Paulsen and Another v Slip Knot Investments 777 (Pty) Limited [2015] ZACC 5

The in duplum rule is a long-standing and well-established part of our law.

Author

Ross Shepstone
January 22, 2024

Paulsen and Another v Slip Knot Investments 777 (Pty) Limited [2015] ZACC 5

In 2006, Winskor 139 (Pty) Ltd, a property development company whose shares were held by the trustees of the Paulsen Family Trust, sought to purchase a portfolio of properties in Brooklyn, Pretoria, with the intention of reselling them at a profit. Winskor was able to secure most of the funding required for the purchase but faced a shortfall of R12 million. To cover this shortfall, Winskor entered into a loan agreement with Slip Knot Investments 777 (Pty) Limited (Slip Knot), a provider of short-term finance to property developers, under which Slip Knot advanced R12 million to Winskor on 10 July 2006. The loan was to be repaid within 12 months, with interest accruing at 3% per month from the seventh month after the commencement date until the date of final payment, with the interest being capitalised monthly.



As security for the loan, André Francois Paulsen and Margaretha Elizabeth Paulsen, acting in their personal capacities and as trustees of the Paulsen Family Trust and Keurbos Beleggingstrust, bound themselves as sureties and co-principal debtors with Winskor for its indebtedness to Slip Knot under the loan agreement.

Due to an economic downturn that began in 2007, Winskor defaulted on its obligation to settle its indebtedness by the due date of 9 July 2007. Slip Knot then instituted legal proceedings against the Paulsens (but not against Winskor, as litigation for its liquidation was already underway) to recover the outstanding loan amount, accrued interest, and further interest from the date of institution of proceedings to the date of judgment, as well as interest on the total amounts from the date of judgment to the date of payment, subject to the in duplum rule, which limits the recovery of arrear interest to a maximum of the capital amount of the loan.

The Paulsens defended the suit, raising arguments that the loan agreement was invalid because Slip Knot was not registered as a credit provider in terms of the National Credit Act (NCA), that the in duplum rule limited the payable interest to a maximum of R12 million, and that, even if the in duplum rule was suspended during litigation, interest could not exceed R12 million as no proceedings had been instituted against Winskor, the principal debtor.

The High Court upheld Slip Knot's claims against the Paulsens, but the Full Court partially upheld the Paulsens' appeal, capping the interest at R12 million. The Supreme Court of Appeal, however, dismissed the Paulsens' appeal and reversed the Full Court's decision, allowing interest to accumulate afresh from the date of service of the summons. The Paulsens then appealed to the Constitutional Court of South Africa.

"The in duplum rule is a long-standing and well-established part of our law. It provides that arrear interest ceases to accrue once the sum of the unpaid interest equals the amount of the outstanding capital. For perspective, it is necessary to give a brief outline of the history of the in duplum rule in South African law. The rule has its origins in classical Roman law. The rule was carried through to Roman-Dutch law, reference to it being made by various old authorities, including, most pertinently for this case, Huber and Van der Keessel. Our common law is based on the same Roman law rule and the rule has been recognised in local case law as far back as 1830." (Paragraph [42])


1. Validity of the Credit Agreement under the National Credit Act (NCA): The Court held that the loan agreement between Slip Knot and Winskor was valid despite Slip Knot not being registered as a credit provider under the NCA. The Court reasoned that the NCA did not apply to the loan agreement because it fell under the exceptions set out in section 4 of the NCA, which excludes certain credit agreements from the Act's application. Therefore, Slip Knot's failure to register did not invalidate the loan agreement.

2. Application of the In Duplum Rule During Litigation (Pendente Lite): The Court overruled the Supreme Court of Appeal's decision in Oneanate, which had held that the in duplum rule is suspended during the pendency of litigation. The Constitutional Court restored the common law position that the in duplum rule, which limits the recovery of arrear interest to the amount of the outstanding capital, continues to apply even during litigation. The Court found that suspending the rule pendente lite would unjustly prejudice debtors and inhibit their constitutional right of access to courts.

3. Post-Judgment Interest: The Court determined that post-judgment interest should run on the entire judgment debt, including the portion consisting of previously accrued interest, at the contractually agreed rate from the date of judgment to the date of payment, subject to the in duplum rule.

The core legal principle underlying the decision is the affirmation of the in duplum rule's application throughout the litigation process, which aligns with the constitutional values of access to justice and fairness in contractual obligations. The Court emphasized the importance of balancing the rights and interests of both creditors and debtors within the framework of the Constitution and the NCA.

In its reasoning process, the Constitutional Court in Paulsen and Another v Slip Knot Investments 777 (Pty) Limited [2015] ZACC 5 referred to several cases. Here are some of the cases with their full citations:

1. Oneanate Investments (Pty) Ltd (in liquidation) v Standard Bank of South Africa Ltd [1997] ZASCA 94; 1998 (1) SA 811 (SCA) (Oneanate).

2. Stroebel v Stroebel 1973 (2) SA 137 (T) (Stroebel).

3. LTA Construction Bpk v Administrateur, Transvaal [1991] ZASCA 147; 1992 (1) SA 473 (A) (LTA Construction).

4. Union Government v Jordaan’s Executor 1916 TPD 411 (Union Government).

5. Nedbank Ltd and Others v National Credit Regulator [2011] ZASCA 35; 2011 (3) SA 581 (SCA) (Nedbank).

6. Kubyana v Standard Bank of South Africa Ltd [2014] ZACC 1; 2014 (3) SA 56 (CC); 2014 (4) BCLR 400 (CC) (Kubyana).

7. Sebola and Another v Standard Bank of South Africa Ltd and Another [2012] ZACC 11; 2012 (5) SA 142 (CC); 2012 (8) BCLR 785 (CC) (Sebola).

8. Carmichele v Minister of Safety and Security [2001] ZACC 22; 2001 (4) SA 938 (CC); 2001 (10) BCLR 995 (CC) (Carmichele).

9. Masiya v Director of Public Prosecutions, Pretoria and Another [2007] ZACC 9; 2007 (5) SA 30 (CC); 2007 (8) BCLR 827 (CC) (Masiya).

These cases were instrumental in the Court's analysis of the in duplum rule, the development of the common law, and the interpretation of the National Credit Act in relation to the requirement for credit providers to register. The Court also engaged with these cases to explore the constitutional implications of access to justice and the balance between contractual freedom and public policy.