Set-Off in South African Law: Challenges and Opportunities

Van Deventer, Susanna Maria (2016-03)

Thesis (LLM)--Stellenbosch University, 2016

Thesis

ENGLISH ABSTRACT : This study focuses on the principles surrounding the operation of set-off in South African law. It is evident that no uniform answer exists to the question of how set-off operates: it either operates automatically as soon as its requirements are met or in terms of a declaration by one of the parties, but with retrospective effect. This thesis examines the uncertainty and problems surrounding these two opposing approaches to the operation of set-off, and further considers the impact of sections 90 and 124 of the National Credit Act 34 of 2005 (NCA) on set-off. In order to evaluate the two approaches to set-off, their historical origin, practical effect and the policy considerations informing them are analysed. This analysis is also informed by comparative perspectives on the operation of set-off adopted in civilian jurisdictions. The thesis further examines the circumstances in which a party will be precluded from relying on set-off. It focuses on an agreement between the parties to exclude set-off, waiver of a party’s right to set-off and the circumstances in which a party can be estopped from invoking set-off. It is shown that neither of the approaches to set-off adopted in South African law provides an adequate explanation for the way in which set-off is applied in practice. The thesis illustrates that this can be attributed to the fact that the automatic approach affords insufficient recognition to the autonomy of contracting parties and that the retrospective approach leads to practical difficulties. The uncertainties which exist regarding the exclusions of the right to invoke set-off are also highlighted, as well as the difficulty in reconciling these exclusions with the automatic approach to set-off. The examination of sections 90 and 124 of the NCA focuses on the interpretation of these sections, and considers whether and to what extent, a limitation on a credit provider’s right to invoke set-off is desirable. It is concluded that these sections are unclear and that, although certain limitations of a credit provider’s right to invoke set-off are justified, the conditions set by the NCA are too stringent. Legislative reforms are suggested to clarify and improve the protection granted by the NCA. Finally, it is argued that South African courts should take note of international developments regarding the operation of set-off and opt for a solution which is more in line with modern commercial reality. Such a solution can be found in the UNIDROIT Principles of International Commercial Contracts and the Principles of European Contract Law, which recommend that set-off should be effected by a notice with prospective effect. It is shown that this approach ensures legal certainty and offers a solution which aligns legal and practical reality.

AFRIKAANSE OPSOMMING : Hierdie studie fokus op die beginsels rakende die werking van skuldvergelyking in die Suid-Afrikaanse reg. Dit blyk dat geen eenvormigheid bestaan oor die wyse waarop skuldvergelyking plaasvind nie: dit vind òf outomaties plaas sodra die vereistes aan voldoen is òf in terme van ‘n verklaring deur een van die partye, maar met terugwerkende effek. Hierdie tesis ondersoek die onsekerheid en probleme ondervind met hierdie twee teenstrydige benaderings tot die werking van skuldvergelyking, en oorweeg verder die impak van artikels 90 en 124 van die Nasionale Kredietwet 34 van 2005 (NKW) op skuldvergelyking. Ten einde die twee benaderings tot skuldvergelyking te evalueer, word hul historiese oorsprong, praktiese effek en die relevante beleidsoorwegings ontleed. Hierdie ontleding steun ook op ‘n regsvergelykende perspektief op die werking van skuldvergelyking in sivielregtelike jurisdiksies. Die tesis ondersoek verder die omstandighede waaronder ‘n party verhoed sal word om op skuldvergelyking te steun. Dit fokus op ‘n ooreenkoms tussen die partye om nie op skuldvergelyking te steun nie, afstanddoening van ‘n party se reg tot skuldvergelyking en die omstandighede waaronder estoppel ‘n beroep op skuldvergelyking sal verhoed. Daar word aangedui dat geeneen van die benaderings tot skuldvergelyking gevolg in die Suid-Afrikaanse reg ‘n voldoende verduideliking bied van die wyse waarop skuldvergelyking in die praktyk toegepas word nie. Hierdie tesis illustreer dat dit toegeskryf kan word aan die feit dat die outomatiese benadering onvoldoende erkenning gee aan die outonomie van kontrakspartye, asook die praktiese probleme ondervind deur die terugwerkende benadering. Die onsekerheid wat bestaan rakende die uitsluitings van die reg om op skuldvergelyking te steun word ook uitgelig, asook die onversoenbaarheid van hierdie uitsluitings met die outomatiese benadering tot skuldvergelyking. Die ondersoek na artikels 90 en 124 van die NKW fokus op die interpretasie van hierdie artikels, en oorweeg ook of en tot watter mate ‘n beperking op die reg van ‘n kredietverskaffer om op skuldvergelyking te steun wenslik is. Daar word bevind dat hierdie artikels van die NKW onduidelik is en dat, alhoewel sekere beperkings op die reg van ‘n kredietverskaffer om op skuldvergelyking te steun regverdigbaar is, die voorwaardes gestel deur die NKW te streng is. Statutêre wysigings word voorgestel om die beskerming gebied deur die NKW uit te klaar en te verbeter. Ten slotte word daar aangevoer dat Suid-Afrikaanse howe kennis moet neem van internasionale verwikkelinge rakende die werking van skuldvergelyking en ‘n oplossing moet nastreef wat meer in lyn is met hedendaagse kommersiële realiteit. Sodanige oplossing kan gevind word in die UNIDROIT Principles of International Commercial Contracts en die Principles of European Contract Law, wat aanbeveel dat skuldvergelyking moet geskied deur middel van ‘n kennisgewing met vooruitwerkende krag. Daar word aangedui dat hierdie benadering regsekerheid verseker en ‘n oplossing bied wat juridiese en praktiese werklikheid versoen.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/98587
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