Johnelly TZ Company Limited vs EQUITY Bank Tanzania Ltd (Civil Appeal No. 368 of 2021) [2024] TZCA 827 (22 August 2024)

IN THE COURT OF APPEAL OF TANZANIA AT PAR ES SALAAM rCORAM: MWANDAMBO. J.A., MAIGE. J.A. And KHAMIS, 3.A.) CIVIL APPEAL NO. 368 OF 2021 JOHN ELLY TZ COMPANY LIM ITED..............................................APPELLANT VERSUS EQUITY BANK TANZANIA LTD .................................................RESPONDENT (Appeal from the Judgment and Decree of the High Court of Tanzania at Dares Salaam) f Mlacha, dated the 22n d day of February, 2021 in Civil Appeal No. 37 of 2021 JUDGMENT OF THE COURT 9th & 22n d August, 2024 MAIGE. 3.A.: On divers dates between 2016 and 2017, the appellant applied for and was granted by the respondent three different credit facilities in terms and conditions therein stated. Of relevancy, for the purpose of this appeal, was the Business Loan Facility of TZS 130,000,000.000 issued on 29th March, 2017 for the purchase of a tanker trailer and payment of Import duty, (the Loan Facility Agreement) and a Bank Guarantee of TZS

70.000.000.00 issued on 28th August, 2017 in favour of Oryx Tanzania Ltd to secure a fuel credit purchase between her and the appel!ant("the Bank Guarantee Facility Agreement")- The two facilities were admitted into evidence and marked collectively as exhibit PI. At this juncture, it is necessary to mention that, the Bank Guarantee Facility Agreement was secured by, among others, a Chattel Mortgage over a Motor Vehicle with Registration No. T 531 DKE ("the security in dispute"). After the appellant had defaulted on the Loan Facility Agreement, the respondent issued him a 14 days'demand notice (exhibit D l) recalling the entire outstanding loan due and payable in respect thereof. On expiry of the notice period, the respondent seized the aforesaid security with a view to realizing the outstanding loan. The security was, however, released after the appellant had liquidated the loan. That aside, the appellant perceived what transpired as a breach of the Bank Guarantee Facility Agreement and, therefore, initiated a suit at the District Court of Kinondoni (the trial court) claiming for among others, payment of TZS 60.000.000.00 as special damages for breach of the Bank Guarantee Facility Agreement. The trial court found that there was a breach of the Bank Guarantee Facility Agreement because the default in question was in respect of the Loan Facility Agreement. While alive that, under clause 7 (c) of each of 2

the facilities, the respondent had the right to consolidate the accounts and the securities involved in the event of default, the trial magistrate was of the view that such right was not absolute. It was conditional upon the respondent exhausting the available securities in each of the facilities. At the end, the trial magistrate entered a judgment for the appellant and awarded her TZS 60,000,000.00 as special damages and TZS 13,000,000.00 as the amount allegedly illegally debited from the appellant's account. Being aggrieved, the appellant appealed to the High Court ("the first appellate court") faulting the trial court in holding that the respondent breached the Bank Guarantee Facility Agreement. The appeal was successful and as a result, the judgment and decree of the trial court was reversed. Aggrieved, the appellant has lodged this appeal faulting the first appellate court for: One, reaching into a judgment from interpreting a contract clause which is not in conformity with the law: and Two, holding that the respondent did not breach the contract. At the hearing, Mr. Godwin Nyaisa, learned advocate, appeared for the respondent whereas, the appellant was absent notwithstanding that she was duly served through her counsel. Since both parties had filed their written submissions, Mr. Nyaisa urged us to make use of rule 106 (12) of the Tanzania Court of Appeal Rules, 2009 and treat the appeal as 3

argued subject to his right to make oral arguments. We granted the prayer and treated the appeal as such and afforded him an opportunity to present oral arguments, which he did. In his written submissions, Mr. Eliya Rioba, learned advocate for the appellant, started by acknowledging that; under clause 7 (c) of the Bank Guarantee Facility Agreement, the respondent "reserves the right to combine accounts, the right to consolidate all securities held for any account to constitute security for all accounts so held.". However, he submitted that, for all intents, the respective clause should have been construed so as not to be in conflict with section 92 of the Law of Contract Act which provides for the right of the surety to redeem the security in the event of default on the part of the borrower. The respective right, he submitted, arises because, under section 80 of the Law of Contract, the liability of the surety is co-extensive with that of the principal debtor unless otherwise provided in the contract. He submitted further, citing the case of Exim Bank (Tanzania) Limited v. Dascar Limited & Another (Civil Appeal No. 92 of 2009) [2016] TZCA 564 (24 February 2016; TANZLII) that, the surety's liability is "of the same limits or extent" as the principal's liability. In his conclusion, therefore, since the appellant as the surety did not commit any act of default in terms of the Bank Guarantee Facility Agreement, the respondent's seizure of the security in

dispute was not only in breach of the said agreement but in total violation of the provisions of section 92 of the Law of Contract Act as well. He prayed thus that the appeal be allowed with costs. In rebuttal, Mr. Nyaisa started by drawing our attention to page 351 of the record and submitted that, whether the appellant defaulted to service the loan or not was not in dispute. There being a default, he submitted, the respondent was entitled, in terms of clause 5. II (g) of the Loan Facility Agreement, to commence recovery process which is why she issued the 14 days' notice calling upon the appellant to liquidate the outstanding loan. He submitted further that, as a borrower, the appellant was obliged to repay the loan when due rather than awaiting to be reminded. Under clause 11 (a) and (c) of the Loan Facility Agreement, Mr. Nyaisa further contended, failure of the appellant to make the loan good notwithstanding the expiry of the notice period, rendered the same immediately payable. Consequently, he added, the respondent was entitled under clauses 7(c) and 13 of each of the facilities to consolidate the securities held thereunder and recover the loan there from. He submitted, therefore, that, the action taken by the respondent was not in breach of any of the facilities. To cement his contention, he cited the case of Abdalla Yusuf Omar v. People's Bank of Zanzibar and Another 5

[2004] TLR 405 in support of the position that failure to repay loan as scheduled amounts to fundamental breach of contract which entitles the lender a right to exercise the powers of sale under the security in question. On interpretation of clause 7 (c) of the Bank Guarantee Facility Agreement, Mr. Nyaisa submitted that the High Court Judge cannot be faulted because the respective clause which appears in both facilities, constitutes what the parties agreed upon. Like the High Court Judge, he submitted that, the respective clause expressly allowed the respondent to, as it did, cross from one contract to another and combine the securities therein. To him, the action did not breach the contract. Neither did it contravene any law. Gathering from the submissions and the record of appeal, it is common ground that the appellant defaulted in terms of the Loan Facility Agreement. Equally not in dispute is the fact that each of the facilities allowed the respondent to combine all accounts and consolidate the securities held therein for the purpose of loan recovery in the event of default on any of the facilities. The main contention is whether the High Court Judge correctly construed the clause in holding that the respondent did not breach the contract. Clause 7 (c) of the Bank Guarantee Facility Agreement which is identical to clause 7 (c) of the Loan Facility Agreement provides: 6

"The Lender reserves the right to combine accounts, the rights to consolidate aii securities held for any account to constitute security for all accounts so held." It is a settled rule of interpretation that, in construing a commercial instrument, the court is expected to ascertain the intention of the parties so as to give the contract commercial effect. The logic behind being that commercial agreements are made so as to achieve a specific commercial object. To this effect, see for instance, the decision of the High Court of Tanzania, Commercial Division in CRDB Bank PLC v. Africhick Hatchers Ltd and Others (Commercial Case No. 97 of 2014) [2016] TZHC Com D 2082 (9 February 2016; TANZLII). As to how the intention of the parties can be determined, the following statement of the Supreme Court of Uganda in Magezi and Another v. Ruparella (2005) 2 E.A 156 which was quoted in Exim Bank (Tanzania) Limited v. Dascar Limited and Another, Civil Appeal No. 92 of 2009 (unreported) may be pertinent: "The intention of the parties to an agreement was to be determined from the words used in the agreement. However, in resolving an ambiguity, the court couid look at its commercialpurpose, and the factual background against which it had been made." 7

In our reading, clause 7 (c) of both facilities is clear and unambiguous. As expressly admitted in the appellant's submissions, it gives the respondent contractual right in the event of default, to combine the accounts and consolidate all securities held for any account to constitute security for all accounts so held. In this matter, it is not in dispute that, the appellant was in breach of the Loan Facility Agreement which constituted one of the appellant's accounts. Equally not in dispute is the fact that, the security in dispute was attached to the Bank Guarantee Facility Agreement which was also issued to the appellant. For those reasons and since the parties are in law bound by their contracts, the High Court Judge cannot be faulted in holding that the respondent did not breach the contract. Mr. Rioba submitted that the interpretation of the above clause by the High Court Judge was not in conformity with section 92 of the Law of Contract Act which gives the surety a right to redeem the security in the event of default in terms of the secured transaction. He clarified that, as no default was committed in terms of the Bank Guarantee Facility Agreement, the use of the security in dispute to recover an outstanding loan in the Loan Facility Agreement was illegal for offending that provision of the law. 8

With respect, we are unable to agree with him for two main reasons. In the first place, though served as a guarantee in favour of a third party in respect of the credit purchase agreement between the latter and the appellant, the Bank Guarantee Facility Agreement was issued at the instance of the appellant and, as per clause 1 thereof, the appellant was mentioned as the borrower. She was also the owner of the security in dispute as per clause 5(b) of the Bank Guarantee Facility Agreement. In that respect, she was both the borrower and the guarantor. Since she defaulted in terms of the Loan Facility Agreement and in so far as clause 7 (c) of both the facilities allowed the respondent to consolidate the accounts and securities in respect thereof for the purpose of loan recovery, the appellant cannot be heard complaining that section 92 of the Law of Contract Act was violated while she was given 14 days within which to make the loan good. In the second place, the security in question came into the hands of the respondent in the course of her business as a banker. As matter of banking and mercantile practice, therefore, the respondent had, assuming there was no express contractual stipulation, a general right of lien on such security in relation to any loan due and payable by the appellant as the borrower. See for instance, the English case of Brandao v. Barnett (1846) 12 Cl & Fin 787 quoted with approval in CRDB Bank Limited v. 9

Issack B. Mwamasika and Others (Civil Appeal No. 139 of 2017) [2018] TZCA 36 ( 7 August 2018; TANZLII) where it was observed: "Bankers most undoubtedly have a generaI lien on ail securities deposited with them ; as bankersby a customer, unless there be an express contract ; or circumstances that show an implied contract inconsistent with lien." Explaining the difference between a banker's lien and an ordinary lien, Chorley and Smart in their Leading Cases in the Law of Banking, 6th Edition, Sweet & Maxwell, London, 1952, make the following remarks, which we also find relevant in our decision : "A banker's Hen is exceptional in that it carries with it the right ofsaie, and as such approximates more closely to pledge: it is, in Lord Compbefl's words, an Implied p l e d g e I t implies, however, irrespective of the customer's knowledge of its existence. It exists by mercantile usage, and the customer is assumed to know of i t " As the appellant did not adduce any evidence to establish express or implied suggestion inconsistent to this general rule, we agree with Mr. Nyaisa that, the action taken by the respondent would be justified even if there was no express contractual term allowing the respondent to take such a cause. 10

In conclusion, therefore, the respondent neither breached the contract nor any existing law, in attaching the security in question as a measure to recover the outstanding loan. The appeal is thus without merit and it is hereby dismissed with costs. DATED at DAR ES SALAAM this 20th day of August, 2024. L. J. S. MWANDAMBO JUSTICE OF APPEAL I. J. MAIGE JUSTICE OF APPEAL A. S. KHAMIS JUSTICE OF APPEAL The Ruling delivered this 22n d day of August, 2024 via teleconferencing in the presence of Mr. Eliya Rioba, learned counsel for the Appellant and Mr. Robert Mosi, learned counsel for the Respondent, is hereby certified as a true copy of the original. l i