J1

(248)

SCZ NO. 9 OF 2008

APPEAL No. 29/2007
IN THE SUPREME COURT OF ZAMBIA
HOLDEN AT KABWE AND LUSAKA
(Civil Jurisdiction)

BETWEEN

FRALLEN INVESTMENTS LIMITED APPELLANT

AND
ZAMBIA RAILWAYS LIMITED 1ST RESPONDENT
NATIONAL COLLEGE FOR MANAGEMENT
DEVELOPMENT 2ND RESPONDENT

Coram: Sakala, CJ. Chibesakunda and Mushabati JJS.

10th April, 2007 and 12th February, 2008
For the Appellant: Mr M Kabesha of Messrs Kabesha and
Company.
For the Respondent: Mr A. A. Nsefu with Mr H ChInzu of
Messrs I.C. Ngonga and Company.
JUDGMENT
Chibesakunda, JS, delivered the Judgment of Court.

Cases referred to:

1. Shell and BP Limited vs. Conidaris and Others (1975) Z.R. at
179.
2. Hamaundu Mudenda, Muuka Mudenda vs. Tobacco Board
of Zambia Appeal No. 40 of 1998 at page 13.
3. Zambia Consolidated Copper Mines Limited and OK
Simwiinga vs. Dr Francis Khama Appeal No. 71 of 2001 at
page J4 to J5.
4. Zambia Sugar PLC vs. Wincho Gumboh Appeal No. 69 of
1996 at page J6.
 J2

(249)
5. Securities v. Vaunghan and Others and Antoniades v.
Valliers 1990 1 AL 417.
6. Street V. Mountford 1985 2 AER page 289.
7. Sharp v. McAuthor 1986 19HLR page 364
8. Marcraft Wagons Ltd v. Smith, 1951 2AER page 271

Legislation referred to:

9. Halsbury’s Laws of England Vo. 27 (14th Edition) at
Page 27 -29.

This is an appeal against a High Court Judgment which

was in favour of the 1st and 2nd Respondent. The Appellant
Company, who was the Plaintiff at the High Court, issued a
writ of summons against the 1st Respondent claiming: -

(1) Specific Performance that the 1st Respondent advertises the

sale of the building annexed on Plots 5864/5865 and refund
of K19,728,032.63
(2) The vacation of the 2nd Respondent from the Annex.
(3) Damages against the 1st Respondent for loss of business and
injury to reputation.
(4) An injunction to restrain the Respondent from interfering with
the quite enjoyment of the premises and restoration of the
Appellant to occupy the premises or corrugated Building.
(5) Costs and Interest on the damages.

Later the 2nd Respondent was joined as 2nd Defendant.

The central issue in this claim was the interpretation of Clause
6 in the Caretaker agreement between the Appellant
Company and the 1st Respondent.
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(250)
The facts before the High Court, on which there was no
dispute, are that on 3rd December, 1998, the 1st Respondent
offered the Appellant Kabwe Warriors’ Motel on lease. This
motel was on plots 5964/5865 encompassing the plot on
which was the corrugated building, also known as the annex
and (which hereinafter will be referred to as the Annex),
which had 4 classrooms like rooms, which the 1st Respondent
used for training telecommunications and signal technicians.
The Appellant on 1st January, 1999 took occupation of this
property. In February 2000, the Appellant bought this
property, plot No.5864/5865 excluding the Annex. So on 24th
August, 2001, the Appellant asked the 1st Respondent to
lease to it this Annex. The 1st Respondent agreed to lease this
Annex to them on conditions stated in the letter dated 21st
September, 2001, addressed to the Managing Director,
Frallen Investments Limited, which reads:

”Reference is made to your application dated 24th August, 2001

concerning the lease of a corrugated building opposite Zambia
Railways training Centre. Zambia Railways Limited has accepted your
application to use the property on the following terms:

1. Description: the property on offer is the building

opposite former Zambia Railways training centre and
the surrounding areas situated on plot 5864 – corner
of Mubanga and Luampa Mission Street-Kabwe
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(251)
2. Status/Tenure You will occupy the premises on a
care taker arrangement only for an initial period of
three (3) months effective 1st October, 2001
renewable after the expiry of each lease period.
3. Consideration: the Net per months is Seventy
thousand Kwacha (70,000,000) payable three months
in advance. This is a peppercorn rent offered in order
to cushion on repairs renovation expected to be
carried out by yourselves which will not be refunded
by the Railways.
Note that the Net Rent payable by yourselves is free
of all deductions such as value Added Tax (VAT) and
withholding Tax both payable to Zambia Revenue
Authority (ZRA).
4. Services: Electricity and Water will be borne by the
tenant that is by opening personal Accounts with
Zambia electricity Corporation Limited (ZESCO) and
Kabwe Council.
5. Repairs/Renovations: No repairs or renovations will be
undertaken without the prior written consent of
Zambia Railways. All costs incurred on repairs or
renovations will not be refunded by the Railways or
offset by rentals.
6. Sale: the property is one of those earmarked for sale
by Zambia Railways. In the event of sale the Property
will be advertised to the general public and you will
be expected to bid.
Further you should be prepared to vacate the premises at short
notice should Zambia Railways decide to retain the property.”
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(252)

When this Annex was given to the Appellant Company,

it was in a vandalized state, the roof had been removed,
toilets disused, electrical fittings were damaged, the entire
premises ravaged by vagabonds. So they had to
rehabilitate the building. The Appellant Company
renovated the rooms at the cost of K19, 728,032.63n. It was
also common ground that in the agreement quoted supra,
there was a provision that the cost of repairs would not be
refunded to the Appellant Company nor even treated as a
set off against the rentals. It is equally common ground, as
can be seen from the letter quoted supra that one other
term included in this letter quoted supra, was that: “The
property is one of those earmarked for sale by Zambia Railways. In the
event of sale, the property will be advertised to the general public and
you will be expected to bid.”

The Appellant’s claim before the High Court is that as

per these conditions stated in this letter in particular Clause 6
quoted supra, it expected the 1st Respondent to advertise
this property before it would sell to anybody. Their case
before the High Court was that there was a definite promise
by the 1st Respondent to advertise this property (the Annex)
before selling it to anybody. So the Appellant Company as a
sitting tenant and having spent that amount of money to
rehabilitate that property had a legitimate expectation of
the right of first refusal to buy that property. According to
the Appellant Company, although the lease between them
and the 1st Respondent was labelled a caretaker agreement
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(253)
and was initially for three months, this legal relationship
continued with the consent of the 1st Respondent even after
the 3 months period expired, since the 1st Respondent
continued collecting rentals every month from it even after
the expiry of the three months.

The Respondents’ evidence on which there was dispute

is that the Appellant applied for lease of this Annex much
later after the 2nd Respondent’s application for lease of the
said property. Its case was that the 2nd Respondent and
itself entered into a lease agreement of the main training
center on the 19th May, 2000 paying rentals of
K10,187,707,50n per month. The Appellant Company
approached the 1st Respondent in the year 2001 whereas
the 2nd Respondent had entered into a lease agreement
with the 1st Respondent in the year 2000. The 2nd Respondent
was paying K10,187,707.50n for the whole complex which
included the annex, although it was not utilizing this Annex.
This lease was on a year to year basis. So the 1st Respondent
only agreed to give to the Appellant Company a caretaker
arrangement of 3 months. According to DW1 the Appellant
Company knew that the Annex together with the main
training center had been leased to the 2nd Respondent
before they applied for this caretaker agreement. This is why
the 1st Respondent agreed to a loose ad hoc arrangement
of a caretaker agreement with the Appellant Company.
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(254)
DW1 testified that he had informed the Appellant
Company that the property in question had already been
leased to the 2nd Respondent and that there was a possibility
of the property being used by the 2nd Respondent, although
at the time it was not being used. DW2’s evidence was that
the 2nd Respondent had to get into this agreement with the
1st Respondent because the Government Republic of
Zambia (GRZ) made a decision to upgrade the 2nd
Respondent premises to University status and that they were
to look for premises for expansion. His evidence was that this
lease agreement, between the 1st Respondent and the 2nd
Respondent, was to pave a way for outright purchase of the
property in question.

Under cross-examination, the Respondents accepted

that they did not advertise but explained that, Clause 6 did
not give the Appellant the right of first refusal. The 1st
Respondent further testified that after selling this property to
the 2nd Respondent when the Appellant Company
complained, it offered to pay K10,187,707.50n to the
Appellant Company, not as a sign of accepting that it was in
the wrong, but as a way of trying to settle this matter by way
of ex curia. The evidence of both the 1st Respondent and
the 2nd Respondent is also that they entered into this lease
agreement as way back as May, 2000.
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(255)
On the evidence before the lower court, the learned
trial Judge ruled that the Appellants had no legal right of first
refusal. He dismissed the claim with costs, hence this Appeal
before us.

Before this court, the Appellant filed two grounds of

appeal. These are:

1. That the learned trial Judge erred in holding that the

terms of the lease to the Plaintiff did not confer any
legal right on the Plaintiff which could be enforced by
him.
2. That the learned trial Judge erred in holding that the
Plaintiff was not entitled to a refund of K19,728,023.63

In the same memorandum of appeal, the Appellant

indicted that they would file further grounds of appeal at a
later stage should there be need for such. However, when
the matter came before this court, both parties relied on
their filed heads of argument. In their written heads of
argument, the Appellant on ground 1, argued that the
Learned trial Judge erred in holding that the terms of the
lease between the Appellant Company and the 1st
Respondent did not confer any legal right to them which
were justifiable. It argued that interpreting the conditions
spelt out in the letter quoted supra at J3, Clause 6 meant
that the 1st Respondent was contractually bound to
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(256)
advertise the property in question and the Appellant
Company as sitting tenants had a legal right of first refusal.
This meant that the 1st Respondent was contractually bound
to advertise the property in question and this meant that the
Appellant Company as sitting tenant had to be given the first
option to either purchase the property or to refuse to
purchase it. It was argued that, as it was stated in Shell and
BP Limited vs. Conidaris and Others (1), the question as to
whether or not there is a contractual relationship between
the two parties, is always a question of law and it can only
be determined at law after considering all relevant
provisions. The Appellant Company furthermore contended
referring to the Halsbury’s Laws of England Vo(1)(9), that the
general principle in determining whether an agreement
created a lease or license was that all substantive terms of
the agreement in question had to be seriously analysed.
According to them, looking at Clause 6 of the said
agreement, it created a legally binding relationship between
the Appellant Company and the 1st Respondent. Therefore,
the learned trial Judge erred in holding otherwise.

On the second ground, it argued that, the learned trial

Judge erred in holding that the Plaintiff was not entitled to
the refund of K19,728,023.63. It submitted that as per
paragraphs 3 and 5 of the agreement as reflected at page
46-47, since the 1st Respondent was alive to the expenses
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(257)
incurred by the Appellant Company and that since at page
49 of the record a refund was offered, the court ought to
order a refund of this total amount of K19,728,023.63 and not
a partial refund of K10,187,707,50. It was contended that,
since there was this evidence on record, which evidence the
lower court should not have ignored, this evidence was that
the Appellant spent that amount of K19, 728,023.63, the
lower court should have held that the Appellant Company
was entitled to this refund.

The Respondents in response, in their written heads of

argument relied on the two cases of Timothy Hamaundu
Mudenda, Muuka Mudenda vs. Tobacco Board of Zambia
Appeal No. 40 of 1998 at page 13 and Zambia Consolidated
Copper Mines Limited(3) and OK Simwiinga vs. Dr Francis
Khama Appeal No. 71 of 2201(4) in which the court held
that a licensee was not a sitting tenant and as such had no
legal right to purchase the house. It was argued that,
looking at the evidence of DW1, it was clear firstly, that the
Appellant had failed to establish that there was a tenancy
agreement between it and the 1st Respondent. What was
established, according to Counsel, was that, the Appellant
Company was only a licensee and not a tenant. Secondly,
that there was no provision in the caretaker agreement of
selling this old training school to the Appellant Company.
Thirdly, that it was common ground that there was a tenancy
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(258)
agreement between the 1st and 2nd Respondent on the 19th
of May, 2000 which subsequently was followed by
negotiations and an outright purchase of these properties in
2002. It was also common ground that the Appellant
Company only applied for lease of this Annex in August 2001.
Therefore, there was no way that the 1st Respondent would
have offered to lease the same property in 2004 to the
Appellant Company as the property had been already sold
to the 2nd Respondent.

On the second ground of appeal, the Respondent

argued that there was no provision in the caretaker
agreement of refunding the costs of repairs to the Appellant
Company. There was one provision under clause 5 of the
agreement as stated in the letter dated 21st September, 2001
on the record, which provision proscribes against refunding
any expenses incurred as a result of repairs/renovations.
Counsel for the Respondent submitted that, the offer of
K10,187,707.50n for expenses incurred by the Appellant
Company was, only a gesture made in good faith and not
backed by any legal proposition. Citing the case of Zambia
Sugar PLC Vs Wincho Gumboh(4), Counsel further argued
that the Appellant had no legal basis for claiming K19,728,
032.63n. In addition, he argued that as there was common
ground that the sale offer to the 2nd Respondent was in
relation to stand No. 5864/5865 and that since the 2nd
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(259)
Respondent had already paid a total price of
K720,000.000.00 to the 1st Respondent concluding the deal,
the Appellant Company had no claim over the property in
question. On the claim for loss of business, they also argued
that the Appellant Company lost no business. It was also
argued that the Appellant Company lost no business as
there was evidence that the building was dilapidated and
as such was not in a usable state.

We have looked at the issues raised in this appeal and

at the record of appeal. We agree that the central issue to
this claim is the interpretation of clause 6 of this caretaker
agreement between the 1st Respondent and the Appellant
Company. In trying to deal with this issue, we want to refer
to the term “caretaker arrangement:” firstly, we note that
even the Counsel for the Appellant in his submission at page
3 was not even sure of the nature of the relationship entered
between the Appellant Company and the 1st Respondent as
to whether it was a lease or licence. The learned of authors
in the Halsbury’s Laws of England, Vol. 27(9), have explained
these terms thus distinguishing tenancy from license.
According to them, they say: “Save in exceptional
circumstances, an agreement creates the relationship of landlord and
tenant and not that of licensor and licensee where there is a right of
exclusive possession for a fixed period term at a stated rate. Where an
agreement is made in writing, the question whether it creates a
tenancy or licence is determined by the consideration of the
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(260)
substantive terms of the agreement and not by the labels and

terminology used.” The learned authors further have expressed

the opinion that if an agreement satisfied all these

requirements of the tenancy, the agreement is a tenancy
agreement and the parties cannot alter the effect of that
agreement by insisting that they only created a licence. See
the case of Street v. Mountford 1985 2 AER (6). According to
the learned authors of Halsbury, in cases where the landlord
enters into separate agreements with a number of persons,
for them to share residential or business accommodation,
there is grant of joint right to exclusive possession and thus
joint tenancy where these agreements are identical and are
interdependent. See the case of A.G. Securities v.
Vaunghan and Others and Antoniades v. Valliers.(1988)
ERL(3). In cases where there are separate agreements
entered at different times and on different terms, there is no
grant of exclusive possession.

In an English case of Sharp v. McArthur (7) the owner of

the property wanted to sell it, he let the occupier into
possession and charged him rent pending sale. The court
held that the occupier was a licensee. In another English
case of Macraft Wagons Ltd. v. Smith(8) a owner of a house
allowed a daughter of a deceased tenant to remain in
occupation of the house making payment for the use of the
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(261)
house. The court held that there was no tenancy. She was a
licensee.

According to the Concise Oxford Dictionary, 9th

Edition, the word “caretaker” denotes looking after property/
position temporarily. So, as per evidence of DW1, which was
not refuted by the Appellant Company, as the Annex was on
lease to the 2nd Respondent and sold to the 2nd Respondent
by 2002, and that, it could be repossessed from the
Appellant Company at a short notice and more also as it
was common ground that, the Appellant Company was not
given an offer to be sold the annex, what was promised to it
was that the property in question would be advertised,
therefore, we hold the view that the
agreement/arrangement between the Appellant Company
and the 1st Respondent was a mere license. We also hold
that as it was a temporary arrangement, it falls short of the
qualities of granting exclusive possession to the Appellant
Company. We therefore agree with the Learned trial Judge
that the Appellant did not have a legal right of first refusal.
So in line with our decision in the case of Timothy
Hamaaundu and Mukuka Mudenda Vs. Tobacco board of
Zambia and Zambia Consolidated copper Mines Vs.
Khama(2) we hold that specific performance cannot be
granted in a deal that was not in existence. In conclusion,
we hold that there is no justification to inflict injustice on the
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(262)
2nd Respondent, an innocent bonafide purchaser for value.
On the second ground, we entirely agree with the
Respondent that there was a provision in the caretaker
agreement, that costs of repairs would not be refunded or
even subtracted as a set off against the rentals and that the
agreement was and is still binding on the Appellant. We
therefore dismiss the appeal with costs.

…………………………..
E L Sakala
JUSTICE CHIEF

…………………………….
L P Chibesakunda
SUPREME COURT JUDGE

………………………………….
C S Mushabati
SUPREME COURT JUDGE
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