Which law applies to vendor financing?

HARARE - In terms of paragraph 9 of the term sheet below, all arrangements relating to the vendor financing of the indigenisation shares, and the security to be offered to the vendor are to be governed and interpreted in accordance with English law.           
There has been considerable debate as to which law is applicable in interpreting and adjudicating the terms and conditions of the Vendor Financing arrangements.

It is not in dispute that the Term Sheet was signed by all the parties that knew of its existence and terms and conditions thereof.  

It cannot be argued, therefore, that any party was forced to conclude the agreement.

The purchasers of record were fully aware that the commodity to be purchased was the shares held by Zimplats Holdings Limited (“ZHL”) in Zimbabwe Platinum Mines Private Limited (“Zimplats”).  

The purchase price was established and agreed to.  

Professor Jonathan Moyo makes the point that allegation that the “London courts will have jurisdiction over local empowerment deals” is a juicy lie with no basis in fact and certainly no basis in the Zimplats Term Sheet.  

He however, concedes that the “interpretation of the arrangements relating to the vendor financing will be in terms of English law.”  

He then makes the point that “vendor financing is much clearer in English law which is in force in Zimbabwe than it is in Roman Dutch law which is also in force in Zimbabwe.”
I think Moyo is being disingenuous here for he know that the signatories to the Term Sheet have zero trust that a minister of Justice like, Chinamasa, would come to the same interpretation that English people have as to the rights and obligations of a mortgagor and a mortgagee.  

Moyo who claims that an ideology exists in Zanu PF that supports the indigenisation programme will no doubt agree that such an ideology does not respect the rights of property owners and in this case the loan provided to indigenous entities is the property of the provider and it cannot, therefore, be alienated from the holder without due process.

Under English law, the power of sale in respect of mortgage property is vested with the mortgagor meaning that in the event of default, the mortgage knows the outcome.

It would appear that even Savior Kasukuwere by signing this provision is acknowledging that in terms of Zimbabwean law, protection for both parties is academic even after 33 years of independence.
He knows that giving discretion to the Zimbabwean judiciary to interpret the agreement in terms of the evolving Zimbabwean worldview carries with it, its own real and not imagined risks.

The choice of English law is deliberate and the terms of the Term Sheet are the essence of what the parties intend to happen.  For instance, the price of the shares, the time of its promised delivery and the description of the shares to be sold and purchased are all defined terms in the Term Sheet.

Moyo would be aware that contractual terms in English law deal with the following issues: (1) which terms are incorporated into the contract; (2) how are the terms of the contract to be interpreted; (3) which terms are implied into the contract; and (4) what controls are placed on unfair terms.

All the provisions contained in the Term Sheet form part of the contract and each term gives rise to a contractual obligation, breach of which can give rise to litigation.

The objectives of the Term Sheet are clearly spelt out to give any room for speculation.  

It is clear that the transaction involved the sale of shares and not any possible trading of mineral rights already owned by Zimplats for shares in the same company.

An agreement exists that without limitation, all the arrangements to the vendor financing are to be governed and interpreted in accordance with English law and therefore it cannot be said that the Zimbabwean courts will have any room to interpret the arrangements in terms of any other law.
The argument of where the court should sit to hear a matter involving the interpretation of the key part of the transaction i.e. the financing of the subject shares is irrelevant and represent a cheap attempt to distract attention from the fact that ZHL has protection in terms of English law.

The proposition that the Term Sheet can be cancelled or even amended without consequences is not supported by any evidence to the effect that the two parties had no intention to make the terms and conditions set out binding and more importantly to ensure that the agreement would be governed in terms of a law that is predictable and dependable on commercial contracts.

The signatories were and must have been alive to the consequences of using Zimbabwean law as the basis to interpret the financing aspects of the deal.

It would appear that Moyo is privileged to know why President Robert Mugabe may not be happy with the fact that the applicable is English Law as set out in the Term Sheet.
We now then deal with the arrangements related to the vendor financing.

It is common cause that ZHL is the provider of the financing to make the deal happen as set about above.

It is expressly stated that the amount outstanding under the VF will escalate at a rate of 10 percent per annum.

From the above, it is clear that the VF will initially be settled through a defined payment plan involving the waiver of the right to receive 85 percent of dividends paid to the target beneficiaries in favour of ZHL.  

This means that the target beneficiaries will only be entitled to receive 15 percent  of the dividends declared by Zimplats.

It is intended that once the VF shares have been fully paid for, the dividend waiver shall cease to apply to such shares meaning that the target beneficiaries will receive 100 percent  of the income applicable to such shares in form of dividends declared.

By way of security, the target beneficiaries will cede and pledge all the VF shares acquired to the mortgagor.  The target beneficiaries are precluded from selling, transferring, alienating, hypotheticating, ceding and pledging the VF Shares until the VF balance has been paid in full.

It is significant that the target beneficiaries have the option to settle in cash the VF balance allowing for third parties to intervene subject to the restrictions imposed in terms of selling the VF shares.
The duration of the acquisition loan is 10 years.  After the expiry of the tenure of the loan an academic option is presented allowing people with no money to acquire for cash the VF shares.

Not surprisingly, ZHL has the option to repurchase after the expiry of 10 years as many of the VF shares as is sufficient to settle by way of set-off, the VF balance outstanding.

The indigenous entities will only secure the right to acquire for cash the repurchased shares from ZHL at the end of the VF Term.

It is clear from the above where the control of the Employee and Community Trusts is vested.  

It should be obvious to all that ZHL will call the shots and, therefore, it has been agreed that the control of Zimplats will vest with ZHL contrary to the position held by president Mugabe.

Equally the shares held by NIEEF will be subject to the same conditions applicable to the shares held by the Employee and Community Trusts.

It would be self evident from the above that the law of mortgage property is applicable in respect of this transaction.  

Any attempt to vary the role and status of ZHL as is being suggested by president Mugabe will imply a direct repudiation of the agreed terms and conditions.

The Indigenisation and Economic Empowerment Act and the accompanying regulations have no relevance to the VF aspects of the Term Sheet and, therefore, any attempt to sneak in expropriation clauses will not work.

The bus has evidently already left the station and is moving.
The Term Sheet was signed on January 11 and, therefore, paragraph 11 is applicable as set out below: 

ZHL is clearly protected by this arrangement and, therefore, it represents an acceptance by Kasukuwere that the promise of justice and equity that the revolution offered remains a mirage and it cannot be fixed by pretending that it was not the intention of the parties to borrow English traditions, values and principles to interpret this important aspect of the agreement. - Mutumwa Mawere

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