CMED (Private) Limited v First Oil Company (Private) Limited (26 of 2021) [2021] ZWHHC 26 (13 January 2021)

1 HH 26-21 HC 1897/16 CMED (PRIVATE) LIMITED versus FIRST OIL COMPANY (PRIVATE) LIMITED HIGH COURT OF ZIMBABWE TAGU J HARARE 3 December 2020 and 13 January 2021 Civil Trial-Special Case T. Magwaliba with C. Kwirira, for plaintiff S. M. Guwuriro, for defendant TAGU. J: At the commencement of this trial the parties agreed that this matter be dealt with as a special case in terms of Order 29, Rule 199 of the High Court Rules, 1971. The facts in relation to the special case are contained in the following document signed by both parties on the 25th November 2020. “SPECIAL CASE IN TERMS OF ORDER 29, RULE 199 OF THE HIGH COURT RULES 1. The plaintiff is CMED (PVT) ltd, a duly incorporated company, whose principle place of business is Cnr. Herbert Chitepo and Rekayi Tangwena Avenue, Harare. The Defendant is FIRST OIL COMPANY (PVT) LTD, duly incorporated company and whose principle place of business at the time of transacting was CABS Centre, 74 Jason Moyo Avenue, Harare. The Plaintiff and Defendant entered into an agreement of supply and delivery of diesel, in terms of which Defendant was to supply 3 million litres of diesel upon payment. Pursuant to that agreement, albeit before its signature, the Plaintiff paid a total of USD2 700 000.00 towards the purchase of 3 million litres of diesel. In terms of the agreement the Plaintiff was to pay a further USD720 000.00 direct to ZIMRA in lieu of duties and levies. The Defendant, duly received its payment of USD2 700 000.00 paid through its ZB account held at Avondale. The Plaintiff did not pay the sum of USD720 000.00 that would have been paid to ZIMRA in lieu of duty for the diesel fuel amounting to 3 million litres. The parties signed the agreement after the payment of USD2 700 000.00 had been paid and received by the Defendant. The Plaintiff demanded delivery of diesel fuel after payment had been received, but Defendant failed to deliver the fuel. 2. 3. 4. 5. 6. 7. 8. 9. 101. The Defendant having failed, refused or neglected to deliver the fuel upon receipt of payment, the Plaintiff instituted the present proceedings claiming against the Defendant, an order of specific performance that Defendant be ordered to deliver 3 million litres of diesel within 14 days from the date of judgment. HH 26-21 HC 1897/16 9.2 10. 12.1. In the alternative, that the Defendant pays the Plaintiff the market value of 3 million litres of diesel as at the date of judgment. The Plaintiff’s case is that the Defendant having received full payment (less duties due to ZIMRA) was obligated to deliver the 3 million litres of diesel to the Plaintiff. In its plea, the Defendant admits receipt of USD2 700 000.00. However, they raise the following defences. 12.2 They aver that specific performance cannot be ordered as they aver, Plaintiff breached the agreement by not paying the amount that was due to ZIMRA in lieu of duty for the 3 million litres of diesel. 12.3 The Defendant further avers that an order of specific performance would amount to unjust enrichment adverse to the Defendant. 12.4. Defendant further avers that the Plaintiff cannot be paid the alternative relief sought being 13. the market value, on allegations that the Plaintiff breached the agreement. In the reply, the Plaintiff maintains that Defendant having received the full payment of USD2 700 000.00 for 3 million litres of diesel is liable to deliver. The Defendant specifically admits receipt of the said amount of USD2 700 000.00. The issues which arise for determination in this matter are the following: 14. 14.1 Whether the Plaintiff breached the fuel supply and delivery agreement when it did not pay the amount due to ZIMRA being for duty due when the fuel would have been delivered or availed to the plaintiff. 14.2 Whether the Defendant breached the agreement by failure to supply 3 million litres diesel fuel to Plaintiff subsequent to receipt of the full purchase price of USD2 700 000.00. 14.3 Whether if the parties signed the written agreement after payment had been made to the Defendant by the Plaintiff as alleged by the Defendant, what effect would have if any on the agreement between the parties. 14.4 Whether the principle relief or the alternative relief sought by the Plaintiff is available in 15. 16. the circumstances. The parties have agreed to the production of a bundle of documents in support of the special case. Accordingly therefore the parties humbly request the Honourable court to read this special case in conjunction with the agreed bundle of documents which appear on pages 54 to 64 and pages 109 to 124 of the bound consolidated record of pleadings. The parties will therefore make legal submissions in relation to the averments set out in the special case above as read with the bundle of documents.” Before dealing with the issues stated in the special case document, the court has to outline what seems to be common cause as outlined in the special case document as well as the agreed bundle of documents filed by the parties. It is common cause that the Plaintiff and defendant entered into an agreement of supply and delivery of diesel fuel, in terms of which defendant was to supply 3 million litres of diesel upon payment. Clause 2.2 of agreement said among other things that- “The purchase price to be paid by the Purchaser (CMED) shall be US$3,630,000.00 including duties and levies. CMED will however pay duties of US$720 000.00 direct to Zimra.” HH 26-21 HC 1897/16 Clause 5.1 says delivery period for the diesel shall be immediately after payment, and clause 6 says payment will be upfront upon confirmation of product at NOIC Msasa. Before signature of the contract or agreement by the parties, which was done on the 5th of March 2013, the plaintiff had paid a total of USD 2 700 000.00 into the defendant’s ZB account held at Avondale. The plaintiff was to pay a further sum of USD720 000.00 that was to be paid to ZIMRA in lieu of duty for the diesel. The plaintiff did not finally pay the USD720 000.00 and the defendant did not supply the diesel fuel. By letter dated 28th February 2013 PETROTRADE confirmed that it had 3 million litres of diesel. The letter reads as follows- “RE: AVAILABILITY OF 3 MILLION DIESEL This is to confirm that Petrotrade (Pvt) Ltd has reserved 3 million litres of diesel at Msasa Depot for First Oil. This product is available upon payment. For any further clarification you can contact the undersigned.” On the same day First Oil Company replied to the above letter in which it said the following- “RE: Product confirmation – Ref Fm/sc//130/13 In relation to the above, we will be advising when to effect the release of product to our customer CMED (Pvt) Ltd once payment has been effected. We irrevocably reserve the product for CMED (Pvt) Ltd until all payments have been finalized. For further clarification you can contact the undersigned.”(my emphasis) This letter was copied to CMED (Pvt) Ltd and NOIC (Pvt) Ltd. On 1 March 2013 National Oil Company (NOIC (Pvt) ltd) confirmed that it was holding 3 million litres diesel on behalf of PETROTRADE which had been reserved for First Oil Company at its Msasa Storage tanks. Further First Oil Company wrote to CMED (Pvt) ltd on the 23 March 2013 confirming that there was a late delivery of the product due to failure to meet transacting timelines by the transacting parties involving its bankers. However, it confirmed that funds were moved on the 7th and were anticipating to deliver in line with the agreed timelines. (my emphasis} From what I stated above it is clear that a written contract was indeed entered between the plaintiff and defendant. A contract is a legally enforceable agreement. This simply means that for an agreement to be deemed a contract, it has to satisfy some legal requirements. These include the following: i) There should be a valid offer that must be accepted; HH 26-21 HC 1897/16 ii) The minds of the parties should meet; iii) The parties must have the serious intention to be legally bound by the agreement; iv) The parties should have contractual capacity; v) Whatever parties agree on should be within human capacity to perform; vi) The terms of the agreement must be clear; vii) The contract may be required to satisfy formalities by the law and viii) The agreement should be legal. See Innocent Maja, “The Law of Contract in Zimbabwe”, page 20. I will now turn to deal with the four issues which arise for determination in this matter. The issues are clearly stated in the special case document. These are- 1. Whether the plaintiff breached the fuel supply and delivery agreement when it did not pay the amount due to ZIMRA being for duty due when the fuel would have been delivered or availed to the plaintiff? 2. Whether the defendant breached the agreement by failure to supply 3 million litres diesel fuel to plaintiff subsequent to receipt of the full purchase price of USD2 700 000.00? 3. Whether if the parties signed the written agreement after payment had been made to the plaintiff by the as alleged by the defendant; what effect that would have if any on the agreement between the parties? and 4. Whether the principal relief or the alternative relief sought by the plaintiff is available in the circumstances? I will articulate the position of the plaintiff first as contained in its heads of argument before dealing with defendant’s submissions and thereafter make my own analysis. PLAINTIFF’S POSITION In its amendment to summons and declaration the plaintiff is claiming the following:- (i) An order for specific performance, that the defendant be and is hereby ordered to deliver to the plaintiff, three million litres of diesel within 14 days from the date of judgment or Alternatively; failing delivery:- HH 26-21 HC 1897/16 (ii) That defendant pays to the plaintiff the market value of three million litres of diesel at the date of judgment; (iii) Interest thereon calculated from date of judgment to date of payment (iv) Costs of suit. In its heads of argument the plaintiff indicated that the principal matter for resolution is the question of liability. The plaintiff seeks among other things to hold the defendant liable in terms of the contract that was entered into between the parties for the supply of three million litres of diesel and in respect of which the plaintiff paid to the defendant the sum of US$2 700 000.00. It averred that that amount excluded the amount of duties which would be payable upon the importation of the diesel. It further indicated that it is a policy of the law to give effect to contracts executed between the parties where the parties enjoy the freedom of contract and have voluntarily entered into contracts. Once entered into, contracts are sacrosanct by virtue of the principle of sanctity of the contracts- Magodora & Ors v Care International Zimbabwe 2014 (1) ZLR 397 (S) at 403C-D. Further, the plaintiff stated that in Grandwell Holdings (Pvt) Ltd v Zimbabwe Mining Development Corporation & Ors SC-5/20, the court stated as regards the remedy of specific performance that: “As to the remedy of specific performance in the law of contract, it is accepted that it is aimed at upholding the contract and obtaining performance on the terms of the contract as agreed. Indeed, specific performance is the primary or default remedy for breach of contract and is usually claimable.” The plaintiff submitted that it is settled that the right to claim specific performance is based on the willingness of the party claiming that remedy to fulfil the contract. It said the court has a judicious discretion to exercise in that respect. In Minister of Construction and National Housing v Zescon (Pvt) Ltd 1989 (2) ZLR 311 (S) at 318G, the court stated that:- “The law is clear. This is a remedy to which a party is entitled as of right. It cannot be withheld arbitrarily or capriciously,” The plaintiff’s position is that it is entitled to specific performance as of right. It said the defendant cannot expect the plaintiff to have paid the sum of US$720 000.00 in respect of import HH 26-21 HC 1897/16 duties where the product was not delivered at all. It was its contention that the obligation for the plaintiff to pay the levies and duties would therefore only arise after the arrival of the diesel at the border. That obligation was not to pay the amount of the duties and levies to the defendant but directly to Zimra. It disputed the suggestion by the defendant that the plaintiff would be unjustly enriched. Its contention was that it is the defendant who would be unjustly enriched because it received an amount of US$2 700 000.00. It insisted that the defendant must pay the sum of US$3 120 000.00 representing the value of the diesel together with interest and costs as prayed since it breached the contract. DEFENDANT’S POSITION The defendant’s position among other things is that the plaintiff and defendant did in fact enter into an agreement for the supply and delivery of diesel fuel amounting to three million litres. It confirmed having been paid an amount of US$2 700 000.00 that was paid into its account with ZB Bank. However, it submitted that the release of funds by the plaintiff to the defendant without a signed agreement brought about the breach of the agreement by the plaintiff in this matter. It further alleged that the plaintiff breached the agreement as it did not pay the full purchase price by failing to pay duty that was due to the Zimbabwe Revenue Authority (ZIMRA) in terms of the signed agreement. The defendant submitted that the plaintiff’s breach was that of performance and it went to the root of the agreement as it failed to pay the full purchase price by not paying duty and tax to Zimra. See Mutunhu v Crest Poultry Group (Private) limited HH-399/2017. According to defendant the agreement was seriously breached making the contract invalid and unenforceable. On specific performance the defendant submitted that the plaintiff breached the agreement and as such there is no way it can be enforced at law. It further submitted that the remedy for specific performance is not available to a party in breach but rather to an innocent party. It relied on the case of Manenguri v Kakomo and Others HH-489/2020 where the court held that- “An order for specific performance enables the innocent party to compel performance of the terms of the contract upon breach. There must be a binding contract in existence and a breach of the terms of the contract. Courts will not order specific performance where there is substantial and material breach of the contract by the party seeking enforcement of the contract.” The defendant therefore submitted that the plaintiff’s claim must be dismissed with costs in this matter. COURT’S ANALYSIS HH 26-21 HC 1897/16 It is common cause that the plaintiff and defendant entered into an agreement of supply and delivery of diesel fuel, in terms of which the defendant was to supply 3 million litres of diesel upon payment of US$2 700 000.00 to defendant and US$720 000.00 to ZIMRA in lieu of duties and levies. These terms of the agreement are contained in a signed agreement among the relevant parties. It is common cause that pursuant to that agreement and albeit, before its signature the plaintiff paid US$2 700 000.00 to the defendant through its ZB Bank account. The plaintiff did not pay the US$720 000.00 to ZIMRA. The defendant on the other hand did not supply the fuel. Both parties allege breach of the agreement. The plaintiff alleges that the defendant breached the agreement by not delivering the fuel. On the other hand the defendant alleges breach of the agreement on the part of the plaintiff by failing to pay US$720 000.00 to ZIMRA. The defendant further alleges that by paying US$2 700 000.00 before the contract was signed, the agreement is of no force and effect and is unenforceable. The plaintiff also alleges that if the defendant is not made to perform in terms of the agreement, the defendant would be enriched since it was paid US$2 700 000.00 but did not deliver the diesel. On the other hand the defendant alleges that it is made to deliver the diesel before the plaintiff pays US$720 000.00, the plaintiff would be unjustly enriched. The defendant is also refuses to pay or refund the diesel on the current market rate on account of the breach by the plaintiff. Having analyzed the submissions made by the parties, and reading bundles of documents filed by the parties, the court noted that terms of the agreement were very clear. The defendant cannot claim that the agreement is unenforceable because it signed the agreement with eyes wide open well after the amount of US$2 700 000.00 was deposited into its account. The defendant does not allege that when it signed the agreement it did not know that money had been deposited into its account. By signing the defendant rectified the contract hence the agreement is valid and binding. If the defendant’s position is correct that the signed agreement is unenforceable because the plaintiff paid before the agreement was signed, then in my view it follows that the defendant has no righto hold onto the US$2 700 000.00 because by doing so it would be unjustly enriched. The defendant would have also breached the contract by signing the agreement when money had already been deposited into its account. It should have refused to sign the agreement. I also read the agreement between the parties. It is specific that the plaintiff was supposed to pay US$2 700 000.00 to the defendant and US$720 000.00 to ZIMRA before delivery of the HH 26-21 HC 1897/16 diesel. The plaintiff in my view breached the term of the agreement in that it was supposed to pay all the monies including to ZIMRA before the fuel is delivered. Clause 2.2of the agreement is clear and unambiguous. It says- “The price to be paid by the purchaser (CMED) shall be US$3 630 000.00 including duties and levies. CMED will however pay duties of US$720 000.00 direct to ZIMRA.” Further clause 5.1 of the agreement says “delivery period for the diesel shall be immediately after payment.” Lastly clause 6 says “payment will be upfront upon confirmation of product at NOIC Msasa.” (my emphasis) I also noted the letters written by the parties. They clearly indicate that the diesel was available and reserved at Msasa depot. That it would be delivered upon full payment having been done. The claim by the plaintiff that the diesel had to be delivered at the border first before it could pay the US$720 000.00 for duties and levies to ZIMRA lacks merit. The diesel was already at Msasa depot waiting delivery after full payment. In my view full payment means payment to defendant as well as to ZIMRA. Having assessed the submissions and documents filed of record, I am of the view that specific performance cannot be ordered because the plaintiff did no fully comply with the terms of the agreement. On the other hand the defendant would be unjustly enriched because it received US$2 700 000.00 but did not supply the fuel to the plaintiff, albeit for the alleged breach by the plaintiff. I read the signed agreement and it is silent as to what would happen to the money paid by the purchaser up to the point of breach or the fuel delivered to plaintiff up to point of breach by the supplier. It is in the interest of justice that the defendant be made to refund the amount already received. The plaintiff wants to be refunded in the alternative the value of diesel to have been delivered at the current rate of US$1.04 or ZW$86.36 per litre as per letter from Zimbabwe Energy Regulatory Authority dated 1 October 2020. I found no justification for using this rate because no diesel was delivered to plaintiff, the available diesel was at the Msasa depot already procured at the rate applicable at that time. The plaintiff must be refunded US$2 700 000.00 that it paid together with interest and costs. It cannot recover the full US$3 120 000.00 as this includes duties and levies that it did not pay to ZIMRA. IT IS ORDERED THAT 1. The claim for specific performance is dismissed. HH 26-21 HC 1897/16 2. 3. 4. 5. The alternative claim is granted. The Defendant is to pay to the Plaintiff any amount of US$2 700 000.00 at the current rate bank rate, being a refund of the value of diesel that the Plaintiff had paid for, but was not delivered by the Defendant. Interest on the said sum at the prescribed rate, Costs of suit. Magwaliba and Kwirira, plaintiff’s legal practitioners Guwuriro & Associates, defendant’s legal practitioners