Deloitte & Touche Inc. Seeks To Discontinue Class Action Against Bre-X Principals

by Dentons
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Deloitte & Touche Inc. (“Deloitte”), the long-acting trustee for the Estate of Bre-X Minerals Ltd., has brought motions in the Alberta and Ontario courts seeking leave to discontinue the class action litigation that it has been prosecuting against, amongst others, former Bre-X principal John Felderhof and his ex-wife Ingrid Felderhof, as well as the Estate of founder and CEO David Walsh.

As a brief background, in October 1997, an action was commenced in Alberta by investors who lost money on the collapse of Bre-X. In November 1997, the Alberta Bankruptcy Court authorized Deloitte to prosecute the class action on behalf of these investors; shortly thereafter, Deloitte was granted carriage in Ontario in January 1998 (collectively, the “Deloitte Action”). The Deloitte Action asserted that John Felderhof failed to promptly disclose material changes relating to Bre-X’s gold mining properties, and that he conspired with others to deceive investors by issuing false statements, announcements and press releases.

Deloitte’s motions for discontinuance are being brought for two reasons: Deloitte no longer has the financial resources to prosecute the Deloitte Action, and it believes that there is no reasonable prospect of significant recovery from the Felderhofs or the Walsh Estate. Deloitte’s motions are opposed by David Carom, one of the plaintiffs in a second class action against the Felderhofs and the Walsh Estate which, until recently, was in a litigation partnership with the Deloitte Action.

In anticipation of Deloitte’s Ontario discontinuance motion hearing (currently scheduled for March 4, 2013), Mr. Carom recently brought a cross-motion seeking an order that Ingrid Felderhof and Jeannette Walsh (David Walsh’s widow) attend to be examined as witnesses under Rule 39.03 of the Rules of Civil Procedure, and that Ingrid Felderhof allow class counsel to obtain an appraisal of a property in the Cayman Islands. Deloitte opposed the cross-motion based on its concern that its discontinuance motion could be affected in the event that either of the proposed witnesses failed to comply with any order made by the court.

At the cross-motion hearing (2012 ONSC 7278), Perell J. held that since neither of the proposed witnesses had actually been served with a summons, the appropriate decision was to adjourn the cross-motion to allow Mr. Carom to serve summonses. Perell J. noted, however, that had summonses been served, he saw no basis for striking them out. With respect to the request for an appraisal, Perell J. dismissed the motion without prejudice due to the lack of advice concerning his jurisdiction to make such an order, noting that Ingrid Felderhof was not a party to the Ontario litigation.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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