The Supreme Court of Appeal (SCA) has confirmed that a consumer may rely on common law remedies to cancel a credit-financed vehicle purchase where latent defects are discovered, even when the transaction falls under the National Credit Act (NCA).
The judgment affirms that financing a vehicle through a credit agreement does not insulate a bank from the consequences of serious latent defects in the vehicle, nor does it automatically displace long-established common law remedies.
The judgment, delivered on 10 December, also clarified how the Consumer Protection Act (CPA) applies to financed transactions and when consumers must exhaust statutory remedies before approaching the courts.
Background to the case
In December 2017, Aletta Cateriena van Niekerk, the appellant, signed a credit agreement with the respondent, FirstRand Bank, to purchase a 2012 Ford Ranger 3.2 TDCI 4×4 for her son, Gerrie. The vehicle was acquired through Autorama, a motor dealer in Klerksdorp, which arranged the financing with the bank.
Within four days of delivery, the vehicle experienced problems relating to the oil cooler and the gearbox. The vehicle was returned to Autorama for repairs, including the replacement of the gearbox. It was returned to Gerrie in January 2018. However, within two months, the vehicle overheated again.
In April 2018, Van Niekerk’s attorney formally cancelled the credit agreement with Autorama and the bank.
FirstRand did not accept Van Niekerk’s cancellation and instituted action seeking cancellation of the credit agreement and damages.
Van Niekerk defended the action and filed a counterclaim based on the common law remedy of actio redhibitoria (the right to cancel a sale and claim restitution where serious latent defects are present). She sought confirmation of her cancellation, repayment of R170 023.23 (comprising her R150 000 deposit and five monthly instalments), interest at the prescribed rate, and costs.
A mechanic engaged by Van Niekerk’s attorney testified that the replacement gearbox had been manufactured for an entirely different vehicle model and was not for the specific Ford Ranger bought. He believed it was likely the vehicle had been in an accident and fitted with inappropriate parts, with defects that could not have been detected by ordinary observation.
The High Court in Mahikeng granted judgment in favour of FirstRand and dismissed Van Niekerk’s counterclaim with costs. The Court concluded that she had waived her common law rights by returning the vehicle for repairs, instead of immediately cancelling the agreement.
The Court further held that the CPA did not apply because the agreement constituted a credit agreement in terms of the NCA, and Van Niekerk had failed to exhaust the remedies prescribed in section 69 of the CPA before instituting her counterclaim.
In a unanimous decision, the SCA overturned these findings.
Common law cancellation and actio redhibitoria
One of the judgment’s most significant aspects is the SCA’s confirmation that a consumer may still rely on actio redhibitoria even where the transaction falls within the scope of the NCA.
Lenders have argued that the statutory credit framework either limits or replaces common law remedies. The SCA rejected that approach. It confirmed that the NCA regulates the credit agreement, not the quality of the goods, and nothing in the NCA abolishes the buyer’s right to cancel a sale for latent defects that materially impair the vehicle’s usefulness.
The Court set out the established requirements of the actio redhibitoria: the existence of a latent defect at the time of sale; that the defect materially impairs the usefulness of the item; that it was not discoverable upon inspection; that the purchaser was unaware of it; and that the purchaser acts within a reasonable time and offers restitution.
Applying these principles, the Court held that the mechanic’s uncontradicted evidence demonstrated latent defects of a serious kind, making the vehicle unsuitable for its ordinary use. On this basis, the remedy was available to Van Niekerk.
The SCA rejected the contention that Van Niekerk had waived the common law remedy by returning the vehicle for repairs. Waiver, the Court said, requires evidence of a deliberate and intentional abandonment of a known right, assessed objectively. Returning a recently purchased and defective vehicle for attempted repairs did not meet this threshold and was not conduct inconsistent with preserving the right to cancel.
Was the bank the supplier, and does the CPA apply?
Perhaps the most far-reaching aspect of the judgment lies in the SCA’s treatment of the bank’s role under the CPA.
The Court accepted that although section 5(2)(d) of the CPA excludes the credit agreement itself from the Act’s application, it does not exclude the goods supplied pursuant to that agreement.
The Court examined the terms of the instalment sale contract. Clauses reflected that the bank sold the goods to Van Niekerk, retained ownership until full payment, and was registered as titleholder. In light of these provisions, the SCA found that the bank acted in dual capacities: as credit provider and as supplier.
This interpretation aligned with the CPA’s consumer-protection purpose and the established interpretive approach requiring a reading that considers text, context, and purpose. The Court therefore disagreed with the High Court’s judgment in MFC (a division of Nedbank Ltd) v JAJ Botha (2013) that confined a credit provider’s role to financing alone.
Section 69 and access to courts
The bank also argued that Van Niekerk’s counterclaim was barred because she had not exhausted the dispute-resolution mechanisms in section 69 of the CPA.
The SCA held that section 69 did not apply in circumstances where the supplier had already chosen to bring the dispute before a court. Once sued, the consumer was entitled to defend the matter and advance a counterclaim in the same forum. Any other interpretation, the Court said, would be inconsistent with the CPA’s structure and with the constitutional right of access to the courts.
The SCA dismissed the bank’s claim and upheld Van Niekerk’s counterclaim. It confirmed cancellation of the credit agreement and ordered the bank to repay R170 023.23, with interest from 16 April 2018. Costs were awarded against the bank.
Implications and caveats
The judgment confirms that statutory consumer-credit regulation co-exists with common law protections. Financing arrangements cannot be viewed in isolation from the underlying sale. Where a vehicle is seriously defective, the legal consequences may reach beyond the dealer.
Despite its significance, the judgment should not be overstated.
First, actio redhibitoria remains subject to strict requirements. Consumers must prove that the defect existed at the time of sale, was latent, materially impaired the vehicle’s usefulness, and that cancellation occurred within a reasonable time with restitution tendered. Not every mechanical failure will meet this threshold.
Second, the finding that the bank was a “supplier” was fact- and contract-specific. Different financing structures – particularly those where ownership clearly vests in the dealer until delivery or where the bank’s role is strictly limited – may yield different outcomes.
Third, the judgment does not impose blanket CPA liability on all banks in all vehicle-finance transactions. It clarifies when such liability may arise, rather than extending it universally.
