Zenclif Traders Limited and Another vs Coca Cola Kwanza Limited and Another (Civil Appeal No. 280 of 2019) [2024] TZCA 942 (26 September 2024)

IN THE COURT OF APPEAL OF TANZANIA AT PAR ES SALAAM (CORAM : SEHEL. J.A.. KENTE. J.A.. And MDEMU. J.A.1 ) CIVIL APPEAL NO. 280 OF 2019 ZENCLIF TRADERS LIM IT E D ...... .................................... ............... 1 st APPELLANT GIDEON MAKUNJA M K A M A .................................................... 2 nd APPELLANT VERSUS COCA COLA KWANZA LIM ITE D ..................................................... 1 st RESPONDENT NATIONAL MICROFINANCE B A N K ...............................................2 nd RESPONDENT (Appeal from the Judgment and Decree of the High Court of Tanzania, Commercial Division, at Dar es Salaam) (Phillip. 3 .) dated the 14th day of August, 2019 in Commercial Case No. 39 of 2018 JUDGMENT OF THE COURT 31s t May, & 26th September, 2024 KENTE.: In order to avoid confusion in this judgment, we shall refer to the parties either by their names or their designations in the appeal which was originally preferred by the appellants herein namely, Zencliff Traders Limited and Gideon Makunja Mkama against Coca Cola Kwanza Limited and the National Microfinance Bank, the first and second respondents respectively. We take judicial notice of the fact that, the said appeal was later on struck out by this Court for being incompetent. The present judgment is therefore in respect of a cross-appeal mounted by the second respondent. i

The cross - appeal emanates from the decision of the Commercial Division of the High Court of Tanzania, (the Commercial Court or the trial court) sitting at Dares Saiaam dated 14thAugust, 2019 in Commercial Case No. 39 of 2018 holding the National Microfinance Bank (the second respondent herein) responsible for breach of a Performance Bond Agreement which the second respondent had entered into with Coca Cola Kwanza Limited (the first respondent), Zencliff Traders Limited (the first appellant) and Gideon Makunja Mkama, (the second appellant). In terms of the above-mentioned decision of the trial court, the second respondent was adjudged to pay the first respondent, inter alia, TZS 87,622,692.00 being a portion of the guaranteed amount together with general damages to the tune of TZS 4,000,000.00 for breach of the guarantee contract. We must at the outset state that, as ably captured by the trial court, the background facts culminating into the present dispute are relatively simple and straight forward. On 29th July 2016, the first respondent, Coca Cola Kwanza Limited which carries on the business of manufacturing, selling and distribution of an assortment of soft drinks and the first appellant, Zencliff Traders Limited whose Managing Director is the second appellant Gideon Makunja Mkama, executed with the second respondent a two years' Performance Bond contract No 101 GUL 162020005 (Exh. PI) wherein, the second respondent issued a performance guarantee to the first respondent to guarantee the first appellant's

due performance of the contract of purchase on credit and distribution of the first respondent's beverages and other products for resale to retailers and the public at Kidatu, Ifakara, Mlimba, Mahenge and Malinyi in Morogoro Region. The Performance Bond Guarantee was for TZS 150,000,000.00. The first respondent's contention as revealed in the pleadings was that, upon execution of the guarantee contract, it went on supplying to the first appellant, as and when it requested through the second appellant, various products that were specified in six credit facility request forms respectively dated 26/9/2016, 13/12/2016, 10/01/2017, 7/2/2017, 10/3/2017 and 3/4/2017. Moreover, the first respondent alleged that, contrary to the terms and conditions of their agreement, the first appellant failed or, for whatever reasons; it could not adhere to the agreed payment schedule in respect of the bevarages and other products supplied to it, upon which, the first respondent had on 30/6/2017 to issue the second respondent with a demand notice seeking for payment of the whole of the guaranteed amount, that is TZS 150,000,000.00. The first respondent claimed that, however, the second respondent could not honour the said notice. It was further alleged that, apart from the appellants' and second respondent's failure or refusal to pay the amount due under the earlier - mentioned credit facility, the first appellant and second respondent purported to terminate the distributorship agreement and that, in so doing, they made mess

of the handing over exercise thereby causing damage to the first respondent's properties leading to further damage to her business to the estimated value of TZS973,751,792.00. Upon the above claim, the first respondent (then the plaintiff) prayed for several monetary reliefs and declaratory orders thus: (i) A declaration that the second respondent (then first defendant) breached the performance bond guarantee that was executed between the plaintiff and the first defendant and the first appellant (then second defendant) on 29th July, 2016. (ii) A declaration that the second defendant and the second appellant (then third defendant), unlawfully terminated and/or breached the distribution agreement with the plaintiff. (iii) That the first defendant be ordered to pay to the plaintiff the sum of Shillings One Hundred Fifty Million (TZS 150,000,000/=) being the guaranteed amount, as per the relevant performance bond guarantee executed by the second defendant on 29th July, 2016, following the second defendant's default. (iv) That the first defendant be ordered to pay the plaintiff general damages as shall be assessed by the honourable court for breach of the performance bond guarantee. (v) That the second and third defendants be ordered to pay general damages to the plaintiff as pleaded under paragraphs 18 and 19 for the breach and wrongful termination of the distribution agreement. Moreover, the first respondent prayed for interests, costs of the suit and any other reliefs which the trial court would deem fit to grant.

In resisting the first respondent's claim, the appellants together with the second respondent averred that, the first respondent had already been paid all the amount due under the distribution agreement. In particular, it was asserted that, the first respondent was paid by way of cash, returning stock products and fund transfers. It was further alleged that, the amount claimed by the first respondent arose from a different transaction involving a sate of a motor vehicle which was not covered under the guarantee agreement. Elaborating, the appellants contended that, the credit facility form relied upon by the first respondent as a basis of its claim, were executed to cover the motor vehicle purchase scheme which was intended to facilitate payment of the purchase price by instalments to a company known and styled as TATA Africa Holding (T) Ltd. Regarding termination of the distribution agreement, it was contended that, the requisite handing over procedure was adhered to and that, as apposed to the first respondent's claims, none of its assets were damaged in the process. Moreover, the second respondent in denying the first respondent's claim, contended that, as admitted by the first respondent in paragraph six of its plaint, the amount due was TZS 87,622,692.00 which was the price of the products it had supplied and delivered to the first appellant and not TZS 150,000,000.00 which the first respondent had sought to be paid. Specifically, the second respondent stated in paragraph 5 (c) of its written statement of defence thus: 5

"(c) The Bank Guarantee was only operative when there was a specified default by the second defendant and did not cover any other liability arising from any other set of actions or circumstances arising out of the commercial relationship between the plaintiff and the second defendant" When the suit was called for trial, the following substantive issues were identified as arising from the dispute between the parties, thus: (i) What were the terms of the Performance Bond Agreement between the plaintiff (1s t respondent) and the appellants and second respondent, (ii) Whether or not there was a breach of the terms of the Performance Bond Agreement by either party; and (iii) Whether there was a breach of the terms and conditions of the supply agreement by either party. After considering the evidence led by the parties together with their respective submissions and several authorities, the learned trial Judge made short work of the matter by way of a seventeen (17) paged judgment. She found in respect of the first question that, indeed the first appellant had breached the terms of the Performance Bond contract on which the cause of action was premised by failing to pay TZS 87,622,929.00 but not TZS 150,000,000.00 as claimed by the first respondent. As to the claim for general damages because of the damage allegedly caused by the first and second appellants as a result of 6

termination of the distributorship agreement, the trial Judge determined that, the said claim had not been proved and consequently, she went on dismissing it. In the light of the above findings, the trial Judge awarded the reliefs which she found to have directly resulted from the breach of the Performance Bond Agreement by the two appellants and the second respondent. Specifically, the first respondent was awarded TZS 87,622,692.00 being the outstanding balance for the beverages supplied on credit to the first appellant. Moreover, the first respondent was awarded TZS 4,000,000.00 being general damages for the second respondent's breach of the Performance Bond Agreement. The trial court also ordered the second respondent to pay interest on the outstanding amount of TZS 87,622,692.00 together with the costs of the suit. Displeased with the decision of the High Court, the appellants appealed to this Court citing seven grounds of complaint. However, for the reason that the appellants' appeal was subsequently struck out for being incompetent, we will neither recite nor canvass the grounds of appeal advanced by them. Suffice it to say that, the second respondent was also dissatisfied with the decision of the trial court. It accordingly preferred a cross - appeal upon three grounds fashioned in the following manner:

1. The learned trial Judge erred in law by misapplying the legal effect of the injunction dated 30th June 2017 issued by the District Land and Housing Tribunal at Kilombero/Ulanga District in Land Application No. 60 of 2017 against all payments on the Performance Bond Guarantee.

2. The learned trial Judge erred in law and fact by declaring the 2n d Respondent to be in breach of the Performance Bond Guarantee contrary to the law and the evidence tendered during trial,

3. That the learned trial Judge erred in law by ordering the 2n d Respondent to pay general damages of TZS 4,000,000 without appropriate legal basis. On the basis of the foregoing grounds, the second respondent urged us to allow the appeal and set aside the judgment and decree of the trial court. Alternatively, we were implored to issue an order directing the second respondent, pursuant to the performance Bond Agreement, to pay TZS 87,622,692.00 to the first respondent being the price of the products which it had supplied and delivered to first appellant. In relation to the first ground of the cross appeal, Ms. Josephine Safiel, learned counsel who appeared representing the second respondent submitted that, on being served with a notice of default, her client was ready and willing to pay the amount due in compliance with the terms and conditions of the Performance Bond Agreement but for two constraints. One, that, as opposed to TZS 87,622,692.00 which was at the time the outstanding amount, the first respondent had unduly sought to be paid TZS 150,000,000.00 being the whole of the guaranteed amount as per the Performance Bond Agreement; and two, that the second respondent could not proceed to pay as there was already an order from the Kilombero District Land and Housing Tribunal (the DLHT) directing the s

parties to maintain the status quo ante and that, at the expiry of the duration of the said order, the dispute had already been referred to the Commercial Court. In support of Ms. Safiel's position, Mr. Augustine Kusalika, learned counsel for the appellants concurred with her and subsequently recapped most of the arguments which Ms. Safiel had already canvassed. Mr. Kusalika's argument in a nutshell was that, when the first respondent demanded to be paid the whole of the guaranteed amount which was contested for the reason that the outstanding amount was TZS 87,622692.00 only and not TZS 150,000,000.00, the second respondent could not pay as there was already an injunctive order from the DLHT restoring the status quo ante, and when the time span of the said order came to an end, the parties were then litigating in the High Court regarding the amount payable. It was Mr. Kusalika's penultimate argument that, in essence therefore, there was no fault on the part of the second respondent who had no difficulty in settling the outstanding balance in compliance with the Performance Bond Agreement save that, the second respondent's inaction was due to the factors which were at the time, in the hands of fate. For his part, counsel for the first respondent Mr. Atlay Esao Thawe held a different view from Ms. Safiel and Mr. Kusalika regarding the reason for the second respondent's failure to comply with the terms and conditions of the Performance Bond Agreement. He set off his arguments by referring us to the Doctrine of Sanctity of Contract which is provided in section 37 (1) of the Law of

Contract Act, Chapter 345 of the Revised Laws (the LCA) and restated in our countless decisions such as in the case of Robert Scheltens v. Sudesh Kumari Varma and Two others, Civil Appeal No. 203 of 2019 in which we stated that: "Courts in this country, by aii means have to protect, cherish and preserve the doctrine o f Sanctity of Contract by uncompromisingiy compeiiing and coercing its obedience > otherwise contracts in this jurisdiction would cease to have any iegai worth ; an eventuality which\ courts and the legal system cannot take lightiy for it would be placing the economy at a brink o f failure". Moreover, Mr. Thawe refuted Ms. Safiel's and Mr. Kusalika's claim that the second respondent could not pay the demanded amount because of operation of the injunctive order from the DLHT and later on the existence of a civil suit before the Commercial Court. While admitting the existence of the injunctive order and later on the civil suit, Mr. Thawe contended that, had the second respondent been diligent, it would have proceeded to liquidate the guaranteed amount after receiving the demand notice. The learned counsel accused the second respondent for what he called, the lack of diligence. With regard to the award of TZS 4,000,000.00 as general damages, the learned counsel sought to justify it arguing that, given the circumstances obtaining in this case, the said award was justified. Mr. Thawe pushed the argument further and contended that, most importantly, it was in the discretion of the trial court to award or decline to award general damages. 10

Looking at the arguments advanced both in support and opposition of the cross-appeal, we are with respect, not in agreement with Mr. Thawe. We think that, in view of what happened in this case, the second respondent cannot be adjudged blameworthy within the meaning of the law. We say this because, section 37 (1) of the LCA to which we were ably referred by Mr. Thawe, is not without exception. It provides that: "The parties to a contract must perform their respective promises, unless such performance is dispensed with or excused under the provisions o f this Actor of any other /aw". [Emphasis suppiied] We start from the premise that, indeed, we are mindful that in terms of the above quoted provisions of the law, parties to a contract should not be allowed to easily bank out of a contract duly entered into by them. For, the law generally contemplates that, parties would adhere strictly to the terms and significant features of the contract given that, ordinarily contracts are written expressions of the free will of the parties. However, we are equally alive to the legal fact that, the exception is that, performance of contractual obligations may be dispensed with, excused or otherwise deferred as it happened in this case, for any sufficient or reasonable cause. We think with respect that, by the appellants' seeking and obtaining an order from the Kilombero DLHT requiring the parties to maintain the status quo 11

and thereafter, by the first respondent's lodging a civil suit in the Commercial Court demanding to be paid the whole of the guaranteed amount instead of TZS 87,622,692.00 which was the outstanding amount, both the appellants and the first respondent had created the circumstances that justified the second respondent's decision to put on hold the payment awaiting the outcome of the litigation. As correctly submitted by Ms. Safiel and Mr. Kusalika, what the above circumstances disclose is that, in essence, there was no default by the second respondent to liquidate the amount due at the time. Viewed from that perspective, it follows in our judgment that, there was absolutely neither factual nor legal basis for the trial court to hold the second respondent responsible for breach of the Performance Bond Agreement. The learned trial Judge ought to have proceeded to determine the dispute between the parties bearing in mind that, it was the first respondent who had sort of delayed the payment by demanding to be paid more than what was due and, together with the appellants, indulging themselves in scattered litigations in different forums. Having said what we have canvassed above, we find merit in the cross appeal which succeeds and is accordingly allowed. The decision of the trial court that the second respondent had breached the Performance Bond Agreement and that, in addition to payment of TZS 87,622,692.00 it should pay the first respondent TZS 4,000,000.00 being general damages for breach of the 12

Performance Bond Agreement, is set aside. In the place of the above decision, we confirm that the second respondent shall pay the first respondent TZS 87,622,692.00 only being the outstanding amount at the time together with interest at the rate of 7% per annum from the date of the trial court's judgment to the date of payment in full satisfaction of the decree. In view of the balanced nature of this dispute, we order each party to bear its own costs. DATED at DAR ES SALAAM this 24th day of September, 2024. B. M. A. SEHEL JUSTICE OF APPEAL P. M. KENTE JUSTICE OF APPEAL G. J. MDEMU JUSTICE OF APPEAL The Judgment delivered this 26th day of September, 2024 in the presence of Ms. Josephine Safiel, learned counsel for the appellant, and Mr. Augustine Kusalika, learned counsel for the 1s t & 2n d Respondents, Mr. Atlay Thawe, learned counsel for the 3rd Respondent is hereby certified as a true copy of the original. D. R. LYIMO DEPUTY REGISTRAR COURT OF APPEAL 13