Lawyers and the Guiding Principles on Business and Human Rights: A South African Example
A recent decision of the High Court of South Africa, the lowest appellate court, implicates lawyers in business-related human rights abuses. For law profs, the case is a useful reference point for a legal ethics class discussion of business and human rights issues. A hat tip to John Sherman, General Counsel of Shift, for sharing this.
The case involves a successful challenge to micro-loan debt collection practices in South Africa, widely known to be a predatory sector. Under South African law, the wages of debtors can be garnished through a so-called emoluments attachment order issued by a magistrate. There are no limits to the amount of the attachment or the number of attachments. The magistrate is supposed to inquire into the debtor’ financial condition and make an order that is “just and equitable.”
The individual borrowers in this case were low wage earners in the Cape’s winelands area, who were represented by the University of Stellenbosch Legal Aid Clinic. The challenged loans were often at interest rates of 60% per year, and were often granted without any assessment of the individual borrower’s ability to pay. A debt collection law firm called Flemix, with a portfolio of 150,000 active cases, and annual collections of about USD $121 million, developed and implemented a debt collection strategy for the microloans. When a debtor defaulted, Flemix’s agent debt collectors asked the borrower to sign a written consent to judgment, the payment of the debt by installments, an attachment order, and to submit to the jurisdiction of a court some distance away from home. The debt collectors were not paid unless they received a signed consent order.
The borrowers contended that they did not sign the consents, that the documents were not explained to them, and that they signed them under pressure from debt collectors. Flemix could not produce any of the individual debt collectors to recall their interactions.
The consent orders specified courts that were far away from the borrowers so that Flemix could shop for forums that would grant the attachments quickly and without inquiry, based on the consent order. Because of this forum-shopping, the minimal legal requirement that the attachment orders be “just and equitable” was ineffective.
The amounts of the attachments in question ranged between 50% to 100% of the borrower’s wages.
In the court proceeding, Flemix argued that the poor should be free to choose to enter into such arrangements. The High Court rejected this, concluding that the attachments were unconstitutional under South African law, and refusing to enforce them. The court examined the law of several other jurisdictions, including the United States, determining that other nations impose legal limits on the percentage of wages eligible for garnishment. Further, the High Court cited the UN Guiding Principles for the proposition that South Africa has a duty to protect its citizens from human rights violations by businesses, and criticized the debt collection practices of the lawyers.
Flemix has indicated that the firm will appeal the case to the Constitutional Court of South Africa.