African Banking Corporation Zambia Limited (T/A BancABC) v Chat Milling Company Limited and Ors (CAZ APPEAL No. 88/2017) [2020] ZMCA 191 (19 February 2020)

IN THE COURT OF APPEAL OF ZAMBIA HOLDEN AT KABWE (Civi~ Jurisdiction) CAZ APPEAL No. 88/2017 IN THE MATTER OF: ORDER 30 RULE 14 OF THE HIGH COURT RULES AND ORDER 88 RULE 1 OF THE RULES OF THE SUPREME COURT OF ENGLAND 1999 EDITION IN THE MATTER OF: THE THIRD PARTY MORTGAGE AND FURTHER CHARGE OVER STAND NO. 4161 KITWE BETWEEN: AFRICAN BANKING CORPORATION ZAM. BIA LIMITED (T/A BancABC) .. •. r ) •• ,.,, .-, AND \'" •- ., . 1 9 FtB 20 .. .~0 CHAT MILLING COMPANY LIMITBD H._ ,_ V ' \ I'_ , ., GOODWARD MULUBWA CHAT MILLING (KITWE) LIMITED SWIFT MILLING LIMITED SWIFT CARGO SERVICES LIMITED L . ~ ·· · . . ., " . . . ,: I ) , :~ / •. , , • APPELLANT 1 ST RESPONDENT 2ND RESPONDENT 3RD RESPONDENT 4TH RESPONDENT STH RESPONDENT CORAM: CHISANGA JP, CHISHIMBA AND KONDO LO SC, JJA On 4 th October, 2017 and on 19th February, 2020 For the Appellant : Mr. K Wishimanga of Messrs AM Wood & Company For the Respondents : Mr. M. Haimbe of Messrs Sinkamba Legal Practitioners JUDGMENT - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----::,-=------- KONDOLO SC, JA delivered the Judgment of the Court CASES REFERRED TO: 1. S. Musonda (Receiver of the First Merchant Bank Ltd) v Hyper Foods Products Limited and Others 2. Reeves Malambo v Patco Agro Industries Limited SCZ/20/2007 3. Campbell v Holy Land ( 1877 -8) 7 Chancery Division, p.166 OTHER WORKS REFERRED TO: 1. Halsbury's Laws of England Volume 27, 3 rd Edition 2. Fisher & Lightwoods Law of Mortgages, paragraph 22.1, 11 th Edition, Butterworths LexisNexis Page 2 of 25 This is an Appeal against a Ruling of the High Court whose facts arise from a Mortgage action. The background is that the Appellant provided the 1st Respondent with an overdraft facility secured by a 3 rd Party Mortgage and Further Charge executed by the 2 nd Respondent. It was further secured by Guarantees executed by the 3 rd , 4 th and 5 th Respondent. The 1st Respondent defaulted and the Court entered Judgment in the sum of K6,602,774 plus interest and costs which if not paid within 120 days, the Appellant would be at liberty to foreclose on Stand No. 4161, Ki twe ("the Property"). The Respondents failed to pay and the Appellant foreclosed and took possession of the property. However, after possession occurred, a company called Luanshya Milling Limited (the Claimant) commenced Interpleader Proceedings claiming ownership of the Plant and Equipment stationed on the mortgaged property and obtained a Ruling in its favour. The Parties then, on 21 st October, 2015 sealed a Consent Order which provided for the joint sell of the property to prospective buyers and that if the effort failed, the Appellant would be at liberty to advertise the property and sell , Page 3 of 25 it to the highest bidder. The joint effort failed and the Appellant advertised the sale of the property in the press for the reserve price of K7 ,000 ,000. In the meantime , the 5 th Respondent made overtures to the Appellant requesting that it pays off the Judgment debt. Following various correspondence between the Parties, the 5 th Respondent started paying the Appellant instalments of money and when the instalments totalled the sum of K7,074,277 the 5 th Respondent informed the Appellant that according to its understanding the payment of K7,074,277 constituted full and final settlement of the Judgement debt. The Appellants position was that the debt could only be considered fully paid after the principal sums due plus interest had been paid. The Respondents then applied to the Court for an order that the Judgment debt had been settled or redeemed. The Court held that the Judgment debt had been settled and that the Appellant was not entitled to continue being in possession of Stand No . 4161 , Kitwe. In assailing the decision of the High Court, the Appellant has advanced the following grounds: 1. The learned Judge in the Court be low misdirected himself in law and in fact when he found and held that the Respondents debt had been Ju lly settled contrary to the law Page 4 of 25 and evidence on record. 2. The learned Judge in the Court be low misdirected himself in law and fact when he held that the Appellant was not entitled to continue in possession of Stand No. 4161 Kitwe contrary to established law and the evidence on the record. 3. The learned Judge misdirected himself in law and in fact when he held that the Respondents equity of redemption had not been extinguished contrary to the law. In the arguments in support of the Appeal, learned Counsel for the Appellant submitted in ground one that the learned trial Judge in the Ruling at page 22 of the Record of Appeal, acknowledged that interest and costs had not yet been paid but still proceeded to find and order that the debt had been settled. The nucleus of the argument is that the Judgment debt comprised not only the principal sum but also the interest which as at 3 rd August, 2016 stood at K3,777,637. Mr. Wishimanga further submitted that the lower Court erred when it equated the advertised sum of the property at the reserve pnce of Page 5 of 25 K7,000,000 with what was owed to the Appellant under the Judgment. He called to aid several authorities that state that a mortgagor, after the date of redemption, is liable not only to the principal sum due but also the interest accrued thereon. He also argued that the lower Court did not consider that despite the purported payment of K7,074,277, the reason for the sell was on the premise that the Judgment debt remained unsettled. Learned Counsel referred the Court to the fact that the payment was made over a period of time and that no recovery was made post the advert to sell the mortgaged property thereby the payment was a payment towards the Judgment debt and that the property was never sold to the Respondents. Lastly, Counsel submitted that there was no waiver of rights in this case because the Appellant at no time indicated to the Respondent that it will not enforce its rights in the property. Having indicated to the Respondents that interest remained due, there could not have been a waiver of rights. In ground two, learned Counsel essentially rehashed his arguments in support of his position in ground one that the only way to redeem the property was after payment of the full amount owing and so long as payment of interest was still outstanding, the Appellant maintained it s Page 6 of 25 rights in the property. In support of ground three , Mr. Wishimanga argued that the equitable right of redemption was extinguished after a foreclosure was ordered thus the lower Court fell into error, in both law and fact , when he h eld that the equity of redemption had not been extinguished. Counsel relied on the case of S. Musonda (Receiver of the First Merchant Bank Ltd) v Hyper Foods Products Limited and Others (ll , where the Suprem e Court held that an absolute foreclosure extinguishes the equity of redemption and vests the mortgagor's entire interest in the property in the Mortgagee so that the property belongs to the Mortgagee absolutely . Lastly, it was submitted that the Mortgagee's right to foreclosure was later confirmed by the Consent Order. The Respond en ts ' Counsel in response to ground one, argued that the Judgment debt was settled and that by a letter dated 15th June, 2016 , the Appellant acquiesced to the 5 th Respondent settling the debt. Mr. Haimbe submitted that the lower Court did not acknowledge that interest and costs remained unpaid but argued that the trial Judge merely articulated his sentiments that the Respondents ' equity of redemption remained after foreclosure and before sale thereby making the mortgage redeemable by paying the outstanding interest and costs. Page 7 of 25 Mr. Haimbe spiritedly argued that the Consent Order was the governing Order and that the Appellant could not at a later point backtrack and rely on the contents of the Judgment. He submitted that he supported the trial Court's finding that the Appellant did not controvert or deny the contents of the Affidavit in support of the Originating Summons where it was averred that the Bank's employees had told the 5 th Respondent that if he paid the Appellant the sum of ZK7, 000, 000, the debt would be considered paid and the property would not be sold. He argued that failure to controvert facts averred in an affidavit amounted to an admission of those facts. Mr. Haimbe further submitted that on 13th June, 2016 the 5 th Respondent wrote, offering to settle the debt and that the Appellant agreed by a letter dated 13th June, 2016. The 5 th Respondent then paid an initial sum of K3,000,000 and that this was also not controverted. He summed up by stating that the Respondent acted on the representation that if it paid K7,000,000, the property would not be sold and on that basis the Appellant was estopped from making any further claims from the Respondents. Page 8 of 25 Mr. Haimbe advanced the argument that by the Appellants accepting that payment of K7,000,000 would settle the debt, it had waived its right to demand any more money from the Respondent and that by doing so, the Appellant had acted in bad faith and contrary to the Bankers Association of Zambia-Code of Banking Practice in Zambia. He dismissed the Appellants demand of K3,777,763 in interest on the basis of the above arguments and he stated that, in any event, it was not clear how the sum was arrived at. At the hearing, Mr. Haimbe amplified that the K7, 074,277 paid by the 5 th Respondent was not for the purpose of buying the property but for settling the debt on the basis of the representation by the Appellant that payment of the said sum would settle the debt. He repeated the arguments in the Respondents Heads of Argument and agreed with the trial Judge that the Appellants acceptance of the K7, 074,277 had re-ignited the Respondents' equitable right of redemption. In his submissions Mr. Haimbe pointed out that the Respondents had serious reservations with the manner in which the land had been valued at K7,000,000 in the Valuation Report procured by the Appellant because a previous Valuation Report had valued the land at about US$2,500,000 (approximately K25,000,000) and the bank had 1n previous correspondence with the Respondents valued the land at US$1,200,000 (approximately K12,000,000) which he cited as yet another glaring example of the Appellant's dishonest conduct. Page 9 of 25 In reply, Mr. Wishimanga on behalf of the Appellant repeated his earlier arguments and contended that there was no waiver and that the Judgment debt has not been fully settled. He further submitted that the allegations in the Respondents' Affidavit in Support were controverted in the Affidavit in Opposition wherein it was stated that interest was still outstanding and he argued that the right of redemption cannot be invoked where the debt is still outstanding and for that reason the Appellant is still entitled to possession of the property which property has been foreclosed. Lastly, Mr. Wishimanga submitted that it was rather odd for the Respondent to challenge the Valuation and yet claiming to have paid the amount of K7,000,000 estimated in the Valuation Report as full and final settlement. He added that in any event, the authenticity of the said report was not challenged in the lower Court and therefore cannot be brought up on appeal and must be expunged from the Respondents' arguments. Page 10 of 25 We have perused the Record of Appeal and considered the submissions by Counsel for both Parties in support of and against the Appeal. The three grounds of Appeal advanced by the Appellant shall be dealt with simultaneously because they are intertwined. The Judgment dated 8 th December, 2014 by which foreclosure was enforced was as follows; a. Judgement entered in the sum of ZK6, 601,774 ; b . Interest thereon to continue accruing at the agreed contractual rate up to the end of the moratorium date or date of payment, whichever occurred earlier; c. Thereafter, interest to accrue at the Commercial lending rate as determined by the Bank of Zambia until full satisfaction of the debt. cl. Costs It is therefore crystal clear that the Judgment debt comprised the sum of K6,601,774 plus interest. It is not in dispute that the 5 th Respondent paid the sum of K7, 074 ,277 but the Respondents argue that the payment of the said K7, 074,277 constituted full and final settlement of the Judgment debt for two reasons; a. The sum was paid after the Appellant had represented that if that amount was paid it would consider the Judgment debt Page 11 of 25 settled. b. By advertising a reserve price of K7,000,000 in its advert to the public, the Appellant had in effect estimated the sums of money that would satisfy it in pursuance of the Judgment debt. Much was submitted by both Parties on whether or not the Appellant made such a representation to the 5 th Respondent or at least acquiesced that position. The Respondents argued that the Appellant had, by a letter dated 15th June, 2016 , acquiesced to the 5 th Respondent settling the debt. Further, the Respondents then advised the Appellant, by a letter dated 2 nd August 2016, that they had liquidated the mortgage by paying the sum of K7,000,000 and that the Appellant should withdraw its guards from the premises. The Appellant replied on 3 rd August, 2016 stating that the debt had not been liquidated in full as there was a balance of K3 ,777,637.82 and for that reason the Respondents could not take possession of the property. In summary, the Appellant argues that because interest has not been paid, the Judgment sum remains due. This means that the mortgaged property that belonged to the 2 nd Defendant, is still the Page 12 of 25 subject of foreclosure pursuant to the Judgment of 8 th December, 2014 and the Consent Order dated 22 nd October, 2015. The Respondents on the other hand aver that their entire argument rests on the fact that the Appellant represented that payment of the K7,000,000 would settle the Judgment debt and once the money was paid, no other money was owing thereby re-activating the right to redeem and the Appellant should have discharged the mortgage and yielded possession to the Respondent. The Respondents ' reasoning is that Appellant gave up its rights under foreclosure the moment it executed the Consent Order with the Respondents as the relationship was now governed by the terms of the Consent Order. The payment of K7, 074,277 constituted full and final settlement of the debt after the Parties failed to secure a buyer in terms of the Consent Order and the sum was agreed by the Appellant who had waived its right to claim the Judgment debt ordered in the foreclosure Judgment. In dealing with the issue of whether the Respondents had settled the debt in full, the trial Court stated as follows; "From the foregoing, in my view, the principal question is, 'what was the effect of the Consent Order dated 22nd October, Page 13 of 25 2015?'; The lower Court then stated that: " ... I find that by entering into a Consent Order, the parties to it wanted to be governed by the terms of the Consent Order in determining the disputes both in this cause and in cause 2015/HPC/0036." The trial Court opined that after the Parties failed to find a buyer, instead of exercising its option to sell as provided by the Consent Order, the Appellant entered into further negotiations with the 5 t h Respondent with a view to coming to "final settlement terms" and accepted payments towards settling of the debt. The sum of K7,000 ,000 was paid and it would therefore be inequitable to allow the Appellant to sell the property . The court summed up as follows; "In the event that I were to be wrong, I still do not see how the contention that the equity of redemption was extinguished with the judgement of 8th December, 2014 in the circumstances of this case. After the judgement, the Page 14 of 25 Plaintiff continued to receive payments towards the "Mortgage" until a total of K7,000,000-00 as the "reserve price" on Stand 4161 was paid. The K7,000,000-00 was paid before the sale of Stand 4161. Therefore, in my view, the equity of redemption Mortgage remained after foreclosure and before sale. Up until the sale, the Defendants were entitled to redeem the "Mortgage" by paying the outstanding amount inclusive of interest and costs." The learned trial Judge thereafter ordered that the debt had been settled in full upon the payment of K7,000,000 and any costs that might be ordered. In short, the lower Court found that once the Parties entered into the Consent Order, the Respondents' right to redeem the mortgage re-activated and that the Parties had agreed that the sum of K7,000,000 would represent full and final settlement of the debt. The facts herein disclose that the Appellant was granted a foreclosure order and proceeded to take possession of the mortgaged Page 15 of 25 property. In the case of Reeves Malambo v Patco Agro Industries Limited the Supreme Court held that: "A Mortgagee is at liberty to exercise his right to foreclose and sell the property in the event of default and failure by the mortgagor to redeem the mortgaged property; and that under a legal mortgage by demise, the mortgagee becomes an absolute owner of the mortgage term at law as soon as the day ftxed for redemption has passed". In casu, according to the foreclosure Order, the date fixed for redemption was 120 days after the Order was made. The redemption date passed and the Appellant seized possession of the property. However, according to the case of S. Musonda (Receiver for First Merchant Bank Ltd) v Hyper Food Products Ltd & Others a mortgagor's right of redemption only extinguishes after a decree absolute of foreclosure is obtained. In the cited case, the Supreme Court opined as fallows; "Further, a decree absolute of foreclosure extinguishes the equity of redemption and vests the mortgagor's entire interest in the property in the Mortgage, so that the mortgagor's property belongs to the Mortgagee absolutely .... " Page 16 of 25 According to Fisher & Lightwoods Law of Mortgages, 11 th Edition; "Equity grants the mortgagor an equitable right to redeem after the legal date for redemption has passed. Foreclosure is the process by which the mortgagors equitable right to redeem is extinguished, together with the equity of redemption of all persons claiming through him, including subsequent incumbrances. By granting an equitable right to redeem, equity interfered with the bargain made between the parties to the mortgage; foreclosure mars the limit of equities indulgence to the mortgagor. The mortgagee may bring a claim of foreclosure, asking that the equity of redemption of the mortgage and all persons claiming through him is extinguished, so as to vest the mortgaged property absolutely in the mortgagee. If the relief is granted the mortgage is said to be foreclosed. The mortgagee is thereupon entitled to be the absolute owner of the property in both law and equity." Page 17 of 25 We note that, in casu, the Appellant did not apply for an order of foreclosure absolute nor did the Court grant one . As was stated in S. Musonda (Receiver for First Merchant Bank Ltd) v Hyper Food Products Ltd & Others (supra) the equity of redemption is extinguished by an order of foreclo$ure absolute. After the trial Court granted foreclosure , which really was an Order of foreclosure nisi, the Appellant took possession of the mortgaged property but instead of applying for an order of foreclosure absolute, the Appellant executed the Consent Order earlier referred to in this Judgment. After taking possession of the mortgaged property and after executing the Consent Order, the Appellant continued receiving money from the Respondents and in particular from the 5 th Respondent for the purpose of discharging the mortgage. In the meantime , the Appellant advertised the mortgaged property for sale with a reserve price of K7 ,000,000. According to Halsbury's Laws of England (3rd Edition) Volume 27, at paragraph 627; "So soon as the mortgagor has made default in payment of the mortgage debt, the mortgagee is entitled to pursue Page 18 of 25 any or all of his remedies, subject, as regards the powers of sale and appointing a receiver, to the restrictions imposed by agreement or by statute, according as the powers are express or statutory. Hence the mortgagee can at the same time sue for payment on the covenant to pay principal and interest, for possession of the mortgaged estate, and for foreclosure, and can combine these claims in the same action; and until judgment nisi has been obtained in his foreclosure action, he can exercise his power of sale. If the mortgagee realises part of the debt by his action on the covenant, or by sale of part of the property, he must give credit in the foreclosure action for the amount realised; and if after foreclosure, he proceeds on the covenant, he re-opens the foreclosure. A realisation of the whole debt gives the mortgagor an immediate right to reconveyance of the mortgaged property remaining unsold. It follows that where there are collateral securities the mortgagee should realise these first, and then foreclose in respect of the balance of his debt". Page 19 of 25 (emphasis ours) The Halsbury's Laws of England (3rd Edition) Volume 27 at paragraph 757 states as follows; "Neither an order for foreclosure nisi, which directs foreclosure in the event of non-payment at a prescribed date, nor an order for foreclosure absolute, is conclusive as regards the mortgagors right to redeem. After an order for foreclosure nisi, whether followed by an order for foreclosure absolute or not, the mortgagor can apply for, and, in suitable circumstances and on certain conditions, obtain, an order enlarging the time for redemption and, if there has been foreclosure absolute, opening the foreclosure and giving a new right of redemption; and the same results may follow from the acts of the mortgagee." Fisher & Lightwoods, law of Mortgages provides instances of when foreclosures have been reopened and cites an example at paragraph 22.6 (a) as follows; "22.6 Whether the court will reopen the foreclosure, and the terms on which it will do so, depend upon the circumstances of each case. The foreclosure has been reopened in the Page 20 of 25 following circumstances: (a) Where there was an expectation that the money would be ready to redeem, for instance, where there was a contract of sale". In Campbell v Holy Land, Jessel MR recounted some instances in which foreclosure absolute could be reopened , by the court, in its discretion: He first noted, at page 172, that it had been said that it was impossible to say a priori on what terms the courts discretion to reopen foreclosure was to be exercised, The terms would depend upon the circumstances of each case. Some of the terms , however, are that the mortgagor must make the application promptly, that is , within a reasonable time. Other questions would be, was the mortgagor prevented by some accident to redeem? Did he expect to get the money from a quarter from which he might reasonably hope to obtain it, and was he disappointed at the last moment? Was it a very large sum, and did he require a considerable time to raise it elsewhere? All those things must be considered in determining what is a reasonable time. Page 21 of 25 The nature of the property as regards value will also be considered. If an estate worth $50,000 had been foreclosed for a mortgage debt of $5,000, the man who came to redeem that estate could have a longer time than where the estate was worth $5,100 and he was foreclosed for $5 ,000. As earlier stated, the evidence before the lower Court, in this case, clearly shows that a Consent Order to sell the mortgaged property to a third party was executed between the Appellant and the 1st Respondent and secondly the Appellant accepted money from the 5 t h Respondent towards redeeming the mortgage. By entering into the consent order which allowed the Respondents to look for a buyer, the Appellant in effect, reopened the foreclosure nisi which had not been made absolute. Had the arrangement in the Consent Order been effected, it would without a doubt, have been beneficial to the Respondents. The circumstances of this case fall squarely in to the category of cases where the equity to redeem was re-opened and the trial Judge was on firm ground when, after analysing the facts he stated that: "the equity of redemption Mortgage remained after foreclosure Page 22 of 25 and before sale". We have considered the Respondents' assertion that the Appellant represented to it that if it paid the K7,000,000, it would consider the Judgment debt as settled as well as the argument that the Appellant did not controvert the assertion. Quite to the contrary, the Record shows that the Appellant did in fact controvert the Respondents claims that the it had assured the Respondent that payment of K7,000,000 would settle the debt. Paragraph 13 of the Appellant's Affidavit in opposition to summons to declare debt as being settled or redeemed avers as follows; "13. That the Defendant paid the sum of K7 Million towards the Judgement debt and was reminded of the outstanding balance on interest and costs." We note that other than the unsubstantiated assertion contained 1n the Affidavit in Support of Summons to declare the debt as being settled/redeemed, there is not a single thread of evidence that supports the assertion. We endorse the basis on which foreclosure may be re-opened, as articulated by Jessel MR, as his views represent I unquestionable principles applied by courts of equity 1n mortgage Page 23 of 25 actions over the years. The trial Judge erred by accepting the assertion and ultimately concluding that the K7,000,000 paid by the Respondent had settled the Judgment debt. Our interference with his finding is warranted and we accordingly set aside the said finding. We instead find that the Respondents did not prove the alleged assertion. The learned Judge ought not to have accepted that bare unwritten assertion. Even if it had been made , which we greatly doubt, it would have been limbless for want of consideration. The Consent Order executed by the Appellant and the 1st Respondent to jointly sell the property and the Appellant accepting payment from the 5 th Respondent to settle the mortgage debt had the effect of re-opening the foreclosure. It presented the Respondents with a second bite at redeeming the mortgage. However, the re-opening of the foreclosure does not provide a mortgagor an unlimited time within which to redeem the mortgage , it is just the original period within which to redeem the mortgage that is enlarged. In the circumstances of this case we would consider a period of three (3) months as a sufficient enlargement of time. I The Consent Order failed in 2016 and the Judgement being Page 24 of 25 appealed against was delivered on 1s t June, 2017 , over 12 months after the Order. Even though the foreclosure herein re-opened on account of the given reasons, the Respondents have failed to redeem the mortgage within a reasonable enlargement period. Our finding that there was no evidence in the Court below that the Appellant had agreed that the sum of K7,000,000 would discharge the Judgment debt, has the effect of defeating all the Respondents' arguments vis-a-vis waiver as well as all the other arguments stemming from the purported representation, and they are consequently dismissed. In summary, we hold as follows; 1. The payment of K7,000,000 by the Respondent to the Appellant did not settle the Respondents' debt. The debt comprised the principal plus interest owed. 2 . The trial Judge did not misdirect himself when he held that the foreclosure had re-opened. The Respondents however, failed to redeem the mortgage within any reasonable enlargement period -I and the Appellant is entitled to remain 1n possession of the property and apply for a foreclosure order absolute. 3. The Appeal only having partially succeeded each party shall bear Page 25 of 25 its own costs. . ......•...•••••• ~ ......... . F. M. CHISANGA JUDGE-PRESIDENT ~~~ •.••..•••••.....•.................. F. M. CHISHIMBA M. M. KONDOLO SC COURT OF APPEAL JUDGE COURT OF APPEAL JUDGE