When an Emolument Attachment (or Garnishee) Order is invalid

Practical application of emoluments attachment order judgment for employers: University of Stellenbosch Legal Aid Clinic and 15 others v Minister of Justice and Constitutional Development and 17 others (Western Cape High Court 16703/14) case

Source: Webber Wentzel

Background

In this decision the High Court pronounced on the apparent large-scale abuse of emoluments attachment orders (EAOs) and pulled the plug on debt collectors’ more unscrupulous methods of collection. The case centres around EAOs, which permit the attachment of a debtor’s earnings in settlement of a judgment debt and obliges his/ her employer to pay out of such earnings specific instalments to the judgment creditors or their attorneys until the debt is paid off.
The purpose of this e-alert is to create awareness regarding the impact of this much publicised case and to detail what steps can be taken by employers and employees.

The applicants in this case, having defaulted on their debts, were each asked to sign, and did sign, a written consent to:

  • judgment;
  • the payment of the debt by way of instalments;
  • the issuing of an EAO against them; and
  • the jurisdiction of a court located some distance from their homes and work and which was inaccessible to them.

The judgment commented in detail on “forum shopping”. It is a practice by which creditors seek out courts in distant locations which are far removed from the judgment debtor’s place of home or work and which therefore does not ordinarily have jurisdiction over the judgment debtor. These distant courts are generally more inclined to grant EAOs.

To curb the blatant forum shopping by creditors which compromised the debtors’ access to courts, the court declared that section 45 of the Magistrates’ Court Act, No. 32 of 1944 (MCA) be trumped by sections 90 and 91 of the National Credit Act, No. 35 of 2005 (NCA). Sections 90 and 91 of the NCA provide that a credit provider may not require or induce a consumer to enter into an agreement that expresses on the behalf of the consumer a consent to jurisdiction.

The court reemphasised that there must be judicial oversight where an applicant seeks an order to execute against or seize control of the property of another person. Until this judgment, the MCA provided that once a debtor consents to a judgment and an EAO, a clerk of the court was empowered to issue an EAO attaching earnings without any evaluation of the debtor’s ability to afford deductions, without evaluating any other EAOs that the debtor may have against him/ her, and without deciding whether or not the issuing of the EAO itself would be just and equitable. This is especially dangerous as there is no limit as to how many EAOs may be granted against a debtor and no limit as to how much of the employee’s salary may be attached to satisfy these payments.

The court declared that sections 65J(2)(a), 65J(2)(b)(i) and 65J(2)(b)(ii) of the MCA are, in the circumstances, invalid to the extent that they allow for EAOs to be issued by a clerk of the court without judicial oversight as it negates the constitutional right to access to justice.

Immediate impact of the judgment

The EAO judgment neither outlaws EAOs nor does it have an impact on the underlying debt. To the extent that the underlying debt is undisputed and valid, it must be paid back.

EAOs are widely used debt collecting instruments and are still available to credit providers and debt collectors.

However, as a result of this judgment, with immediate effect, an EAO can be declared invalid and subsequently rescinded if:

  • the credit agreement giving rise to the debt is a credit agreement in terms of the NCA and the EAO was made outside of the magistrates’ court district where the debtor works or resides (the EAO served by the sheriff on the human resources office of the employer will reflect the name of the magistrates’ court which issued it); or
  • the EAO was issued after 28 July 2014 by a clerk of the court without there having been judicial oversight. The reason for the focus on the date is that on 28 July 2014 the magistrates’ court rules were amended, with effect that EAOs issued on or after 28 July 2014 should have been considered by a magistrate.

Impact of the judgment once confirmed by the Constitutional Court

Any decision that invalidates legislation must be confirmed by the Constitutional Court before it has any effect. The applicants in this case have applied to the Constitutional Court, and it is likely that the confirmation application will be heard and decided within this year.

Steps that can be taken

Unfortunately in cases of invalidity there is no automatic cancellation of the EAO and rescission will need to be applied for and granted.

Employers can provide the debt collecting attorneys with a list of such invalid EAOs, and inform them that:

  • no further payroll deductions will be made in respect of such invalid EAOs;
  • the following documents per EAO are required:
    • the credit agreement governing the original loan;
    • the affordability assessment;
    • a statement of all payments made towards the original loan;
    • the outstanding amount on the loan/ credit agreement on which judgment was applied for and for which the EAO was issued;
    • the letter of demand, consent form and any other documentation served on the employee prior to obtaining the EAO;
    • the default judgment;
    • the EAO; and
    • a statement of the EAO account which must indicate the take-on amount, all charges raised by the creditor, the debt collecting or recovery agent and the creditor’s legal representative, and the payments made by the employee in terms of the EAO towards the settlement of the judgment debt; and
  • confirmation is required that each of the invalid EAOs has been rescinded.

Further steps that can be taken to assist the employees, include the following:

  • Should the debt collecting attorneys not respond to the communications suggested above, the employer could report the debt collecting attorneys to the relevant law society for lack of professional conduct and/ or a breach of professional duties; and
  • The employer could also assist the employee to apply to the court that issued the EAO to:
    • have it rescinded on the basis that it is invalid; or
    • have it rescinded or amended if it can be shown that the employee, after satisfaction of the EAO, will not have sufficient means for his/ her own or his/ her dependant’s maintenance.

In the event that more information or specific advice is required on this topic you are welcome to contact either Johan Olivier (partner) or Odette Geldenhuys (who acted as Webber Wentzel’s lead attorney in the EAO case) on (011) 530 5194 and (021) 431 7290 respectively.

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