Court name
Supreme Court of Zimbabwe
Case number
SC 148 of 2004
Civil Appeal 111 of 2004

Wood and Another v Mudungwe and Another (11/04) (SC 148 of 2004, Civil Appeal 111 of 2004) [2005] ZWSC 148 (21 September 2005);

Law report citations
Media neutral citation
[2005] ZWSC 148













REPORTABLE
(138)


Judgment
No. SC. 148/04


Civil
Appeal No. 111/04








(1)
DESMOND CHARLES WOOD (2) ANNA-MARIE
WOOD





v
(1) ELWYN MUDUNGWE (2) THE REGISTRAR OF
DEEDS








SUPREME
COURT OF ZIMBABWE


SANDURA
JA, MALABA JA & GWAUNZA JA


HARARE,
OCTOBER 12, 2004 & SEPTEMBER 22, 2005








R
M Fitches
, for the appellants





A
Mugandiwa
, for the first respondent





No
appearance for the second respondent





MALABA
JA: This is an appeal against an order of the High Court, granted
on 24 September 2003, directing the appellants
to sign documents
for the transfer of Stand 13270 Salisbury Township to Tonderai
Daiton Tela within ten days of service of the
order upon them failing
which the Deputy Sheriff, Harare, was authorised to sign the transfer
documents on their behalf. The appellants
were also ordered to pay
the costs of the application for the order granted jointly and
severally, the one paying the other to be
absolved.






The
facts are these. On 28 August 2001 the appellants, who were
husband and wife, entered into a contract with Tonderai Daiton
Tela
in terms of which they sold to him Stand 13270 Salisbury
Township situated in the District of Salisbury (“the property”)
for $5 000 000. Clause 2.1 of the agreement of sale
provided that:





“The
price shall be paid free of deduction to the seller in the manner set
out in the Schedule.”






As
to the manner of payment, the parties agreed to:






“1. The Purchaser paying the
Sellers a deposit of $3 375 000 (Three million three
hundred and seventy-five thousand dollars)
on signing this Agreement
of Sale.






2. The
Purchaser paying a further deposit equivalent to the Agent’s
commission of $250 000 (Two hundred and fifty thousand
dollars)
to the Agent.





3. The
balance of the purchase price amounting to $1 500 000 (One
million five hundred thousand dollars) shall be paid by
the Purchaser
within six months of this Agreement of Sale, that is to say, by
28/02/2002.






4. The Agent’s Commission shall
be paid by both parties in equal shares i.e. the Sellers $125 000
(One hundred and twenty-five
thousand dollars) and the Purchaser
$125 000 (One hundred and twenty-five thousand dollars).






5. The
Sellers shall rent the premises at a rent to be negotiated after
transfer of (the) property.”







Clause 6.1 provided that the
purchase price had to be paid to Messrs Coghlan, Welsh & Guest,
who were to tender transfer
to the purchaser on behalf of the sellers
within a reasonable time after the price had been paid in full.
Messrs Coghlan, Welsh
& Guest, who were the sellers’ agent,
shall hereinafter be referred to as “the agent”.


The
sum of $3 375 000 was paid to the agent on 30 August
2001 and $1 345 000 on 5 November 2001.
On
11 December 2001 the purchaser paid $280 000 and transfer
fees in the sum of $261 312.50. As of that date the
purchaser
had paid the purchase price of $5 000 000 to the sellers’
agent.


On
15 January 2002 the agent sent to the sellers the following
statement of account:



“By purchase
price
5 125 000


To
provision for CGT 500 000


To
Agent 250 000


To
Volinet 250 000


To
BBS’ cancellation requirements 473 914


To
Cancellation Costs 890


To
Volinet 250 000


To
Tigere 4 546


To
W P Enterprise 2 389 639.87


To
Edkins 6 900


To
Donnelly 9 829


To
Rates 20 000


To
Cheque herewith 858 281.13




5 125 000 5 125 000.”



On 8 February 2002 the
first appellant refused to sign the transfer documents, alleging that
the payments made by the agent
to his creditors were deductions. He
claimed that as a result of those payments there was a breach of
clause 2.1 of the agreement
of sale by the purchaser because the
price of $5 000 000 had not been paid to him “free of
deduction”. He singled
out the following payments –



Capital Gains Tax $500 000


BBS
Cancellation Requirements $473 914


Cancellation
Costs $890


To
Tigere $4 546



To Rates $20 000.







On 9 May 2002 the first
respondent, acting on a General Power of Attorney given to him by the
purchaser on 28 August 2001,
applied to the High Court for an
order compelling the appellants to sign the documents to effect
transfer of the property to the
purchaser in terms of the agreement
of sale. The founding affidavit averred that the purchaser had
performed his obligations in
terms of clause 2.1 of the
agreement and paid the price of $5 000 000 to the sellers
“free of deduction”.


The
first appellant, who opposed the application, admitted that the
purchase price had been paid to the agent. He did not deny
that
they were the sellers’ agent with authority to receive payment of
the money. It was his contention nonetheless that he did
not
receive $5 000 000 into his pocket.



The learned judge held that the
payments made by the agent out of the purchase price and singled out
by the first appellant as evidence
of a breach of clause 2.1 of
the agreement of sale were not reasonably within the contemplation of
the parties at the time they
entered into the contract. In granting
the order the learned judge stated:



“In my view, it is highly
unlikely, if at all, that such costs or deductions were in the
contemplation of the parties when they entered
into the agreement of
sale. In any event, in terms of the Capital Gains Tax Act
[Chapter 23:01] capital gains tax is paid by sellers of
immovable property in respect of the capital gains accrued in respect
of the sales. The
money owed to Beverley Building Society by the
first respondent [now the first appellant] was his debt and the
applicant’s principal
could not have been expected to pay it unless
the agreement of sale specifically provided so.



… The deductions or costs that
the first respondent claims ought to have been made or paid by the
applicant’s principal are not recorded
as such in the agreement of
sale. The applicant’s principal thus did not breach the
agreement.”







In the appeal Mr Fitches
argued on behalf of the appellants that the court a quo
misdirected itself in construing the phrase “free of deduction”
in clause 2.1 of the agreement of sale to exclude relief
claimed
by the first appellant from the burden of the payments made by the
agent to his creditors. The contention advanced was
that the phrase
“free of deduction” is not usually included in agreements of
sale, and the only reasonable inference was that
its inclusion in
clause 2.1 was to secure for the sellers freedom from the burden
of payments of their debts as reflected in
the statement of account
prepared by the agent so that they received $5 000 000 in
their pocket.


The
question the court a quo was called upon to determine was
one of the true construction of the language used by the parties in
their written contract. When
the words “free of deduction” are
used in a contract of sale to impose a duty on a purchaser in respect
to the payment of the
purchase price they have a technical meaning.
In their limited meaning they would be intended to secure for the
seller relief from
the burden of things that are in the ordinary
sense “deductions” expected at law to be made as of right from
the purchase price
by the purchaser. Where things which, in the
ordinary sense of the word, would not be “deductions” expected to
be made by a
purchaser from the purchase price are to be included in
the meaning of that word the context in which it is used must be made
clear.
The parties must specify or enumerate the type of things
they intended to be included in the concept of “deduction”. In
the
absence of express enumeration of the things not to be deducted
from the purchase price, the learned judge correctly decided, on
the
authority of United Mines of Bultfontein v De Beer Consolidated
Mines Ltd
17 SC 425 that the words “free of deduction” should
be confined to such deduction as might reasonably have been in the
contemplation
of the parties at the time they entered into the
contract. In other words, the phrase would refer to things for the
payment of
which a purchaser would ordinarily be expected to make
deduction from the purchase price.


So
whether or not the purchase price should have been paid to the first
appellant free from deduction for capital gains tax and
personal
debts, listed in the statement of account prepared by the agent, must
depend upon the meaning of the words used by the parties;
i.e.
if upon the true construction of the words the court a quo
considered that it was intended by the parties that the sellers
should have the $5 000 000 without the capital gains tax
and the personal debts listed in the statement of account being
deducted, there was no rule of law to prevent effect being given
to
that intention.



The purchaser paid the
$5 000 000 to the agent without deduction, thereby
discharging his obligation under clause 2.1
of the agreement of
sale. What happened to the money once it was in the hands of the
agent was a matter between the appellants
and the agent. Capital
gains tax is not, properly speaking, a deduction but a charge, which
the legislature imposes on the person
who receives capital gain.
See
Gleadow v Leetham
22 Ch.D. 269 at 272. The justification for its imposition is
receipt of gain and not payment of the purchase price. The
mortgage
bond imposed an obligation on the first appellant and his wife to pay
their debt to Beverley Building Society, and the purchaser
had no
obligation, in the absence of express agreement, to pay the money for
them. It was important therefore for the parties to
show in clear
language that the word “deduction” in clause 2.1 was
intended to grant to the sellers freedom from the burden
of paying
capital gains tax and any of the personal debts listed in the
statement of account, so that the sellers received the $5 000 000
from their agent “free of deduction”.



As there was nothing in the
context in which the words “free of deduction” were used to
suggest that when the parties entered
into the contract they treated
capital gains tax and the other debts listed in the statement of
account, ordinarily expected to be
paid by the sellers, as coming
under the meaning of “deduction”, the learned judge correctly
construed the words “free of deduction”
in their limited meaning.


The
appeal is accordingly dismissed with costs.








SANDURA
JA: I agree.








GWAUNZA
JA: I agree.









Musunga & Associates,
appellant's legal practitioners


Wintertons,
first respondent's legal practitioners