ALB | 14 September 2017
Multi-million dollar payment hangs over Zimbabwe
by ANDREW MIZNER
Zimbabwe is in breach of two arbitral awards totalling USD 240 million, after it missed a deadline to pay investors whose land was seized as part of the government’s racially motivated land reforms.
Zimbabwe has failed to pay arbitral awards worth nearly USD 240 million to a family of Swiss-German investors whose land was seized by settlers and the government on racial grounds.
The von Pezold family and their company Border Timbers won twin awards against the Zimbabwean government at the International Centre for Settlement of Investment Disputes (ICSID) in July 2015, worth USD 230 million in damages and interest, GBP 8 million (USD 10.7 million) in legal fees and ZAR 705,000 (USD 53,000) in experts’ fees.
The government has spent the subsequent two years trying to have the award annulled by an ICSID panel, a fight that will not be decided until the middle of 2018. In the meantime, it has missed a 23 August deadline to pay the awards, with the claimants now entitled to seek enforcement; although there is no word on whether they will attempt to do so between now and the annulment hearings in April next year.
In the early 2000s, against the backdrop of President Robert Mugabe’s land reforms, settlers invaded farmland owned by the von Pezolds and Border Timbers, and in 2005, the government took ownership of a large part of the land.
Border Timbers, Timber Products International, and Hangani Development v Zimbabwe was filed at ICSID, the World Bank’s dispute resolution body, in July 2010 under the 1996 bilateral investment treaty (BIT) between Zimbabwe and Switzerland, while Bernhard von Pezold v Zimbabwe was filed in December that year by Adam von Pezold, Anna Webber, Elisabeth von Pezold, Felix von Pezold, Heinrich von Pezold, Johann von Pezold and Maria Batthyàny under the Swiss BIT and the 1995 Zimbabwe-Germany BIT.
All parties agreed that the two cases would be heard as one, but that there would be separate awards.
ICSID convened a panel led by leading Canadian arbitration Yves Fortier, who was joined by Malawi’s Peter Mutharika and David Williams QC of New Zealand. Mutharika was replaced by An Chen of China in 2011, who in turn was replaced by Michael Hwang SC of Singapore in 2013.
Both claimants were represented by the London-based chair of Steptoe & Johnson’s investment treaty arbitration practice Matthew Coleman, along with associates Helen Aldridge and Thomas Innes, and Charles Verrill Jr from Wiley Rein in Washington, DC. Valuation work was done by Tony Levitt from the London office of RGL Forensics.
The awards were distinguished by the panel’s findings that the government policy was racially motivated against the landowners.
“It is the first investment treaty arbitration case that has held that a state has been engaged in discriminatory behaviour based on the colour of the investor’s skin,” says Coleman, speaking from his London office. “That is the most unique thing about it.”
Despite the high-profile nature of Mugabe’s land policy, it is only the third international tribunal to consider the policy, following a 2008 Southern African Development Community tribunal which decided in favour of white farmer Mike Campbell and a previous ICSID case, Funnekotter v Zimbabwe, on which Coleman also worked.
The von Pezold case, he says, is “the most comprehensive analysis of Zimbabwe’s land reform programme”.
Zimbabwe was represented by the Zimbabwean attorney general, which at the time of the hearings was Prince Machaya, and advisers from his department, the Ministry of Lands and Rural Resettlement, Minister of Finance and Economic Development, Legal Affair Department in the Ministry of Foreign Affairs. They were joined by a team from Parisian firm Kimbrough & Associés, led by name partner and Texas native Philip Kimbrough and his colleague Tristan Moreau.
AWARDS AND ANNULMENTS
The panel awarded in favour of the claimants in both cases in July 2015. For the first time in ICSID history, a panel ordered the restitution of the property, or payment of confiscation. But in October that year, Zimbabwe filed for annulment under article 52 of the ICSID Convention, which applies if the tribunal was not properly constituted, exceeded its powers, was corrupt, departed from its own rules or gave an award without good reason.
Filing the annulment claim put an automatic stay on the enforcement of the award, and both sides then spent 2016 arguing over whether the award could be enforced while the annulment proceedings were pending, with the annulment committee ultimately deciding in April this year that it could be enforced, setting a deadline of 23 July – 90 days from the order – for the return of the confiscated property, or alternatively, of 22 August for the payment of compensation.
On 22 August, as the deadline expired, the committee rejected an application by Zimbabwe to extend the deadline, meaning that as of 23 August, Zimbabwe has been in breach of the award.
In the meantime, the annulment proceedings continue. Zimbabwe filed a memorandum in June, with the claimants due to file theirs in early October. The two sides will then file responses either side of the New Year, ahead of an oral hearing in April 2018.
“The clients are very confident that the annulment applications made by Zimbabwe will fail,” says Coleman. “The grounds put forward are completely baseless, some are absolutely ridiculous and they will enforce the awards, they will be paid.”
“They are confident that the awards will either be paid voluntarily or more likely they will be successfully enforced,” he notes, citing Zimbabwe’s public assurances that it will honour the awards when the stay is lifted and if it loses the annulment proceedings.
Though Zimbabwe’s claims in the annulment proceeding remain confidential, it is understood that they involve attacks on the tribunal, particularly Fortier.
Coleman says this tactic “has become increasingly common, unsatisfied parties attacking the way in which the arbitral tribunals have conducted the proceedings”, as was highlighted by Orsolya Toth of Keble College, Oxford, last year, speaking at CDR’s Winter Arbitration Symposium
While unable to comment on details, Coleman describes Zimbabwe’s attacks as “quite unique”.
Fortier chaired the three-person arbitral panel at the Permanent Court of Arbitration which in 2014 decided the world record USD 50 million arbitral award made against the government of Russia over the demise of Yukos.
That award was overturned by the District Court of The Hague in April last year on the grounds of jurisdiction, but that decision has been appealed and it is possible that at some stage either the Court of Appeal or Supreme Court of the Netherlands will hear Russian claims that Fortier delegated too much responsibility to tribunal secretary Martin Valasek.
In 2012, Fortier beat Venezuelan attempts to have him disqualified from hearing an ICSID case brought by ConocoPhillips.
Concluding, Coleman says: “The clients are very pleased with the success they have had to date. They are frustrated by the extent to which Zimbabwe has dragged out the proceedings in the past and these proceedings aren’t going particularly quickly either. The complaints during the arbitration were that Zimbabwe amended its case out of time in regards jurisdiction on numerous occasions, which meant that we lost several dates for the final hearing and the proceeding as a whole was extended by at least 18 months.”
Kimbrough & Associés did not respond to requests for comment.