Profert Zimbabwe (Private) Limited v Pioneer Hi-Bred Zimbabwe (Private) Limited and Daniel Myers and Stanley Kanembirina

### Preamble
1
HH 656-18
HC 8431/15
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PROFERT ZIMBABWE (PRIVATE) LIMITED

versus

PIONEER HI – BRED ZIMBABWE (PRIVATE) LIMITED

and

DANIEL MYERS

and

STANLEY KANEMBIRIRA

HIGH COURT OF ZIMBABWE

FOROMA J

HARARE, 24 September 2018

Civil Trial

D Ochieng, for the plaintiff

A.B Chinake with T Kativhu, for the 1st defendant

G.R.J. Sithole, for the 2nd & 3rd defendants

FOROMA J: Plaintiff sued first, second and third defendants for payment of the sum of $251 694 plus interest and costs of suit on a legal practitioner and client scale. The claim against first defendant arises from a credit sale agreement which plaintiff’s avers was entered into by and between plaintiff and first defendant on or about 28 September 2012.

In terms of the said agreement contained on pages 1 – 10 of exh 1 (Plaintiff’s bundle of documents) produced at the trial second defendant in his capacity as Managing Director of fist defendant and on behalf of first defendant successfully applied for a credit account for purchase of fertilizer from plaintiff – successfully as confirmed by the fact that following upon acceptance of the application for credit plaintiff allegedly received purchase orders from first defendant to supply fertiliser to first defendant’s out grower seed maize farmers on credit.

Plaintiff pleaded its claim against first defendant on its amended declaration as follows – para 10. Following the execution of the credit facility agreement in September 2012 officers and employees of the first defendant prepared and placed purchase orders for fertilisers with the plaintiff.

Paragraph 11 Some of the orders placed by the first defendant related to the supply of fertilisers by the first defendant to its out-grower farmers.

Paragraph 12 A contract existed between the first defendant and the out grower farmers engaged in the first defendant’s contract farming programme.

Paragraph 13 No contract existed between the plaintiff and farmers engaged in the first defendant’s contract farming programme.

Paragraph 14 The first defendant’s purchase orders were prepared on the first defendant’s Corporate forms (stationery)

Paragraph 15 First defendant’s employees notified the plaintiff of the identity of the various drivers collecting the ordered goods as well as the identity of the first defendant’s out grower farmer on whose behalf the fertilizer was purchased and collected from plaintiff

Paragraph 16 The goods ordered in the manner set out above were released by the plaintiff to and were transported by the drivers nominated by the first defendant.

Paragraph 17 Pursuant to the credit facility agreement the first defendant paid the plaintiff USd460 112.05 in September 2013 And USD241 620.00 in January 2014 for goods received by the first defendant or on first defendant behalf

Paragraph 18 The sum US$251 694.00 together with interest however remain outstanding---

In respect of the claim against the second and third defendants plaintiff pleaded its claim in the plaintiff’s declaration as follows – para 7 second defendant by signing the credit facility agreement, agreed in his personal capacity that should first defendant not pay plaintiff on due date, then second defendant would become personally liable as surety and co-principal debtor for first defendant’s liability. Second defendant further renounced the benefits of excussion and division.

Paragraph 8 On the same day second and third defendants signed a surety ship agreement pursuant to which they bound themselves jointly and severally as surety and co-principal debtors in solidum in favour of plaintiff for the prompt and proper payment and compliance with obligations to plaintiff by the first defendant. A copy of the surety ship agreement containing all relevant terms has already been discovered to all parties.

Paragraph 9 The surety ship agreement was incorrectly filled by the parties. It appears on the face of the document that first defendant was providing surety ship for its own debts to plaintiff. The plaintiff’s second and third defendants’ common intention however was for the surety ship to be provided by the second and third defendant in their personal capacity. Accordingly, plaintiff seeks rectification of the surety ship agreement to correctly reflect the parties’ common intention.

The first defendant defended plaintiff’s claim. Its defence as pleaded can be summarised as follows

First defendant denied any knowledge of plaintiff and

denied entering into any agreement with plaintiff averring that second defendant was not authorised by it to apply and to enter into a credit agreement with plaintiff

That it (first defendant) did not receive any goods from plaintiff neither did it pay for any goods.

First defendant suggested that second defendant and third defendant fraudulently entered into an agreement privately with plaintiff for their own benefit alternatively second and third defendants abused their positions as directors of first defendant company by entering into unauthorised irregular wrongful fraudulent and reckless agreements with plaintiff in violation of s 318 of the Companies Act [Chapter 24:03] and are accordingly personally liable for any liability that arises. The alleged contravention of s 318 is not available to first defendant as a defence to a claim such as has been pleaded by plaintiff as will be demonstrated below.

(4) It (first defendant) was not in the business of growing soya been crops and would not have needed to purchase soya fertilizer or commercial maize fertilizer and so did not benefit from the alleged contract.

Second and third defendants denied having agreed to stand as sureties and co-principal debtors on behalf of first defendant in favour of the plaintiff and resisted any attempt to rectify the surety ship an agreement as claimed by plaintiff.

At trial plaintiff opened its case by calling one Peter Grant Tate its former managing director of Profert Africa who controlled and was in charge of Profert Zimbabwe and Profert Zambia. In summary his evidenced was that Profert Zimbabwe (plaintiff) entered into an agreement with first defendant represented by second defendant its managing director the terms and conditions of which are contained in the documents on pp 1 – 10 of exh 1. He also considered that the agreement was binding on the first defendant as first defendant was lawfully represented by its own managing director. He testified further that plaintiff  supplied goods (fertilizers) as ordered and that any suggestion that the agreement was unauthorised because first defendant did not grow soya bean crops and thus would not have needed soya fertilizer was no excuse for first defendant not paying for goods lawfully purchased per regular orders made on first defendants’ stationery was lame. Besides some soya fertilizers by reason of blending could have been used in the production of maize seed. At any rate the use to which the soya fertilizer or any fertilizer ordered was put was not the plaintiff’s concern. He also maintained that the only portion of the surety ship agreement that needed to be corrected in order to achieve the rectification sought was the face of the agreement  namely the deletion of reference to first defendant and substitution of second and third defendants in place thereof.

When plaintiff closed its case the second and third defendant applied for absolution from the instance. The third defendant’s application in so far as it related to the claim for rectification was granted with costs. Second defendant was however placed on his defence by reason of the fact that the claim against him was also based on a suretyship by virtue of the undertaking he allegedly made as pleaded in para 7 of the plaintiff’s amended declaration herein above. It will be convenient to dispose of the claim against the second defendant based as it is on suretyship arising from the pleaded cause. Paragraph 7 of the defendant’s declaration reads as follows- “second defendant by signing the credit facility agreement agreed in his personal capacity that should first defendant not pay plaintiff on due date then second defendant would become personally liable as surety and co-principal debtor for first defendant’s liability. (the underlining is mine)

A proper reading of the documents namely pages 1 – 10  of Exh 1 will show that there are 3 sets of documents which can conveniently be described as follows (i) pp 1- 4 – Application for Credit account (ii) pp 5 – 7  Conditions of sale (iii) pp 8 – 20  suretyship.

Pages 1 – 4 of exh 1 consists not of the credit facility agreement but of part of the application for Credit Account which is an offer by the first defendant to do business with the plaintiff. Page 4 of exh 1 contains the bulk of what has been pleaded by the plaintiff as suretyship. To demonstrate this is convenient to quote from the bottom of p 3 of exh 1-

“In the event of the applicant being a company with limited liability, a Private 	Corporation or a trust and not paying on due date then in such event I/we by affixing 	our signatures hereto, agree that I/We is/are personally liable as surety/sureties and 	co-principal debtors/s for the applicant’s liability plus VAT on the total amount of 	such liability, and I/We renounce the benefit of excussion and division.”

It is clear that the second defendant can only be bound as stipulated in the quoted passage as surety and co-principal debtor if in reality by signing the application the second was infact signing the credit facility agreement which clearly he was not. In his plea to para 7 of the amended declaration  second defendant denied that he agreed in his personal capacity to be surety and co-principal debtor for the first defendant liability to the plaintiff. Despite this denial and the onus of proof being on plaintiff no evidence was actually led from the plaintiff’s only witness in regard to the said claim which incidentally was also one of the issues for trial as issue No 8. It is clear therefore that the plaintiff has failed to discharge the onus on it to prove that the second defendant agreed in his personal capacity to act as surety and co-principal debtor on behalf of the first defendant by signing the Application for Credit Account form on the 28 September 2012. Besides, a proper interpretation of the application for Credit Account is that the application is no more than  an offer by the first defendant to do business on credit whose terms are contained on p 5-7 of Exh 1. It follows that until the application (offer) had been accepted the undertaking quoted from p 4 of Exh 1 could not be regarded as credit facility as pleaded by the plaintiff. In the circumstances the court finds that the plaintiff has failed to prove that the second defendant by signing p 4 of the credit facility application he was signing the credit facility agreement nor did he personally agree to act as a surety and co-principal debtor for the first defendant.

It will be recalled that the defendant’s defence to the plaintiff’s claim per amended declaration as summarised above was that the second defendant was not authorised to enter into the agreement with the plaintiff and that in fact the second and third defendants acted fraudulently. In amplification of the said defence as pleaded the first defendant called 3 witnesses all of whom testified their evidence in chief that the second defendant was not authorised to enter into the credit facility agreement and that any transactions there under were fraudulent. When pressed under cross examination as to the basis of the transactions pursuant to which the first defendant paid about $700 000,00 to the plaintiff the first defendant’s position significantly shifted to one where the first defendant admitted liability under deal one and disputed the second deal referred to as Pioneer Andrew. Ultimately the first defendant was constrained to admit that the agreement exhibited as p 1-20  of Exh 1 was the basis on which the plaintiff sold fertilizer admitted as under deal one. Clearly therefore the first defendant could not persist with the position that it had pleaded in its Amended plea namely 1-Ad paragraph 1- where it said “Save to state that the 1st defendant has no direct knowledge of the plaintiff and denies having entered into any business relationship with the plaintiff as alleged or at all, no issue arise.”

5 Ad Paragraph 5.1 where the first defendant pleaded as follows – “This is denied - first defendant avers that it has no knowledge of the plaintiff or the contract allegedly entered into between it and the plaintiff and puts plaintiff to the strict proof thereof,”

5.3 (d) Further the first defendant alleges and avers that (a) the agreement relied upon by the plaintiff was an unauthorised and fraudulent Agreement entered into privately between the plaintiff and the second and third defendants acting outside the course and scope of their employment which agreement is not binding on the first defendant.

(b) In the alternative the first defendant avers that second and third defendants abused their positions as directors of the first defendant company by entering into unauthorised irregular wrongful fraudulent and reckless agreements with the plaintiff in violation of s 318 of the Companies Act [Chapter 24:03] and in so doing acted recklessly and are accordingly personally liable for any liabilities that arise.

5.3 (a)  first defendant further alleges that there was no value received by the first defendant in respect of the contract as

(i)  It did not need the fertilizer

(ii)  No product was delivered to it

(iii) ……..

(iv) ………

Ad para 17.1. It is also clear as a result of the concession made by the first defendant’s witnesses that the  following positions in the first defendant’s plea cannot stand namely–  Ad par 17.1 This is disputed.  The first defendant did not require credit from the plaintiff and has no knowledge of the amounts claimed.

17.2  None of the goods were received by the first defendant

17.3  None of the goods were received on behalf of the first defendant

17.4  The first defendant did not benefit from such goods and puts plaintiff to the strict proof of its claim in its entirety.

17.5  The first defendant has not paid any amounts to the plaintiff as alleged or at all as the case never  existed in the first defendant’s books of account and first defendant was not party to the alleged agreement.

17.6 The plaintiff is put to the proof of the payments allegedly received from first defendant.

It is clear on the evidence of the first defendant’s witnesses that first defendant capitulated as initially it did not acknowledge any business transaction with plaintiff.  Under the heat of cross examination by plaintiff’s counsel the first defendant’s witnesses made the following important and crucial concessions:

the first defendant did not dispute that it had some business transactions with plaintiff

the second defendant as first defendant’s  Managing director had authority to bind the first defendant contractually

K Madziwa the first defendant’s key witness who worked in the finance department acknowledged that between 2012 and 2014 there were supplies on credit that were paid for in October 2013 and January 2014 while

Paul Muchena conceded that as senior management he was aware that … plaintiff was supplying inputs for seed production but he was not aware of the details of the contract.  He also accepted that the contract page 1 – 7 of the exhibit 1 was a valid contract that was binding on first defendant as it had been signed by second defendant who was the managing director of first defendant at the time.

It is quite apparent that the first Defendant’s defence was based on lack of authority on second defendant’s part to enter into a credit facility agreement on behalf of the first defendant.  In the closing submissions first defendant’s counsel argued that section 318 of the companies Act (Chapter 24:03) provides that the directors and officers of a company who abuse their positions by entering into unauthorized irregular wrongful fraudulent agreements should be held personally liable for any liability that arises.  This is too simplistic a view of the provisions of section 318.  As a matter of fact the said section authorizes a court on the application of the master or liquidator or judicial manager or any creditor of or contributory to the company to  declare former directors or officers to be personally liable for the company debts.

Section 318 (1) reads as follows:

If at any time it appears that the business of a company was being carried on

Recklessly

With negligence or

With intent to defraud any person or for any fraudulent purpose the court may on the application of the master, or liquidator or judicial manager or any creditors of or contributory to the company, if it thinks proper to do so … that any of the part or present directors of the company or any other persons who were knowingly parties to the carrying on of the business in the manner or circumstances aforesaid shall be personally responsible without limitation of liability, for all or any of the debts or other liabilities of the company as the court may direct”

….

……

No application has been made to this court by either the master liquidator or judicial manager or any creditor or contributory to the company for an order declaring second and third defendants personally liable for first defendant’s debts.  First defendant has no locus standi to seek the order declaring second defendant and third defendants personally liable for first defendant’s debts to the plaintiff as it is neither the master liquidator judicial manager nor creditor or contributory to the company.

The plaintiff’s counsel submitted correctly that first defendant cannot claim that it should be excused from liability because it alleges that it was defrauded by its managing director.  In support of this submission plaintiff relies on s 13 of the companies Act [Chapter 24:03] which in the clearest of language declares that a company will not be excused from liability to third parties arising from any fraud by the company’s directors or officials acting in terms of s 12 of the Act.

For the avoidance of doubt the provisions of both s 12 and 13 of the companies Act are reproduced herein below

Section 12 – ‘Any person having dealings with a company or with someone deriving title from a company shall be entitled to make the following assumptions and the company and anyone deriving title from it shall be stopped from denying their truth–

that every person described in the company’s register of directors and secretaries or in any return delivered to the Registrar by the Company in terms of s 187 as a director manager or secretary of the company has been duly appointed and has authority to exercise the functions customarily exercised by a director manager or secretary as the case may be of a company carrying on business of the kind carried on by the company.

c.	….

d.	….

e.	….

13	“A company shall be bound in terms of s 12 notwithstanding that the officer or 	agent concerned acted fraudulently or forged a document purporting to be sealed or 	signed on behalf of the company.’

The second defendant gave evidence on oath and it was not suggested to him under cross-examination that by applying for the credit facility from the plaintiff he was acting fraudulently and without authority despite the plea filed. The first defendant could not have persisted with the claim that the second defendant had acted without authority and fraudulently in light of the concessions made by Dr Uchena that pp 1 – 7 of exh 1 was the only contract for the supply of inputs by the plaintiff and that the said contract was valid and binding on the first defendant signed by the second defendant in his capacity as its then Managing Director.  Besides first defendant conceded through its witnesses that it transacted about $700 000 worth of business with the plaintiff pursuant to the said agreement which transactions it acknowledged.

The plaintiff having as valid been furnished with the first defendant’s CR 14 on pp 13 to 14 showing that as at 2012 the second defendant was a director  of the first defendant was entitled to make the relevant assumptions in terms of s 12 of the Companies Act aforesaid

Even assuming that the first defendant had not been authorised to enter into the credit facility agreement a position inconsistent with the evidence from the first defendant’s witness that would not have availed the first defendant anything in light of the provisions of s 13 of the companies Act which provides that the Company shall be bound notwithstanding that the second defendant officer acted fraudulently.

The court does not accept the first defendant’s suggestion that the plaintiff connived with the second and third defendant. The thrust of first defendant’s defence namely that it did not know the plaintiff and that it had not conducted any business with it was demonstrated to be false.

No serious challenge was made by the first defendant to the capital claimed as contained in the declaration. The capital amount claimed was admitted as recorded in letter dated 15 October 2014 on p 23 of exh 1. The court finds the quantum of plaintiff’s claim was adequately proved.

In the circumstances the court finds that the plaintiff has proved on a balance of probabilities that the first defendant owes the plaintiff the amounts claimed in the summons. It is accordingly ordered that:

1.	1st defendant pay plaintiff the sum of $251 694.00 plus interest at the rate of 2.5% per month and compounded monthly prior to October 2014 and 1.5% per month and compounded monthly from October 2014 to date of payment in full.

2.	The 1st defendant pays the costs of suit on a legal practitioner and client scale.

3.	The plaintiff’s claim against 2nd defendant be and is hereby dismissed with costs.

Kevin J Arnott, plaintiff’s legal practitioners

Kantor & Immerman, 1st defendant’s legal practitioners

Messrs Mapfidza Rutsito Legal Practitioners, 2nd defendant’s legal practitioners