Paulsen and Another v Slip Knot Investments 777 (Pty) Ltd

• Jurisdiction: South Africa

Paulsen and Another v Slip Knot Investments 777 (Pty) Ltd
2015 (3) SA 479 (CC)

2015 (3) SA p479

Citation	2015 (3) SA 479 (CC)
Case No	CCT 61/14; [2015] ZACC 5
Court	Constitutional Court
Judge	Mogoeng CJ, Moseneke DCJ, Cameron J, Jafta J, Khampepe J, Leeuw AJ, Madlanga J, Nkabinde J and Van Der Westhuizen J
Heard	September 16, 2014
Judgment	March 24, 2015
Counsel	WG Burger SC (with JC Swanepoel) for the applicants.; R Stockwell SC (with JF Pretorius) for the respondent.

Flynote : Sleutelwoorde B

Interest — In duplum rule — Interest to stop running when equal to unpaid capital — Application of rule — Rule continuing to apply after institution of litigation to recover debt. C

Constitutional law — Common law — Development — In duplum rule — Power of Constitutional Court to develop.

Constitutional law — Separation of powers — Power of courts to develop common law — Not precluded by separation-of-powers doctrine. D

Constitutional practice — Courts — Constitutional Court — Jurisdiction — Extension to non-constitutional matters — Requirements — Role of interests of justice — Constitution, s 167(3)(b)(ii).

Credit agreement — Consumer credit agreement — Credit agreement to which NCA not applicable — Constitutional Court confirming that such credit E agreement not invalidated because credit provider not registered in terms of NCA — Credit provider entering only into exempted agreements need not register — National Credit Act 34 of 2005, s 40(1) and s 89(2)(d).

Credit agreement — Consumer credit agreement — Credit provider — Failure to register — Effect on agreement to which NCA does not apply — Agreement F valid — National Credit Act 34 of 2005, s 40(1) and s 89(2)(d).

Headnote : Kopnota

This case deals with (1) the scope of the Constitutional Court's jurisdiction under s 167(3)(b)(ii) of the Constitution; (2) whether an agreement which is exempted from the National Credit Act 34 of 2005 (the NCA) is G nevertheless invalidated by a party's failure to register as credit provider; and (3) whether the in duplum rule — which stops the running of interest when the unpaid interest equals the outstanding capital — continues to operate once ligation to recover the debt commences. The court delivered three judgments: a main judgment by Madlanga J (to which Jafta J and Nkabinde J assented); a concurring judgment by Moseneke DCJ (to which Mogoeng CJ, Khampepe J, Leeuw AJ and Van der Westhuizen J assented); H and a dissenting judgment by Cameron J.

In 2006 Winskor, a property developer, concluded a loan agreement with Slip Knot, a finance company. Under the agreement Slip Knot loaned Winskor R12 million for 12 months at an interest rate of 3% per month. The Paulsens bound themselves as sureties for Winskor's liabilities to Slip Knot. I By July 2007 Winskor had defaulted. Slip Knot sued the Paulsens for the R12 million capital plus interest accrued, which by this time far exceeded the capital sum. No relief was sought against Winskor, which was in the process of being liquidated. In their defence the Paulsens argued that the loan agreement was invalid because Slip Knot was not registered as a credit provider under the NCA; that even if the agreement were valid the in duplum J

2015 (3) SA p480

A rule would limit the interest payable to R12 million; and that if it were so that the institution of proceedings suspended the operation of the in duplum rule, interest would still be limited to R12 million because no proceedings had been instituted against Winskor, the principal debtor.

The High Court allowed the full claim, but on appeal a full bench of the High B Court applied the in duplum rule to cap the interest at R12 million. In a further appeal the SCA held that the agreement was not invalidated by Slip Knot's failure to register as credit provider, and that the in duplum rule had ceased to protect the Paulsens once litigation was instituted against them. For its view that the in duplum rule was lifted by the institution of proceedings the SCA relied on Standard Bank of South Africa Ltd v Oneanate Investments (Pty) Ltd (in Liquidation) 1998 (1) SA 811 (SCA) ([1998] 1 All SA 413). C The Paulsens appealed to the Constitutional Court, relying on the 'non-constitutional' jurisdiction conferred on the court by s 167(3)(b)(ii) of the Constitution. It provides that the Constitutional Court may decide any matter 'if it raised an arguable point of law of general public importance which ought to be considered by the court'.

D Main judgment

As to the Constitutional Court's jurisdiction under s 167(3)(b)(ii): A finding that a matter raised an arguable point of law of general public importance did not necessarily mean that the court would entertain it: it also had to be in the interests of justice for it to do so. Here the Paulsens' defence on the application of the in duplum rule met the requirements of E the provision. It had sufficient prospects of success [*] and general public importance. Since it was also in the interests of justice that the court should consider the matter, leave to appeal would be granted. (Paragraphs [13] – [31] at 489G – 497B.)

As to the validity of the credit agreement: A credit agreement was not invalidated because the credit provider was not registered under the NCA. F Section 40(4) of the NCA — which invalidated credit agreements concluded with unregistered credit providers — referred only to credit agreements that were subject to the NCA, which the Slip Knot – Winskor agreement was not. [†] The Paulsens' defence in this regard would therefore fail. (Paragraphs [32] – [41] at 497C – 499G.)

G As to the suspension of the in duplum rule pendente lite: Oneanate was wrong in its view that the in duplum rule was suspended pendente lite, and would be overruled to this extent. The court in Oneanate wrongly interpreted the common law and entirely overlooked the chilling effect its decision would have on debtors' rights of access to the courts. It also failed to take account of pertinent socio-economic factors like the relative H financial vulnerability of debtors. The principle of contractual autonomy relied on in the dissenting judgment was not absolute but subject to limitations such as the in duplum rule, including its application pendente lite, for which there were sound public-policy grounds that were mistakenly disregarded in Oneanate. The present judgment meant that the law would revert to what it was before Oneanate and did not entail a development of the common law, which was best left to Parliament where competing I public-policy considerations were at play. The Paulsens' appeal accordingly

2015 (3) SA p481

succeeded, and they would be ordered to repay the R12 million capital debt A plus R12 million interest. (Paragraphs [42] – [95] at 499G – 516I.)

Majority judgment

The main judgment would be supported, save for its view that it did not develop the common law. It did, and was not precluded from doing so by the separation-of-powers doctrine. (Paragraphs [113] – [119] at 522B – 525D.) B

Dissenting judgment

Oneanate should be upheld. Its limitation on the in duplum cap was in accordance with the principle of contractual autonomy and with the common law, and constitutionally compliant. (Paragraphs [120] – [150] at 525D – 532B.)

Cases Considered

Annotations C

Case law

Southern Africa

Absa Bank Ltd v Erasmus 2007 (2) SA 545 (C): referred to D

Administrasie van Transvaal v Oosthuizen en 'n Ander 1990 (3) SA 387 (W): referred to

Amod v Multilateral Motor Vehicle Accidents Fund 1998 (4) SA 753 (CC) (1998 (10) BCLR 1207; [1998] ZACC 11): referred to

Barkhuizen v Napier 2007 (5) SA 323 (CC) (2007 (7) BCLR 691; [2007] ZACC 5): discussed and applied E

Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs and Others 2004 (4) SA 490 (CC) (2004 (7) BCLR 687; [2004] ZACC 15): referred to

Beatley & Co v Pandor's Trustee 1935 TPD 365: dictum at 366 applied

Bellingan v Clive Ferreira & Associates CC and Others 1998 (4) SA 382 (W): dictum at 401C approved F

Bertie van Zyl (Pty) Ltd and Another v Minister for Safety and Security and Others 2010 (2) SA 181 (CC) (2009 (10) BCLR 978; [2009] ZACC 11): referred to

Brisley v Drotsky 2002 (4) SA 1 (SCA) (2002 (12) BCLR 1229; [2002] 3 All SA 363; [2002] ZASCA 35): referred to

Carmichele v Minister of Safety and Security and Another (Centre for Applied Legal Studies Intervening) G 2001 (4) SA 938 (CC) (2002 (1) SACR 79; 2001 (10) BCLR 995; [2001] ZACC 22): referred to

Certain Underwriters at Lloyds v South African Special Risks Association 2001 (1) SA 744 (W): compared

Chief Lesapo v North West Agricultural Bank and Another 2000 (1) SA 409 (CC) (1999 (12) BCLR 1420; [1999] ZACC 16): referred to H

Commercial Bank of Zimbabwe Ltd v MM Builders & Suppliers (Pvt) Ltd and Others and Three Similar Cases 1997 (2) SA 285 (ZH): referred to

Conforce (Pvt) Ltd v City of Harare 2000 (1) ZLR 445 (H): approved

Country Cloud Trading CC v MEC, Department of Infrastructure Development 2015 (1) SA 1 (CC) ([2014] ZACC 28): dictum in para [65] applied

Curators, Emma Smith Educational Fund v University of KwaZulu-Natal and Others I 2010 (6) SA 518 (SCA) ([2010] ZASCA 136): referred to

De Klerk v Griekwaland Wes Korporatief Bpk 2014 (8) BCLR 922 (CC) ([2014] ZACC 20): referred to

Dengetenge Holdings (Pty) Ltd v Southern Sphere Mining & Development Co Ltd and Others 2014 (5) SA 138 (CC) (2014 (3) BCLR 265; [2013] ZACC 48): referred to J

2015 (3) SA p482

Director of Public Prosecutions, Cape of Good Hope v Robinson 2005 (4) SA 1 (CC) (2005 (1) SACR 1; 2005 (2) BCLR 103; [2004] ZACC 22): referred to A

Du Plessis and Others v De Klerk and Another 1996 (3) SA 850 (CC) (1996 (5) BCLR 658; [1996] ZACC 10): dictum in para [110] applied

Eastwood v Shepstone 1902 TS 294: referred to

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