Local Authorities Pension Fund v Chegutu Municipality

On 1 September 2005, the defendant municipality executed an acknowledgement of debt in favor of the plaintiff pension fund for $310,495,405.94. This amount comprised capital of $115,078,635.98, interest of $169,938,040.52 (at 308% per annum up to 1 July 2005), collection commission of $8,228,729.94, and legal costs of $17,250,000. The acknowledgement characterized this as a "new loan" and provided for interest at 308% per annum on the total indebtedness from 1 July 2005. The plaintiff issued summons on 17 March 2006 claiming the full amount plus interest. The summons was served on 23 March 2006, but the defendant failed to enter appearance. The plaintiff applied for default judgment on 21 June 2006. The court raised concerns about whether interest exceeded capital and whether the claim violated the in duplum rule.

• Whether the acknowledgement of debt constituted a compromise that would exempt it from the in duplum rule
• Whether interest could exceed the capital amount in violation of the in duplum rule
• Whether a claim for interest on interest violated the in duplum principle
• What amount the plaintiff was entitled to recover in default judgment

The court granted default judgment against the defendant for $255,636.00 (revalued) together with interest thereon at the rate of 308% per annum from 1 November 2006 to the date of payment in full, plus costs of suit on an attorney and client scale.

An acknowledgement of debt will only constitute a compromise exempt from the in duplum rule where there is evidence that: (1) there was a prior dispute between the parties about the monies owing; (2) the debtor was aware of the existence and protection of the in duplum rule; and (3) the debtor made an informed choice to settle obligations including interest above the in duplum maximum through a process of mutual concessions. In the absence of such evidence, the in duplum rule applies to limit accumulated interest to an amount not exceeding the capital sum, with interest freezing at that point and only resuming from the date of judgment.

The court observed that a waiver of the in duplum rule in advance cannot be sanctioned as it would defeat the protective objectives of the rule. However, a compromise ex post facto involves different considerations where a debtor, knowing he cannot be forced to pay accrued interest over the double, agrees for good cause to settle obligations including such interest. In such circumstances, the debtor has put himself outside the purpose of the rule as he is no longer exposed to the evils the rule was formulated to combat, is not being exploited, does not need protection against himself, and is making an informed choice. The court cited with approval the definition of compromise from Georgias: "the settlement by agreement of disputed obligations, or of a lawsuit the issue of which is uncertain, where parties agree to regulate their intention in a particular way, each receding from his previous position and conceding something—either diminishing his claim or increasing his liability."

This case clarifies the application of the in duplum rule in Zimbabwe (which shares common law principles with South Africa) to acknowledgements of debt. It establishes that not every acknowledgement of debt will be treated as a compromise exempting parties from the in duplum rule. The case reinforces that for an acknowledgement of debt to constitute a valid compromise falling outside the in duplum protection, there must be evidence of: (1) a prior dispute about the obligations; (2) the debtor's awareness of the in duplum rule; and (3) a deliberate, informed decision to abandon its protection through a process of give and take. Absent such evidence, courts will apply the in duplum rule to protect debtors from exploitation, even where an acknowledgement of debt appears to waive such protection. This protects debtors from unknowingly or improvidently agreeing to excessive interest charges.