By now, the mining industry has become quite familiar with National Instrument 43-101 which, among other things, provides that any public statement or written disclosure made by an issuer (public or private) containing scientific or technical information concerning a material mining property must, among other things, include the support of the disclosure by the filing of a technical report authored by a ‘Qualified Person,’ who must consent in writing to such filing (a “Consent”). Extracted portions or references to relevant portions of such reports are also often included in annual disclosure reports (the AIF and Form 40-F in Canada and the United States, respectively) as well as in a prospectus or offering memorandum, and certain of such inclusions also require Consents from both the QP and his/her employer.
Some consultants are becoming increasingly sensitive to their potential liability based on third-party reliance on such published information. Any reluctance, delay, or refusal by either the consultant or the QP to grant Consents can be a source of various degrees of heartburn to a mining company.
The concept of standing behind and bearing legal liability for one’s professional opinion lies at the root of professional service, whether the professional is an accountant, lawyer, geologist, or engineer. However, in this post-Enron era, the cost/benefit of incurring such liability is being revisited from a business rather than a professional perspective, with the result being an increased trend of professionals seeking to limit their liability. Professional consultants have always recognized their liability to their customers and factored that risk and the cost of professional insurance into their fees. The current concern is that securities regulators, in efforts to protect the interest of the public, have expanded the scope of the consultant’s liability beyond that of its client. The publication of this technical information is designed to enable an investor to make an informed investment decision, and hence reliance by such investor on the accuracy of such information is implicit. Where one finds reliance, it is often a short legal step to liability. Considering, in the case of publicly traded companies, the wide distribution of the information, one might sympathize with a consultant’s concern at the exponentially expanded scale of its potential liability.
It is always easier to address something in advance and, in the case of Consents, the negotiation of the contract governing the consultancy is the preferred time to address the obligation of the consultant to the company to provide, in a timely manner, those Consents required under securities regulations and to provide a back-up QP in the event that the original author becomes unavailable to the consultant. Companies should anticipate that performance of such obligations may result in additional fees. The assistance of legal counsel in articulating the contractual rights and obligations can be well worthwhile if it provides the company with traction to ensure that appropriate Consents are provided as and when required.
Unfortunately, in many circumstances the consultancy contract has been long ago negotiated and signed and does not anticipate or adequately address the granting of Consents. In such circumstance, the issuer should anticipate the possibility of reluctance on the part of its consultant to grant Consents. Such issuer is faced with the variously unattractive options of either raising the issue with the consultant in advance before any Consent is required, with the aim of attaining contractual clarity through amendment of the contract, or alternatively taking the risk that Consents, when requested, may be resisted, but hopefully the issuance or the wording can be successfully negotiated when and if a refusal arises.
Caution should be especially acknowledged in the case of a bought deal, short-form prospectus financing since regulatory time frames are currently severely compressed. One of the common complaints of consultants is the last-minute nature of Consent requests and, while the regulatory time frame is short, companies should extend the courtesy to their consultants in communicating the need for Consents at the earliest time possible. The core issue is that delays, let alone refusal, in the providing of Consents can spell disaster to a financing.
Certainly, clarity on the matter would be best achieved by refinement of the securities regulations pertaining to Consents. Mining companies and consultants alike, many of whom have recently faced this issue, are encouraged to jointly lobby their regulators for a pragmatic regulatory solution. Meanwhile, however, the industry is left with the unenviable task of struggling with the current mess.
Josh Lewis works for Fasken Martineau DuMoulin LLP (Vancouver).