Court orders North Mara to pay local firm Sh40 billion

Thursday August 04 2022
By Bernard James

Dar es Salaam. The High Court has ordered North Mara Gold Mine Limited (NMGM) to pay a local mining firm $17.4 million (about Sh40 billion) in compensation for unpaid royalties from gold produced in an area it owned before transferring mining rights to NMGM.

The Commercial Civision of the High Court sitting in Mwanza has sided with Isaac & Sons Company Limited that NMGM has for 23 years failed to pay the local company a one percent royalty in honour of a contract they had entered.

The court also said the agreement that granted NMGM exclusive mining rights over the land initially owned by Isaac & Sons was unclear and ambiguous.

NMGM already has filed a notice of intention to appeal against the decision that has attracted huge interest among mining stakeholders.

“Clearly, since the defendant (NMGM) has dug, strip-mined and constructed a berm on the mining area whom original holders and beneficiaries were plaintiffs (Isaac & Sons), there is no doubt, therefore, that the plaintiff is entitled to payment of royalty,” said Judge Deo Nangela in a recent decision.

Isaack & Sons brought the suit against the mining firm in December 2020 after accusing it of breach of contract when it failed to settle the one percent royalty, which, according to the firm, had totalled $21.6 billion by June 30, 2017.


Isaac & Sons case

Isaac & Sons was an original holder and beneficiary of the mining and surface rights of the mining areas, currently situated within NMGM’s Special Mining Licence in Tarime District.

The areas were initially being operated by the company for many years until September 1999 when they transferred their mining rights to NMGM through three separate agreements.

The agreement granted NMGM exclusive rights to carry on mining operations over the three areas.

On their part, NMGM agreed to pay Isaac & Sons royalty equal to one percent of all gold it produced from any part of the areas.

“Although the defendant has produced substantial amount of gold since she commenced mining operations, the plaintiff has never been furnished with any information pertaining to production of gold of the areas,” claimed one of the directors and shareholder of the company, Mr Enock Isaac Mwita, 74.

Isaack & Sons claimed they were entitled to $21.6 million accrued payments of royalties from NMGM as of June 30, 2017.

According to Isaac & Sons, it was also entitled to the payment of accrued royalties revenues for the years 2018, 2019 and 2020 and the years ahead, up to time of closure of the mine.

NMGM defence

NMGM admitted on one side to have entered into three contracts with local miners who surrendered and granted their mining rights to them but categorically insisted it has never produced gold from areas formerly owned by the plaintiff from the year 2013.

A witness who testified for NMGM, Mr Alex Kaizirwa, told the court that the mining company has only been producing gold from various other areas which belonged to other persons other than the plaintiff.

A financial analyst for NMGM, Mr Joseph Rafael, testified that MMGM was not liable to pay the plaintiff because “gold has been produced from the areas to date.”

According to Mr Rafael, NMGM never received any request or demand from the plaintiff for information regarding to the status of production of gold from their former areas.

Court decides

Judge Nangela started his analysis of evidence by poking holes on the purported Kiswahili version of the three contracts that was drafted by NMGM in absence of the plaintiffs and confidentiality clauses.

The court was told that the Kiswahili version of the contracts was read to the plaintiffs a security officer of NMGM, Mr Abiha Emmanuel, purporting to show that the Kiswahili version was a true and accurate translation of the three contracts.

“There was no proof that the said defendant’s security officer was competent in English and Kiswahili languages to warrant this court believe that the plaintiff understood what was being translated. The defendant did not even took trouble to bring the person in court to testify in that fact,” said the judge.

The judge said the evidence produced in court clearly showed that “the balance at the negotiating tables was heavily tilted in favour of one party, the party who drafted the agreement.

“I also share the submissions that in such an environment, plagued by all indicators of an unbalanced bargaining power, the purported terms of the agreement have to be read with a log of caution and any ambiguity has to be resolved in favour of the plaintiff who is not the one who drafted the said agreement.

“Indeed that is important because most mineral extraction business across many parts of the developing world constitute an area rife with the risk of asymmetrical bargaining power and fraught with unscrupulous dealings where one misstep may invite what amounts to indefinite squatting on valuable mineral rights.

“Moreover, having been executed, they have been shielded with confidentialities clauses like clause 5 of the three contracts. That secrecy has been and continued to be a sources of injustice that flows from the extractive industry necessitating a new era of transparency in that industry.

The judge said the manner in which clause 3 of the agreement was drafted by NMGM has gravely perpetuated the tendency of secrecy and concealment of information, thus, leaving the plaintiff in the darkness and financial doldrums. The judge also rejected NMGM defence that they could not pay royalties to Isaac & Sons because mining operations were yet to start at the areas.

“It is my firm view that the defendant did not only commence mining operations in the areas under agreement but also the defendant is producing gold out of such mining operations.

The commercial court has also awarded Isaack and Sons Sh300 million in general damages and further ordered NMGM to pay the local firm a seven percent interests on the $17.4 million from the date of the judgment to the date of final payment of the amount claimed.