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ALBERTALAW REPORTS

Sixth SeriesReports of Selected Cases

from the Courts of Alberta and Appeals

VOLUME 25(Cited 25 Alta. L.R. (6th))

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ALBERTALAW REPORTS

Sixth SeriesReports of Selected Cases

from the Courts of Alberta and Appeals

[Indexed as: Stewart Estate v. 1088294 Alberta Ltd.]

Lynda Calder in her capacity as Executrix of the Estate ofMerville V. Stewart (Deceased), Lynda Calder, Morgan Stewart,Cody Stewart, Cody Stewart in her capacity as Administrator or

Litigation Representative for the Estate of James D. Stewart(Deceased), and as Litigation Representative for MorganStewart, Jerome Development Limited, Bowen Family

Properties Ltd, Ronald B. Pole, Kevin R. Pole, Danny G. Oneilin his capacity as Executor of the Estate of Mabel B. Oneil

(Deceased), Robert Copley, Karen Nell Copley, Margaret AliceDemers, Mary Jean Biggar, Goldie Alberta Danielsen, Edna

Keam, Wilma Marshall, Laurel Lee McLaren, Appellants NotParties to the Cross-Appeal of Coastal Resources Ltd NotParties to the Cross-Appeal of Nexen Inc and ExxonMobilCanada Ltd (Plaintiffs) and 1088294 Alberta Ltd, Appellant

Cross-Respondent to the Cross-Appeal of Coastal Resources LtdCross-Respondent to the Cross-Appeal of Nexen Inc and

ExxonMobil Canada Ltd (Plaintiff/ Defendant by Counterclaim)and J. Timothy Bowes, Appellant Not a Party to the Cross-Appeal of Coastal Resources Ltd Cross-Respondent to theCross-Appeal of Nexen Inc and ExxonMobil Canada Ltd

(Defendant by Counterclaim) and TAQA North Ltd, EspritExploration Ltd, Bonavista Energy Corporation, and TriquestEnergy Corp, Respondents Not Parties to the Cross-Appeal of

Coastal Resources Ltd Not Parties to the Cross-Appeal ofNexen Inc and ExxonMobil Canada Ltd (Defendants) and

Coastal Resources Limited, Respondent/ Cross-Appellant Not aParty to the Cross-Appeal of Nexen Inc and ExxonMobil

Canada Ltd (Defendant/Plaintiff by Counterclaim) and NexenInc and ExxonMobil Canada Ltd, Respondents/ Cross-

ALBERTA LAW REPORTS 25 Alta. L.R. (6th)2

Appellants Not a Party to the Cross-Appeal of CoastalResources Ltd (Defendants/Plaintiffs by Counterclaim)

Alberta Court of Appeal

Docket: Calgary Appeal 1301-0360-AC

2015 ABCA 357

Patricia Rowbotham, J.D. Bruce McDonald, Brian O’FerrallJJ.A.

Heard: September 11, 2014

Judgment: November 19, 2015

Natural resources –––– Oil and gas — Oil and gas leases — Termination oflease — Miscellaneous –––– In 1960s, defendants’ predecessors entered intofive freehold petroleum and natural gas leases with owners of lands that plain-tiffs, other than top lessee, now owned — Leases continued so long as there wasproduction or, if production ceased, it recommenced within 90 days — Underthird proviso of habendum clauses, non-production due to “lack of or intermit-tent market” or “cause beyond lessee’s reasonable control” would not countagainst defendants — In 1995, well was shut and production suspended until2001 when production of natural gas recommenced — Plaintiffs entered into toplease agreements with top lessee which drove and bore costs of litigation againstdefendants — Plaintiffs brought action seeking declaration that leases with de-fendants had terminated, claiming accounting of profits, restitution and otherdamages; Defendants counter-claimed against top lessee for champerty — Ac-tion and counterclaim were dismissed — Plaintiffs appealed; Defendants cross-appealed — Appeal allowed in part; Cross-appeal dismissed — Trial judge erredin applying properly construed terms of lease to determinative facts of what de-fendants did in face of well’s declining performance — Defendants consideredwell was near end of its life and incapable of economic production due to de-liverability constraints rather than lack of economic or profitable market —Third proviso did not permit continuation of lease when there was complete ces-sation of production until some indefinite time in future when resumption onlybecame profitable due to record-high oil prices — Profitable market existed attime of cessation which was caused instead by well capability issue — Leasesterminated in 1995 when defendants ceased production.

Natural resources –––– Oil and gas — Practice and procedure — Ap-peals –––– In 1960s, defendants’ predecessors entered into five freehold petro-leum and natural gas leases with owners of lands that plaintiffs, other than toplessee, now owned — Leases continued so long as there was production or, ifproduction ceased, it recommenced within 90 days — Under third proviso of ha-bendum clauses, non-production due to “lack of or intermittent market” or“cause beyond lessee’s reasonable control” would not count against defend-

Stewart Estate v. 1088294 Alberta Ltd. 3

ants — In 1995, well was shut and production suspended until 2001 when pro-duction of natural gas recommenced — Plaintiffs entered into top lease agree-ments with top lessee which drove and bore costs of litigation againstdefendants — Plaintiffs brought action seeking declaration that leases with de-fendants had terminated, claiming accounting of profits, restitution and otherdamages; Defendants counter-claimed against top lessee for champerty — Ac-tion and counterclaim were dismissed — Plaintiffs appealed; Defendants cross-appealed — Appeal allowed in part; Cross-appeal dismissed — Standard of re-view for trial judge’s interpretation of leases was correctness — Any search forintention of parties in context of contracts of adhesion such as these leases wasmerely legal fiction — Leases only had two blank spaces to represent points ofnegotiation — It was untenable for standard form wording to be given one inter-pretation by one judge and another by different one.

Remedies –––– Damages — Valuation of damages — Measure of dam-ages — Miscellaneous –––– In 1960s, defendants’ predecessors entered into fivefreehold petroleum and natural gas leases with owners of lands that plaintiffs,other than top lessee, now owned — Leases continued so long as there was pro-duction or, if production ceased, it recommenced within 90 days, with non-pro-duction due to “lack of or intermittent market” or “cause beyond lessee’s reason-able control” not counting against defendants — In 1995, well was shut andproduction suspended until 2001 when production of natural gas recom-menced — Plaintiffs entered into top lease agreements with top lessee whichdrove and bore costs of litigation against defendants — Plaintiffs brought actionseeking declaration that leases with defendants had terminated, claiming ac-counting of profits, restitution and other damages; Defendants counter-claimedagainst top lessee for champerty — Action and counterclaim were dismissed —Plaintiffs appealed; Defendants cross-appealed — Appeal allowed in part;Cross-appeal dismissed — Leases terminated before defendants resumed pro-duction — Period for which plaintiffs were entitled to damages was from twoyears preceding issuance of statement of claim since, as trespass and conversionwere continuing torts, that was period that was not statute-barred — Certainplaintiffs gave leave and licence for period of time, but not once claim was filedand pursued — Appropriate measure for assessing damages was not “royaltymethod” provisionally applied by trial judge that would allow defendants to re-tain some profits — Appropriate option was “mild rule” for disgorgement, astrial judge did not err in finding as fact that defendants’ conduct did not warrantpunishment — Defendants would be required to disgorge revenues less certainexpenses, with no allowance for profit.

Remedies –––– Damages — Practice — Parties — Standing –––– In 1960s,defendants’ predecessors entered into five freehold petroleum and natural gasleases with owners of lands that plaintiffs, other than top lessee, now owned —Leases continued so long as there was production or, if production ceased, it


recommenced within 90 days, with non-production due to “lack of or intermit-tent market” or “cause beyond lessee’s reasonable control” not counting againstdefendants — In 1995, well was shut and production suspended until 2001 whenproduction of natural gas recommenced — Plaintiffs entered into top leaseagreements with top lessee which drove and bore costs of litigation against de-fendants — Plaintiffs brought action seeking declaration that leases with defend-ants had terminated, claiming accounting of profits, restitution and other dam-ages; Defendants counter-claimed against top lessee for champerty — Actionand counterclaim were dismissed — Plaintiffs appealed; Defendants cross-ap-pealed — Appeal allowed in part; Cross-appeal dismissed — Leases terminatedbefore defendants resumed production — Top lessee did not have independentclaim to damages — Top lessee’s rights were contingent upon determinationthat leases had terminated.

Remedies –––– Damages — Practice — Miscellaneous –––– In 1960s, defend-ants’ predecessors entered into five freehold petroleum and natural gas leaseswith owners of lands that plaintiffs, other than top lessee, now owned — Leasescontinued so long as there was production or, if production ceased, it recom-menced within 90 days, with non-production due to “lack of or intermittent mar-ket” or “cause beyond lessee’s reasonable control” not counting against defend-ants — In 1995, well was shut and production suspended until 2001 whenproduction of natural gas recommenced — Defendant E Ltd. had no role in pro-duction but received overriding royalty from another defendant — Plaintiffs en-tered into top lease agreements with top lessee which drove and bore costs oflitigation against defendants — Plaintiffs brought action seeking declaration thatleases with defendants had terminated, claiming accounting of profits, restitutionand other damages; Defendants counter-claimed against top lessee for cham-perty — Action and counterclaim were dismissed — Plaintiffs appealed; De-fendants cross-appealed — Appeal allowed in part; Cross-appeal dismissed —Leases terminated before defendants resumed production — E Ltd.’s overridingroyalty was carved out of defendant lessees’ working interest — Since other de-fendants were not entitled to natural gas produced, E Ltd. was not entitled toroyalty that it received from such production — E Ltd. could not be absolvedfrom accounting for royalty share of production it wrongfully received — Inparties’ agreement on quantum of revenues and expenses, E Ltd.’s royaltieswere deducted from other defendant’s income — Either defendant was not enti-tled to that deduction or E Ltd. was independently liable to plaintiff for royaltiesreceived.

Torts –––– Champerty and maintenance — Miscellaneous –––– In 1960s, de-fendants’ predecessors entered into five freehold petroleum and natural gasleases with owners of lands that plaintiffs, other than top lessee, now owned —Leases continued so long as there was production or, if production ceased, itrecommenced within 90 days, with non-production due to “lack of or intermit-


tent market” or “cause beyond lessee’s reasonable control” not counting againstdefendants — In 1995, well was shut and production suspended until 2001 whenproduction of natural gas recommenced — Plaintiffs entered into top leaseagreements with top lessee which drove and bore costs of litigation against de-fendants — Plaintiffs brought action seeking declaration that leases with defend-ants had terminated, claiming accounting of profits, restitution and other dam-ages; Defendants counter-claimed against top lessee for champerty — Actionand counterclaim were dismissed — Plaintiffs appealed; Defendants cross-ap-pealed — Appeal allowed in part; Cross-appeal dismissed — Trial judge’s ex-pression of her concerns about top lessee’s role in this litigation was merelyrecognition that it promoted and directed this litigation that did not undermineher finding that there was no champerty or maintenance — Top lessee had legit-imate commercial interest in obtaining ruling as to validity of leases, as it couldonly enjoy granted property interest if leases with defendants were declared in-valid — Top lessee suffered loss, in that it should have become lessee and in-stead it was deprived of fruits of production by defendants’ continued produc-tion — While top lessee did not have separate right of action for damages, it wasnot champertous for it to share in any recovery.

Civil practice and procedure –––– Limitation of actions — Actions in tort —Specific actions — Miscellaneous –––– In 1960s, defendants’ predecessors en-tered into five freehold petroleum and natural gas leases with owners of landsthat plaintiffs, other than top lessee, now owned — Leases continued so long asthere was production or, if production ceased, it recommenced within 90 days,with non-production due to “lack of or intermittent market” or “cause beyondlessee’s reasonable control” not counting against defendants — In 1995, wellwas shut and production suspended until 2001 when production of natural gasrecommenced — Plaintiffs entered into top lease agreements with top lesseewhich drove and bore costs of litigation against defendants — Plaintiffs broughtaction seeking declaration that leases with defendants had terminated, claimingaccounting of profits, restitution and other damages; Defendants counter-claimed against top lessee for champerty — Action and counterclaim were dis-missed — Plaintiffs appealed; Defendants cross-appealed — Appeal allowed inpart; Cross-appeal dismissed — Leases terminated before defendants resumedproduction — Period for which plaintiffs were entitled to damages was from twoyears preceding issuance of statement of claim since, as trespass and conversionwere continuing torts, that was period that was not statute-barred.

Civil practice and procedure –––– Parties — Standing –––– In 1960s, defend-ants’ predecessors entered into five freehold petroleum and natural gas leaseswith owners of lands that plaintiffs, other than top lessee, now owned — Leasescontinued so long as there was production or, if production ceased, it recom-menced within 90 days, with non-production due to “lack of or intermittent mar-ket” or “cause beyond lessee’s reasonable control” not counting against defend-


ants — In 1995, well was shut and production suspended until 2001 whenproduction of natural gas recommenced — Plaintiffs entered into top leaseagreements with top lessee which drove and bore costs of litigation against de-fendants — Plaintiff J Ltd. was involved in ongoing litigation with two non-par-ties over validity of certain assignments, which would determine which of themwas lessor in two leases at issue — Plaintiffs brought action seeking declarationthat leases with defendants had terminated, claiming accounting of profits, resti-tution and other damages; Defendants counter-claimed against top lessee forchamperty — Action and counterclaim were dismissed — Trial judge foundthat, even if termination of leases were otherwise established, it was not appro-priate to grant J Ltd. declarative relief in absence of possibly affected non-par-ties — Plaintiffs appealed; Defendants cross-appealed — Appeal allowed inpart; Cross-appeal dismissed — Leases terminated before defendants resumedproduction — Defendants failed to raise J Ltd.’s standing as defence — Non-parties indicated in this court that they supported relief sought by plaintiffs —Rights of non-parties had no bearing on issue of validity of leases — Leases hadclearly terminated in accordance with their own terms — Issue as to what enti-tlement non-parties and J Ltd. might have as amongst themselves would be de-termined in separate action — J Ltd. would be granted relief sought.

Civil practice and procedure –––– Parties — Capacity to sue or be sued.

The defendants’ predecessors entered into five freehold and natural gas leases inthe 1960s with the owners of the lands at issue. The leases had a primary 10-year term with habendum clauses continuing the lease so long as there was pro-duction or, if production ceased, it recommenced within 90 days. The habendumclauses had a third proviso, providing that non-production due to “lack of orintermittent market” or “causes beyond the lessee’s reasonable control” wouldnot count against the defendants. The defendants shut their well and ceased pro-duction in 1995, recommencing in 2001. The defendant E Ltd. was not involvedin the operation of the well but received an overriding royalty from another de-fendant’s production. The plaintiffs were the current lessors while F Inc. and thenumbered company entered into a top lease agreement with the plaintiffs onlywhen all the plaintiffs agreed to join this litigation. The plaintiffs brought anaction against the defendants, seeking a declaration that the leases had termi-nated and claiming financial remedies. The defendants counter-claimed againstF Inc. and the numbered company for champerty. The action and the counter-claim were dismissed. The trial judge made various provisional rulings, includ-ing that the plaintiffs gave leave and licence to the defendants by accepting roy-alty payments, assessing damages with a royalty approach entitling the defend-ants to maintain some profits, and rejecting the plaintiff J Ltd.’s request fordeclarative relief because of ongoing litigation with non-parties over the validityof certain assignments that would affect who was the lessor of two leases. Theplaintiffs appealed and the defendants cross-appealed.


Held: The appeal was allowed in part; the cross-appeal was dismissed.

Per Rowbotham J.A.: The proper standard of review of the trial judge’s leaseinterpretation was palpable and overriding error. The trial judge reasonablyfound that “lack of or intermittent market” meant the lack of an economic mar-ket such that production had to resume within 90 days of profitability becomingreasonably foreseeable. The trial judge made no reviewable error in acceptingthe defendants’ expert evidence on the foreseeability of profitability but on thatexpert’s evidence, it was profitable to resume production by January 1, 2000.The trial judge erred by assessing profitability solely from the defendants’ per-spective requiring “compelling” profitability, which under-emphasized theplaintiffs’ commercial objectives and right to find another producer if the de-fendants did not see any profitability in production. The trial judge thus erred indetermining that three leases had not terminated. It was proper to defer to thetrial judge’s refusal to grant J Ltd. a declaration that the leases had terminated inthe absence of the possibly affected non-parties.

The plaintiffs’ claim for the two years preceding the issuance of the statement ofclaim was not statute-barred. The trial judge erred in finding that certain plain-tiffs gave leave and licence to defendants to continue production once the claimwas filed and pursued. The “royalty method” of assessing damages was not ap-propriate as a disgorgement approach better accorded with the law of remedies.There was no reviewable error in the trial judge’s factual finding that the de-fendants’ conduct did not warrant punishment via the “harsh rule” of disgorgingrevenues. The “mild rule” was the most appropriate option, with the defendantsrequired to disgorge revenues less certain expenses but with no allowance forprofit. The trial judge did not err in finding that the top lessee had no indepen-dent right to pursue a claim, as its rights were contingent upon a determinationthat the leases had terminated. The trial judge also did not err in its finding thatthe defendant E Ltd. was not liable for damages, based on the factual findingthat its relationship with other defendants was not one of agency. E Ltd.’s caveatshould be discharged though, since the leases did terminate.

Per McDonald J.A. (concurring in the result): The reasons of O’Ferrall J.A. wereconcurred on date of the leases’ termination, E Ltd.’s liability, and the cross-appeal. The reasons of Rowbotham J.A. were concurred in all other points ex-cept the proper standard of review for the trial judge’s interpretation of theleases and for the proper remedy. With respect to the standard of review, anysearch for the intention of the parties in the context of contracts of adhesion suchas these leases was merely a legal fiction. It was untenable for standard formwording to be given different interpretations by different judges so a standard ofcorrectness should be applied. With respect to the trial judge’s refusal to grantdeclarative relief to the plaintiff J Ltd., the rights of the non-parties had no bear-ing on the issue of the validity of the leases. The leases had clearly terminatedand the issue as to what entitlement the non-parties and J Ltd. might have asamongst themselves would be determined in the separate action. With respect to


the remedy, the trial judge made palpable and overriding errors in concludingthat the defendants did not act in bad faith when they re-commissioned the wellin 2001. The defendants either knew or should have known that the leases wereat best questionable if not dead altogether, and they should have to disgorge thefull amount of the production revenue without any deduction for costs for theperiod of two years prior to the issuance of the statement of claim.

Per O’Ferrall J.A.: The interpretation of the leases called for a correctness stan-dard for the reasons given by McDonald J.A. The trial judge erred in applyingthe properly construed terms to what the defendants did in the face of the well’sdeclining performance. The trial judge erred in relying on expert evidence whenthere was a sufficient factual basis from the defendants’ witnesses who operatedthe well. Leading up to the 1995 cessation, the well’s deliverability constraintsreduced its amount of production. The defendants saw the well as being near theend of its life and considered it incapable of economic production. The thirdproviso did not permit a continuation of the lease when there had been a com-plete cessation of production until some indefinite time in the future when thelessee unilaterally decided that a resumption of production was economic due torecord-high prices. This was not an interruption or suspension to trigger the pro-viso. The trial judge did not err in reading into the lease the requirement that themarket be economic, but there was no doubt that a profitable market existed.Producing from this particular well was not profitable, not because of marketfactors, but because of its low flow rates. The trial judge erred in failing to can-vass this issue of the well’s capability for economic production.

Pursuant to precedent, the measure of damages should be all the benefits fromproduction received by the defendants after the date of writ of summons on theleases, which meant the net revenue received after deducting certain expensesincurred in obtaining the production and rendering it marketable. The figureswould be based on the parties’ agreement as to quantum of revenues receivedand the expenses incurred. In the absence of any steps by the plaintiffs to ex-clude them and in view of their long mutually-beneficial relationship, the de-fendants were not trespassers after the cessation of production. Once served withthe notice to vacate, though, they were not innocent tortfeasors and so the plain-tiffs should be awarded the net benefits of production from then on. The disputeover whether J Ltd. or the non-parties were the lessors was no reason to declineto rule on the leases’ validity. As the leased lands were pooled for production,all the leases terminated for lack of production if any did, and the declaration ofinvalidity must apply to all the leases. Resolution of the non-parties’ litigationwould simply determine to whom the defendants must account. The defendant ELtd. held an overriding royalty, carved out of the lessees’ working interest. ELtd. could not be absolved from accounting for the royalty share of production itwrongfully received from the defendants’ production after the issuance of theplaintiffs’ statement of claim and notice to vacate. Either the defendant who de-ducted E Ltd.’s royalty in the parties’ agreed financial statement from its income


was not entitled to that deduction or E Ltd. was independently liable to theplaintiffs for the royalties it received.

The trial judge’s expression of her concerns about the top lessee’s role in thislitigation did not undermine her finding that there was no champerty. The toplessee had a legitimate commercial interest in obtaining a declaration of theleases’ invalidity of the leases so that it could enjoy the granted property inter-est. The top lessee suffered a loss from having been deprived of its role as lesseeand of the fruits of production by the defendants’ continued production. Whilethe top lessee did not have a separate right of action for damages, it was notchampertous for it to share in any recovery.

Cases considered by Patricia Rowbotham J.A.:

Alberta Treasury Branches v. Ghermezian (2000), 2000 ABCA 228, 2000CarswellAlta 871, [2000] 11 W.W.R. 470, 266 A.R. 170, 228 W.A.C. 170,84 Alta. L.R. (3d) 229, [2000] A.J. No. 963 (Alta. C.A.) — considered

Anderson v. Bell Mobility Inc. (2015), 2015 NWTCA 3, 2015 CarswellNWT 3,[2015] 2 W.W.R. 215, 379 D.L.R. (4th) 682, [2015] N.W.T.J. No. 1, 37B.L.R. (5th) 1, 593 A.R. 79, 637 W.A.C. 79 (N.W.T. C.A.) — referred to

Andrews v. Grand & Toy Alberta Ltd. (1978), [1978] 2 S.C.R. 229, 3 C.C.L.T.225, 83 D.L.R. (3d) 452, 19 N.R. 50, [1978] 1 W.W.R. 577, 8 A.R. 182,1978 CarswellAlta 214, 1978 CarswellAlta 295, [1978] S.C.J. No. 6(S.C.C.) — referred to

Atlantic Paper Stock Ltd. v. St. Anne-Nackawic Pulp & Paper Co. (1975),[1976] 1 S.C.R. 580, 4 N.R. 539, 56 D.L.R. (3d) 409, 10 N.B.R. (2d) 513,1975 CarswellNB 26, 1975 CarswellNB 26F (S.C.C.) — considered

BG Checo International Ltd. v. British Columbia Hydro & Power Authority(1993), [1993] 2 W.W.R. 321, [1993] 1 S.C.R. 12, 147 N.R. 81, 75 B.C.L.R.(2d) 145, 99 D.L.R. (4th) 577, 20 B.C.A.C. 241, 35 W.A.C. 241, 14C.C.L.T. (2d) 233, 5 C.L.R. (2d) 173, 1993 CarswellBC 10, 1993 Car-swellBC 1254, [1993] S.C.J. No. 1, EYB 1993-67096 (S.C.C.) — referred to

Bank of America Canada v. Mutual Trust Co. (2002), 2002 SCC 43, 2002 Cars-wellOnt 1114, 2002 CarswellOnt 1115, 211 D.L.R. (4th) 385, 49 R.P.R. (3d)1, 287 N.R. 171, [2002] S.C.J. No. 44, 159 O.A.C. 1, [2002] 2 S.C.R. 601,REJB 2002-30907, 2002 CSC 43 (S.C.C.) — referred to

Bedard (Next Friend of) v. Martyn (2010), 2010 ABCA 3, 2010 CarswellAlta 1,[2010] 3 W.W.R. 441, 17 Alta. L.R. (5th) 225, 81 C.P.C. (6th) 213, (subnom. Bedard v. Martyn) 469 A.R. 322, (sub nom. Bedard v. Martyn) 470W.A.C. 322, 316 D.L.R. (4th) 181 (Alta. C.A.) — referred to

Bell v. Tilden Car Rental Inc. (1996), 44 Alta. L.R. (3d) 152, [1997] 1 W.W.R.356, 1996 CarswellAlta 815, [1996] A.J. No. 892, 1996 ABCA 318 (Alta.C.A.) — referred to


Blair Estate Ltd. v. Altana Exploration Co. (1987), [1987] A.J. No. 554, 1987CarswellAlta 724, 53 Alta. L.R. (2d) 419 (note), 1987 ABCA 123 (Alta.C.A.) — considered

Bowen Contracting Ltd. v. B.C. Log Spill Recovery Co-operative Assn. (2009),2009 BCCA 457, 2009 CarswellBC 2846, 69 C.C.L.T. (3d) 171, 99B.C.L.R. (4th) 59, [2010] 3 W.W.R. 63, 277 B.C.A.C. 128, 469 W.A.C. 128,313 D.L.R. (4th) 498 (B.C. C.A.) — referred to

Bram Enterprises Ltd. v. A.I. Enterprises Ltd. (2014), 2014 SCC 12, 2014 Car-swellNB 17, 2014 CarswellNB 18, 366 D.L.R. (4th) 573, 2014 CSC 12, 453N.R. 273, 48 C.P.C. (7th) 227, 1079 A.P.R. 1, 416 N.B.R. (2d) 1, 21 B.L.R.(5th) 173, (sub nom. A.I. Enterprises Ltd. v. Bram Enterprises Ltd.) [2014] 1S.C.R. 177, [2014] S.C.J. No. 12, 7 C.C.L.T. (4th) 1 (S.C.C.) — followed

Canada-Cities Service Petroleum Corp. v. Kininmonth (1963), 44 W.W.R. 392,1963 CarswellAlta 63, [1963] A.J. No. 112, 42 D.L.R. (2d) 56 (Alta.C.A.) — referred to

Canada-Cities Service Petroleum Corp. v. Kininmonth (1964), [1964] S.C.R.439, 47 W.W.R. 437, 45 D.L.R. (2d) 36, 1964 CarswellAlta 31 (S.C.C.) —referred to

Canadian Natural Resources Ltd. v. Jensen Resources Ltd. (2013), 2013 ABCA399, 2013 CarswellAlta 2325, [2014] 4 W.W.R. 213, 91 Alta. L.R. (5th)310, 20 B.L.R. (5th) 173, 566 A.R. 76, 597 W.A.C. 76 (Alta. C.A.) —considered

Canadian Superior Oil of California Ltd. v. Kanstrup (1964), [1965] S.C.R. 92,47 D.L.R. (2d) 1, 49 W.W.R. 257, 1964 CarswellAlta 57 (S.C.C.) — re-ferred to

Credit Suisse Canada v. 1133 Yonge Street Holdings Ltd. (1996), 28 O.R. (3d)670, 11 P.P.S.A.C. (2d) 375, 40 C.B.R. (3d) 214, 26 B.L.R. (2d) 282, 1996CarswellOnt 1335, [1996] O.J. No. 1264 (Ont. Gen. Div.) — referred to

Creston Moly Corp. v. Sattva Capital Corp. (2014), 2014 SCC 53, 2014 CSC53, 2014 CarswellBC 2267, 2014 CarswellBC 2268, 373 D.L.R. (4th) 393,59 B.C.L.R. (5th) 1, [2014] S.C.J. No. 53, [2014] 9 W.W.R. 427, 461 N.R.335, 25 B.L.R. (5th) 1, 358 B.C.A.C. 1, 614 W.A.C. 1, (sub nom. SattvaCapital Corp. v. Creston Moly Corp.) [2014] 2 S.C.R. 633 (S.C.C.) —considered

De Beers Canada Inc. v. Ootahpan Co. (2014), 2014 ONCA 723, 2014 Cars-wellOnt 14446 (Ont. C.A.) — referred to

De Montigny c. Brossard (Succession) (2010), 2010 SCC 51, 2010 CarswellQue11312, 2010 CarswellQue 11313, 78 C.C.L.T. (3d) 1, (sub nom. deMontigny v. Brossard (Succession)) 408 N.R. 80, 62 E.T.R. (3d) 161, 325D.L.R. (4th) 577, (sub nom. de Montigny v. Brossard (Succession)) [2010] 3S.C.R. 64, [2010] S.C.J. No. 51 (S.C.C.) — referred to

Duck Lake Feed Processors Ltd. v. Badowsky (1983), 26 Sask. R. 46, 1983 Car-swellSask 243 (Sask. Q.B.) — referred to


Duck Lake Feed Processors Ltd. v. Badowsky (1987), 54 Sask. R. 296, 1987CarswellSask 638 (Sask. C.A.) — referred to

Durish v. White Resource Management Ltd. (1987), 55 Alta. L.R. (2d) 47, 82A.R. 66, 1987 CarswellAlta 208 (Alta. Q.B.) — referred to

Durish v. White Resource Management Ltd. (1988), 63 Alta. L.R. (2d) 265,1988 CarswellAlta 225, [1988] A.J. No. 1162 (Alta. C.A.) — referred to

East Crest Oil Co. v. Strohschein (1952), 4 W.W.R. (N.S.) 553, [1952] 2 D.L.R.432, 1952 CarswellAlta 4, [1952] A.J. No. 47 (Alta. C.A.) — referred to

Freyberg v. Fletcher Challenge Oil & Gas Inc. (2007), 2007 ABQB 353, 2007CarswellAlta 683, [2007] 10 W.W.R. 133, 77 Alta. L.R. (4th) 354, 428 A.R.102 (Alta. Q.B.) — referred to

Freyberg v. Fletcher Challenge Oil & Gas Inc. (2005), 2005 ABCA 46, 2005CarswellAlta 152, 363 A.R. 35, 343 W.A.C. 35, [2005] A.J. No. 108, 42Alta. L.R. (4th) 41, [2005] 10 W.W.R. 87, 252 D.L.R. (4th) 365 (Alta.C.A.) — referred to

Georgian Bluffs (Township) v. Moyer (2012), 2012 ONCA 700, 2012 Carswell-Ont 12805, 2 M.P.L.R. (5th) 213, 298 O.A.C. 121 (Ont. C.A.) — referred to

HSBC Rail (UK) Ltd. v. Network Rail Infrastructure Ltd. (2005), [2006] 1 AllE.R. 343, [2006] W.L.R. 643, [2006] 1 C.L.C. 991, [2005] EWCA Civ 1437,[2006] 1 Lloyd’s Rep. 358 (Eng. C.A.) — considered

Harshenin v. Bayoff (1991), 49 C.P.C. (2d) 55, 1991 CarswellBC 607, [1991]B.C.J. No. 3161 (B.C. S.C.) — referred to

Hill Estate v. Chevron Standard Ltd. (1992), [1993] 2 W.W.R. 545, 83 Man. R.(2d) 58, 36 W.A.C. 58, 8 B.L.R. (2d) 1, 49 E.T.R. 242, 1992 CarswellMan153, [1992] M.J. No. 580, 85 Man. R. (2d) 67, [1992] M.J. No. 665 (Man.C.A.) — considered

Housen v. Nikolaisen (2002), 2002 SCC 33, 2002 CarswellSask 178, 2002 Car-swellSask 179, [2002] S.C.J. No. 31, 286 N.R. 1, 10 C.C.L.T. (3d) 157, 211D.L.R. (4th) 577, [2002] 7 W.W.R. 1, 219 Sask. R. 1, 272 W.A.C. 1, 30M.P.L.R. (3d) 1, [2002] 2 S.C.R. 235, REJB 2002-29758, 2002 CSC 33(S.C.C.) — referred to

Inuit of Nunavut v. Canada (Attorney General) (2014), 2014 NUCA 2, 2014CarswellNun 14, (sub nom. Nunavut Tunngavik Incorporated v. Canada(Attorney General)) [2014] 3 C.N.L.R. 193, [2014] Nu.J. No. 13, (sub nom.Nunavut Tunngavik Inc. v. Canada (Attorney General)) 580 A.R. 75, (subnom. Nunavut Tunngavik Inc. v. Canada (Attorney General)) 620 W.A.C. 75(Nun. C.A.) — referred to

James H. Meek Trust v. San Juan Resources Inc. (2005), 2005 ABCA 448, 2005CarswellAlta 1880, 52 Alta. L.R. (4th) 1, 376 A.R. 202, 360 W.A.C. 202,[2005] A.J. No. 1754, 52 Alta. L.R. (4th) 2 (Alta. C.A.) — referred to

Jones v. Llanrwst Urban District Council (1910), 1 Ch. 393, [1908-10] All E.R.Rep. 922, 75 J.P. 68, 80 L.J. Ch. 145 (Eng. Ch. Div.) — referred to


Kassburg v. Sun Life Assurance Co. of Canada (2014), 2014 ONCA 922, 2014CarswellOnt 18278, [2014] O.J. No. 6222, 379 D.L.R. (4th) 665, 2014C.E.B. & P.G.R. 8112 (headnote only), 124 O.R. (3d) 171, 328 O.A.C. 244,43 C.C.L.I. (5th) 1 (Ont. C.A.) — referred to

Laasch v. Turenne (2012), 2012 ABCA 32, 2012 CarswellAlta 177, 14 C.P.C.(7th) 349, 56 Alta. L.R. (5th) 53, 347 D.L.R. (4th) 514, 522 A.R. 168, 544W.A.C. 168 (Alta. C.A.) — referred to

Labbee v. Peters (1999), 1999 CarswellAlta 759, 237 A.R. 382, 197 W.A.C.382, 45 M.V.R. (3d) 44, [1999] A.J. No. 939, 1999 ABCA 246 (Alta.C.A.) — considered

Mayfair Property Co. v. Johnston (1894), [1894] 1 Ch. 508 (Eng. Ch. Div.) —referred to

Montreal Trust Co. v. Williston Wildcatters Corp. (2001), 2001 SKQB 360,2001 CarswellSask 729, [2001] S.J. No. 636 (Sask. Q.B.) — referred to

Montreal Trust Co. v. Williston Wildcatters Corp. (2002), 2002 SKCA 91, 2002CarswellSask 476, [2002] 10 W.W.R. 633, 223 Sask. R. 276, 277 W.A.C.276, [2002] S.J. No. 431 (Sask. C.A.) — referred to

Montreal Trust Co. v. Williston Wildcatters Corp. (2004), 2004 SKCA 116,2004 CarswellSask 583, 243 D.L.R. (4th) 317, 23 R.P.R. (4th) 106, 26C.C.L.T. (3d) 1, [2005] 4 W.W.R. 20, (sub nom. Montreal Trust Co. v.T.D.L. Petroleums Inc.) 254 Sask. R. 38, (sub nom. Montreal Trust Co. v.T.D.L. Petroleums Inc.) 336 W.A.C. 38, [2004] S.J. No. 541 (Sask. C.A.) —considered

Nova, an Alberta Corp. v. Guelph Engineering Co. (1989), 70 Alta. L.R. (2d)97, 100 A.R. 241, 1989 CarswellAlta 157, [1989] A.J. No. 951, 1989 ABCA253 (Alta. C.A.) — referred to

OMERS Energy Inc. v. Alberta (Energy Resources Conservation Board) (2011),2011 ABCA 251, 2011 CarswellAlta 1512, 340 D.L.R. (4th) 443, [2012] 4W.W.R. 88, 54 Alta. L.R. (5th) 215, 513 A.R. 292, 530 W.A.C. 292 (Alta.C.A.) — followed

P. Burns Resources Ltd. v. Locke, Stock & Barrel Co. (2014), 2014 ABCA 40,2014 CarswellAlta 137 (Alta. C.A.) — referred to

Passburg Petroleums Ltd. v. Landstrom Developments Ltd. (1984), 30 Alta. L.R.(2d) 379, [1984] 4 W.W.R. 14, 53 A.R. 96, 8 D.L.R. (4th) 363, 1984CarswellAlta 36 (Alta. C.A.) — considered

Pedherney v. Jensen (2011), 2011 ABCA 9, 2011 CarswellAlta 12, 499 A.R.216, 514 W.A.C. 216 (Alta. C.A.) — referred to

R. v. Mohan (1994), 29 C.R. (4th) 243, 71 O.A.C. 241, 166 N.R. 245, 89 C.C.C.(3d) 402, 114 D.L.R. (4th) 419, [1994] 2 S.C.R. 9, 18 O.R. (3d) 160 (note),1994 CarswellOnt 66, 1994 CarswellOnt 1155, [1994] S.C.J. No. 36, EYB1994-67655 (S.C.C.) — referred to

Ratych v. Bloomer (1990), 30 C.C.E.L. 161, [1990] 1 S.C.R. 940, 69 D.L.R.(4th) 25, 107 N.R. 335, 39 O.A.C. 103, 3 C.C.L.T. (2d) 1, 1990 CarswellOnt


644, 73 O.R. (2d) 448 (note), [1990] R.R.A. 651, 1990 CarswellOnt 995,[1990] S.C.J. No. 37, EYB 1990-67539 (S.C.C.) — referred to

Salna v. Awad (2011), 2011 ABCA 20, 2011 CarswellAlta 48, 330 D.L.R. (4th)214, 42 Alta. L.R. (5th) 158, 499 A.R. 264, 514 W.A.C. 264, 89 B.L.R. (4th)32, 499 N.R. 264, [2011] A.J. No. 45 (Alta. C.A.) — referred to

Signalta Resources Ltd. v. Dominion Exploration Canada Ltd. (2007), 2007ABQB 636, 2007 CarswellAlta 1476 (Alta. Q.B.) — referred to

Signalta Resources Ltd. v. Dominion Exploration Canada Ltd. (2008), 2008ABCA 437, 2008 CarswellAlta 2045 (Alta. C.A.) — referred to

Stewart Estate v. TAQA North Ltd. (2012), 2012 ABQB 87, 2012 CarswellAlta420, [2012] A.J. No. 188, 77 Alta. L.R. (5th) 208 (Alta. Q.B.) — referred to

Stewart Estate v. TAQA North Ltd. (2013), 2013 ABQB 691, 2013 CarswellAlta2414, 92 Alta. L.R. (5th) 141, 576 A.R. 57 (Alta. Q.B.) — referred to

Trident Holdings Ltd. v. Danand Investments Ltd. (1988), 25 O.A.C. 378, 30E.T.R. 67, 39 B.L.R. 296, 64 O.R. (2d) 65, 49 D.L.R. (4th) 1, 1988 Cars-wellOnt 112, [1988] O.J. No. 355 (Ont. C.A.) — referred to

Vallieres v. Vozniak (2014), 2014 ABCA 290, 2014 CarswellAlta 1565, [2014]A.J. No. 964, 46 R.P.R. (5th) 176, 377 D.L.R. (4th) 80, 5 Alta. L.R. (6th) 28,[2015] 1 W.W.R. 662, 580 A.R. 326, 620 W.A.C. 326, 33 B.L.R. (5th) 215(Alta. C.A.) — considered

Vorvis v. Insurance Corp. of British Columbia (1989), 25 C.C.E.L. 81, [1989] 1S.C.R. 1085, [1989] 4 W.W.R. 218, 58 D.L.R. (4th) 193, 94 N.R. 321, 36B.C.L.R. (2d) 273, 42 B.L.R. 111, 90 C.L.L.C. 14,035, 1989 CarswellBC76, 1989 CarswellBC 704, [1989] S.C.J. No. 46, EYB 1989-66980(S.C.C.) — referred to

Warman International Ltd. v. Dwyer (1995), 128 A.L.R. 201, 16 Q.L. 147, 15Q.L. 206, 69 A.L.J.R. 362, 69 A.L.J. 782, 182 C.L.R. 544 (AustraliaH.C.) — referred to

Weyburn Security Co. v. Sohio Petroleum Co. (1969), 69 W.W.R. 680, 7 D.L.R.(3d) 277, 1969 CarswellSask 59 (Sask. C.A.) — referred to

Weyburn Security Co. v. Sohio Petroleum Co. (1970), [1971] S.C.R. 81, 74W.W.R. 626, 13 D.L.R. (3d) 340, 1970 CarswellSask 101, 1970 Carswell-Sask 122 (S.C.C.) — followed

Wheatland Farming Co. v. Stewart Estate (2014), 2014 ABCA 296, 2014CarswellAlta 1586 (Alta. C.A.) — referred to

Whiten v. Pilot Insurance Co. (2002), 2002 SCC 18, 2002 CarswellOnt 537,2002 CarswellOnt 538, [2002] I.L.R. I-4048, 20 B.L.R. (3d) 165, [2002]S.C.J. No. 19, 209 D.L.R. (4th) 257, 283 N.R. 1, 35 C.C.L.I. (3d) 1, 156O.A.C. 201, [2002] 1 S.C.R. 595, REJB 2002-28036, 58 O.R. (3d) 480(note), 2002 CSC 18 (S.C.C.) — referred to

Williams v. Mulgrave (Town) (2000), 2000 NSCA 24, 2000 CarswellNS 40, 48C.C.L.T. (2d) 220, 183 N.S.R. (2d) 147, 568 A.P.R. 147, [2000] N.S.J. No.38 (N.S. C.A.) — considered


340909 Ontario Ltd. v. Huron Steel Products (Windsor) Ltd. (1992), 10 O.R.(3d) 95, 9 O.R. (3d) 305, 1992 CarswellOnt 1705, 9 O.R. (3d) 305 (note)(Ont. C.A.) — considered

3464920 Canada Inc. v. Strother (2007), 2007 SCC 24, 2007 CarswellBC 1201,2007 CarswellBC 1202, (sub nom. Strother v. 3464920 Canada Inc.) 2007D.T.C. 5273 (Eng.), (sub nom. Strother v. 3464920 Canada Inc.) 2007D.T.C. 5301 (Fr.), [2007] 7 W.W.R. 381, [2007] 4 C.T.C. 172, 29 B.L.R.(4th) 175, [2007] S.C.J. No. 24, 67 B.C.L.R. (4th) 1, 48 C.C.L.T. (3d) 1, 363N.R. 123, 241 B.C.A.C. 108, 399 W.A.C. 108, 281 D.L.R. (4th) 640, [2007]2 S.C.R. 177 (S.C.C.) — referred to

Cases considered by J.D. Bruce McDonald J.A.:

AMT Finance Inc. v. Saujani (2014), 2014 ABCA 385, 2014 CarswellAlta 2097(Alta. C.A.) — referred to

ATA v. Buffalo Trail Public Schools Regional Division No. 29 (2014), 2014ABCA 407, 2014 CarswellAlta 2164, 13 Alta. L.R. (6th) 189, (sub nom.Buffalo Trail PS v. ATA) 2015 C.L.L.C. 220-019, [2014] A.J. No. 1337, (subnom. Alberta Teachers’ Association v. Buffalo Trail Public SchoolsRegional Division No. 29) 588 A.R. 179, (sub nom. Alberta Teachers’Association v. Buffalo Trail Public Schools Regional Division No. 29) 626W.A.C. 179 (Alta. C.A.) — referred to

Access Mortgage Corp. (2004) Ltd. v. Arres Capital Inc. (2014), 2014 ABCA280, 2014 CarswellAlta 1662, [2014] A.J. No. 1032, 584 A.R. 68, 623W.A.C. 68 (Alta. C.A.) — referred to

Bhasin v. Hrynew (2014), 2014 SCC 71, 2014 CSC 71, 2014 CarswellAlta 2046,2014 CarswellAlta 2047, [2014] 11 W.W.R. 641, 27 B.L.R. (5th) 1, 4 Alta.L.R. (6th) 219, 464 N.R. 254, 379 D.L.R. (4th) 385, 20 C.C.E.L. (4th) 1,[2014] S.C.J. No. 71, [2014] 3 S.C.R. 494, 584 A.R. 6, 623 W.A.C. 6(S.C.C.) — followed

Bighorn No. 8 (Municipal District) v. Bow Valley Waste Management Commis-sion (2015), 2015 ABCA 127, 2015 CarswellAlta 575, 90 C.E.L.R. (3d) 203,13 Alta. L.R. (6th) 342 (Alta. C.A.) — referred to

Burch v. Intact Insurance Co. (2015), 2015 ABCA 229, 2015 CarswellAlta1218, 25 C.B.R. (6th) 302, [2015] I.L.R. I-5762 (Alta. C.A.) — referred to

CDM Direct Mail v. Centre for Immigration Policy Reform (2015), 2015 ABCA168, 2015 CarswellAlta 857 (Alta. C.A.) — referred to

Canada (Attorney General) v. Alexis (2015), 2015 ABCA 132, 2015 Carswell-Alta 619, (sub nom. Fontaine v. Canada (Attorney General)) [2015] 3C.N.L.R. 25 (Alta. C.A.) — referred to

Clarke v. Syncrude Canada Ltd. (2014), 2014 ABCA 362, 2014 CarswellAlta1984, 5 Alta. L.R. (6th) 282, 19 C.C.E.L. (4th) 97, 2015 C.L.L.C. 210-009,584 A.R. 332, 623 W.A.C. 332, 15 C.C.P.B. (2nd) 49 (Alta. C.A.) — re-ferred to


Creston Moly Corp. v. Sattva Capital Corp. (2014), 2014 SCC 53, 2014 CSC53, 2014 CarswellBC 2267, 2014 CarswellBC 2268, 373 D.L.R. (4th) 393,59 B.C.L.R. (5th) 1, [2014] S.C.J. No. 53, [2014] 9 W.W.R. 427, 461 N.R.335, 25 B.L.R. (5th) 1, 358 B.C.A.C. 1, 614 W.A.C. 1, (sub nom. SattvaCapital Corp. v. Creston Moly Corp.) [2014] 2 S.C.R. 633 (S.C.C.) — re-ferred to

Deagle v. 1678452 Alberta Ltd. (2014), 2014 ABCA 406, 2014 CarswellAlta2169, 48 R.P.R. (5th) 38, 7 Alta. L.R. (6th) 1, [2014] A.J. No. 1334, 588A.R. 129, 626 W.A.C. 129 (Alta. C.A.) — referred to

Echino v. Munro (2014), 2014 ABCA 422, 2014 CarswellAlta 2223, (sub nom.Munro (Bankrupt), Re) 588 A.R. 211, (sub nom. Munro (Bankrupt), Re) 626W.A.C. 211 (Alta. C.A.) — referred to

Equitable Trust Co. v. Lougheed Block Inc. (2014), 2014 ABCA 427, 2014CarswellAlta 2280, 49 R.P.R. (5th) 19, 7 Alta. L.R. (6th) 285, [2015] 3W.W.R. 139, 3 P.P.S.A.C. (4th) 69, 588 A.R. 258, 626 W.A.C. 258 (Alta.C.A.) — referred to

Freyberg v. Fletcher Challenge Oil & Gas Inc. (2005), 2005 ABCA 46, 2005CarswellAlta 152, 363 A.R. 35, 343 W.A.C. 35, [2005] A.J. No. 108, 42Alta. L.R. (4th) 41, [2005] 10 W.W.R. 87, 252 D.L.R. (4th) 365 (Alta.C.A.) — considered

Gibbens v. Co-operators Life Insurance Co. (2009), 2009 SCC 59, 2009 Car-swellBC 3402, 2009 CarswellBC 3403, 79 C.C.L.I. (4th) 1, [2010] 1W.W.R. 575, 99 B.C.L.R. (4th) 1, (sub nom. Co-operators Life InsuranceCo. v. Gibbens) [2010] I.L.R. I-4928, (sub nom. Co-operators LifeInsurance Company v. Gibbens) 2009 C.E.B. & P.G.R. 8370 (headnoteonly), 396 N.R. 165, (sub nom. Co-operators Life Insurance Co. v. Gibbens)[2009] 3 S.C.R. 605, 278 B.C.A.C. 283, 471 W.A.C. 283, 313 D.L.R. (4th)513 (S.C.C.) — considered

HOOPP Realty Inc. v. Guarantee Co. of North America (2015), 2015 ABCA336, 2015 CarswellAlta 2026 (Alta. C.A.) — referred to

Iona Contractors Ltd. (Receiver of) v. Guarantee Co. of North America (2015),2015 ABCA 240, 2015 CarswellAlta 1286, 26 C.B.R. (6th) 173, 387 D.L.R.(4th) 67, [2015] 9 W.W.R. 469, 19 Alta. L.R. (6th) 87, 44 C.L.R. (4th) 165(Alta. C.A.) — referred to

Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co. (2015), 2015ABCA 121, 2015 CarswellAlta 511, [2015] I.L.R. I-5714, [2015] A.J. No.338, [2015] 8 W.W.R. 466, 16 Alta. L.R. (6th) 397, 386 D.L.R. (4th) 482, 47C.C.L.I. (5th) 218 (Alta. C.A.) — considered

Modry v. Alberta Health Services (2015), 2015 ABCA 265, 2015 CarswellAlta1530, 388 D.L.R. (4th) 352, [2015] 11 W.W.R. 81 (Alta. C.A.) — referred to

Nafie v. Badawy (2015), 2015 ABCA 36, 2015 CarswellAlta 106, 381 D.L.R.(4th) 208, [2015] 4 W.W.R. 498, 11 Alta. L.R. (6th) 1, 56 R.F.L. (7th) 28(Alta. C.A.) — referred to


OMERS Energy Inc. v. Alberta (Energy Resources Conservation Board) (2011),2011 ABCA 251, 2011 CarswellAlta 1512, 340 D.L.R. (4th) 443, [2012] 4W.W.R. 88, 54 Alta. L.R. (5th) 215, 513 A.R. 292, 530 W.A.C. 292 (Alta.C.A.) — considered

Tien Lung Taekwon-Do Club v. Lloyd’s Underwriters (2015), 2015 ABCA 46,2015 CarswellAlta 143, [2015] I.L.R. I-5698 (Alta. C.A.) — referred to

Vallieres v. Vozniak (2014), 2014 ABCA 290, 2014 CarswellAlta 1565, [2014]A.J. No. 964, 46 R.P.R. (5th) 176, 377 D.L.R. (4th) 80, 5 Alta. L.R. (6th) 28,[2015] 1 W.W.R. 662, 580 A.R. 326, 620 W.A.C. 326, 33 B.L.R. (5th) 215(Alta. C.A.) — referred to

Van Camp v. Laurentian Bank of Canada (2015), 2015 ABCA 83, 2015CarswellAlta 299, 381 D.L.R. (4th) 721, 12 Alta. L.R. (6th) 41, [2015] A.J.No. 212, 38 B.L.R. (5th) 1 (Alta. C.A.) — referred to

Vorvis v. Insurance Corp. of British Columbia (1989), 25 C.C.E.L. 81, [1989] 1S.C.R. 1085, [1989] 4 W.W.R. 218, 58 D.L.R. (4th) 193, 94 N.R. 321, 36B.C.L.R. (2d) 273, 42 B.L.R. 111, 90 C.L.L.C. 14,035, 1989 CarswellBC76, 1989 CarswellBC 704, [1989] S.C.J. No. 46, EYB 1989-66980(S.C.C.) — followed

Weyburn Security Co. v. Sohio Petroleum Co. (1969), 69 W.W.R. 680, 7 D.L.R.(3d) 277, 1969 CarswellSask 59 (Sask. C.A.) — considered

Whiten v. Pilot Insurance Co. (2002), 2002 SCC 18, 2002 CarswellOnt 537,2002 CarswellOnt 538, [2002] I.L.R. I-4048, 20 B.L.R. (3d) 165, [2002]S.C.J. No. 19, 209 D.L.R. (4th) 257, 283 N.R. 1, 35 C.C.L.I. (3d) 1, 156O.A.C. 201, [2002] 1 S.C.R. 595, REJB 2002-28036, 58 O.R. (3d) 480(note), 2002 CSC 18 (S.C.C.) — followed

911502 Alberta Ltd. v. Elephant Enterprises Inc. (2014), 2014 ABCA 437, 2014CarswellAlta 2293, 588 A.R. 296, 626 W.A.C. 296 (Alta. C.A.) — referredto

Cases considered by Brian O’Ferrall J.A.:

Fredrikson v. Insurance Corp. of British Columbia (1986), 3 B.C.L.R. (2d) 145,(sub nom. Fredrickson v. Insurance Corp. of British Columbia) 28 D.L.R.(4th) 414, (sub nom. Fredrickson v. Insurance Corp. of British Columbia) 17C.C.L.I. 194, (sub nom. Fredrickson v. Insurance Corp. of British Colum-bia) [1986] 4 W.W.R. 504, [1986] I.L.R. 1-2100, 1986 CarswellBC 131,[1986] B.C.J. No. 366 (B.C. C.A.) — followed

Fredrikson v. Insurance Corp. of British Columbia (1988), [1988] 6 W.W.R.633, (sub nom. Fredrickson v. Insurance Corp. of British Columbia) 49D.L.R. (4th) 160, (sub nom. Fredrickson v. Insurance Corp. of British Co-lumbia) 86 N.R. 48, (sub nom. Fredrickson v. Insurance Corp. of BritishColumbia) 38 C.C.L.I. 161, [1988] I.L.R. 1-2371, [1988] 1 S.C.R. 1089,1988 CarswellBC 759, 1988 CarswellBC 697, EYB 1988-67015, [1988]S.C.J. No. 54, [1988] A.C.S. No. 54 (S.C.C.) — referred to


Freyberg v. Fletcher Challenge Oil & Gas Inc. (2007), 2007 ABQB 353, 2007CarswellAlta 683, [2007] 10 W.W.R. 133, 77 Alta. L.R. (4th) 354, 428 A.R.102 (Alta. Q.B.) — considered

Freyberg v. Fletcher Challenge Oil & Gas Inc. (2005), 2005 ABCA 46, 2005CarswellAlta 152, 363 A.R. 35, 343 W.A.C. 35, [2005] A.J. No. 108, 42Alta. L.R. (4th) 41, [2005] 10 W.W.R. 87, 252 D.L.R. (4th) 365 (Alta.C.A.) — referred to

Montreal Trust Co. v. Williston Wildcatters Corp. (2004), 2004 SKCA 116,2004 CarswellSask 583, 243 D.L.R. (4th) 317, 23 R.P.R. (4th) 106, 26C.C.L.T. (3d) 1, [2005] 4 W.W.R. 20, (sub nom. Montreal Trust Co. v.T.D.L. Petroleums Inc.) 254 Sask. R. 38, (sub nom. Montreal Trust Co. v.T.D.L. Petroleums Inc.) 336 W.A.C. 38, [2004] S.J. No. 541 (Sask. C.A.) —considered

OMERS Energy Inc. v. Alberta (Energy Resources Conservation Board) (2011),2011 ABCA 251, 2011 CarswellAlta 1512, 340 D.L.R. (4th) 443, [2012] 4W.W.R. 88, 54 Alta. L.R. (5th) 215, 513 A.R. 292, 530 W.A.C. 292 (Alta.C.A.) — considered

Silverado Oilfield Ventures Ltd. v. Davidson (2014), 2014 ABQB 218, 2014CarswellAlta 637, [2014] 6 W.W.R. 295, 95 Alta. L.R. (5th) 241, [2014]A.J. No. 407, 587 A.R. 200 (Alta. Q.B.) — considered

Stewart Estate v. TAQA North Ltd. (2013), 2013 ABQB 691, 2013 CarswellAlta2414, 92 Alta. L.R. (5th) 141, 576 A.R. 57 (Alta. Q.B.) — referred to

Weyburn Security Co. v. Sohio Petroleum Co. (1969), 69 W.W.R. 680, 7 D.L.R.(3d) 277, 1969 CarswellSask 59 (Sask. C.A.) — referred to

Weyburn Security Co. v. Sohio Petroleum Co. (1970), [1971] S.C.R. 81, 74W.W.R. 626, 13 D.L.R. (3d) 340, 1970 CarswellSask 101, 1970 Carswell-Sask 122 (S.C.C.) — considered

1773907 Alberta Ltd. v. Davidson (2015), 2015 ABCA 150, 2015 CarswellAlta752 (Alta. C.A.) — considered

Statutes considered by Patricia Rowbotham J.A.:

Limitations Act, R.S.A. 2000, c. L-12Generally — referred tos. 3 — considereds. 3(1)(a) — considereds. 3(1)(b) — considered

Statutes considered by J.D. Bruce McDonald J.A.:

Arbitration Act, R.S.B.C. 1996, c. 55Generally — referred to


Rules considered by Patricia Rowbotham J.A.:

Alberta Rules of Court, Alta. Reg. 124/2010Generally — referred to

APPEAL by plaintiffs and CROSS-APPEAL by defendants from judgment re-ported at Stewart Estate v. TAQA North Ltd. (2013), 2013 ABQB 691, 2013CarswellAlta 2414, 92 Alta. L.R. (5th) 141, 576 A.R. 57 (Alta. Q.B.), dis-missing plaintiffs’ action seeking declaration that oil and gas leases had termi-nated and financial relief and dismissing defendants’ action against plaintiff toplessee for champerty.

P.T. Linder, Q.C., S.B.G. Matthews, for Appellants / Cross-RespondentsD.R. Percy, Q.C., for RespondentsA.D. Grosse, A.E. Teasdale, for Respondent, Esprit Exploration Ltd.R.C. Steele, for Respondent, Bonavista Energy CorporationR.F. Steele, P.G. Chiswell, for Respondents / Cross-Appellants, Nexen Inc and

ExxonMobil Canada LtdC.A. Crang, for Respondent / Cross-Appellant, Costal Resources Limited

Patricia Rowbotham J.A.:

Executive Summary1 There are three judgments in this appeal and we summarize our con-

clusions as follows:

a. The appeal is allowed on the core issue of whether the oil and gasleases terminated.

i. O’Ferrall JA (McDonald JA concurring) finds that theleases terminated in 1995 and concludes that there is a suf-ficient basis for finding that all five leases terminated.

ii. Rowbotham JA concludes that the leases terminated in Jan-uary 2000, and would uphold the trial judge’s provisionalconclusion that no declaration of lease validity can be madeon two of the five leases in the absence of all the partiesvying for the fee simple title to those quarter sections (theSnell/Wheatland issue).

b. The judgments differ on the standard of appellate review of theinterpretation of the leases:

i. McDonald JA (O’Ferrall JA concurring) would review forcorrectness.

ii. Rowbotham JA finds the standard to be reasonableness.

Stewart Estate v. 1088294 Alberta Ltd. Patricia Rowbotham J.A. 19

c. As to the date from which the appellants are entitled to a remedy:

i. Rowbotham JA (McDonald JA concurring) finds it is Au-gust 9, 2003, two years prior to the issuance of the state-ment of claim.

ii. O’Ferrall JA concludes that the appellants are entitled to aremedy from the date it was made clear to the respondentsthat the appellants no longer consented to continued pro-duction in accordance with Weyburn Security Co. v. SohioPetroleum Co. (1970), [1971] S.C.R. 81, 13 D.L.R. (3d)340 (S.C.C.), aff’g (1969), 7 D.L.R. (3d) 277 (Sask. C.A.).He finds that date to be October 1, 2005.

d. As to remedy, we all agree that the so-called ‘royalty and bonus’remedy provisionally applied by the trial judge is inappropriate.

i. Rowbotham JA and O’Ferrall JA direct the respondents todisgorge revenues less production, gathering and process-ing, i.e., on a net basis in accordance with the January 6,2012 “Agreed Statement of Facts Pertaining to Revenues,Expenses and Royalties” (the so-called “mild rule”).

ii. McDonald JA would impose disgorgement of the respon-dent’s gross revenues (the so-called-harsh rule).

e. Justice Rowbotham and Justice McDonald agree that the IrwinGroup gave leave and licence from December 5, 2005 to January12, 2007.

f. We dismiss the appeal from the decision regarding 108’s indepen-dent claim for damages.

g. As regards the liability of Esprit to disgorge the royalties it earnedand that Esprit must account for the royalties it actually received:

i. O’Ferrall JA would allow the appeal (McDonald JAconcurring)

ii. Rowbotham JA would dismiss the appeal.

h. The cross appeal (champerty and maintenance) is dismissed forthe reasons of O’Ferrall JA, Rowbotham JA and McDonald JAconcurring.

2 Accordingly, the appeal is allowed on the main issue, the terminationof the leases. If the parties are unable to agree on costs, they may makewritten submissions of a maximum of ten pages. The appellants should


do so within 60 days of the date of this judgment and the respondentswithin 15 days after the appellants’ submissions.

I. Introduction3 This appeal is about the interpretation of five freehold petroleum and

natural gas leases entered into in the 1960s. At its heart is the interpreta-tion of the habendum clause which, together with its provisos, establishesthe conditions under which a lease continues in force after its primaryterm once production has been suspended.

4 The appellants submit that the leases terminated sometime between1995 and 2001. The respondents’ position is that the third proviso to thehabendum clause operates to continue the leases. Central to the issue ofthe leases’ validity is the 7-25 Well. It was shut in from 1995 until early2001 when production resumed. If production ceased during the shut-inperiod because of a “lack of or intermittent market” or “any cause what-soever beyond the lessee’s reasonable control”, the leases continue. Ifnot, the leases terminated according to their terms and the respondentshave been trespassing on the lessors’ reversionary property rights sincethen. The nature and measure of the remedy, and which of the appellantsare entitled to a remedy, is also at issue.

5 The appellants argued at trial that the 7-25 Well was shut in becausethe operator’s internal profitability goals were not met, the respondentsheld the leases for purely speculative purposes and the leases cannot beread to justify their continuation on this basis. The respondents submittedthat the 7-25 Well was shut in because production was uneconomical andtherefore in accordance with recent jurisprudence interpreting the phrase“lack of or an intermittent market”.

6 The appeal also engages issues of limitations; the effects of allegedassignments of two of the leases and the impact this has on the standingof those lessor appellants; the liability of a party which is no longer alessee but has a caveat for a gross overriding royalty interest; whetherone lessee was given leave and licence by certain lessors to continue toproduce; and (in cross-appeal) whether the action of two of the appel-lants is champertous or an interference with contractual relations.

7 I would allow the appeal in part. I conclude that production becameobjectively economical by January 1, 2000 when the industry’s hurdlerates were met, after which the lessees had 90 days to resume production.Their failure to do so terminated the leases. However, the Limitations


Act, RSA 2000, c L-12 is a complete defence to claims that arose beforeAugust 9, 2003, two years before the statement of claim was filed.

8 I agree with the trial judge that the lessors of the two Scurry leasesare not entitled to a declaration that those leases terminated because in-terests in those properties had arguably been assigned to other parties(Snell Farms Ltd and Wheatland Farming Company Ltd). Neither was aparty at trial and neither was granted status on appeal. Consequently, theScurry lessors are not entitled to a remedy in these proceedings.

9 I have concluded that the appropriate remedy for all but the Scurrylessors is disgorgement of the lessees’ net profits from production, withsome qualifications. In general terms, the formula for calculating theremedy is revenue less royalties less reasonable expenses.

10 For the reasons expressed by Justice O’Ferrall, I would dismiss thecross-appeal.

II. Facts11 Most of the appellants are families or family holding companies that

are the current registered freehold owners of the lands in Section 25,Township 27, Range 1 West of the 5th Meridian (Section 25). In the1960s the appellants’ parents or grandparents entered into leases with thepredecessors of the respondent companies.

A. The Leases12 There are five leases in issue: the Imperial NW1/4 lease, the Jefferson

SW1/4 lease, the Union NE1/4 lease, the Scurry NE1/4 lease and theScurry SE1/4 lease. There is a pooling agreement (see below). The 7-25Well is on the Scurry SE1/4 lands. Appendix 1 includes a summary (asof December 2011) of the registered owners of the mines and minerals,the lessees and the caveats registered as regards to the original leases.

13 The wording of the five leases differs somewhat but all have a 10-year primary term and habendum clauses which continue the lease solong as there is production. After the primary term, if production ceasesand the lessee recommences working operations within 90 days the leaseremains in force as long as operations continue or production results. Thehabendum clauses contain a “third proviso” providing that if a well is notproducing because of the “lack of or an intermittent market” or a cause“beyond the lessee’s reasonable control”, the period of such non-produc-tion shall not be counted against the lessee. There are three variations ofthe third proviso.


Imperial NW1/4 Lease14 On December 13, 1961 William Murdoch Copley entered into a lease

with Imperial Oil Limited. This is the Imperial NW1/4 lease. The succes-sors of Mr. Copley’s interest are Robert Copley, Karen Nell Copley,Margaret Alice Demers, Mary Jean Biggar and Goldie Alberta Daniel-sen, collectively the Copley Group.

15 Imperial’s interest in this lease was assigned to Canadian 88, whichsubsequently became Esprit Exploration Ltd. and ultimately PengrowthEnergy Corporation. When Esprit disposed of its interest to Triquest En-ergy Corp (now Bonavista Energy Corporation) it reserved to itself agross overriding royalty interest and registered a caveat against this title,the significance of which is discussed in Part G of my analysis.

Jefferson SW1/4 Lease16 On January 8, 1968 Nellie B. Pole, as lessor, and Jefferson Lake Pet-

rochemicals of Canada Ltd, as lessee, executed the Jefferson SW1/4lease. The current registered owners of Ms. Pole’s interest are the appel-lants Danny G. Oneil (as executor of the estate of his mother Mabel B.Oneil), the Bowen Family Properties Ltd and Ronald B. Pole, collec-tively the Oneil Group. Nexen Inc is the ultimate successor to JeffersonLake. Nexen and ExxonMobil Canada Ltd are 50 percent working inter-est owners under the Jefferson SW1/4 lease. ExxonMobil is the succes-sor to Mobil Oil Canada Ltd, a party to the 1968 pooling agreement.

Union NE1/4 Lease17 There are two leases on the NE1/4, one covering the north 716 feet

(43.39 acres) and the other, the balance. The first, the Union NE1/4 lease,was executed on May 9, 1961, between Jean Ella Irwin and the UnionOil Company of California. Ms. Irwin’s successors are Edna Keam,Wilma Marshall and Laurel Lee McLaren, as executrix for Betty BlancheCarter, collectively the Irwin Group. Coastal Resources Limited is thesuccessor to Union under the lease and is a party to the poolingagreement.

Scurry NE1/4 and SE1/4 Leases18 The second lease on the NE1/4, the Scurry NE1/4, covers the balance

of the NE1/4. It was executed on November 30, 1967, between MervilleStewart, as lessor, and Scurry Rainbow Oil Limited, as lessee. Beforetrial, Mr. Stewart’s interests in the mines and minerals, other than coal,


were held one-half by Jerome Development Limited, a family holdingcompany, and the other half by Lynda Calder, James Stewart, CodyStewart and Morgan Stewart, the latter individuals collectively referredto as the Jerome Group. The registered owner of the mines and mineralsat the time of trial was Jerome Development Limited. The successor toScurry Rainbow’s interest is Bonavista. Coastal is successor to a namedparty in the pooling agreement. At one time Triquest Energy Corp had aninterest, see generally paras 34-35 of Stewart Estate v. TAQA North Ltd.,2013 ABQB 691 (Alta. Q.B.) (“reasons”).

19 Complications arising from the interests held by the Jerome Groupand Jerome Development Limited are discussed in Section V, Part B ofmy analysis.

20 On January 7, 1964, Merville Stewart entered into a lease of the pe-troleum and natural gas on the SE1/4. The lessee is also Scurry Rainbow.The 7-25 Well was drilled on the Scurry SE1/4 lease. By a series oftransactions, Bonavista succeeded Scurry Rainbow’s interest in the leaseand became the working interest owner in the natural gas in specifiedformations. TAQA became the working interest owner of the natural gasin formations other than those specified as Bonavista’s.

21 The same complications adverted to in the preceding paragraphs ap-ply to this lease.

B. The 7-25 Well and the Pooling Agreement22 A pooling agreement combined the respondent lessees’ (or their pred-

ecessors’) interests in the production of leased substances from Section25.

23 At the time of the litigation, under the pooling agreement, the respon-dents Nexen Inc, ExxonMobil, Coastal and Bonavista held the workinginterests in Section 25. The respondent, TAQA North Ltd, is successor tominerals in certain zones. From 1968 to 2004, Nexen or a predecessorwas the operator of the pooled interest in Section 25. Since 2004,Bonavista has been the operator.

24 The history and production from the 7-25 Well is central to the issueof the leases’ validity. The trial judgment extensively discusses its his-tory. Therefore only the most essential facts are summarized for the pur-poses of the appeal.

25 On September 17, 1968, the 7-25 Well was drilled into the BasalQuartz (BQ) formation from which it produced sweet gas. In 1980 that


part of the well was shut in. In 1978 the well was drilled into theWabamun (sometimes called Crossfield) formation and began producingsour gas from 1981.

26 In 1995, the 7-25 Well was shut in and production was suspendeduntil 2001. During that time shut in payments, also called annual rentalsor delay rentals (collectively, “rentals”) were paid.

27 In 2001, production of natural gas from the BQ formation recom-menced, and the appellant lessors again received royalties. The 7-25Well was shut in by order of the Court of Queen’s Bench in January2011.

C. 1088924 Alberta Ltd, Freehold Solutions and J. Timothy Bowes28 The involvement of the appellants and cross-respondents J. Timothy

Bowes, Freehold Solutions Inc and 1088294 Alberta Ltd (108) is also anissue. The business of Freehold Solutions includes acting on behalf oflessors with limited experience in oil and gas disputes with corporate les-sees. Mr. Bowes is president of 108 and Freehold Solutions.

29 108 was added as a party in 2009. It was formed by Freehold Solu-tions after Freehold Solutions entered into top lease agreements with theother appellants in 2004 and 2005. Freehold assigned the top leases to108, and 108 executed trust declarations acknowledging that it held thoseinterests in trust for Freehold Solutions.

30 The litigation originated when Danny Oneil (son of one of the regis-tered interest holders under the Jefferson SW1/4 lease) raised concernsabout royalty payments. In August 2003, Mr. Oneil contacted others withleasehold interests. He sought legal advice and in late 2003, the issue ofthe validity of the leases was raised with ExxonMobil and Nexen, whichclaimed the leases were valid.

31 In July 2004, some of the other appellants met with Mr. Bowes. Mr.Bowes said his company would take a top lease if the existing leaseswere invalid but he would not provide a title opinion unless the remain-ing parties with interests in the lands agreed to join in litigation againstthe lessees. In addition to paying royalties, the top lessee would pay legalcosts and split any damages recovered.

32 In November 2004, some of the appellants signed an agreement withFreehold Solutions that, among other terms, attached a top lease effectiveautomatically if the existing lease terminated. Other appellants signedsimilar agreements in 2005.


33 In August 2005, the appellants commenced this action seeking a dec-laration that the leases terminated in 1995 when the 7-25 Well was shutin. They claimed an accounting of profits, restitution, other compensationand damages.

34 Coastal counterclaimed against 108 alleging that its actions werechampertous. Nexen and ExxonMobil commenced similar counterclaimsagainst 108 and Bowes.

III. Trial Decision: Stewart Estate v. TAQA North Ltd., 2013 ABQB691 (Alta. Q.B.)

35 The trial judge found that the third proviso in the leases applied andtherefore the leases did not terminate as a result of lack of production.She dismissed the claims and counterclaims. She gave lengthy reasonswhich will be discussed later under the specific grounds of appeal.

36 There were a number of collateral issues, some of which formgrounds of appeal.

37 The trial judge found that the Jerome Group appellants were notproper parties to seek a declaration that the Scurry leases had terminated.She found that their interest had arguably been assigned to Wheatlandand Snell. The trial judge was not prepared to make a declaration aboutthe validity of the Scurry leases in the absence of Wheatland and Snellbecause they were not parties to the litigation but could be affected bysuch a declaration.

38 The trial judge also held that 108 was not entitled to claim damagesindependently of the appellant lessors, as the top leases would not be-come effective until there had been a determination that the originalleases terminated. However, she found that 108 had standing to makerepresentations on the issue of the leases’ validity.

39 As regards the appellants’ claims for unjust enrichment, trespass andconversion, the trial judge found they were barred by the Limitations Actas the appellants knew or ought to have known that production hadceased shortly after July 1995.

40 The trial judge was not prepared to find that estoppel, laches or acqui-escence barred the lessors’ claims. On the issue of leave and license sheprovisionally concluded that the Irwin Group had given leave and licenseafter they entered into the top leases because they continued to acceptroyalties.


41 The trial judge noted difficulties with the various causes of actionraised by the pleadings. Had she found the leases had terminated, “anenergy company that extracts resources from land owned by anotherwithout a valid lease violates a property right of that person, and a rem-edy must be found”: para 586. Nevertheless, she applied remedial princi-ples associated only with trespass in her provisional damages assessment.

42 She provisionally assessed damages on a royalty plus a bonus forlease renewal; the same basis as Montreal Trust Co. v. WillistonWildcatters Corp., 2001 SKQB 360 (Sask. Q.B.), aff’d 2002 SKCA 91,223 Sask. R. 276 (Sask. C.A.) and Freyberg v. Fletcher Challenge Oil &Gas Inc., 2007 ABQB 353, 428 A.R. 102 (Alta. Q.B.). She declined toadopt the appellants’ approach that the proper remedy was disgorgementof the lessees’ revenues.

43 The trial judge dismissed the counterclaims. She reasoned that al-though 108 and Mr. Bowes promoted, directed and managed the litiga-tion, as well as funded it in return for 50 percent of any damagesawarded, their actions were not champertous as they had a sufficientcommercial interest in the action itself. She also rejected the respon-dents’ claim for interference with contractual relations.

IV. Grounds of Appeal44 The appellants raise 16 grounds of appeal. Those grounds, the appli-

cable standards of review and my analysis, are considered in Section Vas follows:

• Part A concerns the validity of the leases, including their interpre-tation and whether the respondents discharged their burden ofproving that the ameliorating provisos meant the 7-25 Well wasproperly shut in until production resumed in 2001.

• Part B discusses the trial judge’s conclusion that she could notmake a declaration about the validity of the Scurry leases becauseparties whose rights might be affected by the declarations (Snelland Wheatland) were not parties to the litigation.

• Part C discusses the Limitations Act arguments.

• Part D concerns the respondents’ argument that by accepting roy-alty payments, the Irwin Group gave leave and licence.

• Part E discusses the appropriate remedy.

• Part F assesses 108’s independent claim for damages.


• Part G addresses the joint and several liability of Esprit arisingfrom its 10% gross overriding royalty interest.

V. Analysis of the Appeal

A. Validity of the Leases45 The appellants raise several grounds of appeal with respect to the

leases’ continuing validity. Some relate to the trial judge’s interpretationof the leases and others to her fact findings about whether the respon-dents were entitled to rely upon the third proviso during the period ofnon-production. The appellants also contend that the trial judge erred inadmitting expert evidence or, in the alternative, finding it met the respon-dents’ burden. Finally, they submit that the trial judge failed to considerand find that the respondents had self-frustrated the leases.

1. Interpretation of the Leases46 Each habendum clause provides that the lease continues after the pri-

mary period, “so long thereafter as the leased substances or any of themare produced” or any cessation in production is no longer than 90 consec-utive days. There are three versions of the third proviso in the leases’habendum clause.

47 The first version is found in the Imperial NW1/4 lease, the JeffersonSW1/4 lease and the Scurry NE1/4 lease. The relevant part of third pro-viso of the habendum clause (with emphasis added) reads:

... if any well on the said lands or the pooled lands ... is shut in ... orotherwise not produced as the result of a lack of or an intermittentmarket, or any cause whatsoever beyond the Lessee’s reasonablecontrol, the time of such interruption or suspension or non-produc-tion shall not be counted against the Lessee, anything hereinbeforecontained or implied to the contrary notwithstanding.

48 A slightly different version of the third proviso is in the Scurry SE1/4Lease, with emphasis on the variation:

... if any well on the said lands or the pooled lands ... is shut in ... orotherwise not produced as the result of a lack of or an intermittentmarket, or any cause whatsoever beyond the Lessee’s reasonablecontrol, the time of such interruption or suspension or non-produc-tion shall not be counted against the Lessee, and shall be added to thesaid ten (10) year term, anything hereinbefore contained or impliedto the contrary notwithstanding.


The underlined variation is not relevant because the 10-year primaryterm had ended.

49 The Union NE1/4 lease’s third proviso (with emphasis on the varia-tion) is:

... if ... production operations are interrupted or suspended as the re-sult of any cause whatsoever beyond the Lessee’s reasonable controlincluding, in the case of production operations, lack of or an intermit-tent market, the time of such interruption or suspension shall not becounted against the Lessee, anything hereinbefore contained or im-plied to the contrary notwithstanding.

50 The shut in clauses in the leases are also slightly different but nothingturns on the differences. In effect, when a well is not producing as theresult of a lack of or an intermittent market or any cause whatsoever be-yond the lessee’s reasonable control, rental payments deem the well to beproducing.

51 In summary, because each lease was outside the primary term andproduction of the 7-25 Well had ceased for more than 90 consecutivedays, each lease would have terminated were it not for the third proviso.The lessees had the onus of proving that the third proviso prevented theleases from terminating: Freyberg v. Fletcher Challenge Oil & Gas Inc.,2005 ABCA 46 (Alta. C.A.) at para 82, (2005), 363 A.R. 35 (Alta. C.A.).I refer to this case as Freyberg and alert the reader that there is a subse-quent decision in the Freyberg litigation as the case was referred back tothe Court of Queen’s Bench to determine the remedy: Freyberg v.Fletcher Challenge Oil & Gas Inc., 2007 ABQB 353, 428 A.R. 102(Alta. Q.B.)

102 I refer to it as the Freyberg remedies decision.52 All five leases are silent on the period within which production must

resume when the ameliorating provisions (lack of or intermittent marketor causes beyond the lessee’s reasonable control) are no longer satisfied.I will return to this point in subsection (d), “Time Period to ResumeProduction”.

53 An oil and gas lease is a contract and the principles relevant to itsinterpretation are summarized in OMERS Energy Inc. v. Alberta (EnergyResources Conservation Board), 2011 ABCA 251 (Alta. C.A.) at para33, (2011), 513 A.R. 292 (Alta. C.A.) with citations omitted:

A tribunal, interpreting such a contract, must search for the intentionof the parties by examining the specific words used with regard to thewhole contract and the demonstrated intention of the parties .... Indi-


vidual words or phrases may achieve a clear meaning when the entiredocument is read .... Where the words of the contract are unambigu-ous, the court should not deviate from its clear terms unless the con-tract is absurd, or has an effect clearly contrary to the intention of theparties .... Where the words of the contract are ambiguous, extrinsicevidence can be relied upon as an interpretive aid. It is from thewhole of the document coupled with the surrounding circumstancesthat the general intention of the party or parties is to be ascertained....

(a) Standard of Review54 The proper standard of appellate review of the interpretation of oil

and natural gas contract arises given the recent decision Creston MolyCorp. v. Sattva Capital Corp., 2014 SCC 53, [2014] 2 S.C.R. 633(S.C.C.). The respondents urge review of the trial judge’s interpretationof the leases for palpable and overriding error. They say that she made nosuch errors and her decision is entitled to deference. The appellants con-tend that we should review for correctness.

55 Sattva rejected the correctness approach historically used to review atrial judge’s interpretation of a contract. Rothstein J observed that con-tractual interpretation involves issues of mixed fact and law; that is, theprinciples of contractual interpretation are applied to the words of thecontract, considered in light of the factual matrix: para 50. He held atpara 47 that courts:

must read the contract as a whole, giving the words used their ordi-nary and grammatical meaning, consistent with the surrounding cir-cumstances known to the parties at the time of formation of the con-tract. Consideration of the surrounding circumstances recognizes thatascertaining contractual intention can be difficult when looking atwords on their own... the commercial purpose of the contract whichpresupposes knowledge of the genesis of the transaction, the back-ground, the context and the market in which the parties are operatingare relevant.

56 When there is an extricable error of law, review for palpable andoverriding error may not be appropriate. Extricable legal errors might in-clude the application of an incorrect principle, the failure to consider arequired element of a legal test, or the failure to consider a relevant fac-tor: para 53. However, Rothstein J urged caution in identifying extricablequestions of law in disputes over contractual interpretation: para 54.


57 In the context of these five leases, the Sattva approach to appellatereview raises interesting questions. Lease language was relatively stan-dard in freehold oil and gas leases executed in the 1960s and 1970s, al-though the language is not identical. Even in a province where most ofthe mines and minerals are held by the Crown, there are still a significantnumber of freehold leases. Should these leases be reviewed for correct-ness so that there is consistency in the interpretation of that particularlease? When variations exist in lease language, is it still a ‘standard’form lease? When a lease was executed fifty years ago, what back-ground, context and market conditions should a court consider when in-terpreting the lease?

58 The standard of review of standard form contract interpretation wasdiscussed in Vallieres v. Vozniak, 2014 ABCA 290, 5 Alta. L.R. (6th) 28(Alta. C.A.), leave to appeal to SCC abandoned. The court concludedthat Sattva must be read in its context and some of the restrictive lan-guage about standard of review did “not apply to ordinary appeals in Al-berta”: para 12. And, because the dispute in Vallieres was about a stan-dard form real estate contract, its “interpretation is of general importancebeyond this dispute, any decision on its proper interpretation has greatprecedential value, and the primary objective should be certainty”: para13. This conclusion was based on Sattva’s statement that appeal courtsshould be slow to intervene unless the “results can be expected to havean impact beyond the parties to the particular dispute” and an appellatecourt’s role is “ensuring the consistency of the law, rather than in provid-ing a new forum for parties to continue their private litigation”: Sattva atpara 51.

59 This led the Vallieres court to conclude that “attempting to inject thecircumstances surrounding the formation of the contract into the analysis,or any attempt to identify the intention of the parties, is nothing but alegal fiction”: para 13. The trial judge’s contractual interpretation wastherefore reviewed on the correctness standard.

60 Other appellate decisions post-Sattva, including some interpreting ar-guably standard form contracts, have not distinguished the standard ofreview on that basis, see e.g.: Anderson v. Bell Mobility Inc., 2015NWTCA 3, 593 A.R. 79 (N.W.T. C.A.); Kassburg v. Sun Life AssuranceCo. of Canada, 2014 ONCA 922, 379 D.L.R. (4th) 665 (Ont. C.A.); andDe Beers Canada Inc. v. Ootahpan Co., 2014 ONCA 723, 246 A.C.W.S.(3d) 448 (Ont. C.A.). Sattva itself relied on cases that interpreted whatwere likely standard form contracts: para 47. The court relied upon those


cases for the proposition that contractual interpretation has “evolved to-wards a practical, common sense approach not dominated by technicalrules of construction” but rather to “determine ‘the intent of the partiesand the scope of their understanding’”: ibid.

61 In Freyberg, this court reviewed the trial judge’s interpretation of anoil and gas lease on a standard of correctness. It determined that the trialjudge erred in her interpretation when she implied a term which resultedin extending the lease. In reviewing the trial decision, this court’s ap-proach was consistent with a considerable body of jurisprudence inter-preting oil and gas leases. Historically, these leases were strictly con-strued. If the lessee failed to meet a deadline with respect to drilling,production or payment of rentals, the lease terminated whether it was inits primary or subsequent term: Weyburn Security Co. v. Sohio PetroleumCo. (1970), [1971] S.C.R. 81, 13 D.L.R. (3d) 340 (S.C.C.) [Sohio];Canada-Cities Service Petroleum Corp. v. Kininmonth (1963), 42 D.L.R.(2d) 56 (Alta. C.A.); aff’d [1964] S.C.R. 439, 45 D.L.R. (2d) 36 (S.C.C.)[Kininmonth]; Canadian Superior Oil of California Ltd. v. Kanstrup(1964), [1965] S.C.R. 92, 47 D.L.R. (2d) 1 (S.C.C.); Durish v. WhiteResource Management Ltd. (1987), 55 Alta. L.R. (2d) 47 (Alta. Q.B.),aff’d (1988), 63 Alta. L.R. (2d) 265 (Alta. C.A.); East Crest Oil Co. v.Strohschein, [1952] 2 D.L.R. 432, [1952] A.J. No. 47 (Alta. C.A.).

62 But even in the context of a review for correctness, Ritter JA, writingfor the majority in Freyberg, discussed contextual factors. These in-cluded the lessor’s desire for production during the lessor’s lifetime, thefact that earlier production would have resulted in earlier profits for bothparties, and the practical observation that during non-production, the gasfrom an “inactive” well might be captured by other wells. It seems thateven when applying the correctness standard, courts have looked at thesurrounding circumstances, including the economic consequences of in-terpreting the contract in a certain manner.

63 Given the cases cited above and Sattva’s reliance on cases that appearto have interpreted standard form contracts to reach the conclusion thatthe correctness approach to appellate review of trial decisions is nolonger appropriate except in the most exceptional cases, I am persuadedthat the trial judge’s interpretation of these leases is reviewable on thepalpable and overriding error standard unless the decision reveals an ex-tricable error of law or principle.


(b) “Lack of or Intermittent Market”64 The trial judge found that the phrase “lack of or intermittent market”,

read in context and with a view to the reasonable intention of the partiesto a lease to profit from the extraction of the leased substances, should beread to mean lack of an economical or profitable market: para 542 (withemphasis).

65 The appellants submit that adding the qualification “economical andprofitable” is an error because the words “lack of or intermittent market”are not ambiguous. They urge a literal interpretation of the word “mar-ket” and rely on Blair Estate Ltd. v. Altana Exploration Co., 1987 ABCA123, 53 Alta. L.R. (2d) 419 (note) (Alta. C.A.), which considered a leasecontaining the identical phrase.

66 In Blair the court did not consider whether the phrase was ambigu-ous, as the focus was on whether the conditions of the clause had beenmet. The court found that although there was evidence of the respon-dent’s ability to market gas to its major customer that was only intermit-tent, it failed to prove that it could not market elsewhere. The appellantsalso point to the offset well clause in the leases which provides that off-set well obligations can be postponed pending the establishment of “anadequate and commercial profitable market for the natural gas.” Theyargue that had the parties intended to modify the words “lack of or inter-mittent market” in the third proviso, they could and would have done so.

67 Some preliminary comments about the leading Albertacases, Freyberg and Omers, are essential to clarify what those cases de-cided as it pertains to this appeal.

68 The Freyberg lease was similar to those in this appeal. However, rela-tive to the issue before us, the wording of the relevant proviso and shut inrental clause were very different. The proviso in Freyberg stated that if awell is shut in or suspended as a result of an “uneconomical or unprofita-ble market”, such suspension shall not be deemed to be a discontinuanceof production. The “Shut-in Gas Well” clause in Freyberg likewisestated that a well shut in as a result of the lack of an “economical orprofitable” market is deemed to be producing. The leases in this appealhave no such qualifying language. The significance of this difference inwording is that the issue in Freyberg turned on whether or not an eco-nomic or profitable market in fact existed, not whether the absence of aneconomic or profitable market permitted the shutting in of a well capableof production.


69 Omers was about determining whether a well is capable of produc-tion. It was not a case involving a deliberate suspension of productionfrom a well which the operator considered capable of production, but noteconomic or profitable. The lease in Omers provided that if a well iscapable of production at the end of the primary term and the well is shutin for whatever reason, the lease continued so long as “suspended wellpayments” were paid. The leases in this appeal are not as generous to theoperator. Also, the issue of the lessee’s entitlement to shut in the wellwas expressly not engaged in Omers. That, of course, is part of the back-drop to this appeal. Unlike the leases in this appeal, the lease in Omersdid not prescribe when or under what circumstances a well could be shutin. The terms of this appeal’s leases say that a well can only be shut in ifthere is no market or only an intermittent market. In Omers, the courtsaid, “[a]s the issue of entitlement to shut-in is not directly engaged inthis appeal, I leave to another day the question of whether the languageof this lease, viewed objectively, demonstrates a common intention that awell, even one ‘capable of producing’ can only be shut in for prudentreasons.” That “other day” has arrived; but I am cognizant that the issuewe are being asked to decide did not arise in Omers.

70 Relevant in Omers from the perspective of the decision required inthis appeal, is that the court indicated in obiter that it might find a well tobe capable of production so long as production revenues exceeded pro-duction expenses The court upheld a ruling by the regulator that a wellcapable of producing in “meaningful”, but not “paying” quantities wouldhave kept that particular lease alive. That is one interpretation of profit-ability. Another is profitability in the sense that lessees look at invest-ments, i.e., 2 or 3-year payouts and hurdle rates which reflect the manyrisks the oil business faces. A different issue was admittedly being de-cided in Omers, but the case provides an example of a situation whereboth the regulator and the court did not merely rely upon the lessee’seconomics to determine capability (or profitability).

71 The leases in this appeal are now examined in the context of thebroader legal principles articulated in Freyberg and Omers.

72 What did the parties intend in the 1960s when they entered into theseleases? Something of intention can be learned from Freyberg and Omers.The search for the parties’ intention is conducted on an objective basis;what would a reasonable person infer those intentions to be from thewords used?: Omers at para 34.


73 As this court remarked in Freyberg, it strains common sense to thinkthat a lessor would tie up its land past the primary term for a lessee’sspeculative purposes and for a well that lacked commercial viability:para 50. As reinforced in Omers, the third proviso was not intended topermit a lessee to hold a property for purely speculative purposes: para95. The common purpose and goal of parties entering into the lease is todevelop the resource for the purpose of making a profit: Omers at paras77 and 95; Freyberg at paras 50-51. Any interpretation which defeatsthat purpose should be rejected in favour of one which promotes thatpurpose and a sensible commercial result: Omers at para 78.

74 No one suggested that there was no market or that the market wasintermittent: reasons at para 515. However, the literal interpretation ad-vanced by the appellants (i.e., it is unnecessary to modify “market” byadding “economical or profitable”) may lead to the result that the lesseewould have to produce at a loss if it wished to maintain the lease, a resultthat is disadvantageous to the lessee and possibly to the lessor as well.The relationship between the owners of the mines and minerals and thelessee of hydrocarbon rights under a petroleum and natural gas lease isunlike that between industry working interest owners under operatingagreements, etc., where operators are entitled to recover costs of drilling,etc., before they need to share revenue from the sale of the hydrocarbonsproduced. Mineral owners lease hydrocarbon rights for a percentage ofthe production and are therefore largely indifferent to the productioncosts the lessee incurs.

75 That said it could not have been the objective intention of the partiesto insist that the lessee market the produced substance when it was un-economical or unprofitable. As the trial judge observed, a contextualreading of the phrase suggests a broader interpretation than the literal andnarrow interpretation advanced by the appellants. However, to be clear,this is not an interpretation which suggests that a lessor would agree totie up its land beyond the primary term for speculative purposes.

76 In Freyberg the court concluded that the test is whether “based oninformation available at the time, a prudent lessee would have foreseenprofitability”: para 72. As mentioned earlier, this was in the context ofwhether there was, in fact, an economic or profitable market in circum-stances where the lease expressly permitted a well capable of productionto be shut in as a result of an “uneconomical and unprofitable” market.Although it was not a test applied for the purpose of determining whether“economic or profitable” can be inferred in petroleum and natural gas


leases which do not contain that wording, the overarching principle re-mains relevant.

77 The appellants also argue that the trial judge erred in finding that adrastic downturn in gas prices and accompanying high processing costswere not reasonably foreseeable. They rely on Kininmonth which ad-dressed whether a seasonal road ban was beyond the lessee’s control.The court found that this was an event that the lessee could have antici-pated and for which it could have planned.

78 The trial judge concluded that the drastic reduction in the price of gasand the accompanying high cost of processing, both caused by externalforces, were not as inevitable or foreseeable as seasonal road bans: para558. Although a different conclusion might also have been available, thetrial judge’s finding was not unreasonable given the multiplicity of fac-tors necessary to analyze gas markets and production costs.

79 Accordingly, I discern no palpable and overriding error in the trialjudge’s interpretation of the third proviso as requiring an economical orprofitable market.

(c) “Beyond the Lessee’s Reasonable Control”80 When read in the context of the entire third proviso the phrase “lack

of or intermittent market” may be but one example of a circumstancebeyond the lessee’s reasonable control. This is certainly so in the UnionNE1/4 lease, which suspends time if “production operations are inter-rupted or suspended as a result of any cause whatsoever beyond theLessee’s reasonable control, including, in the case of production opera-tions, lack of or an intermittent market ...” (emphasis added).

81 The third proviso in the other leases suspends time “if any well ... isshut in ... as a result of lack of or an intermittent market, or any causewhatsoever beyond the Lessee’s reasonable control” (emphasis added).

82 The appellants’ submissions on “beyond a lessee’s reasonable con-trol” are two-fold. First, they say the lessees self-frustrated the leases de-cades earlier when they made certain operational decisions. Second, theyassert this a true force majeure clause.

Self-Frustration83 The appellants’ self-frustration submission can be dealt with summa-

rily. They assert that the trial judge erred in failing to consider and findthe respondents self-frustrated the leases. They rely on operational deci-sions made more than a decade before the 1995 shut in, for example,


failing to tie the 7-25 Well into another well and then into the PetrogasPlant, not proceeding with a common carrier or processing applicationfor access and fees at the East Crossfield Plant, etc.

84 The respondents say that these historical operational decisions are ir-relevant to this action for several reasons. I agree. In any event, the 10-year limitations period in the Limitations Act, s 3(1)(b) is a completedefence.

“True” Force Majeure Clause85 The appellants’ argument is that there is no economic aspect to some-

thing that is beyond the lessee’s reasonable control. The clause should beinterpreted as a true force majeure clause so that it does not apply absentan unforeseeable supervening event that interferes with the lessee’s abil-ity to produce. The trial judge found that the language of the third pro-viso was not a true force majeure provision and no absurdity arose bygiving it its ordinary meaning: para 553.

86 The appellants submit that the trial judge’s interpretation yields acommercially absurd result and renders the rest of the habendum clausemeaningless. The clause cannot extend a lease simply because the lesseeor the operator would prefer to delay operations until it was more profita-ble or for other corporate objectives. They rely primarily on AtlanticPaper Stock Ltd. v. St. Anne-Nackawic Pulp & Paper Co. (1975), [1976]1 S.C.R. 580, 56 D.L.R. (3d) 409 (S.C.C.).

87 Atlantic Paper involved the interpretation of a contract to purchase aspecific amount of paper for the manufacture of a corrugating medium.St. Anne wanted to stop purchasing paper because there was no marketfor the corrugating medium at the time. A clause in the contract said“unless as a result of an act of God, the Queen’s or public enemies, war,the authority of the law, labour unrest or strikes, the destruction of ordamage to production facilities, or the nonavailability of markets for pulpor corrugating medium.”

88 The Supreme Court found that this was “an act of God or forcemajeure clause”: 583. These clauses generally operate to discharge aparty from its obligations when a supervening event beyond the controlof either party renders performance impossible. Reading the clause ejus-dem generis, as the words “nonavailability of markets” appeared in a listof acts of God, war etc., the words were limited to an event over whichSt. Anne exercised no control. The court found that the lack of marketwas, in fact, due to St. Anne’s lack of an effective marketing plan and


hence it could not rely on this clause to discharge itself from its contrac-tual obligations: 584.

89 The appellants urge us to interpret the third proviso similarly. How-ever, the language is very different. Unlike the clause in St Anne, neitherversion of the third proviso lists events (acts of God, etc.) beyond thecontrol of the parties. Indeed, in the Union NE1/4 lease, the descriptionof causes beyond the lessee’s reasonable control includes the lack of orintermittent market, which is an economic factor. That lease also in-cludes a true force majeure clause that includes the “act of God” lan-guage similar to that in Atlantic Paper.

90 Reading the leases as a whole and noting the placement of the phrasewithin the third proviso, I cannot agree that “beyond the lessee’s reasona-ble control” is a true force majeure clause. There must be some meaningto the word “reasonable”. It seems to me that in a true force majeureclause, “reasonable” would be unnecessary as the types of events givingrise to a force majeure are beyond the parties’ control and usuallyunforeseeable.

91 I conclude that the trial judge’s interpretation of the phrase “beyondthe lessee’s reasonable control” was not unreasonable.

(d) Time Period to Resume Production92 As noted earlier, none of the leases expressly prescribes the period

within which production must resume once the ameliorating provisionscease to have effect. However, each of the five leases’ third provisostates (with insignificant minor variations in wording) that if productionceases after expiry of the primary term and the lessee commences furtherworking operations within 90 days after the cessation of production, thelease shall remain in force so long as any such operations are prosecutedwith no cessation of more than 90 consecutive days. As noted earlier, theameliorating provisions and the shut in well clauses provide that non-production shall not be counted against the lessee if rental is paid; inother words, the ameliorating provisions and the shut in clauses maintainthe leases.

93 The phrase “working operations” is not defined in the five leases.What is clear is that the authorities (see generally: Montreal Trust Co. v.Williston Wildcatters Corp., 2001 SKQB 360 (Sask. Q.B.), aff’d 2002SKCA 91, 223 Sask. R. 276 (Sask. C.A.), and P. Burns Resources Ltd. v.Locke, Stock & Barrel Co., 2014 ABCA 40, [2014] A.W.L.D. 1034(Alta. C.A.)) have said that “working operations” are meaningful activi-


ties directed to bringing about production. Further, as stated in JohnBishop Ballem, The Oil and Gas Lease in Canada, 4th ed (Toronto: Uni-versity of Toronto Press, 2008) at 169:

The CAPL lease is very specific on the effect of cessation of produc-tion after the expiration of the primary term. The production of anyleased substance is included in the definition of “operations” and thehabendum provides that the term of the lease shall continue so longthereafter as operations are conducted with no cessation, in the caseof each cessation of operations, of more than ninety consecutivedays.

94 In a somewhat different context, Ballem writes that reference to “withno cessation of ninety (90) consecutive days” in the third proviso of con-ventional leases, makes it “reasonable to suggest that the courts wouldimport that time limitation in those cases where the lease is silent on thepoint”: at 169.

95 In my view that is also the proper result when the ameliorating provi-sions no longer maintain the lease. Once profitability becomes foresee-able, production must resume within 90 days or the leases terminate.

2. Did the Respondents Meet Their Burden of Proving the Third ProvisoApplied?

(a) Background96 Production resumed in early 2001. The respondents had the burden to

establish that the third proviso applied during the shut in period.97 Well economics must be analysed prospectively. The test is whether,

based upon the information available at the time, a prudent lessee wouldhave foreseen profitability. A prudent lessee is defined on an objectivestandard influenced by the character and nature of the lease and the rea-sonable expectations of the parties: Freyberg at para 72 with emphasis.In determining whether a prudent lessee would have objectively foreseenprofitability, the view of the operator may be an important factor but isnot determinative: Freyberg at para 73.

98 In support of their contention that the 7-25 Well was shut in becauseproduction was uneconomical due to the drop in gas prices and thehigher processing costs attributable to the 7-25 Well, the respondents re-lied on the evidence of Allan Seredynski, Nexen’s production engineer-ing manager for Canadian oil and gas; Ronald Watson, 7-25 Well’s res-ervoir and exploitation engineer during the years at issue; and WazirSeth, a professional engineer. The appellants’ evidence on this issue


came principally from their expert Cameron Six, also a professional en-gineer. Both Mr. Seth and Mr. Six were qualified to give opinion evi-dence as experts in the evaluation of oil and gas properties and reservoirengineering.

99 The trial judge accepted Mr. Seth’s opinion that the decision to shutin the 7-25 Well was justified and appropriate. The decision was com-mercially prudent given that its cumulative cash flow was negative and itwas producing at a loss; estimates of the remaining reserves in theWabamun formation were minimal; gas prices were low; and the netprice of sulphur was negative.

100 With respect to the reactivation, Mr. Seth and Mr. Six agreed thatwhen capital is needed to recomplete a well, a producer would normallywant attractive or acceptable returns, “hurdle rates”, before proceeding.The trial judge preferred Mr. Seth’s opinion on what hurdle rates weretypically used by the industry at the relevant time.

101 Overall, the trial judge accepted Mr. Seth’s opinion that it was justi-fied and appropriate for the operator of the 7-25 Well to shut in produc-tion from the Wabamun formation in July 1995 and it was not economi-cal or commercially prudent for the operator to reactivate the well in theWabamun formation during the 1995 to 2001 time period. Recompletionof the BQ formation would have met the industry’s minimum hurdlerates by January 2000. However, the economics were not yet compellingso given the risks and uncertainties involved, it would not have beencommercially prudent to take initial steps to recomplete the BQ zone un-til the third or fourth quarter of 2000: para 467.

102 The trial judge observed that by the summer of 2000 Triquest began aprogram to recomplete the BQ zone, making offers to purchase and issu-ing an independent operations notice in November 2000. The final stepin the process occurred in January 2001 and the recompletion programbegan approximately two weeks later. The trial judge found that the wellowners reactivated the BQ zone shortly after it became economical andprudent to do so: para 468.

103 The appellants’ main submission to this court is that the trial judgeerred in her determination that it was not economical and profitable torecommence production prior to 2001. They say that the respondents’own evidence supports a finding that recompletion of the BQ zone forthe 7-25 Well was economic and profitable some time in 1999. As thelessees failed to recommence production within 90 days, all of the leaseswould have terminated before January 2001.


(b) Necessity of Expert Evidence104 Prior to addressing the merits of this ground of appeal I address a

preliminary issue. During the shut-in period the respondents did not com-plete an annual economic analysis of the 7-25 Well. For the purposes oftrial they relied upon the expert evidence of Mr. Seth to look back overthe period and opine on whether there continued to be a lack of or inter-mittent economical and profitable market. The appellants submit that thetrial judge erred in admitting expert evidence when there was a sufficientfactual basis to determine the issue.

105 The lay evidence demonstrated why the operator shut in the well. Therespondents took no steps to produce any economic analysis to ensurethat they continued to be entitled to rely on the third proviso. The appel-lants contend that there was no need to admit expert evidence on what aprudent operator would have done, as Nexen failed to meet the test of aprudent operator.

106 It is the appellants’ position that an operator that has demonstrablynot met the test of a prudent operator cannot lead expert evidence to jus-tify conduct after the fact. The appellants rely upon this court’s observa-tion in Freyberg that expert evidence is not necessary when there is asufficient factual basis to determine an issue: para 87. There the majorityconcluded that there was sufficient lay evidence regarding an economicaland profitable market and the trial judge erred in admitting expert evi-dence on that point.

107 Here there was little lay evidence on an issue for which the respon-dents had the burden of proof. Indeed, at trial, the appellants closed theircase without introducing any expert evidence, although they had ex-changed expert reports in accordance with the Alberta Rules of Court,Alta Reg 124/2010. The appellants read-in from the discovery evidenceof the respondents who acknowledged that they had not performed anyanalysis between 1995 and 2000 to determine if there was an economicand profitable market.

108 The appellants took the position that there was no need for expertevidence and objected to the respondents being permitted to introducetheir experts. In a mid-trial ruling, the trial judge concluded that the re-spondents were entitled to adduce the expert evidence. Rather than al-lowing the appellants to call their experts in rebuttal, she permitted theappellants to re-open their case to introduce their expert witnesses: 2012ABQB 87 (Alta. Q.B.). She indicated that her ruling would not precludethe appellants from raising objections to the expert evidence later in the


trial. The appellants raised their objection again. The trial judge ruledthat the issue upon which the expert evidence was tendered was unlike inFreyberg. She concluded that the expert evidence tendered by the re-spondents focussed on the more objective questions of whether a prudentlessee would have foreseen profitability during the shut in period. Shefound that in the circumstances, the expert evidence was relevant andnecessary: para 353.

109 This was an issue within the discretion of the trial judge who wasfamiliar with the case and with the evidence which had been adduced upto that point. She was in the best position to determine whether the expertevidence was relevant and necessary; see generally, R. v. Mohan, [1994]2 S.C.R. 9, 114 D.L.R. (4th) 419 (S.C.C.).

110 Although a different conclusion might also have been available giventhe evidence that off-setting wells were producing in the same pool andthe independent operations notice referred to at paragraph [127] below, Ifind no reviewable error in the trial judge’s decision to admit the expertevidence.

(c) Standard of Review — Expert Evidence111 The application of a legal test to the facts is a question of mixed fact

and law, and reviewed on the standard of palpable and overriding error:Housen v. Nikolaisen, 2002 SCC 33 (S.C.C.) at para 36, [2002] 2 S.C.R.235 (S.C.C.).

112 When the issue on appeal involves the trial judge’s preference for theopinion of one expert over another the issue is one of the standard ofappellate review: Pedherney v. Jensen, 2011 ABCA 9 (Alta. C.A.) atpara 19, (2011), 499 A.R. 216 (Alta. C.A.). It is not an error for a trialjudge to choose one expert over another because this is precisely what atrial judge is obliged to do: Nova, an Alberta Corp. v. GuelphEngineering Co., 1989 ABCA 253 (Alta. C.A.) at para 10, (1989), 100A.R. 241 (Alta. C.A.). This court can interfere only if the trial judge’schoice is unreasonable or patently wrong: Bell v. Tilden Car Rental Inc.,1996 ABCA 318 (Alta. C.A.) at para 10, (1996), 44 Alta. L.R. (3d) 152(Alta. C.A.). When “a trial judge is presented with competing explana-tions or conclusions from expert witnesses, there is no reversible errorwhen he makes a reasoned choice between the two”: Labbee v. Peters,1999 ABCA 246 (Alta. C.A.) at para 19, (1999), 237 A.R. 382 (Alta.C.A.).


(d) Did the Expert Evidence Meet the Respondents’ Evidentiary Burden113 As the respondents led no lay evidence regarding when the 7-25 Well

became economical and profitable, their case rested largely on the evi-dence of their expert, Mr. Seth. He opined that to consider a well eco-nomical, a lessee would want to meet the following hurdle rates: (a) aprofit to investment ratio greater than two; (b) a rate of return of 15 percent; and (c) a payout in two to four years. He opined on the hurdle ratesfor each of the shut in years. The trial judge accepted Mr. Seth’s evi-dence that as of January 1, 1999, recompletion of the BQ zone was eco-nomical but not “sufficiently” profitable.

114 Mr. Seth’s evidence was that by January 2000 the project had a profitto investment ratio of greater than two; a rate of return of about 25 percent; and payout in a little less than two years. In other words, all theindustry hurdle rates were met no later than January 1, 2000. Mr. Sethconceded that he had not run any cash flow analysis to indicate whenduring 1999 the project may have met the economic criteria.

115 The appellants say that this evidence is capable of only one interpre-tation: recompletion of the BQ zone for the 7-25 Well would have beeneconomical and profitable at some point in 1999 but in any event no laterthan January 1, 2000.

116 When asked in cross-examination why, when all internal profitabilityindicators and hurdle rates had been met by January 1, 2000, productiondid not recommence, Mr. Seth replied (with emphasis added):

You could have turned it on, yes, sir. The only caveat here is that, ifyou’re a small company that has 50 wells, you would have jumpedon it, but in this case you would look at escalating price during thefirst half of 2000, and $3 by itself is not compelling economics,right? You’ve just met the minimal hurdle. It’s not compelling eco-nomics. So once you’re going through this, you say, When was thecompelling economics? Certainly by Q3 it was compelling. It’s veryprofitable.

117 Mr. Seth also confirmed in cross-examination that: APPELLANTS’ COUNSEL: It was certainly within reasonable con-

trol of the operator and certainly the economics were all inplace for a prudent operator to reactivate — or, sorry, recom-plete and turn the well on as of January 1, 2000, correct?

MR. SETH: I mean, profitable to do that, it would have met theminimum criteria but I wouldn’t consider it a compelling eco-nomics yet.


APPELLANTS’ COUNSEL: And when you talk about compellingeconomics, what you’re really talking about is the level ofprofitability that a company might want to achieve, correct?

MR. SETH: Yes.

APPELLANTS’ COUNSEL: Not whether it’s profitable but thelevel of profitability, correct?

MR. SETH: ... we’re not talking about 15 percent rate of return, sir.We’re talking about 60 to a hundred percent.

118 The trial judge found at para 473: Mr. Seth testified that his January 2000 cash flow analysis showedthat the project met the economic criteria, in that it showed a profitinvestment ratio of more than two, a positive rate of return and pay-out in two years. In his view, it met the minimum hurdle level. How-ever, this was not the whole picture. While these economic runsshowed a more or less positive net worth, a well owner would haveto have some confidence that natural gas prices were sustainable andincreasing. He testified that the focus was not just on economics butalso on commodity prices. In his view, producers would be startingto look at the gas price in the fourth quarter of 1999. Most producerswould be looking seriously at the price in the first half of 2000, andin the second and third quarters, many companies would have beenmaking decisions to go ahead with projects. Given that some leewaytime is reasonable, Mr. Seth was of the opinion that the case for reac-tivation of the 7-25 Well in the BQ zone became compelling in thethird quarter of 2000. He noted that it was in this time period whenTriquest began proceedings to obtain the necessary approvals to drilland operate the 7-25 Well.

119 The appellants submit that this conclusion is not supportable in law oron the facts. The test is whether, based on the information available atthe time, a prudent lessee would have foreseen profitability: Freyberg atpara 72. They contend that the trial judge added another factor to the test:that the economics must be compelling (see reasons paras 467-68). Theysay that she further compounded the error when she concluded at para466 that although the recompletion of the BQ formation would have gen-erated positive cash flow (presumably by January 1, 2000 given the evi-dence) it would not have been commercially prudent to take the initialsteps to recomplete the BQ zone until the third or fourth quarter of 2000.She found that the well owners had reactivated the 7-25 Well in the BQzone shortly after it became economical and commercially prudent to doso.


(e) Evidence of ExxonMobil and Imperial Oil Landman120 The appellants also point to the testimony of a landman with Exx-

onMobil and Imperial Oil, who was asked in the summer of 2000 to as-sess the 7-25 Well. He testified that he noticed that the well had not pro-duced for five and a half years. As part of his review he looked at theJefferson SW1/4 lease and production from the 7-25 Well. He testifiedthat since the well had not produced and had been shut in and previouslyproducing at a pretty high rate, he was concerned that “perhaps we had aproblem with our lease.” Given the historical production information, heassumed that this was a good rate of production and that it should beeconomic to produce the well. He expressed doubt about the validity ofthe lease but suggested a lawyer review it.

121 In November 2000, the same landman requested a technical evalua-tion of the 7-25 Well in order to determine whether ExxonMobil shouldparticipate in the Triquest reestablishment of the well. In the form gener-ated to give background, he said: “... as the well had been shut in since1995, there is a possibility that the freehold leases have terminated forlack of production. If [ExxonMobil] elects to participate, seek Law’sopinion re: leases. New leases may be required.” He raised his concernwith a joint venture representative, who later advised that the well hadbeen shut in due to high fees that would make the well uneconomic. Thelandman testified that this allayed his concerns but left a “slight cloud” inhis mind about whether shutting-in a well for economic purposes wouldkeep the lease in good standing. He also raised his concern with alandman from Triquest, and suggested to him that if the leases were notvalid, new leases would be required.

(f) Conclusion on the Validity of all but the Scurry Leases122 In light of the respondents’ evidence two questions arise. Was it open

to the trial judge to interpret the third proviso as requiring “compelling”economics, in excess of the industry’s hurdle rates? Alternatively, was itopen to the trial judge to, in effect, extend the time period within whichthe lessee must take action or the lease terminates once the amelioratingconditions (“lack of or intermittent economical and profitable market” or“beyond the reasonable control of the lessee”) have expired?

123 The respondents say the trial judge was entitled to balance the inter-ests of the parties and we should defer to her determination. In otherwords, her application of the facts to the wording of the habendumclauses in the leases was reasonable.


124 Contractual interpretation post-Sattva invites an assessment of con-textual factors. However, absent evidence to the contrary, the surround-ing circumstances or contextual factors must be commercially reasonableas between the parties.

125 The trial judge was entitled to conclude that the market for the pro-duced substances must be economical or profitable. However, she erredin principle when she assessed profitability solely from the perspective ofthe lessees without giving equal weight to what was commercially viableand sensible from the lessors’ perspective. As was said in Freyberg andOmers, lessors would not agree to tie up land when it was no longercommercially viable from their perspective.

126 I conclude that on the evidence of the respondents’ own expert, it wasprofitable for a prudent operator to recomplete the 7-25 Well no laterthan January 1, 2000. In January 2000, by all objective measures (i.e., thethree hurdle rates referred to earlier), it became economical and profita-ble to resume production. The fact that it was not yet “compelling” or“very” profitable (to use the words of the trial judge’s preferred expert)from the perspective of these particular lessees, under-emphasizes thecommercial objectives of the lessors.

127 Further support for the conclusion that the 7-25 Well ought to havebeen put back on production earlier is the independent operations noticeserved by Triquest Energy (now Bonavista) on Nexen. When anotherproducer is prepared to produce a well that is a clear signal that the wellhas become economic or profitable. An owner of mines and minerals isentitled to find a producer that is prepared to produce the minerals if thecurrent lessee does not see any economics or profitability in producing.

128 As noted earlier, the ameliorating provisions and the shut in clausessuspended the 90-day cessation of production period. Once the amelio-rating provisions no longer applied, it is reasonable to interpret theseleases as requiring the lessee to bring the 7-25 Well back into productionwithin 90 days. On the expert’s evidence, the hurdle rates were met inJanuary 2000. Extending the 90-day period also over-emphasizes the les-sees’ commercial interests at the expense of the lessors.

129 In conclusion, I find that the trial judge erred in determining that theJefferson SW1/4 lease, the Union NE1/4 lease and the Imperial NW1/4lease had not terminated (the Scurry leases are discussed in Part B). Thetwo ameliorating conditions in the third proviso ceased to have effectwhen production became economical and profitable on January 1, 2000.According to their terms, the leases terminated.


130 This conclusion has implications for the caveat registered by Esprit(now Pengrowth) and further discussion on that point is in Part G.

B. Validity of the Scurry Leases (Scurry NE1/4 Lease and ScurrySE1/4 Lease)

131 The trial judge refused to make declarations about the validity of thetwo Scurry leases because there was evidence that doing so might affectthe interests of Snell and Wheatland, which were not parties to the litiga-tion. A very late application for standing in this appeal was denied:Wheatland Farming Co. v. Stewart Estate, 2014 ABCA 296, [2014]A.W.L.D. 4297 (Alta. C.A.).

132 The trial judge’s conclusion involves questions of law, reviewed forcorrectness; findings of fact, reviewed for palpable and overriding error;and an exercise of discretion, reviewed for reasonableness.

1. The Scurry Lands’ History (Jerome Developments, Snell, Wheatlandand the Jerome Group)

133 As noted previously, Merville Stewart executed two leases: theScurry SE1/4 in 1964 and the Scurry NE1/4 in 1967.

134 On March 2, 1972, Merville Stewart transferred to his company, Je-rome Development Limited, his entire fee simple interest in the minesand minerals other than coal and petroleum on the Scurry SE1/4 land. Atthe same time he transferred half his fee simple interest in the mines andminerals other than coal on the Scurry NE1/4 land.

135 Certificates of title dated May 1974 indicate that Jerome Develop-ment is the owner of the lands and all mines and minerals, other thancoal, in the SE1/4 and an undivided half interest in the NE1/4 of Section25.

136 There is no evidence that the lessees were advised of the transfers orthat the two Scurry leases were assigned to Jerome Development.

137 On March 1, 1977, Merville Stewart executed two pre-printed “In-dentures” assigning each of the leases to Snell Farms Ltd, a companyapparently controlled by Mr. Stewart’s lawyer, Mr. Gregg.

138 Correspondence in June 1977 between Mr. Gregg and Scurry con-firms that Scurry received the Indentures, and from 1977 to 1982 paidroyalties to Snell. In 1982, Mr. Gregg advised the lessees that the royal-ties should be paid to Wheatland.


139 Upon Mr. Stewart’s death in 1984, his one-half interest in the minesand minerals on the NE1/4 was transmitted to his heirs, the JeromeGroup. On January 5, 2012, they transferred their interest to Jerome De-velopment Limited.

140 There was no evidence that any of the Jerome Group raised concernsabout the fact that no royalty payments were received under the Scurryleases from 1977 onward. No witness from Snell or Wheatland wascalled at trial. In an affidavit for permission to intervene, Wheatland’sdeponent stated that it was unaware of the litigation until the trial judge’sreasons issued.

141 The appellants challenge the trial judge’s refusal to grant the declara-tion on two bases. First, they challenge the validity of the ‘Indenture’assignments. Their second submission concerns the conclusion that theirfailure “to name Snell Farms and Wheatland as parties to this action is afundamental and fatal flaw in their case with respect to the Scurry NE/4Lease and the Scurry SE/4 Lease”: para 174.

2. Validity of the Assignments142 The appellants’ main contention at trial was that they were entitled to

rely upon the certificates of title. Since the assignments were not regis-tered on the certificates of title, the appellants say they are entitled to relyupon the principle of indefeasibility of title. Although the trial judge wasinclined to the view that the Jerome Group appellants were volunteerswho did not rely upon the certificate of title and therefore were not pro-tected by the principle of indefeasibility (see Passburg Petroleums Ltd. v.Landstrom Developments Ltd. (1984), 53 A.R. 96, 30 Alta. L.R. (2d) 379(Alta. C.A.)), she determined that this was an issue which could not bedecided in the absence of Snell and Wheatland.

143 The appellants also contended that because Snell and Wheatland hadnot filed caveats to protect their interests, the assignments were invalid.The trial judge found that this was not an issue that could be decidedwithout input from Snell and Wheatland.

144 The appellants further submitted that the assignments were hearsayevidence introduced by agreement of counsel but not for the truth of theircontents. The trial judge acknowledged that there were ambiguities aris-ing from the wording of the form used, but she was reticent to make afinding on the proper interpretation of the assignments without inputfrom Snell and Wheatland.


145 Another challenge to the assignments’ validity was the assertion thatMerville Stewart had no interest to assign when he entered into the as-signments, as he had already disposed of his fee simple to Jerome Devel-opments Limited.

146 All these arguments and the nature and extent of the assignments arenow the subject of litigation between Wheatland and Jerome Develop-ment Limited (Queen’s Bench Action No 1401-08856). Wheatland al-leges that it holds the freehold oil and gas interests in the Scurry SE1/4and half of the Scurry NE1/4 by virtue of the 1977 assignments. Wheat-land also asserts that it is the sole legal and beneficial owner of the oiland gas and the Jerome Group knew or ought to have known of the as-signments, despite the title never having been amended.

147 The trial judge did not determine these issues nor did she concludethat the Jerome Group appellants had no interest. I agree with her ap-proach. Accordingly, another court will determine the rights as betweenthose parties in that lawsuit. Given that the litigation is extant, it wouldnot be appropriate to say more about the validity of the assignments orthe rights of Snell/Wheatland, Jerome Development Limited and the Je-rome Group.

3. Standing Given the Purported Assignments148 The second part of the appellants’ standing submission is slightly dif-

ferent. Did the trial judge err in concluding that the dispute betweenSnell/Wheatland and Jerome Group about their respective rights meantshe could not make a declaration about the leases’ validity in the absenceof Snell/Wheatland?

149 The appellants assert that the trial judge erred in placing the onusupon the appellants to add Snell and Wheatland to the lawsuit. They raiseprocedural arguments given that the respondents did not plead the issueinvolving Snell and Wheatland. Finally, they contend that the trial judgeerred in her assessment of the need for Snell and Wheatland’s presencein order to make the declaration they sought.

150 As the Jerome Group had pleaded that they were the registered own-ers of the minerals and lessors under the leases, and sought a declarationthat the Scurry leases had terminated, the trial judge was concerned aboutgranting a declaration in the absence of Snell and Wheatland. The trialjudge made her determination in the context of whether a declaratoryjudgment could be made in the absence of interested parties.


151 The appellants had the burden of demonstrating that the parties beforethe court were the only interested parties: Sarna, The Law of DeclaratoryJudgments, 3d ed (Toronto Ont: Thomson Carswell, 2012) at 98. Thiscourt in Alberta Treasury Branches v. Ghermezian, 2000 ABCA 228(Alta. C.A.) at para 15, (2000), 266 A.R. 170 (Alta. C.A.), described thepurposes of the general rule that all parties to the contract must be beforethe court to enable it to fully address the issues, with citations omitted:

As a general rule, all parties to a contract must be before the court toenable it to fully adjudicate the issues in question .... The purpose ofthis rule is to ensure: (i) no injustice is done to any party to an actionor other interested persons; (ii) the parties are not prejudiced by nothaving all proper parties before the court; (iii) all interested partieswill be bound by the decision so there is no risk of subsequent pro-ceedings by persons not before the court and thus avoid the need formultiple suits; and, (iv) the court will be able to effectively adjudi-cate all issues in question.... The court must be “perfectly certain thatno injustice is done, either to the parties before it, or to others whoare interested in the subject matter....

152 The appellants assert that the declaration was not the only relief theysought. It is true that the appellants sought other relief but it hinges upona finding that the leases had terminated. The declaration is the lynch pinfor all of the other relief and that declaration potentially affects Snell andWheatland.

153 The trial judge thoroughly addressed each of the appellants’ argu-ments in relation to what is described as the Snell Wheatland issue. Somearguments were procedural, such as the failure of the respondents to raisethis issue in their pleadings. She found that the appellants had sufficientnotice of the issue as it arose relatively early in the litigation. She ob-served that the possible error in pleadings did not address the prejudice tothird parties and the possibility of injustice. In my view, her conclusion isentitled to deference.

154 In summary, I conclude that this was an exercise of the trial judge’sdiscretion. She considered each of the appellants’ arguments but wasconcerned about the absence of Shell and Wheatland given the signifi-cant effect the appellants’ claim might have on their interests. The appel-lants have not persuaded me of any misapprehension of the evidence orerror in principle.

155 I dismiss this ground of appeal. While it is conceivable that my rea-soning regarding the other leases’ termination might apply to the Scurryleases, it would not be appropriate to say more.


C. At What Point in Time are the Appellants Entitled to a Remedy?156 My colleague O’Ferrall JA concludes that the appellants consented to

the respondents’ continued production until they issued their Notices toVacate and the Statement of Claim on August 9, 2005. Consent is some-times referred to as leave and licence.

157 The respondents did not specifically plead “leave and licence” butthey did plead that the plaintiffs by their conduct had waived any rightthey had to relief and that by accepting royalties and shut-in well pay-ments, they were estopped from claiming relief. They specificallypleaded estoppel, acquiescence, waiver and the Limitations Act:Amended, Amended, Amended Statement of Defence of Nexen and Ex-xon at paras 23 and 24.

158 The trial judge analyzed this as an issue of limitations. She found thatwith the exercise of due diligence the appellants had all the necessaryinformation to advance a claim prior to 2003. She held that the appel-lants’ claims were barred by the two-year limitation period in section3(1)(a) of the Limitations Act. The trial judge did not address leave andlicence except for a short period after the filing of the statement of claimwith respect to one group of appellants. I discuss this later in this judg-ment at Section V, Part D.

159 I am unable to adopt the approach advanced by my colleague that therespondents were given leave and licence to continue production until theissuance of the statement of claim. No argument was made in this courton this issue. The trial judge made no findings on this issue and otherfindings that she made contradict the notion that somehow the appellantsconsented to the continued trespass by the respondents from 2003 to2005: See paras 220 to 225 of the reasons and in particular her finding atpara 222 that the appellants “did not have the requisite knowledge priorto that time [2005] to establish either estoppel or acquiescence.”

160 The interpretation of the Limitations Act and the test for when aclaimant “ought to have known” are issues of law reviewable on a stan-dard of correctness: Laasch v. Turenne, 2012 ABCA 32 (Alta. C.A.) atpara 9, (2012), 522 A.R. 168 (Alta. C.A.). The application of the limita-tion provision to the facts, as a question of mixed fact and law, is re-viewed on the standard of palpable and overriding error: Housen at para36.

161 The lynch pin of the appellants’ case is the declaration that the leasesterminated. Declaratory relief is not a “remedial order” and therefore notbarred by the limitations provisions in section 3 of the Limitations Act.


However, the real remedy sought is monetary and potentially barred bythe Act.

1. What is the Nature of the Wrong?162 Principles of contract, property and tort law are all in play when con-

sidering the nature of an oil and gas lease. It is not a traditional leasebecause it grants a profit a prendre, rights to minerals in situ below thesurface. Traditional notions of occupation and possession are not an ex-act fit.

163 As the trial judge noted, the tort of trespass is not available to a land-lord claiming against an over-holding tenant: para 584. She commentedthat the applicability of the tort of conversion is also not free from doubt:para 585. She also considered unjust enrichment as a potential cause ofaction. The trial judge did not reach a definitive characterization of theapplicable cause of action but found that “an energy company that ex-tracts resources from land owned by another without a valid lease vio-lates a property right of a person”: para 586.

164 What is the cause of action in such a case? There are at least threepossibilities: trespass, conversion, and unjust enrichment.

165 The party in possession of land may sue someone trespassing on thatland. When the owner of land has granted a lease and the lessee tenanthas taken possession of the land, the tenant has exclusive possession andcan sue for trespass. Professor Nigel Bankes suggests that an over-hold-ing tenant does not commit trespass in a conventional lease: NigelBankes, “Termination of an Oil and Gas Lease, Covenants as to Title,and Assessment of Damages for Wrongful Severance of Natural Re-sources: A Comment on Williston Wildcatters” (2005) 68: Sask L Rev 23at 52-53. As Professor Bankes also noted, some courts have applied theprinciples of landlord and tenant law to resolve disputes between oil andgas lessees and lessors whereas other courts have declined to draw theanalogy. Professor David R. Percy, Q.C. and David McGillivray in theirarticle “Overlapping Remedies and the Unexpected Termination of Oiland Gas Leases” (2011) 49: 2 Alta L Rev 251, write that “the majority ofCanadian cases treat the continued occupation of land after the termina-tion of a mineral lease as a trespass”: para 37. An excellent example isWilliston, also a case involving the termination of an oil and gas leasewhere the lessee continued to produce mines and minerals after the dateof the lease’s termination.


166 There is a variation on the claim for trespass to land: trespass on alessor’s reversionary interest. A reversioner (here the lessor) has the nec-essary standing to sue in trespass when there is damage to the propertywhich the reversioner will in time gain the right to possess or the injuryis of such a permanent nature as to be necessarily prejudicial to the rever-sion: Mayfair Property Co. v. Johnston, [1894] 1 Ch. 508 (Eng. Ch.Div.); Jones v. Llanrwst Urban District Council (1910), 1 Ch. 393 (Eng.Ch. Div.). Technically the claim by the reversioner in such cases is notidentical to a claim for trespass to land since the reversioner will allegethat the defendant has injured the reversion rather than the land. Morerecently, these authorities were discussed in HSBC Rail (UK) Ltd. v.Network Rail Infrastructure Ltd., [2005] EWCA Civ 1437 (Eng. C.A.) atpara 22, (2005), [2006] 1 All E.R. 343 (Eng. C.A.):

These authorities, together with Transcontainer Express Ltd v Custo-dian Security Ltd [1988] 1 Lloyds Rep 128, 137, justify the proposi-tion in Clerk and Lindsell Torts (18th ed) para. 14-143:

The action for reversionary injury lies, it is suggested, inrespect of any act which would, but for the problem of theclaimant’s lack of title to sue, amount to [trespass] negli-gence [or conversion], provided it has the effect of depriv-ing him either temporarily or permanently of the benefitof his reversionary interest whether because the goods aredestroyed or seriously damaged or because they arewrongfully disposed of by a transaction whereby the dis-ponee acquires a good title, so preventing recovery ofthem. But actual damage is necessary ...

[square] brackets in original

167 “If the trespass has caused permanent damage, then a person with areversionary interest would have a right to sue in trespass to obtain re-dress for the permanent, physical harm to the property, since he willeventually suffer the consequences of such harm”: 340909 Ontario Ltd.v. Huron Steel Products (Windsor) Ltd. (1992), 10 O.R. (3d) 95, 35A.C.W.S. (3d) 309 (Ont. C.A.).

168 Additional justification for this approach exists when the interestgranted is a profit a prendre, i.e., the lessee’s right to go on the land forthe limited purpose of severing the minerals and making them its own.The holder of the profit does not own the minerals in situ. They form partof the fee. What the holder of the profit owns are mineral claims and theright to exploit them through the process of severance. When the right togo on the land and sever the minerals has terminated but severance nev-


ertheless continues, the reversioner has been deprived of its fee interest,which constitutes the trespass of the reversion.

169 Conversion is a positive and intentional act of interference with a per-son’s legal possession or right to the immediate possession of goods:Lewis N Klar, Tort Law, 3rd ed (Toronto: Thomson Canada, 2003) at 88.The immediate right to possession takes priority over title or ownership:ibid. It consists of handling, disposing or destroying a chattel with theintention of denying or negating the title of another person to that chattel.Timber (Harshenin v. Bayoff (1991), 49 C.P.C. (2d) 55, 27 A.C.W.S.(3d) 508 (B.C. S.C.)) and crops (Duck Lake Feed Processors Ltd. v.Badowsky (1983), 26 Sask. R. 46 (Sask. Q.B.), available on CanLII, va-ried on other grounds (1987), 54 Sask. R. 296, 3 A.C.W.S. (3d) 72 (Sask.C.A.)) have been held to be chattels. As Ballem points out, conversion isalso more responsive to the situation when a lease that has been pooledhas terminated: at 399.This was the principal cause of action recognizedin Freyberg and in the Freyberg remedies decision.

170 There is an added complication in this case, given my conclusion thatin the absence of Snell and Wheatland, the court ought not to make adetermination regarding the validity of the Scurry leases. The 7-25 Wellis located on the Scurry SE1/4 lease lands. It was suggested by the re-spondents that in the absence of a finding with respect to the ScurrySE1/4 lease, it is not open to the court to find trespass with respect to theremaining leases. Given my colleagues’ conclusion that all of the leasesterminated, it is not necessary that I opine on this. However, I disagreewith the respondents’ position. There are certainly instances when thelessor of mineral rights is distinct from the holder of the surface rights,and courts have not had difficulty concluding that when the mineral leaseterminated, the lessor has a cause of action in trespass: Freyberg andWilliston. Trespass to the reversion would still be available, and the les-sors would still be liable in conversion.

171 These circumstances may also give rise to a claim for unjust enrich-ment. Given that the remedy would be the same (disgorgement), for thepurposes of this appeal, I conclude that the appellant lessors have a rightof action in trespass and conversion, and the remaining analysis proceedsaccordingly.

2. New Actionable Wrong172 The tort of trespass is a continuing tort and results in a new actionable

wrong each day: Williams v. Mulgrave (Town), 2000 NSCA 24 (N.S.


C.A.) at paras 23-33, (2000), 183 N.S.R. (2d) 147 (N.S. C.A.). Conver-sion in the context of the continued exploitation of the leased substancesis also a continuing tort.

173 A similar result obtains “in the case of periodic payments, such as theroyalty payments ... a separate limitation period arises with respect toeach missed payment”: Canadian Natural Resources Ltd. v. JensenResources Ltd., 2013 ABCA 399 (Alta. C.A.) at para 40, (2013), 566A.R. 76 (Alta. C.A.); see also James H. Meek Trust v. San JuanResources Inc., 2005 ABCA 448 (Alta. C.A.) at paras 48-9, (2005), 52Alta. L.R. (4th) 1 (Alta. C.A.).

174 Accordingly, leaving aside for the moment the question of discovera-bility, the appellants’ claim for the two years preceding the statement ofclaim (August 9, 2005) is not statute-barred.

3. Discoverability175 Going back further is problematic. The appellants submit they did not

discover that there was a potential issue over the validity of their leasesuntil late 2003 when Mr. Oneil met with counsel and received adviceregarding the leases. They sued within two years of that date. However,lack of knowledge of the law giving rise to the right to sue is not a suffi-cient reason to excuse a claimant’s lack of due diligence. “Generallyspeaking, discoverability in Alberta law refers to facts, not law ... error orignorance of law, or uncertainty of the law, does not postpone any limita-tion period”: Salna v. Awad, 2011 ABCA 20 (Alta. C.A.) at para 28,(2011), 499 A.R. 264 (Alta. C.A.). “Discoverability relates to issues offact, not questions of law, and any difficulties in interpreting the docu-ments does not extend the limitation period”: Jensen Resources Ltd atpara 43.

176 The trial judge found that the appellants or their predecessors in inter-est would have known that production under the leases had ceasedshortly after July 1995 when they stopped receiving monthly productionroyalty cheques and received annual rental payments: paras 193, 197. Bythe end of November 1995, the appellants ought reasonably to haveknown that production had ceased for more than 90 consecutive days;thus, they knew or ought to have known all the facts necessary to ad-vance their claim that the leases had terminated in accordance with theirterms. Further, she held that even if the appellants did not know a factmaterial to the injury because they did not necessarily know the reasonfor cessation of production, they were obliged to exercise due diligence


in determining the reason for the cessation of production: para 200. Theywere not entitled to ignore the issue until they were ultimately notified bythe respondents that the well was shut in because it was uneconomical tocontinue. The trial judge further found that if some knowledge of thereason for cessation was necessary, such knowledge could reasonablyhave been obtained within a year.

177 The trial judge found no evidence that the appellants exercised rea-sonable diligence in discovering their injury until Mr. Oneil consultedcounsel in December 2003 when he was unhappy with some of the les-sees over an entirely different issue: para 203. She concluded that theappellants had all the necessary information for their claim prior to 2003.It made no difference whether the cause of action arose when the shut inperiod began in July 1995, 90 days later or at the end of the shut in pe-riod in January 2001 as the claim was not filed until August 9, 2005,more than two years after the shut in period ended.

178 The appellants raise many arguments challenging the trial judge’sconclusion that they ought to have known that they suffered an injurythat warranted bringing proceedings in 1995. They contend that not re-ceiving royalty cheques and receiving shut in payments would not haveput them on notice, particularly when the trial judge also found the re-spondents did not know that the leases had terminated. As well, the evi-dence was that not all of the appellant lessors received royalties. Moreo-ver, Nexen’s policy was to issue rental payments regardless of whetherthe well was producing. They further submit that the trial judge wronglyimputed too high a level of knowledge about the interpretation of leasesfor those not involved in the oil and gas industry. They say that absentclear information to show improper payment, interest holders are notobliged to take positive steps to ensure they are being correctly paid.

179 These are arguments based on the trial judge’s findings of fact andreviewable for palpable and overriding error. In my view it is unneces-sary for the disposition of this appeal to comb the record for palpable andoverriding error.

180 Moreover, at least two of the lessor groups had actual knowledge. Asregards the Jefferson SW1/4 lease, the Oneil group knew they were re-ceiving royalty payments again and that the well was producing again inMarch 2002, and Ms. Baxter Gilmour on behalf of Bowen FamilyProperties testified that her mother had written to Nexen in 2002 askingwhy no royalties had been paid when it appeared that the well was pro-ducing. With respect to the Union NE1/4 lease Ms. Cardiff made two


inquiries of Coastal in March 2001 and May 2002, which confirmed thatshe knew the well was producing. Accordingly, there was ample evi-dence on the record to support a finding that by 2002 the Jefferson andUnion appellants knew that they had suffered an injury which warrantedcommencing a proceeding.

181 No similar evidence exists with respect to the Imperial NW1/4 lease.Robert Copley testified that when his father (the original lessor) died, heand his siblings set up a professionally-managed trust. They gave nothought to the issue of whether the Imperial NW1/4 lease may have ter-minated “because everything went through Compushare and we’re ...waiting for the cheques”: Transcript at 604/29-33. It was not until Mr.Oneil contacted him in 2003 that he gave the issue of the lease’s validityany thought. Although this group of lessors may not have had actualknowledge, this court’s interpretation of the Limitations Act “calls for‘reasonable diligence’ on the part of the claimant”: Jensen Resources Ltdat para 41. In conclusion, these appellants did not exercise reasonablediligence.

182 Given my findings about the two Scurry leases (see Part B), the issueof discoverability as regards those two leases is not relevant. Further, myconclusion (in Part F) that 108 had no right to claim a remedy indepen-dently of the appellant lessors means I need not consider it in the limita-tions context.

4. Conclusion183 In the result, the Limitations Act is a defence to the appellants’ claims

before August 9, 2003.

D. Leave and Licence to Occupy the Property — Union NE1/4 Lease184 Consent or “leave and licence” is a defence to an action in trespass.

“If a defendant enters in circumstances which amount to trespass, thesubsequent conduct of the plaintiff may reveal that he has acquiesced insuch entry, to the extent that as a consequence, his permission to entercan be said to have been given ex post facto”: GHL Fridman, The Law ofTorts in Canada, 2nd ed (Toronto: Thomson Canada Limited, 2002) at 5.

185 In the context of the grounds raised in this appeal, in my view, theonly question of leave and licence relates to the Union NE1/4 lease andthe Irwin Group lessors. Although the trial judge concluded that the re-spondents were not trespassers, she discussed this issue very briefly inher reasons.


186 The three individuals in the Irwin Group, whose interest in the UnionNE1/4 lease descended from Jean Ella Irwin, knew little about the Sec-tion 25 lands until Ms. Irwin’s death in April 2005. The Irwin Groupwere initially named as defendants in the litigation. In the summer of2005, Freehold Solutions contacted Ms. McLaren, granddaughter of Ms.Irwin, to explain the litigation. The members of the Irwin Group agreedto the top lease and on December 5, 2005 were added to the statement ofclaim as plaintiffs. Ms. McLaren testified that until the 2005 meetingwith Freehold Solutions, she had no concerns about the performance ofCoastal, Union’s successor, and never contacted Coastal. However, byOctober 7, 2005 when the last of the Irwin Group appellants entered intothe top lease agreements with Freehold Solutions, they knew of the rightsgiving rise to their claims.

187 The Irwin Group continued to receive royalty payments after they be-came plaintiffs in the litigation and cashed some of the cheques. On Jan-uary 12, 2007, their counsel sent a letter to Coastal demanding that itstop production from the well. On March 19, 2007, the parties enteredinto an agreement which addressed how the royalty payments would betreated in the context of the litigation. The royalty payments by Coastalto the Irwin Group following service of the statement of claim would notconstitute any form of acceptance, acquiescence, condonation or waiverby the royalty payees; nor, would it prejudice or affect Coastal’s allega-tion that payment and acceptance of royalties prior to service of the state-ment of claim constituted acceptance, condonation and waiver such thatthe Irwin Group were estopped from challenging the lease: A591.

188 The trial judge concluded that there had been no leave and licenceprior to October 2005. However, by continuing to accept royalty pay-ments, she found that the Irwin Group implicitly gave leave and licenseto Coastal from the time they entered into the top lease agreements inOctober 2005 until January 12, 2007, when they demanded that Coastalstop producing from the 7-25 Well: para 668.

189 The appellants submit that the trial judge erred in finding that the Ir-win Group had given Coastal leave and licence. They say that theymerely cashed some royalty cheques until advised not to do so in 2007.Coastal knew of the amended statement of claim by December 5, 2005and would have received notice to vacate and cease operation aroundSeptember 2005. These appellants submit that the innocent cashing of afew royalty cheques in these circumstances did not constitute leave andlicence to continue producing gas under an expired lease. They also point


out that Coastal led no evidence to suggest it believed its lease had beenaffirmed by the Irwin Group.

190 In Williston, the court set out the indicia necessary to establish leaveand licence. One factor is particularly relevant in these circumstances:was there tacit consent implied from conduct?

191 In Williston, the decisive factor was two letters sent to the lessee; thefirst sought information about the suspected termination of the lease. Thesecond letter said the lessors considered the lease terminated but alsostated that the lessors did not require the lessee to vacate the property.The court found that the inescapable conclusion was this constituted con-sent, tacit or express, that the lessees could remain in possession and paythe royalty pending the determination of the validity of the lease.

192 The conduct which is said to amount to tacit consent in this case iscashing the royalty cheques. In the Freyberg remedies decision the trialjudge concluded that the mere fact that Lady Freyberg accepted the roy-alty payments after she filed her claim was “not enough” to find leaveand licence. Unlike Williston at no time did Lady Freyberg or anyone onher behalf acknowledge the lease, encourage the defendants to continueproduction, or give implied or express consent to continued production:para 133. Nor was the absence of a formal demand to stop producingdeterminative: para 135. It was determinative in the Freyberg remediesdecision that there was no finality about the lease’s validity until the Su-preme Court denied the lessees’ permission to appeal the Court of Ap-peal’s decision that the leases had terminated.

193 In my view the trial judge erred in part when she concluded that theIrwin Group gave leave and licence from the date they entered into thetop lease (October 7, 2005) to January 12, 2007. I prefer to adopt thereasoning in the Freyberg remedies decision. Once a claim is filed andpursued, and absent any implied or express encouragement to continueproduction, the mere fact that royalty payments are taken and no formaldemand to stop producing is made are not determinative and do notequate to granting leave and licence. The respondents were on notice thatthe suit was pending and the lessors were asserting their reversionaryrights. In my view, there is no leave and licence in these circumstances.Accordingly, from the addition of the Irwin Group as plaintiffs in De-cember 5, 2005 to January 12, 2007, there was no leave and licence.

194 However, I find no error with respect to the trial judge’s conclusionthat there was leave and licence in the period before the statement ofclaim was amended to include the Irwin Group as plaintiffs. The nature


of the Irwin Group’s claim was not clear, particularly as they had beennamed as defendants in the lawsuit.

195 In conclusion on this issue, the Irwin Group gave Coastal leave andlicence to continue production from the time they became aware that theleases had arguably terminated in October 2005 until they became plain-tiffs in the action against Coastal, in December 2005. Thereafter, therewas no leave and licence.

E. Remedy

1. Background196 By way of introduction, case law and academic commentary demon-

strate that remedies for trespass in the context of removal of a resourcerange along a continuum based on courts’ perceptions of what is just andequitable in the face of the trespasser’s conduct. If a trespasser’s conductwarrants punishment, it may be required to disgorge the entirety of thebenefit gained from the trespass with little or no allowance for costs in-curred in earning that benefit or improvements made to the property.This is the so called “harsh” rule. The harsh rule is designed to deterwilful trespass. At the other end of the spectrum, when the trespass is nottainted by fraud or bad faith, is the “mild” rule which requires the tres-passer to disgorge the revenues less certain expenses, but with no allow-ance for profit to the trespasser. There has been a further refinement tothe mild rule. When neither party knew of the trespass and the propertyowner would have been unable to realize the benefit the trespasser ob-tained from the trespass, courts have permitted the trespasser to retain thebenefit of the trespass and ordered the trespasser to pay the propertyowner a reasonable fee for the use of the property. This is known as the“royalty method”. The lessee pays the property owner contractuallyagreed royalties and any bonus associated with negotiating a new lease.

197 The trial judge provisionally assessed damages on the basis of theroyalty method. In so doing, she followed Williston and the Freybergremedies decision: reasons at para 663:

198 Damages awards should only be interfered with if the trial judge ap-plied a wrong principle of law or the overall amount is a wholly errone-ous estimate: Andrews v. Grand & Toy Alberta Ltd., [1978] 2 S.C.R.229, 83 D.L.R. (3d) 452 (S.C.C.). Palpable and overriding error appliesto findings and inferences of fact concerning the assessment of compen-satory damages: De Montigny c. Brossard (Succession), 2010 SCC 51(S.C.C.) at para 27, [2010] 3 S.C.R. 64 (S.C.C.).


2. Damages vs Disgorgement199 The appellants seek damages based upon the harsh rule — disgorge-

ment of profits with no allowance for the costs incurred in production.200 The appellants submit that the trial judge erred by adopting the roy-

alty method which they characterize as “nominal” damages. They assertthat the only appropriate remedy was disgorgement because the trialjudge was bound by the Supreme Court’s decision in Sohio. As to Willis-ton and the Freyberg remedies decision, they say those cases are distin-guishable and to the extent they conflict with Sohio, they should not befollowed. The appellants rely upon Hill Estate v. Chevron Standard Ltd.(1992), [1993] 2 W.W.R. 545, 83 Man. R. (2d) 58 (Man. C.A.), and sub-mit that restoring lost profits is an equitable result that accords with theobject and principles underlying the law of restitution.

201 They also say that the trial judge’s concern that the top lessees wouldshare in the profit was an irrelevant consideration as she found no cham-perty or maintenance.

202 Finally, they contend that the trial judge erred in law by treating dis-gorgement as a remedy suitable only for punitive purposes. They submitthat Sohio’s ratio is that a trespasser who converts another’s property inthe face of a lawsuit and demand to vacate will be held to account for itsprofits. This is not punishment but rather, without disgorgement, there ispositive incentive to profit from trespass and conversion.

203 The starting place for considering the remedy is Sohio. There, the par-ties’ lease (Sohio as lessee and Weyburn as lessor) lapsed according toits terms in 1959 but a mutual mistake about the meaning of the haben-dum clause resulted in the lessee producing until 1966, when the lawsuitcommenced. The Supreme Court upheld disgorgement of the lessee’s“benefits” from the date the suit was served on the lessee but refused toaward that remedy from the time the lease terminated until the lawsuitcommenced. The court held at page 88 (with emphasis added):

The [lessor] requested that the judgment of the Court of Appeal bevaried in so far as it dealt with the date from which the [lessee]should be required to account to the [lessor] for production takenfrom the leased lands. The [lessor] contends that the date should beOctober 28, 1959, the date on which the lease terminated, subject toan allowance for expenses incurred by the [lessee]. This phase of the


matter was dealt with in the following passage from the judgment ofthe Court of Appeal:

The [lessor] also sought an accounting of all petroleum,natural gas and related hydrocarbons removed from theland by the [lessee], or damages in lieu thereof. The courthas jurisdiction to grant this relief on terms which will bejust and equitable to all parties involved. The [lessee] pro-ceeded under a mistake as to its rights, and did not know-ingly take an unfair advantage of the [lessor’s] lack of ap-preciation of its legal rights. The [lessees] were firstaware that their position was challenged when the writ ofsummons was served upon them. At that time the revenuewhich they had received from the sale of the productionexceeded the amount they had expended. Under the cir-cumstances, it would appear just and equitable to orderthe [lessee] to account for all benefits from production re-ceived by them after the date of service of the writ ofsummons upon them.

204 To summarize, the Supreme Court upheld the following remedy:from 1959 (when the lease terminated unbeknownst to either party) untilthe lawsuit commenced in 1966, the lessor received royalty payments ac-cording to the terms of the lease. Thereafter, the lessor was entitled to“all benefits from production.”

205 In the course of the Williston litigation, the Saskatchewan Court ofAppeal noted that an “examination of the exhibits filed at the Sohio trialreveals that [the lessor] received approximately 30% of the net benefitsfrom production”: Montreal Trust Co. v. Williston Wildcatters Corp.,2004 SKCA 116 (Sask. C.A.) at para 99, (2004), 243 D.L.R. (4th) 317(Sask. C.A.) (emphasis added).

206 The respondents reiterate that they are innocent tortfeasors and, rely-ing on the Freyberg remedies decision and Williston, say Sohio’s ratio iscircumscribed by the phrase “[u]nder the circumstances” emphasized inthe quote above. They argue this means the Supreme Court was not es-tablishing any sort of general rule about remedies for trespass.

207 I do not read Sohio so narrowly. It is a binding precedent which setsout the basic principle for determining the remedy here. Williston is notbinding, and in any event, for the policy reasons discussed below, I donot reach the same conclusion as did the Williston court. I also find thatthe trial judge erred when she concluded that disgorgement should onlyapply when circumstances are such that more punitive measures are ap-


propriate. As discussed below, the disgorgement principles can also ap-ply to an innocent tortfeasor. Accordingly, I examine the possible reme-dies afresh.

a. The Royalty Approach208 Given that in Sohio the lessors received 30% of the net benefits from

production, the phrase “all benefits” as used in Sohio must mean some-thing more than the royalty method. As the following commentary dem-onstrates, there are also important policy reasons militating against theroyalty method.

209 First, and foremost, the royalty approach ignores the ownership of thegas after the termination of the lease. It is the lessor and not the lesseewho owns the gas. Once a lease has terminated, “it is the lessor, not thelessee who owns the minerals. In the absence of bad faith on the part ofthe lessee, and following the [Sohio] approach, it would seem equitableto apply a form of restitution”: Ballem at 388. Moreover, the royalty ap-proach used by the trial judge “could encourage the lessee to continueproducing the well after the lease has been challenged, knowing that thefinancial consequences will not be severe. Indeed, it would be very muchto the lessee’s advantage to do so, as the result could end up being almostthe same as if the lease continued to be valid. ...This, despite the fact thatthe lessee had enjoyed revenue from the production of minerals to whichit had no legal title”: Ballem at 389.

210 A factor that has been decisive in selecting the royalty approach is thelessor’s inability to realize the benefit the lessee derived in the course ofits trespass. As Ballem points out, this approach inevitably leads to a dif-ferent result depending upon the circumstances of the lessor. If the lessoris a person with no oil and gas operating experience or capability, thedamages are limited to royalty and bonus. If the lessor is an oil industryentity, the damages may well be the revenue less the cost of production.

211 This approach also requires the court to speculate on a lessor’s inten-tions. The fact that the mineral owner may not be personally involved inthe oil and gas industry does not preclude the hiring of an independentcontractor to produce the minerals. The trial judge viewed the lessors’arrangements with the top lessee and their subsequent settlement agree-ment with the owner of a nearby gas storage facility as evidence of thelessors’ intention not to exploit the resources themselves. It seems to methat this underemphasizes the important point that it was the appellants’property to exploit. They ought to be able to choose to do so and should


not be penalized for not having the immediate ability to do so. In anyevent, the subsequent settlement agreement required the appellants tomonetize their interest otherwise than through the receipt of royalties.This is indicative of an intention not to be restricted to receiving royaltiesalone.

212 The concern with requiring that the lessor be able to exploit the re-source is well summarized by Professor Bankes in his case comment onWilliston:

cases that adopt the royalty approach are inconsistent with the bulkof authority in this area. ... it is hard to imagine many resource sever-ance cases (with the possible exception of the forestry sector) inwhich the plaintiff/owner will be able to make a credible argumentthat it would have exploited the resource itself. This will have theanomalous result that the tortfeasor without title will generally be inexactly the same position as a lessee with title.

213 The rejection of the royalty approach in a tort case is similar to theapproach used in determining remedies for actions in contract. In con-tract the presumptive rule is that the claimant is entitled to be put in theposition it would have been in had the contract been performed (i.e.,damages) but when circumstances call for a different measure, disgorge-ment of defendant’s benefit is a potential remedy: see Bank of AmericaCanada v. Mutual Trust Co., 2002 SCC 43 (S.C.C.) at paras 31-33,[2002] 2 S.C.R. 601 (S.C.C.); see also Inuit of Nunavut v. Canada(Attorney General), 2014 NUCA 2, 580 A.R. 75 (Nun. C.A.).

214 The disgorgement approach therefore accords with the law of reme-dies in both tort and contract. This is a desirable result, see generally BGCheco International Ltd. v. British Columbia Hydro & Power Authority,[1993] 1 S.C.R. 12 (S.C.C.), at 38, (1993), 99 D.L.R. (4th) 577 (S.C.C.).

215 In the result, I reject the royalty approach.

b. The Harsh Rule216 As already mentioned, in Sohio the lessors received 30% of the net

benefits from production. In my view, the phrase “all benefits” as used inSohio must mean something less than the harsh rule, which would permitrecovery of 100% of all, not merely net, benefits from production.

217 Although said in the context of purely economic torts, one of the fourprinciples governing tort law in Bram Enterprises Ltd. v. A.I. EnterprisesLtd., 2014 SCC 12, [2014] 1 S.C.R. 177 (S.C.C.) provides guidance. Thecommon law “has generally promoted legal certainty for commercial af-


fairs. That certainty is easily put in jeopardy by adopting vague legalstandards based on ‘commercial morality’ or by imposing liability formalicious conduct alone”: para 33. This statement rings true as regardsthe harsh rule, which is “generally used in a punitive manner where thetrespasser takes a course of action with knowledge that they are commit-ting a wrong, or where the conduct is sufficiently negligent or reprehen-sible that it warrants such treatment”: reasons at para 596.

218 Even if “all benefit” as used in Sohio could, on plain reading mean“revenue”, the law of disgorgement has evolved since Sohio was decidedin 1971. Even wrongdoing fiduciaries are generally entitled to set-off ex-penses associated with earning their wrongful gains: see e.g., 3464920Canada Inc. v. Strother, 2007 SCC 24 (S.C.C.) at paras 88-9, [2007] 2S.C.R. 177 (S.C.C.). In some cases they may be entitled to an allowancefor their special skills, expertise and effort: Strother citing WarmanInternational Ltd. v. Dwyer (1995), 128 A.L.R. 201, 182 C.L.R. 544(Australia H.C.).

219 On my reading of Sohio, A.I. Enterprises Ltd and Strother, thesecases support the conclusion that disgorgement of revenue with no set-off for expenses incurred in earning that revenue (the harsh rule) shouldno longer be available to remedy a trespass of this nature. That remedydoes more than award disgorgement of the tortfeasor’s gain; it imposes apunitive sanction.

220 There may be cases when the tortfeasor’s conduct warrants punitivedamages: see Bowen Contracting Ltd. v. B.C. Log Spill Recovery Co-operative Assn., 2009 BCCA 457, 313 D.L.R. (4th) 498 (B.C. C.A.); andGeorgian Bluffs (Township) v. Moyer, 2012 ONCA 700, 298 O.A.C. 121(Ont. C.A.).

221 Punitive damages require malicious, oppressive and high-handed mis-conduct that offends the Court’s sense of decency, or is extreme in itsnature and such that by any reasonable standard it is deserving of fullcondemnation and punishment: see generally, Vorvis v. Insurance Corp.of British Columbia, [1989] 1 S.C.R. 1085 (S.C.C.) at 1105-6, (1989), 58D.L.R. (4th) 193 (S.C.C.); Whiten v. Pilot Insurance Co., 2002 SCC 18,[2002] 1 S.C.R. 595 (S.C.C.). In my view, rather than make an overallassessment of the total sum which combines disgorgement and punitivedamages, it is helpful to make an assessment under each head (disgorge-ment and punitive damages). This itemized approach for awarding dam-ages was developed by the Supreme Court in Andrews for the purpose ofmaking the analytical process used for calculating damages more ex-


plicit. As the Supreme Court stated, this is desirable “in light of generalconsiderations such as the awards of other courts in similar cases and anassessment of the reasonableness of the award”: at 233.

222 The appellants ask that we apply the harsh rule. First, as I stated ear-lier, in my view the harsh rule imposes a remedy best left to the realm ofpunitive damages. In any event, I would not impose it here. The appel-lants urge us to sanction the respondents’ conduct in the face of knowl-edge that the leases had terminated. They rely particularly upon the evi-dence of the landman who thought the leases may have expired and madefurther inquiries in that regard. The trial judge thoroughly reviewed thisevidence. She was not persuaded that the respondents would be anythingother than innocent tortfeasors. She observed that the issue of the validityof the leases was not clear cut, and that neither party would have knownfor a period of time that the leases had terminated. She noted that theabsence of Snell and Wheatland from the litigation meant that the re-spondents may have had obligations to third parties that may have beenbreached if they had stopped production.

223 In conclusion, in my view use of the harsh rule for torts of this natureshould be abandoned. The trial judge’s conclusion that the conduct of therespondents did not warrant punishment is a finding of fact. It is sup-ported by the evidence and I discern no reviewable error.

224 This leaves the mild rule.

c. The Mild Rule225 This court has upheld the imposition of the mild rule: Signalta

Resources Ltd. v. Dominion Exploration Canada Ltd., 2008 ABCA 437(Alta. C.A.) at para 39, (2008), 173 A.C.W.S. (3d) 1222 (Alta. C.A.).The trial judge in that case had provisionally determined that the remedywas calculable on the basis of revenue less drilling, operating costs androyalty expenses: Signalta Resources Ltd. v. Dominion ExplorationCanada Ltd., 2007 ABQB 636 (Alta. Q.B.) at para 304, (1996), 62A.C.W.S. (3d) 497 (Alta. Q.B.).

226 Professor Bankes writes that the lessor should be entitled to “make agains-based claim to the value of the resource and further, that thetortfeasor should be able to make deductions for improvements whichadd value to the resource. It follows that the defendant must adduce evi-dence as to what those costs actually were, but the defendant should alsobe able to claim for pre- and post-severance costs ...”: ibid; see alsoBallem.


227 On my reading of Sohio, although the courts did not refer to it assuch, the result upheld by the Supreme Court reflects the mild rule. Sinceit was decided, the Supreme Court has acknowledged that even wrongdo-ing fiduciaries may be entitled to an allowance for their special skills,expertise and effort: Strother.

3. Conclusion on Remedy228 I conclude that neither the royalty approach nor the harsh rule are

consonant with Sohio. In my view, the harsh rule is punitive and shouldbe abandoned unless the trespasser’s conduct warrants punitive damages.In my view, the trial judge’s conclusion that punitive damages were notjustified is entitled to deference.

229 I would base the disgorgement on the “Agreed Statement of FactsPertaining to Revenues, Expenses and Royalties” (A19ff) from August2003 through January 2011. These sums can “fairly be allocated bylease” by applying the formula prescribed in para 11 of the Agreed State-ment of Facts.

230 The starting point for the calculation is “net operating income” as setout in the Agreed Facts from which shall be deducted the sums paid tothe lessors, whether in the form of royalties or otherwise. To be clear thecost to recomplete the well ought not to be deducted as this was never acost attributable to the lessors.

231 Given my conclusion on leave and licence granted by the IrwinGroup to Coastal (Part D), those lessors are not entitled to disgorgementfrom October to December 2005, but are entitled to the royalty paymentsthey earned during this period, as they would have received them in anyevent.

232 As reflected in Part B, I conclude that no remedy is available to theScurry lessors.

233 I will discuss the impact of my conclusion on the gross overridingroyalties paid to Esprit in Part G.

234 This leaves consideration of 108’s independent claim for damages.

F. 108’s Independent Claim for Damages235 Bowes, Freehold Solutions and 108 will be referred to in this part as

the top lessee. The top lessee’s relationship with the lessors is two-fold: atop lease on each quarter section and a 50 percent interest in the outcomeof this litigation.


236 The trial judge found that the top lessee’s claim against the lesseeswas based in trespass, conversion and unjust enrichment or, alternatively,wrongful interference with economic rights: reasons at paras 177,179.The top lessee claimed an independent right of action and damages forloss or delay taking possession and producing the leased substances.

237 The trial judge held that the top lessee had no independent right topursue a claim for several reasons. First, the top leases do not becomeeffective until there has been a determination that the original leases haveterminated so there was no basis for the claim for loss or delay. Second,the top lessee could not claim trespass since that remedy is only availableto a party in possession, and there was no evidence that the top lesseehad such a right. Third, the top lessee could not have advanced a claimfor unjust enrichment since its interest was at best contingent and mightnever come into effect.

238 The appellants submit that the trial judge erred in failing to find thetop lessee had an independent right to damages. They say that the toplessee suffered a loss because the respondents maintained their caveatsand prevented it from producing the 7-25 Well. They submit all the ele-ments of unjust enrichment are met.

239 The agreements between the top lessee and the lessors include tworelevant provisions: the top lessee’s right to possession is “contingentupon and deferred until there is a determination that the Original Leasehas terminated” (cl 2) and the lessors shall pay to the Top Lease Group“out of the proceeds of any settlement or judgment, a fee equivalent tofifty percent (50%) of the value of any payments or other valuable con-sideration which are received resulting from or arising out of such settle-ment or judgment” (cl 4(c)): A538-39.

240 Given cl 2, I find no reviewable error in the trial judge’s conclusionthat the top lessee had no independent claim or right to a remedy. Itsrights are contingent upon a determination that the leases haveterminated.

241 A general rule in tort law prohibits double recovery: Ratych v.Bloomer, [1990] 1 S.C.R. 940, 69 D.L.R. (4th) 25 (S.C.C.); Bedard (NextFriend of) v. Martyn, 2010 ABCA 3, 469 A.R. 322 (Alta. C.A.). Were Ito award the top lessee a remedy in addition to what they are entitled toby clause 4(c), the rule against double recovery would be infringed.

242 I therefore dismiss this ground of appeal.


G. The Liability of Esprit

1. History of Esprit’s Involvement with Section 25243 Esprit is the successor in interest to Canadian 88, which at one time

held interests in the NE1/4, the SE1/4 and the NW1/4 of Section 25.When it disposed of its primary interest in Section 25, Esprit (now Pen-growth) reserved to itself a 10 percent gross overriding royalty of pro-duction from or allocated to the 60.5 percent pooled interest in the BQformation in the Section 25 lands. The effective date of that agreement isJune 1, 2000.

244 Esprit was not a working interest participant in the BQ formation dur-ing the period relevant to this action. Esprit obtained its interest shortlyafter the 7-25 Well was suspended in August 1995 and sold its workinginterest to Triquest in May 2000. In short, Esprit had no working interestfrom 2001 (when the 7-25 Well resumed production) to January 2011(when the 7-25 Well was shut in by order of the Court of Queen’sBench).

245 The CAPL 1997 Overriding Royalty Procedure, attached as a sched-ule to the royalty agreement, provides that Esprit may either take its roy-alty share in kind or the royalty payor (Bonavista) will act as Esprit’s“agent ... for the handling and disposition” of its royalty share of the gasand Bonavista will “be as a trustee” for Esprit.

246 It is not disputed that Esprit did not take its royalty share in kind: TabE of the Agreed Statement of Facts Pertaining to Revenues, Expensesand Royalties.

2. Trial Judge’s Reasons247 Esprit argued at trial that it was not liable for conversion in the oil

and gas context, as conversion occurs at the point of extraction. Onlyworking interest owners may be liable in conversion. It contended that itcould not be liable jointly or severally for trespass or conversion becausejoint and several liability among working interest owners requires awrongful act, mutually performed by the defendants and in furtheranceof a common purpose: Freyberg remedies decision at para 154. It wasnot a working interest owner and did not participate in conversion, andtherefore had less of an interest in and connection to the Section 25lands. It submitted that it could not be liable for unjust enrichment as itdid not receive a benefit at the appellants’ expense. Any alleged depriva-tion of the appellants corresponds to the alleged enrichment of the work-


ing interest owners. To claim the same loss against working interest own-ers and those who received payments from them would constituteimpermissible double counting.

248 The trial judge provisionally concluded that, had she found that theleases terminated and damages other than on a royalty basis were appro-priate, she would not have found a sufficient degree of proximity tomake Esprit liable. The trial judge relied on the Freyberg remedies deci-sion which she found stood for the proposition that collusion is necessaryto find minority working interest owners liable in trespass and conver-sion. She concluded that not only did Esprit have no control over theproduction of gas, its interest as a working interest owner ended in 2000and the damages claimed in disgorgement relate to the period after that.

249 The appellants raise two grounds of appeal: the trial judge erred bynot finding that Esprit’s caveat should be removed and that it was notjointly and severally liable.

3. Should Esprit’s Caveat Be Discharged?250 The appellants submit that the trial judge erred in failing to find Es-

prit’s interest did not terminate with the leases. They submit that Espritno longer has an interest in the leases and can no longer protect themwith a caveat. Accordingly, its caveat, registered against the ImperialNW1/4 lease (Pengrowth) should be discharged.

251 Given my conclusion that the Imperial NW1/4 lease terminated, Es-prit’s caveat should also be discharged. I note as well that Esprit’s roy-alty interest was granted three months after the leases had terminated soTriquest had no interest to convey to Esprit in June 2000.

4. Should Esprit Be Held to Account For Royalties Earned fromProduction?

252 As a preliminary matter, I agree with the trial judge that there is nobasis for holding Esprit jointly and severally liable. The trial judge’s factfindings regarding the degree of proximity between the lessors and Espritare entitled to deference and there is no suggestion that she applied theincorrect legal test. In my view, the appellants have not demonstratedany error warranting intervention in this regard.

253 Accordingly, the most the appellants can claim is disgorgement of theroyalties Esprit earned from August 2003 to January 2011. Is Esprit enti-tled to retain those funds or must it disgorge them?


254 The appellants’ primary submission on appeal is that Bonavista wasEsprit’s agent. They say that since a principal is liable for the torts of itsagent, Esprit is liable for Bonavista’s trespass. Esprit contends the rela-tionship is one of trustee and beneficiary.

255 The appellants rely on Clause 2.03A of the CAPL 1997 OverridingRoyalty Procedure. That clause appoints Bonavista the agent of Espritfor the “handling and disposition of the Overriding Royalty Share” ofproduction (emphasis added). This is the only factor that points to anagency relationship.

256 The same clause goes on to say that all acts of Bonavista under theclause in the handling and disposition of the production and the receipt ofthe proceeds of sale will be as trustee of Esprit (emphasis added).

257 When there are two possible constructions of a legal relationship(agency or trust), the predominant relationship must be determined in or-der to assess the extent of the principal/beneficiary’s liability for theagent/trustee’s actions. Assuming no extricable legal error, this is a ques-tion of fact: Trident Holdings Ltd. v. Danand Investments Ltd. (1988), 64O.R. (2d) 65, 49 D.L.R. (4th) 1 (Ont. C.A.).

258 The question of whether Esprit was, in fact, the principal behind Tri-quest and later Bonavista is a question of fact, entitled to deference.There is nothing to suggest that Esprit exerted any control overBonavista. Bonavista merely disposed of the produced substances fromthe 7-25 Well in the ordinary course and paid Esprit its gross overridingroyalty.

259 I recognize that it is not always easy to draw the line between trustand agency. That is why the analysis of the facts is so important. Thiswas the domain of the trial judge. She took into account Clause 2.03which was the only factor that supported an agency relationship. She wasnot satisfied that there was sufficient control of Bonavista by Esprit. Ifind no palpable and overriding error in her conclusion.

260 I have therefore concluded that the trial judge did not err in findingthat Esprit had no liability for the actions of the lessees. Nor can I discernany policy reasons to warrant imposition of liability on Esprit. For thepurposes of this analysis, its position is not much different than that ofother royalty recipients.

261 In conclusion, I find that Esprit is not liable to the lessors.


VI. Conclusion — Appeal and Cross-appeal262 I would allow the appeal in part and dismiss the cross-appeal. [263]

To summarize, my conclusions on the appeal are as follows:

a. The trial judge’s interpretation of the leases’ third proviso of thehabendum clause to include the qualifier that there must be a lackof or intermittent economical or profitable market was reasonable.Her interpretation of “beyond the lessee’s reasonable control” wasalso reasonable.

b. I am unable to sustain the trial judge’s conclusion that the lessees’met their burden of proving that the third proviso applied afterJanuary 2000. This conclusion is unreasonable because marketingproduction thereafter would have met or exceeded the industry’sobjective hurdle rates according to the expert whose evidence thetrial judge preferred. The expert testified that small companieswould “have jumped on” producing the 7-25 Well in January 2000but these lessees required more “compelling” economics and re-quired the 7-25 Well to be “very” profitable. This subjective ap-proach, which favoured the lessees’ interest over those of the les-sors, was an unreasonable interpretation of these leases.

c. On my interpretation of these leases, the lessees had 90 days afterJanuary 1, 2000 within which to recomplete the 7-25 Well. Theydid not do so. Therefore, all but the Scurry leases terminated ac-cording to their terms.

d. The trial judge made no reversible error in refusing to make a dec-laration as to the Scurry leases’ validity because there were partiesthat arguably had an interest in those leases that were not presentat trial. Given they were also denied status on appeal, I am in nobetter position than the trial judge. The present litigation betweenthe Scurry appellants and the parties with an arguable interest willdetermine their respective interests. These reasons may be of as-sistance thereafter.

e. Given my conclusion that all but the Scurry leases terminated, thenature of the wrong (trespass of the reversion and conversion) andthe limitations issue are relevant. The trial judge erred in her pro-visional assessment of the lessees’ limitations defence. Thesewere continuing torts. The statement of claim was filed August 9,2005 and the lessors are entitled to a remedy beginning two yearsbefore that, August 9, 2003.


f. An exception to the forgoing arises in regard to the Irwin Group.Accepting royalty payments and failing to issue a formal notice isnot determinative of implied consent to the trespass once a claimhas been filed and diligently pursued. Accordingly, I conclude thatthe provisional leave and licence conclusion at trial is not sustain-able. However, from October 7, 2005 (when the Irwin Group ap-pellants agreed to pursue the lessor, Coastal, as part of the suit)until their position changed from defendant to plaintiff on Decem-ber 5 2005, I agree with the trial judge’s conclusion that theygranted Coastal leave and licence. As a result, this period is notcompensable for these appellants.

g. As regards remedy, on my reading, the Supreme Court’s decisionin Sohio is binding and stands for the proposition that lessors’whose leases have terminated are entitled to recover the net bene-fits enjoyed by lessees after termination. Disgorgement of all thebenefits (i.e., gross revenue disgorgement or the “harsh” rule) isnot supported by Sohio and imposes a punitive sanction against alessee that is best left to the realm of punitive damages. In myview, the finding by the trial judge that punitive damages were notwarranted is entitled to deference. Part E of Section V providesmy view of how disgorgement should be calculated.

h. In my view the trial judge made no reversible error in concludingthat 108 had no independent claim against the lessees and is there-fore not entitled to a remedy. Given my conclusion on remedy and108’s agreements with the lessors that it is entitled to 50 percentof any remedy awarded, the rule against double recovery nowapplies.

i. As to Esprit’s liability jointly and severally with the other respon-dents, there is nothing to suggest that it can be jointly and sever-ally liable given the fact that it had no working interest in the 7-25Well at the relevant time. There is no basis to direct that it shouldaccount to the appellants for the royalties it earned from its gross-overriding royalty interest.

264 If the parties are unable to agree on costs, they may make writtensubmissions of a maximum of ten pages. The appellants should do sowithin 60 days of the date of this judgment and the respondents within 15days after the appellants’ submissions.

Stewart Estate v. 1088294 Alberta Ltd. J.D. Bruce McDonald J.A. 73

J.D. Bruce McDonald J.A.:

I. Introduction265 I have had the opportunity to read both the Reasons for Judgment

Reserved of my colleague Madam Justice Rowbotham and the Reasonsfor Judgment Reserved of my colleague Mr. Justice O’Ferrall. I am inagreement with the Reasons for Judgment Reserved of Madam JusticeRowbotham save and except for the following five issues:

(a) What is the proper termination date for the freehold petroleum andnatural gas leases in question?; [paras 64 - 129]

(b) What is the proper standard of review to be employed by thiscourt in reviewing the trial judge’s interpretation of the leases?;[paras 54 - 63]

(c) What is the nature of Esprit’s liability? [paras 252 - 261]

(d) What is the nature of the proper remedy to be accorded to the ap-pellants given the facts of this case; [paras 216 - 230]?; and

(e) Did the trial judge err in law failing to grant to Jerome Develop-ment Limited as the registered owner of the mines and minerals ofthe SE1/4 and the south portion of NE1/4 given the absence attrial of Snell and/or Wheatland? [paras 142 - 155]

266 With respect to the first issue above, namely when did the leases ter-minate, I adopt the reasoning contained in the Reasons for Judgment Re-served of my colleague Justice O’Ferrall. [paras 385 - 407] Likewise,regarding the liability of Esprit I also adopt his reasoning [paras 464 -468].

267 As discussed below, in my opinion the proper standard of review tobe applied by this court in reviewing the trial judge’s interpretation of theleases is correctness. As regards remedy, given the facts of this particularcase, I hold it to be disgorgement but based upon the so-called harsh rule.Furthermore, in my view, the trial judge erred in law in failing to grant toJerome Development, as the registered owner of the mines and minerals,the relief sought in the trial below i.e. a declaration that the petroleumand natural gas leases registered against their title are invalid.

268 Finally, I agree that the cross-appeal is to be dismissed for the reasonsof my colleague Mr. Justice O’Ferrall.


II. Standard of Review269 As my colleague states in her Memorandum of Judgment commenc-

ing at para 54 regarding the standard of review, the Supreme Court ofCanada recently rendered its decision in Creston Moly Corp. v. SattvaCapital Corp. [2014 CarswellBC 2267 (S.C.C.)] holding that, generallyspeaking, on issues involving contractual interpretation, reasonablenessis the appropriate standard of review. Sattva has been discussed and con-sidered in a number of subsequent decisions of this court including:CDM Direct Mail v. Centre for Immigration Policy Reform, 2015 ABCA168 (Alta. C.A.) at para 16, (2014), 254 A.C.W.S. (3d) 837 (Alta. C.A.);Canada (Attorney General) v. Alexis, 2015 ABCA 132 (Alta. C.A.) atpara 17, (2015), 253 A.C.W.S. (3d) 317 (Alta. C.A.); Bighorn No. 8(Municipal District) v. Bow Valley Waste Management Commission,2015 ABCA 127 (Alta. C.A.) at para 5, (2015), 251 A.C.W.S. (3d) 508(Alta. C.A.); Ledcor Construction Ltd. v. Northbridge IndemnityInsurance Co., 2015 ABCA 121 (Alta. C.A.) at para 12, (2015), 386D.L.R. (4th) 482 (Alta. C.A.); Van Camp v. Laurentian Bank of Canada,2015 ABCA 121 (Alta. C.A.) at para 17, (2015), 386 D.L.R. (4th) 482(Alta. C.A.); Tien Lung Taekwon-Do Club v. Lloyd’s Underwriters, 2015ABCA 46 (Alta. C.A.) at para 20, (2015), 249 A.C.W.S. (3d) 194 (Alta.C.A.); Nafie v. Badawy, 2015 ABCA 36 (Alta. C.A.) at para 60, (2015),381 D.L.R. (4th) 208 (Alta. C.A.); 911502 Alberta Ltd. v. ElephantEnterprises Inc., 2014 ABCA 437 (Alta. C.A.) at para 9, (2014), 588A.R. 296 (Alta. C.A.); Equitable Trust Co. v. Lougheed Block Inc., 2014ABCA 427 (Alta. C.A.) at paras 16, 59, (2014), 588 A.R. 258 (Alta.C.A.); Echino v. Munro, 2014 ABCA 422 (Alta. C.A.) at para 11, (2014),588 A.R. 211 (Alta. C.A.); ATA v. Buffalo Trail Public Schools RegionalDivision No. 29, 2014 ABCA 407 (Alta. C.A.) at paras 11, 40, (2014),588 A.R. 179 (Alta. C.A.); Deagle v. 1678452 Alberta Ltd., 2014 ABCA406 (Alta. C.A.) at para 12, (2014), 588 A.R. 129 (Alta. C.A.); AMTFinance Inc. v. Saujani, 2014 ABCA 385 (Alta. C.A.) at para 14, (2014),247 A.C.W.S. (3d) 94 (Alta. C.A.); Clarke v. Syncrude Canada Ltd.,2014 ABCA 362 (Alta. C.A.) at para 12, (2014), 584 A.R. 332 (Alta.C.A.); Access Mortgage Corp. (2004) Ltd. v. Arres Capital Inc., 2014ABCA 280 (Alta. C.A.) at para 52, (2014), 584 A.R. 68 (Alta. C.A.);Vallieres v. Vozniak, 2014 ABCA 290 (Alta. C.A.) at para 12, (2014),580 A.R. 326 (Alta. C.A.); Modry v. Alberta Health Services, 2015ABCA 265 (Alta. C.A.) at para 152, (2015), 388 D.L.R. (4th) 352 (Alta.C.A.); Iona Contractors Ltd. (Receiver of) v. Guarantee Co. of NorthAmerica, 2015 ABCA 240 (Alta. C.A.) at para 61, (2015), 387 D.L.R.


(4th) 67 (Alta. C.A.); Burch v. Intact Insurance Co., 2015 ABCA 229(Alta. C.A.) at para 15, (2015), 255 A.C.W.S. (3d) 725 (Alta. C.A.),HOOPP Realty Inc. v. Guarantee Co. of North America, 2015 ABCA336 (Alta. C.A.) at para 11.

270 This court in Vallieres recently considered the proper standard of re-view, in light of Sattva, when considering a trial judge’s interpretation ofa standard form real estate sale and purchase agreement. In the course ofso doing it summarized Sattva as follows (para 12):

The Supreme Court recently considered the standard of review forthe interpretation of contracts in Sattva Capital Corp. v CrestonMoly Corp., 2014 SCC 53. Sattva was an appeal from the decision ofa commercial arbitrator, and the Court concluded:

(a) Evidence of the circumstances surrounding the formation ofthe contract can be considered in interpreting the contract.Such evidence will not conflict with the parole evidence ruleso long as it is “... used as an interpretive aid for determiningthe meaning of the written words chosen by the parties, not tochange or overrule the meaning of those words”: para. 60.

(b) Because the ultimate objective of contractual interpretation isto determine the intention of the parties, and because evi-dence of surrounding circumstances can be considered, theinterpretation of a contract is a mixed question of fact andlaw: para. 50.

(c) Since appeals from an arbitrator were only allowed on a ques-tion of law, and since no extricable question of law had beenshown, no appeal was possible respecting the arbitrator’s de-cision on the interpretation of the Sattva contract: para. 66.That was sufficient to dispose of the Sattva appeal.

(d) Characterization of the interpretation of contracts as a ques-tion of mixed fact and law also has an impact on the standardof review. Deference was appropriate, particularly on the fac-tual component of the analysis. Extricable questions of laware still reviewed for correctness: paras. 51-4. A number offactors were listed as indicating when appellate interventionwas warranted:

(i) the intervention of appellate courts is appropriate in“cases where the results can be expected to have animpact beyond the parties to the particular dispute”:para. 51.


(ii) a key difference between a question of law and aquestion of mixed fact and law is “the degree of gen-erality (or “precedential value”)”: para. 51.

(iii) other errors of law arise from “the application of anincorrect principle, the failure to consider a requiredelement of a legal test, or the failure to consider a rele-vant factor”: para. 53. Failure to construe the contractas a whole is such an error: para. 64.

This court went on to hold that a trial judge’s interpretation of a standardform real estate sale and purchase agreement should be reviewed by anappellant court on the basis of correctness.

271 As pointed out in Vallieres, the reasons in Sattva must be read havingregard to the context in which that case was decided. Sattva was an ap-peal from the decision of a commercial arbitrator under the British Co-lumbia Arbitration Act, RSBC 1996, c 55, which limits appeals to ques-tions of law. On the other hand, appeals from the Court of Queen’sBench of Alberta to the Alberta Court of Appeal can be brought on anybasis.

272 This court went on to state in its later decision in Ledcor at para 13 asfollows:

Clearly all contracts have “surrounding circumstances” and are madewithin a certain “context”. They are described in Sattva at para. 60 as“facts known or facts that reasonably ought to have been known toboth parties at or before the date of contracting”. Sattva does not al-ter the core parole evidence rule: the test for “context” is objective,and the parties are still not allowed to testify as to their subjectiveunderstanding of “what the contract really means or was intended tomean”. Sattva recognizes the traditional legal techniques of interpret-ing contracts, and provides at para. 50 that “the principles of contrac-tual interpretation” (the legal component) are applied to the words ofthe written contract, “considered in light of the factual matrix” (thefactual component). Thus, the interpretation of the contract is a ques-tion of mixed fact and law reviewable for reasonableness, althoughextricable errors of law are still reviewed for correctness.

This court held that correctness was the appropriate standard of reviewwhen reviewing the trial judge’s interpretation of a standard insurancepolicy.

273 Where the parties involved are actually negotiating a contract, obvi-ously one can explore the known surrounding circumstances to deter-mine their intention as expressed in the wording of the contract. How-


ever, in cases dealing with contracts of adhesion (such as these leases), Iagree that any search for the intention of the parties in the “context” ismerely a legal fiction.

274 The history of the freehold petroleum and natural gas lease as it hasevolved in Western Canada is discussed at length in John Bishop Ballem,Q.C., The Oil and Gas Lease in Canada, 4th ed (Toronto: University ofToronto Press, 2008). As pointed out by Ballem, very early versions ofoil and gas leases in Canada became irrelevant with the importation intoCanada of a particular type of American lease generally described as theProducers 88.

275 Ballem indicates that following the Leduc discovery in 1947 the for-mer, rather casual approach, to mineral leasing was no longer appropri-ate; efficiency demanded a standardized form and one that could be com-pleted by the land agent in the field: 10.

276 The lease that resulted was a printed standard form agreement largelybased upon the Producers 88 lease. While certain minor changes weremade over time, the essential aspect of the freehold petroleum and natu-ral gas lease in Western Canada has largely remained the same for thepast 60 years or more.

277 It is true, as Ballem points out, that in Alberta slightly in excess of80% of the minerals are owned by the Crown and much of the balanceowned by corporations, or their successors e.g. CPR. That said, there arestill thousands of privately owned mineral titles in Alberta.

278 Any notion of a search for the intention of the parties in the “context”of the case at bar is vitiated by a simple review of the leases. A specificreview of the Jefferson SW1/4 lease discloses a printed form that stipu-lates a 10 year primary term and a gross royalty of 12.5 percent. Thereare only two “blank spaces” that represent points of negotiation betweenthe parties. The first, which is contained in the habendum clause, allowsthe parties to agree as to the amount of consideration to be paid to thelessor by the lessee for the lease itself.

279 The second area of negotiation is contained in the first provisowherein the amount of the “delay rental” is agreed upon by the parties.That is it. Other than these two items, it is a clear contract of adhesion. Areview of the other petroleum and natural gas leases involved in this casedisclose a similar lack of any room for negotiation between the lessorand lessee, save as noted above.


280 This in principle is no different than the standard form real estate saleand purchase agreement considered by this Court in Vallieres. There aresome small items to be negotiated but the overall contract has been“predetermined”.

281 The following comments of this Court in Vallieres apply with equalforce and effect to the standard petroleum and natural gas lease (para 13).

The findings of fact in the decision presently under appeal are enti-tled to deference. In this case, the appropriate standard of review onthe interpretation of the contract is correctness. It is a “standardform” contract developed by the Alberta Real Estate Association. Itis used continuously by vendors, purchasers, and realtors in Alberta.Its interpretation is of general importance beyond this dispute, anydecision on its proper interpretation has great precedential value, andthe primary objective should be certainty. It is untenable for this con-tract to be given one interpretation by one trial judge, and another bya different one. The standard of review analysis in Housen does notanticipate or require that kind of uncertainty or variability. Attempt-ing to inject the circumstances surrounding the formation of the con-tract into the analysis, or any attempt to identify the intention of theparties, is nothing but a legal fiction. These parties were content toadopt the standard form agreement prepared by the Association, andessentially it is the intention of the committee that drafted it thatprevails.

282 Furthermore this court in OMERS Energy Inc. v. Alberta (EnergyResources Conservation Board), 2011 ABCA 251 (Alta. C.A.) at paras30-2, (2011), 513 A.R. 292 (Alta. C.A.) held that when it reviewed adecision of the Energy Resources Conservation Board (as it then was)interpreting the phrase “capable of producing the leased substances”, thatit should be done on a correctness standard.

283 Over the years, the standard form petroleum and natural gas lease(with its minor variations) has been the subject of considerable judicialscrutiny. This is not the occasion to even begin to review the case lawinterpreting the various clauses of the standard lease. In Ledcor, thiscourt pointed out that is was “untenable” for insurance policy wording tobe given one interpretation by one judge and another by a different one:para 17. Needless to say these same considerations apply to the leases inquestion. As has been stated in another context, “certainty and predict-ability are in the interest of both the [industry] and their customers”:Gibbens v. Co-operators Life Insurance Co., 2009 SCC 59 (S.C.C.) atpara 27, [2009] 3 S.C.R. 605 (S.C.C.).


284 In Freyberg v. Fletcher Challenge Oil & Gas Inc., 2005 ABCA 46,363 A.R. 35 (Alta. C.A.), this court reviewed the trial judge’s interpreta-tion of a petroleum and natural gas lease on a standard of correctness. Asmy colleague points out at paragraph 63 of her Memorandum of Judg-ment, even when being reviewed for correctness, this court discussedcontextual factors. This, of course, is appropriate and there has been re-ported jurisprudence dealing with the proper meaning of such phrases as“Lack of or Intermittent Market” and “Beyond The Lessees’ ReasonableControl”: see also this court in Omers at para 32.

III. The Trial Judges’ Refusal to Grant to Jerome Development therelief it sought

285 At trial, the Jerome Group (as that term is utilized in the Reasons forJudgment Reserved of Madam Justice Rowbotham) was the registeredowner of the minerals in the relevant property and alleged that they werethe lessors under the Scurry leases. The Jerome Group sought a declara-tion that the Scurry leases had terminated.

286 Neither Snell nor Wheatland had any interest registered against thosemineral titles.

287 As pointed out by the appellants in their factum (at para 116), therespondents failed to raise as a defense the appellants’ standing to bringthe within action as regards the Scurry leases. There was no pleading atall with respect to the SE1/4 and the only pleading on point were thedefences of the respondents, Bonavista and Coastal, which pled only thatroyalties were paid pursuant to an alleged assignment of the NE1/4 leaseto Snell.

288 Whatever the rights may be as between Snell and Wheatland on theone hand, and the Jerome Group on the other, it simply has no bearing onthe issue of the validity of the Scurry leases. The presence of Snell and/orWheatland in this action was not required given the fact that the Scurryleases had clearly terminated in accordance with their own terms back in1995. The leases did so without the need for the actions or interventionsof any party: East Crest Oil Co. v. Strohschein; Canadian Superior Oil ofCalifornia Ltd. v. Kanstrup; at page 105 quoting from East Crest Oil CoLtd.. The issue as to what entitlement Wheatland, Snell, and the JeromeGroup may have as amongst themselves to the resultant proceedings willbe determined in the action referred to in the Reasons for Judgment Re-served of Madam Justice Rowbotham at para 147.


289 Furthermore, as my colleague Mr. Justice O’Ferrall points out at pa-ras 458-460, it is indeed incongruous to require the lessees to account tothe mineral owners of the W1/2 of Section 25 and the remaining portionof the NE1/4 and yet not require the lessees to account to the mineralowners (whomever they may ultimately prove to be) for the SE1/4 andthe north portion of the NE1/4.

290 Accordingly, I would allow this ground of appeal and grant the Je-rome Group the relief it sought at trial.

IV. Remedy291 I agree with my colleague Madam Justice Rowbotham, and for the

reasons she has stated, that the trial judge erred in accessing the remedyin damages based upon the royalty approach. I agree with my colleaguethat the proper remedy in this case is disgorgement. However, I disagreethat it should be the mild rule but rather on the facts of this case, I be-lieve that the so-called harsh rule should be applied.

292 In coming to her decision that had she found the leases in question tobe invalid (which of course she did not), the trial judge held that therespondents were “innocent tortfeasors who acted in the mistaken beliefthey were acting lawfully”: reasons at para 662.

293 The trial judge went on to explain in para 663 in part: (b) although this may result in a profit for the defendant tortfeasors,they did not act in bad faith, but with the mistaken belief that theleases were valid.

In my view, in coming to this conclusion, the trial judge made palpableand overriding errors as the evidence simply does not support thisconclusion.

294 There are certain key aspects relevant to the question of bad faith.Most significantly is the memo dated July 11, 1995 from Allan Seredyn-ski to Dan Richer - both of Canadian Occidental Petroleum Ltd (Canadi-anOxy), the predecessor to Nexen and the operator of the 7-25 Well -wherein the former indicated to the latter that CanadianOxy’s interest inthe well had in effect a nil value. Specifically, Mr. Seredynski in hismemo concluded:

CanadianOxy’s share of Crossfield sales gas reserves left in theground would be less than 15 Mmcf. The well was originally a BQproducer before the [Wabamum] zone was completed in 1981. Thesmall amount of remaining BQ reserves (COPL share: 100mmcf),makes a recompletion uneconomic. Logs have been reviewed by the


Area Team and they concur that no uphole potential zones are pre-sent and that CanadianOxy’s WI should be offered to our partners orAmoco for the abandonment liability. The well abandonment, surfacereclamation and pipeline abandonment cost is estimated at $165M(COPL net: $19.8M).

295 Indeed, as pointed out in the reasons of my colleague Mr. JusticeO’Ferrall the 7-25 Well was in effect abandoned and certain equipmentremoved from it.

296 As this court has stated in Omers, a lessee is not entitled to hold ontoa lease for speculative purposes. Therefore, if it concludes that there is novalue remaining, then the lease should be surrendered to the freeholdowner. This was not done in this case.

297 Also of importance however, is the memo of June 20, 2000 fromRandy Thomsen, then with ExxonMobil Canada Ltd., when he raisedvery serious concerns regarding the validity of the Jefferson SW1/4lease.1 Mr. Thomsen was a very senior and experienced landman at thetime.

298 Mr. Thomsen’s memo was in response to an Independent OperationsNotice received from Triquest. This engaged a Right Of First Refusal infavour of ExxonMobil.

299 After his investigation, Mr. Thomsen wrote the following memo (em-phasis added):

I examined the contract file and have found that the ROFR noticeaccurate as to the interest and as to the 30 day notice period. Thecontract appears to be a non cross-conveyed pooling, each party con-tributing a lease continuing to be responsible for his own rental androyalty payments. I examined the lease that Mobil contributed, beingptn SW25, lease dated Jan. 8/68. The shut in clause states that thewell may be shut in due to lack of or intermittent market. Accordingto Accumap, the only well on the lands, 7-25, has not produced since1995, last production being 500 mcf/day +/-. As there is no lack of orintermittent market, I believe our lease is dead due to failure to pro-duce. I have not examined the other leases, but most freehold leasesof the 60’s have similar language.

If Mobil is contemplating on exercising on the ROFR, I suggest thata lawyer examine the leases to determine if they remain in effect.

1 At all relevant time, Nexen and ExxonMobil were 50% working interest own-ers under that lease


300 That there was no lack of or intermittent market was underscored bythe fact that all the adjacent wells in the same zone (i.e. Wabamun), con-tinued to produce throughout this entire time period.

301 When questioned about his memo in cross-examination, Mr. Thom-sen gave the following response:

Q: Well, based on all the information you had at that time, youformed the view that your leases — your lease was dead dueto failure to produce; correct?

A: Based on the information I had at the time yes.

(Transcript at 1806/24/26)

302 Counsel for the appellants then asked Mr. Thomsen if ExxonMobilconsulted a lawyer with respect to the validity of the leases. This line ofquestioning was objected to by counsel for ExxonMobil and the trialjudge directed that Mr. Thomsen could not even be asked if the in houselegal department had been consulted on this issue.

303 Also, in response to receiving the Independent Operations Notice, arequest for technical evaluation was made. In the document requestingthat evaluation, Mr. Thomsen wrote:

As the well has been shut in since 1995, there is a possibility that thefreehold leases have terminated for lack of production. If [Exx-onMobil] elects to participate, seek Law’s opinion releases. Newleases may be required.

304 Mr. Thomsen acknowledged that he had raised his concerns with hissuperiors. Furthermore, on December 22, 2000, Mr. Thomsen had a tele-phone conversation with Jim Morrice of Triquest and made the followingnotes of that conversation at the time: “I expressed my concern over thevalidity of the leases given that there has been no production since ’95.Suggested that we may need new leases. Jim will examine leases.”

305 In cross-examination Mr. Thomsen admitted that when there was a“cloud” over a lease, that it was “best practices for a landman” to go outand negotiate a new lease:

Q: And, indeed, you indicated earlier that you felt that there wasa cloud over this because there was uncertainty as to whetheror not the leases had terminated given the economics; right?

A: Yes.

Q: And, sir, you — did you understand that there was a generalcustom and practice in the industry that if there was a prob-lem with the validity of the leases, the solution was for the


landman to go back and renegotiate new leases with thelessors?

A: Yes.

Q: And so that was pretty much standard practice for you as alandman in that time period; correct?

A: I hadn’t been personally involved in doing that sort of thing,but it was practice in the industry, I believe.

A: And, based on all of your experience and your capital train-ing, you would call that best practices for a landman; correct?

A: Yes.

(Transcript 1801 lines 11-28)

306 Due to the position taken by counsel for the respondent, there was noevidence before the trial judge as to whether ExxonMobil’s legal depart-ment was consulted as recommended by Mr. Thomsen; nor if it was con-sulted, what was the advice that was given. All that we are left with isthat there was no evidence before the trial judge as to any legal adviceobtained by ExxonMobil at the relevant time i.e. the latter half of 2000.

307 In addition, it must be remembered that all the adjacent/off-settingwells continued to be produced during the time period in question. It isimpossible other than to conclude that there was a market for the produc-tion from this well during the relevant time period.

308 Indeed, the trial judge herself acknowledged that the respondents (de-fendants) never advanced the suggestion that there was no market for thegas produced from the 7-25 Well: reasons at para 515.

309 In my view, the facts of this case bring it within the purview of theSupreme Court of Canada’s decision in Weyburn Security Co. v. SohioPetroleum Co., which was an appeal from the Saskatchewan Court ofAppeal reported at (1969), 7 D.L.R. (3d) 277 (Sask. C.A.). In Sohio, bothparties had initially proceeded based upon the mutual mistake that thelease was valid. Subsequently, the lessor determined that it was not likelyvalid and thereafter commenced legal proceedings.

310 The Saskatchewan Court of Appeal stated (at 283) as follows: The appellant also sought an accounting of all petroleum, natural gasand related hydrocarbons removed from the land by the respondents,or damages in lieu thereof. The Court has jurisdiction to grant thisrelief on terms which will be just and equitable to all parties in-volved. The respondent Sohio proceeded under a mistake as to itsrights, and did not knowingly take an unfair advantage of the appel-lant’s lack of appreciation of its legal rights. The respondents were


first aware that their position was challenged when the writ of sum-mons was served upon them. At that time the revenue which they hadreceived from the sale of the production exceeded the amount theyhad expended. Under the circumstances, it would appear just and eq-uitable to order the respondents to account for all benefits from pro-duction received by them after the date of service of the writ of sum-mons upon them.

311 On appeal to the Supreme Court of Canada, Martland J for the courtwrote with respect to the above statement: “I am in agreement with theconclusion. In my opinion, the appeal should be dismissed with costs”:89.

312 In my opinion, the phrase “all benefits from production” means thegross sale revenues received by the respondents for the sale of the pro-duction realized on the sale of the 7-25 Well for the period commencingtwo years before the date the Statement of Claim was issued.

313 We are dealing with large, sophisticated and well-informed corpora-tions on the one hand, and lay people, including the proverbial “little oldlady in the nursing home” on the other. The need for the former to act ingood faith when discharging their contractual obligations to the latter hasbeen highlighted with the recent Supreme Court of Canada decision inBhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494 (S.C.C.). See alsoFreyberg at para 82.

314 In my view, by no stretch of the imagination could it be said the les-sees were acting in good faith when they re-commissioned the well in2001, and as such should be subject to exactly the remedy that was up-held by the Supreme Court of Canada in Sohio. The decision in Sohiomay not be extensive but it is binding on this court.

315 In Sohio, the costs of completing the well had been fully recovered inthe period prior to the writ being served. Obviously, the costs incurred inre-commissioning the well were incurred in 2001 after the time that Mr.Thomsen had raised his concerns regarding the validity of the leases butmore than two years before the Statement of Claim was issued.

316 The respondents either knew that the leases were at best questionableif not dead altogether or they certainly ought to have known that thesewere in all likelihood dead. Nonetheless, they continued to produce inthe face of the dark cloud hanging over these leases. This contrasts withthe situation in Sohio where the lessor and lessee had for some considera-ble period of time each mistakenly believed that the lease was valid.

Stewart Estate v. 1088294 Alberta Ltd. Brian O’Ferrall J.A. 85

317 Given the facts of this case, and in particular the egregious behaviourof the respondents, I would direct that the respondents disgorge the fullamount of the revenue obtained from the subject leases, without any de-duction for operating or other costs, for the period commencing twoyears prior to the issuance of the statement of claim.

318 In my opinion, the harsh rule is not only fully warranted but is consis-tent with the law as enunciated by the Supreme Court of Canada inVorvis v. Insurance Corp. of British Columbia, [1989] 1 S.C.R. 1085, 58D.L.R. (4th) 193 (S.C.C.); Whiten v. Pilot Insurance Co., 2002 SCC 18,[2002] 1 S.C.R. 595 (S.C.C.).

Brian O’Ferrall J.A.:

I. Introduction319 This is an appeal by the owners of certain petroleum and natural gas

rights.320 The owners sought a declaration that the petroleum and natural gas

leases they or their predecessors-in-title granted to a number of differentoil companies had terminated in accordance with their terms. They alsosought damages on the basis of a disgorgement of either the gross pro-ceeds of the sale of production from a well drilled on their lands or thenet income the lessees received from producing the well after it was al-leged the leases in question had terminated.

321 The lessors’ claims were dismissed. The trial judge held that theleases had not terminated in accordance with their terms. The trial judgealso held that if she was in error in not declaring the leases terminated,she would have awarded the lessors an amount equal to the sum of whatthey might have received by way of a signing bonus had they chosen toenter new leases plus the royalties they would have received on produc-tion by new lessees. That is, the trial judge would not have awarded dam-ages based on a disgorgement of profits.

322 For the reasons given below, I would allow the lessors’ appeal of thetrial judge’s declaration that the petroleum and natural gas leases in thiscase had not terminated in accordance with their terms. In my view, theyhad clearly terminated according to their terms.

323 With respect to damages, I would have directed that the respondentoil company lessees account to their lessors for the revenue or incomestream out of which their royalties were carved. In other words, insteadof receiving 12 1/2% of the “amount equal to the current market value on


the said lands” of the leased substances “produced, saved and marketedfrom the said lands” (to use the words of the royalties clauses of theleases to which the parties agreed), the lessors would be entitled to 100%of the current market value of the well’s production “on the said lands.”The phrase “on the said lands” has been interpreted to permit the lesseeto deduct costs incurred to render the leased substances marketable inorder to determine their current market value “on the said lands.”

324 The measure of damages I would award accords with the terms of theleases and with the late Justice Martland’s decision in Weyburn SecurityCo. v. Sohio Petroleum Co. (1970), [1971] S.C.R. 81, 13 D.L.R. (3d) 340(S.C.C.) where an oil and gas lease had terminated in accordance with itsterms because of a lack of production and yet the lessees continued toproduce. The Supreme Court required the lessees to “account for all be-nefits from production received by them after the date of service of thewrit of summons upon them.” Therefore, I would have held that the les-sors were entitled to that amount after the Statement of Claim and No-tices to Vacate were served on their lessees in September of 2005.

325 I would dismiss the appeal by the top lessee of the trial judge’s dis-missal of its claim for damages. The trial judge found that the top lesseehad standing, but dismissed its claim for damages because the toplessee’s right to produce the gas did not arise until there was a determina-tion that the underlying leases had terminated and because the lessorshad sued for the same loss the top lessee was suing for. I would endorsethe trial judge’s reasoning in this regard.

326 I would dismiss the cross-appeal by the respondents, ExxonMobilCanada Ltd, Nexen Inc and Coastal Resources Limited. These three les-sees had counterclaimed for damages on the basis that the appellants’lawsuit smacked of champerty and maintenance. I would uphold the trialjudge’s dismissal of that counterclaim. The trial judge was correct.Neither the top lessee’s maintenance of the action or its sharing in theproceeds was champertous.

II. Termination of the Leases327 The pivotal issue in this case was whether or not the leases had termi-

nated. In general, there are two things which govern the termination of anatural gas lease: the terms of the lease and the conduct of the lessee inexercising its rights under the lease, which conduct is often dictated bythe performance of the well.


A. The Terms of the Lease328 All the leases in this case were entered into in the 1960s (1961, 1964,

1967 and 1968). The leases covered all four quarters of Section 25,Township 27, Range 1, West of the 5th Meridian (25-27-1-W5M), a sec-tion of land north of Airdrie, Alberta.

329 In all of the leases, the leased substances included natural gas andrelated hydrocarbons. Three of the leases also included petroleum as aleased substance, but no petroleum was encountered. All of the leasescontained a grant of the exclusive right to win, take, remove and disposeof the leased substances.

330 The right to win, take, remove and dispose of the leased substancesgranted by the leases were to be enjoyed by the lessees for a primaryterm of 10 years and “so long thereafter as the said substances...are pro-duced from the said lands.” The 10-year primary term had long sinceexpired when the events giving rise to this lawsuit took place. However,it is conceded by all that the rights granted to the lessees continued to beenjoyed beyond the 10-year primary term by virtue of production of theleased substances from a natural gas well in the SE 1/4 of Section 25 (the7-25 Well). The dispute is over whether the rights granted eventually ter-minated because of a cessation of production.

331 The leases conferred upon the lessees the right to pool the leasedlands with other lands to form a production spacing unit which, in thecase of natural gas production, is one section of land or roughly 640acres. Production of the leased substances from a well on any part of theproduction spacing unit was agreed to have the effect of continuing allthe leases. The leased lands in this case were in fact pooled to form therequired production spacing unit for natural gas (i.e., the one section re-ferred to above).

332 In all of the leases, there were provisos which continued the leaseseven if the leased substances were not being produced. In order to prop-erly construe the effect of the proviso in issue, one has to have regard toall of the provisos. They were all conditional.

333 The first proviso provided that if drilling was not commenced withinone year of signing the lease, the payment of annual rentals would conferthe privilege of deferring the drilling of a well.

334 The second proviso provided that if a well drilled during the 10-yearprimary term quit producing, the lease would continue, but only if the


lessee drilled a further well or paid the annual rentals agreed to in thefirst proviso.

335 The third proviso provided that if following the expiration of the 10-year primary term the leased substances were not being produced, thelease would not terminate so long as further production operations werecommenced within 90 days after cessation of such production and solong as such resumed production operations were prosecuted with no fur-ther cessation of more than 90 days.

336 The third proviso incorporated what was, in effect, a fourth provisowhich provided that in calculating the aforesaid 90-day duration of cessa-tion of production, no account was to be taken of any suspension, inter-ruption or non-production caused by a lack of or an intermittent marketor any cause whatsoever beyond the lessee’s reasonable control. Therewere slight variations in the wording of this proviso in the five leases inquestion but nothing turns on those variations in this case.

337 To summarize, there could be no cessation of production for morethan 90 days, but if production was “interrupted or suspended” as a resultof a lack of or an intermittent market or any cause whatsoever beyondthe lessee’s reasonable control, the duration of such interruption or sus-pension was not to be counted as a period of non-production for the pur-poses of the 90-day limit on such cessations of production.

338 A failure to produce as a result of a lack of or an intermittent marketor any other cause whatsoever beyond the lessee’s reasonable control didhowever trigger the lessee’s obligation to pay the lessor an annual rental(shut-in payment) at the expiration of the year in which that failure toproduce took place. Such shut-in payments were made in this case sonothing turns on this requirement. The issue was whether or not the les-sees could rely on the fourth proviso to continue the leases in the face ofa five and one-half year cessation of production.

B. Strict Construction of Petroleum and Natural Gas Leases339 Strict construction is the rule when it comes to interpreting petroleum

and natural gas leases. Not all petroleum and natural gas leases are thesame. But they are sufficiently similar that their interpretation calls for a“correctness” standard for the reasons given by my colleague, JusticeMcDonald, in his reasons for judgement.

340 Having said that, one must keep in mind that the petroleum and natu-ral gas lease is very much an evolving and changing document. Becausethe printed forms of petroleum and natural gas leases look almost identi-


cal, one must be cautious in applying prior jurisprudence because theirterms can and do vary. There is no such thing as a standard oil and gaslease. And often changes were made with a view to reversing a priorinterpretation by the courts. To quote the late John Ballem, Q.C., The Oiland Gas Lease in Canada, 4th ed (Toronto: University of Toronto Press,2008) at 110, “Virtually every lease now contains language that has beenrevised in an attempt to repair...judicial ravages”.

341 Ballem also makes the point that the strict construction approachadopted by the Supreme Court of Canada had its genesis in the decisionsof Alberta courts on the oil and gas lease:

It should be noted that the line of Supreme Court cases that evolvedthe strict and literalistic approach to the lease upheld, rather thanoverturned, decisions of the Alberta courts. In other words, the strictapproach of the Supreme Court was not imposed on the Alberta Ap-pellate Division but was consistent with its own judgments. Accord-ingly, Alberta courts would be only following their own example ifthey continue to interpret the lease strictly. (110)

342 Literal interpretation is particularly appropriate in this case becausemost of the original lessors are dead and most of the original lessees areno longer in existence. The leases in this case were executed in 1961through 1968. Literal interpretation involves interpreting the words of thelease as they might have been objectively understood by an informedperson reading them when they were executed, not how they would beread today. As my colleague Justice McDonald was heard to say, “Allbets are made on the first tee.” This maxim calls for caution in applyingoil and gas lease cases decided since then unless, of course, those deci-sions were interpreting identically worded leases executed in or about thesame time.

C. The Lessees’ Conduct343 But enough about the terms of the leases and their construction. This

case turns more on the actions of the lessee in response to the 7-25Well’s performance than it does on the interpretation of the terms of theleases. The terms of the leases are straight-forward and, for the most part,were properly construed by the trial judge. But applying the terms of theleases to the facts is the critical task. And before the terms of the leasescan be applied to the facts, the facts must be properly understood. A mis-apprehension of the facts can lead to an erroneous result.


344 In this case, the dispositive facts are found, almost entirely, in theevidence of the two witnesses for the lessee (Nexen) which operated thewell at the relevant time: Allan Seredynski and Ronald Watson. At trial,there was a lot of after-the-fact evidence given by experts about econom-ics, profitability, “hurdle rates” of return on investments, profit to invest-ment ratios and payout periods. That evidence may have been useful inproviding context for the conduct of production operations at the 7-25Well but it ought not to have been determinative. What ought to havebeen determinative is what the lessees did in the face of the well’s de-clining performance.

345 I agree with what this Court said in Freyberg v. Fletcher ChallengeOil & Gas Inc., 2005 ABCA 46 (Alta. C.A.) at para 87, (2005), 363 A.R.35 (Alta. C.A.): expert evidence is not necessary where there is sufficientfactual basis to determine an issue. The issue is not that the trial judgeadmitted the evidence or that she preferred the evidence of the lessees’expert to that of the lessors’ expert. The issue was the trial judge’s reli-ance on ex post facto expert evidence when there was sufficient factualbasis to decide the issues without reference to the experts.

346 The jurisprudence is clear: a lessee, by its conduct, can cause a leaseto terminate. Indeed, given the unilateral nature of the terms of most nat-ural gas leases, that is pretty much the only way such leases canterminate.

347 Historically, in drafting the terms of petroleum and natural gas leases,oil companies wanted to be free to walk away from their leases. Theywished to avoid being stuck with the obligations of a tenant under a con-ventional real property lease. So, oil companies drafted forms of leaseswhich permitted them to unilaterally abandon their leases at any time.Hence the “unless” and “so long as” clauses in oil and gas leases. Theproblem presented by such clauses is that a lessee can unwittingly causea lease to expire according to its terms. As John Ballem so aptly stated inthe preface to the first edition of his book, the oil and gas lease contains“hazards to the lessee” because of the “dogged determination of oil com-panies to continue with the lethal ‘unless’ type of drilling clauses”. Bal-lem describes these clauses as being “explicable” only in terms of “a cor-porate death wish”. The same could also be said of the “so long as”clauses in continued production provisos which are in issue in this case.

348 Ballem called this “Involuntary Termination”. But I think even hewould argue that such terminations are not really involuntary. Leases aredeliberately drafted to permit lessees to unilaterally decide when the


lease is over. As a consequence, the lessee’s conduct must be carefullyscrutinized in light of the terms of the lease to determine whether, by itsconduct, the lessee has caused the lease to terminate, deliberately or oth-erwise, in accordance with its terms.

349 The leases in question were entered into in the 1960s (1961 to 1968).The leases covered all but six acres of Section 25 (a railway right of wayis excepted out of the SW1/4). The registered owners of the hydrocarbonrights underlying the four quarters of Section 25 were different. Fiveleases were entered into with four different lessees. Three of the leaseswere petroleum and natural gas leases. The other two were leases of nat-ural gas only, the only difference being the leased substances.

350 Section 25 is located in the Crossfield Field north of Airdrie on westside of Highway 2 (the Queen Elizabeth II Highway). The “CrossfieldField” is a designation given to the gas field by the old Oil and Gas Con-servation Board in the mid-1950s when the field was first discovered. Itis a geographic designation and should not be confused with the geologicdesignations referred to below.

351 The lessees of the natural gas notionally underlying1 Section 25 antic-ipated the lands to be productive of natural gas and so, relying on theprovision in their leases which permitted same, the lessees pooled theirinterests to form a one-section production spacing unit for a gas well.

352 In the fall of 1968, within the 10-year primary term of the first leasesigned, the lessees drilled a well in Legal Subdivision 7 of SE 25-27-1-W5M. This well will be referred to as the 7-25 Well. The targeted forma-tion was the Crossfield Member of the Stettler Formation which is a for-mation within the Wabamun Group productive of sour natural gas. The7-25 Well encountered the targeted formation and it was productive ofsour natural gas. Because it contained lethal levels of hydrogen sulphide,the gas required processing prior to marketing. That is, it had to beflowed from the well to a processing facility (a gas plant) to remove thehydrogen sulphide and other impurities (notably, CO2) before it would beaccepted into a sales line.

1 I say “notionally underlying” because the fluid beneath the surface may notunderlie the entire section or may extend beyond the boundaries of the sectionand yet be captured.


353 The 7-25 Well also encountered another gas-bearing formation: theBasal Quartz2 which was productive of sweet gas. For various reasons,including processing issues which will be discussed later, the lesseeswere not able to produce the targeted Crossfield Member sour gas at theoutset. So the 7-25 Well was initially completed in the BQ formation,which was a single-well pool containing only sweet gas. The well pro-duced from that formation and that pool from 1971 to 1980. Around1978, the well was completed in the Crossfield Member, but it was notproduced from that formation for another two years because the lesseeswere still producing the well out of the BQ formation. Simultaneous pro-duction out of both zones was out of the question because of the differentcharacteristics of the raw gas.

354 The natural gas encountered in the Crossfield Member extended be-yond the boundaries of Section 25. This was not a single-well pool.There were other wells drilled into the Crossfield Member and producingfrom it. Completion of the 7-25 Well into the Crossfield Member permit-ted the lessees to share in that production, but that sharing did not com-mence until after production from the BQ formation was discontinued in1980. From the time the well was drilled in 1968 until it was produced,gas from the Crossfield Member was being drained from other wells inthe pool. Thereafter, for a period of roughly 14 years, from 1981 to 1995,the 7-25 Well was produced from the Crossfield Member. However, inJuly of 1995, production ceased and the well remained shut in for fiveand one-half years.

355 Near the end of that five and a half-year period, the respondent, Tri-quest Energy Corp. (now Bonavista Energy Corp.), a successor in title toan original lessee, served an independent operations notice on the opera-tor of the well and the other lessees advising of its intention to re-enterthe 7-25 Well and re-complete it in the BQ formation with a view toresuming production from that formation. An independent operations no-tice permits a non-operating owner of a well to take over operating thewell. The reason for the independent operations notice in this case wasthat Nexen, the operator of the well on behalf of the lessees, had failed orrefused to re-complete the well. In any event, as a consequence of the

2 More properly described as the “Lower Cretaceous Basal Quartz Member, El-lerslie Formation, Mannville Group”, hereinafter referred to as the “BQformation”.


independent operations notice, the well was recompleted in the BQ for-mation and put back on production in February of 2001.

356 The 7-25 Well then produced sweet gas from the BQ formation fromFebruary 2001 to January 2011 when it was shut in by a court order unre-lated to the within litigation. The order was made pursuant to an interiminjunction obtained by the operator of a nearby gas storage facility whoalleged that the 7-25 Well was draining its storage gas.

357 The facts surrounding the 1995 cessation of production from theCrossfield Member are important because the main issue in dispute iswhether the impugned natural gas leases had terminated in accordancewith their terms as a result of the cessation of production in 1995. Thiswas the issue the trial judge decided and her decision on this issue wasthe subject of this appeal.

358 In order to determine whether the leases terminated in 1995, an un-derstanding of why production ceased in 1995 is necessary. As previ-ously indicated, such understanding comes directly from the evidence ofthe two Nexen engineers who were responsible for the 7-25 Well duringthe years in question. Their evidence, which was accepted by the trialjudge, was summarized at paragraphs 227 to 323 of the trial judge’slengthy judgment: Stewart Estate v. TAQA North Ltd., 2013 ABQB 691(Alta. Q.B.) (“reasons”). The two engineers were Allan Seredynski,Nexen’s production engineering manager, and Ronald Watson, a reser-voir and exploitation engineer with CanOxy, Nexen’s predecessor, whowas the supervising engineer for the Crossfield area from 1988 to 1991.Prior to being the supervising engineer for the Crossfield area, Mr. Wat-son had been the plant engineer at CanOxy’s Petrogas plant just north ofCalgary. This plant will be hereinafter referred to as the Balzac plantindicating its geographic location. We refer to it by its geographic loca-tion because that geographic location is important to understanding whyNexen operated the 7-25 Well the way it did on behalf of itself and theother lessees.

359 In short, the evidence of the two Nexen witnesses disclosed that theprocessing of sour gas from the 7-25 Well was problematic right fromthe outset because of the well’s location relative to sour gas processingand because of the well’s ownership.

360 Dealing first with the well’s location. There are two major sour gasfields north of Calgary: the Calgary Crossfield Field and the East Cross-field Field. (These are geographic designations given the two gas fieldsby the provincial energy regulator and are not to be confused with the


Crossfield Member of the Stettler Formation which is a geologicdesignation.)

361 The Calgary Crossfield Field is just north of Calgary and mostly eastof Highway 2. Processing of sour gas from this field takes place at theBalzac plant north of the airport and east of Highway 2. This plant wasowned and operated by one of the working interest owners of the 7-25Well, Jefferson Lake Petrochemicals of Canada Ltd., then Canadian Oc-cidental Petroleum Ltd. (CanOxy), and then Nexen. Jefferson Lake Pet-rochemicals, CanOxy and Nexen were successive lessees of the naturalgas underlying the SW 1/2 of Section 25 and operated the 7-25 Wellthroughout the well’s life on behalf of the other lessees.

362 The other sour gas field north of Calgary is the East Crossfield Field.This field is predominantly north of Airdrie and mostly east of the Townof Crossfield. Some of the East Crossfield Field, including the subjectwell, is west of Highway 2. Processing of gas produced from this fieldtook place at Amoco’s (now TAQA’s) East Crossfield sour gas plant justsouth of the Town of Crossfield west of Highway 2.

363 The 7-25 Well was located north of Airdrie on the west side of High-way 2, just south of the East Crossfield Gas Unit operated by Amoco,and much closer to the East Crossfield gas plant than it was to the Balzacplant. The location of the 7-25 Well just outside the East Crossfield GasUnit and some distance from the Balzac plant proved problematic.

364 Dealing next with the well’s ownership, the 7-25 Well was, for themost part, owned by parties other than those who had ownership posi-tions in the East Crossfield gas plant. Indeed, for most of its producinglife, the 7-25 Well was operated by the companies which owned and op-erated the Balzac plant.

365 In order for the owners of the 7-25 Well to have the well’s sour gasprocessed, one of their options was to arrange for processing by the own-ers of the nearby East Crossfield Gas Unit. But those owners were pro-ducing competitively from the same pool. Accordingly, they had littleincentive to process the 7-25 gas. The 7-25 lessees’ alternative was tobuild a sour gas pipeline across and under Highway 2 to tie in to theBalzac plant to the south. However, there were impediments to this alter-native which will be discussed later. So although the 7-25 Well initiallyencountered production in the targeted sour gas formation, the lesseeswere compelled to commence production from the upper sweet gas for-mation because less processing was required to get the gas from that for-mation into a sales line and off to market. However, during this roughly


10-year period (1971 - 1980), sour gas from the Crossfield Member un-derlying Section 25 was slowly being drained by offsetting productionfrom nearby East Crossfield Gas Unit wells which had ready access tosour gas processing.

366 The 7-25 Well lessees were, however, not without a means of havingtheir sour gas processed. They could seek a common processor declara-tion, declaring the East Crossfield plant a common processor of gas,thereby requiring the owners of that plant to process the 7-25 Crossfieldproduction on a non-discriminatory basis along with other productionfrom the East Crossfield Gas Unit. The 7-25 Well owners did apply tothe Energy Resources Conservation Board for a common processor dec-laration. However, such applications are often contested and are not al-ways successful. On the other hand, if successful, such declarations canhave adverse financial consequences for the owners of the facility de-clared to be a common processor. So, eventually a settlement agreementwas reached whereby the owners of the East Crossfield gas plant agreedto process gas from the 7-25 Well. However, the rates at which theyagreed to take and process production from the 7-25 Well were less thanoptimal. At times, it was only on a “best efforts” basis. Nevertheless, the7-25 Well was produced from the Crossfield Member from March of1981 to July of 1995, a period of 14 years. So it was a profitable well fora considerable period of time.

367 Production from the 7-25 Well was intermittent throughout this 14-year period because of processing, marketing and operational constraints.That is, the 7-25 Well was not produced without interruption. There wereinterruptions from time to time as a result of causes beyond the reasona-ble control of the lessees. That is, there were processing, marketing andoperational constraints which caused production to be interrupted. Thefourth proviso in the natural gas leases permitted such interruptions. Imention these interruptions only because these interruptions or suspen-sions are to be contrasted with the cessation of production which tookplace in 1995.

368 With respect to markets, the lessees’ evidence was that they sold thegas they produced from the 7-25 Well to TransCanada, as did other pro-ducers in both sour gas fields. However, during the time in question,TransCanada was encouraged by the energy regulator (at the urging ofthe City of Calgary) to purchase preferentially from the owners of thewells closer to Calgary in order to deplete the sour gas reserves in areaswhere the city had expansion plans. Indeed, some of these reserves and


wells were within the city limits. That preferential purchasing, and there-fore preferential production, had the effect of filling the Balzac plant tonear capacity, thereby presenting an impediment to the processing of thelessees’ gas at that plant.

369 In the late 1980s and early 1990s, the 7-25 Well began to experiencedeliverability problems. That is, its rates of production were declining.Because of well deliverability constraints, the 7-25 Well was only capa-ble of delivering relatively small volumes of gas relative to other wells inthe area producing from the same formation. For a while, this allowedthe well owners to flow the well year-round and to sell as much gas asthe well could produce. But deliverability constraints are never goodnews to owners of gas wells.

370 Soon, the 7-25 Well’s deliverability constraints impacted not only theamount the well was capable of producing on a sustained basis, but alsothe owners’ ability to market the well’s production. Gas purchase con-tracts are typically based on well deliverability. As a well’s deliverabilitydeclines, the maximum daily contract quantity which TransCanada takes(purchases) under the producer’s gas sales contract is reduced. This hap-pened at least twice to the 7-25 Well in the early 1990s. As a result ofdeliverability tests performed on the 7-25 Well in December 1992 andNovember 1993, TransCanada twice reduced the amount of gas it wasprepared to purchase from the well’s production in February 1993 and inJune 1994. This was not a marketing constraint. This was a well perform-ance constraint. The owners of the well, having considered it, deliber-ately decided against stimulating the well which might have increased itsdeliverability. The owners’ reluctance to incur the costs of stimulation toincrease deliverability was because the well was perceived as being nearthe end of its life. Reservoir pressure was low and declining and the costof stimulation was deemed to be prohibitive.

371 By 1994 - 1995, the working interest owners were faced with a situa-tion where the 7-25 Well was becoming uneconomic. According to Mr.Seredynski, the well was only capable of producing a half a million cubicfeet of natural gas per day. By mid-year 1995, the 7-25 Well was losingmoney in the order to tens of thousands of dollars a month. That is whenMr. Seredynski sent his July 11, 1995 memo, entitled “Well Suspensionand Abandonment,” recommending “suspending” the well. The memoused both the words “suspend” and “abandonment” but what is clearfrom Mr. Seredynski’s memo is that the well was expected to be in a“negative cash flow position...for its remaining life of less than 5 years.”


In other words, the well was predicted to be incapable of production infive years and the rates at which it was capable of producing in the in-terim were uneconomic or not profitable (A423). Indeed, Mr. Seredyn-ski, in seeking the approval of the province’s Energy Resource Conser-vation Board to suspend the well, gave as a reason that the well was“uneconomic to produce at this time”.

372 It is important to distinguish between interrupting or suspending pro-duction from a well capable of production and ceasing production from aformation which is no longer commercially productive. It is important tomake this distinction because the fourth proviso in the lease providessome relief only for production operations which are “interrupted or sus-pended”. In 1995, production from the Crossfield Member was not beinginterrupted or suspended. Production was being brought to an end andthe producing formation abandoned. Subsequent events and the fact thatthe lessees never resumed production from the Crossfield Member bearthis out.

373 A lack of or an intermittent market was not the cause of the cessationof production from the 7-25 Well. Continued production was simply un-economic and there was no foreseeable prospect of that situation chang-ing. From that point forward, the lessors were simply holding on to alease which had terminated in accordance with its terms.

374 In OMERS Energy Inc. v. Alberta (Energy Resources ConservationBoard), 2011 ABCA 251 (Alta. C.A.) at para 95, (2011), 513 A.R. 292(Alta. C.A.), where the issue was whether the well in question was capa-ble of production (and not the lessee’s entitlement to shut the well in),this court said in obiter, “[i]t was never intended that the shut-in wellclause could allow a lessee to hold a property for purely speculative pur-poses”. In the case of the 7-25 Well, it was not even clear that the lesseeswere holding onto it for “speculative purposes”. They appeared to beholding on to it because they could not agree on getting rid of it, as dis-cussed below. The ratio of Omers and its relevance to this appeal is thatthe energy regulator (then the Energy Resource Conservation Board), forits purposes, held that there must be a well on the leased lands capable ofproducing the leased substances in “meaningful” quantities in order toprevent the termination of a petroleum and natural gas lease. On appeal,this court held that in order to find a well capable of production, produc-tion revenues must exceed production expenses. That test was not beingmet by the 7-25 Well in the summer of 1995.


375 In Freyberg v. Fletcher Challenge Oil & Gas Inc., supra, the lessee’swell had been shut in for 21 years and, like the case at bar, offsettingwells were being produced and their production marketed. In those cir-cumstances, this court held that the natural gas lease in question termi-nated. The court held that holding onto a lease for speculative purposesdoes not prevent its termination even where the terms of the lease permit-ted the lessee to shut in a well because of “uneconomic or unprofitablemarket”. The court said that the test for determining whether there is aneconomic or profitable market is whether, based on information availableat the time of cessation of production, a prudent lessee would have fore-seen profitability. If not, the lease is over. Clearly the lessees in Section25 did not foresee profitability, but it was not because there was no eco-nomic or profitable market for the gas.

376 According to Mr. Seredynski, the cessation of production at the 7-25Well was “due to its low raw gas production rate of< 7.0 E3M3/d and thehigh field gathering fee charged by Amoco which has caused the well tobe in a negative cash flow position in 1995 and for its remaining life ofless than 5 years.” Assuming<7.0 E3M3/day of raw gas production (asopposed to saleable gas), this well was only capable of producing lessthan 3.0 E3M3/day of natural gas when the shrinkage for CO2 and H2Swas taken into account: see paragraph 255 of the trial judge’s reasonswhere Mr. Seredynski gave evidence with respect to shrinkage. Andquite apart from the CO2 and H2S shrinkage calculations, Mr. Seredynskitestified that the well’s actual production was roughly a half a millioncubic feet per day of sales gas. At that level of production, the lessees, asrepresented by Nexen, did not consider this well to be capable of eco-nomic production.

377 Mr. Seredynski also testified that even if the field gathering and plantprocessing fees charged by Amoco were reduced, it would not havemade a difference to the decision whether or not to cease production be-cause, even at the lower processing fees available to a plant owner (i.e.,an owner of the East Crossfield gas plant), the well was not economic.

378 Significantly, Mr. Seredynski also stated that the small amount of re-maining reserves in the BQ formation (the sweet gas formation) maderecompletion in that zone uneconomic. In other words, in 1995, the 7-25Well was deemed incapable of economic or profitable production fromeither of the two prospective zones encountered more than 25 years ear-lier. Finally, according to Mr. Seredynski’s 1995 memo, a review of logsby an “Area Team” of geologists identified no other uphole potential.


379 It is important to note that none of the processing and other issueswhich made production from the Crossfield Member uneconomic hadany application to production out of the BQ formation. The lessees’ ownexpert was of the opinion that even in 1995 recompletion in the BQ for-mation would have generated positive cash flow (i.e., production reve-nues would have exceeded production expenses as per this court’s rulingin Omers). However, the evidence of Nexen’s engineers was that produc-tion from the BQ formation would not have generated positive cash flow.

380 The ultimate recommendation was to offer the 7-25 Well to Amoco,the operator of the East Crossfield Gas Unit, in return for Amoco payingthe costs of well and pipeline abandonment and surface reclamation,which was estimated to be $165,000. This recommendation was not ac-cepted by all of the lessees, but to even be contemplating such an offerwas not the conduct of a lessee proposing an “interruption or suspension”of production, which the leases permitted. This was the conduct of alessee which no longer considered the well capable of economicproduction.

381 Mr. Seredynski testified that the 7-25 Well was shut in, not becausethere was no market for the gas, but because the well was not economic:reasons at para 279. The well was not economic because there was notenough production from it to cover the costs of production, field gather-ing and processing, not because of marketing considerations. It was sim-ply a case of production declining to uneconomic levels. Of course, evenlow levels of production can, with the effluxion of time, become eco-nomic or profitable if the price of the product gets high enough, but thatwas not foreseen in 1995 when the well was shut in as demonstrated bywhat happened next.

382 What happened next was that the 7-25 Well was shut in a tubing plugand inhibitor set, and the wellhead locked. Surface equipment necessaryto produce the well from any formation was removed. The well ownerscancelled their gas processing agreement with the owners of the EastCrossfield gas plant, thereby giving up their share of the East Crossfieldgas plant’s processing capacity. Their contract operating agreement withAmoco (also operator of the East Crossfield Gas Unit and the East Cross-field plant) was cancelled. They also released their firm transportationcapacity with Nova or TransCanada. The well’s maximum daily contract(purchase) nominations were cut by TransCanada to zero. And, signifi-cantly, in light of what happened later, even the sweet gas gathering linewhich had been used to take away production from the BQ formation


was abandoned. Further production from the BQ formation was not con-templated in 1995.

383 No further “drilling or working operations” were undertaken on theleased lands for five and a half years. Five and a half years later, with gasprices at unheard-of high levels, Nexen, as operator of the 7-25 Well,still had not put the well back on production. However, another workinginterest owner, Triquest, saw potential in the well. As a consequence,Nexen received an independent operations notice from Triquest in whichTriquest gave notice that it wished to recomplete the well in the BQ for-mation. As a consequence, the well was recompleted and, in February2001, began producing from the BQ formation, a formation which thelessees had written off and failed to produce from for five and a halfyears.

384 To complete the story, four years after the well was recompleted inthe BQ formation and put on production, a number of the lessors, ownersof the hydrocarbons underlying Section 25, served a Notice to Vacateand issued a Statement of Claim seeking a declaration that the leaseswere no longer valid on the basis that there had been no production of theleased substances for five and a half years between 1995 and 2001. TheNotice to Vacate and the Statement of Claim were served in September2005. Notwithstanding the Notice to Vacate and Statement of Claim, thelessees continued to produce until January 2011 when the well was shut-in by court order for a reason unrelated to this lawsuit.

III. Analysis of the Validity of the Leases385 Subject to the so-called third proviso and the payment of shut-in rent-

als, the right to produce a well under a natural gas lease continues only ifthe well is continuously produced following the expiration of the primaryterm. The 7-25 Well did not produce after 1995. So only if the provisoapplied could the lease continue.

386 The so-call third proviso (which contained the fourth proviso) permit-ted continuation of the lease when there had been an “interruption” inproduction or production had been “suspended”. It did not permit contin-uation of the lease when there had been a complete cessation of produc-tion until some indefinite time in the future when the lessee unilaterallydecided that a resumption of production was economic or profitable.

387 The proviso states that the duration of the interruption or suspensionof production as a result of a lack of or an intermittent market or anyother cause beyond the lessee’s reasonable control may not be counted


against the lessee in determining whether or not there has been a cessa-tion of production for more than 90 days. Contrary to what was argued, itis not the lack of or intermittent market or a cause beyond the reasonablecontrol of the lessees which has the effect of continuing a lease. Whatcontinues the lease is the resumption of production operations within 90days. But in determining whether the production operations have re-sumed within 90 days, any interruption or suspension of productioncaused by the lack of or an intermittent market is not to be counted asbeing part of that 90-day cessation of production which is permittedunder the lease.

388 The duration of the interruption or suspension of production is simplya period of time not to be counted in determining whether there has beenmore than the permitted 90-day cessation of production. In the 1960s,when these leases were entered into, neither the lessors or the lesseescould be taken to have intended that the third or fourth proviso wouldpermit a five and a one-half-year suspension of a 90-day period of per-mitted production cessation. The lessors obviously would not have in-tended to permit an indefinite cessation of production which yieldedthem royalties. Neither would the oil company lessees have intended tobe bound to resume production operations at some indefinite time in thefuture. The whole reason for the “so long thereafter as” and the “subjectto earlier termination” clauses in the granting or habendum clause of theleases was to permit the oil companies to cease production and walkaway from their leases whenever they deemed fit. Without the condi-tional grant, oil company lessees risked being compelled by their lessorto produce leased substances they did not wish to produce.

389 But more importantly, on the facts of this case, there was no interrup-tion or suspension of production which would trigger the proviso. Therewas, in fact, a complete cessation of production. An interruption or asuspension of production must necessarily be followed by a resumptionof production in order to maintain a lease. There never was a resumptionof production of natural gas from the producing formation. The hard-rock mining ballad of “Big John”, says it all:

They never re-opened that worthless pit.

They just placed a marble stand in front of it.

The lessees never re-opened (re-completed) the well in the CrossfieldMember. Nor did they perforate the well bore in any other zone for fiveand one-half years. Even more recent forms of petroleum and natural gasleases, which are continued beyond their primary terms by the mere pres-


ence of a well on the leased lands, require that such well be adequatelyperforated, stimulated and treated to obtain production from one or morezones. In other words, if all zones are abandoned, which was the situa-tion in the case of the 7-25 Well in 1995, the lease is subject to termina-tion. As discussed later, after the expiration of the primary term, theremust always be a well capable of production in order for the lessee tohave the right to rely on the terms of the lease permitting a suspension orinterruption of production. In 1995, the 7-25 Well, like the collapsedmine in the Jimmy Dean ballad, was considered to be a worthless pit.

390 In the summer of 1995, there was a wholesale abandonment of theCrossfield Member and no “drilling, working or production operations”taken for five and a half years to produce the well from another forma-tion. Five and a half years later, a complete re-working of the well toproduce from the BQ formation was required because it too had beenabandoned 20 years earlier. A new completion five and a half years afterthe well last produced when circumstances, which were not foreseeable,had fortuitously changed cannot be considered a resumption of produc-tion operations following an interruption or suspension for causes be-yond the lessees’ control or because of a lack of or intermittent market.

391 The circumstances which this case presents are analogous to those inwhich a well ceases to produce in commercial quantities (in the vernacu-lar, the well goes “dry” or “waters out”). No one would argue that alessee in those circumstances could do nothing for half a decade and thenexpect to rely on a proviso in the lease similar to the subject leases.

392 The only factual distinction between the hypothetical and the case atbar is that, in the case at bar, a new well did not have to be drilled. Butthe 7-25 Well did have to be recompleted in an entirely different zone ata cost of about a half million dollars. A drilling rig had to be broughtonto the lease to recomplete the well in the BQ formation. A pipeline totake away the production from the well had to be constructed (or thepreviously-abandoned production pipeline unplugged and recommis-sioned). Firm transportation on TransCanada had to be obtained and ei-ther a new gas purchase contract entered into or an existing one amendedwith respect to contract quantities.

393 The natural gas leases in this case did not permit the leases to con-tinue once the lessees ceased production. A failure to produce a well be-cause it is uneconomic and unprofitable results in the termination of anatural gas lease of the type we are dealing with. A failure to produce awell because such production is uneconomic or not profitable results in


termination if that failure takes place after the expiration of the primaryterm and no steps are taken to resume production or drilling operations.The payment of annual rentals would only prevent termination followingthe expiration of the primary term if the failure to produce was the resultof an interruption or suspension of production because of a lack of or anintermittent market. The production engineering manager responsible forthis well testified that a lack of or an intermittent market was not thereason for cessation of production. His evidence clearly demonstratedthat there was no “interruption” or “suspension” of production. Therewas a complete cessation of production, an “abandonment” to use one ofthe words he used.

394 Mr. Seredynski’s evidence, which was accepted by the trial judge,should have been the end of the matter. Clearly there was a market forthe gas when the well was shut-in. Gas continued to be produced,processed and sold from the Crossfield Member in both the East Cross-field and Calgary Crossfield fields. The trial judge read into the lease therequirement that the market be economic or profitable. I do not believeshe erred in so doing, but there could also be no doubt that a market forthe gas existed and that it was profitable. Offsetting wells were sellinggas into that market. What was not considered profitable or economic bythe lessees was producing sour gas from this well because of its low flowrates. And the reason producing the well was not considered profitable oreconomic was the cost of producing, gathering and processing the gas.But these are not market issues. These are well capability issues whichhave been faced by many an old well at the end of its economic life. Thelessees simply could not produce the well at rates which made economicsense to them. The natural gas leases in this case did not permit the les-sees to refrain from “drilling, working or production operations” until anunforeseen circumstance at some indefinite time in the future transpiredto make the well economic again. If that were the law, natural gas leasesof the type entered into in this case would continue indefinitely despite alack of production. And whatever else might be said about the parties’intentions back in the 1960s when these leases were entered into, neitherparty contemplated that the leases would continue indefinitely in the ab-sence of production.

395 Under the leases in question, there is the right to shut-in, cap, suspendor otherwise not produce a well following the expiration of the primaryterm if the shut-in, suspension or cessation of production is the result of alack of or an intermittent market or a cause beyond the lessees’ reasona-ble control. But as Ballem stated in his book, and this is important, there


must still be a well capable of producing the leased substances for thatright to exist: Ballem at 210. A lessee cannot be said to have “shut-in” awell if the lessee is of the view there is nothing to shut-in. A lessee can-not “cap” a well if there is nothing to cap. A lessee cannot “otherwise notproduce” a well if there is nothing to produce.3 In this case, there was nowell capable of producing the leased substances for five and a half years.The leases expired in accordance with their terms when the only forma-tion then capable of being produced was abandoned and the decision wastaken not to recomplete the well in the only other formation which, as itturned out, was capable of production (even though it was thought not tobe capable of economic production at the time of abandonment). Once alessee concludes that a well is not capable of economic production, suchlessee must within 90 days commence drilling, working or productionoperations to either stimulate the existing formation or complete the wellin another formation. The fourth proviso is simply inapplicable to a cir-cumstance where there is no well capable of producing the leased sub-stances in commercial quantities.

396 The trial judge apprehended the case as one where the lack of an eco-nomic or profitable market for the gas or other causes beyond the les-sees’ reasonable control permitted the lessees to interrupt or suspend pro-duction. This, of course, was the lessees’ argument. The issue, as the trialjudge saw it, revolved around whether the market for the leased sub-stances (primarily natural gas) was economic or profitable. However, thevalidity of the leases in this case did not depend upon whether the lack ofor an intermittent market for the natural gas produced from the 7-25 Wellor whether other causes beyond the lessees reasonable control permittedan interruption or suspension of production. The validity of the leasesturned on whether or not there had been a cessation of production due tothe declining productivity of the well. There was no consideration givento this argument advanced by the lessors.

397 Declining production or the inability of a well to produce in quantitiesin which revenues exceed expenses triggers termination. It was not theeconomics or the profitability of existing gas markets which killed thiswell. It was the perceived economics and profitability of the rates of pro-duction which the well was physically capable of sustaining which killed

3 A natural gas well may be assigned a “shut-in”, “capped” or “suspended” sta-tus by the energy regulator, but the leases the parties entered into contemplatedonly the shutting in, capping or suspending of a well capable of production.


it. Pick whatever phrase you wish from the decided cases, the 7-25 Wellwas considered by the lessees to be incapable of producing the leasedsubstances in “meaningful”, “paying”, “commercial” or “economic andprofitable” quantities.

398 This was not a new argument. It was put before the trial judge andwas advanced on appeal in the appellants’ factum. The lessors arguedbefore us and below that,

At some point, every gas well’s costs exceed the value of the gas it iscapable of producing. Because gas pools are finite, at some point allgas wells peter out and become uneconomic. If the words, ‘beyond alessee’s reasonable control’ includes the situation where a well be-comes uneconomic because costs exceed revenues, then every gaslease is capable of indefinite continuation...

I agree.399 The trial judge accepted the evidence that the decision to shut-in the

7-25 Well was justified and from the commercial perspective of the les-sees it may have been justified. But from the perspective of the survivalof the leases, the real issue was why the shut-in took place. Was it be-cause of a lack of or an intermittent market for production capable ofsatisfying that market or some other cause beyond the reasonable controlof the lessees? Or was it because the well was no longer capable of eco-nomic production? The latter issue does not appear to have been can-vassed by the trial judge. The evidence required that it be canvassed. Awell no longer capable of economic production may be due to causesbeyond the reasonable control of the lessee. In that event, only the timelycommencement of “drilling, working or production operations” (that is,meaningful activities directed at bringing the well back onto production)will prevent termination of the lease. In the words of the mining ballad,“[w]ith jacks and timbers,” the lessee must “start back down”.

400 Much was made of the coincidental interests of lessors and lessees inrealizing a profit from production in order to justify an interpretation ofthe lease which would permit continuance when the market for produc-tion is not profitable. The respondents argue that the interpretation of thefourth proviso should have regard to the fact that it is not in either thelessee or the lessor’s interest to have a well produced at a loss. While thatmay be true, it does not mean the lease is continued. The lessee may becompelled to discontinue uneconomic production. But having discontin-ued production in those circumstances, the lessee cannot simply do noth-ing. If a well is no longer considered by the lessee to be capable of eco-


nomic production and the lessee doesn’t do something to remedy thatsituation in a timely fashion, the lease terminates and the lessor resumescontrol of its hydrocarbons.

401 This court in Omers stated that it strains common sense to think that alessor would tie up its land past the primary term for a well which lackedcommercial viability: para 95, referencing Freyberg at para 50. The goalof both parties is to develop the resource to make a profit. However,when that is not possible or not considered to be possible by the lessee,the lease terminates in accordance with its terms.

402 The first clue that this case was not about the lack of an economic orprofitable market for the leased substances, but rather was about a wellno longer capable of producing in economic quantities, came when thelessors’ expert started giving evidence about “hurdle rates” of return oninvestment, profit to investment ratios and payout periods.

403 These were all financial measures or economic indicators which tookinto account the capital expenditures which the lessees were required tomake in order to either continue producing natural gas out of the Cross-field Member or recommencing production out of the BQ formation.

404 With respect to the Crossfield Member, the lessees’ expert’s evidencewas that the lessees were looking at a costly fracture stimulation. Thecost was in the neighbourhood of several hundreds of thousands of dol-lars. To abandon the Crossfield Member and recomplete in the BQ for-mation the lessees were looking at a cost of $460,000.

405 So the hurdle rates proffered were the lessees’ desired rates of returnon these capital costs or investments. The profit to investment ratios andthe payout periods were also related to these capital costs. All of thesefinancial measures are tremendously relevant if the issue is one of thewell’s economics. But it has nothing to do with the fourth proviso whichprovides for suspensions or interruptions of production as a result of thelack of a market or other causes beyond the reasonable control of thelessees.

406 And the reason these economic indicators had nothing to do with thefourth proviso is that, under the leases, the lessors were indifferent tothose capital costs. Lessor royalties are not subject to any of the costs ofbringing the leased substances to the surface. If one examines the AgreedStatement of Facts Pertaining to Revenues, Expenses and Royalties, no-where to be found is the cost of abandoning the well in 1995 or the costof recompleting in the BQ formation in 2001. Just as the lessors are notconcerned about the capital cost of drilling the well in the first instance,


they also are not concerned about the costs of stimulation, abandonmentor re-completion. Those are costs borne by the lessees and are not ex-penses incurred to render the gas marketable and are therefore not takeninto account in calculating the lessors’ royalties. Nor are the lessors con-cerned about the risks associated with these production operations, whichrisks played a prominent role in the lessees’ expert’s opinion that contin-ued production of the well was not economic. The lessors’ only concernis that the revenue from sales of the natural gas exceeds the costs of ren-dering it marketable.

407 The costs and the risks associated with getting the hydrocarbons outof the ground are borne by the lessees. These costs and the risks mayvery well determine whether a well is economic or considered capable ofproducing in commercial quantities. But if they dictate that the well isnot economic or not considered capable of producing profitably, then thelease is over, absent a re-working of the well. The lessees in this case didnot have the right to maintain leases in circumstances where they shut ina well they considered uneconomic at a time when there was a market forthe leased substances being produced from the same formation by fouroffsetting wells4 . The well’s revenues might not have exceeded the les-sees’ hurdle rates of return on investment, but that fact is only relevant tothe economics of continued production. Failing to meet or exceedtargeted rates of return or investment or desired pay-out periods is notrelevant to the issue of whether or not profitable or economic markets forthe leased substances exist. And while a well’s inability to satisfy thelessees’ hurdle rates may be beyond a lessee’s control, that is not a cir-cumstance to which the fourth proviso applies. And since the fourth pro-viso is not applicable, the leases terminated in this case.

IV. Remedy408 Having found that the leases terminated according to their terms, the

issue then becomes one of whether the lessors are entitled to a remedyand, if so, what form that remedy should take.

4 Two of the offsetting wells which continued to produce were wells of the oper-ator of the subject wells (Nexen) which brings to mind this court’s decision inFreyberg where the lessee in that case took steps to prefer its other vicinity wellson Lady Freyberg’s lands. When production from those wells began to decline,they were successfully stimulated.


409 The issue of whether the lessors are entitled to a remedy arises be-cause even though the leases terminated in accordance with their terms in1995, shut-in rental payments continued to be made by the lessees andaccepted by the lessors. Furthermore, when production resumed in Feb-ruary or March of 2001, the payment and acceptance of royalties fromthat production also resumed. However, in 2003, lessees discovered whatthey considered to have been a substantial over-payment of royalties tothe lessors. That led to a demand for repayment which caused some ofthe lessors to more closely examine the state of their leases.

410 Ultimately the lessors received advice that their leases had terminatedin accordance with their terms and in September of 2005 they servedtheir lessees with a Statement of Claim and Notices to Vacate demandingthat Nexen immediately cease production from the 7-25 Well and turn itover to them. The stated basis for this demand by the lessors was thecessation in production. The Statement of Claim sought a declaration thatthe leases had terminated following the 1995 cessation of production. Itclaimed that natural gas had been improperly taken from the leased landsand sought an order directing the lessees to account for the profits theyhad received from producing the well from March 2001.

411 With respect to the issue of entitlement to a remedy, I am of the viewthat the acceptance of shut-in rentals while the well was shut-in and theacceptance of royalties once the well was recompleted and productionresumed did not revive the terminated leases. However, the acceptance ofroyalties could affect the lessors’ entitlement to damages, the quantum ofdamages they were entitled to and the period over which they were enti-tled to damages.

412 In Sohio, where production had been wrongly taken following a pe-troleum and natural gas lease which had expired, the Supreme Court ofCanada adopted a ruling by the Saskatchewan Court of Appeal that thelessees “account for all benefits from production received by them afterthe date of service of the writ of summons upon them”: at 89, citingWeyburn Security Co. v. Sohio Petroleum Co. (1969), 7 D.L.R. (3d) 277(Sask. C.A.) at 283, (1969), 69 W.W.R. 680 (Sask. C.A.).

413 I would propose to follow that prescription in this case; although itshould be made clear that the appropriate measure of damages forwrongful production following the termination of a natural gas lease mayvary with circumstances. I articulate no general principles here.

414 There are two aspects to the ruling in Sohio. The first is that the mea-sure of damages is “all the benefits from production received by them


[the lessees]”. The second is that it is the benefits from production re-ceived after the date of service of the writ of summons on the lesseeswhich must be accounted for.

415 I interpret the “benefits of production received by them” to mean thenet revenue received by the lessees after certain expenses incurred in ob-taining that production and rendering it marketable have been deducted.That interpretation accords with the terms of the leases wherein the par-ties agreed that the lessors’ royalties would be based on the “current mar-ket value on the said lands” of the leased substances “produced, savedand marketed”. Those terms suggest that certain production, gatheringand processing costs ought to be deducted and, indeed, they were de-ducted in calculating the lessors’ royalties. If the lessors were prepared tohave those costs deducted before their 12 1/2% royalty shares were cal-culated, it seems appropriate to deduct those costs after they became enti-tled to 100% of the value of the produced substances.

416 The Sohio measure of damages makes sense in this case because thecourt is not simply compensating for trespass.5 It is also compensatingfor a wrongful conversion.6 In other words, the wrongdoers (the lessees)not only overheld, but they also damaged (depleted or wasted) the rever-sion while they overheld. An irreplaceable value was taken from the fee.This was not simply a wrongful occupation of land for which compensa-tion for use and occupation (e.g., rent) might be appropriate. This was awrongful failure to vacate accompanied by a wrongful conversion of per-

5 The debate over whether there can be a trespass to mines and minerals shouldbe put to bed. Mines and minerals are interests in land. To quote GHL Fridman,The Law of Torts in Canada, 2nd ed, (Toronto: Thomson Canada Limited, 2002)at 43, “The expression ‘land’, at least for the purposes of the law of trespass, notonly includes the surface, i.e., the topsoil, but may extend to cover the earthbelow and air above the surface”. To suggest that the registered owner of themines and minerals underlying Blackacre lacks possession, and therefore cannotsue in trespass because he is not actually mining the mines and minerals, is tosuggest that a farmer owning unused, vacant land hasn’t sufficient possession tosue in trespass. Mines and minerals, like vacant land, can be trespassed upon ina variety of ways. Subject to the rule of capture, minerals can also be wrongfullyconverted when a party without authority reduces them to possession by sever-ing them from the subterrain. Also, the principle that an overholding tenant can-not be sued in trespass loses its validity when the overholding tenant refuses tovacate when given proper notice to do so.6 See note 6.


sonal property (when the hydrocarbons were severed from the realty andproduced by the lessees) for which the value of the goods wrongfullyconverted may be an appropriate measure of damages.

417 Disgorgement of net benefits, while not a particularly “mild” rule, isalso not necessarily punitive as has been suggested. Disgorgement canalso be compensatory.

418 The Supreme Court adopted disgorgement in Sohio where the oilcompany was found to have proceeded under a mistake as to its rights.Disgorgement is all the more appropriate in cases where there is no doubtabout the lack of consent by the owner of the hydrocarbon rights to theproduction of them by another following service of a Statement of Claimor a Notice to Vacate.

419 While natural gas in the ground can have value (gas in place is boughtand sold by oil companies all the time), ascertaining its value in situ canbe difficult and any value estimated is subject to debate. But the value ofnatural gas which has been severed from the ground at a particular pointin time is susceptible to valuation, particularly when there has been ac-tual sale of the leased substances as there were in this case.

420 But in order to sell the leased substances, costs must be incurred toflow it, treat it, process it (if processing is required) and dispose of value-less by-products, etc. Thankfully, the parties, though they did not agreeon entitlement, did agree on the quantum of revenues received and theexpenses incurred by the lessees while the 7-25 Well was producingfrom 2001 to 2011. And, of course, the parties also agreed on the royal-ties paid on that production to the lessors. I see no reason not to base the“benefits from production” received by the lessees on the parties’ agree-ment as to exactly what the net operating income from the well’s produc-tion was.

421 Like my colleagues, I am of the view that the royalty-plus-bonusmeasure of damages is not appropriate on the facts of this case. Quiteapart from encouraging lessees from wrongfully continuing productionafter their leases have terminated, knowing that it may not cost themmuch more than they are currently paying, the royalty-plus-bonus ap-proach has all sorts of other problems associated with quantifying itwhich the net benefits or net income approach does not have in this case.

422 First, to apply the royalty-plus-bonus approach, one has to determinean appropriate royalty rate upon which the damages will be based. Thiscan be difficult and may require complicated reservoir evaluations andmarket assessments. An arbitrary topping up of the traditional 12 1/2%


royalty may not be appropriate. In the case at bar, the lessors and theirtop lessee agreed to a royalty rate of 20%, but it was a reviewable ratedepending on market considerations.

423 Even if an appropriate royalty rate can be determined, complicatedand often controversial calculations still have to be made to determinethe actual amount of the royalty payment. Different lessees have differ-ent ways of calculating royalties. Even oil companies can disagreeamong themselves as to what constitutes legitimate costs of production tobe deducted from the proceeds of sale of the gas in order to determineroyalty payments.

424 Determining the bonus the lessor might expect to receive on the exe-cution of a new lease is also fraught with hazards. In this case, for exam-ple, the top leases appear to indicate that a mere $100.00 was paid as abonus. But, of course, the stated amount of the bonus ignores the agree-ments which were made for funding this litigation and the sharing inrecovery.

425 So for these reasons and ones which follow, the appropriate measureof damages in this case ought to be disgorgement by the lessees of thenet benefits of production received by them.

426 The other important principle endorsed by the Supreme Court in So-hio is that the accounting for net benefits runs from the service of thenotice to vacate. This is particularly appropriate in this case.

427 What was being litigated here was the termination of a long and mu-tually-beneficial relationship between lessors and lessees. Unlike someof the cases cited, the oil company lessees in this case did not enter thelands of the lessors as trespassers. They obtained the right to do so. Andthey paid for that right. Furthermore, they produced a well on the landsfrom one formation for roughly 10 years and then from another forma-tion for a further 14 years and they paid the lessors royalties on all of thatproduction. Then they ceased production and paid shut-in rentals. No les-sor objected or took the position that the leases had terminated accordingto their terms. This does not mean the leases had not terminated in accor-dance with their terms. It simply means that the lessees were justified inbelieving that they had the lessors’ consent to remain. An oil companydoes not need a petroleum and natural gas lease to maintain a well onanother’s land. All an oil company needs is the consent of the owner ofthe minerals (and the consent of the surface owner if not the same). Suchconsent, of course, can be revoked at any time and that is why oil compa-nies prefer the tenure which executed and registrable petroleum and natu-


ral gas leases provide. But that does not detract from the fact that a feesimple owner can simply consent to the taking of his minerals if hechooses.

428 The Saskatchewan Court of Appeal’s very thorough review of the lawof trespass and the indicia necessary to establish consent (leave and li-cence) in Montreal Trust Co. v. Williston Wildcatters Corp., 2004 SKCA116, 243 D.L.R. (4th) 317 (Sask. C.A.) [Williston Wildcatters] is helpful.The bottom line is that landowners and/or mineral owners are free togrant rights to others to come onto their lands to exploit their minerals.And they can grant such rights by any means they choose. They do notneed to execute a lease. They are free to manage their holdings as theysee fit. But manage them they must. Fee simple ownership requires man-agement, supervision and engagement. Fee simple ownership has itsprivileges but it also has its responsibilities.

429 I do not subscribe to the view that freehold lessors are necessarily atan informational disadvantage compared to oil company lessees. Whenthe payment of royalties terminated, the lessors ought to have exerciseddue diligence in determining the reason. They ought to have made inquir-ies of their lessees. The lessees would then have been obliged to explainwhy production was being halted. Had they done so, the lessors mighthave consented to the cessation because there are any number of reasonswhy it might have been in their interests to consent to a cessation ofproduction. And if the information the lessors received as a result of theirinquiries was not satisfactory, there were plenty of petroleum consultantsavailable to advise (land consultants, reservoir engineering consultants,geological consultants and even natural gas marketing consultants). Also,given the informational filing requirements of the province’s energy reg-ulator, there was also a wealth of information available free of charge atthe energy regulator’s offices, specific to the well and the gas field inquestion.

430 The significance of the foregoing is that in the absence of any stepsbeing taken by the lessors to exclude the lessees, the lessees were nottrespassers following cessation of production in 1995. The lessees hadinitially come on the lands as a matter of right. They had produced thenatural gas as a matter of right. They then lost that right. But at thatpoint, in the absence of any steps being taken by the owners of the hy-drocarbons, the lessees did not become trespassers. No action was takenby the lessors. Their acceptance of rentals and royalties, while it did notrevive the terminated leases, did indicate that the lessors consented to the


status quo. And, for their part, given their prior mutually-beneficial andlengthy relationship, the lessees were justified in believing they couldcontinue to conduct themselves on the assumption that the landownerstook no objection to the resumption of production operations in March2001. The legal fact that their leases were subject to termination in accor-dance with their terms is of no consequence if no steps are taken by les-sors to eject their lessees.

431 I daresay there are many freehold oil and gas leases throughout West-ern Canada which have expired according to their terms and are subjectto termination; yet those lessees and lessors continue to conduct them-selves as before. Indeed, top leasing is a practice built on identifyingthose “terminated” leases and persuading lessors to grant top leases. Thefact that would-be top lessees are not always successful in persuadinglandowners with expired leases to grant them top leases is testament tothe point being made. And that is, that until the lessors made it clear totheir lessees that they no longer consented to continued production, theleases may have been subject to termination, but the lessors were notentitled to damages for trespass or conversion. The lessors had to make itclear that they were relying on that termination.

432 But once the lessors served notices to vacate, the fact that they contin-ued to accept royalties from the wrongful conversion of their hydrocar-bons is of no consequence. Acquiescence in continued production of thewell and acceptance of royalties was not indicative of consent. At thatpoint, the lessors were simply accepting proceeds of the sale of a portionof the production which belonged to them and which the lessees per-sisted in wrongly converting in the face of a notice to vacate. The hydro-carbons were owned by the lessors. By continuing to accept royalty pay-ments, the lessors were simply receiving a part of the benefit to whichthey were entitled by virtue of their ownership.

433 Once served with the Notice to Vacate in September 2005, the lesseeswere not innocent tortfeasors who acted under the mistaken belief thatthey were acting lawfully. The lessees had been warned by at least onevery experienced petroleum landman that their leases had terminated. Itwasn’t until several years later that they were served with notices to va-cate. But, having been served and armed with the advice they had re-ceived, the lessees took the position that they were acting lawfully,knowing full well that their position might not be sustained. This is notthe act of an innocent tortfeasor. This is the act of lessees who knew therisks and took them. They must now suffer the consequences of having


converted to their own use the hydrocarbons of others. Nor should thelessees get any credit for their special skill, expertise and effort in wrong-fully extracting the hydrocarbons following service of the notices to va-cate. Nor is it appropriate in the circumstances of this case that the les-sors be required to share the benefits of production with their lessees.

434 The problem courts have perceived with the Sohio approach of re-quiring the trespassing lessees to account for “all of the benefits fromproduction received by them” is that it can be a harsh rule. That harsh-ness was recognized by the Saskatchewan Court of Appeal in WillistonWildcatters, which is ironic because it was the Saskatchewan Court ofAppeal which first articulated the approach which the Supreme Courtadopted in Sohio.

435 In order to justify upholding an award of damages based on the roy-alty-plus-bonus approach, the Saskatchewan Court of Appeal in WillistonWildcatters interpreted the Supreme Court of Canada’s decision in Sohioas standing only “for the proposition that the courts are to grant just andequitable relief to all parties involved”. To read more into Sohio, the Sas-katchewan Court of Appeal said, would simply be incorrect. In order tojustify its interpretation of Sohio, the Saskatchewan Court of Appeal ap-pears to have gone to its own files to determine that “[a]n examination ofthe exhibits filed at the Sohio trial reveals that Weyburn Security [thelessor] received approximately 30% of the net benefits from production”:para 99.

436 Alberta courts too have found the “net benefits” approach inappropri-ate in certain circumstances: witness the so-called “Freyberg RemediesDecision”, Freyberg v. Fletcher Challenge Oil & Gas Inc., 2007 ABQB353, 428 A.R. 102 (Alta. Q.B.) and the decision of Justice Romaine inthe instant case.

437 Suffice it to say that damages are very much dependent on the facts.Sometimes the facts call for a strictly compensatory award. Sometimesthe facts call for disgorgement which may be compensatory or punitive.And sometimes a clearly punitive award is called for, windfall or nowindfall, to the successful plaintiff.

438 In this case, I reject the respondents’ submission that there is no au-thority for disgorgement in Canadian law. Clearly Sohio ordered dis-gorgement. There may be some doubt about what was ordered to be dis-gorged, but both the Saskatchewan Court of Appeal and the SupremeCourt of Canada ordered a form of disgorgement. The respondents arguethat a restitutionary or compensatory approach is preferable, as if dis-


gorgement did not have a restitutionary or compensatory aspect. Whatconstitutes restitution or compensation is something about which reason-able people can disagree, but what was wrongfully taken here was mil-lions of cubic feet of irreplaceable molecules. To award to owners theirsevered value is, in my view, compensatory.

439 In my view, the paramount consideration in assessing damages inthese types of cases is what will promote “peace in the patch”, which isno more than another way of articulating the “just and equitable” ap-proach which the Supreme Court adopted in Sohio.

440 Where the royalty-plus-bonus approach is likely to fail to deter oilcompanies whose leases have terminated from dealing unfairly with theirlessors, that approach ought to be rejected. Yet the royalty-plus-bonusapproach might be appropriate where it is not likely to have that effect.

441 It is recognized that requiring the oil company which has wrongfullyconverted hydrocarbons to account for the net or gross income or bene-fits received from its wrongful conversion can result in damages beingawarded to the owner of those hydrocarbons which are well in excess ofany benefit the owner would have received from such ownership. Such aresult could tend to promote questionable litigation over lease validitybecause the rewards to be reaped from litigation could exceed the valuewhich a mineral owner might reasonably expect for their minerals.

442 So the damages must not only reflect compensatory principles butmust also provide both sides with an incentive to deal fairly with oneanother. As indicated, the “just and equitable” approach adopted inSohio.

443 In this case, the royalty-plus-bonus approach provisionally adoptedby the trial judge would simply encourage the lessees in similar circum-stances to continue to produce knowing that the worst that could happenis that they might have to pay incremental royalties and an amount equalto prevailing bonuses being paid for hydrocarbon rights. It would simplybe a cost of doing business.

444 A royalty-plus-bonus approach is not appropriate where there hasbeen a continuation of production in circumstances where the lesseesknew that their leases had terminated and where the consent of the les-sors to an indefinite or prolonged cessation of production was not clearlyobtained. The lessees knew or ought to have known that their leases hadterminated in accordance with their terms. They were advised as muchby one of their petroleum landmen in no uncertain terms. A petroleumlandman is trained to identify mineral title issues, including freehold pe-


troleum and natural gas lease terminations. The lessees chose to ignorethe landman’s expert advice.

445 On the other hand, would awarding the lessors the net benefits (thenet income) received by the lessors from the 7-25 Well production fromOctober of 2005 to January of 2011 give them more than they could havedreamed of ever realizing from their ownership of the minerals? Wouldwe be stirring up trouble in the oil patch by awarding the net benefits ofproduction received by the lessees?

446 My answer to those questions is no. From the evidentiary record putbefore us, it does not appear that an award of the net income from pro-duction from October of 2005 to January of 2011 would amount to acompletely unjustifiable windfall to the lessors, particularly when onehas regard to the deductions which the parties have agreed the lesseescan make from their gas sales revenues. I am cognizant of the principlethat tortfeasors ought not to be entitled to retain or profit from theirwrongful conduct. Also, there was authority cited which holds that whendisgorgement is appropriate, it would be wrong to refrain from orderingit simply because the innocent party might receive more than it wouldhad the wrongful conversion never taken place.

447 The appellants ask that we direct that the respondents be held to ac-count for their profits earned from producing the 7-25 Well from suchdate that we might direct and that judgment be entered for the amountdetermined by such accounting. I would hold the respondents to accountfor their net operating income from October of 2005 to January of 2011as disclosed in the parties’ Agreed Statement of Facts Pertaining to Rev-enues, Expenses and Royalities. And for the reasons given below, Iwould hold Esprit Exploration Ltd. liable for the amounts received by itor Pengrowth by way of a gross overriding royalty on production fromthe 7-25 Well during this same period.

V. The Absence of Snell Farms Ltd. And Wheatland Farming Co.Ltd.

448 Wheatland Farming Co. Ltd. claims to have been assigned the les-sor’s interest in the leases of the natural gas notionally underlying theSE1/4 (where the 7-25 Well was drilled) and in the lease of the naturalgas notionally underlying the southerly 116 acres of the NE1/4.

449 Wheatland doesn’t claim to be the owner of the hydrocarbons under-lying these lands. It simply claims to have been assigned the lessor’s in-terest in some of the leases which are the subject matter of this appeal.


450 The registered owners of the mines and minerals underlying theselands (i.e., the owners of the natural gas notionally underlying theselands who were plaintiffs in this action) dispute Wheatland’s claim.

451 The dispute is in litigation.452 That Wheatland was not a party to the within action is problematic.

The trial judge, quite properly, was hesitant to declare the NE1/4 andSE1/4 leases invalid without hearing from a party claiming an interest inthose leases.

453 However, in my view, the dispute over who is the lessor of the naturalgas notionally underlying these lands is no reason to decline to rule onthe validity of these leases.

454 First, the terms of those leases are virtually the same as the otherleases and the conduct of the lessees in exercising their rights under thoseleases (i.e., the conduct of Nexen, the operator on behalf of all the lesseesof natural gas rights in Section 25) is the same. And although an argu-ment might be made that defences to lease termination could potentiallybe advanced based on the conduct of Wheatland or its predecessor, SnellFarms Ltd., as lesssors, the lessees have not pointed to anything whichindicates that such evidence exists. The issue was whether the leases ter-minated because the lessees failed to produce the well or conduct opera-tions for five and one-half years. There was no evidence or argumentwhich Snell or Wheatland could point to which would have affected thisissue. Certainly the acceptance of royalties would not have sufficed forthe reasons given previously.

455 And despite their dispute with the registered owners of the mines andminerals over who holds the lessor’s interest under the leases in question,both Wheatland and Snell made it clear to this court in an affidavit insupport of an application to intervene in this appeal that they support theposition of the appellants on the question of the validity of the leases.Indeed, one of the reasons their application for intervenor status was notgranted was that they indicated that their position on the appeal would bethe same as their adversaries in the other litigation.

456 Assuming that Wheatland does hold the lessor’s interest in the leasesof the natural gas notionally underlying much of the E1/2 of Section 25,as lessor, Wheatland is deemed to have agreed to the pooling of theleased lands with other lands to form a production spacing unit. Wheat-land is also deemed to have agreed that production from a well on theSE1/4 not only continues the lease of the natural gas notionally underly-ing the SE1/4, but it also continues the lease of the natural gas underlying


that portion of the NE1/4 which Wheatland alleges was assigned to it.Likewise, a failure to produce the leased substances from the SE1/4 inaccordance with the leases not only terminates the lease of the naturalgas notionally underlying the SE1/4 but also terminates the lease of thenatural gas notionally underlying that portion of the NE1/4 which Wheat-land alleges was assigned to it. Production of the leased substances froma well on any part of the production spacing unit was agreed to have theeffect of continuing all of the leases. The corollary is that a failure toproduce the leased substances from any part of the production spacingunit has the effect of making the leases subject to termination.

457 It would be hard to imagine a circumstance where the validity of alease of a portion of pooled lands terminated for non-production and yeta lease of another portion of the pooled lands did not terminate. Even ifthe lessors of one or more of the pooled quarters consented to the re-sumption of production and the lessors of the other pooled quarters didnot, the validity of the leases would not be affected. All of the leaseswould still have terminated in accordance with their terms. The only pos-sible difference would be the remedy to which the respective lessorsmight be entitled.

458 However, the Court cannot sever its declaration. If the leases of thenatural gas notionally underlying the W1/2 of Section 25 have terminatedfor lack of production, then so have the leases of the natural gas notion-ally underlying the E1/2 of Section 25. The declaration of invalidity mustapply to all leases.

459 An argument might be made by the lessees that, having produced theleased substances without the authority of some, but not all, of their les-sors, they should be entitled to account to their lessors differently. Thelessees would account to those lessors who had not established that theyhad not consented to continued production on the basis that the lesseesowed them nothing because, presumably, the lessees had already paidthose lessors the royalties to which they were entitled under the leases.The lessees would account to the lessors who had established that theyhad not consented to continued production on the basis of the lessors’proportionate share of the net income from that production.

460 However, such differential accounting would not respect the poolingwhich had taken place. It would not respect the lessor’s agreement topermit pooling on the understanding that the lessor would receive suchportion of the agreed-upon royalties as the surface area of the lessor’slands bore to the total surface area of the pooled lands. In other words,


the lessors agreed to pool their lands on the understanding that theywould receive their proportionate share of the benefits of production, nota disproportionate share. Likewise the lessees agreed to pool their leaseson the basis that they too would receive their proportionate share of pro-duction from the pooled lands. Giving one remedy to one set of lessorsand a different remedy (really, no remedy at all) to another set of lessorsordinarily ought not to happen on pooled lands.

461 Resolution of the dispute over who owns the hydrocarbons in theSE1/4 and NE1/4 of Section 25 will simply determine to whom the les-sees must account. It will not affect the requirement to account. As indi-cated, it would be incongruous to require the lessees to account to themineral owners in the W1/2 of Section 25 and the remaining portion ofthe NE1/4 and not require the lessees to account to the mineral owners(whomever they might be) in the SE1/4 and the north portion of theNE1/4 on the same basis. And it is of no consequence that the well inquestion is located on the SE1/4. Under the pooling agreement, which allof the lessors authorized, production from the well on the SE 1/4 isdeemed to be production from all the quarters. Furthermore, productionfrom the lands underlying each of the leased quarters or portions isdeemed to be production from the other quarters, well or no well. Lackof production from the SE1/4 must therefore be deemed to be a lack ofproduction from the remaining parcels. When the well ceased producingin 1995, the lands remained pooled. They had to remain pooled. Other-wise, production could not have resumed in 2001. Even if the lessors ofthe SE1/4 had supported the position of the lessees (which they did not),the SE1/4 lease would still have terminated in accordance with its termswhen the well ceased producing in 1995 and the well was virtuallyabandoned.

VI. The Validity of the Lease of the North Portion of the NE1/4462 The appellants argue that the natural gas lease of a portion of the NE

1/4 did not terminate in September of 2005 when the Notice to Vacateand Statement of Claim were served on the lessees by counsel for some,but not all, of the lessors. That is, the Notice to Vacate and the Statementof Claim were not served by or on behalf of the lessors of the north 43acres of the NE1/4 of Section 25. Indeed, the owners of the hydrocarbonsunderlying these lands were actually named as defendants in the initialStatement of Claim. However, within weeks of the service of the Noticeto Vacate and Statement of Claim, these lessors had signed top leasesand within a couple of months (December 2005) the Statement of Claim


was amended to include them as plaintiffs seeking the same declarationas the others, namely that their natural gas leases had terminated. Thetrial judge found that if she were wrong in finding that the leases had notterminated, these lessors had implicitly given leave and licence to theirlessee to continue to produce the well until 2007 when they made a de-mand of their lessee to stop producing the well.

463 Within months of the issuance of the initial Statement of Claim, thedefendant lessees were aware that the lessors of the north 43 acres ofNE1/4 of Section 25 were taking the position that their lease had termi-nated. Besides, as previously indicated, once the lease of any one of theowners of the natural gas underlying Section 25 terminated, the right ofall lessors to produce natural gas under their leases terminated, includingthe lease of the natural gas notionally underlying the north portion of theNE1/4, because then there was no longer a production spacing unit. Hav-ing nevertheless produced, the lessees are bound to account to all thelessors for that production. The argument that the lessees should accountfor that production to different lessors on different bases should be re-jected for the reasons given above. As a consequence, I am of the viewthat nothing turns on the fact that the lessees of the north 43 acres of theNE1/4 were not told to stop producing until 2007. Their fellow lesseeswere told to vacate in September of 2005 and by December of 2005 thelessees of the natural gas underlying the northerly 43 acres of the NE1/4knew that their lessors took the same position. The lessee of the naturalgas underlying the north 43 acres of the NE1/4 of Section 25 could notlawfully have produced the 7-25 Well after the Notice to Vacate andStatement of Claim were served on behalf of the other lessors in Septem-ber of 2005.

VII. Esprit’s Liability464 Under a purchase and sale agreement dated June 1, 2000, Canadian

88 sold its leasehold interest in the natural gas in the BQ formation no-tionally underlying a portion of the NE1/4 and all of the SE1/4 andNW1/7 of Section 25 to Triquest (now Bonavista). In selling its lessee’sinterest, Canadian 88 reserved to itself a 10% gross overriding royaltyout of the production from or allocated to the interest that it once had inthe pooled lands (roughly 60%).

465 Determining what liability, if any, Esprit had requires an understand-ing of what an overriding royalty is. An overriding royalty, gross or oth-erwise, is a right to receive a portion of a revenue stream or a right to


receive a share of the production of some commodity. The overridingroyalty interest in this case was carved out of a lessee’s working interest(i.e., out of its interest as a lessee). It was a right to receive a portion ofthe lessee’s production revenue or a portion of the natural gas produced.It was therefore limited in duration to the life of the lease out of which itwas carved. A gross overriding royalty is typically the right to receive ashare of production or a share of the revenues from production withouthaving to pay drilling or well operating expenses. But a gross overridingroyalty and the right it confers are subject to extinguishment. An overrid-ing royalty interest carved out of a lease expires once the lease out ofwhich it is carved terminates. An overriding royalty carved out of themineral owner’s title is not so easily extinguished, but that is not the kindof overriding royalty we are dealing with in this case.

466 Canadian 88 obtained a leasehold interest in some of the pooled landsafter the 7-25 Well had ceased production. In other words, its lessee’sinterest in the NE1/4 and SE1/4 was acquired after the leases had termi-nated according to their terms. Arguably, Canadian 88 was not entitled toany of the production notionally underlying those parcels and therefore itcould not have reserved itself a 10% gross overriding royalty out of thatproduction when it sold its leasehold interest to Triquest (nowBonavista).

467 But whether or not Canadian 88 had an interest to convey and a corre-sponding right to reserve a portion of that interest in June of 2000 whenit sold its leasehold interest to Triquest, Esprit, to whom Canadian 88conveyed the overriding royalty it reserved, became the recipient of aportion of the production which wrongfully took place between Octoberof 2005 and January of 2011. When Canadian 88 conveyed to Esprit thegross overriding royalty, Esprit received a share of the production fromor allocated to the 60.05% of the pooled lands. That is, Esprit receivedthe value of a portion of the production coming out of the 7-25 Well.Esprit was paid that value rather than taking its gross overriding royaltyshare of production in kind. But Esprit was not entitled to that value be-cause the lessees of those lands were not entitled to the natural gas pro-duced. The leases had terminated and once the underlying lease termi-nates, the overriding royalty interest expires. This was a gross overridingroyalty carved out of the lessee’s interest. It was not a gross overridingroyalty carved out of the mineral owner’s ownership. Such overridingroyalties may survive the termination of many leases. But since Espritcontinued to receive an overriding royalty interest share of productionfrom the 7-25 Well after the leases had terminated, it was obligated to


account for that share of production which it received in the form ofgross overriding payments. Esprit was not entitled to that share. Itwrongly received a portion of the value of the natural gas which be-longed to the lessors.

468 The fact that Esprit, as an overriding royalty interest owner, was not aworking interest owner meant only that Esprit could not be held jointlyand severally liable for the value of all the natural gas wrongfully con-verted. But that does not absolve it from accounting for the royalty shareof production it continued to collect following service of the lessors’Statement of Claim and Notice to Vacate on it. In the Agreed Statementof Revenues, Expenses and Royalties, Esprit’s gross overriding royaltieswere deducted from the lessees’ (Bonavista’s) income from production.So either the lessees are not entitled to that deduction or Esprit is inde-pendently liable to the lessors for the royalties it received. That is a mat-ter to be left to Bonavista and Esprit. The concern about double countingdoes not arise. We leave it to the parties to implement our direction, withany disputes to be settled by the trial judge or another judge of the Courtof Queen’s Bench.

VIII. The Lessees’ Cross-Appeal (Champerty and Maintenance)469 The respondent lessees, ExxonMobil, Nexen and Coastal, counter-

claimed for damages from the top lessee, 1088294 Alberta Ltd., and fromthe numbered company’s principal, J. Timothy Bowes, on the basis thattheir involvement in the lessors’ lawsuit against the lessees waschampertous.

470 Champerty and maintenance are actionable torts. Maintenance in-volves providing financial support to another to bring an action. Cham-perty involves not only providing financial support, but also sharing inthe fruits of an action if damages are awarded.

471 Both involve what is known as “officious intermeddling” or a “stir-ring up of strife” by a party with no interest in the litigation other thanthat which is derived from the champertous arrangement. In order forthere to be an actionable tort, the tortfeasor must be a perfect stranger tothe lawsuit.

472 The leading case on champtery and maintenance is the SupremeCourt of Canada’s decision in Fredrikson v. Insurance Corp. of BritishColumbia (1986), 28 D.L.R. (4th) 414, 3 B.C.L.R. (2d) 145 (B.C. C.A.),aff’d [1988] 1 S.C.R. 1089 (S.C.C.). The Supreme Court, in this case,endorsed the judgment of then Madam Justice McLachlin of the British


Columbia Court of Appeal in which she dismissed a challenge of an as-signment of an insured’s cause of action against his insurer to a personthe insured had negligently injured in a motor vehicle accident. The in-sured’s cause of action against his insurer was for an alleged failure bythe insurer to property defend the insured. Fredrikson confirmed a long-standing principle that if the person accused of champerty and mainte-nance had a legitimate commercial reason for prosecuting the litigation,then prosecuting, supporting or even sharing in the proceeds of the litiga-tion will not be held to be champertous.

473 This court, in 1773907 Alberta Ltd. v. Davidson, 2015 ABCA 150(Alta. C.A.) (available on CanLII), also recently dealt with this issue inthe context of a challenge of an assignment of a cause of action by aninsolvent company to the purchaser of its assets on a receivership on thebasis that it smacked of champerty and maintenance.

474 Again, the general principle articulated by this court is that if there isa legitimate commercial reason for the stranger to the lawsuit eithermaintaining it or sharing in any damages which might be awarded, thearrangement will not be considered champtertous.

475 The trial judge in the case at bar was very familiar with champertyand maintenance having been the trial judge in Silverado OilfieldVentures Ltd. v. Davidson, 2014 ABQB 218 (Alta. Q.B.) (available onCanLII). She found that the top lessee did have a legitimate commercialinterest, by virtue of the top leases, sufficient to save them from a chargeof maintenance.

476 The respondents argue that the “genuine concerns” expressed by thetrial judge about the propriety of the conduct of the top lessee under-mined her conclusion that there was no champerty or maintenance (i.e.,no officious intermeddling or “stirring up strife”).

477 I see the trial judge’s expression of her concerns as no more than anindication that she was alive to the fact that the top lessee promoted anddirected the litigation, including indemnifying the lessors against an ad-verse cost award. She also found that some of the lessors would not havebrought the litigation without the risk-free opportunity afforded by thetop lessee. But, again, I do not see that as undermining her finding thatthere was no champerty or maintenance. She recognized that notwith-standing the arrangements for funding the litigation, the top lessee had alegitimate commercial interest in the litigation separate and apart fromthat funding arrangement.


478 The top lessee had a legitimate commercial interest in obtaining a rul-ing as to the validity of the leases. The trial judge expressly recognizedthat. The top lessee’s interest in obtaining the ruling was to determinewhether the property interests the lessors conveyed to them, the petro-leum and natural gas leases, had any validity. The law of champerty andmaintenance is relatively clear. If there has been an assignment of a pro-perty right or interest and the cause of action is ancillary to that interest,the arrangement will likely not be found to be champertous.

479 Here there was an assignment of a property interest to the top lessee.There was a granting of a contingent leasehold interest or profit a pren-dre. In order for the assignee, the top lessee, to enjoy that grant, it neededa declaration as to the validity of the leases previously granted.

480 Nor was their sharing in the award of damages champertous. Oncethe Notice to Vacate had been served, the top lessee had reason to expectthat it would become the lessee of the lessors’ hydrocarbons. Instead,those hydrocarbons continued to be produced by another, thereby depriv-ing the top lessee of the fruits of that production. In other words, the toplessee suffered a loss. The trial judge quite properly held that the toplessee did not have a separate right of action for those damages becauselessors had sued for that same loss, but to share in any recovery was notchampertous.

481 The facts of this case are analogous to an ordinary commercial orresidential lease situation in which a tenant overholds and the landlordcannot afford the cost or the hassle of eviction proceedings. A prospec-tive tenant offers to incur the costs of eviction in return for a lease of thepremises once the overholding tenant has been ejected. No one wouldargue that such an arrangement is not a bona fide business arrangement.A bona fide business arrangement is said to be one of the so-called “ex-ceptions” to champerty and maintenance. It is not really an exception.The arrangement is simply not champertous to begin with.

482 I would therefore dismiss the respondents’ cross-appeal.

Appeal allowed in part; cross-appeal dismissed.


Appendix 1

Section 25 Current Original Current CurrentLands Registered Leases Lessee(s) Registered

Mineral Under Caveats re:Owners Original Original

Leases Leases

Mineral Title Robert Cop- Lease and Bonavista: 5005IJ (Pen-#031 041 ley, Karen Grant dated 100% work- growth) 071856 NW1/4 Nell Copley, December ing interest 504 115of the sec- Margaret Al- 13, 1961 be- (Baytex/tion 25 ice Demers, tween Wil- Bonavista)Lands Mary Jane liam(153.98 Biggar, Gol- Murdochacres more die Alberta Copley, asor less) Danielsen, Lessor and

each having Imperial Oilan undivided Limited as1/5 interest Less-“Copley ee;ImperialGroup” NW1/4

Lease

Mineral Title Bowen Fam- Natural Gas Nexen: 50% 2609KB#051 489 ily Proper- Lease and working in- (Nexen);889&newl- ties Ltd. as Grant dated terest; Exx- 314KJ (Exx-ine;SW1/4 to an undi- January 8, onMobil: onMobil);of the Sec- vided 1/3 in- 1968 be- 50% work- 071 286 693tion 25 terest, tween Nellie ing interest (Bonavista)Lands Ronald B. B. Pole, as(153.98 Pole and Ke- Lessor, andacres more vin R. Pole Jeffersonor less) as joint te- Lake Petro-

nants as to chemicals ofan undivided Canada Ltd.,1/3 interest, as Lessee;and Danny JeffersonG. Oneil in SW1/4 Leasehis capacityas Executor




Leases Leases

of the Estateof Mabel B.Oneil (De-ceased) as toan undivided1/3 interest“OneilGroup”

Mineral Title Edna Keam, Petroleum Coastal: 1241IG#101 187 Wilma Mar- and Natural 100% work- (Coastal);324; NE1/4 shall and Gas Lease ing interest 4523KUof the Sec- Laurel Lee and Grant (Coastal);tion 25 McLaren dated May 9, 071 286 692Lands (por- (executrix 1961 be- (Bonavista)tion) cover- for Betty tween Jeaning north Blanche Car- Ella Irwin,716 feet diff), each as Executrix(43.39 acres with an un- of the Willmore or less) divided 1/3 of William

interest; “Ir- James Irwin,win Group” Deceased, as

Lessor andUnion OilCompany ofCalifornia,as Lessee;Union NE1/4Lease




Leases Leases

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[Indexed as: R. v. S. (R.A.)]

Her Majesty the Queen, Respondent and R. A. S., Appellant

Alberta Court of Appeal

Docket: Calgary Appeal 1301-0066-A

2015 ABCA 21

Marina Paperny, Peter Martin, Brian O’Ferrall JJ.A.

Heard: December 9, 2014

Judgment: January 19, 2015

Criminal law –––– Offences — Sexual interference — Sentencing — Adultoffenders –––– Repeated acts of genital fondling as “major sexual assault” —Accused, 56-year-old male at time of sentencing with no previous record of of-fences, was convicted of two counts of sexual interference — On at least eightoccasions over four-year period commencing when female victim C was eightyears of age, accused fondled C’s breasts and vagina both over and under herclothing — On two occasions in course of 24-hour period, accused similarly as-saulted second female victim, accused’s niece — Victim C was subsequentlyhospitalized for depression and attempted suicide, although C’s family was ap-parently dysfunctional and other factors may have contributed to C’s psycholog-ical injury — Trial judge characterized assault on C as “major sexual assault”,attracting starting-point sentence of three-year term of imprisonment — Ac-cused was sentenced to four-year global term of imprisonment, being 42-monthterm in respect of C and six-month consecutive term in respect of second vic-tim — Accused appealed from sentence — Appeal dismissed — Decisions ofsentencing judge are entitled to appellate deference absent clear error — “Majorsexual assault” generally refers to sexual assaults including penetrative sexualact — However, repeated acts of sexual abuse of vulnerable child over period ofyears constitutes “contemptuous disregard for the feelings and integrity of thevictim” within the meaning of the judgment of Court of Appeal in R. v. Sander-cock — As such, whether offence committed against C is characterized as beingat low end of “major sexual assaults” or high end of other sexual assaults, sen-tence imposed was within reasonable range and appeal was accordingly properlydismissed.

The accused, a 56-year-old male at the time of sentencing with no previous re-cord of offences, was convicted on two counts of sexual interference. The firstvictim, C, a family friend of the accused, was repeatedly assaulted by the ac-cused over a four-year period beginning when C was eight years of age. Theoffences committed against C included acts of breast and genital fondling, butno penetrative sexual acts. Victim C suffered serious psychological injury, in-

R. v. S. (R.A.) 131

cluded chronic major depression and a suicide attempt noted in a victim impactstatement, although the accused alleged that C’s family was dysfunctional andthat C’s psychological harm arose primarily from family issues. The second vic-tim, the accused’s niece, was fondled by the accused on her breasts and vaginatwice in a 24-hour period.

The trial judge held that the offences committed against victim C constituted a“major sexual assault” as defined in the jurisprudence, attracting a “startingpoint” sentence of a three-year term of imprisonment. The accused was sen-tenced to a four-year global term of imprisonment, being a 42-month term inrespect of the offences committed against C and a six-month consecutive termwith respect the the offences against the second victim. The accused appealedfrom sentence.

Held: The appeal was dismissed.

Per Marina Paperny J.A., Brian O’Ferrall J.A. concurring: A “major sexual as-sault” for the purpose of sentencing is usually a sexual assault which involvessome penetrative sex act. However, in the governing judgment of the Court ofAppeal in R. v. Sandercock, a “major sexual assault” was described as one fea-turing “contemptuous disregard for the feelings and integrity of the victim”. Cer-tainly repeated acts of abuse committed over a period of years against a vulnera-ble child during her critical formative years could be so described. In the presentcase, then, it was open to the trial judge to call the offences against victim C a“major sexual assault”. In any event, whether one describes the C offences asbeing at the lower end of “major sexual assaults” or at the upper end of othersexual assaults, given the appellate deference owed to decisions of a sentencingjudge the global sentence imposed was not unduly excessive. The appeal wasaccordingly properly dismissed.

Per Peter Martin J.A. (dissenting): Once the accused effectively objected to factscontained in C’s victim impact statement by suggesting that her psychologicalinjury was caused by family dysfunction, the Crown had an obligation to leadevidence to prove those disputed facts beyond a reasonable doubt. The Crownled no such evidence, and by relying on unproved facts in the victim impactstatement the trial judge erred. However, that error was minor and had no mate-rial impact and would not warrant allowing the appeal.

It was not necessary to determine whether the offences committed against victimC could be characterized as as “major sexual assault”. The Court of Appeal hasheld that, while penetrative sexual acts are generally the hallmark of a “majorsexual assault”, penetrative sex acts are not a precondition for such a finding.However, regardless of whether the offences against C constituted a “major sex-ual assault”, the global sentence imposed was excessive. An appropriate sen-tence for the offences committed against C would be a two-year term of impris-onment. The appeal should accordingly be allowed and the global sentencereduced to a 30-month term of imprisonment, being a two-year term in respect


of the C offences together with the six-month consecutive term for the offencescommitted against the other victim as ordered by the trial judge.

Cases considered by Marina Paperny J.A.:

R. v. G. (T.L.) (2006), 401 A.R. 16, 391 W.A.C. 16, 2006 CarswellAlta 1398,2006 ABCA 313, 214 C.C.C. (3d) 353, 67 Alta. L.R. (4th) 14, [2006] A.J.No. 1345 (Alta. C.A.) — considered

R. v. McCraw (1991), 7 C.R. (4th) 314, 128 N.R. 299, 66 C.C.C. (3d) 517,[1991] 3 S.C.R. 72, 49 O.A.C. 47, 1991 CarswellOnt 1024, 1991 Carswell-Ont 113, EYB 1991-67627, [1991] S.C.J. No. 69 (S.C.C.) — considered

R. v. Merrick (2012), 539 A.R. 40, 561 W.A.C. 40, 84 Alta. L.R. (5th) 426, 2012ABCA 319, 2012 CarswellAlta 1855, [2012] A.J. No. 1115 (Alta. C.A.) —considered

R. v. Sandercock (1985), 1985 CarswellAlta 190, 40 Alta. L.R. (2d) 265, 62A.R. 382, 48 C.R. (3d) 154, 22 C.C.C. (3d) 79, [1986] 1 W.W.R. 291, 1985ABCA 218, [1985] A.J. No. 817 (Alta. C.A.) — considered

R. v. W. (D.) (1991), 1991 CarswellOnt 1015, 3 C.R. (4th) 302, 63 C.C.C. (3d)397, 122 N.R. 277, 46 O.A.C. 352, [1991] 1 S.C.R. 742, 1991 CarswellOnt80, [1991] S.C.J. No. 26, EYB 1991-67602 (S.C.C.) — followed

Cases considered by Peter Martin J.A. (dissenting):

R. v. Arcand (2010), 264 C.C.C. (3d) 134, (sub nom. R. v. A. (J.L.M.)) 499 A.R.1, (sub nom. R. v. A. (J.L.M.)) 514 W.A.C. 1, 83 C.R. (6th) 199, 40 Alta.L.R. (5th) 199, [2011] 7 W.W.R. 209, 2010 ABCA 363, 2010 CarswellAlta2364, [2010] A.J. No. 1383 (Alta. C.A.) — considered in a minority or dis-senting opinion

R. v. Bachewich (2007), 2007 ABCA 199, 2007 CarswellAlta 775, (sub nom. R.v. B.W.B.) 404 W.A.C. 182, (sub nom. R. v. B.W.B.) 412 A.R. 182 (Alta.C.A.) — referred to in a minority or dissenting opinion

R. v. E. (D.) (2010), (sub nom. R. v. Estacio) 474 A.R. 360, (sub nom. R. v.Estacio) 479 W.A.C. 360, 252 C.C.C. (3d) 469, 2010 CarswellAlta 395,2010 ABCA 69 (Alta. C.A.) — referred to in a minority or dissentingopinion

R. v. F. (M.G.) (2010), 477 A.R. 244, 483 W.A.C. 244, 2010 CarswellAlta 540,2010 ABCA 102 (Alta. C.A.) — referred to in a minority or dissentingopinion

R. v. Kemper (2004), 190 C.C.C. (3d) 271, (sub nom. R. v. G.C.K.) 357 A.R.264, (sub nom. R. v. G.C.K.) 334 W.A.C. 264, 2004 ABCA 348, 2004CarswellAlta 1449, [2004] A.J. No. 1236 (Alta. C.A.) — referred to in a mi-nority or dissenting opinion

R. v. Lafleche (2001), 2001 ABCA 292, 2001 CarswellAlta 1526, 293 A.R. 285,257 W.A.C. 285, [2001] A.J. No. 1504 (Alta. C.A.) — referred to in a mi-nority or dissenting opinion

R. v. S. (R.A.) Marina Paperny J.A. 133

R. v. Merrick (2012), 539 A.R. 40, 561 W.A.C. 40, 84 Alta. L.R. (5th) 426, 2012ABCA 319, 2012 CarswellAlta 1855, [2012] A.J. No. 1115 (Alta. C.A.) —considered in a minority or dissenting opinion

R. v. P. (D.) (2006), 2006 BCCA 409, 2006 CarswellBC 2316, 41 C.R. (6th)342, 212 C.C.C. (3d) 237, 381 W.A.C. 1, 231 B.C.A.C. 1, [2006] B.C.J. No.2113 (B.C. C.A.) — referred to in a minority or dissenting opinion

APPEAL by accused from sentence imposed following conviction of accused ontwo counts of sexual interference.

J. Morgan, for RespondentJ. Ruttan, for Appellant

Marina Paperny J.A.:

The Majority:1 The appellant was convicted of sexual interference in relation to two

girls who were under the age of 14, his niece, HL who was 11 at the timeof the events and his best friend’s daughter RMC, who was 8 when theabuse started. The abuse of RMC continued unabated until she was 12years old. The appellant received a global sentence of four years, threeand a half years in relation to RMC and six months consecutive for thecount in relation to HL.

2 The appellant submits that the offences against RMC that occurredover a period of four years and involved touching her breasts and rubbingher vagina beneath her underwear were mischaracterized as a major sex-ual assault by the trial judge and as a result, the sentence imposed wasunfit.

3 The appellant also argues that the sentencing judge improperly reliedupon the victim impact statement to conclude that RMC had sufferedserious psychological harm, that there was no evidence linking her de-pression, subsequent suicide attempt and ultimate hospitalization to theevents of sexual abuse. This error, he submits, is an error in law andprinciple and requires appellate intervention.

4 The offences against RMC occurred from the time she was 8 and con-tinued until she was 12 years old. The appellant was a close friend of herfather’s and RMC knew him most of her life. The families often visitedtogether. RMC was also close friends with the appellant’s son. Part of thereason why she did not disclose the abuse was she feared her fatherwould be hurt and angry at her and she did not want to imperil herfriendship with the appellant’s son. The abuse was consistent over the


time period and most frequently involved the appellant putting his handsdown her pants and rubbing her vagina as well as touching her breastunderneath her clothing. On occasion, he would lick his fingers immedi-ately after the vaginal touching.

5 Although RMC was asked directly by her mother if the appellant hadever inappropriately touched her, she denied this and declined to disclosethe abuse. RMC testified that she would see the appellant about twice amonth and guessed the incidents happened every other time but was notsure.

6 During the assaults, RMC tried to pretend they were not happening.However, in 2009, RMC was hospitalized for depression and mentalhealth issues. During the hospitalization she disclosed the abuse to hospi-tal staff.

7 The appellant admitted to police that he touched RMC inappropri-ately about eight times. The trial judge was unable to determine the pre-cise number of occasions of sexual touching but found that this occurredon multiple occasions, at least eight being admitted by the appellant.

8 At trial, the Crown sought a sentence of five years total: four yearswith respect to RMC and one year consecutive for the assault on HL. Itsubmitted that the repeated fondling of a young child over several yearsconstituted a major sexual assault attracting a starting point of threeyears. The Crown also took the position that the appellant was not in aposition of trust and therefore the four-year starting point from R. v. W.(D.), [1991] 1 S.C.R. 742 (S.C.C.), did not apply. The Crown submittedthere were no mitigating factors such a guilty plea and remorse. Defencecounsel took the position that a series of non-major events could not cre-ate a major sexual assault.

9 At the time of sentencing the appellant was 56, had no previous re-cord, had a positive pre-sentence report and the FAOS report suggested arelatively low risk for re-offence. The trial judge found there were nomitigating factors. She found the following to be aggravating: that theoffences took place over several years, the victims were young when thetouching took place, the victims had close relationships with the appel-lant and he showed no remorse.

10 In her sentencing reasons, the trial judge found that RMC remainstraumatized, feels like it was her fault and was ashamed and that shestruggles with depression and has attempted suicide. The trial judge con-cluded that RMC’s emotional and psychological well-being had beendeeply affected by the appellant’s actions.

R. v. S. (R.A.) Marina Paperny J.A. 135

11 For the reasons that follow, the appeal must be dismissed.12 Repeated acts of sexual touching of a young child can constitute a

major sexual assault. In this case, there was evidence of a lengthy andserious history of abuse while the child was between 8 and 12. While thiswas not considered a position of trust, the nature of the close family rela-tionship, the circumstances giving rise to RMC’s presence as a guest inhis home and under his care, renders it an aggravating circumstance. Thislengthy history of taking advantage of a young person who is a guest andfamily friend over a long period of time at a particularly vulnerable timein her life could realistically and foreseeably lead to emotional harm. Amajor sexual assault such as this in inherently harmful. Foreseeabilitymay be inferred, R. v. McCraw, [1991] 3 S.C.R. 72 (S.C.C.). Direct evi-dence of harm is not always a pre-requisite to establishing a serious sex-ual assault, R. v. Merrick, 2012 ABCA 319 (Alta. C.A.) at para 12.

13 The appellant submits that the sentencing judge wrongly relied onstatements in the victim’s impact statement to conclude there was psy-chological harm. He submits that he alerted the trial judge to issues re-garding certain details in the victim’s impact statement with which hedisagreed. Although it is not entirely clear what he was specifically ob-jecting to, it is apparent that he challenged the suggestion that the hospi-talization itself was in any way related his actions. The appellant did nottake issue with the broader statements in the victim’s impact statement offindings of depression, shame and embarrassment.

14 The sentencing judge appears to have relied in part on the statementsin the victim’s impact statement to find psychological harm. However, attrial, RMC was cross-examined vigorously about her mental health, in-cluding her depression, her attempted suicide and her hospitalization.She did not state that the triggering event for her hospitalization was theappellant’s abuse but rather an incident where she was found by her fa-ther engaging in sexual activity. Nevertheless, appellant’s counsel ac-knowledges that based on the evidence given by RMC at trial it was areasonable inference on the part of the sentencing judge that the historyof abuse at least contributed to her depression and equivocal mentalhealth. This is direct evidence of harm.

15 In our view, the trial judge’s decision is owed deference and there isno error warranting our intervention. Repeated sexual abuse of a childover several years between the vulnerable ages of 8 and 13 is serious anda callous disregard for the victim. Even in the absence of serious psycho-logical or emotional harm, contemptuous disregard for the feeling and


integrity of the victim has been found to constitute for a major sexualassault, R. v. Sandercock, 1985 ABCA 218 (Alta. C.A.) at para 15. Re-gardless of whether this string of abuse is considered to be on the lowend of the spectrum of major sexual assaults or the high end of othersexual assaults, the aggravating circumstances in this case as found bythe sentencing judge render the sentence proportionate to the seriousnessof the offence and the culpability of the offender. Seriousness must beconsidered not only with reference to the nature of the actual touchingbut also to the degree of violation of the victim in the circumstances, R.v. G. (T.L.), 2006 ABCA 313 (Alta. C.A.) at para 11.

16 The appeal is accordingly dismissed.

Brian O’Ferrall J.A.:

I concur

Peter Martin J.A. (dissenting):

17 Following trial, the appellant was convicted of two counts of sexualinterference in relation to two girls, both of whom were under the age of14. One of the children was his 11-year-old niece, who was found tohave been sexually assaulted by the appellant on two occasions over a24-hour period, while she and her mother were staying at the appellant’shome. The first assault began with the appellant scratching her back andmoving his hands under her clothing to touch her chest area. The follow-ing day, when the victim’s mother was out of the house, the appellantwent to the room where the child was sleeping and rubbed her leg, groinand vaginal area. For these acts the appellant was sentenced to sixmonths’ imprisonment.

18 The assault of the second child began when she was eight years oldand continued, intermittently, until she was twelve. There were eight in-cidences of sexual touching over this four-year period, all found to haveoccurred while the complainant and her parents were visiting at the ap-pellant’s home.

19 On the first occasion the appellant went no further than to kiss thechild on her mouth. The subsequent contact was more sexual, consistingof him touching and rubbing the child’s vagina and chest area under herclothing. On several occasions he licked his fingers afterwards, appar-ently in her presence. The Crown conceded that the appellant was not ina position of trust with respect to either child.

R. v. S. (R.A.) Peter Martin J.A. 137

20 These repeated acts of sexual touching and the serious psychologicaleffects found to have occurred as a result, led the trial judge to concludethis amounted to a major sexual assault. On that basis she sentenced theappellant to a consecutive sentence of three and a half years imprison-ment. The appellant appeals this latter sentence only.

Antecedents of the Offender21 At the time of these offences, the appellant was between 45 and 50

years old. He had no prior criminal record. He was married, with twochildren from previous relationships. He had been gainfully employed allof his adult life, but lost his job as a result of these charges. A psycholog-ical report indicated that he was not suffering from paedophilia and hewas assessed as a relatively low risk to re-offend. Although he confessedto sexually touching the second child on approximately eight occasions,at trial he claimed that confession was false, given only to assist the childwith her recovery. He denies having committed any of these offences.The trial judge did not accept his recantation.

Position of the Parties on Appeal22 The appellant maintains that the trial judge first fell into error when

she relied, in part, on disputed information tendered through a victim im-pact statement to find that the offences amounted to a major sexual as-sault. Second, the appellant submits that these offences did not amount toa major sexual assault in any event. On this second point he emphasizesthat the acts were “mere touchings”, that there was no penetration or oralsex, that he did not have the child touch him, and that he did not resort toviolence or threats of violence to facilitate the offence. The appellantsubmits that the sexual activity found to have occurred here was at thelow end of the spectrum and remained there notwithstanding the numberof occurrences. Thus, he submits, the trial judge erred when she imposeda sentence that was pegged to the starting point sentence for major sexualassaults.

23 The foregoing circumstances, says the appellant, distinguish the casesrelied upon by the Crown, including R. v. Merrick, 2012 ABCA 319(Alta. C.A.) and R. v. Kemper, 2004 ABCA 348 (Alta. C.A.), where theoffenders stood in a position of trust to the victims and fondled them “oncountless occasions”. The appellant submits that the limited nature of thesexual interference, the Crown’s agreement that he was not in a position


of trust vis a vis the child, and his unblemished record, called for a globalsentence of not more than two years’ imprisonment.

24 The Crown counters that the trial judge’s analysis leading to a findingthat this was equivalent to a major sexual assault was correct. Even if itwas not a major sexual assault, the Crown argues that the four-yearglobal sentence, though at the high end, was not unfit and is thereforeentitled to deference.

Analysis25 This appeal raises a number of issues. I will first address the trial

judge’s reliance on the complainant’s victim impact statement to findthat she suffered serious psychological harm. The record discloses thatthe written victim impact statement was first given to counsel on the dayof sentencing. As it was being tendered as an exhibit, defence counseladvised the trial judge that he did not accept some of the statements con-tained therein and would amplify his concerns later in his submissions.He then did so:

So the Crown seeks to rely on psychological or emotional harm overand above the standard harm, and I use those words in quotationmarks. That is the standard harm that is referred to in paragraph 174of Arcand. And in order to invite a court to find harm over and abovethe standard harm, there has to be evidence of it. My friend hasturned to the victim impact statement and said well there’s evidence.And my submission is no, that is not evidence. That is not evidenceof additional harm — additional psychological or emotional harm.This is the point of view of the victim outlining a number of thingsthat she thinks is important that she wants the Court to remember.

. . . . .

When we read this victim impact statement, what we see here is thatthis girl has a long-standing problem with her father. Her family hasapparently been dysfunctional, and she spends most of her time nottalking about how Mr. S. caused her harm but rather talking about thedifficulties she has, her disappointment with, betrayal by her own fa-ther. She plays fast and loose with the facts as far as we’re aware.

. . . . .

Now .....I can point out that we take serious exception to her versionof the facts. She was not in the hospital because of the desire to harmherself because of Mr. S. dealings with her. The triggering event wassomething completely unrelated.

R. v. S. (R.A.) Peter Martin J.A. 139

. . . . .

And there is no evidence before the Court saying that the large arrayof psychological issues that she has are attributable to Mr. S.

26 The appellant’s current counsel (not counsel at trial) submits thatthese comments clearly put the Crown on notice that allegations of addi-tional psychological harm were disputed. I agree. That being so, if theCrown intended to rely on the information to establish an aggravatingfactor, it was obliged to prove it beyond a reasonable doubt: see R. v. E.(D.), 2010 ABCA 69, 252 C.C.C. (3d) 469 (Alta. C.A.) [hereinafter Esta-cio]; R. v. P. (D.), 2006 BCCA 409 (B.C. C.A.) at para 37; and R. v.Lafleche, 2001 ABCA 292 (Alta. C.A.) at para 22.

27 The Crown made no attempt to do so. Still, the trial judge relied onsome of the impugned comments, found only in the victim impact state-ment, to conclude that the victim had suffered serious psychologicalharm. With respect, in these circumstances she erred in using those com-ments for that purpose, but I find the error to be harmless in this case.

28 The second issue is whether the trial judge erred in characterizingthese events as a major sexual assault. I agree that fondling without pene-tration is not usually so characterized. However, this court has said thatrepeated acts of fondling may become a major sexual assault, as seriouspsychological or emotional harm is then foreseeable: see Merrick andKemper, supra, and R. v. Arcand, 2010 ABCA 363 (Alta. C.A.) at para171. Although I share counsel’s concern that the classification of majorsexual assault not be distorted to embrace all manner of sexual assault,we need not dwell on that issue further in this case. In my opinion theseacts, repeated fondling without penetration or any other aggravating fac-tor such as contact with the accused’s penis, would attract the same sen-tence whether classified as a major sexual assault or not.

29 Assuming it was a major sexual assault, these seven acts of touching,even cumulatively, are at the lower end of the spectrum. In my opinion, afit sentence in these circumstances is two years imprisonment: R. v.Bachewich, 2007 ABCA 199 (Alta. C.A.); R. v. F. (M.G.), 2010 ABCA102 (Alta. C.A.). And I would impose that same sentence whether or notthese acts qualified as a major sexual assault.

30 I conclude, with respect, that the three and a half year sentence im-posed by the trial judge was unfit. I would reduce the sentence underappeal to two years’ imprisonment to be consecutive to the six monthsentence imposed for the assault of the other child.

Appeal dismissed.


[Indexed as: Brough v. Yipp]

Jonathan Cooper Brough, Susan Ann Brough, and JonathanRobin Brough, Respondents / Plaintiffs and Bryan Yipp,

Kathleen Bell, Andrew Kirkpatrick, Ann Susan Kirby, PaulMaceachern, Christopher J. Doig, Lannette Prediger, Mary

Elizabaeth Macrae, Shamir Patel And James N. Scott; and JohnDoe Doctors 1 Through 5; and Alberta Health Services,

formerly known as the Calgary Regional Health Authority,carrying on business under the name and style of the FoothillsProvincial General Hospital and the Foothills Medical Centre,

Applicants / Defendants

Alberta Court of Queen’s Bench

Docket: Calgary 0901-01858

2015 ABQB 711

R.A. Neufeld J.

Heard: October 20, 2015

Judgment: November 13, 2015

Civil practice and procedure –––– Limitation of actions — Actions in tort —Specific actions — Actions against particular parties — Doctors and hospi-tals –––– Discoverability — Statement of claim in medical malpractice actionwas amended to add doctor as defendant — Doctor was not served with noticeof application, had not applied to set aside order, nor appeal order — Doctorsubsequently filed statement of defence with one defence being that action wasnot commenced within requisite time period prescribed by Limitations Act —Doctor’s application for summary judgment dismissing action against him wasdismissed — Doctor argued that his involvement in patient’s treatment wasclearly documented in hospital chart provided to patient in 2007 — Doctor ar-gued that claim was barred by s. 3 of Act, and was not saved by s. 6 of Act as hehad no knowledge of claim within 3 years of it being discoverable — Plaintiffargued that claim against doctor was only discovered and discoverable whenanother defendant doctor stated during questioning in 2013 that doctor providedoral advice that was contrary to written report — Doctor appealed — Appealdismissed — Hospital chart did not provide sufficient information to show thatdoctor’s conduct caused or contributed to deterioration of patient’s condition —Patient did not delay in applying to amend statement of claim to include doc-tor — Limitation period did not begin to run until other defendant doctor madeaccusation against doctor, and statement of claim was amended well within 2-year period.

Brough v. Yipp 141

Cases considered by R.A. Neufeld J.:

Allison v. Francescutti (2003), 2003 ABQB 983, 2003 CarswellAlta 1720, 345A.R. 345, 32 Alta. L.R. (4th) 355, [2003] A.J. No. 1486 (Alta. Q.B.) —considered

Bahcheli v. Yorkton Securities Inc. (2012), 2012 ABCA 166, 2012 CarswellAlta940, 21 C.P.C. (7th) 371, 524 A.R. 382, 545 W.A.C. 382, 65 Alta. L.R. (5th)127, [2012] A.J. No. 540, 43 Admin. L.R. (5th) 74 (Alta. C.A.) — referredto

Banister v. Alberta (2000), 2000 ABQB 772, 2000 CarswellAlta 1307, 274 A.R.178, 92 Alta. L.R. (3d) 159, [2000] A.J. No. 1313 (Alta. Q.B.) —distinguished

Bell v. Chana (2006), 2006 ABQB 139, 2006 CarswellAlta 882, 60 Alta. L.R.(4th) 320, 34 C.P.C. (6th) 203, 403 A.R. 115 (Alta. Q.B.) — referred to

Dow Chemical Canada Inc. v. Nova Chemicals Corp. (2010), 2010 ABQB 524,2010 CarswellAlta 1778, 35 Alta. L.R. (5th) 51, 495 A.R. 338, [2010] A.J.No. 1017 (Alta. Q.B.) — considered

Hann v. Foothills Provincial General Hospital (1997), 1997 CarswellAlta 1061,209 A.R. 187, 160 W.A.C. 187, 57 Alta. L.R. (3d) 374, [1997] A.J. No. 1259(Alta. C.A.) — considered

Kydd v. Abolarin (2011), 2011 ABQB 690, 2011 CarswellAlta 1980, 520 A.R.250 (Alta. Q.B.) — referred to

Madill v. Alexander Consulting Group Ltd. (1999), 1999 CarswellAlta 688, 20C.C.P.B. 283, 237 A.R. 307, 197 W.A.C. 307, 71 Alta. L.R. (3d) 50, 176D.L.R. (4th) 309, [1999] A.J. No. 865, 41 C.P.C. (4th) 72, 1999 ABCA 231(Alta. C.A.) — referred to

Nielsen v. Kamloops (City) (1984), [1984] 5 W.W.R. 1, [1984] 2 S.C.R. 2, 10D.L.R. (4th) 641, 54 N.R. 1, 11 Admin. L.R. 1, 29 C.C.L.T. 97, 8 C.L.R. 1,26 M.P.L.R. 81, 66 B.C.L.R. 273, 1984 CarswellBC 476, 1984 CarswellBC821, [1984] S.C.J. No. 29 (S.C.C.) — followed

Oakley v. Guirguis (2014), 2014 ONSC 5007, 2014 CarswellOnt 11748, 12C.C.L.T. (4th) 319 (Ont. S.C.J.) — considered

Statutes considered:

Limitation of Actions Act, R.S.A. 1980, c. L-15Generally — referred to

Limitations Act, R.S.A. 2000, c. L-12Generally — referred tos. 3 — considereds. 3(1) — considereds. 3(1)(a) — considereds. 3(1)(a)(ii) — considereds. 6 — considereds. 6(1) — considered


s. 6(3) — considereds. 6(4) — considereds. 6(4)(b) — considereds. 6(5) — considereds. 6(5)(b) — considered

Rules considered:

Alberta Rules of Court, Alta. Reg. 390/68R. 221 — considered

Alberta Rules of Court, Alta. Reg. 124/2010Generally — referred toR. 3.62 — considered

APPEAL by doctor from judgment reported at Brough v. Yipp (2014), 2014ABQB 777, 2014 CarswellAlta 2376 (Alta. Q.B.), dismissing doctor’s applica-tion for summary judgment dismissing malpractice claim against him.

T. Ryan, for Applicant / Defendant, Dr. Shamir PatelM.J. Rotnem, for Respondents / Plaintiffs

R.A. Neufeld J.:

1 This appeal is taken from a decision of Master J.B. Hanebury dated16 December, 2014 [2014] A.J. 1437. In it Master Hanebury refused togrant summary judgement in favour of the Defendant, Dr. Shamir Patel(the “Defendant”, or “Dr. Patel”). For the reasons given below, the ap-peal is dismissed.

I. Facts2 In February, 2007, the Plaintiff, Jonathan Brough (“the Plaintiff” or

“Mr. Brough), contracted meningitis while visiting Banff. After initialexamination in Banff, he was transferred to the Foothills Medical Centre(“FMC”) in Calgary on February 8, 2007. His condition deteriorated. Hewas eventually operated upon and while surviving, suffered severe diffi-culties resulting in paralysis below the neck.

3 A Statement of Claim was issued on February 5, 2009. It named vari-ous physicians as defendants, but not Dr. Patel.

4 Questioning was undertaken some time later, following the filing ofStatements of Defense in 2013. One of the defendant physicians (Dr.MacEachern) testified under questioning on May 29, 2013 that on thenight of February 8, 2007, he had received oral advice from Dr. Patel

Brough v. Yipp R.A. Neufeld J. 143

(who was at the time a resident radiologist) to the effect that a second CTScan performed on Mr. Brough approximately 13 hours after an initialscan showed no substantial change. This is in contrast to a written reportprepared by Dr. Patel that night. In it, he stated that “increased edema ofthe posterior fossa structures resulting in tonsillar herniation” and further“that these results were discussed with Dr. MacEachern, ICU resident, at2:00 o’clock on February 9, 2007.”

5 Following completion of questioning of Dr. MacEachern, the Plaintiffand his parents (also Plaintiffs in this proceeding) filed an amendedStatement of Claim, adding Dr. Patel as a defendant. The amendmentwas filed on October 15, 2013. It contained additional allegations of neg-ligence asserting, inter alia, that Dr. Patel was negligent in providingmistaken oral advice to his colleagues.

6 The amended Statement of Claim was served on Dr. Patel. He did nottake issue with being named as a defendant. Instead, he filed a Statementof Defense denying liability and asserting that the action against him isbarred by limitations.

7 In 2014, Dr. Patel applied for summary judgment. Before MasterHanebury and once again before this Court on appeal, he argued that theclaim against him has no prospect of success given the operation of S. 3of the Limitations Act, RSA 2000 c.L-12. Master Hanebury rejected thatargument and so, too, do I.

II. Issues8 It is common ground that the standard of review on appeals from

Masters decisions is correctness [Bahcheli v. Yorkton Securities Inc.,2012 ABCA 166, 524 A.R. 382 (Alta. C.A.) at para 30].

9 The issues before this court can be stated as follows:

a. Is the claim against Dr. Patel barred by S. 3 of the LimitationsAct?

b. If so, is the claim saved by virtue of S. 6 of the Limitations Act.

III. Summary of Argument by Dr. Patel10 Dr. Patel argues that the claim against him is barred by S. 3 of the

Limitations Act.11 Dr. Patel argued in written submissions that his involvement in the

treatment of Mr. Brough was clearly recorded in the FMC hospital chartsprovided to Mr. Brough and his parents in February of 2007. Thus, it was


on this date that Mr. Brough ought first to have known that his injurieswere potentially “attributable to conduct” of Dr. Patel, as that phrase isused in S. 3(1)(a)(ii) of the Limitations Act. If not then, he says, thePlaintiff should have learned of Dr. Patel’s involvement during the re-view of the hospital charts by him and his advisors in assessing his legalposition and drafting the Statement of Claim issued on February 5, 2009.

12 During oral argument, the defendant added that even if the involve-ment of Dr. Patel was not discoverable on the face of the hospitalrecords, it would have been discovered much earlier had action beenbrought and questioning had been scheduled in a more timely manner.He argued that the 6 year lapse between the injury and the questioning ofDr. MacEachern was unreasonable and that the evidence of miscom-munication between Dr. Patel and Dr. MacEachern could have been dis-covered at a much earlier time, even if Dr. Patel had not been initiallynamed as a Defendant.

13 Dr. Patel argues that Section 6 of the Limitations Act does not operateto rescue this claim. He says that where a claim is added to a proceedingpreviously commenced, so as to add a defendant, Subsection 6(4)(b) re-quires that the defendant must have received, within the limitation periodapplicable to the added claim, plus the time provided by law for serviceof process, sufficient knowledge of the added claim that the defendantwill not be prejudiced in maintaining a defence to the added claim on themerits (emphasis added). This, he argues, has the effect of incorporatingthe limitation period as set out in S. 3(1)(a) of the Act into the assessmentof whether S. 6(1) applies, subject to additional accommodation to theplaintiff of another year in which to serve the added claim, and the off-setting requirements (to the benefit of the defendant) that the defendanthas sufficient knowledge of the added claim within the extended, 3 yearperiod, so as not to be prejudiced in maintaining a defence.

14 Applied to the facts here, Dr. Patel argues, he had no knowledge ofthe claim within 3 years of its having become discoverable. Thus, s.6(4)(b) does not operate to rescue the Plaintiff from having missed theapplicable limitation period pursuant to S. 3(1)(a) of the Act.

IV. Summary of Argument by the Plaintiff15 The Plaintiff’s primary argument was that the claim against Dr. Patel

was brought well within the two year limitation period set out in S. 3(1)of the Act. He says that his claim against Dr. Patel was only discovered,and discoverable, when Dr. MacEachern stated during questioning that


Dr. Patel provided oral advice on February 9, 2007 that was contrary tohis written report. Until that time, he says, neither he nor his medical andlegal advisors had reason to believe that Dr. Patel’s conduct was in issue.Dr. Patel was simply one of many physicians involved in Jonathan’streatment.

V. Limitation Issues in Medical Malpractice Claims16 Limitation of action legislation, and the case law applying it, seek to

strike a balance between allowing ready access to the courts by claimantsand preventing unreasonably old claims from proceeding.

17 In the medical malpractice area, limitations issues are not unusual. Apatient suffering from misconduct in a hospital setting may have littleindependent recollection of events, nor may she or he know the names ofthe physicians, nurses and technicians involved for their part. Thosemedical service providers may not recall the patient, the course of treat-ment undertaken, or the results. Reconstruction of events based on hospi-tal records is commonplace, and even then it may take some time to fullyunderstand what happened, and when.

18 Disputes concerning timeliness of claims for medical malpractice canarise in different procedural contexts. A plaintiff might initially allegeprofessional negligence by unnamed “Dr.(s) John Doe” as a placeholderof sorts, so that when the identity of the potential malfeasance of a medi-cal practitioner is ultimately discovered, an application can be made tosubstitute the real doctor’s name.

19 The forum for litigation may in first instance be opposition to the ap-plication to amend the Statement of Claim. Such cases are governed pri-marily by Rule 3.62 of the Alberta Rules of Court (regarding amendmentof proceedings once closed) and where timeliness is in issue, by the Lim-itations Act, (see, for example, Kydd v. Abolarin, 2011 ABQB 690 (Alta.Q.B.); Bell v. Chana, 2006 ABQB 139 (Alta. Q.B.)).

20 In some cases, a defendant will simply plead the defence of limita-tions in response to having been added to the action. The merits of thatdefence are dealt with at trial, or may be the subject of a pre-emptivestrike by the defendant seeking summary judgment, so as to avoid thetime, expense and inconvenience of participating in a full-blown trial.This is one such case. The defendant, Dr. Patel, chose not to oppose theamendment of Mr. Brough’s Statement of Claim, but rather to defend theclaim as amended. He then sought summary dismissal of the claim basedon S. 3 of the Limitations Act.


21 Even though the threshold issue raised in such a case is whether theclaim or new defendant has been brought or named within the applicablelimitation period under S. 3 of the Act, that is not the end of the matter.Under Section 6(1), the immunity from prosecution available under S.3(1) may be stripped, if the criteria set out in the ensuing subsections ofthat provision apply. For added defendants or claims these criteria can besummarized as follows:

1. The claimant must show that the matter giving rise to the addedclaim or new defendant is related to the original action.

2. If so, if the defendant is to maintain immunity from prosecutiondue to tolling of the limitation period, she or he must show thatthey did not have sufficient knowledge of the added claim withinthe applicable limitation period, plus the time provided for serviceunder the Rules of Court (normally one year) that the defendantwill not be prejudiced in maintaining a defense to it on its merits.

22 In Dow Chemical Canada Inc. v. Nova Chemicals Corp., [2010] A.J.No. 1017, 35 Alta. L.R. (5th) 51 (Alta. Q.B.), Chief Justice Wittman ofthis Court considered an application to add new claims to an existingproceeding, which were arguably beyond the applicable limitation pe-riod. He stated that the court may proceed in a number of ways, andspecifically could:

1. Determine the limitation period has not expired and allow theamendment.

2. Rule the limitation period has expired and therefore consider s. 6of the Limitations Act which provides for when an amendment canbe made beyond the limitation period.

3. Find that because of uncertainty in the evidence, the amendmentsshould be allowed subject to the determination of the limitationissue at trial. (Para. 64)

23 I agree with that approach, and will commence by assessing whetherthe claim against Dr. Patel was brought within the time period prescribedin S. 3(1) of the Act.

VI. Is the claim barred by S. 3(1) of The Limitations Act?

A. The Statute24 Section 3(1) of the Limitations Act states


(a) Subject to section 11, if a claimant does not seek a remedial orderwithin 2 years after the date on which the claimant first knew, orin the circumstances ought to have known,

i. that the injury for which the claimant seeks a remedial or-der had occurred,

ii. that the injury was attributable to conduct of the defendant,and

iii. that the injury, assuming liability on the part of the defen-dant, warrants bringing a proceeding,

or

(b) 10 years after the claim arose, whichever period expires first, thedefendant, on pleading this Act as a defence, is entitled to immu-nity from liability in respect of the claim.

B. The Evidence25 The evidence of the Plaintiff is that he had no actual knowledge of

potentially tortious conduct by Dr. Patel until learning of the accusationsby Dr. MacEachern during his questioning on May 29, 2013. Dr. Patel,does not dispute this. He argues that the Plaintiff’s assessment of whenhe had actual knowledge is irrelevant. The key issue, he says, is when heought to have known that Dr. Patel should be named as a Defendant.More specifically, Dr. Patel argues that “the only discoverability issuehere is when the Plaintiffs ought to have known that Jonathan’s injurywas potentially attributable to the conduct of Dr. Patel”.

26 According to Dr. Patel, that date was when the Plaintiffs received thehospital charts that identified Dr. Patel as the radiologist who read thesecond CT scan in the early morning of February 9, 2009 and who isdocumented as having communicated the second CT scan findings to Dr.MacEachern at 2:00 a.m. on February 9, 2007. He says that the hospitalchart documents the understanding of ICU that the CT scan showed “noadverse changes from CT on admission”, which Dr. Patel argues is aclear record showing ICU’s failure to appreciate the findings recorded byDr. Patel in his CT report.

27 Copies of the hospital records in question were sent with JonathanBrough and his parents when Jonathan was transported back to Englandon February 17, 2007. They were available to the Broughs and their legaland medical expert advisors from that point forward as they assessed


their legal position and prepared a Statement of Claim for ultimate issu-ance on February 5, 2009.

28 In response, the Plaintiff says that Dr. Patel’s written report statesamong other things that there was tonsillar herniation and that these re-sults were discussed with Dr. MacEachern at 2:00 a.m. on February 9,2007. He argued that the hospital records did not reveal evidence ofwrongful conduct on the part of Dr. Patel. His written report did not re-veal any untoward conduct, and it was only when Dr. MacEachern ac-cused Dr. Patel some years later of misinforming him in an oral report,that the Plaintiff could have known that Jonathan’s injuries were attribu-table to Dr. Patel’s conduct.

C. Principles of Discoverability29 Section 3(1) of the Limitations Act statutorily incorporates the princi-

ple of discoverability in determining when a limitation period will startto run. The principle was articulated by the Supreme Court of Canada inthe seminal case of Nielsen v. Kamloops (City), [1984] 2 S.C.R. 2(S.C.C.) and has been applied on many occasions since.

30 One such case was heavily relied upon by Dr. Patel. In Allison v.Francescutti, 2003 ABQB 983 (Alta. Q.B.), four physicians applied for adetermination of a point of law pursuant to Rule 221 of the Rules ofCourt, on the basis of an Agreed Statement of Facts. The issue waswhether a Statement of Claim filed in December 2002 and January 2003alleging negligence in respect of attendances by the four doctors in 1995and 1996 was barred by limitations. According to the agreed Statementof Facts each attendance had been a one-time event with no subsequentvisits or treatments. It was also agreed that in early 2001 the plaintiffsought a medical opinion from a different physician who commented thatthe actions of the emergency physicians who saw the plaintiff in Decem-ber 1995 (Drs. Francescutti, Groot and Bauer) may have contributed toher injuries. This was the first time that the Plantiff understood that herinjuries may have been caused by these doctors. None of the defendantshad any contact with the plaintiff or her counsel between December 1995and January 2003 when they were sued.

31 Justice Belzil of this Court found that the claims were barred by theLimitation of Actions Act.

32 In oral argument, the Plaintiff submitted that the Allison case waswrongly decided. He pointed to two cases that he argues more properlyarticulate how and when potential negligence by physicians can be said


to have been discoverable. The first of those cases is Oakley v. Guirguis,2014 ONSC 5007, 12 C.C.L.T. (4th) 319 (Ont. S.C.J.). In Oakley, theplaintiff was operated on by the defendant physician in December 2007for removal of an abscess from her armpit. He did that, but also removedher lymph nodes. In February 2010, she was diagnosed by another physi-cian as having post-surgical symptoms such as lymphedema. That doctor(Dr. Hanrahan) suggested that she contact legal counsel, as her lymphnodes should not, in his view, have been removed.

33 In a carefully reasoned decision, De Tomaso, J. held that the potentialmalfeasance of Dr. Guirguis was not discoverable until it was brought tothe Plaintiff’s attention by Dr. Hanrahan. For the purpose of that case,Justice Di Tomaso broke down the elements of discoverability as fol-lows:

“To be aware of the error by a doctor, the following key knowledgeis required of a Plaintiff, that is, knowing:

a. that it was wrong;

b. why it was wrong;

c. who was responsible” (para 63).

34 The Plaintiff also relied on the Alberta Court of Appeal decision inHann v. Foothills Provincial General Hospital, [1997] A.J. No. 1259, 57Alta. L.R. (3d) 374 (Alta. C.A.). In Hann, the plaintiff applied to substi-tute Dr. Miller as a defendant in the action in place of a “Dr. John Doe”placeholder. The application was dismissed on the basis that this was nota proper case for misnomer relief because the Hanns had made a con-scious decision not to name Dr. Miller as a defendant.

35 Before the Court of Appeal, Dr. Miller argued that the hospitalrecords, along with discussions between Hanns’ counsel and Dr. Miller,disclosed sufficient information to identify Dr. Miller as one of the possi-bly negligent doctors.

36 The Court of Appeal disagreed. It found that following issuance ofthe original Statement of Claim certain other relevant facts had come tolight that touched directly on Dr. Miller’s involvement and the quality ofcare provided by him, and which arguably brought him within the scopeof the allegations against “Dr. John Doe”. The Court also noted another“complicating factor” which was that an expert consulted by counsel forthe plaintiff had by inference exonerated Dr. Miller.


37 The Court concluded that the Hanns were entitled to misnomer relief,stating:

“Viewed in context, we have concluded that this is an appropriatecase for misnomer relief. The facts that were known, ie. that Dr.Miller was a consulting orthopaedic surgeon, and that he was “in-volved” in the plan to clear the spinal cord were not sufficient toindicate that he was possibly negligent. When the subsequent factsthat came to light are combined with Dr. Miller’s comments on cau-sation pointing at something or someone other than him, we are notsatisfied that the Hanns had sufficient information to name him at thetime of issuance of the Statement of Claim. We do not accept theproposition that the Hanns’ mere knowledge that Dr. Miller was “in-volved” in some way in Mr. Hann’s care warranted naming him fromthe outset and that the failure to do so therefore automatically doomsthis misnomer application. If this type of approach were to beadopted, it would have serious policy implications in the medicalnegligence claims. Any patient who knew the name of any doctor ornurse who was “involved” in any way in his or her care would berequired to name every single one of them when a potential negli-gence claim arose irrespective of whether the patient knew of anyfactual foundation to link the actions of the doctor(s) or nurse(s) tothe alleged negligence on the off-chance that information mightcome to light implicating them in the impugned conduct. Any ap-proach which had these results would be unduly costly and time-con-suming, not to mention unfairly burdensome and problematic for allconcerned.” (at para 12).

D. Findings Regarding Discoverability38 In my view, the hospital charts relied upon by the Defendant, Dr.

Patel, do not provide sufficient information, on their face, to show thatDr. Patel’s conduct caused or contributed to the deterioration of JonathanBrough’s condition. It may be that misinformation was orally communi-cated by Dr. Patel, or that members of the ICU erroneously interpretedwritten or oral information provided by Dr. Patel, to the detriment of thePlaintiff. That will be determined at trial.

39 At this stage, however, it suffices to say that the hospital charts - ortheir own - do not provide a factual foundation to conclude that thePlaintiffs ought reasonably to have concluded that Dr. Patel did some-thing wrong in performing and interpreting the CT scan in question.

40 It is noteworthy in this regard that the Plaintiff’s medical expert didnot detect potential misconduct on the part of Dr. Patel on his review of


Jonathan Brough’s hospital charts. There is also no evidence to suggestthat the Plaintiffs intentionally delayed naming Dr. Patel as a Defendant(unlike in Banister v. Alberta, 2000 ABQB 772, 274 A.R. 178 (Alta.Q.B.)).

41 Moreover, unlike the situation in the Allison case, material and indeedvery important information came to light well after the hospital chartswere provided, in the form of accusations levelled against Dr. Patel byDr. MacEachern during questioning.

42 While in retrospect, one might piece together the hospital chart infor-mation to support a potentially actionable “miscommunication” on thepart of Dr. Patel, it is not a conclusion that would readily emerge from areview of those records in the first instance. As was the casein Hann and Oakley, the records alone fall well short of answering (inthe context of Dr. Patel) the key question of whether there was wrongfulconduct in conducting and communicating results of the second CT scan.

43 During oral argument, Dr. Patel, went one step further. He argued thateven if his potentially tortious conduct was not discoverable through re-view of the hospital charts, it would have been discovered at an earlierdate if the original Statement of Claim had been issued earlier, and if ithad not taken so long (over 4 years) for the lawsuit to proceed to ques-tioning. However, there is no evidence on record to explain the circum-stances surrounding the pace at which the action was prosecuted, makingit impossible to determine whether the pace of the litigation was unrea-sonable. All that one can say is that if the action had unfolded morequickly, Dr. MacEachern’s accusations would presumably also have sur-faced more quickly.

44 It should be noted, once again, that there is no evidence that the Plain-tiff deliberately delayed in substituting Dr. Patel for one of the “JohnDoe’s” in the original Statement of Claim, nor did the Plaintiff delayamending the Statement of Claim to particularize the allegations of negli-gence against Dr. Patel once the finger of blame was pointed by Dr.MacEachern.

45 Dr. Patel also argued that to protect against limitations issues downthe road, the Plaintiff ought to have named Dr. Patel as a defendant tobegin with. In that way, if it was determined during questioning that Dr.Patel made a mistake that was not apparent on the face of the hospitalcharts, the Plaintiff would be protected against having to amend hispleadings.


46 With the benefit of hindsight, it may have been better to name Dr.Patel from the start, and to advance a claim against him in the absence ofspecific knowledge of any wrongful conduct on his part. However, thediscovery of new facts is the core purpose of questioning, and whenthose facts identify other potential tortfeasors and misconduct, the Rulesof Court, and the Limitations Act both accommodate those changed cir-cumstances in a way that facilitates a full and fair trial of the matters inissue. The fact that the Plaintiff could have named Dr. Patel as a defen-dant (rather than using a placeholder, Dr. John Doe) does not mean thathe was disentitled from proceeding against him at this stage.

47 The date on which the limitation period against Dr. Patel began to runwas, in the circumstances, May 29, 2013, when Dr. MacEachern wasquestioned and first accused Dr. Patel of having made an inaccurate oralreport.

48 The amended Statement of Claim was filed on October 15, 2013 -well within the two year limitation period applicable to the added claim.

VII. If the action was brought beyond the time limitation set outwithin the Limitation Act, is it saved by S. 6 of the LimitationAct?

49 The relevant portions of S. 6 of the Limitations Act state: 6(1) Notwithstanding the expiration of the relevant claim period,when a claim is added to a proceeding previously commenced, eitherthrough a new pleading or an amendment to pleadings, the defendantis not entitled to immunity from liability in respect of the addedclaim if the requirements of subsection (2), (3), or (4) are satisfied.

(4) When the added claim adds or substitutes a defendant, or changesthe capacity in which a defendant is sued,

(a) the added claim must be related to the conduct, transaction orevents described in the original proceeding, and

(b) the defendant must have received, within the limitation periodapplicable to the added claim plus the time provided by lawfor the service of process, sufficient knowledge of the addedclaim that the defendant will not be prejudiced in maintaininga defence to it on the merits.

(5) Under this section:


(a) the claimant has the burden of proving

(i) that the added claim is related to the conduct, transac-tion or events described in the original pleading in theproceeding, and

(ii) that the requirement of subsection (3)(c), if in issue,has been satisfied,

and

(b) the defendant has the burden of proving that the requirementof subsection 3(b) or (4)(b), if in issue, was not satisfied.

50 Given my finding in respect of the date on which the limitation periodapplicable to the claim against Dr. Patel began to run, it is not necessaryto decide whether the claim is saved by Section 6 of the Limitations Act.I will therefore address this issue very briefly.

51 At the outset, it should be noted that the arguments advanced by Dr.Patel on appeal regarding the interplay between S. 3 and S.6 of the Limi-tations Act were different than those advanced before Master Hanebury.Her excellent analysis of the law in respect of that issue was not chal-lenged on appeal. Dr. Patel chose instead to advance a different, factu-ally-based argument in support of his proposition that S. 6(3) did notrescue the out-of-time claim.

52 During oral argument, counsel were in agreement that the phrase“within the limitation period applicable to the added claim....” as it ap-pears in s. 6(4)(b) should be read as the date that would otherwise applyunder S. 3. They agreed that the effect of s. 6(4)(b) is to add one moreyear (being the time provided by law for the service of process), to undera 3 year period of time within which a defendant would need to obtain“sufficient knowledge of the added claim that the defendant will not beprejudiced in maintaining a defence to it on the merits.” If a Defendantcan discharge the burden of proving that the requirements of S. 6(4)(b)were not met, then the immunity from prosecution otherwise strippedfrom the Defendant by virtue of the language of s. 6(1) would continue tobe in effect. The Plaintiff would be out of time.

53 In oral argument, Dr. Patel submitted that because he had no knowl-edge of the added claim within the statutorily prescribed limitation pe-riod, plus an extra year for service, he could not possibly have had suffi-cient knowledge within the three years preceding the amendment of theStatement of Claim adding him as a Defendant, so as not to be prejudicedin maintaining a defence to it on the merits. He argued that the presenceor absence of actual prejudice was therefore legally irrelevant to the mat-


ters before the court. The Plaintiff did not directly join issue with thisinterpretation, but did not agree with it either. He chose instead to rest hisposition on his compliance with Section 3 of the Limitations Act.

54 As the Plaintiff did commence his action against Dr. Patel within thetime period prescribed by S. 3, it is not necessary to decide on the meritsof Dr. Patel’s argument regarding the way in which s. 6(4)(b) should beinterpreted and applied. It suffices to say that I do not agree that the pres-ence or absence of prejudice is irrelevant in such cases as these. If anadded defendant is unable to identify any prejudice in maintaining a de-fence to a claim by virtue of effluxion of time, he or she will not havedischarged the burden of proof imposed it under s. 6(5)(b) of the Act. Inthis case, Dr. Patel, conceded during argument before Master Haneburythat he had in fact suffered no prejudice by virtue of being added as aDefendant. Indeed he offered that up as a reason for not having opposedthe Plaintiff’s amendment to his Statement of Claim in the first place.

55 Consequently, had the operative date for discovery or discoverabilityhave been earlier than May 29, 2013, in my view the claim would havebeen saved by s. 6(1) of the Limitations Act, in any event. It is not neces-sary to decide that, however, in order to dispose of this appeal.

VIII. Suitability for Summary Judgment56 The Plaintiff argued that summary judgment is not appropriate to dis-

pose of the claim against Dr. Patel on the merits of this case. He took theposition that the resolution of Dr. Patel’s liability will depend on findingsof fact and credibility as between Drs. Patel and MacEachern. Dr. Patelsubmitted that summary judgment was inappropriate.

57 While Dr. Patel’s ultimate liability in negligence remains to be tried,it does not follow that the question of whether the claim against him isbarred under the Limitations Act, cannot properly be dealt with by way ofsummary judgment. On that matter, there was sufficient evidence availa-ble, without the need to embark on findings of credibility. It is expedi-tious and fair to all involved to adjudicate the limitations matter nowrather than leaving it for disposition at trial, and it is therefore proper todispose of the limitations issue at this time (See Dow Chemical Canadaat para 63 citing Madill v. Alexander Consulting Group Ltd., 1999ABCA 231, 237 A.R. 307 (Alta. C.A.)).

IX. Disposition58 The appeal is dismissed.


59 The Plaintiffs are entitled to costs.

Appeal dismissed.


[Indexed as: Royal Bank of Canada v. Azizuddin]

Royal Bank of Canada, Plaintiff and Muhammad Azizuddin,Defendant and John Condin, Infon Talat, Imitiaz Chaudhary,

Manzoor Chaudhary 1219220 Alberta Ltd, Third Party



2015 ABQB 683

A.D. Macleod J.

Heard: September 15-18, 2014

Judgment: October 30, 2015

Real property –––– Mortgages — Action on the covenant — Practice andprocedure — Costs –––– Third party principals of third party company con-vinced defendant, who was recent immigrant, that he could participate in realestate transaction without any financial obligation as means of building credit —Defendant entered into agreement to purchase property from company at in-flated price and signed mortgage documents, that were completed by someoneon behalf of company, that included clause entitling plaintiff bank to solicitorclient costs — Third party lawyer on transaction acted for defendant, company,and bank — Third party made mortgage payments through defendant’s bank ac-count for period of time — Mortgage went into default and bank foreclosed —Bank’s action against defendant for deficiency was allowed on basis of personalcovenant; Defendant’s third party claim against company, principals and lawyerwas allowed — Bank applied for solicitor client costs — Application dismissed;bank’s costs would be limited in accordance with Schedule C — Defendant waslargely dupe and was not aware of many irregularities that should have tippedoff bank to fact that this was mortgage fraud — Bank knew risk of mortgagefraud and did not take reasonable steps to prevent it — It was not fair to upholdbank’s contractual claim to costs — Bank was only able to recover against de-fendant because he signed document without getting legal advice that he shouldhave received from same lawyer who acted for bank.

ADDITIONAL REASONS relating to judgment reported at Royal Bank ofCanada v. Azizuddin (2015), 2015 ABQB 102, 2015 CarswellAlta 327 (Alta.Q.B.), allowing plaintiff bank’s action against defendant mortgagor and al-lowing defendant’s third party claim against company, its principals and lawyer.

Ellery C. Lew, for PlaintiffGuy Lacourciere, for Defendant

Royal Bank of Canada v. Azizuddin A.D. Macleod J. 157

James B. Rooney, Q.C., for Third Party, John Condin

A.D. Macleod J.:

1 The parties seek directions with respect to costs in this litigation(Royal Bank of Canada v. Azizuddin, 2015 ABQB 102 (Alta. Q.B.)).RBC was successful in this action against Mr. Azizuddin who was alsosuccessful in seeking indemnity from the third party, John Condin.

2 RBC seeks solicitor client costs because in the mortgage documentsigned by Mr. Azizuddin he promised to pay all costs on a solicitor clientbasis

3 However, notwithstanding contractual rights, the Court has an inher-ent right to exercise its discretion contrary to that contractual arrange-ment. Moreover, in my view the Court is not precluded from consideringthe conduct in relation to the transaction as opposed to the conduct of thelitigation. It is my view that if an award of solicitor client costs is not fairas between the parties and is otherwise inappropriate in the public inter-est, I have a discretion to override the relevant contractual provision. Inmy Reasons I said:

I would like to conclude with a word of warning to financial institu-tions. In these situations, the law does not normally impose any dutyby the mortgagee to the mortgagor and, as long as the latter is part ofthe fraudulent scheme, justice is served. However, the financial insti-tution is in the best position to identify instances of mortgage fraudand to prevent it from occurring. In a hot housing market, the mort-gagor is perhaps not as diligent as it is anxious to lend. In those caseswhere the home buyers are not at all involved in wrongdoing, courtsin future may well inquire into the lender’s due diligence.

4 This warning was issued because until appropriate action is taken bylending institutions, hot real estate markets will continue to be a hot bedof mortgage fraud. Mortgage companies benefit from a robust real estatemarket and the competition to lend money is very keen. Mortgagees arealways looking for ways to improve profitability and curtail costs includ-ing the costs of due diligence.

5 In this case I found that the mortgagor was largely a dupe. I foundthat he did not make the mortgage application to RBC; it was done forhim presumably by the perpetrators of the fraud or someone on their be-half. Neither was he aware of the many irregularities which might havetipped him off and should have tipped the bank off to the fact that thiswas mortgage fraud. Under the arrangements made by RBC the lawyer


(Mr. Condin) acted for both RBC and the buyer. He did not follow theexpress instructions given by the bank which were in the interests of bothhis clients. If he had followed those instructions the transaction wouldnot have been completed.

6 While RBC has been successful as against Mr. Azizuddin, this wholemess could have been avoided had the bank taken more care. It’s simplynot fair in my view to uphold the bank’s claim for solicitor client costs.They knew the risk of mortgage fraud and did not take reasonable stepsto prevent it. That RBC was able to recover against the mortgagee wasbecause he signed the document without getting the advice he shouldhave received from the same lawyer who acted for the Bank. Moreover,there are a number of other steps which could have been taken by theBank to avoid this.

7 Lending institutions should be encouraged to take more steps to pre-vent this from happening in the future.

8 Accordingly RBC’s application for solicitor client costs is dismissed.Recovery shall be limited to costs in accordance with Schedule C. Nocosts of this application are awarded.

Order accordingly.

Precision Drilling v. Yangarra Resources 159

[Indexed as: Precision Drilling Canada Limited Partnershipv. Yangarra Resources Ltd.]

Precision Drilling Canada Limited Partnership, PlaintiffDefendant by Counterclaim and Yangarra Resources Ltd.,

Defendant Plaintiff by Counterclaim and Devon NECCorporation, Defendant



2015 ABQB 649

Master J.T. Prowse, In Chambers


Judgment: October 14, 2015

Debtors and creditors –––– Interest — Calculation — Rate –––– Plaintiffcompany P brought action against defendant resource company, for unpaid drill-ing fees — P moved for summary judgment in action and was successful — Pmade claim for interest, based on contract between parties — P claimed thatthere should be 18% interest commencing 30 days after each invoice was ren-dered, to judgment — Resource company claimed that interest clause was unen-forceable penalty clause — Resource company also claimed that they could de-lay payments of interest until court ruled against them — Resource companyapplied to amend statement of defence to plead these defences — P applied forinterest to be enforced — P’s application granted — Agreed-upon interest ratewas proper measure to save parties’ time and avoid litigation — Although 18%rate went over that needed to compensate P, it was not unconscionable — Inter-est rate was taken from industry-wide precedent — It was proper to allow inter-est from time of invoice, notwithstanding that there was bona fide dispute overinvoices — This result was consistent with contractual wording.

Cases considered:

Adanac Realty Ltd. v. Humpty’s Egg Place Ltd. (1991), 15 R.P.R. (2d) 77, 78Alta. L.R. (2d) 383, 113 A.R. 215, 1991 CarswellAlta 30, [1991] A.J. No.130 (Alta. Q.B.) — considered

Birch v. Union of Taxation Employees, Local 70030 (2008), 2008 ONCA 809,2008 CarswellOnt 7219, 93 O.R. (3d) 1, 2009 C.L.L.C. 220-006, 243 O.A.C.6, [2008] O.J. No. 4856, 305 D.L.R. (4th) 64 (Ont. C.A.) — referred to

Brennenstuhl Estate v. Trynchy (2007), 2007 ABQB 703, 2007 CarswellAlta1591, 63 R.P.R. (4th) 55, 37 E.T.R. (3d) 71, 84 Alta. L.R. (4th) 265, [2008]5 W.W.R. 549, 435 A.R. 85 (Alta. Q.B.) — considered


Deer Valley Shopping Centre Ltd. v. Sniderman Radio Sales & Services Ltd.(1989), 67 Alta. L.R. (2d) 203, 96 A.R. 321, 1989 CarswellAlta 88, [1989]A.J. No. 305 (Alta. Q.B.) — considered

H.F. Clarke Ltd. v. Thermidaire Corp. (1974), [1976] 1 S.C.R. 319, 3 N.R. 133,17 C.P.R. (2d) 1, 1974 CarswellOnt 253, 1974 CarswellOnt 253F, 54 D.L.R.(3d) 385, 18 C.P.R. (2d) 32, 54 D.L.R. (3d) 385 at 399, [1976] 1 S.C.R. 340(note) (S.C.C.) — considered

Horizon Resource Management Ltd. v. Blaze Energy Ltd. (2011), 2011 ABQB658, 2011 CarswellAlta 1914, [2012] 8 W.W.R. 569, 526 A.R. 206 (Alta.Q.B.) — considered

Horizon Resource Management Ltd. v. Blaze Energy Ltd. (2013), 2013 ABCA139, 2013 CarswellAlta 446, 100 C.B.R. (5th) 248, 78 Alta. L.R. (5th) 353,[2013] 7 W.W.R. 415, 544 A.R. 289, 567 W.A.C. 289 (Alta. C.A.) —considered

Precision Drilling Canada Limited Partnership v. Yangarra Resources Ltd.(2015), 2015 ABQB 433, 2015 CarswellAlta 1244 (Alta. Q.B.) —considered

32262 B.C. Ltd. v. See-Rite Optical Ltd. (1998), 1998 CarswellAlta 239, 216A.R. 33, 175 W.A.C. 33, 60 Alta. L.R. (3d) 223, [1998] 9 W.W.R. 442, 39B.L.R. (2d) 102, 1998 ABCA 89, [1998] A.J. No. 312 (Alta. C.A.) —considered


Judicature Act, R.S.A. 2000, c. J-2s. 10 — considered

APPLICATION by plaintiff company P to enforce interest clause, after success-ful summary judgment motion against defendant resource company.

Brian P. Reid, for Precision Drilling Canada Limited PartnershipTrevor R. McDonald, for Yangarra Resources Ltd

Master J.T. Prowse:

1 On July 6, 2015 I granted summary judgment to Precision DrillingCanada Limited Partnership (“Precision”) for approximately $3.5 millionfor unpaid drilling fees against Yangarra Resources Ltd. (“Yangarra”).The reasons for judgment are reported at 2015 ABQB 433 (Alta. Q.B.) .

2 When the time came to finalize the wording of the formal judgment,the issue of interest arose. Specifically, pursuant to the contract betweenthe parties, Precision is claiming 18% interest commencing 30 days afterthe date each invoice was rendered until the date of judgment. This

Precision Drilling v. Yangarra Resources Master J.T. Prowse 161

would amount to approximately $2.4 million. For the reasons which fol-low I allow Precision’s claim for interest.

3 Yangarra’s position is that the 18% interest provision under section7.15(f) of the program specification sheet is an unenforceable penaltyclause. Yangarra says that interest should only be allowed in the range of3% to 5% which, it submits, is an amount which would put Precision inthe same financial position it would have been in if Yangarra had paidthe invoices 30 days after they were issued.

Procedural issues4 Yangarra’s two primary arguments against Precision’s claim for in-

terest are:

(i) the contractual provision for 18% interest is an unenforceable pen-alty clause, and

(ii) the contract contains a provision which allows Yangarra to delay,without interest, payment of any invoice which they in good faithdispute. Interest would only begin to run when its objection to theinvoice(s) is disallowed by the court.

5 As Yangarra did not plead these defences in its amended statement ofdefence, Yangarra applies to amend its amended statement of defenceaccordingly.

6 An amendment to a statement of defence is usually allowed no matterhow late so long as the plaintiff is not prejudiced. In my view, Precisionis not prejudiced by the proposed amendments and they are allowed.

Relief against penalties7 Yangarra points to section 10 of the Judicature Act, RSA 2000, c.J-2

as follows: Subject to appeal as in other cases, the Court has power to relieveagainst all penalties and forfeitures and, in granting relief, to imposeany terms as to costs, expenses, damages, compensation and all othermatters that the Court sees fit.

Cases cited by Yangarra8 Yangarra cites H.F. Clarke Ltd. v. Thermidaire Corp. (1974), [1976]

1 S.C.R. 319, 1974 CarswellOnt 253 (S.C.C.) where the Supreme Courtof Canada held that a formula fixing damages was an unenforceablepenalty.


9 In H.F. Clarke, one of the contracting parties agreed not to competeduring the currency of the contract and for three years after its lawfultermination. The contract contained a formula fixing damages for breachof this covenant. The issue was whether that formula constituted a mea-sure of liquidated damages, or whether it constituted a penalty againstwhich relief should be given. The court declined to enforce the formula,ruling at paragraph 28 as follows:

I regard the exaction of gross trading profits as a penalty in this casebecause it is, in my opinion, a grossly excessive and punitive re-sponse to the problem to which it was addressed; and the fact that theappellant subscribed to it, and may have been foolish to do so, doesnot mean that it should be left to rue its unwisdom. Snell’s Principlesof Equity (27th ed. 1973), at p. 535 states the applicable doctrine asfollows:

The sum will be held to be a penalty if it is extravagantand unconscionable in amount in comparison with thegreatest loss that could conceivably be proved to have fol-lowed from the breach.

(emphasis added)

10 Yangarra cites Deer Valley Shopping Centre Ltd. v. Sniderman RadioSales & Services Ltd., 1989 CarswellAlta 88, 67 Alta. L.R. (2d) 203(Alta. Q.B.) where an interest provision on overdue rent was held to bean unenforceable penalty.

11 The plaintiff in Deer Valley was a commercial landlord seeking dam-ages as a result of its tenant abandoning the premises. The lease providedthat the landlord was entitled to interest on overdue rent at 5 per centabove prime. This clause was held to be an unenforceable penalty. TheCourt noted, at paragraphs 133 to 135:

A clause purporting to require interest as moneys owing and unpaidcan be examined to determine if the clause is a penalty and thusunenforceable.

InMitsui & Co. v. Ocelot Indust. Ltd., 43 Alta. L.R. (2d) 189, [1986]3 W.W.R. 337, 68 A.R. 125 (C.A.), Belzil J.A. held that the InterestAct did not apply to the clause providing for interest. He made thefollowing comments about the nature of the clause at p. 128:

The stipulation for interest is rather a form of compensa-tion to be paid to the vendor for not receiving when duethe money which it is entitled to receive under the termsof the contract entered into between the parties. It thusfalls within the second category of interest described in


Jowitt. The equity of such a provision is manifest: wherethe vendor is not paid on the due date, it may be forced toborrow at current rates, or alternatively lose the benefit ofhigher rates offered in the investment market while thedefaulting buyer has the advantage of it.

Such a stipulation for interest is in the nature of a pre-assessment of damages by the parties. It may lose thatcharacter, and become a penalty entailing relief in itswake, if the rate stipulated is exorbitant and not a genuinepre-assessment of damages, but that issue does not arisein this case.

The onus of proving that a clause is a penalty lies upon the party whois being sued on the clause, in this case the defendant. This was laiddown in Robophone Facilities v. Blank, [1966] 1 W.L.R. 1428 at1447, [1966] 3 All E.R. 128 (C.A.).

12 Applying the law to the specific facts of the case, the Court stated atparagraphs 147 and 148:

This claim calls for interest to be paid by the defendant to the plain-tiff on “overdue rent” with that interest varying from 13 per cent to18 per cent. There is no evidence before me that would indicate thatthe landlord would be able to earn 13 per cent to 18 per cent on rentmoneys not paid by the defendant. The only evidence I have that isspecific is that the landlord was paying 10.25 per cent interest on themortgage granted to it by Canada Life Assurance Corporation in June1983. This interest rate is substantially less than the 13 per cent to 18per cent called for under the provision.

On such evidence as I have I find that the provision is not a reasona-ble pre-estimate of damage. It is not enforceable.

13 Next Yangarra cites Adanac Realty Ltd. v. Humpty’s Egg Place Ltd.,1991 CarswellAlta 30, 78 Alt. L.R. (2d) 383 (Alta. Q.B.) where a clausefor payment of interest was held to be unenforceable. In that case a com-mercial tenant abandoned the rented premises and the landlord acceptedthe termination. The landlord sought unpaid future rent for the unexpiredterm as well as arrears owing. Included in the landlord’s claim was inter-est on unpaid rent at the rate of 24% per annum pursuant to a clause inthe lease. The Court followed the decision in Deer Valley and found thatthe clause constituted an unenforceable penalty rather than a reasonablepre-estimate of damages.

14 Yangarra cites 32262 B.C. Ltd. v. See-Rite Optical Ltd., 1998 ABCA89, 1998 CarswellAlta 239 (Alta. C.A.), in support of its position that a


clause setting damages should only be allowed where the amount set willput the plaintiff back in the position it would have been in if the contracthad been carried out. The plaintiff in that case was the lessor of a busi-ness sign. When the lessee stopped making payments, the plaintiffclaimed damages pursuant to a clause 24 in the sign lease allowing themthe total of all remaining payments under the lease. The lessee arguedthat this was an unenforceable penalty. The Court made the followingobservation at paragraph 16:

In determining whether Clause 24 is oppressive, in the circumstancesof this case, it is necessary to consider what rights the Appellantwould have had to damages for the breach, absent that Clause. TheSupreme Court of Canada has considered how damages ought to becalculated when a chattel lease has been breached. Langille v.Keneric Tractor Sales Ltd. (1987), 43 D.L.R. (4th) 171 (S.C.C.).Wilson, J. held that the damages flowing from the breach of a chattellease should be calculated in accordance with general contract princi-ples. At 181, she pointed out that that general rule is that “the awardshould put the plaintiff in the position he would have been in had thedefendant fully performed his contractual obligations.”

15 Yangarra’s argument is that awarding Precision interest at the rate of18%, when Precision’s cost of funds is approximately 5%, would putPrecision in a better position than it would have been in if Yangarra hadpaid the outstanding invoices in time.

Cases cited by Precision16 Precision says that for its interest claim at 18% it would have to be

established that it took advantage of Yangarra, or otherwise that the pro-vision was unconscionable.

17 Dealing with the topic of unconscionability, Precision cites the deci-sion in Brennenstuhl Estate v. Trynchy, 2007 ABQB 703 (Alta. Q.B.). Inthat case a farmer, Mr. Brennenstuhl, had been offered a favourableagreement for sale transaction by Mr. Prylowski, but instead opted for amuch less favourable lease-option transaction. Later, after Mr. Brennen-stuhl had passed away, his estate sought to set aside the lease-optionagreement, arguing that it was unconscionable. The Court ruled as fol-lows, at paragraphs 143 to 146:

This case is distinguishable from B. (S.M.) v. B. (K.R.), [1997] O.J.No. 3199 (Ont. Gen. Div.). There, Steinberg J. stated at para. 10:

It is not necessary, in setting aside an unconscionable con-tract, that the court must find that the person deriving the


benefit from it deliberately committed a wrongful orfraudulent act. It is enough that the circumstances weresuch that the stronger took undue advantage of theweaker, whether or not he or she intended to so do.

That case, and the principle stated, is in the context of matrimoniallaw where different considerations apply. In a non-matrimonial set-ting, and absent concerns such as undue influence and fiduciary obli-gations, there is no burden on a party whose conduct is otherwiseblameless to establish that the price paid was fair and reasonable.There must, in my view, be an element of knowingly taking advan-tage, or wilful blindness to such. Those factors have not been provento exist by the Estate.

In these circumstances, Mr. Brennenstuhl was represented by a law-yer. Mr. Prylowski did nothing to attempt to take advantage of Mr.Brennenstuhl. He cannot and should not be deprived of the bargaineventually struck.

As a result, the Estate has failed to establish that the transaction be-tween Mr. Prylowski and Mr. Brennenstuhl was unconscionable.

(emphasis added)

The law on penalty clauses18 There is a divergence with respect to the test to be applied to evaluat-

ing whether to set aside a contractual provision as a penalty.19 In both Deer Valley, supra, and Adanac, supra, the approach seems to

have been simply that, if the pre-estimated damages clause would likelyhave achieved an award higher than actual damages, then the clause is apenalty clause and is unenforceable. With respect, those two decisions donot seem to apply the test suggested by the Supreme Court of Canada inH.F. Clarke, which is whether the clause in question is “extravagant andunconscionable”.

20 The following article, Kevin E. Davis, Penalty Clauses Through theLens of Unconscionability Doctrine: Birch v. Union of Taxation Em-ployess, (2010) 55 McGill L.J. 151, provides a case commentary onBirch v. Union of Taxation Employees, Local 70030, 2008 ONCA 809(Ont. C.A.), leave to appeal to S.C.C. refused.

21 In that article, the author comments: Birch was preceded by a path-breaking line of cases in which Cana-dian appellate courts signalled their willingness to depart from thestrict common law rule against enforcing a stipulated remedy thatamounts to a penalty rather than a genuine pre-estimate of damages.


22 The footnote to the above comment is as follows:See especially Liu v. Coal Harbour Properties Partnership, 2006BCCA 385, 273 D.L.R. (4th) 508 at para. 24, 56 B.C.L.R. (4th) 230,(the decision to grant relief against a penalty depends on whether toenforce the penalty would be unconscionable);Peachtree II Associ-ates — Dallas L.P. v. 857486 Ontario Ltd. (2005), 76 O.R. (3d) 362,(sub nom 869163 Ontario Ltd. v. Torrey Springs II Associates Ltd.Partnership, 256 D.L.R. (4th) 490 (C.A.) [Peachtree II cited to O.R.](“I agree with Professor Waddams’ observation in The Law of Dam-ages that as there is often little to distinguish between [penalties andforfeitures] and that there is much to be said for assimilating bothunder unconscionability. The effect of assimilation would be ‘to pro-vide a more rational framework for the decisions of both forfeituresand penalties’” at para. 32 [reference omitted]), leave to appeal toS.C.C. refused, 31126 (19 January 2006);Elsley Estate v. J.G. CollinsInsurance Agencies Ltd., [1978] 2 S.C.R. 916, 83 D.L.R. (3d) 1 (“Itis now evident that the power to strike down a penalty clause is ablatant interference with freedom of contract and is designed for thesole purpose of providing relief against oppression for the party hav-ing to pay the stipulated sum. It has no place where there is no op-pression” S.C.R. at 937). It is important to note that all but the first ofthese cases dealt with this issue in obiter dicta.

(emphasis added)

23 My observation is this: an agreed upon interest rate for payments inarrears saves both litigants’ time and the courts’ time. Otherwise, itwould be necessary for an unpaid goods or services supplier, when suingfor non-payment, to adduce evidence as to things such as its average re-turn on capital and its blended average cost of borrowing. These figureswould be constantly changing.

24 While there is no doubt that an agreed upon interest rate of 18% con-tains an element of ‘incentive’ in addition to an element of compensa-tion, I find nothing extravagant or unconscionable about a goods or ser-vice provider charging 18% interest if they are not paid on time forgoods or services provided. In my many years of experience, interestcharges are typically charged in such circumstances, and it is very com-mon for such interest charges to range from 1.5% to 2% per month.

25 As further evidence of the widespread use of 18% interest for unpaidgoods and services, I note that the provision for 18% interest in the con-tract between Precision and Yangarra is taken from an industry wideprecedent.


26 I find nothing ‘extravagant or unconscionable’ in the 18% interestrate agreed to between Precision and Yangarra, and therefore find it to beenforceable.

Contractual entitlement to delay payment27 Yangarra says that it is contractually entitled to delay payment, with-

out interest, where it bona fide disputes payment of an invoice. It pointsto the following clauses found in its contract with Precision:

9.1 — At the end of each month [Precision] shall submit, for eachdrilling site, an itemized invoice to [Yangarra] for all equipment,materials, supplies and labour furnished and services rendered pursu-ant to a drilling program during the month and shall include withsuch statement copies of all third party invoices in regard to theequipment, materials, supplies, labour or services covered by thestatement together with all applicable receipts. Subject to section 9.2,[Yangarra] shall pay [Precision] the amount of each invoice withinthe period specified in the applicable program specification sheet [inthis case 30 days]. All invoices shall be submitted to [Yangarra] atthe address shown above or at any other address that [Yangarra] mayspecify to [Precision] in writing for the purpose.

9.2 — If [Yangarra] disputes any invoice or any part of an invoice ingood faith, [Yangarra] shall give [Precision] written notice of the de-tails of the dispute within thirty (30) days of receiving the invoice(“dispute notice”) and [Yangarra] shall be entitled to withhold pay-ment of the portion of the invoiced amount relating to the dispute.[Yangarra] shall make timely payment of any undisputed portion ofthe invoiced amount. Except for any claim that [Yangarra] may makeas a result of an audit undertaken pursuant to article XIX, [Yangarra]expressly releases [Precision] in respect of any claim not communi-cated to [Precision] by dispute note timely delivered and waives anyclaim it may have against [Precision] in respect thereof.

9.3 — Any sum not paid when due (including sums ultimately paidin respect of any dispute) shall bear interest at the rate specified inthe applicable program specification sheet [in this case 18%].

(emphasis added)

28 Yangarra says that the contractual provisions quoted above are identi-cal to the provisions considered by the Court of Queen’s Bench inHorizon Resource Management Ltd. v. Blaze Energy Ltd., 2011 ABQB658, 2011 CarswellAlta 1914 (Alta. Q.B.), and Yangarra asserts that thecourt in that case did not allow interest to run while the invoices in ques-tion were subject to a bona fide dispute.


29 I found the wording of both the trial judgment in Horizon at para.1101 and the Court of Appeal judgment on appeal (see Horizon ResourceManagement Ltd. v. Blaze Energy Ltd., 2013 ABCA 139, 2013 Carswell-Alta 446 (Alta. C.A.) at paragraph 87) to be somewhat unclear on thispoint. However, a review of the judgment role at trial and on appeal clar-ifies that in Horizon interest was allowed from the due date of paymentof the invoices in question, notwithstanding that the invoices were bonafide disputed. Consequently, Horizon supports Precision’s position thatinterest runs notwithstanding a bona fide dispute.

30 This result is consistent with the wording of clause 9.3 quoted above,which provides that interest is payable on any sum not paid when due“including sums ultimately paid in respect of any dispute”.

Conclusion31 The provision for Precision to collect 18% interest on invoices 30

days after they were rendered is not an unenforceable penalty, and thecontractual provision allowing the withholding of payment for invoicessubject to a bona fide dispute does not relieve Yangarra from its contrac-tual covenant to pay interest on overdue invoices. I therefore award judg-ment to Precision for the interest claimed. Costs may be spoken to.

Application granted.

Lafarge Canada Inc. v. Edmonton (City) 169

[Indexed as: Lafarge Canada Inc. v. Edmonton (City)]

Lafarge Canada Inc., Respondent (Plaintiff) and The City ofEdmonton, Applicant (Defendant)


Docket: Edmonton 1103-02391

2015 ABQB 56

C. Dario J.

Heard: April 23, 2014


Alternative dispute resolution –––– Relation of arbitration to court proceed-ings — Miscellaneous –––– Effect on court proceedings — Contractor agreed tosupply storm sewer pipe to municipality subject to set-off for damages in eventof delay — Governing contract included arbitration provision for disputes —Contractor failed to deliver pipe on time — Municipality set off $890,000 indamages against invoiced amount of just over $1.5 million — After period ofunsuccessful negotiations, contractor commenced action against municipality fordamages for breach of contract — Municipality filed statement of defence as-serting arbitration was mandatory — Limitation period for commencing arbitra-tion subsequently expired — Municipality brought application for declarationthat contractor was statute barred from commencing arbitration and for orderstriking out statement of claim — Application allowed; action struck — Con-tractor should have proceeded with arbitration and was now statute barred fromdoing so — Since contractor no longer had any entitlement to pursue arbitration,court no longer had any supervisory role under s. 6 of Arbitration Act (“Act”)with respect to dispute — Even if court retained supervisory role with respect todispute, action would have been stayed in favour of arbitration — Municipalityhad not unduly delayed in bringing application and had not attorned to jurisdic-tion of court — Contractor had been on notice that municipality was contestingjurisdiction of court in favour of arbitration and yet failed to respond to thosenoted concerns.

Civil practice and procedure –––– Limitation of actions — Actions involvingmunicipal corporations — Miscellaneous.

Cases considered by C. Dario J.:

A.G. Clark Holdings Ltd. v. HOOPP Realty Inc. (2013), 2013 ABQB 402, 26C.L.R. (4th) 154, 2013 CarswellAlta 1229 (Alta. Q.B.) — considered

A.G. Clark Holdings Ltd. v. HOOPP Realty Inc. (2014), 2014 ABCA 20, 2014CarswellAlta 37, 31 C.L.R. (4th) 173 (Alta. C.A.) — considered


A.G. Clark Holdings Ltd. v. HOOPP Realty Inc. (2014), 2014 CarswellAlta1047, 2014 CarswellAlta 1048, [2014] S.C.C.A. No. 87 (S.C.C.) — referredto

Anatex Development Inc. v. Palm Enterprises Ltd. (2004), 2004 MBQB 83,2004 CarswellMan 173, 183 Man. R. (2d) 154, 47 C.P.C. (5th) 42, [2004]M.J. No. 164 (Man. Q.B.) — referred to

Babcock & Wilcox Canada Ltd. v. Agrium Inc. (2005), 11 C.P.C. (6th) 108,2005 CarswellAlta 208, 2005 ABCA 82, 42 C.L.R. (3d) 197, 3 B.L.R. (4th)262, 363 A.R. 103, 39 Alta. L.R. (4th) 197, 343 W.A.C. 103, [2005] A.J.No. 171 (Alta. C.A.) — followed

Bansal v. Ferrara Pan Candy Co. (2014), 2014 ABQB 384, 2014 CarswellAlta1046, 55 C.P.C. (7th) 386 (Alta. Q.B.) — considered

Bouchan v. Slipacoff (2009), 94 O.R. (3d) 741, 2009 CarswellOnt 155, 58B.L.R. (4th) 96, [2009] O.J. No. 156 (Ont. S.C.J.) — considered

Cincurak v. Lamoureux (2002), 8 Alta. L.R. (4th) 354, 2002 ABQB 777, 2002CarswellAlta 1051, 28 B.L.R. (3d) 295, [2003] 2 W.W.R. 743, 328 A.R. 1,[2002] A.J. No. 1050 (Alta. Q.B.) — referred to

Eiffel Developments Ltd. v. Paskuski (2010), 99 C.L.R. (3d) 148, 2010 Carswell-Alta 2023, 2010 ABQB 619, 511 A.R. 11, [2010] A.J. No. 1173 (Alta.Master) — considered

Hnatiuk v. Assured Developments Ltd. (2012), 522 A.R. 3, 544 W.A.C. 3, 2012CarswellAlta 511, 2012 ABCA 97, 15 C.L.R. (4th) 28, 66 Alta. L.R. (5th)425 (Alta. C.A.) — considered

Lafarge Canada Inc. v. Edmonton (City) (2012), 2012 ABQB 634, 2012CarswellAlta 1779, [2012] A.J. No. 1073 (Alta. Q.B.) — referred to

Lafarge Canada Inc. v. Edmonton (City) (2013), 25 C.L.R. (4th) 208, 561 A.R.305, 594 W.A.C. 305, 87 Alta. L.R. (5th) 308, 2013 ABCA 376, 2013CarswellAlta 2183 (Alta. C.A.) — referred to

Millennial Construction Ltd. v. 1021120 Alberta Ltd. (2005), 2005 ABQB 533,2005 CarswellAlta 975, [2005] A.J. No. 876 (Alta. Q.B.) — considered

Norex Petroleum Ltd. v. Chubb Insurance Co. of Canada (2008), [2008] I.L.R.I-4723, 95 Alta. L.R. (4th) 74, 444 A.R. 102, 60 C.P.C. (6th) 291, [2008] 12W.W.R. 322, 2008 CarswellAlta 974, 2008 ABQB 442, 65 C.C.L.I. (4th) 20(Alta. Q.B.) — referred to

Pitchers Ltd. v. Plaza (Queensbury) Ltd. (1940), [1940] All E.R. 151 (Eng.C.A.) — considered

Schmidt v. Alberta New Home Warranty Program (2007), 2007 ABPC 85, 2007CarswellAlta 400, 415 A.R. 148 (Alta. Prov. Ct.) — referred to

Turner & Goudy v. McConnell (1985), [1985] 1 W.L.R. 898 (Eng. C.A.) —considered

Van Damme v. Gelber (2013), 307 O.A.C. 81, 2013 ONCA 388, 2013 Carswell-Ont 7839, 115 O.R. (3d) 470, 42 C.P.C. (7th) 100, 363 D.L.R. (4th) 250,[2013] O.J. No. 2750 (Ont. C.A.) — referred to

Lafarge Canada Inc. v. Edmonton (City) C. Dario J. 171

Van Damme v. Gelber (2013), 2013 CarswellOnt 17427, 2013 CarswellOnt17428, [2013] S.C.C.A. No. 342 (S.C.C.) — referred to

1400467 Alberta Ltd. v. Adderley (2014), 2014 ABQB 85, 2014 CarswellAlta214 (Alta. Q.B.) — referred to


Arbitration Act, R.S.A. 2000, c. A-43Generally — referred tos. 6 — considereds. 6(c) — considereds. 7 — considereds. 7(1) — considereds. 7(2) — considereds. 7(2)(d) — considereds. 51 — considered

Arbitration Act, R.S.B.C. 1996, c. 55s. 15 — considered

Rules considered:

Alberta Rules of Court, Alta. Reg. 390/68R. 129 — consideredR. 159 — considered

Alberta Rules of Court, Alta. Reg. 124/2010Generally — referred toR. 3.68 — considered

APPLICATION by municipality for declaration that contractor was statutebarred from commencing arbitration and for order striking out statement ofclaim.

Allan Delgado, for Applicant / DefendantDonald Cranston, Laura Inglis Chubb, for Respondent / Plaintiff

C. Dario J.:

1 This is a special chambers application of the Defendant/Applicant,the City of Edmonton (the “City”), for:

(a) a declaration that the arbitration of the dispute between the partiesis statute barred from commencing due to expiry of the limitationperiod, and

(b) the Statement of Claim filed by the Plaintiff/Respondent, LafargeCanada Inc. (“Lafarge”), to be struck or to stay such proceedings.


Background2 The City entered into a contract in May 2007 for Lafarge to supply

storm sewer pipe. Lafarge was to deliver the pipe in two installments ondates specified in the contract (June 22 and July 20, 2007). The terms ofthe contract include a provision that in the event Lafarge fails to deliverthe products within the timeframes, it would be deemed a fundamentalbreach. The City could then set-off amounts owing to Lafarge againstcosts or damages that the City would suffer due to delay. The terms ofthe contract also contain an arbitration provision governing contract dis-putes. The parties agree that this provision constitutes a mandatory arbi-tration clause.

3 Lafarge did not deliver either installment of the pipe on time. TheCity notified Lafarge on July 24, 2007, that it would incur costs due tothe late delivery, and that Lafarge would be responsible for those costs.In November 2011, the City then proceeded to offset the contract pay-ments with the delay costs. Against the total invoiced amount of just over$1.5 million, the City set-off costs of almost $890,000 as a result ofLafarge’s delay. Lafarge disputed this set-off, resulting in a contractdispute.

4 By May 2009, the parties had not resolved this dispute and enteredinto a Standstill Agreement in order to avoid expiry of the limitationsperiod. The Standstill Agreement prohibited either party from asserting alimitation period over any proceedings commenced within three monthsfrom the termination of the Standstill Agreement.

5 Lafarge terminated the Standstill Agreement on February 2, 2011,triggering the commencement of the three month period. It proceeded tofile a Statement of Claim against the City on February 14, 2011.

6 The City filed a two-page Statement of Defence on March 15, 2011.The pleadings contained a statement asserting arbitration as the requiredprocess:

Any matters that defeat the claim of the Plaintiff(s):

. . .

...pursuant to General Condition 13 of the Storm Sewer Pipe Agree-ment the parties agreed that any disputes arising thereunder shall besubmitted to arbitration.

7 Included in the email service of the Statement of Defence was thefollowing note from the City’s counsel: “I think arbitration may bemandatory but we [sic] happy to discuss future process.”


8 The three month period specified in the Standstill Agreement endedon May 2, 2011, however, the next formal step taken in this matter wasnot until July 12, 2011, when Lafarge (through different counsel) servedthe City with its Affidavit of Records. The City responded the next dayadvising that the City believed the contract was subject to mandatory ar-bitration proceedings, and that Lafarge failed to commence such pro-ceedings in a timely manner, thus, pursuant to section 51 of the AlbertaArbitration Act, RSA 2000, c A-43 (“Arbitration Act”) the limitation pe-riod was up. The City indicated it had previously advised Lafarge’s priorcounsel of its position, and further stated that the City believed it couldapply for a stay under section 7 of the Arbitration Act.

9 Lafarge’s counsel responded to this on August 11, 2011, advising thismatter should wait until early September 2011 when prior counsel wouldreturn from her sabbatical and vacation. If there were further communi-cations between the parties, the parties did not submit such evidence tothis Court.

10 Nothing further is noted on the record until June 19, 2012 when theCity applied to strike or stay the action commenced by Lafarge, and alsoto obtain a declaration that the arbitration was statute barred from com-mencing. That application was heard before Justice Clackson on Septem-ber 7, 2012: Lafarge Canada Inc. v. Edmonton (City), 2012 ABQB 634(Alta. Q.B.). The Court determined that Lafarge’s Statement of Claimserved as a notice of, or a commencement document for, arbitration;thus, arbitration was not statue barred. Due to this finding, the Court didnot make a decision regarding either the issues of delay in the City’sapplication or the question of attornment or waiver raised by Lafarge.

11 The City appealed that decision. The Court of Appeal found thatLafarge’s Statement of Claim did not serve as a notice of, or a com-mencement document for, arbitration: Lafarge Canada Inc. v. Edmonton(City), 2013 ABCA 376 (Alta. C.A.) (Lafarge ABCA). As the chambersjudge did not decide the issues of attornment or waiver, and delay, andthe Court of Appeal did not have the record before it to properly addressthese issues, the Court of Appeal sent these issues back to the Court ofQueen’s Bench for determination. These issues are before me in the caseat hand.


Issues

12 (A) Whether to grant the stay application or application to strike theproceedings.

(1) Should the Court strike the action because its supervisoryrole in arbitration is over?

(2) If it is not, was there undue delay on the part of the City inbringing the stay application?

(3) Does the Standstill Agreement prevent the City from rely-ing on the limitation period in this case?

(4) Did the City attorn to the jurisdiction of the Court or waiveits right to arbitrate?

(B) Whether to grant a declaration that this dispute is statue barredfrom commencing.

A. Staying or Striking the Proceedings

The Law13 S 7 of the Alberta Arbitration Act states:

7(1) If a party to an arbitration agreement commences a proceedingin a court in respect of a matter in dispute to be submitted to arbitra-tion under the agreement, the court shall, on the application of an-other party to the arbitration agreement, stay the proceeding.

(2) The court may refuse to stay the proceeding in only the followingcases:

(a) a party entered into the arbitration agreement while under alegal incapacity;

(b) the arbitration agreement is invalid;

(c) the subject-matter of the dispute is not capable of being thesubject of arbitration under Alberta law;

(d) the application to stay the proceeding was brought with unduedelay;

(e) the matter in dispute is a proper one for default or summaryjudgment.

14 Upon the application by a party, s 7(1) requires the court to stay aproceeding that the parties had agreed to submit to arbitration, unless oneof the conditions set out in s 7(2) applies. If one of those conditions ap-plies, the court may exercise its discretion in refusing to stay aproceeding.


15 As I have noted above, the contract between the parties in this casecontains a mandatory arbitration clause. As such, the parties are requiredto arbitrate their dispute, subject to a subsequent agreement otherwise(which may include agreement by attornment), or unless one of the cir-cumstances under s 7(2) of the Arbitration Act applies.

1. Supervisory Role of the Court16 S 6 of the Arbitration Act limits the ability of when the court can

intervene in matters governed by that Act: 6 No court may intervene in matters governed by this Act, except forthe following purposes as provided by this Act:

(a) to assist the arbitration process;

(b) to ensure that an arbitration is carried on in accordance withthe arbitration agreement;

(c) to prevent manifestly unfair or unequal treatment of a party toan arbitration agreement;

(d) to enforce awards.

The Parties’ Positions17 Lafarge argues that the application to stay the proceeding was

brought with undue delay, and therefore, the court should reject this ap-plication in accordance with s 7(2)(d) of the Arbitration Act.

18 Before engaging in an evaluation of undue delay, however, the Citynotes that the Court of Appeal has ruled Lafarge did not commence arbi-tration proceedings. Since arbitration is no longer available as the limita-tion period for arbitration has expired, the City argues that the issue ofundue delay is irrelevant because the Court’s supervisory role as set outin s 6 of the Arbitration Act is over. As such, it argues that the Courtshould strike the claim pursuant to rule 3.68 of the Alberta Rules ofCourt, Alta Reg 124/2010 (“Rules of Court”), given the court no longerhas any jurisdiction. Rule 3.68 permits a court to strike a claim or stay aproceeding where the court has no jurisdiction.

19 In support of this position, the City cites the decision of the Court ofAppeal in A.G. Clark Holdings Ltd. v. HOOPP Realty Inc., 2014 ABCA20 (Alta. C.A.) (HOOPP ABCA), leave to appeal to the Supreme Courtof Canada refused, [2014] S.C.C.A. No. 87 (S.C.C.). In HOOPP ABCA,it was determined that if the parties did not commence arbitration withinthe limitation period, the Court’s supervisory role was over and the Courttherefore would not evaluate the circumstances in s 7(2) of the Arbitra-


tion Act; rather, the litigation action would be struck pursuant to rule 3.68as the appellant was statute barred from pursuing its claim.

20 In deciding this issue, the Court of Appeal relied on its earlier deci-sion in Babcock & Wilcox Canada Ltd. v. Agrium Inc., 2005 ABCA 82(Alta. C.A.) (Babcock ABCA) which was decided under the formerRules of Court, Alta Reg 390/1968. In Babcock ABCA at para 11, it washeld that, rather than stay an action, a court must strike or dismiss a claimaccording to rule 129 or 159 (rule 129 is the predecessor to current rule3.68) where the parties had agreed to mandatory arbitration and arbitra-tion was not commenced within the limitation period, given that the courtno longer has any supervisory or enforcement jurisdiction to exercise.

21 Lafarge counters that the issue of limitation periods should be left tothe end of the analysis, and used to determine the appropriate remedy:whether to stay or to strike the application. Lafarge argues the processthe court should apply is as follows:

1) determine if the claim is subject to mandatory arbitration;

2) if so, then upon application of a party, stay the claim per s 7(1)unless a condition under s 7(2) exists, allowing the court to exer-cise its discretion; and

3) if a stay is warranted, then determine whether to stay the action oralternatively, if the limitation period for arbitration has passed, tostrike it.

22 Lafarge refers to the Court of Appeal’s analysis in Babcock ABCA asauthority for this framework. That Court stated in para 12 that: “In thiscase the parties used mandatory language and none of the s. 7(2) excep-tions apply. Because the underlying arbitration is statute-barred, thestatement of claim should be dismissed.”

23 As such, Lafarge argues that the court must still determine whetherthe City brought its stay application with undue delay pursuant to s7(2)(d) of the Arbitration Act, even though mandatory arbitration was notcommenced within the limitations period.

Analysis24 Both parties agree that, where the limitation period for arbitration is

over, the remedy is to strike the claim rather than stay the proceedings.This is consistent with the findings of the courts in HOOPP ABCA andBabcock ABCA. In Babcock ABCA at para 11, and repeated under the


new Rules in A.G. Clark Holdings Ltd. v. HOOPP Realty Inc., 2013ABQB 402 (Alta. Q.B.) (HOOPP ABQB) at para 37, Fruman JA stated:

.... An application under R. 129 or R 159 is appropriate here becausethe underlying right to arbitrate is statute-barred. Usually, partieswhose lawsuits deal with arbitrable issues would have their actionsstayed under s. 7(1) and the arbitration would proceed. The lawsuitwould not be dismissed outright because the court retains supervisoryjurisdiction under s.6 and could, for example, enforce an award. Inthe instant case a stay is not appropriate because the right to arbitrateis extinguished through the expiration of the limitations period, andaccordingly, there is no further supervisory or enforcement jurisdic-tion for the court to exercise.

25 The issue is whether the court still should evaluate the s 7(2) factorsto assess whether a remedy (stay or striking the claim) should be grantedat all, notwithstanding the fact that the limitation period for arbitration isover.

26 Lafarge urges this court to find that the framework Lafarge has setout was used in Babcock ABCA and implicitly used by the Court of Ap-peal in HOOPP ABCA. The fact patterns of these cases are pertinent.

27 In Babcock ABCA, the plaintiff, Babcock & Wilcox Canada Ltd.filed but did not serve a statement of claim. Nine months later it servedthe defendant, Agrium, with arbitration proceedings, and a few weeksafter that, served it with the statement of claim. Agrium applied to dis-miss the statement of claim on the basis that s 7 of the Arbitration Actrequires a court to stay proceedings when the parties agreed to submittheir dispute to arbitration, and also applied to dismiss the arbitrationproceedings because they were commenced outside of the limitation pe-riod. The Court of Appeal noted that since the chambers judge found thatarbitration commenced after the limitations period expired, arbitrationcould not proceed: para 4 Babcock ABCA. Since the parties had agreedto arbitrate their disputes, and none of the s 7(2) exceptions applied, andsince arbitration was not commenced within the limitations period, theCourt of Appeal held it no longer had any supervisory or enforcementjurisdiction as the right to arbitrate was statute barred. It dismissed thecourt action.

28 In HOOPP ABQB and HOOPP ABCA, the plaintiff/respondent com-menced a litigation action by filing a statement of claim. It did not bringan arbitration action within the applicable limitations period. The defen-dant/appellant applied to strike the litigation on the basis that the partieshad agreed to mandatory arbitration to settle any disputes, and the plain-


tiff had failed to commence arbitration within the two year limitationsperiod. In the alternative, it argued for a stay under s 7 of the ArbitrationAct. In response, the plaintiff argued that the defendant unduly delayed inbringing the application for over seven years since the Statement ofClaim was filed, and the application should be struck. Justice Gill dis-missed the action under rule 3.68 because the arbitration clause wasmandatory and arbitration was not commenced within the limitations pe-riod; as a result, arbitration was statute barred and the courts supervisoryrole was over. Since arbitration was statute barred, Justice Gill deter-mined that the issue of undue delay in s 7(2) was irrelevant.

29 In deciding to dismiss the action, Gill J held: 38 The arbitration clause is mandatory. HOOPP failed to commencearbitration proceedings within the limitation period. The right to arbi-trate is statute barred. The Court has no further supervisory role.

39 Section 7(2) of the Arbitration Act does not assist HOOPP. Onceit has been determined that there is a mandatory arbitration clauseand that the applicable party failed to commence an arbitration withinthe limitation period, the Arbitration Act ceases to have any furtherapplication and the Court’s role comes to an end.

30 This decision was confirmed by the Court of Appeal in HOOPPABCA where Paperny JA held:

7 ...The chambers judge correctly interpreted this court’s decision inBabcock & Wilcox, which holds that if the parties have agreed thatthey must arbitrate a dispute, but one party has issued a statement ofclaim and has not commenced arbitration within the limitation periodfor arbitration, then the court must strike out the claim...

8 As there is no dispute as to whether the limitation period withinwhich to commence the arbitration has expired, it was unnecessaryfor the chambers judge to consider whether s 7(2)(d) of the Arbitra-tion Act applied. HOOPP’s proposed interpretation would renders.51(1) of the Arbitration Act and s 3(1) of the Limitations Act mean-ingless in the circumstances. It would have the effect of allowing acourt to indefinitely extend a limitation period expressly set forth inthe Limitations Act. In our view, that was not the intention of thelegislature.

31 Contrary to Lafarge’s postulations, the position of the Court of Ap-peal in that case is unequivocal. While Lafarge suggests that that Courtimplicitly determined there was no undue delay or other issue to be con-sidered regarding s 7(2), and thus merely went on to consider the appro-priate remedy, this is not what that Court stated. That Court was clear in


noting that an analysis of s 7(2)(d) is unnecessary as the limitation periodwas over. It went on to say at para 9 that, even were it inclined to acceptthe appellant’s interpretation of how s 7 should be applied in that case, itwas satisfied that no undue delay occurred. The Court of Appeal did notexpressly or implicitly employ the three step test articulated by Lafarge.

32 These cases uphold the principle that when parties agree to amandatory arbitration clause in their contracts, they must submit theirclaim to arbitration or risk having their litigation claim struck, providedthe matter properly falls within the scope of the Arbitration Act. If thesubject matter falls within the Arbitration Act, once the applicable limita-tion period for arbitration is over, these cases hold that the Court’s super-visory role is also over. According to HOOPP ABCA the issue of unduedelay becomes irrelevant — even if it means that the party having com-menced a court action is denied an avenue for recourse.

33 While this position may seem to be rigid, there is an important under-lying policy consideration: to enforce contracts between parties whohave agreed to arbitrate. This imposes an onus on the parties to proceedwith arbitration if they agreed to do so in their contract.

34 Since the revisions to the relevant Arbitration Act provisions, Courtshave endeavoured to uphold parties’ agreements to settle their disputesby arbitration. The Ontario Court in Bouchan v. Slipacoff, [2009] O.J.No. 156, 173 A.C.W.S. (3d) 988 (Ont. S.C.J.) elaborated on this shift inpolicy:

18 In Deluce Holdings Inc. v. Air Canada (1992), 12 O.R. (3d) 131(Ont. Gen. Div. [Commercial List]) Justice Blair observed that themandatory stay with limited exceptions represents a policy shiftwhere parties have agreed to submit their dispute to arbitration. Atpara. 61 he states the following:

This legislation represents a shift in policy towards theresolution of arbitrable disputes outside of court proceed-ings. Whereas prior to the enactment of this legislation thecourts in Ontario had a broad discretion whether or not tostay a court action, the focus has now been reversed: theCourt must stay the court proceedings and allow the arbi-tration to go ahead unless the matter either falls withinone of the limited exceptions or is not a matter which theparties have agreed to submit to arbitration.

19 The philosophy underlying the legislation is to encourage partiesto submit their differences to a consensual dispute resolution processoutside the regular court process and to hold them to that course once


they have agreed to do so: see Ontario Hydro v. Denison Mines Ltd.,[1992] O.J. No. 2948 (Ont. Gen. Div.).

35 The changes in legislation referred to in that Ontario decision paral-leled the changes to the Arbitration Act in Alberta in 1991. This shift inpolicy was also considered by the court in Babcock ABCA at paras 8-10.

36 The parties acknowledge that they agreed to a mandatory arbitrationprovision. The Court of Appeal held that the Statement of Claim issuedby Lafarge was not a commencement of arbitration proceedings: LafargeABCA. Thus, arbitration was not commenced within the applicable limi-tations period. The decisions from both the trial and appeal courts inHOOPP and the appellate court in Babcock emphasize that when partiesagree to arbitration, courts should hold parties to their agreements. TheCourts in HOOPP dealt expressly with the issue of the application of s7(2)(d) in similar circumstances to this case. Based on the position of thecourt in HOOPP ABCA, since the limitation period for arbitration isover and neither party commenced arbitration proceedings, an analysis ofs 7(2) factors, including undue delay, is not relevant in this case as thecourt’s supervisory role is over. Lafarge’s action is struck.

37 The court of course retains a supervisory role in determining whetherthe arbitration agreement is valid and the matter in dispute is subject toarbitration (per s 6 and s 7(1) of the Arbitration Act). This can include adetermination of whether the parties have, by their conduct repudiatedthe agreement and attorned to the jurisdiction of the court. It is left for afuture court to determine whether there are other circumstances in whichthe court retains a supervisory role over an arbitration matter despite theexpiry of the arbitration limitation period.

38 In the event that I am wrong in my interpretation of the Court of Ap-peal’s decisions in HOOPP and Babcock, however, I will also considerwhether the application would succeed if the s 7(2) factors are consid-ered, and in particular, whether there was undue delay.

2. Undue Delay

The Parties’ Positions39 Lafarge states that s 7(2)(d) of the Arbitration Act must be considered

and that the Court of Appeal expressly remitted the issue of undue delayback for this court to decide. Lafarge notes that the City delayed in bring-ing the stay application for 16 months since the issuance of the Statementof Claim. Lafarge argues that the City did not bring the stay application


within the three month window prior to the expiration of the limitationsperiod, and had it done so, Lafarge would have been afforded an oppor-tunity to commence arbitration proceedings.

40 In the alternative to its position that the supervisory role of the courthas ended, the City argues that: there was only really a delay of about 12months, which is not undue; the City had informed Lafarge of the City’sposition regarding their agreement to arbitrate before and after the expi-ration of the Standstill Agreement three month protective term; andLafarge has not provided evidence that it has suffered prejudice due tothe delay. The City notes that this is not a situation where it laid in theweeds waiting for the limitation period to expire. The City stated arbitra-tion was mandatory both in its Statement of Defence and in the email itsent to the Respondent’s counsel along with the Statement of Defence,leaving Lafarge with over two months to address the issue prior to theexpiry of the non-enforcement period. The City notes that when it real-ized Lafarge was pursuing litigation upon receipt of Lafarge’s Affidavitof Records on July 12, 2011, it sent a letter to Lafarge the next day as-serting arbitration was mandatory and was not commenced within therequired time. Lafarge responded in August 2011 for the City to waituntil Lafarge’s main counsel was back from sabbatical. (This may informus of how the City is calculating the period of delay.) The City arguesthat the litigation is in its early stages as few steps have been taken andfew expenses incurred to warrant a stay of the proceedings for unduedelay. It further argues that this is an adversarial process and that it is notobligated to take steps to ensure Lafarge was on the right resolution path.

Analysis41 In considering undue delay, it must be noted that s 7 of the Arbitra-

tion Act does not expressly require a party to bring an application at aspecific point in time, such as prior to filing motions or a statement ofdefence. While there is some timeliness element, given a judge has dis-cretion to deny the application for undue delay under s 7(2)(d), it is notso explicitly prescribed in the Act.

42 Although Lafarge argues that the City delayed in pursuing a stay ap-plication 16 months after receiving the Statement of Claim, Lafarge con-cedes that it did not make a difference to its position if the City had filedthe stay application at any time after the limitations period in the Stand-still Agreement expired. Any prejudice that Lafarge experienced wouldbe the same whether the City’s delay was three or sixteen months, since


the limitations period in the Standstill Agreement expired after only twoand a half months from the time that Lafarge filed and served its State-ment of Claim. The only additional step Lafarge took after filing a State-ment of Claim was to prepare and serve its Affidavit of Records; how-ever, it was aware of the City’s position regarding arbitration prior todoing so. There was also evidence before me that some of the City’s 16month delay in filing the stay application was as a result of Lafarge’scounsel’s request to wait to deal with the matter until Lafarge’s primarycounsel returned from sabbatical.

43 Master Mason in Eiffel Developments Ltd. v. Paskuski, 2010 ABQB619 (Alta. Master) (Eiffel) at para 22 noted: “The assessment of unduedelay is necessarily made in view of the particular circumstances beforethe court.” This finding is consistent with the approach of the AlbertaCourts.

44 A review of the case law suggests that courts will look at the follow-ing factors in determining whether there has been undue delay:

(i) how long the parties have been active in the litigation (Hnatiuk v.Assured Developments Ltd., 2012 ABCA 97 (Alta. C.A.)(Hnatiuk)),

(ii) the length of delay (though not determinative) (Eiffel),

(iii) whether or not the parties are applying for a stay based on a genu-ine desire to arbitrate, or if they are looking to avoid an adverseruling or for some other nefarious purpose (Eiffel at para 30),

(iv) how much they have spent on the litigation (MillennialConstruction Ltd. v. 1021120 Alberta Ltd., 2005 ABQB 533 (Alta.Q.B.) (Millenial),

(v) the Plaintiff’s reliance in assuming litigation was going forward(Schmidt v. Alberta New Home Warranty Program, 2007 ABPC85 (Alta. Prov. Ct.), at 46 (Schmidt)),

(vi) notice given to the other party that arbitration was mandatory(Anatex Development Inc. v. Palm Enterprises Ltd., 2004 MBQB83 (Man. Q.B.) (Anatex)).

This list is not exhaustive, and courts may consider other relevantfactors.

45 As the first two factors often are closely connected in the fact patternsof the case law, I consider together factors one and two: the length oftime the parties have been active in the litigation and the length of thedelay itself.


46 Lafarge relies on the decision of the court in Hnatiuk wherein theAlberta Court of Appeal warns parties to promptly pursue a stay applica-tion. The context of those comments, however, stemmed not from a stayapplication brought by the defendant, but by the chambers judge whoraised the issue of arbitration while neither of the parties had ever arguedit. The defendants had for years actively participated in the lawsuit,moved for summary judgment, participated in examinations for discov-ery, and made a certificate of readiness. This factual context is highlydistinguishable from the current case. Consequently, I am reluctant toapply the Court of Appeal’s comments to the case at bar.

47 Lafarge also relies on the comments of a 1985 United Kingdom deci-sion, Turner & Goudy v. McConnell, [1985] 1 W.L.R. 898 (Eng. C.A.)(Turner) at p. 902, citing Pitchers Ltd. v. Plaza (Queensbury) Ltd.,[1940] All E.R. 151 (Eng. C.A.) where Goddard LJ held:

It seems to me that, if a defendant who is sued wants an actionstayed, he should take out a substantive application at the earliestpossible moment.

48 The relevant legislation in the UK at the time required a party to bringa stay application “before any step in the action is taken”: Turner at p.901. The underlying legislative framework applicable to the decision inTurner differs substantially from the Alberta legislation. Section 7 of theArbitration Act mandates a court to stay an action unless it determinesthere is undue delay; it does not specify that it must occur prior to thefiling of a statement of defense. I find that the comments in Turner arenot applicable to the circumstances of this case.

49 Master Mason in Eiffel reviewed the span of delay in various cases atpara 22:

...Delays ranging from four to 21 months have not precluded a stayof litigation proceedings in favour of arbitration, based on the caselaw supplied by the parties: Brock University v. Stucor ConstructionLtd. (2002), 33 C.L.R. (3d) 182 (Ont.S.C.J.) (four months); De-lamarter v. Desjardins Security Life Assurance Co., 2007 Carswell-Ont 7414, [2007] O.J. No. 4475 (S.C.J.) (ten months), Anatex Devel-opment Inc. v. Palm Enterprises Ltd. (2004), 183 Man.R. (2d) 154(Q.B.) (21 months). Similarly, the length of delay preventing a stayalso varies in the case law.

50 In addition to length of time, Master Mason considered the actual in-terest of the party seeking the stay in resolving the dispute through arbi-tration. In Eiffel, the plaintiff brought an application seeking an orderdeeming service of the statement of claim on the respondent. The respon-


dent cross-applied to have the statement of claim struck or stayed be-cause of an arbitration clause in their contract. The Court noted in thatcase that the limitation period for arbitration was over. Master Masondetermined that the delay of over two years, combined with the respon-dent’s lack of formal steps to arbitrate, lack of suggestion the mattershould go to arbitration, and continual requests for the plaintiff to pro-vide further documentation did not support the respondent’s argumentthat they wanted to arbitrate. Master Mason found undue delay in that therespondent’s application to stay or strike the action “was clearly strategicrather than a genuine expression of the Paskuskis’ [the respondent’s] de-sire to arbitrate their dispute with Eiffel”: at para 30. One might wonderwhether in this case Master Mason could similarly have declined a staybased on attornment as well since the parties were so involved in thelitigation process.

51 Unlike in Eiffel, I am unable to find in the case at bar that the Citywas not amenable to arbitration at the outset. Indeed, the City sent anemail indicating the parties were supposed to arbitrate and argued thesame in the Statement of Defense. The City did not request further docu-ments or act as though it was litigating the action. The City respondedimmediately after receipt of the Affidavit of Records, again asserting ar-bitration. Other than filing the Statement of Defence, the City did notparticipate in the litigation process. No further steps were taken by eitherparty after the serving of the Affidavit of Records by Lafarge. In con-trast, Lafarge’s conduct more closely resembles a strategic decision toavoid arbitration. Lafarge was put on notice that the City wanted to en-force the arbitration process upon receipt of the City’s Statement of De-fense and accompanying email, yet Lafarge did not take any action inthat regard.

52 The next factor to consider is the amount of resources expended bythe parties in the litigation. In Millennial (an appeal from a Master’s de-cision), in addition to the length of delay, Romaine J also consideredwhether the resources expended by the parties warranted a finding of un-due delay. The circumstances of Millennial, however, are distinguishablefrom the circumstances of this case. Firstly and significantly, the arbitra-tion provisions in the contract were not mandatory, whereas arbitration ismandatory in the case at hand. Secondly, the plaintiff initiated litigation,then after numerous motions including filing a defense to the counterclaim, participating in a security for costs motion, and receiving an ad-verse ruling, decided to bring a s 7 application to stay the litigation it hadcommenced because it now wanted to arbitrate, only days before its se-


curity for costs was due. The plaintiff had not raised arbitration as a pos-sibility or alternative to litigation until after it received an adverse ruling.At para 7, Justice Romaine cited the Master’s comments from the cham-bers decision with approval:

The parties have wandered too far down the litigation trail to nowseek to go back to ... arbitration ... because [Millennial] has takenmore than steps necessary to protect its lien rights ... what specifi-cally concerns me is that the application is now brought on the eve ofthe expiry of the security for costs application ordered by the Court,where it was open to [Millennial] to argue that arbitration should oc-cur to avoid the security for costs consequences, and they chose notto do so. And what is particularly troubling to the Court is the pros-pect that a party could engage in the litigation process until such timeas it obtained an adverse ruling ... and then retreat to the arbitrationargument to avoid the effect of that order.

53 These facts are not even remotely similar to the facts of the currentcase. Importantly, the arbitration provision in the case at hand ismandatory and was not disputed by either party. The City has also con-sistently maintained its position that the parties were to arbitrate, and theCity is not trying to avoid an adverse ruling, or to stay its own litigationproceedings.

54 The fifth factor to consider in determining undue delay is reliance ofone party in assuming that the other party is engaged in the litigationprocess. In Schmidt Judge Haymour held:

46 ... I find that numerous steps have been taken to further the litiga-tion process on the part of the Plaintiffs with participation and in-volvement by both of the Defendants. I find that there was a relianceby the Plaintiffs, on the participation of the Defendants in the litiga-tion process as the proper forum for resolution of the disputes be-tween the parties. I find that a significant lapse of time has occurredbetween the date of commencement of the litigation and the date thatboth Defendants are bringing this motion; a few months short of twoyears. I find that the Plaintiffs’ reliance on the Defendants’ participa-tion in the litigation process as the proper forum have expended,time, effort and funds, including the costs of securing a costly expertreport in the furtherance of litigation.

55 In comparison to the case at bar, although Lafarge argues that it reliedon the City’s Statement of Defence as the reason why it did not com-mence arbitration proceedings, I find that Lafarge’s argument is marredby the fact it had notice that the City was contesting the jurisdiction of


the court in favour of arbitration, yet failed to respond to these notedconcerns.

56 This finding is consistent with the Court of Appeal’s earlier decisionin Lafarge ABCA where the Court held at para 11:

The City lawyer’s letter provided some time for Lafarge to give no-tice of an election to pursue arbitration within three months ofLafarge’s notice of termination of the Standstill Agreement, ifLafarge chose to do so.

57 The final factor to consider in determining undue delay is whether theparty applying for a stay provided notice to the other party that arbitra-tion was mandatory. In Anatex the court decided there was no undue de-lay, even though the stay application was brought 21 months after theplaintiff had filed the statement of claim. Justice Suche held at para 16:

The statement of claim herein issued in November 2001. In a letter inJanuary 2002, the defendant’s counsel raised the arbitration clause,the claim that the defendant had invoked the buy/sell provision, andthe plaintiff was in breach of agreement, as well as questions regard-ing certain of the expenses the plaintiff seeks to recover. In that letterand others that followed, he asked, perhaps implored, the plaintiff notto proceed with the action. It was only when the defendant was una-ble to persuade the plaintiff to go to arbitration that it filed a defenceand counterclaim; the former under protest, in August 2002.

58 Justice Suche found that in the circumstances, there was no unduedelay, even though a statement of defense and a counterclaim was filed,along with the lapse of almost 2 years. Despite the shorter period inwhich Lafarge had to commence arbitration in the current case, the cir-cumstances of Anatex are similar to the case at hand. Like Lafarge, theplaintiff was forewarned that arbitration was mandatory yet did notrespond.

59 I find that the City provided Lafarge with sufficient notice, both in thestatement of defence, accompanying email and letter to counsel to con-firm it was enforcing the mandatory arbitration provision.

60 Lafarge argues that the lapse of the limitation period and the relatedprejudice it suffers should be a consideration for this court in its analysisof undue delay.

61 Both in Babcock ABCA and HOOPP ABCA, the courts did not findthe expiry of a limitation period to constitute sufficient prejudice to denythe requested stay.


62 The Court of Appeal in Babcock ABCA specifically addressed theargument that if the plaintiff’s litigation action is struck, it would be un-fairly prejudiced because it would not be able to resolve its claim:

16 B & W’s final submission is that, pursuant to s. 6(c) of the Arbi-tration Act, it would be manifestly unfair to deny it the right to pro-ceed with its statement of claim since the limitation period for arbi-tration has expired and it would be without recourse. In New Era,supra, at para. 43, this Court concluded that s. 6(c) was to be used tocure unfairness arising from matters not covered by the specific lan-guage of the legislation. Section 51 the Arbitration Act explicitly in-corporates the limitations periods in the Limitations Act. A limitationperiod always has the consequence of denying a party recourse. Itdoes not follow that the operation of s. 51 creates a manifestly unfairsituation as contemplated in s. 6(c)....

63 While these statements were made in the context of s 6(c) of the Arbi-tration Act, the same principle applies when considering what constitutesundue delay; the expiry of a limitation period alone is not sufficient.

64 I have already found that the issue of undue delay is not relevant inthis case as the court’s supervisory role pursuant to the Arbitration Act isover. If I am wrong in that finding and undue delay must be considered, Ifind, based on the circumstances and taking all factors into consideration,the City did not unduly delay in bringing its stay application.

3. Effect of the Standstill Agreement65 The parties do not dispute that the contract contains a mandatory arbi-

tration provision. The parties also agree that during the three month non-enforcement period, the Standstill Agreement prohibits enforcement ofany limitation period that had not already expired when the parties en-tered the Standstill Agreement.

66 It is Lafarge’s position that, based on the broad wording of the Stand-still Agreement, the City is prevented from enforcing the limitation pe-riod relating to the arbitration proceedings to prevent the court actionfrom continuing. This nuanced argument is as follows: The StandstillAgreement prevents the parties from using any limitation period as a de-fence in any proceedings commenced by the other party during the non-enforcement period. As such, the City cannot now rely on the expiry ofthe three month non-enforcement period (and thus the expiry of the limi-tation period for arbitration) as a method to prevent the court actionwhich was commenced within the three month non-enforcement period.Stated another way, Lafarge’s argument, as I understand it, is that the


City’s is contractually prohibited from applying for a stay or striking ofthe action, as this would have the effect of enforcing a limitation period(the expiry of the arbitration limitation period) against a proceeding (thecourt action) commenced by Lafarge during the three month non-en-forcement period.

67 Specifically, Lafarge cites paragraphs 1 and 3 of the Standstill Agree-ment in support of this proposition:

1. Subject to clauses 2 and 3 hereof, the parties covenant and agreenot to assert any limitation period, whether arising pursuant to thelegislation or Rules of Court or otherwise from any Canadian juris-diction, nor any time defence arising from the terms of any contractor any other source including statute, common law or equity, as adefence in any proceedings commenced by one party against theother party herein in respect of the Purchase Order, whether suchproceedings assert claims in contract, tort or otherwise.

. . .

3. Each of the parties herein shall be at liberty to serve written notice(“Termination Notice”) on the other party advising that they wish toterminate clause 1 of this Agreement. Upon Service of the Termina-tion Notice on the other party:

. . .

c. each party shall continue to be bound by clause 1 ofthis Agreement with respect to any proceedings com-menced by the other party within three (3) months afterservice of the Termination Notice.

[emphasis added]

68 While Lafarge’s interpretation of these provisions is indeed tenable, Iinterpret the provisions more strictly.

69 The preamble of the Standstill Agreement clarifies that the intent ofthis agreement includes “preserving [the parties’] respective rights as ofthe date of this Agreement”. As such, the Standstill Agreement preservesthe rights of action alive at the time of entering it. At the time of enteringthe Standstill Agreement, arguably Lafarge had the right to file a claimwith the courts, however, at the time that right could be suspended by astay application.

70 The agreement is drafted such that the limitation period cannot beenforced regardless of the method of proceeding. The parties, however,are still limited to such proceedings as could rightly be pursued by eitherparty prior to the creation of the Standstill Agreement. The wording of


this agreement does not override the express arbitration provision in thepurchase order contract, or otherwise add to the procedural options thatdid not exist at the time of entering into the Standstill Agreement. Whatthe Standstill Agreement achieves is a stay on limitation periods thatwere otherwise about to expire.

71 In coming to this conclusion, I consider the context of the contractualarrangement as a whole as well as the surrounding circumstances at thetime the contract was formed. The parties do not dispute that this agree-ment was entered into to avoid forcing proceedings due to an impendingexpiry of a limitation period. The breadth of the drafting language in thiscase, as I interpret it, does not affect the method of proceeding that areotherwise available to the parties. The parties are still expected to operatewithin the scope of remedies previously available to them. The questionremains as to whether the parties were required to proceed by way ofarbitration rather than through the courts, and if so, how the court shouldrespond given Lafarge chose to proceed by court claim instead.

72 Even if the court were to interpret the provisions as Lafarge is sug-gesting, while the Standstill Agreement may preclude enforcement of alimitation period (the expiry of the arbitration period), it would not pre-vent the application for a stay of the proceedings pursuant to s 7(1) of theArbitration Act. As I have already found that there was no undue delayon the part of the City in bringing its application, this interpretation ofthe Standstill Agreement would only result in the court granting a stayrather than striking the action. This is not of any assistance to Lafarge inthe present circumstance, as it would result in staying an action thatcould never resume.

4. Attornment

The Parties’ Positions73 Lafarge argues that both parties have, as a result of their actions,

agreed not to arbitrate. Lafarge reasons that because the City filed aStatement of Defence defending on the merits of the claim, pleading set-off and indemnification, it attorned to the jurisdiction of the court.Lafarge says it relied on the Statement of Defence and on that basis pro-ceeded with litigation, including Lafarge’s subsequent filing of an Affi-davit of Records.

74 Conversely, the City asserts it has not waived its right to arbitrationand has not attorned to the jurisdiction of the court. The City, however,


acknowledges that parties can agree not to arbitrate based on their ac-tions. Its actions, it says, did not amount to attornment or waiver of arbi-tration because even though it filed a Statement of Defence on the meritsof the claim, in that defence it challenged the jurisdiction of the court andsent an email indicating that arbitration was mandatory.

Analysis75 “A party can waive its right to arbitration and attorn to the jurisdic-

tion of the court by participating in the suit on the merits”: Hnatiuk atpara 42. The degree of participation required to constitute attornment isthe issue to be determined.

76 As noted above, s 7 of the Arbitration Act mandates a court to stay anaction unless it determines, among other things, there has been unduedelay; it does not specify that it must occur prior to the filing of a state-ment of defence. This can only be rationalized if filing a statement ofdefence is not an automatic bar to obtaining a stay, but it opens the doorfor inquiry as to whether that party attorned to the jurisdiction of thecourt.

77 Lafarge has cited several cases in which the court found attornment incircumstances where a statement of defence was filed. These cases are alldistinguishable from the case at bar. For example, although Lafarge re-lies on Hnatiuk, as I have held above, Hnatiuk differs from the currentcase because in Hnatiuk the defendants participated in the lawsuit forover two years, defended on the merits, moved for summary judgment,counterclaimed, participated in examinations for discovery, and did notraise the issue of arbitration. The fact pattern of the case at bar differssubstantially.

78 I also note that some of the decisions refer to or rely on interpretingBritish Columbia decisions addressing attornment in the context of arbi-tration. I hesitate to rely on British Columbia decisions, because theirarbitration legislation contains different wording than Alberta’s Arbitra-tion Act. The stay provisions in British Columbia’s Arbitration Act,RSBC 1996, c 55, s 15 state that a party must apply for a stay before“taking any other step in the proceedings”, whereas the Alberta Arbitra-tion Act has no such requirement. For example, in Babcock ABQB atpara 31, the Court commented that filing a statement of defense meansthe parties’ have submitted to the jurisdiction of the court, but the Courtrelied on British Columbia decisions in reaching this decision.


79 Many arbitration cases that could be argued on the basis of attorn-ment are instead determined on the basis of undue delay. Some of thesecases are referred to in the “Undue Delay” section above.

80 In asserting that the City attorned to the jurisdiction of the court andwaived arbitration, Lafarge also relies on several conflicts of laws cases:Norex Petroleum Ltd. v. Chubb Insurance Co. of Canada, 2008 ABQB442 (Alta. Q.B.) (Norex); 1400467 Alberta Ltd. v. Adderley, 2014 ABQB85 (Alta. Q.B.) (Adderley); Cincurak v. Lamoureux, 2002 ABQB 777(Alta. Q.B.) (Cincurak).

81 Although the issue of attornment is prevalent in both arbitration andconflicts of law cases, the latter are of limited, if any, application in arbi-tration cases. The conflicts of law cases deal with territorial jurisdiction,rather than subject matter jurisdiction. See: Norex at paras 58-63 and Ad-derley at paras 46-49. As such, they apply different principles and under-lying policies. Further, in arbitration, the parties have contractuallyagreed to mandatory arbitration, and the courts rely on interpreting theArbitration Act rather than conflicts of laws principles.

82 Even if the conflicts of law cases on attornment applied or offeredrelevant guidance, I note there is a spectrum of views, ranging from morestrict interpretations, in which attornment is found based on filing a state-ment of defense and engaging in the merits of the claim (Norex; Adderleyat paras 45 and 53), to more broad interpretations, in which the circum-stances and evidence of the participation in the litigation process are con-sidered (Cincurak at para 26 and 28).

83 In Bansal v. Ferrara Pan Candy Co., 2014 ABQB 384 (Alta. Q.B.)[Bansal], a conflicts of laws case, Justice Veit noted the ambiguity inAlberta over what attornment and defending on the merits means. Sheconsidered that “in its recent Van Damme decision the Ontario Court ofAppeal held that even filing a statement of defence might not constituteattornment”: at para 19 citing Van Damme v. Gelber, 2013 ONCA 388(Ont. C.A.), leave to appeal refused, [2013] S.C.C.A. No. 342 (S.C.C.).

84 Justice Veit ultimately held: 20 The only conclusion to draw from the case law is that the circum-stances of each particular case must be examined to assess whether aspecific person has submitted to the jurisdiction of the court concern-ing the merits of a case.

85 Based on the circumstances of this particular case and in light of theparties’ agreement to mandatory arbitration, I find that the City’s filingof a Statement of Defense that pled the parties were bound by mandatory


arbitration is not enough to constitute attornment, especially since theCity also warned Lafarge in an email and a letter that the parties agreedto arbitrate. I find that Lafarge did not rely on the City’s Statement ofDefense as attornment because Lafarge was sufficiently warned that arbi-tration was mandatory.

86 Given the facts of the current case, including the City’s clear intent toenforce the mandatory arbitration provision prior to enforcement of anylimitation period, I find that the City did not waive its contractual agree-ment to arbitrate and did not attorn to the jurisdiction of this court.

Decision87 In this case, consistent with the Court of Appeal decision in HOOPP,

I find that, since the limitation period for arbitration has expired, the su-pervisory role of the court is over and the issue of undue delay is notrelevant: Lafarge’s action is struck. Even considering undue delay, I findthat, in light of all the factors in this case, the City did not bring its stayapplication with undue delay. Under that analysis, the remedy would bethe same: Lafarge’s action is struck. I find the Standstill Agreement doesnot preclude the City from bringing the request to strike the action, how-ever, even if it did, the action would still be stayed. I find that there wasno attornment on the part of the City in this case.

88 Lafarge’s action is struck.

B. Declaration89 In light of the above decision, the City’s request for a declaration that

Lafarge is statute barred from commencing its claim is granted.

Costs90 The Applicant is entitled to costs. The parties can apply to me for a

determination of costs within 60 days of this decision if they are unableto agree on that issue.

Application allowed; action struck.

Enviro Trace Ltd. v. Sheichuk 193

[Indexed as: Enviro Trace Ltd. v. Sheichuk]

Enviro Trace Ltd., Plaintiff/Applicant and Eugene Sheichuk,Allen Maclennan, Louellen Hess also known as Sue Hess,

Pauline Montgomery, Test All Services Ltd., Jane Doe, JohnDoe, ABC Corporation, and XYZ Corporation,

Defendants/Respondents


Docket: Edmonton 1403-06334

2015 ABQB 28

J.B. Veit J.

Heard: October 27, 2014; November 4, 2014


Civil practice and procedure –––– Costs — Particular orders as to costs —Costs payable “forthwith” –––– Respondents were former employees — Appli-cant successfully brought application for interlocutory injunction to prevent re-spondents from using applicant’s trade secrets and confidential information —Issue arose as to costs — Costs awarded — Costs for interlocutory injunctionspayable forthwith — Obtaining interlocutory injunction was real victory for suc-cessful litigant, one which recognized that applicant had legitimate legal posi-tion to protect — While judge retained discretion in matter of costs, that discre-tion must be exercised judicially; specific justification would have to beadvanced to depart from rule that costs on interlocutory motions should be paidforthwith.

Civil practice and procedure –––– Costs — Costs of particular proceed-ings — Interlocutory proceedings — Discovery –––– Injunctions — Respon-dents were former employees — Applicant successfully brought application forinterlocutory injunction to prevent respondents from using applicant’s tradesecrets and confidential information — Issue arose as to costs — Costsawarded — Costs for interlocutory injunctions payable forthwith — Obtaininginterlocutory injunction was real victory for successful litigant, one which rec-ognized that applicant had legitimate legal position to protect — By not creatingexception to general rule relating to interlocutory applications or injunctionswhen Alberta’s new Rules were adopted, policy underlying change of principlefrom costs in cause to pay-as-you-go in relation interlocutory proceedings wassolidified — While judge retained discretion in matter of costs, that discretionmust be exercised judicially; specific justification would have to be advanced todepart from rule that costs on interlocutory motions should be paid forthwith.


Cases considered by J.B. Veit J.:

Blaze Energy Ltd. v. Imperial Oil Resources (2014), 2014 CarswellAlta 1498,2014 ABQB 509 (Alta. Q.B.) — referred to

Combined Air Mechanical Services Inc. v. Flesch (2014), 2014 CarswellOnt640, 2014 CarswellOnt 641, 2014 SCC 7, 95 E.T.R. (3d) 1, (sub nom.Hryniak v. Mauldin) [2014] 1 S.C.R. 87, 27 C.L.R. (4th) 1, 37 R.P.R. (5th)1, 46 C.P.C. (7th) 217, 2014 CSC 7, (sub nom. Hryniak v. Mauldin) 314O.A.C. 1, (sub nom. Hryniak v. Mauldin) 453 N.R. 51, 12 C.C.E.L. (4th) 1,(sub nom. Hryniak v. Mauldin) 366 D.L.R. (4th) 641, 21 B.L.R. (5th) 248,[2014] S.C.J. No. 7, [2014] A.C.S. No. 7 (S.C.C.) — followed

Freyberg v. Fletcher Challenge Oil & Gas Inc. (2006), 2006 ABCA 260, 2006CarswellAlta 1238, 397 A.R. 235, 384 W.A.C. 235 (Alta. C.A.) — referredto

Hudson Bay Mining & Smelting Co. v. Dumas (2014), 2014 CarswellMan 26,2014 MBCA 6, [2014] 4 W.W.R. 245, 80 C.E.L.R. (3d) 194, 370 D.L.R.(4th) 237, 301 C.R.R. (2d) 83, 303 Man. R. (2d) 101, 600 W.A.C. 101 (Man.C.A.) — considered

Intercontinental Forest Products SA v. Rugo (2004), 2004 CarswellOnt 4172,191 O.A.C. 24, [2004] O.J. No. 4190 (Ont. Div. Ct.) — followed

Jackson v. Trimac Industries Ltd. (1993), 8 Alta. L.R. (3d) 403, 138 A.R. 161,[1993] 4 W.W.R. 670, 1993 CarswellAlta 310, [1993] A.J. No. 218 (Alta.Q.B.) — referred to

Monco Holdings Ltd. v. B.A.T. Development Ltd. (2005), 2005 ABQB 851, 2005CarswellAlta 1727, [2005] A.J. No. 1607 (Alta. Q.B.) — referred to

R.J.V. Gas Field Services Ltd. v. Baxandall (2004), 2004 ABCA 29, 2004CarswellAlta 54, [2004] A.J. No. 44 (Alta. C.A.) — referred to

Rogers Cable TV Ltd. v. 373041 Ontario Ltd. (1994), 1994 CarswellOnt 4729,[1994] O.J. No. 1087 (Ont. Gen. Div.) — considered

Rogers Cable TV Ltd. v. 373041 Ontario Ltd. (1994), 1994 CarswellOnt 166, 22O.R. (3d) 25, [1994] O.J. No. 2196 (Ont. Gen. Div.) — referred to

Stonewater Group of Restaurants Inc. v. Mikes Restaurants Inc. (2005), 2005ABQB 964, 2005 CarswellAlta 1906, [2005] A.J. No. 1772 (Alta. Q.B.) —considered

Rules considered:

Alberta Rules of Court, Alta. Reg. 124/2010Generally — referred toR. 10.29(1) — considered

Alberta Rules of Court, Alta. Reg. 390/68R. 607 — referred to

Tariffs considered:

Alberta Rules of Court, Alta. Reg. 124/2010Sched. C, Tariff of Costs, column 1 — referred to

Enviro Trace Ltd. v. Sheichuk J.B. Veit J. 195

Sched. C, Tariff of Costs, column 4 — referred to

ADDITIONAL REASONS related to costs to judgment reported at EnviroTrace Ltd. v. Sheichuk (2014), 2014 ABQB 381, 2014 CarswellAlta 1073, 18C.C.E.L. (4th) 315 (Alta. Q.B.).

Nigel J. Forster, Lindsey J. Ehrman, for Plaintiff / Applicant, Enviro Trace Ltd.Christopher L. Younker, for Defendants / Respondents

J.B. Veit J.:

Summary1 The successful party on an application for an interlocutory injunction

is, generally, entitled to costs for that application. That outcome recog-nizes the party’s substantive success and conforms to the policy underly-ing R. 10.29(1) and the principles alluded to in Combined AirMechanical Services Inc. v. Flesch. Moreover, the Ontario cases onwhich earlier decisions have relied were based on earlier versions of theirRules and have, in addition, since been re-interpreted to uphold a general“pay-as-you-go” policy in litigation, including injunction litigation.

2 Based on the reasonable value of the litigation, the successful partyhere is entitled to costs according to Column 4, rather than on Column 1.

Cases and authority cited3 By the applicant: Jackson v. Trimac Industries Ltd. (1993), 138 A.R.

161 (Alta. Q.B.); Monco Holdings Ltd. v. B.A.T. Development Ltd., 2005ABQB 851 (Alta. Q.B.); Blaze Energy Ltd. v. Imperial Oil Resources,2014 ABQB 509 (Alta. Q.B.); Freyberg v. Fletcher Challenge Oil & GasInc., 2006 ABCA 260 (Alta. C.A.).

4 By the respondent: Stonewater Group of Restaurants Inc. v. MikesRestaurants Inc., 2005 ABQB 964 (Alta. Q.B.); R.J.V. Gas FieldServices Ltd. v. Baxandall, 2004 ABCA 29 (Alta. C.A.).

5 By the court: Rogers Cable TV Ltd. v. 373041 Ontario Ltd., [1994]O.J. No. 1087 (Ont. Gen. Div.); Rogers Cable TV Ltd. v. 373041 OntarioLtd., [1994] O.J. No. 2196 (Ont. Gen. Div.); Intercontinental ForestProducts SA v. Rugo, [2004] O.J. No. 4190 (Ont. Div. Ct.); Hudson BayMining & Smelting Co. v. Dumas, 2014 MBCA 6 (Man. C.A.) ;Combined Air Mechanical Services Inc. v. Flesch, 2014 SCC 7 (S.C.C.) .


1. Background6 Enviro Trace Ltd. was successful in obtaining an interlocutory injunc-

tion against Test All Services Ltd. By way of reasonable preparation forthe injunction application, significant questioning was undertaken. En-viro Trace has claimed damages in excess of $1 million; as part of theprocess, the defendants have acknowledged that they have received ap-proximately $300,000.00 from only three sources during the short timethey have been in operation.

2. Costs for successful interlocutory injunction applications shouldgenerally be paid forthwith rather than in the cause

7 The respondents rely on Stonewater Group of Restaurants Inc. for theproposition that costs for interlocutory injunction applications shouldgenerally be in the cause. With respect for those having a different view,for the following four reasons I have concluded that costs for interlocu-tory injunctions should generally be paid forthwith.

8 First, success on an application for an interlocutory injunction is morethan mere success in establishing a holding pattern until trial. An inter-locutory injunction is properly granted only after establishing not onlythat there is a serious issue to be tried, but also after having establishedthat irreparable damages will ensue if the injunction is not granted andalso that the granting of the injunction satisfies the balance of conve-nience. Therefore, obtaining an interlocutory injunction is a real victoryfor the successful litigant, one which recognizes that the applicant had alegitimate legal position to protect. That litigant is entitled to costs.

9 Second, awarding costs that will be paid forthwith conforms to thepolicy underlying R. 10.29(1). That current Rule continues the policy es-tablished in Rule 607 pursuant to which, unless otherwise ordered, costsshall be paid forthwith by the unsuccessful party on all interlocutory pro-ceedings. When Alberta’s new Rules were adopted in 2011, there was afull opportunity to consider whether changes should be made to the ex-isting rules, including the rules relating to costs. By deciding not to cre-ate an exception to the general rule relating to interlocutory applicationsor interlocutory injunctions, the policy underlying the change of principlefrom costs in the cause to pay-as-you-go in relation to interlocutory pro-ceedings was solidified.

10 Third, the view that costs for interlocutory injunctions should be inthe cause was based on the Rogers Cable TV Ltd. view that, becausethere has been no final determination of the rights of the parties, no costs

Enviro Trace Ltd. v. Sheichuk J.B. Veit J. 197

should be awarded. However, in that original decision, Borins J. ac-knowledged that, in 1991, the Ontario Divisional Court had taken theview that costs for interlocutory matters should be payable forthwith un-less the justice of the case otherwise required. Moreover, in that originaldecision, Borins J. emphasized that it was a “virtual certainty” that thematter would go to trial. Yet, within months, as the second citation abovedemonstrates, Borins J. gave a summary judgment in the Rogers CableTV Ltd. proceedings on the basis that there was “no genuine issue fortrial”. The actual results in that case therefore remind us that judges canmore confidently deal with the application before them than predict fu-ture developments. Finally, as the Ontario Divisional Court pointed outin Intercontinental Forest Products, after the Rogers Cable TV Ltd. deci-sion, the Ontario rules were changed to state that payment of costs oninterlocutory motions should be made forthwith except where “a differ-ent order would be more just”. We also note that, outside of Ontario,decisions awarding costs for interlocutory injunctions have been upheld:Hudson Bay Mining & Smelting Co.. In the result, while a judge retainsdiscretion in the matter of costs, that discretion must be exercised judi-cially; specific justification would have to be advanced to depart fromthe rule that costs on interlocutory motions, including interlocutory in-junctions, should be paid forthwith.

11 Finally, when the Supreme Court of Canada commented on the needto have a change of culture in civil proceedings, it emphasized that, tothe extent that fairness allows, civil process should be made as succinctas possible. While interlocutory injunctions are just what their name im-plies, it should also be recognized that they will only be granted aftereach party has put their best foot forward. They should not, therefore, betaken lightly.

3. The potential value of the lawsuit justifies a costs award onColumn 4

12 The evidence that the respondents had received nearly $300,000.00from three sources during the short time they have been in business, to-gether with the extensive, but reasonable, pre-application questioning,establish that costs for the interlocutory injunction application should beawarded under Column 4 rather than under Column 1.


4. Costs of the costs hearing13 If the parties are not agreed on the costs of the costs hearing, I may be

spoken to within 30 days of the release of this decision.

Costs awarded; costs payable forthwith.

R. v. Stinert 199

[Indexed as: R. v. Stinert]

Her Majesty the Queen, Crown and Michael Joseph Stinert,Accused

Alberta Provincial Court

Docket: Red Deer 140854027P1

2015 ABPC 4

B.D. Rosborough Prov. J.



Criminal law –––– Pre-trial procedure — Preliminary inquiry — Natureand purpose of inquiry –––– Purpose of disclosure required by s. 536.3 ofCriminal Code is to streamline preliminary inquiry process, reduce number ofwitnesses who need to be called, and shorten length of inquiry as whole — Inorder to comply with s. 536.3, party requesting inquiry must identify whichpoints are in question in proceeding and why they are importanant subjects oflitigation — If issue is described in perfunctory, overbroad or vague mannersuch as “any and all evidence that Crown intends to rely on to prove case againstaccused” it cannot serve function of streamlining preliminary inquiry process —In order to comply with s. 536.3, party requesting inquiry must identify specifi-cally those witnesses to be heard at inquiry, not simply refer to “any witnesses”or “all witnesses”.

Criminal law –––– Pre-trial procedure — Preliminary inquiry — Proce-dure — Powers of justice — Regulating course of inquiry –––– It is withinpurview of preliminary inquiry court to require timely filing of proper statementunder s. 536.3 of Criminal Code and to characterize filing of such statement asrequest for preliminary inquiry — Where s. 536.3 statement fails to identify is-sues and witnesses to be called, court is entitled to find that there has been norequest for preliminary inquiry — Request for preliminary inquiry can also bewithdrawn or deemed abandoned by party requesting it.

Cases considered:

R. v. Ahmad (2008), 2008 CarswellOnt 9528 (Ont. S.C.J.) — consideredR. v. Callender (2007), 2007 ONCJ 86, 2007 CarswellOnt 1391 (Ont. C.J.) —

consideredR. v. Chabot (1980), [1980] 2 S.C.R. 985, 34 N.R. 361, 18 C.R. (3d) 258 (Eng.),

22 C.R. (3d) 350 (Fr.), 55 C.C.C. (2d) 385, 1980 CarswellOnt 60, 1980CarswellOnt 73, 117 D.L.R. (3d) 527, [1980] S.C.J. No. 108 (S.C.C.) — re-ferred to


R. v. Darby (1994), 1994 CarswellBC 4094, [1994] B.C.J. No. 814 (B.C. Prov.Ct.) — considered

R. v. Doyle (1976), (sub nom. Doyle v. R.) 35 C.R.N.S. 1, 1976 CarswellNfld 3,1976 CarswellNfld 15F, (sub nom. Doyle v. R.) [1977] 1 S.C.R. 597, 17A.P.R. 45, 10 Nfld. & P.E.I.R. 45, (sub nom. Doyle v. R.) 29 C.C.C. (2d)177, 9 N.R. 285, 68 D.L.R. (3d) 270, [1976] A.C.S. No. 38, [1976] S.C.J.No. 38 (S.C.C.) — referred to

R. v. Hathway (2005), 249 C.C.C. (3d) 84, 345 Sask. R. 1, 2005 CarswellSask974, 2005 SKPC 99, [2005] S.J. No. 837 (Sask. Prov. Ct.) — considered

R. v. LeBlanc (2009), 907 A.P.R. 333, 352 N.B.R. (2d) 333, 2009 NBCA 84,2009 CarswellNB 580, 2009 CarswellNB 581, 250 C.C.C. (3d) 29, [2009]N.B.J. No. 409 (N.B. C.A.) — referred to

R. v. Mulawyshyn (2006), 2006 CarswellOnt 8252, [2006] O.J. No. 5128 (Ont.S.C.J.) — referred to

R. v. P. (T.) (2006), 2006 CarswellNfld 274, [2006] N.J. No. 278 (N.L. Prov.Ct.) — considered

R. v. Seniuk (2007), (sub nom. R. v. J.P.S.) 278 Sask. R. 278, 2007 CarswellSask59, 2007 SKQB 73 (Sask. Q.B.) — referred to

R. v. Stinchcombe (1991), 18 C.R.R. (2d) 210, 68 C.C.C. (3d) 1, 8 W.A.C. 161,1991 CarswellAlta 559, 1991 CarswellAlta 192, [1992] 1 W.W.R. 97,[1991] 3 S.C.R. 326, 130 N.R. 277, 83 Alta. L.R. (2d) 193, 120 A.R. 161, 8C.R. (4th) 277, EYB 1991-66887, [1991] S.C.J. No. 83 (S.C.C.) — followed

R. v. Ward (1976), 35 C.R.N.S. 117, 31 C.C.C. (2d) 466, 1976 CarswellOnt 16,[1976] O.J. No. 807 (Ont. H.C.) — considered

R. v. Young (2011), 2011 CarswellBC 3706, 2011 BCPC 421, [2011] B.C.J. No.2602 (B.C. Prov. Ct.) — considered

Swystun v. R. (1990), 1990 CarswellSask 357, 84 Sask. R. 238, [1990] S.J. No.287 (Sask. C.A.) — considered


Canadian Charter of Rights and Freedoms, Part I of the Constitution Act, 1982,being Schedule B to the Canada Act 1982 (U.K.), 1982, c. 11

s. 2(b) — referred toCriminal Code, R.S.C. 1985, c. C-46

Generally — referred toPt. XVIII — referred tos. 469 — considereds. 536 — considereds. 536(2) — referred tos. 536.3 [en. 2002, c. 13, s. 27] — considereds. 536.3(a) [en. 2002, c. 13, s. 27] — considereds. 536.3(b) [en. 2002, c. 13, s. 27] — referred tos. 536.4 [en. 2002, c. 13, s. 27] — considereds. 536(4.3) [en. 2002, c. 13, s. 25(2)] — referred to

R. v. Stinert B.D. Rosborough Prov. J. 201

s. 537 — considereds. 537(1)(i) — considered

Crime and Disorder Act, 1998, c. 37s. 51 — referred to

Criminal Justice and Public Order Act, 1994, c. 33s. 4 — referred to

Criminal Law Amendment Act, 2001, S.C. 2002, c. 13Generally — referred to

Criminal Procedure and Investigation Act, 1996, c. 25s. 47 — referred to

Rules considered:

Alberta Rules of Court, Alta. Reg. 124/2010Generally — referred to

Regulations considered:

Criminal Code, R.S.C. 1985, c. C-16Criminal Rules of the Ontario Court of Justice, SI/2012-30

s. 4.3(3) — considered

RULING on accused’s request for preliminary inquiry.

D. Inglis, for CrownC.W. Paterson, for Accused

B.D. Rosborough Prov. J.:

1 Section 536.3 of the Criminal Code provides that a party requesting apreliminary inquiry, “... shall, ... provide the court and the other partywith a statement that identifies the issues on which the requesting partywants evidence to be given at the inquiry ...” as well as, “the witnessesthat the requesting party wants to hear at the inquiry”. What is meant bythe phrase identifies the issues? And with what degree of precision mustthe witnesses be identified? Finally, what process is to be followed incircumstances where the party requesting a preliminary inquiry fails tomake that statement “within the period fixed by the justice”?

Background2 On July 28th, 2014 an information was sworn charging Michael Jo-

seph Stinert (‘Stinert’) with a number of indictable offences. He was ar-raigned the next day and advised of his election as to mode of trial(s.536(2) C.C.). On August 11th, 2014 Stinert elected to be tried by a


judge without a jury and requested a preliminary inquiry. That same daya document entitled Counsel Statement Indentifying [sic] Issues and Wit-nesses (‘Statement’) was filed with the court and a preliminary inquirywas scheduled for October 21st, 2014.

3 The Statement filed by counsel identified the issues on which Stinertwanted evidence to be given at the preliminary inquiry in the followingterms:

Any and all evidence that the Crown intends to rely on to prove thecase against the accused including but not limited to evidence of adirect or circumstantial nature, viva voce evidence of Crown wit-nesses and any relevant documents, electronic recordings, photo-graphs, videos or expert reports.

4 The court drew the provisions of s.536.3(a) C.C. to the attention ofStinert’s counsel and asked whether, in his view, the Statement compliedwith that provision. Counsel replied:

Sir, in light of — no, Sir, I won’t make any submissions based onthat. It’s — it’s — my — well, yes, Sir, I will. In my respectful sub-mission, Sir, it is not specific in that term, but it does set out thebroad parameters, the arcs of fire if you will, that — it’s the de-fence’s requirement or request that the Crown proves their — as Isaid all my ‘Form A’s’ probably starting a month after this are farmore — far more specific in terms of the areas that need to be can-vassed and also in my respectful submission I’ve included in para ‘b’the two individuals who I wish to hear from and they can testify tothe area that I’ve talked to Mr. Inglis about this morning and so basedon that combination read together, Sir, in my respectful submission itwould satisfy the requirements set out in the Criminal Code.

5 The Statement filed by counsel identified the witnesses he wanted tohear at the inquiry (s.536.3(b)C.C.) as: “1) Cst. G. Douglas; 2) Cst. Oli-vier Cousineau”. These were the “two individuals” referenced by counselin his oral submissions to the court. The Statement contained no furtherinformation relating to these witnesses, however. Counsel advised thecourt verbally that:

The individuals who I identify, Sir, are the individuals that stoppedMr. Stinert and, as my friend indicates that is the issue, the right tostop, that we can look at.

Section 536.3 C.C. — The Historical Context6 Section 536.3 C.C. came into force on June 1st, 2004. Before consid-

ering its interpretation and application to this case, however, it is impor-


tant to take note of the historical context within which it was enacted.Section 536.3 C.C. was enacted in order to address long-standing con-cerns about the efficiency of the preliminary inquiry. It is a modest stepforward in that regard. By giving force to the plain meaning of s.536.3C.C., courts can play a small role in reinforcing the utility of the prelimi-nary inquiry and encouraging good practice by counsel. Failing to do somay further weaken the condition of the preliminary inquiry; a conditionalready described by some as being precarious. See: A Voyage of Discov-ery: Examining the Precarious Condition of the Preliminary Inquiry,David M. Paciocco, 48 Crim.L.Q. 151 (‘A Voyage of Discovery’).

7 The preliminary inquiry has an impressive pedigree. It developed aspart of English common law and operated as such until statutory regula-tion began in the 16th century. Preliminary inquiries were undertaken inwhat is now Canada before Confederation. And they formed part of Can-ada’s first Criminal Code [S.C.1892, c.29, Part XLV — Procedure onAppearance of Accused]. More detailed histories of the preliminary in-quiry can be reviewed in A History of the Criminal Law of England, SirJames Fitzjames Stephen, London, MacMillan and Co. 1883, Volume 1,pp.216-33, The Preliminary Inquiry in Canada, S. Halyk, 10 Crim.L.Q.181, Canadian Criminal Procedure, Salhany, Thomson Reuters CanadaLtd., c.5, “(1) History” and Criminal Pleadings and Practice in Canada,E.G. Ewaschuk, c.13:0010.

8 It was in the latter part of the 20th century that the efficacy of thepreliminary inquiry was seriously called into question. In the UnitedKingdom, calls for reform of the ‘committal hearing’ (a procedure analo-gous to Canada’s preliminary inquiry) centered on its lack of utility andits effect in bloating the criminal process. One Member of Parliamentwas moved to comment: “While the purpose of such a hearing is clear,the objections against the present cumbersome procedure are formidable.They are, in the vast majority of cases, a pure formality and an extremelywasteful one at that.” See: Committal Proceedings in English CriminalLaw, 10 Crim.L.Q.147, M. Carlisle M.P.

9 Sentiment of this nature prompted the United Kingdom to enact a se-ries of criminal procedure bills designed to eliminate, limit and/or changethe manner in which committal hearings were undertaken. See: CriminalJustice and Public Order Act 1994 (U.K.), c.33, s.4; Criminal Procedureand Investigations Act 1996 (U.K.), c. 25, s.47; Crime and Disorder Act1998 (U.K.), c. 37, s.51. Changes brought about by these reform billswere significant and were not overlooked across the Atlantic.


10 Calls for reform or even abolition of the preliminary inquiry began totake form in Canada. In 1974, the Law Reform Commission of Canadarecommended abolition of the preliminary inquiry in favor of a system offull disclosure by the prosecution. See: Criminal Procedure: Discovery(Working Paper No.4) (Ottawa: Queen’s Printer, 1974). A similar recom-mendation was made in the Report of the Special Committee on Prelimi-nary Hearings (Toronto: March 1982). That committee was chaired bythe venerable G. Arthur Martin, J.A. Academics, too, were recom-mending abolition of preliminary inquiries. See: Abolishing PreliminaryInquiries in Canada, J.A. Epp, 38 Crim.L.Q. 495.

11 In 1991, the Supreme Court of Canada released its seminal judgmentin R. v. Stinchcombe, [1991] 3 S.C.R. 326 (S.C.C.) (‘Stinchcombe’).Stinchcombe transformed the nature and practice of pre-trial disclosureof the case for the prosecution and elevated its status to a constitutionalright. This added to calls for reform or abolition of the preliminary in-quiry. As noted by Penney, et al (at p.503):

In the aftermath of Stinchcombe, the preliminary inquiry has comeunder attack. Given that accused persons now receive full disclosureas a matter of course, the Supreme Court of Canada has suggestedthat “the incidental function of the preliminary inquiry as a discovermechanism has lost much of its relevance.” [citing R. v. L.(S.J.),[2009] 1 S.C.R. 426 (at para.23)]

Criminal Procedure in Canada, Penney, et al, Lexis Nexis CanadaInc.,2011

12 Criticism of the preliminary inquiry was not restricted to politicians,academics and members of the legal profession, however. Courts, too,expressed frustration with the manner in which many, perhaps most pre-liminary inquiries were conducted. In R. v. Darby, [1994] B.C.J. No. 814(B.C. Prov. Ct.), for example, the court commented (at paras. 9 and 10):

... the preliminary hearing or preliminary inquiry has been turned intoa nightmarish experience for any provincial court judge. Rules withrespect to relevancy have been widened beyond recognition. Cross-examination at a preliminary inquiry now seems to have no limits.Attempts by provincial court judges to limit cross-examination havebeen perceived by some superior courts as a breach of the accused’sright to fundamental justice, a breach of his or her ability to be ableto make full answer and defence.

The present state of the preliminary inquiry is akin to a rudderlessship on choppy waters. The preliminary hearing has been turned into


a free-for-all, a living hell for victims of crime and witnesses who arecalled to take part in this archaic ritual.

13 In R. v. Ward, [1976] O.J. No. 807 (Ont. H.C.), Cory J. (as he thenwas) took note of the plight of preliminary inquiry courts and made thefollowing comment (at paras.20-21):]

One can have every sympathy for the justice presiding at a prelimi-nary hearing, facing an urgent and lengthy docket of cases, who musthear witnesses called by the accused, when he has long-since deter-mined that the accused should be committed for trial. The mountingpressures of lengthening dockets and protracted preliminary hearingsmust lead to a feeling of frustration.

It may well be that there are (indeed there must be) more effectivemethods of providing an accused with the necessary information or“discovery” that will permit him to make “full answer and defence”.However, until the Criminal Code is amended, I am of the opinionthat the presiding justice is still required to hear witnesses called bythe accused, that testify upon matters relevant to the inquiry.

14 By the late 1990s provincial Attorneys General were calling foramendments to the Criminal Code having the effect of abolishing thepreliminary inquiry. Those calls were met with opposition, particularlyby members of the criminal defence bar. Paciocco notes in A Voyage ofDiscovery:

Uncharacteristically effective lobbying by the defence bar, coupledwith an understandable reluctance within the Department of Justiceto execute publically a 150-year-old, “liberty protecting” institution,helped it [the preliminary inquiry] survive calls for its abolition.

15 It was in this historical context that, on June 1st, 2004, Parliamentproclaimed into force those provisions of An Act to amend the CriminalCode and to amend other Acts, S.C. 2002, c.13 (also known as the Crimi-nal Law Amendment Act, 2001 and Bill C-15A) relating to the prelimi-nary inquiry. And it was Bill C-15A that brought into force what is nows.536.3 C.C.

16 Bill C-15A appears to have been enacted as a compromise betweenthose seeking outright abolition and those seeking preservation of the sta-tus quo. That this is the case is illustrated by the following exchangebetween the then Minister of Justice (Can.) and a member of the OfficialOpposition when Bill C-15A was being debated in the Standing Commit-


tee on Justice and Human Rights (on October 21st, 2001). The oppositionmember, Hon. Vic Toews made the following comment:

The last comment I wanted to make is in respect of the preliminaryinquiries. I think the preliminary inquiries, in light of charter guaran-tees, are basically irrelevant and a waste of time. I speak to many,many provincial judges, and it’s simply a waste of time. It slowsdown procedure. It creates backlog. And although I know defencelawyers are very concerned about the entire loss of the preliminaryhearing, I think we need to revisit it and ensure that while we havesafeguarded the rights of accused, these preliminary inquiries are notabused. I think there has been abuse of the preliminary inquiries inthe past.

The Minister of Justice, Hon. Anne McLellan, replied to that comment inthese terms:

Regarding preliminary inquiries, this is an instalment. I think theprovinces and territories would like us to look at more radical reformas it relates to preliminary inquiries. You rightly identified that thereis grave concern from the criminal defence bar, and that is somethingwe will continue to work on. What we’re doing here is streamliningthe use of the preliminary inquiry.

[emphasis added]

17 Rather than “more radical reform”, Bill C-15A preserved the prelimi-nary inquiry but enacted measures designed to streamline that proceed-ing. Section 536.3 C.C. must be interpreted and applied with a view inmind of its use in enhancing the efficiency of the preliminary inquiry. Inorder to assist counsel in that endeavor, the court published a Notice tothe Profession or Practice Note in May of 2004. It provided explanatorynotes and draft forms. One of those forms, ‘Form A’, was intended toassist counsel as a Counsel Statement identifying Issues and Witnesses.As its use far exceeds use of any of the other forms provided, the State-ment Identifying Issues and Witnesses is colloquially referred to in thisjurisdiction as ‘Form A’.

‘Request’ for a Preliminary Inquiry18 With limited exceptions not relevant to this case, a preliminary in-

quiry is conducted only when requested by counsel for the accused or theprosecutor. See: s.536(4) C.C. This places a positive duty on the defence.Assigning that duty to the represented accused has been found not to vio-late either his freedom of expression (Canadian Charter of Rights and


Freedoms (‘Charter’), s.2(b)) or his right against self-incrimination. See:R. v. Seniuk, 2007 SKQB 73 (Sask. Q.B.).

19 There is nothing in Criminal Code Part XVIII mandating when orhow the request for a preliminary inquiry is to be made, however. In R. v.Young, 2011 BCPC 421 (B.C. Prov. Ct.), the court noted (at para.14): “Imight also add that in a careful reading of s. 536 and the various subsec-tions thereunder, there is nothing in there requiring that the decision torequest a preliminary inquiry or not to request a preliminary inquiry mustbe made at any particular or given time or at the same time.” In this case,the request and filing of ‘Form A’ were undertaken the same day.

20 In R. v. Hathway, 2005 SKPC 99 (Sask. Prov. Ct.) the court stressedthe need to ensure that institutional resources dedicated to preliminaryinquiries be used efficiently and that this need began with the initial re-quest. The court commented (at para.62):

Sections 536.3, to 536.5 and 540(7) to 540(9) recognize the consider-able time and resources devoted to preliminary inquiries and thepracticality of requiring parties to, in a timely and effective fashionwhen requesting a preliminary inquiry, identify the issues to be ad-dressed and the witnesses required.

[emphasis added]

21 I agree. There is much to commend the practice of identifying theissues to be litigated and witnesses to be called at the time the prelimi-nary inquiry is requested. At the very least, so doing will assist bothcounsel and the court when setting an appropriate amount of time forlitigation of the preliminary inquiry. Doing so will also avoid inappropri-ate delays brought about by failures to provide that information, evenwhen counsel has undertaken to do so. For an example of that form ofdelay, see: R. v. Mulawyshyn, [2006] O.J. No. 5128 (Ont. S.C.J.).

‘Statement’ Identifying Issues & Witnesses22 Section 536.3 C.C. provides that:

If a request for a preliminary inquiry is made, the prosecutor or, if therequest was made by the accused, counsel for the accused shall,within the period fixed by rules of court made under section 482 or482.1 or, if there are no such rules, by the justice, provide the courtand the other party with a statement that identifies

(a) the issues on which the requesting party wants evidence to begiven at the inquiry; and


(b) the witnesses that the requesting party wants to hear at theinquiry.

23 Section 536.3 C.C. is an unusual statutory provision. It mandates aform of defence disclosure for the purposes of the preliminary inquiry,viz. identification to the prosecution and the court of the issues to be liti-gated and the witnesses sought to be called. I note, parenthetically, that itwas not the only statutory provision brought into force by Bill C-15Ainvolving a form of defence disclosure. See: s.657.3 C.C.

24 The purpose of this disclosure is to streamline the preliminary inquiryprocess, reduce the number of witnesses who need to be called andshorten the length of the inquiry as a whole. In short, it was designed toenhance the efficiency of the proceeding. In R. v. P. (T.), [2006] N.J. No.278 (N.L. Prov. Ct.), Gorman P.C.J. makes reference to that goal in theseterms (at paras.26-8):

Sections 536.3 to 536.5 of the Criminal Code are designed to expe-dite and to shorten the length of preliminary inquiries by requiringcounsel to focus on the issues which are being contested and the wit-nesses that are relevant to those issues. Thus, section 536.3 of theCriminal Code places an onus upon the party seeking to have a pre-liminary inquiry held to file a statement that identifies: (a) the issueson which the requesting party wants evidence to be given at the in-quiry; and (b) the witnesses that the requesting party wants to hear atthe inquiry.

Section 536.3 uses the word “shall”, which in the context of this pro-vision constitutes a mandatory direction (see R. v. Lavigne, [2006] 1S.C.R. 392).

Section 536.3 of the Criminal Code is designed to limit the scope ofthe preliminary inquiry. It does not have the effect of requiring theCrown to call every witness listed by the accused in his or her notice.The section assumes that counsel preparing such a notice will do soin good faith and with a concern for the proper use of court re-sources. It assumes that counsel will not file such statements in aperfunctory manner and simply list every witness found in the disclo-sure provided by the Crown. Such an approach to section 536.3 bycounsel would not be consistent with their responsibility as officersof the court to promote the appropriate functioning of the trialprocess.

25 The term ‘issue’ is used frequently in the course of criminal proceed-ings and should be well understood. The Concise Oxford English Dic-tionary (9th ed.) defines the word ‘issue’ as meaning, inter alia, “a pointin question; an important subject of debate or litigation”. When provid-


ing the court and party opposite with a statement identifying ‘the issues’to be inquired into, the s.536.3 C.C. statement must identify what pointsare in question in the proceeding and why they are important subjects oflitigation. The reason for this is obvious. If the ‘issue’ identified is de-scribed in “a perfunctory manner” or in terms that are overbroad or ob-scure, it cannot serve the function of streamlining the preliminary inquiryprocess.

26 This is not to say that the party requesting a preliminary inquiry mustlimit the number of issues sought to be litigated. See: R. v. LeBlanc,[2009] N.B.J. No. 409 (N.B. C.A.) [hereinafter Gallant]. It may be thecase that several, even numerous issues, are to be litigated at the prelimi-nary inquiry. That this is the case does not relieve the party requestingthe preliminary inquiry of the statutory duty to effectively identify allissues to be litigated, however.

27 Sadly, the Statement filed by counsel in this case fails to meet thisrequirement. “Any and all evidence that the Crown intends to rely on toprove the case against the accused” does not identify any point in ques-tion or why such a point is an important subject of debate or litigation. Itis little more than a differently worded request for disclosure.

28 When replying to the court’s interrogatory in this case, counsel forthe accused made reference to “The practice here used to be a broadreaching statement as such.” By this I understand him to mean that vagueand general statements of issues to be litigated (such as the one usedherein) was, at one time in common use. He is correct, at least in part.Statements of this nature are unfortunately common in ‘Form A’s’ filedin this court. Unfortunately, the practice of using vague and overbroadstatements to identify issues for litigation at the preliminary inquiry hasnot abated and continues to be a common practice in this jurisdiction.

29 What follows is a sampling of s.536.3 C.C. statements in ‘Form A’that have been provided to the court. I stress that the passages referencedare the entire descriptions of the issues to be litigated at the preliminaryinquiries to which they relate.

January 24th, 2013: “All evidence that the Crown will rely upon inseeking committal to stand trial in this matter.” R. v. Norbert,#121075303P1, (Charge: second degree murder)

March 1st, 2013: “Whether the accused was involved in or committedany criminal offence.” R. v. Westergreen, #121350219P1 (Charges:criminal misuse of a credit card, fraud)


September 19th, 2013: “All issues.” R. v. J.A.D. (Charges: aggra-vated assault, dangerous operation of a motor vehicle causing bodilyharm, hit and run)

October 31st, 2013: “Credibility.” R. v. D.C.L., #130992084P1(Charges: sexual assault, choking with intent, assault)

November 26th, 2013: “Mens Rea and Actus Reus.” R. v. F.K.R.,#121256556P1 (Charges: possession for trafficking, possession ofthe proceeds of crime, firearms offences)

March 5th, 2014: “Any and all evidence that the Crown intends torely on to prove the case against the accused including but not lim-ited to evidence of a direct or circumstantial nature, viva voce evi-dence of Crown witnesses and any relevant documents, electronic re-cordings, photographs, videos or expert reports.” R. v. Cooper,#13144760P1 (Charge: possession of stolen property)

June 17th 2014: “Identity of the accused, actions of the accused andany relevant documents, electronic recordings, photographs, videosor expert reports.” R. v. Bradshaw, #140426925P1 (Charge: posses-sion of stolen property)

June 20th, 2014: “all issues”. R. v. Casey Lightning, #140507807(Charge: second degree murder)

July 20th, 2014: “Sufficient particulars to satisfy test in Shepherd[sic].” R. v. Bitterman #130714207P1 (Charge: first degree murder)

30 This sampling gives rise to a number of observations. First, none ofthese s.536.3 C.C. statements comply with the provisions of s.536.3 C.C.Identifying the issue(s) to be litigated at the preliminary inquiry as “allissues” is no better than stating “some issues” or “2 issues”. In essence,counsel purports to identify the issues to be litigated at the preliminaryinquiry by stating that there are issues.

31 Second, use of these vague and uninformative statements has notbeen restricted to preliminary inquiries involving minor matters. Three inthis sampling involve murders. Given the complexity of cases of this na-ture, and with all due respect to those who hold a contrary view, theses.536.3 C.C. statements are obviously deficient.

32 Finally, and most importantly, none of these s.536.3 C.C. statementscould in any way assist in streamlining the preliminary inquiry process.If “credibility” is an issue, whose credibility is in issue and why? What isit about the actus reus and mens rea (or any component thereof) thatmakes it an important subject of litigation? To interpret s.536.3 C.C. insuch a way as to countenance these vague comments as a means of iden-


tifying the issues to be litigated would be to convert the process into ameaningless, form-filling exercise.

33 It would appear that Alberta is not the only jurisdiction where s.536.3C.C. statements have been found to be overbroad or vague. In R. v.Ahmad [2008 CarswellOnt 9528 (Ont. S.C.J.)], 2008 CanLII 55132 thecourt makes reference to such a case in these terms (at para.50):

The Crown was represented by Mr. James Leising. He advised Jus-tice Wilkie that he had written to counsel requesting their statementsof issues (s.536.3). He said most counsel had ignored his request andhad ignored an order by the court to provide those statements. Headded that as of March 5, 2007, all accused were sheltering undertwo statements of issues “which are so ridiculously broad and all-encompassing that they’re statements of — nothing” (March 5, 2007,pp.127-128). Justice Wilkie agreed that the statements were “incredi-bly broad” (March 5, 2007, p.128).

34 I am aware of the provisions of s.536.4 C.C., i.e. the availability of a‘focus hearing’. It must be noted, however, that senior counsel have notrequested the court’s assistance in ‘focussing’ the issues. And the reasonfor that, at least in this case, may be clear. After a brief discussion withCrown Counsel before court, counsel for the accused advised that the‘issue’ to be litigated was whether police authorities had a right to stopthe accused on the occasion in question. A focus hearing was not re-quired in order to make that determination.

35 In this case, counsel for the accused listed the names of witnesseswhose evidence he sought to hear at the preliminary inquiry. Doing sodistinguishes the s.536.3 C.C. statement in this case from some of thosenoted above. They purport to identify the witnesses from whom the ac-cused wishes to hear in the following terms:

September 19th, 2013: “Any witnesses the Crown relies on to provetheir case.” R. v. J.A.D. (Charges: aggravated assault, dangerous op-eration of a motor vehicle causing bodily harm, hit and run)

November 26th, 2013: “All Witnesses that will be called at trial (noexperts required).” R. v. F.K.R., #121256556P1 (Charges: possessionfor trafficking, possession of the proceeds of crime, firearmsoffences)

June 20th, 2014: “all Crown witnesses, except continuity of exhibits.All lab personnel too. Written C.V.’s are OK.”. R. v. Casey Light-ning, #140507807 (Charge: second degree murder)

36 These statements merit much the same observations as has previouslybeen made in relation to s.536.3 C.C. statements identifying the issues to


be litigated. Comments such as “any witnesses” or “all witnesses” haveno more meaning than comments such as “2 witnesses” or “a wholebunch of witnesses”. None comply with the requirements of s.536.3 C.C.

37 Section 536.3 C.C. makes reference to “rules of court made undersection 482 or 482.1”. At least one province has enacted just such a rule.The Criminal Rules of the Ontario Court of Justice, SI/2012-30, s.4.3(3)sets the following requirements in that regard:

The party who requested the preliminary inquiry shall serve the fol-lowing materials on the opposing parties, together with the statementof issues and witnesses required by section 536.3 of the Code, andfile them with proof of service, at least three days before the hearing:

(a) a list of witnesses whom the parties seek to have testify inperson at the preliminary inquiry and, for each witness namedin the list,

(i) a brief synopsis of the expected evidence,

(ii) an explanation of why in-person testimony is neces-sary, and

(iii) an estimate of the time required to examine or cross-examine the witness;

(b) a list of witnesses whom the parties propose to examinethrough a discovery process;

(c) a brief statement as to whether committal for trial is in issue,and on what basis; and

(d) a statement of admissions agreed upon between the parties.

38 There is much to commend adoption of a Rule of Court of this naturein order to ensure minimum standards and consistency of practice. How-ever, s.536.3 C.C. also provides that “if there are no such rules”, thecourt itself may impose requirements of this nature. Section 536.3 C.C.statements filed in this jurisdiction have frequently failed to meet the re-quirements of that section. That failure effectively frustrates attempts tostreamline preliminary inquiries. As a result, there is a demonstratedneed for the court to intervene and more actively regulate the form, con-tent and practice relating to s.536.3 C.C. statements.

Regulating s.536.3 C.C. Statements39 Powers of a preliminary inquiry court have long been restricted to

those found within the provisions of Part XVIII itself. A preliminary in-quiry court has no inherent jurisdiction. See: R. v. Doyle (1976), [1977] 1S.C.R. 597 (S.C.C.); R. v. Chabot, [1980] 2 S.C.R. 985 (S.C.C.). Accord-


ingly, the authority to regulate practice and procedure relating to s.536.3C.C. statements must arise from statutory provisions found within PartXVIII.

40 Paragraph 537(1)(i) C.C. authorizes a preliminary inquiry court to,“... regulate the course of the inquiry in any way that appears to the jus-tice to be consistent with this Act ...”. And, as noted by Ewaschuk, “Apreliminary inquiry, but not necessarily the hearing of evidence, com-mences with the first appearance before a justice in respect of an elect-able indictable offence or a s. 469 offence (which requires a preliminaryinquiry).” Criminal Pleadings and Practice in Canada, E.G. Ewaschuk,c.13:0020. Accordingly, a preliminary inquiry court has the power toregulate the form, content and practice necessary to ensure compliancewith the provisions of s.536.3 C.C. at the ‘docket court’ stage.

41 I have previously noted that Parliament’s intention (at least in part) inenacting Bill C-15A was to streamline the preliminary inquiry; to make itmore efficient. Prima facie, the court has the power to regulate the form,content and practice relating to s.536.3 C.C. in such a way as to giveeffect to that intention. Indeed, there is authority for the proposition thatthe powers contained in s.537 C.C. ought to be given a broad interpreta-tion. In Swystun v. R. (1990), 84 Sask. R. 238 (Sask. C.A.), for instance,the court reviewed the manner in which the powers contained in s.537C.C. had been interpreted and concluded that, “These provisions havebeen interpreted broadly so that the judge can carry out his mandateeffectively.”

42 It is within the purview of the preliminary inquiry court to requiretimely filing of a proper s.536.3 C.C. statement and characterize the fil-ing of such a statement as the ‘request’ for a preliminary inquiry. Wherethat statement fails to properly identify the issues and witnesses to becalled, the court is entitled to find that there has been no request for apreliminary inquiry. Without such a request, “... the justice shall fix thedate for the trial or the date on which the accused must appear in the trialcourt to have the date fixed.” See: s.536(4.3) C.C.

43 A request for a preliminary inquiry can also be withdrawn or bedeemed abandoned by the party requesting same. In R. v. Callender,2007 ONCJ 86 (Ont. C.J.), for instance, Duncan J. was called upon toconsider a case where the accused had requested a preliminary inquirybut, on the date scheduled for that inquiry, failed to attend. Significanteffort had been expended by his counsel attempting to contact him and


advise him of the date for preliminary inquiry. It was clear on the factsthat the accused was to blame for his own non-attendance.

44 Duncan J. ruled that the accused should be taken to have withdrawnor was deemed to have abandoned his request for a preliminary inquiry.He commented (at paras.9-10),

Undoubtedly, once made, a request for a preliminary inquiry can bewithdrawn by the requesting party. Once such withdrawal occurs,section 536(4.3) is triggered and a committal for trial follows. Nostatutory provision is necessary to specifically cover or spell out thisobvious point.

In my view, even where there has been no specific withdrawal by therequesting party, there can be an effective withdrawal by conduct ora deemed abandonment of the request for a preliminary. This is con-sistent with other instances in our criminal procedure where a pro-ceeding is initiated or to be held at the instance of the accused. Forexample, an appeal or an application brought under Rules may bedismissed or deemed abandoned for failure to perfect it with dili-gence or to appear in court to present it. As in the case of a specificwithdrawal of a request where there has been a deemed withdrawal, acommittal for trial should follow by virtue of section 536(4.3) and nofurther statutory authority is required.

45 Counsel should have little difficulty identifying the issues to be liti-gated and witnesses to be called at the preliminary inquiry. Nevertheless,if there is such a difficulty, counsel may always seek the court’s assis-tance at a ‘focus hearing’ in accordance with s.536.4 C.C. The presenceof an obviously deficient s.536.3 C.C. statement at preliminary inquirythereafter carries with it the risk that the request for a preliminary inquirywill be deemed to have been withdrawn or abandoned by the party whohas initially requested it. In those cases, the accused will be peremptorilyordered to stand trial.

Order accordingly.

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