KUDYA J: The plaintiff,
the Zimbabwe Development Bank, hereinafter referred to as the bank,
issued summons out of this court on 17 December 2004 seeking, against
the three defendants jointly and severally, the one paying the others
to be absolved, payment of $587,612,879.86 and interest thereon
capitalized monthly at 1% per day calculated from the date of issue
of summons to the date of full payment and costs of suit on a legal
practitioner scale and collection commission as provided for under
the Law Society of Zimbabwe By-laws 1982.
On 6 January 2005, the defendants entered appearance in which they
indicated that they had received the summons on 4 January 2005.
Ms Maphosa
for the plaintiff applied to amend the summons and declaration during
the plaintiff's cross-examination. She sought the deletion of the
claim of interest on the bank charges, and the substitution of the
payment of interest from the date of issue of summons by the date of
service of summons. The application was not opposed. It was
therefore granted.
In essence the plaintiff therefore seeks interest, from the date of
service of summons calculated at 1% per day to the date of full
payment, on the sum of $500 million.
The plaintiff called the evidence
of its credit controller, one Dumisani Sibanda and produced 3
documentary exhibits in a bid to prove its claim. The defendants
called the evidence of Betty Chiwaura the 3rd
defendant to counter the claim.
It was common cause that the
plaintiff is a company duly incorporated in accordance with the laws
of Zimbabwe and is a registered financial institution while the 1st
defendant is a company also duly incorporated in accordance with the
laws of Zimbabwe while the other two defendants who are mother and
daughter are directors of the 1st
defendant and sureties and co-principal debtors with 1st
defendant of the plaintiff.
On 22 March 2004, the 1st
defendant (the company) which was represented by the 3rd
defendant executed an Invoice Discounting Agreement Exhibit '1'
(the agreement) with the plaintiff. On the same date, the 2nd
and 3rd
defendants bound themselves jointly and severally with the 1st
defendant as sureties and co-principal debtors of the plaintiff.
It was common cause that before the execution of the present
agreement, the parties had executed three similar agreements which
had been discharged. The defendants were therefore alive to the
contents of exhibit '2, the General Conditions of the Invoice
Discounting Agreement, which consists of 32 conditions on three
pages, which governed the operation of the agreement.
On 24 March 2004, the plaintiff disbursed $250 million to the company
in terms of the agreement. Notwithstanding the fact that the
plaintiff averred in its declaration that the invoice discounting fee
in terms of the agreement was set at 25% of the capital sum
disbursed, the company corrected it in its plea by stating that the
25% per month was variable and would be compounded.
In its declaration, the bank had
stated that the company would repay the capital sum and interest, 60
days after the inception of the facility as a lump sum. The
defendants in their plea disputed the averment stating in turn that
repayment was in terms of paragraph 4 of the agreement. The
agreement referred to the general conditions of the agreement for
guidelines on the dates of repayment. Exhibit '2' however does
not give the duration of the agreement. In his testimony Sibanda
alleged that the agreement had a lifespan of 1 month, a fact which
was confirmed by 3rd
defendant in her evidence in chief. The agreement was therefore for a
duration of 30 days.
The defendants fell on hard circumstances and failed to meet their
obligations to the plaintiff.
At the pre-trial conference held on 8 September 2005, the defendants
admitted owing the plaintiff the aggregate sum of $500 million made
up of capital of $250 million and interest of $250 million. The
following issues were referred for determination:-
1. Whether or not the defendants are liable to pay to the plaintiff
bank charges in the sum of $87,612,879.86.
2. Whether or not defendants are liable to pay interest on both
capital and interest on $500 million from date of summons to date of
full payment.
3. Whether or not the defendants are liable to pay costs on an
attorney/client scale and collection commission.
I have chosen to word the issues in the manner in which they were
captured by the judge who presided over the pre-trial conference in
his handwritten notes in preference to the manner in which they are
captured in the joint pre-trial conference minute filed by the
parties on 13 September 2005. This is because the presiding judge's
minutes captured the essence of the defendant's plea which cast the
onus on the plaintiff to prove that the bank charges and interest
were due and in the event that they were due, to establish how they
arose and their arithmetical computation. The plea also joined issue
with the plaintiff on costs on a legal practitioner and client scale
and collection commission.
The evidence led by each witness which was in dispute will be
resolved as I determine the issues referred to trial by the parties.
WHETHER OR NOT THE DEFENDANTS ARE LIABLE TO PAY THE BANK CHARGES
IN THE SUM OF $87,612,879.86
In his testimony Sibanda stated that before the bank disbursed the
$250 million to the company it assessed and approved the application
made. The purpose of the loan was for the company to liquidate its
own debtor's invoices. The bank would benefit from the transaction
by charging an invoice discounting fee and a processing fee on the
total amount that was advanced. These two heads of fees were
collectively called bank charges. In the agreement they are referred
to as the discount rate and the processing fee.
These fees were levied at the rate of 25% or its variable rate and at
a fixed rate of 3.5% respectively. He explained in his evidence in
chief that on the date the agreement was executed by the parties the
discount rate was 25% per month variable (compounded). He stated this
meant that the life span of the transaction was 30 days and the
advanced loan attracted a rate of 25% or its variable equivalent. The
variable equivalent was a rate in tandem with the market rate
prevailing on each day of the 30 day period.
He produced exhibit '3, the in duplum schedule of the parties
transaction. The bank charges are represented by a figure of
$13,272,000.00 and $74,340,879.86. These were debited to the
company's account on 24 March 2004.
Sibanda explained that the discount rate is represented by
$74,340,879.86. He deduced that this amount represented 29.7% of the
capital sum loaned to the company.
That was the only fact THAT he was certain of.
He alleged further that it had been rounded off to 30%. A calculation
of the amount as a percentage of the capital sum shows that the rate
used was indeed 29.74%. Sibanda's suggestion that it was rounded
off to 30% was therefore incorrect. The discount rate together with
the processing fee would be paid together with the capital amount on
due date, of the 30 day account.
Even though Ms Maphosa
equated the discount rate to interest, it was apparent that though a
rate is used to determine it, it is not interest but a fee levied for
advancing the amount in question. The witness however admitted that
in layman's language the discount rate could be referred to as
interest on the loan.
Under cross-examination he was asked to explain the amount of
$74,340,879.86 and to highlight whether the rate used was higher or
lower than 25% per month. He stated that it was the higher rate of
29.7% which equated to the then current market rates then in use.
The bank charges, in his explanation, were due and payable within 30
days. He repeated his evidence-in-chief that in layman's language
the discount rate was interest which was charged on the loan within a
period of 30 days.
The witness failed to express himself clearly on the discount rate.
He confused himself by seeking to equate it with interest when it was
not interest. I however understood him to say that though this
discount rate was not interest, it was calculated in the same way as
interest. The discount rate is arrived at after 30 days. It is
determined by the average rate of the total rates prevailing over the
30 day period. In other words it is calculated daily and then
compounded at the end of the 30 day period.
The defendants sought clarification not only on how the rate which
was used (of 29.7%) was arrived at but on whether or not it was
accurate.
In my view this obliged the plaintiff to lead evidence on what each
rate was on each day of the 30 day period and then demonstrate how
the rate which resulted in the sum of $74,340,879.86 was arrived at.
Sibanda failed to do so. His failure to lead such evidence was not
cured by the defendants' failure to lead evidence on what the
correct rate was. The onus lay on the plaintiff to do so, and not on
the defendants.
It emerged as the 3rd
defendant was being cross-examined that the rate could even have gone
below 25%. It was also clear from her testimony that even though the
method of calculating the discount rate was explained to her she did
not understand the explanation.
Mr Mudhara
for the defendants submitted that the defendants could be liable for
the discount rate calculated at 25% per month of $62,500,000.00.
I did not take this as a concession.
The plaintiff still had the duty to prove that the discount rate was
25% regard being had to the fact that it could move to below that
percentage.
In his testimony Sibanda
explained that the $13,272,000.00 represented the processing fee
calculated at the rate of 3.5% of the capital amount. He conceded
during cross-examination that 3.5% of the capital amount was
$8,750,000.00. This concession drove the plaintiff to seek to amend
that figure on its in
duplum
schedule and to reduce its bank charges to an aggregate figure of
$83,090,879.86.
It seems to me that the plaintiff has not shown that it is entitled
to the discount rate in the sum of $74,340,879.86. I would grant it
absolution from the instance on that figure.
I am however satisfied that the plaintiff proved that it is entitled
to claim $8,750,000 as bank charges, representing the processing fee.
WHETHER OR NOT THE DEFENDANTS
ARE LIABLE TO PAY INTEREST ON BOTH CAPITAL AND INTEREST ON THE SUM
OF $500 MILLION FROM THE DATE OF SUMMONS TO THE DATE OF FULL PAYMENT
The second issue deals with the
question of when interest commences to run after reaching the in
duplum level, that is,
whether it commences to run from the date of the service of summons
or from the date of judgment.
Ms Maphosa
for the plaintiff contended that it commences to run from the service
of summons, while Mr Mudhara
was of a contrary view, submitting that it starts to run from the
date of judgment.
The plaintiff's witness,
Sibanda in his testimony stated that the bank was entitled to
interest beyond in
duplum because the
money owed to the bank remained an outstanding cost to the bank as
the bank finances this expense from the bank's own reserves from
which it should be earning further income.
The in
duplum rule remains
part of our law. See:-
1. Commercial Bank of Zimbabwe Ltd v MM Builders and Suppliers (Pvt)
Ltd and Others 1996 (2) ZLR 420 (H) at 441E.
2. Georgias & Anor v Standard Chartered Finance Zimbabwe Ltd 1998
(2) ZLR 488 (S).
3. Ehlers v Standard Chartered Bank Zimbabwe Ltd 2000 (1) ZLR 136 (H)
at 137E.
4. Conforce (Pvt) Ltd v City of Harare 2000 (1) ZLR 445 (H).
It is also firmly entrenched in the South African Law. See;
1. LTA Construction Bpk v Administrator Transvaal 1992 (1) SA 473 (A)
at 482B-D.
2. Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd 1995 (4)
SA 511 at 560.
3. Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd 1998 (1)
SA 811 (SCA) at 827H.
In the South African Supreme
Court of Appeal case of Standard Bank supra
at 827H ZULMAN JA stated:
“It is undoubtedly part of our
law. It provides that interest stops running when the unpaid interest
equals the outstanding capital. When due to payment interest drops
below the outstanding capital, interest again begins to run until it
once again equals that amount.”
In Zimbabwe GILLESPIE J, with the
concurrence of SMITH and BLACKIE JJ in the Commercial
Bank of Zimbabwe case supra
at 441E stated:
“In conclusion, the result of
this investigation is such as to persuade me that it is a principle
firmly entrenched in our law that interest, whether it accrues as
simple or as compound interest, ceases to accumulate upon any amount
of capital owing, whether the debt arises as a result of a financial
loan or out of any contract whereby the capital sum is payable
together with interest thereon at a determined rate, once the accrued
interest attains the amount of capital outstanding.”
The issue that confronts me relates to whether or not after the
double is reached, interest commences to run afresh, and if so at
which stage and on which amount.
GILLESPIE J in the CBZ
case supra at 441E-F
confirms that interest starts to run again and it does so from the
date of judgment. He states:-
“Upon judgment being given
interest on the full amount of the judgment debt commences to run
afresh but will once again cease to accrue when it waxes to the
amount of the judgment debt, being the capital and interest thereon
for which the cause of action was instituted.”
Mr Mudhara
urged me to follow the CBZ
case, supra
on the basis that it is highly persuasive as it was a decision of a
three-judge panel of this court. Ms Maphosa
on the other hand submitted that I should follow the persuasive
authority of the Supreme Court of Appeal in South Africa in the
Standard Bank case, supra.
She submitted that it overturned the earlier decision of SELKOWITZ J
in the Cape Provincial Division, which decision she contended
GILLESPIE J had followed. She referred to the local case of Ehlers
supra, in which MALABA
J came to a conclusion contrary to that of GILLESPIE et
al.
Ehler's
case
was an application for condonation co-joined with an application for
a partial rescission of a default judgment. Ehlers
submitted that he had prospects of success on appeal as the interest
that had been levied on him which was confirmed by the default
judgment ran foul of the in
duplum rule.
MALABA J dismissed both
applications holding that there were no prospects of success against
the default judgment as Ehler
was not only in willful default but had no prospects of success as
interest in excess of the double commenced to run again on the date
of service of the summons. At page 139G-140B he stated:-
“The learned judges preferred
the view that interest only commences to run anew as from the date of
judgment. I must, with respect, express my dissent from the decision
in Commercial Bank of
Zimbabwe's Case supra
on the date on which interest commences to run afresh in a case where
the in
duplum
rule applies. This view of the law does not give effect to the policy
behind the in duplum
rule, nor does it recognize the discretion enjoyed by the court in
the matter. In Georgias
& Anor v Standard Chartered Finance Zimbabwe Ltd
1998 (2) ZLR 488 (S) at 495D GUBBAY CJ said that the in
duplum rule is based
upon a public policy designed to protect borrowers from the
exploitation of lenders by prohibiting usurious abuse. The principle
that interest commence to run afresh from the date of litis
contestatio, which in
this case is the date of service of summons is based upon the
recognition of the fact that from that date the creditor ceases to be
in control of the process by which interest accumulates.”
The learned judge dissented from
GILLESPIE J's decision on the basis that levying interest from the
date of judgment did not give effect to the public interest sought to
be protected by the in duplum
rule and secondly that making it an immutable rule cast in stone
tended to deprive judges of their discretion in the matter.
In my view, he did not hold that
in all matters involving interest above the double that interest
starts to run after the date of service of summons. The date of
service of summons in Ehlers
case was the date on
which the parties were deemed to have joined issue (litis
contestatio). Litis
contestatio is reached
at the time that pleadings are closed. Ehler's
case therefore does
not support Miss Maphosa's
contention.
The effect of ZULMAN JA's decision in the Standard Bank case was to
order interest to run from the date of service of summons, (the 26
November 1990 in that case). The learned judge of appeal was in no
measure influenced in arriving at his decision by the delay in
concluding the matter before him which had started in 1990. He held
that public policy considerations would not favour the debtor who
kept the creditor who had timeously instituted recovery but was
frustrated by delays endemic in the legal system out of his money
when interest is the lifeblood of finance in modern times. It was his
conclusion that such a creditor could not be held to have exploited
the debtor.
The conclusion of ZULMAN JA, with
respect, is difficult to follow, and appears out of sync with his
reasoning on the entrenchment of the in
duplum rule in our
law.
He recognized that it was part of
our law (at 827H). He accepted that interest did not lose its
identity whatever label it was given (at 828-I to 829-A). He
recognized that the rule in Clayton's
case as to
appropriation is a presumption of fact (831E). Thus far the learned
judge of appeal acknowledges the in
duplum rule.
It is difficult to reconcile the learned judge's conclusion with
the opinion he states on page 832H. He poses the question:
“If during the course of
litigation the double is reached, whether interest stops running and
only begins to run again once judgment is pronounced.”
His preliminary response to that rhetorical question is that:-
“There is no dispute that in
this case the bank is entitled to interest as from the date of
judgment at the agreed rate and in spite of the double having been
reached.”
The difficulty presents itself
further when the learned judge surveys commentaries of Van
der Keessel, Scheltinga, Van Bynkershoek, Huber, Ganes
translations from Huber
to Carpzovius and Sande.
This survey resulted in the finding that a judgment cannot and does
not novate the original debt.
The effect of the conclusion
resulted, with respect, in the proverbial throwing away of the baby
with the bath water. It undermined the in
duplum rule and made
it irrevelant especially on the basis of unproven suspicions that in
the olden times legal interests were low. The suggestion begged the
question of the necessity of introducing such a rule of law as the in
duplum. If necessity
is the mother of invention, clearly the rule came into being because
at some point in our dim past, hyperinflation must have reared its
ugly head.
I decline to follow the Supreme
Court of Appeal decision in South Africa not only for the reason that
it undermines before judgment, the in
duplum rule but also
because on the facts it is distinguishable from the case before me.
In Standard
Bank case, supra,
on the facts interest reached the double after litigation had
commenced. In the present matter it did so before litigation had
started. The factual situation which therefore confronted the Supreme
Court of Appeal in South Africa is distinguishable from the facts in
the present matter. Indeed the learned judge of appeal's parting
remarks at page 834G-H appear to recognize that in cases such as the
present one, interest commences to run after judgment.
Miss Maphosa's
contention as to when interest should again commence to run after the
double cannot as I have demonstrated be based on Ehlers
case, nor can it be
based on the Supreme Court of Appeal of South Africa's decision.
If however it could be so based, I would distinguish the basis on
which those decisions were made with the present matter. It is on the
following basis.
In Georgias
and Anor supra, GUBBAY
CJ at 497A-B, approved the sentiments of GILLESPIE J in the CBZ's
case supra. He stated
as follows:-
“Reverting to the
considerations behind the in
duplum rule, they are
correctly summarised and stated to be based on:
“a policy to protect a debtor
who has not serviced his loan from facing an unconscionable claim for
accumulated interest and to enforce sound fiscal discipline upon a
creditor.”
Per GILLESPIE J in Commercial Bank of Zimbabwe case at 465G.
Thus there are two main objectives:-
(a) protection of a debtor
against exploitation; and
(b) enforcement of a sound fiscal
discipline on a creditor.
It follows that as waiver of the
in duplum
rule in advance cannot be sanctioned, for to do so would defeat these
two objectives.”
In coming to the decisions they
did, MALABA J and ZULMAN JA supra, did not with respect, consider the
desire to enforce a sound fiscal discipline on the creditor. Neither
did they consider the unconscionable aspect of discarding the in
duplum rule.
I find comfort in the remarks of
CHINHENGO J in the Conforce
case, supra
at page 457B-D. At page 458A-F he noted:-
“I venture to say that the
public interest served by the in
duplum rule is not
identified with sympathy for the debtor, so as to protect him. I view
the public interest involved as encompassing a wider spectrum of
interests, from the protection of the debtor to securing fiscal
discipline on the part of lenders to considerations of justification
for charging interest in the first place i.e. to compensate the
creditor for deprivation of use of the money due until payment
(Mawere v Mukura
1997 (2) ZLR 361(H) at 364G) and to the interests of commerce
generally and perhaps many more interests. Thus the public interest
cannot be restricted to one or two considerations i.e. the protection
of the debtor and the dictates of modern commerce. But even if it
were so restricted, I cannot see anything incompatible with the rule
serving those interests if it were applied in the manner advocated
for in MM Builders
case. The creditor's
claim for interest would be limited to an amount that does exceed the
capital. In my view, the danger in adopting the approach in Oneanate
and Ehlers cases supra
is that an unscrupulous creditor only has to institute action to
defeat the in duplum
rule. He may so act
as to ensure that the institution of proceedings and the attainment
of the double coincide with the result that the rule is rendered
inoperative. I do not see anything that is against the public
interest or the interest of modern finance, if the in
duplum rule operates
in the manner outlined by GILLESPIE J and the old Roman Dutch
authorities which espouse the view that once the double has been
reached, interest must stop to run regardless of the institution of
proceedings or that the stage of litis
contestatio has been
reached. Where in particular the double has not been reached, I find
no relevance at all of the event of institution of proceedings.
Interest must continue to run until it equates to the capital amount
soon after or long after the institution of proceedings, but that is
immaterial. I am therefore unpersuaded by the conclusion reached on
this point in Oneanate
and Ehlers cases. I
must respectfully express my dissent from those judgments.”
I associate myself with these views so ably expressed by CHINHENGO J.
It does not appear to me that the
plaintiff in the present matter has even began to discharge the onus
on him on a balance of probability to circumvent the in
duplum rule. It does
not appear to me that it can be circumvented.
In the premises I hold that interest on the sum $500 million dollars
in casu can only commence from the date of judgment.
WHETHER OR NOT THE DEFENDANTS ARE LIABLE TO PAY COSTS ON AN
ATTORNEY/CLIENT SCALE AND COLLECTION COMMISSION
Clause 2 of Part 1 of the General condition of the Invoice
Discounting Agreement reads:-
“Unless stated otherwise, this
Invoice Discounting Agreement provides for a maximum amount of
confirmed orders, advance payment amount, and discount rate together
with additional interest levied on past due amounts, processing fees
and costs relating to the enforcement of this agreement, recovery of
charges incurred or paid by ZDB for legal, accounting, audit,
consultancy or monitoring services where applicable.”
It was submitted by the plaintiff that this clause obliged the
defendants to pay Attorney and Client costs as apprised to party and
party costs. Sibanda in his testimony alleged that the defendants
were opposed that they would pay the actual costs expended by the
plaintiff in enforcing the agreement. This was disputed by the
defendants.
The onus was on the plaintiff to show that clause 2 referred to
Attorney and Client costs. This was because it was the plaintiff who
made that allegation.
The clause does not on the face
of it use the words Attorney and Client costs. There are two types
of legal costs. These are Attorney and Client and party and party.
The use of the words costs, charges incurred or paid may relate to
either Attorney/Client costs party and party costs. The contra
preferentum rule
penalizes the author of a contract by having it interpreted against
him if it is ambiguous. Clearly the plaintiff could easily have made
its intention apparent by specifying that it would seek Attorney and
Client costs. The ambiguity in the expressions favour the defendant's
position.
Thus while it is clear that
parties to a contract can agree on the inclusion of Attorney and
Client costs, see INNES CJ in Texas
Co. S.A. Ltd v Cape Town Municipality
1926 AD 467 at 485, the stipulation must be clear.
In the present matter it is not.
Contractually stipulated Attorney
and Client costs are not punitive costs in the sense highlighted in
Van Dyk v Conradie and
Anor 1963 (2) SA 413.
I hold that in the present matter the plaintiff has failed to satisfy
me that the agreement contemplated Attorney and Client costs.
The plaintiff also sought to use clause 5 of part 1 of the General
Conditions to found the claim for collection commission. The clause
reads:-
“When applying receipts to
amounts due priority is given to collection charges, invoice discount
charges, other fees, interest and principal in that order until the
debt is discharged.”
It
is apparent from the decision in Scotfin Ltd v Ngomahuru (Pvt) Ltd
1997 (2) ZLR 567 (H) that the plaintiff cannot recover collection
commission, unless it demonstrates that the defendant agreed to pay
it.
It becomes doubly difficult to claim collection commission together
with Attorney and Client costs without laying out proof that the
collection commission was paid or incurred. Clause 5 in my view dealt
with appropriation of funds paid in general. Collection commission
was not covered in the agreement itself. The plaintiff did not show
that the defendants agreed to pay it.
The plaintiff cannot resort to
Part IX of the Law Society Rules of 1982. They do not sanction
collection commission for the payment of a debt secured through
contested action.
It seems to me therefore that the plaintiff's claim for collection
commission cannot succeed.
COSTS
The issues referred to trial have all been decided against the
plaintiff. The trial was necessitated by the plaintiff's decision
to pursue claims for which it has failed to prove. In the same token
the defendants did not tender payment of the $500 million that they
admitted owing. For that reason, even though they had succeeded, I
will order them to pay the plaintiff's costs on the ordinary scale.
DISPOSITION
It is accordingly ordered that:
1. The defendants jointly and
severally the one paying the others to be absolved shall pay to the
plaintiff:
(a) The sum of $500,000,000.00
together with interest thereon calculated at the rate of 1% per day
from the date of judgment to the date of payment in full.
(b) Bank charges in the sum of
$8,750,000.00.
(c) Costs of suit.
Sawyer and Mkushi, the plaintiff's legal practitioners
TH Chitapi & Associates, the defendant's legal
practitioners
