University of Stellenbosch Legal Aid Clinic (Clinic) & Others v Minister of Justice and Correctional Services & Others; Association of Debt Recovery Agents NPC v Clinic & Others; Mavava Trading 279 (Pty) Ltd & Others v Clinic & Others  ZACC 32
This Constitutional Court case focused on judicial oversight of debt recovery practices in South Africa, by loan companies against low-income workers. The Court reworded relevant legislation to ensure that no orders to deduct payments from the wages of persons defaulting on small loan payments could be made without proper judicial oversight. In particular, no such order may be issued unless a magistrate, not just a clerk of the court, has authorized the order after being satisfied that the order is just and equitable, and appropriate given a debtor’s financial circumstances.
The applicants were low-income workers who had obtained small loans from a loan company. When they later became unable to keep up with loan repayments, the company demanded that they sign further documents which resulted in default judgments and emoluments attachment orders (EAOs) being obtained by credit providers, from clerks of magistrates’ courts located far away from where the applicants reside and work, making it very difficult to oppose these orders. In some instances, their signatures that enabled the credit provider to obtain the EAOs were forged. The substantial amount deducted from the debtors’ wages left them with insufficient income to provide for themselves and their families.
In September 2014, the University of Stellenbosch Legal Aid Clinic (Law Clinic) and others instituted proceedings in the Western Cape Division of the High Court (High Court), seeking an order declaring the EAOs invalid and of no force and effect. The Law Clinic asserted that the orders were unlawful by reason that they were based on fraudulent documents and were issued by clerks of the court who had no power to grant them. They also sought an order declaring that the Magistrates’ Court Act (MCA), which provides for an expedient method of debt collection, does not empower a judgment debtor to consent to jurisdiction of a magistrates’ court of the area other than that in which the judgment debtor resides or works. The applicants also challenged the constitutional validity of the MCA to the extent that it fails to provide for judicial oversight in such circumstances.
In July 2015, the High Court, in declaring that the EAOs issued against the Applicants were unlawful, invalid and of no force and effect, found that: (1) certain words of Section 65(J)(2) of the MCA were constitutionally invalid to the extent that they failed to provide for judicial oversight; and (2) Section 45 of the MCA did not allow debtors to consent to the jurisdiction of a Magistrate’s Court other than the court of the area where they reside or work.
On appeal to the Constitutional Court, the Court did not confirm the High Court’s order of constitutional invalidity, but rather ordered a change in the wording of Sections 65(J)(2)(a) and (b) of the MCA to make the legislation framework consistent with Section 34 of the Constitution (which provides that “[e]veryone has the right to have any dispute that can be resolved by the application of law decided in a fair public hearing before a court or, where appropriate, another independent and impartial tribunal or forum.”) The Court confirmed the judicial obligation to take into account certain factors in every application for an EAO (i.e. the nature of the debtor’s income, the amount she needs for her upkeep and support of her dependents), in order to ensure that any such order only applies to funds that are in excess of the amount a debtor needs for the maintenance of her own and that of her dependants. The Court noted that such obligation was in line with relevant international law, namely the International Labour Organisation Protection of Wages Convention.
In its reasoning, the Court emphasized that a lack of judicial oversight poses a threat to “the livelihood and dignity of low-income earners, a distinctly vulnerable group in our society” and that “…taking away the basic income that indigent debtors rely on for subsistence, without court supervision, rubs right up against the right to dignity (which underlies all the socio-economic rights of housing, food and health care).”
Although the EAOs issued against the Applicants were dismissed as invalid, the Court’s order regarding the MCA does not retrospectively apply to other EAOs in place. The judgment also does not address the validity of underlying judgment debts. Each case must still be dealt with on its own merits. The order does, however, ensure that credit providers may no longer seek EAOs in incorrect jurisdictions or from clerks of court. EAOs may not be issued unless a magistrate has authorized it after considering a debtor’s circumstances.
University of Stellenbosch Legal Aid Clinic, South African Human Rights Commission
Bad debt and the resulting EAOs fuel a large collections enterprise in South Africa, impacting the lives of millions of people in all regions of the country. During 2007, Summit Financial Partners audited 70 000 of 1,75 million EAOs and found abuses of “…over a billion rand being over deducted from already distressed borrowers and going into the pockets of unscrupulous lenders”. (SJH Van der Merwe. Agora International Journal of Juridical Sciences, Failure to discharge: A discussion of the insufficient legal recourse afforded to judgment debtors in the South African context, 2008, http://scholar.sun.ac.za/handle/10019.1/79636) In the present case, court documents showed that (as at June 2013), the commercial credit industry in South Africa supported 20 million credit consumers out of a population of 52 million.
The Law Clinic initiated the proceedings in the context of more than 10 years of ad hoc interventions and conclusive research confirming the rampant abuse of EAOs. (Theo Broodryk, Manager of the Stellenbosch University Legal Aid Clinic, email message to Alexis Ekert sent on January 16, 2017) It would probably be impossible to ever measure the full social and economic impact of unlawful collections on the lives of debtors and their families. Because of the stigma associated with debt, most people carry this burden with silent shame. Yet people find themselves in this situation not only due to their own irresponsibility, but due to a combination of factors. These factors often include aggressive advertising and marketing, reckless lending, a previously unregulated credit industry, lack of appropriate policies and laws associated with credit, historical disadvantages, a lack of consumer education and desperation to meet basic needs such as food and clothing. (Theo Broodryk, Manager of the Stellenbosch University Legal Aid Clinic, email message to Alexis Ekert sent on January 16, 2017)
In the context of widespread practices of debt recovery that place significant economic and other pressure on vulnerable low-income workers, the judgment is an important confirmation that access to justice requires, among other action, appropriate judicial oversight that takes into account the particular circumstances of each case.
(Updated January 30, 2017)