Approach re: Pre-Financing Contracts

HH172-10 : COTTON GINNERS ASSOCIATION vs SINO ZIMBABWE COTTON HOLDINGS (PVT) LTD and AGRICULTURAL MARKETING AUTHORITY
Ruled By: CHIWESHE JP

In support of this application, the applicant's Director –General, Mr Godfrey Murombo Buka, filed a founding affidavit whose contents are to the following effect. The applicant's members (twelve in number) are all registered as contractors and buyers with the Cotton Marketing Technical Committee in terms of sections 9 and 10 of S.I.142 of 2009. These ...

In support of this application, the applicant's Director –General, Mr Godfrey Murombo Buka, filed a founding affidavit whose contents are to the following effect.

The applicant's members (twelve in number) are all registered as contractors and buyers with the Cotton Marketing Technical Committee in terms of sections 9 and 10 of S.I.142 of 2009. These members have entered into contracts with individuals and groups of cotton growers throughout the country in terms of which they have technically and financially supported the growers with inputs. They have also provided the growers with cotton packs to be used when packing the seed cotton for sale. The applicant's members have, consequently, spent considerable financial and technical resources supporting the current crop from planting up to harvesting. In return, contracted growers are obliged to sell their seed cotton to the company to which they are contracted and the company is equally obliged to purchase the seed cotton from its contracted growers. This contractual relationship, avers the applicant, is consistent with the provisions of section 14 of S.I.142 of 2009. The first respondent entered the cotton market on 24 June 2010 when it was awarded a licence to buy seed cotton during the 2010 season.

According to the applicant, the first respondent is violating the law, and the terms of its licence, by inducing the contracted farmers to breach their contracts with the applicant's members and buying cotton seed from such contracted growers. The applicant states that the first respondent's operations cover areas in Mashonaland Central, Mashonaland West and the Midlands, particularly in the areas of Gokwe, Kadoma, Mhangura, Mount Darwin, Bindura, Guruve, Mutoko and Rafingora. It also alleges that the first respondent is buying seed cotton contained in other companies' cotton packs which packs it would then empty into its own packs. The applicant further states that on 14 July 2010 the first respondent sponsored an advertisement in “The Herald” newspaper inviting all cotton farmers to sell their seed cotton to it as it was offering higher prices, labelling other buyers as “thieves” who were cheating the farmers by offering lower prices. The same advertisement has been posted and published in all the areas where the first respondent is operating. The applicant has reported this matter to the police, but, to date, no action has been taken. A report was also made to the Cotton Marketing Technical Committee which, in a letter dated 9 July 2010, warned the first respondent to stop its illegal activities. The applicant says the first respondent is offering the price of fifty cents per kilogram which is higher than the average price of forty cents per kilogram being offered by its members. The first respondent, according to the applicant, can afford to offer that higher price because it has not incurred any production costs. It is reaping where it has not sown. The first respondent's conduct, says the applicant, is illegal and highly prejudicial to the applicant's members as they will not be able to recover their loans from the growers which were secured by the crop nor will they be able to secure seed cotton for their ginning and processing factories. Further, according to the applicant, the first respondent's actions will undermine the availability of cotton seed next season, thus prejudicing growers and the cotton industry at large. The applicant's members may also, as a result, fail to support the growers in future as they would have been driven out of business.

With regards the merits, the first respondent denies “inducing” any contracted grower to do business with it and states that it has not purchased any contracted cotton. It is suggested that the applicant is motivated by fear of competition in the cotton industry and that the Order sought, if granted, would stifle the first respondent's operations. The first respondent denies breaking any law or inducing any grower to break the law. It says that its operations are transparent and every grower who sells to it is required to fill in Declaration Forms “H” and “I”, copies of which are filed of record, declaring, under Form “H”, that he is not contracted to anyone, and, under Form “I”, that he is contracted but has discharged his obligations under such contract or has cotton in excess of what he is required to sell in terms of his contract. The first respondent further states that there is no law which bars it from buying 'free” cotton or any arrangement that prohibits competition amongst the players in the industry. The first respondent reiterates that it is its policy not to buy contracted cotton. Where “free” cotton has been brought to it in other companies' wool packs, the first respondent has insisted that these be replaced, as long as the cotton is “free”. The first respondent also states that in some instances the growers are not aware that they should not use other companies' wool packs, and, in some instances, some growers have indicated that they owned the packs. The first respondent says the advertisement in “The Herald” warns growers against dealing with unscrupulous middlemen. It sees nothing wrong with that. The first respondent maintains that it has not committed any criminal offence hence there is no basis upon which the police may be expected to intervene. It says that the farmers are benefiting from its prices. If any grower has breached the terms of his contract the first respondent avers that the applicant should take it up with the grower concerned.

SC108-21 : VALENTINE MUSHAYAKURARA vs ZIMBABWE LEAF TOBACCO COMPANY (PRIVATE) LIMITED
Ruled By: MALABA CJ, UCHENA JA and CHIWESHE AJA

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 off-shore 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 off shore 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 together with 15% Value Added Tax on the costs, had to be paid in annual instalments of US$30,000. 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.

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 judgement.

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 the appellant lawfully discharged his liability to the respondent in terms of Statutory Instrument 33 of 2019 (SI33/19). This was on the basis that section 4(1)(d) of SI33 of 2019 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 SC03-20, in interpreting section 4(1)(d) of S.I.33/19 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 of Zimbabwe Act [Chapter 22:15] 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.”…,.

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 S.I.33 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 Breastplate Service (Pvt) Ltd v Cambria Africa Plc SC66-20, 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 of 2019.

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 off shore 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 off-shore 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.

Zambezi Gas (Pvt) Ltd v NR Barber & Anor SC03-20 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 of Zimbabwe Act [Chapter 22:15].

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 of Zimbabwe Act [Chapter 22:15] to protect its rights to the repayment of the offshore funds advanced to the appellant in United States dollars under the Deed of Settlement.

HH412-21 : ZIMBABWE LEAF TOBACCO vs KEVIN COOKE
Ruled By: DUBE J

The plaintiff issued summons for civil imprisonment against the defendant for failure to pay a debt in terms of an order granted against him.

On 29 November 2017, the plaintiff obtained judgment against the defendant for payment of US$360,000 together with interest at the rate of 12% per annum plus US$8,625 together with VAT thereon. Upon execution, the Sheriff returned a nulla bona return prompting the plaintiff to file for civil imprisonment.

The plaintiff's case is that the tobacco growing loan giving rise to this debt was financed using offshore funding and is payable in United States dollars in terms of applicable legal instruments. The plaintiff insists that the defendant ought to pay the outstanding debt in United States dollars and refutes that the defendant has paid back the loan in full.

The defendant has refused to pay the debt in United States dollars and insists that the loan ought to be paid in RTGS dollars.

The defendant resists civil imprisonment on the basis that he paid the debt in full.

According to the defendant, he has paid a sum of $426,325=69 and an additional $50,0000. He submitted that the plaintiff has sought to apply a rate of exchange to repayments made on 18 September 2019 and 18 June 2020 respectively in violation of the law which is that all debts that existed prior to 22 February 2019 are payable at the rate of 1:1 to the RTGS dollar and this includes judgment debts.

He contended, that, the claim for civil imprisonment is misguided as the plaintiff has no cause of action against him and urged the court ought to dismiss the summons for civil imprisonment.

The Nature of Civil Imprisonment

A summons for civil imprisonment calls upon a debtor to show cause why he should not be imprisoned for failure to pay a debt.

The new High Court Rules 2021, published under Statutory Instrument 202 of 2021, SI202 of 2021, make provision for imprisonment for a debt in Rule 73.

In terms of Rule 73(4) of the High Court Rules, before a court makes an order for civil imprisonment, it should satisfy itself that the judgment debt has not been paid. In most civil imprisonment proceedings, liability is not an issue, in which case the court's enquiry is limited to the debtor's ability to service the debt and the appropriateness of civil imprisonment.

Where a debtor challenges civil imprisonment proceedings on the basis that he does not owe a contractual obligation or has cleared it, it is incumbent upon the court to resolve the dispute regarding liability first before delving into appropriateness of civil imprisonment.

In these proceedings, the issue is whether the balance due and outstanding by the defendant, as at 22 February 2019, was due in RTGS dollars at the rate of 1:1 and whether the respondent has discharged his liability for the debt.

The court must resolve, first, the question of the applicable currency and decide whether the defendant has cleared the debt. If this question is answered in the affirmative, that is the end of the matter.

If the court finds that the defendant owes in terms of the court order granted against him and has neglected and failed to pay in terms of the order, the court will be required to enquire into the respondent's ability and willingness to pay the debt in compliance with section 49(2) of the Constitution of Zimbabwe.

The new rules make specific reference to section 49(2) in Rule 73(1), unlike Rule 370, its predecessor, thereby giving guidance on the subject.

Section 49(2) of the Constitution stipulates as follows:

“(2) No person may be imprisoned merely on the grounds of inability to fulfil a contractual obligation.”

The Constitution bars imprisonment of a person simply on the basis of a failure to fulfil a contractual obligation. Section 49(2) of the Constitution protects the right to personal liberty and enjoins a court dealing with a summons for civil imprisonment, where it is satisfied that the debtor has not paid the amount due, to enquire into the question of the judgment debtor's failure to pay the amount due.

What this entails is that an indigent person will not be imprisoned for a debt simply because she owes.

In terms of Rule 73 of the High Court Rules, it must be shown, that, the debtor has the means to pay, earn the amount due, and that his failure or refusal to pay the amount due is wilful.

The fact that a debtor owes a contractual obligation does not necessarily call for his civil imprisonment.

Civil imprisonment is a drastic measure which should be resorted to only as a last resort and only in instances where a debtor is able to service the debt but has shown an unwillingness to discharge the obligation. It is for this reason that the court is enjoined to carry out an enquiry to establish the financial position of the debtor and attitude to payment of the debt. The manner in which the debt will be cleared is considered in a case where the debtor is able to service the debt and shows a willingness to settle it.

The Legal Framework

The plaintiff is in the business of financing tobacco growing projects. Sometime, in May 2013 and July 2014, the defendant was advanced money and crop inputs in terms of a tobacco grower contract agreement. It obtained exchange control approval for the 2013-2014 and 2014-2015 tobacco growing seasons and was able to source foreign currency and purchase inputs to advance to tobacco growers: see Annexure C1and C2.

The defendant failed to pay back the grower debt. The loan advanced to the respondent was offshore funds advanced in United States dollars and is a foreign obligation denominated in foreign currency.

There are a number of instruments that permit tobacco merchants to recover tobacco growing loans advanced in United States dollars.

Financing and repayment of tobacco production is regulated by section 4(1)(a) of the Exchange Control (Tobacco Finance) Order, 2004, SI61 of 2004 which states, that, all auction and contract tobacco shall be paid for in United States Dollars. Section 5(3) provides that where a contractor has financed a tobacco grower by accessing offshore funds for that purpose, the amount used to finance the grower may be set off against the price of tobacco sold to the contractor by the grower.

The purpose of the Exchange Control Order is to ensure that where offshore funds are used to finance tobacco production, the contractor is able to recover the money from growers, in foreign currency, to enable the contractor to repay the foreign loan. A repayment in United States dollars or set off against the price of tobacco sold to the contractor enables the tobacco merchant to recoup his United States dollar investment.

The Zimbabwean dollar was re-introduced on 24 June 2019 in terms of SI142 of 2019.

On 29 July 2019, the Reserve Bank issued the Clarification to the Tobacco Industry, Circular No.7 of 2019, states in section 2 as follows:

“2. Treatment of US$ Denominated Inputs Advanced to Growers:

2.1 Tobacco merchants have the option to use foreign currency sourced from local banks (through global facilities) or offshore financing to procure inputs for distribution to tobacco growers under contract arrangements.

2.2 Where tobacco growers receive US$ input loans, repayment to the tobacco merchant shall be in foreign currency in order to protect the tobacco merchant's investment.”

Circular number 7 was issued in terms of section 35(1) of the Exchange Control Regulations, SI106 of 1996.

Section 2 of Circular No.7 states, that, a tobacco grower who obtains USD denominated input loans from a tobacco merchant is obligated to pay back in foreign currency.

The purpose of the section is to provide clarification on payment to tobacco merchants, by growers, where a tobacco merchant has accessed offshore funding to finance the tobacco growing. The rationale of section 2 of the Clarification to the Tobacco Industry, Circular No.7 of 2019 is to protect a tobacco merchant's investment. It would be absurd to expect that the merchant recovers the loan in RTGS when he obtained a USD-denominated input loan himself to finance the tobacco growing.

The legal framework available entitles a tobacco merchant, who has advanced United States dollars denominated input loans to a tobacco grower, to recover the loan in foreign currency.

Section 4(1)(d) of Statutory Instrument 33 of 2019, SI33 of 2019 deems all assets and liabilities, including judgment debts denominated in United States dollars, immediately before 22 February 2019, to be valued in RTGS dollars at a rate of 1:1: see Zambezi Gas Zimbabwe (Pvt) Ltd v NR Barber (Pvt) Ltd SC03-20.

There was agreement over the import of this section.

The parties disagreed over the applicability of this section to this case.

The defendant 's contention, that, upon the introduction of the RTGS dollar, on 22 February 2019, all assets and liabilities that were expressed in United States dollars were converted to RTGS at the rate of 1:1 and therefore that this particular loan is payable in RTGS lacks merit.

The defendant lost sight of the fact, that, there are instances when this section does not apply.

Finance Act No.2 amended the Reserve Bank of Zimbabwe Act [Chapter 22:15] and introduced section 21(1) as section 44C. Section 21(1) of Finance Act No.2 of 2019 makes it clear that the conversion at the rate of 1:1 does not apply in the case of foreign loans and foreign obligations denominated in any foreign currency and stipulates as follows:

“(a) Foreign loans and foreign obligations denominated in any foreign currency, which shall continue to be payable in such currency.”

All these instruments ought to be read in harmony with the Finance Act.

The defendant submitted, that, Exchange Control (Tobacco Finance) Order, S.I.61 of 2004 being subsidiary legislation, has the undesirable effect of overriding the provisions of Finance Act No.2 of 2019, being the enabling legislation.

It is a fundamental rule of law that the purpose of subsidiary legislation is to supplement primary legislation. Subsidiary legislation must not be ultra vires the enabling Act. Subsidiary legislation must not conflict with, run counter to, or replace enabling legislation.

Whilst debts pre-existing 22 February 2019 are payable at the rate of 1:1 in RTGS, foreign obligations are ring-fenced under section 21 of Finance Act No.2 of 2019. Foreign loans and obligations are an exception.

The Exchange Control (Tobacco Finance) Order makes provision for foreign loans and foreign obligations denominated in any foreign currency and provides that these shall continue to be payable in the currency involved.

This setup is contemplated under the Finance Act.

Consequently, the Exchange Control (Tobacco Finance) Order, SI61 of 2004 supplements Finance Act No.2 of 2019 and has no effect of breaching its provisions or replacing it. The two pieces of legislation are not in conflict with each other and ought to be read in harmony.

In Zimbabwe Leaf Tobacco (Pvt) Ltd v Valentine T. Mushayakarara HH220-20, the court dealt with a matter with similar facts to this case. The court considered the implications of section 4(1)(d) of S.I.33 of 2019, Finance Act No.2 of 2019, the Exchange Control (Tobacco Finance) Order of 2004, and Exchange Control Circular No.7 of 2019 and held, that, where a tobacco contractor has utilised offshore funds to finance tobacco growers, he is entitled to recover the loan in United States dollars.

The decision of the court was upheld on appeal.

In casu, the plaintiff does not dispute, that, the plaintiff sourced offshore funds in United States dollars and advanced United States dollar-denominated inputs to the defendant. The respondent did not refute that the money advanced to the defendant was part of a foreign loan obtained by the plaintiff in accordance with the 2013-2014 and 2014-2015 tobacco farming season with exchange control approvals.

In Breastplate Service (Pvt) Ltd v Cabria Africa PLC SC66-20, the court zeroed in on issues regarding the intention of the parties in a contract and held, that, where the parties have agreed and expressed their intention that payment must be made in foreign currency, a court must give effect to that intention.

The defendant entered into an agreement well aware of the nature of the agreement he was binding himself to. The contract defines “grower debt as the value of the crop finance.''

It expressly states, that, payment to the plaintiff would equate to the crop finance.

The defendant signed an acknowledgment of debt, in June 2015, acknowledging owing sums in United States dollars.

The issue of value and recovery has always been within the parties minds.

The nature of the debt entitles the plaintiff to recover the loan in United States dollars. There is a correlating foreign obligation to repay a foreign loan in United States dollars. The loan advanced, being a foreign obligation, the defendant is expected to pay the money back in United States dollars. This obligation is payable in United States dollars and is an exception to section 4(1)(d) of S.I.33 of 2019 which is not applicable to the circumstances of this case.

I must conclude, that, based on Zimbabwe Leaf Tobacco (Pvt) Ltd v Valentine T. Mushakarara HH220-20, the defendant was required to pay back the loan in United States dollars because the tobacco growing contract was financed from off-shore funds. The defendant has an obligation to pay the debt in foreign currency. The plaintiff has an entitlement to insist on payment in United States dollars.

The plaintiff denied that the defendant has discharged the judgment debt in full and submitted, that, what appears on p13 of the record is a repayment plan and that the debt has not been discharged.

This assertion was not disputed.

The summons for civil imprisonment is for USD$360,000. The plaintiff's explanation for claiming the entire debt, despite that the defendant has been servicing the debt, is that the repayment plan is silent on the issue of interest, which has not been paid and hence claims the entire sum granted in terms of the order.

The repayment plan produced shows instalments due, payments made, and the balance outstanding.

It shows, that, the plaintiff continued to receive payments after the order was granted.

As at 23 July 2018, the balance outstanding was US$193,844=31. The defendant claims that he had paid a total of UD$161,355 as at this date. The defendant submitted, that, entries of Z$50,000 instalments of 31 December 2018 and 31 December 2019 were made in error.

The defendant needed to show that the payments made after this cleared the debt.

On 18 September 2019, the defendant paid Z$25,000 which was converted to US$1,804=34. On 18 June 2020, Z$190,000 (9,600) was paid. On 25 June 2020 the defendant paid Z$50,000 and it is not known how much this amount translated to in United States dollars as at that date. This amount does not, even if one takes into account the Z$50,000 paid later on and the Z$100.000 purportedly paid in error, clear the debt.

The amounts paid, albeit in RTGS dollars, reduce the balance but are not sufficient to discharge the debt in full.

The appearance is that the defendant still owes the plaintiff part of the debt which he has failed to pay.

According to the plaintiff, there is a balance of USD$182,414.

The defendant has failed to show that he settled the debt in full. The court has considered, that, in addition to the capital debt, it has not been shown that the interest, VAT, and additional sum of US$8,625 has been paid.

The defendant contended, that, because the plaintiff accepted payment in RTGS, it is estopped from claiming in United States dollars.

No authority was advanced for the proposition, that, because the plaintiff accepted payment in RTGS dollars, it is estopped from claiming payment in United States dollars.

The fact remains, that, the debt is a foreign obligation liable to be paid in foreign currency.

The law permits settlement of debts in RTGS dollars for obligations sounding in United States dollars at the interbank rate.

In any event, the applicant is amenable to receiving payment in RTGS dollars at the interbank rate.

The parties are to set down the matter for an enquiry to be carried out in terms of the Rules.

It is at this hearing that the court will determine how much has been paid so far, consider how much the interest component of the debt is, and determine the exact figure owed.

Accordingly, it is ordered as follows:

1. The parties are to set the matter down for an enquiry to be conducted in terms of Rule 370 of the High Court Rules, 1971.

2. Costs shall be in the cause.

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Law Portal
Zimbabwe

Approach re: Pre-Financing Contracts

HH172-10 : COTTON GINNERS ASSOCIATION vs SINO ZIMBABWE COTTON HOLDINGS (PVT) LTD and AGRICULTURAL MARKETING AUTHORITY
Ruled By: CHIWESHE JP

SC108-21 : VALENTINE MUSHAYAKURARA vs ZIMBABWE LEAF TOBACCO COMPANY (PRIVATE) LIMITED
Ruled By: MALABA CJ, UCHENA JA and CHIWESHE AJA

HH412-21 : ZIMBABWE LEAF TOBACCO vs KEVIN COOKE
Ruled By: DUBE J

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Law Portal Zimbabwe

Approach re: Pre-Financing Contracts

HH172-10 : COTTON GINNERS ASSOCIATION vs SINO ZIMBABWE COTTON HOLDINGS (PVT) LTD and AGRICULTURAL MARKETING AUTHORITY Ruled By: CHIWESHE JP

SC108-21 : VALENTINE MUSHAYAKURARA vs ZIMBABWE LEAF TOBACCO COMPANY (PRIVATE) LIMITED Ruled By: MALABA CJ, UCHENA JA and CHIWESHE AJA

HH412-21 : ZIMBABWE LEAF TOBACCO vs KEVIN COOKE Ruled By: DUBE J

Categories

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Law Portal
Zimbabwe

HH172-10 : COTTON GINNERS ASSOCIATION vs SINO ZIMBABWE COTTON HOLDINGS (PVT) LTD and AGRICULTURAL MARKETING AUTHORITY
Ruled By: CHIWESHE JP

SC108-21 : VALENTINE MUSHAYAKURARA vs ZIMBABWE LEAF TOBACCO COMPANY (PRIVATE) LIMITED
Ruled By: MALABA CJ, UCHENA JA and CHIWESHE AJA

HH412-21 : ZIMBABWE LEAF TOBACCO vs KEVIN COOKE
Ruled By: DUBE J