Impact Properties Builders Centre Limited and Ors v Development Bank of Zambia (APPEAL/300/2022) [2023] ZMCA 346 (23 November 2023)

IN THE COURT OF APPEAL APPEAL/300/2022 Jl of 25 HOLDEN AT LUSAKA (Civil Jurisdiction) BETWEEN: IMPACT PROPERTIES BUIL CAROL MWILA MUTALE AND 2ND APPELLANT 3RD APPELLANT DEVELOPMENT BANK OF ZAMBIA LIMITED RESPONDENT CORAM: KONDOLO SC, MAJULA AND CHEMBE JJA On 16th and 23rd November, 2023 For the Appellant: Ms. M. Chibomba of Messrs Jonah Sitimela & Partners For the Respondent: Mr. M. M'. Mukande - In House Counsel. JUDGMENT KONDOLO SC JA delivered the Judgment of the Court. CASES REFERRED TO: 1. Kalunga Chansa v Evelyn Hoine College SCZ/134/219 2. Clementina Banda Emmanuel Njanje v Boniface Mudimba (2011) ZR Vol. 3 page 162 J2 of 25 3. Amalgamated Investment & Property Co. Ltd (in liquidation) v Texas Commerce International Bank Ltd [1981] 3 All ER 577 4. Bernadette Namajanja v Mick Owuor T / A Lake Motors Garage (2020] Eklr (Civil) Appeal No. 46 of 2019 5. Match Corporation Limited v Development bank of Zambia & the Attorney General SCZ / 3 / 1999 LEGISLATION & PUBLICATIONS REFERRED TO: 1. Banking and Financial Services Act 2. Court of Appeal Rules, S . I. 65 of 2016 3. Chitty on Contracts at paragraph 23-066 4 . The termination of Real Property Interests By Frustration Under English Law by Mark Pawlowski Professor of Property Law, School of law - University of Greemwhich and James Brown Senior Lecturer in Law, Business School, Aston university https://publications,aston.ac .uk/id/eprint/ 37086/ 1/ 1. INTRODUCTION 1.1. This appeal is against a judgement d elivered by B. C. Mbewe J in which he, in large part, allowed the Plaintiffs claims against the 1st , 2 nd and 3 rd Respondents who are now th e 1st , 2 nd and 3 rd Appellants and the Plaintiff is the Respondent. J3 of 25 2. BACKGROUND 2.1. The brief facts are gleaned from the statement of claim, defence, reply and findings of fact made by the lower court. 2.2. The Appellant obtained various loans from the Respondent Bank. The loans were later, by a variation letter dated 2 n d March 2018, restructured and combined into a long term loan of K16, 354,448. 2.3. The loan was secured by the following; 1. Legal over Sl/SC/S5/Farm 3208, Lusaka 2. Equitable and Legal Mortgage over Farm 4118, Chisamba 3. Guarantees by the 2 nd and 3 rd Respondents for payment of the sum due . 4. Debenture 2.4. According to the Respondent the Appellant defaulted and made various proposals on how it would settle the debt but the Respondent declined to accept the proposals. 2.5. The Respondent commenced proceedings under Order 30 Rule 14, High Court Rules seeking inter alia orders for; 1. payment of the sum of K39,422,171.96 owing on various facilities as at 25 th October 2021; J4 of 25 2 . delivery, possession, foreclosure , sale of the mortgaged properties and. 3. an order against t h e Guarantors for payment of the said sum of K39 ,422, 171.96. 4 . Interest on the sums due 2.6. The Appellant opposed the application stating that its capacity to service the mortgage was affected by litigation involving a third party that arose in respect of Farm 4118 Chisamba ("Chisamba Farm") over which the Respondent held an equitable mortgage after financing its purchase at the sum of Kl 1,000,000. 2.7. As a r esult of the said litigation the Appellant proposed that one Chembe Phiri takes over the loan by way of outright resale of the Chisamba Farm at the consideration of US$850,000 (Kl4,720,000). 2.8. That the Respondent had accepted the proposal and issued an irrevocable undertaking to release the certificate of title for the Chisamba Farm u pon receipt of the sum of US$850,000. 2.9. That Chembe Phiri had by 28th February, 2 0 22 paid the applicant a total of US$291,990.85 leaving a balance of US$558,009.15. JS of 25 2 .10. The Respondent responded by stating that it never agreed to Chembe Phiri taking over the loan with respect to the Chisamba Farm but agreed to release the certificate of title if the sum of US$850,000 was paid to the bank in a single instalment. 2.11. The 1st Appellant stated that it reacted to this predicament by seeking permission from the Respondent to subdivide Sl/SC/S5/Farm 3208 ("Leopards Hill Rd Property") after which sales of the subdivisions would realize the sum of K24,450,000. The Appellant agreed and accordingly granted the requested permission. 2.12. However, soon after granting permission to subdivide the Respondent comm enced the subject proceedings. 2 .13. The 1st Appellant stated that the proceedings commenced by the Respondent were premature as it remained committed to discharging the sums due. 2.14. In relation to having granted the 1st Appellant permission to subdivide the Leopards Hill Rd Property, the Respondent stated that no conditions were tied to it granting the said permission and it was, in any event, not the first time such permission was requested and granted. J6 of 25 2. 15 . Further, the Appellant took the view that the sum of K39,422 . 171.96 being claimed as t h e sum due was excessive as it was more than 100% the sum of the principal debt, which was wrong at law. 2.16. However, according to the Respondent the interest being demanded had not exceeded 100% of the principal which stood at K24,407,564 when it became non-performing. 3. HIGH COURT DECISION 3.1. Honorable Justice B. C. Mbewe observed that the 1st Appellant had admitted default in repaying some of the installments and the failure was attributed to litigat ion over the Chisamba Farm and the Respondents delayed response in g1v1ng consent to subdivide the Leopards Hill Rd Property. 3.2. The lower Court further h eld that the transaction between the Appellant and Chembe Phiri was between the two parties and did not affect the loan the Appellant obtained from the Respondent. That it was not a frustrating even t on the loan agreement. The fact that the Applicant was dragged into the litigation over the Chisamba farm did not make it a party to the con tract of sale for the land and the record showed that J7 of 25 a request by the Appellant that the Respondent halts interest had been refused. 3.3. Further, that there was nothing on the record showing that the Respondent agreed to receive paym ent from Chembe Phiri in instalments. That the payments made by Mr. Phiri were on behalf of the 1st Appellant and n ot out of any contr actu al obligation with the Appellant and they should h ave, in any event, been in tandem with the Appellants instalment obligations. 3.4. The trial Court found that the Respondent having defaulted on its loan obligations, the Appellant was not estopped from enforcing its rights over th e Chisamba Farm. 3.5. The trial judge dismissed th e argument with regard th e sub division of the Leopards Hill Rd Property stating that the Appellant h ad not demonstrated that it had done everythin g possible to perform its obligations to conclude the subdivision , after receiving the Applicants payment for an advertisem ent. That the Respondent did not in any way fetter the Appellants ability to carry out action s to mitigate or reduce their indebtedness top the Applicant. 3.6. With regard to the sum being claimed by the Respondent t he JS of 25 trial Court held that the record showed that the principal owing wh en the loan became non performing was K16,354,448 and noted that section 110 (1) (b) of the Banking and Financial Services Act capped interest at 100% of th e principal. The Court thus entered judgement in the sum of K32,708,8 96 repres enting t h e principal plus 100% interest to be paid within 120 d ays. 3.7. In default, the Respondent was at liberty to foreclose on th e mortgaged prope rties, take possession of and exer cise its right to sale the same; enforce recovery a gains t th e guarantors in the event that the proceeds of the sale are insufficien t to repay the debt; enforce the debenture. 4 . THE APPEAL 4.1. The Appellant filed 5 grounds of Appeal as a ppear m the mem orandum of appeal at pages 7 -9 of the r ecord of Appeal and crafted in the following manner; GROUNDS: PARTS OF JUDGMENT IS COMPLAINED OF: (i) "I find that the case under cause No. 2017/HPA/0028 was not an event that caused frustration of the loan facility. .. I dismiss the Respondent's arguments claiming frustration of J9 of 25 contract arising from its failure to subdivide and sell Farm No. 4118 Chisamba due to litigation that arose over it." (ii) "I do not find any reason why the appellant should be made to suspend interest by this Court, something which it already clearly refused to do." (iii) "Regarding S/Dl of S/DC of S/DS of Farm 3208, Lusaka East, the Respondents have not shown to my satisfaction that they did everything possible to perform their obligations to conclude the subdivision and marketing process after receiving the Applicant's payment for an advertisement. I note that the Applicant did not obtain any injunction against them and therefore did not in any way fetter their ability to carry out action to mitigate or reduce their indebtedness to the Applicant." (iv) "I hereby Order that the 1st Respondent shall settle the Judgment Debt within 120 days. In default, the applicant shall be at liberty to foreclose on the mortgaged properties. Farm No. Jl0 of 25 4118 Chisamba, take possession thereof and exercise its right of sale over the same." AND THE GROUNDS OF APPEAL: 1. The learned Judge in the court below erred in law and fact when he found that the case under Cause No. 2017 /HPA/0028 was not an event that caused frustration of the loan facility for the period of litigation when the business model agreed to by the 1st applicant and the respondent in the facility letter for repayment of the facility could not be achieved for the duration of Cause No. 2017 /HPA/0028 2 . The erudite Judge in the court below erred in both law and fact when he found that there was no reason why the Applicant could be made to suspend interest for the period 2017 to 22nd December, 2020, notwithstanding the fact that the period in question was marred with litigation under Cause No. 2017 /HPA/0028, thereby incapacitating the 1st applicant to perform the terms of the loan facility. 3. The lower court erred in both law and fact by failing to appreciate that the property S/Dl of S/DC of Jll of 25 SI D5 of Farm 3208, Lusaka East, although not subject of an injunction by the respondent was encumbered by a legal mortgage by the respondent thereby could not be subdivided for the business model as agreed between the 1st Respondent and the Respondent without the written authorization or consent of the Respondent to do so. 4 . The learned Judge in the court below erred in law and fact when he ordered that the pt Respondent shall settle the judgment Debt within 120 days when having regard to t he circumstances of the case the appellant was equally at fault by failing to accord the 1st Respondent due and timely consent/ authority to subdivide the encumbered property so as to raise the money to repay the Respondent. 5 . The learned trial Judge erred both in law and fact by ordering foreclosure on Farm No. 4118 Chisamba, possession and sale thereof when the record reviewed that with the full knowledge of the Respondent via its irrevocable undertaking, the 1st Applicant sold the property to a Chembe Phiri for J12 of 25 USDSS0 ,000.00 and that the said Chem be Phiri h ad made direct payment s to the Respondent amounting to USD291 ,990.85 towards the purchase price with the final payment due in May, 2022 . 4.2. Appellants Arguments 4.3. Grounds 1 and 2 were argued together. 4.4. The Appellant argued that with regard to the facility for the Chisamba Farm, clause 8.1.2. makes it clear that the facility was for the purpose of financing development of the property by subdividing it and selling the subdivisions. Proceeds for paying back the deb t were to come directly from sales of the subdivisions. 4.5. That the litigation over the farm between the seller and his wife was unexpected and she placed a caveat against the property preventing any transactions over it thus frustrating the subdivision project. The Appellant cited Chitty on Contracts at paragraph 23-066 and submitted that performance of the loan agreement was temporarily frustrated during the period of litigation from 2017 to December 2020. Jl3 of 25 4.6. That the Respondent charged the Appellant interest in the sum of KS,303,046.02 interest during the period when the loan agreement was frustrated. 4.7. We are urged to reverse the interest ch arged by the Respondent during the said period. 4.8. Grounds 3 and 4 were argued together. 4.9. The Appellant submitted that the model for the Leopards Hill Property was similar to the Chisamba Farm model in that the idea was to create subdivisions for the purpose of selling to pay off t h e debt. 4.10. That th e property was en cumbered by a legal m or tgage and could thus only be subdivided upon permission being granted by the Respondent. That the Appellant was requested to write to the Ministry of Lands and Lusaka City Council allowing th e subdivision and permission was indeed granted on 20 th October, 2 021. The sales were expected to yield K24,450 ,000 . 4 . 11. However, a few weeks later, on 2 nd Novem ber 20 2 1, the Respondent commenced the proceedings in the High Court and was blameworthy for denying the Appellant ample time to undertake th e subdivision and projected sales. It was J14 of 25 submitted that the trial court should have considered these circumstances and given the Respondent ample time to redeem the mortgage by concluding the planned sub divisions and sale. 4.12 . It was submitted that trial court did not exercise its discretion judiciously and accorded the Respondent more than 120 days to discharge the mortgage. The case of Kalunga Chansa v Evelyn Hone College (ll was cited on the exercise of judicial discretion. 4.13. In ground 5 it was submitted that th e bank had issued an irrevocable undertaking to release the certificate of title relating to the Chisamba Farm upon receipt of payment of US$850,000 and thus waived its right to enforce the mortgage debt. That Chembe Phiri had been making direct payments so far amounting to US$291,990.85. 4.14. The High Court case of Clemen tina Banda Emmanuel Njanje v Boniface Mudimba (2 l was cited for persuasive purposes on waivers by election. It was submitted that the Respondents action amounted to a waiver by election and he was bound by the sale to Chembe Phiri because h e had acquiesced the sale and was estopped from going back on J15 of 25 its own irrevocable undertaking. In support of this the Appellant cited the case of Amalgamated Investment & Property Co. Ltd (in liquidation) v Texas Commerce International Bank Ltd !31 on estoppel. 4.15. It was finally submitted that the trial court had omitted to determine what should happen to the monies paid to the Respondent by Chembe Phiri. That should this court dismiss the appeal it should order the said monies paid back to him. 4.16. Respondents Arguments 4.17. In ground 1 the Respondent submitted that the Appellants submission was not entirely true because clau se 5.1. 2 of th e banking facility letter dated 29Lh June provided that the mode of payment was that, "The borrowe r shall deposit monthly, the equivale nt of one month's instalme nt plus interest due for the month into an escrow account to be opened at a commercial bank approved by the Bank". 4.18 . That clause 8.1.2 cited by the Appellant only r eferred to the conditions upon which the Respondent would release the subdivision title deeds to the Appellant. That, as shown by Jl6 of 25 clause 2, the money advanced under the facility was m eant for purposes other than the Chisamba Farm project such as the Leopards Hill Rd Property. According to the Respondent that the Chisamba Farm project was not the only source of income for paying off the mortgage. 4.19. That money to service the debt could have been generated from the Leopards Hill Rd Property during the period that the land covering the Chisamba Farm project was tied up in litigation. 4.20. That despite claiming that the loan agreement was partially frustrated, the Appellant was still transacting over it as demonstrated by the deal it entered into with Chembe Phiri. That the trial court was therefore on firm ground when it held that the land transaction was purely between the Respondent and the seller and h ad nothing to do with the Respondent. 4.21. In ground 2 it was submitted that asking th e court to waive interest was untenable at law. The case of Bernadette Namajanja v Mick Owuor T / A Lake Motors Garage 141 was cited where it was held that the Court had no discretion to waive interest lawfully accrued and decreed by a court ..... . J17 of 25 that the discretion to waive interest on the principal sum, in a decree already pronounced by a Court is not available. However, where a court would be tempted to purport to exercise such discretion, in view of the greyness of the area, the same must be done, if at all, reasonably and judiciously. 4 .22. We were urged to not remake the party's agreem ent about interest and dismiss this ground. 4.23. In ground 3 the Respondent submitted th at the trial court was on firm ground because contrary to the Appellants assertions, the letter at page 3 13 of the record of appeal showed that the Appellant had given permission for the land housing the Leopards Hill Road Proj ect to be subdivided in 2018, two years earlier than alleged by the Appellant. 4.24. In ground 4 the Appellant submitted that the trial judge was on firm gr ound on the 120-day grace period he gave the Appellant to pay the debt. In support of this the Appellant cited the case of Match Corporation Limited v Development bank of Zambia & the Attorney General l5 l on the need for the court to find a reasonable balance between the right to redeem within any extended period beyond that stipulated in the contract and the right of the other party to the benefit of the security. Jl8 of 25 5. THE HEARING 5.1. At the hearing, both counsel indicated that would place complete reliance on the record of appeal and their heads of argument filed into court. 6. ANALYSIS & DECISION 6.1. We have considered the record of appeal and the arguments advanced by the parties in respect of their respective positions. 6.2. We cannot help but comment on the manner in which the grounds of appeal have been cou ched. Of particular concern is the part of the Memorandum of Appeal entitled; "GROUNDS: parts of the Judgement complained of'. 6.3. Beneath this the Appellant reproduced several sentences from the judgement with which they took issue. This habit is not confined to this appeal but appears to be a growing practice and quite contrary to the rules. 6.4. Order 10 Rule 9 (3) CAR reads as follows; J19 of 25 "A memorandum of appeal shall set forth concisely and under distinct heads, without argument or narrative, the grounds of objection to the judgement appealed against, and shall specify the points of law or fact which are alleged to have been wrongly decided, such grounds shall be numbered consecutively." 6.5. The part of the memorandum of appeal referred to in paragraph 3. 2 above offends this proviso. We are soon approaching a situation where counsel shall reproduce entire pages from judgements. The offensive paragraphs were better suited in the Appellants heads of argument. 6 .6 . We have commented on this issue on numerous occasions and our patience in this regard is now threadbare. We have warned on numerous occasions that parties who disobey rules of Court do so at their own peril. In instances such as this we may exercise the option of expunging the off ending paragraphs with possible devastating effect on counsel's ability to prosecute the appeal and/ or condemn counsel in costs. Counsel are once again warned to take heed. J20 of 25 6.7. Coming back to the appeal, in ground 1 we opine that even though some of the m oney under th e facility was to finance the Leopards Hill Road project, clause 8.1.2 . is very clear with regard to the source of money for servicing the debt. 6.8. The Leopards Hill Road Project was encumbered by the mortgage and the land could only be sub-divided upon permission being given by the Responden t which was only given after the Chisamba Farm was released from litigation. 6. 9 . In our view, in terms of clause 8 .1. 2 of the banking facility varied on 2 nd March, 2018 at page 167 of the record of appeal (ROA), it was understood by both parties th at performance of the Respondents obligations was dependent on it being able to subdivide the land and sell the subdivision . 6 . 10. The litigation that arose over the subj ect land was beyond the control of both parties and the property could not be subdivided during the pendance of the caveat placed by the seller's wife . 6 .11. In the circumstances, performance of the agreement vis-a-vis the terms in the facility le tter with regard to the monies advanced in relation to the Chisamba Farm Project, was indeed frustrated until the caveat was lifted at the conclusion of the litigation. J21 of 25 6 .1 2. This however must be considered in the context that, though the facilities advanced to the Appellant were initially separate facilities the total debt was restructured into a single debt secured by the two properties. Therefore, there was ultimately a single debt to be paid off by subdividing the two properties and selling the subdivisions. 6.13. Th e record shows that even though performance related to developing the Chisamba Farm was frustrated the Leopards Hill Road Property was only encumbered by the mortgage deed itself and the Respondent had not objected to the Appellant proceeding with subdividing the property and selling off the subdivisions for the purpose of paying off the debt. 6.14. The trial judge was therefore quite right when he observed that the Appellant had done little to show that it was making su fficient efforts to clear the debt. 6.15. In ground 2, with regard to the issue of interest, we refer to the article, "The termination Of Real Property Interests By J22 of 25 Frustration Under English Law by Mark Pawlowski Professor of Property Law, School of law - University of Greenwich and James Brown Senior Lecturer in Law, Business School, Aston university https:/ /publications,aston.ac. uk/id/ eprint/ 37086/ 1 / "in essence therefore, the legal charge is founded in contract because there are contractual obligations imposed on both the lender and the borrower in relation to mortgaged property. In particular, the borrower covenants to repay the borrowed money (together with interest) and, if the borrower defaults, the lender has an action on the borrower's personal covenant to repay the mortgage. Given, therefore the "live" contractual basis of the mortgage, it is submitted that the doctrine of frustration should, in principle, also apply to this form of mortgage transaction. The consequences, however, of a frustrating event may be somewhat limited from the borrower's perspective in that he will still be obliged to repay the loan under his personal covenant in the mortgage." 6.16. In the premises, the foregoing is in line with the rationale J23 o f 25 in the Kenyan case of Bernadette Namajanja v Mick Owuor T / A Lake Motors Garage (supra) cited by the Respondent and in the premises, frustration of the mortgage contract neither forgives payment of the principal nor stops interest from running. In that regard ground 2 fails. The learned trial judge was therefore on terra firma when he declined to reverse the interest charged on the facility. 6.17. Ground 3 is related to grounds 1 and 2 in that it relates to the Appellant stating it was unable to complete the projects required for generating funds to service the debt by no fau lt of its own. In this instance in relation to the Leopards Hill Rd Property where the Appellant lays blame on the Respondent. 6.18. The letter referred to by the Respondent at page 313 ROA is quite clear that from July 2018 the Appellant m a de no effort to proceed with the subdivisions until September 2021 when it wrote the letter to Respondent asking it to inform the Ministry of Lands and the Lusaka City Council that it had allowed the land to be sub-divided. J24 of 25 6.19. It appears to us that the trial court was on firm ground when it held the Respondent blameless for pursuing its rights under the mortgage with regard to the Leopards Hill Rd Property. Grounds 1, 2 and 3 consequently fail. 6.20. In ground 4 , we see no reason to interfere with the trial judges grant of a 120 day grace period to the Appellant. The issue regarding the period whilst performance of the Chisamba Farm project was frustrated has been addressed in ground 1 and as shown in our decision on ground 3 , the Appellants management of the Leopards Hill Rd Property deserves no credit at all. Further, it is evident that Chem be Phiri lacks capacity to clear the debt within a short period and extending the grace period beyond 120 days is unlikely to serve any useful purpose. Ground 4 is therefore dismissed. 6 .21. The Appellant has stated that the trial judge did not determine how the monies paid by Chembe Phiri should be dealt with and we should therefore consider ordering that he be paid back his money. 6.22. We hold the view there was no need for the trial judge to determine that issue because it was not one of the issues for J24 of 25 6 .19. It appears to us that the trial court was on firm ground when it held the Respondent blameless for pursuing its rights under the mortgage with regard to the Leopards Hill Rd Property. Grounds 1, 2 and 3 consequently fail. 6.20. In ground 4, we see no reason to interfer e with the trial judges grant of a 120 day grace period to the Appellant. The issue regarding the period whilst performance of the Chisamba Farm project was frustrated has been addressed in ground 1 and as shown in our decision on ground 3, the Appellants management of the Leopards Hill Rd Property deserves no credit at all. Further, it is evident that Chembe Phiri lacks capacity to clear the debt within a short period and an extending the grace period beyond 120 days is unlikely to serve any useful purpose. Ground 4 is therefore dismissed. 6.21. The Appellant has stated that the trial judge did not determine how the monies paid by Chembe Phiri should be dealt with and we should therefore consider ordering that he be paid back his money. 6.22. We hold the view there was no n eed for th e trial judge to d etermine that issue because it was not one of the issues for J25 of 25 determination before him. In any event, he did s ay that Chembe Phiri had no relationship with the Appellant and was thus simply servicing the debt on behalf of the Appellant. 6.23. This appeal is without m erit and is consequ ently dismissed with costs to the Respondent. :22= === ................ ~ -.................. . M. M. KONDOLO, SC COURT OF APPEAL JUDGE I ~ . r. f ... o : ............ . ~~ :-. ~ ;..:~ • ~ •• • •• B. M. MAJULA COURT OF APPEAL JUDGE . .... .......• ~ ......... . Y. CHEMBE COURT OF APPEAL JUDGE