Paulsen and Another v Slip Knot Investments 777 (Pty) Limited

Slip Knot Investments 777 (Pty) Ltd advanced a short-term loan of R12 million to Winskor 139 (Pty) Ltd, a property development company controlled by the Paulsen family trust, in July 2006. The loan carried interest at 3% per month, capitalised monthly, becoming payable after six months. André and Margaretha Paulsen bound themselves jointly and severally as sureties and co-principal debtors. Winskor defaulted in July 2007. Slip Knot, which was not registered as a credit provider under the National Credit Act 34 of 2005 (NCA), instituted proceedings in 2010 against the Paulsens (but not substantively against Winskor) claiming the capital sum and interest. By then, pre-litigation interest had reached R12 million and was capped by the in duplum rule. The Paulsens disputed liability, contending that the loan agreement was invalid under the NCA, that the in duplum rule capped total interest at R12 million, and that interest could not exceed what was claimable from the principal debtor. The matter progressed from the High Court to the Supreme Court of Appeal, and ultimately to the Constitutional Court.

Leave to appeal was granted. The orders of the Western Cape High Court were set aside. The appeal against the Supreme Court of Appeal was upheld only to a limited extent. The Paulsens were ordered, jointly and severally, to pay Slip Knot R12 million capital, interest of R12 million accrued pre-litigation, and further post-judgment interest at 3% per month, capped so that total liability does not exceed R24 million.

The case is significant for clarifying the interaction between sections 4, 40 and 89 of the National Credit Act, confirming that failure to register as a credit provider does not invalidate credit agreements excluded from the Act. It also authoritatively reaffirmed that the common-law in duplum rule is suspended upon the institution of litigation, even in circumstances producing severe financial consequences. Additionally, it is an important early Constitutional Court decision interpreting its expanded jurisdiction under section 167(3)(b)(ii) of the Constitution to hear non-constitutional matters of general public importance.