A settlement agreement is not governed by the National Credit Act if the underlying dispute is not

The Supreme Court of Appeal found that if the underlying cause of a settlement does not fall within the parameters of the National Credit Act (NCA), then the settlement agreement cannot logically be converted to a credit agreement under the NCA. The underlying cause (in this case the rental agreement) is of vital significance because the compromise (settlement) remains linked to the underlying cause. The express references in the settlement agreement or acknowledgement of debt are significant in linking it to that cause.

Where the underlying cause of the settlement agreement does not constitute a credit agreement as envisaged by the NCA, the agreement does not fall within the ambit of the NCA. A purposive interpretation and not a literal interpretation of section 8(4)(f) of the NCA is required. The NCA was not aimed at these settlement agreements but rather at the advancement of money or granting of credit. If the NCA is applied to such settlement agreements it will have a devastating effect on the efficacy and the willingness of parties to conclude settlement agreements and to curtail litigation.

During December 2014, PNT (a company of the appellant) and MAN Financial Services (MAN) concluded seven new rental agreements in relation to seven heavy-duty trucks and trailers hired by PNT at specified monthly rental amounts. PNT defaulted on these agreements and MAN repossessed the seven trucks and trailers. There remained a shortfall of R4 400 000. On 28 September 2015, MAN, PNT and Ratlou concluded a settlement agreement (also referred to as an acknowledgement of debt) in relation to the shortfall. The shortfall was payable by way of 60 consecutive monthly payments together with interest. Ratlou stood as a surety for the payment of the shortfall under the settlement agreement. No payment was made and MAN sued for payment.

On a literal interpretation of section 8(4)(f) of the NCA, a settlement agreement concluded in relation to, for instance, a delictual claim would immediately fall within the ambit of the NCA. This could never have been the intention of the legislature. The consequences would be absurd for agreements of settlement in respect of non-contractual claims or contractual claims where the underlying dispute is unrelated to NCA governed agreements.

The case is Ratlou v Man Financial Services.