Application of the IN DUPLUM-RULE

Published on September 1, 2022

Clients are sometimes faced with excessive claims in regard to interest payable. The IN DUPLUM-RULE is then often discussed and referred to.

What is the IN DUPLUM-RULE and how and when is it applied?

In PAULSEN AND ANOTHER vs. SLIP KNOT INVESTMENTS 777 (PTY) 17D 2015 (3) S.A.

479 (CC) the apex court described the rule as:

… a common law norm that regulates the accrual of interest on a debt that is due and payable. The rule is that arrear interest stops accruing when the sum of the unpaid interest equals the extent of the outstanding capital.

The plain policy consideration underlying the rule is to prevent a broken debtor from being pounded by the ever-growing interest burden. The purpose of the rule is dual. It permits a creditor to recover double the capital advanced to the debtor whilst it seeks to alleviate the plight of debtors in financial distress.

The prohibition on interest in duplum is not limited to moneylending transactions. In principle it applies to all contracts arising from which a capital sum is owed which is subject to a specific rule rate of interest.

BELLINGAN VS. CLIFE FERREIRA AND ASSOCIATES 1998 (4) SA 382 (W)

The in duplum rule is confined to arrear interest and arrear interest alone.

The Submission that interest does not have to be in arrear for the rule to apply, is unfounded.

BELLINGHAN (Supra).

The Court, in DA CRUX VS. BERNARDO 2022 (2) S.A. 185 (GJ) referred to two important distinctions to be made in the application of the rule:

• The first is the distinction between mora interest and interest determined by an agreement. In the former the interest recoverable is accessory to the main debt as fair compensation for delay. It is not a separate obligation and cannot be recovered in separate proceedings. In the latter the obligation to pay interest is a separate and distinct contractual obligation and could be claimed in separate actions. The rate of interest payable on a contractual debt is ordinarily stipulated in the agreement. The rate of mora interest is determined with reference to the Prescribed Rate of Interest Act and can be applicable to a contractual debt where the contract does not prescribe the rate.
• The second distinction is the difference between mora interest on liquidated debts and mora interest on unliquidated debts. After receipt of a letter of demand the debtor should be considered to be in mora in respect of a liquidated debt. Under the common law interest was only payable on an unliquidated debt when a court had determined the amount owing. This was the common law position until the Prescribed Rate of Interest Act was amended to add Section 2A.

All of the above can be summarized as follows:

• Where the debt is an unliquidated debt, interest can be claimed from date of mora. Importantly, a Court determining the amount of interest to be awarded to “shield the creditor from the eroding effect of delay”, is not constrained by the in duplum rule and may order payment of interest in an amount exceeding the capital.
• The obligation to pay mora interest is accessory to the primary obligation and cannot be recovered separately from the primary debt.
• The Prescribed Rate of Interest Act does not impose an in duplum principle on the recovery of mora interest.
• Mora interest on a liquidated debt is to be determined in a similar way to mora interest on unliquidated debts.

COMMENT BY MW ATTORNEYS

Clients from time to time recover interest from debtors via collection of outstanding debts. Clients should be aware of the difference between liquidated debts and unliquidated debts in order to understand the application of the IN DUPLUM-RULE.

C.M. Weiss
Practicing Consultant