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 ...
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.
In the result, I see no basis for relaxing the
in pari delicto rule. The applicants cannot therefore succeed.