Meanwood General Insurance Company v U-Rest Form Limited (APPEAL No. 285/2022) [2024] ZMCA 225 (21 August 2024)

IN THE COURT OF APPEAL OF ZAMBIA APPEAL No. 285/2022 HOLDEN AT NDOLA (Civil Jurisdiction) BETWEEN: ' ' J MEANWOOD GENERAL INSURANCE LIMITED APPELLANT AND U-REST FOAM LIMITED RESPONDENT CORAM: Chashi, Makungu and Sichinga, JJA ON: 14th and 21st August 2024 For the Appellants: P. K. Chibundi, Messrs Mosha & Company. For the Respondent: K. W. Wishimanga & S. Mayeya (Ms), Messrs AMW & Co. Legal Practitioners JUDGMENT CHASHI JA, d elivered th e Judgm ent of th e Court. Cases referred to: 1. Edman Banda v Charles Lungu - SCZ Selected Judgment No. 22 of 2017 2. Wilson Masauso Zulu v Avondale Housing Project Limited (1982)ZR, 172 3. Neighbours City Estates Limited v Mark Mushili - SCZ Appeal No. 47 of 2013 4. Royal British Bank v Turquand (1856) 5 E and B 248 -J2- 5. National Airports Corporation Limited v Reggie Ephraim Zimba and Savior Konie (2000) ZR, 154 6. First National Bank Zambia Limited v Libian African Investments Company Zambia - CAZ Appeal No. 64 of Legislation referred to: 1. The Money Lenders Act, Chapter 398 of the Laws of Zambia 2. The Banking and Financial Services Act, Chapter 387 of The Laws of Zambia 3. The Companies Act, No. l O of 2017 1.0 INTRODUCTION 1.1 This is an appeal by the Appellant against the Judgment of Honourable Lady Justice M. C Mulanda, of the High Court at Ndola, delivered on 17th November 2021. 1.2 In the said Judgment, the learned Judge (the Judge) ruled in favour of the Respondent, who was the plaintiff in the court below and ordered the Appellant to pay the sum of US$900,000.00, with interest at the average of the short-term d eposit r a te per annum prevailing, from the date of the writ to the date of Judgment and thereafter at the c urrent lending rate as determined by the Bank of Zambia. -J3- 2 .0 BACKGROUND 2 .1 On 13 th February 2018, the Responden t commen ced an action against the Appellant by way of writ of summon s , seekin g th e followin g reliefs: (i) A declaration that the defendant was in default of its obligations to the plaintiff arising from the loan agreement between the plaintiff and Thor Developments Limited, dated 5th May 2016 and its own credit guarantee of 15th May 2017; (ii) A declaration that arising from such default, the defendant was liable to pay the plaintiff a total of US$900,000.00 on the credit guarantee dated 15th May 201 7; (iii) A declaration that resulting from that, the plaintiff has suffered inconvenience, loss of business and anxiety and is entitled to damages resulting therefrom; (iv) Resulting therefrom, that the defendant makes immediate payment to the plaintiff of US$900,000.00; -J4- (v) Payment by the defendant to the plaintiff for damages for inconvenience, loss of business and anxiety; (vi) Interest. 2.2 According to the attendant statement of claim, a construction company known as Thor Developments Limited, entered into a loan agreement with the Respondent on 5 th May 2016, wherein the Respondent was to lend Thor Developments Limited the amount of US$800,000.00, with interest at the rate of 8.67 percent per annum, calculated monthly in advance. 2.3 It was agreed that if the borrower defaulted 1n the monthly instalment payments, the Respondent was at liberty to declare the principle amount owing and interest at such time to be immediately due and payable. 2.4 Apart from personal guarantees by three of the directors of Thor Developments Limited, the guarantee also provided for a credit guarantee from the Appellant. The credit guarantee was executed by the Appellant on 15th May 2017 for the amount of US$900,000.00 -JS- 2 .5 It was averred that when Thor Developments Limited defaulted on the monthly instalment payments, the Respondent's lawyers wrote demand letters to the Appellant on 5 th and 20th December 2017, to which they received no response. That the Appellant had failed , refused or neglected to honour its obligations to the Respondent. 2.6 The Appellant settled its defence on 7 th March 2018, in which it averred that it will put the Respondent to strict proof as regards any loan agreement or loan agreements, it purportedly entered into with Thor Developments Limited and the Appellant's purported default. That the Respondent was to be put to strict proof in respect to the purported loan agreement of 19th May 2016 and 15th May 2017. 2.7 It was averred that, even if the Appellant did purportedly execute an advance payment bond number MD ND /ADV/ 033 / 000900 / 19 / 05 / 16, the Appellant's liability thereon did extinguish by virtue of the expiry of the said advance payment bond. -J6- 2.8 According to the Appellant, the Respondent failed to provide the Appellant with proof of default, so as to trigger any liability on the part of the Appellant. The Appellant reiterated that there was no loan agreement between the Respondent and Thor Developments Limited and any default on the said loan agreement to trigger any liability on the part of the Appellant. 2.9 On 26 th March 2018, the Respondent settled its reply to the defence and averred that the Appellant's own credit guarantee dated 15t h May 2017, reference No. MGI ND /CA/ 004/00001 / 15 / 05 / 1 7 , specifically confirmed that the guarantee was executed in consideration of the Respondent having loaned Thor Developments Limited and also that should Thor Developments Limited fail to pay the Respondent, then the Appellant was to be liable on behalf of Thor Developments Limited. 3.0 DECISION OF THE COURT BELOW 3.1 At the trial, the Respondent called three (3) witnesses and made written submissions at the end of the trial. The Appellant did not call any witness. They only filed written submissions -J7- 3.2 After considering the evidence and the submissions by the parties, the Judge made out the Respondent's case as being that, it advanced Thor Developments Limited, a loan of US$900,000.00, after executing a loan agreement dated 5 th May 2017. That the said loan agreement was secured by a credit guarantee dated 15th May 2017, which was issued by the Appellant. That Thor Developments Limited failed to pay the amount owing despite several reminders to do so, and subsequently went into liquidation, as it was insolvent. 3.3 The Appellant despite having receipt of the Respondents written demands to pay the US$900 ,000.00, as per conditions of the credit guarantee issued, the Appellant refused or neglected to do so. 3.4 As regards the Appellant's case, the Judge noted its argument that the loan agreement referred to in the statement of claim was the one dated 5 th May 2016, in the sum of US$800 ,000.00, which had not been exhibited. That however, the Respondent was relying on a loan agreement dated 5 th May 2017, in the amount of US$900,000.00. It was the Appellant's argument that, -JS- considering that the Respondent neither exhibited the loan agreement dated 5 th May 2016, nor shown that Thor Developments Limited had failed to pay the sum of US$800,000.00 the Respondent was not entitled to payment of US$900,000.00 stated 1n the credit guarantee. 3.5 The Judge also noted the Appellant's contention that there was no proof that the loan agreement dated 5 th May 2017, was entered into between the Resp9ndent and Thor Developments Limited for US$900,000.00, with the authority or consent of the Board of directors of Thor Developments Limited. Further contention by the Appellant was that the Respondent did not have a money lenders licence to lend money at an interest rate as required under Section 3 of The Money Lenders Act 1 . 3.6 The Judge made a finding of fact that although it was stated in the statement of claim that the loan agreement that gave rise to the credit guarantee was dated 5 th May 2016, in the sum of US$800,000.00 , it was not in dispute that the credit guarantee issued by the -J9- Appellant, was in respect of US$900 ,000.00, loaned to Thor Developments Limited by the Respondent. That there was also no dispute that the loan agreement dated 5 t h May 2017, appearing at pages 3-6 of the plaintiffs bundle of documents, was the only loan agreement between the Respondent and Thor Developments Limited, which provided for a loan of US$900,000.00 and that, it was that agreement the Respondent was relying on for its claim. 3 .7 The Judge was confronted with the issue of whether, the Appellant could escape liability on the basis of the statement of claim mentioning a loan agreement dated 5 th May 2016, in the sum of US$800,000.00, rather than the loan agreement dated 5 th May 2017, in the sum of US$900,000.00 . The Judge was of the view that, it was clear from the credit guarantee No. MGI ND / CA/004/ 00001 / 15/ 05 / 17, dated 15th May 2017, which the Appellant issued, that the guarantee issued was in respect to the sum of US$900,000.00, which the Respondent loaned to Thor Developments Limited. According to the Judge, the Appellant was well aware -JlO- that the credit guarantee which was issued related to the sum of US$900,000.00 3.8 The Judge was further of the view that, since the Appellant was aware that the credit guarantee of US$900,000.00, which it had issued, was in respect of the loan agreement of US$900 ,000.00 , the reference to the loan of 5 th May 2016 , had not prejudiced the Appellant in any way in its defence. That with the loan agreement of 5 th May 2017, having been exhibited in the bundles, the Appellant could not find comfort in the Respondent's reference to the 5 th May 2016, loan agreement. That in any event, the Appellant did not dispute the genuineness of the loan agreement dated 5 th May 2017. 3. 9 The Judge also made a finding that the Appellant's contention that there was no proof that the Appellant disbursed the monies to Thor Developments Limited was without basis. That this was so because in the first paragraph of the credit guarantee, it is clearly stated that the guarantee was in consideration of the Respondent having loaned an amount of US$900,000.00 to Thor Developments Limited. -Jll- 3. 10 The Judge was of the view that the failure by Thor Developments Limited to repay the loan, automatically triggered the demand on the credit guarantee, since the default to repay was a pre-requisite of enforcing the said guarantee. 3 . 11 On the issue of whether or not, the Respondent issued a written demand upon default, the Judge was of the view that the Appellant received a demand letter as per the evidence of PW3. 3.12 On the issue of the Respondent, not being licenced to give loans, the Judge made reference to the case of Edman Banda v Charles Lungu1, where the Supreme Court had occasion to determine the question of whether or not it was legally permissible for a person who is neither licenced as a money lender nor under The Banking and Financial Services Act2 to avail a personal loan to another and recover a "profit" upon such a loan. The Judge was of the view that in the absence of the Respondent purporting that he was a money lender or advertising or announcing itself that it was in the business of money lending, there was no way -J12- that the Respondent was expected to possess a money lenders certificate before lending the money to Thor Developments Limited. 3.13 On the issue of authority or consent from the Board of directors , the Judge was of the view that, what was cardinal was that the loan was guaranteed by the Appellant. That it was not the duty of the court or the Respondent to interrogate whether or not Thor Developments Limited Board of directors passed a resolution to borrow the money in issue. 3. 14 The Judge at the end of the day was satisfied that the conditions set out in the credit guarantee were triggered, so as to place an obligation on the Appellant to m eet its commitments to the Respondent under the credit guarantee. The Judge opined that the Appellant was in default of its obligations. 4.0 THE APPEAL 4.1 Dissatisfied with the Judgment, the Appellant appealed to this Court advancing the following seven (7) grounds; (i) That the learned High Court Judge erred in law and fact by ignoring the pleaded -J13- case and the Appellant's submissions in its analysis of the matter and thereby not contextualizing the analysis to arrive at a reasoned Judgment; (ii) The learned High Court Judge erred in law and fact by holding that there was a debt lawfully due to the plaintiff for Thor Developments Limited, when no such proof of a loan was brought before court. (iii) The learned High Court Judge erred in law and fact by holding that the Appellant would not be prejudiced by the reference to a loan agreement of 5 th May 2016, for US$800,000.00 in the statement of claim when the evidence led at trial referred to a loan agreement of 5 th May 2017, for the sum of US$900,000.00 (iv) The learned High Court Judge erred in law and fact by holding that there is no merit in the Appellant's contention that the Respondent had to prove the existence of the debt when the guarantee was for -J14- sums lawfully due in the Respondent's books of account (v) The learned High Court Judge erred in law and fact by holding that the Respondent could lend out money with an interest component without being licenced to do so. (vi) The learned High Court Judge erred in law and fact by holding that the issue of whether or not Thor Developments Limited contracted the loan with the consent of its Board was irrelevant when the condition precedent to payment under the guarantee was that the loan should be lawfully due. (vii) The learned High Court Judge erred in law and fact by finding that the Appellant had defaulted on its obligation to the Respondent and is therefore liable to pay US$900,000.00 5.0 ARGUMENTS FOR AND AGAINST THE APPEAL 5.1 Both parties filed their respective heads of argument which we have taken into consideration. We shall not -J15- recapitulate the same, but we shall make reference to them, where necessary. 6.0 ANALYSIS AND DECISION 6 .1 In respect to the first ground, the allegation by the Appellant is that the Judge ignored the case which was pleaded. That it is trite law that all parties are guided by their pleadings and the judgment should also be confined to the pleaded case. The contention by the Appellant was that, since the loan agreement which was referred to was the one dated 5 th May 2016, in the sum of US$800,000.00, the finding by the Judge that the Appellant would not be prejudiced by the Respondent's reference and reliance on a different loan agreement was erroneous. 6.2 The Appellant under this ground was attacking the Judge's finding of fact. As held by the Supreme Court in the case of Wilson Masauso Zulu v Avondale Housing Project Limited2 , the appellate court will only reverse findings of fact made by a trial court, if it is satisfied that the findings in question were either perverse or -J16- made in the absence of any relevant evidence or upon a misapprehension of facts. 6.3 Indeed the whole object of pleadings 1s to bring the parties to a clear issue, and thus ensure that both parties know, before the action comes to trial, what is the real point to be discussed and decided. The main document which gave rise to the action in the court below was the credit guarantee dated 15th May 2017, which was correctly averred to in both the writ of summons and the statement of claim. The said credit guarantee appears at page 66 of the record of appeal (the record) and acknowledges a loan ofUS$900,000.00, by the Respondent to Thor Developments Limited. It is evident from the record that the only primary loan agreement between the Respondent and Thor Developments Limited in the sum of US$900,000.00, is the loan agreement appearing at page 62 of the r ecord dated 5 th May 201 7. 6.4 As earlier alluded to, the Judge was faced with the question on the totality of the evidence before her as to whether the Appellant could escape liability on the basis -Jl 7- of reference in the statement of claim to a loan agreement dated 5 th May 2016 in the sum of US$800,00.00 , instead of the loan agreement dated 5 th May 2017 , in the sum of US$900,000 .00 6.5 As earlier stated, the main document which brought about the relationship between the Appellant and the Respondent and which gave rise to the court action was the credit guarantee dated 17th May 201 7. It was under that credit guarantee that the rights and obligations of the parties arose. Our view is that the Judge cannot be faulted in her finding. The wrong reference was not fatal as the pleadings read and considered together, were not so much at variance with the evidence which was adduced in court, so as to make the Respondent's case fail. The Appellant was given correct notice of the case and cannot claim to have been unable to meet the case because of the incorrect reference. This ground of appeal has no merit and accordingly fails. 6. 6 The second and third grounds were argued together and the arguments seem to be the same as those advanced under the first ground. The Appellant's contention was -JlS- that there was no proof of the loan agreement having been brought before the court. 6. 7 Having determined under the first ground that there was a loan agreement dated 5 th May 2017 , appearing at page 62 of the record, these two grounds of appeal fall away and are accordingly dismissed. 6.8 The fourth ground attacks the Judge's holding that there was no merit in the Appellant's contention that the Respondent had to prove the existence of the debt in the Respondent's books of account. We are of the view that this was a lame contention on the part of the Appellant. The credit guarantee was succinct in its provisions. The third paragraph of the credit guarantee states as follows: "The condition of this guarantee is such that if the borrower fails to pay the lender any amount lawfully due, the surety shall pay the amount owing up to the maximum of (United States Dollars Nine Hundred Thousand only) to the lender upon receipt of the lender's written demand." -Jl9- 6.9 There was no condition precedent for production of books of account. There is evidence on record that Thor Developments Limited defaulted, as they failed to pay a single instalment. There is also evidence that a letter of demand was sent to the Appellant which was in their possession as per the evidence of PW3 , Mr Chimuka Magubbwi, a lawyer, appearing at pages 29-30 of the supplementary record of appeal, whose evidence was not controverted. This ground of appeal equally has no merit. 6. 10 The fifth ground attacks the holding that the Respondent could lend out money with an interest component, without being licenced to do so. According to the Appellant, the Judgment of the court was erroneous, in that it acknowledged that the Respondent was not a holder of a money lenders licence, but then proceeded to enforce the loan agreement, as well as the interest component, which was a clear breach of the law. 6.11 The issue being raised here was settled by the Supreme Court in the case of Edman Banda v Charles Lungu 1 , -J20- as rightly stated by the Judge. The issue raised in that case was whether or not a person who is neither licenced as a money lender under The Money Lenders Act nor under The Banking and Financial Services Act, can avail a personal loan to another person and recover a "profit" upon such a loan. 6.12 In our view, the Judge found rightly so, that the Respondent was not in the business of money lending, as he was not captured under the provisions of Section 2 of the said Act and the preamble. Further, that at no point did the Respondent hold itself out as carrying on a money lending business. The facts of the case were clear, that the Respondent had engaged Thor Developments Limited to construct a shopping mall in Matero, Lusaka. When they failed to complete the works due to lack of funds, they approached the Respondent for a loan. That given the facts and circumstances, there was no way the Respondent was expected to have a money lenders licence. 6.13 Given the aforestated, there is no basis on which the Judge can be faulted especially taking into -J21- consideration that she varied the interest from contractual interest to simple interest. In the case of Neighbours City Estates Limited v Mark Mushili3 , the High Court was faced with the similar question of the legality of the loan agreement, especially as it related to the interest agreed between the parties, which the borrower alleged was illegal due to the fact that the lender had no money lender's licence. The learned trial Judge took the view that both parties agreed to the terms of the agreement and that in doing so, they were represented by Counsel and that therefore the question of illegality could not arise. The learned Judge proceeded to enter judgment in favour of the lender with interest as per the rate contained in the loan agreement as agreed between the parties. 6.14 On appeal, the Supreme Court noted that the interest which was contained in the agreement was higher than the maximum ceiling under the Money Lenders Act and also higher than that which was being charged even by lending institutions. The Supreme Court held that, since the lender was not a money lender, under the Money -J22- Lenders Act, he was not entitled to charge such higher interest as agreed. The Supreme Court held that this was an ordinary contract, which should attract reasonable interest. The Supreme Court ordered that interest payable on the principal sum should be at the average short-term deposit rate from the date of the writ to the date of judgment and thereafter at the bank lending rate, till full payment. 6. 15 The sixth ground relates to the allegation that there was no consent or authority from the Board of Directors in respect to the loan agreement. This argument, in our view, seems to be a complete afterthought. It is evident that the Appellant should have done due diligence before executing the credit guarantee. They cannot now turn around and start looking for technicalities after execution of the guarantee. In any case, there is a plethora of cases fallowing the Turquand rule (indoor management rule) in the case of Royal British Bank v Turquand4 and Section 23 of The Companies Act, that an outsider dealing with the company cannot be concerned with any alleged want of authority when -J23- dealing with a representative or appropriate authority or standing for the class or type of transaction, pointing to the fact that matters of internal procedure in the management of a company are not a concern of third parties. Amongst these is the case of National Airports Corporation Limited v Reggie Ephraim Zimba and Savior Konie. 5 6. 16 We also had occasion to consider the Turquand rule and the exceptions thereto in the case of First National Bank Zambia Limited v Libian African Investments Company Zambia. 6 6. 17 In respect to the seventh ground, the Appellant attacks the finding by the Judge that the Appellant had defaulted on its obligations to the Respondent. It is evident t h at Thor Developments Limited defaulted on the loan agreement and subsequently, the Respondent wrote a letter of demand, to which the Appellant decided not to respond to. The Appellant therefore defaulted on its obligation. The finding by the Judge is supported by evidence, which eviden ce is on the record. ..... -J24- 7.0 CONCLUSION 7. 1 All th e seven grounds of a ppeal h aving failed , t he a ppeal is accordingly dismissed , with cos ts to the Resp ondent. Same J. CHASHI COU T OF APPEAL JUDGE C. K MAKUNG COURT OF APPEAL JUDGE