Montreal Trust Co. v. T.D.L. Petroleums Inc. et al., (2004) 254 Sask.R. 38 (CA)

• Judge: Tallis, Vancise and Jackson, JJ.A.
• Court: Court of Appeal (Saskatchewan)
• Case Date: September 03, 2004
• Jurisdiction: Saskatchewan
• Citations: (2004), 254 Sask.R. 38 (CA);2004 SKCA 116

Montreal Trust v. TDL Petroleums (2004), 254 Sask.R. 38 (CA);

    336 W.A.C. 38

MLB headnote and full text

Temp. Cite: [2004] Sask.R. TBEd. SE.028

Montreal Trust Company (appellant/plaintiff/defendant by counterclaim) v. Herc Oil Corp., and Fast Trucking Service Ltd. (respondents/defendants) and The Long Riders Rig Corporation, Capital Developments Corp., Spalding G. Wathen Investments Ltd., The Fresno San Andreas Oil Corporation, Gopher Oil & Gas Company Ltd. (respondents/defendants/plaintiffs by counterclaim) and T.D.L. Petroleums Inc. (respondent/defendant/defendant by cross- claim) and Williston Wildcatters Corporation and 600131 Saskatchewan Ltd. (non-parties)

Montreal Trust Company (appellant/plaintiff/defendant by counterclaim) v. Blackfire Oil Inc. (respondent/defendant/plaintiffs by counterclaim)

(No. 804)

The Long Riders Rig Corporation, Capital Developments Corp., Spalding G. Wathen Investments Ltd., The Fresno San Andreas Oil Corporation, and Gopher Oil & Gas Company Ltd. (appellants/respondents/defendants and plaintiffs by cross-claim) v. Montreal Trust Company (respondent/appellant/plaintiff) and T.D.L. Petroleums Inc. (respondent/defendant/defendant by cross-claim) and Herc Oil Corp., and Fast Trucking Service Ltd. (respondents/defendants) and Williston Wildcatters Corporation and 600131 Saskatchewan Ltd. (non-parties)

Blackfire Oil Inc. (appellant/respondent/defendant) v. Montreal Trust Company (respondent/appellant/plaintiff)

(No. 808; 2004 SKCA 116)

Indexed As: Montreal Trust Co. v. T.D.L. Petroleums Inc. et al.

Saskatchewan Court of Appeal

Tallis, Vancise and Jackson, JJ.A.

September 3, 2004.

Summary:

In 1952, the plaintiff, as bare trustee and owner of all the mines and minerals within a certain land, leased the oil and gas rights. In 1955, an oil well, well 12-8, was successfully drilled and production commenced. On January 1, 1989, T.D.L. Petroleum acquired the leasehold interest and took over operation of the 12-8 well. Production stopped for six months in 1989. In 1991, the 12-8 well was shut in. A new well, the 11-8 well, was drilled and operated. T.D.L. entered into a farmout lease with Williston Wildcatters. In clause 8 of the farmout lease, T.D.L. warranted that its lease with the plaintiff was valid. Williston Wildcatters assigned most of its interest in the farmout lease to several assignees that included Long Riders. In March 1992, the plaintiff suggested to Williston Wildcatters that the lease had terminated sometime in the past. In February 1993, the plaintiff sued T.D.L. and Williston Wildcatters, seeking a declaration that the 1952 lease had terminated and damages. Long Riders and other assignees cross-claimed against T.D.L., alleging that it had breached the covenant, in clause 8 of the farmout lease, that it had a valid lease. Long Riders et al. claimed all the royalties that T.D.L. had been paid under the farmout on the basis that the lease had expired. T.D.L. and Williston Wildcatters continued to occupy the lands leased. Long Riders and other assignees continued production of the leased substances. In 2000, the plaintiff amended its statement of claim to add Long Riders and some assignees to the action and claim damages for trespass. The trial was divided into two stages. The first stage dealt with the status of the 1952 lease. The second stage dealt with remedies. A consent order issued on November 2, 2001, allowing Long Riders to continue producing the leased substances from well 11-8, with the net proceeds being paid into court. Williston Wildcatters went bankrupt in 1995.

The Saskatchewan Court of Queen Bench, in a decision on the first stage dated September 6, 2001 and bearing neutral citation 2001 SKQB 360, held that the lease had terminated on January 3, 1990, because of non-production. The court also ruled that T.D.L. breached clause 8 of the farmout lease and that the "counterclaim" should succeed. T.D.L. and others appealed.

The Saskatchewan Court of Appeal, in a decision reported 223 Sask.R. 276; 277 W.A.C. 276, dismissed the appeal. Leave to appeal to the Supreme Court of Canada was denied. See 310 N.R. 194; 238 Sask.R. 160; 305 W.A.C. 160. A hearing, the second stage, took place to determine the remedies appropriate amongst the several parties.

The Saskatchewan Court of Queen's Bench, in a decision reported at 239 Sask.R. 57, determined that the continued occupation of the leased lands, from the termination of the lease on January 3, 1990, to the issuance of the consent order on November 2, 2001, constituted a trespass. The court ruled that the plaintiff did not give consent or leave and licence between March 11, 1992, when the plaintiff first questioned the validity of the lease, and February 26, 1993, when the writ was issued. The court awarded the plaintiff the following damages: (1) against the defendant, T.D.L. Petroleums Inc., with respect to well 12-8, $1,175.79; (2) against all the defendants, with respect to well 11-8, $6,400 plus a sum equivalent to 18% of the gross revenue, i.e., 5.5% awarded at judgment plus 12.5% already received by way of royalty. The court found that the higher 18% royalty was the most that the plaintiff could have expected to realize from third parties if the defendants had not occupied the land. The court also ruled that the defendants and cross-claimants Long Riders et al. were entitled to recover from the defendant T.D.L. any monies that they were required to pay to the plaintiff, including any interest payable. The court dismissed the remainder of the cross-claim. The plaintiff appealed against the damage award, arguing that the trial judge erred in assessing damages on a compensatory rather than a restitutionary basis. Long Riders et al. cross-appealed respecting the trespass issue and the dismissal of their cross-claim.

The Saskatchewan Court of Appeal dismissed the appeal and allowed the cross-appeal in part. The court ruled that: (1) there was trespass between January 1990 and March 1992; (2) the defendants were on the land with the consent and leave and licence of the plaintiff between March 1992 and February 1993; and (3) neither the issuance of the statement of claim in 1993 nor the amendment in 2000 terminated the licence specifically or impliedly granted by the plaintiff to the defendants. Thus, (1) the defendants had leave and licence from 1992 until the consent judgment of November 2, 2001; and (2) damages for trespass should be calculated from January 1990 to March 1992 inclusive. The court referred the matter to the Registrar of the Court of Queen's Bench for calculation of damages. The court dismissed the remainder of the cross-appeal. The court also ruled on the undecided issue of the ownership of the wellbore, downhole and surface equipment on well 11-8. The court held that the equipment belonged to the defendant operator.

Contracts - Topic 4062

Remedies for breach - Accounting of profits (disgorgement) - When available or appropriate - [See Mistake - Topic 1664 ].

Damages - Topic 4212

Torts affecting land and buildings - Normal measure - Trespass - The defendants were found to have committed a trespass when they continued to occupy lands leased and operate a well thereon after the oil and gas lease that allowed them to occupy the lands had expired - The lease had required the defendants to pay the plaintiff a gross overriding royalty of 12.5% - There was undisputed evidence that the plaintiff could have obtained a lease paying a royalty of 18% with a bonus of $6,400 - The trial judge awarded the plaintiff the 18% royalty with the $6,400 bonus - The trial judge sought to restore the plaintiff not only to its original position but to the best position it could have attained were the lands not occupied by the defendants - The trial judge also ruled that an allowance be made for the cost of extracting the oil - Wilfulness, mala fides and fraud on the part of the defendants were absent - Also, the plaintiff could not and would not itself have produced oil from the land - The plaintiff appealed, arguing that the trial judge erred in assessing damages on a compensatory rather than a restitutionary basis - The Saskatchewan Court of Appeal, after discussing the law respecting assessment of damages for trespass, dismissed the appeal - See paragraphs 69 to 115.

Mines and Minerals - Topic 8385

Oil and gas - Wells - Drilling of - Trespass (incl. compensation) - [See Damages - Topic 4212 ].

Mistake - Topic 1664

Recovery of money paid under mistake - Mistake of fact - Circumstances when recovery denied - T.D.L. held leasehold oil and gas interests from the plaintiff - It entered into a farmout lease with Williston Wildcatters - In clause 8 of the farmout lease, T.D.L. warranted that its lease with the plaintiff was valid - Williston Wildcatters assigned most of its interest in the farmout lease to several assignees that included Long Riders - Long Riders et al. paid an overriding royalty to T.D.L. - T.D.L.'s lease turned out to be invalid respecting the relevant period because it had expired - As a result, a trespass occurred because T.D.L. and Williston Wildcatters continued to occupy the lands leased and Long Riders et al. continued production of the leased substances - The plaintiff claimed damages - A judge ruled that T.D.L. breached clause 8 of the farmout lease - Long Riders et al. claimed from T.D.L. all of the royalties it was paid under the farmout on the basis that the lease had expired - The trial judge awarded damages for trespass against T.D.L. and Long Riders et al. - Long Riders et al. were entitled to recover from T.D.L. any monies that they were required to pay to the plaintiff, including any interest payable - The trial judge dismissed the remainder of Long Riders et al.'s claim - Long Riders et al. appealed - At issue was whether the trial judge erred in failing to award damages for the breach of clause 8 or order the return of the overriding royalty paid by Long Riders to T.D.L. because the payments were based on a mistake of fact - The Saskatchewan Court of Appeal dismissed the appeal, adding that disgorgement for breach of contract was not available here as a remedy against T.D.L. - See paragraphs 116 to 126.

Real Property - Topic 4243

Fixtures - Title to fixtures - Oil drilling equipment - The parties disputed the ownership of the wellbore, downhole and surface equipment respecting an oil well operated on leased lands - They agreed that the equipment was a fixture - Normally, fixtures belonged to the owner of the land unless there was an agreement or standard practice to the contrary - The Saskatchewan Court of Appeal ruled that the equipment here belonged to the operator of the well given the standard practice in the industry - See paragraphs 128 to 150.

Real Property - Topic 7237

Easements, licences and prescriptive rights - Licences - What constitutes - In March 1992, the plaintiff lessor suggested to the defendants that the lease that originally allowed them to occupy the leased lands had expired sometime in the past - The defendants disputed the suggestion - In February 1993, the plaintiff sued for a declaration that the lease had expired - The defendants continued to occupy the lands - Judgment was rendered in 2001, affirmed on appeal, allowing the plaintiff's action and declaring that the lease had ended in January 1990 - The defendants had committed trespass - At a subsequent hearing on remedies, the defendants invoked the defence of consent, also termed "leave and licence", to justify their occupation - The Saskatchewan Court of Appeal discussed the law relating to leave and licence and ruled that: (1) trespass was committed from January 1990 to March 1992 where there was no knowledge that the lease had terminated and that a trespass took place and thus consent to occupy the land could not be granted; (2) there was leave and licence from the plaintiff to the defendants from March 1992 to February 1993 where the plaintiff never demanded that the defendants vacate the land; and (3) there was leave and licence from February 1993 until a 2001 consent judgment that allowed occupation where the issuance of the statement of claim did not revoke the existing leave and licence - See paragraphs 18 to 68.

Torts - Topic 3016

Trespass - Trespass to land - Defences - Licence or consent from owner - [See Real Property - Topic 7237 ].

Torts - Topic 3050

Trespass - Trespass to land - Damages - General - [See Damages - Topic 4212 ].

Cases Noticed:

Shewish v. MacMillan Bloedel Ltd. (1990), 74 D.L.R.(4th) 345 (B.C.C.A.), consd. [para. 15, footnote 4].

Livingstone v. Rawyards Coal Co. (1880), 5 App. Cas. 25 (H.L.), refd to. [para. 15, footnote 5].

Chew Lumber Co. v. Howe Sound Lumber Co. (1913), 13 D.L.R. 735 (B.C.C.A.), refd to. [para. 15, footnote 6].

Blazicevic v. British Columbia Lumber Industries Ltd. (1955), 15 W.W.R.(N.S.) 317 (B.C.S.C.), refd to. [para. 15, footnote 7].

Sohio Petroleum Co. et al. v. Weyburn Security Co., [1971] S.C.R. 81, consd. [paras. 15, 94, footnote 8].

Thomas v. Sorrell (1673), 124 E.R. 1098, consd. [para. 25, footnote 18].

Isitt v. Grand Trunk Pacific Railway Co., [1918] 3 W.W.R. 500 (B.C.C.A.), affd. (1919), 49 D.L.R. 687 (S.C.C.), consd. [para. 26, footnotes 20, 21].

Wellington Colliery Co. v. Pacific Coast Coal Mines Ltd., [1919] 3 W.W.R. 463 (B.C.C.A.), affd. (1921), 60 S.C.R. 651, consd. [para. 27, footnote 22].

R. v. Canadian Pacific Railway Co., [1931] 1 W.W.R. 673 (P.C.), consd. [para. 29, footnote 24].

de Wurstemberger v. Royalite Oil Co., [1935] 1 W.W.R. 461 (Alta. S.C.), consd. [para. 30, footnote 27].

Pawson and Pawson v. Sudbury (City), [1954] O.W.N. 900 (C.A.), consd. [para. 32, footnote 31].

Hrynyk et ux. v. Kaprowy et ux. (1960), 30 W.W.R.(N.S.) 433 (Man. Q.B.), consd. [para. 33, footnote 33].

Michaud v. St. Quentin (Village) (1970), 3 N.B.R.(2d) 560; 16 D.L.R.(3d) 228 (C.A.), consd. [para. 34, footnote 34].

Johnson v. British Columbia Hydro and Power Authority (1981), 123 D.L.R.(3d) 340 (B.C.S.C.), consd. [para. 35, footnote 37].

McGrath v. Atlantic Trust Co. (1969), 1 N.S.R.(2d) 103; 8 D.L.R.(3d) 225 (C.A.), refd to. [para. 36].

Minister of Health v. Bellotti, [1944] 1 K.B. 298 (Eng. C.A.), refd to. [para. 59, footnote 42].

Martin v. Porter (1839), 5 M. & W. 351; 151 E.R. 149 (Exch. Pl.), consd. [para. 82, footnote 52].

Wood v. Morewood (1841), 3 Q.B. 440; 114 E.R. 575 (K.B.), consd. [para. 83, footnote 54].

Morgan v. Powell (1842), 3 Q.B. 278; 114 E.R. 513 (Q.B.), consd. [para. 84, footnote 56].

Jegon v. Vivian (1871), 6 Ch. App. 742, consd. [para. 85, footnote 59].

Cooper v. Miller (No. 1), [1994] 1 S.C.R. 359; 164 N.R. 81; 41 B.C.A.C. 1; 66 W.A.C. 1, refd to. [para. 88, footnote 65].

Cunningham v. Wheeler - see Cooper v. Miller (No. 1).

Cudworth Drilling Ltd. v. MacDonald et al. (2000), 207 Sask.R. 216; 247 W.A.C. 216 (C.A.), refd to. [para. 88, footnote 66].

Lamb v. Kincaid (1907), 38 S.C.R. 516, consd. [para. 89, footnote 67].

Kirkpatrick v. McNamee (1905), 36 S.C.R. 152, refd to. [para. 89, footnote 69].

Harshenin v. Bayoff (1991), 49 C.P.C.(2d) 55 (B.C.S.C.), refd to. [para. 92, footnote 73].

Canadian Pacific Forest Products Ltd. v. Pacific Forest Industries Ltd., [1991] B.C.J. No. 2142 (S.C.), refd to. [para. 92, footnote 74].

Craig et al. v. North Shore Heli Logging Ltd. et al., [1997] B.C.T.C. Uned. 579; 36 C.C.L.T.(2d) 128 (S.C.), refd to. [para. 92, footnote 75].

Sohio Petroleum Co. et al. v. Weyburn Security Co. (1968), 66 W.W.R.(N.S.) 155 (Sask. Q.B.), revd. (1969), 7 D.L.R.(3d) 277 (Sask. C.A.), consd. [para. 96, footnotes 79, 80].

Mortimer v. Shaw and Dredge (1922), 66 D.L.R. 311 (Sask. C.A.), consd. [para. 104, footnote 83].

Jacobs (George) (Porky) Enterprises Ltd. v. Regina (City), [1964] S.C.R. 326, refd to. [para. 120, footnote 98].

Air Canada and Pacific Western Airlines Ltd. v. British Columbia, [1989] 1 S.C.R. 1161; 95 N.R. 1, refd to. [para. 120, footnote 99].

Lemmons (Robert) & Associates Ltd. v. Gannon Brothers Energy Ltd., [1997] 2 W.W.R. 688; 148 Sask.R. 181; 134 W.A.C. 181 (C.A.), leave to appeal refused [1997] 2 S.C.R. ix; 223 N.R. 160; 163 Sask.R. 160; 165 W.A.C. 160, refd to. [para. 120, footnote 100].

Attorney General v. Blake, [2000] 4 All E.R. 385 (H.L.), consd. [para. 122, footnote 102].

Maple City Oil and Gas Co. v. Charlton (1912), 7 D.L.R. 345 (Ont. H.C.), refd to. [para. 146, footnote 123].

McIntosh v. Leckie et al. (1906), 13 O.L.R. 54 (Ch.), refd to. [para. 147, footnote 125].

Republic Resources Ltd. and Joffre Oils Ltd. v. Ballem, [1982] 1 W.W.R. 692; 33 A.R. 385 (Q.B.), refd to. [para. 148, footnote 127].

Authors and Works Noticed:

Adkin, B.W., and Bowen, D., The Law Relating to Fixtures (1923), p. 14 [para. 135, footnote 113].

Ballem, John Bishop, The Oil and Gas Lease in Canada (3rd Ed. 1999), pp. 4 [para. 139, footnote 116]; 239 [paras. 139, 144, footnotes 117, 121].

Cassels, Jamie, Remedies: The Law of Damages (2000), pp. 102 [para. 76, footnote 51]; 229 [para. 76, footnote 50].

Fridman, Gerald Henry Louis, The Law of Torts in Canada (2nd Ed. 2002), pp. 57 to 59 [para. 23, footnote 14].

Halsbury's Laws of England (1999) (4th Ed. - Reissue), vol. 45(2), para. 530 [para. 23, footnote 15].

Klar, Lewis N., Tort Law (3rd Ed. 2003), p. 118 [para. 23, footnote 14].

Linden, Allen M., Canadian Tort Law (7th Ed. 2001), pp. 67 to 70 [para. 23, footnote 14].

Rainaldi, Linda D., Remedies in Tort (1987) (Looseleaf), vol. 3, pp. 23-26.3 [para. 23, footnote 16]; 23-27 [para. 23, footnote 17].

Waddams, Stephen M., The Law of Damages (2003) (Looseleaf), p. 9-1 [para. 74, footnote 48].

Counsel:

Brian Scherman, Q.C., and Reg Watson, Q.C., for Montreal Trust Company;

John Williams and Stephen McLellan, for The Long Riders Rig Corp. et al.;

Aaron Fox, Q.C., and Susan Barber, for T.D.L. Petroleums Inc.

This appeal was heard on March 24, 2004, by Tallis, Vancise and Jackson, JJ.A., of the Saskatchewan Court of Appeal.

The decision of the Court of Appeal was delivered on September 3, 2004, by Vancise, J.A.