1 HH 54-20 HC 2679/19 HC 2872/19 HC 2955/19 HC 2873/19

A. BLUE TRACK INVESTMENTS (PVT) LTD versus LIMITED

B. STENHOP INVESTMENTS (PVT) LTD versus

C. ACEFOAM (PVT) LTD versus NEDBANK ZIMBABWE LIMITED

D. SAMZIM (PVT) LTD versus NEDBANK ZIMBABWE LIMITED

HIGH COURT OF ZIMBABWE CHIKOWERO J , 18 November 2019 and 22 January 2020

Opposed Application

GRJ Sithole, with Z. Kamusasa and H Bonyo, for the applicants T Mpofu, for the respondent

CHIKOWERO J: These matters were consolidated to facilitate set down before a single judge. I reserved judgment after hearing argument on the consolidated matter. The applicants are subsidiary companies. The parent company is BST Holdings (Pvt) Limited. At all times material to this matter each applicant maintained two bank accounts with the respondent; an RTGS and a United States dollar (“FCA”) account. Due to the critical shortages of foreign currency, respondent put in place some procedures to be followed by clients who wanted to access such currency. 2 HH 54-20 HC 2679/19 HC 2872/19 HC 2955/19 HC 2873/19

Without following such procedures and with their foreign currency accounts being either unfunded or underfunded, the first three applicants accessed foreign currency to meet their offshore obligations and paid for such currency using their RTGS credit balances. This access to foreign currency was facilitated by respondent’s employees. When served with letters of suspension, the concerned employees promptly tendered identical letters of resignation. To correct the anomalies, the respondent credited the first three applicants’ RTGS accounts and debited their FCA accounts. The result was that the first three applicants’ RTGS accounts stood in credit whilst their FCA accounts became overdrawn. Since it treated all four applicants as a single economic entity, respondent’s corrective action was extended to fourth applicant. There had been inter-account transfer of funds between all applicants. All four applicants share the same directorship and shareholding. In addition, Taesung C & I Co, a Korean company, shares the same shareholding and directorship as the applicants. This Korean registered company was one of the beneficiaries of the huge foreign currency payments made by the applicants. Relating to the inter-account transfers between the applicants, Stenhop transferred huge sums to Samzim. The respondent’s employees complicit in the fraud were Kundai Dube and Albert Chapatorongo. I have already said their suspension and resignation letters were identical. One of the suspension letters reads as follows: “5 March 2019 MN/eco319

Albert Chapatarongo Treasury Harare

Dear Albert

RE:SUSPENSION FROM DUTY IN TERMS OF SECTION 6 (1) OF THE LABOUR NATIONAL EMPLOYMENT CODE OF CONDUCT REGULATIONS, 2006.

3 HH 54-20 HC 2679/19 HC 2872/19 HC 2955/19 HC 2873/19

In terms of the above legislation you are hereby suspended without pay and benefits with immediate effect. This suspension is pending the holding of a disciplinary hearing.

Your employer has good cause to believe that you have committed the misconduct of “any act of misconduct or omission inconsistent with the fulfilment of the expressed or implied conditions of his or her contract” as provided for in section 4 (a) of Statutory Instrument 15 of 2006, the National Code of Conduct.

It is believed that during the period extending from 1 March 2018 to 31 January 2019, without authority, outside the bank’s procedures and through misrepresentation, you sanctioned, approved, and gave instructions to International Banking staff and branches to execute various outward foreign payments on behalf of certain clients, whose accounts were either not funded or outside the banks’ arrangement. As a result of these actions the bank suffered proprietary prejudice and a gap in its Nostro position.

You are required, within 3 days of your receipt of this letter, to submit a written response to these allegations.

Kindly acknowledge receipt by signing the attached copy of this letter.

Yours sincerely Nedbank Zimbabwe Limited

Signed Mc Millan Nyagomo Chief Operating Office (Acting Head Treasury)”

Chapatarongo, like Dube, reacted in this fashion: “9B Kineton Close Greystone Park Harare

The Human Resources Manager Nedbank Zimbabwe 1th Floor Centre Harare

08 March 2019 RE:RESIGNATION FROM TREASURY 4 HH 54-20 HC 2679/19 HC 2872/19 HC 2955/19 HC 2873/19

Pursuant to my earlier resignation from my position as Foreign Exchange Dealer on Tuesday 5 March, 2019 please note that it is now with immediate effect from the same date, 5 March 2019. I thank you for the time we served together which I will always cherish.

Yours sincerely Signed Albert Chapatarongo.”

A sample of the first three applicants’ letters instructing respondent to make the foreign currency payments reads thus: “STENHOP INVESTMENTS (PVT) LTD P.O. BOX CY 1423, Causeway, Harare, Zimbabwe

27 November, 2018

The Manager Exchange Control Department Nedbank Bank Jason Moyo Branch Harare

Dear Sir or Madam

PAYMENT OF FOREIGN BILL-TSC 180416 US$84, 150-00

We hereby submit our application to pay US$84 150-00 (Eighty Four Thousand One Hundred and Fifty Dollars Only) being payment for raw materials.

The bank details are as follows:

BENEFICIARY : TAESUNG CHEMICAL COMPANY LTD

BANK : WOORI BANK OF KOREA

BRANCH : JASMIL TOWN BRANCH

SWIFT CODE : HVBKKRSE

ACCOUNT NUMBER : FET 5618000125

REF : TSC 180416

Kindly debit our FCA account number 21031008567 with the same and all the related bank charges. 5 HH 54-20 HC 2679/19 HC 2872/19 HC 2955/19 HC 2873/19

Thank you for your assistance.

For and on behalf of STENHOP INVESTMENTS (PRIVATE) LIMITED Signed Signed Authorised Authorised Signatory Signatory

Directors: Y.S. Baek, Y.C. Baik, M. Macheka, T.I. Baik”

I do not agree with Advocate Sithole, for the applicants, that respondent created a fictitious set of facts to justify the action that it took. The facts speak for themselves. The bank accounts which applicants asked respondent to debit were not, in all cases, foreign currency accounts. Applicants knew that very well. They were all RTGS accounts. Applicants did not instruct respondent to debit the RTGS bank accounts. The RTGS accounts were for local payments. In an endeavour to cover up for their fraudulent activities, and with the active complicity of the respondent’s said treasury department employees, applicants procured the use of the RTGS account at a time when applicants either had no or inadequate foreign currency standing to the credit of its Nostro account to meet its out of Zimbabwe obligations. In other words, applicants one to three made use of foreign currency that it did not have. Dube and Chapatarongo helped applicants to “beat the system.” These two did not refute this. No supporting affidavits bearing their names are part of the applicants’ papers. Indeed, instead of responding to the substance of the allegations contained in the letters of suspension, Dube and Chapatarongo, to make impossible the holding of disciplinary hearings against themselves, promptly resigned. I agree with Advocate Mpofu, for the respondents, that “the guilty flee when no man pursueth.” It is correct that Dube and Chapatarongo have not been convicted of the criminal offence of fraud. It also is true that they have not been convicted of fraud in terms of the labour laws of this country. But it would be mischievous were I to ignore the clear evidence of the fraud perpetrated in acquiring the foreign currency in this case. The characterisation of applicants as having reaped where they did not sow is apt. 6 HH 54-20 HC 2679/19 HC 2872/19 HC 2955/19 HC 2873/19

Against this backdrop, applicants ask me to grant a declaratory order and consequential relief. The remedy sought is the same in all cases. I have therefore omitted the account numbers, amounts and dates because those differ from applicant to applicant. Thus edited, the relief sought reads: “DRAFT ORDER ...... IT IS ORDERED THAT: 1. The respondent’s action of garnishing or debiting the applicant’s Nostro (FCA) account number ..... of the sum of US$ ..... on the ...... and also applicants’ RTGS account Number ...... of the sum of ...... on the ..... be and is hereby declared null and void. 2. The respondent be and is hereby ordered to restore and reimburse all the amounts unlawfully debited or garnished from applicant’s Nostro (FCA) account number .... with effect from the ..... to date. 3. The respondent be and is hereby ordered to restore and reimburse all the amounts unlawfully debited or garnished from applicant’s RTGS account number 21031008567 with effect from the...... to date. 4...... 5. The respondent be ordered to pay costs of suit on attorney-client scale.”

The circumstances in which this court may grant a declaratory order are well settled. See Munn Publishing (Pvt) Ltd v Zimbabwe Broadcasting Corporation 1994 (1) ZLR 337 (S); Streamsleigh Investments (Private) Limited v Autoband Investments (Private) Limited SC 43/2014. The law was accordingly not debated before me. The application is without merit. It is common cause that in opening the bank accounts each applicant entered into a written agreement with the respondent. The contract reads in relevant part: “TERMS AND CONDITIONS 1. TERMS/SCOPE The information contained herein together with any further instructions and conditions that may be prescribed by the Nedbank Limited herein shall be called “the Bank” from time to time shall constitute the terms of the agreement between the customer and the Bank. When this application form has been signed, it will be deemed to have been accepted as binding on the customer and the bank representative office or affiliate where the account is held.

These conditions apply to each account opened under the account opening form or in any other acceptable manner 6…. The bank may exercise its general lien or any similar right it is entitled to including the right to combine and consolidate all or any of the customers’ accounts with the Bank 7 HH 54-20 HC 2679/19 HC 2872/19 HC 2955/19 HC 2873/19

and the right to set off or transfer any sum or sums standing to the credit of anyone or more of such accounts against liabilities in any other account.”

In upholding the principle that the parties’ freedom of contract must be respected by the Court, GARWE JA in Ndabezinhle Mazibuko v (1) The Board of Governors, Christian Brothers College (2) The National Incomes and Pricing Commission (3) The Secretary, Ministry of Education SC 54/17 quoted with approval, at paragraph 44, the reasoning in the judgment appealed against: “It is a settled principle that the courts will not interfere in private contractual relationships. Such relationships include the relationship between a voluntary association and its members which relationship is based on contract. The applicant and respondent entered into a contractual relationship, which courts will be reluctant to interfere with, in the absence of any alleged breach or rules of natural justice or any perceived conduct which is ultra vires. In the present case, the applicant has not alleged any breach of any rules of natural justice and the case involves a private contractual relationship, and there is, therefore no basis for the court to interfere. See the case of Jockey Club of South Africa and others v Fieldman 1942 AD 340. In any event the courts have always respected the freedom of contract, and have been loath to reformulate, or formulate, contractual terms for the parties, nor alter the express terms of a contract, nor act as registries for the registration of such contracts…”

What respondent did was to exercise the contractual powers enshrined in clause 6 of the contracts entered into between the parties. That respondent exercised such powers was not in issue. The matter was contested on whether the factual framework existed for the exercise of such powers. I have already found for the respondent on the facts. It necessarily follows that l cannot declare as unlawful acts which the facts vindicate as having been lawfully done. I cannot re-write the terms and conditions of the contracts entered into between the parties. The exceptions for the court to interfere with the principle of freedom of contract do not exist in this case. I would, on this basis, dismiss the application. The application also fails on other grounds. Applicants maintained their credit balances in RTGS terms. I agree that that is all they are entitled to. See ZIMRA and Another v Murowa Diamonds (Pvt) Ltd 2009 (2) ZLR 213 (S); Standard Bank of South Africa Ltd v Echo Petroleum CC 2012 ZASCA 18. 8 HH 54-20 HC 2679/19 HC 2872/19 HC 2955/19 HC 2873/19

They did not have balances standing to the credit of the foreign currency accounts at the relevant time. It is therefore clear that they do not have any legal rights the existence of which I may even begin to consider declaring. Banking law allows respondent to set off and combine accounts. Set off and combination of accounts operate unilaterally. Counsel were agreed on the law in its regard. See Municipality of Kwekwe v Space Age Investments (Pvt) Ltd 1985 (1) ZLR 300 (SC); Zimbank v Chibune and Another 2004 (1) ZLR 301 (H). In the Standard Bank of South Africa case (supra) the position was put across in these words: “I conclude, therefore, that Echo had no right in law to reclaim the deposit (or the amount of it) from Sky or the Bank by vindication. Although no foundation was laid for a claim based on unjustment enrichment, it is clear from what l have said that the Bank acted lawfully in appropriating the credit and Echo could not have succeeded on that cause either.”

The unlawful transfers meant that applicants one to three’s foreign currency accounts become overdrawn as a matter of fact. When this happens, it is the customer who must make good the overdraft. In this regard, this court stated in CBZ Ltd v Mhundwa HH 633/17: “…Whilst there was no separate and distinct overdraft facility agreement both parties clearly understood that in the event of an overdraft in the respondent’s account, the respondent would make good the overdraft, such overdraft could be a result of an overdrawn account.”

I cannot grant the relief sought. The name given to the result of paying from either unfunded or underfunded foreign currency accounts does not really matter. Whether that result was occasioned by fraud, was erroneously brought into existence or presents itself as an overdraft the conclusion I reach is the same. Respondent was on sound legal footing, both in terms of the contracts and banking law, usage and custom, to act as it did. This conclusion means it really is academic for me to consider the effect of the Reserve Bank of Zimbabwe directive. That directive was issued when the application was already pending. One other issue merits comment. It was accepted that all four applicants are subsidiary companies. I have mentioned the name of their holding company. Funds were transferred between their respective bank accounts, all maintained with respondent. Of particular concern is the fact that Stenhop, which owed huge amounts of foreign currency to respondent even after 9 HH 54-20 HC 2679/19 HC 2872/19 HC 2955/19 HC 2873/19 the corrective action, had transferred large amounts of foreign currency to Samzim during the relevant period. The shareholding and directorship of all applicants, their parent company and the Korean registered company which benefited from some of the foreign currency unlawfully paid to it, was the same. Strict adherence to the principle of separate personality of companies would mean that funds transferred by Stenhop to Samzim, a fellow subsidiary company, would be beyond the reach of respondent in correcting the overdraft occasioned on the Stenhop bank account. In the particular circumstances of this case, it is common cause that the applicants constituted a single economic entity. That entity is the parent company. It was not before me. But that cannot stop me from looking at the substance rather than upholding the corporate fiction urged upon me by Advocate Sithole. In Deputy Sheriff Harare v Trinpac Investments (Pvt) Ltd and Christopher William Barnsley HH 121/2011 the court chose to go along with substance rather than form. In that matter PATEL J (as he then was) referred, at p 3, to DHN Food Distributors Ltd v London Borough of Tower Hamelets [1976] 3 ALL ER 462 (CA) at 467 where it was said: “Professor Gower in his book on company law says: ‘there is evidence of a general tendency to ignore the separate legal entities of various components within a group, and to look instead at the economic entity of the whole group.’ This is especially the case when a parent company owns all the shares of the subsidiaries, so much so that it can control every movement of the subsidiaries. These subsidiaries are bound hand and foot to the parent company and must do just what the parent company says …. This group is virtually the same as a partnership in which all the three companies are partners … The three companies should, for present purposes, be treated as one, and the parent company, DHN, should be treated as that one.”

In all the circumstances the following order shall issue: 1. The consolidated application be and is dismissed. 2. The applicants shall pay the respondent’s costs jointly and severally the one paying the others to be absolved.

Kamusasa and Musendo, applicant’s legal practitioners Atherstone and Cook, respondent’s legal practitioners