Freddy Hirsch Comapny Ltd v Butcher Equip Limited and Anor (2023/HPC/0722) [2024] ZMHC 171 (26 January 2024)

IN THE HIGH COURT FOR ZAMBIA 2023/HPC/0722 AT THE COMMERCIAL REGISTRY HOLDEN AT LUSAKA (Civil Jurisdiction) IN THE MATTER OF: ORDER 30 RULE 14 OF THE HIGH COURT RULES CHAPTER 27 OF THE LAWS OF ZAMBIA IN THE MATTER OF: A LEGAL MORTGAGE RELATING TO SUBDIVISION NO S11 OF SUBDIVISION Y4 OF FARM NO 748 NJO NDOLA BETWEEN: FREDDY HIRSCH COMPA AND uc OF z Ull. TOF IIJD ICI/\RY APPLICANT BUTCHER EQUIP LIMIT 2 6 JAN 2024 1 RESPONDENT CARLOS VOZZA MMEIZCIAL REG! 03( ux !:i0067 I.. ND RESPONDENT Before Hon Lady Justice Irene Zeko Mbewe in Chambers Appearances For the Applicant: Mr Ndalameta and Ms of Messrs MAY and Company For the Respondents: NIA Messrs V K Mwewa and Company whose agents Messrs M C Phiri and Associates JUDGMENT ---- Cases referred to: 1. Reeves Malambo v PATCO Agro Industries Limited Judgment No 20 of 2. Cavmont Bank Limited v Cereal Millers and Farms Limited and Others CAZ Appeal No 277 of 2021 Rl I P age 3. S Brian Musonda (Receiver of First Merchant Bank Zambia Limited v Hyper Food Products[1999] ZR 124 Legislation and other works referred to: 1. High Court Rules, Cap 27 of the laws of Zambia 2. Geraldine Mary Andrews and Richard Millet in "The Law of Guarantees" Sweet and Maxwell (2011) In the originating summons, the parties to the action are described as Plaintiff and Defendants. As this is an originating summons, I shall refer to the parties as Applicant and Respondents. The Applicant instituted a mortgage action against the 1st and 2nd Respondents pursuant to Order 30 rule 11 and 14 High Court Rules, Cap 27 of the laws of Zambia. The Applicant is claiming the following: (i) Payment of ZMW8,231,502.54 in accordance with the agreement between the parties to pay debt in instalments and guarantee dated 6th October 2020, plus interest and other charges due and owing to the Applicant from the 1st Respondent and secured by a third party legal mortgage over Subdivision No S 11 of Subdivision Y 4 of Farm No 7 48 NJO Ndola made between the Applicant and 2nd Respondent; (ii) Delivery up and possession of Subdivision No S 11 of Subdivision Y 4 of Farm No 7 48 NJO Ndola (iii) An order that the said mortgage be enforced by foreclosure and sale over Subdivision No S 11 of Subdivision Y 4 of Farm No 7 48 NJO Ndola; R2 IP age (iv) Interest on the outstanding balance from the date of action to the date of Judgment pursuant to section 4 of the Law Reform (Miscellaneous Provisions) Act Chapter 74 of the laws of Zambia (v) Any other relief that the Court may deem fit; (vi) Costs. Plaintiff's supporting affidavit The application is supported by an affidavit sworn by Greg Snalam the Managing Director of the Applicant company. The facts as deposed are that the Applicant had a long-standing business relationship with the 1st Respondent by which it would sell and deliver, and the 1st Respondent as agent of the Applicant, would purchase industrial spices, ingredients, casings, processing equipment and butcher's sundries, that the 1st Respondent would the resell on his own account. The deponent discloses that despite the Applicant selling and delivering spices, ingredients and processing equipment to the 1st Respondent, the 1st Respondent inconsistently made payments towards the purchase price and consequently failed and/or neglected to pay the full amounts for the various products as they fell due. As at October 2020, the 1st Respondent had accumulated a debt of ZMW6,960,487.79 (the "debt sum"). On 6th October 2020, the Applicant and the 1st and 2nd Respondent entered into an agreement to pay the debt in instalments. The 1st Respondent covenanted to pay the debt sum in monthly instalments of R31Page ZMW100,384.18 together with interest at 5 per cent per annum and compounded. Secondly, the 2nd Respondent, in his capacity as shareholder and director of the 1st Respondent personally guaranteed to the Applicant the debt sum would be paid (Exhibit "GS 1 "). On 26th October 2020, the 2nd Respondent executed a mortgage deed in favour of the Applicant to secure the debt sum (the "Mortgage Deed") over Subdivision No S11 of Subdivision Y4 of Farm No 748 NJO Ndola which was duly registered at Lands and Deeds Registry (Exhibit "GS 2 - 3"). The deponent discloses the third recital of the mortgage deed provided that: "FREDDY HIRSCH and the Company have agreed to and executed an agreement for the payment of the said debt by installments with a guarantee (hereinafter referred to as the "Agreement") executed contemporaneously with this Deed whereby the Company agreed to settle its liability to FREDDY HIRSCH by paying it all in monthly installments with interest at the rate of five percent per annum compounded annually. The Mortgagor agreed therein to guarantee the payment of the said debt to FREDDY HIRSCH should the Company default. The Mortgagor also agreed to give his mortgaged Property as additional security in favour of FREEDY HIRSCH. The expression Mortgagor/surety where used to the Mortgagor where the context so demands. " R4 IP age Whilst clause 1 of the testatum of the mortgage deed as Is relevant provided that: "The Mortgagor and the Company hereby jointly and severally covenant with FREDDY HIRSCH that the Mortgagor and the Company will pay and discharge on demand all monies and liabilities which are now or at any time hereafter may be due and owing from or incurred by the Company to FREDDY HIRSCH whether as principal or surety (but without prejudice to foregoing) ... " According to the deponent, the 1st Respondent breached the terms of guarantee by failing to pay monthly instalments as agreed and when a demand for payment was made in November 2022, the 1st Respondent's response was to pay ZMW10,000 per month which amount has never been paid ("Exhibit "GS 4"). On 12th July 2023, the Applicant followed up with the 1st and 2nd Respondent on the debt sum and shared a statement of the 1st Respondent's account and a response was never received (Exhibit "GS 5"). On 28th September 2023, the Plaintiff through its Advocates on record, Messrs MAY and Company demanded payment of ZMWB,004,560.96 being the debt sum with interest as at that date (Exhibit "GS 6"). RS I Page Despite the demands made to the Respondents by the Applicant, the Respondents have neglected, omitted and/or failed to make any payment towards the satisfaction of the outstanding debt. The deponent states that the 1st and 2nd Respondents have no defence whatsoever to this action and the account between the Applicant and Respondents is as follows: 1.1 1.2 Principal amount owed: ZMW6,960,487.79 Amount of periodic payments required to be made: ZMW100,384.18 1.3 Amount of interest and instalments in arrear at the date of issue of the originating summons ZMW?,907,666.10 1.4 Entire loan amount called in: ZMWB,231,502.54 (Exhibit "GS 7") 1st and 2 nd Respondent's opposing affidavit The opposing affidavit is deposed by Carlo Vozza the Managing Director of the 1st Respondent and is the 2nd Respondent. The deponent discloses that the 1st Respondent had a long standing relationship with the Applicant. The 1st Respondent was an agent of the Applicant on the Copperbelt involved in the selling of various products on its behalf. According to the deponent, due to financial constraints and other difficulties the 1st Respondent lapsed into serious arrears in remitting R6 IP age moneys to the Plaintiff resulting in an accumulative debt of ZMW6,960,487.79. At a meeting held on or about October, 2020 between the Plaintiff and 1st Respondent, it was agreed that the 1st Respondent be allowed to liquidate the Judgment debt in monthly instalments. The 2nd Respondent signed a guarantee. It was further agreed the 1st Respondent would continue operating as an agent of the Applicant so as to allow it cover the instalments agreed. According to the deponent, in order to forestall the issue of interest on the amount due, the outstanding debt was locked at ZMW6,960,487.79. The 1st and 2nd Respondents are therefore not aware of the outstanding amount of ZMWB,231,502.50 as demanded by the Applicant. According to the deponent, since the debt settlement agreement, the 1st and 2nd Respondents have not made any payments. On or about 17th September, 2021 the Respondents wrote a letter to the Applicant on the status of the matter and instead of a response, the Applicant commenced legal proceedings (Exhibit "CV1 "). The deponent discloses payments were made (Exhibit "CV2-8"). According to the deponent, the 1st Respondent is desirous of paying the outstanding amount in monthly instalments of K20,000.00 effective December, 2023. R7 IP age Skeleton arguments The parties did not file any skeleton arguments. Hearing At the scheduled hearing of the originating summons, the 1st and 2nd Respondent were not present at the hearing nor was there an explanation for their non-attendance. I proceeded to hear the matter as there was an affidavit of service showing the 1st and 2nd Respondent were aware of the hearing date. Counsel for the Applicant relied on the supporting affidavit and submits that the Respondents have admitted the debt as set out in paragraph 18.1 of the opposing affidavit. Further, the parties are in agreement there is an outstanding amount. Counsel urges the Court to enter Judgment in favour of the Applicant. Analysis I have carefully considered the affidavit evidence and oral submissions of Counsel for the Applicant. Undisputed facts It is not in dispute that the Applicant and 1st Respondent had a business relationship spanning over a considerable period of time. The 1st RS IP age Respondent was an agent of the Applicant in the sale of industrial spices, processing equipment and butcher's sundries spices and butchery casings. The 1st Respondent does not dispute its indebtedness to the Applicant and attributes it to the business challenges faced during the COVID pandemic leading to the parties executing a debt settlement agreement. It is not in dispute the 1st Respondent failed to meet its obligations under the said debt settlement agreement and defaulted in payment to the Applicant. It is not in dispute the 2nd Respondent pledged his property namely S 11 of Subdivision Y 4 of Farm No 7 48 NJO Ndola as security for the outstanding debt and further executed a guarantee (Exhibit "GS 2"). Disputed facts The only sticking point is what amount is owed. The Applicant claims the sum of ZMWB,231,502.54 whilst the 1st Respondent maintains it is ZMW6,90,487.79 as this amount was locked in as per the terms of the debt settlement agreement. This position is vehemently denied by Counsel for the Applicant who contends interest continued to accrue after the 1st Respondent defaulted. I have perused the terms of the debt settlement agreement and it certainly does not contain any provision relating to the locking in of interest as R9 I Page alleged by the Respondents. As rightly observed by Counsel for the Applicant, documentary evidence shows interest accrued on the amount up to date of the originating summons (Exhibit "GS?"). In clause 2 of the debt settlement agreement, the parties agreed to the rate of interest to be applied on the debt at 5% per annum compounded annually. I therefore accept the claimed amount as the outstanding debt and interest continues to accrue. In my view, the Applicant has established it is owed moneys by the 1st Respondent who is in default and has in fact admitted its indebtedness to the Applicant. My finding is fortified by a letter dated 17th September, 2020 addressed to the Plaintiff where the 1st Respondent made proposals to pay the debt in instalments (Exhibit "GS 4"). In an email dated 4th November, 2022 authored by the 1st Respondent to the Applicant, the 1st Respondent seeks to resume payments if an agreement is reached (Exhibit "GS4"). All this is indicative of the admission of a debt. To the credit of the Respondents, there is evidence on record that the 1st Respondent did make efforts to pay the debt but the efforts fell short of clearing the debt (Exhibit "CV1 "). In paragraph 16 of the opposing affidavit, the Respondents propose to liquidate the debt by paying a monthly sum of ZMW20,00.00 from December, 2023. I find this proposal unreasonable bearing in mind the RlO I Page outstanding debt is ZMWB,231,502.54 and has been outstanding for a considerable length of time. All in all, and from the facts on record, I find the 1st Respondent has no defence to this action. Therefore, Judgment is entered in favour of the Applicant in the sum of ZMWB,231,502.54. Legal mortgage It is not in dispute the 2nd Respondent executed a third party mortgage over S 11 of Subdivision Y 4 of Farm No 7 48 NJO Ndola which was duly registered at Lands and Deeds Registry (Exhibit "GS2 and 3"). This was to give additional security in favour of the Applicant for payment of the debt by the 1st Respondent. As to what remedies are available to a mortgagee, this was well expressed by the Supreme Court in the case of Reeves Malambo v Patco Agro Industries Limited !1 > and reaffirmed by the Court of Appeal in the case of Cavmont Bank Limited v Cereal Millers and Farms Limited !2l. There is no doubt this Court has the jurisdiction to grant the reliefs sought by the Defendant. The Applicant as legal mortgagee is entitled to pursue all remedies available which it has, namely foreclosure, delivery up and possession of the mortgaged property including the power of sale as espoused in the case of S Brian Musonda (Receiver of First Merchant Bank Zambia Limited v Hyper Food Products 13 )_ Rll IP age Guarantee It is not in dispute that the 2nd Respondent executed an agreement to pay debt in instalments and guarantee in favour of the Applicant. The essence of a guarantor is to discharge liability when the principal debtor fails to honour its duty. The learned authors Geraldine Mary Andrews and Richard Millet in "The Law of Guarantees" reinforce the same legal principles on guarantees at page 156 as follows: " A contract of guarantee is an accessory contract, by which the surety undertakes to ensure that the principal performs the principal obligations ..... " From my understanding, it implies that a guarantor such as he 2nd Respondent herein is under a secondary obligation which is dependent upon the default of the principal being the 1st Respondent, and which does not arise until that point of default. The consequence of the guarantee 1s that the 2nd Respondent as guarantor is bound by its terms. To drive the point, clause 6 of the said agreement states as follows: "6. The Guarantor hereby irrevocably and unconditionally guarantees FREDDY HIRSCH the due and punctual payment of the debt and guaranteed moneys and discharge by BUTCHERY QUIP of such amount as is due and owing to FREDDY HIRSCH." R12 I Page Simply put, should the 1st Respondent default, the 2nd Respondent as guarantor will step into the shoes of the 1st Respondent as debtor to the Applicant and settle any outstanding debt owed to the Applicant. Disposal In light of the admission on the part of the 1st Respondent, I find the Applicant has proved its case on a balance of probability. I grant the following Orders: (i) Judgment is entered in favour of the Applicant against the 1st Respondent in the sum of ZMW8,231,502.54 plus interest at the short term deposit rate from date of originating summons to Judgment and thereafter at the commercial lending rate till full payment. The 1st Respondent shall settle the Judgment sum within one hundred and twenty (120) days herein. (ii) In default, the Applicant as mortgagee shall foreclose, take delivery and possession of the mortgaged property being Subdivision No S 11 of Subdivision Y 4 of Farm No 7 48 NJO Ndola registered to the 2nd Respondent and exercise the power of sale without further recourse to this Court. (iii) The Applicant is also at liberty to enforce the guarantee against the 2nd Respondent to secure the debt should the sale of the mortgaged property Subdivision No S 11 of Subdivision Y 4 of Farm No 748 NJO Ndola fail to extinguish the debt; (iv) The Court deems there is no other relief it can grant to the Applicant. R13 I Page (v) Costs to the Applicant against the 1st and 2nd Respondent to be taxed in default of agreement. (vi) Leave to appeal is denied. Delivered at Lusaka this 26th day of January, 2024 ,~· · • JUDICIARY OF ZAMBIA •~i .,,..f HIGH COURT ~ · ~!"~!"~[:l:l~~:1:7 -~~ JUDGE P. O. BOX 50067, LUSAKA IRENE ZEKO BEWE HIGH COUR JUDGE R14 IP ag e