|
|
Lac
Minerals Ltd. v International Corona Resources Ltd.
SUPREME
COURT OF CANADA per McIntyre, Lamer, Wilson, La Forest and Sopinka JJ.
August
11, 1989
citation(s): [1989] 2 SCR 574, (1989) 16 IPR 27, online
|
copyright 1989 Donald M. Cameron, Bereskin & Parr LLP
Contents
Summary
Lac misused confidential information confided to it by Corona in breach of a duty of confidence.
The information was communicated in confidence. There was a mutual understanding between the parties that they were working towards a joint venture. Lac had not been authorised by Corona to bid on the Williams property. Lac was aware that it owed some obligation to Corona to act in good faith and that the obligation included the industry-recognised practice not to acquire the property which was being pursued by a party with which it was negotiating. But for the actions of Lac, Corona would probably have acquired the Williams property.
Where information is provided in confidence, the obligation is on the confidee to show that the use to which he put the information is not a prohibited use.
No fiduciary relationship existed between Corona and Lac. The Court of Appeal erred in concluding that one existed.
It is not appropriate for the court to substitute an award of damages for the constructive trust imposed below. It is a restitutionary claim; a claim for unjust enrichment.
Facts
Corona, a junior mining company, provided to Lac, a senior
mining company, information relating to the results of core drilling results
from property owned by a Mrs. Williams. Corona and Lac came to an informal oral
understanding as to how each would conduct itself in anticipation of a joint
venture or another business arrangement. Both Corona and Lac placed offers for
the Williams property. The Lac offer was accepted by Mrs. Williams. The property became a very lucrative gold mine
valued at up to 1.95 billion dollars.
The trial judge of the Supreme Court of Ontario held that Lac
was liable to Corona for breach of confidence and breach of fiduciary duty. Lac
was ordered to transfer the property to Corona. The court held that Lac was
entitled to compensation for the cost of the improvements it had made to the
property ($203,978,000) discounted by $50,000,000 which Corona would have saved
had it, rather than Lac, developed the mine. Corona was also awarded the
profits obtained by Lac from the Williams property, with interest. As an
alternative remedy, the court assessed damages at $700,000,000 (if a court on
appeal was to decide that damages was a property
remedy instead of transfer of the property).
The Ontario Court of Appeal affirmed the findings of the trial judge on the issues of fiduciary duty and breach of confidence. The appeal was dismissed with costs.
The Decision
1. Breach of confidence
Per La Forest, Wilson, Sopinka,
McIntyre and Lamer JJ: Lac misused confidential information confided to it by
Corona in breach of a duty of confidence. The test for whether there has been a
breach of confidence has three elements:
(i) that the information conveyed was confidential;
(ii) that it was communicated in confidence, and;
(iii) that it was misused by the party to whom it was
communicated.
Coco
v A N Clark (Engineers) Ltd [1969] RPC 41, applied
Per La Forest J (Wilson and Lamer JJ concurring): With respect
to the second element, there was a mutual understanding between the parties
that they were working towards a joint venture. Lac had not been authorised by
Corona to bid on the Williams property. Lac was aware that it owed some
obligation to Corona to act in good faith and that the obligation included the
industry-recognised practice not to acquire the property which was being
pursued by a party with which it was negotiating. But for the actions of Lac,
Corona would probably have acquired the Williams property.
The relevant question to be asked is what is
the confidee entitled to do with the
information. Any use other than a permitted use is prohibited and amounts to a
breach of duty. Where information is provided in confidence, the obligation is
on the confidee to show that the use to which he put
the information is not a prohibited use.
Coco
v A N Clark (Engineers) Ltd [1969] RPC 41, applied
Per Sopinka J (McIntyre and Lamer JJ concurring): The information given to Lac by Corona was the
springboard which led to the acquisition of the Williams property. The information
went beyond what had been imparted publicly by Corona to newsletters and other
potential investors.
Seager v Copydex Ltd (No 2) [1969] 2 All ER
718, applied
The trial judge found that it was obvious to Mr Sheehan, the
recipient at Lac, that the information was confidential. The information was of
value to Lac in evaluating the Williams property and Lac made use of this
information to the detriment of Corona. The acquisition by Lac of the Williams
property was not an authorised use of the confidential information.
2. Fiduciary duty
Per Wilson, Sopinka, Lamer and
McIntyre JJ: No fiduciary relationship existed between Corona and Lac. The
Court of Appeal erred in concluding that one existed.
Per Wilson J: No ongoing fiduciary relationship arose between
the parties by virtue only of their arm's length negotiations towards a
mutually beneficial commercial contract for the development of the mine. A
fiduciary duty arose in Lac when Corona made available to Lac its confidential
information concerning the Williams property. Lac breached the fiduciary duty
by acquiring the Williams property for itself.
A fiduciary duty can arise out of specific conduct engaged in
by the parties or either of them within the confines of the relationship.
Per Sopinka J (Lamer and McIntyre JJ
concurring): The finding of the existence of a fiduciary relationship is rarely
acquired in the context of an arm's length commercial transaction. The
categories of relationships giving rise to fiduciary duties are not closed.
Guerin
v R [1984] 2 SCR 335, considered
The element of dependency or vulnerability is indispensible to the existence of the fiduciary
relationship.
Hospital
Products Ltd v United States Surgical Corp (1984) 55 ALR 417, followed
This vital ingredient was virtually lacking in this case. A
physical or psychological dependency was not possible with experienced mining
promoters. If Corona was in a vulnerable position, this dependency was
gratuitously incurred. If Corona gave up confidential information, it did so
without obtaining any contractual protection which was available to it.
Equity moves to subject the fiduciary to its strict standards
of conduct. Two caveats exist: the conduct that incurs the censure of a court
of equity in the context of a fiduciary duty cannot itself create the duty;
misuse of confidential information cannot itself create a fiduciary obligation.
Tito
v Waddell (No 2) [1977] 3 All ER 129, followed
Corona did not confer on Lac any discretionary power to acquire
the Williams property. Lac used confidential information to proceed
unilaterally to acquire the Williams property for itself. The Court of Appeal
based the notoriety of the practice in the industry on one statement of one
witness. The evidence is more consistent with the obligation of confidence.
All business negotiations seek to achieve a common purpose.
This factor does not elevate negotiations to something more.
United
Dominions Corp Ltd v Brian Pty Ltd (1985) 60 ALR 741 ;
59 ALJR 676, distinguished
Per La Forest J: A fiduciary duty, albeit of limited scope,
arose in this case. The courts below did not err in finding that one existed
and that it was breached.
Not every legal claim arising out of a relationship with
fiduciary incidents will give rise to a claim of fiduciary duty.
Girardet v Crease & Co (1987) 11 BCLR (2d) 361, approved
A fiduciary obligation can arise as a matter of fact out of the
specific circumstances of a relationship. One party is entitled to expect that
the other will act in his interests in and for the purposes of the
relationship.
Lac was in breach of its fiduciary duty to act fairly and not
to the detriment of Corona by acquiring the Williams property. Three factors
supported the imposition of the fiduciary duty: (1) trust and confidence; (2)
industry practice, and (3) vulnerability.
(1) Trust and confidence: The
relationship that developed between Corona and Lac is a factor worthy of
significant weight in determining whether a fiduciary obligation existed. The
law of confidence and fiduciary duty, while distinct, is intertwined.
Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203
and; Guerin v R [1984] 2 SCR 335, considered
Breach of fiduciary duty does not require that harm be shown to
have resulted. Fiduciary duty is a creation of equity and equitable remedies
alone are available.
(2) Industry practice: In the industry,
it was accepted that there was a "duty" not to act to the other
party's detriment during serious negotiations by the misuse of confidential
information.
Cunliffe-Owen v Teather & Greenwood [1967] 3
All ER 561 ; 1 WLR 1421, applied
The evidence of experts is of considerable importance in
establishing standard practice in the industry from which one can determine the
nature of the obligations which will be imposed by law.
(3) Vulnerability: Corona was vulnerable
to Lac. Vulnerability is not a necessary ingredient but is a relevant
consideration in determining the existence of a fiduciary duty.
Frame
v Smith [1987] 2 SCR 99, approved
The vulnerability arises from the inability of the beneficiary
to prevent the injurious exercise of the power or discretion combined with
inadequate remedies to redress the wrongful exercise. The obligations can be
breached without harm being inflicted on the beneficiary.
Keech v Sandford (1726) Sel
Cas T King 61 ; 25 ER 223,
considered
The "power and discretion" Corona gave up to Lac was
the ability to cause harm to Corona by acquiring the Williams property as a
result of the acquisition of information received from Corona.
Absence of
confidentiality agreement
The court will not deny the existence of a fiduciary obligation
simply because the parties could have regulated their affairs by means of a
confidentiality agreement. Such an agreement is not required to prove breach of
confidence and would merely confirm what each party knows.
Each transaction must be examined on its merits with a view to
ascertaining whether it manifests the characteristics of a fiduciary
relationship.
Hospital
Products Ltd v United States Surgical Corp (1984) 55 ALR 417, approved
A fiduciary relationship is not precluded by the fact that the
parties were involved in pre-contractual negotiations.
United
Dominions Corp Ltd v Brian Pty Ltd (1984) 60 ALR 741 ;
59 ALJR 676, approved
It is a factual question whether the parties reached a stage in
their relationship where their expectations should be protected. Dissenting:
There was no fiduciary duty.
3. Remedies--Constructive trust--Damages
Per La Forest J (Lamer and Wilson JJ concurring): Both courts
below awarded the Williams property to Corona on payment to Lac of the value to
Corona of the improvements Lac had made to the property, and an accounting of
profits to the date of transfer of the mine. These remedies were based on the
findings that but for Lac's breach, Corona would have acquired the property.
In the circumstances of this case, it is not appropriate for
the court to substitute an award of damages for the constructive trust imposed
below. It is a restitutionary claim; a claim for
unjust enrichment. The function of the law of restitution includes restoring to
a plaintiff wealth that would have accrued to his benefit.
Air
Canada v AGBC (4 May 1989, unreported), applied
Precluding Lac from pursuing the Williams property does not
impose an unreasonable restriction on Lac. Here, the confidential information
led to the acquisition of a specific unique asset, and there is only one
property from which Lac is being excluded.
Coco
v A N Clark (Engineers) Ltd [1969] RPC 41, distinguished
The recognition of a constructive trust simply redirects the
title of the Williams property to its original course.
The remedies available for breach of confidence are the same as
for breach of a fiduciary duty; constructive trust is available to both. The
test is twofold: has a claim for unjust enrichment been established, and; in
the circumstances is a constructive trust the appropriate remedy to redress
that unjust enrichment.
Pettkus v Becker [1980] 2 SCR 834, applied
Hunter
Engineering Co Inc v Syncrude Canada Ltd. [1989]
1 SCR 426, distinguished
The value of the mine was difficult to assess but could be
between $700,000,000 and $1,950,000,000. A constructive trust does not require
the existence of a special relationship between the parties.
Per Sopinka J (McIntyre J
concurring): The foundation of action for breach of confidence is sui generis,relying on the traditional
jurisdictional bases for actions of contract, equity or property.
A constructive trust is ordinarily reserved for those
situations where a right of property exists. Confidential information has some
of the characteristics of property but its characterization as such is tenuous.
Nichrotherm Electrical Co Ltd v Percy [1957] RPC 207, considered
Constructive trusts have been applied as a remedy for breach of
fiduciary duty and unjust enrichment. There is no reason to extend the remedy
to this case. In a breach of confidence case, the object is to restore the
plaintiff monetarily to the position he would have been in if no wrong had been
committed.
The Williams property was acquired as a result of information
that was in part public and in part private. The confidential information, at
best, played a part. When the extent of the connection between the confidential
information is uncertain, it would be unjust to impress the whole property with
a constructive trust. Damages is the proper remedy.
There is no evidence that acquisition of the Williams property
as part of the joint programme would have constituted a breach of the mutual
understanding. The negotiations probably would have continued towards a joint
venture.
Corporate taxes were properly deducted from the cash flow to
determine the value of the mine.
Florence
Realty Co Ltd v R [1968] SCR 42, applied
Damages should be calculated by deducting the proportion of the
business Corona would have assumed with Lac, valuing the property as improved,
($700,000,000), and deduct from that figure an estimate of the costs Corona
would have had to expend for exploration and exploitation ($203,978,000 [what
Lac spent] minus $50,000,000 [savings that would have been achieved had Corona
integrated this mine with another]). A reference was directed to determine this
amount with certainty. Corona would likely have received a 50 per cent interest
in the mine due to its partnership with another (ie
Lac or Teck, its present partner) so damages were
assessed at $273,011,000 (one half $350,000,000 minus $153,978,000). One half
of the amount paid to Mrs Williams also had to be
deducted. Profits were not awarded.
Cross-appeal
Corona will receive an enrichment when
Lac hands over the property in the amount of the value of the improvements of
the land to Corona. The trial judge reduced Corona's award by $50,000,000 for
the amount Lac spent.
La Forest J affirmed the award. Lac is entitled to a lien on the Williams property to that extent.
Return to:
Cameron's IT Law: Home Page; Index
Cameron's Canadian Patent & Trade Secrets Law: Home Page; Index