Chemi-Galore Pharmaceutical Suppliers (Pvt) Ltd v Hwange Colliery Company Limited

The plaintiff, a pharmaceutical supplier, was successfully listed on the defendant's supplier list after responding to an advertisement. The plaintiff supplied pharmaceuticals to the defendant's hospital and invoiced the defendant with banking details. Upon reconciliation, the plaintiff discovered the defendant owed $15,665.14. The defendant claimed it had paid in full but investigation revealed payments were made into bank accounts different from those officially supplied by the plaintiff. The defendant alleged that one N. Moyo, purportedly acting on behalf of the plaintiff, had instructed payments be made into these different accounts. The plaintiff's managing director testified that N. Moyo was not employed by the plaintiff, was not a director or shareholder, and that the plaintiff used Swift for deliveries and Patrick Zowa (who worked at the defendant's hospital) for initial communications. The defendant's witnesses confirmed N. Moyo was their contact person but conceded with hindsight that they failed to conduct due diligence to verify N. Moyo's authority to bind the plaintiff.

• Whether the defendant had validly discharged its payment obligations by paying into bank accounts nominated by a person (N. Moyo) who was not an employee, director, or authorized agent of the plaintiff
• Whether the doctrine of regularity (the rule in Turquand's case) applied to protect the defendant's reliance on N. Moyo's instructions
• Whether the defendant remained liable to the plaintiff for the outstanding amount despite having made payments to third-party accounts based on fraudulent instructions

The court ordered: (1) The defendant to pay the plaintiff the sum of $15,665.14 with interest at the legally prescribed rate from the date of issue of summons to date of payment; and (2) The defendant to pay the costs of suit.

The rule in Turquand's case (the doctrine of regularity) does not apply where a fraudster holds himself out as an employee, director, or agent of a company, because the company cannot be held to have represented the fraudster as having authority to bind it. A party making payments pursuant to instructions from a person who is not an employee, director, shareholder, or authorized agent of the creditor does not discharge its debt obligations to that creditor, even if it believed in good faith that such person had authority. The risk of fraud falls on the party who fails to conduct proper due diligence to verify the authority of persons purporting to act on behalf of a contracting party.

The court observed that with proper due diligence, the defendant could have avoided the fraud perpetrated by N. Moyo. The court noted that a cursory analysis of the correspondence authored and delivered by Moyo could have easily exposed his dubious character, as he signed in various capacities (as director, as an individual, and as operations manager) over a short period of time when varying banking instructions. This observation highlights the importance of vigilance and proper verification procedures in commercial transactions.

This case is significant in Zimbabwean commercial law as it clarifies the limits of the rule in Turquand's case (the doctrine of regularity) in the context of corporate transactions. It establishes that the doctrine does not protect third parties who deal with fraudsters holding themselves out as corporate agents without verifying their authority. The case emphasizes the importance of due diligence in commercial transactions and places the risk of fraud on parties who fail to verify the authority of persons purporting to act on behalf of companies. It reinforces the principle that payment to an unauthorized person does not discharge a debtor's obligations to the creditor, and that companies cannot be bound by the actions of persons who have no actual or ostensible authority to act on their behalf.