Download - The statutory in duplum rule as an indirect debt relief mechanism

The Statutory in duplum Rule as an Indirect DebtRelief Mechanism*

MICHELE KELLY-LOUW**University of South Africa

1 IntroductionIn 2007 it was estimated that the size of the South African consumer-credit

market was some R800 billion.1 At the end of June 2008 it was estimated thatconsumers owed credit providers about R1,12 trillion in household debt.2 Twoyears later, at the end of June 2010, the total outstanding consumer creditbalances (or gross debtors’ book) was R1,15 trillion.3 The number ofapplications received for credit increased by 503,500 from 6,04 million inMarch 2010 to 6,54 million in June 2010, representing an increase of 8,34 percent (an increase of 17,13 per cent when compared to the same period in2009).4 At the end of June 2011 credit bureaux had the records of 18,84million credit-active consumers.5 These statistics illustrate the sheer size ofthe South African consumer-credit industry and show a steady growth in thesize thereof.

Consumer credit is an important part of today’s society. Credit can andoften does uplift the lives of consumers. For many consumers, being able toobtain credit is the only way that they can afford to buy things, especiallyexpensive things such as houses, flats, land, motor vehicles and furniture.Credit also allows consumers to pay for the cost of building their own homeor making improvements to their existing one. Consumers use credit to payfor their consumables and necessities (clothing, food, fuel and utilities), aswell as for their own or their children’s tertiary education. Many types ofcredit purchases are made on a regular, sometimes daily, basis. Therefore,many consumers have credit cards, vehicle and asset finance, home loans,personal loans, study loans, or clothing store accounts. However, making useof credit is not without its drawbacks. For some consumers, mainly those in

* This article is based on my inaugural lecture as Professor of Banking Law in the Department ofMercantile Law, delivered at the University of South Africa in Pretoria on 6 October 2011.

** BIuris LLB LLM LLD (Unisa). Professor of Banking Law in the Department of Mercantile Law,University of South Africa, Pretoria. e-Mail: [email protected].

1 See the National Credit Regulator’s Annual Report (2007) at 9, available at http://www.ncr.org.za(last accessed on 1 September 2011); and M Kelly-Louw ‘The Prevention and Alleviation of ConsumerOver-indebtedness’ (2008) 20 SA Merc LJ 200 at 200. In this contribution, words in the singular alsomean in the plural and vice versa, and words in the masculine also mean in the feminine and neuter.

2 See the National Credit Regulator’s Annual Report (2008/2009) at 16, available at http://www.ncr.org.za (last accessed 1 September 2011).

3 See National Credit Regulator’s Consumer Credit Market Report (Second Quarter) (June 2010) at 1,available at http://www.ncr.org.za (last accessed 1 September 2011).

4 Ibid.5 See Anon ‘Credit Activity Increases’ (20 September 2011) Legalbrief Today, available at

http://www.legalbrief.co.za (last accessed 22 September 2011).

© 2011. All rights reserved.Cite as: (2011) 23 SA Merc LJ 352–375.352

the low- and middle-income groups, the use of credit may actually worsentheir financial circumstances, particularly where reckless lending and/orborrowing takes place.6

In the late 1990s and early 2000s it became clear that the levels ofconsumer over-indebtedness had spiralled out of control and that manyconsumers, particularly consumers from the low- and middle-income groups,were in a position where they could no longer properly service their debts.7

The mechanisms for preventing over-indebtedness at that time were eithernon-existent or ineffective. Providing debt relief to already over-indebtedconsumers, for example by the granting of an administration order,8 was alsohampered by the deficiencies of the available mechanisms, which werelimited in their operation, did little to assist already over-indebted consumersand did not effectively promote their rehabilitation. The high levels ofover-indebtedness of consumers and the lack of proper mechanisms to preventand relieve over-indebtedness were some of the reasons why the NationalCredit Act 34 of 2005,9 fully in operation since June 2007,10 was created.11

The drafters of the National Credit Act (‘the Act’) went to great lengths toincorporate in it a series of mechanisms aimed specifically at preventingconsumers of credit agreements from becoming over-indebted in the firstplace. The Act introduced a whole range of direct12 and indirect13 measuresdesigned to prevent (a) possible overspending by consumers, and (b) creditproviders from granting credit to consumers who cannot afford to repay eitherthe credit (loan) amount or the interest payable thereon. These variouspreventative measures are aimed at increasing the level of consumerawareness regarding the risks associated with using credit, improving

6 See M Kelly-Louw ‘Consumer Credit’ in The Law of South Africa vol 5(1) 2 ed (replacementvolume) (2010) (WA Joubert (founding editor) and JA Faris (ed)) (hereinafter ‘Kelly-Louw LAWSA’)par 1 at p 4.

7 For a brief discussion for some of the reasons causing the high level of over-indebtedness, seeKelly-Louw op cit note 1 at 203–206.

8 For a discussion of administration orders, particularly the problems experienced with this form ofdebt relief, see A Boraine ‘Some thoughts on the reform of administration orders and related issues’(2003) 36 De Jure 217 and A Boraine ‘The reform of administration orders within a new consumercredit framework’ in Michelle Kelly-Louw, James P Nehf & Peter Rott (eds) The Future of ConsumerCredit Regulation (2008) 187–216.

9 Act 34 of 2005. Hereinafter ‘the National Credit Act’ or simply ‘the Act’.10 See Proc 22 in GG 28824 of 11 May 2006 for the operational dates of the different sections of the

Act.11 For a detailed summary of the various reasons why the National Credit Act was created, see

Kelly-Louw op cit note 1 at 203–7.12 For example, the prohibition of reckless lending by credit providers (ss 78, 80–4).13 For example, placing the duty to educate consumers about credit and credit rights (s 3(e)(i) and

s 16(1)(a)) on the National Credit Regulator (established in terms of s 12); including limiting andprescriptive provisions regarding various forms and aspects of credit marketing and advertisingpractices (ss 74–7), placing a duty on a credit provider to make proper disclosures of information (ss 92,93 and 107-115), giving a consumer the right to receive information in plain, understandable and anofficial language (which includes the credit agreement) (s 63 and 64), and including provisions toprevent high interest rates and other costs of credit (ss 100–7). For a discussion of the indirect measuresof the Act aimed at preventing consumer over-indebtedness, see Philip N Stoop ‘South AfricanConsumer Credit Policy: Measures Indirectly Aimed at Preventing Consumer Over-indebtedness’(2009) 21 SA Merc LJ 365.

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consumers’ financial literacy,14 and ensuring that credit providers make fulland proper disclosures of information that will enable consumers to makeinformed decisions before buying goods and services on credit.15

Special direct debt relief mechanisms to alleviate the over-indebtedness ofconsumers, for example debt counselling and debt restructuring orre-arrangement,16 were also included in the Act. By the end of June 2010more than 180 000 consumers had applied for debt counselling since theimplementation of the Act and this number apparently grows by an average of7 500 new applications per month.17 Exactly a year later credit bureauxreported that there were 8,80 million consumers with impaired accounts.18

These figures clearly illustrate the dire need in the consumer-credit market formechanisms to assist over-indebted consumers.

In addition to the direct debt relief mechanisms for alleviating over-indebtedness of consumers, the Act also included a very useful indirect debtrelief mechanism. The Act contains a special rule against the accrual offurther unpaid interest and other costs of credit (ie, non-interest related costs,such as initiation fees, service fees, cost of credit insurance, defaultadministration charges and collection costs) when these equal the outstandingprincipal debt in terms of a credit agreement and it operates as long as aconsumer (debtor)19 is in default.20

This statutory rule is similar to the common-law in duplum rule, as it isgenerally known in South African law. This common-law rule provides thatinterest stops running when unpaid interest equals the outstanding capitalamount. If the total amount of unpaid interest has accrued to an amount equalto the outstanding capital sum, the defaulting debtor must first start makingpayments on his loan again (and so decrease the interest amount), after whichinterest may once more accrue up to an amount equal to the outstandingcapital sum. The rule thus basically prevents unpaid interest from accruingfurther once it reaches the amount of the unpaid capital sum.21 The

14 Section 3(e)(i) of the Act provides that one of the Act’s purposes is to protect consumers byaddressing and correcting imbalances in negotiating power between consumers and credit providers,and to do that by providing consumers with education about credit and consumer credit rights. In termsof s 16(1)(a) the National Credit Regulator is responsible for increasing knowledge of the nature anddynamics of the consumer-credit industry, and to promote public awareness of consumer-credit matters,by implementing education and information measures to develop public awareness of the provisions ofthe National Credit Act.

15 See Stoop op cit note 13 at 386.16 See ss 79, 85-88.17 See I-Net Bridge ‘Verbruikers misbruik skuldoorsig’ (27 July 2010) Sake24.com, available at

http://www.sake24.com/Algemene_Sakenuus/Komitee-moet-skuldoorsigpyne-vasvat-20100727 (lastaccessed 1 September 2011)); and see also National Credit Regulator NCR Task Team on DebtCounselling (Brief Note) (March 2010) 2, available at http://www.ncr.org.za (last accessed 1 September2011).

18 See footnote 5 above.19 As the term ‘consumer’ (consumer of credit) is used in the National Credit Act to describe a debtor

(s 1), it will be the preferred term used when the statutory in duplum rule is discussed. The term ‘debtor’will be used when reference is made to the common-law in duplum rule.

20 See s 103(5) and the full discussion in part 3 below.21 See M Kelly-Louw ‘Better Consumer Protection under the Statutory in duplum Rule’ (2007) 19 SA

Merc LJ 337 at 337.

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common-law in duplum rule is based on public policy, since its main purposeis to protect the debtor from exploitation by the credit provider (creditor).22

Debtors who are in such severe financial difficulty that they are unable toservice their debt are the main beneficiaries: the rule operates to relieve themof the burden of having to pay for an ever-increasing accumulation of interestand other costs of credit. The rule prevents the over-extension of a debtor’slimited financial resources.23 In a way, the common-law rule and statutoryrule both aim to provide a form of debt relief to debtors, rather than to preventthem from becoming over-indebted in the first place. It can therefore beviewed as an indirect mechanism for alleviating over-indebtedness.24

The statutory in duplum rule is, in principle, an adaptation of thecommon-law rule.25 However, while the origins of the statutory rule can befound in its common-law predecessor it is not its equivalent; the statutoryinstrument expands substantially upon the common-law rule, operates in avastly different manner and provides for much better consumer protection.26

In the recent case of Nedbank Ltd v National Credit Regulator,27 the SupremeCourt of Appeal confirmed that the statutory rule was not merely thelegislative version of the common-law rule and dealt with the application ofthis statutory rule in some detail. In this contribution special attention is givento the application of this statutory rule against the backdrop of the judgmentof the Supreme Court of Appeal in Nedbank Ltd v National Credit Regulatorand the application of its common-law counterpart. Focus is also placed onwhether or not the statutory rule provides a better form of debt relief to aconsumer than that of its common-law counterpart.

22 As the term ‘credit provider’ is used in the National Credit Act to describe a lender or creditor (s 1),it will be the preferred term used when the statutory in duplum rule is discussed. The term ‘creditor’ willbe used when reference is made to the common-law in duplum rule.

23 See Kelly-Louw op cit note 21 at 337–338 and the authorities cited there.24 See Kelly-Louw op cit note 1 at 203.25 In the Department of Trade and Industry’s policy document, upon which the National Credit Act

was drafted, it was recommended that legislation should be introduced to clarify and ‘codify’ thecommon-law in duplum rule (see the Department of Trade and Industry Consumer Credit Law Reform:Policy Framework for Consumer Credit (Aug 2004) in par 6.17 at 32, also available athttp://www.thedti.gov.za//ccrdlawreview/forward.htm (last accessed 1 September 2011). In one of theexpert opinions submitted to the Department of Trade and Industry during the drafting process of theNational Credit Act, it was also recommended that the often misunderstood common-law rule beincluded in the Act, so that it could be better understood (see Hofmeyr, Herbstein & Gihwala Inc (RWillemse & N Mxunyelwa) Report for the Purposes of the Credit Law Review (December 2002) in par6.13 at 13, also available at http://www.thedti.gov.za//ccrdlawreview/forward.htm (last accessed 1September 2011). See also Nicky Campbell and Stephen Logan The Credit Guide (2008) at 74.

26 See, for example, Kelly-Louw op cit note 21; and ML Vessio ‘A Short Discussion on the Effects ofthe in duplum Rule Upon Commencement of Litigation and After Judgment: A View both ‘‘Inside’’ and‘‘Outside’’ the National Credit Act’ (2010) Obiter 725 at 728.

27 2011 (3) SA 581 (SCA).


2 Application of the Common-law in duplum RuleIt is trite that the common-law in duplum rule, which has its origins in

Roman law and was later received into the Roman-Dutch law,28 still formspart of the present South African law.29 Since the 1990s there have been anumber of decisions dealing with and explaining the application of thecommon-law in duplum rule.30

The common-law in duplum rule effectively limits the interest recoverablein terms of a loan or credit agreement where a consumer is in default (the ruleentails that interest stops running when unpaid interest equals the outstandingcapital amount).31 Where the total amount of unpaid interest (contractual anddefault),32 has accrued to an amount equal to the outstanding capital sum, thedefaulting debtor (the consumer) must first start making payments on his loanagain (and so decrease the interest amount), after which interest may onceagain accrue to an amount equal to the outstanding capital sum.33 In effect, therule prevents unpaid interest from accruing further once it reaches the unpaidcapital sum. Even where the interest is capitalised (meaning interest is thencharged on interest), the capitalised interest does not lose its character asinterest and become part of the capital amount for purposes of applying the induplum rule.34

28 See LTA Construction Bpk v Administrateur, Transvaal 1992 (1) SA 473 (A); WG Schulze ‘The induplum Rule: A Short List of Some Unresolved Issues’ (2006) 18 SA Merc LJ 486 at 487; and JWScholtz (ed) et al Guide to the National Credit Act (2008 et seq and loose-leaf) in par 10.6.4.

29 See Union Government v Jordaan’s Executor 1916 TPD 411; Van Coppenhagen v VanCoppenhagen 1947 (1) SA 576 (T); Stroebel v Stroebel 1973 (2) SA 137 (T); LTA Construction Bpk vAdministrateur, Transvaal supra note 28 at 482 (for a discussion, see JM Otto ‘Die GemeenregtelikeVerbod Teen die Oploop van Rente’ (1992) 55 THRHR 472); ABSA Bank Ltd v Leech & Others NNO2001 (4) SA 132 (SCA); Standard Bank of South Africa Ltd v Oneanate Investments (Pty) Ltd (inliquidation) 1998 (1) SA 811 (SCA) at 827G-H (for a discussion of this case, see MM Loubser and MAMuller ‘Bank Overdrafts: Limitation of Interest by the in duplum Rule; and Prescription’ (1998) 115SALJ 598); Margo v Gardner 2010 (6) SA 385 (SCA) in par 1; and see also Scholtz op cit note 28 in par10.6.4.

30 See, eg, Commercial Bank of Zimbabwe Ltd v MM Builders & Suppliers (Pvt) Ltd & Others &Three Similar Cases 1997 (2) SA 285 (Z); Standard Bank of South Africa Ltd v Oneanate Investments(Pty) Ltd (in liquidation) supra note 29; Bellingham NO v Clive Ferreira & Associates CC 1998 (4) SA382 (W); F & I Advisors (Edms) Bpk & ’n Ander v Eerste Nasionale Bank van Suidelike Afrika Bpk1999 (1) SA 515 (SCA) (for a discussion, see WG Schulze ‘Can a Borrower Waive the Benefits of the induplum Rule?’ (1999) 11 SA Merc LJ 109); Georgias & Another v Standard Chartered FinanceZimbabwe Ltd 2000 (1) SA 126 (Z); Sanlam Life Insurance Ltd v South African Breweries Ltd 2000 (2)SA 647 (W); ABSA Bank Ltd v Leech & Others NNO supra note 29; Commissioner, South AfricanRevenue Service v Woulidge 2002 (1) SA 68 (SCA); Meyer v Catwalk Investments 354 (Pty) Ltd &Andere 2004 (6) 107 (T); Verulam Medicentre (Pty) Ltd v Ethekweni 2005 (2) SA 451 (D) (for adiscussion, see ML Vessio ‘A limit on the limit on interest? The in duplum rule and the public policybackdrop’ (2006) 39 De Jure 25), and its appeal sub nom Ethekwini Municipality v Verulam Medicentre(Pty) Ltd [2006] 3 All SA 325 (SCA) (for a discussion of both these cases, see Schulze op cit note 28and Heinrich Schulze ‘Are there Exceptions To the in duplum Rule?’ (2006) 14 Juta’s Business Law 20);and Margo v Gardner supra note 29.

31 See Margo v Gardner supra note 29 in par 1; Kelly-Louw op cit note 21 at 337; and Vessio op citnote 26 at 727. For a detailed discussion of the rule, its history and application, see ML Vessio TheEffects of the in duplum Rule and Clause 103(5) of the National Credit Bill 2005 on Interest,unpublished LLM Dissertation, University of Pretoria (2006).

32 The courts apply the limitation to contractual as well as default interest (see Stroebel v Stroebelsupra note 29; and Administrasie van Transvaal v Oosthuizen & ’n Ander 1990 (3) SA 387 (W)).

33 See Commissioner for SA Revenue Service v Woulidge 2000 (1) SA 600 (C) at 611J.34 See Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd 1995 (4) SA 510 (C), in particular

at 560 and 566–572; confirmed on appeal in Standard Bank of South Africa Ltd v Oneanate Investments

(2011) 23 SA Merc LJ356

Essentially, the common-law in duplum rule implies that the total amountof unpaid interest on a loan or credit agreement may accrue only to an amountequal to the outstanding capital sum, and that all arrear interest stops runningwhen that interest has reached the outstanding capital amount.35 In terms ofthe rule, therefore, ‘arrear’ interest that is legally and lawfully demandable (interms of the agreement between the parties) may not exceed the capitalamount on which interest is due; and in this calculation, what has alreadybeen paid by way of interest will not be reckoned.36 The rule does not implythat a creditor (the lender or credit provider) is prevented by the rule fromcollecting more than double the unpaid (or paid) capital amount in interest,37

provided that he at no time allows the unpaid interest to reach the unpaidcapital amount. Should this escalation occur, however, interest would thenstop running. When payments on the account are again made and the interestelement of the total amount owed is decreased, the interest can start runningagain until it equals the outstanding capital.38 So, from this it follows that therule only temporarily prevents the interest from running and does not set amaximum amount of interest that may be charged.39

In the absence of an agreement to the contrary, the common law stipulatesthat payments are appropriated first to interest and then to capital.40

Where a creditor has instituted legal proceedings against a defaultingconsumer by issuing and servicing a summons, the common-law in duplumrule is suspended and the interest may once again accrue on the outstandingamount.41 This means that the in duplum rule is suspended pendente lite

(Pty) Ltd (in liquidation) 1998 (1) SA 811 (SCA) (for a discussion of this case, see Loubser and Mullerop cit note 29). All references hereinafter to Standard Bank v Oneanate Investments will be references tothe decision on appeal, unless otherwise indicated. See also Kelly-Louw op cit note 21 at 337.

35 See Sanlam Life Insurance Ltd v South African Breweries Ltd supra note 30 at 652G–I.36 See Sanlam Life Insurance Ltd v South African Breweries Ltd supra note 30 at 652H–J and Vessio

op cit note 26 at 727.37 See Sanlam Life Insurance Ltd v South African Breweries Ltd supra note 30 at 652H–J.38 See Vessio op cit note 30 at 26 and 36; Vessio op cit note 26 at 727; Kelly-Louw op cit note 21 at

337; and Van Coppenhagen v Van Coppenhagen supra note 29.39 See Vessio op cit note 30 at 36.40 See Standard Bank v Oneanate Investments supra note 34 at 832E–F; JW Wessels The Law of

Contract in South Africa vol 2 (1951) 2 ed in par 2308 (xi); and FR Malan & JT Pretorius ‘Enrichmentin Triangular Situations, Interest and the in duplum Rule, and Personal Liability and Company Names’(1996) 8 SA Merc LJ 399 at 405.

41 In Standard Bank v Oneanate Investments supra note 34 the Supreme Court of Appeal (per ZulmanJA) dealt with the issue of whether or not interest stops running in accordance with the common-law induplum rule where the amount of unpaid interest reaches the amount of the unpaid capital during thecourse of litigation instituted by the creditor to enforce payment of the debt. The Court found that therule was not applicable in respect of arrear interest accruing after the credit provider has commencedproceedings to enforce payment of the debt (at 834). Zulman J said (at 834B–D):

‘the rule [the common-law in duplum rule] is concerned with public interest and protects borrowersfrom exploitation by lenders who permit interest to accumulate. If that is so, I fail to see how a creditor,who has instituted action can be said to exploit a debtor who, with the assistance of delays inherent inlegal proceedings, keeps the creditor out of money. No principle of public policy is involved inproviding the debtor with protection pendente lite against interest in excess of the double. . . . A creditorcan control the institution of litigation and can, by timeously instituting action, prevent prejudice to thedebtor and the application of the rule. The creditor, however, has no control over delays caused by thelitigation process.’

In Margo v Gardner supra note 29 the Supreme Court of Appeal pointed out that the common-law induplum rule was suspended during litigation irrespecitve of the cause of action and it did not matter


(irrespective of the cause of action).42 It is also settled that once a judgmenthas been granted against a consumer, the interest begins to run afresh on thejudgment debt again. The judgment debt usually includes a component ofaccumulated interest equal to the capital amount, or exceeding the capitalamount as a result of the suspension of the in duplum rule pendente lite.43

Courts agree that the common-law in duplum rule affects the running ofinterest on a judgment debt.44 However, there is often disagreement on whichamount the interest on a judgment debt should be calculated – the capitalamount originally lent (ie, principal debt) and costs awarded in terms of thejudgment or on the full amount the judgment was granted for (ie, capitalamount originally lent plus the accrued interest before judgment).45 Schulzehas expressed the view that interest begins to run from the date of judgmenton the judgment debt as a whole, irrespective of the size of its interestcomponent.46 The in duplum rule then applies again to the judgment debt as awhole, the policy consideration being that after the judgment is obtained, thecredit provider must execute and bring to a close the accumulation ofinterest.47 This is also in line with the view of the Supreme Court of Appeal inStandard Bank v Oneanate Investments.48 So, once judgment is granted, theinterest starts running on the judgment debt again and the common-law induplum rule affects the running of that interest and prevents unpaid interestfrom reaching the level of the unpaid judgment debt.49

It has been submitted that the rule in its common-law form was fashionedand subsequently retained in South African law as a practical public policyrule which allows the creditor (lender) to insist on regular servicing of theloan without interfering with his right to recovery of interest whilesimultaneously obliging him not to allow a burdensome amount of interest toaccrue against the debtor, should the credit provider, ‘tolerate fiscalindiscipline’.50 It is clear that public policy is served by the underlyingprinciples of the common-law in duplum rule, which are, firstly, to protectdebtors from being exploited by unscrupulous creditors who allow interest toaccumulate to an unacceptably high level and, secondly, to encourage

what the cause of the action was (ie, pendente lite) (in par 11), even if it related to an action instituted bya consumer after a judgment had been obtained. See also Vessio op cit note 26 at 728–9 and 734.

42 See Margo v Gardner supra note 29 in pars 11 and 12; Standard Bank v Oneanate Investmentssupra note 29 at 834C – D; and see also Schulze op cit note 28 at 495.

43 See Schulze op cit note 28 at 495.44 See Stroebel v Stroebel supra note 29 and Commercial Bank of Zimbabwe Ltd v MM Builders &

Suppliers (Pvt) Ltd supra note 30.45 For a full discussion of the uncertainty that prevails, see Vessio op cit note 26 at 730–32.46 See also Commercial Bank of Zimbabwe Ltd v MM Builders & Suppliers (Pvt) Ltd supra note 30 at

303D.47 See Schulze op cit note 28 at 495; and Standard Bank v Oneanate Investments supra note 34 at

834H–I.48 Supra note 34 at 834H – I.49 See Standard Bank v Oneanate Investments supra note 34 at 834H – I; Vessio op cit note 26 at 734;

and Loubser and Muller op cit note 29 at 608.50 See Commercial Bank of Zimbabwe Ltd v MM Builders & Suppliers (Pvt) Ltd supra note 30 at 292;

and Vessio op cit note 26 at 727.

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creditors to issue summons and claim payment of debt speedily.51 The rule ispart of our daily economic life where it fulfils the useful function of assistingdebtors experiencing financial difficulties.52 The rule protects a debtor who isin financial difficulty and is unable to service his debts from anever-increasing accumulation of interest. The rule prevents the over-extensionof a debtor’s limited financial resources, but it provides him with interimrelief only, since the escalation of the ever-continuing interest is merelytempered by the rule.53 In Bellingham NO v Clive Ferreira & Associates CC54

Southwood J held that the application of the in duplum rule was limited tounpaid arrear interest and that the principle underlying this restriction was thepolicy consideration that debtors whose financial affairs were decliningshould not be entirely drained, while persons who continue to look after theirinterest have no need for such protection. The rule, therefore, provides debtrelief to a certain group of consumers, rather than prevent those consumersfrom becoming over-indebted in the first place. It can thus be considered toconstitute a mechanism for alleviating over-indebtedness.55

The common-law in duplum rule is not limited to interest on money-lending transactions and applies with identical force to all types of contract interms of which a capital sum is owed and on which amount a specific rate ofinterest is payable. For example, it can also apply where a debtor owes moneyto a creditor in terms of a contract of letting and hiring of work on whichinterest is payable.56

3 Application of the Statutory in duplum RuleBefore 1 June 2007 consumers of credit agreements could rely only on the

common-law in duplum rule to protect them from exploitation by their creditproviders. Today, however, consumers of credit agreements that fall within theambit of the National Credit Act are able to rely on the protection afforded bythe statutory in duplum rule as set out in section 103(5) of the Act. Thestatutory in duplum rule does not protect juristic persons,57 but effectivelyprotects only natural persons, that is, individual consumers of credit. Further,

51 See Standard Bank v Oneanate Investments supra note 34 at 828D; Margo v Gardner supra note 29in par 12; and Vessio op cit note 30 at 35–6 for a full discussion of the role of public policy andconsumer protection in the rationalisation of the continuous application of the rule.

52 See LTA Construction Bpk v Administrateur, Transvaal supra note 28 at 482E–F.53 See Vessio op cit note 30 at 36.54 Supra note 30.55 See Kelly-Louw op cit note 1 at 217.56 See LTA Construction Bpk v Administrateur, Transvaal supra note 28 at 482–3;

Bellingham v CliveFerreira & Associates CC supra note 30; Meyer v Catwalk Investments 354 (Pty) Ltd supra note 30 at120; GF Lubbe ‘Die Verbod op die Oploop van Rente ultra duplum – ’n Konkretisering van die Normvan Bona Fides?’ (1990) 53 THRHR 190 at 200; Schulze (op cit note 30) (2006) 14 Juta’s Business Law20 at 20; Schulze op cit note 28 at 487; and Vessio op cit note 30 at 26–7); and Kelly-Louw op cit note21 at 338–9.57 See s 6(d) of the National Credit Act providing that the statutory rule does not apply to juristicpersons. A juristic person includes a partnership, association or other body of persons (corporate orunincorporated), or a trust if there are three or more individual trustees; or the trust is itself a juristicperson, but it specifically excludes a stokvel (s 1).


the statutory rule applies only to those credit agreements that fall within theambit of the Act.58 The statutory rule also does not apply to credit agreementsthat were already in existence when section 103(5) came into operation(pre-existing credit agreements before 1 June 2007),59 and accordingly thecommon-law rule will apply to those credit agreements. Therefore, thecommon-law in duplum rule is not absolute and continues to apply to all theother agreements (ie, contracts in terms of which a capital sum is due by adebtor to the creditor and on which amount a specific rate of interest ispayable) falling outside the scope of the Act.60 For instance, where theconsumer is a juristic person (such a company or close corporation) thecommon-law rule will still apply.61 A loan between a stokvel62 and its memberwill also be governed by the common-law rule.63

Section 103(5) provides as follows:64

‘Despite any provision of the common law or a credit agreement to the contrary, the amountscontemplated in section 101(1)(b) to (g) that accrue during the time that a consumer is indefault under the credit agreement may not, in aggregate, exceed the unpaid balance of theprincipal debt under that credit agreement as at the time that the default occurs.’

In short, the statutory in duplum rule states that when a consumer of creditis in default, all the combined amounts set out in section 101(1)(b)–(g) cease

58 See ss 4-6 and 8. The National Credit Act provides that, subject to certain exemptions, it generallyapplies to all credit agreements (that is, money-lending transactions irrespective of the amount) betweenparties dealing at arm’s length and concluded or having an effect in South Africa (s 4). The word‘credit’, when used as a noun, is defined in s 1 as ‘a deferral of payment of money owed to a person, ora promise to defer such a payment; or a promise to advance or pay money to or at the direction ofanother person’. Therefore, an agreement will be a credit agreement for the purposes of the Act if twoelements are present, namely (1) some deferral of repayment or prepayment; and (2) a fee, charge, orinterest imposed with respect to a deferred payment, or a discount when prepayments are made.Included in the definition of a credit agreement (see s 8) is a credit facility (eg, a credit-card facility); acredit transaction (eg, an instalment-sale agreement, which is a transaction where movable goods aresold by the seller to the buyer against payment by the latter to the seller of a sum of money plus interestand other costs at a future date, in whole or in instalments, or a house mortgage agreement); and a creditguarantee (eg, a suretyship (for a full discussion of the application of the Act to suretyships, see Philip NStoop and M Kelly-Louw ‘The National Credit Act regarding suretyships and reckless lending’ (2011)14(2) Potchefstroom Electronic Law Journal 67)). Section 4(2)(b) of the Act stipulates when it will beconsidered that parties are not dealing at arm’s length. Thus, where a company (ie, a credit provider)makes a loan to one of its shareholders (ie, the consumer), it will not be considered that they are dealingat arm’s length and the Act will therefore not apply to such a loan. However, there are also specificagreements which are not considered to be credit agreements for purposes of the National Credit Act(see s 8(2)) and they include a normal policy of insurance; a lease of immovable property; and atransaction between a stokvel and a member of that stokvel in terms of the rules of the stokvel. For a fulldiscussion of the application of the Act, see Kelly-Louw LAWSA op cit note 6 in pars 6-20; and Scholtzop cit note 28 in Chapter 4; and PN Stoop ‘Kritiese Evaluasie van die Toepassingsveld van die‘‘National Credit Act’’’ (2008) 41 De Jure 352.

59 See item 4(2) of Schedule 3 to the Act. For a discussion of the limited application of the Act topre-existing credit agreements, see Kelly-Louw LAWSA op cit note 6 in par 11; Stoop op cit note 58 at367-369; Scholtz op cit note 28 in par 18.4; and JM Otto and R-L Otto The National Credit ActExplained 2 ed (2010) ¶ 52. Section 103(5) became operational on 1 June 2007 (see Proc 22 in GG28824 of 11 May 2006).

60 For a brief discussion of some of the instances where the common-law rule will still findapplication, see Vessio op cit note 26 at 725–6.

61 See footnote 58 above for a brief discussion of the application of the Act.62 As defined in s 1.63 Section 8(2)(c).64 For a further discussion of the statutory rule, see Kelly-Louw op cit note 21; and J Campbell ‘The

in duplum Rule: Relief for Consumers of Excessively Priced Small Credit Legitimised by the NationalCredit Act’ (2010) 22 SA Merc LJ 1. See also Scholtz op cit note 28 in par 10.6.4.

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to run when they reach the outstanding balance of the consumer’s principaldebt at the time of default.65 The amounts that will cease to run, as set out insection101(1)(b)–(g), are the following: initiation fees;66 service fees;67

interest (contractual and default);68 the costs of any credit insurance(including the credit insurance premiums payable);69 default administrationcharges;70 and collection costs.71

Fundamentally, the statutory in duplum rule therefore provides that when aconsumer of credit is in default, all the combined amounts of the initiationfees, service fees, interest (both contractual and default), costs of any creditinsurance, default administration charges, and collection charges (the costs ofcredit set out in section 101(1)(b)–(g)) cease to run when they reach theoutstanding balance of the consumer’s principal debt at the time of thedefault. From this, it is obvious that the major difference between thecommon-law in duplum rule and the statutory in duplum rule lies in the factthat under the common-law rule it is only the interest (both contractual anddefault) that ceases to run if it equals the outstanding capital amount. By

65 See Kelly-Louw op cit note 21 at 339.66 Section 101(1)(b). See also reg 42(2)(Table B) of the National Credit Regulations of 2006 (see

Government Notice R489 in GG 28864 (Regulation Gazette 8477) of 31 May 2006 (hereinafter ‘theRegulations’)) for the maximum limits that apply to the initiation fees that may be charged according tothe different types of credit agreement, and reg 41(1) for the dates upon which an initiation fee may belevied.

67 Section 101(1)(c). See also reg 44 for the maximum monthly and annual service fees that may becharged.

68 Section 101(1)(d). See also reg 42(1)(Table A) read with s 105 for the maximum prescribedcontractual interest rates that may be charged on the different types of credit agreement. Section 103(1)of the Act stipulates that the maximum interest rate applicable to the principal debt (set out in reg42(1)(Table A)) also applies to the maximum default interest that may be charged on a specific creditagreement. Regulation 40 prescribes how the interest calculation should be done.

69 See s 101(1)(e) read with s 106, on the allowed costs of credit insurance that may be charged.Section 1 provides that credit insurance means:

‘an agreement between an insurer, on one hand, and a credit provider or a consumer or both, on theother hand, in terms of which the insurer agrees to pay a benefit upon the occurrence of a specifiedcontingency, primarily for the purpose of satisfying all or part of the consumer’s liability to the creditprovider under a credit agreement as at the time that the specified contingency occurs, and includes –(a) a credit life insurance agreement;(b) an agreement covering loss of or damage to property; or(c) an agreement covering –

(i) loss or theft of an access card, personal information number or similar device; or(ii) any loss or theft of credit consequential to a loss or theft contemplated in subparagraph (i)’

Credit life insurance includes cover that is payable by the insurer in the event of a consumer’s death,disability, terminal illness, unemployment, or other insurable risk that is likely to impair the consumer’sability to earn an income or meet the obligations under a credit agreement (s 1). From these two givendefinitions it follows that only those costs specifically relating to credit insurance (and not also costsrelating to insurance generally) are relevant for purposes of the statutory in duplum rule.

70 See s 101(1)(f) read with reg 46 for the allowed default administration charges that may becharged. A default administration charge refers to a charge that a credit provider may impose to coveradministration costs incurred because of the consumer having defaulted under the credit agreement (sees 1). For example, this will refer to the costs of sending a letter (notice) of default to a consumer in termsof s 129(1)(a) (for a full discussion of the s 129(1)(a) notice, see M Kelly-Louw ‘The Default Notice asRequired by the National Credit Act 34 of 2005’ (2010) 22 SA Merc LJ 568; and C van Heerden and ABoraine ‘The Conundrum of the Non-compulsory Notice in terms of s 129(1)(a) of the National CreditAct’ (2011) 23 SA Merc LJ 45).

71 See s 101(1)(g) read with reg 47 for the allowed collection costs that may be charged. Collectioncosts refer to the amounts (ie, legal fees) that a credit provider may charge a defaulting consumer, butdoes not include a default administration charge, in respect of enforcing the consumer’s monetaryobligations under the credit agreement (s 1).


contrast, under the statutory rule, all the amounts — such as the initiationfees, service fees, interest (contractual and default), costs of any creditinsurance, default administration charges, and collection costs — cease to runif they combine to exceed the outstanding principal debt.72

As with the common-law rule, the interest and other costs of credit whichare charged to a consumer in the ordinary course, whilst he is not in default,are not subject to the statutory rule.73

When a consumer makes any payments on his arrears, section 126(3) of theAct provides the manner in which appropriation payments should beappropriated: firstly, to due or unpaid interest charges; secondly, to due orunpaid fees or charges; and lastly to the principal debt. No distinction is madebetween payments before and payments after default and this is the manner inwhich all payments must be appropriated.74

To properly understand how the statutory rule operates or to be able to do acalculation to determine whether or not the rule finds application, it isnecessary to clarify what is meant by the term ‘principal debt’ as used insection 103(5). Section 1 provides that ‘principal debt’ means the amountcalculated in accordance with section 101(1)(a) of the Act plus the value ofany item listed in section 102, and is the amount deferred75 in terms of theagreement.76 Section 101(1)(a) provides that a credit agreement may requirepayment by the consumer for the principal debt (that being the amountdeferred in terms of the agreement, plus the value of any item contemplated insection 102). Section 102(1) provides that if the credit agreement is aninstalment agreement,77 a mortgage agreement,78 a secured loan79 or a leaseover movable property,80 the credit provider may include in the principal debtdeferred under the agreement, any of the following items to the extent thatthey are applicable in respect of any goods that are the subject of theagreement:81 the permitted initiation fee82 if the consumer has been offeredand declined the option of paying that fee separately; the cost of an extended

72 See Kelly-Louw op cit note 21 at 344 and quoted with approval by the Supreme Court of Appeal inNedbank Ltd v National Credit Regulator 2011 (3) SA 581 (SCA) in para 39.

73 See Scholtz op cit note 28 in par 10.6.4; and Campbell op cit note 64 at 5.74 See also Nedbank Ltd v National Credit Regulator 2011 (3) SA 581 (SCA) in para 48.75 As defined in reg 39(1) of the Regulations.76 Section 1.77 That is a sale of movable property where the consumer makes periodic payments and receives

possession of the property, and ownership of the property either passes to the consumer only if fullypaid for, or passes subject to the credit provider retaining the right to re-possess it if the consumerdefaults (s 1).

78 That is a loan were the security is in the form of a mortgage over an immovable property, forexample, a house (s 1).

79 That is a loan (but not including an instalment agreement) where security is in the form of, forexample, a notarial bond (or pledge) over movable property such as farming implements (s 1).

80 For example, lease of a motor vehicle or farming implements, provided interest, fees or othercharges are payable to the credit provider (that is, the lessor) and ownership of the property passes to theconsumer at the end of the term of the (lease) agreement either absolutely or upon satisfaction ofspecific conditions set out in the agreement (s 1).

81 For the requirements that a credit provider should comply with in order to be able to include theseamounts in the principal debt, see s 102(2) – (3) and reg 48.

82 As permitted by s 101(1)(b) of the Act and reg 42(2) (Table B) and 43 of the Regulations.

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warranty agreement (for example, if the subject matter is a motor vehicle);delivery, installation and initial fuelling charges (if the subject matter is amotor vehicle); connection fees, levies, or charges; taxes, licence orregistration fees (for example, if the subject matter is a motor vehicle); orsubject to section106, the premiums of any credit insurance83 payable inrespect of that credit agreement.

However, a credit provider is not permitted to charge any of these amountsset out in section 102(1) unless the consumer chooses to have the creditprovider act as the consumer’s agent in arranging for the service concerned.84

The credit provider is also not allowed to require the consumer to appoint thecredit provider as the consumer’s agent for the purpose of arranging any ofthe services mentioned in section 102(1).85 He must also not charge theconsumer an amount in excess of the actual amount payable by the creditprovider for the service, as determined after taking into account any discountor other rebate or other applicable allowance received or receivable by thecredit provider;86 or the fair market value of any of these services, if the creditprovider delivers that service directly without paying a charge to a thirdparty.87 However, if the actual amount paid by a credit provider to anotherperson is not ascertainable when the consumer pays an amount to the creditprovider for any of these fees or charges, and if, when it is ascertained, it isless than the amount paid by the consumer, the credit provider must refund orcredit the difference to the consumer.88

It is important that the correct unpaid (outstanding) principal debt amountis taken into consideration when a calculation is done to determine whetherthe arrear (unpaid) interest and other costs of credit (all the combined amountsset out in section 101(1)(b)–(g)) equal the unpaid principal debt amount and afurther accrual of these costs should be ceased (stopped). From the above, itwill therefore mean that if the credit agreement involved is an instalmentagreement, a mortgage agreement, a secured loan or a lease of movableproperty, the statutory in duplum rule will be applied as follows: all thecombined arrear amounts set out in section 101(1)(b)–(g) (initiation fees (onlyif the consumer decided that such a fee should be paid separately and that it

83 See the definition of ‘credit insurance’ and ‘credit life insurance’ in footnote 69 above.84 Section 102(2)(a).85 Section 102(2)(b).86 Section 102(2)(c)(i).87 Section 102(2)(c)(ii). Regulation 48 provides that if the credit provider is entitled to charge any

amount referred to in s 102(1)(b)–(e) (ie, the cost of an extended warranty agreement; delivery,installation and initial fuelling charges; connection fees, levies or charges; and taxes, licence orregistration fees), the credit provider must not charge the consumer a higher price for any goods orservices provided to or arranged for the consumer than the price charged by that credit provider for thesame or substantially similar goods or services provided or arranged in the ordinary course of businesson the basis of a cash transaction. If no similar goods or services are provided on the basis of cashtransactions, the amount that may be charged may not exceed the actual cost at which the credit providercould procure the goods or services provided as per section 102(1) at fair market value in an arm’slength transaction.

88 Section 102(3).


should not form part of the principal debt89); service fees; interest (bothcontractual and default); costs of any credit insurance (excluding the creditinsurance premiums payable – they form part of the principal debt90); defaultadministration charges; and collection costs) will cease to run when theyreach the outstanding balance of the consumer’s principal debt at the time ofthe default.

Clause 103(5) of the National Credit Bill of 200591 initially provided asfollows:

‘Despite any provision of the common law or a credit agreement to the contrary, the interestthat accrues during the time that a consumer is in default under the credit agreement may not,in aggregate, exceed the settlement value under that credit agreement at the time that thedefault occurs’ (emphasis added).

This draft statutory version of the in duplum rule was therefore more in linewith the common-law rule, in that it too made provision only for arrearinterest to be taken into consideration for purposes of the rule. However, inthe end this clause was drastically amended and the rule expanded to relatenot only to arrear interest, but also to all the prescribed costs of credit,including interest and non-interest related costs, set out in section101(1)(b)–(g).92

The draft statutory rule also initially referred to the ‘settlement value’ andprovided that the interest should not ‘exceed the settlement value’. Thesettlement value is different to the ‘unpaid balance of the principal debt’ thatis contained in the actual statutory rule set out in section 103(5). Settlementvalue refers to the amount in respect of a credit agreement that is required tobe paid on a particular date to satisfy all the consumer’s financial obligationsto the credit provider, as calculated in terms of section 125(2).93 Section125(2) provides that the amount needed to settle a credit agreement is the totalof the following amounts: (a) the unpaid balance of the principal debt at thattime; (b) the unpaid interest charges and all other charges and fees payable bythe consumer to the credit provider up to the settlement date; and (c) in thecase of a large credit agreement (such as a mortgage agreement):94 (i) at afixed rate of interest, an early termination charge no more than a prescribedcharge or, if no charge has been prescribed, then an early termination chargeequal to no more than the interest that would have been payable under the

89 See s 102(1)(a).90 See s 102(1)(f).91 See the final draft version of 27 November 2004.92 See Kelly-Louw op cit note 21 at 345.93 Section 1.94 Section 125(2)(c). An intermediate credit agreement refers to a credit facility where the credit limit

falls above R15 000, or a credit transaction where the principal debt falls between R15 000 andR250 000; and a large credit agreement refers to a credit transaction where the principal debt in terms ofthat transaction falls at or above R250 000. It must be borne in mind that a credit facility (eg, credit-cardfacility) can never be a large agreement as all credit facilities above R15 000 are classified asintermediate agreements. All mortgage agreements regarding immovable property (eg, a mortgage bondover a house) are regarded as large agreements (s 9 and GN713 in GG 28893 of 1 June 2006). It would,therefore, seem that there is no settlement charge like that set out in s 125(2)(c) payable in the case ofthe credit agreement constituting a small credit agreement.

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agreement for a period equal to the difference between three months and theperiod of notice of settlement if any, given by the consumer; or (ii) other thanat a fixed rate of interest, an early termination charge equal to no more thanthe interest that would have been payable under the agreement for a periodequal to the difference between three months and the period of notice ofsettlement if any, given by the consumer.

It is clear that settlement value, as defined in the Act, included much morethan just the outstanding principal debt amount. During the public hearingsthat were held on the National Credit Bill of 2005 in August 2005, theBanking Association of South Africa recommended that the draft statutoryrule be amended and that the term ‘principal debt’ be used instead of the term‘settlement value’ so that it could reflect the common-law position.95 Thedrafting team of the Bill adhered to this request and the clause was amendedaccordingly.

At first, it was thought by some (including by the author) that the statutoryrule still operated in a way similar to the common-law rule.96 It was believedthat the statutory in duplum rule implied that if all the amounts set out insection 101(1)(b)–(g) combined had accrued to an amount exceeding or equalto the outstanding principal debt, the defaulting consumer, similar to theoperation of the common-law rule,97 first had to start making payments on hisaccount, after which these types of amounts could once again accrue to anamount not exceeding the outstanding principal debt. In National CreditRegulator v Nedbank Ltd and Others98 the respondents, who amongst othersincluded the major South African commercial banks, also argued that this wasthe position.99 However, Du Plessis J seemed to have held a contrary view inthis regard. The National Credit Regulator v Nedbank Ltd case related to amatter where the National Credit Regulator (applicant in the case before thecourt a quo) approached the court, as it is authorised to do in terms of section16(1)(b)(ii) of the Act, and applied for a number of declaratory ordersamongst them one to clarify the interpretation of certain provisions of theNational Credit Act, including section 103(5) setting out the statutory induplum rule.

Du Plessis J disagreed with the banks’ various arguments that the statutoryin duplum rule in section 103(5) operated in basically the same way as thecommon-law rule. He stated that the banks’ contentions failed if the clearwording of section 103(5) was taken into consideration. He pointed out thatthe section made it clear that it applied despite ‘any provision of the

95 See the Banking Association’s comments on the National Credit Bill of 2005 (Annex 9, File Ref23067) in par 8.

96 See Kelly-Louw LAWSA op cit note 6 in par 100(e) at 126-127; Kelly-Louw op cit note 21 at 341;and Vessio op cit note 26 at 734. See also the arguments of the different banks made in Nedbank Ltd vNational Credit Regulator 2011 (3) SA 581 (SCA) in pars 40-43, all based on the view that the statutoryrule operated in a similar manner to the common-law rule.

97 See Commissioner for SA Revenue Service v Woulidge supra note 33 at 611J.98 2009 (6) SA 295 (GNP) (for a discussion of this case, see DW de Villiers ‘National Credit

Regulator versus Nedbank Ltd and the Practice of Debt Counselling in South Africa’ (2010) 13(2)Potchefstroom Electronic Law Journal 128).

99 See at 319–20.


common-law’, which included the common-law in duplum rule. Furthermore,it was the amounts ‘that accrue’ during the default that ‘may not, in aggregate,exceed the unpaid balance’. Thus, during the period of default no more thanthe stated maximum could accrue. In other words, the consumer’sindebtedness regarding interest and costs of credit could not grow by morethan the stated maximum.100 Du Plessis J therefore found that the costs ofcredit, including interest, enumerated in section 101(1)(b)–(g) could notexceed in aggregate the unpaid balance of the principal debt during the timethat the consumer was in default; and once those charges equalled theprincipal debt, no further charges could accrue at all. So, when the interest andother costs of credit set out in section 101(1)(b)–(g) equalled the unpaidbalance of the principal debt (when the maximum allowable amount for costshad been reached) no further interest and other costs could accrue during theperiod of default, even if the consumer were to make any payments reducingthe interest and costs of credit set out in section 101(1)(b)–(g). This meansthat, once the unpaid interest and costs of credit reaches the outstandingbalance of the principal debt, the credit provider is not permitted to charge anyfurther interest and other costs of credit while such default persists.101 TheCourt a quo, therefore, granted the declaratory order requested by theNational Credit Regulator. The banks, including Nedbank Ltd, appealed to theSupreme Court of Appeal102 inter alia against the ruling by Du Plessis J inrespect of his interpretation of the statutory in duplum rule set out in section103(5).

The Supreme Court of Appeal (per Malan JA) pointed out that there areimportant differences between the in duplum rule set out in section 103(5) andthe common-law in duplum rule. In terms of the common-law rule interestmay start to run again once a consumer (debtor) makes a payment and thearrear interest is reduced. However, in terms of section 103(5), interest andthe other costs of credit can only start to run again once the consumer is nolonger in (any) default. Therefore, once the in duplum ceiling has beenreached, no more interest or other costs of credit may accrue until such timeas the consumer is no longer in (any) default.103 So once the amount of suchinterest and other costs of credit that accrue during the period of defaultequals the unpaid balance of the principal debt, no enforceable right to theinterest or other costs set out in section 101(1)(b)–(g) thereafter arises. Inaddition to this, the common-law rule is suspended once the credit providerhas issued a summons, but the operation of section 103(5) is not suspended bya summons and can thus operate as long as the consumer is in default.104

Malan JA held that the declaratory order made by Du Plessis J in the court a

100 See at 320A–B.101 See at 319–21.102 The appeal has been reported as Nedbank Ltd v National Credit Regulator 2011 (3) SA 581

(SCA).103 Supra note 102 in paras 37, 38 and 49.104 See, for example, in pars 36, 39 and 49. A similar view has been expressed by Vessio (op cit note

26 at 733 and 734).

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quo regarding the interpretation of section 103(5) was correct and accordinglydismissed the banks’ appeal.105

In delivering his judgment, Malan JA specifically pointed out that section103(5) was not a code, and therefore it could not be said that the common-lawrule was ‘codified’ as some writers had done.106 Section 103(5) embodied nomore than a specific rule applicable to specific circumstances – to creditagreements subject to the National Credit Act. It was thus a statutory rule withlimited operation. Section 103(5) was not a codification of the common-law induplum rule, but a specific statutory measure which excluded the applicationof that common-law rule to credit agreements falling within the scope of theAct. The statutory rule did not only aim to amend the common law in duplumrule but also to extend it. Although the statutory rule dealt with the samesubject matter as the common-law rule, this did not mean that it incorporatedall or any of the aspects of the common-law rule. It was a self-standingprovision and had to be construed as such. Malan JA acknowledged the rulethat a statutory provision should not be interpretated in such a way that itunnecessarily amended the common law, but stated that it was clear that byusing the words ‘[d]espite any provision of the common law’ in section103(5) the legislature had clearly intended to alter the common law.107

It was initially argued and believed that Du Plessis J (the court a quo) didnot advance convincing arguments for his view and it was seriously doubtedthat this reflected the true operation of the statutory rule.108 After a carefulreading of the judgment by the Supreme Court of Appeal, in which it agreedwith the court a quo’s interpretation of section 103(5), it is clear that theSupreme Court of Appeal’s interpretation is correct. The Supreme Court ofAppeal gave close consideration to the wording of the provision ‘[d]espiteany provision of the common law or a credit agreement to the contrary, theamounts . . . that accrue during the time that a consumer is in default underthe credit agreement may not, in aggregate, exceed the unpaid balance of theprincipal debt’ (emphasis added) and correctly concluded that once the induplum ceiling had been reached, no more interest or other costs of creditcould accrue until such time as the consumer was no longer in any default. Itis clear that this was the true intention of the legislator.

There are a number of reasons why some observers (and particularly theauthor) originally held the view that the statutory in duplum rule, operated ina similar manner to the common-law in duplum rule, at least in terms of thefollowing: that once a consumer starts making payments on the arrear interestand costs of credit, thereby reducing these amounts, these types of amountscan once again start accruing to an amount not exceeding the outstandingprincipal debt. This interpretation of the statutory in duplum rule is clearly

105 In paras 49 and 50.106 See the authorities listed in 2011 (3) SA 581 (SCA) in note 77.107 Paragraph 38.108 See Kelly-Louw LAWSA op cit note 6 in par 100(e) at 127; and Otto op cit note 59 in ¶ 37.3 at 87.


incorrect. But before dismissing this point of view entirely it would besensible to list the factors that lead to such an opinion being formed in the firstplace, namely: the statutory rule has its origin in and is based on thecommon-law in duplum rule; the Department of Trade and Industry in itspolicy document, upon which the National Credit Act was drafted, clearlyrecommended that the common-law in duplum rule be ‘codified’; in one ofthe expert opinions submitted to the Department of Trade and Industry duringthe drafting of the National Credit Act, it was stated that the common-law rulewas often misunderstood and it was recommended that the rule be included inthe Act, so that it could be better understood; the draft version of the statutoryrule set out in the National Credit Bill of 2005 related only to interest,emulating the position under the common-law rule in this respect; it wasunclear to what extent the common law was amended by the opening words ofsection 103(5) ‘despite any provision of the common law’, and there is apresumption in the South African law of interpretation of statute law that astatute does not alter the common law (existing law) more than is necessaryunless it appears clearly from the intention of the legislature (sometimesstatutory provisions are also interpreted as mere extensions or supplements tothe common law).109

Therefore, all these factors created the impression (particularly for theauthor) that it was simply the intention of the legislature to create a statutoryrule that was an expanded version of the common-law rule (in that it relatednot only to interest, but also to the other costs of credit) and not to amend thecommon-law rule unnecessarily. The deduction was thus made that thestatutory rule would operate in a somewhat similar manner to its common-lawcounterpart. Nevertheless, whatever the intention of the legislature was, thewording used in section 103(5) read together with the purposes of theNational Credit Act110 (eg, avoidance and prevention of over-indebtednessand providing mechanisms for resolving over-indebtedness),111 clearlyindicates that the rule operates in the manner described by the Supreme Courtof Appeal and the court a quo .

4 The Statutory in duplum Rule as an Indirect Debt ReliefMechanismFrom the above discussion it is clear that there are three major differences

between the common-law and the statutory in duplum rules. Firstly, under thecommon-law rule it is only the interest (both contractual and default) thatceases to run if it equals the outstanding capital amount. By contrast, underthe statutory rule, all the amounts – such as the initiation fees, service fees,interest (contractual and default), costs of any credit insurance, default

109 See Lourens du Plessis Re-interpretation of Statutes (2002) 177–81.110 See the preamble to the Act and s 3.111 See s 3(c)(i) and (g).

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administration charges, and collection costs – cease to run if they combine toexceed the outstanding principal debt. Secondly, in terms of the common-lawrule interest may start to run again once a consumer (debtor) makes a paymentand the arrear interest is reduced. Conversely, in terms of section 103(5),interest and the other costs of credit can only start to run again once theconsumer is no longer in any default. Thirdly, the common-law rule issuspended once the credit provider has issued a summons and interest maythen start accruing again, but the provisions of section 103(5) are notsuspended by a summons and therefore operate and protect a consumer for aslong as he is in default.

A further difference between the statutory and common-law in duplumrules relates to what the duty of a court is where a credit provider hasinstituted debt collecting proceedings against a defaulting consumer and theconsumer has, for whatever reason, failed to raise the defence that the creditprovider has contravened one of these rules. In the situation where it relates tothe common-law rule, it has been said by the Supreme Court of Appeal in F &I Advisors v Eerste Nasionale Bank112 that a court would obviously not orderinterest in contravention of the in duplum rule if the facts were obvious, justas it would not order the payment of usurious interest in such circumstances.However that did not mean that if a consumer failed to raise it as a defencethat a court was required, on its own accord, to do so on the consumer’s behalfor has to manufacture it from fragments of evidence that the rule had beencontravened. A court would also not act on the basis of a mere suspicion.113

However, the position regarding the statutory in duplum rule is completelydifferent. The National Credit Act is prescriptive of the types of fee or chargethat a credit provider may charge a consumer. In terms of the Act, a creditagreement may not require payment by the consumer of any money or otherconsideration except the principal debt, an initiation fee, service fees, interest,cost of credit insurance, default administration charges and collection costs.The Act stipulates that there are certain maximums for interest and other costsof credit that may be charged on credit agreements.114 Chapter 5 of theRegulations115 complements the Act and specifically provides for themaximum allowable interest rates116 and other costs of credit that may becharged on credit agreements. The fact that both the Act and the Regulationslimit the amount of interest and other costs of credit a credit provider maycharge a consumer indicates that a court must, in my view, always defer to theprovisions of the statutory rule in disputes surrounding credit agreements thatfall within the scope of the Act. In other words, the court must always

112 Supra note 30 at 525E–F and see also the authorities cited there.113 See also Campbell op cit note 64 at 10.114 See ss 100–6.115 See regs 39–48.116 See reg 42(1).


consider whether or not the statutory rule has been contravened, irrespectiveof whether it was raised as a defence by the consumer.117

The following example is used to practically and very simply explain thedifferent applications of the common-law and statutory in duplum rules.

A consumer (debtor) borrows R50 000 (capital or principal debt amount)from his bank. He manages to repay R10 000 of this sum but then starts todefault on his monthly instalments. The interest and other costs of credit dueon the outstanding capital amount of R40 000 continues to accrue eachmonth. Eventually the consumer ends up owing arrear interest amounting toR50 000 (contractual and default interest) and other costs of credit (such asinitiation fees, service fees, costs of credit insurance, default administrationfees, and collection costs) amounting to R10 000. If the common-law rulewere to apply, the maximum amount that the creditor could recover would bethe unpaid capital amount of R40 000 (R50 000 less R10 000 (capital alreadypaid) equals R40 000) together with the non-interest related costs of creditamounting to R10 000 plus a maximum amount of arrear interest of R40 000for the outstanding interest (the amount of interest equal to the outstandingcapital amount). So in total the creditor may claim R90 000, made up ofR40 000 (capital still outstanding) plus interest of R40 000 plus R10 000 forother non-interest related costs of credit. The other R10 000 due for arrearinterest still owed the credit provider may not claim. While the unpaid intereststill equals the outstanding capital amount, the creditor can also not add anyfurther interest. However, should the consumer then start paying off the arrearinterest amount of R40 000, the credit provider may again add further interestto the point where it once again equals the outstanding capital amount (ie,R40 000).

In reality the common law works against the consumer who cannot affordto settle his arrear interest immediately or in one or two payments. Thesmaller payments that he can afford to make only succeed in setting off theinterest again, which means that he can never really manage to pay off thearrear interest. The net effect of this undesirable situation is that the debtorbecomes caught in a debt trap from which it is very difficult to escape. This isespecially true for the debtor with no equitable assets; here the creditor, awarethat legal action is unlikely to produce a positive result, may well decide thatreceiving little amounts are preferable to receiving nothing at all and is thusthe better long-term option.

However, if the creditor does eventually decide to take legal action andissues a summons, the common-law rule is suspended and further interest mayonce again accrue on the outstanding capital amount. The outcome is that bythe time judgment is granted against the debtor, the arrear interest might haveescalated well beyond the outstanding capital amount.

117 See M Kelly-Louw ‘Better Consumer Protection under the Statutory ‘‘in duplum’’ rule’ inKelly-Louw, Nehf and Rott op cit note 8 at 162–3.

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The statutory in duplum rule operates in a different way and if thecommon-law rule were to apply to the given set of facts, the maximumamount that the credit provider could recover would be the unpaid capitalamount of R40 000 (R50 000 less R10 000 (capital or principal debt alreadypaid) equals R40 000) together with a maximum amount for any of the arrearinterest and other costs of credit of R40 000 (an amount equal to theoutstanding capital amount). So in total the creditor may claim R80 000(R40 000 (principal debt outstanding) plus maximum amount for arrearinterest and other non-interest related costs of credit of R40 000). The otherarrear amounts owed for the interest and other costs of credit (initiation fees,service fees, costs of credit insurance, default administration charges, andcollection costs) amounting to R20 000 (R10 000 shortfall on the arrearinterest and R10 000 for the arrears on the other costs of credit) the creditprovider may not claim. While the unpaid interest and other costs of creditstill equal the outstanding principal debt amount, the creditor cannot add anyfurther interest or other costs of credit. However, should the consumer thenstart paying off the arrear interest and other costs of credit amounting toR40 000, the credit provider may not add any further interest or other costs ofcredit so that they again equal the outstanding principal debt amount(R40 000) for as long as the consumer is still in arrears. Only once the arrearinterest and other costs of credit are repaid, may further interest and othercosts of credit accrue again. It is clear that the statutory rule places a type ofmoratorium on the accrual of further interest (contractual and default) andother costs of credit on the outstanding principal debt for as long as theconsumer is in default. In terms of the statutory rule, a consumer, providingthe credit provider does not institute legal action against him of course,actually has a real opportunity to pay off the arrear interest and other costs ofcredit and not to remain in a debt trap forever. Even if the credit provider doesdecide to take legal action against a consumer and a summons is issued, thestatutory rule is not suspended in such an instance and no further interest andother costs may accrue further on the outstanding capital amount. Therefore,the arrear interest and other costs of credit will when judgment is grantednever be able to exceed the outstanding principal amount. The statutory ruledoes not only place a moratorium on the further escalation of interest andother costs of credit once they reach the outstanding principal debt amount,and for as long as the consumer is in default, but also caps the amount ajudgment may be granted for.

The statutory rule also finds quicker application than the common-law rulein the same scenario. This is because the unpaid and accrued statutory costs ofcredit (interest and non-interest related costs of credit) in terms of thestatutory rule will more quickly equal the outstanding principal debt thanmere unpaid and accrued interest in terms of the common-law rule. Taking theexample given above and working on the assumption that the arrear interestamounts to R20 000 and the other costs of credit amount to R20 000, thecommon-law rule will not apply; the reason being that the arrear interest has


not yet reached an amount equal to the outstanding capital amount ofR40 000. Conversely, the statutory rule will already apply since the arrearinterest plus all the other costs of credit together (R20 000 for interest andR20 000 for other costs of credit) are equivalent to the outstanding capital orprincipal debt amount of R40 000.

The calculations needed to determine whether or not the common-law orstatutory rule applies in a given situation are complicated. An expert will mostlikely be required to assist a consumer, and even a court, to determine whetherthe unpaid interest, especially where it has been capitalised, and the othercosts of credit equals the outstanding principal debt or capital outstanding.These costs will be burdensome for a consumer who is already cash-strappedand of limited financial means.118

Without a doubt, the statutory in duplum rule offers a much better form ofdebt relief for an over-indebted consumer who has insufficient financialresources, is willing to repay his arrears, but who just needs some type ofrelief or temporary moratorium on the further accumulation of interest andother costs of credit to be able to be in a situation where he can properlyservice his account again.

5 Closing CommentsThe common-law in duplum rule is founded on public policy and is

designed to protect borrowers from exploitation by lenders. The main purposeof this rule is to ensure that, on the one hand, a debtor whose financial affairsare not in a healthy state does not find himself in an insufferable position and,on the other hand, the lender is not slack in enforcing his debt.119 Although theaforesaid also applies to the statutory rule, it would seem that the umbrellapurpose of the statutory rule (especially when taking into account thepurposes of the National Credit Act)120 is to protect consumers and providethem with debt relief, as well as to prevent them from becomingover-indebted in the first place. Although this form of debt relief is not a directmechanism, like debt counselling or administration orders, it certainly is anindirect mechanism.

Over the years it has been argued that the common-law in duplum rule,whose operation is not nearly as extreme as the current statutory rule, isfundamentally inequitable, despite attempts to justify it, towards a creditorand that attempts to limit its application should therefore be welcomed.121

Some have even criticised the common-law rule as being ‘arbitrary andinappropriate’ towards credit providers.122 The South African Law ReformCommission pleaded for its repeal as long ago as 1974. A committee that was

118 See Campbell op cit note 64 at 10.119 See Scholtz op cit note 28 in par 10.6.4.120 See the preamble to the Act as well as s 3 for the purposes of the Act.121 See Malan and Pretorius op cit note 40 at 405.122 See Vessio op cit note 30 at 36.

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later appointed by the South African Law Reform Committee to investigatethe previous credit legislation (the predecessors of the National Credit Act –the Usury Act123 and the Credit Agreements Act124) with the aim of creating anew Credit Act also recommended that the common-law in duplum ruleshould be abolished.125 The committee later submitted its report andrecommendations to the South African Law Reform Commission,126 whichlater published a revised version of their report.127

Fortunately, the drafting team (particularly, the Department of Trade andIndustry) of the National Credit Act did not give in to the pressure to abolishthe common-law in duplum rule. In fact, their research seemed to suggest thatthe common-law rule was still needed, albeit in a statutory form, and had animportant role to play in alleviating over-indebtedness of consumers. Theirrationale for containing the rule in a statutory format was that this wouldremove some of the confusion surrounding the application of the common-law rule. Unfortunately, this did not bear out in practice; the drafters failed tocreate a rule that could be interpreted easily in terms of its application and theway in which it operated. The statutory rule that came into being was stillopen to a number of different interpretations, which is precisely why theNational Credit Regulator had to approach the court for a declaratory orderregarding the correct interpretation and application of the rule.128

However, at least the matter regarding the correct interpretation andapplication of the statutory rule has now been resolved. The interpretationgiven to the rule by the Supreme Court of Appeal is very favourable toconsumers and provides a more effective form of debt relief to consumersthan that of its common-law counterpart, and prevents a situation whereconsumers can remain in a debt trap indefinitely.

Without a doubt, the statutory in duplum rule offers better consumerprotection than its common-law counterpart, but it has worsened the positionof credit providers.129 Therefore, credit providers will have to be much morevigilant of consumers not servicing their debts, and should immediately take

123 Act 73 of 1968.124 Act 75 of 1980.125 See Otto op cit note 29 at 478–9.126 See JM Otto, NJ Grove & FR Malan Nuwe Kredietwetgewing vir Suid-Afrika: Verslag en

Aanbevelings aan die Suid-Afrikaanse Regskommissie (1991).127 See the South African Law Commission (JM Otto (ed) and NJ Grové) ‘Die Woekerwet en

Verwante Aangeleenthede. Nuwe Kredietwetgewing vir Suid– Afrika’ Working Paper 46, Project 67(1993); and South African Law Reform Commission ‘Die Woekerwet en Verwante Aangeleenthede’(Paper 30, Project 67), Concept Report (July 1994).

128 Malan JA in Nedbank Ltd v National Credit Regulator (supra note 102 in par 2) commented on thedrafting of the Act and said:

‘unfortunately, the Act ‘cannot be described as the ‘‘best drafted Act of Parliament which was everpassed,’’ . . . nor can the draftsman be said to have been blessed with the ‘‘draftsmanship of aChalmers’’. Numerous drafting errors, untidy expressions and inconsistencies make its interpretationa particularly trying exercise.

He also referred to Firstrand Bank Ltd t/a First National Bank v Seyffert and Another and ThreeSimilar cases 2010 (6) SA 429 (GSJ) in par 10. The reference to Chalmers by Malan JA is to Lord MDChalmers who was the draftsman of the English Bills of Exchange Act of 1882.

129 See Kelly-Louw op cit note 21 at 344; and Nedbank Ltd v National Credit Regulator supra note102 in par 39.


the appropriate legal action130 against these consumers if they want to avoid asituation where the statutory in duplum rule comes into operation. Thestatutory rule is a much more workable form of debt relief and providesconsumers with a real opportunity to pay off their arrears if credit providersallow them the opportunity to do so. As explained above, the common-lawrule in practice did little to assist over-indebted debtors, with limited financialresources, wanting to pay off their arrear interest. Generally, it is the smallerloans, often those involving consumers from the low-income group, that willbe most affected by the statutory in duplum rule since its operation will betriggered sooner due to the small amounts concerned and because the interestand other costs of credit are generally much higher on these loans.131

Campbell states that the statutory in duplum rule ‘has become the single mostimportant measure to limit the excessive cost of small credit . . . and to protectconsumers from entrapment by debt’.132 It will often also be to the advantageof credit providers if they allow the consumers of small credit amounts anopportunity to use the rule to their benefit and pay off the arrear interest andother costs of credit. Instituting legal action on these small loans is often anexpensive exercise and the consumers involved often do not have equitableassets that credit providers can successfully attach to liquidate the debts owed.

Vessio suggests that the common-law in duplum rule, in effect, alsoprevents the over-extension of consumers by limiting their liability in terms ofdebt.133 This is also true for the statutory rule, and therefore the statutory ruledoes not only operate as a helpful form of debt relief, but also as a mechanismto prevent consumers from becoming over-indebted in the first place. Thestatutory rule is thus intended to provide some redress for borrowers ofexpensive credit.134 Malan JA said that ‘the legislature had in mind theprotection of the consumer who may, under the common-law rule, end up bypaying much more than the capital originally owing’.135

Before the National Credit Act became fully operational on 1 June 2007there was excessive predatory behaviour by credit providers that lead to highlevels of debt for certain consumers. This reckless lending by credit providersand reckless borrowing by consumers caused many consumers to becomeover-indebted. The statutory rule does not apply to credit agreements thatwere already in existence when section 103(5) came into operation(pre-existing credit agreements before 1 June 2007),136 and accordingly, thecommon-law rule will apply to those credit agreements. It is unfortunate that

130 Set out in Chapter 6 of the Act, particularly ss 129–32.131 For a discussion of what the full impact of the costs of credit provision are on small credit, see J

Campbell ‘The Excessive Cost of Credit on Small Money Loans under the National Credit Act 34 of2005’ (2007) 19 SA Merc LJ 251.

132 See Campbell op cit note 64 at 1.133 See Vessio op cit note 26 at 732.134 See Campbell op cit note 131 at 269; and Nedbank Ltd v National Credit Regulator supra note 102

in par 39.135 See Nedbank Ltd v National Credit Regulator supra note 102 at 607E.136 See footnote 59 above.

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these consumers who need the protection and debt relief offered by thestatutory rule the most are denied its use.

It has been argued that the statutory in duplum rule is needed to ‘curtail thedevastating socio-economic consequences of high credit costs’.137 It is truethat the statutory rule will be abused and misused by some consumers,138 thatit offers better consumer protection to the detriment of credit providers, thatits application is not desirable in all circumstances. But what is even truer isthat it offers a better form of debt relief, something that is still lacking anddesperately needed in South Africa, despite the availability of debtcounselling and debt restructuring. From a credit provider’s perspective theoperation of the statutory rule is maybe too harsh, but from a consumer’sperspective it might just be that ‘little bit extra’ he needs to get out of his direfinancial situation.

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137 See Campbell op cit note 64 at 2.138 See Scholtz op cit note 28 in par 10.6.4.
