Doves Funeral Assurance hoped to persuade the high court in Harare that it had a valid agreement with Zimplats to provide an employee funeral scheme, and that after Zimplats cancelled, it should pay the funeral company more than US $4m in damages for lost profit. But Judge Amy Tsanga wasn’t convinced.
At the end of 2012, Zimbabwe Platinum Mine (Zimplats) called for tenders to provide an employee funeral scheme for its staff. Several months later, in March 2013, Zimplats wrote to one of the tenderers, Doves Funeral Assurance, to say it had won the tender.
Doves says it then began work on the basis that it had been awarded the contract, but seven months later, Zimplats informed the funeral company that it was cancelling the tender process.
That led Doves to court: the company said that at the time of the cancellation, a valid contract was in place. And because Zimplats wrongfully cancelled the contract, it should now pay damages to Doves. The company claimed damages of more than US$4m on the basis that this was the projected profit it would have made during the lifespan of the contract.
According to Doves, the communication it received saying it had been awarded the tender ‘constituted an agreement’ in terms of which Doves had to establish an employee funeral scheme for Zimplats. But in the view of Zimplats, when it communicated that Doves had won the tender, this ‘communication’ did not constitute the full terms and conditions of the contract between the two parties. It merely amounted to an agreement to be bound to a written contract, a contract that had not, however, been finalised at the time Zimplats cancelled the agreement.
CEO of Doves Holdings, Talent Maziwisa, told the court the two parties had met after Doves was awarded the tender, and agreed to move the effective date of implementation to May 2013. The two sides had also agreed on other issues including that Zimplats would give Doves a schedule of employees who were already on an internal fund, and that Doves would prepare material for the forms that other individual employees would complete, listing their dependants among other information.
Maziwisa said on the basis of these discussions, Doves had ‘gone ahead to implement the scheme full throttle’. When the letter of termination was received from Zimplats, ‘Doves had already provided services to about 33 beneficiaries.’
Commenting on the draft contract that was ultimately not signed, Maziwisa said the signing of it was to reduce all conditions to writing, and that it was ‘meant to be ceremonial’.
When it cancelled the tender award, Zimplats offered Doves US$30 000 in settlement, an amount Maziwisa called ‘a mockery’, given what the company had lost because of the cancelled award.
What had caused the cancellation? The human resources director of Zimplats, Takawira Maswiswi, said that after the tender was awarded to Doves, there was a back-and-forth engagement on the terms of the contract.
During this stage, Zimplats had come to know that there were market concerns about Doves’ liquidity, shareholding structure and corporate governance issues. From these concerns, Zimplats picked up particularly on questions about who the actual shareholders were, as well as the company’s solvency and whether Doves would be able to meet their obligations ‘since it appeared they did not have sufficient liquidity.’
Since Zimplats was a public listed company with ‘stringent corporate standards’, Maswiswi explained to Doves that they would have to ‘dig deeper’ to understand the structures in place at Doves.
Ernst and Young were retained to do a due diligence exercise on Doves, and its report ‘confirmed a lot of their concerns that [Doves’] financial were not in order and could not be relied upon as reflecting the correct financial status’. That led to Zimplats informing Doves that it would no longer be proceedings with the contract. Thus, explained Maswiswi, though a draft contract was in existence at the time these concerns had surfaced, it was never finalised.
Maswiswi said even if there had been a contract between the parties, something that Zimplats denied, the draft agreement provided for a three months’ notice period for either party. And if anything were in fact owed by Zimplats to Doves, it would just be for that notice period.
Judge Amy Tsanga, who heard the matter in the high court, Harare, said there was no dispute that the tender was accepted. But the tender documents themselves made clear there had to be a formal written contract, contrary to Maziwisa’s submission that this ‘would have been merely ceremonial’. ‘It was in fact a material aspect of the tender in terms of when the agreement would be deemed perfected. That intention cannot be ignored.’
The tender documents were ‘certainly not written in a manner which kick-started the contract on acceptance’, and the aim was ‘always to articulate the full agreement in a written document’, she said.
As to the claim for damages, the tender documents ‘did not permit a claim for damages for withdrawal’, but even if she were wrong about that, the damages claimed by Doves were simply not proven, even by the expert testimony put up by the Doves’ actuary. It was clear that the expert witnesses had been working on ‘ungrounded assumptions’ aimed at showing ‘the profitability of a would-be contract’.
Clearly, a company’s real financial standing was a matter of consequence to an intended business partner. ‘It is material.’
If it emerges that a tenderer’s financial standing isn’t sound, or that the shareholders are not who they are said to be subsequent to an offer being made, it is … the non-disclosing party who would have acted in bad faith.’ The court couldn’t be expected to facilitate acceptance of an ‘uncompleted and unexecuted document’.
To do so would amount to ‘dragging an unwilling partner to the altar of worse still, condoning the operation of business gangster style, through arm-twisting’. And where the ‘very award of the tender had been gotten through non-disclosure of key information, this would hardly be in keeping with the ethos of promoting sound ethical business.’
It didn’t help Doves to argue that it had begun to perform in terms of the unsigned contract – this ‘did not dispense with the need for a properly executed contract.’ When the ‘unsavoury details’ about Doves emerged and Zimplats cancelled, it was a ‘decent thing’ of the company to do, since there was no obligation to pay anything and the contract had not been signed. However, Doves refused the offer, opting instead to try to squeeze specific performance, or to ‘reap millions’ from Zimplats. Doves had now to bear the consequences of its choices. ‘As the saying goes, “a feather in hand is better than a bird in the air”. That offer to compensate on the basis of three months’ notice was without prejudice and it was rejected.’
The court thus dismissed the claim in its entirety, with costs.