Agrofund International Limited and 3 Others v FDH Bank PLC (Commercial Cause 191 of 2023) [2024] MWHC 47 (3 September 2024)

IN THE HIGH COURT OF MALAWI COMMERCIAL DIVISION BLANTYRE REGISTRY COMMERCIAL CAUSE NUMBER 191 OF 2023 AGRO FUND INTERNATIONAL LIMITED 18 CLAIMANT WEB COMMERCIALS LIMITED 2™4 CLAIMANT MULLI BROTHERS LIMITED 3° CLAIMANT CELCOM LIMITED 4% CLAIMANT VERSUS FDH BANK PLC DEFENDANT CORAM: HON. JUSTICE J. ALIDE 1.0 2.0 Mr. G. Chipeta, of counsel for the Claimant Mr. P. Mpaka, of counsel for the Defendant Mr. B. Ntonya, Court Clerk RULING This is the Defendant’s application to discharge an order for an interlocutory injunction, and to summarily dispose of the matter for disclosing no arguable case and being an abuse of the process of the Court. The application has been brought under Order 10 Rule 1, as read with Order 1 Rule 5(1) and Order 10 Rule 28 as read with Order 12 Rule 23 of the Courts (High Court) (Civil Procedure) Rules 2017, (“CPR 2017”) and Section 3 of the Loans Recovery Act. The brief background to this matter is that the parties herein are in a customer-banker relationship. The Claimants are all private limited companies incorporated in the Republic of Malawi and are severally involved in diverse businesses which include trading in farm produce and inputs, transportation, and information communication technology. Specifically, the 4" Claimant seeks to establish telecommunication business, namely, the provision of mobile service operations in Malawi. The Defendant is a commercial bank (“the Bank’) which provides retail banking services to its customers including the Claimants. 3.0 4.0 5.0 6.0 During their business relationship, the 3™ Claimant obtained a loan facility from the Defendant in the sum of K90,000,000. The facility was secured by a surety charge on a freehold piece of land known as Blantyre East 163 (“the Property”) owned by the 3" Claimant. This loan facility was followed by several other facilities which the Bank availed to the Claimants severally amounting to a disputed total sum of K 4,280,591,397.47, which is about K4,3 billion Kwacha. These facilities were to be secured by further surety charges on the Property. Due to arrears that accumulated on the Claimants account, the Bank decided to exercise its power of sale on the Property and sent the Claimants a notice of sale. The Claimants have protested the Bank’s decision and commenced the present action seeking several reliefs from the Court. Further, the Claimant obtained an ex-parte order for an interlocutory injunction restraining the Defendant from selling or effecting the sale of the Property pending the determination of the Claimants’ action, or any further order of this Court. The interlocutory order was granted with liberty for the Defendant to apply to the Court, any time, to vary or discharge the same as applicable. Indeed, the Defendant filed the current application which seeks from this Court the following reliefs: (i) A declaration that on the true construction of the 3" Defendant’s resolution dated 15 December 2020, and the parties’ agreement dated 22 December 2020, 14th April 2020, and 26th June 2023 between the 3" Claimant and the 4" Claimant property title number Blantyre East 163 is charged and mortgaged by the Claimants borrowing adding up to K 4,280,591,397.47 as of 26 June 2023. (ii) A declaration that, by virtue of the declaration in clause (i) above, the Defendant was at all material times entitled to issue the demand dated 17 August 2022. (iii) An order discharging the interlocutory injunction that was obtained by the Claimants, and then disposing of the matter for disclosing no arguable case, and for being frivolous, vexatious, and an abuse of the Court process, In support of the application, the Defendant has filed a sworn statement by one, Juliano Godfrey Kanyongolo, for and on behalf of the Defendant. The Defendant’s counsel also filed skeleton arguments accordingly, On the other hand, the Claimants filed a sworn statement by one, Leston Ted Mulli, the Claimants’ Managing Director, and skeleton arguments filed by counsel, in opposition to the application. In a nutshell, it is the Defendant’s position that that there is no need for the Court to sustain the injunction bearing in mind that the parties entered into various loan agreements as witnessed by the various loan offers signed by the parties. The Defendant submitted that the Claimants admitted having accessed the loan facilities and had agreed to pay back the loans with interest. The Defendant further submitted that the Claimant had agreed that the sum of about K4.3 billion kwacha was the total sum due to be paid after calling off the loan, 7.0 8.0 9.0 10.0 11.0 On the security for the loans, the Defendant argued that it was clear that the Claimants had offered the Property as security for all the loan facilities as evidenced by the 3" Claimant’s resolution. The Defendant argued that the mere fact that the Claimant had deposited its title deed with the Defendant meant that a mortgage or a charge in equity had been created on the Property in its favour. The Defendant argued that even in the absence of registration of further charges by the Defendant as required, the Defendant had the right to exercise its power of sale because the terms and conditions for the loans allowed the Defendant to consolidate all the loans and to take the Property as security. The Defendant further argued that looking at the Claimants’ Statement of Case, the only relief they were seeking was for the Court to reopen the loan transaction on the basis that it was harsh and unconscionable pursuant to Section 3 of the Loans Recovery Act and then an order for costs. The Defendant argues that the issue of repossession of the property due to the failure to service the loans was not raised in the matter nor was it pleaded. It was the Defendant’s position that the sale of charged registered land is not regulated by the Loans Recovery Act but by the Registered Land Act. The Claimants on the other hand have admitted that they indeed accessed divers loan facilities from the Defendant. They have submitted that throughout the period that they were accessing these different loan facilities, repayments towards the loans were being effected through an assignment arrangement with the Defendant. Under the arrangement, proceeds from contracts that the 3™ Claimant had with Agricultural Development and Marketing Corporation (ADMARC), the Ministry of Lands and Central Medical Stores were all channeled into the Claimant’s bank account held by the Defendant, and the Defendant was deducting 10% of all the money that was going into the account. The Claimants submitted that at some point during these transactions, the Defendant issued a payment guarantee in favour of the Claimant in the sum of about K200,000,000 which was aimed at securing fuel purchases by one of the companies. They state that this payment guarantee was never utilized and accessed by the Claimants. However, the Claimants submitted that the Defendant had included the said sum of K200,000,000 in its computations of the Claimants’ outstanding loan. The Claimants admitted having had problems in servicing the loan facilities after termination of its contracts with government ministries, departments, and agencies. This resulted in the parties coming together to look at the loan portfolio with a view of determining the balances of the loans. The Claimants stated that at the meeting, they were simply advised that the balance of their loan was at K4.38 billion as of June 2023. It was the Claimant’s submission that they protested the amount and requested that the parties do sit down and do a proper reconciliation of the figures. In particular, the Claimant wanted a detailed statement on how the amount had risen to MK4.38 billion. The Claimant argued that they had demanded reconciliation and the full statement 3 12.0 13.0 14.0 15.0 because to the best of their knowledge, the Defendant’s calculations included the MK200 million payment guarantee which they never utilized or cashed. It was the Claimants’ further submission that it may well also mean that apart from the wrongful inclusion of the MK200 million payment guarantee, which they never cashed, the Defendant might have also charged the Claimants 10% penalty interest or other unconscionable interest rates on their loan account that was part of some of the loan offers. It was the Claimants submission that the Defendant, however, advised the Claimant just to confirm the figures for the Defendant’s auditing purposes as they continued discussing the same. On that basis, the Claimant stated that they confirmed the figure. The Claimant further submitted that before they could proceed and do the reconciliation with the Defendant or being provided with a detailed statement on the loan account, they were shocked to receive a letter from the Defendant calling off the loan for having gone into arrears in the sum of KK124,000,000, The defendant gave the Claimants 90 days within which to pay the full sum of MK4.38 billion. The Claimant argues that despite having been promised by the Defendant that they were going to sit down to discuss, and have a reconciliation, or a full statement of account in respect of the loan, this never happened. Further, the Claimants submitted that at no point did the 4th Claimant consent to the creation of any further charges’ on the Property and believed that it was going to be unfair to sell the same in the circumstances. They submitted that there was only one charge and a caution in the register covering the initial loan of MK90,000,000, They argued that no other security was registered. The Claimant further argued that the property the Defendant sought to repossess, and sell was not only prime but also unique in the sense that on it sits a telecommunications tower and a building specifically designed for telecommunication purposes. The Claimant submitted that it was in view of the foregoing that they had commenced the present action, whose some details had been admitted and others denied in the Statement of Case, but which required the Court’s full consideration during the trial. The Claimants argued that they obtained an order for an interlocutory injunction restraining the Defendant from possessing and selling the Property because it was clear that there were serious issues to be tried by the Court, and that damages would not be an adequate remedy under the circumstances. They also argued that the balance of justice and convenience were in favour of maintaining the injunction pending the final determination of the matter, Having heard both parties, there are two issues to be determined by the Court in this matter. The first one is whether or not the Court should proceed and discharge an order for an interlocutory injunction that it granted the Claimants. The second one is whether or not the Court should proceed and summarily dispose of the matter for disclosing no arguable case and being an abuse of the process of the Court. 4 16.0 17.0 18.0 19.0 The principles which have to be considered by the court when dealing with applications for injunctions were laid down in the leading authority of American Cyanamid Co. v Ethicon Limited [1975] 2 W. L. R. 316. The important dicta in the case were summarised by Tembo, J. in the case of Jan Kanyuka v Thom Chiumia and Others Civil Cause No. 58 of 2003 HC (unreported) in which he said: “The principles to be applied in applications for interlocutory injunctions have been authoritatively explained by Lord Diplock in American Cyanamid Co. v Ethicon. The plaintiff must establish that he has a good arguable claim to the right he seeks to protect. The court must not attempt to decide the claim on the affidavits; it is enough if the plaintiff shows that there is a serious question to be tried. If the plaintiff satisfies these tests, the grant or refusal of an injunction is a matter for the court’s discretion on a balance of convenience. Thus, the court ought to consider whether damages would be a sufficient remedy. If so, an injunction ought not to be granted. Damages may not be a sufficient remedy if the wrongdoer is unlikely to be able to pay them. Besides, damages may not be a sufficient remedy if the wrong in question is irreparable or is outside the scope of pecuniary compensation or if the damages would be difficult to assess. It will generally be material for the court to consider whether more harm will be done by granting or refusing to grant an injunction. In particular, it will usually be wiser to delay a new activity rather than to risk damaging one that is already established.” The principles laid out in the American Cyanamid Co, v Ethicon Limited above have been restated and codified in Order 10 Rule 27 of the CPR 2017 which provides that: “The Court may, on application, grant an injunction by an interlocutory order where it appears to the court that: (a) there is a serious question to be tried; (b) damages may not be an adequate remedy; and (c} it shall be just to do so, and the order may be made unconditionally or on such terms or conditions as the Court considers just.” It is therefore trite that courts will only grant an interlocutory injunction where firstly, the court establishes a serious question to be tried. This is determined after the court considers the sworn statements that have been filed in support and in opposition to the application. At this point, the court need not go into the full details and examine the merits or demerits of the action and must avoid resolving complex legal questions which can only be appreciated through facts and/or legal issues that can only be properly addressed during trial. Where the court establishes that there is a serious question to be tried or that the applicant raises a good and arguable claim, the court may exercise its discretion and grant or refuse an injunction. In doing so it is imperative for the court to consider whether damages may be or may not be an adequate remedy, and also whether it may 5 20.0 21.0 22.0 23.0 24.0 be just to do so. Damages may not be considered an adequate remedy where the wrong committed by a party is irreparable or outside the scope of monetary compensation, or where the person condemned to pay the damages may not be able to pay the same, or where assessment of the same would be difficult. [t is also important to state that the dicta by Tembo, J. in the case of Jan Kanyuka above also settles that the usual purpose of an interlocutory injunction is to preserve the status quo until the rights of the parties have been determined in the main action. Accordingly, in considering granting or refusing an injunction, courts must also try to preserve the status quo of the parties as much as possible. Having considered the sworn statements and skeleton arguments filed by the parties, as well as their verbal submissions in support and in opposition to the application respectively, the first question that this Court must answer is whether there is a serious question to be tried in this matter. I have considered the issues raised by both parties here. A lot is at stake in this matter in terms of money and property. One thing that exercised my mind is the extent of the Defendant’s responsibilities prior to the exercise of its power of sale of the property. it was indeed very important for the Defendant to provide the Claimant the full details in respect of what had transpired on his account especially after having assured the Claimants that the figures were only for auditing purposes, and that they were going to continue engaging on the same. This assertion was not contradicted by the Defendant. In my view, it would be completely wrong, therefore, for the Defendant, having undertaken to proceed in one way, proceeds the other. {also observe that the terms of the MK90,000,000 facility included the charging of an additional 10% penalty interest above the base lending rate. As we know, the charging of penalty interest has its own discourse, and a further interrogation may have to be made on the legitimacy of the same. I note the Claimants submission that they believed that the Defendant had included penalty interest and the K200,0000,000 uncashed payment guarantee as part of the balances of the loan, The Defendant did not contradict the Claimants or weigh in on either of these assertions. I am particularly concerned that in the absence of the Defendant’s comments on the same, we may indeed be dealing with wrong figures hence the need to be clear on the same. One other issue that really exercised my mind is that of security for the loans. The first loan was secured by a charge over the Property. It was exhibited as “JGK1”. It was a surety charge on the Property registered on 10 December 2012 as application number 2484/2012. It was endorsed that the same had been registered in respect of the facilities granted to Mulli Brothers Limited, the 3" Claimant herein, in the sum of K90,000,000. This was the only charge on the Property. From the count of the loan facilities, the Defendant was supposed to register three more further charges on the Property but did not. 25.0 26.0 27.9 The Defendant has acknowledged that there was only one charge on the Property, the one that secured the MK90,000,000. They have, however, argued that the absence of further charges on the register did not rob them of their power to sell the property. They have argued on the authority of NBS Bank Limited v. Dylan Mafunga (For and on behalf of Fanny Chiunda Kandoje) MSCA Civil Appeal No. 22 of 2012 in which the Supreme Court agreed that at common law, the mere fact of deposit of title deeds of a property by way of security creates a mortgage or charge in equity. It was the Defendant’s argument that the 4" Claimant surrendered the original certificate for the Property signifying the mortgaging of the same to the Defendant and to enable the registration of the Charge under the Registered Land Act. But for what purpose was the title deed surrendered to the Defendant? The Defendant has sought to run away from the question as to whether the Defendant’s failure to register further charges on the Property had an impact on the extent of its exercise of the power of sale on the same. I must state that the Registered Land Act does require registration of further charges as security where a borrower has accessed further loan facilities after the initial one for which an original charge was registered. The Defendant has not addressed the Court on this point but proceeded to cite an authority that deals with the depositing of a title deed as evidence of creation of a charge or mortgage in equity. I am at pains to leave this question open. This Court also considered exhibit “JGK2A” which according to the sworn statement filed on behalf of the Defendant, was a resolution dated 15 December 2020. According to the Defendant the said resolution was issued by “the holding company” in respect of the agreements entered between the Claimants and the Defendant. The resolution gives consent for the Property to be taken as security for the loan. From the exhibit, it is not clear who issued the resolution as it was not properly headed. However, the footer of the document contains contact details of MBL Holdings Limited. It is my view, therefore, that the said resolution was issued by MBL Holdings Limited. The resolution provides follows: “This is to certify that at a meeting that was held on 15 December 2020 in the boardroom at MBL Holdings Limited in Chigumula, Blantyre, the Board of Directors reached a resolution that the company must renew its Bracket Loan Facility with FDH Bank Limited for the sum of MK3,100,000,000 (Three Billion and One Hundred Million Kwacha) for working capital purposes on the operating account, We are offering our property Title No. Blantyre East 163 in the City of Blantyre (CELCOM BUILDING) as security for Bracket Loan Facility of MK3.| Billion.”. As noted above, the Defendant has relied on this resolution to argue that the Claimant gave its authority to the Defendant to proceed and take the Property as security. However, if indeed the resolution was issued by MBL Holdings Limited, then it is a problem because they do not have title over Blantyre East 163. The 4th Claimant, Celcom Limited, owns the property. In terms of the law, the two are separate legal 7 28.0 29.0 30.0 31.0 32.0 entities. In my mind, the resolution issued by MBL Holdings Limited over property owned Celcom Limited may be faulty and deserve further scrutiny. I view of the issues raised above, it is my conviction that there is a litany of serious issues in this application that requires the Court to go deeper and examine and make determination. On whether damages may be an adequate remedy, I had the occasion to consider the Claimants submission as regards the uniqueness of the property that is the subject of sale in this matter, It is a building that was purposely built for telecommunication purposes. On it sits a telecommunications tower which is connected to the building. In my mind, if the sale proceeds and it is eventually found that it proceeded on erroneous footing, the Claimant would have been deprived of a unique property that damages only may not be able to adequately compensate the Claimant bearing in mind the special nature of the property. It is therefore my view that damages would not be an adequate remedy to the Claimant in this matter. On the balance of justice, it is my view that the Defendant’s failure to provide the Claimant with a detailed breakdown of the status of the Claimant’s account creates a presumption that the figures may not be entirely correct. This is buttressed by the Claimant’s statement that they were advised to sign for the figures only for auditing purposes and were going to continue discussions on the same. The Defendant has not contradicted the Claimant on this assertion, and it is my view that there is a risk of the Defendant exercising a power of sale on loan balances that may not be correct. In my view it will be unjust to proceed and sell the property without the Defendant providing the Claimant with a statement of the loan account accordingly. As I wrap up, | must observe that this Court has been flooded with matters involving commercial banks trying to exercise their power of sale on properties presented to them as security. However, it has been commonplace for banks to find themselves wanting as far as perfection of their security is concerned. The Registered Land Act requires that where a charge has been created on a property as security for a loan, any subsequent loans granted by the same lender and secured by the same property must be backed up by subsequent further charges. In the case of new lenders, a second charge and so on need to be created as security. This is not just a song but the law. However, as observed in this matter, it has become the order of the day for commercial banks to hastily proceed and disburse loans to their customers without making sure that security is perfected. In some cases, banks have failed even to register the first charge. These matters end up in our courts and usually the banks have tough times justifying this omission. Surely, this may be a source of loss of funds for the banks if not checked. In respect of the current application to discharge the injunction, having considered the application overall, it is my view that the order of an interlocutory injunction obtained 33.0 34.0 by the Claimant herein be, and it is hereby, perpetuated until the determination of the matter herein or any further order of the Court. On the application to dispose of the matter summarily, it is clear as discussed above that the application raises a lot of issues that need to be settled in this matter. Proceeding to dismiss the same may, in my view, result in prejudice against the Claimants. I therefore decline the application. On costs, these are awarded at the court’s discretion but usually they follow the event. However, at this point, I find it appropriate that each party should bear its own costs, and I so order. Made in chambers at Blantyre this .) i September 2024. Jabbar Alidé-~ JUDGE