Western Troy Capital Resources Inc. v. Genivar Inc., 2016 ONSC 6829

CITATION: Western Troy Capital Resources Inc. v. Genivar Inc., 2016 ONSC 6829

COURT FILE NO.: CV-12-462512

DATE: 20161101

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

WESTERN TROY CAPITAL RESOURCES INC.

Plaintiff

– and –

GENIVAR INC. and PATRICK GIARD

Defendants

Sara J. Erskine and Garrett Schromm, for the Plaintiff

Stephen Barbier and Jesse Bellam, for the Defendants

HEARD at Toronto: 1, 2, 8, 9, 10, 11, 21, 22 and 23 March 2016 and 1 April 2016

REASONS FOR DECISION

MEW J.

[1] This case involves a professional negligence and breach of contract claim against a firm of engineering consultants and one of its employees, who were retained to provide a feasibility study for the proposed development of the plaintiff’s mineral resource at MacLeod Lake in Québec.

[2] In April 2012, nearly four years after the engineers were retained, and after the plaintiff had spent over $3 million in relation to the project, the defendants reported that the current mineral resources at MacLeod Lake were not sufficient to recommend that the development proceed.

[3] The plaintiff claims that competent engineering consultants would have made that determination far sooner and that had the defendants done so, most if not all of the $3 million would not have been expended.

[4] The defendants counter that the plaintiff, determined to receive a favourable outcome, repeatedly brushed aside the defendants’ reservations about the feasibility of the project and thereby courted the risk that its investment would end in disappointment. The defendant Genivar also seeks payment of unpaid fees of $460,000.

The Facts

[5] Much of the evidence at trial, which was comprehensive, focused on geology, mineralogy, the competencies and methods of mining engineers, the methods of assessing the feasibility of developing a mineral resource and the economics of mining.

The MacLeod Lake Property

[6] Western Troy is a public mineral exploration company. Its securities are listed on the Toronto Stock Exchange. In the late 1980s, Western Troy acquired mineral claims to the MacLeod Lake property, which is located in northern Québec in the Chibougamou mining district.

[7] Rex Loesby is the president of Western Troy. He has a mining engineering degree and a MBA. He has spent a great deal of his career working in various capacities in the mining industry, principally in the United States and Canada. He has managed feasibility studies for twenty-two coal mines and has acted as project manager, mine operator and assessor on numerous mining and exploration projects.

[8] A company, such as Western Troy, wishing to develop, register or sell securities to finance its operations, is known as an “issuer”. Disclosure of scientific or technical information made by a Canadian issuer, including disclosure of a mineral resource or mineral reserve, concerning a mineral project on a property material to the issuer, is governed by National Instrument 43-101 Standards of Disclosure for Mineral Projects Feasibility Studies. This instrument regulates the requirements for various levels of study which may be reported to investors. NI 43-101 studies range from “preliminary economic assessments” (the lowest level of confidence) to “pre-feasibility studies” (an intermediate level of confidence) to “feasibility studies” (the highest level of confidence).

[9] In 2007 Western Troy obtained an independent technical report from a professional geologist, which concluded that the MacLeod Lake property was of merit and that the results from a drilling programme carried out in 2006-2007 warranted “continuation of the work required to bring the project to the pre-feasibility stage of development”.

[10] Based on that report, Western Troy retained Roscoe Postle Associates (“RPA”), a firm specialising in resource and reserve work in the mining industry, to conduct a preliminary economic assessment.

[11] The preliminary economic assessment prepared by RPA, dated 24 April 2008, envisioned the development of a 2.1 million tonnes a year open pit mine producing copper and molybdenum concentrates, with an expected mine life of nine years. RPA projected a net present value[^1] of $156 million giving an internal rate of return[^2] of 32.4% with $210 million in estimated pre-production capital costs ($248 million in total capital costs).

[12] The standard permitted margin of error for a preliminary economic assessment is ±50%.

[13] The preliminary economic assessment by RPA estimated the mineral resources at MacLeod Lake and incorporated that estimate into a resource block model (described below). One of RPA’s findings was that 18,180,000 tonnes of the mineral resource in what was described as the “Main Zone” was of the “indicated”[^3] category, whereas only 1,862,000 tonnes of the mineral resource in the Main Zone was of the “inferred”[^4] category.

[14] Among the recommendations made by RPA was the initiation of preparations for a pre-feasibility study. The preliminary economic assessment also recommended that certain additional drilling be conducted on the MacLeod Lake property.

[15] The standard permitted margin of error for a prefeasibility study is ±10%.

[16] Mr. Loesby testified that RPA’s findings put the grade of the mineral resource at MacLeod Lake at almost double the average of worldwide existing mines that produced copper and molybdenum. From his perspective, RPA’s findings confirmed earlier information on the grade and suggested there was a strong opportunity to develop a viable mine based on the quality of the resource.

[17] Consequently, Western Troy decided to proceed straight to a feasibility study (thereby skipping the pre-feasibility study stage). Mr. Loesby reasoned that a pre-feasibility study would raise the same issues that would arise during a feasibility study and, as such, it would be more efficient to proceed immediately to the feasibility stage of the NI 43-101 process.

The Resource Estimate

[18] One of the tools which is used at all stages of the process for estimating a mineral resource is the “resource model” (also referred to as the “block model”).

[19] The importance of the resource model can be seen from the following description of the process for estimating a resource estimate, which was summarised in the written submissions of the plaintiff at the end of trial (based on a distillation of the evidence of two of the expert witnesses at trial, Christopher Lattanzi and Robert McCarthy):

a. Drilling for rock samples is done on-site. The locations of the drill holes are surveyed at the time of drilling and the samples ("cores") are visually examined for mineralization and assayed in a lab to determine their mineral content.

b. The drill hole locations, angles, qualitative information about rock type and metal content from the geologists, and assays are entered into a database. The project database is the fundamental record upon which the whole project relies.

c. The database is entered into software (such as GEMS) which generates a rendering of the drill holes on a three dimensional grid.

d. The software then generates a "block model" with the block size determined based on the judgment of the geologist and the characteristics of the deposit.

e. Geostatistical analysis is then used to assign grades to the blocks that do not have drill holes going through them. Each "block" within the block model is evaluated based on a "cut-off grade". The cut-off grade is the grade below which it is determined that the block is no longer economically viable to mine, based on the current estimates of the costs of extraction and the value of the mineral contained in the ore.

f. All blocks that meet or exceed the cut-off grade are then enclosed in a three dimensional solid referred to as a wireframe. Blocks that do not meet the cut-off grade and are outside the wireframe are determined to be waste.

g. The geologist at this stage generates "plans and sections" - horizontal and vertical cross sections representing the wireframe and drill hole locations. The geologist reviews the plans and sections to confirm visually that all of the data has been captured and to analyze whether the shape of the wireframe should change.

h. At this stage the model can generate an initial grade and tonnage estimate of the total resource that is in the ground.

i. The block model is then loaded into another computer program such as SURPAC, which develops the shape and size of the ultimate pit and assesses adequacy of the block model based on the cost and income structure of the project.

j. The resource estimate produced from this process is then used in a "production schedule." The production schedule addresses production from the mine over time and considers factors such as external dilution (inadvertent inclusion of waste rock in the material sent to the mill due to the extraction process) and ore loss (ore that is left in the ground due to difficulties in extraction, human error). Assumptions about ore loss and dilution may be made at the [preliminary economic assessment] stage, but it is required that a detailed study of these factors be completed for Preliminary Feasibility Studies or Feasibility Studies. Once the production schedule is complete, it is possible to determine the "head grade", i.e. the percentage of valuable resource contained in the rock that is sent to the mill for mineral processing.

Genivar’s Engagement

[20] On 18 June 2008, Western Troy retained Genivar’s office in Val d’Or, Québec, to complete the feasibility study with a budget of $727,560. At the time, the Genivar professional responsible for the project was Dr. Tyson Birkett.

[21] In a written agreement – the “2008 Services Contract” – the project tasks were broken down into thirteen phases, including due diligence and geological work.

[22] Phase I of the project was “Initial Due Diligence”, pursuant to which Genivar was to:

a. analyse available information;

b. make recommendations for information, field studies, drilling or testing still required; and

c. prepare a summary report.

[23] The second phase, “Geology and Resources”, specified numerous project tasks including the following:

a. verify the geological model;

b. define resources and create an updated block model;

c. prepare block model files and data for other modules;

d. verify applicable to of samples for mineral processing study vs geological model and block model;

e. make recommendations for further drilling and sampling, and to prepare portions of the final report.

[24] Genivar began the due diligence work set out in the 2008 Services Contract in the second week of July 2008. Around the same time, Western Troy retained Chibougamau Diamond Drilling to perform additional diamond drilling at MacLeod Lake with the objective of upgrading the “inferred” resource in the Main Zone of the property into the “indicated” category. This additional drilling was completed in the summer of 2008.

[25] Western Troy also retained a company called SGS–Lakefield to perform metallurgical testing on the samples obtained from the 2008 drilling.

[26] The results of the additional drilling and the metallurgical testing were provided to Genivar in the autumn of 2008. Dr. Birkett reported to Western Troy that the data obtained from the additional holes drilled by SGS-Lakefield had been added to the geology database and that plans and sections had been prepared for an update of the block model to include the new drilling.

[27] In November 2008, Dr. Birkett reported that Genivar had integrated the latest drilling results into the resource model to the point where a new grade and tonnage estimate could be produced within the first half of December 2008.

[28] On 22 January 2009, Dr. Birkett reported that based on data provided by the geotechnical group and the mineral processing (which Dr. Birkett described as “better than expected”), the mining group had completed four open pit simulations with SURPAC software and that the undiscounted operating cash flows (not including capital or financing costs) calculated from these scenarios suggested the project was possibly viable if the price of Copper was at US$1.50 an pound and Molybdenum at US$15.00 a pound, and “robust” at US$2.00 for copper and US$20.00 for molybdenum.

[29] No disclaimers or qualifications were provided with these statements. Mr. Loesby testified that he understood Dr. Birkett’s report to mean that Genivar had completed a cash flow analysis on the MacLeod Lake project and found that it was economically viable.

[30] The defendants say that this was an incorrect assumption on Mr. Loesby’s part. Genivar had not, in fact, completed integrating the 2008 drilling data into the preliminary economic assessment resource model.

Project on Hold

[31] The economic crisis in the autumn of 2008 brought with it a sharp fall in commodity prices. According to Mr. Loesby, it became difficult to determine what commodity prices should be used in the feasibility study. Accordingly, on 4 February 2009, Western Troy instructed Genivar to suspend work on the feasibility study. An email sent by Mr. Loesby to Dr. Birkett said:

We ask that you complete tasks that are very close to completion and wrap things up so that when we resume the work it will be relatively easy to get things back on track.

[32] Dr. Birkett circulated this email to all of the groups working under his supervision. He did not give them any specific direction. He testified that he would expect the people involved to determine what was “close to completion”. He believed that all project data would have been saved automatically on Genivar’s computer system. However, he acknowledged that unless individuals made notes in the file, information relating to the status of the tasks they were working on would remain “in their head”.

[33] According to Dr. Birkett, at the time the project was suspended, he understood the geology work to be essentially complete and that a resource estimate could be produced with little additional work. He did acknowledge, however, that he had not spoken to the geologist to determine how much, if any time, would be required to produce the resource estimate.

[34] By February 2009, Western Troy had spent $274,000 on the feasibility study work, $175,000 on an airborne survey of MacLeod Lake, $351,000 on the metallurgical testing, $69,000 on travel expenses, $343,000 on environmental work and $43,000 on expenses related to the environmental work, for a total of approximately $1,255,000.

[35] The plaintiff did not expressly request Genivar to prepare a closing report when work was suspended.

The Project Resumes

[36] By late 2009, commodity prices had stabilised. Early in 2010, Western Troy contacted Genivar with a view to restarting the feasibility study on the MacLeod Lake project.

[37] Genivar agreed to locate its archived files on the MacLeod Lake project and provide Western Troy with a schedule and budget for completion of the feasibility study. Dr. Birkett had, by that time, left Genivar. A new individual, André Roy took over as the lead for Genivar.

[38] Mr. Loesby and Western Troy’s President, Wayne Holmestead met with Mr. Roy in Val d’Or in early February 2010. Mr. Loesby said that it was fairly apparent to him that Mr. Roy had not prepared for the meeting or informed himself about the past work done by Genivar.

[39] At trial, Mr. Roy acknowledged that the economic crisis had led to a significant turnover in personnel at Genivar. He also found that the geological work had not been documented and explained in the notes that were available to him in the way that it should have been. While Mr. Roy had access to the raw data in Genivar’s computer records, he was an engineer, not a geologist, and could not fully discern what work had been done or what work still needed to be done.

[40] It was not until May 2010 that Mr. Roy was able to meet with Dr. Birkett (a meeting which Dr. Birkett claims to have no recollection of). He reported to Mr. Loesby that he had been informed by Dr. Birkett that they had stopped the project as quickly as possible, simply filing the accumulated information without preparing a summary report explaining the status of things at the time. Dr. Birkett apparently told Mr. Roy at that time that the hydrological and geotechnical investigation had not yet been carried out. Mr. Roy’s recommendation to Mr. Loesby was that a report should be prepared about the status of the project when it was suspended. The preparation of such a report would involve systematically going over the files and writing a brief summary of the state of affairs having reviewed and understood those files. Mr. Roy recalls that Mr. Loesby was “not happy” about this.

[41] On 7 June 2010, a meeting took place between Mr. Roy, together with other employees of Genivar, and Mr. Loesby to discuss the remaining work required to complete the feasibility study. Mr. Roy had prepared some papers for the meeting, the introduction to which stated “[t]here is no new information about geology, hence no revision of the Resources Estimate will be necessary. However a geologist will have to sign off on the Geology section of the Bankable Feasibility Study”. Mr. Loesby testified that he understood this to mean that the resource work was completed and would be finalised when a qualified person could sign off on the work. Mr Roy said that he did not have a specific recollection of this.

[42] On 12 July 2010, Stéphane Normandin of Genivar delivered the first part of a “Power Supply Trade Off Study”, which examined three possible scenarios for getting power supply for the proposed mining operation. The projected capital costs arising from this study ranged from $271 million to $305 million.

[43] On 11 August 2010, Mr. Roy sent an email to Mr. Loesby in which he suggested that the feasibility study could not be undertaken until the method of power supply and other “fundamental options” had been determined. The memo went on to list “major uncertainties” associated with the project, including:

• extension of the provincial road

• First Nation involvement in the project

• “optimal” production rate

• extent of the open pit (up to the lake or not)

Mr. Roy’s email also expressed the view that the MacLeod Lake project “is in reality at the Scoping Study [preliminary economic assessment] stage of the Scoping/Pre-Feasibility/Bankable Feasibility sequence of Technico-Economic studies”. A number of options were presented, one of which was to pursue the remainder of the feasibility study with frozen capital cost assumptions with a significantly increased budget from that proposed in the original estimate.

[44] Mr. Loesby was unimpressed. The next day he sent an email to Mr. Roy’s superior asking whether there was anything in Mr. Roy’s email that could not have been written in February. While acknowledging that the road and power issues “are difficult”, Mr. Loesby suggested that the feasibility study simply needed to state the road and power supply assumptions that the study is based on and note that those issues are not resolved as of the date of publication of the feasibility study. Mr. Loesby’s message concluded “you should understand that this process has resulted in a disaster for Western Troy”.

[45] On 23 September 2010, the plaintiff received a letter from Jacques Gauthier, Director of Mining at Genivar, suggesting that the best course of action would be for Genivar to undertake a preliminary economic assessment. In making this suggestion (as opposed to continuing with the feasibility study) Mr. Gauthier wrote “in our opinion calculating capital costs for road access and power transmission lines based on an [sic] hypothetical cost-sharing arrangement does not constitute an appropriate basis for these essential infrastructures”.

[46] Mr. Loesby admitted that he asked Genivar to destroy the 23 September 2010 letter. He wanted to keep whatever work needed to be done within the scope of a feasibility study otherwise certain Québec tax refunds that Western Troy had qualified for would be reversed.

[47] At a meeting held in Montréal on 19 October 2010 it was agreed to postpone the MacLeod Lake project feasibility study:

a. to wait until sufficient information was known about the construction of the road; and

b. to wait until the local Cree nation had made a decision about their possible involvement in the project through the possible construction of a “run of river” hydroelectric generating station.

[48] Behind the scenes, Mr. Roy was saying to Mr. Gervais that:

… I think Rex is trying to manipulate us to get us to say what he wants in the manner in which he wants it said, and that we are his last hope for this.

[49] Mr. Roy, in the same communication (a memo dated 20 October 2010), reported:

Rex said he expects a rate of return (IRR) between 20% and 30% for the project based on the preliminary results of the PEA (Preliminary Economic Analysis) done by SWRPA (Scott Wilson RPA). I did not comment when Rex mentioned these numbers, but I doubt an IRR of 20% to 30% would be sufficient to get bankers or other financial partners on board because this project is too risky due to its considerable isolation.

[50] In a letter dated 29 October 2010, Mr. Loesby protested about recent accounts rendered by Genivar. He said that had Western Troy known that the cost to complete the feasibility study had almost doubled from the original estimate and that the study could not be completed until the power and road issues were resolved, Western Troy could have planned its activities to resolve those issues. Instead, Western Troy was in the invidious position of having to report to its investors and board of directors that the feasibility study would be delayed and might not be completed at all.

[51] André Roy left Genivar in December 2010.

[52] In April 2011, Stephane Normandin reported on capital costs, estimating them to be $261.59 million including sustaining capital and reclamation, or $233.69 million without sustaining capital and reclamation.

[53] A Revised Services Contract was entered into on 20 July 2011. Responsibility for the MacLeod Lake project was transferred from Genivar’s Val d’Or office to the Timmins, Ontario office.

[54] Marz Kord was managing Genivar’s mining group in Timmins at the time and was involved in and around the time that the revised agreement was signed, but he left Genivar in August 2011. Patrick Giard, who also worked out of the Timmins office of Genivar then became the manager of the MacLeod Lake Feasibility Study project.

[55] Shortly before the Revised Services Contract was finalised, Mr. Loesby had sent an email to Mr. Kord and Mr. Giard confirming that Genivar would check on the geological work done to date to determine whether the data on hand was sufficient to support the feasibility study. He also confirmed that Genivar would find the geologist who visited the site in 2008 for due diligence purposes and get him or her to provide written verification and accuracy of the core logging and assay data.

[56] Mr. Giard has considerable experience in the assessment of project costs, including infrastructure. He holds a Master’s degree in engineering project management. However, he had never worked on a mining feasibility study prior to his involvement in the MacLeod Lake project. At his examination for discovery, he described himself as a “lone dog in the rain” left to oversee the project.

[57] When he took over the feasibility study project, Mr. Giard only considered final documents which had been stamped by qualified person and issued to the client. He did not consider or review any other documents or information. He felt that to do otherwise would have been irresponsible, especially where he had limited or no access to the professionals who had done prior work, due to turnovers of staff. He acknowledged that he was unable to locate many documents and had to try to reconstruct the project status based on correspondence. He did not speak with either Mr. Roy or Dr. Birkett. Indeed, on cross-examination, Mr. Giard confirmed that he had used the RPA resource model without even looking for, let alone taking into account Dr. Birkett’s work in progress. Furthermore, contrary to what Mr. Loesby had anticipated, Mr. Giard neither checked the geological work done to date to determine its efficiency, nor did he get written verification of the accuracy of the core logging and assay data from the geologist who performed the work in 2008. He said that he did not know that a field survey had been done in 2008 even though it was referred to in a September 2008 progress report authored by Dr. Birkett. As a result of further survey work was done in 2011.

[58] It appears that Mr. Giard had serious concerns regarding both the MacLeod Lake resource and the capital estimates even before the Revised Services Contract was inked. In an internal email dated 8 July 2011, Mr. Giard suggested that Genivar should not use the term “Bankable Feasibility Study” in correspondence with Western Troy because “the deposit is to economically marginal and because Genivar is unable to make a commitment as to bank lending following the delivery of our study”. He added that he was not the only one at Genivar who had reached this conclusion. Yet he did not unequivocally convey his views to Western Troy.

[59] Mr. Giard retained Gene Puritch of P&E Consulting, initially to undertake mine planning work (pit optimisation, mine design schedule, operating and capital costs), but, ultimately, to audit the reliability of the block model source data. For a variety of reasons, including disagreement between Mr. Loesby and Mr. Giard regarding budgeting and the continued absence of the 2008 drilling data) delays occurred and it was not until April 2012 that Mr. Puritch produced resource estimates. Even then, the estimates were labelled “preliminary” in order to satisfy Mr. Loesby’s demands that the estimates be completed before a Western Troy shareholders’ meeting scheduled for 18 April 2012.

[60] Mr. Giard reported the results of P&E’s updated resource block model and production schedule on 12 April 2012. Mr Puritch’s updated block model and production schedule showed a decline in the copper and molybdenum resource grade by approximately 19%. Mr. Loesby immediately recognised that the drop in the grade of the resource was a “major reduction” which “will substantially impact the economics to the negative side”. In his words at trial “that, to me, killed the project”.

An Unsatisfactory Ending

[61] Mr. Loesby says that his initial response was “what went wrong here”. He had expected to hear that there had been an increase in grade.

[62] Mr. Giard evidently thought that what had gone wrong was Mr. Loesby himself. He wrote a three page letter to the chairman of the board of Western Troy on 18 April 2012. I recite lengthy extracts from it because it underscores the tensions that existed between the parties (from Mr. Giard’s perspective, at least):

… GENIVAR has been asked to follow up with a Feasibility Study. You will find enclosed a letter addressed by GENIVAR to Mr. Rex Loesby on September 23, 2010. This letter indicated that GENIVAR considered that the level of project definition at that time was deemed not sufficient to immediately proceed to a Feasibility Study.

This letter was clearly stating that “At this point in time we believe that the best course of action would be for GENIVAR to undertake a scoping study. We believe that it would be in the best interest of Western Troy Capital Resources to proceed in this manner because it will greatly reduce the financial risks inherent to the Project.”

This proposition was obviously not well received by Mr. Rex Loesby, and the main reason was that he had been brandishing the “Scoping Study” issued by RPA as if it were the Bible.

Since then many engineers employed by GENIVAR have tried to convince Mr. Rex Loesby that there were serious flaws in this Preliminary Economic Assessment. No one from GENIVAR has ever succeeded at this task, and it is not because we didn’t try.

As part of the present note, I cannot possibly list all of the times where this situation might have occurred since 2008, but if one would read all of the correspondence exchanged between GENIVAR and Mr. Rex Loesby, it would probably be easy enough for a patient reader to make this conclusion.

While GENIVAR was never allowed to call it a Pre-Feasibility, a technical memo was issued to Western Troy Capital Resources on April 8, 2011 and the purpose was to evaluate the operating costs for a mining operation at 3500 tons per day with diesel generators as a source of energy. NPV calculations showed that project economics were marginal at best.

At this stage GENIVAR has used the geological block model that had been created by RPA without manipulating or questioning this info. Most of the capital costs estimates for infrastructure that were used in this Pre-Feasibility were drawn from the “Scoping Study”; and how could this information have been wrong since it was mostly taken from “the Bible”?

Personally, I can tell you that in the very first weeks where I looked into this project, I have exposed some flaws in the capital cost estimates that were part of the “Scoping Study”.

Given the particular character and personality of your President and CEO, I don’t think that anyone within the Energy Group at GENIVAR is to blame for having diligently proceeded with the Feasibility Study on the run-of-river hydropower. Design Engineers like to, design...

This is kind of like asking a beaver if he wants to build a dam: of course he will say yes! However, the economic justification for performing this detailed engineering work could have been studied more closely by the client, and a life-cycle-cost analysis is the right tool for that.

One of the questions that Mr. Stanley Mourin has asked me today is “Why weren’t we told this before spending so much money on this project?” I have one answer to this question: your President and CEO Mr. Rex Loesby was at the center of all of the above problems.

[63] In a letter written to Genivar a few days later, Mr. Loesby commented “it is clear from Patrick’s letter that we have some fundamental differences regarding the contractor/relationship”. That was an understatement.

[64] Despite a review of P&E’s estimate, which included the re-involvement of RPA, it was not possible to produce a resource estimate and production schedule which would make the project economically viable.

Issues

[65] Lying at the heart of this dispute is the completion of the due diligence work necessary to verify the resource model and the ongoing evaluation of the resource.

[66] Western Troy says that Genivar expressly or implicitly represented that it had verified the resource model. On that basis Western Troy says it agreed to proceed with subsequent phases of the bankable feasibility study. The plaintiff also claims that it was led to believe that results indicated an improvement of the production schedule for the project. Accordingly it continued to invest in the bankable feasibility study and in environmental and power supply studies.

[67] What should have happened, according to Western Troy, is that Genivar should, prior to work on subsequent phases of the bankable feasibility study going ahead, have made it clear that Genivar had not, in fact, verified the resource model. Had Western Troy known that, it says it would not have proceeded further with the project.

[68] Genivar concedes that in certain respects it failed to meet the applicable standard of care, but denies that any harm resulted. It says that the main drivers behind Western Troy’s investment were (a) Western Troy’s significant underestimation of the capital costs of the project; and (b) its refusal to heed the advice of Genivar to first do a pre-feasibility study or at the very least an updated preliminary economic assessment, before incurring the expense of a full-blown feasibility study.

[69] While both the evidence and the arguments presented were detailed and extensive (the plaintiff’s written submissions at the end of trial ran to 114 pages – albeit double-spaced – the defendants’ comprised 86 pages), the issues are, ultimately, straightforward:

a. Did the defendants’ provision of professional services to the plaintiff breach any duties owed by them to the plaintiff as a result of

i. Contract;

ii. Negligence; or

iii. Misrepresentation?

b. If so, to what extent (if any), did the defendants’ breaches cause loss or injury to the plaintiff?

c. Was the plaintiff contributorily negligent?

d. Damages.

e. Is the plaintiff liable to Genivar for services it has billed but not been paid for?

Analysis

Did the Defendants Breach the Duty of Care?

[70] As an express term of the contracts between the parties, Genivar agreed to perform all services to the applicable standard of care. Sub-section 8 ("Professional Responsibility") of Section 04 ("General Terms") of both the 2008 Services Contract and the 2011 Revised Services Contract provides:

In performing the Services, the Consultant will provide and exercise the standard of care, skill and diligence required by customarily accepted professional practices and procedures normally provided in the performance of the Services contemplated in this Engagement at the time when and the location in which the Services were performed.

[71] To all intents and purposes this contractual term articulates the common law duty of care owed by the defendants to the plaintiff.

[72] An expert called by the plaintiff, Christopher Lattanzi of Micon International Limited concluded that in not suspending the work in an orderly manner in early 2009, Genivar failed to exercise the standard of care normally required of a professional engineering company.

[73] In particular, Genivar should have ensured that all project data, documents and working drawings were archived immediately and that the individuals responsible for various aspects of the work that was being done road comprehensive notes about where things are been left.

[74] The expert called by the defendants, Bob McCarthy of SRK Consulting, was less critical. In his opinion Dr. Birkett met the standard of care, with the exception of his failure to prepare a closeout report when Genivar’s work was put on hold early in 2009. On cross-examination, however, Mr. McCarthy conceded that the applicable standard of care would not have been met if Dr. Birkett and in fact not asked a geologist to find out where things stood at the time that the project was suspended.

[75] According to Mr. Lattanzi, when the project was restarted in 2010, Mr. Roy should have immediately assembled a team and retrieved and reviewed the archived data. A meeting with Dr. Birkett should have been convened as soon as possible. If there was further geological work to be done or other work concerning the resource estimate, one would have expected that to have been reported by, at the latest, the June 2010 meeting between Mr. Loesby and Mr. Roy.

[76] Mr. McCarthy acknowledged that upon resumption of the project things dragged on more slowly than they should have. While Mr. McCarthy believes that Mr. Roy did what he could uncover what was in the fire, he got mired in what Mr. McCarthy described as the “scoping versus trade-off study issues”.

[77] Mr. Lattanzi was also critical of the manner in which Genivar managed its working relationship with its client. Noting that the relationship between Western Troy and Genivar was initially cordial, the relationship deteriorated soon after work recommenced in 2010 under the direction first of Mr. Roy and then of Mr. Giard. In Mr. Lattanzi’s opinion Mr. Roy and, in particular, Mr. Giard showed a lack of understanding of the generally accepted principles governing the roles of the owner of project and the consultant, and of the relationship between those two parties. Specifically, in appointing an inexperienced engineer (Mr. Giard) to manage feasibility study, without first consulting Western Troy, Genivar failed to meet the generally accepted standard of care of a professional consultant.

[78] Commenting on the criticisms that Mr. Giard levelled against Mr. Loesby, Mr. Lattanzi expressed the opinion that Western Troy, as the owner, had the right, in the event of a disagreement with its consultant, to determine any major assumptions upon which the feasibility study was to be based, and also had the right to review and comment on the work performed by the consultant. But Genivar, as the consultant, had the right to state its disagreement with the direction of the owner in its final report. Mr. Giard and his supervisors at Genivar were at fault for failing to clearly and unequivocally state their disagreement.

[79] Ultimately, the nature and the tone of the relationship between owner and consultant, and between Mr. Loesby and Mr. Giard, is captured in a written submission prepared by the defendants at the end of trial:

Mr. Giard testified that he often felt bullied by Mr. Loesby. He described to the Court that he had been left for 3 days at the MacLeod Lake site without food before being picked up by plane. Furthermore, Mr. Loesby requested that he take the bus rather than a taxi from the airport. Later, Mr. Loesby requested that Mr. Giard not participate in a meeting to discuss the project.

[80] Professionals are often challenged by difficult and demanding clients. Western Troy, and in particular Mr. Loesby, was such a client. But that is no excuse for failing to maintain acceptable levels of service and care.

[81] During the early stages of Genivar’s retainer, the consultant-client relationship appears to have been cordial and productive. Dr. Birkett reported regularly. However, Genivar, through Dr. Birkett, failed to meet the standard of care owed to their client by not following Western Troy’s instructions to wrap things up so in such a way that it would be relatively easy, upon resumption, to get things back on track. Dr. Birkett’s response to that instruction was to forward Mr. Loesby’s email to the engineers working on various aspects of the feasibility study, leaving it up to them to assess how much work needed to be done and to decide whether the work was “very close to completion”. He did not personally review the status of the resource work and could not confirm to what stage the resource modelling had progressed. Neither could he confirm how much time might have been required to complete the work which had been reported as essentially complete except for reporting.

[82] The failure to shut down the project as instructed was egregious failure. It meant that neither the client, nor Mr. Roy, who took the project over when it resumed, knew what the true state of the resource model was. Even when, in 2011, Mr. Giard became involved, he was still unable to locate documents from the Birkett era and tried to reconstruct the project status based on correspondence.

[83] As Mr. McCarthy recognised, once it had resumed, Genivar, and Mr. Roy in particular, did not adequately move the project forward.

[84] First, Mr. Roy failed to retain a qualified geologist to prepare the portion of the final report relating to geology and resources, as required by Phase 2 of the contract. On 7 June 2010, Mr. Roy reported that:

There is no new information about the geology, hence no revision to the Resources Estimate will be necessary. However a geologist will have to sign off on the Geology section of the Bankable Feasibility Study.

Yet, despite this, Mr. Roy never assigned a geologist to sign off on the geology section of the report. I agree with the submission by the plaintiff that had he done so, a geologist reviewing the documents on file would have realised that a resource estimate had not been fully completed and would have proceeded to do that work (which is what was eventually done by Mr. Puritch in late 2011 and 2012).

[85] Second, Genivar became sidetracked by concerns, albeit legitimate ones, which it had about capital expenditure.

[86] It was evident to Mr. Roy, as it had been to virtually everyone associated with the project since its earliest days, that the capital expenditure required to provide the proposed mine with power and road access would be an extremely important, if not critical element in the project economics. The issue of road access would ultimately be dependent on the actions of the province of Québec. Power was dependent on the number of variables, with options running from run of the river hydroelectric to diesel and possibly even nuclear power generation.

[87] However, instead of following the client’s instructions to proceed with the feasibility study on the basis of certain assumptions being made about power and road costs, Genivar adopted a defensive posture vis-à-vis the client. The best part of a year went by while discussions continued about whether or not a feasibility study could be completed.

[88] Mr. Loesby’s question whether there was anything said by Mr. Roy in August 2010 that could not have been said in February 2010 was entirely apt.

[89] In the face of Genivar’s reluctance to move forward, later in 2010, Western Troy did in fact agree to postpone further advancement of the feasibility study pending further developments regarding the construction of the road and power. In the meantime Genivar worked on capital costs.

[90] Then came Mr. Giard, the “lone dog in the rain”. He made no efforts to locate all of the work in progress, relying instead only on final, stamped, documents that had been sent to the client. I accept the evidence of Mr. McCarthy at trial that Mr. Giard’s failure to make efforts to locate all of the project data fell below the standard of care expected of him.

[91] It got worse. Mr. Giard’s mindset from the very start of his involvement was negative. In an email internal email sent a few days before Genivar entered into the revised contract to produce the feasibility study, Mr. Giard indicated that Genivar would not use the term “bankable feasibility study” in communications with the client because he was of the opinion that the “deposit was economically marginal.”

[92] Mr. Giard’s defence to the assertion, put to him in cross-examination, that he failed to inform the client of his opinion that the resource could not support the project, was that whenever he attempted to raise the subject, he was met with opposition from Western Troy. He testified that he “gave in” to Mr. Loesby’s confidence in the resource and that he instead decided that he would demonstrate to Mr. Loesby that the project was not viable by completing the capital estimation work.

[93] Mr. McCarthy confirmed that if a consultant is aware that the project capital costs are going to increase, and that the current resource estimate cannot support the anticipated capital costs, it is necessary to discuss this concern with the client.

[94] Mr. Giard’s benefit of hindsight view, expressed in his April 2012 correspondence, that he had concerns from the outset, was not effectively communicated Western Troy. Perhaps Mr. Giard was intimidated by Mr. Loesby. That, however, is not an adequate excuse.

[95] Genivar’s task was not made easier by several changes in key personnel. The economic slowdown in 2008/2009 and a significant impact on Genivar. There was a considerable turnover of people. When the project resumed, Mr. Roy came and went within 10 months or so. There was then a hiatus while Mr. Normandin worked on capital expenditures. Then, in quick succession, around the time that the revised services contract was entered into, Mr. Kord came and went, to be followed by Mr. Giard.

[96] Overall, the history of the dealings between Western Troy Genivar, from the time of the suspension of the project in 2010, through its resumption in 2011, until its end, demonstrates poor communication, inadequate client care, a lack of direct frankness and, as a result, wasted time, money and opportunity.

[97] It follows that I conclude that Genivar and Mr. Giard despite their technical expertise, in numerous respects fell below the standard of care which would be expected from consulting mining engineers in similar circumstances.

Misrepresentation

[98] The plaintiff’s pleaded allegations of negligent misrepresentation can be summarised as follows:

a. Throughout the negotiations for, and in the 2011 Revised Services Contract, Genivar misrepresented to Western Troy that it had completed the due diligence work necessary to verify the resource model, as required to complete the NI 43 – 101 compliant Bankable Feasibility Study;

b. Western Troy was induced to enter into the 2011 Revised Services Contract by the misrepresentations of Genivar and, further, was induced to agree to retain Genivar and its contractors complete the work in 2010 and 2011 by Genivar’s misrepresentations;

c. Western Troy agreed to the paperwork done by Genivar and its contractors in 2010 and 2011, in anticipation of entering into the 2011 Revised Services Contract. It would not have agreed to have this work completed if it had known that Genivar had not, in fact, verified the resource model;

d. Western Troy would not have agreed to proceed with subsequent phases of the Bankable Feasibility Study had been aware that Phase 1 of the project had in fact not been completed as represented. Western Troy would not have proceeded further until the resource model had been verified and updated with the 2008 drilling results;

e. As a result of Genivar’s report of favourable drilling, and the encouraging metallurgical test results, Western Troy understood the resource evaluation would result in an improvement of the production schedule for the project, when, in fact, if Genivar had performed the resource calculation, the results would have shown that the resource grade had declined, resulting in a production schedule decline. This would have equipped Western Troy with the necessary information upon which to make appropriate decisions on the project, including whether to continue with the feasibility study. Instead, Western Troy received nothing from Genivar to discourage it from continuing to invest in the Bankable Feasibility Study and environmental and power studies.

[99] There are five requirements for establishing negligent misrepresentation: Queen v. Cognos Inc, 1993 146 (SCC), [1993] 1 S.C.R. 87, at para 34.

a. There must be a duty of care based on a "special relationship" between the representor and the representee;

b. The representation in question must be untrue, inaccurate, or misleading;

c. The representor must have acted negligently in making the misrepresentation;

d. The representees reliance on the negligent misrepresentation must have been reasonable; and

e. The reliance must have been detrimental to the representee in the sense that damages resulted.

[100] Having regard to the first of the five factors, there is no dispute that Genivar and Mr. Giard both owed a duty of care plaintiff.

[101] The second factor turns on whether the defendants made untrue, inaccurate or misleading representations to the plaintiff. A representation must, be a matter of ascertainable fact, as distinguished from an opinion or expectation: Hembruff v. Ontario (Municipal Employees Retirement Board), 2005 39859 (ON CA), 78 O.R. (3d) 561, at para. 76.

[102] Silence and half-truths can amount to misrepresentation (Pilotte v Gilbert, Wright & Kirby, 2016 ONSC 494, at para 31: the misrepresentation or omission must, however, be shown to be material in the sense that it would have been likely to have influenced the client's conduct or operated on the client's judgment), the plaintiff alleges that the representations in question were numerous and were evident throughout Genivar’s negligent management of the MacLeod Lake project. As summarised at paragraph 170 of the plaintiff’s written submissions:

The crux of the representations from which the Plaintiff’s damages stem pertain to the representations of Dr. Birkett, Mr. Roy and Mr. Giard, whom each induced Western Troy into believing the resource calculation had been completed and all indications suggested the resource supported pursuing other phases of the Feasibility Study.

[103] Given the breaches which have been established on the issue of duty of care, it follows that I must accede to the submissions that Western Troy was misled by the defendants.

[104] For the same reason, the third factor is also established.

[105] The fourth factor invites consideration of the reasonableness of the plaintiff’s reliance on the defendants’ negligent misrepresentations.

[106] Reliance is a question of fact to be inferred from all of the circumstances of the case and all of the evidence adduced at trial: LK Oil & Gas Ltd. v. Canalands Energy Corp., 1989 ABCA 153, [1989] 6 W.W.R. 259 (Alta. C.A.) at 268:

“Where nothing else but the representation could have induced the contract, then a logical inference is that the representation did in fact induce the contract. Where other factors could be operative, the evidence must be considered to determine which factors were relied upon.”

[107] Reliance is not established in circumstances where a claimant would have entered the transaction in any event, and the alleged misrepresentation merely encouraged the claimant or confirmed his own view: Linda D. Rainaldi, ed., Remedies in Tort, vol. 2, loose-leaf (Toronto: Thomson Reuters, 2009) at 16.IV-32.8.2.

[108] And a party’s reliance on a representation which amounts to a statement of opinion, judgment, probability or expectation, or is vague and indefinite in its nature and terms, is not actionable: Hinchey v. Gonda, [1955] O.W.N. 125 (H.C.J.) at p. 128.

[109] It follows that while Dr. Birkett’s intimation that the block model was near completion (which, together with Dr. Birkett’s January 2009 report on the viability of the line is said to have led Mr. Loesby to believe that a resource block model was complete and that a cash flow analysis had been formed to provide a resource estimate) would be actionable, reliance on his opinion that the project was possibly viable at certain commodity prices is, in the circumstances, not.

[110] Similarly, it was not unreasonable for Mr. Loesby to go away from the 7 June 2010 meeting with Mr. Roy believing that the geology work was up-to-date and that the resource model calculation complete. However, the mere fact that the end result did not match the defendants’ predictions or opinions at any given time would not satisfy the fourth limb of the Cognos test.

[111] Mr. Giard’s failure to unequivocally express the serious concerns which he had from the outset of his involvement regarding both the status of the resource and the capital costs amounted to a misrepresentation. So did the defendants’ willingness to enter into the 2011 revised services contract, Mr. Giard’s concerns notwithstanding.

[112] All of that having been said, one of the challenges in this case is determining the extent to which Mr. Loesby actually relied on the defendants’ misrepresentations. The defendants suggest that Mr. Loesby did not want to hear bad news.

[113] The answer to that concern, in my view, is that when, finally, the mineral resource was confirmed by Mr. Puritch, and despite some concerns about his methodology, the plaintiff terminated the project. The evidence suggests that there is little or nothing that Mr. Puritch did in 2011 and 2012 that could not have been done in 2010. Yet when it was done, the plaintiff relied on it.

[114] I also find that it was reasonable for the plaintiff to rely on the defendants. Much of the information that was pertinent to the assessment of whether the project would be viable was under the control of Genivar. In particular Genivar not only had gathered the data and information, but it also had the expertise – and the computer modelling software – which the plaintiff lacked, to interpret it. More fundamentally, the plaintiff had no option but to rely on the consultants because of the requirements of National Instrument 43 – 101.

[115] As will be discussed and the heading of damages, the fifth limb of the Cognos test has also been met: the plaintiff relied on the defendants to its detriment.

Causation

[116] The “but for” test applies to causation in negligence cases. The plaintiff must show, on the balance of probabilities, that “but for” the defendants’ negligent acts, the plaintiff would not have been injured: Clements (Litigation Guardian of) v. Clements, 2012 SCC 32, at para. 9.

[117] In most cases, as the Supreme Court of Canada noted in Clements (at para. 10):

A common sense inference of “but for” causation from proof of negligence usually flows without difficulty. Evidence connecting the breach of duty to the injury suffered may permit the judge, depending on the circumstances, to infer that the defendant’s negligence probably caused the loss.

[118] In contract claims, by contrast, proof of damage is not an essential element of the cause of action. As the British Columbia Court of Appeal explained in Fraser Park South Estates Ltd. v. Lang Michener Lawrence & Shaw, 2001 BCCA 9, at para. 46:

Every breach of contract is a violation of a right and, in accordance with the fundamental principle expressed by Lord Holt in Ashby v. White, 2 Ld. Raym. 938 at 955, that every violation of a right imports damage in contemplation of law, entitles the victim to damages even if only nominal.

[119] Because this is a case involving the contract of professional services, which explicitly incorporates as a contractual term the professional standard of care owed by Genivar to the plaintiff, the plaintiff argues that causation, and, hence, damages should be viewed in accordance with the principles relating to breach of contract and that the plaintiff should be compensated for all damages which would naturally be expected to flow from the defendants’ breach of duty.

[120] While I do not disagree with that as a statement of principle, it makes little or no difference in the present case.

[121] The plaintiff presented a complex argument based on what would, or might, and happened and the resource estimate been updated when it should have been. Because a geologist and a mine planner are required to update the resource estimate, the extent to which defendants’ failure to get work done when it should have been would depend on whom did the work and what modelling approach was used.

[122] To be sure, there was extensive evidence about a whole host of variables which could affect the outcome of the feasibility study process. There are any number of different ways which Genivar, and the professionals it retained could have gone had different choices been made and, in particular, had the resource model be completed earlier.

[123] The evidence, as I have assessed it, invites a more straightforward – the plaintiff might say simplistic – approach.

[124] Mr. Lattanzi, in his review, saw no definitive evidence that Dr. Birkett had ever finished the update of the mineral resource estimate, including the results of 2008 drilling, which he had expected to complete by mid-December 2008. As already discussed, the evidence at trial supports that conclusion.

[125] In Mr. Lattanzi’s opinion, had Dr. Birkett done what he was supposed to have done, it would be reasonable to assume that he would have reached a similar conclusion that reached by P&E in April 2012 that the updated resource estimate yielded copper and molybdenum grades materially lower than those reported in the preliminary economic assessment. According to Mr. Lattanzi:

… in such circumstances, a re-evaluation of the project economics at that time is likely to have shown poor results, and the feasibility study may well have been long deferred or abandoned at that point. Such a conclusion implies that all work done from the resumption of work early 2010 to the abandonment of the project early in 2012 was, in effect, unnecessary waste.

[126] That straightforward assessment by Mr. Lattanzi captures the issue of causation in this case. It would have taken at least a few months, after the resumption of the project in early 2010 to reach a conclusion on the resource. The plaintiff would then have terminated the project sooner than it did. The damages which would then flow from the defendants’ breaches are what Mr. Lattanzi describes as the “unnecessary waste”.

[127] Mr. McCarthy, it should be noted, takes issue with Mr. Lattanzi on the issue of causation. In his opinion, the lion’s share of costs on the project were unavoidable. Most projects like this have strict timelines and, of necessity, working on all items concurrently, rather than sequentially, is the normal practice.

[128] He also points out that the drop in the projected internal rate of return (IRR) in April 2012 reflected the difference in methodology as between RPA and P&E, which was further confirmed by RPA when Western Troy asked it to review the P&E findings. If one assumes that Dr. Birkett would have used the RPA domain model to update the resource model then, according to Mr McCarthy, there would have been an insufficient reduction in project economics to suggest that Western Troy would have stopped the project. If, on the other hand, the resource model had not been an update of the RPA work and P&E had been brought in to do the work with their different approach to resource modelling, in Mr. McCarthy’s opinion the economics would have showed IRR values in the range of 18% to 25%, depending on applied mine plans and initial capital cost. While this may have caused some serious looking at the mine plans and cost assumptions, Mr. McCarthy’s opinion is that the project would not have been suspended at the time.

[129] Notwithstanding this view, Mr. McCarthy does acknowledge that any prediction of what would have happened is difficult.

It is likely that mine planning would have been naturally suspended pending confirmation of operating costs. Various studies would have proceeded on geotechnical, hydrogeology, metallurgy, and hydropower. Then, I expect the sequence of events would not have been too much different than what they were at the end of 2011 and the beginning of 2012, only sooner. Genivar would have completed the preliminary operating costs and while the mine planning moved forward with these, the capital cost estimation would have proceeded. Ultimately… I believe the [feasibility study] would have been completed in 2011.

[130] I do not discount the possibility that things could have turned out in the way that Mr. McCarthy suggests. I also observed that the P&E work was delayed, in part because Mr. Loesby and Mr. Giard were arguing about money. But the fact remains that when Mr. Puritch undertook his analysis and came up with the conclusions that he did, the project was terminated. That work could have been done at least one year and maybe as much as two years before when it was actually done.

[131] As I will discuss when dealing with damages, it seems to me unlikely that everything that was spent from the resumption of work in early 2010 would not have been spent had the resource estimate been completed at or shortly after the resumption. But I do find that there was unnecessary waste because Genivar did not do its job properly.

Contributory Negligence

[132] The defendants argued that the relationship between the parties is characterised by dual obligations. They say that Western Troy had an obligation to provide proper direction and ask appropriate questions. The evidence shows that Western Troy relied on its own assumptions and the positive comments which it received from Genivar and other consultants but disregarded any negative comments. Mr. Loesby in particular, is alleged to have heard only what he wanted to hear, but nothing else. When the project was suspended, Mr. Loesby failed to provide clear and concise instructions. When it resumed, Western Troy failed to request a report.

[133] In short, the defendants say that the plaintiff could and should have taken steps to reduce, avoid or mitigate injury.

[134] As articulated by counsel for the defendants, it seems to me that the concepts of contributory negligence, causation and mitigation have been somewhat conflated. Suffice it to say that I do not find that the plaintiff was contributory negligent because of its behaviour as a client.

[135] Through the evidence of Mr. McCarthy, an alternative contributory negligence theory was developed. According to Mr. McCarthy, the plaintiff failed to exercise its duty of “Resource Governance”. This is a relatively new term, which Mr. McCarthy described as follows:

Resource Governance is the practice of managing the estimation, disclosure and archiving of mineral resources.

[A] company practicing good Resource Governance is not only ensuring that resource estimates are being done by qualified individuals, but also that they are being appropriately reported, documented and stored.

[136] Mr. McCarthy opined that companies should ensure resource estimation work is undertaken by a qualified person, that all information is reported properly pursuant to NI 43-101, and should ensure that information is managed and archived appropriately. It was, accordingly, incumbent upon Mr. Loesby to make prudent inquiries of Genivar professionals.

[137] Mr. Lattanzi stated that in his 37 years of experience he had never heard of “Resource Governance”.

[138] Given the evidentiary conflict between these two well-regarded and experienced experts, I am not prepared to make a finding that the plaintiff had a duty to practice “resource governance” or that such duty was not observed by Western Troy in this case.

Damages

[139] Western Troy is entitled to damages caused by the defendants’ breach of duty. Specifically, the plaintiff should be compensated for the “unnecessary waste” which resulted.

[140] Western Troy’s position is straightforward. It argues that the appropriate date from which to assess damages is from February 2009 (the resumption date of the project) onward and that the total amount of expenses from this period related to the MacLeod Lake project is $3,088,333.81. Because Mr. Loesby would have halted all work had he received a resource estimate showing a substantial decline in grade and tonnage the only offsetting expense which the plaintiff might have incurred was the amount paid to RPA in 2012 to investigate and double check the resource work ($46,730.39).

[141] Even if one were to take the starting point in time for the damage calculation to be June 2010 (allowing a reasonable amount of time, following resumption, for the resource calculation to have been completed) only limited additional expenses related to the restart of the project would have been incurred while the resource work was being finalised. The plaintiff calculates such expenses at $65,142.44.

[142] A further, possible, adjustment recognised by the plaintiff in its submissions, would be the amount incurred for the trade-off study completed in July 2010: $40,500.

[143] The defendants asked Mr. McCarthy to undertake a damages assessment. He concluded that only “discretionary expenditures”, which he defined as expenditures required to complete the feasibility study, but which may not have been undertaken if a mine plan had resulted in a cash flow that questions product viability, would not have been incurred. He calculates total discretionary expenditures to be $590,439. He recognises that further review would be required to account for any tax refunds or Québec government tax credits and any mining duty refunds that may have been received after May 2012.

[144] Mr. McCarthy takes issue with significant portions of Western Troy’s damages calculation as not being related to the feasibility study. According to him, a total of $1,416,028 falls into this category consisting of expenditures relating to field data collection, mine planning remuneration of Western Troy executives and environmental impact studies. There should be some reduction for the reasons stated by Mr. McCarthy. But I do not accept the magnitude of the adjustment he suggests.

[145] The defendants also argue that furthermore Western Troy’s numbers should be adjusted by at least $454,995 in mine tax credits received by the plaintiff which will definitively not be subject to reassessment as a result of any damages awarded in this action.

[146] The plaintiff responds that Western Troy’s executive salaries were allocated on a project by project basis and that the salaries attributed to the MacLeod Lake project would have been spent on other projects and are therefore recoverable. This argument is difficult to evaluate without knowing what other potential projects, if any, would have been undertaken instead of MacLeod Lake.

[147] On the issue of tax credits, different viewpoints were expressed by Mr. Lachance and Ms. Chouinard as to the extent to which Western Troy could or would be reassessed by Revenue Québec. Western Troy argued that if there is uncertainty as to whether a DAC a tax benefit will be retained, the court should not set off tax benefits against damages.

[148] As the experts and, indeed, the submissions of counsel implicitly recognise, there is inevitably a large element of speculation involved in the assessment of damages in this case. Speculation as to when, if Genivar had met the standard of care, the feasibility study would have been completed. Speculation as to what other studies would have been undertaken concurrently while the feasibility study was being worked on. Speculation as to whether the feasibility study would have been based on the RPA resource model or not. Speculation as to exactly what the reaction of Western Troy would have been upon receipt of a timely feasibility study. Speculation as to how the Québec tax authorities might view tax credits already received by Western Troy.

[149] In Martin v. Goldfarb, (1998) 1998 4150 (ON CA), 41 O.R. (3d) 161 (C.A.), the Court of Appeal said, at para. 75:

…it is a well established principle that where damages in a particular case are by their inherent nature difficult to assess, the court must do the best it can in the circumstances. That is not to say, however, that a litigant is relieved of his or her duty to prove the facts upon which the damages are estimated. The distinction drawn in the various authorities, as I see it, is that where the assessment is difficult because of the nature of the damage proved, the difficulty of assessment is no ground for refusing substantial damages even to the point of resorting to guess work.

[150] Having listened to the experts, read and re-read their reports and the submissions of counsel, this is, in my view, one of those cases where damages are inherently difficult to assess. Just as the business of predicting the future price of copper and molybdenum is inherently challenging, so it goes with what might have happened had the MacLeod Lake project been handled differently.

[151] In trying to determine a fair figure I have taken into account that Western Troy had a strong desire for this project to succeed. While I would not agree with the defendants that Mr. Loesby was not prepared to accept any and all advice and information that he did not want to hear, I do think that it is unrealistic to say that he would simply have drawn a line and terminated the project if something similar to the P&E report had been received sooner. In my view the fact that so much had already been spent by Western Troy when the P&E report finally came in meant that Mr. Loesby had no wiggle room left. He simply could not, in good conscience, justify spending more of the shareholders’ money. Had he received that news earlier, when far less would have been spent, I do think that he would have looked for other ways to improve the project economics and that, accordingly, the project would not necessarily have died at that point.

[152] Inevitably, in fixing an amount for damages, there has been some guesswork on my part. But it is not guesswork that has taken place in a vacuum. I have considered not only the hard facts and the comments, but also the propensities of the individuals involved.

[153] Appreciating that there are difficulties with all of the methods of assessing damages that have been put forward, doing the best I can with the evidence and having regard to what seems to me to be a fair and supportable outcome, I would assess the plaintiffs’ damages at $1,250,000.

Counterclaim

[154] Western Troy challenges the assertion by Genivar that the total of unpaid invoices is $460,000.

[155] Invoices filed during the course of trial total $322,432.71. To the extent that Genivar has a counterclaim, it is in that amount.

[156] The four invoices concerned are all dated in March and April 2012. On any view of the issues of causation and damages discussed above, those invoices were rendered a long time after the project would have been halted if the resource estimate had been produced earlier.

[157] Accordingly, in my view, all of the invoices concerned fall into the category of “unnecessary waste”. I therefore dismiss the counterclaim.

Conclusion

[158] For the foregoing reasons the plaintiff shall have judgment for $1,250,000 plus interest in accordance with the Courts of Justice Act.

[159] Given the speculative nature as to when the amounts were in fact spent which would not have been incurred but for the defendants’ breaches of duty, a reasonable point in time from which to calculate prejudgment interest would be the date of the Revised Services Contract (20 July 2011).

Costs

[160] I would encourage the parties to agree on the issue of costs. Should they not be able to do so, I direct as follows:

(a) The plaintiff should serve a bill of costs on the defendants, accompanied by written submissions within 21 days of the release of these reasons;

(b) The defendants should serve their response on the plaintiff within 14 days thereafter;

(c) The plaintiff should serve its reply, if any, within 7 days thereafter;

(d) In all cases, the written submissions should be limited to 4 pages, plus bills of costs; and

(e) The defendants are invited to submit the bill of costs they would have presented to the court had they been successful in the action.

I would ask counsel for the plaintiff to collect copies of all of the parties’ submissions and arrange to have the package delivered to me at the Court House, 5 Court Street, Kingston, Ontario. K7L 2N4 as soon as the final exchange of materials has been completed. For the avoidance of doubt, no materials should be filed individually; rather, counsel for the defendant should assemble a single package for delivery as described above.

Graeme Mew J.

Released: 1 November 2016

CITATION: Western Troy Capital Resources Inc. v. Genivar Inc., 2016 ONSC 6829

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

WESTERN TROY CAPITAL RESOURCES INC.

Plaintiff

– and –

GENIVAR INC. and PATRICK GIARD

Defendants

REASONS FOR DECISION

Mew J.

Released: 1 November 2016

[^1]: Net Present Value is a formula used to determine the present value of an investment by the discounted sum of all cash flows received from the project.

[^2]: Internal Rate of Return is the interest rate at which the net present value of all the cash flows (both positive and negative) from a project or investment equal zero. Internal rate of return is used to evaluate the attractiveness of a project or investment.

[^3]: An “indicated” mineral resource is that part of a mineral resource for which quantity, grade or quality, densities, shape and physical characteristics can be estimated with a level of confidence sufficient to allow the appropriate application of technical and economic parameters, to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed.

[^4]: An “inferred” mineral resource is that part of a mineral resource for which quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.