Debt order ruling a “victory for the poor”

10 July 2015

The court ruling on Wednesday (8 July 2015) in favour of an application by the Stellenbosch University (SU) Legal Aid Clinic about emoluments attachment orders (EAOs, also known as garnishee orders) is a “victory for the poor”.

So says businesswoman Wendy Appelbaum, who was the driving force behind the case. She approached the Legal Aid Clinic in 2012 when she found out EAOs had been obtained against some of the workers on her wine farm, De Morgenzon.

“I started doing my own research and realised a great injustice was being done. The Legal Aid Clinic had been handling a lot of these cases, and it was fantastic to work with them to make it a broader case with constitutional grounds and far-reaching implications,” she said.

The Legal Aid Clinic was the first applicant in the case, along with 15 of its clients – farmworkers, cleaners and security guards from Stellenbosch and surrounds who had sought help after micro-lenders had obtained EAOs against them, seizing a large portion of their salaries.

Justice Siraj Desai of the High Court in Cape Town declared the EAOs in question “unlawful, invalid and of no force and effect”. He also found that sections of the Magistrates’ Court Act are “inconsistent with the Constitution”.

“The ruling is a great victory – not just for the applicants, but for the poor in general. It sets a precedent that will hopefully clean up the lending industry. And it focuses the state’s attention on its duty to ensure that justice is done for all,” Appelbaum said.

SU Rector and Vice-Chancellor Prof Wim de Villiers congratulated the Legal Aid Clinic. “This is an illustration of the University’s endeavour to make a positive impact on society. We like to use our knowledge to help find solutions to societal challenges. SU took up this case in the public interest.”

In his judgment, Desai raised two sets of objections. On the one hand there is insufficient “judicial oversight” over EAOs when they are issued by a clerk of the court without the involvement of a magistrate. The Magistrates’ Court Act makes provision for such a procedure, but only if debtors give their written consent. However, Desai found debtors are routinely influenced to sign forms that they do not understand, or that their signatures are blatantly forged.

He strongly criticized what he called “predatory lending practices by credit providers” and urged the Ministers of Justice and of Trade and Industry, as well as the National Credit Regulator, the Human Rights Commission and the Law Society to “take whatever steps they deem necessary to alert debtors as to their rights in terms of this judgment.”

Desai’s other main objection was that orders of this nature are often obtained in courts far removed from the applicants homes and places of work. He found that this “effectively denied” debtors the “right to approach the courts” and was also based on a misinterpretation of the Magistrates’ Court Act.

The ruling outlines the circumstances that led to the predicament of the debtors in question. They are described as “low income earners” supporting “themselves and their families on salaries of between R1 200 and R8 000 per month. They got loans to keep the pot boiling – “at interest rates of 60% per annum”.

“The individual applicants were granted the loans with the repayments at times exceeding 50% of their monthly income. The affordability assessment was either perfunctory or non-existent. These were quite obviously reckless loans and unsurprisingly the applicants defaulted on their repayments.”

Desai argues: “It may be that a debtor would readily concede that he has defaulted on his payment of the debt. However, it is most unlikely that he would knowingly and willingly agree to pay instalments he cannot afford, have the instalments deducted from his salary and agree that the matter be decided in a court which he cannot hope to access should he wish to mitigate the harsh consequences of the EAO.”

He ordered some of the respondents – specifically all the micro-lenders except for one which did not oppose the case, and the law firm they used to collect debt – to pay the applicants’ costs. Law firm Webber Wentzel represented them on a pro bono basis.

Ms Odette Geldenhuys of Webber Wentzel explained that only the Constitutional Court can declare legislation unconstitutional, and therefore Desai’s judgment that certain provisions of the Magistrates’ Court Act were unconstitutional had to be referred to the Constitutional Court.

Desai had pointed out that “as a result of the abuse of the EAO system, millions of people across the country are trapped in the same situation.”

Geldenhuys emphasised that not all EAOs were now suddenly invalid. “The court does not have a problem with EAOs as such – just if they are abused and obtained unlawfully. If you have an order against you, take all your documents to a lawyer or advice office or legal aid clinic so they can check to see if there are irregularities.”

Ms Mathilda Rosslee, Coordinator of the Legal Aid Clinic’s Financial Literacy Project, says she and her colleagues deal with “many such cases”. On average she has 163 debt-related cases on her desk alone per year.

“We also do proactive work through training in schools and on farms about money matters. We believe that knowledge empowers people, and that we can in this way prevent a further increase of this problem,” she said.

The SU Legal Aid Clinic operates as a fully-fledged attorneys’ office, delivering free legal services to the indigent, whilst at the same time training final-year law students and candidate attorneys in the practical application of the law. Its attorneys and candidate attorneys appear in magistrate’s courts across the Boland, and the Clinic also provides back-up legal services to advice offices in Ceres, Klapmuts, Worcester and Franschhoek. Workshops on evictions, debt relief and family violence are also presented.

“The South African legal system can only be effective if it is accessible and credible in the eyes of ordinary citizens. The SU Legal Aid Clinic contributes to the achievement of this goal by extend legal assistance to those who need it but cannot afford it,” Director of the SU Legal Aid Clinic Mr Kruger van der Walt said.

Statement issued by Desmond Thompson, Corporate Marketing, Stellenbosch University, and Mathilda Rosslee, SU Legal Aid Clinic, July 10 2015