LAPF v Chidawanyika (HC 6900 of 2014) [2015] ZWHHC 367 (14 April 2015)

1 HH 367-15 HC 6900/14 LOCAL AUTHORITIES PENSION FUND versus ENNOCENT T CHIDAWANYIKA HIGH COURT OF ZIMBABWE TSANGA J HARARE, 3 March & 15 April 2015 Opposed Application N Bvekwa, for applicant V Muza, for respondent TSANGA J: This is an application to declare the respondent Ennocent Chidawanyika personally liable as guarantor and co-principal debtor for debts incurred by a company known as Gordon Gecko Capital (Gordon Gecko). The sums involved include USD$12 367.03 as arrear rentals; USD$5 153.66 for outstanding operating costs; and US $9 602.50 as holding over damages incurred from June 1 2013 to 21 March 2014 when Gordon Gecko vacated the premises. Costs are also sought on a legal practitioner and client scale in addition to collection commission. On 15 July 2013 the applicant instituted proceedings in Case No. HC5692/13 for payment of arrear rentals, holding over damages and arrear operating costs against Gordon Gecko Capital which was leasing the applicants premises at Travel Plaza, 29 Mazowe Street in Harare. Judgment was obtained on 21 August 2013 against Gordon Gecko. The applicant executed the judgment but Gordon Gecko Capital had insufficient assets to satisfy the debt owed to it. The applicant therefore pursues the debt against the respondent on the basis that he stood as surety. Applicant relies on a deed of surety signed by the respondent. The applicant also says that the respondent is the alter ego of Gordon Gecko and avers he was running the company in a reckless and negligent manner for purposes of defrauding the applicant as evidenced by failure to pay debts and to pay monthly rentals. The respondent disputes being a guarantor or co principal debtor of Gordon Gecko Capital. He states that if indeed he was a surety and co-principal debtor, nothing prevented the applicant from suing him at the same time with Gordon Gecko. More significantly he HH 367-15 HC 6900/14 argues that the document relied on as the deed of surety is fatally defective in that it does not state the company for which the document is applicable to. He highlights that instead of Gordon Gecko it has his name where that of the company ought to be. As such his position is that legally he cannot stand surety for his own debt. The applicant’s position is that the granting of a judgment against a principal debtor does not prohibit a creditor from claiming the same amount against the surety. If the principal debtor had performed, then the debtor would have been discharged. It cites the case of Mandhu v Scotfin Limited 2003 (1) ZLR 476 (H) as resting on similar facts where the surety’s liability was said to be founded on the interpretation of the contract. The respondent initially filed heads in which his standpoint was that the document presented as surety for Gordon Gecko was one signed for one of his companies called Haruna (Pvt) Ltd which he said occupied the same premises. He subsequently filed supplementary heads of argument shifting from his initial averment and zeroing in instead on the argument that the deed of surety is void because it does not disclose the principal debtor. His counsel, Mr Muza, submitted at the hearing that the primary requirements for a deed of suretyship include: 1. the name of the creditor; 2. the name of the surety; 3. the name of the principal debtor; 4. and the rights and obligations of the parties. He stressed that if a deed of suretyship falls short of these requirements, it is null and void. He drew on the case of Fourlame (Pvt) Ltd v Maddison 1997 (1) SA 333 (A) for his extraction of these fundamentals. The Deed of surety in question reads as follows: “We (sic) Ennocent Tendayi Chidawanyika the undersigned, hereby bind ourselves and executors jointly and severally as sureties and co-principal debtors singuli et in solidum unto and in favour of LAPF1 for due and faithful compliance by (signature of respondent appears here)2 (hereinafter referred to as the “Tenant”). of all tenants obligations under the foregoing Agreement of lease executed on 02 July 2012 between the landlord and the tenant, including (without derogating from the generality of the foregoing) the payment of all rents, damages, and other amounts now due or hereafter to 1 LAPF being the Local Authorities pension Fund 2 In the place where the name of the principal debtor should have appeared the surety instead appended his signature. HH 367-15 HC 6900/14 become due and owing by the Tenant from whatsoever cause arising in terms of the aforementioned Agreement of lease.” The deed of suretyship then goes on to outline the general terms and conditions. It is not disputed that there was a lease agreement between Gordon Gecko and the applicant. The applicant whose name appears clearly in the Deed of surety, did not have any lease with Haruna Pvt Ltd, which company respondent initially argued was what the deed of surety sought to cover. It is therefore indisputable that it is with respect to the contract of lease between the applicant and Gordon Gecko that the deed of surety pertained. The fact that the respondent signed where the name of the debtor should have appeared does not void the agreement of suretyship given the clear reference in the deed that the surety was directly linked to a lease agreement. For instance, in the South African case of Industrial Development Corporation of SA ( PTY) Ltd v Silver 2003 (1) SA 365 (SCA), the issue for decision was whether a deed of suretyship which did not identify the principal debtor could be saved by virtue of its reference to a loan agreement which gave rise to the debt so secured. In that case, whilst acknowledging that the identity of a principal debtor is undoubtedly a material term of the contract, the loan agreement which identified the debtor was incorporated by reference to save the contract of suretyship from invalidity. It was reasoned that there was no justification for not applying the principle of incorporation by reference (generally applicable in cases of land), in cases of contracts of suretyship. It was also held that although as a general rule the terms of a contract required by law to be in writing had to appear from the document itself, extrinsic evidence was permitted if it was not about negotiations prior to the written agreement or about the parties’ consensus. The case also makes the point that such extrinsic evidence is not only permitted but is also often essential within these permissible boundaries given that a written contract is often an abstraction until related to concrete things in the material world. In an earlier case of Trust Bank of Africa Ltd v Cotton 1976 (4) 325 ( N) where there was a blank space where the name of the debtor ought to have appeared it was equally held that oral evidence was admissible to identify the acknowledgment of debt as the one referred to in the deed of suretyship. Granted in the case before me the respondent’s argument is that he cannot be surety for his own debt. But clearly this was never the intention and this is not a situation where he was being called to be a surety to his own debt. It is evident that he was being called upon to be the surety for any debts arising out of a lease agreement. It was Gordon Capital that had HH 367-15 HC 6900/14 entered into a lease agreement with the applicants. The case cited by respondent of Nedbank Ltd v Van Zyl 1990 (2) SA 469 for the position that a contract whereby a person purports to act as surety for his own debt is not legally enforceable, is distinguishable both in content and context from the present case. In that case a wife married in community of property had stood surety for her husband’s debt and therefore the reason why the contract was deemed unenforceable was because the husband and wife had a joint obligation to pay the debt. On the strength of the reasoning in Mandhu v Scotfin (supra) I am in agreement with the applicant that regard must be had to the contract of suretyship and the interpretation of that contract. What gave rise to the indebtedness sought to be secured by the suretyship was the lease agreement. Without the lease agreement which is specially referred to in the deed of suretyship, it would have no meaning. What Ennocent Chidawanyika was binding himself to was the payment by the lessor Gordon Gecko of its rent obligations. The debt was not his own. It was clearly stated in the lease agreement as that of Gordon Gecko. Given the finding that the respondent’s liability arises from the lease agreement between applicant and Gordon Gecko, for which he was clearly intended as surety, it is not necessary to consider in any detail applicants quest to find the respondent liable on the basis of continuing to incur debts when there were no reasonable prospects of creditors such as applicant, receiving their payment. (Ozinsky NO v Lloyd & Ors 1992 (3) SA 396 ( C) cited by applicant in support of averment). With regard to applicant’s demand for costs on a legal practitioner scale as well as collection commission in terms of the Law Society of Zimbabwe by laws, it has been held in FBC Bank Ltd v Dunleith Entprs (Pvt) Ltd & Ors HH-568-14 that there is no rationale for claiming both collection commission and costs on a legal practitioner client scale. As explained in that case, where the payment is recovered in terms of a judgment an award of costs on a higher scale would compensate the practitioner in full. Collection commission on the other hand is explained as a charge that is levied by an attorney or agent when payment of a debt has been recovered through his services prior to judgment. In other words, the commission is for collecting the payment other than through a judgment. In casu, since the costs on a higher scale purport would arise out of a judgment, collection commission would not be applicable. The issue is therefore whether costs on a higher scale are justifiable in this case. In my view they are as respondent was clearly trying to avoid payment of debt which he knew full well related to the agreement of lease that the HH 367-15 HC 6900/14 applicant had with Gordon Gecko. He is liable for the costs that the applicant has had to incur in bringing this matter before the court. Accordingly, the order sought by the applicant is hereby granted as follows: (a) The respondent be and is hereby declared personally liable for Gordon Gecko debts; (b) The respondent shall pay USD$12 367, 03 for outstanding arrear rentals and USD$5 153, 66 for outstanding operating costs. (c) The respondent shall pay a sum of USD$9 602.50 for holding over damages incurred from June 1 2013 to 21 March 2014 the date of Gordon Gecko vacation together with interest at the prescribed rate per annum on the amounts stated in (b) and (c) from 1 June 2013 (the date of which summons was served on Gordon Gecko Capital to date of full payment. (d) The respondent to pay costs of this application together with costs in HC 5692 /13 on a level of legal practitioner and client scale. Bvekwa legal practice, applicant’s legal practitioners Muza & Nyapadi, respondent’s legal practitioners