Reasons for Judgment: Mercer Gold Corporation (BC) v. Tresoro Mining Corporation; Rahim Jivraj v. Tresoro Mining Corporation July 30, 2013

7/27/2019 Reasons for Judgment: Mercer Gold Corporation (BC) v. Tresoro Mining Corporation; Rahim Jivraj v. Tresoro Mining

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0ni$NAl,IN THE SUPREME COURT OF BRITISH COLUMBIA

Date: 20130730Docket S1 13884Registry: Vancouver

Between:

And

Between:

Rahim JivraiPlaintitf

Mercer Gold CorPorationDefendant

Docket: S128065Registry: Vancouver

Mercer Gold Corporation (British Columbia) Plaintitf

Tresoro Mining CorPoration Defendant

Before:The Honourable Madam Justice DicksonOral Reasons for Judgment

And

ln ChambersAppearing on his own behalf and on behalf ofMercer Gold:Appearing on behalf of Tresoro MiningCorPoration:Place and Date of Hearing:

5 ttJtttPlace and Date of Judgment:

a\)\.

Rahim Jivraj

Gerry Jardine

Vancouver, B.C'APril 29 &June 24,2013Vancouver, B.C.JulY 30, 2013

5ll-6oe i' 37 ,,f


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Mercer Gold Corp. (8.C.) v. Tresoro Gold Corp. Page 2I1l THE COURT: The plaintiff, Mercer Gold Corporation (British Columbia),("Mercer"), seeks a declaration that the defendant, Tresoro Mining Corporation,("Tresoro"), is in default of an option agreement dated April 13, 2010 (the"Secondary Option Agreement"), together with associated relief. The amendedapplication is brought by Mercer pursuant to Rule 9-7 of the Supreme Court CivilRules by way of summary trial.l2l The Secondary Option Agreement provides that Tresoro was to make aseries of option payments to the Comunidad Minera Guayabales, a Golombianorganization with which Mercer had contracted approximately one month earlier (the"Underlying Option Agreement"). According to Mercer, on each of July 14,2A12 andJanuary 14,2013 Tresoro failed to pay US $160,000 in installment payments to theComunidad, These payments were required by the terms of the Secondary OptionAgreement.t3l Mercer goes on to say that as a result of its failure to make the July 14 andJanuary 14 installment payments Tresoro is in default of the Secondary OptionAgreement. The fact of default, and its legal etfect, is a matter governed by BritishColumbian law. That being so, given the agreement's terms, Mercer claims to beentitled to terminate the Secondary Option Agreement and chooses to do so. lnconsequence, it says that all of Tresoro's rights, interests and entitlement thereunderare extinguished.t4l Tresoro responds that this matter is not appropriate for determination on asummary trial, at least not on the evidence and as submitted by Mercer. Accordingto Tresoro it has not breached the Secondary Option Agreement because it has notbreached the terms of the Underlying Option Agreement concluded with theComunidad. ln support of this position Tresoro says that Mercer transferred theUnderlying Option Agreement to it and the Comunidad accepted the transfer. Thismeans any purported breach of its associated obligations must be determined by thelaw of Colombia, not the law of British Columbia.


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Mercer Gold Corp. (8.C.) v. Tresoro Gold Corp. Page 3l5l Foreign law is a factual matter concerning which no evidence was presentedon the summary trial application. In these circumstances, Tresoro says, the reliefsought must be determined either by the Colombian courts or the courts of BritishColumbia with the benefit of expert evidence on Colombian law.16l The issues for determination are:

whether this matter is suitable for determination on summary trial; and,if sowhether the relief sought by Mercer should be granted in whole or inpart.

BACKGROUNDI7l The Underlying Option Agreement concerns the exploration and developmentof certain mineral properties in Colombia. The properties are held under licence bythe Comunidad.18] On March 4,2010 Mercer concluded the Underlying Option Agreement withthe Comunidad. Pursuant to its terrns, the Comunidad granted Mercer, as optionee,an irrevocable right to acquire a 100 per cent interest in the mineral properties uponpayment of $4 million in 17 installments on specified dates. Paragraph 3.1 of theUnderlying Option Agreement provides:3.1 The Optionor hereby irrevocably grants to the Optionee (and/or theOptionee's wholly-owned subsidiary to be incorporated under the laws of theRepublic of Columbia or under the laws of such other jurisdiction as may bedetermined to be appropriate by the Optionee) the sole and exclusive rightand option to acquire a One Hundred percent (1000/6) interest in and to theProperty, free and clear of all liens, charges, encumbrances, claims, rights or

interest of any other person, such Option to be exercisable by the Optionee:a) paying to the Optioner an aggregate Four Million Dollars(US$4,000,000) in the instalments and by the dates specified asfollows:i. US $20,000 on the date of execution of the letter of intentdated October 14, 2009 entered into between the Optioneeand the Optionor (the "Letter of Intent"), which amount hasbeen paid in full;

1.

2.


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Mercer Gold Corp. (8.C.) v. Tresoro Gold Corp. Page 4ii. an additional US$40,000 on or by ninety (90) days from thedate of execution of the Letter of lntent, which amount hasbeen paid in full;iii, an additional US$40,000 on or by April 14, 2010;iv. an additional US$55,000 on or by July 14, 2010;v. an additional US$55,000 on or by October 14, 2010;vi. an additional US$65,000 on or by January 14,2011;vii. an additional US$75,000 on or by April 14,2011;viii. an additional US$75,000 on or by July 14,2011;ix. an additional US$85,000 on or by October 14, 201 1;x. an additional US$85,000 on or by January 14,2Q12;xi. an additional US$160,000 on or by July 14, 2012;xii. an additional US$160,000 on or by January 14, 2013;xiii. an additional US$190,000 on or by July 14, 2013;xiv, an additional US$190,000 on or by January 14,2014;xv. an additional US$230,000 on or by July 14,2014;xvi. an additional US$230,000 on or by January 14,2015; andxvii. an additional US$2,245,000 on or by July 14, 2015;

and the date the Optionee exercises the Option by completing these payments isreferred to herein as the "Option Exercise Date". ln the event any option payment forany period set out above is not met, then the Option willterminate and be of nofurther force or etfect, subject to the provisions of Section 18.1.3.2 The Optionee, at its sole discretion, can elect to accelerate the timing of theoption payments outlined in Section 3.1 and, thereby, exercise the Option.The Underlying Option Agreement is subject to Colombian law.

t10l On April 13,2010 Mercer and Tresoro concluded the Secondary OptionAgreement. Pursuant to its terms, Mercer granted to Tresoro the right to acquire itsinterest in the Underlying Option Agreement.[11] The Secondary Option Agreement is subject to British Columbia law't12l The Secondary Option Agreement creates a range of contractual obligationsbetween the parties, lts key terms, for present purposes, provide:

2.1 Grant of the Option. Subject to the terms and conditions hereof andbased upon the representations, warranties and covenants contained in

tel


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Mercer Gold Corp. (8.C.) v. Tresoro Gold Corp. Page 5Articles "3" and "4" herein below and the prior satisfaction of the conditionsprecedent which are set forth in Article "5" herein below, the Optionor herebyagrees to give and grant to the Optionee the sole and exclusive right andoption to acquire allthe Optionor's current Underlying Option interests underthe Underlying Option Agreement and, consequent thereon, no less than anundivided 100% legal, beneficial and registerable interest in and to theProperty in accordance with the terms of the Underlying Option Agreement(again, the "Option") and, in order to maintain the Option in good standingand in full force and etfect, the Optionee hereby agrees to exercise theOption on or before the Closing Date (as hereinafter defined) (and whichperiod in time from the Effective Date herein to the Closing Date is referred toas the "Option Period") for each of the following Option Non-RefundableCash Payment (as hereinafter defined), the following restricted commonstock Option Share lssuances (as hereinafter defined), the following minimumcumulative Expenditures (as hereinafter defined) commitments and thefollowing Option Underlying Option Agreement Payments (as hereinafterdefined) and maintenance payments to be paid and incurred in accordancewith section "2.2" hereinbelow.2.2 Consideration for and maintenance of the Option. In order to keep theright and Option granted to the Optionee in respect of the Assets in goodstanding and in force and etfect during the Option Period the Optionee shallbe obligated to pay, issue and provide for each of the following Option Non-Refundable Cash Payment (as hereinafter defined), the following restrictedcommon stock Option Share lssuances (as hereinafter defined), the followingminimum cumulative Expenditures (as hereinafter defined) commitments andthe following Option Underlying Option Agreement Payments (as hereinatterdefined) and maintenance payments to and for the order of the Optionor andthe mineral Propefi interests comprising the Assets in the following manner:

d) Ootion Underlying Option Agreement Payments and maintenancepayments: pay, or cause to be paid, to or on the Optionor's behalf allunderlying option, regulatory and governmental payments andassessment work required to keep the mineral Property interestscomprising the Assets and any underlying option agreements respectingany ol the mineral Property interests comprising the Assets in goodstanding during the Option Period of this Agreement and including,without limitation, all remaining cash payments required to be made to theUnderlying Property Owner under the Underlying Option Agreement(collectively, the "Underlying Option Agreement Payments").,: Termination of the Ootion. In the event that either:

d) the Optionee fails to pay, or cause to be paid, to or on the Optionor'sbehalf, any of the required Option Underlying Option AgreementPayments and all underlying option, regulatory and governmentalpayments and assessment work required to keep the mineral Propertyinterests comprising the Assets and any Underlying Option Agreementrespecting any of the mineral Property interests comprising the Assets ingoodstanding in accordance with paragraph "2.2(d)" hereinabove;


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Mercer Gold Corp. (8.C.) v. Tresoro Gold Corp. Page 7b) give the Non-Defaulting Party notice that it denies that such defaulthas occurred and that it is submitting the question to arbitration as hereinprovided.

17.4 Termination. ln addition to the foregoing, it is hereby acknowledgedand agreed by the Parties hereto that this Agreement will be immediatelyterminated in the event that:a) the Option is terminated in accordance with Article "2" hereinabove.[13] The Secondary Option Agreement does not expressly purport to assign all ofMercer's rights and obligations under the Underlying Option Agreement to Tresoro.t141 As noted, the Secondary Option Agreement was concluded on April 13, 2010by Mercer and Tresoro. The Underlying Option Agreement was appended as aschedule and described, in Recital B as "... forming a material part hereof ..." lnaddition, the installment payments enumerated in the Underlying Option Agreementwere expressly referenced in paragraphs 2.2(d) and 2.5(b) of the Secondary OptionAgreement, as set out above.[15] Rahim Jivraj is the principal of Mercer. He is also the former president ofTresoro.[16] After the Secondary Option Agreement was concluded unhappy differencesdeveloped between Mr. Jivraj and the other principals of Tresoro. All concernedaccused, and continue to accuse, one another of numerous forms of breach andwrongdoing in connection with the Columbian mineral propefties and theagreements that were made with respect to them. In consequence, all concernedare embroiled in various ongoing disputes in various conte)ds, including actions inthe courts,1171 Tresoro made all of the installment payments enumerated in the SecondaryOption Agreement untilJuly 1 4,2012.[18] In this action Mercer claims Tresoro failed to pay the installment paymentsreferenced in and required by the Secondary Option Agreement to the Comunidadon July 14,2012 and January 14,2013. According to Mercer, those failures


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Mercer Gold Corp. (8.C.) v. Tresoro Gold Corp. Page 8unambiguously constitute a breach of the Secondary Option Agreement whichjustifies its termination and the declaratory relief sought.

[19] lt is common ground between the parties that, in fact, Tresoro did not makethe fullJuly 1 4,2012 and January 14, 2019 installment payments. Tresoro says,however, that it was not required to do so on those dates because, by then, Mercerhad transferred the Underlying Option Agreement to it with the consent of theComunidad. According to Tresoro the Comunidad's consent is evidenced by a letterdated April 15, 2010 (the "Transfer Letter"). The Transfer Letter is appended toaffidavit no. 2 of Gary Powers, the current President of Tresoro, and filed on thesummary trial (the "Powers No. 2 Affidavit"),[20] Tresoro goes on to say that the obligation to make installment paymentspursuant to the Underlying Option Agreement was varied by consent between itselfand the Comunidad after the Transfer Letter was received by all interested parties.The consent in question is allegedly evidenced by an agreement dated July 9, 2012(the "Alleged July 9, 2012 Agreement"). Tresoro says further that, pursuant to theterms of the Alleged July 9, 2012 Agreement, it paid $50,000 on July 31, 2012 and$60,000 on August 9, 2012 to the Comunidad. Accordingly, no breach underColombian law has been demonstrated on the evidence presented at the summarytrial.[21] The Alleged July 9, 2012 Agreement is also appended to the Powers No. 2Atfidavit. Uncertified translations of both the Transfer Letter and the Alleged July 9,2012 Agreement are also attached. Mercer objects to the admissibility of thePowers No. 2 Atfidavit.

I22l Despite Mercer's objection, I am satisfied that I should take the Powers No. 2Atfidavit into account in determining this matter. As discussed below, however,given the uncertified nature of the translations and my interpretation of theSecondary Option Agreement its contents are of limited value.


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Mercer Gold Corp. (8.C,) v. Tresoro Gold Corp, Page Il23l Mercer is not a party to the Alleged July g, 2012 Agreement between Tresoroand the Comunidad.

[241 On July 17,2013 the Comunidad issued a default notice to Mercer inconnection with the missed installment payments. The default notice was issuedpursuant to the underlying option Agreement.[25] Mercer issued default notices to Tresoro in connection with the missedinstallment payments. The default notices were issued pursuant to the SecondaryOption Agreement.

126l Tresoro did not make the entire July 14,2012 or January 14,2013 installmentpayments referenced in the Secondary Option Agreement after receiving Mercer'sdefault notices.l27l As noted above, Tresoro makes several allegations against Mr, Jivraj, most otwhich are hotly contested. In particular, Tresoro alleges that Mr. Jivraj and Mercerhave engaged in a wide range of wrongful conduct designed to damage itsreputation and interfere with its relationship with the Comunidad.DISCUSSION[28] Tresoro submits that this matter is not suitable for determination on sumrnarytrial because the Underlying Option Agreement and its alleged breaches are subjectto the law of Colombia, not the law of British Columbia. The Underlying OptionAgreement was assigned by Mercer to Tresoro in April 2010 and whether it wasbreached thereafter is, according to Tresoro, a matter between it and theComunidad. In particular, whether the Underlying Option Agreement was properlyvaried and whether a default has occurred is a matter that falls to be determinedpursuant to the law of Columbia. Further, the interpretation of the Secondary OptionAgreement is inextricably linked to the Underlying Option Agreement and, therefore,Colombian law is highly relevant regardless of whether it fully determines the issuesto be resolved.


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Mercer Gold Corp. (8.C.) v, Tresoro Gold Corp. Page 10t29] According to Tresoro, in these circumstances the issues that arise betweenthe parties on this summary trial application are best adjudicated by the courts ofGolombia, not British Golumbia. Alternatively, expert evidence as to whetherTresoro has in fact committed a breach pursuant to Colombian law is required, buthas not been produced. That being so, Tresoro says it is impossible for me to makethe necessary factualtindings to resolve the application, Accordingly, theapplication should be dismissed in its entirety.[30] | do not fully accept this submission. I am satisfied that I can make factualfindings sutficient to determine at least some of the issues raised by the application.I am also satisfied that it is just and desirable for me to do so as it will advance thelitigation and assist the parties in moving forward.[31] | reach the foregoing conclusion because Mercer and Tresoro are the onlyparties to the Secondary Option Agreement. That Agreement is expressly subject toBritish Columbian, not Colombian, law. As discussed below, the Secondary OptionAgreement requires Tresoro to make defined installment payments to theComunidad on behalf of Mercer. As a matter of British Columbian law, it is not opento Tresoro to vary its obligation to Mercer by agreement with others without theconsent of Mercer. This is so regardless of whether Tresoro independently enteredinto related, identical or different obligations with the Comunidad and regardless ofwhat law might govern those other obligations.[32] As to interpretation of the Secondary Option Agreement, the applicableprinciples of British Columbian law are uncontroversial. ln summary, they include:

First and foremost, the words of the contract must govern, Thosewords are to be interpreted in the light of the whole of the contract.The court is to look first to the words of the agreement, aided, ifnecessary, by the factual matrix.The relevant factual matrix is generally restricted to circumstancesknown to both parties that illuminate the meaning a reasonable person

(a)

(b)


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Mercer Gold Corp. (8.C.) v. Tresoro Gold Corp. Page 11would give to the words employed. This includes the genesis, aim andobject of the whole of the transaction.

(c) The contract should be interpreted at the time it is written and in thelight of the surrounding circumstances.(d) The contract is to be interpreted in a way that avoids a commercially

absurd result and in accordance with business commonsense.(e) Evidence of negotiations leading up to a contract is generally not

permitted, nor is evidence of subjective intent.

0 lf application of these principles does not lead to a clear result it ispermissible to look at cefiain post-contractual activities of the parties,so long as they do not involve a subjective analysis of a party's intent.

t33l Mercer submits that application of the foregoing principles to theuncontroverted facts leads to the conclusion that Tresoro's failure to make thespecified payments to the Comunidad constitutes a clear default of the SecondaryOption Agreement, lf left uncured, such a default entitles Mercer to terminate itsagreement with Tresoro. According to Mercer, this interpretation accords with goodbusiness sense given its interest in ensuring it could re-acquire control of the mineralproperties if Tresoro did not perform as required in the Secondary OptionAgreement. The fact that the Comunidad could, and did, issue a default notice toMercer when Tresoro failed to pay underscores the force of this position.[34] I agree with Mercer. In my view, the language of the Secondary OptionAgreement supports its interpretation.[35] As noted, a contract is to be interpreted at the time it is written and in the lightof the surrounding circumstances. When the Secondary Option Agreement wasconcluded the installment payments required to keep the Underlying OptionAgreement in good standing were those expressly identified in the Underlying OptionAgreement at the time. This detailed payment schedule was directly and


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Mercer Gold Corp. (8.C.) v. Tresoro Gold Corp. Page 12unambiguously incorporated into the Secondary Option Agreement by Mercer andTresoro both by amount and by date.

136l lf Tresoro wanted to alter its obligations to Mercer by virtue of changedarrangements it might make later with the Comunidad regarding the property thenMercer's consent was required for the change to have legal etfect as betvveen them(ie., as between Mercer and Tresoro). lt was not open to Tresoro to deal with theComunidad unilaterally in this regard. This is the only way Mercer could maintaincontrol over, and even ensure knowledge of, the nature and extent of its ownexposure to an asserted default that might be issued by the Comunidad. In myview, read as a whole and considered in the context of the surrounding factualmatrix, this is what was intended and conveyed by the words of the SecondaryOption Agreement.t37] lt follows that I accept Mercer is entitled to a declaration that Tresoro is indefault pursuant to article 2.2(d) of the Secondary Option Agreement. lt also followsthat Mercer is entitled to a declaration that it is entitled immediately to terminate theSecondary Option Agreement. Given the numerous, complex and contestedallegations of wrongful conduct made by both sides with respect to the other inconnection with this business relationship, however, I decline to grant a declarationthat all of Tresoro's rights, interests and entitlements in and to the Secondary OptionAgreement have been extinguished. In my view, those matters cannot beappropriately determined on a summary trial.t38] As to the relief sought in the fourth paragraph of the relief sought by Mercer inthe amended application, I require further submissions from the parties. The reliefsought is an order that Tresoro immediately furnish transfer documents wherebyTresoro's entire right, title and interest to the Comunidad property will revert toMercer free and clear of all liens and charges arising from their activities. That is notan order that I am prepared to make in the light of the findings I am able to make onthis summary trial. I am, however, able to do what I consider just and appropriate tohelp the parties to move forward given the breach but without erasing all rights that


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Tresoro might have as against Mercer arising of the various allegations whichremain to be determined. I would like to know from both what kinds of transferdocuments might be exchanged that would be consistent with the judgment that Ihave reached, but not prejudice Tresoro in connection with the outstanding factualallegations that remain to be determined.

I DtscussloN ]t39l On the other application in the personal action, I have decided not to strikethe statement of defence and enter judgment. Rather, I am prepared to give thedefendants one final chance because I accept Mr. Jardine's submissions that theydid not understand the precise parameters of their document production obligations,taking into account the change in the Rutes and what is a materialfact versus whatis relevant for the purposes of disclosure. However, I also accept that thedocuments that the plaintiff says on the application he was entiiled to have producedmust be produced by the defendants. So that is the order on the documentprod uction application.I40l The plaintitf has leave to reapply to have the statement of defence struck andjudgment entered in the event that the defendant fails to comply,IFURTHER DtSCUSSIONI[41] Mr. Jivraj is entitled to advise the Comunidad of the order made today and isto include Tresoro as a recipient of any such communication. As before, Mr. Jivraj isalso to receive any communications Tresoro has with the Comunidad. I will hearsubmissions on the nature of transfer documents to be furnished by Tresoro in thelight of my order on August 19 at g:00 a.m. lf further variation of the order ofMr. Justice Greyellwith respecfi to communications with the Comunidad (the "GreyellOrder") is to be sought before me then an application must be prepared and madereturnable on August 19. Costs on this application may be spoken to on August 19as well.


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Mercer Gold Corp. (8,C.) v. Tresoro Gold Corp, Page 14l42l The parties will have no more than one hour on August 19 to makesubmissions on the transfer documents, variation of the Greyell Order and costsissues. Thereafter, I am not seized of this matter.

DICKSON J.

Documents

Reasons for Judgment: Mercer Gold Corporation (BC) v. Tresoro Mining Corporation; Rahim Jivraj v. Tresoro Mining Corporation July 30, 2013