Tian Ze Tobacco Company (Private) Limited v F C Car Sales (Private) Limited

On 4 June 2008, the defendant (car dealer) provided the plaintiff with a quotation for a Mazda BT50 vehicle for US$39,500 or Z$79 trillion, with prices subject to confirmation at time of order and subject to currency fluctuations. On 5 June 2008, the plaintiff instructed its bank to transfer Z$79 trillion to the defendant. Due to bank delays, the transfer only reached the defendant's account on 9 June 2008. By that time, due to rampant inflation, the Z$79 trillion had severely depreciated and was no longer equivalent to US$39,500. The defendant requested a top-up payment. The parties initially agreed on a top-up of US$8,500, but the defendant then demanded an additional "local content" fee of US$10,000-15,000. The plaintiff objected to this additional charge, cancelled the contract on 11 June 2008, and demanded a refund adjusted for exchange rate changes. The defendant refunded the Z$79 trillion on 18 June 2008. The plaintiff sued for either delivery of the vehicle or payment of the US dollar equivalent value.

• Whether the plaintiff had breached the contract by failing to make timely payment
• Whether the defendant was obliged to deliver the vehicle despite receiving depreciated payment
• Whether the plaintiff was entitled to a refund adjusted for currency fluctuations
• Whether defective performance (inadequate payment due to currency depreciation) constituted a breach of contract
• Whether time was of the essence in the contract
• Whether the defendant's refund within seven days was reasonable

The plaintiff's claim was dismissed with costs.

The binding legal principles established are: (1) Defective performance is no performance at all and constitutes fundamental breach of contract; (2) Where time is of the essence in a contract and payment is not made on the due date during a period of hyperinflation, the original contract lapses and can only be revived through novation with agreement on a new price; (3) A party in breach of contract cannot insist on specific performance where it has rendered defective performance; (4) A party in breach cannot benefit from its own breach at the expense of the innocent party; (5) The fundamental principle that there is no liability without fault prevents penalizing an innocent party for the breaching party's fault or that of its agent; (6) Where there is no agreement as to when a refund must be made, the refund must be made within a reasonable time, with reasonableness determined by the circumstances including which party was at fault.

The court made non-binding observations that: (1) this was a case that fell for determination on undisputed documentary evidence rather than the eloquence or credibility of witnesses due to the absence of material disputes of fact; (2) the seven-day delay in refunding the money was not unreasonable having regard to the fact that it was the plaintiff who was at fault; (3) what the plaintiff chose to do with the refunded money after receiving it was its own business and not a subject of the litigation; (4) the plaintiff, having been in breach, was not within its power to arbitrarily set the date of refund.

This case is significant in South African and Zimbabwean law for establishing principles regarding contractual obligations during periods of hyperinflation and currency instability. It clarifies that: (1) defective performance due to currency depreciation constitutes no performance at all; (2) a party cannot benefit from its own breach of contract; (3) time can be of the essence in contracts where currency fluctuations are contemplated; (4) the principle of no liability without fault applies to prevent an innocent party from being penalized for the breaching party's fault. The case demonstrates judicial application of common law contract principles in extraordinary economic circumstances involving rapid currency depreciation.