Canada: Grid-Lock And Splintered-Cells: The Modernized Ontario Mining Act And Encumbered Claims

On Tuesday April 10, 2018, the Ontario mining community woke up to a new reality as the third phase of the Ontario government's Modernizing the Mining Act process was put into effect.  Following the lengthy hiatus period that began January 9, 2018, (when claim staking, transferring, surrendering, and encumbering was suspended) the process of conversion to an online registration system for mining claims based on a latitudinal and longitudinal grid, rather than a ground or paper map staking system, was completed. The Ontario Mineral Tenure Grid now splits the province up into more than 5.2 million cells on a latitude and longitude grid, ranging in size, according to the Ministry of Northern Development and Mining, from 17.7 ha in the north to 24 ha in the south.  All of the mining claims in Ontario, which existed prior to the modernization (legacy claims in the new parlance), have been converted to what are now known as cell claims or boundary claims.  A cell claim is a mining claim that relates to all of the land included in one or more cells on the provincial grid. A boundary claim is a claim that is made up of only a part or parts of one or more cells. Boundary claims were created for two circumstances:  if the holder of record applied to keep the legacy claims separate from each other; or if there were two legacy claims held by separate owners within one cell. 

Now that the new Mining Lands Administration System (MLAS) has opened, claims can once again be transferred, surrendered, registered, and encumbered, and business can continue as before; or can it? While the MLAS will no doubt bring many advantages to the process and procedure for registering and maintaining mining claims in the province, advantages that should benefit the recorded holder of mining claims, the conversion process has left other parties with an interest in mining claims, particularly secured lenders and royalty holders, wondering exactly where their interest remains. The confusion stems from two parts of the conversion process.

First is the merger of the legacy claims as part of the conversion to cell claims and boundary claims. During the conversion process, if any latitudinal and longitudinal cells contained parts of more than one legacy claim held by the same recorded holder (as happened frequently, because the boundaries of legacy claims were typically irregular and unlikely to match the boundaries of the cells on the new perfect grid), then, unless the recorded holder filed a claim boundary report (CBR) and elected to keep its legacy claims separate and distinct, the parts of those legacy claims that fell within the new cell would merge into a single cell claim (rather than stay distinct as boundary claims within a new cell claim). CBRs could only be filed between January 9 and February 9, 2018, and claim holders may have had a disincentive to do so, because keeping claims separate might have increased assessment work requirements, so the authors question how many CBRs were actually filed. While recorded holders and the Ministry may have had an incentive to allow claims to merge for efficiency of administration, the question now is what happens to the interests of secured parties and royalty holders who previously held an interest recorded on the abstract of only some of the legacy claims that merged to form a new cell claim. Do such interested parties now have an interest over the whole of the new cell claim? And what happens if there were competing interests registered against other parts of the new cell claim? Are priorities to be determined based on the old boundaries of the legacy claims, or at all?

The second complication comes from the way the Mining Act itself deals with the transfer of encumbrances to the new cell claims. On one hand, section 38.2(8) of the Act provides that all encumbrances on the legacy claim "continue in effect with necessary modifications" to the new cell claims or boundary claims. On the other hand, section 38.2(10) of the Act provides that during conversion the recorder shall, in accordance with the regulations, record on the new abstract the encumbrances "that are recorded on the abstract for the legacy claim or that otherwise purport to affect the legacy claim". The regulation, in this case section 4(1) of Ontario Reg. 454/17, states that the recorder shall make an entry on the new cell claim to note any encumbrance "that is still in effect".  So which is it? Did the recorder complete an analysis of the encumbrances on the legacy claim abstracts to determine which encumbrances are still in effect and can parties now look solely to the new cell claim abstracts, or must we continue to look back at the legacy claim abstracts to determine the full world of encumbrances applicable to a claim? Perhaps the Ministry's answer is in section 38.4(1) of the Act, which provides that the Crown will not be liable for any entry, or lack thereof, of an encumbrance on a new cell claim. Note also that for post-conversion holder-initiated mergers of boundary claims into cell claims (or amalgamations of one or more cell claims), made pursuant to section 38.3(3) or 38.6 of the Act, the regulations (Ontario Regulation 66/18) requires that no "lien, mortgage, debenture, writ or note of pending proceedings" be registered on the abstract before the merger or amalgamation can occur.

This puts parties with an interest in a mining claim, other than the recorded holder, in the unenviable position of (a) not being certain of the boundaries of the claim in which they have an interest, nor the priority of that interest, and (b) without certainty that their interest is properly recorded against the new cell claim.  Certain secured lenders may be able to look to the provisions of their credit agreements with borrowers to ensure either that the borrower was required not to let their interests in the legacy claims merge with other claims, or to require the borrowers to complete new registrations against the new cells to ensure priority. For other secured lenders, or for royalty holders whose agreements do not provide clear contractual guidelines to address the conversion process, ambiguity may be the new normal. Likewise, counsel to the recorded holders of claims will need to consider the extent to which they can opine on the existence of any interest in a new cell claim, given the uncertainty that the conversion process has brought.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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