ALFI EAST AFRICA LTD v THEMI INDUSTRIES & DISTRIBUTORS AGENCY LTD 1984 TLR 256 (CA)

ALFI EAST AFRICA LTD v THEMI INDUSTRIES & DISTRIBUTORS AGENCY LTD 1984 TLR 256 (CA)

Court Court of Appeal of Tanzania - Dar Es Salaam

Judge Mustafa JJA, Makame JJA and Kisanga JJA

September, 1985

CIVIL APPEAL 28 OF 1984 F

Flynote

Contract - Fraud - Conspiracy between employee of appellant company and

respondent company to defraud appellant - Agreement void and unenforceable.

Contract - Sale of machinery - No price agreed - Agreement void for uncertainty - S.

29 Law of Contract G Ordinance, Cap. 433.

-Headnote

Kwast, an employee of the appellant company entered into an agreement on behalf of

the appellant with the respondent company. According to the terms of the

agreement all the advantages were on H one side, in favour of the respondent. Two

pieces of machinery specifically ordered by the appellant for itself were diverted to

the respondent by Kwast under the agreement. The respondent was to pay the price

of the machinery which price was not mentioned nor was a method of calculating it

agreed upon. When Kellner, a Director and principal shareholder of the respondent

I company came to know

1984 TLR p257

MUSTAFA JA

about this he had the Board of Directors cancel the agreement. The respondent then

claimed special and general A damages from the appellant for breach of contract.

The trial judge held, among other things, that there was no evidence of fraud nor was

the agreement uncertain as regards the price of machinery. B

On appeal to the Court of Appeal of Tanzania the holdings of the trial judge were

attacked. It was argued that the agreement was void for uncertainty and that it was

fraudulent.

Held: (i) Price is a fundamental matter in an agreement of sale such as the one under

consideration, and as there was C no agreed price there was no agreement; in terms

of s. 29 of the Law of Contract Ordinance, Cap. 433, the agreement is void for

uncertainty;

(ii) the agreement was unenforceable and void on the ground that it was

fraudulent as a result of a conspiracy between Kwast and Themi, the respondent. D

Case Information

Appeal allowed.

Case referred to E

1. Courtney & Fairbairn Ltd. v Tolaini Bros (Hotels) Ltd [1975] 1 All

E.R. 716.

[zJDz]Judgment

Mustafa, J.A. delivered the following judgment of the court: Themi Industries &

Distributors Agency Ltd. F (hereafter called Themi) had filed a case in the High

Court against Alfi East Africa Ltd. (hereafter called Alfi) claiming special and general

damages arising from an alleged breach by Alfi of an agreement in writing entered

into between them on 3d February, 1978. Alfi resisted the claim on the ground that

the agreement was void and G unenforceable and was fraudulent and

counterclaimed for the return of two pieces of machinery or their value and for loss of

use of the machinery as well as for a sum of money allegedly due for raw materials

supplied by Alfi to Themi.

The High Court (Maganga, J.) entered judgment for Alfi on the counterclaim by

consent in the sum of shs. H 545,192.30 and costs in respect of the item for raw

materials supplied by Alfi. The High Court entered judgment, after a trial, in favour

of Themi on its claim and awarded it shs. 300,000/= for special and shs. 200,000/= for

general damages and costs of the suit. The High Court also I

1984 TLR p258

MUSTAFA JA

decreed in favour of Alfi on its counterclaim a sum of shs. 839,391.45 being the value

of the A machinery.

Alfi has appealed from the judgment, but Themi has not cross-appealed.

It will be convenient at this stage to set out the agreement (hereafter called the

Agreement) in full. B

THIS AGREEMENT is made this 3rd day of February, 1978 BETWEEN ALFI

EAST AFRICA LIMITED (hereinafter called the "First Company") on one part and

THEMI C

INDUSTRY AND DISTRIBUTIORS AGENCY LIMITED (hereinafter called

the "Second Company") on the other part.

WHEREAS the parties hitherto who have hitherto carried on the business of

manufacturing goods as well as D buying and selling manufactured goods in

Tanzania separately on their own respective accounts (and are both registered

companies in Tanzania under the Companies Ordinance Cap 212) are desirous of

effecting an exclusive business between the two parties: E

NOW IT IS HEREBY AGREED as follows:

I Alfi E.A. Limited hereinafter called the First Company in this deed binds

itself to order and import HESTA F BLOW MOULDING MACHINES on behalf or

on account of THEMI INDUSTRIES AND DISTRIBUTORS AGENCY LTD

(hereinafter called the Second Company IN THIS DEED) for their exclusive use in

manufacturing of Torches, Vacuum Flasks, Household goods etc. PROVIDED and on

condition that the Second G Company covenants itself as follows:

(a) That the Order and importation of the mould by the First Company

will be according to the selection of the second Company. H

(b) That the order and importation will not in any way affect the quote of

importation of the first company (Alfi E.A. Ltd).

(c) That Alfi E.A. Ltd hereinafter called the first company will have the

first priority and exclusive rights to I buy from THEMI INDUSTRY AND

DISTRIBUTORS AGENCY

1984 TLR p259

MUSTAFA JA

A LTD the blow moulding items according to the first company's

specification.

(d) That the second company covenants that the event of its desire to sell

such products to another party other than Alfi E.A. Ltd such desire shall only be

executed after full consultation and permission of the B first company within

reasonable time.

(e) That payments for the imported moulds and machines by the first

company on behalf of the second company will be made by way of deducting directly

the cost of manufactured products supplied by C second company to the first

company without interest. In the event of the manufactured products failing to

satisfy the cost of the imported moulds the second company shall bind itself to pay

the outstanding amount from its other sources.

D OTHER CONDITIONS:

Each party hereto hereby undertakes to employ himself diligently in the

practice of manufacturing according to E business ethics as to quality and to use his

best endeavour to promote the interest there and will deal faithfully and justily with

the other Parties hereto.

The Parties further covenants that this agreement can be determined at the

option of either party to this F agreement after giving six months notice of the

intention to determine and after each party has fully satisfied the other party as to

outstanding monies to be paid if any or outstanding orders of goods to be supplied.

G SIGNED for and on behalf of

ALFI EAST AFRICA LIMITED in

my presence this day

H of....................1978.

SIGNED for and on behalf of

THEMI INDUSTRY AND DISTRIBUTORS

AGENCY LIMITED in my presence

I this................................day of............................1978

1984 TLR p260

MUSTAFA JA

DRAWN BY: A

M/S KAPOOR & MIRAMBO ADVOCATES

ARUSHA

TANZANIA

J. Kwast had signed for Alfi in the agreement. B

We will deal with the claim by Themi. In its plaint, after referring to the agreement,

the material paragraphs are 4, 5 and 10 which read: C

4. In accordance with the terms and conditions of the said agreement the

Defendant obtained on account of the Plaintiff HESTA BLOW MOULDING

MACHINES. The total costs of these machines amounted to Shs.939,391/45. This

sum of Shs. 939,391/45 was to be paid to the Defendant by the Plaintiff by way of

supply finished products in D accordance with the defendant's demands from time

to time.

5. Pursuant to the said agreement the Defendant regularly supplied all

raw materials to the Plaintiff for the Plaintiff's factory at Arusha. Such purchases

were paid in cash. E

10. On 17th April, 1979 the Defendant wrote to the Plaintiff (a copy of the

said letter is attached herewith and marked Exhibit 'B') canceling the said agreement

and demand return F of machinery and payment of all moneys due. By this letter

the Defendant committed a breach of the said agreement whereby Plaintiff has

suffered damages.

Then Themi claimed special and general damages arising from the refusal of Alfi to

continue to G supply raw materials.

In its statement of defence Alfi alleged in paragraphs 2, 3, 5 and 8 as follows:

2. The Defendant states that the Agreement referred to in paragraph 3 of

the Plaint was H entered into by the Plaintiff and one J. Kwast purportedly on

behalf of the Defendant Company. The Defendant will maintain that the said

Agreement is void because it was entered into with the object of defrauding the

Defendant Company. I

1984 TLR p261

MUSTAFA JA

A 3. Alternatively and without prejudice to the foregoing the Defendant

states that the Agreement was ultra-vires the powers of J. Kwast who executed it.

5. The Defendant has not at any time provided raw materials to the

Plaintiff under B contractual arrangements. The Defendant avers that the Plaintiff

used to purchase raw materials from the Defendant under credit facilities which have

now been stopped by the Defendant. Subject to the foregoing and without prejudice

to paragraphs 2 and 3 herein, C the Defendant states that there is no provision in

the agreement which requires the defendant to supply the Plaintiff with raw

materials.

8. Save that the Defendant wrote the letter referred to in paragraph 10 of

the Plaint, the D defendant denies the allegation that there has been a breach of the

Agreement and repeats paragraphs 2 and 4 hereof.

E Alfi also filed a counterclaim to which reference has already been made.

Alfi's defence to Themi's claim was basically that the Agreement was unenforceable

and was made in fraud between J. Kwast, an employee of Alfi and Themi. Two other

matters were also in issue. They were (1) whether J. Kwast had acted ultra vires in

signing the Agreement and (2) whether a F sum of Shs. 100,000 paid by Themi for

machinery could be appropriated by Alfi to the account for raw materials.

The trial judge, in his judgment, found that J. Kwast had acted intra vires when he

executed the Agreement on behalf of Alfi.

G As regards the issue of fraud the judge held that section 14 of the Import Control

Ordinance which prohibits the holder of any import licence, without permission, to

transfer or assign such licence to another on pain of a penalty, did not render the

transfer of the machinery imported in the H name of Alfi and transferred to Themi

illegal so as to vitiate the Agreement. He thought that the prohibition was against the

transfer of the import licence, not the goods imported. In any event, the details for

importation were filled in and Themi had not breached any statutory provisions.

The judge also held that there was no uncertainty as regards the price for the

machinery. He held I that in the Agreement it was specifically mentioned how the

machinery was to be paid. And,

1984 TLR p262

according to Ibrahim Dahal, the Director of Themi, the price of the machinery had

been agreed upon A and was not dependent on future negotiation. Although the

agreed price was not mentioned by Dahal, the judge found that the piece of evidence

stood unrebutted. He held that the agreement was neither fraudulent nor void for

uncertainty or lack of consideration. B

As regards the obligation to supply raw materials by Alfi, the judge conceded that

there was no such undertaking in the Agreement, but he accepted Dahal's evidence

that there was some mutual, presumably oral, agreement between him and Kwast to

that effect.

The judge referred to the letter of 17.4.79 written by Alfi cancelling the agreement.

We set it out in C full.

Alfi East Africa Limited.

P.O. Box 996,

Arusha. D

17th April, 1979

The Managing Director,

Themi Industry & Distribution Agency, E

P.O. Box 106,

Arusha

Dear Sir, F

Re:CONTRACT BETWEEN ALFI EAST LIMITED AND THEMI INDUSTRY 7

DISTRIBUTION AGENCY

In our Board of Directors Meeting on the 15th April, 1979 the majority of Directors

voted to cancel the G contract between both companies. I have also been given

instructions not to supply any goods at the moment to you either for your trading or

for your manufacturing section and also to collect the outstanding trading balance

without further delay. Machinery should be returned straight away. H

Please supply all the containers which you have manufactured up to the time of

receiving this letter and stop producing bottles according to our contract. I

1984 TLR p263

MUSTAFA JA

A Yours faithfully,

ALFI EAST AFRICA LIMITED

J. KWAST,

B MANAGING DIRECTOR

c.c. Mr. O. Kellner,

P.O. box 116

ARUSHA.

C The judge held that the letter appeared to confirm the existence of an

understanding testified to by Dahal. The judge held that Alfi was bound to supply

raw materials to Themi.

The judge also held that Alfi was not entitled to appropriate the shs. 100,000 paid for

the machinery D to the raw materials account.

After hearing counsel for Themi and Alfi and after carefully perusing the proceedings

and judgment of the trial we are satisfied that J. Kwast had acted intra vires in

executing the Agreement on behalf E of Alfi. According to O. Kellner, a Director

and principal Shareholder of Alfi, Kwast was de facto, though not de jure, managing

director of Alfi. Kwast was held out as a managing director of Alfi and clearly had

power to execute the Agreement on behalf of Alfi.

We now turn to the issue of fraud. We have carefully perused the Agreement and

analysed the F evidence adduced at the trial. Kwast was only an employee of Alfi.

All the shares of Alfi were owned by Kellner and his wife. In terms of the agreement,

all the advantages are on one side, in favour of Themi. Alfi was to set up an industry

for Themi; in fact was to set up a rival company in G Themi, which was to

manufacture goods normally produced by Alfi. Alfi was to provide the capital. Alfi

had an import licence quota, and apparently used that quota to obtain the machinery

for Themi. Dahal had stated that he had no experience at all of such machinery; in

fact Themi had been merely the distributing agent of Alfi products. Themi did not

pay a cent for the machinery; in H evidence Dahal said that it was not necessary for

him to have money to buy the machinery. Themi had a nominal capital of Shs.

50,000 and a fully paid up capital of shs. 2,000/=. There was no security offered for

the machinery, nor indeed was interest payable. The machinery was worth about one

I million shillings, presumably in foreign exchange. There was no provision

1984 TLR p264

MUSTAFA JA

for the repayment period, nor even when repayment was to commence. In fact the

price for the A machinery was not mentioned in the Agreement.

Alfi was to provide an assured market for the goods manufactured by Themi. Alfi was

also alleged to be liable to supply raw materials to Themi for such manufacture, on

credit. The raw materials B supplied amounted nearly to a million shillings. Again

there was nothing in the Agreement about the price of such raw materials nor how

and in what manner payment was to be made. There was no security provided for

such credit sales, nor was interest on outstanding sums mentioned. The Agreement

was so blatantly one sided in favour of Themi that it is incredible. The Agreement

was C solely for the benefit of Themi at the expense of Alfi.

Dahal alleged that the Agreement was entered into because Alfi had lacked space to

put up the two pieces of machinery in Alfi's premises. No other reason was advanced.

Dahal said that Kwast had D told him about the lack of space. That could not

possibly be true, and Dahal must have known it was not true. According to D.W.2

Vohora, Dahal in 1978 supervised Alfi's activities on the order of Kwast when Kwast

went on leave. Dahal worked at Alfi for more than a month and must have E known

about Alfi's accommodation capacity. According to D.W.1 Kellner, D.W.2 Vohora

and D.W.4 Talib, there was ample space at Alfi for the installation of the two pieces of

machinery. Indeed according to D.W.4 Talib, 12 such machines could be installed at

Alfi premises. In fact those two pieces of machinery were specifically ordered by Alfi

for Alfi, but were diverted to Themi by F Kwast. According to Dahal, he expected a

net profit of shs. 100,000 per month if the two machines worked full capacity,

enabling him to pay off the machines within a period of a year or so.

When Kellner came to know of this Agreement he was certain that it was a

conspiracy between G Kwast and Themi to defraud Alfi and he took prompt steps to

cancel it.

Taking into consideration all the evidence and circumstances and the contents of the

Agreement we think that it was highly probable that Dahal and Kwast had conspired

together to defraud Alfi. H

On the issue of uncertainty, in the Agreement, no price for the machinery was

mentioned. In fact Mr. Ismail for Themi conceded that in the Agreement no price

was mentioned nor was there a method of ascertaining or calculating such price. He

however submitted that the surrounding I circumstances should be looked at.

1984 TLR p265

MUSTAFA JA

He contended, that according to Dahal, both Alfi and Themi knew the price and there

was a provision in the A Agreement about how the price was to be paid, that is by

sale of the manufactured goods to Alfi. Nevertheless the fact remains that no price

has emerged, and if Alfi were to sue Themi for the price of the machinery, it would

not be able to do so, as no price has been fixed. It is clear that the price was to be

arrived at by mutual negotiations B between Themi and Alfi, which means that the

price has still to be agreed. Price is a fundamental matter in an agreement of sale such

as the one under consideration and as there was no agreed price there was no

agreement, see Courtney & Fairbairn Ltd. v Tolaini Bros (Hotels) Ltd [1975] 1 All ER

716. In terms of section 29 of the C Law of Contract Cap 433 of the Laws the

Agreement is void for uncertainty.

In our view Alfi could not appropriate the sum of shs. 1000,000 to the raw materials

account when it was paid for the machinery. That sum either goes to the machinery

account or is to be returned to Themi. Since however Alfi D had already credited

that sum to the raw materials account, perhaps Alfi and Themi could settle the matter

between themselves amicably. In any event, Alfi's attempt to appropriate the sum of

shs. 100,000 to the raw materials account was wrong. E

We are satisfied that the Agreement was unenforceable and void on the ground:

(1) That it was fraudulent, as a result of a conspiracy between Kwast and

Themi.

(2) That it was uncertain, as no price had been agreed. F

We are aware that to establish fraud a high degree of proof is required. In this case

we think, on the evidence, that it was most probable that fraud was committed

against Alfi by both Kwast and Themi. G

There was no basis for the award of damages to Themi. Even if the Agreement had

been enforceable, there was no legal obligation on Alfi to supply raw materials to

Themi. No such provision exists in the agreement. At the most Alfi has been

supplying such raw materials to Themi, but clearly it was a voluntary act and

imported no legal H obligation. The claim by Themi for damages fails.

In the result we allow the appeal. We hold that the agreement is void and

unenforceable. We set aside the judgment and decree of the High Court in favour of

Themi Industries and Distribution Agency I

1984 TLR p266

Ltd. and substitute therefore an order dismissing the claim. We allow costs to Alfi

East Africa Ltd. A both here and below.

We order that since the record of appeal prepared by Alfi was unsatisfactory in that

some important documents and certain lines on some pages were missing, no costs be

allowed Alfi concerning the preparation of the record of appeal. B

Appeal allowed

1984 TLR p266

C