Mashonaland Tobacco Company (Pvt) Ltd v Mahem Farms (Pvt) Ltd and Tim Major

### Preamble

1

HH 597-18

HC 12684/16

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MASHONALAND TOBACCO COMPANY (PVT) LTD

versus

MAHEM FARMS (PVT) LTD

and

TIM MAJOR

HIGH COURT OF ZIMBABWE

DUBE J

HARARE, 13 and 14 June 2018 & 3 October 2018

Civil Trial

R.G Zhuwarara, for the plaintiff

D. Drury, for the defendants

DUBE J: The plaintiff’s cause of action arises from a contract farming agreement for provision of crop inputs and financial assistance to the defendants in the sum of $ 575 164.68, for the production of flue cured Virginia tobacco. The defendants were required to deliver the entire crop after harvest to the plaintiff which would in turn recover the value of inputs and monies advanced from the proceeds of the sale. If the tobacco delivered was insufficient to discharge the input debt for the season, the plaintiff was entitled to demand and recover the outstanding debt from the defendant. The plaintiff’s case is that the defendants failed to supply enough tobacco to the plaintiff thereby failing to pay outstanding amounts due to mismanagement of the crop. At the hearing of the matter, the claim against the first defendant was withdrawn for the reason that the company no longer exists. The second defendant will henceforth be referred as the defendant.

The defendant asserts that the plaintiff’s claim has prescribed. On the merits, the defendant denies that crop inputs and finance to the value of $575 164.68 was supplied and delivered for the season and denies indebtedness in the amount claimed. He denies that the agreement was breached by a failure to deliver enough products to acquit advances made to him. Due to no fault of his own he was impeded or denied free and unimpeded access to maintain, develop and harvest the tobacco crop in sufficient quantity and quality by a third party which conduct constitutes a supervening impossibility that made it impossible for him to extinguish his contractual obligations in full after disruption of normal farming activities. He also asserts that the plaintiff delayed in supplying inputs to the defendant resulting in poor yield. He denies that he agreed to acquit the capital claimed and states that he is not able to pay the money outstanding as he is not gainfully employed. The plaintiff refutes that the claim has prescribed.

The court was asked to consider the following issues.

Whether or not the plaintiff’s claim against the defendant had prescribed in terms of the law as at the time of issuance of the summons.

If the answer to 1 above is in the negative, whether or not defendant is indebted to the plaintiff in the sum of $575 164.68 or any other amount, together with interest thereon at 8% per annum calculated from date of summons to date of payment in full.

At the hearing of the matter the court directed that evidence be led on both the special plea and the merits of the matter. The court would render its ruling on prescription in the main judgment. The plaintiff called Christopher Dennis Shepherd as its sole witness. His testimony is as follows. The defendant was contracted to grow tobacco. The parties agreed that defendant would be supplied with $205 934.00 worth of inputs. He would receive financial assistance and inputs to grow the tobacco. After harvest he was expected to deliver the tobacco to the plaintiff which would buy the tobacco, deduct its monies first before remitting the balance to the defendant. There was a system of monitoring the growing of the crop. The plaintiff’s representatives would visit the farm and compile reports. The plaintiff insisted that the defendant should live on the farm as they felt that things were not going according to plan. Initially the crop for the 2010-2011 farming season was very good. The crop deteriorated due to mismanagement. The seed beds were bad and the defendant failed to remove suckers from the tobacco and the crop became uneven.

The defendant failed to supply sufficient tobacco. He owes $575 164.68. Of that amount, $418 820.73 is from the previous year. The loan for the season is $306 249.63. He indicated that he could not make any payments and they gave him time to pay and he promised to advise them when he had sought employment. The understanding of the parties was that there was a debt owing. The defendant acknowledged the debt. He was facing challenges and would pay when he could. When the defendant found employment he did not advise the plaintiff. When the plaintiff discovered that he had sought employment, it asked the defendant for a payment plan. The witness refuted that it is the plaintiff which is to blame for the poor crop because it provided inputs late. The schedule shows that inputs were supplied on time. The defendant was given the tools to do the job. It was the responsibility of the defendant to manage the crop and the risks involved in farming. The plaintiff did not make any undertaking to the defendant against any supervening impossibility or interference with his farming.

The witness conceded under cross examination that timings and the supply of inputs is critical in contract farming and that this results in loss of yield if there is a delay and that the delay factor is adverse. He conceded that there were times when the plaintiff had its own challenges as it could not access money from the banks. He accepted that there was a delay of 2 ½ months between 4th and 15th December when money was advanced. The witness was consistent in his evidence. He maintained his version of events. He was honest and fair and was quick to concede when he was not sure of the correct position.

Timothy John Major testified in his own defence. His testimony is as follows. Inputs to the value of $305 931.00 were supplied. He prepared the cash flow chart which forms part of the agreement. He got payment on 4 October 2010 and did not get anything until 15 November 2010. Tobacco is all about timing. Any incorrect timing can have drastic effects on the crop. A couple of weeks can make a huge different. He was unable to pay his workers during that period because of lack of funds. The workers did not want to work and that affected the crop. If there is no fertiliser there is no growth. If there is no labour you can’t control suckers. He entered into an agreement with a resettled farmer to lease his land. Operations at the farm were disturbed by the owner of the farm and he stopped farming. The plaintiff was informed. He was at the farm most of the time but the farm owner did not allow him to stay on the farm permanently. He was still to deliver 7 200kgs of tobacco. There was an amount owing at the time but the debt had not matured. He finished delivering by 15 July 2011. He has not been in a position to pay back as he is insolvent. He can’t pay. When the letter of demand was written, he did not agree with the claim of $575 464.68. The figure of claimed, includes a debt amounting to $418 820 .73 belonging to Valburn Investments and is not part of what owes under this agreement. The witness testified fairly well and maintained his version of events.

It is common cause that the parties entered into an input supply agreement for the 2010 – 2011 season and that the defendant failed to supply enough flue cured tobacco to the plaintiff thereby failing to pay the outstanding debt. The plaintiff’s witness acknowledged that there was a delay of two and half months in supplying inputs and further that such a delay can affect a tobacco crop.. The first issue is whether the plaintiff’s claim has prescribed. A prescribed debt is one that has not been acknowledged within three years of the date it became due. The word ‘debt ‘refers to the claim and not the cause of action. See Rustenburg Platinum Mines v Industrial Maintenance Painting Services [2008] ZASCA 108. Generally, prescription begins to run when the debt becomes due with the creditor becomes entitled to sue for it from the due date. In Gericke v Sack 1978 (2) AlI SA 111, Barnett v Ministry of Land Affairs 2007 (6) 313 (SCA) the court held that prescription begins to run as soon as the debt is due unless the debt arises out of a continuing wrong. A defendant who raises prescription as a defence must allege and prove the date of inception of the period of prescription. Prescription kicks in three years after a debt has become due.

The running of prescription may be interrupted. In Contract General Principles, 4th Ed by Van der Merwe @ p483, the authors define interruption of a debt as follows,

“Interruption of prescription refers to circumstances which, by confirming the existence of a debt, or by preparing the way for its enforcement, extend the period for which an obligation exists according to law.”

In terms of the Prescription Act [Chapter 8:11] (hereinafter referred to as the Act), prescription may be interrupted by an acknowledgment of debt. Section 18 (1) of the Act provides for interruption of prescription and reads as follows;

“18 Prescription interrupted by acknowledgment of liability

(1) The running of prescription shall be interrupted by an express or tacit acknowledgment of liability by the debtor.

(2) If the running of prescription is interrupted in terms of subsection (1), prescription shall commence to run afresh—

(a) from the date on which the interruption takes place; or

(b) if at the time of the interruption or at any time thereafter the parties postpone the due date of the debt, from the date upon which the debt again becomes due.”

Section 18 prescribes instances when prescription is interrupted by an acknowledgment of liability. In First Bank Merchant Bank Zimbabwe Ltd v Fortress Industrial Investments (Pvt) Ltd and Anor 2001 (1) ZLR 222, the court the court had occasion to interpret the section It held that for an acknowledgment of debt to interrupt prescription, the debtor and his agent must expressly or tacitly acknowledge an existing liability to the creditor before the running of prescription is interrupted. The court held further that in determining whether tacit acknowledgment of the debt has taken place, the debtor's words and conduct must be taken into account. The running of prescription is interrupted where the debtor acknowledges the debt owed. A court determining whether the running of prescription has been interrupted takes into account the debtor’s words and conduct. Where the running of prescription has been interrupted, the period of prescription begins to run afresh unless the acknowledgement has as part of its terms an extension of the date when the debt will become due.

Section 14 of the Act deals with extinction of debts by prescription and reads as follows,

“14 Extinction of debts by prescription

(1) Subject to this Part and Part V, a debt shall be extinguished by prescription after the lapse of the period which in terms of the relevant enactment applies in respect of the prescription of such debt.

(2) A subsidiary debt which arose from a principal debt or a debt which is dependent upon a principal debt shall be extinguished by the prescription of the principal debt.

(3) Notwithstanding subsections (1) and (2)—

(a) payment by the debtor of a debt after it has been extinguished by prescription in terms of this section shall be deemed to be payment of the debt;

(b) an agreement made by the debtor to pay a debt after the debt has been extinguished by prescription shall be enforceable;

Whether or not the debtor knew at the time that he made the payment or the agreement that the debt had been extinguished by prescription.”

Section 14 deals with cases where the debt has been extinguished by prescription and the debtor agrees to pay the debt. The effect of section 14 is that where a debtor agrees to pay a debt after the debt has been extinguished by prescription, the debt shall be enforceable in terms of s14 (2)(b) of the Act. The effect of the agreement to pay the debt is to revive the debt. Section 14 codifies the common law position that when a debt prescribes, the obligation is not extinguished. An obligation arising out of a contract is only extinguished after 30 years at common law and in not three years. The three year period only applies as a procedural bar which has the effect of barring a person from recovering the debt. It has no effect of extinguishing the debt. See 1970(3) SA 164. W.A Joubert, the Law of South Africa, vol 21, 71. In Pothier on Obligations vol 1 paras 665 and 666 (Evans translation) the author states the following on prescription;

“A prescription, although accomplished, is destroyed if the debtor afterwards acknowledges the debt. This acknowledgment excludes him from the ‘fin de non recevoir’ which resulted from the time of prescription and completely destroys and annihilates it.”

Wessels on Law of Contract 2nd ed vol 11 paras 2836 to 2836 F states that the common law position is that when a debtor renounces prescription, a creditor is entitled to recover the debt on the original cause of action. In the case of Tanner v Smart, 30 R.R. 461 the court held that if a debtor admits liability after a claim has prescribed, the defence of prescription is inapplicable to the facts of this case and the creditor is entitled to recover the debt based on the original contract if it proves his case.

Evidence led discloses that the parties signed the input supply agreement on 22 July 2010. Summons was issued on 26 December 2016. The debt arose in terms of clause 5.2 of the agreement which states that “upon signature of the delivery slip the grower shall be indebted to the company in the total US dollar figure reflected on the delivery slip.” The grower’s indebtedness was to be discharged in terms of clause 7 which obliges the grower to pay “as soon as possible after curing and grading … to bale such tobacco and deliver the entire crop to the company for purchase.’’

The debt arose on supply and delivery of inputs to the defendant. Cash disbursements were made between 30 July 2010 to 5 May 2011. The debt was due as soon as possible after curing and delivery of all the tobacco. On 20 April 2011 the account balance was confirmed and both parties became aware of the figures involved at that stage. The defendant testified that the debt was due from 20 April 2011 when he asked for a payment plan. The date when prescription began to run is 20 April 2011 when the account balance was confirmed. The plaintiff was entitled to sue for the outstanding monies from that date. Even assuming that the debt became due on an earlier date, the document dated 20 April 2011 constitutes an acknowledgement of debt and would have had the effect of interrupting prescription which would have begun to run again at that stage. On 18 October 2011 the plaintiff send a letter of demand to the defendant. That too, being process had the effect of interrupting prescription. At a meeting recorded in a letter dated 12 October 2012, defendant’s legal practitioners wrote to the plaintiff and indicated that the defendant was not in a position to pay the outstanding amount or make a significant down payment. That too was an acknowledgment of debt and was sufficient to interrupt prescription. The parties agreed to postpone the due date of payment until the defendant was able to pay the debt. The parties agreed that the debt would be paid at a subsequent stage when the defendant had secured employment. This position is confirmed in a letter dated 24 October 2012. The defendant continued to acknowledge the debt and promised to pay after he found employment. He promised to advise the plaintiff when he sought employment and provide details relating to his salary. In a letter dated 8 December 2011, the defendant’s legal practitioners promised to revert back to the plaintiff with their client’s payment proposals. The defendant did not do as promised. He postponed payment of the debt. Section 18(2) (b) permits parties to agree to postpone the due date of a debt. The parties agreed to postpone the debt until the defendant was gainfully employed and thus prescription was interrupted. Effectively the defendant acknowledges part of the debt.

. The defendant prevented the plaintiff from becoming aware that he had secured employment. Prescription cannot run if the debtor prevents the creditor from being aware of facts which enable the creditor to sue. Prescription was interrupted during the time he hid the fact of his employment. Prescription began to run again when the plaintiff became aware that the defendant has secured permanent employment.

During the trial, the defendant acknowledged that he owes but maintained that he cannot afford to pay the debt. He stated that he owes at most $120 000.00 according to his own calculations. The acknowledgement of the debt made during the trial has the effect of destroying the prescription. The defendant forfeited the defence of prescription The plaintiff is entitled to recover the debt based on the original agreement His admission of a portion of the debt owed has the effect of and renounces prescription and revives the debt. A debtor who acknowledges part of a debt loses the right to rely on the plea of prescription. Once he admitted that he owes the plaintiff, he renounced his right to avail himself of the advantage of prescription. The debt no longer stands prescribed, the prescription is destroyed entitling the plaintiff to recover the debt.

Does the claim include a prior debt?

It is common cause that the figure of $418 820.73 claimed arises from a previous crop loan involving a contract between the plaintiff, the defendant and a Mr Wendell of Valburn Enterprises (Pvt) Ltd. The figure of $418 820.73 is acknowledged in the letter of confirmation of balance. It is claimed as part of the $575 164.68 for the 2010-11 farming season. The plaintiff states in paragraph 4 of its declaration as follows;

“4. In July 2010, plaintiff and defendants entered into an agreement in terms of which plaintiff provided crop inputs and financial assistance to defendants in the sum of $ 575 164.68.”

The plaintiff’s cause of action specifically arises from the 2010-2011 input supply agreement. The debt of $418 820.73 although acknowledged, does not arise from the 2010 to 2011 season and is not covered in these summons and hence has not been sued for. It is not recoverable in these proceedings. No one knows how that debt became due and the terms and conditions of payment of that debt. The court does not agree with the plaintiff that the prior debt was incorporated into the next season as the 2010 -11 contract does not state so. The $418 820.73 did not become incorporated as part of the agreement for the 2010-2011 season by virtue of the fact that the two debts were acknowledged in one acknowledgement of debt.

Where an acknowledgment of debt comprises of two sums of money arising from two different agreements or causes of action, a creditor wishing to claim both sums in one claim is required to plead both causes of action in the summons. He may not plead one cause of action and hope to recover both sums in one claim. A creditor seized with an acknowledgement of debt can only recover the debt where he institutes proceedings to recover the debt between the parties. A debt carried over from a previous farming season is not recoverable together with sums owing from another season where the summons does not make specific reference to both debts I agree with the views expressed in Matambanadzo Bus Service (Pvt)Ltd v Magner 1971 (1) RLR 54, that whilst the courts tend to take a broad view of proceedings and take the view that the dispute between the parties ought to be properly investigated and ventilated, the courts cannot allow a’ free for all’ situation and disregard the issues as raised in the pleadings. A claim stands or falls on its pleadings. A trial court deals only with pleaded substance. The claim in respect of the $418 820.73 was not pleaded and is not before the court. The plaintiff can only get the relief pleaded in his summons. The plaintiff did not amend its summons and is confined to relief based on the 2010 -2011 season as pleaded in the summons.

What caused the crop to fail

The defendant testified that his farming activities were interfered with by the owner of the land on which he farmed who stopped him from farming. Further, that the crop yield was affected by delays of the plaintiff in providing inputs and finance in accordance with schedules to the agreement. The plaintiff did not dispute that the owner of the farm interfered with the farming. The plaintiff’s witness maintained testified that the crop was poor due to mismanagement and that the defendant failed to remove tobacco suckers. The plaintiff’s witness accepted that that some inputs were not given on time due to cash flow problems. He also accepted that timings and the supply of inputs is a critical factor in contract farming and that this results in loss of yield. He accepted that there was a delay of 2 ½ months between 4th October to 15th December 2010 when money was initially advanced due to cash flow problems. The defendant’s mismanagement of the crop may have contributed to the failure of the crop but there are other factors that contributed to the failure. The suggestion that the lengthy delay in supplying finances to the defendant resulted in workers refusing to work and resulting a poor crop was not rebutted. Suckers grew and were not trimmed as workers downed tools resulting in a failed crop. There was a delay and probabilities are that the delay affected the crop.

A contract farmer is a hired hand. He can only succeed in contract farming where he gets the necessary support from the contractor. Where a contract farmer proves that there was a failure to supply and or a late disbursement of inputs and financial assistance which caused a failure of his crop, he cannot be held accountable for lack of success of the crop. The plaintiff failed to meet its part of the bargain by supplying inputs late. Its conduct contributed to the breach. The defendant cannot be held accountable for the plaintiff’s failure to supply finance timeously where it is clear that the delay in disbursing funds had an effect on the crop resulting in the defendant failing to have a successful crop. The defendant could only bear the risk of a failed crop where the contractor had performed its part of the bargain. It is difficult to say what impact the breach had on the amount owed. Because the defendant acknowledged the debt for the 2010 to 2011 season, the court will approach the matter from the premise that he acknowledged the debt at some stage therefore owes some money. The court still has to determine how much he owes taking into account developments that took place after the acknowledgment of debt.

How much is outstanding

The defendant testified that he signed a confirmation of account balance of amounts outstanding totalling $725 070.36 as at 31 March 2011 made up of prior year balance of $418 820, 73 and $306 249.63 being 2010-11 financing. The acknowledgment is dated 20 April 2011.When $418 820, 73 is discounted only $306 249.63 remains owing as at the date of acknowledgement. The defendant claims that the plaintiff did not take into account further deliveries after this date .He stated that he finished delivering by 15 July 2011.This evidence went undisputed. He maintained that he owes at the very least $120 000-00. No basis was laid for this figure. The plaintiff acknowledged that the figure of $725 070.36 was subsequently reduced to $575 164.68 owing to subsequent sales of tobacco delivered by the defendant at a later date. I understood this later date to have been after the debt was acknowledged. This assertion confirms the defendant’s position that he made more deliveries of tobacco after 20 April 2011. The effect of the subsequent delivery would be to reduce the defendant’s indebtedness after the acknowledgement of debt. Having discounted the $418 820, 73, only $306 249.63 remained of the acknowledged sum for the 2010-11 season. But out of these figures, what was the value of the subsequent deliveries and to which account was this money credited? Was the money credited to the $418 820, 73 or the $306 249.63? . It appears that the subsequent deliveries were not taken into account. None of the parties was able to give the value of the subsequent deliveries and the figure by which the 2010 -11 debt was reduced. Whilst the court accepts that the defendant owes something, the court is not well equipped to determine the defendant’s indebtedness for the reason that both parties did not set out the value of the subsequent deliveries. The plaintiff has not established its claim. But for the reason that the amount owed was acknowledged , the plaintiff ought to be given an opportunity to prove its claim.

In the result it is ordered as follows,

I declare absolution from the instance .

The plaintiff is to bear the costs of these proceedings.

Gill, Godlonton & Gerrans, plaintiff’s legal practitioners

Messrs Honey & Blackenberg, defendants’ legal practitioners