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Blumo Trading (Private) Limited v Nelmah Milling Company (Private) Limited and Nelson Mahupete
HH 39-2011HH 39-20112011
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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 1st defendant from the Grain Marketing Board (the GMB). On the
same date, the 2nd defendant signed a contract of suretyship
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guaranteeing the delivery of maize in terms of the Agreement. He said
that the 1st defendant had a credit facility with the GMB for 2,000 tons.
On the 21st 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 1st 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 2nd 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 1st defendant. Mandizvidza later furnished a
letter confirming the 1st 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 1st 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 1st 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
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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 18th and 22nd of January 2010, the 1 st defendant’s credit
facility was on hold because of its outstanding arrears of US$54,000 and,
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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 18th of January. As at that date, there was no
application from the 1st 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 1st 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 2nd defendant in January 2010. The agreement
between them was for the 1st 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 2nd defendant, is the Chairman and
Managing Director of the 1st defendant. His evidence was that in
December 2009 he applied to the GMB’s Credit Controllers (Mawanza and
Pfumbidza) to increase the 1st 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
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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 2nd 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 18th 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 1st 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 1st defendant. The latter then applied for a facility of 2,000
tons per month. On the 18 th or 19th of December, he verbally advised the
2nd defendant that he could only approve a facility of 1,500 tons on
condition that the 1st defendant paid an additional US$200,000 towards
its account with the GMB. As at the 8th of January 2010, the 1st defendant’s
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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 1st 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 8th 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;
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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
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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 1st 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 1st 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
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had the requisite release orders or would have them in their possession
by the 19th 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.”
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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
22nd 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 (6th 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
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Agreement. In the event, the plaintiff lawfully cancelled the Agreement
on the 2nd of February 2010, as was confirmed by its lawyers in their letter
of the 4th 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
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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
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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 2nd defendant explicitly accepted “liability for the balance
of its indebtedness and for all interest, costs, damages, losses and
expenses which [the 1st 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 2nd defendant
stood as surety for the 1st defendant and thereby rendered himself liable
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for the full performance of the 1 st defendant’s obligations under the
Agreement. It is also unquestionable that the 1 st and 2nd 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.
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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:
(i) payment of the sum of US$24,100 as special damages for loss
of profits;
(ii) payment of the sum of US$10,000 as restitution;
(iii) interest on the aforesaid amounts at the prescribed rate
calculated from the date of judgment to the date of full and
final payment;
(iv) costs of suit on a legal practitioner and client scale.
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Scanlen & Holderness, plaintiff’s legal practitioners
Macheyo Law Chambers, defendants’ legal practitioners