Ontario court awards Brookbank gold bet to Ontex

Toronto-based Ontex Resources (ASE) has emerged as the winner in a bitter legal dispute with Metalore Resources (TSE) and George Chilian over control of the Brookbank gold property in northern Ontario. In an 80-page judgment, released Dec. 18, Mr. Justice Montgomery of the Ontario Court of Justice rescinded two contracts signed in 1981 and 1983 between Ontex and Metalore and returned the 18-claim Brookbank property to Ontex.

The two contracts were annulled on the basis of fundamental breach and fraud by Metalore. Montgomery ruled that Metalore intentionally provided misleading facts and withheld other vital information from Ontex.

“There has been a total failure to make full and complete disclosure both under the mandatory and request aspects of the contracts,” said Montgomery.

“A breach by one party of a contract that goes to the core, heart, root or essence of the contract allows the other party to rescind the contract,” he said

The key 18-claim property, now 100% owned by Ontex, is estimated to host preliminary reserves of at least 1.4 million tons grading 0.26 oz. gold per ton (0.23 oz. cut).

Immediately after the judgment was released, Ontex shares jumped 70 cents to $2.90 on the Alberta Stock Exchange. The company has about 8.7 million shares outstanding on a fully diluted basis. Metalore shares plummeted $6.50 to a low of $3.50, down from a 1-year high of $29.50.

The court also declared that 471 claims surrounding the Brookbank deposit were acquired by Metalore on the basis of misuse of confidential information and breach of fiduciary duty.

“It was Chilian’s abuse of power that created the breaches of fiduciary duty,” said Montgomery. “The gravity of his conduct in taking advantage of Metalore’s superior position is the sum total of the findings of deceit, misinformation and fraud made against him.”

As a result, the 471 claims are to be held by Metalore in a “constructive trust” for Ontex. Metalore can keep its original 39 claims near the Brookbank deposit and Ontex must return $40,000 paid to it together with interest from May 16, 1983.

Punitive damages of $80,000 were assessed against Chilian for his conduct, while Ontex was awarded legal costs.

Chilian, 58, has been the president and directing force behind Metalore since 1955. He was unavailable for comment at presstime.

“Only in rare cases are punitive damages awarded,” Montgomery said. “Metalore, in this case, breached its contracts with Ontex, perpetrated fraud on Ontex and breached its fiduciary duty.”

As well, Chilian profited from insider trading in Ontex stock before making public disclosure contrary to the Securities Act. His gain amounted to some $80,000.

He also traded improperly in Metalore stock as an insider prior to disclosure to the public. “Conduct of this sort must be condemned,” said Montgomery.

Metalore’s geologist, Barbara Kowalski, also participated in the purchase of Metalore stock while in possession of insider information regarding drill results that had not been released to the public.

Metalore is currently reviewing the judgment and has said it will file an appeal. Placer Dome (TSE), which signed an option agreement with Metalore in 1989 to earn a 50% interest in the disputed property, had no comment when contacted by The Northern Miner.

With the legal dispute behind it, Ontex can now set a clear direction for the company’s future and begin negotiating with a major company to continue exploration on the property. “We are holding direct and friendly discussions with Placer Dome,” said Ontex Vice-President Ross McGroarty.

The company has also sent its representatives to the Brookbank property to reclaim drill core and geological data compiled on the claims. “We plan to achieve an orderly transition of the property and drill core to Ontex,” said McGroarty.