CCT 37 of 2007
THE HIGH COURT OF LESOTHO
the matter between:
PURPOSE COOPERATIVE SOCIETY PLAINTIFF
JOSEPH MPOKO DEFENDANT
Hearing date : 15th
and 16th of April and 27th of April.
the Honourable Mr. Acting Justice J.D. Lyons
On the 4th
day of May, 2010
present on 15/16 April but present on 27th of April).
Co-operative society –
excessive interest rate charged - unconscionable – contrary to
public policy – duty of
court to be vigilant when dealing with
default judgment or uncontested matter – erosion of public
confidence if court were
seen to be a ‘rubber stamp’
The plaintiff is a
Co-operative Society established under the
provisions of the
Co-operative Societies Act (number 6 of 2000).
In its by-laws its
objects are listed as the following: --
employment to members, as well as the general citizenry.
loans at reasonable rates to members and the general public.
international donor funds for the provision of loans to micro, small,
and medium-size businesses in Lesotho.
To ensure the
survival and growth through good management and transparency.
in affordable social responsibility programs.
The plaintiff's motto
is "Put your problems in our hands".
I also note that
section 5 of the Co-operative Societies Act (‘the Act’)
Co-operative Society shall have as its object the promotion of
economic and social interests of its members in accordance
co-operative principles and practices".
In pursuit of these
objectives of the plaintiff, and between them April 2002 and August
2002 loaned money to the defendant. The
defendant had successfully
tendered for a contract with the Ministry of Defence to perform work
at the military hospital. He required
the money to finance that
Between 17 April 2002
and 26 August 2002, and thereby staggered draw-downs, the defendant
borrowed M 41,988.85.
On 7 March 2003 the
defendant paid back to the plaintiffs M 45,252. That was, as I
understand it, the full amount of a cheque he
had received from the
Ministry of Defence. He has thus paid back M 3263.15 more than he
borrowed. He had the use of the plaintiff’s
money for 324 days,
or approximately 10 2/3 months.
The plaintiff claimed
that the defendant had not pay off the full amount owing. It claimed
that interest was still owing. As at
7 March 2003 the plaintiff
claimed that an additional M 35,896.53 in interest was owing. By 31
July 2003 this outstanding amount
had grown to M 50,124.69. The
plaintiff then closed off the defendants account.
By writ of summons
and declaration filed 23 of July 2007 the plaintiff sued the
defendant for the sum of M 50,124.69.
In its declaration
the plaintiff makes no mention of the interest rate it charged the
defendant on the money borrowed.
obtained legal representation.
A request for
particulars was delivered on 16 August 2007. One of the required
particulars was: --
"How is the
amount of M 50,124.69 claimed against the defendant made up of and
calculated? Plaintiff is requested to furnish
documentary proof in this regard".
On 6 September 2007
the plaintiff answered this particular.
It pleaded by way of
annexing the loan statement of account number 18- 00117012 being the
loan account herein.
The plaintiff also
annexed 2 letters. The English translations are as follows: --
Letter dated 30 May
2007 from the plaintiff's attorney to the defendant;
"We are the
legal representatives of Boliba Multi-Purpose Co-op. They inform us
that you are indebted to them in the sum of
this letter we request that you should come and pay a set amount
together with 18.5% interest at our offices before
the expiry of
seven days. Failing compliance herewith, we will take legal steps
without further notice.
will be highly appreciated.”
The defendant replied
by letter dated 4 June 2007. His reply states,
"I agree that
I have a debt with Boliba. I therefore request that I will start
paying the debt from the 30th of June 2007
by at least five installments. However if things go as well as I am
expecting it will be two installments."
On 25 October 2007
the defendant entered his plea through his then attorney. He denied
being indebted to the plaintiff and put the
plaintiff to strict proof
of its claim.
On 16 January 2008
the attorney for the defendant gave notice of his withdrawal.
Thereafter the defendant continued to represent
On 27 February 2008
the plaintiff filed its witness statement. This statement was by Mr.
J.S Motsoasele, a collection officer
with the plaintiff. This
statement gives a running history of the loan account. This
statement, whilst referring to interest, fails
to mention the rate of
The plaintiff applied
to set the matter for trial. The trial date was set for the 15th and
16th of April 2010.
On 15 April Mr.
Matooane appeared for the plaintiff. A representative of his client
accompanied him. He informed the court (and
it was accepted) that the
defendant had been informed of the trial date. The defendant was
called but failed to appear. Mr. Matooane
applied for judgment in
default of appearance.
Mr. Matooane referred
to court to the admission of debt from the defendant in the letter of
4 June 2007.
As there was no
appearance from the defendant, I acceded to Mr. Matooane’s
request and allowed him to move to prove his client’s
I am mindful that
when faced with what appears to be an uncontested matter (such as an
application for judgment by default of appearance),
the Court still
has it obligation to see to it that the judgment is in order. The
Court is not a rubber stamp. The Court must
be satisfied that the
plaintiff has pleaded a cause of action. It must be satisfied that
there will be no miscarriage of justice
by granting the judgment
sought. The judgment must be equitable and must not offend against
public policy. Indeed as a matter
of public policy, the Court must
remain watchful and vigilant even when granting default judgment.
Were it to be otherwise, and
the court act as a ‘rubber stamp’,
public confidence would be eroded with the consequential erosion of
the rule of law.
In my preparation for
trial, I had noticed two matters that concerned me. These were put to
the plaintiff’s attorney, Mr.
Firstly, it was put
to Mr. Matooane and his client that no actual rate of interest was
pleaded nor put in evidence, making it impossible
, on the available
evidence, for the Court to quantify the plaintiff’s claim. On
a quick calculation it appeared that the
interest rate charged was in
excess of 95% per annum. I bought to counsel’s attention that
section 23 of the Act mandates
that the by-laws must set out the
maximum interest rate. (See; Third schedule, part 18 (a) (i). These
by-laws were not before the
court. Presumably the interest rate
chargeable would be found there.
The discussion moved
thereafter to my second concern - the apparent excessive rate of
interest. It was pointed out to Mr. Matooane
that whilst the Money
Lending Order, (1989), does not apply to a Co-operative Society,
section 6 of that Order deems that an interest
rate in excess of 25%
per annum is to be considered harsh and unconscionable. This, it was
pointed out, could be said to represent
an expression of intent by
the Parliament that loans with interest rates in excess of 25% were
to be considered inequitable and
contrary to public policy.
Mr. Matooane took
instructions from his client. His client instructed that the members
had agreed that the applicable interest rate
on loans from the
Society was at the rate of 8% per month. When pointed out that this
resulted in an annual interest rate of 96%
and that this was surely
contrary to the intent of Parliament and public policy and
unconscionable, Mr. Matooane’s client
At Mr. Matooane’s
request the matter was adjourned to the following day to allow him to
present documentary evidence (the
by-laws) supporting this
astonishing interest rate.
On 16 April Mr.
Matooane appeared in chambers and advised that he was unable to get
the by-laws in time. He quite candidly told
the Court that his
instructions were that the members of the society had the objective
of making some money from the funds they
had deposited with the
The matter was
adjourned to 27 April to give Mr. Matooane time to provide a copy of
the by-laws and to consider the concerns raised
by the Court. As the
plaintiff, by virtue of the defendant’s non-appearance had
moved to taking an interlocutory judgment
and was now at the stage of
proving its damage, I saw no problem with granting further time. The
plaintiff was given a second
bite at the cherry.
On that day Mr.
Matooane appeared for the plaintiff. The defendant made an
presented the by-laws. They were marked as Exhibit 1.
The by-laws, however,
do not enumerate the maximum interest rate to be charged. At best
paragraph 7.6 reads: --
Maximum rate of interest shall be approved by the Board from time to
time in line with Credit Policy and Credit Manual;”
No other evidence was
provided regarding the rate of interest. Without this crucial
evidence, the plaintiff was unable to prove
I had already been
informed that the rate of interest claimed as charged by the
plaintiff in respect of this loan was a staggering
96% per annum.
addressing the public policy and equity concerns, repeated his
submission that the intent (and the right) of
the members was to make
some profit from their investment. I have no quibble with that. The
Act and the by-laws expressly provide
for that objective. What I
remained concerned with was the excessive rate of interest.
As I understood it,
the plaintiff, having been given ample opportunity to prove its claim
and to address the concerns expressed
by the Court, then closed its
I addressed the
defendant. He apologized for not attending earlier. He gave a short
run-down on why he took the loan and the circumstances
re-payment. I explained my concerns as to the rate of interest. I
explained that the plaintiff had judgment and was given
27th April to bring evidence to court to prove the
interest charged. I explained my public policy concerns.
The defendant did not
want to address the court further.
I then pointed out
that the plaintiff, quite apart from satisfying me on the issue of
public policy, had not put sufficient evidence
before the court to
prove the rate of interest charged was approved by its members and
placed in the by-laws as he Act requires.
Mr. Matooane then
sought to reply. I was prepared to allow that, but only on points of
law. He had had ample opportunity to present
evidence. He then
wanted to call his client. I deemed too late and unnecessary. Even
accepting the plaintiff’s assertion
through counsel that this
was the interest rate charged by the plaintiff to the defendant, I
had considerable ‘public policy’
concerns about such an
interest rate, particularly when charged by a co-operative lending
society whose objectives were to provide
I dismissed the
plaintiff’s case. My reasons are as follows.
There is no evidence
before the Court as to the rate of evidence actually agreed as
between the plaintiff and defendant. On this
point alone the
plaintiff's case would normally fail.
Even accepting that
the plaintiff charged 96% per annum interest, I cannot see how in
clear conscience that the Court could allow
it. Even assuming that
the defendant, presumably out of sheer desperation, agreed to what
can only be described as a 'loan shark'
rate of interest (and there
is no evidence or pleading to support this), the Court could not as a
matter of public policy, enforce
such an agreement. (To describe it
as a ‘loan shark’ rate is to understate the case. This
interest rate is in the
Whilst the Money
Lending Order does not apply to a Co-operative Society the clear
intent of the Parliament is to establish a ceiling
on the rate of
interest that lending institutions in Lesotho can charge. This amount
is 25% per annum. In the view of the Parliament
anything above that
is harsh and unconscionable. Even if I were to allow some leeway
(say, as much as a further 10% per annum),
the amount of interest
claimed by the plaintiff in this action is way above that generous
When first hearing
this case on 15 April, I thought it possible that the plaintiff had
simply made a mathematical error. That is
apparently not the case.
Even given time and a clear indication from the Bench that I
considered the rate of interest to be within
the ‘harsh and
unconscionable’ category and probably contrary to public
policy, the plaintiff came back to Court and
through its advocate
continued to press for an annual interest rate of 96%.
I do not intend to
grant it. It is plainly contrary to public policy. Were the Court to
allow such astonishing rate of interest,
commerce in this country
would grind to a halt. Commerce relies on the lending and borrowing
of money to undertake commercial
ventures. More often than not the
profit margin in a commercial venture, particularly smaller ones such
as that undertaken by the
defendant, is in single digit figures. Were
the court to allow this astonishing rate of interest to apply, it
would be a signal
to other lending institutions that such rates were
permissible and enforceable. It would be open season on commercial
and borrowers in general. All profit made by commercial
ventures that were financed by borrowing the venture capital
the majority) would be swallowed up by the lender - and
then some. This would act as a complete disincentive for any person
borrow money. The impact on commerce is obvious.
Such an extraordinary
and punitive interest rates is contrary to the objectives of the
plaintiff Co-operative Society. One could
hardly say that an interest
rate of 96% per annum is consistent with providing "loans at
reasonable rates to members and the general public".
As the Money Lending
Order does not apply, I am unable to reopen this transaction as
provided for in section 13 of the Order.
I also note that the
plaintiff was given clear notice that the Court required evidence of
the defendant’s specific agreement
to both the interest rate of
96% per annum and that the amount owing was agreed as M 50,124.69.
At best the letter of 4 June is
a general acknowledgement of
indebtedness without the benefit of legal advice and without any
specifics. I suppose it could be
said that as the letter of 4 June
was in reply to the earlier letter of demand, it is reasonable to
infer it is in agreement to
the amount specified. But, when all is
said and done matters of public policy preclude the Court from
allowing the plaintiff to
take advantage of the defendant. In
addition it would be unconscionable to allow such ‘gouging’
by the lending authority.
the defendant made no appearance at trial, despite being aware of the
date, and that he has made an admission
of indebtedness, albeit in a
general sense only, and notwithstanding that the plaintiff is in a
position to take judgment by default,
I cannot grant that judgment.
As I have said, it would be unconscionable, inequitable and contrary
to public policy.
As it stands, the
plaintiff cannot complain at being disadvantaged by my dismissing its
case. The plaintiff has been repaid the
principal amount borrowed. It
has also been paid an additional amount that works out at
approximately 9% per annum. That seems
equitable, within the bounds
of the plaintiff’s objects, within the spirit and objects of
the Act and the members can make
a profit – provided that the
officers of the plaintiff society get some business sense and stop
wasting money trying to get
the courts to approve the charging of
unconscionable, inequitable interest rates that are plainly contrary
to public policy and
common business sense.
For the above reasons
I think it best that I dismiss the plaintiff’s claim. I make no
order as to costs.
I order the Registrar
to forward a copy of this judgment to the Commissioner of
Co-operative Societies. It may be timely for the
Commissioner to call
upon the plaintiff. The charging of an annual interest rate of 96% is
way beyond the spirit of both the plaintiff’s
objects as set
out in its by-laws, and the objects of the Act. I might add that I
suspect the interest rate as charged by the
plaintiff is 8% per
annum for the term of the loan even if the term is less
than one year. That appears reasonable and in line with being a
little less that other
lending institutions that do not offer the
member benefits that co-operative societies do. But I suspect that
there has been a
mis-application. For example, a loan given for a
period of just one month (i.e. borrowed on the 1st of the
month and repayable on the 1st of the next month) could
reasonably attract an interest rate calculated as 8% per annum. (eg;
Borrow M1,000 for I month –
pay back M1,080). That does not
mean that for loans longer than one month attract interest at 8% per
annum, per month for the
full term of the loan. The Commissioner may
wish to look at this and offer some assistance. A co-operative
society that lends
longer term at 96% per annum may profit from some
extremely desperate borrowers for a very short while, but it cannot
attract sufficient borrowers in the long-term and will soon
be out of business.
In conclusion I wish
to compliment Mr. Matooane on his candor. At all times he was frank
with the court. I can also say the same
of his client. The
plaintiff, through it’s representative on the trial date, was
candid. There was no attempt to be deceptive.
The presentation of
the case was straightforward. I do not think, however, that the full
import of the calculating of a 96% per
annum interest rate has been
fully comprehended or examined. As I said, I think the prevailing
interest rate charged has been
wrongly applied to the defendant’s
Mr. Matooane for
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