A Practical Approach to the In Duplum Rule
The common law position regarding the maximum interest on outstanding amounts has been extended in the National Credit Act (section 103). Where a debt is owed and interest is charged on overdue amounts, the amount of such interest on overdue payments may not exceed the amount equal to the capital debt (in duplum). The in duplum rule has three applicable stages; pre-litigation phase, litigation phase and judgment phase.
It is necessary to note that a payment is only overdue in the situation where a contract specifically states that interest becomes payable on overdue amounts. If no such clause is present in an agreement the debtor must be placed in breach before the interest will accrue.
As an example, if a debtor owes R100.00 and interest is charged at 8% interest per month, interest may only accrue until an amount equal to the capital sum is reached; in this example the debtor may owe a maximum amount of R200.00 in the pre litigation phase.
Should the debtor remain unresponsive and a legal process (i.e. summons) is served on the debtor to recover the outstanding amount, the working of the in duplum rule is suspended until judgement is granted.
Once judgment is granted the interest will accrue once more on the consolidated judgment debt limited to the duplum (double the amount).
In a recent Supreme Court of Appeal judgment (Paulsen and another v Slip Knot Investments 77 (Pty) Ltd 2014 (4) SA 253 (SCA)) the court (Suppreme Court of Appeal) considered the application of the rule where the National Credit Act is not applicable.
The court (SCA) clarified the in duplum rule stating that the rule operates to limit the interest recoverable on a debt at two points in time. If the duplum is reached prior to litigation, interest will stop accumulating beyond the capital debt. However once a summons is issued or application papers filed i.e. the commencement of proceedings, in duplum is suspended and once more the interest begins to accrue on the capital amount until judgment is granted. When judgment is granted, the entire judgment amount, being the capital debt plus interest accumulated prior to litigation plus interest accrued during litigation, is consolidated and interest will accumulate afresh on the consolidated debt until duplum is reached.
The common law position with regard to in duplum has been clarified. This judgment serves as a cautionary tale to all debtors where the NCA does not apply, if you do not have a defence in law and you intend to frustrate a claimant’s claim you may end up paying much more than you bargained for.
- Pre-litigation phase – if the interest amount reaches the capital debt amount, interest stops accumulating (e.g. Capital R2000 + Interest prior to litigation limited by in duplum R2 000 = R4 000)
- Litigation phase – interest will start to accumulate again on the capital debt amount (R2 000) until judgment is delivered (R2 000 + Interest prior to litigation (R2 000) + Interest during litigation R1 000 + = R5 000)
- Judgment phase – interest accumulates on the consolidated judgment amount until paid or until the interest reaches the consolidated amount (R5 000 + Interest limited by in duplum R5 000 = R10 000)