Development Bank of Zambia v Chani Enterprises (SCZ Appeal 99 of 2001) [2002] ZMSC 116 (5 March 2002)

IN THE SUPREME COURT OF ZAMBIA SCZ APPEAL NQ.99/2001 HOLDEN AT LUSAKA. (Civil Jurisdiction) DEVELOPMENT BANK OF ZAMBIA APPELLANT AND CHANI ENTERPRISES LIMITED RESPONDENT Coram: Lewanika, D. C. J., Sakala and Chibesakunda JJS., 17th January 2002 and 5th March, 2002. For the Appellant: For the Respondent: Mr. E. Banda of MNB and Company. Mr. S. M. Malania of Jaques & Partners. _____________________ JUDGMENT_____________________ Sakala, J. S., delivered the Judgment of the Court. This is an appeal against a Judgment of the High Court granting an interim injunction against the Appellant restraining the Appellant, its agents or servants from appointing a Receiver or Manager in respect of the Respondent Company until the disposal of the actions numbered 99/HK/447 and 2000/HK/64 and that any Receiver or Manager so appointed by the Appellant be restrained from taking over control or management of the Respondent Company and or carrying out any functions of a Receiver. The injunction also restrained the Appellant from enforcing in any other way the securities held by the Appellant in respect of : J2 : the Respondent until further order or trial of the said actions. The injunction also restrained the Appellant from interfering in any way with the Respondent’s operations. The facts of the case are that, sometime in 1997, the Appellant agreed to lend the Respondent a sum of US$ 665,752.40 on long term basis and a sum of USS 600,000 as trade finance on short term basis. These sums were secured by way of legal mortgages over the Respondent’s properties namely plots No. 4959 and 5031 Kitwe. It was common cause that the Respondent made some payments. There was also no serious dispute that the Respondent had defaulted in the repayments Qn 2nd September 1998, the Appellant, by notice, recalled the loans claiming the sum of US$979,470.45 as long term loan and USS 716,504.50 as trade finance. The Respondent in turn took out a Writ of summons claiming for an account to be taken on the monies paid by the Respondent pursuant to the loan agreement and the repayments made by the Respondent for purposes of ascertaining the correct state of the account, a declaration that the punitive interest and penalties imposed by the Appellant were unlawful and therefore unenforceable; and a : J3 : declaration that the seizure notice issued by the Appellant dated 30th September, 1999 was unlawful and wrongful. Subsequent to the Writ of Summons, the Respondent applied for an order for an injunction against the Appellant. The application was supported by an affidavit sworn by the Respondent’s Finance Director in which he stated that the appointment of a Receiver/Manager to take control of the Respondent’s Company would be highly prejudicial to the Respondent’s interest as the question of the Respondent’s indebtness was a matter under litigation before the High Court at Kitwe and Ndola. The Finance Director further stated in his affidavit that if the appointment of the Receiver was. effected,, it would adversely affect the rights of third parties; that the Respondent had disputed the level of indebtness against the Appellant; and that the Appellant had applied, among other things, for an account to be taken on the two loans obtained. While the Respondent’s affidavit in support of an application for an injunction consisted of two pages; the affidavit in opposition, sworn by the Regional Manager of the Appellant, consisted of six detailed pages. In that affidavit in opposition, hill details of the movement on the two loans were set out. It was confirmed that whichever way one looked at the Respondent’s account, penalties or no : J4 : penalties ( interest which was in any case due) the Respondent was still in arrears of huge sums of money on the loan. The Regional Manager also deposed that the Respondent failed to pay in instalments. He contended lhat the Respondent having admitted, at least part of the debt, there would be no necessity for a permanent injunction. In a ruling consisting of eight pages of the review of the affidavit evidence, the learned trial judge granted the injunction in one paragraph. Mr. Malama on behalf of the Appellant filed written heads of argument based on three grounds of appeal namely; that the court erred in maintaining the interim injunction; that the court failed to consider that this was a case in which damages would be an adequate remedy; and that the court failed or did not adequately consider the fact that the affidavit of the Appellant in opposition to the continuation of the interim injunction was not challenged on its facts and especially as to its indebtness of the Respondent to the Appellant. The gist of Mr. Malama’s oral and written submissions relevant to the determination of the appeal is that there was no dispute on the amounts borrowed by the Respondent; the dispute was simply that the amounts claimed by the : J5 : Appellant had been wrongly computed when in fact the Respondent had made substantial repayments towards the loan to the extent that the principal sum lent ought to have been paid leaving only interest unpaid and that the interest charged by the Appellant was penal, punitive and compound. Mr. Malama contended that the security documents executed by or for and on behalf of the Respondent provided for an appointment of a Receiver whenever the Respondent defaulted in making repayments on the loans. Mr. Malama further submitted that once any amount of the principal remained outstanding, the Appellant had a legal right to enforce the securities. Mr. Malama submitted that there was a clear admission on the part of the Respondent owing money to the Appellant. He contended that on the basis of the admission, there was no serious issues to be tried. On the other grounds, Mr. Malama submitted that the material portions of the affidavit on behalf of the Appellant, setting out the state of account of the parties (without any addition of interest) had not been challenged and not denied by the Respondent. Mr. Malama pointed out that during the hearing of the matter before the lower court, counsel appearing for the Respondent had stated that he was to obtain instructions on the Appellant’s affidavit served on 13th October, 2001. The interpartes hearing of the summons for the injunction only : J6 : took place on 26th March, 2001, five months after the service of the affidavit. No affidavit in reply to the Appellant’s affidavit in opposition was filed, Mr. Malama submitted that there having been no affidavit to oppose or deny the assertions in the affidavit on behalf of the Appellant, the court was in a very easy position to accept the truth of the assertions of the Appellant, especially those relating to the indebtness of the Respondent to the Appellant. He contended that the court should have held that there were no serious issues to determine that would disentitle the Appellant from exercising its legal rights of appointing a Receiver especially in the face of an admission that the Respondent owed money to the Appellant. On behalf of the Respondent, Mr. Banda also filed written heads of argument supplemented by short oral submissions. Mr. Banda submitted in brief that the appointment of a Receiver is a remedy where the dispute is clear while in the instant case there was a dispute. He contended that the appointment of a Receiver when the status of the loan was pending determination before the court was premature. We have very carefully examined the judgment of the learned trial judge and considered the submissions by both learned counsel. In granting the injunction, the learned trial judge had this to say: ' “/ have perused the affidavits for and against the making of the interim injunction I granted on 4th September, 2000 interlocutory. I have also taken into account submission by both counsel as well as the law applicable. It is my considered opinion that it is not the duty of the court at this stage to decide the matter on the merits more on affidavit evidence. In this case if the injunction is not granted it will render the main trial nugatory. Since the machinery is in situ which was bought from the loan and the dispute is to how much is owed. I hold that in the interest of justice the status quo ought to be maintained and order that the trial be conducted expeditiously. I therefore make the interim injunction I granted on 4th September, 2000 interlocutory. ” At the outset we wish to make it clear that an interim injunction and an interlocutory injunction all mean the same thing. They are all orders pending the determination of the main action. In the instant case, the court was not called upon to decide the matter on merits. The court was called upon to determine, at that stage, whether the matter was an appropriate one to grant an injunction. According to the trial court, if the injunction had not been granted, the main trial would have been rendered : J8 : nugatory. The court did not give reasons why this would have been so. But the court took the view that since the machinery bought from the loan was in place and the dispute was only as to the amount owed, then the interest of justice demanded that the status quo should have been maintained. This, in our view, was a wrong approach in dealing with an application for an injunction. While the status quo was relevant, the question the court should have considered on the facts of this case was whether irreparable damage would have been caused to the Respondent if the injunction had not been granted. The balance of convenience was also relevant. The facts in the instant case were common cause. Above all, the affidavit in opposition to the application was not challenged. The Respondent was in default of repayments. This was admitted. The affidavit evidence conclusively established that the parties had agreed that in the event of a default in repayments, the Appellant was to be at liberty to appoint a receiver. The appointment of a receiver in our view would not per se have prejudiced the main trial and the main trial would not have been rendered nugatory. We see no irreparable damage that would have been caused if the injunction had not been granted. Above all, the balance of convenience on the facts of this case was in favour of the Appellant. But the injunction on the facts not in dispute favoured the Respondent at the expense of the Appellant. We therefore discharge the injunction granted. The appeal is allowed with costs to be taxed in default of agreement. : J9: DEPUTY CHIEF JUSTICE. E. L. Sakala, SUPREME COURT JUDGE L. P. Chibesakunda, SUPREME COURT JUDGE