Legal battle erupts in wool industry

RELEBOHILE TSOAMOTSE

MASERU – A fresh titanic legal battle has erupted in the local wool and mohair industry pitting growers against government’s favoured broker Stone Shi over control of the multi-million maloti Thaba Bosiu Wool Centre.

The growers body, the Lesotho National Wool and Mohair Growers Association (LNWMGA), wants Chinese national Stone Shi, who is Director of Maseru Dawning, to vacate Thaba Bosiu Wool Centre and be prevented from trading wool there. The association is accusing Shi of using the Centre for his own benefit in breach of an agreement that the Centre would be operated by a jointly owned company.

Public Eye can report that the association has petitioned the Commercial division of the High Court in a bid to interdict and prevent Maseru Dawning from processing wool and mohair at the Wool Centre (Thaba Bosiu Wool Centre), as well as for the court to order Maseru Dawning to remove its stock of wool and mohair from the Centre and vacate the property. They also want the court to declare that Maseru Dawning breached the terms of their joint venture agreement and therefore want the agreement to be dissolved.

In court papers, the association has alleged that Maseru Dawning failed to build the structures contemplated in their agreement but that the only structure to which both parties contributed towards is a warehouse. Stone Shi told reporters recently that he contributed M37 million towards construction of the disputed centre while the Association paid in M4 million.

But the Association is insisting Maseru Dawning failed to comply with its obligations when it failed to come up with a business plan to which both parties (Maseru Dawning & Mohair Growers Association) would become shareholders, that Maseru Dawning had failed to design the Lesotho Wool Centre operation scheme, its operation as well as financing, repayment and training schemes.

“The first respondent has failed to build a structure contemplated in the agreement, the only structure to which both parties contributed their monetary resources is a warehouse shell which does not meet the requirements of the agreement.”

The association, in its papers, said their agreement was that Maseru Dawning and Lesotho National Mohair Growers Association would set up a company in which the latter would be entitled to profits at the rate of 75 percent, while Maseru Dawning would be entitled to the remaining 25 percent.

The company, according to the agreement, would then build and operate the Lesotho Wool Centre. The Centre would then store the wool, act as a wool baling factory, pre-sale sample store, testing laboratory, wool classification factory, wool transportation Centre as well as having offices for the administrative purposes.

However, the association says Maseru Dawning has shown lack of interest and hesitation to register the company as agreed. One of the association’s directors, Mokoenehi Thinyane, in his affidavit, said Maseru Dawning had made it impossible for the parties to register a company despite their efforts.

“I aver that the respondent has made it completely impossible for the parties to register a company as envisaged in the agreement, the result of the non-co-operation by the first respondent is that they were not able to incorporate a company despite the applicant’s effort that the parties register such a company, including seeking meetings with the first respondent.”

The association said it was obliged to use its resources to build the Lesotho Wool Centre and was also obliged to avail infrastructure, including land, electricity and access road.

For their part, the Lesotho National Wool and Mohair Growers Association argues that it complied with its obligations and provided land, road and electricity to the Centre yet such responsibility was for the company that both the Association and Maseru Dawning would form.

The association also said Maseru Dawning was expected to operate the Wool Centre and pay rentals to their partnership only in the event that the Centre would be ready for the operation before a company contemplated in their agreement would be registered.

“I aver that it was the contemplation of the parties that they would register a company within a reasonable time; the parties did not intend that the partnership they formed would exist on a permanent basis,” Thinyane further said.

He further stated that “it is important to point out that the company contemplated in the agreement would be responsible for building and operating the Lesotho Wool Centre. In that regard, it would operate all facets of the Centre.”

The association further argues that Maseru Dawning breached its obligations in failing to co-operate with it in forming a company that would operate the Centre adding that Maseru Dawning had gone out of its way by using the warehouse for wool storage and other purposes.

Subsequently, the LNWMGA pulled out of the agreement and now wants Maseru Dawning off its land (Thaba Bosiu Wool Centre) after it refused to account about the business activities taking place at the Wool Centre.

Maseru Dawning, however, denies agreeing to form a company that would operate the Wool Centre with the LNWMGA. Managing Director of the Maseru Dawning, Shi Guohui, said the only agreement his business had with the association was a joint venture. He said there is no indication in their agreement that the parties intended to form any other entity other than their joint venture.

Guohui also said it is not correct that his company failed to build business structures contemplated in their agreement but that the correct position is that both parties were responsible for building the structures. Also, the structures were being built in stages with other elements such as roads, warehouse, office building completed while the rest would be done in due course.

Maseru Dawning further said while the Centre is built and registered in the names of the association, the land was purchased through a joint contribution of both parties and thereby argue that it breached obligations as it was never the agreement that a company would be formed by the two parties.

Trouble within the Wool and Mohair industry began in May 2018 when Minister of Agriculture, Mahala Molapo, tabled amendment regulations to the Agricultural Marketing Act which were later withdrawn only to be replaced by those of Minister of Small Business Co-operatives and Marketing, Phori, with slight changes to the names.

Under the regulations, it was illegal for anyone to engage in the business of wool and mohair; shearing shed; brokering; testing; trading and auctioning; processing; and exporting “unless the person has obtained a license to do so from the minister responsible”.

The regulations also noted that a license obtained from the minister was not transferable.

“The minister may amend, suspend or cancel the license in the event that an operation closes its business, or the license is not used appropriately or is used in fraudulent activities, or the holder allows another party to use the license,” the regulation reads. The commencement of these regulations barring a decades-old practice allowing growers to sell their wool and mohair through South African brokers BKB triggered a commotion in the industry.

The regulations were fiercely opposed by growers who felt their businesses were being condemned to bankruptcy, especially after export permits were suspended. Farmers felt the law had created a new monopoly as Stone Shi was now the government’s sole benefactor and decision-maker on who could buy Lesotho’s wool and mohair and then approached the courts.

Acting High Court judge, Justice Moroke Mokhesi, nullified the new regulation a fortnight ago. The government has appealed his decision and the matter is now pending in the appeal court which was itself suspended two weeks ago because of financial difficulties. Government had also applied for a stay of execution of Justice Mokhesi’s judgment but its application was dismissed on Thursday last week.

This week the Small Business Development and Marketing Minister said despite the High Court judgment nullifying the 2018 regulations, the ruling does not say people should be given permits to export their produce and therefore Thaba Bosiu will remain the only place to sell from.

“The Act (Agricultural Marketing Act of 1967) is clear that the minister in charge should administer and find the right market for Lesotho’s wool and mohair and through the 2018 regulations, we only sought to tighten the loose ends in the Act in 1967. “What the High Court did was to nullify the 2018 regulations but we are content with that decision and that is why we launched an appeal in the court of appeal,” he said.

“We will continue to use the 1967 Act which also requires one to have a licence to sell or broker wool and mohair and if we lose the appeal it will prove that there are mistakes in the regulations which need to be rectified and we will rectify them to ensure that the country benefits from its fibre,” Phori said.