On 26 March 2026, the SCA handed down a judgment in the matter of SACTWU Investments Group (Pty) Ltd v Sekunjalo Independent Media (Pty) Ltd and Another [2026] ZASCA 39, providing significant findings on the application of the in duplum rule to capitalised interest under a loan agreement.
Background:
Prior to this judgment, the common law position was that the in duplum rule only applied to arrear interest, that is, interest accruing while the debtor is in default of payment. Arrear interest would stop accumulating once it reached the outstanding capital amount. At the core of the in duplum rule is the public policy consideration that debtors who are unable to comply with their obligations should be protected against exponentially escalating interest obligations. The distinction between arrear interest and accrued interest has always been central to the application of the rule. The effect that contractual capitalisation and/or payment deferral mechanisms have on that distinction recently came under the spotlight in the Sekunjalo case.
Facts in brief:
SACTWU Investments Group (Pty) Ltd (SIG) lent funds to Sekunjalo Independent Media (Pty) Ltd (SIM) on a seven-year term. The agreement provided that, where SIM had insufficient funds to pay accrued interest on an interest date, then such interest would be capitalised on that interest date. SIM did not pay any interest over the term. By maturity, capitalised interest substantially exceeded the principal. SIG argued that, because the loan agreement allowed SIM to defer interest payments when it was unable to pay, the in duplum rule did not apply, as such interest was not arrear interest.
The issue:
The question highlighted in the Sekunjalo case is whether capitalised and/or contractually deferred interest payments should be considered arrear interest for purposes of the in duplum rule.
The SCA's finding and practical takeaways:
The court rejected SIG's argument. It held that interest capitalised because the debtor could not pay on the interest date is functionally arrear interest regardless of how the agreement characterises the non-payment. The court warned that allowing creditors to structure around the in duplum cap through deferred interest and capitalisation provisions would result in "boundless interest" which would be contrary to public policy.
The court confirmed the SCA's ruling in Standard Bank v Oneanate Investments [1997] ZASCA 94 that capitalising interest does not change the legal character of that interest. In other words, arrear interest that has been "capitalised" is still treated as arrear interest, not as true capital, for purposes of the in duplum calculation, regardless of its accounting label. A lender cannot, therefore, escape the in duplum cap simply by rolling arrear interest into the capital balance.
Whilst the facts of Sekunjalo involved capitalisation triggered by the debtor's inability to pay, the court's reasoning was notably broad and may have wider implications for agreements involving capitalised interest. The broad public policy considerations highlighted in the judgment may also affect agreements where the debtor has a genuine unconditional election to capitalise interest, not because it lacks funds, but as a free commercial choice. It appears that any accrued interest can potentially be considered arrear interest for in duplum purposes.
Due to the uncertainty arising from this judgment, caution is warranted when considering the treatment of accrued and capitalised interest in loan structures. The safer position after Sekunjalo is to assume that interest may only accumulate up to the in duplum cap, regardless of whether the debtor is in contractual payment default or not. This is a significant departure from the prior body of case law on the in duplum rule and may be a good candidate for reconsideration by the Constitutional court.
