Couples credit default order stands – ConCourt

Image courtesy (Chance Agrella)

The Constitutional Court has upheld a default judgment against a couple who breached a debt restructuring order.

There were no grounds to interfere with the High Court in Johannesburg’s refusal to rescind the order, the Constitutional Court held on Thursday.

In April 2010, a debt rearrangement order was made declaring the couple over-indebted.

Their obligations were rearranged and the order specified that a home loan obtained from FirstRand Bank in 2007 would be “revived and fully enforceable” if the order was breached.

The Ferrises breached the order soon after this.

“Because Mr and Mrs Ferris had breached the debt restructuring order, FirstRand was, in terms of the National Credit Act and the order itself, entitled to enforce the loan without further notice,” the court ruled.

“There was therefore no error in the default judgment justifying rescission, and Mr and Mrs Ferris did not have a defence to the enforcement action.”

The Ferris couple fell into arrears soon after taking out the home loan with FirstRand, and they applied for debt review in 2009.

FirstRand was made a settlement offer by the debt counsellor, which the Ferris family claimed the bank ignored.

The debt counsellor then applied to the Randburg Magistrate’s Court to have the Ferrises declared over-indebted.

Before judgment was delivered, FirstRand sent a notice that appeared to terminate the debt review. It was then that the debt arrangement order was made.

After the Ferrises breached the order, FirstRand issued summons to enforce the loan, and in November 2011 the high court granted default judgment against the couple.

The Ferrises applied to the high court for the default judgment to be rescinded. Their application was denied since there was no procedural irregularity justifying rescinding the judgment, and they would not have had a defence against FirstRand’s enforcement action.

Both the high court and the Supreme Court of Appeal (SCA) denied applications for leave to appeal.

The couple then applied to the Constitutional Court. They argued the high court should have rescinded the default judgment because they had two defences to the enforcement action.

The first was because the notice was not properly delivered, the rearrangement order was not terminated and this precluded the enforcement of the loan.

Secondly, because FirstRand refused the debt counsellor’s offer without making a counter-offer, it did not participate in the debt review proceedings in good faith.

FirstRand argued that the Constitutional Court should not interfere with the high court’s refusal to rescind the default judgment.

The Ferrises had not shown good cause, because they had not adequately explained their default, and had taken too long to apply for the rescinding order. The Constitutional Court found the Ferrises had not taken the court into their confidence.

“They claimed that they did not know about the default judgment in the face of compelling evidence to the contrary.”

The couple breached the debt-restructuring order, which empowered FirstRand to enforce the loan.

“First, were we to grant the relief sought, it would merely delay the inevitable. They might get their house back for a time, but FirstRand would be entitled to enforce the loan again,” the court said.

“We also do not know if they are able to comply with the debt-restructuring order or the terms of the revived loan.”

The court made no order on costs.


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