ROFR MADNESS: THE SEQUEL! A CASE COMMENTARY ON THE EL MORRO DECISION AND THE FUTURE OF ROFRS: THE CANADIAN PERSPECTIVE
| Jurisdiction | Derecho Internacional |
(Apr 2013)
ROFR MADNESS: THE SEQUEL! A CASE COMMENTARY ON THE EL MORRO DECISION AND THE FUTURE OF ROFRS: THE CANADIAN PERSPECTIVE
Senior Counsel, Teck Resources Limited
Vancouver, British Columbia, Canada
Fred Pletcher
Partner, Borden Ladner Gervais
Vancouver, British Columbia, Canada
ANTHONY A. ZOOBKOFF is Senior Counsel and Assistant Secretary with Teck Resources Limited, based in Vancouver, British Columbia. He has extensive experience in mineral law and mining acquisition and operating agreements including negotiating and preparing Canadian and international contractual and corporate-form joint ventures. Mr. Zoobkoff co-presented papers at the Rocky Mountain Mineral Law Foundation's 50th, 53rd and 56th Annual Institutes and was a guest lecturer at the Foundation's 2008 Mining Law Short Course. He has also been a frequent lecturer on mining law issues at Continuing Legal Education seminars organized by the Law Society of British Columbia and Conference Board of Canada and to corporate and mining law classes at the University of British Columbia Law School. He is a member of a number of industry advisory committees to the British Columbia Provincial Government on mining issues. He is a past Chairman and Vice-Chairman of the B.C. Branch of the Canadian Bar Association, Natural Resources, Mining section. Mr. Zoobkoff obtained a Bachelor of Arts degree from the University of Calgary in 1973 and an LL.B. from the University of Alberta in 1976. He was called to the bar in British Columbia and joined the corporation's Law Department in 1977.
FRED R. PLETCHER is a partner at the Vancouver office of Borden Ladner Gervais LLP and is Chair of the firm's National Mining Group. He advises Canadian and international companies, underwriters and investors in connection with a broad range of transactions and issues, including mergers & acquisitions, corporate finance, corporate governance, continuous disclosure and commercial contracts. While Fred acts for a wide range of clients in diverse industries, he has a particular focus on companies and transactions in the mining industry. Fred has been recognized in Chambers Global - The World's Leading Lawyers for Business in mining. The Best Lawyers in Canada in natural resources, corporate and securities law, The 2013 Lexpert/American Lawyer Guide to the Leading 500 Lawyers in Canada in mining and corporate finance & securities, The Canadian Lexpert Legal Directory in the fields of mining, corporate, commercial, corporate finance & securities and mergers & acquisitions, and the International Who's Who of Mining Lawyers. Mr. Pletcher graduated from Columbia University with an LL.M in 1993 after completing an LL.B at the University of Toronto in 1991. Prior to legal studies, he received an A.B., magna cum laude, from Harvard University. He was called to the British Columbia bar in 1993. Fred has served as a trustee of the Rocky Mountain Mineral Law Foundation and as an adjunct professor at the University of British Columbia Faculty of Law. He is a member of the editorial board for Carswell's Securities Law and Practice (3rd ed.) and has presented numerous papers on mining and securities law topics at conferences across Canada, the United States and Europe.
Synopsis
§ 7.01 Introduction
§ 7.02 Facts
§ 7.03 The Barrick Claims
§ 7.04 Chilean Law
§ 7.05 Barrick's Principal Claim - Invalid Exercise of the ROFR
[1] General
[2] Characterization of the ROFR
[3] Validity of the Individual Transactions Contemplated by the Acquisition and Funding Agreement
[4] Need to "Consolidate"
[5] "On-Sale" from a Departing Shareholder
[6] Conditionality
[7] Indirect Conveyances
[8] Assignment of the ROFR
[9] Risk of Closing
[10] Common Business Practice and Good Faith Obligations
§ 7.06 Alleged Breaches by Xstrata Chile of Good Faith Obligations
[Page 5B-2]
§ 7.07 Tort Claims
§ 7.08 Alleged Misuse of Confidential Information
§ 7.09 Unjust Enrichment Claim
§ 7.10 Remedies
§ 7.11 Conclusion
[1] General Take-Aways from Barrick v. Goldcorp.
[2] Ultimate Economic Effect of the El Morro ROFR
[3] ROFRs and Preliminary Joint Venture Structuring
[4] Alternatives and Variants to ROFRs
[5] Dispute Resolution and Arbitration for ROFRs
[6] Confidentiality Agreements and ROFRs
§ 7.01 Introduction
The operation and interpretation of rights of first refusal (ROFRs) are a frequent subject of dispute and litigation between parties to commercial contracts in the resource sector. In a prior paper on rights of first refusal,1 the authors identified the dispute in early 2010 among Barrick Gold Corporation (Barrick), Xstrata Copper Chile S.A. (Xstrata Chile), Goldcorp Inc. (Goldcorp), New Gold Inc. (New Gold) and a number of their related companies with respect to the El Morro copper/gold project in Chile, and the operation of a ROFR provision in the shareholders' agreement governing El Morro, as a cautionary example of the difficulties that can arise in connection with these clauses, even where the operative ROFR was negotiated and clearly drafted by sophisticated and well-advised parties.2
[Page 5B-3]
On June 26, 2012, Justice Wilton-Siegel of the Ontario Superior Court of Justice released his decision in Barrick Gold Corporation v. Goldcorp Inc.3 dismissing Barrick's claims that Goldcorp's acquisition of a 70% interest in the El Morro project from a subsidiary of New Gold, following the exercise of a ROFR, breached both the shareholders' agreement governing El Morro and Barrick's conditional agreement with Xstrata Chile to purchase that 70% interest. The decision considers a number of important principles that animate ROFRs and other transfer restrictions in resource agreements generally.
§ 7.02 Facts
The facts of the case were set out in some detail in the previous paper,4 but can be briefly summarized as follows:
• The El Morro copper/gold project is located in northern Chile in the Atacama desert.
• The deposit was discovered in the 1990s by a Canadian junior exploration company, Metallica Resources Inc. As with many juniors having limited financial resources, Metallica joint ventured the project with Noranda Inc. in the late 90s, with Noranda taking a majority 70% interest. Over time, New Gold succeeded to Metallica's interest and Xstrata Chile to the Noranda interest.
• Xstrata Chile earned a 70% interest in El Morro by carrying out work on the property and funding a feasibility study which was completed in March 2008, following which Xstrata Chile and a subsidiary of New Gold entered into a shareholders' agreement (Shareholders' Agreement) governing Sociedad Contractual Minera El Morro (El Morro Company), which, in turn, owns the El Morro project.
• The Shareholders' Agreement contained a mutual right of first refusal (El Morro ROFR) in Section 10.4, which provided that if either shareholder received an offer from a third party for all or any portion of its shares or shareholder loans in the El Morro Company or any other rights, interests, entitlements, obligations and liabilities under the Shareholders' Agreement, that it wished to accept, the non-selling shareholder would have 60 business days to purchase the selling shareholder's interest on the same terms as the third party offer.
[Page 5B-4]
o In March 2009, Xstrata Chile began an auction process for its 70% interest in the El Morro Company.
o A number of companies, including Barrick, executed confidentiality agreements with Xstrata Chile and participated in the auction process.
o Goldcorp did not sign a confidentiality agreement and did not participate in the auction process.
o On October 11, 2009, Barrick and Xstrata Chile entered into a conditional sale agreement (Barrick Sale Agreement) under which Xstrata Chile agreed to sell its 70% interest in the El Morro Company and all of its other rights, interests, entitlements, obligations and liabilities under the Shareholders' Agreement to Barrick for $463 million, which triggered the El Morro ROFR in favour of New Gold's subsidiary under the Shareholders' Agreement.
• Also on October 11, 2009, Xstrata Chile provided the required notice under the El Morro ROFR to New Gold thereby giving New Gold 60 business days (until January 7, 2010) to exercise the El Morro ROFR.
• Xstrata Chile's obligation to sell its 70% interest to Barrick under the Barrick Sale Agreement was subject to a condition precedent that New Gold waive or not exercise the El Morro ROFR.
• Subject to the El Morro ROFR not being exercised, the sale of Xstrata Chile's 70% interest to Barrick was to close not later than January 30, 2010.
• Prior to receipt of Xstrata Chile's notice under the El Morro ROFR, New Gold had retained a financial advisor to assist it in maximizing the value of its 30% interest in the El Morro Company.
[Page 5B-5]
• The New Gold process involved discussions with various parties, including Barrick, concerning a possible sale of New Gold's 30% interest or, if New Gold chose to exercise the El Morro ROFR, a 70% or 100% interest in El Morro. These discussions continued throughout the period leading up to the expiry of the El Morro ROFR on January 7, 2010.
• During the evening of January 6, 2010 (the day before the El Morro ROFR was to expire), Goldcorp and New Gold entered into an Acquisition and Funding Agreement (Acquisition and Funding Agreement), pursuant to which:
— Goldcorp agreed to lend a newly created New Gold subsidiary the $463 million required to purchase Xstrata Chile's 70% interest in El Morro, conditional on New Gold exercising the El Morro ROFR;
— New Gold agreed that it would exercise the El Morro ROFR and then assign the resulting right to purchase Xstrata Chile's 70% interest to the New Gold subsidiary;
— the New Gold subsidiary would then complete the purchase of Xstrata Chile's 70% interest;
...— Goldcorp would then acquire the
To continue reading
Request your trial