Free State High Court Clarifies That National Credit Act Does Not Apply to Large Instalment Sale Agreements

In a recent decision from the Free State Division of the High Court, the court addressed the applicability of the National Credit Act 34 of 2005 (NCA) to large instalment sale agreements and related suretyship obligations. The case of Mbombi and Another v BMW Financial Services South Africa (Pty) Ltd provides important clarity on the scope of protection afforded under the NCA in the context of high-value vehicle financing arrangements.

Case Overview: Vehicle Finance Dispute and Suretyship

On 22 September 2021, BMW Financial Services SA (Pty) Ltd entered into a credit sale agreement with Ignite Services CC for the purchase of a BMW X6 M50i. The purchase price was structured as an instalment sale with a total principal debt of over R2.15 million, payable across 71 instalments and a final balloon payment of R600,901.90.

On the same day, Mr Sifiso Ndiya Mbombi signed a suretyship agreement, binding himself jointly and severally with Ignite Services CC for any debt arising from the credit agreement.

Legal Proceedings: From Default to Repossession

By May 2023, BMW initiated legal action to cancel the agreement and reclaim the vehicle due to non-payment. Neither Ignite Services CC nor Mr Mbombi entered a notice of intention to defend. As a result, a default judgment was granted on 23 November 2023, authorising cancellation of the agreement, repossession of the vehicle, and allowing BMW to pursue damages.

Subsequently, the applicants brought a two-part application:

Part A: An urgent stay of execution to prevent repossession.
Part B: An application to rescind the default judgment.

The applicants argued that BMW failed to comply with section 129 of the NCA by not issuing a formal default notice before proceeding with litigation. They also contended that the default judgment was erroneously granted, as the account had been brought up to date through post-default payments.

BMW’s Response and Legal Justification

BMW countered that:

The instalment agreement had already been validly cancelled at the time summons was issued.
Section 129 notices had been sent to the correct domicilium citandi addresses.
Payments made after cancellation did not revive the terminated agreement.
The credit agreement was a “large agreement” and therefore exempt from the protections of the NCA.

High Court’s Legal Analysis: When the NCA Does Not Apply

The court examined the following key provisions of the National Credit Act:

Section 4(1)(a): The NCA excludes application to juristic persons with asset values or turnover exceeding R1 million at the time of agreement.
Section 4(1)(b) and 9(4): The NCA also does not apply to large credit agreements, where the principal debt exceeds R250,000.
Section 8(5): A suretyship agreement is only covered by the NCA if the underlying credit transaction is itself governed by the Act.

Given that the principal debt exceeded R2.1 million, the court found that the agreement clearly constituted a large agreement, exempting it from the NCA regardless of the consumer’s asset threshold. Furthermore, as the primary agreement fell outside the NCA, so too did the suretyship signed by Mr Mbombi.

The court referred to the precedent set in Firstrand Bank Ltd v Carl Beck Estates (Pty) Ltd and Another, reinforcing that the nature and size of the credit facility, not the consumer’s financial standing, determines NCA applicability for large agreements.

Court’s Final Ruling: Default Judgment Upheld

The High Court dismissed the rescission application and upheld the default judgment in favour of BMW. It held that:

No procedural error occurred in granting the original order.
BMW was not required to issue a section 129 notice, as the NCA was inapplicable.
The subsequent payments made by Ignite Services CC did not invalidate the cancellation or the legal process that followed.

The court concluded that possession of the vehicle was lawfully terminated, and the applicants’ attempts to resist enforcement were unfounded. Costs were awarded against the applicants.

Key Takeaways for Credit Providers and Consumers

This judgment reaffirms that:

High-value credit transactions involving juristic entities may fall entirely outside the scope of the National Credit Act.
Suretyship agreements are only covered by the NCA when the primary credit agreement falls under the Act.
Post-cancellation payments do not resuscitate cancelled agreements unless explicitly reinstated in writing.

For finance companies and commercial clients, this case highlights the importance of structuring credit agreements with awareness of the NCA thresholds and legal obligations. Consumers and sureties must be cautious before assuming they are protected by statutory credit legislation.