On 8 July 2015, the Western Cape High Court, in the matter of University of Stellenbosch Legal Aid Clinic and Others v Minister of Justice And Correctional Services and Others, found section 65J(2)(b)(i) and section 65J(2)(b)(ii) of the Magistrates Court Act 32 of 1994 (“MCA”) inconsistent with the constitution and invalid to the extent that they fail to provide for juducial oversight over the issuing of an emolument attachment orders (“EOA”) /garnishee order against a judgement debtor. This decision has serious implications for the way in which outstanding unsecured credit is collected.
Section 65J of the MCA deals with an EOA, which is:
“A court order allowing a judgment creditor to attach part of the salary or wages of a judgment debtor. Once an EOA has been granted, the employer of the judgment debtor (or the garnishee) is obliged to pay a certain portion of the judgment debtor’s salary or wages to the judgment creditor. The garnishee is obliged to do this on a continuing basis, and until such time as the employee’s debt and legal costs have been paid in full.”
In this case, the Stellenbosch Legal Aid Clinic, together with 15 consumers, brought an application against 13 credit providers, as well as the legal firm that facilitated the EAOs. The clinic argued that EAOs were widely abused by reckless lenders and that certain sections of the Act should be declared unconstitutional in order to afford greater protection to often financially illiterate consumers. The proposed changes to the Act included the oversight of a magistrate when orders were granted.
In his judgement, Western Cape High Court Judge, Siraj Desai, stated that:
“Section 65A of the MCA provides that following an enquiry by a magistrate into a debtor’s financial position, the Court may make such an order as it deems ‘just and equitable’. However, in respect of the present applicants, the clerk of the court issues EOA’s attaching their earnings without any evaluation of their ability to afford the deductions to be made from their salaries and without deciding whether or not the issuing of an EOA itself would be just an equitable. The whole process of obtaining the EOA’s was driven by the creditors without any judicial oversight whatsoever.”
The Judge went on to reference three other cases (namely Vhief Lesapo v The North West Agricultural Bank and Another, Jaftha v Schoeman and Others and Gundwana v Steko Development CC and Others) and stated that in all of them the debtors were vulnerable and in context of these cases, there is the real risk of abuse by unscrupulous creditors. He stated that the arguments for judicial oversight cited in those three cases applied with equal force to this case. He stated that:
“The process of issuing an EOA requires an evaluation of the amount of money to be attached per month as compared to the amount needed by the debtor to support herself and her family…judicial oversight of an EOA must be mandatory and must occur when the execution order is issued...”
Judge Desai found section 65J(2)(b)(i) and s65J(2)(b)(ii) of the MCA constitutionally invalid to the extent that they allow for EOA’s to be issued by a clerk of the court without judicial oversight. He also found the broad consent provided for in section 45 of the MCA fails to protect consumers and is thus inconsistent with sections 90 and 91 of the National Credit Act 34 of 2005 (interpretation of law principles provide, that when in conflict, the provision of a later act supercede provisions in an earlier act).
It is clear from this judgment that micro-lenders need to follow proper procedure, in terms of s 81 National Credit Act, when issuing credit so as to avoid debtors defaulting. Creditors also need to take the correct measures when collecting debt and the magistrates courts need to implement judicial oversight with regards to EOA’s correctly.
The judgment will now go to the Constitutional Court for confirmation. The respondents have also applied for leave to appeal the judgment and have approached the Constitutional Court with a separate application.