Civil Trial
GOWORA J: 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
R17,000-00 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 ZAR25,000-00 or Z$6
million. A deposit of R8,000-00 was recorded as having been paid with
the balance of R17,000-00 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 R8,000-00. 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 R25,000-00. The defendant paid an amount of
R8,000-00 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 R17,000-00 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 R17,000-00 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 ZAR25,000-00 and for which he only
paid ZAR8,000-00.
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 SI109/1996, which he
says, prescribe 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 (“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
ZAR8,000-00 as deposit on part of the purchase price.
In terms of the agreement between the parties, the equivalent of the
ZAR8,000-00 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 ZAR17,000-00. The equivalent
in local currency was not stated.
Mr Kasuso
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) 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 regulations. 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
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 [Cap
22:04] the legal
tender in this country is the Zimbabwe dollar. He also concluded that
according to the provisions of Reserve Bank Act [Cap
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$1,700-00 and US$1,730-00 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 regulations.
In the context in which exchange is used by the legislature in the
regulations the meaning that can therefore be ascribed to it is “to
pay” and “to receive”.
The defendant paid ZAR8,000-00 without the permission of an exchange
control authority and in the circumstances there can be no doubt that
this is prohibited by the 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.
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 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 $3,840,000-00 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 counter-claim.
I would on this point
respectfully refer to the comments of GUBBAY CJ in Dube
v Khumalo
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 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.
What remains now is what is to be done with the vehicle.
The defendant having acknowledged the unlawful nature of the
agreement has submitted that the court has several options on how to
dispose of the matter:
(i) The first is to dismiss the
plaintiff's claim in its entirety.
(ii) The second option is strike
out the quotation of the price in rand is not appropriate in view of
the illegality of the agreement.
(iii) The defendant has also
suggested that the defendant be made to pay the equivalent of
ZAR17,000-00 calculated in accordance with the prevailing rates
exchange and that consequentially the plaintiff be ordered to
surrender the registration book to the defendant.
The last three options suggested
by the defendant would result in the court giving effect to an
illegal agreement. This would run counter to the two maxims that were
pronounced by GUBBAY CJ in Dube
v Khumalo (supra).
The usual manner of treating
illegal agreements, where the parties to the same are equally to
blame, is to let the loss lie where it fell. However, the courts have
a discretion in suitable cases to relax the par
delicto rule in
order to do justice between man and man.
The rationale for this discretion is to prevent injustice where one
party is enriched at the expense of another.
In Jajbhay
v Cassim
STRATFORD CJ stated the following:
“Courts of law are free to
reject or grant a prayer for restoration of something given under an
illegal contract, being guided in each case by the principle which
underlies and inspired the maxim.
And in this last connection I think a court should not disregard the
various degrees of turpitude in delictual contracts. And when the
delict falls within the category of crimes, a civil court can
reasonably suppose that the criminal law provided an adequate
deterring punishment and therefore, ordinarily speaking, should not
by its order increase the punishment of the one delinquent and lessen
it of the other by enriching one to the detriment of the other.
And it follows from what I have said above, in cases where public
policy is not foreseeably affected by a grant or refusal of the
relief claimed, that a court of law might well decide in favour of
doing justice between the individuals concerned and so prevent unjust
enrichment”.
It is trite therefore, that where
an agreement is illegal, a court has the discretion to relax the par
delicto rule in
order to do justice between man and man where the relief granted
would be contrary to public policy.
I was not addressed by either
counsel on the question whether granting the relief sought would be
contrary to public policy and as a consequence I find that I am not
constrained from relaxing the par
delicto rule.
Considering the circumstances of the case, it is only proper that I
do so in order to do justice between man and man.
The plaintiff parted with a valuable item against payment of an
amount which was less than half the purchase price. The defendant
thereafter did not pay the outstanding amount within the stipulated
period. The agreement provided that the full purchase price have been
paid before 20 January 2007. The defendant readily admitted having
failed to pay as stipulated therein.
In his evidence he alluded to an agreement between himself and the
plaintiff concluded in South Africa where the plaintiff agreed to
extend the period by which payment could be made. The defendant
however was unable to state the date by when he was supposed to have
made payment under the alleged verbal contract.
It is highly improbable, in my
view, that the plaintiff having in the agreement of sale stipulated a
time period for payment of the purchase price, would be so
accommodating as to allow the defendant an unlimited extension of
time by which to pay the balance. The defendant was already in mora
and it would only be sensible and reasonable if the plaintiff was to
allow more time, to put the defendant on terms about payment.
In his evidence which was not seriously challenged by the defendant
the plaintiff said he wanted to use the money for a business venture
hence his stipulation for a time period on when balance was to have
been paid in full.
The plaintiff denied that he had extended the time to the defendant
for payment of the balance or that he had given an impression to that
effect.
Under cross-examination the plaintiff had admitted that the defendant
had tendered payment of the balance of the purchase price in local
currency at the official rate and at that stage the plaintiff had
refused to accept the tender. The plaintiff said the offer to pay in
local currency came after he had issued summons against the
defendant.
My assessment of the evidence as a whole leads me to conclude that
the plaintiff's version is to be preferred to that of the
defendant. Neither he nor his brother impressed me as a witness. I
find the plaintiff's version more probable given the prevailing
circumstances.
In the premises I find for the plaintiff.
I therefore make an order in the following terms:
1. The plaintiff's claim is
granted to the extent that the defendant be and is ordered to restore
possession to the plaintiff of a Mistubishi Chariot motor vehicle
registration number AAN 8616 within ten (10) days of the date of
service of this order failing which the Deputy Sheriff is hereby
authorized to seize and recover the same from wherever it is situate
and from whomsoever is in possession of the same.
2. The defendant be and is hereby
ordered to pay the costs of suit.
Mantsebo and Company,
legal practitioners for the plaintiff
Mapondera & Company,
legal practitioners for the defendant
1. HH 9/03
2. 1989 (1) SA 1 (A)
3. 1986 (2) ZLR 103 (SC) at 109D-F
4. 1939 AD 537 at 544-545
