Lethal Energy Inc. v. Kingsland Energy Corp.

• Jurisdiction: Saskatchewan
• Court: Court of Queen's Bench of Saskatchewan (Canada)
• Judge: Barrington-Foote, J.
• Citation: 2014 SKQB 10,(2014), 436 Sask.R. 105 (QB)
• Date: 16 January 2014
• Subject Matter: CONTRACTS,PRACTICE

Lethal Energy v. Kingsland Energy (2014), 436 Sask.R. 105 (QB)

MLB headnote and full text

Temp. Cite: [2014] Sask.R. TBEd. FE.040

Lethal Energy Inc. (plaintiff/defendant by counterclaim) v. Kingsland Energy Corp. (defendant/plaintiff by counterclaim)

(2012 Q.B.G. No. 1920; 2014 SKQB 10)

Indexed As: Lethal Energy Inc. v. Kingsland Energy Corp.

Saskatchewan Court of Queen's Bench

Judicial Centre of Regina

Barrington-Foote, J.

January 16, 2014.

Summary:

The plaintiff granted the defendant a right of first refusal (ROFR) for an oil and gas lease. The plaintiff advised the defendant that it had received an offer for the lease of $338,000, triggering the ROFR. The defendant responded with a potential offer. The parties entered into a memorandum of understanding (MOU) under which, subject to the defendant's "satisfaction and subsequent board approval of the comprehensive due diligence package", the defendant would purchase all shares of the plaintiff. One week later, the defendant advised that it was unable to proceed with the purchase. The plaintiff advised that the other offer had been withdrawn. Subsequently, the lease was sold to a third party for $150,000. The plaintiff sued the defendant, claiming specific performance of the MOU and damages. The defendant applied under rule 173(c) to strike the claim as scandalous, frivolous or vexatious.

The Saskatchewan Court of Queen's Bench allowed the application.

Contracts - Topic 1503

Formation of contract - Consensus or agreement - What constitutes a consensus necessary for a binding contract - The plaintiff granted the defendant a right of first refusal (ROFR) for an oil and gas lease - The plaintiff advised the defendant that it had received an offer for the lease of $338,000, triggering the ROFR - The defendant responded with a potential offer - The parties entered into a memorandum of understanding (MOU) under which, subject to the defendant's "satisfaction and subsequent board approval of the comprehensive due diligence package", the defendant would purchase all shares of the plaintiff - One week later, the defendant advised that it was unable to proceed with the purchase - The plaintiff advised that the other offer had been withdrawn - Subsequently, the lease was sold to a third party for $150,000 - The plaintiff sued the defendant, claiming specific performance of the MOU and damages - The defendant applied under rule 173(c) to strike the claim as scandalous, frivolous or vexatious - The Saskatchewan Court of Queen's Bench allowed the application - The plaintiff's assertion that the MOU became a binding agreement on the expiration of the 10 day period specified in the ROFR for producing a competing bid was devoid of merit - In order for a contract to be formed, the parties had to have agreed to the essential terms - The issue here was whether the defendant had agreed to be bound at all prior to satisfaction and board approval and whether there was an agreement to agree - The ROFR was not relevant to either of those questions - See paragraphs 48 and 49.

Contracts - Topic 1503

Formation of contract - Consensus or agreement - What constitutes a consensus necessary for a binding contract - The plaintiff granted the defendant a right of first refusal (ROFR) for an oil and gas lease - The plaintiff advised the defendant that it had received an offer for the lease of $338,000, triggering the ROFR - The defendant responded with a potential offer - The parties entered into a memorandum of understanding (MOU) under which, subject to the defendant's "satisfaction and subsequent board approval of the comprehensive due diligence package", the defendant would purchase all shares of the plaintiff - One week later, the defendant advised that it was unable to proceed with the purchase - The plaintiff advised that the other offer had been withdrawn - Subsequently, the lease was sold to a third party for $150,000 - The plaintiff sued the defendant, claiming specific performance of the MOU and damages - The defendant applied under rule 173(c) to strike the claim as scandalous, frivolous or vexatious - The Saskatchewan Court of Queen's Bench allowed the application - The plaintiff's assertion that the MOU was a binding agreement for the defendant to purchase all shares of the plaintiff was devoid of merit - There was, as noted by the plaintiff, a provision in the MOU that it was "a legal binding agreement" - However, the fact that the parties said that they had entered into a binding agreement did not mean that they had done so in the absence of a consensus ad idem as to the essential elements of the bargain - The MOU's terms confirmed that no such consensus had been reached in relation to the purchase of the shares - See paragraph 63.

Contracts - Topic 2281

Formation of contract - Conditions precedent - Defined - The plaintiff granted the defendant a right of first refusal (ROFR) for an oil and gas lease - The plaintiff advised the defendant that it had received an offer for the lease of $338,000, triggering the ROFR - The defendant responded with a potential offer - The parties entered into a memorandum of understanding (MOU) under which, subject to the defendant's "satisfaction and subsequent board approval of the comprehensive due diligence package", the defendant would purchase all shares of the plaintiff - One week later, the defendant advised that it was unable to proceed with the purchase - The plaintiff advised that the other offer had been withdrawn - Subsequently, the lease was sold to a third party for $150,000 - The plaintiff sued the defendant, claiming specific performance of the MOU and damages - The defendant applied under rule 173(c) to strike the claim as scandalous, frivolous or vexatious - The Saskatchewan Court of Queen's Bench allowed the application - The plaintiff's assertion that the MOU was a binding agreement for the defendant to purchase all shares of the plaintiff was devoid of merit - The provision for satisfaction and board approval, read in the context of the MOU and the commercial context, was unambiguous and was interpreted to mean that the defendant had the discretion as to whether it would agree to purchase the shares - The word "satisfaction" strongly suggested that it was up to the defendant to decide whether it was satisfied with the price, the property and the lease terms and to take into account whatever other corporate, commercial or other considerations it wished - That was the plain meaning of the requirement for satisfaction and board approval - This conclusion was buttressed by the right to terminate by either party in clause 4 of the MOU and the agreement to negotiate a share purchase agreement later - The conditions for satisfaction and board approval were true conditions precedent to a binding agreement - See paragraphs 50 to 62.

Contracts - Topic 3544

Performance or breach - Anticipatory breach - What constitutes - The plaintiff granted the defendant a right of first refusal (ROFR) for an oil and gas lease - The plaintiff advised the defendant that it had received an offer for the lease of $338,000, triggering the ROFR - The defendant responded with a potential offer - The parties entered into a memorandum of understanding (MOU) under which, subject to the defendant's "satisfaction and subsequent board approval of the comprehensive due diligence package", the defendant would purchase all shares of the plaintiff - One week later, the defendant advised that it was unable to proceed with the purchase - The plaintiff advised that the other offer had been withdrawn - Subsequently, the lease was sold to a third party for $150,000 - The plaintiff sued the defendant, claiming specific performance of the MOU and damages - The defendant applied under rule 173(c) to strike the claim as scandalous, frivolous or vexatious - The Saskatchewan Court of Queen's Bench allowed the application - The plaintiff's assertion that the MOU was a binding agreement for the defendant to purchase all shares of the plaintiff was devoid of merit - Even if the MOU had been a binding agreement, there had been an anticipatory breach by the plaintiff when it stated in an email to the defendant that the MOU was not binding and that the defendant had to deliver a binding agreement and cash deposit - The defendant had accepted the breach by advising the plaintiff to accept the other offer - The parties' actions indicated that, if there had been a binding agreement, it had been terminated - See paragraphs 69 to 72.

Contracts - Topic 4558

Discharge and termination - By agreement - Termination by conduct of parties - [See Contracts - Topic 3544 ].

Contracts - Topic 7406

Interpretation - General principles - Interpretation by context - [See Contracts - Topic 2281 ].

Contracts - Topic 7409

Interpretation - General principles - Subsequent conduct of parties - The plaintiff granted the defendant a right of first refusal (ROFR) for an oil and gas lease - The plaintiff advised the defendant that it had received an offer for the lease of $338,000, triggering the ROFR - The defendant responded with a potential offer - The parties entered into a memorandum of understanding (MOU) under which, subject to the defendant's "satisfaction and subsequent board approval of the comprehensive due diligence package", the defendant would purchase all shares of the plaintiff - One week later, the defendant advised that it was unable to proceed with the purchase - The plaintiff advised that the other offer had been withdrawn - Subsequently, the lease was sold to a third party for $150,000 - The plaintiff sued the defendant, claiming specific performance of the MOU and damages - The defendant applied under rule 173(c) to strike the claim as scandalous, frivolous or vexatious - The Saskatchewan Court of Queen's Bench allowed the application - The plaintiff's assertion that the MOU was a binding agreement for the defendant to purchase all shares of the plaintiff was devoid of merit - The court noted the evidence of the parties' subsequent conduct in interpreting the MOU - There was no evidence that the plaintiff took the position that the MOU was a binding agreement to purchase the shares at any time before commencing this action - Nor was there evidence that it had taken the position that the defendant had breached its obligations - The parties' subsequent conduct was consistent with the conclusion that there was no binding agreement to purchase the shares - See paragraphs 64 to 67.

Contracts - Topic 7526

Interpretation - Surrounding circumstances - Commercial setting - [See Contracts - Topic 2281 ].

Practice - Topic 2210

Pleadings - Striking out pleadings - Time for objection or application - The defendant applied under rule 173(c) to dismiss the plaintiff's action as scandalous, frivolous or vexatious - The Saskatchewan Court of Queen's Bench allowed the application - The court rejected the plaintiff's assertion that the defendant, having filed its statement of defence, was precluded from applying to strike the statement of claim - There was no evidence of prejudice to the plaintiff due to factors such as delay, cost or inconvenience - The application was made in a reasonably timely fashion - Examinations for discovery had not yet been held - See paragraph 47.

Practice - Topic 2231

Pleadings - Striking out pleadings - Grounds - False, frivolous, vexatious or scandalous - [See both Contracts - Topic 1503 , Contracts - Topic 2281 , Contracts - Topic 3544 and Contracts - Topic 7409 ].

Practice - Topic 2231

Pleadings - Striking out pleadings - Grounds - False, frivolous, vexatious or scandalous - The plaintiff granted the defendant a right of first refusal (ROFR) for an oil and gas lease - The plaintiff advised the defendant that it had received an offer for the lease of $338,000, triggering the ROFR - The defendant responded with a potential offer - The parties entered into a memorandum of understanding (MOU) under which, subject to the defendant's "satisfaction and subsequent board approval of the comprehensive due diligence package", the defendant would purchase all shares of the plaintiff - One week later, the defendant advised that it was unable to proceed with the purchase - The plaintiff advised that the other offer had been withdrawn - Subsequently, the lease was sold to a third party for $150,000 - The plaintiff sued the defendant, claiming specific performance of the MOU and damages - The defendant applied under rule 173(c) to strike the claim as scandalous, frivolous or vexatious - The Saskatchewan Court of Queen's Bench allowed the application - The fact that the defendant had counterclaimed against the plaintiff did not affect the outcome of the defendant's application to strike the claim - The counterclaim should go to trial, but there was no genuine need for a trial of the plaintiff's claim - See paragraph 68.

Cases Noticed:

Arlo Investments Ltd. et al. v. Prince Albert (City) (2010), 354 Sask.R. 27; 2010 SKQB 90, refd to. [para. 32].

Ballantyne (Peter) Indian Band v. Ballantyne et al. (1985), 40 Sask.R. 235 (Q.B.), refd to. [para. 32].

Danilkewich v. Calco Equipment Sask. Inc., [2002] Sask.R. Uned. 180; [2003] 2 W.W.R. 534; 2002 SKQB 449, refd to. [para. 32].

Forster v. Gross (1999), 182 Sask.R. 294 (Q.B.), refd to. [para. 32].

Greyeyes v. Muskeg Lake Cree Nation No. 102 et al. (2010), 362 Sask.R. 122; 500 W.A.C. 122; 2010 SKCA 112, refd to. [para. 32].

Sagon v. Royal Bank of Canada et al. (1992), 105 Sask.R. 133; 32 W.A.C. 133 (C.A.), refd to. [para. 33].

Mann et al. v. Hawkins et al. (2011), 385 Sask.R. 59; 536 W.A.C. 59; 2011 SKCA 146, refd to. [para. 33].

D & Y Acres Ltd. v. Prairie Associate Organics Inc. et al., [2002] Sask.R. Uned. 157; [2002] 11 W.W.R. 533; 2002 SKQB 343, refd to. [para. 34].

RoyNat Inc. v. Northland Properties Ltd. et al. (1993), 115 Sask.R. 272 (Q.B.), refd to. [para. 35].

Battiste v. TD Canada Trust et al. (2011), 372 Sask.R. 254; 2011 SKQB 167, refd to. [para. 36].

Ceapro Inc. v. Saskatchewan et al. (2008), 326 Sask.R. 7; 2008 SKQB 237, refd to. [para. 38].

Black, Gavin & Co. v. Cheung (1980), 20 B.C.L.R. 21 (S.C.), refd to. [para. 39].

Kitsilano Enterprises Ltd. v. G. & A. Developments Ltd., [1990] 6 W.W.R. 38 (B.C.S.C.), refd to. [para. 40].

B.E.M. Enterprises Ltd. v. Campeau Corp. (1980), 24 B.C.L.R. 244 (S.C.), refd to. [para. 42].

Bawitko Investments Ltd. v. Kernels Popcorn Ltd. (1991), 53 O.A.C. 314; 79 D.L.R.(4th) 97 (C.A.), refd to. [para. 43].

Wild Rose Properties Ltd. v. Latam (1985), 59 A.R. 95 (C.A.), refd to. [para. 46].

Home Oil Co. v. Page Petroleum Ltd., [1976] 4 W.W.R. 598 (Alta. T.D.), refd to. [para. 46].

SaskPower International Inc. et al. v. UMA/B&V Ltd. et al. (2007), 293 Sask.R. 66; 397 W.A.C. 66; 2007 SKCA 40, refd to. [para. 53].

Soleil Hotel & Suites Ltd. v. Soleil Management Inc. et al., [2009] B.C.T.C. Uned. 1303; 2009 BCSC 1303, refd to. [para. 55].

Murray v. Boyle et al. (1991), 93 Sask.R. 165; 4 W.A.C. 165; 86 D.L.R.(4th) 29 (C.A.), refd to. [para. 55].

Greenhills Golf and Country Club 617654 Saskatchewan Ltd. v. Morhart (2002), 215 Sask.R. 124; 2002 SKQB 10, refd to. [para. 55].

Wiebe v. Bobsien, [1986] 4 W.W.R. 270; 20 D.L.R.(4th) 475 (B.C.C.A.), refd to. [para. 59].

Seven Oaks Inn Partnership v. DirectCash Inc. (2013), 429 Sask.R. 301; 2013 SKQB 342, refd to. [para. 71].

Authors and Works Noticed:

Fridman, Gerald Henry Louis, The Law of Contract in Canada (6th Ed. 2011), pp. 585, 586 [para. 69].

Hall, Geoff R., Canadian Contractual Interpretation Law (2007), pp. 133 [para. 44]; 138 [para. 57].

Counsel:

Mervin C. Phillips, for the plaintiff (defendant by counterclaim);

Mikolay A. Cupial and Trevor T. Green, for the defendant (plaintiff by counterclaim).

This application was heard by Barrington-Foote, J., of the Saskatchewan Court of Queen's Bench, Judicial Centre of Regina, who delivered the following fiat on January 16, 2014.