RE:Western Q3 end August 2021 *update Some details of the legal claims
9. CONTINGENT LIABILITIES AND COMMITMENTS
a] Contingent liabilities
On September 29, 2020, James Sever filed a Notice of Civil Claim against the Company in the Supreme Court of British Columbia (the “Sever Claim”). The Sever Claim alleges that Mr. Sever had an employment and/or other similar contractual relationship with the Company, and that the Company breached such contractual relationship by way of constructive dismissal or similar conduct. The Sever Claim seeks damages in excess of $2,500,000, certain equity compensation, prejudgment garnishment, costs, interest and other non-monetary relief. On July 27, 2021, the Company filed a response to the Sever Claim, which included the following, among other things: (a) that the Company was never properly served with the Sever Claim; (b) that the Company had never had any form of employment, independent or consulting relationship or agreement with Sever; (c) that the Company had no debts, liabilities or obligations to Sever; (d) that to the extent that Sever had some form of employment, independent or consulting or similar relationship or agreement as alleged in the Sever Claim, such contract or relationship, if one existed, was never with the Company and was with some other corporate entity.
The Company intends to vigorously defend against the Sever Claim, and believes that the Sever Claim is without merit. As the Company cannot predict the outcome of the Sever Claim, no provision has been recognized as there is no present obligation and the probability of an outcome cannot be determined.
[ii] On December 30, 2020, the Company entered into a settlement agreement with Frank Halliday, a former director and officer of the Company, whereby the Company has agreed to pay Mr. Halliday termination pay in the amount of CAD$102,001 (USD equivalent $76,589) via installment payments commencing in January 2021 until October 2021. At October 31, 2020, the Company had recorded a provision for the settlement amount. For the period ended April 30, 2021, the Company had made aggregate payments of CAD$51,401 (USD equivalent 40,384) (2020 – $Nil) to Mr. Halliday, reducing the provision accordingly.
[iii] On December 31, 2020, GEM Yield Bahamas Limited (“GEM”) served the Company with a Notice of Intention to Arbitrate (the “New York Arbitration Notice”) before the American Arbitration Association in New York, (the “GEM New York Arbitration”). The New York Arbitration Notice alleges the Company breached a Share Subscription Agreement dated November 15, 2019 entered into between the Company and GEM (the “GEM Agreement”), among other things, claiming damages of CAD$4.2 million (USD equivalent $3.3 million). On January 19, 2021, the Company moved to stay the GEM New York Arbitration claiming the GEM Agreement was not valid. On March 19, 2021, the Court ruled that there was an arbitration clause but it was up to the arbitrator to determine if the arbitration clause was valid. Therefore, the New York State action was closed. GEM filed an arbitration, and in June 2021, the Company filed a Statement of Answer denying the existence of any binding agreement between the Company and GEM. The Company intends to vigorously defend itself and believes the allegations against the Company in the GEM New York Arbitration lack merit. As the Company cannot predict the outcome of this arbitration proceeding, no provision has been recognized in respect to the GEM New York Arbitration as there is no present obligation and the probability of an outcome cannot be determined.
[iv] On February 9, 2021, GEM instituted another arbitration against the Company before the International Centre for Dispute Resolution in Montreal Canada (the “GEM Montreal Arbitration”) and joined GEM’s affiliate, GEM Global Yield LLC SC (“GEM Global Yield” together with GEM, the “GEM Parties”). The Statement of Claim filed by the GEM Parties alleges the Company breached a Share Subscription Agreement dated November 15, 2019 and promissory note, among other things, claiming damages of CAD$4.9 million (USD equivalent $3.85 million), in addition to costs and expenses. The Company and the GEM Parties are in the process of selecting an arbitrator in this matter, and following such appointment, the Company will file a Statement of Answer. The Company intends to vigorously defend itself and believes the allegations lack merit. As the Company cannot predict the outcome of this arbitration proceeding, no provision has been recognized in respect to the GEM Montreal Arbitration as there is no present obligation and the probability of an outcome cannot be determined.
The James Sever suit is interesting because his technology and licensing (royalties) seem to be behind the whole company. "Under the License and Royalty Agreement, the Company gets use of these concepts and know-how to develop its properties. Mr. Sever will also provide technical assistance to the Company with regard to the process and any changes or refinements to the process at the request of the Company, for a fee to be agreed. In addition, the Company can sub-license the knowledge and concepts to third parties, provided the third parties pay royalties to Mr. Sever.
In consideration for the license, the Company will pay to Mr. Sever a royalty in the amount of three tenths of one cent (USD$0.003) per pound (USD$0.00661 per kilogram) of magnesium produced and sold by the Company where the condenser concept has been utilized and fifteen one hundreds of one cent (USD$0.0015) per pound of magnesium produced and sold from its properties without using the condenser concept. The initial term of the agreement ends on December 31, 2040, and is renewable.
States Edward Lee, CEO of Nevada Clean, "James Sever is known to be one of the world's foremost experts on production techniques for magnesium, and we are delighted to know that his unique knowledge and concepts will help us when we have positioned ourselves to start building production facilities."