Gross Overriding Royalties did not run with land or grant holder interest in lands

Ontario civil | Bankruptcy and Insolvency | Administration of estate | Sale of assets

At request of insolvent company’s lender (Third Eye), court-appointed receiver over assets, undertaking and property, including mining claims. Certain claims were subject to Gross Overriding Royalty (GOR) in favour of company from which appellant 235 Co. had acquired royalty rights. Notices of agreements granting GOR’s were registered on title to surface and mining rights. Order approving bid process for sale of insolvent’s mining claims generated two bids, both with condition that GOR’s be terminated or reduced. Third eye was successful. Motion judge approved sale to Third Eye and granted vesting order purporting to extinguish GORs. Motion judge rejected 235 Co.’s argument that claims would continue to be subject to GORs after their transfer to Third Eye holding that GORs did not run with land or grant holder of GORs interest in lands over which insolvent held mineral rights. Motion judge also held that ss. 11(2), 100, and 101 of the Courts of Justice Act gave him “the jurisdiction to grant a vesting order of the assets to be sold to Third Eye on such terms as are just”, including authority to dispense with royalty rights. Expert’s valuation of royalty rights were found to be fair and receiver paid this amount to 235 Co., which were held in trust. 235 Co was unsuccessful in its cross-motion claiming payment for debt owing under Repair and Storage Liens Act. 235 Co. appealed. In holding that royalty rights created no interest in law, vesting order was granted whereby receiver sold mining rights to third-party purchaser, free and clear of royalty rights. Vesting order was not stayed pending appeal and was executed. Court declined to determine that appeal was moot since vesting order had been executed. Further submissions were requested on whether Superior Court had jurisdiction to grant vesting order free and clear of royalty rights and whether or not appeal was moot. 

Third Eye Capital Corporation v. Ressources Dianor Inc./Dianor Resources Inc. (2018), 2018 CarswellOnt 3694, 2018 ONCA 253, P. Lauwers J.A., S.E. Pepall J.A., and Grant Huscroft J.A. (Ont. C.A.); affirmed (2016), 2016 CarswellOnt 15947, 2016 ONSC 6086, Newbould J. (Ont. S.C.J. [Commercial List]).

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