SAMRO loses application against NCR

The following summary of the case and its conclusions has been provided by Kunene Rampala Botha law firm.

Issues

In July 2008, the Southern African Music Rights Organisation ("SAMRO") - the applicant - approached the North Gauteng High Court for an order declaring that advance royalty transactions entered into between SAMRO and its author/ composer members do not fall within the ambit of the National Credit Act 34 of 2005 ("The NCA"). The National Credit Regulator ("NCR") - the respondent - opposed the application.

Parties

SAMRO is a company limited by guarantee, with no share capital, incorporated in terms of the laws of the country with its function being to administer the public performance, broadcast, diffusion and reproduction rights in the musical works, on behalf of its members. Its membership comprises musical composers, songwriters and music publishers.

NCR is a statutory body established in terms of section 12 of the NCA and is entrusted with the regulation of the Consumer Credit Industry in the Republic of South Africa, hence SAMRO cited the NCR as the respondent in its application for a declaratory order.

Background

A brief synopsis of the facts can be provided as follows:

• In May 2007, the applicant sought a non-binding advisory opinion on whether the Act applied to specified transactions (i.e. staff loans, royalty payments, salary advances and study loans) entered into between the applicant and its members. In its response, the respondent advised the applicant that if any transaction that SAMRO is involved in contains one of the two basic characteristics of a credit agreement, namely, (1) deferment of payment and (2) a fee/ charge/ interest - that transaction is a credit agreement and therefore the provisions of the Act apply.
  
• Notwithstanding being advised by the NCR regarding the applicability of the provisions of the NCA on its credit transactions, thirteen (13) months later SAMRO launched the aforesaid application at the North Gauteng High Court for a declaratory order to the effect that the National Credit Act 34 of 2005 does not apply to "advance royalty transactions" entered into between it and its members.

Application of the Law

The applicant filed its application together with its founding affidavit in July 2008. After filing the notice of intention to oppose the application and prior to filing its answering affidavit, the respondent filed a notice in terms of the High Court Rules (Rule 35) requiring the applicant (SAMRO) to produce certain documents mentioned therein for the purpose of formulating its defence. The applicant made available some documents but not all and advised the respondent that (1) the documents required are not relevant for the purposes of the current application and (2) the ones which the applicant provided should be sufficient to enable it to file its answering affidavit.

Subsequently, the respondent sent a letter to the applicant's attorneys acknowledging receipt of the letter and the documents attached thereto and further informed the applicant that the aforementioned documents had not been properly placed before court. The respondent replied to the respondent's letter by requesting clarification regarding the basis of the contention that the additional documents provided by the respondent had not been properly placed before the court.

The respondent did not respond to the aforesaid letter. Instead, it filed its answering affidavit and thereafter the applicant filed its replying affidavit where after the matter was set down for hearing.

Three points raised

Prior to the hearing of the application, the respondent filed a notice in terms of the High Court Rules. In the notice, respondent raised three (3) points in lamine (in law) and requested the court to decide on the three points even before making a determination on the order sought by the applicant.

The three points in law are as follows:

1. The respondents alleged that the applicant bypassed an internal remedy provided in terms of section 56 of the NCA which provides that "any person issued with a notice in terms of section 54 and 55 may apply to the Tribunal in the prescribed manner";
   
2. The application for a declaratory order must be dismissed, alternatively the applicant must be directed to properly and fully respond to the respondent's Rule 35 notice more fully described hereafter or referred for hearing of oral evidence; and
   
3. The applicant makes bold averments without supporting them with the necessary documentary evidence.
   

Court's Decision

In light of the points in lamine, the parties requested the court to decide on the points in lamine before going into the determination of the applicability of the NCA to the applicant's advance royalty transactions.

In respect of the above points in lamine the court held that:

• First point: Because the respondent failed to issue the applicant with a notice in terms of section 56(1) of the NCA, even after it had furnished the applicant with a non-binding opinion to the effect that it was of the view that the relationship between SAMRO and its members in specified respects fell within the provisions of the NCA, as being at arm's length - section 26 of the NCA is therefore not applicable to the applicant.
  
• Second point: When the respondent required the applicant in terms of the High Court Rules (Rule 35) to produce certain documents for the purpose of filing its response and the applicant failed to comply with such, the respondent should have approached the court for the appropriate remedy. However, when the respondent decided to file its answering affidavit it (when it should not have until the applicant had complied) brought an end to the rule 35 point in lamine in which case the court dismissed the second point in lamine as the respondent did not file Rule 30A of the High Court Rules.
  
• Third point: The court held that the applicant in this case made bold averments in its founding affidavit on matters clearly based on documentary evidence without attaching copies of such documents. Only in its replying affidavit did the applicant attach some of the documents. What is worse, it introduced some of the facts upon which it based its case, for the first time, in its replying affidavit. Similarly, the applicant's heads of argument relied on the replying affidavit for the applicant's submissions on "Advance Royalty Transactions". In light of this, the court is of the view that the applicant's founding affidavit (a) does not allege some essential aspects of the case; and (b) in many instances, although averments are made in the founding affidavit, they are not supported by essential documentary evidence. In essence, the documents introduced by way of letters are literally not before court. However the anomaly of the respondent submitting that the founding affidavit is defective for want of supporting evidence while on the other side pleading to such documents on the other hand has already been mentioned above.

Further findings

The court held further that the above anomaly cannot remove the court's discretion as to whether or not to have regard to "evidence" that is introduced irregularly and none of the parties can, by its conduct, deprive a court of its discretion in this regard; neither can parties, by agreeing or deciding not to abide by the Rules of the High Court, bind the court to follow suit.

In the circumstances, the court is of the view that, it is not necessary to consider the submissions made by the applicant in support of its contention that the NCA does not apply to the advance royalty transactions between the applicant and its members.

The court held further that there is no doubt that the relevant applicant's members have an interest in the outcome of this application some or all of them may support it and the converse is true in which case the applicant should have joined them.

Conclusion

The court dismissed the application on the basis of the defects it has which have also been pointed out - which will also enable the applicant to bring the application afresh, joining its relevant members and if so advised, ensuring that all relevant documents are properly placed before court

In the circumstances, the court made the following order:

1. The application be dismissed;
   
2. Should the applicant wish to bring another application seeking relief similar to that in Prayer 1 of the current application it must join those of its members likely to be affected by the Court's order in that regard; and
   
3. The applicant must pay costs of this application, which costs include those occasioned by the engagement of the services of senior Counsel.