Mining’s unique practices questioned at Lac appeal

Sir Harry Oakes, Benny Hollinger and William Wright, if they were al ive today, would all likely testify that the mineral exploration business in Canada is different from any other commercial enterprise. Five Ontario Court of Appeal judges may soon decide whether those differences should be enshrined in legal precedent.

Each of those three lived their own version of a rags-to-riches story that could only happen to a prospector who strikes it rich.

Sir Harry, whose murder in Bermuda has never been solved, worked and financed the Lake Shore gold mine at Kirkland Lake almost single-handed and rose from being a penniless drifter; Benny Hollinger, after whom is named the richest of Canada’s gold mines at Timmins, Ont., eventually died penniless after quickly spending his fortune; William Wright, a butcher turned prospector, financed the formation of one of Canada’s largest newspapers, The Globe & Mail, through millions gained from his vendor’s share of the Wright- Hargreaves and Sylvanite mines at Kirkland Lake.

At Osgoode Hall, where Lac Minerals’ appeal of an Ontario Supreme Court decision awarding the Page-Williams gold mine at Hemlo, Ont., to International Corona Resources was due to wrap up in November, the court’s decision may well affect future dealings in the industry between mine finders and mine makers.

The role of the prospector — or junior exploration company — may never be the same.

In a case that is bound to rival the Texasgulf scandal of 1964 in its impact on the industry, trial judge R. E. Holland ruled March 7 that, but for Lac’s actions in 1981, Corona would have acquired the 11 Williams claims on which the Page-Williams mine was subsequently developed.

Lac says the decision, if upheld, will have “a significant chilling effect on commercial enterprises, especially in the mining exploration industry.” Corona says the decision only enshrines in legal precedent a “code of conduct,” a “notorious, established, well- recognized” practice in the industry.

Big Chill or recognized practice: what the two sides are arguing in one aspect of this complicated case, is what relationship existed between Lac and Corona and what obligations that relationship entailed.

The trial judge decided that a relationship existed between the two companies that placed an obligation on Lac — a fiduciary obligation — not to act to the detriment of Corona. He ruled that by obtaining the Williams claims Lac violated that fiduciary trust.

What’s more, Corona’s lawyer, A. J. Lenczner, said Lac knew it had taken on the responsibilities of a fiduciary trust citing evidence given by Lac President Peter Allen and vice-president of exploration Dennis Sheehan.

Mr Lenczner cited testimony by expert witnesses called by both Corona and Lac to show that Corona had done everything it was asked to do, as a junior mining company, by Lac in working toward some kind of joint venture agreement. It was expected, by mining industry practice, to supply all of its information, which it did, and in return Lac would refrain from using the information.

Mr Lenczner said Lac violated that trust, however, when it turned around and used that information to gain the very claims Corona was trying to obtain, said Mr Lenczner.

However, the judges on the Supreme Court tribunal questioned the value of the experts’ testimony regarding industry practice.

“You’re trying to make legal precedent out of some witnesses’ testimony,” said Mr Justice Charles Dubin.

Associate Chief Justice Mr Bert MacKinnon asked whether the experts saying such a practice exists in the mining industry actually makes it so in law.

What the two companies had was, said Mr Justice Allan Goodman, “at most an agreement to try to reach an agreement.” He questioned what obligation that placed on either company. Why is mining special?

What makes the mining industry so special they seemed to be asking. If two companies in the food industry, for example, start talking about a merger, that may not imply negotiations and may not place any fiduciary obligations on either party.

“I have to keep reminding myself and perhaps your Lordships that we’re dealing with the mining industry,” said Mr Lenczner.

He portrayed the companies’ representatives as being “in the bush” during a key site visit by Lac without the benefit of “batteries of lawyers” that may be available to companies in the food industry discussing a merger.

In the mining exploration industry, the word of two prospectors who meet in the bush and shake hands on a deal often must suffice.

Mr Lenczner said a junior company, such as Corona was back in 1981, is at a disadvantage when dealing with a major mining company such as Lac. The custom in the industry, therefore, is for the senior company not to misuse information it gains from a junior during negotiations.

Judge Holland ruled that Lac and Corona were “clearly negotiating towards a joint venture or some other business relationship.”

He also ruled that Corona was making active efforts to acquire the Williams property when Lac misused confidential information Corona had provided and acquired the Williams claims itself. Corona supports decision

Not surprisingly, Mr Lenczner was strongly supportive of Judge Holland’s decision which he described as “fact-filled,” “terse,” and “abundantly supported by the evidence.”

As well as industry practice giving rise to a fiduciary duty being placed on Lac, Mr Lenczner, during his four days of pleading before the court, planned to argue that a fiduciary duty arises from the misuse of confidential information.

He also planned to discuss the trial judge’s remedy that “the obligation of Lac is to return the Williams property to Corona since by its actions it deprived Corona of the opportunity of obtaining the property.” Judge Holland said that returning the property was equitable because of the difficulty in assessing the value of the property — “gold properties of significance are unique and rare.”

However, Judge Holland ruled that Corona must pay Lac $154 million as compensation for what Lac spent developing the property, including the cost of the mill and mine. Corona feels it should pay nothing to Lac because Lac cannot show it believed that the Williams property was its own when the improvements were made. The improvements were made after Corona had filed its suit against Lac.

Judge Holland was also asked by both Lac and Corona to calculate the damages in case some other court should decide that damages ought to be awarded instead of the return of the property. He put the value at $700 million. Corona planned to argue that it was worth up to twice that amount.