Court of Appeal Upholds AFREXIM’s Dollar Repayment Rights in $25m Loan Dispute with Patnasonic
The Court of Appeal in Lagos has upheld the contractual rights of the African Export-Import Bank (AFREXIM) to demand repayment of a USD 25 million facility granted to Patnasonic Industries Limited, in a landmark judgment with significant implications for cross-border lending and commercial contracts in Nigeria.
The appellate court allowed AFREXIM’s appeal against the earlier decision of the Lagos State High Court, which had dismissed the bank’s preliminary objections and recognised repayment in naira.
Delivering judgment, the panel resolved all six issues in favour of AFREXIM, affirming that the loan remained a dollar-denominated obligation repayable in full in United States dollars at the prevailing exchange rate.
Sterling Bank Plc acted as the local administration agent under the facility.
The dispute arose after AFREXIM demanded repayment of the outstanding indebtedness in United States dollars rather than its naira equivalent.
Patnasonic Industries Limited and its Chairman, Chief Patrick Chidolue, subsequently instituted proceedings before the High Court of Lagos State challenging AFREXIM’s position.
The Lagos State High Court, on June 25, 2024, found in favour of Patnasonic and Chidolue and dismissed AFREXIM’s preliminary objections.
Dissatisfied with the decision, AFREXIM appealed to the Court of Appeal, while Sterling Bank also filed a related appeal.
On the appeal, Chuks Nwachukwu represented the first and second respondents, Patnasonic Industries Limited and Chief Patrick Chidolue.
In the judgment, the Court of Appeal resolved all six issues raised by AFREXIM in its favour, agreeing substantially with the submissions of the bank’s lead counsel, Onyemauche Ibezim of KENNA.
On jurisdiction, the appellate court held that the parties were bound by the terms of their freely negotiated agreement conferring jurisdiction on the English courts.
The court also held that AFREXIM, as an international financial institution, enjoyed diplomatic immunity and further found that the original action instituted by Patnasonic was statute-barred.
Beyond the jurisdictional questions, the Court of Appeal proceeded to determine the substantive issues surrounding the facility.
It held that the loan remained a United States dollar obligation and was therefore repayable in full in dollars, at the exchange rate prevailing on the date of repayment.
The court also held that AFREXIM’s demand for repayment in dollars constituted a legitimate exercise of its contractual rights under the facility agreement.
It further affirmed that English law, which the parties had expressly selected, governed the Facility Agreement.
The appellate court also delivered judgment in the related appeal filed by Sterling Bank.
It held that the action was statute-barred and faulted the trial court for finding that the Facility Agreement was tainted by illegality, an issue which the trial court had raised on its own initiative.
The Court of Appeal consequently affirmed the validity and enforceability of the Facility Agreement, allowed both appeals and awarded costs against Patnasonic and Chief Chidolue.
The decision effectively sets aside the adverse position previously reached by the Lagos State High Court and reinforces the contractual rights of AFREXIM in relation to the USD 25 million facility.
The judgment also underscores the importance of contractual provisions governing jurisdiction, applicable law and the currency of repayment in international commercial transactions.
By affirming the parties’ choice of English law and the English courts as the agreed forum for disputes, the appellate court reaffirmed the principle that parties to sophisticated commercial agreements are generally bound by terms freely negotiated and incorporated into their contracts.
The ruling could have wider implications for international lenders, financial institutions and Nigerian businesses involved in cross-border financing, particularly where facilities are denominated in foreign currencies and governed by foreign laws or jurisdiction clauses.
AFREXIM, a pan-African multilateral trade finance institution, plays a major role in facilitating trade and investment across Africa.
The court’s decision is therefore significant not only to the parties but also to the broader framework for cross-border lending and investment in Nigeria.
The affirmation of the enforceability of dollar-denominated obligations and foreign jurisdiction clauses could provide greater certainty to international lenders and investors entering into financing arrangements with Nigerian counterparties.
On the other hand, the judgment highlights the need for parties negotiating international financing agreements to carefully consider provisions relating to governing law, dispute resolution, currency of repayment and enforcement before executing such agreements.
