In this appeal from an arbitrator's award, the Ontario
Superior Court of Justice (ONSC) looked at whether a right of first
offer had been breached, and in so doing shed some light on the
question of when an interest has been "disposed."
In 2004, Minera Meridian Peru S.A.C. (Meridian) and Minera Del
Suroeste S.A.C. (Misosa) simultaneously applied for two mining
concessions being auctioned by the Peruvian government. Instead of
bidding against each other, they entered into letters of
understanding (LOUs), which provided if either was the successful
bidder, then it would hold the concessions 50% for itself and 50%
for the other party. The LOUs also detailed the terms of ownership
and development of the concessions and contained a
right-of-first-offer clause, effective if either party wanted to
"dispose" of its interest in the concessions. Ultimately,
Meridian was the successful bidder and became the registered owner
of the concessions.
In 2009, Meridian's ultimate parent company announced that
it was offering the shares of Meridian for sale. A third party,
Concorcio Minero Horizonte S.A. (Horizonte) was the successful
bidder and Meridian's parent companies entered into an Options
and Operations Agreement (Agreement) with Horizonte pursuant to
which Horizonte was granted an option to acquire shares in
Meridian's parent company by, among other things, making
payments and performing work on the concessions. The Agreement also
contemplated that Horizonte would enter into a 36-month
"cesión minera" with Meridian (a type of
assignment of a mining concession) in order to provide it with the
right, under Peruvian law, to perform its obligations as operator.
The parties entered into the cesión minera on December 22,
Misosa's parent company viewed the cesión minera as a
breach of the LOUs, since Misosa had not been given a right of
first offer on Meridian's interest in the concessions.
The dispute initially went to arbitration. The arbitrator found,
among other things, that Meridian's decision to enter into the
cesión minera did trigger the right of first offer, and
ordered that Misosa be offered the rights that were "disposed
of" to Horizonte on substantially equivalent terms as in the
Agreement. He also ordered that the cesión minera be
Meridian and its parent company appealed to the ONSC, arguing
that the term "dispose of" in the right of first offer
required an element of finality to it, and that the temporally
limited cesión minera did not qualify. The Court rejected
this submission, finding the relevant question to be whether
entering into the cesión minera amounted to ceding control
of the concessions. Relying on a finding of fact by the arbitrator
that the cesión minera assigned all rights and obligations
in the concessions to Horizonte on an exclusive basis, the Court
determined that Meridian had, in fact, ceded total control over the
concessions, such that the right of first offer had been breached.
While the Court upheld that aspect of the arbitral award, it found
that the arbitrator's remedy was not rationally connected to
the breach and remitted the matter back to the arbitrator for
determination of the terms on which the cesión minera alone
had been offered to Horizonte.
Canada is a constitutional monarchy, a parliamentary democracy and a federation comprised of ten provinces and three territories. Canada's judiciary is independent of the legislative and executive branches of Government.
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