Firm loses Sh4.2 billion suit for mining without permit

Dar es Salaam. A Moshi-based mining company has lost a Sh4.2 billion suit after it was discovered it supplied magnesite carbonate to tiles maker Goodwill (T) Ceramic Company Limited without having valid mining permit.

The High Court in Dar es Salaam said it cannot consider claims by ZB Holdings (T) Limited because the minerals it supplied to Goodwill Ceramic was mined illegally.

The court said the contract that ZB entered with the tiles producer was null and void since the plaintiff breached section 18 (1) of the Mining Act that bans trading of minerals without a valid licence.

“Since it has been found that there was no valid contract between the parties then, the whole claim by the plaintiff against the defendants crumble,” said Judge Edwin Kakolaki in his recent decision.

ZB Holdings brought a suit against the Dar es Salaam-based tiles producer after accusing the firm of breaching Sh3billion contract for the supply of magnesite carbonate—key mineral in the production of ceramic tiles.

The company sought an order requiring Goodwill to pay them Sh1.4 billion being profit lost by breach of the contract.

It had also sought payment of Sh965million being money injected into the business and lost as a result of the breach and payment of Sh 200 million in general damages.

Deal signed

Sometime mid-2018, ZB negotiated a deal for the supply of a minimum of 30,000 tons of magnesite carbonate to Goodwill annually at Sh100,000 per ton.

According to the agreement, the 30,000 tons would equal Sh3billion in a year out of which the first Sh1.5 billion would go to repay the capital invested by ZB in mining activities and the remaining 1.54 billion would be retained and enjoyed by the company as profit.

After long negotiations and project site visitations, the parties entered into an agreement on 31st July, 2018.

Under the contract, ZB was required to mine the minerals at Ndungu area in Same District, Kilimanjaro Region and supply the minerals to Goodwill’s factory located at Mkiu area, Mkuranga District, Coast Region, within one year running from August, 1 2018.

Acting under the contract, ZB mobilized resources managed to supply the first consignment of 2,000 tons and received Sh200million as payment.

The contract turned sour when a ZB director received a phone call from Goodwill on 13th September 2018, telling him to stop supplying the remaining consignment on the bases that the defendant’s storage facility was full.

ZB claimed all attempts to persuade the defendant to not block the contract and effecting payments to them failed.

The company claimed it incurred losses as it had solicited funds to fulfil this business arrangement which involved borrowing Sh375 million from KCB Bank.

No valid licence

The issue of the mining licence validity emerged at the hearing of the suit when ZB managing director, Zilly Badi Mruma, was being cross-questioned by defendant’s lawyer, Adolf Mzeru, after giving testimony in court.

The lawyer pressed Mr Mruma to explain in court whether he had tendered any document to show his company had a valid mining permit when entering into the contract for the supply of the minerals.

Mr Mruma admitted he tendered no any licence for mining magnesite or any dealership licence.

A loan officer from KCB Bank who gave evidence in support of Mr Mruma’s testimony stating ZB was their client.

He said they once visited Goodwill’s industry located in Mkuranga and confirmed the company had business engagements with the plaintiff.

“We also satisfied ourselves that our client had a primary mining licence, BRELA registration, the supply of the magnesite contract agreement and other payment of necessary levies.

During the defence, Goodwill manager Yany Fang saidthey wrote to the Mining Commission at Same to confirm the validity of ZB’s mining licence and were told the company had no valid mining licence.

He prayed the court to dismiss the suit since the plaintiff has no mining licence hence is unauthorised to trade in magnesite minerals.

A senior Mining Technician from the Mining Commission said there was no record in their office showing ZB possessed mining licence covering the period from 2018 to the date of the hearing.

Unlawful object

Judge Kakolaki started his judgment by revisiting the essentials of a valid contract which include lawful object, among other qualities.

“Section 10 of the of the Law of Contract is categorical that “All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.

“As cited above the law under section 10 of the Law of Contract Act, requires that a valid contract must be with a lawful object. The object of the contract in this matter is supply of 30,000 tons of magnesite carbonate.

“In absence of such evidence tendered in court, I would hold the plaintiff possessed no valid licence at the time executing the contract with the defendant.

The provision of section 18 (1) and (40) of the Mining Act makes it illegal by criminalising any act of dealing with or trading in minerals without being a mineral right owner or without any dealership or broker licence.

“Since the law makes it illegal to trade in minerals without a licence and since in this matter the contract for supply of minerals of 30,000 tons of magnesite carbonate which is an object of the contract was entered into by the plaintiff without valid mining licence, I am forced to hold that the contract between parties was illegal hence invalid.

“Since the object of the contract was illegal then there was no valid contract in law as the same was null and void,” said judge Kakolaki.