Sun Sudan Oil Co. et al. v. Methanex Corp. et al., (1992) 134 A.R. 1 (QB)

• Judge: Hunt, J.
• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: November 03, 1992
• Citations: (1992), 134 A.R. 1 (QB);1992 CanLII 6194 (AB QB);[1993] 2 WWR 154;134 AR 1;5 Alta LR (3d) 292;[1992] AJ No 1003 (QL)

Sun Sudan Oil Co. v. Methanex Corp. (1992), 134 A.R. 1 (QB)

MLB headnote and full text

Sun Sudan Oil Company Inc. and Sun Sudan Oil Company Inc., Suing in a representative Capacity (plaintiff) v. Methanex Corporation, Ocelot Sudan Exploration Corporation and Oil Resources Inc. (defendants)

(Action No. 8701 07305)

Indexed As: Sun Sudan Oil Co. et al. v. Methanex Corp. et al.

Alberta Court of Queen's Bench

Judicial District of Calgary

Hunt, J.

November 3, 1992.

Summary:

In 1981, Sunmark Worldwide Services Inc. and Ocelot Industries Ltd. agreed, by letter, to form a joint venture to explore for oil in the Sudan. However, the operating agree­ment was executed by subsidiary companies (Sun Sudan Oil Co. Inc. and Ocelot Sudan). Before the venture was abandoned, Ocelot Sudan had failed to pay amounts owing under the operating agreement. Because Ocelot Sudan had no assets, the operator of the joint venture, Sun Sudan, sought reim­bursement by suing Ocelot's parent company that had executed the letter agreement. Ocelot Sudan's parent, Ocelot Industries, submitted that as a limited liability company, it was not liable for the financial obligations of a subsidiary.

The Alberta Court of Queens' Bench dis­missed the action.

Company Law - Topic 313

Nature of corporations - Lifting the cor­porate veil - Related companies - Two oil companies agreed to form a joint venture to explore for oil in the Sudan - The joint operating agreement was executed and the venture implemented by subsidiary com­panies - One of the subsidiaries failed to pay monies owed under the joint operating agreement - Because the defaulting sub­sidiary lacked assets, the operator of the joint venture sued the defaulting subsid­iary's parent company for reimbursement - The operator submitted that it was the custom in the petroleum industry not to require guarantees from the parent of an undercapitalized subsidiary company because the parent company would be responsible for the debts of its subsidiaries - The Alberta Court of Queen's Bench declined to find that such a custom existed - See paragraphs 24 to 30.

Company Law - Topic 313

Nature of corporations - Lifting the cor­porate veil - Related companies - The Alberta Court of Queen's Bench considered the following in determining whether to pierce the corporate veil and hold a parent company liable for a subsidiary company's debts - Whether the subsidiary's profits were treated as profits of the parent, were the subsidiary's managers appointed by the parent, was the parent the brain of the venture, did the parent govern the adven­ture, did the parent make profits by its skill and was the parent in constant control - Other factors were "the context in which it is said the separate existence of the subsidiary ought to be ignored" and "whether failing to lift the veil would yield a result too flagrantly opposed to justice or convenience" - See paragraphs 43 to 46.

Company Law - Topic 313

Nature of corporations - Lifting the cor­porate veil - Related companies - Sun­mark Worldwide Services Inc. and Ocelot Industries Ltd. executed a letter of agree­ment whereby they agreed to form a joint venture to explore for petroleum in the Sudan - However, the actual participation was through subsidiaries (Sun Sudan and Ocelot Sudan) - The subsidiaries executed the joint operating agreement and the production sharing agreement - Ocelot Sudan failed to pay its obligations under the operating agreement during the drilling phase of the program - Sun Sudan sued the parent company, Ocelot Industries, because Ocelot Sudan lacked assets - Sun Sudan submitted that the corporate veil should be lifted because the parent and subsidiary were in a principal-agent rela­tionship - The Alberta Court of Queen's Bench declined to lift the corporate veil - See paragraphs 30 to 52.

Company Law - Topic 4705

Contracts by companies - General - Trade custom - Proof of - In an action for reim­bursement, a plaintiff submitted that the practice in the industry was that a parent company would be responsible for the debts of its subsidiary - The Alberta Court of Queen's Bench stated that "[i]n order to find an industry practice, it must be estab­lished that there is a practice so well-recognized and known among people engaged in the industry and so prevailing as to justify a presumption that everyone who enters into a contract does so with the intention of being bound by the practice." - See paragraph 25.

Fraud and Misrepresentation - Topic 1408

Fraudulent conveyances - Impeachable conveyance under the Statute of Elizabeth, 1571 - Requirement that the grantor retain benefit - A cred­itor sued an impecunious company's parent in order to recover money owed - The creditor submitted that the corporate veil should be lifted because those companies were in a principal-agent relationship - The creditor also attacked a payment made by the subsidiary to the parent under the Statute of Elizabeth - The payment of $1.3 million was made at a time when the subsidiary owed the par­ent some $1.9 million - The parent sub­mitted that the Statute of Elizabeth only applied when the grantor reserved a benefit to himself - The Alberta Court of Queen's Bench held that the statute did not apply - See paragraph 68.

Fraud and Misrepresentation - Topic 1454

Fraudulent conveyances and preferences - Impeachable conveyances and preferences under modern statutes - Preference to defeat or prefer creditors - A creditor sued an impecunious company's parent in order to recover money owed - The creditor submitted that the corporate veil should be lifted because those companies were in a principal-agent relationship - The creditor also attacked a payment made by the subsidiary to the parent under the Fraudu­lent Preferences Act - The payment of $1.3 million was made at a time when the subsidiary owed the parent some $1.9 million - The parent submitted that there was no intention to prefer one creditor over another - Also, the subsidiary was not insolvent when the payment was made - The Alberta Court of Queen's Bench observed that the payment was not fraudu­lent - See paragraphs 21 and 64 to 68.

Fraud and Misrepresentation - Topic 1468

Fraudulent conveyances and preferences - Impeachable conveyances and preferences under modern statutes - Exceptions - Payment of money to a creditor - A cred­itor sued an impecunious company's parent in order to recover money owed - The creditor submitted that the corporate veil should be lifted because those companies were in a principal-agent relationship - The creditor also attacked a payment made by the subsidiary to the parent under the Fraudulent Preferences Act - The parent of the debtor subsidiary company sub­mitted that the Act did not apply because s. 6(b) excluded payments of money to creditors where the money paid bore a fair and reasonable relative value to the con­sideration therefor - The Alberta Court of Queen's Bench held that the Act did not apply - See paragraphs 57 to 64.

Limitation of Actions - Topic 15

General principles - Discoverability rule - Application of - A creditor cited the Fraudulent Preferences Act, R.S.A. 1980, c. F-18 when challenging a payment made by a debtor - Section 3 of the Act created a presumption as to the preferential effect of certain transactions that are attacked within a period of one year - However, the action was commenced more than two years later and the payment was not dis­covered until discovery - The cred­itor submitted that the "discoverability" rule should be applied and the commence­ment of the limitation period postponed to the time that the payment was discovered - The debtor claimed the rule should only be used where the action was statute-barred - The Alberta Court of Queen's Bench declined to apply the rule - See para­graphs 55 and 56.

Mines and Minerals - Topic 3

General - Trade custom or practice - Oil and gas - Parent company's liability for subsidiary's debts - [See first Company Law - Topic 313 ].

Cases Noticed:

Georgia Construction Co. v. Pacific Great Eastern Railway Co., [1929] S.C.R. 630, refd to. [para. 25].

Commonwealth Drilling Co. Ltd. v. Com­munity Petroleums Ltd. (1951), 2 W.W.R.(N.S.) 449 (Sask.R.), refd to. [para. 25].

Aron Salomon v. A. Salomon and Co. Ltd. - see Salomon (A.) v. A. Salomon and Co. Ltd.

Salomon (A.) v. A. Salomon and Co. Ltd., [1897] A.C. 22 (H.L.), appld. [para. 31].

Constitution Insurance Co. of Canada et al. v. Kosmopoulos et al. - see Kosmo­poulos et al. v. Constitution Insurance Co. of Canada.

Kosmopoulos et al. v. Constitution Insur­ance Co. of Canada, [1987] 1 S.C.R. 2; [1987] I.L.R. 1-2147; 74 N.R. 360; 21 O.A.C. 4; 34 D.L.R.(4th) 208; 36 B.L.R. 233; 22 C.C.L.I. 297, consd. [para. 31].

Steven v. Roscoe Turner Aeronautical Corp. (1963), F.2d 157 (U.S.C.A., 7th Cir.), consd. [para. 32].

Smith Stone and Knight Ltd. v. Lord Mayor, Alderman and Citizens of the City of Birmingham, [1939] 4 All E.R. 116 (K.B.), consd. [para. 34].

De Salaberry Realties Ltd. v. The Queen (1976), 70 D.L.R.(3d) 706 (F.C.A.), refd to. [para. 36].

DHN Food Distributors Ltd. and others v. London Borough of Tower Hamlets, [1976] 3 All E.R. 462 (C.A.), dist. [para. 36].

Kristian Equipment Ltd. v. Campbell West Ltd. and Urano Rentals Ltd., [1992] 2 W.W.R. 69; 104 Sask.R. 309 (Q.B.), not folld. [para. 38].

Canadian General Electric Co. Ltd. v. Bank of British Columbia et al. (1983), 52 C.B.R.(N.S.) 1 (Alta. C.A.), not folld. [para. 39].

Bank of Montreal v. Canadian Westgrowth Ltd. et al. (1990), 102 A.R. 391; 72 Alta. L.R.(2d) 319 (Q.B.), affd. 135 A.R. 49; 33 W.A.C. 49; 2 Alta. L.R.(3d) 221 (C.A.), consd. [para. 40].

Allarco Group Ltd. v. Suncor Inc. Resources Group, Oil Sands Division - see Suncor Inc. Resources Group, Oil Sands Division v. Allarco Group Ltd.

Suncor Inc. Resources Group, Oil Sands Division v. Allarco Group Ltd. [1987] 5 W.W.R. 159; 77 A.R. 378; 53 Alta. L.R.(2d) 107 (C.A.), consd. [para. 41].

Alberta Gas Ethylene Co. Ltd. v. Minister of National Revenue (1988), 24 F.T.R. 309; 43 D.T.C. 5058, affd. 112 N.R. 399; 44 D.T.C. 6419 (F.C.A.), consd. [para. 42].

B.G. Preeco I (Pacific Coast) Ltd. v. Bon Street Holdings et al. - see Preeco I (B.G.)(Pacific Coast) Ltd. v. Bon Street Holdings et al.

Preeco I (B.G.)(Pacific Coast) Ltd. v. Bon Street Holdings et al. (1989), 60 D.L.R.(4th) 30 (B.C.C.A.), consd. [para. 42].

Kamitomo v. Pasula - see Kamitomo and Kamitomo v. Pasula, Pasula, Macleod Stedman Ltd., Gambles Canada Ltd. and Sweeting.

Kamitomo and Kamitomo v. Pasula, Pas­ula, Macleod Stedman Ltd., Gambles Canada Ltd. and Sweeting (1983), 50 A.R. 280; 29 Alta. L.R.(2d) 375; 25 B.L.R. 60 (Q.B.), refd to. [para. 48].

Kerekanich v. Stephenson - see Stephen­son v. Kerekanich et al.; Central Peace Dairies Ltd. v. Stephenson and Kereka­nich.

Stephenson v. Kerekanich et al.; Central Peace Dairies Ltd. v. Stephenson and Kerekanich (1976), 2 A.R. 198; 1 Alta. L.R.(2d) 354 (S.C.), refd to. [para. 48].

Rivercrest Properties Ltd. v. Ng (1985), 62 A.R. 280 (Q.B.), refd to. [para. 48].

Canadian Imperial Bank of Commerce v. Grande Cache Motor Inn Ltd.; Hobbema Farms Ltd. v. Fowlis - see Hobbema Farms Ltd. v. Grande Cache Motor Inn Ltd.

Hobbema Farms Ltd. v. Grande Cache Motor Inn Ltd. (1977), 9 A.R. 208; 4 Alta. L.R.(2d) 319; 25 C.B.R.(N.S.) 207 (S.C.T.D.), refd to. [para. 55].

Nielsen v. Kamloops (City) and Hughes, [1984] 2 S.C.R. 2; [1984] 5 W.W.R. 1; 54 N.R. 1; 29 C.C.L.T. 97; 8 C.L.R. 1; 10 D.L.R.(4th) 641, dist. [para. 55].

Central Trust Co. v. Rafuse and Cordon, [1986] 2 S.C.R. 147; 69 N.R. 321; 75 N.S.R.(2d) 109; 186 A.P.R. 109; 37 C.C.L.T. 117; 31 D.L.R.(4th) 481, dist. [para. 55].

McWhorter, Huston, Paine and Morton v. Registrar of North Alberta Land Regis­tration District - see Huston Estate v. Registrar of North Alberta Land Regis­tration District

Huston Estate v. Registrar of North Alberta Land Registration District, [1988] 3 W.W.R. 132; 84 A.R. 214; 57 Alta. L.R.(2d) 118 (Q.B.), affd. [1989] 5 W.W.R. 183; 96 A.R. 300; 67 Alta. L.R.(2d) 71; 5 R.P.R.(2d) 145 (C.A.), dist. [para. 55].

Larche v. Middleton (1989), 69 O.R.(2d) 400; 137 C.P.C.(2d) 174 (H.C.J.), dist. [para. 55].

Pontiac Forest Products Ltd., Re (1982), 44 C.B.R. 251 (Ont. S.C.), consd. [para. 59].

Cohen and Mahlin Canadian Credit Men's Trust Association Ltd. v. Spivak, [1927] 1 W.W.R. 162 (Alta. C.A.), consd. [para. 60].

Robinson v. Countrywide Factors Ltd. - see Kozan Furniture (Yorkton) Ltd. v. Countrywide Factors Ltd.

Kozan Furniture (Yorkton) Ltd. Estate v. Countrywide Factors Ltd., [1978] 1 S.C.R. 753; [1977] 2 W.W.R. 111; 14 N.R. 91, dist. [para. 61].

Graf v. Lingrell (1914), 6 W.W.R. 566 (Alta. S.C.), refd to. [para. 67].

Burton v. R & M Insurance Ltd. and Poole (1977), 9 A.R. 589; 5 Alta. L.R.(2d) 14; 81 D.L.R.(3d) 455; 26 C.B.R.(N.S.) 49 (S.C.T.D.), refd to. [para. 67].

Killops v. Porter (1916), 9 W.W.R. 949; 26 D.L.R. 326 (Alta. S.C.T.D.), refd to. [para. 67].

Robertson v. Robinson (1928), 62 O.L.R. 12 (A.D.), affd. [1929] S.C.R. 175, refd to. [para. 67].

Fisher v. Kowslowski (1913), 5 W.W.R. 91 (Man. T.D.), refd to. [para. 67].

Anderson Lumber Co. Ltd. v. Canadian Conifer Ltd., [1977] 5 W.W.R. 41; 4 A.R. 282; 25 C.B.R. 35; 77 D.L.R.(3d) 126 (C.A.), refd to. [para. 68].

Mulcahy v. Archibald (1898), 28 S.C.R. 523, refd to. [para. 68].

Statutes Noticed:

Fraudulent Preferences Act, R.S.A. 1980, c. F-18, sect. 2 [para. 54]; sect. 6(b) [para. 57]; sect. 9 [para. 62].

Statute of Elizabeth (1571), 13 Eliz., c. 5 [para. 68].

Authors and Works Noticed:

Gower, L.C.B., Modern Company Law (4th Ed. 1979), p. 112 [para. 31].

Sopinka, Lederman and Bryant, The Law of Evidence in Canada (1992), pp. 931-932, [para. 28].

Counsel:

D.T. Gallagher, for the plaintiffs;

A.D. Macleod and H.A. Gorman, for the defendants.

This matter was heard in Calgary, Alberta, by Hunt, J., of the Alberta Court of Queen's Bench who delivered the following decision on November 3, 1992.