
Should you fall behind on your car finance payments, your bank can stop you from using your car through a remedy called a “preservation order.”
A preservation order (PO) seeks to keep a certain asset such as a vehicle, building, or property in its current condition by limiting or prohibiting the use of such object.
The following conditions must be satisfied for a PO to be awarded by a High Court:
- The applicant must have a clear or apparent right to the property in question.
- There must be a reasonable apprehension of irreparable harm if the interim relief is not granted.
- The balance of convenience must favour the granting of interim relief.
- There must be no satisfactory alternative legal remedy available to the applicant.
These orders are expected to become a valuable instrument for credit providers in the country to protect themselves as South African consumers remain among the most highly indebted on the planet.
“South Africans are among the most highly indebted people in the world. With the unemployment rate showing no signs of improvement, there is no end in sight for this crisis,” said Adams & Adams senior associate Mtho Maphumulo.
“Persistent socio-economic issues are also exacerbating the situation. The widespread indebtedness of the majority has been recognized by the government for some time, leading to various legislative efforts to try address the issue. The promulgation of the National Credit Act in 2005 is one of these initiatives.”
Despite these efforts and interventions, over-indebtedness and the inability to repay loans remain significant problems, placing financial institutions that provide loans in a precarious position.
Preservation Order case study
In a recent High Court judgment, a bank financed a motor vehicle for a client who used the vehicle as a tour bus.
One of the contractual conditions stipulated that if the individual failed to satisfy any terms of the agreement, the bank would be permitted to cancel the agreement and reclaim or repossess the vehicle.
After making a portion of the payments on time and in full, the client fell into arrears. The bank subsequently invoked that term of the contract and filed an application seeking a PO.
There was already an action instituted against the client regarding the return of the vehicle, and the bank thus raised several concerns to the High Court in support of its application, including that the vehicle might be destroyed or depreciate in value if a PO is not granted.
“Relying on established legal principles, the court stipulated the following requirements for granting a preservation order: first, the normal requirements for an interdict application must be met,” said Maphumulo.
“In addition, two further requirements must be satisfied: (1) the property related to the interdict application must be the same property that is the subject of the pending action, and (2) the application and the action must involve the same parties.”
After reviewing the application, the court found that it met all these requirements.
In his defence, the debtor argued that the bank’s PO application wasn’t legally permissible because there was an action pending in which the institution sought similar relief.
Secondly, the vehicle is comprehensively insured, as such, the bank would not suffer financial loss if the vehicle were destroyed while awaiting the hearing of the action.
Thirdly, the creditor had not satisfied the requirements for an interdict application, and lastly, it failed to prove that the vehicle was subject to more than normal “wear and tear.”
After reviewing the client’s rebuttal, the court ruled in favour of the bank and granted the PO.
“It held that the fact that the vehicle was still being used as a tour bus was sufficient proof that it was subject to more than normal wear and tear,” said Maphumulo.
“Furthermore, since the court found that the deponent to the First Respondent’s answering affidavit lacked locus standi, the application remained unopposed.”
Locus standi refers to the right or capacity of a certain party to bring an action or to appear in a court.
“As a result, the court deemed it unnecessary to delve into the requirements and defences raised,” said Maphumulo.
“However, the court noted that, despite the lack of locus standi, it was still of the view that the defences that the First Respondent tried to raise were inadequate.”
For example, it would not have helped the applicant in this case to wait for the hearing of the action, which would only take place in 2028 (date allocated). The financial exposure for the bank would have been significant.
“Preservation orders may very well be a lifeline for creditors in a highly indebted South African population, especially given the current delays in the courts,” concluded Maphumulo.
“Creditors should, where feasible, consider such applications to alleviate the challenges they face. However, it is equally important to properly assess the prospects of success before proceeding.”
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