Mahtani & Anor v Billington

A contract is construed objectively by reference to the circumstances and documents available at the time of contracting. In deciding the parties to an agreement, the court may consider contemporaneous evidence, while giving appropriate weight to the wording of the agreement itself. A loan is not rendered unlawful merely because funds passed through a foreign-exchange company’s accounts. The relevant question is whether the company’s governing instruments or applicable regulations prohibited the particular transaction. Compound interest may be recoverable where it was expressly or impliedly agreed. Written acknowledgements and payments affect limitation only where the statutory requirements are satisfied; payments may be allocated by the creditor where no contrary stipulation is proved.

The first claimant sought repayment of two sums advanced to the defendant under arrangements made in 1995. The second claimant, a Zambian foreign-exchange company, was joined as an alternative claimant because the defendant contended that it had been the lender under the first agreement.

The issues included the identity of the contracting party, alleged illegality under Zambian law, whether interest was simple or compound, the existence of a second agreement concerning shares in African Commercial Bank, limitation, and entitlement to interest. The defendant relied on acknowledgements and payments, but disputed their legal effect and the allocation of payments between the debts.

1. Contracting party. The court applied the objective approach to construction stated in ICS v West Bromwich Building Society [1998] 1 WLR 896. The agreement’s express acknowledgement that the debt was owed to Mr Mahtani, supported by contemporaneous documents and subsequent conduct, established that the first agreement was between Mr Mahtani and the defendant.
2. Illegality. The alternative illegality defence failed. The Zambia (Foreign Currency) Regulations 1994 were prescriptive as to the licensing of foreign-exchange activities, but contained no express or implied prohibition against an incidental loan of this kind. The defendant was not thereby equated with the public for the purposes of the Banking and Financial Services Act of Zambia. The court preferred the evidence supporting legality.
3. Interest. The wording providing for interest at 1 per cent per month on the outstanding balance, together with the parties’ general practice and the account statements, established an agreement for compound interest under both arrangements.
4. Second agreement and limitation. The defendant’s asserted alternative share-purchase arrangement was fictitious. The second debt was established by the documents and repeated acknowledgements. The written acknowledgements relied upon did not satisfy Limitation Act sections 29 and 30 because the May acknowledgement was ambiguous and the June letter was unsigned. The limitation defence nevertheless failed because payments extended the recoverability period under section 29(5), and proceedings were commenced within six years of the last payment.
5. Disposition. Judgment was entered for Mr Mahtani for the principal sums and compound interest. The amount was to be agreed, with liberty to apply, and the court would hear the parties as to an interim payment.

First-instance judgment. The judgment does not state any prior appellate decision.