De Beers to Fight Legal Challenge From Customer Over Sales

Dec. 22 (Bloomberg) -- De Beers, the world's largest diamond producer, said it will fight a legal challenge in London's High Court next month from a Belgian jeweler and gem distributor that claims its shipments of diamonds were unfairly reduced.

Jayam NV, based in Antwerp, accuses De Beers of failing to honor parts of its ``supplier of choice'' marketing policy, under which the diamond producer sells gems to a select group of buyers, Lynette Gould, of De Beers's marketing and trading unit, said today by telephone from London.

De Beers, which produces three out of every five of the world's rough, or uncut, diamonds, introduced the policy in 2003, ending a system under which it sought to control prices through supply. Under the new system, it sells more stones to fewer clients, increasing sales to customers best placed to boost demand for diamonds in their polished, or finished, form.

Jayam claims De Beers implemented the new policy in 2002 before getting permission from the European Commission. The decision cut the Belgian company's annual allotment of rough diamonds to $48 million from $140 million, according to Mahendra Mehta, Jayam's managing director.

``They capped their clients, even though they didn't have any permission to operate'' the new system, Mehta said today in an interview from Antwerp. ``We were one of their largest clients.''

Mohanlal Mehta, Mahendra's father and Jayam's founder, started buying stones from De Beers in 1948 and has been a customer ever since.

Old Customer

In 2003, an independent ombudsman ruled in favor of Jayam, ordering De Beers to reverse its ``mistake,'' Mehta said. The ombudsman was established under a provision of the supplier of choice program sought by the European Commission to resolve disputes, said De Beers spokesman Tom Tweedy in Johannesburg.

De Beers ignored the decision, though it paid costs to Jayam, Mehta said. De Beers's Gould declined to comment further.

Jayam's case will be heard in the High Court's Chancery division, where the jeweler will seek to force De Beers to comply with the ombudsman's decision.

De Beers said on July 28 that first-half sales rose 1 percent to $3.25 billion.

To contact the reporter on this story: Stewart Bailey in Johannesburg Sbailey7@bloomberg.net