Rural Electrification Fund v Lomagundi Poles (Private) Limited

The plaintiff, Rural Electrification Fund, engaged in rural electrification projects and purchased treated poles from the defendant, Lomagundi Poles (Private) Limited. The arrangement was that the plaintiff would pay in advance and the defendant would deliver poles to various sites. In the third quarter of 2011, the defendant began defaulting on deliveries despite receiving advance payment. As at 1 June 2012, the defendant owed US$642,152.75. The defendant's Managing Director, Jasper Makunun'unu, signed an acknowledgement of debt on 1 June 2012, agreeing to pay interest at 17.85% per annum and to execute a Notarial General Covering Bond as security. On 17 July 2012, the defendant executed the bond in the sum of US$670,913.03, registered at the Deeds Office under reference number 2593/2012 on 23 July 2012. The bond hypothecated the defendant's chattels, stock in trade and book debts. The defendant failed to pay as agreed. On 11 December 2012, the plaintiff issued a Certificate of Balance showing the defendant's liability as at 30 September 2012 was US$681,862.00, which included compound interest calculated at 17.85% per annum. The plaintiff issued summons on 8 April 2013. The parties agreed to proceed by way of special case, with the defendant abandoning its plea but seeking to avoid liability on the ground that the interest rate was higher than the prescribed rate.

• Whether the interest rate of 17.85% per annum agreed upon by the parties was enforceable despite being higher than the prescribed rate of interest
• Whether the Prescribed Rate of Interest Act applies when parties have contractually agreed to a specific interest rate
• Whether the Money Lending and Rates of Interest Act applies to acknowledgements of debt arising from commercial transactions (as opposed to money lending transactions)
• Whether the agreement constituted an unfair consumer contract under the Consumer Contracts Act
• Whether costs on a legal practitioner and client scale could be enforced based on the parties' agreement
• Whether the capital amount claimed (US$681,862.00) was correctly calculated to include compound interest

The court ordered the defendant to pay: (1) the sum of US$681,862.00; (2) interest on that amount at the rate of 17.85% per annum from 30 September 2012 to date of full payment; and (3) costs of suit on the scale of legal practitioner and client.

Where parties to a commercial agreement have expressly agreed upon a specific rate of interest, that contractual rate governs their relationship and the Prescribed Rate of Interest Act does not apply, as section 4 of that Act only prescribes a default rate when the interest rate "is not governed by any other law or by an agreement or trade custom or in any other manner." The Money Lending and Rates of Interest Act only applies to money lending transactions and does not regulate interest rates on commercial debts arising from acknowledgements of debt for failure to deliver goods. Parties who contractually agree to pay costs on a legal practitioner and client scale in the event of litigation will be bound by that agreement. Compound interest may be charged where parties have agreed to it.

The court remarked that it was incorrect for the plaintiff to cite the Notarial General Covering Bond as the cause of action, as a notarial bond is merely a form of security and not an agreement. The proper cause of action should have been the acknowledgement of debt, which was the agreement between the parties. However, this technical error did not prejudice the defendant given that the factual narrative was undisputed. The court also observed, while allowing the possibility of withdrawal of admissions made in special case statements under Order 29 rule 204, that such withdrawal should only be permitted where the admission is clearly contrary to the facts and adherence would result in injustice. The use of the word "may" in the rule indicates discretion rather than an absolute right to resile from agreed facts.

This case is significant in Zimbabwean commercial law for clarifying the application of the Prescribed Rate of Interest Act in commercial contracts. It establishes that parties are free to contract for interest rates above the prescribed rate, and such agreements will be enforced. The judgment reinforces the principle of freedom of contract in commercial transactions and distinguishes between money lending (which is subject to statutory interest rate caps) and commercial debts arising from business transactions. The case also clarifies that a notarial bond is a form of security and not a cause of action in itself, though this technical error did not affect the outcome where the factual matrix was clear. The judgment further affirms that parties who agree to pay costs on a higher scale will be held to such agreements.