From: The Registrar, Supreme Court of Appeal
Please note that the media summary is intended for the benefit of the media and does not form part of the judgment of the Supreme Court of Appeal
ETHEKWINI MUNICIPALITY v VERULAM MEDICENTRE (PTY) LTD
The Supreme Court of Appeal today dismissed an appeal in which Ethekwini Municipality sought to have a claim brought against it by Verulam Medicentre subjected to the in duplum rule which prohibits the accrual of interest on a debt when it exceeds the capital sum.
The two parties entered into a contract of sale in terms of which the municipality sold to Verulam Medicentre an immovable property for R1 592 000. Verulam Medicentre paid the municipality a sum of R1 141 153,48 over a period of two years towards the purchase price. When it sought to pay the balance and take transfer of the property it was discovered that the contract was invalid because the municipality had failed to comply with certain provisions of the Local Authorities Ordinance Act 25 of 1974 when the contract was concluded. The parties entered into a second agreement in terms of which the purchase price was now R3 500 000. Verulam Medicentre was required to apply for rezoning of the property and if that application failed, it would be entitled to cancel the contract and claim a refund of the money it had paid together with interest thereon calculated at a fixed rate from the date of payment to the municipality.
The rezoning application was unsuccessful and Verulam Medicentre cancelled the contract and demanded a refund of the monies it had paid. It claimed a sum of R4 049 369,96 which was made up of R1 141 153,48 that it had paid to the municipality and accumulated interest calculated from the various dates of payment. The municipality opposed the claim on the basis that Verulam Medicentre was, in terms of the in duplum rule, entitled only to the capital sum and equivalent interest.
The Supreme Court of Appeal held that the rule applies only to arrear interest, which in this case it was not, as there was no debt owing until the contract was cancelled. The court held further that the interest agreed upon by the parties was not interest in the ordinary sense but was a means of formulating fair and proper restitution for what had been paid.