MALAWI

IN THE HIGH COURT OF MALAWI

COMMERCIAL DIVISION

BLANTYRE REGISTRY

COMMERCIAL CASE NUMBER 96 OF 2007

BETWEEN:

TEOFILO CHILENGE T/A

COMBINADO PESQUEIRO de METANGULA PLAINTIFF

-and-

THE ATTORNEY GENEARL DEFENDANT

CORAM: THE HON. JUSTICE DR. M.C. MTAMBO

Mbendera of Counsel for the Plaintiff

Nanthuru of Counsel for the Defendant

Fatchi Court Clerk

JUDGMENT

Dr. Mtambo J.

BACKGROUND

By a judgment of Hon. Justice Chimasula Phiri in Civil Cause No. 676 of 2001 dated December 2005 the court found in favour of the Plaintiff and condemned the Defendant to pay damages for negligence in the careless keeping of the Plaintiff’s boat which resulted into its total loss and loss of business. The court also awarded the Plaintiff costs of the proceedings. The damages were put in the sum of US$850,000, interest was calculated at US$120,41 and party and party costs were agreed at MK5,000,000. The Defendant on 1^st January 2007 paid the Plaintiff the Malawi Kwacha equivalent of the US$850,000 at that time (i.e. K117,793,000) exclusive of interest at 5% per annum by means of a Treasury Instrument maturing on 1^st January 2009, some two years down the line. The face value of the instrument on maturity having factored in the 5% interest was MK129,588,436.03. The Defendant did not pay the Malawi Kwacha equivalent of US$120,416 adjudged interest and MK5,000,000 party and party costs.

The Defendant contends that the payment through the treasury instrument discharged it from any further liability while the Plaintiff contends that the issuance of the treasury instrument in the sum of MK117,793,000 against the judgment of the Court covering damages, interest and costs was incapable of constituting a full and final settlement of the

judgment debt, it being less than the total amount due under the judgment.

The Plaintiff discounted the treasury instrument to Continental Discount House (CDH) prior to its maturity at a discounting cost of MK31,379,588.66 and seeks to recover that sum from the Defendant who when approached by the Plaintiff to make the reimbursement declined to do so arguing that that matter was none of its concern as the Plaintiff should have kept the instrument up to date of maturity to recover its full value inclusive of the 5% interest and as it neither authorized nor was privy to the discounting arrangements. The Plaintiff’s logic is that in view of the risk of devaluation of the Malawi Kwacha, its action to discount the instrument was expected and reasonable and amounted to measures take to mitigate loss emanating from a breach of contract by the Defendant. But the Defendant responds that it was not in breach of any contract as it had paid the Plaintiff the reduced sum as freely agreed and further that it is unreasonable to allow the Plaintiff recover from it the discounting fees.

The Plaintiff therefore took out an Originating Summons in the Principal Registry

seeking to recover the following sums:-

1. Malawi Kwacha equivalent of US$120,416 interest which the Plaintiff is entitled to recover under the order of the High Court dated 5 December 2006.

2. MK5,000,000 party and party costs which the Plaintiff is entitled to recover under the court order of 5 December 2006.

3. MK31,379,588.66 being the cost of discounting the treasury instrument or such other sum as the court may deem reasonable in the circumstances.

4. Further or other relief as the Court may deem equitable.

The matter was later transferred to this division where this court is invited by the Plaintiff to make the following orders:

1. a declaration that the receipt by the Plaintiff of a lesser sum does not discharge the Defendant of the entire sum due;

2. a declaration that the negotiable instrument purporting payment at a future date does not give immediate satisfaction of the debt;

3. a declaration that payment of a debt by way of a negotiable instrument which will mature in future poses a risk of loss in the event of a depreciation of the currency to the Plaintiff;

4. a declaration that a discount house is a reasonable and expected medium by which to transact and obtain immediate value on the negotiable instrument and thereby mitigate the risk of loss;

5. a declaration that the Plaintiff can recover from the Defendant the purchase costs of the discount transaction, to wit, MK31,379,588.66;

6. a declaration that the Plaintiff is entitled to recover the interest amount of USD120,416 from the Defendant;

7. a declaration that the Plaintiff is entitled to recover from the Defendant the sum of MK5,000,000 being the agreed costs.

8. an order for costs.

ISSUES FOR DETERMINATION

The issues for the court’s determination are:

1. What are the circumstances in which payment of a smaller sum of money in satisfaction of a larger debt discharges the debtor from her obligations to pay the larger debt.

2. Does the mere performance of the agreed act such as payment of a lesser sum agreed absent consideration amount to satisfaction to discharge the obligation to pay the larger debt at equity.

3. Is the sum of MK117,793,000 plus 5% interest paid by the Defendant to the Plaintiff less than the total amount due on the judgment.

4. Does the payment by the Defendant to the Plaintiff of the sum of MK117,793,000 plus 5 % interest as agreed constitute satisfaction of the judgment debt.

5. Is the Plaintiff entitled to recover from the Defendant the judgment award for interest in the sum of US$120,416, the judgment award for costs in the sum of MK5,000,000 both of which the Plaintiff agreed to forego and the sum of MK31,379,588.66 incurred by the Plaintiff on discounting the treasury instrument.

THE EVIDENCE

The evidence in the case is in the form of two affidavits sworn by counsel for the Plaintiff Mr. Mbendera, one in support of the originating summons and the other in reply to the Defendant’s affidavit in opposition, and an affidavit in opposition to the originating summons sworn by Mr. Mwadiwa, the secretary to the Treasury (ST).

In his two affidavits, Mr. Mbendera’s depones that sometime around October and November 2006 he met with the ST who indicated to him that the Malawi Government was going to pay the Plaintiff the judgment sum of US$850,000 but no interest or costs. The ST acknowledged that there was pressure on the Malawi Government to pay the judgment debt in question and proposed to do so by treasury note at the rate of 5% and for a fixed period of two years. Mr. Mbendera protested against the interest rate, but the ST informed him that it was a closed issue having already been decided on by “the powers above”. The ST threatened that if the Plaintiff did not accept those terms the matter could be shelved as the Government was not going to pay anything beyond the capital sum. He stated that the Government had obligations to satisfy International Monetary Fund’s economic management bench marks. Mr. Mbendera then expressed fears over the fixed terms of two years in case of a fluctuation in the value of the Kwacha. The response of the ST was that Government was offering an instrument which was negotiable. This was for the purpose of allowing the Plaintiff the possibility of discounting the note. The ST stated that the Plaintiff could take it or leave it because as far as they were concerned, no one could compel Government to pay if it did not want to.

The Defendant thereafter issued the Certificate in favour of the Plaintiff for the sum of MK117, 993,000 for a term of two years at an interest rate of 5%. In view of Government threats, the Plaintiff had no choice but to receive the stock paper. Mr. Mbendera asserts that he did not sign any agreement or document renouncing the Plaintiff’s right to claim interest, costs or losses arising from discounting the treasury instrument. His firm on behalf of the Plaintiff contacted several discounting houses namely First Discount Limited (FDH), Loita Bank, Stanbic Bank, National Bank of Malawi, NBS Bank Limited and CDH. It was from CDH that they obtained the best deal.

On his part, the ST depones that he negotiated the settlement of the case on behalf of the Defendant and Mr. M.R. Mbendera represented the Plaintiff. Mr. Mbendera clearly understood the negotiable nature of the security Certificate and the options available to him and the Plaintiff. During the negotiations the only problem that Mr. Mbendera had with the transaction was the interest rate as the Defendant was offering 3% and he demanded 5% for the Plaintiff. In the end and in the spirit of genuine and frank negotiation the Defendant agreed to raise the interest rate to the said 5% and the Certificate was executed on that and other terms. He believes that the negotiations were genuine and frank and that both parties were happy with the outcome. He made it clear to Mr. Mbendera that government would only pay the USD 850,000 on the understanding and in the spirit of a clear agreement that it would not pay interest or costs and it was on that basis that Government went ahead and issued the said Certificate.

According to the ST, the Plaintiff‘s acceptance of the Certificate was understood to signify his total agreement with the arrangement. He states that it was not necessary for the agreement between the Plaintiff and the Defendant to be reduced in writing as the terms of the agreement for the settlement of the judgment debt were clearly understood by both parties. The ST further states that it was up to Mr. Mbendera to negotiate the best deal possible for his client. In fact he did that on the issue of interest which Government in the spirit of frank and genuine negotiation agreed to raise from the standard 3% to 5%. His expectation was that the Plaintiff would wait for the Certificate to reach its maturity date of 1^st January 2009, though in the general custom of such transactions, the Plaintiff was free to deal with it in any manner that he chose including discounting it.

The Defendant’s position is that after the Certificate was executed, the Defendant no longer had business with the Plaintiff regarding the USD 850,000 and as far as the Defendant was concerned the matter had been dealt with to the satisfaction of both parties and the case had been resolved. The ST states that the Defendant had nothing to do with the transaction or contract between the Plaintiff and the said CDH. The Plaintiff never sought the Defendant’s opinion on the advisability of discounting the Certificate at the said CDH. The Defendant was not privy to the contract between the Plaintiff and CDH. The Plaintiff ought to have known that the transaction with the said CDH would be at a great cost to him and cannot now be expected to claim the discounted sum from the Defendant. Even after becoming aware of the cost of the transaction at the said CDH but before committing himself to it the Plaintiff never advised the Defendant of his intention to discount the Certificate. Further the Plaintiff never sought to enter into fresh negotiations with the Defendant on whether the Defendant would be willing to pay the cost of discounting the Certificate. The Plaintiff therefore, without the knowledge of the Defendant negotiated a contract with the said CDH and must have been prepared to accept the primary obligations such as the cost of discounting the Certificate. The settlement was in total and final settlement of the Plaintiff’s claims against the Defendant and he cannot now say that the Defendant has failed or neglected to pay the sum alleged. The agreement between the parties constituted a new contract and the Defendant honoured its part of the deal. The ST concludes by arguing that the claims by the Plaintiff in this case are manifestly unreasonable.

LAW AND ARGUMENT

Payment of a Lesser sum in satisfaction of a larger debt

A final judgment of a court of competent jurisdiction for payment of a sum certain creates a debt, for which an action will lie. See Grant v Easton (1883) 13 Q.B.D. 302. And the Malawi government has a constitutional obligation to pay such judgment debts by virtue of s.174(1)(c) of the Constitution which provides that a judgment debt constitutes a charge on the consolidated fund. The case of Commissioners of Stamp Duties v Bone [1977] A.C. 511 illustrates the common law general rule that a creditor is not bound by a promise to accept part payment in full settlement of a debt. A debt can only be discharged by accord and satisfaction. The payment of a smaller sum by the debtor, whether in cash or cheque or other negotiable instrument is no satisfaction of a larger sum then due from him without some additional consideration. This position is enunciated in Pinnel’s Case (1602) 5 Co. Rep 1179, Cumber –v- Wane (1718) 1 Stra 426, and D & C Builders Ltd –v- Rees [1965] 3 All E.R. 837.

The succinct principle in Pinnel’s case has been stated to be:

“payment of a lesser sum on the day (it would of course be the same after the day), in satisfaction of a greater sum cannot be any satisfaction for the whole, because it appears to the judges that by no possibility a lesser sum can be satisfaction to the plaintiff for a greater sum… but the gift of a horse, hawk, or a robe in satisfaction is good; for it shall be intended that either “might be more beneficial to the plaintiff than the money…”

In Foakes v. Beer (1884) 9 App Cas 605, where the respondent agreed to be paid 500 pounds as part satisfaction of a judgment of 2090 pounds, the question arose as to whether an agreement on conditions to pay a lesser sum was capable of being legally enforced. It was held that, not being under seal, it cannot be legally enforced against the respondent unless she received consideration for it from the appellant, or unless, though without consideration, it operates by way of accord and satisfaction so as to extinguish the claim of interest. It was thus stated that part payment of a debt does not satisfy the whole debt. However, Sibree v. Tripp (1846) 15 M&W 23 held that a promissory note taken for a lesser sum than the demand was a good satisfaction so that a negotiable instrument for a smaller sum may be given in satisfaction of a larger sum. Payment of a smaller sum may be a satisfaction of a larger ascertained debt where there is a new consideration to support the agreement to that effect, as where it is paid by three negotiable instruments in substitution for the debt sued for.

In Speedy’s Ltd v The Liquidator for Finance Bank (Mw) Ltd, Commercial Case No. 14 of 2007, the Commercial Court was asked to consider whether promissory estoppel arose in a case where a plaintiff moved the Court to order the Bank to consider a payment of a lesser sum as satisfaction of a larger debt. It was contended that the Bank had agreed to waive the payment of interest. The evidence establishing the representation constituting the waiver was doubtful. The plaintiff was not able to show express representation which was clear and unequivocal. Justice Kapanda held that the evidence did not prove waiver of interest. Therefore the payment of a lesser sum was not sufficient to discharge the Plaintiff from further liabilities under the contract. The judge quoted with approval the dictum by Bowen L J in the matter of Low v Bouvrie (1891) 3. Ch. 82 where it was stated:

“. . . an estoppel, that is to say, the language upon which the estoppel is founded, must be precise and unambiguous. That does not necessarily mean that the language must be such that it cannot be open to different constructions, but that it must be such as will be reasonably understood in the particular sense by the person to whom it is addressed.”

Accord and Satisfaction

Accord and satisfaction is the purchase of a release from an obligation whether arising under contract or tort by means of any valuable consideration, not being the actual performance of the obligation itself. There must be something given or done by the Defendant to or for the Plaintiff which the latter accepts upon a mutual agreement that it shall be a discharge of the cause of action. See Bullen & Leake, p. 909, British Russian Gazette and Trade Outlook Ltd v Associated Newspapers Ltd [1933] 2 K.B. 616).

Mr. Justice McDonald in Re: Irwin (1993), 19 C.B.R. (3d) by at p. 23 quotes Chitty On Contracts as follows:

‘…the purchase of a release from an obligation … by means of any valuable consideration ….The accord is the agreement by which the obligation is discharged. The satisfaction is the consideration which makes the agreement operative.’

Learned Counsel for the Defendant Mr. Nanthuru relies on Garner’s of Modern Legal Usage (2d ed.) Oxford University Press, 1995 where “Accord and satisfaction” is defined as follows:

“An accord is an agreement to substitute for an existing debt or obligation some alternative form of discharging that debt; a satisfaction is the actual discharge of the debt by the substituted means. Stated otherwise, an accord is the agreement to perform (in an alternative way), and the satisfaction is the actual performance. Any claim…… may be discharged by an accord and satisfaction.”

The Canadian case of Mohammed v. York Fire and Casualty Insurance Company 2006 Can LII 3954 (ON C.A.), 2006 Can LII 3954 (Ont. C.A.), also relied on by Mr. Nanthuru

holds that:

“It is a principle of our law that parties should be encouraged to settle disputes. Having done so, such agreements should not be set aside absent compelling reasons, such as fraud. Finality also limits the burdens on the courts of re-litigation.

Mr Nanthuru further relies on Law of Contracts (5^th ed). S.M. Waddams, Canada Law Book, Aurora, Ontario. 2005, par. 421 where it is stated:

“We recognize the desirability socially and commercially of having disputes resolved, such that there is certainty in business and personal life. Our law also values finality of disposition. Without finality, there would be no incentive to compromise claims and make settlements. There would be no certainty.

On the basis of the Canadian and some American authorities, the Defendant argues that the Plaintiff having agreed to take the smaller amount by the substituted means of a treasury note and the Defendant having complied with the new arrangement by performing the agreed new obligation and there being no fraud or coercion exercised by the Defendant on Mr. Mbendera to accede to the agreement, it is inequitable to allow the Plaintiff to go back on its promise to forego the balance. Such conduct, according to the Defendant, would run counter to the desirability of certainty in business and personal life and finality in the resolution of commercial disputes.

As is clear from the above, there are a number of qualifications to the rule that payment of a smaller sum of money is not good discharge for a larger debt. One circumstance is that payment of a lesser sum by the debtor may constitute a good discharge of the entire debt where the creditor voluntarily agrees to accept a lesser sum in satisfaction and the debtor acting upon that accord pays the lesser sum and the creditor accepts it. But where agreement is induced by pressure, threats or intimidation from the debtor, it does not constitute true accord which would disentitle the plaintiff from recovering the balance of the sums – See: D & C Builders Ltd –v- Rees (supra).

For the purposes of a valid accord and satisfaction settling indebtedness, the agreement constituting the accord must itself be binding in law. In the D & C Builders case the accord alleged was not binding as it was neither under seal nor supported by consideration. In this case, Lord Denning stated at p 841:

“in applying this principle, however, we must note the qualification. The creditor is barred from his legal rights only when it would be inequitable for him to insist on them. Where there has been a true accord, under which the creditor voluntarily agreed to accept a lesser sum in satisfaction, and the debtor acts on that accord by paying the lesser sum and the creditor accepts it, then it is inequitable for the creditor afterwards to insist on the balance. But he is not bound unless there has been truly an accord between them”.

In the same judgment, the celebrated judge concluded by finding that there was no true accord in the words:

“in the present case, on the facts as found by the judge, it seems to me that there was no true accord. The debtor’s wife held the creditor to ransom. The creditor was in need of money to meet his own commitments, and she knew it. When the creditor asked for payment of the £480 due to him, she said to him in effect: “we cannot pay you the 480 pounds. But we will pay you £300 if you will accept it in settlement. If you do not accept it on those terms, you will get nothing. £300 is better than nothing”.

The judge went on to say:

“but she had no right to insist on his taking it in settlement. When she said… ‘we will pay you nothing unless you accept £300 in settlement.” she was putting undue pressure on the creditor. She was making a threat to break the contract (by paying nothing) and she was doing it so as to compel the creditor to do what he was unwilling to do (to accept £300 in settlement)… and she succeeded”.

And it has further been held in Vanbergen –v- St Edmunds (1933) All E.R. 488 that concession as to time and mode of payment of money due which otherwise might be difficult or delayed was no consideration but a nudum pactum. Nudum pactum is unenforceable. Its effect is merely a voluntary concession to the debtor, made entirely to oblige him and of no advantage to the creditor.

Applying these principles to the case at hand, Mr. Mbendera learned counsel for the Plaintiff argues that he did not freely agree to forego the interest and costs but was arm twisted by the ST and therefore implores the court to find that there was no true accord. He further argues that even if there was an accord, such lacked consideration as the Defendant in paying a smaller amount by means of the treasury note did not perform any new obligation but merely performed its existing if not a lesser obligation and as such the agreement to forego the balance is not binding in law.

CONCLUSION AND DISPOSITION

The sum of MK117,793,000 plus 5% interest paid by the Defendant to the Plaintiff by means of negotiable treasury instrument in so far as it excluded the sums of US$120,416 being awarded interest and MK5,000,000 party to party costs was less than the amount due. In view of settled law, that payment was not sufficient to discharge the Defendant from liability to pay the bigger sum except if the circumstances show an accord and satisfaction.

The conclusion I make from discerning the affidavit evidence of Mr. Mbendera for the Plaintiff and Mr. Mwadiwa the Secretary to the Treasury (ST) for the Defendant and from my own questioning of Mr. Mbendera at the hearing of the originating summons and matters of common knowledge is that there was accord between the Plaintiff and Defendant for the Defendant to pay the lesser amount in extinguishment of the larger debt. In my considered judgment, there is no need for an accord to be in writing or reduced in a memorandum. Although the Defendant did not file an affidavit in response to the Plaintiff’s affidavit in reply where several allegations were made relating to alleged intimidation by the ST, it is clear from the affidavit in opposition that the Plaintiff’s allegations are disputed. In that affidavit, the ST depones that during the negotiations the only concern of Mr. Mbendera was with relation to interest at 3% which the Defendant raised to 5%. He believes that the negotiations were frank and each party was satisfied with the outcome. In view of these statements from the ST, it is incredulous for the Plaintiff to submit that Mr. Mbendera’s allegations of intimidation and take it or leave it were not disputed and as such are admitted.

When I questioned Mr. Mbendera whether he believed the ST if he told him that government would not pay the judgment debt if it did not want to do so his answer was in the negative. And as rightly argued by Mr Nanthuru learned counsel for the Defendant, the fact that the Plaintiff took out these proceedings is further evidence that the Plaintiff believes that government can be compelled to pay on judgments made against it. Further, in view of Mr. Mbendera’s position as a senior lawyer and legal practitioner for the executive and Defendant in several matters of public notoriety of which I take judicial notice, it is unbelievable that a person of such amicable standing with the Defendant was subjected to intimidation.

While Canadian and American authorities relied on by the Defendant, mostly dictionary and textbook in nature would seem to suggest that where an accord exists, the satisfaction is the mere performance of the agreed act by the Defendant in this case the execution and issue of the treasury instrument, English cases hold that consideration is necessary. It should at this juncture be pointed out that Canadian and American approaches and cases have in some instances varied traditional English law principles in view of local circumstances including legislation most notably the American Uniform Commercial Code (UCC). We in Malawi do not have similar legislation to the American UCC. But even in the American and Canadian contexts which legal systems are based on English common law by virtue of migration and colonization respectively in the past, it can be argued that one of the elements of an accord like any contract is the existence of consideration. It is well settled law that performance of an existing obligation is not good consideration. In the case at hand, the judgment debt created a constitutional obligation on government to settle the debt in full. Payment of such a debt is therefore not good consideration to support a promise on the part of the Plaintiff to forego interest and costs. And in this case, the Defendant even paid less than the judgment debt, interest and costs. Further, Mr. Mbendera’s concession as to time and mode of payment of money due which otherwise might be difficult or delayed lacked consideration and is a nudum pactum.

Although the ancient case of Sibre v Tripp (supra) suggests that payment of a smaller sum by means of a negotiable instrument has the effect of extinguishing a larger debt, this position has subsequently been cast in doubt by the D & C Builders Case (supra) on the basis that settlement of a debt by means of a negotiable instrument as opposed to cash does not offer any better satisfaction to the creditor to amount to good consideration. Similarly, in this case, the payment of a smaller sum by the Defendant than the one due by means of a treasury instrument is not good consideration to support a promise on the part of the Plaintiff to forego interest and party and party costs. I am fortified in my conclusion by the fact that it is unreasonable and inequitable for a whole government to procure agreement of subjects waiver of its constitutional obligations to pay its debts in full. What the government was doing in this case amounts to acting like an entity in liquidation or one compromising with its creditors. Indeed I am in great doubt whether it is lawful for the government to procure waiver of its constitutional obligations to its citizens such as Mr. Mbendera to pay him his adjudged legal costs though expressed to be party and party and as such arguably belonging to his client.

With respect to the discounting costs incurred by the Plaintiff, these are claimed on the basis of breach of contract and steps taken by the Plaintiff to realise value on the treasury instrument to guard against possible slippages of the Malawi Kwacha in mitigation of loss. The Plaintiff did not plead or adduce evidence to this court that the Malawi Kwacha had slipped from the date of execution and issue of the treasury instrument to the date of discounting and as such there is no basis for this court to find for the Plaintiff that the steps taken were a reasonable mitigation of loss. Further, the Plaintiff has not adequately addressed this court if at all as to what is the breach of contract that the Defendant is guilty of separate from the one adjudicated upon by Chimasula J. in Civil Cause Number 676 of 2001. In any event, I have found that there was no satisfaction between the Plaintiff and Defendant which contract if it had existed might have been the basis of a breach of contract action.

In the circumstances therefore, I award the Plaintiff the following sums purportedly waived by Mr. Mbendera:

1. The Malawi Kwacha equivalent of US$120,416 being interest on the judgment.

2. MK5,000,000 being party and party costs.

3. Interest at 5% per annum on the above as both the US$120,416 and the MK5,000,000 were awarded under judgments of the court and in terms of s.65 of the Courts Act carry the statutory interest.

I dismiss the Plaintiff’s claim for discounting costs of MK31,379,588.66.

As both parties have succeeded to an extent and bearing in mind the exceptional nature of the facts of this case, I exercise my discretion to order that each party will pay their own costs.

Pronounced in open court this 14^th day of March 2008.

Dr. M.C. Mtambo

JUDGE