





CITATION: St. Andrew Goldfields Ltd. v. Newmont Canada
      Limited, 2011 ONCA 377



DATE: 20110513



DOCKET: C50925



COURT OF APPEAL FOR ONTARIO



Cronk, MacFarland and Rouleau JJ.A.



BETWEEN



St. Andrew Goldfields Ltd.



Applicant/Respondent in Appeal



and



Newmont
          Canada Limited (now Newmont Canada Corporation)
,

Barrick Gold
          Corporation, Royal Gold, Inc. and

RGLD Gold Canada, Inc.



Respondents/
Appellant
/Respondents
          in Appeal:

Royal Gold, Inc. and RGLD Gold Canada,
          Inc.



Jessica Kimmel and Daniel Cappe, for the appellant Newmont
          Canada Limited (now Newmont Canada Corporation)



Peter Wells and Rosamaria Longo, for the respondent St. Andrew
          Goldfields Ltd.

David I.W. Hamer and Junior Sirivar, for the respondents Royal
          Gold, Inc. and RGLD Gold Canada, Inc.



Heard: March 28, 2011



On appeal from the judgment of Justice Lois B. Roberts of the Superior
          Court of Justice dated July 23, 2009, with reasons reported at
[2009] O.J. No. 3266
.



Rouleau J.A.:



[1]

Newmont Canada Limited (now Newmont Canada Corporation) (Newmont
    Canada) appeals those portions of the trial judgment granting declaratory
    relief limiting the obligation of St. Andrew Goldfields Ltd. (St. Andrew) to
    indemnify Newmont Canada for all royalties payable pursuant to a net smelter return
    (NSR) royalty agreement with Barrick Gold Corporation (Barrick) and its
    successors and assigns Royal Gold, Inc. and RGLD Gold Canada, Inc. The trial
    judge found that St. Andrews indemnification obligation was limited to a flat
    rate of 0.013% NSR, the amount indicated in the various schedules to the
    agreements negotiated between St. Andrew and Newmont Canada for the purchase of
    the Holloway-Holt Gold Camp. Newmont Canada remained responsible for the NSR royalty
    payments to Barrick and its successors and assigns in respect of the
    Holloway-Holt Gold Camp over and above the 0.013% NSR.

FACTS

[2]

In the fall of 2004, Newmont Canada and Barrick
    completed the purchase by Newmont Canada of the Holt-McDermott mine, mill and
    mill-related facilities in northern Ontario. As part of this transaction,
    Newmont Canada entered into an NSR royalty agreement with Barrick which
    required Newmont Canada to pay Barrick or its assigns royalties on the NSR for
    mineral produced at the mine.

[3]

The Barrick royalty agreement provided that
    Newmont Canada would remain liable under the Barrick royalty agreement unless
    it obtained an assumption agreement from the transferee of the obligations
    under the Barrick royalty agreement and Barrick approved of this transfer.

[4]

As found by the trial judge, Newmont Canada had misread
    the provisions in the Barrick royalty agreement, erroneously believing that the
    royalty was an insignificant flat rate of 0.013% NSR. In fact, it was a sliding
    scale royalty obligation that increased substantially as the price of gold
    increased. Believing that the low 0.013% NSR was an error on Barricks part,
    Newmont Canada did not question Barrick on the provision nor did it seek to
    modify or change the clause.

[5]

Through the purchase, Newmont Canada consolidated
    existing adjacent landholdings with the Holt-McDermott mine to create the
    Holloway-Holt Gold Camp. On August 11, 2006, in anticipation of selling the Holloway-Holt
    Gold Camp, including the Holt-McDermott Mine, to St. Andrew, Newmont Canada
    transferred all the assets and liabilities of the Holt-McDermott mine to one of
    its subsidiaries, Holloway Mining Company (Holloway).  Although the transfer
    to Holloway was stated to be of all the assets and liabilities of the
    Holt-McDermott mine, including the Barrick royalty agreement, Barricks
    approval for an assignment of the Barrick royalty agreement was not sought. Instead,
    the agreements between Holloway and Newmont Canada provided that Holloway would
    indemnify Newmont Canada for its royalty obligations to Barrick pursuant to the
    Barrick royalty agreement. However, because Newmont Canada was still operating
    under the misapprehension that the Barrick royalty agreement obligation was
    only 0.013% NSR, every reference in the schedules attached to the agreements
    between Newmont Canada and Holloway stipulated that the royalty obligation was
    0.013% NSR.

[6]

In the fall of 2006, Newmont Canada, St. Andrew
    and Holloway concluded the purchase by St. Andrew of the Holloway-Holt Gold
    Camp. The purchase was effected by St. Andrew purchasing all the shares of
    Holloway from Newmont Canada. This was followed by the amalgamation of St.
    Andrew and Holloway. As with the earlier transfer to Holloway, Newmont Canada
    did not seek to assign the Barrick royalty agreement to St. Andrew and did not
    seek Barricks approval for the transaction. Instead, Newmont Canada chose to
    enter into an indemnity agreement whereby St. Andrew agreed to indemnify
    Newmont Canada for its royalty obligation pursuant to the Barrick royalty
    agreement.

[7]

Once again, because Newmont Canada was still
    operating under the erroneous belief that the royalty obligation under the
    Barrick royalty agreement was the flat rate of 0.013% NSR, all the
    documentation between Newmont Canada, Holloway and St. Andrew stipulated that
    the amount of the Barrick royalty obligation, the obligation St. Andrew agreed
    to indemnify, was 0.013% NSR. None of the parties knew, at that time, that the royalty
    obligation under the Barrick royalty agreement was in fact substantially greater.

[8]

In the fall of 2008, Barrick gave notice to
    Newmont Canada that it intended to sell its interest in the Barrick royalty
    agreement to Royal Gold, Inc. It is at this point that Newmont Canada and St.
    Andrew discovered that the Barrick royalty agreement in fact provided for a NSR
    royalty rate substantially greater than a flat rate of 0.013% NSR.

[9]

St. Andrew then brought the present application seeking
    to have the rights and obligations of the parties pursuant to the various
    contracts determined. Over the course of several case conferences, the parties
    came to an agreement to have the matter proceed by way of a trial of seven
    issues. A
s the parties had agreed to limit the issues, the trial judge
    restricted her analysis to these seven issues. The issues as between Newmont
    Canada and St. Andrew involved the correct interpretation of the agreements and
    neither party took the position that the agreements were void or unenforceable.

[10]

At the conclusion of the trial, the court ruled
    in favour of St. Andrew, concluding in part that:


1)

Newmont Canada was the party that was directly responsible to
      Barrick and its assigns for the performance of the Barrick royalty agreement, including
      payment of the NSR royalty specified therein; and

2)

St. Andrew was only required to indemnify Newmont Canada for the
      fixed royalty amount of 0.013% NSR stipulated in the various agreements entered
      into between them.


[11]

Newmont Canada does not appeal the first finding. The issue on appeal is
    the correctness of the second findingthat is, whether St. Andrews indemnity
    obligation is limited as found by the trial judge or, as alleged by
Newmont Canada, covers all royalty payments Newmont Canada is
    required to make under the Barrick royalty agreement.

[12]

Newmont Canada argues that the trial judge erred in her interpretation
    of the agreements and failed to identify and give effect to their true
    commercial purpose and intent. Had she done so, she would have concluded that
    the indemnity obligation of St. Andrew encompassed all royalties payable under
    the Barrick royalty agreement, notwithstanding the fact that the various
    schedules to the agreements erroneously stated that the royalty obligation under
    the Barrick royalty agreement was 0.013% NSR.

ISSUES

[13]

The questions to be resolved are as follows:



i)

Did the trial judge err in concluding that St. Andrews indemnity obligation
        to
Newmont Canada was limited to the flat rate of 0.013% NSR
          as stipulated in the various schedules to the agreements rather than the
          royalty obligation specified in the Barrick royalty agreement itself?

ii)

Did the trial judge err in failing to consider that, by amalgamating
        with Holloway, St. Andrew became responsible for all of Holloways obligations
        including the obligation to indemnify
Newmont Canada for all royalty
          payments made pursuant to the Barrick royalty agreement?



ANALYSIS

1)

Was the indemnity obligation
    limited to 0.013% NSR?

[14]

Newmont Canada argues that on a proper reading
    of the contracts and the clear expression of intention of the parties, both the
    assumption of liability and indemnity obligations of St. Andrew encompass all the
    royalty amounts payable under the Barrick royalty agreement. This is so
    notwithstanding the fact that certain schedules to the agreements erroneously
    described the Barrick royalty obligation as being 0.013% NSR.

[15]

In essence, Newmont Canada argues that in
    transactions of this naturea sale of a mineit would be understood that
    performance of all obligations related to the mine, including the Barrick
    royalty agreement, would transfer with the mining assets. The parties would clearly
    have intended that Newmont Canada divest itself of all assets and obligations
    associated with the Holloway-Holt Gold Camp and that St. Andrew acquire these
    same assets and liabilities.

[16]

In support of this interpretation, Newmont
    Canada relies on various provisions in the agreements between St. Andrew,
    Holloway and Newmont Canada whereby St. Andrew agreed to assume the liabilities
    flowing from contracts that were listed in a schedule to each agreement. One of
    the contracts listed in these schedules is the Barrick royalty agreement. Newmont
    Canada argues that, in determining St. Andrews indemnity obligation, the terms
    of the Barrick royalty agreement should take precedence over the description of
    the Barrick royalty obligation as being 0.013% NSR.

[17]

In Newmont Canadas view, the various references
    to the royalty obligation being limited to 0.013% NSR were no more than representations,
    albeit made in error, and did not detract from the true intention of the
    parties, which was that St. Andrew was assuming all of Newmont Canadas obligations
    under the Barrick royalty agreement.

[18]

I disagree. From the testimony of the parties it
    is apparent that the extent of a partys royalty obligations is usually an
    important component of any sale of mining assets. All the documents detailing
    the sale of the Holloway-Holt Gold Camp to St. Andrew specified that the royalty
    payable pursuant to the Barrick royalty agreement was a flat rate of 0.013% NSR.
    This 0.013% NSR royalty was the Newmont Canada royalty obligation that St.
    Andrew agreed to indemnify. As representatives of Newmont Canada testified, at
    the time they believed that the royalty rate in the Barrick royalty agreement
    was in fact only 0.013% NSR. They therefore believed the description in the
    agreement to be accurate.

[19]

As noted by the trial judge, all the witnesses,
    including the expert witnesses, considered the 0.013% NSR to be a royalty rate
    so low as to be insignificant and not worth investigating. In other words, the
    balance of the provisions of the Barrick royalty agreement was of no
    consequence. Once the rate and type of royalty was known, little else that was contained
    in the royalty agreement was of much significance. This contrasts with the
    evidence that the actual rate stipulated in the Barrick royalty agreement would
    lead to very substantial royalty payments, particularly with the current high price
    of gold.

[20]

Although the Barrick royalty agreement was one
    of the agreements listed in a schedule to the purchase agreement between St.
    Andrew, Holloway and Newmont Canada, the Barrick royalty agreement was not
    appended to the purchase agreement nor to
any of the
    contracts that documented the transaction.
Further,
    despite having requested copies of all the documents referred to in the
    agreements, including the Barrick royalty agreement, St. Andrew was not given copies
    until the day of closing. In these circumstances, the trial judge found that
    it is hardly reasonable for Newmont to argue that St. Andrew could and should
    have looked at the Barrick royalty agreement prior to closing.

[21]

The fact that the common intention was to have
    St. Andrew indemnify Newmont Canada for a fixed royalty of 0.013% NSR rather
    than to have St. Andrew assume the full extent of Newmont Canadas royalty obligations
    under the Barrick royalty agreement is further evidenced by the fact that Newmont
    Canada deliberately chose not to seek an assignment of the Barrick royalty
    agreement to St. Andrew. Newmont Canada preferred instead to obtain an
    indemnity from St. Andrew. As set out in the trial judges reasons,

Newmont did not seek Barricks consent
    to St. Andrews assumption of Newmonts obligations under the Barrick royalty
    agreement because Newmont thought that the Barrick royalty was insignificant. Newmont
    was therefore prepared to assume the risk of remaining primarily liable to
    Barrick. Mr. Dehlin [Director of International Land at Newmont Canada]
    testified that he and his colleagues understood that if Newmont did not obtain
    Barricks agreement, then Newmont would not be relieved of its obligations
    under the Barrick royalty agreement.

[22]

I understand that, by concluding that Newmont
    Canada is responsible for the royalty payments to Barrick in excess of the
    0.013% NSR, there may well be circumstances where the operation of the mine by
    St. Andrew is economically viable only because Newmont Canada is bearing
    virtually all the royalty obligations pursuant to the Barrick royalty
    agreement. This, however, is the result of the agreements Newmont Canada
    negotiated. Newmont Canada is a highly sophisticated mining corporation. It
    agreed to the royalty clause in the Barrick royalty agreement, without seeking
    clarification, because it believed it could benefit from an error on Barricks
    part. Then, in the sale to St. Andrew, it made a conscious decision to remain
    primarily liable to Barrick for the Barrick royalty agreement. It did not
    therefore divest itself of all the assets and obligations relating to the
    Holloway-Holt Gold Camp. Although Newmont Canada believed that the indemnity it
    negotiated with St. Andrew was for an amount equal to the obligation it had
    retained, it was wrong.

[23]

The
specific reference in the agreements
    to the flat rate of 0.013% NSR was not made erroneously or inadvertently. It
    reflected the understanding of the parties, albeit in error, of what the
    Barrick royalty agreement provided for. Given the repeated specific reference
    to the 0.013% NSR figure and the fact that knowing the rate and type of royalty
    provided virtually all the relevant information St. Andrew needed regarding the
    Barrick royalty agreement, the rate, or, specifically, its insignificance was
    central to the purchase and central to the bargain that the parties negotiated.

[24]

In my view, therefore, the evidence at trial
    amply supported the trial judges conclusions that Newmont Canada and St.
    Andrew believed that the royalty was a flat rate of 0.013% and therefore
    insignificant, that the Barrick royalty agreement formed no part of their
    discussions or negotiations, and did not affect the purchase price and that
    the description of the royalty as being a flat rate of 0.013% NSR accurately
    reflects the agreement that Newmont and St. Andrew had made concerning the
    Barrick royalties that St. Andrew agreed to assume.
Further, as found
    by the trial judge, it was reasonable for St. Andrew not to have examined the
    underlying Barrick royalty agreement. The amount of the royalty was
    insignificant and as a result, so was the royalty agreement.

[25]

Finally, I would not give effect to Newmont Canadas submission that the
    stipulated royalty rate of 0.013% NSR was no more than a representation and
    that the agreements between the parties that St. Andrew was assuming all the obligations
    of a long list of contracts, which included the Barrick royalty agreement,
    should govern. In my view, the trial judge correctly concluded that the
    numerous specific references in the agreements to the Barrick royalty agreement
    rate being 0.013% NSR reflected the intention of the parties and in the
    circumstances, they overrode the general references to St. Andrew assuming the
    obligations in the contracts listed in the schedules to the agreements.

2)

The impact of the amalgamation
    of Holloway with St. Andrew

[26]

Newmont Canada argues that, because Holloway
    assumed all the obligations of Newmont Canada respecting the Holt-McDermott
    mine, the subsequent purchase by St. Andrew of all the shares of Holloway and
    the amalgamation of Holloway and St. Andrew results, in law, in St. Andrew
    having assumed the obligations under the Barrick royalty agreement.

[27]

Newmont Canada submits that the trial judge
    erred in failing to address this issue. Had she done so, she would have
    concluded that St. Andrew was responsible for all of Newmont Canadas
    obligations pursuant to the Barrick royalty agreement.

[28]

I would not give effect to this submission. The
    trial judge was aware of the transactions leading to the amalgamation of
    Holloway and St. Andrew. This is apparent from a footnote to her reasons in
    which the various transactions are outlined.

[29]

Although she identified the various underlying
    transactions, the trial judge did not separately review the impact of the transfer
    by Newmont Canada to Holloway of the assets and liabilities relating to the
    Holt-McDermott mine or the impact of the subsequent amalgamation of Holloway
    and St. Andrew. While it might have been preferable had she done so, a review of
    that documentation adds little to the analysis she did carry out. When Newmont
    Canada transferred the assets and liabilities of the Holt-McDermott mine to
    Holloway, it did not assign the Barrick royalty agreement to Holloway nor did
    it seek approval from Barrick for the assignment. As in the sale to St. Andrew,
    Newmont Canada sought only an indemnity from Holloway of Newmont Canadas
    royalty obligation under the Barrick royalty agreement, an obligation
    stipulated to be 0.013% NSR.

[30]

In other words, Newmont Canada did not transfer to
    Holloway all the assets and liabilities relating to the Holt-McDermott mine. As
    with the later sale to St. Andrew, Newmont Canada retained the risk and the
    obligation to Barrick of the Barrick royalty agreement. As a result, the same
    analysis and same reasoning applied by the trial judge to the St. Andrews
    transaction applies to the previous transfer by Newmont Canada to Holloway. The
    conclusion is the same: Holloway only agreed to indemnify Newmont Canada for
    the stipulated royalty rate of 0.013% NSR.

CONCLUSION

[31]

The contractual interpretation in this case was
    heavily intertwined with the evidence led at trial. As the trial judge stated,
    It is the evidence of the parties that governs the outcome in this case. None
    of the trial judges factual findings are challenged on appeal. Faced with two
    contractual interpretations, the trial judge carefully considered the facts and
    the agreements and concluded that, correctly interpreted, the agreements
    provided that St. Andrew agreed to an indemnity of a royalty obligation stated
    to be 0.013% NSR. This is consistent with the many references in both the
    Newmont Canada-Holloway and Newmont Canada-Holloway-St. Andrew agreements to
    the amount of the Barrick royalty obligation being 0.013% NSR. In my view, in
    reaching her conclusion, the trial judge did not commit any error in the
    application of the relevant legal principles. Her conclusion was not only
    reasonable, in my view it was correct.

[32]

In the result, I would dismiss the appeal. If
    the parties are unable to agree on costs, I would ask the respondents to submit
    brief written submissions within 20 days hereof and the appellant to submit a
    brief response within 10 days thereafter.

Paul
    Rouleau J.A.

I
    agree E.A. Cronk J.A.

I
    agree J. MacFarland J.A.

RELEASED: May 13, 2011


