Table of Contents
Key Points:
- Two clients won an appeal against Standard Bank, arguing that their home loan debt had prescribed due to the passage of time.
- The Pretoria High Court ruled that Standard Bank failed to adequately plead the existence of a mortgage bond in court.
- The court’s decision highlights the need for banks to clearly establish bonds in debt recovery cases to avoid prescription issues.
Africa’s largest lender by assets, Standard Bank under South African banker Sim Tshabalala recently faced a legal setback in a home loan recovery case. Two Standard Bank clients won an appeal last week against the bank’s attempt to recover a home loan by arguing that the debt had lapsed due to the passage of time.
The Prescription Act sets term limits on various types of debt, making them unrecoverable after a certain period. For most debts, like credit cards and overdrafts, the term is three years. For mortgage debt, it is 30 years. If a debt is not acknowledged within its term, it is prescribed. If admitted or if the bank issues summons within the period, the prescription period starts anew.
Case Details and High Court Ruling
The Pretoria High Court heard an appeal by Aubrey Schneider and Stephen Zagey, who signed surety on a home loan secured by Simcha Properties 10 in 2006. Simcha defaulted in 2011 and was liquidated in 2012. The bank received a R130,000 ($6,952) dividend from the liquidated estate. In 2014, Schneider and Zagey were served with notices of default but did not pay, leading the bank to issue summons in 2016.
The appellants argued that their debt had prescribed as they were served summons more than three years after Simcha defaulted or was liquidated. The bank initially won a summary judgment in 2016, claiming the loan was secured by a mortgage bond. However, the bank had not specifically pleaded the existence of a bond in court papers.
The full bench of the Pretoria High Court dismissed the bank’s claim that the appellants admitted their debt was secured by a bond. The court ruled that the earlier summary judgment should be set aside, allowing Schneider and Zagey to defend their case. A summary judgment is issued without a full trial when there are no genuine disputes of fact, which was not the case here.
Implications for Future Debt Recovery Cases
This ruling does not mean the bank will abandon its attempt to recover the loan. The court will reconsider the argument of prescription and the bank’s delay in attempting to recover the debt. Advocate Don Mahon SC, arguing for the appellants, persuaded the court that there was no basis to infer the existence of a bond in Simcha’s indebtedness.
Although the parties intended to secure the debt by a bond, it was not registered. Banks will likely expedite registering bonds over home loans following this ruling.
The high court’s decision highlights the existence of a bond when recovering home loan debts. It reveals the importance of adhering to legal prescriptions and timelines in debt recovery processes. This case serves as a precedent for future disputes over the prescription periods of various debts and the implications of securing debts with bonds.
Despite all this, Standard group, under the leadership of Tshabalala 2017, has seen a marked improvement in financial performance. The bank’s latest annual report reveals a 27-percent increase in headline earnings and a 20-percent rise in total net income.
Tshabalala’s vision extends beyond present targets. Standard Bank’s commitment to sustainable finance is on track to surpass its initial R250-billion ($15.6 billion) goal by 2026, underscoring the bank’s ambition for Africa’s green transition.
