MAKARAU JP: The plaintiff's are husband and wife.
For the past fifteen years they were resident in and operating some business in
Mount Darwin. In September 2008, they decided
to dispose of their business interests and properties in Mount
Darwin and relocate to Harare. They advertised
for sale their properties by word of mouth and also inserted an advert in the
local daily newspaper. The defendant responded to the advert in the print media
and visited the properties for the purposes of viewing. He was satisfied with
the condition of the properties on offer. He made an offer to purchase the
properties. The parties negotiated and
finally settled at a figure of US $265 000-00 for both the residential and the
business properties. The parties agreed to approach a legal practitioner for
the drawing up of an agreement of sale. The defendant suggested that they use
his legal practitioner, to which the plaintiffs did not object. He then
telephoned his legal practitioner and gave him instructions on the agreement
that the parties had reached.
On
8 October 2008, the parties attended upon the defendant's legal practitioners
where they were presented with a draft agreement to sign. The agreement
reflected that the purchase price of the two properties sold was the sum of
$265 000 and that a deposit of $85 000-00 was to be paid upon the signing of
the sale agreement.
The
parties signed the agreement of sale.
On
the same day, the parties signed a similarly worded agreement, but one where
the purchase price of the properties was reflected as Z$10 billion. The
circumstances surrounding the signing of the second agreement are in dispute. I
shall revert to the two versions of events proffered by each of the parties on
why and how the second agreement came into being when I analyze the evidence
tendered on behalf of the parties.
Some
money exchanged hands after the signing of the agreements. The amount and the
currency of the money paid by the defendant on the day are also in dispute.
On
16 January 2009, the first plaintiff ceded his rights in the two properties to
the defendant with the consent of Pfura Rural Council, the local authority
under whose jurisdiction the properties fall.
On
1 April 2009, the plaintiffs issued summons out of this court, claiming against
the defendant, an order canceling the agreement of sale of 8 October 2009, an
order canceling the cession of rights in favour of the defendant of the two
properties, an order declaring that the deposit paid by the defendant in terms
of the first agreement of sale be declared forfeit to the plaintiffs as
consequential damages and costs of suit.
The
suit was defended.
In
the main, the defendant pleaded that he did not enter into the agreement of
sale where the purchase price is denominated in United States Dollars. Instead
he averred that the binding contract between the parties was the second one,
denominated in local currency, which he did not breach in any manner. Thus, at
the trial of the matter, the factual issue that fell for determination was
which of the two agreements was considered binding by the parties.
To
support their case that it was the first agreement denominated in foreign
currency that the parties concluded and deemed binding, the plaintiffs led
evidence. On the material issue, the first plaintiff's evidence was as follows.
When
he and the second plaintiff advertised their properties for sale in the print
media, they did not indicate an asking price. They invited people to make
offers. When the defendant showed interest in the properties, he made an offer
in United States
dollars in the sum of $265 000. They
agreed on that price. The defendant then advised them that he did not have the
purchase price in full but would make a deposit of $85 000-00 and pay the
balance on terms. These were the instructions that were given to the defendant's
legal practitioner to enable him to prepare an agreement of sale for the
parties. The agreement of sale was duly prepared and when they attended upon
the legal practitioner, they were taken through the terms of the agreement,
after which they all signed the agreement. The defendant then paid over the sum
of $85 000-00 which the second plaintiff stashed into her handbag. After this
small ceremony, the defendant requested that since he wanted to start trading
immediately, he needed a document to take to the local authority for cession of
rights to be effected in his favour. The second agreement was then prepared for
the purposes of cession only. It was not intended to be binding on the parties.
The legal practitioner who was assisting them assured the parties that the
document would be solely for the purposes of effecting cession. The parties
were advised that they could not use the first agreement of sale denominated in
foreign currency as this would be unacceptable to the rural council.
At
the time of the agreement, he would not have sold both properties for the sum
of $10 billion after having paid $343 billion simply to flight the advert in
the newspaper.
The
witness gave his evidence in a slow measured manner. He impressed me as being
honest and did not seek to exaggerate. He genuinely believed that he had
entered into a lawful agreement when he signed the first agreement and that the
second agreement was merely for cession purposes. He readily admitted his
naivety in ceding his rights in the properties before the dull purchase price
had been paid. He admits that he was excited by the deposit he received from
the defendant and thereby overlooked to protect this interest in the matter. Generally
although he was slow, I gained a favourable impression of the first plaintiff
as a witness. It is my finding that he was truthful in his testimony.
The
second plaintiff also gave evidence. She adopted the evidence given by the
first plaintiff as a correct rendition of what transpired between the parties.
She confirmed that the defendant paid the deposit stipulated in the first
agreement of sale and that she received the money. At the time, the plaintiffs
had concluded another agreement with a certain white man and after receiving
the deposit, they in turn paid it over to the agent of the seller of the
property they were purchasing.
Regarding
the signing of the two agreements of sale, her evidence was as follows.
After
signing the agreement denominated in foreign currency, which is what they
wanted, the defendant expressed a wish to start operating the businesses. He
requested cession in his favour. It is on that basis that he asked for the
second agreement to be prepared. The legal practitioner who was assisting them
explained to the parties that there was nothing much to the second agreement.
The
second was emotional in her manner of testifying. She however corroborated the
evidence of the first plaintiff in all material respects and I have no reason
to disbelieve her as to how the two agreements came about.
After
the evidence of the second plaintiff, the plaintiffs called one Jeremiah
Hlanga. He works as economic researcher with a local company. According to his
research and findings, as at 8 October 2008, there was not traceable
relationship between the sum of Z$10 billion in the second agreement of sale
and the amount of US$265 000-00 in the first agreement of sale.
While
in my view the basis for treating the witness as an expert in the field of
foreign exchange and the inflation rates that were applicable in the country
during the relevant time was not adequately laid, I will accept the gist of his
evidence as it was corroborated by the defendant himself when he testified as I
shall show later.
After
the testimony of this witness, the plaintiffs closed their case. This prompted
Mr Chivhinge to apply for the defendant to be absolved from the instance
arguing that the agreement that the plaintiffs sought to rely on was illegal as
it was in contravention of the Exchange Control Regulations. On the turn, I
dismissed the application.
The
test to apply when faced with an application for absolution from the instance
at the close of the plaintiff's case is in my view settled. This was put by GUBBAY CJ in United Air
Charters v Jarman, 1994 (2) ZLR 341 (S) GUBBAY CJ at 343B-C as follows:
“The test in deciding an application for absolution
from the instance is well settled in this jurisdiction. A plaintiff will
successfully withstand such an application if, at the close of his case, there
is evidence upon which a court, directing its mind reasonably to such evidence,
could or might (not should or ought to) find for him. See Supreme S v
Station (1969) (Pvt) Ltd v Fox & Goodridge (Pvt) Ltd 1971 (1)
RLR 1 (A) at 5D-E; Lourenco v Raja Dry Cleaners & Steam Laundry (Pvt)
Ltd 1984 (2) ZLR 151 (S) at 158B-E.”
In Supreme Service Station
(1969) (Pvt) Ltd 1971 (1) RLR 1 (A), BEADLE CJ at page 5E ff drew attention
to some of the features of the application which a court should bear in mind
when considering what the judgment of a reasonable man might be on the evidence
adduced at the end of the plaintiff's case. In conclusion, he urges courts to be loath to
decide on questions of fact without hearing the other side. In case of doubt as
to what a reasonable court would do, the judicial officer should always lean on
the side of allowing the case to proceed.
It was on the guidance of this
caution that I allowed the case to proceed.
The defendant gave evidence.
His evidence was to the following effect.
On 5 October 2008, he responded
to an advert that had been flighted in the local press by the plaintiffs in
respect of the two properties they were selling. He met with the plaintiffs and
at that meeting the plaintiffs advised him that they wanted to dispose of the
properties immediately. The plaintiffs further advised him that local currency
in either cash or a bank transfer were unacceptable. They were selling for
foreign currency only. An arrangement was made for him to view the properties
which he did. After inspecting the properties, he expressed his interest and
the parties negotiated the price until they concluded the agreement on US$265
000-00, which amount the witness had indicated he was willing to pay for the
two properties.
Whilst the parties were still in Mt Darwin but
after having concluded the agreement of sale, he telephoned his legal
practitioner and gave him instructions to draft an agreement of sale on the
terms that the parties had negotiated. The following day, the parties attended
at eh legal practitioners offices where the agreement was presented to them. In
the agreement, the purchase price of the property was denominated in US
dollars. The legal practitioner left the draft document with the parties. They
read through the document and appended their signatures to it. When the legal
practitioner returned, he inquired as to whether the parties required any
changes to be effected to the document. It is at this stage that he informed
them that the document required that they be in possession of the exchange
control authorities' approval to transact in foreign currency. When the witness
told him that he did not have such authority, the legal practitioner then
disowned the agreement to protect his professional integrity. He left the
parties to discuss over the issue. The parties agreed on the issue of the value
of the properties in local currency. A figure of $10 billion was agreed upon on
condition it was paid for in cash. The parties informed the legal practitioner that
they had reached agreement. They were made to wait while a fresh document was
prepared. In the interim, the witness left the offices to make a few calls
including calling for the $10billion in cash to be brought to the legal
practitioner's offices. He returned with the cash which was in two brief cases
and a plastic bag. The parties signed the agreement in the presence of the
lawyer who indicated that he would not witness the exchange of the cash as it
would be unethical for him to do so. The parties exchanged the money and sealed
the transaction with a ceremonial handshake. They left.
The defendant denied paying the
sum of US$85 000-00 as alleged by the plaintiffs. He further denied that he
required the second agreement for purposes of effecting cession of rights in
his favour.
He conceded that the sum of $10
billion agreed upon in the second agreement of sale was not the true value of
the two prosperities and that it was not based on any formula. The parties
simply agreed upon the sum. He concluded by testifying that the local currency
agreement was the valid agreement between the parties and that he had not
breached that agreement in any respect.
I did not gain a favourable
impression of the defendant as a witness. His evidence was improbable in a
number of instances. Under cross-examination, he denied that he had the sum
ofUS$85 000-00 on his person yet when he went to the legal practitioners office
he was going to sign the first agreement, and immediately hereafter make
payment in terms of that agreement. At that stage, he was unaware that the
parties would end up negotiating a fresh agreement in local currency. Also
improbable was his testimony that the plaintiffs, who all along had indicated
to him that they were not interested in selling their properties for local
currencies would quickly change their minds and sell for the paltry sum of $10
billion, a sum that he conceded was not reflective of the true value of the
properties.
Further, in view of the
seniority of the legal practitioner who drafted both agreements for the
parties, I find it improbable that the legal practitioner would only give
advice as to the illegality of the agreement after it had been signed. Further,
it is highly improbable that after preparing a valid document in local currency
to replace the illegal document, the same lawyer would allow the first document
to be kept by the parties if it was not meant to be binding as between the two
of them. Equally without explanation is the fact that both parties kept their
individual copies of the first agreement of sale. This would have been
unnecessary if they had agreed to replace it with the second. Ludicrous is the
suggestion that the legal practitioner advised the parties that it is unethical
for him to witness the parties exchanging the purchase price of the properties
sold!
Due to the various unsatisfactory
features of his testimony, I find that the defendant was not a credible witness
whose testimony I can rely on.
The defendant called one
Stanislaus Runyararo Nyachowe. He is the Chief Executive Officer of Pfura Rural
District in Mt Darwin. He came to confirm that the first plaintiff ceded his
rights, title and interests in the two properties in dispute to the defendant in
October 2008. He further confirmed that the basis of the cession was the
agreement in local currency which was availed to council by the defendant.
Nothing much turns on the
evidence of this witness. After his testimony, the defendant closed his case.
As the trial progressed, it
became apparent that the first issue that I have to determine in this matter is
which agreement between the parties is binding. The plaintiff's contend that it
is the first one while the defendant contends to the contrary.
It is common cause that the
parties negotiated the terms of the first agreement and reached consensus
thereon before requesting the defendant's legal practitioners to reduce the
agreement to writing. The parties thereafter signed the written document
embodying the terms of the agreement they had reached. They all had the
necessary intention to be bound by the terms of the agreement when they signed
the agreement. Thus, on the basis of formalities and the essential requisites
of a sale agreement, there is no blemish to this agreement.
To be fair to him, I did not
understand the defendant to testify or suggest that there was a defect attendant
upon the formation or execution of the first agreement of sale. His contention
rather was that the parties discarded and abandoned the agreement on the advice
of his legal practitioner when it emerged that neither of them had the prior
approval of the central bank to transact in foreign currency.
In my view, abandoning an
agreement of sale is akin to a waiver of rights. Such cannot be inferred save
from the clearest language by the party allegedly waiving such rights.
In casu, I
do not have evidence of the clear intention on the part of the parties to
abandon the first agreement of sale. Both parties have kept their copies of it
and the plaintiff has been pressing the defendant to perform under the
agreement ever since. Such is not consistent with an intention to abandon the
agreement.
On the other hand, the second
agreement lacks one vital ingredient. The plaintiffs did not intend it to be
binding. They lacked animus contrahendi
and executed the agreement simply as an instrument to facilitate cession of right
but not to govern their relationship with the defendant. It thus cannot be
binding as between the parties.
Having found that the binding
agreement between the parties is the first agreement in which the price was
denominated in foreign currency, the next issue that arises is whether such a
contract can find expression in this court. The defendant has argued that the
contract is illegal and that this court should apply the ex turpi causa rule against it. The plaintiffs argue that the
contract was not illegal as they were not dealing in foreign currency but had
simply sold their properties for foreign currency. In this regard, Mr Dondo for the plaintiffs urged me to
construct the meaning of the provisions of section 4 (1) (a) (ii) of the
Exchange Control Regulations 1996 (S.I. 109/96).
Section 4(1) (a) ii prohibits
any Zimbabwean from borrowing, lending or exchanging any foreign currency with
any person other than an authorised dealer.
In Matsitka v Jumvea Zimbabwe
(Private) Limited and Another 2003 (1) ZLR 71 (H), CHINHENGO J had occasion
to comment on the application of the section. In that case, both parties, as in
this case, were resident in Zimbabwe.
The one sold to the other a motor vehicle. The price of the vehicle was
denominated in foreign currency. The court held that the transaction was
illegal as it contravened the provisions of the regulations. I agree. The
section prohibits the exchange of foreign currency and in my view, the word
“exchange” as used in the regulations include exchange for other goods, of
which a sale is such a transactions. Nowhere in the regulations is the term
exchange limited to exchanging for other currency as was urged upon me by Mr
Dondo.
On the basis of the above, I
find that the transaction between the parties was tainted with illegality.
Two
rules are of general application to illegal agreements. They are the ex turpi causa non oritur actio and the
in pari delicto potir est conditio possidentis rules. 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 rule to do justice between the parties. (See Dube v Khumalo 1986 (2) ZLR 103 (SC); Young v Van Rensburg1991 (2) ZLR 149
(S); Matsika v Jumvea Zimbabwe
(supra) and Edson Mudzivo and Another v
Norest Nyamakope HH 120/09).
It
is common cause that the contract in casu
was performed in part. The default position therefore is that the loss should
lie where it falls unless this will result in the defendant being unjustly
enriched at the expense of the plaintiffs. The
plaintiffs have parted with two properties and in turn have received from the
defendant the sum of US$85 000-00. In the circumstances, if I were to allow the
loss to lie were it falls, the defendant will walk away with two properties
whose value was greed as between the parties to be not less than US$265 000-00,
for much less. This appears to me to be obvious unjust enrichment. The
circumstances of this matter in my view justify the relaxation of the in pari delicto rule to avoid the injustice
that will result by allowing the loss to lie where it falls.
Wisely,
Mr Dondo abandoned the plaintiffs
claim for damages. It is therefore unnecessary that I determine whether damages
can flow from an illegal contract.
In
the result, I make the following order:
1.
The sale agreement between the plaintiffs and the
defendant in respect of stands 32 and 37A Kandeya Township,
Mt Darwin is hereby set aside.
2.
The defendant is to cede and transfer his rights, title
and interests in the two properties to the plaintiffs against refund of the sum
f US$85 000-00 failing which the deputy sheriff shall take all steps necessary
and sign all documents on behalf of the defendant.
3.
The defendant shall bear the plaintiffs' costs of suit.
Chinamasa, Mudimu, Chinogwenya & Dondo,
plaintiffs' legal practitioners.
Chivhinge &
Company, defendant's legal practitioners.
