South Africa: Reasonable discretion in debt recovery — A banking law perspective

06 Oct 2025    3 minute read
Debt Recovery Banking Discretion Legal Standards Sale of Repossessed Property Creditor Rights and Fairness

In brief

When recovering debt, banks’ discretion (e.g., choosing how and when to sell security) must be exercised reasonably and in good faith. Decisions backed by a transparent process, professional valuations/advice, prevailing market conditions, and full cost considerations (like municipal arrears) are more likely to be upheld. Lenders should keep thorough records and communicate clearly; debtors must submit timely, credible alternative offers. Well-documented, commercially rational choices will withstand scrutiny even where contracts grant broad discretion.

Contents

In depth

Financial institutions enjoy wide latitude when recovering debt, but that latitude now lives under the spotlight. Boards, auditors and courts increasingly expect disposal decisions to be traceable, tested against market evidence and defensible on timing, price and process. The question isn’t only what an asset sells for; it’s how the lender got there: which offers were entertained, how credibility was assessed, and whether ancillary costs and practical constraints were weighed.

During debt recovery, banks routinely exercise discretion in deciding how and when to dispose of repossessed properties. In the recent High Court decision of First Rand Bank t/a First National Bank v. Amoricom (Pty) Limited and Another (2024/020685) [2025] ZAGPJHC 929, the Court examined whether a creditor’s discretion in accepting a sale price is subject to judicial scrutiny for reasonableness, particularly when alternative offers are presented.

In this matter, FirstRand Bank ("Bank") entered a repayment arrangement with the respondents following a default on their loan obligations. When the respondents failed to comply with the terms of the arrangement, the Bank proceeded to dispose of the secured property. The resulting shortfall was due to municipal arrears that the respondents had failed to settle, which the Bank sought to recover as damages. The respondents did not dispute the Bank’s entitlement to dispose of the property but they contended that the Bank acted unreasonably by accepting a lower offer and disregarding two higher offers they had presented that would have sufficiently covered their indebtedness. The Bank contended that it had acted both reasonably and in good faith, noting that the alternative offers were presented late and historically, they had contained discrepancies and lacked credibility. The Court held that the Bank was entitled to rely on substantiated offers received through a transparent process, supported by professional advice and prevailing market conditions. Consequently, the Court found that the Bank’s decision to accept the lower, credible offer was reasonable and consistent with the standard of arbitrio bono viri.

The judgment underscores the importance of reasonableness and fairness as fundamental elements of the arbitrio bono viri principle — that discretion must be exercised as a reasonable person would in the mercantile world. This principle serves as a crucial limitation on contractual powers in South African banking law especially in instances where the bank has the discretion to set interest rates or sell repossessed property.

For financial institutions, it is essential that all decisions, whether relating to asset sales, enforcement actions or rate adjustments, are supported by reasonable and fair justification. In Amoricom, the Bank’s decision was supported by a transparent process, professional advice and market conditions. The judgment further emphasizes the need for lenders to keep records of valuations, correspondence and advice to justify their decisions. Debtors, in turn, bear the burden of providing any offers timely and with credible evidence. Ancillary costs, such as municipal rates of a secured property, may further complicate the sufficiency of sale proceeds and should be factored into any assessment of reasonableness. In this case, the respondents failed to provide credible, timely offers and could not prove the quantum of damages claimed by the Bank was unreasonable. The court was critical of “stillborn” offers and delays, noting that the Bank was justified in treating the respondent’s late offers with skepticism.

In conclusion, the Amoricom judgment makes clear that even where contracts grant broad discretion, lenders must maintain thorough records and act transparently and in good faith. Courts will uphold decisions that are properly documented, commercially reasonable, and ethically sound. By adhering to the principle of arbitrio bono viri and communicating clearly throughout the sale process, banks can ensure their actions withstand judicial scrutiny and their contractual rights are protected.

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Nontobeko Khumalo and Nkateko Mabunda, Trainees, have contributed to this legal update.

Contact Information
Phetole Modika
Partner
Johannesburg
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phetole.modika@bakermckenzie.com

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