Rachael Mudiyo Banda v Zambia National Commercial Bank (APPEAL 202/2021) [2022] ZMCA 231 (18 January 2022)

IN THE COURT OF APPEAL OF ZAMBIA APPEAL 202/202 1 HOLDEN AT LUSAKA (Civil Jurisdiction) BETWEEN: RACHAEL MUDIYO BANDA APPELLANT AND ZAMBIA NATIONAL COMMERCIAL BANK RESPONDENT Coram: Makungu, Sichinga and Muzenga, JJA On 20th October, 2021 and 18th January, 2 022 For the Appellant: Mr. L. Yeta of Messrs Central Chambers For the Respondent: Mrs A. Mwalula appearing with Mr. A. Chiyama both of Ndemanga Mwalula and Associates JUDGMENT Makungu JA, deliver d th judgment of the court Cases Referred to: 1. Lackson Mwabi Mwanza v Sangwa Simpasa and Another 2005/HP/0500 2. Downsview Nominee Ltd and J. G Russel v First City Corp ltd and First City Finance ltd Co (New Zealand) (1992) UKPC 34 (19 November 1992) Jl INTRODUCTION This is an appeal against the decision of Irene Zeko Mbewe J of the High Court dated 30 th September, 2020 in favour of the respondent for the recovery of the sum of Kl ,244,645.78 less payments made in respect of a loan facility availed to the appellant by the respondent bank in 20 10. BACKGROUND Initially, the appellant was the respondent and the respondent was the 1 ~t applicant in the court below. The matter has its genesis from a short term loan facility amounting to ZMKSOO million (un-rebased) availed to the appellant by the respondent upon terms and conditions contained in the credit facility agreement. The loan was for a period of two years starting from 30 th June, 2010 to 31 s t June, 2012. The terms of the facility were that the appellant would pay interest at the respondent bank's fluctuating base rate plus 10% which at that time meant that the interest rate was 30% per annum calculated on the daily overdrawn balances and payable monthly by debit to her J2 account. It was further agreed that interest on out-standings re.maining unsettled after the expiry of the contractual period within which to pay the facilit as agreed by the parti s would be compounded at the prevailing bank base rate plus a margin of 10% and unauthorised facility margin of 6'% which at that time was at (20% + 10% + 6%= 36%) per annum and payable monthly in arrears by debit to the account. This interest was payable both before and after judgement until full settlement. As security for the loan, the appellant executed a legal mortgage ov r plot 10.3/400 Chifundo Road Chawama Lusaka in favour of th respondent. On 31 st June 2012 the loan facility expired as the appeHant had failed to settle her ind bt dn ss b the agreed dates despit reminders. When th app llan . defaulted he respondent commenced an action in the court below on 29 th September 2015 by wa of Originating Summons against the app llant claiming for the following reliefs: 1. Payment of all monies and contractually aqreed interest due and a.wing to the respondent under a cr,edit facility letter dated 31 st J3 May, 2010 for new short tenn loan of ZMK 500 million (un re.based) which facility was secured by legal mortgage over plot 103/ 400 Chifundo Road Chawama in the name of the appellant and which money stood at Kl,244,645.28 as at 31 s t August 2015. 2. An order for foreclosure on the mortgaged property. 3. Delivery of vacant possession of the mortgaged property by the appellant to the respondent. 4. An order for sale of the mortgaged property by the respondent. 5. Any relief the court shall deem fiL 6. Costs. Before commencement of the action, the appellant had by letter dated 3 rd June, 2014 permitted the respondent to sell the mortgaged property. The property was later sold to Mr. James Banda who was later joined to the proceedings as 2nd applicant. On 13th May, 2019, a consent Judgment was entered whereb the appellant and respondent agreed that Mr. James Banda was the legal owner of stand 103 /400 Chifundo Road, Chawama Lusaka and J 4 neither the appellant nor respondent would have any claim to the subject property. RELEVANT EVIDENCE ON RECORD The appellant denied the claim and averred that the respondent had possession of the mortgaged property from 3 rd June, 2011 to December, 2015 and during this period it collected rent amounting to ZMW 556, 250.00. That from the point that possession of the property was given to the respondent, rent collection and outgoings were for the respondent to administer. The respondent on the other hand denied having collected rent amounting to ZMW556 , 250 . 00. It was stated that only rent in t he sum of ZMW 6,680 was collected through its agent BA Property Consultants whom it engaged on 5 th November, 20 13. Further, the appellant alleged that the ZMW 6, 680. 00 collected as rent and the ZMWS l, 000.00 allegedly deposited by the purchaser, were never credited to her account because the respondent acted fraudulently. JS The appellant stated that in coming up with the balance of the loan , the respondent did not take into account the difference between the alleged purchase price and the market price of the mortgaged property and that the respondent owed her the balance . The appellant stated that the reconstructed bank statement showed that the respondent had collected a total of K600,666.00 from both the dwelling quarters and the commercial properties. According to the appellant, once she gave possession of the property to the respondent, interest should have stopped accruing. The respondent was under a duty to exercise utmost good faith at all times but it failed to obtain a reasonable best price to her detriment. The respondent denied the appellant's allegations and maintained that the sums of ZMW6,680.00 and ZMWSl,000.00 were deposited into the appellant's account, out of which a cheque for ZMWl ,882.17 was issued to Lusaka City Council for consent to assign and property rates. ZMWS 1,000.00 was paid to Zambia Revenue Authority as property transfer tax. The respondent maintained that it did not collect rent in the sum~ alleged by the appellant as the tenants neglected to pay the same. J6 The respondent denied having received the sum of ZMW 327, 750.00 as alleged by the appellant. It was contended that the appellant was advised that interest would continue to accrue on the facility. During cross examination of the respondent's sole witness George Mubanga Kashoki, h e stated that he was not in a position to confirm the occupancy levels at the time the property was handed over to the respondent on 3 rd June, 2011. He further stated that it was not the respondent's responsibility to collect rent from the tenants as it had engaged BA Consultants to do so on its behalf. That the property was sold for ZMW 510,000 to Mr. James Banda but the purchaser paid a deposit of slightly more than 10% of the purchase price, that is ZMW 55,000.00 upon signing the contract. In re-examination, he explained that the said purchase price did not appear in the loan statement as it was paid towards statutory obligations and did not go towards reducing the appellant's indebtedness. J7 The appellant's evidence was inter alia that the respondent had communicated that she had defaulted and that she had 21 days within which repay the loan failure to which the respondent would commence foreclosure proceedings .. She further stated that at the time of handover of the subject property to the respondent, the property was fully occupied. She also stated that the respondent collected rent through BA Consultants amounting to ZMW322 , 750.00 for the period between June 2011 and October 2015 but she could not confirm if the respondent had actually collected a total of ZMW556 , 250. 00 as she had alleged in the pleadings. DW2 was George Sichalwe who testified that from the year 2000 to 2011 he was an occupant of the subject property employed by the appellant to manage the property and collect rent. He would record the payments i.n a rent book which was not produced in court. That he handed over the records relating to rent payments to Mr Kashoki, the Bank's sole witness. He said he witnessed the respondent's agents colle cting rent from the same premises. DW3 and DW4 were J8 tenants in the said property who both testified that they were paying rent to BA consultants but they were not given any receipts. DECISION OF THE COURT BELOW Upon considering the affidavit evidence and submissions, the court deduced that in light of the said consent judgment the only issue to be determined was whether the appellant owed the respondent the sum of Kl,244,645.28 as at 31 st August 2015. Further that the claims for foreclosure, possession and sale \\ ere no longer available to the respondent. The court found that the background to the actions as stated in the evidence on record was not in dispute . The court found that the appellant's claim that the respondent collected rent from the property amounting to the sum of ZMW556, 250.00 from June 2011 to December 2015 was not substantiated as she only produced a list of tenants and amounts paid but the sam.e did not show that the money was indeed paid to the respondents or its agents. J9 The trial Judge accepted the respondent's evidence that only a sum of ZMW6, 680. 00 was collected by B. A Consultants. The Judge found that th respondent sold the collateral to Mr. James Banda who paid the sum of ZMW510, 000. 00 as purchase price. Since the respondent did not substantiate its claim that the said monies were used to pay statutory obligations and did not go towards the reduction of the debt, the court held that the r spondent had a duty to account for the money realized from the sale of the mortgaged prop rty, showing a balancer fleeting eith r what is still owing to the respondent or what is due to the appellant as surplus, if any. On th appellan 's claim hat t he respondent was charging in erest illegally, the court found that clause 2.1 of the loan agreement clearly indicat d that compound interest was payable both b for and after judgment until full settl m nt. Hence, the respondent's continu d charging of interest was within the confines of the facility and not ill gal. Judgment was entered in favour of the respondent for r covery of ZMWl,244,645.78 as at 31 st August, 2015 less the payments made. The judgment sum to attract interest at the short-t rm deposit rate JlO from the date of the originating process to date of judgment as determined by Bank of Zambia and th ereafter a t th e comm ercial lending rate until full payment. The court further ordered the responden t to prepare an updated statement of account indicating all payments made by the respondent towards the reduction of the debt. Thereafter, the parties should appear before the Registrar for determination of the outstanding amount payable to the respondent. Costs were awarded to the respondent to be taxed 1n default of agreement. GROUNDS OF APPEAL The appellant has advanced three grounds of appeal framed as follows: 1. That the honourable trial judge erred in law and fact by holding that the appellant had not discharged the burden of proving that the total sum of ZMW556,250. 00 was recovered by the respondent through collection of rent despite the fact that the evidence on record shows that the respondent took possession of J 11 the property (filled with tenants) and had sole control of the property to the exclusion of the appellant. 2. That the honourable trial judge erred in law and fact by holding that the respondent's charging of interest on the loan account before and after judgment was within the confines of the facility and not illegal, despite the fact that the law prohibits the charging of interest upon default of a mortgagor. 3. That the honourable trial judge erred in law and fact when she entered judgment in favour of the respondent against the appellant for monies and interest owed which at 31 st August 2015 stood at ZMW 1,244,645.78 despite the fact that there was evidence on record where the respondent admitted to having miscalculated in its statement and had in its email placed the monies owed by the appellant at ZMW 728,384.62. ARGUMENTS At the hearing of the appeal, learned counsel for the appellant Mr Yeta, abandoned the second ground of appeal. He relied on the appellant's h ads of argument filed on 31 st August, 2021. For convenience, grounds one and three will be renumbered as ground J12 ' . one and two respectively. The respondent>s ad · ocates relied on the heads of argument filed on 1s t October, 2021. Appellant's Arguments on Ground One In support of ground one, counsel submitted that the respondent took possession of the p roperty from 3 rd June , 2011 and only handed it over to Mr. J aines Banda (who was 2 nd appellant in the court below) on 31 s t March, 2015 as evidenced by the handov r letters on pages 96 to 114 of the record of appeal. To this end, counsel argued that, the trial judge's finding that the appellant had not discharged the burden of proving that a total sum of z- W556,,250.00 was not recovered by the respondent through on ction of rentals , as not correct at law, as it was the respondenfs duty to ac ount for the rent coll cted. In support of this ie , he relied on the High Court cas of Lackson Mwabi Mwanza v Sangwa Simpasa .and Another 1 here it was held that: "Whe,n a mortgagee takes possession of the prope.rty, he is under an obligation to account not only for what he has received during the time in possession, bu,t also what he ought to have received under the mortgage de-ed." J l3 He also relied on the case of Downsview Nominee Ltd and J. G Russel v First City Corp ltd and First City Finance ltd Co (New Zealand)2 where it was held that: "If a mortgagee enters into possession, he is liable to account for the rent on the basis of wilful default; he must keep the mortgage premises in repair; he is liable for waste. Those duties were imposed to ensure that a mortgagee is diligent in discharging his mortgage and returning the property to the mortgagor." The court further stated that; "A mortgagee owes a general duty to subsequent encumbrances and the mortgagor to use his powers for the sole purpose of securing payments of monies owed under the mortgage and duty to act in good faith. He also owes the specific duties which equity has imposed on him in the exercise of his powers to go into possession." On the strength of the above authorities, counsel submitted that the respondent had a duty to account for rent received and rent which it ought to have been received from June, 2011 to 31 st March, 2015. H Jl4 went on to state that, the record shows that the property had 19 tenants at the time the respondent took possession of it and the respondent had possession of the property for 4 years before selling it to Mr James Banda. In those 4 years, the respondent claim.s that it only collected rent amounting to K6, 000. Counsel suggested that as managers of the property or landlords, the respondent could have done the following: (1) pursued the tenants who did not pay rent, (2) evict the defaulters and bring in new tenants (3) rented out the vacant spaces. Counsel contented that, the respondent acted in bad faith and to the detriment of the appellant in the four (4) years by not taking any of the measures suggested above. Counsel further submitted that the burden of proof had shifted to the respondent to show that it had employed all manner of tactics to collect rent that ought to have come into their hands. The trial judge ought to have condemned the respondent for their breach of duty to account for rent and ordered that the rent that they ought to have collected be set off from the statement. JlS In light of the foregoing, we were urged to vary the judgement of the lower court by ordering the respondent to account for rent received and that which ought to have been received and to order that the matter proceeds to assessment of damages. That it is imperative that the sum of K556, 250.00 collected by the respondent be offset from the outstanding balance of the loan, if any. Response to Ground One In opposing ground 1, the respondent's advocates submitted that the court below was on firm ground in finding that the appellant had not provided any evidence of th e respondent having collected the sum of ZMW 556,250 as rent during the tim e it had possession of the mortgaged property. Further that, at trial all the appellant's witnesses failed to 1 ad evidence as to how the alleged payments were made by th tenants to the respondent because this simply did not happ n. The respondent's evidence was that although the shops were occupied, the tenants were not paying rent. The sum ofZMW 556,250 is a m ere projection of rent that were payable during th period in question and does not represent what was actually collected by the respondent. Jl6 Counsel further submitted that in the absence of proof that the respondent bank had collected the sum of K556 ,250 it is insurmountable that the court could have made a finding that the aforementioned sum of money was recovered by the respondent. Under the circumstances, we were urged to uphold the lower court's finding that only the sum of ZMW6,680 was collected as rent. In response to the appellant's claim that the respondent has not rendered an account for the rent received from the mortgaged property, the respondent's counsel submitted that the account \Vas only due o the appellant once the respond nt realised the money from the sale of the propert . Counsel further submitted that at no point did the respondent fail or neglect to render an account. The court below did ,ord r that an account be rendered by th respondent of all sums that v. nt to reducing the debt, a process the appellant has attempted to undermine by launching this appeal. Counsel therefore, prayed that the first ground of appeal be dismissed. J17 Appellant's Argument s on Ground Two Ground 2 was argued as an alternative to ground 1. Counsel relied on the arguments in ground one and went on to submit that the judgment in favour of the respondent was in conflict with the evidence on record which showed that the respondent admitted to having miscalculated the amount du and had in its email placed the monies owed by the appellant at K728, 384. 62. It was submitted that aside from the order b -ing less paym nts made, it did not address the r nt that ought to have been collected by the respondent save for their own negligence. The record shows that the respondent acknowledged that it was its own fault that some rent was not collected as the appellant had no control of the property. Counsel urged us to consider the email at page 23 1 of the record of appeal and the partially reconciled statem nt at pages 232 to 246, which show that the respondent admitted that it ought to have collected rent and the amount according to their statement payable was ZMW 728,384.62 . The prayer was that the finding of the trial judge be reversed and in the alternative and/ or addition to grounds 1 and 2 th e judgment be J18 amended to take into account the admission by the respondent that it ought to have coUected the rents and that the sum due to it is ZMW 728,384. 62. Respondent's Arguments on Ground Two To counter ground 2, it was argued that the trial Judge was on firm ground when she disregarded the respondent's email which placed the debt at K728,384. 62 as it was disclosed to the appellant during excuria settlement and there was no evidence by the appellant of rent collected by the respondents. Further, the court below ordered for an updated statement of account to be prepared by the respondent and an assessment of sums due to the respondent, which assessment has been halted due to this appeal. As an assessment of the amount due has not yet taken place, counsel prayed that there is no need to vary the findings of the court below. Oral Submissions Both counsels' oral arguments were basically the same as the main arguments. J l9 OUR DECISION We have carefully considered the record of appeal as well as the arguments made on behalf of both parties. On ground one, the appellant has argued that the lower court erred in holding that the appellant had not discharged the burden of proving that the respondent had received a total sum of K556, 250.00 through collection of rent. That it is the respondent who bore the burden of accounting for all rents r eceived and that which ought to have been received. The respondent on the other hand contends that there was no evidence that the respondent collected the sum of K556 ,250 . 00 from the mortgaged property. The cases of Lackson Mwabi Mwanza v Sangwa and another 1 and Downsview Nominees Ltd and J. G Russell v First City Corp Ltd and First City Finance Ltd Co (new Zealand) 2 supra are informative on the duties of a mortgagee once he or she takes possession of a mortgaged property, which duties can be summarised as follows: J20 a) To account for not only what he has received during the time in possession, but also for what he ought to hav received under the mortgage deed but for his own fault or negligence. b) To take reasonable care of the mortgaged property; repair; he is also liable for waste; c) To use his power for the sole purpose of securing payments of the monies owed under the mortgage; d) To act in good faith e) Specific duties which equity imposes on a mortgagee 1n the exercise of the powers to go into possession. The undisputed facts are that the respondent took possession of the property on 3 rd June, 2011 and only releas d it to the purchaser Mr. Jam s Banda about four (4) y ars later on 31si: March, 2015. We accept th appellant's advocates arguments that durin° this period, the respondent had possession and control of the property. The respond nt had a duty to not only account for all the rent received during the period of possession but also for the rents which it ought to have received but for its own fault. Th burden was not on the appellant to prove how much money had been received during J21 that period even though the appellant claimed that a c rta.in a.mount as collected. In casu , it is clear from the evidence on record that the respondent did not give clear and detailed account of the rents r c ived or that hich ought to have been received. The respond n t did not even show that reasonable steps ere taken to issue warrants of distress, notices to quit, advertise for new tenants etc. If the lower court had prop rty directed itself, it would have made the same finding as above. The lo er court, therefore erred by finding that the appellant owed the respondent "the sum of Kl, 244,645.78 as at 31 st August 2015, less payments made" as that balance could not be ascertained without a detailed account of the monies rec iv d by the respondent and the amounts which ought to have been received from the mortgaged property. We ther -fore set aside the holding of the lower court that he appellant (mortgagor) had a dut to provide evidence that th respondent (mortgage ) collected rent amoun ting to ZMW 556,250.00. Instead we hold that the burden was on the respond nt J22 to account for all the rent received and that which it ought to have collected. We also set aside the finding that the amount due as at 3 1st August 2015 was ZMWl, 244, 645.78. The amount due as at 31 t August 2015, will be determined by the Registrar taking into account the foregoing and that it goes without saying that by law penal inter st is not allowed. For the foregoing reasons, we find merit in the first ground of appeal. As a result, the alternative ground becomes otiose. CONCLUSION All things considered, we find m rit in this appeal. Ground one succeeds on the basis that the law places a duty on a mortgagee who takes possession of the mortgaged property to account for all rent received and that which he ought to have been received during the p riod that he or she had possession of the mortgaged property, among other duties. Th duty to account for rent cannot b placed on the mortgagor who no longer has control of the mortgaged property. J23 Hence; we uphold the lower court 1s order that an updated statement of account be prepared by the respondent. In addition, the respondent must account for not only rent received and that which ought to have been collected but for the purchase price of the mortgag d property as well. We also uphold the lower court's order that, following the preparation of the statement of account 1 the parties should appear before the Registrar for reconciliation of th e loan account. Costs in this court are granted to the appellant, the same to be taxed in d fault of agr m nt. C. K. MAKUNG COURT OF APPEAL JUDGE K. MUZENGA COURT OF APPEAL JUDGE J24