Civil
Trial
– Special Case
MUREMBA
J:
The
facts of this matter being common cause the counsels agreed to
proceed by way of a special case. Consequently, they filed a
statement of agreed facts and heads of argument.
The
agreed facts are as follows.
On
10 October 2008 the defendant and one Samuel Raymond Manatsa
(hereinafter called Manatsa) entered into an agreement of sale in
terms of which the defendant sold to Manatsa a Nissan Hardbody 2.7
litres diesel truck.
On
8 October 2008 the plaintiffs had agreed to act as guarantors for
Manatsa in the event that he failed to meet his obligations towards
the defendant.
The
plaintiffs surrendered their title deed being Deed of Transfer
6291/1998 for a property known as Stand 2846 Highfield Township,
Harare as security.
The
purchase price of the motor vehicle was US$22,000-00.
At
the time Manatsa and the defendant entered into the agreement they
had not sought statutory approval authorising payment in foreign
currency as required by the provisions of Statutory Instrument
109/1996.
Manatsa
failed to perform his obligations in terms of the agreement with the
defendant. He failed to pay the purchase price.
As
a result, the defendant instituted legal proceedings against him and
obtained judgment in case number HC1640/2010 on 17 November 2010.
The
judgment was obtained in default.
On
15 December 2010, the defendant instituted legal proceedings against
the plaintiffs under case number HC9295/10 seeking the following
order:
“(a)
The 1st
and 2nd
respondents are jointly and severally liable with Samuel Raymond
Manatsa to pay and shall pay the sum of US$22,000-00 jointly and
severally to the applicant within ten (10) days of service of this
order.
(b)
The property known as Stand 2846 Highfield Township held under Deed
of Transfer No. 6291/1998 is specially executable by writ of
execution in terms of this order and also in terms of the order in
case no. HC1640/2010.
(c)
The respondents shall pay the costs of this application on the legal
practitioner and client scale.”
The
application was opposed by the plaintiffs.
On
18 February 2015, the application was dismissed for want of
prosecution under case no. HC105/2015.
On
the other hand, another court unaware of the dismissal that had been
granted, granted the application under case number HC9295/10 in June
2015 as a default judgment.
The
plaintiff made an application for its rescission which was granted in
default under case number HC9174/15.
The
defendant has since made an application for the rescission of that
default judgment under case number HC2692 B/2016 which application is
still pending.
On
4 April 2011 the plaintiffs had instituted the current proceedings
against the defendant seeking the following order:
“(a)
Delivery of title deed of property No. 2846 Highfield Township,
Harare within 7 days of being served a copy of the order.
(b)
Costs of suit.”
The
defendant opposed the claim and made a counter claim seeking the
following order:
“(a)
An order that the plaintiff pays the defendant the sum of
US$22,000-00 jointly and severally each paying the other to be
absolved.
(b)
An order that Stand 2846 Highfield, Harare, to be declared specially
executable.
(c)
Costs of suit on a legal practitioner and client scale.”
At
the pre-trial conference the parties agreed on the issues for trial
and the matter was referred to trial, but on the date of the trial
counsels agreed to proceed by way of a special case.
They
agreed on the following issues for determination:
1.
Is the agreement between the plaintiffs and defendant null and void
for want of requisite statutory clearance and authority to transact
in United States dollars?
2.
In the event that the court finds it unlawful, can the agreement be
saved by the legal exceptions that apply in such cases?
3.
Whether or not the defendant's counter claim is res
judicata?
4.
If the counter claim is not res
judicata
whether or not the prayer should be granted?
I
will now turn to deal with these issues one by one.
(i)
Is the agreement between the plaintiffs and defendant null and void
for want of requisite statutory clearance and authority to transact
in United States dollars?
The
plaintiffs counsel, Mr Kawonde
submitted as follows.
Section
4 of the Exchange Control Regulations S.I.109/1996 outlawed any
dealings in foreign currency by Zimbabwean residents without the
requisite exchange authority. He went on to cite the provision which
reads as follows:
“Dealings
in foreign currency
1.
Subject to subsection (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 than an authorised dealer; or
(ii)
Borrow any foreign currency from or lend any foreign currency to or
exchange any foreign currency with any person other than an
authorised dealer.”
Mr
Kawonde
submitted that from the facts of the present matter it is common
cause that section 4 of the Exchange Control Regulations was breached
and as such the sale agreement that the defendant and Manatsa entered
into for the sale of a motor vehicle was illegal.
He
said that, equally, the agreement that the plaintiffs entered into
with the defendant to act as guarantors for Manatsa was illegal.
Citing
the cases of Mlambo
v Chikata
2015
(1) ZLR 206; Mega
Park Zimbabwe (Pvt) Ltd v Global Technologies Central Africa (Pvt)
Ltd
2008
(2) ZLR 195 H; and Dube
v Khumalo
1986
(2) ZLR 103 at 109 D-F, Mr Kawonde
argued
that an illegal contract is unenforceable at law by virtue of
operation of the maxim exturpi
causa non-oritur actio
which
stipulates that no action arises from an illegal contract.
In
other words one cannot seek to enforce an illegal contract.
Mr
Kawonde
submitted that, consequently, the loss lies where it falls (the in
pari
delicto
rule applies).
He
further submitted that the in pari
delicto
rule is only relaxed where a rescission of the contract is sought on
equitable grounds, otherwise the courts will never enforce an illegal
contract.
Mr
Kawonde
argued that upholding the guarantee will be an act of enforcing the
two (2) illegal contracts that were entered into on 8 and 10 October
2008.
He
submitted that if the principal contract is illegal, the surety is
not bound to the creditor as per the case of Muchabaiwa
v Grab Enterprises (Pvt) Ltd
1996
(2) ZLR 691 (S) para E of the headnote.
He
further referred to the case of Albert
v Papenfus
1964
(2) SA 713 at p717H wherein it was held that:
“It
is common cause and trite law that if the main obligation is
unenforceable as being tainted with illegality, the guarantor's
obligation is equally unenforceable.”
Mr
Kawonde
submitted
that in view of the illegality of the two contracts that were entered
into the plaintiffs should be granted the relief that they are
seeking for the return of their title deeds by the defendant.
He
submitted that the defendant is not going to be prejudiced by this
order because he has already obtained a default judgment against
Manatsa under case number HC1640/16, so his recourse lies with
enforcing that judgment for the recovery of his money.
He
said that in any case the motor vehicle that was sold was delivered
to Manatsa and not to the plaintiffs, so the issue of unjust
enrichment to the plaintiffs does not even arise.
In
response Mr Nyamayaro
for the defendant submitted that the argument by Mr Kawonde
that the agreements were null and void for non-compliance with
Statutory Instrument 109/1996, the Exchange Control Regulations is
baseless.
He
said that in 2008 before the adoption of the multi-currency, nothing
in the law prohibited the making of an agreement denoted in United
States dollar. He said that the issue was dealt with extensively in a
string of cases. He said that what was an offence was paying in
foreign currency without acquiring the relevant authority, but
nothing stopped people from making agreements denoted in foreign
currency.
He
went on to cite a number of cases which include the case of McCosh
v Pioneer Corporation African Limited
HH164/10
and Barker
v African Homesteads
SC18/03
which cases specifically dealt with section 4 of the Exchange Control
Regulations S.I.109/1996 which prohibited dealings in foreign
currency without the permission of the exchange control authority.
The
McCosh
v Pioneer Corporation Africa Limited
case
involved a labour dispute between a former financial director, Mr
McCosh and his former employer, the defendant company.
Mr
McCosh was seeking payment of arrear salaries and other benefits
arising from a contract of employment concluded between the parties
in September 2004 and was terminated in March 2007 before the
adoption of the multi-currency in February 2009.
In
July 2007 the defendant's Group Chief Executive Officer had
acknowledged liability on behalf of the defendant for the sum of
US$70,000-00.
One
of the issues that the court dealt with was the interpretation of
section 4(1)(a)(ii) of the Exchange Control Regulations.
The
question was whether or not it was lawful for a Zimbabwean registered
company to pay its employees in foreign currency for work performed
in Zimbabwe without exchange control authority.
KUDYA
J held that payment of an employee's salary in foreign currency
before the adoption of the multi-currency would have contravened
section 4(1)(a)(ii) of the Exchange Control Regulations, but the act
of entering into an agreement to pay the salary in foreign currency
was not prohibited by the Exchange Control Regulations.
To
quote him verbatim
he said:
“It
seems to me that the payment of an employee's salary in foreign
currency, at the time, would have contravened section 4(1)(a)(ii) of
the Exchange Control Regulations. Both CHINENGO J and GOWORA J held
in separate cases of Jumvea
Zimbabwe Ltd & Anor v Matsika
2003
(1) ZLR 71 (H) at 74G and Gambiza
v Tavaziva
HH109-08
at p4 of the cyclostyled judgment, respectively, that payment of
foreign currency whether inside or outside Zimbabwe would amount to
an exchange and thus be in violation of section 4(1)(a)(ii) of the
Exchange Control Regulations.
In
the present case the defendant did not make any payment but entered
into an agreement to pay.
Mr
Magwaliba
was
therefore correct that such an agreement was not prohibited by the
exchange control regulations.
This
is what McNALLY JA had in mind in the Macape
case, supra,
when he said at p321A-B:
'The
contract to pay is lawful. Actual payment in pursuance of the
contract is unlawful, without permission. There is no reason why the
court should not order payment; subject to the condition that
authority is obtained. I must make it clear that this judgment in no
way inhibits the Reserve Bank in the exercise of its discretion. It
is entirely for the Reserve Bank to decide whether or not to
authorise the payment. If it decides not to do so the payment may
not be made. The contract remains lawful. Payment will then have to
await a change either in the law or in the policy of the Reserve
Bank.'
I
hold that the contract
to pay the plaintiff in foreign currency did not contravene any
Exchange Control Regulations.” (My emphasis)
Mr
Nyamayaro
also made reference to the case of Macape
(Pty) Ltd v Executrix Estate Forretser
1991
(1) ZLR 315 (S) which was also referred to in the McCosh
v Pioneer Corporation Africa Limited case.
What
comes out in the cases that Mr Nyamayaro
referred to is that under the Exchange Control Regulations the
entering into agreements to pay in foreign currency was lawful. What
was unlawful was making the actual payment in pursuance of the
agreements without first obtaining permission from the exchange
control authority.
So
even if authority was subsequently declined or refused, that did not
nullify the agreement itself.
In
Macape
(Pty) Ltd v Executrix Estate Forretser,
McNALLY JA said that if authority was not granted, payment would then
have to await a change either in law or in the policy of the Reserve
Bank.
In
casu,
the plaintiffs cause of action is the alleged contravention of
section 4(1)(a)(ii) of the Exchange Control Regulations which
prohibited dealing in foreign currency with an unauthorised dealer
without first obtaining permission.
Looking
at the section, it clearly did not prohibit the entering into
agreements or contracts denoted in foreign currency. All it did was
prohibit persons in Zimbabwe from dealing in foreign currency with
unauthorised dealers without first obtaining authority from the
exchange control authority.
So
dealing in or exchanging foreign currency with a person who was not
an authorised dealer was not prohibited per
ser.
All that was needed was to obtain permission before exchanging the
foreign currency.
With
this analysis, I fully associate myself with the case authorities
that Mr Nyamayaro
referred to above.
I
am therefore in agreement with the arguments and submissions made by
Mr Nyamayaro
that
the agreement that the defendant and Manatsa entered into in 2009 for
the sale of a motor vehicle in foreign currency was not illegal.
What
would have been illegal was for the payment of the money to have been
made without the parties or the defendant having first obtained
permission to receive such payment from the Exchange Control
Authority. Clearly, that would have contravened section 4(1)(a)(ii)
of the Exchange Control Regulations.
The
principal agreement that the defendant and Manatsa entered into being
legal, it follows therefore that the guarantee agreement that the
plaintiffs entered into with the defendant is also legal and
enforceable.
So
the plaintiffs are bound by it.
They
cannot therefore claim for the return of their title deed from the
defendant on the basis that the guarantee agreement was unlawful for
want of statutory clearance to transact in foreign currency.
I
will therefore dismiss their claim.
Since
I have made a finding that the agreements were lawful it means that
the issue with regards to legal exceptions that are applicable in
cases of illegal contracts falls away. Consequently, I will not
determine it.
(ii)
Whether or not the defendant's counter claim is res judicata?
It
is common cause that the defendant's counter claim in the present
matter is similar to the claim that he made under HC9295/10.
In
both matters the defendant wants the plaintiffs to be ordered to pay
him US$22,000-00 being the purchase price of the motor vehicle that
he sold to Manatsa for which the plaintiffs acted as guarantors. He
also wants the plaintiffs Stand for which he holds title deeds to be
declared specially executable. He further wants them to pay costs of
suit on a legal practitioner and client scale.
It
is not in dispute that at the moment HC9295/2010 is still pending.
The
plaintiffs obtained a default judgment dismissing it for want of
prosecution and the defendant has since made an application for its
rescission under case number HC2692B/2016.
Mr
Kawonde
for the plaintiffs citing the case of Kawondera
v Mandebvu
2006 (1) ZLR 1105 submitted that the requisites for a successful plea
of res
judicata
are that the prior action:
(i)
must have been between the same parties or their privies;
(ii)
must have concerned the same subject matter;
(iii)
must have been founded on the same cause of action.
Mr
Kawonde
also
cited the case of Towers
v Chitapa
1996 (2) ZL 261 submitting that in that case it was held that a
default judgment previously handed down could pose as an insuperable
obstacle to a claim in the future based on the application of the
principle of res
judicata.
Mr
Kawonde
argued
that in light of the authorities he had cited the defendant's claim
is res
judicata
and should therefore be dismissed.
On
the other hand, Mr Nyamayaro
submitted that the defendant's counter claim is not res
judicata.
He
submitted that the requirements for a successful plea of res
judicata
have been laid out in a number of cases such as Tobacco
Sales (Pvt) Ltd v Eternity Start Investments
2006 (2) ZLR 293 (H); Flowerdale
Investments (Pvt) Ltd and Another v Bernard Construction (Pvt) Ltd
and Others
2009 (1) ZLR 110 (S); and Banda
& Ors v Zisco
1999 (1) ZLR 340 (SC).
Mr
Nyamayaro
went on to submit that the essential elements of res
judicata
are:
(i)
The action in respect of which judgment has been given must concern
the same parties.
(ii)
The action or judgment must involve the same subject matter.
(iii)
The action in which judgment is given must be founded in the same
cause of action or complaint.
(iv)
With respect to requirement of the judgment, it must be a final and
definitive judgment.
It
was Mr Nyamayaro's
argument that in
casu
whilst the parties are the same, the action involves the same subject
matter, and the cause of action is the same, the two judgments that
were granted in HC9295/2010 are not final and definitive.
He
said that the plaintiffs obtained judgment by way of an application
for dismissal for want of prosecution which is not a definitive and
final judgment.
He
also said that the defendant also obtained judgment in default of
appearance by the plaintiff.
Mr
Nyamayaro
submitted that as a result the requirements for res
judicata
have
not been met.
The
special plea of res
judicata
means that the same matter has been decided in another court of
competent jurisdiction and may not be pursued further by parties. The
matter would have been judged on the merits and as such it may not be
relitigated.
This
plea is a declinatory plea meaning that it is meant to quash or put
an end to the proceedings.
I
am in agreement with the essential elements of res
judicata
as enumerated or outlined by Mr Nyamayaro
because he made mention that there should be judgment in the matter
and the judgment must be a final and definitive judgment.
The
doctrine of res
judicata
is meant to bar or preclude continued litigation of a case on the
same issues between the same parties. It means that the matter cannot
be revised again either in the same court or in a different court.
Put
differently, the doctrine means that the same matter cannot be
reconsidered by the same court or by a different court. It
is
a legal concept that is meant to prevent -
(i)
injustice to the parties of a case supposedly finished.
(ii)
unnecessary wasting of resources in the courts.
(iii)
future judgments from contradicting earlier ones.
In
casu,
it has been stated in the statement of agreed facts that pursuant to
a default judgment that the plaintiffs obtained, the defendant
applied for its rescission and that application is still pending.
To
begin with, a default judgment is a court judgment that is granted in
favour of either party when the opposing party fails to respond. It
can spell the end of a lawsuit and become a final judgment if the
opposing party does not seek to reverse it.
However,
if the opposing party seeks to reverse it by making an application
for its rescission, it does not become a final judgment.
In
HC9295/10, the defendant has since made an application to have the
default judgment which was obtained by the plaintiffs dismissing his
claim rescinded.
This
means that the default judgment that the plaintiffs obtained is not
yet a final judgment.
It
will only become a final judgment if the defendant's application
for rescission fails or if the defendant withdraws the application
for rescission.
Therefore,
at this juncture the counter-claim cannot be said to be res
judicata.
One
of the requirements or elements of res
judicata
being the need for there to be a final judgment has not yet been met.
(iii)
If the counter-claim is not res judicata whether or not the prayer
should be granted?
Although
counsels put this as an issue for determination, none of them
addressed it in their heads of argument.
I
would not know if the omission was an oversight or deliberate.
Be
that as it may, I realised that it was an issue that I could
determine without recalling counsels to address me on.
After
a research I came to the conclusion that although the counter-claim
is not res
judicata,
I cannot grant it for the reason that it is pending in this court
under case no. HC9295/10 as I have already discussed above.
The
matter is therefore lis
alibi pendens.
Since
it is already pending under a different case number, I cannot
determine it in the present matter. The risk or danger is that I
might reach an inconsistent decision from the one that will be
reached in HC9295/10.
With
lis
alibi pendens
the factors to be considered are as follows:
(i)
litigation is pending elsewhere;
(ii)
between the same parties or their privies;
(iii)
based on the same cause of action;
(iv)
in respect of the same subject matter.
See
Eravin
Construction CC v Twin Oaks Estate Developments (Pty) Ltd
(1573/10)
[2012] ZANWHC 27.
Lis
alibi pendens
just like res
judicata
is also a special plea that can be pleaded by the opposing party.
Whilst
res
judicata
is a plea in bar, lis
alibi pendens
is a plea in abatement.
The
difference in the two special pleas is that with res
judicata,
the matter would have been decided and there would be a final and
definitive judgment, whereas with lis
alibi pendens,
the matter would still be pending, awaiting determination. In other
words, there would not be a final and definitive judgment in
existence yet.
(iv)
Costs
Since
both parties have lost in their claims, I will order that each party
pays their own costs.
Therefore,
it be and is hereby ordered that:
1.
The plaintiffs claim is dismissed.
2.
The defendant's counter claim is dismissed.
3.
Each party is to bear its own costs.
Kawonde
Legal Services,
plaintiffs legal practitioners
Nyamayaro,
Makanza & Bakasa,
defendant's legal practitioners
