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IN THE SUPREME COURT OF BRITISH COLUMBIA

Date: 20130730 S1 13884 Vancouver Registry:

Docket

Between:

Rahim Jivrai
Plaintitf And

Mercer Gold CorPoration

Defendant Docket: S128065 Registry: Vancouver Between:

Mercer Gold Corporation (British Columbia)

Plaintitf And

Tresoro Mining CorPoration

Defendant

Before:The Honourable Madam Justice Dickson

Oral Reasons for Judgment

ln Chambers Rahim Jivraj Gerry Jardine

Appearing on his own behalf and on behalf of Mercer Gold:

Appearing on behalf of Tresoro Mining CorPoration: Place and Date of Hearing:

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Place and Date of Judgment:

Vancouver, B.C' APril 29 & June 24,2013 Vancouver, B.C. JulY 30, 2013

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37

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Mercer Gold Corp. (8.C.) v. Tresoro Gold

Corp.

Page 2

I1l

THE COURT: The plaintiff, Mercer Gold Corporation (British Columbia),

("Mercer"), seeks a declaration that the defendant, Tresoro Mining Corporation, ("Tresoro"), is in default of an option agreement dated April 13, 2010 (the "Secondary Option Agreement"), together with associated relief. The amended application is brought by Mercer pursuant to Rule 9-7 of the Supreme Court Civil Rules by way of summary trial.

l2l

The Secondary Option Agreement provides that Tresoro was to make a

series of option payments to the Comunidad Minera Guayabales, a Golombian organization with which Mercer had contracted approximately one month earlier (the "Underlying Option Agreement"). According to Mercer, on each of July 14,2A12 and

January 14,2013 Tresoro failed to pay US $160,000 in installment payments to the Comunidad, These payments were required by the terms of the Secondary Option
Agreement.

t3l

Mercer goes on to say that as a result of its failure to make the July 14 and

January 14 installment payments Tresoro is in default of the Secondary Option Agreement. The fact of default, and its legal etfect, is a matter governed by British
Columbian law. That being so, given the agreement's terms, Mercer claims to be entitled to terminate the Secondary Option Agreement and chooses to do

so.

ln

consequence, it says that all of Tresoro's rights, interests and entitlement thereunder are extinguished.

t4l

Tresoro responds that this matter is not appropriate for determination on a

summary trial, at least not on the evidence and as submitted by Mercer. According to Tresoro it has not breached the Secondary Option Agreement because it has not breached the terms of the Underlying Option Agreement concluded with the

Comunidad. ln support of this position Tresoro says that Mercer transferred the
Underlying Option Agreement to it and the Comunidad accepted the transfer. This means any purported breach of its associated obligations must be determined by the law of Colombia, not the law of British Columbia.

Mercer Gold Corp. (8.C.) v. Tresoro Gold Corp.

Page 3

l5l

Foreign law is a factual matter concerning which no evidence was presented

on the summary trial application. In these circumstances, Tresoro says, the relief sought must be determined either by the Colombian courts or the courts of British Columbia with the benefit of expert evidence on Colombian law.

16l

The issues for determination are:

1.

whether this matter is suitable for determination on summary trial; and, if so

2.

whether the relief sought by Mercer should be granted in whole or in

part.

BACKGROUND

I7l

The Underlying Option Agreement concerns the exploration and development

of certain mineral properties in Colombia. The properties are held under licence by

the Comunidad.

18]

On March 4,2010 Mercer concluded the Underlying Option Agreement with

the Comunidad. Pursuant to its terrns, the Comunidad granted Mercer, as optionee, an irrevocable right to acquire a 100 per cent interest in the mineral properties upon
payment of $4 million in 17 installments on specified dates. Paragraph 3.1 of the Underlying Option Agreement provides:
The Optionor hereby irrevocably grants to the Optionee (and/or the Optionee's wholly-owned subsidiary to be incorporated under the laws of the Republic of Columbia or under the laws of such other jurisdiction as may be determined to be appropriate by the Optionee) the sole and exclusive right and option to acquire a One Hundred percent (1000/6) interest in and to the Property, free and clear of all liens, charges, encumbrances, claims, rights or interest of any other person, such Option to be exercisable by the Optionee:

3.1

a)

paying to the Optioner an aggregate Four Million Dollars (US$4,000,000) in the instalments and by the dates specified as follows:

i.

US $20,000 on the date of execution of the letter of intent dated October 14, 2009 entered into between the Optionee and the Optionor (the "Letter of Intent"), which amount has been paid in full;

Mercer Gold Corp. (8.C.) v. Tresoro Gold

Corp.

Page 4

ii. iii, iv. v. vi. vii. viii. ix. x. xi. xii. xiii. xiv, xv. xvi. xvii.

an additional US$40,000 on or by ninety (90) days from the date of execution of the Letter of lntent, which amount has been paid in full; an additional US$40,000 on or by April 14, 2010; an additional US$55,000 on or by July 14, 2010;

an additional US$55,000 on or by October 14, 2010;

an additional US$65,000 on or by January 14,2011; an additional US$75,000 on or by April 14,2011; an additional US$75,000 on or by July 14,2011;

an additional US$85,000 on or by October 14, 201 1;

an additional US$85,000 on or by January 14,2Q12; an additional US$160,000 on or by July 14, 2012;

an additional US$160,000 on or by January 14, 2013;

an additional US$190,000 on or by July 14, 2013; an additional US$190,000 on or by January 14,2014; an additional US$230,000 on or by July 14,2014;

an additional US$230,000 on or by January 14,2015; and

an additional US$2,245,000 on or by July 14, 2015;

and the date the Optionee exercises the Option by completing these payments is referred to herein as the "Option Exercise Date". ln the event any option payment for any period set out above is not met, then the Option willterminate and be of no further force or etfect, subject to the provisions of Section 18.1.

3.2
tel

The Optionee, at its sole discretion, can elect to accelerate the timing of the option payments outlined in Section 3.1 and, thereby, exercise the Option.

The Underlying Option Agreement is subject to Colombian law.

On April 13,2010 Mercer and Tresoro concluded the Secondary Option

t10l

Agreement. Pursuant to its terms, Mercer granted to Tresoro the right to acquire its
interest in the Underlying Option Agreement.

[11]

The Secondary Option Agreement is subject to British Columbia law'

Option Agreement creates a range of contractual obligations

t12l The Secondary

2.1

between the parties, lts key terms, for present purposes, provide:
Grant of the Option. Subject to the terms and conditions hereof and based upon the representations, warranties and covenants contained in

Mercer Gold Corp. (8.C.) v. Tresoro Gold

Corp.

Page 5

Articles "3" and "4" herein below and the prior satisfaction of the conditions precedent which are set forth in Article "5" herein below, the Optionor hereby agrees to give and grant to the Optionee the sole and exclusive right and option to acquire allthe Optionor's current Underlying Option interests under the Underlying Option Agreement and, consequent thereon, no less than an undivided 100% legal, beneficial and registerable interest in and to the Property in accordance with the terms of the Underlying Option Agreement (again, the "Option") and, in order to maintain the Option in good standing and in full force and etfect, the Optionee hereby agrees to exercise the Option on or before the Closing Date (as hereinafter defined) (and which period in time from the Effective Date herein to the Closing Date is referred to as the "Option Period") for each of the following Option Non-Refundable Cash Payment (as hereinafter defined), the following restricted common stock Option Share lssuances (as hereinafter defined), the following minimum cumulative Expenditures (as hereinafter defined) commitments and the following Option Underlying Option Agreement Payments (as hereinafter defined) and maintenance payments to be paid and incurred in accordance with section "2.2" hereinbelow.
Consideration for and maintenance of the Option. In order to keep the right and Option granted to the Optionee in respect of the Assets in good standing and in force and etfect during the Option Period the Optionee shall be obligated to pay, issue and provide for each of the following Option NonRefundable Cash Payment (as hereinafter defined), the following restricted common stock Option Share lssuances (as hereinafter defined), the following minimum cumulative Expenditures (as hereinafter defined) commitments and the following Option Underlying Option Agreement Payments (as hereinatter defined) and maintenance payments to and for the order of the Optionor and the mineral Propefi interests comprising the Assets in the following manner:

2.2

d)

Ootion Underlying Option Agreement Payments and maintenance payments: pay, or cause to be paid, to or on the Optionor's behalf all
underlying option, regulatory and governmental payments and assessment work required to keep the mineral Property interests comprising the Assets and any underlying option agreements respecting any ol the mineral Property interests comprising the Assets in good standing during the Option Period of this Agreement and including, without limitation, all remaining cash payments required to be made to the Underlying Property Owner under the Underlying Option Agreement (collectively, the "Underlying Option Agreement Payments").

,:
d)

Termination of the Ootion. In the event that either:

the Optionee fails to pay, or cause to be paid, to or on the Optionor's behalf, any of the required Option Underlying Option Agreement Payments and all underlying option, regulatory and governmental payments and assessment work required to keep the mineral Property interests comprising the Assets and any Underlying Option Agreement respecting any of the mineral Property interests comprising the Assets in goodstanding in accordance with paragraph "2.2(d)" hereinabove;

Mercer Gold Corp. (8.C,) v. Tresoro Gold

Corp.

Page 6

then, and only upon the Optionee first providing the Optionor with at least 30calendar days prior written notice of its determination of the occurrence of any such event and the Optionee, thereupon, either failing to cure or choosing not to cure any such event, the Option will then terminate at the end of such 30-calendar day period.
In this regard the Optionee acknowledges and agrees that, should the Optionee having any indication that it may not be in a position to make any required Option Underlying Option Agreement Payment in accordance with paragraph '2.2(d) hereinabove within the time periods as specified under the Underlying Option Agreement, the Optionee will use its commercial reasonable etforts to provide the Optionor with reasonable and prompt written notice thereof in order that the Optionor make bring the Option Underlying Option Agreement Payments and the Underlying Option into good standing notwithstanding the termination ol the Option pursuant to paragraph "2.2(d)',

2.8

Obliqations on termination of the Option. lf the Option is terminated otherwise than upon the exercise thereof pursuant to this Article, then the Optionee shall:

cause to be delivered to the Optionor the Transfer Documents (as hereinafter defined) and a bill of sale in recordable form whereby the Optionee's entire right, title and interest in and to the mineral property interests comprising the Assets has been transferred to the Optionor free and clear of all liens or charges arising from the Optionee's activities on the mineral Property interests comprising the Assets to the date thereof;

b)

Deemed exercise of the Option. At such time as the Optionee has made each of the Option Non-Refundable Cash Payments, the initial Share lssuance under paragraph 2.2(b)(i)', all Expenditures and all Option Underlying Option Agreement Payments and maintenance payments in accordance with section "2.2" hereinabove, within the Option Period and the time periods as specified in section "2.2", then the Option shall be deemed to have been exercised by the Optionee, and the Optionee shall have thereby, in accordance with the terms and conditions of this Agreement and without any further act required on its behalf, acquired an undivided 100o/o legal, beneficial and registerable interest in and to the Assets.

2.9

17.1 Default. The parties hereto agree that if any Party hereto is in default witn resiffi any oi the provisions 5f this Agreement (herein called the "Defaulting Party"), the non-defaulting Party (herein called the "NonDefaulting Party") shall give notice to the Defaulting Party designating such default, and within 10 calendar days after its receipt of such notice, the Defaulting Pafi shall either:
a)
cure such default, or commence proceedings to cure such default and prosecute the same to completion without undue delay; or

Mercer Gold Corp. (8.C.) v. Tresoro Gold Corp.

Page 7

b)

give the Non-Defaulting Party notice that it denies that such default has occurred and that it is submitting the question to arbitration as herein provided.

17.4 Termination. ln addition to the foregoing, it is hereby acknowledged and agreed by the Parties hereto that this Agreement will be immediately terminated in the event that:
a)
the Option is terminated in accordance with Article "2" hereinabove.

[13]
t141

The Secondary Option Agreement does not expressly purport to assign all of

Mercer's rights and obligations under the Underlying Option Agreement to Tresoro.

As noted, the Secondary Option Agreement was concluded on April 13, 2010

by Mercer and Tresoro. The Underlying Option Agreement was appended as a

schedule and described, in Recital B as "... forming a material part hereof

..." ln

addition, the installment payments enumerated in the Underlying Option Agreement were expressly referenced in paragraphs 2.2(d) and 2.5(b) of the Secondary Option Agreement, as set out above.

[15] Rahim Jivraj is the principal of Mercer. He is also the former president of
Tresoro.

[16] After the Secondary Option Agreement

was concluded unhappy differences

developed between Mr. Jivraj and the other principals of Tresoro. All concerned accused, and continue to accuse, one another of numerous forms of breach and wrongdoing in connection with the Columbian mineral propefties and the agreements that were made with respect to them. In consequence, all concerned

are embroiled in various ongoing disputes in various conte)ds, including actions in the courts,

1171 Tresoro made all of the installment payments enumerated in the Secondary
Option Agreement untilJuly 1 4,2012.

[18]

In this action Mercer claims Tresoro failed to pay the installment payments

referenced in and required by the Secondary Option Agreement to the Comunidad on July 14,2012 and January 14,2013. According to Mercer, those failures

Mercer Gold Corp. (8.C.) v. Tresoro Gold

Corp.

Page 8

unambiguously constitute a breach of the Secondary Option Agreement which

justifies its termination and the declaratory relief sought.

[19]

lt is common ground between the parties that, in fact, Tresoro did not make

the fullJuly 1 4,2012 and January 14, 2019 installment payments. Tresoro says, however, that it was not required to do so on those dates because, by then, Mercer
had transferred the Underlying Option Agreement to it with the consent of the

Comunidad. According to Tresoro the Comunidad's consent is evidenced by a letter

dated April 15, 2010 (the "Transfer Letter"). The Transfer Letter is appended to affidavit no. 2 of Gary Powers, the current President of Tresoro, and filed on the summary trial (the "Powers No. 2 Affidavit"),

[20]

Tresoro goes on to say that the obligation to make installment payments

pursuant to the Underlying Option Agreement was varied by consent between itself and the Comunidad after the Transfer Letter was received by all interested parties.

The consent in question is allegedly evidenced by an agreement dated July 9, 2012

(the "Alleged July 9, 2012 Agreement"). Tresoro says further that, pursuant to the terms of the Alleged July 9, 2012 Agreement, it paid $50,000 on July 31, 2012 and $60,000 on August 9, 2012 to the Comunidad. Accordingly, no breach under Colombian law has been demonstrated on the evidence presented at the summary trial.

[21]

The Alleged July 9, 2012 Agreement is also appended to the Powers No. 2

Atfidavit. Uncertified translations of both the Transfer Letter and the Alleged July 9,
2012 Agreement are also attached. Mercer objects to the admissibility of the
Powers No. 2 Atfidavit.

I22l Despite Mercer's objection, I am satisfied that I should take the Powers No. 2
Atfidavit into account in determining this matter. As discussed below, however,
given the uncertified nature of the translations and my interpretation of the Secondary Option Agreement its contents are of limited value.

Mercer Gold Corp. (8.C,) v. Tresoro Gold Corp,

Page

l23l Mercer is not a party to the Alleged July g, 2012 Agreement between Tresoro
and the Comunidad.

[241

On July 17,2013 the Comunidad issued a default notice to Mercer in

connection with the missed installment payments. The default notice was issued pursuant to the underlying option Agreement.

[25]

Mercer issued default notices to Tresoro in connection with the missed

installment payments. The default notices were issued pursuant to the Secondary Option Agreement.

126l

Tresoro did not make the entire July 14,2012 or January 14,2013 installment

payments referenced in the Secondary Option Agreement after receiving Mercer's default notices.

l27l

As noted above, Tresoro makes several allegations against Mr, Jivraj, most ot

which are hotly contested. In particular, Tresoro alleges that Mr. Jivraj and Mercer have engaged in a wide range of wrongful conduct designed to damage its reputation and interfere with its relationship with the Comunidad. DISCUSSION

[28]

Tresoro submits that this matter is not suitable for determination on sumrnary

trial because the Underlying Option Agreement and its alleged breaches are subject to the law of Colombia, not the law of British Columbia. The Underlying Option
Agreement was assigned by Mercer to Tresoro in April 2010 and whether it was breached thereafter is, according to Tresoro, a matter between it and the

Comunidad. In particular, whether the Underlying Option Agreement was properly

varied and whether a default has occurred is a matter that falls to be determined pursuant to the law of Columbia. Further, the interpretation of the Secondary Option

Agreement is inextricably linked to the Underlying Option Agreement and, therefore,

Colombian law is highly relevant regardless of whether it fully determines the issues

to be resolved.

Mercer Gold Corp. (8.C.) v, Tresoro Gold Corp.

Page 10

t29] According to Tresoro,

in these circumstances the issues that arise between

the parties on this summary trial application are best adjudicated by the courts of
Golombia, not British Golumbia. Alternatively, expert evidence as to whether

Tresoro has in fact committed a breach pursuant to Colombian law is required, but
has not been produced. That being so, Tresoro says it is impossible for me to make

the necessary factualtindings to resolve the application, Accordingly, the

application should be dismissed in its entirety.

[30]
I

| do not fully accept this submission. I am satisfied that I can make factual

findings sutficient to determine at least some of the issues raised by the application. am also satisfied that it is just and desirable for me to do so as it will advance the
litigation and assist the parties in moving forward.

[31] | reach the foregoing

conclusion because Mercer and Tresoro are the only

parties to the Secondary Option Agreement. That Agreement is expressly subject to British Columbian, not Colombian, law. As discussed below, the Secondary Option

Agreement requires Tresoro to make defined installment payments to the

Comunidad on behalf of Mercer. As a matter of British Columbian law, it is not open to Tresoro to vary its obligation to Mercer by agreement with others without the consent of Mercer. This is so regardless of whether Tresoro independently entered into related, identical or different obligations with the Comunidad and regardless of what law might govern those other obligations.

[32]

As to interpretation of the Secondary Option Agreement, the applicable

principles of British Columbian law are uncontroversial. ln summary, they include:

(a)

First and foremost, the words of the contract must govern, Those words are to be interpreted in the light of the whole of the contract.

The court is to look first to the words of the agreement, aided, if

necessary, by the factual matrix.
(b)

The relevant factual matrix is generally restricted to circumstances

known to both parties that illuminate the meaning a reasonable person

Mercer Gold Corp. (8.C.) v. Tresoro Gold

Corp.

Page 11

would give to the words employed. This includes the genesis, aim and object of the whole of the transaction.

(c) (d) (e) 0

The contract should be interpreted at the time it is written and in the

light of the surrounding circumstances.

The contract is to be interpreted in a way that avoids a commercially absurd result and in accordance with business commonsense.
Evidence of negotiations leading up to a contract is generally not permitted, nor is evidence of subjective intent. lf application of these principles does not lead to a clear result it is permissible to look at cefiain post-contractual activities of the parties, so long as they do not involve a subjective analysis of a party's intent.

t33l Mercer submits that application of the foregoing principles to the

uncontroverted facts leads to the conclusion that Tresoro's failure to make the

specified payments to the Comunidad constitutes a clear default of the Secondary

Option Agreement, lf left uncured, such a default entitles Mercer to terminate its agreement with Tresoro. According to Mercer, this interpretation accords with good business sense given its interest in ensuring it could re-acquire control of the mineral properties if Tresoro did not perform as required in the Secondary Option

Agreement. The fact that the Comunidad could, and did, issue a default notice to
Mercer when Tresoro failed to pay underscores the force of this position.

[34] I agree with Mercer. In my view, the language of the Secondary

Agreement supports its interpretation.

Option

[35]

As noted, a contract is to be interpreted at the time it is written and in the light

of the surrounding circumstances. When the Secondary Option Agreement was concluded the installment payments required to keep the Underlying Option

Agreement in good standing were those expressly identified in the Underlying Option
Agreement at the time. This detailed payment schedule was directly and

Mercer Gold Corp. (8.C.) v. Tresoro Gold Corp.

Page 12

unambiguously incorporated into the Secondary Option Agreement by Mercer and Tresoro both by amount and by date.

136l

lf Tresoro wanted to alter its obligations to Mercer by virtue of changed

arrangements it might make later with the Comunidad regarding the property then Mercer's consent was required for the change to have legal etfect as betvveen them
(ie., as between Mercer and Tresoro). lt was not open to Tresoro to deal with the

Comunidad unilaterally in this regard. This is the only way Mercer could maintain control over, and even ensure knowledge of, the nature and extent of its own exposure to an asserted default that might be issued by the Comunidad. In my

view, read as a whole and considered in the context of the surrounding factual
matrix, this is what was intended and conveyed by the words of the Secondary Option Agreement.

t37] lt follows that I accept Mercer is entitled to a declaration that Tresoro is in

default pursuant to article 2.2(d) of the Secondary Option Agreement. lt also follows

that Mercer is entitled to a declaration that it is entitled immediately to terminate the

Secondary Option Agreement. Given the numerous, complex and contested allegations of wrongful conduct made by both sides with respect to the other in connection with this business relationship, however, I decline to grant a declaration

that all of Tresoro's rights, interests and entitlements in and to the Secondary Option Agreement have been extinguished. In my view, those matters cannot be
appropriately determined on a summary trial.

t38] As to the relief sought in the fourth paragraph of the relief sought by Mercer in
the amended application, I require further submissions from the parties. The relief
sought is an order that Tresoro immediately furnish transfer documents whereby

Tresoro's entire right, title and interest to the Comunidad property will revert to
Mercer free and clear of all liens and charges arising from their activities. That is not an order that I am prepared to make in the light of the findings I am able to make on this summary trial. I am, however, able to do what I consider just and appropriate to help the parties to move forward given the breach but without erasing all rights that

Tresoro might have as against Mercer arising of the various allegations which remain to be determined. I would like to know from both what kinds of transfer documents might be exchanged that would be consistent with the judgment that I have reached, but not prejudice Tresoro in connection with the outstanding factual allegations that remain to be determined.
I

DtscussloN

t39l

On the other application in the personal action, I have decided not to strike

the statement of defence and enter judgment. Rather, I am prepared to give the defendants one final chance because I accept Mr. Jardine's submissions that they did not understand the precise parameters of their document production obligations, taking into account the change in the Rutes and what is a materialfact versus what is relevant for the purposes of disclosure. However, I also accept that the
documents that the plaintiff says on the application he was entiiled to have produced must be produced by the defendants. So that is the order on the document
prod uction application.

The plaintitf has leave to reapply to have the statement of defence struck and judgment entered in the event that the defendant fails to comply,
IFURTHER DtSCUSSIONI

I40l

[41]

Mr. Jivraj is entitled to advise the Comunidad of the order made today and is

to include Tresoro as a recipient of any such communication. As before, Mr. Jivraj is also to receive any communications Tresoro has with the Comunidad. I will hear
submissions on the nature of transfer documents to be furnished by Tresoro in the light of my order on August 19 at g:00 a.m. lf further variation of the order of Mr. Justice Greyellwith respecfi to communications with the Comunidad (the "Greyell

Order") is to be sought before me then an application must be prepared and made

returnable on August 19. Costs on this application may be spoken to on August 19 as well.

Mercer Gold Corp. (8,C.) v. Tresoro Gold Corp,

Page 14

l42l The parties will have no more than one hour on August 19 to make
submissions on the transfer documents, variation of the Greyell Order and costs

issues. Thereafter, I am not seized of this matter.

DICKSON J.