The in duplum rule is by default the limit on the interest that can be charged on arrear retirement fund contributions, the Full Bench of the High Court in Makhanda has affirmed.
The court’s judgment, delivered in March, was the outcome of litigation between the Blue Crane Route Municipality in the Eastern Cape and the Municipal Workers Retirement Fund (MWRF).
Between 2007 and 2013, the municipality failed to deduct the correct contributions from its employees’ salaries, breaching section 13A of the Pension Funds Act (PFA). This section requires employers to remit employee and employer contributions promptly to a registered retirement fund, with strict deadlines – contributions must reach the fund within seven days after the end of the month they are due. Non-compliance triggers interest at a prescribed rate, starting the day after the due date.
By November 2019, the issue escalated to court, resulting in a default judgment against the municipality. The High Court ordered the municipality to pay the fund R3 805 608.68 in arrear contributions, along with interest “from the first day following the expiration of the period in respect of which amounts were payable” until the date of payment, at the rate set by section 13A(7) of the PFA. The municipality was also liable for the legal costs.
The municipality’s attempts to overturn the judgment failed repeatedly – an application for rescission was dismissed in October 2020, an appeal was rejected in January 2023, and the Supreme Court of Appeal (SCA) declined further review in 2023.
In January 2024, the retirement fund’s attorneys issued a warrant of execution, demanding the capital of R3.8 million plus R30 052 166.09 in interest. The municipality paid the principal but balked at the interest figure, tendering only R8 450 751.19. Four months later, it secured an urgent court order to pause the execution, pending a fresh legal challenge – the case that came before the High Court.
The municipality’s defence hinged on the in duplum rule, a common law doctrine articulated as “interest, and interest on interest can neither be stipulated for nor recovered beyond twice the amount”. In simpler terms, unpaid interest cannot exceed the principal debt.
The municipality argued that the interest on the R3.8m judgment debt should be capped at an equivalent amount, aligning with its tendered payment of R8.4m when considering the rule’s application.
The scope of the in duplum rule
The MWRF asserted the interest stemmed from the PFA. Section 13A(7) mandates interest on late payments at a prescribed rate, and the fund argued this overrode the common law in duplum limitation, justifying its claim for more than R30m.
The fund argued the rule should cover only contractual interest, as in loan agreements, pointing to the case of LTA Construction Bpk v Administrateur van Transvaal (1991).
But the High Court disagreed, noting that the remark there – “In principle, this applies to all contracts under which a capital sum is due and is subject to a specific interest rate” – was not meant to exclude other debts, only to clarify it is not limited to loans. The court referred to historical cases such as Niekerk v Niekerk (inheritance) and Union Government v Jordaan’s Executor (statutory fees) to back this up, showing the rule’s flexibility across different scenarios. Whether the debt comes from a contract or a statute, the rule holds firm.
The judgment dismissed the idea that the rule bends based on who owes the money or why. It is now part of positive law, and public policy is not the criterion in deciding whether the rule applies. The rate at which the interest is calculated – whether set by the PFA or another law – is immaterial for determining whether the rule applies.
Judge Avinash Govindjee, who wrote the judgment, stated, “the amount owed by the municipality to the fund in terms of the PFA constituted a ‘debt’ imposed by statute and, once interest became payable, the rule came into play. This meant that once the sum of the unpaid interest equalled the amount of the outstanding capital, the running of interest stopped. The invitation to restrict the application of the rule in the manner suggested by the fund must, therefore, be refused.”
Does the PFA exclude the rule?
The court ruled that the in duplum rule applies to interest payable under the PFA because the Act does not explicitly or implicitly exclude it. This decision rested on a foundational principle of statutory interpretation: common law rules persist unless a statute clearly demonstrates an intent to override them. The PFA is silent on the in duplum rule; therefore, the court held that the rule continues to cap interest on late contributions at the principal amount.
The fund pointed to section 13A(7) of the PFA, which states that interest runs “from the first day following the expiration of the period in respect of which such amounts were payable”, suggesting this excluded the in duplum cap.
The court disagreed: “The focus of that sub-section is on the date from which interest accrues, rather than necessarily implying deviation from the rule.” It’s about when interest starts, not whether it is limitless.
The fund also cited section 103(5) of the National Credit Act (NCA) to support its argument. The court rejected this, noting this provision is a specific rule applicable only to NCA-regulated credit agreements, not a general codification of the in duplum rule. The NCA rule is a standalone amendment that extends the principle of limiting interest without fully incorporating the in duplum rule, making it irrelevant to the PFA’s interpretation.
The court said it preferred a “practical, sensible, and business-like” interpretation of the PFA, consistent with Natal Joint Municipal Pension Fund v Endumeni Municipality (2012), favouring the application of the in duplum rule.
The fund’s proposed interpretation would lead to “oppressive consequences” for the Blue Crane Route Municipality, requiring it to pay interest “some seven times more than the capital amount”. The court found this disproportionate.
Is the court functus officio?
The judgment clarified that the court is not functus officio – meaning it has not exhausted its authority – when applying the in duplum rule, even after issuing a prior ruling on liability for interest.
The MWRF argued the court could not apply the rule because it was not mentioned in the original judgment.
However, the court distinguished between the finality of liability and the ongoing applicability of the in duplum rule to limit interest. This ruling underscored that common law principles can be invoked to regulate interest post-judgment unless explicitly excluded, ensuring flexibility and fairness in legal proceedings.
The court rejected the notion that a judgment must explicitly mention the in duplum rule for it to apply. It held that the rule applies by default unless explicitly excluded, and any exclusion would require specific arguments. The court added that post-judgment interest, which restarts from the judgment date, is also subject to the rule without needing mention.
Although some judgments reference the in duplum rule out of caution, this is not a legal necessity.
The fund cited F&I Advisors (Edms) Bpk v Eerste Nasionale Bank van SA Bpk (1999), where the SCA held that courts need not investigate the in duplum rule on their own without clear evidence of a breach. In that case, the parties had settled the claim’s quantum, excluding interest disputes.
The court distinguished F&I Advisors from the current case: no prior agreement on quantum existed, and the interest was not calculated before the default judgment. It noted that F&I Advisors supports the principle that courts would not order interest violating the rule.
The judgment concluded the court was not functus officio regarding the rule’s application, stating “the judgment must be construed accordingly” in light of the in duplum rule, which limits interest pre- and post-judgment.
The court set aside the warrant of execution. It declared the interest payable by the Blue Crane Route Municipality to the fund was limited by the application of the in duplum rule. The MWRF was ordered to pay the costs of lawsuit.
