CONFIDENTIALLY . . .

Confidentiality agreements have been around for a long time, but ever since Mr Justice Holland handed down the trial judgment in the Williams mine case involving LAC Minerals and Corona Corp. and awarded the mine to the latter, they have become much more commonplace in the mining industry. Now that the Supreme Court of Canada has upheld the award, and in light of some of the comments made by the Justices concerning confidentiality agreements, the explorationist should know what a confidentiality agreement is and what may or may not be reasonable to include in one.

It should be noted that the majority of the Supreme Court did not confirm Justice Holland’s finding that a fiduciary relationship had been established between LAC and Corona but, rather, applied the well-established principle: as LAC had entered into negotiations with Corona for a possible business deal, Corona was entitled to assume that private business information revealed to LAC would be held in confidence and not used to the detriment of Corona.

In the Supreme Court of Canada, all the Justices agreed that a breach of confidence had occurred and they commented on whether Corona should have released confidential information to LAC without least some understanding between them as to the confidential nature of the information and how LAC might or might not use it. Although only comments (as opposed to a basis for the judgment), they should be noted. In the majority judgment, Justice La Forest indicated that, as the requiring of confidentiality agreements was not “. . . a common, usual or expected course of action, the Court should not presume such a procedure . . .” in the mining industry (remember, he is referring to 1981 facts). Nor should it be expected that Corona should require one and, accordingly, Corona should not be penalized for not bringing the confidential nature of the information being given to LAC’s attention or for not having a confidentiality agreement. On the other hand, Mr Justice Sopinka, writing for the two dissenting Justices in discussing the question of vulnerability, took virtually the opposite position when he wrote:

“If Corona placed itself in a vulnerable position because LAC was given confidential information, then this dependency was gratuitously incurred. Nothing prevented Corona from exacting an undertaking from LAC that it would not acquire the Williams property unilaterally,” and “. . . if Corona gave up confidential information, it did so without obtaining any contractual protection which was available to it.”

A question now would appear to be: Has the requirement of a confidentiality agreement become “a common, usual or expected course of action” in the mining industry when parties are negotiating, or even discussing, potential arrangements with respect to property interests and joint ventures? It may well be that since the trial judgment of Justice Holland, the industry has moved a fair way toward having this question answered in the affirmative. Certainly, the prudent and cautious explorationist will proceed as if the answer is a clear yes.

The term “confidentiality agreement” is certainly well known and commonly used, but in common with many things, the term means different things to different people. In the context of negotiations in the mining industry, and in particular for the acquisition of property interests by way of options, farm-ins or other means, the confidentiality agreement will or should not only address the matter of one party releasing its confidential information to the other, but in addition, several ancillary matters. The agreement should:

* acknowledge that confidential information is to be disclosed;

* describe the nature of the information, remembering that there probably will be a blend of confidential and public information disclosed (the best method being a detailed list of the information and documents disclosed, but in so doing remember that if something is left off the detailed list or description, even by accident or because it was not thought of, it will be presumed that that something was not intended by the parties to be included);

* describe the use to which the confidential information may be put by the recipient; and

* set forth any special provisions, such as excluding the recipient from acquiring any property interests in a defined area for a specified period of time, specifying time limits on the restrictions, and so on.

A confidentiality agreement can be a simple 3-line note or a 20-page agreement with all the appropriate legal niceties, or it can be an oral agreement made, or construed to have been made, as a result of circumstances. The oral agreement should definitely be avoided because, if a dispute arises with respect to it, it will be necessary to prove to the courts not only that an agreement existed, but also to demonstrate its terms — usually no easy task.

Confidentiality agreements are usually associated with the protection of the disclosing party, but they can be equally important to the recipient. While the disclosing party wants to protect its position to the utmost, the recipient should, in most cases, be prepared to acknowledge truly confidential information. At the same time, the recipient should strongly resist having known information (whether public or known by reason of its own efforts) considered, or implied to be, confidential and subject to restrictions. It is in the interests of the recipient to have a detailed and precise confidentiality agreement so that it knows how it must treat the information disclosed. This may be particularly difficult if the recipient has been working in the vicinity of the property under consideration and has built up its own base of information, which may be the same or similar to the confidential information disclosed to it under the confidentiality agreement.

There is no ready solution to this type of problem other than discussing the whole problem before any information is disclosed and having the mutually acceptable solution reduced to writing. If such a solution can not be reached, the safe, but obviously unsatisfactory, solution is to walk away without any disclosure or to accept the best terms that can be negotiated with the disclosing party, reduce them to a confidentiality agreement, listen to the disclosure and hope that it was worth it. If the decision is to walk away, under no circumstances should the recipient attempt to be “cute” and try to get “something” out of the disclosing party before terminating negotiations — if the recipient subsequently is fortunate enough to discover a mine in the area, such cuteness could be costly and might form the basis of a lawsuit. In addition, it is good practice to confirm in writing the termination of negotiations and the fact that no confidential information was discussed.

A serious and related problem for exploration companies arises with respect to unsolicited submissions. Every mining company receives these on a regular basis. Some of the senders have also read about the LAC case and draft their covering letters in a manner that they obviously hope will “trap” the mining company into a situation that it has directly or indirectly acknowledged receipt of confidential information merely by reading the materials with the submission.

Many mining companies follow a practice of either keeping all submissions or a copy thereof in their general property files. This is a dangerous practice to follow and should be avoided. The safest practice, and as usual the most unsatisfactory one from the explorationist’s point-of-view, is to treat every unsolicited submission in the same way and return it without being read (not even a peek). The procedure followed should be universal and be such that, if required, it can be proven in court to be standard company procedure. An example of an appropriate, and no doubt cumbersome procedure, would be for a single designated employee to be responsible for opening all unsolicited submissions, retaining them under his or her control to the exclusion of all other employees’ control and returning them, after making a record of receipt, to the sender with a form letter indicating that the company does not accept unsolicited submissions. This form letter should also state that the submission was returned without being read, copied or reviewed and that the company would be pleased to meet with the sender to discuss, in person, any submission that he or she would care to make (after, of course, the confidentiality agreement has been settled and signed). Ideally the opener of submissions should have little or no technical knowledge.

With such a standard procedure, the mining company should be in a fairly good position to meet a legal action based on improper use of disclosure of confidential information allegedly obtained through an unsolicited submission. A procedure such as this no doubt is viewed as not only cumbersome but also counter-productive — after all, a mining company is in business to find mines and you do not do that by turning away submissions. On the other hand, if the submitter is serious, he or she will probably “get in touch,” and besides, defending legal actions also does not help in finding mines. As a matter of interest, the procedure outlined above is followed by a major U.S. manufacturer in order to protect its research and potential inventions and, most importantly, has been a successful defence in several infringement actions.

In short, confidentiality is here to stay so we might just as well learn to live with it in a manner that is as free as possible from the potential of its breach forming the basis of a lawsuit that could result in the loss of the mine that you worked so hard to find and prove up.