Donegal International Ltd v Zambia
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE ANDREW SMITH |
| Judgment Date | 15 February 2007 |
| Neutral Citation | [2007] EWHC 197 (Comm) |
| Docket Number | Case No: 2005—190 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 15 February 2007 |
[2007] EWHC 197 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Mr Justice andrew Smith
Case No: 2005—190
Anthony Trace QC, Benjamin John and Ciaran Keller (instructed by Allen & Overy) for the Claimant
William Blair QC, Michael Sullivan, Hannah Brown, James Evans and James MacDonald (instructed by DLA Piper) for the Defendant
Hearing dates: 8, 9, 10, 11, 12, 15, 16, 17, 18, 19, 22 and 23 May 2006, 1 August 2006 and 18, 19, 20 and 21 December 2006.
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
In these proceedings the claimants, Donegal International Limited (“Donegal”), are claiming from the first defendant, the Republic of Zambia (“Zambia”), a debt of US$42,305,026.50 together with interest. The total claim is for more than US$55 million. It is made under a settlement agreement dated 1 April 2003 (“the Settlement Agreement”) and signed by Mr Michael Sheehan on behalf of Donegal and Mr Emmanuel Kasonde, who was then the Zambian Minister of Finance. No substantive claim has been made against the second defendant, Mofed Limited (“Mofed”, an acronym for Ministry of Finance and Economic Development), an English company owned by the Zambian Minister of Finance on behalf of Zambia, who were joined as a party to these proceedings simply for the purpose of supporting freezing relief against Zambia.
The proceedings arouse strong feelings. Zambia is a poor country and sees itself as being vulnerable to “vulture funds”. They say that this claim for more than US$55 million is an improper attempt by Donegal to exploit their vulnerability, Donegal having originally become their creditors by buying debt from the Government of Romania in 1999 for some US$3.2 million. Donegal respond that their proper purpose is to make a profit, that it is legitimate to pursue their claim through these proceedings against Zambia and that they are justified in doing so, Zambia having rejected their reasonable proposals for settling the indebtedness and having sought to evade their responsibilities. I am concerned, of course, with the legal questions that are raised by the applications before me and not with questions of morality or humanity.
The four applications before me are these:
i) Zambia made an application (“the jurisdiction application”) on 24 August 2005 under Part 11 of the Civil Procedure Rules (“CPR”) for a determination that the court has no jurisdiction to try the claim because Zambia is a sovereign state and is entitled to assert state immunity in accordance with section 1 of the State Immunity Act, 1978.
ii) Zambia applied on 11 October 2005 to discharge freezing orders made against them.
iii) Donegal applied on 7 February 2006 under Part 24 of the CPR for summary judgment against Zambia.
iv) Donegal applied on 2 June 2005 to vary their freezing orders against Zambia. They seek to include in the assets covered by the order the proceeds of litigation brought by Zambia in the Chancery Division, and the assets of Mofed on a worldwide basis.
During the parties' closing submissions, in view of constraints of time I suggested and the parties agreed that I should not decide in this judgment the two applications about the freezing orders (which would not need to be determined if I acceded to the jurisdiction application) unless I conclude that they should in any event be discharged (and neither continued nor renewed) for the sole reason that the evidence presented by Donegal when they were made was misleading or incomplete or both. Otherwise, I shall invite further submissions in light of this judgment.
The hearing of the jurisdiction application involved the disclosure of documents and hearing of oral evidence from witnesses of fact and expert witnesses (see J H Rayner v Dept of Trade and Industry, [1989] Ch 72 at pp.193–5, 252E/F), and it was common ground that all four applications should be determined upon the basis of that evidence.
The Settlement Agreement
Following a credit agreement between Romania and Zambia dated 17 April 1979, Zambia incurred indebtedness to Romania in respect inter alia of acquisitions of agricultural machinery. By an assignment agreement dated 19 January 1999 Romania assigned the debt to Donegal. In April 2003 Donegal and Mr Kasonde executed the Settlement Agreement which set out an agreement about the discharge of the debt.
The Settlement Agreement was introduced by a preamble in the following terms:
“Whereas:
The Republic of Zambia owed to Romania the principal amount of US$29,834,368.04 together with interest pursuant to the Credit Documents.
Donegal acquired the rights of Romania to the Debt pursuant to an assignment agreement dated 19 th January, 1999.
The Republic of Zambia acknowledged the assignment to Donegal and the registration of Donegal as current holder of the Debt by a letter to Donegal dated 12 th February, 1999.
Donegal is owed the Debt by the Republic of Zambia pursuant to the Credit Documents and the Republic of Zambia acknowledges this obligation.
The Republic of Zambia and Donegal wish to reach an amicable settlement in relation to the Debt on the terms set out in Annex 1 [which principally comprised a schedule of payments] in accordance with this Agreement.”
The “Debt” was defined as follows: “the entire amount of the debt owed by the Republic of Zambia to Donegal pursuant to the Credit Documents on the date of this Agreement being US$29,834,368.06 of principal and US$14,889,393.11 of accrued interest thereon for a total amount of US$44,723,761.17”. (In Annex 1 to the Settlement Agreement the amount is stated to be US$44,792,421.09, being principal, or “face value”, of US$29,834,368.06 and interest of US$14,958,053.03, being calculated at 12% pa to 31 March 2003: this apparent discrepancy was not explored in the evidence before me, but it seems likely that the interest figure in the definition of ”Debt” was carried over from a previous draft of the agreement without being updated, whereas the figure in Annex 1 was amended. However, there is no suggestion that the Settlement Agreement should be rectified or that I should adopt the figure in the Annex rather than that in the definition as the amount of the underlying debt.)
The “Credit Documents” were defined as eight specified documents or categories of documents “which evidence the Debt”, including statements of payment obligations issued by Romanian Foreign Trade Bank (“Bancorex”), confirming the amount of US$29,834,368.06; a statement sent by the Zambian Ministry of Finance dated 28 April 1994; a Credit Agreement dated 17 April 1979 and a further Governmental Agreement dated 4 August 1985 made between the Government of Romania and Zambia; a Memorandum of Understanding dated 18 December 1998, to which I shall refer in this judgment; and three export agreements made by Zambia in July 1979, to which I shall also refer later. They did not include what I shall refer to as the Banking Arrangement.
The agreement provided by clause 2.1 that Zambia should make 36 monthly payments to Donegal in the total sum of US$14,781,498.96, together with interest on the unpaid balance calculated at the rate of 6% pa in the sum of US$1,142,069.38, by amounts to be transferred between 4 April 2003 and 1 March 2006, and by clause 2.2 that Donegal agreed to accept “the settlement amount in full and final settlement of the Debt”. Zambia were permitted to postpone any payment due after July 2003 for up to 3 months, subject to a limit of one postponement in 2003 and three postponements in any one calendar year thereafter. The settlement amount was defined as:
“the amount to be paid by the Republic of Zambia to Donegal in accordance with this Agreement being US$14,758,841.19 (calculated as 33% of the principal and interest owing in respect of the Debt on the date of this Agreement) together with interest on the unpaid balance of this amount calculated at a rate of 6% per annum”.
When the Settlement Agreement was made, Donegal had, as I shall explain, brought (but not formally served) proceedings (“the BVI proceedings”) against Zambia in the Eastern Caribbean Supreme Court in the British Virgin Islands (“BVI”). Clause 2.3(f) of the Settlement Agreement provided that, prior to Donegal serving a notice of default, “Donegal will not continue legal proceedings to recover the Debt”.
Clause 2.3 of the Settlement Agreement was headed “Default” and provided that 21 days after Zambia defaulted upon any payment Donegal could elect to terminate the Settlement Agreement by a notice in writing. Clause 2.3 also provided as follows:
“(d) Upon service of the Notice, this Agreement will be null and void and of no effect and Donegal will be entitled to judgement in respect of the Debt in full with interest at 8% per annum compounding quarterly having given credit for any amounts already received pursuant to Clause 2.1 above.
(e) Upon service of the Notice, the Republic of Zambia hereby consents to the award of a judgement by the High Court in England for the full amount of the Debt together with interest both before and after judgement at a rate of 8% per annum compounding quarterly but after having given credit for any amounts already received pursuant to Clause 2.1 above.”
Clause 3.1 of the Settlement Agreement, headed “Representations and Warranties of the Republic of Zambia”, provided:
“The Republic of Zambia makes the following representations and warranties to Donegal on the date of this Agreement.
(a) Powers and authority
It has the power and authority to...
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