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2017 Year in Review: Top 10 Judicial Decisions and Trends of Import to the Canadian Energy Industry2017 Year in Review: Top 10 Judicial Decisions and Trends of Import to the Canadian Energy Industry356BLG Blog PostMiles Pittman;Michael A. Marion;Raminder Arora;Alan L. Ross;Karen A. Salmon;Rick Williamsmpittman@blg.com | Miles Pittman | 693A30232E777C626C6763616E6164615C6D706974746D616E i:0#.w|blgcanada\mpittman;mmarion@blg.com | Michael A. Marion | 693A30232E777C626C6763616E6164615C6D616D i:0#.w|blgcanada\mam;rarora@blg.com | Raminder Arora | 693A30232E777C626C6763616E6164615C7261726F7261 i:0#.w|blgcanada\rarora;aross@blg.com | Alan L. Ross | 693A30232E777C626C6763616E6164615C61726F7373 i:0#.w|blgcanada\aross;ksalmon@blg.com | Karen A. Salmon | 693A30232E777C626C6763616E6164615C6B73616C6D6F6E i:0#.w|blgcanada\ksalmon;rwilliams@blg.com | Rick Williams | 693A30232E777C626C6763616E6164615C726C77 i:0#.w|blgcanada\rlw ​In 2017, Canadian courts released an unusually large number of decisions affecting the energy industry directly. The Alberta Court of Appeal rendered the much-awaited Redwater decision, confirming the right of a trustee in bankruptcy to disclaim uneconomic assets of a bankrupt debtor. The impact of this decision has been felt throughout the upstream and midstream oil and gas industry, as the Alberta Energy Regulator has required licensees to provide much more information and to be much more financially stable. An appeal to the Supreme Court of Canada was granted, and the industry is on tenterhooks awaiting the result. [Read more...]<p>​<img class="ms-rtePosition-1" alt="Glassesinhand" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/AD-HAND-35-shutterstock-54919390-75.jpg" style="margin:5px;" />In 2017, Canadian courts released an unusually large number of decisions affecting the energy industry directly. </p><p>The Alberta Court of Appeal rendered the much-awaited <em>Redwater</em> decision<em>, </em>confirming the right of a trustee in bankruptcy to disclaim uneconomic assets of a bankrupt debtor.  The impact of this decision has been felt throughout the upstream and midstream oil and gas industry, as the Alberta Energy Regulator has required licensees to provide much more information and to be much more financially stable. An appeal to the Supreme Court of Canada was granted, and the industry is on tenterhooks awaiting the result. </p><p>[<em><a href="/energy/Pages/Post.aspx?PID=356"><font color="#0066cc">Read more</font></a></em>...]</p> In 2017, Canadian courts released an unusually large number of decisions affecting the energy industry directly. The Alberta Court of Appeal rendered the much-awaited Redwater decision, confirming the right of a trustee in bankruptcy to disclaim uneconomic assets of a bankrupt debtor. The impact of this decision has been felt throughout the upstream and midstream oil and gas industry, as the Alberta Energy Regulator has required licensees to provide much more information and to be much more financially stable. An appeal to the Supreme Court of Canada was granted, and the industry is on tenterhooks awaiting the result. Other crucial decisions of 2017 touched upon a wide variety of issues including clarifying the Crown's duty to consult First Nations as part of the project approval process; the definition of 'Working Interest' under oil and gas contracts; the interaction among rights of first refusal, contractual language, and the duty of good faith under a contract; the application of intellectual property principles to oil and gas technology; ongoing disputes between oil and gas operators and their partners, especially in regards to set-off; an energy regulator's liability for damages under the Canadian Charter of Rights and Freedoms; liability for matters carried out by affiliates in other jurisdictions; personal liability of corporate directors for oppression; and the deference owed to arbitration panels, an increasingly important dispute resolution forum for the energy industry. 1. The Crown's Duty to Consult Clyde River (Hamlet) and Chippewas of the Thames First Nation. In the companion decisions of Clyde River (Hamlet) v Petroleum Geo-Services Inc., 2017 SCC 40 ("Clyde River"), and Chippewas of the Thames First Nation v Enbridge Pipelines Inc., 2017 SCC 41 ("Chippewas"), the Supreme Court of Canada clarified several features of the Crown's duty to consult with and accommodate indigenous people prior to project approvals being granted. For a detailed summary of these cases and their implications, see our previous post here. These two cases were likely chosen by the Court for their stark contrast, in order to illustrate how to, and how not to, discharge the duty. The Court found generally that while the duty to consult First Nations should be viewed as a matter of first instance for each project, it also confirmed that one way to ensure that the duty to consult would be satisfied is through that project's regulatory approval process. Though the Crown owed the affected First Nation the duty to consult, practically speaking, the project proponents are responsible for discharging the duty. The Court provided the following four step road map that proponents can use to satisfy the duty to consult determine when the duty to consult is triggered; assess whether the tribunal has power to satisfy the Crown's duty to consult; attempt to determine the scope of the duty to consult (i.e. from shallow consultation to deep consultation) by assessing the Aboriginal rights claims and the seriousness of the impact of the project on those rights; and ensure that the Crown's obligation to consult is upheld in the specific tribunal process. In Clyde River, Petroleum Geo-Services Inc. and others applied to the National Energy Board ("NEB") under the Canada Oil and Gas Operations Act to conduct offshore seismic testing off the northeast coast of Nunavut. The proposed project contemplated towing air-guns through a project area and to produce underwater sound waves annually between July and November for five years. Under the Nunavut Land Claims Agreement (1993), the Inuit of Clyde River ceded all Aboriginal claims, rights, title and interests in the Nunavut Settlement Area, including Clyde River, in exchange for defined treaty rights, including the right to harvest marine mammals. The NEB launched an environmental assessment of the seismic testing, and the Inuit of Clyde River and others filed a petition against the project with the NEB. The NEB held meetings in surrounding communities to collect public comment, and representatives of the project proponents attended these meetings. At these meetings, the proponents of the project were unable to answer basic questions about the effects of the seismic survey on marine mammals, including which mammals would be affected by the testing. Instead of answering the personally asked questions, the proponents filed a 3,926 page document with the NEB and delivered it to the Clyde River offices. The document was not translated into Inuktitut (the Inuit language), and due to limited bandwidth on Baffin Island the document could not be downloaded. Subsequently, the NEB approved the project noting that marine mammals could be affected, but that the testing was unlikely to cause significant environmental effects, given the mitigation measures undertaken by the proponents. The Supreme Court found that the Crown's duty to consult had not been discharged and quashed the approval. Following the roadmap outlined above, the Court found that the duty to consult was triggered in this case and the NEB had broad procedural powers to implement consultation; that the consultation required in this case was "deep" and on the higher end of the continuum; and that the process used by the NEB did not discharge the duty to consult because it failed to require oral hearings and formal participation when it could have done so. Further, the proponents did not answer basic questions by the Inuit of Clyde River that went to the heart of their treaty right – the right to harvest marine mammals. In contrast, in Chippewas, Enbridge Pipelines applied to the NEB to increase the capacity of its Line 9 oil pipeline. The NEB held a public hearing and 19 Aboriginal groups, including the Chippewas of the Thames First Nation were informed of the proposed project and the NEB hearing process. The First Nation participated in the NEB process but thereafter wrote a letter to the Crown stating that no Crown consultation had taken place. The federal Minister of Natural Resources relied on the NEB's process to fulfil the duty to consult. The NEB approved the project subject to conditions, some of which related to indigenous communities. It assessed the potential impact on Aboriginal rights as being limited and was satisfied that the potentially affected Aboriginal groups had the opportunity to share their views through the NEB process. The Chippewas appealed, stating that the approval could not be issued without the duty to consult and accommodate being met. Going through the same process as it did in Clyde River, the Supreme Court of Canada held that the commencement of the NEB process triggered the duty to consult and since the NEB was the final decision-maker on this project, the NEB process was capable of satisfying the duty. It was further found that the duty was in fact discharged by the NEB in this case by providing an opportunity to Chippewas to participate in the hearings, issuing a written decision recognizing the treaty rights, and imposing suitable conditions. These decisions effectively set out a list of "what-to-do/what-not-to-do" when project proponents are discharging the duty to consult. Effectively, the Supreme Court found that Enbridge did everything right, and Petroleum Geo-Services did not. Therefore, using the Enbridge model of discharging the duty is something that project proponents are likely to adopt going forward. 2. Charter Damages Claim Against Provincial Energy Regulator Ernst v Alberta Energy Regulator As discussed more fully in our previous posts on the decision here, here, here, and here, the plaintiff in Ernst v Alberta Energy Regulator, 2017 SCC 1, claimed that the Energy Resources Conservation Board (the "Board"), predecessor to the Alberta Energy Regulator, had violated her rights under the Canadian Charter of Rights and Freedoms (the "Charter") by (a) negligently administering a regulatory scheme; and (b) by violating her right to freedom of expression. The Plaintiff alleged that Encana Corporation's drilling program that used hydraulic fracturing caused her fresh water supply to become toxic. The Plaintiff sought damages in the amount of $33 million as a remedy for this loss pursuant to section 24 of the Charter. The Alberta Court of Queen's Bench found that the Plaintiff's claims was barred by section 43 of the Energy Resources Conservation Act (the "ERCA" or the "Act"). Section 43 of ERCA provided immunity to the Board or a member of the Board from actions or proceedings in respect of any act or thing done by the Board or a Board member in pursuance of ERCA, or a decision or order made by the Board under the Act. Section 43 of ERCA is now section 27 of the Responsible Energy Development Act. The Plaintiff appealed the lower court's decision. The Alberta Court of Appeal held that the Board did not owe the Plaintiff a duty of care and, in any event, her claim was barred by the ERCA. Further, the Court held that section 43 applied to bar her Charter claim as well (see BLG's post on the Court of Appeal decision here). The Plaintiff appealed to the Supreme Court of Canada on the constitutional issue, arguing that section 43 of the ERCA was unconstitutional (see BLG's post about Supreme Court's decision to hear the Plaintiff's claim here). In a deeply divided decision, the Supreme Court of Canada upheld the lower court's decision opining that it was plain and obvious that section 43 of the ERCA barred the Plaintiff's claim for Charter damages. It was held that the Plaintiff failed to provide an adequate factual basis to permit the finding that the provision was unconstitutional. As the Plaintiff failed to meet this burden, her claim was held to have been properly struck. However, in a dissenting opinion, four Justices would have set aside the order striking the Plaintiff's Charter damages claim and reverted the matter back to Alberta Court of Queen's Bench on the basis that it was not plain and obvious that the punitive conduct alleged by the Plaintiff would be caught by the language of section 43 of ERCA. As a result, in order to address the question of constitutionality of section 43, the dissenting justices would have granted the Plaintiff another opportunity to show that the Board's decision to avoid all contact with her was not protected by section 43. In finding section 43 of ERCA a bar to the Plaintiff's claim, the majority of Supreme Court reasoned that the claim lacked factual basis to find the said section unconstitutional. This leaves open the possibility that given the right facts, such an action could succeed. In addition, the dissenting Justices' opinion, that the matter should be reverted back to the lower court, further adds to the uncertainty on the subject. 3. Right of Trustee in Bankruptcy to Disclaim Uneconomic Assets Orphan Well Association v Grant Thornton Limited In a much-awaited decision rendered in April, the Alberta Court of Appeal in Orphan Well Association v Grant Thornton Limited, 2017 ABCA 124 (aka "Redwater"), upheld the trial judge's ruling that a receiver can disclaim or renounce uneconomic assets, including those that are subject to environmental liabilities (see BLG's blog here). The decision confirmed the industry's view that a trustee in bankruptcy can choose those assets of the bankrupt debtor to be sold and disclaim the rest, effectively transferring the responsibility for those assets, including any cleanup, to Alberta's Orphan Well Association (the "OWA"). The Alberta Energy Regulator (the "AER") has already taken significant steps to address the implications from the trial decision (they are discussed in our previous blogs here, and here. We expect further modifications to the AER's practice are yet forthcoming. In Redwater, Grant Thornton was appointed as receiver for Redwater Energy Corporation ("Redwater"), a publicly listed oil and gas company. The receiver took possession of Redwater's most valuable assets for sale under the Bankruptcy and Insolvency Act (the "BIA"), and sought to disclaim the remaining Redwater assets, including those suspended and abandoned wells that would likely have environmental liabilities and obligations associated with them. The AER opposed this process, claiming that the receiver was required to sell all the assets of Redwater, not just those that had value, as the effect would be to leave the bad assets in the hands of the taxpayers. This argument would have the effect of preferring the AER's claims to those of Redwater's secured creditors. The trial court confirmed that receivers and trustees in bankruptcy of holders of licences from the AER are permitted under the BIA to renounce such assets and that the AER and the OWA do not have priority over the other creditors of a bankrupt licencee. The OWA and the AER appealed the trial decision. The central question on appeal was whether a receiver or a trustee in bankruptcy must address the liabilities inherent in the remediation of oil wells in priority to the claims of secured creditors. The majority held that the AER cannot mandate that the trustee satisfy environmental claims in priority to the claims of the secured creditors under the BIA. The Alberta Court of Appeal agreed with lower court's finding that there was an operational conflict between the provision of BIA, which is a federal legislation, and the provisions of the Oil and Gas Conservation Act and the Pipeline Act, both of which are provincial legislations. As a result, pursuant to the doctrine of federal paramountcy, the BIA prevailed. The majority rejected arguments by the Appellants and some intervenors that public policy and fairness considerations should factor into its decision, holding that bankruptcy court has no ability to create exceptions to the statute based on general considerations of fairness or public policy. Redwater is headed to the Supreme Court of Canada as leave to appeal the Alberta Court of Appeal decision was granted in November. 4. Enforcement of Foreign Judgments Yaiguaje v Chevron Corporation The ongoing saga of the Ecuadorian plaintiffs' attempt to enforce judgment against Chevron Corporation and Chevron Canada continued in 2017. The Ontario Court of Appeal in Yaiguaje v Chevron Corporation, 2017 ONCA 827, overturned a security for costs order by a motions judge holding that allowing such an order to stand in that case would be unjust and against the interests of justice (see our previous blog posts about the original decision and its appeal here and here). After the Supreme Court of Canada confirmed in 2015 (that decision can be found here) that the Ecuadorian plaintiffs with a $9.5 billion judgment against Chevron Corporation were entitled to commence enforcement proceedings in Canada, Chevron and Chevron Canada brought motions for summary judgment to dismiss the claims against Chevron Canada on the basis that it was a separate corporate entity from Chevron Corporation, the original party to the lawsuit. This motion to dismiss was granted. The Ecuadorian plaintiffs appealed this decision to the Ontario Court of Appeal but before the appeal was heard, the Chevron defendants brought a motion for security of costs for roughly $1,000,000 on the basis that the plaintiffs were not ordinarily resident in Ontario, had not established they had a good chance of success on the appeal, and had not provided evidence that they were impecunious. Chevron Canada's motion was granted and the plaintiffs were ordered to post $942,950 as security for costs. The Ecuadorian plaintiffs appealed the security for costs order. The Ontario Court of Appeal found that the motions judge erred in principle in determining the justness of the order for security for costs. The Court opined that when considering justness of such an order, factors like merits of the claim, access to justice considerations, and the public importance of litigation are to be considered. The Court held that the interests of justice required that no order for security for costs be made. The Court reached this conclusion based on the following factors the litigation was in public interest; the profitability of the Chevron defendants mitigated against such an order; and the appeal was not wholly devoid of merit. As a result, the order for security for costs was set aside with costs to the plaintiffs. 5. Deference to Arbitration Teal Cedar Products Ltd. v British Columbia The Supreme Court of Canada in Teal Cedar Products Ltd. v British Columbia, 2017 SCC 32 endorsed the efficiency and finality objectives of commercial arbitration. This case serves as a reminder to parties entering into agreements with arbitration clauses that the scope of review of an arbitrator's decision in the commercial context is narrow. For a comprehensive summary of the case, see our previous blog here. In Teal Cedar, the licenses owned by Teal Cedar Products Ltd. ("Teal Cedar") allowing it to harvest Crown timber were negatively affected after the province of British Columbia implemented the Forestry Revitalization Act. The Act contained a compensation scheme which provided for two types of compensation (1) reduction to harvesting rights (the "Rights Compensation"); and (2) the value of improvements made to Crown land (the "Improvements Compensation"). Teal Cedar suffered significant losses as a result of enactment of the Act. The parties entered into negotiations but were unable to agree on the Improvements Compensation. In the meantime, to confirm their settlement, the parties entered into a Settlement Framework Agreement which provided that no interest would be payable under any compensation provided by BC to Teal Cedar. The negotiations failed and the parties submitted to arbitration for resolution of the dispute. Three issues were submitted to arbitration which valuation method was consistent with the Act, whether BC was liable to pay interest regardless of the Settlement Framework Agreement, and whether Teal Cedar was entitled to improvements compensation for an unaffected license. The arbitrator accepted the depreciation replacement cost method, held that Teal Cedar was entitled to interest regardless of the Settlement Framework Agreement, and that Teal Cedar was not entitled to improvements compensation for the unaffected license. On appeal from the arbitrator's decision, the British Columbia Supreme Court upheld the arbitrator's award except in connection with improvements compensation, which was remitted back to the arbitrator. A majority of British Columbia Court of Appeal allowed BC's appeal, finding that the arbitrator had erred on all three issues. Reversing the British Columbia Court of Appeal decision, and pertaining to the province's Arbitration Act, the Supreme Court of Canada held that courts have no jurisdiction to review the contractual interpretation issue in this case, as the arbitrator was best situated to weigh the factual matrix in his interpretation of the parties' agreement regarding the payment of interest. Further, it was held that the court had no jurisdiction to review the improvements compensation issue, as it engaged the question of whether the arbitrator correctly applied the valuation methodology to a license — a mixed question of law and fact which is beyond appellate review. The Court found that interpretation of the Forest Revitalization Act involved questions about the broad category of methods that are acceptable under the terms of the Revitalization Act and that these were questions of law. Opining that the standard of review on legal questions arising from an arbitrator's analysis of statutory interpretation issue is reasonableness, the Court found that this standard was not negated in this case in light of the nature of the question at issue and the arbitrator's presumed expertise. The Court found the arbitrator's decision on the question of law was reasonable, in that, it fell within a range of possible, acceptable outcomes which were defensible in respect of the facts and law, and the decision was justified, transparent and intelligible. 6. Personal Liability of Directors as Remedy for Oppression Wilson v Alharayeri In Wilson v Alharayeri, 2017 SCC 39, the Supreme Court of Canada upheld the finding of two corporate directors personally liable to compensate a minority shareholder for dilution of the value of his shares under section 241 of the Canada Business Corporations Act ("CBCA"). This decision confirms that directors of a corporation can be held personally liable in an oppression action. Mr. Alharayeri was a significant minority shareholder of Wi2Wi Corporation (the "Corporation"). He held common shares and two classes of preferred shares – Class A and Class B. Mr. Wilson, a director of the Corporation and a member of its audit committee, was the beneficial owner of another class of preferred shares – Class C. All preferred shares were convertible into common shares if the Corporation met financial targets set for each class of preferred shares. In 2007, the Corporation decided to issue a private placement of common shares, the effect of which would be dilution of any shareholder's shares who did not participate. Prior to the private placement, the Board of the Corporation decided to accelerate the conversion of Class C shares into common shares, despite doubts as to whether the required financial target had been met. Upon Wilson's advocacy, the same was not done for Class A and Class B shares although they met the required criteria. As a result, Alharayeri's common shares were diluted and the value of his Class A and B shares was reduced. He filed an application for oppression under s. 241 of the CBCA against Wilson and three other directors. The Supreme Court was asked to decide if the circumstances of this case warranted imposing personal liability on the Corporation's directors. The Court started by confirming the two-pronged test as set out in Budd v Gentra Inc., 1998 CanLII 5811 (Ont CA) ("Budd"), for deciding whether to impose personal liability on directors of corporations the oppressive conduct is properly attributable to the director because he or she is implicated in the oppression; and the imposition of personal liability is fit in the circumstances. In respect of the second criteria above, it was held that whether imposition of personal liability is "fit" is guided by four general principles (1) the oppression remedy request must in itself be a fair way of dealing with the situation; (2) any order should go no further than necessary to rectify the oppression; (3) any order made may serve only to vindicate the reasonable expectations of security holders, creditors, directors or officers in their capacity as corporate stakeholders, and (4) a court should consider the general corporate law context in exercising its remedial discretion. This means that director liability cannot be a surrogate for other forms of statutory or common law relief, particularly where other relief is more fitting. To determine whether oppression remedy would be a fair under the first principle outlined above, the Court identified five situations (non-exhaustive) where personal orders against directors are likely to be fair (a) where directors obtain a personal benefit from their conduct; (b) where directors have increased their control of the corporation by the oppressive conduct; (c) where directors have breached a personal duty they have as directors; (d) where directors have misused a corporate power; and (e) where a remedy against the corporation would prejudice other security holders. The Court opined that these four principles serve as "guideposts informing the flexible and discretionary approach" the courts have adopted under s. 241(3). It found that it was open to the trial judge to attribute oppressive conduct to Wilson and one other director because they played leading roles in Board discussions resulting in the non-conversion of Alharayeri's Class A and B shares. This satisfied the first criteria under the Budd test and the trial judge did not err in finding as such. Under the second part of the test, the Court found that Wilson had accrued personal benefit as a result of the oppressive conduct. The accelerated conversion of Wilson's Class C shares to common shares before the private placement benefitted him by increasing his control over the Corporation, to the detriment of Alharayeri. Further, considering the five indicia of fairness outlined above, the trial judge's order against Wilson was held to represent a fair way of rectifying the oppression and went no further than necessary to vindicate Alharayeri's reasonable expectations. The trial decision was upheld. 7. 'Working Interest' is a legal term of art IFP Technologies (Canada) Inc. v EnCana Midstream and Marketing The Alberta Court of Appeal in IFP Technologies (Canada) Inc. v EnCana Midstream and Marketing, 2017 ABCA 157, held that that the term "working interest", as it is used in the oil and gas industry, is a legal term of art. The Court also made important findings about the relevance of evidence surrounding the execution of a contract in interpreting such a term. Although this case provides some clarity as to what "working interest" means if used in an oil and gas contract, it also serves as a reminder to parties that if they intend the term to mean something else, they would have to be explicit about it both in the contract and in negotiations leading up to its execution. BLG has blogged previously about this decision here. Sometime in the late 1980s or early 1990s, IFP Technologies (Canada) Inc. ("IFP") and the predecessor company to PanCanadian Resources ("PCR") entered into a technology licencing agreement (the "TLA") granting IFP a 3% gross overriding royalty over certain lands (the "Eyehill Lands") owned by PCR in exchange for PCR's use of certain technology owned by IFP. At the time, both PCR and IFP were of the view that primary production of the Eyehill Lands was at an end, but further production could be obtained through a steam-assisted gravity drainage operation. Negotiations ensued and the parties entered into an agreement whereby PCR granted to IFP a 20% working interest in the Eyehill lands. Under the contract between IFP and PCR, PCR had both a right of first refusal over the Eyehill Lands and right to consent (or not) to any disposition by PCR of its interest, so long as such consent was not unreasonably withheld. After some time, PCR negotiated a farmout of its remaining interests in the Eyehill Lands with Wiser Oil Company of Canada ("Wiser"). IFP did not exercise its ROFR rights and did not consent to PCR's transfer of its interest to Wiser, as Wiser intended to produce the Eyehill Lands in a way that would render SAGD production impossible. Notwithstanding IFP's lack of consent, PCR transferred its interest in the Eyehill Lands to Wiser but indemnified Wiser against any future claims made by IFP. Wiser proceeded with its plans to produce the Eyehill Lands by conventional methods. IFP sued PCR for breach of contract and claimed damages for same, an accounting of net revenue from the Eyehill Lands, or $45 million in damages. The trial judge concluded that IFP retained its 20% working interest only in thermal and other enhanced recovery operations at Eyehill Lands. Further, it was held that IFP unreasonably withheld its consent to the disposition of PCR's interest in the said lands to Wiser. As a result, PCR did not breach the consent requirement found in the agreement between the parties. The trial judge declined to award any damages on the basis that doing so would be giving IFP better contractual rights than what it had negotiated. IFP appealed. The Court of Appeal held that "working interest", as it was used in the agreement between IFP and PCR, is a legal term of art and has a specific meaning in the oil and gas industry and "constitutes the percentage of ownership that an owner has to explore, drill, and produce minerals from the lands in question." The industry meaning of the term can be relied upon when such term is used in a contract between the parties unless the meaning is changed by explicit agreement between them. It was held that the trial judge erred when he failed to apply the industry standard definition of "working interest" as it was used in the agreement between IFP and PCR, and that PCR clearly conveyed to IFP a 20% working interest in all minerals in the Eyehill Lands. The Court of Appeal also found that it is an error of law for a trial judge to not consider evidence of the circumstances surrounding a contract's formation. Evidence of the surrounding circumstances is admissible even if there is no ambiguity in the contract. The presence of an "entire agreement" clause did not change this result. This case provides some certainty regarding the meaning of working interest, but also adds potential for future uncertainty for industry participants as what constitutes "standard meaning" of a legal term of art may be debatable in future cases. 8. ROFRs in light of duty of good faith performance of contracts Northrock Resources v ExxonMobil Canada Energy In August, the Saskatchewan Court of Appeal in Northrock Resources v ExxonMobil Canada Energy, 2017 SKCA 60, dismissed an appeal by Northrock Resources ("Northrock") and provided much needed insight into the interaction between ROFR provisions and the duty of good faith to be exercised in contractual performance. Northrock's claims against ExxonMobil Canada Energy ("Exxon") arose as a result of a transaction in which Exxon disposed of some of its Saskatchewan oil and gas interests in what are called busted-butterfly transactions. Exxon structured the transactions this way so that it could achieve favourable tax results. The central issue in this case was whether Exxon breached ROFR obligations it owed to Northrock as part of the sale process. Northrock asserted that, regardless of how it was to occur, the purpose and effect of the sale transaction was disposition of its ROFR-tied interests and thus the transactions triggered its first-refusal rights. The trial judge dismissed all of Northrock's claims, finding that on a plain reading of the ROFRs in their grammatical and ordinary sense, they did not apply to a busted-butterfly transaction at issue. The trial judge further found that Exxon had not breached its duty of good faith to Northrock because it did not lie, mislead, and did not use the busted-butterfly structure for the purpose of avoiding ROFRs. The trial decision was more fully discussed in our previous blog here. The Saskatchewan Court of Appeal found that by their terms, the ROFRs only applied to the disposition of interests, not to change-of-control transactions. It held that the ROFRs at issue permitted, in general, the assignment of ROFR-tied interest to an affiliate of the assignor but were silent on the subsequent disposition of the shares of the assignee affiliate. On the other hand, the ROFRs specifically excluded certain transactions from their scope. It was unimportant that Exxon was selling all or substantially all of its interest to a third party, what was important was that it could do so without triggering the ROFRs. The ROFRs did not apply to all dispositions of ROFR-tied interests to third parties. Further, the Court of Appeal held that the trial judge's finding that the ROFRs did not apply to the busted-butterfly structured sale was to be afforded due deference because it was based on two critical findings of fact in negative terms, Exxon had not been motivated by a desire to avoid triggering the ROFR provisions; and in positive terms, Exxon had preferred a busted-butterfly structure because it was motivated by tax considerations. Exxon was found to not have breached its duty of good faith to Northrock and the trial decision was found to be consistent with principles established in Bhasin v Hrynew and earlier authorities. To the contrary, the Court of Appeal concluded that to accept Northrock's argument in this case would "imprudently broaden the duty of good faith in commercial relations."1 The Court of Appeal decision and its implications were more fully discussed in our earlier blog here. Although Northrock does not stand for the proposition that ROFRs cannot apply to all transfers of interest to third parties, it emphasizes that the eventual result in such cases would depend on the bargain reached between parties, especially when they are sophisticated. The Court will not imply, or read into the agreement, a term that is not supported by the agreement as a whole. Northrock is an example of the application of Bhasin v Hrynew to specific situations (as another example, see our blog here on the case Styles v Alberta Investment Management Corporation, 2017 ABCA 1, where the Alberta Court of Appeal confirmed that there is no duty to exercise contractual discretion in good faith.) 9. Fracking Related Patent Declared Invalid Packers Plus Energy Services Inc. v Essential Energy Services Ltd. In this case Packers Plus Energy Services Inc. v Essential Energy Services Ltd., 2017 FC 1111, the Federal Court declared a fracking-related patent held by Packers Plus Energy Services Inc. ("Packers") to be invalid and dismissed its claim for patent infringement against several large oilfield services companies. The patent at issue covered a method of fracturing technology referred to as open-hole, multi-stage ball drop fracturing that has had widespread use. The case is a significant patent decision and also provides important commentary with respect to confidentiality obligations in the oil and gas industry. Further, had Packers been successful in its claims, it would have resulted in widespread implications for the named defendants to the action as well as to a wide variety of actors in the oil patch. The methodology for calculating damages in the patent context would invariably have resulted in a significant damages award. In particular, as against Harvest Operations Corp. (the sole upstream producer that was a party to the action), Packers was seeking disgorgement of profits from what it claimed was enhanced hydrocarbon recovery from the use of the technology. Success in this action could have been precedent for Packers to pursue similar claims against other upstream producers. The decision involved four separate patent infringement claims relating to its patent against Essential Energy Services ("Essential"), Baker Hughes Canada Company, Weatherford Canada Ltd. and Harvest Operations Corp., and Resource Well Completion Technologies Inc. (and various other related parties). The Federal Court consolidated part of the proceedings, hearing the claim for infringement against Essential and the counterclaims of all of the defendants that the patent was invalid in a trial in early 2017. Had Packers been successful, trials on the issue of patent infringement for the other defendants and the determination of damages were set to be heard in 2018. As there can be no infringement if there is no valid patent, the Court's decision is determinative of all issues, subject to any appeal by Packers. The Federal Court considered two main issues as part of this decision 1) did Essential infringe the patent; and 2) was the patent invalid? The Court found no evidence of infringement, either directly by Essential, by inducement of Essential's customers (upstream producers) or through the combined role it played with other actors involved at a wellsite (for example an operator, or a drilling or fracturing company, etc.). On the validity of the patent, the Court found that the patent was invalid for two reasons 1) the subject matter of the patent had been previously disclosed by Packers; and 2) the subject matter of the patent was obvious and not capable of being patented. A patent is only valid if it covers an invention that is truly new, useful and unobvious. If a party makes a public disclosure of a patent prior to a year before filing the patent, or the patent is so obvious it is not truly novel, then it is invalid. Packers admitted that it had made public disclosures by, among other things, presenting the technology to various customers prior to patenting the technology. However, it asserted that any such disclosures were made confidentially (an exception to the one year rule). Packers argued that duties of confidentiality arose through an industry standard regarding confidentiality, oral representations it made to recipients of the information and by stamping documents as confidential. The Court found that there was no explicit and binding oral or written agreement in place that the information was to be kept confidential. The Court also noted that standard industry practice in the oil and gas industry was in fact to commit obligations of confidentiality to written agreements given the highly competitive environment that exists. It noted that boilerplate "Confidential" labels on documents are not legally binding obligations of confidentiality. Lastly, the Court held that the invention was obvious and not capable of being patented because the method of fracturing would have been obvious to a skilled person at the time the patent was filed. On review of evidence relating to the state of the industry at the time, the Court held it did not represent an advance on the state of the art and was obvious to try. We expect an appeal of this matter to be forthcoming. BLG was counsel to the Defendants Weatherford Canada Ltd. and Harvest Operations Corp. at trial. 10. Set-off Spyglass Resources Corp v Bonavista Energy Corporation In Spyglass Resources Corp v Bonavista Energy Corporation, 2017 ABQB 504, the Alberta Court of Queen's Bench appears to have expanded the scope of set-off in oil and gas contracts, approving an operator's set-off of joint royalty credits against the non-operator's share of abandonment and decommissioning costs. We discussed Spyglass and its implications at length in a blog posted earlier last year which can be found here. In Spyglass, Bonavista Energy Corporation ("Bonavista") was the operator of a number of wells, compressors and pipelines in Alberta for itself and the non-operator, Spyglass Resources Corp. ("Spyglass"). In accordance with its practice, Bonavista used one joint account to administer all the revenues and costs for the project notwithstanding that the land and facilities were governed by different operating and accounting procedures. The main project agreements were a Construction, Ownership and Operating Agreement for the plant ("CO&O") and a Joint Operating Agreement ("JOA") for the wells that incorporated a 1990 CAPL Operating Procedure ("1990 CAPL"). As part of its original regulatory approval for the project from the Alberta Energy Regulator (the "AER"), Bonavista was required to prepare a Decommissioning and Land Reclamation Plan ("Decommissioning Plan") in case the plant stopped operating. In late 2011, the AER issued a permanent shut-in order of the wells, and as a result Bonavista and Spyglass were entitled to gas-over-bitumen royalty credits ("GOB Credits"). Sometime later, the plant ceased production and Bonavista began decommissioning the plant and abandoning the pipelines, in accordance with the Decommissioning Plan. The CO&O required the Operator to clean up and restore the site, even without the approval of the operating committee. Each month, Bonavista issued Spyglass one joint interest bill ("JIB") for the joint account, detailing each cost borne by the project and the GOB Credit, and netted the GOB Credit against Spyglass's share of costs. Spyglass disputed the costs and did not pay the balance owing. Subsequently, Spyglass entered receivership in November 2015 and Ernst & Young was appointed its receiver (the "Receiver"). The receiver demanded the return of Spyglass's interest in the GOB Credits that had been netted against Spyglass's share of costs. The receiver sought a declaration, inter alia, that Bonavista was not entitled to exercise set-off rights against Spyglass. The Court found that the facts of this case supported each of the three types of set-off, i.e. contractual, legal, and equitable set-off. The Court found that although the CO&O and JOA created different set-off rights with GOB Credits arising under the JOA and decommissioning costs under the CO&O, the agreements in the aggregate should be interpreted as permitting netting of costs against credits to promote business efficacy. Further, the amounts owing by Spyglass were ascertainable through the delivery of the monthly JIBs by Bonavista and such amounts crystallized when the time period for them to be paid expired. As a result, the circumstances in this case also warranted legal set-off. In addition, the Court agreed with Bonavista that the costs were a direct result of the shut-in order, and the shut-in order led directly to the GOB Credits. Thus, the same order gave rise to the requirements to incur the costs and the GOB Credits, warranting application of equitable set-off in the circumstances. 1 Northrock at para 44. <p><img class="ms-rtePosition-1" alt="Glassesinhand" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/AD-HAND-35-shutterstock-5491939-350.jpg" style="margin:5px;" />In 2017, Canadian courts released an unusually large number of decisions affecting the energy industry directly. </p><p>The Alberta Court of Appeal rendered the much-awaited <em>Redwater</em> decision<em>, </em>confirming the right of a trustee in bankruptcy to disclaim uneconomic assets of a bankrupt debtor.  The impact of this decision has been felt throughout the upstream and midstream oil and gas industry, as the Alberta Energy Regulator has required licensees to provide much more information and to be much more financially stable. An appeal to the Supreme Court of Canada was granted, and the industry is on tenterhooks awaiting the result.</p><p>Other crucial decisions of 2017 touched upon a wide variety of issues including:</p><ul><li>clarifying the Crown's duty to consult First Nations as part of the project approval process;</li><li>the definition of 'Working Interest' under oil and gas contracts; </li><li>the interaction among rights of first refusal, contractual language, and the duty of good faith under a contract; </li><li>the application of intellectual property principles to oil and gas technology; </li><li>ongoing disputes between oil and gas operators and their partners, especially in regards to set-off;</li><li>an energy regulator's liability for damages under the <em>Canadian Charter of Rights and Freedoms</em>; </li><li>liability for matters carried out by affiliates in other jurisdictions;</li><li>personal liability of corporate directors for oppression; and</li><li>the deference owed to arbitration panels, an increasingly important dispute resolution forum for the energy industry. </li></ul><p><br><strong>1. </strong>     <strong>The Crown's Duty to Consult: </strong><strong><em>Clyde River (Hamlet)</em></strong><strong> and </strong><strong><em>Chippewas of the Thames First Nation.</em></strong><strong> </strong></p><p>In the companion decisions of <a href="https://www.canlii.org/en/ca/scc/doc/2017/2017scc40/2017scc40.html?resultIndex=1" target="_blank">Clyde River (Hamlet) v Petroleum Geo-Services Inc., 2017 SCC 40</a> ("<strong>Clyde River</strong>"), and <a href="https://www.canlii.org/en/ca/scc/doc/2017/2017scc41/2017scc41.html?resultIndex=1" target="_blank">Chippewas of the Thames First Nation v Enbridge Pipelines Inc., 2017 SCC 41</a> ("<strong>Chippewas</strong>"), the Supreme Court of Canada clarified several features of the Crown's duty to consult with and accommodate indigenous people prior to project approvals being granted. For a detailed summary of these cases and their implications, see our previous post <a href="/energy/Pages/Post.aspx?PID=329" target="_blank">here</a>.</p><p>These two cases were likely chosen by the Court for their stark contrast, in order to illustrate how to, and how not to, discharge the duty.  The Court found generally that while the duty to consult First Nations should be viewed as a matter of first instance for each project, it also confirmed that one way to ensure that the duty to consult would be satisfied is through that project's regulatory approval process. Though the Crown owed the affected First Nation the duty to consult, practically speaking, the project proponents are responsible for discharging the duty. </p><p>The Court provided the following four step road map that proponents can use to satisfy the duty to consult:</p><ul><ol><li>determine when the duty to consult is triggered; </li><li>assess whether the tribunal has power to satisfy the Crown's duty to consult; </li><li>attempt to determine the scope of the duty to consult (i.e. from shallow consultation to deep consultation) by assessing the Aboriginal rights claims and the seriousness of the impact of the project on those rights; and </li><li>ensure that the Crown's obligation to consult is upheld in the specific tribunal process. </li></ol></ul><p><br>In <em>Clyde River</em>, Petroleum Geo-Services Inc. and others applied to the National Energy Board ("<strong>NEB</strong>") under the <em>Canada Oil and Gas Operations Act </em>to conduct offshore seismic testing off the northeast coast of Nunavut. The proposed project contemplated towing air-guns through a project area and to produce underwater sound waves annually between July and November for five years. Under the <em>Nunavut Land Claims Agreement</em> (1993), the Inuit of Clyde River ceded all Aboriginal claims, rights, title and interests in the Nunavut Settlement Area, including Clyde River, in exchange for defined treaty rights, including the right to harvest marine mammals. </p><p>The NEB launched an environmental assessment of the seismic testing, and the Inuit of Clyde River and others filed a petition against the project with the NEB. The NEB held meetings in surrounding communities to collect public comment, and representatives of the project proponents attended these meetings. At these meetings, the proponents of the project were unable to answer basic questions about the effects of the seismic survey on marine mammals, including which mammals would be affected by the testing. Instead of answering the personally asked questions, the proponents filed a 3,926 page document with the NEB and delivered it to the Clyde River offices. The document was not translated into Inuktitut (the Inuit language), and due to limited bandwidth on Baffin Island the document could not be downloaded. Subsequently, the NEB approved the project noting that marine mammals could be affected, but that the testing was unlikely to cause significant environmental effects, given the mitigation measures undertaken by the proponents.</p><p>The Supreme Court found that the Crown's duty to consult had not been discharged and quashed the approval. Following the roadmap outlined above, the Court found that the duty to consult was triggered in this case and the NEB had broad procedural powers to implement consultation; that the consultation required in this case was "deep" and on the higher end of the continuum; and that the process used by the NEB did not discharge the duty to consult because it failed to require oral hearings and formal participation when it could have done so. Further, the proponents did not answer basic questions by the Inuit of Clyde River that went to the heart of their treaty right – the right to harvest marine mammals. </p><p>In contrast, in <em>Chippewas</em>, Enbridge Pipelines applied to the NEB to increase the capacity of its Line 9 oil pipeline. The NEB held a public hearing and 19 Aboriginal groups, including the Chippewas of the Thames First Nation were informed of the proposed project and the NEB hearing process.  The First Nation participated in the NEB process but thereafter wrote a letter to the Crown stating that no Crown consultation had taken place. The federal Minister of Natural Resources relied on the NEB's process to fulfil the duty to consult. </p><p>The NEB approved the project subject to conditions, some of which related to indigenous communities.  It assessed the potential impact on Aboriginal rights as being limited and was satisfied that the potentially affected Aboriginal groups had the opportunity to share their views through the NEB process.  The Chippewas appealed, stating that the approval could not be issued without the duty to consult and accommodate being met. </p><p>Going through the same process as it did in Clyde River, the Supreme Court of Canada held that the commencement of the NEB process triggered the duty to consult and since the NEB was the final decision-maker on this project, the NEB process was capable of satisfying the duty. It was further found that the duty was in fact discharged by the NEB in this case by providing an opportunity to Chippewas to participate in the hearings, issuing a written decision recognizing the treaty rights, and imposing suitable conditions. </p><p>These decisions effectively set out a list of "what-to-do/what-not-to-do" when project proponents are discharging the duty to consult. Effectively, the Supreme Court found that Enbridge did everything right, and Petroleum Geo-Services did not. Therefore, using the Enbridge model of discharging the duty is something that project proponents are likely to adopt going forward.  </p><p><strong>2.</strong>      <strong><em>Charter</em></strong><strong> Damages</strong><strong> </strong><strong>Claim Against Provincial Energy Regulator: </strong><strong><em>Ernst v Alberta Energy Regulator</em></strong><strong> </strong><strong><em> </em></strong></p><p>As discussed more fully in our previous posts on the decision <a href="/energy/Pages/Post.aspx?PID=280" target="_blank">here</a>, <a href="/energy/Pages/Post.aspx?PID=90" target="_blank">here</a>, <a href="/energy/Pages/Post.aspx?OID=268" target="_blank">here</a>, and <a href="/energy/Pages/Post.aspx?PID=252" target="_blank">here</a>, the plaintiff in <a href="https://www.canlii.org/en/ca/scc/doc/2017/2017scc1/2017scc1.html?resultIndex=1" target="_blank">Ernst v Alberta Energy Regulator, 2017 SCC 1</a>, claimed that the Energy Resources Conservation Board (the "<strong>Board</strong>"), predecessor to the Alberta Energy Regulator, had violated her rights under the <em>Canadian Charter of Rights and Freedoms </em>(the "<strong><em>Charter</em></strong>") by (a) negligently administering a regulatory scheme; and (b) by violating her right to freedom of expression. The Plaintiff alleged that Encana Corporation's drilling program that used hydraulic fracturing caused her fresh water supply to become toxic. The Plaintiff sought damages in the amount of $33 million as a remedy for this loss pursuant to section 24 of the <em>Charter</em>. </p><p>The Alberta Court of Queen's Bench found that the Plaintiff's claims was barred by section 43 of the <em>Energy Resources Conservation Act </em>(the "<strong><em>ERCA</em></strong>" or the "<strong>Act</strong>"). Section 43 of <em>ERCA</em> provided immunity to the Board or a member of the Board from actions or proceedings in respect of any act or thing done by the Board or a Board member in pursuance of <em>ERCA</em>, or a decision or order made by the Board under the Act. Section 43 of <em>ERCA </em>is now section 27 of the <em>Responsible Energy Development Act</em>. The Plaintiff appealed the lower court's decision. </p><p>The Alberta Court of Appeal held that the Board did not owe the Plaintiff a duty of care and, in any event, her claim was barred by the <em>ERCA</em>.  Further, the Court held that section 43 applied to bar her <em>Charter </em>claim as well (see BLG's post on the Court of Appeal decision <a href="/energy/Pages/Post.aspx?PID=21" target="_blank">here</a>). </p><p>The Plaintiff appealed to the Supreme Court of Canada on the constitutional issue, arguing that section 43 of the <em>ERCA </em>was unconstitutional (see BLG's post about Supreme Court's decision to hear the Plaintiff's claim <a href="/energy/Pages/Post.aspx?PID=90" target="_blank">here</a>).  </p><p>In a deeply divided decision, the Supreme Court of Canada upheld the lower court's decision opining that it was plain and obvious that section 43 of the <em>ERCA </em>barred the Plaintiff's claim for <em>Charter </em>damages. It was held that the Plaintiff failed to provide an adequate factual basis to permit the finding that the provision was unconstitutional. As the Plaintiff failed to meet this burden, her claim was held to have been properly struck. </p><p>However, in a dissenting opinion, four Justices would have set aside the order striking the Plaintiff's <em>Charter</em> damages claim and reverted the matter back to Alberta Court of Queen's Bench on the basis that it was not plain and obvious that the punitive conduct alleged by the Plaintiff would be caught by the language of section 43 of <em>ERCA. </em>As a result, in order to address the question of constitutionality of section 43, the dissenting justices would have granted the Plaintiff another opportunity to show that the Board's decision to avoid all contact with her was not protected by section 43.</p><p>In finding section 43 of <em>ERCA </em>a bar to the Plaintiff's claim, the majority of Supreme Court reasoned that the claim lacked factual basis to find the said section unconstitutional. This leaves open the possibility that given the right facts, such an action could succeed. In addition, the dissenting Justices' opinion, that the matter should be reverted back to the lower court, further adds to the uncertainty on the subject. </p><p><strong>3.</strong>      <strong>Right of Trustee in Bankruptcy to Disclaim Uneconomic Assets: </strong><strong><em>Orphan Well Association v Grant Thornton Limited </em></strong></p><p>In a much-awaited decision rendered in April, the Alberta Court of Appeal in <a href="https://www.canlii.org/en/ab/abca/doc/2017/2017abca124/2017abca124.html?autocompleteStr=2017%20ABCA%20124&autocompletePos=1" target="_blank">Orphan Well Association v Grant Thornton Limited, 2017 ABCA 124</a> (aka "<em>Redwater</em>"), upheld the trial judge's ruling that a receiver can disclaim or renounce uneconomic assets, including those that are subject to environmental liabilities (see BLG's blog <a href="/energy/Pages/Post.aspx?PID=310" target="_blank">here</a>).</p><p>The decision confirmed the industry's view that a trustee in bankruptcy can choose those assets of the bankrupt debtor to be sold and disclaim the rest, effectively transferring the responsibility for those assets, including any cleanup, to Alberta's Orphan Well Association (the "<strong>OWA</strong>"). The Alberta Energy Regulator (the "<strong>AER</strong>") has already taken significant steps to address the implications from the trial decision (they are discussed in our previous blogs <a href="/energy/Pages/Post.aspx?PID=208" target="_blank">here</a>, and <a href="http://blg.com/en/News-And-Publications/publication_4528" target="_blank">here</a>. We expect further modifications to the AER's practice are yet forthcoming. </p><p>In <em>Redwater</em>, Grant Thornton was appointed as receiver for Redwater Energy Corporation ("<strong>Redwater</strong>"), a publicly listed oil and gas company. The receiver took possession of Redwater's most valuable assets for sale under the <em>Bankruptcy and Insolvency Act </em>(the "<em>BIA</em>"), and sought to disclaim the remaining Redwater assets, including those suspended and abandoned wells that would likely have environmental liabilities and obligations associated with them. The AER opposed this process, claiming that the receiver was required to sell all the assets of Redwater, not just those that had value, as the effect would be to leave the bad assets in the hands of the taxpayers. This argument would have the effect of preferring the AER's claims to those of Redwater's secured creditors.</p><p>The trial court confirmed that receivers and trustees in bankruptcy of holders of licences from the AER are permitted under the <em>BIA </em>to renounce such assets and that the AER and the OWA do not have priority over the other creditors of a bankrupt licencee.  </p><p>The OWA and the AER appealed the trial decision. The central question on appeal was whether a receiver or a trustee in bankruptcy must address the liabilities inherent in the remediation of oil wells in priority to the claims of secured creditors. The majority held that the AER cannot mandate that the trustee satisfy environmental claims in priority to the claims of the secured creditors under the <em>BIA</em>. The Alberta Court of Appeal agreed with lower court's finding that there was an operational conflict between the provision of <em>BIA</em>, which is a federal legislation, and the provisions of the <em>Oil and Gas Conservation Act </em>and the <em>Pipeline Act</em>, both of which are provincial legislations. As a result, pursuant to the doctrine of federal paramountcy, the <em>BIA </em>prevailed. The majority rejected arguments by the Appellants and some intervenors that public policy and fairness considerations should factor into its decision, holding that bankruptcy court has no ability to create exceptions to the statute based on general considerations of fairness or public policy. </p><p><em>Redwater </em>is headed to the Supreme Court of Canada as leave to appeal the Alberta Court of Appeal decision was granted in November. </p><p><strong>4.</strong>      <strong>Enforcement of Foreign Judgments: </strong><strong><em>Yaiguaje v Chevron Corporation</em></strong></p><p>The ongoing saga of the Ecuadorian plaintiffs' attempt to enforce judgment against Chevron Corporation and Chevron Canada continued in 2017. </p><p>The Ontario Court of Appeal in <a href="https://www.canlii.org/en/on/onca/doc/2017/2017onca827/2017onca827.html?resultIndex=1" target="_blank">Yaiguaje v Chevron Corporation, 2017 ONCA 827</a>, overturned a security for costs order by a motions judge holding that allowing such an order to stand in that case would be unjust and against the interests of justice (see our previous blog posts about the original decision and its appeal <a href="/theexchange/Pages/Post.aspx?PID=287" target="_blank">here</a> and <a href="/theexchange/Pages/Post.aspx?PID=297" target="_blank">here</a>).</p><p>After the Supreme Court of Canada confirmed in 2015 (that decision can be found <a href="https://www.canlii.org/en/ca/scc/doc/2015/2015scc42/2015scc42.html?resultIndex=1" target="_blank">here</a>) that the Ecuadorian plaintiffs with a $9.5 billion judgment against Chevron Corporation were entitled to commence enforcement proceedings in Canada, Chevron and Chevron Canada brought motions for summary judgment to dismiss the claims against Chevron Canada on the basis that it was a separate corporate entity from Chevron Corporation, the original party to the lawsuit. This motion to dismiss was granted. </p><p>The Ecuadorian plaintiffs appealed this decision to the Ontario Court of Appeal but before the appeal was heard, the Chevron defendants brought a motion for security of costs for roughly $1,000,000 on the basis that the plaintiffs were not ordinarily resident in Ontario, had not established they had a good chance of success on the appeal, and had not provided evidence that they were impecunious. Chevron Canada's motion was granted and the plaintiffs were ordered to post $942,950 as security for costs. The Ecuadorian plaintiffs appealed the security for costs order. </p><p>The Ontario Court of Appeal found that the motions judge erred in principle in determining the justness of the order for security for costs. The Court opined that when considering justness of such an order, factors like merits of the claim, access to justice considerations, and the public importance of litigation are to be considered. </p><p>The Court held that the interests of justice required that no order for security for costs be made. The Court reached this conclusion based on the following factors: </p><ol><li>the litigation was in public interest; </li><li>the profitability of the Chevron defendants mitigated against such an order; and</li><li>the appeal was not wholly devoid of merit. </li></ol><p><br>As a result, the order for security for costs was set aside with costs to the plaintiffs. </p><p><strong>5.</strong>      <strong>Deference to Arbitration:</strong><strong><em> Teal Cedar Products Ltd. v British Columbia</em></strong><strong> </strong></p><p>The Supreme Court of Canada in <a href="https://www.canlii.org/en/ca/scc/doc/2017/2017scc32/2017scc32.html?resultIndex=1" target="_blank">Teal Cedar Products Ltd. v British Columbia, 2017 SCC 32</a> endorsed the efficiency and finality objectives of commercial arbitration. This case serves as a reminder to parties entering into agreements with arbitration clauses that the scope of review of an arbitrator's decision in the commercial context is narrow. For a comprehensive summary of the case, see our previous blog <a href="/energy/Pages/Post.aspx?PID=348" target="_blank">here</a>.</p><p>In <em>Teal Cedar</em>, the licenses owned by Teal Cedar Products Ltd. ("<strong>Teal Cedar</strong>") allowing it to harvest Crown timber were negatively affected after the province of British Columbia implemented the <em>Forestry Revitalization Act</em>. The Act contained a compensation scheme which provided for two types of compensation: (1) reduction to harvesting rights (the "Rights Compensation"); and (2) the value of improvements made to Crown land (the "Improvements Compensation"). </p><p>Teal Cedar suffered significant losses as a result of enactment of the Act. The parties entered into negotiations but were unable to agree on the Improvements Compensation. In the meantime, to confirm their settlement, the parties entered into a Settlement Framework Agreement which provided that no interest would be payable under any compensation provided by BC to Teal Cedar. The negotiations failed and the parties submitted to arbitration for resolution of the dispute. Three issues were submitted to arbitration: which valuation method was consistent with the Act, whether BC was liable to pay interest regardless of the Settlement Framework Agreement, and whether Teal Cedar was entitled to improvements compensation for an unaffected license. The arbitrator accepted the depreciation replacement cost method, held that Teal Cedar was entitled to interest regardless of the Settlement Framework Agreement, and that Teal Cedar was not entitled to improvements compensation for the unaffected license.</p><p>On appeal from the arbitrator's decision, the British Columbia Supreme Court upheld the arbitrator's award except in connection with improvements compensation, which was remitted back to the arbitrator. A majority of British Columbia Court of Appeal allowed BC's appeal, finding that the arbitrator had erred on all three issues.</p><p>Reversing the British Columbia Court of Appeal decision, and pertaining to the province's <em>Arbitration Act</em>, the Supreme Court of Canada held that courts have no jurisdiction to review the contractual interpretation issue in this case, as the arbitrator was best situated to weigh the factual matrix in his interpretation of the parties' agreement regarding the payment of interest. Further, it was held that the court had no jurisdiction to review the improvements compensation issue, as it engaged the question of whether the arbitrator correctly applied the valuation methodology to a license — a mixed question of law and fact which is beyond appellate review. </p><p>The Court found that interpretation of the <em>Forest Revitalization Act </em>involved questions about the broad category of methods that are acceptable under the terms of the <em>Revitalization Act </em>and that these were questions of law. Opining that the standard of review on legal questions arising from an arbitrator's analysis of statutory interpretation issue is reasonableness, the Court found that this standard was not negated in this case in light of the nature of the question at issue and the arbitrator's presumed expertise. The Court found the arbitrator's decision on the question of law was reasonable, in that, it fell within a range of possible, acceptable outcomes which were defensible in respect of the facts and law, and the decision was justified, transparent and intelligible.</p><p><strong>6.</strong>      <strong>Personal Liability of Directors as Remedy for Oppression:</strong><strong><em> Wilson v Alharayeri</em></strong><strong> </strong></p><p>In <a href="https://www.canlii.org/en/ca/scc/doc/2017/2017scc39/2017scc39.html?resultIndex=1" target="_blank">Wilson v Alharayeri, 2017 SCC 39</a>, the Supreme Court of Canada upheld the finding of two corporate directors personally liable to compensate a minority shareholder for dilution of the value of his shares under section 241 of the <em>Canada Business Corporations Act</em> ("<strong><em>CBCA</em></strong>"). This decision confirms that directors of a corporation can be held personally liable in an oppression action.</p><p>Mr. Alharayeri was a significant minority shareholder of Wi2Wi Corporation (the "<strong>Corporation</strong>"). He held common shares and two classes of preferred shares – Class A and Class B. Mr. Wilson, a director of the Corporation and a member of its audit committee, was the beneficial owner of another class of preferred shares – Class C. All preferred shares were convertible into common shares if the Corporation met financial targets set for each class of preferred shares. In 2007, the Corporation decided to issue a private placement of common shares, the effect of which would be dilution of any shareholder's shares who did not participate. Prior to the private placement, the Board of the Corporation decided to accelerate the conversion of Class C shares into common shares, despite doubts as to whether the required financial target had been met. Upon Wilson's advocacy, the same was not done for Class A and Class B shares although they met the required criteria. As a result, Alharayeri's common shares were diluted and the value of his Class A and B shares was reduced. He filed an application for oppression under s. 241 of the <em>CBCA</em> against Wilson and three other directors. </p><p>The Supreme Court was asked to decide if the circumstances of this case warranted imposing personal liability on the Corporation's directors. The Court started by confirming the two-pronged test as set out in <a href="https://www.canlii.org/en/on/onca/doc/1998/1998canlii5811/1998canlii5811.html?resultIndex=2" target="_blank">Budd v Gentra Inc., 1998 CanLII 5811</a> (Ont CA) ("<strong><em>Budd</em></strong>"), for deciding whether to impose personal liability on directors of corporations: </p><ul><li>the oppressive conduct is properly attributable to the director because he or she is implicated in the oppression; and </li><li>the imposition of personal liability is fit in the circumstances. </li></ul><p><br>In respect of the second criteria above, it was held that whether imposition of personal liability is "fit" is guided by four general principles: (1) the oppression remedy request must in itself be a fair way of dealing with the situation; (2) any order should go no further than necessary to rectify the oppression; (3)  any order made may serve only to vindicate the reasonable expectations of security holders, creditors, directors or officers in their capacity as corporate stakeholders, and (4) a court should consider the general corporate law context in exercising its remedial discretion. This means that director liability cannot be a surrogate for other forms of statutory or common law relief, particularly where other relief is more fitting. </p><p>To determine whether oppression remedy would be a fair under the first principle outlined above, the Court identified five situations (non-exhaustive) where personal orders against directors are likely to be fair: (a) where directors obtain a personal benefit from their conduct; (b) where directors have increased their control of the corporation by the oppressive conduct; (c) where directors have breached a personal duty they have as directors; (d) where directors have misused a corporate power; and (e) where a remedy against the corporation would prejudice other security holders.</p><p>The Court opined that these four principles serve as "guideposts informing the flexible and discretionary approach" the courts have adopted under s. 241(3). It found that it was open to the trial judge to attribute oppressive conduct to Wilson and one other director because they played leading roles in Board discussions resulting in the non-conversion of Alharayeri's Class A and B shares. This satisfied the first criteria under the <em>Budd </em>test and the trial judge did not err in finding as such. Under the second part of the test, the Court found that Wilson had accrued personal benefit as a result of the oppressive conduct. The accelerated conversion of Wilson's Class C shares to common shares before the private placement benefitted him by increasing his control over the Corporation, to the detriment of Alharayeri. Further, considering the five indicia of fairness outlined above, the trial judge's order against Wilson was held to represent a fair way of rectifying the oppression and went no further than necessary to vindicate Alharayeri's reasonable expectations. The trial decision was upheld.</p><p><strong>7.</strong>      <strong>'Working Interest' is a legal term of art: </strong><strong><em>IFP Technologies (Canada) Inc. v EnCana Midstream and Marketing</em></strong><strong> </strong></p><p>The Alberta Court of Appeal in <a href="https://www.canlii.org/en/ab/abca/doc/2017/2017abca157/2017abca157.html?resultIndex=1" target="_blank">IFP Technologies (Canada) Inc. v EnCana Midstream and Marketing, 2017 ABCA 157</a>, held that that the term "working interest", as it is used in the oil and gas industry, is a legal term of art. The Court also made important findings about the relevance of evidence surrounding the execution of a contract in interpreting such a term. Although this case provides some clarity as to what "working interest" means if used in an oil and gas contract, it also serves as a reminder to parties that if they intend the term to mean something else, they would have to be explicit about it both in the contract and in negotiations leading up to its execution. BLG has blogged previously about this decision <a href="/energy/Pages/Post.aspx?PID=346" target="_blank">here</a>.</p><p>Sometime in the late 1980s or early 1990s, IFP Technologies (Canada) Inc. ("<strong>IFP</strong>") and the predecessor company to PanCanadian Resources ("<strong>PCR</strong>") entered into a technology licencing agreement (the "<strong>TLA</strong>") granting IFP a 3% gross overriding royalty over certain lands (the "<strong>Eyehill Lands</strong>") owned by PCR in exchange for PCR's  use of certain technology owned by IFP. At the time, both PCR and IFP were of the view that primary production of the Eyehill Lands was at an end, but further production could be obtained through a steam-assisted gravity drainage operation. Negotiations ensued and the parties entered into an agreement whereby PCR granted to IFP a 20% working interest in the Eyehill lands. Under the contract between IFP and PCR, PCR had both a right of first refusal over the Eyehill Lands and right to consent (or not) to any disposition by PCR of its interest, so long as such consent was not unreasonably withheld. </p><p>After some time, PCR negotiated a farmout of its remaining interests in the Eyehill Lands with Wiser Oil Company of Canada ("<strong>Wiser</strong>"). IFP did not exercise its ROFR rights and did not consent to PCR's transfer of its interest to Wiser, as Wiser intended to produce the Eyehill Lands in a way that would render SAGD production impossible. Notwithstanding IFP's lack of consent, PCR transferred its interest in the Eyehill Lands to Wiser but indemnified Wiser against any future claims made by IFP. Wiser proceeded with its plans to produce the Eyehill Lands by conventional methods. IFP sued PCR for breach of contract and claimed damages for same, an accounting of net revenue from the Eyehill Lands, or $45 million in damages.</p><p>The trial judge concluded that IFP retained its 20% working interest only in thermal and other enhanced recovery operations at Eyehill Lands. Further, it was held that IFP unreasonably withheld its consent to the disposition of PCR's interest in the said lands to Wiser. As a result, PCR did not breach the consent requirement found in the agreement between the parties. The trial judge declined to award any damages on the basis that doing so would be giving IFP better contractual rights than what it had negotiated. IFP appealed.</p><p>The Court of Appeal held that "working interest", as it was used in the agreement between IFP and PCR, is a legal term of art and has a specific meaning in the oil and gas industry and "constitutes the percentage of ownership that an owner has to explore, drill, and produce minerals from the lands in question." The industry meaning of the term can be relied upon when such term is used in a contract between the parties unless the meaning is changed by explicit agreement between them. It was held that the trial judge erred when he failed to apply the industry standard definition of "working interest" as it was used in the agreement between IFP and PCR, and that PCR clearly conveyed to IFP a 20% working interest in all minerals in the Eyehill Lands. </p><p>The Court of Appeal also found that it is an error of law for a trial judge to not consider evidence of the circumstances surrounding a contract's formation. Evidence of the surrounding circumstances is admissible even if there is no ambiguity in the contract. The presence of an "entire agreement" clause did not change this result. </p><p>This case provides some certainty regarding the meaning of working interest, but also adds potential for future uncertainty for industry participants as what constitutes "standard meaning" of a legal term of art may be debatable in future cases. </p><p><strong>8.</strong>      <strong>ROFRs in light of duty of good faith performance of contracts: </strong><strong><em>Northrock Resources v ExxonMobil Canada Energy</em></strong><strong> </strong></p><p>In August, the Saskatchewan Court of Appeal in <a href="https://www.canlii.org/en/sk/skca/doc/2017/2017skca60/2017skca60.html?resultIndex=1" target="_blank">Northrock Resources v ExxonMobil Canada Energy, 2017 SKCA 60</a>, dismissed an appeal by Northrock Resources ("Northrock") and provided much needed insight into the interaction between ROFR provisions and the duty of good faith to be exercised in contractual performance. </p><p>Northrock's claims against ExxonMobil Canada Energy ("Exxon") arose as a result of a transaction in which Exxon disposed of some of its Saskatchewan oil and gas interests in what are called busted-butterfly transactions. Exxon structured the transactions this way so that it could achieve favourable tax results. </p><p>The central issue in this case was whether Exxon breached ROFR obligations it owed to Northrock as part of the sale process. Northrock asserted that, regardless of how it was to occur, the purpose and effect of the sale transaction was disposition of its ROFR-tied interests and thus the transactions triggered its first-refusal rights. </p><p>The trial judge dismissed all of Northrock's claims, finding that on a plain reading of the ROFRs in their grammatical and ordinary sense, they did not apply to a busted-butterfly transaction at issue. The trial judge further found that Exxon had not breached its duty of good faith to Northrock because it did not lie, mislead, and did not use the busted-butterfly structure for the purpose of avoiding ROFRs. The trial decision was more fully discussed in our previous blog <a href="/energy/Pages/Post.aspx?PID=219" target="_blank">here</a>. </p><p>The Saskatchewan Court of Appeal found that by their terms, the ROFRs only applied to the disposition of <em>interests</em>, not to change-of-control transactions. It held that the ROFRs at issue permitted, in general, the assignment of ROFR-tied interest to an affiliate of the assignor but were silent on the subsequent disposition of the shares of the assignee affiliate. On the other hand, the ROFRs specifically excluded certain transactions from their scope. It was unimportant that Exxon was selling all or substantially all of its interest to a third party, what was important was that it could do so without triggering the ROFRs. The ROFRs did not apply to all dispositions of ROFR-tied interests to third parties.  Further, the Court of Appeal held that the trial judge's finding that the ROFRs did not apply to the busted-butterfly structured sale was to be afforded due deference because it was based on two critical findings of fact: </p><ol><li>in negative terms, Exxon had not been motivated by a desire to avoid triggering the ROFR provisions; and </li><li>in positive terms, Exxon had preferred a busted-butterfly structure because it was motivated by tax considerations. </li></ol><p><br>Exxon was found to not have breached its duty of good faith to Northrock and the trial decision was found to be consistent with principles established in <em>Bhasin v Hrynew </em>and earlier authorities. To the contrary, the Court of Appeal concluded that to accept Northrock's argument in this case would "imprudently broaden the duty of good faith in commercial relations."<sup>1</sup> The Court of Appeal decision and its implications were more fully discussed in our earlier blog <a href="/energy/Pages/Post.aspx?PID=331" target="_blank">here</a>.</p><p>Although <em>Northrock </em>does not stand for the proposition that ROFRs cannot apply to all transfers of interest to third parties, it emphasizes that the eventual result in such cases would depend on the bargain reached between parties, especially when they are sophisticated. The Court will not imply, or read into the agreement, a term that is not supported by the agreement as a whole.  <em>Northrock </em>is an example of the application of <em>Bhasin v Hrynew </em>to specific situations (as another example, see our blog <a href="/energy/Pages/Post.aspx?PID=290" target="_blank">here</a> on the case <a href="https://www.canlii.org/en/ab/abca/doc/2017/2017abca1/2017abca1.html?resultIndex=1" target="_blank">Styles v Alberta Investment Management Corporation, 2017 ABCA 1</a>, where the Alberta Court of Appeal confirmed that there is no duty to exercise contractual discretion in good faith.)</p><p><strong>9.</strong>      <strong>Fracking Related Patent Declared Invalid: </strong><strong><em>Packers Plus Energy Services Inc. v Essential Energy Services Ltd.</em></strong><strong> </strong></p><p>In this case <a href="https://www.canlii.org/en/ca/fct/doc/2017/2017fc1111/2017fc1111.html?resultIndex=1" target="_blank">Packers Plus Energy Services Inc. v Essential Energy Services Ltd., 2017 FC 1111</a>, the Federal Court declared a fracking-related patent held by Packers Plus Energy Services Inc. ("Packers") to be invalid and dismissed its claim for patent infringement against several large oilfield services companies. The patent at issue covered a method of fracturing technology referred to as open-hole, multi-stage ball drop fracturing that has had widespread use. </p><p>The case is a significant patent decision and also provides important commentary with respect to confidentiality obligations in the oil and gas industry.  Further, had Packers been successful in its claims, it would have resulted in widespread implications for the named defendants to the action as well as to a wide variety of actors in the oil patch. The methodology for calculating damages in the patent context would invariably have resulted in a significant damages award. In particular, as against Harvest Operations Corp. (the sole upstream producer that was a party to the action), Packers was seeking disgorgement of profits from what it claimed was enhanced hydrocarbon recovery from the use of the technology. Success in this action could have been precedent for Packers to pursue similar claims against other upstream producers.  </p><p>The decision involved four separate patent infringement claims relating to its patent against Essential Energy Services ("<strong>Essential</strong>"), Baker Hughes Canada Company, Weatherford Canada Ltd. and Harvest Operations Corp., and Resource Well Completion Technologies Inc. (and various other related parties). The Federal Court consolidated part of the proceedings, hearing the claim for infringement against Essential and the counterclaims of all of the defendants that the patent was invalid in a trial in early 2017.  Had Packers been successful, trials on the issue of patent infringement for the other defendants and the determination of damages were set to be heard in 2018. As there can be no infringement if there is no valid patent, the Court's decision is determinative of all issues, subject to any appeal by Packers. </p><p>The Federal Court considered two main issues as part of this decision: 1) did Essential infringe the patent; and 2) was the patent invalid?</p><p>The Court found no evidence of infringement, either directly by Essential, by inducement of Essential's customers (upstream producers) or through the combined role it played with other actors involved at a wellsite (for example an operator, or a drilling or fracturing company, etc.).</p><p>On the validity of the patent, the Court found that the patent was invalid for two reasons: 1) the subject matter of the patent had been previously disclosed by Packers; and 2) the subject matter of the patent was obvious and not capable of being patented. </p><p>A patent is only valid if it covers an invention that is truly new, useful and unobvious. If a party makes a public disclosure of a patent prior to a year before filing the patent, or the patent is so obvious it is not truly novel, then it is invalid. </p><p>Packers admitted that it had made public disclosures by, among other things, presenting the technology to various customers prior to patenting the technology. However, it asserted that any such disclosures were made confidentially (an exception to the one year rule). Packers argued that duties of confidentiality arose through an industry standard regarding confidentiality, oral representations it made to recipients of the information and by stamping documents as confidential. </p><p>The Court found that there was no explicit and binding oral or written agreement in place that the information was to be kept confidential. The Court also noted that standard industry practice in the oil and gas industry was in fact to commit obligations of confidentiality to written agreements given the highly competitive environment that exists. It noted that boilerplate "Confidential" labels on documents are not legally binding obligations of confidentiality. </p><p>Lastly, the Court held that the invention was obvious and not capable of being patented because the method of fracturing would have been obvious to a skilled person at the time the patent was filed. On review of evidence relating to the state of the industry at the time, the Court held it did not represent an advance on the state of the art and was obvious to try. </p><p>We expect an appeal of this matter to be forthcoming. BLG was counsel to the Defendants Weatherford Canada Ltd. and Harvest Operations Corp. at trial. </p><p><strong>10.</strong>  <strong> </strong><strong>Set-off:</strong><strong><em> Spyglass Resources Corp v Bonavista Energy Corporation</em></strong><strong> </strong></p><p>In <a href="https://www.canlii.org/en/ab/abqb/doc/2017/2017abqb504/2017abqb504.html?resultIndex=1" target="_blank">Spyglass Resources Corp v Bonavista Energy Corporation, 2017 ABQB 504</a>, the Alberta Court of Queen's Bench appears to have expanded the scope of set-off in oil and gas contracts, approving an operator's set-off of joint royalty credits against the non-operator's share of abandonment and decommissioning costs. We discussed <em>Spyglass </em>and its implications at length in a blog posted earlier last year which can be found <a href="/energy/Pages/Post.aspx?PID=334" target="_blank">here</a>.</p><p>In <em>Spyglass</em>, Bonavista Energy Corporation ("<strong>Bonavista</strong>") was the operator of a number of wells, compressors and pipelines in Alberta for itself and the non-operator, Spyglass Resources Corp. ("<strong>Spyglass</strong>").  In accordance with its practice, Bonavista used one joint account to administer all the revenues and costs for the project notwithstanding that the land and facilities were governed by different operating and accounting procedures. The main project agreements were a Construction, Ownership and Operating Agreement for the plant ("<strong>CO&O</strong>") and a Joint Operating Agreement ("<strong>JOA</strong>") for the wells that incorporated a 1990 CAPL Operating Procedure ("<strong>1990 CAPL</strong>"). As part of its original regulatory approval for the project from the Alberta Energy Regulator (the "<strong>AER</strong>"), Bonavista was required to prepare a Decommissioning and Land Reclamation Plan ("<strong>Decommissioning Plan</strong>") in case the plant stopped operating. </p><p>In late 2011, the AER issued a permanent shut-in order of the wells, and as a result Bonavista and Spyglass were entitled to gas-over-bitumen royalty credits ("<strong>GOB Credits</strong>"). Sometime later, the plant ceased production and Bonavista began decommissioning the plant and abandoning the pipelines, in accordance with the Decommissioning Plan. The CO&O required the Operator to clean up and restore the site, even without the approval of the operating committee. Each month, Bonavista issued Spyglass one joint interest bill ("<strong>JIB</strong>") for the joint account, detailing each cost borne by the project and the GOB Credit, and netted the GOB Credit against Spyglass's share of costs. Spyglass disputed the costs and did not pay the balance owing. </p><p>Subsequently, Spyglass entered receivership in November 2015 and Ernst & Young was appointed its receiver (the "<strong>Receiver</strong>"). The receiver demanded the return of Spyglass's interest in the GOB Credits that had been netted against Spyglass's share of costs. The receiver sought a declaration, <em>inter alia</em>, that Bonavista was not entitled to exercise set-off rights against Spyglass. </p><p>The Court found that the facts of this case supported each of the three types of set-off, i.e. contractual, legal, and equitable set-off. The Court found that although the CO&O and JOA created different set-off rights with GOB Credits arising under the JOA and decommissioning costs under the CO&O, the agreements in the aggregate should be interpreted as permitting netting of costs against credits to promote business efficacy. </p><p>Further, the amounts owing by Spyglass were ascertainable through the delivery of the monthly JIBs by Bonavista and such amounts crystallized when the time period for them to be paid expired. As a result, the circumstances in this case also warranted legal set-off. </p><p>In addition, the Court agreed with Bonavista that the costs were a direct result of the shut-in order, and the shut-in order led directly to the GOB Credits. Thus, the same order gave rise to the requirements to incur the costs and the GOB Credits, warranting application of equitable set-off in the circumstances. </p><hr /><p><span style="font-size:7pt;"><sup>1</sup> <em>Northrock </em>at para 44. </span></p>1/18/2018 5:00:00 AM2018-01-18T05:00:00ZTrue1float;#1.00000000000000float;#2018.00000000000string;#Januaryfloat;#201801.000000000GP0|#60a6f187-f0e0-4c65-a06c-b97febf6542e;L0|#060a6f187-f0e0-4c65-a06c-b97febf6542e|Oil & Gas;GTSet|#939fe804-8a2a-4cfa-af8f-5756b32ac3ca;GP0|#80272199-c96f-4e96-a610-ee5c8caae603;L0|#080272199-c96f-4e96-a610-ee5c8caae603|Environment;GP0|#79f5b025-e6dd-4c66-873b-67e8780cf972;L0|#079f5b025-e6dd-4c66-873b-67e8780cf972|Regulatory;GP0|#6ed29997-7c09-433d-9f4f-e4bb2ce1b29b;L0|#06ed29997-7c09-433d-9f4f-e4bb2ce1b29b|Litigation;GP0|#23e50663-be85-467e-acf9-7150e42ed669;L0|#023e50663-be85-467e-acf9-7150e42ed669|Energy;GP0|#7ea7e480-c8e7-48db-baae-396516e81926;L0|#07ea7e480-c8e7-48db-baae-396516e81926|Pipelines;GP0|#f61f75ba-8b4a-47e4-ac93-81a58bdb7860;L0|#0f61f75ba-8b4a-47e4-ac93-81a58bdb7860|Public Policy;GP0|#68a53fee-4a86-4326-9cee-6b963cc47e1c;L0|#068a53fee-4a86-4326-9cee-6b963cc47e1c|Natural Resources;GP0|#a8d93e98-a569-4c7f-ac81-5c92b85685cd;L0|#0a8d93e98-a569-4c7f-ac81-5c92b85685cd|Appeals;GP0|#5f2600c5-ac2f-4731-ab91-eb396c7c4c54;L0|#05f2600c5-ac2f-4731-ab91-eb396c7c4c54|Bankruptcy and Insolvency;GP0|#0cf193a5-1564-449f-827a-d442b5bcbc51;L0|#00cf193a5-1564-449f-827a-d442b5bcbc51|Director/Officer Liability;GP0|#9328c8bb-8a9a-4b9a-b019-f81ca750e829;L0|#09328c8bb-8a9a-4b9a-b019-f81ca750e829|Mergers & AcquisitionsOil & Gas;Environment;Regulatory;Litigation;Energy;Pipelines;Public Policy;Natural Resources;Appeals;Bankruptcy and Insolvency;Director/Officer Liability;Mergers & Acquisitions
Federal Government Announces Greenhouse Gas Pollution Pricing Legislative and Regulatory ProposalsFederal Government Announces Greenhouse Gas Pollution Pricing Legislative and Regulatory Proposals355BLG Blog PostBeverly Gilbert;Braek Urquhart;Alan L. Rossbgilbert@blg.com | Beverly Gilbert | 693A30232E777C626C6763616E6164615C6267696C62657274 i:0#.w|blgcanada\bgilbert;burquhart@blg.com | Braek Urquhart | 693A30232E777C626C6763616E6164615C627572717568617274 i:0#.w|blgcanada\burquhart;aross@blg.com | Alan L. Ross | 693A30232E777C626C6763616E6164615C61726F7373 i:0#.w|blgcanada\aross ​On January 15, 2018, the federal government released legislative and regulatory proposals for the proposed federal carbon pricing system, which will be implemented under the Greenhouse Gas Pollution Pricing Act (the "Proposals"). The Proposals and explanatory notes are available on the Department of Finance website in English and in French. [Read more...]<p>​On January 15, 2018, the federal government released legislative and regulatory proposals for the proposed federal carbon pricing system, which will be implemented under the G<em>reenhouse Gas Pollution Pricing Act</em> (the "Proposals"). The Proposals and explanatory notes are available on the Department of Finance website <a href="http://bordenladnergervaisllp.com/collect/click.aspx?u=/G1GTPto3VVQQ6T5t7J2BD8xx5f2Mcq1dFr3+bYfEA1/sJkosYZPhgSQXJ2A5DtERazRw/DLnDQ=&rh=ff00370ccc463a3622a45874334789268cf8b28d" target="_blank"><font color="#0066cc">in English</font></a> and <a href="http://bordenladnergervaisllp.com/collect/click.aspx?u=/G1GTPto3VVQQ6T5t7J2BD8xx5f2Mcq1dFr3+bYfEA1/sJkosYZPhgSQXJ2A5DtEdhYJJ4jBmFs=&rh=ff00370ccc463a3622a45874334789268cf8b28d" target="_blank"><font color="#0066cc">in French</font></a>.</p><p>[<em><a href="/energy/Pages/Post.aspx?PID=355"><font color="#0066cc">Read more</font></a></em>...]</p> On January 15, 2018, the federal government released legislative and regulatory proposals for the proposed federal carbon pricing system, which will be implemented under the Greenhouse Gas Pollution Pricing Act (the "Proposals"). The Proposals and explanatory notes are available on the Department of Finance website in English and in French. The Proposals contemplate a carbon pricing system with two elements A charge on fossil fuels. This charge would be paid by fuel producers or distributors, as opposed to being paid by consumers. A cap-and-trade style pricing system for industrial facilities with high levels of emissions. Each facility subject to this cap-and-trade system will be assigned an annual limit on its greenhouse gas emissions. Facilities that exceed this annual limit can purchase excess emission credits from other facilities, or pay a carbon price. For 2018 and 2019, the carbon pricing system applies to certain industrial facilities that emit 50 kilotonnes or more of carbon dioxide equivalent per year. The Proposals broadly reflect the carbon pricing system proposed in the May 2017 Technical Paper on the Federal Carbon Pricing Backstop. Comments will close for the draft legislative proposals on February 12, 2018 and for the regulatory framework on April 9, 2018. Comments may be provided using the links below Draft legislative proposals carbonpricing-tarificationcarbone@canada.ca Regulatory framework ec.tarificationducarbone-carbonpricing.ec@canada.ca <p>On January 15, 2018, the federal government released legislative and regulatory proposals for the proposed federal carbon pricing system, which will be implemented under the G<em>reenhouse Gas Pollution Pricing Act</em> (the "Proposals"). The Proposals and explanatory notes are available on the Department of Finance website <a href="http://bordenladnergervaisllp.com/collect/click.aspx?u=/G1GTPto3VVQQ6T5t7J2BD8xx5f2Mcq1dFr3+bYfEA1/sJkosYZPhgSQXJ2A5DtERazRw/DLnDQ=&rh=ff00370ccc463a3622a45874334789268cf8b28d" target="_blank">in English</a> and <a href="http://bordenladnergervaisllp.com/collect/click.aspx?u=/G1GTPto3VVQQ6T5t7J2BD8xx5f2Mcq1dFr3+bYfEA1/sJkosYZPhgSQXJ2A5DtEdhYJJ4jBmFs=&rh=ff00370ccc463a3622a45874334789268cf8b28d" target="_blank">in French</a>.<br> <br>The Proposals contemplate a carbon pricing system with two elements: </p><ol style="list-style-type:decimal;"><li>A charge on fossil fuels. This charge would be paid by fuel producers or distributors, as opposed to being paid by consumers.<br>  </li><li>A cap-and-trade style pricing system for industrial facilities with high levels of emissions. Each facility subject to this cap-and-trade system will be assigned an annual limit on its greenhouse gas emissions. Facilities that exceed this annual limit can purchase excess emission credits from other facilities, or pay a carbon price. For 2018 and 2019, the carbon pricing system applies to certain industrial facilities that emit 50 kilotonnes or more of carbon dioxide equivalent per year. </li></ol><p><br>The Proposals broadly reflect the carbon pricing system proposed in the May 2017 <a href="http://bordenladnergervaisllp.com/collect/click.aspx?u=6IbMHz1PohYocCSU9YjXH8IcWGE3jgfVJ+QTho6ZU7e9+xYyyajGzbIuBfsHdPhrC+rgZaBW5aQ/+jdYajlwfpQKlWZPY8aUqxZBEGnxzZs=&rh=ff00370ccc463a3622a45874334789268cf8b28d" target="_blank"><em>Technical Paper on the Federal Carbon Pricing Backstop</em></a>. Comments will close for the draft legislative proposals on February 12, 2018 and for the regulatory framework on April 9, 2018. Comments may be provided using the links below: </p><ul style="list-style-type:disc;"><li>Draft legislative proposals: <a href="mailto:carbonpricing-tarificationcarbone@canada.ca" target="_blank">carbonpricing-tarificationcarbone@canada.ca</a></li><li>Regulatory framework: <a href="mailto:ec.tarificationducarbone-carbonpricing.ec@canada.ca" target="_blank">ec.tarificationducarbone-carbonpricing.ec@canada.ca</a><br></li></ul>1/17/2018 5:00:00 AM2018-01-17T05:00:00ZTrue1float;#1.00000000000000float;#2018.00000000000string;#Januaryfloat;#201801.000000000GP0|#b6308153-04d9-49b6-a882-3f4a7af228f0;L0|#0b6308153-04d9-49b6-a882-3f4a7af228f0|Tax;GTSet|#939fe804-8a2a-4cfa-af8f-5756b32ac3ca;GP0|#60a6f187-f0e0-4c65-a06c-b97febf6542e;L0|#060a6f187-f0e0-4c65-a06c-b97febf6542e|Oil & Gas;GP0|#03fc5c71-a1cf-4529-a790-3febb462b5dc;L0|#003fc5c71-a1cf-4529-a790-3febb462b5dc|Electricity;GP0|#80272199-c96f-4e96-a610-ee5c8caae603;L0|#080272199-c96f-4e96-a610-ee5c8caae603|EnvironmentTax;Oil & Gas;Electricity;Environment
2017 Year in Review: Top 10 Legislative and Regulatory Changes of Significance to the Canadian Energy Industry 2017 Year in Review: Top 10 Legislative and Regulatory Changes of Significance to the Canadian Energy Industry 354BLG Blog PostAlan L. Ross;Michael A. Marion;Miles Pittman;Rick Williams;Karen A. Salmonaross@blg.com | Alan L. Ross | 693A30232E777C626C6763616E6164615C61726F7373 i:0#.w|blgcanada\aross;mmarion@blg.com | Michael A. Marion | 693A30232E777C626C6763616E6164615C6D616D i:0#.w|blgcanada\mam;mpittman@blg.com | Miles Pittman | 693A30232E777C626C6763616E6164615C6D706974746D616E i:0#.w|blgcanada\mpittman;rwilliams@blg.com | Rick Williams | 693A30232E777C626C6763616E6164615C726C77 i:0#.w|blgcanada\rlw;ksalmon@blg.com | Karen A. Salmon | 693A30232E777C626C6763616E6164615C6B73616C6D6F6E i:0#.w|blgcanada\ksalmon​1. Efficiency Gains? New Federal Energy Efficiency Regulations Come Into ForceThe federal Energy Efficiency Regulations, 2016 ("2016 Regulations") came into force on June 28, 2017, replacing the previous Energy Regulations ("Regulations"). The 2016 Regulations increase the minimum energy performance standards in 20 categories of residential and commercial products, requiring manufacturers to comply or face sanction. The 2016 Regulations were also rewritten in a more clear and structured manner, and do not contain references to "obsolete and out-of-date"1 standards, as the Regulations had done. Reporting requirements were also modified with respect to some product categories, recognizing that exporters to new markets and to the United States should not be burdened with too much additional compliance where the target market may not have the same stringent regulatory standards. [Read more...]<p style="text-align:justify;">​<img class="ms-rtePosition-1" alt="Glassesinhand" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/AD-HAND-35-shutterstock-54919390-75.jpg" style="margin:5px;" /><strong>1. </strong><strong>Efficiency Gains? New Federal </strong><strong><em>Energy Efficiency Regulations</em></strong><strong> Come Into Force</strong></p><p style="text-align:justify;">The federal <em>Energy Efficiency Regulations, 2016 </em>("<strong>2016 Regulations</strong>") came into force on June 28, 2017, replacing the previous <em>Energy Regulations </em>("<strong>Regulations</strong>"). The 2016 Regulations increase the minimum energy performance standards in 20 categories of residential and commercial products, requiring manufacturers to comply or face sanction. The 2016 Regulations were also rewritten in a more clear and structured manner, and do not contain references to "obsolete and out-of-date"<a href="file:///C:/Users/sballendine/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/BVL5AFD2/CAL01%20-#2438372-v1-CAL01%20-#2433629-v2-2017%20Top%2010%20Blog%20re%20Legislative%20and%20Regulatory%20Matters%20mfp%20comments%20(002).DOCX"><sup><font color="#0066cc" size="2">1</font></sup></a> standards, as the Regulations had done. Reporting requirements were also modified with respect to some product categories, recognizing that exporters to new markets and to the United States should not be burdened with too much additional compliance where the target market may not have the same stringent regulatory standards. </p><p style="text-align:justify;">[<em><a href="/energy/Pages/Post.aspx?PID=354"><font color="#0066cc">Read more</font></a></em>...]</p> ​1. Efficiency Gains? New Federal Energy Efficiency Regulations Come Into Force The federal Energy Efficiency Regulations, 2016 ("2016 Regulations") came into force on June 28, 2017, replacing the previous Energy Regulations ("Regulations"). The 2016 Regulations increase the minimum energy performance standards in 20 categories of residential and commercial products, requiring manufacturers to comply or face sanction. The 2016 Regulations were also rewritten in a more clear and structured manner, and do not contain references to "obsolete and out-of-date"1 standards, as the Regulations had done. Reporting requirements were also modified with respect to some product categories, recognizing that exporters to new markets and to the United States should not be burdened with too much additional compliance where the target market may not have the same stringent regulatory standards. The 2016 Regulations can be accessed here.2. Properly Assessment? Update on Federal Policy for Natural Resource Environmental AssessmentsOn June 29, 2017, the federal government released a discussion paper entitled "Environmental and Regulatory Reviews" ("Discussion Paper") outlining "potential reforms being considered to rebuild trust and modernize Canada's environmental and regulatory processes."2 The paper was informed by extensive public consultations, expert panel reports and parliamentary studies over the preceding 12 months and is expected to bring broad changes to the federal environmental assessment and regulatory regime, including changes to the Canadian Environmental Assessment Act, 2012, National Energy Board Act, Fisheries Act, and Navigation Protection Act.3 Public comments on the Discussion Paper were invited until August 28, 2017. An electronic version of the Discussion Paper can be found here.The Discussion Paper reduced the scope of changes to the project approval process recommended by previous reports, offering a more balanced approach to statutory and policy changes required to update the federal environmental and regulatory framework. Nonetheless, the proposal is expected to add substantial complication, time, and cost to regulatory review of projects. As a part of the new process, the federal government will establish a single government agency responsible for assessments of federally designated projects. The review would include social, health and economic aspects of a project in addition to environmental impacts; require an early planning phase to foster greater collaboration and engagements between interested parties; focus on consultation with Indigenous peoples based on recognition of Indigenous rights and interests from the outset; emphasize and ensure co-operation with jurisdictions including Indigenous governments. These are important changes for all players in the energy sectors and we will continue to follow these developments in 2018 as the federal government drafts the proposed changes. 3. Mid-century modern? The National Energy Board Modernization Report Looks Ahead The National Energy Board ("NEB") Modernization Report (the "Report") was released in May 2017 and was entitled "Forward, Together Enabling Canada's Clean, Safe and Secure Energy Future."4 The Report was prepared by an expert panel that was tasked with "analysing the structure, role, and mandate of today's National Energy Board, and coming up with a set of recommendations to modernize the organization, and restore public trust in the institution."5 Modernizing the NEB has been said to be a part of the current government's review of Canada's environmental assessment and regulatory processes announced in June 2016. The Report outlines what the expert panel heard from a vast array of individuals, organizations and agencies, making a set of recommendations that are driven by six key themes. Although the Report made numerous recommendations, the key changes proposed by the expert panel were as follows6 alignment of the role of national energy regulator with national policy on energy and climate; replacement of the NEB by a new agency called Canadian Energy Transmission Commission ("CETC"); creation of a new Canadian Energy Information Agency; establishing a two-step decision-making project for new energy transmission projects where the first step would be to assess whether a proposed project is in the national interest, and the second step would provide for a detailed regulatory approval under the CETC and the Canadian Environment Assessment Agency; creation of an Indigenous Major Projects Office; creation of Public Intervenor Office; creation of Regional Multi-Stakeholder Committees; provision of an enhanced role for municipalities in proceedings; creation of a Landowners Ombudsman; establishment of stronger standards for land agents and review of compensation rules for infrastructure rights of way. Further, the report recommends that the office of CETC's board of directors be located in Ottawa and not in Calgary. It has been suggested, however, that majority of the employees of the recommended organization would stay in Calgary.7 The Discussion Paper released by the Government of Canada on June 29, 2017 does not appear to endorse all of the recommendations of the Report and, as a result, it will be interesting to see how many of the recommendations made in the Report are actually implemented.8 We will closely monitor the progress in this respect in 2018. 4. Going Long? Ontario's Long Term Energy Plan Released Ontario's 2017 Long-Term Energy Plan ("LTEP" or "Plan") entitled Delivering Fairness and Choice provides a roadmap of the province's energy plan over the next 20 years and, according to the Ontario government, focuses on the affordability and reliability of a clean energy supply, giving consumers more choice in the way they use energy while at the same time offering ways to conserve it.9 The LTEP forecasts adequate electricity supply in the near future, but predicts a shortfall beginning in the early-to-mid 2020's as demand continues to rise due to electric vehicles and transit systems. It also contemplates market renewal which aims at moving away from long-term electricity contracts and towards more competitive mechanisms.10Further, the Plan emphasizes consumer education, protection and choice in the energy sector. It proposes to redesign electricity bills to make them easier to read and understand, and expands the Green Button Initiative, which gives consumers the ability to access and manage their energy and water data for conservation and management purposes.11Lastly, the LTEP contemplates unprecedented levels of First Nations and Metis involvement in the energy sector. It puts in plan the potential connection of as many as 21 First Nation communities to Ontario's electricity grid and working to engage in consultations on how to improve the Independent Electricity System Operator's (IESO) Energy Partnership Program, which connects First Nations and Metis communities with partner organizations to build out renewable energy and transmission projects.12 The IESO and Ontario Energy Board have been directed by the Minister of Energy to execute the LTEP, starting with preparing and submitting implementation plans for review by January 31, 2018.13 5. Plein d'action? Electrifying Québec with the 2017-2020 Action Plan As a part of the 2017-2020 Action Plan ("Action Plan"), the Québec Minister of Energy and Natural Resources announced the jurisdiction's first volumetric requirements on renewable fuels, like ethanol and biodiesel. The blending requirement will start at 5% for gasoline and 2% for diesel, and these numbers would be escalated after 2020. The Action Plan forms the first of three documents seeking to implement Québec's 2030 Energy Policy aimed at reducing the province's dependence on fossil fuels by 40% between now and 2030.14The Action Plan sets out 42 measures, backed by $1.5 Billion in public investment, providing for concrete actions with the following objectives increase the number of electric vehicles in Québec's fleet; address climate change and in reduction of greenhouse gas emissions; reduce oil dependence and therefore improve Québec's trade balance; and contribute to Québec's economic development by using the electric energy available in Québec.15 The Action Plan emphasizes Hydro-Québec's role as Québec's leading electricity producer for instance, Hydro-Québec is instructed to develop a solar energy park as soon as practicable.16 Further, the Government of Québec aims to increase the number of plug-in electric and hybrid vehicles in the province's fleet to 100,000 by 2020.17 The Action Plan proposes incentives to several industry sectors to adopt the recommended measures. Trucking companies will receive grants if they reduce their fleet's fuel consumption, while transportation and mining companies will be eligible for funding to convert vehicles to electricity, natural gas or propane.18 6. Price, point? The Implementation of Carbon Pricing in Alberta The Alberta government released the climate leadership plan in November 2015 ("Climate Leadership Plan") outlining the government's plan for combatting climate change in Alberta. Implementation of a new carbon price on greenhouse gas ("GHGs") emissions was one of the strategies contemplated under the Climate Leadership Plan.19 The enabling legislation for the plan, The Climate Leadership Implementation Act, received royal assent in June 2016. Alberta's carbon levy took effect on January 1, 2017 and is expected to generate $3.9 billion in gross revenue over the next three years, more than half of which will be recycled through the small business tax cut and household rebates. The remainder is to be invested in programs that reduce emissions and diversify the economy. The levy is paid by consumers of fuel in Alberta, with rates determined by the emissions released when each fuel is combusted. Some specific fuels and uses are exempt from the levy, and consumers do not pay the levy on electricity, though industrial consumers do. Alberta will transition from the current Specified Gas Emitters Regulation in January 2018. This system uses an output-based emission allocations approach for emissions-intensive industries. Any facility that emits 100,000 tonnes or more of greenhouse gases will be included in the new greenhouse gas management system. Many types of facilities fall under this system, not just oil and gas production and processing; coal- and gas-fired electricity generation will also be affected. Under the output-based allocation system, facilities will be allowed to emit a certain amount of greenhouse gases, free of charge from the carbon levy. This approach in principle protects industries from competitiveness impacts that could shift production to other jurisdictions. These "free" emissions will be determined based on a product-specific emissions benchmark. Benchmarks will be set relative to high-performing industry peers or competitors who produce the same or similar products.According to the Government of Alberta, all revenue from the levy will be reinvested in efforts to reduce emissions; rebates to Albertans to offset costs increases; renewable energy projects and green infrastructure; and research and innovation. Although the cost of almost everything is expected to increase as a result of the levy, the government insists that the increase would be relatively small for consumers.20 A Climate Leadership Plan progress report, published in December 2017, provides an update on the actions taken, and the progress made, towards achieving the stipulated goals. An electronic copy of the report can be found here. 7. Well Done? Alberta Energy Regulator Orphan Wells PolicyAs the Redwater decision by the Alberta Court of Appeal makes it way to the Supreme Court of Canada, the Alberta Energy Regulator ("AER") is making policy changes to deal with the implications of the decision. In Redwater, the Court of Appeal held that trustees in bankruptcy have the right to disclaim uneconomic assets of a bankrupt producer, with the uneconomic assets becoming the responsibility of the Orphan Well Association, rather than having those costs borne by the estate. Effectively this allows the creditors to realize on their loans without having to make allowances for uneconomic assets. Directive 067, released in December 2017, provides for greater discretion to the AER in allowing a licencee to acquire or maintain a licence. Changes brought about by the directive include requiring additional information at the time of application, increased discretion regarding the rejection of an application where an applicant poses a risk, and requirements for keeping corporate information up to date.21Licence eligibility types have been simplified to the following three types no eligibility, general eligibility, and limited eligibility. Further, all parties with current eligibility under Directive 067 are required to ensure that AER has accurate information on file, and notice of material changes must be provided within 30 days.22 BLG has also confirmed that updated licencee information must be filed with the AER by January 31, 2018.By making these changes, the AER is attempting to close what it considers a loophole in policy that allows directors and officials of oil and gas companies to use bankruptcy as an excuse to walk away from the wells that they are responsible for cleaning up. Further changes to policy regarding acquiring, maintaining, and abandoning oil and gas wells are expected in the coming months as the province continues its review of how orphan wells are regulated under the current system.23 In 2018, BLG will continue to be "watching the Directives" and how they may respond to the Supreme Court of Canada decision in Redwater. 8. Transfer, Payment? AER Changes Process to Transfer Application Decision Pursuant to AER Bulletin 2017-13, the decision process for applications to transfer AER approvals has changed. Now, an application for transfer is subject to a standardized review period of 30 days before a decision is issued. The AER is encouraging applicants to submit all related applications and notifications for transfer at the same time. In accordance with section 30(2) of the Responsible Energy Development Act, the AER intends to combine all related transfer applications, publish them on its website, and review them concurrently regardless of whether they are received together or separately.24The review period of 30 days ensures that the period for filing a statement of concern has lapsed before a decision is issued. However, all applications will continue to be published on public notice of application page on AER's website.25In accordance with the Integrated Decision Approach advocated by the AER, changes to the decision process for transfer applications ensures that decisions on related applications are done concurrently, enabling the AER to manage approvals and issue a decision on related applications at the same time. This helps to make the decision-making-process consistent and transparent, allowing stakeholder input on related applications at one time rather than in individual pieces.26 9. Clean and Clear? Alberta Clean Power UpdateIn 2017, the Government of Alberta started to implement the Alberta Electric System Operator's ("AESO") recommendation to transition from an energy market to a new framework that includes an energy market and a capacity market. In an energy-only market, generators are paid for the electricity they produce based solely on the wholesale price of electricity, which fluctuates. These companies decide on the type of generation they produce and on the location of facilities. In a capacity market, private power generators are paid through a mix of competitively auctioned contracts which pay their fixed capital costs and revenue from the spot market.27The AESO recommended a capacity market for the following reasons it ensures reliability, increases stability of prices, provides greater revenue certainty for generators, maintains competitive market forces and drives innovation and cost discipline, and supports policy discretion and is adaptable for the future. The AESO is responsible for designing and implementing the capacity market and the process is expected to take three years. A capacity market is anticipated to be in place by 2021.28 This transition is expected to support the Renewable Electricity Program's (REP) plan of phasing out emissions from coal-fired generation by 2030. The REP is intended to encourage the development of 5,000 MW of renewable electricity generation capacity connected to Alberta grid between now and 2030. The REP Round 1 started early in 2017. What we learned from that stage was discussed at length in our previous post here. In REP Round 1, 12 proponents submitted bid prices for 26 projects, with four projects being selected including Edmonton-based Capital Power and two large international companies, EDP Renewable Canada Ltd. and Enel Green Power Canada Inc. BLG will continue to closely monitor how the next stages under the REP unfold in 2018. The capacity market is expected to be implemented by 2021, with AESO estimating that it would take additional two years to complete the design of the market and another year to finalize legal contracts and to set up procurement process. As a result, the first capacity contracts are expected to be formed at least three years after the design process begins. This means that capacity procured through initial auction would likely be in service in 2024 at the earliest.29 10. Red, White and Cruise? Impact of U.S. Energy Policy on CanadaEarly in 2017, President Trump issued an executive order ("Order") inviting TransCanada Keystone Pipeline LP to re-submit its application to the State Department for a Presidential Permit for the construction and operation of the Keystone XL Pipeline ("Keystone"). Also included in the Order was a direction to the State Department to expeditiously review the application and reach a final determination within 60 days of TransCanada's application. For a detailed analysis of what such an order means and what it could imply, see our previous blog post here. Although the invitation to apply to Keystone is encouraging for Canada, it remains a fact that President Trump has criticized Canadian energy policies on multiple occasions. Further, with the current Canadian emphasis on carbon pricing and phasing out energy policies that add to emissions of greenhouse gases, there is a valid concern that energy investment in Canada will become unattractive when compared its counterpart south of the border, especially considering President Trump's position on climate change and clean energy. It has been estimated that carbon pricing would lead to as much as a $20 billion to $25 billion increase in energy costs for Canadians, while the Americans face no corresponding increase. Almost certainly, this will result in a competitive advantage to the United States as far as energy investment is concerned.30With carbon pricing already in place in Alberta and a national policy on its way, Canada and the United States have taken completely different routes in their approach to climate change and commitment to clean energy. While clean technology remains a priority for Canada, President Trump is committed to deregulating the energy industry and reviving coal-based energy production. In 2018, BLG will be closely monitoring energy policy changes in the U.S., including what, if any, changes to the sector arise through the potential renegotiation of, or U.S. withdrawal from, NAFTA. NAFTA gave the United States secure access to Canadian energy when it incorporated the provisions of the Canada-U.S. Free Trade Agreement. Changes to, or dissolution of, NAFTA could dramatically impact what has become an integrated North American energy market under the trade agreement. 1 Government of Canada, Energy Efficiency Regulations, 2016 Regulatory Impact Analysis Statement, online click here. 2 Government of Canada, Discussion Paper Released on Review of Environmental and Regulatory Processes, online click here. 3 Gilmour et al, Canadian Government's Proposal to Reform Canada's Environmental Assessment and Regulatory Regime, Bennett Jones (July 04, 2017), online click here; Also see Olszynski et al, Sustainability must be at the core of the government's approach to assessing and approving economic projects in Canada, Policy Options (September 5, 2017), online click here. 4 Natural Resources Canada (website), Forward, Together - Enabling Canada's Clean, Safe and Secure Energy Future, Report of the Expert Panel on the Modernization of the National Energy Board, May 2017, and Volume II, Annexes, online click here [NEB Modernization Report]. 5 Ibid at 1. 6 Nigel Bankes, The NEB Modernization Report, University of Calgary Faculty of Law - ABlawg (June 14, 2017), online click here. 7 CBC (website), Scrap NEB and replace it with 2 separate agencies, expert panel recommends (May 15, 2014), online click here. 8 Nigel Banks, The Report of the Expert Panel on the Modernization of the National Energy Board and the Response of the Government of Canada, Energy Regulation Quarterly (September 2017), online click here. 9 Ministry of Energy, 2017 Long-Term Energy Plan (October 26, 2017), online click here. 10 Wong et al, The electrification of the economy Ontario's 2017 Long-Term Energy Plan, Osler (November 15, 2017, online click here; Also see Ontario Chamber of Commerce, Rapid Policy Update Long-Term Energy Plan (October 26, 2017), online click here. 11 Ibid. 12 Ibid. 13 Ibid. 14 Renewable Industries Canada, Statement regarding the Québec Government's 2017-2020 Action Plan under the 2030 Energy Policy (June 26, 2017), online click here. 15 Karine Seguin, Government of Québec New Action Plan for Electrification in Transport, PIT Group, online click here. 16 Statement regarding the Québec Government's 2017-2020 Action Plan under the 2030 Energy Policy, supra note 15. 17 Seguin, supra note 16. 18 Mathieu LeBlanc and Martin Thiboutot, Québec Releases Energy Policy's 2017-2020 Action Plan, Canadian Energy Perspectives (July 7, 2017) online click here. 19 Astrid Kalkbrenner, Climate Change Legal Roadmap Carbon Pricing Recommendations for Alberta, written whiten crew's Environmental law Centre (August 23, 2016), online click here. 20 Government of Alberta, Carbon Levy and Rebates, online click here. 21 Alberta Energy Regulator, New Edition of Directive 067 Eligibility Requirements for Acquiring and Holding Energy Licences and Approvals (December 06, 2017), online click here. 22 Ibid. 23 Geoffrey Morgan, Alberta to crack down on oil executives that dumped orphan wells on taxpayers, Financial Post Press Release (December 6, 2017), online click here. 24 Alberta Energy Regulator, Bulletin 2017-13 Changes to Process for Transfer Application Decisions (July 24, 2017), online click here. 25 Ibid. 26 Ibid. 27 Government of Alberta, Electricity Capacity Market, online click here. 28 Alberta Electric System Operator (AESO) (website), Capacity market transition, online click here. 29 Kimberly Howard and Gordon Nettleton, Alberta's Evolving Electricity Market – An Update on Recent Changes and Developments, 52 Energy Regulation Quarterly (June 2017), online click here. 30 Yukon News, Trump's Energy Policies May Threaten Canadian Business, (December 30, 2016), online click here.<p>​<strong><img class="ms-rtePosition-1" alt="Glassesinhand" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/AD-HAND-35-shutterstock-5491939-350.jpg" style="margin:5px;" />1. </strong><strong>Efficiency Gains? New Federal </strong><strong><em>Energy Efficiency Regulations</em></strong><strong> Come Into Force </strong></p><p style="text-align:justify;">The federal <em>Energy Efficiency Regulations, 2016 </em>("<strong>2016 Regulations</strong>") came into force on June 28, 2017, replacing the previous <em>Energy Regulations </em>("<strong>Regulations</strong>"). The 2016 Regulations increase the minimum energy performance standards in 20 categories of residential and commercial products, requiring manufacturers to comply or face sanction. The 2016 Regulations were also rewritten in a more clear and structured manner, and do not contain references to "obsolete and out-of-date"<sup>1</sup> standards, as the Regulations had done. Reporting requirements were also modified with respect to some product categories, recognizing that exporters to new markets and to the United States should not be burdened with too much additional compliance where the target market may not have the same stringent regulatory standards. </p><p style="text-align:justify;">The 2016 Regulations can be accessed <a href="https://www.canlii.org/en/ca/laws/regu/sor-2016-311/latest/sor-2016-311.html" target="_blank">here</a>.</p><p style="text-align:justify;"><strong>2. Properly Assessment? Update on Federal Policy for Natural Resource Environmental Assessments</strong></p><p style="text-align:justify;">On June 29, 2017, the federal government released a discussion paper entitled "Environmental and Regulatory Reviews" ("<strong>Discussion Paper</strong>") outlining "potential reforms being considered to rebuild trust and modernize Canada's environmental and regulatory processes."<sup>2</sup> The paper was informed by extensive public consultations, expert panel reports and parliamentary studies over the preceding 12 months and is expected to bring broad changes to the federal environmental assessment and regulatory regime, including changes to the <em>Canadian Environmental Assessment Act, 2012</em>, <em>National Energy Board Act</em>, <em>Fisheries Act</em>, and <em>Navigation Protection Act</em>.<sup>3</sup> Public comments on the Discussion Paper were invited until August 28, 2017. An electronic version of the Discussion Paper can be found <a href="https://www.canada.ca/content/dam/themes/environment/conservation/environmental-reviews/share-your-views/proposed-approach/discussion-paper-june-2017-eng.pdf" target="_blank">here</a>.</p><p style="text-align:justify;">The Discussion Paper reduced the scope of changes to the project approval process recommended by previous reports, offering a more balanced approach to statutory and policy changes required to update the federal environmental and regulatory framework. Nonetheless, the proposal is expected to add substantial complication, time, and cost to regulatory review of projects. </p><p style="text-align:justify;">As a part of the new process, the federal government will: </p><ul><li>establish a single government agency responsible for assessments of federally designated projects. The review would include social, health and economic aspects of a project in addition to environmental impacts;</li><li>require an early planning phase to foster greater collaboration and engagements between interested parties;</li><li>focus on consultation with Indigenous peoples based on recognition of Indigenous rights and interests from the outset; </li><li>emphasize and ensure co-operation with jurisdictions including Indigenous governments.  </li></ul><p><br>These are important changes for all players in the energy sectors and we will continue to follow these developments in 2018 as the federal government drafts the proposed changes. </p><p><strong>3. Mid-century modern? The National Energy Board Modernization Report Looks Ahead  </strong></p><p style="text-align:justify;">The National Energy Board ("<strong>NEB</strong>") Modernization Report (the "<strong>Report</strong>") was released in May 2017 and was entitled "Forward, Together: Enabling Canada's Clean, Safe and Secure Energy Future."<sup>4</sup> The Report was prepared by an expert panel that was tasked with "analysing the structure, role, and mandate of today's National Energy Board, and coming up with a set of recommendations to modernize the organization, and restore public trust in the institution."<sup>5</sup> Modernizing the NEB has been said to be a part of the current government's review of Canada's environmental assessment and regulatory processes announced in June 2016. </p><p style="text-align:justify;">The Report outlines what the expert panel heard from a vast array of individuals, organizations and agencies, making a set of recommendations that are driven by six key themes. Although the Report made numerous recommendations, the key changes proposed by the expert panel were as follows:<sup>6</sup></p><ul><li>alignment of the role of national energy regulator with national policy on energy and climate;</li><li>replacement of the NEB by a new agency called Canadian Energy Transmission Commission ("<strong>CETC</strong>"); </li><li>creation of a new Canadian Energy Information Agency; </li><li>establishing a two-step decision-making project for new energy transmission projects where the first step would be to assess whether a proposed project is in the national interest, and the second step would provide for a detailed regulatory approval under the CETC and the Canadian Environment Assessment Agency; </li><li>creation of an Indigenous Major Projects Office; </li><li>creation of Public Intervenor Office; </li><li>creation of Regional Multi-Stakeholder Committees; </li><li>provision of an enhanced role for municipalities in proceedings; </li><li>creation of a Landowners Ombudsman; </li><li>establishment of stronger standards for land agents and review of compensation rules for infrastructure rights of way. </li></ul><p style="text-align:justify;"><br>Further, the report recommends that the office of CETC's board of directors be located in Ottawa and not in Calgary. It has been suggested, however, that majority of the employees of the recommended organization would stay in Calgary.<sup>7</sup> The Discussion Paper released by the Government of Canada on June 29, 2017 does not appear to endorse all of the recommendations of the Report and, as a result, it will be interesting to see how many of the recommendations made in the Report are actually implemented.<sup>8</sup> We will closely monitor the progress in this respect in 2018. </p><p><strong>4. Going Long? Ontario's Long Term Energy Plan Released </strong></p><p style="text-align:justify;">Ontario's 2017 Long-Term Energy Plan ("LTEP" or "Plan") entitled <em>Delivering Fairness and Choice </em>provides a roadmap of the province's energy plan over the next 20 years and, according to the Ontario government, focuses on the affordability and reliability of a clean energy supply, giving consumers more choice in the way they use energy while at the same time offering ways to conserve it.<sup>9</sup> </p><p style="text-align:justify;">The LTEP forecasts adequate electricity supply in the near future, but predicts a shortfall beginning in the early-to-mid 2020's as demand continues to rise due to electric vehicles and transit systems. It also contemplates market renewal which aims at moving away from long-term electricity contracts and towards more competitive mechanisms.<sup>10</sup></p><p style="text-align:justify;">Further, the Plan emphasizes consumer education, protection and choice in the energy sector. It proposes to redesign electricity bills to make them easier to read and understand, and expands the Green Button Initiative, which gives consumers the ability to access and manage their energy and water data for conservation and management purposes.<sup>11</sup></p><p style="text-align:justify;">Lastly, the LTEP contemplates unprecedented levels of First Nations and Metis involvement in the energy sector. It puts in plan the potential connection of as many as 21 First Nation communities to Ontario's electricity grid and working to engage in consultations on how to improve the Independent Electricity System Operator's (IESO) Energy Partnership Program, which connects First Nations and Metis communities with partner organizations to build out renewable energy and transmission projects.<sup>12</sup><sup> </sup> </p><p style="text-align:justify;">The IESO and Ontario Energy Board have been directed by the Minister of Energy to execute the LTEP, starting with preparing and submitting implementation plans for review by January 31, 2018.<sup>13</sup></p><p><strong>5. Plein d'action? Electrifying Québec with the 2017-2020 Action Plan</strong> </p><p>As a part of the 2017-2020 Action Plan ("Action Plan"), the Québec Minister of Energy and Natural Resources announced the jurisdiction's first volumetric requirements on renewable fuels, like ethanol and biodiesel. The blending requirement will start at 5% for gasoline and 2% for diesel, and these numbers would be escalated after 2020. The Action Plan forms the first of three documents seeking to implement Québec's 2030 Energy Policy aimed at reducing the province's dependence on fossil fuels by 40% between now and 2030.<sup>14</sup></p><p style="text-align:justify;">The Action Plan sets out 42 measures, backed by $1.5 Billion in public investment, providing for concrete actions with the following objectives: </p><ul><li>increase the number of electric vehicles in Québec's fleet; </li><li>address climate change and in reduction of greenhouse gas emissions; </li><li>reduce oil dependence and therefore improve Québec's trade balance; and </li><li>contribute to Québec's economic development by using the electric energy available in Québec.<sup>15</sup></li></ul><p style="text-align:justify;"><br>The Action Plan emphasizes Hydro-Québec's role as Québec's leading electricity producer: for instance, Hydro-Québec is instructed to develop a solar energy park as soon as practicable.<sup>16</sup> Further, the Government of Québec aims to increase the number of plug-in electric and hybrid vehicles in the province's fleet to 100,000 by 2020.<sup>17</sup><sup> </sup></p><p style="text-align:justify;">The Action Plan proposes incentives to several industry sectors to adopt the recommended measures. Trucking companies will receive grants if they reduce their fleet's fuel consumption, while transportation and mining companies will be eligible for funding to convert vehicles to electricity, natural gas or propane.<sup>18</sup></p><p><strong>6. Price, point? The Implementation of Carbon Pricing in Alberta</strong> </p><p style="text-align:justify;">The Alberta government released the climate leadership plan in November 2015 ("<strong>Climate Leadership Plan</strong>") outlining the government's plan for combatting climate change in Alberta. Implementation of a new carbon price on greenhouse gas ("<strong>GHGs</strong>") emissions was one of the strategies contemplated under the Climate Leadership Plan.<sup>19</sup><sup> </sup>The enabling legislation for the plan, <em>The Climate Leadership Implementation Act</em>, received royal assent in June 2016.  </p><p style="text-align:justify;">Alberta's carbon levy took effect on January 1, 2017 and is expected to generate $3.9 billion in gross revenue over the next three years, more than half of which will be recycled through the small business tax cut and household rebates. The remainder is to be invested in programs that reduce emissions and diversify the economy. The levy is paid by consumers of fuel in Alberta, with rates determined by the emissions released when each fuel is combusted. Some specific fuels and uses are exempt from the levy, and consumers do not pay the levy on electricity, though industrial consumers do. </p><p style="text-align:justify;">Alberta will transition from the current Specified Gas Emitters Regulation in January 2018. This system uses an output-based emission allocations approach for emissions-intensive industries. Any facility that emits 100,000 tonnes or more of greenhouse gases will be included in the new greenhouse gas management system. Many types of facilities fall under this system, not just oil and gas production and processing; coal- and gas-fired electricity generation will also be affected. Under the output-based allocation system, facilities will be allowed to emit a certain amount of greenhouse gases, free of charge from the carbon levy. This approach in principle protects industries from competitiveness impacts that could shift production to other jurisdictions.  These "free" emissions will be determined based on a product-specific emissions benchmark. Benchmarks will be set relative to high-performing industry peers or competitors who produce the same or similar products.</p><p style="text-align:justify;">According to the Government of Alberta, all revenue from the levy will be reinvested in efforts to reduce emissions; rebates to Albertans to offset costs increases; renewable energy projects and green infrastructure; and research and innovation. Although the cost of almost everything is expected to increase as a result of the levy, the government insists that the increase would be relatively small for consumers.<sup>20</sup><sup> </sup></p><p style="text-align:justify;">A Climate Leadership Plan progress report, published in December 2017, provides an update on the actions taken, and the progress made, towards achieving the stipulated goals. An electronic copy of the report can be found <a href="https://www.alberta.ca/assets/documents/CLP-progress-report-2016-17.pdf" target="_blank">here</a>.</p><p><strong>7. Well Done? Alberta Energy Regulator Orphan Wells Policy</strong></p><p style="text-align:justify;">As the <em>Redwater</em> decision by the Alberta Court of Appeal makes it way to the Supreme Court of Canada, the Alberta Energy Regulator ("<strong>AER</strong>") is making policy changes to deal with the implications of the decision. In <em>Redwater</em>, the Court of Appeal held that trustees in bankruptcy have the right to disclaim uneconomic assets of a bankrupt producer, with the uneconomic assets becoming the responsibility of the Orphan Well Association, rather than having those costs borne by the estate. Effectively this allows the creditors to realize on their loans without having to make allowances for uneconomic assets. </p><p style="text-align:justify;"><em>Directive 067</em>,<em> </em>released in December 2017, provides for greater discretion to the AER in allowing a licencee to acquire or maintain a licence. Changes brought about by the directive include requiring additional information at the time of application, increased discretion regarding the rejection of an application where an applicant poses a risk, and requirements for keeping corporate information up to date.<sup>21</sup></p><p style="text-align:justify;">Licence eligibility types have been simplified to the following three types: no eligibility, general eligibility, and limited eligibility. Further, all parties with current eligibility under <em>Directive 067 </em>are required to ensure that AER has accurate information on file, and notice of material changes must be provided within 30 days.<sup>22</sup> BLG has also confirmed that updated licencee information must be filed with the AER by January 31, 2018.</p><p style="text-align:justify;">By making these changes, the AER is attempting to close what it considers a loophole in policy that allows directors and officials of oil and gas companies to use bankruptcy as an excuse to walk away from the wells that they are responsible for cleaning up. Further changes to policy regarding acquiring, maintaining, and abandoning oil and gas wells are expected in the coming months as the province continues its review of how orphan wells are regulated under the current system.<sup>23</sup><sup> </sup></p><p style="text-align:justify;">In 2018, BLG will continue to be "watching the Directives" and how they may respond to the Supreme Court of Canada decision in <em>Redwater</em>.</p><p><strong>8. Transfer, Payment? AER Changes Process to Transfer Application Decision </strong></p><p style="text-align:justify;">Pursuant to AER Bulletin 2017-13, the decision process for applications to transfer AER approvals has changed. Now, an application for transfer is subject to a standardized review period of 30 days before a decision is issued. The AER is encouraging applicants to submit all related applications and notifications for transfer at the same time. In accordance with section 30(2) of the <em>Responsible Energy Development Act</em>, the AER intends to combine all related transfer applications, publish them on its website, and review them concurrently regardless of whether they are received together or separately.<sup>24</sup></p><p style="text-align:justify;">The review period of 30 days ensures that the period for filing a statement of concern has lapsed before a decision is issued. However, all applications will continue to be published on public notice of application page on AER's website.<sup>25</sup></p><p style="text-align:justify;">In accordance with the Integrated Decision Approach advocated by the AER, changes to the decision process for transfer applications ensures that decisions on related applications are done concurrently, enabling the AER to manage approvals and issue a decision on related applications at the same time. This helps to make the decision-making-process consistent and transparent, allowing stakeholder input on related applications at one time rather than in individual pieces.<sup>26</sup></p><p><strong>9. Clean and Clear? Alberta Clean Power Update</strong></p><p style="text-align:justify;">In 2017, the Government of Alberta started to implement the Alberta Electric System Operator's ("<strong>AESO</strong>") recommendation to transition from an energy market to a new framework that includes an energy market and a capacity market. In an energy-only market, generators are paid for the electricity they produce based solely on the wholesale price of electricity, which fluctuates. These companies decide on the type of generation they produce and on the location of facilities. In a capacity market, private power generators are paid through a mix of competitively auctioned contracts which pay their fixed capital costs and revenue from the spot market.<sup>27</sup></p><p style="text-align:justify;">The AESO recommended a capacity market for the following reasons: it ensures reliability, increases stability of prices, provides greater revenue certainty for generators, maintains competitive market forces and drives innovation and cost discipline, and supports policy discretion and is adaptable for the future. The AESO is responsible for designing and implementing the capacity market and the process is expected to take three years. A capacity market is anticipated to be in place by 2021.<sup>28</sup><sup> </sup></p><p style="text-align:justify;">This transition is expected to support the Renewable Electricity Program's (REP) plan of phasing out emissions from coal-fired generation by 2030. The REP is intended to encourage the development of 5,000 MW of renewable electricity generation capacity connected to Alberta grid between now and 2030. The REP Round 1 started early in 2017. What we learned from that stage was discussed at length in our previous post <a href="/energy/Pages/Post.aspx?PID=305" target="_blank">here</a>. In REP Round 1, 12 proponents submitted bid prices for 26 projects, with four projects being selected including Edmonton-based Capital Power and two large international companies, EDP Renewable Canada Ltd. and Enel Green Power Canada Inc. BLG will continue to closely monitor how the next stages under the REP unfold in 2018. </p><p style="text-align:justify;">The capacity market is expected to be implemented by 2021, with AESO estimating that it would take additional two years to complete the design of the market and another year to finalize legal contracts and to set up procurement process. As a result, the first capacity contracts are expected to be formed at least three years after the design process begins. This means that capacity procured through initial auction would likely be in service in 2024 at the earliest.<sup>29</sup></p><p><strong>10. Red, White and Cruise? Impact of U.S. Energy Policy on Canada</strong></p><p style="text-align:justify;">Early in 2017, President Trump issued an executive order ("<strong>Order</strong>") inviting TransCanada Keystone Pipeline LP to re-submit its application to the State Department for a Presidential Permit for the construction and operation of the Keystone XL Pipeline ("<strong>Keystone</strong>"). Also included in the Order was a direction to the State Department to expeditiously review the application and reach a final determination within 60 days of TransCanada's application. For a detailed analysis of what such an order means and what it could imply, see our previous blog post <a href="/energy/Pages/Post.aspx?PID=278" target="_blank">here</a>. </p><p style="text-align:justify;">Although the invitation to apply to Keystone is encouraging for Canada, it remains a fact that President Trump has criticized Canadian energy policies on multiple occasions. Further, with the current Canadian emphasis on carbon pricing and phasing out energy policies that add to emissions of greenhouse gases, there is a valid concern that energy investment in Canada will become unattractive when compared its counterpart south of the border, especially considering President Trump's position on climate change and clean energy.   It has been estimated that carbon pricing would lead to as much as a $20 billion to $25 billion increase in energy costs for Canadians, while the Americans face no corresponding increase. Almost certainly, this will result in a competitive advantage to the United States as far as energy investment is concerned.<sup>30</sup></p><p style="text-align:justify;">With carbon pricing already in place in Alberta and a national policy on its way, Canada and the United States have taken completely different routes in their approach to climate change and commitment to clean energy. While clean technology remains a priority for Canada, President Trump is committed to deregulating the energy industry and reviving coal-based energy production.  </p><p style="text-align:justify;">In 2018, BLG will be closely monitoring energy policy changes in the U.S., including what, if any, changes to the sector arise through the potential renegotiation of, or U.S. withdrawal from, NAFTA.  NAFTA gave the United States secure access to Canadian energy when it incorporated the provisions of the Canada-U.S. Free Trade Agreement.  Changes to, or dissolution of, NAFTA could dramatically impact what has become an integrated North American energy market under the trade agreement.      </p><hr /><p style="text-align:left;"><span style="font-size:7pt;"><sup>1</sup> Government of Canada, </span><em style="font-size:7pt;">Energy Efficiency Regulations, 2016: Regulatory Impact Analysis Statement</em><span style="font-size:7pt;">, online: <a href="http://www.gazette.gc.ca/rp-pr/p1/2016/2016-04-30/html/reg1-eng.html" target="_blank">click here</a>.<br><span style="font-size:7pt;"><sup>2</sup> Government of Canada, </span><em style="font-size:7pt;">Discussion Paper Released on Review of Environmental and Regulatory </em><span style="font-size:7pt;">Processes, online: <a href="https://www.canada.ca/en/natural-resources-canada/news/2017/06/discussion_paperreleasedonreviewofenvironmentalandregulatoryproc.html" target="_blank">click here</a>.<br><span style="font-size:7pt;"><sup>3</sup> Gilmour </span><em style="font-size:7pt;">et al</em><span style="font-size:7pt;">, </span><em style="font-size:7pt;">Canadian Government's Proposal to Reform Canada's Environmental Assessment and Regulatory Regime</em><span style="font-size:7pt;">, Bennett Jones (July 04, 2017), online: <a href="https://www.bennettjones.com/CanadianGovernmentsProposaltoReformCanadasEnvironmentalAssessmentandRegulatoryRegime" target="_blank">click here</a>;</span><span style="font-size:7pt;"> Also see Olszynski </span><em style="font-size:7pt;">et al</em><span style="font-size:7pt;">, </span><em style="font-size:7pt;">Sustainability must be at the core of the government's approach to assessing and approving economic projects in Canada</em><span style="font-size:7pt;">, Policy Options (September 5, 2017), online: <a href="http://policyoptions.irpp.org/magazines/september-2017/sustainability-in-canadas-environmental-assessment-and-regulation/" target="_blank">click here</a>.<br><span style="font-size:7pt;"><sup>4 </sup>Natural Resources Canada (website), </span><em style="font-size:7pt;">Forward, Together - Enabling Canada's Clean, Safe and Secure Energy Future</em><span style="font-size:7pt;">, Report of the Expert Panel on the Modernization of the National Energy Board, May 2017, and Volume II, Annexes, online: <a href="https://www.nrcan.gc.ca/sites/www.nrcan.gc.ca/files/pdf/NEB-Modernization-Report-EN-WebReady.pdf" target="_blank">click here</a></span><span style="font-size:7pt;"> [NEB Modernization Report].<br><span style="font-size:7pt;"><sup>5</sup> <em>Ibid </em>at 1. <br><span style="font-size:7pt;"><sup>6</sup> Nigel Bankes, </span><em style="font-size:7pt;">The NEB Modernization Report</em><span style="font-size:7pt;">, University of Calgary Faculty of Law - ABlawg (June 14, 2017), online: <a href="https://ablawg.ca/2017/06/14/the-neb-modernization-report/" target="_blank">click here</a>.<br><span style="font-size:7pt;"><sup>7</sup> CBC (website), </span><em style="font-size:7pt;">Scrap NEB and replace it with 2 separate agencies, expert panel recommends</em><span style="font-size:7pt;"> (May 15, 2014), online: <a href="http://www.cbc.ca/news/canada/calgary/neb-role-panel-report-carr-natural-resources-national-energy-board-calgary-modernize-1.4115526" target="_blank">click here</a>.<br><span style="font-size:7pt;"><sup>8</sup> Nigel Banks, </span><em style="font-size:7pt;">The Report of the Expert Panel on the Modernization of the National Energy Board and the Response of the Government of Canada</em><span style="font-size:7pt;">, Energy Regulation Quarterly (September 2017), online: <a href="http://www.energyregulationquarterly.ca/articles/the-report-of-the-expert-panel-on-the-modernization-of-the-national-energy-board-and-the-response-of-the-government-of-canada#sthash.vsywwrQn.dpbs" target="_blank">click here</a>.<br><span style="font-size:7pt;"><sup>9</sup> Ministry of Energy, </span><em style="font-size:7pt;">2017 Long-Term Energy Plan </em><span style="font-size:7pt;">(October 26, 2017), online: <a href="https://news.ontario.ca/mei/en/2017/10/2017-long-term-energy-plan.html" target="_blank">click here</a>.<br><span style="font-size:7pt;"><sup>10</sup> Wong </span><em style="font-size:7pt;">et al</em><span style="font-size:7pt;">, </span><em style="font-size:7pt;">The electrification of the economy: Ontario's 2017 Long-Term Energy Plan</em><span style="font-size:7pt;">, Osler (November 15, 2017, online: <a href="https://www.osler.com/en/resources/regulations/2017/the-electrification-of-the-economy-ontario-s-2017" target="_blank">click here</a>;</span><span style="font-size:7pt;"> Also see Ontario Chamber of Commerce, </span><em style="font-size:7pt;">Rapid Policy Update: Long-Term Energy Plan </em><span style="font-size:7pt;">(October 26, 2017), online: </span><a href="http://www.occ.ca/policy/2017-long-term-energy-plan/" target="_blank"><span style="font-size:7pt;">click here. </span></a><span style="font-size:7pt;"><sup><br>11</sup> <em>Ibid. <br><span style="font-size:7pt;"><sup>12 </sup><em>Ibid. <br><span style="font-size:7pt;"><sup>13</sup> <em>Ibid.</em><em> <br><span style="font-size:7pt;"><sup>14</sup> Renewable Industries Canada, </span><em style="font-size:7pt;">Statement regarding the Québec Government's 2017-2020 Action Plan under the 2030 Energy Policy</em><span style="font-size:7pt;"> (June 26, 2017), online: <a href="http://ricanada.org/wp-content/uploads/2017/06/Qu%c3%a9bec-Government-2017-2020-Action-Plan-Announcement-EN.pdf" target="_blank">click here.</a><span style="font-size:7pt;"><sup><br>15</sup> Karine Seguin, </span><em style="font-size:7pt;">Government of Québec: New Action Plan for Electrification in Transport</em><span style="font-size:7pt;">, PIT Group, online: <a href="http://thepitgroup.com/government-of-Qu%c3%a9bec-new-action-plan-for-electrification-in-transport/" target="_blank">click here.</a><span style="font-size:7pt;"><sup><br>16 </sup><em>Statement regarding the Québec Government's 2017-2020 Action Plan under the 2030 Energy Policy</em>, <em>supra </em>note 15. <br><span style="font-size:7pt;"><sup>17</sup> Seguin, <em>supra </em>note 16. <br><span style="font-size:7pt;"><sup>18</sup> Mathieu LeBlanc and Martin Thiboutot, </span><em style="font-size:7pt;">Québec Releases Energy Policy's 2017-2020 Action Plan</em><span style="font-size:7pt;">, Canadian Energy Perspectives (July 7, 2017) online: <a href="https://www.canadianenergylawblog.com/2017/07/07/Qu%c3%a9bec-releases-energy-policys-2017-2020-action-plan/" target="_blank">click here.</a><span style="font-size:7pt;"><sup><br>19</sup> Astrid Kalkbrenner, </span><em style="font-size:7pt;">Climate Change Legal Roadmap: Carbon Pricing Recommendations for Alberta</em><span style="font-size:7pt;">, written whiten crew's Environmental law Centre (August 23, 2016), online: <a href="http://elc.ab.ca/climate-change-legal-roadmap-carbon-pricing-recommendations-for-alberta-lessons-from-the-latest-developments-in-wci-jurisdictions/" target="_blank">click here.</a><span style="font-size:7pt;"><sup><br>20</sup> Government of Alberta, </span><em style="font-size:7pt;">Carbon Levy and Rebates</em><span style="font-size:7pt;">, online: <a href="https://www.alberta.ca/climate-carbon-pricing.aspx#p184s1" target="_blank">click here.</a><span style="font-size:7pt;"><sup><br>21</sup> Alberta Energy Regulator, </span><em style="font-size:7pt;">New Edition of Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licences and Approvals</em><span style="font-size:7pt;"> (December 06, 2017), online: <a href="https://www.aer.ca/rules-and-regulations/bulletins/bulletin-2017-21" target="_blank">click here.</a><span style="font-size:7pt;"><sup><br>22</sup> <em>Ibid. <br><span style="font-size:7pt;"><sup>23</sup> Geoffrey Morgan, </span><em style="font-size:7pt;">Alberta to crack down on oil executives that dumped orphan wells on taxpayers</em><span style="font-size:7pt;">, Financial Post Press Release (December 6, 2017), online: <a href="http://business.financialpost.com/commodities/energy/alberta-to-crack-down-on-oil-executives-that-dumped-orphan-wells-on-to-taxpayers" target="_blank">click here.</a><span style="font-size:7pt;"><sup><br>24</sup> Alberta Energy Regulator, </span><em style="font-size:7pt;">Bulletin 2017-13: Changes to Process for Transfer Application </em><span style="font-size:7pt;">Decisions (July 24, 2017), online: <a href="https://www.aer.ca/rules-and-regulations/bulletins/bulletin-2017-13" target="_blank">click here.</a><span style="font-size:7pt;"><sup><br>25</sup> <em>Ibid. <br><span style="font-size:7pt;"><sup>26</sup> <em>Ibid. <br><span style="font-size:7pt;"><sup>27</sup> Government of Alberta, </span><em style="font-size:7pt;">Electricity Capacity Market</em><span style="font-size:7pt;">, online: <a href="https://www.alberta.ca/electricity-capacity-market.aspx" target="_blank">click here.</a><span style="font-size:7pt;"><sup><br>28</sup> Alberta Electric System Operator (AESO) (website), </span><em style="font-size:7pt;">Capacity market </em><span style="font-size:7pt;">transition, online: <a href="https://www.aeso.ca/market/capacity-market-transition/" target="_blank">click here.</a><span style="font-size:7pt;"><sup><br>29</sup> Kimberly Howard and Gordon Nettleton, </span><em style="font-size:7pt;">Alberta's Evolving Electricity Market – An Update on Recent Changes and Developments</em><span style="font-size:7pt;">, 5:2 Energy Regulation Quarterly (June 2017), online: <a href="http://www.energyregulationquarterly.ca/articles/albertas-evolving-electricity-market-an-update-on-recent-changes-and-developments#sthash.CAoETbYB.dpbs" target="_blank">click here.</a><span style="font-size:7pt;"><sup><br>30</sup> Yukon News, </span><em style="font-size:7pt;">Trump's Energy Policies May Threaten Canadian Business</em><span style="font-size:7pt;">, (December 30, 2016),</span><em style="font-size:7pt;"> </em><span style="font-size:7pt;">online: <a href="https://www.yukon-news.com/letters-opinions/trumps-energy-policies-may-threaten-canadian-business/" target="_blank">click here.</a></span></span></span></span></em></span></em></span></span></span></em></span></span></span></span></span></span></span></span></span></em></span></em></span></em></span></span></span></span></span></span></span></span></span></span></p>1/15/2018 5:00:00 AM2018-01-15T05:00:00ZTrue1float;#1.00000000000000float;#2018.00000000000string;#Januaryfloat;#201801.000000000GP0|#60a6f187-f0e0-4c65-a06c-b97febf6542e;L0|#060a6f187-f0e0-4c65-a06c-b97febf6542e|Oil & Gas;GTSet|#939fe804-8a2a-4cfa-af8f-5756b32ac3ca;GP0|#79f5b025-e6dd-4c66-873b-67e8780cf972;L0|#079f5b025-e6dd-4c66-873b-67e8780cf972|Regulatory;GP0|#7ea7e480-c8e7-48db-baae-396516e81926;L0|#07ea7e480-c8e7-48db-baae-396516e81926|Pipelines;GP0|#f61f75ba-8b4a-47e4-ac93-81a58bdb7860;L0|#0f61f75ba-8b4a-47e4-ac93-81a58bdb7860|Public Policy;GP0|#80272199-c96f-4e96-a610-ee5c8caae603;L0|#080272199-c96f-4e96-a610-ee5c8caae603|EnvironmentOil & Gas;Regulatory;Pipelines;Public Policy;Environment
Stay Out of It – Sophisticated Parties can Contract out of Arbitration LegislationStay Out of It – Sophisticated Parties can Contract out of Arbitration Legislation353BLG Blog PostMichael A. Marion;Locklyn Pricemmarion@blg.com | Michael A. Marion | 693A30232E777C626C6763616E6164615C6D616D i:0#.w|blgcanada\mam;lprice@blg.com | Locklyn Price | 693A30232E777C626C6763616E6164615C6C7072696365 i:0#.w|blgcanada\lprice​On August 30, 2017 the Supreme Court of Newfoundland and Labrador dismissed an application by the province under Sections 14 and 34(2)(a)(iii) of the Arbitration Act. The court held that the parties had legally contracted out of the act, narrowing the circumstances in which a court could set aside an arbitral award. The decision furthers the general theme of recent Canadian jurisprudence – including the Supreme Court of Canada's decisions in Creston Moly Corp v Sattva Capital Corp and the more recent Teal Cedar Products Ltd v British Columbia – which has emphasised party autonomy and deference to reasonable arbitral decisions. The decision confirms that sophisticated parties can craft a dispute resolution process that deviates from the strictures of provincial and federal legislation, as long as the agreed process does not unduly infringe on the courts' inherent jurisdiction and provides for a process that protects the principles of fundamental justice.[Read more...]<p style="text-align:justify;">​<img class="ms-rtePosition-1" alt="Handsholdingpen" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/AD-HAND-11-iStock-4996618-contract-75.jpg" style="margin:5px;" />On August 30, 2017 the Supreme Court of Newfoundland and Labrador dismissed an application by the province under Sections 14 and 34(2)(a)(iii) of the Arbitration Act. The court held that the parties had legally contracted out of the act, narrowing the circumstances in which a court could set aside an arbitral award. The decision furthers the general theme of recent Canadian jurisprudence – including the Supreme Court of Canada's decisions in <a href="https://www.canlii.org/en/ca/scc/doc/2014/2014scc53/2014scc53.html" target="_blank"><em>Creston Moly Corp v Sattva Capital Corp</em></a> and the more recent <a href="https://www.canlii.org/en/ca/scc/doc/2017/2017scc32/2017scc32.html?autocompleteStr=teal&autocompletePos=3" target="_blank"><em>Teal Cedar Products Ltd v British Columbia</em></a> – which has emphasised party autonomy and deference to reasonable arbitral decisions. The decision confirms that sophisticated parties can craft a dispute resolution process that deviates from the strictures of provincial and federal legislation, as long as the agreed process does not unduly infringe on the courts' inherent jurisdiction and provides for a process that protects the principles of fundamental justice.</p><p style="text-align:justify;"><em>[</em><a href="/energy/Pages/Post.aspx?PID=353"><em><span style="text-decoration:underline;"><font color="#0066cc">Read more</font></span></em></a><em>...]</em></p>IntroductionOn August 30, 2017 the Supreme Court of Newfoundland and Labrador dismissed an application by the province under Sections 14 and 34(2)(a)(iii) of the Arbitration Act. The court held that the parties had legally contracted out of the act, narrowing the circumstances in which a court could set aside an arbitral award. The decision furthers the general theme of recent Canadian jurisprudence – including the Supreme Court of Canada's decisions in Creston Moly Corp v Sattva Capital Corp and the more recent Teal Cedar Products Ltd v British Columbia – which has emphasised party autonomy and deference to reasonable arbitral decisions. The decision confirms that sophisticated parties can craft a dispute resolution process that deviates from the strictures of provincial and federal legislation, as long as the agreed process does not unduly infringe on the courts' inherent jurisdiction and provides for a process that protects the principles of fundamental justice. >> To read the entire article, visit the International Law Office website.<p style="text-align:justify;"><strong><img class="ms-rtePosition-1" alt="Handsholdingpen" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/AD-HAND-11-iStock-4996618-contract-350.jpg" style="margin:5px;" />Introduction</strong></p><p style="text-align:justify;">On August 30, 2017 the Supreme Court of Newfoundland and Labrador dismissed an application by the province under Sections 14 and 34(2)(a)(iii) of the Arbitration Act. The court held that the parties had legally contracted out of the act, narrowing the circumstances in which a court could set aside an arbitral award. The decision furthers the general theme of recent Canadian jurisprudence – including the Supreme Court of Canada's decisions in <a href="https://www.canlii.org/en/ca/scc/doc/2014/2014scc53/2014scc53.html" target="_blank"><em><font color="#0066cc">Creston Moly Corp v Sattva Capital Corp</font></em></a> and the more recent <a href="https://www.canlii.org/en/ca/scc/doc/2017/2017scc32/2017scc32.html?autocompleteStr=teal&autocompletePos=3" target="_blank"><em><font color="#0066cc">Teal Cedar Products Ltd v British Columbia</font></em></a> – which has emphasised party autonomy and deference to reasonable arbitral decisions. The decision confirms that sophisticated parties can craft a dispute resolution process that deviates from the strictures of provincial and federal legislation, as long as the agreed process does not unduly infringe on the courts' inherent jurisdiction and provides for a process that protects the principles of fundamental justice.</p><p><strong>>></strong><strong> </strong><a href="http://www.internationallawoffice.com/Newsletters/Arbitration-ADR/Canada/Borden-Ladner-Gervais-LLP/Stay-out-of-it-sophisticated-parties-can-contract-out-of-arbitration-legislation?redir=1" target="_blank"><strong>To read the entire article, visit the International Law Office website.</strong></a></p>1/11/2018 5:00:00 AM2018-01-11T05:00:00ZTrue1float;#1.00000000000000float;#2018.00000000000string;#Januaryfloat;#201801.000000000GP0|#bc94069b-8cfb-4fc0-bafa-9e636642399f;L0|#0bc94069b-8cfb-4fc0-bafa-9e636642399f|Arbitration;GTSet|#939fe804-8a2a-4cfa-af8f-5756b32ac3ca;GP0|#60a6f187-f0e0-4c65-a06c-b97febf6542e;L0|#060a6f187-f0e0-4c65-a06c-b97febf6542e|Oil & GasArbitration;Oil & Gas
Highlights of Ontario’s 2017 Long-Term Energy Plan Highlights of Ontario’s 2017 Long-Term Energy Plan 347BLG Blog PostAlan L. Ross;Kent D. Howieaross@blg.com | Alan L. Ross | 693A30232E777C626C6763616E6164615C61726F7373 i:0#.w|blgcanada\aross;khowie@blg.com | Kent D. Howie | 693A30232E777C626C6763616E6164615C6B686F776965 i:0#.w|blgcanada\khowie​After a year of stakeholder consultation, on October 26, 2017, the Government of Ontario released the 2017 Long-Term Energy Plan ("LTEP") entitled "Delivering Fairness and Choice". The LTEP is focused on innovation, electricity affordability and modernization of the electricity sector. This is the first LTEP that has been released by the Minister of Energy since the new statutory framework was implemented by way of Bill 135 which moved long term planning from the Independent Electricity System Operator (the "IESO", formerly the Ontario Power Authority) to the Minister of Energy. The LTEP is intended to give the Ontario electricity sector, its stakeholders and consumers a roadmap of the Ontario Government's priorities for the future of Ontario's electricity sector. [Read more...]<p style="text-align:justify;">​<img class="ms-rtePosition-1" alt="PowerLine" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/INDUS-GRE-14-iStock-12618748-power-supply-line-75.jpg" style="margin:5px;" />After a year of stakeholder consultation, on October 26, 2017, the Government of Ontario released the <a href="https://www.ontario.ca/page/ontarios-long-term-energy-plan" target="_blank">2017 Long-Term Energy Plan ("LTEP")</a> entitled "Delivering Fairness and Choice". The LTEP is focused on innovation, electricity affordability and modernization of the electricity sector. This is the first LTEP that has been released by the Minister of Energy since the new statutory framework was implemented by way of Bill 135 which moved long term planning from the Independent Electricity System Operator (the "IESO", formerly the Ontario Power Authority) to the Minister of Energy. The LTEP is intended to give the Ontario electricity sector, its stakeholders and consumers a roadmap of the Ontario Government's priorities for the future of Ontario's electricity sector. </p><p><em>[</em><a href="/energy/Pages/Post.aspx?PID=347"><em>Read more</em></a><em>...]</em></p>​After a year of stakeholder consultation, on October 26, 2017, the Government of Ontario released the 2017 Long-Term Energy Plan ("LTEP") entitled "Delivering Fairness and Choice". The LTEP is focused on innovation, electricity affordability and modernization of the electricity sector. This is the first LTEP that has been released by the Minister of Energy since the new statutory framework was implemented by way of Bill 135 which moved long term planning from the Independent Electricity System Operator (the "IESO", formerly the Ontario Power Authority) to the Minister of Energy. The LTEP is intended to give the Ontario electricity sector, its stakeholders and consumers a roadmap of the Ontario Government's priorities for the future of Ontario's electricity sector. >> Read the full post on BLG's Publications<p style="text-align:justify;">​<img class="ms-rtePosition-1" alt="Powerline" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/INDUS-GRE-14-iStock-12618748-power-line-350.jpg" style="margin:5px;" />After a year of stakeholder consultation, on October 26, 2017, the Government of Ontario released the <a href="https://www.ontario.ca/page/ontarios-long-term-energy-plan" target="_blank">2017 Long-Term Energy Plan ("LTEP")</a> entitled "Delivering Fairness and Choice". The LTEP is focused on innovation, electricity affordability and modernization of the electricity sector. This is the first LTEP that has been released by the Minister of Energy since the new statutory framework was implemented by way of Bill 135 which moved long term planning from the Independent Electricity System Operator (the "IESO", formerly the Ontario Power Authority) to the Minister of Energy. The LTEP is intended to give the Ontario electricity sector, its stakeholders and consumers a roadmap of the Ontario Government's priorities for the future of Ontario's electricity sector. </p><p style="text-align:justify;"><a href="http://blg.com/en/News-And-Publications/Publication_5129#" target="_blank"><strong>>> Read the full post on BLG's Publications</strong></a></p>12/28/2017 5:00:00 AM2017-12-28T05:00:00ZTrue1float;#12.0000000000000float;#2017.00000000000string;#Decemberfloat;#201712.000000000GP0|#23e50663-be85-467e-acf9-7150e42ed669;L0|#023e50663-be85-467e-acf9-7150e42ed669|Energy;GTSet|#939fe804-8a2a-4cfa-af8f-5756b32ac3ca;GP0|#03fc5c71-a1cf-4529-a790-3febb462b5dc;L0|#003fc5c71-a1cf-4529-a790-3febb462b5dc|ElectricityEnergy;Electricity
Back to the Basics: The Alberta Energy Regulator Tightens License and Approval Eligibility Requirements to Eliminate Unreasonable RiskBack to the Basics: The Alberta Energy Regulator Tightens License and Approval Eligibility Requirements to Eliminate Unreasonable Risk352BLG Blog PostChidinma Thompson;Alan L. Rosscthompson@blg.com | Chidinma Thompson | 693A30232E777C626C6763616E6164615C6374686F6D70736F6E i:0#.w|blgcanada\cthompson;aross@blg.com | Alan L. Ross | 693A30232E777C626C6763616E6164615C61726F7373 i:0#.w|blgcanada\aross​Following the November 9, 2017 decision of the Supreme Court of Canada granting leave and expedited appeal in Orphan Well Association et al. v. Grant Thornton Limited et al. (Alta.) (Civil) (By Leave) (37627), the Alberta Energy Regulator ("AER") released Bulletin 2017-21 New Edition of Directive 067 Eligibility Requirements for Acquiring and Holding Energy Licenses and Approvals, and a Revised Directive 067 Eligibility Requirements for Acquiring and Holding Energy Licenses and Approvals on Dec 06, 2017. Critical changes include assessment by the AER as to whether licensees pose unreasonable risk, requirements for keeping corporate information up to date within 30 days of any material change, option for advance ruling prior to effecting a material change that may constitute an unreasonable risk, and consent of applicants to the release and collection of compliance information from other jurisdictions and regulators. [Read more...]<p style="text-align:justify;">​<img class="ms-rtePosition-1" alt="CityofCalgary" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/GENCAN-191-shutterstock-75.jpg" style="margin:5px;" />Following the November 9, 2017 decision of the Supreme Court of Canada granting leave and expedited appeal in <a href="https://scc-csc.lexum.com/scc-csc/news/en/item/5661/index.do" target="_blank"><em>Orphan Well Association et al. v. Grant Thornton Limited</em> et al. (Alta.) (Civil) (By Leave) (37627)</a>, the Alberta Energy Regulator ("AER") released Bulletin 2017-21 <em>New Edition of Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licenses and Approvals</em>, and a Revised <em>Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licenses and Approvals</em> on Dec 06, 2017. Critical changes include assessment by the AER as to whether licensees pose unreasonable risk, requirements for keeping corporate information up to date within 30 days of any material change, option for advance ruling prior to effecting a material change that may constitute an unreasonable risk, and consent of applicants to the release and collection of compliance information from other jurisdictions and regulators. </p><p style="text-align:justify;"><em>[</em><a href="/energy/Pages/Post.aspx?PID=352"><em>Read more</em></a><em>...]</em></p> Summary Following the November 9, 2017 decision of the Supreme Court of Canada granting leave and expedited appeal in Orphan Well Association et al. v. Grant Thornton Limited et al. (Alta.) (Civil) (By Leave) (37627), the Alberta Energy Regulator ("AER") released Bulletin 2017-21 New Edition of Directive 067 Eligibility Requirements for Acquiring and Holding Energy Licenses and Approvals, and a Revised Directive 067 Eligibility Requirements for Acquiring and Holding Energy Licenses and Approvals on Dec 06, 2017. Critical changes include assessment by the AER as to whether licensees pose unreasonable risk, requirements for keeping corporate information up to date within 30 days of any material change, option for advance ruling prior to effecting a material change that may constitute an unreasonable risk, and consent of applicants to the release and collection of compliance information from other jurisdictions and regulators. Background On December 6, 2017, the Alberta Energy Regulator (AER) released a revised edition of Directive 067 Eligibility Requirements for Acquiring and Holding Energy Licenses and Approvals together with Bulletin 2017-21 New Edition of Directive 067 Eligibility Requirements for Acquiring and Holding Energy Licenses and Approvals. The AER emphasized that acquiring and holding a License or approval in Alberta is a privilege, not a right. The revised Directive 067 increases the scrutiny the AER applies to ensure that such a privilege is only granted to, and retained by, responsible parties.For new applicants, Business Associate Codes ("BA Codes") are now issued through Petrinex. However, a BA Code does not automatically qualify the holder for AER Licenses or approvals. License eligibility types have been changed to the following three types (a) no eligibility to acquire or hold Licenses to drill/construct wells, facilities, or pipelines; (b) general eligibility to hold Licenses for all types of wells, facilities, and pipelines; and (c) and limited eligibility to hold only certain types of Licenses and approvals, or subject to certain terms and conditions.The AER may grant license eligibility with or without restrictions, terms and conditions, or it may refuse to grant License eligibility. Such restrictions, terms, and conditions may include (a) the types and number of Licenses or approvals that may be held; (b) additional scrutiny required at time of application for or transfer of a License or approval; (c) requirement to provide full or partial security at time of application for or transfer of a License or approval; (d) requirements regarding the minimum or maximum working interest percentage permitted, or (e) requirement to address outstanding non-compliances of current or former AER licensees that are directly or indirectly associated with the applicant or its directors, officers, or shareholders.The new requirements include, among others, a declaration of the applicant attesting to the truth and completeness of the application, consenting to the release and collection of compliance information regarding the applicant from other jurisdictions and regulators as applicable, and attorning to the jurisdiction of Alberta. It also includes an assessment by the AER as to whether the applicant poses an unreasonable risk. The AER may audit the information provided for accuracy and completeness at any time before or after granting eligibility.In assessing whether the applicant poses an unreasonable risk, the AER may consider any of the following factors the compliance history of the applicant, including its directors, officers, and shareholders, in Alberta and elsewhere, including in relation to any current or former AER licensees that are directly or indirectly associated or affiliated with the applicant or its principals; the compliance history of entities currently or previously associated or affiliated with the applicant or its directors, officers, and shareholders; experience of the applicant, including its directors, officers, and shareholders; corporate structure; the financial health of the applicant; outstanding debts owed by the applicant or current or former AER licensees that are directly or indirectly associated or affiliated with the applicant or its directors, officers, or shareholders; outstanding non-compliances of current or former AER licensees that are directly or indirectly associated or affiliated with the applicant or its directors, officers, or shareholders; involvement of the applicant's directors, officers, or shareholders in entities that have initiated or are subject to bankruptcy or receivership proceedings or in current or former AER licensees that have outstanding non-compliances; and the naming of directors, officers, or shareholders of current or former AER licensees under section 106 of the Oil and Gas Conservation Act. All existing license or approval holders must meet license eligibility requirements on an ongoing basis and ensure that the information the AER has on file is kept accurate. An updated Schedule 1 of Directive 067 must be provided within 30 days of any material change. Failure to do so may result in the AER revoking eligibility or restricting eligibility by imposing terms and conditions where, in its opinion, the change has resulted in an unreasonable risk. All parties with current eligibility are required to provide notice of material changes by January 31, 2018. Material changes include (a) changes to legal status and corporate structure; (b) addition or removal of a related corporate entity; (c) amalgamation, merger, or acquisition; (c) changes to directors, officers, or control persons; (d) appointment of a monitor, receiver, or trustee over the licensee's property; (e) plan of arrangement or any other transaction that results in a material change to the operations of the licensee; (f) the sale of all or substantially all of the licensee's assets; or (g) cancellation of insurance coverage.Failure to acquire or hold licenses or approvals within one year following granting of License eligibility may also result in the AER revoking, restricting or downgrading license eligibility. Amendment of license eligibility will require reapplication under Directive 067, including payment of an additional fee, and may result in the imposition of restrictions, terms, or conditions.ImplicationsAER licensees and approval holders should be aware that certain corporate changes for unrelated purposes, such as tax saving, may constitute an "unreasonable risk" that may affect their eligibility to hold AER licenses and approvals. Licensees and approval holders should request an advance ruling from the AER on whether the AER would consider any proposed change an "unreasonable risk" prior to effecting a material change. Further, the compliance history of licensees and approval holders in jurisdictions other than Alberta now counts towards acquiring and maintaining license eligibility in Alberta.<span aria-hidden="true"></span><p><strong><img class="ms-rtePosition-1" alt="CityofCalgary" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/GENCAN-191-shutterstock-375.jpg" style="margin:5px;" />Summary</strong></p><p>Following the November 9, 2017 decision of the Supreme Court of Canada granting leave and expedited appeal in <a href="https://scc-csc.lexum.com/scc-csc/news/en/item/5661/index.do" target="_blank">Orphan Well Association et al. v. Grant Thornton Limited et al. (Alta.) (Civil) (By Leave) (37627)</a>, the Alberta Energy Regulator ("AER") released Bulletin 2017-21 New Edition of Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licenses and Approvals, and a Revised Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licenses and Approvals on Dec 06, 2017. Critical changes include assessment by the AER as to whether licensees pose unreasonable risk, requirements for keeping corporate information up to date within 30 days of any material change, option for advance ruling prior to effecting a material change that may constitute an unreasonable risk, and consent of applicants to the release and collection of compliance information from other jurisdictions and regulators. </p><p><strong>Background</strong></p><p>On December 6, 2017, the Alberta Energy Regulator (AER) released a revised edition of Directive 067: <em>Eligibility Requirements for Acquiring and Holding Energy Licenses and Approvals</em> together with Bulletin 2017-21 <em>New Edition of Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licenses and Approvals</em>.  The AER emphasized that acquiring and holding a License or approval in Alberta is a privilege, not a right. The revised Directive 067 increases the scrutiny the AER applies to ensure that such a privilege is only granted to, and retained by, responsible parties.</p><p style="text-align:justify;">For new applicants, Business Associate Codes ("BA Codes") are now issued through Petrinex. However, a BA Code does not automatically qualify the holder for AER Licenses or approvals. License eligibility types have been changed to the following three types: (a) no eligibility to acquire or hold Licenses to drill/construct wells, facilities, or pipelines; (b) general eligibility to hold Licenses for all types of wells, facilities, and pipelines; and (c) and limited eligibility to hold only certain types of Licenses and approvals, or subject to certain terms and conditions.</p><p style="text-align:justify;">The AER may grant license eligibility with or without restrictions, terms and conditions, or it may refuse to grant License eligibility. Such restrictions, terms, and conditions may include: (a) the types and number of Licenses or approvals that may be held; (b) additional scrutiny required at time of application for or transfer of a License or approval; (c) requirement to provide full or partial security at time of application for or transfer of a License or approval; (d) requirements regarding the minimum or maximum working interest percentage permitted, or (e) requirement to address outstanding non-compliances of current or former AER licensees that are directly or indirectly associated with the applicant or its directors, officers, or shareholders.</p><p style="text-align:justify;">The new requirements include, among others, a declaration of the applicant attesting to the truth and completeness of the application, consenting to the release and collection of compliance information regarding the applicant from other jurisdictions and regulators as applicable, and attorning to the jurisdiction of Alberta. It also includes an assessment by the AER as to whether the applicant poses an unreasonable risk. The AER may audit the information provided for accuracy and completeness at any time before or after granting eligibility.</p><p style="text-align:justify;">In assessing whether the applicant poses an unreasonable risk, the AER may consider any of the following factors: </p><ol><li>the compliance history of the applicant, including its directors, officers, and shareholders, in Alberta and elsewhere, including in relation to any current or former AER licensees that are directly or indirectly associated or affiliated with the applicant or its principals; </li><li>the compliance history of entities currently or previously associated or affiliated with the applicant or its directors, officers, and shareholders;</li><li>experience of the applicant, including its directors, officers, and shareholders;</li><li>corporate structure;</li><li>the financial health of the applicant;</li><li>outstanding debts owed by the applicant or current or former AER licensees that are directly or indirectly associated or affiliated with the applicant or its directors, officers, or shareholders;</li><li>outstanding non-compliances of current or former AER licensees that are directly or indirectly associated or affiliated with the applicant or its directors, officers, or shareholders;</li><li>involvement of the applicant's directors, officers, or shareholders in entities that have initiated or are subject to bankruptcy or receivership proceedings or in current or former AER licensees that have outstanding non-compliances; and</li><li>the naming of directors, officers, or shareholders of current or former AER licensees under section 106 of the <em>Oil and Gas Conservation Act</em>.<br></li></ol><p style="text-align:justify;">All existing license or approval holders must meet license eligibility requirements on an ongoing basis and ensure that the information the AER has on file is kept accurate. An updated Schedule 1 of Directive 067 must be provided within 30 days of any material change. Failure to do so may result in the AER revoking eligibility or restricting eligibility by imposing terms and conditions where, in its opinion, the change has resulted in an unreasonable risk. All parties with current eligibility are required to provide notice of material changes by January 31, 2018. </p><p style="text-align:justify;">Material changes include: (a) changes to legal status and corporate structure; (b) addition or removal of a related corporate entity; (c) amalgamation, merger, or acquisition; (c) changes to directors, officers, or control persons; (d) appointment of a monitor, receiver, or trustee over the licensee's property; (e) plan of arrangement or any other transaction that results in a material change to the operations of the licensee; (f) the sale of all or substantially all of the licensee's assets; or (g) cancellation of insurance coverage.</p><p style="text-align:justify;">Failure to acquire or hold licenses or approvals within one year following granting of License eligibility may also result in the AER revoking, restricting or downgrading license eligibility. Amendment of license eligibility will require reapplication under Directive 067, including payment of an additional fee, and may result in the imposition of restrictions, terms, or conditions.</p><p style="text-align:justify;"><strong>Implications</strong></p><p style="text-align:justify;">AER licensees and approval holders should be aware that certain corporate changes for unrelated purposes, such as tax saving, may constitute an "unreasonable risk" that may affect their eligibility to hold AER licenses and approvals. Licensees and approval holders should request an advance ruling from the AER on whether the AER would consider any proposed change an "unreasonable risk" prior to effecting a material change. Further, the compliance history of licensees and approval holders in jurisdictions other than Alberta now counts towards acquiring and maintaining license eligibility in Alberta.</p>12/19/2017 5:00:00 AM2017-12-19T05:00:00ZTrue1float;#12.0000000000000float;#2017.00000000000string;#Decemberfloat;#201712.000000000GP0|#79f5b025-e6dd-4c66-873b-67e8780cf972;L0|#079f5b025-e6dd-4c66-873b-67e8780cf972|Regulatory;GTSet|#939fe804-8a2a-4cfa-af8f-5756b32ac3caRegulatory
Habendum Conundrum – Is a Mandatory Well Shut-In by Conservation Laws a “Cause Beyond a Lessee’s Control” Sufficient to Extend a Lease Past its Primary Term? Habendum Conundrum – Is a Mandatory Well Shut-In by Conservation Laws a “Cause Beyond a Lessee’s Control” Sufficient to Extend a Lease Past its Primary Term? 351BLG Blog PostMichael A. Marion;Leanne Desbaratsmmarion@blg.com | Michael A. Marion | 693A30232E777C626C6763616E6164615C6D616D i:0#.w|blgcanada\mam;ldesbarats@blg.com | Leanne Desbarats | 693A30232E777C626C6763616E6164615C6C646573626172617473 i:0#.w|blgcanada\ldesbarats​In a recent decision from the Saskatchewan Court of Queen's Bench, Canadian Natural Resources Limited v Rife Resources Ltd., 2017 SKQB 307, the Court considered the interpretation of a common clause in a petroleum and natural gas lease that provides for lease termination after the expiry of the primary term when there is no production unless there is a well on the lands capable of production that is not producing as a result of "any cause whatsoever beyond the Lessee's reasonable control". The issue before the Court was whether a mandatory shut-in of wells pursuant to provincial conservation legislation constituted a "cause beyond the lessee's control" sufficient to continue the lease. The Court concluded that a proper interpretation of the habendum and shut-in provisions necessitated an implied requirement that any shut-in be temporary and not indefinite to trigger a lease extension. As the shut-in order did not have a discernible end date, the Court held that the lease had expired. The case is significant as the implication of such a term in an oil and gas lease is novel and because of the significant financial implications for a lessee faced with a possible lease expiry arising from the effect of a governmental shut-in order. [Read more...]<p style="text-align:justify;">​<img class="ms-rtePosition-1" alt="OilWell" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/INDUS-GRE-102-shutterstock-75.jpg" style="margin:5px;" />In a recent decision from the Saskatchewan Court of Queen's Bench, <a href="https://www.canlii.org/en/sk/skqb/doc/2017/2017skqb307/2017skqb307.html?searchUrlHash=AAAAAQBHQ2FuYWRpYW4gTmF0dXJhbCBSZXNvdXJjZXMgTGltaXRlZCB2IFJpZmUgUmVzb3VyY2VzIEx0ZC4sIDIwMTcgU0tRQiAzMDcAAAAAAQ&resultIndex=1" target="_blank"><em>Canadian Natural Resources Limited v Rife Resources Ltd</em>., 2017 SKQB 307</a>, the Court considered the interpretation of a common clause in a petroleum and natural gas lease that provides for lease termination after the expiry of the primary term when there is no production unless there is a well on the lands capable of production that is not producing as a result of "any cause whatsoever beyond the Lessee's reasonable control". The issue before the Court was whether a mandatory shut-in of wells pursuant to provincial conservation legislation constituted a "cause beyond the lessee's control" sufficient to continue the lease. The Court concluded that a proper interpretation of the habendum and shut-in provisions necessitated an implied requirement that any shut-in be temporary and not indefinite to trigger a lease extension. As the shut-in order did not have a discernible end date, the Court held that the lease had expired. The case is significant as the implication of such a term in an oil and gas lease is novel and because of the significant financial implications for a lessee faced with a possible lease expiry arising from the effect of a governmental shut-in order. </p><p style="text-align:justify;"><em>[</em><a href="/energy/Pages/Post.aspx?PID=351"><em>Read more</em></a><em>...]</em></p>Introduction In a recent decision from the Saskatchewan Court of Queen's Bench, Canadian Natural Resources Limited v Rife Resources Ltd., 2017 SKQB 307, the Court considered the interpretation of a common clause in a petroleum and natural gas lease that provides for lease termination after the expiry of the primary term when there is no production unless there is a well on the lands capable of production that is not producing as a result of "any cause whatsoever beyond the Lessee's reasonable control". The issue before the Court was whether a mandatory shut-in of wells pursuant to provincial conservation legislation constituted a "cause beyond the lessee's control" sufficient to continue the lease. The Court concluded that a proper interpretation of the habendum and shut-in provisions necessitated an implied requirement that any shut-in be temporary and not indefinite to trigger a lease extension. As the shut-in order did not have a discernible end date, the Court held that the lease had expired. The case is significant as the implication of such a term in an oil and gas lease is novel and because of the significant financial implications for a lessee faced with a possible lease expiry arising from the effect of a governmental shut-in order. Background Rife Resources Ltd. ("Rife") and Canpar Holdings Ltd. ("Canpar") were lessors and Canadian Natural Resources Limited ("CNRL") was the lessee of lands located in Saskatchewan pursuant to a lease agreement (the "Lease"). The habendum clause of the Lease provided for a 10 year primary term, with the prospect of the Lease continuing in effect after expiry so long as there was continuous production, drilling or working on the lands. Article 11 of the Lease further provided the following with respect to production after the expiry of the primary term If at the end of the aforesaid ten (10) year term leased substances are not being produced from the said lands or lands pooled therewith, or if at any time after the expiration of the aforesaid ten (10) year term leased substances cease to be produced from the said lands or lands pooled therewith, but there is then situated on the said lands or lands pooled therewith, a well or wells capable of production of leased substances and such well or wells are shut-in, suspended or otherwise not producing as the result of a lack of or intermittent or uneconomic market, or any cause whatsoever beyond the Lessee's reasonable control, then, for the purposes of continuing the term of this Lease, each such well shall be deemed to be producing leased substances while shut-in, suspended or otherwise not producing as aforesaid.The 10 year primary term expired in 2009 but the parties agreed to extend the primary term until 2011. On that date, two horizontal heavy oil wells were in production. CNRL continued with production from those wells after December 31, 2011, and so by operation of the habendum clause the Lease continued in force.In 2011, CNRL learned that one of those horizontal heavy oil wells was producing natural gas in excess of the gas to oil ratio permitted by provincial conservation legislation. The provincial requirements at the time mandated that where a heavy oil well exceeded the applicable ratio the operator was obligated to a) shut-in the well; b) apply for approval of concurrent production of oil and gas from the well; or c) provide the Ministry with a plan that addressed the high gas production.CNRL applied for approval of concurrent production but the application was denied. As part of the denial, CNRL was ordered to shut-in both of its horizontal heavy oil wells. CNRL complied with the order to shut-in the wells. However, CNRL also drilled and produced from two other wells on the lands. One of those wells produced until October 2013 and was shut-in, in November 2013. The other well produced until February 2014. After February of 2014, there was no further drilling or re-working on the lands. Rife and Canpar then applied for a declaration that the Lease had expired when production ceased in February of 2014 and CNRL cross-applied for a declaration that the Lease was continued. CNRL argued that the mandatory shut-in of the heavy oil wells was "a cause beyond the Lessee's reasonable control" and so, notwithstanding that there was no production on the lands after 2014, article 11 of the Lease operated to continue the Lease. Decision The main issues the Court considered in interpreting article 11 of the Lease were Whether there was "a well or wells capable of production of leased substances and such well or wells are shut-in, suspended or otherwise not producing"; and Whether the lack of production was "the result of a lack of or intermittent or uneconomic market, or any cause whatsoever beyond the Lessee's reasonable control". Purpose of the habendum and shut-in provisions Prior to considering the application of article 11, the Court reviewed the case law on the interpretation of oil and gas leases and habendum clauses. Its analysis regarding the habendum and the purpose of the Lease was a key factor in the decision. The Court noted that the habendum clause establishes "the purpose of the lease" which is to "permit the parties to profit from production of the leased substances". The Court cited case law and secondary texts that have interpreted the habendum and suspended well provisions as being "intended to balance the parties' rights by ensuring that the interests of the lessee are protected, while at the same time ensuring that the term of the lease cannot be extended indefinitely when there is no reasonable expectation of a return to profitability in the near future" (at para 20 citing Omers Energy Inc. v Alberta (Energy Resources Conservation Board), 2011 ABCA 251). In reliance on these comments regarding the purpose of the shut-in provisions, the Court held that the shut-in, suspension or non-production contemplated in article 11 of the Lease must result from a cause that is temporary, as opposed to indefinite or permanent (para 23). The Court further stated "a fundamental premise of article 11 is the expectation that the lessee will resume operations under the terms of the lease after the temporary interruption" (at para 24). Was there "a well or wells capable of production of leased substances and such well or wells are shut-in, suspended or otherwise not producing"?In turning to the consideration of the particular facts in this dispute, the Court found that the two heavy oil wells did meet the requirement for there to be wells capable of production. Rife and Canpar argued that the wells were not capable of production of leased substances because, even if the intervening event of the Ministry's order to shut-in the wells were removed, CNRL still would not be able to operate the wells for extraction of either gas or oil because of the provincial conservation requirements. Rife and Canpar took the position that the wells could not be produced because they continued to produce gas in excess of the requirements and because the infrastructure was not in place to capture the gas.The Court rejected this argument holding that for the purposes of the interpretation of article 11, the provincial regulations were not to be considered and the only issue was whether the wells were physically capable of producing oil. The Court stated, at para 35 The requirement that a well be 'capable of production of leased substances' relates to the physical capability of the well, as opposed to an intervening cause. The intervention of provincial regulation relates not to this first requirement, which is concerned with physical capability, but to the next requirement of article 11 – whether the production has been interfered with by an event that is beyond Canadian Natural's reasonable control.Was the lack of production "the result of a lack of or intermittent or uneconomic market, or any cause whatsoever beyond the Lessee's reasonable control"?On the second issue, the Court found that the shut-in orders were not a "cause beyond [CNRL's] reasonable control". The Court came to this conclusion based on the fact that the Ministry's order was not temporary but rather permanent. Due to his comments on the purpose of article 11 being to address temporary lapses in production, the Court held that this was not the type of scenario covered by article 11. The Court concluded that the Lease expired once it was clear that the Minister's shut-in order was permanent, in February of 2014. The Court stated at para 24 The effect of the intervening event must be temporary because requiring the lessor to wait indefinitely for an eventual resumption of operations would be contrary to the profit-making purpose of the lease. The specific purpose of article 11 is to protect the lessee in the event of an event beyond its control such as a natural catastrophe (e.g. Hurricane Katrina) or such as a regulatory decision (e.g. such as the imposition of road restrictions). When such an event intervenes, the lessee is entitled to the time necessary to get past that event and resume operations under the lease. Flowing from the overall purpose of the lease, a fundamental premise of article 11 is the expectation that the lessee will resume operations under the terms of the lease after the temporary interruption.Estoppel CNRL also argued that Rife and Canpar were estopped from asserting that the Lease terminated because CNRL continued to pay rent and Rife and Canpar did not advise CNRL that the Lease had terminated. The Court held that estoppel did not apply because the case was about automatic termination of the Lease and not by termination by notice. The Court further noted that there was no evidence that CNRL, Rife or Canpar were aware of CNRL's mistaken belief that the Lease was still in force. Implications While there are a myriad of different forms of freehold leases, and lease disputes are to be resolved in accordance with an interpretation of the particular lease in question, the Court's reasoning in this decision has potentially broad implications for the interpretation of oil and gas leases generally. The requirement that a shut-in be temporary rather than permanent was not express in the Lease and required the implication of a term. Generally courts are hesitant to imply terms into agreements. Pursuant to the well-established rules of contractual interpretation, terms are to be given their plain and ordinary meaning unless to do so would result in an absurdity. In previous decisions interpreting habendum clauses, the Alberta Court of Appeal has declined to imply terms. For example, in Freyberg v. Fletcher Challenge Oil and Gas Inc., 2005 ABCA 46 ("Freyberg") the Court reversed the trial judge's implication of a term on the basis that the implication defeated the policy objectives supporting a strict construction of habendum clauses in oil and gas leases. The Court in that decision stated at para 57 Second, the terms of gas contracts are to be given effect according to their plain and ordinary meaning unless to do so would result in an absurdity Suncor Inc. v. Norcen International Ltd. (1988), 1988 CanLII 3918 (AB QB), 89 A.R. 200 at 224‑226 (Q.B.). As stated by Martland, J. in Canada-Cities Service Petroleum Corporation v. Kininmonth et al., 1964 CanLII 81 (SCC), [1964] S.C.R. 439 at 448, "the essential task... is to construe the terms of the lease which is in question." In my view, the purported implied term does not give effect to the plain and ordinary meaning of the contract.Similarly, in Bearspaw Petroleum Ltd. v Encana Corporation, 2011 ABCA 7 ("Bearspaw") the Court rejected the implication of a term that was inconsistent with an express term in the lease. As such, this case arguably provides a more relaxed approach to the implication of terms into oil and gas leases.One practical difficulty with this decision is determining what time period results in a shut-in being temporary versus permanent. On review of previous shut-in cases, it is clear that there is no consistent time frame that parties can look to when assessing their own leases. In this case, the two wells had been shut-in for 5 years. In the Bearspaw decision, the wells in question were also shut in for approximately 5 years however, the Court in that case found the lease continued. In Kensington Energy Ltd. v B & G Energy Ltd., 2008 ABCA 151 the well in question was shut-in for approximately 2.5 years. In Freyberg, the well in question was shut in for approximately 21 years. The result of this case is that lessees will have to make an assessment of whether a shut-in is temporary or permanent with little judicial guidance for what that means.In addition to these practical considerations, we wonder about whether the expiry of the Lease in these circumstances would be in the reasonable contemplation of the parties at the time of the Lease. In these circumstances, it is highly unlikely that another lessee would invest the funds to drill a new well, which would likely also be subject to the same problems regarding the conservation legislation if produced from the same reservoir. Therefore, the practical outcome of this decision likely will not address the Court's concern about protecting the "profit-making purpose of the lease". And, from a policy perspective, if another well were to be drilled, it would ironically potentially lead to a proliferation of infrastructure contrary to the usual goal of conservation legislation.In sum, this decision results in increased risk to lessees as it adds uncertainty to interpreting shut-in clauses and implies a term that is difficult to apply in practice. An unexpected lease termination can have significant financial implications for a lessee so oil and gas companies should be aware of the shut-in obligations relevant to their particular leases to assess their risk of a similar result to this case. <p style="text-align:justify;"><strong><img class="ms-rtePosition-1" alt="OilWell" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/INDUS-GRE-102-shutterstock-375.jpg" style="margin:5px;" />Introduction </strong></p><p style="text-align:justify;">In a recent decision from the Saskatchewan Court of Queen's Bench, <a href="https://www.canlii.org/en/sk/skqb/doc/2017/2017skqb307/2017skqb307.html?searchUrlHash=AAAAAQBHQ2FuYWRpYW4gTmF0dXJhbCBSZXNvdXJjZXMgTGltaXRlZCB2IFJpZmUgUmVzb3VyY2VzIEx0ZC4sIDIwMTcgU0tRQiAzMDcAAAAAAQ&resultIndex=1" target="_blank"><em>Canadian Natural Resources Limited v Rife Resources Ltd</em>., 2017 SKQB 307</a>, the Court considered the interpretation of a common clause in a petroleum and natural gas lease that provides for lease termination after the expiry of the primary term when there is no production unless there is a well on the lands capable of production that is not producing as a result of "any cause whatsoever beyond the Lessee's reasonable control". The issue before the Court was whether a mandatory shut-in of wells pursuant to provincial conservation legislation constituted a "cause beyond the lessee's control" sufficient to continue the lease. The Court concluded that a proper interpretation of the habendum and shut-in provisions necessitated an implied requirement that any shut-in be temporary and not indefinite to trigger a lease extension. As the shut-in order did not have a discernible end date, the Court held that the lease had expired. The case is significant as the implication of such a term in an oil and gas lease is novel and because of the significant financial implications for a lessee faced with a possible lease expiry arising from the effect of a governmental shut-in order. </p><p style="text-align:justify;"><strong>Background </strong></p><p style="text-align:justify;">Rife Resources Ltd. ("Rife") and Canpar Holdings Ltd. ("Canpar") were lessors and Canadian Natural Resources Limited ("CNRL") was the lessee of lands located in Saskatchewan pursuant to a lease agreement (the "Lease"). </p><p style="text-align:justify;">The habendum clause of the Lease provided for a 10 year primary term, with the prospect of the Lease continuing in effect after expiry so long as there was continuous production, drilling or working on the lands. Article 11 of the Lease further provided the following with respect to production after the expiry of the primary term:  </p><blockquote dir="ltr" style="text-align:justify;margin-right:0px;"><p>If at the end of the aforesaid ten (10) year term leased substances are not being produced from the said lands or lands pooled therewith, or if at any time after the expiration of the aforesaid ten (10) year term leased substances cease to be produced from the said lands or lands pooled therewith, but there is then situated on the said lands or lands pooled therewith, a well or wells capable of production of leased substances and such well or wells are shut-in, suspended or otherwise not producing as the result of a lack of or intermittent or uneconomic market, <span style="text-decoration:underline;">or any cause whatsoever beyond the Lessee's reasonable control</span>, then, for the purposes of continuing the term of this Lease, each such well shall be deemed to be producing leased substances while shut-in, suspended or otherwise not producing as aforesaid.</p></blockquote><p style="text-align:justify;">The 10 year primary term expired in 2009 but the parties agreed to extend the primary term until 2011. On that date, two horizontal heavy oil wells were in production. CNRL continued with production from those wells after December 31, 2011, and so by operation of the habendum clause the Lease continued in force.</p><p style="text-align:justify;">In 2011, CNRL learned that one of those horizontal heavy oil wells was producing natural gas in excess of the gas to oil ratio permitted by provincial conservation legislation. The provincial requirements at the time mandated that where a heavy oil well exceeded the applicable ratio the operator was obligated to:  a) shut-in the well; b) apply for approval of concurrent production of oil and gas from the well; or c) provide the Ministry with a plan that addressed the high gas production.</p><p style="text-align:justify;">CNRL applied for approval of concurrent production but the application was denied. As part of the denial, CNRL was ordered to shut-in both of its horizontal heavy oil wells. </p><p style="text-align:justify;">CNRL complied with the order to shut-in the wells. However, CNRL also drilled and produced from two other wells on the lands. One of those wells produced until October 2013 and was shut-in, in November 2013. The other well produced until February 2014. After February of 2014, there was no further drilling or re-working on the lands.  Rife and Canpar then applied for a declaration that the Lease had expired when production ceased in February of 2014 and CNRL cross-applied for a declaration that the Lease was continued.  CNRL argued that the mandatory shut-in of the heavy oil wells was "a cause beyond the Lessee's reasonable control" and so, notwithstanding that there was no production on the lands after 2014, article 11 of the Lease operated to continue the Lease. </p><p style="text-align:justify;"><strong>Decision </strong></p><p style="text-align:justify;">The main issues the Court considered in interpreting article 11 of the Lease were: </p><ol style="text-align:justify;"><li><div>Whether there was "a well or wells capable of production of leased substances and such well or wells are shut-in, suspended or otherwise not producing"; and </div></li><li><div>Whether the lack of production was "the result of a lack of or intermittent or uneconomic market, or any cause whatsoever beyond the Lessee's reasonable control". </div></li></ol><p style="text-align:justify;"><em>Purpose of the habendum and shut-in provisions </em></p><p style="text-align:justify;">Prior to considering the application of article 11, the Court reviewed the case law on the interpretation of oil and gas leases and habendum clauses. Its analysis regarding the habendum and the purpose of the Lease was a key factor in the decision. </p><p style="text-align:justify;">The Court noted that the habendum clause establishes "the purpose of the lease" which is to "permit the parties to profit from production of the leased substances". The Court cited case law and secondary texts that have interpreted the habendum and suspended well provisions as being "intended to balance the parties' rights by ensuring that the interests of the lessee are protected, while at the same time ensuring that the term of the lease cannot be extended indefinitely when there is no reasonable expectation of a return to profitability in the near future" (at para 20 citing <a href="https://www.canlii.org/en/ab/abca/doc/2011/2011abca251/2011abca251.html?searchUrlHash=AAAAAQBQT21lcnMgRW5lcmd5IEluYy4gdiBBbGJlcnRhIChFbmVyZ3kgUmVzb3VyY2VzIENvbnNlcnZhdGlvbiBCb2FyZCksIDIwMTEgQUJDQSAyNTEAAAAAAQ&resultIndex=3" target="_blank"><em>Omers Energy Inc. v Alberta (Energy Resources Conservation Board), </em>2011 ABCA 251</a>). </p><p style="text-align:justify;">In reliance on these comments regarding the purpose of the shut-in provisions, the Court held that the shut-in, suspension or non-production contemplated in article 11 of the Lease must result from a cause that is temporary, as opposed to indefinite or permanent (para 23). The Court further stated "a fundamental premise of article 11 is the expectation that the lessee will resume operations under the terms of the lease after the temporary interruption" (at para 24). </p><p style="text-align:justify;"><em>Was there "a well or wells capable of production of leased substances and such well or wells are shut-in, suspended or otherwise not producing"?</em></p><p style="text-align:justify;">In turning to the consideration of the particular facts in this dispute, the Court found that the two heavy oil wells did meet the requirement for there to be wells capable of production. </p><p style="text-align:justify;">Rife and Canpar argued that the wells were not capable of production of leased substances because, even if the intervening event of the Ministry's order to shut-in the wells were removed, CNRL still would not be able to operate the wells for extraction of either gas or oil because of the provincial conservation requirements. Rife and Canpar took the position that the wells could not be produced because they continued to produce gas in excess of the requirements and because the infrastructure was not in place to capture the gas.</p><p style="text-align:justify;">The Court rejected this argument holding that for the purposes of the interpretation of article 11, the provincial regulations were not to be considered and the only issue was whether the wells were physically capable of producing oil. The Court stated, at para 35: </p><blockquote dir="ltr" style="text-align:justify;margin-right:0px;"><p>The requirement that a well be 'capable of production of leased substances' relates to the physical capability of the well, as opposed to an intervening cause. The intervention of provincial regulation relates not to this first requirement, which is concerned with physical capability, but to the next requirement of article 11 – whether the production has been interfered with by an event that is beyond Canadian Natural's reasonable control.</p></blockquote><p style="text-align:justify;"><em>Was the lack of production "the result of a lack of or intermittent or uneconomic market, or any cause whatsoever beyond the Lessee's reasonable control"?</em></p><p style="text-align:justify;">On the second issue, the Court found that the shut-in orders were not a "cause beyond [CNRL's] reasonable control". </p><p style="text-align:justify;">The Court came to this conclusion based on the fact that the Ministry's order was not temporary but rather permanent. Due to his comments on the purpose of article 11 being to address temporary lapses in production, the Court held that this was not the type of scenario covered by article 11. </p><p style="text-align:justify;">The Court concluded that the Lease expired once it was clear that the Minister's shut-in order was permanent, in February of 2014. The Court stated at para 24: </p><blockquote dir="ltr" style="text-align:justify;margin-right:0px;"><p>The effect of the intervening event must be temporary because requiring the lessor to wait indefinitely for an eventual resumption of operations would be contrary to the profit-making purpose of the lease. The specific purpose of article 11 is to protect the lessee in the event of an event beyond its control such as a natural catastrophe (e.g. Hurricane Katrina) or such as a regulatory decision (e.g. such as the imposition of road restrictions). When such an event intervenes, the lessee is entitled to the time necessary to get past that event and resume operations under the lease. Flowing from the overall purpose of the lease, a fundamental premise of article 11 is the expectation that the lessee will resume operations under the terms of the lease after the temporary interruption.</p></blockquote><p style="text-align:justify;"><em>Estoppel </em></p><p style="text-align:justify;">CNRL also argued that Rife and Canpar were estopped from asserting that the Lease terminated because CNRL continued to pay rent and Rife and Canpar did not advise CNRL that the Lease had terminated. The Court held that estoppel did not apply because the case was about automatic termination of the Lease and not by termination by notice. The Court further noted that there was no evidence that CNRL, Rife or Canpar were aware of CNRL's mistaken belief that the Lease was still in force. </p><p style="text-align:justify;"><strong>Implications</strong> </p><p style="text-align:justify;">While there are a myriad of different forms of freehold leases, and lease disputes are to be resolved in accordance with an interpretation of the particular lease in question, the Court's reasoning in this decision has potentially broad implications for the interpretation of oil and gas leases generally. </p><p style="text-align:justify;">The requirement that a shut-in be temporary rather than permanent was not express in the Lease and required the implication of a term. Generally courts are hesitant to imply terms into agreements. Pursuant to the well-established rules of contractual interpretation, terms are to be given their plain and ordinary meaning unless to do so would result in an absurdity. </p><p style="text-align:justify;">In previous decisions interpreting habendum clauses, the Alberta Court of Appeal has declined to imply terms. For example, in <a href="https://www.canlii.org/en/ab/abca/doc/2005/2005abca46/2005abca46.html?searchUrlHash=AAAAAQA9RnJleWJlcmcgdi4gRmxldGNoZXIgQ2hhbGxlbmdlIE9pbCBhbmQgR2FzIEluYy4sIDIwMDUgQUJDQSA0NgAAAAAB&resultIndex=4" target="_blank"><em>Freyberg v. Fletcher Challenge Oil and Gas Inc</em>., 2005 ABCA 46</a><em> </em>("<em>Freyberg</em>") the Court reversed the trial judge's implication of a term on the basis that the implication defeated the policy objectives supporting a strict construction of habendum clauses in oil and gas leases. The Court in that decision stated at para 57: </p><blockquote dir="ltr" style="text-align:justify;margin-right:0px;"><p>Second, the terms of gas contracts are to be given effect according to their plain and ordinary meaning unless to do so would result in an absurdity: <em>Suncor Inc. v. Norcen International Ltd. (1988)</em>, 1988 CanLII 3918 (AB QB), 89 A.R. 200 at 224‑226 (Q.B.). As stated by Martland, J. in <em>Canada-Cities Service Petroleum Corporation v. Kininmonth et al.,</em> 1964 CanLII 81 (SCC), [1964] S.C.R. 439 at 448, "the essential task... is to construe the terms of the lease which is in question." In my view, the purported implied term does not give effect to the plain and ordinary meaning of the contract.</p></blockquote><p style="text-align:justify;">Similarly, in <a href="https://www.canlii.org/en/ab/abca/doc/2011/2011abca7/2011abca7.html?searchUrlHash=AAAAAQA5QmVhcnNwYXcgUGV0cm9sZXVtIEx0ZC4gdiBFbmNhbmEgQ29ycG9yYXRpb24sIDIwMTEgQUJDQSA3AAAAAAE&resultIndex=1" target="_blank"><em>Bearspaw Petroleum Ltd. v Encana Corporation,</em> 2011 ABCA 7</a> ("<em>Bearspaw</em>")<em> </em>the Court rejected the implication of a term that was inconsistent with an express term in the lease. As such, this case arguably provides a more relaxed approach to the implication of terms into oil and gas leases.</p><p style="text-align:justify;">One practical difficulty with this decision is determining what time period results in a shut-in being temporary versus permanent. On review of previous shut-in cases, it is clear that there is no consistent time frame that parties can look to when assessing their own leases. In this case, the two wells had been shut-in for 5 years. In the <em>Bearspaw </em>decision, the wells in question were also shut in for approximately 5 years however, the Court in that case found the lease continued. In <a href="https://www.canlii.org/en/ab/abca/doc/2008/2008abca151/2008abca151.html?searchUrlHash=AAAAAQA5S2Vuc2luZ3RvbiBFbmVyZ3kgTHRkLiB2IEIgJiBHIEVuZXJneSBMdGQuLCAyMDA4IEFCQ0EgMTUxAAAAAAE&resultIndex=2" target="_blank"><em>Kensington Energy Ltd. v B & G Energy Ltd., </em>2008 ABCA 151</a><em> </em>the well in question was shut-in for approximately 2.5 years. In <em>Freyberg</em>,<em> </em>the well in question was shut in for approximately 21 years. The result of this case is that lessees will have to make an assessment of whether a shut-in is temporary or permanent with little judicial guidance for what that means.</p><p style="text-align:justify;">In addition to these practical considerations, we wonder about whether the expiry of the Lease in these circumstances would be in the reasonable contemplation of the parties at the time of the Lease.  In these circumstances, it is highly unlikely that another lessee would invest the funds to drill a new well, which would likely also be subject to the same problems regarding the conservation legislation if produced from the same reservoir. Therefore, the practical outcome of this decision likely will not address the Court's concern about protecting the "profit-making purpose of the lease". And, from a policy perspective, if another well were to be drilled, it would ironically potentially lead to a proliferation of infrastructure contrary to the usual goal of conservation legislation.</p><p style="text-align:justify;">In sum, this decision results in increased risk to lessees as it adds uncertainty to interpreting shut-in clauses and implies a term that is difficult to apply in practice. An unexpected lease termination can have significant financial implications for a lessee so oil and gas companies should be aware of the shut-in obligations relevant to their particular leases to assess their risk of a similar result to this case. </p>12/13/2017 5:00:00 AM2017-12-13T05:00:00ZTrue1float;#12.0000000000000float;#2017.00000000000string;#Decemberfloat;#201712.000000000GP0|#60a6f187-f0e0-4c65-a06c-b97febf6542e;L0|#060a6f187-f0e0-4c65-a06c-b97febf6542e|Oil & Gas;GTSet|#939fe804-8a2a-4cfa-af8f-5756b32ac3ca;GP0|#68a53fee-4a86-4326-9cee-6b963cc47e1c;L0|#068a53fee-4a86-4326-9cee-6b963cc47e1c|Natural ResourcesOil & Gas;Natural Resources
"Forced Labour" Case To Go To Trial"Forced Labour" Case To Go To Trial350BLG Blog PostRick Williams;Tim Pritchard;Auke Visserrwilliams@blg.com | Rick Williams | 693A30232E777C626C6763616E6164615C726C77 i:0#.w|blgcanada\rlw;tpritchard@blg.com | Tim Pritchard | 693A30232E777C626C6763616E6164615C74707269746368617264 i:0#.w|blgcanada\tpritchard;avisser@blg.com | Auke Visser | 693A30232E777C626C6763616E6164615C61766973736572 i:0#.w|blgcanada\avisserT​he British Columbia Court of Appeal recently confirmed that customary international law may be used as a basis to seek damages from B.C. companies alleged to have acquiesced in human rights abuses in foreign jurisdictions. The decision in Araya v. Nevsun Resources Ltd., 2017 BCCA 401 ("Araya") is a novel and significant step in the development of "transnational law" that could expand the scope for liability for corporations conducting resource development projects abroad. This decision bears some similarity to the B.C. Court of Appeal's decision earlier this year in Garcia v. Tahoe Resources Inc., 2017 BCCA 39, in which a group of miners was permitted to seek damages against a Canadian company for alleged wrongs that occurred at a Guatemalan mine. Both decisions are part of the increasing number of lawsuits against Canadian parent companies for the conduct of their foreign subsidiaries, which is a topic that has been previously discussed in our prior posts to this blog in Canadian Companies and the Effects of Foreign Operations, Court Refuses to Hear Corporate-Veil Case, and Dodging the Corporate Veil. [Read more...]<p style="text-align:justify;"><img class="ms-rtePosition-1" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/INDUS-BUSI-220-shutterstock-63912421-75.jpg" alt="" style="margin:5px;" />T​he British Columbia Court of Appeal recently confirmed that customary international law may be used as a basis to seek damages from B.C. companies alleged to have acquiesced in human rights abuses in foreign jurisdictions. The decision in <a href="http://www.courts.gov.bc.ca/jdb-txt/ca/17/04/2017BCCA0401.htm" target="_blank"><em>Araya v. Nevsun Resources Ltd.</em>, 2017 BCCA 401</a> ("Araya")<em> </em>is a novel and significant step in the development of "transnational law" that could expand the scope for liability for corporations conducting resource development projects abroad. </p><p style="text-align:justify;">This decision bears some similarity to the B.C. Court of Appeal's decision earlier this year in <a href="http://www.courts.gov.bc.ca/jdb-txt/ca/17/00/2017BCCA0039.htm" target="_blank"><em>Garcia v. Tahoe Resources Inc</em>., 2017 BCCA 39,</a><strong> </strong>in which a group of miners was permitted to seek damages against a Canadian company for alleged wrongs that occurred at a Guatemalan mine. Both decisions are part of the increasing number of lawsuits against Canadian parent companies for the conduct of their foreign subsidiaries, which is a topic that has been previously discussed in our prior posts to this blog in  <a href="/energy/Pages/Post.aspx?PID=297" target="_blank"><em>Canadian Companies and the Effects of Foreign Operations</em></a><em>, </em><a href="/energy/Pages/Post.aspx?PID=150" target="_blank"><em>Court Refuses to Hear Corporate-Veil Case</em></a><em>, </em>and<em> </em><a href="/energy/Pages/Post.aspx?OID=289" target="_blank"><em>Dodging the Corporate Veil</em></a><em>. </em></p><p style="text-align:justify;"><em>[</em><a href="/energy/Pages/Post.aspx?PID=350"><em>Read more</em></a><em>...]</em></p>Introduction​The British Columbia Court of Appeal recently confirmed that customary international law may be used as a basis to seek damages from B.C. companies alleged to have acquiesced in human rights abuses in foreign jurisdictions. The decision in Araya v. Nevsun Resources Ltd., 2017 BCCA 401 ("Araya") is a novel and significant step in the development of "transnational law" that could expand the scope for liability for corporations conducting resource development projects abroad. This decision bears some similarity to the B.C. Court of Appeal's decision earlier this year in Garcia v. Tahoe Resources Inc., 2017 BCCA 39, in which a group of miners was permitted to seek damages against a Canadian company for alleged wrongs that occurred at a Guatemalan mine. Both decisions are part of the increasing number of lawsuits against Canadian parent companies for the conduct of their foreign subsidiaries, which is a topic that has been previously discussed in our prior posts to this blog in Canadian Companies and the Effects of Foreign Operations, Court Refuses to Hear Corporate-Veil Case, and Dodging the Corporate Veil. BackgroundThe defendant Nevsun Resources Inc. ("Nevsun") is a B.C. mining company that entered into a joint venture with Eritrean state companies to develop and operate the Bisha gold mine near Asmara, Eritrea. Through its foreign subsidiaries, Nevsun owns 60% of the mine. The plaintiffs are a group of Eritrean citizens who alleged that they were forced by Eritrean authorities to work in the mine in inhumane conditions under the constant threat of punishment, torture and imprisonment. They eventually fled to Canada as refugees and commenced an action in 2014 against Nevsun on the basis that Nevsun violated customary international law ("CIL") by aiding or permitting the use of forced labour, slavery, torture and other crimes against humanity.The BCSC DecisionIn 2016, Nevsun brought a number applications seeking to prevent the action from proceeding to trial (2016 BCSC 1856).Nevsun first sought to stay the proceedings on the grounds that Eritrea is the more appropriate forum for a trial (the "Forum Application"). The lower court denied the application because there was compelling evidence that the Eritrean judicial system was corrupt and unlikely to adjudicate the issues fairly, and there was a real risk of imprisonment or death if the plaintiffs returned to Eritrea to pursue their action.Nevsun also sought to have the action dismissed on the basis of the "Act of State" doctrine, which is a rule that precludes courts from adjudicating the legality of a foreign state's conduct (the "Act of State Application"). The lower court denied the application because Eritrea was not a party to the action and the doctrine had never formed the basis of a decision in a Canadian court before. In the third application, Nevsun sought to have the portions of the notice of civil claim that relied on CIL struck on the grounds that breaching CIL norms is not an actionable wrong (the "CIL Application"). Prior to this case, no Canadian court had ever recognized a civil remedy for breaching CIL norms. The Court denied the application because Nevsun had not proved that the claim was certain to fail. The Court concluded that this novel issue should be properly considered on its merits after a trial.The BCCA DecisionThe Court of Appeal upheld all three decisions. On the Forum Application, the Court held that the lower court reasonably concluded that the risk of death, corruption, and unfairness to the plaintiffs outweighed considerations of expense, inconvenience, and practical challenges. On the Act of State Application, the Court of Appeal found that the plaintiffs were not challenging Eritrea state action per se. Rather, their claim focused on Nevsun's conduct, which could be adjudicated without the need to pass judgment on Eritrean laws or actions. In any event, even if this case involved some consideration of the legality of Eritrean state acts or laws, the Court stated that the public policy exception to the Act of State doctrine would apply given the serious wrongs alleged in this claim. Finally, the Court upheld the lower court's decision in CIL Application. The Court noted that causes of actions against private parties for breaching CIL norms have been recognized in other jurisdictions, and that "transnational law" (which regulates "actions or events that transcend national frontiers") is an emerging area of law that might be adopted into Canadian law. As such, the plaintiffs' claim was not "bound to fail" and ought to proceed to trial.ImplicationsThis decision could have significant ramifications for companies engaging in resource projects in foreign jurisdictions, particularly in developing countries. Companies may find themselves in a B.C. courtroom having to answer for events that occurred half a world way in which they did not directly participate and which were legal in the country in question. It is important to note, however, that the Court has only permitted the action to proceed to trial, and has not made any determination on the merits of the claim. Whether a court ultimately recognizes this novel claim remains to be seen, and both levels of court recognized that the plaintiffs will have to overcome significant hurdles to succeed at trial. At the same time, both courts also recognized, and at times seemed to welcome, the incremental development of the common law in this area and the effectiveness of such legal mechanisms in an increasingly globalized economy.<p style="text-align:justify;"><strong><img class="ms-rtePosition-1" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/INDUS-BUSI-220-shutterstock-63912421-350.jpg" alt="" style="margin:5px;" />Introduction</strong></p><p style="text-align:justify;">​The British Columbia Court of Appeal recently confirmed that customary international law may be used as a basis to seek damages from B.C. companies alleged to have acquiesced in human rights abuses in foreign jurisdictions. The decision in <a href="http://www.courts.gov.bc.ca/jdb-txt/ca/17/04/2017BCCA0401.htm" target="_blank"><em>Araya v. Nevsun Resources Ltd.</em>, 2017 BCCA 401</a> ("Araya")<em> </em>is a novel and significant step in the development of "transnational law" that could expand the scope for liability for corporations conducting resource development projects abroad. </p><p style="text-align:justify;">This decision bears some similarity to the B.C. Court of Appeal's decision earlier this year in <a href="http://www.courts.gov.bc.ca/jdb-txt/ca/17/00/2017BCCA0039.htm" target="_blank"><em>Garcia v. Tahoe Resources Inc</em>., 2017 BCCA 39,</a><strong> </strong>in which a group of miners was permitted to seek damages against a Canadian company for alleged wrongs that occurred at a Guatemalan mine. Both decisions are part of the increasing number of lawsuits against Canadian parent companies for the conduct of their foreign subsidiaries, which is a topic that has been previously discussed in our prior posts to this blog in <a href="/energy/Pages/Post.aspx?PID=297" target="_blank"><em>Canadian Companies and the Effects of Foreign Operations</em></a><em>, </em><a href="/energy/Pages/Post.aspx?PID=150" target="_blank"><em>Court Refuses to Hear Corporate-Veil Case</em></a><em>, </em>and<em> </em><a href="/energy/Pages/Post.aspx?OID=289" target="_blank"><em>Dodging the Corporate Veil</em></a><em>. </em></p><p style="text-align:justify;"><span lang="EN-CA"><strong>Background</strong></span></p><p style="text-align:justify;">The defendant Nevsun Resources Inc. ("Nevsun") is a B.C. mining company that entered into a joint venture with Eritrean state companies to develop and operate the Bisha gold mine near Asmara, Eritrea. Through its foreign subsidiaries, Nevsun owns 60% of the mine. The plaintiffs are a group of Eritrean citizens who alleged that they were forced by Eritrean authorities to work in the mine in inhumane conditions under the constant threat of punishment, torture and imprisonment. They eventually fled to Canada as refugees and commenced an action in 2014 against Nevsun on the basis that Nevsun violated customary international law ("CIL") by aiding or permitting the use of forced labour, slavery, torture and other crimes against humanity.</p><p style="text-align:justify;"><span lang="EN-CA"><strong>The BCSC Decision</strong></span></p><p style="text-align:justify;">In 2016, Nevsun brought a number applications seeking to prevent the action from proceeding to trial (<a href="http://www.courts.gov.bc.ca/jdb-txt/sc/16/18/2016BCSC1856cor3.htm" target="_blank">2016 BCSC 1856</a>).</p><p style="text-align:justify;">Nevsun first sought to stay the proceedings on the grounds that Eritrea is the more appropriate forum for a trial (the "Forum Application"). The lower court denied the application because there was compelling evidence that the Eritrean judicial system was corrupt and unlikely to adjudicate the issues fairly, and there was a real risk of imprisonment or death if the plaintiffs returned to Eritrea to pursue their action.</p><p style="text-align:justify;">Nevsun also sought to have the action dismissed on the basis of the "Act of State" doctrine, which is a rule that precludes courts from adjudicating the legality of a foreign state's conduct (the "Act of State Application"). The lower court denied the application because Eritrea was not a party to the action and the doctrine had never formed the basis of a decision in a Canadian court before. </p><p style="text-align:justify;">In the third application, Nevsun sought to have the portions of the notice of civil claim that relied on CIL struck on the grounds that breaching CIL norms is not an actionable wrong (the "CIL Application"). Prior to this case, no Canadian court had ever recognized a civil remedy for breaching CIL norms. The Court denied the application because Nevsun had not proved that the claim was certain to fail. The Court concluded that this novel issue should be properly considered on its merits after a trial.</p><p style="text-align:justify;"><span lang="EN-CA"><strong>The BCCA Decision</strong></span></p><p style="text-align:justify;">The Court of Appeal upheld all three decisions. On the Forum Application, the Court held that the lower court reasonably concluded that the risk of death, corruption, and unfairness to the plaintiffs outweighed considerations of expense, inconvenience, and practical challenges. </p><p style="text-align:justify;">On the Act of State Application, the Court of Appeal found that the plaintiffs were not challenging Eritrea state action per se. Rather, their claim focused on Nevsun's conduct, which could be adjudicated without the need to pass judgment on Eritrean laws or actions. In any event, even if this case involved some consideration of the legality of Eritrean state acts or laws, the Court stated that the public policy exception to the Act of State doctrine would apply given the serious wrongs alleged in this claim.  </p><p style="text-align:justify;">Finally, the Court upheld the lower court's decision in CIL Application. The Court noted that causes of actions against private parties for breaching CIL norms have been recognized in other jurisdictions, and that "transnational law" (which regulates "actions or events that transcend national frontiers") is an emerging area of law that might be adopted into Canadian law. As such, the plaintiffs' claim was not "bound to fail" and ought to proceed to trial.</p><p style="text-align:justify;"><span lang="EN-CA"><strong>Implications</strong></span></p><p style="text-align:justify;">This decision could have significant ramifications for companies engaging in resource projects in foreign jurisdictions, particularly in developing countries. Companies may find themselves in a B.C. courtroom having to answer for events that occurred half a world way in which they did not directly participate and which were legal in the country in question. </p><p style="text-align:justify;">It is important to note, however, that the Court has only permitted the action to proceed to trial, and has not made any determination on the merits of the claim. Whether a court ultimately recognizes this novel claim remains to be seen, and both levels of court recognized that the plaintiffs will have to overcome significant hurdles to succeed at trial. At the same time, both courts also recognized, and at times seemed to welcome, the incremental development of the common law in this area and the effectiveness of such legal mechanisms in an increasingly globalized economy.</p>12/7/2017 5:00:00 AM2017-12-07T05:00:00ZTrue1float;#12.0000000000000float;#2017.00000000000string;#Decemberfloat;#201712.000000000GP0|#4e9fc7d5-bb0d-4cd4-878d-b18db04a4118;L0|#04e9fc7d5-bb0d-4cd4-878d-b18db04a4118|British Columbia;GTSet|#939fe804-8a2a-4cfa-af8f-5756b32ac3ca;GP0|#3e7a8132-33f1-45f1-82ca-865d4e5b5f77;L0|#03e7a8132-33f1-45f1-82ca-865d4e5b5f77|InternationalBritish Columbia;International
Cansearch: Lessons for Operators in Limiting Counterparty RiskCansearch: Lessons for Operators in Limiting Counterparty Risk349BLG Blog PostJessica Cameron;Steven Bodijcameron@blg.com | Jessica Cameron | 693A30232E777C626C6763616E6164615C6A63616D65726F6E i:0#.w|blgcanada\jcameron;sbodi@blg.com | Steven Bodi | 693A30232E777C626C6763616E6164615C73626F6469 i:0#.w|blgcanada\sbodi​The Court of Queen's Bench of Alberta ("Court") recently decided in Cansearch Resources Ltd v Regent Resources Ltd, 2017 ABQB 535 that an unregistered operator's lien is subordinate to the registered interest of a secured lender under applicable provisions of the Personal Property Security Act (Alberta) ("PPSA"), notwithstanding an agreement's language to the contrary. The decision provides caution to operators in the oil and gas industry to take the required steps under the PPSA to protect contractual liens. The decision has further implications for operators who have failed to register an operator's lien in the Personal Property Registry and attempt to assert priority based on possession of equipment at a facility or rig. [Read more...]<p style="text-align:justify;"><img class="ms-rtePosition-1" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/GENCAN-191-shutterstock-75.jpg" alt="" style="margin:5px;" />​The Court of Queen's Bench of Alberta ("<strong>Court"</strong>) recently decided in <a href="https://www.canlii.org/en/ab/abqb/doc/2017/2017abqb535/2017abqb535.html?resultIndex=1" target="_blank"><em>Cansearch Resources Ltd v Regent Resources Ltd</em>, 2017 ABQB 535 </a>that an unregistered operator's lien is subordinate to the registered interest of a secured lender under applicable provisions of the <em>Personal Property Security Act </em>(Alberta) ("<strong>PPSA"</strong>), notwithstanding an agreement's language to the contrary. The decision provides caution to operators in the oil and gas industry to take the required steps under the PPSA to protect contractual liens. The decision has further implications for operators who have failed to register an operator's lien in the Personal Property Registry and attempt to assert priority based on possession of equipment at a facility or rig.  </p><p style="text-align:justify;">[<a href="/energy/Pages/Post.aspx?PID=349"><em>Read more</em></a>...]</p>​IntroductionThe Court of Queen's Bench of Alberta ("Court") recently decided in Cansearch Resources Ltd v Regent Resources Ltd, 2017 ABQB 535 that an unregistered operator's lien is subordinate to the registered interest of a secured lender under applicable provisions of the Personal Property Security Act (Alberta) ("PPSA"), notwithstanding an agreement's language to the contrary. The decision provides caution to operators in the oil and gas industry to take the required steps under the PPSA to protect contractual liens. The decision has further implications for operators who have failed to register an operator's lien in the Personal Property Registry and attempt to assert priority based on possession of equipment at a facility or rig. BackgroundThe decision arose from the receivership of Regent Resources Ltd. ("Regent"). Cansearch Resources Ltd. ("Cansearch") was the operator of an oil and gas facility jointly owned by Regent. Regent was petitioned into receivership and Ernst & Young Inc. was appointed as its receiver (the "Receiver"). Through the receivership proceedings, the Receiver sold Regent's assets, including the jointly owned facility. Cansearch applied for a declaration that it had a first priority claim to the proceeds realized from the sale of Regent's interest in the facility and for an order directing that such proceeds be distributed to Cansearch.Cansearch and Regent were partners in the Joffre Gas Battery and Compression Facility (the "Facility"). The partnership between Cansearch and Regent in the Joffre Facility was governed by a 2008 agreement between Regent and Cansearch (the "Operating Agreement") incorporating the 1999 Petroleum Joint Venture Association Operating Procedure (the "Operating Procedure") and the 1996 PASC Accounting Procedure (the "Accounting Procedure"). Cansearch was the operator of the Facility, responsible for managing and conducting the day-to-day operations at the Facility for the benefit of both parties. During 2015, Regent stopped paying its share of the operating expenses of the Facility. Regent owed Cansearch a total of $91,683.64 for the pre-receivership period ending November 30, 2016 (the "Unpaid Expenses"), which was not disputed. In Regent's receivership, Cansearch attempted to assert that it had a priority claim to proceeds from the sale of Regent's interest in the Facility (the "Facility Proceeds") arising from the Unpaid Expenses because of Cansearch's operator's lien. During the course of the court proceedings, Cansearch's legal basis for priority shifted from an operator's lien arising under the Operating Agreement to an asserted possessory lien under the Possessory Liens Act (Alberta) (the "PLA"). Cansearch was ultimately unsuccessful in obtaining a priority to the Facility Proceeds as a result of either alternative lien. The Court's reasoning provides guidance and instructions to operators to properly protect their interests under operating agreements.The Operator's LienThe validity of the Operator's Lien was unchallenged by the Receiver and Alberta Treasury Branches ("ATB"), Regent's first secured creditor pursuant to a general security agreement ("GSA"). The Operating Procedure provided Cansearch with the Operator's Lien for any unpaid expenses relating to Regent's interest in the Facility pursuant to the following clause 602(a) Operator's Lien and Remedies Effective from the Effective Date, Operator shall have a lien and charge, which is first and prior to any other lien, charge, mortgage or other security interest with respect to the Function Unit Participations of each Owner in the Facility and such Owner's share of Facility Products, to secure payment of such Owner's proportionate share of the costs and expenses incurred by Operator for the Joint Account. Cansearch notified the Receiver that its Operator's Lien gave it first priority to the Facility Proceeds, ahead of ATB's GSA. The Receiver investigated the matter but ultimately determined that ATB's GSA, which had been duly registered in the Alberta Personal Property Registry ("PPR") gave it first priority. Cansearch subsequently conceded that its unregistered Operator's Lien was subordinate to ATB's registered GSA. Notwithstanding this, the Court provided reasons behind this determination. The Court's reasons provide a clear lesson to operators operators must register their interests under the PPSA to benefit from language granting them an operator's lien. In particular, the Court noted that Registration of an operator's lien is both possible and advisable.1 An operator's lien is a consensual and contractual interest. As such, it qualifies as a security interest under the PPSA.2 The PPSA governs priority vis-à-vis other security interests.3 An operator's lien extends to the ownership interest in an operating facility and the ownership interest itself comprises a separate component of the Facility.4 An operator's lien can apply potentially to both freehold and Crown real property interests (both as to surface and mineral rights), and a number of different types of tangible and intangible personal property.5 Priority of the operator's lien is dependent upon which section of the PPSA governs it. For example, the PPSA provides that certain non-consensual liens have priority over other perfected security interests6 Contractual liens are not afforded priority as non-consensual liens under applicable provisions of the PPSA. Operator's liens are governed under the usual "first in time" rules of the PPSA, where priority is dependent upon if, and when, the security interest was perfected by either registration or possession.As the Operator's Lien was unregistered, Cansearch accordingly did not have priority based on registration. As such, Cansearch could only claim priority under the PPSA by virtue of possession, which perfects a security interest if a secured party holds the collateral for the purposes of securing payment. A secured party must establish that it holds collateral for the purpose of securing payment. Mere physical handling or custody is insufficient; the property must be shown to be held as collateral. In addition, the possession must be sufficient to indicate to third parties that the debtor has given a security interest in collateral in order for perfection by possession to be established for the purposes of the PPSA.7Cansearch was not able to adduce any evidence which indicated that it was holding any interest of Regent as collateral. The Court agreed with the parties, that the Operator's Lien is an unperfected security interest for the purposes of the PPSA, and was subordinate to ATB's GSA. Had Cansearch registered its interest, the outcome could have been different.The Possessory LienAfter abandoning its position based on the Operator's Lien, Cansearch attempted to claim priority based on a possessory lien under the PLA against equipment at the Facility (the "Possessory Lien"), which lien would constitute the type of non-consensual lien afforded priority pursuant to section 32 of the PPSA. In order to establish entitlement to a Possessory Lien, Cansearch was required to show that it expended money, labour, or skill over a particular chattel and that it had maintained actual or constructive possession of that chattel.Cansearch argued that it had a Possessory Lien over certain equipment comprising the various components of the Facility. It argued that all of the Unpaid Expenses were incurred to enhance the value of the equipment at the Facility and that it maintained continuous possession of the equipment due to its undivided ownership interest in the Facility.The Court found that Cansearch provided only a preliminary description of equipment, which the Operator's Lien was intended to cover, coupled with generalized invoices from the Facilities' operations, and that such evidence did not provide enough specificity required to establish the claimed Possessory Lien. The Court inferred such lack of information stemmed from Cansearch's erroneous belief that the Possessory Lien could be conflated with the Operator's Lien vis-à-vis the Unpaid Expenses. There are important differences due to the nature and application of each type of lien. These differences were fatal in establishing that the Possessory Lien gave Cansearch priority. In this respect, the Court made three important points Cansearch did not establish that the Possessory Lien covered the entirety, or even part of Regent's ownership interest in the Facility. The PLA is clear that a possessory lien only covers chattels (i.e. specific tangible personal property such as equipment). This was contrary to the Operating Agreement, which defined Regent's ownership interest in the Facility as including both real and personal property. Importantly, Cansearch could not claim a possessory lien over any part of Regent's interest without first identifying the specific chattels that such a lien would cover. Cansearch did not properly identify which chattels would be covered by its Possessory Lien. Cansearch only introduced the Operating Procedure's definition of what equipment would have been on site at the Facility, which was only at the time of its construction. There was no evidence as to what equipment was situated at the Facility at the time Regent's debt arose, or evidence as to the money or services expended on specific equipment giving rise to Regent's debt. There was insufficient evidence as to whether the described equipment at the Facility remained a chattel or became a fixture or improvement to the real property on which the Facility was situated. Most importantly, Cansearch's Possessory Lien argument failed to recognize that such a lien would not cover all of the Unpaid Expenses. The PLA is clear that the Possessory Lien cannot extend over a general balance owed by an owner of chattels. Cansearch would therefore be required to identify the work it had done or money spent to enhance (or maintain) the specific chattel and the cost. As evidence was only introduced to support the Unpaid Expenses, there was insufficient evidence in that regard. The Court found that the descriptions permitted by the Accounting Procedure were vague and imprecise, and did not allow the court to adequately determine what money or services were expended by Cansearch to enhance the value of specific site equipment. Additionally a portion of the Unpaid Expenses – as permitted by the Accounting Procedure, were for the acquisition of subsurface rights and related bonus cost, lease, license or permit deposits, rentals, renewal or extension fees and royalties. The important distinction for a Possessory Lien is between services related to general operational activities and those specifically related to performing work to enhance the value of chattels. The Court concluded that many of the Unpaid Expenses were relating to general operational activities and not specifically to performing work to enhance the value of chattels. Cansearch's generalized expenses were not enough to establish an entitlement to a Possessory Lien as there was insufficient evidence to substantiate that the Unpaid Expenses represented money or services provided to enhance the value of specific identified chattels. Conclusions and ImplicationsThe key takeaways from the Cansearch decision for industry participants are1. The priorities as between parties' contractual agreements and security interests will be determined by the PPSA. An unregistered operator's lien will not have priority over registered security interests pursuant to the PPSA. 2. An operator cannot establish entitlement to a possessory lien against a facility on account of a general balance owing by a working interest participant. Further, it remains difficult, if not impossible, for an operator to establish entitlement to a possessory lien against a party's general interest in a facility, as such liens are only valid as against specified chattels to the extent a party has expended money, labour or skill to improve those chattels.The unfortunate reality of this situation is that often times a party will not register an operator's lien as this may interfere with its partner's financing arrangements. For example, it is a common provision in oil and gas loan agreements that an event of default occurs where security interests are registered against the borrower. Additionally, the practical reality of accounting practices in the oil and gas industry make it difficult for parties to properly document expenditures with reference to specified equipment. Given these issues and the increasing number of oil and gas insolvencies in Alberta, operators may want to consider revising their accounting procedures to allow the majority of operating expenses to be collected from the working interest participants upfront based upon an estimate of the previous month's expenses. While not an ideal solution or a solution which can be implemented over night, it may nevertheless be an issue for industry to consider. 1 Cansearch at para 37. 2 Cansearch at para 39. 3 Cansearch at para 39 citing Direct Energy Marketing Ltd v Kalta Energy Corp [2002] AJ No 463 (QB) and Re Blue Range Resources Corp, 2000 ABQB 4. 4 Cansearch at para 38. 5 Cansearch at para 38. 6 Cansearch at para 40. 7 Cansearch at para 44 citing Re Blue Range Resources Corp, [1999] AJ No 1665.<p style="text-align:justify;">​<img class="ms-rtePosition-1" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/GENCAN-191-shutterstock-375.jpg" alt="" style="margin:5px;" /><span lang="EN-CA"><span aria-hidden="true"></span><strong>Introduction</strong></span></p><p style="text-align:justify;">The Court of Queen's Bench of Alberta ("<strong>Court"</strong>) recently decided in <a href="https://www.canlii.org/en/ab/abqb/doc/2017/2017abqb535/2017abqb535.html?resultIndex=1" target="_blank"><em>Cansearch Resources Ltd v Regent Resources Ltd</em>, 2017 ABQB 535</a> that an unregistered operator's lien is subordinate to the registered interest of a secured lender under applicable provisions of the <em>Personal Property Security Act </em>(Alberta) ("<strong>PPSA"</strong>), notwithstanding an agreement's language to the contrary. The decision provides caution to operators in the oil and gas industry to take the required steps under the PPSA to protect contractual liens. The decision has further implications for operators who have failed to register an operator's lien in the Personal Property Registry and attempt to assert priority based on possession of equipment at a facility or rig. </p><p style="text-align:justify;"><span lang="EN-CA"><strong>Background</strong></span></p><p style="text-align:justify;">The decision arose from the receivership of Regent Resources Ltd. ("<strong>Regent"</strong>). Cansearch Resources Ltd. ("<strong>Cansearch"</strong>) was the operator of an oil and gas facility jointly owned by Regent. Regent was petitioned into receivership and Ernst & Young Inc. was appointed as its receiver (the "<strong>Receiver</strong>"). Through the receivership proceedings, the Receiver sold Regent's assets, including the jointly owned facility. Cansearch applied for a declaration that it had a first priority claim to the proceeds realized from the sale of Regent's interest in the facility and for an order directing that such proceeds be distributed to Cansearch.</p><p style="text-align:justify;">Cansearch and Regent were partners in the Joffre Gas Battery and Compression Facility (the "<strong>Facility"</strong>). The partnership between Cansearch and Regent in the Joffre Facility was governed by a 2008 agreement between Regent and Cansearch (the "<strong>Operating Agreement"</strong>)<strong> </strong>incorporating the 1999 Petroleum Joint Venture Association Operating Procedure (the "<strong>Operating Procedure"</strong>) and the 1996 PASC Accounting Procedure (the "<strong>Accounting Procedure"</strong>). Cansearch was the operator of the Facility, responsible for managing and conducting the day-to-day operations at the Facility for the benefit of both parties. </p><p style="text-align:justify;">During 2015, Regent stopped paying its share of the operating expenses of the Facility. Regent owed Cansearch a total of $91,683.64 for the pre-receivership period ending November 30, 2016 (the "<strong>Unpaid Expenses"</strong>), which was not disputed. In Regent's receivership, Cansearch attempted to assert that it had a priority claim to proceeds from the sale of Regent's interest in the Facility (the "<strong>Facility Proceeds"</strong>) arising from the Unpaid Expenses because of Cansearch's operator's lien. During the course of the court proceedings, Cansearch's legal basis for priority shifted from an operator's lien arising under the Operating Agreement to an asserted possessory lien under the <em>Possessory Liens Act</em> (Alberta) (the "<strong>PLA"</strong>). Cansearch was ultimately unsuccessful in obtaining a priority to the Facility Proceeds as a result of either alternative lien. The Court's reasoning provides guidance and instructions to operators to properly protect their interests under operating agreements.</p><p style="text-align:justify;"><span lang="EN-CA"><strong>The Operator's Lien</strong></span></p><p style="text-align:justify;">The validity of the Operator's Lien was unchallenged by the Receiver and Alberta Treasury Branches ("<strong>ATB"</strong>), Regent's first secured creditor pursuant to a general security agreement ("<strong>GSA</strong>"). The Operating Procedure provided Cansearch with the Operator's Lien for any unpaid expenses relating to Regent's interest in the Facility pursuant to the following clause: </p><blockquote dir="ltr" style="margin-right:0px;"><p style="text-align:justify;">602(a) <span lang="EN-CA" style="text-decoration:underline;">Operator's Lien and Remedies</span>: Effective from the Effective Date, Operator shall have a lien and charge, which is <span lang="EN-CA" style="text-decoration:underline;">first and prior to any other lien, charge, mortgage or other security interest</span> with respect to the Function Unit Participations of each Owner in the Facility and such Owner's share of Facility Products, to secure payment of such Owner's proportionate share of the costs and expenses incurred by Operator for the Joint Account. </p></blockquote><p style="text-align:justify;">Cansearch notified the Receiver that its Operator's Lien gave it first priority to the Facility Proceeds, ahead of ATB's GSA. The Receiver investigated the matter but ultimately determined that ATB's GSA, which had been duly registered in the Alberta Personal Property Registry ("<strong>PPR</strong>") gave it first priority. </p><p style="text-align:justify;">Cansearch subsequently conceded that its unregistered Operator's Lien was subordinate to ATB's registered GSA. Notwithstanding this, the Court provided reasons behind this determination.  The Court's reasons provide a clear lesson to operators: operators must register their interests under the PPSA to benefit from language granting them an operator's lien. In particular, the Court noted that:</p><ul style="text-align:justify;"><li>Registration of an operator's lien is both possible and advisable.<a href="file:///C:/Users/jhamilton/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/A9QSVLWX/CAL01-#2349378-v2-Blog_Post_(2017_09)_re__Cansearch_Priority_Claim.docx"><sup>1</sup></a></li><li>An operator's lien is a consensual and contractual interest. As such, it qualifies as a security interest under the PPSA.<a href="file:///C:/Users/jhamilton/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/A9QSVLWX/CAL01-#2349378-v2-Blog_Post_(2017_09)_re__Cansearch_Priority_Claim.docx"><sup>2</sup></a> The PPSA governs priority vis-à-vis other security interests.<a href="file:///C:/Users/jhamilton/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/A9QSVLWX/CAL01-#2349378-v2-Blog_Post_(2017_09)_re__Cansearch_Priority_Claim.docx"><sup>3</sup></a></li><li>An operator's lien extends to the ownership interest in an operating facility and the ownership interest itself comprises a separate component of the Facility.<a href="file:///C:/Users/jhamilton/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/A9QSVLWX/CAL01-#2349378-v2-Blog_Post_(2017_09)_re__Cansearch_Priority_Claim.docx"><sup>4</sup></a></li><li>An operator's lien can apply potentially to both freehold and Crown real property interests (both as to surface and mineral rights), and a number of different types of tangible and intangible personal property.<a href="file:///C:/Users/jhamilton/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/A9QSVLWX/CAL01-#2349378-v2-Blog_Post_(2017_09)_re__Cansearch_Priority_Claim.docx"><sup>5</sup></a></li><li>Priority of the operator's lien is dependent upon which section of the PPSA governs it. For example, the PPSA provides that certain non-consensual liens have priority over other perfected security interests<a href="file:///C:/Users/jhamilton/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/A9QSVLWX/CAL01-#2349378-v2-Blog_Post_(2017_09)_re__Cansearch_Priority_Claim.docx"><sup>6</sup></a> Contractual liens are not afforded priority as non-consensual liens under applicable provisions of the PPSA. Operator's liens are governed under the usual "first in time" rules of the PPSA, where priority is dependent upon if, and when, the security interest was perfected by either registration or possession.</li></ul><p style="text-align:justify;">As the Operator's Lien was unregistered, Cansearch accordingly did not have priority based on registration. As such, Cansearch could only claim priority under the PPSA by virtue of possession, which perfects a security interest if a secured party holds the collateral for the purposes of securing payment. A secured party must establish that it holds collateral for the purpose of securing payment. Mere physical handling or custody is insufficient; the property must be shown to be held as collateral. In addition, the possession must be sufficient to indicate to third parties that the debtor has given a security interest in collateral in order for perfection by possession to be established for the purposes of the PPSA.<a href="file:///C:/Users/jhamilton/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/A9QSVLWX/CAL01-#2349378-v2-Blog_Post_(2017_09)_re__Cansearch_Priority_Claim.docx"><sup>7</sup></a></p><p style="text-align:justify;">Cansearch was not able to adduce any evidence which indicated that it was holding any interest of Regent as collateral. The Court agreed with the parties, that the Operator's Lien is an unperfected security interest for the purposes of the PPSA, and was subordinate to ATB's GSA. Had Cansearch registered its interest, the outcome could have been different.</p><p style="text-align:justify;"><span lang="EN-CA"><strong>The Possessory Lien</strong></span></p><p style="text-align:justify;">After abandoning its position based on the Operator's Lien, Cansearch attempted to claim priority based on a possessory lien under the PLA against equipment at the Facility (the "<strong>Possessory Lien</strong>"), which lien would constitute the type of non-consensual lien afforded priority pursuant to section 32 of the PPSA. In order to establish entitlement to a Possessory Lien, Cansearch was required to show that it expended money, labour, or skill over a particular chattel and that it had maintained actual or constructive possession of that chattel.</p><p style="text-align:justify;">Cansearch argued that it had a Possessory Lien over certain equipment comprising the various components of the Facility. It argued that all of the Unpaid Expenses were incurred to enhance the value of the equipment at the Facility and that it maintained continuous possession of the equipment due to its undivided ownership interest in the Facility.</p><p style="text-align:justify;">The Court found that Cansearch provided only a preliminary description of equipment, which the Operator's Lien was intended to cover, coupled with generalized invoices from the Facilities' operations, and that such evidence did not provide enough specificity required to establish the claimed Possessory Lien. </p><p style="text-align:justify;">The Court inferred such lack of information stemmed from Cansearch's erroneous belief that the Possessory Lien could be conflated with the Operator's Lien vis-à-vis the Unpaid Expenses. There are important differences due to the nature and application of each type of lien. These differences were fatal in establishing that the Possessory Lien gave Cansearch priority. In this respect, the Court made three important points:</p><ol style="text-align:justify;"><li>Cansearch did not establish that the Possessory Lien covered the entirety, or even part of Regent's ownership interest in the Facility. The PLA is clear that a possessory lien only covers chattels (i.e. specific tangible personal property such as equipment). This was contrary to the Operating Agreement, which defined Regent's ownership interest in the Facility as including both real and personal property. Importantly, Cansearch could not claim a possessory lien over any part of Regent's interest without first identifying the specific chattels that such a lien would cover. </li><li>Cansearch did not properly identify which chattels would be covered by its Possessory Lien. Cansearch only introduced the Operating Procedure's definition of what equipment would have been on site at the Facility, which was only at the time of its construction. There was no evidence as to what equipment was situated at the Facility at the time Regent's debt arose, or evidence as to the money or services expended on specific equipment giving rise to Regent's debt. </li><li>There was insufficient evidence as to whether the described equipment at the Facility remained a chattel or became a fixture or improvement to the real property on which the Facility was situated. </li><li>Most importantly, Cansearch's Possessory Lien argument failed to recognize that such a lien would not cover all of the Unpaid Expenses. The PLA is clear that the Possessory Lien cannot extend over a general balance owed by an owner of chattels. Cansearch would therefore be required to identify the work it had done or money spent to enhance (or maintain) the specific chattel and the cost. As evidence was only introduced to support the Unpaid Expenses, there was insufficient evidence in that regard. The Court found that the descriptions permitted by the Accounting Procedure were vague and imprecise, and did not allow the court to adequately determine what money or services were expended by Cansearch to enhance the value of specific site equipment. Additionally a portion of the Unpaid Expenses – as permitted by the Accounting Procedure, were for the acquisition of subsurface rights and related bonus cost, lease, license or permit deposits, rentals, renewal or extension fees and royalties. </li></ol><p style="text-align:justify;">The important distinction for a Possessory Lien is between services related to general operational activities and those specifically related to performing work to enhance the value of chattels. The Court concluded that many of the Unpaid Expenses were relating to general operational activities and not specifically to performing work to enhance the value of chattels. Cansearch's generalized expenses were not enough to establish an entitlement to a Possessory Lien as there was insufficient evidence to substantiate that the Unpaid Expenses represented money or services provided to enhance the value of specific identified chattels. </p><p style="text-align:justify;"><span lang="EN-CA" style="text-decoration:underline;"><strong>Conclusions and Implications</strong></span></p><p style="text-align:justify;">The key takeaways from the <em>Cansearch</em> decision for industry participants are:</p><p style="text-align:justify;">1. The priorities as between parties' contractual agreements and security interests will be determined by the PPSA. An unregistered operator's lien will not have priority over registered security interests pursuant to the PPSA. </p><p style="text-align:justify;">2. An operator cannot establish entitlement to a possessory lien against a facility on account of a general balance owing by a working interest participant. Further, it remains difficult, if not impossible, for an operator to establish entitlement to a possessory lien against a party's general interest in a facility, as such liens are only valid as against specified chattels to the extent a party has expended money, labour or skill to improve those chattels.</p><p style="text-align:justify;">The unfortunate reality of this situation is that often times a party will not register an operator's lien as this may interfere with its partner's financing arrangements. For example, it is a common provision in oil and gas loan agreements that an event of default occurs where security interests are registered against the borrower. Additionally, the practical reality of accounting practices in the oil and gas industry make it difficult for parties to properly document expenditures with reference to specified equipment. Given these issues and the increasing number of oil and gas insolvencies in Alberta, operators may want to consider revising their accounting procedures to allow the majority of operating expenses to be collected from the working interest participants upfront based upon an estimate of the previous month's expenses. While not an ideal solution or a solution which can be implemented over night, it may nevertheless be an issue for industry to consider. </p><p style="text-align:justify;"><a href="file:///C:/Users/jhamilton/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/A9QSVLWX/CAL01-#2349378-v2-Blog_Post_(2017_09)_re__Cansearch_Priority_Claim.docx"><sup>1</sup></a><sup> </sup><em><sup>Cansearch</sup></em><sup> at para 37.</sup><br><a href="file:///C:/Users/jhamilton/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/A9QSVLWX/CAL01-#2349378-v2-Blog_Post_(2017_09)_re__Cansearch_Priority_Claim.docx"><sup>2</sup></a><sup> </sup><em><sup>Cansearch</sup></em><sup> at para 39.</sup><br><a href="file:///C:/Users/jhamilton/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/A9QSVLWX/CAL01-#2349378-v2-Blog_Post_(2017_09)_re__Cansearch_Priority_Claim.docx"><sup>3</sup></a><em><sup> Cansearch</sup></em><sup> at para 39 citing </sup><em><sup>Direct Energy Marketing Ltd v Kalta Energy Corp</sup></em><sup> [2002] AJ No 463 (QB) and </sup><em><sup>Re Blue Range Resources Corp</sup></em><sup>, 2000 ABQB 4.</sup><br><a href="file:///C:/Users/jhamilton/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/A9QSVLWX/CAL01-#2349378-v2-Blog_Post_(2017_09)_re__Cansearch_Priority_Claim.docx"><sup>4</sup></a><sup> </sup><em><sup>Cansearch</sup></em><sup> at para 38. </sup><br><a href="file:///C:/Users/jhamilton/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/A9QSVLWX/CAL01-#2349378-v2-Blog_Post_(2017_09)_re__Cansearch_Priority_Claim.docx"><sup>5</sup></a><sup> </sup><em><sup>Cansearch</sup></em><sup> at para 38. </sup><br><a href="file:///C:/Users/jhamilton/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/A9QSVLWX/CAL01-#2349378-v2-Blog_Post_(2017_09)_re__Cansearch_Priority_Claim.docx"><sup>6</sup></a><sup> </sup><em><sup>Cansearch</sup></em><sup> at para 40. </sup><br><a href="file:///C:/Users/jhamilton/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/A9QSVLWX/CAL01-#2349378-v2-Blog_Post_(2017_09)_re__Cansearch_Priority_Claim.docx"><sup>7</sup></a><sup> </sup><em><sup>Cansearch</sup></em><sup> at para 44 citing </sup><em><sup>Re Blue Range Resources Corp</sup></em><sup>, [1999] AJ No 1665.</sup></p>12/5/2017 5:00:00 AM2017-12-05T05:00:00ZTrue1float;#12.0000000000000float;#2017.00000000000string;#Decemberfloat;#201712.000000000GP0|#60a6f187-f0e0-4c65-a06c-b97febf6542e;L0|#060a6f187-f0e0-4c65-a06c-b97febf6542e|Oil & Gas;GTSet|#939fe804-8a2a-4cfa-af8f-5756b32ac3caOil & Gas
Arbitration Parties Beware: the Supreme Court of Canada unpacks the Sattva Test for Appellate Review of Arbitration Awards in Teal Cedar Products Ltd v British ColumbiaArbitration Parties Beware: the Supreme Court of Canada unpacks the Sattva Test for Appellate Review of Arbitration Awards in Teal Cedar Products Ltd v British Columbia348BLG Blog PostChidinma Thompson;Michael Gabercthompson@blg.com | Chidinma Thompson | 693A30232E777C626C6763616E6164615C6374686F6D70736F6E i:0#.w|blgcanada\cthompson;mgaber@blg.com | Michael Gaber | 693A30232E777C626C6763616E6164615C6D6761626572 i:0#.w|blgcanada\mgaber​As litigants continue to experience delayed access to justice occasioned by a backlogged judicial system, Canadian courts continue the struggle to protect the legitimacy of commercial arbitration as an alternative dispute resolution process. The Supreme Court of Canada set out a three-step analysis for appellate review of arbitration awards in Creston Moly Corp v Sattva Capital Corp, 2014 SCC 53 ("Sattva") (i) assess the court's jurisdiction; (ii) determine the standard of review; and (iii) apply the standard of review. As easy as it may appear, applying the Sattva test to arbitral awards is not without challenges. In Teal Cedar Products Ltd v British Columbia, 2017 SCC 32 ("Teal"), the Supreme Court of Canada analyzed the components of the Sattva test, defined the three principal categories of questions to be determined at an appellate review (legal, factual, or mixed questions), and set out a fourth category of questions - extricable questions of law. While Teal provides a guide for the application of the Sattva test, more importantly, it underpins the court's endorsement of the efficiency and finality objectives of commercial arbitrations by reminding parties to arbitration agreements of the very narrow scope of appellate review of arbitration awards. [Read more...]<p style="text-align:justify;"><img class="ms-rtePosition-1" alt="PillarsofJustice" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/PillarsofJusticeSMALL.jpg" style="margin:5px;" />​As litigants continue to experience delayed access to justice occasioned by a backlogged judicial system, Canadian courts continue the struggle to protect the legitimacy of commercial arbitration as an alternative dispute resolution process. The Supreme Court of Canada set out a three-step analysis for appellate review of arbitration awards in <a href="http://canlii.ca/t/g88q1" target="_blank"><em>Creston Moly Corp v Sattva Capital Corp</em>, 2014 SCC 53</a> ("<em>Sattva</em>") (i) assess the court's jurisdiction; (ii) determine the standard of review; and (iii) apply the standard of review. As easy as it may appear, applying the<em> Sattva </em>test to arbitral awards is not without challenges.  In <a href="http://canlii.ca/t/h4f8v" target="_blank"><em>Teal Cedar Products Ltd v British Columbia</em>, 2017 SCC 32</a> ("<em>Teal</em>"), the Supreme Court of Canada analyzed the components of the<em> Sattva </em>test, defined the three principal categories of questions to be determined at an appellate review (legal, factual, or mixed questions), and set out a fourth category of questions - extricable questions of law. While <em>Teal </em>provides a guide for the application of the <em>Sattva </em>test, more importantly, it underpins the court's endorsement of the efficiency and finality objectives of commercial arbitrations by reminding parties to arbitration agreements of the very narrow scope of appellate review of arbitration awards. </p><p style="text-align:justify;">[<a href="/energy/Pages/Post.aspx?PID=346"><em>Read more</em></a>...]</p>​IntroductionAs litigants continue to experience delayed access to justice occasioned by a backlogged judicial system, Canadian courts continue the struggle to protect the legitimacy of commercial arbitration as an alternative dispute resolution process. The Supreme Court of Canada set out a three-step analysis for appellate review of arbitration awards in Creston Moly Corp v Sattva Capital Corp, 2014 SCC 53 ("Sattva") (i) assess the court's jurisdiction; (ii) determine the standard of review; and (iii) apply the standard of review. As easy as it may appear, applying the Sattva test to arbitral awards is not without challenges. In Teal Cedar Products Ltd v British Columbia, 2017 SCC 32 ("Teal"), the Supreme Court of Canada analyzed the components of the Sattva test, defined the three principal categories of questions to be determined at an appellate review (legal, factual, or mixed questions), and set out a fourth category of questions - extricable questions of law. While Teal provides a guide for the application of the Sattva test, more importantly, it underpins the court's endorsement of the efficiency and finality objectives of commercial arbitrations by reminding parties to arbitration agreements of the very narrow scope of appellate review of arbitration awards. BackgroundIn 2003, the province of British Columbia ("BC") implemented the Forestry Revitalization Act, SBC 2003, c 17 (the "Act"). As a result of the Act, three licenses owned by Teal Cedar Products Ltd. ("Teal Cedar") were affected negatively. As the areas of land covered by two of the licenses were reduced and all three licenses had a lower quantity of allowable harvest, Teal Cedar suffered significant losses. The Act contained a compensation scheme for the value of improvements made to Crown land (the "Improvements Compensation"). Teal Cedar and BC entered into negotiations to settle the compensation owed under the Act including a Settlement Framework Agreement which provided that no interest would be payable under any compensation BC would provide. These negotiations failed and Teal Cedar and BC subsequently entered into an Amended Agreement to submit the dispute to arbitration. IssuesThe issues submitted to arbitration were the valuation method consistent with the Act (the "Statutory Interpretation/Valuation Issue"), whether BC was liable to pay interest regardless of the Agreement (the "Contractual Interpretation/Interest Issue"), and whether Teal Cedar was entitled to compensation for the unaffected license (the "Statutory Application/License Issue"). The arbitrator accepted the depreciation replacement cost method and held Teal Cedar was entitled to interest regardless of the Settlement Framework Agreement which was a product of the failed negotiations. The arbitrator also held that Teal Cedar was not entitled to improvements compensation for the unaffected license. Judicial HistoryOn appeal, the British Columbia Supreme Court (2012 BCSC 543) upheld the arbitrator's award except in connection with the Statutory Application Issue, which was remitted to the arbitrator and resulted in an additional award in an amount equal to the value of the improvements. A majority of the British Columbia Court of Appeal (2013 BCCA 326) reversed the judge's decision, finding that the arbitrator had erred on both the Statutory Interpretation and Contractual Interpretation Issues, as well as the additional ruling on the Statutory Application issue. The Supreme Court of Canada remanded the appeal back to the Court of Appeal, upon the release of Sattva, to apply the three-step analysis for appellate review of arbitration awards (a) whether the appellate court has jurisdiction to review the alleged error; (b) if so, whether the standard for the review is reasonableness or correctness; and (c) whether the arbitration award withstands scrutiny under the applicable standard of review. A unanimous Court of Appeal (2015 BCCA 263) held that its previous decision was unaltered by Sattva, and reaffirmed its conclusion that the issues ruled upon by the arbitrator were questions of law subject to appellate review, and that the arbitrator was in error regardless of the standard of review applied.The DecisionA majority of the Supreme Court of Canada (Moldaver, Côté, Brown and Rowe JJ. dissenting in part) reversed the Court of Appeal decision in part, in light of Sattva. The Supreme Court defined the three principal categories of questions to be determined at an appellate review (legal, factual, or mixed questions) and set out a fourth category - extricable questions of law. Legal questions are questions about what the correct legal test is. Factual questions are questions about what actually took place between the parties. Mixed questions are questions about whether the facts satisfy the legal test. The Supreme Court held that while the application of a legal test to a set of facts is a mixed question, if in the course of that application the underlying legal test may have been altered, then a legal question arises. In the context of a dispute under the Arbitration Act, such a legal question is open to appellate review, assuming the other jurisdictional requirements of that Act are met. The Supreme Court defined the extricable questions of law as a covert form of legal question where a judge's (or arbitrator's) legal test is implicit to their application of the test rather than explicit in their description of the test.However, the Supreme Court narrowed the scope of extricable questions of law to preserve finality in commercial arbitration and deference to factual findings. The Supreme Court cautioned courts in identifying extricable questions of law because mixed questions, by definition, involve aspects of law. Courts must be vigilant in distinguishing between an allegation that a legal test may have been altered in the course of its application (an extricable question of law), and an allegation that an unaltered legal test should have, when applied, resulted in a different outcome (a mixed question). This is because of counsel's motivation to strategically frame a mixed question as a legal question in order to gain jurisdiction in appeals from arbitration awards or a favourable standard of review in appeals from civil litigation judgments. The Supreme Court noted that while a question of statutory interpretation is normally characterized as a legal question, contractual interpretation questions do not offer such simple characterization. Contractual interpretation involves factual, legal, and mixed questions, and characterizing the nature of the specific question before the court requires delicate consideration of the narrow issue actually in dispute. In general, contractual interpretation remains a mixed question, not a legal question, as it involves applying contractual law (principles of contract law) to contractual facts (the contract itself and its factual matrix).Applying the Sattva test, the Supreme Court held that the Statutory Interpretation Issue in this case involved two categories of questions (a) questions about the broad category of methods that are acceptable under the terms of the Revitalization Act; and (b) questions about the specific or preferable method, within that broad category of acceptable methods, that should ultimately be applied. The first are matters of statutory interpretation and therefore questions of law reviewable by courts. The second are inextricably linked to the evidentiary record at the arbitration hearing, where various experts opined on the virtues of conflicting valuation methodologies, and therefore are mixed questions if not pure questions of fact not reviewable by courts. The Supreme Court held that courts have no jurisdiction to review the Contractual Interpretation Issue, as the arbitrator was best situated to weigh the factual matrix in his interpretation of the parties' agreement regarding the payment of interest. The fact that the arbitrator may have placed significant weight on that evidence in interpreting the agreement does not engage a legal question conferring jurisdiction on the courts under the Arbitration Act, as that did not alter the underlying test he applied in this case. Further, courts have no jurisdiction to review the Statutory Application Issue, as it engaged whether the arbitrator correctly applied the valuation methodology to a license - a mixed question beyond appellate review. The Supreme Court reaffirmed the principle in Sattva that the standard of review on legal questions arising from an arbitrator's analysis of statutory interpretation issue is reasonableness, which is almost always the applicable standard when reviewing commercial arbitration awards. According to the Supreme Court, the preference for a reasonableness standard also dovetails with efficiency and finality, which are key objectives of commercial arbitration. It would be an error to claim that all statutory interpretation by an arbitrator demands correctness review simply because it engages a legal question. The Court highlighted the distinction between arbitral awards and a civil litigation judgment, where the nature of the question resolves the standard of review, with factual and mixed questions reviewed for palpable and overriding error and legal questions (including extricable questions of law) reviewed for correctness. The Supreme Court found that the reasonableness standard was not negated in this case in light of the nature of the question at issue and the arbitrator's presumed expertise. Therefore the Court of Appeal erred in holding that that the standard of review should be correctness for the Statutory Interpretation Issue. While the nature of the question (legal, mixed, or fact) is dispositive of the standard of review in the civil litigation context, it is not in the arbitration context. The Supreme Court found the arbitrator's decision on the question of law reasonable, in that, it fell within a range of possible, acceptable outcomes which were defensible in respect of the facts and law, and the decision was justified, transparent and intelligible. ImplicationsArbitration can be one of the quickest and flexible ways parties use to resolve disputes, as an alternative to the delays occasioned by overburdened trial courts. The Supreme Court of Canada has endorsed the efficiency and finality objectives of commercial arbitrations. While arbitration has many benefits, parties should be aware of the very narrow scope of the court's jurisdiction to review arbitral awards before entering into arbitration agreements. Parties should address their minds to the fact that courts have no jurisdiction to review contractual interpretation issues arising in arbitrations, as the arbitrator is best situated to weigh the factual matrix in the interpretation of the parties' agreement, provided the arbitrator did not alter the applicable legal test in the course of application. Courts also have no jurisdiction to review application of legal principles to the context of a specific case. Further, unlike civil litigation judgment where the standard of review is fixed (factual and mixed questions reviewed for reasonableness and legal questions, including extricable questions of law, reviewed for correctness), pure questions of law in arbitral awards are almost always reviewed for reasonableness, absent any negating factor. <p style="text-align:justify;"><strong>​I<img class="ms-rtePosition-1" alt="PillarsofJustice" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/PillarsofJusticeLARGE.jpg" style="margin:5px;" />ntroduction</strong></p><p style="text-align:justify;">As litigants continue to experience delayed access to justice occasioned by a backlogged judicial system, Canadian courts continue the struggle to protect the legitimacy of commercial arbitration as an alternative dispute resolution process. The Supreme Court of Canada set out a three-step analysis for appellate review of arbitration awards in <a href="http://canlii.ca/t/g88q1" target="_blank"><em>Creston Moly Corp v Sattva Capital Corp</em>, 2014 SCC 53</a> ("<em>Sattva</em>") (i) assess the court's jurisdiction; (ii) determine the standard of review; and (iii) apply the standard of review. As easy as it may appear, applying the<em> Sattva </em>test to arbitral awards is not without challenges.  In <a href="http://canlii.ca/t/h4f8v" target="_blank"><em>Teal Cedar Products Ltd v British Columbia</em>, 2017 SCC 32</a> ("<em>Teal</em>"), the Supreme Court of Canada analyzed the components of the<em> Sattva </em>test, defined the three principal categories of questions to be determined at an appellate review (legal, factual, or mixed questions), and set out a fourth category of questions - extricable questions of law. While <em>Teal </em>provides a guide for the application of the <em>Sattva </em>test, more importantly, it underpins the court's endorsement of the efficiency and finality objectives of commercial arbitrations by reminding parties to arbitration agreements of the very narrow scope of appellate review of arbitration awards. </p><p style="text-align:justify;"><strong>Background</strong></p><p style="text-align:justify;">In 2003, the province of British Columbia ("BC") implemented the <em>Forestry Revitalization Act</em>, SBC 2003, c 17 (the "Act"). As a result of the Act, three licenses owned by Teal Cedar Products Ltd. ("Teal Cedar") were affected negatively. As the areas of land covered by two of the licenses were reduced and all three licenses had a lower quantity of allowable harvest, Teal Cedar suffered significant losses. The Act contained a compensation scheme for the value of improvements made to Crown land (the "Improvements Compensation"). Teal Cedar and BC entered into negotiations to settle the compensation owed under the Act including a Settlement Framework Agreement which provided that no interest would be payable under any compensation BC would provide. These negotiations failed and Teal Cedar and BC subsequently entered into an Amended Agreement to submit the dispute to arbitration. </p><p style="text-align:justify;"><strong>Issues</strong></p><p style="text-align:justify;">The issues submitted to arbitration were: the valuation method consistent with the Act (the "Statutory Interpretation/Valuation Issue"), whether BC was liable to pay interest regardless of the Agreement (the "Contractual Interpretation/Interest Issue"), and whether Teal Cedar was entitled to compensation for the unaffected license (the "Statutory Application/License Issue"). </p><p style="text-align:justify;">The arbitrator accepted the depreciation replacement cost method and held Teal Cedar was entitled to interest regardless of the Settlement Framework Agreement which was a product of the failed negotiations. The arbitrator also held that Teal Cedar was not entitled to improvements compensation for the unaffected license. </p><p style="text-align:justify;"><strong>Judicial History</strong></p><p style="text-align:justify;">On appeal, the British Columbia Supreme Court (<a href="http://canlii.ca/t/fqzrw" target="_blank">2012 BCSC 543</a>) upheld the arbitrator's award except in connection with the Statutory Application Issue, which was remitted to the arbitrator and resulted in an additional award in an amount equal to the value of the improvements. A majority of the British Columbia Court of Appeal (<a href="http://canlii.ca/t/fzkvs" target="_blank">2013 BCCA 326</a>) reversed the judge's decision, finding that the arbitrator had erred on both the Statutory Interpretation and Contractual Interpretation Issues, as well as the additional ruling on the Statutory Application issue. The Supreme Court of Canada remanded the appeal back to the Court of Appeal, upon the release of <em>Sattva</em>, to apply the three-step analysis for appellate review of arbitration awards: (a) whether the appellate court has jurisdiction to review the alleged error; (b) if so, whether the standard for the review is reasonableness or correctness; and (c) whether the arbitration award withstands scrutiny under the applicable standard of review. A unanimous  Court of Appeal (<a href="http://canlii.ca/t/gjfzr" target="_blank">2015 BCCA 263</a>) held that its previous decision was unaltered by <em>Sattva</em>, and reaffirmed its conclusion that the issues ruled upon by the arbitrator were questions of law subject to appellate review, and that the arbitrator was in error regardless of the standard of review applied.</p><p style="text-align:justify;"><strong>The Decision</strong></p><p style="text-align:justify;">A majority of the Supreme Court of Canada (Moldaver, Côté, Brown and Rowe JJ. dissenting in part) reversed the Court of Appeal decision in part, in light of <em>Sattva</em>. The Supreme Court defined the three principal categories of questions to be determined at an appellate review (legal, factual, or mixed questions) and set out a fourth category - extricable questions of law. Legal questions are questions about what the correct legal test is. Factual questions are questions about what actually took place between the parties. Mixed questions are questions about whether the facts satisfy the legal test.  The Supreme Court held that while the application of a legal test to a set of facts is a mixed question, if in the course of that application the underlying legal test may have been altered, then a legal question arises. In the context of a dispute under the <em>Arbitration Act</em>, such a legal question is open to appellate review, assuming the other jurisdictional requirements of that Act are met. The Supreme Court defined the extricable questions of law as a covert form of legal question where a judge's (or arbitrator's) legal test is implicit to their application of the test rather than explicit in their description of the test.</p><p style="text-align:justify;">However, the Supreme Court narrowed the scope of extricable questions of law to preserve finality in commercial arbitration and deference to factual findings. The Supreme Court cautioned courts in identifying extricable questions of law because mixed questions, by definition, involve aspects of law. Courts must be vigilant in distinguishing between an allegation that a legal test may have been altered in the course of its application (an extricable question of law), and an allegation that an unaltered legal test should have, when applied, resulted in a different outcome (a mixed question). This is because of counsel's motivation to strategically frame a mixed question as a legal question in order to gain jurisdiction in appeals from arbitration awards or a favourable standard of review in appeals from civil litigation judgments. The Supreme Court noted that while a question of statutory interpretation is normally characterized as a legal question, contractual interpretation questions do not offer such simple characterization. Contractual interpretation involves factual, legal, and mixed questions, and characterizing the nature of the specific question before the court requires delicate consideration of the narrow issue actually in dispute. In general, contractual interpretation remains a mixed question, not a legal question, as it involves applying contractual law (principles of contract law) to contractual facts (the contract itself and its factual matrix).</p><p style="text-align:justify;">Applying the<em> Sattva </em>test, the Supreme Court held that the Statutory Interpretation Issue in this case involved two categories of questions: (a) questions about the broad category of methods that are acceptable under the terms of the <em>Revitalization Act</em>; and (b) questions about the specific or preferable method, within that broad category of acceptable methods, that should ultimately be applied. The first are matters of statutory interpretation and therefore questions of law reviewable by courts. The second are inextricably linked to the evidentiary record at the arbitration hearing, where various experts opined on the virtues of conflicting valuation methodologies, and therefore are mixed questions if not pure questions of fact not reviewable by courts. </p><p style="text-align:justify;">The Supreme Court held that courts have no jurisdiction to review the Contractual Interpretation Issue, as the arbitrator was best situated to weigh the factual matrix in his interpretation of the parties' agreement regarding the payment of interest. The fact that the arbitrator may have placed significant weight on that evidence in interpreting the agreement does not engage a legal question conferring jurisdiction on the courts under the <em>Arbitration Act</em>, as that did not alter the underlying test he applied in this case. Further, courts have no jurisdiction to review the Statutory Application Issue, as it engaged whether the arbitrator correctly applied the valuation methodology to a license - a mixed question beyond appellate review. </p><p style="text-align:justify;">The Supreme Court reaffirmed the principle in <em>Sattva </em>that the standard of review on legal questions arising from an arbitrator's analysis of statutory interpretation issue is reasonableness, which is almost always the applicable standard when reviewing commercial arbitration awards. According to the Supreme Court, the preference for a reasonableness standard also dovetails with efficiency and finality, which are key objectives of commercial arbitration. It would be an error to claim that all statutory interpretation by an arbitrator demands correctness review simply because it engages a legal question. The Court highlighted the distinction between arbitral awards and a civil litigation judgment, where the nature of the question resolves the standard of review, with factual and mixed questions reviewed for palpable and overriding error and legal questions (including extricable questions of law) reviewed for correctness. </p><p style="text-align:justify;">The Supreme Court found that the reasonableness standard was not negated in this case in light of the nature of the question at issue and the arbitrator's presumed expertise. Therefore the Court of Appeal erred in holding that that the standard of review should be correctness for the Statutory Interpretation Issue. While the nature of the question (legal, mixed, or fact) is dispositive of the standard of review in the civil litigation context, it is not in the arbitration context. The Supreme Court found the arbitrator's decision on the question of law reasonable, in that, it fell within a range of possible, acceptable outcomes which were defensible in respect of the facts and law, and the decision was justified, transparent and intelligible. </p><p style="text-align:justify;"><strong>Implications</strong></p><p style="text-align:justify;">Arbitration can be one of the quickest and flexible ways parties use to resolve disputes, as an alternative to the delays occasioned by overburdened trial courts. The Supreme Court of Canada has endorsed the efficiency and finality objectives of commercial arbitrations. While arbitration has many benefits, parties should be aware of the very narrow scope of the court's jurisdiction to review arbitral awards before entering into arbitration agreements. Parties should address their minds to the fact that courts have no jurisdiction to review contractual interpretation issues arising in arbitrations, as the arbitrator is best situated to weigh the factual matrix in the interpretation of the parties' agreement, provided the arbitrator did not alter the applicable legal test in the course of application. Courts also have no jurisdiction to review application of legal principles to the context of a specific case. Further, unlike civil litigation judgment where the standard of review is fixed (factual and mixed questions reviewed for reasonableness and legal questions, including extricable questions of law, reviewed for correctness), pure questions of law in arbitral awards are almost always reviewed for reasonableness, absent any negating factor.   </p>11/30/2017 5:00:00 AM2017-11-30T05:00:00ZTrue1float;#11.0000000000000float;#2017.00000000000string;#Novemberfloat;#201711.000000000GP0|#bc94069b-8cfb-4fc0-bafa-9e636642399f;L0|#0bc94069b-8cfb-4fc0-bafa-9e636642399f|Arbitration;GTSet|#939fe804-8a2a-4cfa-af8f-5756b32ac3caArbitration