Ronny Aharon Musan Levi v Walter Magaya

The plaintiff, an Israeli national, claimed USD $3,000,000.00 from the defendant based on a Memorandum of Agreement and promissory note dated 12 May 2022. The plaintiff had provided this foreign investment capital to the defendant for a mining project in Zimbabwe. According to the agreement, the defendant was to register a first-ranking mortgage on Yadah Hotel Properties within 30 days of receiving the funds as security for the loan. The defendant received the full amount shortly after signing the agreement but failed to register or lodge the mortgage bond. At the instance and direction of the defendant, the plaintiff made payments from foreign bank accounts to other foreign bank accounts nominated by the defendant. The matter initially proceeded as a provisional sentence application but was converted to an ordinary trial. At trial, the defendant raised a preliminary point claiming the agreement was illegal and void ab initio for violating Exchange Control Regulations (Statutory Instrument 109/1996), specifically sections 4 and 11, as no prior approval was obtained from the Reserve Bank of Zimbabwe for external payments.

• Whether the agreement entered into by the parties violated Exchange Control Regulations Statutory Instrument 109/1996
• Whether Exchange Control Regulations apply extraterritorially to govern conduct of non-residents acting outside Zimbabwe
• Whether section 11 of SI 109/1996 prohibits a foreign national from making payments from one foreign bank to another foreign bank outside Zimbabwe
• Whether the defendant could rely on illegality as a defense when he solicited the funds, directed the payment method, and received the benefit
• Whether the in pari delicto rule should be relaxed to prevent unjust enrichment

1. The preliminary point raised was dismissed for lack of merit. 2. The defendant was ordered to pay the plaintiff's costs on a higher scale.

The binding legal principles established are: (1) Exchange Control Regulations, specifically section 11 of SI 109/1996, apply only to "Zimbabwean residents" and do not have extraterritorial effect to govern the conduct of non-residents acting outside Zimbabwe; (2) Zimbabwean legislation is presumed to be territorial unless it expressly provides for extraterritorial application; (3) A foreign national making payments from one foreign bank to another foreign bank outside Zimbabwe does not violate section 11 of the Exchange Control Regulations; (4) The inflow of foreign investment capital into Zimbabwe solicited by a Zimbabwean resident does not constitute an illegal transaction under Exchange Control Regulations; (5) A party who solicits funds, directs the payment method, nominates recipient accounts, and accepts the benefit of funds is estopped from subsequently claiming that the payment method was illegal under the doctrine of approbation and reprobation; (6) Courts will not allow statutes to be used as engines of fraud or to sanction unjust enrichment; (7) The in pari delicto rule may be relaxed where necessary to prevent unjust enrichment, where there is disparity in moral blameworthiness, and where public policy favors protection of legitimate cross-border investment.

Justice Takuva made notable non-binding observations at the outset of the judgment, referencing Psalms 37:21 ("The wicked borrows but does not pay back, but the righteous is generous and gives"), commenting that the defendant's conduct stood in stark contrast to the scriptures he professed to hold as a man of God, pastor, and leader of a Christian Ministry. The court acknowledged this was a court of law and not theology but noted the timeless wisdom of the scripture. The court also observed that allowing the defendant's illegality defense would harm Zimbabwe's reputation as a foreign investment destination and would signal to the world that local promoters could defraud foreign investors with impunity. The court further observed that this was a "classic case" of unjust enrichment where only the defendant would benefit, and noted the defendant's conduct exhibited greater moral turpitude than the plaintiff who merely acted on the defendant's instructions.

This case is significant in Zimbabwean (and by extension South African) commercial and investment law as it clarifies the territorial scope and application of Exchange Control Regulations. It establishes important principles regarding: (1) the territorial limitation of exchange control legislation to residents and conduct within the jurisdiction; (2) the protection of foreign investors from defendants who seek to benefit from foreign investment and then use domestic regulatory frameworks as a shield to avoid repayment; (3) the application of estoppel principles where a party has prescribed and benefited from a payment method; and (4) the willingness of courts to relax the in pari delicto rule to prevent unjust enrichment and protect the integrity of cross-border investment transactions. The judgment serves as a warning against using statutory provisions as engines of fraud and protects a jurisdiction's reputation as a viable foreign investment destination.