Law A DECISION AT LAST

* 94 months since the commencement of legal proceedings;

* 46 months since the commencement of the trial in the Supreme Court of Ontario;

* 41 months since the trial judgment awarding the property to International Corona;

* 22 months since the judgment of the Ontario Court of Appeal confirming the trial judgment;

* 18 months since LAC was granted leave to appeal to the Supreme Court of Canada; and

* 10 months since the Supreme Court of Canada heard the appeal.

That’s to say nothing of the expenditure of tens of millions of dollars to advisers and others, including lawyers, accountants, consultants and investigators, and the incurring of vast indirect costs through the involvement of corporate personnel whose endeavors would have been otherwise directed to the carrying on of, we would hope, constructive corporate business.

The Supreme Court’s ruling in Corona’s favor is subject to an obligation to pay to LAC “the value of the improvement of the land * * * equal to what would have been spent by Corona to develop both properties (the Williams property and its own adjoining property), less what Corona in fact spent” (Mr Justice La Forest, at page 56). Lac has a lien against the Williams property for this amount. In addition, LAC is required to account to Corona for profits realized from the Williams property during the period that LAC ran the mine.

All five justices participating in the judgment agreed that LAC had acted improperly and breached a confidence by using, for its own benefit, confidential information given to it by Corona concerning the Williams property. Although three of the justices (including the two dissenting justices) held that a fiduciary relationship had not arisen between LAC and Corona during the course of their negotiations, three of them held that the facts as found by the trial court and accepted by the Court of Appeal (and by the Supreme Court of Canada) indicated that LAC had been unjustly enriched by acquiring the Williams property and held the Williams property as a trustee pursuant to a constructive trust. Accordingly, restitution was an appropriate remedy in the circumstances. In other words, Corona got the mine, but on the basis of different lines of legal thinking. Two justices dissented and would have awarded Corona damages and let LAC keep the property.

The dissenting judgment should be somewhat disturbing to business people because in it the two dissenting justices, in effect, created an agreement between LAC and Corona. Based upon a vague letter of LAC’s that outlined some possible bases for arrangements that might be pursued during the course of negotiations and the subsequent agreement between Corona and Teck Corp., the two dissenting justices made their determination of damages as if there had been a 50/50 joint venture between LAC and Corona. This approach could be understood if the negotiations had reached a reasonably advanced stage so that business terms had been “fleshed out” a little, but in this case little more than preliminary discussions had taken place.

The parties had not even discussed or negotiated the basic nature of the proposed arrangements or their respective interests. LAC had merely made some suggestions. In light of the actions of LAC and its corporate attitude, as shown by its actions in this case, one wonders if there would not have been a strong possibility that Corona might have terminated negotiations with LAC and looked for a more congenial partner. This was not considered by the dissenting justices. Even though the above approach is that of dissenting justices, it must be taken as an indication of a possible approach the courts may take in the future and, therefore, is of interest and possible concern to the business community. In expressing concern, it must not be overlooked that the courts have never hesitated to hold that, in the absence of a written agreement and where the facts warrant it, the courts will find the existence of an agreement between parties. Nevertheless, that is not the situation here. In this case, if the dissenting justices felt there was a 50/50 joint venture in existence, then one would expect that, logically, they should have awarded Corona a 50% interest in the mine rather than damages.

Now, what are some things that the results in this case and the judgment of the Supreme Court of Canada are telling the mining community?

* Good faith is expected in dealing between parties, and the courts will enforce this expectation. “The institution of bargaining in good faith is one that is worthy of legal protection in those circumstances where that protection accords with the expectations of the parties” (La Forest, J., at page 47).

* Negotiating parties are well- advised to enter into confidentiality agreements before any confidential information is disclosed. Although such agreements may not be strictly required to preserve the confidential nature of disclosed information, they are becoming more commonplace and, accordingly, a court might look upon its absence as a fatal flaw to the awarding of restitution as a remedy. At page 39, La Forest, J., indicates that: “Where it is not established that the entering of confidentiality agreements is a common, usual or expected course of action, the court should not presume such a procedure * * .”

Mr Justice Sopinka, writing for the two dissenting justices, at page 26 of his judgment, went so far as to suggest Corona should be penalized for not having entered into a confidentiality agreement:

“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 protecti on which was available to it.”

It can be inferred that these statements relate to 1981 practice, and one must ask with respect to 1989 and the future whether entering into confidentiality agreements with respect to information disclosed during negotiations is, or is becoming, “a common, usual or expected course of action” in the mining industry.

* Any confidentiality agreement should clearly set forth the nature of the confidential information (the more specific, the better) and the use to which it may or may not be put. In most cases, the use will be restricted to assisting the recipient in assessing the property for the purpose of negotiations. From the disclosing party’s point-of-view, it would do no harm to include wording to the effect that the stated use is the only permitted use and the recipient will not use it otherwise for its own benefit or otherwise (it must be remembered that very often judges will have no background in the mining business and its practices, so it is best to state them).

* Even when no confidentiality agreement has been made, orally or in writing, the parties may find themselves bound not to use confidential information passed between them, and may even be bound by higher “fiduciary” duties. The facts of this case present a vivid example of how such obligations may arise even where the parties did not address the issue of confidentiality at all. Here, where Corona could be said reasonably to expect LAC to observe the confidentiality of the information disclosed, “. * * the law of fiduciary obligations can operate to protect the reasonable expectations of the parties. There is no reason to clutter normal business practic
e by requiring a contract” (La Forest, J., at page 39).

* In mining, there is an “industry- recognized practice not to acquire the property which (is) being pursued by a party with which (one is) negotiating” (La Forest, J., at page 11) and “that parties in serious negotiation to a joint venture not act to the detriment of the other, particularly with respect to confidential information disclosed” (La Forest, J., at page 27). Unfortunately, the court found “it unnecessary to define serious’ ” (La Forest, J., at page 34), so that we are still left to speculate on what the difference between negotiations and “serious” negotiations may be.

* This case, and particularly the remedy granted by the courts, was decided on the basis of the facts as established by the court from the evidence brought before it. For example, the court found that “but for the actions of LAC, Corona would probably have acquired the Williams property” (see La Forest, J., at page 7). Accordingly, the parties to negotiations should conduct themselves in such a manner that, if in several years time it is necessary to reconstruct the negotiations and other happenings between the parties, it can be done easily, accurately and in a manner that can be supported before the courts. Some things that might be helpful would be the following:

— making and keeping in a central file memoranda made during the course of discussions, setting forth such things as who said what to whom, points agreed to or still open, impressions of the writer as to progress or otherwise, etc., and a similar set of memoranda relating to internal discussions and decisions;

— the dating and keeping in chronological order of proposals, drafts and other documents;

— and basically doing anything at the time of negotiations that could help to reconstruct the circumstances.

Such records are, of course, a nuisance to make and to keep, but if there is a dispute it will take a long time for the courts to hear the evidence and it is surprising how fallible the human memory is. In addition, good and complete records will, no doubt, impress the court.

* The question of whether “vulnerability” exists will be considered by the courts. “Persons are vulnerable if they are susceptible to harm, or open to injury” (La Forest, J., at page 36). In this case, Corona was vulnerable once it disclosed to LAC the confidential information and its plans to pursue actively the Williams property. Lac exploited that vulnerability to Corona’s detriment (Corona lost the property that it otherwise would have obtained and that property was unique in the sense that it was a one- of-a-kind asset for which there was no substitute). In some cases, the relative sizes of the negotiating parties may be considered with respect to this question, but this is far from being a deciding factor — the “junior” is not necessarily vulnerable because it is negotiating with a “major.”

The judgments in the LAC/Corona case are appropriate reading for explorationists and the judgment of the Supreme Court of Canada particularly gives the reader an excellent, if lengthy, summary of the law that was considered in this case. They also give the reader a good view of how the three levels of our judicial system look at, consider and decide cases that come before them. With the LAC/ Corona decisions, the mining industry is offered some guidelines on how it should or should not conduct itself and what the consequences of misconduct may be. It must, however, be remembered that this case was decided on its specific facts as found by the courts from evidence presented by the parties at trial. There are no guarantees that the same result will follow even in similar circumstances (the circumstances will never be identical, and one of the lawyer’s stocks in trade is to show the courts how detrimental cases differ from the case at Bar and, therefore, why a different decision should follow).

On the other hand, the LAC/Corona case did contain a message, not only to the mining industry but to business at large — trust, confidence and bargaining in good faith are ingredients that negotiating parties should be able to rely upon, and if they are absent, the courts may well intervene, even to the extent of “taking away” from one party and “giving” to the other an asset which, during its life, may produce hundreds of millions of dollars in revenue. It makes good faith a pretty valuable asset to have and to nurture. Karl J. C. Harries is a graduate mining engineer and partner with the Toronto law firm of Fasken & Calvin. The information in this article is summary and general in nature and is not intended to be taken or acted upon as legal advice. The Billion Dollar Triangle The Stobie mine. Creighton. Fraser. Denison. Golden Giant. Williams. The Dome mine. Kidd Creek. Bousquet. Sigma. This representative roll call of venerable Canadian mines pours out its billions of dollars worth of metals in a remarkably fertile piece of northern Ontario and Quebec ground that we have dubbed “The Billion Dollar Triangle.” Why Nature was so lavish in her mineral endowments here, we do not know. How the wealth came to be is, in many cases, still a point for geological debate. But it is here, visibly in the existing mines and, quite probably, in the mines yet to be found. The following section details the mining and milling practices of many of these producers and the plans being laid by a few near-producers.

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