=======================================================
JUDGMENT:
The Plaintiff, Export Finance
Company Limited, a financial
institution, has sued the 1st
Defendant and its Directors for
the following:
a.
Recovery of the sum of GH¢220,170.19
being the outstanding
indebtedness of 1st
Defendant as at 30/06.2009 on a
loan agreement dated 10/08/2005.
b.
Interest at the agreed interest
rate of 12.5% from 1st
July, 2009 to date of final
judgment.
OR IN THE ALTERNATIVE
c.
Judicial sale of the following
properties
i.
Factory building and equipment
of 1st Defendant
situate at Tema Heavy Industrial
area.
ii.
Flats
6, 7 and 8 situate at Sakumono
Estates, Community 13, Tema.
iii.
1st
Defendant’s building situate at
Sakumono Estates, Community 13,
Tema.
iv.
1st
Defendant’s building situate at
Agbogbloshie in Accra.
The Plaintiff’s case is that at
the request of the 1st
Defendant and its Directors,
Plaintiff granted a loan
facility of GH¢450,000.00 to the
1st Defendant in
August 2005. Thus Plaintiff
entered into a loan agreement
dated 10th August,
2005 (Exhibit “L”). The loan was
for a period of 360 days and at
an interest rate of 12.5%. The
2nd, 3rd 4th,
5th and 6th
Defendants in addition executed
Deeds of Guarantee also dated 10th
August 2005 (Exhibits “J” & “K”)
in favour of the Plaintiff,
guaranteeing the payment of the
loan. The 1st
Defendant further executed a
Deed of Mortgage (Exhibit “M”)
on the same day over the
following properties:
a.
Factory building and equipment
of 1st Defendant
situate at Tema Heavy Industrial
Area.
b.
Flats
6, 7 and 8 situate at Sakumono
Estate, Community 13, Tema
c.
1st
Defendants building at
Agbogbloshie in Accra.
Plaintiff’s further case is that
the Defendants have failed to
pay back the loan according to
the repayment schedule agreed
upon, and several reminders by
the Plaintiff notwithstanding,
the Defendants have failed and
or ignored to pay their
indebtedness to the Plaintiff.
And that as at 30th
June 2009 the 1st
Defendant was indebted to the
Plaintiff in the sum of
GH¢220,170.19.
P.W.1, Robertson Torgbor Abbam,
Head of Business Development and
Marketing in Plaintiff Company,
gave evidence on behalf of
Plaintiff and tendered the
following documents in evidence.
i. Exhibit “A” -
Letter of Application
ii. Exhibit
“B” - Completed loan
application form
iii. Exhibit “C”
– An offer letter offering the
loan sum of
GH¢450,000 to the 1st
Defendant
iv. Exhibit “D” -
Letter of Acceptance
v. Exhibit “E” -
Final Demand notice
vi. Exhibit “F” -
Letter by Defendants on the loan
re-payment
vii. Exhibit “G” -
Final Demand Letter
viii. Exhibits “H” “H1”,
“H2”, and H3 - Cheques issued
by the Defendants as payment for
their indebtedness but which
were dishonoured upon
presentation.
xi. Exhibit “J" – A deed of
personal guarantee from the
2nd Defendant as
managing director guaranteeing
that he will be personally
liable in event of default by 1st
Defendant Company.
x. Exhibit “K” - joint and
several guarantee by the other
directors of 1st
Defendant Company.
xi. Exhibit “L” – loan
agreement between 1st
Defendant
and Plaintiff.
xii. Exhibit “M” – Deed of
mortgage mortgaging a couple
of properties of 1st
Defendant to the Plaintiff
Company as security for the
loan.
xiii. Exhibit “N” – Statement
of Account showing the
indebtedness of the 1st
Defendant at the time of
issuing the Writ of
summons (i.e. by 30th
June 2009).
Plaintiff relied on the above
listed documents which were
tendered in evidence, to prove
its case that the Defendants are
liable to pay the amount of GH¢220,179.19
together with interest as
claimed by the Plaintiff.
The Defendants on the other hand
contended that they obtained the
loan in anticipation of an
Agreement with Valco to process
waste from Valco for export.
The evidence of D.W.1, Bonafice
Amandi, Managing Director of 1st
Defendant Company and 2nd
Defendant herein, was that loan
in question was applied for the
rehabilitation of plant and
machinery necessary to secure
the Valco Agreement. Valco
unilaterally abrogated the
Agreement with the 1st
Defendant which suddenly changed
the circumstances of the
Defendants resulting in their
inability to meet the repayment
terms. It was Defendant’s
contention that it is normal
banking practice for banks to
release excess assets held as
security for loans especially
when the contracting party is
under distress and requires the
excess security for funding
elsewhere if the lending bank
was not prepared to grant the
distressed party a supplementary
loan.
The evidence placed before the
Court is that the Plaintiff had
been supporting the 1st
Defendant with credit for its
scrap export business and that
most of the 1st
Defendant’s export material was
obtained from Valco. D.W.1 told
the Court that the Defendants
had been granted loans by the
Plaintiff for its scrap export
business on six (6) previous
occasions and Defendants had
paid off all the said loans.
D.W.1’s further evidence was
that Defendants had since 2007
tried to prevail on the
Plaintiff to remove the mortgage
on the Tema factory valued at GH¢4,800,000
to enable the Defendants sell
some of the vacant land on which
the factory building is situated
to pay off the debt, but this
had been refused by the
Plaintiff.
It is Defendants’ further
contention that although the
loan was to attract simple
interest of 12½% per annum, the
Plaintiff capitalized the
interest. That most of the
outstanding debt was interest
upon interest and this was
contrary to the terms of the
Agreement.
The Defendants have thus
Counter-Claimed for the
following:
a.
A
declaration that the interest
charged on the Loans Agreement
is excessive and in breach of
the Agreement signed between the
parties.
b.
An
order for the 12½ % interest per
annum agreed upon to be charged
on the loan.
c.
A
declaration that the Defendant
is entitled to the release of
the factory building valued GH¢4,812,472.64.
d.
An
order for the release of the
mortgage on the factory building
to enable the Defendants secure
funding elsewhere.
e.
Further or other relief.
f.
General Damages.
The following issues were set
down for trial:
1. Whether or not Plaintiff
granted the 1st
Defendant a loan of
GH¢450,000.00
2. Whether or not 1st
Defendant have failed and or
neglected
to abide by their repayment
schedule as agreed under the
loan agreement
3. Whether or not
the 1st Defendant is
indebted to the Plaintiff
to the tune of GH¢220,170.19
together with interest to date
of final payment.
4. Whether or not the
Plaintiff charged the 1st
Defendant
interest in excess of the 12.5%
per annum agreed under the loan
agreement
5. Whether or not the
Plaintiff misled the Defendants
to
surrender title deeds on the
three separate assets worth over
GH¢5,470,000 to secure a loan of
only GH¢450,000 thereby over
securing the loan.
6. Whether or not the
Defendants are entitled to a
release of
one of the Assets for securing
the loan to raise funds
elsewhere to pay off the debt.
The fact that 1st
Defendant took a loan of
GH¢450,000.00 with interest at
the rate of 12.5% is not
disputed. In my view therefore,
the issues to be determined are;
(i) whether or not the Plaintiff
charged interest on the facility
over and above the agreed 12½ %,
in breach of the agreement
between the parties; and (ii)
whether or not the Defendants
could at this stage be entitled
to a release of any of the
mortgaged properties to enable
them secure extra funding from
another source to pay the debt
owed to Plaintiff.
I will now examine the issue as
to whether or not the Plaintiff
charged interest over and above
the agreed rate of 12.5%. In the
instant suit, as already stated,
the Defendants do not deny that
the 1st Defendant
still owes the Plaintiff on the
loan facility granted to them;
they are challenging the quantum
because they claim the Plaintiff
has capitalized the interest
contrary to the terms of the
agreement. As indicated above
the agreed interest rate was
12.5%. Exhibit “L” states as
follows:
“4.0 INTEREST
Interest rate shall be Twelve
and a Half Percent (12.5%) per
annum.
5.0 REPAYMENT
The repayment
terms are as follows:
5.1. Principal and Interest
thereon shall be paid in four
equal instalments as soon as
proceeds are received within the
360 days period.
D.W.1 did not lead any evidence
to support the allegation that
the interest rate charged by
Plaintiff was over and above the
agreed rate and thus excessive
and contrary to the terms of the
agreement . The question to ask
is the interest rate allegedly
charged by Plaintiff was
excessive as compared to what?
The evidence adduced on behalf
of Plaintiff was that by the
nature of the Plaintiff’s
business the interest rates it
charged were concessionary.
This is what transpired when
D.W.1 was being cross-examined:
Q: Yesterday you were here
under oath and you told this
that you were very familiar with
the practices of the banks and
they are a bit more lenient than
the plaintiff company that is
why I am asking you how much
they charge as interest for such
loans.
A: I didn’t say so.
Q: I am putting it to you
that the Banking Institutions
charge as high as 25 – 80%
interest on such loans.
A: I cannot tell.
Q: How much did the
Plaintiff company charge on the
said loan as per the agreement.
A: According to them they
said it is supposed to be 12½ %
but I don’t know whether that is
what they really computed.
Q: In the offer letter
which I showed to you yesterday
the Exhibit it was 12½% and in
your acceptance letter you
accepted same. Why didn’t you
go to a bank for this loan and
decided to go to Export Finance,
tell the Court?
A: I know Export finance to
be a financial Institution so I
didn’t think it is a mistake to
go to them. I have been going
to the bank and I discharge my
obligations with the banks since
I started business about 45
years ago.
Q: I am putting it to you
that you went to Export Finance
because you knew their interest
rate was relatively low in fact
half of the rate of the banks
that is why you went to Export
Finance?
A: It is never correct
because they finance export
related business that is why I
went to them.
I will find that the interest
rate of 12½% charged by
Plaintiff perse was not
excessive.
There can be said to be four
basis for the award of
interest. The first is by trade
usage. The second is that
interest is a variant of
contract. The third basis for
the award of interest has
generally been taken to
be that a person who has
unjustifiably kept money which
properly ought to have gone to
its owner should not be
permitted to benefit by having
that money in his possession,
and additionally enjoying the
use of it (see Royal Dutch
Airlines (KLM) v. Farmex Ltd.
[1989-90] 2GLR 623). The
fourth basis is the award of
interest based on statutory
provisions.
Under the current market economy
followed by the Government, the
imposition of interest rates has
been deregulated. The result is
that each bank now decides the
interest rate to be charged for
sums lent or to be paid by it,
for savings or for deposits.
Further, each bank exercises its
discretion in imposing simple or
compound interest, depending on
the nature of the transaction
with its customers.
The Financial Institutions
(Non-Banking) Law, 1993 (PNDCL
328) 511 (2) grants the Bank of
Ghana the power to give
directions to non-banking
financial institutions in
respect of matters concerning
deposits, interest rates on
deposits and periods for which
deposits may be received. One
such direction is the “Operating
Guidelines for Finance Houses,
21st August 1996,
paragraph 40 of the guidelines
permits licensed finance houses
to determine their own interest
rate on loans and charges for
services rendered. There is no
limit or restriction on the
interest rates or charges that
may be levied, the only
requirement being that the rates
and charges should be made known
to the Bank of Ghana.
It has been held in City
Investment Co. Ltd. v. Amtam
(Gh) Ltd, Accra (Suit no.
225/98) 15 December 1998,
unreported per Akoto-Bamfo J (as
she then was) that the
operations of bodies corporate
set up under PNDCL 328 to,
inter alia, lend money do
not fall under the ambit of the
Moneylenders Ordinance, Cap 176
[1951 Rev] on account of the
definition of “Moneylender” in
section 2(b) thereof. This view
was confirmed by another High
Court decision in City
Investment Co. Ltd v. Print
Consult Ltd. [1999-2000] 1 GLR
460
In the instant case, the
exigible interest rate, as
stated above, was clearly spelt
out in Exhibit “L” to be 12½ %.
Exhibit “L” did not state
whether it is simple interest or
compound interest. The
Defendants however contend that
Plaintiff capitalized the
interest and charged interest on
interest contrary to the terms
of the agreement.
Compounding of interest is the
capitalization of interest so
that interest itself yields
interest. Compound interest
therefore comes about when in
loan transactions where the
amount loaned is released to the
borrower in different sums and
at different times, interest
accrues on any portion of the
loan released. The accrued
interest becomes a debt which is
added to the debt brought about
by the amount released. Further
interest is then exacted on the
total of the amount released
plus this accrued interest. By
this process, interest will be
paid on the accrued interest
itself as well as the principal
amount.
A careful examination of Exhibit
“N”, a Statement of 1st
Defendant’s Account shows that
indeed Plaintiff compounded the
interest. According to Paget’s
Law of Banking (13th
Edition), English Law has
recognised the custom and usage
of bankers in capitalizing
interest with yearly,
half-yearly and quarterly
rests. See National Bank of
Greece SA v. Pinios Shipping Co.
No.1, “The Maria” [1989] 1 All
ER 213.
The view is held in Ghana that
in the light of CI.52 which
expressly permits the payment
only of simple interest the
legality of the payment of
compound interest is
questionable. However CI.52
applies when judgment is given
by a Court over a debt owed to
the judgment creditor, i.e.
award of post-judgment
interest. Until judgment is
given, the relationship of the
parties is governed by the
contract between them. The
justification of the payment of
compound interest therefore lies
in the subsisting contract.
In the Agreement between the
parties herein, Exhibit “L”,
there is no express provision
that interest would be
compounded albeit there is no
express provision that it should
be simple interest either. It is
however my humble opinion that
as under English law in Ghana,
the compounding of interest is
the banking practice and usage.
Our courts are not
constitutionally bound to follow
precedents in English Courts if
they are considered wrong or
inappropriate to our
circumstances. However, in
principle, decisions of English
Courts have great persuasive
influence in shaping our own
decisions, but our courts are
free to charter and forge a
different course. In the
circumstances of this case, I
find the English authorities of
persuasive influence. I am
further strengthened in the
position I have taken by the
obiter by Her Ladyship Sophia
Akuffo SC in the case of IBM
World Trade Corporation v.
Hasnem Enterprises Ltd.
[2001-2002] SCGLR 393, that:
“Given the fiscal realities that
have prevailed in this country
over the past two decades and
the recalcitrance of too many
debtors in the fulfilment of
their obligations, it would
augur well for the country if
the Courts (Award of Interest)
Instrument, 1984 (LI 1295), were
amended to give the court the
power to award compound
interest. Compound interest on
debts is, perhaps, the only
effective mechanism, which will
allow the amount due, to grow in
line with inflation, provided
the correct rate of interest is
also employed… where money is
unjustly withheld, then the
creditor must be seen to have
been justly recompensed by the
debtor for the unjust use of
other people’s money. Any
system that tends to encourage
debtors to shirk their
responsibilities benefits no one
but such delinquent debtors; and
poor debt servicing in the
business sector only fans,
further, the flames of
inflation”.
I am however of the view that
there are special circumstances
of the instant suit that call
for an examination of the mode
of calculation of the interest.
As stated above, the evidence of
P.W.1 was that the loan facility
in question was obtained by 1st
Defendant to rehabilitate the
company’s plant and machinery.
The loan was obtained in
anticipation of an Agreement
with Valco to process waste from
Valco for export. Valco however
unilaterally abrogated the
Agreement which suddenly changed
the circumstances of the 1st
Defendant resulting in their
inability to meet the repayment
terms. All these were brought to
the attention of Plaintiff. In
my opinion, the capitalization
of the interest ought to have
been stopped on the date of the
expiration of the loan period;
i.e. 360 days. The evidence of
P.W.1 with regard to the loan
duration was as follows:
Q. Can you tell the court when
was the loan facility supposed
to expire, the repayment period?
A. One year payment. It is
supposed to be three hundred and
sixty days from the date of
disbursement.
Q. The date of disbursement was?
A. 16th August 2005.
So 2006, 15th August
they are supposed to have
finished paying.
I take this position because it
was incumbent on the Plaintiff
to have taken the necessary
steps after the said date to
recover the debt owed to it. I
will therefore find that the
Plaintiff did not exceed the
interest rate of 12.5%.
Nonetheless, the capitalisation
of the interest after the agreed
duration of the loan facility
was harsh.
I will now examine the issue as
to whether or not the Plaintiff
should be made to release the
properties mortgaged by
Defendants. The essence of a
legal mortgage is for the
borrower to transfer the
property being mortgaged to the
lender and the lender
covenanting to transfer it back
again when the loan was repaid.
Thus the mortgage is discharged
when the debt is paid off. The
interest that the lender has in
a mortgage is a proprietary
interest which is capable of
being bought or sold.
I know of no legal basis for
such a request and the
Defendants have not provided me
with any legal basis or evidence
to enable the Court grant this
relief. In the Offer letter to
1st Defendant,
Exhibit “C”, Plaintiff clearly
spelt out what the security
would be and 1st
Defendant accepted all the terms
of the loan facility (Exhibit
“D”). 1St Defendant
got a Board Resolution (Exhibit
“P”) in which the Board agreed
to the use of the said
properties as security. They
also got consent from the Tema
Development Corporation to
mortgage the properties in Tema
upon 1st Defendant’s
own request (Exhibits “Q” and
“Q1”). There is therefore no way
that Defendants can claim that
they did not willingly offer the
properties in question as
security for the loan.
I fail to appreciate the
argument that Plaintiff was
unreasonable in not releasing
the title documents to 1st
Defendant to show to investors.
In my opinion, any investor who
is serious about investing in 1st
Defendant Company should be made
aware of the debt to Plaintiff
for the investor to decide if it
is really interested in the
transaction and willing to pay
the debt owed to Plaintiff. I
do not see anything wrong in
Plaintiff protecting itself by
only giving a copy of the
indenture with “non-negotiable”
marked on it. I will find the
Defendants are not entitled to a
release of the properties
mortgaged to Plaintiff until the
obligations owed to Plaintiff
are discharged..
1st Defendant is also
claiming General Damages. It is
trite learning that the purpose
of damages is to put the party
who has suffered as a result of
a breach of contract in nearly
the same position that he would
have been had the other party
not broken the contract. In
Delmas Agency Ghana Ltd v Food
Distributors International Ltd
[2007-2008] SCGLR 748, it
was held that general damages
are such as the law will presume
to be the natural or probable
consequence of the defendant’s
act. In the instant case I have
not made any finding that there
has been a breach of contract
and therefore the issue of
General Damages does not arise.
In conclusion, I will hold that
Plaintiff is entitled to recover
the outstanding indebtedness of
the 1st Defendant as
at the expiration of the 360 day
period. From Exhibit “N” the
amount outstanding as at 31st
August, 2006 was
¢3,631,227,556.68 (GH¢363,122.75).
Interest shall be calculated on
this amount at the agreed rate
of 12.5% at simple interest from
31st August, 2006
until the date of final payment.
I will dismiss all of the
Defendants counter-claim.
I will award costs of GH¢5,
000.00 against the Defendants.
(SGD)
BARBARA ACKAH-YENSU(J)
JUSTICE OF THE HIGH COURT
COUNSEL
GEORGE ANKOMAH MENSAH
- PLAINTIFF
J.A. LARKAI
- DEFENDANTS |
