Indo Zambia Bank Limited v Luntex Logistics and Construction Limited (2021/HPC/0160) [2022] ZMHC 103 (5 April 2022)

IN THE HIGH COURT FOR ZAMBIA AT THE PRINCIPAL REGISTRY H OLDEN AT LUSAKA (Commercial Division) 2021/HPC/0160 In the matter of In the matter of BETWEEN: INDO ZAMBIA BANK LIMITED AND Order 30, Rule 11 and 14 of the High Court Rules, High Court Act, Chapter 27 of the Laws of Zambia Order 88 of the Rules of the Supreme Cou.rt, 1965 (White Book) 1999 edition UBUCOF COUR'l'OF _JUQICIARY 0 5 APR, •. l:RCIAl REGIS O)( 60067, L\l APPLICANT LUNTEX LOGISTICS AND CONSTRUCTION LIMITED l" RESPONDENT EMMANUEL MUSONDA CHILUBANAMA WESLEY CHILUANAMA 2 nd RESPONDENT 3 "' RESPONDENT Before Lady Justice B. G. Shonga this SU. day of April. 2022 For the Plaintiff, Ms. C Saka/a. Messrs August Hill & Associates JUDGMENT Cases Referred to: 1. Santley v. Wilde {1899] 2 CH.,474. 2. African B anking Corporation Zambia Ltd (T/A BankABC) v Plinth Technical Works Ltd & 5 Others (2015) VoL 2 Z. R. 458. 3 . Brian Musonda (Receiver of First Merchant Bank Zambia Limited (In Receivership) v Hyper Food Limited & 2 Others {1999] ZR 124. 4. Reeves Malambo vs. Patco Agro Industries Limited (2007) Z. R. 177. Legislation and Other Material Referred To: 1. Order XXX, rules 11 and 14 of the High Court Rules, High Court Act, Chapter 27 of the Laws of Zambia. 2. Halsbury's Law of England, Volume 20, 4 th ed. at para. 101. 3. Black's Law Dictionary, 10th edition, Bryan A. Garner, Thomson Reuters at 524, 405 and 607. 4. Section 66(1) of the Lands and Deeds Registry Act, Chapter 185 of the Laws of Zambia. 1.0 BACKGROUND The Applicant took out this action agains t the Responden ts by dint of Origin ating Summons dated 29th March, 2021. The Applicant claims paym ent of K2, 547 ,522 .96 on an overdraft facility plus interest and other charges allegedly due and owing t o it by the 1 "1 Respondent. The Applicant avers that the facilit ies were s ecured by a legal mortgage over Lot No. CHIBO /1338351, O\vned by the 1st J2 Respondent; a legal mortgage and further charge over Subdivision No. 184 of Farm no. 50a, Makeni, Balmora Area, Lusaka, O\. Vned by the 1st Respondent (the "mortgaged properties"); and a debenture by way of a fixed and floating charge over the 1st Respondent's entire assets registered with the Patents and Companies Registration Agency (PACRA). Additionally, it is alleged that the 2 nd and 3rd Respondents provided supplemental security by way of suretyship, guaranteeing payment of the 1s t Respondents indebtedness. On the above premise, the Applicant seeks enforcement by way of foreclosure, possession, and sale of the mortgaged properties. In conjunction w·ith this, the Applicant also moves the Court for an order that the guarantors be held personally liable for the debt accrued by the 1st Respondent; and enforcement of the debenture. J3 2 .0 The Evidence The Originating Summons was supported by an affidavit deposed by Vincent Sishekanu, an officer in the Applicant's Credit Monitoring and Debt Recoveries Department. The affiant deposed that the Applicant availed the 1s t Respondent a secured overdraft facility of Two Million Five Hundred Thousand Kwacha (K2,500,000.00) ·which the 1s t Respondent failed to service in accordance with the applicable terms. The affiant adduced the follo·wing documents as eviden ce in support: 1. Exhibit marked "VS l", a copy of a Facility Letter dated 14th January, 2020 that was accepted by and on behalf of the 1st Respondent. The letter expresses the renewal of an overdraft facility to an exposure of K2, 500,000.00 and the charge of floating interest at the rate of 19.5% above the Bank of Zambia Policy Rate, effective 31 % p.a. 11. Exhibit marked "VS 2 ", a copy of a registered mortgage deed relating to Lot No. CHIBO/ 1338351, Chibombo to secure the sum of K2, 500,000.00 together with interest. The J4 mortgage was entered between the 1st Respondent on the one part and the Applicant on the opposite side. The mortgage deed bears Registry of Deeds stamp which indicates that the mortgage was r egistered on 22 September, 2017. 111. Exhibit marked "VS3", a copy of the Certificate of Title relating to Lot No. CHIBO / 1338351, Chibombo, registered in the name of the 1st Respondent and bearing an endorsement of the registration of a mortgage in favour of the Applicant to secure K2, 500,000 .00 and interest on 22n d September, 20 17. 1v. Exhibit marked "VS4", a copy of a mortgage deed relating to Subdivision No. 184 of Farm No. 50a, Lusaka to secure the sum of K500,000.00 together with interest. The mortgage ,vas entered between the 1st Respondent on th e one part and th e Applicant on the other. The mortgage deed bears Registry of Deeds stamp which indicates that the mortgage was registered on 15th March, 2013 . v. Exhibit marked ''VS6", a copy of a further charge relating to Subdivision No. 184 of Farm No. 50a, Lusaka in favour JS of the Applicant, to secure a supplementary advance in the sum of K2, 000, 000.00 and interest, registered on 22nd September, 2017. vi. Exhibit marked "VSS", a copy of the Certificate of Title relating to Subdivision No. 184 of Farm No. 50a, Lusaka, registered in the name of the 1st Respondent and bearing e ndorsements of: (a) the registration, on 15t h March, 2017, of a mortgage in favour of the Applicant to secure KS0,000.00; and (b) the registration of a further charge to the Applicant to secure K2, 000,000.00 and interest on 22nd Se ptember, 2017 . vn. Exhibits marked "VS7" and "VSB", a copy of the debenture over the 1st Respondent's assets filed with the PACRA on 21 st April, 2020 and related PACRA registration form 27 respectively. v111. Exhibit marked "VS9" , a copy of the guarantee executed by the 2 nd and 3rd Respondents on 29th January, 2022 to secure the 1st Respondent's indebtedness to the Applicant to a maximum exposure of K2, 500, 000 . 00 together with interes t. J6 ix. Exhibits marked "VSlO ", being a copy of the s u mmary statement of account for the 1st Respondent's overdraft account held with the Applicant. It reflects a debit balance of K2, 547, 522.96 1,346,038.67 as of 23rd Febru ary, 2021. 3 .0 LEGAL ARGUMENTS IN SUPPORT The Applicant first points out t hat its claim concerns a legal mortgage. It cited and relied on the case of Santley v. Wilde {1899] 2 CH .,474 1 , where a mortgage was described as follows: "a mortgage is a conveyance of land or an assignment of chattels as a security for the payment of a debt, or the discharge of some other obligation for which it is given." The Applicant proceeded to submit that this Court has the pov.rer to entertain this mortgage action, together v.rith the claims for enforcement of personal guarantees and the debenture in line with the decision in the case of African Banking Corporatio n Zamb ia Ltd {T/A BankABC) v Plinth Technica l Works Ltd J7 & 5 Ot hers (201 5) Vol. 2 Z. R. 4582 • In this case, the Supreme Court recognized that it was not uncommon for claims in a mortgage action to be joined t o a claim for enforcement of personal guarantees. The Court reasoned that although debentures and personal guaran tees did not categorically fall under a mortgage action, the appropriate consider ation was the construction of the documents executed by the parties to secu re the facilities gr anted . Th e Applicant went on to advance that Order XXX, rules 11 and 14 of the High Court Rules, High Court Act, Chapter 27 of the Laws of Zambia, as read with the determin ation in the case of Brian Musonda (Rec eiver of First Merchant Bank Zambia Limited (In Receivers h ip) v Hyper Food Limited & 2 Others [1999] ZR 1243 guide that a mortgagee holds the right to cumulatively claim payment of the moneys secured by the mor tgage or charge, sale, delivery of possession and for eclosu re. JS Further, my atten tion was drawn to the case of Reeves Malambo vs. Patco Agro Industries Limited (2007) Z. R. 1774 , where the Suprem e Court stated the following: "A mortgagee is at liberty to exercise his right to fo reclosure and sell the property in the event of default and failu re by the mortgagor to redeem the mortgaged property;" As to th e import of a guarantee, the Applicant sought refuge in the erudition of the learned authors of Halsbury's Law of England, Volume 20, 4 th ed. at para. 101 who expound as follows: "A guarantee is an accessory contract by which the promisor undertakes to be answerable to the promisee fo r the debt, default or miscarriage of another person, whose primary liability to the promisee must ·z.xist or be contemplated." 4.0 THE CASE FOR THE RESPONDNETS On 9 th July, 202 1, the Respondents filed a memorandum of appearance, without accompanying documents in opposition. The matter was set. for hearin g on 12th July, 2021. When it came up, counsel for th e Respondents requested for an adjournment J9 and informed the Court that they hoped to settle the matter ex curia, failure to which they would file in documents in opposition. The hearing was rescheduled to 4 th April, 2022. Still, no documents in opposition were filed. I proceeded to hear the claim. 5 .0 DETERMINATION Conside ring that this action 1s not opposed, my role is to establish whether th e Applicant has demonstrated that it is entitled to the reliefs sought. Having carefully considered the uncontested deposition of the affiant of the affidavit in support and the exhibited facility letter, "VSl", I am satisfied that the 1s t Respondent was availed an overdraft facility which was rene\ved on 14th January, 2020. Based on the copies of the mortgage deeds and further charge, exhibits marked "VS2, VS4, and vs 6", l am satisfied that the credit facilities were extended on the security of mortgages over the mortgaged properties. JlO Additionally, based on exhibits marked "VSlO", the statements of account, and the undisputed deposition of Vincent Sishekanu, I am persuaded that the 1st Respondent failed to service the overdraft facility in accordance with the terms upon which the facility were extended. Further, that as of 23rd February, 2021 the 1 $ < Respondent owed the Applicant the sum of K2, 547,522 .96 on the overdraft facility. Ultimately, I am of the settled mind that the 1s t Respondent sits in default. I have also carefully examined the mortgage deeds. My examination reveals that each mortgage deed contains a clause by ·which the mortgaged properties were demised unto the Applicant subject to the provision for redemption in the mortgage deeds . The provisions of redemption in the respective deeds saw the mortgagee undertaking to surrender the mortgaged properties to the mortgagors if the mortgagor paid, on demand, the Applicant all principal moneys, interest, commission , l\llortgagee's charges and all costs, charges and expenses in accordance with the deed. These provisions align Jll with the definition of r edemption ascribed in Black's Law Dictionary, 10th edition, Bryan A. Garner, Thomson Reuters at 1468, namely: "4. Property: the payment of a defaulted mortgage debt by a borrower who does not want to lose the property. " I take this opportunity to dovetail the r eference to the case of Santley v. Wilde with the aspect of redemption. In that case the Court went further to guide as follows: " ... the security is redeemable on the payment or discharge of such debt or obligation, any provision to the contrary notwithstanding. " Against the backdrop of my finding that the 1st Respondent has failed to settle its debt obligation to the Applicant, it is with ease that I find that it also failed to redeem the mortgaged pr operties as of the date this action ,vas commenced. I no\\' turn to examine the mortgage deeds. I observe that each deed contains a clause by which the mortgaged properties ,vere demised to the Applicant. According to Black's Law Dictionary, 10th edition, Bryan A. Garner, Thomson Reuters at 524, demise J12 means, inter alia, "the conveyance of an estate usually for a term of years." The word conveyance, on the other hand, is defined, at page 407, as "the voluntary transfer of a right or of property." Where the transfer is of an interest enforced in law, rather than equity, it is a transfer of a legal estate. I rest my proposition on the definition of a legal estate contained Black's Law Dictionary, 1 ()th edition, at 665. At this stage, I draw your attention to t he principle presented by the dictum of the Supreme Court in the case of Reeves Malambo vs. Patco Agro Industries Limited, specifically, that: under a legal mortgage by demise, the mortgagee becomes an " absolute owner of the mortgage tenn at law as soon as the day fixed for redemption has passed.» When I apply these principles to this case, I conclude that the with each mortgage deed, the 1st Respondent effectively transferred the legal estate in the mortgaged properties to the Applicant, thereby creating legal m ortgages by demise. When the 1s t Respondent defaulted and failed to redeem the J13 properties, this activated the Applicant's right to enforce the mortgage deeds. This brings me to consider the reliefs that are available to a mortgagee when a mortgagor defaults. Firstly, I am sentient that Section 66(1) of the Lands and Deeds Registry Act, Chapter 185 of the Laws of Zambia which provides that the right to sell a mortgaged property is only exercisable where the mortgage is by deed . I a ccept, t herefore, that the holder of a m ortgage deed has a statutory power of sale. Secondly , I loop your attention back to the Reeves Malambo vs. Patco Agro Industries Limited case where the Supreme Court stated th a t a mortgagee is at liberty to exercise his right to foreclosure and sell the property in the event of default and failure by the mortgagor to redeem the mortgaged property. Given m y finding that the 1s t Respondent has fallen into default and failed to redeem the m ortgaged properties, I am satisfied J14 that the Applicant has demonstrated that it is entitled to the reliefs claimed. In view of the above, Judgment 1s entered m favour of the Applicant a s follows: 1. Foreclosure n1s1: The 1st Respondent shall pay the Applicant the outstanding balance of K2, 547,522.96 on an overdraft facility plus interest and other charges due and owing plus contractual interest from 23rd February, 2021 t o date of writ, 29th March, 2021 and at 7. 56% per annum from date of \vrit to date of Judgment, together referred to as the Judgment Debt. Payment shall be made within 30 days of this Judgment. The Judgment Debt shall attract interest at the rate of 9% per annum from date of Judgment until full settlement. 2. Foreclosure absolute: Should the 1 s, Respondent fail to pay the Applicant the Judgment Debt within 30 days of the date of Judgment, the 1 s, Respondent shall be at JlS liberty to exercise its right of sale without further order of the Court. 3. The 1st Applicant is at liberty to take possession of the mortgaged properties. I have not lost sight of the claim that the 2 nd and 3 rd Respondents b e held accountable for the 1st Respondents debt. In this regard I have carefully studied exhibit marked "VS9", the personal guarantee signed by the said Respondents. The guarantee form which was employed is a standard one. The 2 nd and 3•d Respondents accepted to pay and satisfy the Applicant, on demand, all sums of money due by the 1st Respondent in consideration of the Applicant availing the 1st Respondent certain banking facilities. Additionally, the guarantee is expressed to be a continuing security with a maximum exposw·e of K2 ,500,000.00 together with interest. J16 Having fastidiously scrutinized the guarantee, I find, as a matter of fact that the 2 ndand 3 .. c1 Respondents each executed a guarantee in favour of the Applicant to support advances of money made to the 1st Respondent My understanding of the mechanics of the law on suretyship is that the principal debtor is primarily liable to the creditor for the default whilst the guarantor's primary obligation is to ensure that the debtor settles its debt, failure to which the guarantor is called to account for the debt. This, I discern from the lore of the learned authors of Halsbury's Law of England, cited by the Applicant and referred to above. Considering the law on suretyship and in view of the wording employed in guarantee in this case, I lend ear to the Applicant's plea and find the 2 nd and 3 rd Respondents liable, under suretyship. l, therefore, order the enforcement of the guarantee executed by the 2 nd and 3 rd Respondents with respect to the Judgment Debt. J17 • Lastly, I ins pect ed exhibits marked "VS7" a nd "VSB", the debenture and PACRA registration documents. In the absence of evidence lo the contrary, I accept that the 1st Respondents assets were charged by way of a fixed and floating charge in favour of t he Applicant. I therefore enter judgment under the debenture and order that it be enforced by sale of the charged assets. Given that the Applicant has succeeded in its claims, I award costs of and occasioned by these proceedings to be borne by the Respondents, such costs to be taxed in default of agreement. 1GHCOUR ~-· .../IJ,1 B. ~ ... u . NGA HIGH COURT JUDG .... 1 0 ff APR , .. • • ' ·~ .. ·-· """ . , ""l,t4 # 067 LUSA l!Qist~ J18