Interfin Bank Limited (In Liquidation) v Shaun Clerence Investments (Pvt) Ltd and Others

On 21 February 2011, the plaintiff bank entered into a credit facility agreement with the first defendant for up to US$117,250.00. The plaintiff disbursed US$19,737.01 to the first defendant. The first defendant defaulted on repayments, leaving an outstanding capital amount of US$16,133.01 plus bank charges of US$5,356.70. The second defendant's house was allegedly hypothecated as security for the debt. The first defendant contended the arrangement was a partnership for fuel procurement from Russia, not a loan agreement, and that parties would share profits equally. The arrangement originated from a letter dated 2 December 2010 and a Confidentiality and Non-Circumvention Agreement dated 24 January 2011. The facility letter was signed by the third defendant (Shepherd Chirwa), the first defendant's business manager, allegedly without board authority. The second defendant (Phillion Mubata) gave power of attorney to Debra Shirichena to mortgage his house but later claimed he revoked this before registration. However, the mortgage bond was registered using a power of attorney allegedly given to T. Muganyi, which the second defendant denied executing.

• Whether the first defendant was indebted to the plaintiff under a loan agreement or whether the arrangement constituted a partnership
• Whether the credit facility was validly entered into when signed by a business manager without board resolution
• Whether the principle of ostensible authority bound the first defendant to the facility letter
• Whether the second defendant validly hypothecated his property as security for the alleged debt
• Whether a power of attorney is transferable from one legal practitioner to another
• Whether a mortgage bond registered using an unauthorized power of attorney is valid

The first defendant was ordered to pay: (a) US$16,722.00 being capital; (b) US$5,356.70 being bank charges; (c) Costs of suit on a legal practitioner-client scale and collection commission as provided for under the Law Society By-Laws (1982). The claim against the second defendant was dismissed as the mortgage bond was found to be invalid.

The binding legal principles established are: (1) A credit facility agreement is separate and distinct from a partnership arrangement even where both relate to the same commercial venture; (2) Under section 12 of the Companies Act [Chapter 20:03], a business manager has ostensible authority to bind a company, and third parties are entitled to presume such authority exists; (3) A company ratifies an unauthorized contract through conduct, including accessing funds under a credit facility; (4) A power of attorney creates a personal relationship that is not transferable - when an attorney becomes unable or fails to perform their mandate, the authority cannot be transferred to another person without fresh authorization from the principal; (5) A mortgage bond registered using an unauthorized or forged power of attorney is a nullity and creates no valid security; (6) A power of attorney, even if irrevocable, is only irrevocable with respect to the specific attorney named and does not extend to substitute attorneys.

The court made strong observations about professional conduct, stating: "It is improper and unethical for a legal practitioner who has not been given instructions and power of attorney to mortgage a house by its owner to pretend and give out that he has such authority. Such conduct is not only unethical, but smacks of forgery and fraud on the part of the plaintiff and the legal practitioner concerned. Such conduct deserves censure." The court also noted that it was not addressed on the issue of costs against the third defendant, suggesting this matter remained unresolved. The court observed that there would have been no need to pledge the house as security if the monies were partnership funds, using this as circumstantial evidence supporting the loan characterization. The court commented that it found it "interesting that the directors would still agree to be bound by the credit facility and access funds from it when the facility was not authorized," suggesting skepticism about the first defendant's claim of lack of authorization.

This case is significant in Zimbabwean banking and contract law for several reasons: (1) It clarifies the distinction between partnership arrangements and loan agreements, establishing that parties may have both a partnership for one purpose and a separate loan facility; (2) It applies the principle of ostensible authority under section 12 of the Companies Act, protecting third parties dealing with company managers; (3) It establishes that ratification can occur through conduct, specifically by continuing to access funds under a facility; (4) It reinforces the personal nature of the attorney-client relationship and the non-transferability of powers of attorney; (5) It provides strong judicial censure of irregular mortgage bond registration practices and potential forgery by legal practitioners; (6) It demonstrates the court's willingness to protect individual property owners from unauthorized encumbrances even where they initially agreed to provide security.