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Mining Regulator May Owe Duty to Mine Owners

Last summer, the Supreme Court of British Columbia held that a mining regulator may, in limited circumstances, owe a duty to pay a mine owner for its losses suffered as a result of a breach of a duty owed. This spring, the same court applied the same test to find liability on a regulatory authority.

In Imperial Metals Corporation v Knight Piesold Ltd. et al,[1] two engineering firms brought a third party proceeding against the BC Ministry of Energy, Mines and Petroleum Resources (“MEM”).  They alleged that MEM owed a duty of care to the mine owner, Imperial Metals, to provide the technical advice and directions it supplied as a part of the approval process for the mine permit, with reasonable care.  MEM was also alleged to owe a duty to take all reasonable steps within its regulatory authority to reduce or eliminate known risks of imminent danger at the mine.

The Province applied to strike the claims on the basis that they had no merit, alleging the Government did not owe a duty to the mine owner.  

Justice Branch determined that the claim alleged against the regulator had enough merit to proceed to trial.[2] Specifically, he decided that the Province:

  1. had a duty to perform its responsibilities outlined by statute as mandatory; and
  2. may have created an independent duty to the mine owner if the Province or its agents performed acts taking it beyond its responsibilities imposed by statute, such as actively participating in the design or construction of the tailings storage facility of the mine.

Justice Branch further set out a list of “Accepted Exceptions” of particular conduct which could attract liability to an otherwise immune regulator:

  1. where the regulator steps outside the role of the regulator and assumes the role of the designer, developer or advisor to the regulated party;
  2. where the regulator acquires knowledge of serious and specific risks to the person or property of a clearly defined group of the class that the statutory scheme was intended to protect;
  3. where the regulator makes a specific misrepresentation to the regulated party – apart from a regulatory statement – that invites reliance, and the regulated party relies on the misrepresentation for the purpose for which is was made; or
  4. where interactions between the regulator and the regulated party give rise to a clear set of expectations that the regulator will consider the interests of the regulated party, and the statute does not expressly or implicitly exclude consideration of those interests.

The significance of this decision to the mining industry is evident from the facts of the case from which it arose. The litigation related to the 2014 breach of the tailings storage facility at the Mount Polley mine near Likely, BC.

In Wu v Vancouver (City),[3] a case decided after Imperial Metals, the BC Court of Appeal made it clear that statutory duties do not in and of themselves give rise to private duties, especially where interactions with the public are inherent in the statute. More is required. A private duty of care will only arise where the public authority and claimant have a relationship of proximity over and above the regulatory relationship, either by the nature of specific interactions or from the context of the statute.

In Waterway Houseboats Ltd. v British Columbia,[4] the court found a duty of care was owed by the regulator by applying the test from Imperial Metals. At issue was the Province’s approval of a permit for a privately owned bridge, the improper construction of which caused flooding to adjacent property. The Court found the Province breached a private law duty of care to the property owners created when the Province’s engineer:

  1. stepped outside the role of regulator by providing advice regarding the construction of the bridge and channel beneath it, including its required height;
  2. acquired knowledge of serious and specific risks of flooding to the adjacent property; and
  3. made specific representations to the owners about the required bridge height.

The potential for mine owners to claim against regulators is particularly noteworthy in an industry where limitation of liability clauses often limit the mine owner’s ability to recover from other parties to a fraction of the mine owner’s loss. Mine owners may continue to look at their interactions with their regulator to assess whether there is another party who may have responsibility to help allay their financial losses.


[1] 2018 BCSC 1191.
[2] The nature of the decision in an application to strike the claim necessarily meant that Justice Branch’s did not make a final determination on whether a duty of care was in fact owed or whether the Province breached their duty of care. Rather, the question was whether the claim had a chance of success at trial, if it were to proceed.
[3] 2019 BCCA 23.
[4] 2019 BCSC 581.

Mining Regulator May Owe Duty to Mine Owners

Lean times may call for lien measures – What you need to know about miners’ liens in Northern Canada

Given the present economic climate of falling metal prices and depressed equity markets for mining companies, many owners and operators of mines are experiencing cash flow and working capital shortages.  As a result, contractors and others who provide services or materials to mines, whether in the exploration, development, or production phases of such projects, are increasingly looking to miners lien legislation to help them increase their leverage when seeking payment of outstanding accounts.

Miners’ liens are unique legal and potentially powerful tools.  Therefore, those involved in working on or operating a mine, as well as lenders, should have some awareness of the impact of the filing of such liens on mineral tenures and on the interests of any secured creditors.

What is a lien?

In general terms, a lien is a charge against property, including mineral tenures, granted to a person who provides services or materials which improve that property as long as there has been compliance with the rules in the applicable lien legislation.  The property acts as security for the debt owing to the lien claimant.  Therefore strict compliance with the statute is required in order to get the benefits of the lien.

Lien legislation is different in each province and territory.  All Canadian jurisdictions have builders lien legislation that applies generally to improvements and services provided to property, but the northern territories have special miners lien legislation.  Where miners lien legislation exists, it is that legislation and not the builders lien legislation that applies to mining projects.

Miners Lien Acts north of 60 – who can lien for what?

In each of the Yukon, Northwest Territories and Nunavut, the applicable Miners Lien Act provides a statutory framework for claiming a miners lien.  There are currently two different lien legislation regimes: one in the Yukon and another in the Northwest Territories and Nunavut.

In the Yukon, a lien is provided to a contractor or subcontractor who provides services or materials to a mine “preparatory to, in connection with, or for an abandonment operation in connection with” the recovery of a mineral.  The lien is provided on “all the estates or interests in the mine or mineral concerned” as well as on the mineral itself “when severed and recovered from the land while it is in the hands of the owner”.  The lien is also on “the interest of the owner in the fixtures, machinery, tools, appliances and other property in or on the mines or mining claim”.  In addition, a person who rents equipment to an owner, contractor or subcontractor has a lien for the rent while the equipment is being used or reasonably required to be available for the purpose of the mine.

In the Northwest Territories and Nunavut, a person who performs any “work or service on or in respect of” or “places or furnishes any material to be used in the mining or working of a placer or quartz mine or mining claim” has a lien for the price of the work, service or material on “the minerals or ore produced from and the estate or interest of the owner in the mine or mining claim”.

How to claim a lien and time limits

Under the Miners Lien Acts, there are two initial steps required to claim a lien: first, file a claim of lien, and second, start an action.

Firstly, a lien claimant must file a claim of lien in the mining recorder’s office against the applicable mineral tenures within the prescribed time period.  This time period differs between the Yukon and the Northwest Territories/Nunavut.  The applicable time periods are summarized in the chart below.  The claim of lien must be supported by an affidavit which verifies the facts in the claim of lien, and the claim of lien must include:

  1. The name and residence of the claimant, owner of the property and of the person for whom the work, service or material was provided;
  2. A description of the work or service performed or material furnished and the time period within which it was performed or furnished;
  3. The amount claimed as due or to become due;
  4. The description of the property to be charged; and
  5. The date of the expiration of the period of credit agreed to by the lien holder for payment for the work, service or material of the lien holder where credit has been given.

Secondly, a lien claimant must start an action within the prescribed time period in the Supreme Court in the Yukon or the Northwest Territories or in the Nunavut Court of Justice in Nunavut. In addition, the lien claimant must file a certificate from the court in the mining recorder’s office against the liened mineral tenures. Again, this time period differs between the Yukon and the Northwest Territories/Nunavut, and the applicable time periods are summarized in the chart below. The certificate notifies anyone searching at the mining recorder’s office that the mineral tenure is subject to a legal proceeding.

Priority

Assuming there has been compliance with the legislation, a miners lien gives a lien claimant limited priority over mortgage and other encumbrance holders.  This priority can be important if the mineral tenures are subject to secured financing the amount of which is equal to or exceeds the value of the mineral tenures.  In such a scenario, the lien claimant may only be able to recover the amounts which have priority over the secured financing.  Therefore it is important for all the players to understand the scope of the priority.

The following chart summarizes the applicable steps and timelines to claim a miners lien in Yukon and in the Northwest Territories/Nunavut, and the priority granted by such liens.

 

Yukon Northwest Territories and Nunavut
Time for filing a claim of lien Before the expiration of 45 days from the last day on which the work or service or material which is the subject matter of the claim, was performed. Before the expiration of six months from the last day on which the work or service or material, the subject-matter of the claim, was performed or placed or furnished or, where credit has been given, from the time fixed for payment.
Time for commencing an action and filing a certificate. 60 days after deposit of the claim of lien. 90 days after filing of the claim of lien.
Priority A lien takes priority over any mortgages or encumbrances to the extent the lien arises from work, services, or materials provided to the mine for a period of up to 60 days.The purpose of this limitation is to provide certainty to financiers of mines that any miners lien has a limited priority. The commencement of this 60 day period is not expressly stated in the Miner Lien Act. The Yukon Territory Supreme Court has indicated that this period should be calculated from the last day of the provision of work, services or materials, and that accordingly it may be different for each lien claimant. However, this case law is not binding, and therefore this legislation may be interpreted differently by a future court. A lien takes priority over all mortgages and encumbrances registered on or after March 23, 1937, as to 1/2 of the output from the applicable mine or mining claim.This priority typically extends to half of the minerals or ore when recovered from the mine, and, if so ordered by a court, may also extend to half of any net proceeds recovered from the sale of such minerals or ore.

 

Impact of liens

Some of the key impacts of miners’ liens for participants in mining projects are summarized below:

Owners & Operators: Owners and operators should be aware of the impact miners liens can have on their debt covenants and should properly manage relationships with contractors, suppliers and lenders when experiencing cash flow and working capital shortages.

Contractors & Suppliers: Contractors and suppliers should be aware of lien legislation, and take timely action to perfect a lien because failure to comply with the strict requirements in lien legislation can have dire consequences.  Once perfected, a lien can provide leverage to a contractor or supplier in the settlement of outstanding accounts with an owner.

Lenders: Lenders need be aware that a portion of their security may be subordinated to lien claims. Lenders can ensure there are protective covenants in security documents which contemplate the lenders’ recourse in the event a claim of lien is filed.

Lean times may call for lien measures – What you need to know about miners’ liens in Northern Canada