A HARARE man has won a US$1 million Supreme Court loan challenge after a local company that he loaned US$900 000 tried to repay the loan in local currency.
The applicant Brian Rodney Baron had sued Verdure Investments, Icenta Investments and David Capsopolous after they tried to pay back the loan using the Real Time Gross Settlement (RTGS) payment system.
In the matter which was heard by the Supreme Court bench of Justices Susan Mavangira, Nicholus Mathonsi and George Chiweshe, Baron appealed a High Court judgment which dismissed his claim that the loan advanced to the respondents should be repaid in United States dollars.
Aggrieved by the High Court decision, Baron approached the Supreme Court for relief.
According to court papers, on January 29, 2016, Baron entered into a loan agreement with Verdure Investments to lend them US$600 000 payable with interest within 36 months.
The amount was then deposited into Icenta’s CABS account and Capsopolous signed as surety and co-principal debtor.
On July 27, 2016, Baron extended another US$300 000 loan to Verdure Investments, payable within six months and again this amount was deposited into Icenta Investments’s CABS account.
As security for the loans, two mortgage bonds were registered in Barons’s favour over a certain piece of land situated in Harare, described as the remaining extent of Lot 183 Highlands Estate of Welmoed, measuring 6 877 square metres, held under deed of transfer 5465/2010, dated November 24,2010.
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The court heard that on July 27, 2016, the parties amended the loan agreements to read that regardless of any change in the currency in use in Zimbabwe, repayment of the capital and interests would be in US dollars.
Baron told the court that neither of the loans was repaid within the agreed periods, but the respondents repeatedly sought indulgence to service the loans at a later date and in return, he extended the indulgence sought.
The court further heard that on December 13, 2019 the respondents acknowledged the outstanding balances as US$1 070 084,84 and US$876 534,78, respectively.
The acknowledgment was made in a letter which the respondents addressed to CABS indicating that the loans were applied to the development of “Highlands House”, a boutique guest lodge which the respondents said had significant foreign currency receipts.
The loans were also applied to the development of an agricultural export operation.
The respondents also indicated that they had applied for the loans to be included in the “legacy debt” scheme of the Reserve Bank of Zimbabwe, indicating that the underlying source of the loans was offshore, having been borrowed from a non-resident creditor.
The Reserve Bank of Zimbabwe approved the offshore remittance of the loans from the respondents’ retentions in its foreign currency account and on July 12, 2021, Capsopolous sent Baron an e-mail in which he expressed his displeasure with the bank for stipulating that the loans be serviced from the respondents` foreign currency earnings.
The respondents had instead opted to pay Baron the sum of ZWL$1,3 million and it was for that reason that Baron approached the High Court seeking a declaratory order confirming that the respondents, owed him capital sums amounting to US$1 070 084,84 and US$876 534,78, respectively, plus compound interest at the rate of 3% and 5% per month respectively, from December 13, 2019 to date of full payment.
Baron also claimed collection commission calculated in terms of the Law Society of Zimbabwe tariffs and costs of suit on an attorney and client scale. He also insisted that the repayment ought to be in US dollars, while the respondents were adamant that repayment should be in RTGS.
In determining the dispute, the High Court considered the provisions of the relevant legislation, namely s4(1)(d) of the Presidential Powers (Amendment of Reserve Bank of Zimbabwe Act) and Issue of Real Time Gross Settlement Electronic dollars (RTGS dollars) Regulations, 2019 (SI 33/19).
The High Court found that the mandatory conversion from the United States dollars at the rate of 1:1 applied to domestic transactions and not foreign obligations.
Baron had argued that his debt was a foreign obligation for the reasons that the parties had agreed that the United States Dollar (USD) was the applicable currency and that repayments be made in that currency.
He also argued that on December 23, 2019, the respondents acknowledged that the balance of the loans was in US dollars and that this acknowledgment of debt created a fresh obligation to pay in US dollars.
Barons further argued that the loans were paid from a non-resident account held with CABS and the respondents had admitted to CABS that the amounts they owed were borrowed from an offshore account.
But the High Court found that Baron had not, in his founding affidavit, stated that the loan agreements constituted a foreign loan.
The High Court also ruled that the Baron account was in Zimbabwe and that the statutory changes brought in by SI 33/19 were mandatory and could not be overridden by the parties prospectively contracting outside the law.
The High Court also found that the acknowledgement of debt of December 23, 2019 did not create a new obligation and the court dismissed the application.
However Baron appealed the judgement on the basis that the court failed to acknowledge a constituted lawful basis and acknowledgment of debt in US dollar by respondents.
The Supreme Court judges concurred that the debt owed should be paid in foreign currency.
“We are unable to agree with the respondents’ position that such debt, by virtue of SI 33/19, is payable in RTGS dollars. We are satisfied that these foreign loans fall into the category of the exemptions granted under s44C(2)(b) of the Reserve Bank Act,” the judges ruled.
“The appeal has merit. The appellant has established a firm legal basis upon which the loans owed to it by the respondents should be paid in United States dollars. The appeal must therefore succeed. Costs shall follow the cause.”
The respondents were ordered to pay the debt in foreign currency and failure to pay an immovable property known as a certain piece of land situate in the district of Salisbury, called the remaining extent of lot 183 Highlands Estate Welmoed, measuring 6 877 square metres held under deed of transfer 5465/2010 should be held specially executable.
