Premium Finance Limited v Valentine Mutale and Anor (2022/HKC/13) [2022] ZMHC 24 (9 August 2022)

IN THE HIGH COURT FOR ZAMBIA. ,,,_.,,,.---- ------· ·-·-·- -·- ~ 2022/HKC/13 AT THE DISTRICT REGISTRY HOLDEN AT KITWE COMMERCIAL DIVISION (CIVIL JURISDICTION) IN THE MATTER OF: ENFORCEMENT OF SECURITY RELATING TO THE MOTOR VEHICLE KNOWN AS MG 6 TABLE, REGISTRATION NUMBER BCD 3654 AND IN THE MATTER OF: ORDER 30 RULE 14 OF THE HIGH COURT RULES, CAP 27 OF THE LAWS OF ZAMBIA BETWEEN: PREMIUM FINANCE LIMITED APPLICANT AND VALENTINE MUTALE COSMAS MUSONDA T RESPONDENT 2ND RESPONDENT Before Hon. Lady Justice Abha Patel, S. C. On 18th May 2022 & 9th August 2022 For the Applicant: Mr. E. Chlbeluka- Messrs. Douglas & Partners For the Respondents: Mr. K. Mwlche Messrs. Katongo & Co JUDGMENT \ '\ • ' I • Page 11 - ·--~------------ Cases referred to: 1. Credit Africa Bank Limited (In Liquidation) V John Dingani Mudenda. (SCZ Judgement No. 10 of 2003). 2. Exhilda Mtonga, Hallve Mtonga v Money Matters Limited. 3. Mutantika(T/A Monaz Enterprises) V Luapula Artland Limited (HPC 4212016) {2016} ZMHC 181 (31 October 2016). 4. Printing and Numerical Registered Company v Simpson {1975) LR 19 EQ4 62. 5. Colgate Palmolive (Z) Inc v Abel Shemu Chuka and 110 Others Appeal No. 185 of 2005. 6. Finance Bank Zambia Limited and Rajan Mahtani v Simataa Simataa Appeal No. 11/2017 (Selected Judgment no. 21 of 2017). 7. National Drug Company Limited and Zambia Privatisation Agency V Mary Katongo Appeal No. 79/2001. Legislation referred to: 1 . Money Lenders Act, Chapter 398 of the Laws of Zambia 2. High Court Act, Chapter 27 of the Laws of Zambia Reference Materials Cl 1. Halsbury's Laws of England 4th Edition 1. Introduction 1.1 This is a mortgage action brought by way of an originating summons dated 7th March, 2022. The summons were complimented by an affidavit In support of even date and submissions dated 2nd June, 2022. The Applicant seeks the following reliefs: Page I 2 i. Payment of the sum of K125,798.00 due to the Applicant under d the respective covenants in the loan agreement of 23' July, 2021 and under the guarantor agreement executed by the second Respondent in favour of the Applicant to secure the repayment of the said loan facility. ii. That in default of the Applicant and the Respondents agreeing the amount due to the Applicant, an account may be taken of what is due under the said loan agreement. iii. An order that the said motor vehicle, namely a MG 6 Table. Registration No. BCD 3654 be sold by the Applicant by private auction. iv. That the 1st Respondent do deliver to the Applicant the charged property namely MG 6 Table, motor vehicle registration No. BCD3654. v. Bank interest on all sums found to be due. vi. Costs, and vii. Any other relief the court may deem fit. 2. Applicant's affidavit evidence a. According to the affidavit in support, sworn by one Patrick Sakala, in his capacity as the Branch Manager in the Applicant Company, it was averred that on 23rd July, 2021 the 1st Respondent accessed a loan facility in the sum of K90,000.00 from the Applicant with a loan repayment period of one month, exhibited as "PSI" and "PS2" are copies of the Loan Agreement and Loan Repayment Schedule, respectively. Page I 3 b. The Deponent further averred that the Loan Facility was secured by creation of a charge or equitable mortgage on the 1st Respondent's motor vehicle namely, an MG 6 Table registration No. BCD 3654, a copy of the white book was exhibited as "PS3". The 1st Respondent retained custody of the motor vehicle. c. Additionally, the loan was also secured by execution of the Guarantor Agreement form by the 2nd Respondent; a copy of Guarantor Agreement Form was exhibited as "PS4". It was his averment that despite numerous reminders, the Respondents have neglected, refused or denied to settle the loan balance which stood at K125,798 as at 4th February 2022 and continues to accrue interest at the rate of 25% per month until the debt is paid as agreed by the parties in clause 4 of the Loan Agreement. A copy of the letter in which the 2nd Respondent committed to settle the loan was exhibited and marked "PSS". d. In the affidavit in reply, the Applicant asserted that the 1st Respondent's loan was for a period of one month and it was supposed to have been paid off on or before 29th August, 2021. The 1st Respondent defaulted on the loan and only paid a sum of KS0,000.00 towards the loan on 23rd October, 2021. The deponent has maintained that the parties agreed on the interest to be paid in case of default under clause 4 of the Loan Agreement and that at the time the 1st Respondent paid KS0,000.00 he had already defaulted and the said clause had kicked in. Page 14 3. The Respondent's Affidavit evidence a. In the affidavit in opposition dated 19th April 2022 sworn by the 1 st Respondent on behalf of both Respondents, the 1st Respondent denied owing the Respondent the sum of K125,798.00 but admitted having accessed a Loan Facility of K90,000.00, inclusive of principle and interest, from the Applicant, and that out of that amount he had repaid the Respondent KS0,000.00 thereby leaving a balance of K40,000.00. A copy of the deposit slip was produced and marked "VMl". He further averred that his various attempts to have the Applicant recalculate the interest have proved futile. 4. Submissions by the Applicant a. The Applicants refiled their submissions on 2nd June, 2022, previously filed on 13th May, 2022 owing to typographical errors and by Order of the Court. The main thrust of the submission presented by Counsel for the Applicant, was that the parties had entered into a legal contract in which they mutually agreed on the interest to be charged in case of default as provided by clause 4 of the Loan Agreement. Counsel pointed out that the pt Respondent signalled his agreement with the terms of the Loan Agreement by putting his initials on each page of the said Loan Agreement. b. Counsel further submitted that this Court ought to give effect to what the parties agreed upon, particularly clause 4 of the Loan Agreement, as the Court has no jurisdiction to hold otherwise as that would Page I 5 -- ...... ________________ _ amount to rewriting the terms and conditions of the Loan Agreement. Counsel relied on the cases of Printing and Numerical Registered Company v Simpson, Colgate Palmolive (Z) Inc v Abel Shemu Chuka and 110 Others, Finance Bank Zambia Limited and Rajan Mahtani v Simataa Simataa, in support of this line of submission. 5. Submissions by the Respondents a. On 24th May, 2022, the Respondent's advocates filed its submissions and list of authorities. A perusal of the said submission revealed the Respondents discomfort with the charging of compound interest by the Applicants, which offends section 10 of the Money Lender's Act and further that the charging of interest monthly by the Applicant contravened section 9 (2) of the same Act. Counsel quoted both sections of the Money lenders Act. b. Counsel further submitted that it has been the practice of the Courts to frown upon unconscionable interest payment agreements, he invited this Court to consider the cases of Mutantika (T/A Monaz Entaprises) v Luapula Artland Limited and Exhilda Mtonga, Halive Mtonga v Money Matters Ltd. 6. Analysis of the facts and the Law a. I have carefully considered the affidavit evidence before Court and the documents attached thereto, as well as the submissions of both Page I 6 I ,, i, I 1· I !· : : I I ce parties. The undisputed facts are that the 1st Respondent obtained a loan of K90,000.00 on 23rd July, 2021 from the Applicant which he should have fully paid on or before 29th August 2021. The said loan was secured by the 1st Respondent surrendering the original white book of a motor vehicle known as MG 6 Table, registration No. BCD 3654 to the Applicant and also by a Guarantor Agreement Form executed by the 2nd Respondent. It is further not in dispute that the 1st Respondent has only paid K50,000.00 towards the loan. b. The 1st Respondent has admitted having obtained a loan of K90,000.00 from the Applicant and having surrendered to the Applicant the original white book for his motor vehicle known as MG 6 Table, registration number BCD 3654. His dispute is with the amount of K125, 798.00 being claimed by the Applicant as the outstanding balance, after having paid the sum of K50,000 albeit in October 2021. c. In their submissions dated 2nd June, 2022, the Applicant's Counsel advanced the argument that there being an express agreement between the parties, as evidenced by the Loan Agreement, that the borrower should pay interest of 25% per month on the defaulted principle amount or interest or both from the date of default until the principle and interest sum is paid. Counsel invited the Court to enforce the provisions of the Loan Agreement. Page I 7 d. It was emphasised that at the time the 1st Respondent paid KS0,000.00, clause 4 of the Loan Agreement had already been invoked as he had defaulted. Counsel drew the court's attention to several cases to support his argument that the Loan Agreement being a legal document, should be enforced. One such case is National Drug Company Limited and Zambia Privatisation Agency V Mary Katongo Appeal No. 79/2001, where it was held that: "It is trite Jaw that once the parties have voluntarily and freely entered into a legal contract, they became bound to abide by the terms of the contract and that the role of the court is to give efficacy to the contract when one party has breached it by respecting, upholding and enforcing the contract." e. I am alive to the fact that the Applicant did not disclose its corporate status in the affidavit in support. Further, I have also noted that the Respondents in their submissions, made reference to the Applicant being bound by the provisions of the Money Lender's Act, which line of submissions, the Applicant, having been given leave to file submissions in reply, (at the hearing of 18th May 2022), chose not to challenge or dispute. f. I will therefore accept the submissions of the Respondent and find as an undisputed fact that the Applicant Is licenced and operates under the Money Lenders Act, Chapter 387 of the Laws of Zambia. Page I 8 g. Having made the above finding that the Applicant is licenced under the Money Lenders Act, I now proceed to examine the provisions of the Act in as far as they are applicable to the facts in casu. Section 10 provides as follows: "Subject as hereinafter provided, any contract made after the commencement of this 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 amount of interest being increased by reason of any default in the payment of sums due under the contract" h. The Applicant's contention is that the parties freely and voluntarily agreed on the interest to be charged thus this Court ought to give effect to what the parties agreed to in the Loan Agreement, particularly clause 4 which provides that; "If default is made on the payment as afore said or on due date of the loan facility whether in respect of the principle amount or interest, the company shall be entitled to charge simple interest and borrower agrees to pay interest of 25% per month on the defaulted principle amount or interest or both from the date of default until the principle sum and interest sum is paid." i. From the above clause, I note that when the pt Respondent defaulted, he was charged 25% interest on both the outstanding principle and interest which amounts to compound interest. Page I 9 Compound interest is the act of charging interest upon interest and is illegal under the Money Lender's Act. Consequently, it is unenforceable even in the face of purported written agreements or contracts to the contrary. Reference to decisions of the Supreme Court, in the oft cited cases such as Printing and Numerical Registered Company vs Simpson, Colgate Palmolive (Z) Inc vs Abel Shemu Chuka & 110 others, or the more recent decision in the case of Finance Bank Zambia Limited & Anr vs Simataa Simataa, which reaffirmed the principle in the above two cited cases, are misapplied in the context of the case at hand. Courts will not blindly follow the principle of the need to preserve and uphold the value and sanctity of contracts if the circumstances of the case at hand and the enabling statute provides otherwise. j. I have also observed that the said clause 4 provides for charging of interest on a monthly basis. On a quick calculation, although not being guided by the Parties, the application of 25% monthly interest translates to 300% per annum, which I find not only to be excessive but also unconscionable. Section 15 (1) of the Money Lenders Act allows a money lender to levy Interest not exceeding 48% per annum. k. There is no denying that the 1st Respondent signed the Loan Agreement. However, It Is trite that a contract prohibited by statute is illegal and cannot and will not be enforced by the Courts. I am fortified in my holding by the learned authors of Halsbury's Laws of Page I 10 r I I I I I I : England, 4th Edition, Volume 9, at paragraph 386 which. provides as follows: "there are several classes of contracts which, though perfect in form, agreement and consideration, are not given full effect because they offend against policy of the law. Some contracts may be illegal in the sense that they involve the commission of a legal wrong, whether by statute or the common law, or because they offend fundamental principles of order of morality." I. I now turn to deal with whether an equitable mortgage was created when the 1st Respondent surrendered the original white book of his vehicle to the Applicant. As noted above, the 1st Respondent does not deny that he surrendered the original white book of his car. Paragraph 405 of volume 32 of Halsbury's Laws of England 4th Edition provides as follows: "An equitable mortgage is a contract which creates a charge on the property but does not convey any legal estate or interest to the creditors, such a charge amounts to an equitable interest. Its operation is such of an executor assurance which, as between the parties, and so far as equitable rights and remedies are concerned, is equivalent to an actual assurance, and is enforceable an the court's equitable Jurisdiction." m. Going by the above authority, It Is undisputable that when the 1st Respondent surrendered the original white book for the motor vehicle, an equitable mortgage was thus created over the same motor vehicle. Consequently, the 1st Respondent is precluded from Page I 11 • dealing with the said vehicle without the knowledge and approval of the Applicant whose interest takes precedence. n. Arising from the foregoing reasons, I find and hold that the 1st Respondent obtained a loan of K90,000.00 inclusive of interest from the Applicant, which loan was secured by an equitable charge over motor vehicle. I also find that out of the K90,000.00 the Respondent has paid KS0,000.00 towards liquidating the said loan. Further, I find the 25% interest and the charging of interest on monthly basis, provided in clause 4 of the Loan Agreement, illegal and unenforceable as both offend section 10 and 15(1) of the Money Lenders Act. 7. Therefore, I enter Judgment in favour of the Applicant and order as follows : a. The pt Respondent should pay the Applicant the outstanding amount, which amount should be assessed by the Deputy Registrar in accordance with the provisions of the Act (unless sooner agreed by the Parties.) b. The outstanding amount to be paid to attract simple interest at the average of the short-term deposit rate from date of action to date of Judgment, and thereafter at current Commercial Bank lending rate as determined by Bank of Zambia from time to time until full payment. Page J 12 I l i , , ! I 'I .1 · I I I I I j I I I I I I I I I I I I I I I I I I CCQt . ;:;:;::;:: ...... •vo, ~ e: .-. WO.,,. 'r' - . ·"' e • c. The outstanding amount together with simple interest be paid to the Applicant by the Respondents within 60 days from the date of assessment (or agreement). d. Should the Respondents fail to pay the principal and interest due to the Applicant within 60 days from date of assessment, the Applicant will be entitled to foreclose, possess and sale the charged motor vehicle known as MG 6 Table, registration No. BCD 3654. e. I make no order as to costs. Dated at Kitwe this 9th day of August 2022 Mrs. Abha N. Patel, S. C. HIGH COURT JUDGE Page I 13