PanCanadian Petroleum Ltd. v. Husky Oil Operations Ltd. et al., (1994) 163 A.R. 367 (QB)

• Judge: McMahon, J.
• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: December 20, 1994
• Citations: (1994), 163 A.R. 367 (QB)

Pan Cdn. Petroleum Ltd. v. Husky Oil (1994), 163 A.R. 367 (QB)

MLB headnote and full text

PanCanadian Petroleum Limited (plaintiff) v. Husky Oil Operations Ltd. and Husky Oil (Alberta) Ltd. (defendants)

(Action No. 9301 03576)

Indexed As: PanCanadian Petroleum Ltd. v. Husky Oil Operations Ltd. et al.

Alberta Court of Queen's Bench

Judicial District of Calgary

McMahon, J.

December 20, 1994.

Summary:

PanCanadian Petroleum Ltd. claimed that two petroleum and natural gas leases, known as the shallow rights lease and the mineral lease, granted to Husky Oil Canada Ltd. in one case and to Husky Oil (Alberta) Ltd. in the other case, had terminated as a result of the operation of two provisions in the leases - a renewal clause and the habendum clause.

The Alberta Court of Queen's Bench held that the shallow rights lease remained in full force and effect by virtue of the habendum clause. The mineral lease, by contrast, had expired and could not be renewed because it offended the rule against perpetuities.

Contracts - Topic 7162

Novation - Novation where new party introduced - Elements of - The Alberta Court of Queen's Bench stated that the essential requirements for a true novation where a new party was introduced were: "(1) The new debtor must assume com­plete liability. (2) The creditor must accept the new debtor as a principal debtor and not merely as an agent or guarantor. (3) The creditor must accept the new contract in full satisfaction and substitution for the old contract; one consequence of which is that the original debtor is dis­charged, there being no longer any contract to which he is a party, or by which he can be bound" - See paragraph 72.

Deeds and Documents - Topic 2626

Operation and interpretation - Interest conveyed - Interpretation of "habendum" clause - The parties entered into an oil and gas lease - A dispute arose regarding, inter alia, the interpretation of the lease's habendum clause - Specifically, whether or not the lease ter­minated after 25 years - The Alberta Court of Queen's Bench reviewed the law on habendum clauses generally and stated, inter alia, that the "intent of an habendum clause in an oil and gas lease from a les­see's per­spective, ... is to define the term of a lease in years and then to ensure that the lease will con­tinue beyond that, with­out more, provided that produc­tion con­tinues" - The court concluded that the term of the lease was "for 25 years, plus so long as there was continued production" - See para­graphs 21 to 63.

Mines and Minerals - Topic 8122

Oil and gas - Leases - Nature of an oil and gas lease - The Alberta Court of Queen's Bench stated that an oil and gas lease created a profit à prendre and not a true landlord and tenant relationship - Accord­ingly, the court held that the renewal of an oil and gas lease "in per­petuity" offended the rule against perpetu­ities - The court further stated that the consequences of the rule could not be avoided "by attempting to construe another covenant [in the lease] as a personal con­tract, liable to enforce­ment. To do so would effectively abolish the rule and that is a legislative responsi­bility which has not yet occurred in [Alberta]" - See para­graphs 53 to 61.

Mines and Minerals - Topic 8123

Oil and gas - Leases - Interpretation - [See Deeds and Documents - Topic 2626 and Mines and Minerals - Topic 8122 ].

Mines and Minerals - Topic 8128

Oil and gas - Leases - Renewals - [See Mines and Minerals - Topic 8122 ].

Mines and Minerals - Topic 8138

Oil and gas - Leases - Termination - PanCanadian Petroleum Ltd. claimed that two petroleum and natural gas leases, known as the shallow rights lease and the mineral lease, granted to Husky Oil Canada Ltd. in one case and to Husky Oil (Alberta) Ltd. in the other case, had ter­minated as a result of the operation of two provisions in the leases, i.e., a renewal clause and the habendum clause - The Alberta Court of Queen's Bench held that the shallow rights lease remained in full force and effect by virtue of the habendum clause - The mineral lease, by contrast, had expired and could not be renewed because it offended the rule against per­petuities.

Perpetuities - Topic 706

Rule against perpetuities - Application of rule in general - To land lease renewals - [See Mines and Minerals - Topic 8122 ].

Perpetuities - Topic 916

Rule against perpetuities - Interests subject to the rule - Land - Profit à prendre - [See Mines and Minerals - Topic 8122 ].

Perpetuities - Topic 1796

Rule against perpetuities - Interests to which the rule does not apply - Land leases - Renewal of - The Alberta Court of Queen's Bench stated that an oil and gas lease created a profit à prendre and not a true landlord and tenant relationship - Accord­ingly, the court held that the renewal of an oil and gas lease "in per­petuity" offended the rule against perpetu­ities - It did not fall within the "excep­tion" afforded to renewal of landlord and tenant relationships - See paragraphs 53 to 61.

Cases Noticed:

Van Hees v. Higgins et al. (1993), 31 B.C.A.C. 53; 50 W.A.C. 53; 102 D.L.R.(4th) 449 (C.A.), refd to. [para. 28].

Ward v. Van der Loeff, [1924] A.C. 653 (H.L.), refd to. [para. 28].

Tyrrells Estate, Re, [1970] 1 I.R. 292, refd to. [para. 29].

Canada-Cities Service Petroleum Corp. v. Kininmonth (1964), 47 W.W.R.(N.S.) 437 (S.C.C.), refd to. [para. 31].

Berkheiser v. Berkheiser, [1957] S.C.R. 387, refd to. [para. 33].

Esso Resources Canada Ltd. v. Pacific Cassiar Ltd. (1984), 33 Alta. L.R.(2d) 175 (Q.B.), refd to. [para. 34].

Durish v. White Resource Management Ltd. and Royal Bank of Canada (1987), 82 A.R. 66; 55 Alta. L.R.(2d) 47 (Q.B.), refd to. [para. 36].

Canadian Export Gas & Oil Ltd. v. Flegal and Flegal, [1978] 1 W.W.R. 185; 9 A.R. 105 (T.D.), refd to. [para. 57].

Guardian Realty v. Stark (John) & Co. (1922), 64 S.C.R. 207, refd to. [para. 63].

Woodall v. Clifton, [1905] 2 Ch. 257 (C.A.), refd to. [para. 63].

Principal Investments Ltd. v. Gibson, [1963] 1 O.R. 585 (H.C.), affd. [1963] 2 O.R. 507 (C.A.), affd. [1964] S.C.R. 424, refd to. [para. 63].

Frobisher Ltd. v. Canadian Pipelines & Petroleums Ltd., [1960] S.C.R. 126, refd to. [para. 65].

Forseth v. Prudential Trust Co. (1959), 21 D.L.R.(2d) 587 (S.C.C.), refd to. [para. 65].

Harris v. Minister of National Revenue, [1966] S.C.R. 489, refd to. [para. 66].

Metropolitan Homes Ltd. v. Politzer, [1976] S.C.R. 363; 3 N.R. 621, refd to. [para. 67].

Hutton v. Watling, [1948] Ch. 26, refd to. [para. 68].

Abernethy-Lougheed Logging Co., Re, [1939] 1 D.L.R. 513 (B.C.C.A.), refd to. [para. 73].

Paramount Life Insurance Co. et al. v. Torgerson Development Corp. (Alberta) Ltd. et al. (1987), 79 A.R. 85; 51 Alta. L.R.(2d) 59 (Q.B.), revsd. (1988), 85 A.R. 253; 58 Alta. L.R.(2d) 13 (C.A.), refd to. [para. 73].

Statutes Noticed:

Perpetuities Act, R.S.A. 1980, c. P-4, sect. 25 [para. 58].

Authors and Works Noticed:

Ballem, J.B., The Oil and Gas Lease in Canada (2nd Ed. 1985), pp. 108-109 [para. 47]; 110 [para. 48]; 243 [para. 49].

Gray, Rule Against Perpetuities (4th Ed. 1942), paras. 201 [para. 56]; 230.2 [para. 63]; 629 [para. 27].

Halsbury's Laws of England (2nd Ed.), vol. 25, p. 109 [para. 65].

Lewis and Thompson, Canadian Oil & Gas, vol. 1, No. 103 [para. 37].

Morris & Leach, The Rule Against Per­petuities (2nd Ed. 1962), p. 1 [para. 63].

Veasey, J.A., The Law of Oil and Gas, IV (1920), 19 Michigan Law Rev., pp. 161 [para. 38]; 175 [para. 39].

Counsel:

C.D. O'Brien, Q.C., H.M. Kay and D.J. Corry, for the plaintiff;

A.D. Hunter, Q.C., A.J. Jordan, Q.C., J.B. Ballem, Q.C., and D.A. Mullan, for the defendants.

This case was heard before McMahon, J., of Alberta Court of Queen's Bench, Judicial District of Calgary, who delivered the fol­lowing judgment on December 20, 1994.