The Ontario Court of Appeal has dismissed Khan Resources’ appeal to sue Atomredmetzoloto JSC (ARMZ) for damages of $300 million over the soured joint venture to develop the Dornod Uranium Project.

This appeal was made after a Canadian Superior Court justice upheld an appeal in April 2012 by ARMZ of the 2011 court decision that validated service of a statement of claim from the Canadian uranium company.

Khan’s chief executive officer Grant Edey says, “We are disappointed by the outcome of the decision. We find it highly regrettable that ARMZ, a business with substantial interests in Canada, can engage in business with a Canadian company and then be sheltered by its shareholder, the Government of Russia, from being held accountable in a Canadian court for the wrong doing and the damages inflicted on Khan and its shareholders.”

Khan has been attempting to effect service of the lawsuit on ARMZ since late 2010. After following the necessary procedures in Russia to serve ARMZ, Khan’s attempts at service were stymied when the Russian Ministry of Justice refused to effect service.

Khan and ARMZ, through their subsidiaries, became joint venture partners in 1995 to undertake exploration and development of the Dornod property in northeast Mongolia. The property is one of the most significant and strategic undeveloped uranium resources of its kind in the world.

Since acquiring the mining licence in 2003 Khan has spent $21 million to develop and explore the property, establish power, build a permanent camp, conduct a definitive feasibility study and various NI 43-101 instruments, while it says ARMZ has contributed virtually nothing.

The property is estimated to have an annual production rate of 3.5 million pounds of uranium oxide over a 15-year mine life.

Khan’s statement of claim cites that in 2009 ARMZ began to exclude and deprive the company while in turn attempting to form an agreement with the Mongolian and Russian governments to take over and jointly develop the Dornod uranium region. Khan claims ARMZ even used tactics including temporary licence suspensions for alleged breaches of Mongolian laws through the Mineral Resources Authority to delay the development.

Khan’s lawyers say the conduct and actions of ARMZ during this time warrant substantial awards of punitive damages. The company says it will continue to review the decision and is again considering its rights of appeal.