AMENDMENTS TO THE PRESCRIBED RATE OF LEGAL INTEREST

LEGAL BRIEF MARCH 2016The Judicial Matters Amendment Act 24 of 2015, insofar as the changes

to the Prescribed Rate of Interest Act 55 of 1975 are concerned, came into

immediate effect on 8 January 2016.

INTRODUCTION

Section 1 of the Prescribed Rate of Interest Act has been amended as

follows –

“Rate at which interest on debt is calculated in certain

circumstances”

1. If a debt bears interest and the rate at which the interest is to be

calculated is not governed by any other law or by an agreement

or a trade custom or in any other manner, such interest shall be

calculated at the rate contemplated in subsection (2)(a) as at the

time when such interest begins to run, unless a court of law, on

the ground of special circumstances relating to that debt, orders

otherwise.

2. (a) For the purposes of subsection (1), the rate of interest is the

repurchase rate as determined from time to time by the South

African Reserve Bank, plus 3,5 percent per annum.

(b) The Cabinet member responsible for the administration

of justice must, whenever the repurchase rate is adjusted by

the South African Reserve Bank, publish the amended rate of

interest contemplated in paragraph (a) by notice in the Gazette.

(c) The interest rate contemplated in paragraph (b) is effective

from the first day of the second month following the month in

which the repurchase rate is determined by the South African

Reserve Bank.

3. For purposes of this section-

(a) “repurchase rate” means the rate at which banks borrow rands

from the South African Reserve Bank; and

(b) “South African Reserve Bank” means the central bank of the

Republic regulated in terms of the South African Reserve Bank

Act, 1989 (Act No. 90 of 1989).”

It is evident from the aforegoing that the rate of interest will now only

change on the first day of the second month following any change

in the repo rate – for the intervening period from any change, the

previous rate of interest will be of application.

Whilst the Prescribed Rate of Interest Act requires the Minister of

Justice to gazette any changes in rate, the change in legal rate does

not appear to be conditional upon his/her compliance with this step.

On a reading of the relevant amended section, it appears that the

change is in any event automatic.

In terms of the provisions of the Interpretation Act 33 of 1957,

“month” means a “calendar month” – i.e. February, March, April etc.

(as opposed to a 30 day cycle). Accordingly, the second month from

the date of the repo rate change will be determined with reference to

the calendar cycle and apply from the first day of the second month

after the change is made.

By Jennifer Smit, Director and Darren Willans, Director

The current rate of legal interest is linked to the repo rate applicable

prior to the time of gazetting (on 8 January 2016), being 6.25%.

The legal rate of interest is, as of 8 January 2016, linked to a value which

is 3.5% above the prevailing repo rate. As such, from 8 January (and

currently) the prevailing legal rate of interest is 9.75% per annum.

The latest change in the Repo rate was effected on Thursday, 28 January

2016, in the form of an increase of 50 basis points. This change will only

affect the legal rate of interest from 1 March 2016, at which point the

legal rate of interest will become 10.25%.

THE RATE OF INTEREST APPLICABLE TO DEBT

The rate of interest applicable to a debt will be the rate which prevails at

the time when the debt arose, and shall not alter through the course of

any legal proceedings brought, regardless of any intervening changes in

rates. This principle has been confirmed in a number of cases, including -

> Davehill (Pty) Ltd and Others v Community Development Board

1988 (1) SA 290 (A); and

> Crookes Brothers Ltd v Regional Land Claims Commission for

the Province of Mpumalanga and Others [2013] 2 All SA 1 (SCA).

In applying these principles to practical examples –

> if your debt arose on or before 7 January 2016, the legal rate of

interest would run at the prescribed rate then prevailing, being

9% (the previously Gazetted rate applicable from 1 August 2014);

> if your debt arose on or after 8 January 2016, the legal rate of

interest would be 9.75%;

> if your debt arises on or after 1 March 2016, the legal rate of

interest will be 10.25%; and

> the interest rate will thereafter adjust on the first day of

the second calendar month after any change in the repo

rate, as applicable, and will apply until the debt is recovered,

irrespective of any intervening changes.

DATE RANGE

1 October

1993 –

31 July 2014

1 August

2014 –

7 January

2016

8 January

2016 –

29 February

2016

1 March

2016 –

DATE OF INTEREST

15.5%pa 9%pa 9.75%pa 10.25%pa

CONCLUSION

Having regard to this recent amendment to the rate of legal interest, the

repo rate (and the consequent interest rate) is something to be closely

monitored and to be aware of when bringing (or facing) claims in future.

Legal notice: Nothing in this publication should be construed as legal advice from any lawyer or this firm. Readers are advised to consult professional legal advisors for guidance on legislation which may affect their businesses.

© 2016 Werksmans Incorporated trading as Werksmans Attorneys. All rights reserved.

ABOUT THE AUTHORS

JENNIFER SMIT Title: Director

Office: Johannesburg

Direct line: +27 (0)11 535 8447

Email: jasmit@werksmans.com

DARREN WILLANS

Title: Director

Office: Johannesburg

Direct line: +27 (0)11 535 8324

Email: dwillans@werksmans.com

Jennifer Smit has been with Werksmans Attorneys since 2007. She has wide ranging experience

in commercial litigation and dispute resolution and is currently a director in the firm’s Insolvency,

Business Rescue & Restructuring practice as well as the Construction & Engineering practice.

Jennifer specialises in liquidations, compromises and business rescue proceedings and has

extensive experience in property disputes, interdicts, leases, sales, general contractual disputes

as well as construction and engineering disputes and advice in relation to the FIDIC and JBCC

contract forms.

Jennifer was awarded a BA LLB from Rhodes University in 2002. Her academic achievements are

extensive and include being on the Dean’s List for Outstanding Academic Achievement for three

years running at Rhodes and being awarded a Georgia Rotary Student Program Scholarship to

study in the United States for a year.

Most recently, Jennifer completed the AIPSA Insolvency diploma course cum laude at the

University of Johannesburg (2011).

Darren Willans has been a director at Werksmans Attorneys since 2009 and is part of the firm’s

Litigation & Dispute Resolution and Financial Services Regulation practice areas.

He specialises in litigation and dispute resolution with a particular focus on pension fund

litigation, as well as a range of litigation relating to the banking industry and the mining industry.

In addition to having obtained B Com and LLB degrees, Darren has also completed a certificate

course in Pension Fund Law at the University of South Africa.

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