IN THE HIGH COURT OF SWAZILAND

IN THE HIGH COURT OF SWAZILAND In the matter between: JUDGMENT Case No.228/2016 SWAZILAND DEVELOPMENT FINANCE CORPORATION Plaintiff And SIBONGILE CLARA NDLANGAMANDLE t/a BAYANDZA PRE & PRIMARY SCHOOL THANDEKILE KHANYISILE MOTSA First Defendant Second Defendant Neutral citation: Swaziland Development Finance Corporation v Sibongile Clara Ndlangamandla t/a Bayandza Pre & Primary School (228/2016) [2018] SZHC 97 (16 th May, 2018) Coram: M. Dlamini J. Delivered: 16 th May 2018 Civil - mora interest guarantees the innocent party of value for its money as it eliminates depreciation by adding interest to the loss occasioned by lapse of time at the instance of the defaulting party who failed to pay or perform on the due date 1

- a party claiming mora must first place defendant on mora interest, including mora interest is the life blood of commerce plaintiff has to adduce evidence justifying grant of an order on mora interest above 9% or at commercial rate as it were Summary: A default judgment application is serving before me. The plaintiff claims beside the capital amount as a distinct prayer, mora interest at a commercial rate. Pleadings [1] Before stating the issue, it is apposite that I quote the prayers by plaintiff: Claim A (a) Payment of the sum of E305 478.96 (Three hundred and Five Thousand Four Hundred and Seventy Eight Emalangeni and Ninety Six Cents); (b) Interest on the aforesaid amount at the rate of prime +4.5% currently at 14.25% per annum calculated from the date of summons to date of final payment; (c) Costs of suit on the scale as between attorney and own client including collectiion commission. Claim B (a) Payment of the sum of 227 731.96 (Two Hundred and Twenty Two Thousand Seven Hundred and Thirty One Emalangeni Ninety Six Cents; (b) Interest on the aforesaid amount at the rate of prime +4.5% currently at 14.25% per annum calculated from the date of summons to date of final payment; 2

(c) Costs of suit on the scale as between attorney and own client including collection commission. [2] When the matter came before me in chambers, I querried from Counsel representing plaintiff as to why he had claimed interest at a commercial rate as opposed to what is commonly referred to as litigation rate following that legal processes were served. Counsel submitted that there are legal authorities supporting his client to claim mora interest at a commercial rate. This therefore compelled me to write the present judgment. I was however, constrained by time to produce this judgment as I awaited learned Counsel to submit the said authorities but in vain due presumably to his ever busy schedule. Issue [3] Is the plaintiff entitled to be paid mora interest at a commercial rate instead of at the standard 9% rate once legal processes have commenced or court processes have been served? Mora interest (Interest a temporae morae) its purpose [4] The principle on interest was well canvassed by Van der Merwe AJA: [11] Interest remains interest and no method of accounting (such as capitalisation) can change its nature. Contractual interest may be compound interest or simple interest. Compound interest is interest on capital plus accrued interest. If compound interest is not 3

provided for in an agreement, only simple interest on the capital will be payable in terms of the agreement. 1 [5] The learned judge continued to eloquently point out on mora interest: [12] Mora interest, on the other hand, is something fundamentally different. It is not payable in terms of an agreement, but constitutes compensation for loss or damage resulting from a breach of contract, specifically mora debitoris. [6] The classicus case on mora interest by the full bench of the Appellate Division discusses in depth mora interest. Their Lorships at page 1145 expressed 2 : It may be accepted that the award of interest to a creditor, where his debtor is in mora in regard to the payment of a monetary obligation under a contract, is, in the absence of a contractual obligation to pay interest, based upon the principle that the creditor is entitled to be compensated for the loss or damage that he has suffered as a result of not receiving his money on due date (Becker v Stusser, 1910 CPD 289 at p 294). [7] The import of the above cited exposition is that mora interest flows from the evidence that had the defaulting party performed at the appropriate date, the innocent party would have appropriated the money in such a way as to bear interest. Now that the defaulting party failed to pay at the relevant date, the innocent party must be restored to the same position he would have been had the defaulting party performed. This must not only be in terms of the capital due but also delayed interest. It is for this reason that interest a temporae morae has been classified in various judgments as the life blood of commerce 3. In simple terms, mora interest guarantees the innocent party of value for its money as it eliminates depreciation by 1 In The Land and Agricultural Development Bank of South Africa v Ryton Estates (Pty) Ltd & 6 Others (460/12 [2013] ZASCA 105; [2013] 4 All SA 385 (SCA); 2013 (6) SA 319 (SCA) (13 September 2013) at para 11 2 Bellairs v Hodnett and Another 1978 (1) A 1109 3 See amongst others Centlivres CJ in Linton v Corser 1952 (3) SA 685 at 695 4

adding interest to the loss occassioned by lapse of time at the instance of the defaulting party who failed to pay or perform on the due date. Howe JA 4 neatly summed: [T]he new section (as in South Africa mora interest is regulated by the Prescribed Rate of Interest Act No. 55 of 1975) was obviosly aimed at alleviating the plight of a plaintiff who has to wait a substantial period of time to establish his claim, through no fault of his own, and is paid in depreciated currency. (brackets, my own) [8] The source of mora interest Innes CJ 5 eloqently espoused on the above subject matter: Speaking generally, the liability of a debtor for interest under the civil law depended (apart from agreement) upon whether he was in mora. Mora was a wrongful default in making (or accepting) payment or delivery Moram vocamus injustam restitutionis solutionisve out faciendue out accipiendae cessationem. (Mulenbruch. Vol 11, sec. 355). It was of two kinds, mora ex re, arising out of the transaction itself, and mora ex persona, arinsing out of the conduct of the debtor. (emphasis) [9] The obligation to pay mora interest may arise from the contract itself - ex contractu or through an act of the defaulting party ex persona. Parties to a transaction may provide as a term of their contract that should either default in payment, mora interest shall commence to run from a specified date. In that instance, the court would accept that date as the running date of the interest in default. The provision for the commencement of mora interest may be expressly stated or implied in the contract. A tacit date may also be determined by trade usage or custom. However, in the absence of mora ex re, mora may arise ex persona. 4 In Adel Builders (Pty) Ltd 2000 (4) SA 1027 at 1031G 5 In Victoria Falls & Transvaal Pover Co. Ltd v Consolidated Langlaagte Mines, Ltd 1915 AD 1 at page 31 5

[10] Mora interest arising from the conduct of the defaulting party arises when the creditor notifies the defaulting party that he is in default and therefore should perform in terms of its obligations in the underlying contract. This notification is referred to as a demand interpellatio. Under this circumstance, it is imperative that the innocent party serves a demand upon the defaulting party. This demand may be in a form of a letter of demand or service of summons upon the defendant. Service of a letter of demand or summons serves to put the defendant in mora. In other words, where the basis for the claim of mora interest flows from ex persona, the plaintiff must serve court processes upon the defendant in order to justify a claim on mora interest. Without such service, a claim on mora interest would fail. V M Ponnam JA 6 could not have been more precise on this point as he pointed, with reference to Scoin Trading (Pty) Ltd v Bernstein NO 2011 (2) SA 118 at paras 11 and 12: The term mora simply means delay or default. When the contract fixes the time for performance, mora (mora ex re) arises from the contract itself and no demand (interpellatio) is necessary to place the debtor in mora. In contrast, where the contract does not contain an express or tacit stiputlation in regard to the date when performance is due, a demand (interpellatio) becomes necessary to put the debtor in mora. This is referred to as mora ex persona. [11] Period from which mora interest runs Generally, a letter of demand would advise the defaulting party on when compliance is expected by the innocent party. In such circumstance, mora interest commences to run from the following date of the last date of the anticipated compliance. Where on the other hand the defaulting party has been placed in mora following service of summons, the return date is considered in computing the period from which mora interest begins to run. It must however, be pointed out that the period from which mora interest runs as a result of ex persona, applies whether by demand or 6 In Crooks Brothers Lt v Regional Land Claims Commission for the Province of Mpumalanga & Others 2013 (2) SA 259 at para 17 6

summons only to liquidated claims. Of course, sometimes claims may appear unliquidated ex facie but in their true nature they are liquidated and this happens when their quantum is easily ascertainable. In this instance, the defendant must be put in mora. [12] Where therefore the plaintiff s claim is unliquidated, such as a claim for damages, the period of computation for mora interest runs from the date of judgment. PJJ Olivier JA 7 in a unanimous decision held: The only remaining issue regarding TBA s (Appellant) claim for mora interest relates to the date from which such interest should be calculated. TBA s contention is that the commencement date should be a date earlier than the date of summons because the quantum of its damages was readily ascertainable by PW (Respondent) at such earlier date. I disagree. In the first place the quantum was by no means capable of easy and ready proof and the fact that Reid reported on it cannot be held as an admission by PW against itself. In the second place it fails to recognise the fundamental principle that however liquidated a plaintiff s claim for damages may be, mora interest can only be calculated from the date when mora commenced. (my explanation) [13] The learned judge proceeded to elucidate by citing Solomon JA in West Rand Estates Ltd v New Zealand Insurance Co Ltd 1926 AD 173 at 182 as follows: Here the amount of loss in respect of each item of the claim was ascertainable by agreement between the parties before issue of summons. It follows therefore that by our law interest began to run on the amount of defenant s liability from the date of mora. And that brings me to consider the question of what that date is? [14] Solomon JA answered as follows as the learned Justice Olivier JA pointed out: 7 In Thoroughbred Breeders Association of South Africa v Price Waterhouse [2001] 4 ALL SA 161 (A) 1 June 2001 at para 86 7

There is no satisfactory reason for following any other practice, and we think that we should now definitively lay down the rule that mora begins to run from the date of receipt of the letter of demand. It of course follows that where there has been no letter of demand, there would be no mora until summons has been served on the defendant. (emphasis) [15] On unliquidated claims Innes CJ in Victoria Falls 8 at page 22-23 outlined: Cases may possibly arise in which though the claim is unliquidated the amount payable might have been ascertainable upon an inquiry which it was reasonable the debtor shoud have made. Such cases should they occur, may be left open. But the present matter stands in a different position. It was not possible for the defendant to know or ascertain what damage its breach of contract had caused, and it cannot therefore on the principle of our law be held liable for intrerest prior to judgment upon the amount of the damage. (emphasis) Culpa Should it be established? [16] When Innes CJ highlighted that,.speaking generally, the liability of a debtor for interest under civil depended (apart from agreement) upon whether he was in mora. Mora was a wrongful default in making (or accepting) payment or delivery-, did he mean that a party claiming mora interest should establish culpa? This question was well addressed by V M Ponnan JA 9. The learned Judge having held that mora interest applies even where the contractual obligation between the parties is silent on interest, was faced with the question whether the appellant had a duty to prove mora interest. His Lordship clarified that following that interest is the life blood of commerce and accepting that mora interest is a species of damages, held that it must be borne in mind that the liability to pay interest was an ancillary, accessory or a consequential obligation attached to a 8 See N5 9 See N6 8

principal obligation by operation of the law. The court then gave an illustration of where for instance, the defendant failed to pay mora interest, it held that: Here the Court does not make an assessment; it does not weigh the pros and cons in order to exercise an equitable judgment as to whether, and to what extent, the interestbearing potentialities of money are to be taken into account into computing its award. The only issue is whether the legal liability exists or not; if it does, the rest is merely a matter of mathematical calculation; the legal rate of interest on a definite sum from a definite date until date of payment. [17] In the analysis, it is unnecessary to establish any culpa in interest a temporae morae. This is because interest a temporae morae is by operation of the law as a consequence of breach of the underlying contract. Once breach of the underlying contract is established, it follows that the other party is entitled to mora interest subject of course to proof that the other party was put in mora where another date of commencement is alleged other than the one evident by service of summons or other court processes. Which rate should be applied? Litigation or commercial [18] I must point out from the onset that currently in South Africa mora interest is set at 15.5% in terms of the Prescription of Interest Rate Act No. 55 of 1975. Prior to this Act, as discussed in Bellairs case, mora interest was at the rate set firstly at 6% and later 8%. In increasing this rate, the court called upon experts evidence who established that the market trend was such that the 6 % was no longer commensurate to the demands of the markets. In our jurisdiction, mora interest rate is set at 9%. There has been no challenge to this rate on the basis that it no longer meets the markets demands, nor am I aware of any legislation regulating mora interest. [19] That as it may, it remains for me to ascertain whether the prayer by the plaintiff to be granted mora interest at a commericial rate finds support in 9

our law. In Thoroughbred 10 case the court was faced with a point of appeal where the Appellant prayed to be granted mora interest at a rate charged by the Appellant s bank on its overdraft. [20] In order to understand the basis of the Appellant s prayer for a higher rate than that established by the Act, I must allude briefly to the facts of the case in Thoroughbred. The appellant had instituted a claim for damages against the respondent based on the allegation that respondent failed to exercise due care and deligence in discharging its contractual obligation of auditing the appellant. Had respondent s exercised due care, they would have detected that appellant had lost amounts of more than a million which were siphoned by appellant s employee through its bank account. Appellant was operating an overdraft facility with its banker, Nedbank. In tackling this prayer for mora interest rate at Nedbank s rate, the court first stated: Our courts accept without requiring special proof that a party who has been deprived of the use of his capital for a period of time has suffered a loss. At the same time it is accepted that in the normal course of events such a party will be compensated for his loss by an award of mora interest. [21] The Court decided on the question on which rate to apply: In my view TBA has failed to make out any case for the exercise of such a discretion in its favour. [22] Now, clearly the court did not refuse to exercise its discretion to levy mora interest rate above that which is provided for by the Act. All it pointed out was that the Appellant ought to have adduced evidence justifying it prayer for a higher interest rate. The court pointed out that the appellant ought to have in the court a quo submitted the overdraft facility contract with its bank in order to establish that it indeed suffered the rate of interest claimed. I must point out that the Appellant had called upon a witness who testified without submitting the said contract. The court on appeal held that evidence fell short of the appelllant s onus. I must reveal that when the appellant urged the court to grant mora interest at the its banker s rate, it 10 See N7 10

did so on the basis of section 1 of the Act which empowers the court to exercise its discretion on granting a higher rate than provided in the Act. [23] A similar position was held in Adel s 11 case where the court did not decline to entertain a prayer for mora rate at a higher scale. Howe JA 12 held on a similar prayer: To obtain a favourable discretionary decision a plaintiff must discharge the onus of establishing facts justifying such decision. [24] Turning to the case at hand, I do not think that the absence of a corresponding enactment in our jurisdiction justifies this court not to exercise a similar discretion. I say this because the notion expressed in various authorities on mora interest holds true in this jurisdiction, viz., interest, including mora interest is the life blood of commerce. It stands to point out however, that just like in Adel or Thoroughbred cases, the plaintiff has not adduced evidence justifying grant of an order on mora interest above 9% or at commercial rate as it were. [25] In the final analysis, I enter the following orders: 1. Default judgment is granted in favour of plaintiff. The1st and 2 nd Defendants are ordered each and jointly, one paying the other to be absolved, to pay plaintiff the following sums: 1.1 Claim A (a) E305 478.96 (b) Interest a temporae morae at the rate of 9% per annum 11 See N4 12 Page 1032 para C 11

1.2 Claim B (a) E227 731.96 (b) Interest a temporae morae at the rate of 9% per annum 2. Cost of suit. For the Plaintiff: Z. Jele of Robinson Bertram 12