Confidentiality and 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. 

Author:

Maximilian Paterson

Mining Law Contact:

Doug Shanks
Thunder Bay, Lawyer
Phone: 807.625.7133
Email: cheadles%23com|shanksj