Section 1(1) of the Prescribed Rate of Interest Act, 1975 (Act 55 of 1075) (“the Act”) (link), provides for the calculation of interest at a prescribed rate on an interest-bearing debt where the rate is not governed by any law, agreement or otherwise.
If, in your contract, agreement or terms and conditions, parties agree upon an interest rate that will be charged in the event of a default, then that agreed-upon rate will override the prescribed rate of interest set by the Act.
If there is however no agreement as to what interest rate will be charged, the parties will then default to the then-current prescribed rate of interest that most people (who sue, or have been sued) are all too familiar with.
The previous rate of interest was prescribed by Government Notice No. R. 1847 of 1 October 1993 at 15.5% per annum and has been used for the past 20 years by attorneys and clients alike.
The Minister of Justice and Constitutional Development has since deemed that this rate is no longer market-related, and in March 2014 he called for comments on decreasing the rate by 6% to 9%. The proposed 9% interest rate was calculated by taking into account the repo-rate (then 5.5% per annum) and adding to that a “margin” of 3.5%.
Since then, there have been numerous changes to the prescribed rate of interest, which can be seen below –
| Date range | Rate of interest |
| 1 October 1993 – 31 July 2014 | 15.5% pa |
| 1 August 2014 – 29 February 2016 | 9% pa |
| 1 March 2016 – 30 April 2016 | 10.25% pa |
| 1 May 2016 – 31 August 2017 | 10.50% pa |
| 1 September 2017 – 30 April 2018 | 10.25% pa |
| 1 May 2018 – 31 December 2018 | 10% pa |
| 1 January 2019 – 31 August 2019 | 10.25% pa |
| 1 September 2019 – 29 February 2020 | 10% pa |
| 1 March 2020 – 30 April 2020 | 9.75% pa |
| 1 May 2020 – 31 May 2020 | 8.75% pa |
| 1 June 2020 –30 June 2020 | 7.75% pa |
| 1 July 2020 – 31 August 2020 | 7.25% pa |
| 1 September 2020 – 31 December 2021 | 7.00% pa |
| 1 January 2022 – current | 7.25% pa (up 0.25%) |
Any legal practitioner which has been involved in litigation knows that legal actions take years to resolve. A question therefore arises is in light of the changing interest rates over the period, which rate will be applicable to the calculation of interest? Will interest remain fixed at 15.5% when the matter commenced or do you break up your calculation according to the periods for when the specific rates applied?
In the case of Davehill (Pty) Ltd & Others v Community Development Board 1988 (1) SA 290 (A), the Appellate Division held that:
“The rate prescribed under ss (2) at the time when interest begins to run governs the calculation of interest. The rate is fixed at that time and remains constant. Subsection (1) does not provide for the rate to vary from time to time in accordance with adjustments made to the prescribed rate by the Minister of Justice in terms of ss (2). The fact that the Minister may from time to time prescribe different rates of interest therefore has no effect on the rate applicable to interest which has already begun to run.”
The only exception to the above method of calculation is where ‘a court of law, on the ground of special circumstances relating to that debt, orders otherwise’… Special circumstances’ are not defined in the Act. It is not necessary for the purposes of the present appeal to consider what circumstances in any given case must needs [sic] depends upon the facts and circumstances of that case. What is clear is that the special circumstances must relate to a particular debt, not to debts in general. The mere fact that the Minister may from time to time vary the prescribed rate of interest in terms of ss (2), a matter affecting debts in general, cannot per se constitute a special circumstance relating to a particular debt.”
The position is therefore that unless special circumstances exist which would compel the court to apply a different interest rate, the rate which applied at the commencement of the matter applies irrespective of any changes to interest rate.
