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by Mike Caswell

Kaizen Discovery Inc. has once again fended off a legal challenge arising from its 2015 deal to acquire the Pinaya project in Peru. The Court of Appeal for British Columbia has agreed that the company did not misrepresent itself in making the purchase. The seller sued after the value of Kaizen shares that it received in the deal substantially declined.

The victory for Kaizen is contained in a ruling that the Court of Appeal released on Friday, Jan. 21. It represents a loss for AM Gold Inc., a former TSX Venture Exchange listing that brought the appeal and the underlying lawsuit. AM Gold had complained that it wound up with 15.3 million Kaizen shares that fell to four cents in the months after it received them.

The ruling stems from an agreement Kaizen and AM Gold entered on July 3, 2015. Kaizen agreed to buy the Pinaya property for $4.5-million, satisfying all but $500,000 of the purchase price with shares. The deal closed on Oct. 26, 2015.

The problem, at least according to AM Gold, is that Kaizen failed to fully disclose material problems with its business. In particular, Kaizen did not state that there were issues with its Coppermine project in Nunavut. Prior to the deal with AM Gold, Kaizen had described results from Coppermine as "spectacular." In reality, the viability of the project was in some doubt, AM Gold contended. It said that the Nunavut government was looking at including part of the project in a protected area where no mining would be permitted. Kaizen failed to disclose this fact to AM Gold or to the public until 66 days after the Pinaya deal closed, AM Gold said.

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