On 1 March 2007, the plaintiff issued summons out of this court for an order as follows:“(a) An order declaring the agreement, Annexure A to the particulars of the claim, dated 18 December 2006, to have been validly cancelled and incapable of performance.(b) An order for the return to the ...
On 1 March 2007, the plaintiff issued summons out of this court for an order as follows:
“(a) An order declaring the agreement, Annexure A to the particulars of the claim, dated 18 December 2006, to have been validly cancelled and incapable of performance.
(b) An order for the return to the plaintiff of motor vehicle Mitsubishi Chariot Reg number AAN 8616, or, alternatively;
(c) Payment of the sum of R17,000 being the balance of the purchase price due to the plaintiff.
(d) Costs of suit.”
The facts which give rise to the dispute are these:
The plaintiff and the defendant were not only friends, they were also business partners. On 18 December 2006, the parties entered into a written agreement of sale in respect of a Mistubishi Chariot owned by the plaintiff. It was agreed between the parties that the vehicle would be sold to the defendant for a price of ZAR25,000 or Z$6 million. A deposit of R8,000 was recorded as having been paid with the balance of R17,000 being paid in two or more installments on or before 20 January 2007.
In his declaration, the plaintiff avers, that, the defendant has not paid any other amount aside from the initial R8,000. He therefore sues for the return of the vehicle or payment of the outstanding amount.
The defendant admits the existence of the agreement and the terms of the written agreement. He agrees that the balance had to be paid by 20 January 2007, but denies that he had breached the agreement as claimed by the plaintiff.
He avers that he tendered payment within the stipulated period but that the plaintiff refused to accept payment because it was not in Rand.
The defendant states, that, the offered payment, in Zimbabwe dollars, as an alternative amount, had been stipulated in the agreement. He tendered, in his plea, payment of the balance owing to the plaintiff against delivery to him of the registration book in respect of the vehicle.
He has also filed a counter-claim where he seeks delivery of the registration book to him against payment by him of the outstanding balance payable in local currency.
I will now deal with the evidence which was common cause between the parties.
The agreement concluded was for the defendant to purchase the vehicle for the sum of the R25,000. The defendant paid an amount of R8,000 on the date that the agreement was signed. The defendant was obliged to have paid the balance by 20 January 2007. However, payment was not effected by the stipulated date. The balance was stated as R17,000 on the agreement.
The Zimbabwe dollar equivalent was not stated in the agreement.
As to the dispute between them, the plaintiff indicated that the defendant had not tendered payment.
During cross-examination, it was clear, however, that the defendant had tendered payment of the Zimbabwe dollar component based on official rates of exchange but the plaintiff had refused to accept any payment in local currency.
There is no indication as to how much the defendant had tendered.
Although in the summons and declaration, the plaintiff had an alternative claim for him to be paid the sum of R17,000 when he gave evidence he indicated that he had abandoned that claim as he said that he had been advised that an individual could receive any payment in foreign currency and that he understood that the agreement was illegal to that extent. He said it was not capable of execution and said that it was, as a result, null and void.
Initially, it was contended, on behalf of the plaintiff, that, the agreement was per se illegal and incapable of enforcement due to the same.
It was further submitted on his behalf, that, not only was the purchase price quoted in foreign currency but that the equivalent in the local currency was calculated by the use of the parallel market rate of exchange which in itself is illegal.
The plaintiff further contended, that, the parties were illegally dealing in foreign currency and that the court was, as a result, precluded from giving effect to the agreement.
The defendant, through his counsel, also conceded that the agreement was illegal and that both parties participated in the illegality. Counsel prayed that I find that the in pari delicto principle applied and that I should let the loss lie where it falls.
Effectively, this would mean that the defendant would retain a vehicle for which he contracted to pay ZAR25,000 and for which he only paid ZAR8,000.
The defendant would thus be enriched at the expense of the plaintiff.
I was not convinced that both counsel had properly addressed the legal issues before me and I requested that they address me further by way of supplementary submissions.
These have now been filed and I am grateful to counsel for acceding to my direction.
The plaintiff now contends, that, the agreement executed by the parties is legal and valid and that the court can give effect to the same. He relies on the provisions of section 4(1) of the Exchange Control Regulations SI109 of 1996, which he says, prescribes the buying, selling, borrowing, lending or exchange of any foreign currency without permission from the Exchange Control authority.
It is contended on his behalf, that, although the agreement provided for payment of the purchase price in foreign currency, this was not illegal as it was not an offence to receive foreign currency.
The defendant has submitted, contrary to the plaintiff, that, the agreement, as it provides for payment of the purchase price in foreign currency, is illegal, and that this court should not give effect to it as that would encourage parties to such agreements to commit illegal acts.
Section 4(1) of the Exchange Control Regulations, S.I.109 of 1996 (“the Regulations”) is in the following terms:
“Subject to subs (3), unless permitted to do so by an exchange control authority;
(a) No person shall, in Zimbabwe -
(i) Buy any foreign currency from or sell any foreign currency to any person other than an authorized dealer or foreign exchange bureau de change; and
(ii) Borrow any foreign currency, lend any foreign currency to, or exchange any foreign currency with any person other than an authorized dealer.”
It is not in dispute, that, when the agreement between the plaintiff and the defendant was concluded the defendant had paid an amount of ZAR8,000 as deposit on part of the purchase price.
In terms of the agreement between the parties, the equivalent of the ZAR8,000 in local currency was $6 million. The rate of exchange was not given, but, it is accepted by both parties that the conversion rate was not the authorized one.
The balance outstanding was stated to be ZAR17,000. The equivalent in local currency was not stated.
Counsel for the plaintiff is correct when he says that the law does not proscribe the conclusion by parties of agreements where prices are quoted in foreign currency.
A careful scrutiny of section 4(a)(ii) of the Exchange Control Regulations, SI109/1996 leads me to the conclusion that his submission is correct. The Regulations do not forbid parties from transacting in foreign currency in general terms, but, they detail specific conduct that involves foreign currency which is then prohibited.
What is pertinent is to determine whether the manner in which the parties herein conducted their agreement falls under the species of proscribed conduct within the ambit of the Exchange Control Regulations, S.I.109/1996. The only word that would apply to the present is 'exchange' and what meaning can be ascribed to it.
The Shorter Oxford Dictionary defines exchange, as a noun, variously, as follows:
“The action, or an act, of reciprocal giving and receiving; a mutual grant of equal interest, the one in consideration of the other.”
In respect of the verb, the dictionary ascribes the following meanings to 'exchange' -
“To change away; to dispose of by exchange; to give or part with (something) for something in return; to give and receive reciprocally; to interchange.”
In Matsika v Jumvea & Anor HH09-03, CHINHENGO J had to consider whether or not an agreement for the purchase of a motor vehicle, within Zimbabwe, in currency other than the local currency was legal.
It is not my intention to traverse the path taken by the learned judge in his examination of the matter, for, to do so, would be repetitive and disrespectful.
He concluded, that, in accordance with the Decimal Currency Act [Chapter 22:04], the legal tender in this country is the Zimbabwe dollar. He also concluded, that, according to the provisions of the Reserve Bank Act [Chapter 22:10], a tender of notes and coins issued by the Reserve Bank, which has not been demonetized shall be legal tender in Zimbabwe. He also found, that, the Reserve Bank Act does not prohibit the transaction by Zimbabweans of business in foreign currency.
With regard to the application before him, on the facts, as presented, the learned judge had no hesitation in finding, that, when the applicant paid US$1,700 and US$1,730, to the respondent, for the purchase price of a vehicle, without first having obtained the permission of an exchange authority, the parties had contravened the Exchange Control Regulations, SI109 of 1996.
In the context in which 'exchange' is used by the legislature in the Exchange Control Regulations, the meaning that can therefore be ascribed to it is “to pay” and “to receive”.
The defendant paid ZAR8,000 without the permission of an exchange control authority, and, in the circumstances, there can be no doubt that this is prohibited by the Exchange Control Regulations.
Thus, the agreement is tainted with illegality and cannot be enforced.
It is trite that there must be no illegality in a contract. An agreement is illegal if the making of the agreement, the performance agreed upon, or the ultimate purpose of both parties in contracting is prohibited by common or statute law, that is, if it is contrary to public policy or is contra bonos mores: see Sasfin (Pty) Ltd v Beukes 1989 (1) SA 1 (A).
A contract will be contrary to public policy if its performance, even though not illegal or immoral, is one which the courts will not enforce because performance would be detrimental to the interests of the community.
From the evidence given by the parties, it emerged that one of the parties, if not both, was aware that their transaction might not have been exactly above board.
The defendant gives as his reason for refusing to pay the balance in Rand the knowledge that the payment in foreign currency was illegal. This, he averred, was the reason why he did not pay, as he was afraid of committing an offence. He does not say when he became aware of the illegality attached to the payment in foreign currency in view of his initial payment of the deposit in foreign currency.
In his declaration, the plaintiff makes the averment, that, the contract was illegal as it contravened the Exchange Control Regulations and thus it was incapable of being enforced.
Whilst the agreement itself is not per se illegal, it has nevertheless been tainted by illegality in that the parties breached the Exchange Control Regulations when they were giving effect to its terms and conditions.
Instead of exchanging Rand, the parties could have calculated the official rate of the local currency and payment made accordingly and thus there would have been legal performance of the agreement.
Whilst the plaintiff has prayed that the agreement be cancelled, and for the return of the motor vehicle, the defendant has counter-claimed for the delivery to him of the registration book of the motor against a tender of payment by the defendant of an amount of $3,840,000 which he states is the outstanding balance on the purchase price.
The question that now confronts me is whether or not the contract can be cancelled or whether it is capable of being enforced thus entitling the defendant to an order in terms of the counterclaim.
I would, on this point, respectfully refer to the comments of GUBBAY CJ in Dube v Khumalo 1986 (2) ZLR 103 (SC)…, where he stated:
“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: see Mathews v Rabinowitz 1948 (2) SA 876 (W) at 878; York Estates Ltd v Wareham 1950 (1) SA 125 (SR) at 128. It is expressed in another maxim ex turpi causa non oritur actio.
The second is expressed in another maxim in pari delicto est potior conditio possidentis, which may be translated as meaning 'where 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.
But, in suitable cases, the courts will relax the par delictum rule and order restitution to be made. They will do so in order to prevent injustice, on the basis that public policy 'should properly take into account the doing of simple justice between man and man.'”
The agreement before me has only been partially performed by either of the parties.
Whilst the defendant had paid less than half of the purchase price, the plaintiff had not really effected delivery in that the registration book had not been given to the defendant and thus he cannot assume ownership of the vehicle.
Although the agreement itself is not illegal, the manner in which the parties performed part of the agreement has rendered it illegal, and, any order on my part that would lead to the performance of the remaining part of the same would have the effect of giving sanction to the actions of the parties in violating the Exchange Control Regulations.
As a court, I am precluded from encouraging, through orders of court, the commission of acts that are proscribed by the law or the further perpetuation of such acts in clear violation of statutory provisions.
I am therefore of the view, that, this is not an agreement that can be given effect to and this, in my view, disposes of the counter claim of the defendant.
The question remaining on this issue is whether I should then declare the agreement duly cancelled.
When something is illegal, it is in fact null and void.
Thus, a declaration that it has been duly cancelled would clothe the agreement with legality. The only logical manner to treat the agreement is therefore to declare that it is of no force and effect.
