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Superior Court provides guidance for rights of first refusal agreements
A major commercial law ruling from Ontario holds useful lessons for the mining industry and other sectors that incorporate rights of first refusal into joint venture or shareholder agreements, counsel say.
The case pitted two Canadian mining giants, Barrick Gold Corp. of Toronto against Vancouver-based Goldcorp Inc. (and two other defendants), in a dispute over the ownership of one of South America’s largest gold and copper deposits. Barrick contended that Goldcorp illegally gained control of the Chilean mine that Barrick had conditionally purchased from co-defendant Xstrata Copper Chile S.A.
Superior Court Justice Herman Wilton-Siegel’s 229-page ruling dismissed all of Barrick’s claims against the three defendants. “Barrick’s principal claim for breach of contract is dismissed on the basis that the agreement between Barrick Corp. and Xstrata Chile S.A. terminated upon the exercise of the right of first refusal,” the judge wrote.
Mark Gelowitz of Osler in Toronto, who represents Goldcorp, said the judgment provides a useful overview of the rationale and principles that underlie rights of first refusal (ROFRs) and similar liquidity arrangements in shareholder agreements.
The mining sector has a number of projects involving joint ventures, with senior and junior partners, Gelowitz said. “I think it’s safe to say that virtually all of those arrangements have elaborate contractual relationships that govern them, and something like the ROFR is a pretty important part of those contracts.”
The ruling is instructive to corporate commercial lawyers dealing with ROFRs, joint ventures, share transfer restrictions, arbitration clauses, and choice of law and forum clauses, agreed David Hamer of McCarthy Tetrault in Toronto, who represents co-defendant Xstrata.
“The case establishes no new principle of law, but does provide a primer on how these kinds of contracts and specific provisions are generally intended to work,” he said.
Hamer advised lawyers for third-party purchasers involved in, or contemplating, a deal in which a ROFR exists to consider whether the shareholder exercising that right is required to hold on to its newly acquired interest for a specific time after the right is exercised. Similarly, would-be purchasers should consider whether the ROFR contains any restrictions on immediately reselling the interest acquired under the right, and whether it contains any restriction, or prohibition, on how the exercising shareholder may finance the interest acquired via the ROFR.
Benjamin Zarnett of Goodmans in Toronto, who represents co-defendant New Gold Inc., said the decision illustrates how to analyze cases involving multiple contracts governed by different legal systems and conflicting and overlapping forum provisions, in this case Ontario and Chile. “This judgment lays out, in sort of a step-by-step basis, how those are going to interact, and how the analysis is done.”
Barrick v. Goldcorp [2012] O.J. No. 2927, is a clash of mining titans, represented by Bay Street’s top litigators.
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