KGOLOLESEGO FINANCIAL COMPANY (PTY) LTD v KETSHOTSENG 2008 (2) BLR 269 (HC)
Citation: 2008 (2) BLR 269 (HC)
Court: High Court, Lobatse
Case No: Misca No 1866 of 2007
Judge: Dow J
Judgment Date: 18 August 2008
O O Itumeleng for the plaintiff.
D Leburu for the defendant.
Contract - Proof of - Written
contract - Parol evidence rule - Evidence of antecedent oral contract
inadmissible to contradict, alter or vary written contract.
Practice and procedure - Summary
judgment - When to be granted - Application for summary judgment based on
acknowledgement of debt - Defence that E unconscionably high
administration fee charged in terms of acknowledgement - Administration fees
quintupling capital amount loaned - Administration fee possibly contra bonos
mores and unenforceable - Summary judgment refused.
Practice and procedure - Summary
judgment - When to be granted - Application for summary judgment based on
acknowledgement of debt - Defence that F creditor depositing
cheque tendered by debtor in settlement of indebtedness, thereby novating loan
agreement - Creditor possibly demonstrating intention to novate - Summary
plaintiff sought summary judgment on an acknowledgement of debt in the total
amount of P66 820, comprising capital P13 000, interest of P12 999 and a
compounded daily administration fee of P53 820. Because G the acknowledgement was silent as to interest,
the plaintiff claimed to be entitled to the maximum interest permissible at
law, namely double the capital-hence the claim for interest of P12 999. The
defendant tendered payment by way of cheque in the amount of P13 000, in
settlement of her indebtedness to the plaintiff. The plaintiff deposited the
cheque but the defendant then stopped payment on the cheque and the cheque was H
returned unpaid. The
defendant opposed summary judgment on several bases: first, that she had
borrowed only P10 000 from the plaintiff and that the P13 000 reflected on the
acknowledgement of debt included an interest component; second, that the
administration fee was unconscionable, contra bonos mores and grossly
exploitative; and third, that, in depositing the defendant's cheque, the
plaintiff accepted the total terms of P13 000, thereby evidencing an intention
to novate the loan agreement and to waive its rights thereunder.
(1) Applying the parol evidence rule, the court could not take A cognizance of the antecedent oral agreement
alleged by the defendant to the effect that the loan was for P10 000 and not
for P13 000, as reflected on the acknowledgement of debt.
daily administration fee might well be unconscionable or contra bonos mores. In
terms of the loan agreement, there was no provision for the payment of a daily
administration fee. The administration fee seemed to be B a ploy to circumvent the in duplum requirement
that interest was not to accumulate to a larger amount than the principle of
(3) The fact
that the administration fees had quintupled the capital amount loaned indicated
that they constituted a penalty, rather than reasonable compensation for breach
of contract. Damages could be liquidated in an agreement but only in a
reasonable amount. A term fixing unreasonably large liquidated damages might be
unenforceable on grounds of public C policy or contra bonos mores, as constituting
(4) The defendant
was required to prove specific facts to support her defence that the
administration fees were contra bonos mores. National Development Bank v
Estate Construction (Pty) Ltd and Others  2 B.L.R. 492, applied.
present case a proper one in which to give the defendant an D opportunity to place evidence before the court
to show that the demanded administration fees were based on extraordinary
rates, regard being had to the commercial environment in the country. That
could only be done at trial.
plaintiff's argument as to interest was misconceived. There was a dispute as to
whether interest was recoverable at all which could not be resolved on the
(7) In the
result, the defendant had shown a bona fide defence to the plaintiff's claims
that interest was due and payable at all and that it was to be calculated on
the capital amount of P13 000. F
the defendant had averred sufficient facts to support her defence of novation.
If the facts averred by the defendant were true, it might support a finding
that the loan agreement had been novated. That was a matter that could only be
determined at trial.
Bank of Botswana v Mokopotsa t/a Boikhutso Small General Dealer  1
Entrepreneurial Development Agency v O'Hagan (Botswana) (Pty) Ltd and Others
 2 B.L.R. 406 G
(Sunnyside II) (Pty) Ltd and Others v Financial Services Company of Botswana
Ltd  B.L.R. 274, CA
Services Botswana (Pty) Ltd v Devon (Pty) Ltd and Others  2 B.L.R.
Holdings (Pty) Ltd v Spur Group (Pty) Ltd and Others  2 B.L.R. 11, CA
Fair Deal Wooden Windows (Pty) Ltd  1 B.L.R. 142
v National Development Bank and Others In re: National Development Bank v
Masunga Meat Market (Pty) Ltd and Others  2 B.L.R. 240 (HC)
Development Bank v Estate Construction (Pty) Ltd and Others  2 B.L.R.
A Standard Bank of South Africa Ltd v
Oneanate Investments (Pty) Ltd (In Liquidation) 1998 (1) SA 811 (A)
judgment on a loan. The facts are sufficiently stated in the judgment.
B O O Itumeleng for the plaintiff.
for the defendant.
C These are reasons for the grant of the
1.The defendant having tendered payment in the sum of P13 000,
judgment is granted to the plaintiff in that amount.
2.The balance of the claim is referred to trial.
3.Reasons for the decision and directions for the future conduct
of the matter reserved to 27 May 2008.
D The facts
concerns a loan taken by the defendant, Bame Ketshotseng, from the plaintiff,
Kgololesogo Financial Company (Pty) Ltd. In January 2007 the defendant met an
old acquaintance, Lesego Masitara, who was at E the time employed by the plaintiff company.
The defendant says that she negotiated with Masitara for a loan, which was
obtained by the defendant from the plaintiff company. The amount obtained was,
she says, the amount of P10 000.
defendant then signed a document titled 'Acknowledgment of Debt and Payment
Undertaking' in terms of which the amount owed was F reflected as P13 000; the defendant claims
that this sum included the P10 000 loaned to her plus P3 000 in interest. In
addition, the said acknowledgment of debt provided that:
1.The loan is to be repaid on or by 27 February 2007;
2.If the defendant defaults on payment, the outstanding sum at
the date G of default will accrue an
administration fee of 1.5 per cent of the principal to be compounded and
credited daily till debt is paid in full.
3.In the event of default, sums paid in respect of the agreement
are to be apportioned first to administrative fee, interest, any legal costs on
the legal practitioner to client scale, collection cost, and lastly capital.
February 2007, the defendant defaulted on the loan agreement. Per H
the terms of the
agreement, the loan began accruing 1.5 per cent daily administrative fees,
which amounted to P195 per day. As of 30 November 2007, the total loan due plus
administrative fees amounted to P66 820. The plaintiff seeks summary judgment
in this amount, a daily administration fee on the outstanding amount, interest,
collection commission and costs of suit at attorney and client scale.
the defendant claims first that payment on the loan was to be made in
April 2007. It is common cause that a cheque was written by the A defendant to the plaintiff in the amount of
P13 000 and deposited by the plaintiff on 25 April 2007, but returned unpaid.
The defendant claims that the failure of the cheque to go through is due to
advice given by Lesego Masitara in May of 2007 not to allow payment of the
cheque to go through. But for this advice, the defendant alleges she would have
repaid the plaintiff P13 000 by April 2007. The defendant admits to owing P13
000, and is B willing to tender that amount. The plaintiff
is demanding payment of P13 000 plus accrued administrative fees, interest, and
collection costs. The plaintiff argued for the grant of summary judgment on the
ground that the defendant has not placed before the court sufficient facts upon
with the court can hold that she has a bona fide defence. C
issues to be determined
1.Whether the plaintiff is entitled to administration fees as
spelled out in the Acknowledgement and payment undertaking.
2.Whether the plaintiff is entitled to interest in this matter
as per the acknowledgement and payment undertaking.
3.Whether the depositing of the cheque novated any terms of the
of the issues
summary judgment, the defendant must satisfy the court that she has a defence,
which if proved would constitute an answer to the claim that she is advancing
in honesty. The defendant is required to disclose her E defence and set out the facts upon which it
was based with sufficient particularity to enable the court to decide whether
the affidavit disclosed a bona fide response. See Du Setto (Sunnyside II)
(Pty) Ltd and Others v Financial Services Company of Botswana Ltd 
B.L.R. 274, CA.
summary judgment is an extraordinary remedy as it allows judgment to be given
without a trial and closes the door in a final fashion F to a defendant. It is therefore necessary for
this court to '... tread that path with the greatest care and caution for the
proper administration of justice.' See Citizen Entrepreneurial Development
Agency v O'Hagan (Botswana) (Pty) Ltd and Others  2 B.L.R. 406 at p
It is a
principle of contract law that a person, when signing a document, is taken to
be bound by the ordinary meaning and effect of the words which G appear over the signature. The parol evidence
rule, which has its roots in English common law, has been adopted into the law
of Botswana. See Hinton v Fair Deal Wooden Windows (Pty) Ltd  1
evidence rule is to the effect that when a transaction has been reduced into
writing, the writing is regarded as the exclusive memorial of the transaction
and no evidence may be given to contradict, alter, add or vary H its terms. This court, therefore, cannot
accept the defendant's claims in regard to her negotiations with Lesego
Masitara prior to 27 January 2007: that P13 000 was allocated in the total
amount of the loan for interest, that the date of repayment was set in April
instead of February, and that the terms of the agreement were not clear as of
May 2007. The defendant is assumed to have carefully read the terms of the loan
agreement, the document which she signed and gave her assent to, in
order to ensure that the full agreement is correctly represented.
the plaintiff is entitled to administrative fees as spelled out in the acknowledgement
and payment undertaking
defendant's defence for failure to repay the loan timely is that the B
administrative fee term is
unconscionable, contra bonos mores, and grossly exploitive.
A court can,
in certain situations, be persuaded to set aside a whole contract or a clause
in it on grounds of public policy. This court has the power to treat as void
and to refuse in any way to recognise contracts and transactions which are
against policy or contrary to good morals. See C National Development Bank v Estate
Construction (Pty) Ltd and Others  2 B.L.R. 492.
It may be
correct that the daily administrative fee of 1.5 per cent accumulating on the
amount due is in fact unconscionable and/or contra bonos mores. Under the terms
of the agreement, there is no specific provision for interest beyond the
original P13 000 (assuming the defendant's version can D be proven at trial), and it seems as if the
administrative fee is a ploy to circumvent the in duplum requirement that
interest not accumulate to a larger amount than the principal of the loan.
administrative fees represent predetermined damages for breach of contract, the
fact that the fees have quintupled the modest amount loaned by the defendant
seems by itself to indicate that the fees constitute a penalty E and not reasonable compensation for a breach
of the agreement. Indeed damages for breach by either party may be liquidated
in an agreement but only in an amount that is reasonable in light of the
anticipated or actual loss caused by the breach and the difficulties of proof
of loss. A term fixing unreasonably large liquidated damages may be
unenforceable on grounds of public policy or contra bono mores, as a penalty.
F However, the power to void and refuse to
enforce contracts based on public policy is not to be hastily or rashly
exercised; it should be exercised sparingly and only in the clearest of cases.
If parties enter into an onerous or one-sided or unreasonable or even grossly
inequitable contract, it is not for a court to amend it out of sympathy for one
party or to refuse to enforce its terms. See Gradam Holdings (Pty) Ltd v
Spur Group (Pty) Ltd and OthersG  2 B.L.R. 11, CA.
that parties are not in an equal bargaining position does not necessarily
render a contract unenforceable as being contra bonos mores, it is a
well-founded principle of contract law that contracts freely and seriously
entered into by parties able to do so should be enforced.
In a similar
case, National Development Bank v Estate Construction (Pty)H
Ltd (supra), the
defendant, after defaulting on a loan, alleged that the penalty interest rates
of 18.75 and 19.25 per cent were unconscionably high and were contra bonos
mores. The High Court granted summary judgment to the plaintiff on grounds that
insufficient evidence was placed before the court to show that the rates or
security taken were out of the ordinary. Although the defendants in the case
were established commercial entities and business persons, like the defendant
in this case, they voluntarily entered into
the agreements and there was no question of being coerced into A the agreement. Therefore, the High Court held
that they could not be heard to seek to bailout of their obligations because
they did not wish to keep their side of the bargain.
can be distinguished from National Development Bank (supra) by the fact
that the defendant is not a commercial entity or an experienced business
person, however, the precedent still requires the defendant to prove B
specific facts to support
her defence that the administrative fees are contra bonos mores.
On the above
reasoning, it is found that this is a proper case to give the defendant an
opportunity to place before the court evidence to show that the demanded
administrative fees are based on extraordinary rates, regard being had to the
commercial environment in the country. This is an issue C that can only be determined at trial, for it
can not be for this court to employ its own idea of what is fair or not,
without the benefit of relevant evidence on the point being decided on.
the plaintiff is entitled to interest in this matter as per the acknowledgement
and payment undertakingD
duplum rule serves to aid debtors in financial difficulties by holding that it
is unlawful to recover interest equal to or more than the capital sum upon
which interest had accrued. See Barclays Bank of Botswana v Mokopotsa t/a
Boikhutso Small General Dealer  1 B.L.R. 419 at p 424. The rule
serves an important social function by protecting debtors E and providing that any clause in a contract
that seeks to deprive a person of the protection afforded to them by the law is
unenforceable by reason of its illegality or on the basis that it offends public
policy. Furthermore, the application of the in duplum rule cannot be waived and
circumvention of the rule cannot be tolerated by courts. Standard Bank of
South Africa Ltd v Oneanate Investments (Pty) Ltd (In Liquidation)  1
SA 811 (A) at F p 828C-D.
plaintiff argues that because the loan agreement in this matter does not
prescribe the rate of interest at all, therefore the interest should take the
form of the maximum interest prescribed by law. Further, the plaintiff argues,
that in denying any interest owed to the plaintiff, the defendant is delving
'into a desperate attempt ... to amend an agreement as an afterthought G
of her bad bargaining
(para ii(13) of the plaintiff's written submissions.) Therefore, in addition to
the loan amount of P13 000 and P53 820 in accumulated administrative fees, the
plaintiff presumably seeks up to P12 999 in interest. The plaintiff's reasoning
is attenuated at best and therefore the court cannot accept the plaintiff's
argument on this matter. The plaintiff fundamentally misunderstands the
provision and the purpose of the H in duplum rule.
the High Court in Barclays Bank of Botswana v Mokopotsa (supra) at p
424H '... where sums are claimed for moneys loaned and advanced ... the capital
component and the interest component should be clearly distinguished, so that
the rule can be properly applied.' Therefore, if the plaintiff wishes to charge
interest on the loan agreement in this case, theA plaintiff is required by law to clearly
distinguish the capital and the interest charged.
There is a
dispute as to whether the interest was pre-determined as P13 000 and that issue
can not be resolved on the papers as they stand. Otherwise, there is no
provision for interest in the loan agreement; not even an interest rate by
which such an award could be calculated. In order to B grant the plaintiff's prayer on this point,
this court would have to determine a reasonable interest rate, and perhaps
employ the provisions of s 3 of the Prescribed Rate of Interest Act (Cap
is well established that when a party signs a contract, it is taken to be bound
by the ordinary meaning and effect of the words which appear over the signature
and it is not for the courts to insert obligations C into a contract when there were none
the parol evidence rule states that when a transaction has been reduced to
writing, the writing is regarded as the exclusive memorial of the transaction
and no evidence may be given to contradict, alter, or vary its terms. See Hinton
v Fair Deal Wooden Windows (Pty) Ltd (supra).
though finds that, even if no extraneous facts are brought into D the interpretation of the document in issue, a
few questions remain unanswered, suggesting that perhaps the defendant is
correct that the sum of P13 000 included interest. It is reasonable to conclude
that the defendant is telling the truth because the alternative conclusion
would have to be that had the defendant repaid the amount within the month
stipulated in the agreement, the loan would have been interest-free. It is also
of some relevance E that the plaintiff, in its declaration, makes
no assertion that the loan amount was P13 000; rather the issue is skirted by
asserting that the 'Defendant acknowledged her indebtedness'.
In the final
analysis, the difficulty facing the plaintiff on this point is that if the
assertion is that the P13 000 did not include interest, is it asserted that the
loan was to attract no interest for the first month of its issuance and if F
so, what was the
attraction to the plaintiff for such an arrangement? The associated difficulty
becomes, if the loan attracted P3 000 as interest during the first month of its
issuance, what was the rate beyond the one month? The question, already raised
above, as to whether the 'administrative fee' was to be employed to circumvent
the duplum rule, begs for an answer.
It is found
that the defendant has demonstrated that she has a bona fide G defence to the plaintiff's claim that (a)
interest is still due and payable and that (b) such interest is to be
calculated on the basis that the capital sum is the amount of P13 000.
the depositing of the cheque novated any terms of the contract
which refers to the extinguishing of a debt by substituting same H
for another debt, founded
on a new agreement between the parties, must be absolutely clear. There is a
presumption against novation because it involves a waiver of existing rights.
Therefore, a creditor who has rights under an existing contract and then enters
into another connected contract will be presumed to intend rather to strengthen
and confirm his existing rights than to waive them and accept rights under the
new contract. The onus of proving novation therefore lies on the party who
asserts that it has taken place and that
party must specifically plead it. See Fleet Services Botswana (Pty) Ltd v
Devon (Pty)A Ltd and Others  2 B.L.R. 417 at p
to novate an existing right is not readily inferred, and where such an
intention is sought to be established by implication, the intention must be
clear and unequivocal. Makuluba v National Development Bank and Others In
re: National Development Bank v Masunga Meat Market (Pty) Ltd and Others
 2 B.L.R. 240. It is otherwise well established principle B that clear and cogent proof of novation is
defendant alleges that in May 2007 Lesego Masitara advised the defendant that
there was a problem at the plaintiff company, that she had been removed from
their employment, and that there was a dispute between the splitting of
clientele. She further advised the defendant that until she communicated with
the defendant, the defendant should not allow payment C of the cheque for P13 000 to go through, and
the defendant then stopped payment of the cheque. Therefore, the defendant
concludes that by accepting the terms of the total payment of P13 000 by way of
cheque, the cheque and it's depositing by the plaintiff supplanted and novated
any terms that may have pre-existed the contract. (Paragraph 6-8 of the
defendant's affadavit resisting summary (judgment.) D
defendant has clearly alleged an intention (or at least a perceived intention)
on the part of the plaintiff to waive the existing rights under the loan
agreement by the information provided to her by Lesego Masitara regarding the
splitting of clientele and breakdown of the plaintiff company. Although it
would have benefited the defendant to take initiative to clarify the
information given to her, rather than to rely solely on the information E
provided to her by Ms
Masitara, given that the defendant took the loan with the plaintiff company and
not with Ms Masitara, the defendant has nevertheless averred sufficiently
specific facts to support her defence. If the facts averred by the defendant
are true, it might support a finding that the terms of the loan agreement were
novated and replaced with a new agreement. This is a matter that can only be
determined at a trial. F
1.The costs of this application to be determined at the
conclusion of the trial.
2.The future conduct of this case will be under the following
trial: To be determined after consultation with the parties and the judges'
of the next set of pleadings by the defendant: On or before noon on 1 September
to be closed and after which date no further pleadings may be filed, except for
such pre-trial motions, if any, as shall be H raised by the pleadings: On or before 31
of pre-trial minutes, lists of witnesses and documents to be used at trial: On
or before 28 November 2008.
refused. Matter referred to trial.