Emergency Response Zambia Limited and Ors v Betternow Finance Company Limited (T/A Inde Credit Company Limited) (APPEAL NO 194/2023) [2024] ZMCA 324 (31 October 2024)

IN THE COURT OF APPEAL OF ZAMBIA: APPEAL NO 194/2023 HOLDEN AT LUSAKA (Civil Jurisdiction) BETWEEN EMERGENCY RESPONSE ZAMBIA LIMITED: 1 sT APPEALLANT ROSANA MARY NYENDWA SAM CONSTANTINE MALAMA: '-Ai,1 ND APPELLANT RD PPELLANT . oF - ~~~~ '~,~ f- 3 I oc\ 1~\ j j AND BETTERNOW FINANCE co CREDIT COMPANY LIMITED} <hiMIT'iRY 2 :;(µ INDE Po aox50001 -\..'0'=> CORAM: SIAVWAPA JP, NGULUBE AND BANDA-BOBO On 17 th September and 31 st October, 2024 FOR THE APPLLANTS: MISS S. MVULA OF J & M ADVOCATES FOR THE RESPONDENT:MR. Y. S SIMUKONDA OF NOEL SIMW ANZA LEGAL PRACTITIONERS J U D G M E N T SIAVWAPA JP Delivered the Judgment of the Court Cases referred to: 1. Margie Carpet Travel and Tours v Zambia National Commercial Bank Limited ( 1999) ZR 61 2. Re Molton Finance Limited [1967) 3 ALL ER 844 Other Works Referred to: 1. Halsbury's Laws of England 2 . Understanding banking law 1n Zambia: Commentary and Legislation 1.0 INTRODUCTION 1.1 This is an appeal against the Judgment of the Honourable Mrs Justice, Abha N. Patel SC, delivered at Kitwe on 17th May 2022, in favour of the Respondent. 1.2 By the said Judgment, the learned Judge ordered the 1st Appellant to pay the Respondent the sum of USD 111, 997 .64 with interest in accordance with the Judgments Act within ninety days of the Judgment. That in default of payment, the 1st Appellant should deliver vacant possession of the security property and if not satisfied, the balance to be paid by the 2 nd and 3 r d Appellants as guarantors. 2.0 BACKGROUND 2 . 1 By facility letter dated 2 n d January 2020, the Respondent offered the 1st Appellant a Revolving Invoice Discounting Facility (RIDF). The facility was meant to provide the 1st Appellant with working capital with Invoices payable within thirty (30) days. The cost of the facility was set at 7 .5% for the first thirty days. 2.2 The Facility also provided that for each Invoice to b e discounted under the facility, the parties would have to execute a specific Deed of Assignment. J2 2.3 On 5th January 2020, the parties entered into a Security Agreement by way of a third party equitable mortgage by which the 2 nd Appellant offered Stand No 6543 Mumana Road in Roma Lusaka, as security for the sum of USD 300, 000.00 for a period of thirty days. 2.4 On 21 st September 2020, the Parties entered into a Restructured Financing Agreement by which the 1st Appellant requested and the Respondent agreed to provide the sum of USD 103, 683.00. 2.5 On 15th September 2020, the 1st Appellant wrote to the Respondent apologizing for defaulting on the facility and attributed the default on the failure by First Quantum Mineral Limited (FQM) to pay it on an outstanding invoice. It requested an extension to 4 th October 2020. 2.6 On the same date, the 21 st September, 2020, the 1st Appellant executed a Deed of Assignment in favour of the Respondent creating an assignment of its receivables for the payment of the sum of USD 103, 683.00 into the Respondent's assigned account. 2.7 On 4 th October 2020, the Respondent offered the 1st Appellant a restructured facility in the sum of USD 111, 997 .64, replacing the earlier facility. The restructured facility was to attract interest at the rate of 8 % of the principal amount per month with a tenure period of two months. J3 2.8 On 8 t h December 2020, the 1st Appellant wrote to the Respondent extending an apology for its failure to pay the outstanding amount on the Facility. It assured the Respondent that alternative sources of funding would be secured by the end of the week. 2.9 By letter dated 17th December 2020, addressed to the Respondent, the 1st Appellant requested for extension of time within which to pay the now overdue facility. The 1st Appellant explained that its failure to pay as agreed was because the 3 rd party had not paid its invoice worth USD 325, 000.00. It therefore, asked that it be given up to 15th January 2021. 2.10 To the above request, the Respondent replied by letter dated 18t h December 2020 and agreed to extend the payment date to 15th January 2021 as requested with specified conditions. 2.11 As the Record will show, the Respondent commenced a mortgage action in the Commercial Registry at Kitwe by Originating Summons filed into Court on 5 th May 2021. The originating Summons contains the following claims 1. Payment of USD 111, 997 .64 by the 1st, 2 nd and 3 rd Respondents to the Applicant being money due under the Invoice Discounting Facility 2. Delivery and possession of the Mortgaged property, Stand No 6543, Mumana Road, Olympia, Lusaka J4 3. Foreclosure and possession of the mortgaged property stand No 6543, Mumana Road Olympia, Lusaka. 4. Any other relief that the Court deems fit 5. Interest 6. Costs 3.0 OPPOSITION TO THE ORIGINATING SUMMONS 3 .1 The 1st Appellant filed its affidavit in opposition to the Originating Summons on 10t h December 2021. It was deposed to by Rosanna Mary Nyendwa-Sammon, the 2 nd Appellant herein in her capacity as Managing Director for the 1st Appellant. 3.2 In the affidavit 1n opposition, the 1st Appellant raised three issues namely; the reason for the 1st Appellant's default being the failure by the third party, First Quantum Minerals, to pay it its dues, secondly that the restructured loan was secured by receivables from FQM and thirdly, that the Respondent did not serve the deponent or the 3 r d Appellant with a letter of demand. 4.0 DECISION OF THE HIGH COURT 4 .1 In her Judgment, the learned Judge found as a fact that the 1st Appellant owed the Respondent the claimed amount of USD 111 , 997 .64 which it had failed to settle. The learned Judge also found that in addition to the receivables from FQM, the JS loan was also secured by the property, Stand No 6543 Mumana Road, Olympia, Lusaka owned by the 2 n d Appellant. 4.2 Finally, the learned Judge found that the surrender of the Certificate of Title relating to Stand No 6543, Mumana Road, Olympia, Lusaka, to the Respondent, created an equitable mortgage. Further that the failure by FQM to pay the receivables into the Respondent's account did not frustrate the facility because the 1st Appellant had a duty to settle the loan from other sources. 5.0 THE APPEAL 5.1 The Appellants filed the Notice and Memorandum of Appeal on 15th June 2022, containing four grounds of appeal set out as follows; 1) The learned Puisne Judge erred in law and fact when she failed to take into consideration that the sums obtained by the 1st Appellant from the Respondent were secured against the receivables from the contract between the 1st Appellant and First Quantum Minerals, and that First Quantum Minerals had been sued by the 1st Appellant for the recovery of the sum due to the 1st Appellant 2) The learned Puisne Judge erred in law and fact when she misapplied principle of temporary frustration 3) The Honourable High Court Judge erred in law and fact by failing to prope rly examine the letter and spirit of the JG Loan Agreement between the 1st Appellant and the Responden t 4) The learned High Court Judge erred in law and fact when she failed to apply her mind to the fact that a Revolving Facility entails that an outstandin g balance on a credit facility does not have a determined end date 6 .0 ARGUMENTS IN SUPPORT 6.1 The Appellants' arguments in respect of grounds one and two were that the facility the 1st Appellant obtained from the Respondent was secured by receivables from FQM by Deed of Assignment executed between the 1s t Appellant and the Respondent. That because the third party failed to remit the receivables to the Respondent as agreed, the 1st Appellant commenced an action against the third party. 6.2 The 1st Appellant has also argued that because the parties did not execute a Mortgage Deed in respect of the security property, no mortgage was created and as such, the 1st Appellant 1s not obliged to deliver possession of the said property to the Respondent. 6.3 The Appellants have also p leaded frustration of contract by reason of the third party's failure to remit receivables. On that account, the Appellants argue that they are entitled to the equity of redemption any time after the fixed date. J7 6.4 In ground two the Appellants have largely repeated the arguments rendered in grounds one and two to the effect that failure by FQM to remit receivables to the Respondent's accou nt to settle the debt frustrated the contract between the 1st Appellant and the Respondent. 6.5 In ground four, the Appellants contend that the learned Judge failed to appreciate the fact that a revolving facility has no determined end date. According to the Appellants through their advocates, a revolving loan facility has fluctuating interest rates as determined by the credit markets . 7.0 ARGUMENTS IN OPPOSITION 7 . 1 The Arguments in response to the first ground are that the learned Judge adequately justified her finding that the facility was not only secured by the receivables from FQM, but also by the security property and the guarantees by the 2 n d and 3 rd Appellants. Further that the RIDF provided for payment of the loan from other sources in the event of failure by FQM to honour the order. 7 .2 In ground two, the Respondent has argued that the learned Judge's position that an equitable mortgage was created by the deposit of the Certificate of Title was supported by the law 7 .3 In arguing ground three, the Respondent dismisses the temporary frustration theory advanced by the Appellants. This is because, according to the Respondent, the Appellants had a JS fall-back position of other resources as provided for in the RI DF. 7.4 With respect to ground four, the Respondent argues that the same should not be considered as it was not raised in the Court below. The Respondent has however, referred to clause 3 .1 of the Facility Letter which provides for payment of the facility on demand and the payment period of thirty (30) days for each draw down. 8.0 OUR ANALYSIS AND DECISION 8 .1 From the reading of the Record, the grounds and the arguments in support and in opposition, we gather that the Appellants are disconsolate with the Judgment of the Court below for holding that the 1st Appellant was in default and that Stand No 6543 Mumana Road Olympia Lusaka, was liable to foreclosure. 8.2 The Appellants founded the basis for their arguments on their view that the facility the 1st Appellant obtained from the Respondent was solely secured by the receivables from FQM. Further that in the absence of a mortgage instrument, no third party mortgage was created in respect of Stand No 6543, Mumana Road, Olympia Lusaka, which is registered in the name of the 2 n d Appellant. 8. 3 In our considered view, this appeal turns around two issues namely; whether assigning receivables from a third party to J9 the liquidation of a debt amounts to security of the loan and whether a third party equitable mortgage is created by depositing a Certificate of Title with the creditor. 8.4 In dealing with the two issues, we will review the two documents which created the relationships between the Appellants and the Respondent. The first and primary source of the relationship is the Facility Letter dated 2nd January 2020, running from page 35 to page 42 of the Record of Appeal. 8.5 The Facility Letter is essentially, an offer by the Respondent to the 1st Appellant of what is termed; "Revolving Invoice Discounting Facility". The Facility offered financial accommodation ranging from USD 50, 000.00 to USD 300, 000.00 on terms and conditions as set out in the document. 8.6 Clause 2.1 of the Facility Latter provides as follows: "The client requires the funds for operational purposes. Bettemow Finance Company will discount invoices as they are issued provided such invoices are payable within 30 days. For each invoice to be discounted under this Revolving Invoice Discounting Facility, a specific deed of assignment shall be signed between Bettemow Finance Company Limited and Emergency Response Zambia Limited" 8.7 Under Clause 6, the Facility Letter provides for security in the following terms: 6.1.1 "Deed of assignment of debt by Emergency Response Zambia Limited to Bettemow Finance Company limited. " J10 6.1.2 "Surrender Titles to Property with a value not less than USD400, 000. 00 (Four Hundred Thousand United States Dollars)" 6. 1. 3" Unlimited guarantee by Company Directors" 8.8 Clause 7.1 provides as follows; "The borrower shall repay the loan facility together with the commission from the proceeds of the invoices as per specific deed of assignment and order from First Quantum Minerals Limited. Should First Quantum Minerals Limited become not liable to honour the order due to any reason, the client will settle the loan repayment using other sources provided the facility is settled in full by the stipulated repayment period" 8. 9 The borrower, the 1st Appellant, accepted the terms and conditions in the Facility Letter by initialling every page thereof and signing at the end as provided under clause 15 of the Facility Letter. 8.10 In pursuance of clause 6 of the Facility Letter on security, the parties entered into a "Security Agreement" dated 5 th January 2020 signed by the parties' representatives on 6 th January 2020. The Agreement appears at page 48 of the Record of Appeal. 8 . 11 By the said Agreement, the 1s t Appellant granted to the Respondent, a security interest in Stand No 6543, Mumana Road Roma, Lusaka, registered in the name of the 2 nd Appellant. The property is stated as "to secure payment of the following obligation of debtor to Secured Party. " It goes on to list the indebtedness as follows: Jll Type of Facility: Revolving Invoice Discounting Facility Interest: 7 .5% Facility Amount: USD300.00.00 (Three Hundred Thousand United States Dollars) Tenure: 30 days Duration of Facility: One year 8.12 The import of the above extracts from both the Facility Letter and the Security Agreement is that the parties intended to create a Lender and Borrower relationship in which the borrower would pay back the borrowed sum through a Revolving Invoice Discounting Facility. 8.13 The Revolving Invoice Discounting Facility consisted in receivables from First Quantum Minerals Limited. That the loan would be secured by collateral in the form of Stand No 6543 Mumana Road, Olympia/ Roma, Lusaka. 8.14 Having agreed as stated above, the 1st Appellant, asked for a drawdown on the Revolving Invoice Discounting Facility in the sum of USD85 , 000.00 from the Respondent with a tenure period of sixty days . 8.15 The letter dated 1st June 2020, is at page 117 of the Record of Appeal. To this application, the 1st Appellant exhibited the Company resolution to that effect, an Invoice to FQM, a letter of guarantee and a Deed of Assignment of the Invoice . J12 8.16 The 1st Appellant defaulted on the repayment of the credit facility as evidenced by the letter of apology to the Respondent dated 15th September 2020, appearing at page 120 of the Record of Appeal. The reason for the default was that FQM had not paid on the 1nv01ce issued and the parties were engaged in negotiations. 8.17 In response to the apology, the Respondent proposed a restructuring of the debt facility through a letter dated 21 st September 2020, appearing at page 121 of the Record of Appeal. The proposed restructure of the debt is at page 123 of the Record of Appeal and it is titled "Assignment of Receivables." 8 .18 It is through the said document that the 1st Appellant's receivables from contracts between it and FQM were formally assigned to servicing the debt in the sum of USD103, 683 .00 by Deed of Assignment. 8.19 Following default on the earlier restructured debt of USD103, 683 .00, the Respondent, again restructured the debt through a Facility Letter dated 4 th October 2020. According to the Facility letter, at page 70 of the Record of Appeal, in line 20, the restructured repayment plan facility was in place of and not in addition to other facilities that were running. Interest was at 8% per month and the tenure was two months. J13 8.20 Yet again, the 1st Appellant defaulted and acknowledged the default via a letter dated 17th December 2020, appearing at page 7 5 of the Record of Appeal. 8.21 From the record of all the instances of default, and the Respondent's continued willingness to accommodate the Appellants by restructuring the debt, it is clear that the receivables from FQM were a farfetched dream rather than a given. The Respondent was nonetheless entitled to recover the debt as per the various contract documents executed between the parties. 8.22 The question 1s; given the failed receivables, how was the Respondent supposed to recover the debt? Can the argument that the receivables constituted the only security for the loan prevail? 8.23 We think that is not the case in view of the documents and the extracts referred to earlier in this Judgment. This is because; it is clear from the parent Facility Letter of 2 n d January 2020, that the parties did not intend the receivables to be the only recourse to the repayment of the loan. 8.24 As demonstrated earlier, clause 6.1.2 provides for the surrender of Titles to property whose value should not be less than USD400, 000.00 as well as unlimited guarantee by the 1st Appellant's Directors. Both of these requirements were met thereby providing security for the loan. J14 8.25 Ultimately, the Security Agreement that the parties entered into on 5 th January, barely two days after they had executed the Facility Letter, provided security for the anticipated loans and it came into effect when the 1st Appellant made the first drawdown of USD85, 000.00. 8 .26 We therefore, find it perplexing that the Appellants can argue that the receivables were the only source of security for the loan in light of the clear evidence from the Facility Letter that the surrender of Title to property was the real security. 8.27 As a matter of fact, in our view, the correct position is that the receivables from FQM were the pledged sources of the funds to be applied to the repayment of the loan while the surrendering of Titles and the Directors' guarantees were the security. 8.28 This is because security is simply the tangible asset that the creditor can resort to in the event of failure by the debtor to repay the loan at the agreed time from whatever source. The intended source of the funds to apply to the repayment of the debt cannot be the security for the debt. 8.29 The second factor controverting the argument that receivables were the only source of security is clause 7 of the Facility Letter reproduced earlier in this Judgment. This clause clearly provides for other sources of funds to repay the debt in the event of FQM not being liable to pay the 1st Appellant the receivables . J15 8.30 The third point is that each drawdown amount on the loan had a tenure period and in this case, it was to be repaid within sixty days. Like all loan agreements, failure to pay back within the stipulated time amounts to default and the creditor is at liberty to invoke the provided alternative recovery measures. 8.31 It is therefore, fallacious for the Appellants to argue that the Revolving Invoice Discounting Facility arrangement provided an open-ended repayment period affording the creditor no recourse of recovery for as long as the receivables attached to the repayment of the debt have not been paid. 8.32 We now turn to the second issue, the issue whether or not the surrender of the Certificate of Title relating to the collateralized property to the Respondent constituted a third party equitable mortgage. 8.33 It is not in dispute that the Facility Letter provided for the surrender of Certificate of Title to property in clause 6.1.2. The requirement was met following execution of the Security Agreement at page 48 of the Record of Appeal. 8.34 In her Judgment, the learned Judge was satisfied that the Appellants complied with the Security Agreement to surrender Title to property when she found that a true copy of the Certificate of Title to Stand No 6543 Mumana Road, Olympia Lusaka was exhibited to the Respondent's affidavit. J16 8.35 With that finding of fact by the learned Judge below, it is beyond dispute that the Appellants surrendered the said Certificate of Title. The learned Judge below fortified her finding by relying on the case of Margie Carpet Travel and Tours v Zambia National Commercial Bank limited 1 , a High Court decision in which Silomba J , as he then was , held as follows; "The position at common law is that once a borrower has surrendered his Title Deed to the lender as security for the repayment of a loan, an equitable mortgage is thus created" 8.36 The learned authors of Understanding Banking Law 1n Zambia, Commentary and Legislation: Juta Law, University of Lusaka, 2015, state as follows; "A mortgage is equitable if it concerns an equitable interest in land, or if the mortgage of a legal interest is created by the mere deposit of the Certificates of Title or Title Deeds. The deposit of Title Deeds may be with or without a memorandum of deposit as evidence of the intention of the parties to create a security" (pages 129 to 130) 8.37 In Re: Molton Finance Limited2 the Court of Appeal held as follows; "When an equitable mortgage or charge is created by deposit of title deeds, there is an implied contract that the mortgagee or chargee may retain the deeds until he is paid" 8.38 In light of the above authorities and others which hold that an equitable mortgage is created by a mere deposit of a Certificate of Title, the learned Judge below cannot be faulted for holding that Stand No 6543 was the subject of a third-party equitable mortgage as security for the loan. J17 8.39 The Appellants have also raised what we consider to be a peripheral issue, relating to the equity of redemption. It is common cause that to any equitable mortgage is attached the equity of redemption. 8.40 This is an unalienable right the defaulting debtor possesses to redeem the property by paying the debt even after defaulting. To underscore this right, the learned authors of Halsbury's Laws of England volume 32, fourth edition at page 190, paragraph 407 put it as follows; "Any provision inserted in the mortgage to prevent redemption on payment of the debt or performance of the obligation for which the security was given is termed a clog or fetter on the equity of redemption and is void. The right to redeem is so inseparable an incident of a mortgage that it cannot be taken away by an express agreement of the parties that the mortgage is not redeemable or that the right is to be confined to a particular time or to a particular description of p ersons" 8.41 In practice Courts always provide for a window within which the mortgagor in default and found liable in a mortgage action, can exercise the equity of redemption. The first order, 1n a typical mortgage action, is for the mortgagor to pay the debt due within a specific period of time failure to which the mortgagee can take possession of the mortgaged property and exercise the power of sale to recover the debt. 8.42 In this case, the learned Judge below provided as stated above and the Appellants cannot therefore, be heard to allege that they were deprived of the right to exercise the equity of redemption. The learned Judge, in her conclusion and orders J18 of the Judgment, at page 24 paragraph 5.2 of the Record made the following order; "I order that the 1st Respondent should pay the Applicant the Judgment sum together with interest within 90 days from the date of Judgment" The ninety days is the window within which the 1st Appellant should have exercised the equity of redemption by paying and redeeming the 2nd Appellant's property. 9 .0 CONCLUSION 9 .1 The evidence before the learned Judge was clear and the law supported her finding that the receivables from FQM were not the sole security that the Respondent had for the Revolving Invoice Discounting Facility that it provided the 1st Appellant with. 9 .2 The learned Judge equally established that the loan was secured by a third party equitable mortgage through the surrender of the Certificate of Title relating to Stand No 6543, Mumana Road, Olympia, Lusaka. This fact entitled the Respondent to commence a mortgage action against the Appellants. 9.3 It is also established that in her Judgment, the learned Judge below granted the Appellants a ninety day window within which to exercise the equity of redemption. 9 .4 Based on the above facts and our analysis of the appeal and the grounds thereof; there is no reason to interfere with the J19 Judgment of the Court below. The appeal stands to be dismissed for want of merit on all grounds. We dismiss it with costs to the Respondent to be taxed in default of agreement. M. J. SIAVWAPA JUDGE PRESIDENT P. C. M. NGULUBE COURT OF APPEAL JUDGE A. M. BANDA-BOBO COURT OF APPEAL JUDGE J20