BAILII [Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]

England and Wales High Court (Commercial Court) Decisions


You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> International Finance Corporation v Utexafrica S.P.R.L. [2001] EWHC 508 (Comm) (09 May 2001)
URL: http://www.bailii.org/ew/cases/EWHC/Comm/2001/508.html
Cite as: [2001] CLC 1361, [2001] EWHC 508 (Comm)

[New search] [Printable RTF version] [Help]


[2001] EWHC 508 (Comm)
Case No: 2000 Folio 1378

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Strand, London, WC2A 2LL
9th May 2001

B e f o r e :

THE HONOURABLE MR JUSTICE MOORE-BICK
____________________

INTERNATIONAL FINANCE CORPORATION
Claimant
- and -

UTEXAFRICA S.p.r.l.
Defendant

____________________

Timothy Howe (instructed by White & Case for the claimant)
Andrew Popplewell Q.C. (instructed by Linklaters & Alliance for the defendant)

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    Mr Justice Moore-Bick:

  1. 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.
  2. 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 25th 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.
  3. Closely linked to the Investment Agreement was a Foreign Exchange Retention Agreement (“FERA”) dated 17th 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.
  4. 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 9th June 1988 and 28th June 1990 and the first semi-annual payment of interest became due on 15th 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.
  5. 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.
  6. The claim form in this action was issued on 15th 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 11th January 2001. By then, however, IFC had already entered judgment in default of acknowledgment of service on 3rd January. This application to set aside the judgment was issued on 22nd 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.
  7. 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”.
  8. 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.
  9. 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 15th December 1994 had become barred by the operation of the Limitation Act 1980.
  10. Equitable estoppel

  11. 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.
  12. 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 for private sector projects in developing countries for which funds cannot otherwise be raised on reasonable terms. It is intended to play a humanitarian role by improving the quality of life of people in developing countries and to this extent its role may be said to differ from that of a purely commercial lender. On the other hand, it conducts its activities on a commercial, as opposed to a charitable, basis, raising funds in the financial markets in order to make loans and seeking to make sufficient profit from its loans to support and expand its activities. Utexafrica itself, although a commercial organisation, has played an important humanitarian role in the local community, providing employment for large numbers of people and contributing to the provision of services and the establishment of the local infrastructure.
  13. Between December 1991 and March 1992 Utexafrica wrote to IFC on a number of occasions drawing attention to the difficulties created by the civil unrest and asking for the deferral of its obligations under the Investment Agreement and a suspension of its obligations under the FERA. IFC appears not to have responded to these requests, but it took no action in respect of Utexafrica’s failure to pay the sums due under the Investment Agreement during 1992. Nor did it put pressure on Texaf to fulfil its obligations under the FERA.
  14. Towards the end of 1992 a new person, Mr. Ziad Hafez, was put in charge of the Utexafrica file at IFC. In March 1993 Mr. Hafez met representatives of Texaf in Brussels to discuss Utexafrica’s position. One can see from the notes which Texaf prepared in advance of that meeting that Utexafrica had drawn the conclusion from IFC’s failure to respond to its letters that the request for a deferral of the payment obligations had fallen on deaf ears. However, IFC’s failure to press Texaf to make repayment of the first instalment of capital was construed as an indication that it might be willing to consider some overall solution.
  15. The meeting on 10th March 1993 was attended by Mr. Hafez on behalf of IFC and by Mr. de l’Arbre, Mr. Croonenberghs and Mr. Colleye of Texaf on behalf of both Texaf and Utexafrica. The note of the meeting kept by Texaf contains the following passages (in translation):
  16. “2. UTEXAFRICA
    The representatives in Zaire from the World Bank have sent a memo to Washington in which they report that Utexafrica was abandoning its factory and repatriating its staff
    Formal denial by TEXAF
    . . . . . . . . . . . . . . . .
    Question from Mr. Hafez:
    What can we do to help you, given that we are suspending the legal situation? This situation will be reviewed and a moratorium will need to be discussed when Zaire’s situation in general and that of Utexafrica in particular has been clarified.
    Reply from TEXAF:
    1. Release, for the benefit of Utexafrica, the 10.5 Million BEF blocked in the escrow account.
    2. Arrange, via the World Bank, for the pressures put on Utexafrica by SNEL to cease.
    3. As regards the World Bank, cultivate the idea of aid through private representative companies and with whom Washington maintains relations: medical care in particular.
    Mr. Hafez will support these requests to Washington
    . . . . . . . . . . . . . . .. . .
    CONCLUSIONS
    We will be at peace with the [IFC] for a while.
    There has been absolutely no question in Mr. Hafez’s mind of Texaf’s performance of the contractual obligation to pay the 1st capital tranche (821,500 ECU). We intimated that Texaf had put up to its last penny into Utexafrica and that we had thought that this had the most merit.
    Mr. Hafez, whom the Kinshasa’s Department of the World Bank had told that Utexafrica had snuffed it, appreciated our financial and physical determination to preserve the plant.
    Mr. Hafez’s position is clear:
    1. Safeguard the employees
    2. Safeguard the plant
    3. He is aware that the economic environment is currently completely flat. Rebuild the cashflow as soon as reasonably possible.
    4. Rediscuss. He himself talked about rescheduling the debt.
    . . . . . . . . . . . . . . . . . . . . ”
  17. I have quoted from this note at some length because of the importance which Mr. Popplewell attached to Mr. Hafez’s question, in particular the words
  18. “. . . . . given that we are suspending the legal situation”.

    He submitted that, taken together with the evidence of Mr. Croonenberghs and Mr. Froissard, it provided sufficient evidence for the purposes of this application of a representation by Mr. Hafez that IFC would not enforce its legal rights under the Investment Agreement until economic stability had returned to the Congo. When considering this submission, however, it is important to remember that the discussions were conducted in French (the original note reads “. . . . . sachant que nous gelons la situation juridique”) and that the passage on which he relies forms one small part of what passed between the parties. When considering the meaning and significance to be attached to a note of this kind it is obviously important to bear in mind the overall context in which it is found.

  19. When this application was issued it was supported by a witness statement from Mr. Philippe Croonenberghs of Texaf. In that statement he said very little about the meeting in March 1993 and certainly did not suggest that it was a matter of any great significance. Rather, he treated it as just one element in a prolonged course of conduct on the part of IFC by which it demonstrated its intention not to enforce the Investment Agreement. In his second witness statement responding to the evidence filed on behalf of IFC he says
  20. “it was not only at the meeting that Mr. Hafez confirmed that IFC would not be taking any action to pursue repayment of the loan. Mr. Hafez confirmed to myself and to my colleagues at Utexafrica many times over the telephone and in person that no further action would be taken.”

    Mr. Froissard, the managing director of Utexafrica’s factory between 1991 and 1999, says in his witness statement

    “Throughout these times [Mr. Hafez] repeatedly assured me that Utexafrica had his complete support [and] that no action, aggressive or not, would be taken by IFC with regards to its loan until the country had stabilised. I always regarded that fact as established.”
  21. Mr. Hafez says that he gave no assurance of the kind suggested by Mr. Croonenberghs and Mr. Froissard and the summary of the meeting which he produced for IFC contains nothing corresponding to the passage in Texaf’s note on which Mr. Popplewell laid such emphasis. However, the matter does not rest there because the subsequent communications between IFC, Texaf and Utexafrica have been put in evidence and themselves shed further light on what was said at the meeting and how it was understood by Utexafrica.
  22. On 9th July 1993 Mr. Pasquier, Mr. Hafez’s superior, wrote to Texaf in response to a request from Utexafrica for the release of funds held in the retention account. That request was turned down, but Mr. Pasquier invited Texaf to submit proposals for the financial restructuring of Utexafrica. There was no mention in that letter of a moratorium of any kind; indeed it might be said that the refusal to release the money in the retention account is inconsistent with the existence of any moratorium, formal or informal. Despite that invitation, however, there seems to have been little contact between the parties until April 1994 when Mr. Hafez attended a meeting with Texaf to obtain a report on Utexafrica’s progress. The note of the meting prepared by Texaf records that Mr. Hafez was insisting on a payment of US$100,000 for the sake of the principle, but also notes that there was a problem with the amount frozen in the retention account.
  23. Utexafrica also sought the support of the Government of Zaire. In October 1993 the government agreed in principle to guarantee the loan and in June 1994 Utexafrica obtained the government’s agreement to undertake the exchange risk, subject to the agreement of IFC as lender. The broad effect of this would have been to enable part of the loan to be paid by Utexafrica in local currency. A meeting was held in Washington in June 1994 to put this proposal to IFC, but it came to nothing because IFC’s own constitution prevented it from entering into agreements with governments. The note of that meeting indicates that Mr. Pasquier said that some steps might be taken to ease the exchange of local currency into hard currency at a later date when the political situation had improved and debtors could resume payments. For the time being, the note records, Utexafrica was asked only to pursue its activities and issue quarterly reports on the situation. In an internal note dated 26th August 1994 Mr. Colleye of Texaf commented on the difference the implementation of those proposals would have made to the rising tide of debt owed by Utexafrica.
  24. Utexafrica’s position did not improve over the succeeding months. In a memorandum dated 9th May 1995 to Mr. de l’Arbre Mr. Froissard described the financial and commercial position of Utexafrica in gloomy terms. He reported that as at that date Utexafrica could not break even financially and summarised the position by saying that
  25. “any demand from [IFC] at the present time would be particularly unwelcome”.
  26. There is no evidence in the documents of any further exchanges between the parties prior to a meeting in Washington between Mr. Pasquier, Mr. de l’Arbre and others which occurred in September 1995 and is referred to in a letter from Mr. Froissard to Texaf dated 10th June 1996. In that letter Mr. Froissard refers to instructions he has given for the transfer to IFC of US$119,945 representing 10% of the amounts repatriated to Zaire in respect of export sales. This transfer is said to have been made “in order to honour our commitment”, but it is not clear from this document, or indeed from any other evidence, to what commitment Mr. Froissard was referring. I am not persuaded that he was referring to Utexafrica’s obligations under the Investment Agreement; if anything, I think it more likely that he was referring to some undertaking given during the meeting in Washington.
  27. The next piece of evidence to which I need to refer is a letter from Utexafrica to IFC dated 7th February 1998. In it Mr. Froissard described the circumstances which had prevented Utexafrica from covering its costs from sales of textiles and continued as follows:
  28. “It turns out that we have to ask our creditors for a consequent abatement of the financial charges and of all or part of their debt. As far as you are concerned, this interest and penalty charge currently runs to 10.9 million Ecus for a principal debt due of 9.86 million Ecus. This charge is increasing monthly by 194,000 Ecus and the whole of the debts due represent one and a half year’s turnover.
    Without a debt-corrective measure as soon as possible, we will lose – once and for all – the confidence of our bankers and suppliers, who are essential in providing the financing of our working capital”.
  29. IFC responded by stating that it was prepared to consider a proposal for a financial restructuring based on a restructuring of the commercial aspects of the project as a whole, provided its economic and financial viability could be established. It invited Utexafrica to produce a proposal meeting these criteria and in due course a proposal was brought forward which was presented to IFC at a meeting in Washington in October 1999. The documents produced for the purposes of that presentation are of some interest because, as one would expect, they shed some light on Utexafrica’s understanding of the current position under the Investment Agreement. They include a summary balance sheet for Utexafrica showing the outstanding amount due in respect of the principal amount of the loan as €11.5 million and interest and other charges due as €14.8 million, a figure which is explicable only on the basis that interest had continued to accrue since 1993. (On 1st January 1999 the Euro had been substituted for the Ecu by E.C. Council Regulation No.1103/97.)
  30. At a board meeting held early in 2000 the directors of Utexafrica considered whether the company should be put into liquidation. They decided that it should not, noting that IFC had indicated its willingness to renegotiate the loan, subject to certain conditions. The minutes reflect the view of the board that
  31. “It does not appear very likely that the [IFC] will seek to levy execution against Utexafrica”.
  32. Throughout this period IFC’s accounting department sent Utexafrica every six months a letter in a standard form summarising the amounts which had already fallen due under the Investment Agreement and the additional amount which would fall due on the next semi-annual payment date and enclosing a statement of account. None of these elicited any protest from Utexafrica. In his second statement Mr. Croonenberghs rightly points out that IFC did not in fact take any steps to require payment of the amounts shown as due in any of these statements and Mr. Popplewell sought to dismiss them as being little more than a meaningless administrative exercise carried on between the parties’ accounting departments. He submitted that they bore no relationship to the discussions between them or the reality of their relationship. However, the accounts of Utexafrica submitted to IFC during this period in accordance with the Investment Agreement reflect exactly the same position. One can see from them that the amounts due under the Investment Agreement are included as liabilities falling due at less than twelve months and more than twelve months respectively, the amounts shown in each category varying as payments fell due with the passage of time. In other words, these accounts reflect the operation of the Investment Agreement in accordance with its terms. Moreover, the notes to the accounts for the years ending 31st December 1993 and subsequent years state that the loan is repayable in instalments over the period from 15th June 1992 to 15th December 1998 but that neither the instalments of principal nor the majority of the semi-annual amounts due in respect of interest have been paid. The notes do, however, draw attention to the fact that Utexafrica had negotiated the rescheduling of another debt shown in the accounts.
  33. In the light of this evidence does Utexafrica have a realistic prospect of successfully defending this action on the grounds that IFC is estopped from enforcing its rights under the Investment Agreement? In my view it does not. In the first place, it is very difficult to identify with any precision what representation IFC is said to have made. Various formulations have been put forward in the course of this application, but none of them is clearly supported by the evidence. It is not clear, for example, whether IFC is alleged to have represented that it would not seek to enforce the agreement during the period of the moratorium (whatever that was), although the obligation to pay instalments of principal and interest would continue to accrue in accordance with its terms so that all arrears would be payable in full immediately the moratorium came to an end; or that during the period of the moratorium all Utexafrica’s obligations under the agreement would be suspended, so that no interest would accrue and no payments of principal would fall due. Mr. Popplewell submitted that it was the latter, but there is very little to support his submission. Equally, there is no certainty about when the moratorium was to end. Not only have different formulations been suggested (“until the cessation of armed disturbances” – Mr. Croonenberghs’ first statement; “until normal economic conditions returned” – Mr. Croonenberghs’ second statement; “until the country had stabilised” – Mr. Froissard) but each of them is uncertain in its content. This makes it difficult for Utexafrica to show that IFC made any clear and unambiguous statement of any kind.
  34. The matter does not end there, however, because in my view the evidence points strongly to the conclusion that no representation of the kind suggested by Utexafrica was made, nor did Utexafrica understand at the time that it had been. Mr. Popplewell grounded his case firmly on the remarks made by Mr. Hafez at the meeting of 10th March 1993, but, as I have already observed, neither Mr. Croonenberghs nor Mr. Froissard (both of whom were present) places very much emphasis on that meeting, suggesting that neither of them thought that something of real importance had been said. I do not find that surprising because in my view the remark which Mr. Hafez is recorded in the Texaf note as having made is capable in its context of bearing a variety of meanings. The fact that he apparently went on to say that a moratorium would need to be discussed when the position had been clarified does not sit easily with the suggestion that he had just given a clear assurance that a moratorium was, in effect, already in place. Equally, the matters which Texaf asked him to pursue in Washington are of a very different order.
  35. What is particularly telling, however, is the attitude adopted by Utexafrica and Texaf during the years that followed. The regular submission of payment notices by IFC showing the debt accruing in accordance with the Investment Agreement drew no protest or enquiry. In correspondence and meetings Utexafrica and Texaf expressed themselves in a manner which was wholly consistent with an understanding that their obligations were accruing in accordance with the Investment Agreement and the FERA. The company’s accounts were drawn up on the same basis with nothing to indicate that a moratorium of any kind had been put in place. No doubt Utexafrica and Texaf did draw the conclusion that IFC would not in fact seek to enforce the agreement, but that is a very different thing from saying that they had received a clear undertaking from IFC not to do so. In the face of this evidence, and notwithstanding what is said by Mr. Croonenberghs and Mr. Froissard, both of whom deal with the matter only in very general terms, I find it impossible to accept that Utexafrica has a realistic prospect of persuading the court that it or Texaf believed that they had received any such undertaking from Mr. Hafez or anyone else on behalf of IFC. This has two related consequences: it strongly undermines the argument that a representation of that kind was in fact made; it also fatally undermines Utexafrica’s prospects of showing that it relied on any such representation in the subsequent conduct of its affairs.
  36. In these circumstances it is unnecessary to give any detailed consideration to the steps taken by Utexafrica to keep the factory runnng since 1991. Suffice it to say that although there is evidence that its managers did not expect IFC to take steps to recover the debt, there is really no evidence to suggest that any decisions were taken on the understanding that its liabilities had ceased to accrue in accordance with the Investment Agreement or that IFC had given up its right to enforce that agreement in accordance with its terms. In view of what I said a little earlier, however, that is hardly surprising.
  37. For these reasons I do not think that Utexafrica has any realistic prospect of defeating the claim on this ground.
  38. Frustration
  39. Mr. Popplewell’s second submission was that the Investment Agreement had been frustrated by the outbreak of civil unrest in Zaire in 1991 and its impact on the ability of Utexafrica to earn the foreign currency required to meet its obligations.
  40. The whole amount of the loan had been advanced by 28th June 1990, so by the time civil unrest began seriously to undermine the economic stability of the country the only obligations remaining to be performed were those of Utexafrica to pay the semi-annual instalments of principal and interest.
  41. Mr. Popplewell accepted that the impact of political or economic factors will not usually be sufficient to frustrate an agreement of this kind, but he submitted that the present case was unusual because the parties had clearly contemplated that the loan should be repaid with foreign currency derived from the earnings of the factory in Kinshasa. He submitted that the parties had not allocated the risk of disruption of the business to Utexafrica, so that when performance in the manner contemplated by the parties became impossible the agreement was discharged.
  42. Although I readily accept that the parties to the Investment Agreement did contemplate that the instalments of the principal and the amounts due by way of interest would be paid from the proceeds of the business, I am unable to accept that under the agreement the obligation to make the semi-annual payments of principal and interest was directly linked to the financial success of the project or that the parties failed to allocate the risk of economic disruption. There is nothing in the Investment Agreement which expressly makes the obligation to make those payments conditional on the ability to raise foreign exchange from the business or links the two in any other way; nor do I think that any such condition or linkage can be implied. The parties clearly did give some consideration to questions of this kind because Texaf’s obligations under Article IV of the FERA to fund the retention account are expressly made subject to events of force majeure which include civil war, insurrection or armed hostilities in Zaire causing production to fall below a certain level. No such provisions were included in either the Investment Agreement or the FERA in relation to the obligations of Utexafrica. It is perhaps interesting to note in passing that although it seems to have been accepted that Texaf’s obligations have been discharged under these provisions, it has not previously been suggested that the agreement has been discharged as far as Utexafrica is concerned.
  43. In these circumstances I do not think that there is any realistic prospect that Utexafrica would defeat the claim on these grounds.
  44. Limitation
  45. I come finally to Mr. Popplewell’s third submission, namely, that IFC’s claim to recover instalments of principal or interest which fell due before 15th December 1994 is time-barred under section 5 of the Limitation Act 1980.
  46. This may not be the most attractive argument, but if it is sound, it is one on which Utexafrica is entitled to rely. On the face of it section 5 does operate to bar claims accruing due before 15th December 1994. However, Mr. Howe had two answers to this point: first, he submitted that a part-payment had been made on 24th February 1992 which had the effect under section 29 of the Act of starting time running again; secondly, he submitted that there had been an acknowledgment of the debt in the form of accounts sent annually by Utexafrica to IFC in accordance with the terms of the Investment Agreement which had the same effect.
  47. In February 1992 Utexafrica paid the sum of 71,000 Ecus in respect of its liability under the Investment Agreement. That payment was allocated to its outstanding liability for interest as was inevitable since instalments of principal did not begin to fall due until 15th June that year. By virtue of section 29(6) that payment did not operate to extend the time for claiming the rest of the interest then due, but is to be treated as a payment in respect of the principal debt. However, that is of little consequence in view of the fact that the first instalment of principal did not become due until later that year.
  48. I have already mentioned that instructions were given in June 1996 to make a further payment to IFC of US$119,945 (97,516 Ecus). Whatever exactly was meant by the “commitment” referred to in Mr. Froissard’s letter, the sum in question was clearly intended to be credited to Utexafrica’s loan account. Section 3.08 of the Investment Agreement gave IFC the right to determine how payments of that kind should be allocated and it was in fact appropriated to the interest outstanding on 15th December 1991. In view of the terms of section 3.08 I think this can properly be treated as a payment by Utexafrica of interest due on 15th December 1991 which, by virtue of section 29(6) of the Act, is to be treated as a payment in respect of the principal debt. Time in respect of the instalments of principal therefore began to run afresh from 29th July 1996.
  49. I have no doubt that accounts of the kind represented by the financial statements which Utexafrica sent to IFC each year are capable of amounting to an acknowledgment for the purposes of section 29(5) of the Limitation Act of the existence of debts shown in them as being owed to third parties: see Halsbury’s Laws of England, vol.28, §1092. Mr. Howe submitted that the financial statements sent annually by Utexafrica to IFC in the present case contained an acknowledgement of the debt and sought permission to rely on additional evidence in support of this argument in the form of a series of such statements together with their covering letters delivered to IFC during the period of the loan. The limitation issue had been raised for the first time in Mr. Popplewell’s skeleton argument with the result that IFC had had very little opportunity to deal with it in evidence. I therefore gave IFC permission to serve this additional evidence but also gave Utexafrica permission to make further submissions on it in writing within a limited period following the conclusion of the hearing.
  50. On 5th April 2001 IFC served as an exhibit to the second witness statement of Mr. Douglas a bundle of copy documents in substantially the same form as that which Mr. Howe had sought to put before me during the course of the hearing. The bundle contained three additional documents for which no permission had been sought and Utexafrica’s solicitors subsequently challenged their inclusion. I received submissions in writing from both parties in relation to this issue and it was agreed that I should reach a decision on it without any further hearing. I do not think that the additional documents add very much, if anything, to the evidence and it has not been suggested that their inclusion will cause any significant prejudice to Utexafrica. In these circumstances I decided that the right course was to allow them to be included in the evidence before the court.
  51. Unfortunately the matter did not end there, however. A question had arisen at the hearing concerning Mr. Colleye’s authority to sign the financial statements on behalf of Utexafrica and after the conclusion of the hearing this question was canvassed again in correspondence between the parties’ solicitors. Utexafrica’s solicitors had already said that they did not wish to make further submissions on this question, but declined to confirm formally that they did not dispute Mr. Colleye’s authority to act on behalf of Utexafrica. In these circumstances IFC’s solicitors applied for permission to serve further evidence in the form of the minutes of two Annual General Meetings of Utexafrica held in April 1994 and March 1996. This application was opposed on the grounds that it came too late, well after the conclusion of the hearing, and I have been reminded, quite properly, that neither party has given disclosure in this case. It can be said, therefore, that if one party is given too much licence to adduce additional evidence there is a risk of unfairness. Nonetheless, it has to be borne in mind, first, that this evidence relates to the limitation issue which was raised at a very late stage and, secondly, that it relates to matters very much within the knowledge and control of Utexafrica. Moreover, Utexafrica had been given a reasonable opportunity of putting further submissions before the court dealing with this issue. In the circumstances I was satisfied that these additional documents should also be admitted.
  52. All the financial statements in question were drawn up for the purposes of being submitted to IFC under section 6.01 of the Investment Agreement to keep it informed of the company’s financial position. Accordingly, any statement in the accounts was one which IFC was intended to rely on in its assessment of the company’s financial affairs. The statements identified the company’s liabilitites under the Investment Agreement, showing whether the amounts outstanding were due within a year or in more than a year. By the time the statement for the year ending 31st December 1998 was drawn up the full amount of the loan and outstanding instalments of interest were shown as due in less than one year. This in my view is a clear acknowledgment of the existence of the debt which IFC is seeking to recover in the present action. The only question is whether the financial statement was authenticated by someone who had authority to act on behalf of Utexafrica.
  53. The statement for the year ending 31st December 1998 is certified by Mr. Colleye who is described as the “Controleur de Gestion des Filiales Africaines de la S.A. Texaf”. It has not been suggested by those who have made statements on behalf of Utexafrica in this matter that these financial statements were not issued with the authority of the company and Utexafrica has not sought to make any submission on the point, despite having been given an opportunity to do so. Moreover, the minutes to which I have referred record that on 28th March 1996 Mr. Colleye was appointed by Utexafrica to act as “commissaire aux comptes” for the ensuing year. There is, therefore, a substantial body of evidence to support the conclusion that Mr. Colleye did have authority to authenticate the financial statements on behalf of Utexafrica, at least those produced in August 1996 for the year ending 31st December 1995 which would be sufficient for present purposes. However, this is not a question which I need to decide finally at this stage. The only question which calls for decision is whether Utexafrica has a realistic prospect of showing that any part of the claim is time-barred and this in turn depends on whether there is any real doubt that the financial statements contain an acknowledgment of the debt. In my judgment Utexafrica has no realistic prospects of succeeding on that issue if the matter were to go to trial.
  54. In these circumstances I have reached the conclusion that Utexafrica has no reasonable prospect of successfully resisting this claim and accordingly that the application to set aside the judgment must be dismissed.


BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII
URL: http://www.bailii.org/ew/cases/EWHC/Comm/2001/508.html