Set-off as a means of debt recovery

Abstract

This mini-dissertation concerns the principles applicable to the concept of set-off from a South African perspective. As a point of departure, it is important to note that a lot has been written about the concept of set-off, yet its operation remains unclear. The development of the principle of set-off or compensation, as it was known during the Roman law era, will be discussed from the Roman law point of view and how it was interpreted in the post-classical Roman law era by the Glossators of the time. This dissertation will further discuss the manner in which the concept of setoff is affected by the provisions of the National Credit Act 34 of 2005 (NCA) and more particularly how set-off is being used as a means of debt recovery by financial institutions. It is for this reason that a discussion of sections 90, 124, 129, 130 and 131 is included. An analysis of the advantages and disadvantages of set-off will be conducted with a focus on how banks can utilise set-off to prevent the loss of a customer’s primary residence, and therefore how the application of set-off can lead to the protection of the customer’s right to housing as envisioned in the Constitution. In light of the aforesaid, it will be demonstrated how the application of set-off may play a role in avoiding the application of Rule 46 of the Uniform Rules of Court, which contains provisions detailing the process to be followed in executing against immovable property. The large South African banks subscribe to the Code of Banking Practice (“the Code”), which is a voluntary code that sets out the minimum standards for service and conduct one can expect from their bank with regard to the services and products it offers, and how the bank relates to its customers. The Code only applies to persons and small business customers. The concept of set-off is also addressed in the Code and clarifies the bank’s rights and responsibilities in applying set-off. Lastly, international developments regarding the operation of set-off will be discussed briefly, specifically how set-off is applied in the United Kingdom, European Union and New Zealand.