ENGEN PETROLEUM ZIMBABWE (PVT) LTD v WEDZERA PETROLEUM (PVT) LTD & ANOR

HIGH COURT, HARARE

[Civil Trial HH 253-16]

January 27 and 29, March 16 and April 15, 2016

MAFUSIRE J

Company law  –  Authority  –  Actual and ostensible  –  Companies Act [Chapter 24:03]  –  Applicability of, to processes of the Infrastructure Development Bank of Zimbabwe (IDBZ).

Plaintiff extended a credit facility to first defendant on condition that first defendant would make available bank guarantees from an acceptable financial institution. First defendant made available a guarantee from second defendant which was signed by one of its senior managers (former). When first defendant defaulted on its obligations, plaintiff called the guarantee. In response second defendant disputed the validity of the guarantee arguing that it was a fraud and the unauthorised act of its former manager. It also made reference to provisions of the Infrastructure Development Bank of Zimbabwe Act [Chapter 24:14] (“the IDBZ Act”) which oust the application of provisions of the Companies Act [Chapter 24:03]. The question which the court had to decide was whether the manager had either actual/implied authority or ostensible authority to bind the Infrastructure Development Bank of Zimbabwe (“the Bank” or “IDBZ”).

Held, that as between the manager and the Bank, plaintiff had established that the manager had actual or implied authority to issue the guarantees. As between plaintiff and the Bank, the manager had ostensible authority to issue the guarantees and to bind the Bank to third party recipients.

Held, further, that the branch manager of a bank is a senior employee. He is the face of the Bank to the world. He is its local spokesman. The outside world is normally entitled to assume or believe that he has the authority to issue out letters of credit binding on the Bank.

Held, further, that the manager was the Head. He had layers of staff below him. He managed other regions. He had the authority to use the Bank’s stationery. He was expressly entitled and empowered to market the Bank’s new trade strategies and programmes. In the overall administrative structure of the Bank, he was no 4 from the Chief Executive Officer, the topmost officer. His actions were properly binding on the Bank.

Held, further, that in the absence of anything in his contract or job description precluding him from issuing the guarantees on his single signature, the validity of his actions had to be upheld. Although his contract and job description did not say he could issue the guarantees on his single signature, they equally did not say he could not.

Held, further, that it was disingenuous for the Bank to try and seek refuge from the provisions of the IDBZ Act that, reposed in its Board of Directors or the Chief Executive Officer, the mandate to represent it or to consider funding for new projects. The argument was flawed because in terms of ss 4 and 4A of the IDBZ Act, the Board is in charge of the policy and administrative affairs of the Bank, not its operations.

Cases cited:

Africa Life Assurance Company Limited v NBS Bank Ltd 2001 (1) SA 432 (W), referred to

Glofinco v ABSA Bank Ltd (t/a United Bank) and Others 2001 (2) SA 1048 (W), distinguished

Hely-Hutchinson v Brayhead Ltd and Another [1968] 1 QB 549; [1967] 3 WLR 1408; [1967] 3 All ER 98, referred to

MacFoy v United Africa Co Ltd [1962] AC 152; [1961] 3 All ER 1169 (PC), referred to

Mills v Tanganda Tea Company Ltd 2013 (1) ZLR 38 (H), referred to

NBS Bank Ltd v Cape Produce Co (Pty) Ltd and Others 2002 (1) SA 396 (SCA); 2002 (2) All SA 262 (SCA), referred to

Northern Metropolitan Coal Council v Company Unique Finance (Pty) Ltd and Others 2012 (5) SA 323 (SCA); 2012 (3) All SA 498 (SCA), distinguished

Reed NO v Sager’s Motors (Pvt) Ltd 1969 (2) RLR 519 (AD); 1970 (1) SA 521 (RA), referred to

Royal British Bank v Turquand [1856] EngR 470; [1843-60] All ER 435; (1856) 119 ER 886; (1856) 6 E & B 327, referred to

Seniors Service (Pvt) Ltd v Nyoni 1986 (2) ZLR 293 (S), referred to

South African Eagle Insurance Co Ltd v NBS Bank Ltd 2002 (1) SA 560 (SCA), referred to

Legislation considered:

Companies Act [Chapter 24:03], ss 12, 13

Infrastructure Development Bank of Zimbabwe Act [Chapter 24:14], ss 4, 4A, 7, 21, 30

R Fitches, for the plaintiff

A Moyo, for the second defendant

The first defendant in default

MAFUSIRE J:

This was a civil trial. The first defendant Wedzera Petroleum (Pvt) Ltd (“Wedzera”) was in default. On application by the plaintiff Engen Petroleum Zimbabwe (Pvt) Ltd (“Engen”) in respect to which the second defendant the Infrastructure Development Bank of Zimbabwe (“the Bank” or “IDBZ”) had nothing to say, I entered a default judgment against Wedzera, in favour of Engen, in the sum of US$ 847 847.65, together with costs of suit and interest at the prescribed rate.

Most of the material facts were common cause. Engen was an oil company. It sold bulk fuels. Wedzera operated filling stations at which it retailed fuels. IDBZ was a statutory corporation set up in terms of its enabling Act, the Infrastructure Development Bank of Zimbabwe Act, [Chapter 24:14] (“the IDBZ Act”). Engen’s claim arose out of petroleum fuels sold and delivered to Wedzera in terms of an agreement between them. Wedzera had failed or neglected to pay. Engen claimed IDBZ had guaranteed the due payment by Wedzera, up to an amount in the sum of US$ 950 000. That amount was made up of two guarantees, one for US$ 500 000 and the other for US$ 450 000. But IDBZ disowned them. It argued that one of its ex-employees had issued them fraudulently or without authorisation.

Engen called two witnesses. The first, Johannes Mudzengerere (“Mudzengerere”) had been Engen’s Managing Director at the relevant time. He had been in charge of Engen’s entire operations, including the procurement and disposal of fuel stocks.

Engen’s second witness, Francis Mugwara (“Mugwara”), was the man at the centre of the guarantees. He had been subpoenaed just before the trial commenced. He was the one who had signed and issued the impeached guarantees. Figuratively, and perhaps not unexpectedly, the Bank sought to lynch him.

For the Bank, there were also two witnesses. At the relevant time Norbert Munengwa (“Munengwa”) had been an Assistant Director in charge of a unit or division called Private Sector Projects. He reported to the Chief Executive Officer. His portfolio covered the crafting of strategies, policy formulation and business development. Within that sector Mugwara had at all relevant times been the Head of the unit called Corporate Banking. It was formerly called the Short Term Loans Unit. He had joined it as Assistant Head, and had subsequently been promoted. He reported to Munengwa.

The Bank’s second witness was Desmond Matete (“Matete”). He was a qualified lawyer. At the relevant time he was the Director for Legal and Corporate Services. Amongst other duties, he was the custodian of the Bank’s legal documents.

There was much convergence, or little controversy, on such key aspects of the evidence as would, in my view, decide the matter. Differences were mainly on peripheral issues and on the parties’ application of the law to the facts.

Wedzera used to buy bulk fuels from Engen for cash. As its sales increased, it wanted more fuels, but on credit. Engen obliged. Wedzera signed Engen’s standard credit facility application form. Mudzengerere ran it past Engen’s agent for credit rating. He also sought and obtained clearance from Engen’s head office in South Africa. Everything seemed in order.

Wedzera had to provide a bank guarantee to guarantee the due payment for the fuels. These came from IDBZ.

During this period, 2010, the country’s economy had just “dollarised”. A multi-currency system had been introduced following the demise of the local currency. Most companies’ balance sheets had almost reduced to zero. As a recapitalisation strategy, the Bank had decided to offer non-traditional or non-generic products that either avoided or minimised direct cash outlays, or that brought in quick income. The witnesses said the Bank was trading off balance sheet.

The Bank’s new strategy concentrated on non-direct cash products such as short to medium term loans, bankers’ acceptances, bills discounting and bank guarantees. This strategy also involved the bulk importation of petroleum products and the procurement of fertilisers for disposal on the local market.

The Bank had set up a body known as the Private Sector Projects Committee (“the PSPC”). This committee would grant global approvals and cap the upper monetary limits for any new projects. The members of this committee were the Bank’s senior officials, including Munengwa and Matete. But heads of divisions such as Mugwara were also members. Mugwara was a member.

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