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.9 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  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  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. (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.

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. 

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 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. 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. 

Appeal allowed 

1984 TLR p266 

C