African Rainbow Capital (ARC) and its founder and chairman Dr Patrice Motsepe have had a $195 million (R3.55 billion) case of alleged breach of non-disclosure agreements in Tanzania brought against it by US-based Pula Group, struck off the roll.
Tanzania judge Dr Frank Mirindo said: "that taking into account both parties' conduct throughout the proceedings of this case including parallel litigation, I make no order as to costs save for the adjournment costs I previously ordered during the trial to be paid by the plaintiffs".
The dispute is more than just over one graphite project in Tanzania. It raises questions about how investors conduct themselves, how corporate structures are used and scrutinised, and whether companies developing Africa’s strategic resources can rely on agreements made with major investment groups.
The latest judgment follows a judgment by the Johannesburg High Court a month ago that Pula Graphite Partners Tanzanite and Pula Group had not made out any cause of action based on allegations of breach of contract against ARC. The Johannesburg High Court also found that Pula did not have a claim for contractual damages in respect of a surrendered prospecting licence, a statement from ARC said at the time.
African Rainbow Minerals (ARM) said: "ARM respects the decision of the Court and will continue to act in the best interests of the company, its shareholders and stakeholders. The company will take all appropriate steps to protect its legal rights in relation to this matter. As the matter remains subject to legal considerations, ARM will not comment further at this stage," it said.
Dr Mary Stith, Pula Group President, said that while the court struck off the current proceedings because it found that Evolution Energy Minerals Limited and Ngwena Tanzania should have been joined as parties, the judgment made a series of significant findings supporting central elements of Pula’s case, said Stith.
It had had affirmed evidence concerning the relationship between Patrice Motsepe, ARM and ARC, and preserved the substantive questions concerning breach of confidentiality, corporate liability for determination once the necessary parties are properly before the Court.
She said court had also rejected ARC’s challenge to the jurisdiction of the Tanzanian courts and affirmed Tanzania’s jurisdiction in a dispute concerning the exploitation and use of natural resources situated in Tanzania.
The court also rejected ARC’s argument that the subsequent South African judgment prevented the Tanzanian proceedings from continuing, she said.
Pula Group and Pula Graphite Partners Tanzania had instituted a claim against African Rainbow Minerals (ARM): ARCH Sustainable Resources Fund (ARCH), a Mauritius‑based investment vehicle jointly established by African Rainbow Capital (ARC) and UK-based ARCH Emerging Markets Partners, and Dr Motsepe, for allegedly breaching the terms of a non-disclosure agreement (NDA), governed under South African law, albeit that the NDA was entered into between Pula Group and ARM only.
Pula alleged that confidential information had been shared with ARC and/or ARCH. Pula further alleged this enabled ARCH to acquire a stake in Evolution Energy, a competitor of Pula, in Tanzania. Consequently, Pula claimed it suffered a future loss of profit in respect of its exploration rights. Pula advanced a contractual claim for the alleged damages against ARM, ARCH, ARC and Dr Motsepe, notwithstanding that only ARM was a party to the NDA.
Although Pula alleged it held the exploration right at the time the proceedings were instituted in Tanzania in October 2023, it later transpired that Pula had attempted to renew that right, that the right could not be renewed and had to be surrendered. In August 2023, a newly incorporated entity, Pula Carbon, was granted a fresh exploration right on the same tenements covered by Pula's surrendered right. Pula Carbon was, however, neither a party to the NDA nor to the litigation.
Stith said: “The downside of this ruling is straightforward: justice has been delayed. After years of proceedings and a full trial, the Court identified a procedural issue that, in our view, could have been addressed within the existing case.”
“The substance of Pula’s claim was not rejected. The court stopped before completing that determination,” she said.
Evolution Energy Minerals had acquired the Chilalo Graphite Project in Tanzania — the same project area that the Pula Group claimed rights to under a prior NDA. Ngwena is Evolution's Tanzania subsidiary.
She said the court went on to identify Mr Motsepe as a “linking factor between ARM and ARC” and accepted evidence connecting ARCH’s investment in Evolution Energy Minerals with related companies, including ARC, she said.
She said Pula was considering three routes forward including an appeal to strike off the proceedings when the court possessed a procedural power to add the parties it considered necessary, an application for review, or fresh proceedings to cure the joinder issue identified by the court, bringing before the Court those entities whose participation the judgment considers necessary.
Pula's priority graphite project is in the Ruangwa District in the Lindi Region of Tanzania.. An updated CPR (competent persons report) commissioned for a second drilling exercise indicates tthere is nearly 145 million tonnes of resource.
*This article was amended by the author to reflect the case was struck off the role on technical factors and was not "successfully defended" by African Rainbow Capital (ARC) and its chairman Dr Patrice Motsepe.