Scurry-Rainbow Oil Ltd. et al. v. Galloway Estate, (1993) 138 A.R. 321 (QB)

• Judge: Hunt, J.
• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: February 26, 1993
• Citations: (1993), 138 A.R. 321 (QB)

Scurry-Rainbow Oil v. Galloway Estate (1993), 138 A.R. 321 (QB)

MLB headnote and full text

Scurry-Rainbow Oil Limited on its own behalf and on behalf of the other Gross Royalty Trust Certificate Holders in the Frederick Bertram Fisher No. 2 Gross Royalty Trust except those who are also defendants (plaintiff) v. Daisy Marie Burden and Marlene Merle Bouchard, as Executrices of the Estate of Clarence C. Galloway, deceased, Mobil Oil Canada Ltd., Canadian Oil Company Limited, Sohio Petroleum Co., Imperial Oil Limited, Shell Canada Resources Ltd., Esso Resources Canada Limited, Crozet Exploration Ltd., Hardy Oil & Gas Canada Limited, Stateside Energy Corporation and Lloyds Bank Canada (defendants)

(Action No. 9001-12377)

Scurry-Rainbow Oil Limited on its own behalf and on behalf of the other Gross Royalty Trust Certificate Holders in the Halvard Kolstad Gross Royalty Trust except those who are also defendants (plaintiff) v. Allen T. Fletcher, Hilda A. Fletcher, Normac Oils Ltd. and ICG Resources Ltd. (defendants)

(Action No. 9001-12376)

First City Trust Company (plaintiff) v. Edith Joan Noble, Canadian Industrial Gas & Oil Ltd., Hewitt Oils (Alberta) Ltd., Norcen Energy Resources Limited, Russell D. Garner, Mary Lewis Garner and Petrodyne Ltd. (defendants)

(Action No. 9003-14410)

Indexed As: Scurry-Rainbow Oil Ltd. et al. v. Galloway Estate

Alberta Court of Queen's Bench

Judicial District of Calgary

Hunt, J.

February 26, 1993.

Summary:

In the 1940's and 1950's in the developing Alberta oil and gas industry, the practice was for freehold mineral owners to assign their royalty or potential royalty interests to trust companies under Gross Royalty Trust A­greements. Concern arose respecting whether the Agreements were enforceable only as a contractual right against the mineral owners themselves or as an interest in land against their successors in title and whether the Agreements still operated where an oil and gas lease was entered into after the Agree­ments. Trust companies paid monies under these Agreements into court through interpleader actions. Parties holding units or "points" in the Agreements commenced three separate actions. The actions were tried at the same time as test cases. The following questions were to be determined: (1) did the trustee acquire, by virtue of the three sepa-r­ate Gross Royalty Trust Agreements, an interest in land sufficient to permit registra­tion by the trustee of a caveat under the Land Titles Act which would allow the trust to be enforced against a mineral owner subsequent to the original settlor of the trust; (2) did the three Agreements offend the rule against perpetuities; (3) in the "Fletcher" case, did the Agreement apply to royalties under petroleum and natural gas leases entered into after the lease which was in existence at the date the Agreement was executed or, if there was no lease then in existence, did it apply to the initial lease entered into after the Agreement; and (4) in the "Noble" case, did the Agreement create an interest which was enforceable whether production was obtained from the affected mines and minerals pursuant to a lease extant at the time an affected trust was settled or otherwise.

The Alberta Court of Queen's Bench de­termined the questions as follows: (1) all three Agreements created an interest in land sufficient to permit registration of a caveat which would allow the trust to be enforced against a mineral owner subsequent to the original settlor; (2) none of the Agreements offended the rule against perpetuities; (3) in the "Fletcher" case, the Agreement applied to royalties under leases coming into effect after the lease which was in existence when the Agreement was entered into, but did not apply to any initial lease after the Agreement if there was no lease in existence at the time of the Agreement; and (4) in the "Noble" case, the Agreement created an interest enforceable whether production was obtained from the affected mines and minerals under a lease extant when the trust was settled.

Courts - Topic 103

Stare decisis - Authority of judicial deci­sions - English and American authorities -American decisions - The Alberta Court of Queen's Bench stated that "since the development of the oil and gas industry in Alberta and other parts of western Canada, Canadian courts have been called upon to make many decisions relating to the in­dustry's activities. Due to the early dearth of jurisprudence and the fact that many industry practices in Canada were modelled upon those in the United States, Canadian court have at times relied upon American decisions. Although such deci­sions can be of assistance, in my view they must be used cautiously because of the fact that different American jurisdictions have adopted varied approaches to basic concepts of oil and gas law, approaches that at times are in distinct contrast to those of Canadian courts." - See paragraph 16.

Deeds and Documents - Topic 2564

Operation and interpretation - Effect of recitals - The Alberta Court of Queen's Bench restated that "[i]f recitals are clear and the operative part is ambiguous, the recitals govern the construction. If the recitals are ambiguous and the operative part is clear, the operative part must pre­vail. If both the recitals and the operative part are clear, but they are inconsistent with each other, the operative part is to be preferred." - See paragraph 11.

Mines and Minerals - Topic 4

General - Common law concepts - The Alberta Court of Queen's Bench stated that "in trying to come to grips with some of the novel legal problems created by the [oil and gas] industry's presence in our country, Canadian courts have often drawn upon English common law concepts, especially those of real property law. That this should have been the case is hardly surprising, given our legal traditions. Moreover, these traditional concepts have often proven helpful in sorting out com­plex problems. On the other hand, too rigid a reliance on common law principles that have developed in vastly different circumstances can lead to results that are out of touch with the realities of the in­dustry and that deviate from the sorts of solutions needed by affected parties." - See paragraph 17.

Mines and Minerals - Topic 8166

Oil and gas - Royalty agreements - Whether royalty rights constitute an inter­est in land - Early in the Alberta oil and gas industry, freehold mineral owners assigned royalty interests to trust com­panies under Gross Royalty Trust Agree­ments - The Alberta Court of Queen's Bench held that the Agreements created interests in land sufficient to permit regis­tration of a caveat (Land Titles Act), which allowed enforcement against mineral owners subsequent to the original settlor - There was a clear intention to create an interest in land and not merely a contrac­tual right - The Agreement applied to royalties under leases coming into effect after the lease which was in existence when the Agreement was entered into, but did not apply to initial leases where no lease existed at the time of the Agree­ment - The Agreement created an interest en­forceable whether production was obtained from the affected mines and minerals under a lease extant when the trust was settled - See paragraphs 41 to 157.

Mines and Minerals - Topic 8166

Oil and gas - Royalty agreements - Whether royalty rights constitute an inter­est in land - The Alberta Court of Queen's Bench stated that it was "possible" to categorize the lessor's royalty interest under an oil and gas lease as an interest in land - Whether that result was obtained in any given case depended upon the wording of the particular lease - The court stated that a lessor granted to the lessee certain rights to his land in return for several kinds of compensation (bonus payments, delay rental and royalties upon production) - Such compensation was exactly the nature of rent, which was an interest in land - See paragraphs 20 to 40.

Perpetuities - Topic 715

Rule against perpetuities - Application of - Oil and gas royalties - Assignment to trust - Early in the Alberta oil and gas industry, freehold mineral owners assigned royalty interests to trust companies under Gross Royalty Trust Agreements - The Alberta Court of Queen's Bench held that the Agreements did not offend the rule against perpetuities - The Agreements transferred an interest to the trustees which was vested at the time of the Agreement - The royalties were not contingent - Post­ponement of the enjoyment of the vested rights did not offend the rule - It did not offend the rule to grant royalty interests to the trustee and covenant to ensure that future leases respected the grant - See paragraphs 158 to 178.

Cases Noticed:

Guaranty Trust Co. of Canada v. Hether­ington et al., [1987] 3 W.W.R. 316; 77 A.R. 104 (Q.B.), varied (1989), 95 A.R. 261 (C.A.), consd. [para. 8].

Toronto Railway Co. v. Toronto (City) (1906), 37 S.C.R. 430, refd to. [para. 9].

Wardle v. Manitoba Farm Loans Associ­ation (1954), 13 W.W.R.(N.S.) 49 (Man. C.A.), refd to. [para. 10].

Crouch v. Crouch, [1912] 1 K.B. 378 (C.A.), refd to. [para. 11].

Calvan Consolidated Oil & Gas Co. v. Manning (1958), 25 W.W.R.(N.S.) 642 (Alta. C.A.), [1959] S.C.R. 253, refd to. [para. 12].

Home Oil Co. v. Page Petroleum Ltd., [1976] 4 W.W.R. 598 (Alta. T.D.), refd to. [para. 12].

Reardon Smith Line Ltd. v. Hansen-Tan­gen, [1976] 3 All E.R. 570 (H.L.), refd to. [para. 13].

Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., [1980] 1 S.C.R. 888; 32 N.R. 488, refd to. [para. 14].

Dawson v. Bell, [1946] 1 D.L.R. 327 (Ont. C.A.), refd to. [para. 22].

Berkheiser v. Berkheiser and Glaister, [1957] S.C.R. 387, refd to. [para. 23].

R. v. Westbrook (1847), 10 Q.B. 178, refd to. [para. 24].

Daniel v. Gracie (1844), 6 Q.B. 145; 115 E.R. 56 (Q.B.), refd to. [para. 24].

Coal Commission v. Earl Fitzwilliam's Royalties Co. and others, [1942] 1 Ch. 365, refd to. [para. 24].

Fuller v. Howell, [1942] 1 D.L.R. 462 (Ont. H.C.), not consd. [para. 27].

Martyn v. Williams (1857), 1 H. & N. 817, refd to. [para. 28].

Hooper v. Clarke (1867), L.R. 2 Q.B. 200, refd to. [para. 28].

Canco Oil and Gas Ltd. v. Saskatchewan, [1991] 4 W.W.R. 316; 89 Sask.R. 37 (Q.B.), refd to. [para. 29].

Bensette and Campbell v. Reece (1960), 70 W.W.R.(N.S.) 705 (Sask. Q.B.), [1973] 2 W.W.R. 497 (C.A.), refd to. [para. 29].

Vanguard Petroleums Ltd. v. Vermont Oil & Gas Ltd. et al., [1977] 2 W.W.R. 66; 4 A.R. 251 (T.D.), refd to. [para. 29].

Saskatchewan Minerals v. Keyes, [1972] S.C.R. 703, refd to. [para. 37].

Vandergrift et al. v. Coseka Resources Ltd. et al. (1989), 95 A.R. 372; 67 Alta. L.R.(2d) 17 (Q.B.), refd to. [para. 43].

McKillop and Benjafield v. Alexander, [1912] 1 W.W.R. 871; 45 S.C.R. 551; 20 W.L.R. 850; [1912] 1 D.L.R. 586, refd to. [para. 73].

Canadian National Railways v. Canadian Pacific Ltd., [1979] 1 W.W.R. 358 (B.C.C.A.), refd to. [para. 77].

Paddon-Hughes Development Co. v. Pan­continental Oil Ltd., [1992] 3 W.W.R. 519; 129 A.R. 384 (Q.B.), refd to. [para. 77].

Voyageur Petroleums Ltd. v. Vanguard Petroleums Ltd., [1992] 2 W.W.R. 36; 47 A.R. 1; 17 Alta. L.R.(2d) 212 (C.A.), refd to. [para. 86].

St. Lawrence Petroleum Ltd. v. Bailey Selburn Oil & Gas Ltd. (1961), 36 W.W.R.(N.S.) 167 (Alta. S.C.), 41 W.W.R.(N.S.) 210 (C.A.), [1963] S.C.R. 482, refd to. [para. 103].

Northrim Mines Ltd., Re (1982), 43 A.R. 1 (N.W.T.S.C.), refd to. [para. 105].

Emerald Resources Ltd. v. Sterling Oil Properties Management Ltd. (1969), 3 D.L.R.(3d) 630 (Alta. C.A.), affd. (1970), 15 D.L.R.(3d) 256 (S.C.C.), dist. [para. 106].

Publix Oil and Gas Ltd., In Re Bankruptcy of, [1936] 3 W.W.R. 634 (Alta. C.A.), refd to. [para. 107].

Canada Trustco Mortgage Co. v. Skoretz, [1983] 4 W.W.R. 618; 45 A.R. 18 (Q.B.), refd to. [para. 109].

Northland Bank v. Van de Geer and Bank of Montreal (1986), 75 A.R. 201; 34 D.L.R.(4th) 156 (C.A.), refd to. [para. 109].

Ellenborough Park, Re, [1956] 1 Ch. 131, refd to. [para. 114].

Callahan v. Martin (1935), 43 P.2d 788 (Cal. S.C.), refd to. [para. 115].

Irving Industries (Irving Wire Products Division) Ltd. et al. v. Canadian Long Island Petroleums Ltd. and Sadim Oil & Gas Co. Ltd., [1974] 6 W.W.R. 385; 3 N.R. 430 (S.C.C.), refd to. [para. 126].

Mobil Oil Canada Ltd. v. Beta Well Ser­vice Ltd. (1974), 43 D.L.R.(3d) 745 (Alta. C.A.), refd to. [para. 136].

Canadian Export Gas & Oil Ltd. v. Flegal and Flegal, [1978] 1 W.W.R. 185; 9 A.R. 105 (T.D.), refd to. [para. 162].

Hanson v. Ware (1955), 274 S.W.2d 359 (Ark. S.C.), refd to. [para. 164].

Lathrop v. Eyestone (1951), 227 P.2d 136, disagreed with [para. 166].

Thomas v. Thomas (1902), 57 The Law Times 58 (C.A.), not appld. [para. 167].

Edwards v. Edwards, [1909] A.C. 275 (H.L.), dist. [para. 167].

Whiteford v. Whiteford, [1915] 1 Ch. 347, dist. [para. 167].

Statutes Noticed:

Land Titles Act, S.A. 1949, c. 205, sect. 52a [para. 65].

Law of Property Act, R.S.A. 1980, c. L-8, generally [para. 109].

Authors and Works Noticed:

Black's Law Dictionary (4th Ed.) [para. 33].

Black's Law Dictionary (5th Ed.) [para. 33].

Black's Law Dictionary (6th Ed.) [para. 89].

Gray, J.C., The Rule Against Perpetuities (3rd Ed. 1915), p. 174 [para. 158].

Halsbury's Laws of England (2nd Ed.), vol. 10, p. 252 [para. 10].

Halsbury's Laws of England (4th Ed.), vol. 27, para. 138 [para. 34]; vol. 39, para. 1203 [para. 35].

Maudsley, Ronald H., The Modern Rule of Perpetuities (1979), pp. 11, 12 [para. 163].

Megarry and Wade, The Law of Real Property (5th Ed. 1984), pp. 231 [para. 163]; 838 [para. 114].

Morris and Leach, The Rule Against Per­petuities (2nd Ed. 1962), p. 26 [para. 169].

Thompson, Andrew, The Berkheiser Case and Lessors' Assignment, [1955-61] Alta. L. Rev. 249, p. 250 [para. 17].

Waters, D.W.M., Law of Trusts in Canada (2nd Ed. 1987), ch. 5 [para. 145].

Counsel:

Roderick A. McLennan, Q.C., Brian R. Burrows, Q.C., and Shelagh M. Lobay, for the plaintiff, Scurry-Rainbow Oil Ltd. in both actions;

John B. Ballem, Q.C., Geoffrey D. Baker and Paul Edwards, for the defendants, Daisy Marie Burden and Marlene Merle Bouchard as Executrices of the Estate of Clarence C. Galloway;

David A. Thurmeier and S. Keith Luft, for the defendants, Allen T. Fletcher and Hilda A. Fletcher;

James E. Redmond, Q.C., and Dwight I. Bliss, for First City Trust Co.;

D.R. Haigh, Q.C., and Douglas G. Mills, for the defendant, Edith Joan Noble;

James B. Laycraft, for the unitholders;

Stanley Carscallen and Michael B. Niven, for the mineral owners.

These actions were heard before Hunt, J., of the Alberta Court of Queen's Bench, Judicial District of Calgary, who delivered the following judgment on February 26, 1993.