This spells it all out:
CANADA IN THE ARBITRATION BETWEEN:
PROVINCE OF QUEBEC
DISTRICT OF MONTREAL _____________________________
CANADIAN ROYALTIES INC.
Claimant
v.
NEARTIC NICKEL MINES INC.
and
UNGAVA MINERALS EXPLORATION INC.
Co-Defendants
_______________________________________________________________
CONTESTATION AND COUNTERCLAIM
________________________________________________________________
IN SUPPORT OF THEIR CONTESTATION AND COUNTERCLAIM, THE CODEFENDANTS SUBMIT THE FOLLOWING:
A) INTRODUCTION:
1. On December 30, 2010 Langlois Kronström Desjardins acting on behalf of Canadian
Royalties Inc. (CRI) served upon Ungava Minerals Exploration Inc. (UMEI) and Neartic
Nickel Mines Inc.(collectively referred to herein as “Unvaga”) a Notice pursuant to the
terms of section 12.2 of the Agreement of January 12, 2001 (the Agreement). This
Notice is filed as P-21.
2. This Notice of Dispute refers to three letters dated June 2, 2009 (P-15), June 29, 2009
(P-17) and December 21, 2010 (P-20).KOCHENBURGER -2- D:\Suite8\#DOSSIER\3639\Contestation-fin
3. Since the June 2, 2009 letter refers to a letter addressed by CRI to UMEI and Neartic
on April 21, 2009 (P-13), it is important to read this letter to understand the December
30, 2010 Notice requesting the present Arbitration.
4. This letter of April 21, 2009 (P-13) contains the following paragraphs:
“In this regard, and as a gesture of good faith, we wish to inform you
that notwithstanding that UMEI remains in default of paying its prorata share of Joint Venture Expenses pursuant to the cash calls
delivered to UMEI in 2008, and that Canadian Royalties was required
to pay in the place of UMEI, we are prepared to accept partial payment
of $32,383,463, representing 75% of the amounts cash called,
provided that same is paid on or before the end of business on May
6 , 2009. The balance owing by UMEI for 2008, as may be adjusted,
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shall be due on or before May 31 , 2009, or such other time that
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Canadian Royalties may consent to. The reason for allowing for a twostaged payment regime is to provide the parties with the opportunity
to reconcile, if and to the extend necessary, to the actual Joint Venture
Expenses incurred in 2008 (compared with the figures sent out in the
2008 Annual Budget delivered to you in January 2008). Any
discrepancies between the amounts cash called (to date) and the Joint
Venture Expenses actually incurred can be adjusted at the time of the
May 31 , 2009, payment.
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Upon receipt of payment of the above noted amounts, Canadian
Royalties shall provide UMEI/Neartic with further documentation and
cash calls in respect of all other Joint Venture Expenses that are also
due and owing.”
5. In fact, a document detailing what CRI called an Annual Budget (January to December
2008) had been annexed to a letter dated January 31, 2008 (P-7).
6. This document is considered by CRI as the basis for 24 cash calls to Ungava totalling
$43,177,950.
7. By its letter of April 21, 2009 CRI claimed this amount of $43,177,950 and “as a
gesture of good faith”, CRI declared itself prepared to accept a partial payment of
$32,383,463 representing 75% of the amounts cash called, if paid before the end of
the business day on May 6, 2009 and the balance owing (+/- $11,000,000) was to beKOCHENBURGER -3- D:\Suite8\#DOSSIER\3639\Contestation-fin
paid on or before May 31, 2009. Any discrepancies between the amounts cash called
and the Joint Venture Expenses actually incurred were to be adjusted at the time of
the May 31, 2009 payment.
8. It is interesting to note that approximately one month before this letter of April 21,
2009 requesting a payment of $43,177,950 from UMEI, as its proportionate share of
Joint Venture Expenses, the claimant CRI published a Press Release confirming that
it “... had made the difficult decision during the third quarter of 2008 to suspend all
construction and engineering activities related to the Nunavik Nickel project ..., adding
that it had “...legal and contractual obligations to provide for the retirement of its
mining assets, to return all sites of their approximate initial state ...” (Our underlining).
CRI’s Press Release of April 1, 2009 is filed as Exhibit D-1;
9. Even assuming that some Joint Venture Expenses were incurred by CRI, they proved
to be futile and worthless, since the whole project had to be dismantled and the site
returned to its original state.
10. In fact, no useful Joint Venture Expenses had been incurred by CRI.
11. In accordance with the 2001 Agreement and assuming that the Joint Venture was in
force, CRI was the sole Operator of the Joint Venture and as such assumed certain
obligations towards its co-owner UMEI, including the obligation to properly plan the
project and make sure that, among other things, the necessary permits and the
essential infrastructures such as docking facilities, airport and roads required to make
mining building feasible were available. CRI also had the obligation to obtain adequate
financing, without recourse against UMEI, sufficient to put the property into
commercial production.
12. UMEI on June 4, 2009 (P-16), answered to letter (P-13) and, without any admission
nor waiver of its rights, asked for justification of the expenses.
13. Instead of supplying the information requested, in its letter dated June 29, 2009 (P-
17) CRI took the following position:
“We maintain the position set out in our letter of June 2, 2009. Our
letter of June 2, 2009 constitutes the Demand Letter required by
Section 3.8 of the Option and Joint Venture Agreement of January 12,
2001 (the Agreement) and serves to trigger Canadian RoyaltiesKOCHENBURGER -4- D:\Suite8\#DOSSIER\3639\Contestation-fin
entitlement to an additional 20% right, title and interest in the ExpoUngava Property (the Property) bringing our ownership of the Property
to an aggregate 100%, and UMEI holding the Ungava NSR, as that
term is described in section 3.9 ...”
And Mr. Mullan continued:
“Canadian Royalties therefore hereby declares its entitlement to a
100% interest in the Property subject to the Ungava NSR and to the
underlying 2% net smelter royalty purchased on January 12, 2001.”
14. On December 20, 2010 (P-20),a few days before the Notice of Dispute herein, CRI
delivered to UMEI a letter (P-20) with four volumes of bank reports and expenses
details (30 cm of documents).
15. UMEI does not know if this documentation is a partial answer to the information
requested by UMEI in its letter dated June 4, 2009 (P-16).
16. CRI did not comply with its obligations and, consequently, cannot pretend that UMEI
has to transfer to CRI its interest in the Property.
17. Article 3 of the Agreement never came into application.
18. In any event, CRI never complied with sections 3.4, 3.5 and 3.6 of the Agreement.
19. The 2008 Program has never been realized and the expenditures detailed in the 2008
Annual Budget have not actually been incurred.
20. It appears that in fact the Program was interrupted in 2008 until financing is put in
place.
21. CRI never informed UMEI of this situation prior to requesting the payment of
$43,177,950 and in all respects acted as if the full program of mine building was
feasible and could be completed.
22. Even today CRI refers to these cash calls in paragraph 15 of its Statement of Claims
and argues at paragraphs 17, 18, 19 and 20 that UMEI is in default by not complying
with these payment requests.KOCHENBURGER -5- D:\Suite8\#DOSSIER\3639\Contestation-fin
23. CRI maintains this position in paragraphs 23, 24 and 25 of its Statement of Claims.
24. A brief review of CRI’s letter dated June 2, 2009 (P-15) and the answer made by UMEI
on June 4, 2009 brings out the type of information that was supplied by CRI and the
attitude of the latter.
B) BACKGROUND
25. The main conclusion sought by the claimant in the present arbitration proceedings is
that the Arbitrator declare that CRI is entitled to the transfer by UMEI to CRI, and to
the vesting, of the last 20% of right title and interest retained by UMEI in and to the
Property such that CRI would own, as of June 9, 2009 or subsidiarily as at another
date to be determined by the Arbitrator, an aggregate 100% right, title and interest
in and to the Property.
26. CRI also requests the Arbitrator to order the specific performance of certain
obligations.
27. On January 12, 2001 Ungava and other parties entered into an Agreement (already
filed as P-1) with CRI.
28. At that time Ungava held all of the rights, titles and interests in and to the Property,
subject to two 1% net smelter return royalties.
29. The Property is described at section 1.1 g) of the Agreement and consists of one
mineral permit and 29 claims located in the Township of Ungava, territory of NouveauQuébec.
30. In consideration of the terms of the Agreement, Ungava granted to CRI the sole,
exclusive and irrevocable right and option to acquire, on an incremental basis, up to
an undivided 80% right, title and interest in and to the Property, under certain
conditions or terms.
31. The terms of the four separate options are the ones described in section 2.1 of the
Agreement.KOCHENBURGER -6- D:\Suite8\#DOSSIER\3639\Contestation-fin
32. Paragraphs a), b) and c) of section 2.1 of the Agreement refer to vesting of interest
based upon Instalment Expenditures on the Property.
33. By incurring certain Instalment Expenditures CRI acquired an undivided 70% right,
title and interest in and to the Property.
34. If CRI satisfies the terms of paragraph 2.1 d), Ungava shall transfer an additional 10%
of its right, title and interest in and to the Property.
35. During the option term, Ungava shall not be liable for any expenses on or in respect
of the Property (section 2.6).
36. Section 3 refers to a Joint Venture and receives application only if and when CRI has
acquired an 80% interest in the Property.
37. On September 6, 2007 CRI pretending to be entitled to a further 10% interest in the
Property under 2.1 d) of the Agreement, gave a Notice of a Dispute and arbitration
proceedings were commenced.
38. An Award was rendered by Me Claude Armand Sheppard on April 1, 2009 (exhibit P-
4).
39. On April 15, 2009 CRI filed a motion for homologation of the Arbitration Award under
article 946.1 C.c.Q.
40. Ungava filed a Contestation and a Counterclaim requesting the annulment of the
award under 946.4 and 944.1- C.p.c.
41. The main allegation of Ungava was that the Arbitrator rewrote the contract and
ignored contractual provisions by allowing vesting even as the stipulations of section
2.1 d) were demonstrably not met.
42. On September 22, 2010 Mr. Justice William Fraiberg rendered a Judgment
homologating the Award and rejecting Ungava’s claim for annulment.
43. Ungava served and filed an application for leave to appeal.KOCHENBURGER -7- D:\Suite8\#DOSSIER\3639\Contestation-fin
44. This application has been granted by a Judgment rendered on December 8, 2010 by
the Honourable Yves-Marie Morissette, J.A. Copy of that Judgment is filed as D-2.
45. On December 20, 2010 CRI sent its demand letter along with four volumes of bank
reports and invoices (P-20).
46. On December 30, 2010 CRI served its Notice of Dispute requesting this Arbitration.
47. On March 18, 2011 after the hearing, the Court of Appeal took the case under
advisement and Judgment has not been rendered.
C) GROUNDS OF THIS CONTESTATION
48. Ungava intend’s to contest CRI’s claim on the following grounds:
a) The Notice of Dispute of December 30, 2010 has been served prematurely;
b) Absence of financing;
c) Absence of justification for the Cash Calls;
d) CRI did not fulfill its obligations;
e) Ungava is not in default and has never been in default;
f) CRI did not respect the stipulations of articles 6, 7 and 1375 of the Quebec civil
code;
g) Counterclaim: Ungava is entitled to a legal remedy due to the fact that CRI did
not fulfill its obligations and failed to conduct itself in good faith in exercising
its rights and discharging its obligations under the Agreement;
h) Absence of jurisdiction on the part of the Arbitrator to grant specific
performance and/or conclusions of an Injunctive nature;
a) The notice of dispute served on December 30, 2010 is premature
49. CRI eventually acquired a 70% interest in the Property, and then sought to obtain the
section 2.1 d) 10% interest by delivering to Ungava in August, 2007 a document it
claimed was the Bankable Feasability Study (the BFS) referred to in section 2.1 d).
50. As Ungava did not agree to CRI’s request to transfer the 10% interest stipulated in
section 2.1 d) of the Agreement, CRI served a Notice dated September 14, 2007
requesting an Arbitration.KOCHENBURGER -8- D:\Suite8\#DOSSIER\3639\Contestation-fin
51. On April 1 , 2009 Arbitrator Sheppard rendered his Award whereby he rejected
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Ungava’s arguments and ordered the transfer of the 10% interest to CRI.
52. CRI addressed a Motion to the Superior Court to ask for the homologation of the
Award rendered on April 1, 2009 by Me Claude-Armand Sheppard.
53. Ungava has contested CRI’s Motion for homologation and presented two Motions: one
to annul the Award, the other to annul an Interim Award of the Arbitrator of August
22, 2008.
54. On September 22, 2010, the honourable William Fraiberg, j.s.c. dismissed the Plea of
Ungava and maintained CRI’s motion to homologate the arbitration Award refusing
CRI’s request for provisional execution of its Motion for homologation, notwithstanding
appeal.
55. On December 8, 2010 the Honourable Yves-Marie Morissette, J.A., granted leave to
appeal to Ungava and placed the case on the role of March 18, 2011 as appears from
a copy of said Judgment (exhibit D-2).
56. The Court of Appeal heard the arguments on March 18, 2011 and took the case under
advisement.
57. Within a few days after the Judgment rendered by the Honourable Yves-Marie
Morissette, CRI delivered to UMEI its letter dated December 20, 2010 along with four
volumes containing bank reports and expense details.
58. On December 30, 2010 CRI served its Notice of Dispute requesting this Arbitration.
59. The Judgment rendered by the Honourable Yves-Marie Morissette granting the
application authorizing the appeal stands as the Inscription in appeal.
60. An appeal regularly brought suspends the execution of a judgment.
61. The Award is suspended and the transfer of an additional 10% of UMEI’s right, title
and interest in and to the Property has accordingly not been confirmed; CRI has not
acquired an 80% interest in the Property from Ungava as of December 30, 2010.
62. Accordingly as of December 30, 2010, section 3 of the Agreement, was not in force.KOCHENBURGER -9- D:\Suite8\#DOSSIER\3639\Contestation-fin
63. The Notice of Dispute herein is therefore premature.
b) Financing (absence of)
64. CRI has assumed the obligation to obtain financing for the purposes of putting the
Property into commercial production, said financing to be on a non-recourse basis.
65. The definition of Joint Venture Expenses section (1.1 h) of the Agreement confirms
this obligation:
“Joint Venture Expenses means as at the date of acceptance by a bank
or other financing entity willing to finance commercial production on
the Property in accordance with the Bankable Feasability study, all
cash, expenses, securities, obligations and liabilities whatever kind or
nature required to be paid or incurred with respect to the Property in
order to carry out Mining Work ...”
66. In its letter dated April 21, 2008 addressed to UMEI, CRI acknowledged its obligation
to finance the project for the purposes of putting the Expo-Ungava Property into
commercial production:
“CRI has met all of its obligations under the Agreement, has completed
the Bankable Feasibility Study in accordance with same, and has
financed the project for the purposes of putting the Expo-Ungava
Property into commercial production on the strength of the Bankable
Feasibility Study, such financing having been without recourse to
UMEI.”
67. Section 1.1 paragraph c) of the Agreement defines what the parties considered as a
“commercial production”.
68. UMEI never had the obligation to participate in the payment of any expenses of
whatever kind or nature required to be paid or incurred for the purpose of putting the
Property into commercial production, as CRI never secured the financing which is the
precondition to Joint Venture Expenses coming into existence.
69. On March 31, 2008, CRI announced in a Press Release published on “SEDAR” that it
had filed its financial results for the year ended December 31, 2007. CRI alsoKOCHENBURGER -10- D:\Suite8\#DOSSIER\3639\Contestation-fin
confirmed that the total Project costs were estimated at 465.6 millions and, to further
finance the Project, the company has also entered into a letter of engagement with
BMO Capital Markets and Commonwealth Bank of Australia for the establishment of
a $ 250 000 000 debt facility. March 31, 2008 Press Release filed as D-3 .
70. Ungava files as D-4 an excerpt from the Ottawa Citizen dated Friday, April 6, 2007
in which CRI’s CEO, Mr. Richard Faucher, confirms that “Financing won’t be a problem
with present metal prices ...”.
71. According to a News Release issued by Goldbrook Ventures on April 14, 2010, the
mine site construction of the Nunavik Nickel Project commenced on May 20, 2008 and
was placed on care and maintenance on August 5, 2008. (At that time Goldbrook
Venture owned 25% of the voting shares of Jien Canada Mining Ltd. which had
acquired all of the outstanding common shares of CRI in January 2010). Goldbrook
Press Release of April 14, 2010 is filed as exhibit D-5;
72. In a Press Release dated August 5, 2008, CRI confirmed that “The construction
schedule will be resumed when full project financing has been arranged”. Press
Release filed as D-6 .
73. In fact, CRI never fulfilled its obligations.
74. The 2008 program of work proposed by CRI to Ungava on January 30, 2008, was
perhaps never commenced and never actually completed and at most, work was
carried out over 6 or 7 weeks in the period of May 20 to August 5 2008.
75. Since then, Ungava has not received any other Annual Program of work and no
further information concerning mine building financing except the fact that the
construction schedule will be resumed only if and when full project financing has been
arranged.
c) Cash Calls
(The following allegations of this ground of contestation are made without any
admission and under reserve of the allegations of the other preceding grounds).
76. By its letter dated July 23, 2007, CRI advised Ungava to expect to be cash-called for
its pro-rata share of the payment of “items that required to be pre-purchased or workKOCHENBURGER -11- D:\Suite8\#DOSSIER\3639\Contestation-fin
to be completed prior to next year’s program”. This July 23, 2007 is filed as exhibit D-
7;
77. At that time, no Annual 2007 Program had ever been transmitted to Ungava.
78. A few days later, Mr. Faucher sent a fax along with the “Corporation’s Fall 2007
Budget“ which CRI had omitted by mistake to annex to its letter dated July 23, 2007.
This fax and the Fall 2007 Budget are filed en liasse as exhibit D-8;
79. This Budget refers to CRI’s cash requirements (June to December 2007), for an
amount of $89,476,742, which expenses were not included in any Annual Program
proposed to Ungava.
80. CRI attached to its December 28, 2007 letter (P-5) a Budget covering the “Joint
Venture Expenses 2008 exploration” indicating the bi-monthly billing to Ungava
totalling more than $43,000,000 for the year.
81. On January 30, 2008 (P-7), CRI forwarded to Ungava an Annual Program and Budget
concerning the work and expenses for the period of January 1, 2008 to December 31,
2008.
82. This Budget included cash calls payable by Ungava on the 1 and 15 day of each
st th
month starting January 1, 2008, for an aggregate annual amount of $43,177,950.
83. Some days later, in a letter dated February 12, 2008 (P-9), CRI gave further notice that
the amounts set out in the 2008 Annual Budget were due and payable by UMEI on
Cash Call dates of January 1, 2008, January 15, 2008 and February 1, 2008 in the
respective amounts of $1,180,062, $1,180,062 and $1, 838,876; the letter added that:
”If we are not in receipt of the amounts owing under the Joint Venture on or before
the end of business on February 19, 2008, we will have no choice but to place you in
default of same, and to take necessary action that required in the circumstances.” That
letter specifically referred to a previous letter dated January 30, 2008 and its
attachments (2008 Exploration drilling plan, detailed permits and permitting schedule,
project plan details and 2008 Annual Budget)”
84. In relation with the Annual Program and Budget for 2008, UMEI wishes to make the
following comments:KOCHENBURGER -12- D:\Suite8\#DOSSIER\3639\Contestation-fin
a) As explained by UMEI (Allan Miller’s letter dated January 14, 2008, P- 6), the
arbitration proceedings before Me Sheppard were then still pending and UMEI
has never agreed that a Joint Venture ever existed in respect of the Property;
b) Even assuming that section 3 of the Agreement would be applicable (which is
contested), the 2008 Annual Program has not been prepared in conformity with
section 3.4 of the Agreement;
c) According to the information obtained by UMEI, CRI knew or should have
known at the time it prepared the Annual Program and Budget for 2008, that
the work program could not be carried out as proposed due to the absence of
access to airport and docking facilities;
d) The necessary permits had not been all issued;
e) In fact, the work done, if any, was reduced to certain nugatory activities carried
out during a period of six weeks between May 20, 2008 and August 5, 2008;
f) Under the Agreement, CRI assumed a fiduciary duty and an obligation to keep
UMEI informed of the actual situation regarding the mine building, but failed to
do so;
g) As of March 31, 2008 the financing of the mine building was still lacking;
h) On March 5, 2008, CRI admitted in a l that it “has a vested 70% interest in the
Property which shall increase to 80% with the creation of the Joint Venture”.
CRI thereby publicly acknowledged that no Joint Venture existed as at that date
and therefore that section 3 of the Agreement was not then in application. This
March 5, 2008 Press Release is filed as exhibit D-9;
85. On April 21, 2008 (P-12), referring to the Annual Program for 2008, to the Annual
Budget, and to its letters of February 12 and 27, 2008, CRI formally advised that each
time that UMEI had not paid its proportionate allocation of Joint Venture Expenses as
stated in the Annual Budget on a Cash Call date, CRI elected to and did pay pursuant
to section 3.7 of the Agreement, Ungava’s proportionate allocation of Joint Venture
Expenses.KOCHENBURGER -13- D:\Suite8\#DOSSIER\3639\Contestation-fin
86. On April 21, 2009 (P-13) Mr. Glen Mullan, CRI’s interim President, confirmed to UMEI
that the aggregate amount cash called by CRI totalled $43,177,950 detailed in an
attached document acting as if the 2008 Annual Program had been completed as
planned and referring to the previous correspondence of 2007 and 2008 addressed to
UMEI.
87. Along the same line, in that letter, Mr. Mullan added:
“In this regard, and as a gesture of good faith, we wish to inform you
that notwithstanding that UMEI remains in default of paying its pro-rata
share of Joint Venture Expenses pursuant to the cash calls delivered to
UMEI in 2008, and that Canadian Royalties was required to pay the
place of UMEI, we are prepared to accept partial payment of
$32,383,463, representing 75% of the amounts cash called, provided
that same is paid on or before the end of business on May 6 , 2009.
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The balance owing by UMEI for 2008, as may be adjusted, shall be due
on or before May 31 , 2009, or such other time that Canadian Royalties
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may consent to. The reason for allowing for a two-staged payment
regime is to provide the parties with the opportunity to reconcile, if and
to the extent necessary, to the actual Joint Venture Expenses incurred
in 2008 (compared with the figures set out in the 2008 Annual Budget
delivered to you in January, 2008). Any discrepancies between the
amounts cash called (to date) and the Joint Venture Expenses actually
incurred can be adjusted at the time of May 31 , 2009, payment.
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Upon receipt of payment of the above noted amounts, Canadian
Royalties shall provide UMEI/Neartic with further documentation and
cash calls in respect of all other joint Venture Expenses that are also
due and owing.”
88. It is extremely difficult if not simply impossible to reconcile this urgent request for
$43,177,950 to be paid in two instalments before the end of the month of May 2009
“as a gesture of good faith” with the fact that CRI had just issued a Press Release on
April 1, 2009 to inform the business community and it’s shareholders that construction
at the property had been suspended and that CRI had “made this difficult decision
during the third quarter of 2008 (Press Release April 1, 2009 is filed as exhibit D-1).KOCHENBURGER -14- D:\Suite8\#DOSSIER\3639\Contestation-fin
89. CRI never informed its co-owner UMEI of this decision and of this situation. On the
contrary, the letter of April 21, 2009 (P-13) seems to suggest that the Annual Program
for 2008 had been completed as planned.
90. On June 2, 2009 (P-15), CRI required UMEI to transfer its remaining interest in the
Property; an accounting of the percentage interest was attached to this letter.
91. On July 4, 2009 (P-16), UMEI, without any admission or waiver requested from CRI
information and documentation in support of the $32,383,463 claim.
92. By its letter dated June 29, 2009 (P-17) CRI confirmed that its letter of June 2, 2009
constituted the Demand letter required by Section 3.8 of the Agreement and served to
trigger CRI’s entitlement to an additional 20% right, title and interest in the Property;
some invoices were attached to this letter.
93. In fact, as confirmed by a Press Release issued by CRI on April 1, 2009 (D-1), at that
time, CRI had legal and contractual environmental obligations to provide for the
withdrawing of the mining assets, and the return of all site to its approximate initial
state so that there are no significant sources of environmental contamination or danger
to humans, to wildlife and to fish species”.
CRI indicated that the cost of withdrawing its Nunavik Nickel Project assets and
rehabilating its sites could reach 9.9 millions.
94. All CRI’s Cash Calls and payment requests and demands for transfers of interest were
inappropriate, ambiguous, unsubstantiated, unfounded and unlawful.
d) CRI did not fulfill its obligations
Operator
95. Section 6 of the Agreement stipulates as follows:
6.1 That CRI shall be the Operator of all Mining Work carried out on the Property during the
period in which CRI shall remain Operator of the Property if it, together with a
Designate maintains an aggregate 50% interest in the Property.KOCHENBURGER -15- D:\Suite8\#DOSSIER\3639\Contestation-fin
6.2 CRI, acting reasonably, shall be entitled to appoint an alternate operator, without the
consent of any other party, in the event that it elects not to be Operator.
6.3 The Operator’s responsibilities shall include, but not be limited to: (i) managing and
supervising all Mining Work on the Property; (ii) managing and supervising the
applicable joint venture relationships with respect to all activities and Mining Work
carried out on the Property (iii) determining, acting reasonably, the Commercial
Production Date in accordance with Article 3.10 herein and (iv) determining, acting
reasonably, all activities, elements, components and items comprising the Joint Venture
Expenses in accordance with Article 3 herein and carrying out any and all tasks specified
by Article 3 herein.
6.4 The Operator shall at all times and in all regards be under an obligation to act
reasonably in relation to UMEI.
96. Section 2.6 of the Agreement stipulates:
2.6 During the Option Term, Ungava Exploration (UMEI) shall not incur any expenses on
or on behalf of the Property, nor shall it be entitled to carry out any work commitments,
Mining Work or projects whatsoever on the Property.
97. Section 3.4 of the Agreement requires the Operator to prepare, on or before January
31 of each year, a program for Mining Work to be completed for the period of April 1
to October 31 of that same year.
98. On July of each year, the Operator shall have the right to, if it deems fit, to amend the
then current Annual Program and Annual Budget in the event that the Mining Work
being carried out at the time is materially different from the Annual Program and
Annual Budget as determined prior to the most recent January 31.
Financing
99. a) CRI has assumed the obligation to obtain financing for the purposes of putting
the Property into commercial production, said financing being on a non-recourse
basis.
b) The definition of Joint Venture Expenses (1.1 h) of the Agreement confirms this
obligation:KOCHENBURGER -16- D:\Suite8\#DOSSIER\3639\Contestation-fin
“Joint Venture Expenses means as at the date of acceptance by a bank
or other financing entity willing to finance commercial production on the
Property in accordance with the Bankable Feasability study, all cash,
expenses, securities, obligations and liabilities whatever kind or nature
required to be paid or incurred with respect to the Property in order to
carry out Mining Work ...”
c) In its letter dated April 21, 2008 (P-12) addressed to UMEI, CRI acknowledged
its obligation to finance the project for the purpose of putting the Expo-Ungava
Property into commercial production:
“CRI has met all of its obligations under the Agreement, has completed
the Bankable Feasibility Study in accordance with same, and has
financed the project for the purposes of putting the Expo-Ungava
Property into commercial production on the strength of the Bankable
Feasibility Study, such financing having been without recourse to UMEI.”
See also December 28, 2007 letter from CRI to UMEI files as exhibit D-10.
d) Section 1.1 paragraph c) of the Agreement defines what the parties considered
as “commercial production”.
e) UMEI never had the obligation to participate in the payment of any expenses of
whatever kind or nature required to be paid or incurred for the purpose of
putting the Property into commercial production.
f) On March 31, 2008, CRI announced in a Press Release published on “SEDAR”
that it had filed its financial results for the year ended December 31, 2007. CRI
also confirmed that the total Project costs were estimated at 465.6 millions and,
to further finance the Project, the company has also entered into a letter of
engagement with BMO Capital markets and Commonwealth Bank of Australia for
the establishment of a $ 250 000 000 debt facility. March 31, 2008 Press
Release filed as D-3 .
g) Ungava files as D-4 an excerpt from the Ottawa Citizen dated Friday, April 6,
2007 in which CRI’s CEO, Mr. Richard Faucher, confirms that “Financing won’t
be a problem with present metal prices ...”.KOCHENBURGER -17- D:\Suite8\#DOSSIER\3639\Contestation-fin
Charge on the Property
100. a) If, subsequent to the Option Term, CRI has earned an interest in the Property,
CRI may grant mortgages, charges or liens (each of which is herein called a
“mortgage”) of and upon the Property or any portion thereof, any mill or other
fixed assets located thereon, and any or all of the tangible personal property
located on or used in connection with the Property to secure financing for the
purposes of exploration and development of the Property.
b) Ungava Exploration (UMEI), and any associate, insider or affiliate of Ungava
Exploration, shall not mortgage, pledge, charge, hypothecate or otherwise
encumber the Property during the Option Term, and if, subsequent to the
Option Term, CRI has earned an interest in the Property, Ungava Exploration
(UMEI) shall not mortgage, pledge, charge, hypothecate or otherwise encumber
the Property without the written content of CRI, which consent may not be
arbitrarily withheld if such encumbrances are to secure financing for the
purposes of exploration and development of the Property.
Permits
101. Necessary permits had not been all issued in due time which is the time the 2008
Program and Budget were prepared.
Facilities
102. CRI failed at all material time to secure proper airport and docking facilities to allow for
the transportation of men and material to accomplish mine building.
Failure
103. CRI never discharged its obligation to truthfully inform its “co-owner” of the actual
situation.
104. CRI never fulfilled its fiduciary duty to Ungava.
105. CRI failed to obtain the financing needed to put the Property into commercial
production.KOCHENBURGER -18- D:\Suite8\#DOSSIER\3639\Contestation-fin
106. CRI failed to carry out the 2008 Annual Program.
107. CRI did not obtain the necessary permits sufficiently early in order to pursue the mine
building work.
108. In 2008, the mine site construction on the Property apparently commenced on May 20,
2008 was placed on care and maintenance some time prior to August 5, 2008 (6 - 7
weeks).
109. As of March 31, 2008, the required financing was still lacking.
110. CRI took the decision during the third quarter of 2008 to suspend the construction on
the Property.
111. The mine site has been dismantled.
112. Because the construction has been suspended and the site dismantled, CRI had to
return all sites to their approximate initial state.
113. Even assuming that some expenses were incurred, they proved to be futile and
worthless, since the whole project under the control and responsibility of CRI had to be
dismantled and the site returned to its original state.
114. Any expenses incurred by CRI for the project should have been covered by the
financing to be put in place for the purpose of paying the cost of putting the Property
into commercial production.
115. CRI systematically misled Ungava and made unjustified demands upon it in an attempt
to wrongly deprive it of money or percentage of interest in the Property.
E) UNGAVA IS NOT IN DEFAULT AND HAS NEVER BEEN
116. CRI, as operator, had responsibilities and failed to discharge its obligations:
-- required financing on a non recourse basis;
– securing access to proper airport and docking facilities; KOCHENBURGER -19- D:\Suite8\#DOSSIER\3639\Contestation-fin
-- preparing Annual Programs that could be carried out;
– preparing Annual Budgets that it could afford;
- carrying on the works in the manner and in the periods stipulated in the
Agreement;
-- obtaining required permits on due time;
-- informing its co-owner accurately;
-- putting the mine in commercial operation;
117. CRI also had the obligation to act in good faith towards Ungava: it failed.
118. CRI had to fulfill its fiduciary duty to Ungava: it failed.
119. CRI had the obligation to act reasonably: it failed.
120. Due to CRI’s inability to carry out the 2008 Annual Program, the construction had to be
suspended, the work already completed had to be dismantled and the site had to be
returned to its initial state.
121. Due to CRI’s negligence or its incapacity to fulfill its obligations, the expenses incurred
by CRI in mine building proved to be futile and worthless.
122. Ungava had no participation in the direction of the project.
123. Ungava had no right to put any charge or lien on the Property.
124. Ungava had no obligation to participate in the financing of the project.
125. Ungava never interfered with the elaboration of the 2008 Annual Program and its
realisation.
126. All Ungava’s representations to CRI proved to be true.
127. Ungava has to date fulfilled all of its obligations under the Agreement.KOCHENBURGER -20- D:\Suite8\#DOSSIER\3639\Contestation-fin
F) CRI DID NOT RESPECT THE STIPULATIONS OF ARTICLES 6, 7 AND 137.5 OF
THE CIVIL CODE .
128. CRI did not act in good faith.
129. If CRI had any rights, it failed to exercise them in good faith.
130. Ungava has reasons to believe that CRI has acted throughout and had exercised its
rights, if it had any, with the intent of injuring Ungava or in an unreasonable manner
which is contrary to the requirements of good faith.
131. Ungava has reasons to believe that CRI did not conduct itself in good faith at the time
that obligation under Agreement were performed.
132. Ungava refers the Arbitrator more particularly to the following paragraphs of its
contestation: 4, 7, 8, 12, 13, 14, 19, 22, 23, 24, 45, 46, 47, 63, 76, 88, 82, 83, 84, 86,
87, 88, 92
G) COUNTERCLAIM
133. In consideration of the fact that CRI did not acted and did not exercise its rights, if any,
in good faith, Ungava is entitled to the remedies provided in article 1604 of the Quebec
Civil Code.
H) SPECIFIC PERFORMANCE AND/OR CONCLUSIONS OF AN INJUNCTIVE
NATURE
134. Only the Superior Court or its judges have the authority to issue injunctions.
135. An arbitrator may not order the specific performance of an obligation or conclusions of
an injunctive nature.
136. CRI requests such an order or conclusions.
137. Article 1601 of the Québec Civil Code allows a creditor to demand specific performance
of an obligation only in cases which admit of it.KOCHENBURGER -21- D:\Suite8\#DOSSIER\3639\Contestation-fin
138. The Agreement is not a promise of sale covered by article 1712 of the Québec Civil
Code.
139. Article 1601 does not receive application in this case.
CONCLUSIONS
For these reasons, may it please the Arbitrator to:
REJECT the claim of the claimant;
REJECT claimant’s other conclusions;
MAINTAIN the co-defendants Counterclaim;
DECLARE the resolution of the Agreement made as of the 12 day of January 2001 or its
th
resiliation;
CONDEMN Canadian Royalties inc. to pay to the co-defendants an amount to be determined
at the hearing hereof representing the arbitration fees in the present case.
Montreal, April 5, 2011
___________________________
Daniel M. Kochenburger
Attorney for the co-defendant
CANADA IN THE ARBITRATION BETWEEN:
PROVINCE OF QUEBEC
DISTRICT OF MONTREAL _____________________________
CANADIAN ROYALTIES INC.
Claimant
v.
NEARTIC NICKEL MINES INC.
and
UNGAVA MINERALS EXPLORATION INC.
Co-Defendants
_______________________________________________________________
CONTESTATION AND COUNTERCLAIM
________________________________________________________________
IN SUPPORT OF THEIR CONTESTATION AND COUNTERCLAIM, THE CODEFENDANTS SUBMIT THE FOLLOWING:
A) INTRODUCTION:
1. On December 30, 2010 Langlois Kronström Desjardins acting on behalf of Canadian
Royalties Inc. (CRI) served upon Ungava Minerals Exploration Inc. (UMEI) and Neartic
Nickel Mines Inc.(collectively referred to herein as “Unvaga”) a Notice pursuant to the
terms of section 12.2 of the Agreement of January 12, 2001 (the Agreement). This
Notice is filed as P-21.
2. This Notice of Dispute refers to three letters dated June 2, 2009 (P-15), June 29, 2009
(P-17) and December 21, 2010 (P-20).KOCHENBURGER -2- D:\Suite8\#DOSSIER\3639\Contestation-fin
3. Since the June 2, 2009 letter refers to a letter addressed by CRI to UMEI and Neartic
on April 21, 2009 (P-13), it is important to read this letter to understand the December
30, 2010 Notice requesting the present Arbitration.
4. This letter of April 21, 2009 (P-13) contains the following paragraphs:
“In this regard, and as a gesture of good faith, we wish to inform you
that notwithstanding that UMEI remains in default of paying its prorata share of Joint Venture Expenses pursuant to the cash calls
delivered to UMEI in 2008, and that Canadian Royalties was required
to pay in the place of UMEI, we are prepared to accept partial payment
of $32,383,463, representing 75% of the amounts cash called,
provided that same is paid on or before the end of business on May
6 , 2009. The balance owing by UMEI for 2008, as may be adjusted,
th
shall be due on or before May 31 , 2009, or such other time that
s t
Canadian Royalties may consent to. The reason for allowing for a twostaged payment regime is to provide the parties with the opportunity
to reconcile, if and to the extend necessary, to the actual Joint Venture
Expenses incurred in 2008 (compared with the figures sent out in the
2008 Annual Budget delivered to you in January 2008). Any
discrepancies between the amounts cash called (to date) and the Joint
Venture Expenses actually incurred can be adjusted at the time of the
May 31 , 2009, payment.
s t
Upon receipt of payment of the above noted amounts, Canadian
Royalties shall provide UMEI/Neartic with further documentation and
cash calls in respect of all other Joint Venture Expenses that are also
due and owing.”
5. In fact, a document detailing what CRI called an Annual Budget (January to December
2008) had been annexed to a letter dated January 31, 2008 (P-7).
6. This document is considered by CRI as the basis for 24 cash calls to Ungava totalling
$43,177,950.
7. By its letter of April 21, 2009 CRI claimed this amount of $43,177,950 and “as a
gesture of good faith”, CRI declared itself prepared to accept a partial payment of
$32,383,463 representing 75% of the amounts cash called, if paid before the end of
the business day on May 6, 2009 and the balance owing (+/- $11,000,000) was to beKOCHENBURGER -3- D:\Suite8\#DOSSIER\3639\Contestation-fin
paid on or before May 31, 2009. Any discrepancies between the amounts cash called
and the Joint Venture Expenses actually incurred were to be adjusted at the time of
the May 31, 2009 payment.
8. It is interesting to note that approximately one month before this letter of April 21,
2009 requesting a payment of $43,177,950 from UMEI, as its proportionate share of
Joint Venture Expenses, the claimant CRI published a Press Release confirming that
it “... had made the difficult decision during the third quarter of 2008 to suspend all
construction and engineering activities related to the Nunavik Nickel project ..., adding
that it had “...legal and contractual obligations to provide for the retirement of its
mining assets, to return all sites of their approximate initial state ...” (Our underlining).
CRI’s Press Release of April 1, 2009 is filed as Exhibit D-1;
9. Even assuming that some Joint Venture Expenses were incurred by CRI, they proved
to be futile and worthless, since the whole project had to be dismantled and the site
returned to its original state.
10. In fact, no useful Joint Venture Expenses had been incurred by CRI.
11. In accordance with the 2001 Agreement and assuming that the Joint Venture was in
force, CRI was the sole Operator of the Joint Venture and as such assumed certain
obligations towards its co-owner UMEI, including the obligation to properly plan the
project and make sure that, among other things, the necessary permits and the
essential infrastructures such as docking facilities, airport and roads required to make
mining building feasible were available. CRI also had the obligation to obtain adequate
financing, without recourse against UMEI, sufficient to put the property into
commercial production.
12. UMEI on June 4, 2009 (P-16), answered to letter (P-13) and, without any admission
nor waiver of its rights, asked for justification of the expenses.
13. Instead of supplying the information requested, in its letter dated June 29, 2009 (P-
17) CRI took the following position:
“We maintain the position set out in our letter of June 2, 2009. Our
letter of June 2, 2009 constitutes the Demand Letter required by
Section 3.8 of the Option and Joint Venture Agreement of January 12,
2001 (the Agreement) and serves to trigger Canadian RoyaltiesKOCHENBURGER -4- D:\Suite8\#DOSSIER\3639\Contestation-fin
entitlement to an additional 20% right, title and interest in the ExpoUngava Property (the Property) bringing our ownership of the Property
to an aggregate 100%, and UMEI holding the Ungava NSR, as that
term is described in section 3.9 ...”
And Mr. Mullan continued:
“Canadian Royalties therefore hereby declares its entitlement to a
100% interest in the Property subject to the Ungava NSR and to the
underlying 2% net smelter royalty purchased on January 12, 2001.”
14. On December 20, 2010 (P-20),a few days before the Notice of Dispute herein, CRI
delivered to UMEI a letter (P-20) with four volumes of bank reports and expenses
details (30 cm of documents).
15. UMEI does not know if this documentation is a partial answer to the information
requested by UMEI in its letter dated June 4, 2009 (P-16).
16. CRI did not comply with its obligations and, consequently, cannot pretend that UMEI
has to transfer to CRI its interest in the Property.
17. Article 3 of the Agreement never came into application.
18. In any event, CRI never complied with sections 3.4, 3.5 and 3.6 of the Agreement.
19. The 2008 Program has never been realized and the expenditures detailed in the 2008
Annual Budget have not actually been incurred.
20. It appears that in fact the Program was interrupted in 2008 until financing is put in
place.
21. CRI never informed UMEI of this situation prior to requesting the payment of
$43,177,950 and in all respects acted as if the full program of mine building was
feasible and could be completed.
22. Even today CRI refers to these cash calls in paragraph 15 of its Statement of Claims
and argues at paragraphs 17, 18, 19 and 20 that UMEI is in default by not complying
with these payment requests.KOCHENBURGER -5- D:\Suite8\#DOSSIER\3639\Contestation-fin
23. CRI maintains this position in paragraphs 23, 24 and 25 of its Statement of Claims.
24. A brief review of CRI’s letter dated June 2, 2009 (P-15) and the answer made by UMEI
on June 4, 2009 brings out the type of information that was supplied by CRI and the
attitude of the latter.
B) BACKGROUND
25. The main conclusion sought by the claimant in the present arbitration proceedings is
that the Arbitrator declare that CRI is entitled to the transfer by UMEI to CRI, and to
the vesting, of the last 20% of right title and interest retained by UMEI in and to the
Property such that CRI would own, as of June 9, 2009 or subsidiarily as at another
date to be determined by the Arbitrator, an aggregate 100% right, title and interest
in and to the Property.
26. CRI also requests the Arbitrator to order the specific performance of certain
obligations.
27. On January 12, 2001 Ungava and other parties entered into an Agreement (already
filed as P-1) with CRI.
28. At that time Ungava held all of the rights, titles and interests in and to the Property,
subject to two 1% net smelter return royalties.
29. The Property is described at section 1.1 g) of the Agreement and consists of one
mineral permit and 29 claims located in the Township of Ungava, territory of NouveauQuébec.
30. In consideration of the terms of the Agreement, Ungava granted to CRI the sole,
exclusive and irrevocable right and option to acquire, on an incremental basis, up to
an undivided 80% right, title and interest in and to the Property, under certain
conditions or terms.
31. The terms of the four separate options are the ones described in section 2.1 of the
Agreement.KOCHENBURGER -6- D:\Suite8\#DOSSIER\3639\Contestation-fin
32. Paragraphs a), b) and c) of section 2.1 of the Agreement refer to vesting of interest
based upon Instalment Expenditures on the Property.
33. By incurring certain Instalment Expenditures CRI acquired an undivided 70% right,
title and interest in and to the Property.
34. If CRI satisfies the terms of paragraph 2.1 d), Ungava shall transfer an additional 10%
of its right, title and interest in and to the Property.
35. During the option term, Ungava shall not be liable for any expenses on or in respect
of the Property (section 2.6).
36. Section 3 refers to a Joint Venture and receives application only if and when CRI has
acquired an 80% interest in the Property.
37. On September 6, 2007 CRI pretending to be entitled to a further 10% interest in the
Property under 2.1 d) of the Agreement, gave a Notice of a Dispute and arbitration
proceedings were commenced.
38. An Award was rendered by Me Claude Armand Sheppard on April 1, 2009 (exhibit P-
4).
39. On April 15, 2009 CRI filed a motion for homologation of the Arbitration Award under
article 946.1 C.c.Q.
40. Ungava filed a Contestation and a Counterclaim requesting the annulment of the
award under 946.4 and 944.1- C.p.c.
41. The main allegation of Ungava was that the Arbitrator rewrote the contract and
ignored contractual provisions by allowing vesting even as the stipulations of section
2.1 d) were demonstrably not met.
42. On September 22, 2010 Mr. Justice William Fraiberg rendered a Judgment
homologating the Award and rejecting Ungava’s claim for annulment.
43. Ungava served and filed an application for leave to appeal.KOCHENBURGER -7- D:\Suite8\#DOSSIER\3639\Contestation-fin
44. This application has been granted by a Judgment rendered on December 8, 2010 by
the Honourable Yves-Marie Morissette, J.A. Copy of that Judgment is filed as D-2.
45. On December 20, 2010 CRI sent its demand letter along with four volumes of bank
reports and invoices (P-20).
46. On December 30, 2010 CRI served its Notice of Dispute requesting this Arbitration.
47. On March 18, 2011 after the hearing, the Court of Appeal took the case under
advisement and Judgment has not been rendered.
C) GROUNDS OF THIS CONTESTATION
48. Ungava intend’s to contest CRI’s claim on the following grounds:
a) The Notice of Dispute of December 30, 2010 has been served prematurely;
b) Absence of financing;
c) Absence of justification for the Cash Calls;
d) CRI did not fulfill its obligations;
e) Ungava is not in default and has never been in default;
f) CRI did not respect the stipulations of articles 6, 7 and 1375 of the Quebec civil
code;
g) Counterclaim: Ungava is entitled to a legal remedy due to the fact that CRI did
not fulfill its obligations and failed to conduct itself in good faith in exercising
its rights and discharging its obligations under the Agreement;
h) Absence of jurisdiction on the part of the Arbitrator to grant specific
performance and/or conclusions of an Injunctive nature;
a) The notice of dispute served on December 30, 2010 is premature
49. CRI eventually acquired a 70% interest in the Property, and then sought to obtain the
section 2.1 d) 10% interest by delivering to Ungava in August, 2007 a document it
claimed was the Bankable Feasability Study (the BFS) referred to in section 2.1 d).
50. As Ungava did not agree to CRI’s request to transfer the 10% interest stipulated in
section 2.1 d) of the Agreement, CRI served a Notice dated September 14, 2007
requesting an Arbitration.KOCHENBURGER -8- D:\Suite8\#DOSSIER\3639\Contestation-fin
51. On April 1 , 2009 Arbitrator Sheppard rendered his Award whereby he rejected
st
Ungava’s arguments and ordered the transfer of the 10% interest to CRI.
52. CRI addressed a Motion to the Superior Court to ask for the homologation of the
Award rendered on April 1, 2009 by Me Claude-Armand Sheppard.
53. Ungava has contested CRI’s Motion for homologation and presented two Motions: one
to annul the Award, the other to annul an Interim Award of the Arbitrator of August
22, 2008.
54. On September 22, 2010, the honourable William Fraiberg, j.s.c. dismissed the Plea of
Ungava and maintained CRI’s motion to homologate the arbitration Award refusing
CRI’s request for provisional execution of its Motion for homologation, notwithstanding
appeal.
55. On December 8, 2010 the Honourable Yves-Marie Morissette, J.A., granted leave to
appeal to Ungava and placed the case on the role of March 18, 2011 as appears from
a copy of said Judgment (exhibit D-2).
56. The Court of Appeal heard the arguments on March 18, 2011 and took the case under
advisement.
57. Within a few days after the Judgment rendered by the Honourable Yves-Marie
Morissette, CRI delivered to UMEI its letter dated December 20, 2010 along with four
volumes containing bank reports and expense details.
58. On December 30, 2010 CRI served its Notice of Dispute requesting this Arbitration.
59. The Judgment rendered by the Honourable Yves-Marie Morissette granting the
application authorizing the appeal stands as the Inscription in appeal.
60. An appeal regularly brought suspends the execution of a judgment.
61. The Award is suspended and the transfer of an additional 10% of UMEI’s right, title
and interest in and to the Property has accordingly not been confirmed; CRI has not
acquired an 80% interest in the Property from Ungava as of December 30, 2010.
62. Accordingly as of December 30, 2010, section 3 of the Agreement, was not in force.KOCHENBURGER -9- D:\Suite8\#DOSSIER\3639\Contestation-fin
63. The Notice of Dispute herein is therefore premature.
b) Financing (absence of)
64. CRI has assumed the obligation to obtain financing for the purposes of putting the
Property into commercial production, said financing to be on a non-recourse basis.
65. The definition of Joint Venture Expenses section (1.1 h) of the Agreement confirms
this obligation:
“Joint Venture Expenses means as at the date of acceptance by a bank
or other financing entity willing to finance commercial production on
the Property in accordance with the Bankable Feasability study, all
cash, expenses, securities, obligations and liabilities whatever kind or
nature required to be paid or incurred with respect to the Property in
order to carry out Mining Work ...”
66. In its letter dated April 21, 2008 addressed to UMEI, CRI acknowledged its obligation
to finance the project for the purposes of putting the Expo-Ungava Property into
commercial production:
“CRI has met all of its obligations under the Agreement, has completed
the Bankable Feasibility Study in accordance with same, and has
financed the project for the purposes of putting the Expo-Ungava
Property into commercial production on the strength of the Bankable
Feasibility Study, such financing having been without recourse to
UMEI.”
67. Section 1.1 paragraph c) of the Agreement defines what the parties considered as a
“commercial production”.
68. UMEI never had the obligation to participate in the payment of any expenses of
whatever kind or nature required to be paid or incurred for the purpose of putting the
Property into commercial production, as CRI never secured the financing which is the
precondition to Joint Venture Expenses coming into existence.
69. On March 31, 2008, CRI announced in a Press Release published on “SEDAR” that it
had filed its financial results for the year ended December 31, 2007. CRI alsoKOCHENBURGER -10- D:\Suite8\#DOSSIER\3639\Contestation-fin
confirmed that the total Project costs were estimated at 465.6 millions and, to further
finance the Project, the company has also entered into a letter of engagement with
BMO Capital Markets and Commonwealth Bank of Australia for the establishment of
a $ 250 000 000 debt facility. March 31, 2008 Press Release filed as D-3 .
70. Ungava files as D-4 an excerpt from the Ottawa Citizen dated Friday, April 6, 2007
in which CRI’s CEO, Mr. Richard Faucher, confirms that “Financing won’t be a problem
with present metal prices ...”.
71. According to a News Release issued by Goldbrook Ventures on April 14, 2010, the
mine site construction of the Nunavik Nickel Project commenced on May 20, 2008 and
was placed on care and maintenance on August 5, 2008. (At that time Goldbrook
Venture owned 25% of the voting shares of Jien Canada Mining Ltd. which had
acquired all of the outstanding common shares of CRI in January 2010). Goldbrook
Press Release of April 14, 2010 is filed as exhibit D-5;
72. In a Press Release dated August 5, 2008, CRI confirmed that “The construction
schedule will be resumed when full project financing has been arranged”. Press
Release filed as D-6 .
73. In fact, CRI never fulfilled its obligations.
74. The 2008 program of work proposed by CRI to Ungava on January 30, 2008, was
perhaps never commenced and never actually completed and at most, work was
carried out over 6 or 7 weeks in the period of May 20 to August 5 2008.
75. Since then, Ungava has not received any other Annual Program of work and no
further information concerning mine building financing except the fact that the
construction schedule will be resumed only if and when full project financing has been
arranged.
c) Cash Calls
(The following allegations of this ground of contestation are made without any
admission and under reserve of the allegations of the other preceding grounds).
76. By its letter dated July 23, 2007, CRI advised Ungava to expect to be cash-called for
its pro-rata share of the payment of “items that required to be pre-purchased or workKOCHENBURGER -11- D:\Suite8\#DOSSIER\3639\Contestation-fin
to be completed prior to next year’s program”. This July 23, 2007 is filed as exhibit D-
7;
77. At that time, no Annual 2007 Program had ever been transmitted to Ungava.
78. A few days later, Mr. Faucher sent a fax along with the “Corporation’s Fall 2007
Budget“ which CRI had omitted by mistake to annex to its letter dated July 23, 2007.
This fax and the Fall 2007 Budget are filed en liasse as exhibit D-8;
79. This Budget refers to CRI’s cash requirements (June to December 2007), for an
amount of $89,476,742, which expenses were not included in any Annual Program
proposed to Ungava.
80. CRI attached to its December 28, 2007 letter (P-5) a Budget covering the “Joint
Venture Expenses 2008 exploration” indicating the bi-monthly billing to Ungava
totalling more than $43,000,000 for the year.
81. On January 30, 2008 (P-7), CRI forwarded to Ungava an Annual Program and Budget
concerning the work and expenses for the period of January 1, 2008 to December 31,
2008.
82. This Budget included cash calls payable by Ungava on the 1 and 15 day of each
st th
month starting January 1, 2008, for an aggregate annual amount of $43,177,950.
83. Some days later, in a letter dated February 12, 2008 (P-9), CRI gave further notice that
the amounts set out in the 2008 Annual Budget were due and payable by UMEI on
Cash Call dates of January 1, 2008, January 15, 2008 and February 1, 2008 in the
respective amounts of $1,180,062, $1,180,062 and $1, 838,876; the letter added that:
”If we are not in receipt of the amounts owing under the Joint Venture on or before
the end of business on February 19, 2008, we will have no choice but to place you in
default of same, and to take necessary action that required in the circumstances.” That
letter specifically referred to a previous letter dated January 30, 2008 and its
attachments (2008 Exploration drilling plan, detailed permits and permitting schedule,
project plan details and 2008 Annual Budget)”
84. In relation with the Annual Program and Budget for 2008, UMEI wishes to make the
following comments:KOCHENBURGER -12- D:\Suite8\#DOSSIER\3639\Contestation-fin
a) As explained by UMEI (Allan Miller’s letter dated January 14, 2008, P- 6), the
arbitration proceedings before Me Sheppard were then still pending and UMEI
has never agreed that a Joint Venture ever existed in respect of the Property;
b) Even assuming that section 3 of the Agreement would be applicable (which is
contested), the 2008 Annual Program has not been prepared in conformity with
section 3.4 of the Agreement;
c) According to the information obtained by UMEI, CRI knew or should have
known at the time it prepared the Annual Program and Budget for 2008, that
the work program could not be carried out as proposed due to the absence of
access to airport and docking facilities;
d) The necessary permits had not been all issued;
e) In fact, the work done, if any, was reduced to certain nugatory activities carried
out during a period of six weeks between May 20, 2008 and August 5, 2008;
f) Under the Agreement, CRI assumed a fiduciary duty and an obligation to keep
UMEI informed of the actual situation regarding the mine building, but failed to
do so;
g) As of March 31, 2008 the financing of the mine building was still lacking;
h) On March 5, 2008, CRI admitted in a l that it “has a vested 70% interest in the
Property which shall increase to 80% with the creation of the Joint Venture”.
CRI thereby publicly acknowledged that no Joint Venture existed as at that date
and therefore that section 3 of the Agreement was not then in application. This
March 5, 2008 Press Release is filed as exhibit D-9;
85. On April 21, 2008 (P-12), referring to the Annual Program for 2008, to the Annual
Budget, and to its letters of February 12 and 27, 2008, CRI formally advised that each
time that UMEI had not paid its proportionate allocation of Joint Venture Expenses as
stated in the Annual Budget on a Cash Call date, CRI elected to and did pay pursuant
to section 3.7 of the Agreement, Ungava’s proportionate allocation of Joint Venture
Expenses.KOCHENBURGER -13- D:\Suite8\#DOSSIER\3639\Contestation-fin
86. On April 21, 2009 (P-13) Mr. Glen Mullan, CRI’s interim President, confirmed to UMEI
that the aggregate amount cash called by CRI totalled $43,177,950 detailed in an
attached document acting as if the 2008 Annual Program had been completed as
planned and referring to the previous correspondence of 2007 and 2008 addressed to
UMEI.
87. Along the same line, in that letter, Mr. Mullan added:
“In this regard, and as a gesture of good faith, we wish to inform you
that notwithstanding that UMEI remains in default of paying its pro-rata
share of Joint Venture Expenses pursuant to the cash calls delivered to
UMEI in 2008, and that Canadian Royalties was required to pay the
place of UMEI, we are prepared to accept partial payment of
$32,383,463, representing 75% of the amounts cash called, provided
that same is paid on or before the end of business on May 6 , 2009.
th
The balance owing by UMEI for 2008, as may be adjusted, shall be due
on or before May 31 , 2009, or such other time that Canadian Royalties
s t
may consent to. The reason for allowing for a two-staged payment
regime is to provide the parties with the opportunity to reconcile, if and
to the extent necessary, to the actual Joint Venture Expenses incurred
in 2008 (compared with the figures set out in the 2008 Annual Budget
delivered to you in January, 2008). Any discrepancies between the
amounts cash called (to date) and the Joint Venture Expenses actually
incurred can be adjusted at the time of May 31 , 2009, payment.
s t
Upon receipt of payment of the above noted amounts, Canadian
Royalties shall provide UMEI/Neartic with further documentation and
cash calls in respect of all other joint Venture Expenses that are also
due and owing.”
88. It is extremely difficult if not simply impossible to reconcile this urgent request for
$43,177,950 to be paid in two instalments before the end of the month of May 2009
“as a gesture of good faith” with the fact that CRI had just issued a Press Release on
April 1, 2009 to inform the business community and it’s shareholders that construction
at the property had been suspended and that CRI had “made this difficult decision
during the third quarter of 2008 (Press Release April 1, 2009 is filed as exhibit D-1).KOCHENBURGER -14- D:\Suite8\#DOSSIER\3639\Contestation-fin
89. CRI never informed its co-owner UMEI of this decision and of this situation. On the
contrary, the letter of April 21, 2009 (P-13) seems to suggest that the Annual Program
for 2008 had been completed as planned.
90. On June 2, 2009 (P-15), CRI required UMEI to transfer its remaining interest in the
Property; an accounting of the percentage interest was attached to this letter.
91. On July 4, 2009 (P-16), UMEI, without any admission or waiver requested from CRI
information and documentation in support of the $32,383,463 claim.
92. By its letter dated June 29, 2009 (P-17) CRI confirmed that its letter of June 2, 2009
constituted the Demand letter required by Section 3.8 of the Agreement and served to
trigger CRI’s entitlement to an additional 20% right, title and interest in the Property;
some invoices were attached to this letter.
93. In fact, as confirmed by a Press Release issued by CRI on April 1, 2009 (D-1), at that
time, CRI had legal and contractual environmental obligations to provide for the
withdrawing of the mining assets, and the return of all site to its approximate initial
state so that there are no significant sources of environmental contamination or danger
to humans, to wildlife and to fish species”.
CRI indicated that the cost of withdrawing its Nunavik Nickel Project assets and
rehabilating its sites could reach 9.9 millions.
94. All CRI’s Cash Calls and payment requests and demands for transfers of interest were
inappropriate, ambiguous, unsubstantiated, unfounded and unlawful.
d) CRI did not fulfill its obligations
Operator
95. Section 6 of the Agreement stipulates as follows:
6.1 That CRI shall be the Operator of all Mining Work carried out on the Property during the
period in which CRI shall remain Operator of the Property if it, together with a
Designate maintains an aggregate 50% interest in the Property.KOCHENBURGER -15- D:\Suite8\#DOSSIER\3639\Contestation-fin
6.2 CRI, acting reasonably, shall be entitled to appoint an alternate operator, without the
consent of any other party, in the event that it elects not to be Operator.
6.3 The Operator’s responsibilities shall include, but not be limited to: (i) managing and
supervising all Mining Work on the Property; (ii) managing and supervising the
applicable joint venture relationships with respect to all activities and Mining Work
carried out on the Property (iii) determining, acting reasonably, the Commercial
Production Date in accordance with Article 3.10 herein and (iv) determining, acting
reasonably, all activities, elements, components and items comprising the Joint Venture
Expenses in accordance with Article 3 herein and carrying out any and all tasks specified
by Article 3 herein.
6.4 The Operator shall at all times and in all regards be under an obligation to act
reasonably in relation to UMEI.
96. Section 2.6 of the Agreement stipulates:
2.6 During the Option Term, Ungava Exploration (UMEI) shall not incur any expenses on
or on behalf of the Property, nor shall it be entitled to carry out any work commitments,
Mining Work or projects whatsoever on the Property.
97. Section 3.4 of the Agreement requires the Operator to prepare, on or before January
31 of each year, a program for Mining Work to be completed for the period of April 1
to October 31 of that same year.
98. On July of each year, the Operator shall have the right to, if it deems fit, to amend the
then current Annual Program and Annual Budget in the event that the Mining Work
being carried out at the time is materially different from the Annual Program and
Annual Budget as determined prior to the most recent January 31.
Financing
99. a) CRI has assumed the obligation to obtain financing for the purposes of putting
the Property into commercial production, said financing being on a non-recourse
basis.
b) The definition of Joint Venture Expenses (1.1 h) of the Agreement confirms this
obligation:KOCHENBURGER -16- D:\Suite8\#DOSSIER\3639\Contestation-fin
“Joint Venture Expenses means as at the date of acceptance by a bank
or other financing entity willing to finance commercial production on the
Property in accordance with the Bankable Feasability study, all cash,
expenses, securities, obligations and liabilities whatever kind or nature
required to be paid or incurred with respect to the Property in order to
carry out Mining Work ...”
c) In its letter dated April 21, 2008 (P-12) addressed to UMEI, CRI acknowledged
its obligation to finance the project for the purpose of putting the Expo-Ungava
Property into commercial production:
“CRI has met all of its obligations under the Agreement, has completed
the Bankable Feasibility Study in accordance with same, and has
financed the project for the purposes of putting the Expo-Ungava
Property into commercial production on the strength of the Bankable
Feasibility Study, such financing having been without recourse to UMEI.”
See also December 28, 2007 letter from CRI to UMEI files as exhibit D-10.
d) Section 1.1 paragraph c) of the Agreement defines what the parties considered
as “commercial production”.
e) UMEI never had the obligation to participate in the payment of any expenses of
whatever kind or nature required to be paid or incurred for the purpose of
putting the Property into commercial production.
f) On March 31, 2008, CRI announced in a Press Release published on “SEDAR”
that it had filed its financial results for the year ended December 31, 2007. CRI
also confirmed that the total Project costs were estimated at 465.6 millions and,
to further finance the Project, the company has also entered into a letter of
engagement with BMO Capital markets and Commonwealth Bank of Australia for
the establishment of a $ 250 000 000 debt facility. March 31, 2008 Press
Release filed as D-3 .
g) Ungava files as D-4 an excerpt from the Ottawa Citizen dated Friday, April 6,
2007 in which CRI’s CEO, Mr. Richard Faucher, confirms that “Financing won’t
be a problem with present metal prices ...”.KOCHENBURGER -17- D:\Suite8\#DOSSIER\3639\Contestation-fin
Charge on the Property
100. a) If, subsequent to the Option Term, CRI has earned an interest in the Property,
CRI may grant mortgages, charges or liens (each of which is herein called a
“mortgage”) of and upon the Property or any portion thereof, any mill or other
fixed assets located thereon, and any or all of the tangible personal property
located on or used in connection with the Property to secure financing for the
purposes of exploration and development of the Property.
b) Ungava Exploration (UMEI), and any associate, insider or affiliate of Ungava
Exploration, shall not mortgage, pledge, charge, hypothecate or otherwise
encumber the Property during the Option Term, and if, subsequent to the
Option Term, CRI has earned an interest in the Property, Ungava Exploration
(UMEI) shall not mortgage, pledge, charge, hypothecate or otherwise encumber
the Property without the written content of CRI, which consent may not be
arbitrarily withheld if such encumbrances are to secure financing for the
purposes of exploration and development of the Property.
Permits
101. Necessary permits had not been all issued in due time which is the time the 2008
Program and Budget were prepared.
Facilities
102. CRI failed at all material time to secure proper airport and docking facilities to allow for
the transportation of men and material to accomplish mine building.
Failure
103. CRI never discharged its obligation to truthfully inform its “co-owner” of the actual
situation.
104. CRI never fulfilled its fiduciary duty to Ungava.
105. CRI failed to obtain the financing needed to put the Property into commercial
production.KOCHENBURGER -18- D:\Suite8\#DOSSIER\3639\Contestation-fin
106. CRI failed to carry out the 2008 Annual Program.
107. CRI did not obtain the necessary permits sufficiently early in order to pursue the mine
building work.
108. In 2008, the mine site construction on the Property apparently commenced on May 20,
2008 was placed on care and maintenance some time prior to August 5, 2008 (6 - 7
weeks).
109. As of March 31, 2008, the required financing was still lacking.
110. CRI took the decision during the third quarter of 2008 to suspend the construction on
the Property.
111. The mine site has been dismantled.
112. Because the construction has been suspended and the site dismantled, CRI had to
return all sites to their approximate initial state.
113. Even assuming that some expenses were incurred, they proved to be futile and
worthless, since the whole project under the control and responsibility of CRI had to be
dismantled and the site returned to its original state.
114. Any expenses incurred by CRI for the project should have been covered by the
financing to be put in place for the purpose of paying the cost of putting the Property
into commercial production.
115. CRI systematically misled Ungava and made unjustified demands upon it in an attempt
to wrongly deprive it of money or percentage of interest in the Property.
E) UNGAVA IS NOT IN DEFAULT AND HAS NEVER BEEN
116. CRI, as operator, had responsibilities and failed to discharge its obligations:
-- required financing on a non recourse basis;
– securing access to proper airport and docking facilities; KOCHENBURGER -19- D:\Suite8\#DOSSIER\3639\Contestation-fin
-- preparing Annual Programs that could be carried out;
– preparing Annual Budgets that it could afford;
- carrying on the works in the manner and in the periods stipulated in the
Agreement;
-- obtaining required permits on due time;
-- informing its co-owner accurately;
-- putting the mine in commercial operation;
117. CRI also had the obligation to act in good faith towards Ungava: it failed.
118. CRI had to fulfill its fiduciary duty to Ungava: it failed.
119. CRI had the obligation to act reasonably: it failed.
120. Due to CRI’s inability to carry out the 2008 Annual Program, the construction had to be
suspended, the work already completed had to be dismantled and the site had to be
returned to its initial state.
121. Due to CRI’s negligence or its incapacity to fulfill its obligations, the expenses incurred
by CRI in mine building proved to be futile and worthless.
122. Ungava had no participation in the direction of the project.
123. Ungava had no right to put any charge or lien on the Property.
124. Ungava had no obligation to participate in the financing of the project.
125. Ungava never interfered with the elaboration of the 2008 Annual Program and its
realisation.
126. All Ungava’s representations to CRI proved to be true.
127. Ungava has to date fulfilled all of its obligations under the Agreement.KOCHENBURGER -20- D:\Suite8\#DOSSIER\3639\Contestation-fin
F) CRI DID NOT RESPECT THE STIPULATIONS OF ARTICLES 6, 7 AND 137.5 OF
THE CIVIL CODE .
128. CRI did not act in good faith.
129. If CRI had any rights, it failed to exercise them in good faith.
130. Ungava has reasons to believe that CRI has acted throughout and had exercised its
rights, if it had any, with the intent of injuring Ungava or in an unreasonable manner
which is contrary to the requirements of good faith.
131. Ungava has reasons to believe that CRI did not conduct itself in good faith at the time
that obligation under Agreement were performed.
132. Ungava refers the Arbitrator more particularly to the following paragraphs of its
contestation: 4, 7, 8, 12, 13, 14, 19, 22, 23, 24, 45, 46, 47, 63, 76, 88, 82, 83, 84, 86,
87, 88, 92
G) COUNTERCLAIM
133. In consideration of the fact that CRI did not acted and did not exercise its rights, if any,
in good faith, Ungava is entitled to the remedies provided in article 1604 of the Quebec
Civil Code.
H) SPECIFIC PERFORMANCE AND/OR CONCLUSIONS OF AN INJUNCTIVE
NATURE
134. Only the Superior Court or its judges have the authority to issue injunctions.
135. An arbitrator may not order the specific performance of an obligation or conclusions of
an injunctive nature.
136. CRI requests such an order or conclusions.
137. Article 1601 of the Québec Civil Code allows a creditor to demand specific performance
of an obligation only in cases which admit of it.KOCHENBURGER -21- D:\Suite8\#DOSSIER\3639\Contestation-fin
138. The Agreement is not a promise of sale covered by article 1712 of the Québec Civil
Code.
139. Article 1601 does not receive application in this case.
CONCLUSIONS
For these reasons, may it please the Arbitrator to:
REJECT the claim of the claimant;
REJECT claimant’s other conclusions;
MAINTAIN the co-defendants Counterclaim;
DECLARE the resolution of the Agreement made as of the 12 day of January 2001 or its
th
resiliation;
CONDEMN Canadian Royalties inc. to pay to the co-defendants an amount to be determined
at the hearing hereof representing the arbitration fees in the present case.
Montreal, April 5, 2011
___________________________
Daniel M. Kochenburger
Attorney for the co-defendant
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