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Court Grants Canada Leave to Bring Oppression Claim

In Yukon and Canada v. B.Y.G. Natural Resources Inc., 2007 YKSC 02, the Yukon Supreme Court recently granted the Canadian government leave to pursue the oppression remedy as a mechanism to pierce the corporate veil and hold individuals accountable for mining practices with serious environmental repercussions.

The events leading up to this significant decision unfolded as follows.  For a period of three years, an Ontario incorporated mining company called B.Y.G. Natural Resources Inc. (“BYG”) operated a gold and silver mine near Whitehorse in the Yukon Territory.  Between October 28, 1997 and February 10, 1999, BYG was issued 16 formal directions for breaching the terms of its water license, yet failed to follow the directions to remedy its environmental problems.  Finally, on February 19, 1999, operations ceased by order of the government of Canada and between July, 1999 and March, 2006, Canada spent $10.7 million dollars on site remediation.  It has been estimated that environmental clean-up costs could reach as high as $23 million dollars.

As a result of the water license violations, three criminal charges were laid against BYG in the Territorial Court of theYukon.  BYG was convicted on all three charges and received the maximum fine of $100,000 dollars on each count, the judge stating that BYG had “demonstrated an attitude consistent with raping and pillaging the resources of the Yukon,” and describing BYG as “inept, bumbling, amateurish and possibly negligent.”

Section 248 of the Ontario Business Corporations Act, .S.O. 1990, c.B16 allows a complainant to make an application to the court in respect of a corporation whose conduct is oppressive or unfairly prejudicial to, among other things, a creditor.  From a successful claim of oppression comes a variety of potential remedies, including monetary damages, appointing a receiver, dissolving a corporation or amending the charter documents of the corporation.  Further, the oppression remedy allows a court to assess the personal relationships that exist between companies.

In an attempt to recover some of the money spent on repairing the environmental damage, Canada obtained a receivership order which appointed a Receiver Manager and Interim Receiver over all of BYG’s assets during bankruptcy proceedings.  Two secured creditors, Ellake Services and Cosman, subsequently applied to the Yukon Supreme Court to remove certain shares held by BYG from the receivership, and take action against the Interim receiver in respect of the shares it had already sold.  Notably, these secured creditors were in fact companies controlled by the former principals of BYG and their families, and the activity to purchase the security had taken place as the mine was in the process of being abandoned.  Accordingly, Canada sought to bring a claim of oppression against BYG and others in order to set aside the claimed security held directly or indirectly by former officers and directors of BYG.

The court first concluded that for the purpose of pursuing the oppression remedy and in light of the costs of environmental remediation, it considered Canada to be a creditor.  Then, citing as considerations the non arms-length relationship between Ellake Services/Cosman and BYG, the other competing creditors and the circumstances under which BYG operated the mine, the court concluded there was sufficient evidence to grant Canada leave to bring an oppression application against BYG in Ontario.

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Lawson Lundell's Project Law Blog focuses on updating proponents on issues emerging in the law and policy that applies to the development of major projects in Canada. The focus of the blog is on matters relating to environmental assessment and compliance, regulatory matters and Indigenous consultation.

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