NEGOTIATIONS The Ground Rules

The Ontario Court of Appeal, in the case between Lac Minerals and International Corona Resources, has made most of the mining industry acutely aware of the concept of negotiation in mining deals. In essence, the court held, in part, that if confidential information was revealed during the course of serious negotiations, and if the party to whom that confidential information was revealed misused the information, then the courts may, by applying a custom of the trade peculiar to the mining industry, find that a breach of a fiduciary duty has occurred, rather than a mere breach of confidentiality. The difference can be spectacular. In the Lac/Corona case, the aggrieved party acquired a mine (unless appeals change the latest ruling). If the court had found that a mere breach of confidentiality had occurred, the remedy probably would have been in damages. The Supreme Court of Canada has granted Lac leave to appeal the Court of Appeal’s decision but has given no reason for granting the leave. The end result is that the industry must, particularly in Ontario, govern itself in accordance with the Court of Appeal decision, at least until the Supreme Court of Canada hears the appeal and hands down its decision — possibly in a couple more years. Although the Court of Appeal decision is technically only an Ontario decision, persons in other provinces are well advised to observe it. When the Supreme Court of Canada reaches its decision, that judgment will have effect throughout the country. The following questions are the obvious ones that immediately come to mind:

* What are negotiations?

* When do negotations arise?

* What makes negotiations “serious?”

The dictionary definitions listed on this page are not a great deal of help and, in any event, if the question of whether or not serious negotiations have arisen gets to court, the court will decide the question in the context of the circumstances that were in existence at the relevant times, as those circumstances are found to exist by the court from the evidence presented. What this means is that a trial judge will listen to the evidence presented by both sides; then, based upon that evidence, he will decide, upon such factors as the reliability of the evidence, the reliability of the party giving the evidence (including whether there was sufficient collaboration thereof) and, most importantly, what the facts and circumstances of the case being heard are.

Once the facts are established, the judge will then apply the law and render his judgment. If it is felt by one of the litigants that a trial judge has erred in law, an appeal to a higher court can be made but, except in exceptional circumstances, a higher court will not review or alter the facts as found by the trial judge or permit the introduction of further facts. With considerable logic, the higher courts take the view that the trial judge had the opportunity to see and hear the witnesses and, therefore, he or she is the appropriate person to decide on the question of credibility and thus the facts as established by the evidence presented at trial. In addition, if the higher court allowed new evidence, the trial court would not have had the opportunity to consider all the evidence and, conversely, the higher court could only satisfy itself with respect to the reliability of the new evidence, not the old. The answer may be a new trial, which is an expensive exercise.

The above must be kept in mind when consideration is given to the questions at hand. There is little or no doubt that an individual knows when he or she is negotiating, but whether the other party is of the same mind and whether the courts can be convinced of the “fact” that such individual was, or was not, in negotiations may be a different story. If a company explorationist visits a property, he will probably want to get as much information as possible and, even if the property is not particularly attractive, may be interested in what the owner is asking for it. Accordingly, the explorationist may well not be negotiating when he asks what the owner wants for the property, but the owner may “smell” a good chance and you can rest assured that in his mind he will be negotiating.

A person can certainly be negotiating before an offer is made and the existence of an offer or letter of intention would almost certainly establish the existence of negotiations. In addition, even if an employee does not think of himself as seriously negotiating with an owner, internal documents or memoranda among management may raise a contrary impression that at trial could be capitalized upon by counsel for the owner. In the Lac case, there was some exchange of letters, which by themselves were not particularly strong negotiating documents. But there was also a course of conduct carried on by both parties which, when considered with the correspondence, was found to prove that serious negotiations were taking place between Lac and International Corona with respect to the Williams property. This course of conduct included several meetings both on and off the property and the joint funding of some work in the area, and the court certainly placed some weight upon internal Lac documents.

From the foregoing, it can been seen that, at least in some situations, an explorationist will want to protect himself. A typical situation where this may be a concern is where he is active in an area and is visiting a property as part of such activity. In this situation, how can he protect himself and his employer? Well, he can consider the following:

* To begin with, he can clearly state to the owner that he does not want to see any confidential information, and then he can make a reasonable effort to make certain that this request is honored.

* After or during the meeting with the owner, he can make detailed notes in his diary as to what was said and what he saw. Explorationists tend to keep fairly complete diaries, so this should not represent too much of a burden. Notes made at the time in question carry considerable weight if evidence is required before the courts with respect to what was said.

* After a visit, a “thank you” letter can be sent to the owner which also confirms that, “as discussed,” the area in which the property is situated has been and continues to be of considerable active interest and also that no confidential information was put forward by the owner. Independent Notes

* A team of two employees can visit the property and each make independent notes on the visit. This can be of assistance if the matter ever comes before the courts as evidence can be collaborated and it becomes less of “his word against mine.” If the notes are not independently made, or worse, made some time after the visit (say, when there appears to be problems on the horizon), they may end up to be more damaging than helpful — it is surprising what a resourceful lawyer can find out and how he can use it to his advantage.

* Make clear to the owner the intention to negotiate or not to negotiate; and if there is no interest in the property, make this clear and do not get into a conversation with the owner about what he is “looking for”.

* If you are interested in the area in which the property is situated and/or have carried out or are carrying out a regional reconnaissance program in the area, tell the owner this and make it clear that you will be continuing to look for prospects in the area. The owner can even be asked to keep you in mind if he hears of any interesting prospects.

* Do not enter into arrangements with an owner that could be interpreted as being the “start of” a joint venture or other similar type of arrangement, or that might be construed as indicating an interest in the property, unless there is serious interest in the property, if the owner is doing contract work for you. This relationship should be clearly stated in writing.

The above all deals with negotiations, but the Court of Appeal was concerned with serious negotiations. What is the difference? Well, the short answer is that if the courts can be convinced that the parties we
re not negotiating, then, obviously, there is no need to worry about serious negotiations. On the other hand, if the courts feel there may have been, or was, negotiating taking place, then there is the possibility of convincing the courts that even if negotiations were taking place they were not “serious” negotiations.

In conclusion, the safest course to follow is to be prudent and cautious in examining properties and have clear and frank discussions with owners. Karl J. C. Harries is a graduate mining engineer and a 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.