NA TZCA Dar es Salaam 3

\ j IN THE COURT "OF APPEAL OF TANZANIA AT DAR ES SALAAM CORAM: MUSTAFA, J.A.j MAKAME, J.A. And ~ISANGA, J.A. CIVIL APPEAL NO. 28 OF 1984 BETWEEN ALFI EAST AFRICA LIMITED. . ,::, .. . . APPELLANT AND THEMI INDUSTRIES & DISTRIBUTORS AGENCY LTD •• o • • • • o • • a • RESPONDENT (Appeal from a Judgement and Decree of the High Court of Tanzania at Arusha) (Mr. Justice R. B. Maganga) dated the 25th day of June, ~983 in ~iyil Case No. 44 of 1979 ·JUDGMENT OF THE COURT MUSTAFA, J.A. :: Themi Industries & Distributors Agency Ltd. (hereafter called Therni) had filed$ case in the High Court against Alfi t East Africa Ltd. (hereafter called Alfi) claiming ~pecial and ~eneral damages arising from an alleged breach by Alfi of an agreement in writing entered into between them on 3r4 February, .....'..f'J'f!.. 1978. Alfi resisted the claim on the ground that thE(;a:9~eemen t was void and unenforceable and was fraudulent and count~c~~imed for the return of twQ pieces of machine~y or their value and for - loss of use of the m$chinery ~swell as for a sum of money allegedly due for raw waterials1supplied by Alfi to 'lhemi. The High Court (Maganga, J.) entered judgment for Alfi on the counterclaim by consent i.n the sum of shs. 545,192.30 and costs in respeqt of the item for raw materials supplied by Alfi. The High Court entered juogment, after a trial, in favour of Themi on its claim and;awarded it shs. 300,oOO/- for special and shs. 200,ooO/- for general damages and costs •. "" .• /2. 2 ...,. of the suit. The High Court also decreed in favour of Alfi on its counterclaim a sum of shs. 839,391.45 being the value of the machinery. Alfi has appealed from the judgment,. but Themi has not cross..;.appealed .• It will be convenient at this stage to set out the agreement (hereafter called the Agreemeht) in full. 11 THIS AGREEMENT is made this 3rd day of February, 1978 BETWEEN f::!.,!,I EAST AFRICA LIMITED (hereinafter called the "First Company") on one part and THEMI INDUSTRY AND DISTRIBUTORS AGENCY LIMITED (hereinaftP.r called the "Second Company") on the other part. WHEREAS the parties hitherto who have hitherto carried on the business of manufacturing goods as well as buying and selling manufactured goods in Tanzania ~eparately on their own respective accounts (and are both registered companies in Tanzania under the companies ordinance Cap 212) are desirous of effecting an exclusive business between the two parties: NOW IT IS HEREBVGRfED as fo11ows:- I Alfi E.A. Limited hereinafter called the •First Com.J?an: in this deed binds itself to order and import HESTA DL0W MOULDING MACHINES 011 behalf or on account of 'rHEMI INDUSTRIES AND DIST~IBUTORS AGENCY LTD (hereinafter called the Second Comp$ny I~ THIS DEED) for their exclusive use in manufacturing of torches, Vacum Flasks, Household goods etc. PROVIDED ,~hd on condition that the Second Company covenants itse).f' as fol1ows:- (a) That the vrder and impo~tation of the mould by the First Company will be aqcording to the selection of the seeond Company. 'I (b) That the cprder and importation will not- in any way affect th,e- quota- {)f imp-Or~a"t1~ of' the first I company UUfi E.A. Ltd). . I (c) That Alfi/ EoA. L·~d hereinafter called the first company W!ill have the first priority and exclusi. rights tel buy from _THEMI INDUSTRY AND DISTRIBUTORS AGENCY L1rD the blow .moulding items according to the first co11npany' s specj.fication. f ·• 3 (d) That the second&mpany covenants that the event of its desire to sell SU6h products to anoth~r party other than Alfi E.A. Ltd such desire shall only be executed after full consultation and permission of the first company within reasonable timeo (e) That payments for the imported moulds and machines by the first company on behalf of the second company will be made by way of deducting directly the cost of manufactured products supplied by second company to the first company without interest. In the event of the manufactured products failing to satisfy the cost ,of the imported moulds·the second company shall bind itself to pay the outstanding amount from its other sources. 'OTHER CONDITIONS: :E.a•h party hereto hereby undertakes to employ himself · diligently in the practise of manufacturing according to business ethics as to quality and to use his best endeavous to promote the interest there and will deal faithfully and justily with the other Parties hereto. The Parties further covenants that this agreement can be determined at the option of either party to this agreement after giving six months notice of the intention to determine and after each party has fully satisfied the other party as to outstanding monies to be paid if any or outstanding orders of goods to be supplied. SIGNED fat· ~nd on behalf of X ALFI EAST AFRICA LIMITED in X my presence this ·day l Of 1978. l SI.GNED for and on beh·alf of l THEMI INDUSTRY AND DISTRIBUTORS l ---·----~.,._.....,_ I AGENCY LIMITED in my .;presence I this day of I 1978 l DRAWN BY:- M/S KAPOOR & MIRAMBO ADVOCATES ARUSHA / TANZANIA". .\, ~- - 4 J. Kwast had signed for Alfi in the Agreement. We will deal·with the claim by Themi. In its plaint, ·after referring to the Agreement, the material paragraphs are 4, 5 and 10 which read: 11 ..... acco,t:'dance with the terms ~nd conditions of the said ., agreement the Defendant obtain~d on aecount of the Plaintiff HESTA BLOW MOULDING MACHINES. The total costs of these machines amounted to Shs. 939,391/45 • This sum of Shs. 939 1 391/45 was to be paid ta-:> the , Defendant by the Plaintiff by way of supply finished .·. :products in accordance with the Defendant's demands from time to time. 5~ Pursuant to the said agreement the Defendant regularly supplied all raw mat€rials to th~ Plaintiff for the Plaintiff's fa~tory a;,; ~t Arusha. Such purchases were . .',,. paid in •ash._ ·~- 100 On 17~h April, 19Z~ t,:he Defendant wrote to the Plaintiff (a copy of the said letter is attached herewith and marked Exhibit 'B"')''·c·andelling the said agreement and demand return of machine»y and_ payment of' _lll moneys due. By this letter the Defendant c~mmitted a b~~ach of ~he said agreement whereby Plaint!tf has suffered damages." Then Themi claimed a pecial and ~ damages arising from the refusal of Alfi to continue to suppl.y raw materials. In .i,ts statement of defence ~l;fi alleged in paragraphs 2, 3 7 5 and 8 as follows:- "2..: The Defendant states that the A9.('eement referred to in paragraph 3 of the Plaint was eetered into by the Plaintiff and one J. Kwast p~rpertedly on behalf of wh.·!3• D~fendant. Company. The Detendant will maintain that the said Agreement is vo:i+«l because it was entered into with the Object of defra~ding the Defendant Companyo 3. Alternatively and without prejudice to the foregoing the Defendant states that the, Aqreement was ultra-vires the powers of J. Kwast wKo a,~ecuted it. So The Defendant has not at any time provided raw materia, s to the Plaintiff under contrmctual arrangements. Thr Defendant avers that the P:ta1 intiff used 1t'J purchase r·av✓ materials from the Defenda~tt. under credit facilities which have now been stopped by tb~• Defendant. Subject to the foregoing and without preju4!ice to paragraphs 2 and 3 ••• •.. ~/5 .. - .5 - herein, the Defendant states that there is no provision in the Agreement which requires the Defendant to supply the Plaintiff with raw materials. 8. Save that thP- Defendant wrote the letter referred to in paragraph 10 of the Plaint,• •'1e Defendant denies the allegation that there has been a breach of the Agreement and repeats paragraphs 2 and 4 hereof." Alfi also filed a counterclaim to which reference has ;,,1;:- ·• , 1.•• been made. Alfi's defence to Themi's claim was basically that the Agreement was unenforceable and was made in fraud between J. Kwast, an employQ? of Alfi and Therni. Two other matters were also in issue. They were (1) whether J. Kwast had acted ultra vires in signing the Agreement (2) whether a sum of Shs. 100,000 paid by Themi for machinery could by Alfi to the account for raw materials. The trial judge, in his judgment, found that J. Kwast had acted intra vires when he executed the Agreement on behalf of Alfi. As regards the issue of fraud the judge.held that section 14 of the Import Control Ordinance which prohibits the holder of any import licence, withQut permission, to transfer or assign such licence to another· on pain of a penalty, did not render the transfer of the mach':i.nery imported in the name of Alfi and transferred to Themi iU.cgal so as to vitiate the \ Agreement. He thought that the prPh!bition \ was against the transfer of the import licence, not',. the goods imported. In any event, the details for importati~n were filled in and Themi had not breached any statut·pry provisions. I The judge al so held that there wa;, no uncertainty as -~ regards the price for the m:,chineny.He t'\eld that in the Agreement it was specifically mentioned \\ow the machinery l was to be paid. And, according tu lbrahit~ Dahal, the Director of Themi, the price of the mB.chine.ry had b,een agreed upon and was •••••• /6. not dependent on future negotiation;. Althbugh the agreed price was not mentioned by Dahal, the judge found that that pieie of . ' eviden~e stdOd uh~ebutted. He held .that the Agreement was neither fraudulent nof vo!d for Cl· unce.rtairii ty or lack of c:Onside.ta-1:ion .. As regards dihe Obligation to supply raw materials by Alfi, the judge conceded that there was no such undertaking in the Agreement, but he accepted Dahal's evidence that there was some mutual, presumably oral, agreement between him and Kwast to that effect. The judge referred to the letter of 17.4.79 written by Alfi cancelling the Agreement. We set it out in fullo "Alfi East ~ica Limit~,1. I? • O. Box 9 96 , Arusha. 17th April, 1979 The Managing Director, Themi Industry & Distrtbution ·Aijency, P~O. Box 106, ARUSHA Dear Sir, RE: CONTRACT BETWEEN A!JfI EAST AFRICA LIMITED AND THEMI INDUSTRY & DISTlU:al!JTION AGF;NCY In our Board of Directo.i;:-s Meeting on the 15th April, 1979 the majority of D;i.tecto.rs voted to cancel the ' J~.•ontract bet~een both companies. I have al so been 1 given instructions not to supply any goods at the moment to you either fqj; your -trading or for your manufacturing . . section and I also to . collect the. outstanding trading bela-.nce without further delay. Machinery should be retu~ned straight away. Please supply all th\:! contaniners whah you have manufactured up to the time of rec~iving this letter and stop prQducing bottle~ according to our contract. Yours faith~ully, ALFI EAST AF.RICA LIMlTED - 7 - J. KWAST, MANAGING DIRECTOR Coe. Mro O. Kellner, PoO• Box 116, ARUSHA" •. The judge held that the letter appeared to confirm the existence of an understanding testified to by Dahal. The judge held that Alfi was bound to supply raw materials to Themio The judge also held that Alfi was not entitled to appropriate the shso 100,000 paid for the machinery to the raw materials accounto After hearing counsel for Themi and Alfi and after carefuJ1.- perusing the proceedings and judgment of the trial we are satisfied that Jo Kwast had acted intra vires in executing the Agreement on behalf of Alfie According to Oo Kellner, a Director and Principal Shareholder of Alfi, Kwast was de facto, though not de jure, managing director Of Alfio Kwast was held out as a managing director of Alfi and clearly had power to execute the Agreement on behalf of Alfi. We now turn to the issue of fraud. We have carefully perused the Agreement and analysed i;he evidence adduced at the trialo Kwast was only an employee of Alfio All the shares of Alfi were owned by Kellne~ and his wife. In terms bf the Agreement, ali the advant.ages are on one side, in favour of Themi. Alfi was to set uii an industry for Themi; in fact was to set up a rival company i~ Themi, which was to manufacture goods normally produced by Alfi. ·Alfi was to provide the capital. Alfi had an imp9rt licence qu<'ta, and apparently used that quota to obtail\ lhe machinery for Themio Dahal had stated that he had no expe,:-i,ence at all af such machinery; in fact Themi had been merely the distributing agent of Alfi productso Themi did nC>t r~ay ·• c-,ant ~or t;<.J machinery; in evidenc_e Dahal said that i :f was 8 not necessary for him to have money to buy the machinery. Themi had a nominal capital of Shs. so,ooo and a fully paid up capital of shs. 2,000/-. There was no security offerE~d for the machinery, nor indeed was interest payable. The machinery was worth about one million shillings,- presumably in foreign exchange. There was no provision for the repayment period, nor even when repayment was to commence. Iri fact the price for the machinery was not mentioned in the Agreement. Alfi was to provide an assured m·art-e.t for the goods manufactured by Themi. Alfi was also alleged to be liable· to supply raw materials to Themi for such manufacture, on credit. The raw materials supplied amounted nea'rly to a million shillings,. Again there was nothing·in the Agreement about the price of su¢h raw materials nor how and in what manner payment was to·be made. There was no security p:rovideu for such .credit sales, nor was interest on outstanding sums mentioned. The Agreetnez:1t was so blatantly one sided in favour of Themi that it is .'. it1credible. T~e Agreement was solely ·rc:r the benefit of Themi at t~e expense qf Alfie Dahal alleged that the Agreeme~t was entered into because Alfi had lacked. space ilo put up tlte -..wo, pieces of machinery · ~ ~ . . ~ .· . in Alfi 1 s premises. No other reaason w~s advanced.· Dahal said that Kwast had told him abdut thil laick of space~ That could not- possibly be true, and Dahal 'niu_st htv12 known ft was not true.· activities on the ,ord~r of Kwast whtn, Kwast went· on leave. Dahal worked at A1fi for more than fl J1'lOnth and must have known about A1f~'s ac•Ominod,ation capacity • . According toD.W.1 Kellner, .. ". I D.W.2 Vohora and D.W.,,fl Talib, therEf wa~, ample space at Alfi for the installation of 'the two pi~ces of rrpachinery._ Indeed according·· ' to D.W.4 Talib, 12. S'U<;:h"µnachines could lbe installed at Alfi . . I • premises.· In fact those· two pieces of n11achinery were specificallv . . ordered by Alfi :for Alfi, but wera divea;-ted to Themi by Kwa:: •••••• /9~., According to Dah-~l, he expected a--,net profit ·of shso 100,000 / / ' per month if the two machines worke·d full capacity,.. enl3blirig him to pay off the machines within a period of a year or soo When Kellner came to· know of this Agreement he was certain that it was a conspiracy between Kwast and Themi to defraud Alfi and he took prOmpt steps to cancel it. Taking into consideration all the evidence and circumstances . . ... .· and the contents of _the Agreement we think that it was highly probable that Dahal ahd Kwast had conspired together· to defraud . Alfio .. On the iss1,1e. of uncertainty,· in the Agreement, no· pric'e for the machinery was-·rnehtioned~ In fact Mr. Ismail ,-for :Themi . . ~ conceded that· in the Agreement no price· was mentioned.·.nor was. there a method of -ascertaining or calcul'ating such price. He however submitted that' the isurrounding circumstances should -l. lOoked at. He contended, that according to Dahal, -both Alfi.and Themi knew the price and .there was a provision in the Agreement . about how the price was. _to· 'be paid-, ·that. is by sale of the manufactured goods to Alfi. Nevertheless the fact remains -1-h;:it no price has emerged, and if Alfi were to sue Therni for the price of the machinery, it would ~ot be able to do so, . as no price has been fixedft It is clear that the price was to be arrived at by mutual negotiations between Themi a~~- Alfi-, whfch means that the price has still to be agreed,..-. Price is a fundamental matter in an agreement of sale si,.ich _as the one ·under considerat_;!.on, and as ·,there was no agre~d price there was no agreement, see Courtney & Fairbairo I;.,td.;:,,y1.-_T9laine B,ros. & another· 1975 (1) ALLER 716. · In terms of section 29 of the Law of Contract c·ap 433 of the Laws the Agre-ement is void :r uncertainty. In our view Alfi could not i:\pprcp-zr{a te the sum of shs. 100,000 to the raw materials account when it was paid for the nfa1chinery. That sum either goes to the machinery account or is to be returned to Thami. Since however Alfi ••• 0 0. /10 • . t 10 - had already credited .that sum to the raw materials account, ...- ~ perhaps Alfi and '.Themi could settle the matter between themseives amicably'. . In any event_, Alfl 1 s .attempt to appropriate the sum of shso 100,000 to the raw materials account wcis wrong •. We ate satisfied that the Agreementwa~ unenforceable and -voici on the ground (.i) that. it ~as fraudulent,. as a result of a conspirancy be~ween Kwast and Themi. (2) 'I'.}:1at i t was uncertain, as no · pric;e had been agreed. We are aware that to .~stablish fraud a high d(3gree of proof is required. In this case we tl1.inJ,<, on thf,'l evidence, that it was most-probable that fraud was committed o-y'ainst Alfi by both ,. Kwast and Themi. There was no basis fnr the award_ of da!Tlages to Themi. Even if the Agreement had been.enforceable, there . . was . ...no legal .:, ·, obligation -on Alfi- to _supply raw mate.t<ials ~p Therni. No such provision e~ists in the Agreement. At the most Alfi ha& been supplying such raw material~ to Themi, but clearly it was a voluntary act and imported no legal obligation. The claim by Themi for damages fails. · In the rest;tlt we allow ,the appeaL We hold that the Agreement ··-.is void and, unenforceable. •We set aside the judgment and decree ,_ of the High Court in, favour .of Themi J:ndustries and Distribution Agency Ltdojand -substitute, therefor an orde,r di~missing the claim. We allow costs te, Alfi East Africa Ltd. both here and beloWo ~'IJt.· ,_.,. tie· orqt3r-'that since the_ r~;C,ord of appe_al prepared by Alfi was unsatf.'s~N-ry in that some imp'1rtant document and certain. ~ines vn some pages were rnissi_ng ,- no costs be allowed Alfi concerning the preparation ~f the record of appeal. • o • .. ~ o e • / 11.