United Canso Oil & Gas Ltd. v. Washoe Northern Inc. et al., (1991) 121 A.R. 1 (QB)

• Judge: Hutchinson, J.
• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: November 18, 1991
• Citations: (1991), 121 A.R. 1 (QB)

United Canso Oil v. Washoe Northern Inc. (1991), 121 A.R. 1 (QB)

MLB headnote and full text

United Canso Oil & Gas Ltd. (plaintiff) v. Washoe Northern Inc., Finley Company (Robertson-Finley Operating Company), Esso Resources Canada Limited, Husky Oil Exploration Inc., Asamera Inc., Lasmer Resources Inc., Husky Oil Ltd. and Husky Oil Operations Ltd. (defendants)

(Action No. 8701-02397)

Indexed As: United Canso Oil & Gas Ltd. v. Washoe Northern Inc. et al.

Alberta Court of Queen's Bench

Judicial District of Calgary

Hutchinson, J.

November 18, 1991.

Summary:

The plaintiff held certain carried interests in oil and gas properties. The plaintiff claimed that the Foundation Agreements governing the parties' relationships were misinterpreted by the defendants and that improper accounting deprived the plaintiff of monies properly payable to it. The action raised both accounting and legal issues.

The Alberta Court of Queen's Bench allowed the action in part. The court resolved the issues and determined which defendants were liable and to what extent.

Actions - Topic 1581

Cause of action - Contracts - General - The plaintiff held certain carried interests in oil and gas properties - The plaintiff claimed that the Managing Operators and Joint Operators failed to properly perform their accounting functions and, accordingly, deprived the plaintiff of its share of production revenues - The plaintiff framed its action against the Managing Operators in restitution based on unjust enrichment and against the Joint Operators for breach of trust - The Alberta Court of Queen's Bench examined the relationship between the parties and held that the plaintiff's cause of action against all defendants was in contract - Their respective rights and obligations arose from the contracts entered into between them - See paragraphs 204 to 301.

Choses in Action - Topic 5104

Practice - Parties - Action on equitable assignment - The Alberta Court of Queen's Bench stated that "an equitable assignment of a legal chose ... is only enforceable if the assignor and the assignee join together to enforce it." - See paragraph 308.

Evidence - Topic 7154

Opinion evidence - Prohibited opinions - Re basic or ultimate issue to be decided - An expert was called to give opinion evidence respecting certain agreements in the oil and gas industry - The Alberta Court of Queen's Bench stated that the witness should not be asked to interpret the agreements as fitting any particular classification of agreement - It was the court's function to interpret and classify the nature of the agreements - The court stated that the witness could express an opinion on the usual or widely held underlying assumptions relating to the agreements "as being an aid to interpretation by reference to the commercial setting, or business background, or matrix supporting the documents" - See paragraphs 24 to 25.

Income Tax - Topic 6860

Computation of tax - Rules for corporations - Tax credits - Royalty tax credit - [See Mines and Minerals - Topic 8003 ].

Interest - Topic 5303

As damages (prejudgment interest) - Interest on payment of money or debt withheld - Amount due under contract - The plaintiff was deprived of monies due under a contract - The monies were improperly paid to other parties - The governing agreement provided for interest at 6% per annum, not compounded monthly - The Alberta Court of Queen's Bench stated that the plaintiff was entitled to interest at 6% per annum (not compounded) until April 1, 1984, and interest under the Judgment Interest Act thereafter - See paragraphs 374 to 388.

Limitation of Actions - Topic 2023

Actions in contract - Breach of contract - When time commences to run - The plaintiff held certain carried interests in oil and gas properties - The plaintiff sued the Managing Operators and Joint Operators in contract, claiming it was wrongfully deprived of its share of production revenues by the failure to keep proper accounts since 1969 - The statement of claim was issued on February 6, 1987 - The Alberta Court of Queen's Bench held that the six year limitation period applied (Limitation of Actions Act, s. 4(1)(c)) - The court stated that the plaintiff's action was barred in respect of any claims arising before February 6, 1981 - See paragraphs 204 to 292.

Mines and Minerals - Topic 8003

Oil and gas - General - Alberta Royalty Tax Credit - Nature of - The Alberta Court of Queen's Bench stated that the Alberta Royalty Tax Credit was properly classified as a royalty reduction, not a deduction from income taxes or a grant - The court stated that the Credit "was introduced to offset the disallowance by the federal government of provincial Crown royalties in the calculation of federal income taxes payable by oil and gas producers. The identification with federal income tax rates was abandoned after two years and [the Credit] was used as part of an incentive program by the provincial government thereafter ... such a payment ... represents a refund of Crown royalties or a reduction in Crown royalties." - See paragraphs 91 to 123.

Mines and Minerals - Topic 8283

Oil and gas - Agreements - Interpretation - Statutory changes - The plaintiff held certain carried interests in oil and gas properties and claimed accounting calculations relating to the Carried Interest accounts and Production Payment accounts were improperly done since 1969 - From 1969 to present there were changes in both federal and provincial taxing statutes and other relevant statutes that impacted on a producer's revenues from production - The Alberta Court of Queen's Bench stated that the legislative changes were to be taken into account in the income tax calculations; calculations were not made solely on the basis of statutory provisions frozen as of 1969 - See paragraphs 84 to 89.

Practice - Topic 205

Persons who can sue and be sued - Individuals and corporations - Status or standing - Loss of - The plaintiff commenced an action, then sold its assets to another party - The purchase and sale agreement provided that "the Receiver shall retain all obligations and responsibilities for and Esso shall not be entitled to any benefits in respect of or arising from the Quirk Creek Litigation." - The Alberta Court of Queen's Bench stated that the plaintiff's right of action was not extinguished by the sale - See paragraphs 389 to 393.

Practice - Topic 228

Persons who can sue or be sued - Individuals and corporations - Status or standing - Corporations in receivership - The corporate plaintiff issued a statement of claim on February 6, 1987 - A receiver was appointed for the plaintiff on April 13, 1988 - The Alberta Court of Queen's Bench stated that the action was properly commenced in the plaintiff's name - The action did not have to be pursued in the name of the receiver - See paragraphs 302 to 306.

Practice - Topic 353

Parties - Joinder of parties - Nonjoinder of parties - Effect of - [See first Practice - Topic 378 ].

Practice - Topic 378

Parties - Joinder of parties - Joinder of plaintiffs - When required - The plaintiff commenced litigation based on its rights under certain carried interests in oil and gas properties - The plaintiff had conveyed a portion of its interest in the properties to two wholly-owned subsidiaries, neither of whom were named plaintiffs - The transfer was an equitable assignment and the receiver for the plaintiff, on the subsidiaries' behalf, authorized the plaintiff to pursue the litigation and to include the subsidiaries' interests - The Alberta Court of Queen's Bench added the two subsidiaries as plaintiffs; the defendants were not prejudiced by the nonjoinder - See paragraphs 307 to 319.

Practice - Topic 378

Parties - Joinder of parties - Joinder of plaintiffs - When required - The Alberta Court of Queen's Bench stated that "the law of restitution, having as it does, roots in common law and equity, requires in the case of an assignment that the person suffering the deprivation be named as a party." - See paragraph 360.

Practice - Topic 7133

Costs - Party and party costs - Disbursements - Expenses for accountants - The plaintiff brought an action claiming that the Managing Operators under a Joint Operating Agreement improperly performed required accounting functions, thereby depriving the plaintiff of monies owed to it - The plaintiff hired a chartered accountant to reconstruct the accounts to determine payout and to calculate what was allegedly owed - The Alberta Court of Queen's Bench stated that the substantial costs incurred by the accountant were justified as a disbursement recoverable by the plaintiff, but reserved final determination of the matter until argument on costs at a later date - See paragraphs 369 to 373.

Receivers - Topic 4441

Actions by receivers - Parties - General - [See Practice - Topic 228 ].

Restitution - Topic 10

Contract between the parties - Effect of - [See Actions - Topic 1581 ].

Restitution - Topic 66

Unjust enrichment - Conditions precedent - The plaintiff claimed some of the defendants were unjustly enriched by receiving monies that should have been paid to the plaintiff - The Managing Operators under a Joint Operating Agreement allegedly failed to properly perform required accounting functions under the Agreement - The Alberta Court of Queen's Bench stated that the plaintiff proved the three conditions precedent to a claim for unjust enrichment (enrichment, corresponding deprivation and lack of a juristic reason for the enrichment), but the plaintiff's cause of action was in contract, not restitution - See paragraphs 349 to 368.

Torts - Topic 4

Negligence - Gross negligence defined - An exemption clause in a Joint Operating Agreement limited a Managing Operator's liability to gross negligence or wilful misconduct - The Alberta Court of Queen's Bench found two Managing Operators grossly negligent for failing to perform required accounting functions, while realizing there was a risk of paying monies belonging to the plaintiff to other joint operators - There was a marked departure from the standards by which reasonable and competent companies in a like position in charge of joint ventures or accounting should habitually govern themselves - There was a conscious indifference to the plaintiff's rights and welfare - See paragraphs 320 to 342.

Torts - Topic 4

Negligence - Gross negligence defined - An exemption clause in a Joint Operating Agreement limited a Managing Operator's liability to gross negligence or wilful misconduct - Two Managing Operators performed the required accounting functions for 13 years without objection - The Alberta Court of Queen's Bench stated that even if the Operators erred in their interpretation of how to perform the accounting function they were not grossly negligent or guilty of wilful misconduct - The errors did not constitute "conscious wrongdoing" or "a very marked departure" from the standard of care required - See paragraph 345.

Cases Noticed:

Pine Pass Oil & Gas Ltd. v. Pacific Petroleums Ltd. (1968), 70 D.L.R.(2d) 196 (B.C.S.C.), refd to. [para. 35].

Atlantic Ritchfield Company v. Petro- Canada (1983), 49 A.R. 109 (C.A.), refd to. [para. 85].

Hoefel v. Bongard & Co., [1945] S.C.R. 360, refd to. [para. 194].

Hayduk v. Waterton, [1968] S.C.R. 871, refd to. [para. 194].

Amerada Minerals Corp. of Canada Ltd. v. Mesa Petroleum (N.A.) Co. et al. (1985), 60 A.R. 202; 37 Alta. L.R.(2d) 363 (Q.B.), refd to. [para. 195].

Corporation of the City of Carleton v. Corporation of the City of Ottawa, [1965] S.C.R. 663, refd to. [para. 207].

Diplock v. Wintle, [1948] 1 Ch. 465, refd to. [para. 207].

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, refd to. [para. 210].

98956 Investments Ltd. (Receivership) v. Fidelity Trust Co. (1988), 89 A.R. 151; 61 Alta. L.R.(2d) 193 (C.A.), refd to. [para. 211].

Fidelity Trust Co. v. Weiler - see 98956 Investments Ltd. (Receivership) v. Fidelity Trust Co.

J.L.O. Ranch Ltd. v. Logan Estate and Logan (1987), 81 A.R. 261; 54 Alta. L.R.(2d) 130 (Q.B.), refd to. [para. 214].

Scotsburn Co-operative Services Limited v. Goodwin (W.T.) Limited, [1985] 1 S.C.R. 54; 57 N.R. 81; 67 N.S.R.(2d) 163; 155 A.P.R. 163, refd to. [para. 223].

Canadian Superior Oil Ltd. v. Paddon-Hughes Development Co. Ltd. (1969), 67 W.W.R.(N.S.) 525 (S.C.C.), refd to. [para. 227].

Willmott v. Barber (1880), 15 Ch. D. 96, refd to. [para. 227].

Greenwood v. Martins Bank, [1933] A.C. 51, refd to. [para. 227].

Amerada Minerals Corp. of Canada Ltd. v. Mesa Petroleum (N.A.) Co. et al. (1986), 73 A.R. 172; 47 Alta. L.R.(2d) 289 (C.A.), refd to. [para. 238].

Ruzicka v. Costigan (1984), 54 A.R. 385; 33 Alta. L.R.(2d) 21 (C.A.), refd to. [para. 242].

Bank of Nova Scotia v. Société Général (Canada) et al. (1988), 87 A.R. 133; 58 Alta. L.R.(2d) 193 (C.A.), refd to. [para. 248].

Chatsworth Investments Ltd. v. Cussins (Contractors) Ltd., [1969] 1 All E.R. 143, refd to. [para. 251].

Law Society of Alberta and Ainscough's Estate v. Canadian Imperial Bank of Commerce and Bank of Nova Scotia (1989), 101 A.R. 374; 71 Alta. L.R.(2d) 102 (Q.B.), refd to. [para. 255].

Pacol Ltd. v. Trade Lines Ltd. (The "Henrik Sif"), [1982] Lloyd's Law Rep. 456 (Q.B. Comm. Ct.), refd to. [para. 256].

Moorgate Mercantile Co. Ltd. v. Twitchings, [1977] A.C. 890, refd to. [para. 256].

Amalgamated Investment & Property Co. Ltd. v. Texas Commerce International Bank Ltd., [1981] 3 All E.R. 577, refd to. [para. 257].

Litwin Construction (1973) Ltd. v. Pan, Nicholson and Nicholson (1988), 29 B.C.L.R.(2d) 88 (C.A.), refd to. [para. 258].

Lindsay Petroleum Co. v. Hurd (1874), L.R. 5 P.C. 221, refd to. [para. 260].

Western Oil Consultants v. Northern Oils Ltd. (1981), 15 Alta. L.R.(2d) 165 (Q.B.), refd to. [para. 266].

Atlas Cabinets & Furniture Ltd. v. National Trust Co. Ltd. (1990), 45 B.C.L.R.(2d) 99 (C.A.), refd to. [para. 267].

Abacus Cities Ltd. v. Aboussafy (1980), 29 A.R. 620 (Q.B.), affd. 29 A.R. 607 (C.A.), refd to. [para. 303].

Gaumont v. Lutz (1980), 24 A.R. 609 (C.A.), refd to. [para. 308].

Kush v. Peat, [1922] 2 W.W.R. 174 (Sask. C.A.), refd to. [para. 309].

Covert v. Janzen, [1908] 9 W.L.R. 287 (Sask. C.A.), refd to. [para. 309].

O'Dwyer v. Banks (1952), 8 W.W.R.(N.S.) 161 (Alta. S.C.), refd to. [para. 311].

Steel Wing Co. Ltd., Re, [1921] 1 Ch. 349, refd to. [para. 312].

Armstrong v. Widmer, [1976] 1 W.W.R. 734 (Alta. C.A.), refd to. [para. 314].

Syncrude Canada Ltd. et al. v. Hunter Engineering Co. and Allis-Chalmers Canada Ltd. et al. (1989), 92 N.R. 1; 57 D.L.R.(4th) 321 (S.C.C.), refd to. [para. 323].

Act Oils Ltd. v. Pacific Petroleums Ltd. (1975), 60 D.L.R.(3d) 658 (Alta. C.A.), refd to. [para. 323].

Andrau v. Michigan Wisconsin Pipe Line Co. (1986), 712 P. 2d 372, refd to. [para. 326].

Texas Pacific Coal & Oil Co. v. Robertson (1935), 79 S.W. 2d 830, refd to. [para. 327].

McCulloch v. Murray, [1942] S.C.R. 141, refd to. [para. 328].

Poche v. Poche Estate (1984), 50 A.R. 264; 6 D.L.R.(4th) 40 (Surr. Ct.), refd to. [para. 330].

Alpine Resources Ltd. v. Bowtex Resources Ltd. (1989), 96 A.R. 278; 66 Alta. L.R.(2d) 144 (Q.B.), refd to. [para. 339].

Becker v. Pettkus, [1980] 2 S.C.R. 834; 34 N.R. 384; 117 D.L.R.(3d) 257, refd to. [para. 351].

Air Canada and Pacific Western Airlines Ltd. v. British Columbia, [1989] 1 S.C.R. 1161; 95 N.R. 1, refd to. [para. 352].

Canadian Pacific Airlines Ltd. and Pacific Western Airlines Ltd. v. British Columbia - see Air Canada and Pacific Western Airlines Ltd. v. British Columbia.

Moses v. MacFerlan (1760), 2 Burr. 1005; 97 E.R. 676, refd to. [para. 359].

Grandpac Ltd. v. American Home Assurance Co. (1981), 33 A.R. 212 (C.A.), refd to. [para. 376].

De Havilland v. Bowerbank (1807), 170 E.R. 872, refd to. [para. 384].

Total Petroleum (North America) Ltd. et al. v. AMF Tuboscope Inc. et al. (1987), 81 A.R. 321; 54 Alta. L.R.(2d) 13 (Q.B.), refd to. [para. 385].

Eyben v. K.R. Ranches (1970) Ltd. (1982), 38 A.R. 336; 20 Alta. L.R.(2d) 270 (C.A.), refd to. [para. 386].

Statutes Noticed:

Alberta Corporate Income Tax Act, R.S.A. 1980, c. A-17.

Alberta Income Tax Act, R.S.A. 1980, c. A-31.

Business Corporations Act, S.A. 1981, c. B-15, sect. 91 [para. 305].

Judgment Interest Act, S.A. 1984, c. J-0.5, sect. 2(1) [para. 375].

Judicature Act, R.S.A. 1980, c. J-1, sect. 15(1) [para. 374]; sect. 21 [para. 307].

Limitation of Actions Act, R.S.A. 1980, c. L-15, sect. 3 [para. 240]; sect. 4(1)(c), sect. sect. 4(1)(e), sect. 4(1)(g) [para. 206]; sect. 41(2)(b) [para. 213].

Petroleum and Gas Revenue Tax Act, S.C. 1980-81-82-83, c. 68, sect. 79 [para. 148].

Petroleum and Gas Revenue Tax Act, An Act to Amend, S.C. 1984, c. 46, sect. 1(6) [para. 148]; sect. 84.1(4) [para. 147].

Rules of Court (Alta.), rule 38 [para. 315]; rule 202 [para. 360].

Authors and Works Noticed:

Birks, Peter, An Introduction to the Law of Restitution (1985), pp. 46-47 [para. 364]; 132 [para. 352].

Bowstead on Agency (15th Ed. 1985), p. 146 [para. 331].

Chitty on Contracts (25th Ed. 1983), p. 727 [para. 286].

Fridman, G.H.L., The Law of Contract (1986), pp. 439-440 [para. 194].

Goff, R., and G. Jones, The Law of Restitution (3rd Ed. 1986), p. 91 [para. 367].

Halsbury's Laws of England (4th Ed.), vol. 16, para. 1505 [para. 222].

Lewis, D.E., and A.R. Thompson, Canadian Oil and Gas (1990), vol. 1, para. 144 [para. 32].

Maddaugh, P.D., and J.D. McCamus, The Law of Restitution (1990), pp. 46 [para. 268]; 208 [para. 367].

Spencer-Bower and Turner, The Law Relating to Estoppel by Representation (3rd Ed. 1977), para. 96 [para. 223].

Williams, H.R., and C.J. Meyers, Oil and Gas Law (1990), vol. 2, para. 424 [para. 33].

Williams, H.R., and C.J. Meyers, Oil and Gas Terms (7th Ed. 1987), pp. 113-114 [para. 34].

Williams, J.S., Limitation of Actions in Canada (2nd Ed. 1980), pp. 7, 8, 55, 56 [para. 270].

Counsel:

R.K. Laing and K.D. Nixon, for the plaintiff, United Canso Oil & Gas Ltd.;

R.E. Nation and R.B. Brander, for the defendants, Washoe Northern Inc., Finley Co. (Robertson-Finley Operating Co.);

A.D. MacLeod and P.T. Linder, for the defendant, Esso Resources Canada Ltd.;

F.R. Foran, Q.C., and R.W. Block, for the defendants, Husky Oil Exploration Inc., Husky Oil Ltd. and Husky Oil Operations Ltd.;

R.A. Coad and L.G. Vogeli, for the defendant, Asamera Inc.;

J.L. Lebo and J.S. Osler, for the defendant, Lasmer Resources Inc.

This action was heard before Hutchinson, J., of the Alberta Court of Queen's Bench, Judicial District of Calgary, who delivered the following judgment on November 18, 1991.