IN THE HIGH COURT OF MALAWI
COMMERCIAL CASE NO. 269 OF 2015
EINSTEIN CONSTRUCTION COMPANY LTD…………….............PLAINTIFF
MOTA ENGIL ENGENHARIA E CONSTRUCAO SA……………..DEFENDANT
HON. RACHEL SOPHIE SIKWES
Chibwe; of Counsel for the plaintiff
Nyemba; of Counsel for the defendant
Gwedeza; Court Interpreter
The plaintiff s claim was for the sum of MK50 462 536-30 and interest at National Bank of Malawi lending rate. The claim was in relation to several agreements entered into between the parties relating to hiring of construction machinery from the plaintiff for the use of the defendant in various roads within Malawi. The parties registered a consent order in relation to a substantial part of the claim. They agreed to invoke the Court's powers under 0. 7/11 of the High Court (Commercial Division) Rules 2007 that the remaining issues be disposed of on a point of law. These were (1) whether or not interest should be compounded? (2) At what rate should interest be payable? and
(3) From what date should interest be calculated?
The Court considered the application in light of 0. 7/11 of the High Court (Commercial Division) Rules 2007 which provides that: "The Court may upon the application of a party or of its own motion determine any question of law or construction of any document arising in any cause or matter at any stage of the proceedings where it appears to the Court that (a) such question is suitable for determination without a full trial of the action; and (b) such determination will finally determine (subject only to any possible appeal) the entire cause or matter or any claim or issue therein. Sub rule 3 provides that the Court shall not determine any question under this rule unless the parties have either (a) had an opportunity of being heard on the question or (b) consented to an order of judgment on such determination". This Court is satisfied that this is a proper matter for summary disposal on a point of law. The Court has the authority to make a determination on the questions pursuant to the consent of the parties that the Court may proceed to do so. Below are the issues and their determinations:
1. Whether or not interest should be compounded?
Compound or Simple Interest?
The plaintiff prayed for compound interest on the sums due while the defendant asked the Court to award simple interest. The difference between compound interest and simple interest is that the former yields more than the latter. As a result the courts view compound interest as being more punitive than compensatory. The general principle behind awarding interest just like damages is to compensate the plaintiff- to put him/her in the same position as he/she would have been had the defendant paid the sums of money according to agreement. In its determination on the issue of compound interest the Supreme Court of Appeal in Kankhwangwa and others v Liquidator Import and Export Mw Ltd  MLLR 26 wondered whether; 'a mere delay in the payment of severance allowances automatically attracts an award of interest at the punitive lending rate of commercial banks?' This reasoning was also applied in overruling Alefandika v Encor Products Limited [ Civil Cause No 3828/2000 (unreported)]. The Kankhwangwa and Alefandika cases should be distinguished from Madinga v Nedbank [MSCA Civil Appeal No. 15/2009 (unreported)] where the same Court awarded compound interest on gratuity due to Mr. Madinga on the basis that in that case the claim was justified. Therefore ordinarily courts will award simple interest.
Whether Compound Interest is Payable in Commercial Transactions?
This seems clear from the Supreme Court of Appeal decision in Malawi Telecommunications Limited v SR Nicholas Limited [MSCA Civil Appeal No. 01/2011 (unreported) Gudgment delivered on 29 January 2014) acknowledging that; "recently our courts have generally allowed commercial banks ruling interest in commercial transactions. It makes good commercial sense unless the circumstances of the case dictate otherwise". However, although before the Supreme Court of Appeal was a commercial dispute involving a commercial transaction and despite the acknowledgement above, the Court proceeded to decline to award compound interest on the basis that; 'it would be unjustifiable in the circumstances of the case'.
The question was also answered in the affirmative in Kankhwangwa stating that: ''Where for instance, the relationship between the parties is essentially commercial or the transaction between the parties involves some trading, a Court may have jurisdiction to award interest against a party who wrongfully withholds money, which is lawfully due and payable to the other. If it can be properly presumed that the person withholding the money has profited from using it or has prevented the other person from earning a return on such money, then the need to award interest may become necessary".
Requirement of Justfitcation in Claims for Compound Interest
As a matter of justice and fairness, where the Court is asked to make an order that is on the face of it punitive to the other party the Court should be slow to exercise its discretion in favour of granting the award if the plaintiff cannot show why it is absolutely just and fair to make such an award. In that regard, the Supreme Court seems to suggest that although compound interest is necessary in commercial transactions, courts should award it only where it is justifiable. The plaintiff is not entitled as of right to be awarded compound interest just because the dispute is commercial in nature. This is more so because the Court's power to order compound interest is discretionary and hence the cardinal principle that in exercising its discretionary powers the Court must act with justice and fairness. The jurisdiction must be exercised based on sound legal principles. This calls for proof by the plaintiff to convince the Court that an award of compound interest is just and fair under the circumstances. Recently Nyirenda SC JA as he then was, in a case involving Malawi Telecommunications Limited v SR Nicholas Limited reminded the courts on rules of evidence and said: ''We remind ourselves that before us is a civil matter and as a general rule the burden of proof lies on the party that asserts the affirmative of the issue... The burden of proof is fixed at the beginning of the trial by the state of the pleadings, and it is settled as a question of law, remaining unchanged throughout the trial exactly where the pleadings place it, and never shifting...The standard of proof in civil cases is generally proof on a balance of probabilities. If, therefore, the evidence is such that the tribunal can say 'we think it more probable than not', the burden is discharged, but if the probabilities are equal it is not".
What should be noted is that this appeal emanated from the Commercial Division of the High Court and it involved a commercial transaction. Therefore it is in my view an anomaly to assume that just because it is a commercial matter the plaintiff is automatically entitled to compound interest without going through the processes of proving that the claim is justified. Hence the plaintiff must satisfy the burden and standard of proof to the requisite standard on why he/ she should be awarded compound interest. It is perhaps the right occasion to mention that there is no single Rule in the High Court (Commercial Division) Rules 2007 or any legislation for that matter, as is the case in labour legislation that rules of evidence as applies in civil litigation shall be dispersed with in the Commercial Division or in a commercial matter.
In the instant case the plaintiff's pleading in relation to interest appeared in paragraph 8 and he said: "The plaintiff states that MK50 462 536-30 is owing from the defendant pursuant to a commercial transaction between the plaintiff and the defendant and the plaintiff is entitled to claim thereon and hereby claims interest at National Bank of Malawi lending rate (compound rate) basis from the respective dates of the invoices to the date of full payment. Currently the said rate is at 32 per cent per annum. The interest accrued as of 3 November 2015 is MK24 254 282- 42". (The plaintiff proceeded to attach a computation of the interest calculations using compound interest). It should be noted that this was all that came from the plaintiff in relation to the claim. In the Court's view it fell short of convincing the court that this was a proper case to award compound interest. A mere statement that this was a commercial transaction has been rejected by the highest court of record in this country as constituting valid ground for an award of compound interest. It should be acknowledged that in his submissions Counsel for the plaintiff told the Court that the defendant withheld the plaintiff's money without giving reasons for the delay in payment and that according to Counsel ' one is only left with a quite obvious impression that the defendant simply intended to deliberately and wrongfully keep the plaintiff away from its money'. The problem with this is that it is an assumption that is not supported by law or evidence. There is a difference between pleadings and evidence. A mere assertion without evidence to support it does not count. In the instant case the plaintiff was required as a matter of law to produce evidence to support his claim and convince the Court that it fitted in any of the following situations:
(a) Deliberate deprivation of sums due (Malawi Telecommunications Limited and Kankhwangwa
(b) Prevention by the defendant from earning a return on the sums due (Malawi Telecommunications Limited and Kankhwangwa)
(c) Negligence in handling the sums due on the part of defendant (Easy Pack Ltd and another v Jesse Mwamlima Kitta t/a Iponga Enteprises and JPS E nteprises [Commercial Case No. 03/2013 (unreported) (judgment delivered on 21 October 2014))
(d) Wrongful holding on to money by defendant (Madinga V Nedbank [MSCA Civil Appeal No. 15/2009 (unreported)]), Gwembere v Malawi Railwqys Ltd [1978 -80] MLR 369 and Lenner Exports (Pry) Ltd v City Motors Ltd [1998) MLR 153)
(e) Benefit and enjoyment of the sums due by the defendant (Gwembere)
(f) Unreasonable conduct on the part of the defendant (Kankhwangwa). Conduct is unreasonable if for example, it is motivated by malice, it is spiteful and capricious and indefensible.
(g) Misuse or misapplication of the money by the defendant (Kankhwangwa)
(h) Profiteering on the sums due by the defendant (Kankhwangwa)
The above list is obviously not exhaustive. Each case must be decided on its own merits. The cardinal principle being that compound interest is inherently punitive and must be awarded sparingly in justified instances. The instant case fell short of making out a meritorious case to sway the Court to make the award on compound interest basis. It is disallowed. The plaintiff is awarded simple interest.
2. At what rate should interest be payable?
As at the time of filing their submissions the parties had agreed that the rate to be used in calculating interest would be the commercial bank base lending rate. The agreement is endorsed and it is so ordered.
3. From what time should interest be calculated?
The plaintiff pleaded for the interest to be calculated from the date on which the said sums fell due to when the debt was paid on 23 November 2015. There was a dispute as to when the sums fell due. Was it immediately after the invoice was presented or ninety days after the presentation of the invoice? The plaintiff contended that the sums fell due from the date of presentation whilst the defendant contended that the sums were due 90 days after an invoice was presented. The defendant did not show any basis for the 90 days period. None of the parties produced a sample of the agreements to enable the Court construe its provisions relating to payment. The Court however considered a sample of invoices and none of them supported the defendant's assertion. In the absence of any provision to the contrary, the court shall consider the date of invoice as the date when the payment was due. Interest shall therefore begin to accrue and shall be calculated from the date of invoice to date of payment. It is so ordered.
Costs are in the discretion of the court. In this case the parties were in agreement in resolving the substantial issues. This Court therefore orders that each party bears own costs of this application.
Pronounced in Open Court this 26th day of October 2016 at High Court (Commercial Division) Blantyre.
Rachel Sophie Sikwese