Court name
Supreme Court of Zimbabwe
Case number
SC 127 of 2002
Civil Appeal 366 of 2000

Cold Storage Company Ltd. v Rapid Discount House Ltd. (366/2000) (SC 127 of 2002, Civil Appeal 366 of 2000) [2003] ZWSC 64 (19 March 2003);

Law report citations
Media neutral citation
[2003] ZWSC 64







REPORTABLE
(108)











Judgment
No S.C. 127\2002


Civil
Appeal No 366\2000

















COLD
STORAGE COMPANY LIMITED v RAPID DISCOUNT HOUSE
LIMITED











SUPREME
COURT OF ZIMBABWE


CHIDYAUSIKU
CJ, ZIYAMBI JA & MALABA JA


HARARE
SEPTEMBER 10 2002 & MARCH 20, 2003








A.P.
de Bourbon S.C.,

for the appellant





C.
Andersen S.C.,

for the respondent








MALABA
JA: This is an appeal from a judgment of the High Court dated 22
November 2000 in which the appellant was ordered to
pay to the
respondent the sum of $125 million with interest thereon at the rate
of 35% on the sum of $100 million with effect from
4 September 1998
and on the sum of $25 million with effect from 3 March 1999 to the
date of payment and costs of suit.





The
appellant, to which I shall refer as “the defendant”, is a public
company incorporated in terms of the law. Its predecessor
was a
parastatal known as the Cold Storage Commission. The respondent, to
which I shall refer as “the plaintiff”, is a private
company
carrying on the business of a discount house.





On
21 January 1999 the plaintiff commenced action in the High Court
claiming from the defendant the payment of $100 million with
interest
thereon at the rate of 35% per annum with effect from 4 September
1998 to the date of payment. The cause of action as
pleaded was
that the plaintiff was the lawful holder of ten “commercial bills”
issued by the defendant which had been dishonoured
upon presentation
on the due date.





The
ten documents forming part of the cause of action pleaded by the
plaintiff took the form of promissory notes. On the top left
corner
of each document is a space for the date of issue whilst the space
for the due date is on the right side of the document.
Each
document has a promise made in these terms:-





“The
Cold Storage Company Limited undertakes to pay _____________ or order
the sum of ten million dollars at United Merchant Bank Zimbabwe
Limited HARARE on due date against presentation of this Bill.”









Above
the promise to pay the sum of $10 million on presentation is printed
the logo “CSC” in white on black background. Below
the
undertaking are words “for COLD STORAGE COMPANY LIMITED” written
above the words “GENERAL MANAGER”. The space between
these two
sets of words has a signature purporting to be that of the “GENERAL
MANAGER” signing the document on behalf of the
defendant. The
date of issue filled in the relevant space by means of a date stamp
was 3 March 1998 whilst the due date similarly
recorded was 3
September 1998. The endorsement of payee in blank meant that the
documents were payable to bearer.





The
defendant pleaded to the declaration as follows:-






“2 Ad
paragraph 3
.







    1. The
      Defendant denies the allegations in paragraph 3 of the Plaintiff’s
      Declaration.









    1. The
      Defendant denies that the ten commercial bills listed in this
      paragraph were issued by it and states that the signature that
      purports to be on the bill is forged and unauthorised.









    1. Accordingly,
      the Defendant asserts that the Plaintiff has no right to retain the
      bill or to enforce payment thereof …








  1. …







  1. The
    Defendant asserts that the persons to it presently unknown employed
    by United Merchant Bank Zimbabwe Limited in Harare falsely
    and
    fraudulently issued to the public which may or may not have included
    the Plaintiff, bills purporting to emanate from the Defendant,
    but
    which bills had not been authorised by the Defendant, and for which
    the Defendant was not liable.







  1. In
    the alternative the Defendant asserts that it is unable to state
    which pieces of paper issued by United Merchant Bank Zimbabwe
    Limited had been authorised by it, and which had not been authorised
    by it.






6.
The Defendant asserts that it authorised the issue on 3 March 1998
of bills totalling $36 million due on 3 September 1998.





7.
Accordingly the Defendant asserts, in the alternative, that its
maximum liability in respect of all holders of bills due on 3
September 1998 is the sum of $36 million.”








In
replication the plaintiff denied each and every allegation of fact
and conclusion of law contained in the plea.





On
30 June 1999 the plaintiff made an application for the amendment of
the summons to add a further cause of action. It claimed
the
payment of $25 million with interest thereon at the rate of 35% from
3 March 1999 to the date of payment. The application was
allowed.





It
was alleged in the additional cause of action that the plaintiff was
a lawful holder of five “commercial bills” for $5 million
each
issued by the defendant. The “bills” were said to have been
dishonoured upon presentation for payment on the due date.
Apart
from the dates and amounts contained therein the five documents took
the same form of promissory notes as described above
in respect of
the ten documents on which the claim for the payment of $100 million
was based.





The
defendant again denied that it issued the five documents as
promissory notes to the plaintiff. It repeated the allegation
that
the signature on the documents was forged and unauthorised. It
asserted that persons unknown to it employed by UMB had falsely
and
fraudulently issued to the public which may or may not have included
the plaintiff, “bills” purporting to emanate from the
defendant
but which “bills” had not been authorised by it. The defendant
specifically stated that it did not authorise the
issue of any
“commercial bills” on 2 March 1998 and maturing on 2 March 1999.






The case
proceeded to trial on two main issues recorded by the court
a
quo

as:-





“(1) Whether
the ‘bills’ forming the subject matter of the plaintiff’s claim
were issued by the defendant?







  1. Whether
    the signatures on such bills were false and unauthorised?”









The
defendant was clearly denying that the signature on the documents
relied upon by the plaintiff as the cause of action was affixed
by
its general manager. It was alleging in effect that the signature
was placed thereon by some other person employed by the United
Merchant Bank (UMB) without its authority. The facts and
circumstances which gave rise to the relationship between the
defendant
and UMB will help explain why the declaration and plea
contain the allegations they make.






Following
its incorporation the defendant found itself having to raise its own
working capital unlike its predecessor which relied
on government
subsidies. The government of Zimbabwe through the Reserve Bank
issued guarantees to UMB to cover “bills” and
“notes” issued
by the defendant with the object of raising money it found necessary
to have from the finance market.





The
procedure the defendant had to follow to raise money from the finance
market on promissory notes was set out in the summary
of evidence as
having been the following. Senior management decided on the amount
the defendant wanted raised from the money market.
They directed
the finance manager or his assistant to give instruction to UMB to
issue a specific number of “bills” or “promissory
notes” to
raise the amount required by the defendant. The instruction would
then be given to UMB authorising it to issue the
promissory notes to
raise the specific amount. The authority was given by telephone and
confirmed in writing immediately thereafter.






There
were three money market dealers at UMB who received the defendant’s
instructions. These were Mr Changara, Mr Dulani and
Mr Gotora.
Within twenty-four hours of receipt of the instruction, UMB through
one of the money market dealers sent to the defendant
a discount
statement or deal slip confirming compliance with the instructions
entered into with the lenders. The statement advised
the defendant,
for example, on amount received, discount rate, date of issue, due
date, rate of interest and net proceeds.





To
enable UMB to carry out its mandate the defendant provided it with a
specimen signature of its general manager. Out of the
specimen
signature of the general manager UMB computer generated signatures
which it placed on the documents issued as “promissory
notes” on
behalf of the defendant when appropriate instructions had been given
to that effect.





The
basis of the denial by the defendant of the allegation that it issued
the fifteen documents as “promissory notes” was that
no
instruction was given to UMB on 2 March 1998 to raise $25 million
from the finance market on its behalf, nor was such an instruction
given to UMB on 3 March 1998 to raise $100 million on the security of
the documents as “promissory notes”. The allegation was
that
the documents which were admittedly not signed by the defendant’s
general manager with his own hand were signed by some other
person
employed by UMB who placed the computer generated signature of the
general manager on the documents to make them “promissory
notes”
without authority to do so.





It
was alleged that the instructions given on behalf of the defendant by
a Mr C. Mujomi on 3 March 1998 and confirmed in writing
the following
day by UMB, was to raise an amount of $36 million from the market by
rolling over for 184 days “bills” worth $30
million which had
matured on that day and $6 million as new borrowing.





I
now look at the evidence adduced by the plaintiff. It called its
Managing Director Mr Morris Musuwo (“Mr Musuwo”) and the
secretary Mr Alois Tasiya. The evidence of Mr Musuwo only needs
attention because Mr Tasiya’s testimony has no bearing upon the
resolution of the questions raised on appeal.





Mr
Musuwo became the plaintiff’s Managing Director in 1997. He had
many years of experience as a money market dealer. He revealed
that
the plaintiff placed considerable sums of money from institutional
investors with UMB as fixed deposits. Some time in 1997
UMB
officials approached him and indicated that UMB was raising money on
behalf of the defendant. It was common knowledge in the
money
market that UMB was holding government guarantees to cover “bills”
and “promissory notes” issued by the defendant
to raise its
working capital.





The
plaintiff entered into an agreement with UMB in terms of which it
lent to the latter out of the fixed deposits specific amounts
of
money when the need arose. UMB gave the plaintiff “promissory
notes” issued on behalf of the defendant as security for the
money
advanced to it. It was Mr Musuwo’s evidence that UMB was the
plaintiff’s debtor and the latter looked to it for the payment
of
the money on the due dates.





On
2 March 1998 the plaintiff lent UMB an amount of $25 million by
rolling over an equivalent amount of money the payment of which
had
become due on that day. As security for the money UMB gave to the
plaintiff five documents as promissory notes. Mr Musuwo
said he
believed that the documents had been issued by the defendant as
promissory notes.





On
3 March 1998 Mr Musuwo attended personally at UMB. He dealt with
one of the money market dealers but was not able to say who
of the
three was involved in the transaction in terms of which the plaintiff
lent the sum of $100 million to UMB payable on 3 September
1998 with
interest thereon at the rate of 35% per annum. In turn UMB
delivered to the plaintiff ten documents in the form of “promissory
notes” as security for the money advanced to it as a loan. He
believed that the documents had been signed by the defendant’s
general manager.






Mr Musuwo
emphasised in evidence the fact that the fifteen documents were not
bought by the plaintiff as promissory notes. They
were security for
the money advanced to UMB. Had UMB paid back the money on the due
dates the documents would have been returned
to UMB. The plaintiff
had, on 9 January 1998, however, purchased for value documents with
similar properties as those on which
the claim was based for $20
million. He said those documents looked exactly the same as the
ones bearing the signature which is
denied by the defendant. The
signature on the two sets of documents looked the same. He said
there was nothing
ex
facie

the documents to suggest that the signature was not authorised.





Mr
Musuwo said when the plaintiff presented for payment on 15 April
1998, the documents it purchased for $20 million, they were
all
dishonoured. Information came out that UMB was in fact bankrupt.
It was subsequently placed under liquidation. The money
advanced to
UMB as loans was not paid on the due dates. When the plaintiff
presented for payment the fifteen documents it held
as security they
were all dishonoured. The documents purchased for $20 million were
later paid by the Reserve Bank of Zimbabwe
because they had been
purchased for value. The plaintiff lodged a claim for the payment
of $125 million with UMB’s liquidator
but the money had not been
paid at the time action was commenced against the defendant.






The
plaintiff closed its case. Mr
de
Bourbon
,
indicated to the court
a
quo

that the defendant was closing its case without leading the evidence
which it had indicated in the summary of evidence that it would
lead.
In deciding to close the defendant’s case Mr
de
Bourbon

was of the opinion that the evidence adduced by the plaintiff had not
established a
prima
facie

case for the defendant to answer. Mr
Girach,
for the plaintiff had a different view of his client’s case. He
moved the court for judgment. After both counsel had been
heard in
argument, the court
a
quo

gave judgment for the plaintiff thereby prompting the appeal to this
Court.






The reasons
for judgment show that the learned judge was of the opinion that as
there was nothing
ex
facie

the documents on which the plaintiff’s claim was based to show that
the signature thereon was not authorised there was a presumption
of
fact that the signature was there in an authorised capacity. The
learned judge held that the
onus
was on the defendant, in the circumstances, to show that the
signature was placed on the documents without the authority of its
general
manager.





This
is what he said:-





“From
the pleadings filed of record there exists a dispute between the
parties as to whether or not the signature on the promissory
notes
were forged and unauthorised. The evidence on behalf of the
plaintiff was that, from its dealings with UMB in regard to this
matter and generally in regard to other transactions it received
bills in the form of security it had no reason to suspect were forged
or in any manner irregular. This evidence was not seriously
challenged by the defendant. The plaintiff received the said
promissory
notes from UMB as security for loans the latter advanced
to the CSC. The notes bear a signature in the space reserved for
the signature
of the general manager. The coming into existence of
the notes was a matter within the particular knowledge of the CSC and
UMB.
The evidence on behalf of the plaintiff was that it had no
reason, based on its dealings with UMB to harbour suspicion at the
time
the promissory notes in question were tainted. The CSC put in
issue the genuineness of the signatures. Apart from the averments
in its plea, the defendant elected not to call any evidence and
closed its case. In the view of this Court the CSC ought to have
laid a basis by leading some evidence that challenged the genuineness
of the signatures appearing on the promissory notes. The
plaintiff
would then have been required to lead further and additional evidence
to establish that the signatures on the notes were
those of the CSC.
In this regard the CSC could have called the evidence of its general
manager putting in issue the genuineness
of the signatures appearing
on the promissory notes.”








No
authority was cited by the learned judge for the grounds on which he
based the judgment. It is clear, however, that the plaintiff
brought its claim as a holder of documents it believed were
promissory notes and the defendant was sued as the maker of the
notes.
To succeed in its action the plaintiff had to establish the
rights of a holder against the maker of documents as promissory
notes.
The defendant denied that it signed the documents as maker
thereof consequently denying the existence of indebtedness to the
plaintiff
at all.





Section
89(1) of the Bills of Exchange Act [Chapter 14:02] (“the Act”)
makes it clear that for a document to have the validity
of a
promissory note it must, amongst other things, have been signed by
its maker. Section 22 prohibits in absolute terms the imposition
of
liability on a person as a maker of the note who has not signed it as
such. Once the defendant denied that it signed the documents
it
could not be found liable on them until the plaintiff had proved, on
a balance of probabilities, that it signed the documents
as the maker
of them as promissory notes.





By
referring to the documents as “promissory notes” in the reasons
for judgment the learned judge presumed the existence of
the very
fact the proof of which he had to satisfy himself had been
established by the evidence of the plaintiff. No presumption
of the
fact that the defendant signed the documents as maker of them as
promissory notes arose from the mere physical presence of
the
signature on the documents.






In Lotzof
v Lotzof

1915 AD 127 at 134 INNES CH said:-






“Now
in view of the denial embodied in the plea it is clear that the first
task falling to be discharged by the plaintiff was to establish
that
the signature to the note was the signature of the defendant. If he
failed to satisfy the Court on that point, there was an
end of the
case. And the
onus
in that respect being on him, if in the result all reasonable doubt
had not been dispelled, then an order of absolution was correct
and
proper.”









There is also
the case of
Inglestone
v Pereira

1939 TPD 55 in which RAMSBOTTOM J expressed the same view of the law
at pp 71-72 saying:-






“If
the fact relied on is alleged in the summons and is not denied, it is
taken to be admitted but if it is put in issue, it must be
proved by
the plaintiff to whose case it is necessary. Similarly, if the
defendant denies that the signature to the document is
that of
himself or his agent or if he denies that the signatory was
authorised to sign on his behalf the
onus
would be on the plaintiff to establish these facts.”









Lastly, in
Rand
Advance (Pty) Ltd v Scala Café

1974 (1) SA 786 MILNE J at 789 D-E said:-






“Mr
Chadwick for the plaintiff conceded that where, as here, the
authority of the defendant’s agent to sign the documents in
question
is challenged … the
onus
is
on the plaintiff to prove that the signature attributed to the
defendant is in fact the defendant’s.”









The onus
was clearly on the plaintiff to prove that the computer generated
signature placed on the documents by some other person employed
at
UMB was authorised by the defendant’s general manager. Authority
as a matter of fact had to be proved by extrinsic evidence.
The
documents formed part of the cause of action. They could not be
used to prove the fact that the signature on them was authorised.

To say the signature was authorised because there was nothing ex
facie

the documents to impugn its apparent authenticity merely repeated the
cause of action.





The
facts and circumstances which gave rise to the relationship between
the defendant and UMB show that at the time the former gave
the
latter the specimen signature of its general manager it had no
intention that it should immediately be placed on documents as
negotiable instruments for purposes of raising money from the public.
In other words there was no general authority given to UMB
to place
the computer generated signature on documents as promissory notes on
which to borrow money at any time. The specimen signature
was to be
kept by UMB until it received instruction from the defendant to use
it on the documents as promissory notes to raise a
specific amount of
money.






It would be
the instruction which contained the authority to UMB to place the
computer generated signature on the documents with the
intention of
making promissory notes. The plaintiff had to prove that at the
time the computer generated signature was placed on
the documents
forming part of its cause action the instruction had been given to
that effect by the defendant otherwise the signature
would be
unauthorised. The authority to sign the documents, as promissory
notes on behalf of the defendant, was given only after
the
defendant’s officials were certain that money was needed to finance
its operations and had determined the amount to be raised
from the
money market.
Smith
v Prosser

[1907] 2 KB 735 at 747, 748, 749 and 753.






Did the
evidence adduced by the plaintiff establish a
prima
facie

case on the question whether the signing of the documents as
promissory notes on behalf of the defendant by UMB officers was
authorised?
Mr
de
Bourbon

argued that the evidence was woefully inadequate to establish a
prima
facie

case. I agree.





The
evidence led by the plaintiff was not directed at proving the fact in
issue. The evidence that the signature on the documents
purchased
as promissory notes for $20 million was similar to the signature on
the documents forming the cause of action was not probative
of the
fact that the signature was authorised. The fact of similarity in
the signatures was neutral in effect because the signatures
were
computer generated from one specimen. As pointed out earlier in the
judgment the plaintiff could not rely on the evidence
of the
documents themselves to prove that the signature on them was
authorised.





The
evidence of the requisite authority would have been contained in the
instructions given to UMB by the defendant’s officials.
There
should have been produced the documents containing the confirmation
of the instructions to UMB officials to raise specific
amounts of
money from the money market. In the absence of such documents the
plaintiff should have called one of the money market
dealers to give
oral evidence of the instructions they received from the defendant.






The learned
judge seems to have accepted that the plaintiff had not led the
evidence it ought to have adduced. He said the evidence
which the
plaintiff needed to establish the fact in issue was within the
peculiar knowledge of the defendant and UMB. The fact
that
information required by a party to prove a fact in issue is within
the particular knowledge of the other party is not a reason
for
removing the burden of proof from him.
Gericke
v Sack

1978 (1) SA 821 (A) at 827.






The
learned judge also found the defendant liable on the ground that the
evidence had established that UMB had “ostensible authority”
to
sign the documents on its behalf. There was, however, no direct
communication between the defendant and the plaintiff. The
plaintiff said it lent the money to UMB and looked to it for payment.
It would have been unnecessary, in the circumstances, for
the
defendant to represent to the plaintiff that UMB had authority to
sign the documents on its behalf. In any case the defendant
did not
owe the plaintiff any duty to ensure that no false representation of
its authority was made to it at all times when the authority
it gave
to UMB to sign the documents was not a general authority.





There
was no evidence that any representation was made to the plaintiff by
the defendant that UMB had been given authority to sign
the documents
on which its claim was based. The representation that could have
been made would have been by UMB to the plaintiff.
But a
representation of apparent authority by UMB could not justify the
application of the principle of “ostensible authority”
against
the defendant because UMB as an agent would have had no authority to
represent. The belief induced in the plaintiff by
the conduct of
UMB would have been that the signature on the documents was affixed
thereon by the defendant’s general manager which
fact the defendant
denied.





The
ground upon which the learned judge found that UMB had “ostensible
authority” to sign the documents on its behalf at the
time it did
was the fact that on 3 March 1998 the defendant instructed UMB to
issue “bills” for a total amount of $36 million.
Mr Musuwo’s
evidence was, however, that the five documents given to the plaintiff
as security for $25 million advanced on 2 March
1998 were in respect
of money the repayment of which was rolled over. There was no new
borrowing of money by UMB on 2 March 1998.
The defendant denied
that it authorised the issue of any bills or notes on 2 March 1998.
That authority had to be proved by the
plaintiff.





More
importantly, Mr Musuwo said the sum of $100 million was a new loan
given to UMB on 3 March. On the other hand the defendant’s
allegation was that it authorised the issue of “bills” on $30
million as roll over and $6 million as new borrowing. The money
was
not necessarily raised from the plaintiff. The authority to UMB to
sign the ten documents as promissory notes to raise $100
million on
behalf of the defendant on 3 March had to be proved by the plaintiff.
There was no basis on which a representation by
the defendant to
the plaintiff that UMB had authority to sign the documents forming
the cause of action could have been inferred
from the instruction to
UMB to issue promissory notes for the amount of $36 million on 3
March 1998.






Mr Andersen
also
raised the point that the issue was really one of fraud perpetrated
on the defendant by UMB in exceeding the authority to issue
a
specific number of promissory notes. He argued that the
onus
was on the defendant to prove the fraud. I do not agree. That
situation would have arisen had the defendant admitted that it
had
authorised UMB to sign documents shown to amount to $36 million.
The plea would have been a confession and avoidance. It
is clear,
however, that the defendant’s position was that the documents on
which the plaintiff based its cause of action were not
shown to have
any relation to the amount of $36 million UMB was instructed to raise
on 3 March 1998. The reason is that whilst
the plaintiff advanced
$100 million to UMB on 3 March and received the documents signed by
UMB as security the defendant alleges
that promissory notes for $30
million were to be issued as roll over and only the amount of $6
million was a new borrowing which
was not necessarily sourced from
the plaintiff.





The
conclusion is that the correct verdict should have been absolution
from the instance.






The appeal
is accordingly allowed with costs. The decision of the court
a
quo

is set aside and in its place substituted the following:-





“The
judgment is absolution from the instance with costs.”















CHIDYAUSIKU
CJ: I agree











ZIYAMBI
JA: I agree















Webb Low &
Barry
,
appellant's legal practitioners


Gill
Godlonton & Gerrans
,
respondent's legal practitioners