Freyberg v. Fletcher Challenge Oil and Gas Inc. et al., 2007 ABQB 353

• Judge: Kent, J.
• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: January 22, 2007
• Citations: 2007 ABQB 353;(2007), 428 A.R. 102 (QB)

Freyberg v. Fletcher Challenge Oil (2007), 428 A.R. 102 (QB)

MLB headnote and full text

Temp. Cite: [2008] A.R. TBEd. MY.028

Lady Ivry Freyberg (plaintiff) v. Fletcher Challenge Oil and Gas Inc., Fletcher Challenge Energy Canada Inc., Apache Canada Ltd., Tudor Corporation Ltd., Kalta Energy Corp., Rife Resources Ltd., Wilshire Oil of Canada Ltd., Westpoint Energy Inc., (formerly Slade Energy Inc.), Zargon Oil & Gas Ltd., Bonavista Petroleum Ltd., Hillcrest Investments Ltd., Tarsus Oils Ltd., Altacanada Energy Corp., Alberta Selecta Corporation, NV Resources Corporation Ltd., Direct Energy Marketing Limited, Midfield Supply Ltd., and PricewaterhouseCoopers Inc., as Receiver and Manager of Kalta Energy Corp. (defendants)

(0101 19749; 2007 ABQB 353)

Indexed As: Freyberg v. Fletcher Challenge Oil and Gas Inc. et al.

Alberta Court of Queen's Bench

Judicial District of Calgary

Kent, J.

May 24, 2007.

Summary:

The plaintiff, a lessor under a freehold natural gas lease, sought a declaration that the lease had terminated. This was the first stage of a two-stage process in the trial. The second stage, if necessary, was to deal with an accounting and remedies issues and the conditional counterclaims issued by some of the defendants.

The Alberta Court of Queen's Bench, in a decision reported 323 A.R. 45, dismissed the action. The parties sought directions respecting costs.

The Alberta Court of Queen's Bench, in a decision reported at 337 A.R. 127, determined the costs issues accordingly. The plaintiff appealed the dismissal of the action and the order respecting costs.

The Alberta Court of Appeal, O'Leary, J.A., dissenting, in a decision reported at 363 A.R. 35; 343 W.A.C. 35, allowed the appeal and granted the plaintiff a declaration that the lease had terminated. The defendants sought leave to appeal to the Supreme Court of Canada.

The Supreme Court of Canada, in a decision reported at 348 N.R. 198, denied leave to appeal. The parties focussed their attention to the second stage of the trial. The plaintiff applied before Wittmann, A.C.J., for an order confirming that the original trial judge (Romaine, J.) was not seized of the second stage of the trial, and for the assignment of a case management judge and a trial judge for the purpose of determining the remaining issues.

The Alberta Court of Queen's Bench (Wittman, A.C.J.), directed that the application be heard by Romaine, J., as the application was in essence a challenge to his impartiality.

The Alberta Court of Queen's Bench, per Romaine, J., in a decision reported at 400 A.R. 11, held that he should hear the second stage of the trial and that another judge should assume the case management function. The plaintiff appealed.

The Alberta Court of Appeal, in a decision reported at 401 A.R. 30; 391 W.A.C. 30, allowed the appeal and directed that a different justice hear the second stage of the trial (measure of damages, joint or several liability, rate of interest, etc.).

The Alberta Court of Queen's Bench held that the appropriate approach respecting the measure of damages for the defendants' conversion of the plaintiff's gas was the compensatory approach. The court requested further evidence on the issue of royalty and bonus so it could determine damages. The court held that several of the defendants were jointly and severally liable for the conversion. The court dismissed the plaintiff's claim for conversion against the defendant Direct Energy Marketing Ltd. on the basis that it was barred by the Limitations Act. The court held that the correct rate of interest was not the business rate but the rate prescribed by the Judgment Interest Act. The court also dismissed the counterclaims filed by some of the defendants.

Damages - Topic 1810

Torts affecting goods - Conversion - Normal measure - The plaintiff, a lessor under a freehold natural gas lease, obtained a declaration that the lease had terminated because the lessee's failure to produce into an economical and profitable market rendered the lease invalid - The well began producing in 1999 and had been a successful well - Although the plaintiff had been paid some production royalties, she had not received all the royalties that she was entitled to - The Alberta Court of Queen's Bench determined that several of the defendants were liable for the tort of conversion (wrongful taking of gas) - The court reviewed the two approaches to the measure of damages in cases of conversion: the restitutionary approach and the compensatory approach - The court held that the appropriate approach to damages in this case was the compensatory approach - The court determined that the plaintiff was entitled to a royalty and bonus and requested further evidence from the parties in order to determine the amount of the royalty and bonus - See paragraphs 98 to 142.

Interest - Topic 3506

Statutory interest - On judgments - Rate of interest - [See Interest - Topic 5010 ].

Interest - Topic 5010

Interest as damages (prejudgment interest) - General principles - Calculation of interest - Simple or compound - The plaintiff, a lessor under a freehold natural gas lease, obtained a declaration that the lease had terminated because the lessee's failure to produce into an economical and profitable market rendered the lease invalid - The well began producing in 1999 and had been a successful well - Although the plaintiff had been paid some production royalties, she had not received all the royalties that she was entitled to - The action was commenced in 2001 - The plaintiff argued that the appropriate rate of interest on the damages should be the business rate, not the rate set by regulation pursuant to the Judgment Interest Act - The Alberta Court of Queen's Bench held that the correct rate of interest was the rate prescribed by the Judgment Interest Act - The lease was silent respecting the payment of interest on damages of any kind - As such, no party could be said to have either "agreed, knew, or should have known" that the money now claimed by the plaintiff would be calculated using compound interest - Further, the circumstances of this case were not such that the court should exercise its discretion to award an increased rate - See paragraphs 185 to 190.

Interest - Topic 5308

Interest as damages (prejudgment interest) - Interest on payment of money or debt withheld - Rate of interest applicable - [See Interest - Topic 5010 ].

Limitation of Actions - Topic 3165

Actions in tort - Trespass or injury to property - Taking away or conversion - The plaintiff, a lessor under a freehold natural gas lease, obtained a declaration that the lease had terminated because the lessee's failure to produce into an economical and profitable market rendered the lease invalid - The well began producing in 1999 and had been successful - The Alberta Court of Queen's Bench determined that several of the defendants were liable for the tort of conversion (wrongful taking of gas) - The court held that the action against the defendant Direct Energy Marketing Ltd. (Direct) was barred by the applicable two year limitation period in the Limitations Act - The plaintiff's original claim in 2001 only alleged the wrongful registration of a caveat - Amendments to the original claim did not modify the claim against Direct until 2006 - The original claim was not broad enough to encompass a claim against Direct in conversion - Direct's agreement to have the remedies claim severed from the question of the validity of the lease was not a bar to it now relying on its limitations defence - Nothing that Direct did constituted an express agreement to extend or waive the limitation period - By participating in pretrial process and agreeing to what was thought to be a more efficient way of dealing with this claim, to find that Direct waived its limitation defence would lead to the result that no defendant with a limitations defence could participate in moving an action to trial - See paragraphs 164 to 181.

Limitation of Actions - Topic 9424

Bars - Disallowance of defence - Considerations - Delay - [See Limitation of Actions - Topic 3165 ].

Mines and Minerals - Topic 8386

Oil and gas - Wells - Drilling of - Conversion (incl. compensation) - [See Damages - Topic 1810 ].

Torts - Topic 3107

Trespass - Trespass to goods - Conversion - Damages - General - [See Damages - Topic 1810 ].

Torts - Topic 7280

Joint and concurrent tortfeasors - Consequences of joint liability - Joint and several liability - General - The plaintiff, a lessor under a freehold natural gas lease, obtained a declaration that the lease had terminated because the lessee's failure to produce into an economical and profitable market rendered the lease invalid - The well began producing in 1999 and had been a successful well - Although the plaintiff had been paid some production royalties, she had not received all the royalties that she was entitled to - The Alberta Court of Queen's Bench determined that several of the defendants were liable for the tort of conversion (wrongful taking of gas) and that their liability was joint (not several) - These defendants' assertion of control over the gas, from the moment the substance was severed from the land, constituted an action inconsistent with the plaintiff's title to, and control over, her property - As such, the conversion occurred at the point of extraction as opposed to at the point of sale - The plaintiff should not be denied the ability to claim jointly and severally simply because a mechanism for determining the volume and heat value of gas actually taken by each of these defendants existed - Joint and several liability or several concurrent liability would exist in instances where the conduct of the defendants caused a single loss to the plaintiff - These defendants had the common goal of producing the well - As such, these defendants remained jointly and severally liable for the whole of the gas converted throughout the production period - See paragraphs 143 to 163.

Cases Noticed:

Martin v. Porter (1839), 151 E.R. 149 (Exch. of Pleas), refd to. [para. 102].

Ashton v. Stock (1877), 6 Ch. D. 719, refd to. [para. 102].

Kirkpatrick v. McNamee (1905), 36 S.C.R. 152, refd to. [para. 102].

Lamb v. Kincaid (1907), 38 S.C.R. 516, refd to. [para. 104].

Shewish et al. v. MacMillan Bloedel Ltd. et al. (1990), 74 D.L.R.(4th) 345 (B.C.C.A.), refd to. [para. 107].

Craig et al. v. North Shore Heli Logging Ltd. et al., [1997] B.C.T.C. Uned. 579; 34 B.C.L.R.(3d) 330 (S.C.), refd to. [para. 107].

Livingston v. Rawyards Coal Co. (1880), 5 App. Cas. 25 (H.L.), refd to. [para. 108].

Hill Estate v. Chevron Standard Ltd. et al. (1992), 83 Man.R.(2d) 58; 36 W.A.C. 58 (C.A.), refd to. [para. 110].

Sohio Petroleum Co. v. Weyburn Security Co., [1971] S.C.R. 81, refd to. [para. 111].

Montreal Trust Co. v. T.D.L. Petroleums Inc. et al., [2004] 3 W.W.R. 574; 239 Sask.R. 57; 2003 SKQB 360, revd. (2004), 254 Sask.R. 38; 336 W.A.C. 38; 243 D.L.R.(4th) 317; 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. 112].

Montreal Trust Co. v. Williston Wildcatters Corp. - see Montreal Trust Co. v. T.D.L. Petroleums Inc. et al.

R. v. Canadian Pacific Railway Co., [1931] 1 W.W.R. 673 (P.C.), refd to. [para. 114].

de Wurstemberger v. Royalite Oil Co., [1935] 1 W.W.R. 461 (Alta. S.C.), refd to. [para. 114].

Michaud v. St. Quentin (Village) (1970), 3 N.B.R.(2d) 560; 16 D.L.R.(3d) 228 (C.A.), refd to. [para. 114].

Isitt v. Grand Trunk Pacific Railway Co., [1918] 3 W.W.R. 500 (B.C.C.A.), affd. (1919), 49 D.L.R. 687 (S.C.C.), refd to. [para. 122].

Hrynyk et ux. v. Kaprowy et ux. (1960), 30 W.W.R.(N.S.) 433 (Man. Q.B.), refd to. [para. 122].

McGrath v. Atlantic Trust Co. (1969), 1 N.S.R.(2d) 103; 8 D.L.R.(3d) 225 (C.A.), refd to. [para. 122].

Canadian Pacific Railway v. R., [1931] 2 D.L.R. 386 (P.C.), refd to. [para. 122].

Johnson v. British Columbia Hydro and Power Authority (1981), 123 D.L.R.(3d) 340 (B.C.S.C.), refd to. [para. 122].

Pawson v. Sudbury (City), [1954] 1 D.L.R. 10 (C.A.), refd to. [para. 122].

549767 Alberta Ltd. et al. v. Teg Holdings Ltd. et al., [1997] A.R Uned. 90; 70 A.C.W.S.(3d) 355 (Q.B.), refd to. [para. 130].

Boma Manufacturing Ltd. et al. v. Canadian Imperial Bank of Commerce, [1996] 3 S.C.R. 727; 203 N.R. 321; 82 B.C.A.C. 161; 133 W.A.C. 161, refd to. [para. 147].

Royal Bank of Canada v. Got (W.) & Associates Electric Ltd., [1994] 5 W.W.R. 337; 150 A.R. 93 (Q.B.), refd to. [para. 149].

WIC Premium Television Ltd. v. General Instrument Corp. et al. (1999), 253 A.R. 161 (Q.B.), refd to. [para. 153].

Novalta Resources Ltd. v. Ortynsky Exploration Ltd. (1994), 151 A.R. 161 (Q.B.), refd to. [para. 159].

Stevenson Estate v. Siewart et al. (2000), 266 A.R. 35; 228 W.A.C. 35; 191 D.L.R.(4th) 151; 2000 ABCA 222, refd to. [para. 160].

Fletcher v. Hand et al. (1994), 156 A.R. 142; 21 Alta. L.R.(3d) 346 (Q.B.), refd to. [para. 161].

376599 Alberta Inc. v. Tanshaw Products Inc. et al. (2005), 379 A.R. 1 (Q.B.), refd to. [para. 163].

Stout Estate et al. v. Golinowski Estate et al., [2002] 4 W.W.R. 588; 299 A.R. 13; 266 W.A.C. 13; 2002 ABCA 49, refd to. [para. 169].

Associated Asbestos Services Ltd. v. Canadian Occidental Petroleum Ltd., [2003] 2 W.W.R. 680; 326 A.R. 31 (Q.B.), refd to. [para. 169].

Stolk v. 382779 Alberta Inc. et al. (2005), 383 A.R. 203; 46 Alta. L.R.(4th) 308; 2005 ABQB 440, refd to. [para. 171].

Herman et al. v. Public Trustee (Alta.) et al. (2005), 379 A.R. 112; 46 Alta. L.R.(4th) 330; 2005 ABQB 337, refd to. [para. 174].

Greentree et al. v. Martin et al. (2004), 369 A.R. 263 (Q.B.), refd to. [para. 175].

Madill v. Alexander Consulting Group Ltd. et al. (1999), 237 A.R. 307; 197 W.A.C. 307; 176 D.L.R.(4th) 309; 1999 ABCA 231, refd to. [para. 177].

Renaissance Resources Ltd. v. Metalore Resources Ltd., [1984] 4 W.W.R. 430; 53 A.R. 289 (Q.B.), refd to. [para. 182].

Bank of America Canada v. Mutual Trust Co. et al., [2002] 2 S.C.R. 601; 287 N.R. 171; 159 O.A.C. 1; 2002 SCC 43, dist. [para. 186].

James H. Meek Trust et al. v. San Juan Resources Inc. et al. (2005), 376 A.R. 202; 360 W.A.C. 202; 52 Alta. L.R.(4th) 1; 2005 ABCA 448, refd to. [para. 189].

Authors and Works Noticed:

Fridman, Gerald Henry Louis, The Law of Torts in Canada (2nd Ed. 2002), pp. 135, 136 [para. 147]; 888, 889 [para. 153].

Klar, Lewis N., Tort Law (3rd Ed. 2003), p. 488 [para. 153].

Prosser and Keeton, The Law of Torts (5th Ed. 1984), p. 90 [para. 149].

Counsel:

Stanley Carscallen, Q.C., and Brent L. Robinson (Carscallen Lockwood LLP), for the plaintiff;

Norman K. Machida, Q.C. (Machida Mack Shewchuk Meagher LLP), for the defendants, Altacanada Energy Corp. and Alberta Selecta;

Grant N. Stapon, Christopher D. Simard and Larina J. Taylor (Bennett Jones LLP), for the defendant, Apache Canada Ltd.;

G. Scott Watson and Shannon L. Kelley (Parlee McLaws LLP), for the defendant, Tudor Corporation Ltd.;

Douglas S. Nishimura and Melissa D. Moulton (Tennison Burnet Duckworth & Palmer LLP), for the defendants, Wilshire Oil of Canada Ltd., Zargon Oil & Gas Ltd., Direct Energy Marketing Limited and PricewaterhouseCoopers Inc.

This matter was heard on January 22, 2007 to February 13, 2007, before Kent, J., of the Alberta Court of Queen's Bench, Judicial District of Calgary, who delivered the following judgment on May 24, 2007.