ROFR MADNESS: THE SEQUEL! A CASE COMMENTARY ON THE EL MORRO DECISION AND THE FUTURE OF ROFRS: THE CHILEAN PERSPECTIVE

• Jurisdiction: Derecho Internacional

International Mining and Oil & Gas Law, Development, and Investment
(Apr 2013)
CHAPTER 5A
ROFR MADNESS: THE SEQUEL! A CASE COMMENTARY ON THE EL MORRO DECISION AND THE FUTURE OF ROFRS: THE CHILEAN PERSPECTIVE
Cristián Quinzio
Partner, Quinzio y Cia
Santiago

CRISTIÁN QUINZIO S. is senior partner in the firm of Quinzio & Cia, Santiago, specializing in mining, foreign investment, project financing; engineering and construction contracts (EPC and EPCM); litigation and arbitration; public works concessions; and civil and commercial matters. He has worked as a consulting attorney for various Chilean and foreign companies, both in financing and mining matters, especially project development and financing. He has been consultant on bills that have amended the Chilean Mining Laws. Mr. Quinzio has taught Mining Law for a significant number of years, including as a Mining Law Professor, Universidad de Chile Law School (as of 1991); Mining Law Professor, Universidad de Chile, Mining Engineering and Geology Schools (as of 2012); and Professor for the Master in Business Administration, Mining Industry section of the Industrial Engineering Department, Universidad de Chile Engineering School. He is a regular conference speaker in Chile and abroad in regards to mining law and project development. Mr. Quinzio received his law degree from the Universidad de Chile, and was admitted to practice in 1975. He received a postgraduate degree at the Fletcher School of Law and Diplomacy in Boston 1975-1976, and is the recipient of a Fulbright Scholarship. He received a postgraduate degree in Tax Law, from the Universidad de Chile Law School in 1986. Mr. Quinzio is a member of the Chilean Bar Association, the Latin American Mining Attorney Association, and the Rocky Mountain Mineral Law Foundation. He is fluent in both Spanish and English.

Introduction.

This paper attempts to show how the dispute between Barrick Gold Corp ("Barrick") and Xstrata Copper Chile S.A. ("Xstrata") and others (New Gold Inc. and Goldcorp Inc.) was resolved before the Judicial Branch pursuant to Chilean law. For these purposes, it was first necessary to establish Barrick's position under the Share Purchase Agreement entered into between Xstrata, as seller, and the investment vehicle Inversiones Subco SpA (DataSub) (a subsidiary of Datawave Sciences Inc. ("Datawave"), the latter, in turn, a subsidiary of New Gold Inc.), as purchaser; secondly, we will review the "environment" of this contract in order to determine if Chilean Courts of Law would have found that this contract was simulated under Chilean law. Once this has been done, this document attempts to address the following issues, which we consider essential to the dispute: a) If the sale of Shares by DataSub to Goldcorp Inc. ("Goldcorp"), representing the rights that Xstrata held in El Morro Chile, was in itself legitimate; b) if the damages claimed by Barrick against Xstrata were available at law, and, if affirmative, how could this be calculated in Chile, and; c) how was competent jurisdiction vested upon Chilean courts.

From our study of this matter, we can conclude as follows pursuant to Chilean regulations:

i) Barrick is a third party both in respect of the Shareholders Agreement among Xstrata and Datawave (New Gold) and the Share Purchase Agreement entered into between DataSub and Goldcorp Inc. This third party status implies that no rights arise for the plaintiff Barrick under said contracts.

ii) Having analyzed the circumstances of the type of contract executed between Xstrata and DataSub (New Hold) - the "Xstrata Purchase Agreement" -, the necessary requirements have not been met to establish a simulation of contract, and therefore it could not be challenged in its effects on those grounds.

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iii) The above notwithstanding, and as a decisive element of interpretation when determining the actual intention of the involved parties, it is necessary to note that sale of DataSub shares (New Gold) to Goldcorp was completely lawful, and therefore there was no need to simulate a contract.

iv) The legitimacy of the of the Xstrata Purchase Agreement under Chilean law can be observed from two perspectives. On one hand, it is necessary to determine the sense and scope of clause 10.4 of the El Morro Chile Shareholder's agreement, which serves a double purpose; the first of which is to grant a right to hold a preference in terms of purchasing shares, directly related with maximizing the advantages that a business can bring when conceived as an economic unit handled by a single operator; and the second, also established in its favor, which is consistent with the relationship of the continuing shareholder in respect of the others, so as to impede the entry of shareholders that could affect its stake in the company whose shares are for sale. In light of the above, and given Barrick's third party status, this company could never have invoked a right established in favor of Datawave, as is the ROFR, since the right belongs to the latter.

v) Additionally, also in connection with the lawfulness of the Share Purchase -Agreement between DataSub and GoldCorp, this contract is protected by the principle of free circulation of goods, underpinning the Chilean legal system. One can only conclude that these shares are freely transferable goods, unless otherwise agreed, which did not occur in this case.

vi) The only thing left to say is that given the absolute validity of the transactions conducted by the defendants, there are no damages to compensate. However, it is alleged, regardless of the above, in Chile there is a criterion to determine compensable damages upon expropriation of a mining concession, and this criterion could be used to assess damages brought as a result of losing the concession, as established in article 11 of the Constitutional Organic Law on Mining Concessions (No. 18,097).

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vii) Finally, and finalizing this conclusion summary, note that if the conflict had been decided in Chile, the arbitration agreement among Xstrata and Barrick would not be extensive to DataSub, Datawave and Goldcorp, given the arbitration agreement's contractual nature. In such circumstances, a contract simulation action should have been brought before ordinary courts of law. Upon judicial declaration of the simulation of contract, the decision could be submitted as evidence in a potential breach of contract claim between Barrick and Xstrata, all before an arbitral tribunal.

1. What is Barrick's position in connection with the exertion of the ROFR between Xstrata and DataSub, the "Xstrata Share Purchase Agreement"?

Article 1545 of the Civil Code provides: "All lawfully completed contracts are a law for the contracting parties, and it cannot be invalidated but by their mutual consent or on legal grounds", while article 1438 of the same legal body sets fort that "[A] Contract or convention is an act by which one party becomes bound to another to give, execute or refrain from executing a certain thing. Each party may consist of one or many persons."

The articles cited above clearly establish the principle of the relative effect of...