The in duplum rule (rule) has the effect of limiting the amount of interest which may be recoverable, by prohibiting unpaid interest from accruing further, once the unpaid interest reaches the unpaid capital amount. The rule differentiates between arrear interest and unpaid interest in that:

• unpaid interest is interest that has accrued but which has not yet been paid; and
• arrear interest, on the other hand, is interest which accrues after the debtor has defaulted.

The rule applies only to “arrear” interest i.e. interest that accrues after the debtor is in default. Specifically, the rule states that once the arrear interest on a debt equals the principal amount, the interest can no longer accumulate. This means that once the amount of interest that accrues after the debtor has defaulted equals the outstanding principal, interest stops accruing.

The rule does not prevent creditors from collecting more than double the amount of principal debt. It only provides that the outstanding interest shall not be more than the outstanding principal debt at any time and as such temporarily prevents the accrual of interest but does not set out the maximum interest that can be charged by creditors on a debt.

Bovicon matter

In the Bovicon matter, Bovicon Consulting Engineers CC (Bovicon) issued summons against the MEC of Police, Roads, and Transport of the Free State Provincial Government (MEC) for the payment of R1,171,774.83 which was due and payable arising from the services rendered by Bovicon to Department of Police, Roads and Transport (Department). Bovicon further claimed for interest on the principal debt at the rate of 15,5% calculated from the due date of each invoice to the date of the final payment.

Bovicon obtained judgment in the High Court against the MEC on 5 November 2019 in terms of which the MEC was ordered to pay the principal debt and interest thereon from the date of each invoice to the date of the final payment. The MEC effected payment on the judgment debt in the amount of R2,343,549.66 on 14 July 2020, which interest amount equalled twice the amount of the principal debt. Bovicon argued that it was entitled to receive post-judgment interest that accumulated from the date of the judgment until the date the MEC made the final payment.

Bovicon issued a writ of execution and attached some of the Department’s movable property pursuant to the interest that was in arrears. The MEC made an urgent application to set aside the warrant of execution arguing that (i) Bovicon did not comply with the State Liability Act 20 of 1957 and (ii) that the judgment debt was satisfied by the payment made on 4 July 2020. The High Court set aside the warrant of execution and ruled the attachment unlawful. It further ruled in Bovicon’s favour and ordered the MEC to pay an amount of R220,332.09 being the post-judgment interest calculated at a rate of 15,5%.

Before the SCA

The MEC appealed the judgment to the Supreme Court of Appeal (SCA) and contended, inter alia, that in effecting the R2,343,549.66 payment, the judgment debt was satisfied. The MEC argued that arrear interest ceased to accrue when it equalled the principal debt owed to a creditor. Accordingly, Bovicon was not entitled to additional interest on the judgment debt after the date on which judgment was granted because the interest amount had equalled the principal debt.

The SCA relied on Paulsen and Another v Slip Knot Investment 777 (Pty) Limited [2015] (3) SA 479 (CC) where the Constitutional Court (CC) considered the issue of whether interest runs anew, after it has ceased running as a result of the rule, from the date of judgment until the judgment debt has been settled. The CC held that it is settled law that the rule permits interest to run anew from the date that the judgment debt is due and payable.

The SCA found that interest ran anew post judgment until the judgment debt was satisfied and that the date on which the High Court handed down its judgment was the date (i) on which the judgment debt became due and payable and (ii) when calculating post judgment interest. The SCA dismissed the appeal and ordered the MEC to pay interest on the amount of R2,343,549.66, calculated at 15,5% from the date after judgment of the High Court until the date of final payment.

The Bovicon judgment confirms that debtors cannot evade their obligations to satisfy the post-judgment interest on a principal debt when the arrear interest is due and payable. When a court issues its judgment on a debt case, it is common for the debtor to be ordered to pay not only the principal amount owed, but also post-judgment arrear interest. By charging arrear interest on the outstanding amount, creditors are adequately compensated for the time value of money and the potential financial implications they may incur until the final payment is made.