COURT OF APPEAL FOR ONTARIO
LASKIN, SIMMONS and CRONK JJ.A.
B E T W E E N :
KINBAURI GOLD CORPORATION
Paull N. Leamen, Graham Jones and Jeff Saikaley,
for the Appellant (Plaintiff) and Respondent by Cross-appeal
Appellant (Plaintiff) and Respondent by Cross-appeal
- and -
IAMGOLD INTERNATIONAL AFRICAN MINING GOLD CORPORATION
Sheila R. Block and Kathleen Riggs,
for the Respondent (Defendant) and Appellant by Cross-appeal
Respondent (Defendant) and Appellant by Cross-appeal
Heard: April 15, 2004
On appeal from the judgment of Justice G. Gordon Sedgwick of the Superior Court of Justice, sitting without a jury, dated December 23, 2002 and August 27, 2003, reported at [2002] O.J. No. 5028.
I. OVERVIEW
1This appeal and cross-appeal arise out of a failed reverse take-over transaction contemplated under an amalgamation agreement made in 1990 (the “Agreement”) by the appellant, Kinbauri Gold Corporation, and the shareholders of International African Mining Gold Inc., the predecessors in interest under the Agreement to the respondent, Iamgold International African Mining Gold Corporation (now known as “IAMGOLD Corporation”).
2At the time of the Agreement, Kinbauri was a Canadian mining company whose shares were listed for sale on the Alberta Stock Exchange (the “ASE”). Its main asset was its ASE listing. Iamgold was a private Canadian mining exploration and development company. Its primary asset was a 90% interest in the right to mine gold and other minerals on a property in Mali, West Africa, known as the ‘Sadiola Concession’. This included an area called the ‘Sadiola Hill’ that was thought to contain potentially significant gold deposits (the “Sadiola Hill Deposit”).
3Under the Agreement, Iamgold was to control the amalgamated corporation (“Amalco”): the shareholders of Iamgold would own 97.96%, and the shareholders of Kinbauri would own 2.04%, of the issued and outstanding shares in Amalco at the end of the transaction. Amalco would succeed to Iamgold’s interest in the Sadiola Concession and its shares would be listed for sale on the ASE in the summer or fall of 1991.
4However, in early 1991, Iamgold unilaterally terminated the Agreement, claiming that the ASE’s ‘public float’ requirement – the obligation to ensure a specific minimum percentage of public shareholdings in Amalco – could not be satisfied.
5Kinbauri then sued Iamgold, seeking specific performance of the Agreement or, in the alternative, damages for breach of contract, amongst other relief. Iamgold counter-claimed against Kinbauri, claiming damages for various causes of action.
6In the fall of 1992, while the litigation was pending, Iamgold entered into an options agreement with Anglo American Corporation of South Africa Ltd., one of the world’s largest mining concerns. Under this agreement, Anglo American obtained options, exercisable on certain conditions, to acquire an interest in the Sadiola Concession equal to Iamgold’s interest. Anglo American subsequently exercised its options, assumed responsibility for the financing and development of the Sadiola Hill Deposit and became the operator of the development project.
7On February 28, 1996, Iamgold ‘went public’, making an initial public offering under applicable securities legislation (the “IPO”). A value of $5.75 (Cdn.) per share was placed on Iamgold’s common shares under the IPO. Within the next three months, this share price rose to $6.25 per common share. The IPO had a market value of $404 million (Cdn.) and Iamgold’s shares became listed for sale on the Toronto Stock Exchange (the “TSX”).
8Kinbauri’s action was tried in two phases before Sedgwick J. of the Superior Court of Justice. The first phase concerned liability issues. By judgment dated May 28, 1999, the trial judge held that Iamgold was bound by and had unjustifiably terminated the Agreement. Iamgold’s counterclaim was dismissed. Its subsequent efforts to appeal the liability judgment were unsuccessful.
9The remedies phase of the trial was conducted over 15 days in early 2002. By reasons for judgment dated December 23, 2002, Iamgold was ordered to pay Kinbauri compensatory damages for breach of the Agreement in the sum of $1.7 million (Cdn.), plus pre-judgment interest at the rate of 10% per annum from the date of Iamgold’s breach of the Agreement. A claim by Kinbauri for punitive damages was dismissed.
10The main issue in this proceeding relates to the manner in which the trial judge assessed damages. The trial judge rejected Kinbauri’s assertion that its damages should be assessed according to the value of Iamgold’s shares during the period from late 1993 to March 1996, holding that the critical date for the damages assessment was the date of Iamgold’s breach of the Agreement. He also held that to compute Kinbauri’s damages, it was necessary to consider the value of the underlying assets of Iamgold.
11The trial judge relied on an assets valuation report prepared by Watts, Griffis, and McOuat Limited (“WGM”), Canadian consulting geologists and engineers, in assessing Kinbauri’s damages. This report, prepared in February 1993, addressed the value of Iamgold’s interests in the Sadiola Concession as at December 15, 1992. Based on this report, the trial judge concluded that the value of the Kinbauri shareholders’ 2.04% interest in Amalco at the breach date was $1.79 million (Cdn.). He then reduced these damages to the net sum of $1.7 million (Cdn.) on account of contingencies.
12Kinbauri appeals from the trial judge’s damages assessment, arguing that he erred in failing to apply the principles established in Asamera Oil Corp. Ltd. v. Sea Oil & General Corp., 1978 16 (SCC), [1979] 1 S.C.R. 633 or, in the alternative, in failing to apply an appropriate multiplier to the value of Iamgold’s assets in determining Iamgold’s market value. Kinbauri also asserts that the trial judge erred in reducing its damages on account of contingencies.
13Iamgold cross-appeals from part of the damages assessment. It claims that the trial judge erred in his calculation of an appropriate contingency allowance by failing to allow for the possibility that approval of the amalgamation by Iamgold’s shareholders would have been withheld. It also challenges the rate of pre-judgment interest awarded to Kinbauri.
14For the reasons that follow, I conclude that the trial judge did not err in his assessment of Kinbauri’s damages or in fixing the rate of awarded pre-judgment interest. Accordingly, I would dismiss both the appeal and the cross-appeal.
II. FACTUAL BACKGROUND
(1) Parties and the Agreement
15Kinbauri was incorporated in 1984 under the Canada Business Corporations Act, R.S.C. 1974-75-76, c. 33 (the “CBCA”) (now R.S.C. 1985, c. C-44, S.C. 1994, c. 24). By the late 1980s, it was essentially inactive and its main asset was its ASE listing. It entered into the Agreement with International’s shareholders on February 21, 1990.
16Iamgold was incorporated under the CBCA on March 27, 1990. Iamgold and International’s shareholders were identical, comprising a syndicate controlled by William Pugliese and Mark Nathanson, either personally or through holding corporations controlled by them. By the spring of 1990, Iamgold had assumed the rights and obligations of International’s shareholders under the Agreement and had acquired their interest in the Sadiola Concession.
17The Agreement provided for the following share structure for Amalco: (i) 2,088,109 outstanding common shares in Kinbauri would be converted into a like number of common shares in Amalco; (ii) 100,000,000 common shares in Iamgold, to be issued at the time of the amalgamation, would be converted into a like number of common shares in Amalco; and (iii) 10,000,000 options in Iamgold, also to be issued at the time of the amalgamation, would be converted into a like number of options in Amalco. This structure, once implemented, would effect the reverse take-over of Kinbauri (the public company) by Iamgold (the private company).
18The amalgamation transaction was conditional on the approval of the amalgamation by the directors of Iamgold, the shareholders of Kinbauri and Iamgold, the ASE and the Alberta and Ontario Securities Commissions.
(2) Post-Agreement Events
19Kinbauri notified the ASE of the proposed amalgamation shortly after the execution of the Agreement. As a result, trading in Kinbauri’s shares was halted by the ASE in late February 1990 and suspended the following month pending review of the amalgamation transaction.
20Following Iamgold’s incorporation, Pugliese and Nathanson tightened their control of Iamgold and, prospectively, of Amalco. This was accomplished in several ways:
(a) Pugliese and Nathanson were both officers and direc-tors of Iamgold and companies controlled by them were Iamgold shareholders. On March 27, 1990, the Iamgold shareholders entered into a shareholders agreement (the “Shareholder Agreement”), under which Pugliese and Nathanson were authorized to exercise each of the other Iamgold shareholder’s voting rights at all Iamgold shareholder meetings, including the right to “vote in favour of the proposed amalgamation of [Iamgold] with a publicly listed corporation”;
(b) in May 1990, the Iamgold shareholders entered into a management group agreement (the “Management Agreement”) under which, effectively, voting control on behalf of Iamgold’s shareholders concerning Amalco was transferred to Pugliese and Nathanson, as trustees. The Management Agreement also restricted the ability of Iamgold shareholders to convey to or otherwise deal in their Amalco shares with any persons outside the then existing group of Iamgold share-holders; and
(c) Pugliese and Nathanson increased their personal bene-ficial shareholdings in Iamgold through a series of share acquisitions. By January 1991, Pugliese and Nathanson beneficially owned or controlled more than 76% of the voting shares of Iamgold.
21In mid-February 1991, the ASE notified Kinbauri that the share structure for Amalco proposed under the Agreement might not meet the ASE’s public float requirement, which required that 10% to 15% (or another percentage agreed upon by the ASE) of the total number of issued and outstanding shares of Amalco be freely tradeable and held by public shareholders. On February 26, 1991, Iamgold unilaterally terminated the Agreement, claiming that the ASE’s minimum public float requirement could not be satisfied.
22On July 11, 1991, Kinbauri’s shares were delisted by the ASE. Despite subsequent efforts, Kinbauri was unsuccessful in regaining a listing on the ASE, although it became listed on CDMX, TSX Venture as a Tier 3 company.
(3) Liability Phase of the Trial
23In August 1991, Kinbauri sued Iamgold, seeking a declaration that Iamgold had breached the Agreement and specific performance of the Agreement or, in the alternative, damages in the aggregate amount of $3,050,000. Kinbauri’s pleading was subsequently amended to increase the claimed compensatory damages to $10 million and to include a claim for punitive damages. Iamgold counterclaimed against Kinbauri, seeking the sum of $500,000 as damages for alleged misrepresentation and injurious reliance or, in the alternative, for negligence.
24By judgment dated May 28, 1999, the trial judge granted declarations that the Agreement was binding on and enforceable against Iamgold and that Iamgold had unjustifiably terminated the Agreement. He held that Iamgold had failed to perform its contractual obligation to use its best efforts to comply with the ASE’s public float requirement and that it had used the ASE’s February 1991 non-compliance notice as a pretext upon which to terminate the Agreement, in which it had lost interest. In so doing, Iamgold had acted towards Kinbauri “in questionable good faith”. The trial judge also dismissed Iamgold’s counterclaim and directed that the remedies phase of the trial be conducted following discoveries on the issue of damages. By order dated January 17, 2000, he awarded Kinbauri the costs of the liability phase of the trial, including the costs of the counterclaim proceeding.
25Iamgold’s appeal from this liability judgment was dismissed by this court on November 2, 2000: [2000] O.J. No. 4207. The court also set aside the costs order of the trial judge and directed that the issue of the costs of the liability phase of the trial be deferred until completion of the entire trial. Iamgold’s subsequent leave to appeal application to the Supreme Court of Canada from the liability judgment was dismissed: [2000] S.C.C.A. No. 658.
(4) Entry of Anglo American
26Both prior to and following its termination of the Agreement, Iamgold investigated various means of financing the exploration and development of the Sadiola Hill Deposit, including equity, debt and joint venture opportunities. By 1992, it had been in contact with several major mining companies regarding a possible exploration and development joint venture.
27On October 19, 1992, Anglo American entered into an options agreement with Iamgold under which Anglo American agreed to conduct exploration and evaluation work and to prepare a feasibility study concerning the development of the Sadiola Hill Deposit.
28Anglo American’s feasibility study was completed in December 1993. Thereafter, Anglo American exercised its options and acquired an interest in the Sadiola Concession equal to Iamgold’s interest. It also agreed to finance the Sadiola Hill Deposit develop-ment project and to build and operate the mine site.
29The trial judge found that Anglo American’s entry into the project was unfore-seeable and outside the expectations of the parties when they entered into the Agreement. Kinbauri does not challenge these key findings.
30The involvement of Anglo American brought a seasoned and sophisticated mining company into the evolving Sadiola Concession development project. The trial judge held (at para. 82):
With the entry of Anglo American, an experienced gold mining operator knowledgeable about the African environ-ment, the development of the Sadiola Concession turned the corner.
This finding is also uncontested by Kinbauri.
(5) Iamgold’s IPO
31Iamgold continued to grow its business in the years following the termination of the Agreement. By early 1996, either alone or in combination with others and in addition to its interest in the Sadiola Concession, Iamgold held prospecting licences or interests in mineral exploration rights for gold and other substances on properties in Senegal, Ghana, Guinea and Ecuador. It had also entered into a mineral exploration and development joint venture regarding other properties in West Africa.
32Iamgold made its IPO on February 28, 1996, under which a total of 10.4 million of its common shares were offered for sale, either from treasury or existing shareholders, at a price of $5.75 per share. Iamgold’s prospectus indicated that the TSX had approved the listing of Iamgold’s shares, subject to certain conditions. The IPO established a $404 million (Cdn.) market capitalization cap for Iamgold. In the 90 days following the IPO, Iamgold’s share price increased to $6.25 per share.
(6) Damages Phase of the Trial
(i) Valuation Evidence
33Neither party led evidence at trial concerning the value of Amalco or Iamgold’s assets or shares in 1991, the year in which Amalco’s shares would have been listed for sale on the ASE had the amalgamation proceeded. The valuation evidence that was led at trial is critical to the main issues on Kinbauri’s appeal. It may be briefly summarized as follows.
(a) Klöckner Industrie
34In January 1990, International’s shareholders retained a German company, Klöckner Industrie – Anlagen GmbH, to carry out a gold exploration programme on the Sadiola Concession. Klöckner suggested that the Sadiola Hill Deposit contained approx-imately 5.4 million tonnes of open-pittable mineable reserves in the ‘probable’ category. In November 1990, Klöckner estimated the value of the Sadiola Concession at $60 to $70 million (U.S.).
(b) WGM
35WGM was retained by Iamgold in April 1991 to prepare a preliminary economic assessment of the Sadiola Hill Deposit. It recommended a large mineral exploration programme on the Sadiola Concession. Subsequently, based on 1991-1992 field exploration results, WGM confirmed “the presence of a major and rich gold deposit” and estimated that the area contained a total of 45.8 million tonnes of ‘probable’ and ‘possible’ ore reserves.
36In a report dated February 2, 1993 that was prepared for Iamgold’s “internal corporate planning purposes”, WGM assessed the fair market value of Iamgold’s interest in the Sadiola Concession on December 15, 1992 at $33 to $39 million (Cdn.). This valuation was based on an assumed total tonnage of 45.8 million tonnes of ore and ‘probable’ and ‘possible’ gold reserves of 4.289 million ounces. It also assumed that Anglo American would exercise its options to acquire an interest in the Sadiola Concession, thereby reducing Iamgold’s interest to 40% net of an interest obtained by the government of Mali. However, at the date of the valuation, Iamgold continued to hold a 90% interest in the right to develop the Sadiola Concession. WGM’s calculations, adjusted to account for this 90% interest, produced a value of $74.25 to $87.75 million (Cdn.) for Iamgold’s interest in the Sadiola Concession as at December 1992.
(c) Anglo American
37In its December 1993 feasibility study, Anglo American estimated the net present value of Iamgold’s interest in the Sadiola Hill Deposit at $133.4 million (Cdn.). This was based on projections of 3.7 million ounces of gold, a constant gold price of $350 (U.S.) per ounce and direct cash operating costs of $123 (U.S.) per ounce during the proposed 13 year lifetime of the development project.
(d) Carter
38Kinbauri called Geoffrey S. Carter of Broad Oak Associates as an expert valuation witness at trial. In his valuation report dated December 19, 2001, Carter used five inter-related and overlapping valuation methods to ascertain the fair market value of Iamgold. One of these methods was based on a valuation of Iamgold’s assets, while others focused on the value of Iamgold’s shares.
39Carter testified that he placed the most weight on a ‘market capitalization’ valuation method, which produced a value of $400 million (Cdn.) for Iamgold from late 1993 to mid-1996. This was based on the IPO price of $5.75 per share for Iamgold’s common shares and subsequent trading in those shares at $6.25 per share. Carter also used a ‘discounted cash flow - net present value’ valuation method to estimate Iamgold’s fair market value, which was based on the data and asset valuation contained in Anglo American’s feasibility study. Under this method, Carter placed a value of $333 million (Cdn.) on Iamgold’s interest in the Sadiola Concession in late 1993.
40Carter testified that he valued both the assets and the shares of Iamgold and that “[T]hey effectively are the same in value”. However, he did not undertake a valuation of Iamgold for any of the years 1990 to 1992.
(e) Bogden
41Gordon J. Bogden, a former employee of CIBC Wood Gundy Securities, testified at trial on behalf of Iamgold. He was qualified as an expert witness on international mining finance and related investment banking. Neither Wood Gundy nor Bogden undertook a formal ‘valuation’ of Iamgold or Amalco.
42In his evidence, Bogden outlined numerous risks associated with the proposed development of the Sadiola Concession that caused Wood Gundy to conclude in July 1994 that it was not prepared to act as lead underwriter on an Iamgold public offering. Bogden also testified that in May 1994, gold companies were trading in the Canadian capital markets at a 2.5 times multiple to their net asset value. Wood Gundy applied this multiple in conducting a net present value analysis of the Sadiola Hill Deposit in 1994, which produced a value of $455 million (Cdn.) for Iamgold’s assets as at May 1994.
(ii) Positions of the Parties at Trial
43At trial, Kinbauri claimed compensatory damages for Iamgold’s breach of the Agreement in an amount equal to the 2.04% equity interest in Amalco to which it was entitled under the Agreement. In reliance on Carter’s valuation report, Kinbauri argued that its damages should be calculated on the basis of Iamgold’s $400 million (Cdn.) market capitalization value during the period from late 1993 to mid-1996, rather than at the date of Iamgold’s breach of the Agreement in 1991. Under this approach, Kinbauri’s damages totalled $8.16 million (Cdn.) (2.04% x $400 million (Cdn.)). Kinbauri also claimed the approximate amount of $416,098 for costs and expenses allegedly incurred in connection with the failed amalgamation.
44In contrast, Iamgold maintained that Kinbauri’s damages should be assessed according to the common law relating to the loss of chance, that is, on the basis of Kinbauri’s loss of the chance to complete the amalgamation transaction, calculated at the date of the breach of the Agreement.
(iii) Trial Judge’s Findings
45The trial judge accepted Iamgold’s argument that the calculation of Kinbauri’s damages should be based on the ‘breach date’ – the date when Iamgold wrongfully terminated the Agreement. In assessing Kinbauri’s damages, the trial judge took into account the value of Iamgold’s underlying assets, the reasonable expectations of the parties and the reasonably foreseeable consequences of entering into the Agreement. He concluded (at para. 84):
In my view, it is appropriate in this case to base the assessment of compensatory damages on the fair market value of Iamgold’s interests in the Sadiola Concession according to the WGM valuation [dated February 2, 1993]. Adjusting the WGM valuation to reflect a 90% interest (instead of 40%), the value of the 2.04% interest of the Kinbauri shareholders in Amalco at the date of the breach of [the Agreement] is calculated at $1,790,100.
46Having assessed Kinbauri’s compensatory damages at $1.79 million (Cdn.), the trial judge then applied a 10% contingency allowance to reduce these damages to account for the possible denial of the regulatory approvals of the amalgamation that were required under the Agreement. Consequently, Kinbauri was awarded compensatory damages in the net amount of $1.7 million (Cdn.).
III. ISSUES
47Before this court, both parties challenge aspects of the trial judge’s damages assessment. Kinbauri argues that the trial judge erred: (i) in assessing Kinbauri’s damages at the date of the breach of the Agreement and in using an asset value, instead of a share value approach to the assessment, contrary to the principles established in Asamera, supra; (ii) in the alternative, in basing his damages assessment on WGM’s asset valuation report without applying an appropriate multiplier to determine the market value of Iamgold; and (iii) in reducing Kinbauri’s damages on account of contingencies.
48On its cross-appeal, Iamgold asserts that the trial judge erred: (i) in his calculation of an appropriate contingency allowance by declining to reduce Kinbauri’s damages on account of the possibility that Iamgold shareholder approval of the amalgamation, required under the Agreement, would have been withheld; and (ii) in awarding Kinbauri pre-judgment interest at the rate of 10% per annum without regard to market interest rate fluctuations between 1991 and the date of the damages judgment.
IV. ANALYSIS
(1) Appeal
49Kinbauri’s primary claim is that it is entitled, on a proper assessment, to damages in the sum of $8.16 million (Cdn.) based on the principles enunciated in Asamera, supra, and Carter’s valuation of Iamgold’s fair market value during the period from late 1993 to mid-1996 ($400 million (Cdn.)). In the alternative, it seeks damages in the sum of approximately $6.14 million (Cdn.), calculated on the basis of Anglo American’s December 1993 valuation of Iamgold’s interest in the Sadiola Hill Deposit ($133.4 million (Cdn.)). In the further alternative, it submits that if its damages are to be based on WGM’s asset valuation report, a multiplier of 2.5 should be applied, resulting in a damages award of $4.13 million (Cdn.). These calculations are all subject to Kinbauri’s additional assertion that no contingency allowance should apply in this case. As Kinbauri’s primary damages claim rests on its argument that the trial judge was obliged to follow Asamera in assessing damages, I will consider this argument first.
(i) Asamera Argument
50Asamera involved the failure of a bailee of shares to return the shares to their rightful owner. The value of the shares fluctuated dramatically between the dates of the breach of the bailment contract and trial. The owner of the shares obtained an injunction to restrain the bailee from disposing of the shares and sued the bailee for the return of the shares, as well as damages. Significantly, it also agreed to a request from the bailee that it refrain from pressing its litigation for several years. The Supreme Court of Canada held that the measure of damages was presumptively the value of the shares on the breach date. The court then undertook an analysis of the owner’s duty to mitigate its damages, including whether this duty obliged the owner to ‘crystallize’ its damages by purchasing replacement shares in the market.
51The Supreme Court held that the owner of the shares had a specific duty to crystallize its damages by the acquisition of replacement shares in the market so as to minimize the avoidable losses flowing from the bailee’s deprivation of the owner’s opportunity to market the unreturned shares. The court concluded that, “Such share purchases should have taken place within a reasonable time after the date of breach” (at p. 674). In the circumstances, a reasonable time for the purchase of the replacement shares was approximately 6 years after the breach date, when the owner was free from its agreement not to press its claims against the bailee and when Asamera’s share price had begun to show improvement in the market.
52The trial judge undertook a detailed consideration of Asamera. He concluded that it was of little assistance in this case. He reasoned as follows (at paras. 66 and 67):
The main point of law in Asamera is the application to that case of the proposition…that the owner of shares which a bailee wrongfully fails to return, is not entitled to recover damages based on the value of the shares after a date at which he could reasonably have replaced them in the market. The analysis in Asamera lends itself to a situation in which shares of a publicly traded corporation are involved at every stage. The availability of a market price at all times facilitates the assessment by a court of a plaintiff’s reasonable foreseeable losses for breach of a contract to deliver or redeliver shares and to determine the point in time at which the plaintiff, acting reasonably, could and should have purchased replacement shares. …There was a market price [for Asamera shares]…during the entire course of the litigation between the parties.
I am not persuaded by the submissions of counsel for Kinbauri, however, that a rigid application of the method used to assess damages in Asamera is the appropriate way to assess the compensatory damages of Kinbauri in this case. This case results from an amalgamation transaction which did not proceed because the [Agreement] under which the parties agreed to amalgamation was wrongfully terminated by IAMGOLD. As a consequence, no shares of Amalco were ever issued or listed for public trading as had been the intention of the parties as expressed in the [Agreement]. Prior to the date of repudiation of the [Agreement], there was no discussion between the parties about a price for Amalco shares…There was a relative paucity of evidence led by either party, however, to establish the value of the shares or of the underlying assets of Kinbauri and IAMGOLD at the date of the [Agreement] or of its breach. The analysis followed by the court in Asamera, in which shares of a publicly traded corporation are involved at every stage, simply does not lend itself to this case, in which there is no reliable evidence of the market price of the shares of either Kinbauri or IAMGOLD at the date of the [Agreement] or of its breach [emphasis added].
53The trial judge also recognized the well-established objective of compensatory damages in contract cases (at para. 59):
Compensatory damages for breach of contract are normally measured by the value of the performance of the contract by the defaulting party. The objective is to place the innocent party, insofar as it can be done by money, in the same position as it would have been in if the contract had been performed.
54He was also alive to the limitations on damages recoverable in contract cases, as endorsed by the Supreme Court of Canada in Asamera (at para. 62):
The plaintiff is only entitled to recover that part of its loss that was reasonably foreseeable as a result of the breach at the time the contract was made. The plaintiff is not entitled to recover losses resulting from the breach that were “improbable” or “unpredictable” at the time the contract was made.
55Kinbauri acknowledges that the trial judge correctly identified these fundamental principles, as discussed in Asamera. It argues, however, that the trial judge erred in their application to the facts of this case by failing to follow the approach to the assessment of damages employed in Asamera. In particular, it asserts that the trial judge erred in concluding that damages should be assessed at the date of Iamgold’s breach of the Agreement and in basing his assessment on WGM’s asset valuation report rather than on Amalco’s notional share value.
56Kinbauri makes three main submissions in support of this argument. First, it submits that the trial judge erred in distinguishing Asamera. It claims that the only difference between the facts here and those in Asamera is that Asamera was a public company at the date of the contract and at the date of the contract breach. In this case, but for Iamgold’s wrongful breach of the Agreement, Amalco would have been created and, thereafter, its shares would have had a demonstrable market value. Thus, Kinbauri argues that the Asamera approach to the assessment of damages governs here.
57Next, Kinbauri asserts that the controlling date for the assessment of its damages was not the date of Iamgold’s breach of the Agreement; rather, it was the date when Kinbauri was entitled to the delivery of shares in a publicly traded company that held an interest in the Sadiola Concession, as contemplated under the Agreement. It submits that the first possible date for the delivery of such shares was when the shares came into existence in March 1996, following Iamgold’s IPO. Accordingly, to put Kinbauri back in the position it would have been in but for Iamgold’s breach of the Agreement, Kinbauri submits that the 1996 value of Iamgold’s shares ($400 million according to Carter) is the minimum value on which to calculate Kinbauri’s damages.
58Finally, under the mitigation of damages principles established in Asamera, Kinbauri contends that it had a reasonable time after the breach date within which to mitigate its damages. In the circumstances of this case, Kinbauri’s first opportunity to discharge its mitigation duty, by ‘crystallizing’ its damages through the purchase of replacement shares for its lost Amalco shares, arose in March 1996 when Iamgold’s shares first became available on the public market.
59I am unable to accept these submissions, for the following reasons.
60First, I agree with the trial judge that there are important differences between this case and Asamera. In Asamera, the shares at issue were listed for sale on a public stock exchange at all relevant times. The bailment contract was entered into between two Asamera shareholders. The fact that Asamera was a public company at the date of the breach of the bailment contract and at the time when the owner of the shares was obliged to crystallize its damages, established a foundation for a damages assessment based on share value. In Asamera, regardless of the date at which the damages were to be assessed, this share value was established by evidence of the price for Asamera’s shares as reflected in the trading history of its shares.
61In contrast, in this case, there is no evidentiary footing upon which to calculate contract damages based on share value – for either Amalco or Iamgold – prior to March 1996. Kinbauri led no evidence concerning the value of Amalco’s shares at any time; nor did it lead evidence concerning the value of Iamgold’s shares that was not dependant, under Carter’s preferred valuation method, on the share price established by Iamgold’s 1996 IPO.
62However, the share value established by Iamgold’s IPO pertains to a commercially transformed Iamgold. By 1996, with the committed involvement of Anglo American in the development of the gold deposits in the Sadiola Concession, Iamgold was effectively ‘a different company’ than it was in 1991. The trial judge found that the development project for the Sadiola Concession “turned the corner” once Anglo American became involved. Its involvement with the development project, in a real sense, signalled a sea change in the prospects for gold production in the Sadiola Concession and, hence, in Iamgold’s fortunes. As well, by 1996, Iamgold’s business had grown and it was involved in several commercial ventures in various countries.
63There was also evidence at trial of considerable investor interest in the shares of gold companies in 1996, with the result that the shares of such companies were then trading at a significant premium to their underlying asset value. In contrast, the trial judge accepted Bogden’s uncontradicted evidence that the equity capital markets in Canada in 1990 and 1991 were “virtually moribund” for mining financing proposals.
64The value of Iamgold’s shares in 1996, therefore, cannot be equated with the value of its shares in 1991, the time when the parties agree that Amalco’s shares, but for the breach of the Agreement, would have been available for public trading.
65In addition, and importantly, the Supreme Court of Canada confirmed in Asamera that, as a general rule, in the computation of contract damages the value of the loss is to be determined at the date of the breach of the contract.
66The trial judge in this case recognized that the presumptive date for the assessment of contract damages (the date of the contract breach), may be displaced in appropriate circumstances. He stated (at para. 63): “The normal date of assessment of damages for a breach of contract is the date of the breach. This date is not invariable. In some circum-stances a later date is chosen, although the merit of crystallizing damages at an early date is recognized.”
67The trial judge concluded that the court’s departure in Asamera from the general rule for the assessment of contract damages was driven by the special circumstances of that case. I agree. As this court observed in Hunt v. TD Securities Inc. (2003), 2003 3649 (ON CA), 229 D.L.R. (4th) 609 at 629, the postponement in Asamera of the date of mitigation from the date of the contract breach was occasioned by several special circumstances, including the owner’s litigation forbearance agreement with the bailee, the number of shares in issue, market fluctuations and the time required to arrange the financing and acquisition of replacement shares.
68For example, the Supreme Court stated in Asamera (at pp. 664-65 and 673-75):
Some classes of property, including shares, whose value is subject to sudden and constant fluctuations of unpredictable amplitude, and whose purchase is not lightly entered into, call for a modification of the general rule that the value of the property on the “date of breach” be taken as the starting point for the calculation of damages.
We therefore approach the matter of the proper appraisal of the damages assessable in the peculiar circumstances of this case on the following basis:…that [the owner of the shares] was under the general duty to mitigate its losses and may not escape this duty by relying on the 1960 injunction interminably; that the specific duty to mitigate and to crystallize its claim for damages within a reasonable time of the breach of contract by bringing action seeking appropriate remedies and to prosecute such action with due diligence, was qualified or postponed by [the bailee’s] request of [the owner] sometime prior to 1966 to refrain from enforcing its claims; that any postponement of such requirement to prosecute and to acquire replacement shares had come to an end at the latest on the awareness of [the owner] that the defaulting party was not only in breach of the duty to return the shares but had disposed of shares at least equal in number to those loaned by [the owner]…
The application of these principles and determinations to the particular circumstances in this case requires in my respectful view a determination of the damages payable by [the bailee] on the assumption that [the owner] ought to have crystallized these damages by the acquisition of replacement shares so as to minimize the avoidable losses flowing from the deprivation by [the bailee] of [the owner’s] opportunity to market the 125,000 shares. Such share purchases should have taken place within a reasonable time after the date of breach. Having regard to all the above-noted special circumstances, the time for purchase in my opinion was the fall of 1966 when [the owner] was by its own admission free from any agreed restraint not to press its claims against [the bailee]. It would be unreasonable to impose on [the owner] the burden of going into the market and acquiring replacement shares at a time when the litigation of its claims was in a dormant state at [the bailee’s] request. Furthermore [the owner] acknow-ledged that by the fall of 1966 the fortunes of Asamera had improved and this had begun to be reflected in the market price of its shares. In short, [the owner] is not in my view entitled in law to any compensation for the loss of opportunity to sell its shares after that date. Thereafter its loss of this opportunity is of its own making [emphasis added].
69The type of special circumstances engaged in Asamera are not in play here. To the contrary, in my view, Kinbauri’s damages crystallized when its loss became clear. It knew by February 1991 that Iamgold did not intend to perform its obligations under the Agreement. It also knew, by November 1991 at the latest, that no public company with shares listed for sale on a stock exchange was in existence. In the event, Amalco was never created. Accordingly, no opportunity to purchase replacement shares of the type envisaged by the Agreement existed at any time.
70Kinbauri’s submission that the assessment of its damages should be based on Iamgold’s value during the period from late 1993 to mid-1996 is flawed for an additional, compelling reason. Kinbauri is not entitled to recover damages for losses that were not within the reasonable contemplation of the parties at the time of the execution of the Agreement. The trial judge found as a fact, and Kinbauri concedes in this proceeding, that the entry of Anglo American into the Sadiola Concession development project was unforeseeable. With the involvement of Anglo American, the value of Iamgold’s assets and, ultimately, its shares was materially and unpredictably enhanced.
71In my view, this is fatal to an assessment of damages calculated at any date after October 1992, whether based on the Anglo American study or Carter’s valuation. Simply put, the quantification of Kinbauri’s losses occasioned by Iamgold’s breach cannot reasonably encompass the loss of the opportunity to enjoy an equity interest in a mining company that had unpredictably secured a financing and development joint venture agreement with Anglo American in respect of its major asset.
72Finally, the significance of the evidentiary gaps in this case, which I have previously mentioned, cannot be overemphasized.
73Kinbauri attacks the trial judge’s reliance on WGM’s December 15, 1992 asset valuation on the ground that a damages assessment based on it cannot “come anywhere close” to placing Kinbauri in the position that it would have enjoyed had the Agreement not been breached. Although it is true that no party requested an asset value assessment of damages at trial, neither party led any evidence to establish Amalco or Iamgold’s share value prior to October 1992.
74The ‘share value’ evidence most heavily relied upon by Kinbauri was established by Carter’s testimony at trial and his valuation report. Carter’s opinion of Iamgold’s fair market value was primarily based on his market capitalization analysis. This valuation was driven by the IPO value of Iamgold’s shares in the spring of 1996. However, Bogden pointed out the weaknesses of this approach. He said that, “The market [capitalization] value of a public company does not necessarily reflect its fundamental value, it is a proxy for value…a company can trade at a premium or a discount to its fundamental value, and the purpose of a valuation is to establish that fundamental value or fair market value.” Bogden explained that the market capitalization of a public company may vary “quite dramatically” from the value of the company’s underlying assets.
75Thus, the trial judge was placed in the unenviable position of assessing Kinbauri’s damages in the absence of evidence concerning the value of Iamgold or Amalco’s shares in 1991. Rather, he was faced with share value evidence pertaining to Iamgold, not Amalco, dating from some 5 years after the date of the breach of the Agreement, when Iamgold was fundamentally a different company, that was derived from a share valuation method of questionable reliability. On the record before him, therefore, how was the trial judge reasonably to assess damages?
76Counsel for Kinbauri argues that difficulties in quantifying damages in breach of contract cases do not free a court from the obligation to assess damages to the extent possible on the existing evidentiary record; nor do they justify the denial of damages or the award of only nominal damages unless otherwise warranted: see Eastwalsh Homes Ltd. v. Anatal Developments Ltd. (1993), 1993 3431 (ON CA), 100 D.L.R. (4th) 469 (Ont. C.A.), leave to appeal to the Supreme Court of Canada refused, 104 D.L.R. (4th) vii and Webb & Knapp (Canada) Ltd. v. City of Edmonton (1970), 1970 173 (SCC), 11 D.L.R. (3d) 544 (S.C.C.).
77I agree. However, as this court observed in Eastwalsh, where it is clear that the defendant’s breach has caused loss to the plaintiff (at pp. 483-84):
[I]t is no answer to the claim that the loss is difficult to assess or calculate. The concept of the loss of a chance then begins to operate and the court will estimate the plaintiff’s chance of obtaining a benefit had the contract been performed. But even in this situation, the Supreme Court of Canada has said in Kinkel v. Hyman [1939 7 (SCC), [1939] 4 D.L.R. 1, [1939] S.C.R. 364] that proof of the loss of a mere chance is not enough; the plaintiff must prove that the chance constitutes “some reasonable probability” of realizing “an advantage of some real substantial monetary value”.
78Kinbauri bore the burden of establishing the value of the loss of what it had bargained for – the opportunity to enjoy a 2.04% equity position in a public company that enjoyed an interest in the Sadiola Concession. It lost that opportunity in February 1991, when Iamgold breached the Agreement. Thereafter, there was no market value for Amalco, or any opportunity for Kinbauri to replace its lost shares in Amalco, because Amalco was never created. In these circumstances, in my view, it was incumbent on Kinbauri to demonstrate that there was a reasonable probability that the lost opportunity to enjoy shares in Amalco would have generated “an advantage of some real substantial monetary value” prior to Anglo American’s commitment to the Sadiola Concession development project.
79Kinbauri failed to discharge this burden. The evidence established that there was no market for Iamgold’s shares in 1991. If Amalco had been created, it would have succeeded to Iamgold’s interest in the Sadiola Concession. The trial judge found that, in 1991, the Sadiola Concession was still at an exploratory stage; its ore reserves were classified as ‘probable’, not proven; no feasibility study had been undertaken; there were serious management, development, political and financial risks associated with the project; and the equity capital markets in Canada for mining financing proposals were “virtually moribund”. These findings are unchallenged and amply supported by the evidence.
80Consequently, the value of Amalco’s shares and, indeed, the value of Iamgold’s shares prior to October 1992, was unknown on the record before the trial judge. This court is in no better position than the trial judge to determine the value of such shares in 1991. In contrast, the earliest valuation of Iamgold’s assets was the February 1993 WGM report, which provided an asset valuation as at December 1992. In the absence of relevant share value evidence, the trial judge determined to assess Kinbauri’s damages on the basis of the earliest available valuation evidence – WGM’s asset valuation. In essence, he relied upon this evidence as a proxy for the notional share value of Iamgold or Amalco’s shares prior to October 1992. On the record that confronted the trial judge, this was not unreasonable.
81I conclude that the trial judge’s use of WGM’s valuation of Iamgold’s interest in the Sadiola Concession as at December 1992, and his finding that this evidence was the “best evidence” available concerning the value of Iamgold’s underlying assets, were entirely reasonable, supported by the evidence and consistent with his obligation to assess Kinbauri’s damages on the basis of the case as led before him. Indeed, in my view, no reliable alternative was open to the trial judge on the evidence.
(ii) Multiplier Claim
82Kinbauri argues that the trial judge erred in basing his damages assessment on WGM’s asset valuation report without applying an appropriate multiplier to determine Iamgold’s market value. It submits that the trial judge ignored evidence that the market value of a public company that owns a gold deposit, as reflected by its share price, is based on a multiple of the company’s assets.
83Kinbauri asserts that the appropriate multiplier in this case is 2.5. If this multiplier is applied to WGM’s valuation of Iamgold’s interest in the Sadiola Concession as at December 15, 1992, as adjusted to account for Iamgold’s 90% interest in the Sadiola Concession at that time, it results in a value of $185.63 to $219.38 million (Cdn.) for Iamgold, and a value of about $4.13 million (Cdn.) for Kinbauri’s 2.04% interest.
84Similarly, if a 2.5 multiplier is applied to Anglo American’s $133.4 million (Cdn.) estimate of Iamgold’s net present value in December 1993, it produces a value of approximately $6.8 million (Cdn.) for Kinbauri’s interest.
85In my view, Kinbauri’s claim for the application of a multiplier must be rejected. I say this for several reasons.
86First, I have already concluded that the proper date for the assessment of Kinbauri’s damages was the 1991 date of the breach or, at the latest, November 1991, when the parties agree that Amalco’s shares would have been listed for trading on the ASE if the amalgamation transaction had been completed. However, there was no market for Iamgold’s shares in 1991. Therefore, application of any multiplier has no effect on Iamgold’s 1991 market value.
87Second, there was no evidence at trial concerning an appropriate multiplier for gold companies trading in Canada’s capital markets in 1991 or 1992. Bogden, who confirmed in his testimony that Wood Gundy used a multiplier of 2.5 in arriving at its calculation of the net present value of Iamgold, was clear that this multiplier applied to the trading in securities of gold companies in 1994. He gave no evidence concerning an appropriate multiplier for such companies in 1991 or 1992.
88Similarly, Carter’s testimony and the evidence concerning WGM’s report are of no assistance on this issue. WGM did not utilize a multiplier in its February 1993 valuation report. Although Carter applied a 2.5 multiplier in some of his calculations of Iamgold’s value, this was done to obtain a fair market value for Iamgold commencing in late 1993. Carter did not prepare a valuation of Iamgold for any of the years from 1990 to 1992, under any methodology; nor did he provide evidence of an appropriate multiplier in any of these years.
89Bogden testified that many factors affect whether the securities in a mining company trade at premiums beyond the assessed value of the company. He said that the value of such companies increases or falls at the various stages of initial resource exploration, feasibility studies, examination of financing sources, the obtaining of financing, production completion tests and, ultimately, at the production stage. As well, commodities values affect the trading values of mining securities. For example, according to Bogden, when Iamgold made its IPO in 1996, the market value of mining companies was established by trading at a factor of 3 times net asset value; however, thereafter, these trading premiums were either eliminated or decreased significantly. In effect, therefore, although the securities of mining companies may trade at a premium, it was Bogden’s evidence that a premium or multiplier is neither constant nor assured.
90I agree with Iamgold that, absent evidence concerning an appropriate multiplier in 1991 or 1992, there was no evidentiary foundation for the application of a multiplier in the assessment of Kinbauri’s damages. It was not open to the trial judge to speculate on an appropriate multiplier for 1991 or 1992; nor was it open to him to retrospectively set an appropriate multiplier by extrapolating from the evidence of multipliers used in 1993 or 1994, absent evidence that such multipliers were also appropriate for and in use in 1991 or 1992. Consequently, I am far from persuaded that the trial judge erred by failing to utilize a multiplier, at any level, in his assessment of Kinbauri’s damages.
(iii) Kinbauri’s Contingencies Claim
91The trial judge applied a 10% contingency allowance to reduce Kinbauri’s compensatory damages in recognition of the possible denial of regulatory approvals of the amalgamation. He reasoned as follows (at paras. 69 and 78):
Counsel for IAMGOLD submits that the compensatory damages of Kinbauri should be measured by the common law relating to loss of chance: Chaplin v. Hicks, [1911] 2 K.B. 786 (C.A.). This approach would require an evaluation of the chance of completing the amalgamation transaction upon which Kinbauri and IAMGOLD had agreed in the [Agreement]. This approach is taken where the loss can be shown to be more probable than not, but substantially less than certain. As a result of a breach of contract, a plaintiff may lose the chance of gaining a benefit. The plaintiff can recover damages for loss of the chance even though it is not certain that he would have received the benefit if the contract had been performed. In deciding how much the chance is worth, the court will consider: (1) the number of contingencies on which it depends; and (2) the likelihood of their being satisfied in the plaintiff’s favour. Quantifying the plaintiff’s damages in such a case is necessarily a speculative exercise by the court.
In my view, the only true third party approvals in this transaction were those of the ASE [and the securities commissions]. As to those approvals, the court received the videotape evidence of Gerald Romanzin, an official of the ASE, that the amalgamation would likely have been ap-proved, if the public float requirement were complied with. …In its non-compliance letter dated February 13, 1991, the ASE recognized that the responsibility for resolving the issue of the public float lay in the shareholdings of IAMGOLD in Amalco. …The 2.04% of the shareholdings of Kinbauri’s shareholders in Amalco would clearly constitute 2.04% of the requisite public float. Romanzin also testified that the approval of the ASE was the key regulatory approval. If obtained, the regulatory approvals of the [securities commissions] would have followed. His evidence on this point was confirmed by both expert legal witnesses at the damages segment of this trial. I would assess the likelihood of these third party regulatory approvals being obtained at 90%, if the [Agreement] had not been breached by IAMGOLD.
92Kinbauri argues that a finding of any risk of the denial of the requisite regulatory approvals is not supported by the evidence. It also contends that a contingency allowance for third party regulatory approvals for a securities exchange listing, “even if justified”, has no application under the asset value approach to the assessment of damages utilized by the trial judge. I disagree.
93The courts have recognized the application of a contingency allowance to the calculation of damages in breach of contract cases where performance of the contract may have been prevented, notwithstanding the wrongdoer’s breach, by some other intervening factor. Where the plaintiff establishes that its loss was caused by the defendant’s breach of contract, but is unable to prove loss of a definite benefit, demonstrating only the ‘chance’ of receiving a benefit had the contract been performed, the courts will discount the value of the chance by the improbability of its occurrence: see Eastwalsh, supra; Chaplin, supra; Webb & Knapp (Canada) Ltd., supra; and Multi-Malls Inc. v. Tex-Mall Properties Ltd. (1980), 1981 1780 (ON CA), 108 D.L.R. (3d) 399, affirmed 1981 3012 (ON CA), 128 D.L.R. (3d) 192 (C.A.), leave to appeal to the Supreme Court of Canada refused [1982] 1 S.C.R. xiii.
94In this case, Iamgold’s contract breach was established during the liability phase of the trial. Kinbauri bore the onus of demonstrating its loss. The trial judge found that the amalgamation was conditional upon approval by the ASE and the applicable securities commissions. On these facts, unless it can be said that there was virtually no realistic chance that the requisite regulatory approvals would be denied, the application of a contingency allowance cannot be said to be inappropriate.
95The trial judge was clearly of the view that there was some material chance that the approval of the amalgamation by the ASE and, correspondingly, of the securities commissions, would not be forthcoming. He discounted Kinbauri’s lost opportunity of enjoying an equity interest in Amalco by taking into account the improbability of ASE approval of the amalgamation. He found that this improbability was low (10%). I see no overriding and palpable error in this finding, as is required to support appellate inter-vention.
96The ASE’s approval of the amalgamation was dependant upon satisfaction of its public float requirement. The evidence at trial indicated that this could have been achieved by Iamgold in several different ways. Compliance with the requirement was in the control of Iamgold and its shareholders. The manner of its compliance, however, still required ASE scrutiny and approval. It is not suggested that the ASE’s approval of the amalgamation was guaranteed, regardless of the method by which Iamgold might have sought to achieve compliance with the public float requirement.
97Kinbauri’s corporate solicitor testified that it “would probably take a couple of months” to satisfy the ASE, assuming that the necessary documentation was filed with the ASE as a package. She later clarified that a period of 4 to 6 months would have been required. However, Kinbauri’s solicitor was not asked and did not suggest that ASE approval was a virtual certainty following the submission to the ASE of the necessary documentation.
98Nor did the evidence of Gerald Romanzin, a representative of the ASE, indicate that ASE approval would follow automatically if Iamgold sought to satisfy the public float requirement. He said that ASE approval “likely” would have been forthcoming if the public float requirement was met.
99Based on this evidence, the probability of obtaining ASE approval of the amalgamation was high – but not absolute. There remained some degree of uncertainty. This evidence supports the trial judge’s application of a contingency allowance. Kinbauri does not challenge his selection of 10% as the appropriate contingency percentage.
100Finally, although Kinbauri also argues that the imposition of any contingency allowance was misplaced where the trial judge’s damages assessment was based on Iamgold’s underlying assets rather than on its share value, it advanced no authority in support of this proposition. In my view, there is no principled basis upon which to conclude that the application of the law relating to loss of chance in the assessment of contract damages should be so restricted.
(2) Cross-appeal
(i) Iamgold’s Contingencies Claim
101Iamgold asserts that the trial judge erred in his calculation of the contingency allowance in failing to include a discount to reflect the possibility that approval of the amalgamation by Iamgold’s shareholders would have been withheld and in concluding that the only “true third party approvals” required in the reverse take-over transaction were those of the ASE and the involved securities commissions. In essence, Iamgold urges the application of a higher contingency allowance.
102In my view, on the record before the trial judge and in the face of his unchallenged factual findings, the trial judge’s rejection of this claim is unassailable.
103The trial judge made the following findings in his reasons for judgment dated December 23, 2002 (at paras. 76 and 77):
On the evidence at both segments of the trial, at all material times IAMGOLD was completely in the grip of its two major shareholders, Nathanson and Pugliese. Between them, they owned or controlled through their personal corporations Marzen and Fundeco, more than 76% of the voting shares of IAMGOLD on January 7, 1991. …Through the Shareholder Agreement and accompanying powers of attorney, they voted 100% of the shares of IAMGOLD. Those documents specif-ically empowered them “to vote in favour of the proposed amalgamation of the Corporation with a publicly listed corporation”. …The Shareholders Agreement became effective as of the date of incorporation of IAMGOLD, on March 27, 1990. Under the Management Group Agreement dated as of May 31, 1990, and accompanying powers of attorney, Nathanson and Pugliese would have exercised similar rights to vote all of the shares of Amalco to be held by the former shareholders of IAMGOLD.
Most items submitted to the court as “third party” approvals by IAMGOLD’s counsel are standard legal requirements for approvals by the directors and shareholders of IAMGOLD and Kinbauri to carry out the amalgamation transaction in accordance with the [Agreement]. In some cases, the actions of directors and shareholders of a corporation may be unpredictable and lead to uncertainty about the result. This case is not one of them. It is not seriously questioned that the directors and shareholders of Kinbauri would have approved the amalgamation. At the damages segment of the trial, both Nathanson and Pugliese testified that they would have voted against the amalgamation. This is self-serving testimony after the fact. On August 14, 1990, on the letterhead of IAMGOLD, they gave formal written assurances to Rampton of “the intention of IAMGOLD to complete the amalgamation in accordance the [Agreement]”. … At that time, they were specifically authorized under the Shareholder Agreement to vote all of the shares of the other shareholders of IAMGOLD in favour of the amalgamation. It was in their power to decide whether to go ahead with the amalgamation or not.
104These findings are fatal to Iamgold’s contingencies claim. Although the trial judge did not expressly state that Pugliese and Nathanson were obliged to vote in favour of the amalgamation, Pugliese and Nathanson’s conduct, in their capacities as both directors and shareholders of Iamgold, indicates that they were committed to vote to approve the amalgamation.
105Pugliese and Nathanson, on behalf of their respective holding companies through which they held shares in Iamgold, signed the Shareholder Agreement, under which each Iamgold shareholder appointed Pugliese and Nathanson as his or its attorney and expressly agreed that, “such powers of attorney shall be exercised to vote in favour of the proposed amalgamation of [Iamgold] with a publicly listed corporation [Kinbauri] [emphasis added]”. In this manner, Pugliese and Nathanson committed to exercise their powers of attorney and the other shareholders of Iamgold directed that their voting rights attaching to their Iamgold shares be cast in favour of the amalgamation.
106The trial judge held that the Shareholder Agreement and accompanying powers of attorney “empowered” Pugliese and Nathanson to vote in favour of the amalgamation. In fact, these documents required them so to do. Moreover, little purpose would be achieved in obtaining this direction from the other Iamgold shareholders if Pugliese and Nathanson, the controlling shareholders of Iamgold, were not themselves intent on approving the amalgamation.
107As well, the May 1990 Management Agreement entered into by all the shareholders of Iamgold provided Pugliese and Nathanson with powers of attorney to exercise the voting rights attaching to Amalco shares at all Amalco shareholders’ meetings after the amalgamation took place. This grant of authority effectively placed control of 98% of the voting shares of Amalco with Pugliese and Nathanson. Once again, if any real possibility existed that the amalgamation would not be approved by Iamgold’s shareholders, these authorizations, which followed on the voting direction and authorization contained in the Shareholder Agreement, would serve little meaningful purpose.
108Thereafter, by written resolution dated June 22, 1990, the directors of Iamgold approved the amalgamation in principle. This resolution was accompanied by a confirmation from the Iamgold shareholders, including Pugliese and Nathanson through their respective holding companies, by which the shareholders “confirmed, ratified and approved” the directors’ resolution.
109On August 14, 1990, Pugliese and Nathanson wrote to the president of Kinbauri confirming Iamgold’s intention to complete the amalgamation in accordance with the Agreement and indicating that “time shall be of the essence”. There was no indication in this letter that Pugliese and Nathanson were offering this assurance only in their capacities as directors of Iamgold and that they were reserving the right, as the controlling shareholders of Iamgold, to effect a diametrically different result.
110By this conduct, Pugliese and Nathanson both indicated their intent to proceed with the amalgamation and took steps to ensure their legal ability to effect the approval of the amalgamation by the other Iamgold shareholders. All these activities took place before the delivery of the ASE’s preliminary non-compliance notice in February 1991. Thus, any possibility that Pugliese and Nathanson would not approve the amalgamation flowed from the implications of the public float requirement referenced in the ASE’s non-compliance notice. This court, in dismissing Iamgold’s appeal from the liability judgment, stated:
The trial judge made two crucial findings, based on credibility. First, several principals of the appellant were aware of the public float requirement at the time the [Agreement] was signed. Second, compliance with the public float requirement was not a difficult problem and the appellant could have done so in a number of possible ways.
The trial judge further found that the appellant made no effort to satisfy its contractual obligation and that by its own actions (the Shareholders Agreement and the Management Group Agreement which it failed to disclose) the appellant made compliance with the public float requirement impossible.
We see no merit in the appellant’s argument that there was no contract until the shareholders’ approval had been given. The directors controlled 98% of the shares. In the end, the trial judge concluded that the appellant was not justified in unilaterally terminating the [Agreement] which, for other business reasons, was no longer in its corporate interests. The appellant had acted towards the respondent in questionable good faith [emphasis added].
The same reasoning applies to Iamgold’s contingencies claim.
111Finally, Iamgold maintains that Pugliese and Nathanson’s only obligation to vote in favour of the amalgamation arose from their role as directors, rather than as shareholders of Iamgold and that, in the latter capacity, they were free to vote as they wished.
112On the record before this court, these submissions cannot succeed. The only evidence at trial that Iamgold shareholder approval would not have been forthcoming was the testimony of Pugliese and Nathanson, both of whom asserted that they would have withheld their approval of the amalgamation after learning of the ASE’s public float requirement. The trial judge considered and rejected this evidence, as he was entitled to do, describing it as “self-serving testimony after the fact”. He found, essentially, that these assertions were claims made to advance Pugliese and Nathanson’s litigation interests. This finding flowed from his assessment of Pugliese and Nathanson’s cred-ibility on this issue and was open to the trial judge on the evidence. Accordingly, it attracts considerable deference from this court.
113On the findings of the trial judge, shareholder approval of the amalgamation was anticipated and assured, but for Iamgold’s wrongful termination of the Agreement. It is not open to Iamgold to seek to reduce Kinbauri’s damages in reliance on the possibility of non-compliance with a condition to the amalgamation, the satisfaction of which, throughout, was entirely within Pugliese and Nathanson’s control and authority.
(ii) Pre-judgment Interest Rate
114The trial judge’s reasons in support of his award of pre-judgment interest to Kinbauri are briefly set out (at para. 89):
Kinbauri is entitled to prejudgment interest on the amount of its compensatory damages…calculated in accordance with sections 127 and 128 of the Courts of Justice Act. This action was commenced on August 27, 1991. Under ss. 127(1), the applicable annual rate of prejudgment [sic] interest appears to be 10%. I see no reason to vary the applicable annual rate of interest.
115Kinbauri’s action against Iamgold was commenced on August 27, 1991. Iamgold’s breach of the Agreement occurred in February 1991. The trial judge’s reasons for judgment concerning the damages phase of the trial were released more than ten years later, on December 23, 2002. It is not contested that 10% was the highest rate of annual interest during the 10-year period between the date of the commencement of Kinbauri’s action and the date of the trial judge’s decision. Indeed, the applicable interest rate during this 10-year period was volatile, reaching as low as 2.3%. The average interest rate during this period was 5.6%.
116Iamgold argues that the trial judge erred in failing to consider the fluctuations in the applicable market interest rates during the 10 years following the commencement of Kinbauri’s action. It submits that the award of pre-judgment interest at the rate of 10% per annum, notwithstanding these fluctuations, is punitive and not rationally connected to the actual interest rates that prevailed over the relevant period. Kinbauri, in turn, asserts that the awarded rate of pre-judgment interest is a matter of discretion for the trial judge and that, absent any demonstration that the trial judge proceeded on an erroneous principle of law, there is no basis for appellate intervention. I agree with Kinbauri’s submission.
117Section 128(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43 (the “CJA”) provides that a person who is entitled to an order for the payment of money is also entitled to an award of interest thereon at the pre-judgment interest rate, “calculated from the date the cause of action arose to the date of the order”. The applicable pre-judgment interest rate is established by s. 127 of the CJA. In February 1991, the applicable rate was 10% per annum.
118Section 130(1) of the CJA authorizes a court, in its discretion and where it considers it just, to disallow pre-judgment interest, to allow pre-judgment interest at a rate higher or lower than that provided in s. 128, or to allow interest for a period other than that provided in s. 128. By s. 130(2) of the CJA, the court is obliged to consider various enumerated factors, including “changes in market interest rates”, when exercising its discretion under s. 130(1).
119Although the trial judge did not expressly refer to s. 130 of the CJA, he stated: “I see no reason to vary the applicable annual rate of interest.” Thus, he explicitly recog-nized his authority to vary the pre-judgment interest rate that applied under ss. 127 and 128 of the CJA. Trial judges are presumed to know the law. It cannot be inferred, therefore, that the trial judge failed to direct himself to the factors outlined in s. 130(2) when exercising his discretion under s. 130(1).
120This court has recognized that the legislature’s policy in providing for the payment of pre-judgment interest is intended to encourage early settlements and the timely compromise of litigation: see, for example, Spencer v. Rosati (1985), 1985 2032 (ON CA), 50 O.R. (2d) 661 (C.A.) at 665 and Borland v. Muttersbach, 1985 2134 (ON CA), [1986] 53 O.R. (2d) 129 (C.A.) at 145. In this case, the awarded rate of interest of 10% was 4.4% higher than the average rate of interest that prevailed during the relevant period. The possibility that the trial judge would award pre-judgment interest in accordance with s. 128 at the rate applicable at the time of Iamgold’s breach of the Agreement was a risk of the damages assessment litigation from the outset, especially where, as here, the trial judge had already concluded that Iamgold had wrongfully breached the Agreement and that it had acted in questionable good faith.
121In the result, I see no error in the trial judge’s discretionary award of the rate of pre-judgment interest and would not interfere with it.
V. DISPOSITION
122Accordingly, for the reasons given, I would dismiss the appeal and the cross-appeal. As success in this proceeding has been divided, I would make no award of costs.
RELEASED:
“NOV 10 2004”
“JL” “E.A. Cronk J.A.”
“I agree Janet Simmons J.A.”
123I have had the benefit of reading Cronk J.A.’s reasons. I, too, would dismiss Kinbauri’s appeal and IAMGOLD’s cross-appeal. I agree with my colleague’s analysis of the issues on the cross-appeal. I write these brief concurring reasons because I take a different approach to the issues on Kinbauri’s appeal.
124Kinbauri’s appeal rests on two related submissions: the trial judge erred by choosing both the wrong date and the wrong yardstick to assess Kinbauri’s damages. The trial judge assessed Kinbauri’s damages at the date its contract was breached (February 1991); Kinbauri contends that its damages should have been assessed at a later date, ideally in March 1996 when IAMGOLD’s shares were publicly listed on the TSX. Furthermore, the trial judge measured Kinbauri’s damages in an amount equal to 2.04 per cent of the value of IAMGOLD’s interest in the Sadiola Concession. Kinbauri contends that its damages should have been measured in an amount equal to what it bargained for: 2.04 per cent of the value of the shares of Amalco.
i. Date for assessment
125As Cronk J.A. points out, damages for breach of contract are generally assessed at the date of breach. An early crystallization of the plaintiff’s damages promotes efficient behaviour: the litigants become as free as possible to conduct their affairs as they see fit. Early crystallization also avoids speculation: the plaintiff is precluded from speculating at the defendant’s expense by reaping the benefits of an increase in the value of the goods in question without bearing any risk of loss. See S.M. Waddams, The Law of Damages 4th ed. (Toronto: Canada Law Book Inc., 2004) at paras. 1.670-1.680.
126A court may, however, depart from the general rule when it is in the interests of justice to do so. See Johnson v. Agnew, [1980] A.C. 367 (H.L.) and Asamera, supra. This case presents one example where departing from the general rule may be in the interests of justice because no market existed to replace the undelivered shares at the date of breach. It is on the significance of the absence of a market that I differ from my colleague. Cronk J.A. suggests that the absence of a market is a reason why damages should be assessed at the date of breach or shortly afterwards. In my view, the absence of a market is a reason why the date of assessment may be postponed for a reasonable period after the date of breach.
127In a contract for the delivery of shares, an early crystallization of the plaintiff’s damages is tied to the plaintiff’s ability to replace the shares or to purchase a reasonable substitute in the market. Thus, assessing the plaintiff’s damages at the date of the defendant’s breach is generally appropriate because on the date of the non-delivery of the shares the plaintiff has a reasonable opportunity to go into the market and replace the shares promised to it. As Asamera shows, even where a market to replace the shares existed at the date of breach, special circumstances may justify postponing the date of assessment for several years beyond the date of breach. See Waddams, supra, at paras. 1.760-1.840; J. & E. Hall v. Barclay, [1937] 3 All E.R. 620 (C.A.); and Bwllfa and Merthyr Dare Steam Collieries (1891), Ltd. v. Pontypridd Waterworks Co., [1903] A.C. 426 (H.L.).
128Where, however, on the date of breach, no market to replace the shares existed at all, I see a greater justification for postponing the date of assessment. Here, where IAMGOLD defaulted on its promise to amalgamate and, therefore, on its promise to deliver to Kinbauri 2.04 per cent of the shares of Amalco, no market existed for Kinbauri to replace those shares or to purchase a reasonable substitute. In my view, Kinbauri was entitled to wait a reasonable period before crystallizing its damages. It was just in all of the circumstances that it be permitted to do so. I would fix two years as the outside limit of a reasonable period. Therefore, if, for example, within two years of the date of breach IAMGOLD had effected a similar reverse takeover of another dormant public company, Kinbauri may have been entitled to measure its damages by the share value of this new public company.
129However, in this appeal, Kinbauri seeks to extend the date for assessment into the period from 1993-1996 and to quantify its damages either by reference to the value of IAMGOLD’s shares on the TSX in 1996 or by the use of a multiplier. My problem with Kinbauri’s position is threefold. First, extending the date for assessment beyond two years from the date of breach does not seem to be reasonable. Second, as Cronk J.A. points out, Kinbauri led no evidence of an appropriate multiplier for gold mining companies during the period of February 1991 to February 1993. Third, as Cronk J.A. also points out, on the findings of the trial judge, Anglo-American’s participation – which led to IAMGOLD’s initial public offering in early 1996 – was not contemplated by Kinbauri and IAMGOLD when they signed their amalgamation agreement. Therefore, in my opinion, at most Kinbauri was entitled to postpone the date for assessment of its damages until February 1993, two years after the date of breach.
ii. The yardstick
130Kinbauri also takes issue with the trial judge’s use of asset values to assess its damages. As it did for a later period, Kinbauri could have led evidence of the notional value of Amalco or of an appropriate multiplier in February 1993. But it did not do so. Therefore, even if I am justified in postponing the date of assessment until February 1993 I have no better evidence to measure Kinbauri’s damages than did the trial judge. The only relevant evidence up to that date was WGM’s December 15, 1992, asset evaluation. Thus, the trial judge cannot be faulted for relying on this evaluation for assessing Kinbauri’s damages.
131The trial judge appreciated that Kinbauri bargained for 2.04 per cent of the equity of a public company holding IAMGOLD’s interest in the Sadiola Concession, not merely 2.04 per cent of IAMGOLD’s interest in the Concession itself. However, as he had no expert evidence of the value of Kinbauri’s notional equity interest, he used 2.04 per cent of the value of the underlying asset as a proxy for the equity interest. That he did so is evident from para. 67 of his reasons.
From the evidence at both segments of this trial, it is clear that the main contribution which Kinbauri was making to the intended amalgamation was the intangible asset of its status as a public company and its listing on the ASE. The main asset which IAMGOLD was bringing, was its interest in the Sadiola Concession. There was a relative paucity of evidence led by either party, however, to establish the value of the shares or of the underlying assets of Kinbauri and IAMGOLD at the date of the value of the shares or of the underlying assets of Kinbauri and IAMGOLD at the date of the Contract or of its breach. The analysis followed by the court in Asamera, in which shares of a publicly traded corporation are involved at every stage, simply does not lend itself to this case, in which there is no reliable evidence of the market price of the shares of either Kinbauri or IAMGOLD at the date of the Contract or of its breach. In this case, it will be necessary to consider the value of the underlying assets on the material available, for the purpose of determining any compensatory damages for Kinbauri.
132In the light of the limited evidence available to measure Kinbauri’s damages at the date of breach (February 1991) or at the date Amalco was to be listed on the ASE (November 1991) or even two years after the date of breach (February 1993), the trial judge did not err in relying on the WGM report to assess Kinbauri’s damages.
iii. The ten per cent contingency discount
133As Cronk J.A. notes, the issue here is not the amount of the discount but whether the trial judge should have applied any discount at all. The trial judge reduced Kinbauri’s damages by ten per cent to account for the possibility that the ASE would not approve the amalgamation.
134At first blush it seems anomalous to discount Kinbauri’s damages because of the possibility IAMGOLD would not obtain regulatory approval. The trial judge measured Kinbauri’s damages not on the basis of an equity interest in a public company, but on the basis of an asset valuation report. The contingency discount is acceptable, however, because the asset valuation stood as a proxy for Kinbauri’s equity interest.
135I would dismiss the appeal and the cross-appeal.
“John Laskin J.A.”
