It is a ‘desperate appeal’ to bail them out of a pickle in Tanzania, where it is being sued for breaching a non-compete agreement, says Pula Group. From Moneyweb.
Patrice Motsepe’s African Rainbow Capital (ARC) has launched another front in the South African courts over a R3.4 billion ($195 million) claim against it in Tanzania for an alleged breach of a non-compete agreement with Pula Group.
The damages claim stems from an alleged breach of a non-disclosure agreement (NDA) that gave Motsepe’s companies access to Pula’s confidential information, which was then used to invest in a rival graphite project in the Ruangwa region of Tanzania. The Motsepe companies deny the claims.
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Motsepe, ARC, African Rainbow Minerals (ARM), and ARCH Sustainable Resources were all cited in 2023 as respondents in the case brought in Tanzania by Pula Group and its 50% subsidiary Pula Graphite.
ARC says the South African courts are the appropriate venue to hear its case and have jurisdiction over the matter, which is already slated to proceed to trial this year in Dar es Salaam. Pula chairman and former US ambassador to Tanzania, Charles Stith, says this is a desperate attempt by ARC to avoid culpability.
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Only ARC mounted a defence in the Dar es Salaam court. In July 2024, the Tanzania High Court ruled that Motsepe, ARM, and ARCH no longer had standing in the main case due to failure to appear at an earlier hearing, effectively placing them in default.
The agreement was signed between Pula and ARM only. ARM, ARCH and Motsepe say they did not defend the matter in Tanzania as they had not been properly served.
ARC approaches the SA courts
With a pre-trial conference due to commence on 22 August in Tanzania, ARC approached the Joburg High Court for an ex parte order (where only one side argues) allowing it to serve papers on Pula by way of edictal citation – a method of serving legal documents when a defendant’s whereabouts is unknown or they cannot easily be reached. Pula has no offices in SA.
Pula has a month to respond to the order, with ARC arguing that it is not affected by the confidential agreement signed between ARM and Pula.
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“Due to the fact that the NDA, which is central to Pula’s case, is governed by South African law and the majority of the defendants are based in South Africa, ARC is of the view that the South African courts are best-placed to consider the matter and have jurisdiction,” says Garry Ramaru, head of investor relations at ARC.
Pula president Mary Stith sees it differently: “ARC’s appeal to the South African courts appears to be a strategic attempt to sidestep accountability. What’s troubling is the inconsistency in their legal arguments. In Tanzania, they assert that the parties named in the suit are unrelated. Yet in South Africa, they claim that a potential judgment against Motsepe, ARM, and ARCH would impact ARC directly.
“This contradiction raises serious questions about the credibility of their position. Legal integrity demands consistency, and ARC’s approach undermines that principle.”
Basis of the claim
In its court papers, Pula alleges that ARM breached the 2019 non-disclosure and non-compete agreement by investing in Evolution Energy Minerals, a rival graphite project near Pula’s Ruangwa site in Tanzania, one of the richest graphite sites in the world.
ARM was previously in discussions with Pula over the possibility of investing in its graphite project but later decided against it, opting instead to invest in Evolution Energy Minerals, which is developing the nearby Chilalo Graphite Project in southern Tanzania. In the course of these discussions, ARM is alleged to have gained access to Pula’s confidential information, which resulted in severe financial loss.
Read: ARM market cap drops R3.5bn on news of Tanzanian court challenge [2024]
ARC, advised by Webber Wentzel, argues that the claims against Motsepe and his companies are fatally flawed based on privity of contract – where parties to a contract can sue each other, but cannot be sued by third parties. ARC also maintains that it never breached the agreement, nor has Pula presented any evidence that ARM breached the NDA.
Ramaru says ARC has filed an application to stay the default judgment proceedings in Tanzania pending the trial against it, since it involves consideration of the same facts.
Read: Patrice Motsepe being sued for R3.4bn in Tanzanian case [2024]
“The application is pending before the court. ARCH has also filed an application to, inter alia, have the default judgment application expunged, as that application is founded on incorrect statements relating to Pula’s purported ownership of the exploration right. ARM has also filed an application to have the incorrect information regarding ownership of the prospecting right expunged from Pula’s default judgment application. These matters have not yet been argued before court.”
Approaching the SA courts for relief is part of a troubling pattern, says Charles Stith.
“First, there was the breach of the non-compete agreement. Then came the decision to go private – without notification to the Tanzanian Court, us,or our legal representatives – despite its implications for the dispute. Now, ARC seeks refuge in South African courts to avoid facing the consequences of its own actions. We are grateful to South Africa’s free press for bringing this to light. Without it, this attempt to quietly shift the legal playing field might have gone unnoticed.”
The argument by ARC that the Tanzanian court lack jurisdiction is legally tenuous and contradicts its own logic, adds Stith.
“If they believe the matter belongs elsewhere, then South African courts should not be drawn into it either. This is a legal quagmire of their own making, and now they’re trying to entangle South Africa in it.”
Who owns the exploration right?
ARC says it has applied to amend its defence after learning that the prospecting right for which Pula claims damages was surrendered and ceased to exist prior to it launching legal proceedings. It argues that Pula Carbon, who has held the exploration right since August 2023, is neither a party to the NDA, nor to the litigation.
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Charles Stith challenges the claim that Pula Graphite no longer owned the exploration right of the project by August 2023. “The only dates that matter are the dates the agreement was in force and the date the breach occurred,” he says.
“This trial is important for our company because we’re defending our right against unfair competition and Motsepe’s companies’ violation of a duly signed non-compete agreement. That this suit is going to be finally heard by the Tanzanian Court, is not only important for us, it is also important for Tanzanians.
“This trial will underscore that when Tanzanian companies engage outside interests, their rights and interests have to be respected.”
