Walis Financial Services Limited v Nayoya Mwananuka (2021 / HPC / 0406) [2022] ZMHC 60 (10 August 2022)

2021 / HPC / 0406 AND NAYOYA MWANANUKU DEFENDANT JUDGMENT Cases Referred to: 1 . Nkongolo Farms Limite d V. Zambia National Commercial Bank Limite d and Othe rs (2007) Z. R . 149. 2. Ande r s on Maz o/ea and Others V. Levy Mwanawasa and Others (2005 ) Z. R. 1 3 8 . Legislation and Other Material Ref erred to: 1. High Court Rules, High Court Act, Chapte r 27 of the Laws of Zambia (HCR): O. LII, r. 6 (2) and r. 6 (4). 2. Money-Lende r's Act, Chapter 398 of the Laws of Zambia: s.10. Page J2 of 11 Background 1. By writ of summons filed on 19111 July, 2021, the plaintiff claimed, against the defend ant, payment of the sum of K242,300.48 and an order for the sale of a Volvo motor vehicle registration no. BAJ 8872ZM. The plaintiff a lso requested for interest and costs. The Case for the Plaintiff 2. By statement of claim filed together with the writ, the plaintiff pleaded that it is a limited company incorporated in Zambia and that it carries on the business of financial facility services. 3. Additionally, the p laintiff pleaded that it availed the defendant a loan of K20,000.00 at an interest rate of 25% payable within a month from the date of disbursement, in furth erance of a loan agreement dated 20 th January, 2022. Furthermore, that the defendant has failed to service the loan , which it is alleged has accumulated to the sum of K242, 300.48, which it now claims Defence 4. In his defence filed on 24 th February, 2022, the defendant admits having borrowed K20,00 .00, but denies having agreed to be charged 25% monthly compound interest. ~ • • If I Page J3 of 11 The Evidence 5. At trial the plaintiff relied on the witness statement of Mr. Mumbwali Simuzingili, its m a naging director and only witness (PW 1). 6. According to PWl , th e plaintiff and defendant entered into a loan agreed in J a nua ry, 2020, whe rein the plaintiff agreed to extend a credit facility of K20,000 .00 to the defendant. The loan, it was attested , was payable within a month from the date of dis burse ment of the funds. The witness avowed that the agreed contrac tual inte rest was cumulative at the rate of 25% per month on the outstanding bala nce. 7. PW l 's eviden ce was that the money was disbursed in two phases: (i) K 10,000.00 as transferred from the plaintiff com p a ny's Inda-Zambia bank account to the defendant's bank acco unt on 6 th Februa ry, 2 020; (ii) Kl0,000.00 as transferred from th e p laintiff company's lndo-Zambia bank account to the d e fe ndant's bank acco unt on 7 th February, 2 020. Reference was m a d e to copie s of the electronic b a nk tra nsfer reports exhibited on pages 4 a nd 5 of the plaintiff's bundle of docu1nents. 8. PW J. also testifi ed tha t notwithstanding several requests for s e ttlement having been made, the d efendant has failed to settle the loan in accordance with the agreement. That as a result the Page J4 of 11 defendant had accumulated an outstanding debt of K242,300.48 as of the date the writ was issued. 9 · Additionally, PW 1 stated that it was a te rm of the agreement that that the loan would be secured by motor vehicle registration no. BAJ 8872ZM . 10. VJhen cross-exam ined, PWl stated that he had a money lenders license, although it was not before Court. 11. He maintaine d that it was agreed that the loan would carry compound interest. For this, he referred the Court to what he te rme d the loan application form exhibited at p age 3 of the pl a in tiff's bundle of documents. 12 . Th e d e fe ndant did not file a witness statement and e lected not t o call a ny witnesse s. Analys is of Evidence and Findings of Fact 13. In his defence, th e defe ndant admitted h aving r eceived a loan of K20,000.00 from the plaintiff by agreement of J anu ary, 2020. Further, I observed tha t the defendant did not rebut the evidenc e of PW 1 relating to the date the funds were transferred to him and the agreed repayment period. I, therefore, accept that the defendant borrowed th e sum of K20,000.00 from the p laintiff by a loan agreement e ntered into in January, 2020. I .. II I Page JS of 11 Additionally, 1 find that the loan was to be repaid within one month of disbursement. 14. Having studied the copies of the electronic transfer of funds reports that are before m e, I find that the last date of disbursement of the loan was 7th February, 2020. It follows, therefore, that the defendant was required to repay the loan within one month therefore, being no later than 6 th February, 2020. 15. In his defence, the defe ndant did not traverse the plaintiff's plea dings that the defendant did not repay the loan on the due date. ,,Ii II I Court Act, Chapter 27 of the Laws of Zambia, a defence shall 16. According to Order LIII, rule 6 (2) of the High Court Rules, High specifi cally traverse every a llegation of fact made in the statement of claim. A defence that fails to meet the requirements of o. LIII, r. 6 HCR must be deemed to have admitted the a llegations not specifically traversed as provided in 0 . LIII, r. 6 (4) HCR. 17. In a pplying o. LIII, r. 6 HCR to this case, I must deem that the defendant has admitted the fact that he failed to repay the loan on the due date on account of the failure to traverse the said pleading. l therefore d e termine that the defendant failed to repay the principal sum of K20,000.00 that he borrowed from J the pla intiff by 7 th March, 2020, when it became due. Page J6 of 11 18. Having perused through the statement of claim a nd reply, I note that the plaintiff did not plead that the plaintiff fu rnished security in the form of a pledge of a vehicle. However, this evidence was tendered through the testimony of PW 1. The defendant did not object. The absence of an objection opens the door for me to conside r this evidence. This is in line with the pronouncement of the Supreme Court in the case of Nkongolo Farms Limited v Zambia National Commercial Bank Limited and Others (1) that: . . . issues which were not pleaded but which were nevertheless raised in the Court. below, without any objection from the other side, cannot b e ignored and the Court. has an obligation to consider such issues" 19 . In the case of Anderson Mazoka and Others V. Levy Mwanawasa and Others (2) the Supreme Court put it like this: "whe re a ny matte r not pleaded is let in evidence, and not objected to by the other s ide, lhe court is not and should not be precluded from cons ide ri ng il. " 20. Conside ring that th e defendant has not challenged PW l 's testimony that the defendant pledged motor vehicle, Volvo BAJ 8872ZM a s s ecurity for the loan, I accept that the defendant pledged the said vehicle as security for the loan . 21. I now turn to consider the applicable interest. The plaintiff relying on a term contained m what PW 1 1s calling the loan application agreement that 1s exh ibited at page 3 of the plaintiff's bundle of document. • Page J7 of 11 22. I h ave examined the said loan application agreement. It refers to a loa n a m ount of Kl2,000.00 where the d efendant agrees to pay the p la intiff Kl 5,000 .00 only, a t a m onthly cumula tive interest of K25% per month on the outsta nding b a la nce . The d ate of the document is 10th January, 202 0 and expresses one sch e dule of instalment payme nt, being payment of K 15.000 on 10th February, 2 022. Additiona lly, the security is given is stated as a person a l guarantee and a motor vehicle, Volvo BAJ 8872ZM . Howeve r, the document is not signed by eith e r party. 23 . Aside the loan ap plication agreement not being s ig ned, I observe th at the princ ipa l loa n amount stipulated therein , being K 12,000.00 is different fro m the principal loan amount of 1<20,000.00 th at PW 1 stated, in his testimonial evidence, was ad vanced to the d e fendant. It is also inconsis tent with the de fendant's ad mi ssion tha t he borrowe d 1<2 0 ,000 . The inconsi s te n cies lead me to conclude tha t the exhibited loan application agree m e nt is n o t the applicable agreement. I therefore disregard it. 24. With respect to the e vidence before m e , during cross- examination PW 1 m aint ain ed that the parties agreed 25% compound interest. He avowed that this was p e rmissible unde r the Money-Lender's Act, Chapter 398 of the Laws of Zambia. Page J8 of 11 (hereinafter referred to as the "Act") . I will make a finding on this issue when I consider the applicable law. 25. During further cross-examination PWl stated that the plaintiff possessed a Money Lender's Licence. His testimony was not challenged, save to highlight that the licence in question was not before Court. Having studied the demeanour of the witness and considering that he unflinchingly told the Court that he was the managing director of the plaintiff, who carried on the business of money-lending, I see no reason to doubt his testimonial evidence. 26. I, therefore, accept and find that the plaintiff was a lice nced money-lender at the time it lent money to the defendant. The Law 27. Ha ving acknowledged that the plaintiff was a licenced mon ey lende r, I accept that the loan agreement between the parties is governed by t he Act. Consequently, I have considered section 10 of the Act which reads as follows: "Subject as h erein a fter provided, any contract made after the commen cement of thi s Act for the loan of money by a money-lender shall be illegal in so far as it provides directly or indirectly for the payment of compound interest or for the rate or amo unt of interest being increased by reason of any default in the payment of sums due under the contract" Page J9 of 11 2 8 . Additionally, section 10 of the Act contains a proviso which reads as fo llows: "Provided tha.t provision ma.y be made in writing by any such contract that, if default is made in lhe payment upon the due date of any sum payable to the money-lender under the contract, whether in respect of principal or interest, the money-lender s hall be entitled to charge simple interest on that s um from the date of the default until the sum is paid, at a rate not exceeding the rate payable in respect of the principal apart from any default, and any interest so charged s hall not be reckoned for the purposes of this Act as part of the interest charged in respect of lhe loan." 29. My understanding of section 10 of the Act in re la tion to co mpound inte rest is that the charging of compound inte rest to a loan granted by a money-lender is expressly prohibited. Further, t h a t where s u c h a con tract provid es directly or indirectly for th e p aym e nt of compound interest, the contract sha ll be ill egal to the extent that it provides for the applica tion of interes t to be compounded. Essentially, sec tion 10 r equires the ill egal p art of the contract to be severed. ( 30. Upon r e flectin g on section 10 of the Act, I take the view that a n agreem ent governed by the Money Lenders Act which purports to ch a rge compound inte rest is null and void to the extent of the illegality. Thus, w he re p arties agree to the char ge of compound interest in a loan agreement governed by the Act, that te rm would be illegal a nd une nforceable . 3 1. In this case, the p laintiff d oes not take issue with the charge of interest a t the rate of 25%. It is th e co1npounding of Page JlO of 11 interest that is disputed. Since compound interest 1n not permissible under the Act, I determine that the plaintiff can only claim 25% simple interest on the unpaid principle of K.2O,000 .00 . 32. In view of the foregoing, judgment is entered in favo ur of the plaintiff as follows: 1. The defendant shall pay the plaintiff the outstanding principal of K20, 000.00 together with interest at 7% per annum from 7 th March, 2020, when the money became due, to the date of judgement (the Judgment debt), payable within sixty days of this Judgment. 11. The Judgment debt shall attract interest at the rate of 8% per a nnum from date of judgment until full and final settle ment. 111 . Jn th e e ve nt that the defendant fails to settle the Judgment debt within sixty days as adjudged, the plaintiff s hall be at libe r ty to enforce the pledge by sale of the Volvo motor vehicle registration no. BAJ 8872ZM. lV. Costs are awarded in favour of the plaintiff to be taxed in default of agreement. Summary of Ratio Deciclendi Where co ntrac t for lending of money is governed by the Money Lenders Act provides directly or indirectly for the payment of ( Page J 11 of 11 compound interest, the contract shall be illegal to the extent that it provides for the application of compound inter est. Essentially, section 10 requires the illegal part of the contract to be severed. ,. I I ( l I