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Mishcon and Orrick act as BSGR launches $5bn arbitration against Guinea

Mishcon de Reya has been instructed by BSGR, a Guernsey-registered mining group controlled by Israeli billionaire Beny Steinmetz, in a $5bn lawsuit against Guinea after the West African country withdrew a concession to mine one of world’s largest deposits of iron ore due to allegations of widespread bribery.

The firm’s London-based arbitration partner, Karel Daele, is leading what is one of the largest investor-state arbitration claims of 2014, and was registered with the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) on 8 September. Guinea has instructed Orrick, Herrington & Sutcliffe’s Paris-based co-head of international arbitration Laurent Jaeger to defend the case. He will work alongside the firm’s head of Africa Pascal Agboyibor, as well as co-counsel from DLA Piper, Michael Ostrove. 

BSGR claims that Guinea, which had a GDP of $6.2bn in 2013 but has an abundance of natural resources, has expropriated the company’s share of a joint venture with Brazilian mining group Vale for an iron ore mining concession estimated to be worth up to $150bn. The company was awarded a 25-year concession in 2010 to mine the Simandou mountain range following a $165m exploration programme in the area, but the deal was investigated by national authorities which allege that millions of dollars worth of bribes were handed to a wife of former president Lansana Conté. Corruption and human rights not-for-profit Global Witness accused BSGR of having financial links to Pentler Holdings, an offshore company that allegedly promised millions of dollars in bribes.

The case has proceeded to ICSID under domestic Guinean legislation that refers investor claims to international arbitration, a clause that has been invoked two times to date. Around 10% of ICSID cases are referred under domestic legislation.

The claim is nearly 17 times larger than Mishcon’s biggest arbitration mandate to date, a $300m dispute. Daele, who launched the firm’s arbitration department two years ago on his arrival from African boutique Mkono & Co Advocates, has 10 cases pending, over half of which relate to investments in Africa. He is also leading an ICSID claim thought to be worth close to $500m against Saint Lucia, which has instructed Magic Circle firm Freshfields, for oil explorer Jack Grynberg’s RSM Production Corporation. Daele, who earlier in his career had stints at Freshfields and WilmerHale, has quickly established himself as a leading investor-state arbitration practitioner.

BSGR sold 51% of its stake to Vale, the world’s second-largest metals and mining company, for $2.5bn in May 2010 and a joint venture was created to develop the concession. BSGR, Vale and Steinmetz are defendants in a case filed in New York by mining giant Rio Tinto which is being represented by Quinn Emmanuel, which argues that the termination of its ownership of the Simandou concession in 2008 was part of a fraudulent scheme by the defendants that violates the US Racketeer Influence and Corrupt Organizations Act. Mishcon’s New York-based head of the complex civil litigation and white collar defense group, Robert Gold, is advising BSGR in that dispute, with Cleary Gottlieb’s Jonathan Blackman spearheading Vale’s defence.

Parallel arbitration has also been launched by Vale against BSGR in a $700m claim which accuses its business partner, BSGR, of being responsible for the findings made by the Guinean authorities that led to the concession being stopped. The damages cover the $500m payment the Brazilian miner made up front to take the 51% stake and further investments made to cover initial exploration costs.