Why Tanzania opted for out-of-court settlement with Canadian company

Dar es Salaam.  Tanzania on Monday reached an agreement with a Canadian mining company, Winshear Gold Corp, to conclude an investment dispute that was instituted by the company for the expropriation of its SMP Gold Project, in southwest Tanzania.

As a result, the Tanzanian government has paid the Vancouver-based company $30 million (Sh75 billion).

The company was originally seeking compensation in excess of Sh250 billion for the SMP Minerals Resource, which was wholly contained within the Four Retention Licenses that were expropriated in 2017.

In a short message, the Attorney General, Dr Eliezer Feleshi, confirmed that the dispute had been resolved and the money had been remitted to the claimants.

He did not, however, state when exactly the funds were released to the gold mining firm.

The settlement comes at a time when Tanzania faces several cases at the International Centre for Settlement of Investment Disputes (ICSID).

The most recent case is against Australian firm, Indiana Resources Limited (IDA), where Tanzania has been ordered to pay $109 for breach of contract on the Ntaka Hill Nickel Project in 2018.

Other cases pending at the ICSID include that of another Canadian miner Montero Mining & Exploration, whose hearing has been set for December.

The company, whose retention licence to mine rare earths at Wigu Hills was cancelled in 2018, is seeking compensation in excess of Sh168 billion.

British Developer Pennyroyal Ltd, a company that was constructing the Blue Amber Resort in Zanzibar, also filed a case at the ICSID in July.

The date of hearing is yet to be determined.

The value of the compensation claim remains unknown, but it could well run into hundreds of billions of shillings.

Monday’s settlement is seen as a win-win situation for both the claimant and the Government of the United Republic of Tanzania.

Winshear Gold CEO Richard Williams said the settlement was good for both Tanzania and Winshear.

“We are pleased to reach a mutually acceptable conclusion to this matter.

 It is time for both parties to move on, and we wish Tanzania success in attracting new investment.

”One local pundit, who wished to remain anonymous, said entering a settlement out of court was a smart choice by the Tanzanian government.

”It was face saving, therefore avoiding to tarnish the country’s reputation as an investment destination, the lengthy duration of time and large sums of money that would be incurred in legal costs and the eventual compensation,” he said.

However, some have urged Tanzanian authorities to observe caution before terminating a contract, putting into consideration the bilateral treaties that Tanzania has with other countries.

In an earlier interview with The Citizen, TLS President Harold Sungusia said Tanzania can avoid paying heavy penalties for cases filed at the international tribunes by engaging the aggrieved parties out of court instead of waiting to ride the storm.

According to the TLS President, most of the cases filed against Tanzania are usually because of political interference into matters that are purely legal.

“When an investment dispute like what we have seen in recent years comes up, it is prudent that the clauses of the agreement are adhered to, instead making political utterances that interferes with the legal interpretation of the agreement,” he said.

He says that for Tanzania to increase the chances of avoiding losing cases of arbitration at the International Centre for Settlement of Investment Disputes (ICSID) or any similar institution, it is important to consider a comprehensive investment agreements.

 Background to Winshear claim In July 2017, Tanzania amended the Mining Act 2010 by abolishing the retention licence classification.

The company’s SMP Mineral Resource was wholly contained within four Retention Licences.

Tanzania further published the new Mining (Mineral Rights) Regulations 2018 in January 2018, which cancelled all Retention Licences.

Therefore, the rights over all areas under Retention Licences, including the Retention Licences held for the SMP Gold Project, were immediately transferred to the Government of Tanzania.

Winshear says it actively engaged with the Tanzanian Ministry for Minerals and the Mining Commission from January 2018 to December 2019 in an effort to resolve a suitable tenure mechanism for the Project Licence to be reinstated, but without success.

On December 19, 2019, the Mining Commission of Tanzania announced a public invitation to tender for the joint development of areas covered previously by Retention Licences.  The invitation provided that the successful bidder should compensate the previous Retention Licence holder.

On December 20, 2019, the Mining Commission of Tanzania announced a revised public invitation to tender, which removed the condition that the successful bidder compensate the previous retention licence holder.

Winshear claimed the measures taken by the Tanzania Mining Commission (TMC) removed the ownership of the project from the claimant, and in doing so, Tanzania breached its obligations to the mining company under the Canada-Tanzania BIT and international law.

The ICSID convention has been ratified by 158 states, including Tanzania.

An award issued by an ICSID tribunal is enforceable in any one of those 158 member states comparable to any judgment of one of the local courts.