ZCCM Investments Holdings Plc v Kansanshi Holdings Plc

Hearing dates: 26, 27, 28 March 2019

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Introduction

On 22 February 2018 a Tribunal consisting of Michael Collins QC, Glen Davis QC and J. William Rowley QC produced a 22 page document entitled “ Ruling on Claimant's Permission Application”. That document “The Ruling” has given rise to a raft of applications which I have heard over the course of three days. Those applications are:

a) The Original Arbitration Claim by ZCCM Investments Holdings plc (“ZCCM”) under s. 68(2)(a)/(d) of the Arbitration Act 1996 (“the Act”) (“the Original Arbitration Claim”).

b) ZCCM's challenge under s.68(2)(g) of the Act (“the Fraud Claim”).

c) ZCCM's application seeking an extension of time (and related relief) to bring the Fraud Claim (“the Extension Application”).

d) The issues raised in the Respondent's Notice of Kansanshi Holdings Limited (“KHL”) namely whether:

i. The Ruling was not an award but merely a procedural order; and

ii. The Original Arbitration Claim is barred by s. 70 of the Act because ZCCM has not exhausted any available recourse under s. 57 of the Act.

I consider the issues in the order set out below:

Background

ZCCM is a majority-state owned enterprise, effectively holding government interests in mining concerns. It has been referred to as a parastatal of the Zambian Government.

The First Defendant KHL is part of the First Quantum group of companies (“the FQ Group”) which is engaged in the mining sector. It is an indirect but wholly owned subsidiary of a company known as FQM Finance Limited (“FQMF”), which is itself a 100% subsidiary of First Quantum Minerals Limited (“FQML”), the ultimate holding company. FQMF undertook the global treasury function for the FQ Group.

Kansanshi Mining PLC (“KMP”) is a mining company which owns one of the largest copper mines in Zambia. KHL owns 80% of the share capital of KMP and the remaining 20% is owned by ZCCM. The relationship between KHL, ZCCM and KMP is governed by an Amended and Restated Shareholders' Agreement dated 20 December 2001 (“the ASHA”). KHL consequently controls the management of KMP, governed by a Management Agreement dated 18 March 2004.

Between 2006 and 2014, KMP made certain transfers to FQMF from time to time (“the Transfers”). ZCCM says these were deposits of cash reserves. Between at least June 2009 and March 2014, the amounts were very significant and I am told at one point they reached US$2.238 billion. It seems to be common ground that these monies were repaid by the end of 2014/early 2015. Interest was paid by FQMF to KMP at 30-day LIBOR.

In the arbitration ZCCM sought to pursue a claim (“the Claim”) on behalf of KMP that the Transfers were made in breach of the ASHA and in breach of fiduciary duty and that KHL had dishonestly misrepresented the nature of the Transfers to ZCCM from 2007, giving rise to a claim in deceit. Further or alternative claims were made for inducement of breach of the Management Agreement, conspiracy to injure by unlawful means, inducement of breach of fiduciary duty, dishonest assistance and tortious breach of duty. These claims were set out in a Notice of Arbitration settled by leading Counsel which runs to 42 pages.

The loss claimed was damages, representing the additional interest that it was said should have been paid on the Transfers (at “ at least LIBOR plus 5%”), alternatively an account of profits arising out of the breach of fiduciary duty. The amount of that claim was estimated at US$267 million.

Because of KHL's control of KMP any such claim is required to be brought as a derivative claim. The parties agreed the common law position required ZCCM to obtain permission from the Tribunal to pursue the derivative claim.

Between 10 and 12 January 2018 the Tribunal heard ZCCM's application for permission to continue a derivative claim on behalf of KMP.

The Arbitration was conducted under the UNCITRAL Arbitration Rules 2010. The applicable law was Zambian law, which incorporated the English common law principles which applied to derivative claims prior to the Companies Act 2006.

In order to obtain permission, ZCCM was obliged to demonstrate a prima facie case. The Tribunal considered carefully what that amounted to and concluded that “ in order to make out a prima facie case ZCCM needs to demonstrate that, giving it the benefit of the doubt on disputed issues of fact, the claim that it wishes to bring on KMP's behalf has a realistic prospect of success.” That conclusion is not disputed.

ZCCM's case on its application was that;

a) The understanding of its appointees to the Board of KMP (“the ZCCM directors”) based on express representations made by KHL/its appointed directors of KMP's board (“the KHL directors”) and/ or others within the FQ Group, was that:

i. KMP's monies were being held by FQMF on deposit with reputable international financial institutions for KMP's use and were readily available for KMP's working capital requirements.

ii. Therefore, interest at 30 day LIBOR was a fair and appropriate rate and a better rate than KMP could otherwise expect to obtain by use of the monies.

b) What ZCCM and its directors on KMP's Board did not know was that the FQ Group was using KMP's monies.

c) Therefore, ZCCM had established a prima facie case against KHL under the heads to which I have alluded.

d) The primary case was put in misrepresentation; but the other claims were said essentially to flow from one or other aspect of the misrepresentation claim. Thus, it was said that:

i. There was breach of fiduciary duty by ( inter alia) the KHL directors by which KMP's monies were paid to and used for the benefit of FQ Group without disclosure of the use to which the monies were put, benefitting FQ Group to the detriment of KMP, by obtaining use of KMP's monies at below the market rate and putting those funds at risk.

ii. There was breach by KHL of the Amended Shareholders' Agreement (“ASHA”), in particular Clause 11 requiring all contracts with Affiliates to be on Arm's Length Terms and disclosure of the Affiliate's interest and implied terms to act in good faith and give full and not false information.

iii. There was a substantial loss suffered by KMP, in particular, reflecting the interest which it should have been paid at an Arm's Length rate, namely the rate applicable to an unsecured commercial loan. It pointed to the interest payable under a US$300 million senior term loan and US$700 million revolving credit facility with the interest payable on both being LIBOR plus 3% as evidence that 30 day LIBOR was well below genuine market rates.

As I have said, the Ruling runs to 22 pages. Some seven pages of that length is devoted to a careful summary of the facts, including the history of the exchanges between the parties from 2007 when the KMP board was first told of the transfers made to FQMF and an agreement was reached to charge interest on such transfers. That history included, in brief, the following features:

a) The inclusion of the sums transferred in the KMP audited accounts as an inter-company loan to FQMF bearing interest at LIBOR;

b) A memorandum of 11 October 2010 from KHL to ZCCM containing certain statements including as to the payment of commercial interest and as to FQMF's status being the FQ Groups global treasury function managing funds with highly rated financial institutions;

c) ZCCM's request for a loan on similar terms;

d) Later accounts noting the loan was repayable on demand;

e) The approval of the KMP Board to provide loans on similar terms to both shareholders;

f) ZCCM's request for a one-off dividend to compensate it for not having participated in shareholder loans earlier.

At paragraphs 36 of the Ruling the Tribunal summarised the claims under six sub-headings. At paragraph 37 it summarised, by a quote from ZCCM's skeleton, the representations which were at the heart of those claims. It then (between paragraphs 39 and 49) summarised the relevant law applicable to applications to pursue derivative claims. Between paragraphs 50 and 65 it discussed the claims, before concluding its decision and dealing with the orders sought and costs.

It is plain that the Tribunal well understood the case being made to it. At paragraph 50 of the Ruling it refers to a “ constant theme” with the following components:

a) Dishonest representation that:

i. The monies...