Speedy's Limited v Finance Bank Malawi Limited (49 of 2007) [2007] MWCommC 1 (17 December 2007);

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MALAWI

IN THE HIGH COURT OF MALAWI

COMMERCIAL DIVISION


 

BLANTYRE REGISTRY


 

COMMERCIAL CAUSE NUMBER 49 OF 2007


 

BETWEEN


 

SPEEDY’S LIMITED………...……………………………………………PLAINTIFF


 

-and-


 

FINANCE BANK MALAWI LIMITED…………………………DEFENDANT


 

CORAM: Hon Justice Dr. M.C. Mtambo


 

Mr. kasambara, of Counsel for the Plaintiff

Mr. mpaka, of Counsel for the Defendant

Mr. Mchacha, Court Clerk


 

 

JUDGMENT

BACKGROUND

This is a second action between the Plaintiff and Defendant based on the same facts being the granting of a loan facility by Finance Bank Limited now in liquidation by way of overdraft to the Plaintiff and secured by a charge over the Plaintiff’s Title Number Chichiri 270. The first action which was dismissed by my brother judge Honourable Kapanda is styled Commercial Case Number 14 of 2007 and was like the present action commenced by way of Originating Summons. The Plaintiff’s prayer in that case was for a declaration that there were no sums due by the Plaintiff to the Defendant as the Plaintiff had paid all that was due and as the Defendant had waived any further interest. Further, the Plaintiff sought a declaration that the Defendant does execute a release of charge in favour of the Plaintiff.


 

Soon after the dismissal of the Plaintiff’s Originating Summons in Commercial Case Number 14, the Defendant wrote the Plaintiff a letter dated August 22, 2007 demanding payment of the sum of K7,388,679.15 failure of which payment by 31 August 2007 the Plaintiff’s charged property would be sold. The Plaintiff contended that the balance was K1,894,781.33 and tendered a cheque in that amount which the Defendant rejected and returned to the Plaintiff.


 

The Plaintiff together with its Originating Summons, took out a Summons for an order of interlocutory injunction to restrain the Defendant from exercising the Chargee’s power of sale on its property known as Title Number Chichiri 270 charged to the Defendant pending the determination of the matters raised in the Originating Summons. The order was granted for 7 days pending an inter partes hearing which order was further renewed at the inter-parties hearing and is still subsisting pending the determination of this matter.


 

Although I did at some point grant leave to the Plaintiff to add Finance Bank Limited as co-Defendant, no such amendment appears to have been filed and served on the Defendant as required by my order granting leave and as such I will not refer to Finance Bank Limited as Second Defendant in my judgment. This is so because I do not think that the process of amendment is complete by the mere granting of leave to amend but by filing and serving the amended documents whereupon the other party has a chance to respond to the amendment particularly where the court order so directs and the amendment is not made in the process of a trial.


 


 


 

INTRODUCTION

By Originating Summons the Plaintiff seeks the following declaratory orders:

  1. That the Defendant should give a due account of loan repayment by the Plaintiff in terms of the principal and interest paid by the Plaintiff to the Defendant.


 

  1. That the Defendant should reconcile the statement of account of the Plaintiff’s loan to the Defendant as at 31 August, 2007.


 

  1. That the Defendant is demanding from the Plaintiff a sum that is in excess of the due amount.


 

  1. That the Defendant should be restrained from exercising the Chargee’s power of sale over the Plaintiff’s property known as Title Number Chichiri 270 charged to the Defendant pending the determination of this matter.


 

The Plaintiff’s Summons is supported by an affidavit sworn by Alexander Oonnoonny the Plaintiff’s financial controller who depones that the Plaintiff borrowed money from Finance Bank Limited now in liquidation (in this judgment referred to as Finance Bank) by way of overdraft facility which loan was secured by a charge over the Plaintiff’s property known as Title Number Chichiri 270. The charge is exhibited and marked “AO1”.


 

According to the affidavit, when Finance Bank went into liquidation, the Defendant was appointed liquidator thereof and thereafter by letter dated 22nd August 2007 demanded from the Plaintiff payment of the sum of K7,388,679.15 failing payment of which by 31st August 2007 the charged property was to be sold. That letter of demand is exhibited and marked “A02”. The Plaintiff responded thereto by an undated letter exhibited and marked “AO3” querrying the demanded figure as according to it the Defendant failed to take into account a sum of K2,500,000.00 paid by it on 30 August 2006; the interest rates which were charged varying between 32.55% and 51.98% were not agreed upon and were too high; and that there was lack of justification for including legal fees and costs incurred by the Defendant in realization efforts to the loan.


 

The Defendant in his reply to the Plaintiff’s concerns by letter dated 30 August 2007 stated that the applicable rate of interest was 27% plus 1.5% upon exceeding the authorized limits. A day or so thereafter the Defendant further responded explaining how the sum of K2,500,000.00 was applied in relation to the Plaintiff’s group of companies and indicated a new balance of K4,287,753.54 after reworking the figures taking into account some errors in rates of interest charged in previous communication which should have been 32 % and not 28.5%.


 

The Defendant filed an affidavit in opposition to the Originating Summons sworn by Mr. Khuze Kapeta as liquidator and another sworn by Mr. Chioko the Defendant’s auditor appointed under clause 6 of the charge which provides that upon all questions of account arising in relation to the security, the certificate of the auditors of the Chargee shall be prima facie proof of the state of account of the Company.


 

The Defendant in his affidavit in opposition to the Originating Summons depones that he has been wrongly sued as the company and not the liquidator is the proper defendant because voluntary liquidation does not divest the company of its corporate status; that the liquidator is only to bring or defend an action in the name of the company and not in his own right; that the Plaintiff can only bring an action against a liquidator in the form of a statutory appeal and not by way of Originating Summons; that the Plaintiff is guilty of abuse of the process of the court as the dispute of exact amounts owing should have been brought up in Commercial Case Number 14 of 2007 between the same parties based on the same facts; that the Plaintiff should have used the dispute resolving mechanism in clause 6 of the charge by acceding to the findings of the auditor of the chargee as to questions of account arising in relation to the security before rushing to court; and that once a chargee’s right to enforce security arises, the chargor is not entitled to the remedy of an injunction but damages.


 

In reply, the Plaintiff by affidavit argues that a liquidator can be sued in that capacity to account; that such suit is not by way of an appeal as the law provides that any person aggrieved by any act or decision of the liquidator may apply (as opposed to appeal) to the court and since there is no prescription as to the format of applying, an Originating Summons which is one of the recognized modes of commencing action suffices; that in any event the court granted leave to the Plaintiff to join the company as co-Defendant; that the Plaintiff’s action does not fit in the recognized categories of abuse of process; and that as the auditor was supposed to be appointed by the Defendant and was only appointed after differences on the amount outstanding arose and subsequent to the present action, the Plaintiff could not be expected to have taken advantage of that process.

Mr. Chioko in his affidavit in opposition to the Originating Summons depones that he is a Resident Partner in the firm of C S Associates who are Certified Public Accountants, is an accountant by profession and was duly appointed auditor for the Defendant to reconcile the disputed accounts and certify as to the balance due by the Plaintiff to Finance Bank. The pertinent part of the affidavit is reproduced hereunder:


 

iv. THAT between 24th and 26th September 2007, I audited the Plaintiff’s accounts with the Defendant and certified that the amounts due by the Plaintiff to the Defendant for the overdraft as accrued interest as at 31st July 2007 is K3,275,502.22. A true copy of that certificate is now shown to me and marked “AAC2”.

v. THAT I arrived at the said conclusion after proper reconciliation and calculation using the applicable interest rate charges on the overdraft as is evident from my notes and workings now shown to me and marked as “AAC3”.

  1. THAT I therefore confirm to this court that in my professional analysis, the balance due as at 31st July 2007 is K3,275,502.22.

  2.  

It should be noted that the balance as certified by the auditor is less than the sum finally demanded by the Defendant from the Plaintiff on the basis of which the Defendant threatened to sell the Plaintiff’s charged property hence the present action culminating in the granting of an interim injunction.


 

Prior to the date set for the hearing of the Originating Summons, the Plaintiff gave notice of its intention to cross examine the Defendant and the Defendant’s auditor Mr. Chioko and proceeded to do so at the hearing.


 

ISSUES

  1. Whether a liquidator in voluntary liquidation is a proper Defendant with respect to corporate obligations.


 

  1. Whether a complaint against decisions of a liquidator in voluntary liquidation should be by way of statutory appeal and not Originating Summons.


 

  1. Whether there is an abuse of process when a party brings a second action against the same party based on the same facts or fails to take advantage of dispute resolving mechanisms provided under a contract but rushes to court.


 

  1. Whether a party who has voluntarily appended her signature to a contract can resile from the rights and obligations clearly spelt out thereunder.


 

  1. What rate of interest and manner of computation should apply to a charge in the absence of express agreement.


 

  1. Whether the remedy of injunction is available to a chargor.


 

THE EVIDENCE

The evidence was by affidavit in support of the Originating Summons sworn by Mr. Onnoonny, Financial Controller of the Plaintiff; affidavit in opposition to the continuation of an interlocutory injunction granted by this court against the Defendant’s exercise of the power of sale given by the charge to Finance Bank sworn by the Defendant; affidavit in opposition to the Originating Summons sworn by the Defendant; and affidavit in opposition to the Originating Summons sworn by Mr. Chioko, an auditor appointed by the Defendant under powers in the charge to certify the balance due. Further, the Plaintiff upon application to the court cross examined the Defendant and Mr. Chioko. I will in my judgment refer to Mr. Chioko as DW2.


 

THE LAW AND DISCUSSION

Suits by or Against a Body Corporate in Liquidation


 

Effect of Incorporation


 

When a company is registered, it becomes a legal entity separate from the members capable of exercising all the functions of a body corporate including the power to pursue or defend an action. This is by virtue of section 15(2) of the companies Act 1984 which provides:

From the date of incorporation mentioned in the certificate of incorporation, the subscribers of the memorandum, together with such other persons as may from time to time become members of the company, shall become a body corporate by the name contained in the memorandum, capable forthwith of exercising all the functions of an incorporated company,..”.


 

The locus classicus in the above respect is Salomon vs Salomon & Co. [1897] A.C. 22. However, although section 15(2) ends by the statement that the body corporate has perpetual succession, a company can expire when it is wound up by the process of liquidation whether voluntary or compulsory. Under section 247(1) of the Companies Act:

The company shall from the commencement of the winding up cease to carry on its business, except so far as in the opinion of the liquidator is required for the beneficial winding up thereof, but the corporate state and corporate powers of the company shall continue until it is dissolved.”


 

Since the corporate state and corporate power continue even after commencement of the process of liquidation but before dissolution, the proper Defendant in any proceedings against a company in liquidation is the company itself and not the liquidator. But the liquidator is the one to defend the action not in his own name but in the name of the company in view of section 230(2) of the Companies Act which provides:

The liquidator may-

  1. bring or defend any action or legal proceedings in the name and on behalf of the company;”


 

And the leave of the court is not required to bring an action against a company in voluntary liquidation although such is required with respect to a company in compulsory liquidation. This is by virtue of the fact that section 222 of the Companies Act which provides that no action or proceeding shall be proceeded with or commenced against a company in liquidation without the leave of the court falls under part B which deals with winding up by the court. However, the liquidator would be a proper Defendant where the action is based on section 275 of the Companies Act which provides:

Any person aggrieved by any act or decision of the liquidator may apply to the court which may confirm, reverse or modify the act or decision complained of and make such order as it deems just”.


 

Mode of Commencement of proceedings


 

Although the title in the margin to section 275 of the Companies Act reads “Appeal against decision of the liquidator”, the body of the section contains the word Apply and not Appeal. It is my considered view that the law is to be found in the body of a provision and not the margin. Therefore, one needs only apply to court and not appeal whenever they are aggrieved with a liquidator’s decision. As there is no prescription in the section as to the mode of commencement of the application, a party may choose any of the permissible modes under Order 2 Rule 1 of the High Court Commercial Division rules such as by way of Originating Summons. There is therefore no requirement to proceed by way of statutory appeal under Order 55, Rule 1 of the Rules of the Supreme Court which order is in fact intended to govern ”every appeal which by or under any enactment lies to the High Court from any court, tribunal or person”. The liquidator is obviously not a court or tribunal or indeed other person for according to the eiusdem generis rule, the meaning of the general word person should be restricted to that of the preceding specific words court and tribunal. In writing a letter to the Plaintiff demanding payment of a sum more than was due, the Defendant was clearly not discharging the duties of a court or tribunal or other person.


 

In this case, the Plaintiff argues in its submissions that they are aggrieved by the Defendant’s decision in failing to properly account for K2,500,000.00 paid by them to the liquidator in reduction of interest on the charge. And in the court’s view, it is justified for one to be aggrieved by the decision of a liquidator to sell the charged property if in fact no money is outstanding on a charge.


 

Even if the action herein was commenced wrongly by Originating Summons instead of statutory appeal, that would not be a cause on its own for this court to dismiss the action. But I do not think that the case of Chirwa vs the State 1993 MLR is relevant here as the Plaintiff submits. In that case, an argument was raised by a party that the proceedings therein should be dismissed for having been brought in the form of an originating summons instead of judicial review. Having observed that the action was properly commenced, Unyolo J. (as he then was) had this to say about irregularities:

There is undoubtedly, an irregularity here. It is, however, clear from the total facts that the respondent fully understood the nature of the claim brought by the applicant and the issues involved in the matter and I am satisfied that the respondent has not in any way been prejudiced or embarrassed by the said irregularity...”


 

My view is that this decision applies only where proceedings are properly commenced but there is some other irregularity. The decisions that would be relevant to cure irregularities in terms of a wrong mode of commencement are Elias Sochera and 5 others vs Council of the University of Mzuzu Civil Cause Number 135 of 2005 and Bandawe (Trading as Kaka Motel vs Mzuzu City Assembly and Kesale Auctioneers and Estate Agents Civil Cause Number 63 of 2006 both from Mzuzu District Registry. In the former case, Chikopa J. stated that

It is our view that procedures should not as much as possible be used to prevent parties from bringing their matters before the courts. That in fact they should as much as possible be used to allow parties to better their access to the courts”.


 

The judge observed in the latter case that

...Maybe we could learn a thing or two from the way the Civil Procedure Rules [1999] in the United Kingdom have been developed. The emphasis is on dealing with cases justly and expeditiously. They have therefore only one mode of commencement. It has brought to an end endless objections about modes of commencement”.


 

I am sure that our upcoming Civil Procedure Rules 2007 have resolved this problem by providing one method of commencement of action by application. However, in the absence of an amendment to Order 2 Rule 1 of the High Court Commercial Division Rules, the debate on appropriate modes of commencement of action in this division will not be fully abated.


 

Abuse of the Process of the Court


 

Under Order 18 Rule 19(1)(d) Rules of the Supreme Court and the inherent jurisdiction of the court, a case can be dismissed or struck out where the proceedings have been brought in a manner amounting to an abuse of the process of the court. The categories of abuse of process are never closed but it is widely recognized that the court will prevent an improper use of its machinery as a means of vexation and oppression in the conduct of the litigation. The cases of Castro vs Murray (1875) 10 Ex. 213 and Dawkins vs Prince Edward of Saxe; Willis vs Earl Beauchamp (1886) 11 p. 59, per Bowen L.J. at 63 are illustrative of the principle. Learned Counsel for the Plaintiff Mr. Kasambara has elaborately analysed the known categories of abuse of the process of the court such as where there is re-litigation, the proceedings are brought for a collateral purpose, the claim is spurious, and the proceedings are hopeless amongst others. I may also add that if the complaint could have been resolved through agreed contractual machinery, rushing to court without attempting to exhaust such available avenues may amount to an abuse of the process of the court whose time could have been well spent on worthy activities.


 

The relevant heads in the instant case are re-litigation and failure to employ dispute resolution mechanisms provided in the relevant contract. As has been alluded to in the background to this judgment, this is a second case between the same parties based on the same facts although the point of contention is slightly different. In Commercial case Number 14 of 2007, the Plaintiff was alleging that there was no balance owing to the Defendant as the Plaintiff had paid all that was due and as the Defendant had waived interest. After losing that case, the Plaintiff brought these proceedings claiming that in fact, the balance due at the relevant time was K1,894,781.33 and not K4,287,753.54 as claimed by the Defendant. There is also the point that clause 6 of the charge provides that:

Upon all questions of account arising in relation to this security, the certificate of the auditors of the Chargee shall be prima facie proof of the state of account of the company”


 

It should be noted that this clause only refers to prima facie as opposed to conclusive proof. Therefore, the Plaintiff was entitled to dispute any figure certified by the auditors as outstanding. And in fact, the auditor was only appointed on 24 September 2007 when the action herein was commenced on 11 September 2007. It can therefore not be argued with due honesty that there was an abuse of the process of the court by the Plaintiff in that regard.


 

Re-litigation


 

Learned Counsel for the Plaintiff Mr. Kasambara has outlined the law on this point in the following terms:

....

It is an abuse of the process of the court and contrary to public policy for a party to re-litigate the issue of fraud after the same issue has been tried and decided by the...court (House of Spring Gardens Ltd. vs Waite [1991] 1 Q.B. 241; [1990] 2 E.R. 990, CA). It is an abuse of the process of law for a suitor to litigate again over an identical question which has already been decided against him even though the matter is not strictly res judicata (Stephenson vs Garnett [1898] 1 Q.B. 677, CA and ...Spring Grove Services Ltd. vs Deane (1972) 116 S.J. 844.

It is however not an abuse of process of the court for defendants to seek to re-litigate issues of non-disclosure and misrepresentation involving insurance cover decided against them in an earlier action by different Plaintiffs, but arising from the same transaction. This is especially so when they intend to cross-examine witnesses whom they had been unable to cross-examine in the first action, because in that action they had called those witnesses on subpoena as their own witnesses to produce documents (Bragg vs Oceanus Melchior & Co. [1988] 1 W.L.R. 1394; [1989] 1 All E.R. 129, CA).

...

It is an abuse of the process of the court to raise in subsequent proceedings matters which could and should have been litigated in earlier proceedings (Yat Tung Investment Co. Ltd. vs Dao Heng Bank Ltd. [1975] A.C. but the failure of the Plaintiff in the first action to join a third person as a defendant in that action under O.15, r.6..., is not such an abuse of the process and the Plaintiff is therefore entitled to bring a second action against that person as a defendant, even though it is contended that the issue in the second action had been adjudicated and determined in the first action (Gleeson vs J. Wippell & Henderson (1843) Hare 100. This doctrine does not apply where there has been a mere procedural defect and the court has never gone into the merits, though both parties were before it (Jelson Estates Ltd. vs Harvey [1983] 1 W.L.R. 1401; [1984] 1 All E.R. 12, CA).


 

In Mkandawire vs Council for the University of Malawi Constitutional Case Number 19 of 2004, a Plaintiff who had unsuccessfully litigated a matter for wrongful dismissal all the way to the Supreme Court in MSCA Civil Appeal Number 38 of 2003 brought a fresh a matter in the constitutional court for unfair labour practice between the same parties and based on the same facts. The court did not dismiss the case concluding that the matter was not res judicata but after observing that the case did not raise constitutional but employment issues, referred it to the Industrial Relations Court where the Plaintiff was again unsuccessful in Industrial Relations Court Civil Cause Number 21 of 2005. On further appeal ultimately to the Supreme Court yet again in MSCA Civil Appeal Number 24 of 2007, the appeal was dismissed on the basis that the matter was res judicata. Delivering the judgment of the court, Kalaile Ag. CJ. observed

...Res judicata bars litigation of the same cause of action between the same parties where there is prior judgment”.


 

It is therefore clear from a discussion of the authorities that not all apparent re-litigation amounts to an abuse of the process of the court and that invariably the decision one way or another rests on subtle differences which ultimately boils down to the court’s view of what is just in the matter at hand. Although at first impression I would be inclined to conclude that the Plaintiff should have litigated the issue of how much is the balance of account between it and the Defendant in Commercial case Number 14 of 2007, I think that the justice of the matter militates against dismissing the Plaintiff’s case solely on that point.


 

Is the equitable remedy of an injunction available to a chargor?


 

Where a charge remains unsatisfied and has not been duly discharged and due notice has been given by the chargee under section 60(2) of the Registered Land Act, a chargee retains the power of sale under section 68(2) in terms of section 71 of the act. This position is elaborated by Tembo J. (as he then was) in Leasing and Finance Company Limited vs George W. Sadiki Civil Cause Number 1525 of 2001 unreported. Section 71(3) of the Registered Land Act provides that:

A transfer by a chargee in exercise of his power of sale shall be made in the prescribed form, and the Registrar may accept it as sufficient evidence that the power has been duly exercised, and any person suffering damage by an irregular exercise of the power shall have his remedy in damages only against the person exercising the power”.


 

And in Bishop Daniel Nkhumbwe vs National Bank of Malawi Civil Cause Number 2702 of 2000 unreported, it was held by Mwaungulu J. that the power to realize security, if properly exercised, cannot be fettered by an injunction for it makes utter commercial injustice for a chargor to have both the chargee’s money and the security beyond the contractual tenure. This position of the law is now settled by the supreme court decision in New Building Society vs Henry Mumba MSCA Civil Appeal Number 26 of 2005 in which the court observed:

The next question is whether the equitable remedy of injunction restraining the appellant from completing the sale was available to the charger after the chargee had exercised the power of sale. We will consider the issue as if the question is whether the remedy of injunction is available to the charger at all, as it does not seem to make any difference to us whether or not the remedy is sought before or after the chargee has exercised the power of sale.

...we are ourselves disposed to think that a mortgagor having voluntarily agreed with a mortgagee on what should happen when certain specified events take place should not be allowed to run to the courts to prevent the mortgagee from exercising the power of sale...In other words, the courts should be slow to intervene contrary to the express desires of the parties to any lawful agreement, as justice would never be met by the borrower having the benefit of both the funds and the security, (the charged property) or, conversely, the lender being denied both the funds and the security, even if temporary...”


 

Learned Counsel for the Plaintiff Mr. Kasambara has argued that as Finance Bank is in liquidation, the company probably would not be able to pay damages and as such this was a proper case to grant an interlocutory injunction against the chargee’s exercise of its power of sale pending the determination of the matters raised in the Originating Summons. However, learned counsel has not adduced any evidence by affidavit or otherwise that Finance Bank would not be able to pay damages and in view of the fact that the bank is in voluntary liquidation where by virtue of section 248(1) of the Companies Act the company should be presumed to be solvent, that contrary argument is not substantiated.


 

It should be observed that the Defendant in its affidavit filed in opposition to the continuation of the interlocutory injunction argued that in view of the Supreme Court decision in New Building Society vs Mumba (supra), the injunction was wrongly granted. I agree with the Defendant’s position on this point.


 

Interpretation of Written Contracts

Learned Counsel for the Defendant Mr. Mpaka has submitted that where the agreement of the parties has been reduced in writing and has been signed by the parties, the parties will be bound to their signatures and none of them can argue that they should not be bound as they either did not read the document or were ignorant of its precise legal effect. This position is evident in Chitty on Contracts: General Principles, London: Butterworths, 1976 p.113 and the case of Howatson vs Webb ([1908] 1 Ch.1.


 

Under the charge in question it was agreed that the Plaintiff would repay the loan:

together with interest thereon at such rate as the chargee may charge from time to time on advances of similar nature and commissions and other customary charges and subject to the agreements, conditions and stipulations in the said charge”.


 

A perusal of the charge reveals that there was no rate of interest agreed and this omission was admitted by the Defendant in cross examination. As such, the Plaintiff argues that the rate of interest should have been 27% which was the base rate plus 1.5% on overdrawn accounts. Although the Defendant did admit in further cross examination that that was the rate of interest to be charged, DW2 in cross examination testified that from documentation he examined in his workings which documentation he did not bring before the court, the bank’s applicable rate of interest on advances of similar nature was 6% above the base lending rate of 27% plus 1.5% on overdrawn account. That such interest was compound and effectively 33% within authorized limit and 51% per annum for amounts in excess of overdraft.


 

Can it then be correctly argued that after agreeing in the charge that the chargee would be at liberty to charge its applicable rates of interest on similar accounts, the Plaintiff should then dictate a rate of interest which is just the base rate without factoring in profit on the risk of lending money by bankers?. I do not think so. It does not make commercial sense for a bank which is in the business of making money from other money to lend money and charge interest at base lending rate. Even if there was no agreement between the parties to charge interest above base lending rate, looking at the circumstances of this business transaction, I would imply a term in the charge to the effect that interest should be at a reasonable margin over base lending rate as something which is obvious. And 6% above base rate is reasonable in my considered opinion. It is also, to my knowledge, customary for a bank to charge extra interest on amounts in excess of overdraft. And in my opinion, 1.5 per cent is reasonable. In National Bank of Greece SA vs Pinios Shipping Co. No. 1 and another The Maria [1990] 1 All ER 78, it was held that in the absence of an express provision in a mortgage entitling a bank to charge compound interest, the term would be implied by the court as it was the usage of banks so to charge. The court rejected the mortgagor’s argument that the relationship of banker and customer ended when the bank wrote a letter of demand thereby terminating the right to charge compound interest.


 

Further, in the case at hand, although the Plaintiff did not plead that the charge in question was not binding on it, learned counsel for the Plaintiff while cross examining the Defendant, pointed out that the company that was referred to in the charge was not the Plaintiff but Sacha’s bakery, a different legal entity although a member of the Plaintiff’s group of companies. However, when one examines the first page of the charge, it is titled “Charge Speedy’s Limited to Malawi Finance Bank Limited for Sacha’s Bakery”. And in fact, in the affidavit in support of the Originating Summons sworn by one Alexander Oonnoonny the Plaintiff’s financial controller, it is acknowledged that the Plaintiff borrowed money from the Defendant and by way of security, gave the charged property. It is clear therefore that the Plaintiff’s arguments are not substantiated both in law and fact.


 

Should a Bank in liquidation continue to charge interest?


 

Learned Counsel for the Defendant Mr. Mpaka has submitted that at law, a voluntary liquidation does not stop interest running on debts unless where the lender company is insolvent when claims for interest can only be admitted up to the date of commencement of the voluntary liquidation. And he cites the case of Re Thomas Salt & Co. Ltd. (1908) 99 L.T. 558 cited in Rankin, D.F. The Rights and Duties of Liquidators, Trustees and Receivers London: H.F.I. Publishers Ltd. 1932 p.37. On the other hand, learned Counsel for the Plaintiff Mr. Kasambara has argued that as Finance Bank stopped giving interest to depositors on the commencement of the winding up proceedings, it follows that the bank could not on the other hand continue charging interest on loans. No authorities are cited for that proposition. It is therefore evident that Finance Bank are entitled to continue charging compound interest even after the commencement of the winding up but not after judgment when the rate of interest should be reduced to simple interest.


 

What is the actual balance owing by the Plaintiff to the Defendant?


 

According to the Plaintiff, the balance of account as at 31st July 2007 was K1,894,781.33 whereas according to the Defendant it was K4,165,616.56 and yet according to DW2 the auditor who was appointed to certify the balance owing about two weeks after the commencement of the action to account herein, the outstanding amount was K3,275,502.22, an amount less than the one demanded by the Plaintiff on the basis of which a threat was made to sell the Plaintiff’s charged property.


 

The Plaintiff’s alleged balance is from workings of the Plaintiff’s financial controller who has a strong interest in the outcome of this matter. On the other hand, DW2 in answer to questions in cross examination came across to me as a witness who was only interested in the matter professionally and did not even take sides with the Defendant who appointed him by coming up with a balance of account different from that of his appointor. His workings and explanation were clear and convincing. He explained of how on 6th September 2006 payment of K2,500,000.00 on the Plaintiff’s account resulted in an overpayment. This was applied to the account of Highway Filling Station. This witness made a recalculation of the figures from documents provided to him by the Defendant using interest rates applicable to similar accounts of Finance Bank. The fact that the documents which he used were not exhibited in court does not, in the absence of contrary evidence from the Plaintiff showing different prevailing interest rates, impinge on the credibility of this witness. I therefore find that as at 31st July 2007, the balance owing by the Plaintiff to the Defendant was K3,275,502.22. Perhaps I may add that even in the face of a threatened sale of the charged property, had the Plaintiff appointed its own independent auditor and the auditors conferred before commencing this action, the matter could not have gone this far and a lot of wastage of time and expense could have been avoided. Of course I am aware that under the charge the Plaintiff had no obligation to appoint an auditor. And if the matter had been commenced otherwise by Originating Summons and been subject to the Commercial Division mandatory mediation rules, I would have ordered that the Plaintiff engages its independent auditor and that the Plaintiff’s and Defendant’s auditors meet to resolve the differences before proceeding to trial and it would have been normal in such a case for each party to meet their own costs.


 

The question then becomes whether from the figure of K3,275,502.22 should be subtracted the sum of K800,000.00 party and party costs which the Plaintiff paid the Defendant’s lawyers for Commercial Case Number 14 of 2007. This payment was not pleaded nor was it referred to in the affidavit in support of the Originating Summons. However, the court can not turn a blind eye to that fact as it is a record of this court in so far as the payment is reflected in a consent order filed by the parties. It is an established rule of law that the principle of party and party costs is to give to the successful litigant a full indemnity for all costs incurred by him. See Commissioner of Taxes vs A. Ltd. [1973] 7 MLR 211. The Plaintiff has correctly argued that party and party costs are for the client and by inference that the Defendant’s legal practitioners should have accounted to the Defendant for that money which appears not to have been done. On examination of the charge, it is evident that clause 14 (d) thereof provides that

Costs of drawing, stamping and registration of the charge and calling any amount not paid”.


 

Shall be additional to the total sum recoverable. From a construction of this provision, the Plaintiff can not deduct the amount of party and party costs from the total sum due for to do otherwise would mean that the chargee will recover less than the principal and interest due and their outlays which would not make commercial sense. It is only reasonable that the chargor in default has to face the consequences of their breach.


 

CONCLUSION AND DISPOSITION

The Plaintiff sought:

That the Defendant should give a due account of loan repayment by the Plaintiff in terms of principal and interest paid by the Plaintiff to the Defendant .


 

As discussed in my judgment, DW2 explained his workings in cross examination in addition to the affidavit he swore in opposition to the Originating Summons. It must therefore be clear to the Plaintiff from those workings and that explanation which I accepted as correct as to what is the balance of account between the parties. What the Defendant needs to do is to get DW2 to work out a figure up to date of judgment using compound interest and simple interest thereafter. The Plaintiff’s prayer is therefore dismissed.


 

That the Defendant should reconcile the statement of account of the Plaintiff’s loan to the Defendant as at 31 August 2007 .


 

For the reasons given above, the Plaintiff’s prayer is dismissed.


 

That the Defendant is demanding from the Plaintiff a sum in excess of what is due .


 

According to the Defendant’s letter of demand dated 22 August 2007, the balance due was put at K7,388,679.15. After protestation by the Plaintiff, the figure was reduced to K4,287,753.54. I have found that the amount due was actually K3,275,502.22 as at 31st July, 2007. And the defendant admitted in cross examination that the amount demanded by him from the Plaintiff was more than was certified by the auditor perhaps after taking into account the difference of close to one month between the two events. On the Defendant’s own admission, the Plaintiff’s prayer succeeds.

That the Defendant should be restrained from exercising the Chargee’s power of sale over the Plaintiff’s property known as Title Number Chichiri 270 pending the determination of this matter .


 

I granted to the Plaintiff an interlocutory injunction restraining the Defendant from exercising its power of sale under the charge which is still subsisting pending the determination of this matter. But on close consideration of the Supreme Court decision on the matter, I am convinced that the remedy is not available to a chargor once the Chargee’s powers of sale became exercisable in that there were arrears of interest in the matter at hand as found by me. The injunction is therefore vacated as having been wrongly granted. As the chargor made an undertaking as to damages if it were later discovered that the injunction was wrongly granted, the Chargee would be entitled to the same. However, the Chargee did not profer a counterclaim. Even if it had done so, compound interest accepted by me as chargeable up to date of judgment would compensate for such loss.


 

COSTS

The issue of costs has exercised my mind at great length. Under section 30 of the Courts Act, costs of and incidental to all proceedings in the High Court shall be in the discretion of the court. But normally, according to Order 62 Rules of the Supreme Court, Chihana vs Speaker of the National Assembly and Malawi Electoral Commission Misc Civil Cause No. 2933 of 2005 (HC) (Unreported) and Speedy’s Limited vs Liquidator of Finance Bank Comm. Case No. 14 of 2007 costs follow the event.


 

Despite the Plaintiff having succeeded to prove that the Defendant was claiming more than is due, the Plaintiff has failed to prove that the balance of account is the amount it claims is due and that the interlocutory injunction it obtained was properly granted. Further, in view of the evidence of DW2 which was clear as to the sum due although he was appointed after the commencement of the action and the finding of the court that that is the sum in fact due, the Plaintiff has further failed to move me to grant an order to account as that would be an uncalled for exercise. The Plaintiff might have been entitled to some costs if it had not obtained the interlocutory injunction but allowed the chargee to exercise its power of sale or paid the demanded amount under protest and only brought up the Originating Summons. In view of the Defendant’s substantial success in that the amount due is more than what the Plaintiff was alleging; that on the facts, it has no duty to account; and that the interlocutory injunction was wrongly granted, the Defendant is entitled to two thirds of the costs of this action.


 

DELIVERED in open court at Blantyre this 17th day of December 2007


 

Dr. M.C. Mtambo

JUDGE