In terms of the so-called in duplum rule, arrear interest on a loan ceases to accumulate once the accrued and unpaid interest equals the amount of the outstanding capital debt. Put differently, a lender may only levy interest on a loan up to the capital loan amount and no further interest may, while it remains unpaid, accumulate in excess of that ceiling. The in duplum rule is a public interest rule that protects borrowers from exploitation by lenders. Its contours continue to evolve. On 21 April 2026, and in Valoworx 33 CC and Others v Merchant Commercial Finance 1 (Pty) Ltd t/a Merchant Factors (A142/2025; 16399/2023) [2026] ZAWCHC 182 (21 April 2026), the Full Bench (three Judges) of the High Court of South Africa, Western Cape Division (“High Court“) had to answer the following question:

“[W]hether the in duplum rule’s application is circumvented when the parties, after interest has accumulated, conclude a written settlement agreement that amalgamates the outstanding capital and interest into a new single consolidated amount, expressed and admitted as a new capital amount.” (at paragraph [45])

What happened?

Between 2015 and 2016, Merchant Commercial Finance 1 Proprietary Limited, t/a Merchant Factors (“Merchant“) lent Valoworx 33 CC (“Valoworx“) various amounts totalling R 705 000. During this period, a Term Loan Facility Agreement (“Loan Facility Agreement“), and addenda thereto, were signed by Merchant and Valoworx (collectively, “Parties“). Further, a surety agreement was signed, in terms of which Mr Archar Colyer Head and The Cape Leopard Trust (collectively, “Sureties“) bound themselves in favour of Merchant as sureties and co-principal debtors with Valoworx under the Loan Facility Agreement.

Valoworx defaulted on its repayments in terms of the Loan Facility Agreement. Following the default, Merchant and Valoworx concluded a settlement agreement (“Settlement Agreement“). In terms of the Settlement Agreement, Valoworx admitted its indebtedness to Merchant for R 1 094 919.85 (“Settlement Amount“), plus interest and undertook to pay R 100 000 before 20 December 2020 and thereafter, monthly instalments not less than R 25 000. As with the Loan Facility Agreement, the Sureties also bound themselves as sureties and co-principal debtors with Valoworx under the Settlement Agreement.

After signing the Settlement Agreement, Valoworx defaulted after paying only R 150 000 towards the Settlement Amount and therefore reducing its debts to R 944 919.85, plus interest. On 19 September 2023, and following the default, Merchant applied to the High Court before Van Den Berg AJ for payment of R 2 910 901.91, which it contended was the sum of R 944 919.85 plus interest. Valoworx and the Sureties opposed the application. One of their defences was that the claim by Merchant violated the in duplum rule.

On 18 November 2024, Van Den Berg AJ dismissed all the defences and decided that Valoworx and the Sureties were jointly and severally liable to Merchant for R 944 919.85 and interest (that is, the difference between the settlement amount of R 1 094 919.85 and the R 150 000 repayments). Valoworx and the Sureties appealed against the decision of Van Den Berg AJ to the panel of three High Court Judges. The appeal was heard on 27 February 2026.

What were the arguments by Valoworx and the Sureties on appeal?

The main thrust of the Valoworx and the Sureties arguments was the violation of the in duplum rule; these arguments were presented as follows –

  • the original capital amount advanced by Merchant to Valoworx before the conclusion of the Settlement Agreement was R 705 000;
  • if the in duplum rule was factored, Merchant could only claim for the original capital amount (that is, R 705 000) and interest thereon up to the ceiling of R 705 000; therefore, the Merchant claim could not exceed R 1 410 000 (that is, the product of R 705 000 multiplied by two); and
  • since Valoworx had repaid R 1 080 000 prior to the conclusion of the Settlement Agreement and R 150 000 thereafter, Merchant could never be granted judgment in excess of R 180 000 (which is arrived at by subtracting R 1 080 000 and R 150 000 from R1 410 000).

They argued that the conclusion of the Settlement Agreement did not exclude the application of the in duplum rule to the original capital amount.

What were the arguments by Merchant?

Merchant argued that –

  • the settlement amount of R 1 094 919.85 that the Parties agreed to in the Settlement Agreement constituted a transactio or compromise, which extinguished all the pre-existing rights and obligations of the Parties and replaced them with the compromise in the Settlement Agreement; and
  • the amounts repaid by Valoworx prior to the conclusion of the Settlement Agreement (that is, R 1 080 000) were irrelevant and the in duplum rule was not violated since interest begins to run again on the new amount in the Settlement Agreement (that is, R 1 094 919.85).

What did the Court say?

The High Court decided in favour of Merchant; that is, that the Settlement Agreement extinguished all the pre-existing rights and obligations of the Parties and substituted them with the new capital liability of R 1 094 919.85, with the result that the in duplum rule would apply to the new capital amount and limit the interest to R 1 094 919.85.

Montzinger AJ framed the question he had to answer as follows –

“[47]    The question then becomes: when when a settlement agreement expresses the compromised indebtedness as a single consolidated amount, as occurred here with the amount of R1,094,919.85, does that amount constitute a “new” capital debt to which the in duplum rule applies afresh, with interest again permitted to accumulate to equal the consolidated amount, or must one look through the settlement figure and identify what portion of it was “true” capital, in this case the R705,000.00, and what portion was capitalised interest, with the result that the in duplum cap is measured only against the original R705,000.00.” [Emphasis added]

He then answered the question as follows –

  • “[48] …When parties conclude a settlement agreement that extinguishes the original debt and substitutes a new obligation in its place, the conventional understanding in our law is that the parties have created a new obligation. Furthermore, a transactio [compromise] involves mutual consensus: the debtor has agreed, expressly and in writing, that the compromised amount is the debt owed. To allow the debtor subsequently to decompose that amount into its constituent capital and interest elements and then invoke the in duplum rule against the original capital alone, would in effect allow the debtor unilaterally to resile from a concluded compromise. That would be impermissible, because it would undermine the finality that a transactio is designed to produce.”;
  • “[50] …Valoworx freely concluded a settlement agreement that consolidated its liability into an agreed figure of R 1 094 919, 85. The settlement agreement expressly distinguished this new capital amount and provided for a new, prospective interest liability. Valoworx could therefore have been under no illusion that R 1 094 919.85 was the new capital amount to which it was binding itself. Having agreed to this consolidated figure to settle the dispute, and having reaped the benefits of that settlement, Valoworx cannot now attempt to dissect the agreed amount and claim “overpayment” on the historical debt and demand an in duplum unravelling.“;
  • “[54] In any event, there is nothing in the record that can contradict a finding that the amount of R 1 094 919. 85 stipulated in the settlement agreement falls to be treated as a newly agreed capital sum under the compromise. That means that the applicant’s pursuit of judgment on the unpaid portion thereof, with interest running afresh on that capital subject to the in duplum cap, is not unlawful and does not offend the rule.“; and
  • “[55] Therefore, since the parties agreed on 14 December 2020 that the indebtedness (of whatever prior composition) amounted to R1 094 9191.85 and the appellants accepted that figure as the consolidated capital sum, they undertook to repay. The fact that the capital of the original loan totalled R705 000.00 does not, on the analysis above, permit the appellant now to invoke the in duplum rule by reference only to the original capital amount. The settlement agreement (i.e. the transactio) extinguished the earlier obligations and substituted a fresh capital liability of R 1 094 919.85. The in duplum rule now once again applies to this amount….” [Emphasis added]

What does this mean for me?

On 26 March 2026, and in SACTWU Investments Group (Pty) Ltd v Sekunjalo Independent Media (Pty) Ltd and Another (915/2024) [2026] ZASCA 39 (“Sekunjalo Judgment“), the Supreme Court of Appeal of South Africa decided that the in duplum rule applies to both –

  • arrear interest; that is, accrued interest that has fallen due and remains unpaid; and
  • interest that has accrued but is not yet payable.

There are many loan agreements concluded prior to the Sekunjalo Judgment where lenders and borrowers have agreed to capitalise accrued interest based on certain prescribed events, including payment of accrued interest on election by the borrowers, on the basis that this accrued interest would not become arrear interest and therefore not subject to the in duplum rule ceiling. In other instances, capitalisation is on the basis that accrued interest is automatically capitalised and added to the capital amount.

In deciding that “the fact that interest has been capitalised, whether by agreement or by practice, does not change the character of the debt, it remains arrear interest [that is subject to the in duplum rule]” (at paragraph [76]), the Sekunjalo Judgment has overturned one of the established methods to avoid the in duplum rule. This interpretation was recently endorsed in Seniors Finance (Pty) Ltd and Another v Rosen N.O and Others (15020/2024) [2026] ZAWCHC 344 (3 July 2026), where Francis J said (at paragraph 56) the following –

  • the reasoning in the Sekunjalo Judgment is broad and far reaching; and
  • the Sekunjalo Judgment –
    • erodes a once clear line between accrued and arrear interest; and
    • signals that accrued unpaid interest may be treated as arrear interest for the purposes of the in duplum rule more readily than the older authorities allowed.

There are two primary lessons from the Valoworx judgment –

  • first, the in duplum rule ceiling (capping accrued interest to not more than double the capital amount) may be lawfully avoided if the parties conclude a settlement agreement replacing the original capital amount with the settlement amount (made up of the original capital amount and accrued interest, even if that accrued interest is in excess of the in duplum rule ceiling); and
  • second, parties to loan agreements concluded prior to the Sekunjalo Judgment under the misconception that accrued interest could be contractually deferred and/or capitalised to avoid the in duplum rule ceiling may conclude settlement agreements to acknowledge the misunderstanding and record the settlement amount, which could, if agreed, include the original capital amount and all deferred and/or capitalised interest, even if that accrued interest is in excess of the in duplum rule This arrangement would ensure that lenders do not lose their bargain because of the Sekunjalo Judgment.

The lessons above relate to loans that are not regulated by the National Credit Act, No. 34 of 2005, as amended (“NCA“). Where the NCA applies, section 103(5) of the NCA will have to be considered.

Author: Baphethuxolo Mgqibi (under supervision by Siyabonga Shandu)