Aquiline wins in BC court

Vancouver — Shares of IMA Exploration (IMR-V, IMR-X) lost more than two-thirds of their value in heavy trading after the Supreme Court of British Columbia ruled against the company and awarded Aquiline Resources (AQI-T, AQLNF-O) ownership of the contested Navidad silver project in the province of Chubut, Argentina.

Aquiline launched legal proceedings against IMA in early 2004, alleging that IMA had breached a confidentiality agreement and unlawfully used confidential geological information owned by its Argentine subsidiary to identify and acquire the Navidad project.

The B.C. Supreme Court ruling in favour of Aquiline draws heavily on a famous 1989 case in which the Supreme Court of Canada ordered Lac Minerals, as a result of it having obtained a mining property through the unlawful use of International Corona Resources’ confidential information, to hold in trust for Corona what eventually became “a billion-dollar mine” in the Hemlo gold camp of Ontario.

“The situation is, in essence, very similar to that in Lac Minerals, where the court found that Lac acted to Corona’s detriment when it used the confidential information to acquire the Williams property that Corona would have otherwise acquired,” wrote Madam Justice Koenigsberg in her reasons for judgment relating to the Navidad case.

The court concluded that IMA’s decision to stake Navidad in late 2002 was based solely on the use of the confidential data, and that no other public information was used, “certainly none that would have led” to the bonanza-grade silver discovery announced in early 2003. IMA subsequently outlined a silver deposit with associated base metals that is currently ranked as one of the largest and most significant discoveries of its type in the world.

Confidentiality agreements offer the upside advantage of being able to evaluate projects for potential acquisition, or other business arrangements, with the benefit of confidential information. The downside is that companies examining such data are constrained from acting solely in their own interest because of a fiduciary duty to the parties offering the confidential information for the purposes of arranging sales, mergers, or joint ventures.

In Lac Minerals vs. International Corona Resources, for example, the court found that while Lac became “uniquely disabled” from pursuing properties in the Hemlo area for a period of time because of the confidentiality agreement it had signed with Corona, Lac could have pursued other options to secure a position in the prospective gold camp. For example, it could have negotiated a joint-venture relationship with Corona, or it could have pursued properties in the region based solely on its own efforts, or based solely on publicly available information.

The Supreme Court of B.C. ruled that similar options were available to IMA in the case of Navidad. In any event, the Navidad ruling is far less surprising to the mining and legal communities than was the precedent-setting case of Lac Minerals in the late 1980s.

Navidad history

The roots of the Navidad dispute date back to 2002, when IMA and Aquiline were rival bidders for the Calcatreu project in Argentina being offered for sale by a major mining company. In keeping with normal industry practice, all interested parties signed confidentiality agreements before receiving access to data and the project site.

IMA alone sought and obtained bulk leach extractable data (a stream-sediment geochemical sampling method) referred to as BLEG A data. None of the data were in the public domain, or were ever requested or offered to other interested parties.

Aquiline, as the successful bidder for Calcatreu, obtained the relevant project and regional data at a later date, and subsequently challenged IMA’s initial claims that the Navidad deposit was an internal discovery generated from its own data and field geology.

In the lawsuit filed in early 2004, Aquiline argued that the data provided to IMA were “confidential in nature,” and that IMA had used the data to locate and stake the Navidad property in breach of the confidentiality agreement, even though the actual agreement was signed with the initial major company vendor, rather than Aquiline.

The court agreed, and ordered IMA to transfer the Navidad claims to Aquiline upon payment of “reasonable acquisition and development costs” incurred by IMA. The court also described IMA management’s initial accounts of the Navidad “discovery” as “wishful thinking” at best, “and at worst, deliberate dishonesty.”

Aquiline president Marc Henderson welcomed the court ruling, which he stated “should finally bring clarity to the ownership of Navidad and accelerate the development of this world-class project for the benefit of all stakeholders.”

IMA, meanwhile, intends to appeal the judgment and will ask the Court of Appeal to set aside the judgment in its entirety on the grounds that the trial judge’s interpretation of the confidentiality agreement “is contrary to the terms of the agreement itself, industry practice and understanding, and the facts made known at the trial.”

IMA had argued that the sale of Calcatreu took place at a time when it was actively evaluating prospects in Argentina, specifically in Chubut province. The company claimed it was continuing this process when it reviewed Calcatreu, and even had specific ground “under consideration” within the area covered by some of the geochemical data.

IMA also argued that company geologist Paul Lhotka had only reviewed the data at the core of the dispute four weeks after obtaining it, which was also four weeks after company management declined to bid on Calcatreu.

Lhotka’s initial review revealed a cluster of “exceptional silver-lead anomalies” that prompted IMA to stake its first claims in the Navidad region on Dec. 6, 2002. The court evidence showed that Lhotka e-mailed IMA management asking if it was appropriate to use the data, “given its confidential nature.” He received no reply, and subsequently staked the property, partly because it was “prudent to do so,” and also because “as exploration geologists, we didn’t really have much choice that we were going to stake it.”

IMA also argued that the regional geological information encompassed in the BLEG A data was not expressly referenced in the confidentiality agreement, nor was it found in the information brochure provided to interested bidders. These points were not disputed. Notwithstanding, the court was convinced “by the weight of the evidence” that the data was provided to IMA for the express purpose of soliciting a sale of Calcatreu.

“The defendants (IMA) have failed to discharge their burden of showing that their use of the data to stake Navidad was a permitted use,” the judgment stated. The court also noted that there was no evidence from IMA’s witnesses, “not surprisingly, that any of the Navidad area properties would have been staked had IMA not staked the original Navidad claim.”

The court further concluded that the Canadian and American geologists involved in the dispute were familiar with the Lac vs. Corona case, and therefore understood its widely publicized industry implications. “Thus, the legal system that informed and guided the perceptions and actions of the key players at the time the breach of confidence occurred was Canadian and American law.”

These and other summations shot down IMA’s arguments that Canadian courts lacked the jurisdiction necessary to adjudicate on the title to foreign land.

“The plaintiff does not say that the title to the mineral claims in the Navidad region truly belong to it, nor does it ask this court to declare the defendants’ title invalid,” the decision states. “The plaintiff merely argues that the defendant should be ordered to give up its title because that title was obtained wrongfully through a breach of confidence.”

The judgment also cited Argentine law to support its conclusion that the data “ought to be considered confidential information under both Argentine and B
.C. law.”

Shares of Aquiline more than doubled to $6.40 before settling back to $5.11, while IMA tumbled to 70 from a pre-announcement trading range of between $3.00 and $3.50.