2014 saw the Supreme Court of Canada significantly develop the law in areas critical to the oil and gas industry, including Aboriginal title, the interpretation and performance of commercial contracts, intentional torts, access to justice and summary judgment. Other courts have rendered important decisions on standing to participate in administrative and court processes involving oil and gas issues,applying the concept of gross negligence to the conduct of oil and gas operators, and putting limits on who can be sued for damages arising out of oil and gas operations.

In this Bulletin we highlight ten of the most important judicial decisions of 2014 that oil and gas industry participants should be aware of as they settle into 2015.

1. Tsilhqot’in Nation v. British Columbia (SCC)1 (Aboriginal Title)

In this much-discussed case, the Supreme Court of Canada granted a declaration of Aboriginal title for the first time in Canadian history. This case is significant for the potential impact on resource development in the area in south central British Columbia that was at issue in the case and other areas where Aboriginal title claims remain outstanding.

In reaching its decision, the Court affirmed these important principles:

  • Underlying Crown title is subject to Aboriginal land interests where they are established;
  • Aboriginal title gives the Aboriginal group the right to use and control the land and enjoy its benefits;
  • Governments can infringe Aboriginal rights conferred by Aboriginal title but only where they can justify the infringements on the basis of a compelling and substantial purpose and establish that they are consistent with the Crown’s fiduciary duty to the group;
  • Resource development on claimed land to which title has not been established requires the government to consult with the claimant Aboriginal group; and
  • Governments are under a legal duty to negotiate in good faith to resolve claims to ancestral lands.2

While the impact of these principles is very important to, and will inform, resource development in areas where Aboriginal title claims have been confirmed or remain outstanding, there are likely limits on its application. These principles do not directly apply to Treaty lands. Further, a claim to Aboriginal title will only be successful in specific circumstances. The onus will be on the claimant to establish: “sufficient occupation” of the land claimed to establish title at the time of the assertion of European sovereignty; (2) continuity of occupation where present occupation is relied upon; and (3) exclusive historic occupation. In determining what constitutes sufficient occupation, the Court looks to the Aboriginal culture and practices, and compares them in a culturally sensitive way with what was required at common law to establish title on the basis of occupation.3

The impact of the Tsilhqot’in Nation case on energy projects will vary depending on the particular facts of each case (see an earlier blog post here). However, what is clear is that it is a step forward in the continuing development of Aboriginal law. At a minimum, it reinforces the need to engage and consult early with First Nations in an effort to work towards economic reconciliation, including ensuring benefits for future generations in an effort to increase the level of certainty over project development.

For our more detailed analysis of the Tsilhqot’in Nation case, please click here.

In addition to Tsilhqot’in Nation, in 2014 there were other significant judicial decisions dealing with Aboriginal treaty lands and the rights of Métis and non-status Indians which have, or may have in the future, an impact on the oil and gas industry which should be considered and are worth mentioning:

  • In Grassy Narrows First Nation v. Ontario (Natural Resources),4 [found here] the Supreme Court of Canada confirmed that the Province of Ontario had the power to ‘take up’ Treaty 3 lands, confirmed that resource development is within provincial jurisdiction, and that the province does not require federal approval to issue forestry licences on treaty lands. The pronouncements in this decision, and the Court’s approach to interpreting treaties, are not only of significance for development in Ontario, but for industry participants in Northern Ontario and Western Canada, including the Northwest Territories,5 who are pursuing development on treaty land. Our more detailed analysis of this case is found here.
  • In Daniels v Canada (Minister of Indian Affairs and Northern Development),6 [found here] the Federal Court of Appeal addressed whether Métis and non-status Indians are “Indians” pursuant to section 91(24) of the Constitution Act, 1867 and, therefore, whether they fell under federal jurisdiction. The Federal Court upheld a declaration that Métis were “Indians”. This case also involved but left open important questions as to whether the Crown owes a fiduciary duty to Métis and non-status Indians, and whether Métis and non-status Indian peoples have the right to be consulted and negotiated with, in good faith, by the federal government. Recently, the Supreme Court of Canada granted leave to appeal and cross-appeal. For our further discussion on this case, click here. Given that Alberta has a total of 1.25 million acres of land in eight Métis settlements, the outcome could have a significant impact on resource development.

2. Sattva Capital Corp v. Creston Moly Corp (SCC)7 (Contract Interpretation and Domestic Arbitration)

The Sattva decision involved an attempted appeal of a domestic arbitral award made under British Columbia’s Arbitration Act. There are three important aspects to the Supreme Court of Canada’s decision.

First, the Supreme Court narrowly interpreted the specific provisions of the British Columbia Arbitration Act which permit a court to grant leave to appeal an arbitral award on certain grounds. As our International Trade and Arbitration Group has said [found in its September 2014 Bulletin here] the Supreme Court of Canada “effectively instructed courts across the country to afford substantial deference to arbitral awards”. As we have previously blogged [found here] this is particularly important in the Canadian energy industry, where domestic arbitrations often involve issues of contractual interpretation based on a complex factual context existing at the time of the agreement. The Supreme Court’s decision should give some increased comfort to those industry participants seeking finality in arbitrations.

Second, the Supreme Court abandoned the historical approach, which treated interpretation of contracts as a question of law. Sattva confirms that contractual interpretation involves issues of mixed fact and law. While somewhat esoteric, this finding will have a significant practical impact in the future. Appellate courts will be much less likely to interfere with trial decisions involving interpretation of contracts because greater deference is owed on factual issues. In the domestic arbitration context, as illustrated by the Sattva case, courts will be less likely to grant leave to appeal arbitral decisions involving factual determinations. In the regulatory context, where an administrative tribunal such as the Alberta Energy Regulator may have to interpret contracts, it will be harder for appellants to obtain leave to appeal on a question of law.8 The Supreme Court acknowledged the possibility that the interpretation of a contract could give rise to “extricable” questions of law, but also urged courts to use caution in finding extricable questions of law in contract interpretation cases.9

Arguably, the most important aspect of the Sattva decision was the Supreme Court’s findings regarding the interpretation of contracts. The Court stated that in interpreting a contract the decision-maker “must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract.” In doing so, the Court finally laid to rest the frequent argument that considering surrounding circumstances when interpreting contracts is prohibited by the parol evidence rule. The Court held that the parol evidence rule (which prevents the admission of extrinsic evidence to add to, subtract from, vary or contradict a contract) does not preclude evidence of the surrounding circumstances around the time the contract is made.10 Knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting is admissible to help the Court interpret the words of the contract. While many appellate courts had already confirmed evidence of the surrounding circumstances is admissible, in practice ill-informed objections based on the parol evidence rule continued to be common. The Supreme Court’s decision means that complex commercial contracts in the oil and gas industry and other industries will be interpreted having regard to what the parties knew at the time they wrote their contract. Oil and gas industry participants should keep this in mind when drafting agreements and when later interpreting or litigating them.

3. Bhasin v Hrynew (SCC)11 (Good Faith and Honest Performance of Contracts)

In another key contract decision, Bhasin, the Supreme Court of Canada tackled the long-standing debate over whether there is an implied duty to perform contracts in good faith. Ultimately, the Supreme Court of Canada held that parties to a contract owe one another a duty to act honestly when performing their obligations under that contract. Bhasin involved a contract that contained a provision that it renewed automatically unless notice of non-renewal was given six months prior to the end of the term. One of the parties terminated the Agreement, with the required notice, but had deceived the other party about its intention to do so.

The Supreme Court reasoned that it was time to take two incremental steps in order to make the common law more coherent and just. The first step was to acknowledge that “good faith contractual performance is a general organizing principle of the common law of contract which underpins and informs the various rules in which the common law, in various situations and types of relationships, recognizes obligations of good faith contractual performance.12 The second step was to “recognize, as a further manifestation of this organizing principle of good faith, that there is a common law duty which applies to all contracts to act honestly in the performance of contractual obligations.”13

As the Court recognized, an “organizing principle” is not a free-standing rule, but rather a standard that underpins and is manifested in more specific legal doctrines. “The organizing principle of good faith exemplifies the notion that in carrying out his or her own performance of the contract, a contracting party should have appropriate regard to the legitimate contractual interests of the contracting partner.”14 The Court was careful to clarify that the principle of good faith is different from the much higher obligations of a fiduciary, and does not require a party to put the interests of the other contracting party first. It merely requires that a party not seek to undermine those interests in bad faith.

The general duty of honesty in contractual performance simply means, as explained by the Court, that parties must not “lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract.”15 Again, the Court made clear that this duty does not impose a duty of disclosure, loyalty, or require a party to forego advantages flowing from the contract. As to its legal status, this duty is not an implied term; it operates independent of the intentions of the parties and is, to this extent, analogous to equitable doctrines which impose limits on the freedom of contract. Since it is a general doctrine of contract law which applies to all contracts, like unconscionability, the parties are not free to exclude it16 (although they may relax it so long as they respect its minimum core requirements).17

As we have previously noted (found here), the Bhasin case will have far-reaching implications and create some uncertainty until further guidance is provided by courts. When contracts are created, parties will have to consider whether they will attempt to relax the requirements. Currently, it is unclear how this can be done in an enforceable way without impacting the undefined “minimum core requirements”. When performing contracts, parties will need to consider whether they are discharging this duty. We expect that in most cases common sense and commercial reasonableness will prevail. However, it will not always be clear whether conduct has crossed the line to become actionable as a breach of the duty of honest performance. When disputes arise, we expect that the duty of honest performance will be included in many claims and may expand the scope of disclosure and discovery from what is normally expected in contract cases. Given that the Supreme Court noted that “it is not necessary in this case to define in general terms the limits of the implications of the organizing principle of good faith”,18 we expect that there will be significant further development of the duty of good faith and the duty of honest performance in the years to come.

4. A.I. Enterprises Ltd. v. Bram (SCC)19 (Tort of Unlawful Means)

In A.I. Enterprises, the Supreme Court of Canada tackled the “unsettled” scope of a tort that had previously been called “unlawful interference with economic relations”, “interference with a trade or business by unlawful means”, “intentional interference with economic relations’, or simply “causing loss by unlawful means”.20 These many incarnations of the tort have, for years, been the subject of inconsistent and confusing judicial consideration and have been the subject of many disputes across many industries, including the oil and gas industry. While A.I. Enterprises involved the question as to whether one of several owners of an apartment building was liable for his attempts to thwart the sale of the building, it has implications for all businesses.

The Supreme Court started by sweeping away the different names and rebranded the tort as the tort of “unlawful means”. It then went on to address the scope of the tort, and made these findings:21

  • The tort of unlawful means should be kept within narrow bounds. It will be available in three-party situations in which party A commits an unlawful act against a third party and that act intentionally causes economic harm to party B. Party A must use unlawful means and must intend to harm Party B through the use of the unlawful means against the third party;
  • Conduct is unlawful if it would be actionable by (or give rise to civil liability to) the third party or would have been actionable if the third party had suffered loss as a result of it;
  • The tort is available even where there are other causes of action available to party A against party B; and
  • The tort is not subject to exceptions.

In clarifying this tort, the Supreme Court’s decision reflects a reticence to “intrude too far into the realm of competitive economic activity”.22 Given its three-party requirement, the tort of unlawful means will rarely be established (and does not detract from existing intentional torts that can apply between two parties). However, all participants in the oil and gas industry, and business generally, should be aware that the now clarified tort of unlawful means is another method by which Courts can encourage and enforce commercially reasonable behaviour and impose liability. For example, if one intentionally breaches a contract (for example the implied duty of honest performance of contract as now set out in Bhasin) it has with a contracting counterparty for the purposes of harming the economic interests of another person, then the wrongdoer may be liable to both its contracting party for breach of contract and the other injured party under A.I. Enterprises.

A further discussion on the A.I. Enterprises case can be found here.

5. Hryniak v Mauldin/Bruno Appliance and Furniture Inc v Hryniak (SCC)23 (Summary Judgment)

In these companion cases, the Supreme Court of Canada interpreted the summary judgment rules in Ontario. However, the case has broad implications in all jurisdictions in Canada as the Court has attempted to increase access to justice by making it easier for litigants and courts to use summary judgment as a fair and just resolution of disputes. The Court stated:

[27] There is growing support for alternative adjudication of disputes and a developing consensus that the traditional balance struck by extensive pre-trial processes and the conventional trial no longer reflects the modern reality and needs to be re-adjusted. A proper balance requires simplified and proportionate procedures for adjudication, and impacts the role of counsel

[28] This requires a shift in culture. The principal goal remains the same: a fair process that results in a just adjudication of disputes. A fair and just process must permit a judge to find the facts necessary to resolve the dispute and to apply the relevant legal principles to the facts as found. However, that process is illusory unless it is also accessible — proportionate, timely and affordable. The proportionality principle means that the best forum for resolving a dispute is not always that with the most painstaking procedure.

The Court went on to consider the “shift in culture” in the context of summary judgment motions: the “… question is whether the added expense and delay of fact finding at trial is necessary to a fair process and just adjudication”.24 The Court then interpreted the specific Ontario rules in issue and concluded that there is no genuine issue requiring a trial if the summary judgment process, or other alternative evidence gathering procedure, provides the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure.25

The cultural shift mandated by the Supreme Court of Canada, although dealing with the Ontario rules, has been widely relied on by courts in all significant oil and gas jurisdictions in Canada.26 While there remains some uncertainty as to when a particular court will feel that summary judgment provides enough evidence to fairly and justly adjudicate the dispute, what is clear is that courts are eager to improve access to justice and it is very likely that the number of oil and gas cases that will be decided in Canada by way of a summary procedure will increase significantly. Early indications are that the Courts may be willing to apply the “culture shift” to procedural steps other than simply summary judgment.27

6. Forest Ethics Advocacy Assn v. Canada (National Energy Board) (Fed CA)28 (Standing)

This case arose out of the application by Enbridge Pipelines Inc. for National Energy Board (NEB) approval of the Line 9B Reversal and Line 9 Capacity Expansion project. In the course of those proceedings the NEB made interlocutory rulings that were challenged by way of a judicial review application before the Federal Court of Appeal. The NEB had ruled that the environmental and socio-economic effects associated with upstream activities, the development of the Alberta oil sands, and the downstream use of oil transported by the pipeline, were all irrelevant to the application and would not be considered. The NEB had also set up a process to determine participation rights in the hearing. The Forest Ethics Advocacy Association (a group that had not participated in any way in the NEB hearing) and an individual denied participatory rights sought judicial review of the NEB’s interlocutory decision.

The Federal Court of Appeal denied the application:

  • With respect to the NEB’s finding that certain considerations were irrelevant to the application, the Court noted, among other things, that there was nothing in the legislation that required the NEB to consider larger, general issues such as climate change, and that if upstream and downstream facilities and activities were affecting climate change in a manner that required action, it is for the regulators of those activities, or Parliament, and not the NEB, to act;
  • The Court held that the NEB’s process to determine participation, and its decision to deny standing to the individual applicant, were not unreasonable. The Court gave deference to the NEB and noted that “Board hearings are not an open-line radio show where anyone can dial in and participate. Nor are they a drop-in-center for anyone to raise anything, no matter how remote it may be to the Board’s task of regulating the construction and operation of oil and gas pipelines;”29
  • The Court held that the Forest Ethics Advocacy Association (“Forest Ethics”) had no standing to bring the judicial review application because the NEB’s decisions did not affect its legal rights, impose legal obligations upon it, or prejudicially affect it in any way, and because Forest Ethics had not participated in the NEB process. The Court held that Forest Ethics was a classic “busybody”.30 This finding is consistent with another 2014 appellate decision which restricted intervention on appeal, Stewart Estate (Re)31, where the Alberta Court of Appeal denied standing to the Petroleum and Natural Gas Owners Association on the basis that the special interest group had no special expertise on the relevant legal issues.

While this case can be limited to its unique circumstances, it is a good example of an appellate court giving deference to administrative tribunal with respect to its process and the interpretation of its own legislation, as well as the courts’ refusal to allow “busybodies” to participate in the litigation process. In these times of increased intervener and special interest group activism in the name of social licence or other general issues, cases like Forest Ethics Advocacy Assn bring balance to the process and protect against the delay and inefficiency that can be caused by irrelevant issues raised by persons without standing.

7. Ernst v. Alberta (Energy Resources Conservation Board) (Alta QB)32 / Ernst v. EnCana Corporation (Alta QB)33 (Damages Arising from Hydraulic Fracturing)

The Ernst cases involve claims by a landowner for damages allegedly caused as a result of construction, drilling, hydraulic fracturing and related activities. Ernst filed a claim against the oil and gas operator, but also claimed against the Alberta Energy Regulator (AER) for the “negligent administration of a regulatory regime” related to the oil and gas operations and for breach of her right to freedom of expression under s. 2(b) of the Canadian Charter of Rights and Freedoms as a result of the Board’s refusal to accept further communications from her. Ernst also sued the Province of Alberta alleging that it owed her a duty to protect her water supply, and that it failed to respond adequately to her complaints about the operator’s activities. The AER and the Province both brought preliminary motions to dismiss the claims.

The Alberta Court of Appeal struck the claims against the AER:

  • With respect to the negligence claim, the Court of Appeal agreed that the AER owed no private duty to Ernst. It stated that the regulatory duties of the Board are owed to the public, and not to any individual, and that there exist “strong policy considerations against finding regulators essentially to be insurers of last resort for everything that happens in a regulated industry”.34 There was not sufficient proximity to give rise to a private duty of care. The Court noted that to force the AER “…to consider the extent to which it must balance the interests of specific individuals while attempting to regulate in the overall public interest would be unworkable in fact and bad policy in law.”35 The Court of Appeal also confirmed that section 43 of the Energy Resources Conservation Act (ERCA), which provided that “No action…may be brought against the Board…in respect of any act or thing done purportedly in pursuance of this Act”, was a further bar to the claim; and
  • With respect to the Charter claim, the Court of Appeal confirmed that it too was barred by section 43 of the ERCA. The Court noted that limits on Charter remedies, like section 43, do not offend the rule of law as long as there remains some effective avenues of redress. In this case, Ernst chose not to engage the long standing remedy for improper administrative action: judicial review.

Ernst has sought leave to appeal to the Supreme Court of Canada. Our more detailed analysis of the Court of Appeal decision in Ernst is found here.

The Province’s applications to strike or dismiss Ernst’s claims were brought separately from the AER’s similar applications, and were decided by the case management judge. The Court analyzed the claims against the Province under the two-part Anns test: whether there was a prima facie duty of care and, if so, whether there were any policy considerations which would limit that duty of care. The Court concluded that because Ernst’s allegations against the Province involved direct contact between her and the Province, including specific representations, they could potentially be used to establish a duty of care at trial. At an early stage of the litigation, the Court was also not satisfied that there are residual policy concerns sufficient to negate the possible existence of the duty of care. The Court also concluded that statutory provisions in Alberta’s Environmental Protection and Enhancement Act and Water Act were not sufficiently broad to protect the Province from liability.

Ernst’s claims against the Province were allowed to proceed to trial. In December 2014, the Crown advised that it would not appeal the dismissal of its application.

At this stage of the proceedings, the Ernst case has brought into focus the potential for regulator or Provincial liability arising out of oil and gas operations. Provided that claimants can establish

direct contact between themselves and the regulator or Province, and provided the relevant legislation does not clearly bar an action, it appears that courts will allow these types of claims to go to trial. Each case will depend on its own unique facts and the applicable provincial legislation.36

If Ernst proceeds to trial, it will likely provide more guidance on the scope of the duty of care and the standard of care required by the Province and the oil and gas operator to discharge their duties in the context of hydraulic fracturing. The court will also have to address, among other things, the complex factual question as to whether fracture stimulation caused damage to Ernst’s water supply. The impact of fracture stimulation is presently the subject of significant debate. More broadly speaking, although Ernst involved an individual affected by the actions of the regulator and the Province, if Ernst is successful, there may be more scope for industry participants to bring actions against the Province or regulators who affect their business.

8. Blaze Energy Ltd v Imperial Oil Resource (Alta QB)37 (Rights of First Refusal)

In Blaze Energy, the Alberta Court of Queen’s Bench was called upon to interpret the Rights of First Refusal (“ROFRs”) clauses found in two contracts. ROFRs are a common feature in oil and gas relationships, appearing in standard form industry agreements such as CAPL operating agreements, CO&O agreements and other common agreements.

The Plaintiff Blaze Energy Inc. (“Blaze”) and the Defendant Imperial Oil Resources (“Imperial”) were parties to two separate agreements, both containing ROFRs: the first, a 1960 Land Agreement; and the second, a CO&O between Blaze, Imperial and three other parties related to a plant. When Imperial agreed to sell certain assets to Whitecap it issued a ROFR notice under the Land Agreement. The purchaser Whitecap entered into a subsequent arrangement and also issued ROFRs under the Land Agreement. Blaze did not exercise the ROFR received from Imperial, but purported to exercise the ROFR received from Whitecap. Blaze commenced the action, taking the position that the two agreements must be read together and its exercise of the Land Agreement ROFR triggered the requirement for an offer under the CO&O ROFR. No CO&O ROFR had been issued as both Imperial and Whitecap relied upon the exception contained in the CO&O which allowed for disposition of an interest in the plant without restriction when a party disposes of its working interest in the related lands.

The Court rejected Blaze’s suggestion that the two agreements must be read together, applying standard contractual interpretation principles that the ROFR must be interpreted by reference to the contract that created it. Considering the CO&O ROFR, the Court held that the CO&O did not incorporate the Land Agreement and it also included parties who were not party to the Land Agreement. On the Land Agreement ROFR, the Court found it would be unreasonable to extend it beyond the Land Agreement. The Court held that the intention of the parties at the time of execution could not have included dealing with an interest in the plant, built almost 30 years later. The Court also rejected the argument that an offer for the CO&O interest was required because otherwise Blaze was not being given the offered price and offered terms, which according to Blaze was a contractual right required under the Land Agreement. Finally,the Court also held that Blaze’s exercise of the Land Agreement ROFR did not nullify the CO&O exemption in part because the clear unambiguous language of the exemption clause did not support that position and the parties could have used other language had that been the intended interpretation.

The Court also considered the question of specific performance in the event it was incorrect on the ROFR interpretation. It rejected specific performance on the basis that Blaze failed to strictly comply with the Imperial ROFR notice and that the interest sought pursuant to the CO&O was non-specific and uncertain. It also invoked the clean hands doctrine, finding that in any event, Blaze was not entitled to specific performance as it was in default in payment of amounts due and owing under the CO&O.

Given how common ROFR provisions are in oil and gas agreements, it is not surprising that these issues continue to come before the Courts for interpretation. The QB decision in Blaze provides useful clarification of contractual interpretation principles as applied to ROFRs to parties faced with the commonly occurring question of when and what the ROFR in their agreement applies to. Our more detailed discussion of this case is found here.

9. Bernum Petroleum Ltd v Birch Lake Energy Inc (Alta QB)38 (Gross Negligence)

The Bernum Petroleum case is one of the first cases to apply summary judgment rules to an oil and gas dispute since the Supreme Court of Canada’s mandated culture shift set out in Hryniak v. Mauldin. Bernum was the operator pursuant to the 2007 Canadian Association of Petroleum Landmen Operating Procedure (2007 CAPL). Birch Lake was indebted to Bernum for costs incurred in relation to oil and gas operations, but counterclaimed against Bernum on the ground that Bernum was grossly negligent in operating certain wells and in failing to renew certain leases, in failing to obtain a drilling licence, and in failing to offer Birch Lake participation rights in other lands.

Under 2007 CAPL, Bernum’s liability was restricted to cases of gross negligence or wilful misconduct, defined as “…any act, omission or failure to act (whether sole, joint or concurrent) by a person that was intended to cause, or was in reckless disregard of, or wanton indifference to, the harmful consequences to the safety or property of another person or to the environment which the person acting or failing to act knew (or should have known) would result from such act, omission or failure to act”. The Court noted that the onus on someone alleging gross negligence was high.

The Court granted summary dismissal of the allegations of gross negligence regarding the operation of the wells. The Court noted that the oil and gas industry is a high risk, speculative business and that many things can go wrong during the course of drilling which can result in unanticipated delays and cost overruns. The Court was not convinced that there was evidence of the necessary “intentionality or conscious indifference” necessary to ground gross negligence or wilful misconduct. The Court gave little weight to the opinion of Birch Lake’s expert on the basis that the expert had simply provided his personal opinion on the very factual decision the Court was to make.

The Court refused to grant summary dismissal of the allegations of gross negligence regarding the failure to renew certain leases, in failing to obtain a drilling licence, and in failing to offer Birch Lake participation rights in other lands. Birch Lake had led enough evidence to present an arguable case, and these issues of liability could not be resolved on the record because they involved questions of fact and assessments of credibility. These counterclaims were allowed to proceed to trial. Further, the court refused to stay the judgment against Birch Lake pending the determination of the counterclaim because Birch Lake had not established that it would be irreparably harmed if a stay was not granted, and that it would be inconsistent with the principles of “just and fair resolution to disputes achieved in a timely, efficient and economical way” to grant a stay.

This decision is an example of how difficult it is and will be under 2007 CAPL for non-operators to allege gross negligence in relation to oil and gas operations, and that such claims may very well be the subject of summary dismissal and excision from litigation. However, in areas where there are interactions between the parties, or non-operational allegations of gross negligence, it may be easier to establish real issues which require a trial. The case is also significant because it illustrates the Court’s willingness to allow one party to a dispute to obtain and enforce a judgment against the other party, regardless of the existence of counterclaims, provided there is no irreparable harm in doing so.

Our more detailed blog post on Bernum can be found here.

10. Union Carbide Canada Inc v Bombardier (SCC)39 (Mediation and Settlement Privilege)

In Union Carbide the parties entered into a private mediation and signed a mediation agreement that provided that “nothing which transpires in the Mediation will be alleged, referred to or sought to be put into evidence in any proceeding”. After a settlement offer was accepted, a dispute arose as to the scope of the settlement and one of the parties commenced proceedings to prove the settlement agreement. The other party objected to the reference to events that had taken place in the course of the mediation process.

The Supreme Court of Canada, like it recently did in Sable Offshore Inc. v Ameron International Corp.,40 confirmed the importance and purpose of settlement privilege. To promote settlement, the privilege protects communications exchanged by the parties. However, one of the exceptions to the rule has long been that communications which lead to a settlement can be used to prove the existence or scope of the settlement. In the context of the private mediation agreement, the Supreme Court of Canada held that the execution of the mediation agreement containing confidentiality provisions did not automatically displace settlement privilege and its exceptions – in order to do so the agreement would have to be clear. In this way, the Court prevented the settlement privilege being used to “frustrate the broader purpose of promoting settlements” by preventing parties from enforcing the terms of settlements they have negotiated.

In another 2014 case,41 the Alberta Court of Appeal also dealt with settlement privilege in the mediation context. In that decision, the Court upheld the settlement privilege associated with communications and a settlement agreement arrived at through mediation. One of the parties to the settlement was the Province of Alberta and the Court of Appeal held that the privilege prevented the disclosure of the settlement agreement under Alberta’s Freedom of Information and Protection of Privacy Act.

These cases confirm that courts will promote the purpose of settlement privilege in the context of mediations, by protecting the communications from disclosure except where the communications are required to prove the existence or scope of the agreement.


12014 SCC 44.

2Tsilhqot’in Nation at para. 18.

3Tsilhqot’in Nation at para. 50.

42014 SCC 48.

5 For a map of treaties in Canada, click here. The Numbered Treaties cover much of Northern Ontario, all of Manitoba, Saskatchewan, and Alberta, portions of British Columbia, and much of the Northwest Territories.

6 2014 FCA 101.

72014 SCC 53 (“Sattva”).

8 Responsible Energy Development Act SA 2012, c R-17.3, at section 45 (1): “A decision of the Regulator is appealable to the Court of Appeal, with leave of the Court of Appeal, on a question of jurisdiction or on a question of law.”

9Sattva at paras. 53-54.

10Sattva at paras. 59-61.

112014 SCC 71.

12Bhasin at para. 33.

13Bhasin at para. 33.

14Bhasin at para. 65.

15Bhasin at para. 73.

16Bhasin at para. 75.

17 Bhasin at para. 77.

18Bhasin at para. 90.

19 2014 SCC 12 (“A.I. Enterprises”).

20 A.I. Enterprises at para. 2.

21 A.I. Enterprises at para. 5.

22 A.I. Enterprises at para. 44.

232014 SCC 7.

24Hryniak at para. 33.

25Hryniak at para. 66.

26 For example, Windsor v Canadian Pacific Railway Ltd., 2014 ABCA 108; O’Connor Associates Environmental Inc. v MEC OP LLC, 2014 ABCA 140; Spring Hill Farms Limited Partnership v. Nose, 2014 BCCA 66; KCC 264 Holdings Inc. v. Circadian (Atkins 2010) GP Ltd., 2014 BCSC 1183; Jorgenson v ASL Paving Ltd., 2014 SKQB 375; Elchuk v Gulansky, 2014 SKQB 252; Community Mental Health Initiative Inc. v. Summit Lounge Ltd., 2014 NLTD(G) 130; Scottish &York Insurance Co. Limited v. Drover, 2014 NLCA 31

27 Canadian Natural Resources Limited v ShawCor Ltd., 2014 ABCA 289: “Accordingly, this shift should inform not merely this Court’s interpretation of the specific rules under consideration but the overall approach to civil justice issues before the courts.”

282014 FCA 245.

29 Forest Ethics at para. 76.

30 Forest Ethics at para. 33.

312014 ABCA 222.

322014 ABCA 285 (“Ernst CA”).

332014 ABQB 672.

34 Ernst CA at para. 16.

35 Ernst CA at para. 18.

36 For example, claims similar to those brought against the Province of Alberta may be clearly statute barred by section 56 of British Columbia’s Oil and Gas Activities Act SBC 2008 c 36, which provides that “no legal proceeding for damages lies or may be commenced or maintained against the government […].” The Oil and Gas Act CCSM c O34, is apparently silent as to protection for the Oil and Gas Conservation Board in that province, providing immunity only from actions “against an officer, employee, or agent of the department […].” See also The Oil and Gas Conservation Act, RSS 1978, c O-2, at s. 7.9, the Ministry of Natural Resources Act RSO 1990, c M.31, at s. 5 (3), and the Canada-Newfoundland and Labrador Atlantic Accord Implementation Newfoundland and Labrador Act, RSNL 1990, c C-2 at section 16.

372014 ABQB 326 (“Blaze”).

38 2014 ABQB 652 (“Bernum”).

392014 SCC 35 (“Union Carbide”).

402013 SCC 37 (“Sable Offshore”).

41 Imperial Oil Limited v Alberta (Information and Privacy Commissioner), 2014 ABCA 231.


Michael A. Marion

Daniel B.R. Johnson

Karen A. Salmon

Alan Ross

Rick Williams

Other Author

Michael G. Massicotte


Oil and Gas