Stans Energy Corp., 2019 CanLII 36437

March 14, 2019

IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

STANS ENERGY CORP. (the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that the Filer be exempt from the requirement to file two litigation funding agreements as material contracts (the Exemption Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application, and

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia and Alberta.

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer:

The Filer

1. The Filer’s head office is located at 1 Yonge Street, Unit 1011 Toronto, ON, M5E 1E5.

2. The Filer is a reporting issuer in British Columbia, Alberta, and Ontario; the Filer’s common shares are listed on the TSX Venture Exchange under the symbol “HRE”.

3. The Filer’s principal business activities were the acquisition, exploration, development and operation of uranium and rare earth mineral properties. In particular, the Filer held interests in certain mines, mineral resource properties, and processing facilities in Kyrgyzstan.

Kyrgyz Republic Litigation

4. In June 2012, a committee of the Kyrgyz Parliament demanded that the Filer’s licence agreement for its principal property, known as “Kutessay II”, be cancelled. During the year ended December 31, 2013, the Kyrgyz State Prosecutor’s Office initiated legal proceedings against the Government Agency to revoke the mineral property licenses awarded by the said Agency to the Filer through an auction process held in 2009. In March 2014, the Inter District court of Bishkek ruled in favour of the Kyrgyz State Prosecutor’s Office. The Filer appealed this decision in various courts in the Kyrgyz Republic (the Republic) and in 2015 the Kyrgyz Supreme Court dismissed the Filer’s appeal. Consequently, the Filer has no right for further appeal in the Republic.

5. In October 2013, the Filer commenced arbitration against the Republic in connection with the legal proceeding initiated by the Republic in the Arbitration Court at the Moscow Chamber of Commerce and Industry (the MCCI Tribunal). In June 2014, the MCCI Tribunal awarded the Filer USD$118 million as a recovery of damages from the Republic. This award was subsequently challenged by the Republic in the courts of the Russian Federation on a jurisdictional basis, and in January 2016, the Supreme Court of the Russian Federation in its final decision upheld the ruling of the lower court to set aside the MCCI Tribunal award. Appeals in the Russian Federation have now been exhausted.

6. The Filer’s Kyrgyz assets were its only material assets. While the Filer is pursuing prospective rare earth and rare metals projects in Russia, the Filer has no other significant mineral properties or projects and currently has no active cash-flow generating business.

7. The Filer’s sole recourse to seek compensation from the Kyrgyz government is international arbitration.

8. In May 2015, the Filer commenced an arbitration against the Republic under the 1976 rules of the United Nations Commission on International Trade Law (the UNCITRAL Rules) claiming damages arising from the Republic’s wrongful conduct toward the Filer’s investments in Kyrgyzstan that culminated in the termination of the mining licenses for its Kutessay II and Kalesay properties. The Filer and the Republic subsequently agreed that this arbitration (the UNCITRAL Arbitration) would be administered by the secretariat of the Permanent Court of Arbitration in the Hague with a judicial seat in London, England. After a tribunal was appointed in the UNCITRAL Arbitration, the Filer filed a statement of claim on January 29, 2016 claiming USD$219 million in damages and interest from the Republic. The tribunal in the UNCITRAL Arbitration subsequently decided that the proceedings would be bifurcated into a jurisdictional phase and a merits phase. Consequently, after the exchange of written pleadings on these jurisdictional issues, a hearing took place on September 23, 2016.

9. On January 25, 2017, the UNCITRAL tribunal unanimously rejected the Republic’s preliminary jurisdictional objections and opened the way for adjudication of the merits of the UNCITRAL Arbitration. A hearing on the merits took place from April 9 to 13, 2018. Post hearing submissions are in process.

Litigation Funding Agreement and Capital Provision Agreement

10. On June 3, 2015, the Filer entered into a litigation funding agreement (the LFA) with Stonebury Limited (the Funder), a Guernsey subsidiary of the Calunius Litigation Risk Fund 2 LP (the Fund) to finance the Filer’s costs in connection with the international arbitration on a non-recourse basis. The Fund is advised by Calunius Capital LLP, which is based in London, England and specializes in funding commercial litigation and international arbitration claims.

11. Under section 12.2 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102), the Filer is required to file the LFA as a material contract.

12. The entering into the LFA was publicly disclosed in a news release filed on June 8, 2015. The Filer’s periodic financial disclosure also discloses expenses that qualify for recovery under the LFA.

13. On October 2, 2018, the Filer issued and filed a material change report (MCR#1) disclosing the Filer’s entry into the LFA, providing background on the Funder, and describing the key terms of the LFA that are not commercially sensitive.

14. In March 2018, the Filer entered into a further litigation funding agreement described as a capital provision agreement (the CPA) with Gillham LLC and Lucille Investments LLC (together the New Funders) for the provision of additional capital to assist in the funding of the Filer’s legal costs and to provide funding towards ongoing corporate overhead costs, in relation to the international arbitration proceedings on a non-recourse basis. The New Funders are Delaware entities established for purposes of entering into and performing capital provision agreements generally.

15. Under section 12.2 of NI 51-102, the Filer is required to file the CPA as a material contract.

16. The entering into of the CPA was publicly disclosed in a news release filed on April 2, 2018. The Filer’s periodic financial disclosure also discloses expenses that qualify for recovery under the CPA.

17. On October 2, 2018, the Filer issued and filed a material change report (the MCR#2) disclosing the Filer’s entry into the CPA, providing background on the New Funders, and describing the key terms of the CPA that are not commercially sensitive.

18. The LFA and the CPA (together the Litigation Funding Agreements) may be subject to privilege in connection with the Filer’s ongoing litigation involving the Kyrgyz government, and any public disclosure of their substantive terms (beyond that contained in MCR#1 and MCR#2), even in a redacted form, would run the risk of waiving the privilege in the course of its ongoing litigation, which would be seriously prejudicial to the Filer’s interests.

19. Disclosure of the LFA would also place the Filer in violation of confidentiality provisions in the LFA and would compromise the Filer’s ongoing relationship with the Funder.

20. Disclosure of the CPA would also place the Filer in violation of confidentiality provisions in the CPA and would compromise the Filer’s ongoing relationship with the New Funders.

21. MCR#1 and MCR#2 disclose the key terms of the respective Litigation Funding Agreements. Disclosure of the Litigation Funding Agreements in a redacted form would not provide additional information that would be material to an investor for purposes of making an investment decision.

22. The Filer is not in default of any requirement of securities legislation in any jurisdiction of Canada, except that it has not filed either of the Litigation Funding Agreements as a material contract.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemption Sought is granted.

“Jo-Anne Matear”

Manager, Corporate Finance

Ontario Securities Commission