Without accurate and complete information, no decision can be made, regardless of subject matter. How can a geologist or mining engineer recommend the acquisition of a property or the commissioning of a feasibility study without full and accurate information? Or how can a lawyer give a reasonable evaluation of a “problem” unless he or she is given, impartially and accurately, the circumstances and facts relating to the “problem”? In the last short while we have seen in the mining industry a series of laws uits where, essentially, the plaintiff is saying to the defendant: “When we did our deal you didn’t tell me everything that you should have in order for me to make a reasoned decision on your proposal.”
As a basic principle, parties are expected to deal in good faith with each other. This is true whether the dealing is at arm’s length for the acquisition of an interest in a stranger’s property or with a party to an existing agreement or relationship. The onus upon the parties to deal in good faith and to reveal relevant information can be far greater in the latter than in the former.
The arm’s length transaction is fairly straightforward when compared with the situations that can arise in dealings between parties to an agreement. In an arm’s length transaction, the purchaser does not normally have to reveal to the vendor its reasons for wanting the property or any information in the purchaser’s possession. A major exception to this statement is where the purchaser is in possession of information obtained from an unauthorized (by the vendor) visit to the property, even if this visit was as a result of an innocent mistake (for example, a field geologist who got turned around in the bush and mistakenly traversed the property or a part of it). In these circumstances, the purchaser should voluntarily reveal to the vendor that a visit was made and the information that was obtained. This is the safest route to follow, but some people prefer not to reveal the visit and force the vendor to ask about any information obtained. If an authorized visit is made before or during negotiations, the purchaser should take care to obtain a signed and dated authorization from the vendor. The fact of the visit and the authorization should be recited in any agreement subsequently entered into with the vendor. In this situation, there is little risk in making the vendor ask for information obtained from the visit. It should not be necessary to say here that, if information is revealed to the vendor, it must be revealed fully and truthfully. A misrepresentation, negligent or otherwise, could well form the basis of an action leading to a judgment for significant damages or recision of the agreement. It would be prudent for the purchaser to make a note on its property file concerning information that was or was not asked for, that was or was not revealed and, generally, the nature of the discussions relating to the information with the vendor.
The potential for problems arising in a situation where parties to an agreement are dealing between themselves is far greater, and more complex, than in the arm’s length situation. If the operator of a joint venture is buying out the non-participating party, the operator must go to some pains to make certain that the non-participant is fully and currently informed of work carried out by the operator and results thereof. If the operator summarizes these for the non-participant, the operator must do so very carefully, and must take care to be accurate, impartial and, if anything, more, rather than less, encouraging about the project (all, of course, while still trying to be realistic). In short, to be as safe as possible (nothing is absolute), the operator should “tout” the property and, from a practical point-of-view, work against its own interests of buying at the lowest possible price. If the operator does not do this, the non-participant may, after selling, complain to the courts that he was “had.” Because the operator did not reveal all the available information, the non-operator should get its interest back. Such a claim will, of course, only be made quite a while after the deal has been closed, after the property is becoming “interesting.” From this it will be obvious that it may be preferable to avoid, if possible, delivering a summary to the non-participant and, rather, to make all of the files, reports and so on available at a mutually convenient central location for review (the more co-operative and accommodating the operator is, the better). Some things to be considered with respect to the agreement and negotiations in general may be:
* What are the operator’s reporting obligations to the non-participant?
* Is the operator up-to-date and in full compliance with its obligations? If the operator has been delinquent in complying with these obligations, the situation should be rectified or the non-participant should, in writing, acknowledge that the operator is relieved of the obligations.
* Are files being made available to the non-participant complete? If there are some materials in the process of being prepared, this should be made known to the non-participant and copies delivered to the non-participant as soon as they are available (it is a good idea to get receipts). It is also a good idea for the operator to have a representative present while the vendor is reviewing the files and for notes to be kept about the visit (for example, files reviewed, conversations had, copies made, and so on). This may be a tiresome and “useless” chore, but, if the vendor later commences legal action relating to the transaction, such notes may make the difference between winning and losing.
* Is the non-participant entitled, under the agreement, to have access to interpretive materials or only to data? If the agreement is silent on this, as many agreements are, interpretive materials should be made available with appropriate disclaimers and warnings.
* Is there work being carried out during negotiations with the non- participant? If there is, the non- participant should be made aware of this fact and results should be made available to the non-participant on a timely basis. If, say, visible gold is observed in some core, this should not be withheld on the basis that assays have not as yet been received with respect to that section of the core. In this respect, remember that, if an employee of the operator has information, the operator will be considered to have that information even if it has yet to be communicated to “head office.”
* If publically traded corporations are involved, attention should be paid to the currency of the public record. Remember that in all jurisdictions, a corporation is required to make “timely disclosure of material facts,” and failure to do so may involve liability attaching to not only the corporation, but also to its directors and officers.
In short, when negotiating to buy out a non-participant, be careful to make certain that you, as operator, have dealt with the non-participant in the utmost good faith, and that the non-participant is in a position to properly evaluate its interest and your offer. When one non-participant buys out another
The obvious question which should now come to mind is: What about one non-participant buying out another non-participant? If both the vendor and purchaser are on equal footing, insofar as information on the project is concerned, there should be no problems. The purchaser can exercise its rights under the agreement to review the files of the operator before making its offer and need not disclose the data obtained or its interpretation thereof, provided that the vendor has available to it similar rights to those of the purchaser. It is up to the vendor whether or not it exercises rights available to it. One instance where the purchaser could get into trouble is if a “special relationship” can be shown to exist between the purchaser and the operator such that the purchaser and vendor were treated in a different manner by the operator (usually this would involve something like the operator supplying information to the purchaser on a preferential basis).
Another potential problem for an operator is that, if it is delinquent in its obligations to report, and another party to the agreement disposes of its interest, the operator could have problems with the vendor, especially if the operator failed to report some material results.
Revealing information (or failing to reveal in whole or in part) can have important and expensive consequences to the parties involved. There is definitely a tendency arising in certain areas of the mining industry to favor the commencing of lawsuits. Remember always that a lawsuit can be launched upon a less-than-sound basis; will be decided by a judge upon his view of the “facts” as presented by the evidence; does not come cheaply; and will most certainly be time- consuming and highly disruptive. 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.
Without accurate and complete information, no decision can be made, regardless of subject matter. How can a geologist or mining engineer recommend the acquisition of a property or the commissioning of a feasibility study without full and accurate information? Or how can a lawyer give a reasonable evaluation of a “problem” unless he or she is given, impartially and accurately, the circumstances and facts relating to the “problem”? In the last short while we have seen in the mining industry a series of laws uits where, essentially, the plaintiff is saying to the defendant: “When we did our deal you didn’t tell me everything that you should have in order for me to make a reasoned decision on your proposal.”
As a basic principle, parties are expected to deal in good faith with each other. This is true whether the dealing is at arm’s length for the acquisition of an interest in a stranger’s property or with a party to an existing agreement or relationship. The onus upon the parties to deal in good faith and to reveal relevant information can be far greater in the latter than in the former.
The arm’s length transaction is fairly straightforward when compared with the situations that can arise in dealings between parties to an agreement. In an arm’s length transaction, the purchaser does not normally have to reveal to the vendor its reasons for wanting the property or any information in the purchaser’s possession. A major exception to this statement is where the purchaser is in possession of information obtained from an unauthorized (by the vendor) visit to the property, even if this visit was as a result of an innocent mistake (for example, a field geologist who got turned around in the bush and mistakenly traversed the property or a part of it). In these circumstances, the purchaser should voluntarily reveal to the vendor that a visit was made and the information that was obtained. This is the safest route to follow, but some people prefer not to reveal the visit and force the vendor to ask about any information obtained. If an authorized visit is made before or during negotiations, the purchaser should take care to obtain a signed and dated authorization from the vendor. The fact of the visit and the authorization should be recited in any agreement subsequently entered into with the vendor. In this situation, there is little risk in making the vendor ask for information obtained from the visit. It should not be necessary to say here that, if information is revealed to the vendor, it must be revealed fully and truthfully. A misrepresentation, negligent or otherwise, could well form the basis of an action leading to a judgment for significant damages or recision of the agreement. It would be prudent for the purchaser to make a note on its property file concerning information that was or was not asked for, that was or was not revealed and, generally, the nature of the discussions relating to the information with the vendor.
The potential for problems arising in a situation where parties to an agreement are dealing between themselves is far greater, and more complex, than in the arm’s length situation. If the operator of a joint venture is buying out the non-participating party, the operator must go to some pains to make certain that the non-participant is fully and currently informed of work carried out by the operator and results thereof. If the operator summarizes these for the non-participant, the operator must do so very carefully, and must take care to be accurate, impartial and, if anything, more, rather than less, encouraging about the project (all, of course, while still trying to be realistic). In short, to be as safe as possible (nothing is absolute), the operator should “tout” the property and, from a practical point-of-view, work against its own interests of buying at the lowest possible price. If the operator does not do this, the non-participant may, after selling, complain to the courts that he was “had.” Because the operator did not reveal all the available information, the non-operator should get its interest back. Such a claim will, of course, only be made quite a while after the deal has been closed, after the property is becoming “interesting.” From this it will be obvious that it may be preferable to avoid, if possible, delivering a summary to the non-participant and, rather, to make all of the files, reports and so on available at a mutually convenient central location for review (the more co-operative and accommodating the operator is, the better). Some things to be considered with respect to the agreement and negotiations in general may be:
* What are the operator’s reporting obligations to the non-participant?
* Is the operator up-to-date and in full compliance with its obligations? If the operator has been delinquent in complying with these obligations, the situation should be rectified or the non-participant should, in writing, acknowledge that the operator is relieved of the obligations.
* Are files being made available to the non-participant complete? If there are some materials in the process of being prepared, this should be made known to the non-participant and copies delivered to the non-participant as soon as they are available (it is a good idea to get receipts). It is also a good idea for the operator to have a representative present while the vendor is reviewing the files and for notes to be kept about the visit (for example, files reviewed, conversations had, copies made, and so on). This may be a tiresome and “useless” chore, but, if the vendor later commences legal action relating to the transaction, such notes may make the difference between winning and losing.
* Is the non-participant entitled, under the agreement, to have access to interpretive materials or only to data? If the agreement is silent on this, as many agreements are, interpretive materials should be made available with appropriate disclaimers and warnings.
* Is there work being carried out during negotiations with the non- participant? If there is, the non- participant should be made aware of this fact and results should be made available to the non-participant on a timely basis. If, say, visible gold is observed in some core, this should not be withheld on the basis that assays have not as yet been received with respect to that section of the core. In this respect, remember that, if an employee of the operator has information, the operator will be considered to have that information even if it has yet to be communicated to “head office.”
* If publically traded corporations are involved, attention should be paid to the currency of the public record. Remember that in all jurisdictions, a corporation is required to make “timely disclosure of material facts,” and failure to do so may involve liability attaching to not only the corporation, but also to its directors and officers.
In short, when negotiating to buy out a non-participant, be careful to make certain that you, as operator, have dealt with the non-participant in the utmost good faith, and that the non-participant is in a position to properly evaluate its interest and your offer. When one non-participant buys out another
The obvious question which should now come to mind is: What about one non-participant buying out another non-participant? If both the vendor and purchaser are on equal footing, insofar as information on the project is concerned, there should be no problems. The purchaser can exercise its rights under the agreement to review the files of the operator before making its offer and need not disclose the data obtained or its interpretation thereof, provided that the vendor has available to it similar rights to those of the purchaser. It is up to the vendor whether or not it exercises rights available to it. One instance where the purchaser could get into trouble is if a “special relationship” can be shown to exist between the purchaser and the operator such that the purchaser and vendor were treated in a different manner by the operator (usually this would involve something like the operator supplying information to the purchaser on a preferential basis).
Another potential problem for an operator is that, if it is delinquent in its obligations to report, and another party to the agreement disposes of its interest, the operator could have problems with the vendor, especially if the operator failed to report some material results.
Revealing information (or failing to reveal in whole or in part) can have important and expensive consequences to the parties involved. There is definitely a tendency arising in certain areas of the mining industry to favor the commencing of lawsuits. Remember always that a lawsuit can be launched upon a less-than-sound basis; will be decided by a judge upon his view of the “facts” as presented by the evidence; does not come cheaply; and will most certainly be time- consuming and highly disruptive. 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.
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