Afrasia Bank Zimbabwe Limited (Under Liquidation) v RioZim Limited

### Preamble
Judgment No. SC 76/19
1
Civil Appeal No. SC 116/18
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REPORTABLE 	(73)

AFRASIA     BANK     ZIMBABWE     LIMITED     (UNDER    LIQUIDATION)

v

RIOZIM     LIMITED

SUPREME COURT OF ZIMBABWE

GWAUNZA DCJ, PATEL JA & BERE JA

HARARE, JUNE 5, 2018 & OCTOBER 4, 2019

F. Siyakurima, for the appellant

T. Mpofu, for the respondent

GWAUNZA DCJ

[1] 	This is an appeal against the entire judgment of the High Court handed down on 3 May 2017. In that judgment, the High Court dismissed the appellant’s chamber application for a default judgment in terms of a Deed of Settlement.

FACTUAL BACKGROUND

[2]	In 2011 the appellant, formerly known as Kingdom Bank Limited, extended to the respondent two separate pre-shipment offshore finance facilities. These were for the purposes of financing working capital requirements of the respondent including import payments. The first pre -shipment facility for US$ 2 100 000 was extended on 24 March 2011, while the second facility for $ 6 000 000 was extended on 23 August 2011. It was agreed between the parties that interest on the capital sum was to run at the rate of 5 percent per month above the cost of funds.

[3]	The facilities were secured by deeds of cession, pledge and assignment in favour of the appellant and became due and payable on 10 June 2011 and 8 September 2011 respectively. The parties agreed that any amounts withdrawn and outstanding, together with any other sums payable in respect of the facility, would be due and payable on and upon demand by the appellant.

[4]	On 1 February 2012, the appellant issued summons in the court a quo claiming US$ 2 210 229.76 which comprised the capital sum, accrued interest and bank charges, together with interest on the capital sum of US$ 1 959 148.58 at the rate of 5 percent per month above the cost of funds. The second claim which arose from the second facility was for US$ 6 301 726.73 which comprised the capital sum, accrued interest and bank charges, together with interest on the sum at the rate of 5 percent per month above the cost of funds, with effect from 1 January 2012 to date of full payment. The basis of the appellant’s claims was that the respondent had defaulted in making due and punctual payments of the debts in question.

[5]	The respondent duly entered an appearance to defend the action. Subsequently, the parties settled the matter and concluded a Deed of Settlement (herein after referred to as ‘the Deed’) which was filed in the court a quo on 2 August 2013. In terms of the Deed, the respondent agreed to pay the appellant US$ 4 556 777.78 in full and final settlement of the appellant’s claim in the summons. This was to be paid through an initial payment of US$350 000 and consecutive quarterly payments of US$ 483 000 on or before 30 September 2013. In terms of clause 1 (c) of the Deed, interest on the capital sum was to accrue at the rate of 15 percent per annum. Clause 2 of the Deed further provided that the appellant in casu was entitled, in the event of a default by the respondent in making the required payments, to file a chamber application for default judgment in the relevant amount, against the respondent.

[6]	Between February and March 2014, the respondent wrote to the appellant indicating that it was facing operational challenges which were affecting its ability to amortise the debt but indicated that efforts were being made to rectify the problem. Thereafter, on 14 May 2014, the appellant wrote a letter calling upon the respondent to pay all the outstanding sums in terms of the Deed. This was followed by letters from the respondent containing proposals on how it intended to settle the outstanding debt and interest, the last of which letters was dated 12 January 2015.

[7]	On 6 February 2015, the appellant, acting on the basis of clause 2 of the Deed, filed a chamber application for default judgment. The respondent opposed the application. It stated that there were computation errors on the outstanding balance in the Deed and that it had erroneously acknowledged the outstanding balance as US$ 4 555 777.78 when the correct figure should have been US$ 1 285 308.52. There is no suggestion from the respondent that it took any measures to have the deed rectified in the respects required. The respondent however, averred that it noted that its debt remained huge despite having made significant payments towards its repayment. This prompted it to engage the Interest Research Bureau (Pvt) Ltd (‘IRB’), a local firm which also operated internationally, for the recalculation and recovery of interest which had been allegedly overcharged by the appellant.

[8]	The reports by the IRB concluded that the appellant had overcharged interest on the respondent’s account by using rates different from the agreed rates and, as a result, the latter had been overcharged to the tune of more than US$2 000 000. The report further found that the respondent’s account had been debited with undue charges and fees and that again there was overcharging on interest. The respondent thus contended that, had the proper interest rates been used and charges properly apportioned, the full debt including the capital sum and interest would have been cleared. In fact, it submitted that the appellant had actually been overpaid and therefore unjustly enriched by some US$532 800.04. As a result of this, submitted the respondent, the amount in question had to be refunded.

[9]  	The IRB report was said to have been certified by Grant Thornton, a firm of Chartered Accountants. The report by Grant Thornton agreed with the major findings made in the IRB report but however went on to indicate that certain facility letters and bank statements were missing.

Effectively, the respondent submitted that the Deed had to be set aside as it was based on a mistake common to both parties.

[10]	The appellant in its answering affidavit submitted that the Deed was valid and binding on the parties. It stated that at no point had the respondent engaged the appellant to raise the issue that there were errors in the figures agreed upon. Instead, the respondent had surprisingly only done so for the first time in its opposing papers to the chamber application for a default judgment against it. The appellant further contended that it was never a party to the alleged ‘independent recalculations’ which in any case were incorrect as the IRB had used facility letters dated 2009 which were never part of the appellant’s claim. It thus maintained that at all times it had used the correct interest rates and had therefore claimed the correct sum as reflected and agreed in the Deed.

[11]	In its heads of argument before the court a quo, the appellant submitted that sanctity of a contract had to be upheld. It relied on the case of Georgias & Anor v Standard Chartered Finance Zimbabwe Ltd r 1998 (2) ZLR 488 (S) and contended that the Deed constituted a compromise with the consequence that the respondent was bound by the agreement to pay the accrued interest in relation to the unpaid capital. The respondent on the other hand submitted that there was a material mistake in the figures quoted in the Deed of Settlement, a circumstance that vitiated the whole agreement. The respondent further submitted that there was no valid compromise in the circumstances as the parties were not clear as to what their rights were when they signed the Deed.

[12]	The court a quo found in favour of the respondent and held that the Deed could not be ‘given effect to’. It held that the parties were not clear on their rights therefore the compromise would not have been properly concluded. It distinguished the case from the facts in the Georgias & Anor (supra) and found that the respondent was not aware that it had been overcharged on interest when the Deed was signed and could therefore not have objected to what it did not know at the time of signing the Deed.

[13]	Aggrieved, the appellant noted an appeal on grounds which raised one main issue for determination, namely: -

“Whether, in the absence of proceedings to set aside the Deed of Settlement, the court a quo erred in refusing to grant the default judgment sought on the basis of justus error relating to the conclusion of the Deed by the parties.”

Related to this issue is whether, accordingly, the court a quo determined a matter not properly before it.

I will now consider the issue.

[14]	Counsel for the appellant submitted that the court a quo erred in failing to give effect to the Deed which the parties had concluded. He submitted that since there was no mistake when the compromise was concluded, the respondent was seeking to resile from the contract or vary its terms when these had duly been concluded and therefore were binding between the parties. He further submitted that the court a quo was only called upon to establish whether the respondent was in default of payment having regard to the Deed and not to determine the validity of the Deed itself. Further, that the dismissal of the application in circumstances where the validity or otherwise of the Deed was not properly before the court, was improper and left the appellant in a quandary as it could not then resort to the original cause of action in light of the Deed or compromise.

[15] 	In response, the totality of the respondent’s submissions, as contained in its opposing affidavit, was that the parties laboured under a mistake relating to the computation of the amounts due by it, when the compromise was concluded. Accordingly, the respondent submitted, the Deed could not be enforced and should in fact be set aside. Counsel for the respondent also submitted that a mistake in a settlement agreement, whether unilateral or bilateral, is a basis for rescission of the agreement. The respondent further argued that the court a quo’s finding of fact that the compromise was concluded on a mistaken basis had not been impugned nor properly challenged and the appellant had not alleged any gross misdirection in the finding of fact.

[16]	The crux of the matter is whether the court a quo, faced with a chamber application for a default judgment in terms of clause 2 of the Deed, could dismiss the application on the basis that the Deed was voidable on the basis of justus error, an enquiry not only not envisaged in clause 2, but also only raised by the respondent in its opposing affidavit. The respondent does not deny freely signing the Deed, in terms of which it acknowledged owing the amounts specified and undertook to re-pay in the manner outlined therein. It is also not disputed that the respondent thereafter made a number of payments in compliance with the Deed, but later stopped doing so after communicating to the appellant that it was facing viability and operational challenges which were affecting its ability to amortise the debt. It indicated, however, that efforts were being made to rectify the problem.

[17]	Clause 2 of the Deed reads as follows: -

“The defendant (respondent) shall have a period of 7 working days to rectify any default or delay by it in effecting payments in terms of this Deed. In the event that the defendant fails to rectify its default the plaintiff shall be entitled to file a chamber application for default judgment, on 2 working days’ prior notice to the defendant, for payment of the full amount then outstanding, together with accrued interest and costs of suit on an attorney and client scale.”

This clause clearly defined the cause of action as well as the parameters for a successful filing and prosecution of the chamber application concerned. My analysis of these parameters would entail the following: -

i. 	default or delay by the respondent in making any payment in terms of the Deed;

ii	7 days allowed to the respondent to rectify such default, failing which;

iii	2 days’ notice to the respondent of the filing of a chamber application for default judgment against it;

iv	filing by the appellant of the chamber application referred to in (iii) above;

vi	proof by the appellant that the amount claimed constituted the full outstanding amount, plus interest, in terms of the Deed.

In the event of success in the application, the court was to award to the appellant costs 	of suit against the respondent, on an attorney and client scale.

[18]	In the light of the above, the court a quo was enjoined to determine the chamber application before it, within the parameters outlined above. The respondent in its defence to the claim should have properly attempted to show and therefore satisfy the court, that it had not defaulted in making any payment in terms of the Deed. Further, and in any case, that the appellant had: -

i)	not given the respondent 7 days’ notice to rectify any alleged default;

not given the respondent 2 days’ notice of the filing of the chamber application; or

not substantiated or proved the outstanding balance and interest claimed, based on the Deed.

[19]	The respondent in its opposing affidavit did not confine its opposition to the defence available to it in terms of clause 2 of the Deed. Instead, and without filing a counter application for the setting aside of the Deed, the respondent launched an attack on the application and sought to have it dismissed on the basis of an alleged common error pertaining to calculations that resulted in the amount reflected in the Deed as the outstanding amount. The respondent’s attack had the hallmarks of a counter claim. It thus used its opposing affidavit as a ‘sword’ instead of the ‘shield’ that it was supposed to be. The impropriety of this approach was highlighted by MALABA DCJ (as he then was) as follows in Dimbi v Ronwen Investment (Pvt) Ltd SC 8-13: -

“In Sumbureru v Chirunda 1992(1) ZLR 240(H) it is stated that opposition to an application on notice of motion is a shield of defence not a sword of attack. A respondent who has an attack (sic) must mount a counter application in terms of R 229A of the High Court Rules.” (my emphasis)

Rule 229A (1) of the High Court Rules stipulates as follows: -

“Where a respondent files a notice of opposition and opposing affidavit, he may file, together with those documents, a counter application against the applicant in the form, mutatis mutandis, of a court application or a chamber application, whichever is appropriate.”

In casu the respondent clearly had ‘an attack’ to aim at the Deed. It attempted to launch the attack through the medium of its opposition to the application before the court a quo. On the basis of the authority just cited, the respondent could not properly do so. The option, which it did not take up, of resorting to r 229A (1) of the High Court Rules, 1971 was clearly available to the respondent.

[20]	In addition to this, a number of case authorities emphasise the fact that the validity or otherwise of a deed of settlement has to be challenged in proceedings specifically instituted for that purpose. The appellant correctly argued that the Deed was a compromise or transactio entered into between the parties. A compromise was defined in the Georgias & Anor case (supra) at 496D in the following words: -

“Compromise, or transactio, is the settlement by agreement of disputed obligations, or of a lawsuit the issue of which is uncertain. The parties agree to regulate their intention in a particular way, each receding from his previous position and conceding something - either diminishing his claim or increasing his liability.”

At page 496E-G, the court in the same case further stated that: -

“The purpose of compromise is to end doubt and to avoid the inconvenience and risk inherent in resorting to the methods of resolving disputes.  Its effect is the same as res judicata on a judgment given by consent.  It extinguishes ipso jure any cause of action that previously may have existed between the parties, unless the right to rely thereon was reserved See Nagar v Nagar 1982 (2) SA 263 (ZH) at 268E-H. As it brings legal proceedings already instituted to an end, a party sued on a compromise is not entitled to raise defences to the original cause of action. See Hamilton v van Zyl 1983 (4) SA 379 (E) at 383H. But a compromise induced by fraud, duress, error, misrepresentation, or some other ground for rescission, is voidable at the instance of the aggrieved party, even if made an order of court.”

(my emphasis).

[21]	The dictum in Kinch v Walcott 1929 AC, at p 493 articulates the last point made above, in more definite terms, as follows: -

“For such a purpose an order by consent, not discharged by mutual agreement, and remaining unreduced, is as effective as an order of the court made otherwise than by consent and not discharged on appeal.  A party bound by a consent order … must, when once it has been completed, obey it, unless and until he can get it set aside in proceedings duly instituted for the purpose.”  (my emphasis)

That a transactio is akin to an order by consent is highlighted in Gollach & Gomperts (1967) (Pty.) Ltd v Universal Mills & Produce Co.(Pty.) Ltd & ORS 1978(1) SA 914, as follows: -

“It appears to me that a transactio is most closely equivalent to a consent judgment…. Such a judgment could be successfully attacked on the very grounds which would justify rescission of the agreement to consent to judgment.”

[22]	As is evident in casu the respondent, who clearly was the aggrieved party in relation to the validity or otherwise of the Deed, sought to challenge its validity in an affidavit meant to oppose the chamber application for a default judgment against it. The respondent thus did not seek to have the Deed set aside in proceedings duly instituted for that purpose. It also improperly sought to raise defences to the original and extinguished cause of action between the parties. It was therefore a mis-direction for the court to allow the respondent to do so against the dictates of procedural law and authorities on the matter (See Hamilton and Van Zyl (supra))

[23] 	The upshot of it all is that the respondent failed to properly defend the case that it had to meet. The defence it put up constituted matters that should have properly founded a counterclaim for the setting aside of the Deed in question. This approach was procedurally wrong, not least because it denied the appellant the opportunity to adduce evidence in a proper defence to what was effectively a counter claim mounted against it. As already stated, the respondent, after properly opposing the chamber application in question, was at liberty to resort to r 229A (1) of the High Court Rules in seeking the setting aside of the Deed. Such claim would then have been seen in the light of having been formally and duly filed at the instance of the aggrieved party, that is, the respondent. (See Georgias’ case (supra)).

[24]	The court a quo allowed itself to be persuaded to find in favour of the respondent. This it did after making findings of fact to the effect that the compromise was concluded on a mistaken basis, resulting in the respondent being overcharged on interest. In terms clause 2 of the Deed, the calculations of interest that the court was properly seized with were those based on the amount reflected in the Deed as outstanding, minus the instalments paid by the respondent subsequent to the signing of the Deed. Clause 2, which formed the basis of the application before the court a quo, did not envisage a challenge to the validity of Deed. In the absence of the respondent having established to the court’s satisfaction that the appellant had not complied with clause 2, the court could not properly dismiss the application for the default judgment sought. It follows from this that a determination of the matter, on the basis of factors extraneous to those outlined in clause 2 of the Deed, would and did constitute the determination by the court of a matter not properly before it.

[25]	Courts are duty bound to determine matters placed before them, and not attempt to make a case for either side of the dispute. GARWE JA quoting from the case of Jowell v Bramwell-Jones 1998(1) SA 836 at 898, appositely emphasised this point thus in Medlog Zimbabwe (Pvt) Ltd v Cost Benefit Holdings(Pvt)Ltd SC 24-18, as follows: -

“The court itself is as much bound by pleadings of the parties as they themselves. It is not part of the duty or function of the court to enter upon any enquiry into the case before it other than to adjudicate upon the specific matters in dispute which the parties have raised themselves by their pleadings. Indeed, the court would be acting contrary to its own character and nature if it were to pronounce upon any claim or defence not made by the parties.” (my emphasis)

The ‘defence’ put up by the respondent in casu through the medium of its opposing papers was in effect a counter claim for the setting aside of the Deed. The court went on to pronounce on the issues raised in that ‘defence’ notwithstanding the fact that the dispute before it was not concerned with such matters. Based on the authorities cited in para 25 above, the court misdirected itself in that respect.

[26]	 I find, therefore, that there is merit in the appellant’s submission that the court a quo was only called upon to establish whether the respondent was in default of payment having regard to the Deed and not to determine its validity. Subject to compliance with the other requirements outlined in clause 2 of the Deed, and without the validity of the Deed being properly made an issue by the respondent, the appellant was entitled to the default judgment which it sought on the basis of a Deed duly signed by both parties.

[27]	Given that the validity of the Deed was not properly made an issue before the court a quo, neither had the Deed itself been set aside in any proceedings specifically instituted for that purpose, the respondent was fully bound by the terms it affixed its signature to in relation to the compromise. Counsel for the appellant correctly noted that this called into play the principles of sanctity of contract. In the case of Printing and Numerical Registering Co v Sampson (1875) LR 19 Eq 462 at 465 the principles were highlighted thus: -

“If there is one thing which more than any other public policy requires, it is that men of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts when entered into freely and voluntarily shall be held sacred and shall be enforced by courts of justice.   Therefore, you have this paramount public policy to consider – that you are not lightly to interfere with this freedom of contract.” (my emphasis)

[28]	Clause 2 of the Deed expressly entitled the appellant to a default judgment, upon notice and in the event that the respondent had defaulted in making the agreed payments. The validity of the Deed not having been properly made an issue before it, the finding of the court a quo that the Deed ‘could not be related to’ was misguided. The appellant correctly states that such a finding, followed as it was by a dismissal of its claim, placed it in somewhat of a legal predicament since the Deed, which is still extant, stands condemned by the court. The court a quo therefore erred in pronouncing a common mistake in the Deed and then on that basis, dismissing the appellant’s application for a default judgment that was explicitly envisaged in the same Deed. In this regard, the court unjustifiably sought to interfere with the parties’ freedom to freely enter into a contract of their choice.

The judgment can therefore not stand.

DISPOSITION

[29] 	The respondent effectively proffered no defence to the claim brought against it. It 	sought, rather, to impugn it through a defective medium and on the strength of 	considerations that were extraneous to the agreement on which the application was 	premised. The court a quo, in its turn, went on to determine matters that were not 	properly before it. The main issue is therefore determined in favour of the appellant.

This determination being dispositive of the appeal, I do not consider it necessary for the court to consider the other issues raised in the appellant’s grounds of appeal.

The appeal accordingly has merit and ought to be upheld.

It is in the result ordered as follows: -

The appeal is allowed with costs.

The judgment of the court a quo be and is hereby set aside and substituted with the following: -

The application is granted.

The respondent shall pay to the applicant the sum of US$3 629 586.57 together with interest thereon at the rate of 15 percent per annum calculated from 1 October 2014 to the date of full payment.

The respondent shall pay the applicant’s costs on a legal practitioner and client scale.

PATEL JA		I agree

BERE JA       		 I agree

Sawyer & Mkushi, appellant’s legal practitioners

Wintertons, respondent’s legal practitioners