White Resource Management Ltd. v. Durish, (1998) 230 A.R. 201 (QB)

• Judge: Mason, J.
• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: September 25, 1998
• Citations: (1998), 230 A.R. 201 (QB)

White Resource Mgt. Ltd. v. Durish (1998), 230 A.R. 201 (QB)

MLB headnote and full text

Temp. Cite: [1998] A.R. TBEd. OC.032

Victor R. Durish (plaintiff by counterclaim) v. White Resource Management Ltd., The Royal Bank of Canada and WRM Resources Ltd. (defendants by counterclaim)

(Action No. 8201-12018)

Indexed As: White Resource Management Ltd. v. Durish

Alberta Court of Queen's Bench

Judicial District of Calgary

Mason, J.

September 25, 1998.

Summary:

White Resource Management brought an action claiming priority of title on the regis­ter under the Land Titles Act to the petro­leum and gas rights in a quarter section of land. Durish counterclaimed, claiming, inter alia, that he had priority.

The Alberta Court of Queens' Bench, in a judgment reported 113 A.R. 1, held that White Resource had priority. The court allowed White Resource's nonsuit motion on the ground that Durish's counter­claim dis­closed no good claim in law. Dur­ish appealed.

The Alberta Court of Appeal, in a judg­ment reported 131 A.R. 273; 25 W.A.C. 273, dismissed the appeal. Durish appealed.

The Supreme Court of Canada, in a judg­ment reported 178 N.R. 321; 165 A.R. 20; 89 W.A.C. 20, allowed the appeal, quashed the nonsuit order and remitted the matter to trial for determination of the counterclaim. The grounds upon which it was argued that Durish's counterclaim disclosed no good claim in law were not established. The chain of title under which Durish claimed title to petroleum and gas rights had priority over the other two conflicting chains of title relied on by White Resource.

The Alberta Court of Queen's Bench subsequently dismissed Durish's counter­claim.

Banks and Banking - Topic 5241

Loans - Secured loans, s. 177 (s. 82) loans - General - The Alberta Court of Queen's Bench stated that "despite s. 177 [Bank Act] security being characterized as the equivalent of ownership, it does not give a bank actual ownership of security taken under that section" - See paragraph 210.

Equity - Topic 1109

Equitable relief - Contracts - Settlements - [See Releases - Topic 3400 ].

Equity - Topic 3646

Fiduciary or confidential relationships - Breach of fiduciary relationship - By director or officer of company - Durish was the president, majority shareholder and a director of Lobell - While president of Lobell, Durish learned of, and purchased in his personal capacity, a lease - Full dis­closure was not made to the other directors or shareholders - Lo­bell's interests had been assigned to White Resource - The Alberta Court of Queen's Bench held that Durish breached his fiduciary duty to Lobell by taking a cor­porate opportunity for his own benefit - The court noted that management officials had a duty of loyalty and good faith and a duty to avoid conflict of interest and not act in their own self-interests as opposed to the interests of the corporation - The appropriate remedy was to find that Durish was a constructive trustee for all profits accrued under the lease and that White Resource (as assignee) was entitled to those profits - See paragraphs 108 to 139.

Equity - Topic 3654

Fiduciary or confidential relationships - Breach of fiduciary relationship - Rem­edies - [See Equity - Topic 3646 ].

Equity - Topic 3657

Fiduciary or confidential relationships - Breach of fiduciary relationship - Standing to challenge - Durish was the president, majority shareholder and a director of Lobell - Durish allegedly breached his fiduciary duty to Lobell by acquiring a lease in his own name - White Resource, having an interest in the lease, claimed breach of fiduciary duty - Durish claimed that White Resource, as a third party, lacked standing to raise the issue; that only Lobell could pursue the claim - The Alberta Court of Queen's Bench held that White Resource had standing by virtue of its contractual inter­est in the impugned act itself - White Resource was not an ordi­nary third party seeking to interfere with the internal affairs of Lobell - See para­graphs 96 to 107.

Estoppel - Topic 1072

Estoppel in pais (by conduct) - Represen­tation - General principles - Estoppel by representation defined - The Alberta Court of Queen's Bench stated that "the elements of estoppel by representation are that one party says or does something with the intent that it must be acted upon by the party claiming the benefit of the estoppel. To found liability, the conduct must be such as to induce a party to believe in a non-existing state of facts upon which the party acts to his or her detriment. The basic elements of estoppel by representa­tion are: (i) The representation must be of an existing fact, not merely an intention; (ii) The representation must be certain; (iii) The party seeking to enforce the estoppel cannot have known the true facts, or have been aware that the statement upon which he has relied upon for estoppel was not true; (iv) The representation must be made with the intention of inducing another party to act upon it; (v) The representation must have been acted upon to the preju­dice of the person acting upon it." - See para­graph 168.

Estoppel - Topic 1103

Estoppel in pais (by conduct) - Represen­tations - By statement - Representations which found estoppel - Durish was the majority shareholder and president of Lobell - White Resource purchased a working interest in a well from Lobell after Durish made representations in a certificate that there were no adverse in­terests - Durish later claimed an adverse interest, which he had not disclosed to White - The Alberta Court of Queen's Bench held that Durish was now estopped from asserting a claim which he had rep­resented did not exist and upon which White relied upon in purchasing the work­ing interest from Lobell - See paragraphs 140 to 198.

Mines and Minerals - Topic 8131.1

Oil and gas - Leases - Obligations of lessee - Drilling - At issue was whether the drilling requirement of an oil and gas lease was met where the drilling was done by a third party, not the lessee - The Alberta Court of Queen's Bench stated that the first issue was whether the third party and lessee arranged to have drilling com­pleted by the third party, which arrange­ment must include some positive action by the lessee such as contribution to cost - If such arrangement is not in place before drilling commences, the courts look to the intent of the parties, mostly evidenced by the lease -The lease requirement that drilling be done "by the lessee" was not determinative - If those words are present and the drilling was done by a party who was a trespasser, then the drilling served to extend the lease - If those words were not present, then the issue was whether the lessor, lessee and third party intended that drilling by some­one other than the lessee would satisfy the lease drilling requirement - Where the lessee (Durish) did not drill, but a distinct company (Lobell) majority owned by Durish did, then the drilling requirement of the lease was not satisfied where Durish remained passive (i.e., no formal arrange­ment or contribution to costs) - See para­graphs 31 to 48.

Mines and Minerals - Topic 8165

Oil and gas - Royalty agreements - Shut-in royalty payment - A lessee failed to make a shut-in royalty payment, submit­ting that he was relieved of that obligation under the lease clause respecting suspen­sion or interruption of drilling due to causes beyond his reasonable control (i.e. poor market) - The Alberta Court of Queen's Bench held that once the well was completed and shut-in, a royalty was payable before the next anniversary date of the lease and the proviso for excusing the obligation was not engaged - Since the shut-in royalty payment was not made, the lease expired by its own terms - See paragraphs 49 to 54.

Practice - Topic 205

Persons who can sue and be sued - Indi­viduals and corporations - Status or stand­ing - General - [See Equity - Topic 3657 ].

Releases - Topic 3400

Grounds of invalidity - Lack of consent - A title dispute arose to petroleum and gas rights under three conflicting chains of title - Haida commenced an action asserting an interest - To avoid the title dispute, Durish took an assignment of Haida's interest and Haida discontinued its action and executed a release against all of the defendants in the action - Subsequently, Haida and Durish executed a second release, but releasing only Durish - The Alberta Court of Queen's Bench ruled that the first release, the assignment and discontinuance were contemporaneous - The second release was void, as it varied the first release without the consent of all parties to the first release - Further, Durish (as assignee) could not take advantage of a right relinquished by Haida (as assignor) - Equity held that the burden of a settle­ment was attached to the benefit of an assign­ment - Durish was bound by the release - See paragraphs 80 to 95.

Trusts - Topic 2344

Constructive trusts - Basis for imposition - Breach of confidence or fiduciary rela­tionship - [See Equity - Topic 3646 ].

Trusts - Topic 6153

The trustee - Breach of trust - Liability of stranger to trust - The Alberta Court of Queen's Bench held that a stranger to a trust may be held liable for breach of the trust "(i) if they knowingly assisted with knowledge of the breach of trust; or (ii) if they knowingly received trust property. ... For knowing assistance, the knowledge required is actual knowledge; although recklessness or wilful blindness will suf­fice. The person needs both actual knowl­edge of the existence of the trust and knowledge that what is being done is in breach of the trust obligations. ... knowl­edge of a claim is not sufficient notice of a trust or of a misapplication of trust pro­perty." - See paragraphs 212 to 231.

Cases Noticed:

Earp v. Mid-Continent Petroleum Corp. (1933), 167 Okla. 86; 26 P.2d 855, refd to. [para. 32].

Mattison v. Trotti (1959), 10 Oil & Gas Reptr. 577 (5th Cir.), refd to. [para. 33].

Hughes v. Cantwell et al. (1976), 55 Oil & Gas Reptr. 354 (Tex. Civ. App.), refd to. [para. 35].

Willson v. Superior Oil Co. (1954), 4 Oil & Gas Reptr. 738 (Tex. Civ. App.), refd to. [para. 38].

Smith v. First National Bank of Anadarko (1921), 198 Pac. 103, refd to. [para. 40].

Battle v. Adams (1921), 229 S.W. 930 (Tex. Civ. App.), refd to. [para. 40].

Daily v. Josilin (1952), 172 Kan. 199; 240 P.2d 471; 1 Oil & Gas Reptr. 286, refd to. [para. 42].

Brinkman v. Empire Oil & Fuel Co. (1926), 120 Kan. 602; 245 Pac. 107 (S.C.), refd to. [para. 43].

Kissenger Petroleums Ltd. v. Nelson Estate et al. (1984), 54 A.R. 100; 13 D.L.R.(4th) 542 (C.A.), leave to appeal denied (1984), 58 A.R. 2; 13 D.L.R.(4th) 542n (S.C.C.), dist. [para. 51].

Cowey v. Liberian Operations Ltd., [1966] 2 Lloyd's Rep. 45, refd to. [para. 88].

Sceptre Resources Ltd. v. Deloitte Haskins & Sells (1988), 92 A.R. 176 (Q.B.), refd to. [para. 91].

Tito and Waddel (No. 2), Re, [1977] Ch. 106, refd to. [para. 93].

Western Finance Co. and Rannard v. Tasker Enterprises Ltd. and Tasker, [1980] 1 W.W.R. 323; 1 Man.R.(2d) 338 (C.A.), refd to. [para. 101].

MacMillan Bloedel Ltd. v. Binstead (1980), 22 B.L.R. 255 (B.C.S.C.), refd to. [para. 124].

Canadian Aero Service Ltd. v. O'Malley et al., [1974] S.C.R. 592, refd to. [para. 128].

Natural Sodium Products Ltd. v. Holland, [1944] 1 W.W.R. 605 (Sask. Q.B.), refd to. [para. 132].

Soulos v. Korkontzilas et al. (1997), 212 N.R. 1; 84 O.A.C. 390 (S.C.C.), refd to. [para. 137].

Northern & Central Gas Corp. v. Hillcrest Colliers, [1976] 1 W.W.R. 481 (Alta. S.C.), refd to. [para. 165].

Conmac Western Industries v. Robinson et al., [1993] 6 W.W.R. 375; 139 A.R. 321 (Q.B.), refd to. [para. 168].

Opron Construction Co. v. Alberta (1994), 151 A.R. 241; 14 C.L.R.(2d) 97 (Q.B.), refd to. [para. 191].

Hamilton Bros. Corp. et al. v. Royal Trust Corp. of Canada et al. (1991), 113 A.R. 321; 79 Alta. L.R.(2d) 37 (Q.B.), refd to. [para. 207].

Barnes v. Addy (1874), L.R. 9 (Ch. App.), refd to. [para. 212].

Air Canada v. M & L Travel Ltd. et al. (1993), 159 N.R. 1; 67 O.A.C. 1; 108 D.L.R.(4th) 592 (S.C.C.), refd to. [para. 213].

Citadel General Life Assurance Co. et al. v. Lloyd's Bank of Canada et al. (1997), 219 N.R. 323; 206 A.R. 321; 156 W.A.C. 321 (S.C.C.), refd to. [para. 215].

Carl-Zeiss-Stiftung v. Herbert Smith & Co. (No. 2), [1969] 2 W.L.R. 427 (C.A.), refd to. [para. 217].

Authors and Works Noticed:

Chitty on Contracts (1994), p. 22-029 [para. 88].

Fraser and Stewart, Company Law of Canada (6th Ed. 1993), generally [para. 100].

Fridman, G.H.L., The Law of Contract (3rd Ed. 1994), p. 686 [para. 105].

Gordon, D.M., Notice or Knowledge of a Trust - a Critique of the Carl-Zeiss Case, [1970] Aust. L.J. 44, generally [para. 226].

Halsbury's Laws of England (4th Ed.), vol. 16, p. 904 [para. 193].

Harpum, C., The Stranger as Constructive Trustee (1986), 102 L.R.Q. 115, p. 267 [para. 221].

Kuntz, E., A Treatise on Oil and Gas (1989), vol. 3, pp. 99 [para. 40]; 403 [para. 34].

Spencer-Bower and Turner, The Law of Actionable Misrepresentation (1974), p. 117 [para. 176].

Spencer-Bower and Turner, The Law Relating to Estoppel by Representation (1966), p. 35 [para. 194].

Welling, B., Corporate Law in Canada: The Governing Principles (2nd Ed. 1991), pp. 379 [para. 120]; 420 [para. 99].

Counsel:

Hall, R.J., for the plaintiff by counter­claim;

J.D.B. McDonald and P.R.S. Leveque, for the Royal Bank of Canada, defendant by counterclaim;

D.S. Venturo, for White Resource Man­agement Ltd. and WRM Resources Ltd., defendants by counterclaim.

This case was heard before Mason, J., of the Alberta Court of Queen's Bench, Judicial District of Calgary, who delivered the fol­lowing judgment on September 25, 1998.