Mining in the Courts - Case Law Summary
In this series of blogs, we will share one of our case law summaries.
In Kaban Resources Inc. v. Goldcorp Inc., 2021 BCCA 427, the British Columbia Court of Appeal confirmed that a mining company had no legal duty to consent to a proposed financing arrangement that differed materially from the terms of a letter agreement.
Goldcorp Inc. (now Newmont Corp.) and two of its subsidiaries (Goldcorp) brought a summary trial application for an order dismissing a claim by Kaban Resources Inc. (Kaban) alleging breach of contract. The claim arose in the context of a proposed sale of Goldcorp’s rights to the Cerro Blanco gold-silver mine in Guatemala and certain other assets. In February 2016, Goldcorp and Kaban signed a letter agreement providing that Goldcorp would transfer these rights to Kaban in exchange for a 40% interest in Kaban, a cash payment 12 months after commercial production, piggyback rights on an initial public offering of Kaban, and other consideration. This agreement was subject to Kaban raising C$35 million in financing.
In March 2016, Kaban and a mine operator, Fortuna Silver Mines Inc. (Fortuna), signed an agreement providing that Fortuna would supply the full financing, Kaban would issue 50.1% of its shares to Fortuna, and Fortuna would appoint a majority of Kaban’s directors and all of its management team. The agreement was subject to Goldcorp’s consent to Fortuna’s participation, and to Goldcorp entering into a shareholders’ agreement imposing new obligations on Goldcorp and granting Fortuna an unrestricted right to determine all aspects of Cerro Blanco’s development. Goldcorp refused to consent on the basis that the Fortuna agreement was inconsistent with the Kaban letter agreement, which Goldcorp asserted had two implied terms: (i) that Kaban’s founders would remain actively involved in Cerro Blanco; and (ii) that the financing would be invested into Cerro Blanco. Kaban sued for damages, alleging repudiation of the letter agreement.
As we reported in Mining in the Courts, Vol. XI, the British Columbia Supreme Court found that the letter agreement included the implied terms, the Fortuna agreement was inconsistent with the letter agreement, and Goldcorp had no legal duty to consent to the Fortuna agreement. On appeal, Kaban argued that the chambers judge erred in making these findings and made comments during the hearing that created a reasonable apprehension of bias. The Court of Appeal dismissed Kaban’s appeal, holding that the chambers judge’s finding that the Fortuna agreement was inconsistent with the letter agreement was entitled to deference, and that the chambers judge’s comments did not raise a reasonable apprehension of bias. Because these conclusions were sufficient to dismiss the appeal, the Court of Appeal declined to address Kaban’s arguments on the implied terms. Kaban’s application for leave to appeal to the Supreme Court of Canada was dismissed.