Category: Mining Law

Confidentiality and Mining Law – The Gold Tug-of-War

As information becomes more available online, it becomes increasingly important for businesses and individuals to protect confidential information and respect confidential relationships. Although this case was decided before the age of the Internet, the Supreme Court of Canada looked at the issue of confidentiality in Lac Minerals v. International Corona Resources Ltd., [1989] 2 SCR 574 (SCC) (“Lac/Corona”).

The decision in Lac/Corona outlines the extent to which fiduciary and confidential relationships exist in business transactions. Furthermore, this decision dictates the types of remedies that are available when these relationships are breached.

Facts of the Case

International Corona Resources Ltd. is a small mining company operating in Northern Ontario. After extensive core drilling, Corona found a plot of land near Marathon, Ontario that showed evidence of a large gold deposit. The land containing the gold, called the Williams property, was in the process of being obtained by Corona, however they needed greater resources in order to mine the area properly.

A meeting was set up between Corona and Lac Minerals, a large mining company, to discuss a possible joint venture involving the Williams property. At this meeting Corona shared confidential geological findings and other confidential information about the Williams property. Lac even left the meeting with some of the detailed private information that Corona had provided them. Following the meeting, Lac aggressively bought properties in the area containing the gold, including the Williams property. Lac did not inform Corona of their intentions or actions throughout this whole process.

On first instance and in the Court of Appeal, a decision was found in favour of Corona. The case was finally appealed to the Supreme Court of Canada and three main issues were raised:

1. Did a fiduciary relationship exist between Corona and Lac that was breached by Lac’s acquisition of the Williams property?
2. Did Lac misuse confidential information obtained from Corona and thereby deprive Corona of the Williams property? and,
3. If either question above was answered affirmatively, what was the appropriate remedy?

The Supreme Court’s Decision

In a 3-2 majority (McIntyre and Sopinka JJ. dissenting in part), the court held that there was a breach of confidence that occurred between Lac and Corona. Justice La Forest stated that since Corona communicated information in private to Lac, even though the parties did not directly discuss the confidentiality issues surrounding the information there was still a breach. Justice La Forest stated:

there was a mutual understanding between the parties that they were working towards a joint venture and that valuable information was communicated…under circumstances giving rise to an obligation of confidence. The information provided by Corona was the springboard that led to Lac’s acquisition of the Williams property. This use had not been authorized by Corona.

Furthermore, Lamer, Sopinka, and McIntyre JJ found that there was no breach of fiduciary duty because none existed. This was mostly due to the lack of a formal confidentiality agreement, or element of dependency, and the court was reluctant to presume one. In addition, Sopinka J stressed the fact that the parties were both in the negotiation phase of their deal and had not yet established the type of relationship they wanted together in this business venture. Thus, no fiduciary relationship could be established.

Remedy

The majority concluded that the most appropriate remedy for these circumstances was to establish a constructive trust between the two companies. In this case, the court found that although a claim for unjust enrichment could be made, the creation of a constructive trust would adequately redress this claim. Justice La Forest stressed that due to the uniqueness of the Williams property, Corona would have acquired the property had Lac not breached their confidence, thus a constructive trust will allow for restitution to be made without tackling the “impossibility of accurately valuing the property.”

Comments

The case of Lac/Corona clearly outlines the importance of protecting confidential information, as well as the court’s interest in protecting fiduciary relationships (when one exists). Although the subject matter of this case relates to mining, confidentially and fiduciary responsibility can arise in virtually any business interaction. Therefore, it is important to respect confidential information and relationships, and take swift and appropriate action if a breach occurs. Below is an outline of how the court generally approaches a breach of confidence and confidential relationships.

Breach of Confidence

Breach of confidence requires proof of three elements:

1. that the information conveyed was confidential;
2. that the information as conveyed in confidence; and
3. that the confidential information was misused by the party to whom it was communicated.

In order to rely on confidence, a person does not necessarily have to own the confidential information, however they must be entitled to have their confidence protected or have a duty of good faith.

Confidential Relationships

Confidential or fiduciary relationships occur very frequently in professional business settings. There are three characteristics of a fiduciary relationship:

1. that the fiduciary has scope for the exercise of some discretion or power;
2. the fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests; and
3. the beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.

These characteristics apply to certain established categories of confidential relationships, including agents, trustees, partners, directors, etc. However, this list is not exhaustive, a fiduciary relationship depends on the nature of the relationship of the parties involved. Other factors that weigh in to a fiduciary relationship pertain to the circumstances of the agreement between the parties.

The case of Wahgoshig First Nation v. Ontario [2012] O.J. No. 22 deals with restrictions in mining exploration by reason of failure to consult and accommodate aboriginal interests.

In this case, the Wahgoshig First Nation (“Wahgoshig”) was successful in obtaining an interim injunction against Solid Gold Resources Corp. (“Solid Gold”).  The decision of Justice Brown was released January 3, 2012 granting the injunction.

Justice Brown granted a temporary injunction preventing Solid Gold from engaging in any activities relating to mineral exploration.  The order is not a permanent injunction preventing any exploration.

Facts

Wahgoshig asserted aboriginal and/or treaty rights throughout its traditional territory.  The traditional territory also had reserve lands situated within that territory on the south shore of Lake Abitibi.  Solid Gold staked its mining claims from November of 2007 through at least 2010.  In July of 2009, the Crown advised Solid Gold that it should contact Wahgoshig to consult regarding its intended mineral exploration and offered to facilitate the process.  No consultation occurred before Solid Gold starting drilling in the spring of 2011.

Wahgoshig learned of the drilling activity in the spring of 2011 and attempted to contact Solid Gold to consult, but no meaningful consultation occurred.  In early November of 2011, the Crown also advised Solid Gold in writing that consultation must occur, but to no avail.

Justice Brown in her decision recognized the potential conflict between the Mining Act of Ontario and Section 35 of the Constitution Act, 1982.  She referred to the fact that the Ontario Government amended the Mining Act in the fall of 2009 and that amendment indicated that the purpose of the Mining Act was to encourage development of mineral resources, but “in a manner consistent with the recognition and affirmation of existing aboriginal and treaty rights in Section 35 of the Constitution Act, 1982, including the duty to consult and to minimize the impact of these activities on public health and safety and the environment.”

Justice Brown dealt with the duty to consult.  She found that while the ultimate legal responsibility for fulfillment of the duty to consult resides in the Crown, “its operational aspects can be and often are delegated to those third parties directly involved in the day to day resource development projects, such as Solid Gold.”  Justice Brown found that “the lost opportunity to be meaningfully consulted and obtain accommodation for impacts on treaty and aboriginal rights constitutes irreparable harm”.

As well, the consultation to have any meaning must take place before any activity begins and not afterwards.  This duty to consult arises when the Crown has knowledge of a potential aboriginal right that may be affected.  This duty to consult also applies to surrendered land.  In other words, the duty to consult does not just apply to reserve lands, but to traditional lands of the First Nation.  With respect to the issue of whether or not Solid Gold had failed to consult with the First Nation, Justice Brown found on the evidence that there was an indication that Solid Gold had made a concerted willful effort not to consult, at least until after its flow through share monies for 2011 had been exhausted.

It is interesting to note that Justice Brown found that apparently Solid Gold failed to meet the “industry standards” for responsible exploration as set forth by the Prospectors and Developers Association of Canada with respect to First Nations’ engagement.  Exploration companies would be well advised to make sure that they have reviewed these industry standards so that at a minimum they will be able to show compliance with those standards.

In the end, Justice Brown was satisfied that without meaningful consultation and accommodation regarding the exploration activities of Solid Gold, which included good faith dialogue and information sharing between the First Nation and Solid Gold, facilitated by the presence of the Crown, there is a significant possibility of harm to Wahgoshig’s aboriginal and treaty rights.

In coming to its decision, the Court had to balance who would be suffering the greater harm.  Was it going to be the First Nation that didn’t have any meaningful consultation and accommodation or the inability of Solid Gold to proceed with its drilling that could place it in serious financial jeopardy, and which could put it out of business?  The Court found that the balance of convenience favours the granting of an injunction in favour of the First Nation, with terms and conditions being imposed.

The order of Justice Brown was as follows:

1. Solid Gold was prevented from carrying on further exploration on the mining claims for 120 days from the date of the decision.
2. During the 120 days, Solid Gold, Wahgoshig and the province were to enter into a process of good faith, meaningful consultation and accommodation regarding any future activity on the mining claims.
3. If a facilitator was needed then an independent third party was to be used with the cost being shared by Solid Gold and the Province.
4. If the consultation and accommodation process was not productive (and this was not really clarified as to what that term meant) then Wahgoshig was entitled to seek an extension of the injunction.

While it can be seen that Justice Brown was trying to fashion a remedy with terms and conditions that would promote consultation and accommodation, whether or not there was anything “productive” that came out of the consultation and accommodation may be a difficult question.

The Mining Act of Ontario was substantially amended in October of 2009.  Some of the amendments came into effect right away, while other changes are being phased in over a period of time through sections of the Act that are not yet proclaimed in force and new or amended regulations and policies.  The Mining Act and regulations that are going to be coming into effect are going to provide for a new system of exploration, planning and permitting that is targeted for taking place starting in April of 2012.

This new system is intended to have a “graduated regulatory scheme” that defines exploration activities according to their potential impact.  Exploration plans would be needed before undertaking certain activities and exploration permits would be needed for activities that have a larger impact on the environment.  The Ministry has indicated that it is trying to build more aboriginal involvement in Ontario’s mineral exploration activities.  The Ministry has indicated that new applicants and those renewing their prospector’s licenses in the future will be required to complete a Mining Act awareness program.  This is proposed to come into effect in June of 2012.

Sections 78 through 78.6 of the Mining Act are sections that are not yet proclaimed in force, but are intended to be proclaimed in the future. These sections deal with some of the following issues.

The Minister may appoint directors of exploration.  People that want to carry out prescribed activities on a mining claim, for example, will be required to submit exploration plans in accordance with prescribed requirements (i.e. see the regulations that are going to be coming) including any aboriginal consultation that may be required by the regulations.

Any activities that are then carried out must be in accordance with that exploration plan.  If an exploration plan includes an exploration activity that is described in the regulations, then there must also be an exploration permit obtained.  Once again, certain activities that will be described in the regulations cannot take place unless there is an issued exploration permit.

A director of exploration, in deciding whether or not to issue a permit, must consider certain things.  One of those is whether aboriginal consultation has occurred as required by the regulations, and this may include consideration of any arrangements that have been made with aboriginal communities that may be affected by the exploration.  The decision of a director of exploration may be disputed and the director asked to reconsider their decision.

If a decision is being disputed, then no one may carry out any activity that is the subject of a decision until there is a final determination of that under the Act.  There are teeth to this section, since if it is found that a prescribed activity is being carried out in contravention of the Act or the regulations relating to exploration plans or exploration permits, then there can be a cease and desist order issued by the director, the exploration permit can be cancelled and it is an offence to continue an activity or cause an activity to be continued in contravention of an order.  In addition to any other penalties imposed under the Act, there can be a fine of up to $2,500.00 for each day the activity is continued in contravention of the order.

As can be seen by the Wahgoshig and Solid Gold case, there is a substantial need for greater certainty as to what is required to constitute consultation and accommodation of First Nation interests in their traditional lands.  The Ministry of Northern Development and Mines is proceeding to take steps to try and address some of these issues through the changes that have been made to the Mining Act in 2009 and with the proposed regulations and yet to be enforced sections of the amended Mining Act.

Hopefully once the new sections of the Mining Act and the new regulations that are yet to be determined are put into place, then issues such as those raised by the Wahgoshig and Solid Gold case will be a thing of the past.  However, that is yet to be determined.

What are some of the takeaways that should be realized by both First Nations and mining corporations as a result of this decision by Justice Brown?

1. Failure to consult and accommodate in traditional aboriginal lands may end up in preventing the exploration from proceeding until such time as the consultation (in good faith) has proceeded.  The consent of the First Nation does not appear to be required, although this was something that was conceded by counsel in argument and not part of the decision of Justice Brown.  The Constitution Act trumps the Mining Act of Ontario.
2. The Crown can delegate its duty to consult to industry participants, although the Crown is ultimately responsible for any failure to consult.
3. Exploration may be prevented for 120 days.  During that time period a process of good faith, meaningful consultation and accommodation regarding any future activity on the mining claims may be required.  If the consultation process requires an independent third party facilitator, then the costs would be borne equally by the Province and the exploration company.  If the consultation and accommodation process is not productive, then there could be an extension of the injunction.
4. First Nations and mining companies will need to follow closely the changes in the  “modernized Mining Act” that are proposed by the Province of Ontario.  Section 78 of the Mining Act has not been proclaimed in force, but exploration plans and permits from a director of exploration and confirmation of aboriginal consultation are going to be required in the future for exploration to take place.  There is to be a graduated regulatory scheme setting rules for early exploration activities which include consultation with First Nations and Métis communities.  There will be measures protecting areas which meet the criteria as sites of aboriginal cultural significance from the impacts of mineral exploration.