International Finance Corporation v Utexafrica Sprl [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Mr Justice Moore-Bick |
| Judgment Date | 09 May 2001 |
| Neutral Citation | [2001] EWHC 508 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2000 Folio 1378 |
| Date | 09 May 2001 |
[2001] EWHC 508 (Comm)
The Honourable Mr Justice Moore-Bick
Case No: 2000 Folio 1378
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Timothy Howe (instructed by White & Case for the claimant)
Andrew Popplewell Q.C. (instructed by Linklaters & Alliance for the defendant)
This matter comes before the court by way of an application by the defendant, Utexafrica S.p.r.l. ("Utexafrica"), to set aside judgment in default of acknowledgment of service.
Utexafrica is a Congolese company which carries on business as a manufacturer of textiles. It is a subsidiary of a Belgian company, Société Financière et de Gestion Texaf S.A. ("Texaf"). On 25 th April 1988 Utexafrica and three other companies, Usines Textiles Cotonnières de Kinshasa S.Z.a.r.l., Zaireprint S.Z.a.r.l and Otricot Super Star S.p.r.l., entered into what is entitled an 'Investment Agreement' with the claimant, the International Finance Corporation ("IFC"), for a loan of 11.5 million European Currency Units ("Ecus") for the modernisation of a textile mill in Kinshasa. The loan represented about two fifths of the total sum required to complete the project which was estimated at the equivalent of US$35 million. The agreement provided for the loan to be drawn down in instalments as required by the borrowers and for its repayment by semi-annual instalments over the period from June 1992 to December 1998. Interest at 10% per annum was payable semi-annually on the amount of the loan disbursed and outstanding from time to time and there was also provision for the payment of commitment fees and other charges.
Closely linked to the Investment Agreement was a Foreign Exchange Retention Agreement ("FERA") dated 17 th October 1988 to which the borrowers, IFC and Texaf were all parties. Under the FERA the borrowers and Texaf agreed to set up a retention account in a bank outside the Democratic Republic of Zaire (as it was then) into which the borrowers would pay all sums which they became entitled to receive from foreign buyers in respect of goods exported from Zaire. The account was effectively a means of providing security for the payment of the instalments of principal and interest and the borrowers undertook to sell in Europe or other export markets for freely convertible currencies enough goods to ensure that a certain minimum amount was available for servicing the debt at any time. Texaf undertook to take all necessary steps to enable the borrowers to meet their obligations under both the Investment Agreement and the FERA. To underpin the borrowers' export obligations, which were seen as crucial to the success of the Investment Agreement, Texaf also undertook to purchase goods from the borrowers for freely convertible currencies and to deposit the price in the retention account. In the last resort Texaf undertook to pay sufficient funds themselves directly into the retention account to ensure that the borrowers' minimum obligations were covered if they were unable to produce or export goods.
During 1988 the four borrowers were merged into Utexafrica which thereby became the sole borrower under the Investment Agreement. The loan was drawn down in four instalments between 9 th June 1988 and 28 th June 1990 and the first semi-annual payment of interest became due on 15 th December 1988. In June 1990 the parties executed a formal amendment to the Investment Agreement by which the proper law was altered from the law of New York to the law of England, the parties agreed to submit to the jurisdiction of the High Court and provision was made for the service of proceedings on Utexafrica through agents in London. Pursuant to that amendment Utexafrica nominated BNP Paribas in London as its agent to accept service of proceedings.
Until June 1991 Utexafrica succeeded in making most of the payments required under the Investment Agreement. However, its business was disrupted by the civil unrest which broke out in September of that year and which has continued to plague the country to a greater or lesser degree ever since. Utexafrica's ability to export goods was severely curtailed and apart from two relatively small payments in February 1992 and July 1996 it subsequently failed to meet its obligations under the Investment Agreement. Texaf was unable to purchase goods from Utexafrica to provide the hard currency needed to meet the payments of principal and interest; moreover, it failed to pay sufficient funds into the retention account to enable Utexafrica's obligations to be satisfied. In summary, therefore, nothing has been paid in respect of the instalments of principal which should have been repaid over the six and a half years from June 1992 to December 1998 and virtually nothing in respect of interest accruing due since June 1991.
The claim form in this action was issued on 15 th December 2000 and was served by post on the chief executive officer of BNP Paribas in London. Some criticism has been made in the witness statements of the manner in which the claim form was served, but I do not think that there is any substance to it and Mr. Popplewell Q.C. did not seek to rely on it in support of the application. For various reasons, however, including an error on the part of the courier by whom it was forwarded to Kinshasa, the claim form did not reach Utexafrica until 11 th January 2001. By then, however, IFC had already entered judgment in default of acknowledgment of service on 3 rd January. This application to set aside the judgment was issued on 22 nd January. In these circumstances Mr. Howe on behalf of IFC did not suggest that there had been any failure on the part of Utexafrica to act promptly.
The application is made under rule 13.3(1) of the Civil Procedure Rules which gives the court the power to set aside a default judgment if the defendant has "a real prospect of successfully defending the claim". Mr. Howe drew my attention to the commentary in paragraph 13.3.1 of Civil Procedure and to the decision of the Court of Appeal in The Saudi Eagle [1986] 2 Lloyd's Rep. 221 in which the court held that in order to set aside a default judgment under O.13 of the Rules of the Supreme Court a defendant had to show that he had a realistic prospect of defeating the claim. It was said in that case that a merely arguable defence was not sufficient; there had to be a defence which had "a real prospect of success" and carried "some degree of conviction".
Mr. Popplewell, on the other hand, submitted that unless the defence was one which could be said to have no realistic prospect of success, it must follow that the test in rule 13.3(1)(a) was satisfied. However logical that proposition may be on its face, it is not one which I am able to accept. The fact is that in ordinary language to say that a case has no realistic prospect of success is generally much the same as saying that it is hopeless; whereas to say that a case has a realistic prospect of success carries the suggestion that it is something better than merely arguable. That is clearly the sense in which the expression was used in The Saudi Eagle and in my view is also the sense in which it is used in rule 13.3(1)(a). There are good reasons for that. A person who holds a regular judgment, even a default judgment, has something of value and in order to avoid injustice he should not be deprived of it without good reason. Something more than a merely arguable case is needed to tip the balance of justice in favour of setting the judgment aside. In my view, therefore, Mr. Howe was right in saying that the expression "realistic prospect of success" in this context means a case which carries a degree of conviction.
Mr. Popplewell's primary submission was that following the upsurge of civil unrest in Zaire (now the Democratic Republic of Congo) in 1991 IFC had assured Utexafrica that it would not exercise its rights under the Investment Agreement until conditions of economic stability had returned and that Utexafrica had thereafter conducted its affairs on that basis so as to make it inequitable for IFC to bring the present action. The argument, therefore, is one of equitable estoppel. Mr. Popplewell accepted that an alternative argument to the effect that there was an informal variation of the Investment Agreement was less easy to sustain and did not press it strongly. He did submit, however, that the Investment Agreement had become frustrated by the events which have occurred in the Congo since 1991 and that Utexafrica is therefore relieved from its obligation to make any further payments under it. Finally he submitted that IFC's right to recover instalments of principal and interest which fell due before 15 th December 1994 had become barred by the operation of the Limitation Act 1980.
Equitable estoppel
It was common ground that in order to succeed at trial on the grounds of equitable estoppel Utexafrica would have to satisfy the court that IFC had made a clear and unequivocal representation that it would not rely on its strict legal rights for some defined period and that Utexafrica had acted in reliance on that representation in a manner which made it inequitable for IFC to bring the present proceedings. In order to consider these questions it is necessary to describe at a little length the communications between the parties during the period from the middle of 1991 to the end of 2000 as they emerge from the evidence now before the court.
It was common ground that the history of the Congo since 1991 has been one of internal unrest and economic decline and it is against this background that the exchanges between the parties have to be considered. IFC is a body established by international treaty with the object of providing capital...
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