Ignition Energy Ltd. v. Direct Energy Marketing Limited, 2011 ABQB 90

Court of Queen ’ s Bench of Alberta Citation: Ignition Energy Ltd. v. Direct Energy Marketing Limited, 2011 ABQB 90 Date: 20110217 Docket: 0701 04080 Registry: Calgary Between: Ignition Energy Ltd. and Creswick Petroleum Ltd. Applicants - and - Direct Energy Marketing Limited Respondent _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice A.D.

Macleod _______________________________________________________ Introduction [ 1 ] Direct Energy Marketing Limited (Direct Energy) seeks leave to amend its Statement of Defence and Counterclaim to include a claim for repudiation. Ignition Energy Ltd. and Creswick Petroleum Ltd. (Ignition) argue that Direct Energy has made an irrevocable election to pursue specific performance or damages and cannot now amend to add repudiation.

Facts and Positions [ 2 ] The original Statement of Defence and Counterclaim was filed on April 16, 2008 and the proposed amendments were first delivered to Ignition on January 18, 2010: see Exhibit A of November 29, 2010 Affidavit of Robert Green. [ 3 ] The original agreement between the parties was that Ignition was to farmout a portion of their interest in the petroleum and

natural gas rights underlying certain lands (the Farmout Lands) to Direct Energy in consideration for the drilling of a test well and building a pipeline by a certain date. [ 4 ] Ignition alleges that Direct Energy failed to drill an adequate test well and construct the pipeline by the deadline. As such, Ignition claims that Direct Energy has failed to earn its interest in the Farmout Lands under the agreement. [ 5 ] In the original Statement of Defence and Counterclaim, Direct Energy denies breaching the terms of the contract and requests specific performance or damages.

In the alternative, Direct Energy claims, that if it did breach, the breach occurred due to frustration or because of Ignition’s unreasonable refusal to allow it to achieve the objectives of the Farmout Agreement: see para. 31 of the Statement of Defence and Counterclaim.

Direct Energy also claims that Ignition has been unjustly enriched by Direct Energy’s complete or substantial performance of the contract and there should be set-off. [ 6 ] Though not mentioned by either party in their submissions, it is worth noting that, in the original Statement of Defence and Counterclaim, Direct Energy does state that it considered Ignition’s actions a fundamental breach of the contract.

Paragraph 15 of the Statement of Defence and Counterclaim reads: In bad faith and in fundamental breach of their obligations under the terms of the Farmout Agreement , while taking the full benefit of the successful drilling and completion of the Test Well by Direct Energy, the Plaintiffs now refuse to recognize Direct Energy’s earned interest in the Farmout Lands and have sought to exclude Direct Energy from any benefit or participation in the Farmout Lands. [emphasis added] Furthermore, para. 50 of the original Statement of Defence and Counterclaim reads: Further, by virtue of the matters as aforesaid, the Plaintiffs by Counterclaim were relieved of their obligations to build a pipeline under the terms of the Farmout Agreement by frustration, force majeure or by the conduct of the Defendants by Counterclaim which made it impossible or commercially impractical or unreasonable in the circumstances to build a pipeline on the route and by the date specified in the Farmout Agreement.

While it does not explicitly allege ‘in the alternative Ignition repudiated the agreement’, a broad reading of the paragraph could include repudiation. [ 7 ] In any event, Ignition argues that Direct Energy chose to seek specific performance and damages and cannot now amend its pleadings to add repudiation because these claims are inconsistent.

In essence, Ignition claims that Direct Energy elected to enforce the contract rather than accept its repudiation and, having made the election, the election is irrevocable. [ 8 ] Direct Energy argues that there is no irreparable harm to Ignition and there is no rule barring a party from making inconsistent pleadings in Alberta. Law Amending pleadings [ 9 ] Under Rule 3.65 of the Alberta Rules Of Court , Alta. Reg. 124/2010, the Court has broad discretion to amend pleadings: Subject to subrule (5), before or after close of pleadings, the Court may give permission to amend a pleading.

This broad discretion is subject to the Court’s duty not to cure non-compliance when to do so would result in irreparable harm to a partyunder Rule 1.5(4): The Court must not cure any contravention, non-compliance or irregularity unless (

a) to do so will cause no irreparable harm to any party, (

b) in doing so the Court imposes terms or conditions that will (

i) eliminate or ameliorate any reparable harm, or (ii) prevent the recurrence of the contravention, non-compliance or irregularity, (

c) in doing so the Court imposes a suitable sanction, if any, for the contravention, non-compliance or irregularity, and (

d) it is in the overall interests of justice to cure the contravention, non-compliance or irregularity. [10] The Court’s discretion to amend pleadings recognizes the importance of accurate pleadings. Pleadings inform the other side asto the case being put forth against them and the Court is bound to make a decision based on what is plead before it: see Waquan v.Canada, 2002 ABCA 110, 303 A.R. 43 at para. 85; see also Newel Post Developments Ltd. v. 1402801 Alberta Ltd., 2010 ABQB 660. [11] As such, the threshold required to allow an amendment is very low.

As stated in Balm v. 3512061 Canada Ltd., 2003 ABCA98, 327 A.R. 149 at para. 43, an “amendment should be allowed, no matter how careless or late, unless there is prejudice to the otherside”. Absent prejudice, only a “clearly and obviously invalid” amendment should be rejected: Oregon Jack Creek Indian Band v.Canadian National Railway Co. (Motion), (SCC), [1990] 1 S.C.R. 117 at p. 118. Even a doubtful plea should beallowed, so long as it is at least arguable: Balm at para. 12.

Are Direct Energy’s amendments clearly and obviously invalid? [12] In the present case there is no prejudice that cannot be compensated in costs. Therefore, the issue is whether the amendmentsare “clearly and obviously invalid”. [13] It is clear that when one party repudiates a contract the other party is faced with making an election. As stated by Iacobucciand Bastarache JJ. in Guarantee Co. of North America v. Gordon Capital Corp., (SCC), [1999] 3 S.C.R. 423 at para.40: The effect of a repudiation depends on the election made by the non-repudiating party.

If that party treats the contract as still being in fullforce and effect, the contract "'remains in being for the future on both sides. Each [party] has a right to sue for damages for past or futurebreaches'" (emphasis in original): Cheshire, Fifoot & Furmston's Law of Contract (12th ed. 1991), by M.P. Furmston at p. 541. If,however, the non-repudiating party accepts the repudiation, the contract is terminated, and the parties are discharged from futureobligations. [14] When such an election is made, it is irrevocable. As stated in Osmack v. Stan Reynolds Auto Sales, 1973 ALTASCAD 55, [1974] 1 W.W.R. 408 (Alta.

C.A.) affd. (SCC), [1976] 2 W.W.R. 576; (SCC), 14 N.R.

46 (S.C.C.) by Smith, C.J.A. at p. 420: When Osmack elected to accept the repudiation of the conditional sale agreement that election was final. In Scarf v. Jardine (1882), 7 App. Cas. 345 at 360, Lord Blackburn said: Now on that question there are a great many cases; they are collected in the notes to Dumpor's Case , 1 Sm. L.C. 8th ed. 47, 54, and they are uniform in this respect, that where a man has an option to choose one or other of two inconsistent things, when once he has made his election it cannot be retracted, it is final and cannot be altered.

" Quod semel placuit in electionibus, amplius displicere non potest. " That is Coke upon Littleton 146a., and I do not doubt that there are many older authorities to the same effect; but that rule has been uniformly acted upon from that time at least down to the present. When once there has been an election to do one of the two things you cannot retract it and do the other thing; the election once made is finally made.

The result of what is there said is that where there is a right to elect the party is not bound to elect at once; he may wait and think which way he will exercise his election, so long as he can do so without injuring other persons, and accordingly in that particular case it was held that he had not lost his right to elect by a reasonable waiting under rather peculiar circumstances; but when he has once fully elected it is final.

Conclusion [ 15 ] Applying the law to this case, for it to be said that the amendments are ‘clearly and obviously invalid’ it must be said that Direct Energy has made an irrevocable election to pursue specific performance and damages instead of repudiation. [ 16 ] I believe that making this determination before trial, and with incomplete evidence, would be inappropriate. For example, there has been significant delay in seeking to accept the repudiation.

Whether this delay can or cannot be properly excused or whether other actions by Direct Energy can be considered an election are issues that should be decided on complete evidence. [ 17 ] The amendments are allowed. Costs [ 18 ] Costs may be spoken to. Heard on the 7 th day of December, 2010. Dated at the City of Calgary, Alberta this 17 th day of February, 2011. A.D. Macleod J.C.Q.B.A. Appearances:

Peter T. Linder, Q.C. Johanna C. Price Peacock, Linder & Halt LLP for the Applicants Gordon L. Tarnowsky Jordan R. Deering Fraser Milner Casgrain LLP for the Respondent