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Mine dispute costs Lesotho M3 billion

  • Govt could pay another M3 billion if it loses court battle with Swissbourgh

 By Billy Ntaote

A protracted international investment dispute that has lasted 28 years between the Lesotho government and a South African owned diamond mining company, Swissbourgh, has cost the country a whopping close to M3 billion in legal costs.

If Lesotho loses the case, the amount may double to M6 billion, MNN Centre for Investigative Journalism has learnt.

Lesotho has been embroiled in a seemingly endless legal battle with Swissbourgh Diamond Mines (Pty) Limited since the military rule in 1990, with the matter still pending finalisation before the Singapore Williams Tribunal today.

The battle is over mining rights Swissbourgh wants back from government after the latter revoked the company’s licenses in 1988, failing which the firm wants to be compensated to the tune of M3 billion on top of legal costs Lesotho has already incurred through the Ministry of Law and Constitutional Affairs.

Finer details of the amounts spent so far are revealed in the audit report for the year ended March 31, 2017, on the consolidated financial statements of the government of Lesotho prepared by Auditor General Lucy Liphafa for parliament.

In the report, Liphafa raises serious audit concerns that during financial year 2016/17, government incurred costs on the compensation claim of M33 million against Swissbourgh for a cancelled mine contract.

She said “the amount of M8 million related to legal costs and M25 million lodged as security pending final award by the Singapore Williams Tribunal”.

The Auditor General further points that Swissbourgh “claimed a compensation award of M3 billion from government of Lesotho” and is concerned that “the expenses incurred on this litigation for the past 28 years could be closer to claimed compensation award.” Liphafa therefore recommends an out-of-court settlement.

Swissbourgh was registered under the laws of Lesotho and incorporated by a South African national Josias Van Zyl in November 1986.

When the company was first registered, Van Zyl owned five percent of its shares, 85 percent shares were owned by his unidentified nominee and the remaining 10 percent was halved between two other unidentified persons.

But in March 1989, all shareholders, other than Van Zyl, diverted their shareholding to the Josias Van Zyl Family Trust (JVZF), which thus acquired 95 percent of the shares in Swissbourgh. In June 1997, the JVZF Trust transferred 90 percent of the shares in Swissbourgh to the Burmilla Trust, established in South Africa.

The Centre discovered through court documents that by 1987, Swissbourgh had submitted applications for five mining leases in five different areas in Lesotho, namely Matsoku, Motete, Rampai, Orange, and Khubelu.

At the time, a review of such applications involved the following stages; first, negotiations between the applicant and a committee of senior government officials who would advise the Ministry of Water, Energy and Mining; secondly, approval by the ministry. And then thirdly, approval by the country’s Mining Board. The fourth stage would be a recommendation by the board to the Military Council following consultations with the local chiefs responsible for the land, and fifthly an approval by the Military Council before final confirmation by the King.

In June 1988, at the conclusion of the above-mentioned process, King Moshoeshoe II approved the Swissbourgh applications for the mining leases.

However, the company’s acquirement was short-lived as the government subsequently claimed to discover, after the mining leases had been registered with the Registrar of Deeds in October 1988, that there was no evidence that the local chiefs in the Ha-Rampai area had been consulted or had agreed to the grant of a lease. This is what sparked the legal battle as the government had revoked the mining leases.

In terms of the lease for Ha-Rampai, Swissbourgh was given an exclusive right to mine for precious stones in the area for a period of ten years from the date of registration of the lease in the Deeds Registry, with an option for renewal of the lease for a further five years.

But, the lease was for land already identified to be part of an area to be submerged in water after the construction of the Lesotho Highlands Water Project’s Katse dam.

This meant that within a few years after the commencement of the Rampai mining lease, a portion of the mining lease area would be flooded and impossible to be mined by Swissbourgh.

This happened and Swissbourgh contends that it is entitled to claim compensation from Lesotho amounting to about M3 billion.

The compensation, the Centre understands, Swissbourgh argues is for loss of profit it says it would have made had it not been prevented from recovering considerable quantities of diamonds which, according to Swissbourgh, lie beyond its reach beneath the waters of the Katse dam.

However, the company lost all cases even after taking an appeal on grounds that the issuance of the mining leases did not follow due process in awarding of mining leases in the court of Lesotho.

Having unsuccessfully pursued legal actions until the Court of Appeal, the Swissbourgh commenced proceedings in the SADC Tribunal in 2009, alleging that Lesotho had breached its obligations under the SADC Treaty by wrongfully expropriating the mining leases.

Unfortunately for Swissbourgh, the SADC Tribunal was dissolved by resolution of the SADC Summit before it had an opportunity to determine the defendants’ claim.

Undeterred, miner commenced international arbitration proceedings against the country in 2012, on the basis that Lesotho, by contributing to or facilitating the shutting down of the SADC Tribunal without providing alternative means by which the Swissbourgh’s expropriation claim might be heard, again breached its obligations under the SADC Treaty.

Now, this Rampai lease dispute is in the arbitration processes in Singapore Williams Tribunal and the Centre has learned a judgement is coming soon after the matter was heard in May 2017.

Commenting on the case, the Law and Constitutional Affairs Ministry’s Principal Secretary Retired Colonel Tanki Mothae, told the Centre the case in Singapore is ongoing.

He however said the he could not get into the merits of the case as it is an ongoing case, but “soon the parties involved in the case shall hear judgement” but admits the dispute has dragged for long and costs have escalated.

Mothae said from May 17-21, 2017 the battle for compensation for the Rampai area was heard by the Singapore Williams tribunal.

“We have been winning so many cases over the years against those people, but they are always taking appeals and right now we are waiting to hear judgement from the tribunal.

“As a result of our membership to many international organisations and party to many conventions, the case is being taken through many avenues by the claimant.

“But we are currently awaiting the outcome of the court judgement,” said Mothae.

In her report, the Auditor General points that since the case started as far back as 1990 during the Military Government, it is still going on today.

“At stake is a claim against the government of Lesotho in the amount of M3 billion as compensation award.

“From time to time the ministry of law requests special funding from the ministry of finance to settle professional bills and or make other necessary payments in relation to the litigation, as its budget cannot conceivably finance a case of this nature, which according to management, it is an extremely expensive litigation” read part of the Auditor General’s Report.

Liphafa gives an example in the report that “in 2015/16 expenditure incurred on legal costs, international subsistence allowance and taxes amounted to M24, 003,044 and expenditure in 2016/17 was M15, 633, 713”.

She further notes that government has also lodged an amount of M25 million as security pending final award by the Singapore Tribunal.

“The case has been tracking for a long time and continues to cost government a lot of money.

“The expenses incurred on this litigation for the past 28 years could be closer to claimed compensation award” she noted in the report.

She further recommends that “government should, maybe, consider out of court settlement to save taxpayers money if Singapore Williams Tribunal rules unfavourably”.

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