By Elias Munshya
Zambia has excellent legal minds. It has exceptional jurists. However, there is something fundamentally problematic within the Zambian legal system that continues to tolerate mediocrity. When ZCCM-IH obtained the ex-parte Order from the Lusaka High Court to begin liquidating KCM, we sounded the alarm. The alarm was really not about whether Vedanta was the right investor or not. It was really about whether the judicial proceedings commenced in the Lusaka High Court made legal sense. The law is essential in human development. For Zambia, as a country seeking foreign direct investment, it must show that it means business and that the judiciary will be free from politics and political interference. The ex-parte order to liquidate KCM was so irregular that it did not make sense. We challenge our friends in Zambia’s legal fraternity to stand up for common sense and the rule of law, even when it comes to matters of commerce.
The High Court in Gauteng, South Africa, has done the work that should have been done by the Lusaka High Court. This decision from Gauteng is an embarrassment to the Zambian judiciary. The Judges in Zambia want to play it big, but they are not ready for the international stage. This Zambian judiciary, at least from a commercial law perspective, remains a toddler. It cannot be taken as a serious arbiter of disputes between big international players. Moreover, the way the KCM liquidation issue has been handled lends credence to this assessment.
Madam Justice Banda-Bobo issued an ex-parte Order to appoint a lawyer who is a prominent member of the Patriotic Front to be the provisional liquidator of KCM. At close inspection of that very Order, the Madam Justice issued, it was clear that there was nothing provisional about it. It was a full Order to liquidate and sell assets of KCM, crouched in the title of being provisional. We sounded the alarm. However, it was ignored. Even more crucial was the fact that this particular order was obtained ex-parte – without allowing Vedanta to respond. How is that even right? How did the Zambian judiciary begin even to contemplate that this was right? What was so urgent about this Order that the judge allowed it to be granted ex-parte?
The damage had been done already. However, the actual damage comes next. It has to do with how Vedanta, ZCCM-IH, and GRZ, structured their agreement. The agreement that existed among these parties contemplated that there may be problems in future. In fact, every commercial agreement must have a clause that states how issues that arise may be resolved. That clause stated very clearly that if there is a dispute among the parties – they will address these issues using international arbitration. International arbitration is routinely chosen in most if not all, investment agreements. It has been done throughout all governments in Zambia from Kaunda’s time to Lungu’s time. Arbitration is chosen because it is not expensive, and the arbitrators or the presiding officers, are usually parties that are very familiar with the subject knowledge. In international arbitration, parties do not just pick politically connected judges to do the arbitration. They typically pick politically neutral people who understand these issues very well. It is to these arbitrators that states and companies submit themselves.
What Judge Banda-Bobo needed to do when ZCCM-IH sent its PF aligned lawyers to liquidate KCM was to ask ZCCM-IH whether there is an arbitration clause. It was as simple as that. Doing so would have demonstrated that the commercial division of the Zambian High Court was ready to play the big game. However, the judge went on to grant the Interim Order. This act alone undermines Zambia’s vision of being a significant international commercial player. We understand that the Economics Association of Zambia is hosting a very well billed economic summit in Livingstone, Zambia. There will be participants from around the world. Will these participants take Zambia seriously? International arbitration disputes travel very fast. It is a small world, after all. After all, this is done; it is the Zambian people that are going to shoulder the loss from the KCM saga.
To be clear, the Zambian government has the right, as a sovereign nation to repossess KCM. In fact, it has the right to expropriate land and companies. However, it has no right to expropriate companies without reasonable compensation. If what GRZ wanted was expropriation of KCM, it should have done so without the need for the embarrassing theatrics being performed by the Minister of Mines, the Attorney General and the Zayello Minister of Justice. Once the government decides on expropriation, the next question would have been compensation: how much would GRZ pay to ZCCM-IH and Vedanta for that expropriation? At the minimum, GRZ would have to pay Vedanta and ZCCM-IH the cash it claims to have invested in the mines. Some estimates are putting it at between $2 to 3 Billion. From all indications, it seems this is where Zambia will end up. It will be owing to these investors a lot of money.
What then was the alternative? If GRZ felt that Vedanta had breached the investment agreement, GRZ should have taken KCM to international arbitration. Cutting corners did not and cannot help the country, particularly in the global commercial world where legality is imperative.
GRZ’s motives are even much more undermined by the use of PF aligned lawyers to liquidate the company. I have a theory. The PF used its lawyers to liquidate KCM so that they can raise money for the party. This was a fundraising venture for the Patriotic Front. The PF is not serious about resolving the KCM issues amicably. The PF is using the KCM workers to achieve its own political goals. We now understand that the Chinese are in the running to purchase KCM from GRZ. Of course, the Chinese would want KCM. However, as they buy KCM from GRZ; GRZ and the taxpayer will be left on the hook for 3 Billion dollars as compensation for the Vedanta shareholders.
Whichever way you look at this; it is the Zambian taxpayers who will feel the pinch of this misfortune. Both Vedanta and the Patriotic Front will walk out of this confusion with much money in their pockets – leaving the poor of Zambia with nothing but an empty basket full of good English.
- The South African High Court decision can be downloaded here: Vedanta v. GRZ – Johannesburg.
- The author: Elias Munshya ([email protected]) practices law in Alberta, Canada and frequently writes on law, politics and culture at eliasmunshya.org. He holds 7 degrees in theology, counselling-psychology, business administration and law.