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At first glance, Van Niekerk v FirstRand Bank Limited appears to be a vehicle finance case with limited relevance outside the automotive sector. Its story seems short: a defective vehicle, a disgruntled buyer and a bank ordered to refund instalments. However, this case carries an important lesson for the IT industry especially in relation to the financing of hardware and software ("products").
The judgment is not just about cars, but how liability follows control, ownership and contractual drafting. The case involved a dispute which arose after a financed vehicle was found to have serious latent defects. The court had considered whether Van Niekerk ("the purchaser") had lawfully cancelled the agreement and with whom the consequences of such cancellation should lie.
The Supreme Court of Appeal ("SCA") held that the purchaser was entitled to cancel the agreement under the common law action of actio redhibitoria and had not waived the right merely by allowing the asset to be inspected or repaired. Even more importantly, the SCA also concluded that the bank was not merely a credit provider but was also the supplier of the goods. This conclusion flowed directly from the bank's own contract, which expressly stated that:
- the bank sold the goods to the customer;
- the bank retained ownership until the final payment; and
- the bank registered itself as a titleholder of the vehicle.
Based on the above facts, the SCA found that the bank wore two hats: supplier and financier. Furthermore, the court found that the vehicle, although financed under the National Credit Act, 2005 ("NCA") was still entitled to protections of the Consumer Protection Act, 2008 ("CPA"). In conclusion, the SCA found that Van Niekerk was entitled to restitution and to cancel the agreement due to the latent defects.
Why this matters for IT financing
IT products are routinely financed through instalment sale, lease-to-own, structured leasing arrangements and other similar arrangements. Banks, leasing houses, captive finance entities and even software and hardware vendors themselves provide finance for a wide range of IT products, both hardware and software.
In several cases, the financier's documentation goes beyond pure credit provision. The agreement may also describe the financier as selling the product, retaining ownership, or exercising control over delivery, acceptance or replacement.
Latent defects in IT are real, even if they are invisible
Some might assume that the latent defect doctrine is ill-suited to technology. However, it is not, latent defects in IT products can be subtle, technical and commercially devastating.
Examples include:
- servers that overheat under normal production loads;
- networking equipment that cannot sustain advertised capacity;
- hardware that is fundamentally incompatible with the stated software environment;
- embedded firmware defects that only manifest after deployment;
- software that appears to be functional but collapses under normal anticipated volumes, due to scalability flaws; or
- software that is supplied as compliant or compatible but contains built-in limitations that would make compliance with platform or regulatory requirements impossible without fundamental re-engineering.
These defects may exist at delivery, materially impair the asset's fitness for purpose and be undiscoverable by reasonable inspection. Where those elements are present, the common-law test for a latent defect is satisfied. The fact that the defect is technical rather than mechanical will offer no protection. Furthermore, while supplier agreements commonly include limited warranty provisions and disclaimers, these clauses will not automatically defeat a customer's right to rely on the defence of latent defect unless they are clearly drafted, the goods sold are not fundamentally defective, and where the supplier did not deceive, or mislead a customer.
The Consumer Protection Act does not disappear
The SCA also confirmed that although credit agreements under the NCA are excluded from the CPA, the goods that are the subject of those agreements are not, the court quoted section 5(2)(d) which provides that:
"(2) This Act does not apply to any transaction– ...
(d) that constitutes a credit agreement under the National Credit Act, but the goods or services that are the subject of the credit agreement are not excluded from the ambit of this Act."
While the CPA does not apply to large corporate customers, the common-law remedy identified in Van Niekerk will apply where there is a sale agreement, the goods are affected by a material latent defect, and the consumer has not waived the right to cancel.
Modern IT models
Based on the legal reasoning in Van Niekerk v FirstRand Bank Limited, the judgment has possible implications on device-as-a-service, hardware-as-a-service models These offerings combine equipment, financing, refresh cycles and support into a single commercial package. From a commercial perspective, this may seem attractive but from a legal perspective, it might blur the lines.
Where a provider controls the product, retains ownership and presents itself as delivering the solution rather than merely funding it, the risk of supplier classification increases. Van Niekerk illustrates that courts will look past labels and assess substance of the contract.
Practical takeaways
For banks and leasing houses, the takeaway is not to exit the IT finance market; it is to clean up documentation and risk allocation. Agreements should clearly separate financing from supply, avoid unnecessary "sale" language, and push product risk back to vendors through warranties, indemnities and recourse mechanisms. Ownership structures should reflect the role the financier actually wants to play.
For IT vendors, this decision signals a shift. Financiers will be less willing to absorb product's risk by default. Expect tighter vendor accreditation, stronger warranty requirements, and more disciplined acceptance processes.
For enterprise customers, the case is a reminder that the structure of a deal matters as much as the technical specifications. When something goes wrong, who sold the product may determine who will carry the legal consequences.
Final thought
Van Niekerk is not a consumer-friendly outlier, and it is not an attack on asset finance. It is a reminder that liability follows structure. In IT transactions, as in all commercial dealings, parties are bound by the roles they choose to assume and the words they use to describe them. If an IT financier looks like a supplier, sounds like a supplier, and drafts itself as a supplier, the law will treat it as one.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
