Friends fall out over loan as one asks 'are you a registered credit provider and did you do a credit assessment?'

A man who lent his friend R2.5m has found out the hard way he is unable to enforce repayment as he is not registered in terms of the National Credit Act (NCA).

David Josephson lent Colin Stuart Blacher the money in 2015 with the understanding Blacher would repay the loan with interest. 

The two were previously close and long-standing friends, with Blacher, an admitted but non-practising advocate, serving as trustee of Josephson’s personal trust between 2013 and June 2019. 

Blacher drew up an acknowledgment of debt (AOD) in October 2015 which provided that the capital amount loaned attracted interest at the rate of 2.5% per month. Thus, the effective annual compound rate of interest was 30%.

Over the next four years, Blacher paid R2.1m to Josephson, but by May 2019, he was in default despite repeated requests to make payment.

In June 2019, Josephson’s attorneys demanded Blacher repay the outstanding loan and interest, which they said amounted to R3.8m.

Blacher raised two queries about the loans — whether Josephson had been registered as a credit provider in terms of the NCA and whether he had conducted a credit assessment.

Having been made aware that he had failed to comply with the NCA, Josephson pressed for a further AOD to “regularise” the loans.

Another AOD was signed in August 2019 in which Blacher agreed to pay R2.5m to Josephson by December 31 2019.

In November 2019, Blacher paid Josephson R965,000, saying Josephson was desperate for money and he was desperate to maintain their friendship. No other money was paid by Blacher to Josephson.

In January 2020, Josephson declared a dispute which he referred to arbitration in which he sought an award in his favour for R1.5m. This comprised the outstanding balance of the R2.5m referred to in the 2019 AOD, less the R965,000 Blacher had paid.

On November 4 2020, the arbitrator issued an award in favour of Josephson.

In 2021, the Western Cape High Court made the arbitral award — which directed Blacher to pay Josephson R1.535,000 with interest and costs on the attorney-client scale — enforceable. The court found “no difficulties” with the arbitrator's findings that the provisions of the NCA did not apply in the 2019 AOD.

Blacher appealed against this order to the full bench.

In its judgment on Tuesday, the full bench set aside the high court order that made the arbitral order enforceable.

It said the NCA provided that a credit agreement was unlawful if, at the time it was made, the credit provider was unregistered when the act required him/her to be registered.

When the loans were advanced in 2015, the NCA provided that a credit provider must be registered if the total outstanding debt owing exceeded R500,000, said judge Mark Sher in a judgment where two other judges concurred.

The court said as the capital value of the loan advanced by Josephson exceeded the statutory threshold, he was required to be registered as a credit provider.

“The requirement that credit providers must be registered allows for their control and regulation, especially in relation to their financial probity and integrity, thereby avoiding the unscrupulous exploitation of credit consumers by so-called fly-by­ night operators and loan sharks.”

The court said Blacher paid Josephson R3,086,500. If one deducted the capital value of the loan, this meant he effectively paid R586,500 in interest, which equated to a return of about 23.46% over a period of four years.

Sher said in the event that this award was enforced, Blacher would end up paying Josephson R4,621,500, on a capital advance of R2.5m, which equated to an 84% return on investment.

“In the circumstances, giving effect to party autonomy by enforcing an arbitral award, which serves to uphold and endorse credit agreements which are unlawful and to subvert the act and encourage noncompliance therewith by credit providers, would be against public policy.”

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