At the time the actions were started, the defendant Powers was Mercer Nevada's president and chief executive officer; Thomas was its chief financial officer, secretary and treasurer; and Jardine, Powers and Thomas were directors. The defendant Braumberger, also a director, was not represented in these proceedings. The defendant Pierce was an investor and the principal person against whom Mercer BC makes its allegations in the ACC.
[29] Differences began to develop between Jivraj and Pierce and several of the other named defendants. Pierce and Thomas say they quickly lost confidence in Jivraj's ability to operate as CEO and give proper direction to the venture. Jivraj came to believe Pierce had "loaded" the board of directors of and some of the investors in Mercer Nevada with his nominees and was engaging in a "pump and dump" scheme. Jivraj believed Pierce had this intention from the beginning: that is, to subvert the intent to develop the Property as a gold prospect to a fraudulent scheme to benefit Pierce and his nominees. Under the alleged scheme, Pierce's nominees and other shareholders were given discounted shares. The stock was then promoted using paid agents to issue various news releases with the intent of "pumping up" the price of the stock, after which the insiders (being Pierce's nominees) holding such stock would sell their shareholdings, likely leaving the shares worthless.
[33] In further conversations on July 6, 2011 and July 11, 2011, Jivraj appears to have had further electronic communications with Mr. Stonehouse where he attempted to enlist Mr. Stonehouse's assistance in inducing a default by Mercer Nevada. One exchange, on July 11, 2011, was as follows:
Rahim Jivraj: I don’t want HJ [Hector Jairo Giraldo, the individual responsible for preparing reports in Spanish that would be filed by Mercer Nevada with regulatory authorities in Columbia] to get paid. Can you snsure that doesn’t happen? If he doesn’t, he doesn’t file the report, then I can default mercer.
Rahim Jivraj: Yes, you are owed $48k and I will pay you that.
James Stonehouse: You are now officially out of you rmind [stet]. What About logan and all the rest. The total is over 1MM. Who pays that.
Rahim Jivraj: You told me logan is $250k approx. What’s $1mm??
James Stonehouse: You are asking people to do very very unethical things and in some short period of time you are fgoing to lose all respect that people have for you. You should give that some thought.
Rahim Jivraj: I’m asking for help and loyalty so that the property comes back to someone honorable.
[35] Mercer BC gave Default Notice (the "Notice") under the Agreement on July 11, 2011 when it sent a letter via e-mail to Thomas, Jardine and Mercer Nevada's counsel, Mr. Thomas Deutsch at the law firm of McMillan LLP. Notably, many of the electronic communications Mercer Nevada relies on took place prior to the date Mercer BC issued the default notice.
[36] The Notice reads:
We write to provide you with immediate notice of default under the MAOA pursuant to:
* Article 3.1.S. whereby the Optionee falsely represented true public distribution of the Company’s stock by failing to disclose majority ownership of the Company’s fully diluted stock directly and indirectly controlled by Brent Pierce. Further, pursuant to Article 4.1.M.ii, the Optionee failed to provide notice of direct knowledge of Mr. Pierce’s controlling position.
[40] The Termination Letter asserted a number of grounds for termination including:
* That a recent decision by the Securities Exchange Commission (United States) issued July 27, 2011 revealed Pierce controlled Mercer Nevada through his beneficial interest in a company called Newport Capital Corp. and the SEC proceeding, which had been ongoing at the time the Agreement was entered into was information which had not been disclosed to Mercer BC at the time contrary to Article 4.1(h), (i), (l) and (n) of the Agreement. Mercer BC took the position it had been induced to enter into the Agreement by this "actionable misrepresentation".
Conspiracy
11. Mercer BC says that the Defendants by Counterclaim, and whilst under their direction, the Plaintiff Mercer Nevada, engaged in a conspiracy, which conspiracy consisted of two parts: first, gain control of the Property; second, maintain control of a majority or controlling interest of Mercer Nevada’s stock; and conceal that control from the regulatory authorities and the other shareholders, including Mercer BC and Jivraj; and, then manipulate the price of the company’s stock to reap undisclosed profits (known in securities parlance as a “pump and dump” scheme).
12. In March and April 2010, Pierce learned from Mercer BC and Jivraj of the opportunity presented by the Property. Pierce approached Thomas, who was an officer and director of Mercer Nevada (known at the time as Uranium International). Pierce and Thomas, and by virtue of their control of it, Mercer Nevada (Uranium International), agreed to engage in a concerted scheme to obtain the option to the Property from Mercer BC; promote the Property and in so doing, artificially inflate the company’s stock, whilst at the same time reducing its exploration and operating costs. Once the price of the stock was inflated through their scheme, the stock would be sold at a profit, at the expense of the other shareholders of Mercer Nevada, including Mercer BC and Jivraj.
13. Beginning in or about August 2010, Braumberger joined the conspiracy and agreed with Pierce and Thomas, and through their control of it, Mercer Nevada, to act in concert to artificially inflate Mercer Nevada’s stock through promotional activities.
14. Beginning in or about January 2011, Powers joined the conspiracy and agreed with Pierce, Thomas and Braumberger and through their control of it, Mercer Nevada, to act in concert and seize control of a majority of Mercer Nevada’s stock in an undisclosed manner; reduce its exploration and operating costs; and, manipulate the price of the stock to reap undisclosed profits. Later, Powers also agreed with Pierce, Thomas and Braumberger to further effect the purposes of the conspiracy by assuming the offices of President, CEO and Director of Mercer Nevada which he did on or about July 29, 2011.
15. In or about May, 2011, Jardine joined the conspiracy and agreed with the other Defendants by Counterclaim and Mercer Nevada (which by then, due to the resignation of Jivraj from its Board, was completely under the control and influence of Pierce, Thomas, Powers and Braumberger) to; reduce the company’s exploration and operating costs; and, manipulate the price of the stock to reap undisclosed profits. Jardine also agreed with Mercer Nevada, Pierce, Thomas, Braumberger, and Powers to further effect the purposes of the conspiracy by assuming the office of Director of Mercer Nevada, which he did on or about May 16, 2011.
16. The concerted activity set forth in paragraphs 11 to 15 above was specifically directed at the other shareholders of Mercer Nevada, including Mercer BC and Jivraj. The conspiracy had as an obvious result leaving Mercer BC with an undeveloped Property, and leaving the other shareholders of Mercer Nevada, including Mercer BC and Jivraj, with worthless shares.
17. Under the circumstances, Mercer Nevada and the other Defendants by Counterclaim had actual, implied or constructive knowledge that their unlawful conduct would cause potential harm or injury to, inter alia, Mercer BC.
Unlawful Activity
82. In furtherance of the conspiracy described herein, Mercer Nevada and the Defendants by Counterclaim, and each of them, engaged in the following specific unlawful activity:
a. In March and April 2010, Pierce and Mercer Nevada by way of its agent Pierce, made the Pierce Misrepresentations to induce Mercer BC to enter the Option Agreement for the purpose of gaining control of the Property;
b. Prior to April 13, 2010, Pierce and Thomas, and by virtue of their control of it, Mercer Nevada, deliberately concealed the settlement of the Newport Loans by the company and the fact that $2 million would not be available to finance the exploration program. They concealed the settlement of the Newport Loans to induce Mercer BC to enter the Option Agreement for the purpose of gaining control of the Property and to decrease the company’s exploration and operational expenditures;
c. On April 13, 2010, Mercer Nevada, at the direction and control of Pierce and Thomas, made the Option Agreement Misrepresentations to induce Mercer BC to enter the Option Agreement for the purpose of gaining control of the Property;
d. Beginning in August 2010, Pierce, Powers, Thomas, Braumberger and Jardine promoted Mercer Nevada’s stock in contravention of relevant securities laws and regulations for the purpose of artificially inflating the company’s stock price and then reaping undisclosed profits;
e. In March 2011, Pierce, Powers and Thomas used Pierce’s undisclosed control position in Mercer Nevada to force Jivraj, on behalf of Mercer BC, to enter the Amendment Agreement to reduce Mercer Nevada’s exploration expenditures;
f. In March and April 2011, Pierce, Powers and Thomas used Pierce’s undisclosed control position in Mercer Nevada and Westrock to cause Mercer Nevada to assign to Westrock “convertible” loans previously made to Mercer Nevada by other Pierce-controlled companies, and secure those loans with an undisclosed GSA(s). This activity is in breach of securities regulations in Canada and the United States, and was for the purpose of eventually reaping profits in an undisclosed manner;
g. Beginning on or about July 11, 2011, Pierce and each of Powers, Thomas and Jardine, and by virtue of their control of it, Mercer Nevada, breached securities laws and regulations in Canada and the United States in failing to make timely or any meaningful disclosure to the public or to securities regulators that the company had received a Notice of Default concerning the company’s single asset. This deliberate non-disclosure was for the purpose of eventually reaping undisclosed profits;
h. On or about August 11, 2011, the Defendants by Counterclaim, and by virtue of their control of it, Mercer Nevada, breached securities laws and regulations in Canada and the United States by announcing a 2.5 million private placement for the purpose of manipulating the company’s stock and reaping undisclosed profits; and,
i. Mercer Nevada and all of the Defendants by Counterclaim were aware that Pierce, by virtue of his undisclosed control position in Mercer Nevada’s stock, was a de facto director, officer and insider of Mercer Nevada contrary to securities laws and regulations in Canada and the United States. They concealed this fact in order to first take control of Mercer Nevada; take control of the Property and then manipulate the company’s stock for the purpose of reaping undisclosed profits.
...
89. The conspiracy described herein also deprived Mercer BC of the opportunity to achieve its sole objective pursuant to, inter alia, the Underlying Option Agreement – finding a bona fide partner to proceed with the exploration and development of the Property and the genuine profits and other opportunities flowing to Mercer BC therefrom.
[55] At issue is whether the dispute between the parties arising out of the default and termination is a dispute "in respect of" the Agreement. The dispute must be understood in the context of the positions taken by the parties in the exchange of notice of default, response to the notice and notice of termination, and in light of the subsequent pleadings. In the ACC Mercer BC claims that:
* Pierce made false and or negligent representations to induce Mercer BC to enter the Agreement: ACC, paras 46-47. * at the time of doing so Pierce was the authorized agent of Mercer Nevada and that Mercer Nevada was therefore liable as Pierce's agent: ACC, paras. 48-49. * during the negotiations leading to the Agreement, Pierce falsely represented his regulatory history and his "investor group" percent interest in Mercer Nevada: ACC, para. 46 and Response to Notice of Civil Claim, paras. 29, 32, 50 and 52. * "Mercer Nevada also made misrepresentations contrary to the Representations and Warranties contained in the Articles of the Option Agreement described therein..." inducing Mercer BC to enter into the Agreement to its detriment: ACC, at paras. 50-51. * Pierce and Thomas and through them, Mercer Nevada, deliberately concealed Newport's Loans just prior to the making of the Agreement and such concealment constituted fraudulent or negligent misrepresentation without which Mercer BC would not have entered into the Agreement: ACC, paras. 52 and 53. * the "Amendment Agreement is ... a breach by Mercer Nevada and Pierce of their representations made to Mercer BC to enter the ... Agreement...": ACC, para. 65.
[59] Other matters in dispute are not so clearly "in respect of" the Agreement. The Termination Letter of August 25, 2011 raised "additional concerns" of Mercer BC. It asserted Pierce exercised full control over Mercer Nevada's management and directors. Mercer BC asserted that through Pierce's ownership of Newport, Pierce (Newport)'s ownership in Mercer Nevada exceeded the reporting requirements specified by the Securities Exchange Commission, was not disclosed to Mercer BC, and thus constituted "but one actionable misrepresentation by the optionee and its agents including Brent Pierce, which induced Mercer BC to enter the Option Agreement, to its detriment."
[60] The ACC Mercer BC filed on October 24, 2011 expanded on its allegation that Mercer Nevada was controlled by Pierce through his associates Thomas, Powers, Jardine and Braumberger. Mercer BC has also asserted that other companies, who were shareholders of Mercer Nevada, were controlled directly or indirectly by Pierce. That is, Mercer BC alleges that Mercer Nevada was an alter ego of Pierce and, as stated earlier, it was Pierce's (and his nominee's) intent to artificially "pump" the price of the shares of Mercer BC and then to "dump their undisclosed stockholdings and enjoy the undisclosed profits thereto" (ACC, at para. 33).
[103] Mercer Nevada alleges that Mercer BC has taken active steps to interfere with Mercer Nevada's ability to carry on business and fulfill its role as operator under the Agreement.
[104] Mercer Nevada alleges that Jivraj has attempted to cause Mercer Nevada to default under the Agreement. It says that Jivraj communicated with one of Mercer Nevada's employees over Skype instant messenger in an attempt to convince that employee to take steps to ensure that a third-party service provider was not paid so that he would not complete a report which would, in turn, lead to Mercer Nevada's default. Mercer Nevada also says that Jivraj has been threatening Mercer Nevada's consultants with lawsuits to convince them to provide him with data and other information pertaining to the Property. It says that he seeks this information so that he can engage in discussions with third parties relating to a potential deal for the Property.
[105] Mercer Nevada further alleges that Mercer BC has interfered with its computer operations. The allegations include the control and interception of e-mails directed to accounts belonging to Mercer Nevada. Mercer Nevada further alleges that Jivraj has retained passwords and codes necessary to access their computer server and administration of the website domain www.mercergoldcorp.com, which it says was purchased for Mercer Nevada. Mercer Nevada is concerned that Jivraj used the website passwords to remove Mercer Nevada's web pages and to replace them with a web page promoting Mercer BC.
[106] Finally, Mercer Nevada alleges that Jivraj has been actively soliciting offers to develop the Property by way of a new deal that would be inconsistent with Mercer Nevada's rights as optionee. Further, it says that Jivraj has taken steps to try to remove the trade restrictions placed upon the shares he received as part of the Agreement.
[107] In light of these allegations, Mercer Nevada seeks broad injunctive relief against Mercer BC including orders: enjoining Jivraj from communicating with employees, consultants, investors and contractors; directing that all communications from Jivraj or Mercer BC be directed to Powers or Mercer Nevada's legal counsel; disclosing the names of persons with whom Jivraj has discussed a possible sale of the Property; enjoining Jivraj from dealing with a website domain and accessing e-mails intended for Mercer Nevada; requiring Jivraj to deliver to Mercer Nevada all emails directed to Mercer Nevada received by him; and enjoining Jivraj from otherwise interfering with Mercer Nevada's ongoing role as operator under the Agreement.
[108] Mercer BC argues that Mercer Nevada is seeking what is in substance a mandatory injunction which would require Mercer BC to continue a contractual arrangement with Mercer Nevada pending the arbitration award. Mercer BC says that if Mercer Nevada obtains the injunction it seeks, it will use the funds it has said it will raise through a public offering to fund the arbitration and to continue to deceive the public through its planned pump and dump scheme.
[118] It was argued by Mercer BC that if Mercer Nevada failed to meet its commitments under the Agreement, that failure could well jeopardize Mercer BC's relationship with Communidad under the Underlying Agreement and perhaps lead to the latter terminating such agreement, thereby terminating Mercer BC's rights thereunder. Mercer Nevada responds by pointing out that should it default Mercer BC has sufficient time under the Underlying Agreement to remedy such default and hence is not unduly prejudiced.
[119] The Agreement appears to have been drafted such that if Mercer Nevada defaults under the contract, Mercer BC will have time to remedy the breach before being found by Communidad to have breached the Underlying Option. Further, granting an injunction would allow Mercer Nevada to continue its operations on the Property. The continued operations and payment by Mercer Nevada pursuant to the Agreement will in fact preserve Mercer BC's position with respect to the Underlying Option.
[120] Mercer Nevada's business interests are solely wrapped up in the Property. Without its interest under the Agreement it would lose its singular asset. In addition to its right to act as the operator it would lose the $450,000 it has paid to Communidad, it would lose the value of the $1.5 million it has spent on exploration, the $200,000 paid to Mercer BC upon execution of the Agreement, as well as the 10 million shares it issued to Mercer BC or its nominees.
[121] While it is arguable these losses are compensable in damages, effectively, if the injunction is not granted in the terms sought, Mercer Nevada will lose any effective control over the Property and its rights under the Agreement. The loss of those opportunities would likely harm Mercer Nevada's reputation and would prevent it from raising funds to continue operations in the future and, consequently, result in its demise. Without an injunction, Mercer Nevada could well cease to exist altogether. This certainly weighs in favour of Mercer Nevada's position.
[122] The irreparable harm factor is particularly important because many of the other factors are equally balanced between the parties. Based on the conflicting affidavit material filed by the parties I am unable to draw any conclusions as to the strength of either party's case. Each party accuses the other of misconduct and breaches of the Agreement. I am of the view that Mercer Nevada has made out a stronger case that the arbitration clause applies to resolve all disputes arising from the Agreement. I am also of the view that Mercer BC has established that there is a question regarding the effect of the requirement in Article 17 that a party respond to a default notice within 10 days by submitting the dispute to arbitration. This factor is evenly balanced.
[123] I am also unable to make a determination whether there is a public interest to be protected. If Mercer BC is correct that Pierce and his nominees' sole intent is to "pump" the price of Mercer Nevada's shares and then to dump or sell them without developing, then clearly the public interest of prospective shareholders who might buy under such scheme is adversely affected. Such scheme is vehemently denied by Pierce and the other named defendants.
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