IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation: Canadian Metals Exploration Ltd. v.

Wiese,
2006 BCSC 1037
Date: 20060710
Docket: S041141
Registry: Vancouver

Between:
Canadian Metals Exploration Ltd.

Plaintiff

And

Wolf Wiese

Defendant

Before: The Honourable Madam Justice Gerow

Reasons for Judgment

Counsel for the Plaintiff: R.A. Millar

Counsel for the Defendant: R.E. Breivik

H.W. Wiebach

Dates and Place of Trial: May 15, 810, 2006

Vancouver, B.C.
Canadian Metals Exploration Ltd. v. Wiese Page 2

[1] Canadian Metals Exploration Ltd. (CME) is a mining exploration company

which has mineral claims over a large mineral deposit east of Dease Lake in

northern B.C. known as the Turnagain project. CME has been conducting a drilling

program on the deposit since 1996. Wolf Wiese was the directing mind of CME until

early 2004, when Mark Jarvis became the director. Prior to Mr. Jarvis becoming

involved in CME, Mr. Wiese staked claims adjacent to and a few kilometres away

from CMEs claims (the disputed claims). CME is seeking an order that the title of

the disputed claims be transferred to CME on the basis that Mr. Wiese breached his

fiduciary obligation to CME when he staked the disputed claims. As well, CME is

seeking declarations that Mr. Wiese was in breach of his fiduciary obligations and

that Mr. Wiese holds the disputed claims in trust for CME. Mr. Wiese says that CME

agreed he could stake the disputed claims at a meeting in May 2003.

[2] The issues in dispute are:

1. were the disputed claims a corporate opportunity?

2. was there an agreement between CME and Mr. Wiese that Mr. Wiese

could stake the claims?

3. could consent be given to Mr. Wiese by CME at the May 2003

meeting?

BACKGROUND

[3] The disputed claims were staked in late May or early June 2003 by a free

miner acting as an agent for David Schussler. Mr. Schussler operated a diamond
Canadian Metals Exploration Ltd. v. Wiese Page 3

drilling company, D.J. Drilling Ltd., which CME used for its drilling program. The

Schussler family had a long association with CMEs Turnagain project.

[4] Mr. Wieses position is that CME agreed that Mr. Schussler could stake the

disputed claims for the benefit of Mr. Wiese and Quorum Capital Ltd. a company he

operates. After this action was commenced by CME, Mr. Schussler interpled the

disputed claims into court.

[5] CME is a public company whose shares traded on the TSX Venture

Exchange during the times relevant to this action. Since 1996 CME has been

exploring, drilling and developing a bulk tonnage, low grade nickel sulphite deposit

located on its Turnagain site. The information developed by CME of a large

magnetic anomaly on the site is thought to show grades of nickel that would support

an open pit nickel mine. The area first became the target of exploration in the 1970s

when Falconbridge conducted some exploration in the area. Bren Mar Resources,

the predecessor to CME, obtained control of the property in 1996 and carried out

exploration until 2004. In 2004 CME changed its name to Hard Creek Nickel

Corporation (Hard Creek). Hard Creek continues to carry out an active drilling and

exploration program on the Turnagain site.

[6] Prior to 2003 Mr. Wiese was a major shareholder and promoter of CME. He

was not an officer or director; however he was the guiding mind of the company.

Mr. Wiese referred to CME as his company, and ran the office for all intents and

purposes. He was involved in appointing the directors, hiring staff and Quorum

Capital rented offices to CME. CME paid Quorum Capital $8000 a month for rent.
Canadian Metals Exploration Ltd. v. Wiese Page 4

Mr. Wiese in conjunction with a brokerage firm, Canaccord, raised money to finance

the exploration programs being undertaken by CME. Quorum Capital was also paid

project management fees and consulting fees by CME. In 2003 the project

management and consulting fees ranged from approximately $10,000 a month to

$30,000 a month. Mr. Wiese was the person at Quorum Capital who was providing

the project management and consulting services.

[7] In May 2003 a meeting took place in the offices of CME about staking the

mineral claims in the area where the disputed claims are located. Bruce Downing,

the consulting geologist to CME, had recommended staking the area to the

northwest and southeast of CMEs claims prior to the meeting. Mr. Downings

evidence is that the areas he recommended staking included the area of the

disputed claims. Mr. Downing testified that he made this recommendation directly to

Mr. Wiese and Dr. Stewart Jackson, the president of CME, in addition to putting it in

his report.

[8] The meeting in May 2003 was not planned and there was no agenda. Rather

the meeting has been described by all participants as broken up and sporadic,

consisting of a series of meetings in one day, between one or more members of the

group. The meeting was not a duly convened directors meeting and no written

record or minutes of the meeting were kept. The directors of CME at the time of the

meeting were Dr. Jackson, Barry Whelan and Yvonne Cole. Ms. Cole was Mr.

Wieses executive assistant, a former director of Quorum Capital and had no mining

experience. The three directors attended the meeting at various times, as did Mr.
Canadian Metals Exploration Ltd. v. Wiese Page 5

Wiese and Randy Buhler, an employee of CME. The participants in the meeting do

not agree as to what decisions were made at the meeting.

[9] CME contends that the decision made at the meeting was that Mr. Wiese

would arrange to have Mr. Schussler stake the disputed claims on behalf of CME.

However, Mr. Wiese contends that CME agreed that his company Quorum Capital

could have Mr. Schussler stake the disputed claims for the benefit of Mr. Wiese and

Quorum Capital.

[10] For the purpose of this action, Mr. Wiese admits that he was a fiduciary of

CME and that if CME did not consent to him staking the disputed claims he was in

breach of his fiduciary duty.

[11] Dr. Jackson and Ms. Cole testified that everyone at the meeting agreed to Mr.

Wiese staking the disputed claims for his own benefit. However, Mr. Whelan and

Mr. Buhler say there was no such agreement, rather it was their understanding that

Mr. Wiese would arrange to have Mr. Schussler stake the area for CME.

[12] When the issue of staking the area of the disputed claims was brought up Mr.

Buhler suggested to Mr. Wiese that the claims be staked in the name of a new

company and that the directors, Mr. Wiese and Mr. Buhler all become shareholders

of the company. The reason for the recommendation was that the B.C. Securities

Commission was conducting an investigation of CME and its directors at the time,

and there was considerable uncertainty about what the result of the investigation

would be. Although Mr. Wiese testified he did not recall the discussion with Mr.
Canadian Metals Exploration Ltd. v. Wiese Page 6

Buhler, Ms. Cole confirms Mr. Buhlers evidence that the idea came from Mr. Buhler

and was introduced at the meeting by Mr. Wiese.

[13] All the participants of the meeting recall that when it was suggested that the

claims be staked in the name of a new company in which the participants at the

meeting would be shareholders Mr. Whelan immediately raised a concern that would

result in a conflict of interest as the people in attendance at the meeting were

insiders.

[14] Dr. Jacksons evidence is that he recalled Mr. Whelan voicing a comment that

the people who were directors could not participate in direct shareholding of a new

company in which the disputed claims would be staked. However, Dr. Jackson does

not agree that Mr. Wiese could not stake the claim. Dr. Jackson recalled Mr. Wiese

saying if CME doesnt want the disputed claims does anyone mind if I stake them

and that everyone at the meeting agreed he could. Dr. Jackson testified that it was

his view Mr. Wiese could stake the disputed claims even without CMEs approval

because CME did not want the claims and they were not a corporate opportunity.

[15] However, there is no evidence that Dr. Jackson expressed an opinion at the

meeting that he did not consider the area of the disputed claims a corporate

opportunity. Prior to the meeting all the participants had the benefit of Mr. Downings

report of March 2003 in which he had recommended that CME should stake in the

area of the disputed claims. In the report Mr. Downing states:

Stake additional claims to cover the ground to Hard Creek. As well,

the claims should be expanded to cover the entire extent of the
Canadian Metals Exploration Ltd. v. Wiese Page 7

intrusive complex to the northwest and southeast of the present land

holdings.

[16] Mr. Downings evidence is that he made the recommendation that CME

should stake the area of the disputed claims because he had observed

mineralization on the surface to the east of CMEs claims which he had reported to

management. As well, he was of the view the land should be staked in order to

provide a buffer zone around the proposed mine site and for the infrastructure

necessary for the mine. Mr. Downing testified that in his opinion it would be

detrimental to have a third party stake claims around a potential mine site as they

could interfere with access and hold the company to ransom.

[17] Ms. Coles evidence is that Mr. Wiese asked her to join the meeting to

discuss an idea Mr. Buhler had. Her recollection is that Mr. Wiese introduced Mr.

Buhlers idea which was to form a new company to stake the area of the disputed

claims and that everyone in the meeting could take shares in the company. Ms.

Cole recalled that there was an immediate comment by Mr. Whelan that creating a

new company for that purpose and having everyone at the meeting share in it would

be a conflict of interest. Ms. Cole understood that no one at the meeting could

become a director in a new company that staked the disputed claims because they

were all insiders and it would be a conflict of interest. It was her understanding that

the disputed claims belonged to the company.

[18] At trial Dr. Jackson testified that in his opinion the land in the area of the

disputed claims was not a corporate opportunity because the CME neither needed

the land nor could afford it. However none of the other participants in the meeting
Canadian Metals Exploration Ltd. v. Wiese Page 8

testified that there was any discussion during the meeting about whether or not the

disputed claims were a corporate opportunity. The evidence is that the discussion at

the meeting centered on whether a new company should be formed to stake the

claims not whether the disputed claims were or were not a corporate opportunity.

Dr. Jacksons evidence that it was his view at the time of the meeting that the

disputed claims were not a corporate opportunity is not credible. His answers were

evasive and are not borne out by the documentary evidence or by the testimony of

the other participants including Ms. Cole. As well, he admitted that he could not

have been a shareholder in a new company that staked the disputed claims or stake

the disputed claims himself as that would have been a breach of his fiduciary duty to

CME.

[19] As stated above, it was Ms. Coles understanding as a result of the discussion

at the meeting that the disputed claims belonged to the company and that was the

reason the insiders could not share in a new company in order to stake the claims.

[20] Dr. Jackson testified that one of the factors he considered in deciding not to

stake the area was that CME was broke. However, during the relevant period CME

was paying Quorum Capital $8000 a month for rent plus $30,500 in April 2003 and

$29,750 in May 2003 for project management and consulting fees. In 2003 Mr.

Wieses company, Quorum Capital was paid $335,000 for office services, consulting

fees and deferred exploration expenses. CMEs bank statement shows a balance of

just over $200,000 on May 31, 2003. The cost of staking the disputed claims was

approximately $16,000.
Canadian Metals Exploration Ltd. v. Wiese Page 9

[21] Dr. Jackson admitted that Mr. Downings recommendations were sound, and

that the land in the area of the disputed claims was not valueless. There was,

according to Dr. Jackson, no discussion at the meeting of Mr. Wiese paying CME for

the disputed claims or CME obtaining any concessions from Mr. Wiese for allowing

him to stake the disputed claims.

[22] Mr. Wiese takes the position that the area of the disputed claims was not a

corporate opportunity and that he was not in breach of his fiduciary duties to the

company because the directors consented to him staking the claims.

ANALYSIS

Were the disputed claims a corporate opportunity?

[23] In my view, the disputed claims were a corporate opportunity for CME.

Adjacent unstaked mineral claims are a somewhat unique corporate opportunity in

that they do not yet belong to the company and they could be lost at the instance of

staking by a third party. However they are analogous to a contract being pursued by

a company. They are in effect an emerging corporate opportunity.

[24] Although Mr. Wiese now argues that the disputed claims were not a corporate

opportunity, it is reasonable to infer by the response of the participants in the

meetings in May 2003 that the area of the disputed claims was viewed by everyone

at the meeting, including Ms. Cole, Mr. Wiese and Dr. Jackson, as a corporate

opportunity for CME. Everyone agreed with Mr. Whelan that they could not become

shareholders in a new company that staked the disputed claims.

Canadian Metals Exploration Ltd. v. Wiese Page 10

[25] As well, it is my opinion that Mr. Wiese impliedly admitted that the disputed

claims were a corporate opportunity by his admission that if consent had not been

obtained from CME to stake the claims, Mr. Wiese was in breach of his fiduciary

duty.

[26] There was extensive evidence that the area of the disputed claims was of

value. Mr. Downing recommended that the area be staked. Mr. Hitchins, another

geologist retained by CME, agreed with Mr. Downings recommendations. Mr.

Hitchins testified that the disputed claims could present an impediment to the

development of the Turnagain project by CME in that they could affect the location of

the infrastructure and pit walls. As well, it could impact the ability of CME to sell the

project to another company.

[27] Dr. Jackson testified that claims adjacent to a mine could be spun off to other

mine developers as part of an area play.

[28] Mr. Wiese conceded that it was his intention to piggyback upon the

development and improving value of CMEs claims. The value of the disputed

claims was further demonstrated by two offers Mr. Wiese made, one to return the

disputed claims for 500,000 shares of CME and the other to share the claims with

Mr. Jarvis in exchange for a $400,000 personal loan.

Was consent given to Mr. Wiese to stake the disputed claims?

[29] The issues of whether the participants in the May meeting consented to Mr.

Wiese staking the disputed claims and whether the participants in the meeting could
Canadian Metals Exploration Ltd. v. Wiese Page 11

consent to Mr. Wiese staking the disputed claims are intertwined. Because of my

finding, discussed below, that the participants in the meeting could not have

consented to Mr. Wiese staking the disputed claims, the issue of whether the

participants at the meeting did consent to Mr. Wiese staking the claims does not

have to be resolved. In my view, in the circumstances of this case, Mr. Wiese is

precluded from taking the disputed claims without a bona fides directors resolution

in a formal directors meeting which is later ratified by a shareholders vote.

[30] When a person in a fiduciary position can avail themselves of a corporate

opportunity has been the subject of a number of cases. In Canadian Aero Service

Ltd. v. OMalley, [1974] S.C.R. 592 the Supreme Court of Canada considered

whether two individuals who were not directors but were two former members of the

plaintiff companys senior management should be found liable and required to

account for profits made on a contract they had secured in competition with the

plaintiff after resigning from the plaintiff. The court noted that the strict application of

the principles of loyalty, good faith and avoidance of conflict of duty and self interest

against directors, senior management officials and promoters is simply a recognition

of the degree of control which their positions give them in the day-to-day operations

of a company, and which comes under the scrutiny of the shareholders only at

annual general or at special meetings. Such control is a necessary supplement, in

the public interest, of statutory regulation and accountability which themselves are,

at one and the same time, an acknowledgement of the importance of the corporation

in the life of the community and of the need to compel obedience by it and by its

promoters, directors and managers to norms of exemplary behaviour (at p. 610).

Canadian Metals Exploration Ltd. v. Wiese Page 12

[31] Peso Silver Mines Ltd. (N.P.L.) v. Cropper, [1966] S.C.R. 673 dealt with the

duty of a director, Mr. Cropper, who purchased mineral claims adjacent to the

mineral claims of the plaintiff company, Peso Silver Mines Ltd. The claims in issue

were owned by a third party who offered to sell them to Peso. Pesos board of

directors rejected the offer by the third party to sell the claims to the company and

Mr. Cropper subsequently purchased the claims. In finding that Mr. Cropper was not

in breach of his fiduciary duty to the company, the Supreme Court of Canada

pointed to the findings of fact that the directors acted in good faith, solely in the

interests of the company and with sound business reasons in rejecting the offer.

There was no suggestion in the evidence that the offer to the company was

accompanied by any confidential information unavailable to any prospective

purchaser or that the director had access to any information by reason of his office.

The evidence was that the company received on average two to three offers to

purchase claims per week. After the company rejected the third partys offer, the

third party approached Mr. Cropper and offered to sell him the claims. The court

found that when the offer was presented to Mr. Cropper it did not come to him in his

capacity as a director. In the circumstances, Mr. Cropper was not in breach of his

fiduciary duties to the company.

[32] In my view, Peso has no application to the case at bar. Here there was an

acknowledgment by all of the directors that they could not stake the disputed claims

because it would be in breach of their fiduciary obligations to CME as they were

insiders and privy to insider information. The evidence does not establish that there

was a bona fides rejection of the corporate opportunity, i.e. the disputed claims.
Canadian Metals Exploration Ltd. v. Wiese Page 13

Rather, the evidence is that there was discussion at the meeting about the concern

that CME and its directors were under investigation by the B.C. Securities

Commission. Ms. Cole was called into the meeting specifically to discuss Mr.

Buhlers idea to form a new company to stake the disputed claims, not whether or

not the disputed claims were a corporate opportunity for CME. There is no evidence

that there was any discussion at the meeting that CME did not want the disputed

claims because they were not of value to CME. Instead everyone agreed with Mr.

Whelans comments that to form a new company would be a conflict of interest

because they were all insiders of CME.

[33] Nor does the evidence establish that the knowledge about the potential value

of the disputed claims did not come to Mr. Wiese in his capacity as a fiduciary. The

evidence is that Mr. Wiese was privy to all of the drilling results and other information

CME was developing regarding the potential of the area. CMEs geologist, Mr.

Downing, had specifically recommended that CME stake the area of the disputed

claims to Mr. Wiese directly and in his report which Mr. Wiese was privy to.

[34] Although in a letter dated January 14, 2004, in which he recounted the May

meeting, Mr. Wiese suggested that the drill results were not promising, that was not

borne out by either the news release issued by CME or the activities undertaken to

promote Turnagain project. A news release issued on May 28, 2003 states:

Canadian Metals Exploration Ltd. is pleased to announce significant results from its

2003 drilling program on the Turnagain Nickel Project. In the spring of 2003 CME

was busy promoting the company to potential investors. Mr. Wiese, Dr. Jackson and

Mr. Whelan travelled to New York and Chicago to garner interest in the Turnagain
Canadian Metals Exploration Ltd. v. Wiese Page 14

project in April 2003 and a large luncheon was held in Vancouver in May 2003 to

promote the project.

[35] Mr. Wiese by his own admission is a fiduciary of CME. Establishing a breach

of fiduciary duty does not require proof of bad faith on the part of the fiduciary. A

fiduciary is precluded from obtaining for himself, either secretly or without approval

of the company any property or business advantage belonging to the company:

Canadian Aero at pp. 606 and 608. Although in Canadian Aero what is meant by

approval of the company was not defined, the common law rule is that shareholder

approval is required to absolve a fiduciary from liability for taking a corporate asset:

Canada Safeway Ltd. v. Thompson, [1951] 3 D.L.R. 295. (B.C.S.C.). The

rationale for the rule is that if directors were allowed to make gifts to themselves

without shareholder approval it would allow the majority to oppress the minority

shareholders: Hansell, Directors and Officers in Canada: Law and Practice, loose-

leaf (Scarborough: Carswell, 1999) at 10-70.

[36] In my opinion the common law rule is applicable in this case as there is no

statutory provision which applies. The Company Act, R.S.B.C. 1996, c. 62, which

was in force until March 28, 2004 does not contain any provisions dealing with the

divestiture of a corporate asset or gift of a corporate opportunity. Sections 120 and

121 deal with the duty of directors to disclose their interest in a proposed contract or

transaction with the company at a directors meeting. However, the sections have

no application to this matter as the taking of the disputed claims was not a proposed

contract or transaction with the company, and Mr. Wiese was not a director of the

company.
Canadian Metals Exploration Ltd. v. Wiese Page 15

[37] I have been presented with no authority for the proposition that approval of

the gifting of a corporate opportunity can be made by a single member of

management as Dr. Jackson suggests, or at an informal, ad hoc meeting of directors

as is suggested by Mr. Wiese.

[38] Neither Ms. Cole nor Dr. Jackson had any answer to how the disputed claims

could be given to Mr. Wiese, but not to the group of insiders or the directors. Both

Ms. Cole and Dr. Jackson testified they would be in breach of their fiduciary duty to

the company if they staked the disputed claims. In my view, there is no reason to

distinguish between Ms. Cole, Dr. Jackson and Mr. Wiese, all of whom owed a

fiduciary duty to CME.

[39] As stated in Canadian Aero at p. 620:

The general standards of loyalty, good faith and avoidance of a conflict

of duty and self-interest to which the conduct of a director or senior
officer must conform, must be tested in each case by many factors
which it would be reckless to attempt to enumerate exhaustively.
Among them are the factor of position or office held, the nature of the
corporate opportunity, its ripeness, its specificness and the director's or
managerial officer's relation to it, the amount of knowledge possessed,
the circumstances in which it was obtained and whether it was special
or, indeed, even private, the factor of time in the continuation of
fiduciary duty where the alleged breach occurs after termination of the
relationship with the company, and the circumstances under which the
relationship was terminated, that is whether by retirement or
resignation or discharge.

[40] In my opinion, the giving of the disputed claims to a fiduciary such as Mr.

Wiese for no value or concessions, would require at the very least a bona fides

directors resolution, and ratification at a shareholders meeting. Anything less would

be inconsistent with the high standards imposed on fiduciaries and the overriding
Canadian Metals Exploration Ltd. v. Wiese Page 16

concern with protection of the shareholders who place their trust in the fiduciaries.

The value of the area of the disputed claims was known to Mr. Wiese and the other

insiders as a result of the drilling program and other investigations undertaken by

CME with funds raised from the shareholders. To allow Mr. Wiese to use that

information to assess whether he wished to stake the area of the disputed claims

without approval by the shareholders would, in my view, result in a breach of his

fiduciary duty. Accordingly, I have concluded that consent could not have been

given to Mr. Wiese at the meeting in May 2003 and that Mr. Wiese was in breach of

his fiduciary duty to CME in staking the disputed claims for the benefit of Quorum

Capital and himself.

CONCLUSION

[41] CME is seeking an order transferring the title of the disputed claims to CME,

and a declaration that the disputed claims are held in trust for CME.

[42] A director standing in a fiduciary relationship must account for any profit made

by him if it was earned by reason of, and in execution of his office regardless of his

intentions: Canadian Aero; Regal (Hastings) Ltd. v. Gulliver, [1942] 1 All E.R.

378.

[43] Mr. Wiese is a fiduciary and was an insider of CME. The fiduciary obligation

is owed by him to CME and its shareholders.

[44] Given my conclusion that Mr. Wiese was in breach of his fiduciary obligation

to CME and its shareholders by staking the disputed claims, the appropriate remedy
Canadian Metals Exploration Ltd. v. Wiese Page 17

is to order that title to the disputed claims be transferred to CME. Accordingly, there

is no requirement to make a declaration that the disputed claims are held in trust for

CME. CME is entitled to costs of the action at scale 3.

Gerow J.