We expect people to show good faith and fairness to each other. Corporate morality, on the other hand, is harder to put into law. Corporations, whose primary purpose is profit maximization, seek any advantage to gain on their competitors. Where does the law draw the line? In 1989, the case of Lac Minerals Ltd. (Lac) and International Corona Resources Ltd. (Corona) began to answer that in the context of the misuse of confidential information.
Corona had carried out an extensive exploration program. It had shared its favourable findings with Lac who used it for its own corporate gain to Corona’s detriment. When Corona discovered Lac had won the project, it filed a lawsuit, alleging breaches of contract, confidence and fiduciary duty.In 1980, David Bell was a geologist with Corona, a junior mining company incorporated and publicly listed only one year earlier. He conducted assays on land owned by Mrs. Williams in the Hemlo area of Northern Ontario. He published some of the results in news releases and newsletters. Lac, a senior mining company in Vancouver, saw the published results and arranged with Corona to view the property on May 6, 1981. Lac was shown detailed confidential documents such as geological findings and maps, assay results, area geology, drilling plans and the potential of large gold reserves over a large area. No confidentiality measures were discussed at this meeting. Lac advised Corona to pursue the Williams property.
After the meeting, Lac conducted additional research on the Williams and adjacent properties. They obtained more government maps, reports, publications and assessments for the area. Lac geologists determined that about 600 claims should be staked in the area and immediately began staking claims.
Two days after the first meeting, Corona managers met at Lac’s head office in Toronto. The geology of the area was further discussed along with potential high level terms of an agreement between the two companies. Adjacent lands and strategies were also discussed. Lac followed up with a letter describing various options on how Lac could partner with Corona to exploit the resources on Corona’s land. Lac was already staking rights in the area and was aware of Corona’s financial limitations. It welcomed Corona in the overall exploration strategy and proposed collaborating with Corona on this project. Lac would finance it, and create a subsidiary to form a joint venture with Corona to develop the property.
While these discussions were ongoing, further assay results were published. Corona never imposed confidentiality on the information it was sharing with Lac. Likewise, Lac never said it would not purchase the property.
Corona approached Mrs. Williams to acquire the property on June 8, 1981. After a June 30 meeting, Corona left more confidential documents at Lac’s office. In the end, Lac and Corona did not come to terms regarding the property because Lac was pursuing the Williams aggressively. Using confidential information it had received from Corona on the assumption that a longer term joint venture would be formed, it independently made a richer offer, which Mrs. Williams accepted on August 25, 1981. Lac did not inform Corona that it was quietly bidding on the Williams property. After the momentum had shifted to Lac, negotiations between the two companies to establish a joint venture failed.
Corona had carried out an extensive exploration program. It had shared its favourable findings with Lac who used it for its own corporate gain to Corona’s detriment. When Corona discovered Lac had won the project, it filed a lawsuit, alleging breaches of contract, confidence and fiduciary duty.
In the Supreme Court of Canada
Lac had spent about $204 million to develop the mine, but by the beginning of 1986, the Williams property was estimated to be worth $700,000,000. This would rise to $2 billion by 1994.
The five-person Court was divided [Lac Minerals Ltd. v. International Corona Resources Ltd.,  2 SCR 574 http://canlii.ca/t/1ft3w]. Three judges found a fiduciary relationship had not been created but all judges found a breach of confidence by Lac. Breach of confidence protects private information that is confidential in nature, disclosed in confidence and is misused to the detriment of the discloser. In this case, the additional material private information was valuable to evaluate the property. It was shared by Corona under the assumption that there would be a business arrangement or joint venture between the two companies in the future. Lac had exploited this confidential information for its own gain, at the expense of Corona.
As for the legal remedy, the judges discussed whether it should be in the form of property or damages. Three judges imposed a constructive trust on Lac for the benefit of Corona, which was essentially to give Corona the mine.
Where are the Parties Now?
This case had a huge impact on both mining companies. On the day of the judicial decision, the shares of Lac fell by 50%, and Corona stock rose by 80%.
The Williams mine in Hemlo became Canada’s top gold producer. In the first quarter of 1990, the mine produced more than 151,000 ounces of gold. Three mines eventually arose from the Hemlo lands and total production was 1,058,000 ounces of gold.
Corona thrived. It joined with Teck Corp which took a 50% stake in the Williams land. In 1992, Corona was purchased by Homestake Mining Company.
Weakened financially by comparison, Lac was acquired in 1994 by Barrick Gold.
Ironically, Barrick Gold, after it took over Lac, also eventually acquired Corona by merging with Homestake in 2001 to become the largest gold mining company in the world.
Fiduciary duty and confidentiality must be taken seriously when negotiating business transactions.
This article is co-authored by Peter Bowal, Christopher Tang and Vincenzina Enza Rosi.
Christopher Tang, an accountant in Calgary, is a 2014 graduate of the Haskayne School of Business and Enza Rosi, an analyst with TransCanada Pipelines in Calgary, is a 2012 MBA graduate of the Haskayne School of Business.