Bernum Petroleum Ltd. v. Birch Lake Energy Inc., (2014) 598 A.R. 172 (QB)

• Judge: Pentelechuk, J.
• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: April 09, 2014
• Citations: (2014), 598 A.R. 172 (QB);2014 ABQB 652

Bernum Petroleum v. Birch Lake Energy (2014), 598 A.R. 172 (QB)

MLB headnote and full text

Temp. Cite: [2014] A.R. TBEd. NO.016

Bernum Petroleum Ltd. (plaintiff/defendant by counterclaim) v. Birch Lake Energy Inc. (defendant/plaintiff by counterclaim)

(1301 03481; 2014 ABQB 652)

Indexed As: Bernum Petroleum Ltd. v. Birch Lake Energy Inc.

Alberta Court of Queen's Bench

Judicial District of Calgary

Pentelechuk, J.

October 23, 2014.

Summary:

Bernum Petroleum Ltd. and Birch Lake Energy Inc. entered into a joint operation agreement to acquire and develop petroleum and natural gas leases. Bernum, as the operator, held a 60% interest. Birch Lake held a 40% working interest on projects in which it chose to participate. Bernum sought summary judgment for a debt owed to it by Birch Lake under an Area of Mutual Interest Agreement and the Canadian Association of Petroleum Landmen Operating Procedure. Birch Lake asserted that Bernum's operation of the wells in question was "grossly negligent". Birch Lake also asserted that Bernum had breached its duty of care and was grossly negligent in its handling of the leases.

A Master of the Alberta Court of Queen's Bench, in a decision not reported in this series of reports, granted Bernum's motion for summary judgment, but held that Birch Lake's counterclaim had to go to trial. As Birch Lake had an arguable case for equitable set off, the Master stayed Bernum's judgment pending the counterclaim. Birch Lake appealed from the order granting summary judgment to Bernum. Bernum appealed that portion of the order staying enforcement of its judgment.

The Alberta Court of Queen's Bench dismissed Birch Lake's appeal. Bernum was granted summary judgment. Bernum's appeal from the stay of enforcement was allowed. There would be no set off in relation to Birch Lake's counterclaim and no stay of enforcement.

Execution - Topic 480

General rules - Stay of execution - Grounds - [See second Mines and Minerals - Topic 8004 ].

Mines and Minerals - Topic 8004

Oil and gas - Operating Procedure of the Canadian Association of Petroleum Landmen (CAPL) - Interpretation and application - Bernum Petroleum Ltd. and Birch Lake Energy Inc. entered into a joint operation agreement to acquire and develop petroleum and natural gas leases - Bernum, as the operator, held a 60% interest - Birch Lake held a 40% working interest on projects in which it chose to participate - Bernum sought summary judgment for a debt owed to it by Birch Lake under an Area of Mutual Interest Agreement and the Canadian Association of Petroleum Landmen Operating Procedure - Birch Lake asserted that Bernum's operation of the wells in question was "grossly negligent" - A Master granted Bernum's motion for summary judgment - The Alberta Court of Queen's Bench dismissed Birch Lake's appeal - The evidence established Birch Lake's indebtedness - Under the 2007 CAPL, Bernum's liability to Birch Lake was restricted to cases of gross negligence or wilful misconduct - The definition of gross negligence in the CAPL and the case law all pointed to a degree of intentionality in the act or omission - While there was an arguable issue as to whether or not Birch Lake had expressly consented to the drilling operation proposed, there was extensive evidence that it was kept informed during the process and was consulted - Not only was the onus high for establishing gross negligence under the CAPL, but the CAPL specifically exempted any procedures to which Birch Lake had expressly consented - There was no evidence of the necessary intentionality or conscious indifference necessary to ground gross negligence or wilful misconduct - See paragraphs 21 to 56.

Mines and Minerals - Topic 8004

Oil and gas - Operating Procedure of the Canadian Association of Petroleum Landmen (CAPL) - Interpretation and application - Bernum Petroleum Ltd. and Birch Lake Energy Inc. entered into a joint operation agreement to acquire and develop petroleum and natural gas leases - Bernum, as the operator, held a 60% interest - Birch Lake held a 40% working interest on projects in which it chose to participate - Bernum sought summary judgment for a debt owed to it by Birch Lake under an Area of Mutual Interest Agreement and the Canadian Association of Petroleum Landmen Operating Procedure - Birch Lake asserted that Bernum's operation of the wells in question was "grossly negligent" - Birch Lake also asserted that Bernum had breached its duty of care and was grossly negligent in its handling of the leases - A Master granted Bernum's motion for summary judgment, but held that Birch Lake's counterclaim had to go to trial - As Birch Lake had an arguable case for equitable set off, the Master stayed Bernum's judgment pending the counterclaim - Bernum appealed that portion of the order staying enforcement of its judgment - The Alberta Court of Queen's Bench allowed Bernum's appeal - Clause 5.05(B)(d) of the 2007 CAPL, which was not argued before the Master, prevented Birch Lake from raising set-off as a defence - While the court retained a wide, inherent jurisdiction to grant a stay of execution on any terms, it was not appropriate to do so here - There was no evidence that Birch Lake was on such financially precarious footing that, without a stay, it faced insolvency or an inability to prosecute its counterclaim - Birch Lake failed to establish that irreparable harm would result without a stay - Further, to impose a stay would undermine the goals of the summary judgment procedure and the provisions of the CAPL, under which the parties had agreed to be governed - See paragraphs 90 to 117.

Mines and Minerals - Topic 8128

Oil and gas - Leases - Renewals and extensions - Bernum Petroleum Ltd. and Birch Lake Energy Inc. entered into a joint operation agreement to acquire and develop petroleum and natural gas leases - Bernum, as the operator, held a 60% interest - Birch Lake held a 40% working interest on projects in which it chose to participate - Bernum sought summary judgment for a debt owed to it by Birch Lake under an Area of Mutual Interest Agreement (AMI) and the Canadian Association of Petroleum Landmen Operating Procedure - Birch Lake asserted that Bernum's operation of the wells in question was "grossly negligent" - Birch Lake also asserted that Bernum had breached its duty of care and was grossly negligent in its handling of the leases - A Master granted Bernum's motion for summary judgment, but held that Birch Lake's counterclaim regarding the leases had to go to trial - The Alberta Court of Queen's Bench agreed - Bernum's response to Birch Lake's claims was that the AMI had expired in December 2010 and that, therefore, it was not required to disclose details of its lease renewal negotiations or its drilling operations after that - The issue of whether or not the AMI had been renewed through the parties' conduct had to be determined at trial - The evidence led by Birch Lake presented an arguable case that Bernum had failed to communicate or misled Birch Lake and had obtained an advantage at Birch Lake's expense - See paragraphs 57 to 88.

Mines and Minerals - Topic 8350

Oil and gas - Wells - Operation - Negligence of operator (incl. gross negligence) - [See first Mines and Minerals - Topic 8004 and Mines and Minerals - Topic 8128 ].

Practice - Topic 1843

Pleadings - Counterclaim and set-off - Set-off - Circumstances when set-off can or cannot be claimed - [See second Mines and Minerals - Topic 8004 ].

Practice - Topic 5702

Judgments and orders - Summary judgments - Jurisdiction or when available or when appropriate - The Alberta Court of Queen's Bench discussed the test for summary judgment under rule 7.3, concluding that "... the test for summary judgment is now less stringent, but the test does not require the judge to weigh the evidence or 'determine whether that party's evidence actually proves the fact sought to be proved'. This approach, in my view, best encapsulates the goals of proportionality, increased expediency and decreased cost if the matter can be determined on the existing record, in a manner that is fair and just to both parties." - See paragraphs 13 to 20.

Practice - Topic 5708

Judgments and orders - Summary judgments - Bar to application - Existence of issue to be tried - [See Mines and Minerals - Topic 8128 ].

Practice - Topic 5854

Judgments and orders - Enforcement of judgments - Stay of - [See second Mines and Minerals - Topic 8004 ].

Torts - Topic 4

Negligence - Gross negligence defined - [See first Mines and Minerals - Topic 8004 ].

Cases Noticed:

Van Camp v. Chrome Horse Motorcycle Inc. et al. (2012), 535 A.R. 271; 2012 ABQB 175, refd to. [para. 11].

Bahcheli v. Yorkton Securities Inc. et al. (2012), 524 A.R. 382; 545 W.A.C. 382; 2012 ABCA 166, refd to. [para. 11].

Paramount Mortgage Corp. v. Avenue AH Construction GP Corp. (2014), 585 A.R. 136; 2014 ABQB 84, refd to. [para. 11].

Burns (P.) Resources Ltd. v. Locke, Stock & Barrel Co., [2014] A.R. Uned. 29; 2014 ABCA 40, refd to. [para. 12].

Mraiche Investment Corp. v. McLennan Ross LLP et al. (2012), 524 A.R. 151; 545 W.A.C. 151; 2012 ABCA 95, refd to. [para. 12].

Meyer v. Partec Lavalin Inc. et al. (2001), 281 A.R. 339; 248 W.A.C. 339; 2001 ABCA 145, leave to appeal denied (2002), 289 N.R. 198 (S.C.C.), refd to. [para. 12].

Jager v. Liberty Mutual Fire Insurance Co. et al. (2001), 281 A.R. 273; 248 W.A.C. 273; 2001 ABCA 163, refd to. [para. 12].

Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423; 247 N.R. 97; 126 O.A.C. 1; 178 D.L.R.(4th) 1, refd to. [para. 14].

732311 Alberta Ltd. v. Paradise Bay Spa & Tub Warehouse Inc. et al., [2004] 5 W.W.R. 59; 339 A.R. 386; 312 W.A.C. 386; 2003 ABCA 362, refd to. [para. 14].

Hryniak v. Mauldin (2014), 453 N.R. 51; 314 O.A.C. 1; 366 D.L.R.(4th) 641; 2014 SCC 7, refd to. [para. 15].

Windsor v. Canadian Pacific Railway Ltd. (2014), 572 A.R. 317; 609 W.A.C. 317; 2014 ABCA 108, refd to. [para. 18].

1214777 Alberta Ltd. et al. v. 480955 Alberta Ltd., [2014] A.R. Uned. 330; 2014 ABQB 301, refd to. [para. 19].

AT Films Inc. v. AT Plastics Inc. et al., [2014] A.R. Uned. 493; 2014 ABQB 422, refd to. [para. 19].

McCulloch v. Murray, [1942] S.C.R. 141; [1942] 2 D.L.R. 179, refd to. [para. 32].

United Canso Oil & Gas Ltd. v. Washoe Northern Inc. et al. (1990), 78 Alta. L.R.(2d) 79 (C.A.), refd to. [para. 32].

Adeco Exploration Co. et al. v. Hunt Oil Co. of Canada Inc. et al. (2008), 437 A.R. 33; 433 W.A.C. 33; 2008 ABCA 214, refd to. [para. 33].

Holland v. Toronto (City), [1927] S.C.R. 242; 59 O.L.R. 628, refd to. [para. 33].

Horizon Resource Management Ltd. et al. v. Blaze Energy Ltd. et al. (2011), 526 A.R. 206; 2011 ABQB 658, varied (2013), 544 A.R. 289; 567 W.A.C. 289; 2013 ABCA 139, refd to. [para. 34].

R. v. Mohan, [1994] 2 S.C.R. 9; 166 N.R. 245; 71 O.A.C. 241; 114 D.L.R.(4th) 419, refd to. [para. 54].

Telford v. Holt, [1987] 2 S.C.R. 193; 78 N.R. 321; 81 A.R. 385; 41 D.L.R.(4th) 385, refd to. [para. 90].

Société Générale (Canada) et al. v. Gulf Canada Resources Ltd. (1995), 169 A.R. 317; 97 W.A.C. 317 (C.A.), refd to. [para. 97].

Pan Canadian Mortgage Group III Inc. v. 0859811 B.C. Ltd. et al. (2014), 353 B.C.A.C. 83; 603 W.A.C. 83; 2014 BCCA 113, refd to. [para. 97].

Bauer v. Bank of Montreal, [1980] 2 S.C.R. 102; 32 N.R. 191, refd to. [para. 97].

Seattle-First Holding Company v. Western Crane Services (1987), 82 A.R. 171; 56 Alta. L.R.(2d) 39 (Q.B.), refd to. [para. 97].

Powermax Energy Inc. v. Argonauts Group Ltd. (2003), 334 A.R. 1; 2003 ABQB 71, refd to. [para. 105].

MacCabe v. Board of Education of Westlock (Roman Catholic Separate) School District No. 110 et al. (1999), 243 A.R. 280; 1999 ABQB 666, refd to. [para. 107].

Rap Designs Inc. et al. v. Dean et al., [2010] A.R. Uned. 873; 2010 ABQB 751 (Master), refd to. [para. 112].

Soler & Palau Canada Inc. v. Meyer's Sheet Metal Ltd. (2012), 545 A.R. 391; 2012 ABQB 496 (Master), refd to. [para. 115].

Authors and Works Noticed:

Palmer, Kelly R., The Law of Set-Off in Canada (1993), p. 263 [para. 97].

Spry, I.C.F., The Principles of Equitable Remedies (5th Ed. 1997), p. 174 [para. 97].

Stevenson, William A., and Côté, Jean E., Alberta Civil Procedure Handbook (2012), p. 1-12 [para. 107].

Counsel:

Heather L. Treacy, Q.C., and Laura Easton (Davis LLP), for the plaintiff/defendant by counterclaim;

Michael B. Niven and Natalie L. Climenhaga (Carscallen LLP), for the defendant/plaintiff by counterclaim.

These appeals were heard on April 9, 2014, by Pentelechuk, J., of the Alberta Court of Queen's Bench, Judicial District of Calgary, who delivered the following reasons for judgment on October 23, 2014.