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Enforcement of a Security Interest

Article 8 of the Convention provides for remedies that a creditor is entitled to in the event of default of a debtor under the security agreement relating to specific mobile equipment, subject to the provision that the debtor has agreed to such under the security agreement in question and further subject to any declaration contemplated in Article 54 of the Convention. Article 54 relates to the manner in which a creditor may exercise any of the enumerated remedies with or without Court’s intervention and depends on the declarations made therein (“Self Help Remedy”).

The remedies include taking possession and control of the object concerned, selling or granting a lease, or collecting any income or profits arising out of the use of the object. Any of these remedies must be exercised in “a commercially reasonable manner”. A remedy is deemed to be exercised in a commercially reasonable manner if it is exercised in conformity with a provision of the agreement, unless such a provision is manifestly unreasonable.[1] There are also procedural prerequisites that must be complied with before a creditor can exercise a remedy such as giving notice to the debtor and other interested parties.

South Africa elected to exclude the intervention of the Courts for the exercise of the remedies under the Convention, unless where expressly required. This election is, prima facie, in conflict with constitutional provisions relating to right of access to courts. Any law that restricts a person’s access to court is invalid to the extent of the inconsistence, albeit there may be permitted reasonable justifications for the inconsistency.[2] The effect of the SA Government allowing for exercise of the remedies without leave of Court deprives the debtor of his right to defending its rights or seeking recourse against the creditor’s conduct. This type of proscription is unconstitutional and therefore unlawful. However, the prerequisites to enforcement where a security agreement is in issue, may militate against the adverse consequences of Article 8 read with Article 54 and the Republic’s declaration. Judicial decisions on the validity of self-help remedies is that such drastic actions is only permissible where the debtor has consented at the time of such an exercise or on the basis of a court order.[3]

Default means an occurrence of an event agreed to as default by a debtor and creditor which has an effect of depriving the creditor of its entitlements under the agreement. This accords well with the South African common law of freedom to contract: as long as the agreement reflects a mutual consensus and parties are ad idem, the Court will be loath to interfere, unless there are onerous terms or the effect is against public policy. Consequently, parties are at will to define what events will constitute default in their dealings with one another.

The Cape Town Convention allows a wide variety of remedies besides simple liquidation to satisfy the obligations under a security agreement. These include granting a lease of the object and collecting or receiving any income or profits arising from the management or use of the object (Art.8 (1)). Art.9 provides for vesting of the ownership of the object by the agreement of the chargee and other interested parties or by the court in to order satisfy the secured obligations by. Moreover, if the international interest is a title reserved by the conditional seller or a lessor’s right, as opposed to an interest under a security agreement, there is no need for the creditor to pay the balance to the debtor even when the amount of the balance is larger than the amount of the secured obligation[4]

The remedies enumerated in the Convention system are consistent with the practice under South Africa affording relief to a creditor in the event of an occurrence of an event agreed to as constituting default, provided that the creditor may not sell or deal in the affected property without leave of the court, whether such property is in possession of the creditor or remained with the debtor in question.

  • [1] Article IX (3) of the Protocol.
  • [2] see, Section 34, Constitution of the Republic of South Africa, 1994 read with Section 36 (“thelimitations clause”).
  • [3] Juglal NO and Another v Shoprite Checkers (Pty) Ltd 2004 (5) SA 248 (SCA), at para 12.
  • [4] Goode, Official Commentary, supra note 5, para. 4.101.
 
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