Vancouver-based B2Gold is suing SRK Consulting (U.S.) and several engineers over engineering and design work for the Bellavista heap leach gold mine, which was destroyed by a landslide on Oct. 21, 2007. Months prior to the disaster, the operator had suspended production after detecting evidence of ground movement and cracks in the leach pad.
The operator of the Bellavista mine was Glencairn Gold, which later became Central Sun Mining. Central Sun was taken over by B2Gold in 2009. Professional engineers working for SRK (US) worked on the Feasibility Study design of the heap leach facility as well as detailed engineering for the mine.
When a mine fails, who is responsible? It’s the multi-million-dollar question when things go dramatically wrong at mine sites. Two recent examples are the tailings dam failure at Imperial Metals’ Mount Polley mine in B.C. in August 2014 and the Samarco tailings dam failure in Brazil in 2015. The latter disaster caused a mudslide that buried a village, killing 19 people.
No lives were lost in the Bellavista disaster, but it could have been catastrophic if the mine had been operating when the landslide hit. About 35 million cubic metres of earth and mud — the equivalent of 22 SkyDomes full — slid down the mountain. Mine infrastructure that was damaged or destroyed included the heap leach pad, the tailings facility and the processing plant. The latter contained cyanide solution — used to process the gold — in concentrated form and a stream down-slope was the water source for a nearby town.
The Bellavista mine was located on a mountainside in a seismically active area of Costa Rica. The climate is tropical, with heavy rainfall in the winter. SRK did Feasibility and detailed design stage work on the mine project for different operators, including Wheaton River Minerals, which sold the Bellavista project to Glencairn. Glencairn put the mine into production, pouring the first gold bar in April 2005. 2006 was Bellavista’s first — and only — year of full production.
McCarthy Tetrault lawyer Chris Hubbard, acting for B2Gold, said SRK engineers ignored warning signs — including local geological advice — and made “aggressive assumptions” about the safety and stability of the slope and the mine site. Geotechnical expertise was critical because of the location, he noted.
“It’s primarily a professional negligence case,” Hubbard said. “SRK repeatedly assured the owner that the project site was much safer and more stable than it actually was. In reliance on these assurances, the owner invested many millions of dollars to construct and begin operating SRK’s design for the mine.”
Ground conditions at the mine site consisted of a layer of soil or overburden on top, a layer of volcanic ash known as “lahar” in the middle, and bedrock, where the gold ore is found. According to Hubbard, SRK did not drill boreholes beneath the intended footprint of the massive heap leach pad or to test the lahar, the most unstable and volatile soil layer. The oversight came despite warnings from a local geologist that the Bellavista mine site had been the location of an ancient landslide, he said.
“SRK made assumptions about the lahar, the volcanic layer of ash, instead of getting actual samples which were readily available. They assured the owner that their assumptions were conservative when in fact they grossly over-estimated the safety and stability of the site and structures,” Hubbard said.
For its part, SRK denies responsibility for flawed engineering at the mine site. Other engineering firms were involved in engineering and design work at Bellavista both before and after SRK’s involvement, according to Terry Braun, a practice leader with SRK Consulting (U.S.).
“SRK’s work on the Bellavista mine did not contribute in any way to the 2007 landslide, which took place over three years after it left the project,” Braun said in an emailed statement. “SRK had no further involvement in the project after December 2003. … SRK will continue to vigorously defend this action.”
B2Gold is suing the U.S. division of SRK Consulting, a mining and engineering consultancy whose operations straddle the globe. SRK North America is headquartered in Vancouver. SRK’s engineering and geotechnical studies for Bellavista went through the Vancouver office before being sent to Toronto, where Central Sun Mining was located. Several other engineering firms sued by B2Gold have since settled with the company.
The stakes are high. B2Gold had originally claimed damages of US$150 million, but the two parties have agreed to damages of US$100 million (subject to liability of other parties). B2Gold had about $103.2 million in the treasury as of March 31, 2017. The trial is being heard before Justice Arthur Gans of the Superior Court of Justice in Ontario.
The Central Sun acquisition was a key transaction for B2Gold, one of Canada’s major intermediate gold producers. The two Nicaraguan mine projects, La Libertad and El Limon, that B2Gold picked up along with Bellavista were the company’s foundational mines, producing its first gold in 2010.
It’s been a rapid trajectory. B2Gold recently announced first gold production at its Fekola mine in Mali, which will produce more than 400,000 ounces of gold a year at full capacity. That will take the company’s annual production to almost 1 million ounces of gold.
For B2Gold, getting the case heard in the Ontario Superior Court of Justice was itself a victory of sorts, after years of legal wrangling. SRK’s legal team from Blaney McMurtry LLP had challenged the jurisdiction of Ontario courts, bringing a motion to stay or dismiss the plaintiff’s action because there were few links to Ontario. The disaster had taken place in Costa Rica and the engineering work was largely done by SRK (U.S.) engineers and consultants in both Costa Rica and Denver, Colorado, Blaney McMurtry lead lawyer Tim Alexander argued. The studies passed through SRK’s Vancouver office en route to Central Sun Mining in Toronto.
In a 2012 ruling, Ontario Court of Appeal Justice David Stinson agreed. He described the link to Ontario as “tenuous” and said the events at issue lacked “the requisite real and substantial connection” to Ontario. “At its heart, this dispute involves complaints by an Ontario company about a loss to property in a foreign country, that was allegedly caused by foreign defendants, performing services in a foreign country or countries,” he ruled.
But B2Gold appealed that decision and it was overturned by Ontario Court of Appeal Justice Stephen Goudge on Oct. 2, 2013 — setting the stage for the trial. Goudge ruled that the negligent misrepresentation was “received and acted upon” in Ontario.
“That is where it relied on the studies to take the decisions about where to locate the mine and how to build and operate it,” Goudge ruled. “In the modern world where corporations have various offices in various locations, corporate defendants should not escape liability simply because they send their studies to an office of the plaintiff outside Ontario with the clear understanding that it will be acted on in Ontario.”
Stephen Pitel, a Western Law professor and an expert on jurisdiction issues, said the Goudge decision has become a bit of a benchmark in tort cases where jurisdiction is at issue. It has been cited 19 times since Goudge’s 2013 ruling.
“It could fairly be said to be one of the leading cases on that question of where the tort of negligent misrepresentation has occurred,” Pitel said in an interview.
The challenge is determining how strong the link is between the negligent misrepresentation and the jurisdiction in question. It’s an evolving area of law, Pitel said.
“It’s easy to identify where, say a car crash happened. But some torts aren’t as easily nailed down as happening in a particular place,” Pitel said. “The misrepresentation may for example be written out in one place, provided to someone in a different place, acted on in yet another place, and then a loss is suffered in yet a fourth place.
“Where does the negligent misrepresentation happen?”
In the Goudge decision, the judge repeatedly used the phrase “received and acted upon” in describing Central Sun’s receipt of SRK’s engineering and geotechnical recommendations. That was a strong enough link to establish the Ontario court’s jurisdiction. “Those two things taken together represent a presumptive connecting factor,” Pitel noted.
“It’s a to-be-continued story at this point, because I don’t know if there’s a definitive view of whether only receiving it or only acting on it in a certain jurisdiction is enough,” he said. “The Central Sun case does not answer that question.”
In a case such as B2Gold vs. SRK, damages would typically be awarded on a joint and several basis, Pitel said. That means the plaintiff, B2Gold, could recover the full amount from each or any of the liable defendants. It’s a structure — highly criticized in some quarters — designed to shift the risk of insolvency away from the plaintiff and toward the defendants, according to Pitel.
“The magic of joint and several awards, for plaintiffs, is it’s specifically designed to prevent a plaintiff not being frustrated in collecting on the judgment because of the inability of any defendant to pay.”
In practice, the corporate entity usually pays the full amount and the damages may be further split among defendants once that happens, Pitel said.
“It’s typical that in cases where the defendants are a corporate entity and a bunch of individuals who worked for that entity, it’s the corporate entity that ends up bearing the payment to the plaintiff,” he said.
As for the possibility of a larger corporate entity cutting loose a local consultancy that is found liable for a large damage amount, Pitel said it is up to the plaintiff to ensure its lawsuit covers the corporate entities that have money or assets. (In this case, B2Gold is suing Steffen Robertson Kirsten/SRK Consulting, SRK (U.S.) and SRK Field Services LLC.)
Each of the named individual defendants — engineers Richard Frechette, David Hallman, Charles Khoury, Rob Dorey and Allan Breitenbach — did not respond to requests for comment. None work for SRK any more. However, several continue to work in the engineering and mining industries, including as experts around heap leach and mine safety issues.
Engineer Allan Breitenbach, formerly of Vector Engineering, has authored academic papers on heap-leach safety and stability. In 2013, he presented on “Static and Seismic Slope Stability for Heap Leach Pads” at a Vancouver mining conference.
After joining SRK, engineer Rob Dorey completed a master of philosophy in soil mechanics, according to a book SRK published to mark the company’s 40th anniversary. Dorey worked on the Thompson Creek molybdenum mine project in Idaho, including having responsibility for the design of three 70-foot-high sediment dams at the base of the rock dumps, according to the book.
In 2015, B2Gold sold the Bellavista project to Alray Investments for $1 million cash and a 2% net smelter royalty. B2Gold also retained the right to continue the Bellavista litigation.
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|Lincoln Minerals Limited