[Special Case HH 322-16]

November 24, 2014 and May 18, 2016


Contract law  –  Consumer contract  –  Money lending contract between bank and commercial entity  –  Whether governed by Consumer Contracts Act [Chapter 8:03]  –  Whether compounding interest unlawful  –  Evidence required in establishing that contract oppressive or is otherwise unlawful.

Plaintiff, a banking institution instituted a claim for money lent and advanced. Defendants did not put the contract in issue but argued instead that the interest claimed was unlawful on the basis that the interest rates were too high and that plaintiff had compounded interest. It was argued in the alternative that the compound interest was a penalty stipulation which was contrary to statute. The parties elected to proceed by way of a stated case.

Held, that the money lending contract was not a consumer contract as both parties were in its conclusion dealing in the course of business.

Held, further, that even if it was to be assumed that the contract fell within the parameters of a consumer contract, the defendants would still fail to prove any unfairness given that the compounding of interest is a normal practice among banks. It would require more than just a mere allegation to prove that the terms are unfair or oppressive. No evidence was led to suggest that the interest charged is usurious.

Held, further, that compound interest per se is not a penalty unless it is triggered by the default of the debtor. A penalty stipulation will not be enforced if it is out of proportion to the loss occasioned by the default. The onus is on the party challenging a penalty stipulation to place relevant information before the court to enable it to determine whether the penalty is too harsh having regard to the harm occasioned by a breach.

Cases cited:

Cabri (Pvt) Ltd v Terrier Services (Pvt) Ltd 2004 (1) ZLR 267 (H), referred to

Radar Holdings Ltd & Anor v Eagle Insurance Co Ltd 1999 (2) ZLR 246 (S), referred to

Zimbabwe Electricity Supply Authority v Bikita Minerals (Pvt) Ltd 2001 (1) ZLR 438 (H), referred to

Legislation considered:

Consumer Contracts Act [Chapter 8:03], s 2

Contractual Penalties Act [Chapter 8:04], ss 2, 4

High Court Rules, 1971 (RGN 1047 of 1971), O 29

Law Society of Zimbabwe by-laws

T Magwaliba, for the plaintiff

IEG Musimbe, for the defendant


This matter came before me as a civil trial. The parties agreed, however, to proceed by way of special case in terms of the provisions of O 29 of the High Court Rules, 1971 (RGN 1047 of 1971). The background to it is that the plaintiff issued summons against the defendants claiming a sum of US$ 578 014.11 in respect of money lent and advanced to the first defendant and for which the second to eighth defendants stood as sureties and co-principal debtors. In addition, the plaintiff claimed the following relief:

1. Interest on the sum of US$ 578 014.11 at the rate of 58 per cent per annum calculated from 1 April 2011 to the date of payment in full.

2. An order declaring certain piece of land known as the Remainder of Stand 870 Marlborough Township registered in the name of the first defendant under Deed of Transfer Number 5323/2009 especially executable.

3. An order declaring a certain piece of land known as Lot 2 of Subdivision F of Wallace Block of Helens Vale registered in the name of the sixth defendant under Deed of Transfer Number 3311/2007 especially executable.

This section of the article is only available for our subscribers. Please click here to subscribe to a subscription plan to view this part of the article.

Please click here to login