MALABA
DCJ: This
is an appeal against the decision of the High Court dismissing an application
for rescission of a default judgment. After
hearing arguments on behalf of the parties, the Court dismissed the appeal with
costs. It was indicated that reasons for the decision would follow in due
course. These are they.
The
appellants are companies incorporated in terms of the laws of Zimbabwe. The
second appellant is a wholly owned subsidiary of the first appellant. The
respondent is a company incorporated in terms of the laws of South Africa
carrying on the business of mining in Zimbabwe.
In contemplation of a joint venture agreement in pursuit
of mining and exportation of chrome, the respondent made an offer to the first
appellant to acquire forty-percent of shares in the second appellant. The forty-percent share capital to be issued
to the respondent was to be in recognition of
US$400 000.00 which the respondent paid to the first appellant as the sole
shareholder of the second appellant. In other words the US$400 000.00 was the
respondent's capital investment in the chrome mining project subject to a
future joint venture agreement. The
respondent also alleged that it contributed US$15 616.61 as working capital to
the joint venture which amount was not challenged by the appellants. The agreement was signed on behalf of the
parties on 11 March 2011.
On 26 June 2013, the
second appellant and the respondent subsequently entered into a joint venture
agreement to engage in chrome mining and export. The appellants were to mine
and export unprocessed chrome to the respondent. The first appellant's mandate
was to manage the joint venture company (second appellant) on a day to day
basis. Certain chrome claims subject to the joint venture agreement were
registered in the name of the first appellant and the first appellant was to
transfer to the respondent all other mining rights relating to the chrome
mining project by 31 December 2013.
Forty-percent shares existing in the second appellant were
issued to the respondent. At the time of the signing of the joint venture
agreement, a shareholders agreement to regulate the relationship and other related
issues between the parties as shareholders of the second appellant was yet to
be drawn up and signed by the parties.
Among
the clauses in the joint venture agreement, there was one that required the
parties to choose their domicilium citandi
et executandi. The second appellant
expressly chose 15 Harrow Avenue, Avondale, Harare, Zimbabwe as its domicilium citandi et executandi. The
same address appeared on the face of the joint venture agreement which
agreement bore the name of the first appellant.
The Government of
Zimbabwe banned the export of un-processed chrome which circumstance undermined
the purpose of the joint venture. The
appellants could mine but not export un-processed chrome. Due to the ban on the
export of un-processed chrome the respondent sought to reverse the joint
venture agreement.
The respondent alleged
that on 17 March 2014 its representatives held a meeting with those of the
first appellant with the view of reaching agreement on the value of what the
appellants owed it. On 24 April 2014, one EF Mugwagwa wrote to the first
appellant on behalf of the respondent informing them of how much they owed. He informed the first appellant that the
respondent expected to receive payment proposals.
On 20 May 2014, the first
appellant represented by Thomas Gono
wrote to the respondent acknowledging indebtedness to it in the sum of US$415
616.66. The appellants undertook to pay
the money in instalments over a period of three years.
The first appellant failed
to honour its undertaking. The respondent issued summons against the appellants
in the High Court claiming payment of the
sum of US$415 616.66 plus interest at the prescribed rate with effect from 1
May 2014 together with costs of suit on a legal practitioner and own client scale.
The summons was served at 15 Harrow Avenue, Avondale, Harare which address the
appellants had indicated on the joint venture agreement as the domicilium citandi et excutandi. The summons was served by the Sheriff by affixing
it to an outer gate after an unsuccessful search. The appellants did not enter appearance to
defend by the due date.
On 2 February 2015
default judgment in the amount claimed plus interest was entered against the
appellants. On 27 February 2015, the Deputy Sheriff attached the first
appellant's mining equipment. The
appellants alleged that they got to know that default judgment had been entered
against them on 27 February 2015. They
made an application for rescission of judgment in terms of r 63 of the High
Court Rules on 3 March 2015.
The appellants sought to
have the default judgment rescinded alleging that they
did not see the summons which was served at 15 Harrow Avenue, Avondale, Harare,
the address they chose as their domicilium
citandi et executandi. Their argument was that they carried on their
business from 16 Kenilworth Road, Newlands, Harare. The argument was that the summons should have
been served at that address and not at 15 Harrow Avenue, Avondale, Harare. The
appellants further argued that the respondent's cause of action did not arise
from the joint venture agreement hence service of summons on the second
appellant at 15 Harrow Avenue, Avondale, Harare was not valid service. Lastly, the appellants argued that there had
been no agreement to pay the respondent the sum of US$415 616.66 despite the
first appellant's proposal in the letter dated 20 May 2014.
The issue before the
court a quo was whether the appellant
had shown good and sufficient cause for rescission of the default judgment.
In Chihwayi Enterprises (Pvt) Ltd v Atish Investments (Pvt) Ltd 2007(2)
ZLR 89(S), SANDURA JA recalled that the requirement that there be good and
sufficient cause to rescind judgment is a common law principle. Reliance was made on Chetty v Law Society, Transvaal 1985(2) SA 756(A) at 764-765C where
it was said:
“The appellant's
claim for rescission of the judgment ….must be considered in terms of the
common law, which empowers the Court to rescind a judgment obtained on default
of appearance, provided sufficient cause thereof has been shown. (See De
Wet & Ors v Western Bank Ltd 1979(2)SA 1031(A) at 1042, and Childerly Estate Stores v Standard Bank of
SA Ltd 1924 OPD 163). The term
'sufficient cause' (or 'good cause') defies precise or comprehensive
definition, for many and various factors to be considered. (See Cairn's
Executors v Gaarn 1912 AD 181 at 186 per INNES JA). But it is clear that in principle and in the
long-standing practice of our Courts two essential elements of 'sufficient
cause' for rescission of a judgment by default are:
(i)
That
the party seeking relief must present a reasonable and acceptable explanation
for his default; and
(ii)
That
on the merits such party has a bona fide defence which, prima facie, carries
some prospect of success. (De Wet's case supra at 1042; PE Bosman Transport Works Committee and Ors
v Piet Bosman Transport (Pty) Ltd 1980(4) SA 794(A); Smith N O and Anor; Smith N O v Brummer 1954(3) SA 352(O) at
357-8).”
The court a quo considered whether or not there
had been a reasonable explanation for the default, the bona fides of the application for rescission of judgment and
whether or not there existed a bona fide
defence on the merits should the court grant the application for rescission of
the default judgment.
The learned judge found
that the appellants had failed to give a reasonable and acceptable explanation
for the default. He also found that
there were no prospects of success on the merits. The application was dismissed with
costs. The appellants appealed against
the decision of the court a quo o the following grounds:
1. The
learned judge in the court a quo erred
in finding that the domicilium citandi et
executandi in the joint venture agreement (JVA) applied to the dispute
between the parties
2. Even
if the JVA is applicable no proper service was effected as stipulated in
paragraph 14.4.2 of the JVA
3. The
learned judge in the court a quo
erred by concluding that the appellants admitted liability
4. The
learned judge in the court a quo erred
by finding that the debt to the first respondent was due in light of the fact
that the due date for the first year payment was not due
5. All
in all the learned judge in the court a quo
erred in finding that good and sufficient cause had not been established
warranting the rescission of the default judgment.
Mr Uriri for the appellants premised his oral argument on the
allegation that the appellants were not in wilful default. The test is whether or not good and
sufficient cause to rescind a default judgment has been established. It is not whether or not there was wilful
default.
In an application for
rescission of default judgment, a court exercises a discretion. (Smethwick Trading (Pvt) Ltd & Another v
Rome Furniture Manufacturers (Pvt) Ltd SC 51/15). It is trite that an appellate court will not
interfere with the exercise of discretion by the lower court unless serious
misdirection is shown. In Barros & Another v Chimphonda
1999(1) ZLR 58(SC) GUBBAY CJ said:
“It is not enough
that the appellate court thinks that it would have taken a different course
from that of the trial court. It must
appear that some error had been made in exercising the discretion, such as
acting on a wrong principle, allowing extraneous or irrelevant considerations
to affects it s decision, making mistakes of fact or not taking into account
relevant considerations.”
REASONABLE
EXPLANATION FOR THE DELAY
It is common cause that
the summons was served at 15 Harrow Avenue, Avondale, Harare. The appellants
argued in the court a quo that they did not see the summons hence their
default. To see whether or not there was proper service, regard must be had to the
clauses in the joint venture agreement which provided for either party's
address for service. Clause 14 provided
as follows:
“14. DOMICILIUM
CITANDI ET EXECUTANDI AND JURISDICTION.
14.1 Each party chooses the following physical
address, postal address…as domicilium
citandi et executandi for all purposes under this agreement whether in
respect of court process, notices or other documents or communications of
whatsoever nature, and in the event of change each party shall inform the
company… annually at the annual general meeting of its chosen domicilium citandi et executandi.
14.1.1…
14.1.2 F1 Chooses: 15 Harrow Avenue
Avondale
Harare
Zimbabwe
14. …
14.3 Any party may
between annual general meetings by notice to all other Parties change the
particulars of their chosen domicilium citandi
et executandi to another physical address, postal address… provided that
the change shall only become effective vis-à-vis the other Parties on the 7th
day from the deemed receipt of the notice by the addressees.” (my emphasis)
The joint venture
agreement stated in clear and unambiguous language that 15 Harrow Avenue,
Avondale, Harare was the address chosen by the second appellant as the address
for service for all purposes under the joint venture agreement and especially
in respect of service of court process.
No change of address to 16 Kenilworth Road, Newlands, Harare where the
respondents allege summons should have been served was notified to the
respondent in terms of clause 14 of the joint venture agreement. The appellants and the respondent were the
parties to the joint venture agreement.
The preamble to the offer agreement shows who the parties to the joint
venture agreement were. The summons was
served at the correct address.
In their heads of
argument the appellants sought to invoke r 39(1)(d) of the High Court Rules
which provides for service of process on corporate bodies. The appellants cannot invoke rules of court
where they expressly provided for an address for service in the joint venture
agreement. It is trite that the courts will uphold the principle of the sanctity
of contracts unless there are special circumstances justifying departure.(see Edgars Stores Managers' Association v Edgars
Stores Ltd SC 103/04). In casu, there was nothing illegal about the
clause providing for the address for service nor does the Court see anything contra bonos mores about the clause.
BONA
FIDES
OF THE DEFENCE ON THE MERITS
In determining the
question of the bona fides of the
defence, the court a quo had to make
a finding on the alleged admission of debt by the appellants.
The court a quo had regard to the letter of 20 May 2014 where the appellants'
representative made proposals for the payment of the amount of money they
acknowledged owing to the respondent.
The letter reads:
“Attention:
Mr Mkhabele and Mr Mugwagwa,
RE:
Ferbit Chrome Project: MCE Investment Repayment Plan-Draft Proposal.
I present to you,
in good faith the following draft repayment plan of the investment of $415,616
made by MCE into Ferbit Chrome project. I must hasten to extend my company's
sincerest apology in the dealing with the matter. It was due to unforeseen
circumstances.
The repayment plan
below is guided by GRM's current unfavourable financial position which in turn
is largely being influenced by the dire cash liquidity position in Zimbabwe…It
is our hope that an improved economic climate and sound economic growth driven
policies will assist Golden Reef Mining (Pvt) Ltd, attract funding that will
enable it to repay your investment (MCE) quicker…
At this moment in
time, we propose a safe and realistic repayment spread over three years…
….GRM will
strenuously continue to search for funds for the repayment plan. This is a
priority matter that we would like resolved as quickly as possible…
Signed”.
The letter is a clear acknowledgment of
debt. Mr Uriri for the appellants sought to argue that when the respondent
paid for the forty-percent shares, it became a shareholder and hence asking for
the US$400 000.00 back would amount to the respondent buying its own shares.
When the court asked for proof that the respondent owned the shares in the form
of a share certificate, no such proof was produced. The respondent had paid money for no value. It was logical for the respondent to claim
its money back. The appellants understood the situation as imposing an
obligation to refund the money. The letter is a clear admission of liability.
It goes on to propose a possible repayment plan. The only inference that can be
drawn from the clear and unambiguous letter is that the appellants were binding
themselves to pay the money. They could
not have undertaken to pay money they did not believe the appellants owed.
Mr Uriri argued that the appellants had not read the letter as an
acknowledgment of liability. The
argument flies in the face of the letter written in clear and unambiguous
language of an acknowledgement of debt.
An acknowledgment of debt is not a matter of form. It is a matter of substance arrived at by
interpretation of the document in which it is contained.
The appellants sought to
argue that the first appellant should not be cited because it was not a party
to the joint venture agreement. When
the respondent offered to acquire shares in the second respondent, the preamble
to the offer agreement read as follows:
“PREAMBLE
a.
Whereas
MCE (the respondent) and Golden Reef Mining (GRM) have been in negotiations for
a possible joint venture in terms of which the parties would participate in the
Chrome Project.”
It must be emphasised that the offer
agreement above was a build up to the joint venture agreement. The second appellant was cited as “a
mining subsidiary” of the first appellant in that agreement. The offer was
accepted by Thomas Gono in his capacity as chairman of the first appellant
although the offer to acquire shares was for shares in the second appellant.
Although it was between
the second appellant and the respondent, the joint venture agreement was on the
letterhead of the first appellant. The
joint venture agreement stated that the second appellant was a subsidiary of
the first appellant. Clause 5.3.2 of the joint venture agreement further stated
that the first appellant had the mandate to manage the “joint venture company”
(which is the second appellant). The same address that was used by the first
appellant on its letter head is the same address that the second appellant
chose as its address for service in the joint venture agreement. The acknowledgment of debt was by the
appellants. It was not by the second
appellant only.
The appeal was without merit. It was for the above reasons that an order to
the following effect was made:
“The appeal be
and is hereby dismissed with costs”.
GOWORA JA: I agree
BHUNU JA: I agree
Thompson, Stevenson & Associates, appellants'
legal practitioners
Mundia & Mudhara, respondent's legal
practitioners
