Canpar Holdings Ltd. et al. v. Petrobank Energy and Resources Ltd. et al., 2011 ABCA 62

• Judge: Martin, McDonald and Bielby, JJ.A.
• Court: Court of Appeal (Alberta)
• Case Date: December 07, 2010
• Citations: 2011 ABCA 62;(2011), 505 A.R. 102 (CA)

Canpar Holdings Ltd. v. Petrobank Energy (2011), 505 A.R. 102 (CA);

      522 W.A.C. 102

MLB headnote and full text

Temp. Cite: [2011] A.R. TBEd. JN.020

Canpar Holdings Ltd. and Petrovera Resources (respondents/plaintiffs) v. Petrobank Energy and Resources Ltd. (appellant/defendant) and Gentry Resources Ltd. (not a party to the appeal/defendant)

(0901-0342-AC; 2011 ABCA 62)

Indexed As: Canpar Holdings Ltd. et al. v. Petrobank Energy and Resources Ltd. et al.

Alberta Court of Appeal

Martin, McDonald and Bielby, JJ.A.

February 22, 2011.

Summary:

Canpar Holdings Ltd. entered into a petroleum and natural gas lease which entitled it to receive 62.61% of the royalties paid under that lease. Petrovera Resources was entitled to receive the balance. The lessors, Gentry Resources Ltd., and Petrobank Energy and Resources Ltd., were respectively required to pay 25% and 75% of those royalties. The lease set the royalty amount at 17.5%. The lessors consistently calculated and paid the 17.5% royalty on the basis of the volume of refined natural gas produced less the amount of fuel gas it used in that production.

The Alberta Court of Queen's Bench, in a decision reported at [2009] A.R. Uned. 886, interpreted the lease to require Petrobank to pay royalties on the natural gas used by it as fuel gas. The royalties were to be based on the volume of refined produced gas, not on the volume of sold gas. The court determined that the lease was validly terminated for failure to pay the full resulting royalty amounts, declined to grant relief from forfeiture and ordered Petrobank to disgorge its profits and to pay damages arising from the continued production after March 3, 2006, the date of termination. That order required Petrobank to pay approximately 117% of the entire amount it earned from the sale of natural gas from the leased lands after March 3, 2006. Petrobank appealed, raising the following issues: (1) did the royalty clause under the lease require Petrobank to pay royalties on fuel gas? and, (2) was Petrobank entitled to relief from forfeiture?

The Alberta Court of Appeal allowed the appeal, granting relief from forfeiture.

Mines and Minerals - Topic 8140

Oil and gas - Leases - Termination - Relief from forfeiture - Canpar Holdings Ltd. entered into a petroleum and natural gas lease which entitled it to receive 62.61% of the royalties paid under that lease - Petrovera Resources was entitled to receive the balance - The lessors, Gentry Resources Ltd., and Petrobank Energy and Resources Ltd. were respectively required to pay 25% and 75% of those royalties - The lease set the royalty amount at 17.5% - The lessors consistently calculated and paid the 17.5% royalty on the basis of the volume of refined natural gas produced less the amount of fuel gas it used in that production - The trial judge interpreted the lease to require Petrobank to pay royalties on the natural gas used by it as fuel gas; the royalties were to be based on the volume of refined produced gas, not on the volume of sold gas - The trial judge determined that the lease was validly terminated for failure to pay the full resulting royalty amounts, declined to grant relief from forfeiture and ordered Petrobank to disgorge its profits and to pay damages arising from the continued production after March 3, 2006, the date of termination - That order required Petrobank to pay approximately 117% of the entire amount it earned from the sale of natural gas from the leased lands after March 3, 2006 - Petrobank appealed - The Alberta Court of Appeal allowed the appeal, granting relief from forfeiture - The trial judge erred in denying relief from forfeiture - The court considered the three factors guiding the discretion of courts in considering applications for relief from forfeiture under the Judicature Act: "1. the conduct of the applicant; 2. the gravity of the breaches; and 3. the disparity between the value of the property forfeited and the damage caused by the breach." - Because Petrobank's misconduct was "somewhat reasonable", the breaches themselves were relatively minor, and the lessors received compensation by way of damages and disgorgement of profits in amounts totally out of proportion to the arrears the trial judge found it owed by failing to obtain relief from forfeiture, that relief should have been granted, on terms as permitted by s. 10 of the Judicature Act - See paragraphs 38 to 50.

Mines and Minerals - Topic 8174

Oil and gas - Royalty agreements - Royalty or overriding royalty - Calculation of - Canpar Holdings Ltd. entered into a petroleum and natural gas lease which entitled it to receive 62.61% of the royalties paid under that lease - Petrovera Resources was entitled to receive the balance - The lessors, Gentry Resources Ltd., and Petrobank Energy and Resources Ltd. were respectively required to pay 25% and 75% of those royalties - The lease set the royalty amount at 17.5% - The lessors consistently calculated and paid the 17.5% royalty on the basis of the volume of refined natural gas produced less the amount of fuel gas it used in that production - The trial judge interpreted the lease to require Petrobank to pay royalties on the natural gas used by it as fuel gas; the royalties were to be based on the volume of refined produced gas, not on the volume of sold gas - The trial judge determined that the lease was validly terminated for failure to pay the full resulting royalty amounts, declined to grant relief from forfeiture and ordered Petrobank to disgorge its profits and to pay damages arising from the continued production after March 3, 2006, the date of termination - That order required Petrobank to pay approximately 117% of the entire amount it earned from the sale of natural gas from the leased lands after March 3, 2006 - Petrobank appealed - The Alberta Court of Appeal considered the other clauses of the lease, the industry custom and the intent of the drafter and held the trial judge was correct in holding that the lease required Petrobank to pay royalties on fuel gas - See paragraphs 13 to 37.

Cases Noticed:

Ball v. Imperial Oil Resources Ltd. (2010), 477 A.R. 251; 483 W.A.C. 251; 2010 ABCA 111, refd to. [para. 11].

Metropolitan Life Insurance Co. v. Hover (1999), 237 A.R. 30; 197 W.A.C. 30; 91 Alta. L.R.(3d) 226; 1999 ABCA 123, refd to. [para. 12].

Amerada Minerals Corp. of Canada Ltd. v. Mesa Petroleum (N.A.) Co. et al. (1985), 60 A.R. 202; 37 Alta. L.R.(2d) 363 (Q.B.), affd. (1986), 73 A.R. 172; 47 Alta. L.R. 289 (C.A.), refd to. [para. 29].

Saskatchewan River Bungalows Ltd. and Fikowski v. Maritime Life Assurance Co., [1994] 2 S.C.R. 490; 168 N.R. 381; 155 A.R. 321; 73 W.A.C. 321; 115 D.L.R.(4th) 478, refd to. [para. 38].

Chroniaris Enterprises Ltd. v. MKRS Pub Inc. (2008), 432 A.R. 286; 424 W.A.C. 286; 2008 ABCA 172, refd to. [para. 47].

Alwell Mechanical v. Royal Bank of Canada (1985), 41 Alta. L.R.(2d) 8 (C.A.), refd to. [para. 47].

Freyberg v. Fletcher Challenge Oil and Gas Inc. et al. (2007), 428 A.R. 102; 2007 ABQB 353, refd to. [para. 52].

Nicholson v. Nicholson (1994), 153 A.R. 200; 4 R.F.L.(4th) 69 (Q.B.), refd to. [para. 56].

Montreal Trust Co. v. T.D.L. Petroleums Inc. et al. (2004), 239 Sask.R. 57; 2003 SKQB 360, revd. (2004), 254 Sask.R. 38; 336 W.A.C. 38; 2004 SKCA 116, leave to appeal denied (2005), 341 N.R. 400; 275 Sask.R. 321; 365 W.A.C. 321 (S.C.C.), refd to. [para. 56].

Dubiner v. Cheerio Toys & Games Ltd., [1966] Ex. C.R. 801; 55 D.L.R.(2d) 420, refd to. [para. 57].

Authors and Works Noticed:

Sullivan on the Construction of Statutes (5th Ed. 2008), pp. 243, 244 [para. 34].

Counsel:

R.N. Billington, Q.C., and K. Setrakov, for the respondents;

S.S. Smyth, for the appellant.

This appeal was heard on December 7, 2010, by Martin, McDonald and Bielby, JJ.A., of the Alberta Court of Appeal. The memorandum of judgments of the Court of Appeal were delivered on February 22, 2011, and included the following opinions:

Bielby, J.A. (Martin, J.A., concurring) - see paragraphs 1 to 60;

McDonald, J.A., concurring in the result - see paragraph 61.