Sakiza Spinning Ltd v Weave Plastic Industries Ltd (CAZ Appeal No. 113/2022) [2023] ZMCA 192 (21 July 2023)

• JN THE COURT OF APPEAL OF ZAMBI HOLDEN AT LUSAKA !Civil Jurisdiction) BETWEEN: SAKIZA SPINNING LIMITED AND ·~' IC OF CAZ Appeal No. 113/2022 ,,-~RI Of A~--....___ CAZ/08/021/2022 ~ r ----___::___,~ "-. * I 2 1 JUL 2~Z: .:_t:.. ~L. ········-·· ~···· ,o CIVIL ilEGIST~v , ·0 ·----, · 6ox 50067. LIN ' ~t-· APPELLANT WEAVE PLASTIC INDUSTRIES LIMITED RESPONDENT CORAM : Chishimba, Sichinga and Sharpe-Phiri JJA On 23rd March, 2023 and 21st July, 2023 For the Appellant : :V1r. A. Dudhia of Messrs Musa Dudhia & Co. For the Respondent : :v1r. F. Chalenga of Messrs. Freddie & Co. JUDGMENT CHISHIMBA, JA delivered the judgment of the court . . C. P.. S~S. REFERR. ED TO: 1) Walford & Others v Miles & Another (1992) 1 All ER 720 2) Star Finance and Property & Another v Nigerian Deposit Insurance Corporation (2012) LCN/5166 (AC) 3j Coco v A. N. Clark (Engineers) Limited ( 1 g68) Ch D. ( 1 g69) RPC 41 4) Attorney Oeneral of Hong Kong v Humphreys Estate Limited (1987) 1 A. c. 114 5) Fonderie Officinc Mcccaniche Tocconi Spa v Hcnirich Wagner Sinto Maschinen Fabrik GMHH (HWS), E. C Reports 2002p. 1-0735 6) Reynolds Chanda Sowa v Lusaka Stock Exchange Limited & Others Selected Judgment No. 30 of 2017 7) J K. Rambai Patel v Mukesh Kumar Patel (1985) ZR 220 8) Collelt v Van Zyl Bros Ltd 1996 ZR 65 9) Ward v James 1966 2 ALLER 305 10) Zambia Tourism Agency v Charity Chanda Lumpa Appeal No. 12 of 20 I g 11) YB and F Transport Limited v Supersonic Motors Limited (2001) ZR 22 • -J2- 12) Abu Dhabi National Tanker Co. v Product Star Shipping Limited (The Product Star)(No. 2) (1993) 1 Lloyd's Rep. 397 13) Braganza v BP Shipping Limited (2015) UKSC 17 14) Wilheim Roman Buchman v Attorney General (1993 - 1994) ZR 131 15) Attorney General v Marcus Kampumba Achiume (1983) ZR l 16) Courtney & Fairbairn Ltd v Tolaini Bros (Hotels) Ltd [ 197 5] 1 All ER 7 16 17) Petronec v Petroloe (2006) 18) Cable & Wireless PLC v IBM United Kingdom Limited (2002) EWITC 19) Petromec Inc v. Petroleo Brasileiro SA Petrobas (No 3) 2005 EYWCA Civ 891; [2006) 1 Lloyd's Rep 161 20) Antonio Ventriglia, Manuela Ventriglia and Southern African Trade and Development Bank SCZ No. 30 (2010) 21) Mususo Kalenga Building Limited, Winnie Kalenga v Money Lenders Enterprises SCZ Judgment NO. 4 of 1990 22) Barbudev v. Eurocom Cable Managnent Bulgaria (2011) EWHC 1560 23) Dhanani v Crasnianski [2012] EWHC 920 Comm 24) Hongkong (A. G) v Humphrey's Estate (1986) 111 N. R 135 PC (1987) H LEGISLATION CITED: 1) The English Law (Extent of Application) Act Chapter 11 of the Laws of Zambia 2) The High Court Act Chapter 27 of the Laws of Zambia 3) The Rules of the Supreme Court of England, 1999 Edition OTHER WORKS REFFERED '.!91 1) Ewan McKendrick, 2003_ Contract Law: Text, Cases and Materials. Oxford University Press 2) Chitty On Contracts. 27th Edition. Volume 1 paragraphs 1-010 and 1-011 1.0 INTRqDUCTIO:fi 1.1 At the lin1c we heard this appeal we sat with Sichinga JA who has since proceeded on long leave. This is therefure a rnajority decisions. This appeal emanates fru1n the judgrnent of the Hon. -J3- Mr. Justice Chai·les Zulu dated 22nd December, 2021. By that , decision, the court below dismissed the respondent's claims for the following, 35% of the shares in Strongpak Limited, an account for all profits made by Strongpak limited and damages for breach of confidence. The court belo,v upheld the claim for damages in respect of losses caused to the respondent as a result of the appellant frustrating the memorandum of understanding in bad faith which he referred to as damages for breach of the duty to negotiate in good faith, to be assessed by the Registrar. l .2 This appeal deals ,vith a 'novel' issue of whether under our laws a claim for damages fur breach of duty to negotiate in good faith can be sustained more specifically ·whether our la,vs recognize a duty to negotiate in good faith. 2.0 BACKGROUND 2. l The respondent commenced an action by vvrit of summons amended on 27th January, 2014, endorsed with the following reliefs: a) A declaration that Strongpak Limited was incorporated in bad faith against the MOU entered into and signed between the appellant and the respondent; -J4- b) A declaration that the respondent is entitled to 35% of the shares/equity in Strongpak Limited; c) An order that the respondent be allowed its 35% shares in Strongpak Limited and the appellant should facilitate the transfer thereof; d) An inquiry as to damages for the breach of the MOU, fiduciary and confidence; e) Further or alternatively, an account of all profits made by the appellant and Strongpak Limited from the use of confidential information and implementation of the project of the respondent and an order for the giving of all proper directions for that purpose; f) An order for payment of all sums found to be due to the respondent together with interest as by statute established; and Costs. 2.2 The appellant filed a defence on 29th March, 2012, amended on 5c11 November, 2020, refuting all the claims by the respondent. 3.0 EVIDENCE IN THE COURT BELOW 3.1 Mr. Lombe a director in the respondent entity, averred that he identified a business opportunity to supply cement bags to LaFarge Zambia Limited and Zambezi Portland Limited, at the time there being no company manufacturing and supplying the said bags. The respondent approached the above companies which expressed interest to buy the products once operational. The respondent further engaged Development Bank oJ South -JS- Africa (DBSA), the Eastern and Southern African Trade and • Development Bank (PTA Bank) based in Kenya for loan facilities to commence the project. 3.2 Both banks expressed interest to support the project provided the respondent secured an equity partner. DBSA offered to fund the project at 80%. The respondent settled for DBSA which in turn referred it to Development Bank of Zambia. 3.3 The respondent identified the appellant as an equity partner as it was already in the manufacturing business. After a series of communications with Mr. Kumar, a director in the appellant company, the parties entered into a memorandum of understanding (the MOU) in February, 2010. The said MOU is at pages 106 to 107 of volume one of the record of appeal. 3.4 The MOU terms provided that the appellant would hold 65% of the shares and the respondent take 35°/o shares in a new joint venture company to be incorporated. Through the joint venture's bank account, the parties would channel their respective equity contributions for onward purchase of machinery. A detailed shareholders agreement \Vas to be dra\vn up by mutually agreed lawyers in due course. J6 3.5 The parties approached DBZ. ·which was funding similar projects through commercial banks. The parties subsequently engaged Indo Zan1bia Uank Litnited, which was willing to provide the loan facilities for the project. According to the respondent he was kept in the dark as to how the project v,as progressing in tenns of funding. 3.6 In ll.1ay 2010. lVIr. Lotnbe and .tvlr. Kutnar travelled lo Austria lo meet suppliers. narnely Starling er and BS\:V. On 2 nd ,June, 2010 the appellant paid a deposit ofCS$ 320,000.00 to BS\V to secure the order for the supply of the tnachinery. \Vhen asked to settle its 35°/o equity, the respondent requested for an extension of lirne. 3.7 Differences arose as to the tnanagement agreement of the cornpany to be established, the number of directors to be non1inaled by each party lo sit on the hoard and equity contribution. The appellant took the view that the issues raised by the respondent went against the 1vIOU. This was because the respondent wanted to settle its 35'-1/o equity in two inslalrnents without slating the quanlurn of the first insta.ltnent \Vhich was to cater for the deposit to be paid to the supplier for plant and . J]- machinery. Further, contrary to the MOU, the respondent suggested that its shares in the co1npany to be fonned be held by the appellant, but to be redeemed by the respondent upon payment of its portion of the equity. 3.8 According to the appellant, thought it was willing to walk away fro1n the project, it decided to acco1nmodate the respondent subject to conditions expressed in a letter dated 14th May, 2010. In a letter dated 24th May, 2010, the respondent rejected the conditions stating that the appellant was introducing new terms relating to the period of redee1ning the shares. The respondent having proposed a period of one year subject to a further extension of six months. This was unacceptable to the appellant as it meant that it would have to pay for the machinery in full ,vithout any contribution from the respondent. 3.9 Unknown to the respondent, the appellant proceeded to incorporate the joint venture company, Strongpak Limited on 23rd June, 2010 and introduced a new shareholder. In a letter to the respondent dated 9'.h July, 2010, the appellant advised that Strongpak had to be " ... registered in order to enable us move forward on applying for bank finance, applying for -JS- investment and also for regularizing the advance payment made to BSW." 3.10 J\ccordin g tu the appellant, it decided ro proceed ,vith the pn~ject un its own while leaving the dour open fur the respondent to come in once it met its obligations as per the letter of 9,1, July, 2010. 3.11 The respondent rejected the reasons advanced by the appellant fur incorporating Slrungpak Lirniled without its knowledge. Further, that the terrns agreed upon in the :V10lJ were nut adhered to. In addition, the respondent took issue with the equity contribution of CS$ l l'.2 .000 requested lo be paid, the arnount being more than the surn paid for rnachinery lo BS\V. According lo the respondent, 35o/o uf equity equated to the surn of S52,000.00. 3.12 The respondent\vrote to the appell,u1t in a letter dated 21 st July, 20 IO seeking tu defer the payrnent uf its 35% shares from 31 "' December, 2010 lo the end uf Feuruary, in the su1n of $ 117, 000.00. 3. 13 On the 4 th of August 2012, a rneeting was called for signing of the shareholders' agreement which the respondent did not -J9- attend. The reason being that its advocates having written the day before seeking to change the payment terms, which terms were not agreeable to the appellant. The appellant proceeded with the project on its own, with Strongpak paying the balance for the machinery equipment in the sum of $791,400.00 to BSW. Indo Zambia Bank was advised accordingly and approved the loan facilities to the appellant in the sums of $750,000.00 and $1,900,000.00. 3.14 The respondent averred that Strongpak Limited incorporated in June 2010 carried on business without the respondent receiving any benefits. 4.0 DECISION OF THE COURT BELOW 4.1 The learned Judge considered the evidence on record in light of the claims. Guided by the cases of Walford & Others v Miles & Another 111 and Star Finance and Property & Another v Nigerian Deposit Insurance Corporation 121, the court below accepted the common law position that generally, a memorandum of understanding is not a legally binding agreement because it lacks the necessary certainty. Therefore, the respondent was not entitled to a declaration of 35% of the -JlO- shares in Strongpak Limited as agreed in the MOU, because the MOU was legally non-binding. 4.2 The court held that the respondent was also not entitled to a share of profits generated by Strongpak Limited, because no equity contribution ,vas provided by it to meet the cost of the project, or the investment or expenditure. 4.3 As regards the claim for damages for breach of confidence, the lo,ver court considered the case of Coco v A. N. Clark (Engineers) Limited 131 and found the claim not to have been proved. This was because the respondent did not demonstrate that the information or the business concept shared Vv;th the appellant \vas fit enough to be classified as confidential in nature so as to invite an obligation of confidence on the part of the appellant not to abuse the information. 4. 4 The claim for damages for breach of fiduciruy duty on the basis that the incorporation of Strongpak Limited was done in bad faith, was upheld by the court below· when it held that the appellant did not specifically traverse the alleged particulars of bad faith averred in the statement of claim. The court found that the allegations and facts relating to bad faith which Mr. Lombe ·Jll· capitalized on in his testimony were materially pleaded. That the appellant seized the opportunity to incorporate Strongpak Limited to the exclusion of the respondent based on the respondent's blue print. 4.5 The learned Judge noted that the duty to negotiate in good faith was not a matter of choice but la\v and must be implied herein as per the caution of the court in Walford v Miles 111 that: "Every party to negotiations is entitled to pursue his (or her) own interest so long as he avoids making misrepresentations." 4.6 The court belo,v a\varded damages to the respondent to be assessed by the Registrar. 5.0 GROUNDS OF APPEAL 5.1 The appellant being dissatisfied with the decision of the court belo,v, has advanced the following grounds of appeal: 1) The court below erred in law and fact when it determined that the respondent ls entitled to damages for breach of duty to negotiate in good faith, because Zambian law follows English law which does not recognize a duty to negotiate in good faith; 2) The learned trial Judge erred in law by finding that the appellant was not negotiating in good faith when it was the respondent that was not negotiating in good faith; and -J12- 31 The court below erred in law and fact by granting costs when the respondent was unsuccessful in their claims. 6.0 APPELLANT'S HEADS OF ARGUMENTS 6.1 The appellant filed heads of argument dated 30th May, 2022. In respect to ground one, it was contended that the duty to negotiate in good faith, is a civil la\V, and not a common law concept for which reason there is no duty to negotiate in good faith under Zambian law. 6.2 It was submitted that it is trite that Zambia follows English Law, which is Common Law as per section 2 of the English Law (Extent of Application) Act Chapter 11 of the Laws of Zambia, where there are no corresponding Zambian laws. That there is no provision under Zambian law for us to follow Civil Law. 6.3 It ,vas further submitted that there is no general rule in common la\V that requires parties to negotiate in good faith. English Courts do not recognise such an obligation for the reason that such a concept is too uncertain to be enforced. The works of the learned author, Ewan McKendrick, 2003. Contract Law: -J13- Text, Cases and Materials, was cited ,vhere the author states that: "While English contract law is influenced by notions of good faith, it does not recognize the existence of a doctrine of good faith. In this respect, English law stands out from many other legal systems in the world." 6.4 The appe11ant further referred to the authors of Chitty on Contracts. 2~h Edition. Volume 1 paragraphs 1-010 and 1- 011 who state that in English contract law, " ... good faith is in principle irrelevant . ... The position of English Law also differs from that taken by other common law jurisdictions, in which doctrines of good faith or conversely, unconscionable conduct, have been construed." 6.5 The appellant further cited the case of Walford & Others v Miles & Another 111 where Lord Ackner stated as follows: "How can a court be expected to decide whether, subjectively, a proper reason existed for the termination of negotiations? The answer suggested depends upon whether the negotiations have been determined 'in good faith'. However, the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations_ Each party to the negotiations is entitled to pursue his (or her} own interest, so long as he avoids making misrepresentations. To advance that interest he must -J14- be entitled, if he thinks ft appropriate, to threaten to withdraw from further negotiations or to withdraw in fact in the hope that the opposite party may seek to reopen the negotiations by offering him improved terms. Mr. Naughton, of course, accepts that the agreement upon which he relies does not contain a duty to complete the negotiations. But that still leaves the vital question; how is a vendor ever to know that he is entitled to withdraw from further negotiations? How is the court to police such an 'agreement'? A duty to negotiate in good faith is as unworkable in practice as it is inherently inconsistent with the position of a negotiating party. It is here that the uncertainty lies. In my judgment, while negotiations are in existence either party is entitled to withdraw from these negotiations, at any time and for any reason. There can be thus no obligation to continue to negotiate until there is a 'proper reason' to withdraw. Accordingly, a bare agreement to negotiate has no legal content." 6_6 The appellant submits that in English law, there is no concept of a duty to negotiate in good faith, therefore the learned Judge in the court below erred by awarding the respondent damages for breach of duty to negotiate in good faith. 6. 7 In this regard, the appellant contended that the court below erroneously relied on the submissions of the respondent in relation to the case of Attorney General of Hong Kong v Humphreys Estate Limited !4! which authority does not refer to the concept of a duty to carry out negotiations in good faith -JlS- because there is no reference to the quotes stated at page 29 line 5 to 3 of page 30 of the record of appeal. That the respondent's submission were not an accurate summary of the above case. 6.8 It was further submitted that the court below misapplied the law when it stated that "The duty to negotiate in good faith was not a matter of choice, but law, and the same must be implied in this case'', as there is no such statement in the case of Attorney General of Hong Kong 141• That the ratio decidendi in that case is that an incomplete agreement is not legally binding and a party can withdraw from it even if the counterparty has altered its position to its detriment. Further that the case dealt with the issue of estoppel. 6. 9 The appellant further contended that there was no claim by the respondent for damages for breach of duty to negotiate in good faith, nor one for misrepresentation in the pleadings. 6.10 In addition, the case of Fonderie Officine Meccaniche Tocconi Spa v Henirich Wagner Sinto Maschinen Fabrik GMBH (HWS) 151 , cited by the respondent is a German decision. Germany is a civil la,v country with a different legal system. -J16- That the court below misapprehended the cases and relied on a civil law principle not permitted by the English Law Extent of Application Act. 6.11 In ground hvo, it \'las contended that it is in fact the respondent that was not negotiating in good faith because it delayed in signing the MOU; objected to a clause in the MOU being reflected in the shareholders' agreement not to interfere in day to-day operations of the company; wanted to depart from the clause on the number of directors each party would nominate. Further, while in Austria, Mr. Lombe did not meet BSW leaving only Mr. Kumar to meet BSW; proposed a period of one year to redeem and buy back shares subject to a further extension of six months contrary to what was agreed earlier and sought to defer payment of shares from 31 51 December, 2010 to end of February, 2011. 6.12 It was further contended that the lower court erroneously determined that the appellant introduced a 'stranger' to the MOU because Mr. Palkash was in fact, a shareholder of the appellant. That the only reason for putting Mr. Palkash as the holder of 1 % of the joint venture company was because -J17- company law in Zambia requires every company to have more than one shareholder. Mr. Palkash was supposed to transfer the 1 % shares to the respondent once it paid its portion of the equity. We were urged to find that it was the appellant that was not negotiating in good faith. 6.13 The appellant argues in ground three that it is trite law·, that costs are granted in the discretion of the court and follov,r the event. That a successful party should not be ordered to pay the unsuccessful party the costs. That the respondent failed in all its claims and was thus the losing party and that an order for costs ought to have been made in favour of the appellant. 6.14 The cases of Reynolds Chanda Bowa v Lusaka Stock Exchange Limited & Others 161 and J. K. Rambai Patel v Mukesh Kumar Patel 171 were cited as authority that the losing party must bear the costs of the other party and that the successful party will not normally be deprived of his costs unless there is something in the nature of the claim or in the conduct of the party which makes it improper for him to be granted the costs. We were also referred to the following cases on the discretion of the court in awarding costs, Collelt v Van -J18- Zyl Bros Ltd 181 Ward v Jamesl9l, Zambia Tourism Agency v Charity Chanda Lumpa 1101 and YB and F Transport Limited v Supersonic Motors Limited 1111 6.15 The appellant prayed that the grounds of appeal be upheld and that it be awarded the costs in the court below and of this appeal. 7.0 ARGUMENTS BY THE RESPONDENT 7.1 The respondent filed heads of argument on 10th August, 2022. In ground one, the respondent contends that the appellant's summary of the facts in the Walford case do not reflect that there were in fact two claims for damages which were made by the plaintiffs therein and which the House of Lords was called upon to determine. 7.2 It was submitted that in the said case, the defendants were found liable for selling their business to a third party after agreeing ,vith the plaintiffs not to deal with any third party. The plamtiff succeeded after it was found that the defendants had falsely represented that they were no longer in discussion vvith any other potential purchaser ,vhen in fact they were. The -J19- plaintiffs had incurred expenditure 1n reliance on that misrepresentation and were awarded damages. 7.3 However, on the claim for lost profit on the transaction, the House of Lords found that there was no binding lockout agreement on the facts, and that even if there had been, there were no grounds to imply such an obligation. For that reason, the second claim was dismissed, the court holding that: "as a matter of principle, an agreement to negotiate in good faith was not generally enforceable under English law as being unworkable in practice as it is inherently inconsistent with the position of a negotiating party. It is here that the uncertainty lies." 7.4 It was submitted that similar to this case, the court below held that the MOU was non-binding and dismissed the claim for lost profits arising from the company incorporated by the appellant to the exclusion of the respondent while the parties had ongoing discussions relating to the terms of the shareholders' agreement. 7.5 The lower court awarded the respondent damages on the basis that the appellant's actions were fundamentally on account of bad faith and awarded damages for the losses incurred, which -J20- the court stated are also referred to as damages for breach of duty to negotiate in good faith. That as in the Walford case, the respondent herein \l\las a,l\larded daniages for the losses it incurred due to the appellant cautiously frustrating the MOU in bad faith. 7.6 The respondent further submitted that the court below is mandated under section 13 of the High Court Act Chapter 27 of the Laws of Zambia to administer law and equity in its duty in the administration of justice. That even though the court referred to the award as breach of duty to negotiate in good faith, the mere reference to it as such does not oust the fairness which the court ,vas called upon to administer so that as far as possible, all matters in controversy between the parties may be completely and finally determined. 7. 7 The respondent went on to refer to the learned author Lord J Steyn's Book entitled Contract Law: Fulfilling the Reasonable Expectation of Honest Men 1997 113 LQR 433 on the concept of good faith. In discussing the house of Lord's decision in Walford v Miles the author expressed the hope that the -J21- concept of good faith ,vould not be rejected out when the issue • arose in future . 7.8 The respondent cited the cases of Abu Dhabi National Tanker Co. v Product Star Shipping Limited 112l and Braganza v BP Shipping Limited 1131 as recent English cases that show' a shift towards acceptance of the duty to negotiate in good faith. The English Court of Appeal's decision in Petromec Inc v. Petroleo Brasileiro SA Petrobas 119i was drawn to our attention in ,vhich the Walford case ,vas distinguished in that there ,vas no concluded contract behveen the parties since all negotiations were subject to contract. It was submitted that based on the misleading actions of the appellant in the pursuit of its own interest ,vhich led to a conscious frustration of the MOU, there ,vas liability that ensued which caused the respondent to suffer losses, and the said liability was actionable in law and needed to be atoned for in damages. That the principle to negotiate in good faith has been implied in a number of English cases. 7.9 In ground two, the respondent maintained that the court below \Vas on firm ground to hold that the respondent was entitled to drunages in respect of losses caused to it as a result of the •J22· appellant frustrating the MOU 1n bad faith. The respondent • clearly pleaded bad faith on the part of the appellant in negotiations with the respondent and called evidence to prove the bad faith. That the appellant neither traversed the allegations of bad faith nor called any evidence to support the alleged bad faith against the respondent. 7.10 It was argued that the learned Judge did consider the issue of damages for breach of fiduciary duty raised by the respondent on the basis that the incorporation of Strongpak Limited was made in bad faith. The court below restated the particulars of bad faith as pleaded in the respondent's statement of claim and noted that the appellant, in its amended defence did not specifically traverse the alleged particulars of bad faith. 7 .11 The court below· further stated the acts of bad faith on the part of the appellant as including the absence of notification for the incorporation of Strongpak Limited while posturing to the respondent that the incorporation was in furtherance of the joint venture when in fact not. That the reasons advanced in the letter by the appellant dated 9Lh July, 2010 purporting to pacify -J23- the exclusion of the respondent was not valid but pretentious • and void uf good faith. 7_12 The alienation of the respondent in the shareholding structure in Strongpak Limited and the introduction of a third party and stranger to the MOU without a full and frank disclosure were said tu be exam pies of bad faith on the part of the appellant. 7 .13 It \Vas contended that the appellant is raising ne\v issues not pleaded by arguing that the respondent is the one that was not negotiating in good faith. That this was not raised in the court below_ Therefore, the appellant is not entitled to raise issues on appeal that were never raised in the court below as espoused in the cases of Wilheim Roman Buchman v Attorney General 1141_ Antonio Ventriglia, Manuela Ventriglia and Southern African Trade and Development Bank 1201 and Mususo Kalenga Building Limited, Winnie Kalenga v Money Lenders Enterprises 1211. 7. 14 Lastly, ,vith respect to ground three, the respondent submitted that the court below \Vas on firm ground to a\vard the respondent costs, in its discretion, as it \Vas the successful party in the court below. In terms of Order 62/3/5 of the -J24- Rules of the Supreme Court of England, 1999 Edition, a • defendant can only be awarded a portion of costs \Vhere they had substantially succeeded in rebutting the serious charge against them. In this case, the appellant failed to rebut the allegation of bad faith against them ·which were resolved in the respondent's favour. The respondent as authority referred to the case of J. K. Rambai Patel v Mukesh Kumar Patel 171 (supra) where the court guided that: " ... costs are in the discretion of the court but there are certain guidelines which we must follow in exercising that discretion. A successful party will not normally be deprived of his costs unless there is so1nething in the nature of the claim or tn the conduct of the party which makes it improper for him to be granted the costs. " 7. 15 It \Vas submitted that even if the appellant successfully rebutted the other claims, there ·was something in the nature of the appellant's conduct which makes it improper for it to have been granted costs. This is evident in the way the court below referred to the actions of the appellant as being disingenuous in incorporating a company ,vithout the knowledge of the respondent. That by the appellant's own unconscionable -J25- conduct, it ,vas disentitled to be awarded costs in the claims against it which it successfully rebutted. 8.0 APPELLANT'S ARGUMENTS IN REPLY 8.1 The appellant filed arguments in reply dated 20L11 August, 2022. In response to lhe submission by the respondent on ground one, the appellant noted that the respondent admitted that the House of Lords has stated that English law does not recognize a duty to negotiate in good faith and that the concept of a duty to negotiate in good faith is inherently repugnant to the adversarial position of the parties when involved m negotiations. 8.2 As regards the Walford case, the appellant maintained that the case clearly establishes that there is no duty to negotiate in good faith. That the interpretation the court bclo,v placed on the case of Attorney General of Hong Kong is erroneous and perverse as it made findings on a misapprehension of facts. We were urged to reverse the findings on the authority of the case of Attorney General v Marcus Kampumba Achiume (tSJ because the court below ordered a civil la,v remedy not applicable in -J26- Zambia and English Law. The said finding was said to be perverse. 8.3 As regards the reliance on section 13 of the High Court Act, it 'I. Vas submitted that the provision only permits legal or equitable claims or defences under common law and not civil law. The appellant further denied frustrating the MOU arguing that it was in fact trying to keep the joint venture on the road map. 8.4 As regards the cases of Abhu Dhabi National Tanker Co. and Braganza cited by the appellant, it was submitted that in that case the court dealt \\.'1th an already enforceable contract where negotiations were completed, unlike in the present case. The appellant maintained that English courts still do not recognize a duty to negotiate in good faith_ As authority, the cases of Barbudev v. Eurocom Cable Managnent Bulgaria 1211 and Dhanani v Crasnianski 1221 were cited. 8_5 In ground two, the appellant insisted that the findings relied upon by the respondent were not only perverse but also an unbalanced assessment of the evidence before the lower court. The appellant denied the allegations of bad faith found by the court below as unproven and reiterated its earlier submissions •J27- in detailing how the ,Judge fell in error. In a nutshell the • appellant contended that the respondent was, by his conduct the party acting in bad faith. 8.6 Lastly, with respect to ground three, the appellant maintained that the respondent did not succeed on any of its claims as set out in the amended statement of claim and costs should not have been awarded to it. 9.0 DECISION OF THE COURT Y. l We have considered the appeal, the authorities cited and arguments advanced by the learned Advocates for parties. The issues raised for determination are as follows: (i) Whether the claims for damages for breach of duty to negotiate in good faith is tenable/sustainable under Zambian Laws. (ii) Whether there is duty imposed by law to negotiate in good faith. (iii) Whether the court below property exercised its discretion by granting costs to the respondent in the court below. Y.2 It is not in dispute that the parties engaged in negotiations and executed a MOU in February 2010. The terms being that a joint venture company would be incorporated with shareholding ration of 65/35% to the appellant and respondent respectively. -J28- (Contributions for the purchase of the machinery were to be • deposited into the joint venture company's bank account. A shareholders' agreement to be drawn up in due course. 9.3 It is further not in issue that the respondent incorporated Strongpak Limited Ooint venture) on 231 tl June 2010 with itself and another person. This new shareholder was indicated, to the exclusion of the respondent. We had earlier given a detailed background and the parties positions leading to the suit and wiII not rehash. 9.4 The issue to be determined under grounds one and two is whether parties engaged in negotiations owe each other a duty to negotiate in good faith. Or simply put whether this relief is tenable or available in law. The lower court awarded damages against the appellant in respect of losses caused to the respondent as a result of the appellant frustrating the MOU in bad faith, which the learned trial Judge alternatively referred to as damages for breach of duty to negotiate in good faith. 9.5 According to the learned authors of Chitty on contract (Voll) General Principles Sweet & Maxwell 13th Edition, in civil law systems, and most legal systems outside the common law -J29- worlds, "the law of obligation recognzzes and enforces an • overriding principle that in making and carrying out contracts parties should act in good faith principle of fair open dealing. English law has characteri.stically, com,nitted itself to no such overriding principle .... " 9.6 Good faith in other common law systems has been stated to be a matter of controversy to what extent obligations of good faith are to be found in contractual relationships. The United States of America and Australia are quite open to the use of good faith, holding that an agreement to negotiate in good faith may be contractually enforceable. Under Canadian and English Laws there is no duty to negotiate in good faith. Is this the position in our jurisdiction? 9.7 The appellant has taken the position that no such duty to negotiate in good faith exists in common law jurisdictions because courts therein consider such a concept as being too uncertain to be enforced. On the other hand, the respondent to a certain extent has conceded that no such duty to negotiate in good faith exists but contends that courts will imply a duty of -J30- good faith where there is an injustice in the conduct of a party to negotiations. 9 .8 The parties referred to a number of authorities particularly the cases Walford v Miles and Attorney General of Hongkong v Humphreys Estate Limited (supra}. The appellant contends that the court below erroneously relied upon the said cases particularly the holding in the latter case that a party who breaks off contract negotiations in bad faith is liable for the loses caused to the other party. The Appellant strongly contends that the above ·words were not stated in the Attorney General case. We have read the case of Attorney General of Hongkong vs. Humphreys Estate Limited 1341. A summary of the facts of the case is as follows, the Hong Kong Government reached an agreement in principle with Humphreys Estate, a developer over the exchange of land and building. Several steps were taken, and money expended by the government on the basis of the transaction. Subsequently Humphreys Estate developer withdrew from the negotiations. The case dealt with estoppel by conduct which the Hong Kong government contended that parties were estopped from giving effect to the -J31- agreement in principle. The judiciary committee of the Privy Council held that the developer ,vas entitled to withdraw. That Hong Kong government had to go further than shov.11ng that they acted to its detriment and to the defendant's knowledge. It had to show that Humphrey's estate created or encouraged a belief that it would not withdraw and that the government relied on that belief. In the above case, the agreement was subject to contract though payment ,vas made. Communications between the parties made it clear that each party proceeds on the basis that it was free to back out of the transaction. 9.9 We hold the view that the court below erroneously relied upon the A. G of Hong Kong case which is inapplicable as it dealt estoppel. Nowhere did the privy Council hold as stated by the court below. 9.10 As regards the German case of Fonderie Officine Meccaniche Tocconi Spaa cited by the respondent, the decision is relevant and applicable to civil la\v and for that reason is equally inapplicable. 9.11 In respect of the Walford v Miles case cited by the appellant, the respondent contends that the summary of the facts do not -J32- reflect that there were in fact two claims for damages made by • the plaintiffs. \Ve have read the House of Lords decision in the Walford case. The brief facts being that the defendants and claimant entered into negotiations to sell/buy the business property. The defendant agreed that they would exclusively negotiate i.e. (a 'lock out' agreement) ·with the claimant if a comfort letter from the bank was obtained. This letter was secured by the claimant; however the defendants sold the property to a third party. The claimant sued for breach of the lock out agreement. The issues were whether there was an implied term to negotiate with the claimant or whether the lock out agreement was unenforceable for uncertainty. The House of Lords held in favour of the defendants holding that the lock out agreement was too uncertain and the implied term was inconsistent ·with the party's adversarial position. That a contractual clause to agree or to negotiate in good faith, would not be enforceable. 9.12 It is an authority that an agreement to negotiate, or agreement to agree in good faith is unenforceable in English law. \Vith respect to whether there is a duty to negotiate, the House of -JB- Lords held that an agreement to negotiate in good faith is not recognized as an enforceable conlracl. The court referred to its earlier decision in Courtney & Fairbairn Ltd v Tolaini Bros (Hotels) Ltd 1161 at 720, where Lord Denning l'v1R said: 'If the law does not recognize a contract to enter into a contract (when there is a fundamental term yet to be agreed} it seems to me it cannot recognize a contract to negotiate. The reason is because it is too uncertain to have any binding force ... It seems to me that a contract to negotiate, like a contract to enter into a contract, is not a contract known to the law ... I think we must apply the general principle that when there is a fundamental matter left undecided and to be the subject of negotiation, there is no contract.' l). I J The court in the Walford case wenl on to hold that "While accepting that an agreement to agree is not an enforceable contract, the United States Court of Appeals (in United States Court of Appeals, Third Circuit in Channel Home Centers Division of Grace Retail Corp v Grossman ( 1986} 795 F 2d 291} appears to have proceeded on the basis that an agreement to negotiate in good faith is synonymous with an agreement to use best endeavors and, as the latter ts enforceable, so is the former. This appears to me, with respect, to be an unsustainable proposition. The reason why an agreement to negotiate, like an agreement to agree, is unenforceable is simply because it lacks the necessary certainty. The same does not apply to an agreement to use best endeavors. This uncertainty is demonstrated in the instant case by the provision which it is said has to be implied in the -J34 agreement for the determinatiou of the negotiations. How can a court be expected to decide whether, subjectively, a proper reason existed for the termination of negotiations? The answer suggested depends upon whether the negotiations have been determined 'in good faith'. However, the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when tnvolved in negotiations. Each party to the negotiations is entitled to pursue his (or her) own interest, so long as he avoids making misrepresentations. To advance that interest he must be entitled, if he thinks it appropriate, to threaten to withdraw from further negotiations or to withdraw in fact in the hope that the opposite party may seek to reopen the negotiations by offering him improved terms. Mr. Naughton, of course, accepts that the agreement upon which he relies does not contain a duty to complete the negotiations. But that still leaves the vital question: how is a vendor ever to know that he ts entitled to withdraw from further negotiations? How is the court to police such an 'agreement'? A duty to negotiate in good faith is as unworkable in practice as it is inherently inconsistent with the position of a negotiating party. It is here that the uncertainty lies. In my judgment, while negotiations are in existence either party is entitled to withdraw from these negotiations, at any time and for any reason. There can be thus no obligation to continue to negotiate until there is a 'proper reason' to withdraw. Accordingly, a bare agreement to negotiate has no legal content . ... " 9. 14 Therefore, 11 can be concluded that 1n com1non law jurisdictions, there is no duty to negotiate in good fait.h as it. is inherently repugnant to the adversarial position of the parties ·J35- when involved in negotiations or inconsistent with the position of a negotiating party. However, there is an obligation on each party to the negotiations that in pursuing their own interests, they do so ,vithout making misrepresentations. There being no duty to negotiate in good faith, let alone a duty to negotiate, it follows that a party cannot be awarded damages for breach of the duty to negotiate in good faith. 9.15 As regards agreements to negotiate in good faith, it has been historically regarded by English Courts (common law jurisdiction) that they are unenforceable, on grounds of uncertainty. See the leading judgment on obligations to negotiate in good faith Walford v Miles (supra). As a matter of principle, an agreement to negotiate in good faith is generally unenforceable as it is inherently inconsistent ,vith the position of a negotiating party. 9.16 There are a few exceptional English decisions in which an express obligation in an agreement bet,veen the parties to negotiate in good faith \l\laS held to be enforceable. In the case of Petronec v Petroloe 1171 ( I Lloyds Report) certain conditions have to be fulfilled in order for it to be enforceable. In casu there -J36- I • was no express obligation to negotiate in good faith as reflected in the Cable & Wireless PLC v IBM United Kingdom Limited 11s1. The contract in the above case included a clause requiring the parties to attempt in good faith to resolve disputes in good faith. 9.17 It appears that where an obligation to use good faith to negotiate does not sufficiently prescribe the parameters and obligations of negotiation, the courts have concluded this type of negotiations unenforceable. 9.18 In terms of section 2 of the English Law (Extent of Application) Act Chapter 11 of the Laws of Zambia, Zambia is a common law' jurisdiction and thus is bound by the common law· principle that a duty to negotiate in good faith is as unworkable in practice as it is inherently inconsistent with the position of a negotiating party. We are of the view and hold that our laws or jurisdiction do not recognize a duty to negotiate in good faith. Therefore, the appellant cannot be entitled to damages for breach to duty to negotiate in good faith_ The lower court erred in la\V and fact by holding that the appellant was entitled to the said damages_ , • -J37- 9.19 In ground two, the court below awarded damages to the respondent on the basis that the appellant was not negotiating in good faith. That the appellant frustrated the MOU in bad faith by breaching the duty to negotiate in good faith and that the appellant did not challenge the allegations or particulars of bad faith made in the statement of claim as amended. The court found that the incorporation of Strongpak Limited and obtaining a loan from Indo Zambia Bank without the kno\vledge of the respondent \Vhile urging the respondent to meet its equity contribution of 35% in order to participate in the project were done in bad faith. 9.20 Having earlier held that a claim for damages for breach of duty to negotiate in good faith is untenable in our jurisdiction, we hold the view that the court below erred in law and fact by awarding damages on the basis that the appellant frustrated the MOU in bad faith by breaching the duty to negotiate in good faith. In any event, notwithstanding our position above, a perusal of the pleadings shows the conduct of the respondent by going back and forth on clauses in the MOU and shifting positions on when it can settle its equity thereby frustrating the -J38- • • appellant. Evidence was led by the appellant to that effect ,'IThich ,I\Tas not challenged. Nonetheless, the claim of negotiating in bad faith is untenable and unenforceable. There is no duty imposed by lav. on parties to negotiate in good faith. 9.21 In ground three, the appellant contends that the court belo,v should not have awarded the respondent costs in its discretion having only succeeded in one claim ,vhich was disputed. It is trite that costs are in the discretion of the court. That generally costs follow the event and a successful party should not normally be deprived of costs unless on account of wrong conduct on their part in the action. In the view ,I\Te have taken, we will award costs to the appellant in the court below and on appeal. 9.22 CONCLUSION 9.23 We reiterate that there is no recognition of the doctrine of good faith under English la,I\T and in Zambia that requires parties to negotiate in good faith because such a concept is too uncertain to be enforced. The doctrine or concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties involved in negotiations. ·B9· • • 9.24 For the forgoing reasons, we hereby set aside the judgment of the court below· and uphold the appeal, Costs to the appellant to be taxed in default of agreement, F. M. Chishimba COURT OF APPEAL JUDGE r D. L. Y/ Sich· ga, SC COURT OF APP L JUDGE ~ pe-Phir= COURT OF APPEAL JUDGE