Interest often has a material effect on the amount owed by a debtor. This is also true in the case of unliquidated debts, such as damages of which the amount is only ascertainable after an investigation.
In a claim for an unliquidated debt, a debtor was traditionally not held liable for interest in the absence of an agreement as to quantum or until such time as the amount had finally been assessed by a court or arbitrator.
In 1997 the legislature stepped in by means of an amendment to the Prescribed Rate of Interest Act, No 55 of 1975 (Act), when it inserted s2A into the Act. Section 2A provides for interest on unliquidated debts.
Such interest shall run from the date on which payment of the debt is claimed by service on the debtor of a demand or summons (or, in the case of arbitration proceedings, the date on which the creditor takes steps to commence the proceedings), whichever date is the earlier.
'Demand' means a written demand, setting out the creditor's claim in such a manner as to enable the debtor reasonably to assess the quantum thereof.
Interest shall be calculated at the rate prescribed by the Minister of Justice by notice in the Government Gazette as at the time when such interest begins to run (ie the date of service of a demand or summons or the date of commencement of arbitration proceedings, whichever date is the earlier). Currently the prescribed rate is 15.5% per annum. There are, however, indications that this rate will shortly be amended by the Minister.
Interest on that part of a debt which consists of the present value of a loss which will occur in the future, shall not commence to run until the date upon which the quantum of that part is determined by judgment, arbitration or agreement.
Notwithstanding the provisions of the Act, but subject to any other law or an agreement between the parties, a court of law, or an arbitrator or arbitration tribunal may however make such order as appears just in respect of the payment of interest on an unliquidated debt, the rate at which interest shall accrue and the date from which interest shall run.