The contract was not illegal as it was concluded with a pretium in local currency...what was unlawful was the payment in foreign currency.

There are two rules which are of general application: The first is that an illegal agreement which has not yet been performed, either in whole or in part, will never be enforced. This rule is absolute and admits no exception. It is expressed in the maxim ex turpi causa non oritur actio.

The second is expressed in another maxim in pari delicto potior est conditio possidentis, which may be translated as meaning "where the parties are equally in the wrong, he who is in possession will prevail." The effect of this rule is that where something has been delivered pursuant to an illegal agreement the loss lies where it falls. The objective of the rule is to discourage illegality by denying judicial assistance to persons who part with money, goods or incorporeal rights, in furtherance of an illegal transaction.

In the present matter, the illegal agreement has been performed. The plaintiffs' delivered the property to the second defendant authorising...to pass cession to him on...The ex turpi causa maxim does not apply...Rather, the in pari delicto rule applies...The property was delivered in pursuant to an illegal payment agreement. The parties are equally in the wrong. The loss lies where it fell.

The plaintiffs' did not suffer loss as they received a sum equivalent to...that they sold their rights for. The second defendant received transfer of the property. The property is in his name and he is saddled with rates and municipal charges...The plaintiffs' have failed to establish the need to relax the in pari delicto rule. Cancelling the cession would not be equitable.

That the conclusion of a lease agreement for the use of premises contrary to municipal zoning regulations is illegal was set out in. where it was stated that:-

The definition of and the jurispudential justification for relaxing the in pari delicto maxim is set out as follows:

"It is not open to the parties to negotiate terms which are clearly illegal and then to turn around and invite the court to recognize or enforce their illegal activity. I would, therefore, hold that if the lease agreement had not been acted upon, this court would have refused to enforce it. But since it has been acted upon, the court will intervene if justice and equity deem it proper."

She agreed to be bound by such decisions as the college authorities may make on her behalf. In any event, she contracted herself to abide by the rules and regulations of the college. This is reflected in the manner in which she, up until this dispute, had been conducting herself. She is party to an illegality she now complains of.

Assuming that I have erred in refusing to hold the letter as a liquid document, I still would have declined provisional sentence in this matter on another basis.

From the correspondence that the parties attached to the pleadings in this matter, it is common cause that the transaction giving rise to the dispute between the parties was a sale of certain equipment. The sale was concluded in September 2008. The equipment was sold for US$14,650=. This was prior to the date when the exchange control authorities allowed the use of foreign currencies for ordinary trade within the jurisdiction, and, thus, the agreement fell foul of the relevant foreign exchange regulations of the time that prohibited individuals from exchanging goods or services for foreign currency without prior approval of the exchange control authorities. In this regard, the transaction between the parties was tainted with illegality. See Matsitka v Jumvea Zimbabwe (Private) Limited and Another 2003 (1) ZLR 71 (H).

It is the settled position at law that where the court is faced with an agreement that is tainted by illegality, the court may allow the loss to lie where it falls, or may relax the rule against illegality to do justice between the parties. Whether to allow the loss to lie where it falls or to relax the rule against illegal agreements to do justice between the parties is an issue to be determined at the trial of the matter and cannot be debated at provisional sentence stage.

At the hearing of the application, the issue that took centre stage was the illegality of the contract, and whether the applicants could seek refund of the purchase price of the property, a judgment that will sound in foreign currency.

The law that applies to illegal contracts appears to me to be quite clear.

Two rules are of general application. Where the contract has not been performed, the courts will not compel performance by either party to the contract. This rule is absolute and admits of no exceptions. Where the parties are equally in the wrong, the loss will lie where it falls, unless, in its discretion, the court is of the view that one party will thereby be enriched at the expense of the other. In such cases, the courts will relax the in pari delicto potior est condutio possidentis rule to do justice between the parties.

The application of the two rules, in my view, calls for a two step approach to any contract that is tainted with illegality. Firstly, the judicial officer has to ascertain whether the contract has not been performed, in part or in whole, and the order sought in the suit will serve to compel performance under the contract. If that appears to the court to be the case, the first rule applies without exception, and the plaintiff seeking to compel performance under such a contract is non-suited.

If the court ascertains that the contract has been performed, in part or in whole, then the court embarks on the second rung of the inquiry to ascertain whether allowing the loss to lie where it falls will result in one of the parties being unjustly enriched at the expense of the other.

Ordinarily, where the contract has been performed, in part or in whole, the default position is that the loss should lie where it falls. This is so to discourage illegality by denying judicial assistance, and recognition, to parties who deliberately breach the law for gain. In establishing whether one of the parties will be unjustly enriched at the expense of the other, the courts in this jurisdiction have taken the simple approach of assessing whether one party will gain, or benefit, where he, or she, has not given value for the transaction.

In Dube v Khumalo 1986 (2) ZLR 103 (SC) GUBBAY CJ was of the view that because the defendant received rights, title, and interests in the land without incurring any corresponding disadvantage, and without giving any value for such rights, the plaintiff who had paid for the property was unjustly impoverished at the expense of the defendant. The same approach appears to have been taken by KORSAH JA in Young v Van Rensburg 1991 (2) ZLR 149 (SC) where he reasoned that in circumstances where the appellant had given no value for the property, and had done nothing to improve the property, whereas the respondent had paid for the property and has made considerable improvements thereon, a refusal of the relief sought would result in the unjust enrichment of the appellant.  

It appears to me that this approach, though simple in nature, is in line with the steps that BARTLETT J laid out in Walker v Industrial Equity Limited 1996 (1) ZLR 269 (HC) where he was dealing with a claim founded on unjust enrichment. He adopted the summary that was set out by WOULTER DE VOS in Verrykingsaanspreeklikheid in die Suid Afrikaanse Reg (1958) as stated by SCHOLTENS in the 1996 Annual Survey of South African Law, 150..., and gave the requisites of an action on unjust enrichment as:

“(a) The defendant must be enriched;

(b) The enrichment must be at the expense of another (i.e the plaintiff must be impoverished and there must be a casual correction between enrichment and impoverishment);

(c) The enrichment must be unjustified;

(d) The case should not come under the scope of one of the classical enrichment actions;

(e) There should be no positive rule of law which refuses an action to the impoverished person.”

In my view, the inquiry that a judicial officer must therefore take when exercising his, or her, discretion to relax the in pari delicto rule are the first three requisites set out above by BARTLETT J. It appears to me that the judicial officer must establish whether the defendant will be enriched, the enrichment will be unjustified, the plaintiff impoverished, and that both the enrichment of the defendant and the impoverishment of the plaintiff are linked to the illegal transaction.

Applying the above facts of this matter, it is common cause that the illegal contract of sale between the parties has been performed in part. The applicants have made payment towards the purchase of the piece of land. The papers, however, do not disclose whether or not occupation of the land has been given to them. This appears not to be an issue between the parties.

In the circumstances, the first rule is thus of no application to the facts of this dispute.

At the time the parties entered into the Agreement of Sale, the law prohibited transactions in foreign currency without prior authority of the Central Bank. Both parties avoided getting such authority, and, in doing so, I hold that they are equally in the wrong.

The second rule thus applies to their circumstances, and the loss should lie where it falls.

It appears that to allow the loss to lie where it falls will leave the parties in the partially performed contract where the applicants have parted with money for a piece of land to which they may eventually have title. One may argue and say there is no loss on the part of the applicants as they have received a piece of land for value.

It has not been argued before me that this state of affairs will unjustly enrich the respondent at the expense of the applicants. Rather, the applicants have approached the court to disengage from the contract on the basis of an alleged misrepresentation. They are seeking a remedy that is ordinarily available to parties to a legal agreement.

I would have followed the reasoning in Dube v Khumalo 1986 (2) ZLR 103 (SC) to relax the application of the in pari delicto rule were I persuaded that there is a loss to the applicants in this matter, or that the transaction has unjustly enriched the respondent at the expense of the applicants.

I am neither so satisfied, nor has the unjust enrichment been brought to my attention. Each party to the transaction parted with an asset of value. No one is to gain where there have both given value.

Two rules are of general application to illegal agreements.

They are the ex turpi causa non oritur actio and the in pari delicto potir est conditio possidentis rules.

Where the contract has not been performed, the courts will not compel performance by either party to the contract. This rule is absolute and admits of no exceptions. Where the parties are equally in the wrong, the loss will lie where it falls, unless, in its discretion, the court is of the view that one party will thereby be enriched at the expense of the other. In such cases, the courts will relax the in pari delicto rule to do justice between the parties. (See Dube v Khumalo 1986 (2) ZLR 103 (SC); Young v Van Rensburg 1991 (2) ZLR 149 (S); Matsika v Jumvea Zimbabwe (Private) Limited and Another 2003 (1) ZLR (H); and Edson Mudzivo and Another v Norest Nyamakope HH120/09).

It is common cause that the contract in casu was performed in part. The default position, therefore, is that the loss should lie where it falls, unless this will result in the defendant being unjustly enriched at the expense of the plaintiffs.

The plaintiffs have parted with two properties and in turn have received, from the defendant, the sum of US$85,000=. In the circumstances, if I were to allow the loss to lie where it falls, the defendant will walk away with two properties, whose value was agreed, as between the parties, to be not less than US$265,000=, for much less. This appears to me to be obvious unjust enrichment. The circumstances of this matter, in my view, justify the relaxation of the in pari delicto rule to avoid the injustice that will result by allowing the loss to lie where it falls.

In the result, I make the following order:

1. The Sale Agreement between the plaintiffs and the defendant in respect of Stands 32 and 37A Kandeya Township, Mt. Darwin, is hereby set aside.

2. The defendant is to cede and transfer his rights, title and interests in the two properties to the plaintiffs against refund of the sum of US$85,000=, failing which the Deputy Sheriff shall take all steps necessary and sign all documents on behalf of the defendant.

It is now settled law that “an illegal agreement which has not yet been performed, either in whole or in part, will never be enforced” by the courts. Per GUBBAY JA..., in Dube v Khumalo 1986 (2) ZLR 103..., in terms of the maxim ex turpi non aritur actio – a rule which is absolute and admits of no exception.

In casu, the Agreement of Sale is almost complete – it has been performed in part, as it is common cause that the applicant has paid the purchase price in full, as acknowledged by the respondents...,. The applicant was given vacant possession of the house by the respondents on 24 September 2004, and has been in possession ever since.

The Agreement of Sale is almost complete. It has been performed in part.

What is illegal in the Agreement of Sale is the portion of clause 2 wherein the parties state that “..., the full purchase consideration for the said property is the sum of $70,000,000= payable by the purchaser direct to the seller...,” when, in fact, the correct amount should have been reflected as $130,000,000=.

The rest of the Agreement of Sale document reflects the true and correct intention of the parties.

The South African Court had occasion to deal with an analogous case in Brits v Van Heerden 2001 (3) SA 257. The parties in that case reflected the purchase price as being R160,000= only, and made declarations to that effect, when , in fact, the purchase price was R160,000= plus a cession of an insurance policy of R33,000=. (The equivalent of section 44 of the Stamp Duties Act [Chapter 23:09] in South Africa is section 14 of their Act). KNOLL J had this to say..., -

“It is the agreement to omit the particular portion of the agreement referring to the balance of the purchase consideration which is, in fact, the illegal agreement.”

The issue that raised my concern in the above matter is the legality of the original contract of services.

It is not in dispute that the parties agreed to transact using “foreign currency”, then, as a medium of exchange. The plaintiff accepts that this was illegal. He, however, pleads with me to relax the rule against illegal contracts and allow him to collect the balance due under the contract.

This, in his view, will prevent an injustice and will ensure simple justice between man and man.

In my view, the admission by the plaintiff that the original contract between the parties was illegal was well-made.

It appears to me that the law applicable to illegal contracts is quite clear, and business people are well-advised to take heed of this law before they institute litigation over contracts whose illegality may be questionable.

Two rules are of general application.