Luscar Ltd. and Norcen Energy Resources Ltd. v. Pembina Resources Ltd., (1994) 162 A.R. 35 (CA)

• Judge: Hetherington, Conrad and Côté, JJ.A.
• Court: Court of Appeal (Alberta)
• Case Date: November 10, 1994
• Citations: (1994), 162 A.R. 35 (CA);1994 ABCA 356;[1995] 2 WWR 153;162 AR 35;24 Alta LR (3d) 305;[1994] AJ No 864 (QL)

Luscar Ltd. v. Pembina Resources Ltd. (1994), 162 A.R. 35 (CA);

    83 W.A.C. 35

MLB headnote and full text

Luscar Ltd. and Norcen Energy Resources Limited (plaintiffs/respondents) v. Pembina Resources Limited (defendant/appellant)

(Appeal No. 13293)

Indexed As: Luscar Ltd. and Norcen Energy Resources Ltd. v. Pembina Resources Ltd.

Alberta Court of Appeal

Hetherington, Conrad and

Côté, JJ.A.

November 10, 1994.

Summary:

Luscar, Norcen and Pembina were parties to an operating agreement for the explora­tion, development and operation of a certain petroleum and natural gas lease. Pembina was the managing operator. The agreement contained an "Area of Mutual Interest" clause (A.M.I.), which required any party intending to purchase an interest in lands in the A.M.I. to give written notice to the other two parties, giving them the option of par­ticipating in the purchase. Pembina pur­chased three separate interests in 1971, 1975 and 1976, without giving written notice as required by the A.M.I. clause. Luscar and Norcen claimed that they first learned of the purchases in 1983. Following unsuccessful attempts to resolve the matter, Norcen and Luscar com­menced an action in 1986. They claimed breach of contract, breach of fiduciary duty and unjust enrichment. Pem­bina pleaded the Limitation of Actions Act.

The Alberta Court of Queen's Bench, in a judgment reported 122 A.R. 83, allowed the action. The court held that any contract action was barred by the Limitation of Actions Act, but the unjust enrichment claim was commenced within the applicable limi­tation period. The court declared Luscar's and Norcen's rights respecting the three property interests. Before judgment was entered, Pembina applied to introduce further evidence relating to the income tax effect of Pembina having received the net production revenue from the wells and having reported such income and paid income tax thereon.

The Alberta Court of Queen's Bench, in a judgment reported 128 A.R. 77, dismissed the application. Pembina appealed.

The Alberta Court of Appeal allowed the appeal and vacated the trial judgment. The only viable action was for breach of contract and that action was statute-barred.

Contracts - Topic 4003

Remedies for breach - Concurrent liability in contract and equity - The Alberta Court of Appeal stated that "the mere fact that the parties have dealt with the matter expressly in their contract does not neces­sarily mean they intended to exclude the right to sue in equity, if such an indepen­dent right exists. ... Conceptually, there is no reason an obligation could not give rise to an equitable cause of action as well as a contractual one. It depends on the char­acterization of the wrong. It is essential to determine whether there is an independent equitable obligation." - See paragraph 44.

Equity - Topic 3602

Fiduciary or confidential relationships - Fiduciary relationship - Elements of - The Alberta Court of Appeal referred to the three general characteristics of a fiduciary relationship: "(1) the fiduciary has scope for the exercise of some discretion or power; (2) the fiduciary can unilateral­ly exercise that power or discretion so as to affect the beneficiary's legal or practical interests; (3) the beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power." - See paragraph 47.

Equity - Topic 3606

Fiduciary or confidential relationships - Fiduciary relationship - What constitutes - [See first Mines and Minerals - Topic 8225 ].

Equity - Topic 3714

Fiduciary or confidential relationships - Commercial relationships - Duty of dis­closure - An operating agreement con­tained an "Area of Mutual Interest" clause - The A.M.I. clause required any party intending to purchase an interest in lands in the A.M.I. to give written notice to the other parties, giving them the option of participating - Pembina was the man­aging operator under the agreement and pur­chased interests in lands without com­ply­ing with the A.M.I. clause - The Alberta Court of Appeal held that neither the relationship between the parties, nor the A.M.I. clause itself, created a fiduciary relationship - The breach of the contrac­tual notice provision gave rise to an action for breach of contract with an equi­table remedy (specific performance), but there was no independent cause of action in equity for breach of fiduciary duty - See paragraphs 53 to 94.

Limitation of Actions - Topic 2023

Actions in contract - Actions for breach of contract - When time commences to run - The Alberta Court of Appeal held that the discover­ability rule did not apply to con­tract actions - Accordingly, if a contract was breached in 1971, and assuming that the breach was discovered only in 1983, an action com­menced in 1986 was stat­ute-barred by the six year limita­tion period under the Limi­tation of Actions Act - The court stated that if it was wrong in finding that the discovera­bility rule did not apply to contract actions, the action was still statute-barred, because the plain­tiffs had knowl­edge of the facts giving rise to the cause of action more than six years before the action was com­menced in 1986 - See paragraphs 123 to 139.

Limitation of Actions - Topic 2025

Actions in contract - Actions for breach of contract - Fraudulent concealment - Effect of - Section 6 of the Limitation of Actions Act provided that "when the existence of a cause of action has been concealed by ... fraud ... the cause of action shall be deemed to have arisen when the fraud was first known or discovered." - The trial judge stated that "fraud" was used in its equitable sense (i.e., con­duct or inactivity falling short of fraud at common law) - The plaintiff must prove that the defendant knowingly or recklessly con­cealed the cause of action - The court held that the plaintiffs failed to prove s. 6 applied - The Alberta Court of Appeal affirmed that s. 6 did not apply.

Mines and Minerals - Topic 8225

Oil and gas - Operation and production agreements - Area of mutual interest clause - An operating agreement contained an "Area of Mutual Interest" clause - The A.M.I. clause required any party intending to purchase an interest in lands in the A.M.I. to give written notice to the other parties, giving them the option of partici­pating - Pembina was the managing oper­ator under the agreement and purchased interests in three separate lands without complying with the A.M.I. clause - The trial judge held that the agreement, and the A.M.I. clause by itself, created a fiduciary relationship between Pembina and the other two parties to the agreement - The Alberta Court of Appeal held that neither the relationship, nor the clause itself, cre­ated a fiduciary duty - See paragraphs 53 to 94.

Mines and Minerals - Topic 8225

Oil and gas - Operation and production agreements - Area of mutual interest clause - The A.M.I. clause in an operating agreement required any party intending to purchase an interest in lands in the A.M.I. to give written notice to the other parties, giving them the option of participating - Pembina was the managing operator under the agreement and purchased interests in three separate lands without complying with the A.M.I. clause - The trial judge held that once Pembina made the acquisi­tions, it had a duty to hold the interests of the nonac­quiring parties in trust until they were advised in writing of the acquisi­tion - The A.M.I. clause created an express trust or, at the very least, an implied trust; Pem­bina still held the other parties' inter­ests in the three lands in trust - The Alberta Court of Appeal held that there was no trust, because there was no cer­tainty of intention - See paragraphs 95 to 110.

Restitution - Topic 62

Unjust enrichment - What constitutes - Pembina was managing operator under an oil and gas operating agreement - The agreement contained an A.M.I. clause, which required Pembina to give written notice to the other parties before purchas­ing any interest in lands in the A.M.I. area - The other parties then had the option of participating - Pembina pur­chased interests in land in breach of the A.M.I. clause - The trial judge held that Pembina was unjustly enriched, because there was an enrichment, a corre­sponding deprivation and no juristic reason for the enrichment - The Alberta Court of Appeal held that there was no unjust enrichment, because there was a juristic reason for the enrich­ment - The court stated that "where there exists a contract under which parties are governed, and one party gains by a breach of the same, that party is not truly enriched, because the breaching party takes that gain subject to its liability for breach of contract. If the other party does not sue within the time set out in the Limitations Act, then, without more, there is a juristic reason for the gain because the breaching party is entitled to rely on the intended limitation." - See paragraphs 110 to 122.

Restitution - Topic 123

Unjust enrichment - Remedies - Con­structive trust - An operating agreement contained an "Area of Mutual Interest" clause - The A.M.I. clause required any party intending to purchase an interest in lands in the A.M.I. to give written notice to the other parties, giving them the option of participating - Pembina was the man­aging operator under the agreement and purchased interests in three separate lands without complying with the A.M.I. clause - The trial judge held that Pembina was unjustly enriched; that a con­structive trust was the appropri­ate rem­edy - The Alberta Court of Appeal held that there was no unjust enrichment to support the finding of a constructive trust - See para­graphs 111 to 122.

Trusts - Topic 5

Definitions - Express trust - [See second Mines and Minerals - Topic 8225 ].

Trusts - Topic 6

Definitions - Implied trustee - [See second Mines and Minerals - Topic 8225 ].

Cases Noticed:

98956 Investments Ltd. (Receivership) v. Fidelity Trust Co. (1988), 89 A.R. 151; 61 Alta. L.R.(2d) 193 (C.A.), appld. [para. 2].

Canson Enterprises Ltd. et al. v. Boughton & Co. et al., [1991] 3 S.C.R. 534; 131 N.R. 321; 6 B.C.A.C. 1; 13 W.A.C. 1, refd to. [para. 41].

Central Trust Co. v. Rafuse and Cordon, [1986] 2 S.C.R. 147; 69 N.R. 321; 75 N.S.R.(2d) 109; 186 A.P.R. 109; 37 C.C.L.T. 117; 31 D.L.R.(4th) 481, refd to. [para. 42].

BG Checo International Ltd. v. British Columbia Hydro and Power Authority, [1993] 1 S.C.R. 12; 147 N.R. 81; 20 B.C.A.C. 241; 35 W.A.C. 241, refd to. [para. 43].

Queen (D.J.) v. Cognos Inc., [1993] 1 S.C.R. 87; 147 N.R. 169; 60 O.A.C. 1, refd to. [para. 43].

International Corona Resources Ltd. v. LAC Minerals, [1989] 2 S.C.R. 574; 101 N.R. 239; 36 O.A.C. 57; 61 D.L.R.(4th) 14; 69 O.R.(2d) 287; 35 E.T.R. 1, refd to. [para. 45].

Frame v. Smith and Smith, [1987] 2 S.C.R. 99; 78 N.R. 40; 23 O.A.C. 84, refd to. [para. 47].

Jirna Ltd. v. Mister Donut of Canada Ltd., [1975] 1 S.C.R. 2, refd to. [para. 50].

Hospital Products Ltd. v. U.S. Surgical Corp. (1984), 55 A.L.R. 417 (H.C.), refd to. [para. 51].

Bank of Nova Scotia v. Société Général (Canada) et al. (1988), 87 A.R. 133; 58 Alta. L.R.(2d) 193 (C.A.), refd to. [para. 54].

Great Northern Petroleum & Mines Ltd. et al. v. Merland Explorations Ltd. and Canada Northwest Land Ltd. (1983), 43 A.R. 128; 25 Alta. L.R.(2d) 67 (Q.B.), affd. (1984), 36 Alta. L.R.(2d) 97 (C.A.), refd to. [para. 54].

Norberg v. Wynrib, [1992] 2 S.C.R. 226; 138 N.R. 81; 9 B.C.A.C. 1; 19 W.A.C. 1; 92 D.L.R.(4th) 449, refd to. [para. 73].

Trimac Ltd. v. C-I-L Inc., [1990] 1 W.W.R. 133; 99 A.R. 30 (Q.B.), refd to. [para. 80].

Palmer v. Fuqua (1981), 641 F.2d 1146 (U.S.A.C. 5th Cir.), refd to. [para. 82].

First National Bank and Trust Co. of Oklahoma City v. Sidwell Corporation (1984), 678 P.2d 118 (Kan. S.C.), refd to. [para. 82].

Wonsch Construction Co. et al. v. Danzig Enterprises Ltd. et al. (1990), 42 O.A.C. 195; 75 D.L.R.(4th) 732; 1 O.R. 382 (C.A.), refd to. [para. 83].

Erehwon Exploration Ltd. v. Northstar Energy Corp. (1994), 147 A.R. 1; 108 D.L.R.(4th) 709 (Q.B.), refd to. [para. 84].

Midcon Oil & Gas Ltd. v. New British Dominion Oil Co. (1958), 12 D.L.R.(2d) 705 (S.C.C.), refd to. [para. 88].

Knight v. Knight (1840), 3 Beav. 148; 49 E.R. 58, refd to. [para. 98].

Guerin v. Canada, [1984] 2 S.C.R. 335; 55 N.R. 161; 13 D.L.R.(4th) 321, refd to. [para. 98].

Irvine v. MacAuley (1897), 26 O.A.R. 446 (Ont. C.A.), refd to. [para. 106].

Martin Commercial Fueling Inc. v. Virtanen (1993), 84 B.C.L.R.(2d) 289 (S.C.), refd to. [para. 106].

Rayner v. Preston (1881), 18 Ch.D. 1 (C.A.), refd to. [para. 106].

Shelbey v. Rural Municipality of Mervin No. 499 (1922), 63 D.L.R. 632 (Sask. C.A.), refd to. [para. 106].

Robinson v. Moffatt (1916), 31 D.L.R. 490 (Ont. C.A.), refd to. [para. 106].

Deglman v. Guarantee Trust of Canada, [1954] S.C.R. 725, refd to. [para. 111].

Becker v. Pettkus, [1980] 2 S.C.R. 834; 34 N.R. 384; 117 D.L.R.(3d) 257; 19 R.F.L.(2d) 165; 8 E.T.R. 143, refd to. [para. 111].

Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd., [1943] A.C. 32 (H.L.), refd to. [para. 111].

Rathwell v. Rathwell, [1978] 2 S.C.R. 436; 19 N.R. 91; 83 D.L.R.(3d) 289; [1978] 2 W.W.R. 101; 1 E.T.R. 307; 1 R.F.L.(2d) 1, refd to. [para. 111].

United Canso Oil and Gas Ltd. v. Washoe Northern Inc. et al. (1991), 121 A.R. 1 (Q.B.), refd to. [para. 118].

Goodman Estate v. Geffen, [1991] 2 S.C.R. 353; 127 N.R. 241; 125 A.R. 81; 14 W.A.C. 81; 81 D.L.R.(4th) 211, refd to. [para. 128].

Royal Canadian Legion Norwood (Alberta) Branch 178 v. Edmonton (City) (1994), 149 A.R. 25; 63 W.A.C. 25; 16 Alta. L.R.(3d) 305 (C.A.), refd to. [para. 129].

Karsanjii Estate v. Roque, [1990] 3 W.W.R. 612 (B.C.C.A.), refd to. [para. 133].

Ford Excavations Pty. Ltd. v. Do Carmo, [1981] 2 N.S.W.L.R. 253 (N.S.W.C.A.), revd. 154 C.L.R. 234 (Aust. H.C.), refd to. [para. 133].

Cartledge v. Jopling (E.) & Sons, [1961] 3 All E.R. 482 (C.A.), affd. [1963] 1 All E.R. 341 (H.L.), refd to. [para. 135].

Statutes Noticed:

Limitation of Actions Act, R.S.A. 1980, c. L-15, sect. 4(1)(e) [para. 129]; sect. 6 [para. 115]; sect. 40, sect. 41 [para. 103].

Authors and Works Noticed:

DiCastri, Q.C., The Law of Vendor and Purchaser (1989), vol. 2, p. 482 [para. 106].

Ellis, Mark Vincent, Fiduciary Duties in Canada (1993), p. 13-1 [para. 83].

Keeton and Sheridan, Law of Trusts (11th Ed. 1983), pp. 5 [para. 109]; 202 [para. 106].

Maddaugh, P.D., and McCamus, J.D., The Law of Restitution (1990), p. 33 [para. 111].

Nickle Daily Oil Bulletin, generally [para. 13].

Waters, D.W.M., Law of Trusts in Canada (2nd Ed. 1984), pp. 107 [para. 99]; 690 [para. 101].

Counsel:

L.M. Sali, Q.C., A.G. MacWilliam, L.R. Duncan, Q.C., and L. O'Donoghue, for the appellant, Pembina Resources Ltd.;

E.L. Bunnell, Q.C., and A.P. Argento, for the respondent, Luscar Ltd.;

J.J. Marshall, Q.C., and T.E. Valentine, for the respondent, Norcen Energy Re­sources Ltd.

This appeal was heard before Hetherington, Conrad and Côté, JJ.A., of the Alberta Court of Appeal.

On November 10, 1994, the judgment of the Court of Appeal was delivered and the following opinions were filed:

Conrad, J.A. (Côté, J.A., concurring) - see paragraphs 1 to 141;

Hetherington, J.A. - see paragraph 142.