South East Asia Metal Ltd (A company incorporated in the BVI) v Mohammed Zahoor (2007)


Monies claimed by parties to have been loaned by one party to the other party were not on the evidence so lent by either party so that no liability attached to either party for repayment of any of such monies.


The claimant company (S) claimed the sum of $958,000 allegedly loaned by it to the defendant (Z). Z counterclaimed for the sum of $2,500,000 allegedly lent by him to S as working capital. S had received the sum of $2,500,000 from a bank account held by Z. Z had received the money from a third party company (M) of which he was a director and minority shareholder. M had wished to invest in a Ukrainian steel mill company (D) that was being privatised. D had one asset of real value namely an electric arc furnace. Z contended that S was incorporated as a vehicle by which M could invest in D, with a view to disposing of the electric arc furnace, and that the sum of $2,500,000 was paid to S as working capital. Almost immediately after the sum of $2,500,000 was received by S it paid M $1,749,476 to pay for interests held by M in certain Ukrainian entities which held certificates granting the right to buy shares in any privatisation of D. The balance was retained by S and largely used to acquire additional privatisation certificates. Z had received the sum of $958,000 from S. S contended that the sum was lent to Z, whilst Z contended that the sum was in fact the repayment of monies owed to him as a result of the privatisation of D. Issues arose as to whether (i) S's claim was valid and enforceable; (ii) Z's counterclaim was valid and enforceable.


(1) S's claim was neither valid nor enforceable, as on the evidence there was no loan made to Z and documents relied upon by S to show that there had been a loan were in fact forgeries. (2) Z's counterclaim was neither valid nor enforceable as on the totality of the evidence the sum of $2,500,000 was not advanced by way of a loan to S. Z did not have to show that he was beneficially entitled to $2,500,000 as against M at the time it was paid over by him to S. However, he did have to prove that the money was advanced by him to S by way of a loan and that he was entitled to the repayment of the monies, and the circumstances in which the monies were advance to him by M were relevant to that issue. On the evidence S was incorporated as a vehicle for use by either M or Z to spin off the steel mill's primary asset, namely the electric arc furnace, in the privatisation of D, but having the appearance of independence from M for strategic commercial reasons. The money moved from M through Z's account to S and back again, maintaining S's independence. The monies claimed by Z were advanced to S by M as working capital but were not loaned to S. Even if the monies had belonged to Z, they had not been paid as a loan and Z was not entitled to their repayment.

Judgment accordingly