The Plaintiff, Trans African Oil Limited (a British Virgin Islands company), entered into a written fuel supply agreement on 10 November 2021 with the first Defendant, Willred Minerals and Energy (Private) Limited (a Zimbabwean company), to supply fuel on credit. The second Defendant, Halgor Estate (Private) Limited, bound itself as guarantor and co-principal debtor, securing the obligation with a Surety Mortgage Bond over certain immovable property. The Plaintiff supplied fuel worth US$1,471,423.54 between July 2021 and November 2022, which was released by the National Oil Infrastructure Company of Zimbabwe (NOIC) to the first Defendant upon the Plaintiff's instructions. The first Defendant failed to pay for the fuel supplied. The agreement contained Clause 3 which made it subject to registration with the Zimbabwe Exchange Control Authorities to enable payments to be externalized. However, the parties entered into the agreement and commenced transactions before obtaining Exchange Control Approval as required by s11(1) of the Exchange Control Regulations, 1996 (SI 109/1996).
1. The preliminary point raised by the plaintiff alleging presence of material dispute of facts was dismissed. 2. The special plea raised by the defendants was upheld with costs. 3. The plaintiff's summons claim was dismissed with costs.
1. A contract entered into in contravention of s11 of the Exchange Control Regulations, 1996 (SI 109/1996) is void ab initio and unenforceable. 2. Where a Zimbabwean resident incurs an obligation to make payment outside Zimbabwe without first obtaining exchange control authority as required by s11 of the Exchange Control Regulations, 1996, the agreement creating such obligation is illegal and cannot be enforced by the courts. 3. Courts will not enforce an illegal agreement which has not yet been fully performed. This rule is absolute and admits no exception. 4. The obligation to obtain exchange control approval rests on the Zimbabwean resident party who incurs the obligation to make payments outside Zimbabwe. 5. Illegality of a contract can be raised as a special plea in bar and determined as a preliminary issue without requiring oral evidence at trial where the parties agree on the material facts and the issue is one of legal interpretation.
The court observed that not all disputes of fact necessitate the taking of oral evidence, and care must be taken not to elevate every alleged dispute of fact into a real issue requiring oral evidence, as this might encourage parties to raise fictitious issues of fact to delay resolution of matters. The court also noted that whether an agreement is legal or illegal is a matter of law requiring interpretation of legislative provisions, which is the duty of the court and not the Exchange Control Office, and therefore does not require evidence from the Exchange Control Authority. The court implicitly cautioned against the practice of commencing performance of agreements before fulfilling conditions precedent, particularly regulatory approvals, as this does not cure the illegality.
This case is significant in Zimbabwean commercial law as it demonstrates the strict enforcement of exchange control regulations and their impact on contractual validity. It establishes that agreements entered into in contravention of Exchange Control Regulations are void ab initio and unenforceable, regardless of partial performance. The judgment affirms that illegality can be raised as a special plea in bar and determined as a preliminary issue without requiring a full trial. It also clarifies that the burden of obtaining exchange control approval rests on the Zimbabwean resident party who incurs obligations to make payments outside Zimbabwe. The case serves as a warning to foreign entities dealing with Zimbabwean companies to ensure regulatory compliance before entering into agreements, as non-compliance renders the entire agreement void and unenforceable, leaving the foreign party without legal remedy for breach of contract.