CAFCA Limited v Reserve Bank of Zimbabwe

CAFCA Limited, a manufacturer and supplier of cables for transmission and distribution of energy and communications, experienced slow growth in 2004 due to inflation. In October 2004, CAFCA approached the Reserve Bank of Zimbabwe (RBZ) for assistance. The RBZ was operating a foreign currency auction system. The Governor of RBZ agreed to grant CAFCA special status as a permanently successful bidder, allocating US$150,000 per week from January 2005, later increased to US$250,000 from June 2005. CAFCA was required to pay the Zimbabwe dollar equivalent within 24 hours of telephonic notification. The arrangement worked successfully from January to July 2005. In August 2005, CAFCA made three payments totaling the Zimbabwe dollar equivalent of US$750,000, but RBZ failed to disburse the foreign currency to CAFCA's suppliers. RBZ offered either a refund in Zimbabwe dollars or to wait for foreign currency availability. CAFCA chose to wait and eventually paid its suppliers from other sources. After unsuccessful negotiations, CAFCA instituted legal proceedings in July 2008 claiming US$750,000 plus interest.

• Whether the defendant was contractually obliged to pay plaintiff the sum of US$750,000
• Whether the defendant was estopped from denying its obligation to pay plaintiff the sum of US$750,000
• Whether the defendant's tender to repay in Zimbabwean currency was a proper tender which plaintiff was obliged to accept
• When a binding contract was concluded between the parties
• Whether specific performance was an appropriate remedy

1. The defendant was ordered to pay the plaintiff US$750,000 together with interest a tempore morae at the London Interbank rate for United States dollars 3.5% per annum from 1 September 2005 to date of payment. 2. The defendant was ordered to pay costs of suit.

A binding contract is concluded when a party complies with all contractual requirements, including payment of consideration, pursuant to a clear allocation and confirmation by the contracting party. Once foreign currency allocations are confirmed and payment is received, the party making the allocation is contractually obliged to deliver the foreign currency. A debtor cannot unilaterally change the terms of settlement by offering refunds in devalued currency when the creditor has elected to await performance of the original contractual obligation (specific performance). The court will enforce specific performance of contracts to protect their sanctity, and businessmen who wrongfully breach contracts will be ordered to perform their obligations regardless of cost, rather than merely paying damages in devalued currency. State entities and their agencies are held to the same contractual standards as private parties.

The court observed that it would be unreasonable to fault the plaintiff's election to await payment of foreign currency rather than accept refund in Zimbabwe dollars, given that devaluation had rendered the Zimbabwe dollar worthless and the defendant's proposed refund did not account for inflation or devaluation. The court noted that the fact that other companies accepted refunds in Zimbabwe dollars had no bearing on the specific agreement between these parties. The court emphasized the need to send a clear message to businessmen that courts will enforce contractual obligations through specific performance rather than allowing defaulting parties to escape with nominal damages in devalued currency, stating: 'businessmen beware. If you fail to honour your contracts, then don't start crying if, because of your failure, the other party comes to court and obtains an order compelling you to perform what you undertook to do under your contract.'

This case is significant in Zimbabwean commercial law for several reasons: (1) It affirms the sanctity of contractual arrangements and the willingness of courts to enforce specific performance even against state entities experiencing financial difficulties. (2) It establishes that special allocation arrangements made by the Reserve Bank constitute binding contractual obligations once the party has complied with payment requirements. (3) It demonstrates that a debtor cannot unilaterally dictate the form of settlement when the creditor has elected specific performance. (4) The case illustrates the court's approach to contracts during periods of currency instability and hyperinflation, protecting parties who have performed their obligations from being forced to accept refunds in devalued currency. (5) It reinforces the principle that the state should be treated like any other contracting party and cannot escape contractual obligations by claiming lack of resources or competing national priorities.