Federal Court Finds Corporation Is Alter Ego of National Government

In Amaplat Mauritius Ltd. v. Zimbabwe Mining Development Corporation, et al., the United States District Court for the District of Columbia (“District Court”) recently held that a mining company was the alter ego of the Zimbabwean government and, thus, the District Court had jurisdiction over a suit seeking recognition of a foreign court judgment enforcing an arbitral award.

The case stems from a joint venture between two Mauritius mining companies (“Plaintiffs”) and the Zimbabwe Mining Development Corporation (“ZMDC”), majority-owned by the Republic of Zimbabwe (“Zimbabwe”), to prospect for nickel and platinum deposits and develop mines. In 2007 and 2008, the parties entered into Memoranda of Understanding (“MOUs”) which included arbitration clauses. In 2010, ZMDC canceled the MOUs. Plaintiffs commenced arbitration, seated in Zambia, against ZDMC and the Zimbabwean Chief Mining Commissioner of the Ministry of Mines (“the Commissioner”). After a lengthy arbitral proceeding, which included both ZMDC and the Commissioner withdrawing from the arbitration, an award was issued ordering ZMDC and the Commissioner to pay Plaintiffs $50 million in damages.

ZMDC and the Commissioner challenged the award in Zambian courts, but in 2019 the High Court of Zambia enforced the award and issued a judgment in Plaintiffs’ favor. Although Plaintiffs attempted to collect on their judgment, ZMDC and the Commissioner refused to pay.

Plaintiffs then filed suit against ZMDC, the Commissioner and Zimbabwe in the District Court under the D.C. Uniform Foreign Country Money Judgments Recognition Act. Zimbabwe and ZMDC moved to dismiss for lack of subject matter jurisdiction, lack of personal jurisdiction and failure to state a claim. The Court denied the motion.

The Court held it had subject matter jurisdiction over the claims because Zimbabwe waived immunity under the Foreign Sovereign Immunities Act (“FSIA”) when it agreed to arbitrate claims under the MOUs and because ZMDC is an alter ego of Zimbabwe. In determining that ZMDC is an alter ego of the Zimbabwean government, the Court analyzed the five Bancec factors: (1) government’s economic control over the company; (2) government’s management of company’s daily affairs; (3) whether company’s profits go to government; (4) whether government is sole beneficiary of company’s conduct; and (5) whether adherence to separate identities would entitle the foreign state to benefits in U.S. courts while avoiding obligations. First, the District Court found that Zimbabwe exercised economic control over ZMDC because, not only did the government appoint ZMDC’s entire board and hold all of ZMDC’s shares, it also appointed all the board members of ZMDC’s subsidiaries. Second, the District Court found that Zimbabwe managed ZMDC’s daily affairs as the Minister of Mines directed the operations of ZMDC and the government had to approve significant business activity by the company. Third, the District Court found that ZMDC’s profits go to the Zimbabwe, since the government owns all the company’s shares, and government officials illegally diverted ZMDC’s revenues to their own pockets. On the same grounds, the District Court found that the government was the sole beneficiary of ZMDC’s conduct, the fourth Bancec factor. Fifth and finally, while Zimbabwe is not seeking the benefit of U.S. Courts, the Court held that because ZMDC was thinly capitalized and its assets were being transferred out by the government, the fifth prong of Bancec had been met. Thus, the Court held that ZMDC was an alter ego of the Zimbabwean government and, therefore, since ZMDC had agreed to arbitration, Zimbabwe waived sovereign immunity under the FSIA through ZMDC. Thus, the Court ruled it had subject matter jurisdiction over Zimbabwe. The Court also found it had personal jurisdiction over ZDMC and Zimbabwe because, as required under the FSIA, the Court had subject matter jurisdiction and service had been properly effected; therefore, the Court has personal jurisdiction over both parties. The Court also found that Plaintiffs had sufficiently pled that ZMDC and Zimbabwe were alter egos. ZMDC and Zimbabwe have appealed the Court’s denial of their motions to dismiss.

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