Winspear and Aber gear up for legal joust
Winspear Resources Ltd WSP
Shares issued 33,721,333 Mar 31 close $3.33
Thu 1 Apr 99 Street Wire
Also Aber Resources Ltd (ABZ)
MORE TO MINING PLAYS THAN GEOLOGY
by Stockwatch Business Reporter
A widely circulated joke has a visitor to a mining company's corporate
office being guided down a hall and, while passing a suite of offices, the
guide comments, "That used to be our exploration department, now it's our
legal department." Whether the present dismal environment for resource
companies has led to an increase in litigation as some suggest, there is
little doubt that there is far more to mining exploration than an
understanding of geology.
Property agreements, joint ventures, financing, and so on, entail
contractual obligations that are perhaps best understood by legal experts.
Even then, as evidenced by the dispute between Aber Resources and Winspear
Resources over the Camsell Lake property, there may be differences of
interpretation. Be that as it may, the law and contracts are an integral
part of the mining business, as Winspear's growing interest in the Camsell
Lake property over the years attests.
Pursuant to a Feb. 5, 1993, agreement with AfriOre Limited, Winspear and
Aber each acquired a 40 per cent interest in the Camsell Lake property and
an underlying agreement between AfriOre and R.T. Heard & Associates, with
AfriOre retaining a 20 per cent interest. In a May 17, 1993, agreement with
Consolidated Newgate Resources (the former name of Antler Resources),
Winspear exchanged a 10 per cent interest in the Camsell Lake property for
a 16 2/3 per cent interest in the Apex properties, also located in the
Northwest Territories. In 1995, AfriOre failed to make a cash call as
required under the Camsell Lake joint venture agreement and its stake was
reduced to 14.8 per cent. Accordingly, the interest of Newgate, Winspear,
and Aber increased to approximately 10.65 per cent, 31.95 per cent, and
42.6 per cent, respectively.
In December 1995, Antler (formerly Newgate) increased its interest to 25.34
per cent by purchasing AfriOre's remaining stake in Camsell Lake. As a
result of the subsequent amalgamation of Antler and Winspear, Winspear held
a 57.34 per cent interest in the property, according to a July 1997
prospectus.
Following Aber Resource's election not to participate in the 1998
exploration program for Camsell Lake, its interest in the joint venture was
reduced to 32.24 per cent and Winspear's interest increased to 67.76 per
cent. This development was announced by Winspear on Feb. 3, 1998, following
receipt of written confirmation of Aber's election not to participate. On
March 15, 1999, Aber and Winspear surprised their investors with separate
announcements regarding a dispute over the 1999 exploration program.
Winspear claimed that Aber was deemed to have elected not to participate in
the program and Aber countered that it rejected that suggestion and would
commence litigation to protect its interest. To that end, Aber filed a
statement of claim against Winspear in the Supreme Court of British
Columbia on March 30. The following day, Winspear announced that it
"intends to vigorously defend the action commenced by Aber." If Winspear
prevails, its interest in the Camsell Lake property will increase to
approximately 84 per cent and Aber's will decrease to 16 per cent.
A call to Aber's litigator, the sometimes bombastic Howard Shapray,
requesting a lay explanation of the 17 page, 45 item statement of claim was
not returned. Nonetheless, it seems that several issues figure prominently
in Aber's suit: first, that the joint venture agreement "on its true
construction does not require written confirmation of an election to
participate as a sine qua non condition to the right to participate" in an
exploration; second, that the informal practice established by the partners
in the course of conducting joint venture business suggested that written
notice of participation was not required; and third, that Aber had orally
communicated its intention to participate in the program to Winspear on
several occasions.
Many years ago, a Member of Parliament had the following bungled statement
preserved for posterity: "A verbal agreement isn't worth the paper it's
written on." Underpinning that less than graceful turn of phrase is an
admonition that most people have heard many times: "Get it in writing." The
flip side of that, of course, is "Put it in writing." If the matter
proceeds, the court will ultimately determine the importance of a written
confirmation from Aber in this particular instance. For its part, Winspear
has already had some experience with respect to a suit over some other
mining property in the Northwest Territories in which not having something
in writing appears to have been an issue.
On Dec. 5, 1996, the Camsell Lake Syndicate and Jolly Lake Syndicate
brought an action against Winspear, Randy Turner, and Rand Explorations
Ltd. in a dispute over 22 claims comprising the Jolly Lake West property.
The statement of claim noted that under a 1992 joint venture agreement with
Winspear, Camsell would acquire a 50 per cent interest in the property for
$165,000 and Jolly Lake would acquire a 10 per cent net profit interest
under an amendment to the agreement. In February 1993, having invested
approximately $230,000, "Camsell began negotiations at the insistence of
Turner" whereby Winspear would reacquire Camsell's 50 per cent interest.
According to the plaintiffs, an agreement was reached in November 1995 but
Winspear "failed, refused or neglected" to complete it. A subsequent
settlement agreement between Winspear, Camsell and Rand Explorations
entered into in October 1996 was also not completed by Winspear and Rand
Explorations, the plaintiffs alleged.
The Camsell and Jolly Lake Syndicates further claimed that between January
and October, 1996, "Winspear, acting under the direction and control of
Turner, permitted 7 of the 22 claims comprising the Jolly Lake West
Property to lapse and to be re-staked by business associates of Turner."
(Under Section 49 of the Canada Mining Regulations the holder of a claim at
the time it lapses or is cancelled cannot have any interest in the claim
for a period of one year.)
The remaining 15 claims were allowed to expire on Dec. 5, 1996. The
plaintiffs claimed that Winspear and Mr. Turner had breached their
fiduciary duty by allowing the claims to lapse. They further claimed that
Winspear had failed, refused or neglected to provide Camsell with an
accounting in respect of the Jolly Lake West property.
In its statement of defence, filed on Dec. 20, 1996, Winspear claimed that
the 1992 agreement had not been modified or superseded by further
agreements and that the plaintiffs had failed to make the further
investments necessary to maintain the claims in good standing.
In a counterclaim, Winspear sought $59,272 from the Camsell Lake Syndicate
as its portion of expenditures which had been made on the property. The
proceedings and counterclaims came to an end on Nov. 27, 1997, without
costs to any party by way of a consent dismissal order.
While not related to the battle between Aber and Winspear, the allegations
and counterclaims in the Jolly Lake dispute suggest a similar pattern of
behaviour: an alleged attempt to acquire a joint venture partner's interest
in an exploration property; an alleged failure as operator to provide
timely accounting; and, in the end, Winspear's strict reliance on the terms
of an agreement. Insofar as court documents show that the Jolly Lake
dispute was active from Dec. 5, 1996, until Nov. 27, 1997, something that
was not disclosed in Winspear's July 1997 prospectus, it also indirectly
raises the matter of Winspear's disclosure practices. Aber's statement of
claim indicates that Winspear's approach to the disclosure of information
regarding the Camsell Lake project was a source of concern and disagreement
between the partners.
Bringing a suit does not always result in the emergence of a clear winner
but with a 16 per cent interest in what appears to be a promising diamond
prospect at stake, Aber and Winspear seem to be intent on a legal joust. A
spokesman for Aber Resources said that nobody with the company would
comment on the Camsell Lake dispute. A call to Winspear's president Randy
Turner was not returned.
(c) Copyright 1999 Canjex Publishing Ltd. canada-stockwatch.com
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