Farmers World Holdings (Pvt) Ltd v Manica Zimbabwe Limited

### Preamble
1
HH-297-12
HC 6948/11
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FARMERS WORLD HOLDINGS (PVT) LTD

versus

MANICA ZIMBABWE LIMITED

HIGH COURT OF ZIMBABWE

MATHONSI J

HARARE, 10 July 2012 & 18 July 2012

Opposed Application

W.P. Zhangazha, for the applicant

Adv. E.W. Morris, for the respondent

MATHONSI J:  The applicant seeks an interdict against the respondent in the following:-

“(1)	The respondent be and is hereby interdicted from disposing of the applicant’s agricultural equipment in its possession per Annexure “A” to this application by public auction on 23 July 2011, or at any subsequent date except pursuant to a court order obtained from a court of competent jurisdiction.

(2)	The respondent shall (bear) the costs of this application”.

In May 2009 the parties entered into a written agreement in terms of

which the respondent was appointed as the applicant’s logistics service provider in the importation of agricultural equipment, the applicant being an importer of such equipment. In terms of that agreement the respondent was to provide storage, handling and transport services as well as terminal services, all customs clearing services and tracking of the equipment being imported.

In return, the applicant was to pay the respondent for such services in accordance with the respondent’s rates which were appended as an annexure to the agreement and the respondent was to render its services in terms of its standard trading conditions which were also annexed to the agreement. The respondent took possession of a range of agricultural equipment in pursuance of the agreement of the parties, which equipment then became subject to a general and special lien as provided for in that agreement.

In March 2010 the parties signed what they called an “Acknowledgment of Debt, Lien and Pledge” in which the applicant acknowledged being indebted to the respondent in the sum of US$2 750 000 000-00 as at 28 February 2010 for the respondent’s charges in terms of the original agreement of May 2009 together with interest at the rate of 20% per annum compounded monthly and undertook to pay in certain instalments. The applicant failed to pay in terms of that Acknowledgment of Debt.

In that agreement, the applicant renounced the benefits of the legal exceptions “non causa debiti, non numeratae pecuniae, revision of accounts, no value received and errors of calculation”. The applicant acknowledged that its equipment held by the respondent would be held under a lien and pledge as security for the repayment of the capital debt and interest except for excess items which the respondent was prepared to release.

In terms of clause 6 of that agreement:

“Should the full amount of the debtor’s liability to the company (the respondent) became due in terms of para 3 hereof the company shall be entitled to dispose of any or all of the debtor’s equipment in the company’s possession in such manner at such prices and on such terms and conditions as the company deems appropriate at the cost and expense of the debtor provided that the company shall give the debtor not less than five (5) days notice of its intention to sell the equipment …”

As already stated the applicant defaulted and when the respondent gave

notice of its intention to sell the equipment by public auction on 23 July 2011, the applicant promptly brought this application seeking an interdict aforesaid. In its founding affidavit sworn to by Thomas Nherera, the Deputy Chief Executive Officer, the applicant disowned the Acknowledgment of Debt on the basis that it had been signed by Thomas Nherera under duress and that the preamble to it cited the Executive Chairman of the applicant as the signatory when in fact Nherera is the one who signed it.

Nherera also alleged that the applicant had made payment towards liquidating the debt resulting in a dispute arising as to what remained outstanding. He also challenged the interest rate of 20% per annum as being “usurious” and contravening the law. He decried the applicant’s inability to market and dispose of the equipment because of interference from the respondent and objected to the intended sale of the equipment as being unlawful by reason of the fact that the respondent had not sought and obtained a court order authorising it to do so.

The application has been opposed by the respondent. In its opposing affidavit sworn to by its Financial Director, Kuziva-kwamwari Paul Mudiwa (Mudiwa), the respondent stated that in terms of the original agreement between the parties, all equipment held by the respondent, was subject to a general and special lien for monies due to the respondent and all the equipment was deemed delivered in pledge and as security for the payment of monies due to the respondent. If such monies were not paid within 14 days of due date the respondent was entitled to sell the equipment by public auction or by private treaty at its discretion to realise what is owed to it.

The respondent maintained that the applicant had acknowledged indebtedness, not just through the Acknowledgement of Debt sought to be disowned by the applicant but through correspondence and a resolution of the applicant. It drew attention to a letter dated 22 January 2010 written by Nherera in which he acknowledged that a sum of US$3,1 million was due by the applicant at that time. In addition, at a board meeting of 5 March 2010, the applicant passed the following resolution.

“Board Resolution

The Zimbabwe Farmers Development Company Board has resolved that the outstanding debt to Manica Zimbabwe Limited of about USD2 750 000-00 will be repaid in line with the agreement entered between the two parties.

Zimbabwe Farmers Development Company is agreeable to letting Manica keep some items as Lien and Pledge for its commitment to repay the loan.

This is passed as a Special Board Resolution of 5 March 2010 at Harare.

Signed							Signed

E. Raradza						T. Nherera

Executive Chairman					Executive Director”

Mudiwa explained that negotiations between the parties resulted in the

reduction of storage charges which brought the amount owing to $2,75 million contained in the Acknowledgement of Debt now being contested by the applicant. Nherera, who signed the acknowledgment, represented the applicant during the negotiations and although the pre-amble may have cited the Executive Chairman, it did not change the complexion of the matter because Nherera had authority to bind the applicant and did bind it by appending his signature. In any event, E. Raradza, the Executive Chairman, did acknowledge the same amount in the Board Resolution referred to above.

The respondent disputed that the interest of 20% was unlawful and wondered how the applicant would dispute the acknowledgment of debt when in their letter of 27 June 2011, the applicant’s legal practitioners had stated in relevant part thus:-

“Our client’s instructions thereon are now to hand and they are these. The provisions of the Acknowledgment of Debt have demonstrably been novated over the period extending from the date of signing of the referred to Acknowledgment of Debt to date”

According to the respondent this was a clear acceptance that the

Acknowledgment of Debt was valid and represented, at some point, the agreement of the parties and for that reasons the applicant cannot be allowed to renege from its provisions especially without showing the novation alluded to. The respondent insists that it is entitled to dispose of the equipment both in terms of the original agreement and in terms of the acknowledgment of debt and for that reasons the applicant is not entitled to the relief it seeks.

It is not clear what type of an interdict the applicant is seeking, whether it is an interlocutory interdict or a permanent interdict. This is because the applicant seems to suggest that the interdict should subsist until a court order is granted in the respondent’s favour authorising the sale of its equipment. There is no court action that is pending and it would appear the applicant wants the respondent to institute one against its will.

The requirements for an interlocutory interdict were set out by CHATIKOBO J in Bozimo Trade Development Co (Pvt) v First Merchant Bank of Zimbabwe & Ors 2000(1) ZLR 1(H) E-G where he stated:-

“One must then recall the traditional requirements for an interdict. They were originally set out in Setlogelo v Setlogelo 1914 AD 221 and have been repeated in numerous subsequent cases. STEGNANN J repeats them in Knox & Arcy supra at 593C-D. What the applicant needs to establish is:-

a prima facie right, even if it is open to doubt,

an infringement of such right by the respondent or a well-grounded apprehension of such an infringement;

a well-grounded apprehension of irreparable harm to the applicant, if the interlocutory interdict should not be granted and if he should ultimately succeed in establishing his right finally;

the absence of any other satisfactory remedy; and

that the balance of convenience favours the granting of an interlocutory interdict”.

Mr Zhangazha for the applicant argued that the applicant has a “clear

right” to the equipment which the respondent intends to sell which entitles it to a permanent interdict against the respondent. This, he says, derives from the fact that the property cannot be sold without a court order because there is a dispute over the amount that is owed.

The fallacy of that argument is self evident. The respondent relies on a consent by the applicant, firstly in the original agreement signed in May 2009 and secondly in the Acknowledgment of Debt penned in March 2010, to parate execution. That our law recognises parate execution, subject to qualifications, cannot be doubted. As stated by BECK JA in Changa v Standard Finance Ltd 1990(2) ZLR 412(S) 414A-C;

“It was settled in Osry v Hirsch, Loubser & Co Ltd 1922 CPD 531 that as far as movables are concerned an agreement for their delivery to the creditor and sale by him by means of parate execution is valid and binding. That decision was approved and followed by BEADLE J (as he then was) in Aitken v Miller 1951(1) SA 153 (SR); 1950 SR 227.  The recognition extended under the civil law to such agreement is subject, however, to the qualifications expressed at p 547 of Osry’s case (supra), in these terms:

‘It is, however, open to the debtor to seek the protection of the court if, upon any just ground he can show that, in carrying out the agreement and effecting a sale, the creditor has acted in a manner which has prejudiced him in his rights’”.

Mr Zhangazha has not attempted to show how, if at all, the respondent’s actions have prejudiced the applicant. In fact according to the papers, the respondent had not even started carrying out the agreement when the applicant rushed to court, virtually breathless, to prevent the enforcement of the agreement.

The applicant signed away its rights to the equipment and gave the respondent the authority to dispose of the equipment in the event of default of payment. Such disposal of pledged and delivered property is provided for in our law. The applicant has not disputed indebtedness but challenges the amount claimed. This, even after renouncing the benefits of legal exceptions in the original agreement. There can be no clear right to the equipment against this background.

The applicant has also sought to impugn the right to sell the property on the basis that the interest claimed is usurious. This argument has not been supported by any authority. Mr Zhangazha argued that the 20% interest rate was “smuggled into the acknowledgement of debt in contravention of the parent agreement” because the parent agreement allowed for the maximum interest allowed by law, which is currently 50% per annum, being the prescribed rate of interest.

To say the prescribed rate of interest is applicable to the agreement between the parties, is at best disingenuous and at worst outrightly dishonest.

The Prescribed Rate of Interest Act [Cap 8:10] does not prescribe any rate of interest for the parties except where the parties have not agreed on the applicable interest. Section 4 of that Act provides:

“If a debt bears interest and the rate at which the interest is to be calculated is not governed by any other law or by an agreement or trade custom or in any other manner, such interest shall be calculated at the prescribed rate as at the date on which such interest begins to run, unless a court of law, on the grounds of special circumstances relating to that debt, orders otherwise”.

In casu, the original agreement of the parties provided in clause 27.3 of

the standard conditions that:-

“Any amount not paid on due date for payment shall bear interest at the maximum permissible rate allowed by law on accounts not settled within the agreed terms of credit and calculated on daily balance and compounded monthly in arrears”.

Granted, the prescribed rate of interest where there is no agreement of the

parties is 5% per annum. However clearly the parties intended and agreed that an interest rate other than that prescribed by the Act was applicable. In fact a simple reading of the relevant clause shows that they intended to apply the maximum rate allowed by law and not the minimum. Any other construction of that clause will simply defeat the intention of the parties. Little wonder that the acknowledgment of debt specified the rate of interest at 20% per annum.

I agree with Advocate Morris that s 12(1) of the Money lending and Rates of Interest Act [Cap 14:14] has no application to the agreement of the parties. The section reads:-

“Every instrument of debt, other than a mortgage or general covering bond, executed within Zimbabwe in respect of a loan of money shall separately and distinctly set forth –

that it is executed for money lent; and

the amount actually paid to the borrower, and

the rate of interest which is to be charged in respect of the loan”.

The original agreement of the parties was clearly not an instrument of

debt. See Mtandwa v Zimbabwe Banking Corporation Ltd 1999(1) ZLR 445 (H) where BARLETT J  said at 452 H and 453A that:-

“Accordingly, applying a restrictive interpretation of ‘in respect of’ in s 12 and in the definition of instrument of debt, I agree with counsel for the Bank that where the document relates not to the loan of money but to security in respect of a loan made by a third party, it is not an instrument of debt”.

Indeed, as argued by Advocate Morris, the agreement of the parties was

not for the advancement of a loan.

It has also been submitted on behalf of the applicant that Thomas Nherera signed the acknowledgment of debt, under duress and that for that reason it cannot be relied upon. In his founding affidavit he stated in para 7 on that issue as follows:-

“As at 28 February 2010, the parties purportedly agreed that the amount owing was US$2 750 000-00 payable upon certain terms and conditions as will appear from Annexure “B” hereto being the purported Acknowledgment of Debt irregularly signed in March 2011 and whose provisions are therefore null and void as I signed the same under duress and as if I was Mr Edward Raradza the Executive Chairman of the applicant because the applicant was not given time to consult on the document whilst at the same time the Executive Chairman was not available because he was on business elsewhere”.

As to what influence was brought to bear upon Nherera, we are not told.

There is nothing whatsoever in the manner in which the parties related to each other to suggest even an inkling of duress. In my view, this is the kind of duress which, if indeed it existed, it was the kind referred to by ROBINSON J in Amalgamated Motor Corporation (Pvt) Ltd v F. Klement (Pvt) Ltd 1996(1) ZLR 17(H) at 26 B as being “entirely imagined and, therefore, self induced”

Reference to the Executive Chairman in the preamble did not invalidate the acknowledgment. Mr Zhangazha also argued that the acknowledgment of debt signed by the parties should be rejected on the ground that it contains clause 7 which is unenforceable. That clause reads:-

“The certificate of the company’s accountant as to the debtor’s indebtedness at any time shall be conclusive evidence of such indebtedness and shall be final and binding upon the debtor”.

I agree that such a clause is contra bonos mores and therefore void PTC v

Stakold Refrigeration & Dairy Services (Pvt) Ltd 1997(1) ZLR 50 (H) 59C and F. Advocate Morris did not attempt to defend that clause as well.

This court has the power to treat as void and to refuse to recognise contracts and transactions which are against public policy or contrary to good morals. However it is a power which should not be hastily exercised Karimazondo v Standard Chartered Bank Zimbabwe 1995(2) ZLR 404 (S) 409 D. It is a fact that courts have readily severed such clauses if they are severable without affecting the import of the contract.

In my view the respondent did not have to include clause 7 in the acknowledgment of debt at all and I can only attribute its inclusion to the excessive exuberance of an impatient company representative intent on protecting the respondent’s claim at all costs. The applicant had already acknowledged indebtedness in the outstanding sum of $2,75 million and 20% interest. The instalments to be paid by the applicant were clearly set out. The applicant had long renounced the benefit of all legal exceptions to the amount claimed. Nothing was being achieved by the offensive clause.

It is clear that the respondent is not relying upon clause 7 to claim the outstanding amount which is easily ascertainable by reference to other instruments forming the relationship between the parties I therefore take the view that the clause is severable and the entire acknowledgment of debt is therefore not invalid. Karimazondo supra at 411 F.

I come to the inescapable conclusion that the applicant has not made a case for the interdict that it seeks and for that reason the application must fail.

Advocate Morris for the respondent devoted a lot of time to argue for costs on a higher scale against the legal practitioners for the applicant de bonis propriis. He relied on the authorities of Mavheya v Mutangiri & Ors 1997 (2) ZLR 462(H) where GILLESPIE J expressed indignation at legal practitioners who fail to exercise reasonable professional competence and diligence in the pursuit of instructions received from their clients and suggested that in certain instances such legal practitioners should seek the opinion of a specialist even in the drafting of process; and Doelcam (Pvt) Ltd v Pichanick & Ors 1999(1) ZL390 (H) where the legal practitioners were penalised for negligence.

I am not persuaded that this is a case calling for such action. I agree with Mr Zhangazha that the applicant’s case was indeed arguable although it was a bad one. With a little bit of industry the applicant would have realized that.  In the exercise of my discretion on the issue of costs, I am satisfied that an award of costs on a higher scale will meet the justice of the case.

Accordingly, I make the following order, that:-

The application is hereby dismissed.

The applicant shall bear the costs of suit on a legal practitioner and client scale.

Chinogwenya & Zhangazha, applicant’s legal practitioners

Coghlan, Welsh & Guest, respondent’s legal practitioners