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.{mprestriction ids=″1,2,3,4,5″}
4. Costs of suit on the legal practitioner and client scale.
5. Collection commission in terms of the Law Society of Zimbabwe by-laws.
In their plea, the defendants admitted the agreement and the deeds of suretyship but put in issue the interest rates as well as the compounding of interest and the charges which they argued to be in contravention of the provisions of the Consumer Contracts Act [Chapter 8:03]. In particular, the defendants contended that the interest rates charged are oppressive and usurious and contrary to commonly accepted standards of fair lending in the banking sector. The defendants also contested the charges such as the establishment fee and drawdown fee.
The written memorandum of agreement in terms of which the loan was advanced is annexed to the special case. The deeds of suretyship which were executed by the second to eighth defendants are also attached. On 19 January 2010 the first defendant registered a mortgage bond in favour of the plaintiff over an immovable property known as Stand 870 Marlborough Township of Strathmore measuring 4001 square metres. The bond was registered to secure a sum of US$ 255 000 under the loan agreement. The sixth defendant also registered a mortgage bond as security for the same loan over its immovable property known as Lot 2 of Subdivision F of Wallace Block of Helens Vale.
The parties agreed that if the court finds that the interest rate of 58 per cent per annum, calculated from 1 April 2011 to the date of payment in full is lawful then, in that event, judgment may be granted in the sum of US$ 578 014.11. If, however, the court finds that the interest rate of 58 per cent per annum is unlawful, judgment may be granted only in the sum of US$ 219 497 together with interest at the rate of 18 per cent calculated from 31 August 2011 to the date of full payment.
In the heads of argument filed on behalf of the defendants and in oral argument Mr Musimbe for the defendants attacked the interest rate and charges on the basis that they contravened the provisions of the Consumer Contracts Act as well as those of the Contractual Penalties Act [Chapter 8:04]. In the pleadings filed, the defendant had not, however, sought to rely on the alleged contravention of the provisions of the Contractual Penalties Act. The plaintiff argued that the transactions between the plaintiff and the defendants fall outside the ambit of the relevant provisions of the Consumer Contracts Act because the contract involved is not one ″for the sale or supply of goods or services″.
In the context of the provisions of the Consumer Contracts Act the term ″service″ must be interpreted widely rather than narrowly. See Radar Holdings Ltd & Anor v Eagle Insurance Co Ltd 1999 (2) ZLR 246 (S) at 248; Cabri (Pvt) Ltd v Terrier Services (Pvt) Ltd 2004 (1) ZLR 267 (H) at 282F-283E. In the case of Radar Holdings Ltd & Anor v Eagle Insurance Co Ltd (supra) at 248F-249B, GUBBAY CJ said:
″I respectfully agree that 'services' is a word capable of an expansive meaning. Webster's International Dictionary defines it as 'acts or instances of helping or benefitting; conduct contributing to another's advantage or welfare or benefit'. The Oxford English Dictionary is much to the same effect. It provides the meaning (inter alia) of 'the action of serving, helping or benefitting; conduct tending to the advantage of another... supply of the needs of persons'... In Ochberg v Commissioner for Inland Revenue 1931 AD 215 at 230, it was held that an agreement to assist a company financially was an agreement to render services. In Commissioner for Inland Revenue v Transvaal Bookmakers' Association (Co-operative) Ltd (1953) 19 SATC 14 (T) at 19, Price J was satisfied that the entitlement of members of the respondent association to borrow from it specified sums of money on easy terms of payment constituted a service rendered by the association.″
The plaintiff renders financial services by providing loans and other banking facilities. I therefore have no difficulty in finding that the contract was one of service. But that is not the end of the inquiry. Section 2 of the Consumer Contracts Act which defines a consumer contract requires that the contract must, among other things, be one ″in which the seller or supplier is dealing in the course of business and the purchaser or user is not...″ The parties do not appear to have addressed their minds to that critical aspect of the definition of the consumer contract. The bank was, of course, dealing in the course of business. It is clear, too, that the first defendant was equally dealing in the course of business. The purpose of the facility, according to the offer letter upon which the agreement was constituted, was ″to finance working capital requirements″. On that account, this court finds that the contract between the plaintiff and first defendant is not a consumer contract as defined in the Consumer Contracts Act. See Zimbabwe Electricity Supply Authority v Bikita Minerals (Pvt) Ltd 2001 (1) ZLR 438 (H) at 440D-F.
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. The first defendant acknowledged its preparedness to be bound by the terms of the contract relating to interest and charges. It would require more than just a mere allegation to prove that the terms are unfair or oppressive. No evidence has been led to suggest that the interest charged is usurious. On the basis of the special case prepared by the parties, such a conclusion is not supportable. The defendants have not shown what it is that they are comparing the interest rate and charges with in order to sustain their contentions regarding the unfairness or oppressive nature or usurious nature of those charges. Put in other words, the opposition to the claim based upon the alleged contravention of the provisions of the Consumer Contracts Act are not properly founded.
The alternative argument made on behalf of the defendant is that the interest rate of 58 per cent per annum compounded is a penalty which is not commensurate with the prejudice suffered by the plaintiff as a consequence of the breach by the defendants of their contractual obligations, and therefore offends against the provisions of the Contractual Penalties Act. Section 2 of the Contractual Penalties Act defines a ″penalty″ to mean:
″2 Interpretation
...'penalty' means –
(a) any money which a person is liable to pay; or
(b) anything which a person is liable to do or perform; or
(c) any money, right, benefit or thing which a person is liable to forfeit;
under a penalty stipulation;...″
A penalty stipulation is defined in the same section to mean:
″2 Interpretation
...'penalty stipulation' means a contract or provision in a contract under which a person is liable –
(a) to pay any money; or
(b) to do or perform anything; or
(c) to forfeit any money, right, benefit or thing;
as a result or in respect of –
(i) an act or omission in conflict with a contractual obligation; or
(ii) the withdrawal of any person from a contract;
whether the liability is expressed to be by way of penalty, liquidated damages or otherwise.″
Compound interest per se is not a penalty unless it is triggered by the default of the debtor, in this case the defendant. On the other hand, it is clear from paras 11.6 and 11.7 of the plaintiff's declaration as read with Clauses 13.1 and 13.2 of the agreement that ″interest at a rate per annum which is the Bank's prevailing minimum lending rate″, which is defined as ″default interest″ would constitute a penalty for the purpose of the Contractual Penalties Act. That is so because the payment of interest at that rate is only consequent upon default, which places it squarely within the ambit of a penalty as defined in s 2 of the Contractual Penalties Act. The question to be addressed, therefore, is whether the penalty in question is out of proportion to the loss occasioned by the default. That question has to be answered in view of the provisions of s 4 of the Contractual Penalties Act that:
″4 Penalty stipulations enforceable
(1) Subject to this Act, a penalty stipulation shall be enforceable in any competent court...″
It is only if it appears to a court that the penalty is out of proportion to the prejudice suffered by the creditor, as a consequence of a breach as envisioned by subsection (2) of the same section, that a court is entitled to intervene by reducing the penalty to such a degree that it considers to be equitable or by giving such other relief which it may consider to be fair and just to the parties in the circumstances. 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. The defendants have not placed any such information before this Court. Instead, the defendants elected to make submissions in heads of argument. In paras 5.4 to 5.8 of the heads of argument the defendants make factual allegations which are not predicated upon the special case and which would require evidence to prove. Such an approach amounts to an attempt to lead evidence from the bar. Also, no evidence was placed before the court to support the submissions that the bank charges, establishment fee and drawdown fee are unconscionable. In any event, those charges do not fall within the definition of penalties.
In the result, the rate of interest charged by the plaintiff in casu cannot be said to be in contravention of the provisions of the Contractual Penalties Act.
The submissions by the defendant relating to the application of the duplum rule are difficult to follow in view of the fact that in the special case submitted which was duly signed by the parties' legal practitioners, the consequences of a finding for or in favour of the parties positions were agreed upon and sealed.
Accordingly, IT IS ORDERED THAT:
1. Judgment be and is hereby given in favour of the plaintiff against the defendants jointly and severally, the one paying the others to be absolved for:
(a) Payment of the sum of US$ 578 014.11.
(b) Interest on the sum of US$ 578 014.11 at the rate of 58 per cent per annum calculated from 1 April 2011 to date of payment in full.
(c) An order declaring a 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 specially executable.
(d) 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 specially executable.
(e) Costs of suit on the legal practitioner and client scale.
(f) Collection commission in terms of the Law Society of Zimbabwe by-laws.
Mawere & Sibanda, plaintiff's legal practitioners
IEG Musimbe & Partners, defendants' legal practitioners
{/mprestriction}
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