Law HEMLO RULING: ‘MUST READING’

Since November, 1986, the mining and investment industries have been awaiting the Ontario Court of Appeal judgment in the case involving Lac Minerals and International Corona Resources. Well, it is here, having arrived Oct 2, 1987. Before the judgement was handed down, one member of the court died (Acting Chief Justice of Ontario Bert MacKinnon). This raised all sorts of speculation, including the possibility of a “hung” court. But we now have the judgment. It is 126 pages long, it is unanimous, it confirms the original trial court judgment (Corona takes the mine), and it should be required reading for every explorationist and geological student. The judgment is a strong one, being a single judgment of the entire court; and much as it may surprise the reader, it is reasonably easy to read (but you need patience and probably should read the trial judgment first — it is only 115 pages but, again, is relatively easy reading). Legal Insight

Why should an explorationist bother to read a legal judgment? Very simply, because the court has gone to great pains to set out in detail just what Lac did wrong and to answer in detail each of the arguments that Lac presented to “justify” its actions. This is done not in stilted legalese, but in a manner that is easily read and quickly understood. As a bonus, the reader is given an insight into the way in which a court will analyse a situation or set of facts and reach a decision based upon them. So much for the commentary; now let us look at the judgment. But do not rely upon this or any other article to tell you what the judgment is all about — read it yourself.

As most people are aware, the trial judgment dealt with the questions of confidentiality and whether or not a fiduciary relationship arose between Lac and Corona, such that if one did exist and Lac breached it, then Corona was entitled to be placed in the same condition that it would have been in had the breach not occurred. Mr Justice R. E. Holland held that such a relationship had been established, that Lac was in breach of its duties under that relationship and that, in the circumstances, Corona was entitled to the Williams property and the mine thereon.

Although the Court of Appeal agrees with the trial judgment, it makes it quite clear that its findings are with respect to the facts as they were proven before the trial court. These facts are set out in detail in the judgment by Their Lordships. It is essential that it be understood that the judgment is based on the facts as set out by the court (not by the “street” or anyone else), and although the court states several legal findings, these are not necessarily of general application and must be applied in the context of the facts. What did the Court Find?

* There was a fiduciary relationship established between Lac and Corona that arose and became effective when they commenced serious negotiations with respect to establishing a joint venture between them. (It is a matter of general law that it is a question of fact, in each case, whether the relationship of the parties involved is such to create a fiduciary relationship.)

* Confidential information was received by Lac during the course of its discussions with Corona.

* There is a custom, or proven industrial practice, within the mining industry that created a duty upon each party “not to act to the detriment of each other” when they are seriously negotiating with each other; and furthermore, they have the obligation to act in “perfect fairness and good faith” towards each other.

* The obligations arising from the disclosure of confidential information are distinct from the law imposing fiduciary duties. (In other words, just because confidential information disclosed is improperly used does not mean that a fiduciary relationship exists and that there has been a breach of fiduciary duty. This is significant as the legal remedy for breach of confidentiality is usually in damages whereas, as is seen from this case, the remedy for breach of a fiduciary duty can be much more onerous on the wrongdoer.)

The findings set forth above are basically what the court held the law to be. (There are other findings in the decision, but they are not mentioned here because they are not directly related to our “mining concerns.”) These findings were applied by the court to the facts as these were found to be from the evidence presented at trial. Accordingly, the facts are of interest if the findings of law are to be applied to everyday exploration activities. A brief summary of the principal facts follows:

* Lac received confidential information from Corona in various forms, including review of cores and sections, site visits, direct discussions with Corona geologists and, critically, the knowledge that Corona was going to attempt to obtain the Williams property.

* Corona was actively negotiating for the Williams property and would have obtained it but for the actions of Lac.

* Lac used the confidential information obtained from Corona to the detriment of Corona.

* The parties were not on an equal footing in their negotiations having regard to the clear senior position of Lac in the mining industry. (This matter appears to have been considered, but not as a major deciding factor because of the existence of the custom in the mining industry relating to serious negotiations referred to above. As a general rule, the relative strengths of the parties are not considered when a court reviews dealings at arm’s length in ordinary commercial transactions.)

As indicated above, the court deals at considerable length with the facts and how the law applies to them. There are many quotations from both the trial judgment and evidence which are of considerable assistance to the reader to follow the reasoning of the court in confirming the trial judgment.

It is important to remember that the court has clearly limited this judgment to the facts as found. Accordingly, the case offers excellent guidance on what not to do and appropriate ways to conduct oneself in dealing with others in the mining industry (it is limited to this industry because of the custom found to exist in the industry by the court). If, however, the facts in some future case are different from those in this case, then the result might be different — but don’t count on it. The law is that if you enter into serious negotiations (and you will note that there is no definition as to what constitutes these), you should conduct yourself with “perfect fairness and good faith.” Nevertheless, you must still act prudently to protect your interests, and don’t let your guard down] Also, remember that the termination of negotiations may well not terminate the fiduciary obligations between the parties if they existed in the first place.

In short, the courts will expect the parties to negotiations to conduct themselves on a high moral level and in a manner that will not hurt each other. In other words, in the manner you would like to be treated. Karl 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.