Winskor 139 (Pty) Ltd sought to purchase and resell a portfolio of properties and required short-term bridging (mezzanine) finance of R12 million. Slip Knot Investments 777 (Pty) Ltd advanced the loan on terms providing for a guaranteed minimum ‘interest’ return of R17 million, linked to profits but payable regardless of profit. André and Margaretha Paulsen bound themselves as sureties and co-principal debtors for Winskor’s obligations. Winskor failed to repay the loan following the economic downturn. Slip Knot sued the Paulsens for the capital and interest. The Paulsens argued that the loan agreement was invalid because Slip Knot was not registered as a credit provider under the National Credit Act 34 of 2005 (NCA), and alternatively that the interest claimed was limited by the in duplum rule.
The appeal by the Paulsens was dismissed with costs. The cross-appeal by Slip Knot succeeded. The order of the full court was amended to permit recovery of the capital amount of R12 million, interest up to the duplum prior to litigation, further interest after commencement of proceedings and after judgment, subject to the in duplum limitation, and costs including the costs of two counsel.
The case clarifies that excluded credit agreements under the NCA cannot be invalidated using Chapter 5 provisions, particularly s 89(2)(d). It affirms that mezzanine or high-risk commercial loans to large juristic persons fall outside the consumer-protection framework of the NCA. The judgment is also significant for its authoritative application of the in duplum rule, especially regarding the accrual of interest against sureties after litigation commences, even where the principal debtor is not sued.