TransPacific Petroleum Corp. v. Sea Dragon Energy Inc., 2011 ABQB 173

Court of Queen ’ s Bench of Alberta Citation: TransPacific Petroleum Corp. v. Sea Dragon Energy Inc., 2011 ABQB 173 Date: 20110316 Docket: 1001 05075 Registry: Calgary Between: TransPacific Petroleum Corp. Ghareeb Awad Plaintiffs - and - Sea Dragon Energy Inc . Defendant _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice E.A. Hughes _______________________________________________________ Introduction [ 1 ] This action arises out of business dealings between the Plaintiffs, Ghareeb Awad (“Dr.

Awad”) and his company TransPacific Petroleum Corp. (“TransPacific”), and the Defendant, Sea Dragon Energy Inc. (“Sea Dragon”). Sea Dragon seeks a stay of this action, commenced in April 2010, asserting that an arbitration clause in an agreement between the parties requires the action be stayed pursuant to s. 7(1) of the Arbitration Act . The Plaintiffs submit this action falls within one of the exceptions in the Act , and in particular, says

summary judgment is available to it against the Defendant.

[ 2 ] In addition, the Plaintiffs ask the court to vary an order of the Arbitration Panel dated January 29, 2009, directing that both the Plaintiffs and the Defendant advance monies to secure the payment of the Arbitration Tribunal’s fees. Background Facts [ 3 ] In 2002, Dover Investments Limited (“Dover”) entered into a Concession Agreement with the Arab Republic of Egypt (ARE) and Egyptian General Petroleum Corporation (“EGPC”) regarding petroleum exploration in the East Wadi Araba (“EWA”) Area of the Gulf of Suez.

As a result of a series of farm-out, joint venture and assignment agreements between various parties including TransPacific, Dover and Mogul Energy Ltd., Sea Dragon acquired, by assignment, a working interest in the EWA Concession in early 2006. [ 4 ] In October 2006, TransPacific and Dr. Awad commenced an action in the British Columbia Supreme Court naming Mogul Energy International Inc., Mogul Energy Ltd. and Sea Dragon as Defendants with respect to the EWA Concession. [ 5 ] This action was stayed by the British Columbia Supreme Court in November 2006 as the court held that: 1.

There was an Arbitration Agreement between the parties; 2. The allegations fell within the scope of the Arbitration Agreement and; 3. The Arbitration Agreement was valid. [ 6 ] The stay lead to the January 2007 Settlement Agreement between Dr. Awad, TransPacific and Sea Dragon that included the following terms: 1.

Share Transfer: Upon executing the Extension Agreement by all parties to the EWA, Sea Dragon shall, within 10 business days of such execution, issue to Awad 1,500,000 (One Million Five Hundred Thousand) and TransPacific 1,500,000 (One Million Five Hundred Thousand) common shares of Sea Dragon (the “Shares”). Prior to completion of the proposed Sea Dragon qualifying transaction, transfer of the shares shall obtain the written approval of Sea Dragon’s directors, TransPacific and Awad, such approval can not be withheld.

Upon the completion of the proposed Sea Dragon CPC Qualifying Transaction, Awad and TransPacific covenants and agrees that the Shares shall be subject to the identical escrow restrictions that the TSX Venture Exchange imposes on Sea Dragon’s Directors and Officers’ shares of Sea Dragon. 2. Proprietary Exploration Data: Sea Dragon is currently in possession of TransPacific’s EWA proprietary Seismic Mapping and interpreted Seismic Sections.

Upon the execution of the EWA Extension Agreement by all parties, the transfer of the 3,000,000 shares and the payment, within 30 business days from the date of this agreement, to TransPacific of US $40,000 (Forty Thousand US Dollars), Sea Dragon will be allowed to use and reproduce such data as well as all additional technical information and recommendations that TransPacific will provide Sea Dragon with, to help drill EWA #4, 5 & 6 exploratory wells, including but not limited to, geological prognosis, drilling, casing, completion and testing parameters of those wells.

5. General Matters Except as specifically modified herein, all previous agreements between the parties shall remain binding and enforceable. Paragraph 4 of the December 9, 2005 agreement will be deemed null and void in its entirety. In the event of any disagreements between the parties on any matters related to this Settlement Agreement, EWA operational or financial matters, the parties will resort to arbitration, in accordance with the Arbitration Laws of the Province of Alberta, by three Arbitrators, each party will appoint one Arbitrator and the two Arbitrators should agree on the third one .

Upon production all costs of arbitration or accounting shall be borne by the joint operations and considered as operating expenses. This agreement shall enure to the benefit of, and be binding upon, all the parties hereto and their respective heirs, executors, administrators, successors and assigns. The parties shall do such things and take such acts as may reasonably be required to carry out the spirit of these Agreements.

Any breach of the above terms or the terms of all attached agreements will represent a major breach of contract and any such breach or dispute shall be resolved by the above noted arbitration provisions . (Emphasis added) [ 7 ] Dr. Awad and TransPacific received their shares and Sea Dragon paid the sum of $40,000 to TransPacific. Subsequently, Dr. Awad and TransPacific returned their original shares to Sea Dragon so they could receive their new publicly traded shares. These publicly traded shares are being held by Sea Dragon pending the outcome of their counterclaim in the arbitration. [ 8 ] In February 2008, Dr.

Awad sent an e-mail to Dover, copying Sea Dragon, advising: It has come to my attention that you issued a new deed of assignment to Sea Dragon Energy to reflect their acquisition of Mogul’s 20% interest and Dover’s 15% interest to become the beneficiary of 75% working interest in EWA Concession - Egypt. The deed of assignment that you issued, without incorporating TransPacific’s 25% carried working interest in EWA, is a clear breach of the agreements that were signed earlier between Dover, TransPacific, Awad, Mogul and Sea Dragon and the deed of assignment that was submitted to EGPC as of March 30, 2006. ...

This e-mail will represent my only and final notice to Dover Investments and Robert Salna. I trust that you will cooperate and prove your good will to avoid being included in my legal action against the Egyptian Minister of Petroleum that will undoubtedly destroy Dover. [ 9 ] In the materials before me, there was no reply to this e-mail. [ 10 ] On May 30, 2008, Dr. Awad and TransPacific issued a Statement of Claim in the British Columbia Supreme Court which named Sea Dragon, Dover and the Minister of Petroleum - Egypt as Defendants.

This litigation was again in relation to the EWA concession; it too was stayed by the British Columbia Supreme Court as a result of the court finding a valid Arbitration Agreement and the allegations fell within the scope of the Arbitration Agreement. [ 11 ] Dr. Awad then moved forward with the arbitration and the Plaintiffs and Sea Dragon appointed an Arbitration Tribunal under the arbitration clause of the January 2007 Settlement Agreement. Paragraphs 1 and 2 of the document that appointed the Tribunal provides:

1. The Parties have entered into a number of related agreements concerning the Farmout of the East Wadi Araba concession located in the Gulf of Suez, Arab Republic of Egypt; the last of which is a Settlement Agreement dated January 24, 2007. 2.

The Settlement Agreement included the following dispute resolution clause: In the event of any disagreements between the parties on any matters related to this Settlement Agreement, EWA operational or financial matters, the parties will resort to arbitration, in accordance with the Arbitration Laws of the Province of Alberta, by three Arbitrators, each party will appoint one Arbitrator and the two Arbitrators should agree on the third one.

Upon production all costs of arbitration or accounting shall be borne by the joint operations and considered as operating expenses. . . . [ 12 ] In preparing for the arbitration, a conference call was held between the parties and the arbitrators and the following directives were made on January 29, 2009: Dr. Awad and Mr. Fitzpatrick: Thank you for your participation in the arbitral tribunal’s conference call with you this afternoon.

The arbitrators have now had a further opportunity to consider some of the matters discussed with you and I would, on behalf of the tribunal, make the following directions and suggestions:

(1) With respect to the advance on costs to secure the payment of arbitrators’ fees and disbursements, we fix the amount of the advance to be the sum of $75,000 for the Claimants and a further sum of $75,000 for the Respondent. We acknowledge the information from Dr. Awad that Mr. Justice Walker of the British Columbia Supreme Court has been requested to provide directions as to who shall make these payments and we therefore refrain, for now, from any comments on that issue. We do direct, however, that the total advance on costs must be paid on or before Friday, February 13, 2009.... [ 13 ] Dr.

Awad replied later that day advising: Gentlemen, Thank you for hearing us by conference call of today. I just heard from the BC Court that Justice Walker has a trial that he earlier had told the parties about that is not concluded yet. Consequently, he will not be able to hear my motion for costs of arbitration until Feb. 23 or Early March. As Sea Dragon’s counsel in BC had submitted to Justice Walker that he wishes the tribunal should decide on such question and for the sake of speeding-up the process, I have no objection, if Mr.

Fitzpatrick agrees, that the arbitration tribunal decides on whether Sea Dragon should advance all costs of such arbitration as operating expenses, in accordance with item 5 of the Settlement Agreement and as the Claimants have carried working interest and as Sea Dragon is responsible for all costs or otherwise. I am attaching to this e-mail, a copy of my Affidavit that Justice Walker had requested as my evidence that can be heard at your earliest by a conference call as my submissions in this regard. I will fax the same to all parties, as the proper sworn document. I have answered your questions below:

Best Regards, Ghareeb Awad - Claimant [ 14 ] On January 30, 2009, the arbitrators made the following Order: 1. The arbitrators are prepared to hear the Claimants’ application for an order directing Sea Dragon to pay the advance on costs to secure the arbitrators’ fees and disbursements. We will make ourselves available by teleconference to hear the parties on this motion on Wednesday, February 17, commencing at 10:00 a.m. MST. As a condition for hearing this motion, we must ask Dr.

Awad on behalf of himself and TransPacific to confirm in writing to the tribunal, copy to opposing counsel, that he will formally withdraw his application for the same relief before the British Columbia Supreme Court and unequivocally agree this arbitral tribunal has jurisdiction to decide this issue. We direct that this confirmation must be done no later than Wednesday, February 4, 2009. 2. We are not prepared to suspend our earlier direction that the advances on costs must be paid by the parties on or before the close of business on Friday February 13, 2009.

We do not believe it is appropriate for the parties to expect the arbitrators to perform their duties without assurance of payment of their fees and disbursement. If we are not fully secured by compliance with that direction, we may be obliged to suspend the arbitration proceeding or issue some other suitable order. (Emphasis added). [ 15 ] Dr. Awad responded by e-mail to the Order as follows: 1.

I confirm on behalf of myself and TransPacific and unequivocally agree that this honourable tribunal has the jurisdiction to decide on our Motion to direct Sea Dragon to pay all costs of arbitration, as per the terms of the August 07, 2005 Agreement and January 24, 2007 Settlement Agreement between the Claimants and the Respondents. I also confirm that on Monday February 02, 2009 I will withdraw my application for the same relief before the BC Supreme Court. [ 16 ] On February 9, 2009, Sea Dragon provided its payment of $75,000. That same day, Dr.

Awad e-mailed counsel for Sea Dragon and the three arbitrators advising that: “I do not have cash at this time to spend on lawyers and I am entitled, in accordance with our agreements that Sea Dragon advances all the costs of arbitration and accounting as well as all exploration and development expenses.” In that same e-mail Dr.

Awad advised of the assets he held which totalled many millions of dollars. [ 17 ] By e-mail dated February 16, 2009, the Chair of the Tribunal ordered: In earlier directions, I informed the parties that they must each pay that sum of $75 thousand into my firm’s trust account on or before February 13, 2009 as an advance to secure the costs and expenses of the arbitrators. At this juncture, only the Respondent has complied. As a result of the Claimants’ failure to pay the advance on costs, as directed, the tribunal has conferred and we issue the following directions: (1).

Subject to the terms outlined in these directions, this arbitral proceeding is now stayed. This means, among other things, that the arbitrators will not hear the two sets of motions scheduled to be heard on February 17 and February 25, respectively, without further directions. In addition, no other steps need be taken pursuant to the agreed timetable between the parties. (2). The Claimants are extended ex gratia one further opportunity to make the required advance on costs. The Claimants shall have until close of business on Monday, March 2 to make their payment into my firm’s trust account. (3).

Upon timely payment by Claimants of the advance on costs, the arbitrators will consult with the parties and set new times for any motions we have stayed and for completion of other steps in this proceeding.

(4).

In the event the Claimants fail to make the requisite payment of the advance on costs, pursuant to this extension, the arbitrators will request submissions from the parties on what should next occur. [ 18 ] A teleconference was held with the parties and arbitrators on March 17, 2009 and the arbitrators unanimously agreed: “These arbitration proceedings are hereby stayed and no further steps shall be taken by any party or parties without leave of the tribunal which may be sought by any party or parties, on notice to the other party or parties, upon each party paying their share of the advance on costs ...”. [ 19 ] On April 7, 2010, the Plaintiffs filed their Statement of Claim in the Court of Queen’s Bench of Alberta and filed their Amended Statement of Claim on May 11, 2010. [ 20 ] On April 30, 2010, Sea Dragon filed a Notice of Motion seeking relief that included a Stay of the Proceedings pursuant to s. 7(1) of the Arbitration Act . [ 21 ] On June 7, 2010, the Plaintiffs filed a Notice of Motion requesting that the 1.5 million Common shares of Sea Dragon for both TransPacific and Dr.

Awad be released to the Plaintiffs and that Sea Dragon post all required arbitration costs with the Arbitration Tribunal pursuant to the provisions of August 7, 2005 Agreement and January 24, 2007 Settlement Agreement. The Plaintiffs filed a second Notice of Motion on November 9, 2010, seeking similar relief as was sought in the June, 2010 Notice of Motion.

Analysis [ 22 ] The Defendant advised in oral argument it seeks a stay of the litigation based upon the arbitration clause in the January 2007 Settlement Agreement between the parties. [ 23 ] The relevant sections of the Arbitration Act are ss. 7(1), (2) and (5). These sections provide: 7(1) If a party to an arbitration agreement commences a proceeding in a court in respect of a matter in dispute to be submitted to arbitration under the agreement, the court shall, on the motion of another party to the arbitration agreement, stay the proceeding.

(2) The court may refuse to stay the proceeding in only the following cases: (

a) a party entered into the arbitration agreement while under a legal incapacity; (

b) the arbitration agreement is invalid; (

c) the subject-matter of the dispute is not capable of being the subject of arbitration under Alberta law; (

d) the motion to stay the proceeding was brought with undue delay; (

e) the matter in dispute is a proper one for default or

summary judgment.

(5) The court may stay the proceeding with respect to the matters in dispute dealt with in the arbitration agreement and allow the proceeding to continue with respect to other matters if it finds that (

a) the agreement deals with only some of the matters in dispute in respect of which the proceeding was commenced, and (

b) it is reasonable to separate the matters in dispute dealt with in the agreement from the other matters. [ 24 ] The principles of law I must apply to this application are these:

1. S. 7(1) of the Arbitration Act requires the Court to stay litigation of a dispute covered by an arbitration agreement when the parties have agreed their disputes shall be resolved by arbitration unless the narrow exceptions in s. 7(2) apply. See Babcock & Wilcox Canada Ltd. v. Agrium Inc. , 2005 ABCA 82 at paras. 7 - 9 ; International Resource Management (Canada) Ltd. v. Kappa Energy (Yemen) Inc., 2001 ABCA 146 at paras. 12-14 ; 2. The onus to establish an exception under s. 7(2) of the Arbitration Act is on the party alleging the exception. See Sehdev v. Colours by Battistella Inc., 2008 ABQB 248 at para. 22 ; I find the same onus applies to s. 7(5) of the Act . 3. The test for

summary judgment under s. 7(2)(

e) of the Act is: To be a correct and accurate matter for

summary judgment means that it would succeed. Thus, I disagree with Perell, J. in Smith Estate that the motion for

summary judgment need only "appear(

s) to have a high prospect of success". Therefore, the question before me, prior to any consideration of exercising the court's discretion to refuse to stay the proceeding is whether the matter in dispute is a correct or accurate one for

summary judgment. That is to say, on the evidence before me, would a

summary judgment application succeed? See Balancing Pool v. TransAlta Utilities Corp., 2009 ABQB 631 at para. 52 . [ 25 ] The arbitration clause in question is set out at paragraph 6 of this decision. The clause provides that any disagreement between the parties related to any matters in the Settlement Agreement will be arbitrated by the parties. [ 26 ] I have reviewed the Plaintiffs’ claim filed before the Arbitral Tribunal, as well as the Plaintiffs’ Statement of Claim and Amended Statement of Claim filed in this court.

The Statement of Claim filed before Arbitral Tribunal and Statement of Claim filed in this court rely on the same facts and seek, in essence, the same damages, all of which arise from the Settlement Agreement. [ 27 ] The Amended Statement of Claim specifically alleges the Plaintiffs have suffered damages as a result of breaches by the Defendant of the Settlement Agreement. However, the Plaintiffs plead the Arbitration Act seeking Court intervention to “prevent manifestly unfair or unequal treatment of a party, 2) the matter is a proper one for

Summary Judgment and 3) it is reasonable to separate the within matter in dispute with other matters in the Agreements and Settlements.” [ 28 ] In my view, the facts underlying this dispute all relate to matters respecting the EWA concession and the terms of the Settlement Agreement. As the arbitration clause in the Settlement Agreement is very broad and directs arbitration for any disagreement, I find the requirements of s. 7(1) of the Arbitration Act are met. [ 29 ] The Plaintiffs submit the exception in s. 7(2)(

e) of the Arbitration Act applies to this case in that the matter in dispute is a proper one for

summary judgment. However, a review of the Affidavit of Dr. Awad, the Affidavit of David Thompson, a former officer of Sea Dragon, and the questioning of Mr. Thompson by Dr. Awad on his Affidavit, clearly demonstrates there are disputes on the facts between the parties and disputes on the

interpretation of provisions of the Settlement Agreement between the parties. Therefore, on the test set out above, this is not a proper matter for

summary judgment. [ 30 ] Further, I do not find on the evidence that court intervention is required to prevent manifestly unfair or unequal treatment of a party. The materials filed suggest no unfair or unequal treatment of the Plaintiffs by the Arbitral Tribunal. [ 31 ] In addition, I find based on the allegations contained in the Defendant’s Statement of Defence and Counterclaim filed before the Arbitral Tribunal, the matters in dispute are inter-related to the Settlement Agreement. Therefore, it is not reasonable to separate any matter out.

See s. 7(5) of the Act. [ 32 ] The Plaintiffs apply to have Sea Dragon post all required arbitration costs claiming they are unable to provide the $75,000 deposit required from each of the parties by the Arbitral Tribunal. The Plaintiffs rely on s. 6 of the Arbitration Act which provides:

No court may intervene in matters governed by this Act, except for the following purposes as provided by this Act: (

a) to assist the arbitration process; (

b) to ensure that an arbitration is carried on in accordance with the arbitration agreement; (

c) to prevent manifestly unfair or unequal treatment of a party to an arbitration agreement; (

d) to enforce awards. [ 33 ] In my view, the Plaintiffs application is a back door attempt to appeal the decision of the Arbitral Tribunal or seek judicial review of the decision. I question whether I have any jurisdiction to deal with this issue. However, assuming I do, this decision of the Tribunal was a discretionary decision it had jurisdiction to make. There is nothing unreasonable with respect to the decision. Further, based upon Dr. Awad’s evidence it is clear he has assets, albeit not liquid assets, that would allow him to pay the deposit required by the tribunal.

In addition, the tribunal clearly stated it would revisit the percentage paid by the parties of the arbitration costs after the monies were paid. I cannot find that this was unfair or unequal treatment. [ 34 ] The balance of the relief sought by the Plaintiffs against the Defendant is relief the Plaintiffs seek in the arbitration process itself. Accordingly, it is not relief to be granted In this court. Conclusion [ 35 ] In conclusion, I find the allegations in the Plaintiffs Statement of Claim and Amended Statement of Claim relate to matters the parties agreed would be the subject of arbitration.

Therefore, I direct a stay of this litigation. Further, I decline to vary the order of the Arbitration Panel dated January 29, 2009, directing that both the Plaintiffs and the Defendant advance monies to secure the payment of the Arbitration Tribunal’s fees. Heard on the 1 st day of February, 2011. Delivered orally at the City of Calgary, Alberta this 3rd day of February, 2011. E.A. Hughes J.C.Q.B.A. Appearances: Dr. G. Awad

Self-Represented Patrick D. Fitzpatrick Burstall Winger LLP for the Defendant