Investrust Merchant Bank Ltd and Anor v Yousuf (SCZ 4 of 2004) [2004] ZMSC 107 (9 February 2004)

43 IN THE SUPREME COURT FOR ZAMBIA HOLDEN AT KABWE AND LUSAKA SCZ NO. 4 OF 2004 APPEAL NO. 85A/2002 (CIVIL JURISDICTION) BETWEEN: INVESTRUST MERCHANT BANK LIMITED SIMBEYE ENTERPRISES LIMITED 1st APPELLANT 2nd APPELLANT AND EBRAHIM YOUSUF RESPONDENT Coram: Sakala, CJ, Chibesakunda and Silomba, JJS on 5th November 2002 and 9th February 2004 For the 1st Appellant: For the 2nd Appellant: For the Respondent: Mr. M. Mutemwa of Mutemwa Chambers Ms. N. Mutti of Lukona Chambers Mr. M. Yousuf of A. D. Adam and Company JUDGMENT Chibesakunda, JS, delivered the Judgment of Court Cases referred to: 1. 2. 3. Daka v Patel and Zambia State Insurance Corporation Limited [1995/97] ZR 108 London Ngoma and Others v LCM Company Limited, United Bus Company of Zambia (In liquidation) ACZ Appeal No. 91 of 1997 (unreported) Finance Bank Zambia Limited v African Eagle SCZ 135 of 1997 Legislation referred to: 4. 5. 6. 7. Order No. 30 Rule 14 of the High Court Rules Cap 27 Conveyance Act 1881 Section 19 (i) and Section 20 Order 88 of the Rules of the Supreme Court Rules 1999 Edition Order 15 (6)(1)(2) of the Rules of the Supreme Court Rules 1999 Edition The very late delivery of this Judgment is deeply regretted. This is due to some misfiling of some of the documents after the hearing of the appeal. - J2 - This is an appeal against a Ruling of the High Court dated 3rd April 2002. The Appellants in the main application had applied to discharge the caveat lodged by Yousuf Issa on Stand No. 16835, situated in the Lusaka Province of the Republic of Zambia. The court, on 16th June 1999, granted that application. The history of this cause of action thereafter is embedded in a series of applications and counter applications, thus making rather confused record of the proceedings more or less casting a shadow on the administration of justice as we know it. We will outline these proceedings to show this confusion and also to enable us to adequately address the issues in this appeal. The facts before the High Court were that, the Respondent, in order to facilitate a loan between Cotmark Limited of K200 000 000 00 and the 1st Appellant, by a third party mortgage, on 23rd April 1998 pledged his property, Stand No. 16835, situated in the Lusaka Province of the Republic of Zambia, as security. Consequently, an endorsement of this charge was duly inserted on the title deed of this property. Cotmark Limited defaulted in settling this loan. In line with Clause 7 of the mortgage deed, the 1st Appellant demanded settlement of the loan in question. The first letter of demand is dated 9th November 1998. It reads "IMB/CR DEPT/DH/mz 9th November 1998 Mr Ebrahim Yousuf C/o Cotmark Limited P. O. Box 30778 LUSAKA Dear Sir Notice of determination of guarantee in favour of Cotmark Limited K185,639,376.16 as at 8.11.98. - J3 - We refer to the above captioned subject. Please be advised that Cotmark Limited have failed to repay the outstanding debt in our books despite our several reminders. In this vein therefore we are now calling upon you as guarantor to settle this outstanding debt together with accrued interest thereon within fourteen (14) days hereof. Meanwhile, in terms of paragraph 3 (b) of the mortgage you signed in favour of the bank, we hereby notify you that the Bank has decided to remove you as a trustee and in your place have appointed Mr Olivet Sikes Malungisa of Investrust Merchant Bank Zambia Limited, Afe House, P. O. Box 32344, Lusaka. The said Mr Malungisa will sell the property if you do not redeem the debt within the next fourteen (14) days. Yours faithfully INVESTRUST MERCHANT BANK ZAMBIA LIMITED R. W. Taylor MANAGING DIRECTOR" The second letter is dated 30th November 1998. The third letter is dated 9th December 1998 and the fourth letter is dated 14th December 1998. All these letters gave notice to the Respondent that the mortgagee intended to sell the property if the Respondent failed to liquidate the loan involved as agreed. According to the affidavit evidence and also the evidence from these letters, the Respondent had partially liquidated the loan. The last letter dated 14th December 1998 says:- "IMB/CR DEPT/DH/mz 14 December 1998 Mr Ebrahim Yousuf c/o Cotmark Limited P. O Box 30778 LUSAKA Dear Sir FINAL LETTER OF DEMAND We acknowledge receipt of a sum of K57,485,000 (Fifty Seven Million, Four Hundred and Eighty Five Thousand Kwahca only) being part payment aimed at - J4 - settling the Cotmark debt in our books. This has reduced the outstanding amount to K140,427,576.57. We wonder what has become of the sale of your three properties in Chipata proceeds of which were meant to pay-off this debt. We were advised by you approximately three weeks ago that the sale was imminent. We believe the Bank has been extremely indulgent so far but has decided to give you final notice that unless the debt is fully settled by Wednesday, 16.12.68, we shall have no option but to proceed with the sale of your Freedomway property without further notice. Please be advised accordingly. Yours faithfully INVESTRUST MERCHANT BANK ZAMBIA LIMITED R. W. Taylor MANAGING DIRECTOR" On 15th December 1998, the 1st Appellants entered into a contract of sale of the property in question with the 2nd Appellant. At page 88 of the appeal record, a certificate of title was issued in the name of the 2nd Appellant. Unknown to the Appellants, according to them, on 30th December 1998 the Respondent entered into a contract of sale of the same property with a person by the name of Yousuf Essa at the price of US $200,000. Mr. Yousuf Essa then lodged a caveat on the property in question on 31st December 1998. It is this caveat, which the Appellants sought to discharge against the Respondent before the High Court. This application was by originating summons supported by affidavit evidence. There was an affidavit in opposition to this application. Although it was argued inter alia that the caveator was not a party to the proceedings, the High Court, on 16th June 1999, nonetheless ordered the discharge of the caveat as follows:- "Upon hearing Counsel for the Parties, herein, it is ordered that the caveat placed by the Defendant on the Mortgaged Property, known as Plot 16835, Freedom Way, Lusaka, and sold by the Plaintiff to Simbeye Enterprises Limited, upon an express power of Sale containing in the - 15 - Mortgage Deed between the Plaintiff and the defendant, dated 23rd April, 1998, be lifted, forthwith. The costs of and occasioned by this matter be borne by the defendant, in any event........................" On 27th of July 1999, the Respondent applied for a stay of this order, exparte. The application was granted. In the same order, there was a further order that the discharge of the caveat be stayed until the Appellants complied with Order 30 Rule 14 of the High Court Rules (4) or Order 88 of the Rules of the Supreme Court (6). This said order was returnable on 26th August 1999 as interparte application. Curiously enough, before the interparte hearing, the Respondent applied exparte to the same Judge for an exparte injunction. On 3rd September 1999, an injunction was granted exparte pending interparte application returnable on 14th of September 1999. Before the 14th of September 1999 the Respondent took out a notice for attachment or committal for contempt of court. Before the court heard this application, the same Respondent took our originating summons for the same court to determine preliminary issues and questions. These are:- 1. Whether a mortgagee, in exercising the power or sale under the mortgage, is required to proceed under Order 30 Rule 14 of the High Court rules and/or Order 88 of the Rules of the Supreme Court. 2. Whether a mortgagee, having exercised its power of sale under the mortgage, can evict a lawful tenant of the property other than with a writ of possession; 3. Whether a mortgagee, in possession, is required to sell at the best possible price, (a fair and reasonable valuation), and not just sufficient to realize his debt; 4. Whether on the answers to the above being respectively yes, no and yes any subsequent sale is null and void. - J6 - And that the costs of this application be costs in the cause. It is worth noting that these applications, orders and counter orders glaringly showed total disregard of well-entrenched rules of procedure imbedded in our system of justice. it is also worth noting that these numerous applications were entertained by the Judge and the same Judge made these numerous orders causing confusion. This procedure adopted prima facie made a mockery of justice. In the originating summons for the court to determine preliminary issues, both parties put in affidavit evidence in support and in opposition. Beside the facts which are already tabulated in our Judgment, the argument by the Appellants before the High Court was that according to the mortgage deed, Clause 7 of the agreement and in accordance with Section 19 of the Conveyance Act (5), they, as mortgages, had a right to sell the property in question after the Respondents failed to discharge their obligation of liquidating the loan, without recourse to court. They argued that in accordance with the mortgage deed and Section 20 of the Conveyance Act (5). they had given notice to the Respondent of their intention to sell the property in question. They explained that the Respondent had no right of entering into a sale agreement with Yousuf Essa and placing a caveat on the property in question. He had not obtained their consent as the mortgagees before getting into that arrangement. According to them, the property sold to the 2nd Appellant was sold for the best price and that as far as they were concerned, the property had passed to the 2nd Appellants when the Respondent purported to sell that property to Yousuf Essa. The Respondent's arguments before, the High Court were that the sale of the property to the 2nd Appellants was wrongly done as they were not given the - J7 - prescribed notice of the intention to sell the property by the mortgagees. He argued that the mortgagees should have first obtained a court order of vacant possession before entering into an agreement with the 2nd Appellants to sell that property - Order 30 Rule 14 of the High Court. It is also their argument that this sale agreement between the 1st and 2nd Appellants was reached after they had obtained an injunction on 3rd September 1999 restraining the Appellants from going ahead with the sale of the property and as such the Appellants were in contempt of court. The Respondent's further argument is that the price of K200,000,000.00 was in his view unjustifiably low and therefore establishing mala fide on the part of the 1st Appellants in offering to the 2nd Appellant the property in question. They urged the High Court to set aside the purported sale of the property by the 1st Appellants to the 2nd Appellants as void ab-nitio. The High Court, as earlier stated, ruled in favour of the Respondent and hence the appeal before us. The court below ordered that: 1. a Mortgagee, in exercising the power of sale under Mortgage, is required to proceed under Order 30 rule 14 of the High Court Rules (4) and/or Order 88 of the Rules of the Supreme Court (6). 2. A Mortgagee having exercised its power of sale under the mortgage could evict a lawful tenant of the property other than with a writ of possession. 3. A Mortgagee in possession is required to sell at the best possible price (a fair and reasonable valuation) and not just sufficient to realize his debt. 4. In respect to the above, any subsequent sale is null and void. - J8 - The Appellants being aggrieved with this decision have now appealed to this court. Before us, Mr. Mutemwa relied on his written heads of argument but highlighted some salient points. He had two grounds of appeal. Ground (1), was that the learned trial Judge erred in law and fact in holding that the sale of the mortgaged property by the 1st Appellants to the 2nd Appellants was null and void, on account inter alia of lack of a court order as provided under Order 30 Rule 14 (4). He referred to pages 6 - 11, 32 - 43, 56 - 62, 102 - 109 and 137 - 145 and argued that the learned trial Judge had in the body of his judgment rightly concluded that the 1st Appellant had properly exercised his power of sale with regard to the mortgaged property, but contradictorily concluded that the mortgagees should have not sold the property without a court order in accordance with Order 30 Rule 14 (4) and/or Order 88 of the Rules of RSC (5). He explained that on record there was abundant evidence of the Respondent's repeated failure to redeem the mortgage and that there was also abundant evidence of the notice given to the Respondent demanding liquidation of the outstanding loan within a given period or else clause 7 of the Mortgage Deed was to be invoked. Citing the case of Daka vs Patel and Zambia State Insurance Corporation Limited (1), he argued that the Appellants acted in accordance with clause 7. Therefore, the Appellants rightly exercised the power to sell as contained in clause 7 of the Mortgage Deed. He conceded, however, to the suggestion that in clause 7 the parties agreed that the 1st Appellant would sell the property in question if there was default in payment within a specific period without recourse to court. He went on to say that looking at the evidence on record, the fact of default in redeeming the mort- - J9 - gage was beyond question as at no time did the Respondent deny that fact. Even in his own affidavit in reply to the application to remove the caveat, the Respondent confirmed this default by saying, "That with regard to the contents of paragraph 6 of Malungisa's affidavit, I only appeal for the sympathy of this Honourable court that the Plaintiff's power of sale be not at this moment in time exercised for the reason outlined below". Underscoring this point, he went on to submit that, even the tone of the Respondent's affidavits and letters on the record was not to deny the failure to redeem the mortgage but to appeal to the Appellants' conscience to waive the insistence on him complying with clause 7 of the Mortgage Deed. To demonstrate this point he quoted the passage from the same affidavit of the Respondent, "That despite the predicament referred to in sub-paragraph (a) above, I have still managed to pay circa K80,000,000.00 between 3rd December 1998 and now which ............ I am committed to and can settle the remaining K121,955,000.00 of the debt herein....... This according to him proves that at no time did the Respondent ever dispute that he owed the 1st Appellant the amount in question, and that the 1st Appellant had the right to sell the mortgage property under Clause 7. On the point that the 1st Appellants ignored the injunctive order made by the court, restraining them from selling the property to the 2nd Appellant, Mr. Mutemwa expressed surprise that the court below accepted the Respondents' allegations, which were contained in their affidavit in support of the application for contempt of court, which application was never entertained by the court. According to him, the contract of sale of the mortgaged property, to the 2nd Appellant, was concluded well before the exparte order for stay or the injunction, was granted to the Respondent in September 1999. - J10 - He further pointed out that even the injunctive order was made well after the transactions between the 1st and the 2nd Appellants were concluded. He submitted that the date, 7th September 1999, when the certificate of title was issued to the 2nd Appellant, should not be regarded by this court as the date when the application was lodged to get these title deeds, as the process to obtain title deeds takes a long time in the Lands Registry. On the argument about the purchase price being unjustifiably low, citing the case of Finance Bank Zambia Limited v African Eagle (3), he canvassed the view that, the authorities of this court on this issue, are that circumstances in a given case, have to be weighed in order to decide whether or not such a price, was unjustifiably low. He argued that the K200 000 000 00 was the best price, as the Appellants had advertised the property, both in the Times and Daily Mail newspapers and K200 000 000 00 was arrived at after taking into account the responses, the Appellants had from the members of the public. There was no collusion between the parties in reaching K200 000 000 00 as the best price for the property in question. He went on to say that even the price of US $200 000 must not be accepted, as a better offer, because the Appellants informed the Respondents about their selling the property for K200 000 000 00 on 28th December 1998. The Respondents on the other hand did not inform the 1st Appellant of their being offered a better deal of US $200 000 00. Neither did Yousuf Essa inform the 1st Appellant. The Appellants only got to know of this offer when they discovered the caveat. He, therefore, asked this court to regard this purported better offer between the Respondents and Yousuf Essa as a smoking gun - a deceptive scheme by the Respondents. - Jll - On Ground (2), Mr. Mutemwa argued that the learned trial Judge erred in fact and law by holding that the caveat was illegally removed. He argued that although it is correct that the person who took out the caveat was Yousuf and the proceedings were against Ebrahim Yousuf, the learned trial Judge should have looked at the provisions of Order 15 rule 6 flK2J of the Rules of the Supreme Court (7). He argued that the court on its own motion should have joined Yousuf Essa as a party to the proceedings. Referring to the case of London Nqoma and Others Vs. LCM Company Limited, United Bus Company of Zambia fin liquidation (2), he pointed out that the court should encourage parties to bring all issues in controversy to court to be fully adjudicated upon. He argued that it is a well-established principle of law that no cause of action can be defeated by reason of misjoinder or non-joinder. The court would still at this stage join Yousuf Essa as a party to the proceedings under Order 15 Rule 6(2J of the Rules of the Supreme Court (7). In conclusion he submitted that the 2nd Appellant still has a certificate of title because when the court granted a stay order, the 2nd Appellant had already lodged his papers before the Lands Commissioner and that the Lands Registry issued these title deeds to him. Mr. Yousuf, in responding to these arguments, submitted that the lower court was on firm ground in reaching the conclusions, which it did. He argued, that the advocates for the Appellants were neither honest nor earnest in making submissions to us as a court. He firmly denied the Appellants' assertion that the Respondent did not, inform the 1st Appellant of the transaction between the Respondent and Yousuf Essa. He submitted that as learned counsel/officers of the court they are duty bound to bring to court all the necessary details, and all relevant arguments, which should help the court in reaching a fair decision. - J12 - He argued that it was not the duty of the Respondents to disclose to the 1st Appellant about Yousuf Essa's caveat. On the other hand, according to him, it took the Respondent several record search in the Registry, for him to come across the sale agreement between the 1st and 2nd Appellants. He went on to say that the Appellants, or these officers contrary to what they had said to the court, were aware of the existence of Yousuf Essa's caveat, even before they sold the property to the 2nd Appellant. This was so, according to him, because even before the caveat was lodged there were negotiations between the Respondents on one hand and the 1st Appellant and Simbeye Enterprises Limited on other hand. Asked as to which transaction came first, he submitted that he did not know which of the two transactions came first as the negotiations did not have the actual dates. He went on to say that the agreement between Simbeye Enterprises Limited and the 1st Appellant was not dated. He therefore went on to submit that, the Appellants' assertion that the 2nd Appellant replied to the advertisement and that the K200 000 000 00 was the best price they could get for the property because there was no evidence of any other offers which the Appellants obtained, should be queried. In his own view, the mortgagees bulldozed the mortgagor in obtaining the vacant possession of the property in question. He argued that the mortgagees should have, under Order 30 Rule 14 of the High Court Rules (4), which is the same as Order 18 of the Supreme Court Rules (7) applied for vacant possession. He went on to submit that the mortgagees did not even produce a statement of accounts neither did they give 30 days notice as per Clause (7) of the Mortgage Deed. He went into details of the correspondence between the Appellants and the Respondent in which the Appellants demanded the Respondent to redeem the mortgage and the Appellant gave the Respondent notice that they would proceed to sell the property in question if the Respondent did not redeem the mortgage within a given period. - J13 - His submissions are that the purported notices given to the Respondent were less than 30 days and therefore such notices were defective as Clause (7) clearly stated that the notice should be not less than 30 days. When it was pointed out to him that in fact the transaction between the 1st Appellant and Simbeye Enterprises Limited, had already been concluded and the title deeds were in the name of the 2nd Appellant, he responded that, since in his view the sale between the 1st Appellant and 2nd Appellant was irregular, as the sale price was unjustifiably and inequitably low, the sale transaction therefore was null and void and as such the court had power to set it aside. When it was pointed out to him, that according to the record, the court refused to join Simbeye Enterprises Limited as a party, he argued that the court below was right to have rejected the application to join Simbeye Enterprises Limited as 2nd Respondent, as according to him, since there were already gaps in the process, issued by the Appellants, the court did not have to help them make good their gaps and that it was rather late to join the other party. He, further in response, argued that although he conceded that the mortgagor had failed to discharge his loan obligations, and that he pleaded for more time to discharge this obligation, that did not legitimize the sale of the property by the Appellants. These were the arguments before us. We have considered all the arguments and evidence before us. From the submissions of the parties, it can be clearly seen that the major issues, which arose in the appeal, are: 1) Whether or not the caveator can be made a party to the proceedings before this court under Order 15 of the Rules of the Supreme Court Rules (7); and 2) What is the status of the contract of sale between the 1st Appellant and the 2nd Appellant? - J14 - Order 30 Rule 14 of the High Court Rules says:- "14. Any mortgagee or mortgagor, whether legal or equitable, or any person entitled to or having property subject to a legal or equitable charge, or any person having the right to foreclosure or redeem any mortgage, whether legal or equitable, may take out as of course an originating summons, returnable in the chambers of a Judge for such relief of the nature or kind following as may be the summons be specified, and as the circumstances of the case may require; that is to say— (our own emphasis) Payment of moneys secured by the mortgage or charge; Sale; Foreclosure; Delivery of possession (whether before or after foreclosure) to the mortgagee or person entitled to the charge by the mortgagor or person having the property subject to the charge or by any other person in, or alleged to be in possession of the property; Redemption; Reconveyance; Delivery of possession by the mortgagee." This provision is not mandatory. We note that there was common ground on almost all the facts before the High Court. There was common ground that although the Respondent (mortgagor) had paid some money towards the liquidation of the loan, he had failed to redeem the mortgage within a stipulated time. It is also common ground that the Respondent never denied that fact. It is also common ground that throughout the correspondence and even in the pleadings he accepted that fact and the fact that the 1st Appellant had the right to sell the property in accordance with clause (7) of the Mortgage Deed as he only pleaded with the 1st Appellant to waive clause (7) of the Mortgage Deed which says: "Section 20 of the Conveyanig Act 1881 Shall not apply to this security but the statutory power of sale shall as between the Bank and Purchaser from the Bank be exercisable at any time after the execution of this security provided - J15 - that the Bank shall not exercise the said power of sale until payment of the moneys hereby secured has been demanded and the Mortgagor shall have made default for one month in paying the same but this proviso is for the protection of the Mortgagor only and shall not affect a purchaser who shall not be concerned to see or enquire whether a case has risen to authorize the sale or due notice has been given or the power of sale is otherwise properly and regularly exercised." (Our own emphasis) Section 19 of the Conveyance Act (5) provides for circumstances when the mortgagee can sell property if the mortgagor has defaulted in redeeming the mortgage. Section 20 says:- nA mortgagee shall not exercise the power of sale conferred by this Act unless or until: (i) or (ii) notice requiring payment of the mortgage money has been served on the mortgagor or one of several mortgagors and default has been made in payment of the mortgage money, or of part thereof, for three months after such service; some interest under the mortgage is in arrears and unpaid for two months after becoming due; or (Hi) there has been a breach of some provision contained in the mortgage deed or in this Act, and on the part of the mortgage, or of some person concurring in making the mortgage, to be observed or performed, other than and besides a covenant for payment of the mortgage money or interest thereon." As can be seen by clause (7), the 1st Appellant and the Respondent by agreement excluded the application of Section 20 of the Conveyancing Act in this case. Our understanding is that, by such a provision, the 1st Appellant and the Respondent agreed that if the Respondent failed to redeem the mortgage within a stipulated time, that is 30 days, the 1st Appellant had the right to sell without recourse to court. It should also be noted that the proviso in clause 7 categorically states that the protection provided in this clause, although it is only for a mortgagor, shall not affect a purchaser who was not concerned to see or enquire whether a cause has arisen to authorize the sale or whether due notice has been given or whether the power of sale has been otherwise properly and regularly exercised. In this case, there was no evidence adduced by the Respondent that the 2nd Appellant was not covered by this proviso. In our view, Order 30 Rule 14 does not apply to the 1st Appellant. - J16 - Mr. Yousuf argued rather forcefully that as the sale price was unjustifiably and inequitably low, the transaction between the 1st and 2nd Appellants was irregular and that this court had power to set it aside. In the case of Daka v Patel and Zambia State Insurance Corporation Limited (1), this court inter alia held that sale under Section 19 of the Conveyance Act can be done by auction or private contract. Section 101 of the Act 1925 gives power of sale to a mortagee which is binding on the mortgagor. Also at common law a mortgagee is not directly a trustee of the power of sale. The power of sale given to a mortgagee is to enable him to realize his debt, if he exercises it bona fide for that purpose without corruption or collusion with the purchaser, the court will not interfere, even though the sale was disadvantageous to the mortgagor unless the price is very low for it to be in itself evidence of fraud. In the case before us, there was no evidence that there was any collusion between the 1st and 2nd Appellants. Neither was there any evidence of corruption, nor that K200 000 000 00 was too low a purchaser price, as to be evidence in itself of fraud. There was evidence that the 1st Appellant advertised this property in both the Daily Mail and Times of Zambia, which in our view proves that the transaction was above board. There was also evidence that the 1st Appellants chose K200 000 000 00 as the highest bid for the property in question. In our view, therefore, the 2nd Appellant was a bona fide purchaser. He is therefore covered by the proviso in clause (7) of the Mortgage Deed. Our conclusions are therefore that Order 30 Rule 14 of the High Court rules does not apply to this case before us; that a caveator can be made a party to these proceedings even at this stage. In view of our conclusions the appeal has merits and is allowed. Therefore, costs are for the Appellants. - J17 - E L Sakala CHIEF JUSTICE L P Chibesakunda SUPREME COURTJUDGE S S Silomba SUPREME COURT JUDGE