Yukon government, creditor take disputes over Wolverine mine to Supreme Court of Canada

The Yukon government and Welichem Research General Partnership are both turning to the country's highest court over disputes centering around the bankruptcy of the Yukon Zinc Corporation, which operated — then abandoned — the Wolverine mine in southeast Yukon.

The government and Welichem Research General Partnership both filed notices to the court in May

The Wolverine Mine in southeast Yukon has been closed since 2015. (Yukon government)

The Yukon government and a biotech company that loaned money to the now-bankrupt owner of the Wolverine mine have taken their disputes over who gets what's left of the mine's assets to the country's highest court. 

The territorial government, represented by the minister of energy, mines and resources, as well as Welichem Research General Partnership filed separate notices of application for leave to appeal to the Supreme Court of Canada on May 4. 

The files were opened on May 27, although the Supreme Court of Canada has yet to decide on whether it will actually hear either case. 

The Yukon government and Welichem are asking the court to examine separate legal issues — whether mineral claims count as "real property" as defined under the federal Bankruptcy and Insolvency Act (BIA), and how a receiver in an insolvency case can treat pre-existing contracts with third parties.

'Irresponsible mining venture'

At the core of both notices is the Yukon Zinc Corporation and what one Yukon judge previously described as its "irresponsible mining venture" in the territory with its Wolverine mine, located between Ross River and Watson Lake.

The company put the mine into production in early 2012 but ran into financial problems a few years later, placing Wolverine into care-and-maintenance mode in 2015.

Environmental conditions at the mine deteriorated, with a flood in 2017 causing the Yukon government to raise the financial security for the property from about $10.5 million to more than $35.5 million. While Yukon Zinc had posted the initial amount, it never made payments toward the nearly $25 million it owed and ultimately abandoned the mine instead.

In 2018, the Yukon government stepped in to mitigate environmental damage. 

Yukon Zinc was placed into receivership in 2019. The Yukon government is still on-site at Wolverine doing maintenance and mitigation work; according to its memorandum of argument to the Supreme Court of Canada, it's used up all of the security Yukon Zinc provided, and is now using public funds to pay for the work. 

The memorandum says the government expects to spend in excess of $12 million in the 2021-22 fiscal year on the mine.

Decision leaves no way to recoup costs, government argues

A Yukon Supreme Court judge, in handling the receivership and bankruptcy proceedings, ruled that the Yukon government had a claim of $35,548,650 — the entirety of the financial security on the Wolverine mine — against Yukon Zinc, and therefore, security over the company's "real property." The judge also found that "real property" included Yukon Zinc's mineral claims.

The Yukon Court of Appeal, however, overturned that finding, ruling that mineral claims could not be considered "real property" under the BIA. 

"In so finding, the [Yukon Court of Appeal] doomed Yukon to perform millions of dollars of remediation for the benefit of [Yukon Zinc] and/or its secured creditors, with no way to recoup those costs," the government's arguments to the Supreme Court of Canada read in part. 

"The effective result of the findings of the [appeal court] is that none of the environmental regulator's outlays will be recouped. Yukon taxpayers will bear the entire burden of the environmental costs while creditors of [Yukon Zinc] with security over mineral claims stand to benefit from the work being done by Yukon at no cost to themselves."  

The court of appeal found that the Yukon government had security on Yukon Zinc's land, but the government described the benefit of that as "entirely illusory" as there are no assets outside the mineral claims. 

Receiver took prohibited 'middle ground,' Welichem argues

Welichem, meanwhile, loaned Yukon Zinc more than $8.5 million in 2018, and also leased 572 pieces of equipment to the company for use at the Wolverine mine for $110,688 a month. When Yukon Zinc went into receivership, the receiver, PricewaterhouseCooper (PwC), determined that 79 pieces of the leased equipment were essential for remediation work. 

According to Welichem's filings, it tried to negotiate a new, short-term rental for the equipment but couldn't reach an agreement and instead, PwC gave Welichem "a unilaterally imposed monthly rental payment of $13,500, and with no other obligations." 

In doing so, Welichem argues, PwC took a prohibited "middle course" by neither fully rejecting the original lease agreement Welichem had with Yukon Zinc, but also not agreeing to take on the lease as a whole, either. While the Yukon Court of Appeal found that PwC did not have the authority to "unilaterally appropriate" the equipment it had deemed "essential," it also found that PwC had not implicitly affirmed the original lease by continuing to use it. 

That finding, the company says, puts creditors of bankrupt companies "at the mercy of court-appointed receivers and their broad, extraordinary powers."

As it stands, Welichem argues, the law allows for contracts to be affirmed based on the conduct of a receiver, but "then determines that the requirements for such affirmation are virtually never met," raising uncertainty for any loaner in an insolvency proceeding.  


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