Brookfield Bridge Lending Fund Inc. v. Vanquish Oil & Gas Corp. et al., (2009) 454 A.R. 162 (CA)

• Judge: Berger, Slatter and Rowbotham, JJ.A.
• Court: Court of Appeal (Alberta)
• Case Date: March 11, 2009
• Citations: (2009), 454 A.R. 162 (CA);2009 ABCA 99

Brookfield Bridge v. Vanquish Oil (2009), 454 A.R. 162 (CA);

      455 W.A.C. 162

MLB headnote and full text

Temp. Cite: [2009] A.R. TBEd. MY.045

Brookfield Bridge Lending Fund Inc. (appellant/plaintiff) v. Vanquish Oil & Gas Corporation and King Energy Inc. (not parties to the appeal/defendants) and Second Wave Petroleum Ltd. and Brookfield Bridge Lending Fund Inc. (appellants/purchaser and secured creditor) and Karl Oil and Gas Ltd. and Buffalo Resources Corp. (respondents/creditors)

(0801-0255-AC; 2009 ABCA 99)

Indexed As: Brookfield Bridge Lending Fund Inc. v. Vanquish Oil & Gas Corp. et al.

Alberta Court of Appeal

Berger, Slatter and Rowbotham, JJ.A.

May 14, 2009.

Summary:

Vanquish Oil & Gas, now in receivership, was the operator of an oil well. It was required to remit 45% of the net production revenues to the owner of that proportional interest in the well (Karl Oil and Gas Ltd. or Choice Resources Corp.). The 1990 Canadian Association of Petroleum Landmen Operating Procedure under which the well was operated imposed a trust on the net production revenues generated by the well, but it also permitted Vanquish to intermingle those funds with its own funds. Vanquish's receiver sold all of the assets of Vanquish on behalf of the secured creditor Brookfield Bridge Lending Fund Inc. The issue was whether the trust created by the Operating Procedure attached to the sale proceeds, effectively giving Karl or Choice a proprietary claim to those funds.

The Alberta Court of Queen's Bench, in a decision reported at [2008] A.R. Uned. 625, found that there had been a constructive trust created over the assets of Vanquish (and by implication the sale proceeds thereof) in favour of the 45% non-operator working interest owner (Karl or Choice). Brookfield appealed.

The Alberta Court of Appeal, Berger, J.A., dissenting, allowed the appeal.

Trusts - Topic 2310

Constructive trusts - General principles - Circumstances when not imposed - Vanquish Oil & Gas, now in receivership, was the operator of an oil well - It was required to remit 45% of the net production revenues to the owner of that proportional interest in the well (Karl Oil and Gas Ltd. or Choice Resources Corp.) - The 1990 Canadian Association of Petroleum Landmen Operating Procedure under which the well was operated imposed a trust on the net production revenues generated by the well, but it also permitted Vanquish to intermingle those funds with its own funds - Vanquish's receiver sold all of the assets of Vanquish on behalf of the secured creditor Brookfield Bridge Lending Fund Inc. - The issue was whether the trust created by the Operating Procedure attached to the sale proceeds, effectively giving Karl or Choice a proprietary claim to those funds - The trial judge found that there had been a constructive trust created over the assets of Vanquish (and by implication the sale proceeds thereof) in favour of the 45% non-operator working interest owner (Karl or Choice) - Brookfield appealed - The Alberta Court of Appeal allowed the appeal - Vanquish was in breach of trust, because it spent trust funds on unauthorized things - The trust attached to the trust account and protected the net balance from the claims of any secured creditors - Once the trust funds were disbursed to bona fide third parties for value without notice, the funds were released from the trust - The beneficiaries could no longer follow the funds - Therefore, the express trust created by the Operating Procedure no longer attached to the funds - Further, a constructive trust could not be imposed in these circumstances - The second and fourth preconditions set out in Soulos v. Korkontzila (SCC) were absent - There was no satisfactory evidence of what, if any, specific assets Vanquish purchased with trust funds - The ability to trace trust funds into specific assets had always been central to the imposition of a constructive trust - Finally, by assuming that Brookfield had a "better opportunity" to prevent breaches of trust, the trial judge essentially found that Brookfield became a guarantor for any breaches of trust - This was contrary to the principle that "the interests of intervening creditors must be protected".

Trusts - Topic 2344

Constructive trusts - Basis for imposition - Breach of confidence or fiduciary relationship - [See Trusts - Topic 2310 ].

Cases Noticed:

Soulos v. Korkontzilas et al., [1997] 2 S.C.R. 217; 212 N.R. 1; 100 O.A.C. 241, appld. [para. 7]; refd to. [para. 30].

Sorrel - see Bank of Nova Scotia v. Société Général (Canada) et al.

Bank of Nova Scotia v. Société générale (Canada), [1988] 4 W.W.R. 232; 87 A.R. 133; 58 Alta. L.R.(2d) 193 (C.A.), refd to. [paras. 12, 27].

Hallett Estate, Re (1879), 13 Ch. D. 696, refd to. [para. 13].

Ontario Securities Commission v. Greymac Credit Corp. (1986), 17 O.A.C. 88; 55 O.R.(2d) 673 (C.A.), affd. [1988] 2 S.C.R. 172; 87 N.R. 341; 29 O.A.C. 217, refd to. [para. 13].

Goldcorp Exchange Ltd. (Receivership), Re, [1995] 1 A.C. 74; 170 N.R. 241 (P.C.), refd to. [para. 13].

Neste Oy v. Lloyd's Bank plc, [1983] 2 Lloyd's Rep. 658 (Q.B.), refd to. [para. 13].

Director of Real Estate and Business Brokers v. NRS Mississauga Inc. et al. (2003), 170 O.A.C. 259; 64 O.R.(3d) 97; 226 D.L.R.(4th) 361 (C.A.), refd to. [paras. 15, 32].

1653 Investments Ltd., Re (1981), 129 D.L.R.(3d) 582; 32 B.C.L.R. 71 (S.C.), refd to. [para. 15].

Law Society of Upper Canada v. Toronto-Dominion Bank (1998), 116 O.A.C. 24; 42 O.R.(3d) 257 (C.A.), leave to appeal refused [1999] 3 S.C.R. xiii; 250 N.R. 194; 130 O.A.C. 199, refd to. [paras. 17, 36].

Elliott, Re (2002), 333 A.R. 39; 11 Alta. L.R.(4th) 358; 2002 ABQB 1122, refd to. [paras. 17, 36].

Bassano Growers Ltd. et al. v. Diamond S Produce Ltd. (Bankrupt) (1998), 216 A.R. 328; 175 W.A.C. 328; 66 Alta. L.R.(3d) 296; 1998 ABCA 198, refd to. [para. 20].

Barnabe v. Touhey (1995), 26 O.R.(3d) 477 (C.A.), refd to. [para. 21].

International Corona Resources Ltd. v. LAC Minerals Ltd., [1989] 2 S.C.R. 574; 101 N.R. 239; 36 O.A.C. 57, refd to. [para. 29].

Sorochan v. Sorochan, [1986] 2 S.C.R. 38; 69 N.R. 81; 74 A.R. 67, refd to. [para. 33].

Authors and Works Noticed:

Goff, Robert, and Jones, Gareth, The Law of Restitution (7th Ed. 2007), para. 2-038 [para. 15].

Paciocco, David M., The Remedial Constructive Trust: A Principled Basis for Priorities over Creditors (1989), 68 Can. Bar Rev. 315, pp. 348, 349 [para. 25].

Counsel:

H.A. Gorman and L. Mason, for the appellant, Brookfield Bridge Lending Fund Inc.;

W.E.B. Code and J. Lambert, for the respondent, Karl Oil and Gas Ltd.;

R.C. Steele, for the respondent, Buffalo Resources Corp.

This appeal was heard on March 11, 2009, by Berger, Slatter and Rowbotham, JJ.A., of the Alberta Court of Appeal. The memorandum of judgment of the Court of Appeal was delivered on May 14, 2009, and included the following opinions:

Slatter, J.A.(Rowbotham, J.A., concurring) - see paragraphs 1 to 26;

Berger, J.A., dissenting - see paragraphs 27 to 45.