KUDYA J: The
plaintiff company issued summons against the three defendants out of this court
on 8 November 2005. It claimed for the payment of an outstanding debt of US$ 1
560 437.68, interest at the rate of 15% per annum, costs of suit on an attorney
and client scale and collection commission at the Law Society tariff rate. The
claim was based on the deeds of suretyship that each defendant signed in favour
of the plaintiff. The defendants contested the action mainly on the ground that
their personal guarantees offended against s 11 of the Exchange Control
Regulations SI 109/1996 as they did not have exchange control authority to
incur an obligation to pay in foreign currency outside Zimbabwe. In
the alternative, they averred that on the date of settlement, the security
adequately covered the debt. The third defendant further contested the action
on the ground that when he appended his signature to the deed he did not
actually know that he was signing a deed of suretyship.
The plaintiff called the evidence
of two witnesses. These were Jayesh Shah (Shah) its executive mind and
Bartholomew Mswaka (Mswaka) a stockbroker with Renaissance Securities Limited.
In addition it produced seven documentary exhibits. Each defendant testified.
In addition all three defendants called the evidence of Robert Mutakwa
(Mutakwa), the divisional head of Central Scrip, a subsidiary of ZB Bank
Limited and Emmanuel Munyukwi (Munyukwi), the chief executive officer of the
Zimbabwe Stock Exchange (ZSE or the local bourse). A total of four documentary exhibits were
produced by the defendants.
Most of the facts were common
cause. The plaintiff, a company incorporated in the United Arab Emirates, was at all
material times represented by Shah. Shah was in charge of searching for
investment opportunities and providing bridging finance for banks and
discounting export receivables in Zimbabwe,
Zambia, Malawi and South Africa. During the period
2003-2004 the plaintiff extended bridging finance denominated in United States
dollars to many local players in the financial services sector, amongst who was
Trust Bank Limited (Trust). In his dealings with Trust that commenced in 1999,
Shah mostly interfaced with Goromonzi, the second defendant, an expert in
structured finance. All the deals with Trust were a success. He came to know
Nyemba, the first defendant and Chief Executive Officer of Trust Holdings Ltd,
the holding company of Trust, but alleged that he met Sachikonye, the third
defendant after summons was issued.
The three defendants were directors
of Trust. Goromonzi appraised Shah of the existence of Barato Holdings Limited
(Barato), a special purpose vehicle incorporated in Jersey, Channel Islands to
hold 42,296,673 shares (the security) in a local public company, Ariston
Holdings Limited. Barato was in turn a wholly owned subsidiary of Blantyre Investments
Limited (Blantyre)
often referred in documents and evidence by the parties as Blantyre Asset
Management. The three defendants were the sole directors of both Barato and Blantyre. In his evidence
and under cross examination Nyemba disclosed that Barato was purchased from
Conafex SA of Luxembourg on 23 May 2003 for US$2,927,000.00 by Blantyre using funds
appropriated for the purpose by Trust Holdings through Trust Bank. Apparently
the nominal shareholder in Blantyre
was the Caversham Trust, which acted on the sole instructions of the directors
of Barato who in turn acted as nominees of the board of Trust Holdings. As a
result of this corporate manoeuvering, Trust Holdings was entitled to three
board representations in Ariston. Nyemba was appointed deputy chairperson of
Ariston while two other nominees fulfilled the Trust Holdings board quota.
These three were able to influence the policy formulation and strategic
direction of Ariston to the extent that its share price appreciated with the
result that the value of the security increased to US$4 million. Nyemba was,
however unable to prove the truthfulness of his assertions that both Blantyre and Barato were
special purpose vehicles for Trust Holdings Limited. He did not proffer any
satisfactory explanation on why if that were so, Goromonzi declined Shah's
overtures for Trust Holdings Limited to stand as surety and co-principal debtor
in place of the three defendants.
In December 2003, Goromonzi
initiated negotiations with Shah for the advancement by the plaintiff of a loan
in the sum of US$2,223,000.00 to Barato.
The negotiations culminated in the loan agreement, exhibit 1 on 23
December 2003. Shah signed on behalf of the plaintiff while Nyemba and Goromonzi
signed for Barato. The loan could only be disbursed after the three directors
of Barato had executed personal guarantees in favour of the plaintiff.
Sachikonye executed his personal guarantee exhibit 4 on 22 December, while
Goromonzi executed exhibit 3 on 23 December and Nyemba executed exhibit 2 on 29
December 2003. In his testimony, Nyemba expressed his appreciation of the legal
implications of the deed of suretyship at the time he executed it. He did not
envisage that he would be called upon to meet the guarantee as at the time of execution
he believed that the security adequately covered the loan.
Barato surrendered the share
certificate for the Ariston shares in negotiable form together with the deeds
of suretyship of the three defendants to the plaintiff before the plaintiff
disbursed the loan amount on 29 December 2003 directly to the African Export
Import (Afrexim) Bank, Egypt from its Geneva account. The loan was to be repaid in
five installments on 15 February, 31 March, 30 June, 30 September and 30
December 2004. While no interest was charged, the parties, however, agreed on
the payment upfront by the borrower of a flat fee of 15% of the loan amount. In
addition, in the event of default, interest would accrue at a rate proportional
to the flat rate. Shah stated that the flat rate was in line with the
authorization of the Reserve Bank of Zimbabwe (central bank) to Trust to
conduct six-month transactions at the discount rate of 14, 9625%. He further
surmised from the authorization and the repayment terms of the loan agreement
that the effective interest rate yield was 30% per annum.
Shah delved into his previous
dealings with Goromonzi. He stated that
Goromonzi used to borrow foreign currency denominated loans for his personal
account secured by personal guarantees. He had repaid all the personal and
Trust loans using offshore funds. It was Shah's uncontroverted testimony that
he was advised by Goromonzi that the loan was to retire an Afrexim bank loan
before Afrexim purchased the Ariston shares for US$4 million. However, in 2004
Afrexim declined to purchase the shares after Trust experienced financial woes
with the central bank that culminated in its curatorship on 23 September 2004.
Barato defaulted on the first installment and later on the other installments.
The plaintiff did not call the loan after Goromonzi pleaded for more time to
raise funds from other business deals and work they were involved in outside Zimbabwe.
On 30 April 2004, Goromonzi wrote for Barato, to the plaintiff's erstwhile
legal practitioners of record, inter
alia, requesting “that the share disposal be delayed whilst the share price
readjusts to the expected level.” He promised to raise funds from other sources
to service the debt while continuing to secure buyers of the security at the right
price. At some point Goromonzi even indicated that he had found a buyer of the
security in South Africa,
but the deal fell through. In early 2004, in the aftermath of financial woes in
Trust, Nyemba and Goromonzi ran away from the country. The loan was not repaid.
On 27 July 2005 the plaintiff exercised its rights and placed the shares on the
local bourse for sale. The shares were not purchased but the share price fell
in local currency from $675.00 to $300.00. The plaintiff purchased the shares
at $300.00 for $12,689,001,900.00. It incurred brokerage fees of $300 million.
At the time the exchange rate was ZW$17,700: 1 USD. In addition the unreported
case of Alshams Global Inc v Ariston
Holdings Limited HC 5758/08, a judgment of Bhunu J delivered on 17
September 2008, confirmed Shah's testimony that the plaintiff received
dividends due to Barato from Ariston in 2004 of US$30,856.38.
Further, the parties agreed that if
Barato defaulted, the plaintiff had a wide discretion to deal with the security
it held in negotiable form in any manner it saw fit and claim any shortfall
from the defendants. Clause 9.3 reads:
“It is recorded
that in the event of any default by the borrower, the borrower hereby accepts
and acknowledges that the security deposited by it shall be forfeited to the
lender and the lender shall have the right to exercise the security and in the
event of a shortfall claim from the borrower any such shortfall which may still
be due to the lender under the terms of this agreement.”
It was common
cause that that the plaintiff could in the exercise of its discretion keep or
sell the security and demand for any shortfall from the defendants.
Shah testified that the security
was inadequate to meet the loan, hence the plaintiff's recourse against the
defendants.
The disputed facts centered on the
resolution and resignations of the directors of Blantyre Asset Management
Company (Pvt) Ltd dated 29 October 2004 found in exhibit 7, which consists of
four documents and page 3 of exhibit 5, a 10 page bundle of documents produced
by the defendants. The dispute also centered on the valuation of the Ariston
shares at the time of appropriation.
Under cross examination Shah denied
procuring the resolution and resignations of the three defendants from the
directorship of Blantyre.
He acknowledged receiving the resolution and the three letters of resignations
produced as exhibit 7 but denied receiving the other letter of resignation from
Sachikonye recorded on page 3 of exhibit 5. The import of the resolution was
that the three defendants acknowledged the inability of Barato to repay the
loan and averred that the plaintiff desired to take cession of the shares and
the concomitant board representation and dividend rights attached to them. The
directors resolved to surrender to the plaintiff these rights and to resign
from Blantyre
to facilitate the transfer and to alert Ariston on possible changes on its board
driven by the new shareholder.
The letter of resignation by Nyemba
was dated 1 August 2004. It was addressed To Whom It May Concern. It was on
Pivot Capital Partners of Bryanston South Africa
letterhead and indicated that Nyemba was its managing director. He was
resigning from Ariston, Barato and Blantyre
with effect from 1 August 2004. He intimated that he was relinquishing all his
rights and obligations in both Barato and Blantyre
and that he had resigned from Ariston. He signed it in Johannesburg South Africa. In his testimony Nyemba did not recall what
happened. He assumed that the resolution was done much later as an
afterthought. Shah denied meeting Nyemba on the day he signed the letter of
resignation contending that he was not in South Africa at the time. In his
testimony, Nyemba stated the he signed the resolution and prepared the
resignation letter in South Africa
at the instance of Goromonzi who was also in South Africa. Goromonzi advised him
that he had been told by Sachikonye that Shah had sought these two documents.
He assumed at the time that the security adequately covered the loan. He did
not know whether Shah accepted or rejected the letter of resignation.
The letter of resignation by
Goromonzi was typed but the date is written in ink. It bears a Harare address. He was
resigning from Blantyre
with immediate effect. He wished the company well into the future under its new
shareholder.
Two letters of resignation were
attributed to Sachikonye. The first had a Tafara Harare box number. It
intimated his resignation from Blantyre Asset Management Co Pvt Ltd with
immediate effect. He opined that he was relieved of all responsibilities and
liabilities relating to Blantyre.
The second letter also had the Tafara box address and the words Alshams
Building Material t/a LLC in bold print. He indicated in that letter that he
was resigning from Blantyre
at the instance of the plaintiff. He further added that as a condition
thereof he was “to be relieved of all
the responsibilities and liabilities
relating to this company and cancel without reservation my deed of surety
issued in respect of the loan to Barato of US$2,223,000.00.”
Shah admitted that he did not
discuss with any of the defendants how they would individually pay up in the
event of default by Barato. He stated that he was assured by Goromonzi that all
three defendants were beneficial owners of Barato, had resources, assets,
businesses and were consultants for other banks in the region. He stated that
Goromonzi stated that all three could easily raise US$150,000.00 every second
or third month and clear the debt by 31 December 2004, which information was
confirmed by Nyemba, hence the repayment schedule in the agreement.
Clause 2.2 of the loan agreement
showed that US$1,933,000.00 was the actual amount disbursed to Barato. The
effect of paying the full loan amount when what had been disbursed was US$1,933,000.00 meant that Barato agreed to pay the difference between the loan amount
and the disbursed amount represented by US$290,000.00 firstly in terms of
clause 7.1 as the upfront flat fee on disbursement and secondly an equivalent
amount as interest on full repayment. Shah was therefore correct in averring
that the effective yield on the loan was 30 per cent per annum.
Shah was taken to task on the value
of the shares at disposal on 29 July 2005.
He was adamant that the parties agreed to maintain the value of the
shares at 1 and half times cover precisely because they could not predict the price of
the shares on disposal. The existence of the personal guarantees tended to
confirm Shah's testimony that the parties were well aware of the uncertainties
surrounding the value of the security on disposal. In his testimony Nyemba
asserted that the value of shares was often affected by economic trends, the
political environment and exchange rate policies. His view was confirmed by the
failure to dispose the shares at US$ 4 million or any higher figure at any
other time before or after the resignation of the three defendants as directors
of Blantyre.
The tone of the letter of Goromonzi of 30 April 2004 in which he pleaded with
the plaintiff not to appropriate the shares until the share price had
appreciated to levels around ZW$450.00 implicitly recognised that the share
price was depressed. While Shah was reluctant to concede that in nominal terms
the share price improved, the table on page 9 of exhibit 5 that was compiled by
Interfin at the request of the parties erstwhile legal practitioners of record
showed a nominal appreciation in value from ZW$174.00 in November 2004, a dip
in December of $133.00 rising to $235.00 in January, $385.00 in February,
$345.00 in March, $450.00 in April, $418.00 in May, $350.00 in June, $545.00
in July, $705.00 in August and $590.00 in September 2005. It is noteworthy that
in his testimony, Nyemba misled the court that at the time that the defendants
resigned from the board the share price stood at ZW$1,300.00 a share.
The table by Interfin has serious
shortcomings. It provides the cross rate between the US$
and the local currency as having been constant at ZW$250:1 US$ for the period from November
2004 to July 2007. Yet, on page 10 of
exhibit 5, the defendants produced an official Reserve Bank of Zimbabwe
table that demonstrated that the foreign exchange auction rate was ZWD17,694.15
per USD. Shah's skepticism on the accuracy of the information was well founded.
Again, Shah denied that at the time of executing the agreement, Barato
expressed its intention to redeem the debt through dividend pay outs. His
version is on firm ground. It was not disputed that the defendants hoped to
redeem the debt even before the due date once Afrexim bank purchased the shares
for US$4 million. The use of dividends to repay only appears in the letter of
30 April 2004, at a time after Barato had defaulted on two installments. That
letter also highlights the uncertainty of relying on externalized dividends to
meet its repayment obligations.
The method of valuation of the
shares is set out in clause 5.4 which reads:
“In determining
the value of the security at any time during the operation of this agreement,
the lender shall consider the share price quoted by the Zimbabwe Stock Exchange
and the cost of procuring United
States dollars on the market as may be
advised by the lender's bankers. A certificate signed by the lender's bankers
in Zimbabwe
determining the value of the security in terms of this clause shall be
conclusive proof of the value of the pledged shares and /or security.”
Shah testified
that at the time there existed in Zimbabwe
three exchange rates for procuring United States dollars. These were
the official rate that was applicable to government transactions, the auction
rate that was an interbank rate and the illegal parallel rate. In my view,
because it referred to the rate provided by the local bankers of the plaintiff,
clause 5.4 contemplated the use of the auction rate.
To arrive at the value of the
shares in United States
dollars, he referred to exhibit 6; a document compiled by Interfin Merchant
Bank Limited at the request of the parties erstwhile legal practitioners. The
legal practitioners supplied Interfin the four scenarios found in the document.
The first was based on the special bargain price of ZWD300.00 per share. At the
exchange rate of ZWD17,700.00 to the USD, less selling costs the security
carried a value of USD695,342.48. The second scenario was based on the market
price of ZWD675.00 per share and after accounting for selling costs the security
was valued at USD1,564,574.95. The third scenario was based on the special
bargain price of ZWD300.00 less both selling and buying costs. The value of the
security was set at USD673,792.18. The last scenario was based on the market
value of the shares at ZWD675.00 less both selling and buying costs, which
placed the value of the security at USD1,516,141.18.
Shah was adamant that in terms of
clause 6.2 of the agreement the plaintiff was not liable to pay any interest,
fees, commissions or any other charges on the security provided by Barato. It,
however, paid for both the selling and buying expenses and was entitled to
receive recompense from the defendants.
He maintained that the third scenario rather than the fourth correctly
captured the value of the security. It was this value plus the value of the one
dividend that was received of US$30,856.38 that had to be deducted from the
loan amount to arrive at the plaintiff's claim of USD1,560,437.68 million.
Mswaka confirmed the method that
was used to dispose of the shares. He produced exhibit 8, the brokers' note for
the sale of the shares. The brokerage fees he charged were confirmed by
Interfin in exhibit 6. He stated that the number of shares placed on the market
was beyond the capacity of the market to absorb. There were no takers above
ZWD300.00 per share. He stated that while splitting could be done, it was
cumbersome and did not guarantee a higher price.
The first and second defendants
conceded that they voluntarily signed the deed of suretyship. Nyemba stated and
Goromonzi confirmed that their strategy was to pay the first instalment within
six weeks of the loan agreement from dividends declared to Barato by Ariston.
Thereafter he expected the share price of Ariston to appreciate and with it the
value of the security. The appreciation in the value would enable the
defendants to sell the security and repay the plaintiff. If they failed to sell
they would utilize long term financial arrangements of Trust Bank. In my view,
these arrangements were very uncertain as they depended on the ability of
Ariston to pay a dividend in local currency that could easily be converted into
United States
dollars. As seasoned bankers, it must have been in the contemplation of both
Nyemba and Goromonzi that the conversion depended on the availability of
sufficient and surplus United
States dollars in the foreign currency
account of Ariston. The strategy miserably failed because Ariston did not have
the envisaged funds in its foreign currency account.
Sachikonye disputed knowingly
signing the deed of suretyship. He averred that he was tricked by Goromonzi to
sign the document on 22 December 2003, at a time when he was rushing for a
board meeting. His story that he was tricked does not make sense. He admitted that
before he signed the document in his office Goromonzi intimated to him that it
concerned the transfer of Blantyre
shares to its new shareholder. He stated that he had joined the board of Blantyre in 2002 and he
believed that he was signing a round robin resolution. Under cross examination
he alleged that Goromonzi intimated that he was signing the share transfer form
of the Ariston shares held by Barato. Goromonzi disputed tricking him. In any
event the surety is a two paged document headed in bold print Deed of
Suretyship. Sachikonye is a literate gentleman accountant who sits on the board
of big corporates including some multinational companies. He knew the nature
and purpose of the document he was signing. His foreknowledge is clearly spelt
out in his second letter of resignation of 29 October 2004 addressed to Alshams
in which he sought to be discharged from the suretyship. That letter also
contradicted the assertion he made in his evidence in chief that he became
aware of the existence of the loan agreement in his legal practitioner's office
after the summons was served. He further contradicted himself on when he first
saw Shah. In one vein he averred that he only saw him after the present case
had commenced and in another vein he alleged that he first saw him on 29
October 2004 when he directed him to write the letter of resignation to a
specific person.
Sachikonye further contradicted
himself on whether his first letter of resignation was written at the
instigation of Shah or not. In his main testimony he said he was requested by
Shah to resign and he went on to advise his co-defendants. Under cross
examination he stated that his co-defendants were the ones who requested him to
write the first letter. In his plea and summary of evidence he averred that
Shah assured him that his resignation discharged the surety, yet in his
evidence in chief he stated that Shah simply indicated that he had noted the
contents of his letter. The plethora of contradictions undermined his
credibility. I am satisfied that he was an untruthful witness. It is because of
these contradictions that where his testimony differs with that of Shah, I am
inclined to accept the latter's testimony as a correct representation of what
happened.
All three defendants averred that
the security was adequate to meet the loan both on the date that they resigned
and relinquished control of the security and on the settlement date chosen by
the plaintiff. I understood their three
letters and the resolution to be merely expressing the obvious position that on
resignation, they ceased to be liable for the operations of the corporates from
which they were resigning. The letters do not in any way free them from
outstanding obligations which they entered into prior to the resignation such
as the suretyship. It explains why both Nyemba and Goromonzi did not aver in
their joint plea that the resignation discharged the suretyships. Rather like
Sachikonye they pleaded that the security carried a higher value than the loan
agreement when they resigned and when the plaintiff exercised his rights of
settlement.
The defendants called the evidence
of Mutakwa to demonstrate that they utilized three dividend pay outs towards
the reduction of the loan amount. Mutakwa produced exhibit 9, a schedule of the
dividends paid to Barato Holdings Limited between 4 September 1998 and 9 June
2004 that were declared between 7 August 1998 and 19 December 2003. Five
dividends, numbers 48 to 52 were declared between 18 January 2002 and 19
December 2003. For the dividend declared
on 18 January 2002 a net amount of ZWD8,865,756.70 was paid out on 18 March
2004. The dividend declared on 14 June
2002 resulted in payment of a net amount of ZWD7,092,605.36 on 18 March 2004;
that of 17 January 2003 resulted in payment of a net amount of ZWD46,101,934.84
on 18 March 2004; that of 20 June 2003 resulted in the payment of a net amount
of ZWD359,521,720.50 on 18 March 2004 and lastly the dividend declared on 19
December 2003 resulted in the payment of ZWD359,521,720.50 on 9 June 2004.
Mutakwa stated that the dividend
payments moved from his dividend account with Ariston into the Barato account
held with the Merchant Bank of Central Africa.
Mutakwa as the transfer secretaries for Ariston issued dividend advice slips
and cheques to the shareholder-Barato. Barato was a foreign company. Central
Scrip did not have foreign currency to pay the dividend in foreign currency. It
held the money until Ariston instructed it to remit the funds to the Merchant
Bank of Central Africa. He did not know what
happened to the funds thereafter. Under cross examination he revealed that he
did not know if the last five payments were remitted to Barato or not. He was
not aware whether the plaintiff ever received any dividends due to Barato.
Mutakwa did not confirm the
defendants' assertions that three dividend pay outs were used to reduce the
debt.
The defendants further called the
evidence of Munyukwi to show that the method used by the plaintiff to dispose
of the shares was opaque and unfair. The pith of their argument in this regard
was best expressed by Sachikonye who described the sale of 27 July 2005 as a
commercially impaired imagined sale without the dynamics of a willing buyer and
a willing seller. Munyukwi supplied the meanings of market price and special
bargain in the stock exchange lexicon. He defined market price as the price at
which a willing seller and a willing buyer concluded a share sale. He proceeded
to define a special bargain by reference to a market price as the price reached
by a willing buyer and a willing seller at either a discount or a premium to
the market price. He stated that a foreign investor is legally required to
conduct transactions on the market. The procedure often utilized before a
special bargain is reached is that the seller's broker tests the market for
willing buyers; if he fails to find them, he enters into a special bargain. A
special bargain is usually preceded by off market negotiations between the
buyer and the seller. The negotiations are underpinned by perceptions of the
value of the share to the negotiators and considerations of control and saving
costs to the buyer. He produced exhibit 10, a three page document of the
schedule of special bargains transacted at the local bourse in 2009 and 2010.
The document showed, amongst other transactions, that in 2009 Renaissance
conducted a special bargain for 177,085,674 shares at a small premium above the
market price. It further showed that in 2010, of the 26 special bargains 4 were
below, 6 were at par and 16 were above the market price. The exhibit further
showed that the margin of the discount or premium to the market price was
small.
He further produced exhibit 11, the
local bourse official record of trade on 29 July 2005. It recorded that a
special bargain of 42,296,673 Ariston shares traded at ZWD300.00 per share.
Buyers wanted to buy at ZWD650.00 while sellers offered to sell at ZWD680.00
but sales were recorded for 76 000 shares at ZWD675.00. He commented that the
difference between the special bargain and the market price was very
significant and rather unusual.
Under cross examination he stated
that without checking the order trail of that day, he could not dispute
Mswaka's testimony that he failed to find buyers at ZWD675.00. He conceded that
the local bourse had approved the sale notwithstanding the unusual difference
between the market price of ZWD675.00 and the special bargain price of
ZWD300.00. He opined that the approval was granted because the transacting
parties were both foreigners for whom the local bourse appreciated their desire
to save on transacting costs. He also conceded that an important consideration
in special bargains was the availability of the funds to purchase the share.
Three factors undermined the
probative value of Munyukwi's testimony. The first was that he conceded that
exhibit 11 was at variance with the testimony of Mswaka on the transactions of
27 July 2005. The second was that both exhibit 10 and 11 were not canvassed
with Mswaka. This would have assisted the court to properly assess the truth of
what transpired during the sale. The third was that the economic environment in
2005 when the sale was concluded was different to the one in 2009 or 2010 from
which the information in exhibit 10 refers. Munyukwi's testimony would have
carried more weight had he produced documents of other special bargains
conducted in 2005 by other foreign investors.
It is for these reasons that I am compelled to accept Mswaka's testimony
where it differs with that of Munyukwi.
Mr Morris urged me to find and Mr Mahlangu
conceded that Shah gave his evidence well and was not shaken in cross
examination. He urged me to believe him ahead of the three defendants. He also
urged me to prefer the evidence of Goromonzi in place of his co-defendants who
he criticized as poor witnesses.
Exhibit 7 painted all the
defendants in bad light. The board resolution was on the face of it innocuous.
The three co-defendants accepted Barato's inability to repay the loan and
resolved to resign from Blantyre
and facilitate surrender of Ariston shares to the new shareholder and alert
Ariston of possible changes on its board. The first problem for the defendants
was that they all purportedly appended their signatures on 29 October 2004.
Nyemba and Goromonzi were in South Africa
while Sachikonye was in Zimbabwe.
They all admitted that they did not meet on that day. Nyemba went even further
in misleading the court that his letter of resignation dated 1 August 2004 was
precipitated by the resolution of 29 October. He had no explanation to proffer
on how he came to resign two months before the board resolution. If indeed he
had resigned from Blantyre,
Barato and Ariston on 1 August 2004, he would not have signed the resolution of
Barato of 29 October as he was no longer a director. All the defendants conceded that the
plaintiff did not benefit from their resignations. They were not the shareholders
but mere directors of Blantyre.
On their resignation the shareholders, represented by the Caversham Trust, had
the obligation to appoint another set of directors. Their resignation did not
open the way for Shah to take over the reigns of Blantyre. Shah did not behave in any way that
demonstrated that he requested their resignation. He denied ever seeking their
resignation. I find that all three were untruthful in their assertions that the
resolution and their resignations were procured by the plaintiff.
I agree with Mr Morris that Shah and Mswaka told the
truth of what transpired. I adopt their version wherever it differs with that
of the defendants and their witnesses.
At the pre-trial conference held on
4 November 2009, the following issues were referred to trial:
1. whether the personal guarantees entered into by the
defendants required exchange control permission and if so whether the
guarantees are enforceable.
2. whether defendants held out that Barato Holdings
Limited had the ability to repay the principal debt.
3. whether the principal debt was to be paid solely from
dividend payments due to Barato Holdings Limited and Blantyre Asset Management
and from the realization of security handed to plaintiff.
4. whether defendants assured plaintiff that all necessary
exchange control approval had been obtained prior to the furnishing of the
personal guarantees.
5. whether plaintiff has been repaid the principal debt in
full.
6. whether the third defendant is bound by his signature
to the guarantee notwithstanding his averments firstly, that he did not know at
the time he signed it that it was a guarantee and secondly, that it was
discharged by the plaintiff when he agreed to resign his directorship in Blantyre.
Even though these six issues
could be compressed into the three issues that I referred at the outset in this
judgment, I proceed to determine each of them individually but not in the order
that they appear. In my view issue 4 is related to issue 1 and the two will
best be determined at the same time. The first issue to be determined will be
issue number 2, followed by issue number 3, 6, 1 and 4 and 5.
Whether the defendants held out that Barato Holdings Limited had the
ability to repay the principal debt
The
evidence of Shah was that Goromonzi held out that Barato was able to pay the
loan amount. He agreed to the security but because of the inherent volatility
in the value of shares at any period that the plaintiff might be forced to
exercise the security he demanded a loan cover of 1 ½ times the value of the
security and personal guarantees from the three directors of Barato. He stated
that the loan cover formed the basis for the disbursement of US$1, 9 million.
He further stated that Goromonzi assured him that the three directors were
personally involved in foreign ventures which would enable them to raise at
least US$150 000.00 each month. When he was cross examined, these averments
were not challenged. When Goromonzi testified, he was vague on the sources of
payment. He was unsure of what he said to Shah. He was certain that in his own
mind payment would be made in full before 30 December 2004 from the proceeds
received from the sale of the security to Afrexim bank. He further believed
that dividend pay outs would be used to reduce the debt and if the worst
scenario happened the security would retire the debt. Nyemba's contribution on
the first issue was that the agreement was a routine and standard one. Barato
was prepared to provide more than three guarantees at the plaintiff's request.
He was not personally involved in the negotiations but was aware of them.
Sachikonye averred that he was not aware of the negotiations or the agreement.
He however knew of the existence of Barato whose executive operations were in
the hands of the other two defendants.
Goromonzi,
by virtue of his intimate involvement in the negotiations leading to the
agreement knew more than did the other co-defendants. The other co-defendants
mandated him to conduct the negotiations. All three were directors of Barato.
The agreement was in the name of Barato. Goromonzi stated that before
Sachikonye signed the guarantee he briefed him on its essence. Sachikonye
admitted that he signed without reading the document after Goromonzi advised
him that it concerned Blantyre.
Sachikonye referred to the existence of round robin resolutions which were
circulated after the directors had discussed an issue. When Goromonzi stated
that he discussed the essence of the guarantee with Sachikonye, there is no
reason to doubt that he was being truthful. He was simply executing a principle
of operation that was well known to the two directors. Goromonzi's testimony
would be the most credible of the three defendants on what was said in
negotiating the agreement with Shah. Shah was more credible than Goromonzi in
relating what Goromonzi said. Goromonzi used words such as I think, I cannot
confirm, which indicated his uncertainty.
The
agreement contains three features that confirm Shah as a truthful witness. The
loan amount was not in the sum of US$3, 1 million that Barato sought. The loan
amount did not constitute 1 ½ times cover of US$4 million that Goromonzi and
Nyemba alleged was the value of the Ariston shares. The agreement contains a
personal guarantee clause. Lastly it sets out the five installments that were
to be paid to reduce the loan. The first was due on 15 February 2004 in the sum
of USD433 000 and the remaining four were to be paid in four equal installments
of USD447 500 on 31 March, 30 June, 30 September and 30 December 2004,
respectively. By providing in the agreement for specific installments payable
on specific dates, Barato was clearly holding out its ability to repay the
loan.
I answer issue
number 2 in the affirmative.
Whether the principal debt was to be paid
solely from dividend payments due to Barato Holdings Limited and Blantyre Asset Management
and from the realization of security handed to plaintiff
The answer to the third issue must be in the negative. Shah clearly
stated that the question of retiring the debt solely from dividend payments was
not discussed. Barato defaulted on the first instalment. This was in spite of
the existence of the dividends declared on 18 January and 14 June 2002, 17
January and 20 June 2003 that were all paid out on 18 March 2004. Even the last
dividend declared on 19 December 2003 that was paid out on 9 June 2004 did not
find its way into the plaintiff's bank account during the currency of the loan
agreement. When Goromonzi and the co-defendants averred that repayment was to
be made solely from dividend payments they were being untruthful. The dividends
that were declared were not used for this purpose. Neither was payment to be
made solely from the security. If that was the position one would have expected
the parties to state it in the agreement.
By stating a timeline by which instalments would be made, Barato was
undertaking to pay from other sources other than the security as is apparent in
the letter written by Goromonzi of 30 April 2004 and in Nyemba's oblique
reference to some financial arrangements that he failed to articulate. In any
event, the purchase of the security from Conafex further points to the
defendants' ability to tap financial resources from the other sources.
Whether the third defendant is
bound by his signature to the guarantee notwithstanding his averments, firstly,
that he did not know at the time he signed it that it was a guarantee and
secondly, that it was discharged by the
plaintiff when he agreed to resign his directorship in Blantyre
Sachikonye alleged in his
pleadings and evidence that he did not know that he was signing a deed of
suretyship. The suretyship was signed on 22 December 2003. In his evidence in
chief he stated that he was rushing to a board meeting when was approached in
his office by Goromonzi who asked him to append his signature on a document he
said was for the transfer of shares in Blantyre Asset Management. He just
signed it on the mention of Blantyre
in the belief that it was an ordinary resolution since Trust Bank was in the
habit of sending round robin resolutions to directors for approval. Under cross
examination he betrayed his foreknowledge that the shares, the subject of the
transfer, were Ariston shares that were held by Barato. He stated that
Goromonzi told him that they were to be transferred to a new buyer. On the other
hand Goromonzi stated that he sat and discussed the deed of suretyship with
Sachikonye in Sachikonye's office. Thereafter Sachikonye signed it in the full
knowledge of what the document entailed. Mr Mahlangu
was in the invidious position of representing two clients whose versions in
this respect were at cross purposes. In my view, he ought to have declined to
represent both of them because of the conflict of interest that arose in such a
situation. In his submissions, Mr Mahlangu
agreed with Mr Morris that Goromonzi
gave a more credible version of what transpired.
The deed of suretyship in
question was signed by Sachikonye and witnessed by Goromonzi. Sachikonye, by
stating that Goromonzi made mention of Blantyre,
admitted that a discussion first ensued before he signed. It was not clear from
his testimony why he believed that he was signing a round robin resolution
concerning Trust Bank. He knew he was signing a document which concerned the transfer
of shares in Blantyre.
Blantyre was
the holding company of Barato. The deed concerned surety for Barato which had
pledged its asset in the form of Ariston shares to the plaintiff. Sachikonye
together with Goromonzi and Nyemba were the sole directors of these two
entities. Sachikonye did not establish the link between Blantyre and round robin resolutions of Trust
Bank. Neither Sachikonye nor any of his co-defendants established the link
between Blantyre
and Trust bank. His story that he signed a document concerning Blantyre in the belief
that it was a bank round robin resolution was therefore false. While he alleged
that he was rushing to a board meeting, he did not produce proof that there was
indeed a board meeting on that day. In my view, Goromonzi told the truth that
he explained the nature of the document to Sachikonye who understood what it
entailed. Sachikonye did not give details concerning the identity of the
transferee and the reasons for the transfer of the shares. His further version
that he only knew of the existence of both the loan agreement and surety in
October 2004 was in the light of Goromonzi's version, demonstrably false. He
was to further complicate matters by averring that he only saw the deed for the
first time after it was attached in the further particulars of 11 January 2006.
He failed to satisfactorily explain his attempt in his letters of 29 October
2004 to cancel the deed that he was unaware until 11 January 2006.
I find against Sachikonye and
hold that he knew on 22 December 2003 that he was appending his signature to
the deed of suretyship. Indeed the deed itself consists of two pages. It is entitled
Deed of Suretyship in bold print in capital letters. It is inconceivable that
Sachikonye, even if he were in a hurry would have failed to scan the contents
of the document and thereafter realize that he was signing a guarantee.
Sachikonye further averred in
his pleadings that his suretyship was discharged by the plaintiff on his
resignation from the directorship of Barato. In his evidence in chief and under
cross examination he shifted from this firm position and was content to say
Shah simply noted the contents of the letters. Shah denied requesting his
resignation from Barato as a pre-condition for the discharge of the deed of
suretyship. The other co-defendants stated that they did not speak to Shah but
relied on what Sachikonye told them concerning the request for the board
resolution and resignations. Like his co-defendants, Sachikonye was unable to
explain why Shah would require their resignation when he held a negotiable
security. I do not accept that the board resolution and letters of resignation
were instigated by Shah. The testimony of Sachikonye on the request is as
difficult to follow as it is to believe. He alleged that he was the one who
spoke to Shah on 29 October 2004 and relayed the message to his co-defendants
who were based in South
Africa. He further alleged that the letters
of the co-defendants and his first letter without an addressee and the board
resolution were collected by Shah on the same day. Again, on that same day Shah
came back to him and demanded a letter of resignation specifically addressed to
the plaintiff, hence the second letter that was more detailed and in which he
gave as a condition of his resignation the discharge of the deed of suretyship.
Shah accepted receiving the resolution and the first three letters, but did not
disclose when he did so. He disputed any knowledge of Sachikonye's second
letter. Sachikonye stated that he met Shah on 29 October 2004. He was being
untruthful. It was not possible for all three defendants to sign the resolution
and their respective letters of resignation on the same day that Shah allegedly
requested them from Sachikonye. Time and distance separated them. In any event
had Shah demanded that the letters be addressed to the plaintiff, it was
inconceivable that Sachikonye would have failed to relay this information to
his co-defendants. Sachikonye's second letter demonstrated beyond doubt that he
had prior knowledge of the contents of his deed of suretyship. His attempts to explain
that he knew of its existence on that day after Shah's visit was a vain attempt
to escape from his earlier contradictory version made at the commencement of
his evidence in chief that he only heard of Shah when the case arose as before
that he had not been exposed to circumstances were the two would meet. It seems
to me that the resolution and letters were made by the defendants of their own
accord in recognition that once plaintiff exercised its rights in appropriating
the security, they no longer had a basis for remaining as directors in an
entity whose sole asset was the shares. The board resolution merely expresses
the thinking of the three co-defendants as directors. Again their letters
expressed their own beliefs that they were discharging their respective
guarantees because the security carried a value higher than the outstanding
loan. Off course, Shah was not bound by either the resolution or the letters of
resignation, which did not proffer any advantage to the plaintiff. In my view
they were merely informative in nature, hence the climb down by Sachikonye that
Shah did not discharge his guarantee but merely took note of the contents of
the second letter.
I hold that the third
defendant was bound by his deed of suretyship as he knowingly signed the
document. Even though like his co-directors he believed that the security
carried a value in excess of the loan amount, he was never discharged from the
operation of his guarantee by the plaintiff.
Whether defendants assured plaintiff that
all necessary exchange control approval had been obtained prior to the
furnishing of the personal guarantees
The loan agreement answers
this question. It will be recalled that it was signed by the Goromonzi and
Nyemba on behalf of Barato. These two defendants were aware of the requirement
for sureties, which they proceeded to provide. In the recitals, clause 1.1 of
the agreement reads:
“The borrower
has represented to the lender that it has the capacity, authorization and
necessary corporate and regulatory approvals to conclude and perform its
obligations in terms of this agreement.”
Under representations and warranties in
clause 8.1.4 the borrower represented to the lender that:
“all
authorizations, approvals, consents, licenses, exemptions, filings, registrations
and other matters official or otherwise, required or advisable in connection
with the entry into, performance, validity and enforceability of this agreement
and the transactions contemplated by this agreement have been obtained or
effected and are in full force and effect and that the agreement is in proper
form for its enforcement in the Courts of Zimbabwe.”
In these two clauses the first
and second defendants assured the plaintiff that the borrower had the ability
to perform its obligations under the contract and that the contract was valid
in Zimbabwe.
One of the terms that they agreed to was that they would provide deeds of
suretyship capable of enforcement in the courts of Zimbabwe. Sachikonye willingly
signed his guarantee. The three defendants' guarantees made reference to the
loan agreement of 23 December 2003. None expressed any incapacitation in
executing the guarantees. All of them, by signing the guarantees in the full
knowledge of the terms and conditions of the loan agreement led the plaintiff
to believe that their guarantees were capable of enforcement in Zimbabwe. Thus
the individual act of each defendant in executing the deed of suretyship
constituted an assurance to the plaintiff that all the necessary exchange
control approvals had been obtained.
Whether the personal guarantees entered into
by the defendants required exchange control permission and if so whether the
guarantees are enforceable
The answer to this question
lies in the testimony of Shah and Goromonzi concerning what the two agreed in
regards to sureties. Shah stated that Goromonzi advised him that the loan was
to retire a loan held with Afrexim bank, which bank would in turn purchase the
security for USD4 million. In the event that the deal with Afrexim bank failed,
Goromonzi assured him that the three defendants would be able to meet the
instalments from other business deals and work they were involved in outside Zimbabwe.
Under cross examination Shah stated that Goromonzi assured him that all three
defendants were beneficial owners of Barato and each had resources, assets,
businesses and acted as consultants for other banks in the region and in the
worst case scenario would be able to put up their own resources. He assured him
that they would be able to cumulatively raise USD150,000 every second or third
month and clear the debt by 30 December 2004. He stated that the arrangement
was confirmed by Nyemba, hence the repayment schedule in the loan agreement. In
essence Shah averred that he was assured by Goromonzi and Nyemba that thy held
free funds that they could utilize in meeting the suretyships.
This
evidence was not contradicted by either Goromonzi or Nyemba. Sachikonye did not
dispute that he had offshore assets; all he said was that he did not have
amounts in the region of the loan amount.
I
believed Shah for the reason that his story had the ring of truth and was
confirmed by the probabilities. He stated that he had requested Trust Bank to
guarantee the loan but was told that that would infringe central bank
requirements against directors borrowing from their own bank. In addition the
first and second defendants were high flying bankers, who when push came to
shove left the country and set themselves abroad. The third defendant is a
skilled accountant who was the managing director of the Zimbabwean subsidiary
of a multinational corporation.
It
was common cause that in terms of s11(2) of the Exchange Control Regulations
SI 109 of 1996 as long as the defendants intended to meet the suretyship from
free funds that were available to them at the time of the execution of the
guarantees, they did not require exchange control approval. The guarantees in
question would not at the time be met from local assets which could only be
disposed of in local currency and not in United States dollars as required by
clause 4 of each deed of suretyship.
I accordingly hold that the
personal guarantees entered into by the defendants did not require exchange
control permission and as such are enforceable in Zimbabwe.
Whether plaintiff has been repaid the
principal debt in full
The plaintiff instructed Renaissance
Stockbrokers (Pvt) Limited to sell the Ariston shares on the local bourse. It
provided the stockbroker with the share certificate and a signed transfer form.
Mswaka conducted the sale on 29 July 2005. He testified that he found no takers
at the price of ZW$675.00 per share that prevailed on the previous day. It fell
to ZW$300.00 per share. No other third party was interested in the shares. He
then purchased the shares at a special bargain price of ZW$300.00 per share for
the plaintiff. The special bargain required the approval of the local bourse in
its capacity as the regulatory authority. The approval was granted and the sale
was passed. Even though he passed both the seller's and buyer's note to Shah,
he appeared oblivious to the fact that Shah acted as both the seller and buyer.
The shares were priced in Zimbabwe dollars and after deducting both the
seller's and buyer's selling and buying costs and applying the auction rate
used by the central bank at the time, the value translated to USD673,792.18. The value in United States
dollars had the shares been valued at ZW$675.00 after deducting both the seller
and buyer's costs would have amounted to USD1,516,141.18.
Mswaka's testimony of the
events that transpired on the market on 29 July was not put in issue when he
was cross examined. Rather Mr Mahlangu
suggested to him that the fairer value would have been the USD1,516,141.18
rather than USD673,792.18.
Having allowed Mswaka's
testimony to go unchallenged, Mr Mahlangu
proceeded to call the evidence of the chief executive officer of the local
bourse, Munyukwi. He produced exhibit 11, a document he alleged recorded the
transaction that took place on the local bourse on 29 July 2005. It showed
firstly, that 76,000 Ariston shares were sold at a price of ZW$675.00 and
secondly that a special bargain was transacted at ZW$300.00 on the day in
question. In addition, he produced exh 10, documents capturing special bargains
conducted in 2009 and 2010, in order to underscore the point that special
bargains moved in a narrow range above or below the market price. He further
underscored from these statistics that in the majority of the special bargains
the price was above the market price. He surmised that the variance between the
market price of ZW$675.00 and the special bargain price of ZW$300.00 was
“rather unusual”, yet his stock exchange approved the transaction because such
off-market deals with such a variance were not uncommon on the local bourse. He
stated that they were legal and were designed to save transaction costs.
Munyukwi's testimony was undermined by two factors. The first was that his
testimony was never canvassed with Mswaka and the second was that the operating
economic environment in 2005 in which the special bargain sale was transacted
was materially different from the one prevailing in both 2009 and 2010. The two
periods are simply incomparable. Rather Munyukwi's comparisons would have been
helpful had he provided documents of other special bargains that were conducted
in 2005. Munyukwi conceded under cross examination that he could not dispute
the testimony of Mswaka that the market price had fallen to ZW$300.00 on 29
July 2010 precisely because there were no buyers who were prepared to buy at a
higher price. Mswaka's testimony was also confirmed by the probabilities. As a
broker, he would have earned more fees had the sale been transacted at a higher
price. He was to content with fees at the lower price because he failed to
secure buyers at any price higher than ZW$300.00.
I find that the market price
of the shares on 29 July 2010 was ZW$300.00 and not ZW$675.00 as suggested by
the defendants. Accordingly, the Ariston shares were worth USD673,792.18 on 29
July 2005.
The defendants further contended
that the value of the shares should be calculated as at 29 October 2004, the
date on which they resigned from Blantyre
and effectively handed over the shares to the plaintiff. Clause 5.4 of the loan
agreement gave a wide discretion to the plaintiff to appropriate the security
once the borrower defaulted. It was in recognition of this wide power that
Goromonzi, on 30 April 2004, pleaded with the plaintiff not to exercise its
rights. The tone of that letter indicated that the value of the Ariston shares
was low. He sought the plaintiff's indulgence to wait until the price had
firmed to ZW$450.00 without indicating what it was at the time. It is unlikely
that he would have sought such an indulgence were the share price able to
extinguish the loan amount. Clause 5.4 as read with clause 9.3 does not provide
a time frame within which the lender was to redeem the security. As long as the
plaintiff indulged the borrower's pleas for an extension, the loan agreement
remained open. The continued existence of the loan agreement was not affected
by the resignation of the defendants as directors of the borrower. In my view,
as long as the lender did not exercise its rights over the security, the loan
agreement would remain operational even beyond 30 December 2004. It would cease
to operate once the plaintiff decided to exercise its rights. It was not within
the power of the borrower or its directors to stampede the plaintiff into
exercising those rights. Neither the borrower nor its directors had the power
to force the plaintiff to exercise its rights through a board resolution or
resignations. The contention that the date of surrender of the security was 29
October 2004 has no merit. The date chosen by the plaintiff in the exercise of
its wide discretion was 29 July 2005.
The defendants further
contended that the valuation of the shares should be based on the official rate
of ZWD250.00 to 1USD. They relied on the rates of the local currency to the United States
dollar supplied on page 9 of exh 5 by Interfin Research. The document shows
that in November 2004 the share price of each Ariston share was ZWD174.00. The value of the security translated to USD
29,438 484.00 leaving a surplus due to Barato of USD27,215 484.00. It further
shows that in July 2005 each share carried a value of ZWD545.00 that translated
to USD92,206,747.00 leaving a surplus of USD89,983,747.00 due to Barato. That
this was a preposterous and disingenuous contention was demonstrated by the
defendants' failure to counterclaim for the alleged excess value of the
security. I, however, agree with the submission by Mr Morris that the rate of exchange contemplated by the valuation
formula set out by the parties in clause 5.4 of the agreement contemplated the
use of the auction rate rather than the official rate. The valuation formula
provided for the conversion of the value of the security quoted by the local
bourse into United States
dollars at the rate equivalent to the cost of procuring United States dollars on the market
as provided by the plaintiff's local bankers. The parties contemplated that the
local bankers of the plaintiff would state the value of the security in United States
dollars in a signed valuation certificate. The envisaged certificate was not
furnished by the plaintiff. I was satisfied by the information provided by the
defendants from the Reserve Bank of Zimbabwe on p 10 of exh 5 that the
exchange rate that the plaintiff's bank would have used on the date the
plaintiff appropriated the security would have been the auction rate of ZWD17,700 to 1USD. The auction rate constituted the weighted average rate of the bids
of the eighteen participating banks for the purchase of the United States dollars on auction at
the time the security was appropriated.
The plaintiff purchased the
security at the price of ZWD300.00 a share. The defendants contended that the
method used to purchase the security at that price was unfair regard being had
to the market value of ZWD675.00 a share. If the plaintiff's method of appropriating
the security is upheld then the value of the security would be in the sum of
US$673,792.18. The defendants contended that a fair value of the security at a
market value of ZWD675.00 would be in the sum of USD1,516,141.18. Shah's
testimony on how the security was disposed of was confirmed to the hilt by
Mswaka. The defendants relied on Munyukwi's testimony that the method of
disposal was unfair in that it did not protect the interests of Barato. The
defendants and Munyukwi averred that the sale was not conducted at arms length
as in reality the party who sold the security turned out to be the purchaser.
I agree with the defendants
that the plaintiff was the party who held the security and that it ended up as
the purchaser of the security. Clause 5.4 of the loan agreement mandated the
plaintiff to consider “the share price quoted by the Zimbabwe Stock Exchange.”
The plaintiff went to the Zimbabwe Stock Exchange for an assessment of the
share price of the security. The uncontroverted testimony of Mswaka was that
security was placed on the local bourse for sale. The price per share fell from
ZWD680.00 to ZWD300.00 but there were no takers. The holder of the security
then snapped all the shares at ZWD300.00 per share. While Munyukwi
characterized the sale as unfair, he failed to provide concrete suggestions
that might have been used in the disposal of the security. One suggestion he
proffered was in splitting the share certificate but he could not dispute
Mswaka's testimony that splitting was not only cumbersome but did not guarantee
a higher price for the shares. In any event splitting would pose further
difficulties of having a multiplicity of possible dates of settlement of the
security. The failure by Barato and its main mind Goromonzi to dispose of the
security during the period from 23 December 2003 until the resignation of the
defendants as directors on 29 October 2004 belied the belief propounded by the
defendants and Munyukwi that the security had a high value because it was in
high demand. That the security was not sought after by investors was further
demonstrated by the fact that it found no takers even until 29 July 2005 when
the plaintiff, as a last resort, purchased it.
Under cross examination by Mr Morris, both Nyemba and Goromonzi agreed
that the plaintiff had acted properly in the way it disposed of the shares even
though they would have done it differently.
Apparently, until the shares were disposed of on the Zimbabwe Stock
Exchange to the plaintiff, their different method of disposal had failed. I am
unable to discern any unfairness in the method used by the plaintiff. It brought
the shares onto the open market. It instructed an independent and experienced
stock broker to sell to the highest bidder. It was in the financial interest of
the stockbroker to secure sales at the highest possible price. The shares found
no takers. The plaintiff purchased them. The sale was approved by the local
bourse, in the full knowledge that the price had fallen from ZWD675.00 to
ZWD300.00. The approval gave the transaction the stamp of fairness. There was
no suggestion from the defendants that the plaintiff manipulated the bidding
process or settlement price.
I am satisfied that the
process used by the plaintiff in determining the value of the security of
considering the share price quoted by the local bourse was fair and reasonable.
It was in substantial compliance with clause 5.4 of the loan agreement.
The plaintiff averred that
Barato repaid in local currency the value of the security equivalent to US$673,792.18 and a dividend in local currency equivalent to US$30,856.38. The defendants called Mutakwa in a bid to
show that Barato paid three as opposed to one dividend to the plaintiff.
Mutakwa's testimony failed to establish that any of the dividends due to Barato
was ever paid to the plaintiff. The onus lay on the defendants to show that the
other two dividends were paid to the plaintiff. They failed to discharge this
onus. They did not indicate the dates on which the payments were made. The
dividends according to Mutakwa's schedule were all declared before the loan
agreement was consummated but presented to Barato on 18 March and 9 June 2004
during the operation of the loan agreement. The plaintiff accepted receipt of
the last dividend presented to Barato on 9 June 2004. The defendants failed to
show that two other dividends due to Barato were paid out to the plaintiff.
I am thus satisfied that the
plaintiff received the cumulative total of the value of the security and
dividend payout in local currency equivalent to USD704,648.56. The defendants
as co-principal debtors and guarantors owe the plaintiff the outstanding sum of
USD1,518,351.44.
The parties did not set out
the rate of interest in the loan agreement but agreed on a penalty interest for
default. They further agreed on the payment of an upfront flat fee of 15%. It
transpired that Barato actually received the sum of US$1,933,000.00. The
difference between the loan amount and the amount that was dispensed was US$290,000.00. This was the amount equivalent to the upfront fee of 15%. On 30
December 2004, Barato would have paid the loan amount of USD2,223,000.00 yet it
received US$1,933, 000.00. The difference of US290,000.00 represented the annual
gain accruing to the plaintiff. It was equivalent to 15% per annum of the
disbursed sum and 13% of the loan amount.
Had Barato honoured the agreement, the plaintiff would have made a
profit of US$580,000.00 representing a yield of 26% on the loan amount and 30%
on the disbursed amount. When Shah stated in his testimony that the yield
contemplated by the plaintiff was 30% per annum, he was correct.
However, the loan agreement was valid for
one year.
Clause 6.1 sets out the default interest due in the event the
borrower failed to pay any amount due in terms of the agreement. It reads:
6.1 In the event
of default in the payment of any amount due in terms of this agreement, then
default interest shall accrue at a rate proportionate to the flat fee.
The rate
proportionate to the flat fee set out in clause 7.1 of the loan agreement is
15% per annum. The rate of penalty interest is equivalent to 15% and not 30%.
It commenced to run on 30 December 2004.
Accordingly, it is ordered that:
The first,
second and third defendant shall pay to the plaintiff jointly and severally the
one paying the others to be absolved:
- The sum of US$,1,518,351.44 together with interest at
the rate of 15% per annum from 30 December 2004 to the date of payment in
full;
2. Costs of suit on the scale of legal practitioner and
client.
Atherstone & Cook, plaintiff's legal practitioners
Gill Godlonton &
Gerrans, defendants' legal practitioners
