Banco Nacional De Comercio Exterior SNC v Empresa De Telecomunicationes De Cuba SA

A settlement agreement may preserve and define an existing debt while creating new contractual rights, including jurisdiction and waiver-of-immunity provisions. A clause making the full debt payable after default is subject to the penalty doctrine where it creates materially new rights, such as compound interest or the loss of state immunity. A contractual waiver of immunity may survive termination where the agreement’s language shows that disputes concerning the underlying debt remain subject to the chosen jurisdiction. Illegality will defeat enforcement only where the claim is substantially founded on the illegal conduct, rather than merely connected with it.

Donegal claimed more than US$55 million from Zambia under a settlement agreement concerning debt originally owed by Zambia to Romania and assigned to Donegal. Zambia challenged the agreement on grounds including state immunity, lack of constitutional authority, misrepresentation, mistake, illegality, corruption, improper procurement of evidence and penalty clauses.

The court also considered applications for summary judgment and freezing relief. It rejected the jurisdiction challenge, but held that the default provisions requiring payment of the full debt with compound interest were penal, leaving the precise relief to be determined after further submissions.

1. State immunity. Zambia had submitted in writing to the jurisdiction of the English courts and had waived immunity in respect of proceedings concerning the settlement agreement and the debt. The waiver in clause 12 survived termination under clause 2.3 because the jurisdiction and immunity provisions expressly concerned disputes connected with both the agreement and the debt.
2. Validity and authority. The settlement agreement was valid and enforceable. Article 54(3) of the Zambian Constitution required legal advice from the Attorney General, not his approval or a veto. In any event, the provision was directory rather than mandatory and did not remove the Minister of Finance’s authority to contract. The challenges based on misrepresentation, mistake, corruption, improper influence, unlawful interference and public policy failed.
3. Illegality. Donegal’s agents had improperly sought confidential information from Zambian officials, and Donegal had blind-eye knowledge of that conduct. Nevertheless, the claim under the later settlement agreement was not substantially founded on the acquisition of that information. The illegality was collateral and did not bar enforcement. The alleged improper procurement of the Attorney General’s letter occurred after the settlement agreement and could not invalidate it.
4. Construction and penalties. The definition of “Debt” fixed the amount acknowledged in the settlement agreement. However, clauses 2.3(d) and (e) did not merely revive or preserve pre-existing rights. They introduced compound interest at 8 per cent and removed the practical protection of state immunity. They therefore had to be assessed under the penalty doctrine. The court held that the clauses were penal, although Donegal remained potentially entitled to relief for breach of the settlement agreement.
5. Freezing relief. The original freezing orders were discharged because the evidence supporting them contained material inaccuracies and omissions. The errors were not found deliberate and did not automatically preclude a fresh application for freezing relief.

First-instance decision. No appellate history was stated in the judgment.