Sombro Holdings (Private) Limited v Muirhead Investments (Private) Limited

On 27 October 1994, the parties entered into an agreement for the sale of a loan account and shares in Selborne Holdings (Private) Limited for $4,600,000. The agreement contained conflicting provisions: Clause 2 provided that the purchase price was payable in cash upon delivery of share scrip in negotiable form, while Clause 7 provided that if the purchaser failed to make payment on 1 November 1994, interest at 35% per annum would be payable. The share scrip was delivered on 13 December 1994, and payment was made on 21 December 1994. The appellant (seller) claimed interest from 1 November 1994 per Clause 7, while the respondent (purchaser) contended that interest only accrued from 13 December 1994 when the scrip was delivered and the purchase price became due. The respondent admitted liability for interest for the period 13-21 December 1994. The agreement was drafted by the appellant's legal practitioner, Mr Cole.

• When did interest on the purchase price become payable - from 1 November 1994 as per Clause 7, or from 13 December 1994 when the shares were delivered as per Clause 2?
• How should conflicting clauses in a contract be reconciled and interpreted?
• Application of the contra preferentem rule where the contract drafter is a party to the agreement
• Whether interest can accrue before the purchase price becomes due and payable

The appeal was dismissed with costs. The High Court's decision that interest only accrued from 13 December 1994 (the date of delivery of the share scrip) until 21 December 1994 (the date of payment) was upheld.

In a contract for the sale of shares where payment is expressly made conditional upon delivery of share scrip, interest on the purchase price cannot accrue before the shares are delivered or tendered, even if a separate clause purports to impose interest from an earlier fixed date. The obligation to pay, and consequently the accrual of interest for delayed payment, only arises once the condition precedent (delivery) has been fulfilled. Where contractual clauses conflict, they should be interpreted against the drafter (contra preferentem rule), and where possible, reconciled by reading provisions subject to conditions implied from other terms of the agreement.

The Court expressed initial misgivings about the reconciliation argument because the agreement was signed only three days before the date from which interest was supposedly to accrue (27 October vs. 1 November), making it "highly unlikely that the parties foresaw the scripts or shares being delivered within that short space of time." However, these concerns were ultimately resolved by the appellant's concession that no interest was payable before delivery. The Court also noted that the appellant's legal practitioner who drafted the agreement did not properly follow its provisions by failing to formally present the scripts to either the purchaser or its paying agent (UDC) but instead engaged in informal discussions with someone at UDC who was unfamiliar with the transaction.

This case is significant in Zimbabwean contract law (which draws heavily on South African common law principles) as it demonstrates the application of fundamental principles of contractual interpretation, particularly: (1) the contra preferentem rule - ambiguous contract terms are interpreted against the party who drafted them; (2) the principle that interest on a purchase price cannot accrue before the obligation to pay becomes due; and (3) the reconciliation of apparently conflicting clauses by reading them subject to implied conditions. The case reinforces that in sales agreements where payment is conditional upon delivery, the purchaser cannot be in mora (default) until delivery or tender has occurred.