De Vasconcelos and Others v Business Partners Limited

In 2009 the first appellant, Mr De Vasconcelos, acting through Eastprop Property Trust, sought funding for working capital for businesses conducted through close corporations owned and controlled by him. After negotiations, Business Partners Ltd agreed in December 2011 to lend R8 million to the Trust. Two agreements were concluded: a loan agreement providing for interest at prime plus 1% repayable over seven years, secured by suretyships from the appellants; and a separate royalty agreement obliging the Trust to pay a royalty calculated as the higher of approximately R12.9 million or 24% of the future value of the Trust’s property, payable at the end of the loan term or earlier upon default. The Trust defaulted on the loan, settled the outstanding loan capital in 2015, but failed to pay the royalty. Business Partners sued the appellants as sureties for the royalty amount. The appellants resisted liability, contending that the royalty was in truth disguised interest, was usurious, contra bonos mores, and that the in duplum rule applied.

The appeal was dismissed with costs, including the costs of two counsel.

The case clarifies the application of the common-law usury and public policy doctrines in commercial lending transactions outside the National Credit Act. It confirms that high returns or additional payment structures, such as royalties linked to property value, are not per se unlawful and will be enforced where freely and knowingly agreed. The judgment also limits the application of the in duplum rule by distinguishing between interest on a loan and other payment obligations arising from the same transaction.