Judge finds in Seabright’s favor

A Nova Scotian court has strongly rejected the $65-million claim of Westminer Canada Holdings and Westminer Canada against Seabright Resources. Instead, the former Seabright directors were awarded $10 million for costs and damages.

In his 300-page decision, Justice Merlin Nunn disagreed with the Australian-controlled companies (their parent firm is Western Mining Corp. Holdings) that Seabright had wilfully misled them as to the viability of the main Beaver Dam property, east of Halifax, before the 1987 takeover of the junior gold producer.

The judge described the Seabright takeover as reckless and lacking “due diligence.” Another potential buyer had concluded at the time: “If Seabright could get somebody to pay $90 million for the company, (it) was great because if anybody would pay them half that much, they’d better take the money and run.”

Nunn ruled that the Westminer side was in breach of fiduciary duty by depriving the former Seabright directors of liability insurance coverage, and he cast doubt on the testimony of certain witnesses.

“I was not impressed with the evidence given by the Australians Lalor, Maloney and Morgan and have reservations as to their credibility on controversial points,” the judge stated.

Nunn characterized the 5-year suit as a “David and Goliath” contest. He referred to Seabright’s assertion that the Western suit was “. . . not for the purposes of obtaining damages, as there would be no hope of ever collecting such amounts, if awarded, but in fact was for a twofold purpose, namely to save Morgan from having to account to his own board and to punish the former Seabright board.”

Some local observers were expecting a closer decision, but the judge vindicated Seabright on all counts and, almost without exception, accepted their version of the facts. Terence Coughlan, Seabright’s former chief executive officer, commented at a news conference that he couldn’t have written a better decision himself.

It was reported from Australia that Western Mining plans to appeal the decision.

Nunn cited the controversial British Columbia Supreme Court decision of Judge Lambert, with its somewhat narrow definition of a material change. If these two decisions hold up, drill results appear to be merely future estimates that need not be disclosed as material changes. A peculiar one-sided situation may be created by which optimistic estimates are quickly publicized, yet later pessimistic forecasts can apparently be withheld at management’s discretion.

Another key issue was the liability of outside directors for damages flowing from the actions of management but, as no fault was found, this legal area remains largely uncharted.

Seabright sources estimate Western’s own costs for the failed legal action exceeded $16 million. This is in addition to the $10 million awarded as costs and damages. Also, Westminer paid $92 million for Seabright. Westminer Canada recently sold its Chibougamau, Que., copper-gold operations in northwestern Quebec to MSV Resources of Montreal.