Peo Legal

The In Duplum Rule – How much interest can a lender charge?

July 7, 2021 By Peo Legal

Credit is the ability of a customer to acquire goods or services before payment. The creditors, businesses or people that give credit, operate by charging interest on the credit given. The obvious risk that flows from this type of business is the debtor’s over-indebtedness. In the interest of public policy and equity, the law has developed a rule to protect debtors from over-indebtedness. This rule is known as the in duplum rule.

The in duplum rule states that interest on a debt will stop running when the total amount of the unpaid interest is equal to the outstanding principal debt. The rule was introduced to protect debtors against creditors who delay the recovery of their debt, in order to charge unreasonable amounts of interest for an indefinite period. The rule is therefore a protection mechanism for debtors who might otherwise be unable to defend themselves against the bargaining power of creditors by limiting the cost of credit. In addition, the rule encourages creditors to be more alert of debtors who do not service their debts and to exercise their rights to be repaid promptly.

In considering the application of the in duplum rule, the Court of Appeal in Afritec (Proprietary) Limited v. Letlhogonolo Bakae confirmed that interest on a debt stops running whenever the unpaid interest is equal to the unpaid capital. Additionally, the burden to prove that the in duplum rule has been followed in calculating a debt lies with the creditor. It is therefore important for creditors to clearly differentiate interest from capital whenever claiming any amount as due and owing. The Court further clarified that despite creditors describing interest as being ‘capitalised’ from time to time and combining it with the principal debt in their books, interest never loses its true character and remains categorised as interest for purposes of the in duplum rule. The Court further noted that in the absence of an agreement to the contrary, repayments by a debtor go first to the reduction of outstanding interest, thereafter the capital. As soon as the interest owed falls below the capital amount, the interest begins to run again. Once a court pronounces judgment on the debt, that is, capital plus interest, those sums are combined and any interest awarded commences to run afresh on the total sum and subject to the in duplum rule.

It is important to note that the in duplum rule does not provide that interest claimed may not exceed the capital sum advanced as is often the case with long term loans. What the rule does provide is that interests stops running whenever unpaid interest is equal to unpaid capital.

Please do not hesitate to contact us at info@peolegal.co.bw or
on +267 3975779 for any legal matters.

The information contained in this newsflash was intended for our clients and correct to the best of the authors knowledge at the time of publication. Before making any decision or taking any action, you should consult the contacts listed here.

Newsflash: Taxpayers in Botswana granted Tax Amnesty for the year 2021-22

June 30, 2021 By Peo Legal

Tax amnesty is a temporary scheme undertaken by the Government in order to relieve the taxpayer from the burden of paying tax penalties and interests for a specified period.

In terms of Section 112 (2) of the Income Tax Act [CAP 52:01] (Income Tax Act), as read with Section 77 of the Value Added Tax Act [CAP 50:03] (VAT Act), the Ministry of Finance and Economic Development has granted tax amnesty to eligible tax payers for the period 1 July 2021 to 31 December 2021 (the Amnesty Period).

During the Amnesty Period, tax payers are relieved of all accrued interest and penalties under the VAT Act and Income Tax Act on condition that the principal tax amount (or any portion owing thereof) is paid in full. Subject to the eligibility of a tax payer, once the principal amount is paid all penalties and interest are written off.

Tax Periods Covered

For purposes of the Income Tax Act, the Amnesty Period applies to tax years prior to and including the 2020/21 tax year.

For purposes of the VAT Act, the Amnesty Period applies to tax periods prior to 1st July 2020.

Scope of the Tax Amnesty

The tax amnesty covers income tax including corporate, PAYE, and other withholding taxes but excludes penalties levied due to a failure to furnish transfer pricing documentation. Under the Value Added Tax Act, the tax amnesty applies to all penalties and interest charged in respect of overdue amounts.

In order to benefit under the tax amnesty scheme, a tax payer must:

be an eligible person;
have paid the total principal tax and had a penalty and/ interest liability or had no principal tax but had a penalty and interest liability; and
have notified the Commissioner General of payment of the principal tax liability within 7 days of payment.

Eligible Persons

The tax amnesty scheme shall apply to any person that:

has an outstanding principal tax debt that has a penalty or interest liability
has paid a portion of her tax liability, but has not paid all or part of her penalties or interest
has paid the principal tax but has not paid his liabilities or interest
has outstanding interest and/ or penalties only
has not filed a tax return for a period covered by the amnesty
has not registered for any relevant taxes (they will not be charged penalties for late registration)
has lodged an objection against any assessment with the Commissioner General
has lodged an appeal to the Board of Adjudicators, the High Court or the Court of Appeal

For more detailed information, visit this link: PDF: 2021 INCOME TAX AND VALUE ADDED TAX AMNESTY GUIDELINES

Please do not hesitate to contact us on info@peolegal.co.bw or +267 3975779 for all your tax law related needs.

Newsflash: Director fiduciary duties in Botswana

June 16, 2021 By Peo Legal

The Companies Act [CAP 42:01] (the Companies Act) provides that the business and affairs of a company shall be managed by, or under the direction or supervision of the company’s board of directors. Directors are the directing mind of the company and their acts are regarded as those of the company.

In order to protect the company and its shareholders from prejudice, both the common law and statutory law require directors to comply with standards of conduct and a degree of care, diligence and skill in the discharge of their duties- these standards are referred to as fiduciary duties. In Botswana, these fiduciary duties are detailed in section 130 of the Companies Act and include the duty:-

to exercise their powers honestly, in good faith and in the best interest of the company
not to incur company obligations unless the director believes that the company will be able to perform the obligation when required to do so
not to use or disclose company confidential information
not to compete with the company or become a director of a competitor
not to use assets of the company without authorisation
to attend board meetings regularly and to have prepared for them
to account to the company for any monetary gain or advantage obtained by a director in connection with the exercise of his powers

The obligation is on the director to ensure that he has familiarised himself with both the statutory and common law fiduciary duties.

In the case of Mbonini and Another v Masunga Filling Station (Pty) Ltd and Others, Mr Mbonini was a director of Masunga Filling Station and was found to have utilised company assets and funds for his own benefit to the prejudice of the company. The Court of Appeal determined that his conduct was a clear breach of his fiduciary duties, and entitled the company to a refund of amounts claimed. The court held that the question of whether a director acted in good faith and in the interests of the company is an objective one; that is, “ whether an intelligent and honest person in the position of the director would, in the overall circumstances , have reasonably believed that he was acting in the best interests of the company rather than in his own and to the prejudice of his company.” The obligation is on the director to show that he had reasonable grounds for believing he was acting otherwise.

In determining the appropriate sanctions in instances of breach of fiduciary duties, the court in Mbonini noted that a breach of a fiduciary duty does not necessarily involve fault – “For example if a director were to obtain separate profit, the company could claim such profit from him without alleging fraud. An action of that kind could be described as sui generis. The claim would arise merely by virtue of the fact that the director in breach of his fiduciary duty, obtained for himself a secret profit which he should have obtained for the company.” In addition, the Court held that a breach of fiduciary duties can give rise to a claim for either a repayment of profit made or a claim for damages.

Mbonini is a timely reminder to directors to familiarise themselves with their fiduciary duties and act in accordance with them at all times. It also demonstrates that the law protects the company where directors have misappropriated funds or assets for their own benefit. The court will not hesitate to give an appropriate damages or refund remedy in cases of breach of fiduciary duties.

Please do not hesitate to contact us on info@peolegal.co.bw or +267 3975779 for all your corporate governance and training needs.

Newsflash: Bamalete Tribe prevail over Land Board

June 8, 2021 By Peo Legal

The development of the land tenure system in Botswana can be classified under three periods- pre-colonial, colonial and post-independence. Under the pre-colonial system land was administered by traditional chiefs/ Dikgosi in accordance with customary laws. During the colonial era, land was demarcated into three categories: crown land, native reserves, and freehold. Native reserves remained under the control of the Dikgosi, crown land was under the control of the state, while freehold land was under the control of the colonial administrators. Post-independence we have what is now known as tribal land, freehold and state land. In 1968, with the intention of improving tribal land tenure, the Tribal Land Act was enacted, the effect of which was to vest all tribal land in the newly created Land Boards .

In 1925, by deed of transfer and private treaty, the Bamalete Tribe (Bamalete) acquired Farm Forest Hill 9-KO (freehold land) (the Farm). On enactment of the Tribal Land Act, the Farm did not fall within the Bamalete tribal territory. The Farm was later incorporated into the Bamalete tribal territory by amendment of the Tribal Territories Act in 1973 (1973 Amendment), though the Bamalete had acquired the Farm.

On 22 March 2021 the High Court of Botswana heard a dispute stemming from the 1973 Amendment. The Malete Land Board (the Land Board) sought the cancellation of the deed of transfer in terms of which the Bamalete owned the Farm. In opposition, the Bamalete sought an order removing the provision in the Tribal Territories Act which includes the Farm as Bamalete Tribal Territory and an order declaring ownership of the Farm by the Bamalete.

The Court found that the intention of the Tribal Land Act and the Tribal Territories Act was to incorporate the Farm into the Bamalete Tribal Territory despite the fact that the Farm is freehold and held by the Bamalete under title deed. This means that the Farm is owned by the Land Board in trust. The issue before the Court was whether the Farm lawfully vests in the Land Board. The Court held that, in order to determine this issue, they had to determine whether the Bamalete had been unconstitutionally deprived of their property.

In terms of the Constitution private property can only be acquired by the state where the property is required for public purposes and upon prompt compensation for the property. Additionally, there should be a law that enables those affected by the acquisition to get prompt and adequate compensation and to further have access to the High Court if they dispute the acquisition of the property and/or the compensation.

The Court determined that the provisions relating to compulsory acquisition of property were not followed when the Farm was acquired by the Land Board; accordingly, the Bamalete had been unconstitutionally deprived of their property. The Court determined that Section 7 of the Tribal Territories Act was inconsistent with the Constitution and that the Farm vests in the Bamalete.

Following the Court’s ruling, the Farm is the private property of the Bamalete and falls outside the control of the Land Board.

For any assistance with your property and land transactions please contact us at info@peolegal.co.bw or +267 3975779

Peo Legal celebrates Africa Day

May 25, 2021 By Peo Legal

In commemoration of Africa Day, we celebrate the diversity of our fraternity and some of the legal icons who continue to influence the development of our profession and the judicial system in Botswana. We commend these African pioneers who continue to push forward the success of Botswana and Africa. Wishing everyone a happy Africa Day.

Justice Sanji Monageng

Judge Monageng is the first Motswana female appointed as judge to the International Criminal Court (ICC). Justice Monageng served at the ICC as a judge from 2009-2018. She was the First Vice President of the ICC holding tenure between March 2012-2015. Prior to joining the ICC, Justice Monageng served as a High Court Judge in the Republic of Gambia and the Kingdom of Eswatini. In 2019 Justice Monageng was sworn in as a judge of the Southern African Development Community Administrative Tribunal for a 2 year tenure.

Through her work, Justice Monageng advocates for a transparent and rigorous judicial appointment system requiring judges to uphold the highest standards of integrity and independence but also that States must respect judicial independence and not undermine judicial decisions.

“A successful judiciary is one whose members are appointed following a rigorous process assessing both the candidates legal qualifications as well as integrity”

Justice Professor Oagile Key Dingake

Justice Oagile Key Dingake is the first African to be appointed as judge to the Supreme and National Courts of Papua New Guinea. He was appointed by the Secretary General of the United Nations in 2013 as a judge of the Residual Special Court of Sierra Leone. In 2020, he was appointed judge to the Seychelles Court of Appeal.

Justice Dingake served for more than a decade as a judge of the High Court of Botswana. He is an advocate for judicial training, labour rights and women’s rights.

“It seems to me that the time has now arisen for the justices of this court to assume the role of the judicial midwives and assist in the birth of a new world struggling to be born, a world of equality between men and women as envisioned by the framers of the Constitution.”

Justice Memooda Ebrahim-Carstens

Justice Ebrahim-Carstens was the first female Motswana appointed as a Judge of the Industrial Court of Botswana. Subsequent to that, she served as a judge of the High Court of Botswana. Justice Ebrahim-Carstens was appointed judge to the United Nations Dispute Tribunal in 2009 with her term ending 30 June 2019.

Justice Ebrahim-Carstens is a champion for gender representation inclusivity and access to justice.

“We need to collaborate regionally on law reforms, on appropriate institutions for access to justice, and its enforcement. We need to be courageous and fearless agents of change. But mostly we need to lead by example as African leaders, no matter what our profession. We all must lead, whether as diplomats, politicians, lawyers, and judges; but most of all as mentors and role models for our young persons.”