321665 Alberta Ltd. Plaintiff - v. -, 2011 ABQB 292

Court of Queen ’ s Bench of Alberta Citation: 321665 Alberta Ltd. v. ExxonMobil Canada Ltd., 2011 ABQB 292 Date: 20110527 Docket: 9703 06830 Registry: Edmonton Between: 321665 Alberta Ltd. Plaintiff - and - ExxonMobil Canada Ltd., formerly known as Mobil Oil Canada Ltd. and Husky Oil Operations Ltd. Defendant _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice R.

Paul Belzil _______________________________________________________ The Action [ 1 ] The Plaintiff has commenced a private enforcement action against the Defendants for damages for an alleged breach of the Competition Act and in addition seeks damages for tortious conspiracy and interference with its business relations. The Evidence A. 321665 Alberta Ltd.

i) Gary Whelen [ 2 ] 321665 Alberta Ltd. was incorporated in 1984 and operated under the trade name Kolt Oilfield. [ 3 ] Gary Whelen is the president and owner of the company. Prior to its incorporation, he worked in the oil industry and moved to Rainbow Lake in 1980. Rainbow Lake is a very small community in northwest Alberta with a population of approximately 1200 located 900 km. north of Edmonton.

It is accessible by one highway and by air. [ 4 ] After moving to Rainbow Lake, Whelen, through Kolt, did fluid hauling for various oil companies in the Rainbow Lake area starting in 1984. [ 5 ] He purchased land in the town and moved in a 40' x 60' metal building which was used to service the vehicles the company operated. Rainbow Lake is small and isolated, thus it is necessary to provide accommodation for employees and he acquired a mobile trailer for this purpose. He hired a full time mechanic and drivers and, as well, used the services of owner operator trucks which operated under Kolt’s dispatch system.

It is necessary to have an onsite mechanic as there are no equipment dealers in the area because of the small size and remoteness of the community. [ 6 ] He testified that the Rainbow Lake oilfield is a discrete oil field. Most wellsites are accessible by private oil company roads only which are not well marked and anyone working in the area must be familiar with the location of wells. [ 7 ] Fluid hauling requires specialized trucks equipped with radios and safety equipment as Rainbow Lake is a sour gas area.

Service must be provided on a 24 hours a day seven day a week basis and accordingly a dispatch system is required. [ 8 ] At the time Whelen started Kolt, the ordering of fluid hauling services was done at the local level on the basis of “you call we haul”. As such, personal contacts were essential and eventually Whelen knew virtually everybody connected with the oil industry in the Rainbow Lake area. He was active in the community and for one term served as a town councillor. He aggressively pursued sales opportunities with various oil companies in the area with the result that over time the business expanded.

By 1992 he was operating 19 units although as business would fluctuate he would purchase and dispose of trucks. He purchased replacement used trucks as required. [ 9 ] Initially, his main customer was Canterra, which was later purchased by Husky. Eventually Husky became Kolt’s largest customer.

Husky’s main battery is a 20 minute drive from the town of Rainbow Lake whereas Mobil’s main battery is a 25 minute drive. [ 10 ] Whelen testified that it was not economical to operate outside of the Rainbow Lake area although from time to time Kolt did some work in the Zama oil field located north of Rainbow Lake as well as some work in northeastern British Columbia. [ 11 ] Oil field drilling is primarily done in the winter. During the summer project work is done and on average 70% of Kolt’s revenue was generated in the winter and 30% in the summer.

He observed that the summer project work would sustain the company over the lean summer revenue period until winter freeze up, allowing for the resumption of drilling. [ 12 ] When Kolt first started operating there were several other firms supplying fluid hauling services in the Rainbow Lake area, but by 1996 Kolt’s only competitor was Cardusty Trucking which had a base of operations in Rainbow Lake as well as a number of other areas in Alberta and BC. Kolt’s sole base of operations was Rainbow Lake.

Each company offered essentially the same service; that is fleet fluid hauling. [ 13 ] Kolt’s financial year end was April 30 th . The main source of revenue for Kolt was derived from Husky and Mobil. For the years 1994 to 1996, revenue was as follows, which figures are rounded and exclusive of GST:

1994 Husky - $1,036,000 Mobil - $67,000 - Total $1,103,000 or 58% of its revenue 1995 Husky - $951,000 Mobil - $120,000 - Total $1,071,000 or 56% of its revenue 1996 Husky - $1,075,000 Mobil - $92,000 - Total $1,167,000 or 53.7% of its revenue [ 14 ] On May 24, 1996 Mobil, on behalf of itself and Husky, sent a letter to Cardusty and Kolt advising that they were looking at different ways of dealing with fluid hauling and were possibly considering using one fluid hauling company exclusively. [ 15 ] A meeting was arranged for June 12, 1996 at the Mobil battery at Rainbow Lake.

Whelen represented Kolt and Dusty Hill of Cardusty Trucking was present. Kim Boles of Mobil ran the meeting. [ 16 ] Boles demanded that Whelen and Hill disclose the financial particulars of their businesses, including profit margins. Whelen testified that he felt extremely uncomfortable about this demand but felt he had no alternative but to comply and did so. [ 17 ] On July 7, 1996 Mobil forwarded a letter to Kolt requesting detailed financial information. Whelen testified that he felt that he had no alternative but to reply and did so, in writing, on August 1, 1996.

His letter contained the following statements: My opinion of the enhanced supplier relationship is that it will eliminate the very competitive nature of this business thus costing both sides in efficiency and improvement. This factor will cause these benefits to be short term and looking ahead poses question as to the overall benefits achieved. Rate comparisons through the industry show that we have in Rainbow Lake very competitive rates for our services.

I feel this problem should be addressed very seriously by the decision committee. [ 18 ] On November 13, 1996 Whelen was advised at a meeting at the Mobil battery that Kolt would no longer be retained to do fluid hauling for Husky or Mobil. He was extremely worried following the meeting as he could not see how Kolt could survive. Kolt was allowed to complete work it had started but was not going to get any new work from the Defendants except for emergency fluid hauling. Whelen felt that he was faced with financial disaster as he could no longer deal with two of the largest oil companies in Rainbow Lake.

In fact, after November 13, 1996 Kolt did no new work for Husky or Mobil. [ 19 ] The rumour mill in Rainbow Lake was flourishing and he felt that there was a perception developing that Kolt was not as good a company as Cardusty. In addition, his employees were extremely concerned about the viability of the company and the security of their employment. [ 20 ] By May, 1997 the company was in dire financial straights. Its trucks were parked, most of its employees had left and there was only enough work for one truck which was not working full time.

The heavy duty mechanic who had been with Kolt for 12 years resigned and relocated to Grande Prairie. [ 21 ] He contemplated moving to another area but had no contacts, no contracts and decided that this would involve high risk, with no guarantee of a financial return, He felt that the risks and costs were simply too high. The company shut down fluid hauling operations on May 15, 1997 and Kolt’s assets were sold. [ 22 ] Whelen confirmed that after Mobil and Husky terminated the services of Kolt he continued to bid on work in the Rainbow Lake area.

He bid on a Gulf project in the Hay Lake area north of Rainbow Lake but was not successful. He personally attended on every Kolt customer and was very active in the field.

[ 23 ] One of Kolt’s biggest customers was Canadian National Resources Limited (CNRL). For the year ending April 30, 1997 Kolt billed it approximately $218,000.

In the spring of 1997 CNRL connected its wells in the area to a pipeline thus eliminating virtually all of its fluid hauling requirements. [ 24 ] Whelen acknowledged in cross examination that there was no guarantee of any amount of revenue from Husky or Mobil and that it was a competitive market for fluid hauling. [ 25 ] He also acknowledged that prior to the shutting down of Kolt he had started a golf course business in the Red Deer area, which he still operates. [ 26 ] His family moved to Red Deer in 1996, but he stayed in Rainbow Lake until the spring of 1997 at which time the assets of Kolt were sold. [ 27 ] I found Gary Whelen to be a very credible witness. ii) Bryan Bailey [ 28 ] Bryan Bailey was qualified as a chartered business valuator qualified to give expert opinion evidence on the quantification of economic loss.

He prepared a detailed report dated June 24, 2008. He acknowledged some arithmetic errors in the report and provided corrections during his testimony. [ 29 ] Mr. Bailey’s report contains a number of calculations of estimated economic gains which accrued to the Defendants as a result of the decision to sole source fluid hauling to Cardusty. Given that there is no claim for unjust enrichment or similar equitable claim being advanced, I have ignored these portions of his report. [ 30 ] His report and oral testimony apportion the Plaintiff’s losses into two general categories.

The first relates to losses between November 13, 1996 and May 15, 1997 coupled with a loss of investment value and the second involves a loss of continuing profits after May 15, 1997.

I have rounded his calculations which are exclusive of prejudgment interest. [ 31 ] He estimates the claim for losses up to May 15, 1997 coupled with a loss of investment value as of that date to be in the range of $453,000 to $554,000 on a pre-tax basis and $424,000 to $514,000 on an after tax basis. [ 32 ] His calculation of this portion of the claim was based on Kolt recovering $520,000 from the liquidation of its assets, which figure is reflected in Kolt’s financial statements.

He also factored into his calculations that Kolt had a good will value over and above its hard asset value. [ 33 ] Respecting the claim for future loss of profits, Mr.

Bailey’s calculations were made on the basis that Kolt would have continued fluid hauling up to the time the Rainbow Lake field ceased production which was assumed to be April 30, 2023. [ 34 ] Given that his report was prepared in 2008 he prepared his calculation of this portion of the claim for the period 1997 to 2008 and 2009 to 2023. [ 35 ] On a pre-tax basis he estimated the loss of profits for the period 1997 to 2008 to be between $3.8 million and $4.4 million and for the period 2009 to 2023 to be $2 million to $2.3 million resulting in a total of $5.8 million to $7.7 million.

[ 36 ] On an after tax basis he estimated the loss of profits for the period 1997 to 2008 to be between $2.4 million and $2.8 million and for the period 2009 to 2023 to be $1.5 million to $1.7 million resulting in a total of $3.9 to $4.5 million. [ 37 ] As part of his analysis of Kolt’s financial statements Mr. Bailey calculated earnings from fluid hauling before adjustment for interest, taxes, depreciation and amortization.

Accountants refer to this calculation by the acronym EBITDA. [ 38 ] He calculated a weighted average of EBITDA to the years 1992 to 1996 to be $424,000 and EBITDA per hauling unit to be $47,000 in 1995 and $48,000 in 1996. iii) Read-ins from Examinations for Discovery [ 39 ] The Plaintiff read in as part of its case extensive portions of Examinations for Discovery of representatives of the Defendants. While it is not necessary for me to summarize these read-ins, I have considered this evidence in reaching my decision. B. Mobil Oil Canada Ltd. now known as ExxonMobil Canada Ltd.

i) Kim Boles [ 40 ] Kim Boles was produced as the officer of Mobil. He confirmed that Mobil has 100% owned properties in the Rainbow Lake field as well as a 50/50 interest with Husky in other properties which Husky operated. [ 41 ] As the 50% owner of the jointly owned properties Mobil paid 50% of the expenses and thus was very concerned about operating costs in the Rainbow Lake area. [ 42 ] Mobil had fluid hauling needs for its solely owned properties and was aware that fluid hauling was an integral part of the jointly owned properties.

Mobil had a form of service agreement it used for fluid hauling containing a 20 day termination clause with no guarantee of volumes to be hauled. [ 43 ] In 1995 Boles was appointed a change agent for Mobil in the Rainbow Lake area. He was charged with the responsibility of implementing a policy within the company which required a 12% increase in the rate of financial return and a 20% reduction in total sales costs.

Mobil documents exhibited at trial referred to the company possibly leaving Canada if these financial goals, referred to as the “prize”, were not attained. [ 44 ] In the 1995-96 period Mobil and Husky were working towards developing a synergy to reduce costs on the jointly owned properties. Mobil was aware that fluid hauling was its second largest cost item and was keenly interested in trying to reduce the cost of fluid hauling. [ 45 ] Boles described that Mobil was trying to create an enhanced supplier relationship (ESR) which essentially involved a partnership between Mobil and the supplier.

He described the goal as creating a win-win for both Mobil and the supplier. He conceded that an ESR did not necessarily equate to a single source supplier. [ 46 ] He testified that Mobil was not trying to erode the profit margins of its suppliers, including its fluid haulers. Mobil and Husky created a fluid hauling team to work on reducing fluid hauling costs as part of the joint synergy initiative known by the acronym Mosky.

No attempt was made to undertake a competitive bid process. [ 47 ] On May 24, 1996 Boles wrote to Cardusty and Kolt requesting that both companies send representatives to a meeting at the Mobil battery at Rainbow Lake on June 5, 1996 although the meeting actually proceeded on June 12 th .

[ 48 ] Both Mr. Whelen representing Kolt and Mr. Hill representing Cardusty appeared. They were asked to discuss the details of their financial operations and were asked to comment on a flip chart which the fluid hauling team had prepared which contained an estimate of the costs of running fluid hauling operations including profit margin. [ 49 ] Following the meeting, minutes were prepared for the fluid hauling team in which it was confirmed that the team was proposing some follow up steps, including using one fluid hauling company exclusively.

This was followed up by a formal recommendation to senior management of both Mobil and Husky on June 25, 1996 that the companies jointly utilize one fluid hauling supplier for their operations at Rainbow Lake. [ 50 ] On July 9, 1996, Boles on behalf of Mobil and Gordon Olson on behalf of Husky, wrote a detailed letter to Kolt requesting a response to a detailed series of questions including a request to provide a complete breakdown of the financial operations of Kolt, including its profit.

Whelen, on behalf of Kolt, provided a lengthy response on August 1, 1996. [ 51 ] In his testimony, Boles stated that competition “had gotten Mobil to where it was at” and Mobil needed a 20% cost savings respecting its Rainbow Lake operations. [ 52 ] He testified that at some point Whelen told him that if Kolt lost the Husky and Mobil business it would be out of business, but he did not believe this and thought that Kolt could pick up other business in the area but offered no evidence in support of this proposition. [ 53 ] On October 3, 1996 Boles emailed the public relations department of Mobil advising that the single source decision “might cause Kolt to raise some eyebrows”. [ 54 ] Boles was transferred out of the area in the spring of 1997 and was not able to describe what costs savings were actually achieved through the use of a single source for fluid hauling.

He denied any intent to reduce competition and stated that the sole goal was to reduce costs. [ 55 ] In cross examination Boles admitted that the direction to achieve a 12% increase in ROFA and a 20% in costs savings put pressure on him as a change agent to achieve these results. [ 56 ] He acknowledged being aware that Mobil and Husky could not collude on pricing and he also acknowledged that as a result of the demands of Mobil and Husky these companies became fully aware of the intimate financial details of Kolt’s operations. [ 57 ] It was put to him that because he stated that competition had gotten prices to where they were, it was necessary to remove the competition to “get prices to the right spot” and he conceded that this was correct. [ 58 ] He testified that the deadline for setting the 1997 budget was September 30, 1996.

The budget contained an estimated reference to expected costs savings, but not a specific estimated savings for fluid hauling.

He conceded that if Kolt had not responded to the demand for financial information, it would have received no further work from Mobil or Husky. [ 59 ] As part of the Mosky initiative all Mobil and Husky employees in the Rainbow Lake area were expected to cooperate in order to achieve the 20% cost reduction meaning that they had to change their behaviour and were directed to use Cardusty exclusively for fluid hauling purposes effective November 13, 1996, except in emergency situations which never arose. C. Husky Oil Operations Ltd.

i) Ronald Arnason [ 60 ] Ronald Arnason is an engineer who worked for Husky for many years in various capacities. In 1996 he was the District Manager of Operations for the Rainbow Lake area. [ 61 ] He confirmed that the bulk of Husky’s interests were in the 50/50 properties. All of the Husky production of oil and natural gas went to the Husky plant located in the area. Husky was the operator of the 50/50 properties pursuant to an agreement with Mobil. [ 62 ] Prior to 1995-1996 there was some tension between Husky and Mobil over operating expenses for the 50/50 properties.

A decision was made by senior management of both companies that something had to change and a decision was made to develop a joint synergy for the 50/50 properties with the goal of improving efficiency and increasing financial return. [ 63 ] The initial strategy meeting was held on November 30 th and December 1, 1995.

Three teams were to be set up with the field operation team being germane to this litigation. [ 64 ] The field operation team undertook a review of all aspects of the Rainbow Lake operations for both companies and identified that fluid hauling was the second largest cost “bucket”. [ 65 ] Arnason testified that fluid hauling is an integral part of operations at Rainbow Lake as production from wells not connected by a pipeline to the plant must be trucked to the plant for processing. [ 66 ] In 1996 Kolt and Cardusty were the main companies providing fluid hauling in the Rainbow Lake area and essentially offered the same service.

In addition, there were some small operators, including lease operators who would work through the dispatch system of Kolt or Cardusty. [ 67 ] The fluid hauling team estimated that $600,000 per year savings could be achieved for fluid hauling by increasing efficiency. Arnason testified that this figure was only an estimate and was not able to provide any detailed calculation as to how this figure was selected. [ 68 ] Arnason testified that the purpose of entering into the enhanced service relationship (ESR) was to reduce costs of operation, not to reduce the operating profit of the service supplier.

He acknowledged that an ESR did not necessarily mean that there would have to be a sole source for fluid hauling. [ 69 ] The fluid hauling team recommended a single source for fluid hauling by July 19, 1996, but Arnason, on behalf of Husky, felt that more study of the issue was required before a decision could be finalized. [ 70 ] Arnason acknowledged that Kolt and Cardusty were essentially tied after the evaluation process was conducted. He observed that Kolt’s fleet was a bit older and had only 100 barrel tanks whereas Cardusty had some larger units.

The drivers of both firms were interviewed and the drivers for Cardusty scored slightly higher than the drivers for Kolt. There was also a concern that Gary Whelen had moved his family to Red Deer. [ 71 ] In September 1996 a decision was made to name Cardusty as the sole source for fluid hauling in the Rainbow Lake area for Husky and Mobil. Arnason recalled that after the decision was made Whelen told him that this would put him out of business. Arnason did not accept this and felt that there would be other opportunities for Kolt in the Rainbow Lake area.

He denied any attempt on his part personally, or on the part of Husky, to harm Kolt. [ 72 ] In cross examination, Arnason acknowledged that prior to the decision to name Cardusty as the sole source for fluid hauling,

local field operators were at liberty to contact fluid haulers individually, whereas after the change all field operators were instructed to only deal with Cardusty and could only retain the services of Kolt on an emergency basis. He estimated that Husky’s annual budget for emergency fluid hauling was $15,000-$20,000 per year.

Husky never again used Kolt for fluid hauling after November 13, 1996. [ 73 ] Arnason admitted that Husky did not use fluid haulers from the Zama Lake area as it was simply not economical to use fluid haulers outside of Rainbow Lake as this would result in a slower response time and create more inefficiency. [ 74 ] He acknowledged that realistically Kolt had no option but to participate in the evaluation process if it wanted to keep doing work for Husky. [ 75 ] Arnason assumed that the unsuccessful fluid hauler would make up the lost revenue through other business in the area and that the successful company would give up some of its work in favour of the unsuccessful company but offered no evidence in support of either proposition. ii) David Jones [ 76 ] In 1996 Jones was a field operator for Husky at Rainbow Lake.

He was asked to join the fluid hauling team with the hope of streamlining fluid hauling and improving efficiency. He confirmed that Mosky involved Husky and Mobil properties at Rainbow Lake only. [ 77 ] His primary area of concern was environmental health and safety (EHS). He did evaluations of both Kolt and Cardusty and noted some deficiencies with respect to both. The evaluations produced a virtual tie between the two companies. [ 78 ] Jones was aware that Cardusty was chosen as the sole source fluid hauler for Husky and Mobil whereas previously the field operator was able to select which fluid hauler to call.

He did recall that his immediate supervisor, Mr. Priest, had asked the field operators to alternate between Kolt and Cardusty to maintain fairness and give Husky the benefit of two fluid hauling options. [ 79 ] Jones was questioned as to what tracking of cost savings was undertaken after Cardusty became the sole source for fluid hauling.

He testified that he was personally involved in working at the Cardusty office in Rainbow Lake to monitor data regarding items like volumes hauled, but this posting was only temporary and he was not replaced. iii) Brian Reinhart [ 80 ] Reinhart is involved with Husky’s heavy oil operations at Lloydminster spanning the Alberta-Saskatchewan boundary. He is currently in charge of fluid hauling. [ 81 ] Following a significant cost increase in 2005, resulting in the termination of its fluid hauling contract, Husky contracted with six other fluid hauling firms.

Costs continued to rise and eventually Husky decided to purchase its own trailers and currently has 70 in service. These are large six axle tanks for highway use only. [ 82 ] Reinhart acknowledged that Lloydminster is a city of approximately 27,000 with numerous towns and cities accessible in both Alberta and Saskatchewan. Reinhart did not testify to having any involvement in, or knowledge of, Husky’s operations at Rainbow Lake. iv) Dr. Douglas West

[ 83 ] Dr. Douglas West is an industrial economist qualified to give expert evidence in the area of competition. [ 84 ] He testified that there are two aspects of market definition, product market definition and geographic market definition. A calculation of market share is necessary as it does provide some indication of possible market power. [ 85 ] He testified that oil field fluid hauling can be treated as a relevant product market for purposes of a competition analysis in this case and that the relevant geographic market in this case would include Rainbow Lake, Zama and northeastern British Columbia.

He acknowledged that summer access is much more limited than winter access. [ 86 ] He testified that because he had very limited data with respect to other oil field haulers, including Cardusty, it is not possible to do a detailed market analysis. [ 87 ] He opined that one of the significant issues in determining market power is whether there are entry barriers to other companies wanting to enter the area or exit barriers to a supplier like Kolt relocating to another area. [ 88 ] He testified that it would be easy to enter this market as all one would require would be a truck which would involve low capital set up costs and that there were no obvious impediments to other oil field fluid haulers entering this market.

He indicated that the labour market would not be particularly specialized. [ 89 ] In his opinion, the selection by Husky and Mobil and an ESR could not lead to a lessening of competition and noted that there was no presumption that Husky and Mobil would use multiple oil field fluid hauling suppliers.

It is not uncommon in a competitive market for some firms to fail and opined that the Plaintiff could have continued to service other customers in the Rainbow Lake area, but provided no evidence in support of this proposition. [ 90 ] He concluded that capital is very mobile and that in this case Kolt could have left the Rainbow Lake area and redeployed its entire fluid hauling business to other markets. He provided no details as to whether other markets were available. [ 91 ] He acknowledged that he has never been to Rainbow Lake and did not purport to have any knowledge about fluid hauling.

v) Lorne Siebert [ 92 ] Lorne Siebert was qualified as a chartered business valuator qualified to give expert opinion evidence on the quantification of economic loss.

He was called to rebut the report and testimony at trial of Brian Bailey. [ 93 ] He undertook a review of the financial statements for Kolt respecting fluid hauling operations and concluded that it was well capitalized, debt free and had cash on hand in excess of $200,000 when fluid hauling operations ceased on May 15, 1997. [ 94 ] He observed that in the years 1993 to 1997 the company spent $82,000-$91,000 per year net of disposals to maintain and replenish its fleet. Revenues were in the range of $2 million per year.

In 1996, 54% of its revenue originated from Husky and Mobil and he noted a seasonal variable with 55% of the revenues being earned in the May to November period and the balance in the November to April period. [ 95 ] He opined that the company was profitable on an operating income basis with annual earnings averaging $300,000 per year during the years 1992 to 1996, excluding 1995 when earnings dropped to $82,000.

[ 96 ] His financial analysis of Kolt was similar in many respects to Mr. Bailey’s analysis, but differed in some major areas. [ 97 ] Through no fault on his part, he erroneously assumed that Kolt continued to earn income from Husky and Mobil after November 13, 1996. He prepared amended financial tables correcting this error with the result that he conceded that his calculations were very similar to Mr. Bailey’s. [ 98 ] He proceeded on the assumption that Kolt could have continued operating profitably notwithstanding the loss of revenue from Husky and Mobil.

Using this approach he submitted that Kolt’s losses would be calculated on the basis of lost revenue from Husky and Mobil. In reaching this conclusion he conceded that Kolt, in order to survive, would have to become smaller and less profitable. [ 99 ] He assumed that operating expenses would decline proportionally with declining revenues, but provided no evidence in support of this proposition. [ 100 ] He disagreed with Mr. Bailey’s conclusion that Kolt had a good will value over and above its hard asset value.

He opined that a trucking business would not ordinarily attract a good will valuation. [ 101 ] He also postulated that a shorter time could be used for calculating losses than the suggested time by Mr. Bailey, being the life of the Rainbow Lake oil field, but declined to specify a reduced time frame. [ 102 ] He offered no opinion as to whether the Plaintiff’s losses should be calculated on a pre-tax or after tax basis. Claim for Damages for Breach of the Competition Act R.S.C., 1985 c. C-34

a) The Statutory Scheme [ 103 ] The purpose of the Act is described in para. 1.1: Purpose of Act 1.1 The purpose of this Act is to maintain and encourage competition in Canada in order to promote the efficiency and adaptability of the Canadian economy, in order to expand opportunities for Canadian participation in world markets while at the same time recognizing the role of foreign competition in Canada, in order to ensure that small and medium-sized enterprises have an equitable opportunity to participate in the Canadian economy and in order to provide consumers with competitive prices and product choices. [ 104 ]

Section 45 deals with conspiracy: Conspiracy 45.

(1) Every one who conspires, combines, agrees or arranges with another person (

a) to limit unduly the facilities for transporting, producing, manufacturing, supplying, storing or dealing in any product, (

b) to prevent, limit or lessen, unduly, the manufacture or production of a product or to enhance unreasonably the price thereof,

(

b) to prevent, limit or lessen, unduly, the manufacture or production of a product or to enhance unreasonably the price thereof, (

c) to prevent or lessen, unduly, competition in the production, manufacture, purchase, barter, sale, storage, rental, transportation or supply of a product, or in the price of insurance on persons or property, or (

d) to otherwise restrain or injure competition unduly, is guilty of an indictable offence and liable to imprisonment for a term not exceeding five years or to a fine not exceeding ten million dollars or to both. Idem

(2) For greater certainty, in establishing that a conspiracy, combination, agreement or arrangement is in contravention of subsection (1), it shall not be necessary to prove that the conspiracy, combination, agreement or arrangement, if carried into effect, would or would be likely to eliminate, completely or virtually, competition in the market to which it relates or that it was the object of any or all of the parties thereto to eliminate, completely or virtually, competition in that market. Evidence of conspiracy

(2.1) In a prosecution under subsection (1), the court may infer the existence of a conspiracy, combination, agreement or arrangement from circumstantial evidence, with or without direct evidence of communication between or among the alleged parties thereto, but, for greater certainty, the conspiracy, combination, agreement or arrangement must be proved beyond a reasonable doubt. Proof of intent

(2.2) For greater certainty, in establishing that a conspiracy, combination, agreement or arrangement is in contravention of subsection (1), it is necessary to prove that the parties thereto intended to and did enter into the conspiracy, combination, agreement or arrangement, but it is not necessary to prove that the parties intended that the conspiracy, combination, agreement or arrangement have an effect set out in subsection (1). [ 105 ] Section 36(1) creates a private right of action to claim damages for a breach of

Part VI of the Act: Recovery of damages Any person who has suffered loss or damage as a result of

a) conduct that is contrary to any provision of

Part VI, or (

b) the failure of any person to comply with an order of the Tribunal or another court under this Act, may, in any court of competent jurisdiction, sue for and recover from the person who engaged in the conduct or failed to comply with the order an amount equal to the loss or damage proved to have been suffered by him, together with any additional amount that the court may allow not exceeding the full cost to him of any investigation in connection with the matter and of proceeding under this section.

b) Could the Defendants Breach s. 45 of the Competition Act Respecting the 50/50 Properties? [106] In closing argument, counsel for Mobil submitted that it would be technically impossible for the Defendants to be in breach of s.45 as they were the co-owners of the 50/50 properties and thus were one entity incapable of entering into an anti-competitive agreementamongst themselves.

No authority was cited in support of this submission. [107] During the trial a Memorandum of Agreement was exhibited, dated October 14, 1964 between Mobil’s predecessor, SoconyMobil Oil of Canada, Ltd. and Banff Oil Ltd. which was the original oil producer in the Rainbow Lake field. Husky is the successor toBanff. [108] Paragraph 29.1 of the agreement reads as follows: 29. RELATION OF PARTIES 29.1 The Joint Operators shall hold the joint lands as tenants in common.

Nothing herein contained shall ever be construed as creatinga partnership of any kind, joint venture, association or a trust, or as imposing upon any one or more of the Joint Operators any partnershipduty, obligation or liability. The duties, obligations and liabilities of the Joint Operators shall be individual and separate and not joint or collective. [109] Paragraph 29.1 is a complete answer to Mobil’s argument. As tenants in common the Defendants could indeed enter into ananti-competitive agreement and thus could be in breach of s. 45.

c) Did the Defendants Breach s. 45 of the Competition Act?

i) R. v. Nova Scotia Pharmaceutical Society (No. 2) [110] In R. v. Nova Scotia Pharmaceutical Society (No. 2) (SCC), [1992] 2 S.C.R. 606, referenced as PANS, theSupreme Court of Canada upheld the constitutional validity of s. 32(1)(

c) of the Combines Investigation Act which has now beenrenamed the Competition Act R.S.C., 1985, c. C-34.

Section 45 of the current Act is the equivalent of s. 32 of the previous Act. [111] At para. 73 the basic structure of the

section was described: 73 The offence created by s. 32(1)(

c) comprises two material elements: 1. An agreement entered into by the accused ("Every one who conspires, combines, agrees or arranges with another person"); and

2. An undue prevention or lessening of competition flowing from this agreement ("to prevent, or lessen, unduly, competition in theproduction, manufacture, purchase, barter, sale, storage, rental, transportation or supply of a product, or in the price of insurance uponpersons or property ..."). There is furthermore a mental element to this offence, which I will discuss in

Part VI of these reasons. [112] The meaning of “unduly” has been the subject of much judicial comment and the following passages are found at paras. 79, 80and 83: 79 This court has already interpreted the word "unduly" on a number of occasions . . . 80 The meaning of "unduly" has usually been described by reference to various synonyms. In Weidman, Anglin J. adopted the string ofsynonyms given in R. v. Elliott (1905), (ON CA), 9 O.L.R. 648, 9 C.C.C. 505 (Ont. C.A.), at p. 520 [C.C.C.]("improper, inordinate, excessive or oppressive").

This string has been mentioned in all subsequent judgments of this court on the issue . .. given that a controversy had arisen, Parliament saw fit to add s. 32(1.1) to the Act, thus dispelling any doubt as to the state of the law.Anglin J.'s reasons in Weidman remain authoritative. Instead of adding to this string of synonyms, I will adopt the reasons of ClarkeC.J.N.S. in the instant case at p. 157 [C.C.C.]: While the word unduly is not defined by statute and defies precise measurement, it is a word of common usage which denotes to all of usin one way or another a sense of seriousness.

Something affected unduly is not affected to a minimal degree but to a significant degree. Clarke C.J.N.S. has touched upon the very nature of "unduly": while this word does not have a precise technical meaning, it does have acommon meaning, and it expresses a notion of seriousness or significance. . . . 83 The legal content of s. 32(1)(c), however, is not exhausted by a search for the meaning of unduly. Section 32(1)(

c) must not be takenin a vacuum. Its

interpretation is conditioned, first of all, by the purposes of the Act. Furthermore, its content is enriched by the rest ofthe

section in which it is found and by the mode of inquiry adopted by courts as they have ruled under it. These are matters of law,pertaining to the determination of undueness under s. 32(1)(c), and as such most relevant.

I will look at each in turn. [113] The court emphasized the significance of this legislation to Canadian Public Policy at paras. 84, 87 and 89: 84 At the outset, it must be noted that the Act is central to Canadian public policy in the economic sector, and that s. 32 is itself one ofthe pillars of the Act. . . . 87 The content of the 1889 Act was progressively enlarged, until it grew into the current Act. In City National Leasing Ltd. v.

GeneralMotors of Canada Ltd., (SCC), [1989] 1 S.C.R. 641, 43 B.L.R. 225, 24 C.P.R. (3d) 417, 58 D.L.R. (4th) 255, 93 N.R.326, 32 O.A.C. 332, Dickson C.J.C. wrote for the court at p. 676 [S.C.R.]: From this overview of the Combines Investigation Act I have no difficulty in concluding that the Act as a whole embodies a complexscheme of economic regulation. The purpose of the Act is to eliminate activities that reduce competition in the market-place. The entireAct is geared to achieving this objective. The Act identifies and defines anti-competitive conduct. It establishes an investigatory

mechanism for revealing prohibited activities and provides an extensive range of criminal and administrative redress against companies engaging in behaviour that tends to reduce competition. The Act can thus be seen as a central and established feature of Canadian economic policy. . . . 89 This court has made numerous remarks on the public policy interests underlying s. 32(1)(

c) of the Act. These remarks, found in Weidman , Stinson-Reeb , Container Materials , and Aetna Insurance , supra, are perhaps best summarized in this passage from the majority judgment in Howard Smith , supra, at p. 411 [S.C.R.]: The statute proceeds upon the footing that the preventing or lessening of competition is in itself an injury to the public. It is not concerned with public injury or public benefit from any other standpoint. Considerations such as private gains by the parties to the agreement or counterbalancing efficiency gains by the public lie therefore outside of the inquiry under s. 32(1)(c).

Competition is presumed by the Act to be in the public benefit. The only issue is whether the agreement impairs competition to the extent that it will attract liability. [ 114 ] The court mandated a two step inquiry in determining whether a breach of s. 32 has been established and the following passages appear at paras. 96, 97, 98, 100, 101, 103, 107 and 108: 96 First of all, there are two major elements to this inquiry, that is (1) the structure of the market, and (2) the behaviour of the parties to the agreement. As a preliminary step, definition of the relevant market is required.

Many decisions have explicitly adopted this approach ( J.W. Mills & Son Ltd. v. R. , [1968] 2 Ex. C.R. 275, 56 C.P.R. 1, at p. 303 [Ex. C.R.] ; ... 97 I will not venture into the intricacies of outlining the relevant market, other than to repeat that it comprises both geographical and produce or service aspects, as was stated in J.W. Mills , at p. 303 [Ex. C.R.]. Definition of the relevant market is a fairly circumscribed process, even though it may require considerable inquiry (see R. v. Metropolitan Toronto Pharmacists' Assn. (1984), 3 C.P.R. (3d) 233 (Ont.

H.C.) ). 98 The structure-behaviour framework of analysis remains merely a convenient way of approaching conspiracy problems, and it should not be seen as a rite of passage. Indeed, to a certain extent, the determination of whether an agreement unduly restricts competition involves an examination not only of market structure and firm behaviour separately, but also of the relationship between them, as Gibson J. remarked in J.W. Mills , at p. 309 [Ex. C.R.]. a. Market structure 99 . . . Indeed market share as such cannot suffice to conclude on the structure of the market, and s. 32(1)(

c) would lose some of its effectiveness and would stray from its objectives if it incorporated a market-share threshold. Market share alone is not determinative, as was rightly pointed out in Canadian General Electric , at p. 501 [C.C.C.]. 100 The aim of the market structure inquiry is to ascertain the degree of market power of the parties to the agreement, as was said in Canadian Coat & Apron Supply Ltd. , at p. 64 [Ex. C.R.]. In this respect, many factors other than market share are relevant. Some were listed in J. W. Mills , at pp. 307-308 [Ex.

C.R.]: (1) the number of competitors and the concentration of competition, (2) barriers to entry, (3) geographical distribution of buyers and sellers, (4) differences in the degree of integration among competitors, (5) product differentiation, (6) countervailing power and (7) cross-elasticity of demand (see also Canadian General Electric , supra). This list is not limitative . . .

101 Market power is the ability to behave relatively independently of the market. This is precisely what s. 32(1)(

c) of the Act seeks toprevent. As this court has always held in its previous judgments, the aim of the Act is to secure for the Canadian public the benefit offree competition. Excessive market power runs against the objectives of the Act. When it occurs in the context of a conspiracy to restrictcompetition, s. 32(1)(

c) will apply. It can be presumed that Parliament did not wish s. 32(1)(

c) to apply in the absence of market power.Absent such power, agreements to restrict competition would either benefit the public by allowing small firms to consolidate theirposition and be more competitive, or dissolve under competitive pressures (see Dunlop, supra, at p. 114). 103 The application of s. 32(1)(

c) of the Act does not presuppose such a degree of market power, as s. 32(1.1) clearly enunciates. Partiesto the agreement need not have the capacity to influence the market. What is more relevant is the capacity to behave independently of themarket, in a passive way. A moderate amount of market power is required to achieve this (see R. v. Abitibi Power & Paper Co. (1960), (QC CQ), 36 C.R. 96, 36 C.P.R. 188, 131 C.C.C. 201 (Que.), at pp. 249-252 [C.C.C., pp. 146-149 C.R.]). b. Behaviour 107 The second part of the framework found in case law involves an examination of the behaviour of firms. In both R. v.

McGavinBakeries Ltd. (No. 6) (1951), (AB KB), 13 C.R. 63, 3 W.W.R. (N.S.) 289, 101 C.C.C. 22 (Alta.), at p. 303 [W.W.R.(N.S.)], and Canadian General Electric, supra, at pp. 531-532 [C.C.C.], the court considered which facet of competition was affected bythe agreement (price, quality, service or other) and whether it was the prime concern of the buying public.

The object of the agreement iswithout doubt the most important behavioural element in the inquiry, but others may be relevant, such as the manner in which theagreement has been or will be carried out and, in general, any behaviour that tends to reduce competition or limit entry (see J. W. Mills,supra, at p. 309 [Ex. C.R.]). 108 The aim of the inquiry is the likely effect of the agreement. I can only quote from R. v.

Northern Electric Co., (ONSC), 21 C.R. 45, [1955] O.R. 431, 111 C.C.C. 241, 24 C.P.R. 1, [1955] 3 D.L.R. 449 (H.C.), at p. 469 [D.L.R.]: In considering whether the agreement or conspiracy comes within the statute, one does not judge the unlawfulness by what was donepursuant to the agreement (although this may be evidence of the agreement) but ... one examines the nature and scope of the agreementas proved and decides whether that agreement, if carried into effect, would prejudice the public interest in free competition to a degreethat in fact would be undue. See also Aetna Insurance, supra, at p. 747 [S.C.R.].

The agreement must be or must have been likely to injure competition, irrespectiveof any actual effect it may have had (although evidence of the effects offers good guidance as to the likely effects of the agreement).Some agreements do not constitute behaviour likely to injure competition, while others are highly injurious. ii) Determining Market Structure in this Case [115] As noted at para. 100 of PANS, the aim of the market structure inquiry is to ascertain the degree of market power of the partiesto the agreement.

The analysis is contextual and must reflect the unique features of fluid hauling in Rainbow Lake in 1996-1997 andmore specifically, fleet fluid hauling.

a) The Product Market of Fluid Hauling [116] Dr. West agreed that fluid hauling would constitute a recognized product market.

b) The Number of Providers of Fleet Fluid Hauling [117] It is uncontroverted that in 1996 Kolt and Cardusty were the only companies offering fleet fluid hauling in Rainbow Lake and

that they essentially offered the same type and quality of service.

c) Rainbow Lake as a Geographic Market for Fluid Hauling [ 118 ] One of the factors pertinent to the issue of market structure is whether a geographic market area can be identified? [ 119 ] It is uncontroverted that Rainbow Lake is a discrete oil and gas field.

The town of Rainbow Lake is in a remote area of the Province accessible by one highway only. [ 120 ] Oil and gas production from the Rainbow Lake field, which is not transported by pipeline, is processed by large batteries in the area requiring that crude oil be trucked to them. [ 121 ] Fluid hauling for the Rainbow Lake area is based at or near the town of Rainbow Lake. Mr.

Arnason from Husky confirmed in his testimony that Husky used only fluid haulers based in Rainbow Lake. [ 122 ] The Defendants recognized their Rainbow Lake properties as distinct business units with resident employees, including local managers. Significantly, the Mosky joint synergy initiative involved only the Rainbow Lake properties. Estimated cost savings and enhancement of value involved only these properties. [ 123 ] Fluid hauling is time sensitive requiring that trucks be available any time of the night or day.

There is no evidence that fluid hauling from other areas, including Zama City or Northeast British Columbia, was ever utilized because these other areas are too far away and therefore it is not economical to operate trucks from that distance. There is no evidence that fluid hauling in the Rainbow Lake area was part of a larger market area. [ 124 ] During the trial, the Plaintiff entered into evidence a map of the Rainbow Lake area marked with a red square identifying Gary Whelen’s estimate of the boundaries of the Rainbow Lake fluid hauling market area.

I accept that this red square has no technical validity but rather is only an estimate of market boundaries. [ 125 ] It bears noting however, that this estimate is very similar to an estimate of the boundaries of the Rainbow Lake field provided by the officer of Husky in response to undertakings from Examinations for Discovery. [ 126 ] I find as a fact that the boundaries of the Rainbow Lake fluid hauling market are as follows: 1. The north boundary bisects Zama Lake and is situated between the 112 th and 113 th Township lines; 2. The south boundary is situated between the 104 th and 105 th Township lines; 3.

The west boundary is the Alberta/British Columbia boundary and; 4. The east boundary is the Chinchaga River. [ 127 ] In the result, I reject Dr. West’s opinion that the Rainbow Lake geographic area for fluid hauling would include the Zama oil and gas field, including Zama City or Northeastern British Columbia. In reaching this conclusion, I am mindful that evidence at trial disclosed occasional work in these areas by Kolt. [ 128 ] I also reject Dr. West’s purported listing of other companies providing fluid hauling in Northwestern Alberta in 1996/1997.

As will be discussed below, the Defendants called no evidence to substantiate the information provided to him about the availability of other

fluid haulers.

d) Kolt’s Market Share [ 129 ] Whelen testified that he estimated the total market for fluid hauling in Rainbow Lake in 1996 to be between $3.5 million to $4 million per year. No evidence was called as to the amount of revenue Cardusty was generating in the Rainbow Lake area. [ 130 ] Whelen’s estimate was based on his observations as to the number of fluid hauling trucks being operated by Cardusty.

He estimated that Kolt and Cardusty were roughly dividing fleet fluid hauling in the Rainbow Lake area and thus he extrapolated an estimate of market size based on Kolt’s revenue. [ 131 ] The Defendants argue that the Plaintiff bears the onus of proving the size of the market and because of the absence of detailed market data, its claim must fail. [ 132 ] I do not agree. In PANS at para. 99, the court specifically rejected the notion that market share is determinative or that a market share threshold can be established.

Market share is one of a number of factors to be considered in determining the degree of market power of the parties to the agreement. [ 133 ] Husky is the dominant oil and gas producer in the area and operates a large processing plant which handles production from Husky and Mobil’s joint properties and which also services production from a number of small producers in the area. The existence of this processing plant serves to enhance Husky’s market power in that area. [ 134 ] Fluid hauling is an essential and integral part of oil and gas production.

The evidence overwhelmingly establishes that fluid hauling requirements for the Rainbow Lake field were based at Rainbow Lake because of the need to respond quickly to a request for service and also because it is not economical to service the Rainbow Lake area from elsewhere. [ 135 ] Kolt’s records clearly establish that Husky and Mobil were high volume customers generating revenue for the company in excess of $1 million per year for 1994, 1995 and 1996. The evidence clearly establishes that the volumes of fluid hauling for Husky and Mobil combined were such that fleet service was required.

The Defendants conceded that their combined annual budgets for fluid hauling were approximately $1.7 million per year. [ 136 ] In each of these years this revenue was more than one-half of Kolt’s total revenue from fluid hauling operations. The balance of revenue for each of these years came from a variety of sources, none of which were nearly as high in volume as Husky and Mobil combined. [ 137 ] Prior to November 1996 Kolt and Cardusty were the only fluid haulers in the Rainbow Lake area offering fleet service. Kolt and Cardusty offered essentially the same service.

Kolt would retain the services of local owner operators who operated under Kolt’s dispatch system. [ 138 ] PANS requires a contextual analysis of market share. A proper analysis of the degree of market power of Husky and Mobil must be viewed through the prism of fluid haulers at Rainbow Lake offering fleet service. [ 139 ] Husky and Mobil had enormous degrees of market power over fluid haulers offering fleet service because ongoing fleet service

could only be sustained if there were significant volumes of product to be hauled to justify the expense of acquiring and operating a fleet of trucks, including the need to maintain a local maintenance shop with a resident mechanic as well as accommodation for employees. [ 140 ] There is no evidence that any of the other oil and gas producers in the area had sufficient volumes of production to justify maintaining fleet service.

CNRL’s decision to link its wells to a pipeline in the spring of 1997, thus obviating its need for fluid hauling, exacerbated Kolt’s predicament. [ 141 ] It bears noting that prior to the embarking on the joint synergy initiative with Mobil, Husky had directed its field operators at Rainbow Lake to fairly allocate fluid hauling between Kolt and Cardusty, thus allowing a competitive market to thrive.

Husky considered that this result was beneficial for itself and the community of Rainbow Lake. [ 142 ] Significantly, the Plaintiff is not alleging anti-competitive pricing but rather this is a case involving the alleged intentional exclusion of the Plaintiff from the opportunity to compete for the business of Husky and Mobil. [ 143 ] The decision by Husky and Mobil in November 1996 to use only a single source for fluid hauling resulted in a markedly different market structure arising.

Competition among fleet haulers was effectively eliminated. [ 144 ] As discussed in PANS at para. 101, this is the very antithesis of free competition. Whereas previously Kolt had demonstrated that it could compete successfully in the market, the decision to grant Cardusty the exclusive right to provide fluid hauling for Husky and Mobil prevented Kolt from competing in the marketplace for this revenue.

Having built up the infrastructure required to compete for fleet fluid hauling, it lost the revenue base necessary to sustain the infrastructure. [ 145 ] The fact that Husky and Mobil were able to eliminate Kolt as a fleet service provider is in of itself proof of the degree of market power these companies had.

e) Barriers to Entry into the Market [ 146 ] Dr.

West opined that the Defendants did not have the power to behave independently of the market because there were no barriers to entry for other businesses wishing to provide fluid hauling service in Rainbow Lake and also opined that there was nothing preventing Kolt from relocating to another market area. [ 147 ] In his opinion, an oil field fluid hauling business could be set up at a relatively low cost and observed that Kolt had no contracts with Husky or Mobil thus any fluid hauling business which was more efficient could compete with Kolt or Cardusty. [ 148 ] While acknowledging that Kolt had a shop in Rainbow Lake located on land it owned, and that it provided camp style accommodation to its employees, he concluded that these start up costs would not be large.

He made no comment about the value of personal contacts with field operators which would be a significant factor for any new competitor entering that area. [ 149 ] I do not accept Dr. West’s opinion respecting entry or exit barriers, which is based on a theoretical analysis which does not accord with the actual market realities in Rainbow Lake at that time. [ 150 ] Dr.

West, who has never been to Rainbow Lake and who has no actual knowledge of the fluid hauling business, undertook no research about the actual costs of setting up a fluid hauling operation in Rainbow Lake in 1997, including land purchase or leasing costs to accommodate a fully equipped truck maintenance facility and employee accommodation expenses. He did not consider that truck drivers require sour gas training and familiarity with the local area as oil well access roads are unmarked. [ 151 ] The Defendants called no evidence on what start up costs would have actually amounted to at the time.

While I accept that start

up costs would not be prohibitive, they would nonetheless be significant and operate as a barrier to entry. [ 152 ] Given that there is no factual basis for his opinion on the subject of start up costs, his evidence is theoretical, speculative and therefore of limited probative value. [ 153 ] As well, Dr. West’s opinion that a more efficient fleet fluid haulers could displace Kolt or Cardusty ignores the evidence at trial that both of these companies were experienced, efficient fleet fluid haulers.

There is a complete absence of evidence that any potential competitor could have been more efficient. [ 154 ] In addition, Dr. West assumed that there were other fluid haulers besides Kolt or Cardusty operating in Rainbow Lake at that time.

In fact, the evidence overwhelmingly establishes that there were only two fleet fluid haulers in the area at that time and that owner operators operated under the Kolt or Cardusty dispatch systems. [ 155 ] There is no evidence that prior to November 13, 1996 or in the period between November 13, 1996 and May 15, 1997 any potential competitor in the fleet fluid hauling market was considering starting operations in Rainbow Lake. I do not accept that the factual reality that there were only two fleet fluid haulers operating in Rainbow Lake in 1996 was mere happenstance. [ 156 ] Moreover, Dr.

West ignored the reality that the decision made on November 13, 1996 to sole source Husky and Mobil’s fluid hauling to Cardusty would operate as a barrier to entry because any potential competitor wishing to provide fleet fluid hauling would be concerned that a revenue pool of $1,700,000 per year would not be accessible. [ 157 ] Dr. West’s conclusion that Kolt could have moved its fleet elsewhere was not supported by any evidence of an available location which could have accommodated a fleet of eight trucks. Moreover, as will be discussed below, the burden is on the Defendants to establish a failure to mitigate.

Dr.

West’s conclusion has the effect of reversing this evidentiary burden and therefore does not withstand scrutiny. [ 158 ] In the result, I attribute little weight to his testimony. iii) Behaviour of the Defendants [ 159 ] Virtually all of the evidence at trial respecting the behaviour of the Defendants was admitted and overwhelmingly confirmed by documentary evidence. [ 160 ] Oral testimony during the trial, coupled with documentary evidence exhibited, clearly establishes that Husky and Mobil entered into a joint synergy agreement with the stated purpose of reducing their costs of operations at Rainbow Lake, thus enhancing their profits.

Their focus was on reducing total system costs (TSC) but the only aspect of this agreement pertinent to this litigation was cost reduction in connection with fluid hauling. [ 161 ] By the early fall of 1996 the fluid hauling team was recommending to senior management for both Husky and Mobil that a single source for fluid hauling be utilized replacing a system under which Kolt and Cardusty roughly divided the work between them. [ 162 ] A target for cost savings for fluid hauling was set in the estimated amount of $600,000 per year. Total cost savings were referred to as the “prize”.

In a general way cost savings were incorporated into the 1997 operating budget which was prepared in September 1996, but no specific amount was identified for fluid hauling cost savings. [ 163 ] The fluid hauling team met with representatives of Kolt and Cardusty, which companies were asked to disclose their operating financial particulars, including profit margins.

[ 164 ] The fluid hauling team was not satisfied with the results of this consultation process and by October 1996 recommended to senior management for both Husky and Mobil that a single source for fluid hauling be selected. [ 165 ] Approval was received from senior management to proceed. Selection criteria were established and the two companies participated in the selection process. Both companies had very similar scores with Kolt scoring 66.03 and Cardusty 65.24. [ 166 ] Ultimately Cardusty was selected and on November 13, 1996 Mr.

Whelen was advised of the decision and that while Kolt could finish jobs in progress, thereafter it would only be retained to provide fluid hauling to Husky and Mobil on an emergency basis.

In fact, Husky and Mobil never again retained Kolt for new work. [ 167 ] Husky and Mobil admit entering into the agreement to sole source their fluid hauling requirements but argued that this was done for the purposes of efficiency and enhancing their profit margins for their Rainbow Lake operations. [ 168 ] In PANS at para. 89 the court rejected the notion that an efficiency defence is available, for to accept such a defence would have the effect of rendering s. 45 nugatory. [ 169 ] It is not disputed that Mobil initiated the joint synergy initiative and that Mr.

Boles, Mobil’s change agent, was tasked with implementing it. Husky willingly participated in the process. [ 170 ] The following passages from his trial testimony at pages 210, 211, 222 and 223 are instructive as to how he perceived competition as being an impediment to achieving cost savings for fluid hauling and that, therefore, competition had to be removed: Q Now, at that point, sir, is it fair to say that competition had got the prices for fluid hauling where they were? A Yes, that was our thinking at the time and that was why we moved and were able to make this statement.

Q And, sir, if you could take competition out of it and all you were focused on was doing business, then you could get prices to where the right spot would be. Correct? A If we focused on total system cost and it was about pricing was the total systems cost for fluid hauling. Price was -- the price was the price. It was total system costs that we were looking at, and that’s where we got the 20 percent of the 3 million dollars was total system costs. Q Okay. And if you could take the competition out and all you were focused on was doing business, you could get prices to where the right spot would be. Correct?

A Yeah, the price -- year, the prices were the prices. Q It was competition got the prices to where they were. Correct? A Yeah. Q Yes? A That was our -- yeah. Q And the fluid-hauling team, the discussion came around to the other side, that competition had also got you to where the prices

Q And the fluid-hauling team, the discussion came around to the other side, that competition had also got you to where the prices were, and if you could take competition out and all you were focused on was doing business, you could get your prices to where the right spot would be. Correct? A No. Well -- yeah. Sorry. If I could take competition out? Q Yes. A That’s -- yeah. No, what we were -- what we were saying was that competition got us to where we were. So competition -- to continue to try to work with this competition model was not going to get us the savings that we were looking for.

It wasn’t getting us to this new way of doing business. . . . Q And you read Mr. Whelen’s opinion on the Enhanced Supplier Relationship and his concern that it will eliminate the competitive nature of the business? A M’hmm. Q And you didn’t agree with that? A No, we didn’t agree as a team. Q And part of that disagreement had to do with the prices being where they were because of that existing competition? A M’hmm. Q Yes? A Yeah. That’s what we had said, that competition has got us a dollar-per-hour price as to where we are now and what we want to focus on is total system cost.

So it’s a much bigger and a different way of thinking than what we had gotten to right now as far as how the traditional you call, we haul pricing had been. Q And you wanted to move beyond what competition had achieved and enhance your total system costs through something new? A Yes. iv) Conclusion on Whether the Defendants Breached s. 45 of the Competition Act ? [ 171 ] The Defendants readily admit entering into an agreement to use a single source for fluid hauling.

The issue is then reduced to whether this agreement unduly lessened competition in breach of s. 45 of the Competition Act ? [ 172 ] Using the two stage inquiry prescribed in PANS , I have concluded that the Plaintiff has proven that the Defendants entered into an agreement to unduly lessen competition for fluid hauling in a recognized market area, thus breaching s. 45 of the Competition Act . [ 173 ] The Plaintiff had no contractual entitlement to revenue from the Defendants for fluid hauling, but did have the legal protection, afforded to it by s. 45 , to have the opportunity to compete in the marketplace for this revenue.

The decision by the Defendants to use Cardusty exclusively for their fluid hauling requirements prevented the Plaintiff from competing for this business.

[174] This conclusion is entirely consistent with interpreting the Competition Act in a manner which protects competition, not theindividual competitor. [175] It necessarily follows, that I reject Dr. West’s conclusion that the agreement by the Defendants to use Cardusty as their solesource for fluid hauling did not unduly lessen competition. [176] It is uncontroverted that as of November 13, 1996, Kolt was excluded from providing fluid hauling to Husky and Mobil.

Dr.West’s opinion does not accord with the facts in this case, that is, Kolt was a fleet fluid hauler denied the opportunity to compete for $1.7million per year of fluid hauling revenue from Husky and Mobil notwithstanding that the company had demonstrated over a number ofyears that it had the infrastructure in place to provide fleet fluid hauling services and competed effectively with Cardusty. [177] The agreement by the Defendants to use Cardusty exclusively for their fluid hauling requirements not only unduly lessenedcompetition, it eliminated it.

Claims in Tort [178] In its Amended Statement of Claim, the Plaintiff claims damages pursuant to s. 36 of the Competition Act for a breach of s. 45of the Act. Damages are claimed as well for the tort of conspiracy, the tort of interference with economic relations and the tort ofinterference with business relations. [179] The latter two torts are identical, thus for the sake of convenience I will jointly consider them under the heading of interferencewith economic relations. [180] In Westfair Foods Ltd. v.

Lippens Inc. (1989), (MB CA), 64 D.L.R. (4th) 335 at page 345 the ManitobaCourt of Appeal held that pursuit of a remedy under s. 36 of the Competition Act did not preclude the plaintiff in that case from pursuingan alternative claim for conspiracy in the same action.

The court noted that a claim pursuant to s. 36 is restricted to special damageswhereas general damages and special damages can be pursued in a claim for conspiracy. [181] The court in Westfair made no mention of other claims in tort but I see no reason why the same logic would not apply,particularly given that the measure of damages would be identical.

a) Conspiracy [182] In Canada Cement LaFarge Ltd. v. British Columbia Lightweight Aggregate Ltd. (SCC), [1983] 1 S.C.R. 452the tort of conspiracy was defined in para. 33: 33 Although the law concerning the scope of the tort of conspiracy is far from clear, I am of the opinion that whereas the law of tortdoes not permit an action against an individual defendant who has caused injury to the plaintiff, the law of torts does recognize a claimagainst them in combination as the tort of conspiracy if:

(1) Whether the means used by the defendants are lawful or unlawful, the predominant purpose of the defendants' conduct is to causeinjury to the plaintiff; or,

(2) Where the conduct of the defendants is unlawful, the conduct is directed towards the plaintiff (alone or together with others), and thedefendants should know in the circumstances that injury to the plaintiff is likely to and does result.

[183] In this case the plaintiff is asserting a conspiracy under the second branch only and relies on the breach of s. 45 of theCompetition Act as the unlawful act. [184] At para. 34 the court made the following observations about constructive intent: 34 In situation (2) it is not necessary that the predominant purpose of the defendants' conduct be to cause injury to the plaintiff but, inthe prevailing circumstances, it must be a constructive intent derived from the fact that the defendants should have known that injury tothe plaintiff would ensue.

In both situations, however, there must be actual damage suffered by the plaintiff. [185] The officers produced on behalf of Mobil and Husky each testified that the predominant purpose of the Mosky initiative was toreduce costs and enhance profits. [186] While I accept this, I also accept that the Defendants should have known that the Plaintiff would suffer economic loss if it couldno longer compete with Cardusty to supply fluid hauling services to them.

The Defendants were fully aware of the volumes being hauledby Kolt for them and the amounts of revenue generated. [187] Secondly, the Defendants had requested and received from Kolt full particulars of its business operations, including its profitmargin. [188] Thirdly, the Defendants were fully aware of the circumstances of the Rainbow Lake market for fluid hauling. They knew thatKolt and Cardusty were the only two fluid hauling companies offering fleet service in Rainbow Lake.

It defies belief that the Defendantswere not aware that the decision to award Cardusty the sole right to haul fluids for them would not have had a devastating financialimpact on Kolt particularly given that Kolt got no new work from them after November 13, 1996 resulting in a sudden and precipitousdrop in revenue in excess of $1 million per year. The economic losses of the Plaintiff are outlined below. [189] Mr. Boles for Mobil and Mr. Arnason for Husky testified that they presumed that Kolt would pick up business elsewhere in theRainbow Lake area.

Arnason testified that he thought Cardusty would give some its business to Kolt. Their testimony in this regard wasfactually groundless, disingenuous and completely self serving. [190] In the result, the Plaintiff has proven the tort of conspiracy under the second branch entitling the Plaintiff to damages.

b) Interference with Economic Relations [191] In Conway v. Zinkhofer 2008 ABCA 392, at para. 41 the Alberta Court of Appeal outlined the three elements constituting thistort: There are three elements to the tort of unlawful interference with economic relations: (

i) an intention to injure; (ii) interference with theother party’s business by illegal or unlawful means; and (iii) resultant economic loss: Reach M.D. Inc. v. Pharmaceutical ManufacturersAssn. of Canada (ON CA), 2003, 65 O.R. (3d) 30, 227 D.L.R. (4th) 458 (Ont. C.A.) at para. 44. [192] In Reach M.D. Inc. v. Pharmaceutical Manufacturers Assn. of Canada (ON CA), 2003, 65 O.R. (3d) 30at para. 46, the Ontario Court of Appeal discussed what was required to prove the first element of this tort: 46 To satisfy the first element, Reach need not prove that PMAC's predominant purpose was to injure it.

This first element of the tortwill be met as long as PMAC's unlawful act was in some measure directed against Reach. That is so even if -- as PMAC claims -- its

predominant purpose was to advance its own interest and those of its members. In short, "The defendant's manoeuvre must have been targeted against the plaintiff, although its predominant purpose might well have been to advance his own interests thereby rather than to injure the plaintiff." See John G. Fleming, The Law of Torts , 9th ed. (1998), at p. 769. [ 193 ] See also Barber v. Vrozos 2010 ONCA 570 at para. 52 : 52 To satisfy the element of intent, the respondents did not need to prove that Molson's predominant purpose was to injure them.

It was sufficient to establish that Molson's unlawful act was in some measure directed against the respondents: Reach M.D. , at para. 46. This requirement was met because the trial judge found that Molson sold water rights to GMIC after having sold them to Vrozos.

Molson did so with knowledge that Vrozos had sold the water rights to the respondents and that permitting GMIC to sell water would interfere with the respondents' exclusive water rights and reduce the respondents' profits. [ 194 ] The Plaintiff has proven the first element of this tort, that is, a constructive intention to injure it. [ 195 ] The second element is established by the breach of s. 45 of the Competition Act and the third element by the economic loss sustained by the Plaintiff outlined below. [ 196 ] Accordingly, the Plaintiff has established an entitlement to damages for this tort as well.

Assessment of Damages

a) Expert Accounting Evidence [ 197 ] I find that the Plaintiff’s financial expert, Mr. Bailey, and the Defendants’ financial expert, Mr. Siebert, were both very credible. [ 198 ] With the exception of a disagreement as to whether Kolt had a good will value, the two experts substantially agreed on what the financial statements for Kolt disclosed. [ 199 ] Mr. Bailey opined that Kolt did have a good will value whereas Mr. Siebert valued Kolt only on the basis of asset value. [ 200 ] I prefer the opinion of Mr. Bailey over that of Mr.

Siebert respecting the good will issue. [ 201 ] The evidence at trial clearly established that Mr. Whelen built Kolt’s fluid hauling business from personal contacts in Rainbow Lake over a period of 13 years. Rainbow Lake is a small community and over time he knew everybody associated with the oil industry. He served as a town councillor at one point and was active in community affairs.

His family lived in the community and Kolt’s sole base of operations was Rainbow Lake. [ 202 ] Prior to the decision to sole source fluid hauling, a decision as to which fluid hauler to call was made by the local field operators who were personally acquainted with Mr. Whelen. [ 203 ] The evidence clearly establishes that he had actual hands-on knowledge with the oil and gas industry, including all aspects of fluid hauling.

He testified to having personally attended at virtually every well site in the Rainbow Lake field. [ 204 ] In my view, the uncontroverted evidence at trial strongly supports the argument that Kolt had a good will value which must be considered in assessing damages and find as a fact that Mr. Bailey’s estimate of good will is reasonable and should be accepted.

[ 205 ] Mr. Bailey prepared his calculations both on a pre-tax and after tax basis. He offered no opinion as to which approach is more correct. As noted, Mr. Siebert offered no opinion on this issue. [ 206 ] Counsel for the Plaintiff argued that damages at large should be awarded on a pre-tax basis as the Plaintiff would have had the benefit of structuring its business affairs to minimize tax liability. Defence counsel took no position on this issue. [ 207 ] I agree with counsel for the Plaintiff that damages at large should be awarded on a pre-tax basis.

b) Time Period for Assessing Damages [ 208 ] In his expert report, Mr. Bailey opined that one method of valuing damages would be to estimate a loss of earnings for Kolt over the expected life of the Rainbow Lake oil and gas field. Based on published data, he used 2023 as being the likely date when the market for fluid hauling in that area would cease to exist as the Rainbow Lake field would stop producing. [ 209 ] As noted, Whelen was advised of the decision to sole source fluid hauling to Cardusty on November 13, 1996 and ceased operating Kolt on May 15, 1997.

The trial took place accordingly, 14.5 years after the decision to sole source fluid hauling. [ 210 ] The evidence is clear that Kolt never had any contracts with the Defendants or indeed any other customers which provided any guarantee of amounts to be hauled or a given amount of revenue. [ 211 ] The evidence is also clear, however, that Kolt started operation in 1984 and was a well run, profitable business up to November 13, 1996 when it was denied the opportunity to compete for new business from Husky and Mobil. [ 212 ] It is uncontroverted that most oil producers at Rainbow Lake cannot operate without fluid hauling and that large producers require fleet fluid service.

In 1996 only Kolt and Cardusty offered fleet service for fluid hauling in Rainbow Lake. [ 213 ] A significant issue in the assessment of damages is over what period of time should damages be assessed? [ 214 ] Undeniably, the oil and gas business is cyclical. Oil and gas prices are not fixed and will fluctuate for many reasons, including geopolitical factors beyond the control of any party.

It is admitted by the Defendants that the Rainbow Lake field is still producing oil and gas. [ 215 ] I accept that contingencies, both positive and negative, apply to the assessment of damages in this case. [ 216 ] There was no guarantee that Kolt would continue in business, but Whelen testified that he wanted to and the uncontroverted evidence at trial establishes that Kolt was financially stable, debt free and well managed. On an annual basis, money was spent maintaining and renewing the fleet of trucks. As noted above, I believe Whelen’s evidence that he wanted to continue operating Kolt. [ 217 ] Mr.

Siebert, the chartered business evaluator retained by the Defendants, noted that Kolt was profitable, well capitalized, debt free and had $200,000 in the bank when it ceased fluid hauling operations. He confirmed that the company spent $80,000-$90,000 per year on fleet maintenance and renewal. This is strong evidence that Kolt would have continued operating and that Whelen wanted to remain in the fluid hauling business for the long term. [ 218 ] By any measure, Whelen had developed a business model for Kolt which was highly successful and could have carried on

business well into the future. He had a proven 13 year track record. At the time of trial, Whelen appears to be in robust health and is stillactive as a businessman.

There is no evidence of any impediment which would have otherwise prevented him from carrying on his fleetfluid hauling business. [219] I accept that it does become more difficult over a lengthy period of time to predict the future and have concluded on the basis ofthe evidence presented to me, that the appropriate period of time to assess damages is the period of time between November 13, 1996and the date of trial, a period of approximately 14.5 years.

In other words, damages would only be assessed to the date of trial and notbeyond. [220] This methodology of assessing damages admittedly applies no contingency adjustment prior to trial, however, a contingencyadjustment is recognized by terminating damages at trial and disallowing any future claims. [221

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