IN THE MATTER OF AN ARBITRATION pursuant to the Dispute Resolution Procedures of the Inuit

Impact Benefit Agreement dated September 6, 2013 and the Arbitration Act (Nunavut)

BETWEEN:
QIKIQTANI INUIT ASSOCIATION
Claimant
- and -

BAFFINLAND IRON MINES CORPORATION

Respondent

STATEMENT OF CLAIM
1.

The Claimant, Qikiqtani Inuit Association (formerly Baffin Region Inuit Association) is a
not-for-profit society, duly incorporated pursuant to the Societies Act with its registered
office located in Iqaluit, Nunavut.

2.

Qikiqtani Inuit Association (QIA) is one of Nunavuts three (3) Regional Inuit
Associations, representing over 14,000 Inuit in the Qikiqtani (Baffin) Region of Nunavut.
QIAs mandate is to safeguard, administer and advance the rights and benefits of Inuit, to
promote the Inuit language and traditions, Inuit environmental values, Inuit self-sufficiency
as well as economic, social and cultural well-being through succeeding generations. As a
Designated Inuit Organization (DIO) under Article 39 of the Nunavut Land Claims
Agreement (the NLCA), QIA is responsible for managing Inuit Owned Lands (IOL) in
the Qikiqtani Region.

3.

The Respondent, Baffinland Iron Mines Corporation (BIMC) is duly incorporated and
subsisting pursuant to the Business Corporations Act (Ontario), with its head office located
in Oakville, Ontario and carries on the business of mining iron ore on Baffin Island in
Nunavut.

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4.

In or around the mid-2000s, BIMC approached QIA regarding the proposed construction of
an open pit mine to develop and exploit iron ore resources situated in part on IOL in the
Qikiqtani Region. The area where the proposed Mary River Project would be located has
long been known to Inuit as Nuluujaat, a landmark used to travel through North Baffin
Island.

Mary River - NIRB and IIBA Project Scope

5.

In accordance with the provisions of the NCLA, BIMC was required to seek and obtain
regulatory approvals, including a Project Certificate from the Nunavut Impact Review Board
(NIRB), and also to enter into an Inuit Impact and Benefit Agreement with QIA.

6.

The scope of BIMCs Mary River project for its NIRB application is explicitly set forth in
the Mary River Project Final Environmental Impact Statement (Final EIS) filed with NIRB
by BIMC on or about February 22, 2012.

7.

On December 28, 2012 following extensive public review, NIRB Project Certificate No. 005
was issued to BIMC for the Project as described in the Final EIS, subject to certain terms and
conditions imposed by NIRB. The scope of the Project as defined in the Final EIS is for 18
Million tonnes of ore per year (18M t/a).

8.

Shortly following issuance of Project Certificate No. 005, in early-January 2013, BIMC
requested that NIRB amend Project Certificate No. 005 to permit changes to the Project
allowing trucked rather than rail shipment. The request was to accommodate an Early
Revenue Phase (ERP) proposal whereby the authorized scope of production would be
phased in starting with 3.5 Million tonnes of ore per year (3.5M t/a), while leaving
unchanged the Project scope of 18 Million tonnes of ore per year (18M t/a) approved by
NIRB.

9.

Throughout the NIRB application proceedings to approve the Final EIS scope of the Project
and BIMCs subsequent request for an ERP amendment, QIA and BIMC continued to

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negotiate the scope and terms of an Inuit Impact and Benefit Agreement as required by
Article 26 of the NLCA.
10.

On September 6, 2013, following years of negotiation between BIMC and QIA, the final
terms of the Mary River Inuit Impact and Benefit Agreement (the IIBA or Agreement)
were approved by QIAs Board of Directors at a community meeting held in the Iqaluit
Anglican Church Hall and the Agreement was signed.

11.

The Project that is the scope of the IIBA is defined in the Agreement to be as described in
the Final EIS as approved by NIRB and described in Project Certificate 005. Although by
January 2013 the parties were aware that within the scope of the Final EIS and approved
Project Certificate 005 that BIMC was seeking to phase in mine production starting with a
proposed ERP, the parties did not limit the definition of the Project and the Initial
Project for any purpose within the IIBA. QIA states and the fact is that the terms Project
and Initial Project are expressly described in the Agreement and do not include limiting
those terms to the ERP level of production for any purposes within the IIBA.

12.

QIA further states that the parties intended for the Project and the Initial Project to be initially
set at the scope of the Final EIS with the possibility of being increased as it was an express
request of BIMC that no further IIBA or IIBA amendment would be required to address any
future increases in mine development. But at no time did the parties negotiate for or agree to
the scope of the Project as defined in the IIBA being reduced only for the purpose of
calculating an earlier termination to the payment of Advance Payments.

13.

On May 28, 2014, NIRB Certificate No.005 was amended approving BIMCs ERP proposal,
but continued to authorize a Project of 18M t/a. BIMC advised NIRB and QIA that it
remained committed to the Project as defined in the FEIS.

14.

The overall principles and objectives of the IIBA are set out in Article 2. The IIBA is
intended to provide benefits and opportunities for equitable and meaningful participation of
Baffin Inuit in the Mary River Project and was negotiated over many years.

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15.

Article 5 of the IIBA provides for the financial participation of Inuit in the Project and sets
out the specific obligations of BIMC to pay Advance Payments, Royalty Payments and,
where applicable, Extension Payments to QIA.

16.

QIA states that BIMC is in breach of its obligations under Article 5 of the IIBA as more
particularly set out herein, by ceasing Advance payments to QIA notwithstanding that the
Project and/or Initial Project as defined in the Agreement has not reached Commercial
Production which, as defined and set forth in the IIBA, is 60% of the Initial Projects
intended capacity of 18 Million tonnes of ore per year (18M t/a).

17.

In the alternative, and in the event that the Arbitration panel should find that Commercial
Production is to be calculated based on only 60% of the first phase of authorized production
(ie. limited to 60% of ERP production), QIA denies that such level has been reached and
states that BIMC has breached the IIBA by prematurely and improperly ceasing Advance
Payments.

18.

In the further alternative, if the Arbitration Panel finds that Commercial Production and the
cessation of Advance Payments are to be calculated on the basis of only 60% of the first
phase of authorized production, and further that BIMC has in fact reached that production
level, QIA states that BIMC has breached the IIBA by failing to provide QIA with forecasts
and proper accounting information and documentation concerning the calculation of
Royalties and the cessation of Advance Payments in a timely manner or at all.

Advance Payments Arrears

19.

QIA states that BIMC is in default of its Advance Payment obligations. Pursuant to ss.
5.2(d) & 5.4 of the IIBA, BIMC agreed to make certain Advance Payments to QIA including
payment of the quarterly sum of $1,250,000 ($5,000,000 in aggregate per calendar year) until
the end of the calendar quarter when Commercial Production begins.

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20.

Section 5.16(d) of the IIBA defines Commercial Production as being achieved once the
Project has reached commercial sale of iron ore continuously for 90 days at not less than
60% of the Projects intended capacity [emphasis added].

21.

Section 1.1 j) of the IIBA defines Commercial Production as not less than 60% of the
Initial Projects intended capacity [emphasis added]. The terms Project and Initial
Project are defined in s. 3.1 and 3.2 of the IIBA.

22.

In accordance with the express terms of the IIBA, Advance Payments are to continue until
the end of the calendar quarter in which Commercial Production begins. The last quarterly
Advance Payment paid to QIA by BIMC was received by QIA on April 30, 2015 for the first
calendar quarter of 2015 ending March 31, 2015.

23.

QIA states that the Mary River Project has not achieved Commercial Production as defined
in the IIBA and that as a result the following Advance Payments are properly due and
payable.

24.

The amount of Advance Payment arrears currently owing to QIA is $6,250,000 as of June 30,
2016: $3,750,000 for three quarters of the 2015 calendar year and $2,500,000 to June 30,
2016 for the first two quarters of 2016.

25.

Despite repeated requests, BIMC has neglected or refused to pay the Advance Payments due
to QIA.

Commercial Production

26.

BIMC is in further default of the Agreement by unilaterally determining that Commercial

Production has been reached as of the last calendar quarter of 2015, and by declaring that no
further Advance Payments are due to QIA.

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27.

The Project as defined in s. 3.1, and more specifically the Initial Project as defined in s.
3.2 of the IIBA, is as described in the Final EIS as approved by NIRB and described in
Project Certificate 005... QIA states and the fact is that the intended capacity of the Mary
River Project expressly represented to Inuit by BIMC and subsequently approved by NIRB
Project Certificate No.005 is for the extraction for commercial sale of 18 Million tonnes of
ore per year (18M t/a).

28.

At all material times throughout the IIBA negotiations and regulatory approval process,
BIMC represented the Mary River Projects intended capacity (and which was approved by
NIRB) to be 18M t/a. The IIBA was negotiated to provide for Advance Payments to continue
each calendar quarter until 60% of the intended capacity of the Project, and specifically the
Initial Project (as those terms are defined in the IIBA) was achieved, up to a maximum
amount not exceeding $75,000,000.

29.

Since signing the IIBA, BIMC has scaled back its operations for the extraction of iron ore to
only 4Mt/a. QIA states that BIMC is in default of the IIBA by purporting to terminate its
Advance Payment obligations by reducing annual extractions of iron ore and declaring that
60% of a significantly smaller Project constitutes Commercial Production within the
meaning of the IIBA, rather than basing such determination on the express IIBA terms which
tie Advance Payments to the Projects intended capacity of 18M t/a as stated and approved in
Project Certificate No. 005.

30.

This decision was not discussed with QIA and BIMC has provided no evidence to support a
conclusion that Commercial Production has been achieved based on the ERP or at all. QIA
further states that BIMC is in breach of its obligations to provide QIA with Royalty Payment
forecasts and Annual Statements of Royalty payment calculations as required by s. 5.7 & s.
5.8 of the IIBA in a timely manner or at all.

31.

As a result of BIMCs breach of the IIBA, QIA has and will continue to suffer an immediate
loss of financial benefits negotiated by Inuit. If left un-remedied, the total aggregate of all
Advance Payments will be limited to less than $24 Million paid over a period of only two (2)

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years. This is significantly less than the $75 Million maximum amount of Advance Payments
negotiated by Inuit in the IIBA.
32.

The IIBA does not intend that BIMCs agreement with Inuit as to Advance Payments could
be manipulated by simply reducing the Projects intended capacity, as set out in NIRB
Certificate No. 005 and expressly defined in the IIBA, to any level determined by BIMC.

33.

Upon cessation of Advance Payments s. 5.6 of the IIBA also requires the calculation and
payment of an annual Royalty from which a portion of Advance Payments will be repaid over
time.

34.

QIA states that Royalty calculations were intended by the IIBA to occur based on iron ore
production having reached 60% of the Projects intended capacity of 18M t/a (ie.
Commercial Production as defined in the IIBA). If a Royalty is based on a significantly
lower level of production, QIA will be prejudiced by being arbitrarily forced by BIMC to
begin the repayment of Advance Payment repayments from a significantly reduced Royalty.

35.

QIA relies upon the provisions of the IIBA, the NLCA, and the Arbitration Act (Nunavut).

36.

WHEREFORE the Claimant QIA seeks:

(a)

A Declaration that BIMC is in breach of its obligations pursuant to Article 5 of the IIBA, and
that such breach or breaches constitute a material default by BIMC of the IIBA within the
meaning of Subsection 23.5.1 of the Agreement.

(b)

An Order for payment in full by BIMC of all Advance Payments due and owing to QIA in
the amount of $6,250,000 or as otherwise calculated by the Arbitration panel, together with
interest on the aforesaid amount in accordance with ss. 5.4 d) & s. 5.10 of the IIBA, by no
later than December 31, 2016.

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(c)

An Order confirming the amount of all Advance Payments due and payable by BIMC in
accordance with the express provisions of the IIBA.

(d)

An Order confirming BIMCs continuing obligations for the payment of Advance Payments
pursuant to the IIBA and ordering BIMC to continue Advance Payments until Commercial
Production is reached as defined in the IIBA, or, in the alternative, an Order directing BIMC
to comply with s. 5.7 & s. 5.8 of the IIBA by delivering forecasts and Annual Statements, and
providing information to QIA to establish in good faith that production levels have in fact
reached 60% of Commercial Production as alleged by BIMC.

(e)

An Order for the Claimants costs, including counsel fees and disbursements on a fullindemnity scale, as well as the full costs of the arbitration, including the fees and expenses of
the Arbitration Panel, and hearing costs.

(f)

Such further and other relief as the Claimant may request and which the Arbitration Panel
shall have the jurisdiction to grant pursuant to s. 21.6 of the IIBA.

Date: August 26, 2016

DUBUC OSLAND
Barristers & Solicitors
265 Carling Avenue, Suite 204
Ottawa, Ontario K1S 2E1
Tel: (613) 236-3360
Fax: (613) 236-3771
Michael K. Osland
mosland@dubucosland.com
Sylvie M. Molgat
smolgat@dubucosland.com
Solicitors for the Claimant,
Qikiqtani Inuit Association