreme Court of Appeal (SCA) held that even if a settlement agreement meets the definition of a credit transaction, the NCA should not apply where the underlying agreement falls outside its ambit. The NCA is primarily concerned with “the advancing of money on the granting of credit”.
In Grainco (Pty) Ltd v Broodryk NO en andere, the High Court held that an acknowledgement of debt arising out of damages – not a money-lending transaction – does not fall within the ambit of the NCA.
In Ribeiro and another v Slip Knot Investments 777 (Pty) Ltd, the SCA concluded that the NCA was not meant to regulate settlement agreements where the underlying cause was not within its scope.
The High Court said, in the present matter, the acknowledgement of debt pertained to the clawback of commissions earned by the respondent. It said commission agreement was not an agreement in terms of the NCA because “the commissions were not advances or credit. It was payments for work done. These policies were cancelled and gave rise to the clawback on the commissions already paid.”
The court concluded that the acknowledgement of debt was not subject to the NCA but was a repayment due in terms of advances on commissions, which fell outside the NCA.
It upheld the appeal, with costs, and ordered Lakhoo to pay R124 914.69, plus interest, which under the in duplum rule, was limited to R25 714.69.
