Peruvian company Minera Yanacocha was formed by a group of investors in 1992 to exploit a mine in the northern region of Cajamarca. The company today holds one of the most attractive gold deposits in the world, with an estimated production of 1 million ounces of gold a year. It is also the subject of shareholder litigation over shares worth more than US$100 million, now awaiting a final vote in the Supreme Court and representing the most important legal claim in Peru's mining history.
When Yanacocha was established in 1992, 35% of its capital stock was owned by Compañía Minera Condesa, 40% by Newmont Second Capital, a US corporation, and 25% by Société d'Etudes de Recherches et d'Exploitations Minieres (Serem), a subsidiary of Bureau de Recherches Geologiques et Minieres (BRGM), a French state-owned holding company.
After the original distribution of Yanacocha's stock, Serem transferred its shares to its subsidiary, Compagnie Miniere International Or (Mine Or), and Yanacocha issued 5% of its capital stock to the International Financial Corporation (IFC). Yanacocha's corporate structure, then, was: Newmont, 38.0%; Condesa, 32.3%; Mine Or, 24.7%; and the IFC, 5%.
Article 11 of Yanacocha's bylaws provided a right of first refusal in favour of its shareholders. If a shareholder wanted to transfer all or part of its shares, it was required to offer those shares to the other shareholders in proportion to their existing participation. If any shareholder declined to exercise its right, the remaining shareholders had a second option on the shares. If the remaining shareholders declined to exercise the option, Yanacocha had an option to repurchase its shares. Only after this process could a shareholder offer its shares to third parties.
Yanacocha's bylaws provided an exception in the case of a corporate reorganization, but only if the transfer of shares was made to corporations controlled by the same shareholders or partners. However, they contained no provision expressly restricting a change in control of the shareholders of Yanacocha.
Article 115 of the Ley General de Sociedades, the only statutory provision regulating the transfer of stock under Peruvian law, at the time of complaint, provided for the validity of limitations on the transfer of stock, whenever limitations are expressly imposed by the corporation's bylaws and only in the case of registered shares.
The application of these bylaws became the subject of dispute when the French government decided to privatize BRGM's mining assets, including its holdings in Mine Or. Normandy Poseidon (Normandy), an Australian mining corporation, was selected to enter into an agreement with BRGM, establishing the basic guidelines and conditions for two joint ventures: La Source Compagnie Miniere (La Source) and Mine Or. The agreement of September 21 1994, subsequently amended and subject to various approvals, set up the following share structures: La Source — 40% for BRGM and 60% for Normandy; and Mine Or — 23% for BRGM, 40% for La Source, and 37% for Poseidon Gold Limited (PosGold, a Normandy subsidiary).
On December 30 1994, Condesa, Buenaventura, Newmont and Newmont Gold filed a suit in Peruvian courts against BRGM, Serem, Mine Or, La Source, Normandy, PosGold and Yanacocha. The complaint alleged that BRGM's agreements with Normandy providing for a transfer of Mine Or's shares amounted to a decision to indirectly transfer Yanacocha's stock which should have triggered the right of first refusal in favour of the other shareholders. The plaintiffs argued that:
- the right of first refusal applied to transfers made not only by direct shareholders but also by parent companies;
- the right is enforceable as soon as the shareholder intends to sell its stock; and
- the breach of their right of first refusal entitled the remaining shareholders to force a transfer of the shares to them.
The defendants responded that:
- the right of first refusal only applied to the transfer of Yanacocha's shares and not to the transfer of Mine Or's shares;
- the mere intention to transfer shares was not sufficient to entitle the other shareholders to purchase the shares; and
- the effect of a breach of a right of first refusal was the rescission of the intended transfer, not the forced sale of shares to the other shareholders.
On September 21 1996, the judge decided the case in favour of the plaintiffs. The court acknowledged the right of first refusal claimed by the plaintiffs and confirmed the order it previously dictated as a precautionary measure, according to which a right of first refusal was offered to the other shareholders. Only Condesa exercised its right, increasing its participation in Yanacocha to 43.65%.
After the Court of Appeals upheld the decision of the lower court on February 14 1997, the defendants filed an appeal to the Civil Chamber of the Supreme Court. The five-member Civil Chamber requires, under Peruvian law, a minimum of four votes for a decision to take effect. At the date of this article, three judges of the Supreme Court have voted to reverse the opinion of the lower courts and the Court of Appeals, and have ruled in favour of the defendants, while two judges have voted to affirm.
There are several issues alleged before the Supreme Court, but the point of disagreement between the judges focuses on a single question, ie the application of Article 168 of the Peruvian Civil Code providing that all laws and contracts are interpreted according to their plain meaning and the principle of good faith.
The majority argued that Article 168 contained a rule of interpretation that, in the light of the basis of the complaint, must be applied in examining the commercial agreements between BRGM and Normandy. As a matter of Peruvian law, the Supreme Court does not decide cases ex novo or review facts or evidence discussed in earlier instances. It limits its inquiry to the application of the law. In this case, however, the majority assessed evidence already settled in the lower instances. It concluded that, in view of Article 168, BRGM's commercial agreements with Normandy, which allegedly constituted a decision to indirectly transfer Yanacocha's stock, were preparatory agreements still subject to certain terms and conditions, as later confirmed by the final version of them. Accordingly, if the majority position prevails, the decision of the lower courts will be reversed and the complaint dismissed.
The minority argued that even though the lower courts and the Court of Appeals did not mention Article 168 in their opinions, they did apply Articles 1361 and 1362 of the Civil Code, which provide the same principles contained in Article 168, specifically with respect to agreements and not generally to laws and contracts.
A minimum of four votes is required for a Supreme Court's decision to be valid. A sixth judge has been appointed to deliver a decision. The sixth vote could either resolve the dispute or create a tie that would force a seventh deciding vote.
Curtis, Mallet-Prevost, Colt & Mosle
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