English High Court judgment in ongoing Zambian dispute

On 15 July 2014, the High Court in London handed down a further judgment in the ongoing dispute between Konkola Copper Mines (KCM) and U&M Mining Zambia Ltd (U&M).

KCM owns a number of mines on the Zambian copper belt.  It is a Zambian company majority owned by Vendanta Resources Plc, which is listed on the London Stock Exchange.  The remaining stake in KCM is held by a company which is in turn majority owned by the Government of the Republic of Zambia.

The Government also holds a Golden Share.  U&M, which is a Zambian subsidiary of a Brazilian mining conglomerate, was contracted from around 2007 to operate one of KCM's mines.  From 2012, a number of disputes arose between the parties in relation to their various contractual arrangements, including in relation to invoices allegedly unpaid by KCM.

In common with other disputes between locally incorporated mining companies with parents in the UK or elsewhere, action has been taken in more than one jurisdiction.  The parties' disputes were referred to arbitration at the London Court of International Arbitration and there have been related court proceedings in Zambia, Brazil and London.

It appears from the English High Court judgments that there are currently several outstanding arbitral awards against KCM, totalling in excess of USD56 million, but that KCM is resisting enforcement of the first award in Zambia and brought proceedings in the English court seeking to challenge the second award on various grounds.  

It was the dismissal of KCM's challenge to that second award that was the subject of the latest English High Court judgment.  In another decision some two weeks prior, KCM had been directed to pay security for U&M's costs of defending that challenge. Of interest was the Court's reasoning that KCM, which was found itself to have insufficient liquid funds to pay U&M's costs and no assets in the jurisdiction, could not rely on the significant financial strength of its LSE listed parent to defeat the application as there were no undertakings in place from that parent company.

This is an engaging though apparently bitterly fought dispute and we will await any further developments with interest.

This article was written by Joanne Keillor, Senior Associate, London.  For further information please contact Joanne Keillor or your usual Herbert Smith Freehills contact.

Japan-Australia Economic Partnership Agreement signed, text released

On Wednesday, 9 July, Japanese Prime Minister, Shinzo Abe, and Australian Prime Minister, Tony Abbott, signed the Japan-Australia Economic Partnership Agreement (JAEPA).

Following domestic approval processes in Australia and Japan, the JAEPA will come into force and 99.7% of Australia’s exports of resource, energy and manufacturing products will benefit from duty-free enter into Japan. All of Australia’s current resources, energy and manufactured goods exports with benefit from duty-free entry into Japan on full implementation of the JAEPA.

The JAEPA does not include investor-state dispute settlement (ISDS) provisions, offering cross-border investors protection against political risks such as expropriation of investment assets or profits and discrimination between cross-border investors and national investors.

The original article was prepared by Leon Chung, Partner, and Kate Lindeman, Solicitor, Sydney, and can be read here.

ICSID claim filed against Indonesian Government

On 1 July, PT Newmont Nusa Tenggara and its majority Dutch shareholder Nusa Tenggara Partnership BV, announced that they have filed international investment arbitration proceedings against the Indonesian Government to seek relief from export restrictions that have halted production at the Batu Hijau mine and are said to have inflicted hardship and economic loss on PT Newmont Nusa Tenggara’s employees, contractors, and other stakeholders.

The claimants allege that the government’s imposition of new export conditions, a new export duty and a ban on the export of copper concentrate breach PT Newmont Nusa Tenggara’s Contract of Work with the Indonesian Government, and the bilateral investment treaty between Indonesia and the Netherlands. The claimants have indicated that they will seek interim injunctive relief, so that work at the mine can resume.

This claim follows an announcement earlier this year that Indonesia intended to cancel all of its 67 bilateral investment treaties, and draw up new treaties. The bilateral investment treaty between Indonesia and the Netherlands was among the first to be cancelled, with effect from July 2015 (though a sunset clause in the treaty means it will continue to apply for a period after that).

For further information, please contact Jay Leary, Partner, Brisbane, or your usual Herbert Smith Freehills contact.

Baosteel and Aurizon in control of Aquila Resources

On Thursday, 3 July, Aurizon announced that Baosteel Resources Australia and Aurizon Operations (the Bidders) entered into a Takeover Implementation Agreement (TIA) with Aquila Resources (Aquila) to facilitate the change in control and management of Aquila to the Bidders.

Tony Poli (chairman and largest shareholder of Aquila) has agreed to sell his 28.9% stake in Aquila (a condition of the TIA), increasing the Bidders’ stake to 69.3%.  Mineral Resources also agreed to sell its $12.8% stake after failing to secure a merger deal with Aquila.

Under the TIA, Tony Poli and two directors of Aquila, Gordon Galt and Denise Goldsworthy, will resign from the Aquila board on or before 11 July and four of the Bidders’ nominees will be appointed.

The remaining 30% of Aquila shareholders have until 25 July to accept the $1.4b ($3.40 per share) bid.

Read the announcement and TIA here.

For further information, please contact Jay Leary, Partner, Brisbane, or your usual Herbert Smith Freehills contact.