MALABA
CJ: At
the hearing of the appeal, the Court found that the appeal was devoid
of merit, as the funds advanced to the appellant by the respondent to
finance the production of his 2016–2017 tobacco crop were from
offshore funding.
The
decision of the Court was based on the interpretation of the
agreement for tobacco growing and financing entered into by the
parties on 19 July 2016, the acknowledgement of debt dated 19
September 2017, and the Deed of Settlement dated 18 September 2018.
The
three documents show that the parties agreed on three important
matters. These were –
(1)
The respondent advanced to the appellant funds to finance tobacco
production for the 2016/2017 growing season;
(2)
The money advanced to the appellant by the respondent was part of
funds it raised from offshore lines of credit for the specific
purpose of financing tobacco production. The currency to be utilised
in light of the underlying source of the funds in the denomination of
the obligations of the parties was the United States dollar; and
(3)
The respondent had to recover the money from the appellant in the
currency that would enable it to repay its foreign obligations.
In
the result, the Court dismissed the appeal with costs and indicated
that reasons for the decision would follow in due course. These are
they.
The
appeal is against a decision of the High Court (“the court a
quo”)
handed down on 18 March 2020.
The
issue in the court a
quo
was whether the respondent advanced United States dollars in cash and
in the form of inputs to the appellant as crop financing for the June
2016 to April 2017 tobacco farming season.
It
was the appellant's position that the funds advanced to him by the
respondent were in the form of Real Time Gross Settlement cash
(hereinafter referred to as “RTGS dollars”) transferred into his
local bank account and inputs procured using RTGS dollars.
The
court a
quo
found that there was overwhelming documentary evidence proving that
offshore funds were employed by the respondent to finance the
appellant's 2016/2017 tobacco crop.
It
further found that the amount in question could not be repaid
in
RTGS dollars, as section 44C(2)(b) of the Reserve Bank of Zimbabwe
Act [Chapter
22:15]
(hereinafter referred to as “the Reserve Bank Act”) explicitly
excludes foreign obligations valued and expressed in United States
dollars from the deemed parity valuation in RTGS dollars.
As
a result, it found in favour of the respondent and ordered that the
appellant should repay the advanced funds in United States dollars.
The
respondent is a company duly incorporated in terms of the laws of
Zimbabwe. Its business includes accessing offshore funds and using
them to finance tobacco farming. The appellant is a tobacco farmer.
In
2016 the respondent accessed offshore funding to lend to tobacco
growers for the 2016/2017 tobacco season.
On
19 July 2016 the appellant and the respondent entered into a tobacco
growers agreement, in terms of which the former accessed crop
financing from the latter in the form of cash as working capital as
well as inputs.
On
19 September 2017 the appellant signed an acknowledgement of debt in
favour of the respondent. In that document, the appellant
acknowledged being indebted to the respondent in the sum of
US$101,089.46.
The
appellant failed to repay the debt. This prompted the respondent to
issue a summons for provisional sentence in the sum of US$101,089.46
and interest at the agreed rate.
The
appellant did not defend the action.
The
parties signed a Deed of Settlement, in terms of which the sum of
US$101,089.46, plus interest at the agreed rate, and costs in the sum
of US$3,000.00 together with 15% Value Added Tax on the costs, had to
be paid in annual instalments of US$30,000.00. Each instalment was
payable on or before 31 August of each year, commencing 31 August
2019.
On
31 August 2019 the appellant tendered an initial instalment payment
of RTGS$30,000.00. The respondent rejected the tender. It insisted
that the correct currency was United States dollars and consequently
demanded payment in that currency.
The
respondent invoked clause 5 of the Deed of Settlement. The clause
reads:
“5.
In the event that the defendant fails to pay any of the amounts due
in terms of this deed of settlement on the due date, the plaintiff
shall be entitled to apply for default judgment for payment of the
outstanding amount from the defendant without notice to the
defendant. In that regard, the plaintiff shall be entitled to seek
any further costs incurred by it from the defendant on a legal
practitioner and client scale.”
Accordingly,
the respondent filed a chamber application for default judgment.
In
the court a
quo
the respondent contended that it advanced United States dollars
denominated inputs and cash to the appellant as crop financing for
the June 2016 to April 2017 growing season.
On
the other hand, the appellant argued that the cash he received was in
the form of RTGS dollars transferred into his local bank account and
inputs procured using RTGS dollars.
The
court a
quo
found that offshore funds were employed by the respondent to finance
the appellant's 2016/2017 tobacco crop.
It
also noted that the appellant failed to substantiate his averment
that the funding that he obtained was in RTGS dollars.
The
court a
quo
found in favour of the respondent and granted the application with
costs.
THE
APPELLANT'S SUBMISSIONS
At
the hearing, the Court requested the parties to address
it
on the question whether the contract arrangement entered into between
the appellant and the respondent gave rise to the performance by the
respondent of the obligation under the offshore loan agreement.
In
his heads of argument and oral submissions, the appellant submitted
that Clause 3 of the loan agreement relating to the grower's
obligations did not specify the denomination of the currency in which
the funds would be advanced to a tobacco grower. The appellant
submitted that the agreement between the parties was silent with
regards to the currency to be used to repay the loan.
He
argued that the court a
quo
was not entitled to go behind the Deed of Settlement entered into
between the parties in resolving the matter.
He
submitted that the Deed of Settlement constituted a compromise or a
transactio.
He
argued that the Deed of Settlement made no
mention
of offshore funding.
It
was further submitted that by tendering RTGS$30,000.00 the appellant
lawfully discharged his liability to the respondent in terms of
Statutory Instrument 33 of 2019, (hereinafter referred to as
“SI33/19”). This was on the basis that section 4(1)(d) of SI33/19
provided that liabilities that were valued and expressed in United
States dollars immediately before the effective date were deemed to
be valued in RTGS dollars, at a rate of one-to-one to the United
States dollar.
THE
RESPONDENT'S SUBMISSIONS
Counsel
for the respondent submitted that the funds advanced to the appellant
were from offshore funding and the amount in question had to be
repaid in United States dollars.
It
was further submitted that the argument that the Deed of Settlement
constituted a compromise was of no legal consequence, as the issue of
the currency in which the debt was to be repaid was never in issue.
The issue of the currency was never compromised.
APPLICATION
OF THE LAW TO THE FACTS
In
the case of Zambezi
Gas (Pvt) Ltd v N.R. Barber & Anor
SC3/20, in interpreting section 4(1)(d) of SI33/19
the Court held
that contractual obligations valued in United States dollars
immediately before the effective date were to be paid in RTGS dollars
at parity or at a one-to-one rate. The court stated the following at
p13 of the cyclostyled judgment:
“Section
4(1)(d) of SI33/19 states that for such sui
generis
liabilities, including judgment debts, a rate of one-to-one between
the United States dollar and the RTGS dollar will apply. The
transactions entered into after the effective date would fall under
the provisions of section 4(1)(e) of SI33/19.”
However,
section 44C of the Reserve Bank Act reads as follows:
“44C
Issuance and legal tender of electronic currency
(1)…
(2)
for the avoidance of doubt it is declared that the issuance of any
electronic currency shall not affect or apply in respect of –
(a)…
(b)
foreign
loans and foreign obligations denominated in any foreign currency,
which shall continue to be payable in such foreign currency.”
(the underlining is for emphasis)
Section
44C of
the Reserve Bank Act
is an exception to the parity rate.
In
Breastplate
Service (Pvt) Ltd v
Cambria
Africa Plc
SC66/20
the Court stated as follows at p5 of the judgement:
“What
emerges clearly and unequivocally from section 44C(2)(b) of the
Reserve Bank Act, as read with section 4(1)(d) of SI33 of 2019, is
that foreign loans and obligations denominated in any foreign
currency are excluded from the broad remit of SI33 of 2019. Thus,
foreign loans and obligations continue to be valued and payable in
the foreign currency in which they are denominated.”
The
term “foreign loans and obligations denominated in any foreign
currency”, as it appears in section 44C(2) of the Reserve Bank Act,
is not defined in SI33 of 2019.
As
stated in the Breastplate
case supra,
its meaning in any given case must be ascertained from the factual
circumstances of the parties involved and the material substance of
the transaction that they have entered into.
Section
44C(2)(b) of the Reserve Bank Act makes it clear that the issuance of
any electronic currency, that
is
RTGS
dollars, shall not affect or apply to any foreign obligation, as the
provision explicitly excludes foreign obligations valued and
expressed in United States dollars from the deemed parity valuation
in RTGS dollars.
It
is settled that the effect of SI33/19 was to render all assets and
liabilities except those referred to in section 44C(2)(b) of the
Reserve Bank Act as values in RTGS dollars at the exchange rates
prescribed.
It
was the appellant's position that, since the parties had concluded
a Deed of Settlement, the court a
quo
was not entitled to take into consideration agreements that preceded
the Deed of Settlement.
The
appellant argued that the Deed of Settlement constituted a
compromise.
It
was the appellant's further submission that it did not matter that
the debt had been expressed in United States dollars. The argument
was that the issue was whether the appellant could discharge his
liability in RTGS dollars at the rate of one-to-one in terms of
SI33/19.
The
Deed of Settlement and the preceding contracts have to be read
together for a proper understanding of the arrangement the parties
entered into.
The
source of the funds had to be established first for the Court to be
able to make a determination of the issue of the currency in which
the debt admittedly due had to be repaid.
The
court a
quo
stated as follows in relation to its findings on the source of
funding at p4 of its judgment:
“In
proving its source of funding for the 2016–2017 tobacco cropping
season, the applicant had attached a letter dated 28 May 2015 by
Standard Chartered Bank addressed to the Export Finance Manager of
the applicant.
In
that letter, the bank confirmed that the Reserve Bank of Zimbabwe had
authorised the applicant to draw down US$25,494,506 from their
offshore lines of credit to finance the 2015–2016 tobacco growing
season.”
It
is on record that the appellant accepted that if evidence was
presented establishing that the loan he received was from offshore
funding, the debt would have to be settled in United States dollars.
The
court was seized with a sui
generis
contract.
The
tobacco grower agreement cannot be examined without reference to the
source of funding.
This
is so because the nature of the funds advanced to tobacco growers
under offshore funding contract arrangements must be preserved, as
the funds are sourced solely for the purposes of tobacco growing.
The
term “Crop Finance” as provided for in the Tobacco Grower
Contract Agreement, clearly links the money involved to offshore
funds.
If
the respondent is an authorised dealer, the understanding is that
funds obtained and advanced in United States dollars are repayable in
the denominated currency.
Tobacco
is a crop that is sold in the market in foreign currency to enable
beneficiaries of offshore funding arrangements to repay their
creditors in foreign currency so that the latter are able to service
their offshore funding contractual obligations.
A
party enters into a tobacco growers contract, knowing that he or she
or it is to be funded by an offshore loan denominated in United
States dollars. He or she or it undertakes the obligation to repay
the loan in that currency. As a consequence, the contract
arrangements entered into by the individual tobacco growers and the
respondent are an execution of the obligation to perform the offshore
funding contracts entered into by the respondent and its creditors.
If
payment were to be made in RTGS dollars contrary to the clear and
unambiguous language of section 44C(2)(b) of the Reserve Bank Act,
the purpose of the provision of ensuring that tobacco farmers benefit
from offshore funding lines of credit accessible to the respondent
and others in similar business would be defeated to the
detriment
of the national interest in the protection and promotion of the
development of the tobacco industry.
The
court a
quo
cannot be faulted for holding that the funds advanced to the
appellant had to be repaid in United States dollars.
The
Zambezi
Gas case supra
is distinguishable from the present matter.
The
present case relates to offshore funding.
The
obligation incurred by the respondent was a foreign obligation
denominated in foreign currency within the contemplation of section
44C of the Reserve Bank Act.
The
Deed of Settlement was entered into for the purpose of allowing the
appellant to repay the debt he acknowledged to be owing in
instalments in United States dollars. The Deed of Settlement was for
the benefit of the appellant. The appellant cannot escape the
obligation he voluntarily undertook to repay the funds advanced to
him in United States dollars for the specific purpose of financing
the production of the tobacco crop by calling the Deed of Settlement
a compromise.
There
was no dispute between the parties over the currency in which the
offshore funds received by the appellant from the respondent had to
be repaid.
The
respondent was entitled to invoke the provisions of section 44C(2)(b)
of the Reserve Bank Act to protect its rights to the repayment of the
offshore funds advanced to the appellant in United States dollars
under the Deed of Settlement.
UCHENA
JA: I
agree
CHIWESHE
AJA: I
agree
Atherstone
& Cook,
appellant's
legal practitioners
Gill,
Godlonton & Gerrans,
respondent's
legal practitioners
