HARARE businessman Brian Rodney Brom has won a US$1.8 million claim against two business entities and their director David Capsolous who were refusing to pay a US dollar loan insisting on paying in local currency hiding behind the Presidential Powers (Amendment of Reserve Bank of zimbabwe Act).
This statutory instrument was published in an Extraordinary Government Gazette on 22 February 2019 and it effectively recognised Real-Time Gross Settlement (RTGS) payment as legal tender and directed the adaptation of the US dollar-denominated assets and liabilities at the fixed rate of one-to-one.
Brom took his appeal to the Supreme Court last year after the High Court dismissed his claim against Verdure and Icenta Investments as well as their director Capsolous, ruling that the debt should be settled in local currency.
The facts are common cause. On 29 January 2016, Brom entered into a loan agreement with Verdure Investments in terms of which he lent and advanced to the latter the sum of US$ 600 000 payable with interest within 36 months.
The amount was deposited into Icenta Investments’ CABS account. Capsolous then signed as surety and co-principal debtor. On 27 July 2016, the appellant extended another US$300 000 loan facility to Verdure, cited as the first respondent in the appeal.
It was payable within 6 months. Again this amount was deposited into Icenta’s CABS account. As security for the loans, two mortgage bonds were registered in Brom’s favour over a certain piece of land in Harare measuring 6 877 square metres.
On 27 July 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 interest would be in United States dollars.
Brom told court that neither of the loans were repaid within the agreed periods or at all and that the respondents repeatedly sought indulgence to service the loans at a later date and, in return, he extended the indulgence sought.
“On 13 December 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 court heard.
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 approved the offshore remittance of the loans from their retention in its foreign currency account.
On 12 July 2021, Capsolous sent Brom an e-mail in which he expressed his displeasure with the bank for stipulating that the loans be serviced from his foreign currency earnings. He then opted to pay Brom ZW$1.3 million.
Brom then approached the High Court seeking a declaratory order confirming that the first and third respondents, jointly and severally, owed him capital sums in the amounts of 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 13 December 2019 to date of full payment.
The businessman, through his lawyer Lewis Uriri, also claimed collection commission calculated in terms of the Law Society of Zimbabwe tariffs and costs of suit on an attorney and client scale.
Consequent upon the grant of such declaratory order, the appellant sought an order that the immovable property be held, especially executable should the respondents not settle the debt within 48 hours of the grant of the declaratory order.
The issue for determination before the High Court was whether the loans should be repaid in United States dollars or in RTGS dollars.
The respondents were adamant that repayment should be in RTGS. In determining the dispute, the court a quo considered the provisions of the relevant legislation, section 4 (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 (Statutory Instrument 33 of 2019).
It also considered the decision of the Supreme Court in Zambezi Gas Zimbabwe (Private) Limited vs N.R Barber Private Limited and Anor wherein the court interpreted the import of section 4 (1) (d) of 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. Brom had argued that his debt was a foreign obligation because 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 23 December 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. The businessman also said the loans were paid from a non-resident account held with CABS and that the respondents had admitted to CABS that the amounts they owed were borrowed from an offshore account.
Correspondence from the Reserve Bank of Zimbabwe to CABS confirmed this position. The High Court however found that the circumstances of the case were such that the trans actions took place within Zimbabwe and that repayment of the loan was through Brom’s Zimbabwean account with CABS.
It held 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 23 December 2019 did not create a new obligation. In the result, it dismissed the application with costs. Brom then mounted the present appeal, arguing that the High Court had erred in dismissing his claim.
He wanted the Supreme Court to declare that the debts due to him in terms of the loan agreements dated 29 January 2016 and 27 July 2016, together with all subsequent amendments, were payable in United States dollars.
“Consequently, first and third respondents be and are hereby ordered to pay, jointly and severally, the one paying the other to be absolved, to applicant the sums of USD 1 070 534-78 and USD 876 534-78 together with compound interest calculated at the rates of 3% and 5% per month respectively, running from 13 December 2019 to date of full and final payment.
“An immovable property known as a certain piece of land in Harare measuring 6 877 square metres be and is hereby held specially executable,” read his draft order.
A Supreme Court bench comprising Justices Susana Mavangira, Nicholas Mathonsi and George Chiweshe found for his appeal before granting the relief sought. The judges said section 44 of the Reserve Bank Act specifically exempts foreign obligations from the effect of section 4 (1) (d) of SI 33/19.
“In other words, such loans are foreign in that sense and for that reason do not fall within the ambit of S.I. 33/19. We see no reason why the same considerations should not apply in the present case.
“In our view, the appellant’s case is unassailable.It is common cause that following an application by the respondents, the Reserve Bank, on 12 July 2021, (well after the effective date of 22 February 2019) recognized the loans to be offshore or foreign loans in terms of section 44 c (2) (b) of the Reserve Bank Act.
“It accordingly granted approval for offshore remittance of the loans. The respondents advised CABS, the authorised foreign currency dealer, of that directive from the Reserve Bank. “At no point did the respondents challenge that directive. They could not have done so as it was the respondents who themselves had sought authority from the Reserve Bank to discharge the loans in United States dollars,” said the judges.
The bench also noted that the respondents have not denied the existence of this and other similar directives issued by the Reserve Bank from time to time, neither have they challenged the validity of such directives from the monetary authorities.
“It is clear that the Reserve Bank of Zimbabwe regards funds such as those held by the appellant in a non-resident account at CABS as offshore or foreign funds.
“Any loans or obligations deriving from such funds are deemed to be foreign loans or obligations.
“This position as given by the monetary authorities accords with the provisions of section 44C (2) (b) of the Reserve Bank Act. In our view those provisions must be interpreted accordingly. It is common cause that the appellant advanced the loans through the medium of his non-resident account with CABS.
“It is also common cause that the appellant, a Zimbabwean national, was resident in South Africa and as such qualified to open a non-resident account.
“As shown above the monetary authorities have directed that funds held in such accounts be regarded as offshore funds. “In our view therefore, we find merit in the submissions made on behalf of the appellant that the debt owed to it should be paid in foreign currency.
“We are unable to agree with the respondents’ position that such debt, by virtue of S.I. 33/19, is payable in RTGS$. We are satisfied that these foreign loans fall into the category of the exemptions granted under section 44C (2) (b) of the Reserve Bank Act. “The appeal must therefore succeed,” the bench ruled. — STAFF WRITER.
