Marathon Canada Ltd. v. Enron Canada Corp., (2008) 447 A.R. 46 (QB)

JudgeMcMahon, J.
CourtCourt of Queen's Bench of Alberta (Canada)
Case DateOctober 29, 2007
Citations(2008), 447 A.R. 46 (QB);2008 ABQB 408

Marathon Can. Ltd. v. Enron Can. Corp. (2008), 447 A.R. 46 (QB)

MLB headnote and full text

Temp. Cite: [2008] A.R. TBEd. OC.077

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

(0201 07692; 2008 ABQB 408)

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

Alberta Court of Queen's Bench

Judicial District of Calgary

McMahon, J.

July 2, 2008.

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 party to a master agreement to sell gas to ECC, terminated the agreement on the basis that a material adverse change (MAC) occurred within the meaning of the agreement 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 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.

Editor's Note: This decision was confirmed on appeal - see 439 A.R. 59; 2009 ABCA 31. A decision respecting posting of security of costs for the appeal is reported at 446 A.R. 88; 442 W.A.C. 88; 2008 ABCA 424 and a decision on trial costs reported at 447 A.R. 89; 220 ABQB 770.

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) within the meaning of the agreement occurred when a credit rating agency cut ECC's parent corporation's credit rating to junk bond status - Marathon commenced legal proceedings against ECC to recover for gas delivered to ECC - ECC argued that industry practice required that Marathon give notice requesting ECC to provide performance assurance (for example, by posting a letter of credit or cash) and then giving ECC reasonable time (three to ten days) to comply, all before the right to early termination arose - The Alberta Court of Queen's Bench held that the evidence did not establish an industry practice so well known as to justify a presumed intent to be bound by it - The alleged practice ran contrary to the plain language of the contract to which effect had to be given - Further, if industry practice had evolved since the master agreement was negotiated, the parties had chosen not to amend the contract - See paragraphs 98 to 126.

Contracts - Topic 3502

Performance or breach - Obligation to perform - Good faith - Exercise of - The Alberta Court of Queen's Bench agreed with the Ontario Court of Appeal's statement in Transamerica Life Canada Inc. v. ING Canada Inc., that "Canadian courts have not recognized a stand-alone duty of good faith that is independent from the terms expressed in a contract or from the objectives that emerge from those provisions. The implication of a duty of good faith has not gone so far as to create new, unbargained-for, rights and obligations. Nor has it been used to alter the express terms of the contract reached by the parties. Rather, courts have implied a duty of good faith with a view to securing the performance and enforcement of the contract made by the parties, or as it is sometimes put, to ensure that parties do not act in a way that eviscerates or defeats the objectives of the agreement that they have entered into" - See paragraph 129.

Contracts - Topic 3944

Performance or breach - Relief from forfeiture - When available - [See Contracts - Topic 4511 ].

Contracts - Topic 4511

Discharge and termination - General - Damages - One way or walk away contract vs. two way contract - Marathon Canada Ltd. terminated a master agreement to sell gas to Enron Canada Corp. (ECC) - Marathon sued ECC - Marathon claimed for gas delivered and invoiced - Further, Marathon Canada was "out of the money" in the tens of millions of dollars because the present value of the gas remaining to be delivered under the agreement valued at projected future prices far exceeded the present value calculated at the contract prices - Thus, Marathon Canada was "out of the money" because it was contractually obliged to sell its gas at less than projected market prices over the balance of the term of the agreement - The lawful termination of the agreement would therefore benefit Marathon which could have at that time sold its gas at a higher price via a replacement contract - Marathon Canada argued that liquidated damages should be calculated under art. 9.2 of the agreement on a one way or a walk away basis - Thus it would collect its unpaid invoice plus interest and would not have to compensate ECC for the loss of its favorable contract prices over the balance of the term of the agreement (i.e., Marathon Canada could walk away from its "out of the money" position) - ECC argued that even if Marathon Canada did lawfully terminate the agreement, ECC was nevertheless entitled to liquidated damages based on the loss of its "in the money" position, less a set-off of Marathon's unpaid invoice (i.e., a two way calculation of damages) - The Alberta Court of Queen's Bench held that art. 9.2 was a one way or walk away provision for a number of enumerated reasons upon which Marathon could rely - Further relief from forfeiture was not available to ECC, and even if it was, the court would have declined to grant it - See paragraphs 148 to 173.

Contracts - Topic 4701

Discharge and termination - By notice - General - Triggering event - Material adverse change - Enron Canada Corp. (ECC) was an asset of Enron Corp. which filed for bankruptcy - ECC subsequently undertook a voluntary solvent liquidation and dissolution - Marathon Canada Ltd. terminated a master agreement to sell natural gas to ECC, claiming that a material adverse change in circumstances occurred when a credit rating agency cut ECC's parent corporation's credit rating to junk bond status (i.e., that there was a "triggering event" within the meaning of the agreement) - Marathon sued ECC - The Alberta Court of Queen's Bench held that Marathon validly terminated the master agreement - See paragraphs 80 to 147.

Contracts - Topic 7415.1

Interpretation - General principles - Good faith - [See Contracts - Topic 3502 ].

Contracts - Topic 7415.1

Interpretation - General principles - Good faith - 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) within the meaning of the agreement occurred when a credit rating agency cut ECC's parent corporation's credit rating to junk bond status - Marathon commenced legal proceedings against ECC to recover for gas delivered to ECC - ECC raised a good faith argument - The Alberta Court of Queen's Bench (McMahon, J.), stated that "To arise from an interpretation of the contract, the alleged duty must be consistent with the express terms to which the parties have agreed. The parties' expectations are best found in their clear words. Where their words are equivocal or absent, there may be room to imply expectations having regard to commercial context. That is not the case here as I've already concluded. Exercising one's contractual right of termination is not evidence of a breach of good faith" - See paragraphs 127 to 131.

Damages - Topic 5683

Contracts - Termination of contract - One way or walk away contracts vs. two way contract - [See Contracts - Topic 4511 ].

Evidence - Topic 7002

Opinion evidence - Expert evidence - General - Acceptance, rejection and weight to be given to expert opinion - [See Evidence - Topic 7010.1 and Evidence - Topic 7075 ].

Evidence - Topic 7010.1

Opinion evidence - Expert evidence - General - Evidence of new scientific doctrines - The plaintiff terminated a natural gas agreement and sought payment from the defendant for gas delivered - On the issue of the calculation of damages, the defendant moved to exclude the evidence of a particular expert for the plaintiff (Dr. Sick) insofar as it was based upon his use of a "Kalman filter model" as a predictor of natural gas futures curves - The objection taken was that the methodology used was novel in relation to the forecast of natural gas prices and that it did not meet the threshold test for reliability - The Alberta Court of Queen's Bench held that the evidence based upon the Kalman model met the threshold test for reliability and there was no doubt that it was necessary in determining the quantum of damages - The court rejected the defendant's argument that the evidence was inadmissible on the basis that the model had not been tested - Further, the evidence did not run afoul of any other exclusionary rule - The court ruled that Dr. Sick's evidence of future natural gas price curves based upon his methodology using the Kalman filter model was admissible evidence - See paragraphs 59 to 79.

Evidence - Topic 7055

Opinion evidence - Expert evidence - Particular matters - Custom and usage, industry practices, etc. - [See Contracts - Topic 2086 ].

Evidence - Topic 7075

Opinion evidence - Expert evidence - Particular matters - Reports by experts - Admission of (incl. objection to) - The plaintiff terminated a natural gas agreement and sought payment from the defendant for gas delivered - Both sides objected to expert reports on the basis that the experts opined on the ultimate issue and offered interpretations of various contract terms and provisions - The Alberta Court of Queen's Bench reviewed the authorities on opinion evidence - The court ruled that while some of the statements in the expert reports could be said to offend the rules respecting opinion evidence, it was not feasible to sever those statements from the reports in any reasonable way - The court accepted that in order to explain industry practice, the experts had to refer to the contract terms which lead industry players to perform in a certain way - The experts were entitled to state the assumptions made, or the assumptions or opinions made generally in the industry, about the meaning of the contract terms to support or explain industry conduct - If those assumptions proved to be wrong, then the opinion would have little value - The court therefore ruled that it would receive the reports in the form provided and deal with any encroachment on these rules in weighing the opinion in its final judgment - The court dealt with the expert evidence accordingly - See paragraphs 38 to 58.

Evidence - Topic 7151

Opinion evidence - Prohibited opinions - General - [See Evidence - Topic 7075 ].

Mines and Minerals - Topic 8275

Oil and gas - Product purchase and sale agreements - Termination (incl. damages) - One way or walk away contract vs. two way contract - [See Contracts - Topic 4511 and Contracts - Topic 4701 ].

Practice - Topic 4500

Discovery - Use of examination in court or other proceedings - Reading of discovery evidence into the record - The plaintiff terminated a natural gas agreement and sued the defendant for gas delivered - During read-in of discovery answers, on several occasions, the Alberta Court of Queen's Bench ruled that the answer read was so connected to another answer that the latter ought to be read as well (rule 214(4)) and then gave the party reading in the answer the option to withdraw both - An issue arose as to whether it was proper to allow a party to withdraw a read-in after a direction under rule 214(4) - The court held that this was a matter of discretion for the trial judge - A party ought not to be obliged to put into its case answers from examination for discovery which it did not intend to include, whether by inadvertence, or by a ruling made under rule 214(4) after a request by the other party; so long as the party reading in has not yet closed its case - That is, if the party reading in does not like the addition but the judge allows it, the party reading in can withdraw both - See paragraphs 137 to 140.

Practice - Topic 4500

Discovery - Use of examination in court or other proceedings - Reading of discovery evidence into the record - The plaintiff terminated a natural gas agreement and sued the defendant for gas delivered - During the course of the defendant's case, the court directed that two large volumes of read-ins from examination for discovery including additions made pursuant to rule 214(4) be provided to the court reporter and incorporated into the record as read without actually reading each question and answer into the record - The defendant then completed its case, as did the plaintiff - On the last day of trial, the defendant applied to withdraw some of its read-ins - The Alberta Court of Queen's Bench denied the application - The plaintiff had completed its evidence and it would be unfair to the plaintiff to permit the defendant to withdraw read-ins after having heard its opponent's case - The court stated that if a party intended to apply to withdraw read-ins, it had to do so before the close of its case - The decision was then a matter of judicial discretion in all of the circumstances - However where the opposing party had closed its case and relied upon the read-ins, the application for withdrawal would be refused - See paragraphs 142 to 146.

Restitution - Topic 64

Unjust enrichment - General - Juristic reason for enrichment - 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) within the meaning of the agreement occurred when a credit rating agency cut ECC's parent corporation's credit rating to junk bond status - Marathon commenced legal proceedings against ECC to recover for gas delivered to ECC - ECC argued that Marathon was unjustly enriched when, by termination of the agreement, it shed a significant out-of-the-money position to the detriment of ECC which lost an asset of the same value - The Alberta Court of Queen's Bench held that the complete answer to this argument was that the early termination of the agreement by Marathon was in accord with the terms of the agreement and those terms were a "juristic reason for the enrichment" - The court stated that when the parties have entered into a carefully negotiated commercial contract, as here, a court should be reluctant "to find a gap to fill with unjust enrichment" - See paragraphs 132 to 134.

Cases Noticed:

R. v. Mohan, [1994] 2 S.C.R. 9; 166 N.R. 245; 71 O.A.C. 241, refd to. [para. 40].

R. v. D.D., [2000] 2 S.C.R. 275; 259 N.R. 156; 136 O.A.C. 201, refd to. [para. 41].

Hovsepian et al. v. Westfair Foods Ltd. et al. (2003), 341 A.R. 1; 22 Alta. L.R.(4th) 241 (Q.B.), refd to. [para. 42].

Reardon Smith Line Ltd. v. Yngvar Hanson-Tangen, [1976] 1 W.L.R. 989 (H.L.), refd to. [para. 42].

Bank of British Columbia v. Turbo Resources Ltd. (1983), 46 A.R. 22; 148 D.L.R.(3d) 590 (C.A.), refd to. [para. 42].

Kensington Energy Ltd. v. B & G Energy Ltd. (2008), 432 A.R. 141; 424 W.A.C. 141; 2008 ABCA 151, refd to. [para. 42].

Canadian Pacific Hotels Ltd. v. Bank of Montreal, [1987] 1 S.C.R. 711; 77 N.R. 161; 21 O.A.C. 321, refd to. [para. 43].

Harris v. Nugent et al. (1996), 193 A.R. 113; 135 W.A.C. 113 (C.A.), refd to. [para. 43].

United Canso Oil & Gas Ltd. v. Washoe Northern Inc. et al. (1990), 78 Alta. L.R.(2d) 79 (C.A.), refd to. [para. 44].

Bank of Montreal v. Dynex Petroleum Ltd. - see Bank of Montreal v. Enchant Resources Ltd. et al.

Bank of Montreal v. Enchant Resources Ltd. et al., [2002] 1 S.C.R. 146; 281 N.R. 113; 299 A.R. 1; 266 W.A.C. 1, refd to. [para. 44].

Envirodrive Inc. v. 836442 Alberta Ltd., 2005 ABQB 446, refd to. [para. 47].

R. v. J.J. - see R. v. J.-L.J.

R. v. J.-L.J., [2000] 2 S.C.R. 600; 261 N.R. 111, refd to. [para. 60].

Chan v. Erin Mills Town Centre Corp. et al., [2005] O.T.C. 986 (Sup. Ct.), refd to. [para. 64].

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. 83].

Paddon Hughes Development Co. v. Pancontinental Oil Ltd. et al. (1998), 223 A.R. 180; 183 W.A.C. 180 (C.A.), refd to. [para. 100].

Prenor Trust Co. of Canada v. Kerkhoff Properties Inc., [1994] 9 W.W.R. 170; 21 Alta. L.R.(3d) 122 (Q.B.), refd to. [para. 103].

Sun Sudan Oil Co. et al. v. Methanex Corp. et al. (1992), 134 A.R. 1 (Q.B.), refd to. [para. 114].

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. 120].

Blue Range Resource Corp., Re (2000), 266 A.R. 98; 228 W.A.C. 98; 192 D.L.R.(4th) 281 (C.A.), refd to. [para. 121].

Enron Canada Corp., Re (2001), 310 A.R. 386 (Q.B.), refd to. [para. 121].

Cargill Gas Marketing Ltd. v. Alberta Northeast Ltd., [2008] A.R. Uned. 184; 2008 ABQB 59, refd to. [para. 125].

Microcell Connexions Inc. v. Telus Mobility Inc. et al., [1999] A.R. Uned. 161; 1999 ABQB 94, affd. [1999] A.R. Uned. 189; 1999 ABCA 183, refd to. [para. 125].

Mesa Operating Limited Partnership v. Amoco Canada Resources Ltd. (1994), 149 A.R. 187; 63 W.A.C. 187; 19 Alta. L.R.(3d) 38 (C.A.), refd to. [para. 128].

Transamerica Life Canada Inc. et al. v. ING Canada Inc., [2003] O.A.C. Uned. 565 (C.A.), refd to. [para. 129].

Sorochan v. Sorochan, [1986] 2 S.C.R. 38; 69 N.R. 81; 74 A.R. 67, refd to. [para. 132].

Kapelus v. University of British Columbia et al. (1998), 110 B.C.A.C. 82; 178 W.A.C. 82 (C.A.), refd to. [para. 138].

Hayhurst v. Innisfail Motors Ltd., [1935] 1 W.W.R. 385 (Alta. C.A.), refd to. [para. 141].

Sleeman v. Foothills School District No. 38 (1946), 1 W.W.R.(N.S.) 145, refd to. [para. 143].

Lifemax Natural Foods Inc. v. Sahota, [2000] O.J. No. 3209 (C.A.), refd to. [para. 143].

Kirby v. Booth (1963), 42 D.L.R.(2d) 32, refd to. [para. 144].

Lebedynski v. Westfair Foods Ltd., 2000 MBQB 144, refd to. [para. 145].

Marquest Industries Ltd. v. Willows Poultry Farms Ltd. (1968), 1 D.L.R.(3d) 513 (B.C.C.A.), refd to. [para. 159].

Saskatchewan River Bungalows Ltd. and Fikowski v. Maritime Life Assurance Co., [1994] 2 S.C.R. 490; 168 N.R. 381; 155 A.R. 321; 73 W.A.C. 321, refd to. [para. 169].

Digger Excavating (1983) Ltd. v. Bowlen (2001), 286 A.R. 291; 253 W.A.C. 291 (C.A.), refd to. [para. 169].

Drexel Burnham Lambert Products Corp. v. Midland Bank plc, 1992 U.S. Dist. LEXIS 21223, refd to. [para. 170].

Pattison (Jim) Industries Ltd. v. 1854 Holdings Ltd. (1990), 76 D.L.R.(4th) 119 (B.C.C.A.), refd to. [para. 171].

Missilinda of Canada Ltd. v. Husky Oil Operations Ltd. (2007), 212 Man.R.(2d) 252; 389 W.A.C. 252 (C.A.), refd to. [para. 184].

Kentucky Fried Chicken Canada v. Scott's Food Services Inc. et al. (1998), 114 O.A.C. 357 (C.A.), refd to. [para. 184].

Enron Canada Corp. v. Husky Oil Operations Ltd. (2007), 401 A.R. 291; 391 W.A.C. 291 (C.A.), refd to. [para. 200].

Statutes Noticed:

Rules of Court (Alta.), rule 214(4) [para. 137].

Counsel:

James L. Lebo, Q.C., Donald W. Dear, James P. Flanagan and Charles P. Russell, Q.C. (McLennan Ross LLP), for the plaintiff;

Dalton W. McGrath, A. Robert Anderson, Q.C., Michael W. McCachen, Jason M. Holowachuk, Duffern Harper, Michael O'Brien, Melanie R. Gaston and Christopher A. Petrucci (Blake, Cassels & Graydon LLP), for the defendant.

This action was heard on October 29, 2007, by McMahon, J., of the Alberta Court of Queen's Bench, Judicial District of Calgary, who delivered the following decision on July 2, 2008.

To continue reading

Request your trial
10 practice notes
  • Marathon Canada Ltd. v. Enron Canada Corp., 2009 ABCA 31
    • Canada
    • Court of Appeal (Alberta)
    • 15 Enero 2009
    ...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 ......
  • Marathon Canada Ltd. v. Enron Canada Corp.,
    • Canada
    • Court of Queen's Bench of Alberta (Canada)
    • 10 Diciembre 2008
    ...status. Marathon commenced legal proceedings against ECC. ECC counterclaimed. The Alberta Court of Queen's Bench, in a decision reported 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 ......
  • Marathon Canada Ltd. v. Enron Canada Corp., 2008 ABCA 424
    • Canada
    • Court of Appeal (Alberta)
    • 10 Diciembre 2008
    ...rating to junk bond status. Marathon commenced legal proceedings against ECC. The Alberta Court of Queen's Bench, in a decision reported 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 ......
  • Hunt Oil Co. of Canada Inc. v. Shell Canada Ltd., 2009 ABQB 627
    • Canada
    • Court of Queen's Bench of Alberta (Canada)
    • 2 Noviembre 2009
    ...Resources Ltd. v. EnCana Oil and Gas Partnership, 2008 ABCA 267, 440 A.R. 338, at para. 3, Marathon Canada Ltd. v. Enron Canada Corp. 2008 ABQB 408, 447 A.R. 46, at para. 114, aff'd 2009 ABCA 31, 448 A.R. 245, application for leave to appeal to S.C.C. refused, 33062 (May 21, 2009). [37......
  • Request a trial to view additional results
9 cases
  • Marathon Canada Ltd. v. Enron Canada Corp., 2009 ABCA 31
    • Canada
    • Court of Appeal (Alberta)
    • 15 Enero 2009
    ...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 ......
  • Marathon Canada Ltd. v. Enron Canada Corp.,
    • Canada
    • Court of Queen's Bench of Alberta (Canada)
    • 10 Diciembre 2008
    ...status. Marathon commenced legal proceedings against ECC. ECC counterclaimed. The Alberta Court of Queen's Bench, in a decision reported 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 ......
  • Marathon Canada Ltd. v. Enron Canada Corp., 2008 ABCA 424
    • Canada
    • Court of Appeal (Alberta)
    • 10 Diciembre 2008
    ...rating to junk bond status. Marathon commenced legal proceedings against ECC. The Alberta Court of Queen's Bench, in a decision reported 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 ......
  • Hunt Oil Co. of Canada Inc. v. Shell Canada Ltd., 2009 ABQB 627
    • Canada
    • Court of Queen's Bench of Alberta (Canada)
    • 2 Noviembre 2009
    ...Resources Ltd. v. EnCana Oil and Gas Partnership, 2008 ABCA 267, 440 A.R. 338, at para. 3, Marathon Canada Ltd. v. Enron Canada Corp. 2008 ABQB 408, 447 A.R. 46, at para. 114, aff'd 2009 ABCA 31, 448 A.R. 245, application for leave to appeal to S.C.C. refused, 33062 (May 21, 2009). [37......
  • Request a trial to view additional results
1 firm's commentaries
  • Focus On Energy - May 2009
    • Canada
    • Mondaq Canada
    • 30 Mayo 2009
    ...fortuitous for Marathon Canada, as it was "out of the money" on the contract. The dispute in Marathon Canada Ltd. v. Enron Canada Ltd., 2008 ABQB 408; affirmed by 2009 ABCA 31 , arose out of natural gas purchase agreement (the "Agreement"), whereby Marathon Canada Limited ("Marathon") was ......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT