Michael O'Leary v Patricia de la Harpe and Timothy O'Leary and The Sheriff of the High Court of Zimbabwe

### Preamble
1
HH 72/21
HC 8599/19
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MICHAEL O’LEARY

versus

PATRICIA DE LA HARPE

and

TIMOTHY O’LEARY

and

THE SHERIFF OF THE HIGH COURT OF ZIMBABWE

HIGH COURT OF ZIMBABWE

MUSITHU J

HARARE, 2 June 2020 & 18 February 2021

Opposed Application – Declaratur and Specific Performance

E. Mubaiwa, for the applicant

K. Kachambwa, for the respondent

MUSITHU J:

INTRODUCTION

Applicant seeks a declaratur and an order of specific performance as against 1st and 2nd respondents in respect of certain shares held by the two in a family company called Wintersgrace (Private) Limited. The relief sought is amply set out in the draft order as follows:

“IT IS ORDERED THAT:

The application is hereby granted with costs on the scale of legal practitioner and client.

It is declared that applicant duly and lawfully exercised his right of first refusal in respect of the shares held by respondents in Wintersgrace (Private) Limited on the terms of the agreement signed by respondents as sellers and Southsea Investments (Private) Limited as purchaser on 15th May 2019.

It is declared, consequently, that a contract of sale of the shares held by respondents in Southsea Investments (Private) Limited exists as between the parties such contract being on the terms and conditions set in the agreement signed between respondents and Southsea Investments (Private) Limited on 15th May 2019.

It is ordered that the purchase price set out in the agreement shall be paid by applicant in the legal tender of Zimbabwe.

Respondents are ordered to transfer their shares in Wintersgrace (Private) Limited to applicant within five (5) days of this order.

Should respondents not comply with the order in paragraph [5] above, the Sheriff shall upon presentation by applicant of company share transfer forms relative to respondents’ shares, execute and effect transfer of shares to applicant….”

1st and 2nd respondent opposed the application. Prior to the institution of the application, applicant had, under HC 6631/19 filed an urgent chamber application against 1st to 3rd respondents herein, Southsea Investments (Pvt) Ltd (Southsea) and the Registrar of Companies. In that matter, applicant sought the following relief:

“TERMS OF FINAL ORDER SOUGHT

That you show cause to the Honourable Court why a final order should not be made in the following terms-

The decision by the 1st Respondent and 2nd Respondents to sell their shares in the 3rd Respondent to the 4th Respondent be and is hereby.

The applicant be and is hereby authorised to tender payment for the shares at the interbank rate in accordance with the laws of Zimbabwe and his rights of pre-emption.

1st and 2nd Respondents shall pay applicant’s costs of suit on the higher scale of attorney and client.

INTERIM RELIEF GRANTED

Pending determination of this matter the Applicant is granted the following relief:-

The 1st and 2nd Respondents be and are hereby ordered to stop the combined sale for their shares in the 3rd Respondents to the 4th Respondent within 24 hours of this order.

In the event of non-compliance with paragraph 1 above, the 5th Respondent or his lawful assistant be and is hereby directed to stay any transfer of title in the shares of the 3rd Respondent pending finalisation of this matter….”

The application was deemed not urgent and struck off the roll of urgent matters. It had not been withdrawn as at the time this application was heard. Although ex facie the application, 3rd respondent is cited as Wintersgrace (Pvt) Ltd, the founding affidavit does not name 3rd respondent as such. 3rd respondent is the Sheriff of the High Court of Zimbabwe. Wintersgrace is referred to throughout the affidavit as “the Company”. The draft order also refers to Wintersgrace (Private) Limited. No relief is directly sought against this entity. It would appear Wintergrace (Private) Limited was never intended to be a party to the proceedings. Henceforth, Wintergrace (Private) Limited shall be referred to as “the Company”. Further, for the sake of convenience, 1st and 2nd respondent shall be referred to collectively as respondents where necessary, and cited individually where circumstances so require.

FACTUAL BACKGROUND

The factual background as set out in the papers before the court is as follows. Applicant and 1st and 2nd respondents are siblings and shareholders in the Company. Each holds a single share in the entity. Clause 6 of the Company’s articles of association grants each one of them a right of first refusal in respect of any proposed sale of shares to a third party by the other shareholders. In the instant case, respondents were obliged to notify applicant of any offer made to them and call upon him to match that offer within 30 days from the date of communication of the notice to him. On 15 May 2019, respondents and Southsea reached an agreement for the sale of their shares to Southsea. The purchase price for each share was USD230 000-00. The agreement was conditional on applicant’s failure to exercise his right of first refusal or its express waiver. Applicant claims to have received the relevant notification through a letter of 17 May 2019, from respondents’ counsel. The letter called upon him to exercise his right of first refusal within 30days. The letter reads:

“WINTERSGRACE (PRIVATE) LIMITED (“the Company”): TIMOTHY O’LEARY AND PATRICIA DE LA HARPE (“our Clients”): NOTICE IN TERMS OF ARTICLE 6(a) OF THE ARTICLES OF ASSOCIATION OF THE COMPANY

Each of our Clients own one issued share in the share capital of the Company, and you are the owner of the remaining issued share.

We write to you on the instructions of our clients to advise that they have received an offer to purchase the shares they own in the Company which offer they have accepted, subject to a number of conditions precedent, including compliance with the pre-emptive rights granted to you in terms of Article 6 of the Articles of Association of the Company.

We attach a copy of the Agreement of Sale which they have entered into in that connection, and this letter constitutes the Transfer Notice which our clients are obliged to give in terms of Article 6 (a). More specifically:

You will note that the offer received by our clients is to purchase their shares in the Company as a single indivisible transaction;

The purchase price for each share owned by our Clients is US$230 000 (two hundred and thirty thousand United States dollars), payable into an account nominated by each of our clients;

The purchaser is Southsea Investments (Private) Limited of 30 Domboshawa Road, Borrowdale Road, Harare; and

The terms and conditions of the proposed sale are otherwise as set out in the attached agreement.

In terms of Article 6 you have a period of thirty days from the date of receipt of this notice to acquire the shares owned by our Clients in the Company for an aggregate purchase price of US$460 000.

This letter replaces, and it is in substitution for, any communications which you may have previously received from either of our clients in the same connection.

Kindly indicate to us as soon as possible whether it is your intention to exercise the pre-emptive rights afforded to you by Article 6…..”

Applicant claims to have accepted the offer through a letter of 11 June 2019 from his own legal counsel. The letter reads:

“OFFER OF SHARES TO MR MICHAEL O’LEARY: WINTERGRACE (PVT) LTD

I would advise that I have been consulted by Mr Michael O’Leary regarding your offer of shares in respect of the pre-emption provisions of the Articles of Association of Wintersgrace (Pvt) Ltd, as contained within your email dated 17th May 2019, together with the copy of the agreement attached thereto.

I am instructed that my client has already accepted the offer of shares in respect of Patricia de la Harpe, but that you have stated that her shares are part of an indivisible transaction.

As far as I am concerned, there are two separate offers of shares by two separate shareholders on two totally different terms in respect of payment. Accordingly I believe that it is open for my client to have accepted the offer of shares by Patricia de la Harpe, which he duly did. I believe that it is not possible for the two shareholders to gang up against their brother and purport to link their shareholding in someway. As such my instructions are to confirm that my client wishes to exercise his rights of pre-emption and to confirm that the offer for Patricia de la Harpe’s shares has been accepted on the same terms as the agreement attached to the transfer notice.

The crux of the matter is that the company in question owns the old family property of the O’Leary’s which was left to them by their parents and as you probably know, my client currently resides there. ……………………………………………………………………………………………………………………………………………………………………………………..

My client has previously indicated his willingness to buy out his siblings but he would require more time ordinarily to achieve this. My client has secured funding assistance so as to ensure that the shares do not go out of the family.

Nevertheless, without prejudice to my client’s acceptance of Patricia de la Harpes’s shares, which we assert is legal, valid, and binding, in the alternative, if it is found that the first sale was invalid for any reason, then ex abundante cautela and without in any way acknowledging that the first acceptance is defective in any way, then my instructions are to confirm that my client wishes to exercise his right of pre-emption and to confirm the acceptance of the offer made by your one client, Mr Tim O’Leary, by my client, Mr Michael O’Leary, as we hereby do, on the basis contained within the transfer notice and draft agreement attached to your letter dated 17th May 2019, for a purchase price of US$230,000.00.

Similarly and on the same basis as the aforegoing, my instructions are to confirm that my client wishes to exercise his right of pre-emption and to confirm the acceptance of the offer made by your other client, Mrs Patricia de la Harpe, by my client, Mr Michael O’Leary, as we hereby do, on the basis contained within the transfer notice and draft agreement attached to your letter dated 17th May 2019, for a purchase price of US$230,000.00

We look forward to hearing from you in this regard…….”

According to the applicant, 1st and 2nd respondent duly notified Southsea that applicant had exercised his right, and the suspensive condition in their agreement could not be fulfilled. By so doing, the respondents had rendered their agreement with Southsea invalid.

Applicant’s Case

Applicant contends that a binding agreement came into existence once he accepted the respondents’ offer, by matching Southsea’s offer on 11 June 2019. An agreement was thus consummated on the same terms and conditions as Southsea’s agreement with the respondents. Applicant claims that the respondents sought to renege on their acknowledgment that he had exercised his right of first refusal, thus giving birth to a binding agreement. That explained his approach to this court. Respondents alleged that applicant failed to sign a draft agreement which had been forwarded to him through an email of 9 July 2019.

Applicant contends that there was no need for the parties to sign yet another agreement since the terms of the Southsea agreement became effectual by operation of law. That agreement had already been consummated by the parties as their own agreement. The basis on which respondents sought to renege on the agreement was therefore untenable.

The other area of conflict was the mode of payment for the shares. Respondents insisted on payment in the United States dollars. Applicant argues that Statutory Instrument  142/2019 (SI 142), which declared the Zimbabwe dollar as the sole legal tender came into operation after he had exercised his right of first refusal. By then the agreement was already in place. Applicant argues that the effect of the new legislation was to prohibit payment in foreign currency. The purchase price had to be paid in local currency unless exchange control approval was granted prior to the payment. Accordingly, applicant tendered payment in local currency through an email of 12 July 2019. Applicant claims that respondents ignored the email tendering payment in local currency. Instead, respondents’ lawyer dispatched a letter in which he referred to an email of 24 July 2019 that had been sent to applicant’s lawyer. Applicant claims that his lawyer never received the said email. The letter of 5 August 2019 reads:

“WINTERSGRACE : O’LEARY AND DE LA HARPE

We write to place on record that we have neither received an acknowledgment of, nor response to, the writer’s email addressed to Mr Warhurst on 24 July 2019, a copy of which is attached…”

The attached email of 24 July 2019, which was in response to the applicant’s email of 12 July 2019, reads as follows:

“……..

I refer to your mail of 12 July 2019. I now have had the opportunity of consulting with my clients.

As long ago as 14 June 2019 I expressed the concern to you that your client was “seeking to assert some purported right to purchase one or both of the shares on some basis other than in terms of the offer open to him”. Whilst subsequent communications between us held out some hope that this view was perhaps warranted, it is abundantly clear that it summarises the stance now being adopted by your client. I say this because:

The agreement with Southsea is for the purchase of two shares of US$460 000, it being recorded that “no other currency that may from time to time be introduced by Zimbabwe’s monetary authorities shall be considered good tender for the purposes of this transaction;

The agreement also states that the purchase price shall be paid into accounts nominated by the sellers, without any restriction as to the location of such accounts;

You refer to my email of 9 July as read with my mail of 28 June, and say that “you are probably correct in this regard”. In my email of 28 June I drew attention to the provisions of SI 142 of 2019, for you to give consideration to your client’s position-I have subsequently advised Timothy as to its impact on him. In my email of 9 July I simply referred to our telephone call on the previous Wednesday (3 July), and I recorded that “we left matters on the basis that your client would have to make a call as to whether he still takes the position that he is exercising his rights of pre-emption to purchase the shares owned by Timothy and Patricia”. Accordingly, as is clear from a reading of my mail of 9 July as a whole, I was not asserting any illegality as to the performance of any agreement denominated in US$, and entered into prior to 24 June 2019.

You go on in your email under reply to state that “the agreement between our respective clients would have to be redenominated into Zimbabwe dollars at the prevailing interbank rate”. Assuming this is indeed the position being adopted by your client, you do not attempt in any way to justify that statement. It is in flat contradiction with the passage of the Southsea agreement quoted in paragraph 1 above, pursuant to the terms of which agreement your client purported to exercise his rights of pre-emption. In any event, it is absurd to suggest that the provisions of SI 142 could have any effect on the position of our client, Patricia de la Harpe, who is a non-resident of Zimbabwe and who manifestly has no interest in being paid in Zimbabwe, or in any currency other than US$;

The net effect of your email is to state that your client, in purporting to exercise his rights of pre-emption, will neither make payment for the shares in terms of the sole, specified currency of the contract, nor will he respect our clients’ entitlement to nominate the place of payment.

In all these circumstances our clients take the position that your mail of 12 July makes it clear that your client is no longer exercising any rights of pre-emption lawfully available to him, and they shall act accordingly. If your client takes a different view, he take such action as he is advised.

………”

Applicant contends that in adopting this position, respondents were attempting to circumvent the Exchange Control Regulations and SI 142. That with respect, was unlawful. Applicant notes that whilst he and 2nd respondent were resident in Zimbabwe, 1st respondent was a non-resident. Acceding to their position meant there would be an exchange of foreign currency which would be spirited out of the country. That was an assault on the legislative intent. Applicant had refused to partake in what appeared to him a criminal enterprise.

Applicant further asserts that the issue of the currency did not affect the existence of the sale. Rather, it was a performance issue.  The agreement was already in place. The issue of payment would only concern the parties when the obligation to pay arose. The holding of divergent views regarding the currency of the transaction did not impinge upon the successful exercise of the right of first refusal. That was a matter for another day.

In any case, assuming respondents were correct in asserting that payment ought to be made in $US, applicant’s failure to pay in that currency at most constituted a breach of the agreement. It did not affect the exercise of the right of first refusal. Applicant also disputes respondents’ contention that the Southsea arrangement had lapsed. The position was communicated through a letter of 10 October 2019 from respondents’ lawyer. The letter reads:

“……………

Our clients are not prepared to contemplate the subdivision option.

The transaction entered into with Southsea has now lapsed. In the circumstances, clients should be taking steps to convene an extra ordinary general meeting with the company, and you will be receiving a notice in that connection in the near future….”

Applicant argues that the Southsea agreement was voided when he exercised his pre-emptive right. It was invalid from 11 June 2019 when that right was exercised. Applicant prayed for the granting of the relief sought with costs on the attorney and client scale.

Respondent’s Case

2nd respondent deposed to the main opposing affidavit. 1st respondent associated herself with the 2nd respondent’s deposition. Respondents raised a point in limine. The urgent chamber application under HC 6631/19 was removed from the roll of urgent matters. That application was not withdrawn. The relief sought thereunder was essentially similar to the relief sought herein. Accordingly, there was pending litigation between the same parties pertaining to the same cause of action. Respondents prayed for the dismissal of the present application with costs on the higher scale.

On the merits, respondents confirmed the existence of an agreement with Southsea for their shares in 3rd respondent. The agreement was consummated on 15 May 2019. In terms of that agreement, the shares were sold as an indivisible unit for US$460,000.00. The amounts would be paid in accounts nominated by respondents in terms of the agreement of sale. The Southsea agreement was conditional on applicant failing to exercise his right of pre-emption in respect of the shares. In line with Article 6(a) and (b) of the Memorandum of Association, respondents’ counsel wrote to applicant on 17 May 2020, giving notice of the proposed disposal of their shares to Southsea. Applicant’s counsel responded through a letter of 11 June 2019, which response the respondents claim was somewhat vague. Their lawyer sought clarification of applicant’s position through an email of 13 June 2019 to the applicant’s lawyer. It reads:

“Good afternoon Mark

I refer to your letter addressed to me in the above connection. So that I can be sure we are on the same page, can you please confirm that:

You are instructed on behalf of Michael O’Leary to exercise his rights of pre-emption in respect of the shares owned in Wintersgrace by his siblings;

If so, that he is offering to buy both of their shares, as one indivisible transaction, on precisely the same terms and conditions (mutatis mutandis) as are set out in the agreement executed with Southsea Investments (Pvt) Ltd, but without any conditions precedent or warranties, save as to the ownership of and ability to transfer the shares; and

In particular, that he is offering, able and willing to pay the same purchase price in United States dollars (and in no other currency), in each case to an account nominated by each of our clients, situated in whatever jurisdiction, subject to a portion thereof being released in advance of completion to settle any capital gains tax liability.

Could I have this confirmation by close of business tomorrow, at the latest.

Regards

Peter”

Respondents argue that instead of addressing the issues raised in the email of 13 June 2019, applicant’s counsel sent yet another vague and non-committal response. The response of 14 June reads:

“Dear Peter

With reference to your below email, I can do no more than reiterate the contents of my letter which I believe is sufficiently clear and in compliance with both the Memorandum and Articles of Association and the terms and conditions of the offer to which the acceptance relates.

The previous provisions of the Memo and Articles now apply as read with the agreement that was sent with the transfer notice, and our client will abide by same.

Regards

Mark”

That response prompted respondents to believe that applicant was not exercising his pre-emptive rights. They made their frustrations known through an email of 14 June 2019 from their lawyer. It states:

“Dear Mark

Since you decline to give the confirmation called for by me, I can only assume that your client is not exercising his rights or pre-emption pursuant to the notice sent to him, but rather is seeking assert some purported right to purchase one or both of the shares on some basis other than in terms of the offer open to him.

Accordingly I intend to advise my clients to proceed with the sale of their shares to Southsea.

Be that as it may, and strictly without prejudice, I will call you on Monday to discuss the matter further

Regards

Peter”.

Further dialogues ensued between the parties. Respondents concluded that they had eventually found each other. They were persuaded to believe that applicant had finally exercised his pre-emptive rights. Southsea was notified of these developments. The agreement with applicant was on course. The agreement with Southsea had fallen by the wayside. Respondents’ counsel prepared and forwarded to the applicant an agreement for the sale of shares. Applicant refused to sign it. This prompted respondents’ counsel to dispatch the email of 24 July 2019 to applicant’s counsel. It became clear at this stage that a dispute existed between the parties. Applicant approached this court with an urgent chamber application under HC6631/19.

A meeting was held at the offices of respondents’ counsel on 19 August 2019. At the meeting applicant indicated that he only wished to purchase 1st respondent’s share. He reiterated the same position in the heads of argument filed in support of the urgent chamber application under HC6631/19.  Respondents contend that applicant cannot at this stage make an about turn and seek to argue that he exercised his pre-emptive rights to purchase both shares. Applicant had always been evasive. At one point he expressed a desire to purchase both respondents shares. It was on that account that respondents’ counsel prepared an agreement of sale which he declined to sign. At the hearing of the urgent chamber application, he changed course. He only wanted to purchase 1st respondent’s share. The purported exercise of the right or pre-emption was only in respect of 1st respondent’s share.

Respondents aver that applicant did not exercise his pre-emptive rights since he did not offer to purchase their shares on the same terms and conditions as Southsea. He was given the opportunity to do so, but he failed. His tender for payment also came too late after the time he was expected to do so lapsed.

The agreement with Southsea lapsed the moment respondents’ counsel informed Southsea that applicant had exercised his pre-emptive rights. It was not clear on what basis applicant sought to assert the existence of an agreement with respondents when he declined to sign the agreement forwarded to him by respondents’ counsel. If an agreement indeed existed, it was incumbent upon the applicant to highlight: the terms of the agreement; whose shares he purchased; the consideration for each share; when the purchase price was due. Applicant failed to do that. Applicant was not a party to the agreement between respondents and Southsea. As such he could not rely on that agreement. It was not binding on him.

Concerning the mode of payment, respondents aver that at the time applicant was expected to exercise his pre-emptive right, there was nothing irregular about transacting in the United States dollar. Southsea had offered to pay the purchase price in the United States dollar. It was still legal tender. Applicant was not prepared to pay the purchase price on the same terms as Southsea. Respondents contend that there could be no agreement when applicant remained unsure about the currency in which he was expected to pay the purchase price.  Respondents further contend that a contract of sale is consummated when parties are agreed on the merx, the pretium, and when the pretium would be paid. None of those requirements were satisfied in the present matter. The application was therefore an abuse of court process.  The court was urged to dismiss it with costs on the attorney and client scale.

Applicant’s Reply

Applicant raised a preliminary matter. Respondents held a Directors’ Meeting on 24 October 2019, as a prelude to an Extraordinary General Meeting to be held on 24 November 2019. One of the resolutions to be considered at the Extraordinary General Meeting of members was the removal of applicant as director of the Company. This was in spite of protestations by applicant’s counsel that such meeting was irregular. It ought to be held in abeyance pending the resolution of this matter. In any case, respondents had no right to call for an Extraordinary General Meeting for the purpose of disposing of the company’s primary asset as they had lost beneficial ownership of their shares in the Company.

Applicant disputed respondents’ averment that the matter was lis pendens. For the plea to succeed, it had to be shown that the action was between the same parties and concerned with the same subject matter. The cause of action must be the same. This was not the case in casu. The parties were different, and the relief sought was different. Applicant averred that in HC 6631/19, he sought to interdict respondents from selling their shares to Southsea. In the present matter he sought an order declaring that he exercised his right of first refusal in respect of the sale of shares held by respondents in the company. Consequently, an agreement of sale of shares existed on the terms of the offer upon which he exercised that right. Applicant further argued that the contested sale in HC 6631/19 had since lapsed and so had those proceedings. The court was urged to dismiss the preliminary objection.

The substance of applicant’s reply on the merits was a reaffirmation of his case as set out in the founding affidavit. He accepted the terms of the agreement made with Southsea through the letter of 11 June 2019 from his lawyer. There was nothing vague about his acceptance. It explains why respondents acknowledged the fact that he had exercised his right of first refusal by informing Southsea of this position. By doing so, respondents rendered their agreement with Southsea invalid, and a binding agreement with applicant was consummated. There was no need to sign yet another agreement. The agreement between the parties was based on the same terms and conditions as the Southsea agreement. Respondents confirmed the existence of that agreement through the email of 2 July 2019.

The only issue that remained was why respondents were refusing to transfer their shares, when applicant had tendered payment in full. The currency in which payment was to be made did not affect the existence of the agreement. Respondents were insistent on payment in United States dollars, yet 2nd respondent was resident in Zimbabwe. Respondents could not circumvent the law. Statutory Instrument 142/2019 made the Zimbabwe dollar the sole legal tender for local transactions. Exchange control approval was required for offshore payments. Applicant insists he tendered payment for the shares in accordance with the law. His refusal to pay in the United States dollar would at most constitute a breach of the agreement. It could not reverse the legitimate exercise of pre-emptive rights. Respondents were mala fide in their conduct. They were abusing court process in order to frustrate the legitimate exercise of his pre-emptive rights. They ought to be penalised with an adverse order of costs on the attorney and client scale.

THE ISSUES

The preliminary objection of lis pendens was not pursued in respondents’ heads of argument. It was also not pursued in oral submissions. I considered it abandoned. As such, two issues stand out for determination. These are:

Whether applicant exercised his pre-emptive rights thus giving birth to an agreement with respondents;

The currency in which applicant should discharge his obligations, assuming an agreement is found to exist.

THE LAW

The law on rights of first refusal, often referred to as pre-emptive rights has been explicated in a surfeit of case law authority. In Eastview Gardens Residents Association v Zimbabwe Reinsurance Corp Ltd and Ors, the MALABA JA (as he then was), said:

“A right of first refusal or pre-emption is created when, in an agreement one party (the grantor) undertakes that when he decides to sell his property he will first give the other party (the grantee) the opportunity of refusing or buying the property at a price equal to that offered by another person. The grantor is then said to be under an obligation to do, at the time he sells the property, what he voluntarily bound himself to do, that is, offer the property to the grantee first at a price equal to that offered by a third party or which he is prepared to accept from any other would-be-buyer. The grantee is said to have acquired the correlative right to have the property offered to him first so that he can match the price offered by the third party or refuse the offer. The grant does not entail an existing offer because it conditions it. See Manchester Ship Canal Company v Manchester Racecourse Company [1901] 2 Ch 37 at 46-47; Sher v Allan 1929 OPD 137 at 140-142; Cohen v Behr 1946 CPD 942 at 946-947; Bellairs v Hodnett & Anor 1978 (1) SA 1109 (A) at 1138F-1139H; Hirschowitz v Moolman & Ors 1983 (4) SA 1 (T) at 6 A-H; Soteriou v Retco Poyntons (Pty) Ltd 1985 (2)SA 922 at 932 B-G; Madan v Macedo Heirs & Anor 1991 (1) ZLR 295 (S) at 302A-303D”.

The learned Judge went on to state:

“It is clear from all these decided cases that a right of pre-emption can only be created by contract or agreement between the grantor and the grantee. Where breach of the right is alleged as a cause of action and its existence is denied, the onus is on the plaintiff to show that there was an agreement between the parties in terms of which the defendant undertook to offer to him the property at a price equal to that offered by another…”

In Sawyer v Chioza & Ors, GWAUNZA J (as she then was), put it even more elaborately. She said:

“I consider it pertinent at this juncture to establish what is meant by a right of first refusal. In Cooper’s Landlord and Tenant the author states that the right of first refusal is synonymous with the right of pre-emption.  He explains that an agreement between the lessor and the lessee that the latter shall have the first right of purchase, should the grantor wish to sell, gives rise to an enforceable right. To be binding, such an agreement, being an agreement of pre-emption, must contain a price which is certain or ascertainable. He continues at p141:

“A price is ascertainable where the grantee has the right to purchase at the price for which the grantor is prepared to sell to a third party. In effect, the price is then fixed by a third party….An agreement of pre-emption does not compel the grantor to sell it only compels him to give the grantee the right to purchase if he (the grantor) proposes to sell”

…In my view, the above captions describe the essential elements of the right of pre-emption (or first refusal) in terms that are both clear and unambiguous. My reading of these requirements is that the following steps must, in that sequence, be followed in the exercise of a right of pre-emption:

a specific third party offers to buy the property at a given price;

the grantor is prepared to sell at the price; but

before accepting the buyer’s offer, the grantor reverts to the grantee of the right of pre-emption, informs him of his decision to sell at the price offered by the particular buyer and asks him (grantee) to exercise his right of first refusal.

Thereafter, the outcome, in terms of who ends up buying the property, depends on the grantee’s decision on whether to exercise his right. If he chooses to exercise it, the grantor is obliged to sell the property to the grantee. If the latter chooses not to exercise his right of first refusal, then the property is sold to the third party. The whole arrangement pre-supposes transparency and honest dealing between grantor and grantee”

THE SUBMISSIONS

Whether applicant exercised his pre-emptive rights

Mr Mubaiwa submitted that respondents cannot deny the existence of an agreement once they admitted that applicant accepted the offer made to Southsea. The agreement came about upon acceptance of the offer. Respondents were bound by their admission that applicant had accepted their offer. In the heads of argument, applicant’s counsel cited Mining Industry Pension Fund v DAB Marketing (Pvt) Ltd to advance this position. There was no debate as to whether applicant acted on his right of first refusal in respect of both shares. Respondents could not blow hot and cold. It was a misdirection for respondents to argue that they thought applicant exercised his right after they misjudged his position.

It was irrelevant that applicant refused to sign the agreement drawn by respondents’ counsel. His agreement with respondents came into effect the moment he accepted the Southsea offer. There were no outstanding terms that required further agreement. Respondents were precluded from dictating new terms. This was the import of Article 6 (a) and (b) of the Articles of Association. That Article entitled him to have an agreement with respondents on the terms of the offer made by Southsea. Applicant submitted that this position of the law was affirmed by the dictum in Owsianick v African Consolidated Theatres (Pty) Ltd. The fact that applicant had, under HC6631/19, insinuated that he exercised his right only in respect of 1st respondent’s share was immaterial. His stated position in HC 6631/19 did not alter the character of his legal acts. Erroneous concessions on points of law were not binding. The court was referred to Moven Kufa & Anor v President of the Republic of Zimbabwe & Others. The correct factual and legal position was that he exercised his right in respect of both shares. The parties understood this to be the correct position. In any case, counsel’s argument did not constitute pleadings by which the factual positions of the parties were placed before the court.

Counsel further submitted that whatever applicant did or failed to do following the exercise of his right of first refusal did not change the fact that he had exercised that right. The sale was done. What was outstanding was payment and the transfer of the shares. These were performance issues. They did not affect the validity of the sale. The currency in which payment was to be made could not be used as a weapon to attack the validity of the agreement.

For the respondents, Mr Kachambwa submitted that for a sale to exist there was need for an agreement on the merx and the pretium.  An acceptance had to be clear, unequivocal and unambiguous. There was no such thing as an acceptance in the alternative. The court was referred to AC Controls P/L v Sable Chemicals Industries Ltd. The letter of 11 June 2019 through which applicant purportedly accepted the offer, did not evince such intention. He purportedly accepted 1st respondent’s share, and in the alternative, 2nd respondent’s. He reiterated this position in his affidavit under HC 6631/19.

Mr Kachambwa submitted that in casu, Southsea offered to buy: both 1st and 2nd respondents’ shares; at a given price denominated in United States dollars; into an account nominated by 1st and 2nd respondents. Acknowledging applicant’s pre-emptive rights, respondents offered to sell both their shares to applicant at a price denominated in the currency of their choice, and into an account they nominated. Applicant was expected to accept the offer on the same terms and conditions offered by Southsea. That is what would have founded a contract between applicant and respondents.

Further in response to averments in 2nd respondent’s opposing affidavit, applicant did not even deny that he exercised his right to purchase 1st respondent’s share alone. There was no meeting of the minds. The first condition was that Southsea offered to buy both respondents’ shares as one indivisible transaction. Respondents communicated the Southsea offer to the applicant. Applicant did not accept the offer to buy both shares. He was both evasive and reluctant to commit himself to the two shares on offer. The further exchange of communication between the parties counsel post the 11 June 2019 letter confirmed the absence of agreement on two crucial issues. These are whether applicant was purchasing both shares, and the currency in which payment would be made.

The statements made under oath in HC 6631/19 all but confirmed that applicant did not accept the offer. Respondents argue that Southsea offered to buy both shares. Applicant countered and offered to buy 1st respondent’s share alone. He did not accept the offer. Instead he made a counter offer. He was unequivocal on what he wanted. Mr Kachambwa further submitted that in terms of section 36 of the Civil Evidence Act, once an admission was made, a party could not lead evidence to the contrary unless one applied to withdraw that admission.

Respondents further aver that if an agreement came into existence on 11 June 2019, then applicant ought to have rendered performance within seven days of accepting the offer. Clause 2.6 of the Southsea agreement required the purchaser to pay 2nd respondent within seven days after the Fulfilment Date, and 1st respondent within six months after the Fulfilment Date. The seven days lapsed on 18 June 2019. No payment was made.

In their heads of argument, respondents submitted that while they harboured under the impression that applicant had exercised his rights in respect of the two shares, that position latter turned out to be incorrect. It was only when they were pushing for performance that they realised that applicant had accepted to purchase 1st respondent’s share, and in local currency. Respondents further contend that the offer and acceptance was not an event that took place on 11 June 2019. It was a continuous process that involved the exchange of correspondence between the parties.

ANALYSIS

The key question is whether applicant was unequivocal in his acceptance of the respondents’ offer. Respondents contend that the communication from applicant’s counsel was nebulous. Applicant was not assertive. On his part applicant insists his communication was as clear as day. He accepted the offer for both shares.  The starting point is the letter of 17 May 2019 from respondents’ counsel. It constituted the Transfer Notice in terms of Article 6(a). It notified applicant that respondents had received an offer for the purchase of their shares as a single indivisible transaction. The purchase price for each share was US$230 000.00, payable into an account nominated by each of the respondents. Attached to the letter was the agreement of sale between respondents and Southsea. It was the agreement applicant was expected to match in the exercise of his pre-emptive right. The letter gave applicant thirty days from date of receipt of the notice to acquire the shares for an aggregate amount of US$460 000.00. The notification also stated that “this letter replaces, and is in substitution for, any communications which you may have previously received from either of our clients in the same connection”.

Applicant was expected to confirm if he was ready to exercise his pre-emptive rights on the basis of the Southsea agreement. The anticipated response was supposed to be a simple one. But it was not. Applicant claims he exercised his pre-emptive right through counsel’s letter of 11 June 2019. The letter is convoluted, vague and touches on issues unrelated to what applicant was required to confirm. For instance, applicant claimed to have accepted the offer of shares by 1st respondent. Applicant’s counsel averred that his instructions were “to confirm that my client wishes to exercise his rights of pre-emption and to confirm that the offer for Patricia de la Harpe’s shares has been accepted on the same terms as the agreement attached to the transfer notice”. According to him, there were two separate offers of shares by two different shareholders. The terms of payment were separate. He further stated that it was “not possible for the two shareholders to gang up against their brother and purport to link their shareholding in someway”. All this was said, regardless of the fact that the letter of 17 May 2019 intimated “this letter replaces, and is in substitution for, any communications which you may have previously received from either of our clients in the same connection”.

The 11 June 2019 letter goes on to talk about how the Company owned the old family property of the O’Learys which was left to them by their parents. Applicant lived at the property. Applicant loathed the idea of the shares going outside of the family. That would result in changes that would affect the sentimental value of the property. Be that as it may, applicant’s counsel went on to express applicant’s position as follows: “Nevertheless, without prejudice to my client’s acceptance of Patricia de la Harpes’s shares, which we assert is legal, valid, and binding, in the alternative, if it is found that the first sale was invalid for any reason, then ex abundante cautela and without in any way acknowledging that the first acceptance is defective in any way, then my instructions are to confirm that my client wishes to exercise his right of pre-emption and to confirm the acceptance of the offer made by your one client, Mr Tim O’Leary, by my client, Mr Michael O’Leary, as we hereby so, on the basis contained within the transfer notice and draft agreement attached to your letter dated 17th May 2019, for a purchase price of US$230,000.00”.  The letter goes on to state that “similarly and on the same basis as the aforegoing, my instructions are to confirm that my client wishes to exercise his right of pre-emption and to confirm the acceptance of the offer made by your other client, Mrs Patricia de la Harpe, by my client, Mr Michael O’Leary, as we hereby do, on the basis contained within the transfer notice and draft agreement attached to your letter dated 17th May 2019, for a purchase price of US$230,000.00”.

The 11 June 2019 letter sparked further inquiries from respondents’ counsel. The email of 13 June 2019 requested applicant’s counsel to confirm that applicant was offering to purchase both shares as one indivisible transaction, on precisely the same terms and conditions as set out in the Southsea agreement. Through an email of 14 June 2019, applicant’s counsel responded “…I can do no more than reiterate the contents of my letter which I believe is sufficiently clear and in compliance with both the Memorandum and Articles of Association and the terms and conditions of the offer to which the acceptance relates. The provisions of the Memo and Articles now apply as read with the agreement that was sent with the transfer notice, and our client will abide by same….”

Was the letter of 11 June 2019, an unequivocal acceptance of the offer to purchase respondents’ shares as communicated in the transfer notice of 17 May 2019? In his book Business Law in Zimbabwe, Author R.H. Christie says of an acceptance:

“To be effective in creating a contract, acceptance must be so clear and unequivocal as to leave no reasonable doubt in the offeror’s mind that his offer has been accepted: Selected Mines and Marketing (Rhodesia) Ltd v Trees Asbestos Mining Co Ltd 1952 SR 57. The reason for requiring a higher degree of certainty than the standard of proof on the preponderance of probability that is universally accepted in civil as opposed to criminal cases is that the offeror is entitled to expect an answer on which he can immediately act, without interrupting his business while he weighs up conflicting probabilities in order to decide whether he has a contract or not.

A purported acceptance in the form ‘Yes, but…’ will not do, because by seeking to add or subtract from the terms of the offer it does not create the necessary agreement but leaves the negotiations still open…..” (Underlining for emphasis).

In his book “The Law of Contract in South Africa”, the same author further illuminated the position as follows:

“Acceptance must be clear and unequivocal or unambiguous. This proposition, already well known in our law, was examined in detail in Boerne v Harris 1949 1 SA 793 (A):

‘A lease conferred upon the lessee an option to renew for a further period of five years from the expiration of the initial period (15th April 1947), notice of exercise of the option to be given by 15th October 1946, ie six months before the expiration of the initial period. The lessee’s attorneys wrote to the lessor exercising the option for a period of five years from 15th October 1946. The question was whether this was a valid exercise of the option’

At 801 Greenberg JA used these striking words:

‘It seems to me that the letter, in order to be effective as an exercise of the right of renewal, must unequivocally convey to the recipient, using ordinary reason and knowledge, that it is intended to be such an exercise. It must leave no room for doubt. The recipient is not required to apply any special knowledge or ingenuity in ascertaining the meaning of the letter. Thus if the appellant had chosen to write the letter in Chinese, or to convey his acceptance in the form of a crossword puzzle, except possibly one that he who runs may read, I think that the respondent would have been entitled to refuse to attempt to translate, or solve the puzzle contained in, the letter and to disregard it…..’” (Underlining for emphasis).

Although these sentiments were expressed in the context of an option contract, they apply with equal force to this case. An acceptance should not leave room for further haggling as happened in casu. In the letter of 11 June 2019, applicant waxed lyrical about his acceptance of the offer for 1st respondent’s shares. 1st respondent could not gang up with 2nd respondent against their fellow sibling by linking their shares. It is only in the penultimate paragraphs of that letter that applicant sought to assert his pre-emptive right and confirmed his acceptance of the offers separately. That acceptance was still qualified. It was made without prejudice to his acceptance of 1st respondent’s shares, which he insisted was perfectly legal. The acceptance of the offer to purchase 1st and 2nd respondent’s shares was in the alternative. It was a fall-back position. It was only on condition that the first sale with 1st respondent was found to be invalid for whatever reason. It was a conditional acceptance.

Clause 2.2 of the purchase of shares agreement between the respondents and Southsea stated that “the sale of the Sale Shares in terms of this agreement is one indivisible transaction”. When asked to clarify if applicant was offering to purchase both shares as one indivisible transaction, applicant’s counsel still remained unperturbed and unyielding. He responded “with reference to your below email, I can do no more than reiterate the contents of my letter which I believe is sufficiently clear and in compliance with both the Memorandum and Articles of Association and the terms and conditions of the offer to which the acceptance relates”. The purported acceptance, as already noted, was only on condition the first sale with 1st respondent was found to be invalid. It was far from being unequivocal.

The need for clarity in an acceptance is simple to explain. It is intended to leave the offeror in no doubt that his offer was accepted. It must correspondent with the offer as closely as is possible. It should not leave the offeror in an invidious position of having to seek clarification as to the offeree’s intention. This is what transpired in casu. Several communication transpired between counsels for the parties following the letter of 11 June 2019. Parties continued to wrangle over the import of the 11 June 2019 letter. Questions continued to be asked about whether applicant was offering to purchase both shares as one indivisible transaction, and the currency in which the purchase price was to be denominated. The responses from applicant’s counsel further compounded the obscureness.

For instance in an email of 20 June 2019, respondents’ counsel asked applicant’s counsel to confirm that in exercising his pre-emptive right, applicant would be buying the shares owned by both respondents. In response, through an email of the same date, respondent’s counsel retorted, “yes, on a without prejudice basis to preserve his rights in terms of his pre-emptive rights, as per my letter to you, if same is required. To make it clear, he believes that he can accept just the one share, but if that is not the case, and to ensure that he cannot be said to have not accepted as per the offer, he has agreed to buy both, but strictly on a without prejudice basis, and whilst reserving his rights”. (Underlining for emphasis).

To further illustrate the extent of the uncertainty, in his email of 2 July 2019 to Southsea, respondent’s counsel wrote “I write to you on behalf of my clients to notify you that they are reluctantly compelled to acknowledge that Michael O’Leary has exercised his rights of pre-emption to purchase the shares in question.…” (Underlining for emphasis). The language and tenor of the email is not demonstrative of a mind-set convinced a deal had materialised. Such exhibition of high a level of equivocation was analogous to walking on a legal minefield. As it turned out, the restraint and reticence shown by respondents’ counsel in his email to Southsea was ominously spot on. On 9 August 2019, applicant filed the urgent chamber application under HC 6631/19. 2nd respondent herein was 1st respondent. 1st respondent herein was 2nd respondent. The Company was 3rd respondent, while Southsea was 4th respondent. As interim relief, applicant wanted 1st and 2nd respondents ordered to stop the combined sale of their shares in the Company to Southsea.

The urgent chamber application was filed hardly two months after applicant purportedly accepted respondents’ offer. His founding affidavit accompanying that application tells a different story. In paragraph 15, he says “on the 11th June 2019, I exercised my right of pre-emption and accepted the offer to purchase the 2nd Respondent’s share….”. (Underlining for emphasis). In paragraph 23 he says “…Having outlined the above facts, I must state my absolute horror at discovering that Respondents have proceeded to sell their shares to the 4th Respondent despite my express acceptance of my pre-emptive right to purchase the 2nd Respondent’s share lawfully…” (Underlining for emphasis).

In paragraph 30 applicant remarked that “….it is illegal for the 1st and 2nd Respondents to deny me my right to purchase the 2nd Respondent’s share on the basis that I am unwilling to tender payment in United States dollars as the currency is now illegal”. Still in paragraph 33 he spoke of an injury having “been inflicted in that I have been unlawfully prevented from purchasing the 2nd Respondent’s share in the 3rd Respondent in circumstances where there is no legal basis upon which the 2nd Respondent seeks to transfer her share to the 4th Respondent”.As it turns out, 1st respondent (2nd respondent in HC 6631/19), withdrew her offer by email of 24 April 2019. The record in HC 6631/19 was attached to the current application by applicant himself. It was incorporated by reference in its entirety.

Applicant’s duplicity cannot be countenanced by this court. The same set of facts which preceded his approach to the court under HC 6631/19, are the same facts that preceded his approach to this court under HC 8599/19. The same letter of 11 June 2019 that he invoked to assert his rights to 2nd respondent’s share under HC 6631/19, is the same letter he now seeks to assert his rights to both respondents’ shares under HC 8599/19. And this he did under oath in both cases. This kind of evasiveness borders on dishonesty.

The respondents were taken on a wild goose chase, when as early as 11 June 2019, applicant made it clear he was only exercising his pre-emptive right conditionally. That letter did not communicate an acceptance of an offer. It was cryptic. Respondents unwittingly swallowed the bait all the way to the point of informing Southsea that they had begrudgingly accepted that applicant had exercised his rights. Applicant pounced on respondents’ indecisiveness, and argued their communication with Southsea all but confirmed a contract existed. The communication by respondents’ counsel to Southsea may have been ill-considered, but at that stage the 11 June 2019 letter had all but ruined applicant’s cause.

CONCLUSION

For the foregoing reasons, the application must fall. Applicant did not accept the offer to purchase respondents’ shares as he claims. Consequently, no binding agreement came into existence for the sale of respondents’ shares to the applicant. Having made that finding, it is needless for this court traverse the second issue of the currency in which the agreement should be denominated.

COSTS

Respondents sought the dismissal of the application with costs on the attorney and client scale. The general rule is that the successful party is entitled to costs on a scale which must be determined depending on the nature of the case and the manner in which litigation was conducted. An award of costs on the attorney and client scale is not lightly granted by the court and the tendency is to do so on rare occasions. Those occasions include cases where the conduct of a litigant necessitates such an award. In the exercise of my discretion, I have considered that the matter involved fairly complex principles of the law of contract, which are significant to the development of our jurisprudence in that area. For that reason, I am not persuaded to make an award of costs on the higher scale. I am extremely indebted to both counsel for their detailed and insightful submissions.

DISPOSITION

Accordingly, it is ordered as follows;

The application is dismissed.

Applicant shall pay 1st and 2nd respondents’ costs of suit.

Matizanadzo & Warhurst, legal practitioners for the applicant

Gill, Godlonton & Gerrans, legal practitioners for 1st and 2nd respondents