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Judgment record

PMA Real Estate Agency (Private) Limited v Agricultural and Rural Development Authority

High Court of Zimbabwe, Harare1 November 2011
HH 236-2011HH 236-20112011
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                                                                  HC 1783/10


PMA REAL ESTATE AGENCY (PRIVATE) LIMITED
versus
AGRICULTURAL AND RURAL DEVELOPMENT AUTHORITY

HIGH COURT OF ZIMBABWE
PATEL J

Civil Trial

HARARE, 14 June 2011 and 1 November 2011

A.R. Chizikani, for the plaintiff
C.M. Jakachira, for the defendant



       PATEL J:    The plaintiff operates a real estate business, including

the valuation of assets and auctioning. The defendant is a statutory body

established under the Agricultural and Rural Development Authority Act

[Chapter 18:01]. The plaintiff issued summons in March 2010, claiming

from the defendant the sum of US$17,309.86 as valuation fees, together

with interest at the rate of 5% per month, 10% collection commission and

costs of suit.

       The issues for determination that were identified at the pre-trial

conference were materially altered during the course of the trial. The first

issue concerns the impact of the Procurement Act [Chapter 22:14] on the

contract concluded between the parties. The second issue relates to the

percentage of the valuation fees payable to the plaintiff and the price

upon which such fees are claimable.


The Evidence

       Simon Lennox Mkondo is the Managing Director of the plaintiff

company and is registered with the Estate Agents Council. His evidence

was that the parties have been in business together since 1997 when the
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plaintiff first began valuating the defendant’s assets. The arrangement

was that the defendant would pay 2.5% of the value as valuation fees and

that those fees would be paid out of the proceeds of sale by auction. This

arrangement came to an end in 2009 when the defendant told the

plaintiff to stop further auctions as the plaintiff was not registered with

the Tender Board. By the time that the plaintiff was duly registered, the

defendant had appointed other auctioneers. The plaintiff’s claim herein

arises from a specific contract concluded by correspondence between

December 2007 and January 2008. The defendant invited the plaintiff to

set out its current terms and conditions. The plaintiff responded and a

few weeks later the defendant wrote back accepting the terms stated by

the plaintiff. The valuation fee was based on the valuation amount or

reserve value and not on the auction amount. The documents furnished

by the defendant show that the plaintiff’s valuations were generally

accurate and that it carried out its work professionally. The plaintiff’s

claim for interest at the rate of 5% per month was based on the

prevailing bank rate for loans. However, the witness withdrew the claim

for 10% collection commission as it was not part of the contract with the

defendant. Under cross-examination, he conceded that, according to the

plaintiff’s letter of 28 December 2007, the 2.5% valuation fee under the

contract with the defendant was based and chargeable on the auction

value and not on the reserve value. The plaintiff’s claim is based on the

reserve value because the defendant decided to stop further auctions by

the plaintiff. It would have sued on the auction values realised by other

auctioneers for the assets already valuated by it, but the defendant did

not avail these figures. The witness admitted, as per the plaintiff’s letter

of 7 May 2009, that the reserve values were too high and needed to be

adjusted. Consequently, as appears from the relevant invoices and
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auction returns, the sale figures from auctions conducted by others were

generally lower than the original reserve values computed by the

plaintiff. He further accepted that there was nothing in the contract to

preclude the defendant from dealing with other auctioneers. However,

this term was implied because the valuation fees were to be collected at

the end of every auction. At this juncture, even if the auction values were

to be compiled, the plaintiff was still not prepared to accept valuation

fees based on the auction figures.

      Willard Tendai Mbona is the Acting General Manager of the

defendant. He testified as follows. As per the plaintiff’s letter of 28

December 2007, which formed the terms of the agreement, the 2.5%

valuation fee was to be paid at the end of each auction on the proceeds

of the auction sale. Valuation was not conclusive proof of income

received from auction sales, the proceeds of which were the only source

for paying auction and valuation fees. The agreement between the

parties was in respect of the whole process, i.e. valuation, setting up the

auction, selling at the auction, and gathering the proceeds of sale for

payment to the defendant, after deducting valuation and auction fees.

There was no auction where all the valuated assets were sold by the

plaintiff. It was never agreed that the 2.5% fee be paid on the reserve

value. It was only payable on assets that were actually bid and paid for.

Before February 2009, although valuations were in United States Dollars,

all transactions were carried out in Zimbabwe Dollars. In May 2009, the

plaintiff advised that all previous valuations needed to be reduced

because of changed economic circumstances. The defendant terminated

the contract with the plaintiff in June 2009 after receiving an internal

audit report on the Middle Sabi auction. The ARDA Board then resolved to

open up the auctions to wider competition. On 1 October 2009, the
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plaintiff was specifically invited to participate and regularise its position,

but it applied too late for inclusion on the ARDA tender list. By November

2009, the Tender Board had already approved the tenders of LM

Auctioneers (Pvt) Ltd and KM Auctions (Pvt) Ltd to carry out all ARDA

auctions at 1% commission on gross proceeds. This 1% commission

related to the entire process of valuation, auctioning and reconciliation of

proceeds. It was the charge that was then applied by the two auctioneers

who carried out their own independent valuations. Because of the volatile

state of the defendant’s assets, the plaintiff’s valuations of 2007 and 2008

had become outdated and obsolete by 2009. Moreover, its invoices were

only generated from October 2009 to March 2010, based on estimated

reserve values. In any event, the Procurement Regulations expressly

required a tender process in respect of the disposal of assets above

certain values. The defendant was not prepared to pay the plaintiff’s

invoices because it did not complete the entire valuation-cum-auctioning

process. At some stage, there was an offer of 1.5% fees on actual

proceeds from the auctions conducted by the other auctioneers, but no

agreement was ever reached. Finally, the plaintiff’s claim for interest at

the rate of 5% per month was never contemplated or agreed upon by the

parties.

       My overall assessment of the plaintiff’s Managing Director is that

he was a very poor witness on almost every material aspect. His evidence

was fraught with contradictions and inconsistencies and was frequently

at variance with the documentary evidence before the Court. In contrast,

the testimony of the defendant’s Acting General Manager was very clear

and generally consistent with the probabilities in this case. Consequently,

his evidence on the facts and probabilities is to be preferred where it

conflicts with that of the plaintiff’s witness.
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Procurement Act and Regulations

      During the course of the trial, it became necessary to consider the

validity of the contract between the parties in the context of the

prevailing legislation on procurement. This was an aspect that was not

canvassed in the pleadings but one that was raised by the Court mero

motu as an important matter of law impinging on the legality and

enforceability of the contract.

      By virtue of section 3(1) of the Procurement Act [Chapter 22:14] the

provisions of the Act apply to procurement by all procuring entities as

defined in section 2(1), including every statutory body such as the

defendant in casu. See also the list of public enterprises itemised in the

Second Schedule to the Procurement Regulations 2002 (S.I. 171 of 2002).

      Part IV of the Act governs procurement proceedings generally. In

terms of section 30:

            “(1) Except as otherwise provided in this Act, the
      procurement of–
            (a) goods or construction work by a procuring entity shall be
      done by means of tendering proceedings in accordance with
      section thirty-one;
            (b) services by a procuring entity shall be done by a method
      which complies with section thirty-two.
            (2) Where in accordance with this Act a procuring entity
      adopts a method of procurement other than one specified in
      subsection (1), the procuring entity shall include in the record of its
      proceedings a statement of the grounds and circumstances on
      which it relied to justify the adoption of that method.”

      Section 32(1) sets out the general procedures to be followed in the

procurement of services. These relate to, inter alia, the publication of

notices, tender documentation, criteria for qualification, the submission

and evaluation of proposals, and other tender formalities. In terms of

section 32(2):
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            “Subject to subsection (1), a procuring entity shall conduct all
      proceedings for the procurement of a service in accordance with
      procurement regulations or, in regard to any matter that is not
      prescribed in such regulations or this Act, in accordance with such
      procedure as the procuring entity may fix:
            Provided that any procedure so fixed shall be such as to
      ensure that all suppliers are treated fairly and impartially and shall
      be communicated without delay to all suppliers concerned.”

      Section 33, in its relevant portions, enables the framing of

procurement regulations as follows:

             “(1) Subject to this Act, the Minister, after consultation with
      the Minister responsible for finance and the State Procurement
      Board, may make regulations providing for all matters relating to
      procurement by procuring entities.
             (2) Procurement regulations may provide for–
             (a) methods of procurement that may be adopted by
      procuring entities instead of or in addition to the methods
      specified in section thirty;
             (b) classes of procurement in which any of the provisions of
      sections thirty-one and thirty-two may be dispensed with or applied
      subject to modification;
             (d) the procedure to be adopted by procuring entities and
      suppliers, and the manner in which they shall conduct themselves,
      in procurement proceedings;
             (l) circumstances in which the provisions of the regulations
      may be departed from or waived.”

      Part II of the Procurement Regulations 2002 details the procedures

governing the invitation of tenders generally. Section 4(1) stipulates that

where a procuring entity requires the supply of goods, construction

works or services the value of which exceeds the prescribed amount, the

State Procurement Board shall invite tenders for such supply in

accordance with the procedure for formal tenders set out in section 8 or

approved list tenders set out in section 25. The prescribed amount at the

present time (as amended by S.I. 161 of 2008) is US$50,000. In terms of

section 4(2), where the supply value exceeds US$10,000 but does not
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exceed US$50,000, the procuring entity shall seek tenders in accordance

with the procedure for informal tenders set out in section 6. [Between

December 2007 and January 2008, the prescribed figures were ZW$5

billion under section 4(1) and ZW$1 billion to ZW$5 billion under section

4(2)]. Section 8 delineates the procedures to be adopted in the case of

supplies subject to formal tender, as required by section 4(1), through

notices to be published in the Gazette and in such national newspapers as

the Board may deem expedient.

      Section 5 enumerates those supplies that are not required to be

tendered for by the State Procurement Board. In terms of section 5(1),

where the supply value is less than US$10,000 [ZW$1 billion in 2007-

2008], the procuring entity may dispense with the requirement of seeking

tenders, if it considers that the public interest will not benefit from tender

procedure. In any such case, the procuring entity must obtain at least 3

competitive quotations from suppliers. Section 5(2) permits the purchase

of second-hand goods by private treaty or at public auction sales, as may

be authorised by the accounting officer of the procuring entity, where the

estimated value of the goods does not exceed US$50,000 [ZW$5 billion in

2007-2008]. By virtue of section 5(3), where a procuring entity considers

that it would not be in the public interest to call for tenders for a

particular supply of goods, construction works or services in terms of

section 4, such supply may be purchased without calling for tenders. In

any such case, section 5(4) requires the procuring entity to obtain the

prior approval of the State Procurement Board, where the estimated

value of the supply exceeds US$50,000 [ZW$5 billion in 2007-2008], or the

approval of the Chairman in consultation with at least three members of

the Board, where the estimated value of the supply exceeds US$10,000

but does not exceed US$50,000 [ZW$1 billion to ZW$5 billion in 2007-
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2008]. Additionally, the procuring entity must clearly and fully state in

writing to the Board or the Chairman, as the case may be, the reasons

why it would not be in the public interest to call for tenders for the supply

in question. Where approval to procure supplies in terms of section 5(4) is

denied, section 5(5) enjoins the procuring entity to follow normal tender

procedures.

      Section 6 sets out the procedures to be followed and records to be

kept in relation to informal tenders, as permitted by section 4(2). Section

7(1) authorises procuring entities to adopt what are called special-formal

tenders, subject to prior approval by the Board or its Chairman, in

accordance with such instructions as may be issued by the Board from

time to time. Special-formal tenders may be invited only in the cases

specified under section 7(2), i.e. urgent requirements, supplies and

services of local interest, requirements of a proprietary nature, formal

tenders to which there has been no response, services of a specialist

nature, and services which concern national security.

      Section 25(1) authorises the Board to compile a list of approved

tenderers in respect of specific articles and services, which must be

published in the Gazette, for the purpose of approved list tenders under

section 4(1). Before framing this list, the Board is required by section

25(2) to publish a notice in the Gazette inviting tenderers to submit

applications for inclusion on the list. Section 25(4) empowers the Board to

invite all tenderers on the approved list to submit special-formal tenders

or informal tenders instead of calling for formal tenders. In terms of

section 25(5), all tenders submitted in terms of section 25(4) must be

processed in accordance with the Regulations.

      For the purposes of enforcement, section 35 declares that any

person who contravenes any provision of the Regulations shall be guilty
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of an offence. However, the Regulations are silent as to the penalty to be

imposed in the case of any such offence. The Act is equally silent in this

regard in section 33 which enables the framing of procurement

regulations, and in section 48 which only penalises misrepresentations

and collusive agreements or arrangements relating to procurement.



Legality of Contract

      In the instant case, Mr. Chizikani for the plaintiff submits that the

contract between the parties was not tainted with any breach of the

Procurement Act or Regulations. Because section 30(2) of the Act allows

procuring entities to adopt alternative methods of procurement, the

legality of the transaction in casu cannot be impeached. On the other

hand, Mr. Jakachira for the defendant contends that the contract should

have gone to tender because its value was in excess of the prescribed

minimum under section 5(4) of the Regulations. He further submits that

the peremptory provisions of section 30 of the Act obliged the parties to

conclude their contract through the State Procurement Board and that

their failure to do so renders the contract null and void ab initio. That

being so, the plaintiff’s claim ought to be dismissed on this basis alone,

without any need for the Court to delve into the merits or demerits of the

claim. For the reasons set out below, I am unable to accept either of the

positions propounded by counsel.

      For present purposes, what is relevant is not the value of the

assets that were appraised by the plaintiff, as is contended by Mr.

Jakachira, but the valuation fees that were payable to the plaintiff for the

services rendered by it to the defendant. At the time when the contract

was concluded, between December 2007 and January 2008, the relevant

thresholds for the purposes of section 5 of the Regulations were between
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ZW1 billion and ZW$5 billion. However, there is nothing in the evidence

before me, whether by way of currency conversion rates or otherwise, to

indicate that the value of the services to be provided by the plaintiff

exceeded the prescribed thresholds. It is highly probable that it did but,

without any clear evidence on the point, I am unable to make any

definitive finding based on pure conjecture.

      The more pertinent enquiry, in my view, is not whether the

relevant threshold was exceeded, but whether the contract was

concluded in compliance with other procedures enjoined by the

Procurement Act and Regulations. Section 30(1) of the Act stipulates that

a procuring entity must procure services by a method which complies

with section 32, except as is otherwise provided in the Act. Section 30(2)

envisages the adoption of a method of procurement otherwise than one

specified by section 30(1), but only where this is done in accordance with

the Act. Section 32(1) sets out the procedures to be followed in the

procurement of services generally. Additionally, section 32(2) enjoins the

procuring entity to conduct all proceedings for the procurement of a

service in accordance with procurement regulations. Section 33(2)

enables the framing of regulations providing for: the methods of

procurement that may be adopted by procuring entities instead of or in

addition to the methods specified in section 30; the classes of

procurement in which any of the provisions of sections 31 and 32 may be

dispensed with or applied subject to modification; and the circumstances

in which the provisions of the regulations may be departed from or

waived.

      Taking all of these provisions together, what is contemplated by

the Act in relation to the procurement of services is that every

procurement entity must adopt a method that complies with the general
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procedures set out in section 32(1), as read with the detailed procedures

elaborated in the Procurement Regulations. Any departure from the

prescribed procedures must be sanctioned under the Act or the

Regulations. In particular, section 5 of the Regulations spells out the

instances in which formal tender procedures need not be followed, in

relation to supplies of values below the specified thresholds, subject to

the requisite approvals having been obtained. Additionally, the provisions

of section 6 govern informal tenders, while section 7 deals with special-

formal tenders in specific circumstances, subject again to the relevant

approvals and prevailing instructions. Finally, section 25 details the

procedures to be followed in the case of approved list tenders.

      In the instant case, it is common cause that the defendant, qua

procuring entity, did not follow the general procedures set out in section

32(1) of the Act or the formal tender procedures stipulated by sections 4

and 8 of the Regulations. And there is nothing before the Court to

indicate that it adopted any other method of procurement allowed by the

Regulations in its contract with the plaintiff. In particular, there is no

evidence of the quotations or approvals enjoined by section 5. In short,

the defendant’s departure from the prescribed procurement regime was

neither otherwise provided by the Act nor in accordance with the Act, and

was clearly unsanctioned by the State Procurement Board or its

Chairman. It follows that the contract in casu was concluded in

contravention of the Procurement Act and Regulations.


Consequences of Illegality

      There can be no doubt that the provisions of sections 30, 31 and 32

of the Act are couched in peremptory terms and that compliance with

them, as well as the Regulations, is intended to be mandatory rather than
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merely directory. However, the Act does not explicate the legal

consequences of any failure to so comply. Generally speaking, the validity

of contracts in breach of statute depends upon the expressed or implied

intention of the Legislature as manifested in the statute in question.

Where nullity is not explicitly declared, it may inferred from other

features of the statute. These may include the express prohibition of

conduct in breach of the statute and/or the criminalisation of such

conduct. As I have explained above, the Procurement Act and

Regulations are imperfectly drafted in this respect.

      In any event, the position of contracts involving the State is

somewhat special. The scope of a State servant’s authority is more often

than not determined by statutory provisions and the requirements of the

statute or regulations concerned must be complied with. If such

requirements are mandatory, any contract made in breach of them is

invalid and unenforceable. This follows from the proposition that no State

servant has the authority to circumvent or dispense with the

requirements of a statute. To recognise or enforce any such contract

would operate to render the applicable enactment nugatory. See Hogg:

Liability of the Crown, at p. 125, and the authorities cited by Smith J in

Foroma v Minister of Public Construction and National Housing & Another

1997 (1) ZLR 447 (H) at 460-463.

      It might of course be argued, by analogy with company law, that

private individuals and entities dealing with the State are entitled to

assume that the functionaries in question have duly complied with the

prescribed   formalities.   As   against   this,   however, is   the   crucial

consideration that any hardship which might befall persons contracting

with the State is outweighed by the public interest in safeguarding State

property and public moneys. See Collector of Customs v Cape Central
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Railways Ltd (1888) 6 SC 402, cited with approval in Foroma’s case, at 461-

463. Indeed, it may even be justified in this context to invoke the

argument that contracts in breach of statute, being inimical to the

interests of the State as well as the community at large, should be

declared contrary to public policy and therefore unenforceable. See

Foroma’s case, at 465-466. If contracts made in material breach of statute

were to be recognised and enforced, the unavoidable result would be to

frustrate and defeat an explicit injunction of the Legislature. Apart from

repudiating such contracts, the only other remedy available to the State

would be to discipline and/or surcharge the culpable official or officials

concerned. But this would be wholly ineffective and futile where

financially sizeable contracts are involved.

                    I would also add that a contract in breach of statute

cannot be retrospectively ratified or otherwise validated. This is so for

two very cogent reasons. Firstly, the law does not countenance the

ratification of a contract or transaction which, being contrary to statute, is

null and void ab initio. See Cape Dairy and General Livestock Auctioneers v

Sim 1924 AD 167, at 170. Secondly, the Executive is not at liberty to waive

or renounce a peremptory statutory obligation imposed by the

Legislature for the protection of State property and public moneys. See

Ritch and Bhyat v Union Government (Minister of Justice) 1912 AD 719, at

735, and SAR&H v Transvaal Consolidated Land and Exploration Co. Ltd.

1961 (2) SA 467, at 481, followed in Foroma’s case, at 464-465.

      In the premises, I am of the view that the contract under

consideration, inasmuch as it was concluded in breach of the prescribed

requirements, is invalid and unenforceable for contravention of sections

30 and 32 of the Procurement Act. As a general rule, it is trite that a

contract which is null and void ab initio is illegal and therefore
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unenforceable. See Foroma’s case, at 467; Mega Pak Zimbabwe (Pvt) Ltd v

Global Technologies Central Africa (Pvt) Ltd HH 84-2008; Gambiza v Taziva

HH 109-2008. The same conclusion must follow in the present case.

Notwithstanding this conclusion, I deem it necessary, for the sake of

completeness, to consider and determine the plaintiff’s claim on its

merits.


Percentage and Price

      The dispute in casu, in essence, is whether or not the terms of the

contract between the parties were duly fulfilled. The plaintiff contends

that valuation ended with the submission of its report to the defendant

indicating the reserve values ascertained. In keeping with the usual trade

practice, professional fees for valuation became due upon presentation

of the valuation report. As regards the percentage claimable, the plaintiff

asserts the freedom and sanctity of contract and insists that it is entitled

to 2.5% of the reserve value. The fact that the other auctioneers levied

only 1% of the auction value is irrelevant as are the principles of equity

and quantum meruit. It is further submitted that it was an implied term of

the contract, in the event of the exercise ending with valuation, that the

reserve price would be determinative in calculating valuation fees. This is

consistent with the principle, articulated in RB Ranchers (Pvt) Ltd v

EstateLate McLean & Another 1985 (2) ZLR 24 (H), that a term will be

implied into a contract in order to give it efficiency. Moreover, as was

held in Maceys Consolidated (Pvt) Ltd & Another v T.A. Holdings Ltd 1987 (1)

SA 173 (ZS), in the absence of fraud, collusion or caprice, the parties are

usually bound by the figures presented in the valuation report.

      The defendant maintains that the contract encompassed all the

activities to be undertaken by the plaintiff, including auctioning and the
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payment of auction proceeds. Having regard to the terms of the contract,

as captured in the relevant correspondence between the parties, I see no

reason to disagree with the defendant’s position. To be more specific, the

defendant wrote on 24 December 2007 asking the plaintiff to valuate and

auction its assets and to spell out its “current terms and conditions”. The

plaintiff responded on 28 December 2007, stating that “the fees for the

exercise would then remain at 2.5% of the auction value deducted at the

end of the sale”. On 24 January 2008, the defendant replied to accept the

stated “terms and conditions of valuation and auctioning” and to request

a meeting “to draw a schedule of valuation and auctioning dates and

sites”.

          It is abundantly clear from the foregoing that the parties expressly

and unequivocally agreed that payment to the plaintiff was to be

calculated at 2.5% of the auction value at the end of each auction sale.

There was no agreement for the payment of any percentage based on

the reserve value upon submission of the valuation report. Nor can any

such term be implied from the written stipulations of the contract or the

prior or subsequent conduct of the parties. Indeed, in its letter of 7 May

2009, the plaintiff openly conceded that its “original reserve values [had

become] too high” and proposed that “we adjust all reserved values on

estates which were assessed last year basing on the current prices”. In

this regard, no documentary evidence was furnished to show that the

plaintiff did in fact submit adjusted valuations to the defendant before

the contract was terminated in June 2009. Moreover, as was stated by the

defendant’s witness, which evidence was not challenged, the plaintiff’s

claim is calculated on invoices which were generated from October 2009

to March 2010 and based on estimated valuations, well after the actual

valuations were carried out. In short, the plaintiff’s claim is wholly
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misconceived in its reliance upon the reserve value as the basis for

computing its fees under the contract.

       What the plaintiff should have done in this case was to compel the

defendant to disclose the auction values realised by the other two

auctioneers and then found a claim for a lower percentage on those

auction values, ad quantum meruit, in respect of the assets already

valuated by it. It did not do so but chose instead to lodge a claim

premised on the reserve values, entirely outside the contractual terms

agreed between the parties. Indeed, when it became apparent at the trial

that its claim was ill-founded, the plaintiff was still not prepared to accept

valuation fees based on the auction figures. It also claimed an interest

rate of 5% per month on the capital amount, without any legal

foundation whatsoever, as well as 10% collection commission, which

claim was only withdrawn at the trial.

       Taking all of these factors together, there appears to be ample

justification for a punitive award of costs. In the result, the plaintiff’s

claim is dismissed with costs on a legal practitioner and scale.




Chizikani Legal Practitioners, plaintiff’s legal practitioners
Jakachira & Company, defendant’s legal practitioners