Foodex (Private) Limited v Climax Investments (Private) Limited

The appellant (Foodex) had a letter of credit facility at the international division of Zimbabwe Banking Corporation Limited (Zimbank) and a current account at the Angwa Street branch. In 1995, Foodex applied for and obtained a ninety-day letter of credit to import goods from Morocco. When payment was not made within the ninety-day period, Zimbank debited the amount due to Foodex's current account at the Angwa Street branch without prior arrangement, creating an unauthorized overdraft. Zimbank charged interest at a punitive rate of 43% per annum on the unauthorized overdraft. When Foodex failed to clear the overdraft, Zimbank issued a summons which it subsequently ceded to the respondent (Climax Investments). The High Court ordered Foodex to pay $40,476.45 plus interest and costs. Foodex appealed.

• Whether Zimbank had authority to transfer the sum owing in respect of the letter of credit to the appellant's current account at a different branch
• Whether Zimbank was entitled to charge interest at the punitive rate of 43% per annum on an unauthorized overdraft
• Whether the bank's practice of periodically debiting interest to an overdrawn account was binding on the customer
• From what date interest should be charged on the additional sum claimed in the amended summons

The appeal was dismissed with costs. The order of the High Court was altered to provide: (1) Defendant to pay plaintiff $40,476.45; (2) Interest on $28,540.00 at 43% per annum from 29 October 1996 to payment in full, compounded monthly from 31 October 1996; (3) Interest on $11,936.45 at 43% per annum from 1 February 2001 to payment in full, compounded monthly from 28 February 2001; (4) Defendant to pay costs of suit.

A bank is authorized to debit a customer's current account to cover a letter of credit obligation where the application form contains a clause authorizing such debit, and this authorization is confirmed by the customer's subsequent conduct in accepting the debit without protest. Banks are entitled to charge punitive interest rates on unauthorized overdrafts in accordance with their general terms and conditions. A customer who receives periodic bank statements showing interest charges without protest or objection tacitly agrees to be bound by the bank's practice and is deemed to have acquiesced in the system. A notice of amendment of a summons cannot constitute a demand for the purposes of putting a party in mora; interest on additional sums claimed should only run from the date of judgment unless a proper demand has been made.

The Court noted that had the argument regarding non-discovery of the standard application form been advanced in the court below, the learned judge would have considered it and exercised discretion regarding costs. However, as costs are a matter within the trial judge's discretion and the issue was not raised below, the Supreme Court was not in a position to substitute its own discretion. The Court also observed that even without considering the disputed application form document, the same conclusion could have been reached based solely on the appellant's conduct after the account was debited, as evidenced by the correspondence.

This case establishes important principles in Zimbabwean banking law regarding: (1) the authority of banks to set off debts across different accounts based on standard terms in application forms; (2) the entitlement of banks to charge punitive interest rates on unauthorized overdrafts; (3) the binding nature of banking practices when customers acquiesce by not protesting periodic statements; and (4) the requirement that a proper demand must be made before interest can run on additional claims. The judgment adopts persuasive South African banking law authorities and clarifies the contractual relationship between banks and customers regarding overdraft facilities and letters of credit. It reinforces that customers are bound by standard banking practices where they have acquiesced through silence or conduct.