Midlands State University v Galaxy Engineering Design Consultants (Private) Limited

The appellant, Midlands State University (a tertiary institution established by statute), engaged the respondent, Galaxy Engineering Design Consultants, to design civil and engineering works for construction of buildings and Master Site Services at its main campus in Gweru on 3 September 2003. The parties concluded seven contracts, four of which were in dispute: Faculty of Commerce and Information Systems/Law and Administration, Faculty of Architecture/Art and Design, Vice Chancellor's House, and Master Site Service Design. On 14 June 2005 and 5 August 2005, the appellant instructed the respondent to stop all work. A dispute arose as to whether the respondent had completed its contractual obligations at the time of cessation and what payment was due. The parties had introduced an addendum containing clause 4.1, which provided that the appellant, being publicly funded, would hold invoices in abeyance until the Government of Zimbabwe allocated funds. The appellant paid US$84,827.17 without interest. On 16 July 2015, the respondent sued for US$3,292,277.90 plus interest at 19.5% per annum from 1 November 2010.

• Whether the respondent had completed all contractual work when instructed to cease operations on 5 August 2005
• Whether payment was due despite the suspensive condition in clause 4.1 regarding government funding
• Whether the doctrine of fictional fulfilment applied
• Whether the respondent was entitled to interest on the sum of US$84,827.17 already paid
• Whether the High Court erred in granting judgment denominated in United States dollars rather than local currency
• The application of section 4(1)(d) of Statutory Instrument 33/19 to pre-existing USD-denominated liabilities

The appeal partially succeeded. Each party was ordered to bear its own costs. The High Court judgment was amended: paragraph 1 was changed to order interest on RTGS$84,827.17 at 19.5% per annum from 1 November 2010 to date of payment (instead of on the USD amount); paragraph 2 was changed to order payment of RTGS$3,207,450.68 (instead of USD) together with interest at 19.5% per annum from 1 November 2010 to date of payment.

The binding legal principles established are: (1) In terms of section 4(1)(d) of SI 33/19, as interpreted in Zambezi Gas, contractual liabilities expressed in United States dollars immediately before the effective date of 22 February 2019 must be discharged in local currency (RTGS dollars) at a rate of 1:1, and courts are precluded from granting relief denominated in foreign currency for such pre-existing liabilities. (2) A contractual provision allowing payment from a third-party funder does not absolve the contracting debtor from liability in the absence of novation or substitution of parties, as there is no privity of contract between the creditor and the third party. (3) An appellate court will not interfere with factual findings and credibility assessments of a trial court unless satisfied that the findings are so outrageous in defiance of logic or acceptable moral standards that no sensible person could have arrived at such conclusion. (4) Where an issue is properly placed before a trial court through pleadings and agreed facts, the court is obliged to determine it.

The court made observations that: (1) The mere fact that a creditor may agree to receive payment from a third party on behalf of a debtor does not absolve the debtor from liability to perform in terms of the agreement. (2) A party cannot seriously argue it is still awaiting government funding 16 years after the liability arose—this constitutes an unreasonable delay that justifies application of the doctrine of fictional fulfilment. (3) The doctrine of fictional fulfilment may be invoked even if not specifically pleaded where the party accused of preventing fulfilment itself raises the suspensive condition in its defence and submissions. (4) Where partial success is achieved on appeal, with one ground succeeding but others failing completely, it may be appropriate to order each party to bear its own costs rather than award costs to either party.

This case is significant in Zimbabwean law for several reasons: (1) It applies and reinforces the principles from Zambezi Gas regarding the conversion of pre-existing USD-denominated liabilities to local currency under SI 33/19, establishing that courts cannot grant relief in foreign currency for liabilities arising before 22 February 2019; (2) It clarifies that suspensive conditions in contracts regarding third-party funding do not absolve the contracting party from liability in the absence of novation or substitution—lack of privity of contract between creditor and third-party funder means the debtor remains liable; (3) It reaffirms the limited scope for appellate interference with trial court findings on witness credibility and factual determinations, particularly where no proper foundation is laid showing the findings are outrageous in defiance of logic; (4) It demonstrates the application of the doctrine of fictional fulfilment where a party has frustrated the fulfilment of a suspensive condition for an unreasonable period (16 years).