Crucial Lesotho court decision nullifies disputed contract that could cripple the mountain kingdom

18 November 2022 · Carmel Rickard

A new decision by Lesotho’s high court could prove key in a developing crisis over a disputed contract, that could bring the mountain kingdom to its knees. A full bench has found that the contract, between Lesotho and Frazer Solar, a German company that provides alternative energy systems and that would have involved Lesotho in finding funding of €100m, was null and void. Lesotho has repudiated the contract, and as a result, Frazer Solar is claiming compensation that could cripple Lesotho. Now, the Lesotho court has found the contract flouted the constitution as well as public procurement provisions and key legislation. It also fingered the minister who had signed the contract, apparently on a frolic of his own, without cabinet authorisation. The decision could help Lesotho fight off claims for compensation by Frazer Solar. These are sizeable claims amounting to a significant part of Lesotho’s annual budget.

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A disputed contract with potentially explosive consequences, alleged to have been signed between the Lesotho government and a German firm, Frazer Solar (FS), has been declared null and void by a full bench of Lesotho’s high court.

FS develops renewable energy projects, particularly in Africa, and the Maseru government asked the court to review a contract concluded in 2018 with the company by a minister of Lesotho’s then-government. In terms of this agreement, FS was to install solar heaters, lights and other systems in the mountain kingdom.

The government disputes that the contract was lawful, saying it was concluded in breach of public procurements regulations, the Public Financial Management and Accountability Act and the constitution, and that it was signed without the knowledge of the cabinet, including the finance minister and the then prime minister.

Enforceable

FS, however, maintains the contract was valid and enforceable, and has won an arbitration award under which Lesotho is obliged to pay €50m in damages to put FS into the position it would have been had Lesotho honoured its side of the contested contract.

No doubt aware of the enormous significance of the matter, the high court in Lesotho took less than a fortnight to finalise and issue a decision that runs to more than 50 pages.

The court notes that in terms of the alleged agreement, the government of Lesotho had to borrow €100m from German financial institutions to fund the solar geysers, lights and other costs involved in the project.

Nepotism

The judges go through the origins of the contested contract and put the blame squarely on the minister in the prime minister’s office, Temeki Tsolo, for having concluded the deal without authorisation.

The court found that the contract’s supply agreement did not comply with Lesotho’s requirements that there should be an ‘open tendering process’, for example, and that it breached ‘a whole host of other’ requirements. For this reason alone, the court says, the supply agreement was invalid and should be set aside as void from the start.

Lesotho’s procurement regulations, breached in relation to this contract, were based on ‘ensuring competitiveness of the tendering process, fostering accountability [and] transparency and are meant to ensure that legality is not sacrificed at the altar of patronage and nepotistic behaviour on the part of those entrusted with exercising this important public power.’

Victim

The judges said that when Tsolo purported to act for the Lesotho government, he did so knowing full well that he was acting contrary to the country’s procurement laws. The court also threw doubt on the good faith of the German company, saying that while FS ‘wants to play victim’, the court was ‘convinced beyond doubt’ that it (FS) knew the supply agreement did not comply with procurement regulations.

The court referred to the affidavit of the then Minister of Finance, Moeketsi Majoro, prime minister of Lesotho at the time he signed the affidavit, saying that if the country had to give €50m to FS following the arbitration award, it would be a serious blow to Lesotho’s economy.

The disputed agreement between FS and Tsolo was unconstitutional and invalid and it would be against public policy to allow it to stand. Its enforcement would bring great economic harm to Lesotho, and had been caused ‘by an unauthorized, errant minister who [flouted] every possible provision in the rulebook.’

Mere technicality

The court also held against the validity of the arbitration clause forming part of the contract. It was this clause that FS used to invoke an arbitration in South Africa, finalised in 2021, with a finding that Lesotho should pay compensation of €50m to FS. But in the new Lesotho judgment the judges found that, once the supply agreement was held to be invalid, the arbitration clause would also ‘fall’.

They said that even if the government of Lesotho should have brought its application for judicial review of the contract earlier, this was a ‘very serious case’ in which the doctrine of legality and the rule of law were implicated.

If the government were to be barred from bringing the challenge it would send out a message that the court was willing to overlook illegality for ‘a mere technicality’.

Forged

In 2021, Tsolo was charged with corruption related to his role in the FS saga. He has repeatedly said that he didn’t actually sign the agreement, and that he suspects his signature was forged.

Responding to the new judgment, FS said it ‘fundamentally disagrees’ with the decision, and that FS would now ‘re-start global enforcement proceedings’ against Lesotho.

It would once again take up legal action in the USA, the UK, Mauritius and South Africa ‘in the near future’ and would pursue assets owned by Lesotho in other jurisdictions around the world.

Brussels embassy

As an example of the action planned against Lesotho, FS noted that at the end of October, a court in Belgium issued an order allowing FS to seize Lesotho’s assets there, ‘including its Gem Diamond operations and the bank account of the Lesotho embassy in Brussels.’

FS’s version of those initial events was that the project was ‘approved’ by the then prime minister, Thomas Thabane, but that the then financial minister, Moeketsi Majoro, ‘refused to co-operate and participate in the project’.

According to FS, Majoro ‘preferred to pursue a Chinese solar project’ rather than that of FS, and that ‘political factionalism also played a part with Majoro leading a rival faction to Thabane.’

Carmel Rickard

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