year in review - mccarthy tétrault · 6 tsilhqot’in: historic ruling, but may not be the game...

Mining in the CourtsYear in Review Vol. V – March 2015

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Mining in the CourtsYear in Review Vol. V – March 2015

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Table of Contents

Mining in the Courts mccarthy.ca

Table of Contents

About the McCarthy Tétrault Mining Litigation Group . . . . . . . . . . . . . . . . . . . 3

Tsilhqot’in: Historic Ruling, but may not be the Game Changer Many Suggest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Case Law Summaries - Aboriginal Law

Grassy Narrows First Nation v. Ontario (Natural Resources), 2014 SCC 48 . . . . . . . 12

Tsilhqot’in Nation v. British Columbia, 2014 SCC 44 . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Wabauskang First Nation v. Ontario (Minister of Northern Development and Mines), 2014 ONSC 4424 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

West Moberly First Nations v. British Columbia (Energy and Mines), 2014 BCSC 924 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Case Law Summaries – Arbitration

Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 . . . . . . . . . . . . . . . . . . . . . 16

The Ontario Court of Appeal Confirms Scrutiny for Leave in Securities Class Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Case Law Summaries – Class Actions

Deraspe c. Zinc Électrolytique du Canada Corporation Ltée, 2014 QCCA 2266 . . 20

Fairhurst v. Anglo American PLC, 2014 BCSC 2270 . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Mask v. Silvercorp Metals Inc., 2014 ONSC 4161 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Case Law Summaries – Conflicts and Jurisdiction

Central Sun Mining Inc. v. Vector Engineering Inc., 2014 ONSC 1849 . . . . . . . . . . . 23

Case Law Summaries – Contracts

American Creek Resources Ltd. v. Teuton Resources Corp., 2014 BCSC 636 . . . . . 24

Bhasin v. Hrynew, 2014 SCC 71 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 . . . . . . . . . . . . . . . . . . . . . 27

British Columbia’s Water Sustainability Act Expected to Come Into Force in 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 C

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Table of Contents

mccarthy.ca Year in Review – Vol. V, March 2015

Case Law Summaries – Environmental Law

Boart Longyear Inc. v. Mudjatik Enterprises Inc., 2014 SKQB 410 . . . . . . . . . . . . . . 31

Centre québécois du droit de l’environnement c. Oléoduc Énergie Est Ltée, 2014 QCCS 4398 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Case Law Summaries – Expropriation

Golden Rock Products Inc. v. British Columbia, 2014 BCSC 1355 . . . . . . . . . . . . . . 34

Young v. British Columbia, 2014 BCSC 2445 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Creditor protection for Mining Companies under the Companies’ Creditors Arrangement Act . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Case Law Summaries – Procedure

H. Coyne & Sons v. Yukon, 2014 YKSC 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Smerek v. Areva Resources Canada Inc., 2014 SKQB 282 . . . . . . . . . . . . . . . . . . . . . . 43

Case Law Summaries – Royalties

St. Andrew Goldfields Ltd. v. Teddy Bear Valley Mines, Limited, 2014 ONSC 1843 . 44

Stoney First Nation v. Imperial Oil Resources Limited, 2014 ABQB 408 . . . . . . . . . . 44

Lessons from the Baffinland Insider Trading Saga . . . . . . . . . . . . . . . . . . . . . . 46

Case Law Summaries – Shareholder Disputes/Actions

Shefsky v. California Gold Mining Inc., 2014 ABQB 730 . . . . . . . . . . . . . . . . . . . . . . . 51

Case Law Summaries – Surface Rights/Access to Claims

2274659 Ontario Inc. v. Canada Chrome Corporation, 2014 ONSC 4446 . . . . . . . . 52

Christmann v. New Nadina Explorations Limited, 2014 BCSC 2165 . . . . . . . . . . . . . 53

Case Law Summaries – Torts

Chieftain Metals Inc. v. Tulsequah Wilderness Adventures Inc., 2014 BCSC 1251 . . 54

Merit Consultants International Ltd. v. Chandler, 2014 BCCA 121 . . . . . . . . . . . . . . 54

About McCarthy Tétrault . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

All decisions that are reported in Case Law Summaries are accessiblein full by clicking on the titles . An Internet connection is required .

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About the McCarthy Tétrault Mining Litigation Group


Nicholas Hughes 604-643-7106 [email protected]

David I.W. Hamer416-601-7599 [email protected]

Aidan [email protected]

TORONTO VANCOUVERVANCOUVER

About the McCarthy Tétrault Mining Litigation GroupMining in the Courts is published by the McCarthy Tétrault Mining Litigation Group. The publication provides an overview of key Canadian case law involving and impacting the mining industry in the last year and o�ers valuable insights on issues of interest to mining companies.

At McCarthy Tétrault, we understand the complex and ever-changing environment of the mining industry. The Mining Litigation Group o�ers strategic approaches and innovative strategies to resolve complex disputes through any means available, including mediation, arbitration and litigation. We regularly advise our clients on a full range of issues a�ecting them, including property ownership concerns, environmental and construction matters, Aboriginal issues and the interpretation of mining agreements.

The Mining Litigation Group draws from one of Canada’s largest and longest-standing litigation groups involved in some of the most high-profile, precedent-setting cases in Canadian legal history. We listen to our clients to understand their needs and to help achieve results that are important to them.

For more information please contact:

Co-Chairs, Mining Litigation Group Editor-in-Chief

Special thanks to the contributors to this publication: Stephanie Axmann, Pierre-Jérôme Bouchard, Aidan Cameron, Sean Collins, Shane C. D’Souza, Paul Davis, Laura DeVries, Bryn E. Gray, Nicholas Hughes, Andrew Kalamut, Miranda Lam, Selina Lee-Andersen, Kate Macdonald, Walker MacLeod, Andrew Matheson, Shea T. Small, René Sorell, and Emira Tufo.

http://mccarthy.ca/lawyer_detail.aspx?id=2468

mailto:[email protected]






















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Tsilhqot’in: Historic Ruling, but may not bethe Game Changer Many Suggest

1. The author gratefully acknowledges the contributions of Stephanie Axmann.

2. 2014 SCC 44.

3. Haida Nation v. British Columbia (Minister of Forests), [2004] 3 S.C.R 511 at para. 48.

Tsilhqot’in: Historic Ruling, but may not be the Game Changer Many SuggestBryn E. Gray1

Since the release of the Supreme Court of Canada’s (SCC’s) decision in Tsilhqot’in Nation v. British Columbia,2 there has been much debate and unease about its implications for mining and other resource development in Canada. The decision is undeniably historic as it is the fi rst time a Canadian court has made a declaration of Aboriginal title. It is also signifi cant because the SCC clarifi ed the test for Aboriginal title in a way that could make it easier to establish title to larger portions of land.

But is this decision a game changer for mining and resource development in Canada as some suggest? Will it lead to a fl ood of Aboriginal title litigation and stop projects that do not have the consent of a� ected Aboriginal groups?

While the dust is still settling, it is likely not the game changer many suggest. There will certainly be implications for some proposed mining projects, particularly because the decision and its many unanswered questions create uncertainty. However, the uncertainty is not one-sided. There are many questions that remain about how an Aboriginal group may be impacted by the restrictions of Aboriginal title, particularly its limitations on future use. This uncertainty, coupled with the di� culty of proving title, the cost and time associated with title litigation, and the benefi ts that can be obtained through treaty negotiations, make it unlikely that there will be a fl urry of Aboriginal title declarations or that a large number of Aboriginal groups will rigorously pursue Aboriginal title claims over the long haul. Without such title declarations, the key rules of the game will remain the same: the procedural duty to consult will continue to apply and Aboriginal groups will not have a veto over a project on the basis of an asserted title claim.3

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Tsilhqot’in: Historic Ruling, but may not be the Game Changer Many Suggest


4. [1997] 3 S.C.R. 1010.

5. Tsilhqot’in at paras. 25-26, 45 & 47.

6. Tsilhqot’in at para. 42.

Overview of the Decision

The Tsilhqot’in Nation (Tsilhqot’in) is a semi-nomadic group of six First Nation bands that have lived in a remote area of west central B.C. for centuries. In the course of a commercial logging dispute, the Tsilhqot’in sought a declaration of Aboriginal title over approximately 4,380 square kilometres (five percent) of their traditional territory. A�er a 339-day trial spanning more than five years, the trial judge held that the Tsilhqot’in were entitled to a declaration of Aboriginal title over a portion of the claim area, but declined to make the declaration for procedural reasons. The British Columbia Court of Appeal (BCCA) allowed the appeal and held that Aboriginal title had not been established because there was insu�cient evidence of intensive occupation or regular presence on specific tracts of land.

The SCC overturned the BCCA decision and granted a declaration of Aboriginal title to over 1,750 square kilometres of territory, which is approximately two percent of the Tsilhqot’in’s traditional territory. In doing so, the SCC clarified the test for Aboriginal title first set out in Delgamuukw v. British Columbia,4 holding that the following three characteristics must be established:

(i) su�cient pre-sovereignty occupation;

(ii) continuous occupation (where present occupation is relied upon as proof of pre-sovereignty occupation); and

(iii) exclusive occupation of the land at the time of sovereignty.5

Unlike the BCCA, the SCC held that Aboriginal title was not confined to specific sites of settlement or intensively used tracts of land, such as historic village sites. Instead, it can extend to tracts of land that were regularly used for hunting, fishing, or foraging provided that the group exercised e�ective control over the land at the time of the assertion of European sovereignty. The SCC clarified that occupation is a context-specific inquiry that must be looked at through the lens of both the common law and Aboriginal perspective. The latter must take into account the Aboriginal group’s “laws, practices, size, technological ability and the character of the land.”6

The SCC also confirmed that Aboriginal title confers rights similar to fee simple ownership, with the exception that (i) it is collectively held (ii) it cannot be alienated except to the Crown, and (iii) it cannot be encumbered, developed or misused “in a way that would substantially deprive future

SEMI-NOMADIC GROUP OF FIRST NATIONS HAVE ABORIGINAL TITLE TO OVER 1,750 SQUARE KM OF BRITISH COLUMBIA.

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7. Tsilhqot’in at paras. 73-74.

8. See for example, Chippewas of Sarnia Band v. Canada, [2000] O.J. No. 4084 (C.A.).

generations of the benefit of the land.”7

If Aboriginal title is established, the SCC held that the Crown must either seek the consent of the Aboriginal group for developments on the land, or meet the “justification test.” This requires the Crown to demonstrate that (i) it discharged its procedural duty to consult and accommodate, (ii) its actions were backed by a compelling and substantial objective, and (iii) the Crown action is consistent with the Crown’s fiduciary obligation to the Aboriginal group.

Importantly, the Tsilhqot’in’s claim before the SCC was only with respect to Crown land. The trial judge did find that Aboriginal title had been proven to a small portion of private lands but this was not pursued by the Tsilhqot’in before the SCC. The question of whether Aboriginal title can be established to private property, and the scope of potential remedies, has not been determined by the courts. While the SCC has not yet been faced with a specific decision requiring the resolution of conflicting third-party interests and Aboriginal title, based on the case law to date, the SCC would likely adopt a very cautious approach to this issue by cra�ing remedies that balance competing interests and may provide for some level of financial damages against the Crown, while limiting the impact on third-party interests wherever possible.8

Where Tsilhqot’in Does and Does Not Have Implications

The Tsilhqot’in decision has potential implications anywhere in Canada where there are asserted or established Aboriginal title claims. It does not, however, apply to land where Aboriginal title has been validly surrendered, modified, or is no longer asserted pursuant to treaty, such as the claims of Aboriginal groups that are signatories to the 26 modern treaties and the 11 historic numbered treaties. These treaties and other historic treaties with land surrender provisions cover Northern Quebec, much of Ontario, Manitoba, Saskatchewan, Alberta (except Lubicon), portions of B.C., Nunavut, and large portions of the Yukon and the Northwest Territories.

Despite the land surrender language of the numbered treaties and certain other historic treaties, it is important to keep in mind that such lands are not immune from current or future claims or assertions of Aboriginal title. Some Aboriginal groups dispute the validity of extinguishment, and may also have other arguments regarding the applicability of a treaty, such as its boundaries, the interpretation of certain clauses, or its inclusion of a particular Aboriginal group. Some Aboriginal groups contend that the language of the treaties do not reflect the actual oral agreement between the parties at the time of signing, and claim that the treaties were intended to facilitate the sharing of lands rather than the surrender of Aboriginal title. Absent further guidance from the courts, the potential for such claims still

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9. For example, new title claims have been commenced by the Cowichan and Hwiltsum First Nations in B.C.

exist, even if the chance of success of such claims is remote. There may also be Aboriginal groups that are not signatories to any treaty, but which assert traditional territory within the boundaries of a particular treaty area, and could also assert unextinguished Aboriginal title in those areas.

While the largest number of unsettled claims are in B.C., there are also some unsettled claims elsewhere in Canada, mainly in the North, Ontario, Quebec and Atlantic Canada, as well as Métis land claims in Manitoba. This is either because the Aboriginal group is not a party to a treaty, or the treaty does not include a land surrender provision, such as the Peace and Friendship Treaties in Atlantic Canada.

Implications for Mining Companies

The impact of the Tsilhqot’in decision on mining companies will largely depend on whether it leads to Aboriginal title declarations in potential mining areas. There have been a few new Aboriginal title cases commenced since Tsilhqot’in9 and there will undoubtedly be more, some of which could get significant attention. However, for the reasons described below, it is unlikely that Tsilhqot’in will lead to a flood of Aboriginal title declarations or that a large number of these claims will continue to be pursued with rigour in the long-term.

First, because Tsilhqot’in is the first declaration of Aboriginal title in Canada, there are many unanswered questions about how the restrictions of Aboriginal title will impact an Aboriginal group and its economic development potential. For example, what types of encumbrances and uses of the land will be prohibited because they are irreconcilable with the ability of future generations to benefit from the land? This leaves the spectre of future legal challenges by individuals members of an Aboriginal group who disagree with the development plans of the leadership — not to mention potential challenges supported by environmental groups. This, along with the fact that the land can only be alienated to the Crown, could also pose significant barriers to raising capital, which has been a long-standing hurdle to development of reserve land. These and other unknowns may lead many Aboriginal groups to take a “wait-and-see” approach to Aboriginal title.

Second, Aboriginal title requires that the land be collectively held and does not allow for any fee simple ownership by individual members. This may not be desirable to some First Nations that want some fee simple ownership in their communities. The Nisga’a, for example, now allow for fee simple ownership of certain lands and there is a handful of First Nations that are supporting the First Nations Property Ownership initiative, which, if

QUESTIONS REMAIN ABOUT IMPACT OF RESTRICTIONS IMPOSED BY ABORIGINAL TITLE

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10. Aboriginal A�airs and Northern Development Canada, Backgrounder – Algonquins of Ontario Land Claim Negotiations, December 13, 2012, http://www.aadnc-aandc.gc.ca/eng/1355436558998/135543

adopted by the federal government, would allow for fee simple ownership of reserve land. An Aboriginal title declaration would preclude this type of land ownership and its additional associated benefits.

Third, the test for Aboriginal title is still very di�cult to establish and the unique facts of the Tsilhqot’in case are distinguishable from many current outstanding claims. Of particular note is that in Tsilhqot’in there was no overlapping claim of another First Nation. With very limited exceptions, this is not the case for the many outstanding claims in B.C. Overlapping claims will be a significant barrier to these groups establishing title unless resolved.

In addition, there were no private interests at stake once the case reached the SCC and the uniqueness and remoteness of the land at issue also made it easier for the Tsilhqot’in to establish the su�ciency and exclusivity requirements. In particular, there was evidence that the Tsilhqot’in demanded outsiders seek permission to pass over their land and kicked people o� their land. The land was also harsh and capable of only supporting 100 to 1,000 people, which is relevant for the ability of this small Aboriginal group to exercise e�ective control and su�cient occupation of the extensive territory claimed. These unique facts are quite di�erent from those of many other asserted claims by Aboriginal groups in Canada. A good example is the Algonquins of Ontario who claim 36,000 square kilometres from North Bay to Ottawa, an area that is currently occupied by over 1.4 million people.10 If the Algonquins back away from treaty negotiations and pursue a title claim, they will likely have a very di�cult time proving su�ciency and exclusivity of occupation at the time of sovereignty for a large portion of their claim area, not to mention the fact that much of it is now privately held land.

Fourth, title litigation remains a costly, lengthy and uncertain proposition. The result in Tsilhqot’in was achieved a�er a 339-day trial and two subsequent appeals. This is a significant investment that many will not want to make given the uncertainty of litigation, the inevitable appeals, and the resources it will divert from other priorities.

Finally, the treaty negotiation process provides significant benefits that will likely keep many Aboriginal groups in that process rather than proceeding with litigation. Among other things, a modern treaty provides the possibility of land in fee simple, self-government and law-making authority, and significant capital transfers, which can assist with a variety of social and economic development initiatives for Aboriginal groups. These benefits do not come with a declaration of Aboriginal title. Moreover, depending on the nature of the Aboriginal title claim, the granting of such a declaration may leave little incentive or need for the Crown to subsequently negotiate such benefits in a treaty.

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For all of these reasons, it is likely that many Aboriginal groups will take the time to watch how the Tsilhqot’in fare with management of their Aboriginal title lands and compare that with how other Aboriginal groups are doing under modern treaties, like the Nisga’a Nation. The Nisga’a and the Tsilhqot’in will be important to watch as their respective and comparative successes will likely influence the path of other First Nations, particularly in B.C.

Notwithstanding the above, Tsilhqot’in will likely have some practical implications for mining proponents with respect to the procedural duty to consult.

In some cases, proponents may see increased depth of consultation and possibly accommodation owed, given that some groups may assert, or eventually be able to establish, Aboriginal title to larger portions of land within their traditional territory than previously anticipated. This does not mean that consent is required, or that the depth of consultation owed will increase in all cases. Strength of claim is not the sole driving factor for determining the depth of consultation owed. It is proportionate to a “preliminary assessment of the strength of the claim” and the severity of potential impacts on the rights or title claimed.11 In practice, it is actually the severity of impacts that typically drives the depth of consultation owed as the court does not typically examine the strength of the claim with rigour for the purposes of a “preliminary assessment.”

Moreover, when assessing the strength of claim for the purposes of determining the depth of consultation owed, it is important to note that Tsilhqot’in does not stand for the proposition that “su�ciency of occupation” can be met by evidence of regular use of tracts of land for hunting, fishing or foraging in and of itself. The SCC is clear that the land use must evidence “an intention on the part of the Aboriginal group to hold and possess the land in a manner comparable to what would be required to establish title at common law.”12 This requires acts of occupation that could reasonably be interpreted as demonstrating that the “land in question belonged to, was controlled by, or was under the exclusive stewardship of the claimant group.”13 This is not an easy requirement to meet and will undoubtedly a�ect the strength of title claims for land where multiple Aboriginal groups used the land for hunting, fishing and foraging, or where the Aboriginal group would not have been able to exercise e�ective control at the time of sovereignty, given its population and the nature and size of land claimed.

11. Haida Nation at para 39; Tsilhqot’in at para. 87.



SEVERITY OF POTENTIAL IMPACTS DRIVES SCOPE OF CONSULTATION REQUIRED.

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Notwithstanding the above, Tsilhqot’in has undoubtedly raised expectations of Aboriginal groups and this could make negotiations of impact-benefit agreements or other agreements with Aboriginal groups more challenging for industry and government. It could also create uncertainty for investment where there are outstanding title claims. This is not assisted by the SCC stating that the Crown may need to re-examine its prior conduct once Aboriginal title is established:

“…if the Crown begins a project without consent prior to Aboriginal title being established, it may be required to cancel the project upon establishment of the title if continuation of the project would be unjustifiably infringing.”14

It remains to be seen what this statement will actually mean in practice, but it should not be viewed as a noose hanging over all projects. It will likely apply in limited circumstances, such as serious historic infringements where Aboriginal groups were never consulted or where the project is approved but not yet in operation. In both cases, it will likely be limited to situations where the continuation of the project would cause immitigable e�ects that could deny future generations of the benefit of the land.

It is important to recall that the “raison d’etre of the principle of justification”15 is the reconciliation and balancing of the interests and rights of Aboriginal and non-Aboriginal Canadians. This includes a proponent that duly relied upon and met all regulatory approvals and is operating a project that provides larger societal benefits, including employment and tax revenue for social programs. A court will likely be extremely reluctant to cancel a project that is already in operation, and projects are likely in fairly good stead to meet the justification test where there has been rigorous consultation and measures put in place to minimize impacts to Aboriginal rights. Moreover, even if a project approval were to be cancelled, it is unlikely that the court would leave a proponent without a remedy of damages against the Crown.

All in all, the Tsilhqot’in decision is not likely the game-changer that many suggest. It is an historic decision with some manageable implications. While there will undoubtedly will be new title litigation that will create unease, it is unlikely to lead to a flurry of Aboriginal title declarations. Moreover, it is important to remember that reconciliation is not a zero-sum process. It is about balancing the rights of all Canadians, and the courts will be compelled to do that in future cases when they grapple with the questions le� unanswered by this decision.



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Aboriginal Law


Case Law Summaries

Aboriginal LawGRASSY NARROWS FIRST NATION V. ONTARIO (NATURAL RESOURCES), 2014 SCC 48

In this case, the Supreme Court of Canada upheld the decision in Keewatin v. Ontario (Natural Resources), 2013 ONCA 158, confirming Ontario’s jurisdiction to take up treaty lands for forestry, mining, settlement and other purposes. The decision provides increased certainty with respect to the rights and obligations of Ontario and other provinces in taking up treaty lands for development purposes.

Grassy Narrows concerned Treaty 3, entered into in 1873 between Canada and the Saulteaux Tribe of the Ojibway Indians (Ojibway). In entering Treaty 3, the Ojibway surrendered their interest in the lands in exchange for certain benefits, including rights to hunt and fish except on tracts “required or taken up for settlement, mining, lumbering or other purposes by [the] Government of the Dominion of Canada,” under a so-called “Harvesting Clause” in the Treaty.

The Appellants were members of the Grassy Narrows First Nation, descendants of the Treaty signatories. They applied for judicial review of a decision by Ontario’s Minister of Natural Resources to issue a licence for clear-cut forestry activities, alleging that the licence violated the Harvesting Clause.

The SCC confirmed Ontario’s exclusive authority to take up lands in the area so as to limit the Appellants’ harvesting rights. Although it was the federal government that entered into Treaty 3, the SCC determined that it is an agreement between the Ojibway and the Crown. Both levels of government are responsible for fulfilling the treaty promises when acting within the division of powers under the Constitution Act, 1867. Accordingly, the level of government that may exercise particular rights and obligations under the Treaty is determined by the division of powers framework under the Constitution. Ontario has the exclusive power to take up lands under Treaty 3 by virtue of its beneficial ownership of the lands, and its exclusive power to manage and sell such lands and to make laws in relation to the natural resources on those lands. However, in exercising its rights, Ontario must also uphold the honour of the Crown, consult with First Nations and accommodate treaty rights as appropriate, whenever they are su�ciently impacted.1

1. See Mikisew Cree First Nation v. Canada (Minister of Canadian Heritage), 2005 SCC 69.

https://www.canlii.org/en/ca/scc/doc/2014/2014scc48/2014scc48.pdfA.2014 SCC 48

13

Aboriginal Law


TSILHQOT’IN NATION V. BRITISH COLUMBIA, 2014 SCC 44

This Supreme Court of Canada decision involves the first declaration of Aboriginal title in Canadian history, over a tract of land in British Columbia. While the decision is significant, the potential for Aboriginal title has been recognized at common law for many years, and Tsilhqot’in largely confirms the principles for establishing title as set out in the SCC’s 1997 decision in Delgamuukw v. British Columbia.2

The SCC confirmed that in order to establish Aboriginal title, the claimant must demonstrate that its occupation of land at the time of the assertion of European sovereignty was (i) su�cient; (ii) continuous; and (iii) exclusive. Aboriginal title cannot have been extinguished, by treaty or otherwise. “Su�cient” occupation can be established by regular (rather than intensive) use of land over which the Aboriginal group exercised e�ective control. Aboriginal title claims are not confined to site-specific areas, but may apply to larger tracts of land. However, there remains a high evidentiary threshold in order to meet the test for Aboriginal title.

Aboriginal title confers rights similar to those associated with fee simple ownership: the exclusive right to use and occupation, and rights to the economic benefits of the land. While Aboriginal title must not be encumbered in ways that would deprive future generations of the Aboriginal group from enjoying the benefit of the land, Aboriginal title confers the right to use the land for a variety of purposes, including non-traditional purposes.

Once Aboriginal title is proven, unless its actions can be justified, the Crown must obtain the consent of the Aboriginal group in order to use the lands or assign rights to third parties. Citing Delgamuukw, the SCC commented that compelling and substantial governmental objectives that might justify an infringement may include: “the development of agriculture, forestry, mining, and hydroelectric power, the general economic development of the interior of British Columbia, protection of the environment or endangered species, the building of infrastructure and the settlement of foreign populations to support those aims….”3

For more on the significance of the Tsilhqot’in decision see “Tsilhqot’in: Historic ruling, but may not be the game changer many suggest” on page 5.

2. [1997] 3 S.C.R. 1010.


https://www.canlii.org/en/ca/scc/doc/2014/2014scc44/2014scc44.pdf

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Aboriginal Law


WABAUSKANG FIRST NATION V. ONTARIO (MINISTER OF NORTHERN DEVELOPMENT AND MINES), 2014 ONSC 4424

This decision of the Ontario Divisional Court addresses the appropriate scope and substance of consultation in the context of Treaty 3 in Ontario, and confirms the authority of the Crown to delegate procedural aspects of consultation to proponents.

The Wabauskang First Nation (WFN) sought judicial review of a decision by the Ontario Ministry of Northern Development and Mines (Ministry) to acknowledge a Production Closure Plan (Closure Plan) for the Phoenix Gold Project operated by Rubicon Minerals Corporation (Rubicon) in northwestern Ontario.

Following consultations with WFN in 2009 and 2010 and negotiations for a benefits agreement, Rubicon filed an initial production closure plan with the Ministry in February 2011. The initial plan was voluntarily withdrawn to allow for additional consultation with WFN, and Rubicon delayed re-filing the plan several times to allow time for a consultant for WFN to review the plan. In October 2011, Rubicon submitted to the Ministry the revised Closure Plan, which addressed concerns raised by WFN’s consultant and included all recommended mitigation measures.

WFN applied for judicial review of the Ministry acknowledgement of the Closure Plan. The primary argument put forth by WFN was that the Ministry had improperly delegated aspects of consultation to Rubicon and had relied too heavily on Rubicon to fulfill the Crown’s duty to consult. WFN further argued that it had a right to be consulted by the Ministry with respect to project-related benefits and revenue sharing, as well as the possibility of shared decision-making with respect to the project.

The Court rejected WFN’s arguments, finding that the Ministry reasonably fulfilled its duty to consult. The Ministry had been actively involved in ensuring that consultations occurred between Rubicon and WFN and in a�ording every reasonable opportunity for consultation between the Ministry and WFN. It appropriately delegated procedural aspects of consultation to Rubicon while acknowledging that it had the ultimate responsibility to ensure that the duty to consult was fulfilled. This was evidenced in various ways, including through its recommendations to Rubicon to delay filing the Closure Plan to provide further time for WFN to articulate its concerns, and through its assessment of Rubicon’s responses to WFN’s consultant’s report.

https://www.canlii.org/en/on/onscdc/doc/2014/2014onsc4424/2014onsc4424.pdf

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Aboriginal Law


The Court also held that the Crown’s duty to consult in the Treaty 3 context did not include a requirement to consult in respect of shared decision-making or revenue sharing, and noted that the duty to consult does not provide a First Nation with a veto over the project or the Crown’s decision-making.

WEST MOBERLY FIRST NATIONS V. BRITISH COLUMBIA (ENERGY AND MINES), 2014 BCSC 924

This decision of the British Columbia Supreme Court illustrates that consultation is a “two-way exercise” in which all sides need to participate in a meaningful manner. It also a�rms that the degree of consultation and accommodation required will vary with the extent of the project’s potential impacts.

The West Moberly First Nations (WMFN), as signatories to Treaty 8, hold rights to hunt, trap and fish, subject to the taking up of lands for mining or certain other purposes. In this case, the provincial Crown made three decisions permitting a mining proponent, Canadian Kailuan Dehua Mines Co. Ltd., to undertake bulk coal sampling in Treaty 8 territory. WMFN challenged those decisions, alleging that they were inadequately consulted and accommodated, in part because the Crown had concluded the consultation process without waiting for a cultural study to be completed by WMFN.

The Court dismissed WMFN’s petition, finding that although the province had, in fact, made its decisions without waiting for the cultural study to be completed, this on its own did not make the decisions unreasonable. There was a voluminous, detailed and relevant record available to the province, and there had been an opportunity for the WMFN to provide their views regarding the bulk sampling program and any potential impacts that it might have on their rights.

At times, WMFN had chosen to work directly with the proponent instead of consulting with the province, and had delayed in bringing information forward. The Court held that the Crown cannot be faulted if a First Nation is reluctant or slow in bringing their information to the table, as long as the Crown has assured itself that it has obtained the information required to know the circumstances and adequately consult.

CONSULTATION A “TWO-WAY EXERCISE” REQUIRING MEANINGFUL PARTICIPATION.

https://www.canlii.org/en/bc/bcsc/doc/2014/2014bcsc924/2014bcsc924.pdf

16

Arbitration

mccarthy.ca Year in Review – Vol.V, March 2015

ArbitrationSATTVA CAPITAL CORP. V. CRESTON MOLY CORP., 2014 SCC 53

This Supreme Court of Canada (SCC) decision will likely limit the number of appeals of arbitral awards in British Columbia, and has important general implications for contract interpretation.

The decision involved a dispute about a fi nder’s fee payable under an agreement between the parties. The parties submitted their dispute to binding arbitration. The arbitrator found in favour of Sattva, and awarded damages exceeding $4 million.

Creston Moly applied to the British Columbia Supreme Court (BCSC) for leave to appeal the arbitral award, pursuant to s. 31(2) of the British Columbia Arbitration Act (Act). Under the Act, an appeal from a domestic commercial arbitral award is permitted only with leave (or consent), and only on a question of law. The application was dismissed by the BCSC, but the British Columbia Court of Appeal (BCCA) then granted leave. When the matter returned to the BCSC for adjudication on its merits, the court dismissed Creston Moly’s appeal, holding that the arbitrator had correctly interpreted the parties’ agreement. The BCCA reversed the lower court’s decision.

The SCC allowed the appeal from both decisions of the BCCA and reinstated the arbitral award in full. In doing so, the court noted that contractual interpretation involves issues of mixed fact and law, where the words of a contract are considered in light of its factual matrix. Though unnecessary to its disposition of the appeal, the SCC also took the opportunity to establish three additional principles regarding appeals of arbitral awards: (1) in the commercial arbitration context, where appeals are restricted to questions of law, the standard of review is reasonableness unless the question is one that specifi cally calls for the correctness standard; (2) in the specifi c context of s. 31(2)(a) of the Act, assessing whether the legal question at issue “may prevent a miscarriage of justice” depends on whether the proposed appeal has arguable merit; and (3) s. 31(2) of the Act confers a discretion to deny leave even where the requirements of the section are met and an appeal is technically permissible.

More discussion on this case is available on page 27, under CONTRACTS.

COMMERCIAL ARBITRATION AWARDS TO BE MORE FINAL IN BRITISH COLUMBIA.


17

The Ontario Court of Appeal Confi rms Scrutiny for Leave in Securities Class Actions

Mining in the Courts mccarthy.caMining in the Courts mccarthy.ca

The Ontario Court of Appeal Confi rms Scrutiny for Leave in Securities Class ActionsPaul Davis and Miranda Lam

At the end of 2005, Ontario legislation came into e� ect that enabled aggrieved shareholders to bring a statutory action for secondary market misrepresentation against issuers and their directors and o� cers (and others) without the requirement to establish individual reliance. In order to commence such an action, however, a shareholder must fi rst obtain leave from the Superior Court. Much of the jurisprudence in secondary market securities class actions has been devoted to examining the standard for leave.

The Court of Appeal for Ontario recently clarifi ed the leave test in Bayens v. Kinross Gold Corporation.1 There are two primary points to take away from this decision. The Court:

1. confi rmed the merits-based test for leave to proceed; and

2. a� rmed that motion judges should not certify common law misrepresentation claims if leave to proceed with the parallel statutory claim is denied.

Background

The plainti� shareholders brought a common law claim against Kinross Gold Corporation, a Toronto-based international mining company, and four of its o� cers, for alleged misrepresentations in connection with two of its gold mines in Africa. They asserted that Kinross overstated the value of the mines by failing to record a goodwill impairment charge on a timely basis.

On the shareholders’ motion for leave to proceed with the statutory claim, the Court refused to grant leave because there was no reasonable possibility that it could succeed. The motions judge came to this conclusion due to defi ciencies in the expert accounting evidence on which the plainti� s relied to argue Kinross should have recorded the impairment charge sooner. The Court also refused to certify the statutory and common law claims under the Class Proceedings Act, 19922 (CPA),

1. Bayens v. Kinross Gold Corporation, 2014 ONCA 901 [Kinross].

2. S.O. 1992, c. 6 [CPA].

18

The Ontario Court of Appeal Confirms Scrutiny for Leave in Securities Class Actions


because it had refused leave to proceed with the statutory claims.3

The Court of Appeal unanimously dismissed the plainti�s’ appeal from the refusals to grant leave and to certify their action. In doing so, Justice Cronk addressed the leave requirement, and the relationship between the leave-to-proceed analysis and the certification criteria.

1. The Leave Requirement: Just how low is the merits threshold?

To grant leave to pursue a secondary market misrepresentation claim under Ontario’s Securities Act (OSA),4a court must be satisfied that:

(a) the action is being brought in good faith; and

(b) there is a reasonable possibility that the action will be resolved at trial in favour of the plainti�.

The second part — the merits test — was at issue in Kinross.

Previous authority established that the leave test is a “relatively low threshold” and a “preliminary low-level merits based leave test.”5 However, the Ontario Court of Appeal in Green had recently compared the merits test with the very low standard for striking out a claim as disclosing no reasonable cause of action, which is the same test applied under s. 5(1)(a) of the CPA.6 In Kinross, the same Court reiterated that although the court applies the same test for leave under the OSA and under s. 5(1)(a) of the CPA, the evidentiary record to which the test is applied is very di�erent. Under s. 5(1)(a), the court assumes the facts in the plainti�’s pleadings are true, but on the leave test, the court weighs the evidence filed by the investor and, if any, by the named defendants and any cross-examination transcripts; from that evidence, it may draw reasonable inferences and make findings of fact.7 In short, Kinross clarified that while the standard for leave is not high, it is a true merits analysis, which critically assesses the evidentiary basis for the plainti�’s allegations.

2. Leave and Certification: Are they Related?

In Kinross, the Court of Appeal also addressed the relationship between the leave test and the certification analysis under the CPA. Justice Cronk confirmed that when a court refuses leave to proceed with a statutory misrepresentation claim, that statutory claim also cannot meet the CPA certification criteria.8

3. Bayens v. Kinross Gold Corporation, 2013 ONSC 6864.

4. R.S.O. 1990, c. S.5, s. 138.8(1) [OSA].

5. Green v. Canadian Imperial Bank of Commerce, 2014 ONCA 90, leave to appeal granted, [2014] S.C.C.A. No. 137 [Green].

6. Green, at paras. 86, 89, citing R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42, [2011] 3 S.C.R. 45 at paras. 19-20.

7. Kinross, at para. 46.


19

The Ontario Court of Appeal Confirms Scrutiny for Leave in Securities Class Actions


9. Kinross, at para. 99, citing Pro-Sys Consultants Ltd. v. Microso� Corporation, 2013 SCC 57 at paras. 99 and 102.


However, the same is not true for its companion common law misrepresentation claim. Justice Cronk held that because the merits are generally irrelevant to certification, the refusal to grant leave because the statutory claim lacks merit will not automatically preclude certification of common law misrepresentation claims.9

Nonetheless, the refusal to grant leave to pursue a proposed OSA claim is relevant to the preferable procedure criterion of the certification analysis for the common law claims. The preferable procedure inquiry asks whether (1) a class action would be a fair, e�cient and manageable way to prosecute the claims, and (2) a class action is preferable to other reasonably available means of pursuing the claims. Justice Cronk in Kinross explained that if a court certified common law misrepresentation claims a�er having refused leave to pursue statutory claims, the proceedings would e�ectively continue “against the backdrop of an existing judicial determination that the appellants’ core claims of misrepresentation … hold no reasonable prospect for success at trial,” which would be contrary to the first preferability inquiry.10 This reasoning applies to common law misrepresentation claims in any case in which the court refuses leave for the OSA claims, and virtually forecloses any possibility that a common law claim will be certified if statutory leave is refused.

Conclusion

The analysis in Kinross is significant for issuers and their executives for two reasons. First, the Court confirmed that although the leave requirement to proceed with a secondary market misrepresentation claim sets a relatively low standard, it is appropriate to weigh the evidence and make findings in relation to the plainti�s’ expert evidence. In doing so, the Court clarified the comparison in Green between the OSA leave test and the test under s. 5(1)(a) of the CPA. The Court’s reasoning in Kinross, confirming that motion judges must conduct a merits test, is a welcome development for issuers a�er the same Court’s comments in Green.

Second, the Court held that a claim for common law misrepresentation could be certified under the CPA even if a court refuses the plainti�s’ leave to proceed with a companion statutory misrepresentation claim. However, the refusal to grant leave is relevant to the preferability criterion under the CPA and weighs powerfully against a class action being the preferable means of resolving the claim. Indeed, in light of Justice Cronk’s comments, it appears very unlikely that a common law claim will be certified when leave to pursue a statutory claim has been refused.

MERITS THRESHOLD MUST BE OVERCOME TO BRING SECONDARY MARKET MISREPRESENTATION CLAIM.

20

Class Actions


Case Law Summaries

Class ActionsDERASPE C. ZINC ÉLECTROLYTIQUE DU CANADA CORPORATION LTÉE, 2014 QCCA 2266

This decision, rendered in the context of an environmental class action, provides a welcome reminder that the principles of legal personality remain alive and well.

The class action was certified in 2012 against the defendant Zinc Électrolytique du Canada ltée (ZECL), the operator of a zinc refinery in Valleyfield Québec, for the discharge of sulfur trioxide into the air in August 2004 and for neglecting to therea�er shut down the refinery. At the time of the discharge, ZECL was a wholly-owned subsidiary of Noranda Inc., which later became Glencore Canada Corporation.

Among other things, Mr. Deraspe, the representative plainti�, alleged collusion and fraud in the change of the corporate structures of Xstrata Limited and Glencore, which he claimed was done for the purpose of depriving the class members of compensation. He sought to “li� the corporate veil” and add Xstrata and Glencore as co-defendants.

The trial judge rejected the application, finding insu�cient justification for adding the parent companies. The Court of Appeal agreed with the trial judge and dismissed the appeal.

FAIRHURST V. ANGLO AMERICAN PLC, 2014 BCSC 2270

In this decision, the British Columbia Supreme Court certified a proposed class action involving allegations of price fixing of diamonds. The plainti�, an indirect purchaser, sought damages for alleged breaches of the Competition Act, unlawful means conspiracy, unlawful interference with economic interests, and unlawful restraint of trade. The “unlawful means” torts were primarily founded on breaches of the Competition Act.

The requirements for certification as a class proceeding in British Columbia are set out in s. 4(1) of the Class Proceedings Act. The pleadings must disclose a cause of action, there must be an identifiable class whose claims raise common issues, a representative plainti� who represents the interests of the class, and the court must determine that a class proceeding is the preferable procedure.

While the defendants disputed each of the required elements, the most interesting was whether the pleadings disclosed a proper cause of action. The defendants argued that the claims were not viable in light of the British Columbia Court of Appeal’s decision in Wakelam v. Wyeth Consumer

https://www.canlii.org/fr/qc/qcca/doc/2014/2014qcca2266/2014qcca2266.pdf


21

Class Actions


Healthcare (indexed as 2014 BCCA 36), which states that a breach of the Competition Act cannot be the basis for tort and restitutionary claims because it is intended to be an exhaustive code for the enforcement of, and remedies available for, anticompetitive conduct.

The court reviewed Wakelam, together with the Supreme Court of Canada’s decisions in Pro-Sys Consultants Ltd. v. Microso� Corporation (indexed as 2013 SCC 57) and A.I. Enterprises v. Bram (indexed as 2014 SCC 12) and concluded that if the Wakelam decision was interpreted to a�ect tort claims, it would be in conflict with those two decisions. Accordingly, while the court accepted that the plainti�’s claims for restitution, to the extent they were based on breaches of the Competition Act, were not viable, it could not be said that the tort claims based on those breaches were bound to fail.

In certifying the matter as a class proceeding, the court also found that there was an identifiable class of two or more people, that the class members raised common issues, and that a class action was the preferable procedure. The court also determined that a di�erent plainti� should be substituted as a representative plainti�, and made that order.

Earlier decisions in this matter, concerning applications by the defendants challenging the court’s jurisdiction, were reported in Mining in the Courts, Vol. II and Mining in the Courts, Vol. III.

MASK V. SILVERCORP METALS INC., 2014 ONSC 4161

In this case, the Ontario Superior Court of Justice determined that an applicant seeking leave to commence a secondary market liability action under the Ontario Securities Act (Act) is not entitled to broad documentary disclosure before the leave motion has been decided.

The putative plainti� (Mask), a former shareholder of Silvercorp Metals Inc. (Silvercorp), sought leave to commence a class action proceeding against Silvercorp and two executives for misrepresentations allegedly made in respect of the corporation’s mineral holdings in China. In response to the motion for leave, the defendants filed a number of a�davits. Relying on Rule 30.04(2) of the Ontario Rules of Civil Procedure, Mask sought production of hundreds of confidential corporate documents prior to cross-examining the a�ants, a request that the respondents refused.

Mask argued that Rule 30.04(2) was available to him by virtue of section 35 of the Class Proceedings Act, which states that the “rules of court apply to class proceedings.” The respondents’ position was that the request was a “fishing expedition” precluded by Rule 30.04(2) and by the statutory language and policy behind the Act’s leave-motion provisions.

http://www.mccarthy.ca/pubs/Mining%20in%20the%20Courts%202013.pdf

https://www.canlii.org/en/on/onsc/doc/2014/2014onsc4161/2014onsc4161.pdf

22

Class Actions


The Court agreed with the respondents. In addition to concerns about whether an individual who is not yet a plainti� in an action can rely on Rule 30.04(2), the Court found there was a broad discretion to limit the scope of production on requests to inspect, where the production would run afoul of the principles of relevance, proportionality, privilege, prejudice and timeliness. Mask’s request was also denied on the basis that allowing a potential plainti� unfettered access to confidential documents without first establishing the basis of claim would run contrary to policy objectives of the Act.

Mask sought leave to appeal the decision and leave was denied (see 2014 ONSC 4647).

23

Conflicts and Jurisdiction


Conflicts and JurisdictionCENTRAL SUN MINING INC. V. VECTOR ENGINEERING INC., 2014 ONSC 1849

This decision serves as a reminder of the importance of evidence in applications challenging jurisdiction.

The plainti�, Central Sun Mining Inc. (Central Sun), commenced an action for damages arising from a landslide at a goldmine in Costa Rica. Central Sun alleged negligence, negligent misrepresentation and breach of contract. Following a decision by the Ontario Court of Appeal that the Ontario courts had jurisdiction simpliciter,1 some of the defendants brought a motion to dismiss or stay the action on the basis that Ontario was not the convenient forum. Several defendants asserted that Costa Rica was the more appropriate forum, while others preferred the State of Colorado.

In dismissing the motion, the Ontario Superior Court of Justice held that it could not reasonably conclude that either Costa Rica or the State of Colorado was clearly in a better position than Ontario to dispose fairly and e�ciently of the case.

The moving defendants relied on an evidentiary record that focused on where the defendants were resident or doing business. Among other things, some of the defendants also relied upon a “location of parties and witnesses” factor, arguing that it would be unfair to expect the defendant engineers (who were facing serious allegations) to come to Canada to defend against the allegations, and that the costs of the action in Ontario would hinder the court’s ability to resolve the matter in an “e�cient, expeditious and economical” manner.

The Court determined that there was no evidence as to where personal defendants were located on a day-to-day basis or of any prejudice they might su�er if the action continued in Ontario. The defendants’ evidence also did not address any of the characteristics of the alternate forums proposed, other than their geographical location. In the result, the evidence was not su�cient to meet the required burden of proof set by the Supreme Court of Canada in in Club Resorts Ltd. v. Van Breda, 2012 SCC 17, and the motion was dismissed.

1. The Ontario Court of Appeal decision (indexed as 2013 ONCA 601) was reported in Mining in the Courts, Vol. IV. In that case, the Ontario Court of Appeal determined, among other things, that the location of a negligent misrepresentation (for jurisdiction purposes) is where the misrepresentation was received and relied upon.

http://www.mccarthy.ca/pubs/McCarthyTetrault_MiningCourts_2014.pdf


24

Contracts


ContractsAMERICAN CREEK RESOURCES LTD. V. TEUTON RESOURCES CORP., 2014 BCSC 636

This decision of the British Columbia Supreme Court dealt with the nature of an option agreement and the contractual interpretation question of which expenses could properly be characterized as “exploration expenditures” for purposes of exercising the option.

In 2007, American Creek Resources Ltd. (American Creek) and Teuton Resources Corp. (Teuton) entered into an option agreement related to Treaty Creek, a property in the “Golden Triangle” region of northwestern B.C. that was owned by Teuton. Under the agreement, American Creek would earn a 51% interest in the property if it spent a specified amount on exploration expenditures within particular time period. By a supplemental agreement, the parties also agreed that upon completion of the earn-in, Teuton would convey the entire property to American Creek, which would then hold legal title to the property in trust as to Teuton’s 49% interest.

Teuton agreed that American Creek had spent more than the specified amount within the required period of time, but disagreed that all amounts should qualify as exploration expenditures. The case therefore largely turned on what the parties meant by the phrase “exploration expenditures,” which was undefined in the agreements.

A preliminary issue before the Court was whether American Creek was required to demonstrate strict, or substantial, compliance with the agreement. Teuton argued that strict compliance was required because the agreement was an option and unilateral in nature — that Teuton was required to transfer a 51% interest if, but only if, American Creek completed the earn-in obligations (which American Creek had no obligation to do). American Creek argued that the agreement was not a true option, but rather was bilateral in nature, such that it only need to establish substantial compliance. The Court rejected American Creek’s interpretation, finding that it was obliged to demonstrate full compliance with the conditions precedent in the earn-in agreement prior to calling upon Teuton to convey the promised interest.

The Court then embarked upon an analysis of how “exploration expenditures” should be interpreted. While American Creek took the position that expenses would qualify if they were spent in connection


25

Contracts


with a program of exploration, Teuton argued that expenditures must also have been reasonable, prudent, and useful in terms of producing reliable data. The Court held that in the context of the agreement, “exploration expenditures” were intended to mean expenses incurred by American Creek in good faith and which relate to “exploration and development work” within the meaning of the B.C. Mineral Tenure Act Regulation. In that context, the Court found that American Creek had expended the requisite amount such that the conditions precedent were satisfied, and Teuton was ordered to transfer title to the property.

An earlier decision in this case, indexed as 2013 BCSC 1042, was summarized in Mining in the Courts, Vol. IV. In that decision, the Court determined that Teuton’s president was not permitted to provide opinion evidence that certain drill patterns used by American Creek did not amount to “exploration” pursuant to the agreement.

BHASIN V. HRYNEW, 2014 SCC 71

In this landmark decision, the Supreme Court of Canada (SCC) recognized for the first time that good faith is an “organizing principle” of Canadian contract law.

The case involved a dispute between Canadian American Financial Corp. (Can-Am), a wholesaler of education savings plans (ESPs), and Harish Bhasin, a retailer of ESPs. Can-Am and Bhasin entered into an agreement with a three-year term that would be automatically renewed unless one of the parties gave at least six months’ notice prior to the end of the term.

Larry Hrynew was a competitor of Bhasin’s, who also worked with Can-Am. Hrynew attempted to capture Bhasin’s market niche by suggesting a merger and encouraging Can-Am to force Bhasin to merge.

Can-Am appointed Hrynew as its provincial trading o�cer, which gave Hrynew the power to audit all of Can-Am’s retailers for compliance with security laws. Can-Am misled Bhasin by telling Bhasin that Hrynew was under an obligation to treat Bhasin’s business information confidentially. During its discussions with the Alberta Security Commission about compliance, Can-Am indicated that it was considering a restructuring plan that included Bhasin working for Hrynew’s company. Bhasin did not know this and was misled by Can-Am, which equivocated when Bhasin asked a year before the end of the three-year term whether the merger was a “done deal.”

In the end, Can-Am declined to renew Bhasin’s contract, and the majority of Bhasin’s sales agents went to work with Hrynew.

Bhasin sued Can-Am and Hrynew for civil conspiracy, Can-Am for breach of

GOOD FAITH NOW RECOGNIZED AS ORGANIZING PRINCIPLE OF CONTRACT LAW.



26

Contracts


an implied term of good faith and Hrynew for inducing breach of contract. The trial judge upheld Bhasin’s claims, but Can-Am and Hrynew won at the Alberta Court of Appeal on the basis the contract renewal terms were unambiguous and no duty of good faith had been provided for in the contract.

In allowing the appeal against Can-Am and dismissing the appeal against Hyrnew, the SCC held that good faith contractual performance is an overarching organizing principle of the common law of contract from which more specific duties flow. The organizing principle means that parties must perform their contractual duties honestly and reasonably and not capriciously or arbitrarily, and they must have appropriate regard to the legitimate contractual interests of the contracting partner. What constitutes appropriate regard will depend on the context of the contractual relationship. It does not require acting to serve those interests in all cases, but it does require that a party not seek to undermine those interests in bad faith.

The SCC noted that an “organizing principle” is not a free-standing rule. Rather, it is a standard that is manifested in more specific legal situations, including existing doctrines under which the law requires parties to be honest, candid and forthright, or to deliver reasonable contractual performance. Where the existing law is found to be wanting, development may occur incrementally in a way that is consistent with the common law of contract.

In this case, the Court found it was appropriate to recognize a new common law duty that applies to all contracts as a manifestation of the general organizing principle of good faith: a duty of honest performance. The duty requires a contracting party to “have appropriate regard to the legitimate contractual interests of the contracting partner.” While it does not impose a duty of loyalty or disclosure, it does prohibit parties from lying or otherwise knowingly misleading each other about matters directly linked to the performance of the contract. The duty of honest performance is not an “implied term” in the contract; it is a general doctrine of common law that imposes a duty and operates irrespective of the parties’ intentions. In other words, parties to a contract cannot avoid the duty by agreement.

Applying these principles, the Court found that Can-Am had breached its agreement with Bhasin when it failed to act honestly with Bhasin in exercising the non-renewal clause, both with respect to its own intentions and Hrynew’s role. Can-Am was held liable to Bhasin, and ordered to pay damages of $87,000 plus interest.

27

Contracts


SATTVA CAPITAL CORP. V. CRESTON MOLY CORP., 2014 SCC 53

In addition to the implications this decision will have for appeals of arbitral awards in British Columbia (see page 16, under ARBITRATION), this Supreme Court of Canada (SCC) decision has changed the law of contractual interpretation in Canada, and in particular, has clarified the relevance of a contract’s factual matrix.

The decision involved a dispute regarding a finder’s fee in an agreement and how the relevant portions of the agreement should be interpreted. In allowing the appeal and reinstating the arbitral award, the SCC clarified the proper approach to contractual interpretation. As noted by the court, the goal of contractual interpretation, which is to ascertain the objective intentions of the parties, is inherently fact specific. Courts should consider not only the words of the contract at issue, but the surrounding circumstances (or “factual matrix”) under which the contract was made.

While the content of the factual matrix will vary from case to case, the court noted that it is only objective evidence of the background facts at the time the contract was made that can properly be considered. The question will be whether the particular fact was, or reasonably should have been, within the knowledge of all contracting parties at or before the time the contract was entered.


28

British Columbia’s Water Sustainability Act Expected to Come Into Force in 2015

mccarthy.ca Year in Review – Vol. V, March 2015mccarthy.ca Year in Review – Vol. V, March 2015

British Columbia’s Water Sustainability Act Expected to Come Into Force in 2015Selina Lee-Andersen

In May 2014, British Columbia’s proposed new Water Sustainability Act (WSA) received royal assent. The WSA, which is expected to come into force in 2015 once supporting regulations are fi nalized, is intended to update and replace the century-old Water Act and comprehensively modernize provincial water laws. The existing Water Act has been o� en criticized for failing to regulate groundwater usage and provide adequate protections for water security, stream health and aquatic environments.

Among other things, the WSA addresses seven key areas:

- protecting stream health and aquatic environments (e.g. environmental stream fl ows and dumping restrictions);

- broadening considerations of water in land-use decisions to improve consistency and watershed health;

- regulating and protecting groundwater (B.C. is currently the only province that does not regulate groundwater use);

- regulating water use during times of scarcity to address impacts of droughts, climate change and other water shortages;

- improving security, water use e� ciency and conservation through increased regulatory review and enforcement and allowing for area- based regulations and agriculture water reserves;

- enhancing and enforcing obligations on water users to measure and report on large scale water use; and

29



- providing a range of governance approaches, such as delegation of some water management activities or decisions to people or agencies outside of the B.C. government.

Key features of the WSA that are likely to have implications for industry stakeholders are summarized below:

- Protecting Water Resources. A major feature of the WSA is the protection of stream health and aquatic environments. For the purposes of sustaining water quantity, water quality and aquatic ecosystems, water objectives may be set by regulation in relation to watersheds, streams or aquifers. These objectives will likely form the basis for decision makers in the determination of water allocation and water licence conditions.

- Water Sustainability Plans and Fish Protection. The WSA introduces the broad concepts of water sustainability plans and fish population protection orders. Section 65 allows the Minister to designate an area for the purpose of developing a water sustainability plan, which could lead to changes to the terms of existing water licences, such as the rate or time of diversion. Until water sustainability plans have been developed, the potential impacts on resource projects remain uncertain. On fish protection, section 88 of the WSA introduces the concept of a fish population protection order under which the Minister can make an order regarding diversion, rate of diversion, time of diversion or use of water if the flow of water in a specified stream is so low that it threatens the survival of the fish population. A fish population protection order would apply notwithstanding the rights of any existing water licence holder or other user. At this time, it is uncertain how fish population protection orders will interact with the federal fisheries regime.

- New Enforcement Tools. The WSA provides for a broader array of enforcement tools, which include administrative monetary penalties and compliance agreements designed to o�er alternatives to ticketing or full criminal prosecution. Parties subject to administrative monetary penalties would be governed by a process that provides for notice, hearings and appeals.

- Application to Groundwater. The WSA establishes a regulatory regime for groundwater extraction and use that is consistent with the existing regime in place for surface water, including pricing (where an application fee and annual rental will be payable) and prioritization of use based on the system of rights allocation known as “first in time, first in right” or FITFIR. The minister, by regulation, may restrict or require certain users (the legislative proposal for the WSA suggests large volume users) to obtain authorizations to drill or conduct other activities with respect to wells.

- Short-term Water Use Approvals. Section 10 of the WSA permits the issuance of repeat short-term (up to 24 months) water use

30



approvals to the same person for one or more “water use purposes,” allowing the diversion of water from the same water source for the same water use purpose. A list of “water use purposes” is set out in section 2 of the WSA and includes a range of uses including mining, oil and gas, power, irrigation, domestic and industrial uses, among others.

Possible Changes to Water Pricing in B.C.

The B.C. government is also in the process of considering changes to water pricing in the province, which will likely result in increased costs for surface water users and new fees and rentals for large groundwater users. Currently, annual rentals vary by water use purpose and typically range from $0.01 to $1.10 per thousand cubic metres. The highest fees and rentals are charged for industrial purposes (such as mining, water power and pulp mills).

Given the complexity in pricing water to achieve policy objectives, the provincial government is taking a principle-based approach to developing water fees and rentals. Seven principles have been established for this purpose, which include: (i) simplicity to enable users to plan and budget their costs accordingly; (ii) fairness and equity in treating surface and groundwater as one resource and equitable pricing to reflect di�erences in the value of water based on the type of right granted, intended use, location or scarcity of the resource; (iii) implications for water users in that water pricing should distribute the costs of water management across users to enable business competitiveness; (iv) impact on the water resource in that water pricing should reflect the impact of the intended purpose or activity on the resource (e.g. water that is consumed from the watershed should be assessed di�erently than non-consumptive uses); (v) cost recovery to support sustainable water management and generate su�cient revenue to recover resource management costs; (vi) e�ciency to incent the use of non-potable water, encourage freshwater conservation, promote innovation and facilitate e�cient management of the resource; and (vii) food security and public health to recognize the essential contribution of water to food security.

The public comment period for the water pricing review concluded in April 2014. However, B.C. Environment Minister Mary Polak has indicated that there will be further stakeholder engagement on water fees and rentals before the water pricing structure is set. Stay tuned for further details.

NEW LEGISLATION MODERNIZES REGULATION OF WATER IN BRITISH COLUMBIA AND OPENS DOOR FOR NEW PRICING STRUCTURE.

31

Environmental Law


Case Law Summaries

Environmental LawBOART LONGYEAR INC. V. MUDJATIK ENTERPRISES INC., 2014 SKQB 410

In this decision, the Saskatchewan Court of Queens Bench considered the scope of the civil liability provision in the Saskatchewan Environmental Management and Protection Act, 2002 (Act) and determined that the section is only engaged when there is a public interest in protecting the natural environment.

Boart Longyear Inc. (Boart) sought compensation for damage to its equipment that was destroyed when a uranium mine was flooded. The claim was originally framed in negligence, for which the defendants asserted the two-year limitation period had expired. On the application before the Court, Boart sought to amend his claim to plead reliance on s. 15 of the Act, which, among other things, provided for a six-year limitation period.

The defendants had contracted with the mine operator to excavate vertical tunnels through sandstone and horizontal tunnels through basement rock. A�er the tunnels were excavated, the mine operator contracted with Boart to provide labour and equipment for ore extraction in the horizontal tunnels. The mine flooded in 2006 through the tunnels and minesha�s, despite a series of measures that the defendants had taken to prevent flooding. Boart’s mining equipment was destroyed, and Boart claimed $7 million for lost equipment and business interruption.

In determining that Boart’s claim under s. 15 of the Act was precluded, the Court noted that a literal interpretation of s. 15 (favoured by Boart) would broaden the scope for civil liability in “an astounding and therefore almost certainly unintended way.” The Court considered not only the specific language of that section, but its purpose and the Act as a whole, and held that although it ostensibly applies to private interests, its goal is the protection of the public and social interest in the environments. The Court concluded that a s. 15 cause of action is only available when the public interest in protecting the natural environment is engaged and the benefit s. 15 bestows upon plainti�s is purely incidental.

In this particular case, there was no evidence that the flooding of the mine had any e�ect on, or caused damage to, the natural environment because the minesha�s that the water flowed into were man made. Accordingly, the application was dismissed.

https://www.canlii.org/en/sk/skqb/doc/2014/2014skqb410/2014skqb410.pdf

32

Environmental Law


CENTRE QUÉBÉCOIS DU DROIT DE L’ENVIRONNEMENT C. OLÉODUC ÉNERGIE EST LTÉE, 2014 QCCS 4398

This case illustrates the lengths courts may go to in order to ascertain that a certificate of authorization benefits from the presumption of validity, and the importance of decision-making on the basis of a full record.

In August of 2014, the Minister for Quebec’s Ministry of Sustainable Development, the Environment and the Fight Against Climate Change (Minister) issued a certificate of authorization pursuant to sections 1, 20, 22 and 24 of the Environment Quality Act allowing TransCanada to proceed with the drilling of 16 wells in the St-Lawrence River. The drilling constituted preliminary geotechnical work in the context of a larger pipeline project. The Applicants, who are primarily non-governmental organizations promoting environmental protection, responded by seeking a safeguard order to preclude the drilling: the area in question was inhabited by belugas, a threatened species in the St-Lawrence area as per the Act respecting threatened or vulnerable species. According to the Applicants, the area a�ected by the drilling work was crucial in the species’ period of gestation and the raising of young. Their primary concern was the emission of noise by the drilling activities, which would cause the belugas to avoid the area in question, thus having a negative impact on their procreation.

The request for the safeguard order was dismissed on September 1, 2014 (decision indexed as 2014 QCCS 4147). As explained in that judgment, the Minister’s power to authorize the work was discretionary, and the Court could only intervene if the decision was seen to be unreasonable. The authorization certificate, in turn, benefitted from a presumption of validity. It was therefore up to the Applicants to demonstrate that the Minister’s decision was prima facie unreasonable.

Later that month, the Applicants successfully obtained an interlocutory injunction. According to the Court, a closer analysis of the Minister’s decision-making process revealed significant lacunae and a rather sudden and inexplicable abandonment of the very concerns that its responsible review team had consistently raised throughout the two-month review process.

On the injunction application, the Court engaged in a detailed analysis of the Minister’s decision-making process, reconstructing its various stages from the testimony of some Ministry team members who had been responsible for investigating the environmental issue at stake. The Court

https://www.canlii.org/en/qc/qccs/doc/2014/2014qccs4398/2014qccs4398.pdf

33

Environmental Law


found that what had initially proceeded as a reasonable investigation had collapsed at its very end, when a recommendation to issue the authorization certificate was made despite the Ministry not having obtained a scientific opinion from the Department of Fisheries and Oceans (DFO), which would have provided answers to many of the Ministry’s ongoing concerns. The Court was critical of the Minister’s decision to issue a certificate of authorization a�er receiving a mere letter from the DFO, rather than a scientific opinion as the Minister had initially said was needed. According to the Court, the letter did no more than to reiterate the information already at the Minister’s disposal and to raise concerns, which remained unanswered.

The Court also found that while the Ministry had originally confronted TransCanada with a number of questions concerning the environmental impact of the drilling activities, these were reduced to just two at the very end of the decision-making process, and without the previous questions ever having been answered. The Court generally condemned this process as an unexplained reversal of the Minister’s position.

In accordance with the Applicant’s request, the injunction was granted until October 15, 2014.

34

Expropriation


ExpropriationGOLDEN ROCK PRODUCTS INC. V. BRITISH COLUMBIA, 2014 BCSC 1355

In this case, the British Columbia Supreme Court awarded a mining company compensation for losses to mineral claims arising from improvements made to a highway. The court held that the province’s actions constituted a “compulsory taking” not governed by the Expropriation Act (Act), despite the province’s attempt to characterize its actions as mere unauthorized interference.

Golden Rock Products Inc. (Golden Rock) owned two mineral claims containing tufa deposits east of Golden, B.C., on or near the Trans-Canada Highway. When the claims were staked in 2002, the province was in the planning stages of improving the highway. At that time, there was also a mineral reserve in place, which protected areas on either side of the highway from interference by mineral claims. Following a deregulation initiative, the mineral reserve was inadvertently rescinded by the province, and was not in place when the highway improvement project was undertaken.

Golden Rock claimed that the highway improvement project rendered its mineral claims valueless and sought over $8 million in compensation. While the province admitted liability for unauthorized interference with the claims, it took the position that Golden Rock did not su�er any losses, or alternatively, that such losses were less than $200,000.

The province argued that Golden Rock would have been unable to mine and extract any of the minerals subject to the claims because, among other reasons, access to the claims was seriously constrained (before and a�er the highway project) and was uneconomic. The court rejected these arguments, finding that although there were considerable uncertainties relating to access and other matters, access would not have been impossible or necessarily uneconomic.

Having determined that Golden Rock had su�ered some losses, the court then turned to the issue of valuation. Golden Rock’s primary argument was that a discounted cash flow approach was appropriate, which involves discounting a set of future cash flows to a present value. The court rejected that approach, finding that virtually all of the required inputs were unproven for these claims. The province advocated an approach that would


35

Expropriation


value the claims using the comparable transaction method, which uses the transaction price of comparable mineral properties to establish a value for the subject property. This was also rejected by the court, because there are few operating tufa mines in North America, and none of the comparable transactions o�ered by the province’s expert was a tufa property.

A�er considering the options, the court preferred an appraised value approach, which values property based on the potential existence and discovery of an economically viable mineral deposit. To value a mineral property, the valuator is required to consider “meaningful past expenditures plus warranted future costs.” In the circumstances, the court ordered that Golden Rock was entitled to all amounts that could be incorporated into the appraised value method, except for “warranted future costs,” which were not proven and for which adding any amounts would be arbitrary. The award of $335,139.89 included the following losses: (a) general losses directly related to the claims; (b) direct marketing expenses; (c) marketing travel expenses; (d) time and mileage expenses; and (e) loss on the purchase and sale of rock saw. Compound interest was also awarded on the basis that what occurred was a “compulsory taking” not governed by the Act.

YOUNG V. BRITISH COLUMBIA, 2014 BCSC 2445

This case considers entitlement to compensation for unexpropriated claims rendered valueless by an expropriation of other claims under s. 5 of the Mining Rights Compensation Regulation, B.C. Reg. 19/99 (“Compensation Regulation”). The court interpreted the provisions of the amended Mineral Tenure Act and the corresponding regulations, and held that s. 5(5) of the Compensation Regulation evidences a clear legislative intention to deny compensation for injurious a�ection as “consequential damages” to an expropriated mineral title holder. It appears that unless claims form a “group of titles” under s. 6(1) of the Compensation Regulation, there is no entitlement to compensation for unexpropriated claims that are rendered valueless consequential to the expropriation of other claims. It is therefore advisable for holders of claims to avail themselves of the statutory right to group those claims.

In 2006, the plainti�s began acquiring mineral titles near Morice Lake, called the “New Moon Project.” In July 2008, the province expropriated 12 of the 28 mineral titles under s. 11 of the province’s Park Act, which permits the minister to expropriate claims under the Mineral Tenure Act. The plainti�s alleged that the province’s expropriation had rendered the remaining 16 contiguous unexpropriated claims worthless by cutting o� any practical means of access, and sought compensation.

In a previous decision, Madam Justice Russell had dismissed the plainti�s’ claim for compensation for the 28 mineral claims as a “group of titles,”


36

Expropriation


concluding that the plainti� s’ claims did not form a “group of titles” within the meaning of s. 6(1) of the Compensation Regulation. Compensation for the 12 expropriated claims was subsequently settled for $450,000, with a proviso in the release signed by the plainti� s that it was not intended to apply to the plainti� s’ common law claims for injurious a� ection in relation to the 16 unexpropriated claims.

The plainti� s argued that their case was “on all fours” with Rock Resources Inc. v. British Columbia (indexed as 2003 BCCA 324). However, since that case was decided, there had been legislative changes to the Mineral Tenure Act and corresponding Compensation Regulation. The province argued that these changes eliminated any claim for injurious a� ection to other claims arising from the expropriation of mineral claims. The case, therefore, turned on the statutory interpretation of the amended legislation.

Section 5(5) of the Compensation Regulation provides that a party is not entitled to “consequential damages” as part of the compensation for an expropriated mineral title. The plainti� s argued that “consequential damages” did not include “injurious a� ection damages,” such as those for the 16 unexpropriated claims. The court disagreed, fi nding that s. 5(5) of the Compensation Regulation evidences a clear legislative intention to deny compensation for injurious a� ection as “consequential damages” to an expropriated mineral title holder.

The plainti� s’ claim was dismissed.

NO COMPENSATION FOR INJURIOUS AFFECTION UNDER B.C. MINING RIGHTS COMPENSATION REGULATION.

37

Creditor protection for Mining Companies under the Companies’ Creditors Arrangement Act

Mining in the Courts mccarthy.caMining in the Courts mccarthy.ca

Creditor protection for Mining Companies under the Companies’ Creditors Arrangement ActWalker MacLeod and Sean Collins

Some Canadian-based mining companies have faced fi nancial di� culties over the past year and this trend has the potential to increase in an economic climate that continues to be fraught with uncertainty. Several of these companies and their related subsidiaries, including Jaguar Mining Inc., Veris Gold Corporation, RB Energy Inc. and Cline Mining Corporation, among others, have availed themselves of creditor protection under the federal Companies’ Creditors Arrangement Act1 (CCAA). This article will briefl y summarize what is required for a company to obtain CCAA protection and some of the benefi ts available thereunder.

Obtaining creditor protection under the CCAA

To qualify for CCAA protection a company or a� liated group of companies must be insolvent and must have outstanding liabilities of $5 million or more. Unlike Canada’s Bankruptcy and Insolvency Act2 (BIA), the CCAA does not defi ne the specifi c circumstances in which a debtor company is insolvent and corporations that lead evidence showing they face an impending liquidity crisis or event have been able to obtain CCAA protection.3 To initiate the proceedings, the company brings an application to court with an a� davit describing its background, its fi nancial di� culties, the reasons it is seeking the protection of a court order made under the CCAA and its preliminary plan for completing its restructuring. While the burden placed on an applicant for an initial CCAA order is not particularly onerous, the company must be able to demonstrate a “germ” of a reasonable and realistic plan, particularly if there is opposition from the major stakeholders most at risk in the proposed restructuring.4 In this regard, it is benefi cial for a

1. R.S.C. 1985, c. C-36, as amended.

2. R.S.C. 1985, c. B-3, as amended.

3. Re Stelco Inc., 2004 CarswellOnt 1211.

4. Alberta Treasury Branches v Tallgrass Energy Corp, 2013 ABQB 432.

38



company to begin working with its main creditors as early as possible in order to solicit support in a potential CCAA filing.

Initial orders granted by the court under the CCAA typically contain the following provisions:

- A broad stay of proceedings (which will extend to existing proceedings) for a period of up to 30 days. This stays the exercise of all rights and remedies against the debtor and its property, such as enforcement actions by secured creditors, and operates to prevent contractual counterparties from terminating agreements (provided that such agreements are not “eligible financial contracts”). The debtor can later apply to the court to extend the stay of proceedings over the course of the restructuring, providing it is able to demonstrate to the court that it was acting in good faith and with due diligence.

- Various court-ordered charges with priority over existing secured indebtedness are granted on the property of the debtor to secure post-filing claims in respect of professional fees. Additional charges may also be granted to provide interim financing or indemnity to directors as further discussed below.

- The debtor is authorized to file a plan of compromise or arrangement (Plan) with their creditors in the CCAA.

- A monitor (Monitor) is appointed (the Monitor must be a licensed trustee in accordance with section 11.7(1) of the CCAA) to assist with the restructuring and periodically report to the court.

Broad CCAA jurisdiction is a benefit to debtor companies

Judges supervising proceedings by a debtor company that has obtained protection under the CCAA have broad powers and discretion to allow insolvent companies to deal with their assets. For example, if the liquidity circumstances of the debtor company require an immediate cash infusion to maintain operations as a going concern, the CCAA authorizes the court to grant a super priority charge over existing secured indebtedness in respect of such financing to allow the debtor to address the imminent cash flow constraints. In a CCAA filing, a distressed company can therefore (i) stop creditor enforcement; (ii) secure required liquidity to continue operations, and (iii) obtain the time necessary to complete a restructuring of the business, while remaining in control of the debtor company in a court-supervised process, and with the assistance of the Monitor.

The breadth of the CCAA court’s jurisdiction can allow for business combinations and/or asset sales to occur that might otherwise not be possible without court intervention. In particular, under the CCAA the court has the statutory authority to approve a sale of the debtor company’s assets, free and clear of any security, charge or other restriction and without the necessity of obtaining shareholder approval that might be

39



required.5 The court can also sanction and implement a Plan that changes the share or capital structure of the debtor corporation, including one that cancels existing shareholder interests and issues new shares in exchange for all or a portion of the current indebtedness that the corporation is unable to pay.

Sales and investment solicitation processes

Restructurings under the CCAA may involve a court-approved sales and investment solicitation process to seek interest in the debtor company’s assets and business in a fair and transparent process that is open to all parties. Such a process can be expected to set milestone dates for the submission of o�ers to the debtor (including a formal bid deadline), require bidders to demonstrate that they have su�cient capital to consummate the proposed transaction and may restrict conditions on financing and further due diligence. The sale can occur during the CCAA process either as a means to finance a restructuring of the remaining assets of the debtor company or as the final creditor-approved outcome of the CCAA proceedings. While the courts prefer to see a sale of a business as a going concern, there are instances where a judge may approve asset sales occurring in a CCAA proceeding that have the e�ect of liquidating the debtor company.6

Stalking Horses and Credit Bidding

The discretion a�orded to the court under the CCAA regime allows the purchase of assets to be pursued by what is commonly known as a “stalking-horse bid.” In this process, the debtor company enters into an agreement with a potential bidder for the sale of particular assets or the entire distressed business. The details of the transaction are made public and court approved and a tendering process is then undertaken to determine if a superior o�er is possible in the circumstances. The stalking-horse bid provides a “floor price” for the subsequent marketing process and the stalking horse, having entered into the process knowing it may lose out to a higher bidder, will negotiate compensation for its transaction costs in the form of a “break fee,” which it will receive in the event its bid is not successful. The break fee must be large enough to justify making the bid, but small enough not to unduly inhibit the open marketing process that follows court approval. A secured creditor may also bid its debt (including the payment of indebtedness that ranks in priority to its position) in the form of a credit bid for the assets, either as a stalking-horse arrangement

5. CCAA, section 36(1).

6. Re Nortel Networks Corporation, 2014 ONSC 5274.

CCAA PROCEEDINGS CAN PROVIDE FLEXIBILITY IN RESTRUCTURING AFFAIRS AND ORDERLY LIQUIDATION OF ASSETS.

40



or as a bid into a sales process being administered by a company in CCAA. This can be an additional method in which the creditor seeks to acquire the assets of the debtor or as a mere protection against the possibility of the debtor consummating a transaction that will not result in the secured creditor being paid in full. A stalking-horse bid to acquire an enterprise, made by either a secured creditor or other prospective purchaser, creates certainty that a transaction will be consummated for the debtor, its employees, customers and other stakeholders, and can stabilize an insolvent entity’s operations while the process to determine if a superior bid can be achieved is undertaken. These transactions may also be implemented as part of, or in conjunction with, a Plan if it will assist in maintaining existing value in the debtor enterprise.

Pre-packaged CCAA Plans

In larger restructurings that involve sophisticated creditor groups, it is increasingly common for a debtor company to have reached consensus with its major creditors on its proposed restructuring in advance of the initial CCAA filing. This might involve agreements relating to new financing through debt or equity commitments, the conversion of existing indebtedness to equity or the cancellation of existing equity interests through the CCAA and the Plan. A debtor company that has actively pursued its restructuring alternatives outside of the court process and has been able to agree on its form of restructuring with the main creditors in its di�erent creditor groups can present a Plan on its initial application or shortly therea�er and seek corresponding orders necessary to implement its restructuring (such as an order implementing a claims process or convening a meeting of creditors for the purposes of voting on the Plan in accordance with the requirements of the CCAA). While the lead-up to the CCAA filing in such circumstances can be lengthy, as it will involve the debtor exploring all of its viable restructuring alternatives in consultation with creditors and other stakeholders, this process can allow for the formal court proceedings in respect of the recapitalization of the debtor to occur in an expedited and e�cient fashion.

Director safe haven

Directors of insolvent corporations face a host of profound and immediate business di�culties and must operate with a heightened awareness of their fiduciary and statutory duties. To address this, the CCAA permits the court to grant a priority charge to secure an indemnification in favour of

41



directors and o�cers for claims arising a�er the granting of the initial order (to the extent that director and o�cer insurance policies are unavailable or provide insu�cient coverage). The stay of proceedings in favour of the corporation can extend to staying claims against the directors of the corporation so that the board may focus on the immediate restructuring tasks without the threat of litigation from creditors or shareholders, and the Plan may serve to compromise and release certain claims for which the directors of the corporation may otherwise have liability.7 Finally, directors operating debtor companies under CCAA protection can derive a basic level of comfort from having certain corporate actions being made with notice to stakeholder groups and with the review and approval of both the Monitor and the court over the course of the restructuring.

Conclusion

The CCAA, which is the most commonly used Canadian regime for larger debtor companies to e�ect restructurings, will continue to be an e�ective method for insolvent entities to maintain corporate control while they seek to recapitalize, compromise indebtedness or complete asset dispositions in a court-supervised process. Current economic trends suggest that there could be more challenges in the resource and mining sector within Canada in 2015 and beyond. Directors and management of mining companies who anticipate encountering solvency issues are well-advised to familiarize themselves with the various restructuring benefits that are available to corporations operating under CCAA protection.

7. Restrictions on the ability of the court to compromise claims against directions should be noted; the CCAA prevents the compromise of claims against directors that relate to contractual rights of creditors (e.g., guarantee claims), misrepresentation or oppressive conduct.

EXPLORING VIABLE ALTERNATIVES WITH STAKEHOLDERS IN ADVANCE OF CCAA FILING MAY EXPEDITE PROCESS.

42

Procedure


Case Law Summaries

ProcedureH. COYNE & SONS V. YUKON, 2014 YKSC 13

This case serves as a reminder of the important duty of procedural fairness in government decision-making.

The petitioner owns or controls the northern portion of the Whitehorse Copper Belts, which consists of approximately 376 claims, 13 Crown grants of mineral rights, and nine mineral leases, including three quartz claims known as the “Oro claims.” In September 2010, the Yukon Government (Yukon) issued a surface lease of land adjacent to the Oro claims to the respondent Eagle Whitehorse LLC (Eagle).

Eagle determined that it wanted to place tailings on the surface of the Oro claims, on vacant land immediately adjacent to Eagle’s leased property. Pursuant to a memorandum of understanding (MOU), the petitioner agreed that it was willing to allow the placement of tailings provided that Eagle rented certain mining equipment from the petitioner to process the tailings, or made cash payments in lieu of such rentals. Particulars were to be set out in a separate document, but never were.

In 2012, Eagle requested an amendment to its lease seeking to expand the southern boundary of its lease to include land overlying the petitioner’s claims (where Eagle planned to place the re-worked tailings). The amendment was approved by the manager of Yukon’s Lands Client Services Branch, a decision body under the Yukon Environmental and Socio-economic Assessment Act. The decision maker did not notify the petitioner of the amendment application because, among other things, he believed the amendment could not a�ect the petitioner’s rights and that the MOU was evidence of the petitioner’s consent.

The petitioner sought to have the amendment-approval decision quashed on the basis that Yukon had breached its duty of procedural fairness. The petitioner argued it had a legitimate expectation that it would be notified of Eagle’s application and provided an opportunity to comment. The legitimate expectation was rooted in part in a Yukon Information Sheet entitled “Surface and Subsurface Rights Management,” which provided that before issuing authorizations, the Yukon Land Management Branch would advise the mineral claim owner of a surface interest application and request comments.

The court accepted that the information sheet gave rise to a legitimate expectation that the petitioner would be notified and provided an

https://www.canlii.org/en/yk/yksc/doc/2014/2014yksc13/2014yksc13.pdf

43

Procedure


opportunity to comment. It concluded that Yukon had breached its duty of procedural fairness by not advising the petitioner of Eagle’s application for the amendment and failing to provide an opportunity for comments. The decision was quashed with costs awarded to the petitioner.

SMEREK V. AREVA RESOURCES CANADA INC., 2014 SKQB 282

In this decision, the Saskatchewan Court of Queen’s Bench struck the plainti�s’ purported action and sent a strong message about the role of courts in moderating disputes.

A group of organizations and individuals attempted to sue Areva Resources Canada Inc. (Areva), Cameco Corporation (Cameco), a local government, the mayor, a not-for-profit group that focused on community investment and continued mining operations, and the provincial and federal governments. The plainti�s made various allegations, all of which the court agreed should be struck. In doing so, the court emphasized that it “is not Speakers’ Corner in Hyde Park, London,” and that the court it is not the appropriate place to have a political discussion about uranium mining.

The purported action included various causes of action arising from a Collaboration Agreement between Areva, Cameco and the local government. The plainti�s alleged, among other things, that the defendants had, through the Collaboration Agreement, violated treaty rights and the duty to consult (although there was no pleading or evidence that the plainti�s were members of any of the First Nations communities that have rights under those treaties, or which could assert breach of the duty to consult), and the Charter. They also alleged a breach of the Collaboration Agreement, which the court noted was not open to them as a cause of action because the plainti�s are not parties to that agreement.

The court reprimanded the plainti�s and their counsel for attempting to use the court to have a political discussion about uranium mining and its e�ect, and ordered that the defendants were entitled to costs.

COURTS NOT APPROPRIATE FORUM FOR POLITICAL DISCUSSION.

https://www.canlii.org/en/sk/skqb/doc/2014/2014skqb282/2014skqb282.pdf

44

Royalties


RoyaltiesST. ANDREW GOLDFIELDS LIMITED. V. TEDDY BEAR VALLEY MINES, LIMITED, 2014 ONSC 1843

This decision involving royalties addressed whether rights of first refusal in respect of the royalties were violated by the dissolution of the company that owned them.

St. Andrew Goldfields Ltd. (SAS) owned lands and mining claims in northeastern Ontario, with royalties payable to Teddy Bear Valley Mines Ltd. (Teddy Bear) pursuant to two di�erent agreements: (1) a 1992 agreement providing Teddy Bear with a 3 1/3 net-profits-interest royalty, and (2) a 2005 agreement providing Teddy Bear with a 1.75% net-smelter-returns royalty. Both agreements included a right of first refusal in favour of SAS if Teddy Bear sought to transfer or dispose of the royalties.

By 2007, Teddy Bear was experiencing significant financial di�culties. Although its board decided to dissolve the company, articles of dissolution were never filed. Pursuant to a Dissolution Agreement, the assets of Teddy Bear (including the royalty interests in the agreements) were distributed to its largest shareholder and principal creditor, Canadex. SAS argued that this amounted to a transfer of the royalty in violation of the rights of first refusal.

A�er considering the “true intent of the parties,” the court agreed with SAS, finding that the rights of first refusal were violated when Teddy Bear failed to notify SAS of the proposed dissolution and provide it with an opportunity to purchase the royalties. With respect to the appropriate remedy, the court chose the “practical solution,” being a declaration that the royalty obligations under the agreements were no longer enforceable against SAS, together with an injunction restraining the respondents from enforcing the royalties, instead of an order of specific performance requiring the conveyance of Teddy Bear’s rights.

STONEY FIRST NATION V. IMPERIAL OIL RESOURCES LIMITED, 2014 ABQB 408

This action was initiated in 1997 by Stoney Tribal Council, representing the Stoney Nakoda Nations (Stoney). The Stoney received rights to certain lands under Treaty No. 7, with the underlying title vested in the federal Crown (Canada). Between 1926 and 1992, the petroleum and natural gas

TRANSFER OF ROYALTIES TO SHAREHOLDER ON DISSOLUTION BREACHED RIGHTS OF FIRST REFUSAL.


https://www.canlii.org/en/ab/abqb/doc/2014/2014abqb408/2014abqb408.pdf

45

Royalties


mining rights within the Stoney reserve lands were surrendered by the Stoney to Canada “in trust to lease.” In 1984, Canada entered into a mineral lease with Imperial Oil (Imperial) with respect to mineral interests within the Stoney reserve lands, with royalties to be paid by Imperial to Canada as trustee for the Stoney.

In 1993, the Stoney sued Canada alleging breach of trust and fiduciary duty in respect of various matters, including allegations that Canada failed to ensure the Stoney received all the royalties they were entitled to. In 1999, two years a�er commencing the instant action against Imperial, seeking an accounting for all royalties owed, Canada also sued Imperial, as trustee for the Stoney, seeking an accounting and judgement for improper royalty deductions. The 1993 and 1999 actions were both settled.

Imperial sought summary dismissal of the Stoney claim on the basis that the Stoney had no standing to bring the action, and, given the other actions that had settled, that there was no action le� to bring. A Master agreed that the claim should be dismissed, and Stoney then appealed that decision.

In dismissing the appeal, the court accepted the Master’s conclusion that the common law of trusts applied, rejecting the Stoney’s argument that their relationship with Canada was a sui generis trust relationship governed by di�erent principles. While the common law of trusts was applicable, none of the common law exceptions that would give Stoney standing to sue Imperial directly for unpaid royalties applied, including the exception for fraud or collusion. The court rejected the Stoney’s argument that the conduct of Canada in entering into a release with Imperial proved fraud, collusion or a failure to act in Stoney’s best interests. Nor did Canada have a conflict of interest because it wears many hats and represents many interests. There was no “inherent conflict” or a “more immediate conflict of interest” shown.

The court upheld the Master’s decision granting summary judgment and dismissed the Stoney’s appeal.

46

Lessons from the Ba� nland Insider Trading Saga

mccarthy.ca Year in Review – Vol. V, March 2015mccarthy.ca Year in Review – Vol. V, March 2015

Lessons from the Ba� nland Insider Trading SagaShane C. D’Souza, Andrew Matheson, Shea T. Small and René Sorell

The Ontario Securities Commission (OSC) in Waheed1 dismissed insider trading allegations against two prominent mining industry executives involved in the 2011 takeover of Ba� nland Iron Mines Corp. This high-profi le decision may illustrate the OSC’s capacity in appropriate circumstances to exercise more restraint than has been seen in recent cases in using its public interest power to punish conduct that is otherwise found to be lawful.

The Waheed decision also brings home the magnitude of resources that must be marshalled to undertake a long, contested multi-party enforcement proceeding based on involved facts subject to confl icting interpretations. Even complete success on the merits does not entitle successful respondents to be made whole for defence costs.

Summary of Facts

The facts and issues in this proceeding led to a 43-day contested hearing.

Ba� nland Iron Mines Corporation (Ba� nland) was a publicly traded junior mining company. Between February 18 and April 30, 2010, Jowdat Waheed was a consultant to Ba� nland’s Board and CEO regarding potential transactions to develop its mining property. In this role, Mr. Waheed had access to confi dential information. Among other things, he learned that Ba� nland was negotiating a potential strategic partnership with ArcelorMittal S.A. (ArcelorMittal) but that the negotiations were not progressing well.

Mr. Waheed was subject to a confi dentiality agreement with Ba� nland. In early July 2010, a� er his consulting assignment had ended, Mr. Waheed

1. McCarthy Tétrault LLP successfully represented Jowdat Waheed in this matter.

47

Lessons from the Ba� nland Insider Trading Saga


approached his friend, Bruce Walter, an experienced dealmaker, about a potential acquisition transaction involving Ba� nland. They ultimately incorporated Nunavut Iron Ore Acquisition Inc. (Nunavut) with Mr. Waheed as its President and CEO, and Mr. Walter as its Chairman. Nunavut acquired a toehold position in Ba� nland in advance of launching a takeover bid on September 9, 2010.

Ba� nland was eventually acquired in a joint bid by ArcelorMittal and Nunavut.

OSC sta� alleged that Messrs. Waheed and Walter2 (Respondents) engaged in insider trading and tipping and conduct contrary to the public interest in connection with the purchase of Ba� nland shares by Nunavut as a toehold position in advance of its takeover bid.

No Insider Trading and Tipping

The OSC dismissed the allegations of insider trading and tipping, and determined that:

1. Although Mr. Waheed might have been aware of material facts in relation to the status and terms of the ArcelorMittal negotiations when he was Ba� nland’s consultant, the circumstances had changed signifi cantly and these facts were stale and therefore not material as of September 9 when Nunavut started its toehold purchases.

2. A� er his engagement as a consultant ended, Mr. Waheed did not learn of any material facts in relation to the ArcelorMittal negotiations from Ba� nland’s insiders. These negotiations were long, contentious and, for much of the period, inconclusive. The facts that Mr. Waheed gleaned were from external sources, and represented inferences based on his experience in the mining industry and his understanding of the capital markets. He was acting as a broker trying to weave together from multiple sources an understanding of the circumstances that would translate into a professional assignment.

The OSC confi rmed that the “market impact” test (i.e: would the facts be reasonably expected to signifi cantly a£ ect the market price or value of the securities?) governs the OSC’s assessment of the materiality of a contingent event. It rejected sta� ’s argument that the “probability/magnitude” test (i.e.: balancing the probability of an event occurring with the magnitude of its impact on the issuer) should apply. Sta� had argued that the Ba� nland/ArcelorMittal negotiation was a material fact because even though the negotiations were not progressing well, if an agreement had been reached, it would have had a material impact on Ba� nland’s operations. The OSC held that while the probability/magnitude test can

2. There was no insider tipping allegation against Mr. Walter.

48

Lessons from the Ba�nland Insider Trading Saga


be an aid to the assessment of materiality, the market impact test still governs.

No Contravention of the Public Interest

The OSC also dismissed allegations that the public interest was breached. These allegations were not based on breaches of the insider trading and tipping law in the Securities Act (Ontario) but rather on alleged breaches of confidentiality obligations that Mr. Waheed owed under his consulting agreement with Ba�nland.

Sta� had alleged that Mr. Waheed contravened the public interest by not acting in Ba�nland’s best interests when, while still a consultant, he advised Ba�nland’s major shareholder regarding a potential proxy contest against the incumbent board. In other decisions not involving insider trading or tipping issues, the OSC has accepted that breaches of analogous statutory duties can justify the exercise of its public interest jurisdiction.3

In Waheed, the OSC considered Mr. Waheed’s contractual obligations. The OSC determined that it was “beyond the scope of the [OSC’s] jurisdiction” to make any findings with respect to allegations that Mr. Waheed did not act in Ba�nland’s best interest while acting as a consultant.

OSC sta� also alleged that the Respondents contravened the public interest because Mr. Waheed breached his duty of confidentiality to Ba�nland when the Respondents used Ba�nland’s material and non-material confidential information as a springboard to launch Nunavut’s take-over bid. Sta� was, in e�ect, using Mr. Waheed’s confidentiality obligations4 to expand the insider trading and tipping statutory prohibitions, which only apply to material facts. In rejecting these allegations, the OSC determined that:

1. The Respondents did not trade with knowledge of any material facts.

2. There is no statutory prohibition on trading on the basis of non-material confidential information, rumours, speculation and suppositions.

3. For instance, see Canadian Tire Corp. (Re), 1987 LNONOSC 47 at p. 38 where the OSC noted that although it was not the proper forum to determine breach of fi-duciary duty allegations, the “showing of such a breach can be useful evidence to support facts which otherwise call for [public interest] intervention by the Com-mission.” Recently, in Crown Hill Capital Corp. (Re), 2013 LNONOSC 656, the OSC found that an investment fund manager and its CEO breached their fiduciary obligations to the fund under s. 116 of the Securities Act (Ontario).

4. The confidentiality provisions of the Consulting Agreement stated that Mr. Waheed would not use for his own account or disclose to anyone else, any confidential or proprietary information or material relating to Ba�nland’s operations or business to which he had access by virtue of his position with Ba�nland or obtained from Ba�nland or its directors, o�cers, employees, agents, suppliers or customers.

49



3. It was not prepared to adjudicate the breach of confidentiality allegations when Ba�nland’s board, a�er careful consideration, decided against seeking any remedies against Mr. Waheed. The OSC held that private law disputes should properly be le� to the courts.

4. There was “no evidence of any harm su�ered by investors or harm to the capital markets.” To the contrary, the price of the joint bid by Nunavut and ArcelorMittal represented an 87% premium to the price initially o�ered by Nunavut, and was near the high end of values that Ba�nland’s banker estimated the ArcelorMittal joint- venture proposal represented.

Key Takeaways

In recent years, securities regulators have increasingly expanded their reach under the public interest jurisdiction. In cases where OSC sta� has failed to prove insider trading, the public interest power arguably has been used to propound standards of behaviour that are not specifically mandated by the legislative scheme.

The outcome in Waheed represents a more restrained application of the OSC’s public interest jurisdiction in the context of insider trading allegations. It is likely to influence the way sta� proceeds in future cases. Some key lessons are:

1. Respondents contesting insider trading and public interest allegations face serious reputational and financial costs even if they ultimately prevail a�er a contested hearing to settle disputed facts and legal theories. In Waheed, the Respondents contested potentially career-ending allegations over a 43-day hearing with the benefit of legal representation. Similarly, in Stan,5 the respondents’ “vindication” occurred four years a�er the relevant facts, and only a�er the respondents’ “non- suit” motion failed, thereby forcing them to endure a costly 14-day contested proceeding where the respondents, various o�cers of the issuer, and three experts testified.

2. The power to prohibit conduct contrary to the public interest should not be used to restrain trading on non-material confidential information. In Waheed, the OSC determined that because the alleged conduct was not insider trading or tipping, the public interest would not be engaged to restrain trading on non-material confidential information, rumours and speculation. Contrast this outcome with the OSC’s approval of a settlement agreement in Moore.6 Mr. Moore, an investment banker, purchased securities

5. Stan (Re), 2013 ABASC 148.

6. Re Richard Bruce Moore, (2013), 36 OSCB 4455.

SECURITIES COMMISSION CONFIRMS “MARKET IMPACT” TEST APPLIES TO CHARGES OF INSIDER TRADING.

50



of a company that he deduced was likely to be acquired. He never received any material, generally undisclosed information. Nevertheless, Mr. Moore agreed his conduct was contrary to the public interest and the OSC determined that his conduct fell “below the standard of behaviour expected from someone in [his] position and given his extensive experience in the capital markets industry.”

3. The broad application of the public interest power in cases like Donald7 continues to a�ect market participants who trade on undisclosed material information. In Waheed, the OSC exercised restraint on two grounds. First, the OSC declined to apply the “high standards of fitness and business conduct to ensure honest and responsible conduct” to the conduct of the Respondents because they were not “market participants” (a statutorily defined term that includes directors, o�cers and registrants) at the relevant time. Second, the OSC recognized that the capital markets and investors were not harmed by the Respondents’ conduct. Unlike traditional insider trading cases, the Respondents did not use undisclosed material information to exploit investors who, in fact, profited from Nunavut’s bid.

4. The OSC will generally decline to intervene in private law disputes where other parties have remedies that they can enforce. In keeping with its general policy, the OSC was not prepared to decide private law allegations that were disguised as public interest allegations.

Although the OSC showed some restraint in applying its public interest power in Waheed, a critical question remains unanswered: when OSC sta� fails to demonstrate a violation of the statute, what are the limits on the use of the public interest to punish conduct otherwise found to have been lawful? This question is particularly apt in the context of the reasonably detailed rules describing what conduct constitutes insider trading and tipping. If such rules are not broken, is it right for a public interest case to be pursued? Notwithstanding Waheed, market participants should not discount the OSC’s willingness in future cases to use the public interest power as a tool to impose sanctions in the absence of a statutory breach.

7. Re Paul Donald, (2012), 35 OSCB 7383. Mr. Donald traded on the basis of material information but was not in a “special relationship” with the issuer whose shares he pur-chased. The OSC nevertheless determined that his conduct was contrary to the public interest because he had failed to adhere to the “high standard of behaviour” expected of o�cers of public companies and did so in a manner that “impugns the integrity of Ontario’s capital markets.”

51

Shareholder Disputes/Actions


Shareholder Disputes/ActionsSHEFSKY V. CALIFORNIA GOLD MINING INC., 2014 ABQB 730

This case serves as a reminder of the equitable nature of the oppression remedy that may give shareholders reasonable expectations beyond the strict language of a contract.

Two shareholders (Shefsky and his holding company) brought an oppression application against California Gold Mining Inc. (Company), its directors and other shareholders. Shefsky alleged that the respondents breached his reasonable expectations that in return for raising at least $5 million in investment, he would control the company, and in particular, that he would be entitled to name three of five directors on the board and would retain control through the shares owned by him and the investors he introduced to the company.

The case arose out of a Term Sheet between Shefsky and the Company under which Shefsky would arrange financing of $5 to $8 million for a private share placement by a certain date, and if the condition was met, there would be changes to the board, including that Shefsky and his nominee would replace two existing board members, Shefsky would be appointed CEO, and another person would be added to the board if that person invested a minimum amount.

Shefsky had not raised the required financing by the required date. However, in the context of the oppression application and applicable case law, the court considered evidence that the parties had not treated the deadline as firm, that the Term Sheet was extended, and that a�er the extended deadline had passed, the parties continued to act as though the Term Sheet was e�ective. Financing was complete just over two months a�er the initial deadline.

Although the chambers judge found that Shefsky did have a subjective and objective reasonable expectation that the Term Sheet would be complied with, and that he could name a third candidate to the management slate of directors, his expectation was not beached in the circumstances because Shefsky never named a candidate. Shefsky’s assertion that he had a reasonable expectation that he would control California Gold was not made out, and as a result, there was no need to consider whether the respondents’ conduct was oppressive.

Case Law Summaries

https://www.canlii.org/en/ab/abqb/doc/2014/2014abqb730/2014abqb730.pdf

52

Surface Rights/Access to Claims


Surface Rights/Access to Claims2274659 ONTARIO INC. V. CANADA CHROME CORPORATION, 2014 ONSC 4446

This decision concerns the interpretation of sections 50 and 51 of the Ontario Mining Act (Act) and the extent to which mining claim holders may assert rights over the surface of their claims. The decision centers around the proper test under s. 51(5) when the Mining and Lands Commissioner (MLC) is tasked with deciding whether to dispense with the consent of an unpatented mining claim holder to the disposition of surface rights on its mining claims.

The respondent, Canada Chrome Corporation (CCC) held unpatented mining claims on Crown land in the Ring of Fire area. The applicant, a subsidiary of Cli�s Natural Resources Inc., sought an easement over the lands to build a service road, and sought CCC’s consent. CCC refused to consent on the basis that it wanted to build a railway in the same corridor in order to develop its own mineral deposits in the area. The MLC dismissed the applicant’s request to dispense with CCC’s consent for the easement. The applicant then appealed that decision, arguing that the MLC’s decision was unreasonable.

The court found that s. 51 grants priority to surface rights to the unpatented mining claim holder (in relation to subsequent users), but only for the purposes of prospecting, exploring and developing mines, minerals and mining rights. In this case, the proposed railway was not to be used in order to develop the subject mining claims, but rather, to allow for possible development of a deposit further north. This was not a use for which CCC could claim priority under s. 51(1). The MLC was improperly focused on determining whether the applicant’s proposed road would interfere with CCC’s railway. Instead, the MLC ought to have conducted an assessment of the degree of actual or probable interference with exploration and development activity on CCC’s claims.

The court also found that the MLC unreasonably concluded that the applicant was required to prove that its proposed use of the land was in the public interest.

The court allowed the appeal, set aside the decision of the MLC, and granted the application to dispense with the consent of CCC. Of note is that sections 50 and 51 of the Act were amended in 2009, but such amendments were not in force at the time of the MLC’s decision. Accordingly, this case was decided on the basis of the law prior to the amendments.

https://www.canlii.org/en/on/onscdc/doc/2014/2014onsc4446/2014onsc4446.pdf

53

Surface Rights/Access to Claims


CHRISTMANN V. NEW NADINA EXPLORATIONS LIMITED, 2014 BCSC 2165

The decision involved a dispute between surface and subsurface rights holders and the interpretation of section 11 of the Mineral Tenure Act (Act) providing exceptions to the right of entry.

The petitioners own a ranch near Houston, British Columbia. The respondent, New Nadina Explorations Ltd. (New Nadina) holds mineral tenures for minerals beneath the surface of certain portions of that ranch.

A dispute arose regarding New Nadina’s intention to enter a portion of the ranch (known as Hay Meadows) to conduct surface drilling and trenching. The petitioners took the position that Hay Meadows was protected from entry pursuant to s. 11 of the Act because it was “land under cultivation.” When the matter could not be resolved, the petitioners took the matter to the Surface Rights Board (SRB), which determined that while one portion of Hay Meadows was protected, two other portions were not.

The petitioners sought judicial review of the SRB decision, seeking to set aside the SRB’s interpretation of “land under cultivation” as requiring current activities for the purposes of raising a crop. Unusually, the petitioners did not seek to set aside the SRB decision itself.

The court was not convinced that the SRB’s interpretation was problematic. A�er an extensive review of the Act, its history, and related enactments, the Court determined that there was a legislative intention to tip the balance in favour of subsurface owners and encouraging mining. The Court found that the SRB appropriately considered this overall purpose and context in determining the meaning of the phrase “land under cultivation.” The petition was dismissed.


54

Torts


TortsCHIEFTAIN METALS INC. V. TULSEQUAH WILDERNESS ADVENTURES INC., 2014 BCSC 1251

In this case, the British Columbia Supreme Court determined that the holder of a mineral claim does not have standing to bring a claim in trespass in relation to the surface of the land.

The claim involved a mineral tenure and other assets in a remote part of northwestern B.C. When the former owner of the mineral tenure and assets declared bankruptcy, the defendant Tulsequah Wilderness Adventures Inc. (TWA) purchased from the receiver certain camp assets that were located on Crown land covered by the mineral tenure. The mineral tenure and the remaining assets were acquired by the plainti�, Chie�ain Metals Inc. (Chie�ain).

The purchase agreement obligated TWA to remove the camp assets by a certain date, which it did not do. Chie�ain sought a declaration that the camp assets had been abandoned, or alternatively, that their presence constituted an ongoing trespass for which Chie�ain was entitled to an injunction and damages. TWA argued that Chie�ain’s rights under the Mineral Tenure Act (Act) were not su�cient to support either claim, and counterclaimed for conversion on the basis that Chie�ain had been using the camp assets since June 2011.

The court dealt first with the claim in trespass. The court determined that Chie�ain’s interest as a recorded holder of a mineral claim (through the mineral tenure) was a chattel interest, not an interest in land. Because the mineral tenure did not confer an exclusive right to possess the surface of the land, it could not form the basis of a claim in trespass. The court similarly determined that the land on which the camp assets were located did not fall within the definition of “mine” in the Mines Act, which would confer a right to control entry. On the abandonment claim, the court found that there was no intention on the part of TWA to abandon the assets. While no steps had been taken to remove them, the court noted that neither were steps taken by the receiver to enforce the removal obligation, and, the “passage of time” factor needed to be considered in the context of the remote location of the lands.

The counterclaim for conversion succeeded, with damages assessed at $200,000 for Chie�ain’s use of the camp assets.

MERIT CONSULTANTS INTERNATIONAL LTD. V. CHANDLER, 2014 BCCA 121

This decision of the British Columbia Court of Appeal (BCCA) confirms


https://www.canlii.org/en/bc/bcca/doc/2014/2014bcca121/2014bcca121.pdf

55

Torts


that it is not defamatory for a company to tell its shareholders how it intends to respond to a lawsuit, even if the company does not end up responding that way. The decision may provide some comfort to directors as they fulfil their duties of continuous disclosure.

In April 2007, Merit Consultants International Ltd. (Merit), an engineering firm, entered into a contract with Redfern Resources Inc. (Redfern), a mining company, under which Merit would become the construction manager at Redfern’s site in northwestern B.C. Redfern terminated the contract in March 2008 and Merit sued, seeking damages for breach of contract. Redcorp Ventures Ltd. (Redcorp), Redfern’s parent and a publicly-owned company, issued a news release stating that Redfern would “vigorously defend” Merit’s lawsuit and would counterclaim to allege, among other things, negligence by Merit. Redfern eventually did file a counterclaim, but it did not allege negligence.

A�er Redfern filed for protection under the Companies’ Creditors Arrangement Act, Merit sued former directors of Redcorp alleging, among other things, that the news release was defamatory. Merit argued that an allegation of negligence against professional engineers was a serious attack on their reputation.

The directors sought to dismiss the defamation claim, arguing, among other things, that the news release was protected by qualified privilege, which protects communications made by a person who has an interest or duty to make it to a person who has a corresponding interest or duty to receive it and by absolute privilege, which protects communications that take place during, incidental to, and in the processing and furtherance of the court proceedings.

The British Columbia Supreme Court agreed, dismissing the defamation claim, and its decision was upheld by the BCCA. One issue on the appeal was whether the lower court erred by finding that the directors (as opposed to the companies) had not “published” the press release. The BCCA confirmed that there was no evidence that the directors’ conduct constituted a “separate identity or interest” from that of the companies or that they were acting other than as the directing minds of the corporation. The court concluded that this case lay “at the far ‘no liability’ end of the spectrum,” and found that there was no principled basis upon which to shi� liability to the directors even if defamation could be proven. The court also agreed that the communication was protected by “qualified privilege.”

The plainti�’s application for leave to appeal to the Supreme Court of Canada has been granted. The lower court’s decision in this matter (indexed as 2012 BCSC 1868) was reviewed in Mining in the Courts, Vol. IV.


56

About McCarthy Tétrault


About McCarthy TétraultMcCarthy Tétrault LLP provides a broad range of legal services, advising on large and complex assignments for Canadian and international interests. The firm has substantial presence in Canada’s major commercial centres and in London, UK.

Built on an integrated approach to the practice of law and delivery of innovative client services, the firm brings its legal talent, industry insight and practice experience to help clients achieve the results that are important to them.

Our lawyers work seamlessly across practice groups and regions representing Canadian, U.S. and international clients. Over the past five years, McCarthy Tétrault has acted for 83 of the largest 100 (83%) Canadian companies and for 18 of the 20 largest foreign-controlled companies in Canada (90%).

McCarthy Tétrault clients include mining companies; public institutions; financial services organizations; manufacturers; the pharmaceutical industry; the oil and gas sector; energy producers; infrastructure companies; technology and life sciences groups; and other corporations. We have acted for our clients in all practice areas, including:

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