EDITORIAL PAGE — The EPA strikes out

The United States Environmental Protection Agency (EPA) must have been dreaming in Technicolor when it came to Canada last year seeking an injunction to freeze US$152 million worth of Diamond Fields shares owned by then-chairman Robert Friedland.

The underlying objective was not unreasonable in that the EPA was hoping to use the funds to pay for the cleanup of the Summitville mine in Colorado, a former gold producer once held by Friedland’s Galactic Resources. And the EPA was successful in that the injunction was granted and the shares were frozen.

But it proved to be a hollow and short-lived victory, as the injunction was easily overturned on appeal. The defeat meant that U.S. taxpayers had to foot the bill not only for the EPA’s legal costs but for Friedland’s legal bills as well.

Even worse, the EPA had to endure some scathing criticism of its actions from Justice Robert Sharpe of the Ontario Court of Justice, who dissolved the asset seizure last fall. At that time, he said he had “no hesitation in finding that the United States of America failed to make full and frank disclosure of the case” when it sought an ex parte Mareva injunction.

Because the orders were obtained in secret, Friedland was not provided with any notice or opportunity to contest the basis for the orders until the government finally made them public. This meant that the onus was on the EPA to ensure that its submission was objective, fair and balanced.

Justice Sharpe made it clear that the EPA’s submission fell woefully short of the mark. In his reasons for judgment, he stated that “the material submitted contained material statements of fact which are misleading; statements of fact which are wholly unsupported by evidence; that there was a failure to disclose material facts in relation to the liability of the defendant; that there was a failure to disclose material facts relevant to the exercise of this court in its discretion to grant a Mareva injunction.” He went on to state that this was a situation in which there were not just one or two instances of failure but, rather, “a pervasive failure to live up to the duty in all areas of the case.”

Earlier this month, the United States government decided to abandon its appeal from the judgment of Justice Sharpe. The government’s lawyers also agreed to vacate a secret order they obtained in Colorado last May.

The United States government has been ordered to pay Friedland’s legal expenses, which are estimated to exceed $1 million. Friedland also has the right to pursue counterclaims based on the government’s undertaking in court.

Justice Sharpe’s ruling may not sit well with those who believe Friedland has a moral obligation to help pay for the cleanup at Summitville. And who knows? This view may strike a chord somewhere in the depths of Friedland’s complex personality. At the very least, he says is “ready and willing” to settle his legal differences with the EPA and to offer “personal assistance” in finding a financial solution to the cleanup of the site. And if it is true that a bird in the hand is worth two in the bush, the EPA may want to consider this offer.

But the bottom line of this case is that the EPA lost because it ignored the fact that the law imposes an exceptional duty of full and frank disclosure on any party that seeks ex parte relief. As Justice Sharpe points out, this is required to mitigate the obvious risk of injustice inherent in any situation where a judge is asked to grant an order without hearing from the other side.