MAKARAU JP: The facts of this application are
common cause. I summarise them as follows.
On
17 October 2008, the parties concluded a written agreement of sale. In terms of
the agreement, the respondent sold to the applicants a piece of land called
stand 414 Manresa Park, Harare.
The land was sold for the sum of US$18 000-00. The purchase price was to be
paid as to a deposit on the signing of the agreement and thereafter in terms of
payment schedule. The deposit was duly paid and as at 13 February 2009, the
applicants had paid a total of US$11 900-00. It was specifically agreed between
the parties that the respondent would hand over the deed of transfer in respect
of the property to the applicants upon payment of the purchase price in full.
On
9 June 2009, the applicants filed this application seeking an order compelling
the respondent to refund the amount of US$11 900-00 together with interest
thereon at a rate applicable in the United States. In the application,
the applicants contend that the respondent made them understand at the time of
the agreement that he was in possession of a deed of transfer in respect of the
property. In or around February 2009,
the applicants discovered that the respondent did not hold freehold title to
the property but that he had certain rights and interests in the property that
could be ceded to him. They felt that the respondent had materially
misrepresented the position to them and sought to rescind the agreement of sale
on the basis that the misrepresentation goes to the root of the contract.
The
application was opposed.
In
opposing the application, the respondent denied the misrepresentation and averred
that at all times the applicants knew that he did not have a deed of transfer
to the property but that what he had to prove title to the land was an agreement
between a financial institution and him and in terms of which he had purchased
the land. He is willing and ready to give the deed of transfer to the applicant
once one is made available to him. In conclusion, the respondent avers that in
any event, it was not lawful in October 2008 for the parties to transact in
foreign currency without the approval of the exchange control regulator.
Neither of the parties had this prior approval.
At
the hearing of the application, the issue that took centre stage was the
illegality of the contract and whether the applicants could seek refund of the
purchase price of the property, a judgment that will sound in foreign currency.
It
is common cause that at the time that the parties entered into the agreement,
the legal tender in Zimbabwe
was the Zimbabwean currency. This was prior to the introduction of the
multi-currencies that are now legal tender in the country. Due to the ravages
of inflation, the local currency had lost ground as a currency of transacting business
but the monetary policy was slow in changing to catch up with the reality on
the ground. As such, transaction concluded prior to February 2009 when the
multi-currency system was formally introduced had to be effected or consummated
in local currency to avoid being tainted with illegality. In casu, the
parties effected payment in foreign currency and the transaction was thereby
rendered illegal.
The
law that apples to illegal contract appears to me to be quite clear. Two rules are of general application. Where
the contract has not been performed, the courts will not compel performance by
either party to the contract. This rule is absolute and admits of no
exceptions.
Where
the parties are equally in the wrong, the loss will lie where it falls unless,
in its discretion, the court is of the view that one party will thereby be
enriched at the expense of the other. In such cases, the courts will relax the in pari delicto potior est condutio
possidentis rule to do justice between the parties.
The
application of the two rules in my view calls for a two step approach to any
contract that is tainted with illegality. Firstly, the judicial officer has to
ascertain whether the contract has not been performed in part or in whole and
the order sought in the suit will serve to compel performance under the
contract. If that appears to the court to be the case, the first rule applies without
exception and the plaintiff seeking to compel performance under such a contract
is non- suited.
If
the court ascertains that the contract has been performed in part or in whole,
then the court embarks on the second rung of the inquiry to ascertain whether
allowing the loss to lie where it falls will result in one of the parties being
unjustly enriched at the expense of the other.
Ordinarily,
where the contract has been performed in part or in whole, the default position
is that the loss should lie where it falls. This is so to discourage illegality
by denying judicial assistance and recognition to parties who deliberately
breach the law for gain. In establishing whether one of the parties will be
unjustly enriched at the expense of the other, the courts in this jurisdiction have
taken the simple approach of assessing whether one party will gain or benefit
where he or she has not given value for the transaction. In Dube v Khumalo 1986 (2) ZLR 103 (SC)
GUBBAY CJ was of the view that because the defendant received rights title and
interests in the land without incurring any corresponding disadvantage and
without giving any value for such rights, the plaintiff who had paid for the
property was unjustly impoverished at the expense of the defendant. The same
approach appears to have been taken by KOSAH JA in Young v Van Rensburg 1991 (2) ZLR 149 (SC) where he reasoned that
in circumstances where the appellant had given no value for the property and
had done nothing to improve the property, whereas the respondent had paid for
the property and has made considerable improvements thereon, a refusal of the
relief sought would result in the unjust enrichment of the appellant.
It
appears to me that this approach, though simple in nature, is in line with the
steps that Bartlett J laid out in Walker
v Industrial Equity Limited 1996 (1) ZLR 269 (HC) where he was dealing with
a claim founded on unjust enrichment. He adopted the summary that was set out
by Wouter de Vos in Verrykingsaanspreeklikheid in die Suid Afrikaanse Reg
(1958) as stated by Scholtens in the 1996 Annual Survey of South African Law,
150 at 152 C and gave the requisites of
an action based on unjust enrichment as:
“(a) the defendant must be enriched;
(b)
the enrichment must be at the expense of another (ie the plaintiff must be
impoverished and there must be a causal connection between enrichment and
impoverishment);
(c)
the enrichment must be unjustified;
(d)
the case should not come under the scope of one of the classical enrichment
actions;
(e)
there should be no positive rule of law which refuses an action to the
impoverished person.”
In
my view, the inquiry that a judicial officer must therefore take when
exercising his or her discretion to relax the in pari delicto rule are the first three requisites set out above
by BARTLETT J. It appears to me that the judicial officer must establish
whether the defendant will be enriched, the enrichment will be unjustified, the
plaintiff impoverished and that both the enrichment of the defendant and the
impoverishment of the plaintiff are linked to the illegal transaction.
Applying
the above to the facts of this matter, it is common cause that the illegal
contract of sale between the parties has been performed in part. The applicants
have made payment towards the purchase of the piece of land. The papers however
do not disclose whether or not occupation of the land has been given to them. This appears not to be an issue between the
parties. In the circumstances, the first rule is thus of no application to the
facts of this dispute.
At
the time the parties entered into the agreement of sale, the law prohibited
transactions in foreign currency without the prior authority of the central
bank. Both parties avoided getting such authority and in doing so, I hold that
they are equally in the wrong. The second rule thus applies to their
circumstances and the loss should lie where it falls.
It
appears to me that to allow the loss to lie where it falls will leave the
parties in the partially performed contract where the applicants have parted
with money for a piece of land to which they may eventually have title. One may
argue and say there is no loss on the part of the applicants as they have
received a piece of land for value.
It
has not been argued before me that this state of affairs will unjustly enrich
the respondent at the expense of the applicants. Rather, the applicants have
approached the court to disengage from the contract on the basis of an alleged
misrepresentation. They are seeking a remedy that is ordinarily available to
parties to a legal agreement. I would have followed the reasoning in Khumalo v Dube (supra) to relax the application
of the in pari delicto rule were I
persuaded that there is a loss to the applicants in this matter or that the
transaction has unjustly enriched the respondent at the expense of the
applicants. I am neither so satisfied
nor has the unjust enrichment been brought to my attention. Each party to the
transaction parted with an asset of value. No one is to gain where there have
not given value.
In
the result, I see no basis for relaxing the in
pari delicto rule. The applicants cannot therefore succeed.
In
view of the conclusion that I have reached above, it is not necessary that I
determine whether this court can order refund of a purchase price paid in
pursuance of an illegal transaction where to do so will result in this court
issuing a judgment sounding in foreign currency. The point will have to be
determined by a future court and in a suitable case.
I
therefore make the following order:
1.
The application is dismissed.
2.
The applicants will bear the respondent's costs.
Mantsebo & Company, applicants' legal practitioners.
H Mukonoweshuro &
Partners, respondent's legal practitioners.
