Jackson Muguti v Uboxit Worldwide (Pvt) Ltd and Others

On 31 July 2008, the defendants contracted with Dunquist Freight (Private) Limited to convey consignments from Harare and Mazoe to Lusaka for a fee of US$6,500.00. This was at a time when the official currency of Zimbabwe was the local currency (before the multi-currency regime of February 2009). A deposit of US$3,000.00 was paid, leaving a balance of US$3,500.00. The freight company ceded its rights to collect the debt to the plaintiff. On 12 March 2009, the plaintiff issued summons claiming the balance. The defendants filed a plea but were in default at trial, having been duly served with notice on 1 October at their chosen address for service.

• Whether a contract denominated in foreign currency at a time when the official currency was the local Zimbabwean dollar was illegal under Exchange Control Regulations
• Whether the court can enforce an illegal contract through default judgment
• Whether the in pari delicto potior est conditio possidentis rule should be relaxed to prevent unjust enrichment

The plaintiff's claim was dismissed with costs.

A contract denominated in foreign currency between parties resident in Zimbabwe, entered into at a time when the official currency was the local Zimbabwean dollar, is illegal as it contravenes Exchange Control Regulations. Courts will not enforce illegal contracts, even through default judgment. The in pari delicto rule (where parties are equally in the wrong, the loss lies where it falls) will only be relaxed where one party would otherwise be unjustly enriched at the expense of the other. Where a contract has been partially performed and there is no evidence of disproportionate enrichment, the court will not interfere by relaxing the rule against illegal contracts.

The court observed that the facts of the case epitomized the trading pattern in Zimbabwe prior to February 2009 when fiscal authorities officially authorized the populace to trade in multiple currencies. The court noted that business people are well advised to take heed of the law on illegal contracts before instituting litigation over contracts whose legality may be questionable. The court also commented that had it been satisfied with the plaintiff's cause of action, it would have been enjoined to enter judgment in favour of the plaintiff as prayed, given the defendants' default.

This case reinforces the principle that Zimbabwean courts will not enforce contracts that violate Exchange Control Regulations, even when defendants are in default. It demonstrates the strict application of the illegality doctrine in contractual disputes and confirms that default judgment will not automatically be granted where the underlying contract is illegal. The case provides guidance on when courts will or will not relax the in pari delicto rule in cases of illegal contracts involving foreign currency transactions during the pre-dollarization era in Zimbabwe.