Kerr v. PanCanadian Petroleum Ltd., (2004) 253 Sask.R. 262 (QB)

• Judge: Chicoine, J.
• Court: Court of Queen's Bench of Saskatchewan (Canada)
• Case Date: October 07, 2004
• Jurisdiction: Saskatchewan
• Citations: (2004), 253 Sask.R. 262 (QB);2004 SKQB 404

Kerr v. PanCdn. Petroleum Ltd. (2004), 253 Sask.R. 262 (QB)

MLB headnote and full text

Temp. Cite: [2004] Sask.R. TBEd. OC.051

Cameron Davis Kerr and Jane Kerr (plaintiffs/defendants by counterclaim) v. PanCanadian Petroleum Limited (defendant/plaintiff by counterclaim) and Dorothy Ann Kerr (third party) and Cameron Davis Kerr and Jane Kerr (fourth party)

(2002 Q.B. No. 133; 2004 SKQB 404)

Indexed As: Kerr v. PanCanadian Petroleum Ltd.

Saskatchewan Court of Queen's Bench

Judicial Centre of Weyburn

Chicoine, J.

October 7, 2004.

Summary:

Joseph Kerr granted surface leases to two oil companies in the early 1960s. Joseph sold the land to Robert Kerr in 1967. The agreement of sale included a reservation of the surface lease rentals in favour of Joseph. On November 28, 1975, Robert gifted the land to his son, Cameron Kerr. In 1997, Cameron transferred a joint interest in the land to himself and his wife (the plaintiffs). PanCanadian had acquired the surface leases. In 1999, the plaintiffs convinced PanCanadian that they were entitled to the surface lease payments. PanCanadian negotiated an amendment to one of the surface leases to permit it to drill a new horizontal well. The plaintiffs demanded all surface lease payments retroactive to 1975. PanCanadian discovered that Joseph had reserved the surface lease rentals. It suspended further payments to the plaintiffs. The plaintiffs sued to recover the surface lease rentals. PanCanadian counterclaimed for rectification or rescission of the amending agreement and for the return of all monies paid to the plaintiffs. Joseph's heir was third partied and she sought a declaration that she was entitled to receive the surface lease rentals.

The Saskatchewan Court of Queen's Bench held that the plaintiffs were bound by the reservation of the surface lease rentals in favour of Joseph and ordered the plaintiffs to return all monies that they had received under the leases. The court granted PanCanadian rescission of the amending agreement. The court granted Joseph's heir a declaration that she was entitled to receive the surface lease rentals. The court also ordered PanCanadian to compensate the plaintiffs for the use of a farm access road and other lands not encompassed in the original survey plat commencing July 2000.

Contracts - Topic 1598

Formation of contract - Mistake, misunderstanding or misrepresentation - Unilateral mistake - Joseph Kerr granted surface leases to two oil companies in the early 1960s - Joseph sold the land to Robert Kerr in 1967 - The agreement of sale included a reservation of the surface lease rentals in favour of Joseph - In November 1975, Cameron Kerr acquired the land and in 1997 he transferred a joint interest to himself and his wife (the plaintiffs) - PanCanadian had acquired the surface leases - PanCanadian negotiated an amending agreement respecting one of the surface leases which expanded the wellsite and increased the annual rent - PanCanadian then discovered that Joseph had reserved the surface lease rentals - The Saskatchewan Court of Queen's Bench granted PanCanadian rescission of the amending agreement - PanCanadian had entered into the agreement on the mistaken belief that the plaintiffs were entitled to all of the benefits of the lessors under the original lease - This mistake was induced by representations made by the plaintiffs, who had a document that clearly indicated that Joseph had reserved the surface lease rentals - Even if the case was characterized as one of common mistake, the appropriate remedy was still rescission - Rectification was not an appropriate remedy in the circumstances - See paragraphs 49 to 56.

Contracts - Topic 1600

Formation of contract - Mistake, misunderstanding or misrepresentation - Common mistake - [See Contracts - Topic 1598 ].

Deeds and Documents - Topic 5058

Rectification - When available - Mistake - Unilateral - [See Contracts - Topic 1598 ].

Deeds and Documents - Topic 5059

Rectification - When available - Mistake - Common - [See Contracts - Topic 1598 ].

Mines and Minerals - Topic 6003

Operation of mines, quarries and wells - General - Surface rights - Whether an interest in land - An agreement of sale included a reservation of the surface lease rentals in favour of the vendor - The purchaser's successors in title argued, inter alia, that the vendor had only retained a life interest in the surface lease rentals and that the reservation of the rentals did not pass to his heirs - The Saskatchewan Court of Queen's Bench rejected the argument - The agreement of sale stated that the vendor "at all times" would have the right to claim the rental payments - Further, the rent accruing due was recognized in law and equity as an interest in land which could be protected by caveat - Therefore, it was an interest running with the land that could be assigned at death to the interest holder's legal representative - There was nothing in the wording of the reservation that would lead one to believe that it was for the vendor's lifetime only - See paragraphs 33 and 43.

Mines and Minerals - Topic 8128

Oil and gas - Leases - Renewals and extensions - A vendor sold land that was subject to two surface leases - The agreement of sale included a reservation of the surface lease rentals in favour of the vendor - The purchaser's successors in title argued, inter alia, that the leases contravened the rule against perpetuities because the leases could be renewed indefinitely for successive 21 year terms - The Saskatchewan Court of Queen's Bench held that the rule against perpetuities was not breached - The general purpose of the rule was to prevent the tying up of property to the detriment of society in general - In the case of the two leases, the interest vested in the lessees immediately upon execution - There was no detriment to society in general if the leases should be renewed from time to time to accommodate the continued exploitation of minerals - See paragraph 44.

Mistake - Topic 4007

Relief - General - Rectification v. rescission - [See Contracts - Topic 1598 ].

Perpetuities - Topic 706

Rule against perpetuities - Application of rule in general - To land lease renewals - [See Mines and Minerals - Topic 8128 ].

Real Property - Topic 1750

Equitable estates and interests - Equitable interests - Unregistered reservation of lease income - Robert Kerr purchased land from Joseph Kerr in 1967 - The agreement of sale included a reservation of the surface lease rentals in favour of Joseph - On November 28, 1975, Robert gifted the land to Cameron Kerr - Robert and Cameron also signed a memorandum of agreement that, inter alia, included a provision whereby Cameron agreed to be bound by the reservation in favour of Joseph - In 1997, Cameron transferred a joint interest in the land to himself and his wife - The Saskatchewan Court of Queen's Bench held that Cameron and his wife were bound by the reservation in the 1967 agreement for sale - The reservation created an interest in land - The fact that neither Joseph nor his heir filed a caveat to protect the interest did not mean that Cameron and his wife took title free and clear of this interest - A caveat did not create rights, but simply protected existing rights - Cameron had actual notice of the reservation - Cameron's wife was not a bona fide purchaser for value as the transfer to her as a joint tenant was for estate planning purposes only - There was little, if any, consideration paid by her - Further, she knew of the reservation prior to becoming a joint tenant - See paragraphs 32 to 41.

Real Property - Topic 7922

Title - Registration of instruments, etc. - Caveats or cautions - Purpose and nature of a caveat - [See Real Property - Topic 1750 ].

Real Property - Topic 7925

Title - Registration of instruments, etc. - Caveats or cautions - Interests which may be protected - [See Mines and Minerals - Topic 6003 ].

Real Property - Topic 8006

Title - Registration of instruments, etc. - Land titles system - Effect of notice of unregistered encumbrances - [See Real Property - Topic 1750 ].

Real Property - Topic 8008

Title - Registration of instruments, etc. - Land titles system - Bona fide purchaser - What constitutes - [See Real Property - Topic 1750 ].

Real Property - Topic 8065

Title - Registration of instruments, etc. - Notice of a prior instrument - General - Effect of knowledge of prior unregistered instrument - [See Real Property - Topic 1750 ].

Cases Noticed:

Garland v. Jones, [1993] 7 W.W.R. 102; 111 Sask.R. 134 (Q.B.), refd to. [para. 33].

McKillop v. Alexander (1912), 1 W.W.R. 871 (S.C.C.), refd to. [para. 34].

Paragon Farms Ltd. v. Linn (H.D.) Development Services Inc., [1988] 6 W.W.R. 417; 69 Sask.R. 214 (Q.B.), refd to. [para. 34].

Fleck v. Davidson Estate et al., [1996] 1 W.W.R. 686; 138 Sask.R. 121 (Q.B.), refd to. [para. 38].

Taylor et al. v. Scurry-Rainbow Oil (Sask.) Ltd. et al., [1999] 5 W.W.R. 424; 170 Sask.R. 222 (Q.B.), revd. [2001] 11 W.W.R. 25; 207 Sask.R. 266; 247 W.A.C. 266; 2001 SKCA 85, refd to. [para. 44].

Cameron, Re, [1939] 4 D.L.R. 581 (Ont. C.A.), refd to. [para. 54].

Counsel:

Cameron Davis Kerr and Jane Kerr, self-represented;

Murray W. Douglas, for the defendant, PanCanadian Petroleum Ltd.;

Ronald J. Wormsbecker, for the third party, Dorothy Ann Kerr.

This action was heard by Chicoine, J., of the Saskatchewan Court of Queen's Bench, Judicial Centre of Weyburn, who delivered the following judgment on October 7, 2004.