Indo-Zambia Bank Ltd v Witika and Ors (Appeal 44 of 2016) [2018] ZMSC 557 (26 April 2018)

'< ' p JI Selected Judgment No. 16 of 2018 P623 IN THE SUPREME COURT OF ZAMBIA HOLDEN AT LUSAKA (Civil Jurisdiction) Appeal No. 44/2016 SCZ/8/002/2016 BETWEEN: INDO- ZAMBIA BANK LIMITED APPELLANT AND COURT OF ■ r'JZXRV LEONARD MWELWA WITIKA \ < L SPONDENT (T/A LMW GENERAL SUPPLIES AND TR^$PQI^c7< . :<;tjRTP. E< DORIS MWELWA SURIAH MWAANZA (PRACTISING AS PAX CONSULTANT) RESPONDENT 3rd RESPONDENT CORAM: Wood, Kaoma and Kajimanga JJS On 10th May 2016 and 26th April 2018 FOR THE APPELLANT: Mr. Pindani, Messrs Chonta, Musaila and FOR THE RESPONDENTS: In person, by Leonard Mwelwa Witika Pindani Advocates JUDGMENT Kajimanga JS delivered the judgment of the Court. Cases referred to: 1. Union Bank (Zambia) Limited v Southern Province Co-operative Marketing Union Limited (1995 - 1997) Z. R. 207 2. Ellis v Allen (1914) 1 Ch 904 3. Chibamba Kizito Lopa v Zambia National Commercial Bank Pic - J2 P624 2012/HP/1303 (unreported) 4. Nkhata and Four Others v Attorney General (1966) Z. R. 124 5. Investment Merchant Bank v Lilyvale Farm Limited (2002) Z. R. 115 6. Credit Africa Bank Limited (In Liquidation) v John Dingani Mudenda (2003) Z. R. 66 7. Credit Africa Bank v George K. Kalunga and Terry Simwanza Appeal No. 144 of 1997 8. Investrust Bank Pic v Kebby Zulu, Appeal No. 6 of 2016 Legislation referred to: 1. High Court Act, Chapter 27 of the Laws of Zambia; Orders 21, 23 and 30 rule 14 2. Law Reform (Miscellaneous Provisions) Act Chapter 74 of the Laws of Zambia; section 4 3. Banking and Financial Services (Classification and Provision of Loans) Regulations 1996, Statutory Instrument No. 42 of 1996 4. Banking and Financial Services Act, Chapter 387 of the Laws of Zambia 5. Rules of the Supreme Court (1999 edition); Order 28 rule 8 and Order 38 rule 2 (3) Work referred to: 1. Principles of Corporate Finance Law; Ferran and Ellis (2008: 316, 317) This appeal is against a judgment of the High Court dated 18th December 2015 in which various strange orders against the appellant were made by the trial judge. J3 P625 The back ground is that the appellant commenced an action in the High Court by originating summons pursuant to order 30, rule 14 of the High Court Rules, Chapter 27 of the Laws of Zambia against the respondent, seeking the following reliefs: payment of all monies which as at 29th December 2012 stood at K76,491, 367.50 (K76, 491.36) with interest thereon at the agreed rate; costs and other charges due and owing to the appellant Bank by the 1st and 2nd respondents under the overdraft facility which was secured by two mortgages on Plot No 2935 Masala, Ndola owned by the 1st respondent and Plot No 2936 Masala, Ndola owned by the 2sl respondent; foreclosure; possession and sale of the mortgaged properties; an order that the respondents honour their personal guarantees; and any other relief that the Court would deem fit. The appellant’s case as revealed by the affidavit in support of the originating summons was that on 11th August 2009, the appellant Bank availed the lsl respondent a renewed overdraft facility in the sum of K50,000,000.00 (K50,000.00) for the purpose of working capital support on the terms contained in the facility letter dated 1 lrh August 2009. The said over draft was secured by P626 two legal mortgages over the 1st respondent’s property at Stand No 2935 and the 2nd respondent’s property at Stand No 2936, both situated in Masala, Ndola. The overdraft facility was further secured by personal guarantees of both the 1st and the 2nd respondents. Three years following the renewal of the said overdraft, the Bank through its advocates issued a letter of demand requesting payment of the sum of K81, 091,367.50 (K81,091.36) plus interest, being the outstanding amount on the overdraft facility. Upon receipt of the said letter, the 1st respondent by letter dated 28th September 2012 acknowledged the indebtedness and promised to pay the outstanding amount. The above facts were not disputed by the respondent. However, in his combined affidavit in opposition to the originating summons and in support of his application for an order to render an account pursuant to Order XXIII of the High Court Rules, the 1st respondent admitted that the two properties were mortgaged to the appellant Bank to secure an overdraft facility for the sum of K50, 000.00. The 1st respondent alleged that he had paid off the loan. According to the Is’ respondent, sometime in 2010, the appellant’s manager prevailed upon him to sell the mortgaged J5 P627 properties at a price of K90, 000,000.00 (K90,000.00) after which the appellant would release the title deeds to the mortgaged properties. He proceeded to sell the mortgaged properties and then requested for the return of the title deeds but the appellant refused and told him to wait for two weeks. A new manager later came on the scene and requested the 1st respondent to pay the sum of K20, 000,000.00 (K20,000.00) or the sum of K15, 000,000.00 (KI5,000.00) in order to close the chapter. He was appalled by this development and demanded a post-mortem to be taken on his account by an independent entity. The 1st respondent further stated that there had been varying rates of interest arbitrarily charged to the facility. He, therefore, requested the lower court that an account be undertaken of what the 1st and 2nd respondents paid to the appellant; what is recorded in the books of the Bank as having been paid by the 1st and 2nd Respondents; the varying interest rates charged to the facility as well as the bank commissions; ledger fees and other payments so as to establish the position of the facility and the respondents’ indebtedness, if any. The 1st respondent refused to accept that he J6 P628 owed the appellant the sum of K76, 491.36 plus interest as at 29th December 2012. The appellant’s combined affidavit in reply and in opposition to the summons to render an account disclosed that the overdraft facility was initially serviced on regular basis. However, during the month of November 2009, the account operations stalled with no credit turnover or deposits in the account to service the accrued interest on a monthly basis as well as other monthly service charges. An account which has not scored any credit turnover for 90 days and more is deemed to be a non-performing account as per Bank of Zambia policy guidelines on classification and provisioning of loans. In this case, according to the appellant, the 1st respondent’s account last credit turnover/deposit of KI,000,000.00 (KI,000.00) was made on 30th November, 2010 before the account was rendered non-performing on 31st March 2012. The affidavit disclosed that it was untrue that the 1st respondent was allowed to sell the mortgaged properties at the price of K90,000.00 and that no documentation to that effect was J7 P629 produced. Furthermore, there was no evidence showing that by making a payment of K90,000.00 the entire dues would be treated as full settlement of the debt. The said amount was deposited in the bank account on 8th September 2010. The bank statement of account exhibited in the affidavit in support of the originating summons as “MK7” and all activities on the account were correctly shown. Further, that the bank is not obliged to ask its customers the source of the deposits being made into the account. The affidavit also disclosed that the interest rate applicable on the regular limit is different from the rate charged after a facility has expired. That in this case, at the time of sanction of the regular limit, the interest rate applicable was 10% above the bank’s ruling base rate which was subject to change at the bank’s discretion from time to time in line with movements in the base rate. This was communicated to the borrower in the sanction terms as per exhibit “MK1” in the affidavit in support of the originating summons. When a facility expires without being renewed or serviced, a temporary overdraft interest rate will be applied as has been in this case. That this was also as per the sanctioned terms already agreed by the borrower. J8 P630 The appellant’s evidence further disclosed that the overdraft facility was deemed not having been paid in full despite the deposit of K90,000.00 made on 9th September 2010. There was an outstanding balance of K44,494.41 after the said deposit. Without adequate funds to pay off the entire outstanding dues, interest continued being applied, resulting in the balance increasing to K80,560.37 as at the date of classification of the account as non­ performing. The 1st respondent had not specified which entries in the account statements were questionable. The bank has a duty to render an account only after selling the mortgaged properties which was not the case here and as such, the application to render an account was premature. Upon considering the respondents’ application for an order to render an account, the lower court opined that this was a proper case in which to undertake an inquiry pursuant to Order XXIII of the High Court Rules and consequently appointed Ms Suriah M. Mwaanza of Messrs Pax Consultants and Chartered Accountants as the referee. A report was subsequently submitted to the Court by Ms Mwaanza on 22nd January 2015 and it was forwarded to both parties for their comments. J9 P631 After considering the referee’s report, affidavit evidence and submissions of the parties on the originating summons, the learned judge observed that the 1st and 2nd respondents did not dispute having mortgaged the two properties for an overdraft facility of K50, 000.00. She noted that various charges were levied on the account for the period starting May 2009 to December 2012 in form of processing fees in excess of the overdraft, below minimum balance charges, ledger fees, internal transfer charges as well as other charges. The judge found that under clause 6 of the overdraft facility the appellant was entitled to charge a 1% processing fee and nothing else to be charged upfront. She found that the 1% fee was charged throughout the life of the facility together with compound interest on the principal amount outstanding at any given time. Furthermore, the judge found that the 10% interest above the base rate and the 15% interest per annum for excess drawings and a strange penalty were levied on the 1st and 2nd respondents’ account. According to her, the varying interest rates levied were a strange penal interest upon interest. Further, that the 15% extra interest levied on the account was illegal and unenforceable and liable to be refunded to the 1st and J10 P632 2nd respondents. With regard to compound interest, the judge noted from the referee’s report that this was a surprise charge not communicated or revealed to the client, as the facility letter did not state that compound interest was to be charged. As such it was her finding that the appellant had no basis to charge compound interest in respect of the subject loan, on the basis of the principle enunciated in Union Bank Zambia Ltd v Southern Province Corporative Marketing Union Limited1 and section 4 of the Law Reform (Miscellaneous Provision) Act, Chapter 74 of the Laws of Zambia. The judge also found that as the amount advanced to the respondents by the appellant was K50, 000.00, it appeared to her that the respondents had paid at least double the amount advanced to them. Thus, she affirmed the 1st respondent’s position that after paying the K90, 000.00 the overdraft was paid for in full and any further payment towards the liquidation of the overdraft facility was unconscionable. In her opinion, any further payment beyond what the 1st and 2nd respondents had already paid far Jll P633 exceeds the loss, if any, that the appellant could conceivably have suffered by the breach. The judge further found that the activities of the appellant on the respondents’ account were contrary to the provisions of Statutory Instrument No 142 of 1996, particularly part III of the Banking and Financial Services (Classification and Provision of loans) Regulations 1996, made pursuant to section 58 of the Banking and Financial Services Act, Chapter 387 of the Laws of Zambia which provides for the determination of non- accrual loans and related accounts. That in line with the said Statutory Instrument, the appellant Bank was required by Regulation 7(1) to transfer the overdraft facility to non-accrual status when its collectability became doubtful. That contrary to the clear provisions of the law, the appellant instead renewed the loan and continued to charge interest and other charges well beyond the 12 months. She found that the appellant further acted contrary to regulation 8 as it not only continued to charge interest and other charges on the loan account but also compounded the principal and the interest for a period of two years. It was also her finding that the appellant while acting contrary to Regulation 9(1) J12 P634 continued to compound the principal and the interest instead of applying the payment made by the 1st respondent to reduce the principal loan as provided by the law, over a period of two years after it became clear that the collectability of the loan was in doubt. The judge observed that the conduct of the appellant in its dealings with the respondents’ account was in total disregard to the law and ought to invite investigation from the supervisory authority. With regard to the sale of the mortgaged properties, the lower Court found that from the referee’s report, the properties were sold at a suppressed value on account of the involvement of staff of the Bank in the pricing and sale of the houses. The judge consequently ordered that: the 1st and 2nd respondents’ application to render an account succeeds; the 1st and 2nd respondents have repaid the amount advanced in full and do not owe the appellant any more monies; a revaluation be made by the appellant Bank to establish the proper amount of (i) compound interest and (ii) all the charges levied on the account outside those provided for in the facility letter; and thereafter, J13 P635 knock out all the compound interest applied to the loan as well as charges illegally levied and that these amounts should be refunded to the 1st and 2nd respondents; a recalculation be made of all monies paid into the account by the 1st respondent over and above K90, 000.00 starting from the date when the facility was advanced i.e. 11th August 2009 up to 29th December 2012 and, to knock out any amount that would be found to have been paid to the appellant above K90, 000.00 upon the sale of the mortgaged properties. That this amount is liable to be refunded to the 1st and 2nd respondents; and lastly, that the appellant should pay the referee’s costs as well as the respondents’ costs. Dissatisfied with the lower court’s judgment, the appellant now appeals on six grounds as follows: 1. The Honourable Judge erred in law and fact when she held that the 1st and 2nd respondents had repaid the amount advanced to them in full and do not owe the appellant any more monies contrary to the overwhelming evidence on record. 2. The Honourable Judge in the Court below misdirected herself when she ordered a revaluation of the 1st respondent’s account and the knocking out of all compound interest as well as all charges applied to the account for refund to the 1st and 2nd respondents in total disregard of the express provisions of the mortgage deeds and other J14 P636 security documents duly signed by the 1st and 2nd respondents. 3. The Honourable Judge in the Court below erred in law and fact when she ordered a recalculation of all monies paid into the account by the 1st respondent over and above the K90, 000.00 starting from the date of the facility (11th August 2009) up to December 2012, for refund to the 1st and 2nd respondents clearly ignoring the obligations of the borrowers. 4. The Court below gravely misdirected itself when it awarded the sum of K 120,000.00 to the 3rd respondent as costs as well as additional costs to the 1st and 2nd respondents without any legal justification or taxation of the same. 5. The lower Court erred in law and fact when she held that the appellant ought not to recover the accruing interest on the outstanding debt following the classification of the debt as a non­ performing or non - accrual account. 6. The Honourable Judge in the Court below erred in law and fact when she held that the proceeds from the sale of the mortgaged properties were suppressed on account of involvement of the appellant’s staff in the pricing and sale of the houses. In arguing grounds one and three, Mr. Pindani submitted that the 1st and 2nd respondents clearly admitted the claim in this matter in their letter dated 28th September 2012 (exhibit “MK5”) which was authored and signed by the 1st Respondent in response to the letter of demand from the appellant’s advocates. It was argued that the said letter was a clear admission of the appellant’s J15 P637 claim. The 1st respondent had time to type and send the letter to the appellant and its advocates. Therefore, he would have written it in any style as he was not under any eminent threat of injury. We were referred to Order 21 of the High Court Rules, Order 27/3/4 RSC (1999 edition) and Order 27, rule 3 RSC (1999 edition). We were also referred to the cases of Ellis v Allen2 and the case of Chibamba Kizito Lopa v Zambia National Commercial Bank3, all of which, counsel contended, deal with the admission of debts. Counsel went on to argue that where the claim is admitted as is in this case, the case ceases to be contested and the lower court ought to have granted the reliefs sought by the appellant without any difficulties. It was further argued that under paragraph 10 of the respondents’ affidavit in opposition to originating summons and in support of an application to render an account, the respondents never out rightly denied owing the appellants the monies. We were referred to the skeleton arguments on page 91 of the record of appeal, lines 30-34 and page 92 lines 1-2 where the respondents clearly admitted the claim and were pleading to be given more time to pay the debt. It was submitted that the finding J16 P638 of fact by the lower court that the 1st and 2nd respondents had paid the debt in full is not supported by any evidence on record. Counsel argued that in line with the case of Nkhata and Four Others v Attorney General4, this finding of fact was perverse and was not made upon a proper evaluation of the evidence. Counsel further argued that the appellant’s bank statement was self-explanatory as all activities on the 1st respondent’s account are shown in the debit and credit columns. We were referred to the case of Investment Merchant Bank v Lilyvale Farm Limited5, where it was held that the interest to be applied to an overdrawn account must be based on the actual amount utilized by the account holder. Counsel contended that in the present case all the figures on monthly interest are clearly indicated in the debit column at the end of each month based on the amount the 1st respondent had drawn. We were also referred to the learned authors of Principles of Corporate Finance Law who state at pages 316 - 317 that: “An overdraft is a form of a debt financing provided through a customer’s current account. An overdraft arises when a company draws on its current account to such an extent that a negative balance is produced. If the drawing that overdraws the account is P639 met by the bank, the bank becomes the creditor of the company for the amount so overdrawn. An arrangement to overdraw up to a specified maximum amount would usually be agreed in advance between a company and its bank. Just as a bank must pay any sums standing to the credit of a current account to the company whenever it demands it, an overdraft is normally repayable on demand.” We were accordingly urged to uphold this ground. In respect of ground two, it was counsel’s contention, in support of this ground, that compound interest can be charged on an account. To support this argument, we were referred to the case of Credit Africa Bank Limited (In Liquidation) v John Dingani Mudenda6, where we held that: “The charging of compound interest can only be sustained if there is express agreement between the parties to the charging of compound interest or if there is evidence of acquiescence to the same.” Counsel further referred us to the legal mortgage deed where the respondents covenanted to discharge, inter alia, charges for interest compounded at a rate to be determined by the appellant together with monthly rests discounts commission exchange and usual banking charges. It was counsel’s contention that the lower court, therefore, misdirected itself by ordering the knocking out of J18 P640 all compound interest as well as other charges applied to the account for refund to the 1st and 2nd respondents as the same are recoverable from them by the appellant. We were urged to take judicial notice of the usual banking practice of account holders paying account maintenance fees to the bank. This was, counsel contended, applicable to the 1st respondent’s account as it was a corporate account and thus attracted the usual bank charges. It was further argued that from the facility letter, any amounts overdrawn over and above the limit of K50, 000.00 amounted to a new overdraft which required extra interest to be paid. He prayed that this ground should also be upheld. As regards ground four, counsel argued that although costs are in the discretion of the court, the discretion must be exercised judiciously and on reasonable grounds. He submitted that the 1st and 2nd respondents cannot be entitled to costs as they still owe the appellant. As for the 3rd respondent, it was submitted that the judge in the court below on her own volition, appointed the 3rd respondent to assist her assess specific issues referred to her. Therefore, the 3rd respondent falls under the category of an J19 P641 assessor. Ordinarily, the determination of assessment of issues is done by the Deputy Registrars who are part of the government adjudicators and are paid by the government and not the litigants. Counsel argued that the appellant commenced the action for determination in the lower Court at no fee, save for the usual filing fees. It was further contended that the judge in the lower Court should have facilitated the payment of the 3rd respondent from the government allocation for assessors. It was also Counsel’s contention that the judge in the court below misdirected herself by granting the sum of K120,000.00 as costs without any taxation to prove the necessity of the items and the appropriateness of the allocated hours in view of the specific issues referred to the 3rd respondent which could not have attracted such an astronomical figure. We were urged to take note that at the conclusion of the referee’s findings, she rendered a bill to the Court of K60, 880.00. Counsel wondered where the lower Court got the figure of K120, 000.00 from when no further work was done and additionally, to refuse to grant a stay of these costs pending appeal, referring the matter to the Deputy Registrar for J20 P642 assessment. It was argued that this was a gross misdirection and counsel prayed that this ground be upheld. In support of ground five, Mr. Pindani argued that the appellant is entitled to recover all the accrued interest even after classification of the account as a non-performing account. According to counsel, there would be mischief by the bank customers of deliberately defaulting on credit facilities if the Supreme Court were to entertain what the lower Court decided. To support this argument, counsel cited the case of Credit Africa Bank v George K. Kalunga and Terry Simwanza7, where we stated that Statutory Instrument No. 142 of 1996 made pursuant to section 58 of the Banking and Financial Services Act has nothing to do with the relationship between the bank and its loanees who still have their obligations under the loan agreements. Further, that placing a loan in a non-accrual category does not suspend the obligations under the loan agreement; interest on the loan is still payable until the loan has been repaid on agreed terms. Counsel accordingly urged us to uphold this ground of appeal. J21 P643 In arguing ground six, Mr. Pindani submitted that the appellant had its interest registered on the properties as a legal mortgagee and, therefore, any prudent purchaser ought to have enquired from the appellant on the status of its interest which had been registered before proceeding to deal with the 1st and 2nd respondents. He contended that the appellant is still the custodian of certificates of title for both properties and has not discharged the properties subject of the foreclosure proceedings emanating from the mortgages. It was further argued that the 3rd respondent went outside her mandate given by the lower court regarding what she was supposed to inquire on. Counsel submitted that the issue of the sale of the mortgaged properties was not referred to her. Counsel urged us to disregard the findings in the report for want of jurisdiction. Further, that the manner in which she proceeded with the inquiry by refusing to allow advocates to appear before her since she is not a lawyer herself brings into question her mode of gathering facts which is the legal basis for declining to accept a referee’s report where the mode of proceeding was questionable J22 P644 under Order 23 of the High Court Rules. He contended that it is trite law that any adduced facts must be tested for veracity by subjecting the witness to cross-examination and re-examination; anything short of that is tantamount to sneaking evidence through the back door. It was argued further that the lower Court should have invoked Order 28 Rule 8 of the Rules of the Supreme Court (1999 edition) or allowed for cross-examination of the deponents of the affidavits on record as provided under Order 38 rule 2(3) of the Rules of the Supreme Court (1999 edition). The referee’s report, according to counsel, cannot alter or vary the express terms of the agreement to borrow as indicated in the facility letter and legal mortgage deeds. At the hearing, the learned counsel for the appellant informed us that he would rely on the appellant’s heads of argument filed on 7th March 2016 and supplement them with brief oral submissions. Under ground two, counsel referred us to the case of Investrust Bank Pic v Kebby Zulu8, where it was held that the basis for charging compound interest can only be ascertained if J23 P645 there is express agreement between the parties to that effect or if there is evidence of consent or acquiescence to the same. Counsel contended that in the present case, the mortgage deed duly signed by the 1st and 2nd respondents, provided for the charging of compound interest. He again referred us to the learned authors of Principles of Corporate Finance, who state at page 313 that with regard to interest charges on an overdraft, it is usual for the interest to be calculated on a daily balance and then debited to the account, on a periodic basis and once the interest has been debited to the account, it is capitalized and thereafter interest is charged on the amount including the capitalized interest. Further, that the practice of charging interest on overdraft is well established as a general banking usage which will be implied in all contracts between banks and customers unless there is express provision to the contrary. Counsel, therefore, submitted that the court below misdirected itself when it ordered the exclusion of compound interest from the amount being claimed by the appellant. In augmenting the written arguments relating to ground four, Mr. Pindani referred us to rule 3 of the Witnesses and Assessor J24 P646 Allowances Rules in the subsidiary section of the High Court Act which provides that witnesses and assessors who have duly attended at or for the proceedings at the instance of either party or the court shall be entitled to allowances and expenses. He stated that the rule itemizes the figures and maximum per diem and argued that referees fall under the category of an assessor since they assist the court. That hence, the referee’s allowances must be borne by the government and not the parties because ordinarily when parties come to court, their disputes are adjudicated by the court and only in exceptional instances of arbitration where the parties foot the arbitration fees. Counsel also urged us to take note that the referee’s bill was rendered in the sum of K60,880.00 at the conclusion of her work and the lower court in its judgment awarded her the sum of KI20,000.00 without further work done or any taxation. According to counsel, the assessor’s rules have a limit on the amount that can be claimed in a day but in this case the referee was charging in dollars and on the specific issue referred to her in the ruling, it was submitted that most of the items were extremely unnecessary. Counsel also argued that the referee refused to allow the J25 P647 appellant’s advocate to accompany her during the inquiries contrary to Order 23, rule 5 of the High Court Rules which requires a referee to proceed in the same manner as trials before a judge. That therefore, the referee’s report cannot be relied upon as a true reflection of what transpired and should be disregarded in its entirety. He accordingly prayed that the appeal be allowed. The 1st respondent who appeared in person at the hearing applied for leave to file the respondents’ heads of argument out of time and we allowed the application. He indicated that the respondents were entirely relying on their written heads of argument. In the respondents’ heads of argument, it was submitted generally that the demand letter dated 11th September 2012, had been written and sent to the 1st respondent on the basis of a falsified amount due, oppressive interest rates, bank charges, commissions and other charges and/or penalties which was only discovered after the court action had begun. The 1st respondent contended that by going against the terms of the loan facility and introducing new interest rates as well as abnormal and ambiguous J26 P648 charges and commissions, the appellant created a new agreement which needed the consent of both parties as opposed to being imposed on the respondents. According to the 1st respondent, this practice amounted not only to unjust enrichment but also a fraudulent way of running a bank service. That therefore, the respondents were tricked by their own bankers in whom they had put trust. Further, that the amounts purported by the appellant as being due are fictitious and made with a view to unlawfully benefit the appellant Bank. The 1st respondent submitted that it was surprising and unacceptable that the appellant can now claim that the sum of K81,091.37 indicated on the originating summons, was a typographical error as there was no such explanation in any of the appellant’s affidavits in the lower court or before the referee. That this just goes to show that the appellant was in fact engaged in banking malpractice as it did not even know what to demand from the respondents. That consequently, the letter referred to by the appellant as being the 1st respondent’s acceptance of his indebtedness is as a result of wrong or fraudulent sums of money made up by the appellant. Be submitted that the lower court was, J27 P649 therefore, on firm ground when it dismissed the appellant’s action and the award of costs followed such dismissal. The 1st respondent also contended that in light of the revelations made in the lower court and the referee’s report, the respondents cannot be said to have made any admission as to their indebtedness and the appellant’s arguments to that effect are, therefore, untenable. In conclusion, the 1st respondent submitted that this appeal is devoid of any merit and that it should be dismissed. We have considered the record of appeal, the judgment appealed against and the arguments of the parties. For convenience, ground four will be considered last. Grounds one and three are interrelated and they will be considered together. Under ground one, the appellant assails the trial judge’s finding that the 1st and 2nd respondents were not indebted to the appellant because the amount advanced to them had been repaid in full. The appellant in ground three, frowns upon the order made by the trial judge, for a recalculation of the monies paid into the account by the 1st respondent from the date J28 P650 of the facility (11th August 2009) up to December 2012 for the purpose of refunding the 1st and 2nd respondents. The decisions of the lower court impugned under grounds one and three suggest that the respondents are not indebted to the appellant. From the outset, we wish to state that these decisions are contrary to the overwhelming evidence of the respondents’ indebtedness deployed before the trial judge. Firstly, in their own letter dated 28th September 2012 which was authored by the 1st respondent, the 1st respondent unequivocally admitted owing the appellant. For completeness, and avoidance of doubt, the letter is reproduced below: “L. M. W. Transport & General Supplies P. O. Box 70802 Room 208 Buteko House Ndola 28th September, 2012 Lewis Nathan Advocates Plot 758 Independence Avenue Lusaka Dear Sir, RE: ACCRUED AMOUNT ON AN OVERDRAFT A/C NO. 15892005 J29 P651 Reference is made to the above subject. We wish to bring to your attention of your good office that we received the letter dated 11th September, 2012 and amount of K81,091,367 which, we are supposed to honour. As a company we accept for not honoring the debt on time due to the fact that we had set backs. Currently we are assuring you that, we shall start servicing this debt soon because we are about to be given contracts from Frontier Mining, Dangote Cement Plant e. t. c. That’s why we have paid K2,100,000 (Two Million One Hundred Thousand) as commitment. We would like to ask your good office to give us 4 months time from now in the fifth (5) month we shall be able to give you a plan on how we are going to pay this debt. We are sure the contract will be in place. We are assuring you that we are working tirelessly to solve this problem soonest and remain your committed client. Your understanding in this regard will be highly appreciated. Yours faithfully, L. M. Witika DIRECTOR CC. Chief Manager Indo Bank Limited Ndola Branch Plot No. 30 President Avenue Ndola” The lsl respondent is now arguing that the letter from the appellant’s advocates to which he was responding contained J30 P652 falsified amounts which he only discovered after the court action had been commenced. In our view, this argument is a red herring. As will soon become apparent, the amount claimed by the appellant was not plucked from the air. It is not fictitious but was properly incurred by the 1st respondent. Secondly, the entries in the appellant’s bank statement are as clear as they can be. They show the various amounts genuinely debited and credited to the 1st appellant’s account for the entire period of the overdraft facility, ending with the last entry of K76,491,367.50 (K76,491.36) as the balance owing on the account. Therefore, the order made by the trial court that a recalculation of the monies paid into the account by the 1st respondent be made for the purpose of refunding the respondents was a serious misdirection. Contrary to the 1st respondent’s allegation, there is not a scintilla of fraud in the debits made to the 1st respondent’s account. From the foregoing, we agree with Mr. Pindani that the trial judge’s finding that the 1st and 2nd respondents had paid the debt in full is not supported by any evidence. It is a perverse finding which in terms of our various decisions including the Nkhata and J31 P653 Others4 case, must be interfered with. We accordingly find merit in grounds one and three. In ground two, the appellant assails the order made by the trial judge for an evaluation of the Is1 respondent’s account and the knocking out of all compound interest and charges applied to the account, for refund to the respondents. Authorities abound, including Credit Africa Bank Limited (In Liquidation) v John Dingani Mudenda6, cited by Counsel for the appellant that a bank can charge compound interest if there is an express agreement to that effect between the bank and the customer or if there is evidence of acquiescence. In the case before us, there was an express agreement between the parties in the mortgage deed and the further charge, for the charging of compound interest. Clause 1 of the mortgage deed relating to Stand 2935 states in the relevant part that: “The Mortgagor hereby covenants with the Bank to pay and discharge on demand All moneys and liabilities now or in any manner whatsoever and whether actually or contingently alone or jointly with others and whether as principal surety including (but without prejudice to the generality of the foregoing) charges for interest compounded at current rates and any other rate to be J32 P654 determined by the bank from time to time with monthly rests discount commission exchange and other usual banking charges all costs charges of such moneys or liabilities or any part thereof in paying any rent rates taxes impositions or outgoings or in insuring repairing maintaining managing or realizing the said premises described in the Schedule hereto or any part thereof...” (emphasis added) And the further charge relating to Stand No. 2936 also states in the relevant part that: “Except in so far as the same are hereby varied the powers covenants and provisions in the Mortgage and contained either for the better securing of the repayment of the principal and other monies hereby secured or otherwise shall extend and be applicable to secure the payment of the principal and interest and other monies hereby covenanted to be paid in the same manner as nearly as may be if the same had been repeated with reference to all monies and interest secured by the Mortgage and by these presents respectively.” (emphasis added) Furthermore, the facility letter dated 11th August 2009 whose terms were accepted by the 1st respondent states as follows in respect of interest: “3. Interest 10% above base rate subject to change at bank’s discretion Extra interest @ 15% p. a. for excess J33 P655 drawings to be regulated by the bank with prior arrangement.” It is plain from the above excerpts that there is express provision in the security documents that compound interest and other charges would be debited to the 1st respondent’s account by the appellant. Therefore, the trial judge grossly misdirected herself by ordering a revaluation of the 1st respondent’s account, for the purpose of deducting compound interest and all charges applied to the account. We find it unconscionable and without any legal basis, that the trial judge could order a refund of such interest and other charges to the respondents on the facts of this case. Consequently, ground two also succeeds. Ground five attacks the lower court's finding that the appellant should not recover the accruing interest on the outstanding debt following the classification of the account as non-performing or non-accrual. According to the trial judge, the activities of the appellant on the 1st respondent's account after August 2010 when the overdraft expired are contrary to the provisions of Statutory Instrument No. 142 of 1996, particularly Part III of the Banking and Financial Services (Classification and J34 P656 Provisioning of Loans) Regulations, 1996, made pursuant to the Banking and Financial Services Act which provides for the treatment of non-accrual loans and related accounts. It is imperative that we should bring out the pertinent regulations of Part III of Statutory Instrument No. 142 of 1996. Regulation 7(1) provides that: "A bank or. financial institution shall place a loan in a non­ accrual status if- (a) There is reasonable doubt about the ultimate collectability of the principal or the interest; (b) A specific provision has already been established on the loan; (c) Except in the case of a structured loan, the loan has been partially or entirely written off; or (d) The principal or the interest has been in default for a period of ninety days or more, or the account has been inactive for ninety days and deposits are insufficient to cover the interest capitalised during the period." Regulation 8 states that: "Where a loan is placed in non-accrual status under these Regulations- (a) All previously accrued but uncollected interest taken into income shall be reversed, at the latest, by the end of the quarter in which the loan was placed in non-accrual status; (b) Interest which has accrued during a current quarter shall be reversed against the income of that quarter; and J35 P657 (c) Interest accrued in periods other than the current quarter shall be charged to the Allowance for Loan Losses Account." And Regulation (9) provides that: "Where a loan is placed in non-accrual status, any cash payments received shall first be applied to reduce the amount of the principal outstanding and due." The question, therefore, is whether Statutory Instrument No. 142 of 1996 absolves a defaulting borrower of the liability to pay interest after a loan has been put in a non-performing or non­ accrual status. This court had occasion to deal with a similar question in a case we decided earlier in 1999, Credit Africa Bank Limited v George K. Kalunga and Terry Simwanza7. In that case we went to great length in explaining the background to Statutory Instrument No. 142 of 1996 and its import. This is what Chirwa, JS stated at pages J3 - J4 of the judgment: “We have carefully looked at Chapter V of the Banking and Financial Services Act under which section 58 falls. We are satisfied that section 58 permits the making of regulations relating to the creation of appropriate reserves for bad and doubtful debts and section 124 gives powers to the Minister to make regulations under the Act with the approval of the Bank of Zambia and that Statutory Instrument [No.] 142 of 1996 was made by the Minister exercising those powers. Chapter V is headed “Financial J36 P658 Accountability” and under it there are three sub headings namely Part 1 - Financial statements of banks: Part 2 - Audit of accounts of banks; and Part 3 - Audit of accounts of Financial Institutions. To understand this chapter and the Regulations made under it, one has to start with the heading - Financial Accountability. Who has to account and to whom? Section 56(1) imposes a duty on the directors of the bank to place before the shareholders of the bank pertinent materials at every annual meeting. Section 56(2) imposes a duty on the directors to give a fair financial picture of the bank in its operations during the year. From this section it is clear that it imposes a duty on the directors of the bank to account to the shareholders of the bank the financial operations of the bank. The Regulations in the Statutory Instrument [No.] 142 of 1996 are made under Section 58. Section 58 reads as follows: “58. In preparing its annual statement, a bank shall comply with any regulations relating to the creation of appropriate reserves for bad and doubtful debts”. The annual statement is to its shareholders and the central bank and not to loanees. Bearing in mind the provisions of Section 56 (2), to incorporate bad or doubtful debts of the bank as income would create a false picture, a very rosy state of the bank because of the inclusion in it of bad or doubtful debts. In order to give an accurate picture of the bank, these doubtful or bad debts are treated as non-accrual loans, loans that do not accrue any income to the bank. This has nothing to do with the relationship between the bank and its loanees who still have their obligation under the loan agreements. We totally agree with Mr. Hakasenke that the placing of a loan in non-accrual loan, does not suspend the obligations J37 P659 under the loan agreement, interest on the loan is still payable until the loan has been repaid on the agreed terms. The reversal of entries of non-accrual loans and interest under Regulation 8 is meant to give a correct financial status of the bank and not to enable loanees default in their payment in order to pay no interest after ninety days; that would be bad business or no business for the banks for all loanees would default in order not to pay interest...” (emphasis added) Similarly in the present case, the fact that the 1st respondent’s debt had been put in a non-performing or non­ accrual status did not suspend his obligation to pay interest under the loan agreement. It must be emphatically stated that contrary to the flawed reasoning of the trial judge, Statutory Instrument No. 142 of 1996 was never intended to be a magic wand in the hands of defaulting litigants. We agree with Mr. Pindani that allowing the reasoning of the trial judge to prevail would encourage customers of banks to deliberately default so that they do not pay interest. Without doubt, this is not what Statutory Instrument No. 142 of 1996 was envisaged to achieve. We, therefore, find merit in ground five. The appellant in ground six assails the trial judge's finding that the proceeds from the sale of the mortgaged properties were J38 P660 suppressed on account of the involvement of the appellant's staff in their pricing and sale. We note from the judgment of the lower court that this finding was made from the referee's report. Counsel has urged us to disregard such a finding for want of jurisdiction because it was outside the referee’s mandate given by the trial judge. We cannot agree more with Counsel. Moreover, we note that the referee's findings were not tested in cross-examination to ascertain their veracity. Stretching this further, the investigations were not even done in the presence of counsel. According to Mr. Pindani, the referee refused to allow the appellant’s advocate to accompany her during the inquiries. This was contrary to Order 23, rule 1 which requires the cause or matter “to be investigated or tried before a referee...”, implying a semblance of a quasi­ judicial hearing at which counsel for the parties must be present and have the opportunity to ask questions as appropriate. More importantly, we do not accept that the referee's report can substitute the express terms agreed by the parties in the security documents and facility letter. And sadly, we note that in her findings, the trial judge placed total reliance on the referee's report whose findings, as we have already stated, were not J39 P661 subjected to cross-examination. This, in our view, was a serious dereliction of duty as a judge has no luxury or privilege of delegating adjudicative functions. We equally find merit in this ground. Finally in ground four, the appellant criticises the lower court’s award of K 120,000.00 to the 3rd respondent as costs; and additional costs to the respondents. Before we consider this ground, we need to comment on the status of the 3rd respondent. The record shows that the 3rd respondent was not a party to the proceedings in the court below. A perusal of the record also indicates that no leave of court was obtained by the appellant to join the 3rd respondent. In other words, the 3rd respondent was surreptitiously sneaked in as a party to this appeal. We strongly deprecate such unorthodox practice on the part of the appellant’s Counsel. As the 3rd respondent was improperly joined to this appeal, we shall hereafter refer to her as "the referee”, the description she was given in the court below. Coming back to the referee’s costs, we note from the record that the referee was appointed by the trial judge to “...investigate J40 P662 and render an account of interest rates, commissions, ledger fees, and other charges, charged to the account of this Mortgage.” The appointment was made pursuant to Order 23 of the High Court Rules which provides in rule 1 that: “1. In any civil cause or matter in which all parties interested who are under no disability consent thereto, and also, without such consent, in any civil cause or matter requiring any prolonged examination of documents or accounts or any scientific or local examination which cannot, in the opinion of the Court or Judge, conveniently be made by the Court in the usual manner, the Court or a Judge may, at any time, on such terms as it or he may think proper, order any question or issue of fact, or any question of account arising therein, to be investigated or tried before a referee, to be agreed on between the parties or appointed by the Court or a Judge.” (emphasis added) We have held in the preceding grounds that there was no impropriety on the part of the appellant to debit the 1st respondent’s account with the various charges. Moreover, the circumstances envisaged in Order 23, rule 1 to justify the appointment of a referee are specified as “... matter requiring any prolonged examination of documents or accounts... which cannot... conveniently be made by the court in the usual manner...” In our view, verifying interest rates, commissions, J41 P663 ledger fees and any other charges levied on the 1st respondent’s account would not require a prolonged examination of documents or accounts which the judge herself could not have made. Needless to state, a judge exercising his/her mind to the fullest would, on the facts of this case, not appoint a referee. A referee was nevertheless appointed. She expended her time and financial resources in carrying out the so-called investigation as per her mandate from the trial judge. She subsequently rendered a report and ordinarily ought to be remunerated for the services rendered. The critical question is, who should settle the referee’s bill? A perusal of Order 23 of the High Court Rules shows that it is silent on who is responsible for paying the referee’s costs. Worse still, the trial judge did not give any guidance on the payment of the referee’s fees. Mr. Pindani has argued that the referee fell into the category of an assessor whose fees are payable by the State. We agree with Counsel, but only to the extent that this is possible under proper circumstances. The circumstances under which the referee was appointed are not proper and the J42 P664 State cannot be expected to settle a bill that has not been properly incurred. We note from the judgment that the judge ordered the appellant to pay the referee’s costs. We can only assume that in the mind of the judge, such costs were to be paid by an unsuccessful party and we will proceed on that basis. The first undated bill submitted by the referee was for K60,880.00. Curiously, the referee submitted a second bill for K120,000.00 dated 22nd December 2015. It appears to us that the referee submitted the second bill after having had sight of the judgment of the lower court dated 18th December, 2015 in which that amount was awarded to her. As aptly submitted by Mr. Pindani, we equally find no basis upon which the judge awarded the sum of K120,000.00 without any assessment and when the bill submitted by the referee was in the sum of K60,880.00. Consequently, we find that the most appropriate fee payable to the referee should be the sum of K60,880.00. The appointment of the referee was triggered by the respondents’ application in the court below for an order to render an account. On the basis that that application had succeeded and J43 P665 the final judgment was in favour of the respondents, the judge naturally ordered that the referee’s costs shall be paid by the appellant. The 1st respondent has argued that the award of costs against the appellant followed the dismissal of the appellant’s action against the respondents. He is spot-on, as the general rule is that costs follow the event and the respondents were successful in the court below. In this appeal, however, all the grounds advanced by the appellant have succeeded. It, therefore, follows that the referee’s costs must be paid by the respondents and it is so ordered. All the grounds of appeal having succeeded, it is inescapable that we must allow the appeal and set aside the judgment of the lower court in its entirety. We accordingly enter judgment for the appellant in the sum of K76,491,367.50 with interest at the agreed rate of 10% above the base rate from the date of the originating summons to the date of this judgment and thereafter, at the average lending rate as determined by the Bank of Zambia until full payment. We award costs here and in the court below to the J 44 P666 appellant, to be taxed in default of agreement. SUPREME COURT JUDGE R/MTC. KAOMA SUPREME COURT JUDGE C. KAJINiANGA SUPREME COURT JUDGE