Courtyard Hotel & Others v First National Bank Zambia Limited & Another (Appeal 6 of 2015) [2016] ZMSC 193 (22 August 2016)

• " J 1 N THE SUPREME COURT OF ZAMBIA HOLDEN AT LUSAKA (Civil Jurisdiction) BETWEEN COURTYARD HOTEL LIMITED AYUB FAKIR MULLA ZABUNISSA ISMAIL LINK PHARMACY LIMITED AND APPEAL No, 006/2015 1ST APPELLANT 2ND APPELLANT 3RD APPELLANT 4TH APPELLANT FIRST NATIONAL BANK ZAMBIA LIMITED FIRSTRAND BANK LIMITED 1ST RESPONDENT 2ND RESPONDENT Coram: Chibomba, Hamaundu and Kaoma, JJS On the 15'" April, 2015 and the 22nd August, 2016 FOR THE APPELLANTS: FOR THE RESPONDENTS: Mr. N. Nchito, SC., Messrs Nchito and Nchito Mr S. Chisenga, Messrs Corpus Legal Practitioners and Ms G. Musiani, Legal Counsel JUDGMENT Hamaundu, JS, delivered the Judgment of the Court Cases referred to: 1. Kanjala Hills Lodge Limited & Another v Stanbic Bank Zambia Limited [2012] 2 ZR, 285 2. Wilson Masauso Zulu v Avondale Housing Project 3. Cheall vs Associations [1982) ZR 172 of Professional, Executive, Clerical and Computer Stafll31(1982) All E. R. 884 4. Achiume v Attorney General (1983) ZR 1 Legislation Referred to: 1. Banking and Financial Services Act, Chapter 387 of the Laws of Zambia 2. High Court Rules, Cap 27 of the Laws of Zambia, Order 30 R.14 Works Referred to: Cheshire, Fifoot and Furmston, The Law of Contract, 16th edition, page 694 This is an appeal against a judgment of the High Court which upheld the respondents action for payment of monies under a loan agreement and foreclosure, in default, The background to this appeal is thus: J 2 In September, 2011, the 1" appellant obtained a loan from the 1" respondent in the sum of US$8,000,000.00. The loan was secured by various securities, including mortgages and guarantees by the 2nd, 3,d and 4th appellants. The 1" appellant having defaulted on its repayments, the two respondents commenced a mortgage action, seeking; (i) payments of monies outstanding in the sum of US$8,405,788.69; and (ii) vacant possession of the mortgaged properties for the purpose of foreclosure and sale of the same. According to the affidavit filed by the respondents in support of the action, the composition of the credit facility was thus: first, there was an overdraft facility in the sum of US$1,000,000.00 for the purpose of financing the working capital. Secondly, there was a loan facility in the sum of US$6,000,000.00 for the purpose of funding development, equipment, fixtures and fittings for hotels in Livingstone, Lusaka and Kabangwe. The loan was repayable over one hundred and twenty (120) months. There was to be a moratorium on repayment with regard to working capital for sIX months. The final draw down on the loan was to be on the 5th March, 2012. With the six months moratorium, the commencement of the repayments was on the 5th October, 2012. On the 6th June, 2012, the 1" respondent assigned its rights to the 2ndrespondent. During the subsistence of the facilities, the 1,t appellant defaulted on its repayment obligations, both on the loan and overdraft. The net result was that as at the 22nd of July, 2013 there was J3 outstanding in respect of the loan a sum of US$6,073,093.34. In respect of the overdraft, there was outstanding a sum of US$2,332,695.35. This brought the total outstanding to the sum of US$S,405,76S.69. That prompted the respondents to bring this action. According to the affidavit in opposition that was filed by the appel1ants, the 1" appel1ant had been on the verge of obtaining a loan facility in the sum of K30 bil1ionfrom Barclays Bank for the completion of its projects when the 1" respondent came on the scene and represented to the 1,t appel1ant that it could offer better loan terms. To that effect, the 1" respondent offered the 1,t appel1ant a loan facility of US$7,OOO,OOO. OO. It was an express or implied term that the loan would be disbursed within a reasonable time. Consequently, the 1,t appel1ant turned down the offer from Barclays Bank. However, after the inducement, the 1" respondent took fifteen months to disburse the loan. That delay cost the 1" appel1ant dearly ill terms of escalating construction and labour costs. Pleas by the 1" appellant for the loan repayments to be restructured to enable it complete construction of the remaining two hotels fel1on deaf ears. Subsequently, the 1" appel1ant came to learn that, in fact, the Banking and Financial Services Act, Chapter 387 of the Laws of Zambia did not permit the 1" appel1ant to lend that amount of money. Had the 1" appel1ant been aware of that fact, it would not have turned down the offer from Barclays Bank. Because of that misrepresentation, the 1" appel1ant sued the 1" respondent for damages in Cause No. 2013/HP/10S0. '. J 4 Instead of defending that action, the respondents commenced this action. The I" respondent did respond to the allegations raised by the appellants in their affidavit in opposition. According to the affidavit in reply filed by the 1" respondent, it was, in fact the 1" appellant that applied for the loan on its own volition. Because of the technical nature of the application, specialists had to be sent from South Africa to Zambia in order to clarify certain issues that the Credit Committee had raised. Consequently, it took eight weeks to assess the application. It was further averred m the affidavit in reply that the 1" respondent did not breach the Banking and Financial Services Act because on the 26th September, 20 11 it did apply to the Bank of Zambia for approval to grant a credit facility which was in excess of 25% of its regulatory capital. The approval was given. The court below found the followingfacts as undisputed: (i) That the 1" appellant obtained the two facilities; that is, an overdraft facility of US$I,OOO,OOOand a loan facility of US$6,000,000. (ii) That the appellants did not make any payment towards the two facilities: and (iii) That the appellants had admitted default on their part. The court below was of view that the appellants' allegations of misrepresentation and delay in disbursement of the loan were an afterthought. J 5 The court nevertheless considered the evidence adduced on those allegations. With regard to misrepresentation, the court pointed out that the appellants, especially the 1" and 2nd appellants, had both offers from Barclays Bank and the respondent in writing and that the appellants, nevertheless, opted for the offer from the respondent. Hence, according to the court, there was no misrepresentation. On the allegation of late disbursement of the loan, the court observed that there were requirements that securities should be perfected and that these were not issues that could be achieved overnight. The court also pointed out that the loan facilities did not provide for a lump sum payment and that the disbursement of the loan in tranches over a period of eight months was, in the court's view, not unreasonable considering that this was a development loan in which the 1" appellant had to meet certain criteria in the construction phases. Alternatively, the court held that even assuming that there was delay in disbursing the funds, that was compensated by the fact that the parties re-structured the facilities on 19th March, 2012; this gave the appellants an additional moratorium of six months. The court went on to hold that on the authority of Kanjala Hills Lodge Limited & Another v Stanbic Bank Zambia Limitedl'), the two issues raised by the appellants could never be a defence to the action. Therefore, the court below granted the respondents the relief which they sought. Hence this appeal. J 6 Beforeus the appellants have advanced four grounds of appeal as set out hereunder: (l)The court below erred in law and in fact when it found that delay in the disbursement of the loan was not a defence to the action when there was evidence that timing was of the essence in the agreement between the parties and the transaction as a whole. (2)The court below erred in law and in fact when it found that the facilities availed by the respondents to the appellants did not provide for payment of the loan in a lump sum but for draw-down of the loan amount in tranches, which finding was not supported by the evidence on record. (3)The court below erred in law and in fact when it found that the disbursement of the loan amount over a period of eight months was not unreasonable when the transaction was of a commercial nature and time was of the essence. (4)In the alternative, the court below erred in law and in fact when it ordered that the judgment sum be paid within sixty (60) days when the loan availed to the appellant was meant to run for 120 months and it was clear that the respondent had induced the default of the appellant and as such could not benefit from their own default. On behalf of the appellants, learned State Counsel, Mr. Nchito, pointed out in the first ground of appeal that the witness statement of the 2nd appellant's witness had disclosed that the witness had told the representative of the 1" respondent that the 1" appellant could no longer sustain the project as its wage bill alone was K450,OOO. OOand that the 1st appellant was considering suspending the project and declaring the workers redundant until finances were available. Counsel pointed out that the witness statement did further disclose that the witness informed the 1st respondent's representative that the 1st appellant would decline the offer from Barclays Bank if the 1st respondent's representative would deliver urgently. That the representative did promise to expedite the approval and make the funding available within weeks. It was further pointed out that the witness in his statement said that the disbursement took eight months and that, as a result; the 1st appellant could not buy materials; the workers were idle and could not be paid. That the statement revealed that the witness informed the 1st respondent that the 1st appellant was having difficulties in making payments because of the delay in completion of the project. Learned state counsel argued that the statement and its contents was evidence which was on record and showed that time was of the essence in the contract between the parties and that the delay in the disbursement of funds was a material breach of the contract which resulted in loss to the appellants. In support of that argument, learned counsel referred us to a passage in Cheshire, Fifoot and Furmston, The Law of Contract, where the editors state: "In short, time is of the essence of the contract if such is the real intention of the parties and an intention to this J 8 effect may be stated or inferred from the nature of the contract or from its attendant circumstances." State counsel argued that with the evidence that was disclosed in the witness statement, the appellants could properly plead delay in the disbursement of the funds as a defence to the action against them. State counsel further submittcd that the case of Kanjala Hills lodge and Another v Stanbic Bank Zambia Limitedl') which the court below had relied on to dismiss the defence put forward by the appellants can be distinguished from this case. According to learned counsel, the Supreme Court in that case did not fully pronounce itself on the question of dclay in disbursement of funds in that the appellants in that mattcr had raised that issue as a point of law in the High Court but did not appeal against the ruling that dismissed the point. Mr. Nchito argued the second and third grounds together. Learned state counsel submitted that the trial court's finding that the facilities did not provide for payment of the loan in one lump sum but on a draw-down basis, in tranches, was not supported by the evidence on record. To demonstrate that submission, learned state counsel pointed out that none of the loan agreements which were placed on the record provided that the disbursement of the loan would be in tranches but that what they provided was that the loan would be disbursed upon the fulfilment of certain conditions. J 9 Learned state counsel submitted that once the I st appellant had fulfilledthe conditions, the obligation of the 1st respondent was to advance to the 1st appellant the entire loan of US$6,OOO,OOO. OO. State counsel argued that, consequently, the trial judge misapprehended the facts. Relying on our holding in the case of Wilson Masauso Zulu v Avondale Housing Project!21 which states: "The appellate court will only reverse findings of fact made by a trial court if it is satisfied that the findings in question were either perverse or made in the absence of any relevant evidence or upon a misapprehension of facts. " learned state counsel urged us to set aside the trial court's finding. Learned state counsel, further, argued that the view by the trial court that the disbursement of the loan over a period of eight months was reasonable was not correct. In support of that argument, learned counsel urged us to take judicial notice of the fact that time in business has a cost attached to it. State counsel pointed out that, in this instance, the 1st respondent's failure to advance the loan on time and in one payment resulted in the inability of the appellant to complete its construction project and begin to generate income to make the loan repayments. In the fourth ground of appeal, learned state counsel reiterated the argument that the 1st respondent was in breach of the loan agreement by not availing the loan in one payment. State )10 counsel submitted that, because of that breach, the I't respondent induced the default by the I" appellant and cannot be permitted to benefit from its breach. For that submission learned state counsel referred us to the case of Cheall vs Associations of Professional, Executive, Clerical and Computer Staff131in which it was held: "It is a basic principle of the bowthat no man may rely on his own wrong." With those submissions, learned state counsel prayed that this appeal be allowed. In response, Mr. Chisenga, learned counsel for the respondents submitted, in the first ground of appeal that, in arguing that this court did not fully pronounce itself on the question whether delay in disbursement of a loan can be a defence, the appellants selectively quoted the case of Kanjala Hills Lodge and Another vs Stanbic Bank Zambia Limitedl'l. Counsel cited a passage from our judgment in that case and pointed out that what we particularly said was that since that was a mortgage action brought under Order 30 Rule 14 of the High Court Rules, Chapter 27 of the Laws of Zambia, the late release of funds was not a valid excuse for the default or failure to make timely repayments. Learned counsel argued that in any event, it was agreed by the parties that the loan had to be paid and was paid in controlled tranches given the quantum involved, the very technical nature of J11 the application, the perfection of security and other conditions precedent to the draw-down. In response to the arguments in the second and third grounds of appeal, learned counsel submitted that, in fact, there was evidence that supported the finding of fact by the trial court that the disbursement was not to be made at once but in tranches, upon the fulfilment of certain conditions. According to learned counsel, that evidence was in the form of an admission by the 2nd appellant that the securities pledged were never perfected on the same day. Learned counsel agreed with the holding in the case of Wilson Masauso Zulu v Avondale Housing Projcctl2 ) cited by the appellants and also cited a further authority on the same subject, namely: Achiurne v Attorney Gcncral(4). Counsel argued, however, that the trial court's finding was supported by the evidence on record. In the alternative, learned counsel reiterated his argument that, in any event, late disbursement of funds is not a defence to a mortgage action brought under Ord"r 30 Rule 14 of the High Court Act. In response to the arguments in the fourth ground of appeal, learned counsel cited a passage from our judgment in the Kanjala Hills Lodge!l)case; particularly where we stated: J 12 "Wedo not expect a prudent business person to sit back and make no payment simply because the loan has a long term repayment period." and also where we stated: "The appellants having defaulted in their repayment obligation cannot hide behind the right of redemption." Learned counsel argued that the above pronouncements notwithstanding, there was evidence that the appellants were given more than sufficient time to take repayments. According to counsel, this was evident by the fact that the appellants even proposed a repayment plan which the respondents agreed but the appellants defaulted on their own repayment plan. On the strength of those arguments, learned counsel urged us to dismiss the appeal. We have considered the arguments advanced by either side in this appeal. This appeal falls to be resolved entirely on the pronouncements we made in the Kanjala Hills Lodgel'l case. In that case there were arguments on behalf of the appellants that the trial court had erred when it heard and determined the action by affidavit evidence when there had been serious contentious issues. One of the contentious issues that the appellants had pointed out was their contention that the respondent had delayed in releasing the funds and that, therefore, the respondent should not have rushed to apply for foreclosure before the date for payment of the final instalment was due. )13 Dealing with that argument, we made the pronouncement which learned counsel for the respondent has quoted in his submissions. The followingis what we said: "We note that the appellants raised the issue of late disbursement of funds and the issue of the redemption date in their application to have the matter determined on a point of law. This application was dismissed on the 18th November, 2009. A perusal of the record shows that the appellants did not appeal against the said ruling. Therefore, the appellants cannot have another bite at the cherry and since this was a mortgage action brought under Order 30, Rule 14, late release of funds is not a valid excuse for default or failure to make timely payments."(page 296) It is clear from the above passage that we were saying that the appellants had failed to bring the issue on appeal so that it could be properly dealt with. It is clear also that we were saying that even assuming that the issue had been properly brought on appeal, we would still have held that the late release of funds is not a valid excuse for default or failure to make timely repayments. We would like to add that the foregoingpronouncement is not peculiar only to mortgage actions brought under Order 30 Rule 14 of our High Court Act. It applies to mortgage actions generally. Therefore, we agree with learned counsel for the respondents that we did pronounce ourselves fully on that principle in the Kanjala Hills Lodgelll case. In view of that principle, therefore, the J 14 first ground of appeal by the appellants is without merit and must fail. Again, in VIew of the foregoing principle, the trial court's finding that the facilities provided for a drawn down of the loan in tranches is immaterial. And so is the trial court's view that disbursement of the loan over a period of eight months was reasonable. Such considerations arc precluded by the principle that late disbursement of the loan is not an excuse for failure to make scheduled repayment instalments as agreed. Consequently, the third and fourth grounds of appeal must fall away on the ground that they have no effect on the appeal. We now turn to the fourth ground of appeal. The ground faults the trial court for giving the appellants only sixty days to pay the amounts due whcn the loan facility was meant to run for one hundred and twenty (120) months and it was clear that the default was induced by the respondents. We shall deal with the second limb of the ground first. The inducement which the appellants refer to is the fact that the loan was not disbursed in one lump sum but was given in tranches. We have already dealt with that argument in the first ground of appeal where we have said that the delay in thc disbursement of the loan is not an excuse for default in repayments. The contention raised in the first limb of the ground also arose in the KanjalalII case. The followingis what we said on the issue: J 15 "We totally agree with the trial judge. The fact that the agreement between the parties provided for a default clause is clear indication that the respondent was entitled to invoke it on default. And the appellants cannot claim that they were not aware of the contents of the agreement. To argue that the default was a result of the appellant having a long business plan and their belief that they had a long repayment period is not being sincere. We do not expect a prudent business person to sit back and make no payment simply beeause the loan has a long term repayment period. This is tantamount to burying one's head in the sand. In our view, it is irrelevant that at the time of commencement of these proceedings, the due date was way off. The appellants having defaulted in their repayment obligation cannot hide behind the right of redemption. This view is buttressed in Atkins Court Forms Vol. 28, where the learned authors have stated at page 8 that: 'When the mortgagor defaults, the mortgagee IS entitled to pursue all his remedies'. "(page 298 - 299) We also said the followingwithin the same judgment: "Further, the learned authors of Megarry's Manual of the Law of Real Property, have also stated that once there is a breach of a condition which had to be complied with to keep alivc the legal right of redemption, the mortgagee may commence foreclosure proceedings."(page 299) , J 16 The point to note from what we said in the Kanjala Hills Lodgel11 case is that once there is default on a condition, such as the default on a repayment instalment, the mortgagee becomes entitled to pursue all the remedies available to him. In those circumstances, the court, in exercise of its powers to afford the mortgagor the equity of redemption is duty-bound to prescribe a reasonable period within which the mortgagee may wait before enjoying the fruits of his relief. The court cannot go back to the period prescribed in the agreement, whose term or terms have been abrogated. Therefore, in this case the trial court was on firm ground when it ordered the appellants to pay the sums due within sixty days failing which the respondents were to foreclose. The fourth ground, therefore, is without merit as well. All in all, the appeal has no merit. We dismiss it. Costs of this appeal are awarded to the respondents and shall be taxed in default of agreement. H. Chibomba SUPREME COURT JUDGE ~ . :".-L' _. ................ -~.~ . E. M. Hamaundu SUPREME COURT JUDGE ~ . . . ~ .,~=-- \l.7 ..~ ..~ ~ . """R. M. C. Kaoma SUPREME COURT JUDGE