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International Arbitration Forum

Frazer Solar GmbH v. The Kingdom of Lesotho

Case summary

At a glance

Parties
Attorney General (for the Government of Lesotho), applicant, v. Frazer Solar GmbH, Frazer Solar (Pty) Ltd and the Minister in the Office of the Prime Minister of the Kingdom of Lesotho, respondents
Case no.
CIV/APN/332/2021; [2022] LSHC 284 Comm.
Court
High Court of Lesotho, Maseru (Commercial)
Forum and rules
Self-review application in the High Court of Lesotho. The underlying arbitration was under clause 24 of the Supply Agreement: rules of the South African Association of Arbitrators, Arbitration Act No. 42 of 1965, seat in Johannesburg.
Underlying award(s)
Default arbitral award of 28 January 2020 in favour of Frazer Solar GmbH (liquidated damages plus interest of €50 million), made an order of court by the High Court of South Africa
Treaty
None. The claim was contractual (Supply Agreement, clause 24 arbitration clause).
Court
S.P. Sakoane CJ, M.A. Mokhesi J (author), A.R. Mathaba J
Sector
Renewable energy; solar and LED supply; public procurement
Outcome
The Supply Agreement and its arbitration clause were reviewed, set aside and declared unconstitutional, unlawful, invalid and void ab initio. The Government's delay was condoned and costs were awarded against the respondents (9 November 2022).
Amount
Project value of €100 million. Arbitral award of €50 million plus interest (about M855 510 900). The applicant was awarded costs, including the costs of three counsel.

The dispute

Frazer Solar GmbH (FSG), a German company, made an unsolicited proposal to supply solar heaters, solar photovoltaic systems and LED lights for Lesotho government buildings and for housing. The project was worth €100 million and was to be financed by loans from German financial institutions, which the Government of Lesotho (GoL) would have to repay. Minister Temeki Tšolo, of the Prime Minister's office, signed the Supply Agreement on 24 September 2018. Cabinet had not approved it, the Minister of Finance had objected, and no tender had been held. FSG brought arbitration in Johannesburg and on 28 January 2020 obtained a default award of €50 million plus interest, which the High Court of South Africa made an order of court. The GoL then applied to its own High Court to review the Minister's decision. It argued that the Agreement breached the Public Procurement Regulations 2007, section 28 of the Public Financial Management and Accountability Act 2011 (PFMAA) and the Constitution, and that the arbitration clause fell with it. FSG relied on the separability of the arbitration clause, the Turquand (indoor management) rule, section 10 of the Government Proceedings and Contracts Act 1965, the Government's delay, and mootness.

Key holdings

  1. The Supply Agreement breached the Procurement Regulations. It was concluded without open tendering, which Schedule 1 required for a contract of this value, and FSG conceded the breach. The Turquand rule and estoppel cannot save an ultra vires exercise of public power. Procurement policy cannot override the Regulations. ¶¶ 16–21
  2. Section 10 of the Government Proceedings and Contracts Act gives a contract signed by a Minister only presumptive validity. It does not shield the decision to sign from review. ¶¶ 22–23
  3. The Supply Agreement was a 'borrowing' under section 28(1) PFMAA, which covers any form of fundraising for public purposes and not only loan agreements. Only the Minister of Finance may approve a borrowing, and only with Cabinet's prior consent. Minister Tšolo had neither the power nor Cabinet's authority. ¶¶ 29–34
  4. The Agreement required the loan funds to be paid directly to FSG. This breached section 28(3) PFMAA and sections 110, 111 and 116 of the Constitution, which require borrowed funds to be paid into the Consolidated Fund. The Agreement is therefore unconstitutional; FSG conceded this point. ¶¶ 35–40
  5. The arbitration clause does not survive. Separability does not apply where the main contract is void ab initio, where the signatory had no authority, or where both the contract and the clause are contrary to public policy. Here the Minister lacked authority, the Agreement was constitutionally invalid, and enforcing the €50 million debt would cause grave economic harm to Lesotho. ¶¶ 45–54
  6. The Court declined to use its remedial discretion to let the Agreement stand. The breaches were flagrant, the contract had not been performed, and FSG was not an innocent party. The delay was condoned because legality was at stake and the prospects of success were overwhelming. The application was not moot, because it bears on the review of the award pending in South Africa. ¶¶ 58–65
  7. Order: the decisions to appoint FSG as sole supplier and to enter into the Supply Agreement are set aside. The Agreement and its clause 24 arbitration agreement are declared unconstitutional, unlawful, invalid and void ab initio. The applicant receives its costs, including the costs of three counsel. ¶ 68

Procedural history

  1. 21 November 2017Minister Tšolo and Mr Frazer sign a Memorandum of Understanding, although the Minister of Finance had objected.
  2. 24 September 2018Minister Tšolo and Mr Frazer sign the Supply Agreement without Cabinet approval. The Court's order refers to it as dated 27 September 2018.
  3. 11 March 2019FSG's attorneys send a letter of demand alleging that the GoL breached the Agreement.
  4. 30 July 2019FSG starts arbitration proceedings.
  5. 28 January 2020The arbitrator issues a default award against the GoL for €50 million plus interest. The High Court of South Africa later makes the award an order of court.
  6. 18 June 2021The GoL applies in South Africa to stay execution, pending this application and its application to rescind the award.
  7. 26–27 October 2022Hearing before the High Court of Lesotho.
  8. 9 November 2022Judgment: the Supply Agreement and the arbitration agreement are set aside and declared void ab initio.

Tribunal, counsel and experts

Decided by
  • S.P. Sakoane Judge, High Court of Lesotho (Chief Justice; concurred)
  • M.A. Mokhesi Judge, High Court of Lesotho (wrote the judgment)
  • A.R. Mathaba Judge, High Court of Lesotho (concurred)
For the claimant
Petersen, Hertog & Associates c/o Harley & Morris Attorneys
For the respondent
ENSafrica Incorporated c/o Mei & Mei Attorneys Incorporated

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Keywords

Summary generated with AI from the published documents — refer to the award for the authoritative text.

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