Gencor on lip of legal vortex

Gencor on lip of legal vortex

Stewart Bailey, Miningweb (3rd October 2002)

Johannesburg - The unbundling of Gencor's R17 billion stake in Impala Platinum has been complicated further as the value of the legal suit against the former mining house threatened to rocket to more than R700 million. This is after it emerged that 7 500 additional plaintiffs were preparing to sue the former mining house on the basis that it was responsible for health and safety on asbestos mines where they once worked. The emergence of a new round of legal action now raises the prospect that Gencor will have to fight big-ticket law suits in South Africa and in the UK.

Richard Meeran, the London-based attorney for 7 500 claimants, said he would petition the UK courts to force Gencor to co-defend the highly publicised £115 million claim against Cape plc, a company which also mined asbestos in the Northern Cape province between 1963 and 1984. Meeran took up the cudgels on behalf of his clients in 1997, alleging Cape's negligence had caused to a spate of terminal lung diseases ­ lung cancer, mesthelioma and asbestosis ­ among former employees, their families, as well as inhabitants of the areas near the mines.

Cash-strapped Cape plc had originally agreed to a £21 million out-of-court settlement with Meeran's clients, an agreement against which the company has since reneged. Meeran is now seeking a new court date to bring a fresh £115 million action against Cape.

However, Meeran contends that at least 25% of Cape's liability rests with Gencor, and that he is ready to prove many of his clients' illnesses were caused by exposure to asbestos mined from Gencor's Gefco (Griqualand Exploration & Finance Company Ltd) operations. Meeran is also willing to spread some of the liability around, given that Cape could not raise £21 million, let alone the new more ambitious £115 million suit. Introducing Gencor as a co-defendant could help ensure that his clients receive at least some payment if their case is successful. Meeran says the settlement submitted to Gencor was £42.5 million, which was summarily rejected.

"Gencor's response to us has been that if we try and sue them, they'll just sue Cape; they'll say it's only Cape's fault," said Meeran. Paper Chase First Meeran will have to convince a UK judge that Gencor is a "necessary and proper party" to the case. Although Gencor has had its address scrapped from the UK companies register, Meeran says the Crown could still compel Gencor to stand trial. "If they ignore that order it could be a risky strategy for them. We could then try and get it enforced by the South African courts," said Meeran. Johan Marais, spokesman for Gencor, said he had received no claim from Meeran. "We have received 37 claims for R37 million and that is the only fact at the moment. We cannot comment on speculation," Marais told Mineweb.

A priority for Meeran and Richard Spoor, the local attorney representing the 37 claimants against Gencor in a separate case, is to be granted an interdict preventing Gencor from distributing its 46% holding in Impala, to its shareholders. While Meeran has 7 500 signed affidavits and case files to back up his claim, Spoor has attracting scathing criticism from fund managers and analysts for only filing 37 claims. He says filing a class action suit will circumvent the onerous logistics of filing thousands of individual claims, although he will be in a position to issue new summonses at a rate of 50 a month from November.

The lawyers contend the R409 million in cash, to be left in trust by Gencor to pay for its legal defence and responsibilities, is insufficient to cover the company's liability, should it be found guilty. This week an interdict application and the contention that the contingent liability provisions were too low, gained support from government. Spoor, Meeran and the Department of Minerals and Energy say they are opposed to the provisions of Gencor's proposed unbundling, but not to its principle. They will not pursue the interdict further if Gencor allows for failure of its legal defence. Spoor claims Gencor's liability provision should be "a couple of billion rands", Meeran's claim is around R700m; and government has shied away from specifiying a number. Both lawyers will earn fairly hefty commission-based fees and both propose the balance of the winnings be set aside in a trust from which claims can be paid.

With government on board, market watchers expect the interdict to be granted, thereby putting Gencor's eagerly anticipated unbundling on ice. Gencor remains steadfast in its intent to defend each of the claims, although an interdict may well force it to leave greater value in the kitty, or force it into an out of court settlement, the terms of which are unknown.

Dirk Kotze, manager of the Coronation Resources Fund, said Gencor might now find itself more likely to reach a settlement. "Spoor's case is also not very strong in law, so he might also be quite keen to settle this," he said. Kotze added that the "couple of billion rands" figure bandied about by Spoor was far too great and said he estimated a settlement closer to the R400 million Gencor has already committed to leaving behind. "If they put that R400 million in a trust, it would be hard for any judge to say it was not enough," he said.

What is certain, though, is the market has expressed its displeasure at the delay and the uncertainty attached to the ultimate value of Gencor's unbundling. Gencor has slid from R48.50 a share to R43.90 a share, a value loss of almost 10% this week.