Tiye Limited v Kashiwa Mwaba Bulaya (APPEAL NO. 013 OF 2018) [2019] ZMCA 419 (8 August 2019)

IN THE COURT OF APPEAL OF ZAMBIA HOLDEN AT LUSAKA (Civil Jurisdiction) APPEAL NQ 013 OF 2018 BETWEEN : TIYE LIMITED AND . -- - U 8 AUb 2019 - - h ELLANT KASHIWA MWABA BULAYA 1 ST RESPONDENT ZWERE INTERNATIONAL LIMITED 2 ND RESPONDENT CORAM : Chashi, Lengalenga and Siavwapa, JJA On 2ih June, 2018 and 8th August, 2019. For the Appellant: Mr. M. Ndhlovu - Messrs MRN Legal Practitioners For the 1st and 2nd Respondents: Mr. M. Mulele - Messrs G. M. Legal Practitioners JUDGMENT LENGALENGA, JA delivered the Judgment of the Court. Cases referred to: 1. NATIONAL CARRIERS LTD v PANALPINA {NORTHERN) LTD {1981) AC 675 2. DAVIS CONTRACTORS LTD v FAREHAM UDC {1956) AC 696 J1 3. ATTORNEY GENERAL v ABOUBACAR TALL & ANOR - SCZ JUDGMENT NQ 5 OF 1995 4. ISAAC TANTAMENI CHALi v LISEU MWALA (1997) ZR 22 5. SAM AMOS MUMBA v ZAMBIA FISHERIES AND FISH MARKETING CORPORATION LTD (1980) ZR 135 (HC) 6. FIBROSA SPOLKA AKCYJNA v FAIRBAIRN LAWSON COMBE BARBOUR LTD (1942) 2 ALL ER 122 Legislation referred to: 1. THE LAW REFORM (FRUSTRATED CONTRACTS) ACT, CHAPTER 73 OF THE LAWS OF ZAMBIA 2. CONVEYANCING AND LAW OF PROPERTY ACT OF 1881 Other works referred to: 1. HALSBURY'S LAWS OF ENGLAND, Fourth Edition, para 441 2. TREITEL ON THE LAW OF CONTRACT, Thirteenth Edition, para 219-044 3. CHITTY ON CONTRACTS, Twenty-Ninth Edition, para 23-069 1.0 INTRODUCTION 1.1 This is an appeal against the judgment of the High Court delivered on 10th July, 2017 by Honourable Justice S. K. Newa. 2.0 BACKGROUND 2.1 The background to this appeal is that the Appellant herein commenced an action by way of originating summons supported by an affidavit in the High Court on 11th July, 2012, against the J2 Respondents. Later on the Court below directed that the trial proceed by way of pleadings and consequently pleadings were filed into court. 2.2 The Appellant in the Statement of Claim, claimed the following : As against the 1st Respondent: (i) A declaration that as the 1st Respondent (Defendant) signed a Contract of Sale dated 11th January, 2006 and Assignment dated 3 rd February, 2006 for the sale to the Appellant of Stand Number 4634 Lusaka and received the full purchase price thereof, the Appellant lawfully obtained Certificate of Title Number 125164 of Stand Number 4634 Lusaka and is the rightful registered owner of the said property. (ii) Recovery of the sum of ZMK90 000 000 as balance of the debt due from the 1st Respondent after deduction of ZMK400 000 000 as purchase price of Stand Number 4634 from the figure of K490 000 000. (iii) Loss of rental income in respect of the said Stand Number 4634, Lusaka. (iv) Interest on (i) and (ii) above As against the 2nd Respondent: (v) An order of possession of Stand Number 4634, Lusaka. (vi) Costs. 2.3 The facts that emerged from the evidence were that the 1st J3 Respondent and PWl, the director and shareholder in the Appellant company were friends or acquaintances. At that time, the 1st Respondent was facing criminal prosecution and he was experiencing financial problems and he borrowed K200 000.00 cash from the Appellant, to cover his legal expenses and building materials. 2.4 However, due to the difficulties that the 1st Respondent experienced in paying back the debt, he eventually entered into a Contract of Sale in respect of Stand NQ 4634, Lusaka with the Appellant. Consequently, an Assignment was executed on 11th February, 2006 for the transfer of the said property to the Appellant. 2.5 Prior to that, on 5t h February, 2006, the Appellant had entered into a lease agreement with the 2nd Respondent in relation to the said Stand NQ 4634 Lusaka. 2.6 However, before the Assignment could be registered, the 1st Respondent's advocates were informed by way of letter dated 8th February, 2006 from the Task Force on Corruption that was prosecuting the 1st Respondent to advise their client not to dispose of the property as it was the subject of criminal proceedings. 2.7 The Contract of Sale and Assignment were subsequently withdrawn to avoid being in contempt of court. 2.8 In the Court below, it was the testimony of DW3, Chisha Nkatya Kasenga Mwaba, the Finance Director of Anbul Investments and Mwasha Medical Centre Limited that the 1st Respondent had offered Stand NQ 4634 to Mwasha Medical Centre as his contribution as a shareholder, and it was agreed that once it was valued, the amount would be a debenture loan to the 1st Respondent by Mwasha Medical Centre Limited. 2.9 On 22nd February, 2007, after the 1st Respondent was convicted by the Subordinate Court, it ordered the forfeiture of Stand NQ 4634, Lusaka together with other properties owned by the 1st Respondent to the State. 2.10 However, that notwithstanding, the Appellant proceeded with the conveyancing formalities of the subject property and it was issued with Certificate of Title NQ 125164. Consequently, the Appellant's advocates by way of a letter dated 10th October, 2011, advised the 2nd Respondent that the Appellant was the registered owner of Stand NQ 4634, Lusaka. 3.0 FINDINGS BY THE COURT BELOW JS 3.1 The Court below found that according to the evidence, the 1st Respondent borrowed money and building material from the Appellant which were converted into the purchase price for Stand NQ 4634, Lusaka. She noted that the amounts borrowed total around K200 000.00 and she could only speculate that for the purchase price to be stated as K400 000.00, interest could have been added. 4.0 DECISION BY THE COURT BELOW 4.1 The High Court later upheld both the conviction and order of forfeiture of the subject property to the State. According to the evidence on record, the 1st Respondent has appealed to the Supreme Court against the forfeiture order and the appeal is pending. 4.2 The Court below accepted that whilst the parties had signed the Contract of Sale and the Assignment when the order prohibiting the 1st Respondent from selling the property, and forfeiting it to the State was made, the contract was frustrated by supervening factors. 4.3 Consequently, the learned trial judge declined to grant a declaratory order that the Appellant is the owner of Stand NQ 4634, Lusaka. She thus found that the Appellant is equally not entitled to an order of J6 possession of the said property and rentals therefrom. She dismissed the action with costs for the Respondents, to be taxed in default of agreement. 5.0 GROUNDS OF APPEAL 5.1 Dissatisfied with Judge S. K. Newa's judgment the Appellant appealed to this Court and advanced the following four grounds of appeal. 1. The learned judge erred by not adjudicating on all matters in controversy between the parties. 2. The learned judge misdirected herself when she adjudged that the alleged forfeiture order made after the Contract of Sale and Assignment were already signed by the Appellant and 1st Respondent constituted a supervening the Contract of Sale and that factor Assignment. frustrated 3. The learned judge erred in law by making a decision on a matter in favour of the State which was not a party to the case before her. 4. The learned judge erred in law by failing to recognize the Appellant's right as the owner of the property subject to a successful challenge by the State to which it was purportedly forfeited. 6.0 APPELLANT'S ARGUMENTS IN SUPPORT OF THE APPEAL 6.1 In arguing ground one that the learned judge erred by not adjudicating on all matters in controversy between the parties, Mr. M. Ndhlovu the Appellant's Counsel referred this Court to sections 2 and J7 3 of the Law Reform (Frustrated Contracts) Act, Chapter 73 of the Laws of Zambia. He submitted that if this Court should be of the view that the Contract of Sale dated 11th January, 2006 between the 1st Respondent and the Appellant with respect to Stand 4634 was discharged by frustration as found by the learned trial judge, the Appellant ought to be entitled to recover the purchase price from the 1st Respondent in accordance with section 2 of the Act. 6.2 With respect to the lease agreement entered into on 5th February, 2006 between the Appellant as landlord and Mwasha Medical Centre as tenant, he submitted that according to the testimony by the Appellant's witness, PWl, Sanmukh Ramanlal Patel, the Appellant had not received any rental payments since injunctions were filed. The said property was subsequently leased to the 2nd Respondent who was occupying it at the time of trial of this matter and Appellant's Counsel further submitted that the 1st Respondent has been the beneficiary of the rentals despite having received the purchase price for the said property from the Appellant. J8 6.3 It is the Appellant's contention through Counsel that the Court below ought to have ordered the 1st Respondent to reimburse the rentals based on sections 2 and 3 of the Act. 6.4 He finally submitted with regard to ground one, that in the event that this Court finds that the contract was frustrated as found by the Court below, the Appellant is entitled to reimbursement of all costs incurred in the conveyancing process, property transfer tax, registration and legal fees. 6.5 In support of ground two Mr. M. Ndhlovu submitted that the Contract of Sale and Deed of Assignment dated 11th January, 2006 and 3rd February, 2006 respectively were both performed by the parties which culminated in the Appellant obtaining a title deed for the subject property. He further submitted that there was no executory or partially performed contract with outstanding obligations which can be said to have been frustrated between the Appellant and the 1st Respondent. It is therefore the Appellant's contention that the 1st Respondent or any contracting party cannot invoke the doctrine of frustration of contract ex post facto. It was submitted that the said doctrine was wrongly applied by the Court below. J9 6.6 Appellant's Counsel relied on the case of NATIONAL CARRIERS LTD v PANALPINA (NORTHERN) LTD1 where Lord Simon stated that: "Frustration of a contract takes place when there supervenes an event (without default of either party and for which the contract makes no sufficient provision) which so significantly changes the nature (not merely the expense or onourousness) of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in the new circumstances, in such case the law declares both parties to be discharged from further performance." 6.7 The Appellant further relied on the case of DAVIS CONTRACTORS LTD v FAREHAM UDC2 in which the House of Lords observed that: "......... Frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a from which was thing undertaken by the contract ...... it is not this what I promised to do." radically different Mr. M. Ndhlovu submitted that from the authorities cited and the plethora of authorities on this subject, the common denominator is JlO that for a party to claim that a contract has been frustrated, there must be some outstanding obligations that the party seeks to be excused from performing. It is contended that in this regard frustration of the contract cannot be raised ex post facto to invalidate what has already been performed. 6.8 He further submitted that it was argued in the Court below that the alleged forfeiture made by order of the magistrate on 22nd February, 2007, was made after the Appellant had acquired its interest as owner of the property pursuant to the Contract of Sale and Deed of Assignment dated 11th January, 2006 and 3rd February, 2006 respectively. 6.9 Appellant's Counsel drew this Court's attention to pages 29 lines 4 to 9 of the record of appeal where the learned trial judge found as a fact that the 1st Respondent borrowed money and building materials from the Appellant, which were converted into the purchase price of K400 000.00 for the property which the 1st Respondent agreed to. 6.10 It is the Appellant's contention that on the authority of section 7 of the Conveyancing and Law of Property Act of 1881, by signing the Contract of Sale and Deed of Assignment for valuable consideration, Jll the 1st Respondent effectively transferred his interest in the property to the Appellant. 6.11 It is the Appellant's further contention that in the absence of any legal impediment, the Appellant was entitled to take any steps that were necessary to complete the formalities for change of title from the 1st Respondent to its own name. He submitted that the Appellant's witness had testified at the trial that a search conducted at the Lands Registry in 2011 revealed that there was no interest registered by the State against the property except for a mortgage to First Alliance Bank Limited. He further submitted that according to the evidence on record, the Appellant paid off the mortgage. 6.12 In relation to grounds three and four, Appellant's Counsel submitted that Order 14, Rule 1 to 5 of the High Court Rules, Chapter 27 of the Laws of Zambia provides for situations when a party can be joined to an action if such party is considered to have sufficient interest in the subject matter of the case. He submitted that such joinder has to be made before judgment in order for the court to consider that party's interest. To support this position, he relied on the case of ATTORNEY GENERAL v ABOUBACAR TALL & ANOR3 where the J12 High Court joined the Attorney General as a party to the proceedings after the close of the defence case but before the judgment was delivered and the Supreme Court upheld the decision on appeal. 6.13 He contrasted the cited case with the case of ISAAC TANTAMENI CHALi v LISELI MWALA4 where the High Court made a decision providing for a person who was not a party to the action and the Supreme Court reversed the decision and stated that: "According to the rules of practice governing joinder of parties and due to non-joinder of parties the before Respondent the learned trial judge was legally and effectively precluded from considering the interest of non-parties." trial of the action, other than 6.14 Appellant's Counsel submitted that in this regard, if the property has been forfeited to the State, it is only the State which has locus standi to challenge the Appellant's title to the said property. He further submitted that since the State's representative was not before the Court below, the 1st Respondent's argument that the subject property was incapable of being sold as it had been forfeited to the State should not have been entertained. 6.15 He, therefore, prayed that this appeal be allowed with costs. J13 7.0 RESPONDENTS' ARGUMENTS IN OPPOSITION TO THE APPEAL 7.1 Heads of argument were filed on behalf of the 1st and 2nd Respondents and Respondent's Counsel Mr. G. Mulele relied on them. 7.2 In response to ground one, he disputed the ground of appeal and he argued that all matters in controversy between the parties were adequately dealt with by the learned trial judge. He identified the issue in controversy as being whether the Appellant was entitled to the reliefs sought in its Statement of Claim. He submitted that the trial judge in her judgment clearly stated that the Appellant was not entitled to all the reliefs it sought and that, therefore, none of the claims were left unattended. 7.3 With regard to the Appellant's prayer that it recovers the consideration paid to the 1st Respondent as well as the rental payments up to the date of frustration of the contract, he urged this Court not to grant the said reliefs. He submitted that there is no basis upon which to grant the said relief as the same was neither pleaded by the Appellant in its originating process nor requested for J14 as an alternative in its submissions. He further submitted that the Appellant could recover the consideration in a separate action. 7.4 In response to ground two, the Respondent's Counsel denied the assertion by the Appellant that signing the contract and assignment resulted in the Appellant obtaining title to the subject property. 7.5 He submitted that since the Lands Register indicated that the subject property was encumbered by a third party mortgage registered in 2004, it meant that there were still actions to be taken by the 1st Respondent such as liquidating the loan facility and discharging the mortgage. He further submitted that it is common knowledge that consent to assign can only be granted if the property has no encumbrances. 7.6 Mr. Mulele further submitted that according to the contents of the record of appeal, the mortgage was only discharged in 2011, after the 1st Respondent's conviction, without his consent or involvement. 7.7 He drew this Court's attention to the fact that the subject property was restricted as far back as February 2006 when a forfeiture order was issued against the said property. He submitted that since the restriction and forfeiture were ordered before the discharge of the JlS mortgage and conveyancing means that the transaction in the matter was still incomplete. He argued that the restriction and forfeiture of the property by and to the State constituted a supervening event which frustrated the contract of sale between the Appellant and 1st Respondent. 7.8 He therefore submitted that the doctrine of frustration was not applied after the fact by the Court below. To support his argument, Mr. Mulele relied on the HALSBURY'S LAWS OF ENGLAND Fourth Edition. paragraph 441 where the learned authors state that: "Where performance is already impossible at the time of contracting the case is one of initial impossibility or mistake; where impossibility arises after the formation of the contracts there is a case of subsequent frustration. the common element of However, despite impossibility in the above cases, certain types of mistake may invalidate a contract or deprive it of full effect even though there is no impossibility of performance." impossibility or 7.9 He submitted that the learned authors further elaborated on the issue of impossibility of performance of the contract at page 442 by stating that: "Generally a contract which incapable of performance at the time when it is made will be is J16 void ab initio, whereas subsequent impossibility brings a valid contract to an end, generally from the moment of impossibility ................................ . ■■■ ■ ■■■■■■■■■■■■■■■ I ■■■ I I II ■■ 11 ■■■■■■■■■■ II ■■■ I ■■■■ I ■■■■■■■■■■ I ■■■■■■■■■■■■■ The expression "frustration" is now generally used to denote cases of subsequent physical or legal impossibility as well as cases of frustration of the commercial venture." 7.10 Respondents' Counsel drew this Court's attention to TREITEL ON THE LAW OF CONTRACT. Thirteenth Edition. paragraph 219- 044 where they state that: "A contract may be discharged by a supervening prohibition if the prohibition would have made the contract illegal, had it been in force when the contract was made." 7.11 To fortify his argument that the contract was frustrated Mr. Mulele further relied on the case of SAM AMOS MUM BA v ZAMBIA FISHERIES AND FISH MARKETING CORPORATION L TD5 where the High Court held that: "A subsequent change in the law or in the legal position affecting a contract is a well recognised head of frustration. the occurrence of a frustrating event terminates the contract forthwith." At common law, J17 7.12 This Court was further referred to CHITTY ON CONTRACTS. Twenty-Ninth Edition. paragraph 23-069 where . the learned author states that: "At common law frustration does not rescind the contract ab initio; it brings the contract to an end forthwith, without more and automatically, in the sense that it releases both parties from any further performance of the contract. A court does not have the power at common law to allow the contract to continue and to adjust its terms to the new circumstances." 7.13 In view of the authorities cited, Mr. Mulele submitted that the letter from the Task Force on Corruption coupled with the subsequent restriction and order of forfeiture issued by the Magistrate effectively frustrated the contract between the Appellant and 1st Respondent as it affected the core of the contract, that is, the transfer of the property which was expressly forbidden by the court order. 7.14 In concluding his arguments, Respondents' Counsel submitted that as criminal proceedings take precedence over civil proceedings, for this Court to overturn the findings by the Court below with regard to the doctrine of frustration would be tantamount to the Court giving civil proceedings priority over criminal proceedings. 7.15 He, therefore, prayed that ground two fails. 7.16 The Respondents' contention in relation to grounds three and four is that the same are misconceived as the Court below did not make any decision in the State's favour. Respondents' Counsel argued that the learned trial judge simply declined to grant a declaratory order that the Appellant is the legal owner of the subject property on the basis that its contract with the 1st Respondent was frustrated by reason of restriction and subsequent order of forfeiture of the subject property to the State. 7.17 It is further contended that it is unreasonable for the Appellant to claim that the 1st Respondent ought to have joined the State as a party to the proceedings for the purpose of the State to claim ownership of the forfeited property. It was submitted that this is because such an application by the 1st Respondent would have been totally in conflict with the 1st Respondent's pending appeal for an order to set aside the forfeiture order in the Supreme Court. 7.18 Mr. Mulele argued that since the forfeiture order has not been vacated, the subject property cannot be conveyed by the 1st Respondent. He drew this Court's attention to the fact that the J19 Appellant deliberately misled the High Court by way of affidavit wherein it claimed that it delayed to lodge the Deed of Assignment with the Ministry of Lands on account of the mortgage which was registered against the property for about seven (7) years. 7.19 He submitted that the Appellant's conduct of misleading the Court below in order to register the Assignment out of time indicates that it did not approach the Court with clean hands. He further submitted that therefore, it cannot complain about the Court below confirming the forfeiture order. 7.20 In concluding his arguments, Mr. Mulele prayed that the appeal be dismissed with costs for lacking merit based on the preceding authorities cited. 8.0 DECISION OF THIS COURT 8.1 We have considered the grounds of appeal, respective arguments by the parties, authorities cited, evidence on record and the judgment appealed against. 8.2 In ground one the Appellant contends that the learned Judge erred by not adjudicating on all matters in controversy between the parties. We agree with Mr. Ndhlovu that after she found that the contract J20 between the Appellant and the 1st Respondent had been discharged by frustration, she ought to have ordered the 1st Respondent to reimburse the consideration or purchase price in accordance with section 3(1) and (2) of the Law Reform (Frustrated Contracts) Act and based on the principle in the case of FIBROSA SPOLKA AKCYJNA v FAIRBAIRN LAWSON COMBE BARBOUR LTD6 • 8.3 The import of section 3(1) and (2) of the Act is that upon a contract being frustrated and the parties thereto being discharged, all sums paid or payable to any party in pursuance of the contract before the time of discharge shall, in the case of sums so paid, be recoverable from the party as money received by that party for the use of the party by whom the sums were paid, and, in the case of sums so payable, cease to be so payable. 8.4 However, with regard to the 2nd Respondent we find that the Court below was on firm ground not to have ordered the payment of rentals to the Appellant as the consideration had failed having become a subject of criminal proceedings leading to forfeiture. Consequently, the Appellant cannot claim rental payments with J21 respect to said forfeited property until the appeal against the order of forfeiture is finally determined by the Supreme Court. 8.5 Therefore, we find ground one to be meritorious and it succeeds to the extent that the trial judge ought to have ordered the 1st Respondent to reimburse the Appellant the consideration price of K400 000.00. 8.6 We turn to ground two, the gist of which is that the forfeiture order having been made on 22nd February, 2007, one year after the Contract of Sale and Deed of Assignment were executed and the purchase price already paid, it could not retrospectively frustrate the contract between the parties. 8.7 We are of the considered view that a change in the legal position includes the subject of the contract becoming the subject of criminal proceedings that consequently lead to its forfeiture to the State. 8.8 Therefore, we find that even though the forfeiture order was made one year after the execution of the Contract of Sale and Assignment the parties were aware that the subject property was under a legal restriction and could not be the subject of a sale. We find that it was J22 wrong for the Appellant to insist that the property was sold to it, whether or not the State registered it with the Ministry of Lands. 8.9 We find no merit in ground two and we, accordingly, dismiss it. 8.10 With regard to grounds three and four, we find that it is not disputed that the State was not a party to the proceedings and that no application was made to join it to the action. However, we cannot ignore the fact that there are two decisions for forfeiture of the subject property to the State while an appeal against forfeiture is pending before the Supreme Court. 8.11 In the circumstances, we find that the learned judge properly directed herself when she took judicial notice of this fact and found that the forfeiture order is a supervening factor that frustrated the Contract of Sale. 8.12 We find no merit in grounds three and four and we, accordingly, dismiss them. 9.0 CONCLUSION 9.1 The net result is that the appeal only succeeds in ground one and fails in the rest of the grounds. The Appellant having succeeded in \, J23 Court. J. Chashi COURT OF APPEAL JUDGE F. M. Lengalenga .................. j _ .................... . M. J. Siavwapa COURT OF APPEAL JUDGE COURT OF APPEAL JUDGE