Horizon Resource Management Ltd. et al. v. Blaze Energy Ltd. et al., (2013) 544 A.R. 289

• Judge: Costigan, O'Brien and Rowbotham, JJ.A.
• Court: Court of Appeal (Alberta)
• Case Date: April 22, 2013
• Citations: (2013), 544 A.R. 289;2013 ABCA 139

Horizon Resource Mgt. v. Blaze Energy (2013), 544 A.R. 289; 567 W.A.C. 289 (CA)

MLB headnote and full text

Temp. Cite: [2013] A.R. TBEd. AP.090

Horizon Resource Management Ltd. and Roll'n Oilfield Industries Ltd. (respondent/plaintiff) v. Blaze Energy Ltd. (appellant/defendant) and Canyon Oil & Gas Corporation, Detector Exploration Ltd., and Devon Canada Corporation (not parties to the appeal/defendants)

Horizon Resource Management Ltd. (not a party to the cross-appeal/respondent/plaintiff) and Roll'n Oilfield Industries Ltd. (cross-appellant/respondent/plaintiff) v. Blaze Energy Ltd. (cross-respondent/appellant/defendant) and Canyon Oil & Gas Corporation, Detector Exploration Ltd., and Devon Canada Corporation (not a party to the cross-appeal/not a party to the appeal/defendants)

(1101-0299-AC; 2013 ABCA 139)

Indexed As: Horizon Resource Management Ltd. et al. v. Blaze Energy Ltd. et al.

Alberta Court of Appeal

Costigan, O'Brien and Rowbotham, JJ.A.

April 22, 2013.

Summary:

Blaze had an interest under a farm-in agreement in a shut-in sour gas well. To earn an interest in any future production, Blaze was required, within a short period of time, to commence operations to abandon the existing well and drill a new well into the target zone of the critical sour gas well. Blaze hired the defendant Roll'n to provide the equipment and crew to do the job. Blaze hired the defendant Horizon to provide supervisory services. The job, expected to take two weeks, lasted seven weeks and, although the existing well was shut-in, the new well had not yet been drilled when Blaze released Roll'n from the project. Both Horizon and Roll'n left the well site without the work being completed. Blaze refused to pay Horizon and Roll'n for their services, arguing that neither performed the work they were retained to do and, in fact, caused Blaze to suffer damages. Horizon and Roll'n sued Blaze in contract for their services. Blaze counterclaimed for damages it allegedly suffered by the work that was not completed. At issue was (1) whether Roll'n misrepresented its capability to do the work and whether it breached that contract to the extent that Blaze obtained no benefit and (2) whether Blaze or Horizon was responsible for directing the well operations and, if it was Horizon, whether Horizon breached its contract or duty of care by failing to act as a reasonably competent consulting firm.

The Alberta Court of Queen's Bench, in a judgment reported (2011), 526 A.R. 206, allowed Roll'n's action, allowed Horizon's action in part, and dismissed Blaze's counterclaim. Judgment was awarded to Horizon and Roll'n and the builders' liens that they had filed were declared valid. Blaze appealed. Roll'n cross-appealed.

The Alberta Court of Appeal dismissed the appeal and allowed the cross-appeal in part.

Contracts - Topic 2051

Terms - Implied terms - General - The Alberta Court of Appeal restated that "(a) Courts can imply terms in contracts which are not explicit only when the new term is (i) so obvious that it was not even thought necessary to mention, or (ii) truly necessary to make the contract work at all, not merely reasonable or fair. (b) Mere foresight of a possible happening is not enough; both parties must have intended the term. (c) The law's presumption is against implying terms." - See paragraph 86.

Contracts - Topic 2051

Terms - Implied terms - General - Blaze had an interest under a farm-in agreement in a shut-in sour gas well - To earn an interest in any future production, Blaze was required, within a short period of time, to commence operations to abandon the existing well and drill a new well into the target zone of the critical sour gas well - Blaze hired the defendant Roll'n to provide the equipment and crew to do the job - The job, expected to take two weeks, lasted seven weeks and, although the existing well was shut-in, the new well had not yet been drilled when Blaze released Roll'n from the project - Roll'n left the well site without the work being completed - Blaze refused to pay Roll'n for its services, arguing that it did not perform the work it was retained to do and, in fact, caused Blaze to suffer damages - Blaze argued that the terms and conditions of its Drilling Program were implied terms of its contract with Roll'n (the MWS Contract) - The contract required Roll'n to perform its obligations under the direction and supervision of Blaze and according to any written policies or guidelines agreed to between Blaze and Roll'n and attached to the Services Work Order - The contract did not specifically refer to the Drilling Program and it was not attached to the Services Work Order - The trial judge held that "neither the Blaze Drilling Program nor other pre-contractual representations or communications were incorporated into the MWS Contract. The conditions for implying such terms into the Contract are not present in this case." - The Alberta Court of Appeal agreed that the Drilling Program was not incorporated into the MWS Contract - See paragraphs 48 to 52.

Contracts - Topic 3523

Performance or breach - Breach - What constitutes a breach - Blaze had an interest under a farm-in agreement in a shut-in sour gas well - To earn an interest in any future production, Blaze was required, within a short period of time, to commence operations to abandon the existing well and drill a new well into the target zone of the critical sour gas well - Blaze hired the defendant Roll'n to provide the equipment and crew to do the job - Problems developed and Blaze released Roll'n from the project without the new well being drilled - Blaze refused to pay Roll'n for its services, citing 19 distinct breaches of the contract showing that the equipment and crew used by Roll'n were incapable of completing the contracted for work - The trial judge held that Roll'n breached the contract in the following respects: "1) failing to provide crew members with the required first and second-line BOP tickets; 2) by supplying mud pumps that had an excessive rate of mechanical breakdown; and 3) by contributing to the December AEUB shut-down by failing to provide a driller with a first line BOP ticket and a rig manager with a second line BOP ticket." - The contractual breaches constituted concurrent breaches of Roll'n's duty of care (negligence) - The standard of care (duty to complete the contract according to its terms) was the same in contract and tort - Blaze appealed on the ground that the trial judge erred in failing to find Roll'n breached the contract in several other respects - The Alberta Court of Appeal dismissed the appeal, stating that "this 'ground' of appeal was effectively an invitation to this court to rehear and re-decide the case. It is utterly without merit. It is an appeal about fact findings" - See paragraphs 53 to 71.

Contracts - Topic 6544

Illegal contracts - Violations of statute law - Oil and gas legislation - Blaze had an interest under a farm-in agreement in a shut-in sour gas well - To earn an interest in any future production, Blaze was required, within a short period of time, to commence operations to abandon the existing well and drill a new well into the target zone of the critical sour gas well - Blaze hired the defendant Roll'n to provide the equipment and crew to do the job - Problems developed and Blaze released Roll'n from the project without the new well being drilled - Blaze refused to pay Roll'n for its services - Blaze argued, inter alia, that Roll'n wilfully or intentionally failed to comply with oil and gas regulatory requirements and occupational health and safety legislation, which rendered its contract with Blaze (the MWS Contract) unenforceable on the grounds of illegality - The trial judge rejected the submission, finding that "Roll'n's failure to provide a crew with the appropriate BOP tickets as required by the AEUB Guide 36 and any failure to follow OH&S provisions was not wilful or intentional in Roll'n's part and does not render the MWS Contract void for illegality" - The Alberta Court of Appeal dismissed Blaze's appeal - See paragraphs 39 to 45.

Fraud and Misrepresentation - Topic 2508

Misrepresentation - General principles - Negligent misrepresentation - Blaze had an interest under a farm-in agreement in a shut-in sour gas well - To earn an interest in any future production, Blaze was required, within a short period of time, to commence operations to abandon the existing well and drill a new well into the target zone of the critical sour gas well - Blaze hired the defendant Roll'n to provide the equipment and crew to do the job - The job, expected to take two weeks, lasted seven weeks and, although the existing well was shut-in, the new well had not yet been drilled when Blaze released Roll'n from the project - Roll'n left the well site without the work being completed - Blaze refused to pay Roll'n for its services, arguing that it did not perform the work it was retained to do and, in fact, caused Blaze to suffer damages - Blaze claimed that Roll'n negligently misrepresented the ability of its equipment and crew to do the work and that the BOP certificates it possessed permitted it to undertake the work - The trial judge held that there were no "inaccurate, untruthful or misleading representations to Blaze" - Had there been misrepresentations, the trial judge opined that they would have been negligently made - Had there been negligent misrepresentations, Blaze's action would still be dismissed because there was no detrimental reliance and the "entire agreement" clause would have precluded liability for any pre-contractual representations - The Alberta Court of Appeal dismissed Blaze's appeal, stating that the trial judge carefully assessed the evidence of the experts and provided reasons for his preference for the evidence of Jacobsen. He made no reversible error and his decision is entitled to deference" - See paragraphs 33 to 47.

Fraud and Misrepresentation - Topic 2824

Misrepresentation - Defences - Agreement excluding liability - [See Fraud and Misrepresentation - Topic 2508 ].

Fraud and Misrepresentation - Topic 2825

Misrepresentation - Defences - Lack of reliance - [See Fraud and Misrepresentation - Topic 2508 ].

Interest - Topic 2041

Agreement to pay interest - Implied agreement to pay - General - A contract provided that "any sum not paid within [blank] days after the date of the receipt of the invoice" was subject to 18% interest until paid - Blaze refused to pay Roll'n monies owed for work and services under the contract - Roll'n obtained judgment for the monies owing and sought 18% interest - The trial judge held that it was an implied term of the contract that invoices were payable within a "reasonable time", which the court fixed at 30 days - However, the trial judge declined to award 18% interest commencing 30 days after receipt of an invoice, stating that "while one can readily infer that the parties agreed that the invoice should be paid within a reasonable time, it does not follow that they agreed that interest at 18 percent would run from that time. The fact that no date was inserted ... is entirely consistent with Blaze not having agreed to pay interest at 18 percent and I so find. In the result, I find that there is no agreement between the parties to pay interest on any amounts owing. Any interest awarded must therefore be governed by the Judgment Interest Act." - The Alberta Court of Appeal held that the trial judge's fact finding was reasonable and entitled to deference - See paragraphs 81 to 88.

Practice - Topic 5390

Dismissal of action - Application or motion for dismissal - Nonsuit - At close of plaintiff's case - Evidence and proof - The Alberta Court of Appeal dismissed an appeal from the trial judge's dismissal of the plaintiff's non-suit application - The court stated that the trial judge applied the correct legal test, which was "on a non-suit motion, the trial judge undertakes a limited inquiry. Two relevant principles that guide his enquiry are these. First, if a plaintiff puts forward some evidence on all elements of its claim, the judge must dismiss the motion. Second, in assessing whether a plaintiff has made out a prima facie case, the judge must assume the evidence to be true and must assign 'the most favourable meaning' to evidence capable of giving rise to competing inferences" - See paragraphs 24 to 26.

Practice - Topic 7111.2

Costs - Party and party costs - Special orders - Increase in scale of costs - Effect of settlement offers - [See Practice - Topic 7241 ].

Practice - Topic 7241

Costs - Party and party costs - Offers to settle - General (incl. what constitutes and validity) - A party made an informal offer to settle that was not a formal offer complying with the Rules of Court (i.e., Calderbank offer) - The party recovered judgment exceeding the amount of the settlement offer - The trial judge denied enhanced costs based on "his belief that all offers should be made under the Rules" - The Alberta Court of Appeal held that this was an error in principle - Calderbank offers "can have an effect on costs" - This was a bona fide offer, with adequate time for consideration - The court stated that "a proper consideration of the offer should result in some enhanced costs, but not the double costs which the Rules reflect. We consider an enhancement of 1.3 times the taxable costs allowed by the trial judge to be fair award of costs" - See paragraphs 89 to 96.

Professional Occupations - Topic 3301.1

Engineers - Negligence - Duty of care - Blaze needed to abandon an existing well and drill a new well into the target zone of a critical sour gas well - Blaze hired Roll'n to provide the equipment and crew to do the job and Horizon to provide supervisory services - The job had not been completed when Blaze released Roll'n from the project - Both Horizon and Roll'n left the well site without the work being completed - Blaze refused to pay Horizon for its services, arguing that Horizon was responsible for directing the well operations and breached its contract or duty of care by failing to act as a reasonably competent consulting firm - The trial judge dismissed the claim against Horizon - Horizon contracted to provide qualified well site supervisors to report to and take direction from Blaze - Those contractual duties were not breached - Horizon did not contract to provide technical expertise, supervision and direction - The trial judge rejected Blaze's argument that "there is a freestanding duty on the part of engineers to inspect/supervise", even if the contract did not obligate them to do so - The trial judge stated that "freedom of contract militates against implying a duty to inspect/supervise absent terms of the agreement, or surrounding context supported by evidence, that clearly supports such an obligation. ... In effect, to recognize this duty would change the allocation of risk in favour of the purchaser of engineering services without any corresponding commercial benefit flowing to the engineer. To the contrary, freedom of contract allows both parties to negotiate whatever consideration each is willing to accept in exchange for undertaking obligations they agree to be bound by within the framework of their contractual relationship. ... To impose a free-standing duty to inspect and supervise an entity that provides personnel who performs services under the direction and control of that entity's client would derogate from the efficacy of the underlying commercial relations." - The Alberta Court of Appeal held that "the trial judge's finding that Blaze bore the overall responsibility for the management of the well was amply supported by the record and is entitled to appellate defence. This ground of appeal is dismissed" - See paragraphs 16 to 22.

Cases Noticed:

Calderbank v. Calderbank, [1975] 2 All E.R. 333; [1975] 3 W.L.R. 586 (C.A.), refd to. [para. 12].

Housen v. Nikolaisen et al., [2002] 2 S.C.R. 235; 286 N.R. 1; 219 Sask.R. 1; 272 W.A.C. 1; 2002 SCC 33, refd to. [para. 13].

Double N Earthmovers Ltd. v. Edmonton (City) et al. (2005), 363 A.R. 201; 343 W.A.C. 201; 2005 ABCA 104, affd. [2007] 1 S.C.R. 116; 356 N.R. 211; 401 A.R. 329; 391 W.A.C. 329; 2007 SCC 3, refd to. [para. 14].

Deans et al. v. Thachuk et al. (2005), 376 A.R. 326; 360 W.A.C. 326 (C.A.), refd to. [para. 15].

Capital Estate Planning Corp. v. Lynch et al. (2011), 510 A.R. 244; 527 W.A.C. 244; 2011 ABCA 224, refd to. [para. 25].

Prudential Securities Credit Corp., LLC v. Cobrand Foods Ltd. - see FL Receivables Trust 2002-A v. Cobrand Foods Ltd. et al.

FL Receivables Trust 2002-A v. Cobrand Foods Ltd. et al. (2007), 85 O.R.(3d) 561; 2007 ONCA 425, refd to. [para. 25].

Queen (D.J.) v. Cognos Inc., [1993] 1 S.C.R. 87; 147 N.R. 169; 60 O.A.C. 1; 99 D.L.R.(4th) 626, refd to. [para. 30].

Nova, An Alberta Corp. v. Guelph Engineering Co. and Daniel Valve Co. et al. (1989), 100 A.R. 241; 1989 ABCA 253, refd to. [para. 37].

Bell v. Tilden Car Rental Inc. et al., [1997] 1 W.W.R. 356; 1996 ABCA 318, refd to. [para. 37].

Labbee et al. v. Peters et al. (1999), 237 A.R. 382; 197 W.A.C. 382; 1999 ABCA 246, refd to. [para. 37].

Carman Construction Ltd. v. Canadian Pacific Railway Co. and C.P. Rail, [1982] 1 S.C.R. 958; 42 N.R. 147; 136 D.L.R.(3d) 193, refd to. [para. 47].

Gainers Inc. v. Pocklington Holdings Inc. (2000), 255 A.R. 373; 220 W.A.C. 373; 2000 ABCA 151, refd to. [para. 47].

Marathon Canada Ltd. v. Enron Canada Corp. (2008), 447 A.R. 89; 2008 ABQB 770, refd to. [para. 78].

Bhasin v. Hrynew et al. (2013), 544 A.R. 28; 567 W.A.C. 28; 2013 ABCA 98, refd to. [para. 86].

Fullowka et al. v. Pinkerton's of Canada Ltd. et al. (2008), 437 A.R. 390; 433 W.A.C. 390; 2008 NWTCA 9, refd to. [para. 93].

Mahe et al. v. Boulianne, [2010] A.R. Uned. 25; 21 Alta. L.R.(5th) 277; 2010 ABCA 74, refd to. [para. 93].

Holizki Estate et al. v. Public Trustee (Alta.) et al. (2009), 462 A.R. 127; 2009 ABQB 260, refd to. [para. 96].

Counsel:

G.R. Vipond, for the appellant;

G.B. Davison, Q.C., for the respondents.

This appeal and cross-appeal were heard on December 6, 2012, before Costigan, O'Brien and Rowbotham, JJ.A., of the Alberta Court of Appeal.

On April 22, 2013, the following memorandum of judgment was filed by the Court.