The Legal Interest Rate Series: The recovery of interest in money collection proceedings and its limits

By Saiantha Naicker and Himesh Bhana

1. Many people understand contractual interest, but fewer are aware of the distinction between this and mora interest, which is of particular importance in legal matters.

   
   

2. Contractual interest arises from an agreement between parties, and is calculated based on terms they have agreed upon. This interest can take the form of either compound or simple interest.

   
   

3. Mora interest, on the other hand, is applied when a payment is not made timeously and no interest rate has been agreed upon by the parties or prescribed by law.

   
   

4. The application of mora interest can be avoided if the parties agree to a different interest rate, subject to applicable laws which can limit the amount of interest charged.

   
   

5. The basis for mora interest lies in common law, which recognises that creditors suffer damages because of delayed payments for amounts due.

   
   

6. A judgment awarded against a debtor is legal confirmation that the debtor owes money in terms of a creditor’s lawsuit. In terms of these judgments, mora interest applies when the interest applied is not agreed upon by the parties nor legislatively prescribed.

   
   

7. A crucial protection for debtors is the in duplum rule (Latin for “double the amount”). This rule prevents interest from exceeding the original debt while legal proceedings are ongoing.

   
   

8. For many debts, once the unpaid interest reaches the capital amount, no further interest accrues during litigation until judgment is granted. As a result, the in duplum rule prevents interest from piling up limitlessly during the litigation proceedings.

   
   

9. The in duplum rule operates whilst legal proceedings are pending, meaning that up to the point of judgment, interest continues to accrue until it reaches an amount equal to the capital amount.

   
   

10. However, after judgment, the in duplum rule does not preclude a creditor from claiming more than double the original debt. Post-judgment, a creditor may claim:

    
    

    1. The original judgment debt;

    2. Interest accrued before and up to the point of judgment (subject to the in duplum limit); and

    3. Additional interest accruing on the combined sum of these amounts until the judgment debt, in addition to the interest until judgment, is settled in full.

       
       

11. Where the interest on a debt is not specified by an agreement or legislation, mora interest applies as per the Prescribed Rate of Interest Act 55 of 1975 (“the Interest Act”). Unlike contractual interest, mora interest is awarded as compensation for loss or damages caused by late payment.

    
    

12. Section 1(1) of the Interest Act provides our courts with a discretion to determine the applicable interest rate where special circumstances exist. The Da Cruz v Bernardo [2022] 1 All SA 414 (GJ) case clarified that for judgment debts, the in duplum rule does not automatically limit post-judgment mora interest. This is because the judgment creates a new obligation, and courts may allow such interest to accrue beyond double the original debt as compensation for the creditor’s continued inability to recover funds. This exception applies specifically to post-judgment scenarios and does not affect the rule’s application to pre-judgment contractual interest.

    
    

13. Understanding these interest calculations becomes critical when facing litigation, particularly where debt amounts are disputed. While the in duplum rule provides essential protection by capping interest during legal proceedings, debtors should note that post-judgment mora interest continues accumulating. This can increase the repayment burden substantially if settlement of the debt is delayed.

    
    

14. The protection afforded to debtors by the in duplum rule becomes limited after judgment. Careful financial and legal planning is required when addressing outstanding judgments.