BLUMO TRADING (PRIVATE) LIMITED

versus

NELMAH MILLING COMPANY (PRIVATE) LIMITED

and

NELSON MAHUPETE

HIGH COURT OF ZIMBABWE

PATEL J

Civil Trial

HARARE, 26 October to 2 November 2010 and 15 February 2011

R. Theron, for the plaintiff

G. Macheyo, for the defendants

            PATEL J:        The plaintiff in this matter claims the sum of US$24,100 as special damages, being loss of profits arising from an alleged breach of contract by the defendants. It also claims restitution of US$10,000 paid as a deposit to the 1^st defendant under the same contract. The defendants deny any breach on their part and allege that it was in fact the plaintiff that acted in breach of contract.

Evidence for the Plaintiff

            Wayne Victor Moss is the Chief Executive Officer of the plaintiff company which, together with CCC Pigs (Pvt) Ltd, is a subsidiary of Colcom Foods Limited. He testified as follows. On the 18^th of January 2010, he signed the Agreement in casu with the defendants. In essence, the Agreement was for the sale of 500 tons of maize (at US$235 per ton) for a total purchase price of US$117,500. The maize was to be sourced by the 1^st defendant from the Grain Marketing Board (the GMB). On the same date, the 2^nd defendant signed a contract of suretyship guaranteeing the delivery of maize in terms of the Agreement. He said that the 1^st defendant had a credit facility with the GMB for 2,000 tons.

On the 21^st of January, he withdrew a total of US$100,000 from the bank. He paid the agreed deposit of US$10,000 to the 2^nd defendant and then proceeded with him to the GMB with US$90,000 in cash. The GMB was not aware of the transaction and had no release orders in the name of the 1^st defendant. He was told by the GMB’s Credit Controller (Mawanza) that he could obtain only 300 tons of maize at a higher price of US$300 per ton if he paid the US$90,000 into the 1^st defendant’s account with the GMB. This was because the 1^st defendant’s facility was for a maximum of 300 tons and because its account with the GMB was in debit at that time. The 2^nd defendant then undertook to resolve the matter the following day. The witness subsequently visited the GMB on four consecutive days and was given the same explanations by Mawanza. He then met the GMB Marketing Manager (Mandizvidza) who cautioned him against dealing with the 1^st defendant. Mandizvidza later furnished a letter confirming the 1^st defendant’s credit standing with the GMB at the relevant time.

The plaintiff did not proceed with the transaction as it became evident that the 1^st defendant did not have the capacity to deliver as agreed. The Agreement was cancelled on the 2^nd of February and this was confirmed by the plaintiff’s lawyers in their letter of the 4^th of March to the 1^st defendant. The defendants offered to restitute the US$10,000 deposit in January and October 2010, but have not made any payment to date.

The plaintiff had a contract with CCC Pigs, signed immediately after the Agreement with the defendants, for the onward supply of 500 tons of maize at a price of US$290 per ton. This represented a profit margin of US$55 per ton equating to a total profit of US$22500. The plaintiff had arranged for the transportation of the maize at a cost of US$200 per truck. In order to meet its contract with CCC Pigs the plaintiff had to order 508 tons of maize from South Africa at a price of US$317 per ton.

            Under cross-examination, the witness conceded that the deposit of US$10,000 was not paid on signature of the Agreement but on the 21^st of January and that the sum of US$90,000 was not deposited into the GMB’s bank account as agreed. The payments were a few days late and not strictly in accordance with the terms of the Agreement. However, this was not unreasonable in the circumstances of the transaction and the 2^nd defendant had accepted the delays. Moreover, the witness did not have the GMB’s bank account details.

            Odson Dzanga is the plaintiff’s Financial Manager. He accompanied Moss to the GMB on the 22^nd of January 2010. He confirmed that the GMB would only have released 300 tons of maize upon payment of the US$90,000 in cash. He added that the 1^st defendant’s account with the GMB was in arrears standing at about US$54,000 as at the 8^th of January 2010.

            Emson Mandizvidza has been employed by the GMB as its Marketing Manager since 2003. His duties include checking the credit facilities of customers and, in conjunction with the Credit Controller, authorising release orders on credit sales. He corroborated the testimony of Moss and Dzanga regarding their visit to the GMB on the 22^nd of January and his discussion with Moss in the presence of the 2^nd defendant. He also confirmed the contents of his letter of the 13^th of May 2010 concerning GMB prices and the 1^st defendant’s credit status. Between the 18^th and 22^nd of January 2010, the 1^st defendant’s credit facility was on hold because of its outstanding arrears of US$54,000 and, in any event, that facility did not enable it to buy 500 tons of maize from the GMB. At that time, the 1^st defendant’s credit facility was limited to 300 tons per month. In practice, a credit customer wishing to increase its credit limit would have to apply in writing and the application would then be assessed by the Risk Management Committee (the RMC) which meets once a week. In December 2009, the 1^st defendant applied to increase its credit limit to 2000 tons per month. This application was turned down by the RMC before the 18^th of January. As at that date, there was no application from the 1^st defendant to increase its credit limit. Even if it had lodged an application, this would only have been processed the following week and it would not have been possible to approve any increase on the 22^nd of January. The GMB sued the 1^st defendant for the outstanding US$54,000 in April 2010 in Case No. HC 2191/10. At the present time, the 1^st defendant is no longer a credit client of the GMB.

            Wanda van den Bergh is a grain broker. Her evidence was that she introduced Moss to the 2^nd defendant in January 2010. The agreement between them was for the 1^st defendant to supply maize to the plaintiff for onward sale to CCC Pigs. She was not aware of the 1^st defendant’s credit facility with the GMB.

Evidence for the Defendants

            Nelson Mahupete, the 2^nd defendant, is the Chairman and Managing Director of the 1^st defendant. His evidence was that in December 2009 he applied to the GMB’s Credit Controllers (Mawanza and Pfumbidza) to increase the 1^st defendant’s credit facility from 300 tons to 2,000 tons per month. They agreed to increase the facility to 1,500 tons, provided the outstanding debt of US$54,000 due to the GMB was cleared. After the Agreement was concluded with the plaintiff, Moss only paid the deposit of US$10,000 after 3 days. Moreover, he did not effect transfer of the US$90,000 into the GMB’s account but arrived at the GMB offices with the cash equivalent. He then declined to pay that amount towards the 1^st defendant’s account with the GMB. If he had done so, the 1^st defendant would have fulfilled the contract to deliver 500 tons of maize. As regards the debt of US$54,000 owed to the GMB, the 1^st defendant has already paid US$33,250 towards this and the balance is to be cleared as per an agreed payment plan.

            Under cross-examination, the 2^nd defendant conceded that the 500 tons of maize in question was for pig feed but denied that it was intended for CCC Pigs. He disputed the averment to that effect made by Mandizvidza in his statement to the CID Serious Fraud Squad on the 12^th of February 2010. As regards the release orders for 500 tons of maize, he admitted that he did not have them in his possession on signature of the Agreement on the 18^th of January or at the GMB offices on the 21^st of January. He has been charged with fraud in respect of the present contract. The criminal trial has commenced and is yet to be completed.

            Vavavirayi Mawanza has been the GMB’s Credit Controller since January 1999. His evidence was that GMB release orders are first signed by him and then by the Marketing Manager before they are issued. In August 2009, the 1^st defendant applied for a credit facility and in September it was granted a facility for 150 tons per fortnight or 300 tons per month. In December 2009, the GMB released a total of 268 tons of maize to the 1^st defendant. The latter then applied for a facility of 2,000 tons per month. On the 18^th or 19^th of December, he verbally advised the 2^nd defendant that he could only approve a facility of 1,500 tons on condition that the 1^st defendant paid an additional US$200,000 towards its account with the GMB. As at the 8^th of January 2010, the 1^st defendant’s account was in debit of about US$54,000. On the 22^nd of January 2010, Moss came to the GMB wanting to pay US$90,000 into the 1^st defendant’s account. The witness refused his request and said that the 1^st defendant should make the payment itself. Moreover, it would not have been possible for Moss to have paid the GMB through its own bank account. In his statement to the CID Serious Fraud Squad dated the 15^th of February 2010, he declared that “The accused (2^nd defendant) has a buying limit of 150 tonnes at a time”. There was no mention of an increased limit of 1,500 tons having been conditionally approved.

            Tatenda Pfumbidza is an Assistant Credit Controller with the GMB. He confirmed that an existing credit client must apply in writing for any increase in its credit facility and that, if its application is approved, the Marketing Department and the client must be advised of the increased limit in writing. When the 1^st defendant applied for an increased limit of 2000 tons in December 2000, it was told to make an additional payment of “more than US$100,000” towards its account with the GMB. This application was not approved because the additional payment was not made. In February 2010, the 2^nd defendant approached him for a credit reference. He then wrote two reference letters dated the 5^th and 8^th of February. He conceded that the letters were silent as to the conditions of release and the tonnage that could be released to the 1^st defendant. Moreover, he accepted that the letters were not addressed to the plaintiff or to Moss and that they were written after the events giving rise to the plaintiff’s action in casu.

Breach of Agreement by Plaintiff

            It is a fundamental premise of every contract that both parties will duly carry out their respective obligations. See Green v Lutz 1966 RLR 633; ESE Financial Services (Pty) Ltd v Cramer 1975 (2) SA 805 (C) at 808-809. As is explained by Christie: Business Law in Zimbabwe at pp. 106 & 119:

“There is a presumption that in every bilateral or synallagmatic contract, i.e. one in which each party undertakes obligations towards the other, the common intention is that neither should be entitled to enforce the contract unless he has performed or is ready to perform his own obligations. …

…Conversely, a party who has caused the other to commit a breach cannot found a claim on the breach ….”

            In terms of clause 3 of the Agreement in this case, the plaintiff undertook to pay a deposit of US$100,000 “upon the signing of this agreement”, US$90,000 into the bank account of the GMB and US$10,000 in cash to the defendants. It is common cause that Moss did not pay the deposit of US$10,000 and did not transfer the sum of US$90,000 into the GMB’s bank account upon signature of the Agreement. Instead, he paid the US$10,000 deposit only on the 21^st of January and on the same date tendered US$90,000 in cash to the GMB.

It is therefore clear that the plaintiff did not perform its obligations strictly in accordance with clause 3 of the Agreement. However, it is equally clear that the defendants accepted the late payment of the US$10,000 and, furthermore, they actively attempted to pressurise Moss to pay the US$90,000 in cash to the GMB, particularly as it was not practically possible for him to make that payment into the GMB’s bank account. At that stage, he was obviously willing and able to make both payments in performance of the plaintiff’s obligations. Given the attitude and conduct of the parties, the delay of 3 days in tendering the payments and the departure in the mode of payment to the GMB were not material to the plaintiff’s undertakings under the Agreement. And although the plaintiff did not strictly comply with its payment obligations, such non-compliance was accepted by the defendants. In short, they positively acquiesced in that non-compliance and are therefore estopped from raising it as a defence to the plaintiff’s claim.

Breach of Agreement by Defendants

Turning to the defendants’ undertakings, these were spelt out in clauses 4 to 7 of the Agreement. Firstly, once the plaintiff had paid the deposit, the 1^st defendant was obliged under clause 4 to cede its release orders for 500 tons of maize “which it has already received or will shortly receive from GMB”. Secondly, after paying the deposit, the plaintiff was authorised by clause 5 “to immediately upload the maize from GMB”. Thirdly, by virtue of clause 6.1, the 1^st defendant warranted that “it does currently, or it will by Tuesday 19 January 2010, have a release order or release orders in its name from GMB for 500 tons of maize”. Finally, clause 7.1 entitled the plaintiff to cancel the contract “should the seller not have a release offer [sic] or release offers [sic] in its name by Friday 22 January 2010”.

It is submitted for the defendants that the undertakings stipulated in the Agreement are dubious in their meaning. Consequently, inasmuch as the Agreement was drafted by the plaintiff’s lawyers, its provisions must be construed strictly as against the plaintiff on the one hand and leniently as against the defendants on the other. While this may be the general purport of the so-called contra proferentem or contra stipulatorem rule of interpretation, it is trite that this rule may only be invoked where the provision to be applied is ambiguous in its meaning or effect. See Christie, op.cit., at pp. 72 & 238.

In the instant case, I do not perceive any such ambiguity in the terms of the Agreement. In my view, the combined effect of clauses 4 to 7 of the Agreement was this: the defendants warranted that they either had the requisite release orders or would have them in their possession by the 19^th of January; they undertook to cede the release orders to the plaintiff upon payment of the stipulated deposit; the plaintiff would then take delivery of 500 tons of maize; and, in the event that the defendants did not have the release orders by the 22^nd of January at the latest, the plaintiff was entitled to cancel the Agreement.

The test for determining the repudiation of a contract by way of anticipatory breach was expounded by Nienebar JA in Datacolor International (Pty) Ltd v Intamarket (Pty) Ltd 2001 (1) SA 581 (A) at 591, as follows:

“…the emphasis is not on the repudiating party’s state of mind, on what he subjectively intended, but on what someone in the position of the innocent party would think he intended to do; repudiation is accordingly not a matter of intention, it is a matter of perception. The perception is that of a reasonable person placed in the position of the aggrieved party. The test is whether such a notional reasonable person would conclude that proper performance (in accordance with a true interpretation of the agreement) will not be forthcoming. The inferred intention accordingly serves as the criterion for determining the nature of the threatened actual breach.

…due to the co-contractant’s repudiation, the innocent contractant is excused from any steps that he must take in preparation for his own performance …. In these circumstances the purchaser will not fall into mora by failing to tender performance …as long as he signifies his willingness to perform.”

Similarly, Lord Wright, cited with approval in Chinyerere v Fraser N.O. 1994 (2) ZLR 234 (H) at 250, observed as follows in Ross T. Smyth & Co. Ltd v T.D. Bailey, Son & Co. [1940] 3 All ER 60 (HL) at 73:

“I do not say that it is necessary to show that the party alleged to have repudiated should have an actual intention not to fulfil the contract. He may intend in fact to fulfil it, but may be determined to do so only in a manner substantially inconsistent with his obligations, and in no other way.”

The evidence before the Court shows that the 1^st defendant did not have the requisite release orders from the GMB, either by the 19^th or the 22^nd of January, nor did it hold a credit facility with the GMB for 500 tons of maize at that time. Conversely, on the 21^st of January, the plaintiff had paid the cash deposit of US$10,000 to the defendants and was prepared to pay the remaining deposit of $90,000 in cash to the GMB. It follows that the defendants were patently in breach of the warranty contained in clause 6.1 and, because of their evident inability to fulfil the contract timeously, they were in anticipatory breach of their obligations under clauses 4 and 5 to cede the release orders and deliver 500 tons of maize. Consequently, the plaintiff was entitled to withhold any further payment under the Agreement.

Cancellation of Agreement

            At common law, an anticipatory breach ordinarily entitles the innocent contractant to cancel the contract. As is observed by Kerr: The Principles of Contract Law (6^th ed.) at p. 592:

“…repudiation before the due date for performance by a party prospectively in default constitutes anticipatory breach of contract on which the aggrieved party may take action if he so elects.”

In the instant case, clause 7.1 of the Agreement expressly allowed the plaintiff to cancel the contract in the event of the 1^st defendant’s failure to have the requisite release orders in its name by the 22^nd of January 2010. Thus, as at that date, the plaintiff was entitled to cancel on two separate grounds, viz. the defendants’ actual breach of warranty as well as their anticipated failure to cede the release orders and deliver the stipulated tonnage of maize in breach of clauses 4 and 5 of the Agreement. In the event, the plaintiff lawfully cancelled the Agreement on the 2^nd of February 2010, as was confirmed by its lawyers in their letter of the 4^th of March 2010 to the defendants.

Claim for Special Damages

            Clause 7 of the Agreement stipulates the plaintiff’s remedies in the event of cancellation. Both Ms. Theron and Mr. Macheyo have opted not to proffer any enlightenment on what was intended by the parties, presumably because that intention is not easily discernible from the vague and seemingly contradictory elections set out in this clause. It then becomes necessary to consider the plaintiff’s rights and remedies at common law.

It is trite that an aggrieved contractant is entitled to claim damages arising from his co-contractant’s breach of contract, including any breach of warranty. As was stated in Evans & Plows v Willis & Co. 1923 CPD 496 at 502:

“In our law if an express warranty …has been given by the seller and this turns out to be untrue an action for damages for breach of contract lies.”

            The plaintiff in casu has elected not to claim the expenses actually incurred by it in replacing the 500 tons of maize at US$317 per ton from the alternative source in South Africa. The difference in prices alone would derive a net loss of US158,500 less US$117,500 amounting to US$ 41,000. Instead, the plaintiff claims a lesser sum of US$24,100 as special damages, based on its anticipated loss of profits consequential upon the defendants’ breach of contract. This amount is calculated as follows: the gross profit of US$145,000 that the plaintiff would have received from its contract with CCC Pigs less US$120,900, being the contract price of US$117,500 under the Agreement plus the notional cost of transport totalling US$3,400.

            In United Air Charters (Pvt) Ltd v Jarman 1994 (2) ZLR 341 (S) at 344, cited with approval in Collective Self Finance Scheme v Asharia 2000 (1) ZLR 472 (S) at 475, Gubbay JA described special damages as follows:

“Special damages …are ordinarily regarded in law as being too remote to be recoverable unless, in the special circumstances attending the conclusion of the contract, it can be deduced that the parties actually or presumptively foresaw that they would probably flow from its breach (and thus, that it was within their contemplation) ….To ascertain what the parties actually contemplated , or may be supposed to have contemplated, it is of assistance to look to: (a) the subject matter and terms of the contract itself; (b) the special circumstances known to both parties at the time they contracted.”

            The evidence in this case shows that the defendants were aware of the plaintiff’s onward contract with CCC Pigs and the contemplated profit that the plaintiff would accrue from that contract. They therefore foresaw, either actually or presumptively, that the plaintiff would suffer loss of profits in the event of their breaching their undertakings in terms of the Agreement. They are accordingly liable for the special damages claimed by the plaintiff.

Claim for Restitution

            In the event of non-delivery of the goods sold under a contract, the right of the aggrieved party to claim restitution from the defaulting party is ordinarily unchallengeable. As was held by Korsah JA in Nissan Zimbabwe (Pvt) Ltd v Hopitt (Pvt) Ltd 1997 (1) ZLR 569 (S) at 572-573:

“Whether the wrongful act arises out of contract or tort, where there has been actual pecuniary loss which is capable of precise quantification, the rule which the law adopts is restitutio in integrum – the injured party is entitled to claim to be placed back in the same position as he would have been in had it not been for the defendant’s wrongful act.”

            In the present matter, the plaintiff’s right to recover the deposit paid in the event of cancellation is also affirmed in clause 7 of the Agreement, notwithstanding the ambiguities in that clause that I have earlier referred to. The evidence clearly shows that the plaintiff paid US$10,000 as a deposit to the defendants and that the latter gave nothing in return for that amount. Indeed, the defendants specifically acknowledged their liability to refund the deposit in the subsequent dealings between the parties and their respective lawyers. It follows that there is no defence to the plaintiff’s right to restitution and that this claim must also be upheld.

Suretyship and Joint and Several Liability

            The contract of suretyship attached to the Agreement, which contract was admittedly signed by the 2^nd defendant, binds him “as surety and co-principal debtor … for the due performance by [the 1^st defendant] of all its obligations under the agreement”. Again, “in the event of [the 1^st defendant] failing to perform any of its obligations under the said agreement”, the 2^nd defendant explicitly accepted “liability for the balance of its indebtedness and for all interest, costs, damages, losses and expenses which [the 1^st defendant] might be liable for in terms of the said agreement”.

Having regard to these unambiguous provisions, I am unable to comprehend why it is necessary to determine the 2^nd defendant’s status as surety under the Agreement or the joint and several liability of both defendants thereunder. It is undeniably clear that the 2^nd defendant stood as surety for the 1^st defendant and thereby rendered himself liable for the full performance of the 1^st defendant’s obligations under the Agreement. It is also unquestionable that the 1^st and 2^nd defendants are jointly and severally liable for the damages and legal costs incurred by the plaintiff.

Costs

            As a rule, the courts are loath to accede to a prayer for an award of costs beyond the ordinary scale. However, this rule may properly be departed from where the unsuccessful party’s conduct has been particularly unreasonable and reprehensible, for instance, by obstinately refusing to resolve the dispute amicably and inexpensively. Such vexatious conduct fully justifies an award of costs on a higher scale in favour of the successful party. See Borrowdale Country Club v Murandu 1987 (2) ZLR 77 (H); Chioza v Sawyer 1997 (2) ZLR 178 (S); NUST v NUST Academic Staff & Others 2006 (1) ZLR 107 (H).

The evidence before the Court shows that this matter could and should have been resolved in January or soon thereafter. It was obvious at that stage that the defendants were unable to fulfil the terms of the Agreement, largely because of their own default in sustaining their credit account with the GMB. In light of their failure to deliver under the Agreement, there should have been no question of their liability to refund the deposit of US$10,000 to the plaintiff. Their exposure to an additional claim for damages might also have been averted had they restored that deposit or demonstrated their preparedness to restitute. Their recalcitrance was simply designed to delay and frustrate the plaintiff and compel it to seek recourse before this Court at considerable legal expense. I am amply satisfied that they should recompense the plaintiff through a punitive award of costs.

Disposition

            Before spelling out the order of this Court, I am constrained to register my deep concern about the quality of Mr. Macheyo’s legal representation of the defendants. Quite apart from his unhelpful and shabby performance in court, his Closing Submissions qualify as the most appalling that I have seen hitherto. They comprise almost 20 pages of ungrammatical and repetitive drivel, punctuated with occasional forays into the irrelevant and riddled with patent falsities as to the actual testimony presented at the trial. They are as singularly unpersuasive as they are obtusely unhelpful to the Court. For his gross disservice to his clients, Mr. Macheyo ought to be penalised with an award of costs on a higher scale de bonis propriis. However, I am reluctant to make such an award because it has not been sought by any of the parties. What I will do instead is to direct the Registrar to forward a copy of his submissions to the Secretary of the Law Society for its Council to be regaled by their content and to consider such disciplinary measures as it deems fit in the circumstances.

            In the result, it is ordered that judgment be entered in favour of the plaintiff as against the defendants jointly and severally, the one paying the other to be absolved, for:

1. payment of the sum of US$24,100 as special damages for loss of profits;
2. payment of the sum of US$10,000 as restitution;
3. interest on the aforesaid amounts at the prescribed rate calculated from the date of judgment to the date of full and final payment;
4. costs of suit on a legal practitioner and client scale.

Scanlen & Holderness, plaintiff’s legal practitioners

Macheyo Law Chambers, defendants’ legal practitioners