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Lesotho wins mining leases case


Herbert Moyo

THE High Court of Singapore has set aside an arbitral award issued to Swissbourgh Diamond Mines and South African investors who claim their mining leases had been expropriated by the Kingdom of Lesotho.

The investors who include South African businessman Josias Van Zyl and the Swissbourgh Diamond Mines (Pty) Limited initially won the case at the  Permanent Court of Arbitration (PCA) tribunal in 2016 which ruled that Lesotho had violated its international obligations by voting with other 14 other SADC nations to disband the SADC Tribunal in 2011.

Mr Van Zyl and other investors namely, Matsoku Diamonds Pty Ltd and Motete Diamonds Pty Ltd had sought relief from the SADC Tribunal after the government of Lesotho allegedly cancelled the mining leases they were granted in the Mountain Kingdom in the 1990s. The dispute arose out of Lesotho’s alleged failure to compensate Mr Van Zyl for the expropriation of certain diamond mining leases issued to his company, Swissbourgh Diamond Mines Pty. Ltd.

Mr Van Zyl and the companies subsequently attempted in vain to challenge the government in the courts in Lesotho and even sought the help of South African government to apply pressure on Lesotho to respect their investments.

Eventually, in 2009, Van Zyl, Swissbourgh and the companies took their case to the SADC Tribunal in Namibia but before it had finalised their case, it was disbanded at the instigation over Zimbabwean President Robert Mugabe.

Mr Mugabe sponsored the SADC vote for the tribunal’s disbandment in 2014 after the tribunal had ruled against his government in a case in which white Zimbabwean farmers had sued for compensation after their land was expropriated without compensation.

Mr Van Zyl and the companies then took their case to the PCA alleging that Lesotho’s participation in disbanding the SADC Tribunal while their claims were still pending amounted to a breach of Lesotho’s international obligations. On 18 April 2016, the PCA Tribunal ruled that Lesotho had breached its international obligations by voting with other African states to dissolve the SADC Tribunal while the Van Zyl claim was pending.

The PCA, which chose Singapore as the seat of arbitration, ruled that Lesotho had breached various obligations under the SADC Treaty (which set up the SADC Tribunal) and granted relief by directing the parties to constitute a new tribunal to hear the defendants’ expropriation claim.

It also determined that Lesotho was liable to pay the defendants’ costs in the arbitration, for which the quantum was subsequently fixed by the Costs Award.

Lesotho appealed against the PCA award in May 2016.

And, in the latest turn of events this month, Singapore High Court Judge Kannan Ramesh ruled that the PCA tribunal had wrongly dealt with a dispute not contemplated by the arbitration agreement between the Lesotho and the investors who included Mr Van Zyl.

“Having carefully reviewed the Award, the parties’ submissions and other relevant material, I have come to the view that the PCA Tribunal did not have jurisdiction over the parties’ dispute and I set aside the Award in entirety,” Justice Ramesh ruled in a recent judgement, a copy of which Business Journal has in its possession.

“In the premises, I do not need to address the Kingdom’s (Lesotho) alternative argument that the portion of the Award dealing with the Kingdom’s liability to pay the defendants’ costs of the arbitration should be set aside for, inter alia, breach of the rules of natural justice.

“It follows, as a matter of logic, that the Costs Award must also fall away because it was made pursuant to the determination in the Award that the Kingdom was liable to pay the defendants’ costs of the arbitration and reasonable legal costs.

“The Costs Award is therefore without basis,” Justice Ramesh ruled in the judgement which is cited as Kingdom of Lesotho v Swissbourgh Diamond Mines (Pty) Limited and others [2017] SGHC 195.

Justice Ramesh noted that investment treaties are “fine-tuned to balance the interests of host states and investors, and it would be ultimately counteractive to a treaty’s object and purpose to extend its protections to situations clearly beyond its contemplation”.

“While the defendants are understandably disappointed with the turn their investment has taken, that cannot be cured by doing violence to a dispute resolution provision in the treaty,” Justice Ramesh further stated.



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