Mora interest is charged when a payment is not made timeously, and an interest rate has not been agreed upon between the parties, determined by trader custom or prescribed by law. Parties can avoid the application of mora interest by agreeing to a different interest rate, subject to other applicable laws such as the National Credit Act, which may limit the amount of interest that can be charged.

The basis for the provision of mora interest is the common law right to claim interest. This reasoning is based on the notion that creditors suffer damages because of tardy payments by debtors. In Land Agricultural Development Bank of South Africa v Ryton Estates (Pty) Ltd and Others 2013 (4) SA 385 (SCA) the Supreme Court of Appeal held that interest is the “life-blood of finance” and that late payments by debtors cause deprivation to the creditors as they are unable to use those funds in a productive manner.  Due to mora interest’s position as a representative of damages, the rate at which it is charged cannot be determined by agreement.

The Prescribed Rate of Interest Act, 55 of 1975 (the “Act”) determines the rate at which mora interest is calculated.

Section 1(1) of the Act provides that:

“If a debt bears interest and the rate at which interest is to be calculated is not governed by any other law or by an agreement or trade custom or in any other manner, such interest shall be calculated by 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.”

Section 2(a) of the Act determines that the rate of mora interest is the repurchase rate as determined from time to time by the South African Reserve Bank, (“the Repo Rate”) plus 3,5 percent per annum, which rate must be published by the Department of Justice and Correctional Services, from time to time, by notice in the Government Gazette. The rate will become effective from the first day of the second month following the month in which the Repo Rate is determined by the South African Reserve Bank. 

The High Court in Da Cruz v Bernardo 2022 (1) All SA 414 (GJ) found that while the provisions of the Act are to be interpreted in light of the existing common law, the common law will yield where there is a conflict between the statutory provision and the common law position, the former being taken to amend the latter. 

In Davehill (Pty) Ltd vs Community Development 1988 (1) SA 290 (A) the Appellate Division ruled that the prescribed rate at the time when mora interest begins to run is fixed at that time and remains constant, notwithstanding that the Minister may from time to time prescribe different rates. This was confirmed by the Supreme Court of Appeal in Crookes Brothers Ltd v Regional Land Claims Commission for the Province of Mpumalanga and others 2013 (2) SA 1 (SCA) where the SCA found that the rate of mora interest is fixed at the time when the debtor is placed in mora. In other words, for a creditor to become entitled to such interest, there must be a due date for payment, or a demand made for payment by the creditor. The creditor is then entitled to charge mora interest from such date at the prevailing rate.

Here follows a table of the changes in the prescribed rate since 1993:

Mora interest is a principle that remains ever-present, not only in commerce but also in the lives of many South Africans. As the South African debt crisis worsens, everyone should have a clear understanding of how and when interest is charged on debt.

As a number of applicable principles and legal instruments must be considered, specialist legal advice should be taken by both creditors and debtors before incurring debts or concluding agreements which incorporate interest provisions.