“Claims: Adventures in the Gold Trade” is a wonderful book written by Ken Lefolii (1929-2022) in 1987 (while the trial was under appeal). The book does a deep dive into the pursuit of gold that turned into a Court case that found its way to the Supreme Court of Canada in 1989 in Lac Minerals v. International Corona Resources Ltd.
Mr. Lefolii reports on the billion dollar trial between International Corona (a small mining company) which sued Lac Minerals (a big mining company), describing the witnesses, evidence, lawyers, arguments and trial Judge R. E. Holland.
A. J. Lenczner, Q.C., R. G. Slaght, Q.C., L. Page and M. S. Wine acted for the plaintiff Corona. J. L. McDougall, Q.C., R. B. Foster, Q.C., I. V. B. Nordheimer, R. C. Heintzman and R. L. Armstrong acted for the defendant Lac. Earl A. Cherniak, Q.C. joined Lac’s legal team at the Court of Appeal for Ontario and the Supreme Court of Canada.
In 1981, Lac heard that Corona was drilling for gold near Helmo, Ontario, by the north-east shore of Lake Superior. Lac was interested in the drilling program and asked Corona for information, which was provided and Lac even went so far as to suggest ways the two companies could collaborate. No formal joint venture agreement was reached.
A prospector named Donald McKinnon had sold some claims to Corona and was asked by Corona to purchase some additional claims from Lola Williams. While McKinnon was negotiating with Ms. Williams, Lac swooped in and purchased the claims before Corona could close a deal. As it turns out, these were very valuable claims. Corona was incensed and Lac refused to collaborate. Corona started legal proceedings in 1981.
As Ken Lefolii puts it in his book, “Given the speed at which the mills of justice grind, it was not until the autumn of 1985 that Corona got Lac to court.” Mr. Lefolii went to the trial “to hear the members of the original cast tell it, under oath.” He does a wonderful job conveying the trial to the reader.
At trial, counsel for Corona, Mr. Lenczner, argued that Lack has committed two breaches: a breach of trust as fiduciary and a breach of confidence based on the information received.
In defence, counsel for Lac, Mr. McDougall, argued that no information shared was confidential, no agreement was ever reached and the claim had no foundation in law.
The trial Judge found that while there was no contract, there were breaches of confidence and fiduciary duty. Lac was ordered to “return” / transfer the Williams claims to Corona, subject to the costs of improvements to the property and royalties to Williams. Lac also had to disgorge its profits, in an amount to be determined on a reference.
On Appeal, the findings of the trial Judge were upheld and the Court of Appeal for Ontario in 1987, which added a constructive trust as an appropriate remedy.
At the Supreme Court of Canada in 1989, the Court set out a test for breach of a duty of confidence:
- The information conveyed was confidential;
- The communication was in confidence; and
- The confidential information was misused.
The information conveyed by Corona to Lac was found to be private, unpublished information and although the issue of confidentiality was not raised, the discussions of a potential joint venture created an obligation of confidence. The sharing of the information led Lac to purchase the claims from Williams and was therefore used by Lac to Corona’s detriment. The Supreme Court of Canada held that a constructive trust was the only just remedy regardless of a breach of confidence or breach of fiduciary duty.
The Court went on to define a fiduciary obligation as arising when:
- The fiduciary has scope for the exercised of some discretion or power;
- The fiduciary can unilaterally exercise that discretion or power and affect the beneficiary’s interests; and
- The beneficiary is vulnerable or at the fiduciary’s mercy.
Although Corona and Lac where separate companies due to mining industry practice, but not industry practice alone, it was clear that the disclosure of confidential information in the context of gold negotiations meant that Lac was expected not to misuse the information received.
A constructive trust arose as unjust enrichment was established and it was considered an appropriate remedy in the circumstances of the mining claims / property, which was unique and the challenges associated with valuing the property (estimated in excess of a billion dollars).
Some Justices of the Supreme Court of Canada agreed with the majority on a constructive trust but had a slightly different take as they did not find there was a fiduciary relationship, only a breach of confidence. In dissent, two Justices did not find a fiduciary relationship existed, but did find a breach of confidence and would have ordered damages as opposed to a constructive trust.
The takeaways from Mr. Lefolii’s book are many given his first-hand observation of the trial and his writing ability to share an observer’s perspective of the justice system at work.
The takeaways from the Court decisions reinforce that when two parties are considering working together in some form, that the sharing of important confidential information gives rise to obligations to only use that information in a fair and acceptable manner. A Non-Disclosure Agreement (NDA) would have been beneficial to make the confidentiality explicit (as opposed to based on the circumstances). An action may be grounded in a breach of confidence (agreed to by all Supreme Court Justices) and breach of fiduciary duty seeking a constructive trust where appropriate or in the alternative damages.
With reference to a previous article on David Boies’s litigation and trial principles, one may ask whether this trial was in essence a “morality play” on whether or not Lac crossed a line in what it did with the information obtained from Corona. It certainly seems so.
This case also underscores two of the 6 Trial Fundamentals, namely the story (or theory of the case) and the substantive law. The morality play may feature prominently in the theory of the case, which must also meet the legal tests set out in the jurisprudence (or develop the jurisprudence, which is more challenging to do, but is done as the law evolves).
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