VANCOUVER, BRITISH COLUMBIA--(Marketwire - Aug. 13, 2012) - Sattva Capital today announced that the Court of Appeal for British Colombia (the "Court") allowed Creston Moly's appeal against the arbitrator's $4.14 million damage award.
Twice in the past several years, the Supreme Court of BC had rejected Creston's argument and upheld the arbitrator's award.
The Court nonetheless sided with Creston, now a wholly-owned subsidiary of Mercator Minerals. This latest legal decision effectively means Creston is not required to pay Sattva the balance of the arbitrator's award above U.S $1.5 million.
"This latest Court decision by another three-member panel defers to a previous judgement by the same Court in granting Creston leave-to-appeal the arbitrator's decision a few years ago," said Hai Van Le, Sattva Capital's Managing Director. "All the concerns noted by the Court were then rigorously examined by Supreme Court of BC Justice Armstrong and found to be without merit."
Sattva Capital has instructed its counsel to apply for leave to appeal to the Supreme Court of Canada.
In hindsight, with the many built-in layers of checks and balances to make sure arbitrators don't make an error of law, the legal system demonstrates it doesn't trust arbitrators to make competent decisions. This ultimately makes arbitration a highly inefficient method of resolving commercial disputes - at least in the Province of British Columbia. By the time the appeal process with its many different permutations was exhausted in this case, four years could have gone by."
Added Mr. Le: "In our case, our arbitrator is Mr. Leon Getz, a distinguished securities lawyer who has decades of experience of securities law in this province. He is highly experienced in matters involving securities rules and regulations pertaining to public listed companies. We couldn't have asked for a more qualified, eminent expert as arbitrator. There's no need for the court system to second-guess his work which involved a thorough examination of evidence and results from discovery."
When sophisticated business people voluntarily enter into arbitration, they do so expecting a cost-saving and quick resolution of their dispute and move on with their lives. This is the primary reason why the court system, slow, expensive, cumbersome and perpetually saddled with a big backlog of cases, is not needed in the first place. Arbitration, like any court system, will always produce a winner and loser. That is very much expected.
By allowing losers then to enter into another parallel legal system to challenge the arbitrator's decision (they are not required to stick with the original losing argument either), the province's court system treats commercial disputants as though they are children who don't know what they are doing in the business world, are incapable of gauging risks and accepting responsibility for having chosen arbitration as a course of action in the first place, and who have to be protected from arbitrators who spend a lot of time (up to a year or more) examining the dispute from many angles and to whom they voluntarily pay a lot of money to render a decision. In our experience, the conventional wisdom concerning arbitration as being a quick, finaland legally binding way to resolve dispute is just a myth.
Interested parties can access all legal judgements at http://www.sattvacapital.net/let-there-be-light.htm. The arbitrator's award details how it all began and his reasoning. Supreme Court of BC's Justice Armstrong's 27-page decision provides rigorous analysis of all the issues presented by Creston.
The Pie Is Not Finite
In this particular instance, we didn't win. But even if we did win, our win is not a loss for someone else. The reality is far more complex. From the very beginning, the acquisition of Mexico's biggest molybdenum deposit has been a spectacular success for all parties involved, from the vendors who had invested a few hundred thousand dollars on the eve of the closing to Mercator which now owns a significant asset worth many times more than its purchase price.
"Transactions should not be considered as a zero-sum game. The pie is not finite," said Mr. Le. "Everybody can win. With collaboration, creativity, talent, inspiration and ingenuity, the pie can be made a lot bigger, its ultimate size only limited by imagination. This is the maxim that we live by."
At the time that Creston entered into the agreement to acquire Mexico's biggest molybdenum deposit, it only had a market value of $6 million and suffered from negative working capital. From that humble and fortuitous rebirth, Creston's market value steadily grew in subsequent months to more than $100 million. The company successfully advanced the project and a few years later was acquired by Mercator in a transaction announced at $195 million.
Mercator acquired Creston primarily for its flagship molybdenum project in Mexico. From $30 million to $195 million in just a few years, the numbers suggest Creston shareholders had done well. And when this project's feasibility study is completed, its net present value (NPV) is expected to exceed half a billion dollars, despite the current weakness in molybdenum prices.
"The numbers speak for themselves. The growth in the value of this project in a few short years has been nothing short of transformational, if not phenomenal. The simple truth is: Everybody involved won!" said Mr. Le. "I am not suggesting that Sattva Capital is solely responsible for all this wealth creation. We were the catalyst. We recognized an opportunity. We did something about it. As a result, a lot of wealth was created."
Sattva's and Creston's interests are not incompatible. It is regrettable that we were not collaborating to expand the pie further. In the aftermath of the 2008 global financial crisis which depressed molybdenum prices, Sattva Capital could have used its expertise and vast network of contacts worldwide to bring in a strategic investor that would have helped the company weather the market turbulence better. "The course of events would have been very different had we continued to be friends, working together to increase shareholder value, rather than duking it out in court," said Mr. Le. "After all, it's in our interest that clients become successful and go on to make even bigger acquisitions. There's a lot more common ground between us than that which meets the eyes."
About Sattva Capital
Sattva Capital is a boutique investment bank specializing in cross-border M&A and corporate finance in the mining industry. We pride ourselves on the quality of our advice, ideas and a vast network of contacts around the world to bring clients a steady flow of deals. For more information, visit www.sattvacapital.net.