Arbitrary Deprivation of an Unregistered Credit Provider's Right to Claim Restitution of Performance Rendered: Opperman v Boonzaaier (24887/2010) 2012 ZAWCHC 27 (17 April 2012) and National Credit Regulator v Opperman 2013 2 SA 1 (CC)

The Constitutional Court in National Credit Regulator v. Opperman confirmed the Cape High Court's decision in Opperman v. Boonzaaier to declare section 89(5)(c) of the National Credit Act unconstitutional. Therefore, the forfeiture to the state of an unregistered creditor provider's right to claim restitution of monies advanced in terms of an unlawful (and void) credit agreement, was held to amount to an arbitrary deprivation of property in contravention of section 25(1) of the Constitution – the property clause. The provision in effect prohibited courts from deviating from the common law's strict par delictum rule in as far as the effects of unlawful contracts are concerned, the result being that creditors could not retrieve any of the amounts extended to the debtor, despite there being no turpitude or bad faith present. The purpose of this provision was to discourage the concluding of unlawful credit agreements – for instance, agreements concluded by unregistered credit providers – so as to protect consumers against unscrupulous behavior. Although the broad purposes of the Act are undeniably valid, the Court held that there was no "sufficient reason" for the effects that the Act had in this case, since the credit provider in question was not guilty of the behavior that the Act tried to combat. In other words, the effects of the Act were over-broad and not proportionate to its stated purposes. This case note comprehensively analyses these decisions in view of interpreting the "confused and confusing" wording of section 89(5)(c), with a specific focus on the application of the section 25(1) non-arbitrariness test. Reference is also made to the earlier judgments in the matter of Cherangani Trade and Investment 107 (Edms) BPK v. Mason. The Opperman decisions illustrate well how the non-arbitrariness test should be conducted in constitutional property cases generally but particularly also in the credit context. Of significance is the fact that the Court for the first time recognized that personal rights sounding in money (an enrichment claim in this instance) should qualify as "property" for constitutional property law purposes. In certain circumstances, therefore, credit regulation may involve deprivation of property such as must satisfy the requirements of the property clause. It is contended that recognizing the role of section 25 in the credit context is a positive development that can be explored further. The constitutional provision also calls for lawmakers to draft legislation in such a way that regulatory mechanisms are rational and sufficiently proportionate to its stated goals.

Moreover, the case illustrates the value of employing constitutional property law to interpret and evaluate the NCA to ensure that its debt relief mechanisms do not have an unjustified impact on creditors but result in a proper balance between the rights of credit providers and consumers. As noble and legitimate as the Act's purposes are, it is accordingly necessary to evaluate the relationship between these purposes and the effects of the Act's mechanisms on individual credit providers.
According to the CC, the questions that needed to be answered were as follows: 20 (1) what is the correct interpretation of section 89(5)(c); (2) does section 89(5)(c) deal with property for the purposes of section 25(1); (3) does the provision amount to arbitrary deprivation of property; (4) does it contain a constitutionally permissible limitation of the right protected in section 25(1); and (5) what is the appropriate remedy?
The structure of the discussion that follows will roughly correspond to these questions. In the course of the analysis I also refer to another case that did not Cherangani (CC) para 15. 41 Cherangani (CC) para 15. However, from the CC's subsequent analysis in Opperman (discussed in 3.3.3 below), it is clear that the Court eventually did not find that the Act's "laudable" objectives justified this "measure" of dispropotionality, at least not under these kinds of circumstances. the judge but with the relevant provisions of the NCA, which, according to him, are inappropriate and unacceptable. 48 He also regards section 89(5) as draconian. 49 Otto argues that if one considers the nature of the prohibited contracts, it is unjustifiable for the Act to prescribe such drastic consequences since none of these types of agreements are offensive or concluded per se in bad faith. 50  Otto has subsequently expressed his agreement with the finding that section 89(5)(c) has unconstitutional results. 54 For instance, he refers to the Cape High Court's judgment in Opperman as "thorough and well-reasoned" 55 -a remark with which I agree.

Opperman (CHC)
For the Cape High Court in Opperman, it was clear that the effect of sections 89(2)(d) and 89(5)(a), read with 40(4), was that the loan agreements were unlawful and therefore should be treated as void. 56 However, the applicant argued that the words "must order" in section 89(5) should be read as "may order", leaving the court with a discretion in this regard. 57 The court did not agree with this contention and therefore concurred with the third and fourth respondents that the NCA left no 48 Otto 2010 TSAR 167. 49 Otto 2013 TSAR 234. 50 Otto 2010 TSAR 167. 51 Otto 2010 TSAR 167; Otto 2009 TSAR 432. 52 Otto 2010 TSAR 167. 53 Otto 2010 TSAR 167; Otto 2009 TSAR 431. 54 Otto 2013 TSAR 234. 55 Otto "Conclusion" 9-13 fn 57; Otto 2013 TSAR 234. 56 Opperman (CHC) para 5. 57 Opperman (CHC) para 6. This is the same argument raised in the Cherangani cases.

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scope for doubt that unlawful agreements must be treated as void. Nothing in the section indicated an intention that the court would have a discretion to treat "as valid a credit agreement that is expressly stigmatised as void". 58 Nonetheless, the applicant submitted that section 89(5) should be read in conformity with the Constitution. 59 The applicant argued that, if the court did not have a discretion whether or not to make a cancellation or forfeiture order, the result would be an arbitrary deprivation of property, as well as an infringement of his section 34 rights (access to court). 60 However, the court found that this method of statutory interpretation was inappropriate in these circumstances, since it would have done violence to the language used by the legislature. 61 The next question was whether the applicant could recover the money on the grounds of unjust enrichment, namely with the condictio ob turpem vel inuistam causam. 62 The court held that, if the effect of section 89 (5) The court asked if the effect of section 89(5)(c) was that the court had to order the applicant's claim for restitution forfeit to the state. 75 The third and fourth respondents argued that this was not the case and that the court was vested with a discretion. The court rejected this proposal and held that section 89(5)(c) requires the court to do either one of two things. 76 The court must order that the "purported rights" are either cancelled or forfeited to the state. Further, in order to decide between these two options, one had to determine whether the consumer would be unjustly enriched. 77 If the first respondent was not required to make restitution and was therefore enriched (as was the case in Opperman), the claim for restitution had to be ordered forfeit to the state. 78 The court did not have the option to choose neither of these options. 79 The court pointed to the anomaly represented by the fact that, in contrast to section 89(5), section 90 -which deals with unlawful provisions -does provide courts with a discretion based on what would be "just and reasonable". 80 The court could not think of a reason for the difference in approach between these two sections, 81 which seemed to contribute to the irrationality of section 89(5)(c). 73 Opperman (

Introduction
The Opperman case illustrates that the interpretation of section 89(5)(c) is all but clear. The NCR argued that the section could be interpreted in a way that does not allow for arbitrary deprivation, whereas the applicant contended in favour of the high court's interpretation, namely that the proper construct of the section indeed resulted in arbitrary deprivation. The minister, on the other hand, acknowledged that the section effected a deprivation of property but that it was not arbitrary because there were sufficient reasons for it. The minister also argued in the alternative that the section could be read to include a discretion, which would render it in line with section 25(1). As another alternative, the minister contented that, if the section was unconstitutional, the declaration of invalidity ought to be suspended and that an interim reading-in should apply. 82 Due to the phrase "despite any provision of common law" in section 89(c), the common law action for restitution is excluded by this section. Therefore, the question was not if and to what extent the provision amended the common law but if such a deviation was inconsistent with section 25 of the Constitution. 83 The Court commented that, if the common law had applied to the situation, 84 an unregistered credit provider who was unaware of the requirement to register appears to be a good example of an unlawful agreement where there is little or no turpitude on the part of the credit provider.
Similar to the common law position, section 89(5)(a) states that the agreement must be declared void from its inception. 85 However, where the NCA deviates from the common law is that section 89(5)(c) appeared to leave little or no room for a judicial 82 Opperman (CC) para 11. 83 Opperman (CC) para 13. 84 Opperman (CC) para 18. In terms of this construction there is no discretion and therefore there are only these two possibilities. The court must determine only if there is unjustified enrichment present and then make the appropriate order. 93 In terms of both possible orders, the creditor will lose his right to restitution -both the possible rights under the agreement as well as those based on the unjustified enrichment of the debtor. 94 The NCR acknowledged that this interpretation would amount to arbitrary deprivation of property, 95 but it argued that this construal was not correct. 96   There might also be practical problems if the minority's interpretation was left in place (with the result that restitution claims were left intact). The creditor would have a claim for restitution against the debtor (in terms of (c)) and, at the same time, the debtor would have a claim (in terms of (c)) to a refund of all money paid by the debtor to the creditor. Van der Westhuizen J held that this approach would not make sense. 126 He could therefore not support an interpretation of section 89(5)(c) that rendered it "inoperative and meaningless". 127 The court could not find that the provision is in line with the Constitution just because of a drafting error either. 128

Majority's conclusion regarding the correct interpretation
Despite the incoherence with regard to words and phrases in the provision, the CC held that the objectives of the NCA as well as section 89(5)(c)'s context could assist in interpreting it. 129 According to the CC, the phrase "despite any provision of common law" indicates the legislature's intention to deny the creditor a remedy that he might have had under common law, but which is not in line with the NCA's purposes. This remedy could be nothing other than the right to restitution. 130 Furthermore, the term "purported rights" is, in Van der Westhuizen J's view, "clumsy 124 Opperman (CC) para 39. 125 Opperman (CC) para 39. 126 Opperman (CC) para 40. 127 Opperman (CC) para 41. 128 Opperman (CC) para 41. 129 Opperman (CC) para 52. 130 Opperman (CC) para 53.

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but understandable". 131 The term refers to rights that the creditor might have had if the agreement was valid, or rights that he mistakenly thinks he still has. 132 The court also commented that the rights might in fact always be forfeited to the state. 133 In response to Cameron J, Van der Westhuizen J stated that his interpretation does not ignore the words "under that credit agreement" but merely "invokes context and recognises the references to unjust enrichment in that provision". 134 Therefore, the majority of the CC confirmed that the most plausible interpretation of section 89(5)(c) is the one given by Binns-Ward J in the Cape High Court. In this regard, Van der Westhuizen J explained that, in terms of common sense and in view of the NCA as a whole, the purpose of the provision was as follows: 135 [C]onsumers have to be protected against uncontrolled credit providers and therefore credit providers are required to register; credit providers who do not register in contravention of the NCA face severe consequences; courts must declare the agreement void and order either that all rights perceived to follow from the agreement (including the right to restitution) are cancelled or forfeited to the state. If one proves that the interest that is violated amounts to "property" and that there is a deprivation of such property, one needs to assess whether the deprivation is constitutionally valid and therefore whether it complies with the requirements of 136 For the most comprehensive analyses of s 25 in general, see Van  To satisfy the requirements of section 25(1), the deprivation in question must be effected in terms of law of general application. Secondly, this law may not permit the arbitrary deprivation of property. It was clear that the NCA is law of general application, but the more pertinent question was if section 89(5)(c) permitted the arbitrary deprivation of the applicant's property. Neither the high court nor the CC had any difficulty finding that the claim to restitution was "property" for section 25(1) purposes or that the forfeiture amounted to a deprivation. Instead, the decisions focussed mostly on assessing the deprivation against the non-arbitrariness standard. 140

Forfeiture of the right to claim restitution: deprivation of property
Although the third and fourth respondents "faintly" argued that forfeiture of the right to claim restitution is not a deprivation of property, the Cape High Court held that 141 [t]here is ... no doubt that the claim would fall to be counted as an asset in the applicant's estate and thus part of his patrimony. The claim not only has a monetary value, it is amenable, like any corporeal property owned by the applicant, to being disposed of and transferred by him to a third party.
Opperman (CC) 142 also addressed the question whether or not the "purported rights" of creditors to "recover any money paid or goods delivered" is property for section 139 Because the Court had also previously recognised a claim for loss of earning capacity or support as "property", it held that "the recognition of the right to restitution of  [I]t is concluded that a deprivation of property is "arbitrary" as meant by s 25 when the "law" referred to in s 25(1) does not provide sufficient reason for the particular deprivation in question or is procedurally unfair. Sufficient reason is to be established as follows: (a) It is to be determined by evaluating the relationship between means employed, namely the deprivation in question and the ends sought to be achieved, namely the purpose of the law in question.
(b) A complexity of relationships has to be considered.
(c) In evaluating the deprivation in question, regard must be had to the relationship between the purpose for the deprivation and the person whose property is affected. In summary, to determine whether or not a particular provision -as "law of general application" -permits an arbitrary deprivation of property, one needs to consider the relationship between the means employed and the ends sought to be achieved by such a deprivation. The test not only requires a valid public purpose for the deprivation, but it also requires that there should be a sufficient nexus between such a purpose and the person whose property is affected. The nature of the property and the extent of the deprivation must also be considered.
Furthermore, the interplay between the person, the nature of the property, the extent of the deprivation and the purpose of the deprivation will determine whether the scrutiny is one of mere rationality or one closer to a full proportionality test. of the deprivation is proportionate to its stated purpose. The former test can be referred to as a "thin rationality" test and the latter as a "thick proportionality" test, these two being situated on the extreme ends of a continuum. 160 The case would then lie somewhere on the continuum, depending on the various relationships.

Opperman (CHC)
The way Binns-Ward J applied the non-arbitrariness test is interesting because he distinguished between two aspects of the test, albeit without expressly saying so.
The court first analysed the general justification of the NCA's purposes to curb unscrupulous and unlawful credit activities. It is unproblematic for the Act to have measures in place to discourage certain unwanted behaviour and to regulate the credit market more strictly -even if these measures result in deprivation of property.
However, despite the general legitimacy and validity of the NCA initiatives, a closer individualised non-arbitrariness test must be conducted to investigate how the individual creditor will be affected by the Act's measures. Therefore, it may be that the Act's initiatives are generally valid but that they are overbroad insofar as they arbitrarily deprive certain individual creditors of their proprietary claims. For example, there might be no sufficient relationship between the purpose of the deprivation and the effects thereof on that specific creditor, which was exactly the case in Opperman.
Consequently, the way that Binns-Ward J approached the investigation indicates a logic in terms of which one would start off with a basic rationality enquiry, namely asking if there is a legitimate purpose for the deprivation envisioned by the provision. As the court stated, the apparent object of the provision is to discourage credit granting that falls outside the regulatory framework of the NCA. 161 The court also rightly confirmed that there is "no quibble about the legitimacy of the state's 160 Van der Walt Constitutional Property 246. 161 Opperman (CHC) para 20.
credit system. 170 Therefore, as the court summarised, the intended effect of the NCA -as confirmed by its long title and its provisions as a whole -is 171 (i) to introduce controls in the credit industry directed at addressing the exploitation of poor persons -primarily micro lenders (ii) promoting the non-discriminatory 162 Opperman (CHC) para 20. 163 Opperman (CHC) para 20. 164 Hereafter "the DTI". 165 Opperman (CHC) para 20. 166 Usury Act 73 of 1968. 167 Credit Agreements Act 75 of 1980. The NCA repealed both of these Acts. 168 Opperman (CHC) para 21. 169 Opperman (CHC) para 21. The court commented that the purpose of its analysis of the apparent scope, purpose and objects of the Act was to illustrate its impression that the consequence of non-registration for a person like the applicant (namely, voidness and forfeiture) was "entirely incidental" and did not serve any of the NCA's core purposes. 179 The DTI's memorandum provided the following justification for section 89(5)(c): 180 The DTI believes that the remedy serves to balance the relative inequality of control in the design of such contracts between consumers and credit providers, and will ensure that credit providers will have a real incentive to avoid unlawful credit agreements. 176 Opperman (CHC) para 26. 177 Opperman (CHC) para 28. 178 Opperman (CHC) para 28. 179 Opperman (CHC) para 29. Strangely enough, the effects of section 89(5) were referred to as a "remedy" and the director-general's affidavit contended that this "remedy" will be restricted in its reach, since to obtain it 181 the consumer must go to Court to protect their (sic) rights. In order to do so, consumers: (a) will have to know that credit providers are acting unlawfully; and (b) will have to be able to access legal representation.
In response, the court expressed "how misconceived the [DTI's] understanding of the effect of the provision" was. 182 In the first place, the provision arose mero motu and not even in the context of debt enforcement proceedings or as a defence raised by the consumer. 183 Secondly, to state that the provision will be "not widely availed of" due to its alleged (and misconceived) narrow operation, "is hardly a cogent reason in defence of the impugned provision". 184 In fact, this argument contradicted one of the most important purposes of the Act, namely to protect vulnerable consumers. 185 The court further pointed out that there were other unaddressed aspects of section 89(5). For example, the Act neither indicates the context in which courts should make these orders; nor does it provide a mechanism whereby any forfeiture would be made known to the state. 186 The Act does not explain how the intention to prevent unjust enrichment is to be achieved either. 187 With reference to an anomaly when comparing the process followed before courts and the National Consumer The applicant's actions did not place the public at risk. Moreover, he was neither a micro-lender, nor was the transaction remotely similar to the kind of transactions that the stricter regulation (and registration requirement) was aimed at. 191 Ironically, the provision did not impact on a person who was involved in 99 outstanding micro loans of R5 000 each -someone who was actually in the business of micro lending. 192 The reason for this is that such a person would, in terms of the Act, not be required to register, since he was involved in less than 100 credit agreements and the total outstanding debt was below R500 000. In my view, this illogical outcome contributes to the prospect that there was no rational reason for the NCA to deprive the applicant of his claim to restitution. It aimed to punish the applicant (who was clearly not operating in contradiction to the spirit of the NCA) whereas others who may be operating unscrupulously would be able to get away with their actions because they are not required to register.
The court moreover noticed that this case did not illustrate any imbalance of power or vulnerability on the side of the borrower. 193 The court also rejected the argument that the deprivation in terms of section 89(5)(c) was necessary due to the absence of criminal sanctions for non-registration. 194  CC referred to its previous judgment in Mohunram v NDPP, 202 where it held that it would amount to arbitrary deprivation of property if the court that orders the forfeiture had no discretion. 203 The Opperman case therefore confirms that a deprivation of property effected in terms of legislation will be arbitrary if the court is compelled to grant the order without being allowed to exercise a discretion that takes the justice of the case into consideration. 204 Because the deprivation effected by the section 89(5)(c) forfeiture was not partial and it "effectively removes an unregistered credit provider's right to restitution", the court held there had to be persuasive reasons. 205 The minister argued that the purpose of the deprivation was important, since it was aimed at protecting the public against unscrupulous creditors. Moreover, the provision was punitive in nature so as to deter unregistered creditors from operating outside the regulatory framework of the Act when they grant loans. 206 Although the CC respected these objectives, it was not convinced that the importance of the purpose provided sufficient reason for the deprivation. 207 The Court commented that "[w]hereas regulated deprivation may be permissible to further compelling interests, the state still has to be constrained in how it may pursue those ends". 208 Since the scope of the deprivation was so far-reaching in this case, the purpose had to be stated clearly and the means chosen to accomplish it had to be narrowly framed. 209   restrictive means must be considered. In this respect the CC held that the common law position is less restrictive than section 89(5)(c). In the first place, turpitude is taken into consideration when restitution is claimed based on performance rendered in terms of an unlawful contract. Secondly, the common law does discourage the granting of loans by unregistered credit providers. In addition, as section 89(5)(b) requires, the creditor must refund all money paid by the debtor, with interest.
Therefore, the lack of "a discretion to distinguish between credit providers who intentionally exploit consumers and those who fail to register because of ignorance and lend money to a friend on an ad hoc basis" is disproportional. 232  In effect, all the factors mentioned in section 36(1) were already taken into account when doing the arbitrariness test. 237 Hence, the Court was "not persuaded that section 89(5)(c) [could] be saved as a reasonable and justifiable limitation" of the right contained in section 25(1).

Opperman (CHC)
The Cape High Court re-emphasised that the forfeiture provision was not properly thought through and that it does not serve its purpose in an effective or coherent manner. There seemed to be no clarity with regard to why the provision was necessary or why the ordinary common law consequences of void agreements could not sufficiently achieve the legislature's intention. Therefore, regarding the possibility of reading words into the provision to remedy its unconstitutionality, the court held that "judicial re-crafting" of the provision would not amount to a just and equitable remedy. 238 It had not been shown that section 89(5)(c) plays a necessary or important role in achieving the aims of the Act. 239 Moreover, the court was of the opinion that the common law consequences of void agreements are in themselves enough incentive to comply with the registration requirement. In addition, the invalidity of section 89(5)(c) will leave unaffected the criminal and administrative sanctions that can be imposed upon unregistered credit providers. Therefore, no one could be expected 236 Opperman (CC) para 78. 237 Opperman (CC) para 79. 238 Opperman (CHC) para 43. 239 Opperman (CHC) para 44.

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"to tolerate the infringement of basic rights" and therefore a suspension of the order of invalidity would also be inappropriate.
Since an order of invalidity would have no force until the CC confirms it, the court postponed the sequestration application and extended the rule nisi for six months so as to await the outcome of the CC proceedings. 240

Opperman (CC)
Before the CC the NCR argued that the constitutional difficulty of the provision could be remedied by reading in an appropriate discretion. 241 The discretion would allow a court to take account of the objectives of the NCA. 242 However, the CC held that it would be preferable for Parliament to address the content of the provision comprehensively, "rather than for a court to venture into patch-work legislating". 243 Hence, the Court decided to declare the provision invalid without any reading in. 244 The minister requested the court to suspend the order of invalidity for two years to grant Parliament some time to amend the NCA. However, the CC agreed with the high court that "no significant gap would be created by an order which does not provide for a period of suspension". 245 The common law will simply apply until the legislature replaces section 89(5)(c), which will result in just outcomes, since the degree of blameworthiness of the unregistered creditor will be taken into account. 246 Concerning retrospectivity, the CC held that the order of invalidity will have no effect

A brief comment on the remainder of section 89(5)
As Otto explains, the CC did not resolve all the problems regarding section 89 (5) As the scrutiny by the Cape High Court and the CC illustrates, the NCA's measures to address the consequences of unlawful agreements are incoherent, unclear, overbroad and constitutionally unacceptable. Hopefully Parliament will come up with something more sophisticated and more narrowly defined so as to address the problem of credit agreements entered into by unregistered credit providers.
Furthermore, Parliament should rethink the class of credit providers that ought to be registered, since it is clear that certain creditors who might actually commit the types of wrongs that the Act wishes to avoid do not even have to register, whereas others who pose a very low risk (like ad hoc lenders) must be registered. Given the degree to which it might result in the deprivation of bona fide creditors' property rights, this anomaly is patently arbitrary and irrational.
If Parliament is of the view that the normal consequences of unlawful credit agreements (like the par delictum rule) do not adequately discourage nonregistration, this fact should be addressed by measures that are in line with the Constitution. That is, they must be fair, rational and narrowly defined so as to not unjustifiably prejudice those creditors who are not guilty of the undesired behaviour that the registration requirement aims to address. When it amends the Act, the legislature ought to study the rules that have developed surrounding the application of the par delictum rule even if it wishes not to follow the exact same approach.
It is necessary to point out that the recently published Draft National Credit Amendment Bill 254 acknowledges that section 89(5)(c)(ii) must be removed, yet no attempt is made to amend section 89(5) as a whole, despite the calls for its reconsideration. It appears that Parliament accepts that the common law as it stands should regulate the matter instead. Unfortunately, the legislature also does not propose the removal of paragraph (b). One can only hope that the eventual amendment will address the issue more comprehensively.
On a more general level, the decision will have broader consequences in the law regarding credit agreements, since it is clear how useful constitutional property law can be when analysing the effects of legislation like the NCA. Opperman dealt with the right to claim restitution of performance rendered in terms of an unlawful agreement. This claim -based on unjust enrichment -is a personal right sounding in money, which can now conclusively be regarded as "property" for constitutional purposes. More generally, the case also opens the door to assume that other money claims like personal rights created by contract and delict will also qualify as "property" for constitutional purposes.
Therefore, when the NCA (or any other law of general application) regulates creditors' rights to claim performance of personal rights created under credit agreements (or any other agreement), these regulations might amount to deprivation of property for section 25 purposes. The result would be that these interferences with creditors' rights must be measured against the non-arbitrariness