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June 22, 2015


Significant change to the in duplum rule
The Constitutional Court recently developed the common law regarding the in duplum rule in its judgment in Paulsen and Another v Slip Knot Investments 777 (Pty) Limited 2015 (3) SA 479 (CC).
The in duplum rule provides that arrear interest stops accruing when the sum of the unpaid interest equals the amount of the outstanding capital. This was to cap the interest creditors could claim from debtors.
Until the judgment in Paulsen, the in duplum rule had one exception, namely that the prohibition against claiming interest in excess of the capital fell away when a creditor instituted proceedings to recover the debt and the interest, so interest would then run at a fixed rate for as long as the litigation persisted.
In Paulsen – to the relief of debtors (borrowers) - the Constitutional Court has now abolished the exception to the in duplum rule while litigation persists.
The effect of the Paulsen judgment is thus that until judgment (after which interest will once again run on the 'judgment debt' at the agreed rate), lenders will only be able to recover 1) the capital advanced to a debtor and 2) the interest equal to that capital amount and no more.

The Court found that the post-judgment "…interest runs on – and is limited to an amount equal to – the whole of the judgment debt, including the portion which consists of previously accrued interest." 
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