This is an appeal against the whole judgment of the High Court (court a quo) dated 18 October 2018. The court a quo granted an application for absolution from the instance made jointly by the respondents, granted claims in reconvention, and ordered the appellant to pay costs of the counterclaims on a legal practitioner and client scale.
The court a quo erred in this regard and the appellant was correctly aggrieved by the judgment of the court a quo.
There is no evidence in the record that the first, third, fourth, fifth, sixth, and seventh respondents (Formscaff (Pvt) Ltd, Rodney Callaghan, Millicent Callaghan, Charles Cannings, Clifford Johnson and Lesley Bennet) had filed counterclaims and the court a quo erred in granting counter claims that were not before the court.
Although the second respondent was properly before the court a quo, the requirements for the grant of absolution from the instance were not met.
Accordingly, the judgment must be vacated. I set out hereunder the reasons for this finding.
BACKGROUND FACTS
The appellant is a registered commercial bank operating in Zimbabwe. The first respondent is a private company registered in accordance with the laws of Zimbabwe. The third to seventh respondents (Rodney Callaghan, Millicent Callaghan, Charles Cannings, Clifford Johnson and Lesley Bennet) are private individuals who bound themselves as sureties and co-principal debtors in respect of a loan granted to the first respondent. The second respondent is a private limited company duly incorporated in Zimbabwe.
The appellant issued summons against the respondents on 13 March 2017 for the payment of US$368,706=62 being capital and US$20,654=10 being interest on the sum of US$368,706=62 at the rate of 18% per annum, which rate was subject to change from time to time, with effect from 26 November 2016 to date of payment in full and costs of suit on a legal practitioner and client scale.
At the commencement of trial, by consent of the parties, the claim was amended to read as follows:
“(i) By deletion of the capital amount of US$368,706=62 and the substitution thereof with the amount of US$361,034=23.
(ii) By deletion of the interest amount of US$20,654=10 and the substitution thereof with the amount US$28,246=49.”
The total amount claimed by the appellant amounted to US$389,362=72.
In its particulars of claim, the appellant averred that in or around November 2015, the appellant and the first respondent entered into an agreement in terms of which the appellant extended to the first respondent a loan for the sum of US$373,000.
The loan was accessed through the first respondent's operating account and was for the purpose of assisting the first respondent in financing its working capital requirements.
Interest was to accrue on the facility at the rate of 12% per annum subject to change from time to time and 18% per annum in the event of default by the first respondent in making due and punctual payment of any instalment.
The loan advanced was repayable to the appellant as follows:
“(a) US$2,000 on the 30th November 2015;
(b) US$1,500 on the 30th December 2015;
(c) US$2,000 on the 30th January 2016; and thereafter
US$15,200 per month with effect from the 28th of February 2016 until full payment.”
It was a term of the agreement, that, in the event of the first respondent defaulting in making due and punctual payment of any instalment, the total outstanding amount would immediately become due and payable.
The second, third, fourth, fifth, sixth and seventh respondents (Penniwill (Pvt) Ltd, Rodney Callaghan, Millicent Callaghan, Charles Cannings, Clifford Johnson and Lesley Bennet) bound themselves jointly and severally as sureties and co-principal debtors with the first respondent for payment of any and all monies due to the appellant.
The respondents defaulted in making due payment of the loan under the agreement giving rise to the total outstanding amount claimed by the appellant of US$389,362=72.
All the respondents jointly entered an appearance to defend, and, in their plea, denied that the amount claimed by the appellant arose from the agreement dated 2 November 2015.
The first respondent denied owing the appellant any money as it argued that the loan advanced through the loan agreement was repaid in full on the 30th of December 2015. The first respondent further denied owing the appellant any interest under the loan facility and maintained that the appellant actually recovered more interest from it than was lawfully due.
The second to the seventh respondents (Penniwill (Pvt) Ltd, Rodney Callaghan, Millicent Callaghan, Charles Cannings, Clifford Johnson and Lesley Bennet) averred that all the suretyship deeds held by the appellant were void for vagueness as they covered an unlimited liability. They contended, that, a suretyship deed must contain a limit in monetary terms so as to be valid.
The second respondent (Penniwill (Pvt) Ltd) averred that the deed of suretyship between it and the appellant was void as it was not authorised by its Board of Directors.
The first respondent (Formscaff (Pvt) Ltd) further stated, that, the acknowledgment of debt executed by it in favour of the appellant was unenforceable as it was not signed by its representatives.
The second respondent (Penniwill (Pvt) Ltd) also averred, that, it never authorised the registration of a mortgage bond in favour of the appellant over its property known as Subdivision A of Subdivision H of N'Thaba of Glen Lorne situate in the District of Salisbury held under Deed of Transfer number 1998/95 ('the property').
Together with its plea, the second respondent (Penniwill (Pvt) Ltd) filed a claim in reconvention against the appellant and averred, that, the appellant fraudulently procured a suretyship and mortgage bond in its favour over the second respondent's property. The second respondent prayed that the suretyship deed and mortgage bond be cancelled.
The appellant entered a plea against the claim in reconvention and denied all the averments made by the respondents.
On 30 May 2017, the third to seventh respondents (Rodney Callaghan, Millicent Callaghan, Charles Cannings, Clifford Johnson and Lesley Bennet) indicated their intention to apply to amend their pleas and file a claim in reconvention at the pre-trial conference.
The amendments sought alleged that all the respondents purported suretyships had expired by effluxion of time, having been signed more than three years before the loan was granted. It was also averred, that, the suretyships were in contravention of section 12 of the Moneylending and Rates of Interest Act [Chapter 14:14] ('the Moneylending Act') and, as such, were invalid and unenforceable.
In the proposed claim in reconvention, the third to seventh respondents sought an order that their respective suretyships be declared null and void.
The second, third and fourth respondents (Penniwill (Pvt) Ltd, Rodney Callaghan and Millicent Callaghan) prayed that the mortgage bonds in their names be cancelled.
There is, however, no evidence in the record that the amendment was ever granted at the pre-trial conference or at the trial.
On 27 July 2017, the parties signed a Joint Pre-Trial Conference Minute and the issues for determination by the court a quo were stated as follows:
“1. Whether 2nd, 3rd, 4th, 5th, 6th, and 7th Defendants Deeds of Suretyship are valid and enforceable.
2. Whether 2nd Defendant's 1st and 2nd Mortgage Bonds (numbers 1557/13 and 1656/13) in favour of Plaintiff are valid and enforceable or whether they should be cancelled.
3.Whether 1st Defendant is indebted to Plaintiff under the Loan Agreement dated 2 November 2015 in the sums of US$368,706=62 as capital and US$20,654=10 as interest, and, was there novation or termination of the loan agreement.
4. Whether 1st, 2nd, 3rd, 4th, 5th, 6th and 7th Defendants, jointly and severally, one paying the others to be absolved, are indebted to Plaintiff as alleged or at all.”
At the trial, the appellant led evidence through two witnesses, namely, Mr. C. Gunundu (Gunundu) the appellant's Account Relationship Manager and Mr. V.S. Nyangulu (Nyangulu) a registered legal practitioner and conveyancer.
Mr. C. Gunundu testified, that, the appellant and the first respondent had a long business history spanning many years. They agreed that the Bank would advance a loan to the first respondent which loan would, in turn, re-finance the existing loan already held by the first respondent.
He further testified, that, the first respondent and its sureties had failed on numerous occasions to fulfil the loan obligations which it owed to the appellant. The new arrangement was meant to assist the respondents.
Gunundu maintained, that, the surety deeds and mortgage bonds made by the second to seventh respondents (Penniwill (Pvt) Ltd, Rodney Callaghan, Millicent Callaghan, Charles Cannings, Clifford Johnson and Lesley Bennet) in the appellant's favour were all valid and properly constituted. He further maintained, that, the sureties were open and unlimited, and, as such, covered all the money obtained through loans by the first respondent from the appellant.
The second witness, Mr. V.S. Nyangulu, testified that the mortgage bonds he registered on behalf of the second respondent (Penniwill (Pvt) Ltd) in favour of the appellant were valid and were registered after due process and Board resolutions had been passed.
At the close of the appellant's case, the first to seventh respondents (Formscaff (Pvt) Ltd, Penniwill (Pvt) Ltd, Rodney Callaghan, Millicent Callaghan, Charles Cannings, Clifford Johnson and Lesley Bennet) made an application for absolution from the instance.
In making the application, the first and third to seventh respondents (Formscaff (Pvt) Ltd, Rodney Callaghan, Millicent Callaghan, Charles Cannings, Clifford Johnson and Lesley Bennet) averred that the appellant sued the respondents on a cause of action which had already been discharged on 31 December 2015.
They also alleged that their sureties were not valid.
In making its application, the second respondent (Penniwill (Pvt) Ltd) averred that the appellant failed to prove a valid cause of action that the mortgage bonds against its property, registered in favour of the appellant, were valid.
In response to the applications for absolution from the instance, the appellant argued that the applications were frivolous.
It vehemently denied receiving any payment from the first respondent in repayment of the loan. It also maintained that all the documents in respect of the security for the loan were valid and that the obligation of the sureties had not been extinguished by prescription or on any other basis.
The court a quo, in dealing with the matter, found that the appellant's first witness Mr. C. Gunundu (Gunundu) was not a credible witness and that he contradicted himself on material issues.
The court further found, that, the appellant failed to prove a prima facie case against the respondents.
The court went on to find, that, the first respondent repaid the loan of US$350,000 on 31 December 2015 as evidenced by the appellant's own books of account and statements.
The court a quo also found, that, the suretyships made in favour of the appellant by the second to seventh respondents were invalid and unenforceable as they were not in compliance with section 12 of the Moneylending and Rates of Interest Act. Further, that, the sureties did not relate to the 2 November 2015 loan facility, and, as such, could not be relied upon by the appellant in making a cause of action for the repayment of a loan under that facility.
The court a quo further held, that, the mortgage bonds executed in the second respondent's name were invalid as they were not made in compliance with the law and that the sureties and mortgage bonds could not be held to have an unlimited clause to their operation as such a clause was contrary to public policy.
The court concluded, that, as the appellant had failed to prove a prima facie case against the respondents, the respondents claims in reconvention had merit and that there was no need to put the respondents to their defence.
In the result, the court made the following order:
“1. The application for absolution from the instance, made by the defendants, succeeds with costs.
2. The surety ships (sic) in favour of the plaintiff entered into by 2nd, 3rd, 4th, 5th, 6th and 7th defendant and plaintiff be and are hereby cancelled.
3. The mortgage bonds passed by 2nd, 3rd and 4th defendants in favour of plaintiff, namely, Numbers 2416/2011, 4889/2011, 1557/2013 and 1656/2013 be and are hereby cancelled.
4. The plaintiff to pay costs of counterclaim to the defendants on attorney-client scale.”
Dissatisfied with the decision of the court a quo, the appellant noted the present appeal on the following grounds of appeal:
“1. The court a quo erred in holding that any amounts which were due to Appellant under the agreement dated 2 November 2015 were repaid in full and that Plaintiff sued on a cause of action that was discharged in full on the 30th of December 2015, in so doing, the court a quo failed to appreciate that the agreement (dated 2 November 2015) was entered into to enable the 1st respondent to settle previously existing debts.
1.1 The court a quo erred in strictly evaluating and rejecting the appellant's evidence and effectively demanding of it more than a prima facie (sic) as if it had (sic) evidence from defendants.
1.2 The court a quo erred in granting respondents 1, 3 to 7 counter-claims which were not before it.
1.3 The court a quo erred in granting the counterclaims by respondents 1, 3 to 7 when those respondents had not moved it to grant same as at that stage.
1.4 The court a quo erred in itself cancelling the parties agreements when it was not a party thereto and in violation of the sanctity thereof.
2. The court a quo erred in holding that:
(a) The Suretyship agreements executed by 2nd, 3rd, 4th, 5th, 6th and 7th Respondents did not relate to the agreement dated 2 November 2015, and that neither did they cover any amounts due thereunder.
(b) The Suretyship agreements had prescribed. In so holding, the court a quo grossly failed to appreciate that, at law, a Surety's obligations only arise upon demand.
(c) The 2nd, 3rd, 4th, 5th, 6th and 7th Respondents were released from their Suretyship due to material variation of the principal obligation, when this was not pleaded and no evidence proving actual prejudice was placed.
(d) That 2nd, 3rd, 4th, 5th, 6th and 7th Respondents suretyship agreements were void for being contrary to public policy.
3. In agreeing with 2nd, 3rd, 4th, 5th, 6th and 7th Respondents entire submissions on the application for absolution from the instance, the court a quo grossly erred in holding 2nd to 7th Respondents averment that the suretyship agreements are invalid for violation of Section 12 of the Money Lending (sic) and Rates of Interest Act [Chapter 14:14].
4. The court a quo erred in holding that the Mortgage Bond passed by 2nd Respondent, and 3rd and 4th Respondents are invalid and grossly failed to appreciate, that, at law, the Mortgage Bonds are valid as an instrument of both debt and hypothecation.
5. Consequent to the gross misdirection referred to in Paragraph 1, 2, 3 and 4 above, the court a quo erred in granting 1st to 7th Respondents application for absolution from the instance and entering Judgment in favour of Respondents as per their claim in reconvention for cancellation of the suretyship agreements and Mortgage Bonds.
6. The court a quo erred in awarding costs against Appellant in respect of the Respondents claim in reconvention on a higher scale, when there was no legal basis for so doing.”
PROCEEDINGS BEFORE THIS COURT
Counsel for the second respondent (Penniwill (Pvt) Ltd) raised a preliminary point to the effect, that, the Notice of Appeal was fatally defective and incapable of amendment.
On the other hand, counsel for the appellant made an application to amend the appellant's grounds of appeal and relief sought. In making the application, counsel argued that he was raising legal issues which would not prejudice the respondents.
Counsel for the first, third to seventh respondents (Formscaff (Pvt) Ltd, Rodney Callaghan, Millicent Callaghan, Charles Cannings, Clifford Johnson and Lesley Bennet) agreed with counsel for the second respondent (Penniwill (Pvt) Ltd) who opposed the application for the amendment and argued that the notice of appeal was not in compliance with Rule 37(1)(d) as read with Rule 44 of the Supreme Court Rules 2018 ('the Supreme Court Rules') in that the grounds of appeal were not clear and concise.
Counsel argued, that, the second ground of appeal was invalid as it was vague.
He also submitted that the grounds of appeal attacked all the findings of the court a quo which rendered the notice of appeal fatally defective.
As indicated above, counsel for the second respondent raised a preliminary point to the effect, that, the appellant's grounds of appeal were not clear and concise and sought a striking off of the appeal.
He further submitted, that, the relief sought by the appellant was defective as it did not pray for a remittal of the matter for continuation of the trial on the merits of the matter in the event that the appeal succeeds.
Counsel submitted that this rendered the appeal fatally defective.
The amendment sought by the appellant was made by way of notice and in terms of the Rule 41 of the Supreme Court Rules. Rule 41 provides as follows:
“Power to allow amendment
41. The court may, upon application by notice, or upon oral application by counsel during the course of any hearing, allow, upon such terms as it may think fit to impose amendment of the grounds of appeal or of any pleadings or other document and may similarly permit a party to appear or be represented notwithstanding any declaration in terms of Rule 50 to the effect that the party does not intend to appear or be represented.”
With regard to the issue of whether or not the appellant's grounds of appeal were fatally defective on the basis that they were not clear and concise as required by the rules of this Court, we found that the grounds of appeal could have been more elegantly crafted, however, they were not fatally defective.
This Court has pronounced itself on the test to be applied in determining whether or not grounds of appeal are valid.
In Zvokusekwa v Bikita Rural District Council SC44-15 the Court noted that:
“One must, I think, be guided by the substance of the grounds of appeal and not the form. Legal practitioners often exhibit different styles in formulating such grounds. What is important, at the end of the day, is that the grounds must disclose the basis upon which the decision of the lower court is impugned in a clear and concise manner.”
Also, in Dr Kunonga v Church of the Province of Central Africa SC25-17…, the Court stated that:
“…, where the court is faced by some of the grounds of appeal that are not clear and concise and by others that are, the courts should proceed to determine the appeal on the basis of the valid grounds.”
The Court must be guided by the substance and not the form of the grounds of appeal. At the end of the day the determining factors of whether or not grounds of appeal are valid and compliant with the rules of the court can be set out as follows:
(a) The grounds of appeal must relate to the judgment appealed against;
(b) Must clearly and concisely show how the decision of the court a quo is erroneous; and
(c) Must show the basis upon which the decision should be vacated.
In this regard, a proper reading of the appellant's grounds of appeal clearly reveal the basis upon which the judgment of the court a quo is being challenged.
The only ground of appeal which is unclear and meaningless and cannot be allowed to stand is ground 1.4.
Indeed, it was accepted that the grounds could have been crafted in a more elegant manner. However, at the end of the day, it was our view that they met the threshold as set out in the rules and in the case authorities, except for ground 1.4 which we struck out.
The additional grounds of appeal in the notice of amendment were predicated on the same facts which were before the court a quo.
The appellant, in its heads of arguments, had already made submissions on the basis of the amended grounds. The respondents had responded to the heads of argument.
In the circumstances of this case, however, it did not appear that the respondent would suffer any prejudice if the application was granted.
As the amendment was not prejudicial to the respondents, and, any prejudice could adequately be compensated with an appropriate order of costs, we saw no reason to refuse the application.
On the basis of the above reasons, we accordingly made the following order:
“The preliminary point raised by counsel for the respondents is dismissed. The application to amend the grounds of appeal and prayer is granted, save for ground 1.4 in the notice of amendment. The appellant is ordered to pay the respondents wasted costs.”
