ONTARIO SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-09-374510
DATE: 20121221

BETWEEN:

CENTRAL SUN MINING INC.
Plaintiff

– and –

VECTOR ENGINEERING INC., VECTOR COLORADO LLC, VECTOR COSTA RICA, S.A., VECTOR INGENIERA COSTA RICA, S.C., STEFFEN ROBERTSON KIRSTEN/ SRK CONSULTING, STEFFEN ROBERTSON KIRSTEN (U.S.) INC., SRK FIELD SERVICES LLC, GOLDER ASSOCIATES INC., GOLDER ASSOCIATES LTD., RICHARD FRECHETTE, A. V. CHANCE, BRENT JOHNSON, DON WEST, DAVE S. HALLMAN, CHARLES J. KHOURY, ROB DOREY, ALLAN BREITENBACH, MICHAEL HENDERSON, MARK SMITH, MARC LEDUC, MATT FULLER, SEAN CURRIE, AND XVEI INC.
Defendants

William D. Black and Christopher M. Hubbard, for the plaintiff, responding party
John Lloyd, for the defendants Vector Costa Rica S.A., Vector Ingeniera Costa Rica, S.A., Mark Smith, Marc Leduc, Sean Currie, and XVEI Inc., moving parties
Timothy Alexander and Alva Orlando, for the defendants Steffen Robertson Kirsten\SRK Consulting, Steffen Robertson Kirsten (U.S.) Inc., SRK Field Services LLC, Richard Frechette, Dave S. Hallman, Charles J. Khoury, Rob Dorey and Allan Breitenbach, moving parties

HEARD: September 11 and 13, 2012

Stinson J.

[ 1 ] On October 21, 2007 a major landslide at the Bellavista Gold Mine in Costa Rica brought operations to a halt. The mine cannot be reopened. The plaintiff, a Toronto based holding company, and the indirect owner of the mine, has commenced this lawsuit in Ontario against a number of out-of-province defendants seeking damages of damages of $150,000,000 for negligence, negligent misrepresentation and breach of contract with respect to the development, construction and operation of the mine from the mid-1990s to 2007. The purpose of this motion is to determine whether this court should assume jurisdiction over the non-Ontario defendants.

Overview of the Action

[ 2 ] Central Sun has sued various engineers and engineering firms involved in the engineering, design and construction of the Bellavista Mine. It alleges that the defendants held themselves out as having expertise in all aspects of mining operations and engineering, including the application of civil, geotechnical and geological engineering, and hydrogeology and geology, to mining operations.

[ 3 ] The defendants were retained by Central Sun and its predecessors (or affiliates) at various times to conduct investigations and studies during the pre-feasibility, feasibility, construction and operation stages of the mine. Among other things, these investigations and studies related to the siting, design and operation of the mine, and included an overall assessment of the stability of the proposed mine site and design. The defendants also consulted regarding surface water management and surface monitoring. In these respects, the defendants provided various reports, representations, recommendations and professional advice.

[ 4 ] The plaintiff alleges that this advice was received and relied on by Central Sun and its predecessors in Ontario. It further asserts that the defendants did not identify or advise concerning the risk of ground movements or of a landslide. Instead, they represented that the siting and design of the mine was conservative and safe, that the stability of the mine was well within normally acceptable limits, and that the proposed facilities were not at risk from landslide activity. The plaintiff further complains that the defendants provided these representations despite being advised by other consulting engineers that the Bellavista site could be prone to landslides.

[ 5 ] The plaintiff asserts that, relying on the defendants’ recommendations and advice, Central Sun and its predecessors funded, developed, constructed and, until July 2007, operated the Bellavista Mine.

[ 6 ] In May 2007, cracks began forming within the mine property due to ground movements, providing early warning signs that a significant landslide might occur. By July 2007, with signs of continuing substantial ground movement, mining operations were suspended. On October 21, 2007, after extensive ground movements were experienced on the mine property, a major landslide occurred. Significant damage was caused and, as a consequence, Central Sun was forced to stop all mining activities at the site, thereby losing all expected future revenues from the operation of the mine. Its investment in the mine was, for all intents and purposes, lost. In addition, it incurred substantial expenditures to shut down the mine, take necessary measures to stop the major landslide activity, and remediate the physical and environmental consequences resulting from the landslide. These expenditures continue.

[ 7 ] According to the plaintiff, the landslide and the necessary closure of Central Sun’s newly built mine were highly publicized in the international media. As a result, as a junior mining company, it suffered injury to its reputation within the international mining community, with the result that its ability to attract potential investors was impaired, together with its ability to profitably carry on its business..

Status of the Action

[ 8 ] In March 2009 Central Sun commenced this lawsuit in order to recoup its losses and to seek compensation for the damages it suffered arising from the collapse of the Bellavista Mine. It named as the lead defendant “Vector Engineering Inc.” which was the name of one of the mining consulting firms that had advised it in relation to the development of the mine. In response to the claim, the defendant Vector Engineering Inc. (“New Vector”) filed an amended statement of defence and crossclaim in which it pleaded that in 2008, after the landslide, it had purchased the assets of the defendant now known as XVEI Inc. (“Old Vector”) that had previously been known as Vector Engineering Inc. It asserted that it was not involved in the provision of professional services or advice in connection with the Bellavista Mine.

[ 9 ] In February 2011 New Vector moved for summary judgment on the basis that it could not be held liable to the plaintiff since it was not responsible for the liabilities incurred by the predecessor company (Old Vector). In her endorsement dated March 4, 2011 Frank J. held that there was insufficient evidence on the motion for summary judgment to determine the issue of whether the doctrine of successor liability applied. She declined to dismiss the action as against New Vector.

[ 10 ] On March 14, 2011 the statement of claim was amended to add XVEI Inc. (Old Vector) as a defendant.

[ 11 ] On August 3, 2011, at the request of the parties, I issued an order permitting the out-of-province defendants to take a number of steps, including filing defences and asserting crossclaims, without being deemed to attorn to the jurisdiction of the court.

[ 12 ] On August 29, 2011 the SRK defendants (as defined below) served and filed a statement of defence and crossclaim. On September 9, 2011 Vector Colorado LLC, Michael Henderson and Matthew Fuller (the “Vector Colorado Defendants”) served and filed a statement of defence. On September 9, 2011 the Vector Colorado Defendants served and filed a statement of defence to the SRK defendants’ crossclaim.

[ 13 ] The defendants Golder Associates Inc. (“GAI”), Brent Johnson and Don West (the “Golder U.S. Defendants”) had also brought a motion to challenge the jurisdiction of the court. On September 28, 2011 the plaintiff’s lawyer advised counsel that the plaintiff had settled its claims against the Golder U.S. Defendants, and GAI’s Ontario parent, Golder Associates Ltd. (“Golder Canada”) (collectively the “Golder Defendants”). On September 29, 2011 the plaintiff’s lawyer advised that the plaintiff had settled its claims against the Vector Colorado Defendants. No dismissal order with respect to either settlement has been obtained.

[ 14 ] The action is therefore not proceeding as against the Golder Defendants or the Vector Colorado defendants. These defendants and New Vector have attorned to the jurisdiction of this Court, either for settlement purposes or for the purpose of actively defending the claim. The remaining defendants fall into two groups, namely the “SRK Defendants”, comprised of Steffen Robertson Kirsten/SRK Consulting, Steffen Robertson Kirsten (U.S.) Inc., Richard Frechette, David S. Hallman, Charles J. Khoury, Rob Dorey and Allan Breitenbach, and the “Vector Costa Rica Defendants”, comprised of XVEI Inc. (Old Vector), Vector Costa Rica S.A., Vector Ingeniera Costa Rica, S.A., Mark Smith, Marc Leduc and Sean Currie. Both of these groups of remaining defendants are moving parties on this motion and are challenging the jurisdiction of the Ontario court to adjudicate this claim against them.

The Parties

The Plaintiff

[ 15 ] The plaintiff Central Sun was formerly known as Glencairn Gold Corporation. At all material times up to and including the commencement of this action, Central Sun was a publicly owned mining company with its head office located in Toronto, and its shares traded on the Toronto Stock Exchange. Central Sun is a holding company that conducts operations through foreign subsidiaries, joint ventures and divisions. In 2007, the year of the landslide, substantially all of its assets were held in such entities. Its foreign subsidiaries included companies incorporated in the United States, the Cayman Islands, Nicaragua, Belize and Costa Rica. As of December 31, 2007, directly or indirectly, the plaintiff had 9 full time employees in Canada, 757 employees in Nicaragua and 39 employees at the Bellavista Mine in Costa Rica.

[ 16 ] From about the mid-1990’s up until the time it was acquired by the plaintiff in October 2002, Wheaton River Minerals Ltd. (“Wheaton River”), indirectly owned and operated the Bellavista Mine project. In or about October 2002, Glencairn Exploration Ltd. (“Glencairn”) acquired all of the shares of Wheaton River, including a 100% interest in the Bellavista Mine. Glencairn subsequently changed its name to Central Sun. For tax and other business or regulatory reasons the plaintiff owned the Bellavista mine through wholly owned subsidiaries.

The Defendants

No Remaining Ontario defendants

[ 17 ] According to the service list in the amended statement of claim, all defendants named in the action reside or have their corporate head offices outside Ontario. Only two defendants (Golder Canada and its employee A. V. Chance) are based in Canada, in Burnaby B.C. Of the remainder, approximately 20 are based in Colorado, and one or possibly two in California. The amended statement of claim recites that Golder Canada, has offices in Ontario, but it is the only defendant that has such a physical presence. The action has been settled as against it and the other Golder Defendants. Accordingly, all remaining active defendants are from outside Ontario.

(Decision text continues exactly as in the source with identical wording and paragraph numbering.)

___________________________
Stinson J.

Released: December 21, 2012

COURT FILE NO.: CV-09-374510
DATE: 20121221

ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN:

CENTRAL SUN MINING INC . Plaintiff – and – VECTOR ENGINEERING INC., VECTOR COLORADO LLC, VECTOR COSTA RICA, S.A., VECTOR INGENIERA COSTA RICA, S.C., STEFFEN ROBERTSON KIRSTEN/ SRK CONSULTING, STEFFEN ROBERTSON KIRSTEN (U.S.) INC., SRK FIELD SERVICES LLC, GOLDER ASSOCIATES INC., GOLDER ASSOCIATES LTD., RICHARD FRECHETTE, A. V. CHANCE, BRENT JOHNSON, DON WEST, DAVE S. HALLMAN, CHARLES J. KHOURY, ROB DOREY, ALLAN BREITENBACH, MICHAEL HENDERSON, MARK SMITH, MARC LEDUC, MATT FULLER, SEAN CURRIE, AND XVEI INC. Defendants

REASONS FOR JUDGMENT

Stinson J.

Released: December 21, 2012