Kwarate Ranch (Private) Limited v Middelburg Steel and Alloys (Pty) Limited and Nesondo Nesondo (Private) Limited

The appellant, Kwarate Ranch (Private) Limited, claimed that the first respondent, Middelburg Steel and Alloys (Pty) Limited (MSA), had orally sold certain mining claims (twenty mining claims comprising 1,285 base mineral claims in the Lalapanzi area) to it over the telephone on 28 July 1997. MSA denied entering into such an oral agreement. Kwarate was represented by its director, Mr Mugara, and MSA by its Chief Mining Rights Adviser, Mr Hager. Kwarate paid a deposit of $3,000 on 1 August 1997. A draft written sale agreement was circulated on 7 August 1997 requiring a bank guarantee for the balance ($117,000) of the purchase price ($120,000), but Mugara indicated he could not obtain a bank guarantee. MSA subsequently received a better offer from the second respondent in November 1997 and eventually terminated what it described as a verbal agreement on 10 February 1998. MSA contended that the oral agreement was merely a preliminary agreement allowing Kwarate to mine some claims (Jonathan 2) pending finalisation of a sale, not an agreement of sale itself. The trial court in Bulawayo ruled against Kwarate in February 1999, finding no oral agreement of sale existed.

• Whether an oral contract of sale of mining claims was concluded between the parties on 28 July 1997
• Whether the trial judge erred in confusing the making of a contract with the performance of a contract
• Whether the requirement of a bank guarantee related to contract formation or contract performance
• Whether the trial judge wrongly drew an adverse inference against the appellant
• Whether the matter should have been referred to trial due to irreconcilable disputes of fact
• Whether it was appropriate to bring a claim based on an alleged oral agreement by way of application rather than action

The appeal was dismissed with costs. The provisional order and interim interdict were discharged with costs.

Where a party alleges the existence of an oral contract of sale that is disputed by the other party, the onus is on the party alleging the contract to prove it on a balance of probabilities. In determining whether such an oral agreement exists, the court must examine the totality of the evidence, including subsequent correspondence and conduct of the parties. A party's failure to contradict contemporaneous written communications that are inconsistent with the alleged oral agreement is a relevant factor in assessing credibility. Application proceedings are generally inappropriate for resolving disputes that turn primarily on the credibility of parties regarding alleged oral agreements, particularly where the agreement is unwitnessed and the documentary evidence is ambiguous or conflicting. Such matters should properly be brought by way of action to allow for proper testing of witness credibility through cross-examination.

McNally JA made observations about the inherent difficulties in proving oral contracts, citing Henry Ford's aphorism that "an oral contract is not worth the paper it is written on" to illustrate the point that oral contracts are usually harder to prove than written ones. The judge observed that it was "very unsatisfactory" that a case involving an alleged oral contract over the telephone, with no witnesses, should be brought by way of application rather than action, questioning the appropriateness of approaching the court "on the papers" when asking "What papers support an oral contract?" The court also noted, without deciding the point definitively, that there was a discrepancy in the dates given by the parties for when the alleged oral agreement was concluded (28 July 1997 per Mugara, 4 August 1997 per Hager), though "nothing turns on that."

This case is significant for establishing important principles regarding: (1) the evidentiary requirements for proving oral contracts, particularly unwitnessed telephone agreements; (2) the procedural inappropriateness of using application proceedings (motion proceedings) rather than action proceedings when the main issue is credibility of parties regarding an alleged oral agreement; (3) the interpretation of preliminary negotiations and correspondence in determining whether a binding contract has been formed; and (4) the burden of proof on a party alleging the existence of an oral contract. The case reinforces the practical wisdom that oral contracts, especially those concluded remotely without witnesses, are difficult to prove and highlights the importance of contemporaneous written confirmation and conduct consistent with the alleged agreement.