Lusaka High Court judge refuses to refer KCM winding up petition to arbitration

By Staff Reporter

LUSAKA High Court judge Anessie Banda-Bobo has ruled that the petition by Zambia Consolidated Copper Mines-Investment Holdings to wind up Konkola Copper Mines for being insolvent is not a proper case to refer parties to arbitration.

And judge Banda has dismissed an application by Vedanta Resources Holdings Limited to stay proceedings and to refer the parties to arbitration.

In this case, ZCCM-IH asked the court to order that Konkola Copper Mines to be wound up for among other reasons being insolvent, invading tax and failing to manage the affairs of the mining firm.

Lusaka lawyer Milingo Lungu was appointed as a provisional liquidator for KCM and  he appointed Bonaventure Mutale, State Counsel as the lead lawyer for KCM.

But Vendata in its capacity as a contributor asked the court to adjourn  all other applications before  it, stay and refer the matter for arbitration.

Herman Uys who is the authorised representative of Vedanta argued that the Shareholder Agreement between ZCCM-IH and Vedanta, the mother body of KCM allows for parties to go to arbitration when a dispute arises.

And at the hearing of the application for stay and arbitration, Mutale urged the court to dismiss the application by Vedanta with costs, saying the petition was not arbitrable.

Mutale said there are issues involved in the winding up petition which the arbitrator could not deal with, as such the court was the one with jurisdiction to deal with winding up petition.

He invited the court to determine whether a party or a person seeking a remedy is a party to arbitration agreement and whether the issue in dispute is arbitrable.

Mutale stated that the contributor (Vedanta) was not a party to the proceedings and could not therefore move the court under section of the Arbitration Act.

But Mulenga Mundashi, State Counsel  urged the court to sustain Vedanta’s application to stay and refer parties to arbitration pursuant to section 10 of the Arbitration Act of no. 19 of 2000 of the laws of Zambia,
Mundashi stated that the petition argues that there is no dispute because there is admission of insolvent when that admission was made by acting KCM company secretary Maxwell Mainsa under the directive of provisional liquidator appointed by ZCCM-IH.

Delivering her ruling this afternoon, judge Bobo said it was her understanding that where third party rights are involved in liquidation proceedings, the private agreement between shareholders and a company to submit their dispute to arbitration is misplaced and rendered inoperative.

“This is because there are other competing interests quite apart from the interests of the parties to an arbitration agreement, which interest can only be taken care of through the court process,” she said.

The judge said creditors of a company are in every sense alien to an arbitration agreement between the company and other entities.

“An arbitration clause is not applicable to them. I am of the considered view that clause 26.1 of the Shareholders Agreement is inoperative. To stay the proceedings before me and give way to arbitration would be to leave the respondents creditors, who have indicated their interest in the proceedings, without a remedy. In my view, this would wholly defeat the objects of the Corporate Insolvency Act,” she said.

Judge Bobo said even assuming that there were no third party interests involved in the proceedings, she was not satisfied  that the Contributor (Vendata) was procedurally in a position to make the application for stay and refer the parties to arbitration.

“The parties to the legal proceedings before me namely the petitioner and the respondent, are averse to the proceedings. To allow a stay of these proceedings at the instance of a contributor, an entity not sued by the petitioner, would be contrary to the express wishes of the parties themselves,” judge Bobo said.

She added that she was guided by the legal principle that once incorporated, a company such as the respondent (KCM) is distinct from its shareholders .

Judge Bobo said the Court of Appeal strictly construed a party to the proceedings as one who has been sued and that this did not extend to one who merely joined the proceedings for purposes of obtaining a stay of an action commenced, not against them, but against another, who had not availed themselves the right to seek a stay.

“The court reasoned that the provision was not meant to be used to force existing parties  who did not want to go to arbitration, to do so at the instance of a party joining proceedings,” she said.

Judge Bobo therefore, said this was not a proper case to refer parties to arbitration.

“The application to stay the proceedings before this court and to refer the parties to arbitration is hereby dismissed. Each party to bear own costs. Leave to appeal is granted,” said judge Bobo.