Marathon Canada Ltd. v. Enron Canada Corp., 2009 ABCA 31

• Judge: Picard, Costigan and Watson, JJ.A.
• Court: Court of Appeal (Alberta)
• Case Date: January 15, 2009
• Citations: 2009 ABCA 31;(2009), 448 A.R. 245 (CA)

Marathon Can. Ltd. v. Enron Can. Corp. (2009), 448 A.R. 245 (CA);

      447 W.A.C. 245

MLB headnote and full text

Temp. Cite: [2009] A.R. TBEd. JA.163

Marathon Canada Limited (respondent/plaintiff/defendant by counterclaim) v. Enron Canada Corp. (appellant/defendant/plaintiff by counterclaim) and Marathon Oil Company and Husky Oil Operations Limited (respondents/defendants by counterclaim)

(0801-0242-AC; 2009 ABCA 31)

Indexed As: Marathon Canada Ltd. v. Enron Canada Corp.

Alberta Court of Appeal

Picard, Costigan and Watson, JJ.A.

January 23, 2009.

Summary:

Enron Canada Corp. (ECC) was an asset of Enron Corp. which filed for bankruptcy in 2001. ECC subsequently undertook a voluntary solvent liquidation and dissolution under the Canada Business Corporations Act. Marathon Canada Ltd., which was a party to a master agreement to sell gas to ECC, terminated the agreement on the basis that a material adverse change (MAC) within the meaning of the agreement occurred when a credit rating agency cut Enron Corp.'s credit rating to junk bond status. Marathon commenced legal proceedings against ECC. ECC counterclaimed.

The Alberta Court of Queen's Bench, in a decision reported (2008), 447 A.R. 46, found that there was a MAC and that Marathon validly terminated the master agreement. The court awarded judgment on the contract to Marathon for the gas that was delivered (i.e., $560,007.94 plus pre-judgment interest). The court dismissed the counterclaim, but provisionally calculated ECC's damages at $55,221,000. ECC fully paid the judgment but appealed the trial decision. Marathon applied for security for costs under rule 524 of the Rules of Court in the amount of $3.5 million, that amount reflecting the total potential trial costs, which were yet to be determined.

The Alberta Court of Appeal, per Paperny, J.A., in a decision reported  (2008), 446 A.R. 88; 442 W.A.C. 88, dismissed the application. Submissions on trial costs followed.

The Alberta Court of Queen's Bench, in a decision reported (2009), 447 A.R. 89, dealt with the costs issues accordingly. ECC's appeal on the merits proceeded.

The Alberta Court of Appeal dismissed the appeal.

Contracts - Topic 2086

Terms - Implied terms - Trade custom - Circumstances when trade custom will not be implied - Marathon Canada Ltd., which was party to a master agreement to sell natural gas to Enron Canada Corp. (ECC), terminated the agreement on the basis that a material adverse change (MAC) occurred (i.e., a triggering event (TE) within the meaning of the agreement) when a credit rating agency cut its parent corporation's credit rating to junk bond status - Marathon sued ECC for gas delivered - The trial judge held that there had been a TE/MAC and Marathon was entitled to terminate the agreement - Damages were assessed - The trial judge dismissed a multi-million dollar counterclaim by ECC - ECC appealed, arguing that the trial judge erred in finding that there was a TE/MAC under the terms of the agreement - ECC argued further that the agreement should be read as limited by industry practice or commercial context (i.e., ECC should have been given more time) - The Alberta Court of Appeal dismissed the appeal - The trial judge made no palpable and overriding error in its fact finding that there was a TE/MAC - Further, to read into this agreement a duty for Marathon to negotiate despite what reasonably could be considered to be a triggering event was not appropriate - See paragraphs 1 to 20.

Contracts - Topic 4701

Discharge and termination - By notice - General - Triggering event - Material adverse change - [See Contracts - Topic 2086 ].

Mines and Minerals - Topic 8275

Oil and gas - Product purchase and sale agreements - Termination (incl. damages) - [See Contracts - Topic 2086 ].

Practice - Topic 8800

Appeals - General principles - Duty of appellate court regarding findings of fact - Marathon Canada Ltd., which was party to a master agreement to sell natural gas to Enron Canada Corp. (ECC), terminated the agreement on the basis that a material adverse change (MAC) occurred (i.e., a triggering event (TE) within the meaning of the agreement) when a credit rating agency cut its parent corporation's credit rating to junk bond status - Marathon commenced legal proceedings against ECC - The trial judge held that there had been a TE/MAC and Marathon was entitled to terminate the agreement - ECC appealed - The Alberta Court of Appeal, as to the standard of review, stated that correctness would apply to the extent that the appeal depended on a strict reading of only the terms of the agreement - However, the reasonableness standard, with its associated concept of palpable and overriding error, would apply to submissions regarding industry practice or "commercial context", good faith, the knowledge and motives of Marathon's president who did not testify, and unjust enrichment, as those contentions raised fact sensitive questions - See paragraph 6.

Practice - Topic 8808

Appeals - General principles - Duty of appellate court respecting conclusions or interpretation of trial judge - [See Practice - Topic 8800 ].

Cases Noticed:

Jager v. Liberty Mutual Fire Insurance Co. et al. (2001), 281 A.R. 273; 248 W.A.C. 273; 2001 ABCA 163, refd to. [para. 6].

942925 Alberta Ltd. et al. v. Thompson et al. (2008), 432 A.R. 177; 424 W.A.C. 177; 2008 ABCA 81, refd to. [para. 6].

Klemke Mining Corp. v. Shell Canada Ltd. et al. (2008), 433 A.R. 172; 429 W.A.C. 172; 2008 ABCA 257, refd to. [para. 6].

Dreco Energy Services Ltd. et al. v. Wenzel et al. (2008), 440 A.R. 273; 438 W.A.C. 273; 93 Alta. L.R.(4th) 260; 2008 ABCA 290, refd to. [para. 6].

Conway et al. v. Zinkhofer, [2008] A.R. Uned. 306; 2008 ABCA 392, refd to. [para. 6].

Wilde et al. v. Archean Energy Ltd. et al. (2007), 422 A.R. 41; 415 W.A.C. 41; 2007 ABCA 385, refd to. [para. 13].

Morrison (Ramona) Hospitality Services Ltd. v. Stonebridge Hotel Ltd., [2008] A.R. Uned. 88; 294 D.L.R.(4th) 574; 2008 ABCA 222, refd to. [para. 13].

Apex Corp. et al. v. Ceco Developments Ltd. (2008), 429 A.R. 110; 421 W.A.C. 110; 2008 ABCA 125, leave to appeal refused  (2008), 391 N.R. 383 (S.C.C.), refd to. [para. 13].

Amerada Minerals Corp. of Canada Ltd. v. Mesa Petroleum (N.A.) Co. et al. (1986), 73 A.R. 172 (C.A.), refd to. [para. 16].

Freyberg v. Fletcher Challenge Oil and Gas Inc. et al. (2005), 363 A.R. 35; 343 W.A.C. 35; 2005 ABCA 46, refd to. [para. 16].

Pennock v. United Farmers of Alberta Co-operative Ltd. (2008), 433 A.R. 285; 429 W.A.C. 285; 2008 ABCA 278, refd to. [para. 17].

Paddon Hughes Development Co. v. Pancontinental Oil Ltd. et al. (1998), 223 A.R. 180; 183 W.A.C. 180; 1998 ABCA 333, refd to. [para. 17].

Landex Investments Co. v. Volken (John) Foundation (2008), 440 A.R. 368; 438 W.A.C. 368; 2008 ABCA 333, refd to. [para. 17].

Panorama Public & Industrial Communications Ltd. et al. v. Highwood Distillers Ltd. (2005), 363 A.R. 239; 343 W.A.C. 239; 2005 ABCA 107, refd to. [para. 17].

Dow Agrosciences Canada Inc. v. Philom Bios Inc., [2007] A.R. Uned. 36; 57 C.P.R.(4th) 369; 2007 ABCA 122, refd to. [para. 17].

Transamerica Life Canada Inc. et al. v. ING Canada Inc., [2003] O.A.C. Uned. 565; 68 O.R.(3d) 457 (C.A.), refd to. [para. 19].

Counsel:

J.L. Lebo, Q.C., D.W. Dear and J.P. Flanagan, for the respondents;

D.W. McGrath and M. O'Brien, for the appellant.

This appeal was heard on January 15, 2009, by Picard, Costigan and Watson, JJ.A., of the Alberta Court of Appeal. The following memorandum of judgment was filed by the court on January 23, 2009, at Calgary, Alberta.