COLUMN

A bleak tale of riches to rags

Diane Francis August 10 1987
COLUMN

A bleak tale of riches to rags

Diane Francis August 10 1987

A bleak tale of riches to rags

COLUMN

Diane Francis

For mining prospector William Richardson, it ended on a sunny day in May in courtroom 4-2 of the Ontario Supreme Court. Years after discovering one of the world’s richest tungsten deposits, the prospector was broke. It was a sad ending for the once-wealthy Richardson, 68, now an old man with cancer living in public housing. Ashen-faced and hard of hearing, he squinted and cupped his hands behind his ears to understand how the pie he had created would be divided. He ended up with $160,000 out of the $1.2 million left from his mining company shares. The rest was mostly eaten up by his solicitor and trusteehuge fees generated as a result of a series of frightening legal catch-22s that could happen to anyone.

It was a case that had rattled around the investment community for years. In the 1960s Richardson came up with the idea that tungsten could be recovered from a dormant mine in Britain. He snapped up claims and raised money to pay for the cost of acquisition and some further testing by selling investors grubstake certificates—primitive lOUs against future proceeds. For tax reasons he incorporated his company, Hemerdon Mining and Smelting Ltd., in Bermuda, where certain company taxes do not exist. But in 1976 certificate holders mutinied over disputes as to how Hemerdon’s five million shares would be divided among them.

Several would-be shareholders sued, and Richardson lost his first legal battle by default when he could not adhere to a court order to post $10,000 for the plaintiffs’ legal fees. It was a classic catch-22: his principal asset was the value of the shares, which could not be sold—and made poor collateral—as long as their ownership was in dispute.

In 1978 Richardson finally found a lawyer willing to consider his case— Toronto’s Ian Outerbridge. “It was crystal clear when [Richardson] came to my office that what happened to him in the courts of Bermuda was procedural^ unfair,” said Outerbridge. “True, he was issuing grubstake certificates like blank cheques, but the man had found an enormous property and was entitled to it.”

Outerbridge agreed to take on the case, but not until Richardson submitted to a psychiatric examination— which he passed—and agreed to sign

power of attorney over to the trustee branch of what is now chartered accounting firm Clarkson Gordon. Outerbridge, in turn, would act on behalf of Clarkson on a retainer. As well, Richardson made Outerbridge a preferred creditor, in effect giving the lawyer some guarantee of payment.

“You don’t ordinarily tie up a client so tight that he can’t wiggle, but the relationship between a solicitor and his client is essentially founded on trust,” said Outerbridge. “And I didn’t trust Bill. I was also concerned that the other side would attack his mental competence. The man is eccentric but by no means nuts.”

By 1982 the courts settled many of the suits against the prospector by giving some four million Hemerdon shares to claimants. Richardson was left with a mere 850,000 shares, which Clarkson, as trustee, refused to release to him. “We were concerned about get-

Something is very wrong when a man who cannot qualify for legal aid must forfeit his fortune to get his day in court

ting paid,” said Outerbridge. Richardson hired other lawyers to try to wrest power of attorney back from Clarkson. In June, 1982, the Ontario Supreme Court ruled that it was revocable—but only with the approval of all the other creditors and only if Richardson set aside the money he owed Outerbridge and Clarkson in trust.

That was another catch-22: Richardson could not borrow enough money against the value of Hemerdon shares to pay off Outerbridge and Clarkson. Hemerdon still had no operating mine, and the cloud of legal disputes, combined with low tungsten prices, made his 850,000 shares worth as little as $212,500, or 25 cents a share.

Richardson took his fight for power of attorney to the Supreme Court of Canada, defending himself because of lack of funds. He lost—and the fees he owed Outerbridge and Clarkson climbed higher. “If he’d stopped fighting us, the fees would have been a little more than half what they ended up being,” Outerbridge estimated.

In 1985 Clarkson and the other shareholders swapped stock with U.S.

mining giant Amax and in April, 1987, sold those shares when the stock price was at a premium. By May, 1987, Outerbridge’s fees and interest totalled a staggering $919,500 and Clarkson’s $369,000—slightly less than the $1.2 million fetched by the Amax shares. Richardson also owed $500,000 to other creditors, largely in legal fees incurred trying to fight Clarkson. “Bill prolonged the battle and cost himself money in the process,” said Clarkson chairman David Richardson.

On that sunny day in May, Bill Richardson settled out of court amid fears that prolonging the matter would have resulted in more fees eating up everything. Clarkson and Outerbridge accepted only 65 per cent of their fees, and other creditors got as little as 10 per cent. A Toronto policeman, Sgt. Jake Mol, volunteered to act as Richardson’s adviser in court because, he said, “I was frightened Bill wouldn’t get a dime.”

Toronto lawyer Henry Knowles also helped out, having come across Richardson’s plight nine months after he stepped down as chairman of the Ontario Securities Commission in 1983. “The fact that Outerbridge and Clarkson agreed to give Bill something [by taking only a percentage of their fees] is commendable,” said Knowles, who has advised Richardson free of charge, “but there is something wrong when fees eat up a man’s wealth.”

In the United States, for instance, Richardson might have hired a lawyer on a contingency fee basis, in exchange for up to one-third of any proceeds in payment after the case was concluded. “I would have lost my shirt on a contingency fee basis,” said Outerbridge. Added Clarkson’s David Richardson: “We made something out of nothing. Bill would have lost everything, and he created a large portion of the legal complexity.”

While Outerbridge, Clarkson and the others involved in this case acted within their rights, there is something very, very wrong with a system in which a man with assets, who cannot qualify for legal aid, must forfeit virtually everything he owns to get his day in court. Regardless of the details, Richardson’s story should serve as a cautionary note to other Canadians who, for various reasons, sign over their power of attorney. Bill Richardson himself remains philosophical about the years of struggle. “I’m just glad it’s over,” he said.