When Venezuelan President Hugo Chavez says "no," does it really mean "no"?

It's not a question that would normally engage the Ontario Superior Court of Justice. However, in a world where politics, business and legalities can easily collide, what Mr. Chavez really means is at the heart of a US$102-million lawsuit by investors of Crystallex International Corp., a gold-mining company.

The key issue in the case focuses on the duties that directors of businesses in deteriorating financial circumstances have to a company's creditors.

According to the aggrieved investors, Mr. Chavez meant what he said when he announced in September, 2008, that he would turn over the Las Cristinas gold mining project, Crystallex's main asset, to a consortium composed of Venezuelan and Russian interests. The investors are tired of the company continuing to spend millions of dollars on a project they believe is doomed to failure.

"The company seems to have an endless appetite for being misled and abused by the Venezuelan government, an appetite that has worked and continues to work to the detriment of investors," said Stephen Hope, the managing member of the San Francisco-based Outrider Fund, which owns about $17-million of the $100-million in senior unsecured notes held by Computershare Trust Company of Canada for a variety of investors.

However, Markus Koehnen of Mc-Millan in Toronto, who represents Crystallex, says the suit has no merit.

"The bondholders are complaining that the company pursued the Venezuelan opportunity for too long, and that amounts to an attack on the business judgment of the directors," Mr. Koehnen says. "But it's fairly standard black-letter law that this kind of decision is one for the board to make, and just because the bondholders think the opportunity should not be pursued further doesn't make it so."

The Las Cristinas area, owned by the Venezuelan government, is estimated to contain 35.2 million ounces of gold. Crystallex has a licence to mine and develop the deposit, but it needs an environmental permit to begin production. The company had been pursuing the permit for almost six years when the Venezuelan Ministry of the Environment denied the application in April, 2008.

In hindsight, that ought not to have been a complete surprise. Both Mr. Chavez and other officials had repeatedly suggested the government would nationalize the gold-mining industry.

In September, 2008, Mr. Chavez announced he was "taking back the mines." The Minister of Mines followed with a press release stating that, "by 2009, the state will take back, operate and manage the Las Cristinas mine." Although the minister later rescinded a statement that he would offer the project to Rusoro, a Russiancontrolled miner, he did not retract the government's intention to "take back" Las Cristinas.

Crystallex, however, continued with internal appeals through the Venezuelan government, which have proven fruitless so far. The investors also say the company continues to honour spending commitments in Venezuela despite the government's failure to hold up its side of the bargain. "We brought the application because it's time to stop spending money on rainbows," says Rob Staley, who, with colleague Derek Bell at Bennett Jones in Toronto, represents the bondholders.