An application to court for repayment of a loan requires more than just an admission of liability from the debtor. Creditors must still prove the amount owing, especially when interest is being claimed. The court, in Merchant Commercial Finance 1 (Pty) Ltd t/a Merchant Factors v Valoworx 33 CC and Others (16399/2023) [2024] ZAWCHC 377, reaffirmed that even where interest is contractually agreed upon, the court requires clear and accurate evidence to support the claim.
This matter concerned a series of loans advanced by Merchant to Valoworx. After Valoworx defaulted on these loans, the parties entered into a settlement agreement in which Valoworx admitted its indebtedness for just over R1 million, coupled with interest calculated at 3% for every 30 days that the debt remained owing. Only a small portion of the debt was repaid, and Merchant applied to court to recover the balance.
The calculation of interest became the key issue before the court. Valoworx argued that the interest rate was excessive, that it exceeded the in duplum rule (the legal rule that says that interest claimed may never exceed the capital), and that Merchant had failed to prove how the amount of interest was calculated. These arguments were based on a certificate that Merchant provided as part of its claim, which contained an interest amount that was more than the original principal and thus clearly contravened the in duplum rule.
When the accuracy of the certificate of balance was challenged, Merchant accepted that the in duplum rule applied and agreed to submit an updated certificate reflecting the correct calculation of interest. However, they failed to do so. To make matters worse, Merchant incorrectly applied the 3% interest rate by calculating it per calendar month instead of per 30 days, as provided for in the agreement.
Merchant then attempted to dismiss these issues entirely, arguing that the certificate of balance was irrelevant due to the admission of liability contained in the settlement agreement and that interest can be calculated in compliance with the in duplum rule by simply doubling the unpaid capital amount.
The court rejected this proposed calculation and stated that a certificate of balance is an important piece of evidence as it serves as prima facie proof of indebtedness, meaning that it shifts the burden to the debtor to challenge the amount claimed. However, without an accurate certificate of balance or precise calculation showing how the interest was determined, the court cannot simply assume that doubling the unpaid capital amount is correct. It further emphasised that it is not the responsibility of the court to calculate interest on behalf of the creditor.
Despite this, the court granted an order for the capital amount, together with interest at the agreed-upon rate, instructing Merchant to calculate the interest in accordance with the settlement agreement. However, the court could easily have refused to award interest altogether due to the lack of supporting evidence. Had Merchant submitted the updated certificate of balance with the correct calculation of interest, no further proof would have been required, and their claim would have been easily established.
This case offers valuable insight for creditors seeking to recover debt along with interest, and for debtors entering into loan agreements containing interest provisions. While interest rates contained in agreements will generally be upheld, interest remains subject to the in duplum rule, which serves to protect debtors. The strength of a claim does not solely depend on the agreement, but also on the supporting evidence. Clear calculations and well-prepared documents are essential in proving a claim in court.
This article was penned by Wildu du Plessis and Kiara Davey.