Ann: Update on MCC Action , page-13

Now I have had a chance to read the decision, and leaving aside the conclusion that it should be for the Arbitrator to determine interlocutory matters such as whether a party should put the disputed sum into escrow which I have discussed above, there are some other titbits which should ease the despair of shareholders concerned about the delay in resolution.

First, the Court unequivocally lays the blame for the delay in the litigation process at the feet of the Supreme Court, and says that steps have been taken to ensure it does not recur in any other case. This absolves both CFE and MCC from any suggestion of dragging their heels in that process.

Second, the first step in the dispute resolution process, that of mediation, has been attempted but has failed. I observe that mediation is normally a method of dispute resolution with an extremely high success rate; not so here. There are two possibilities, one being that one or both parties weren't genuinely engaged, preferring to await adjudication. The second is that the parties are simply so far apart either commercially or ideologically that no amount of talk could bridge the gulf. I suspect a combination of the two may be the case. MCC having to pull out of Cape Lambert must have cost considerable face and perhaps they will be more comfortable with an imposed adjudication than doing a deal.

Third, an arbitrator has been appointed. It seems from the judgment that there has been a lot of sparring over that decision, but if it has been made then there should be no impediment to a speedy resolution as both sides have had plenty of time to be prepared.

As I understand it, the arbitration is to take plave in Singapore under the UN rules for such arbitrations, which provide for appropriate procedures, and, significantly, for enforcement. China is a party to the rules and is obliged to comply. If judgment is in CFE's favour, I would be surprised if a Chinese government agency, which MCC effectively is, were to refuse to comply with the award. That would send a bad message to anyone who was thinking of dealing with China. They may be ruthless but they are not commercially suicidal.

So, in conclusion, I see a reasonably speedy resolution. If it is in CFE's favour, we get $80 mill. If it is not, it is probably favourable to the tax problem, which I have not followed closely but which seems to have some basis in CFE's failure to pay tax on the contingent $80 mill payment. If the payment was not in fact payable, it can hardly be taxable. Win/win?