Development Bank of Zambia v Sun Pharmaceuticals Ltd (Appeal 48 of 2004) [2005] ZMSC 38 (11 November 2005)

IN THE SUPREME COURT OF ZAMBIA Appeal No. 48/2004 HOLDEN AT NDOLA/ LUSAKA (Civil Jurisdiction) BETWEEN: DEVELOPMENT BANK OF ZAMBIA Appellant AND SUN PHARMACEUTICALS LIMITED Respondent Coram: Sakala, CJ. Chibesakunda and Chitengi, JJS. on 7th September, 2004 and 11th November, 2005. For the Appellant : Mr. V. B. Malambo, SC of Messrs Malambo 8s Company with Mr. A. Musukwa, Legal Counsel For the 1st Respondent: Mrs. I. Kunda of Messrs George Kunda & Co. For the 2nd Respondent: Mr. D. Sichinga, Acting Chief State Advocate JUDGMENT Chitengi, JS, delivered the judgment of the court. Cases referred to: - 1. Match Corporation Limited Vs Development Bank of Zambia Appeal No. 125 of 1997 (Unreported) 2. Abel Banda V The People (1986) ZR 105. to ——TOT-wimrrr -:^2Skm; i.mir i.. m f J2 3. Trinity Engineering (PVT) Limited V Zambia National Commercial Bank Limited Appeal No. 76 of 1996 (Unreported). Works referred to; - 1. Halsburys Laws of England 3rd Edition Volume 18 Paragraph 982. We regret the delay in rendering this judgment. During the past two years the court has been very busy with the Presidential Election Petition. In this appeal, we shall refer to the Appellant as the Plaintiff and the Respondent as the Defendant, which is what they were in the Court below. This case, which is coming before this court for the second time, has a long and rather chequered history. Sometime in 1982, a company called Frank and Hirsh (Z) Limited, the precursor of the Defendant, applied for and obtained a loan of UA 79,000, with interest, from the Plaintiff to set up a syringes factory in Lusaka. According to the conditions of the loan, the Defendant was to bear the costs on interest due to the depreciation of the Kwacha. However, the Defendant and the Plaintiff’s other borrowers petitioned the Government which undertook to pay the Plaintiff the losses resulting from the fluctuating exchange rates. The interest indemnity was to run from the date of disbursement to 31st October, 1982. By February, 1995 the Defendant had not yet repaid the loan, necessitating the Plaintiff to take out a Writ of Summons in the District registry at Ndola, on 10th February, 1995, to recover the monies loaned. By the time the parties were in court and after several amendments to the Writ and the statement of claim, the sum due and owing, according to the Plaintiff, was SFR1,107,804 (principal) and SFR2,565,216.84 (interest), which included a penalty component. The currency of the loan had been converted from UA to SFR. But according to the Defendant, there were contradictions in the Plaintiff’s accounts as to the amount actually owing. According to the Defendant, the loan was in fact over paid and the Defendant counter claimed SFR13,360,591.69. The High Court dismissed the Plaintiff’s claim but found that the Defendant had proved its counter claim and entered judgment for the Defendant in the sum of SFR13,360,591.69 or its Kwacha equivalent and for the sum of SFR52,005 or K2,500,000 which was paid but not credited. The Plaintiff was dissatisfied with the High Court judgment and appealed to the Supreme Court. After hearing arguments the Supreme Court in its judgment of 3rd December 2002 held the view that both the Plaintiff and the Defendant advanced good arguments; that on the evidence either the loans were paid off and there was some over payment or something was still owing; that on the available evidence it was difficult to be categorical; that as counsel properly agreed the way forward was to submit the dispute to scrutiny and reconciliation of the account from the beginning to be conducted by neutral accountants to be agreed upon, in default to be selected by the High Court; that the scrutiny will take into account the penalty interest which should be disallowed and the interest indemnity period; that the High Court will retain the supervision of the exercise. Subsequent to the Supreme Court judgment of 3rd December, 2002, the parties agreed on a firm of accountants called Price Water House Coopers to do the scrutiny and reconciliation. The findings of the accountants were that the Defendant overpaid by SFR 14,440,815.27. This figure included the un­ credited amount of SFR 52,005 equivalent to K2,500,000.00. The reconstruction was based on the Plaintiff’s own ledgers. After the scrutiny and reconciliation the Defendant made an application before the Deputy Registrar to confirm the accounts and enter judgment pursuant to the Supreme Court judgment of 3rd December, 2002. J5 Mrs. Kunda, learned counsel for the Defendant, and the Defendant’s Managing Director, one Vinod Sahdu, swore affidavits in support of the application. The Plaintiff opposed the application for the confirmation of the accounts and entry of judgment pursuant to the Supreme Court judgment dated 3rd December, 2002. Mr. Gondwe, learned counsel for the Plaintiff swore an Affidavit. In his Affidavit, Mr. Gondwe said that the Accountants did not correctly apply the indemnity in terms of the judgment in the cases of Union Bank (Z) Limited V Southern Province Cooperative Marketing Union Limited and Match Corporation Limited V Development Bank of Zambia and The Attorney-General! Mr. Gondwe further deposed that the Supreme Court did order an indemnity that was to run from 15th February 1982 when the loan agreement was executed between the Plaintiff and the Defendant to 31st October, 1992 at a flat rate of K2,214,600 to ISFR. According to Mr. Gondwe, the rate in fact relates to UA and was wrongly applied by the appointed accountants. He said that the accountants also confused the currencies and the exchange rates and disregarded some vital evidence. He deposed that the above concerns were brought to the attention of the accountants who acknowledged the concerns and said they would respond and that the report they had rendered was not, . ~fWiTrrT6gaMJW ♦ J6 therefore, final. He said the Plaintiff opposes the application to confirm the accounts because the accountant’s report has discrepancies in principle and on the face of it contrary to the Supreme Court judgment of 3rd December, 2002. On 18th August, 2003, one Mr. Emmanuel Matombo Banda, an accountant employed by the Plaintiff swore a Further Affidavit in Opposition to the application to confirm accounts and to enter judgment pursuant to the Supreme Court Judgment of 3rd December, 2002. This Affidavit pointed out several alleged discrepancies in the accountants’ report. The Deputy Registrar rejected the Affidavit evidence on behalf of the Plaintiff and confirmed the account’s scrutiny. According to the Deputy Registrar, the Supreme Court did not say that the scrutiny was subject to the comments of the Plaintiff. Further, the Deputy Registrar in his ruling, said the concerns raised by the Plaintiff in its Affidavits had already been adequately dealt with by the High Court. Of course, the Deputy Registrar forgot that the decision of the High Court Judge was appealed against and that what was owing or over paid was not clear to the Supreme Court. Hence the order for scrutiny. The Deputy Registrar’s Ruling was delivered on 10th September, 2003 and on a date which is not clear, the Plaintiff J7 gave Notice to appeal to a Judge in chambers against the Ruling of the Deputy Registrar. Subsequent to this, the Defendant filed a Notice of Intention to arise preliminary issue to the effect that the appeal was irregularly before the Judge in chambers because it was supposed to be before the Supreme Court. Whether this Notice of Intention to raise a preliminarily issue was heard and whether in fact the appeal went before the Judge in chambers, is not clear from the papers on file. What is clear from the documents on file is that the Plaintiff appealed to this court against the Ruling of the Deputy Registrar. On 15th April, 2004 there was a new development. The Attorney General applied under Order 15 Rule 6 RSC 1999 to be added as one of the Plaintiffs. On 11th May, 2004 the Attorney General was added as one of the Plaintiffs. But in this judgment we shall continue to refer to him as the Attorney-General. The Plaintiff filed five grounds of appeal. The first ground of appeal is that the court below erred in law and in fact in finding in favour of the Respondents. The second and third grounds of appeal are in fact one ground of appeal which is that the court below erred in fact by J8 endorsing a reconciliation of the Respondents’ loan account with the Appellant based on the fact that the UA and SFR were one and the same currency and from evidence which was mere conjuncture. The fourth ground of appeal is that the court below erred in application of the government indemnity as enunciated by the Supreme Court decision in the Match Corporation Limited V Development Bank of Zambia decision^. The fifth ground of appeal is that the court below erred in relying on evidence, which it refused the Appellant to cross- examine on. Counsel filed detailed written heads of argument. The written submissions on ground one are that the learned Deputy Registrar misdirected himself when he held that the issues of indemnity and confusion of the UA with SFR had already been dealt with by the High Court at length and that for him to deal with it would be indulging in a jurisdiction he did not have, when the High Court judgment had been appealed against and was overturned by the Supreme Court. On jurisdiction, it is submitted that the jurisdiction of the Deputy Registrar emanated from the Supreme Court judgment which was instructive on what to do. J9 It is submitted that the accounts which the learned Deputy- Registrar confirmed were based on the High Court judgment. Counsel for the Plaintiff referred to several parts of the accounts which show that the accountants were using the High Court judgment to prepare the accounts. It is submitted that it was, therefore, an error and misdirection on the part of the learned Deputy Registrar to confirm the accounts. Finally, on this ground it is submitted that the accounts do not reflect a true and fair view of the position as instructed by the Supreme Court. The second and third grounds of appeal were agued together. The written submissions on these grounds are that the learned Deputy Registrar erred when he relied on the accounts and found that the UA and SFR were one and the same currency. It is submitted that the accounts were prepared using untenable assumptions. Counsel then referred to excerpts in the accounts where the accountants make assumptions. It is pointed out that if the accountants were not sure of anything they should have contacted the Plaintiff who would have provided the information needed instead of making assumptions. For example, with respect to AU, the accountants would have been told that an ADB UA is similar to World Bank Special Drawing Right and that UA and SFR are not one and the same currency. On ground four the written submissions are that the learned Deputy Registrar misdirected himself in law and fact when he confirmed the accounts without examining and understanding the issue of indemnity and by accepting references by the accountants to the High Court judgment. It is submitted that according to the facts, the interest indemnity was granted on 19th February, 1993 and revoked a month later on 15th March, 1993. It is further submitted that one of the borrowers, Match Corporation Limited in the case of Match Corporation Limited V Development Bank of Zambia)1), appealed to the Supreme Court who said that the indemnity was short lived. It is submitted that the accountants misread the Match Corporation case by saying that the indemnity period was from 25th February 1982 to 31st October 1992. That being the case, it is submitted that the learned Deputy Registrar fell into error when he confirmed the accounts. It is also submitted that the accountants have no legal mind to interpret judgments as they did and that in this case, the accountants misinterpreted the Match Corporation Limited judgment and the Supreme Court judgment thereby misleading the learned Deputy Registrar. It is pointed out that if the interpretation put on the judgments by the Defendant is accepted then it means the indemnity was for ten years which was not the case and which cannot be termed as short lived. It is submitted that the indemnity was for the period between 19th February 1993 and 15th March, 1993 in reference to loans Jll that were in existence up to 31st October, 1992. It is emphasized that only payments from loans running up to 31st October, 1992 and those payments made between 19th February 1993 and 15th March, 1993 would benefit from the indemnity. It is argued that in any case, the indemnity should be borne by the Government of the Republic of Zambia and not the Plaintiff. Mr. Malambo filed additional written heads of argument on ground four on behalf of the Plaintiff. It is submitted that as the Supreme Court in this case did not pronounce itself on the issue of government indemnity, the reference by the accountants to government indemnity was in fact reference to the Match Corporation Limited easel1). It is Mr. Malambo’s submission that on a true and proper construction, the Match Corporation Limited easel1) is not authority for the proposition that the Plaintiff should make reimbursement to all those borrowers who serviced their loans in accordance with their contractual obligations and on the basis of exchange rates prevailing at the time they met their contractual obligations prior to the government indemnity. It is argued that in the Match Corporation Limited1) case, the Supreme Court’s intention was imperfectly expressed or, if expressed as intended, the court did not foresee the results that flow from the judgment, because the result is to put the Plaintiff in the position of a debtor to its borrowers, who include the Defendant to whom the Plaintiff had lent money under valid loan contracts with clearly defined terms of payment. After defining “indemnity” Mr. Malambo argued that the letter from the Ministry of Finance to the Plaintiff effectively sought to primarily indemnify the Plaintiff against exchange rate losses suffered by the Plaintiff who was expected to pass the benefit to the borrowers. It is pointed out that the Plaintiff was the promisee and intended beneficiary of the indemnity and that the Government having revoked the indemnity, the Plaintiff received no benefit which it could have passed to the borrowers. It is further pointed out that there was a third party in this case which was the African Development Bank from whom the Plaintiff borrowed the money lent to the borrowers and to whom the Plaintiff had to repay the money regardless of the local exchange losses. It is submitted that if the argument is that the Defendant was a promisee and beneficiary of the indemnity then the Defendant’s recourse is to the Minister of Finance. It is argued that this position is consistent with the law as stated in Halburys Laws of England 3rd Edition Volume 18 where the learned authors say at paragraph 982W: - “At law an action on the contract of Indemnity normally does not lie until the promisee has been actually indemnified by paying the third part’s claim. When however he has so paid, the amount paid .113 constitutes a debt to him from the promisor which he may recover in an action with interest apart from certain exceptional classes in which circumstances exist preventing the exercise of his full rights.” It is pointed out that in this case the promisor is the Minister of Finance; the promisee is the Plaintiff and in some sense the Defendant as it related to their payment to the Plaintiff. It is pointed out that the right to claim is primarily that of the Plaintiff against the Minister of Finance. Consequently, it is argued that the learned Deputy Registrar erred in law in entering judgment against the Plaintiff in respect of the indemnity when in fact the Plaintiff was not the promisor. It is further urged that as the Supreme Court did not render a verdict on the liability or otherwise of the Plaintiff, the court should hold that on the basis of the law, an action enforcing the government indemnity should not be against the Plaintiff and the Defendant and any other claimant must look to the Attorney General. The supplementary submissions on ground one are that the confirmation of the accounts was wrong because the reconstruction was based on wrong and unjust principles and that the reconstruction does not give a complete and just picture; that any reconstruction should in addition also calculate the loan based on the market exchange rules ,114 applicable at various times because this enables the parties to know how much the Plaintiff would pass to the borrowers as their benefit. It is submitted that the Match Corporation Limited caseW does not give concrete and effective guidelines to the parties. Counsel then urged the court to again look at the Match Corporation Limited caseW and having regard to the expression “short lived” used in that case, hold that the Match Corporation Limited case!1) is not authority for the proposition that the indemnity covered a period of ten years. It is argued that the indemnity was from the time it as given to the time it was revoked. It was submitted that to the extent that the Match Corporation Limited casd11 decided or implied that the Plaintiff was to pay the benefits of government indemnity to the borrowers, it was bad law and should be reversed in terms of the principles enunciated in the case of Abel Banda V The People!2). The oral submissions of Mr. Malambo and Mr. Musukwa are a repeat and emphasis of the written heads of argument and it will not serve any purpose to reproduce them. Mr. Sichinga, the learned Acting Chief State Advocate did not make any submissions on behalf of the Attorney-General but indicated that the Attorney-General will accept the finding of the court. J15 In her written heads of argument Mrs. Kunda, learned counsel for the Defendant, submitted on ground one that the court below was on firm ground in confirming the accounts. She pointed out that this court directed scrutiny and reconciliation but this did not mean that the High Court Judgment was set aside so that the accountants could not refer to it. She said that the accountants had to work on the basis of the evidence adduced in the High Court. With respect to the period of indemnity, Mrs. Kunda pointed out that even the Supreme Court put the cut off point at 31st October, 1992. Further, she said that the High Court and the Match Corporation Limited casein also dealt with this aspect. On the UA and SFR Mrs. Kunda argued that the evidence of the Plaintiff’s witness at page 251 Volume 2 of the record of appeal said the two currencies were used interchangeably. It was Mrs. Kunda’s submission that by the Supreme Court referring the case back to the Deputy Registrar it meant that all the evidence in the High Court was relevant. It is Mrs. Kunda’s submission that in fact a witness called by the Plaintiff conceded that the ledger cards used to reconstruct the loan in the court below belonged to the Plaintiff and the reconstruction showed an over payment. She pointed out that these are the same documents that have been used. She further pointed out that the scrutiny which this court ordered meant analyzing the available evidence and not assessment — ■ *.ln-.r. ^ ! •■!. wrwiwnl*?^^^ t J16 necessitating calling witnesses to give evidence and be cross- examined. On verification of exchange rates Mrs. Kunda submitted that the accountants could only use the rates used by the Plaintiff and not those used by the other banks. On grounds two and three Mrs. Kunda submitted that these issues were raised and argued in the earlier appeal and they are now re jusicata. She said that if the court wants to deal with these issues, then her submission in the alternative is that she will rely on her submissions in the earlier appeal at pages 296 and 297 in the supplementary Record of Appeal Volume 2. As to the issues raised in ground four Mrs. Kunda said these were also res judicata because they were raised and argued as per pages 289, 290, 297, 298 and 299 of the supplementary Record of Appeal Volume one. Mrs. Kunda ended by saying that there should be an end to litigation. Mrs. Kunda also filed supplementary written heads of argument on ground four. It is Mrs. Kunda’s submission that the Plaintiff’s submissions on ground four are erroneous because they purport to re-open the appeal which was concluded by this court. It is Mrs. Kunda’s submission that the arguments are intended to vary, qualify and set aside the judgment of this court in appeal number 20 of 2002. It is J17 Mrs. Kunda’s submission that it is erroneous for the Plaintiff to contend that this court did not pronounce on the indemnity when the court ruled that it should be taken into account. She said that the accountants were also not in error to refer to losses due to exchange fluctuations up to 31st October, 1992. She submitted that the accountant’s calculations were in line with the Court’s judgment and the Match Corporation Limited casein which recognized the cut of date as 31st October, 1992. She conceded that the indemnity in Match Corporation Limited casein was short lived because Match Corporation Limited easel1) obtained the loan between April 1989 and March 1991 and the indemnity was revoked on 31st October, 1992. According to Mrs. Kunda, this was indeed short lived. But she pointed out that this did not apply to the Defendant who borrowed much earlier. On the Match Corporation Limited casef1^ Mrs. Kunda submitted that it determines the rights of borrowers; that it is applicable to this case; that it is good law; that there is no reason to reverse it as the Plaintiff has advanced no good reasons for doing so. On the argument that the government did not indemnify the Plaintiff and consequently there were no benefits which the Plaintiff could pass to the Defendant, Mrs. Kunda submitted that this was reopening the appeal. In the same vein, Mrs. Kunda submitted that the Plaintiff is also re opening the appeal when it argued that the Defendant should look to the J18 Attorney General for indemnity. She said that the Counter Claim is against the Plaintiff and the court has already ruled that the indemnity should be taken into account. She said that it is for the Plaintiff to look to the Attorney-General for compensation. Mrs. Kunda submitted that the Attorney General’s joining of the proceedings has nothing to do with the Defendant. According to Mrs. Kunda, it was erroneous to join the Attorney General. In her concluding remarks, Mrs. Kunda submitted that the District Registrar properly entered judgment in favour of the Defendant applying correct principles. She pointed out that the accountants who were agreed upon were given all the relevant documents. According to Mrs. Kunda, the Plaintiff’s heads of argument have come too late because the Supreme Court has no jurisdiction to reopen appeals. As authority for this statement Mrs. Kunda cited the case of Trinity Engineering (PVT) Limited V Zambia National Commercial Bank. Limited^). Mrs. Kunda’s brief oral submissions are a repeat of her detailed written heads of arguments. We have taken the trouble to reproduce the facts of this case and the arguments and submissions of counsel in some detail .119 in order Io pul into propc'r perspective a case which appears Io hme* no etui. We have considered Ihe evidence, the* si ibmissieins of Counsel and Hit' juelgmenl of Ihe De puty Registrar which has been appealed against. When we heard the substantive appeal, we entertained doubt as Io how much the parlies owixl each other. On the evidence that was before Ihe* learned trial Judge, we were not. satisfied, contrary Io what Ihc learned trial Judge; said, that the Plaintiff was owed nothing anel that the* I)e;fe:nelanl was eiwcd Ihe: amount the' learned trial Judge found the Defendant was owed by the Plaint iff. Consee|ue*nl ly, we: eirdcred a scrutiny and rcceme'ilinlion of Ihe* e*nlire* aceenml. We: nisei e>ieIe:re:eI that Ihe: High Court would retain Ihe* supervision e>f Ihe: e:xe;re:ise:. Judging from Ihe* e*ve*nla I hid look place: in the High Cenirl anel which events have: led lei this appeal, it is clear to us that our ot'der was not unelet slooel eu if il was understood, the: parlies, because of the king drawn elispule: between them, decided to igneire some* pm Is of our order. The Deputy Registrar also eliel not unele'rshmd our older, Aeeoi ellng Io the* Deputy Registrar, his reile* was just Io rubber slump Ihe: accounts presented. Our eneler eliel not say Hint. 'Ihe: icsull is that emo of the: parties was not snlislie*el with the* metre: ae:l of rubber stamping. 1 lcne*<'. this appeal. J 20 As can be seen from the learned submissions of .counsel, this appeal is being fought more or less on liability basis. This is because the accounts do not give figures which are acceptable to both parties or which narrow the gap of the dispute between the parties. The Ruling of the Deputy Registrar also does not satisfy both parties as to the amount owing. In the same vein, we cannot say, from the Ruling of the Deputy Registrar, what is owed or what is not owed. We must, therefore, accept the submissions by Mr. Malambo and Mr. Musukwa that the Deputy Registrar did not handle the exercise of scrutiny and reconciliation properly and as we directed in out judgment. Mrs. Kunda vehemently argued in support of the Deputy Registrar’s Ruling saying the Deputy Registrar did the scrutiny and reconciliation properly and as directed. We do not agree. As we have said above, it is clear to us that the Deputy Registrar, contrary to our directive, relegated his responsibility to only one of rubber-stamping the accounts. The Deputy Registrar even refused to consider matters raised by the Plaintiff in its Affidavits in Opposition on the ground that he had no jurisdiction to do so. But, as Mr. Musukwa rightly submitted, we gave the High Court, which includes Deputy Registrars, the power and jurisdiction to supervise the scrutiny and the reconciliation exercise. That the Deputy Registrar did not do. J21 We regret but we must say that the scrutiny and the reconciliation exercise was a total fiasco because it was not done within all the parameters of our directive. We deliberately gave the High Court wide powers so that the High" Court could sort out with the parties and their accountants all querries and concerns that may arise from the scrutiny and reconciliation. This was not done. As we cannot do the figures ourselves and as writing books of account is the work of accountants, we have no option but to order that the accounts be scrutinized and reconciled again by professional accountants agreed upon by the parties or in default by one appointed by the learned trial Judge who will retain supervision of the exercise. If for any reason, the learned trial Judge is no more available, then the appointment of the Accountants and retention of the supervision of the exercise will be done by any other High Court Judge. We have made the order in this form in order to eliminate the Deputy Registrar in the hope that the High Court Judge will properly supervise the excise. There has been much argument as to what indemnity should be taken into account; the applicable rate of interest; who should pay the indemnity and what currency and its value and the exchange rate. We do not see any difficulty in this. These are matters which can be easily ascertained at any stage and we see no reason for assumptions and approximations. J 22 Therefore, the complaints, by Mr. Malambo and Mr. Musukwa, on these matters are in our view justified. For avoidance of doubt on indemnity, we order that the indemnity to be credited to the Defendant is only the indemnity of exchange fluctuation, which the Plaintiff actually received from the Ministry of Finance. This can easily be ascertained. The Plaintiff cannot just pay indemnity benefit to the Defendant even when the first Plaintiff was not indemnified. To do so would be working injustice to the Plaintiff because on the facts of this case, it is not the duty of the Plaintiff to pay losses resulting from exchange fluctuations on behalf of the Defendant. That is the effect of our judgment of 3rd December, 2002 on indemnity. After the scrutiny and reconciliation, the parties or their representative must together discuss the figures with their accountants. In the event of a dispute, an application should be made to a High Court Judge who will resolve the dispute with the parties. In this exercise, the parties will be at liberty to call any witnesses whose evidence may be necessary to the just decision of the dispute. .123 The result is that we allow this appeal. As we said in the main appeal, each party will bear his own costs. ... A.... E. L. SAKALA CHIEF JUSTICE L. P. CHIBESAKUNDA SUPREME COURT JUDGE SUPREME COURT JUDGE