REPORTABLE (108)

Judgment No S.C. 127\2002

Civil Appeal No 366\2000

COLD STORAGE COMPANY LIMITED v RAPID DISCOUNT HOUSE LIMITED

SUPREME COURT OF ZIMBABWE

CHIDYAUSIKU CJ, ZIYAMBI JA & MALABA JA

HARARE SEPTEMBER 10 2002 & MARCH 20, 2003

A.P. de Bourbon S.C., for the appellant

C. Andersen S.C., for the respondent

MALABA JA: This is an appeal from a judgment of the High Court dated 22 November 2000 in which the appellant was ordered to pay to the respondent the sum of $125 million with interest thereon at the rate of 35% on the sum of $100 million with effect from 4 September 1998 and on the sum of $25 million with effect from 3 March 1999 to the date of payment and costs of suit.

The appellant, to which I shall refer as “the defendant”, is a public company incorporated in terms of the law. Its predecessor was a parastatal known as the Cold Storage Commission. The respondent, to which I shall refer as “the plaintiff”, is a private company carrying on the business of a discount house.

On 21 January 1999 the plaintiff commenced action in the High Court claiming from the defendant the payment of $100 million with interest thereon at the rate of 35% per annum with effect from 4 September 1998 to the date of payment. The cause of action as pleaded was that the plaintiff was the lawful holder of ten “commercial bills” issued by the defendant which had been dishonoured upon presentation on the due date.

The ten documents forming part of the cause of action pleaded by the plaintiff took the form of promissory notes. On the top left corner of each document is a space for the date of issue whilst the space for the due date is on the right side of the document. Each document has a promise made in these terms:-

“The Cold Storage Company Limited undertakes to pay _____________ or order the sum of ten million dollars at United Merchant Bank Zimbabwe Limited HARARE on due date against presentation of this Bill.”

Above the promise to pay the sum of $10 million on presentation is printed the logo “CSC” in white on black background. Below the undertaking are words “for COLD STORAGE COMPANY LIMITED” written above the words “GENERAL MANAGER”. The space between these two sets of words has a signature purporting to be that of the “GENERAL MANAGER” signing the document on behalf of the defendant. The date of issue filled in the relevant space by means of a date stamp was 3 March 1998 whilst the due date similarly recorded was 3 September 1998. The endorsement of payee in blank meant that the documents were payable to bearer.

The defendant pleaded to the declaration as follows:-

“2 Ad paragraph 3.

1. The Defendant denies the allegations in paragraph 3 of the Plaintiff’s Declaration.

2. The Defendant denies that the ten commercial bills listed in this paragraph were issued by it and states that the signature that purports to be on the bill is forged and unauthorised.

3. Accordingly, the Defendant asserts that the Plaintiff has no right to retain the bill or to enforce payment thereof …

3. …

3. The Defendant asserts that the persons to it presently unknown employed by United Merchant Bank Zimbabwe Limited in Harare falsely and fraudulently issued to the public which may or may not have included the Plaintiff, bills purporting to emanate from the Defendant, but which bills had not been authorised by the Defendant, and for which the Defendant was not liable.

3. In the alternative the Defendant asserts that it is unable to state which pieces of paper issued by United Merchant Bank Zimbabwe Limited had been authorised by it, and which had not been authorised by it.

6. The Defendant asserts that it authorised the issue on 3 March 1998 of bills totalling $36 million due on 3 September 1998.

7. Accordingly the Defendant asserts, in the alternative, that its maximum liability in respect of all holders of bills due on 3 September 1998 is the sum of $36 million.”

In replication the plaintiff denied each and every allegation of fact and conclusion of law contained in the plea.

On 30 June 1999 the plaintiff made an application for the amendment of the summons to add a further cause of action. It claimed the payment of $25 million with interest thereon at the rate of 35% from 3 March 1999 to the date of payment. The application was allowed.

It was alleged in the additional cause of action that the plaintiff was a lawful holder of five “commercial bills” for $5 million each issued by the defendant. The “bills” were said to have been dishonoured upon presentation for payment on the due date. Apart from the dates and amounts contained therein the five documents took the same form of promissory notes as described above in respect of the ten documents on which the claim for the payment of $100 million was based.

The defendant again denied that it issued the five documents as promissory notes to the plaintiff. It repeated the allegation that the signature on the documents was forged and unauthorised. It asserted that persons unknown to it employed by UMB had falsely and fraudulently issued to the public which may or may not have included the plaintiff, “bills” purporting to emanate from the defendant but which “bills” had not been authorised by it. The defendant specifically stated that it did not authorise the issue of any “commercial bills” on 2 March 1998 and maturing on 2 March 1999.

The case proceeded to trial on two main issues recorded by the court a quo as:-

“(1) Whether the ‘bills’ forming the subject matter of the plaintiff’s claim were issued by the defendant?

2. Whether the signatures on such bills were false and unauthorised?”

The defendant was clearly denying that the signature on the documents relied upon by the plaintiff as the cause of action was affixed by its general manager. It was alleging in effect that the signature was placed thereon by some other person employed by the United Merchant Bank (UMB) without its authority. The facts and circumstances which gave rise to the relationship between the defendant and UMB will help explain why the declaration and plea contain the allegations they make.

Following its incorporation the defendant found itself having to raise its own working capital unlike its predecessor which relied on government subsidies. The government of Zimbabwe through the Reserve Bank issued guarantees to UMB to cover “bills” and “notes” issued by the defendant with the object of raising money it found necessary to have from the finance market.

The procedure the defendant had to follow to raise money from the finance market on promissory notes was set out in the summary of evidence as having been the following. Senior management decided on the amount the defendant wanted raised from the money market. They directed the finance manager or his assistant to give instruction to UMB to issue a specific number of “bills” or “promissory notes” to raise the amount required by the defendant. The instruction would then be given to UMB authorising it to issue the promissory notes to raise the specific amount. The authority was given by telephone and confirmed in writing immediately thereafter.

There were three money market dealers at UMB who received the defendant’s instructions. These were Mr Changara, Mr Dulani and Mr Gotora. Within twenty-four hours of receipt of the instruction, UMB through one of the money market dealers sent to the defendant a discount statement or deal slip confirming compliance with the instructions entered into with the lenders. The statement advised the defendant, for example, on amount received, discount rate, date of issue, due date, rate of interest and net proceeds.

To enable UMB to carry out its mandate the defendant provided it with a specimen signature of its general manager. Out of the specimen signature of the general manager UMB computer generated signatures which it placed on the documents issued as “promissory notes” on behalf of the defendant when appropriate instructions had been given to that effect.

The basis of the denial by the defendant of the allegation that it issued the fifteen documents as “promissory notes” was that no instruction was given to UMB on 2 March 1998 to raise $25 million from the finance market on its behalf, nor was such an instruction given to UMB on 3 March 1998 to raise $100 million on the security of the documents as “promissory notes”. The allegation was that the documents which were admittedly not signed by the defendant’s general manager with his own hand were signed by some other person employed by UMB who placed the computer generated signature of the general manager on the documents to make them “promissory notes” without authority to do so.

It was alleged that the instructions given on behalf of the defendant by a Mr C. Mujomi on 3 March 1998 and confirmed in writing the following day by UMB, was to raise an amount of $36 million from the market by rolling over for 184 days “bills” worth $30 million which had matured on that day and $6 million as new borrowing.

I now look at the evidence adduced by the plaintiff. It called its Managing Director Mr Morris Musuwo (“Mr Musuwo”) and the secretary Mr Alois Tasiya. The evidence of Mr Musuwo only needs attention because Mr Tasiya’s testimony has no bearing upon the resolution of the questions raised on appeal.

Mr Musuwo became the plaintiff’s Managing Director in 1997. He had many years of experience as a money market dealer. He revealed that the plaintiff placed considerable sums of money from institutional investors with UMB as fixed deposits. Some time in 1997 UMB officials approached him and indicated that UMB was raising money on behalf of the defendant. It was common knowledge in the money market that UMB was holding government guarantees to cover “bills” and “promissory notes” issued by the defendant to raise its working capital.

The plaintiff entered into an agreement with UMB in terms of which it lent to the latter out of the fixed deposits specific amounts of money when the need arose. UMB gave the plaintiff “promissory notes” issued on behalf of the defendant as security for the money advanced to it. It was Mr Musuwo’s evidence that UMB was the plaintiff’s debtor and the latter looked to it for the payment of the money on the due dates.

On 2 March 1998 the plaintiff lent UMB an amount of $25 million by rolling over an equivalent amount of money the payment of which had become due on that day. As security for the money UMB gave to the plaintiff five documents as promissory notes. Mr Musuwo said he believed that the documents had been issued by the defendant as promissory notes.

On 3 March 1998 Mr Musuwo attended personally at UMB. He dealt with one of the money market dealers but was not able to say who of the three was involved in the transaction in terms of which the plaintiff lent the sum of $100 million to UMB payable on 3 September 1998 with interest thereon at the rate of 35% per annum. In turn UMB delivered to the plaintiff ten documents in the form of “promissory notes” as security for the money advanced to it as a loan. He believed that the documents had been signed by the defendant’s general manager.

Mr Musuwo emphasised in evidence the fact that the fifteen documents were not bought by the plaintiff as promissory notes. They were security for the money advanced to UMB. Had UMB paid back the money on the due dates the documents would have been returned to UMB. The plaintiff had, on 9 January 1998, however, purchased for value documents with similar properties as those on which the claim was based for $20 million. He said those documents looked exactly the same as the ones bearing the signature which is denied by the defendant. The signature on the two sets of documents looked the same. He said there was nothing ex facie the documents to suggest that the signature was not authorised.

Mr Musuwo said when the plaintiff presented for payment on 15 April 1998, the documents it purchased for $20 million, they were all dishonoured. Information came out that UMB was in fact bankrupt. It was subsequently placed under liquidation. The money advanced to UMB as loans was not paid on the due dates. When the plaintiff presented for payment the fifteen documents it held as security they were all dishonoured. The documents purchased for $20 million were later paid by the Reserve Bank of Zimbabwe because they had been purchased for value. The plaintiff lodged a claim for the payment of $125 million with UMB’s liquidator but the money had not been paid at the time action was commenced against the defendant.

The plaintiff closed its case. Mr de Bourbon, indicated to the court a quo that the defendant was closing its case without leading the evidence which it had indicated in the summary of evidence that it would lead. In deciding to close the defendant’s case Mr de Bourbon was of the opinion that the evidence adduced by the plaintiff had not established a prima facie case for the defendant to answer. Mr Girach, for the plaintiff had a different view of his client’s case. He moved the court for judgment. After both counsel had been heard in argument, the court a quo gave judgment for the plaintiff thereby prompting the appeal to this Court.

The reasons for judgment show that the learned judge was of the opinion that as there was nothing ex facie the documents on which the plaintiff’s claim was based to show that the signature thereon was not authorised there was a presumption of fact that the signature was there in an authorised capacity. The learned judge held that the onus was on the defendant, in the circumstances, to show that the signature was placed on the documents without the authority of its general manager.

This is what he said:-

“From the pleadings filed of record there exists a dispute between the parties as to whether or not the signature on the promissory notes were forged and unauthorised. The evidence on behalf of the plaintiff was that, from its dealings with UMB in regard to this matter and generally in regard to other transactions it received bills in the form of security it had no reason to suspect were forged or in any manner irregular. This evidence was not seriously challenged by the defendant. The plaintiff received the said promissory notes from UMB as security for loans the latter advanced to the CSC. The notes bear a signature in the space reserved for the signature of the general manager. The coming into existence of the notes was a matter within the particular knowledge of the CSC and UMB. The evidence on behalf of the plaintiff was that it had no reason, based on its dealings with UMB to harbour suspicion at the time the promissory notes in question were tainted. The CSC put in issue the genuineness of the signatures. Apart from the averments in its plea, the defendant elected not to call any evidence and closed its case. In the view of this Court the CSC ought to have laid a basis by leading some evidence that challenged the genuineness of the signatures appearing on the promissory notes. The plaintiff would then have been required to lead further and additional evidence to establish that the signatures on the notes were those of the CSC. In this regard the CSC could have called the evidence of its general manager putting in issue the genuineness of the signatures appearing on the promissory notes.”

No authority was cited by the learned judge for the grounds on which he based the judgment. It is clear, however, that the plaintiff brought its claim as a holder of documents it believed were promissory notes and the defendant was sued as the maker of the notes. To succeed in its action the plaintiff had to establish the rights of a holder against the maker of documents as promissory notes. The defendant denied that it signed the documents as maker thereof consequently denying the existence of indebtedness to the plaintiff at all.

Section 89(1) of the Bills of Exchange Act [Chapter 14:02] (“the Act”) makes it clear that for a document to have the validity of a promissory note it must, amongst other things, have been signed by its maker. Section 22 prohibits in absolute terms the imposition of liability on a person as a maker of the note who has not signed it as such. Once the defendant denied that it signed the documents it could not be found liable on them until the plaintiff had proved, on a balance of probabilities, that it signed the documents as the maker of them as promissory notes.

By referring to the documents as “promissory notes” in the reasons for judgment the learned judge presumed the existence of the very fact the proof of which he had to satisfy himself had been established by the evidence of the plaintiff. No presumption of the fact that the defendant signed the documents as maker of them as promissory notes arose from the mere physical presence of the signature on the documents.

In Lotzof v Lotzof 1915 AD 127 at 134 INNES CH said:-

“Now in view of the denial embodied in the plea it is clear that the first task falling to be discharged by the plaintiff was to establish that the signature to the note was the signature of the defendant. If he failed to satisfy the Court on that point, there was an end of the case. And the onus in that respect being on him, if in the result all reasonable doubt had not been dispelled, then an order of absolution was correct and proper.”

There is also the case of Inglestone v Pereira 1939 TPD 55 in which RAMSBOTTOM J expressed the same view of the law at pp 71-72 saying:-

“If the fact relied on is alleged in the summons and is not denied, it is taken to be admitted but if it is put in issue, it must be proved by the plaintiff to whose case it is necessary. Similarly, if the defendant denies that the signature to the document is that of himself or his agent or if he denies that the signatory was authorised to sign on his behalf the onus would be on the plaintiff to establish these facts.”

Lastly, in Rand Advance (Pty) Ltd v Scala Café 1974 (1) SA 786 MILNE J at 789 D-E said:-

“Mr Chadwick for the plaintiff conceded that where, as here, the authority of the defendant’s agent to sign the documents in question is challenged … the onus is on the plaintiff to prove that the signature attributed to the defendant is in fact the defendant’s.”

The onus was clearly on the plaintiff to prove that the computer generated signature placed on the documents by some other person employed at UMB was authorised by the defendant’s general manager. Authority as a matter of fact had to be proved by extrinsic evidence. The documents formed part of the cause of action. They could not be used to prove the fact that the signature on them was authorised. To say the signature was authorised because there was nothing ex facie the documents to impugn its apparent authenticity merely repeated the cause of action.

The facts and circumstances which gave rise to the relationship between the defendant and UMB show that at the time the former gave the latter the specimen signature of its general manager it had no intention that it should immediately be placed on documents as negotiable instruments for purposes of raising money from the public. In other words there was no general authority given to UMB to place the computer generated signature on documents as promissory notes on which to borrow money at any time. The specimen signature was to be kept by UMB until it received instruction from the defendant to use it on the documents as promissory notes to raise a specific amount of money.

It would be the instruction which contained the authority to UMB to place the computer generated signature on the documents with the intention of making promissory notes. The plaintiff had to prove that at the time the computer generated signature was placed on the documents forming part of its cause action the instruction had been given to that effect by the defendant otherwise the signature would be unauthorised. The authority to sign the documents, as promissory notes on behalf of the defendant, was given only after the defendant’s officials were certain that money was needed to finance its operations and had determined the amount to be raised from the money market. Smith v Prosser [1907] 2 KB 735 at 747, 748, 749 and 753.

Did the evidence adduced by the plaintiff establish a prima facie case on the question whether the signing of the documents as promissory notes on behalf of the defendant by UMB officers was authorised? Mr de Bourbon argued that the evidence was woefully inadequate to establish a prima facie case. I agree.

The evidence led by the plaintiff was not directed at proving the fact in issue. The evidence that the signature on the documents purchased as promissory notes for $20 million was similar to the signature on the documents forming the cause of action was not probative of the fact that the signature was authorised. The fact of similarity in the signatures was neutral in effect because the signatures were computer generated from one specimen. As pointed out earlier in the judgment the plaintiff could not rely on the evidence of the documents themselves to prove that the signature on them was authorised.

The evidence of the requisite authority would have been contained in the instructions given to UMB by the defendant’s officials. There should have been produced the documents containing the confirmation of the instructions to UMB officials to raise specific amounts of money from the money market. In the absence of such documents the plaintiff should have called one of the money market dealers to give oral evidence of the instructions they received from the defendant.

The learned judge seems to have accepted that the plaintiff had not led the evidence it ought to have adduced. He said the evidence which the plaintiff needed to establish the fact in issue was within the peculiar knowledge of the defendant and UMB. The fact that information required by a party to prove a fact in issue is within the particular knowledge of the other party is not a reason for removing the burden of proof from him. Gericke v Sack 1978 (1) SA 821 (A) at 827.

The learned judge also found the defendant liable on the ground that the evidence had established that UMB had “ostensible authority” to sign the documents on its behalf. There was, however, no direct communication between the defendant and the plaintiff. The plaintiff said it lent the money to UMB and looked to it for payment. It would have been unnecessary, in the circumstances, for the defendant to represent to the plaintiff that UMB had authority to sign the documents on its behalf. In any case the defendant did not owe the plaintiff any duty to ensure that no false representation of its authority was made to it at all times when the authority it gave to UMB to sign the documents was not a general authority.

There was no evidence that any representation was made to the plaintiff by the defendant that UMB had been given authority to sign the documents on which its claim was based. The representation that could have been made would have been by UMB to the plaintiff. But a representation of apparent authority by UMB could not justify the application of the principle of “ostensible authority” against the defendant because UMB as an agent would have had no authority to represent. The belief induced in the plaintiff by the conduct of UMB would have been that the signature on the documents was affixed thereon by the defendant’s general manager which fact the defendant denied.

The ground upon which the learned judge found that UMB had “ostensible authority” to sign the documents on its behalf at the time it did was the fact that on 3 March 1998 the defendant instructed UMB to issue “bills” for a total amount of $36 million. Mr Musuwo’s evidence was, however, that the five documents given to the plaintiff as security for $25 million advanced on 2 March 1998 were in respect of money the repayment of which was rolled over. There was no new borrowing of money by UMB on 2 March 1998. The defendant denied that it authorised the issue of any bills or notes on 2 March 1998. That authority had to be proved by the plaintiff.

More importantly, Mr Musuwo said the sum of $100 million was a new loan given to UMB on 3 March. On the other hand the defendant’s allegation was that it authorised the issue of “bills” on $30 million as roll over and $6 million as new borrowing. The money was not necessarily raised from the plaintiff. The authority to UMB to sign the ten documents as promissory notes to raise $100 million on behalf of the defendant on 3 March had to be proved by the plaintiff. There was no basis on which a representation by the defendant to the plaintiff that UMB had authority to sign the documents forming the cause of action could have been inferred from the instruction to UMB to issue promissory notes for the amount of $36 million on 3 March 1998.

Mr Andersen also raised the point that the issue was really one of fraud perpetrated on the defendant by UMB in exceeding the authority to issue a specific number of promissory notes. He argued that the onus was on the defendant to prove the fraud. I do not agree. That situation would have arisen had the defendant admitted that it had authorised UMB to sign documents shown to amount to $36 million. The plea would have been a confession and avoidance. It is clear, however, that the defendant’s position was that the documents on which the plaintiff based its cause of action were not shown to have any relation to the amount of $36 million UMB was instructed to raise on 3 March 1998. The reason is that whilst the plaintiff advanced $100 million to UMB on 3 March and received the documents signed by UMB as security the defendant alleges that promissory notes for $30 million were to be issued as roll over and only the amount of $6 million was a new borrowing which was not necessarily sourced from the plaintiff.

The conclusion is that the correct verdict should have been absolution from the instance.

The appeal is accordingly allowed with costs. The decision of the court a quo is set aside and in its place substituted the following:-

“The judgment is absolution from the instance with costs.”

CHIDYAUSIKU CJ: I agree

ZIYAMBI JA: I agree

Webb Low & Barry, appellant's legal practitioners

Gill Godlonton & Gerrans, respondent's legal practitioners