the induplum rule (Interest cannot exceed the value of the principal debt) as applied by Zimbabwean Courts

Introduction

The in duplum rule is a common law rule in commercial transactions which provides that when unpaid interest has accumulated until it is equal to the initial capital sum loaned or principal debt, it stops accumulating beyond that point unless outstanding interest is reduced by way of a payment.

To illustrate, if A owes a bank USD10 00.00 and interest is running on that amount, if interest runs up to USD10 000.00 and the debt becomes USD20 000.00, interest automatically ceases to rise by operation of the law. This is so even where A and the Bank have entered into a contract that interest shall not cease to run. This rule is based on public policy and is designed to protect the borrower from exploitation by lenders.  

The in-duplum rule as applied and interpreted by Zimbabwean Courts

There are a number of Zimbabwean cases which have thoroughly explained and discussed the in-duplum rule. These include, Georgias & Another versus Standard Chartered Finance Zimbabwe Ltd 1998 (2) ZLR 488 (S); Commercial Bank of Zimbabwe Limited versus MM Builders & Suppliers (Pvt) Ltd & Ors 1996 (2) ZLR 420 (H) and Ehlers versus Standard Chartered Bank Zimbabwe Ltd 2000 (1) ZLR 136 (H), among others.

As already pointed out, the in duplum rule is based on public policy and is designed to protect the borrower from exploitation by lenders.  When unpaid interest has accumulated until it is equal to the initial capital sum loaned, it stops accumulating beyond that point unless outstanding interest is reduced by way of a payment.  However, in the event that the lender thereafter institutes action for the recovery of the capital plus interest thereon, the interest begins to run afresh from the date of litis contestatio (the date of service of summons). 

The courts in Zimbabwe have accepted and declared that the in duplum rule is part of the common law of Zimbabwe. The courts have pointed out that the rule applies to all debts where the capital sum is to be repaid together with interest.  However, a diligent creditor is not prejudiced where he or she promptly institutes action to compel the debtor to repay their debt thereby avoiding the application of the rule.

In short, irrespective of whether an interest rate has been levied on a loan, once the unpaid cumulative interest at that rate equals the capital amount borrowed, it ceases to accrue further until summons have been issued in terms of the in duplum rule. The courts have seen this common law method of controlling the amount of interest which can be charged as the most effective way of ensuring that debtors are not unjustly disadvantaged especially where usurious rates of interest are being charged by lenders.

Can parties waive the application of the in-duplum rule?

The Supreme Court of Zimbabwe in the case of Georgias & Another (cited above), emphasized that the rule cannot be waived either in advance or during the course of a loan.  Furthermore the rule cannot be excluded by means of a contractual provision between the parties at the time they contract. The parties in dispute are however not prohibited from compromising once a suit has commenced. The parties may either diminish the size of their claim or increase their liability to ensure an amicable resolution of the matter. 

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