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23 Jan 2024
BY Aslam Moosajee AND Sally Williams

Is a loan concluded between friends subject to the National Credit Act?

In Allied Steelrode (Proprietary) Limited v Dreyer, the Supreme Court of Appeal (“SCA”) set aside the High Court’s order after concluding that an informal loan agreement entered into between the two parties lacked arm’s length basis, and therefore the Acknowledgment of Debt (“AOD”) lacked the character of a credit agreement.

The loan was sealed with a handshake and no interest was charged. However, the AOD was formal and included a grace period of six months before interest would accrue on the loan.  The appellant sought repayment of ZAR15 million from the respondents was based on the AOD, while the respondents sought the separation of issues in the High Court.

The High Court

The following legal issues were considered::

  1. Whether the loan was subject to the National Credit Act (“the NCA”) but after considering section 4(1) of the NCA and the Constitutional Court judgement in Shabangu v Land and Agricultural Development Bank of South Africa, the High Court concluded that it was implausible to draw a distinction between the AOD and the underlying loan. Furthermore, the invalidity of the underlying loan would implicitly taint the AOD which explicitly identified the loan as its foundation. In addition, the appellant’s argument drawing a distinction between the loan and the AOD is unsustainable;
  2. Placing reliance on the judgment of the Western Cape High Court in Fourie v Geyer, this court concluded that the AOD fell within the ambit of the NCA; and
  3. Whether the loan met the criteria of being at arm’s length, in terms of section four of the NCA – the court found that that the terms of the AOD included interest payable, payment deferred, and that the appellant was extracting maximum benefit. In addition, these were consistent with an arm’s length relationship as provided for in section 4 of the NCA.

The High Court therefore granted an order declaring that the loan and the AOD concluded between the parties is subject to the NCA.


The appellant lodged an appeal against the decision of the High Court. The legal issues considered were whether the transaction between the parties was concluded at arm’s length and whether it constituted a credit agreement as defined in the NCA. 

The SCA found that the parties had developed a friendship outside the realm of business. The loan was offered as a gesture of friendship (it was not customary for the appellant to lend money and this was a one-time occurrence). In addition, no interest was levied on the loan. Therefore, the parties were not dealing at arm’s length as provided for in terms of section 4(2)(b)(iii) of the NCA and the loan lacked the character of a credit agreement. Ultimately, the SCA held that:

“In Paulsen and Another v Slip Knot Investments 777 (Pty) Ltd, the Constitutional Court found it illogical and unnecessary to require registration by a person who provides loans solely to her friends which stated that in order to determine the validity of the agreement, s 40(4) must be read with s 89(2)(d). Section 89 of the NCA can only be understood to refer to those credit agreements which are subject to the NCA. The AOD, despite not falling under the ambit of the NCA, remains a credit agreement. The finding by the trial court that the agreement is unlawful and void as provided for in s 89 constitutes a misdirection. Based on the evidence, the loan originated from an oral agreement, with no interest charged between parties who had a familial relationship, which was conducted outside the scope of arm’s length dealings. On the facts of this case, it is evident that neither the loan nor the AOD were subject to the NCA. The trial court was therefore in error and its order must be set aside.”

On this basis, the SCA upheld the appeal and decided that the loan was not subject to the NCA. The SCA also held that the AOD was not a credit agreement as contemplated in the NCA.


Aslam Moosajee

Executive | Dispute Resolution


Sally Williams

Candidate Legal Practitioner | Dispute Resolution