Interest – defined as the cost of borrowing money – has often been viewed with suspicion since time immemorial. Interest rates can vary widely, depending on a range of factors including the credit risk of the borrower and the specific characteristics of the loan. But there is no single yardstick, and ultimately the interest rate applicable to a loan is a matter of agreement between the lender and the borrower, who may, of course, enter into the transaction with highly asymmetrical bargaining power.
Recognising the potential for lenders to overreach and to abuse their position, the law offers remedies to borrowers who have been taken advantage of. In South Africa, the National Credit Act, 2005 (“NCA”) sets maximum rates of interest for various categories of credit transactions to which the NCA applies. In these instances, figuring out whether interest is usurious – in other words, unconscionable and impermissible – is a simple matter of looking at the rate and seeing whether it falls below the legislated maximum. But, when a transaction is not covered by the NCA – for example, when the borrower is a corporate entity with an asset value or annual turnover of over R1 million – then a borrower wishing to dispute an agreed rate of interest would have to fall back on the common law regarding the usury, a concept that carries a charge of moral condemnation as well as legal impermissibility. The recent widely reported case involving the Nova Property Group (“Nova Group”)and Beneficio Developments (Pty) Ltd[1] (“Beneficio”) illustrates the applicable legal principles.
Tarentaal, a Nova Group company, had procured short-term (three months) bridging finance from Beneficio to enable it to meet obligations to creditors while the sale of certain of its immovable properties (shopping centres in Mpumalanga) remained pending. The proceeds of those sales would go towards repaying the loans. The interest rate of 1.25% per week that had applied to previous transactions between the same parties was reduced by agreement to 1% per week, capitalised monthly. Security in the form of bonds over immovable property was provided by Tarentaal and by another entity in the Nova Group, which also stood surety for the debt. When Tarentaal defaulted, Beneficio claimed judgment for the capital and interest and called up the security. Tarentaal defended the claim on the grounds that the agreed interest rate was excessive and unconscionable, and therefore fell to be set aside as being void and unenforceable, contrary to public policy, unlawful, and unconstitutional. Tarentaal declared its intention to take the matter all the way to the Constitutional Court if necessary.
The High Court found against Tarentaal and upheld the agreed interest rate. Quoting extensively from the leading Supreme Court of Appeal (SCA) case on usury[2] (African Dawn), the Court held that since there is no fixed rate of interest in South Africa beyond which a loan becomes usurious, the rate itself is not the decisive criterion. Rather, in order to constitute usury, there must be an element of extortion, oppression or something “akin to fraud” – a formulation that has been consistently applied by South African courts since the turn of the 20th century. Without this additional element, an eye-wateringly high interest rate on its own does not demonstrate usury because a high rate may be appropriate in relation to a high credit risk.
In this case, it was conceded by the Nova Group’s expert witness that the interest rate charged by Beneficio was consistent with rates charged for similar transactions by similar providers of bridging finance. Furthermore, none of the entities in the Nova Group were in a position to approach traditional banks or financial institutions for money due to their extremely high-risk profile – and in any event, the banks would not have provided bridging finance on the urgent basis required. Consequently, the Nova Group approached Beneficio, freely and voluntarily, and entered into the relevant transactions after actively negotiating the interest rate downwards from the rate that the same parties had agreed on in previous transactions. All of this was found to be inconsistent with any suggestion that the agreed interest rate was extortionate, oppressive or akin to fraud. The Court gave short shrift to Tarentaal’s argument that the interest rate offended against the constitutional rights to freedom of trade and to property, finding that neither of those rights was affected by a voluntarily negotiated and agreed interest rate.
Upholding the High Court’s decision, the SCA confirmed the established test for usury as enunciated in Africa Dawn, which the Court found no reason to disturb. The SCA noted that Tarentaal did not present any evidence of oppression, extortion or something akin to fraud, but instead confined itself to public policy arguments for its submission that the African Dawn test places the bar too high. The SCA cautioned against leaving the interpretation of the term “usurious” to the subjective opinion or whim of a particular judge, depending on his or her personal perceptions of fairness and good faith, since this would militate against a clear formulation of the law and adversely impact the rule of law itself. It further held that public policy generally requires that contracts freely and voluntarily entered into must be honoured, while leaving the door open for the Court to declare invalid a contract that is inimical to a constitutional value or principle – a power that will however be used sparingly and only in the clearest of cases, and not where a party “relies directly on abstract values of fairness and reasonableness to escape the consequences of a contract”.
The test for usury is thus clear, and seemingly impervious to attack based on mere feelings of unfairness about a high rate of interest. But question marks remain: for example, given that contracts induced by fraud, duress and undue influence are in any event voidable, what does the additional categorisation of an interest rate as “usurious” add? “Extortion” is clear enough and would be grounds for voiding a contract on its own; but what does “oppression” mean? It seems to imply some kind of abuse of a dominant position – but in deciding whether this has occurred in a particular instance, a court would be hard pressed to avoid value judgments altogether. And then there is the cryptic “something akin to fraud”, about which we can only definitively say that it presumably involves some element of dishonesty falling short of fraud.
Regardless of these lingering uncertainties, and barring the unlikely event of Tarentaal’s arguments finding favour with the Constitutional Court, corporate borrowers will be discouraged in future from trying to argue henceforth that they should be released from high rates of interest merely on the grounds of a perception of unfairness.
This article was penned by Pierre Burger.
[1] Tarentaal Centre Investments (Pty) Ltd v Beneficio Developments (15/24) [2025] ZASCA 38 (8 April 2025)
[2] African Dawn Property Finance 2 (Pty) Ltd v Dreams Travel & Tours CC 2011 (3) SA 511 (SCA)