There has been much debate in the past about the meaning and effect of the in duplum rule. Any uncertainty has been clarified by a recent judgement of the Supreme Court of Appeal, delivered in September 2005 in the matter of Ethekwini Municipality v Verulam Medicentre (Pty) Ltd.
The in duplum rule, basically stated, provides that interest on a debt stops running when unpaid interest equals the sum of the unpaid capital.
The Medicentre claimed repayment of a sum paid to the Municipality in terms of an agreement, plus interest on the amount. The Municipality's defence was that the in duplum rule applied and that the Medicentre's claim was thus limited to the capital amount of the debt and the interest thereon that did not exceed the capital sum.
Regarding the meaning and effect of the in duplum rule, the Court decided that the rule:
- does not relate only to money lending transactions, but applies to all contracts where a capital amount is subject to interest at a fixed rate;
- applies only to arrear interest;
- does not apply where the parties concerned intended the interest as a means of formulating a fair and proper restitution for what had been paid and received; and
- now forms part of our positive law and consequently, public policy is not a criterion in deciding whether or not the rule applies, and the financial circumstances of the debtor are irrelevant.
The Court held that the parties had unambiguously intended the interest claimed and agreed to as a means of formulating a fair and proper restitution for what had been paid and received, and that the interest was thus not 'interest' in the sense intended by the in duplum rule.
On the facts, the Court held that the in duplum rule did not apply in this matter and accordingly granted judgement in the full amount claimed.
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.