IN THE MEDIATION BETWEEN:
RANDGOLD AND EXPLORATION COMPANY LTD (“R&E”) Claimant
JCI LIMITED (“JCI”) Defendant
- The mediation agreement in terms whereof we were appointed“… to mediate the disputes and insofar as is possible make recommendations to the parties as to how the R&E Claims and the JCI Claims should be resolved”
provided, as a precursor to the mediation process, for an exchange of pleading in the nature of High Court pleadings, accompanied by all documents relied upon by each party to support its respective claim and the exchange of comprehensive reports from forensic accountants for both R&E and JCI.
- In view of these comprehensive procedures, the optimistic timetable to address and try and resolve the issues between the parties soon turned out to be unachievable and led to an amended timetable.
- R&E filed a statement of claim. In its plea thereto JCI denied that it was, in terms of the mediation agreement, liable for debts which may be found to be due by any of the JCI subsidiaries 4 or by JCI 5, other than the debts of JCI Limited. That raised a question as to the scope of the mediation agreement and our powers thereunder. In addition, JCI notified an amendment to their original plea to seek a rectification of the mediation agreement to accord with its interpretation of that agreement. JCI did not submit a counter-claim.
- “the R&E Claims” is defined in the mediation agreement as being all and any claims of whatsoever nature from whatsoever cause arising which R&E alleges it enjoys against JCI.
- “the JCI Claims” is defined in the mediation agreement as being all and any claims of whatsoever nature from whatsoever cause arising which JCI alleges it enjoys against R&E.
- Clause 8.5.4 provides: “The Party shall require the Mediators to make recommendations to the Parties as regards the resolution of the R&E Claims and JCI Claims as soon as possible, but within no more than 30 (thirty) days of the Party’s first meeting with the Mediators or such longer period as the Mediators in their sole discretion, at all times acting reasonably, may suggest.”
- Defined in the mediation agreement as meaning all and any subsidiary or associated companies of JCI or in which JCI has an interest, whether direct or indirect, including its interests in CMMS
- Defined in the mediation agreement as JCI Limited
- We called for written submissions on the above issue from the lawyers representing the respective parties. We also interviewed current directors Messrs Gray and Nurek and erstwhile director Mr Lamprecht during early December 2006 in order to come to grips with the matter in issue.
- A second important preliminary issue was raised by R&E. This related to the method of quantification of damages: R&E is seeking to recover damages allegedly due to thefts by or for the benefit of JCI. The question that was raised was how quantification should take place in our law in the event of a theft, as opposed to breach of contract or delict. Again, we called for written submissions from the respective legal teams.
- Having considered these preliminary issues, we are in a position to give guidance to the parties as part of the mediation process. We do not consider it presently necessary to call for any further submissions regarding the legal issues.
- By the end of 2006 it had become obvious to all involved in the process that the mediation would not be finalised before the end of the first quarter of 2007.
- Various meetings have since been held between Professor Wainer and the forensic accountants representing both parties in order to attempt to narrow and to crystallise the areas of difference between the parties.
- We also met separately with the representatives from the boards of both R&E and JCI on 9 February 2007 in order to, inter alia, obtain their thoughts regarding the disputes and possible resolution thereof.
- We have recently also held meetings with the financial directors of both companies, inter alia, to obtain an understanding of the present financial position of the companies and the actual cash and benefits received from the transactions which are the subject of the dispute.
- Having considered the various R&E claims and taking into account the areas of agreement and disagreement in relation to the underlying cash flows, it appears to us that the value of sustainable R&E claims might well exceed the net asset value of JCI.
- In our view, a protracted arbitration between R&E and JCI followed by the spectre of a liquidation to satisfy any judgement is commercially and practically unattractive and will be value destructive for both sets of shareholders. The ultimate outcome of litigation would be uncertain and valuable management time will be sterilized in the process.
- Litigation is also likely to be time consuming and expensive,createshare value inhibitions during its duration and be significantly value destructive on a liquidation – both by the realisation of fire sale prices for assets and due to costs of liquidation.
- Any settlement proposal which leaves no value for JCI shareholders is in our view unrealistic and would, for JCI, be a poor alternative to the litigation process, irrespective of its probable outcome.
- Central to the determination of an overall settlement would be an assessment of the fair net asset value of both companies, particularly of JCI.
- To ameliorate the difficulties in making an accurate assessment of the net asset value, it is recommended that an overall settlement be pursued on the basis of a merger between the companies. On a merged entity basis, at least any under/over estimation of the asset values will be captured within the shareholders’ shareholding in the combined entity. Thus if, for example, certain assets ultimately yield a value of Rx more than the amount estimated for the purposes of the overall settlement, that amount will inure for the benefit of both sets of shareholders (albeit in diluted proportions).
- Parallel to the mediation process, the chief executive and financial directors of both companies have explored and quantified various alternatives of possible amounts to be used for the purposes of a settlement figure – which would ultimately drive the share swap ratio between R&E and JCI. We have been apprised of these efforts.
- Having regard to all of the above, a settlement figure in the range of R1.2 billion to R1.5 billion appears at this stage and on the figures available to us to be a realistic starting point to resolve the disputes between the companies –the basis being that the settlement figure be used to ultimately drive the merger ratio between the shareholders of the companies. The current balance sheet position of both legal entities should be available to the shareholders to facilitate agreement on a settlement figure.
- The mediators remain available to assist in achieving an acceptable settlement within the parameters outlined above.
S F BUR&ER SC
PROF H E WAINER CA (SA)