By Michael Chishala
Having read the entire 25 page South African Arbitration Court judgment in the case of the Zambian government versus Vedanta, I am of the view that the SA court is on firm ground in granting an interim injunction halting the liquidation of KCM until the substantive dispute is heard. The salient points are:
1. The original KCM Shareholder’s Agreement explicitly provided for a court to arbitrate all disputes, to sit in Johannesburg, to deliberate in English and for the sole Arbitrator to be appointed by the Secretary General of the Court of Arbitration at The Hague in Netherlands. This clause is normal for international agreements like the KCM one, so as to preserve neutrality and guard against potential bias and an unfair arbitration procedure within Zambia if a court action was commenced after a breach.
2. Any disputes arising from any breaches of the agreement are to be settled by the same Arbitrator. Arbitration through the SA court is therefore not optional but mandatory. The case filed by Vedanta was therefore properly before the Arbitration Court in SA. GRZ has not disputed the jurisdiction of the SA court. Moreover, GRZ was adequately represented in the case in SA.
3. The definition of a “dispute” is very broad within the agreement and adequately covers the current situation whereby Vedanta is disputing the action by GRZ to attempt to liquidate the company through an ex-part order wherein Vedanta had no opportunity to be heard.
4. The Arbitrator has exclusive authority to hear and rule on any disputes and this authority and jurisdiction cannot be superceded or nullified by any other court action in Zambia initiated by GRZ. The refusal to register the SA judgment in Zambia by GRZ does not nullify it, nor does it prevent Vedanta from getting relief via the Arbitration Court in SA.
5. As a consequence of point 4, the Zambian government initiated the liquidation procedure in Zambia in an irregular manner because if indeed they had any reasonable dispute with Vedanta, they were supposed to file a case before the aforementioned Arbitration Court in SA. The current action by GRZ in the Zambian courts to wind up the company is an attempt to circumvent the Shareholder’s Agreement as noted in the judgment and Vedanta therefore is on firm ground in declaring a dispute, which dispute the SA Arbitration Court has sole, exclusive and final jurisdiction, to the exclusion of any decisions made by Zambian courts to the contrary.
6. The Arbitration Court in SA in this particular case was not dealing with the merits of the complaints of GRZ, but only whether a dispute has arisen which therefore falls under the legal authority of the SA Arbitration Court.
7. Under the Arbitration clause in the agreement and general legal principles, Vedanta has a legal right to seek any kind of relief or compensation, including, but not limited to, interim injunctions restraining GRZ from proceeding with the liquidation of KCM.
8. The Arbitration clause in the Shareholder’s Agreement necessarily implies that the parties agreed not to commence any legal actions (arising from any disputes) in any other court other than the Arbitration Court as provided for in the agreement. Acting contrary to this clause implies an attempt to circumvent the agreement. The action by GRZ to liquidate KCM is thus irregular and improper and the SA court therefore has the legal mandate and jurisdiction to halt the liquidation process currently going on in Zambia after a dispute was declared by Vedanta and brought to the only court allowed to arbitrate such disputes as per agreement.
9. As a consequence of points 4, 5 and 8, Zambia has already suffered great reputational damage in international business and investment circles.
10. The interim injunction suspends the liquidation action, pending the substantive matter to be heard, also by the same SA Arbitration Court.
11. If GRZ ignores the decisions made in the SA Court, matters shall be escalated that may potentially result in Zambia being forced to pay compensation to Vedanta by seizing its assets abroad, especially if the substantive case is won by Vedanta. All Vedanta has to do is register the judgment in any country where assets are held by Zambia (eg reserves sitting in foreign banks in Europe or USA).
12. Regardless of the merits of the grounds for the “divorce” between Vedanta and GRZ, compensation must be paid because you cannot just grab a property, sell it off to someone else and pocket the money. There will eventually be a day of reckoning.
Bottom line: Zambia is in deep brown stuff.