Introduction
The Supreme Court of Appeal (SCA) recently delivered its judgment in SACTWU Investments Group (Pty) Ltd v Sekunjalo Independent Media (Pty) Ltd and Another [2026] ZASCA 39. While the appeal concerned several issues, this article focuses on the Court’s findings regarding the application of the in duplum rule to capitalised interest under a loan agreement. The SCA’s decision represents a notable shift from the established common law position and carries material implications for lenders when structuring funding transactions.
Background to the dispute
SACTWU Investments Group (Pty) Ltd (SIG) advanced a loan of ZAR 150 million to Sekunjalo Independent Media (Pty) Ltd (SIM) in August 2013 on a seven-year term. The loan agreement provided that where SIM had insufficient funds to pay accrued interest on an interest date, that interest would be capitalised.
SIM did not pay any interest over the loan term, and the capitalised interest substantially exceeded the original principal amount. SIM contended that the in duplum rule applied, limiting recoverable interest to the outstanding capital amount, while SIG submitted that the rule did not apply because the interest had been contractually deferred and capitalised, and was therefore not ‘arrear’ interest.
The High Court found that the parties could not by agreement override or waive the in duplum rule, and that the interest consequently accumulated only to the point of duplum.
Arguments before the SCA
SIG’s argument: Capitalised interest is not arrear interest. SIG contended that the capitalised interest did not constitute ‘arrear interest’ to which the in duplum rule applies. This argument rested on the basis that SIM had an election under the loan agreement to defer the payment of interest. Because SIM had exercised this right of deferral, the interest had not yet fallen due for payment and accordingly should not be characterised as ‘arrear interest’.
SIM’s argument: Capitalisation does not change the character of the debt. SIM argued that capitalising interest, whether by agreement or by practice, does not change the character of the debt – it remains arrear interest. SIM relied on Paulsen and Another v Slip Knot Investments 777 (Pty) Ltd [2014] ZASCA 16 and Standard Bank of South Africa Ltd v Oneanate Investments (Pty) Ltd (in liquidation) [1997] ZASCA 94 for the proposition that capitalisation of arrear interest does not alter its character, and that the parties cannot by agreement override the in duplum rule.
SCA findings
The SCA rejected SIG’s argument and held that the in duplum rule applied to the capitalised interest under the loan agreement.
The Court held that interest which is calculated daily and compounded on each interest date, but remains unpaid, constitutes arrear interest regardless of its capitalisation – the debtor’s failure to pay on the interest date means it is simply in arrears. Confirming the position in Paulsen, the Court noted that ‘arrear interest’ merely means accumulated interest that has accrued but remains unpaid.
The Court further held that capitalising interest – whether by agreement or by practice – does not change the character of the debt; it remains arrear interest. Quoting Oneanate, the Court reaffirmed that ‘no methods of accounting can change that’.
The Court grounded its reasoning in public policy, warning that allowing lenders to structure around the in duplum cap through deferred interest and capitalisation provisions would enable interest to ‘easily escalate exponentially above the capital amount’ and result in ‘boundless interest’.
Implications and key takeaways
This judgment represents a notable shift from the generally established position that the in duplum rule applied only to interest in arrears – meaning interest that had fallen due and was payable and remained unpaid by a defaulting debtor. Contractually deferred or capitalised interest was generally regarded as falling outside the rule’s scope.
This has direct consequences for transactions where parties have agreed to capitalise interest or where the borrower has an election to do so (for example, PIK interest structures). While the facts here involved capitalisation triggered by the debtor’s inability to pay, the court’s broad public policy reasoning may extend to arrangements involving a genuine commercial election to capitalise.
It is worth noting that a lender is not prevented by the rule from collecting more than double the capital amount in interest over the life of a loan, provided that at no point the unpaid arrear interest reaches the capital amount.
In light of the judgment, lenders are urged to audit their existing loan portfolios for capitalisation and deferral mechanisms, review interest provisions in their standard form agreements, and reassess the risk of structures relying on capitalised interest – particularly in mezzanine, subordinated, and development finance transactions.
The judgment can be accessed here.
