CHIRAWU-MUGOMBA
J:
The
genesis of this matter lies in proceedings held under case number
HC8844/12. In that matter, the respondent in casu, obtained an order
against the applicants as follows:
1.
Judgement be and is hereby entered in favour of the plaintiff against
defendants jointly and severally the one paying the other to be
absolved in the sum of US$43,065.00.
2.
Defendants pay jointly and severally the one paying the other to be
absolved penalty interest at the rate of 4% per month on the sum of
US$41,800 from the 24th of August 2021 to date of payment in full.
3.
Costs of suit on an attorney and client scale.
The
applicants' case is as follows.
The
second applicant entered into a loan facility with the respondent for
a total sum of US$45,000 constituting US$15,000 roll over and a new
sum of US$30,000. This money was disbursed to the applicants.
It
was a material term of the loan agreement that since the respondent
is a foreign entity, it had to obtain exchange control approval from
the Reserve Bank and this was also in terms of Clause 7:10.
Such
proof was never furnished despite the payment supposedly coming from
Mauritius.
In
pursuance of a writ of execution in case no. HC8844/12, the Sheriff
of the High Court visited the first applicant's place of residence
armed with a notice of seizure and attachment. This writ was in
Zimbabwean dollars and her legal practitioners paid on her behalf the
sum of ZW$50,878.
The
respondent's legal practitioners however insisted that the payment
had to be in United States Dollars. This was ostensibly on the basis
that the amount owed was a foreign debt.
The
circumstances of the loan however point out to the fact that it was
not a foreign obligation as claimed. It was actually a fraud based on
the fact that no exchange control authority was sought and obtained.
The
loan agreement was executed in Harare, the funds were to be used in
Zimbabwe, the laws of Zimbabwe apply and the respondent's
representative ordinarily resided in Zimbabwe.
The
applicants therefore sought an order declaring the loan agreement
entered into by the parties on the 18th of November 2010 as null and
void and the discharging of the sureties.
In
addition they sought an order of costs on a higher scale.
Alternatively,
they sought a declaratur that the ZW$50,878.00 is in full and final
settlement of the respondents judgment debt.
In
responding to the application, the respondent raised points in
limine.
They
contended that the applicants and respondents entered into the loan
agreement in 2010 and the applicants defaulted in 2012 leading to
institution of proceedings. They were aware of the existence of the
agreement but did not challenge it. They entered into a deed of
settlement which resulted in the default judgment against them when
they failed to honour the agreement. They should have challenged the
validity of the agreement within 3 years but they did not do so. They
cannot seek to enforce an agreement nearly nine years after.
Their
claim for a declaratur has prescribed.
Additionally
the relief they seek has been overtaken by events. The deed of
settlement settled the obligations between the parties which deed
became the cause of action resulting in the obtaining of the default
judgment. The judgment remains extant and they have not challenged
its validity. The applicants are estopped from challenging the
validity of the loan agreement.
In
any event the applicants are seeking an opinion and not a declaratur.
On
the merits, the respondent averred as follows.
It
is a duly registered company located in Mauritius. A copy of a
certificate of incorporation was attached.
The
second applicant and the respondent entered into a loan agreement as
stated in the founding affidavit. The advance was made from Mauritius
where the respondent is incorporated. Inserted into the loan
agreement were warranties to ensure compliance with the laws of
Zimbabwe.
The
loan agreement did not require exchange control authority as
contended by the applicants.
The
loan amount was credited into the second applicant's Standard
Chartered bank account held in Zimbabwe. The applicants made some
payments specifically a payment of US$2,000 (Two thousand) via
telegraphic transfer on the 15th of June 2012 to the respondent's
bank account held in Mauritius but subsequently defaulted which
resulted in the institution of legal proceedings on the 8th of August
2012.
Thereafter
the respondent obtained judgment against the applicants based on a
deed of settlement.
Further
that the debt is owed to a foreign entity and should be paid in
United States Dollars.
The
fact that the writ and notice of removal by the Sheriff was in
Zimbabwe dollars does not make it less so. The court order upon which
the debt is based is expressed in United States dollars. The fact
that the loan agreement was executed in Zimbabwe, by a borrower in
Zimbabwe, for use in Zimbabwe is irrelevant as is the fact that the
respondent's representative was based in Zimbabwe.
What
defines whether or not a loan is a foreign obligation is the source
of the funds.
The
applicants cannot deny that the respondent is registered in Mauritius
and funds were transferred from a bank in Mauritius.
At
the hearing, after Mr Madya had made submissions on the points in
limine, Mr Maunze in response abandoned the main relief sought and
submitted that the applicants were now only seeking the alternative
relief.
The
alternative relief is couched as follows.
Alternatively
-
(a)
It is declared that the applicants payment of ZW$50,878 is a full and
final settlement of the respondent's judgment debt.
(b)
The respondent shall pay costs of suit on the higher scale of legal
practitioner and client scale.
As
rightly contended by Mr Maunze, the legal issue that arises is
whether or not the debt is a foreign obligation.
In
his submissions he contends that the court must declare that the
ZW$50,878 discharged the obligations of the applicants owed to the
respondent. This is due to the effects of SI 33/19 as subsequently
provided for in the Finance Act, No 2 of 2019.
By
operation of the law, the debt became a Zimbabwe dollar one.
The
loan agreement must be viewed in a holistic manner based on the
factual circumstances upon which the loan was extended. The laws to
be applied must be those of Zimbabwe including the exchange control
regulations.
Mr
Madya on the other hand submitted as follows.
It
is not in dispute that the respondent is a foreign entity operating
out of Mauritius as evidenced by the certificate of incorporation.
The loan agreement itself shows the domicile of the parties as being
Zimbabwe and Mauritius respectively. The capital sum of US$45,000
advanced to the applicants came out of Mauritius. The loan agreement
sets out the bank to which the loan is to be repaid as being in
Mauritius. Partial settlement was made by the applicants into that
bank.
They
cannot now be heard to suggest that the loan should be paid in
Zimbabwe dollars.
In
Zimbabwe, the issue of debts owed and indeed the currency in which
they have to be paid has found its way into the courts after the
promulgation of S.I 33/19.
The
Supreme Court dealt with these issue in the oft cited cases of
Zambezi Gas Zimbabwe (pvt) Ltd vs N.R Barber and Another, SC-3-20 and
Breastplate Services (pvt) Ltd vs Cambria Africa PLC SC-66-20. See
also Central Africa Building Society vs Stone and ors, SC-15-21.
In
Mushayakura vs Zimbabwe Leaf Tobacco Company (pvt) Ltd, SC-108-21,
the court dealt with a matter involving a growing and financing
agreement, an acknowledgment of debt and a deed of settlement
involving the appellant and respondent. MALABA C.J had this to say
regarding the definition of a foreign loan and obligation:
“The
term 'foreign loans and obligations denominated in any foreign
currency', as it appears in s44C(2) of the Reserve Bank Act, is not
defined in SI 33 of 2019. As stated in the Breastplate case supra,
its meaning in any given case must be ascertained from the factual
circumstances of the parties involved and the material substance of
the transaction that they have entered into. Section 44C(2)(b) of the
Reserve Bank Act makes it clear that the issuance of any electronic
currency, that is RTGS dollars, shall not affect or apply to any
foreign obligation, as the provision explicitly excludes foreign
obligations valued and expressed in United States dollars from the
deemed parity valuation in RTGS dollars.
It
is settled that the effect of SI 33/19 was to render all assets and
liabilities except those referred to in s44C(2)(b) of the Reserve
Bank Act as values in RTGS dollars at the exchange rates prescribed.
It
was the appellant's position that, since the parties had concluded
a Deed of Settlement, the court a quo was not entitled to take into
consideration agreements that preceded the Deed of Settlement.
The
appellant argued that the Deed of Settlement constituted a
compromise.
It
was the appellant's further submission that it did not matter that
the debt had been expressed in United States dollars. The argument
was that the issue was whether the appellant could discharge his
liability in RTGS dollars at the rate of one-to-one in terms of SI
33/19.
The
Deed of Settlement and the preceding contracts have to be read
together for a proper understanding of the arrangement the parties
entered into.
The
source of the funds had to be established first for the Court to be
able to make a determination of the issue of the currency in which
the debt admittedly due had to be repaid.”
Further
that:
“The
Deed of Settlement was entered into for the purpose of allowing the
appellant to repay the debt he acknowledged to be owing in
instalments in United States dollars. The Deed of Settlement was for
the benefit of the appellant.
The
appellant cannot escape the obligation he voluntarily undertook to
repay the funds advanced to him in United States dollars for the
specific purpose of financing the production of the tobacco crop by
calling the Deed of Settlement a compromise. There was no dispute
between the parties over the currency in which the offshore funds
received by the appellant from the respondent had to be repaid.
The
respondent was entitled to invoke the provisions of s44C(2)(b) of the
Reserve Bank Act to protect its rights to the repayment of the
offshore funds advanced to the appellant in United States dollars
under the Deed of Settlement.”
In
casu, it is common cause that the source of funds was from a bank in
Mauritius. The applicants never denied this fact.
They
instead after benefiting from the loan sought to cast aspersions on
the juristic person of the respondent and went on to place irrelevant
facts of money laundering before the court.
It
is also common cause that the respondent is a registered entity in
Mauritius.
Clause
5.7 of the loan agreement makes it clear that the repayments were to
be done through a bank in Mauritius. The applicants did in fact pay a
sum of US$2,000 via that account. The loan agreement itself was
cognisant of the fact that the currency in Zimbabwe could change and
hence clause 9.3 which states as follows:
“The
borrower acknowledges that in the event of the government of Zimbabwe
announcing plans for or implementing plans for the re-introduction of
the Zimbabwe dollar as the primary currency of transactions with or
without the withdrawal of the use of other currencies in use as at
the date of this agreement, the lender shall be entitled, at its
election to call up the entire amount then due from the borrower and
the borrower shall be obliged to repay back the amount due as
provided for in clause 11.2 of this agreement.”
This
clearly and unequivocally supports the fact that the loan itself was
a foreign obligation otherwise there would not have been need for
such a clause.
Clause
16 of the agreement shows the domicile of the respondent as being at
an address in Mauritius.
The
deed of settlement signed by the parties shows the amount owing as
being US$51,800.
The
totality of the circumstances of the matter and on the authority of
the Mushayakurara matter, the inescapable conclusion is that the debt
owed to the respondent can only be discharged in United States
Dollars.
The
fact that the Sheriff expressed the amount in Zimbabwe currency in
the writ and notice of removal is neither here nor there.
I
find no merit in the applicant's contention that there was no
exchange control approval obtained.
Once
the applicants abandoned the main claim in favour of the alternative,
the only issue is whether or not payment of the amount owed in
Zimbabwean dollars discharged the debt.
In
the Mushayakura matter, the court made a very pertinent observation
that:
“If
payment were to be made in RTGS dollars contrary to the clear and
unambiguous language of s44C(2)(b) of the Reserve Bank Act, the
purpose of the provision of ensuring that tobacco farmers benefit
from offshore funding lines of credit accessible to the respondent
and others in similar business would be defeated to the detriment of
the national interest in the protection and promotion of the
development of the tobacco industry.
The
court a quo cannot be faulted for holding that the funds advanced to
the appellant had to be repaid in United States dollars.
The
Zambezi Gas case supra is distinguishable from the present matter.
The
present case relates to offshore funding. The obligation incurred by
the respondent was a foreign obligation denominated in foreign
currency within the contemplation of s44C of the Reserve Bank Act.”
In
casu, the agreement between the parties constitutes offshore funding.
The
respondent stated clearly in its opposing affidavit that the
applicants sought funding after they had been denied such by local
banking institutions. This was not denied.
Offshore
funding presents a lifeline for most businesses in Zimbabwe that
cannot obtain any or adequate funding on the domestic market.
Surprisingly
after receiving the money, the applicants turned around and accused
the respondent of not being an authorised dealer yet happily received
US$45,000.
Clearly
payment in RTGS dollars will have a negative impact on businesses and
would not be in the national interest.
The
requirements of a declaratur have been set out in a plethora of
cases. See Streamsleigh Investments (pvt) Ltd vs Autoband Investments
(pvt) Ltd, 2014 (1) ZLR 736.
In
my view, and for reasons stated above, the applicants have not
established any basis for the granting of a declaratory order.
Costs
should follow the cause. I do not perceive of any factors that
support an award of costs on a higher scale.
DISPOSITION
1.
The application be and is hereby dismissed with costs.
Mawere
Sibanda Commercial Lawyers, applicants' legal practitioners
Wintertons,
respondent's legal practitioners
