Nighert Savania and Norwich Trading (Pvt) Limited v Nathan Mnaba

The first applicant was the sole owner of all shares in Norwich Trading (Pvt) Limited, whose only asset was Stand 750 Greystone Township. On 10 October 2011, the first applicant and respondent executed an agreement for the sale of the entire shareholding for US$380,000, payable as: US$125,000 deposit (paid on signing), US$125,000 by 6 January 2012, and US$130,000 by 1 August 2012. Vacant possession was given on 15 October 2011. The agreement contained a penalty clause (Clause 9.2) allowing the seller to either enforce the agreement or cancel it and forfeit all sums paid as rouwkoop. The respondent paid a total of US$273,800 towards the purchase price (after the first applicant returned US$23,800). The respondent failed to pay the balance of US$130,000. The first applicant cancelled the agreement, chose to forfeit US$250,000 paid by the respondent, and sought to reclaim possession of the property.

• Whether the matter could properly be brought by court application or should have been brought by summons action
• Whether there were disputes of fact that could not be resolved on affidavits
• Whether the penalty stipulation in Clause 9.2.2 of the agreement was out of proportion to the prejudice suffered by the first applicant
• Whether the court should invoke its powers under section 4(2) of the Contractual Penalties Act [Cap 8:04] to reduce the penalty or grant other relief
• Whether the first applicant was entitled to forfeit the entire sum of US$250,000 while also reclaiming the property

The matter was referred to trial with all documents filed of record to stand as pleadings. The parties were granted leave to file additional documents necessary for completion of pleadings, including making discovery in terms of the rules of court. Costs of the application were reserved as costs in the cause.

A court cannot blindly enforce a penalty stipulation without regard to justice and fairness. Where a penalty appears out of proportion to the prejudice suffered by the creditor as a result of breach, section 4(2) of the Contractual Penalties Act [Cap 8:04] empowers the court to reduce the penalty to an equitable extent and grant other relief that is fair and just to the parties. The party seeking to enforce a penalty stipulation bears the burden of justifying the penalty and demonstrating the prejudice suffered. Where disputes of fact exist regarding the proportionality of a penalty and the quantum of damages, and evidence is required to assess these matters, the dispute cannot be resolved by application procedure and should proceed to trial. A claim for damages arising from breach of contract, unless damages are pre-set and agreed between parties, should not be brought on application procedure as assessment of damages requires evidence and must be done by the court on applicable legal principles.

The court observed that generally, where it should have been apparent to an applicant before undertaking application procedure that disputes of fact exist that cannot be resolved on affidavits, the court is at liberty to dismiss the application (citing Williams v Tunstall 1949 (3) SA 835(T) and Mavurudza v City of Harare HH139/13). However, Mathonsi J expressed sympathy to the applicants in light of the "outrageous powers" given to the first applicant by the agreement, which may have encouraged them to approach the court by application. The judge noted that the court has the power and discretion to regulate its process, and in the interests of the parties, chose to stand the matter down for trial rather than dismiss it outright. The judge also observed that the trial court would be best suited to determine the question of costs.

This case is significant in Zimbabwean jurisprudence for demonstrating the courts' willingness to scrutinize penalty clauses under the Contractual Penalties Act [Cap 8:04] and refuse to enforce them blindly without consideration of justice and fairness. It emphasizes that parties seeking to enforce penalty stipulations must provide evidence of prejudice suffered and justify the proportionality of the penalty. The case also illustrates the principle that claims involving assessment of damages and reduction of penalties should not be brought by application procedure where disputes of fact exist that cannot be resolved on affidavits. It demonstrates judicial discretion to refer matters to trial rather than dismiss applications outright where the choice of procedure was influenced by apparently clear contractual provisions.