Commercial Court Division

THE REPUBLIC OF UGANDA

IN THE HIGH COURT OF UGANDA AT KAMPALA

(COMMERCIAL DIVISION)

HCT - 00 - CC – CS - 155 - 2014

1.  DEI MINERALS INTERNATIONAL LIMITED

2.  MAGOOLA MATTHIAS ::::::::::::: PLAINTIFFS

VERSUS

1.  VIDEOCON INDUSTRIES LIMITED
2.  VENUGOPAL N. DHOOT
3.  VIDEOCON HYDROCARBON HOLDINGS LTD
4.  MARDEN XAVIER FERNANDES
5.  SURESH HEDGE
6.  ANJAY PRAKASH MOHNOT
7.  EMERALD ENERGY DMCC
8.  STAR ENERGY TRADING :::::::::: DEFENDANTS

BEFORE: THE HON. JUSTICE DAVID WANGUTUSI

J U D G M E N T:

Dei Mineral International Limited, is a company dealing in minerals and mines, referred to as the 1st Plaintiff and Magoola Matthias a businessman and Managing Director of the 1st Plaintiff, as the 2nd Plaintiff jointly brought this suit against Videocon Industries Ltd 1st Defendant Venugopal N. Dhoot 2nd Defendant, Videocon Hydrocarbon Holdings Ltd – 3rd Defendant, Marden Xavier Fernandes – 4th Defendant, Suresh Hedge – 5th Defendant, Anjay Prakash Mohnot – 6th Defendant, Emerald Energy DMCC – 7th Defendant and Star Energy Trading – 8th Defendant.

The Plaintiffs seek damages for breach of contract as a consequence of being deprived of their mining licences, loss of mines and earnings.

The background to this suit as got from the evidence of PW1 and the pleadings is quite straight forward. The 2nd Plaintiff had set up the 1st Plaintiff a mineral company in which he was the Managing Director.

Using the 1st Plaintiff as a platform, the 2nd Plaintiff applied for and obtained two mining licences. These licences were in respect of Kirwa Wolfram mines located in Kisoro District and Mwerasandu Tin Mines located in Ntungamo District.

Evidence on record indicates that Kirwa Wolfram mines is the largest Tungsten/Wolfram Mines in East Africa. Mwerasandu Tin is also the largest Tin Mines in Uganda.

The 1st Plaintiff acquired a prospecting licence on 14th September 2006 Exh P.2 an Exploration Licence No. 0744 in respect of Mwerasaendu on 23rd November 2006 Exh. P.2,an Environmental Impact Assessment Certificate in respect of Kirwa Wolfram Mines Exh. P.3 and paid all the requisite government assessment fees. The Plaintiffs also acquired a location licence in respect of Mwerasandu Tin Mines No. LL 0181 which the Plaintiff later surrendered to Government to pave way for the transfer of licences to Videocon Natural Resources P.L.C.

Armed with the foregoing the 1st Plaintiff was very attractive to foreign investment. It did not take long, for in late 2006, agents of Videocon Industries Ltd an Indian Company approached the Plaintiffs and made proposals of joint ventures. The discussions resulted into a Memorandum of Understanding between Emerald Energy DMCC/Videocon Hydrocarbon Limited, Dei Minerals International Ltd and Star Energy Trading FZC – Exh. P.6.

The Memorandum of Understanding recognized that the 1st Plaintiff was carrying on business in Uganda. That it had two mines; Kirwa Wolfram Mine and Mwerasandu Tin Mine. The Memorandum of Understanding also recognized that both mines had been operationalised by the 1st Plaintiff who had acquired, mining licences for both mines, had carried out a pre-feasibility study, an impact assessment, paid fees for licences, royalties and Government taxes, acquired equipment, hired personnel and provided security.

Most of all the parties recognized the quantities of the minerals in these words;

“Kirwa Wolfram Mine having proven Ore reserves of six million metric tonnes of Tungsten (also referred to as “Wolfram”) and Mwerasandu Tin Mine estimated to have a resource of over three million tonnes of Tin Ore which will form the basis/with DMIL’s equity in the company (basis of valuation) 100%”.

The parties agreed to form a new company floated in London so as to enable the new entrants to get shares. It is to this new company that all the shares of the Plaintiffs would be transferred and each party including the 2nd Plaintiff would acquire shares. The 1st Plaintiff was to provide all co-ordination, legal work and enable a smooth transfer of the assets to the new company. The parties endorsed the Memorandum of Understanding on 20th December 2007.

Following the Memorandum of Understanding Exh. P.6 a company Videocon Natural Resources PLC was incorporated. This company was fully owned by Videocon Industries Ltd, the 1st Defendant who were the majority shareholders, the Plaintiffs and one Francis Ife and Marden Fernandes D4 were also shareholders. Other shareholders were Shigdy and Daway.

As Exh. P.10 indicates a Certificate of Incorporation No. 6511265 was issued in the United Kingdom on the 21st February 2008. This was followed with a corresponding Registration in Uganda Exh. P.11. This registration dated 22nd April 2008 in pursuance of Section 370 Part x of the Companies Act served to certify that Videocon Natural Resources PLC had been incorporated in England.

It is then in this context and in implementation of the Memorandum of Understanding Exh. P.6 that the Plaintiffs effected the transfers of Exploration Licence No. 0144 as Exh. P.8 shows. The Transfer of Exploration Licence No. 0144 in part reads;

“In accordance with regulation 15, provision to regulation 62(g) of the Mining Regulations, 2004 and provision to Section 93(1) of the Mining Act, 2003, the Exploration Licence No. 0144 bearing Registered Mining Instrument No. 00147 granted on 23rd November 2007 herewith attached is transferred from Dei Minerals International Limited P. O. Box

35854, Kampala to Videocon Natural Resources PLC of P. O. Box 23507, Dubai, UAE with effect from 11th August 2008”.

PW1 told Court that after this transfer, an Exploration Licence was granted to the Defendants, Exh. P.9. This licence which was to last 3 years enabled the Defendants to prospect for Wolfram.

These processes which had resulted from the many positive provisions of the Memorandum of Understanding Exh. P.6 were never to be. The Defendants did not put in the US$100 million. Plant and Machinery and equipment were not bought. Transportation, logistics, sales and exports were never put in place as had been agreed.

When Government of Uganda did not receive the quarterly returns that were a must under the Mining Regulations and also realized that the money, that was supposed to have been injected into the mineral exploration was not forthcoming, it exerted pressure on the Plaintiffs, warning them of the breach and threatening revocation of the licences.

These licences were not renewed when they expired on the 22nd November 2009. The Plaintiffs brought this action against the Defendants.

Court record indicates that service of Plaint and summons to file a defence was effected on the 10th April 2014. No defence was filed by the Defendants 1,2,3,4,5, 7 and 8 within the prescribed time. On the 4/6/2012 Counsel for the Plaintiff applied for judgment in default against the Defendants. On the same day the Registrar entered judgment against all and the matter was set down for formal proof.

Just before the hearing, the Plaintiffs withdrew claims in respect of the 4th, 5th and 6th Defendants. They also withdrew claims against the 7th and 8th Defendants where the 6th Defendant had been the majority shareholder and they had since been wound up. The suit thus proceeded against the 1st Defendant Videocon Industries Ltd, 2nd Defendant Venugopa N. Dhout and Videocon Hydrocarbon Holdings Ltd.

The Plaintiff sought a declaration that the Defendants committed a breach of contract.

A declaration, that the mining licences that the Plaintiff had transferred to the Defendants were never returned. That failure to return the licences to the Plaintiff led to their loss of the mines, business and profit.

Furthermore, a declaration that the Defendants are therefore liable in damages and interest with costs.

The first issue therefore to be considered is whether the Plaintiff indeed owned licences and did transfer them to the Defendants. There is no doubt that the Defendants were owners of lincences in respect of Kirwa Wolfram Mine and Mwerasandu Tin Mine. Proof of this ownership is found in Exhibits P.2, P.3 and P.5, a prospective licence issued on 14th September 2006. As for the transfer of these licences to the Defendants, Exhibit P.6 which is the Memorandum of Understanding clearly spells out the obligations of the parties and one of the obligation was that on the incorporation of the new company, the Plaintiffs would transfer the licences to the Defendants. The proof of transfer of these licences is clearly spelt out in Exhibit P. 8 headed.

“TRANSFER OF EXPLORATION LICENCE NO. 0144”.

Here the Plaintiffs, being the holders of exploration licences No. 0144 registered under Mining Instrument No. 000147 granted on 23rd Nove,er 2007, transferred it to Videocon Natural Resources PLC on 11th August 2008.

Another piece of evidence that shows the Plaintiffs transferred the licences to the Defendant’s company in fulfillment of its obligations in the Memorandum of Understanding – Exhibit P.6, is the exploration licence granted to Videocon Natural Resources PLC – Exhibit P.9. As already seen above, this transfer of licences to Videocon Natural Resources PLC was a condition requirement between the Plaintiff and the Defendant to enable the Defendants obtain some of the shares that were originally solely owned by the Plaintiff.

The registration of Videocon Natural Resources PLC is shown to have been registered in England on 21st February 2008; Exhibit P. 10 and registered in Uganda on 22nd April 2008; Exhibit P. 11. From the foregoing, there is therefore no doubt that a transfer of licences was effected as agreed upon by the parties in the Memorandum of Understanding.

Turning to whether the Defendants breached the Memorandum of Understanding, it is necessary to consider the terms of the agreement. Exhibit P.6 was based on a promising context, before the execution, Maden Fernandes, the Managing Director of Videocon Natural Resources MDCC, a company owned by Videocon Natural Resources MDCC, a company owned by Videocon Industries Ltd wrote to the 2nd Plaintiff who was the Managing Director of the first Plaintiff. In this letter, Exhibit P.7 headed Kirwa Wolfram Mine and Mwerasandu Tin Mines in Uganda, he confirmed the investment into the development of both mines. He said this would be done upon completion of incorporation in England of Videocon Natural Resources PLC (London) (VNR PLC); that this would be followed by registration of the company in Uganda. The other requirement spelt out in Exhibit P.7 was that after VNR PLC in Uganda was registered, the 1st Plaintiff would transfer 99% of its shares to the new company, all the mining licences and rights which would then be followed by an official launch. He gave assurances that Videocon was a listed company on Mumbai Stock Exchange; that they would then appoint a general manager, recruit personnel/employees and create new job opportunities for the people in Uganda.

The 2nd Plaintiff would among others, be a member of the board of directors. They were prepared to inject 100 million dollars immediately into the venture. This was then the understanding that resulted into the basis upon which the Memorandum of Understanding was signed. The transfers of licences and shares that were provided for in the Memorandum of Understanding were all executed by the Plaintiff.

After the Plaintiff had fulfilled their obligations they waited for the Defendants to do their part. The Defendants failed to do their part and the Government of Uganda exertered pressure on the Defendants to fulfill their obligations. This resulted into a notice of revocation by Government of Uganda. The desperate position in which the Plaintiffs, were led to the writing of Exhibit P.12 to the 2nd Defendant on 7th August 2009 a letter expressing their disappointment. It reads in part:

“As you are aware we have formed VNR PLC at London to manage two mining projects in Uganda within last year. However, inspite of numerous commitments given by Mr. Fenandes to conduct the study of both mines until todate, no action has been taken. This has resulted into an embarrassing position for us before the Ministry of Energy and Meneral Development in Uganda. And now they have issued a notice to revoke the licence granted to us for both mining projects. The communications made between Mr. Fernandez and us were just mere promises that have been made.”

Furthermore, the 100 million dollars that the Defendants promised to inject in the project was never done. The mine development and operations strategy that had been promised by the Defendants was also not done because of the Defendant’s failure to fulfill its obligations. The provisions of the Memorandum of Understanding of Exhibit P.6 were fundamental in the execution of the Memorandum of Understanding and any one who failed to do his part would be breaching the contract the parties had entered into. Since the Plaintiffs transferred the lincences of both mines and the 99% shares as provided for in Exhibit P.6, they fulfilled their part of the contract. The Defendants, having failed to inject the 100 million dollars thus rendering the operations of the mine impotent, were in breach of their obligations in the contract.

With regard to whether the Defendants should have returned the licences of the two mines, I have already found above that the Defendants were in breach of the contract and since they were in breach, it was their duty to return the Plaintiff to the position they had been in before they entered into this business relationship with the Defendants. This meant that the Plaintiff had to recover their mining licences.

Turning to whether the licences were returned or not; the Plaintiffs through PW1 testified that when they realized that the Defendants had no intentions of pushing their venture to the next level, they requested that to minimize losses, the licences of the two mines be returned.

It is the evidence of PW1 that they beseeched the Defendants to return the licences in vain. Exhibit P.12 written to the 2nd Defendant on 7th August 2009, the Plaintiffs exhibited fear that the licences would be revoked due to inactivity. The Director of the Plaintiffs in part wrote:

“Sir, as of today, we are under tremendous pressure from the Ministry and we have lost heavily and spent huge amounts of funds to obtain both mining licences. If these licences are revoked by the Ministry, the image of Videocon Group in front of the Ugandan Government will not be well but truly tarnished.