Zccm Investments Holdings Plc v Konkola Copper Mines Plc

On a summary judgment application, the court may determine contractual construction and penalty issues where the evidence permits a firm conclusion and the defendant has no real prospect of success.

A contractual prohibition on payments to a creditor’s group, expressed without qualification, may extend to liabilities arising before the contract. Pre-contractual negotiations and post-contractual conduct cannot ordinarily alter the objective meaning of an integrated written agreement.

An acceleration clause in a commercial settlement or loan arrangement is not penal merely because it makes future instalments immediately payable. Default interest is enforceable where it protects a legitimate interest and is not extravagant, exorbitant or unconscionable.

ZCCM sought summary judgment against KCM for sums due under a settlement agreement concerning earlier liabilities. KCM admitted that the final instalment was due but disputed the balance.

The dispute concerned whether payments made by KCM to Vedanta breached contractual restrictions on payments to the Vedanta Group and thereby accelerated all sums due to ZCCM. KCM also argued that the acceleration and default-interest provisions were unenforceable penalties.

The court had to determine whether the contractual provisions could be construed on the available evidence and whether KCM had a real prospect of defending the claim.

1. Summary judgment. The court applied the principles summarised in EasyAir Ltd v Opal Telecom Ltd [2009] EWHC 339. Summary judgment was appropriate where KCM had no real prospect of defending the claim and there was no compelling reason for a trial.
2. Clause 7.4. The prohibition on making payments to the Vedanta Group was unqualified. Unlike the separate dividend provision, it contained no exception for liabilities outstanding when the Settlement Agreement was made. Its objective meaning therefore covered payments made in respect of obligations arising before or after the agreement. The management-fee payment breached clause 7.4 and triggered acceleration under clause 6.3.
3. Construction evidence. Pre-contractual discussions and subjective declarations of intent were irrelevant to construction, applying I.C.S. Ltd v West Bromwich Building Society [1998] 1 WLR 896. Post-contractual correspondence and subsequent conduct were likewise inadmissible as aids to construction. The entire-agreement clause reinforced that conclusion.
4. Clause 7.3. Corporate guarantee commission fell within the definition of Debt because it was a liability in respect of a guarantee for borrowed money. Payments relating to employee stock options and expenses were, on the evidence, repayments of sums effectively lent by Vedanta and fell within categories (a) and/or (f). Each payment breached clause 7.3 and accelerated ZCCM’s entitlement.
5. Penalty clause. Applying Cavendish Square Holding BV v El Makdessi and ParkingEye Ltd v Beavis [2016] AC 1172, the question was whether the secondary obligation imposed a detriment out of all proportion to ZCCM’s legitimate interest, or was extravagant, exorbitant or unconscionable. Acceleration of sums advanced under a settlement operating as a loan was not penal. Nor was LIBOR plus 10 per cent default interest, particularly since the same rate was contemplated as a primary obligation and default increased credit risk. The reasoning in The Angelic Star [1988] 1 Lloyd’s Rep. 122 and Lordsvale Finance Plc v Bank of Zambia [1996] QB 752 supported those conclusions.
6. Order. ZCCM was entitled to summary judgment for the full amount claimed. The parties were directed to draw up an order giving effect to the judgment.