Stanbic Bank Limited v Mulukuma Sakala (HPC 188 of 2014) [2016] ZMHC 64 (12 February 2016)

IN THE HIGH COURT FOR ZAMBIA AT THE COMMERCIAL REGISTRY HOLDEN AT LUSAKA (Civil Jurisdiction) 20l4/HPC/0188 Property comprised to Stand No. 183, Chilanga, in Certificate of Title relating In the matter of: BETWEEN: STANBIC BANK ZAMBIA LIMIT AND MULUKUMA SAKALA Lusaka APPLICANT RESPONDENT BEFORE HaN. MADAM JUSTICE PRISCA MATIMBA NYAMBE, SC AT LUSAKA IN CHAMBERS For the Applicant: Mr. A. Siwila Mambwe Siwila & Lisimba Advocates For the Respondent: Mr. S Imasiku Imasiku & Company JUDGMENT Legislation referred to: 1. Order 30 Rule 14 of the High Court Rules Cap 27 of the Laws of Zambia 2. Section 4 of the Law Reform (Miscellaneous Provisions) Act, Cap 74 of the Laws of Zambia 3. Black's Law Dictionary, Seventh Edition Cases referred to: 1. Union Bank (Zambia) Ltd. Vs Southern Province Co-operative Marketing Union Ltd. This is an application brought by the Applicant pursuant to Order 30 Rule 14 of the High Court Rules Cap 27 of the Laws of Zambia filed on 25th April 2014. The application is supported by an affidavit, and skeleton arguments of even date. Mr. Siwila for the Applicant submitted that there was no defence to the claim. Mr. Imasiku for the Respondent submitted that no affidavit in opposition had been filed. He requested the Court to grant the Respondent the maximum possible time within which to repay the Loan. He suggested that the Court could grant the Respondent 120 days within which to repay the Loan. Mr. Siwila for the Applicant thought that 120 days was too much. On the basis of submissions by both Counsel, it is clear that the Respondent is indebted to the Applicant, and the Respondent has admitted his indebtedness. In principle therefore the Application succeeds. However I note that the Interest Clause (5:1.3) stipulates that Interest payable under this Offer Letter will: J2 (a)be calculated on the basis of a 365 (Three Hundred and Sixty Five) day year irrespective of whether or not the year in question is a leap year or not; (b)be calculated on the daily balance owing under the Loan; (c)accrue from day to day; (d)be debited to your loan account monthly in arrears; (e)be compounded monthly. The compounding of interest contravenes Section 4 of the Law Reform (Miscellaneous Provisions) Act, Cap 74 of the Laws of Zambial , which prohibits the charging of interest upon interest. Further in the case of Union Bank (Zambia) Ltd. Vs Southern Province Co- operative Marketing Union Ltd.2 the Supreme Court has held that: "Penal Interest custom in Zambia and, even if there had been an agreement is certainly not part of banking practice or to pay penal interest, such would have been liable to be struck down for being a penalty objectionable at common law". there shall be included in the sum for which Judgment tried in any Court of record for the recovery of any debt or damages, 1 Section 4 "In any proceedings fit, order that the whale or any part of the debt or damages for the whale or any part of the period between couse of action arose and the date of Judgment. Provided nothing in this Section (I) shall authorize the giving of interest upon interest... the Court may if it thinks is given interest at such rate as it thinks fit an the date when the of the Law Reform (Miscellaneous Provisions) Act, Cap 74 of the Laws of Zambia 2 Union Bank (Zambia) Ltd. Vs Southern Province Co-operative Marketing Union Ltd. J3 Further, by definition compound interest is penal interest. Black's Law Dictionary, Seventh Edition defines compound interest as: "Interest paid on both the principal and the previously accumulated interest". Therefore penal interest and/ or compound interest is not authorized and contrary to provisions of Section 4 of The Law Reform (Miscellaneous Provisions) Act and the Union Bank case. Proper Banking practice and custom allows interest to accrue only on the principal balance regardless of how often it is paid. In Banking Palance it is termed as straight-line interest or simple interest. In view of the above authorities, I struck down Clause 5.1.3 as being illegal, unconscionable and a penalty objectionable at common law, and unenforceable. In its place, interest rate in this case shall be charged as provided for in Clause 5.1.1 i.e. interest on the loan shall be charged at the Bank's Local Lending Currency Base Rate, prevailing at the time when the loan was advanced, minus 2% per annum, which as at that time was 19% per annum. I note that this was a House Loan Facility, i.e. a Home Loan. Compounding of interest always escalates the principal loan to unmanageable levels, making it difficult or impossible to liquidate. Banks are supposed to grow their customers and in turn the economy of the country in which they operate. Compounding of interest inevitably leads the borrower into default and does not grow its customer base. Such a Bank/Financial Institution contributes nothing to the growth of the economy. In consideration of the conducive environment in the Banks/Financial Institutions conduct their business and J4 . . prosper, they in turn they ought to contribute to the growth of the economy by growing their customer base. With the above in view I order as foIlows:- 1. I enter Judgment in favour of the Applicant on the principal sum advanced to the Respondent, still outstanding, with interest as provided for in Clause 5.1.1 of the Loan Facility from the date of the Cause of action till final settle men t. 2. As this is a Home Loan, the Respondent shall settle the Judgment Debt with interest as above within twelve (12) months from the date of Judgment. In default the Applicant shall be at liberty to exercise its power to Foreclose/Sale the Mortgaged Property being Stand No. 183, Chilanga, Lusaka without further Court Order. 3. Costs shall follow the Cause and are awarded to the Applicant, to be taxed in default of agreement. Right to Appeal granted. Dated thiS .c~.r~..daY of .h?: .................................. Prisca M. Nyambe, SC JUDGE J5 I