On August 6, 2013, the Court of Appeal rendered a judgment
regarding financing through mining royalties in the context of a
bankruptcy. This was the first time that the Court of Appeal
considered the nature of mining royalties (better known as Net
Smelter Return) granted to lenders and the treatment of the
latter in bankruptcy. This judgment establishes a legal framework
governing the characteristics of unnamed real rights in
Québec and clarifies the legal publicity regime relating to
real mining rights as well as the scope of vesting orders in the
context of the sale of assets by a receiver.
The parties in this case were Anglo Pacific Group PLC
("Appellant"), a natural resources royalty company, and
Ernst & Young Inc. ("Respondent"), the receiver of
the assets of the debtors, Northern Star Mining Corp. and Jake
Resources Inc. ("Debtors")1. Davies
successfully represented the Respondent both at trial and on
The Superior Court's Judgement
In 2009, the Appellant and the Debtors entered into a debenture,
under which the Appellant made a loan to the debtor Northern Star
Mining Corp. Considering that the assets of the Debtors were
already charged with security in favour of the first ranking
secured creditors, the Appellant required that the Debtors grant it
a net smelter return. Under this royalty, the Appellant was to be
paid a percentage of the profits of the Debtors' future mineral
production. Additionally, two universal second-rank hypothecs were
granted by the Debtors to guarantee their obligations under the
Following the bankruptcy of the Debtors in 2011, the
Debtors' assets were sold by the Respondent, who obtained a
vesting order permitting the transfer of certain assets to the
intervenor, 9261-0690 Québec inc. Under this order, the
trial judge authorized the sale of assets and released the latter
of the charges encumbering them, notably the debenture, the net
smelter return agreement, and the universal hypothecs concluded in
favour of the Appellant.
Moreover, the trial judge held that a real right confers upon
the holder a direct right over property and that it is impossible
for a conventional hypothec to encumber mineral substances found in
the subsoil as they belong to the State. The trial judge also
concluded that the registration of the debenture and of the net
smelter return agreement in the mining registry does not render it
opposable to third parties and that the effect of a vesting order
is the same as that of a sale by judicial authority.
The Court of Appeal's Judgement
The Appellant appealed the vesting order and the Court of Appeal
was asked to consider three questions.
The first question concerned the characteristics of an unnamed
real right. To that end, the Court of Appeal determined that the
holder of an unnamed real right must necessarily and inevitably
justify a direct right in the property, the right to pursue the
property and the right of abandonment. In this case, the Court of
Appeal held that the debenture and the net smelter return agreement
did not confer on the Appellant an unnamed real right, but rather a
right to receive a percentage of the profits from the sale of
minerals extracted from the subsoil.
The second question considered by the Court of Appeal concerned
the opposability to third parties of acts published in the mining
registry. The Court of Appeal held that the mining registry is only
opposable to the State and that consequently, it does not
constitute a valid mode of publication permitting third parties to
be informed of the existence of a real right. As such, in order to
be opposable to third parties, real mining rights that are not
subject to an exemption under the Mining Act must be
published in the land registry.
The third question considered by the Court of Appeal concerned
the effect of a vesting order. The Court of Appeal held that the
operation authorized by the trial judge constituted a sale and that
it had the same effect as a sale by judicial authority. Thus, the
vesting order discharged the sold assets of all rights charging
them to the extent provided by the conclusions of the vesting order
as well as by article 696 of the Code of Civil Procedure.
In this case, supposing even that the Appellant's rights were
real rights, a hypothesis which was explicitly rejected by the
Court of Appeal, such rights were not mentioned in the vesting
order as being rights which would survive the sale, nor did they
fall under the enumerated exceptions in article 696 of the Code
of Civil Procedure.
1. Anglo Pacific Group PLC v. Ernst & Young
inc., 2013 QCCA 1323
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The Canadian bankruptcy regime was designed with two key purposes in mind – provide options to ‘honest but unfortunate' debtors struggling with an unmanageable financial load and create an orderly means for creditors to recover amounts owed them.
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