Lac Minerals Ltd. v. International Corona Resources Ltd.

Lac Minerals Ltd. v. International Corona Resources Ltd.
Collection
Supreme Court Judgments
Date
1989-08-11
Report
[1989] 2 SCR 574
Case number
20571
Judges
McIntyre, William Rogers; Lamer, Antonio; Wilson, Bertha; La Forest, Gérard V.; Sopinka, John
On appeal from
Ontario
Subjects
Action
Commercial law
Intellectual property
Trust
Notes
SCC Case Information: 20571
Decision Content
Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574
Lac Minerals Ltd. Appellant
v.
International Corona Resources Ltd. Respondent
indexed as: lac minerals ltd. v. international corona resources ltd.
File No.: 20571.
1988: October 11, 12; 1989: August 11.
Present: McIntyre, Lamer, Wilson, La Forest and Sopinka JJ.
on appeal from the court of appeal for ontario
Commercial law -- Confidentiality -- Mining companies discussing possible joint venture -- Confidential exploration results disclosed during discussions -- High potential property adjacent to lands of exploration company -- Mining company in receipt of information purchasing property for own use -- Whether or not company in breach of duty respecting confidences -- Whether or not breach of fiduciary duty -- If so, the appropriate remedy.
Industrial and intellectual property -- Trade secrets -- Confidentiality -- Mining companies discussing possible joint venture -- Confidential exploration results disclosed during discussions -- High potential property adjacent to lands of exploration company -- Mining company in receipt of information purchasing property for own use -- Whether or not company in breach of duty respecting confidences -- If so, the appropriate remedy.
Trusts and trustees -- Fiduciary duty -- Trade secrets -- Confidentiality -- Mining companies discussing possible joint venture -- Confidential exploration results disclosed during discussions -- High potential property adjacent to lands of exploration company -- Mining company in receipt of information purchasing property for own use -- Whether or not breach of fiduciary duty -- If so, the appropriate remedy.
Remedies -- Unjust enrichment -- Restitution -- Constructive trust -- Nature of constructive trust -- When constructive trust available.
International Corona Resources Ltd., a junior mining company, carried out an extensive exploration program and made arrangements to attempt to acquire the Williams property. Representatives from a senior mining company, Lac Minerals, read of the test results in a public newsletter and arranged to visit the Corona property. Corona showed the Lac representatives confidential geological findings and disclosed the geological theory of the site and the importance of the Williams property. Detailed private information was left with Lac officials during further discussions about development and financing options. Corona was advised by Lac to aggressively pursue the Williams property. The matter of confidentiality was not raised.
The Lac representatives, after their visit to Corona's site, instructed their personnel to gather information on the area in question and to stake favorable claims east of the Corona property. Lac acquired the Williams property but never informed Corona at any time of its intention of acquiring that property. Later negotiations between Lac and Corona for the Williams property to be turned over to Corona failed.
Corona, after its relationship with Lac had ended, concluded various agreements with Teck Corporation. These agreements provided for a joint venture in developing a mine on the Corona property and purported to give Teck a 50 per cent interest in the fruits of Corona's lawsuit against Lac, with Teck agreeing to pay certain costs.
The trial judge concluded that Lac and Corona had not concluded a binding contract but found Lac liable under the two other possible heads of liability, breach of confidence and breach of fiduciary duty. He decided that the appropriate remedy for breach of fiduciary duty was the return of the Williams property to Corona but allowed Lac's claim for a lien for the cost of improvements, and the amounts paid to Williams excluding royalty payments. The actual amount spent by Lac on developing the property was discounted to take into account the fact that Corona, if it had not been deprived of the Williams property, would have expended less to develop the property. Both parties were given the option of undertaking a reference to determine the amount Lac had spent to develop the Williams property. Lac was ordered to transfer the property to Corona upon payment by Corona to Lac of these amounts. A reference was also ordered to determine the amount of the profits obtained by Lac from the Williams property. Lac was ordered to pay the amount of such profits to Corona with interest. Damages were assessed on the principles applicable to breach of fiduciary duty in the event that, on appeal, a court should decide that damages were the appropriate remedy.
The Court of Appeal affirmed the findings of the trial judge with respect to breach of confidence and fiduciary duty. It also confirmed the remedy but added that a constructive trust was an appropriate remedy for both the breach of confidence and fiduciary duty. The court did not deal with the appellant's attack on the assessment of damages.
Three main issues were raised in this appeal: (1) did a fiduciary relationship exist between Corona and Lac which was breached by Lac's acquisition of the Williams property? (2) did Lac misuse confidential information obtained by it from Corona and thereby deprive Corona of the Williams property? and, (3) if either question were answered affirmatively, what was the appropriate remedy?
Held (McIntyre and Sopinka JJ. dissenting in part): The appeal and cross‑appeal should be dismissed.
Per La Forest J.: Lac breached a duty of confidence owed to Corona. The test for whether there has been a breach of confidence involves establishing three elements: (1) that the information conveyed was confidential; (2) that it was communicated in confidence; and (3) that it was misused by the party to whom it was communicated. Corona had communicated private, unpublished information and, although the matter of confidence had not been raised, there was a mutual understanding between the parties that they were working towards a joint venture and that valuable information was communicated to Lac 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.
The receipt of confidential information in circumstances of confidence establishes a duty not to use that information for any purpose other than that for which it was conveyed. The relevant question to be asked is what is the confidee entitled to do with the information, not what is the confidee prohibited from doing with it, and the onus falls on the confidee to show that the use of the confidential information was not prohibited. If the information is used for such a prohibited purpose, the confider is entitled to a remedy to the extent of the detriment suffered.
Lac acted to Corona's detriment when it used the confidential information to acquire the Williams property which Corona would have otherwise acquired. Lac was uniquely disabled from pursuing property in the area for a period of time; this was not an unacceptable result. It could have either negotiated a relationship with Corona based on the disclosure of confidential information or it could have pursued property in the area for itself on the basis of publicly available information. Lac could not have the best of both worlds.
A constructive trust was the only just remedy here, regardless of whether this remedy was based on breach of confidence or breach of a fiduciary relationship. The remedies available under one head are those available to the other. Given a breach of a duty of confidence, the finding of a fiduciary relationship was not strictly necessary.
The law of confidence and the law relating to fiduciary obligations are not coextensive and yet are not completely distinct. A claim for breach of confidence will only be made out, however, when it is shown that the confidee has misused the information to the detriment of the confider. Fiduciary law, however, is concerned with the duty of loyalty and does not require that harm result. Duties of confidence, unlike fiduciary obligations, can arise outside a direct relationship. Another difference is that breach of confidence also has a jurisdictional base at law, and accordingly can draw on remedies available in both law and equity, whereas fiduciary obligations arise only in equity and can only draw upon equitable remedies.
The following common features provide a rough and ready guide to whether or not a fiduciary obligation should be imposed on a new relationship: (1) 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.
A fiduciary obligation can arise out of the specific circumstances of a relationship where fiduciary obligations would not normally be expected. One party is entitled to expect that the other will act in his interests in and for the purposes of the relationship. A fiduciary relationship does not normally arise between arm's length commercial parties. The facts here, however, supported the imposition of a fiduciary obligation which Lac breached and may be grouped under the headings: (1) trust and confidence; (2) industry practice; and, (3) vulnerability. They overlapped to some extent.
The relationship of trust and confidence that had developed between Corona and Lac merited significant weight in determining if a fiduciary obligation existed. Both parties would reasonably expect that a legal obligation would be imposed on Lac not to act in a manner contrary to Corona's interest with respect to the Williams property.
Industry practice, while not conclusive, should be given significant weight in determining what Corona could reasonably expect of Lac. The issue was not the legal effect of custom in the industry but rather the importance of the existence of a practice in the industry in determining what could reasonably be expected. The practice in the industry was premised on the disclosure of confidential information in the context of serious negotiations and was so well known that at the very least Corona could reasonably expect Lac to abide by it. The practice was neither vague nor uncertain.
Vulnerability or its absence is not conclusive of the question of fiduciary obligation. It, however, must be considered when found in determining if the facts give rise to a fiduciary obligation. Corona was vulnerable to Lac and this vulnerability was a factor deserving of considerable weight in the identification of a fiduciary obligation. Given industry practice, Corona would not expect Lac to use this information to Corona's detriment. The fact that Corona did not protect itself with a confidentiality agreement, which would confirm what everyone knew, should not be reason to deny the existence of a fiduciary obligation. Confidentiality agreements should not be presumed where it is not established that the entering of confidentiality agreements is a common, usual or expected course of action, particularly when the law of fiduciary obligations can operate to protect the reasonable expectations of the parties. There was no reason to clutter normal business practice by requiring a contract.
Business and accepted morality are not mutually exclusive domains. Finding a breach of fiduciary obligation here would not create uncertainty in commercial law or result in ad hoc morality determining the rules of commercial conduct.
The constructive trust is but one remedy available in the law of restitution, and will only be imposed in appropriate circumstances. The Court determines whether a claim for unjust enrichment is established, and then examines whether in the circumstances a constructive trust is the appropriate remedy to redress that unjust enrichment. There is no unanimous agreement on the circumstances in which a constructive trust will be imposed. Some guidelines can, however, be suggested. First, no special relationship between the parties is necessary. Insistence on a special relationship would undoubtedly lead to relationships being created in order to justify the remedy. Secondly, the constructive trust is not reserved for situations where a right of property is recognized. That would limit the constructive trust to its institutional function, and deny to it the status of a remedy, its more important role. A pre-existing right of property need not necessarily exist when a constructive trust is ordered. The imposition of a constructive trust can both recognize and create a right of property. A proprietary remedy, however, should not be imposed whenever it is "just" to do so, unless further guidance can be given as to what those situations may be.
The issue of the appropriate remedy only arises once a valid restitutionary claim has been made out. The constructive trust awards a right in property, but that right can only arise once a right to relief has been established. The facts here supported a claim for unjust enrichment. The constructive trust awards a right in property and should only be awarded if there is reason to grant to the plaintiff the additional rights that flow from recognition of a right of property. More important here was the right of the property holder to have changes in value accrue to its account rather than to the account of the wrongdoer. The moral quality of the defendants' act may also be another consideration in determining whether a proprietary remedy is appropriate. The focus of the inquiry, however, should be upon the reasons for recognizing a right of property in the plaintiff, not on the reasons for denying it to the defendant.
The constructive trust was the only appropriate remedy here, given the uniqueness of the Williams property, given the fact Corona would have acquired the property but for Lac's breaches of duty, and given the virtual impossibility of accurately valuing the property. The trial judge's award was confirmed.
Per Lamer J.: The evidence here, for the reasons set out by Sopinka J., did not establish the existence of a fiduciary relationship. For the reasons of La Forest and Sopinka JJ., Lac breached a duty of confidence and the proper approach in arriving at the appropriate remedy was that adopted by La Forest J.
Per Wilson J.: No ongoing fiduciary relationship arose between the parties by virtue only of their arm's length negotiations towards a mutually beneficial commercial contract for the development of the mine. A fiduciary duty, however, arose in Lac when it was made privy to the confidential information about the Williams property.
Lac's acquisition of the Williams property, which was the subject of a confidence, may also be characterized as a breach of confidence at common law with respect to the information concerning the Williams property.
When the same conduct gives rise to alternate causes of action, one at common law and the other in equity, and the available remedies are different, the Court should consider which will provide the more appropriate remedy to the innocent party and give the innocent party the benefit of that remedy. The remedy of constructive trust is available for breach of confidence as well as for breach of fiduciary duty. Here, the imposition of a constructive trust on Lac with respect to the Williams property, in contrast to an award of damages which depended on valuation techniques, was the only sure way to fully compensate Corona. It also made sure that the wrongdoer would not benefit from his wrongdoing.
Per McIntyre and Sopinka JJ. (dissenting in part): When confronted with a relationship that does not fall within one of the traditional categories, such as trustee‑beneficiary, the Court must consider if the essential ingredients of a fiduciary relationship are present. A fiduciary obligation may be imposed in relationships where three general characteristics seem to exist: (1) 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 the fiduciary holding the discretion. This last feature is indispensable to the existence of the relationship and is very relevant here.
Equity subjects the fiduciary to its strict standards of conduct where a condition of dependency exists. Two caveats must be issued, however. Firstly, the conduct that incurs the censure of a court of equity in the context of a fiduciary duty cannot itself create the duty. And secondly, the receipt and misuse of confidential information cannot of itself create a fiduciary obligation.
No fiduciary duty arose here. The combined effect of a number of factors indicating a fiduciary relationship could not overcome the absence of an element of dependency which is essential to the finding of a fiduciary relationship. The parties here had not as yet identified the type of relationship they wanted, let alone advanced beyond the negotiation stage, and no discretionary power had been conferred on Lac to acquire the Williams property. The state of the negotiations, therefore, did not attract the principle in United Dominions Corp. v. Brian Pty. Ltd. The fact that Lac sought out Corona did not add very much to the case in favour of a finding that a fiduciary relationship existed. Corona was seeking a senior mining company and Lac responded with an expression of interest. In every commercial venture, one of the parties approaches the other. This is not an indicium of a fiduciary relationship. The arrangement as to the geochemical program should not be considered a step in the implementation of a joint venture. The evidence was too sketchy to be able to relate this activity to any proposed agreement between the parties, the nature of which itself was undetermined. The supply of confidential information is not necessarily referable to a fiduciary relationship and was therefore at best a neutral factor.
No practice in the mining industry supported the existence of a fiduciary relationship. In a contract setting, a practice that is notorious and clearly defined and relevant to the business under discussion can readily be incorporated as a term as it can readily be inferred that the parties agreed to it. It is, however, a considerable leap from this principle to erect a fiduciary relationship on the basis of such a practice. Moreover, the evidence, accepted at face value, was more consistent with the obligation of confidence.
The fact that the parties were negotiating towards a common object could not elevate the negotiations to something more. All negotiations seek to achieve a common object -- the accomplishment of the business venture for which the partnership or joint venture is sought to be formed.
The element of dependency or vulnerability was virtually lacking. There was clearly no physical or psychological dependency which attracted fiduciary duty here. A dependency of this sort between corporations, while possible, cannot exist when the dealings are between experienced mining promoters who have ready access to geologists, engineers and lawyers. If Corona placed itself in a vulnerable position because Lac was given confidential information, this dependency was gratuitously incurred. Corona could have required Lac to undertake not to acquire the Williams property unilaterally. Corona abandoned any possible contractual claim and so could not obtain contractual protection.
A breach of confidence occurred here. The information that Lac obtained from Corona was confidential. Much of it went beyond what had been disclosed to the public. This information put Lac in a preferred position vis‑à‑vis others with respect to knowledge of the desirability of acquiring Williams property. This information was imparted in circumstances which gave rise to an obligation of confidence. Both parties understood that they were working toward a joint venture or other business arrangement. Finally, Lac's acquisition of the Williams property was a misuse of this information. This acquisition, at best, might not have amounted to a misuse of information had it been done subject to the understanding that it was in the context of working towards a joint venture with Corona.
The court can exercise considerable flexibility in fashioning a remedy for breach of confidence because the action does not rest solely on any one of the traditional jurisdictional bases for action -- contract, equity or property -- but is sui generis and relies on all three. There is scant jurisprudence supporting the imposition of a constructive trust over property acquired as a result of the use of confidential information. A constructive trust is ordinarily reserved for those situations where a right of property is recognized. Although confidential information has some of the characteristics of property, its foothold as such is tenuous. Unjust enrichment has been recognized as having an existence apart from contract or tort under a heading referred to as the law of restitution but a constructive trust is not the appropriate remedy in most cases. There was no reason to extend the use of the constructive trust here.
The conventional remedies for breach of confidence are an accounting of profits or damages. An injunction may be coupled with either of these remedies in appropriate circumstances. In a breach of confidence case, the focus is on the loss to the plaintiff and, as in tort actions, the particular position of the plaintiff must be examined. The object is to restore the plaintiff monetarily to the position he would have been in if no wrong had been committed and is generally achieved by an award of damages. A restitutionary remedy may be appropriate in cases involving fiduciaries because they are required to disgorge any benefits derived from the breach of trust. It would be unjust, however, to impress the whole of the property with a constructive trust when the extent of the connection between the confidential information and the acquisition of the property is uncertain.
The wrong committed by Lac was the acquisition of the Williams property for itself and to the exclusion of Corona. This was contrary to the understanding that the parties were working towards a joint venture or some other business arrangement and constituted a breach of that understanding under which the confidential information was supplied to Lac. As in contract, account must be taken of the fact that but for the breach by Lac, a joint venture agreement would likely have resulted similar to that concluded with Teck. Damages should be assessed accordingly.
Cases Cited
By La Forest J.
Considered: Coco v. A. N. Clark (Engineers) Ltd., [1969] R.P.C. 41; Guerin v. The Queen, [1984] 2 S.C.R. 335; Chase Manhattan Bank N. A. v. Israel‑British Bank (London) Ltd., [1981] Ch. 105; Tito v. Waddell (No. 2), [1977] 3 All E.R. 129; referred to: Hospital Products Ltd. v. United States Surgical Corp. (1984), 55 A.L.R. 417; Frame v. Smith, [1987] 2 S.C.R. 99; Girardet v. Crease & Co. (1987), 11 B.C.L.R. (2d) 361; Goodbody v. Bank of Montreal (1974), 47 D.L.R. (3d) 335; United Dominions Corp. v. Brian Pty. Ltd. (1985), 59 A.L.J.R. 676; Saltman Engineering Co. v. Campbell Engineering Co. (1948), 65 R.P.C. 203; Liquid Veneer Co. v. Scott (1912), 29 R.P.C. 639; Cunliffe‑Owen v. Teather & Greenwood, [1967] 1 W.L.R. 1421; Burns v. Kelly Peters & Associates Ltd. (1987), 41 D.L.R. (4th) 577; Nelson v. Dahl (1879), 12 Ch. D. 568; Norwich Winterthur Insurance (Australia) Ltd. v. Con-Stan Industries of Australia Pty. Ltd., [1983] 1 N.S.W.L.R. 461; Keech v. Sandford (1726), Sel. Cas. T. King 61, 25 E.R. 223; Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147; Fraser Edmunston Pty. Ltd. v. A.G.T. (Qld) Pty. Ltd., Queensland S.C., June 3, 1986 (Williams J.), unreported; Air Canada v. British Columbia, [1989] 1 S.C.R. 1161; Pettkus v. Becker, [1980] 2 S.C.R. 834; In re Coomber, [1911] 1 Ch. 723; Pre‑Cam Exploration & Development Ltd. v. McTavish, [1966] S.C.R. 551; Seager v. Copydex, Ltd. (No. 2), [1969] 2 All E.R. 718; Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1 S.C.R. 426; Muschinski v. Dodds (1985), 160 C.L.R. 583.
By Sopinka J. (dissenting in part)
Hospital Products Ltd. v. United States Surgical Corp. (1984), 55 A.L.R. 417; Guerin v. The Queen, [1984] 2 S.C.R. 335; Girardet v. Crease & Co. (1987), 11 B.C.L.R. (2d) 361; Frame v. Smith, [1987] 2 S.C.R. 99; Tito v. Waddell (No. 2), [1977] 3 All E.R. 129; United Dominions Corp. v. Brian Pty. Ltd. (1985), 59 A.L.J.R. 676; Cunliffe‑Owen v. Teather & Greenwood, [1967] 1 W.L.R. 1421; Saltman Engineering Co. v. Campbell Engineering Co. (1948), 65 R.P.C. 203; Seager & Copydex Ltd., [1967] 1 W.L.R. 923; Coco v. A. N. Clark (Engineers) Ltd., [1969] R.P.C. 41; Nichrotherm Electrical Co. v. Percy, [1957] R.P.C. 207; Pettkus v. Becker, [1980] 2 S.C.R. 834; Nicholson v. St. Denis (1975), 8 O.R. (2d) 315; Unident v. Delong, Joyce and Ash Temple Ltd. (1981), 50 N.S.R. (2d) 1; Pre‑Cam Exploration & Development Ltd. v. McTavish, [1966] S.C.R. 551; Dowson & Mason Ltd. v. Potter, [1986] 2 All E.R. 418; Talbot v. General Television Corp. Pty. Ltd., [1980] V.R. 224; General Tire & Rubber Co. v. Firestone Tyre & Rubber Co., [1975] 2 All E.R. 173; Florence Realty Co. v. The Queen, [1968] S.C.R. 42.
Statutes and Regulations Cited
Courts of Justice Act, S.O. 1984, c. 11, ss. 138(1)(b), 139.
Authors Cited
Austin, R. P. "Commerce and Equity -- Fiduciary Duty and Constructive Trust" (1986), 6 O.J.L.S. 444.
Birks, Peter. An Introduction to the Law of Restitution. Oxford: Clarendon Press, 1985.
Birks, Peter. "Restitutionary damages for breach of contract: Snepp and the fusion of law and equity," [1987] Lloyd's Mar. & Com.L.Q. 421.
Campbell, Colin L. The Advocates' Society Journal, Aug. 1988.
Finn, Paul D. Fiduciary Obligations. Sydney: Law Book Co., 1977.
Finn, Paul D. "The Fiduciary Principle," Victoria Law School Conference Lecture, 1988.
Frankel, Tamar. "Fiduciary Law" (1983), 71 Calif. L. Rev. 795.
Fridman, G. H. L. and James G. McLeod. Restitution. Toronto: Carswells, 1982.
Gautreau, J. R. Maurice. "Demystifying the Fiduciary Mystique" (1989), 68 Can. Bar Rev. 1.
Goff of Chieveley, Robert Goff, Baron, and Gareth Jones. The Law of Restitution, 3rd ed. London: Sweet & Maxwell, 1986.
Grange, Samuel. "Good Faith in Commercial Transactions" in Commercial Law: Recent Developments and Emerging Trends. Special Lectures of the Law Society of Upper Canada. Don Mills, Ontario: De Boo, 1985.
Gurry, Francis. Breach of Confidence. Oxford: Clarendon Press, 1984.
Halsbury's Laws of England, vol. 12, 4th ed. London: Butterworths, 1975.
Kennedy, J. "Equity in a Commercial Context". In P. D. Finn, ed., Equity and Commercial Relationships. Sydney: Law Book Co., 1987.
Klinck, Dennis R. "The Rise of the `Remedial' Fiduciary Relationship: A Comment on International Corona Resources Ltd. v. Lac Minerals Ltd." (1988), 33 McGill L.J. 600.
Lindley, Curtis Holbrook. A Treatise on the American Law Relating to Mines and Mineral Lands, 2nd ed. Reprint of 2nd ed., 1903. New York, Arno Press, 1972.
Mason, Sir Anthony. "Themes and Prospects". In Paul D. Finn, ed. Essays in Equity. Sydney: Law Book Co., 1985.
McCamus, John D. "The Role of Proprietary Relief in the Modern Law of Restitution," in The Cambridge Lectures 1987. Conference of the Canadian Institute for Advanced Legal Studies, 1987, held at the Cambridge University, England. Frank E. McArdle, ed. Montréal: Yvon Blais, 1989.
Ong, D. S. K. "Fiduciaries: Identification and Remedies" (1986), 8 U. of Tasm. L. Rev. 311
Oxford English Dictionary, vol. 19, 2nd ed. Oxford: Clarendon Press, 1989.
Shepherd, J. C. The Law of Fiduciaries. Toronto: Carswells, 1981.
Shepherd, J. C. "Towards a Unified Concept of Fiduciary Relationships" (1981), 97 L.Q.R. 51.
Waters, D. W. M. Law of Trusts in Canada, 2nd ed. Toronto: Carswells, 1984.
Weinrib, Ernest J. "The Fiduciary Obligation" (1975), 25 U. of T. L.J. 1.
APPEAL from a judgment of the Ontario Court of Appeal (1987), 44 D.L.R. (4th) 592, (1987) 62 O.R. (2d) 1, dismissing an appeal from a judgment of R. Holland J. (1986), 25 D.L.R. (4th) 504, 53 O.R. (2d) 737. Appeal dismissed, McIntyre and Sopinka JJ. dissenting in part.
Earl A. Cherniak, Q.C., and J. L. McDougall, Q.C., for the appellant.
A. J. Lenczner, Q.C., R. G. Slaght, Q.C., and Larry Page, for the respondent.
//Sopinka J.//
The reasons of McIntyre and Sopinka JJ. were delivered by
SOPINKA J. (dissenting in part) -- This appeal and cross-appeal raise important issues relating to fiduciary duty and breach of confidence. In particular, they require this Court to consider whether fiduciary obligations can arise in the context of abortive arm's-length negotiations between parties to a prospective commercial transaction. Also at issue are the nature of confidential information and the appropriate remedy for its misuse.
The Facts
The facts are fully developed in the reasons for judgment of the trial judge, R. Holland J. (1986), 53 O.R. (2d) 737, and in the judgment of the Ontario Court of Appeal (1987), 62 O.R. (2d) 1. My recital of them, here, will therefore be skeletal in nature. From time to time in these reasons, some of the facts relating to specific issues will be examined in greater detail.
The parties to these proceedings are International Corona Resources Ltd. (which I will refer to as either "Corona" or the "respondent") and Lac Minerals Ltd. (which I will refer to as either "Lac" or the "appellant"). Corona, which was incorporated in 1979, was at material times a junior mining company listed on the Vancouver Stock Exchange. Lac is a senior mining company which owns a number of operating mines and is listed on several Stock Exchanges. This action arises out of negotiations between Corona and Lac relating to the Corona property, the Williams property and the Hughes property, all of which are located in the Hemlo area of northern Ontario.
The Corona property consists of 17 claims with an area of approximately 680 acres. The Williams property consists of 11 patented claims, covering a total of about 400 acres, and is contiguous to the Corona property and to the west. The Hughes property consists of approximately 156 claims and surrounds both the Corona and Williams properties, except to the north of the Williams property. It is now in the names of Golden Sceptre Resources Limited, Goliath Gold Mines Limited and Noranda Exploration Company, Limited.
In October 1980, Corona had retained Mr. David Bell, a geologist consultant to carry out an extensive exploration programme on its property which involved extensive diamond drilling. Bell hired Mr. John Dadds, a mining technician, to assist him. The core that was obtained from the drilling was identified, logged and then stored inside a core shack built on the Corona property. Assay results were sent to Bell and to the Corona office in Vancouver. Some of the results were communicated to the Vancouver Stock Exchange in the form of news releases and assay results, and were published from time to time in the George Cross News Letter, a daily newsletter published in Vancouver.
The results of this exploratory work led Bell to an interesting theory. The trial judge describes it in some detail, at p. 744:
Mr. Bell testified that by February, 1981, he was sufficiently encouraged by the results of the drilling programme that he decided that it was time to acquire the Williams property and the claims to the north. Mr. Bell said that within the first month of drilling his opinion of the geology changed from what he initially thought was a secondary intrusive model, from reading the literature of the area, to a syngenetic deposit. That is a deposit formed at the same time and by the same process as the enclosing rocks. He concluded that the mineralization and gold values were not tied into a vein but rather that the mineralization was in a zone, or beds, of megasediment that indicated a volcanic origin. In Mr. Bell's opinion, in all likelihood, the distribution of gold could be spread over quite a large area and there could be pools or puddles of ore, indicating to him that the exploration programme should be extended along the zone to adjoining properties.
This increased the interest in surrounding properties and Bell, on behalf of Corona, requested Mr. Donald McKinnon, a prospector who was familiar with the properties, to attempt to acquire the Williams property. Representatives of Lac read about these results in the March 20, 1981 George Cross News Letter and arranged to visit the Corona property. This property visit took place on May 6, and Bell had arranged for Dadds to have core, assay results, sections, maps and a drill plan available at the core shack. Those present at the meeting consisted of Nell Dragovan, then President of Corona, and Messrs. Bell, Dadds, Sheehan (Vice-President for Exploration of Lac), and Pegg (a Lac geologist). The visitors were shown cores, sections, logs with assay results added and a map showing the staking in the area. Bell discussed progress to date, plans for the future and his theory of the geology. Sheehan and Pegg both examined the core and, after the meeting in the core shack, which Bell said lasted about 45 minutes, they went outside. Bell took a map and explained where the earlier drilling had taken place as well as the location of future holes, and discussed the geology further. He also indicated that the formation was continuing to the west on the Williams property and that Corona wanted to continue its exploration there. Outcrops in the area were also inspected. Bell said that before he left, Sheehan told him that he "wanted me to drop into Toronto when I was there and to further the discussions of their visit and talk about possible terms". A meeting was arranged for May 8 in Toronto at Lac's head office.
R. Holland J. found as a fact that there were no discussions regarding confidentiality during the May 6 property visit except in connection with an unrelated matter.
Following the site visit, Sheehan and Pegg returned quickly to Lac's exploration office in Toronto and instructed Lac personnel to gather information on the Hemlo area from the Lac library of files. They then went to the Assessment Office of the Ontario Department of Mines to obtain copies of all claim maps, reports, publications and assessment work files that were available on the area. Sheehan told a Lac geologist to ascertain what claims would be necessary to cover the favourable belt to the east of the Corona property. The geologist decided that about 600 claims should be staked and immediately thereafter, on May 8, Lac began staking what are now known as the White River claims.
On May 8, Bell and Sheehan met and discussed the geology of the area, its similarity to the Bousquet area of Quebec, at which both Pegg and Sheehan had worked, and the possible terms of an agreement between Corona and Lac. Sheehan told Bell of Lac's staking to the east. Bell said that the two men discussed the properties around the Corona property. Corona's interest in the Williams and Hughes properties was mentioned and Sheehan gave Bell advice on how to pursue a patented claim. Bell told Sheehan that Corona had somebody doing that, without mentioning McKinnon by name. A number of avenues for progress were discussed and Sheehan said that he would send a letter outlining the terms that were discussed. Again, nothing was said regarding confidentiality.
On May 19, Sheehan wrote to Bell as follows (at p. 750):
Further to our meeting in Toronto I would like to give you this letter as further evidence of our sincerity in joining with Corona re exploration in the Hemlo area.
As we discussed there are a number of avenues that could be explored regarding a working arrangement re the property and to that end I will list the various possibilities:
a)Corona could have our Company do a financing and ultimately we would scale it forward so as to control Corona.
b)We form a joint venture where Long Lac (a Lac subsidiary) spends say 1.5 to 2.0 times amount spent by Corona for a 60% interest. Beyond that point we spend on a 60-40 basis or use a dilution formula down to a minimum should one party decide to stop contributing. In addition Lac would have to spend a definite amount of money to reach a threshold before they would acquire any interest.
c)A possible significant cash payment with a variation in interests as a result of the amount of cash payment. Followed by a Lac work proposal.
As discussed we should entertain the possibility of Corona participate (sic) in the Hughes ground and that should be actively pursued. In addition we are staking ground in the area and recognizing Corona's limited ability to contribute we could work Corona into the overall picture as part of an overall exploration strategy.
I believe at some point within the next few weeks we should have an understanding that Corona and Lac should seriously examine an avenue for continual work in the area. Perhaps you could give our management a presentation of results to date ie, sections, general geology, longitudinal presentation -- location potential etc. Based on foregoing we could then arrive at a sound basis for structuring a working agreement.
The trial judge found that the reference to the Hughes ground was intended to include the Williams property as well. Bell replied by letter dated May 22 as follows:
I am in receipt of your letter dated May 19, 1981 regarding the Hemlo Property.
First may I thank you for your fine hospitality during my brief visit to Toronto.
I am forwarding a copy of your proposal to Vancouver for the other directors to review. We are presently well into our Phase II, exploring and extending the previously examined parameters outlined in Phase I. Our present plans are to complete 30,000 to 35,000 feet of diamond drilling at which time a general over-all review will take place.
At this point, until I hear otherwise from the directors in Vancouver, I like your idea of Corona's contribution with Long Lac Minerals Exploration Limited as part of an overall exploration programme in the area.
In the meantime I do believe we should keep in touch and maintain the fine relationship presently established.
Bell wrote to Dragovan by letter dated May 23 which stated, in part, the following:
Enclosed is a copy of a letter received from Long Lac Mineral Exploration Limited, also please find a copy of my letter to Lac in reply. This letter from Lac should be discussed with all directors.
On May 27, Corona released to the Vancouver Stock Exchange encouraging assay results of a drill hole, which the trial judge referred to as the "discovery hole". These results were published in the George Cross News Letter of May 29, and further results confirming an extension of the "discovery hole" were released on June 4 and published in the George Cross News Letter of June 8.
Subsequently, the results of further drill holes that were encouraging were published by Corona. On June 8, Mr. Murray Pezim, a stock promoter from Vancouver, became a director of Corona. Pezim arranged for Bell to make a presentation in Vancouver on behalf of Corona to a large number of brokers. Some of the information developed by Bell was imparted to those present at this meeting.
On June 15 a meeting was also arranged for June 30 at Lac's head office in Toro