Copper North Mining Corp. v. Granite Creek Copper Ltd.

2019 BCSC 2272 Copper North Mining Corp. v. Granite Creek Copper Ltd.

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Copper North Mining Corp. v. Granite Creek Copper Ltd., 2019 BCSC 2272 Date: 20191204 Docket: S1913325 Registry: Vancouver Between: Copper North Mining Corp. Plaintiff And Granite Creek Copper Ltd. Defendant Before: The Honourable Madam Justice Adair Oral Reasons for Judgment In Chambers Counsel for the Plaintiff: B.J. Hicks S. Gladders, A/S Counsel for the Defendant: K. McEwan, Q.C. S. Chang Place and Date of Hearing: Vancouver, B.C. December 3, 2019 Place and Date of Judgment: Vancouver, B.C. December 4, 2019 [1] THE COURT: This action involves a dispute between two BC mining companies: Copper North, who is the plaintiff; and Granite, who is the defendant. They own mining interests adjacent to one another in the Yukon. [2] In June 2019, representatives of the parties began discussing a potential merger, possibly by way of an arrangement. They began exchanging financial and other information. For example, Copper North disclosed information concerning certain of its debts and potential options for addressing those debts. By early August, Copper North and Granite had finalized a joint memo setting out steps to be taken to complete an arrangement. [3] Effective August 14, 2019, Copper North and Granite entered into a "Mutual Non-disclosure Agreement." A copy of this Agreement is found at Exhibit "C" to Doug Ramsay's Affidavit no.

1. [4] The Agreement provided, among other things (and I am going to paraphrase here quite extensively): s. 2: the Parties are prohibited from disclosing "Confidential Information" as defined in s. 1 of the Agreement or from using confidential information for any purpose other than to pursue the potential transaction contemplated by the Agreement; s. 9: (referred to in submissions as the "Standstill provision") during the term of the Agreement, each Party is prohibited from, without the prior written consent of the other Party's board of directors: i. acquiring, offering to acquire, or agreeing to acquire securities of the other Party, that would result in the acquiring Party, directly or indirectly, exercising control or direction over securities of the other Party that, in the aggregate, represent more than 5% of the voting securities of that Party, ii. soliciting or in any way participating in any solicitation of proxies from shareholders of the other Party or otherwise seeking to advise or influence any shareholder of the other Party with respect to voting any securities of that Party, iii. engaging in any discussions or negotiations with, enter into any agreement or submit a proposal for, or offer to acquire or announce an intention to offer or acquire or assist, advise or encourage any other person or entity to effect a take-over bid, tender or exchange offer involving

the other Party or any of its affiliates or any subsidiary of any of them s. 16: the term of the Agreement is two years commencing August 14, 2019. [5] Discussions and negotiations continued in September. The parties entered into a non-binding term sheet for a proposed merger whereby Granite would acquire all of the outstanding common shares of Copper North, subject to a number of conditions. These included completion of satisfactory due diligence, and negotiation and agreement on key terms, including the consideration to be paid by Granite. [6] However, by the end of October, discussions and negotiations between Copper North and Granite had broken down. By correspondence dated October 30, 2019, addressed to Copper North, Granite took the position that both the term sheet and the Non-disclosure Agreement were terminated. In its correspondence, Granite took the position that the termination was a result of Copper North's failure to negotiate in good faith and breaches of both the term sheet and the Non-disclosure Agreement. [7] I note that Copper North disputes that it either failed to negotiate in good faith or breached the terms of either the term sheet or the Non-disclosure Agreement. [8] Granite says that at no time following execution of the Non-disclosure Agreement did Copper North provide any "Confidential Information" (as defined) to Granite. I note also that Copper

North disputes this assertion. [9] On November 21, 2019, Granite issued a press release, announcing that it had entered into an agreement to acquire approximately 26,100,000 common shares of Copper North, representing approximately 30% of Copper North's outstanding common shares. The press release stated that the shares were being acquired pursuant to the "private placement exemption" of applicable securities laws. The press release stated further that Granite was entitled to rely on the exemption because the shares will be acquired from not more than five vendors and the value of the consideration payable is not greater than 115% of the market price of the shares. [10] On November 22, 2019, Copper North filed its notice of civil claim in this action. It alleged (among other things) that by entering into the agreement described in the press release, Granite was in breach of the Non-disclosure Agreement, specifically section 9(c), the standstill section of the Agreement. On a without-notice basis, it sought and obtained an interim injunction. Paragraph 1 of the November 22, 2019 order provides: Until 4:00 p.m. on November 27, 2019, or further order of the court or written agreement of the parties, Granite Creek Copper Ltd. is hereby enjoined from completing the share acquisition referred to in its press release dated November 21, 2019, a copy of which is attached as Appendix A

to this order, and from completing any other transaction that would violate Section 9 of the mutual non‑disclosure agreement dated August 14, 2019, between Copper North Mining Corp. and Granite Creek Copper Ltd. [11] Originally, that injunction expired at 4:00 p.m. on November 27, 2019. However, it was extended by further orders to 4:00 p.m. on November 28, 2019, and then to 4:00 p.m. on December 3, 2019. [12] Copper North now seeks an interlocutory injunction to enjoin Granite from (reading from paragraph 2 of part 1 of the notice of application): a) completing the share transaction announced in its news release dated November 21, 2019; b) completing any other transaction contrary to the standstill provisions of the Mutual Non-Disclosure Agreement dated August 14, 2019, between Copper North Mining Corp. and Granite Creek Copper Ltd.; or c) taking any other step or action contrary to the standstill provisions of the Mutual Non-Disclosure Agreement dated August 14, 2019, between Copper North Mining Corp. and Granite Creek Copper Ltd. until August 13, 2021 or further order of this Court. [13] Granite says that Copper North's application must be dismissed. [14] In addition, Granite has applied for an order that the interim injunction pronounced by Madam Justice McDonald must be set aside. That application is opposed by Copper North. [15] At the conclusion of the hearing yesterday,

I reserved judgment and extended the interim injunction to 4:00 p.m. today. [16] For the reasons that follow, I have concluded that the application of Copper North for an interlocutory injunction must be dismissed. It follows (to the extent necessary) that the application of Granite to set aside the interim injunction should be granted. [17] I will deal first with Granite's submission that, when Copper North's application came on for hearing before Madam Justice McDonald, Copper North did not make full and frank disclosure to the court of all relevant facts. Granite says that, in particular, Copper North failed to disclose that it is insolvent and is unable to provide a meaningful undertaking as to damages. Granite says that it is well established that a party seeking an ex parte order must make full and frank disclosure of all relevant facts to the court. Where counsel fails to do so, the usual consequence is the vacating of the ex parte order. Granite cites Kriegman v. Dill, 2018 BCCA 86, at para. 39, and Pierce v. Baynham, 2015 BCCA 188, at para. 1, in support of its position. [18] I have concluded that it is unnecessary for me to express an opinion on this issue. Rather, I prefer to deal with the question of whether the injunction sought should be granted on the merits. [19] There is no dispute about the test that applies on an application for an interlocutory

injunction. [20] The granting of an injunction is discretionary. [21] To obtain an interlocutory injunction, the applicant must establish that: (a) there is a serious issue to be tried; (b) the applicant would suffer irreparable harm if the relief is not granted; and (c) the balance of convenience favours granting the injunction. See RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311. [22] Although the test in RJR-MacDonald has three elements, injunctions are equitable remedies, and the fundamental question in each case is whether the granting of the injunction is just and equitable in all the circumstances of the case. See British Columbia (Attorney General) v. Wale (1986), 9 B.C.L.R. (2d) 333 (C.A.). [23] The burden with respect to the first requirement - is there a serious question to be tried - is relatively low. The applicant must simply satisfy the court that the claim is not frivolous or vexatious. At this stage, the court should not embark on a prolonged or extensive examination of the merits: see Vancouver Aquarium Marine Science Centre v. Charbonneau, 2017 BCCA 395, at paras. 39-40. [24] Granite says that s. 9 - the standstill provision - in the Non-disclosure Agreement is expressly tied to the issue of whether or not Confidential Information was made available by Copper North after the signing of the Non-disclosure Agreement. Granite says that Copper North's own evidence (that is, the properly admissible evidence) does not establish that it made available any Confidential Information that would trigger the protections of s.

9. It says further that Copper North has not pleaded that any Confidential Information was misused in connection with conduct prohibited under s. 9. [25] Despite those submissions, I find that Copper North has met its burden with respect to the first requirement. In the end, and in oral submissions, Granite did not seriously argue to the contrary. [26] I turn, then, to irreparable harm and the balance of convenience. [27] The court in RJR-MacDonald, at p. 341, describes the nature of irreparable harm and provided some examples: "Irreparable" refers to the nature of the harm suffered rather than its magnitude. It is harm which either cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other. Examples of the former include instances where one party will be put out of business by the court's decision [citation omitted]; where one party will suffer permanent market loss or irrevocable damage to its business reputation [citation omitted] . . . . The fact that one party may be impecunious does not automatically determine the application in favour of the other party who will not ultimately be able to collect damages, although it may be a relevant consideration [citation omitted]. [28] With respect to the evidentiary burden, as Madam Justice Bennett noted in Vancouver Aquarium, at para. 60: [T]here must be a

foundation, beyond mere speculation, that irreparable harm will result. Interlocutory injunctive relief pending the trial of the issues is a significant remedy, and should be invoked only when the test in RJR-MacDonald is satisfied on a sound evidentiary foundation. [29] Assessing the balance of convenience involves consideration of which of the parties would suffer greater harm from the granting or refusal of the remedy pending a decision on the merits: see RJR-MacDonald, at p. 342. [30] The factors to be considered in assessing the balance of convenience include: (a) the adequacy of damages for the applicant if the injunction is not granted, and for the respondent if it is granted; (b) the likelihood that, if damages are awarded, they will be paid; (c) the preservation of contested property; (d) which of the parties has acted to alter the balance of their relationship and so affect the status quo; (e) the strength of the applicant's case; (f) any factors affecting the public interest; and (g) any other factors affecting the balance of convenience. See Canadian Broadcasting Corporation v. CKPG Television Ltd. (1992), 64 B.C.L.R. (2d) 96 (C.A.), at p. 102. [31] Copper North argues that an applicant for an injunction is generally not required to prove irreparable harm where the injunction is sought to prevent a party from breaching a negative covenant, which it says is the case here. Rather, irreparable harm is presumed. In support of its position, it cites Merrill Lynch Canada v. Pastro and Marshall, 2000 BCSC 1889, at para.

52. Copper North also points to s. 11 of the Non-disclosure Agreement, which provides in part: Any breach by the Recipient of the provisions of this Agreement may result in irreparable harm to the Disclosing Party, that money damages may be both incalculable and an insufficient remedy for any such breach . . . and that the Disclosing Party shall be entitled to seek equitable relief, including . . . an injunction. [32] However, more recent authorities show that irreparable harm and the balance of convenience must still be considered. For example, in Belron Canada Inc. v. TCG International Inc., 2009 BCCA 577, Mr. Justice Low (for the Court) said, at para. 22: [22] It is probably correct to say that in most commercial cases involving sophisticated and solvent litigants in which a strong prima facie case is made out that there has been or will be breach of a negative covenant, an interim injunction will be granted. But this area of law would not be well served by formulating a rule, as suggested by Belron, that the injunction should always be granted absent exceptional circumstances. The questions of irreparable harm and balance of convenience should be addressed. Each motion for an interim injunction should be determined on a discretionary basis under the three-part test. On the present state of the law, there is no basis for holding that the test is not of general

application. [33] Moreover, in my opinion, s. 11 of the Non-disclosure Agreement, which says only that "breach . . . may result in irreparable harm," does not relieve Copper North of the need to put some evidence before the court of irreparable harm if the injunction sought is not granted. [34] Here, there is nothing more than the bald assertion that "Copper North has suffered and will continue to suffer loss, damage, and harm, including irreparable harm," and speculation by Mr. Ramsay (in his Affidavit no. 2) about how Granite might vote its shares if the transaction referred to in the press release is completed. Meaningful details about the nature of the harm claimed, and how or why it may be irreparable, are altogether lacking. In my view, Copper North has wholly failed to meet its burden with respect to evidence of irreparable harm. [35] In addition, in my view, the balance of convenience does not favour granting the injunction sought. I note that the granting of an injunction will prevent Granite from obtaining the shares and voting them in the upcoming special meeting. This meeting was requisitioned by H. Coyne & Sons pursuant to a notice dated November 6, 2019, and is described in more detail in Copper North's material change report dated November 12, 2019. [36] More significantly, although Madam Justice McDonald's orders included an undertaking by Copper North to abide

by any order that the court may make respecting damages resulting from the injunction, its ability to satisfy such an undertaking to the court is doubtful, based on the evidence now in the record (and which was not before Madam Justice McDonald) concerning its current financial circumstances. The inability of an applicant to give a meaningful undertaking as to damages will not, on its own, prevent the granting of an injunction: see Canadian Petcetera Limited Partnership (Re), 2009 BCSC 520, at para.

26. However, I give it significant weight in the overall assessment of the balance of convenience here. [37] In the result, the balance of convenience favours Granite, not Copper North. [38] In summary, the plaintiff's application for an interlocutory injunction is dismissed. The interim injunction that was granted by Madam Justice McDonald and extended by me yesterday is dissolved as of 4:00 p.m. today, and the defendant's application is allowed to that extent. [39] Did counsel have submissions that they wish to make concerning costs? (SUBMISSIONS ON COSTS) [40] THE COURT: Well, Granite was successful. So I think the appropriate order in the circumstances is that Granite should have its costs in any event of the cause. [41] MR. HICKS: My Lady, that is sensible. [42] THE COURT: And I make that order. "ADAIR J"