ARTICLE · 12 FEBRUARY 2014

Are Acceleration Clauses Contrary To Public Policy?

Cox Yeats

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A court ruling by Cape Town Judge Dennis Davis in the case of Combined Developers v Arun Holdings & Others (6105/2013) [2013] ZAWCHC 132 has raised concern for financial lenders across the country as to the validity of acceleration clauses in loan agreements.

South AfricaFinance and Banking

Callyn Wilkinson

A court ruling by Cape Town Judge Dennis Davis in the case of Combined Developers v Arun Holdings & Others (6105/2013) [2013] ZAWCHC 132 has raised concern for financial lenders across the country as to the validity of acceleration clauses in loan agreements.

Acceleration clauses provide comfort to lenders, affording them the right to call for repayment of an entire outstanding loan amount if a borrower defaults in paying his instalments. Traditionally, courts do not lightly interfere with contracts and ordinarily give effect to the intentions of the parties when contracting.

LETTER OF DEMAND

In the Combined Developers case, the debtor borrowed money from the lender and failed to pay an instalment on the due date. The lender sent an email to the debtor, which when translated into English, read along the following lines:

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