Chita Lodge and Resorts Limited and 2 Ors v Development Bank of Zambia (APPEAL No. 177/2024) [2025] ZMCA 89 (27 June 2025)

IN THE COURT OF APPEAL OF ZAMBIA HOLDEN AT LUSAKA (Civil Jurisdiction) APPEAL No. 177/2024 BETWEEN: CHITA LODGE AND RESORTS LIMITED JAMES KASANGA CHUNGU BABSIE PULENG BULAYA 1 ST APPELLANT 2ND APPELLANT 3RD APPELLANT AND DEVELOPMENT BANK OF ZAMBIA RESPONDENT CORAM: SIAVWAPA JP, CHISHIMBA AND PATEL, JJA On 17TH June and 27th June, 2025 FOR THE APPELLANTS: MR. M. HAIMBE OF MESSRS HAIMBE FOR THE RESPONDENT: MR. M. M . MUKONDE IN-HOUSE LEGAL PRACTITIONERS COUNSEL JUDGMENT SIAVWAPA, JP delivered the Judgment of the Court Cases referred to: 1. Chilola Intertrade v. Citizens Economic Empowerment Commission CAZ Appeal. No .. 282 of 2022 2 . Kenmuir v. Hattingh (1974) ZR 164 3. Collet v. Vanzyl Brother Ltd (1966) Z. R 65 4. Habuce Farms Limited v. Tabisbhai Gulam !sap Hola and Another CAZ Appeal No. 218 of 2020 5. Homenet Zambia v. David Van Der Merwe 6. Esquire Roses Farms v. Zega Limited SCZ Appeal No. 37 of Legislation referred to: 1. Section 110 of the Banking and Financial Services Act (BFSA) 1.0 INTRODUCTION 1.1 This appeal arises from the Judgment handed down by the Hon. Mr. Justice B. C. Mbewe in the Commercial Division of the High Court. 1.2 The Judgment granted the Respondent the remedies sought in a mortgage action it commenced against the Appellants. 2.0 BACKGROUND 2.1 Between 2013 and 2017 the 1st Appellant obtained three loan facilities in various amounts. The said loan facilities were secured by legal mortgages relating to different properties, fixed and floating debentures, joint and several Shareholder Guarantee and further charges, further fixed and floating debenture and further joint and several shareholders' guarantee for the second facility. 2.2 The third facility was secured by a Third-Party legal mortgage further fixed and floating debenture and further joint and several shareholders Guarantee. 2.3 By letter of variation dated 21 st July, 2016, the parties agreed to extend the grace period for repayment of the principal sum of the first and second loans. Equally the repayment of outstanding arrears on the principal for the two loans was deferred to 31 st January, 2017 from 30th June 2016. J2 2.4 A further variation was agreed to by the parties on 28th August 201 7 , to combine the first and the second loans, creating one long term loan, whose principal amount stood at K48, 802, 589.92. On the combined loans, the grace period for its repayment was extended to 25th July 2018. 2.5 The above, referred to variation letter dated 28th August 201 7 , which occurs from page 156 to 159 of the Record of Appeal, was accepted and signed by the 1st Appellant on 30th August 201 7. This was following a resolution by the 1st Appellant's Board of Directors to accept the variation. The acceptance and Board Resolution are at pages 160 and 161 of the Record of Appeal respectively. 2 .6 Between January 2019, and June 2021 , the Respondent issued letters of demand to the 1st Appellant and the guarantors. On the date of the first demand letter occurring at page 162, the Appellants were in arrears for five months on both the principal and interest. 2. 7 There being no positive response from the Appellants, the Respondent filed originating summons and an affidavit in support on 15th November 2021. 2.8 By the said pleadings, the Respondent sought the following reliefs; 1 Payment by the 1st Respondent (1 st Appellant) of the full amount due and owing to the Applicant under the Facility letters dated 1 7th April, 2013, 3rd October, 2014, 21 st July, 2016, 14th August, 2017and 28th August, 2017, which amount stood at K79, 907, 282.21 as at 25th October, 2021. J3 2 Interest thereon. 3 An order of possession of mortgage namely Stand no. 3705, Lusaka, Stand No. 1450, Samfya and Subdivision No. 21 of Farm No. 484, Lusaka. 4 An order of foreclosure of the mortgaged properties. 5 An order of sale of the mortgaged properties. 6 As further relief, an order against the 2 nd Respondent and 3rd Respondent as Guarantors for payment of the said sum of K97, 907, 282.31 and interest therein. 7 Any other relief the Court may deem just and equitable. 2 . 9 The Respondent (Appellants) filed an affidavit in opposition to the originating summons on 2nd December, 2021. The Respondents raised the following arguments; (a)That the Appellant did not advise the other Respondents to seek independent legal advice. (b)That the calculations of the amount owed ought to have been based on the principal at the time the loan became non-performing. (c) The Respondents generally disputed the figures presented by the Applicant. 3.0 DECISION OF THE HIGH COURT 3.1 The learned Judge interrogated the issues raised and argued by the parties and determined them in accordance with the sequence they were raised and argued. 3 .2 The first issue the learned Judge dealt with 1s that of estoppel. The Respondents argued that the 1s t Applicant should be estopped from arguing its claims because the parties had reached an agreement on how the Respondent would settle the debt. J4 3.3 In resolving the issue, the learned Judge relied on a clause in the facility letter of 17th April 2013, which expressly excluded estoppel plea against it. 3.4 The second issue related to the Respondents' argument that the 1st Applicant did not advise them on seeking independent legal advice on the letter of variation, which was effected before the Respondents consented. 3.5 The learned Judge resolved the issue in favour of the Applicants because the letter of variation stated that the Respondents had acknowledged having been advised accordingly. 3.6 The learned Judge however, held that giving effect to the letter of variation before the Respondent consented was illegal and ordered its rectification. 3. 7 On the issue whether sub-division 21 of Farm 484 (a) Lusaka ought to have been discharged from being a security, the learned Judge held that it was properly placed as security. 3.8 On the argument that no further third-party mortgage was executed in relation to sub-division 21 of Farm 484 (a), Kafue Road, the learned Judge held that the fact that the 1st Respondent surrendered the Certificate of Title relating to the property to the Applicant satisfied the requirements for the creation of an equitable mortgage. 3.9 On whether the 1st Applicant violated Section 110 of the Banking and Financial Services Act (BFSA) in relation to the JS capping of interest, he relied on Section 2 of the Act which defines non-performing loan as a loan whose principal or interest is in arrears for more than 90 days. 3.10 In that respect, the learned Judge found that interest had remained in arrears for more than 90 days with effect from 26th November, 2018. That in terms of Section 110 (1) (b) of the Act the interest payable in arrears at the time of non performance should not exceed the principal amount at the time. 3.11 The learned Judge found that since the principal amount due at the time of non-performance of the loan was K48 , 802, 589. 92, the 1st Applicant violated Section 110 (1) (b) of the Act when it applied interest on the November, 2020 principal which had risen to Kl 12, 814, 740.31. 3.12 In order to address the above anomaly, the learned Judge ordered that an assessment of what was due to the 1st Applicant be conducted by the Registrar. 3.13 Overall, the 1st Applicant was successful and awarded costs. 4.0 THE APPEAL 4 . 1 The Appellants were dissatisfied with the outcome and filed Notice and Memorandum of Appeal in March 2024. 4.2 The Memorandum of Appeal contains the following grounds of Appeal. 1. The learned trial Judge erred in law and/ or in fact in not discharging or setting aside the letter of variation dated 30 August, 201 7 despite his finding that the Respondent J6 herein acted illegally in effecting the letter of variation without obtaining prior consent from the Appellants. 2. The learned trial Judge erred in law and fact when he held that the principal amount when the loan became non performing was ZMW 48, 802, 598.92 as he ignored the fact that the aforementioned amount was based on the illegally obtained letter of variation and also the fact that the said facility had been ono-performing way before the restructuring pursuant to the letter of variation. 3. The learned trial Judge erred in law and fact when held that the loan should have been deemed as non-performing on or around 26th November, 2018 as he ignored the evidence on record which showed that the loan had become non-performing way before the letter of variation dated 28th August, 2017. 4 . The learned Judge erred in law and/ or fact when he held that the Respondent herein was not estopped from taking out the action in the Court below by virtue of the agreement between the parties relating to the settlement of the debt. (This ground was abandoned) 5. The learned trial judge erred in law and fact then he held that the Respondent herein proved its case against the 1st Appellant as a consequence which he awarded costs to the former despite the fact that the Court's finding that the Respondent violated the Banking and Financial Services Act and that the claim of ZMW 97, 907, 282.31 was not sustained. J7 6. The learned trial Judge erred in law and/ or fact when he found that the Respondent was not obliged to cap the loan immediately on non-performing 5.0 ARGUMENTS IN SUPPORT 5 . 1 On the first ground, the Appellants argue that because the learned Judge below held that effecting the letter of variation before it was consented to by the Appellants was illegal, the said letter was therefore, null and void. 5.2 In that regard, the Appellants argue, that the learned Judge ought to have set aside the letter of variation for being illegal and null and void. 5 .3 In the second and third grounds, the Appellants contend that since the learned Judge held that the letter of variation was illegal, the principal amount of K48, 802, 589.92, as determined by the learned Judge, was inapplicable. Further that in fact, the loan was already non-performing on 28th August 201 7 , when the debt was restructured. 5.4 In ground five, the Appellants contend that the learned Judge in the Court below contradicted himself when in one breath he held that the Applicant had proved its case on a balance of probabilities and in another, he held that the case was fit for reference to the Registrar, to conduct an assessment and reconciliation of the amount due to the Applicant. 5.5 This contention 1s based on the Appellants' position that they do not dispute their indebtedness to the Respondent. J8 That they however, dispute the sum of ZMW 97, 907, 282.31 as claimed by the Respondent. 5.6 In ground six, the Appellants contend that the learned Judge in the Court below erred when he allowed interest to accrue on the principal way after the loan had become non perf arming. 5.7 They relied on our Judgment in the case of Chilola lntertrade V. Citizens Economic Empowerment Commission 1 • 6.0 ARGUMENTS IN OPPOSITION 6.1 In opposing the first ground of appeal, the Respondent letter which contends consolidated the 1st and the 2nct long term loans was made that because the variation on 25th July 201 7, it was appropriate for the Respondent to also state the restructuring fee of 2% of the new principal of ZMW 48, 802, 589.92 as of that date. 6.2 The Respondent further argues that had it not charged the restructuring fee then, the principal would have increased and also that there was no evidence that the fee was effected on 25th July 201 7 , the date stated as the effective date for the restructuring of the loans 6.3 With reference to the case of Kenmuir v. Hattingh2 in which the Supreme Court of Zambia guided that an appellate Court can make its own findings of fact, the Respondent has asked us to exercise that discretion. J9 6.4 In opposing grounds two and three , the Respondent has argued that the Court below accepted the letter of variation of 28th August 2017, and as such the ZMW 48, 802, 598.92 principal was correctly upheld. 6. 5 Secondly, that the restructuring consolidated the two loans by reason of which only the new terms applied and not the status quo before the letter of variation of 28th August 201 7 . 6.6 In ground five, the Respondent agrees with the Court below on its finding that the Respondent had proved its case on a balance of probabilities. This is in view of the finding that the Applicants did not dispute liability save for the quantum which was referred to the Registrar for assessment. 6. 7 As regards costs, the Respondent relied on the case of Collet v. Vanzyl Brothers3 in which the then Court of Appeal held that costs were in the discretion of the Court. 6.8 On the argument that the Court below erred to hold that the Respondent was not obliged to cap interest immediately upon failure of performance of the loan, the Respondent submits that Section 110 (l) (b) does not state that the interest should be capped immediately the loan becomes non-performing. 7.0 AT THE HEARING 7. 1 At the hearing of the appeal, both parties opted to rely on their filed heads of argument. JlO 8.0 OUR ANALYSIS AND DECISION 8.1 From the reading of the Judgment appealed against, the grounds of appeal and the arguments by the parties, one thing is common cause, that is, the default and the resulting indebtedness of the Appellants. 8 .2 The dispute that the Appellants have raised and argued relates to the validity or otherwise of the letter of variation dated 28th August 201 7 . 8.2 This letter of variation restructured the first two facilities after consolidating them into one. The resulting effect of the restructuring was that the grace period was moved to 25t h July 2018. 8.3 The basis, upon which the Appellants are challenging the validity of the letter of variation dated 28th August 201 7 , is that it was given effect before it received the Respondents' consent. 8.4 The argument arises from the fact that whereas the Respondents consented to the letter of variation on 30th August 201 7 , the restructuring fee was allegedly effected on 26th July 201 7. This is as recorded on the "Client loan Statement" exhibited at page 169 of the Record of Appeal in the first column of the second row. 8.5 The effect of the Appellants' view of the letter of variation of 28t h August 2017, is that the Respondents' claims were not enforceable because they were based on a letter of variation that was null and void. J11 8.6 This view also calls into question the validity of the finding by the Court below that the principal loan due was the sum of ZMW 48, 802, 589.92 as the same was based on an invalid letter of variation. 8. 7 In dealing with the validity of the letter of variation in question, it is important to consider the requirements of a document that varies a valid contract. 8 .8 It is not an issue that all the facility letters that were issued by the Respondent to the 1st Appellant resulted in valid loan agreements between the parties. 8.9 In the case of Habuce Farms Limited v Tabisbhai Gulam Isap Hola and Another4 , we stated as follows;" "The key requirement for a contract to be varied for modified in terms is that the parties thereto ought to mutually agree to the variations. The variations should however be consummated by the fulfilment of the three contract namely; offer, basic acceptance and consideration." foundations of a 8. 10 In the same case, we referred to the case of Homenet Zambia v David Van Der Merwe5 in which the High Court of Zambia set out the following; (persuasive value) - That it alters legally enforceable obligations which previously bound the parties It can be either oral or in writing It can be effected by modifying or altering by mutual agreement It must contain off er, acceptance and consideration. - - - - Once varied it applie s as varied to the exclusion of the original terms which up on cannot be relied upon by either party. J12 8.11 With regard to the nature of the required consideration, the Supreme Court of Zambia in the case of Esquire Roses Farms v Zega Limited6 stated as follow; "The variation must be supported by consideration such the mutual consideration can also be found abandonment of existing rights, or in the conferment of new benefits by each party to the other." in 8.12 It is our considered view that all the above requirements to constitute variation of a contract were met in this case. 8.13 As regards mutual agreement between the parties, it is noted that the request to vary some terms of the first and second facilities was made by the Appellants to the Respondent. Once the proposed variations were reduced into a letter of variation, the Appellants signed the acceptance page two days later as shown at pages 156 and 160 of the Record of Appeal. 8 . 14 The letter of variation occurring at page 156 of the Record of Appeal, clearly shows that one of the key variations made was to combine the first and second long term loans which gave a combined total principal sum of K48, 802, 589.92. 8 . 15 The letter also provides for the variation to the grace period for the repayment of the principal on the combined long term loans to expire on 25th July 2018. 8.16 Clearly, the letter of variation has no discernible defects in form and at law. The question is, does the fact that the restructuring fee was reflected in the client statement of account as being effective on 26th July 201 7, before the J13 Appellant signed the acceptance on 30th August 201 7, render the letter of variation illegal, null and void? 8.17 In Clause 6.3 of the letter of variation it states as follows; " "A restrncturing fee of 2 % is payable on the total outstanding loan amounts on Loan 1 and 2 as at 25th July, 2017 of ZMW 48, 802, 589. 92 that is ZMW 976, 051. 79. This fee is chargeable to the borrower's Loan account" 8.18 The Record does not state when the Appellants requested for the variation of the loan but it is clear from the wording of the letter of variation that it should have been before 25t h July 201 7. The Respondent then appears to have made the computation in response to the request on 25th July 2017. 8.19 It follows therefore, that all the computations and figures relating to the principal and interest were as at 25th July 2017. 8.20 The fact that the letter of variation was written on 28th August, a month after the computations were done, does not change anything. Moreover, if the computations were changed to read as at 28th August 201 7, as suggested by the Appellants, the figures would have been higher. 8.21 Further to the above clause 6.3 does not state to the effect that the restructuring fee had been effected. What is shown on the client loan statement at page 169 is the fact that the restructuring fee is a charge to the borrower's account as stated in clause 6.3 of the letter of variation. 8.22 It is also noted that the client loan statement was downloaded and printed from the Respondent's system on J14 28th July 2021, showing the status of the loan as at that date. 8.23 In our view that vanance between the date of the restructuring fee and the date of acceptance does not affect the variation of the contract in any event, the fact that the Appellant signed the acceptance, after reading the letter of variation, with a disclosure of the effective date of the restructuring fee amounts to acquiescence. 8.24 The next issue relates to the interpretation of Section 110 (1) (b) of the BFSA which caps interest on a non-performing loan. Section 2 of the Act defines non-performing loan as; ((a loan in respect of which payment of principal or interest is in arrears for more than ninety- days" 8.25 In this appeal, the contention is that the Court below ought to have capped interest at the stroke of ninety days of non performance of the loan. 8.26 What is instructive about the definition in Section 2 of the Act is the phrase "more than ninety days". The question then is, did the Respondent herein cap interest after the loan had been non-performing for more than ninety days? 8.27 In this case, we are dealing with the loan after the letter of variation of 28th August 201 7, which consolidated the 1st and 2 nd long term loans into one resulting in a total principal sum of ZMW 48, 802, 589.92. 8.28 This meant that the borrower would only start paying the principal with effect from 26th July 2018. JlS 8.29 The loan would then become non-performing after 25th October 2018, being after ninety days of being in arrears. 8.30 It is therefore, not correct to state, as the Appellants do, that the loan became non-performing before the letter of variation dated 28th August 201 7. 8.31 It is however, also noted that the Court below, in the computation of time, when it held that the loan became non-performing on or around 26th November 2018, should have stated so in relation to the interest. 8.32 Clause 6.1.2 of the letter of variation provides for capitalized interest to start running from 26th August 2018, a month after the expiry of the grace period, in which case the loan would be considered non-performing on 27th November 2018 with regard to interest. 8.33 The learned Judge below was therefore, on firm ground when he held that the loan should have been deemed as non-performing on or around 26th November 2018. 8 .34 According to the first relief sought by the Respondent, the amount due as at 25th October 2021 was K97 , 907, 282.31. This amount excluded interest, according to paragraph 36 of the affidavit in support of Originating Summons at page 37 of the Record of Appeal. 8.35 Applying Section 110 (1) (b) of the Act, interest applicable in arrears should not exceed the principal amount. In this case, the loan became non-performing with respect to the J16 principal amount of ZMW 48, 802, 582. 92 on 25th October 2018. 8.36 However, because according to Clause 6.1 .2, interest was to start running from 26th August 2018, it means that by the time the loan became non-performing with regard to interest, on 27th November 2018, interest equivalent to three months had accumulated on the principal sum of ZMW 48, 802, 582.92 . 8.37 That interest is then compounded to the principle to give the total principal as at 25th October 2018, when the loan became non-performing with regard to the principal. 8 .38 In essence therefore, the interest chargeable on the principal was capped when the loan became non-performing with regard to the principal on 25th October 2018, a period of three months from 26th August 2018. 8.39 So then the next issue is that in compliance with Section 110 (1) (b), the interest chargeable should not exceed the principal amount as at 25th October 2018. 8.40 In Clause 6.1.1 of the letter of variation, interest was pegged at 11 % per annum as per the Bank of Zambia Monetary Policy Rate, with a margin of 15.22%. When we add the 11 % to the 15.22%, we get 26.22% as the contractually agreed interest rate per annum. 8.41 At 26.22% per annum of the principal sum of ZMW 48, 802, 589.92, the interest is ZMW 12, 796,039.07. That amount multiplied by the three months it was applicable before the J17 loan became non-performing gives us the sum of ZMW 38, 388, 117.21. 8.42 This amount is less than the principal amount of ZMW 48, 802, 589.92 , falling within the permissible interest under Section 110 (1) (b) of the Act 8.43 This interest is therefore, recoverable by the Respondent and when added to the principal amount at the time the loan became non-performing, it brings the total amount due to the Respondent to ZMW 87, 190, 707.13 8.44 This amount is less than the amount claimed by the Appellants by ZMW 10, 716, 575, 18. The Respondent is therefore, entitled to the amount of ZMW 87, 190, 707.13 as the total principal and interest due on the loan. 8.45 As regards the alleged breach of Section 110 (1) (b) of the Act, the learned Judge so found due to the erroneous computation that pegged the interest after the loan became non-performing at more than the principal amount. Having found that this was not the case, this ground is dismissed. 8.46 On whether or not interest ought to have been capped immediately the loan became non-performing, it is our considered view that in the manner Section 110 ( 1) (b) is couched, there is no such obligation. The only obligation is that interest should not exceed the principle at the time the loan is held to be non-performing for a period exceeding ninety days. J18 9.0 CONCLUSION 9 .1 The learned Judge in the Court below correctly found that the Respondent had proved the default by the 1st Appellant on a balance of probabilities. 9.2 The Respondent did not act in breach of Section 110 (1) (b) of the Act. 9.3 The restructuring fee charged pnor to the Appellants' consenting to the letter of variation of 28th August 201 7 did not violate the Act. 9.4 The interest arrears due as determined herein, was within the limit set under Section 110 (1) (b) of the Act. 9.5 The end result is that the appeal is dismissed for lack of merit with costs to be taxed in default of agreement. j M. J. SIAVWAPA JUDGE PRESIDENT ~ F. M. CHISHIMBA A. N. PATEL SC COURT OF APPEAL JUDGE COURT OF APPEAL JUDGE J19