Rani International Limited v Bubye Minerals (Pvt) Ltd and Another

The plaintiff, Rani International Limited, a company incorporated in the Channel Islands, owned Riner Ranch Mine in Beitbridge. The first defendant, Bubye Minerals (Pvt) Ltd, a Zimbabwean company, mined diamonds at the mine between 1998 and 2004 pursuant to a compromise agreement that brought the plaintiff out of liquidation. The plaintiff granted several loans to the first defendant to finance mining operations and pay creditors: four loans under HC 846/06 (granted on 1 March 2000, 1 October 2000, and 1 October 2001) and one loan of US$30,000 in September 2001 under HC12117/04. Each loan was subject to a condition precedent requiring the first defendant to obtain Exchange Control authority from the Reserve Bank before incurring foreign currency liability. The Reserve Bank refused the application, but the parties proceeded with the loans anyway. The first defendant received the loans but failed to repay them, citing cyclone damage to mining operations. Mrs Adele Farquar, director of the first defendant, testified that the loans should be repaid in Zimbabwe dollars and that written agreements were signed after the loans were granted under pressure from the plaintiff.

• Whether loan agreements entered into without Exchange Control authority were enforceable
• Whether the plaintiff's claims were prescribed under the Prescription Act
• Whether the condition precedent's failure invalidated the entire loan agreements
• Whether the guarantee agreement with the second defendant survived the failure of the principal agreement
• Whether the first defendant could successfully raise the defence of set-off based on alleged illegal takeover of the mine
• Whether the court should enforce illegal agreements in the interests of justice

The court ordered: (1) The first defendant to pay the plaintiff: (a) US$19,764; (b) US$1,000,000; (c) US$10,000; (d) US$30,000 in respect of HC846/06; and (e) US$30,000 in respect of HC12117/04; (2) Costs of suit; (3) The plaintiff's claim against the second defendant in HC 846/06 was dismissed.

When a condition precedent to a loan agreement is not fulfilled, the entire agreement fails and cannot be relied upon, including any guarantee agreements attached to it. New tacit agreements may arise by operation of law and party conduct. Where illegal agreements are entered into in contravention of Exchange Control regulations, courts may enforce them in the interests of justice, particularly where one party seeks to benefit from the illegality to avoid repayment obligations and economic circumstances (such as currency demonetisation) make alternative remedies impossible. For prescription purposes, where tacit agreements contain no stipulated repayment date, prescription runs from the date of demand for payment under section 16(1) of the Prescription Act. A defence of set-off can only succeed where both debts are liquid or easily ascertainable; uncertain and disputed claims for damages cannot be set off against liquidated debt claims.

The court observed that parties who engage in illegal activities and then seek protection of the law when demands for justice are made are frowned upon by the courts (citing Hungwe J). The court noted that Mrs Farquar's refusal to disclose details about the account into which loans were deposited suggested she did not want to give details for unknown reasons. The court also noted that the first defendant remained entitled to institute a separate action against the plaintiff regarding the alleged illegal takeover of the mine, even though this claim could not succeed as a set-off defence in the present proceedings.

This case is significant in Zimbabwean jurisprudence for its treatment of illegal contracts entered into in contravention of Exchange Control regulations. It demonstrates the court's willingness to relax the in pari delictum rule and enforce illegal agreements in the interests of justice, particularly in the context of currency demonetisation. The case also provides important guidance on: (1) the effect of failed conditions precedent on entire agreements and related guarantee agreements; (2) the application of prescription rules where tacit agreements replace failed written agreements; (3) the requirements for successful set-off defences, requiring liquidated or easily ascertainable cross-claims; and (4) the treatment of foreign currency loan obligations in the context of Zimbabwe's economic circumstances.