Judgment No SC. 40/2015 Civil Appeal SC. No 197/13

1

 

REPORTABLE (42)   

INDIUM     INVESTMENTS     (PRIVATE)     LIMITED

v

1.     KINGSHAVEN     (PRIVATE)     LIMITED     (2)     DANIEL     SHUMBA     (3)     LINDA     SHUMBA

 

 

SUPREME COURT OF ZIMBABWE

CHIDYAUSIKU CJ, GWAUNZA JA, GOWORA JA,

HLATSHWAYO JA & MAVANGIRA AJA

HARARE, JULY 3, 2014 & JULY 16, 2015

 

 

L Uriri, for the appellant

T Magwaliba, for the respondents

 

 

GOWORA JA:          On 28 February 2008, under Case No HC 1239/08, the appellant caused summons to be issued against the respondents seeking an order for the cancellation of a lease and, consequent thereto, the eviction of the respondents from the leased premises.  On 10 December 2008 a second summons was issued by the appellant under Case No 6969/08 wherein it sought the eviction of the respondents due to the expiry of the lease.  The High Court dismissed the claims with costs.  The appellant was aggrieved by the dismissal and has noted this appeal.

THE FACTUAL BACKGROUND

The basic facts surrounding the dispute are the following. The appellant (hereinafter referred to as “Indium”) is the registered owner of certain immovable property, being Stand 450 Avondale West Township of Stand 390 Avondale West, also known as 108 West Road, Strathaven, Harare, hereinafter referred to as (“the premises”).  The first respondent (hereinafter referred to as “Kingshaven”) is a private company registered as such under the laws of Zimbabwe. The second respondent, hereinafter referred to as Shumba and the third respondent, his wife, are the only shareholders of and directors in Kingshaven.

 

Kingshaven carries on business in the hospitality sector and is in occupation of the premises by virtue of a lease concluded on 14 December 2007 with Indium. Notwithstanding the date of signing, the agreement was to come into force on 10 December 2007 and was to endure for a period of 365 days, terminating automatically on 9 December 2008.

 

Shumba and his wife are shareholders in a Close Corporation, ERF Bryanstan Cc, which is duly registered as such under the laws of South Africa.  ERF Bryanstan is the registered owner of an immovable property, being Portion 2 of ERF 825 Bryanstan Township also known as 17 Portman Road, Bryanstan Sandton, Johannesburg.  In 2007 ABSA Bank in whose favour ERF Bryanstan had registered a mortgage against the property, called up the mortgage and executed against the same.

 

In an effort to save the property, Shumba approached Jayesh Shah (hereinafter referred to as “Shah”) for financial assistance and this culminated in a number of agreements. The first agreement consists of a loan between Shah on the one part as lender, and Shumba and ERF Bryanstan Cc on the other as borrowers.  The loan amount is UD$500 000.  The second agreement is for the sale of the entire shareholding in Indium concluded by Shumba and his wife on the one part as sellers, and Shah and Shaleetha Mahabeer on the other as purchasers.  The last agreement is the lease agreement concluded between Indium as lessor and Kingshaven, as lessee on 14 December 2007.

The two matters instituted by Indium were by consent of the parties consolidated for trial before the High Court.  In dismissing the claims the court a quo stated:

“He intended to secure a windfall by all means legally possible. His legal practitioner advised a web of agreements to ensure he remained within the realms of the law. A loan here, a purchase of shares there and a lease with a buy-back option to crown it all, was all it took to secure apparent control of the debtor’s immovable property in Zimbabwe without any reference to its true value. Clearly, whatever the parties decided to call it, the agreement to take over control of the plaintiff company from Shumba without paying for it amounted, in my view, to a pactum commissorium. It is the substance not the form to which the court looks when deciding the true nature of an agreement. Consequently, therefore, the second issue, whether annexure “C” amounts to a pactum commissorium is determined in defendants’ favour. I have already found that the payment in South Africa by Shah was intended as a loan, as pleaded by plaintiff therefore there is no evidence to suggest that the same payment doubled as payment for shares in Indium Investments (Private) Limited. That issue is resolved in favour of the defendants as well. The transactions were clearly in fraudum legis. The law in this jurisdiction is clear. Where the contract which is in fraudum legis is performed the court cannot come to either party’s assistance.”

 

 

The appeal is premised on the following grounds:

 

1.  That the court a quo erred in not finding that in the absence of a plea for rectification of a contract, the parole evidence rule operates to exclude extrinsic evidence to disprove the contents of a written contract. (sic)
2. The court a quo erred in not finding that returns lodged with the Registrar of Companies are prima facie proof of the correctness thereof, and the same cannot be impugned without the joinder of the Registrar of Companies.
3. Consequently, and for the stronger reason in view of grounds of appeal 1 and 2 above, the court a quo erred in holding that the respondents had discharged the onus of justifying possession of the appellant’s property within the context of the actio rei vindicatio.
4. The court a quo erred in fact and in law in holding that the agreements in question were simulated agreements which “mimicked” the South African agreements.
5.  The court a quo erred in any event in holding that the agreements the subject of the litigation were in fraudem legis in that they sought to evade the exchange control legislation, in view of the fact that free funds were paid to the credit of a South African resident, and in not finding that the fact that such South African resident was a citizen of Zimbabwe and did not give rise to the need for exchange control approval.(sic)
6. The court a quo erred in fact and in law in holding that the agreements the subject of the litigation a quo were a pactum commissorium.

 

Mr Uriri, on behalf of the appellant urged us to find that the learned judge in the court a quo had not dealt with the case that was placed before him.  It was his contention that the matter before the court was principally for the cancellation of the lease agreement between Indium and Kingshaven and consequential relief.  He argued that it was essentially a rei vindicatio.  What the court a quo did however, it is argued, was to turn its focus on a completely different issue which it could not competently determine and made findings which cannot be supported.  It is contended that the court thereby misdirected itself.

 

In my view the dispute can be resolved by this court having regard to the manner in which the court a quo dealt with what it referred to as the simulated agreements and secondly dealing with the actio rei vindicatio in accordance with the claims in the summons.

 

THE ALLEGEDLY SIMULATED AGREEMENTS

In answer to the claim for the eviction of Kingshaven from the premises the respondents raised various defences, namely that Shumba and his wife had borrowed a specified sum of money from Shah, and that, as security for their due performance thereon, the latter had demanded security in Zimbabwe in the form of shares in Indium. They pleaded further that the parties entered into a simulated agreement for the sale of shares in Indium which ultimately resulted in the lease agreement providing for a buy back option in favour of Shumba and his wife.

 

There is no suggestion on the papers that Indium participated in any of the agreements except the lease.  It then begs the question which parties the court a quo referred to when it concluded that the agreements were fraudum legis.  It is common cause that the loan agreement was between ERF 825 Bryanston Cc, in which Shumba and his wife owned shares, and Shah.  ERF Byanston Cc was not cited as a party to the proceedings before the court a quo.  Shah only appeared in the proceedings in the court a quo as a witness on behalf of Indium. In the circumstances the court could not have properly considered the loan agreement or its legality in the absence of the parties thereto.

 

I turn next to the “share sale” agreement in relation to the shares in Indium.  The parties to the sale of the shares were on the one part, Shumba and his wife as sellers and, on the other part, Jayesh Shah and Shaleetha Mahabeer.  The last two were never before the court as parties and the agreement for the sale of shares could therefore not be scrutinised to any extent by a court in their absence. Consequently the determination by the court of the issues related to the lease agreement concluded by Indium and all the respondents in reference to the share sale agreement was highly irregular. It follows therefore that any issues referred to the trial court for determination in relation thereto would be irregular.  It is therefore logical to conclude that the court a quo dealt with matters and issues that were not before it. 

 

This leaves Indium, Kingshaven, Shumba and his wife.  They were parties to a document being the lease agreement, which is the only document properly before the court.  Those were the parties that were before the court and therefore the only dispute for determination was that arising from the lease agreement in respect of which the court had to determine the respective rights and obligations of the parties before it.

 

In the absence of a counter-claim for declarations of invalidity in respect of the agreements discussed above, the court could not grant relief to the effect that the agreements were invalid.  At best, it was argued, the court ought to have granted absolution from the instance.

  

I think the criticism is well taken. At p 8 of the cyclostyled judgment the learned judge in the court a quo stated:

“In my view of the facts, the defendants have adduced sufficient evidence to rebut the presumption of legality of the transactions described above. Generally, one of the most common forms of tax avoidance is where the parties to a contract attempt to disguise its true nature in order to qualify for a tax benefit that would not be available if the true contract between them were revealed. The courts require no statutory powers to ignore pretence of this kind and the law will always give effect to the real transaction between the parties.”

 

 

The court a quo then went on to consider the agreements in question and at p 11 of the judgment concluded:

“In my view the true nature of the Zimbabwean agreements was that they were additional securities to the South African loan despite the fact that they in effect apparently passed ownership and control to Shah. The buy-back option as well as the fact that the loan had been secured by a mortgage bond gave Shumba the belief (that) these agreements will be respected by the parties as pledged to the underlying loan agreement. I therefore find for the defendant in respect of the first issue.

 

As to whether annexure “C” amounts to a pactum commissorium, it follows from my reasoning that once the interpretation given by the defendant is upheld, the court must find in his favour on this point as well. I do so for the following reasons. A pactum commissorium has been defined as a “pact by which the parties agree that if the debtor does not within a certain time release the thing given in pledge by paying the entire debt, after the lapse of the time fixed, the full ownership in the thing will invariably pass to the creditor in payment of the debt. See Chimutanda Motor Spares (Pvt) Ltd v Musare & Another 1994 (1) ZLR 310; Van Rensberg v Wieblen 1916 OPD 247 at 252.”

 

     

Undoubtedly the court was correct in its statement of the principle of a pactum commissorium.  However, it was incorrect in applying that principle to the facts of this case.  It gave the respondents far reaching relief which they had neither sought nor prayed for.  If the respondents were under the impression that the underlying agreements which gave rise to the lease agreement were invalid, it behoved them to bring proceedings as a pre-emptive attack on the agreements.  This they chose not to do.

 

It is common cause that in their plea to the claim for eviction, the respondents raised the issue related to the loan between Shah and Shumba and his wife, the agreement for the sale of shares in respect of Indium and the lease agreement in terms of which Kingshaven, and through it, Shumba and his wife occupied the premises.  A plea is a defence and as such can be likened to a shield.  It is not a weapon or a sword.  No relief can attach to a party through a plea.  In the same plea the respondents averred that by separate process Shumba and his wife would approach the High Court for a declaration of invalidity of the two Zimbabwean agreements.  No such process was ever launched.

   

Clearly, the court a quo misdirected itself in that it resolved a dispute that was not before it.  Some of the parties to the dispute in question were not before it and they were denied the right to be heard in their own cause.  The ratio of the decision of the court strikes at the rights of Shah and Mahabeer without affording them the right to be heard.  I say so for the reason that a judgment in which the court stated that the acquisition of shares by the two was a nullity could not be made in their absence and in proceedings in which they have not been cited as parties.  The question that arises for determination is whether such a judgment can be said to be valid and binding as against Shah and Mahabeer.  In Hundah v Murauro 1993 (2) ZLR 401 the point was made that for a party who has a real interest in the matter in dispute before a court to be bound by a judgment of the court such party should be cited.  At p 404E-G the court stated:

“We have drawn attention to this point previously on a number of occasions (see e.g. Munemo v Muswera 1987 (1) ZLR 20 (S) at 21G-H), often in conjunction with the other important point that the local authority should be cited in proceedings of this kind since it has real interest in the property in dispute (see e.g. Ncube v Mkandla S-123-89). If it indicates in writing before hand that it is happy to accept whatever the court decides, well and good. But otherwise it should be cited, if only to ensure that it is bound by whatever judgment is given. Such an order does not bind it if it was not a party.” 

 

 

 

Additionally the court only had regard to the Zimbabwean agreements.  In the event that its conclusion that the lease agreement was a simulation and that the “share sale” agreement was security for the loan, such finding could not be arrived at without considering the South African agreements. The court declined to have regard to them on the basis that the order sought did not depend upon their validity. This was despite the fact that the pactum commissorium depended on the loan agreement which was a South African agreement and which the court had properly declined to consider. The contradiction is obvious and the misdirection can thus not be in dispute.

 

 

 

THE VALIDITY OF THE LEASE AND THE REI VINDICATIO

I turn then to discuss the real issue before the court a quo, that is the claim for the eviction of Kingshaven and through it Shumba and his wife, from its premises.  The preamble to the lease agreement acknowledges that Jayesh Shah and Shaleetha Mahabeer have become the beneficial owners of shares in Indium Investments (Private) Limited. The relevant provision states:

“Whereas by a sale of shares agreement between JAYESH SHAH and SHALEETHA MAHABEER on the one part, and DANIEL SHUMBA and LINDA SHUMBA on the other, JAYESH SHAH and SHALLETHA MAHABEER have become the beneficial owners of shares in INDIUM INVESTMENTS (PRIVATE) LIMITED.” 

 

 

In turn Indium is the registered owner of the premises.

 

 

In terms of clause 3.1 of the lease agreement, the lessee undertook to deposit an amount of Z$ One Billion as security for the due performance by it of its obligations under the lease.  Rental for the premises was set at Z$ One Billion per month payable in advance and reviewable from time to time.  In recognition of the prior ownership of the shares in Indium by Shumba and his wife, in terms of clause 13.1 of the lease, the latter were granted an option to repurchase the shares in Indium.  The option was to expire on 9 October 2008.  It is common cause that the option was not exercised.

 

In February 2008 Indium advised Kingshaven that it was in breach of its obligations under the lease to pay rentals and cancelled the lease. On 10 December 2008 the lease also expired through the effluxion of time. Indium again issued summons this time claiming return of the premises by virtue of the expiry of the lease through the effluxion of time.

  

In the plea to the claim for their eviction from the premises, the respondents admitted that the appellant was the registered owner of the premises.  The claim as pleaded by the appellant was a simple actio rei vindicatio.  The nub of the actio rei vindicatio is that an owner is entitled to reclaim possession of his property from whosoever is in possession thereof.  As was stated in Chetty v Naidoo 1974 (3) SA 3 at p 13:

“It may be difficult to define dominium comprehensively (cf. Johannesburg Municipal Council v Rand Townships Registrar & Ors 1910 TS 1314 at 1319), but there can be little doubt ……..that one of its incidents is the right to exclusive possession of the res, with the necessary corollary that the owner may claim his property wherever found, from whomsoever holding it. It is inherent in the nature of ownership that possession of the res should normally be with the owner, and it follows that no other person may withhold it from the owner unless he is vested with some enforceable right against the owner (e.g. a right of retention or a contractual right).”

 

 

       

As a consequence once the ownership by Indium of the premises was acknowledged and accepted by the respondents, all that the court a quo had to determine was whether Kingshaven had any legal right to remain in possession of the same.  Therefore, the simple task before the court a quo was to decide whether or not a lease agreement existed between the parties as alleged, and, thereafter to determine whether or not the claim for eviction on the lease was well founded.  This, the court failed to do.  It went on to make wider pronouncements on relationships that were not before it.  It thereby misdirected itself.

 

The principle of rei vindicatio was applied in Stanbic Finance Zimbabwe Ltd v Chivhungwa 1999 (1) ZLR 262 (H) by MALABA J (as he then was) where he remarked as follows:

“The principle on which the actio rei vindicatio is based is that an owner cannot be deprived of his property against his will and that he is entitled to recover it from any person who retains possession of it without his consent. The plaintiff in such a case must allege and prove that he is the owner of a clearly identifiable movable or immovable asset and that the defendant was in possession of it at the commencement of the action. Once ownership has been proved its continuation is presumed. The onus is on the defendant to prove a right of retention: Chetty v Naiddo 1974 (3) SA 13 (A) at 20A-C: Makumborensa v Marini S 130/95 p 2. It follows that the action is based on the factual situation that prevailed at the time of the commencement of the legal proceedings.”

 

 

 

Once an owner proves that the property is his and that the defendant originally obtained possession of the res pursuant to a contract, the owner is obliged to prove that such a contract has expired or that he was entitled to cancel it and has indeed terminated it.  In Chetty v Naidoo (supra) it was emphasised that:

“… a plaintiff who claims possession by virtue of his ownership must ex facie his statement of claim prove the termination of any right which he concedes the defendant would have had but for the termination.”[1] 

 

 

The only defences available to a defendant in the position of the respondent are the following; that he had a right to possess, that he was not in possession or that the plaintiff is not the owner.

 

It is worth noting that the respondents did not plead any of these defences. In truth they could not have as they had a lease with Indium the termination of which they did not deny or place in issue. The validity of the lease agreement is confirmed.  

 

Mr Uriri has however further submitted that the court in the face of this clear claim then went on to grant judgment in favour of the respondents in the absence of a counter-claim.  In African Farms and Townships v C.T. Municipality 1963 (20 SA 555 (AD) STEYNE C.J. made the following remarks:

“Counsel for the appellant further argued that the order in the original proceedings, which as such is an order dismissing the application, is to be equated with absolution from the instance, leaving the issue undecided. In my view there is no substance in that argument. As Sande, De Diversis Regulis ad l. 207, points out, the res judicata is not so much the sentential, the sentence or the order made, as the lis or negotium, the matter in dispute or question at issue about which the sententia is given, or the causa which is determined by the sententia judicis. As pointed out in Purchase v Purchase, 1960 (3) S.A. 383 (N) at p 385, dismissal and refusal of an application have the same effect, namely a decision in favour of the respondent. The equivalent of absolution from the instance would be that no order is made, or that leave is granted to apply again on the same papers. In Commissioner of Customs v Airton Timber Co Ltd 1926 C.P.D. 351 at p 359, WATERMEYER J, draws a distinction between the actual judgment and the reasons for judgment, and expresses the view, in effect, that where the decision of a particular question, although dealt with in the reasons for judgment, is not incorporated in the actual judgment, and the question is not necessarily determined by the judgment, the matter is not res judicata. I do not understand this to mean that where a Court decides the particular issue raised and dismisses the application, the question decided is not res judicata. If that is what it does mean or imply, I would be unable to agree with it. In the present case, having regard to the judgment, the import of the order is clearly that on the issues raised the Court found against the appellant and in favour of the respondents.”

 

 

A dismissal of the plaintiff’s claim is a judgment in favour of a defendant.  It is my view that the dismissal had the effect of awarding the respondents judgment in their favour.    

 

I turn next to the relief being sought. In the prayer the appellant seeks an order for the setting aside of the judgment of the court a quo and its substitution with an order entering judgment in its favour in terms of the summons.

 

In addition to the cancellation of the lease, Indium sought the following relief:

“2. An order directing the defendants, and all those claiming occupation through them, to vacate the premises situate Stand 450 Avondale West Township of Stand 390 Avondale West, otherwise known as 108 West Road, Strathaven, Harare (“the premises”).

 

3.  An order that in the event that within forty-eight (48) hours of the date of the above order being issued and the defendants failing and/or neglecting and/or refusing to comply, the Sheriff for Zimbabwe, or his lawful deputy for Harare, duly assisted by the Zimbabwe Republic Police if need be, be authorised empowered and directed to eject the defendants from the premises, and all those claiming occupation through them, and to hand over vacant occupation of the premises to the plaintiff or its authorised agent or representative.

 

4.  An order precluding and restraining the defendants from removing any item of property from the premises.

 

5.  An order for payment of the sum of $Z2 567 000 000,00 (two billion five hundred and sixty seven million dollars) together with interest thereon calculated at the prescribed rate to the date of payment as follows;

 

5.1 On Z$567 000 000,00 (five hundred and sixty seven million dollars) with effect from 10 December 2007,

 

5.2 On Z$1 000 000 000,00 (one billion dollars) with effect from 1 January 2008, and

 

5.3 On Z$1 000 000 000, 00 (one billion dollars) with effect from 1 February 2008.

 

6. An order for holding-over damages at the rate of Z$4 000 000 000,00 (four billion dollars) per month with effect from 1 March 2008 to the date that the plaintiff recovers vacant occupation of the premises aforesaid, such rate to be adjusted from time to time in accordance with market rates.

 

7. An order for interest on the sum of holding-over damages aforesaid at the prescribed rate from the date each amount becomes due and payable,

 

1. An order for payment of the sum of Z$10 000 000 000,00 (ten billion dollars)  together with interest thereon at the prescribed rate from the date of judgment to the date of payment,

 

9.  Costs of suit as between legal practitioner and client.”

 

The appellant sought for an order confirming the cancellation of the lease. It is common cause that the lease has expired through the effluxion of time.  Its expiry is not in dispute and it is not necessary to confirm its cancellation.  As a consequence an order for the eviction of the respondents from the premises will issue.  The interdict against the removal of items from the premises was never put in issue.

 

However, the claim for the payment of sums under various heads was not considered by the court a quo.  Neither counsel addressed us on the issue. The record is clear, however, that no evidence was adduced by Indium in respect of the sums of money being claimed under the various heads.  The claim for holding over damages is premised on the lease agreement and it would follow from a confirmation of the cancellation of the lease.  The same considerations would apply to the claim for arrear rentals as that would be a consequence of the finding that a valid lease existed between Kingshaven and Indium. The amounts claimed were denominated in the local currency and were never converted to the United States Dollar currency in the trial below.  They therefore remain an issue for determination by the court a quo.  

 

In view of the position taken by the court a quo not to delve into the merits of the claim for ejectment and consequential relief flowing therefrom it seems in order that the parties be given an opportunity to have that aspect of the dispute fully ventilated and determined by the court. In the premises it is only appropriate to grant relief in respect of the eviction and the interdict and to remit the matter to the court a quo for the determination of what sums of money, if any, may be due to Indium. The trial court can take judicial notice of the fact that the country and indeed every person in the country uses foreign currency to transact and that the country adopted a multi-currency regime with effect from February 2009. It is also worthy to note that the Zimbabwe Dollar has since been demonetized. To that end justice would best be served if the parties were to adduce evidence from experts in the field of real estate as to any sums that may be owing under the headings on which the matter is remitted for the adduction of evidence.

 

With regard to the sums being claimed for payment of costs on the various agreements concluded between the parties no evidence was led in the court a quo either as to the amounts being claimed in the local currency, if any, or the rate of exchange that should be applied in converting the said sums  to the US Dollar.  This claim must fail.

 

Accordingly the appeal succeeds to the extent that the lease agreement is held to be valid and an order for the eviction of the respondents shall ensue.  The matter is remitted for the determination of the arrear rentals and holding over damages before the court a quo.  Accordingly the following order will issue:

“IT IS ORDERED THAT:

 

1. The appeal is allowed with costs to the extent provided for hereunder.
2. The judgment of the court a quo is set aside and  substituted with the following:

1. It is declared that the lease agreement between the plaintiff and the first respondent has terminated through the effluxion of time.
2. The defendants and all those claiming occupation through them shall vacate the premises, being Stand 450 Avondale West Township of Stand 390 Avondale West, otherwise known as 108 West Road, Strathaven, Harare within seven (7) days of the date of this judgment, failing which the Sheriff for Harare or his lawful deputy is hereby authorised to eject them from the same and give vacant possession to the plaintiff or its duly authorised agent or representative.
3. The defendants be and are hereby precluded and prevented from removing, with the exception of personal items belonging to them, any item of property from the premises.
4. The claim for payment of Z$10 000 000 000.00 being costs for the preparation of various agreements concluded by the parties is hereby dismissed with costs.”

1. The issue relating to the payment of sums of money claimed under paras (e) to (g) of the prayer in the declaration are remitted to the court a quo for a determination on the substance of what sums are due and owing.

 

 

CHIDYAUSIKU CJ:                       I agree

 

GWAUNZA JA:                               I agree

 

HLATSHWAYO JA:                       I agree

 

MAVANGIRA AJA:                                   I agree

 

Messrs Uriri Attorneys, appellant’s legal practitioners

Messrs Kantor & Immerman, respondents’ legal practitioners