HIGH COURT OF ZIMBABWE
HARARE, 15 September 2009 and 9 March 2010
Mr. T. Govere, for the plaintiffs
Mr. W.P. Zhakazha, for the defendant
PATEL J: The plaintiffs herein claim provisional sentence founded on an Agreement of Settlement (the Agreement) concluded between the parties on the 22nd of July 2008 followed by an Acknowledgement of Debt (the Acknowledgement) signed on the 15th of November 2008. The total claim is for the sum of US$90,000 together with interest thereon at the rate of 20% per annum calculated from the due date of the 14th of December 2008. The defendant resists the claim on various grounds relating to the nature and correctness of the capital sum claimed under the Agreement, the application of the in duplum rule, the liquidity of the Acknowledgement and the legality of the entire transaction.
The terms of the Agreement refer to a failed investment made by the plaintiffs through the defendant and the defendant’s consequent indebtedness to the plaintiffs in the sum of US$80,000, payable in two instalments of US$70,000 and US$10,000, due by the 31st of October and the 30th of November 2008 respectively. The Acknowledgement cites the defendant’s failure to pay as agreed and recalculates the defendant’s indebtedness to be the sum of US$90,000, payable by the 14th of December 2008, together with 20% interest on the outstanding amount. In the event that the money debt is not settled, the defendant is obligated to transfer “a property of like value or more”.
Mr. Govere for the plaintiff was unable to explain how the original debt of US$80,000 was arrived at in the Agreement, but argues that this is irrelevant as the Acknowledgement clearly stipulates an agreed debt of US$90,000. He submits that both the Agreement and the Acknowledgement refer to investments as opposed to any loan and that, therefore, the in duplum rule does not apply. He further submits that the Acknowledgement is a liquid document signed by both parties and that it clearly indicates the capital sum, interest and costs owing by the defendant. In this regard, he relies upon several case authorities for the proposition that the alternative obligation to transfer immovable property also constitutes a liquid claim. Finally, he contends that even if the original transaction between the parties is found to be contrary to statute, the Court has a discretion to enforce the agreement despite its illegality in order to avoid the unjust enrichment of one party at the expense of the other.
As against this, the defendant avers that there was a fundamental error in calculating the debt in the Agreement. The original sum owing in 2006 was US$2284 and the defendant paid back a total of US$14,913 from July 2006 to November 2008. In any event, the defendant’s basic position is that the debt in casu did not arise from any investment but was essentially a disguised loan of several amounts borrowed from the plaintiffs in 2006. The defendant was not a registered asset manager and therefore could not invest funds on behalf of the plaintiffs or anyone else. In this respect, Mr. Zhakazha submits that the so-called investment agreement between the parties was designed to circumvent the relevant statutory provisions governing the management of assets and permissible rates of interest. He therefore submits that the Agreement and Acknowledgement, having been premised on an illegal transaction, must be declared null and void and consequently unenforceable.
Rule 20 of the High Court Rules provides as follows:
“Where the plaintiff is the holder of a valid acknowledgement in writing of a debt, commonly called a liquid document, the plaintiff may cause a summons to be issued claiming provisional sentence on the said document.”
It is reasonably clear from the papers that the Acknowledgement in casu constitutes a liquid document within the ordinary meaning of Rule 20. It is in writing and signed by both parties and it clearly stipulates the amounts owed by the defendant to the plaintiffs. As to whether the alternative obligation to transfer immovable property also constitutes a liquid claim, it seems to me that this obligation is not entirely satisfactorily formulated. Nevertheless, it is not necessary for me to decide this point as the Summons is based solely on the monetary debt due and does not make any claim for transfer of property in the alternative.
What does not emerge clearly from the papers is whether the Acknowledgement is a valid acknowledgement for the purposes of granting provisional sentence. If it is founded on a genuine investment, as the plaintiffs contend, it falls foul of section 5(1) of the Asset Management Act [Chapter 24:26]. Section 5(1) stipulates that no person shall carry on the business of asset management, as defined in section 3(1) of the Act, unless the person is incorporated as a private or public company and is registered in terms of Statutory Instrument 16 of 2004 or in terms of the Act. Section 5(6) makes it an offence for any person to contravene section 5(1). It is common cause that the defendant is neither an incorporated company nor registered as an asset manager under Chapter 24:26.
If, on the other hand, the Acknowledgement is premised on a disguised loan, as is contended by the defendant, the total sum inclusive of capital and interest claimed by the plaintiffs may well exceed the amount legally claimable under the in duplum rule. More significantly, the Acknowledgement and the loan underlying it fall to be governed by the provisions of the Moneylending and Rates of Interest Act [Chapter 14:14]. This Act regulates the moneylending activities of licensed or professional moneylenders as well as unlicensed lenders who lend money otherwise than in the course of business. In terms of section 3 of the Act, a lender is defined to mean any person making a loan of money, including the holder of any instrument of debt. Section 19 makes it clear that the Act applies to every transaction which, whatever its form may be, is substantially one of moneylending and whether or not the transaction forms part of any other transaction. Section 8 of the Act provides that no lender shall stipulate for, demand or receive from the borrower interest at a rate greater than the prescribed rate of interest and that any lender who contravenes this prohibition shall be guilty of an offence. Insofar as concerns civil claims, section 9 of the Act precludes the recovery of excess interest and, where a borrower has paid excess interest, section 11 entitles him to recover such excess.
As I have recently held, in Funding Initiatives International (Pvt) Ltd v Mabaudi HH 20-2007, at p. 7:
“The established principle of our law is that anything done contrary to a direct statutory prohibition is generally void and of no legal effect. The mere prohibition operates to nullify the act, particularly where it is visited with a criminal sanction. See Schierhout v Minister of Justice 1926 AD 99, at 109; Metro Western Cape (Pty) Ltd v Ross 1986 (3) SA 181 (AD) at 188-189. …………………………….
Having regard to the direct and unambiguous prohibition spelt out in section 8 of the Act, I am in no doubt that its provisions cannot be waived by agreement and that any contractual stipulation to the contrary must be treated as being null and void ab initio. Moreover, as is made crystal clear in section 9, any interest charged or agreed in excess of the prescribed maximum is unenforceable and irrecoverable, whether through civil proceedings or otherwise. Consequently, where usurious interest is charged in contravention of the Act, the borrower is entitled, in terms of section 11, to recover the excess amount paid within a period of two years after the date of payment.”
It follows, therefore, whether the transaction in casu was a genuine investment or a disguised loan, that the transaction and the Acknowledgement premised upon it are susceptible to scrutiny for compliance with the in duplum rule as well conformity with the governing statutes. Moreover, if the transaction is found to be tainted with illegality, it will be necessary to consider the relevant facts surrounding its conclusion as well as the respective degrees of turpitude attributable to the parties in order to determine the extent of its illegality and its enforceability under the par delictum rule. See Jajbhay v Cassim 1939 AD 537 at 544-545; Young v van Rensburg 1991 (2) ZLR 149 (SC) at 156-157; Hattingh & Ors v van Kleek 1997 (2) ZLR 240 (S) at 246.
In my view, all of the above-mentioned aspects of this case cannot be properly determined on the papers before the Court. They require thorough ventilation by way of viva voce evidence in a full trial of the matter. Moreover, it would be patently improper for the Court to grant provisional sentence on a liquid document that is evidently fraught with illegality. The granting of provisional sentence in this case is therefore not justified and must be refused.
In the result, the application for provisional sentence in terms of Rule 20 is hereby dismissed and the case is ordered to stand over for trial in terms of Rule 34. The Summons herein shall stand as summons in an ordinary action and the defendant shall enter appearance to defend within five days of the handing down of this judgment. Thereafter, the rules of procedure in an ordinary action shall apply unless the Court gives other directions. The costs of this application shall be costs in the cause.
Coghlan, Welsh & Guest, plaintiffs’ legal practitioners
Chinamasa, Mudimu, Chinogwenya & Dondo, defendant’s legal practitioners