NITIN COFFEE ESTATES LTD AND 4 OTHERS v UNITED ENGINEERING WORKS LTD AND ANOTHER 1988 TLR 203 (CA)

 NITIN COFFEE ESTATES LTD AND 4 OTHERS v UNITED ENGINEERING WORKS LTD AND ANOTHER 1988 TLR 203 (CA)

Court Court of Appeal of Tanzania - Arusha

Judge Mustafa JJA, Makame JJA and Kisanga JJA

11 November, 1988 G

Flynote

Company law - Agreement to sell shares - No agreed price nor means to ascertain price - Effect of uncertainty on the agreement.

Contract - Agreement to sell shares - No agreed price nor means to ascertain price - Effect of uncertainty on the agreement.

Contract - Oral agreement to sell farms held under Right of Occupancy - Writing and consent requirements not complied with - Part performance of the agreement - Whether Regulation 3(1) of the Land Regulations 1948 applicable.

Land law - Agreement to sell farms held under Right of Occupancy 

Writing and consent requirements not complied with - Part performance of agreement - Whether Regulation 3(1) of the Land Regulations 1948 applicable.

-Headnote

In 1983 the 4th and 5th appellants, shareholders and directors of the 1st and 2nd appellants (limited liability companies), in view of the "crack down" and the state of fear it generated, sold the total shareholding in and all the assets of the 1st and 2nd appellants to one Manik, the 2nd respondent. The assets included two farms held under Right of Occupancy. The agreement was made orally. The price of shares was not agreed upon and there was no means of ascertaining it. The 2nd respondent, Manik, was put in occupation of the farms as the buyer. In 1986 the appellants sought to repudiate the agreement arguing that they did not sell the farm to Manik and in the alternative that if there was any such agreement at all it could not be enforceable for lack of writing and consent as required by Regulation 3(1) of the Land Regulations, 1948.

Held: (i) As the price was not agreed, and there were no means of ascertaining such price in a sale of individual shares, there was no agreement due to uncertainty;

(ii) the agreement by 4th and 5th appellants to sell their shares was void for uncertainty in terms of section 29 of the Law of Contract Ordinance, Cap. 433;

(iii) an oral agreement to sell land held under a Right of Occupancy is inoperative and of no effect in terms of F Regulation 3(i) of Land Regulations, 1984;

(iv) the doctrine of part performance cannot help as in Tanzania the regulation in question requires both writing and consent.

Case Information

G Order accordingly.

Fimbo, for the Appellants.

Marando, for the Respondents.

[zJDz]Judgment

H Mustafa, Makame and Kisanga, JJ.A.: In the High Court at Arusha the United Engineering Works Ltd. and Jagdev Singh Manik as 1st and 2nd Plaintiffs respectively sued the Nitin Coffee Estates Ltd., Rafiki Estates Ltd., Nanji Devchand Patel, Sudhir Nanji Ondhia and Vineshwar Nanji Ondhia as 1st, 2nd, 3rd, 4th and 5th defendants respectively. The Plaintiffs had alleged that the 4th defendant Sudhir Ondhia and the 5th defendant Vineshwar Ondhia acting on behalf of themselves and of all the A other shareholders and directors of 1st and 2nd defendant companies had orally concluded negotiations to sell to the Plaintiffs all the shareholding in the 1st and 2nd defendant companies, and all the movable and immovable assets, including the farm at Oldeani held by the 2nd defendant company on a Right of Occupancy.

The 1st Plaintiff is a limited liability company and the 2nd Plaintiff is the managing director and principal shareholder of the 1st Plaintiff Company. The 1st and 2nd defendants are limited liability companies and the 3rd, 4th and 5th defendants are shareholders and C directors of the 1st and 2nd defendant companies.

It appears that both the Plaintiff limited company and the Defendant limited companies are owned and controlled by the family members of the 2nd Plaintiff and the family members of the 3rd, 4th and 5th defendants respectively.

It was alleged by the plaintiffs (hereinafter called the respondents) that the global purchase price for the two defendant companies, lock stock and barrel, and of the total shareholding in those two defendant companies was shs. 10 million. The defendants (hereinafter called the appellants) denied that the 4th and 5th appellants had concluded negotiations for the sale of the total shareholding and all movable and immovable assets of the 1st and 2nd appellant companies for the global sum of shs. 10 million or at all. And in so far as the alleged sale of the farms of the 1st and 2nd F appellant companies was concerned they submitted that the agreement was in any event unenforceable for lack of writing and the requisite content.

The cases came up for trial before Mwakibete, J. The respondents' case briefly was as follows. The respondent G Manik alleged that in 1983 there was what was known as the "crack down" in Tanzania and many businessmen were in a state of near panic and were selling their properties at give away prices. Manik understood that the farms of the appellant companies were for sale and he saw the 4th and 5th appellants who confirmed that it was true. 4th and 5th appellants told Manik that the total price was 10 million shillings. It was also agreed that Manik was to pay H 2.4 million shillings and the balance of the purchase price was to be paid from the proceeds of the crops grown in the two farms. After the total purchase price had been paid all the shares held in the 1st and 2nd appellant companies as well as all the assets of the two appellant companies were to be transferred to the two respondents in proportions as would be decided by Manik. Only some holy pictures and brass vessels used by the 3rd, 4th and 5th appellants would not be transferred. As a result of the agreement Manik made payment of 2 million 75 thousand shllings to the appellant and was put in possession of the farms and all the properties therein. That was in October/November, 1983.

Manik was proclaimed to the staff and others as the new owner. Manik was also given 50 shares in the Nitin Coffee Estates Ltd. Manik worked the farms and used his own money in maintaining and developing them, and from the proceeds of the crops and coffee, paid off the balance of the purchase price to the appellants towards the end of 1985.

Manik approached the appellants in early 1986 for the transfer of the shareholding, directorship and the farms to him and his company, but the appellants repudiated the agreement to sell. The respondents in March, 1986 filed action against the appellants for specific performance i.e. for the appellants to transfer all their shares in the two limited companies and for the two limited companies to transfer all their assets including the two farms to the respondents and a refund of 10.6 million shillings being the alleged excess payment in E respect of the agreed purchase price and for damages for breach of contract.

The appellants in Court denied that the 4th appellant and the 5th appellant had concluded any agreement of sale as alleged by Manik. They admitted receipt of Shs. 3 million and 75 thousand from the respondents but alleged that it was in part payment for the 50 share in Nitin Coffee Estate sold by one Anupkumar Ondhia. The appellants alleged that the price for those 50 shares was 2.5 million shillings. They claimed that Manik was given possession of the two farms of the 1st and 2nd appellant companies as a director, and not as owner thereof. Manik was managing and running the farms and he was paid a director's fee, as most of the shareholders and directors of the two companies were then living outside Tanzania. Both the 4th and 5th appellants in their statement of defence denied selling their shares to the respondents. Appellant H 4 testified in court to that effect, but appellant 5 did not testify. The appellants claimed that only 50 shares of one Anupkumar Ondhia in Nitin Coffee Estate were sold to the respondents.

In any event the appellants contended that an alleged sale of the farm was unenforceable and of no effect as the I agreement was not in writing and was without the requisite consent. The appellants in a counterclaim asked the respondents to give an account of their stewardship of the farms with full A accounts.

A number of witnesses were called on both sides in what appeared to have been a rather protracted trial.

The trial judge reviewed and analyzed the evidence adduced with care and concluded that the sum of 2 million 75 B thousand shillings paid by Manik was in part payment of the purchase price of the sale of the appellants' farms and "possibly some of the shares". He also held that the putting of Manik into occupation of the farms was in part performance of the agreement to sell. He held that there was an irresistible conclusion of that there was an oral C agreement to sell the two farms of the 1st and 2nd appellant companies as alleged by Manik, although it was uncertain what the prices for them were. He held that because there was part performance of the agreement to sell the two farms, Regulation 3(1) of the Land Regulations 1948 (Cap113 Supplement 64) would not be applicable and he concluded that the oral agreement to sell the farms, "in the circumstances of this case" was enforceable.

As regards the 50 shares in Nitin Coffee Estates Limited sold by Anupkumar Ondhia, he considered the conflicting evidence adduced as to the price of the said shares. He concluded that the 50 shares were sold for shs. 125,000/= E and not 2.5 million shillings as contended by the appellants.

As regards the sale of shares by the 5th appellant, the judge held that since the 5th appellant did not testify although he was in court throughout the trial, he believed Manik that the 5th appellant had agreed to sell his shares to the F respondents, that is, 50 shares in Nitin Coffee Estates Limited. The judge stated "On the evidence plaintiff paid for the shares".

In regard to the sale of the shares by the 4th appellant, the judge stated that he preferred the evidence of Manik to G that of appellant 4, and believed Manik that 4th appellant had agreed to sell his shares. And the judge also added "having paid the purchase price in relation thereto."

With regard to the shares of appellant 3, the judge found that the 4th and 5th appellants had no authority to sell the H share of appellant 3, and such an agreement, even if made, was not enforceable against appellant 3. And so far as the shareholders absent from Tanzania were concerned, the judge was unable to discover that 4th and 5th appellants had any authority to sell their shares. The judge was unable to find any clear and unambiguous I evidence to indicate that these absent shareholders had authorized or consented to the sale of their shares by 4th and 5th appellants. He held the agreement concerning these sales were not enforceable.

The judge considered the prayers for specific performance. He was of the opinion that since the sale of the majority of the shares in the 1st and 2nd appellant companies was unenforceable, it would be "absurd granting the prayer for specific performance in relation to movable and immovable assets of Nitin Coffee Estates Limited and Rafiki Estates Limited."

He ordered specific performance in respect of the sale of the shares by 4th and 5th appellants to the respondents.

He refused specific performance of the sale of the two farms and awarded damages "diverting the appellants of what they have unjustly benefited."

He ordered that the appellants jointly and severally refund the respondents as under:

(1) The purchase price under the agreement 10 million shillings;

(2) The sum of shs. 10,608,620/= paid in excess of purchase price;

(3) An agreed sum of 5 million shillings incurred by respondents in running the two farms from October 1983 to date of filing suit, that is, 5/3/86. A further sum in respect of such expenses be computed and taxed from date of filing suit to date of vacant possession;

(4) The crops from Nitin Coffee Estate and Rafiki Estate which are in stores awaiting delivery to TCGA to be sold, and the coffee or any other crops to be picked this season from the two farms, belong to the respondents;

(5) General damages at 5 million shillings.

He also ordered the respondents (in error appellants stated) to give possession a month after payment, within a month of this judgment, of the decretal sum in full. He awarded costs of the suit to the respondents. The judge dismissed the appellants' counterclaim and awarded costs of the counterclaim to the respondents. The appellants have appealed from that judgment. The respondents have also appealed. I will treat the respondents' appeal as a cross-appeal.

The appellants' appeal is on the following main grounds:

(1) The oral agreement to sell the land is unenforceable because of Regulation 3(i) of Land Regulations 1948. The agreement is also illegal because it transgressed the Companies Ordinance Cap. 212 and was without the A approval of the Bank of Tanzania.

(2) The judge erred in holding that appellant 4 and appellant 5 had agreed to sell their shares and in any event such an agreement was void for uncertainty.

(3) The judge erred in holding that the price for the 50 shares sold by Anupkumar Ondhia was shs. 125,000/= and not 2.5 million shillings.

(4) The judge erred in ordering the refund of the purchase price and the excess amount paid and in awarding C 5 million as general damages.

(5) The judge erred in refusing to order the respondents to give a full account to the appellants since the respondents' accupation of the farms.

The respondents' cross-appeal is on the following grounds:

(1) The judge erred in holding that the 4th appellant and 5th appellant did not have authority to sell the shares of the absent shareholders, and in failing to order specific performance of the sale of the two farms. E Alternatively,

(2) The judge erred in awarding grossly inadequate damages.

I have perused the evidence on record and have carefully considered the submissions of learned counsel before this F court. I am of the opinion that the trial judge was right in his findings of fact. I am of the view that the 4th appellant and the 5th appellant did, in view of the "crack down" and the state of fear which it generated, want to sell the total shareholding in and all the assets of the 1st and 2nd appellant companies to Manik. I believe that there was an oral agreement between Manik in his evidence. Manik was put in occupation of the farms as the buyer, not as a director or manager. On the basis of such facts I will now deal with the legal consequences flowing therefrom.

I have said that the trial judge was correct in his findings of fact. Unfortunately, I cannot say the same about his conclusions in law. I begin with the applicability of Land Regulations 1948 to the oral agreement concerning the sale of the two farms.

I will set out the relevant Land Regulations: 

A "Land Regulations 1948 (Cap.113 - Supplement 64) 

3 (1) A disposition of a Right of Occupancy shall not be operative unless it is in writing and until it is approved by the President (later to be Director Land Development Services).

B (2) n.a.

(3) In this regulation "disposition" means -

(a) a conveyance or assignment other than by way of mortgage....

(b) n.a.

(c) a deed or agreement or declaration of trust binding any party to make such disposition as aforesaid, including a deed or agreement entitling a party thereto to require any such disposition to be made.

In my view an oral agreement of the type sued on to sell land held under a Right of Occupancy is in-operative and of no effect. There is a long line of authority to that effect. In Patterson and another v Kanji (1956) E.A.C.A. 106 at E 111 the Court of Appeal of East Africa dealing with a similar regulation stated that one cannot seek "to enforce at law which he can only establish by relying on a transaction declared by law to be inoperative". That decision was followed in Patel v Lawrenson [1957] E.A. 9, Kassam v Kassam [1960] E.A. 1042 and in Patel v Marealle F and Another Court of Appeal C.A. 5/84 (unreported).

It seems that the trial judge was persuaded that since the agreement was part performed the need for writing could be dispensed with. But there was still the need for the requisite consent. In England at one stage, in order to prevent fraud, certain transactions had to be evidenced by writing, otherwise they were of no effect.

As a result a number of injustices occurred. To mitigate the harshness of that rule, part performance of an agreement was later held to be sufficient evidence of the transaction, if no writing existed. And that was later incorporated in the Statute of Frauds in H England. The doctrine of part performance cannot help as in Tanzania the regulation in question required both writing and consent.

Mr. Marando for the respondents submitted that there is some confusion on this matter in the High Court. He I referred to a High Court decision Sylveni Mushunga v Theonestina Rwekanika [1974] LRT n. 30. Mfalila, J. in that case purported to distinguish it from Patterson v Kanji (supra). Mfalila, J. stated:

I think that Regulation 3 of the Land Regulations 1948 may be abused by unscrupulous sellers. I think that Regulation 3 is applicable only to situations where the President's consent has been sought and refused ... A Contract of sale is not B contemplated by Regulation 3. This regulation refers to dispositions which are define... to mean conveyances or assignments. A contract of sale is neither of these.

Obviously, Mfalila, J. had overlooked Regulation 3(3) (c) where such a contract is a "disposition". With respect, C that decision of Mfalila, J. was wrong. Out of courtesy to Mfalila, J. and other judges of his way of thinking perhaps some subsidiary observations may be in order. A Right of Occupancy is something in the nature of a lease and a holder of a right of occupancy occupies the position of a sort of leasee vis-a-vis the superior landlord. A right of occupancy is for a term, and is held under certain conditions. One of the conditions is that no disposition of the said right can be made without the consent of the superior landlord. There is now no freehold tenure in Tanzania. All land is vested in the Republic. So land held under a right of occupancy is not a freely disposable or marketable commodity like a motor car. Its disposal is subject to the consent of the superior and paramount landlord as provided for in the relevant Land Regulations.

Mr. Marando also called our attention to Denning v Edwardes and another [1960] EA 755 (PC), a case originating from Kenya. That case was inter alia, concerned with section 99(3) of the Crown Lands Ordinance of Kenya. In terms of that section an instrument which purports to effect any of the transaction referred to in 'section (2), that is to sell, lease, sublease, assign, mortgage or otherwise ...', will be void without the Governor's consent.

However, no consent was required to an agreement for the above transaction as an agreement did not "effect a transaction". However, according to Regulations 3 of the Land Regulations 1948 in Tanzania, an agreement of sale is a "disposition" which requires consent. 

I am satisfied that the oral agreement concerning the sale of the two farms is inoperative and of no effect, in terms of Regulation 3(1) of Land Regulations 1948. I will now deal with the sale of shares. I believe that there was an oral agreement by the 4th appellant and 5th appellant to sell their shares to the respondents. But it is clear that no price was fixed or agreed. The trial judge stated that the sum of shs. 2 million 75 thousand, the initial payment made by Manik, was part payment of the purchase price for the two farms and "possibly some of the shares". I would think that price was one of the C fundamental matters in a sale of individual shares as the ones under consideration. As there was no agreed price and no means of ascertaining such a price there was no agreement, due to uncertainty. I think that the agreement by 4th appellant and 5th appellant to sell their shares was void for uncertainty in terms of section 29 of the Law of Contract D Ordinance Cap. 433.

I agree with the finding of the trial judge that the 50 shares in Nitin Coffee Estates Limited held by Anupkumar Ondhia were sold to the respondents for shs. 125,000. Professor Fimbo for the appellants submitted that Exhibit D4 E and Exhibit P7 - which related to the price of the said shares could not be looked at as they were for internal shareholders only. That submission is totally without merit. On the evidence I agree with the trial judge that the 50 shares of Anupkumar were sold to the respondents for shs. 125,000/=. Professor Fimbo submitted that the sale of the 50 shares to the respondents was illegal as it was made without the permission of the Treasury, in contraventing F of Section 9 of the Exchange Control Ordinance (Cap. 294 Supp. 65). However, there was no evidence that Anupkumar Ondhia was not a resident of Tanzania. No illegality can attach to such a sale in the circumstances.

Professor Fimbo also referred to section 46 of the Companies Ordinance Cap. 212, which is in part material with section 54 of the U.K. Companies Act, 1948. He quoted several English authorities. Professor Fimbo was concerned with the provision in the agreement of sale that the payment of the balance of the purchase price was to be obtained from the produce of the two farms of the appellants. The facts in this case differ from the facts in the authorities quoted and in any event no clear indication emerged from Professor Fimbo's laborious efforts on the point. 

At this stage it will be convenient to deal with the cross-appeal concerning the sale of shares of the absent shareholders by appellant 4 and appellant 5. The judge found that there was no evidence that appellant 4 and appellant 5 had authority to sell such shares, nor was there evidence that the absent shareholders A had authorized or consented to such sale. That finding was justified on the evidence adduced. That ground of cross-appeal is dismissed. So is the ground of cross-appeal about specific performance of the sale of the two farms; detailed reasons have already been given.

The appellants complained about the order of the judge for them to refund the purchase price of 10 million shillings and a further sum of 10,608,629 shillings being payment in excess of the purchase price. In view of the finding that the sale was inoperative and of no effect no purchase price in fact was paid. The two sums were obtained from the produce of the two farms of the appellant companies. This order of the judge cannot stand.

The appellants complained about the order of the judge that the crops of Nitin Coffee Estate and Rafiki Estate which are in stores awaiting delivery to TCGA and Coffee and other crops to be picked "this season" from the two farms are the property of the respondents. Similarly this order of the judge cannot stand; all these crops belonged to the appellant companies.

The appellants complained about the award of 5 million shillings as general damages to the respondents. The E respondents on the other hand counterclaimed that, if damages for breach were to be awarded, the sum is too low. The judge had held that the agreement of sale was valid and enforceable, but instead of ordering specific performance, he awarded damages, in the exercise of his discretion, and for the reasons he gave. The appellant's F argument apparently was that since the agreement of sale was unenforceable and void, no breach had occurred, hence no damages should have been awarded for breach of contract. Superficially that argument is attractive. However, on the facts of this case Manik was led to believe that he had entered into a binding contract. At the invitation of, and on the strength of the appellants representations Manik took over the farms and worked them for about 3 years. For two years before Manik took over, the farms were losing money. Manik by his work and diligence reversed the loss making trend and turned the farms into a profit making venture. He not only maintained H the farms but improved them. The appellant shareholders and directors were mostly away and could not work the farms, and in the state of fear and panic in 1983, they were in the process, probably, of neglecting them. The price agreed, 10 million shillings, was a ridiculously low sum,and that was clear evidence of a sale under distress or I duress. In about three years Manik managed to generate a sum of over 20 million shillings from the produce of the farms. The judge had awarded damages on the basis of unjust enrichment - divesting the appellants of such enrichment. The farm prosperity was brought about solely by the work and labour of Manik. Manik believed the representations made to him by the appellants and on the basis of that belief worked B and improved the condition of the farms. Manik must be paid for his work and labour and for his contribution to the improved state of the farms. I believe that the sum of 5 million shillings awarded by the judge was insufficient. I would award the respondents the C sum of 10 million shillings as compensation for the work and labour put into the farms, to the advantage of the appellants.

The cross-appeal has succeeded on this item of damages. The appellants have asked for an order that the respondents should render a full account of their stewardship of the farms during the period they have been in D occupation. I do not think such an order is called for at this stage. When the respondents will hand over possession of the farms to the appellants, an account will have to be taken as to how much the respondents had spent on the farms from the date of the filing of this suit in the High Court to the date of possession. In that process, I should think all the accounts can be dealt with.

In the result I would allow the appeal to this extent. I would hold:

(1) that the oral agreement of sale was inoperative and of no effect in terms of Regulation 1948;

(2) that the sale of shares by 4th appellant and 5th appellant to the respondents was void for uncertainty and F is to be set aside;

(3) the order for the return of shs. 10 million purchase price and shs. 10,608,620 excess of the purchase price to be set aside. Similarly, the order concerning the crops of the two farms awaiting delivery to G TCGA and coffee and other crops to be picked "this season" to be set aside.

I would dismiss the other grounds of appeal.

As regards the cross-appeal, I would increase the item of damages from 5 million to 10 million shillings. I would dismiss the other grounds of the cross-appeal. On payment of Shs. 125,000 by the respondents to Anupkumar Ondhia of his nominee, 50 shares of the said I Anupkumar Ondhia in Nitin Coffee Estate Limited are to be transferred to Manik or his nominee.

The appellants are to pay 5 million shillings being expenses incurred by Manik until the date of the filing of this suit in A the High Court and the sum of 10 million shillings as damages to the respondents. The appellants are also to refund the respondents the initial payment of 2 million 75 thousand shillings made by Manik for the purchase.

The respondents are to vacate the two farms at Oldeani and hand over possession of them to the appellants or their B nominees 30 days from the date of this judgment. On or before such handing over an account has to be taken of the expenses incurred by the respondents on the said C farms from the date of filing the suit in the High Court to date of possession. Such sum as found due is to be paid by the appellants to the respondents.

As to costs, I would award half the costs of the appeal to the appellants. For the avoidance of doubt such costs are to be taxed on the basis of one counsel only. I would make no order for costs of the cross-appeal. I would not disturb the order for costs made in the High Court. As the other members of the Court agree, there will be judgment on the terms hereinabove stated.

Order accordingly.

1988 TLR p215

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