Treasure Consultancy (Private) Limited V Masvingo CITY Council AND Infrastructure Development BANK OF Zimbabwe

### Preamble
1
HH 246-2012
HC 4057-2011
TREASURE CONSULTANCY (PRIVATE) LIMITED
versus
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TREASURE CONSULTANCY (PRIVATE) LIMITED
versus
MASVINGO CITY COUNCIL
and
INFRASTRUCTURE DEVELOPMENT BANK OF ZIMBABWE

HIGH COURT OF ZIMBABWE
BERE J
HARARE 14 and 19th of MARCH 2012

OPPOSED APPLICATION

Advocate L. Uriri for the Applicant
Advocate T. Mpofu, for 1st and 2nd Respondent

BERE J: On 26 March 2011 the Applicant filed an application in this Court seeking the following order:

“IT IS HEREBY ORDERED THAT:

1. The Agreement of Sale that was entered into between the City of Masvingo and Treasure Consultants (Private) Limited, for the sale of 500 stands in the Runyararo South West Residential area Masvingo, on 20 December 2005, (“the Agreement”) be and is hereby declared a validity existing agreement.

2. The purported existing cancellation of the Agreement by the First Respondent is void and therefore a legal nullity for want of compliance with the Law.”

Pursuant to the order under 1 and 2 above the Applicant also sought the following order:

“ACCORDINGLY, IT IS HEREBY ORDERED THAT:

1. The subsequent Agreement of Sale that was entered into between City of Masvingo and the Infrastructure Development Bank of Zimbabwe for the sale of 500 stands in the Runyararo South West Residential area, in Masvingo, be and is hereby set aside.

2. The First Respondent be and is hereby ordered to inspect the water and sewer reticulation works, within seven (7) days of the service of this Court Order on First Respondent.
 3. The First Respondent be and is hereby to provide all such services to the Applicant as are expected of A Local authority to a developer up to the point of issuance of a Certificate of, Compliance.

4. The First and Second Respondent be and are hereby ordered to pay the Applicant costs of suit on a legal practitioner and client scale.”

On 19 March 2012, and after reading the documents filed of record and having benefited from the detailed submissions by both counsels I dismissed the Applicant’s application with costs. I indicated then that my reasons would follow. Here they are;

**THE BACKGROUND**

On 20 December 2005 the First Respondent and a company called Treasure Consultants (Private) Limited entered into a sale agreement of stands on a phased basis. The first phase involved 500 stands and this sale was conditional upon the Applicant being able to *inter alia* pay the agreed purchase price and comply with other ancillary obligations within the stipulated time. It is common cause that the ownership of the stands themselves was only going to be vested in the Applicant upon fulfilment of the conditions spelt out in the agreement.

The agreement alluded to above ran into difficulties largely because Treasure Consultants (Private) Limited encountered challenges in securing funds for the fulfilment of the terms of the agreement. The result was that the purchaser viz. Treasure Consultants was placed under Reconstruction in terms of section 4 of the Act.\(^1\)

The Reconstruction order which appointed Arafas Mtausi Gwaradzimba as Administrator of the Applicant was confirmed by this Court on 28\(^\text{th}\) May 2007, hence the bringing of this application by the Applicant.

The Administrator, fully cognisant of the fact that the Applicant Company had breached its terms with the First Respondent sought to resuscitate the agreement by preparing a scheme of Reconstruction which was approved and extended by the Minister of Justice and Legal and Parliamentary Affairs on 23 March 2007.


It is clear from a reading of the papers filed that the administrator, having fully appreciated the hopeless situation or the Applicant’s inability to fulfil the terms of the agreement of sale with the First Respondent initiated the taking over of the project by the Second Respondent. Clearly appreciating the need to put back on rail the literally dead agreement between the Applicant and the First Respondent, on 14th of December 2006 the Administrator wrote to the Second Respondent seeking the extension of time to complete the project and the relevant parts of that letter read as follows;

“…………In terms of section 6 (a) of the Reconstruction Act the Administrator assumed control and management of the company with effect from 10 November 2006.

Accordingly, in terms of section 18(1) (k) of the Reconstruction Act, I, as Administrator of TC,, hereby ratify the Memorandum of Agreement (“the Agreement”) entered into between Masvingo City Council (“MCC or “the Council”) and TC on 20 December 2005. I further request the extension of time required to complete the project subject to the Agreement, from 20 December 2006 as per clause 10 of the Agreement, to 31 December 2007.” (my emphasis).

It would appear that because of the history of the Applicant in failing to fulfil its part of the agreement the request by the Administrator did not find favour with the First Respondent whose representation wrote back to the Administrator as follows:

“I refer to your application for an extension of time to 31 December 2008 to enable you to complete the servicing of the above project. I further refer to subsequent meetings and correspondence in relation to the above matter and now wish to advice as follows;

1. Notwithstanding provisions of clause 10 of the Agreement of Sale between Treasure Consultants (Private) Limited (Under Reconstruction) and the City of Masvingo, it was;

RESOLVED “THAT Masvingo City Council terminates its agreement with Treasure Consultants (Private) Limited (Under Reconstruction) on the housing development project in Runyararo South West, it being noted that the developer has breached clause 9 of the agreement and that the Town Clerk be instructed to terminate the agreement accordingly.”

2. The recommendation of the Combined Public Works and Planning and Health, Housing and Environmental Services Committee was satisfied by minute 094 of the 895th Ordinary meeting of Council on 25 February 2008.


3. To avoid any doubt clause 9 of the Agreement of Sale between Treasure Consultants and Masvingo City Council reads;

“THAT this agreement shall be terminated if any of the aforesaid provisions are violated or breached or if the developer fails to complete the provisions of the full services within the set limit outlined in clause 5 above. Upon the said termination, the 500 stands shall automatically revert to the City Council and 50% of the purchase price paid towards the purchase price of the stands will be forfeited to the City Council.

Now the council is exercising its rights in terms of the above clauses.

4. The main objective of the project is to provide low cost housing which are affordable to the late prayers.

Council believes that your course of action would not achieve that objective now and therefore does not endorse your second Amendment to the Scheme of Reconstruction. does not endorse your second Amendment to the Scheme of Reconstruction.

5. Council is considering the way forward taking cognisance of;

- the need to complete the project
- cost implications of the project
- the basis of possible valuation of the project (most probably historic costs)

Please be advised accordingly”

Following upon the First Respondent’s position, the project was eventually sold to the Second Respondent on 15th of January 2009. Incidentally, it would also appear that the Administrator, in his proposed scheme of Reconstruction had kept the Second Respondent within its radar for purposes of taking over the project from the Applicant. The involvement of the Second Applicant could not possibly therefore have come as a surprise to both the Administrator and the Applicant.

The basis of the Applicant’s application is that the First Respondent unduly and unlawfully cancelled the Agreement of Sale that had been entered into with the Applicant. The basis of this averment was that the purported cancellation of the agreement by the First Respondent ran foul of the provisions of section 6 of the Act. The position taken by the Applicant is well spelt out in paragraph 8. 8. 2 of Afaras Mtauzi Gwaradzimba’s answering affidavit where the deponent alleges that:


“The Applicant’s contention is that the cancellation of the Agreement was not done in terms of the Law, in that the Applicant disposed of the property of the Applicant without my leave, as provided for in terms of the Reconstruction of State Indebted Insolvent Company’s Act” (my emphasis)

When this matter came up for argument on 14 March 2012 both legal practitioners abandoned arguments on the preliminary points that had been raised in the pleadings and Heads of Argument. I am satisfied the decision was well a informed one. I shall therefore restrict my determination of this matter to the issues on merit.

The main thrust of Advocate Uriri’s submissions deriving from the Heads of Arguments filed was that when the Applicant was placed under Reconstruction the property which formed the subject matter of the sale agreement had been firmly placed in the hands of the Applicant hence this property could only be dealt with in terms of section 6 of the Act. Counsel opined that the purported cancellation of the agreement of sale would remain null and void as long as it was not approved by the administrator Mr Gwara dzimba.

In countering this argument, Advocate Mpofu adopted a two-pronged approach which he firmly believed tilted the balance in favour of justifying the cancellation of the agreement by the First Respondent. The first argument was that the property which formed the subject matter of the transaction between the Applicant company and the First Respondent never became the property of the Applicant because the agreement in issue was subject to a suspensive condition which was never fulfilled rendering the agreement a nullity.

Consequently, so the argument went, the property which was covered in the sale agreement fell outside the armpit of the Administrator as envisaged by section 6.

Secondly, counsel for the First and Second Respondent argued that there had been an inordinate delay by the Applicant in bringing this action to the extent that the action instituted had been extinguished by prescription.

I propose to deal with the issues raised by both counsels in seratium.

DID THE PROPERTY IN QUESTION BELONG TO THE APPLICANT AT THE TIME THE ADMINISTRATOR CAME INTO THE PICTURE?

In advancing his argument Counsel Uriri relied heavily on the provision of section 6 of the Reconstruction of State-Indebted Insolvent Companies Act\(^3\) which reads as follows:

“6 Effect of reconstruction order.

\(^2\) [Cap 24:27] \(^3\) [Cap 24:27]
 A reconstruction order shall have the following effect, namely that:-

a) the administrator assume the control and management of the company and recover and take possession of all assets of the company, and b) no action or proceedings shall be proceeded with or commenced against the company except by leave of the administrator and subject to such terms as the administrator may impose, and c) any attachment or execution put in force against the assets of the company after the commencement of the reconstruction shall be void, andd) every disposition of the property, including rights of action, of the company and every transfer of shares or alteration in the status of its members, made after the commencement of the reconstruction, shall unless the administrator otherwise orders, be void.”

I express not the slightest reservation to Advocate Uriri’s exposition of the law that the provisions of section 6 (supra) are peremptory. I also accept the need to follow peremptory provisions of the law to the letter. See *Jeffrey Mzimbi and 2 others v Reserve Bank of Zimbabwe and 2 others*⁴ & *Nkisane and others v Santan Insurance Company Limited*⁵ and a host of other decisions referred therein.

The arguments raised by both counsels must be put in their proper perspective. They must be looked at within the context of the agreement of sale entered into by the two parties involved because it is the interpretation of that agreement which has created divergent views by the parties.

A closer look at the agreement entered into by the Applicant and the First Respondent before the Applicant was placed under Reconstruction in my view clearly shows that the agreement of sale was a conditional one. This is so if regard is had to clause 9 of the agreement which for clarity’s sake was worded as follows:

“9 THAT, this agreement shall be terminated if any of the aforesaid provisions are violated or breached or if the developer fails to complete the provision of the full services within the set limit as outlined in clause 5 above. Upon the said termination, the 500 stands shall automatically revert to the City Council and 50% of the purchase price paid towards the purchase price of the stands will be forfeited to the City Council.”


There is no argument that the Applicant Company violated the provisions of the agreement as anticipated by clause 9 (supra). This violation was fully appreciated by non-other than the Administrator Mr Gwaradzimba when he came into the picture. The Administrator was faced with the unenviable task of trying to resuscitate a literally dead agreement. It was precisely because of the Administrator’s appreciation of the predicament the Applicant was in that on 14 December 2006 he engaged the First Respondent and pleaded with it by humbly submitting *inter alia*.

“Accordingly, in terms of section 18 (1) (k) of the Reconstruction Act, I, as the Administrator of TC hereby ratify the Memorandum of Agreement (“the Agreement”) entered into between Masvingo City Council (“MCC” or “the Council” and TC on 20 December 2005. I further request the extension of time required to complete the project subject of the Agreement from 20 December 2006 as per clause 10 of the Agreement, to 31 December 2007”. (my emphasis)

It occurs to me that when the Administrator sought extension from the First Respondent, he knew that he did not possess the sweeping powers attributed to him by Advocate Uriri through what I would term a skewed interpretation of section 6 (supra). If the Administrator had such powers he would have simply instructed the First Respondent that he (the Administrator) in terms of the powers vested in him by the Act was unilaterally extending the time of the project to 31 December 2007.

When the Administrator pleaded for an extension of time, he must have been expecting either the granting of the extension of time sought or its decline. The Administrator knew or ought to have known that the discretion to either accede to or decline his request lay not with him but with the First Respondent.

True to the honest expectations of the Administrator, when the First Respondent got seized with the matter it declined to grant the sought extension and in doing so it gave its reasons as per its letter of 12 March 2008 which has already been referred to earlier in this judgment. The clear position that I take is that the First Respondent did not require to be aided or directed by the Administrator to use its discretion.

It does seem to me that in making an unsuccessful attempt to have the time of the contract extended the Administrator knew that there was virtually no property that he could assume control over as the condition precedent had not been fulfilled. The law on contracts which are governed by conditions precedent has been adequately explored and re-stated by Advocate Mpofu to the extend that I need not say more lest I spoil the soup.


Suffice it to say that I find R.H. Christie$^6$ putting the issue crystal clear and to the point when he states:

“Undoubtedly the contract is binding in the sense that what binds the parties to each other is no more and no less that the contract into which they have entered but we are precluded by authority from saying that a contract of sale subject to a condition precedent that has not yet been fulfilled is a sale.” (my emphasis)

See also a host of decided cases referred by the same author on p.129.

I do take the point advanced by Advocate Mpofu that: “In the absence of the fulfilment of the conditions precedent, which position is common cause, the Applicant had no contract to enforce”. I further accept that the contract between the Applicant and the First Respondent could only have been salvaged or resuscitated if an extension of time had been acceded to by the First Respondent.

It would seem to me that section 6 (supra) would inevitably be violated in those situations where action which would be either detrimental or even beneficial to a Company under Reconstruction is taken without the knowledge or active participation of the Administrator. But where the Administrator has been actively involved, participated in the deliberations and lost his cause as in the instant case cannot turn around and allege violation of the law. It appears to me that, it would be a gross exaggeration to say that in using its discretion the First Respondent violated the cited provisions of the Act. Such an approach would amount to a skewed interpretation of the allegedly violated section. It would have the undesirable consequence of elevating the functions of the Administrator to unacceptable levels. There is no provision in the cited Act which authorises the Administrator to unilaterally run the show. He could only act within the parameters of the agreement. Fortunately, the Administrator despite what he alleges in his founding affidavit clearly understood that he could not deal with this agreement without the involvement of the First Respondent. The mere fact that the First Respondent declined the request made by the Administrator cannot by any stretch of imagination amount to violating section 6 of the Act.

**PRESCRIPTION**

$^6$ The law of contract in South Africa, RH Christie, Butterworths, Durban-Pretoria 1983 1$^{st}$ edition p:128-129.


The challenges faced by the Applicant in this matter do not end with the issues canvassed above. The Respondents alleged that the cause of action, having arisen on 12 March 2008, the Applicant must be estopped from raising its claim now because of extinctive prescription. The position taken by the Respondents stem from the fact that as at 12 March 2008 the Applicant knew of the cancellation of the agreement but did nothing about it. On 27 January 2009 the First Respondent wrote to the Applicant reaffirming cancellation of the agreement and clearly indicated that the project was being sold to the Second Respondent. Again the Applicant did nothing.

It was argued, and I believe quite rightly so that the Applicant must be taken to have accepted the First Respondent’s position and further that it must be taken to have acquiesed to the acquisition of the project by the Second Respondent.

The position which the Applicant finds itself in is succinctly expressed in the case of Sun Radio and Furnishers v Republic Timber and Hardware (Pvt) Ltd\(^7\) where the learned Judge took a leaf from Wessels para 270 and summed up the aspect of acquiescence as follows:

“But if there is a legal duty to speak and I refrain from doing so, the Court will presume that I assented…….”

In the absence of any cogent reason, there is no reason why the Applicant, having been watching the developments for so long, should be allowed to take action that would be highly prejudicial to the Second Respondent.

In terms of the Prescription Act\(^8\) the extinctive period for an action similar to the one in casu is three years and that time has since run out from the date of the cause of action. The Applicant has not attempted to give a justifiable reason why it did not timeously bring this action against the Respondents. In a recent case, I dealt with an almost similar issue and restated the rationale behind extinctive prescription.\(^9\) The need to initiate litigation in time cannot be overemphasised. In the instant case one cannot help but conclude that this action was a belated one.

In conclusion, I am more than satisfied that the Applicant’s case is not sustainable. It was for these reasons that I granted the order of 19 March 2012.

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\(^7\) 1969 (4) SA 378 (T)
\(^8\) [Cap 8:11]
\(^9\) Mcloud Zvavovaviri Mapanga vs Alfred Chapupu Masanga and another HH 231/12.


Messrs Dube Manikai & Hwacha, Applicant’s legal practitioners
Messrs Gill, Godlonton and Gerrans, Respondent’s legal practitioners
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