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Donegal International Ltd v Zambia & Anor (2007)


In the circumstances a state was not entitled to state immunity in respect of a claim to enforce a settlement agreement relating to sovereign debt but the state had a real prospect of defending the claim on the basis that certain provisions of the agreement were penal.


The applicant state (Z) applied for a determination that it was entitled to state immunity in respect of a claim for $42.3 million together with interest made by the respondent (D) under a settlement agreement signed by D and the then finance minister of Z, and D applied for summary judgment on its claim. Z had incurred indebtedness to Romania in respect of the acquisition of agricultural machinery. Z was entitled to sovereign immunity in respect of that debt. Romania had assigned that debt to D. D and Z had then entered into the settlement agreement, which provided for 36 monthly payments to D totalling $14.78 million. Clause 2.3 of the agreement provided that if Z defaulted D could elect to terminate the agreement, in which case D would be entitled to judgment in respect of the debt in full with interest at eight per cent compounding quarterly and Z would consent to the award of a judgment by the English High Court. By clause 12 of the agreement Z submitted to English jurisdiction and waived immunity. Z defaulted under the settlement agreement and D gave notice of termination. D then claimed the debt due under the settlement agreement together with interest. Z argued that the settlement agreement could not be enforced against Z because (1) it was tainted with illegality and corruption because confidential information had been improperly sought and obtained from government officials and there had been interference with the contractual arrangements between Z and Romania and attempts improperly to influence officials; (2) the finance minister did not have authority under the Zambian Constitution to execute the agreement because the Attorney General of Zambia had not given the necessary advice; (3) the finance minister had executed the agreement as a result of a misrepresentation or mistake; (4) the provisions of the agreement were penal.


(1) Z's complaint that D improperly sought and obtained confidential information from government officials was made out but the other allegations that D unlawfully interfered in contractual arrangements between Zambia and Romania, and improperly influenced or bribed government officials were not made out. In respect of the unlawful interference allegation, Z had not entered into any contractually binding agreement with Romania and, even if it had, D had not improperly interfered with it. The confidential information allegation did not prevent D from enforcing the settlement agreement. D's claim under the settlement agreement was merely collaterally or insignificantly and not substantially based on the seeking and obtaining of confidential information from officials of the Zambian government and central bank, Hewison v Meridian Shipping Services Pte Ltd (2002) EWCA Civ 1821, (2003) ICR 766 applied. The most that could be said was that D had relied in part upon confidential information in reaching its decision to accept the assignment of the debt from Romania, but that would not have been sufficient to prevent D from bringing proceedings on the assigned debt before the settlement agreement was concluded and a fortiori did not prevent it from bringing a claim on the settlement agreement. (2) The finance minister had had actual authority to enter into the settlement agreement on behalf of Z. The Zambian Constitution did not require the Attorney General's advice to be in writing. The requirement was only for the Attorney General to give advice about the agreement and not to approve its terms. The Attorney General had given the necessary advice. (3) Z had not established that any misrepresentation was made to the finance minister. Nor was there any material mistake. (4) The provisions of the settlement agreement in respect of compound interest and waiver of immunity did not simply preserve the parties' rights and obligations or confer equivalent rights and obligations to those that they had before the settlement agreement, Thompson v Hudson (1869-70) LR 4 HL 1 considered. Z had a real prospect of defending the claim on the basis that those provisions were penal. (5) Z's application challenging the jurisdiction of the English court was dismissed. The court would hear argument about what order to make on the summary judgment application.

Judgment accordingly

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15 Feb 2007

Queen's Bench Division
Andrew Smith J

‚ÄčEWHC 197 (Comm); [2007] All ER (D) 184 (Feb); [2007] 1 Lloyds Rep 397

Benjamin John

Practice areas
Commercial Disputes