Zimbabwe Leaf Tobacco (Private) Limited v Patricia Vengesayi and Sheriff of Zimbabwe N.O

In August 2014, the appellant (Zimbabwe Leaf Tobacco) and the first respondent (Patricia Vengesayi) entered into a Tobacco Grower Contract Agreement to finance the first respondent's tobacco farming for the 2014-2015 season. The appellant obtained funding from an offshore source (Standard Finance, Isle of Man Limited) after receiving authority from the Reserve Bank of Zimbabwe. The first respondent defaulted on her obligations. In 2015, the appellant issued summons demanding payment of US$103,515.12 with interest. The parties entered into a Deed of Settlement on 24 February 2016, with the first respondent agreeing to pay by instalments until 1 August 2018. She defaulted again, and judgment was obtained on 17 September 2018 for US$98,515.12 plus interest. Between September 2018 and February 2019, the first respondent paid US$60,000.00. A writ of execution was issued on 31 January 2019, and property was attached on 28 February 2019. On 17 June 2019, the first respondent paid RTGS$80,118.09. The appellant rejected this as inadequate, stating it only represented US$12,919.56 at the prevailing exchange rate of 1:6.2. The first respondent argued that the payment in RTGS dollars was in compliance with S.I. 33 of 2019, which provided for conversion of US dollar obligations into RTGS dollars at a rate of 1:1, thus extinguishing the judgment debt.

• Whether the court a quo misdirected itself by failing to determine all issues placed before it, specifically the effect of the Exchange Control (Tobacco Finance) Order, 2004 and the first respondent's conduct post-22 February 2019 in accepting to repay in US dollars
• Whether the obligations and liabilities of the first respondent to the appellant are foreign obligations which fall under section 44C(2) of the Reserve Bank of Zimbabwe Act [Chapter 22:15]
• Whether tobacco grower contracts funded by offshore loans are exempt from the automatic conversion provisions of S.I. 33 of 2019
• Whether payment of a judgment debt denominated in US dollars could be discharged by payment in RTGS dollars at a 1:1 conversion rate

1. The appeal is allowed with costs. 2. The order of the court a quo is set aside and substituted with the following: "The application is dismissed with costs."

Tobacco grower contracts funded by offshore loans constitute sui generis contracts that must be examined with reference to the source of funding. Where funds are advanced to tobacco growers from offshore sources denominated in foreign currency (US dollars), the obligation to repay must be in the denominated currency, not in RTGS dollars, notwithstanding S.I. 33 of 2019. Such obligations constitute foreign obligations within the contemplation of section 44C(2) of the Reserve Bank of Zimbabwe Act [Chapter 22:15] and are exempt from automatic conversion to RTGS dollars at a 1:1 rate. The Exchange Control (Tobacco Finance) Order, 2004 and Exchange Control Circular 7 of 2019 demonstrate legislative recognition of the special treatment accorded to tobacco growing with offshore financing and protect the tobacco merchant's investment by requiring repayment in foreign currency. A court that fails to determine issues properly raised and extensively argued before it commits a gross misdirection that vitiates its judgment.

The Court observed that it would be absurd for a person who obtained foreign currency from an offshore source to be paid in RTGS dollars but be expected to repay the offshore loan in foreign currency - "full recovery" of funds secured offshore in foreign currency can only be in foreign currency and not RTGS dollars. The Court noted that the Exchange Control Circular 7 of 2019, issued five months after S.I. 33 of 2019, appeared to be issued to ensure there is no confusion regarding the exclusion of tobacco grower contracts from other contracts affected by S.I. 33 of 2019. The Court distinguished tobacco farming from other farming activities due to specific legislative provisions on the financing and purchase of tobacco crops in foreign currency. The Court also noted that a party cannot escape an obligation voluntarily undertaken by later characterizing a deed of settlement as a compromise when there was no dispute between the parties over the currency in which offshore funds had to be repaid.

This case is significant in Zimbabwean jurisprudence as it establishes the sui generis nature of tobacco grower contracts funded by offshore loans, distinguishing them from ordinary contracts for the purposes of currency conversion regulations. The judgment clarifies that section 44C(2) of the Reserve Bank Act protects foreign obligations from automatic conversion under S.I. 33 of 2019, particularly in the context of agricultural finance arrangements involving offshore funding. The case reinforces the importance of preserving the nature of offshore funding arrangements to protect the tobacco industry and ensure that tobacco merchants can meet their obligations to foreign creditors. It also establishes that courts must determine all issues properly raised before them, and failure to do so constitutes a gross misdirection. The judgment has important implications for contract interpretation in the context of currency regulation and exchange control, particularly in specialized sectors like tobacco farming that rely on offshore financing.