Johannesburg - The Constitutional Court will hear an appeal on Tuesday on whether a credit provider's failure to register under the National Credit Act invalidates a loan agreement that is exempted from regulation.
The court will also be asked to look at whether a surety can be held liable for accumulated interest greater than the capital amount of a loan.
In 2006, the Paulsen couple entered into a bridging finance agreement, through the company Winskor 139, to borrow R12 million from Slip Knot Investments 777, with interest calculated at three percent a month.
The Paulsens, in their personal capacity, signed a deed of suretyship in favour of Slip Knot as security for the loan.
In 2007, Winskor defaulted on the loan repayment to Slip Knot.
There was a large amount of accrued interest.
Slip Knot took the matter to the Western Cape High Court and was successful in seeking repayment from the Paulsens.
They then appealed to a full Bench of the court.
The high court confirmed that they owed the capital amount, but held that the interest awarded be limited at R12m under a rule which provides that interest stops accruing on a debt once it reaches the capital amount.
The Supreme Court of Appeal agreed that the Paulsens owed the capital sum, but found that the rule on interest ceases when litigation starts.
This meant interest continued to accrue between the start of litigation and the high court judgment.
This resulted in an award of more than R12m in interest.
The Paulsens will argue in the Constitutional Court that Slip Knot was required to register as a credit provider under the act, even though the loan agreement was exempted from its regulations and requirements.
They argue that, as Slip Knot was not registered, the loan agreement was unlawful and void.
Alternatively, they will argue that the rule on interest should apply and limit their debt in this respect to R12m.
Slip Knot will counter that it was not required to register because it exclusively provided bridging finance loans to large-scale property developers, all of which were exempt from the act.
Even if it was registered, the loan agreement was not subject to the act, and its failure to register could not render the agreement invalid.
It will contend that the SCA's finding on interest was legally correct and based on sound public policy considerations. - Sapa