Divestco Inc. v. Devon Energy Corporation, 2011 ABQB 750

Court of Queen ’ s Bench of Alberta Citation: Divestco Inc. v. Devon Energy Corporation, 2011 ABQB 750 Date: 20111130 Docket: 0901 02892 Registry: Calgary Between: Divestco Inc. Plaintiff - and - Devon Energy Corporation, Devon Canada Corporation, Devon Energy Canada Limited, Devon Energy Canada Holding Corporation and Twin Butte Energy Ltd. Defendants _______________________________________________________ Memorandum of Decision of Jodi L.

Mason, Master in Chambers _______________________________________________________ Introduction [ 1 ] The Plaintiff Divestco Inc. produces seismic data for use by the oil and gas industry in western Canada. It licenses the use of its seismic data on certain terms and conditions, including conditions of confidentiality. [ 2 ] In 2005, Divestco entered into two license agreements with the Defendant, Devon Energy Corporation for seismic data Divestco produced for an area referred to as Kelly Lakes in northeastern British Columbia (“Kelly Lakes Agreement”).

[ 3 ] At the end of February 2008, Divestco entered into a license agreement with Twin Butte Energy Ltd. for seismic data Divestco produced for an area just north of Kelly Lakes, known as Tremblay (“Tremblay Agreement”). [ 4 ] Starting in April 2008, Devon and Twin Butte partnered in drilling wells in the Kelly Lakes and Tremblay areas. [ 5 ] Divestco commenced this action in February, 2009. The action named several Devon entities and Twin Butte. Divestco alleges that Devon breached the Kelly Lakes Agreement by unauthorized sharing of the Kelly Lakes data with related entities, Twin Butte and others.

Divestco also alleges breaches of copyright and confidentiality as against the Devon defendants and Twin Butte in regard to the Kelly Lakes data. Divestco claims damages based on lost licensing fees. [ 6 ] Divestco now submits that just as Devon improperly shared the Kelly Lakes data with Twin Butte, Twin Butte improperly shared the Tremblay data with Devon.

Divestco applies to amend its claim to add allegations of breaches of the Tremblay Agreement and breaches of copyright and confidentiality as against Twin Butte and the Devon defendants regarding the Tremblay data. [ 7 ] Three of the employees Devon produced for questioning testified that they were employees of Devon ARL Corporation and Divestco now seeks to add Devon ARL as a defendant. Further, Divestco seeks production of additional records from Devon that it submits are relevant and material.

Specifically, Divestco is seeking the production of seismic maps referenced in e-mails produced by Devon and confidentiality agreements referenced in Devon’s defence. Divestco’s application also seeks procedural directions regarding its proposed litigation plan, but at the hearing the parties agreed that matter need not be addressed by the court at this time. [ 8 ] The following issues are raised: 1. Should the proposed amendments relating to the Tremblay data be allowed? 2. Should Devon ARL be added as a defendant? 3. Should Devon produce the seismic maps? 4.

Should Devon produce the confidentiality agreements referenced in its defence? [ 9 ] For the reasons that follow, the proposed amendments relating to the Tremblay data are allowed. There is insufficient evidence to add Devon ARL at this time. Devon shall produce the seismic maps and confidentiality agreements. 1. Should the proposed amendments relating to the Tremblay data be allowed? [ 10 ] Devon and Twin Butte submit that Divestco’s proposed amendments are out of time under section 3(1) of the Limitations Act , R.S.A. 2000 c. L-12, and not capable of being saved by section 6(2)(

b) of that legislation. [ 11 ] They argue that Divestco was aware of all the circumstances that it now relies on to support its proposed allegations regarding the Tremblay Agreement by May, 2009 at the latest. They assert that the two year limitation period expired prior to the filing of this application on June 14, 2011.

[12] Twin Butte and Devon rely on the cross-examination of Divestco’s President and Chief Executive Officer, StephenPopadynetz to support their submissions in this regard. That evidence suggests Divestco had concerns and suspicions that licensebreaches had occurred more than two years prior to the proposal of these amendments. It is not clear when facts supporting the newclaims did or should have come to Divestco’s attention, within the meaning of section 3(1) of the Limitations Act.

I am not satisfied Ihave all the evidence necessary to make a determination of whether the proposed amendments are out of time. [13] However, even if the limitation has tolled, the court can still permit the amendments pursuant to

section 6 of the LimitationsAct, if they are “related to the conduct, transaction or events described in the original pleading”: see for example, Chief JusticeWittmann’s reasons in Dow Chemical Canada Inc. v. Nova Chemicals Corp., 2010 ABQB 524, 495 A.R. 338 at paragraphs 62, 65-66. [14]

Section 6 of the Limitations Act provides in part: 6(1) Notwithstanding the expiration of the relevant limitation period, when a claim is added to a proceeding previously commenced,either through a new pleading or an amendment to pleadings, the defendant is not entitled to immunity from liability in respect of theadded claim if the requirements of subsection (2), (3) or (4) are satisfied.

(2) When the added claim ... (

b) does not add or substitute a claimant or defendant, or change the capacity in which a claimant sues or a defendant is sued, the added claim must be related to the conduct, transaction or events described in the original pleading in the proceeding. [15] In Dow Chemical Canada Inc. v. Nova Chemicals Corp. at paragraphs 63-72, Chief Justice Wittmann reviewed in detail theprinciples applicable to an analysis under

section 6 of the Limitations Act, as paraphrased below: 1. The objective is to have pleadings in order well before the trial commences. Where a court is in the position to decide the mattersbefore it, particularly when the decision will promote the streamlining of the litigation and increase the efficient utilization of the courts’resources, such a decision ought to be made: Madill v. Alexander Consulting Group Ltd., 1999 ABCA 231, 237 A.R. 231 at paragraph24; 2. Traditionally, when there is an issue of limitations, the court may: (

i) determine the limitation has not expired and allow theamendment; ( ii) rule the limitation has expired and then consider

section 6 of the Limitations Act which provides for when anamendment can be made beyond the limitation period; or ( iii) find that due to the state of the evidence, the amendments should beallowed subject to the determination of the issue at trial: Hill v. Hill, [2007], A.J. No. 1515, aff’d 2007 ABCA 293 at paragraph 10. Avariation of option ( iii) is to determine whether section 6(2)(

b) saves a claim otherwise barred by statute; 3. A legislated functional approach applies, requiring the court to evaluate whether the requirements of

section 6 are fulfilled within thecircumstances of each case: Stout Estate v. Golinowski Estate, 2002 ABCA 49, 299 A.R. 13 at paragraph 100; 4. The language of the provision does not require that the cause of action in the amendment be related to the original cause of action, butrather that the added claim be related to the conduct, transaction or events in the original pleading, indicative of a broader perspective:Greentree v. Martin, 2004 ABQB 365, 369 A.R. 263 at paragraph 13; 5. The phrase “related to” has a very broad meaning: Calgary Mack Sales Ltd. v.

Shaw, 2005 ABCA 304, 380 A.R.195 at paragraph 14;Slattery v. Slattery, (SCC), [1993] 3 S.C.R. 430 at 445-446; and “does not appear to be a particularly high threshold”:Stolk v. 382779 Alberta Inc., 2005 ABQB 440, 383 A.R. 203 at paragraph 36;

6. Whether an amendment is related to the original pleading is a matter of degree and judgment with which a certain amount of specificity is required: S. (C.H.) v. Alberta (Director of Child Welfare) , 2006 ABQB 528 , 403 A.R. 103, at paragraph 32 , aff’d 2006 ABCA 355 , 401 A.R. 215; 7. An over broad definition would bestow on the plaintiff an unlimited ability to add on statute barred claims: S. (C.H.) v. Alberta (Director of Child Welfare) at paragraph 32, cited with approval in DeSoto Resources Ltd. v.

Encana Corp ., 2010 ABCA 110 at paragraph 8 . [ 16 ] With these principles in mind, I turn to the determination of whether Divestco’s proposed amendments are related to the conduct, transaction or events referenced in its original pleading. This must be based on an assessment of the whole of the factual and legal context before me: DeSoto Resources Ltd. v. Encana Corp at paragraph 8. [ 17 ] Devon and Twin Butte emphasize that the proposed amendments relate to a different agreement entered into three years later between different parties.

They assert that the agreement in the proposed pleading relates to distinct data for a different area. They submit that the fact that Tremblay is part of the larger regional area that includes Kelly Lakes is an arbitrary similarity.

They argue that the facts concerning the 2008 Tremblay Agreement will have to be proven at trial, along with the alleged breach of that agreement by Twin Butte, separately from the allegations relating to the 2005 Kelly Lakes Agreement and its alleged breaches. [ 18 ] While there are differences between the proposed amendments and the existing pleading, when all of the circumstances are considered, those differences do not impede the requisite connection between the proposed amendments and the conduct, transaction and events originally alleged. [ 19 ] I accept that the proposed amendments relate to a distinct agreement that was entered into three years after the Kelly Lakes Agreement, which forms the basis of the original claim.

However, as pointed out by Chief Justice Wittmann in Dow Chemical Canada Inc. v. Nova Chemicals Corp . at paragraph 85, simply because a new contract is referenced, does not necessarily mean the new claims are not related to the conduct, transaction, or events of the original pleading. [ 20 ] While the Kelly Lakes Agreement is between Divestco and Devon on one hand, and the Tremblay Agreement is between Divestco and Twin Butte on the other, the very term that Divestco alleges was breached is identical. The main issue at trial will be a question of

interpretation of the same clause appearing in both agreements. Moreover, while the agreements were entered into three years apart, the alleged breaches occurred over a more truncated period of months in 2008, at a time when Devon and Twin Butte were working together on the drilling prospects in the Kelly Lakes and Tremblay areas. [ 21 ] Similarly, while it is true that the data is distinct as between the Tremblay Agreement and the Kelly Lakes Agreement, that does not mean that the allegations are not related to the original pleading.

The data was owned by Divestco in both instances and the alleged breach of those agreements is the same breach of an identical term by partners in respect of wells drilled on the basis of each set of Divestco data. [ 22 ] The geographical proximity of the locations of the subject data is not an arbitrary similarity when considered in context. The breaches are alleged to have occurred over several months in the context of a business relationship between Devon and Twin Butte regarding their joint efforts in two locations for which Divestco owned seismic data.

Further, there is evidence that both Twin Butte and Devon grouped the two areas together as part of one area of business and exploration activity within their respective organizations. [ 23 ] I am satisfied that the claims are sufficiently connected and are not qualitatively different in the sense described by the Court of Appeal in DeSoto Resources Ltd. v. Encana Corp .

The Court observed in that case that while the original claim referenced misrepresentations, the misrepresentations referenced in the proposed amendments were made to different persons, at different times, in different contexts, making them qualitatively different in time and content from those of the original claim. The Court noted that in the case before it, there would be a significant difference in the documents and other evidence that would be needed to prove the appellant’s new allegations as compared to what would be required to prove the originally pleaded facts (at paragraphs 9-10).

[ 24 ] Here, we are not dealing with different persons in different contexts. Both claims concern Devon and Twin Butte allegedly breaching the same term of their respective licensing agreements with Divestco in the same way, by improperly disclosing Divestco’s seismic data to each other, within a time span of a few months, in the context of their business relationship in the wells at each location. [ 25 ] In the spring of 2008, Devon was facing the expiry of well licenses in Kelly Lakes.

To this end, it did a “show and tell” with Twin Butte on April 21, 2008 and showed Twin Butte the Kelly Lakes data, as part of a larger, merged data set covering a broader geographical area. Devon did not have Twin Butte acknowledge the data was Divestco’s confidential data as Divestco alleges was required under

article III.C of the Kelly Lakes Agreement. The parties reached a farm-out agreement April 30, 2008 for Kelly Lakes and there is evidence that Devon continued to show Twin Butte the Kelly Lakes data after that time, contrary to Divestco’s

interpretation of

article III.C. Also at this time, Twin Butte too had data under license from Divestco for the Tremblay area subject to the same

article III.C regarding disclosure of data, and a further arrangement was reached between Twin Butte and Devon for a well at that location. Wells were drilled in partnership between Devon and Twin Butte at both locations within a few months, first the Tremblay well in 2008 and next the Kelly Lakes well in September 2008, and were paired by both defendants as part of a larger area of exploration and business activity. [ 26 ] As was the case in Dow Chemical Canada Inc. v.

Nova Chemicals Corp , there will be some overlap in the documents required in respect of the existing claim and the proposed amendments, thus strengthening the connection between them. The existing production contains examples of documents covering the defendants’ activities at both areas, including meeting minutes from Devon’s “Blackhawk” group which refer to both the Kelly Lakes and Tremblay wells, and Twin Butte power point presentations which group its drilling activities in Kelly Lakes and Tremblay as part of the larger “Montney Farm Ins”.

Further, there will be overlap in the witnesses as between the new and existing pleadings. Finally, Twin Butte and Devon did not suggest that they would be prejudiced or surprised in meeting the allegations in the proposed amendments. This is consistent with the rationale of permitting late amendments that relate to the conduct, transactions or events underlying the original pleading, as explained by the Court of Appeal in DeSoto Resources Ltd. v. Encana Corp . [ 27 ] In conclusion on this issue, I would allow the amendments pursuant to section 6(2) (

b) of the Limitations Act . 2. Should Devon ARL be added as a defendant? [ 28 ] Rule 3.74(2)(

b) permits the addition of a party where the court is “satisfied that the order should be made”. [ 29 ] Justice Tilleman held in Kent v. Martin , 2011 ABQB 416 that this means justice must require the addition of the party.

He stated at paragraph 9 that in the case of a new defendant, it would be necessary to show a link between the new defendant and the facts and incidents originally alleged against the existing defendants. [ 30 ] While three of the four employees produced for questioning by the Devon defendants all confirmed they are employees of Devon ARL, whether that suggests that Devon ARL should be included as a defendant has not been explored. For example, the employees were not asked whether they were employees of Devon ARL at the material time.

There is not enough information before the court to assess whether it is appropriate to add Devon ARL at this time, within the meaning of Rule 3.74(2)(b). Divestco has leave to re- apply with evidence of the link between Devon ARL and the facts and incidents originally alleged against the existing defendants. 3. Should Devon produce the seismic maps? [ 31 ] Devon produced Ann Dyck for questioning as an employee. Ms.

Dyck confirmed that she was the author of the confidentiality agreement Devon presented to Twin Butte for execution prior to the “show and tell” at Devon’s office regarding the drilling prospect at Kelly Lakes. Ms. Dyck needed to attach a seismic map or “plat” showing the area of seismic disclosure subject to confidentiality and requested one from Devon’s geophysical department. She did not receive it in time to accommodate Twin Butte’s attendance and ended up preparing the map herself.

The map she prepared showed only leased lands and did not include seismic ownership. [ 32 ] Subsequently, an employee in Devon’s geophysical department provided Ms. Dyck with the requested seismic map in an attachment to an e-mail. The text of the e-mail indicates that the map includes colour coded lines showing seismic ownership. Another e- mail in the e-mail chain also indicates that Ms. Dyck received another map showing seismic ownership from another Devon employee.

[ 33 ] When pressed at the application, counsel for Devon did not suggest that these seismic ownership maps were not relevant and material to the issues in the litigation within the meaning of Rule 5.2. Rather, Devon’s resistance to having Ms. Dyck produce them is firstly, that an employee was being asked to give undertakings, rather than the corporate representative, and secondly, that the maps were proprietary to Devon. Neither objection excuses Devon from including these maps in its Affidavit of Records in the first place.

I direct that Devon produce these seismic maps in a Supplemental Affidavit of Records. 4. Should Devon produce the confidentiality agreements referenced in its defence? [ 34 ] Divestco seeks damages against the Devon defendants for the unauthorized disclosure of the Kelly Lakes data to others in addition to Twin Butte. Divestco alleges that Devon did not properly comply with the confidentiality requirements, specifically, the requirement to obtain an acknowledgment that the Kelly Lakes data is Divestco’s confidential property from those to whom Devon showed the data.

In its statement of defence, Devon denies any unauthorized disclosure and alleges in paragraph 9 that in fact, it entered into confidentiality agreements with Twin Butte and “certain Third Parties” in compliance with the Kelly Lakes Agreement. [ 35 ] Devon produced the confidentiality agreement it entered into with Twin Butte (which does not contain the acknowledgment Divestco alleges is necessary), but resists disclosure of records of parties other than Twin Butte who were granted access to the Kelly Lakes data and any confidentiality agreements entered into with those others.

It asserts that these records are not relevant and material. [ 36 ] Devon’s disclosure of the Kelly Lakes data to others in addition to Twin Butte is squarely in issue, as is Devon’s reliance on confidentiality agreements in defence to those allegations. Those confidentiality agreements will be probative of Devon’s compliance with or breach of the Kelly Lakes Agreement and the alleged obligations of confidentiality. Devon’s employee, John Covey shall answer the question posed to him at questioning in this regard and I direct that Devon produce the related records in a Supplemental Affidavit of Records.

Conclusion [ 37 ] The proposed amendments relating to the Tremblay data are allowed. Devon ARL shall not be added as a defendant at this time. Devon shall produce the seismic map attached to Ms. Dyck’s e-mail. Devon shall produce the third party confidentiality agreements referenced in its defence. [ 38 ] If the parties cannot agree on costs, they can approach me. The parties may also approach me if they require assistance in regard to a litigation plan. Heard on the17th day of October, 2011. Dated at the City of Calgary, Alberta this 30 th day of November, 2011. Jodi L. Mason M.C.C.Q.B.A. Appearances:

Todd W. Kathol Field LLP for Divestco Inc. David Farmer Borden Ladner Gervais LLP for the Devon Defendants Shannon Hayes Burnet, Duckworth & Palmer LLP for Twin Butte Energy Ltd.