In terms of the common law in duplum rule, interest stops running when ‘unpaid’ or ‘arrear’ interest equals the outstanding capital amount. This prevents unpaid interest from exceeding the unpaid capital sum.
The parameters of the in duplum recieved some panel beating in the case of Paulsen v Slip Knot Investments 777 (Pty) Ltd before the Constitutional Court in 2015. The Court clarified that the rule should apply during the litigation process, which means that outstanding arrear interest is not permitted to run during the course of litigation once interest and the capital debt reach parity.
In the past there has been some uncertainty regarding the amount on which the interest on a judgment debt should be calculated: Is it (1) the capital amount originally incurred (the principal debt) and costs awarded in terms of the judgment, or (2) on the full amount that the judgment was granted for (capital amount plus accrued interest before judgment).
The Court provided clarity. It noted that the interest runs on and is limited to an amount equal to the whole of the judgment debt, including the portion which consists of previously accrued interest. Post-judgment interest runs at the rate agreed upon contractually.
So what does this mean? The effect of the in duplum rule after judgment is that a creditor is entitled to the following:
- Repayment of the unpaid capital sum;
- Interest on the unpaid capital sum at the contract rate up to an amount equal to the unpaid capital sum;
- Interest on the total of the amounts in (1) and (2), at the contract rate from the date of judgment of the court to date of payment by the debtor.
Read the judgment here: http://www.saflii.org/za/cases/ZACC/2015/5.html