Mucal Enterprises v Steward Bank

Mucal Enterprises, a vegetarian products supplier company, opened a bank account with Steward Bank in September 2011. The company was founded in 2006 by Directors Lion Chirove and Avila Zvenyika. In May 2010, two brothers, Bruce Smith and Ahmad Smith, joined as business partners and were made directors. In April 2012, Bruce Smith became a signatory in place of Lion Chirove. Following a business dispute in November 2012 (where the Smith brothers allegedly tried to take over the company through shareholding manipulation), Avila Zvenyika instructed the bank to only allow transactions authorized by the two directors on the CR14 form - herself and Lion Chirove. When Chirove attempted telegraphic transfers on 21 January 2013, the bank froze the account after receiving instructions from Bruce Smith that he had been improperly removed as director and signatory. The account remained frozen from January to July 2013. During this period, the Registrar of Companies initially stated the CR14 form was fraudulent, criminal proceedings for fraud were instituted against Lion Chirove, and competing parties sought court orders regarding account access. A provisional order was granted on 6 February 2013 allowing "directors" to access the account, but no final order was sought. The Registrar reversed position in July 2013, confirming the CR14 was proper. The plaintiff claimed damages of US$553,544.42 for loss of business during the freezing period.

• Whether the defendant breached its contractual obligation to honour properly drawn cheques and negotiable instruments
• Whether there was a tacit term in the banking agreement obligating the bank to honour all transactions by recognized directors
• Whether the bank's freezing of the account in the face of competing directorship claims constituted a breach of contract
• Whether the plaintiff established sufficient evidence of causation linking the account freezing to business losses
• Whether the plaintiff proved the quantum of special damages claimed
• Whether the application for absolution from the instance should be granted

The application for absolution from the instance was granted with costs on an ordinary scale. The case was dismissed at the close of the plaintiff's case without requiring the defendant to present its defense.

Where a bank is faced with competing legitimate claims to a corporate account by feuding parties each claiming to be proper directors, and where there are criminal fraud allegations and contradictory official statements about the validity of directorship documentation, the bank does not breach its contractual obligations by freezing the account until the dispute is resolved by final court order. A plaintiff claiming special damages for loss of business must produce objective financial evidence such as tax returns, audited accounts, invoices and proof of orders to prove quantum of damages; testimonial evidence of projected profits by a director is insufficient. Where such evidence is available but not produced, an adverse inference arises that it would be unfavorable to the plaintiff. Where multiple factors contribute to alleged losses, a plaintiff must establish on a balance of probabilities that the isolated factor relied upon was the dominant cause, sufficiently ruling out other explanations. Absolution from the instance will be granted where, at the close of the plaintiff's case, insufficient evidence has been placed before the court upon which a reasonable court could or might find for the plaintiff.

The court observed that only a foolish bank would have paid out to any of the competing claimants without a final court order as to the true status of each claimant, as it would have exposed itself to liability from the other party. The court noted that special damages arising from a quarrel among directors was not within the contemplation of the parties when the banking contract was formed. The court also commented that it would be exercising hindsight to award costs on a higher scale merely because the overall weakness of the plaintiff's case emerged through the totality of presenting its case at trial, as the plaintiff was entitled to have its day in court. The court emphasized that the preponderance to 'lean in favour of' continuing a case does not mean a judicial officer must always lean in favor of continuation - where there is no doubt from the evidence submitted, absolution should be granted.

This case establishes important principles in Zimbabwean commercial and banking law regarding: (1) a bank's duties when faced with competing claims to a corporate account by feuding directors; (2) the evidentiary burden on plaintiffs claiming special damages for loss of business to produce objective financial records such as tax returns and audited accounts rather than relying on testimonial evidence; (3) the application of causation principles where multiple factors contribute to alleged losses; (4) that banks may freeze accounts without breaching contractual obligations where there are legitimate disputes about authorized signatories and directorship; and (5) the proper application of absolution from the instance principles where plaintiffs fail to adduce sufficient credible evidence to support their claims.