Investrust Bank Plc v Trymore Mwenda T/A Mwenda Estates (APPEAL NO. 31 OF 2019) [2019] ZMCA 420 (9 July 2019)

IN THE COURT OF APPEAL OF ZAMBIA APPEAL NO . 31 OF 2019 L<J:Jra.0:i HOLDEN AT LUSAKA ( Civil Jurisdiction) . , / / BETWEEN: - • INVESTRUST BANK PLC AND ~ ,, ,J I ( Z> , .. ,.,_, l - - - - - . J . J '"'"-- - \ ' .. J • ..) -- '- I\ . --~ APPELLANT TRYMORE MWENDA T / A MWENDA ESTATES RESPONDENT CORAM: Chashi, Chishimba and Sichinga, JJA ON: 26th June and 5 th July 2019 For the Appellant: A . M. Mukupa, Messrs Isaac and Partners For the Respondent: N/ A JUDGMENT CHASHI, JA delivered the Judgment of the Court. Cases referred to: 1. Union Bank Zambia Limited v Southern Province Marketing Union (1997) ZR, 207 2 . Mwamba v Nthenge, Kaing'a , Chekwe - SCZ Appeal No . 174 of 3 . Investrust Bank Pie v Alick Sakala T / a Mutunga Enterprises - SCZ Appeal No. 195 of 2015 -J2- 4. Credit Africa Bank Limited (In Liquidation) v John Dingani Mudenda - SCZ Judgment No. 10 of 2003 Legislation referred to: 1. The Banking and Financial Services Act, No .7 of 2017 2. The Banking and Financial Services (Cost of Borrowing) Regulations, Statutory Instrument No. 179 of 1995 3 . C. B. Circular No. 05 / 2010 dated 6 th May 2010 by Bank of Zambia 4. The Banking and Financial Services Act, Chapter 397 of the Laws of Zambia 1.0 INTRODUCTION The Appellant's appeal emanates from a Judgment on assessment by the Registrar, of the High Court (Commercial Division), Hon. Etambuyu Mwenda Zimba, in which she found that the Respondent was being charged penal interest. In this appeal we deal with the issue of whether clause 4 .6 of the Gen eral Terms and Conditions, which both parties had assented to , amounted to charging of penal interest. 2.0 BACKGROUND 2.1 The facts which were before the court below are these: The Respondent borrowed money from the Appellant and the Respondent signed the loan facility letter together with the General Terms and Conditions, which two documents -J 3- according to clause 2.1.1 of the General Terms and conditions formed the agreement between the parties. 2.2 The loan facility letter under clause (3) provided for charging of compound interest. In addition, clause 4.6 of the General Terms and Conditions provided for payment of additional interest, when the Respondent defaulted in payment of the amounts due by monthly instalment. 2.3 When the Respondent defaulted in payments, the Appellant commenced proceedings by way of originating summons for foreclosure. Subsequently, the parties entered a Consent Judgment and referred the matter to the Registrar for assessment of the amounts due. 3.0 THE CASE AND ARGUMENTS IN THE COURT BELOW 3.1 One of the issues which arose was whether clause 4.6 of the General Terms and Conditions amounted to charging of penal interest. 4.0 THE DECISION OF THE COURT BELOW 4. 1 After considering the evidence and the submissions by the parties, the court below found that the parties had agreed to payment of additional interest, in addition to compound -J 4- interest, which additional interest was applicable only when the Respondent defaulted in the payment of the amount due. 4.2 based on the holding in the case of Union Bank Zambia Limited v Southern Province Marketing Union 1 , the learned Registrar was of the view that the additional interest charged over and above the compound interest was penal interest and disallowed it. 5.0 THE APPEAL 5.1 The Appellants have filed two grounds of appeal as follows: "1. That the court below misdirected itself in law and fact when it found that the additional interest agreed to by the parties in clause 4.6 of the General Terms and Conditions amounted to penal interest which she disallowed. 2. That the court below misdirected itself in law and fact when it held that the only interest that can be agreed to is compound interest. '' 6 .0 THE ARGUMENTS -J 5- 6.1 The Appellant's argument on the first ground of appeal is that, parties should b e as free as possible to make agreements on their own terms without interference by the courts; and agreements should be respected and upheld by the courts. The case of Mwamba v Nthenge , Kaing'a , Chekwe2 was cited in that respect. 6.2 The Appellant drew our attention to the wording in clause 4.6 of the General Terms and Conditions and Section 109 of The Banking and Financial Services Act No. 7 of 201 7 1 and the case of Investrust Bank Pie v Alice Sakala T / a Mutunga Enterprises3 and submitted that the court below misdirected itself when it held that the additional interest agreed by the parties amounted to penal interest when the Respondent had agreed to the said interest being charged and the law clearly sanctions such interest, as was held in the aforestated case. 6.3 As regards the second ground of appeal, the case of Credit Africa Bank Limited (In Liquidation) v John Dingani Mudenda4 was cited, which case was upheld in the Union Bank1 case and submitted that the holding in the two cases is -J 6- unambiguous. It was submitted that parties can agree to other forms of interest provided that the Bank makes the borrower aware of such interest. That in casu, the Appellant did make the Respondent aware of the unusual interest and the Respondent agreed to it and therefore the Respondent cannot turn around and claim the same to be illegal. 6.3 The Respondent did not file his heads of argument and in addition were not in attendance at the hearing of the appeal. 7.0 DECISION OF THE COURT 7. 1 On the first ground of appeal, clause 4.6 of the General Terms and Conditions, which the parties assented to, reads as follows: "If the borrower fails to pay any sum of the debt due for payment hereunde r, the borrower s hall pay additional interest on such sum from the due date thereof up to the date of actual payment at the interest rate m entioned therein." 7. 2 Regulation 10 ( 1) of The Banking and Financial Services (Cost of Borrowing) Regulations2 provides as follows: "A bank or financial institution s hall not impose on a borrower any charge or penalty as a result of failure by the borrower to repay or pay in accordance with the contract governing a loan -J7- other than: (a) Interest on an overdue payment on a loan. (b) Legal costs incurred in collecting or attempting to collect a payment on a loan (c) Costs, including legal costs incurred in protecting the security on the loan." 7.3 In CB Circular No. 05/2010 , Bank of Zambia noted that, certain institutions had continued imposing penalty interest and charges. In dissuading them from such illegal practices this is what the Central Bank had to say: «Furthermore, take note that the requirement for Financial Service Providers not to charge penalty interest should not be circumvented by Financial Service Providers including a provision for penalty interest in loan agreements with borrowers. Kindly be advised that such a provision is liable to be struck down by the courts for being a penalty objectionable at both common and statutory law." -J 8- 7.4 Penalty interest is punitive interest charged if an instalment is not received according to the repayment terms. It is charged on the delayed payment. A perusal of clause 4.6 shows from the wording that, that additional interest in addition to compound interest is punitive and amounts to penal interest which is not allowed in Zambia as it is contrary to regulation 10 (1) of The Banking and Financial Services (Cost of Borrowing) Regulations2 . In the Union Bank Zambia Limited1 case, the Supreme Court held that: "Penal interest is certainly not part of banking practice and custom in Zambia and even if there had been an agreement to pay penal interest, such would have been liable to be struck down for being a penalty objectionable at common law" It is th erefor e immaterial that the parties had assented to the agreement, which provided for chargin g of penalty interest. 7 .5 Reference by the Appellant to the Banking and Financial Services Act, No. 7 of 20171 is irregular, as th e Act was neither in place at the time of the transaction nor -J 9- commencement of the action in the court below. The said Act cannot be applied in retrospect to this matter. 7.6 We have noted the Supreme Court case of Investrust bank Pie v Alick Sakala3 which had been cited by Counsel for the Appellant and we are startled at Counsel's attempt to mislead the Court. That case mainly dealt with the issue of charging of compound interest. When it came to consideration of Regulation 10 (1) which was made pursuant to The Banking and Financial Services Act , Chapter 387 of the Laws of Zambia4 , which is the Act applicable to this matter, the court noted that, the provision does not deal with normal administrative charges such as service charges. This is what the Supreme Court said: "We note that the regulation deals with the imposition of charges or penalties on the borrower for late payment or payment made contrary to a contract agreement governing the loan and it makes such charges or penalties unlawful, save for exceptions provided. " On that basis, the Investrust Bank Pie v Alick Sakala3 case is totally distinguishable from this case. . . 7. 7 In the view we have taken, the first ground of appeal is devoid of merit. The court in fact should not only have disallowed the charging of the additional interest under clause 4.6 of the General Terms and Conditions, but should have in addition proceeded to strike it down from the agreement. 7.8 In the view that we have taken of the first ground of appeal, the second ground becomes otiose. 8.0 CONCLUSION This appeal does not succeed and is ccordingly dismissed. In view of the fact that the Respondent ot file any heads of argument and did not attend the hear· e appeal, each party shall bear its own costs in this Court. a. CHASHI COURT OF APPEAL JUDGE F . M. CHISHIMBA COURT OF APPEAL JUDGE D . L. Y . IC COURT F APP JUDGE