Case  CCT 34/21
[2022] ZACC 10

Hearing Date: 23 November 2021

Judgement Date: 15 March 2022

Post Judgment Media Summary  

The following explanatory note is provided to assist the media in reporting this case and is not binding on the Constitutional Court or any member of the Court.

On 15 March 2022 the Constitutional Court handed down a unanimous judgment in an application for leave to appeal against a judgment and order of the High Court of South Africa, Limpopo Division, Polokwane. The applicants contended that the matter required the Court to determine whether rule 46A of the Uniform Rules of Court – which requires judicial oversight when a creditor seeks to execute against the residential immovable property of a judgment debtor – applies in respect of immovable property owned by juristic persons or trusts (rule 46A issue).

In February 2016, Mr and Mrs Baloyi (the applicants in both their personal capacities and nominal capacities as trustees of the Navuyeriwa Business Trust (Trust)), acting on behalf of the Trust, entered into a loan agreement with the first respondent, Pawn Stars CC (Pawn Stars). In terms of that agreement, Pawn Stars advanced an amount of R870 000 to the Trust which was to be repaid within three months of signature of that agreement. Mr and Mrs Baloyi stood surety for the loan. As additional security, a mortgage bond was registered in favour of Pawn Stars over a property owned by the Trust, at which Mr and Mrs Baloyi reside with their minor children (property). In the event of default, Pawn Stars was entitled, on written notice and if the default was not remedied within seven days, to claim immediate repayment of the full amount outstanding, together with interest, and to make an application to declare the property specially executable. Pawn Stars was also entitled, if payment of the capital sum was not made within the stipulated three months, to levy a penalty fee of R90 000 per month, which would fall due on the day immediately following the due date for repayment of the capital sum.

The Trust defaulted on its obligations and Pawn Stars subsequently obtained default judgment,requiring payment of the full amount outstanding together with interest and penalty fees, and declaring the property specially executable (default judgment).

After a warrant of execution for the property was issued, and a sale in execution scheduled, the applicants applied to rescind the default judgment. They contended, amongst others, that they had not been served with the application, that they were in a position to pay the amounts outstanding, that the penalty fee clause was contrary to public policy, and that they occupied the property, together with their minor children. Had this information been before the presiding Judge, the applicants contended, the default judgment would not have been granted.

After deliberation between the parties, who were both legally represented, the rescission proceedings were settled, and the terms of the settlement were embodied in an order granted by Mokgohloa DJP (consent order). In terms of that order, amongst others, the default judgment was rescinded, the applicants were to pay Pawn Stars an amount of R690 000 in various instalments and, if the applicants failed to make such payment, the property would become specially executable.

The applicants thereafter defaulted on the terms of the consent order. As a result, a warrant of execution for the property was issued, and a sale in execution was again scheduled. The applicants then successfully applied on an urgent basis to interdict the sale of the property pending the determination of a further application to set aside the warrant of execution and to vary the terms of the consent order. In terms of the proposed variation, the property would only become specially executable upon default after a further order was issued declaring the property specially executable. The applicants claimed that they were entitled to this relief because the consent order had been impermissibly granted without application of rule 46A, and had the effect of permitting execution against the property without judicial oversight.

On 7 November 2019, Madavha AJ refused to set aside the warrant of execution or to vary the consent order. Leave to appeal was subsequently refused by both the High Court and Supreme Court of Appeal.

In the Constitutional Court, the applicants persisted with their contention that the consent order had been impermissibly granted without application of rule 46A, because the High Court erroneously assumed that the rule does not apply in respect of immovable property owned by juristic persons or trusts. They contended that this raised a constitutional issue which engaged the jurisdiction of the Court.

In a unanimous judgment penned by Theron J, the Court held that the application did not engage its jurisdiction. This was so for four reasons. First, Madavha AJ seemingly held that rule 46A does apply in respect of immovable property owned by juristic persons or trusts, but nonetheless dismissed the application. The question as to the applicability of the rule was therefore immaterial to her decision, and, as a result, could not engage the Court’s jurisdiction. Second, even if rule 46A ought to have been applied before the consent order was granted, this, without more, would not entitle the applicants to a variation of that order. They would need to show, in addition, that the requirements for variation, set out in rule 42 of the Uniform Rules of Court or the common law, had been met. Since the applicants had failed to do so, a determination of the matter did not require the Court to engage the rule 46A issue. Third, for the rule 46A issue to engage the Court’s jurisdiction, the applicants needed to show that, if that rule was applied, the consent order would not have been granted. The applicants failed to do so and, in these circumstances, there was no need for the Court to engage the rule 46A issue. Finally, the Court held that rule 46A applies when a creditor seeks leave to execute against a judgment debtor’s residential immovable property. The consent order was not granted pursuant to such an application but was, instead, granted in settlement of the applicants’ rescission application. Rule 46A therefore had no application in the present matter, and there was therefore no need for the Court to engage the rule 46A issue.

The application for leave to appeal was therefore dismissed with costs.

The Full judgment  here