CITATION: St. Andrew Goldfields Ltd. v. Newmont Canada Limited, 2011 ONCA 377
DATE: 20110513
DOCKET: C50925
COURT OF APPEAL FOR ONTARIO
Cronk, MacFarland and Rouleau JJ.A.
BETWEEN
St. Andrew Goldfields Ltd.
Applicant/Respondent in Appeal
and
Newmont Canada Limited (now Newmont Canada Corporation), Barrick Gold Corporation, Royal Gold, Inc. and RGLD Gold Canada, Inc.
Respondents/Appellant/Respondents in Appeal: Royal Gold, Inc. and RGLD Gold Canada, Inc.
Jessica Kimmel and Daniel Cappe, for the appellant Newmont Canada Limited (now Newmont Canada Corporation)
Peter Wells and Rosamaria Longo, for the respondent St. Andrew Goldfields Ltd.
David I.W. Hamer and Junior Sirivar, for the respondents Royal Gold, Inc. and RGLD Gold Canada, Inc.
Heard: March 28, 2011
On appeal from the judgment of Justice Lois B. Roberts of the Superior Court of Justice dated July 23, 2009, with reasons reported at 2009 ONSC 40549, [2009] O.J. No. 3266.
Rouleau J.A.:
[1] Newmont Canada Limited (now Newmont Canada Corporation) (“Newmont Canada”) appeals those portions of the trial judgment granting declaratory relief limiting the obligation of St. Andrew Goldfields Ltd. (“St. Andrew”) to indemnify Newmont Canada for all royalties payable pursuant to a net smelter return (“NSR”) royalty agreement with Barrick Gold Corporation (“Barrick”) and its successors and assigns Royal Gold, Inc. and RGLD Gold Canada, Inc. The trial judge found that St. Andrew’s indemnification obligation was limited to a flat rate of 0.013% NSR, the amount indicated in the various schedules to the agreements negotiated between St. Andrew and Newmont Canada for the purchase of the Holloway-Holt Gold Camp. Newmont Canada remained responsible for the NSR royalty payments to Barrick and its successors and assigns in respect of the Holloway-Holt Gold Camp over and above the 0.013% NSR.
FACTS
[2] In the fall of 2004, Newmont Canada and Barrick completed the purchase by Newmont Canada of the Holt-McDermott mine, mill and mill-related facilities in northern Ontario. As part of this transaction, Newmont Canada entered into an NSR royalty agreement with Barrick which required Newmont Canada to pay Barrick or its assigns royalties on the NSR for mineral produced at the mine.
[3] The Barrick royalty agreement provided that Newmont Canada would remain liable under the Barrick royalty agreement unless it obtained an assumption agreement from the transferee of the obligations under the Barrick royalty agreement and Barrick approved of this transfer.
[4] As found by the trial judge, Newmont Canada had misread the provisions in the Barrick royalty agreement, erroneously believing that the royalty was an insignificant flat rate of 0.013% NSR. In fact, it was a sliding scale royalty obligation that increased substantially as the price of gold increased. Believing that the low 0.013% NSR was an error on Barrick’s part, Newmont Canada did not question Barrick on the provision nor did it seek to modify or change the clause.
[5] Through the purchase, Newmont Canada consolidated existing adjacent landholdings with the Holt-McDermott mine to create the Holloway-Holt Gold Camp. On August 11, 2006, in anticipation of selling the Holloway-Holt Gold Camp, including the Holt-McDermott Mine, to St. Andrew, Newmont Canada transferred all the assets and liabilities of the Holt-McDermott mine to one of its subsidiaries, Holloway Mining Company (“Holloway”). Although the transfer to Holloway was stated to be of all the assets and liabilities of the Holt-McDermott mine, including the Barrick royalty agreement, Barrick’s approval for an assignment of the Barrick royalty agreement was not sought. Instead, the agreements between Holloway and Newmont Canada provided that Holloway would indemnify Newmont Canada for its royalty obligations to Barrick pursuant to the Barrick royalty agreement. However, because Newmont Canada was still operating under the misapprehension that the Barrick royalty agreement obligation was only 0.013% NSR, every reference in the schedules attached to the agreements between Newmont Canada and Holloway stipulated that the royalty obligation was 0.013% NSR.
[6] In the fall of 2006, Newmont Canada, St. Andrew and Holloway concluded the purchase by St. Andrew of the Holloway-Holt Gold Camp. The purchase was effected by St. Andrew purchasing all the shares of Holloway from Newmont Canada. This was followed by the amalgamation of St. Andrew and Holloway. As with the earlier transfer to Holloway, Newmont Canada did not seek to assign the Barrick royalty agreement to St. Andrew and did not seek Barrick’s approval for the transaction. Instead, Newmont Canada chose to enter into an indemnity agreement whereby St. Andrew agreed to indemnify Newmont Canada for its royalty obligation pursuant to the Barrick royalty agreement.
[7] Once again, because Newmont Canada was still operating under the erroneous belief that the royalty obligation under the Barrick royalty agreement was the flat rate of 0.013% NSR, all the documentation between Newmont Canada, Holloway and St. Andrew stipulated that the amount of the Barrick royalty obligation, the obligation St. Andrew agreed to indemnify, was 0.013% NSR. None of the parties knew, at that time, that the royalty obligation under the Barrick royalty agreement was in fact substantially greater.
[8] In the fall of 2008, Barrick gave notice to Newmont Canada that it intended to sell its interest in the Barrick royalty agreement to Royal Gold, Inc. It is at this point that Newmont Canada and St. Andrew discovered that the Barrick royalty agreement in fact provided for a NSR royalty rate substantially greater than a flat rate of 0.013% NSR.
[9] St. Andrew then brought the present application seeking to have the rights and obligations of the parties pursuant to the various contracts determined. Over the course of several case conferences, the parties came to an agreement to have the matter proceed by way of a trial of seven issues. As the parties had agreed to limit the issues, the trial judge restricted her analysis to these seven issues. The issues as between Newmont Canada and St. Andrew involved the correct interpretation of the agreements and neither party took the position that the agreements were void or unenforceable.
[10] At the conclusion of the trial, the court ruled in favour of St. Andrew, concluding in part that:
Newmont Canada was the party that was directly responsible to Barrick and its assigns for the performance of the Barrick royalty agreement, including payment of the NSR royalty specified therein; and
St. Andrew was only required to indemnify Newmont Canada for the fixed royalty amount of 0.013% NSR stipulated in the various agreements entered into between them.
[11] Newmont Canada does not appeal the first finding. The issue on appeal is the correctness of the second finding—that is, whether St. Andrew’s indemnity obligation is limited as found by the trial judge or, as alleged by Newmont Canada, covers all royalty payments Newmont Canada is required to make under the Barrick royalty agreement.
[12] Newmont Canada argues that the trial judge erred in her interpretation of the agreements and failed to identify and give effect to their true commercial purpose and intent. Had she done so, she would have concluded that the indemnity obligation of St. Andrew encompassed all royalties payable under the Barrick royalty agreement, notwithstanding the fact that the various schedules to the agreements erroneously stated that the royalty obligation under the Barrick royalty agreement was 0.013% NSR.
ISSUES
[13] The questions to be resolved are as follows:
i) Did the trial judge err in concluding that St. Andrew’s indemnity obligation to Newmont Canada was limited to the flat rate of 0.013% NSR as stipulated in the various schedules to the agreements rather than the royalty obligation specified in the Barrick royalty agreement itself?
ii) Did the trial judge err in failing to consider that, by amalgamating with Holloway, St. Andrew became responsible for all of Holloway’s obligations including the obligation to indemnify Newmont Canada for all royalty payments made pursuant to the Barrick royalty agreement?
ANALYSIS
1) Was the indemnity obligation limited to 0.013% NSR?
[14] Newmont Canada argues that on a proper reading of the contracts and the clear expression of intention of the parties, both the assumption of liability and indemnity obligations of St. Andrew encompass all the royalty amounts payable under the Barrick royalty agreement. This is so notwithstanding the fact that certain schedules to the agreements erroneously described the Barrick royalty obligation as being 0.013% NSR.
[15] In essence, Newmont Canada argues that in transactions of this nature—a sale of a mine—it would be understood that performance of all obligations related to the mine, including the Barrick royalty agreement, would transfer with the mining assets. The parties would clearly have intended that Newmont Canada divest itself of all assets and obligations associated with the Holloway-Holt Gold Camp and that St. Andrew acquire these same assets and liabilities.
[16] In support of this interpretation, Newmont Canada relies on various provisions in the agreements between St. Andrew, Holloway and Newmont Canada whereby St. Andrew agreed to assume the liabilities flowing from contracts that were listed in a schedule to each agreement. One of the contracts listed in these schedules is the Barrick royalty agreement. Newmont Canada argues that, in determining St. Andrew’s indemnity obligation, the terms of the Barrick royalty agreement should take precedence over the description of the Barrick royalty obligation as being 0.013% NSR.
[17] In Newmont Canada’s view, the various references to the royalty obligation being limited to 0.013% NSR were no more than representations, albeit made in error, and did not detract from the true intention of the parties, which was that St. Andrew was assuming all of Newmont Canada’s obligations under the Barrick royalty agreement.
[18] I disagree. From the testimony of the parties it is apparent that the extent of a party’s royalty obligations is usually an important component of any sale of mining assets. All the documents detailing the sale of the Holloway-Holt Gold Camp to St. Andrew specified that the royalty payable pursuant to the Barrick royalty agreement was a flat rate of 0.013% NSR. This 0.013% NSR royalty was the Newmont Canada royalty obligation that St. Andrew agreed to indemnify. As representatives of Newmont Canada testified, at the time they believed that the royalty rate in the Barrick royalty agreement was in fact only 0.013% NSR. They therefore believed the description in the agreement to be accurate.
[19] As noted by the trial judge, all the witnesses, including the expert witnesses, considered the 0.013% NSR to be a royalty rate so low as to be “insignificant and not worth investigating”. In other words, the balance of the provisions of the Barrick royalty agreement was of no consequence. Once the rate and type of royalty was known, little else that was contained in the royalty agreement was of much significance. This contrasts with the evidence that the actual rate stipulated in the Barrick royalty agreement would lead to very substantial royalty payments, particularly with the current high price of gold.
[20] Although the Barrick royalty agreement was one of the agreements listed in a schedule to the purchase agreement between St. Andrew, Holloway and Newmont Canada, the Barrick royalty agreement was not appended to the purchase agreement nor to any of the contracts that documented the transaction. Further, despite having requested copies of all the documents referred to in the agreements, including the Barrick royalty agreement, St. Andrew was not given copies until the day of closing. In these circumstances, the trial judge found that “it is hardly reasonable for Newmont to argue that St. Andrew could and should have looked at the Barrick royalty agreement prior to closing.”
[21] The fact that the common intention was to have St. Andrew indemnify Newmont Canada for a fixed royalty of 0.013% NSR rather than to have St. Andrew assume the full extent of Newmont Canada’s royalty obligations under the Barrick royalty agreement is further evidenced by the fact that Newmont Canada deliberately chose not to seek an assignment of the Barrick royalty agreement to St. Andrew. Newmont Canada preferred instead to obtain an indemnity from St. Andrew. As set out in the trial judge’s reasons,
Newmont did not seek Barrick’s consent to St. Andrew’s assumption of Newmont’s obligations under the Barrick royalty agreement because Newmont thought that the Barrick royalty was insignificant. Newmont was therefore prepared to assume the risk of remaining primarily liable to Barrick. Mr. Dehlin [Director of International Land at Newmont Canada] testified that he and his colleagues understood that if Newmont did not obtain Barrick’s agreement, then Newmont would not be relieved of its obligations under the Barrick royalty agreement.
[22] I understand that, by concluding that Newmont Canada is responsible for the royalty payments to Barrick in excess of the 0.013% NSR, there may well be circumstances where the operation of the mine by St. Andrew is economically viable only because Newmont Canada is bearing virtually all the royalty obligations pursuant to the Barrick royalty agreement. This, however, is the result of the agreements Newmont Canada negotiated. Newmont Canada is a highly sophisticated mining corporation. It agreed to the royalty clause in the Barrick royalty agreement, without seeking clarification, because it believed it could benefit from an error on Barrick’s part. Then, in the sale to St. Andrew, it made a conscious decision to remain primarily liable to Barrick for the Barrick royalty agreement. It did not therefore divest itself of all the assets and obligations relating to the Holloway-Holt Gold Camp. Although Newmont Canada believed that the indemnity it negotiated with St. Andrew was for an amount equal to the obligation it had retained, it was wrong.
[23] The specific reference in the agreements to the flat rate of 0.013% NSR was not made erroneously or inadvertently. It reflected the understanding of the parties, albeit in error, of what the Barrick royalty agreement provided for. Given the repeated specific reference to the 0.013% NSR figure and the fact that knowing the rate and type of royalty provided virtually all the relevant information St. Andrew needed regarding the Barrick royalty agreement, the rate, or, specifically, its insignificance was central to the purchase and central to the bargain that the parties negotiated.
[24] In my view, therefore, the evidence at trial amply supported the trial judge’s conclusions that Newmont Canada and St. Andrew “believed that the royalty was a flat rate of 0.013% and therefore insignificant”, that the Barrick royalty agreement “formed no part of their discussions or negotiations, and did not affect the purchase price” and that the description of the royalty as being a flat rate of 0.013% NSR “accurately reflects the agreement that Newmont and St. Andrew had made concerning the Barrick royalties that St. Andrew agreed to assume.” Further, as found by the trial judge, it was reasonable for St. Andrew not to have examined the underlying Barrick royalty agreement. The amount of the royalty was insignificant and as a result, so was the royalty agreement.
[25] Finally, I would not give effect to Newmont Canada’s submission that the stipulated royalty rate of 0.013% NSR was no more than a representation and that the agreements between the parties that St. Andrew was assuming all the obligations of a long list of contracts, which included the Barrick royalty agreement, should govern. In my view, the trial judge correctly concluded that the numerous specific references in the agreements to the Barrick royalty agreement rate being 0.013% NSR reflected the intention of the parties and in the circumstances, they overrode the general references to St. Andrew assuming the obligations in the contracts listed in the schedules to the agreements.
2) The impact of the amalgamation of Holloway with St. Andrew
[26] Newmont Canada argues that, because Holloway assumed all the obligations of Newmont Canada respecting the Holt-McDermott mine, the subsequent purchase by St. Andrew of all the shares of Holloway and the amalgamation of Holloway and St. Andrew results, in law, in St. Andrew having assumed the obligations under the Barrick royalty agreement.
[27] Newmont Canada submits that the trial judge erred in failing to address this issue. Had she done so, she would have concluded that St. Andrew was responsible for all of Newmont Canada’s obligations pursuant to the Barrick royalty agreement.
[28] I would not give effect to this submission. The trial judge was aware of the transactions leading to the amalgamation of Holloway and St. Andrew. This is apparent from a footnote to her reasons in which the various transactions are outlined.
[29] Although she identified the various underlying transactions, the trial judge did not separately review the impact of the transfer by Newmont Canada to Holloway of the assets and liabilities relating to the Holt-McDermott mine or the impact of the subsequent amalgamation of Holloway and St. Andrew. While it might have been preferable had she done so, a review of that documentation adds little to the analysis she did carry out. When Newmont Canada transferred the assets and liabilities of the Holt-McDermott mine to Holloway, it did not assign the Barrick royalty agreement to Holloway nor did it seek approval from Barrick for the assignment. As in the sale to St. Andrew, Newmont Canada sought only an indemnity from Holloway of Newmont Canada’s royalty obligation under the Barrick royalty agreement, an obligation stipulated to be 0.013% NSR.
[30] In other words, Newmont Canada did not transfer to Holloway all the assets and liabilities relating to the Holt-McDermott mine. As with the later sale to St. Andrew, Newmont Canada retained the risk and the obligation to Barrick of the Barrick royalty agreement. As a result, the same analysis and same reasoning applied by the trial judge to the St. Andrew’s transaction applies to the previous transfer by Newmont Canada to Holloway. The conclusion is the same: Holloway only agreed to indemnify Newmont Canada for the stipulated royalty rate of 0.013% NSR.
CONCLUSION
[31] The contractual interpretation in this case was heavily intertwined with the evidence led at trial. As the trial judge stated, “It is the evidence of the parties that governs the outcome in this case.” None of the trial judge’s factual findings are challenged on appeal. Faced with two contractual interpretations, the trial judge carefully considered the facts and the agreements and concluded that, correctly interpreted, the agreements provided that St. Andrew agreed to an indemnity of a royalty obligation stated to be 0.013% NSR. This is consistent with the many references in both the Newmont Canada-Holloway and Newmont Canada-Holloway-St. Andrew agreements to the amount of the Barrick royalty obligation being 0.013% NSR. In my view, in reaching her conclusion, the trial judge did not commit any error in the application of the relevant legal principles. Her conclusion was not only reasonable, in my view it was correct.
[32] In the result, I would dismiss the appeal. If the parties are unable to agree on costs, I would ask the respondents to submit brief written submissions within 20 days hereof and the appellant to submit a brief response within 10 days thereafter.
“Paul Rouleau J.A.”
“I agree E.A. Cronk J.A.”
“I agree J. MacFarland J.A.”
RELEASED: May 13, 2011