Desoto Resources Ltd. v. Encana Corp. et al.

• Jurisdiction: Alberta
• Court: Court of Queen's Bench of Alberta (Canada)
• Judge: Tilleman, J.
• Citation: 2010 ABQB 448,(2010), 491 A.R. 97 (QB)
• Date: 14 June 2010
• Subject Matter: ESTOPPEL,PRACTICE,MINES AND MINERALS,CONTRACTS

Desoto Resources Ltd. v. Encana Corp. (2010), 491 A.R. 97 (QB)

MLB headnote and full text

Temp. Cite: [2010] A.R. TBEd. JL.089

Desoto Resources Limited (plaintiff) v. Encana Corporation and Pan Canadian Petroleum Limited (defendants)

(0401 09040; 2010 ABQB 448)

Indexed As: Desoto Resources Ltd. v. Encana Corp. et al.

Alberta Court of Queen's Bench

Judicial District of Calgary

Tilleman, J.

July 5, 2010.

Summary:

In 1974 and 1975, Encana Corp. granted petroleum and natural gas leases in certain lands. The leases were for primary terms ranging from three to five years and continued "so long as any of the leased substances is being produced or is capable of production in paying quantities from a well or wells on the [Lands] at the end of the primary term." Desoto's predecessor, Jofco, held an interest in the leases when production ceased in 1998. Jofco's bankruptcy proceedings resulted in an assignment of the leases to Penn West Petroleum Ltd. and Cansearch Resources Ltd. Penn West and Cansearch entered into agreements to hold interests in trust for Desoto. In 2003, Encana served notices of lease termination on Penn West and Cansearch, who agreed that the leases had terminated by their terms. In 2004, Encana served Desoto with notices to take proceedings on caveats it had filed on the lands. Desoto brought an action in response, alleging a beneficial interest in the leases by virtue of the trust agreement and claiming that the leases were currently producing, or were capable of producing, oil and gas. Encana applied for summary judgment to dismiss the claim.

A Master of the Alberta Court of Queen's Bench, in a decision reported at (2009), 473 A.R. 94, allowed the application. Desoto appealed.

The Alberta Court of Queen's Bench dismissed the appeal.

Contracts - Topic 9905

Promissory estoppel - General principles - What constitutes promissory estoppel - Encana Corp. granted petroleum and natural gas leases in certain lands for primary terms of three to five years and continuing as long as wells were in production or capable of producing - Desoto's predecessor, Jofco, held an interest in the leases when production ceased in 1998 - Jofco's bankruptcy proceedings resulted in an assignment of the leases to Penn West Petroleum Ltd. and Cansearch Resources Ltd., who subsequently agreed to hold interests in trust for Desoto - In 2003, Encana served notices of lease termination on Penn West and Cansearch, who agreed that the leases had terminated - In 2004, Encana served Desoto with notices to take proceedings on caveats it had filed on the lands - Desoto sued in response, alleging a beneficial interest in the leases - Encana's application for summary judgment to dismiss the claim was allowed - Desoto appealed, asserting, inter alia, that Encana was estopped from denying the existence of the leases on the basis of promissory estoppel - The Alberta Court of Queen's Bench dismissed the appeal - The leases had terminated in 1998 when production ceased - Desoto could not rely on promissory estoppel as there was no existing legal relationship between Desoto and Encana at the time of the alleged representations - Desoto and Encana's legal relationship terminated in 1998 with the expiry of the leases - Promissory estoppel could not save a relationship that had come to an end before any representation was made - There was no triable issue regarding promissory estoppel - See paragraphs 46 and 47.

Contracts - Topic 9917

Promissory estoppel - Where applicable - Requirement of existing legal relationship between parties - [See Contracts - Topic 9905 ].

Estoppel - Topic 1281

Estoppel in pais (by conduct) - Mutual mistake - General - [See second Estoppel - Topic 1322 ].

Estoppel - Topic 1322

Estoppel in pais (by conduct) - Acquiescence or encouragement - Elements of - The Alberta Court of Queen's Bench discussed the requirements for the application of the doctrine of estoppel by acquiescence - Estoppel by acquiesence prohibited A from insisting on its legal rights where A's acquiescence amounted to fraud - A's acquiescence would amount to fraud where A knew of B's mistake as to B's legal rights, A encouraged B to act on the basis of this mistake and B had, in fact, so acted, thus making it inequitable to allow A to insist on its legal rights - Unlike promissory estoppel, estoppel by acquiescence could be founded on representations that occurred after the legal relationship between the parties had ended where those representations amounted to a fraud perpetrated on the other party - In this context, fraud had been recognized as not requiring actual fraud, but rather referring to equitable or constructive fraud - See paragraphs 48 to 52.

Estoppel - Topic 1322

Estoppel in pais (by conduct) - Acquiescence or encouragement - Elements of - Encana Corp. granted petroleum and natural gas leases in certain lands for primary terms of three to five years and continuing as long as wells were in production or capable of producing - Desoto's predecessor, Jofco, held an interest in the leases when production ceased in 1998 - Jofco's bankruptcy proceedings resulted in an assignment of the leases to Penn West Petroleum Ltd. and Cansearch Resources Ltd., who subsequently agreed to hold interests in trust for Desoto - In 2003, Encana served notices of lease termination on Penn West and Cansearch, who agreed that the leases had terminated - In 2004, Encana served Desoto with notices to take proceedings on caveats it had filed on the lands - Desoto sued in response, alleging a beneficial interest in the leases - Encana's application for summary judgment to dismiss the claim was allowed - Desoto appealed, asserting, inter alia, that Encana was estopped from denying the existence of the leases on the basis of estoppel by acquiescence - The Alberta Court of Queen's Bench dismissed the appeal - While Desoto satisfied the first two of the five elements of the estoppel by acquiescence test, it failed on the final three steps - First, Desoto's actions in 1999 and later suggested that it was mistaken as to the validity of the leases (which the court found had expired in 1998 when production ceased) - Second, Desoto had expended $20,000 on the basis of its mistaken belief - While $20,000 was a relatively small amount of money in the context of oil and gas leases, this expenditure constituted reliance - However, the third arm of the test required Encana to have had knowledge of the existence of its own right that was inconsistent with the right claimed by Desoto - Here, there was no evidence that Encana knew that the leases were invalid until sometime between December 2002, when Encana provided Desoto with a coal waiver, and March 2003, when Encana took its position that the leases had terminated - Nor was there any evidence that Encana was aware of Desoto's mistaken belief (the fourth requirement) - Rather, this was a case of mutual mistake - Finally, once Encana became aware of its legal rights in 2003, it had not taken any steps to encourage or induce Desoto to take further steps (the fifth requirement) - See paragraphs 53 to 63.

Estoppel - Topic 2201

Estoppel by deed - General - General principles - The Alberta Court of Queen's Bench discussed the requirements for the application of the doctrine of estoppel by deed - Estoppel by deed prevented a party to a written agreement, close to but not a binding contract, from arguing that a statement of fact in the contract was not true - Estoppel by deed was limited in scope and only applied to the transaction contained in the agreement and only to rights arising out of that agreement and not collateral to it - Estoppel by deed could not make an agreement valid that would otherwise (i.e., without the estoppel) be void on the basis of illegality or ultra vires - See paragraphs 64 to 66.

Mines and Minerals - Topic 8138

Oil and gas - Leases - Termination - General - [See Contracts - Topic 9905 and second Estoppel - Topic 1322 ].

Mines and Minerals - Topic 8138

Oil and gas - Leases - Termination - General - Encana Corp. granted petroleum and natural gas leases in certain lands for primary terms of three to five years and continuing as long as wells were in production or capable of producing - Desoto's predecessor, Jofco, held an interest in the leases when production ceased in 1998 - Jofco's bankruptcy proceedings resulted in an assignment of the leases to Penn West Petroleum Ltd. and Cansearch Resources Ltd., who subsequently agreed to hold interests in trust for Desoto - In 2003, Encana served notices of lease termination on Penn West and Cansearch, who agreed that the leases had terminated - In 2004, Encana served Desoto with notices to take proceedings on caveats it had filed on the lands - Desoto sued in response, alleging a beneficial interest in the leases - Encana's application for summary judgment to dismiss the claim was allowed - Desoto appealed - The Alberta Court of Queen's Bench dismissed the appeal - As both parties had agreed that there had been no production since 1998, the leases could not continue on the basis of actual production - In order for a lease to continue on the basis of wells being capable of production, wells drilled in the primary term had to be capable of production - A well drilled by Desoto in 2007 did not fulfill the requirement of being drilled in the primary terms - The leases had terminated in 1998 when production ceased - Extension of the leases after termination could occur only through estoppel or the formation of a new contract - See paragraphs 34 to 40.

Practice - Topic 3604.7

Evidence - Affidavits - Time for filing - The defendant's application for summary dismissal of the plaintiff's claim was allowed - The plaintiff appealed - A chambers judge adjourned the appeal and set out deadlines for filing documents for the appeal - The plaintiff sought to rely on an affidavit filed over one month after the court-ordered deadline - The Alberta Court of Queen's Bench ruled that the affidavit was not admissible - There was no legitimate reason for the late filing nor any mention of why the plaintiff had not applied for an extension of the filing deadline - The court stated, "Court orders should be followed. I appreciate there are competing values at play in every case and that it is important that a party be able to put its best foot forward on a summary judgment application. However, this must be considered in light of the serious toll on justice that will occur where parties are permitted to take actions inconsistent with court orders resulting in prejudice to the other side." - See paragraphs 20 to 26.

Practice - Topic 5710

Judgments and orders - Summary judgments - Evidence - [See Practice - Topic 3604.7 ].

Cases Noticed:

De Shazo v. Nations Energy Co. et al. (2006), 401 A.R. 142; 391 W.A.C. 142; 2006 ABCA 400, refd to. [para. 22].

MacMillan Bloedel Ltd. v. Simpson et al., [1995] 4 S.C.R. 725; 191 N.R. 260; 68 B.C.A.C. 161; 112 W.A.C. 161, refd to. [para. 22].

Stone Sapphire Ltd. v. Transglobal Communications Group Inc. et al. (2008), 451 A.R. 100; 2008 ABQB 397, refd to. [para. 22].

Desoto Resources Ltd. v. Encana Corp. et al., [2009] A.R. Uned. 688; 2009 ABQB 512, refd to. [para. 25].

United Utility Workers Association of Canada et al. v. TransAlta Corp. et al. (2004), 354 A.R. 58; 329 W.A.C. 58; 2004 ABCA 200, refd to. [para. 27].

Lameman et al. v. Canada (Attorney General) et al., [2008] 1 S.C.R. 372; 372 N.R. 239; 429 A.R. 26; 421 W.A.C. 26; 2008 SCC 14, refd to. [para. 30].

Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423; 247 N.R. 97; 126 O.A.C. 1, refd to. [para. 31].

Tottrup et al. v. Clearwater No. 99 (Municipal District) (2006), 401 A.R. 88; 391 W.A.C. 88; 2006 ABCA 380, refd to. [para. 31].

Dow Chemical Canada Inc. v. Shell Chemicals Canada Ltd. et al. (2010), 477 A.R. 112; 483 W.A.C. 112; 2010 ABCA 126, refd to. [para. 31].

Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. et al. (1996), 2 O.T.C. 146; 28 O.R.(3d) 423 (Gen. Div.), refd to. [para. 32].

DeSoto Resources Ltd. v. EnCana Corp. et al. (2010), 487 A.R. 138; 495 W.A.C. 138; 2010 ABCA 110, refd to. [para. 34].

Freyberg v. Fletcher Challenge Oil and Gas Inc. et al. (2005), 363 A.R. 35; 343 W.A.C. 35; 2005 ABCA 46, refd to. [para. 38].

Combe v. Combe, [1951] 1 All E.R. 767 (C.A.), refd to. [para. 42].

Fisher v. Brooker et al., [2009] N.R. Uned. 203; [2009] Bus. L.R. 1334; [2009] UKHL 41, refd to. [para. 42].

Ryan v. Moore et al., [2005] 2 S.C.R. 53; 334 N.R. 355; 247 Nfld. & P.E.I.R. 286; 735 A.P.R. 286; 2005 SCC 38, refd to. [para. 42].

Amalgamated Investment & Property Co. v. Texas Commerce International Bank Ltd., [1981] 3 All E.R. 577 (C.A.), refd to. [para. 42].

Canadian Superior Oil Ltd. v. Paddon-Hughes Development Co., [1970] S.C.R. 932, refd to. [para. 46].

Sohio Petroleum Co. v. Weyburn Security Co., [1971] S.C.R. 81, refd to. [para. 46].

Silver's Garage Ltd. v. Bridgewater (Town), [1971] S.C.R. 577; 2 N.S.R.(2d) 474, refd to. [para. 49].

Willmott v. Barber (1880), 15 Ch. D. 96 (C.A.), refd to. [para. 49].

Voyager Petroleums Ltd. v. Vanguard Petroleums Ltd. (1983), 47 A.R. 1 (C.A.), appld. [para. 50].

Crabb v. Arun District Council, [1975] 3 All E.R. 865 (C.A.), refd to. [para. 51].

Jollymore v. Acker (1915), 49 N.S.R 148 (C.A.), refd to. [para. 55].

Anderson v. South Vancouver (Municipality) (1911), 45 S.C.R. 425, refd to. [para. 57].

Calvan Consolidated Oil & Gas Co. v. Manning (1957), 10 D.L.R.(2d) 738 (Alta. T.D.), refd to. [para. 59].

Canadian Superior Oil Ltd. v. Jacobson et al. (1991), 115 A.R. 391 (C.A.), refd to. [para. 64].

Horton v. Westminster Improvement Commissioners (1852), 7 Exch. 780, refd to. [para. 64].

Canadian Superior Oil Ltd. v. Jacobson et al. (1989), 103 A.R. 161 (Q.B.), refd to. [para. 65].

Maritime Electric Co. v. General Dairies Ltd., [1937] 1 D.L.R. 609 (P.C.), refd to. [para. 65].

Authors and Works Noticed:

Ballem, John Bishop, The Oil and Gas Lease in Canada (4th Ed. 2008), p. 406 [para. 64].

Chitty on Contracts (29th Ed. 2004), para. 1-091 [para.65].

Snell's Equity (31st Ed. 2005), para. 10-09 [para. 46].

Spencer-Bower, George S., and Turner, Alexander Kingcome, The Law Relating to Estoppel by Representation (3rd Ed. 1977), p. 168 [para. 65].

Counsel:

Brian Silver (Mason Silver), for the plaintiff;

Katherine Reiffenstein and Christian Popowich (Code Hunter LLP), for the defendant.

This appeal was heard on June 14, 2010, by Tilleman, J., of the Alberta Court of Queen's Bench, Judicial District of Calgary, who delivered the following memorandum of decision on July 5, 2010.