Not the brightest family of investors... LOL!
Baines: Gallowai Bul River dissidents strike out, again
By David Baines, Vancouver Sun December 18, 2010
Unhappy shareholders of Gallowai Metal Mining Corp. and Bul River Mineral Corp. have lost another bid to take control of those companies and a mining project near Cranbrook.
In an oral decision delivered Friday, a B.C. Court of Appeal tribunal dismissed an application by 12 dissident shareholders to overturn a lower court ruling that effectively left Calgary promoter Ross Stanfield in control of the companies and the project.
Reading the appeal court decision from the bench, Justice Mary Saunders twice referred to the "wondrous" promises and commitments that Stanfield made to shareholders about bringing the mine into production, all of which have come to naught. But she said the dissident shareholders did not plead fraud or misrepresentation in their original petition to remove Stanfield; rather they complained about Stanfield's corporate governance practices and his failure to respond to their questions and concerns.
Those questions and concerns arose from the fact that Stanfield had raised more than $220 million from 3,700 shareholders over the past three decades, and had repeatedly told them the property was fabulously rich and on the verge of production, but nothing ever happened.
The dissidents are all from Alberta.
They are led by Lester Stahlke of Edmonton, a former Lutheran pastor who runs a consulting company that specializes in corporate governance. He invested $106,000 in Gallowai in 1995.
Another member of the group is Edmonton businessman Stephen Roehrig, who invested $757,000 in Gallowai and Bul River, and encouraged friends and family members to invest another $507,050.
Another is Russel Renneberg, a civil engineer from Sherwood Park. He invested $594,250 in Gallowai, and encouraged friends and family to invest another $1.17 million in both companies.
In the lower court ruling, B.C. Supreme Court judge Peter Leask said the dissidents knew that Stanfield owned all the voting shares, and that they were buying non-voting shares. He also said they knew they were not entitled to attend annual board meetings, and that Stanfield could legally waive those meetings, as he routinely did. The judge also found that Stanfield's response to the dissidents' questions and concerns, although limited, were reasonable.
Leask further noted that the dissidents knew the mining venture was speculative, and there was no guarantee the property would ever go into production.
He also said they knew that previous timelines provided by Stanfield had not been met, and yet some of dissidents invested more money.
Leask concluded that their expectation that the mine would be brought into production within a reasonable period of time was, in fact, not reasonable.
In their appeal, the dissidents argued that Leask did not take into account Stanfield's repeated representations that the mine was on the verge of production. They argued those representations were, in fact, misrepresentations. They sought to introduce a host of evidence to show that Stanfield repeatedly lied about exploration results, and omitted to disclose other information that would have raised questions about the viability of the deposit.
But Saunders said the dissidents' petition did not allege misrepresentation, and that based on the original pleadings, Leask did not make any errors of law or fail to consider relevant evidence.
I respectfully disagree. I think it was open to Leask to find that, based on Stanfield's representations, it was reasonable for shareholders to conclude that production was imminent. I also think that Stanfield's repeated failure to deliver on those representations -- in the absence of any rational explanation -- amounted to oppressive behaviour.
So where are we now? I was unable to contact the dissidents by press time, but I suspect they will not seek leave to appeal to the Supreme Court of Canada. I also suspect they have no stomach to relaunch the case as a tort of fraud and misrepresentation.
That brings the case squarely back to the Alberta and B.C. securities commissions. If the ASC had been doing its job, it would have intervened and forced proper disclosure a long time ago. It wasn't until this year that the BCSC ordered the company to produce a technical report. But Stanfield has since died, and the companies say they have not been able to raise enough money to fund the report.
In my view, the BCSC and ASC should pay for the report. It would cost about $100,000. This is not an unreasonable expenditure in terms of the budgets of either commission, or in terms of the immense amount of money and time that shareholders have sunk into this project.
Alas, I fear that neither commission has any interest in bringing critical evidence to bear on what is clearly a regulatory fiasco of the highest order.
dbaines@vancouversun.com
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