SemCanada Crude Co. et al., Re, (2009) 460 A.R. 269 (CA)

• Judge: Paperny, J.A.
• Court: Court of Appeal (Alberta)
• Case Date: August 12, 2009
• Citations: (2009), 460 A.R. 269 (CA);2009 ABCA 275

SemCan. Crude Co., Re (2009), 460 A.R. 269 (CA);

      462 W.A.C. 269

MLB headnote and full text

Temp. Cite: [2009] A.R. TBEd. AU.101

Trilogy Energy LP (applicant/respondent) v. SemCAMS ULC (respondent/applicant)

(0901-0198-AC; 2009 ABCA 275)

Indexed As: SemCanada Crude Co. et al., Re

Alberta Court of Appeal

Paperny, J.A.

August 19, 2009.

Summary:

Trilogy Energy LP sold raw natural gas to SemCAMS ULC under a gas purchase agreement. SemCAMS owed about $4.1 million to Trilogy. Trilogy sought to set-off that amount against approximately $5.3 million it owed to SemCAMS for services provided under agreements at natural gas facilities that were jointly owned. SemCAMS applied under the Companies' Creditors Arrangement Act in respect of the purported set-off.

The Alberta Court of Queen's Bench, in a decision reported as SemCanada Crude Co. et al., Re (2009), 479 A.R. 299; 2009 ABQB 397, declined to find that Trilogy could set-off the amounts owed. The order followed a successful application by SemCAMS under the Companies Creditors Arrangement Act to enforce payment. Trilogy sought leave to appeal.

The Alberta Court of Appeal, per Paperny, J.A., denied leave to appeal. The "several creative arguments" did not persuade the court that the chambers judge misconstrued the agreements in question or incorrectly applied legal principles in interpreting them. Further, an appeal would unduly hinder the completion of the plan if it was found acceptable to the affected creditors and the court.

Contracts - Topic 7426

Interpretation - Ambiguity - What constitutes ambiguity - [See first and second Creditors and Debtors - Topic 8594 ].

Creditors and Debtors - Topic 8581.3

Debtors' relief legislation - Companies' creditors arrangement legislation - Application of concepts of fairness and equity - [See fourth and fifth Creditors and Debtors - Topic 8594 ].

Creditors and Debtors - Topic 8594

Debtors' relief legislation - Companies' creditors arrangement legislation - Arrangement - Set-off - Trilogy sold raw natural gas to SemCAMS pursuant to an Inlet Purchase Agreement (IPA) - In the context of the Companies Creditors Arrangement Act, Trilogy sought leave to appeal the decision of the chambers judge, declining to find set-off on a contractual basis - Trilogy relied on a set-off clause that was incorporated into the IPA by reference - It provided for the set-off of any amounts owing "under any other agreement between the parties" - In interpreting this clause, the chambers judge found that for Trilogy to succeed on its argument, it would have to establish that, at least, sufficient ambiguity existed in the contract to make evidence of the surrounding circumstances or the intention of the parties a relevant consideration - The Alberta Court of Appeal, per Paperny, J.A., began its analysis by stating that "findings of ambiguity or no ambiguity in a contract are questions of fact and a chambers judge's decision is due deference absent palpable and overriding error or an extricable error of law" - See paragraphs 14 to 16.

Creditors and Debtors - Topic 8594

Debtors' relief legislation - Companies' creditors arrangement legislation - Arrangement - Set-off - Trilogy sold raw natural gas to SemCAMS under an Inlet Purchase Agreement (IPA) - In the context of the Companies Creditors Arrangement Act, Trilogy purported to set-off amounts owed to SemCams under the IPA - Trilogy relied on a set-off clause that was incorporated into the IPA by reference, providing for the set-off of any amounts owing "under any other agreement between the parties" - In interpreting this clause, the chambers judge found no ambiguity and declined to find set-off against SemCAMS as "operator" under the other agreements - Trilogy sought leave to appeal, submitting that the chambers judge misinterpreted the plain words of the contract and as such made a reversible error, and that the meaning of the word "parties" in the set-off clause was not to be qualified by SemCAMS' various legal capacities, but rather by its ordinary and accepted meaning - The Alberta Court of Appeal, per Paperny, J.A., rejected those submissions - The principles of legal set-off required the cross-obligations of the parties to be in the same right - The chambers judge's consideration of those principles in her interpretation of the IPA did not prima facie disclose a reviewable error - See paragraphs 17 and 18.

Creditors and Debtors - Topic 8594

Debtors' relief legislation - Companies' creditors arrangement legislation - Arrangement - Set-off - Trilogy sold raw natural gas to SemCAMS under an Inlet Purchase Agreement (IPA) - In the context of the Companies Creditors Arrangement Act, Trilogy purported to set-off amounts owed to SemCams under the IPA - Trilogy relied on a set-off clause that was incorporated into the IPA by reference, providing for the set-off of any amounts owing "under any other agreement between the parties" - The chambers judge declined to find set-off on a legal basis, and found that a trust relationship existed - The Alberta Court of Appeal, per Paperny, J.A., denied leave to appeal - The chambers judge applied the correct test and her reasons in this respect demonstrated no prima facie error - To assess whether the parties were the same and whether the debts were in the same right, so as to meet the mutuality requirement for legal set-off, the chambers judge considered the relationship and agreements between Trilogy and SemCAMS in its personal capacity under the IPA, and between Trilogy and SemCAMS in its operator capacity under the Gas Processing Agreement - Further, she applied the correct test to determine whether the construction, ownership and operation agreements created trust relationships between SemCAMS as "operator" and the joint owners of the gas facilities - See paragraphs 19 and 20.

Creditors and Debtors - Topic 8594

Debtors' relief legislation - Companies' creditors arrangement legislation - Arrangement - Set-off - The Alberta Court of Appeal, per Paperny, J.A., in denying an application for leave to appeal in the context of the Companies Creditor Arrangement Act, stated that "[t]he chambers judge correctly set out the test for equitable set-off ... 1. The party relying on a set-off must show some equitable ground for being protected against his adversary's demands. 2. The equitable ground must go to the very root of the plaintiff's claim before a set-off will be allowed. 3. A cross-claim must be so clearly connected with the demand of the plaintiff that it would be manifestly unjust to allow the plaintiff to enforce payment without taking into consideration the cross claim. 4. The plaintiff's claim and the cross-claim need not arise out of the same contract. 5. Unliquidated claims are on the same footing as liquidated claims" - See paragraph 22.

Creditors and Debtors - Topic 8594

Debtors' relief legislation - Companies' creditors arrangement legislation - Arrangement - Set-off - In an application for leave to appeal in the context of the Companies Creditor Arrangement Act, a creditor (Trilogy) argued that the chambers judge, in declining to find set-off on an equitable basis, made several critical errors that informed her consideration of "close connection" and "manifest injustice" - The Alberta Court of Appeal, per Paperny, J.A., dismissed the argument - It disagreed with Trilogy's submission that the chambers judge incorrectly considered prejudice to other creditors in deciding whether it would be unjust to enforce payment - While she did note that on the issue of fairness, were set-off to be found, it would have "potentially adverse consequences to the ability of SemCAMS to present an acceptable plan of arrangement", she did not rely on this finding in reaching her conclusion - Further, it was not apparent from the record that the chambers judge failed to consider certain facts; there was no prima facie error in her having failed to specifically advert to their relevance in arriving at her conclusion - See paragraphs 23 to 25.

Creditors and Debtors - Topic 8599

Debtors' relief legislation - Companies' creditors arrangement legislation - Appeals (incl. leave to appeal) - The Alberta Court of Appeal, per Paperny, J.A., considered the test for leave to appeal in the context of the Companies Creditors Arrangement Act, as set out in the leading jurisprudence - The test "involves a single criterion subsuming four factors: there must be serious and arguable grounds that are of real and significant interest to the parties. The factors used to assess whether this criterion is present are: (1) whether the point on appeal is of significance to the practice; (2) whether the point raised is of significance to the action itself; (3) whether the appeal is prima facie meritorious or, on the other hand, whether it is frivolous; and (4) whether the appeal will unduly hinder the progress of the action ... An appellate court should exercise its power sparingly, given the unique role of the supervising chambers judge. Appropriate weight must be given to each of these factors in determining whether the test for leave to appeal has been met. The last two factors are generally ascribed greater weight than the first two" - See paragraphs 9 and 10.

Creditors and Debtors - Topic 8599

Debtors' relief legislation - Companies' creditors arrangement legislation - Appeals (incl. leave to appeal) - Trilogy Energy LP sought leave to appeal the decision of the chambers judge declining to find set-off on a contractual, legal or equitable basis - The appeal would involve approximately $5.3 million that Trilogy was unlikely to recover should it not be entitled to set-off - The Alberta Court of Appeal, per Paperny, J.A., considered that the issue was of significance to the parties and the action - However, the court was not persuaded by Trilogy's submission that leave should be granted so that the court could lay down principles with respect to set-off in insolvency, and oil and gas practice in Alberta - The issues raised were governed by well-settled law in respect of the tests for contractual, legal and equitable set-off - The issue of whether an operator-joint owner relationship constituted a trust relationship was previously considered by the court - Moreover, whether set-off in any form applied in this case would require consideration of a number of agreements, not all of which were common in the oil and gas industry - The principles of set-off were well understood; the desirability of additional or new principles for set-off within the oil and gas industry was not apparent - The real concern here was over the application of those principles to this case, which suggested limited future applicability - See paragraphs 11 and 12.

Creditors and Debtors - Topic 8599

Debtors' relief legislation - Companies' creditors arrangement legislation - Appeals (incl. leave to appeal) - The Alberta Court of Appeal, per Paperny, J.A., stated that the threshold issue to be determined on an application for leave to appeal under the Companies Creditors Arrangement Act was "whether the proposed appeal is prima facie meritorious . ... Trilogy [the applicant] proposes grounds which raise questions of law and questions of mixed fact and law. They boil down to whether each of the respective tests for contractual, legal and equitable set-off were properly applied by the chambers judge. To be reviewable by this Court, Trilogy must point to an error on a question of law, a palpable and overriding error in the findings of fact, or an error in the supervising chambers judge's exercise of discretion ... Questions of pure law are reviewable on a standard of correctness, while issues of mixed fact and law, including a judge's interpretation of the evidence as a whole, and whether or not the facts satisfy a legal test, are reviewable on a standard of palpable and overriding error" - See paragraph 13.

Creditors and Debtors - Topic 8599

Debtors' relief legislation - Companies' creditors arrangement legislation - Appeals (incl. leave to appeal) - The Alberta Court of Appeal, per Paperny, J.A., in the context of an application for leave to appeal, considered that delay and uncertainty caused by appeals was a matter of concern in a proceeding under the Companies Creditors Arrangement Act (CCAA) - "In assessing whether to grant leave to appeal, the Court should consider whether the delay resulting from the appeal will entirely defeat the purpose and intention of the CCAA" - The plan in this case was scheduled to be voted on and, if successful, to be brought forward for approval in one month - While likely not fatal to the CCAA proceedings, an appeal in this case would have an adverse effect and hinder the completion of the plan if it was found acceptable to the affected creditors and the court - In the result, and on the merits of the appeal, the court denied leave to appeal - See paragraphs 26 and 27.

Cases Noticed:

Liberty Oil & Gas Ltd. et al., Re, [2003] A.R. Uned. 179; 44 C.B.R.(4th) 96; 2003 ABCA 158, refd to. [para. 9].

Resurgence Asset Management LLC - see Canadian Airlines Corp., Re.

Canadian Airlines Corp., Re (2000), 261 A.R. 120; 225 W.A.C. 120; 2000 ABCA 149, refd to. [para. 9].

Luscar Ltd. et al. v. Smoky River Coal Ltd. et al. (1999), 237 A.R. 83; 197 W.A.C. 83; 1999 ABCA 213, refd to. [para. 9].

Canadian Airlines Corp., Re (2000), 266 A.R. 131; 228 W.A.C. 131; 2000 ABCA 238, refd to. [para. 9].

Multitech Warehouse District, Re (1995), 32 Alta. L.R.(3d) 62 (C.A.), refd to. [para. 9].

Nexen Marketing v. SemCAMS ULC - see SemCanada Crude Co. et al., Re.

SemCanada Crude Co. et al., Re (2009), 457 A.R. 336; 457 W.A.C. 336; 2009 ABCA 237, refd to. [para. 12].

McMahon v. Canada Permanent Trust Co., [1980] 2 W.W.R. 438; 32 C.B.R.(N.S.) 258 (B.C.C.A.), refd to. [para. 12].

Bank of Nova Scotia v. Société générale (Canada), [1988] 4 W.W.R. 232; 87 A.R. 133 (C.A.), refd to. [para. 12].

Luscar Ltd. and Norcen Energy Resources Ltd. v. Pembina Resources Ltd., [1995] 2 W.W.R. 153; 162 A.R. 35; 83 W.A.C. 35; 24 Alta. L.R.(3d) 305 (C.A.), refd to. [para. 12].

Housen v. Nikolaisen et al., [2002] 7 W.W.R. 1; 286 N.R. 1; 219 Sask.R. 1; 272 W.A.C. 1; 2002 SCC 33, refd to. [para. 13].

Meyer v. Partec Lavalin Inc. et al. (2001), 281 A.R. 339; 248 W.A.C. 339; 2001 ABCA 145, refd to. [para. 14].

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. 14].

Predator Corp. v. Ricks Nova Scotia Co. (2002), 317 A.R. 322; 284 W.A.C. 322; 2002 ABCA 248, refd to. [para. 14].

SemCanada Crude Co. et al., Re (2009), 479 A.R. 299; 2009 ABQB 397, refd to. [para. 16].

Telford v. Holt, [1987] 2 S.C.R. 193; 78 N.R. 321; 81 A.R. 385; [1987] 6 W.W.R. 385, refd to. [para. 19].

Citibank Canada v. Confederation Life Insurance Co. (Liquidation) et al. (1996), 15 O.T.C. 26; 42 C.B.R.(2d) 288 (Gen. Div.), affd. (1998), 106 O.A.C. 304; 37 O.R.(3d) 226 (C.A.), refd to. [para. 19].

National Westminster Bank Ltd. v. Halesowen Presswork & Assemblies Ltd., [1972] 2 W.L.R. 455 (H.L.), refd to. [para. 21].

Blue Range Resource Corp., Re (1999), 244 A.R. 103; 209 W.A.C. 103; 1999 ABCA 255, refd to. [para. 23].

Komarnicki v. Hurricane Hydrocarbons Ltd. et al. (2007), 425 A.R. 182; 418 W.A.C. 182; 2007 ABCA 361, refd to. [para. 27].

Canadian Airlines Corp., Re, [2001] 7 W.W.R. 383; 294 A.R. 253; 2001 ABQB 146, refd to. [para. 28].

Counsel:

B. O'Leary and D.S. Nishimura; for the applicant;

A.R. Anderson, Q.C., and T.D. Gelbman, for the respondent.

This application was heard on August 12, 2009, by Paperny, J.A., of the Alberta Court of Appeal, who gave the following reasons for decision, filed at Calgary, Alberta, on August 19, 2009.