On 25 July 2011, the High Court at Harare granted an order in the following terms:“FINAL RELIEF SOUGHTThat you show cause to this Honourable Court why a final order should not be made in the following terms:1. Pending the determination of the dispute between the parties by the process of ...
On 25 July 2011, the High Court at Harare granted an order in the following terms:
“FINAL RELIEF SOUGHT
That you show cause to this Honourable Court why a final order should not be made in the following terms:
1. Pending the determination of the dispute between the parties by the process of Arbitration in terms of the provisions of the Arbitration Act, the first respondent shall not take any steps neither shall it act in any such manner as is inconsistent with the rights of the applicants arising from the agreement between the parties (as amended), and shall not act in such a way unless entitled to so act in terms of any Arbitral Award that may be handed down.
2. The costs of this application shall be costs in the envisaged arbitration proceedings.
INTERIM RELIEF GRANTED
That pending determination of this matter on the return date, applicants are granted the following relief:
1. The first respondent is directed to restore to the first applicant the internet based reporting links and all access to Trustco mobile hardware and software, thus enabling it to monitor and process airtime purchase transactions and otherwise perform its obligations in terms of the agreement; and
2. The first respondent be directed to refrain from undertaking and implementing a competing, infringing service to that provided by the first applicant in terms of the agreement.”
Dissatisfied with the order, the appellant filed a notice of appeal with this Court.
In essence, the appellant seeks an order setting aside the decision of the court a quo and substituting it with one dismissing the application with costs.
BACKGROUND
Econet Wireless (Pvt) Ltd (“the appellant”) is a mobile network operator carrying out its operations in Zimbabwe. On 17 August 2010, the appellant concluded an agreement with Trustco Mobile (Proprietary) Ltd (“the first respondent”), a Namibian based company and subsidiary of Trustco Holdings, whose core business is micro-insurance, financial services, and the provision of various wireless application services through mobile telephony.
In terms of the agreement, the first respondent was to provide certain software and support services to facilitate the provision of free life cover to Zimbabwean cellular phone users and customers of the appellant against the purchase of cellular airtime from the appellant.
In terms of the agreement, life cover was to be underwritten by First Mutual Life Assurance Company of Zimbabwe (“First Mutual”) at no cost to the appellant's customers but against payment of a fee by the appellant, to the first respondent, calculated in terms of the agreement.
First Mutual was to underwrite life cover against payment of a premium which was to be subtracted from the amounts due to the first respondent by the appellant.
The project came to be known in Zimbabwe as “Ecolife”.
The project was to be facilitated by a transaction facilitation system, which allowed communication between users seeking insurance, their mobile service provider, and insurance underwriter.
The system would record all the transactions that took place.
A subscriber would only be entitled to life cover if he purchased airtime in excess of three dollars over a period of a month. For life cover to be retained, further airtime of more than three dollars had to be purchased. All subscribers who spent more than three dollars would then be accepted for insurance by First Mutual.
The project was presented on the basis, that, it would result in a substantial increase in the appellant's airtime sales.
It was a term of the agreement, that, the same was to endure for an initial period of eighteen months and that the appellant was to refrain from performing an act contesting, impairing any part of the rights and infringing, copying, duplicating, or passing off any of the first respondent's rights.
It was also a term of the agreement, that, in the event of a breach not remedied within fourteen days of notice of such breach, the innocent party was entitled to cancel the agreement without prejudice to any other rights it may have had.
In February 2011, a dispute arose in regard to the first respondent's entitlement to certain royalties. Whilst the appellant agreed to pay a portion of the royalty fee, it however maintained that no fees would be paid in respect of customers whose details were not completely captured.
On 26 May 2011, the appellant wrote to the first respondent also expressing its concerns over what it regarded as violations of the agreement by the first respondent.
What happened thereafter is what gave rise to the proceedings the subject of this appeal.
On 31 May 2011, the first respondent sent a letter to the appellant, the contents of which triggered the dispute that is the subject of this matter. That letter reads, in relevant part:
“The current situation is unbearable. Econet, as a registered insurance broker, is holding out to 1.85 million subscribers that they in fact have life insurance while the true state of affairs is that the insurer is not obliged to pay any claim while its premiums are outstanding. Trustco cannot be associated with such a state of affairs.
Therefore, be advised that all obligations of Trustco will be suspended 3 June 2011 at 12h00 Namibian time if all overdue payments are not received by then.…,.
Kindly be further advised that if all overdue amounts, of which you have been advised, are not received within 14 days from date hereof, Trustco will deem the contract cancelled in terms of Clause 17.1 of the agreement.”…,.
The appellant responded the following day, 1 June 2011, in the following terms:
“We acknowledge receipt of your letter dated 31st May 2011 regarding the above. Your intention to terminate the agreement has been noted and accepted.
Econet maintains that it has discharged all its obligations under our agreements with you. We repeat our averment, that, royalties are only payable in respect of subscribers who buy airtime of a value exceeding $3 per month. Those subscribers who buy airtime amounting to $3, but do not buy any additional airtime are not entitled to cover. Consequently, no royalties are payable in respect of such subscribers….,.”…,.
In a letter dated 3 June 2011, the day it had threatened to suspend all obligations if all overdue payments were not received, the first respondent wrote in the last paragraph thereof:
“Legal advice received indicated that we are not entitled to switch off the system until 14 working days have lapsed since 31 May 2011. Hence, the system will remain operative until then.”
The appellant, in a letter dated 5 June 2011, stated:
“We refer to your letter of 3 June 2011 and advise that we stand by our letter of 1 June 2011 in terms of which we accepted your notice of termination of our agreement. Therefore, we consider the agreement terminated. We shall proceed to make arrangements to ensure that our subscribers are not prejudiced by the termination of the agreement that was initiated by you….,.”
The appellant further advised, that, in view of the decision it had taken on the matter, it had commenced the steps necessary to discontinue the use of the Trustco Mobile Concept and would not use the system with effect from 14 June 2011.
On 5 June 2011, the appellant severed links with the first respondent's system.
By letter dated 8 June 2011, the first respondent's lawyers, Messrs Rudolph Bernstein & Associates wrote to the appellant advising that the letter of 31 May 2011 indicating an intention to cancel the agreement was never intended to constitute an invitation to the appellant for the consensual termination of the agreement, and that, by purporting to accept such termination, the appellant's conduct constituted an attempt to repudiate the agreement.
The letter further made it clear, that, the first respondent would not accept such repudiation and that it had no intention of cancelling the agreement pending the resolution of the dispute between the parties.
The letter further gave the appellant until 9 June 2011 to restore all links failing which urgent injunctive relief would be sought.
As a result of this impasse, the first respondent filed, on 24 June 2011, an urgent chamber application in the High Court in which it sought the relief in the terms already indicated.
After hearing argument, the court a quo made the following findings:
(a) That, a reasonable explanation had been tendered for the delay in the filing of the application and that the matter was urgent.
(b) That, the relief sought in the interim was restoration of the status quo ante, and, on the return day, a show cause why the first respondent's rights should not be preserved pending determination of the dispute by arbitration. In other words, the relief sought on the return day was dis-similar to the interim relief sought.
(c) That, the requirements for an interdict had been met, and, in particular, the balance of convenience favoured the respondents.
(d) That, the notice to terminate issued by the first respondent was in the future and not ex nunc and therefore invalid. In the circumstances, there was no cancellation which the appellant could note and accept, and, consequently, the agreement remained valid.
Consequent to the above findings, the court a quo granted an order in terms of the draft filed.
That order is the subject of the present appeal.
It is perhaps pertinent to mention at this juncture, that, the first respondent thereafter successfully applied for an order allowing execution notwithstanding the noting of the appeal.
From the submissions made by counsel, it is apparent that the parties have been engaged in arbitration proceedings pursuant to the order granted by the court a quo.
The appellant has attacked the decision of the court a quo on several bases.
Since a point in limine has been taken in respect of the propriety of the Notice of Appeal itself, it becomes necessary to quote the grounds of appeal in toto. The appellant's grounds of appeal are:
“1. The learned Judge in the court a quo erred in fact, and at law, by finding that the matter was urgent and in so finding, failed to pay due regard to the background to the matter, the activities of respondents prior to the filing of the application, to the submissions made, and numerous authorities cited by appellant and to the matters raised by appellant in its opposing papers.
2. The learned Judge in the court a quo erred in fact and at law in finding that the relief sought in the amended provisional order did not suffer from the same defect as the provisional order originally filed and erred in finding that the interim and final reliefs prayed were not the same or not substantially similar.
3. The learned judge in the court a quo erred in failing to appreciate, that, by granting the interim relief as amended, the order granted has the effect of a final order.
4. The learned judge in the court a quo erred in fact, and at law, by failing to appreciate, and disregarding case authorities drawn to his attention that the process of arbitration to which the final relief prayed for refers relies (sic) on an arbitration clause in the agreement which does not oblige the parties to have any dispute determined by the process of arbitration, and, in so finding, took away the appellant's discretion to adopt other dispute resolution methods that are permissible at law, and under the agreement.
5. Having regard to the hostility between the parties that was evident on the papers, the protests by appellant's subscribers over abuse of appellant's system through unsolicited messages sent by the respondents, the fixed term nature of the contract between the parties, and the declaration by respondents herein that they did not wish to honour their side of the contract, the learned judge in the court a quo erred in finding that respondents had established all requirements for the grant of a temporary interdict, and, in particular, erred in finding:
5.1 That respondents fear that appellant had infringed its concept was well grounded, such finding having been erroneously arrived at in view of appellant's averment that such infringement was not in fact possible because appellant does not have access to the source code of respondents system.
5.2 That the balance of convenience favoured the granting of the interdict; and
5.3 That no other adequate remedy was available to the respondents.
6. Having regard to the same factors referred to in paragraph 5 above, the learned Judge in the court a quo erred in exercising his discretion to grant specific performance of the agreement in all the circumstances.
7. Generally, the learned judge in the court a quo did not apply himself to the facts of the matter before him as a result of which he made the following findings of fact that are not supported by the facts of the matter before him, namely:
7.1 That the agreement between the parties required first respondent to procure free life cover for the appellant's subscribers from First Mutual Insurance Company when the agreement contained no such requirement at all, and the facts before the judge showed that the first respondents would not have been able to do so as it was appellant that sought and obtained approval from the Commissioner of Insurance to obtain insurance cover for its subscribers and pay for such cover on behalf of its qualifying subscribers.
7.2 That the “business model for the provision of free life cover as against the purchase of airtime amounts to an intellectual property” when the agreement between the parties did not so provide.
7.3 That “copyright and international patent had been applied for” when the agreement stipulated, falsely, that first respondent already was a holder of International patent over the “Trustco Mobile Concept” and the undisputed facts on record showed that such patent had been sought and declined on the basis the Trustco Mobile Concept was not novel and was thus not patentable, facts that first respondent kept hidden from appellant.
7.4 That “substantial revenue, running into millions of US dollars, was reaped from it (the system) to the benefit of the three parties to the agreement” thereby adopting first respondent's bald and disputed assertions without question and in the absence of evidence to that effect.
8. More specifically, the learned judge in the court a quo based his judgment on the letter dated 31 May 2011 written by the first respondent and found that the contents thereof was a mere expression of an intention to terminate the agreement after 14 days, which intention first respondent was entitled to withdraw on the following selective quotation of the first respondent's letter of 31 May 2011:
“Therefore, be advised that all obligation of Trustco will be suspended on 3 June 2011 at 1200 hours Namibian time if all overdue amounts, of which you have been advised, are not received by then…,. Kindly be further advised that if all overdue amounts, of which you have been advised, are not received within 14 days from the date hereof Trustco will deem the contract cancelled in terms of clause 17.1 of the main agreement.”
Had the learned judge a quo considered the full text of the relevant part of the letter, which reads as follows:
“Therefore, be advised that all obligations of Trustco will be suspended on 3 June 2011 at 1200 hours Namibian time if all overdue amounts, of which you have been advised, are not received by then.
We expect yourselves to appraise the Postal & Telecommunications Regulatory of Zimbabwe (Potraz), the Insurance and Pension Commission as well as the Reserve Bank of the status quo of Eco Life with immediate effect. On Monday 6 June 2011, Trustco will advise the Zimbabwean Press and its shareholders via SENS of the status quo of Ecolife as required by the regulatory environment Trustco operates in.
Kindly be further advised that if all overdue amounts, of which you have been advised, are not received within 14 days from the date hereof, Trustco will deem the contract cancelled in terms of clause 17.1 of the main agreement.”
he would have come to the inevitable conclusion:
(a) That, the letter was an unequivocal expression by first respondent of an intention not to discharge its obligations under the agreement with effect from 3 June 2011 prior to the expiry of the 14 days; and
(b) That such conduct, at law, constitutes anticipatory breach of contract, or repudiation of contract from which first respondent was not entitled to approbate particularly as such repudiation was accepted and acted upon by appellant in notifying the regulatory authorities and its subscribers of the situation before the 3 June 2011, and proceeding to disconnect first respondent's system from its network.
(c) That such repudiation had been accepted by appellant in writing, or by the appellant's conduct in disconnecting first respondent's system from its network.
The learned judge in the court a quo thus erred both in fact and in the application of the law.
9. The learned judge in the court a quo erred in fact, and at law, by rejecting the submission that the facts of the matter before him related to repudiation of contract, or anticipatory breach, and was thus distinguishable from the case of Waste Management Services (Pvt) Limited that he relied upon in his judgment.
10. The learned judge in the court a quo erred in fact and law in failing to attach weight to various threats by first respondent to suspend its obligation under the contract and by creating the impression that the Trustco Mobile Concept worked flawlessly for nine months when the facts on the record showed repeated failures that were well documented and were not disputed.
11. In any event, the learned judge in the court a quo erred in granting relief to the second respondent in the absence of a finding that second respondent has a substantial interest in the matter particularly as the second respondent was not a party to the agreements between the parties in this matter.”
In their heads of arguments, the respondents also took a number of points in limine. Most were not persisted in save for two. These are:
(1) Whether the grounds of appeal are concise, and, if not, whether the appeal is fatally defective for that reason.
(2) That the appeal is not directed at the order but the reasoning of the court a quo.
I turn to deal with the above issues as well as the others that arise from the papers.
WHO BETWEEN THE PARTIES REPUDIATED THE AGREEMENT AND WHETHER THE APPELLANT LAWFULLY TERMINATED IT
As correctly found by the court a quo, this is the axis of the matter between the two parties.
In his submission, counsel for the appellant contended, that, on a proper reading of the letters of 31 May 2011 and 3 June 2011 from the first respondent's Group Managing Director, it is clear that the first respondent intended to resile from its obligations in terms of the agreement.
That anticipatory or actual breach required the appellant to make an election either to accept the termination or to enforce the agreement.
The appellant could have said “we do not accept your suspension of the contract and we hold you to it.” Instead, the appellant, firm in its conviction that it would not pay the disputed amounts, accepted the termination.
Whether or not the termination by the respondent was valid or not was not relevant.
Once the appellant accepted the repudiation, this brought the agreement to an end. There would have been no further continuing obligations and the order made by the court a quo would therefore have been wrong.
Whether or not the notice was to terminate the contract in future was irrelevant.
Counsel for the respondents, in his submissions, argued that it was the appellant that sought to repudiate the agreement.
He accepted, that, repudiation is a species of anticipatory breach and that the innocent party has an election either to resist and sue for specific performance, or, alternatively, accept the repudiation which then brings the contract to an end.
It was the appellant, in this case, which sought to repudiate. The respondent did not accept the repudiation.
Further, he submitted, that, as the threat to terminate the agreement by the respondent was not ex nunc but was to take place at a later date, and, as the issue before the court was whether a prima facie case had been established, the court correctly granted the provisional order.
It is correct, that, in determining whether a party has repudiated a contract, the test to be applied is whether the party has acted in such a way as to lead a reasonable person to the conclusion that he did not intend to fulfil his part of the contract.
It is also correct, that, repudiation is a species of anticipatory breach: see Chinyerere v Fraser NO 1994 (2) ZLR 234 (H).
Repudiation may manifest itself in a variety of ways.
As stated by R.H. CHRISTIE, the Law of Contract in South Africa, 3rd ed…,.:
“If it takes place before performance is due, it is sometimes described as anticipatory breach, and, may take the form of a statement that the party concerned is not going to carry out the contract, or an unequivocal tender to perform less than is due, or an unwarranted but unequivocal refusal by a buyer to pay the full purchase price, irrespective of his true intention and the amount of any reduction that may be claimed, or the taking of some action inconsistent with the intention to perform, or, by his own conduct, putting it out of his power to perform….,.”
In his letter of 31 May 2011, the respondents Group Managing Director wrote, inter alia:
“Therefore, be advised that all obligations of Trustco will be suspended on 3 June 2011 at 12h00 Namibian time if all overdue payments are not received by then.”
In my view, this was a clear intimation that the respondent, for the reasons given in the letter, was going to suspend all its obligations towards the appellant. The letter further made it clear, that, if all outstanding amounts were not paid within fourteen days of the date of the letter, the respondent was to deem the contract cancelled.
That this was an anticipatory breach, there can be no doubt.
The procedure to be followed by either party, in the event that it was believed that a breach had occurred at the instance of the other, was clearly provided for in the agreement entered into and signed by both parties.
Nowhere in the agreement was the respondent entitled to suspend all its obligations within three days of giving notice to that effect.
Such conduct suggested that the respondent no longer believed it was bound by the agreement previously entered into by the parties.
The position is now settled, that, a party in the appellant's position has an election to make.
The appellant could have refused or resisted such repudiation and insisted on specific performance. The appellant, in holding the respondent to the agreement, could have, inter alia, argued that the notice of termination was not ex nunc and therefore invalid. Alternatively, the appellant could have accepted the repudiation, such acceptance having the effect of terminating the agreement between the parties.
In its response, the appellant “noted the intention to terminate the agreement and accepted” it.
It is apparent from the appellant's response that it accepted the repudiation. In my view, that brought the contract to an end. There were no further obligations as the contract had come an end.
Therefore, when the first respondent wrote, on 3 June 2011, advising that, on legal advice received, it was not entitled to switch off the system until fourteen working days had lapsed and that the system would remain operational until then, it was too late as there no longer was any contract in existence between the two parties - a position the appellant stressed in its letter of 5 June 2011.
The court a quo found, that, the notice to terminate the agreement was in the future and not ex nunc. The court also found, that, in the circumstances, there was no valid cancellation of the agreement and that the agreement therefore remained in existence.
The court erred in coming to the above conclusion.
It failed to consider the implications in our Law of Contract of the respondents letter of 31 May 2011 and the response by the appellant of 1 June 2011 in which it accepted what it termed the termination of the agreement but which in fact was a repudiation of the agreement.
Clearly, therefore, whilst Jackson v Limly Insurance Company Ltd 1999 (1) ZLR 381 (S) correctly stated the law, when it held that a valid notice of cancellation must be exercised ex nunc, the issue that arises in this case is different.
I am satisfied, therefore, that, the contract ceased to exist once the appellant accepted the first respondent's repudiation.
In the circumstances, the order of specific performance granted by the court was improper and ought therefore to be set aside.
