ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
DELOITTE & TOUCHE INC., IN ITS CAPACITY AS TRUSTEE OF THE ESTATE OF BRE-X MINERALS LTD., A BANKRUPT
Plaintiff
– and –
JOHN B. FELDERHOF, J.P. MORGAN & CO. INC., REPUBLIC NATIONAL BANK OF NEW YORK, DAVID G. WALSH, JEANETTE WALSH, T. STEPHEN McANULTY, NANCY JANE McANULTY, JOHN B. THORPE, ROLANDO C. FRANCISCO, HUGH C. LYONS, PAUL M. KAVANAGH, SNC-LAVALIN GROUP INC., SNC-LAVALIN INC., KILBORN ENGINEERING PACIFIC LTD., KILBORN SNC-LAVALIN INC., P.T. KILBORN PAKAR REKAYASA AND BRESEA RESOURCES LTD.
Defendants
Angus T. McKinnon and Mark Hines for the Trustee for Bre-X Minerals Ltd.
AND BETWEEN:
DONALD CAROM, 3218520 CANADA INC., 662492 ONTARIO LIMITED and OSAMU SHIMIZU
Plaintiffs
– and –
BRE-X MINERALS LTD., BRESEA RESOURCES LTD., now known as SASAMAT CAPITAL CORPORATION,
JOHN B. FELDERHOF, JEANNETTE WALSH, Estate Trustee of the Estate of
DAVID G. WALSH, deceased, JEANNETTE WALSH, personally,
T. STEPHEN MCANULTY, NANCY JANE McANULTY, JOHN B. THORPE,
ROLANDO C. FRANCISCO, HUGH C. LYONS and PAUL M. KAVANAGH
Defendants
Paul J. Pape for the Plaintiffs
HEARD: March 4, 2013
PERELL, J.
REASONS FOR DECISION
[1]
Overview
This motion requests, among other things, an order dividing the approximate $5.2 million being held by the Trustee in Bankruptcy for Bre-X Ltd., a bankrupt, among the class members of a Canadian class action under the Class Proceedings Act, 1992, S.O. 1992 and the class members of an American class action.
2The $5.2 million comes from a fund from a partial settlement of the class action made with the Defendant Bresea Resources Ltd.
3The background to the request to divide the $5.2 million and for other relief is as follows.
[4]
Background
On April 3, 1997, this action was commenced.
5The action was certified as a class proceeding by order dated June 23, 1999 as amended by the order of the Court of Appeal dated October 31, 2000.
6The Defendants in the class action were Bre-X Minerals Ltd., Bresea Resources Ltd., now known as Sasamat Capital Corporation, John B. Felderhof, Jeannette Walsh, Estate Trustee of the Estate of David G. Walsh, deceased, Jeannette Walsh, personally, T. Stephen McAnulty, Nany Jane McAnulty, John B. Thorpe, Rolando C. Francisco, Hugh C. Lyons and Paul M. Kavanagh.
7For a number of reasons the number of Defendants has diminished over the years, and the remaining Defendants are: (1) John Felderhof; (2) Jeannette Walsh in her capacity as the Estate Trustee of David G. Walsh, deceased; (3) Jeannette Walsh personally; (4) T. Stephen McAnulty; and (5) Nancy Jane McAnulty.
8There is a companion derivative action in which the Plaintiff is Deloitte & Touche Inc., in its capacity as trustee of the Estate of Bre-X Minerals Ltd., a bankrupt.
9The remaining Defendants in the companion action are: (1) John Felderhof; (2) Ingrid Felderhof, his former wife; and (3) Jeannette Walsh in her capacity as the Estate Trustee of David G. Walsh, deceased.
10One of the reasons for the reduction in defendants in both the class action and the derivative action is that Deloitte and the Plaintiffs of the class action settled the claims against Bresea Resources for $9 million, subject to approval by courts in Alberta, Ontario and Texas. This settlement took Bresea Resources out of the various proceedings.
11It may be noted that the Bresea Resources Settlement required the approval of the Texas Court. The reason that the approval of the Texas Court was required was that there also had been a companion class action in the United States. The Texas action was not certified as a class action save for the purposes of the settlement with Bresea Resources.
12Ultimately, the Bresea Resources Settlement was approved by the courts of Alberta, Ontario and Texas. It was approved by the Alberta and Ontario Courts respectively in June 2002 and approved by the Texas Court in September 2004.
13The settlement funds from the Breasea Resources settlement were held by Deloitte. As of November 19, 2012, with earned interest, Deloitte held in trust: (a) US$573,153.72, pursuant to paragraph 27(c) of the Settlement Agreement, as a reserve for adverse costs; (b) $576,807.23, pursuant to paragraph 30(b)(i) of the Settlement Agreement, for legal fees and disbursements incurred by Ontario Class Counsel; and (c) $5,110,427.69, being the balance of the Bresea Resources Settlement.
[14]
The Adverse Costs Reserve
As just noted, Deloitte holds in trust US $573,153.72 pursuant to paragraph 27(c) which reads as follows:
- The Settlement Amount paid by Bresea to Deloitte shall be applied by Deloitte as follows: …
(c) Third, Deloitte shall set aside and hold US$500,000 of the Settlement Amount as a reserve for the purpose of paying any award of Court costs to Defendants in either the Ontario Class Action or the U.S. Class Action, up to a maximum of US$250,000 per action; such payments of Court costs will be made only provided (1) an award of Court costs is made in Defendants’ favour in either the Ontario Court or the Texas Court; and (2) such Court authorizes the payment of Court costs by Deloitte from this reserve. The reserve created by this sub-Section will terminate only upon the expiration of all appeal periods in both the Ontario Class Action and the U.S. Class Action, or no later than December 31, 2006, without Court authorization to the contrary.
15The Bresea Agreement did not close until February 4, 2005. The date of “December 31, 2006” in paragraph 27(c) of the Settlement Agreement should have been deleted, but this was overlooked.
16The Plaintiffs in this Class Action seek an order from the Ontario Court that s.27(c) of the Amended Bresea Agreement be amended to: delete the date of “December 31, 2006;” and that the Court direct Deloitte to continue to hold in trust US$573,153 plus future interest as a reserve for the purposes of paying any award of costs to the defendants in this Class Action. The Plaintiffs submit that as a matter of fairness, the representative plaintiffs in this Class Action should have the benefit of this US$573,153 in the event an adverse costs order is made against them. I agree. Order to go accordingly.
17I note here that if the class action does not proceed to a trial, the court will have to approve the allocation of this reserve for an adverse costs award.
[18]
The Allocation of the Settlement Fund
The Plaintiffs in the class action next wish an order for the distribution of the $5,110,427.69, being the balance of the Bresea Settlement Amount.
19In 2010, Mr. Harvey T. Strosberg, whose firm is Class Counsel in the Canadian class action, discussed with Mr. Paul Yetter, who is counsel in the Texas class action, about the possibility of dividing the Bresea Settlement fund between the U.S. Class Members and the Canadian Class Members. Eventually, Mr. Strosbeg and Mr. Yetter reached an agreement, subject to approval by the Courts, to pay the U.S. Class 33% of the settlement proceeds. The Canadian Class would be paid 67%.
20Mr. Yetter applied in the Texas court for approval for the allocation based on a 67:33 % split in favour of the Canadian Class Members. Judge Folsom approved the allocation. By order dated August 5, 2010, Judge Folsom approved the amendment to the Settlement Agreement and the allocation of settlement funds between the Ontario and Texas class members.
21Mr. Strosberg deposes that when he and Mr. Yetter reached their agreement, they assumed the trading losses were approximately 67% by the Canadian Class and 33% by the U.S. Class. That distribution was also consistent with what Mr. Strosberg and Mr. Yetter understood to be a fair allocation of attorneys’ fees between U.S. and Canadian counsel. Mr. Strosberg deposes that the relative percentages were meant to reflect a common belief that approximately 80% of the losses were incurred by Ontario class members and an understanding as to the nature of the work that each counsel would probably undertake.
22Mr. Strosberg now thinks he was mistaken in agreeing to the 67:33 % split and that the allocation ought to have been 80:20 % because the Bresea Agreement was founded on the assumption that the losses were 80% by the Canadian Class and 20% by the U.S. Class. This assumption was based on information about the total shares in the possession of shareholders in Canada and the United States respectively. For instance, there was information available to Mr. Strosberg and Mr. Yetter that just before the listing on the NASDAQ, U.S. institutions owned almost 14.8 million Bre-X common shares. By December 1996, U.S. institutions held almost 27 million Bre-X shares, representing 21% of total publicly-held shares.
23Mr. Strosberg says that he forgot about this information when he agreed to the 67:33 % split.
24Mr. Yetter disagrees that any mistake was made when he and Mr. Strosberg came to an agreement in 2010. His position is set out in a letter dated December 13, 2012 to Mr. Strosberg.
25In his letter, Mr. Yetter states, with my emphasis added:
In fact, in the absence of a comprehensive damages study, the 33%67% allocation was carefully negotiated by the parties and patterned on an identical provision concerning the division of Attorney fees between U.S. Counsel and Ontario Counsel in section 30 (b) of the Bresea settlement agreement. In the context of our negotiations in 2010, this ratio was deemed to be the most accurate and fair estimate of the likely respective interests of the U.S. Class and the Ontario Class. The other assessments you cite were not “forgotten”, but disregarded as inapplicable …. Dr. Leitzinger’s estimates of U.S. institutional shareholding interests in 1996, well before the disclosure of the fraud are likewise inapposite. In any event, the parties negotiated at arms’ length, did their own due diligence, and ultimately agreed to a 33%67% allocation, which the U.S. Court approved. There simply is no basis for claiming mistake, error or the like.
26I think that Mr. Yetter is correct. The claim of the class members on either side of the border is for trading losses. A class member’s trading loss would depend upon the timing of when a class member acquired his, her, or its shares in Bre-X, which, of course may have occurred progressively over time. Moreover, an individual class member might have crystallized gains by selling some shares from time to time. In the absence of a comprehensive damages study, it cannot be said that the allocation of trading losses between Canadian and American class members would be the same ratio as the number of shares held by Canadian class members is to the number of shares held by American class members. An analysis of trading losses on either side of the border would require a least a survey or a sampling of when shares were acquired and sold on either side of the border.
27I agree with Mr. Yetter that there is no evidence to support the idea that the either Class Counsel made a mistake.
28A 67:33 % split seems reasonable and fair and I see no reason to part company from Judge Folsom’s conclusion to approve that allocation.
29Order accordingly.
Perell, J.
Released: March 7, 2013
COURT FILE NO.: 98-CV-145809
COURT FILE NO.: 97-GD-39574
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
DELOITTE & TOUCHE INC., IN ITS CAPACITY AS TRUSTEE OF THE ESTATE OF BRE-X MINERALS LTD., A BANKRUPT
Plaintiff
‑ and ‑
JOHN B. FELDERHOF, J.P. MORGAN & CO. INC., REPUBLIC NATIONAL BANK OF NEW YORK, DAVID G. WALSH, JEANETTE WALSH, T. STEPHEN McANULTY, NANCY JANE McANULTY, JOHN B. THORPE, ROLANDO C. FRANCISCO, HUGH C. LYONS, PAUL M. KAVANAGH, SNC-LAVALIN GROUP INC., SNC-LAVALIN INC., KILBORN ENGINEERING PACIFIC LTD., KILBORN SNC-LAVALIN INC., P.T. KILBORN PAKAR REKAYASA AND BRESEA RESOURCES LTD.
Defendants
AND BETWEEN:
DONALD CAROM, 3218520 CANADA INC., 662492 ONTARIO LIMITED and OSAMU SHIMIZU
Plaintiffs
- and –
BRE-X MINERALS LTD., BRESEA RESOURCES LTD., now known as SASAMAT CAPITAL CORPORATION, JOHN B. FELDERHOF, JEANNETTE WALSH, Estate Trustee of the Estate of DAVID G. WALSH, deceased, JEANNETTE WALSH, personally, T. STEPHEN MCANULTY, NANCY JANE McANULTY, JOHN B. THORPE, ROLANDO C. FRANCISCO, HUGH C. LYONS and PAUL M. KAVANAGH
Defendants
REASONS FOR DECISION
Perell, J.
Released: March 7, 2013