Mr. Harry Barr reports
EL NINO WINS INTERNATIONAL COMMERCIAL ARBITRATION AGAINST GEORGE KAVVADIAS AND HIS COMPANY GLOBAL CONSULTING GROUP LTD.
El Nino Ventures Inc. (ELN) has won its
arbitration proceedings against both Georges Kavvadias and Global
Consulting Group Ltd. (GCP), a company controlled by Mr. Kavvadias. The arbitrator has overwhelmingly found El Nino's claims to
be valid and in making his award to El Nino, the arbitrator has
declared the following in favour of El Nino:
- Mr. Kavvadias and GCP must return all assets of Infinity Resources SPRL (Infinity is 70 per cent owned by El Nino Ventures) to the control of the El Nino, which include but are not limited to the mining permits and site, vehicles, equipment, drill core, data, and all records financial or otherwise.
- Mr. Kavvadias and GCP have no right to participate in the activities of Infinity Resources beyond the rights as a minority shareholder.
- The request by Mr. Kavvadias for the Democratic Republic of the Congo mining exploration permits 5214/5215/5216/5217 to be transferred into Mikuba Mining is denied.
- The DRC mining exploration permits (Kasala) 5214/5215/5216 and 5217 are the property of Infinity Resources.
- GCP shall forthwith deliver and endorse 20 per cent of its shares in Infinity Resources over to Hassan Sabra (original holder of the Kasala permits).
- El Nino did not breach either of the joint venture agreement or the option agreement from a failure to pay the final instalments of $100,000 (U.S.) and 100,000 shares to fully earn its 70-per-cent interest in the Kasala claims, or by not paying exploration and development costs in the amount of $296,626.70 (U.S.) up to May 18, 2010, as claimed by Mr. Kavvadias and GCP.
- GCP must pay El Nino Ventures damages in the amount of $101,850.32 (U.S.).
- El Nino may set off the $100,000 (U.S.) final instalment under the joint venture agreement and option agreement.
Harry Barr, president and chairman, commenting on the results of the
arbitration stated: "Although the arbitration took an exceedingly long time to complete, the
results justified management's relentless efforts to bring Mr.
Kavvadias/GCP to accountability and retain the assets on behalf of the
shareholders in its 70-per-cent-owned joint venture company, Infinity Resources
SPRL. The above is a partial award and a hearing is set for early
February, 2014, to determine further costs in favour of El Nino, which
include its legal costs and other costs of the arbitration. Management
of ELN is expecting this award to be substantial. As this was an international commercial arbitration, the results will
support the company's efforts in the DRC to bring closure to the
appeals by Mr. Kavvadias from being removed as gerant and for his
fraudulent attempt to transfer the Kasala mining permits into his
company Mikuba Mining. To date, we have received a great deal of interest from major and
mid-size companies who may want to joint venture with El Nino on the
Kasala project. We will continue to advance discussions with the
interested parties with an aim to advance the Kasala project in 2014."
El Nino would like to acknowledge its joint venture partner, Mr. Sabra, who has continually worked within the framework of the joint
venture to advance the Kasala project and has worked tirelessly with El
Nino to secure the assets of Infinity Resources.
In announcing his decisions, the arbitrator went into great detail
providing analyses for the basis of his partial reward. In part, the
- Mr. Kavvadias and GCP misrepresented that GCP was the legal owner of
the mining permits. GCP was never the owner of the permits and no legal ownership of the
permits ever vested in GCP.
- Georges Kavvadias and GCP were in substantial breach as at May 18, 2010, that Mr. Kavvadias was threatening to transfer the Kasala project to
another investor to the exclusion of El Nino, and that he had misused his
power of attorney, had not delivered 20 per cent of the shares of Infinity to
Mr. Sabra, had improperly accused El Nino of fraud, had misused his
control over Infinity to pay himself moneys to which he was not
entitled and failed to deliver control of Infinity over to El Nino. El
Nino was not under any legal obligation to comply with its obligations
under the respective agreements when GCP was in substantial breach of
- The use of the power of attorney by Mr. Kavvadias to appoint himself
gerant of Infinity was improper. The minutes of the meeting in which that appointment was said to have
been made were not delivered to the then president, Jean Luc Roy, and
were not registered with the appropriate authority in the DRC. By using
the power of attorney to so appoint himself as gerant, Mr. Kavvadias overstepped his authority to create a corporate joint
venture vehicle in the DRC for the operation of the Kasala project.
- Mr. Kavvadias also overstepped his authority as the in-country manager
of the project to grant GCP a right to remuneration under the May 29,
2007, consulting agreement. Mr. Kavvadias had signed the contract on
behalf of both GCP and on behalf of El Nino. El Nino was not aware of that contract and a copy was not produced by
Mr. Kavvadias until the very last days of the arbitration hearing. The
arbitrator stated that there is serious doubt that the contract between
Infinity and GCP was ever made. It was never listed in the documents
submitted by Mr. Kavvadias nor referred to in his written argument.
- A fundamental misconception on the part of Mr. Kavvadias was that he had
a contractual right under the joint venture agreement and the option
agreement to be paid for the management and logistics of the project in
- The joint venture agreement contained a provision for El Nino and GCP to
negotiate a separate agreement setting out the conditions under which
GCP and El Nino would work together. Such agreement was reached in the
2007 consulting agreement with Mr. Kavvadias. No such agreement was
reached in writing regarding the role of GCP.
- When the consulting agreement terminated on its face after two years,
there was no obligation on El Nino to renew the agreement. The
agreement was then on a month-to-month basis and terminated in May of
2010. In giving his reasons, the arbitrator stated that El Nino had many valid
reasons to terminate the relationship with Mr. Kavvadias and GCP, and
any role for GCP in the continuing operation of the project. Mr. Kavvadias had been trying to shop the Kasala project to other
investors to the exclusion of El Nino. He started lawsuits which had
the effect of frustrating the development of the project. He was paying
himself disputed moneys out of Infinity accounts. He was wholly
unco-operative with El Nino. He accused El Nino of fraud. He misused the power of attorney to appoint himself as gerant of
- The evidence supports the conclusion that the efforts of Mr. Kovacs, El
Nino's senior geologist, to visit the project site were frustrated by Mr.
Kavvadias. The fact that the vehicles did not have adequate tires for the site
visit was the fault of Mr. Kavvadias, who apparently diverted the
moneys for some other purpose.
- The suggestion by Mr. Kavvadias that he was entitled to be compensated
as the gerant of Infinity because the shareholders had elected him to
that position was unsustainable because he had improperly used the
power of attorney from Mr. Roy to vote the shares of El Nino. He also voted the shares of Mr. Sabra without authorization. Further,
the articles of Infinity indicated that an 80-per-cent vote of shareholders
would be required to remove Mr. Kavvadias as the gerant. Such provision
would effectively exclude El Nino from any control over mining
operations notwithstanding its majority position as a 70-per-cent shareholder
and the fact that it was financing the exploration and development. A
court in the DRC set aside the appointment of Mr. Kavvadias. He
appealed that decision and under the laws of the DRC a court order is
stayed pending the conclusion of the appeal. Mr. Kavvadias has not
prosecuted the appeal. It remains in limbo. The stay of proceedings
does not change the fact that Mr. Kavvadias clearly acted improperly in
using the power of attorney to vote himself gerant of Infinity.
- The obligation to share profits with GCP under the joint venture
agreement would continue notwithstanding the fact that GCP was in
substantial breach of the joint venture agreement and option agreement
if El Nino chose to affirm those contracts. As well the arbitrator found that El Nino is entitled to exercise its
majority control over the operations of Infinity. The various breaches of the joint venture agreement and option
agreement by GCP through Mr. Kavvadias, egregious as they were, do not
disentitle GCP to the benefit of those agreements except to the extent
that any moneys found to be lawfully owing by GCP to El Nino may be
deducted from the GCP share of profits. GCP is not entitled to
rescission of the joint venture agreement or the option agreement or to
surrender of the mining permits.
- As Mr. Kavvadias said himself, the crisis between El Nino and GCP
started in September of 2008 after El Nino decided to place the Kasala
project under care and maintenance even though sufficient funds had
been raised to cover costs of the 2008 drilling program. Mr. Kavvadias
was concerned about irregularities in expenditures by Mr. Roy and
abuse of shareholder funds. Another concern raised by Mr. Kavvadias
related to what he called serious questions about the El Nino financial
statements. He said that the exploration expenditures were inflated by
El Nino. In respect of these concerns that apparently motivated the subsequent
conduct of Mr. Kavvadias, he clearly exceeded his remit. As a minority joint venture partner through GCP it did not fall to Mr.
Kavvadias to second guess the financial strategies of El Nino, the
in-house management of corporate expenditures or the financial
statements published by El Nino. The claims by Mr. Kavvadias that El Nino recorded about $2.0-million
on its books that was not expended on the Kasala project were clearly
misconceived. Many payments made directly by El Nino to assayers and suppliers would
not show up on the Infinity books.
- The lawsuits brought by Mr. Kavvadias in the DRC on the basis that El
Nino acted fraudulently in the expenditure of moneys raised in public
markets and in public filings of the accounts of El Nino were baseless.
- Mr. Lines, El Nino's senior geologist and project manager for Kasala, quoted Mr.
Kavvadias as saying "the war will now just begin," that he will have
"court cases raining on them," that he will "start a campaign in the
courts, with government and in the press," and that El Nino will not be
able to operate in the DRC when he starts his campaign. Even though Mr.
Kavvadias denied using those words or believed that the e-mail was
prepared by Mr. Lines, the predicted events did come to be realized.
The threats set out in the Mr. Lines e-mail were consistent with the conduct
of Mr. Kavvadias. He set about to make it impossible for El Nino to
function in the DRC. Mr. Kavvadias was attempting to move the mining
permits into Mikuba Mining (a company controlled by Mr. Kavvadias) so
that he could have exclusive control over the permits and exclude El
Nino from the Kasala project. There can be no doubt that Mr. Kavvadias embarked upon a scorched-earth
policy to cut El Nino out of the Kasala project largely because he considered El Nino to be in breach of obligations
under the joint venture agreement and the option agreement to finance the
exploration program. In at least one press release prepared by Mr.
Kavvadias, he announced that the El Nino assets in the DRC would be
transferred to GCP.
- The various invoices tendered by Mr. Kavvadias in August, 2009, for such
matters as storage rent, and mapping and travel going back to the year
2007 were not valid. There was no record to support any agreement by El
Nino to pay those amounts.
- In the face of the many instances of unlawful conduct by Mr. Kavvadias,
El Nino required that Mr. Kavvadias and Mr. Sabra sign a release and
acknowledgement of the entitlement of El Nino to the Kasala properties
before payment of the final $100,000 (U.S.) and 100,000 shares owing under
the option agreement. As at May 18, 2010, Mr. Kavvadias was in breach of the joint venture
agreement and the option agreement on a number of levels. He had been trying to cut El Nino out of the Kasala properties by
moving the mining permits into a company that he owned. He had accused
El Nino of fraud. He was demanding payments to GCP that were not owed.
He was not providing adequate accounting information to El Nino. He was
belligerent to virtually everyone at El Nino. He had taken over
complete control of Infinity even though El Nino was the majority
shareholder. He did not give Mr. Sabra his shares in Infinity or
give Mr. Sabra any meaningful opportunity to vote those shares. He
instructed lawyers to write demand letters to El Nino in the name of
Infinity. Mr. Kavvadias was trying to take over the Kasala properties
for himself. Such gross demonstrations of bad faith justified El Nino in demanding
that Mr. Kavvadias sign off upon the final payment under the option
agreement. There was no foundation for GCP to issue the first notice of
default dated May 19, 2010.
- In the second notice of default dated May 21, 2010, GCP claimed that El
Nino was in breach of the joint venture agreement by reason of its
failure to finance the development of the Kasala project. While the joint
venture agreement and the option agreement provided that El Nino would
finance the exploration and development of the Kasala project, it was not
a breach of either agreement for El Nino to place the project on care
and maintenance when the economic downturn occurred in 2008. There were
no requirements as to timing or amount of financing. There was no basis
upon which Mr. Kavvadias or GCP were permitted to question the internal
housekeeping of El Nino or the manner in which it dealt with Mr. Roy. Mr. Kavvadias was not entitled to insist upon any particular level
of financing. The root of much of the problems that arose after September,
2008, was the misapprehension by Mr. Kavvadias that he was entitled to
question the expenses of Mr. Roy, the expenditures of El Nino, the
amount of financing raised by El Nino in public markets or the amount
that El Nino spent on the Kasala project. Mr. Kavvadias and GCP were not entitled to question the affairs of El
Nino, and there is no basis upon which the second notice of default can
- El Nino claimed that GCP and Mr. Kavvadias were liable for damages for
fraud, misrepresentation or breach of contract. In the analysis of the
arbitrator, GCP owed trust-like obligations to El Nino in respect of
the handling of the assets of Infinity, which assets included the mining
permits and moneys paid over by El Nino to finance the Kasala project. GCP is liable for breach of trust-like duties by charging El Nino from
amounts that were not owed, by Mr. Kavvadias paying himself out of
Infinity accounts, and by Mr. Kavvadias attempting to move the mining
permits out of the control of El Nino and into the name of Mikuba
The conduct of Mr. Kavvadias, for which GCP is responsible, was unconscionable and constituted equitable fraud.
GCP was also responsible in law both as manager of Infinity, and under
the joint venture agreement and the option agreement to account for
moneys received by Infinity. GCP was obliged to prove that moneys paid
by El Nino were not improperly diverted. GCP attempted to prove that
all moneys were properly spent by tendering extensive accounting
records at the evidentiary hearings. Many of these documents should
have been provided to El Nino years earlier. It was not possible to
verify from these confusing accounts that moneys paid by El Nino were
properly spent on the Kasala project. Where a party subject to
trust-like obligations is guilty of unconscionable conduct the party to
which those duties are owed is entitled to equitable compensation.
- The mutual release signed by Mr. Kavvadias on his own behalf and on
behalf of GCP dated Oct. 23, 2009, was effective to settle all
claims by GCP and Mr. Kavvadias to remuneration based on the oral
agreement to pay $22,500 (U.S.) per month. Under the mutual release, GCP and
Mr. Kavvadias discharged and released El Nino from any and all claims
for remuneration as set out in the British Columbia lawsuit launched by
Mr. Kavvadias. It was accordingly improper for Mr. Kavvadias to launch a second
proceeding in the DRC that included the same amounts.
- Mr. Kavvadias took the view that the oral agreement with Mr. Barr for
the balance to be paid when El Nino was in funds was enforcable. Aside
from the question of whether or not Mr. Barr actually made the oral
representation, the written release cannot be varied by a collateral
oral agreement. As a matter of law, the sum paid to Mr. Kavvadias in
settlement of the British Columbia litigation was a full and final
settlement of all claims. The alleged contract dated May 29, 2007, between GCP and El Nino that was
produced on the last day of evidentiary hearings did not constitute any
legal basis for any further claim by Mr. Kavvadias for remuneration. It
was a document of dubious authenticity, and in any event was a contract
created by Mr. Kavvadias and signed by him for both parties.
- From the accounting documents provided by GCP, it would appear that
subsequent to the mutual release signed on Oct. 23, 2009, Mr.
Kavvadias sought to apply various sums to accounts that were not
authorized, including $5,289.96 (U.S.) for expatriate schooling, $1,293 (U.S.) for
expatriate holiday travel, $7,500 (U.S.) for expatriate housing, $10,617.36 (U.S.) for
medical costs, $37,200 (U.S.) for office and warehouse rental, $10,450
(U.S.) for mapping, and $22,000 (U.S.) for GCP services in excess of the $15,000 (U.S.) per
month that was agreed. In addition, of the $7,800 (U.S.) forwarded in a six-month period for vehicle repair and maintenance, only about $300 (U.S.) was
shown to have actually been spent for that purpose. El Nino could not
ascertain where the other $7,500 (U.S.) was spent and Mr. Kavvadias's
accounting documents do not assist. The total moneys not shown on the
accounting records to have been spent on authorized purposes totalled
$101,852.32 (U.S.). Damages in this amount are allowed El Nino as equitable
- There is continuing dispute regarding whether or not El Nino has been
deprived of the core samples and other assets of Infinity, including
motor vehicles. GCP takes the position that all assets of Infinity, including the core
samples, will be made available to El Nino upon a ruling of this
arbitration that such assets, including the mining permits, are the
property of Infinity. At this juncture, Mr. Kavvadias must be taken at
his word. In the event that there is a subsequent complaint that Mr. Kavvadias or
GCP have converted the assets of Infinity, whether in the form of
vehicles and equipment, the drill core or the mining permits, then it is
open to El Nino to bring a new claim for conversion. The ruling in this arbitration is that the joint venture agreement and
the option agreement are not terminated, and that El Nino is entitled to
exercise its 70-per-cent control over the operation of the Kasala project. GCP
will act unlawfully if it continues to assert control over the assets
of Infinity or blocks access to those assets.
- Mr. Kavvadias and GCP are not entitled to a declaration that
Infinity holds the mining permits as bare trustee for GCP or to an
order that the permits be transferred to GCP. Mr. Kavvadias was a
mere finder and is entitled only to the finder's fee as set out in the
joint venture agreement and the option agreement. The mining permits
were never the property of GCP. GCP only served as the middleman to
negotiate the transfer of the mining permits from Fonaco SPRL to
Infinity Resources. The consideration has been paid to Mr. Sabra
under the contract between Mr. Sabra and GCP dated May 18, 2007, that
gave rise to the assignment contract dated June 20, 2007, under which
the mining permits were assigned to Infinity and which was attached as
Schedule A to the joint venture agreement. The mining permits are
vested in Infinity. El Nino as majority shareholder of Infinity is
responsible to ensure that 20 per cent of the shares of Infinity are endorsed
over to Mr. Sabra. Mr. Kavvadias and GCP do not now and never have had any right to
hold the mining permits.
- Mr. Kavvadias and GCP must vacate the field and return all assets to the
control of El Nino, including the mining permits and site, vehicles,
equipment, drill core, and data. GCP must act reasonably to ensure a smooth transition and transfer of
property to El Nino or risk losing its share of the net-smelter-return royalty and
net profits proportionate to its interest in Infinity as granted under
the joint venture agreement.
Management believes that having the Kasala project back under the
company's control will contribute further value to its shareholders and
complement the company's existing portfolio of assets, which include interests in the Murray Brook project and the BOJV in the Bathurst
mining camp, New Brunswick.
We seek Safe Harbor.
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