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Tobacco processor loses court case



THE Constitutional Court has thrown out an application by Voedsel  Enterprises (Private) Limited, a local company involved in tobacco contracting, processing and exporting, which was seeking to block attachment of its properties and evade payment of a debt to AFC Commercial Bank Limited (AFC).

Following the decision, the company may lose its farm and two high-end houses which were mortgaged to secure the loan as the properties have been attached to settle the debt.
AFC is a one-stop shop for development finance, commercial banking, insurance and leasing with a special focus on agriculture development.

Voedsel Enterprises had mounted an application together with its sister company, Voedsel Tobacco, citing AFC, minister of Lands Anxious Masuka, Justice minister Ziyambi Ziyambi as respondents.

The company had complained that its right to access the courts was violated after its properties were advertised for sale by the bank.

But a Constitutional Court bench comprising Justices Anne Mary Gowora, Gladys Hlatshwayo and Barat Patel declined to hear the matter, stating they had no jurisdiction.

“The applicants have not justified, on the papers before the court, why this court should assume jurisdiction in this matter as a court of first instance in the absence of a properly reasoned analysis of the facts and legal issues arising in the High Court.

“The law has imbued the High Court with the appropriate jurisdiction to determine those constitutional matters that the applicants seek to place before the Court.

“I am unable to find any justification for jumping that critical procedural step for the Court to assume jurisdiction. The Court must and will withhold its jurisdiction in casu,” said Justice Gowora leading the bench.

According to court papers, on 2 December 2020, Voedsel Enterprises, cited as the first applicant, secured and was granted a line of credit amounting US$1.5 million by AFC. 

The loan was to fall due on 30 May 2022 and the facility was to incur interest at the rate of 9% per annum.

On 1 April 2021, Voedsel Enterprises again secured a line of credit from AFC in the sum of US$ 2.1 million.

It was also subject to interest at the rate of 9% per annum and was due to expire on 30
September 2022.

On 4 May 2021, Voedsel secured another loan for ZW$300 000 000.

It was to fall due on 3 November 2022 and was subject to interest at 50% per annum.
On 7 August 2021, the company again secured another loan for ZW$220 000 which was to fall due on 16 August 2022 and was subject to interest at 37% per annum.

The court heard the running theme in all the documents detailing the agreements between the parties was the requirement that each of the loans be secured by a note of hand and that the registered owner thereto executes a document as security and co-principal debtor; hence the involvement of Voedsel tobacco, the sister company. 

The applicants were unable to pay the debts when they fell due initially.

They then tendered payment through Treasury Bills but this was rejected.

It is common cause, however, that the debts denominated in US dollars have been settled. What is outstanding is the debt advanced in local currency.

An offer to settle the debt through processed tobacco met with no success and that debt remained unsettled.

The parties are wrangling over the exact amount, with the applicants claiming that the amount being claimed violates the in duplum rule (which literally means double the amount).

The bank disputed the contention that the loan amount has now exceeded the limits required by the in duplum rule and asserts that the claim is legal.

On 28 November 2022, the properties mortgaged to secure the loans were advertised for sale by public auction scheduled to take place on 9 December 2022 at the instance of AFC.

The properties comprised a farm in Mhangura measuring 1209,9260 hectares, a residence in Harare’s Glen Lorne suburb and a house on property share transfer in Borrowdale.
The intended sale by public auction is what precipitated the two applications in the High Court, which applications were stillborn.

There were no disputes of fact in the application before the High Court.

Ziyambi and Masuka did not file any papers, choosing to abide by the decision of the court.
On 8 December 2022, the High Court in Harare dismissed an urgent chamber application for an order of a stay of execution mounted by the applicants in response to an advert for the sale in execution of immovable properties at the instance of the first respondent.

Consequently, Voedsel Enterprises and its sister company filed a Constitutional Court case in terms of rule 21 (2) of the Constitutional Court rules of 2016.

They invoked section 167 (5) of the constitution and contended that it is in the interests of justice that they be granted leave for direct access to the court.

If the application were to be granted, they intended to bring an application in the main challenging the validity and constitutionality of section 38 (2), (3), (4) and (5) together with the Second Schedule to the Act on the grounds that the impugned provisions are violation of their right to access the courts under s 69(2) and (3) and, in addition, their right to equal protection under section 56(1). 

Advocate Thembinkosi Magwaliba who represented the companies contended that under common law, parate executie against immovable property is illegal.

Parate executie is a Roman-Dutch Law concept that grants a licensed commercial bank the power to sell a mortgaged property that had been secured to the bank as collateral.
The exceptional feature of parate executie is that a bank may proceed with the sale without the involvement of a court of law.

Magwaliba argued that the debt that the applicants now face is four times the original amount.

He said his clients were however being denied the opportunity to challenge the extent of the debt.

“The Bank in this case is the plaintiff, judge and executioner in its own cause,” he said, maintaining that there was merit in the application.

One MDondo for the bank indicated that it was necessary to draw a distinction between the bank and other commercial banks operating within the country.

He contended that the bank only lent to farmers with the objective of promoting and funding agricultural activity and, thus, it was excluded from the necessity for recourse to the courts as a means of recovering outstanding debts owed to it.

The lawyer also argued that the applicants had not demonstrated that the impugned section and the second schedule were barbaric in any form or manner. 

The Constitutional Court said it is not ordinarily in the interests of justice for a court to sit as a court of first instance in circumstances like the present, where there would be no possibility of an appeal against that court’s determination.

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