8.10 MORA INTEREST ON DAMAGES [146]
8.10.1 General
Interest is relevant in the law of damages in inter alia the discounting of damages for prospective loss [147] and as a measure of damage which is sustained on account of the late payment of a monetary debt. [148] An example of the latter is damage caused by a delay in the possession of damages (as an amount of money) which is due to a plaintiff.
8.10.2 Debt must be due
Generally speaking, a debtor, in the absence of an agreement to the contrary, has to pay interest on the debt from the moment the debtor is in mora (in other words, from the date the debt is due). [150] The debtor will be in mora as soon as the debt is liquidated, the plaintiff has placed the debtor in mora by a proper demand and the debtor has no valid defence against the claim. [151] Sometimes no demand is required, for instance where the parties have contractually agreed on the date when payment has to occur or in the case of theft. [152]
A liquidated debt is a debt based on a liquid document, or one regarding which the amount has been acknowledged, or the value whereof has been determined or which can easily and speedily be determined. [153]
Despite the principle that interest begins to run from the moment the debtor is in mora, there are a number of cases in which the court awarded the creditor damages in the form of interest from the date of service of the summons. [154] The correct explanation of these cases is probably that the plaintiff was not entitled to damages from an earlier date and that the summons served the function of a demand for immediate payment. [155] One should also suppose that immediate payment of a monetary debt was reasonable in the circumstances. [156]
A judgment debt is a liquidated amount and interest therefore runs on the amount of damages awarded by a trial court from the date of the court’s decision even if a court of appeal reduces the amount of damages. [157] If damages are awarded
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in a foreign currency, mora interest runs on the amount in the foreign currency. [158]Interest on costs runs from the date of the taxing master’s allocatur. [159]
In a claim for unliquidated damages the defendant was not liable in the common law to pay interest thereon in the absence of an agreement as to such quantum or until the amount has been assessed by the court. [160] The legislator has drastically amended the common law in this regard.
Section 2A(5) of the Prescribed Rate of Interest Act 55 of 1975 invests a court with a general discretion to make such order as appears just in respect of the payment of interest on an unliquidated debt, the rate at which interest shall accrue and the date from which interest shall run. [161] The court has this wide discretion despite the following two specific provisions of this Act.
Section 2A(2)(a) of the Prescribed Rate of Interest Act 55 of 1975 provides that, subject to any other agreement between the parties [162] and the provisions of the National Credit Act 34 of 2005, the interest on unliquidated debts shall run from the date on which payment of the debt is claimed by the service on the debtor of a demand or summons, whichever date is the earlier. [163] A demand is defined as a written demand setting out the creditor’s claim in such a manner as to enable the debtor reasonably to assess the quantum of it.
The National Credit Act 34 of 2005 provides that interest on damages for loss or damage suffered as a result of prohibited conduct or the dereliction of required conduct in terms of the National Credit Act will commence on the date of issue of a certificate by the National Consumer Tribunal in which it is declared that the conduct constituting the basis of the claim for damages or loss amounts to prohibited or required conduct in terms of the National Credit Act.
Section 2A(3) of the Prescribed Rate of Interest Act provides that the interest on that part of a debt which consists of the present value of a loss which will occur in the future shall only commence to run from the date upon which the quantum of that part is determined by judgment, arbitration or agreement. [165]
The National Credit Act 34 of 2005 furthermore provides that interest is payable on the final amount owing after unilateral termination by the consumer or debt enforcement from the date of the demand until the date that it is paid at the rate applicable to the credit agreement on any outstanding amount. [166]
The Consumer Protection Act 68 of 2008 determines that interest will be payable on money returned to the consumer from the date it was paid to the supplier to the date it is refunded in the case of unsolicited goods or services as well as of over-selling and over-booking. [167]
Section 17(3) of the RAF Act 56 of 1996 contains a special provision regarding interest on damages in terms of third-party compensation. [168]
8.10.3 Rate of mora interest
At what rate does a money debt (eg an amount of damages) bear interest? Before the Prescribed Rate of Interest Act 55 of 1975, mora interest was calculated in terms of the ‘current rate’ of interest. [169] In order to rid the law of uncertainty as to the ‘current rate’ of interest, [170] the Prescribed Rate of Interest Act was adopted which gives the Minister of Justice the power to prescribe a rate of interest from time to time for debts not covered by any other law, or an agreement or trade custom, or in any other way. [171] The Act is not retrospective [172] and the rate has been changed several times. [173]
A creditor who has obtained judgment is from that moment automatically entitled to interest calculated at the prescribed rate (even though he or she has not claimed interest) unless the court orders otherwise in the case of special
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circumstances. [174] There is no definition of the nature of ‘special circumstance’ in the Act. In Davehill (Pty) Ltd v Community Development Board [175] the court held that alleged special circumstances should relate to the debt in question and that the mere fact that the Minister has amended the prescribed rate of interest does not per se amount to special circumstances. [176]
Interest will run against the principal sum of the judgment debt and the costs, but not against the interest component of the judgment debt [177] as a judgment debt is defined in the Act as any sum of money due in terms of a judgment or order including an order as to costs but excluding any interest not forming part of the principal sum of a judgment debt. [178]
Despite the Act, it is possible for parties to a contract to come to an agreement concerning the rate of mora interest and whether it will be simple or compound interest. However, such an agreement qualifies as a penalty in terms of the Conventional Penalties Act 15 of 1962 and will thus be subject to reduction. [179]
If common-law principles are applied in respect of the Act, mora interest is simple and not compound interest. [180]
What would be the position if the rate of interest were to change during the existence of a debt? [181] In Davehill (Pty) Ltd v Community Development Board [182]the Appellate Division held that the Act ‘does not provide for the rate to vary from time to time in accordance with adjustments made to the prescribed rate [of interest]’. Interest is thus calculated at a fixed rate unless there are special circumstances and the court orders otherwise. [183]
The Consumer Protection Act 68 of 2008 expressly makes the Prescribed Rate of Interest Act applicable to two instances where interest has to be paid on moneys that have to be repaid. Firstly, if a consumer has made any payment to a supplier or deliverer in respect of any charge relating to unsolicited goods or services or the delivery of such goods, the consumer is entitled to recover that amount with interest from the date on which it was paid to the supplier. [184] Secondly, when the supplier cannot supply the goods according to a lay-by agreement due to circumstances beyond the supplier’s control, the supplier has to refund the consumer any money paid with interest. [185] In contrast, the interest which has to be paid on any money that the consumer has paid to the supplier in the case of over-selling and over-booking where the supplier’s inability to supply the goods or service is due to circumstances beyond the control, of the supplier has to be at the rate prescribed in terms of the the Consumer Protection Act. [186]
There is also a specific provision in the National Credit Act 34 of 2005 on mora interest. [187] The interest rate applicable to an amount in default or an overdue payment under a credit agreement may not exceed the highest interest rate applicable to any part of the principal debt under that agreement. [188] This interest is furthermore subject to the statutory in duplum rule. [189]
8.10.4 In duplum rule
Interest runs until the debtor has satisfied the debt. [190] The debtor is, however, protected by the common-law rule of in duplum, which means that if mora interest reaches an amount equal to the capital sum due, it ceases to run. [191] If a part of the
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interest is paid, it accumulates again up to the amount of the capital sum. [192]
The National Credit Act 34 of 2005 has amended and extended the common-law in duplum rule in regard to credit agreements subject to the Act. [193] The National Credit Act provides that interest (default and contractual), initiation fees, service fees, cost of any credit insurance, default administration charges and collection costs which are in arrears, may not in aggregate exceed the unpaid balance of the principal debt at the time the default occurs and may not accrue any further until the debtor is no longer in default. Only when the debtor is no longer in default can interest (and the other costs) accrue again.
QUESTION 1
Sarah damaged her car when she drove into a pillar in the parking lot of a shopping mall. XYZ Panel Beaters quoted her R10 000 to repair the car. She accepted the quotation and paid a R5000 deposit. The car was repaired and returned to Sarah, and she, despite demand for payment from attorneys for XYZ Panel Beaters, remains in default for payment of the outstanding amount. Since the outstanding amount is a liquidated amount, interest has started to accrue from the date of the letter of demand. Sarah’s failure to pay the outstanding amount has led to the attorneys instituting a claim and obtaining a default judgment against her in the district court of the Magistrate’s Court. According to the attorney’s last letter to Sarah, she now owes R11 500, which includes the judgment debt, interest on the amount as well as costs. Sarah consults with you regarding this latest letter she has received. She wants to know whether it is possible for them to claim this amount of money from her when the initial debt was only R5000.
Instruction: Advise Sarah with reference to the common law rule and legislative guidelines that regulate mora interest.
In your answer, specifically name the legislative and common law rules as they appear in the text above.
Sarah should be advised that according to the common law rule and legislative guidelines outlined in the text above, mora interest starts to accrue from the moment the debtor is in default for payment of a liquidated amount. In this case, since the initial debt was R5000 and interest started to accrue from the date of the letter of demand, the total amount owed has now increased to R11,500, which includes the judgment debt, interest on the amount, and costs.
The common law rule states that interest runs until the debtor has satisfied the debt, but is subject to the in duplum rule, which means that if mora interest reaches an amount equal to the capital sum due, it ceases to run. The legislative guidelines, such as the Prescribed Rate of Interest Act 55 of 1975, provide further specifics on how interest is calculated and applied in different situations.
Therefore, based on the common law rule and legislative guidelines, XYZ Panel Beaters are within their rights to claim the amount of R11,500 from Sarah as she remains in default for payment.
Bot GPT 3.5