Habeenzu Hamusankwa (Suing as Co-administrator of the Estate of the Late Jossie Hamusankwa) v Behrens Limited (APPEAL NO. 049/2021) [2021] ZMCA 227 (3 August 2021)

IN THE COURT OF APPEAL OF ZAMBIA HOLDEN AT LUSAKA (Civil Jurisdiction) BETWEEN: HABEENZU HAMUSANKWA (Suing as Co-administrator of the Estate of the, Late Jossie Hamusankwa) AND BEHRENS LIMITED I / APPEAL NO. 049/2021 I I ; I I li ,i I I ,'\ It 2021 APPElLLANT .... I ~ .••• :...._ • I . ; , -- r ~ ----~ESPONDENT \. \ . Coram: Makungu, Sichinga and Bj nda - Bobo JJA On the 2()th day of May, 2021 and ... ~ .:.-.~day of August, 2021 I For the Appellant: Mr. D. M. Sichombo of D. M. Sichdmbo Legal Practitioners For the Respondent: Mr. T. Chali of H. Ndlovu & cJ. I I I I JUDGMENT / I I I I i / MAKUNGU, JA delivered the Judgment of the Ctjurt. Case referred to: 1. Union Bank Zambia Limited v. Southern P/ovince Co- operative Marketing Union - SCZ Judgment No . 7 of 1997 2. Finance Bank Zambia PLC v. Lamasat Inte rnational Limited -CAZ Appeal No. 175/ 2017 and No.27/2018 3 . Alec Lobb v. Total Oil (GB) Limited [1983] 1 WLR 87 4 . Burmah Oil Co Limited & Another v. Govern~r & Co of the Bank of England 31 July [1980] AC 1090. 1979 ULHL4 / 5. Investrust Bank PLC v. Samuel Banda (Tl A /Lukusu General Supplies) and Ford Benjamin Tembo - SCZ Appeal No. 19$/ 2015. 6. Atlas Express Limited v. Kafco (Importers / and Distributors) Limited [1989] QB 833 7. Barton v. Armstrong [I 976] AC 104 8 . Printing Numerical Registering Company y. Sampson [1875] LR 19 Eq. 462 atP. 465 Legislation referred to: 1. Banking and Financial Services (Costs of Jj3orrowing) Regulations, 1995 Works referred to: 1. Gamer, Bryan A, and Henry C. Black. Black's Law Dictionary, 1999. Print Thomson Reuters U. S. A. 2. En. m. wikipedia. org. 1.0 INTRODUCTION 1.1 We shall refer to the appellant as the plaintiff and the respondent as the defendant as these were their designations in the court below. They will be refe red to as appellant and respondent where appropriate. This a peal emanates from the decision of I. Z Mbewe J, dismissing the plaintiff's claim for recovery of the sum of ZMW680,426 27 on grounds that the interest agreed upon by the parties as excessive, harsh and unconscionable. PLEADINGS 1.2 By way of writ of summons and statement of claim, the plaintiff claimed for an order for i mediate payment of the sum of ZMW 680,426.27 being the o tstanding balance of the loan, damages for breach of contr· ct, contractual interest, compounded monthly at the agree rate of 10%, any other relief, plus costs. -J2- 1.3 In its defence and counterclaim, the defendant denied the plaintiff's claims averring that the shoe term loan agreement was illegal thus unenforceable. The der.endant counterclaimed as follows: a declaration that the plr ntiff is not a licensed money lender and that she knew or oJ.ght to have known that it is an offence to lend money without 1 money lenders license, an order that the interest stipulatel is excessive, and the whole transaction is harsh and unc, nscionable, a refund of ZMW60, 000 paid in excess of the primcipal amount, an order to reopen the transaction between he parties in order to relieve the defendant of the interest d 1emanded by the plain tiff and an order that the interest Js penal and therefore unenforceable at law, costs and any ol er relief. 2.0 EVIDENCE IN THE COURT BELOW Plaintiff's case 2. 1 The evidence of the plaintiff himself an administrator of the estate of the late Jossie HamusanL a (PWl) and his Co- Administrator Kaleya Hamusankwa (PW2) was as follows: / On 17th July, 2015, the plaintiff, the late Jossie Hamusankwa and the defendant executed a written short term loan agreement whereby the Plaintiff was to lend the defendant the -J3- sum of K340,000.00 to attract an int rest of 30% translating to K102,000.00, making the amount payable K442,000.00. The loan was to run fr m 9 th July, 2015 to 8th September, 2015 and any outstan ing balance thereafter would attract an extra monthly intere t charge of 10%. There was no collateral offered and it was a igh risk facility. 2.2 The deal was brokered by PW2 w o was the Defendant Company's Accounts Manager at the ime. The defendant was desperate for funds after receiving a etter from Inter-Market Banking Co-operative Limited to pay the outstanding loan or risk foreclosure. There was no institu ion that would lend the company money within 48 hours. Th refore, PW2 sourced for funds from his mother, J ossie Ham sankwa who was not a registered money lender and did not h ld herself out as such. 2.3 The defendant defaulted in paying he loan and as at 15th June, 2016 the outstanding balance as ZMW 1,063,056.27. 2.4 On 16th July, 2016 the defendant paid the sum of ZMW 400,000.00 leaving a W 680,426.27 which it refused to pay. As a result, t e plaintiff was greatly inconvenienced and suffered damage for breach of contract. -J4- • • 2.5 According to the plaintiff, the agreeme t between the parties ought to have been enforced and the es alation of the principal amount from ZMW 340,000.00 to Z W 3,600,000.00 was reasonable on the basis of the terms of the agreement between the parties. Defendant's Case 2.6 The defendant's case rested on t e evidence of Baseke Mkandawire- the Administrative M ager of the defendant company who confirmed that the parti s executed a short term loan agreement on 17th July, 2015 in which the sum of ZMW340,000 was lent to the defendant by Jossie Hamusankwa (deceased) as the defe dant was desperate to fore stall a fore closure. 2. 7 The defendant paid the sum of ZM 400,000 on 16th June, 2016. The defendant alleged that Z W 60,000 was paid in excess of the debt thus the countercl ·m for a refund. 2 .8 Further evidence was that the intere t rates applied were too high compared to commercial bank le -JS- 3.0 DECISION OF THE LOWER COURT 3.1 After considering the evidence before ·t, the court decided to administer both common law and eq ity in accordance with section 13 of the High Court Act Ch pter 27 of the Laws of Zambia. 1 3.2 The court found that of the statemen of account given by the plaintiff showed that compound inte est was applied on the outstanding balance. Applying the case of Union Bank Zambia Limited v. Southern rovince Co-operative Marketing Union, 1 as authority at compound interest requires express agreement or in th alternative, evidence of consent or acquiescence to such a practice or custom, the court found that there was no ev· ence to show that the parties expressly consented or acqu esced to the charging of compound interest. She therefore s ruck out the compound interest. 3.3 Applying the doctrine of equity, e court found that the transaction was unconscionable PW2 as the Accounts Manager of the defendant company was aware of its financial distress as the company was in a tate of panic arising from -J6- • IL the 48 hour notice given by the Inter-market Banking Corporation Limited, to settle its loan r face foreclosure. The court opined that PW2 took advantage of the defendant's weak and distressed position, resulting in the plaintiff having a stronger bargaining power. 3. 4 The trial judge found that according o the terms of the loan agreement, when the monthly intere t of 40% is applied to ZMW 442,000.00 it translates to ZM 176,800.00 per month. On a debt of ZMW 44 2, 000. 00 one would pay ZMW2,210,000.00 after 10 months. Therefore, it concluded that the transaction was iniquitous an unconscionable. 3.5 As a result, the transaction was re- pened and the interest rate stipulated in the short term lo agreement was struck out. Instead the court awarded int rest at the commercial lending rate per ed by Bank of Zambia from 9 th July, 2015 until full payment 3.6 The plaintiff's claim for general d ages was dismissed for lack of proof. 3. 7 The defendant's counterclaim for a efund of ZMW60,000.00 was dismissed and it was ordere that the principal of -J7- ZMW340,000.00 should attract inter st in accordance with section 4 of the Law Reform (Mis ellaneous Provisions) Act, Cap 74 of the Laws of Zambia. 3. 8 The trial Judge found that there was o evidence to show that the plaintiff used to hold herself out s a money lender and therefore, she was excluded from the purview of the Money- Lenders Act. 3. 9 The court further ordered that the registrar undertakes a reconciliation of the defendant's acco nt based on the varied interest rates. Each party was ordered to bear its own costs. 4.0 GROUNDS OF APPEAL 4.1 The appellant has raised three grou ds of appeal framed as follows: r. The honourable trial court erred in law and fact when it decided that the respondent had a clear claim to equitable relief notwithstanding that the c urt had found as a fact that the respondent had borrowe money from the plaintiff and had defaulted on its repaym nts. -JS- • 't' zz. The honourable trial court erred i law and fact when it ordered the re-opening of the trans ction and striking down of the interest rates which the parti shad expressly agreed to in the short term loan agreement uz. The honourable trial court erred i law and fact when it made a finding that monthly inte est of 40% if applied to ZMW442, 000. 00, translates to Z 176,800.00 per month; on a debt of ZMW 442,000.00 one would have to pay ZMW 2,210,000.00 after 10 months co trary to the evidence on record on the agreed terms of inter st in the short term loan agreement and loan account state ent. 5.0 APPELLANT'S ARGUMENTS 5.1 The appellant relied on the heads f argument dated 22 nd March, 2021. In arguing ground one, ounsel for the appellant pointed out that it is a settled prin iple of law that he who comes to equity must come with cl an hands and that on account of its default/breach of contr ct the respondent came to court with unclean hands. He d ew our attention to the case of Finance Bank Zambia PLC v Lamasat International -J9- A Limited2 where we stated interali that " a default disentitles the applicant from seeking th aid of equity." 5.2 In light of the above, he asserted that the doctrine of unconscionability is inapplicable when a party is in breach of contract. Further that the doctrine o unconscionability was not specifically pleaded nor argued by the respondent as it is not available to it since the loan was o tained with open eyes. Counsel submitted that the court was on firm ground when it dismissed the respondent's argumen on economic duress, coercion, undue influence and bein on unlicensed money lender. To buttress this point, we we referred to the dictum of Mr. Peter Millett (as he then was) in he case of Alec Lobb v. Total Oil (GB) Limited3 where it was eld that three elements must be present before the court will in erf ere with a contract on the basis of the doctrine ofunconscion "First, one party has been at serious disadvantage to the other, whether through overty or ignorance, or lack of advice or otherwise o that circumstances existed of which unfair adva tage could be taken: see, for example Blomley v R n (1954) 99 CLR 362 where to the knowledge of one arty, the other was by -JlO- reason of his intoxication in no condition to negotiate intelligently; Secondly, this we kness of the one party has been exploited by the o her in some morally culpable manner: see, for ex mple Clark v Malpas (1862) 4 De GF & J 401 wher a poor and illiterate man was induced to enter in o a transaction of an unusual nature, without prop r independent advice and in great haste; and the resulting transaction has been not mere y hard or improvident, but overreaching and oppres ive. Where there has been a sale at an undervalu , the under-value has almost always been substanti l, so that it calls for an explanation and is in itself in icative of the presence of some fraud, undue influenc , or other such feature. In short, there must, in y judgment, be some impropriety, both in the cond ct of the stronger party and in terms of the transa tion itself (though the former may often be inferre from the latter in the absence of an innocent ex in the traditional phrase "shocks the conscience of the court," and makes it ag inst equity and good -Jll- - J - -I . l conscience of the stronger pa to retain the benefit of a transaction he has unfairl obtained." 5.3 In light of the above authority, couns 1 submitted that all the three factors must be proved, othe ·se the enforceability of contracts would be undermined. Whe e all these requirements are met, the burden then shifts to the other party to show the court that the transaction was fair, ju t and reasonable. 5.4 It was further stated that the res ondent's shareholders, Board of Directors, Chairman, Gener Manager and Company Secretary, whether individually or col ectively, were never at a serious disadvantage due to povert , ignorance illiteracy or lack of advice within the unconscion bility test. Further, there was no evidence that the respondent was incapable of making a rational judgment about the contr ct terms. The appellant did not create the haste and the re ord states that she was actually reluctant to lend the money o the respondent. 5.5 Counsel went on to submit that th appellant did not take advantage of the respondent, the resp ndent was the party in a hurry or purported panic. He relied o the case of Burmah Oil -J12- Co Limited & Another v. Governor & Co of the Bank of England4 where it was stated that: "It would be moving into extre ely dangerous quick sands to extend the unconscion ility jurisdiction to a case where there is considerab e bargaining strength on both sides but one side does not, in fact bargain as well as it might have done." 5.6 Counsel emphasized that impairme t in the complainant's comprehension, intelligence and ju gment are key to the concept of special disability. This excludes impairment in bargaining power due to ordinary conom1c pressures. The respondent was comfortable with the monthly 10% compound interest on the outstanding balance. 5. 7 The Corporate financial distress i not synonymous with weakness of a party. There was no ev dence of audited accounts of the company to prove financial dis ess. 5. 8 On ground two, counsel that the court below misinterpreted the interest applicab e after the breach of the contractual two months period to b 40% fixed monthly from date of default, 9 th September 20 5 instead of 10% on the -J13- outstanding balance. We were refe red to Black's Law Dictionary 1 where compound interes is defined as follows: "Interest paid on both the pnnap l and the previously accumulated interest." 5.9 Counsel went on to submit that it is evident that compound interest was expressly agreed upon by e parties. 5.10 He stated that the clause in questio does not stipulate an addition of 10% to the fixed 30% a reed upon for the two months duration of the loan. There as no cumulative 40% interest agreed to by the parties. The 10% compound interest was only applicable to the outstandin balance in the event of breach of agreement after 8 th Septemb r, 2015. 5.11 On the distinction between comp und interest and penal interest, counsel cited the case of nvestrust Bank PLC v. Samuel Banda (T/A Lukusu Gen!al Supplies) and Ford Benjamin Tembo 5 where it was held at: "Compound interest is reco where there is evidence of either an greement between the parties or evidence of or evidence of acquiescence to the charging if such interest. Penal interest on the other hand, is il egal even where there is -J14- an agreement between the partie allowing the charging of such interest." 5.12 On the third ground of appeal, he appellant's counsel submitted that the respondent's inab lity to meet contractual obligations was not a justifiable premi e for the court below to reopen the transaction and vary the terms in favour of the defaulter. We were referred to the case of Finance Bank (Z) Pie v. Lamasat International Limited, upra where we entered Judgment on admission in the sumo ' US$12,229,065.63 with interest as contractually agreed at 10 o compounded from 24 th January, 2017 until date of the Judg ent and thereafter at the current bank lending rate with costs d upheld the doctrine of freedom of contract. 5.13 The appellant's counsel further sub itted that the failure by the respondent to call the company of cials who participated in the negotiations and executed the agr ement as witnesses was fatal to the respondent. At trial, D 1 failed to provide any evidence relating to the negotiations £ r the loan as she had no personal knowledge thereof. -J15- • . J 5.14 In sum, Counsel submitted that th respondent's default disentitles it from seeking the aid of eq ity and further that the respondent should pay the appellan the claimed sum of ZMW680, 426. 27 with interest as cont actually agreed at 10% compounded monthly from 16th Jun , 2016 until date of Judgment, being 26 th December, 2018; hereafter at the current commercial bank rate and costs. 6.0 RESPONDENT'S ARGUMENTS 6.1 In opposing the appeal, the respond nt relied on heads of argument dated 13th May, 2021. Grou ds one, two and three were argued together. That PW2 w1r o was the Accounts Manager for the respondent had insid e information that the respondent was in panic mode as In er-market Banking co- operation Limited had threatened to commence foreclosure proceedings against the company. He used this against the borrower as the lender was his mother. Counsel suggested that the respondent was under duress wh n it borrowed from the appellant to clear the bank loan. We ere referred to the case of Atlas Express Limited v. Kafco (Im orts and Distributors) Limited6 where the court recognised he concept of economic -J16- . J undue influence as a defence. He ar ed that the respondent signed the contract because it had nob gaining power. 6 .2 Counsel went on to submit that t e doctrine of unequal bargaining power and doctrine of nconscionable bargain apply to this case as the threat of loss of property worth a lot of money would have under the circumstances, been detrimental to the respondent. In sup ort of this submission, he cited the case of Barton v. Ar strong7 where it was observed that: "In determining whether or not coercion of will such that there was no true onsent, it is material to inquire whether the person lleged to have been coerced did or did not protest; w ether, at that time he was allegedly coerced into maki g the contract, he did or did not have an alternative co rse open to allow him such as an adequate legal re edy; whether he was independently advised; and whe her after entering the contract he took steps to avoid it... all these matters are relevant in determining whether he acted voluntarily or not." -J17- - . J . "' 6 .3 It was further argued that, the respon ent had no alternative course open to it as the 48 hour notice or foreclosure rendered it impossible for it to even consider alternative course of action or indeed to protest against the nconscionable terms of the agreement. 6.4 Counsel contended that the respondent voided the contract as evidenced by the first payment made t the appellant on 16th June, 2017 almost a year later. There w s coercion of will so as to vitiate the respondent's consent. C unsel stated that the appellant knew that the respondent ad exhausted its loan facilities across all banks but unduly in uenced the respondent to borrow the money. 6 .5 It was further submitted that the 10% i terest charged monthly on the outstanding balance is penal and illegal under regulation 10 (1) of the Banking and Financi 1 Services (Costs of Borrowing) Regulations 1995. Furthe , the 30% interest rate is also harsh and unconscionable. 6 .6 Counsel prayed that, the extra K60,00 paid on the principal should be refunded . -Jl8- . ' 7.0 OUR DECISION 7.1 We have considered the evidence on re ord and the arguments by counsel for both parties. The ground of appeal will be dealt with seriatim. 7.2 It is comprehensible that on 17th July, 20 15 the late Jossie N. Hamusankwa and the respondent exec ted a Short Term Loan Agreement to the effect that the loan of K 442 ,000.00 composed of the principal of K340 ,0 0 and interest for two months at the rate of 30% amounting o K102,000.00 was for the duration of two months from th July, 2015 to 8 th September, 2015. Any balance due af er 8 th September, 2015 would attract an extra charge of 10% i terest per month. 7.3 The Judgment appealed against predicated on the doctrine of equity. The question begs an answer 1s whether the doctrine was applicable to the facts of the case. It is trite law that he who comes to equit must come with clean hands and that a defaulter cannot be 'ded by equity - see the case of Finance Bank Zambia PLC v. Lamasat International Limited supra. 7.4 In the present appeal, the respond nt committed itself to paying ZMW442 ,000.00 between g t July, 2015 and 8 th -J19- . f f ' . t September, 2015. The respondent on y paid ZMW400,000.00 on 16th June, 2016 almost 9 mont s after 8th September, 2015. By so doing, the respondent as clearly in breach of contract. We therefore agree with c unsel for the appellant that the lower court erred in applying he doctrine of equity as it re-opened the transaction and al ered the terms of the contract as the respondent came to quity with dirty hands. We hold that the doctrine of unco cionability falls under equity and was misapplied. 7.5 For the foregoing reasons, the lower c urt's findings relating to equity and the order of alteration of he interest rates cannot stand and we set them aside. We ar fortified by the case of Printing Numerical Registering ompany v. Sampson8 where Sir George Jes sell stated that: "If there is one thing which mor than any other public policy requires it is that men of ull age and competent understanding shall have utmo t liberty of contracting and that their contracts when ntered into freely and voluntarily shall be held sacre and shall be enforced by the courts of justice. refore, you have this -J20- paramount public policy to er that you are not lightly to interfere with freedom o contract." 7.6 Needless to say Zambian courts ha e echoed Sir George Jessell's words in numerous cases. 7. 7 The parties to the loan agreement wer in our view adults of competent understanding whose contr ct we shall not lightly interfere with. There was no coercion f the respondent by the appellant. We take the view that he appellant did the respondent a favour as no collateral w s required and yet the loan was quickly advanced and the im ending foreclosure was forestalled. 7.8 We have scrutinized the loan agree ent and would simply allow the enforcement of the first p t of the interest terms whereby 30% interest was charged principal for two months as there was nothing wrong 7.9 However, we need to interpret the se ond part of the interest terms which reads in part that "Any alance due after the 8 th of September, 2015 will be charged monthly interest charge of 10% of the outstanding bala -J21- 7. 10 According to Wikipedia, "Penal interest i money lending and in sales contracts is punitive interest ch rged by a lender to a borrower if instalments are not paid ace rding to the loan, if an instalment is not received according o the payment terms, sometimes if not received by the e d of the month, the borrower/buyer is charged penalty interest on delayed instalment/ payment. " month on the outstanding balance" is at it is "penal interest" which is illegal in this country s submitted by the case of Investrust Bank PLC v. Sam el Banda (T / A Lukusu General Supplies) and Ford BenjamJ Tembo supra. 7.12 For the foregoing reasons, we hold that the agreement for penal interest is not enforceable. A p ~rusal of the enforceable part of the loan agreement shows tha there was no agreement for compound interest to be charged. 7. 13 The lower court cannot be faul ed for dismissing the respondent's claim for a refund of Ki 0 ,000.00 on the ground that the respondent had benefited from the loan. In fact , there . . 1s no cross appe against t e 1sm1s h d. al . /al . -J22- 7.14 Under the circumstances, the appell t is entitled to the balance of K42,000.00 with interest at the short term deposit rate from the date of the writ until th date of the Judgment appealed against, thereafter at the cur ent bank lending rate until full payment. 7 . 15 The lower court's dismissal of the clai for general damages for breach of contract is upheld as the interest granted covers any damage or inconvenience suffered buy the appellant due to delay in payment. 7. 16 We also quash the order for the egistrar to assess the amount due to the appellant. 8.0 CONCLUSION 8.1 In sum, the 1st and 2 nd grounds of ap eal succeed and the 3 rd ground of appeal becomes otiose. Cost follow the event. C. K. MAKU U COURT OF APPEAL JUDGE . ······~ ··············· A. M. BANDA - BOBO CO RT OF APPEAL JUDGE -J2a- I