ACR case: Judgment was deeply flawed

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An aerial view of the Marange diamond fields

IN this serialised article, a veteran lawyer with a wealth of experience gives a legal perspective on the court battle between government and African Consolidated Resources plc (ACR, now Vast Resources), a London Stock Exchange-listed local firm which owned the Chiadzwa diamond claims after South African global mining giant, the De Beers Group — the world’s leading diamond company — had moved out following the expiry of its exploration permit.

Legal Correspondent.

An aerial view of the Marange diamond fields

An aerial view of the Marange diamond fields

The method of registration did not “fall foul” of the law. The provisions of the Mining Act were observed. High Court judge Justice Charles Hungwe does not indicate how the public interest was in fact prejudiced. Was ACR guilty of unfair competition merely because it registered the claims in the names of the companies that had not been incorporated at the time of registration? The companies were in fact incorporated a few weeks after the registration of the claims.

Hungwe then went on to say that, in respect of the Mining Act, a company that had not been incorporated could not apply for, let alone accept, any mining rights without contravening the law. However, he did not say which law would be contravened.

He then went on to say: “I take judicial notice of the fact that it is manned by personnel who are highly acquainted with the requirements of operating in foreign environments. What haste then could have prompted such an international company to overlook such basic requirements of the law? It could be that they were anxious to lay their hands on the claims, like any investor would be anxious to do, but if they did so without regard to the law, they could hardly cry foul if someone pointed to the lack of legal personality at the relevant time. The act of securing ‘rights’ without following the laid down procedure evinces an intention to mislead. That to my mind is self-evident. What this signifies is that ACR was able to put up a ruse upon which the relevant officials in the Mines and Mining Ministry acted. When they had the certificates at hand, they launched a legal onslaught against the Ministry of Mines for ‘unlawful’ cancellation of ‘claims’.”

There is nothing in the judgment which hints at the ACR being “in haste” to register the claims. They said that they believed, on the basis of what they were told by the company from which they purchased the shelf companies, that the companies had been registered. They did not “overlook basic requirements of the law”. They did follow the procedures laid down in the Mining Act. It is difficult to understand the judge’s finding that the failure by ACR to confirm that the companies had in fact been incorporated “evinces an intention to mislead” which, to his mind, “is self-evident”. What was the ACR trying to achieve by “putting up a ruse?” Was the non-incorporation of the subsidiaries a ruse and what was the “ruse”?

Hungwe went on to say that he could not accept the bare denial that no prejudice, actual or potential, could have been occasioned by ACR entering into a mining venture without first acquainting itself with the legal requirements of Zimbabwean law. He said that the Mines minister set out quite exhaustively the prejudice suffered by the action of “the promoters” of ACR, but he does not mention any such prejudice in his judgment.

He does not allege that the minister referred him to Section 2 of the Mining Act. The judge also said that it appeared, from the voluminous affidavits filed in this and other cases before the courts, that ACR “cut several corners” in order to secure the rights to the claims, but he does not mention in his judgment what the corners were.

Neither does he mention what the other cases were. Did he read the voluminous affidavits in the other cases even though he was not seized with them?

The judge said that counsel for ACR relied on the authority of the Rajah & Rajah case for the proposition that the courts will not interfere on review with the decision of a quasi-judicial tribunal where there has been an irregularity, if it is satisfied that the complaining party suffered no prejudice by the grant of a licence to an unincorporated body. He, however, chose to ignore this decision and instead he relied on the Steenkamp case where an act of an unincorporated company was found to be invalid because it commenced business by entering into initial agreements with the Tender Board prior to being issued with a certificate to do so.

However, ACR’s subsidiary companies did not commence business before they were incorporated. They merely held the certificates of registration of their claims, just as in Rajah & Rajah, where a trading licence was issued to a company which was not incorporated at the time but which was subsequently incorporated. In that case, Hungwe held that the issuing of the licence was not invalid purely because the company did not, in law, exist. He upheld the licence and said that a court would only invalidate a licence in such circumstances if there had been no prejudice at the time to the public interest.

In the Rajah & Rajah case, Hoexter ACJ said: “The application led the council to believe that the company was actually in existence. If that belief had not been erroneous, the issue of the certificate would have been completely regular. Subsequent events have rectified the error. The company did come into existence.”

In his concurring judgment, Holmes JA made the same point. He said: “In my view, the answer is that the basis which the council had in mind in granting the certificate is in fact the present basis — namely the existence of the company. Wherein then is the council prejudiced, as representing the public interest?”

The Rajah & Rajah case, which was decided in 1962, was followed by Yoonus v Pillay in 1964 where Henning J said: “A consideration of the cases involving trading licence applications, …. leads me to the conclusion that it is irregular for a licencing authority to grant a certificate of authority to obtain a licence in the name of a company not yet in existence, but where the company is later registered, the court will not on review set aside the licencing authority’s decision on the ground of the irregularity, unless the party seeking relief establishes that he has been prejudiced thereby.”

The judges in those two cases were in fact merely applying a principle which has been laid down in a long succession of cases and is now regarded as settled law.

In the Steenkamp case, the facts were very different. It involved a claim for damages by a company which had been awarded a tender. The award was subsequently set aside and the company went into liquidation. The liquidator claimed damages from the Tender Board. It transpired that the company itself was not incorporated at the time of the submission of the tender, nor at the time of close of the tenders.

The judges who dealt with the Steenkamp case held that the facts in Rajah & Rajah bore no relationship to the case before them and was plainly distinguishable. In both the Constitutional Court hearing and in the court a quo, the matter was decided on complex questions of delictual liability; the non-incorporation aspect was considered and pronounced upon, but it was not a critical factor in deciding the matter. In both cases the Rajah & Rajah case was considered by the judges and they distinguished it as not being applicable in the circumstances of the matter before them. They did not over-rule the decision in the Rajah & Rajah.

In the one case, Harmse JA said: “This judgment (Rajah) bears no relationship to the instant case. It dealt with a review application. The court dealt with one issue only and that was prejudice since invalid administrative acts were not set aside for the asking; the court has a discretion … and, absent prejudice, there was no reason to set the licence aside.”

In the other case, Moseneke DCJ, whom Hungwe referred to in his judgment, said: “The cases the applicant cites (Rajah, et al) are plainly distinguishable. They relate to licencing procedures, which are markedly different from the tender process which compels strict and equal compliance by all competing tenderers on the closing day for submission of tenders.”

An analysis of the cases shows a very clear rationale. A mere administrative decision, such as the issuing of a licence by a licencing authority, will not be overturned in the event of an irregularity such as the non-incorporation of a company, unless there has been prejudice to the public interest. On the other hand, if a non-incorporated company purports to enter into a contractual arrangement, then its acts have no validity because in law it does not exist. The issuing of a certificate of registration of a claim and the issuing of a licence are almost identical in nature. A claim certificate is merely a licence to hold a piece of ground for mining purposes.

Hungwe’s reliance on the Steenkamp case was therefore clearly erroneous. He then rather amazingly concluded his comments concerning the alleged prejudice by finding that ACR had “successfully wood-winked (sic) this court into granting it a favourable judgment in the process”.

He then dealt with, and disagreed, with the submission by counsel for ACR that ACR’s title to the claims was protected by Section 58 of the Mining Act. That section provides that when a mining claim has been registered for two years, it shall not be competent for any person to dispute the title on the ground that the pegging was invalid or illegal or that provisions of the Act were not complied with prior to the issue of certificates of registration.

The judge’s reasons for the disagreement were two-fold. Firstly, he said that ACR never acquired any rights in the first place because the subsidiaries had not been incorporated when the certificates were issued. Secondly, that ACR acquired the rights in 2006 and by the end of that year the minister had effected the initial cancellation, which “juristic act” interrupted the running of the two-year prescriptive period. It is difficult to understand how he could describe as a juristic act the cancellation which he himself, in the judgment which he rescinded, had ruled was invalid and therefore null and void.

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