Zevenrose Enterprises (Private) Limited v Hamilton Property Holdings Limited and Ireen Chiwara and The Registrar of Deeds

On 15 December 2009, second defendant Ireen Chiwara borrowed US$22,500 from first defendant Hamilton Property Holdings Limited (operated by Frank Buyanga), an unregistered moneylender charging 17% interest per month. As security, she surrendered original title deeds to her property (stand 449 Borrowdale Brooke) and signed documents disguised as an agreement of sale rather than a loan agreement to circumvent the Moneylending and Rates of Interest Act. Similar arrangements were made with other borrowers. On 8 July 2010, first defendant purported to sell the property to plaintiff Zevenrose Enterprises for US$95,000 (well below the US$300,000 valuation). Plaintiff paid the purchase price to Property Plus estate agents. Transfer never occurred because second defendant placed a caveat on the property in August 2010 after discovering the fraud. The title deeds file subsequently went missing from the Deeds Registry. Plaintiff sued for transfer, removal of the caveat, holding over damages of US$600 per month, or alternatively refund of the purchase price.

• Whether the agreement of sale between first and second defendants was valid and enforceable or constituted an illegal pactum commissorium
• Whether the agreement of sale between plaintiff and first defendant was valid when first defendant never acquired title to the property
• Whether plaintiff was an innocent third party purchaser for value
• Whether the court should relax the in pari delicto rule to order restitution to the plaintiff
• Whether plaintiff was entitled to transfer of the property, holding over damages, or refund of the purchase price

All of plaintiff's claims dismissed with costs. The court declared that: (1) the agreement of sale between first and second defendants was a sham and pactum commissorium; (2) the agreement between plaintiff and first defendant was not legitimate or lawful; (3) plaintiff is not entitled to any rights, title or interest in the property; (4) plaintiff is not entitled to holding over damages or refund of the purchase price.

An agreement of sale that is in reality a loan agreement designed to circumvent the Moneylending and Rates of Interest Act constitutes an illegal pactum commissorium and is void ab initio. A pactum commissorium - whereby property given as security automatically passes to the creditor on default - is contrary to public policy as unduly oppressive to debtors. No valid rights can be acquired through a transaction based on an illegal agreement that is void from the outset. Where an agreement is void ab initio, nothing can stand on it and derivative transactions collapse. A purported purchaser who fails to conduct proper due diligence (deeds search, investigation of title, engagement with the occupant) and who pays a grossly inadequate purchase price cannot claim to be an innocent third party purchaser for value. Under the principle 'in pari delicto potior est conditio possidentis', where parties are equally in the wrong, the party in possession prevails and the loss lies where it falls, unless the court orders restitution to prevent injustice.

The court made observations about: (1) the mesmeric charisma and manipulative tactics employed by loan sharks to inspire trust in desperate borrowers; (2) the culpability of lawyers and conveyancers who facilitate illegal transactions; (3) the vulnerability of borrowers rejected by mainstream lending institutions who resort to unregistered moneylenders charging usurious interest rates; (4) the knowing risk-taking by property owners who, while not unsophisticated or coerced, voluntarily entered into dangerous arrangements out of desperation for capital; (5) the apparent widespread nature of this fraudulent scheme involving multiple victims who lost properties in similar circumstances; (6) the concerning disappearance of title deed files from the Deeds Registry Office; (7) the need for purchasers to verify not only documentation but also the authority of persons purporting to act as agents or representatives; (8) credibility issues arising from witnesses' demeanor, evasiveness, and admitted lies during cross-examination.

This case is significant in Zimbabwean (and South African) jurisprudence for: (1) its comprehensive treatment of the doctrine of pactum commissorium and why such agreements are contrary to public policy as oppressive to debtors; (2) its application of the principle that illegal agreements void ab initio cannot form the basis of derivative transactions; (3) its demonstration of judicial willingness to protect property owners from loan shark schemes disguised as sales; (4) its application of the in pari delicto rule and the circumstances in which courts will decline to order restitution; (5) its emphasis on the need for purchasers to conduct proper due diligence including deeds searches and investigation of occupants; (6) its recognition that courts must declare agreements void when they violate statutory prohibitions (here the Moneylending and Rates of Interest Act) even when sophisticated parties knowingly enter into them.