The
defendant, Steward Bank, applies for absolution from the instance at
the close of the plaintiff's case in matter founded on damages for
breach of contract.
The
plaintiff is Mucal Investments. In its summons it seeks payment of
US$553,544=42 by the defendant. The amount is sought as damages for
loss of business between January and July 2013 ...
The
defendant, Steward Bank, applies for absolution from the instance at
the close of the plaintiff's case in matter founded on damages for
breach of contract.
The
plaintiff is Mucal Investments. In its summons it seeks payment of
US$553,544=42 by the defendant. The amount is sought as damages for
loss of business between January and July 2013 resulting from the
plaintiff's bank account having been frozen by the defendant under
circumstances which will be elaborated. Interest is also sought at
the prescribed rate from the date of the summons to date of full
payment. In addition, costs of suit are further sought as between
attorney and client.
The
damages are founded on the allegation that it was a tacit term of the
agreement between the parties that the defendant would honour all
cheques and negotiable instruments and transfers properly drawn.
The
plaintiff, which was then engaged in the business of supplying
vegetarian products states through its Director, Lion Chirove, that
it could not access its account to effect business payments despite
demands being made to the defendant and a court order having been
obtained.
The
plaintiff company was founded in 2006 and its Directors were then
Avila Zvenyika and Lion Chirove. In May 2010, two brothers, Bruce
Smith and Ahmad Smith, who had joined them in a business partnership,
were made directors of the company. As explained in a “to whom it
may concern letter” written in October 2010, being non-Zimbabweans
and in the absence of a valid work or residence permit, the new
partners could not sign on any Bank account. The letter explained
that they had been temporarily removed from the company's CR14 form
but that they were, in essence, still directors pending
regularisation of their permits.
In
September 2011, the plaintiff moved its banking account from CBZ to
the defendant Bank.
At
the time of opening the account its signatories were Lion Chirove and
Avila Zvenyika. Mr Bruce Smith was however made a signatory in place
of Mr Lion Chirove in a letter to the Bank dated 30 April 2012. It
advised that a Board meeting had resolved to appoint him together
with A Zvenyika. However, on 19 November 2012, following a dispute
with the Smith brothers, Avila Zvenyika, the company's
administrator, had written to instruct the Bank not to process any
transactions unless it was authorised by the two Directors as
captured on the CR14 form, namely, herself and Lion Chirove.
From
the plaintiff's testimony, what flamed the dispute emanated from
the fact that the Smith brothers had clandestinely registered a
company in South Africa giving themselves a 100 percent shareholding
when the agreement had been to go 50-50 with Mucal Enterprises. They
had also registered a company in Zimbabwe giving themselves a 70
percent shareholding and the plaintiff and its director 30 percent.
The dispute fully ignited when the Smith brothers proposed that a
shareholder's agreement be signed between Mucal Investments and the
two brothers as a separate agreement. Under the agreement, Mucal
Enterprises would be owned by the Smith brothers in their South
African company. The plaintiff's directors, Lion Chirove and Avila
Zvenyika perceived this move as designed to swallow and push it out
of business.
It
was then that the instructions were given to the Bank regarding the
change of signatories whereby Mr Chirove was reinstated as signatory
in place of Mr Bruce Smith.
He
further testified that on 21 January, when he tried to effect
telegraphic transfers for the sum of R98,000= to a South African
supplier (Fry Group), the defendant refused to honour the
transaction, and, instead, froze the account. However, it emerged, in
cross examination, that the reason why the Bank froze the account was
that it had received instructions from Mr Bruce Smith that he had
been improperly removed as a director and signatory.
The
plaintiff's position is that the internal dispute was none of the
Bank's business and that it was its responsibility to abide by the
instructions of the directors as captured on the CR14 form. This
showed the two directors as himself and his wife Avila Zvenyika.
Out
of an abundance of caution, the defendant, on the other hand, had
frozen the account until the dispute had been solved. At the time,
the plaintiff held $24,797=35 in its account as per bank statement
presented as Exhibit S.
That
the dispute also set off a chain of events is not denied.
Nonetheless, the plaintiff's position is that had the Bank risen
above the dispute in light of its contractual obligations to its
“true” client, none of the losses subsequently suffered would
have occurred.
The
chain of events is crucial to grasp as it places crucial variables to
the otherwise linear causation of losses suffered as articulated by
the plaintiff. The events were as follows:
1.
On 23 January 2013 the Bank refused to effect the transactions
following the representations made to it by Mr Bruce Smith that he
had been improperly removed as signatory.
2.
On
6 February 2013 a provisional order was sought by the plaintiff
against the defendant in which it sought interim relief compelling
the Bank to make accessible to “applicants directors” funds held
under account 60101051739101 and to allow the free and unfettered
transaction and operation by the applicant of its bank account. The
provisional order was granted by consent of all parties. The final
order sought to declare Lion Chirove and Avila Zvenyika as having the
sole and exclusive right to transact under the relevant account.
Meanwhile,
on this very same date, as the above order was being granted, the
Registrar of Companies wrote to Mrs Zvenyika stating that they had
received a complaint of fraudulent activities concerning removal of
two directors (the Smith Brothers) without their knowledge and
consent. She was asked, as company secretary, to clarify the
position.
Criminal
proceedings were also pending in the Magistrate's Court against the
plaintiff's director, Lion Chirove, for fraud.
3.
On 14 February 2013 the Smith brothers applied for an interdict,
under HC882/13, to prevent Lion Chirove and Avila Zvenyika from
accessing the account. The plaintiff's testimony was that this
order was not granted as the court took the position that it was not
possible to interdict an order granted by consent. Under cross
examination it emerged that the crucial reason was also to provide
the plaintiff a chance to seek for a final order articulating the
rightful directors since what had been granted was simply a
provisional order authorising “directors” to access the account.
4.
On 11 March 2013 one Martha Chakanyuka, a Principal examiner in
control of companies, signed a statement stating that the CR 14 form
signed in October 2010 was fake and that the stamps and signatures
were fake. She highlighted the procedures for change of directorship
and averred that these had not been followed.
5.
On 12 March 2013 Avila Zvenyika, in her capacity as company
secretary, then replied stating that the claims were unfounded and
highlighting that the company is wholly owned by its two directors,
Lion Chirove and herself. She also explained that the two
non-shareholding directors had been removed by a company resolution
in October 2010. She also stated that the two directors, namely, the
Smith brothers, had agreed to be removed back then to pave way for a
loan since their immigration papers were not in order. She stated
that everything had been done above board.
6.
On
13 March 2013 the plaintiff's lawyers had written to the Bank
regarding the opening of the account which was still not opened.
7.
On 22 March 2013 the defendant's lawyers had written to the
plaintiff's lawyers advising them of receipt of the statement made
by the Registrar of Companies concerning the anomalies that had been
detected. They also advised that the dispute needed to be resolved
since the court had granted the order on the 6th
of February on the basis that the CR14 now under dispute had been the
correct one. In view of these developments they also pointed out that
their client, the Bank, was unable to accede to the request to
activate the account.
8.
On
July 5, 2013 Martha Chakanyuka signed another statement - this time
essentially confirming that following certain documents being availed
that the CR14 form earlier criticised as improper was in fact proper.
She confirmed that the Smith brothers had indeed been removed as
directors on 4 October 2010.
9.
On 16 July 2013 the plaintiff's directors finally accessed the
account having been informed, according to the plaintiff, through a
casual encounter with the Bank's manager, that the account had been
reopened.
The
Plaintiff's perceived loss
The
gravamen of the plaintiff's evidence was that over the time when it
was not allowed access to its account, it had contracts with several
retail supermarkets as a supplier of vegetarian products. These
included shops such as OK, Bon Marche and Spar shops. A contract with
OK, dated 2010, was placed before the court as Exhibit E. The
contract itself however did not indicate the value or volume of
business between the parties.
From
the OK and Bon Marche shops, the plaintiff valued its business for
the relevant period when its account was frozen at $50,000= with a
profit of $26,000=
after expenses had been paid. Exhibits H1-H6 were handed in. Three of
these were statements generated by the plaintiff's director while
another three were said to be generated by OK although there was no
official verification of these documents.
Also
presented were the plaintiff's own calculations of business with
the Spar shops (Exhibits G1-G5). However, the plaintiff did not
produce any evidence or proof that business was actually being
conducted constantly or on a monthly basis.
The
plaintiff's director also presented its projections of business it
was set to do with TM and Pick n Pay. It said the value lost amounted
to approximately $74,000=.
In addition, the plaintiff's company had a credit facility with TN
Bank for up to $4,000= per month and was doing business with TN
Harlequin (Exhibit F).
It
terms of lost business, it had also secured an arrangement to supply
the Seventh Day community with vegetarian products at its Adventist
camp sites. With 52 campsites attended by about 5,000 people per camp
annually, the plaintiff's estimation was that it lost a potential
of US$5,000= per campsite giving a total loss of $260,000=.
In
July 2012, the plaintiff had gotten another product for distribution
from Good Hope International Enterprises for soya milk. It alleged
that it would have been a sole distributor, and, on arrangement,
would have been a regional distributor. However, no proof of this
averment was produced. At the time, the plaintiff stated it had
received an order by consignment from Good Hope for $30,000=. This
would have been serviced from the account.
The
plaintiff stated that, overall, it was expecting, during the period
its account was frozen, a total of US$495,000= worth of purchases
with Good Hope and from this amount $693,000= worth of sales thereby
giving it profit of $198,000=.
The plaintiff later clarified, in cross-examination, that it was
still negotiating this contract and therefore no contract could be
availed. However, it had received the order by consignment for
$30,000= though, again, no proof was produced. From the Fry's
Group, business lost over the seven month period was estimated to
$102,712=
after expenses.
The
company, according to its Director, had also made inroads into the
possible supply of meat-free products to Catholic schools around the
country under which he estimated it would have made at least $20,000
- $25,000 per month.
All
the above was the kind of business the plaintiff said it lost on
probabilities. The devastating consequence arising from the
defendant's perceived breach of contract was not only loss of
income, according to the plaintiff's director, but also termination
of contracts.
The
distributorship business with the Fry Group was terminated in April
2013 and with Good Hope in September 2013. It lost all its suppliers
because it failed to pay them. It lost all its clientele whom it
failed to service. It was, according to him, a sole distributor of
vegetarian products. It was also working with a “niche market”.
It also lost its reputation in the process. By December 2012 the
company, according to its director, had grown to 12 employees. Today
it has none.
The
plaintiff blames the defendant for the sum total of these woes
because it could not access its account to conduct its business.
Interrogation
of the loss in cross examination
The
plaintiff was quizzed by the defendant's counsel…, on the
company's financial accounting procedures.
The
plaintiff's director conceded that he is fully aware of the need to
keep proper books of account by any company. He agreed that such
books would indeed vividly indicate the company's flow of business
and any profit and loss made. He was also in agreement that annual
tax returns would clearly indicate the actual profits made for tax
purposes. He said all such documentation existed with respect to the
plaintiff company but admitted that they had not been tendered as
evidence.
He
did not dispute that a Bank can place administrative requirements
over those who operate accounts and that it is entitled to refuse
access where it has concerns as to the authenticity of any
representative. However, he was adamant that the Bank acted
improperly, especially as it had been given the necessary information
as who the directors were.
The
plaintiff's director also confirmed that indeed the Smith brothers
had come in as financial partners as the company was going through
financial difficulties at the time. Their terms were to be
shareholders on a 49-51 percent basis. The other condition was to
secure them as signatories to the account.
It
emerged from cross-examination that certain monies invested by the
Smith Brothers had not been paid back by the plaintiff. The Smith
brothers were therefore seeking to protect their investment.
He
also agreed that no final order had been sought to the provisional
order that had been granted by the court on 6 February 2013. He also
conceded that the day that the order was granted, on 6 February 2013,
was also the very day that the Registrar of Companies had written to
the other director, Ms Zvenyika, seeking an explanation of
allegations of possible fraudulent removal of directors. This
information had not been before the court at the time that it was
granting the provisional order.
He
also did not deny that the Smith brothers had also sought an urgent
chamber application to stay operation of the provisional order
granted by the court on 6 February 2013.
He
further agreed that he had not taken any concrete action to actively
challenge the statement and that the statement was withdrawn in July
against a backdrop of investigations the Registrar had carried out.
He did however maintain that the statement was challenged when he was
being prosecuted.
Although
his view was that the provisional order granted on 6 February 2013
was clear as to its directive regarding the re-opening of the
account. He did concede that it was the final order that specifically
sought to confirm himself and Ms Zvenyika as the true directors of
the company.
He
admitted that no action was taken on his part to seek a final order
as directed by Justice PATEL in HC882/13 which would have put an end
to the dispute at least as way back as March 2013. He also admitted
that on the same day that bail conditions were relaxed to allow him
to operate the account was also the same day that the Registrar of
Companies made the allegation that there was possible fraudulent
activity.
The
application for absolution
The
defendant has applied for absolution from the instance largely on the
basis that the plaintiff has essentially failed to make out a case
against the defendant that is deserving of a reply. It is also argued
that the plaintiff had failed to prove any breach of contract
entitling it to special damages.
In
terms of general principles on absolution from the instance the case
of United
Air Charter v Jarman
1994
(2) ZLR 341 (S)
condenses
the position as follows:
“The
test in deciding an application for absolution from the instance is
well settled in this jurisdiction. A plaintiff will successfully
withstand such an application if, at the close of his case, there is
evidence upon which the court, directing its mind reasonably to such
evidence 'could
or
might (not should or would)' find for him.”
The
above principle draws on cases such as Supreme
Svc (1969) (Pvt) Ltd v Fox Goodridge (Pvt) Ltd
1971
(1) RLR 1;
Lourenco
v Raja & Steam Laundry (Pvt) Ltd
1984
(2)
RLR
151.
The
principles have also been canvassed in a number of cases such as
Walker v Industrial Equity Ltd 1995 (1) ZLR 87 (S); Standard
Chartered Finance Zimbabwe Ltd v Georgias & Anor 1998 (2) ZLR 547
(H); Dube v Dube 2008 (1) 326.
In
seeking to put the defendants to its defence, it is argued, by the
plaintiff, that the Bank knew who the directors were as these were
indicated on the CR14 form. It is also argued that as the account in
question was the plaintiff's sole business account it should have
been apparent that it would suffer loss if it was not permitted to
transact under that account. The dispute, it insists, could have been
solved at a later stage. It argues that for reasons such as these,
which are common cause, it has done enough to put the defendant on
its defence.
The
plaintiff also lays emphasis on the fact that at this stage it is not
about whether the evidence is true or false. In its view, absolution
should only be granted where it has failed to establish an essential
element of its claim. The plaintiff emphasises its contractual
relationship with the defendant; the fact that the defendant breached
the contract. In support of this, the plaintiff points out that the
money would have been paid to suppliers and not to themselves.
In
opposing absolution from the instance, the plaintiff places reliance
on the position articulated in the case of Standard
Chartered Finance Zimbabwe Ltd v Georgias & Anor
1998
(2) ZLR 547 (H)
that
in considering absolution from the instance a judicial officer should
always lean in favour of the case continuing. If there is reasonable
evidence on which the court might find for the plaintiff, the case
should continue.
However,
the preponderance to 'lean in favour of' is not the same as
saying a judicial officer must always lean in favour of the case
continuing. It
is in cases where there is doubt that the court should lean in favour
of continuing as SMITH J emphasized in Standard
Chartered Finance Zimbabwe Ltd v Georgias & Anor
1998
(2) ZLR 547 (H). Where a judicial officer has no doubt in their mind
from the evidence submitted, then by all means absolution should be
granted. The key issue for consideration therefore is whether
sufficient evidence has been placed before the court upon which the
court might find for the plaintiff.
Factual
and legal analysis
While
damages are sought against the defendant as the unitary cause of the
loss of business suffered by the plaintiff, the facts informing the
claim are far from being one-dimensional.
The
evidence that has been placed before the court indicates that an
internal dispute and competing claims within the plaintiff company
where at the heart of the chain of converging events that led to
operational problems for the plaintiff company including the freezing
of its account. Yet, only one cause, the freezing of its account is
isolated by the plaintiff as leading to his perceived loss.
Just
because a plaintiff strongly believes that a factor that he has
isolated is the predominant cause of its problems does not exclude
other explanations which have a bearing on the matter from being
considered by the court in deciding whether sufficient evidence has
been placed before it to exclude their impact.
Where
a problem is multiply-caused, as in this case, the question of
whether or not the court might find for the plaintiff on the evidence
adduced, of necessity, depends on whether the evidence placed before
the court, on a balance, sufficiently rules out other explanations as
causes for the loss suffered by the plaintiff. In other words, if,
from the evidence adduced it cannot be inferred, on a balance of
probabilities, that the single behavioural event isolated by the
plaintiff was the cause of its loss, then the evidence is simply not
sufficient. The evidence adduced must, on a balance of probabilities,
sufficiently pry apart other variables such as to leave the one the
plaintiff relies on as the dominant cause. If, at the close of the
plaintiff's case, insufficient evidence has been placed before the
court to support an averment, this will not change even if the
defendant is put to its defence.
What
this court has before it at the conclusion of the plaintiff's case
is a convergence of multiple factors, predominantly emanating from
events within the plaintiff company that complicated the issue for
the plaintiff.
The
defendant's actions were largely responsive to such outside stimuli
as opposed to being the dictator of them. Also, the defendant's
actions, in refusing to release the funds, have to be put in
perspective of the events that unfolded.
The
Bank's client was the corporation. There was a dispute regarding
the directors of the corporation. A criminal complaint was made by a
competing director. The Registrar of Companies, at first, also
confirmed the allegations of fraud and it was only in July when their
initial position was reversed. Although a provisional order was
obtained it is instructive that on the very day of its obtainment the
dispute escalated rather than abated. The Bank was essentially faced
with divergent claims to the account by two feuding parties each
claiming legitimacy.
The
plaintiff argues that the defendant breached its contract in failing
to pay on demand.
Yet,
in light of the facts, the Bank would equally have found itself
liable to a claim from either of the competing parties to the account
for wrongfully paying out of the account or un-authorised payment
since each side had laid claim to the account.
There
was no breach since its client was the corporation and competing
claims had been placed before it by two sides within that corporation
relating to its directorship. Only where the dispute was resolved in
terms of clarity of directors could the Bank safely pay out. Only a
foolish Bank would have paid out to any of the claimants without a
final court order as to the true status of each of the claimants.
While
the defendant may have acted on the strength of the documents written
by the Registrar of Companies it was not the author of these
documents.
The
plaintiff also rests its argument for dismissal of absolution on the
basis that it suffered damages as a result of the breach.
The
case of Trust
Bank of Africa Ltd v Marques
1968
(2) SA 796 (T)
is
cited in support of the contention that a Bank which fails to honour
cheques when funds are available risks a claim of damages. The
plaintiff argues that the contracts it placed before the court were
sufficient, namely, those from OK Zimbabwe and the TN credit
facility.
Finally,
the plaintiff also argues that its loss was not remote.
Special
damages are ordinarily regarded in law as being too remote to be
recoverable. They
are claimable in situations where it can be deduced that the parties
actually or presumptively foresaw that they would probably flow from
a breach of contract and were within the contemplation of the
parties. As stated by GUBBAY CJ…, in United
Air Charter v Jarman
1994
(2) ZLR 341 (S) in determining whether they are claimable it is of
assistance to look to;
(a)
The subject matter and terms of the contract itself;
(b)
The special circumstances known to both parties at the time they
contracted.
I
do not think that damages arising from a quarrel among the directors
was within the contemplation of the parties. In any event, the core
point remains whether sufficient evidence has been placed before this
court to justify such damages.
One
crucial manner a purportedly dominant claim, particularly one for
damages, is strengthened is by way of statistical evidence to support
it.
Being
a claim of special damages, the plaintiff had the responsibility to
prove its quantum of damages by placing all relevant evidence before
the court in order to prove its claim. Such special damages will not
be granted if they are too remote.
The
defendant argues that the evidence placed before the court was too
scanty. No proof of invoices or proof of orders that were received
and needed honouring by the Bank were submitted to the court by the
plaintiff. These would have provided irrefutable proof of business
that was actually lost. Also, the plaintiff did not produce any
evidence which would have supported their position that the money
that the defendants refused to pay would have been going to suppliers
and not to themselves.
In
seeking absolution from the instance, the defendant further argues
that the plaintiff's books of accounts and tax returns would have
been proof of the plaintiff's profitability as alleged by its
Director. The plaintiff's director, in cross examination, averred
to the existence of these documents but admitted that they had not
been brought to court. In its written arguments against absolution
the plaintiff then stated that the audited accounts were taken by the
Smith Brothers and that the tax returns are filed with the taxman and
can always be taken into account in damages.
Even
if the plaintiff's argument is accepted that the books were taken
away and that the tax returns were filed, it cannot, in my view,
escape the responsibility of ensuring that these were placed before
the court given that they form the heart of the dispute. It is not
for the defendant to go and extract tax returns for the plaintiff.
That was clearly the plaintiff's own responsibility. It is also not
the plaintiff's averment that the soft copies of the accounts are
what was taken. They simply state that the accounts were taken by the
Smith brothers.
As
argued by counsel for the defendant, where evidence is available that
would assist the court to properly quantify damages and it is not
produced, then the matter must fail and the defendant must be
absolved from the instance. The
case of Monumental
Art Co. v Kinston Pharmacy (Pty) Ltd
1976 (2) SA 111
was
cited in support of this contention.
Also,
a party who shies away from producing evidence cannot escape the
inference that he knows that such evidence will not be favourable to
him. The cases of Ntsomi
v Minister of Law & Order
1990
(1) SA 512 (C);
Tshishonga
v Minister of Justice & Constitutional Development and Anor
2007
(4) SA 135 were cited by the defendant.
If
accurate statistical evidence that is representative of the company's
steady growth and success of over the years, as exemplified by tax
returns, was available, then, it should have been obtained. How else
would the court know from the outset that it is not dealing with
isolated phenomenon in so far as the plaintiff's claims of a steady
growth of the business over a number of years is concerned?
The
plaintiff director's
own testimonial evidence of growth and projected profits is not the
kind of evidence that the court has in mind as constituting
“sufficient evidence upon which the court might find for the
plaintiff.”
In
cases of this nature, where loss of business is alleged, tax returns
and audited accounts constitute the type of evidence that would, on
the face, constitute a sufficient basis for a claim upon which the
court might find for the plaintiff.
Therefore,
on the issue of damages for loss of business the strength of the
plaintiff's evidence is essentially 'dead in the water' as a
result of the failure to place the kind of credible evidence that one
would expect of a company as pointed out by the defendant in its
application for absolution from the instance.
At
the close of the plaintiff's case, the preponderance of evidence
did not point to the defendant as having been the actual cause of its
loss or even being in any way the major cause of the plaintiff's
loss. I am satisfied that there was insufficient evidence on which a
reasonable court could or might find for the plaintiff.
The
defendant seeks that costs be awarded on a higher scale especially on
the grounds that the plaintiff had ample time to put all its evidence
together in preparing for trial, and, as such, it has been put
through an unnecessary expense.
Costs,
in general, recompense a successful party for expenses to which he
has been put in defending a claim. They are generally awarded on an
ordinary scale. Courts are reluctant to award costs on a higher scale
because they are highly punitive.
It
would seem to me that the overall weakness of the plaintiff's case
has emerged from the totality of having his day in court to present
his case as he is entitled to. It would therefore be, in my view,
tantamount to exercising hindsight to land him with costs on a higher
scale.
The
application for absolution from the instance succeeds with costs on
an ordinary scale.
