Petrobank Energy and Resources Ltd. v. Safety Boss Ltd., 2012 ABQB 161

Court of Queen ’ s Bench of Alberta Citation: Petrobank Energy and Resources Ltd. v. Safety Boss Ltd., 2012 ABQB 161 Date: 20120306 Docket: 0301 09249 Registry: Calgary Between: Petrobank Energy and Resources Ltd. Plaintiff - and - Safety Boss Ltd., Safety Boss Inc. and Michael Miller Defendants _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice P.J. McIntyre _______________________________________________________ I. Introduction [ 1 ] The forestry officer in the watchtower thought the plume rising from the forest floor was a fire.

He called in a helicopter to inspect it. It turned out to be a long-suspended sour gas well that had blown out - sending a stream of poisonous hydrogen sulphide gas high in the air. Fortunately, this blowout occurred far from people or wildlife. [ 2 ] Although the well could produce 7.5 million cubic feet of gas a day, it was too far from pipelines to be developed economically. It had been “suspended”, that is, the wellhead was left in place, but the valves were closed and locked. So from 1984 to June 11, 2001 the well had been the subject of little attention. That changed on June 11.

By the time its new owner, Petrobank Energy and Resources Ltd. (“Petrobank”), had brought the well under control and cleaned up the environmental damage, it had spent $24 million. Petrobank wants to recover some of the costs from the Defendants, with whom it first contracted to control the well. Gaining control of a well means to stop unrestrained flow. It is commonly referred to as “killing” the well. [ 3 ] It took twenty-nine days to control the well. Safety Boss Inc. charged Petrobank $2,325,827.01 for its efforts. In total, the

well control operation, including payments to Safety Boss’s replacement, Key Safety Services Inc., cost Petrobank $13,293,322.55. In addition, the well blowout caused environmental damage when it began spewing salt water over the lease. So far, Petrobank has spent $10,616,725.08 on the cleanup effort. Despite these expenditures, Petrobank has not obtained certification that it has complied with government cleanup requirements.

A reclamation certificate still has not been issued for the wellsite. [ 4 ] Petrobank says that its well control and environmental cleanup costs were higher than necessary because of breaches of contract and negligence by Safety Boss. Petrobank sues Safety Boss for $9.6 million. This number reflects $3,200,878 for excessive well control costs and $6,419,619 for environmental investigation and remediation. II. Background Facts [ 5 ] Many of the facts are disputed; I will address those disputes as they arise and, where necessary, make findings of fact. However, the following facts are agreed. A.

The Parties [ 6 ] The Plaintiff, Petrobank, is an Alberta corporation with an office in Calgary. It is a fairly small player in the oil and gas industry. Barrington Petroleum Ltd. (“Barrington”) was a subsidiary of Sonoma Resources Ltd. (“Sonoma”). When Sonoma went into receivership, Petrobank acquired a controlling interest in Barrington. By an amalgamation effective January 1, 2002, Petrobank became the legal successor to Barrington. During the trial, the names Petrobank and Barrington were, to some extent, used interchangeably.

For ease of reference, I will refer simply to “Petrobank”. [ 7 ] The Defendants, Safety Boss Ltd. (“SBL”) and Safety Boss Inc. (“Safety Boss”) are both Alberta corporations, each of which has an office in Calgary. The Defendant, Michael Miller, is the sole director and shareholder of SBL and is a director of Safety Boss. Petrobank, in its pleadings, refers only to “Safety Boss” without drawing a distinction between the two corporate entities. However, on January 25, 2011, Petrobank filed a Partial Discontinuance of Claim against SBL.

Therefore, for simplicity’s sake, I will take Petrobank’s references to “Safety Boss” to refer to Safety Boss Inc., as defined above, except for those portions of these reasons in which the distinction between the two is relevant. B. The Witnesses [ 8 ] Key personnel from both parties testified. Many of these witnesses no longer hold the positions they held when the well blew out. [ 9 ] Mr. John Wright was the Chief Executive Officer of Barrington and Petrobank. He testified about Barrington’s and Petrobank’s financial condition, about Mr.

Miller’s payment demands, about Petrobank’s reasons for firing Safety Boss and about Petrobank’s dealings with Key Safety Services Inc. (“Key Safety”). [ 10 ] Mr. Ken McCagherty was Barrington’s and Petrobank’s Vice-President and Chief Operating Officer. He reported directly to Mr. Wright. Mr. McCagherty testified to the first meeting between Petrobank and Safety Boss and to his dealings with Mr. Miller, Mr. Dean Mikalauskas and the Alberta Energy and Utilities Board (“AEUB”). [ 11 ] Mr. Rene LaPrade was a consultant to Barrington.

He testified about the first meeting between Petrobank and Safety Boss and his observations (including his notes) on the site of the well control operation. [ 12 ] Mr. Jarvis Jackson was the President of Key Safety and had been a Safety Boss executive. He testified about his involvement with Safety Boss, the formation of Key Safety and Key Safety’s involvement in the well control operation.

[ 13 ] Mr. Rob Graefer was a well control specialist at Key Safety and was formerly employed by Safety Boss. He testified about his work with Safety Boss, his decision to join Key Safety and his involvement with this well control project. [ 14 ] Mr. Mac Gillies was Key Safety’s fabrication superintendent. He worked previously with Safety Boss as a contract welder and as its fabrication superintendent. Mr. Gillies testified about the design and fabrication of the diverter used by Key Safety. [ 15 ] Mr. Troy Bulbuck was the vice president of operations at Alpine Environmental Consultants Ltd. (“Alpine”).

He testified about the environmental cleanup operation following the blowout and about his meetings with Petrobank and with Alberta Environment (“AENV”) and the AEUB on the steps to be taken in the cleanup. [ 16 ] Mr. Tim Jaques was a senior environmental geologist at Alpine and was the project manager for the environmental cleanup of the blowout site from 2003 to 2006. He testified about the technical work performed by Alpine and by Matrix Solutions Inc. (“Matrix”) and Wotherspoon Environmental Inc. (“WEI”). [ 17 ] Mr. Neil McCrank was the Chairman of the AEUB.

He testified about his early concerns on public safety, his meetings with Petrobank, and his conclusions on Petrobank’s ability to address the blowout. [ 18 ] Mr. Dean Mikalauskas was a sales manager with Safety Boss. He testified about the special services work order, the price list and Safety Boss’ invoicing procedures. [ 19 ] Mr. Mark Badick was a well control consultant with Safety Boss. He is Mr. Miller’s nephew. He testified about the day-to- day unfolding of the well control operation, using notes he had made.

He also testified about the special services work order, his understanding of Petrobank’s financial condition and Safety Boss’ payment terms. [ 20 ] Other potential witnesses did not testify: Mr. Jim Huculak was described as “an individual with engineering experience whose expertise was used by Barrington to look at potential mud systems to kill the well.” Mr. Rick Deodora was a wellsite supervisor for Petrobank and was on site during the well control operation. Mr. Calvin Kay, through his company, AM Oilfield Contracting Ltd. provided wellsite consulting services to Petrobank. Mr.

Ray Brausen was a consultant with Safety Boss and was also on site. [ 21 ] Counsel suggested that I should draw an adverse inference against the party who failed to call these potential witnesses. It is my view, however, that an adverse inference should be drawn only when the person is a witness whose testimony is essential to the unfolding of the narrative. I am satisfied that none of these people is in this category. I therefore decline to draw such an inference.

Further, either side could have called any of these persons to testify. [ 22 ] I asked counsel to provide comments to me on credibility and reliability. [ 23 ] As I stated in Cunningham Racing v. Airborne Industries, 2000 ABQB 468 at para. 25 : Other important considerations in assessing credibility include: conduct at the relevant time; an assessment of courtroom testimony, including demeanor and contradictions with other statements made under oath or otherwise; and inferences I can draw from the absence of documentation or witnesses. [ 24 ] The events that caused this lawsuit took place many years ago.

For that reason, contemporaneous notes that can be used to refresh memory are important. [ 25 ] A witnesses’ hostility to or friendship with a party may call the testimony into question.

[ 26 ] Mr. Miller’s credibility and reliability were attacked by Petrobank in 9 pages of its written brief. It cited: Mr. Miller’s prior inconsistent statements; his contradiction of other Safety Boss witnesses; the inconsistency of his trial evidence, the implausibility of his trial evidence; his evasions; and his aggressiveness towards other witnesses. [ 27 ] Petrobank cited 13 significant inconsistencies between Mr. Miller’s discovery evidence and his trial evidence.

In my view, the most important contradictions concerned the nature of the retainer, the significance of H 2 S samples, the use of a diverter, and whether by June 28 (the date of the failed kill attempt), Safety Boss had a plan for regaining control of the well. [ 28 ] At examination for discovery (transcript p.214), Mr. Miller swore that, by the end of the First Meeting, Safety Boss had been retained to assess the situation and regain control of the Well. At trial, Mr.

Miller swore that he did not understand Safety Boss had been retained to regain control of the Well and that it was just to “assess the situation” (trial transcripts pp. 364 - 367. Trial transcript page references in this judgement are to those excerpts counsel chose to have transcribed.). [ 29 ] At examination for discovery (pps. 202 and 266) Mr. Miller swore the H 2 S percentage was probably the most meaningful data collected on the site, and the primary indicator of the source of the flow.

At trial (pp. 398 - 340), he said the idea that H 2 S concentrations could determine the source of the flow was “crap”. [ 30 ] At examination for discovery (p. 401) Mr. Miller swore that Safety Boss considered the use of a diverter to be an essential aspect of attempting to get the Well under control from the first day. At trial (pp. 429 - 432), he said a diverter has nothing to do with stopping the Blowout and was not an essential aspect of getting the Well under control.

He also said at examination for discovery (p. 280) that the velocity of the gas was too high to install a diverter but at trial said that Safety Boss could have installed the diverter. Finally, on the topic of a diverter, at examination for discovery (p. 399) he said a diverter manufactured by Safety Boss was used by Key Safety, but said at trial (pp. 450 - 451) that wasn’t so. [ 31 ] On the topic of a plan to control the Well, at examination for discovery (pp. 453- 455), Mr. Miller said that he could not recall a plan for regaining control of the Well.

At trial (pp. 469-471), he acknowledged his statement but said the idea there was no game plan was absurd. [ 32 ] Mr. Miller’s comments and attitude about this lawsuit and Petrobank were unrestrained. A commonplace approach to litigation is for the plaintiff to “read in” statements made by the defendant at the examination for discovery. Equally, the defendant reads in statements from the plaintiff. This process is usually dry. However, in this case, Petrobank read in a statement from Mr. Miller that is the most colourful read-in I have heard: Q: All right. All right.

What I’m trying to find out is your last recommendation and I thought you told me yesterday that the use of the coiled tubing was your last recollection? A: No. We had a long discussion about whether that was the last recommendation. I suggested that my last recommendation was probably that they could go fuck themselves. You remember? [ 33 ] This read-in says something to me about Mr. Miller’s attitude about the role that he played and the role that he thought Safety Boss was to play in this well control operation. Mr.

Miller knows Petrobank’s case is based in part on the failure of Safety Boss to make recommendations. He took the opportunity to show his disdain for Petrobank while being questioned in examination for discovery and again at trial. [ 34 ] Counsel for Safety Boss and Mr. Miller did not argue in support of Mr. Miller’s credibility in his written submissions. The written submissions on behalf of Safety Boss made no reference to Mr. Miller’s credibility. The written submissions on behalf of Mr. Miller incorporated by reference the written submissions made on behalf of Safety Boss.

Counsel’s brief oral submissions about his credibility were restricted to referring to Mr. Miller’s comments that he was the only one defending this suit with his own money, and

suggesting that his testimony was corroborated by documents made at the time of the events. [ 35 ] I do not believe Mr. Miller’s testimony at trial. He is not credible. There were attacks by Safety Boss on other witnesses’ credibility, in particular, Mr McCagherty. I do not consider discrepancies by other witnesses to be significant in the context of this case. C. The First Meeting [ 36 ] The facts leading up to this dispute are agreed: About June 11, 2001, a blowout (the “Blowout”) occurred at a remote northwest Alberta gas well known as Shekilie 5-31-116-10 W6M (the “Well”).

This was a blowout of a suspended well, not a blowout that occurred during drilling. The Well had been operated by Barrington. Just before the Blowout, Petrobank had acquired majority control of Barrington and, with it, Barrington’s working interest in the Well. [ 37 ] Beyond these and a few other agreed facts, the parties held divergent views. It is agreed that representatives of Petrobank and of Safety Boss first met on the evening of June 11, 2001 (the “First Meeting”). However, there is much dispute about what then happened, and even the state of the office where the parties met.

The latter point is significant because of the perception it left in the mind of Mr. Miller that Barrington was in bad financial shape. [ 38 ] Both Mr. Miller and Mr. Badick testified to their impressions of Barrington’s offices at the First Meeting. Mr. Miller testified the office was in a “derelict condition” with chairs missing and boxes and papers on the floor and that the signage was on the floor in the foyer. Mr. Badick testified there was nothing in the boardroom. There were not enough chairs for all present at the meeting and there was no art on the walls. By contrast, Mr.

McCagherty testified the First Meeting took place in a large, “beautiful” boardroom with expensive artwork. Mr. LaPrade testified only that the First Meeting took place in a “standard” boardroom. [ 39 ] There also was some dispute whether there was discussion at the First Meeting about blowout insurance. Mr. McCagherty testified that Mr. Miller asked to see proof of insurance and was provided with an insurance certificate. Mr. Miller testified there was no discussion of payment or insurance at the First Meeting. He also testified that he asked Mr.

LaPrade at the end of the First Meeting if Safety Boss was going to get paid and that Mr. LaPrade gave a hesitant response that failed to reassure him. This, too, is significant given the perception of Mr. Miller and others of Petrobank’s ability to cover the costs of the well control operation. [ 40 ] Further, the parties disagree about the extent of discussions, if any, at the First Meeting about payment terms. This is discussed further below. D. The Well Control Operation [ 41 ] The events that comprised the well control operation are both detailed and the subject of great dispute.

Nevertheless, the following brief

summary serves as a useful outline. June 11, 2001 • Alberta Forestry saw the Blowout at about 5:00 p.m. and alerted AEUB personnel in Grande Prairie, who contacted Barrington. • Mr. LaPrade contacted Mr. Badick about 8:30 p.m. to arrange a meeting between Petrobank and Safety Boss. • The First Meeting took place. June 12, 2001 • Mr. Miller, Mr. Badick and Mr. Brausen flew to Rainbow Lake and took a helicopter to the Well site. • Safety Boss shut in the surface casing valve to take a pressure reading and found the pressure exceeded the rating of the gauge.

• About 10:00 a.m., personnel from both Safety Boss and Petrobank in Rainbow Lake had a teleconference with Petrobank in Calgary to discuss a go-forward plan. • Further pressure and H 2 S readings were taken. • About 2:00 p.m., there was another teleconference including Safety Boss and AEUB personnel, Mr. McCagherty, Mr. LaPrade, and Petrobank engineers. Safety Boss recommended cutting off the wellhead, which recommendation was rejected by Petrobank. Petrobank asked about a diverter, but Safety Boss stated the velocity of the gas flow was too high. Petrobank also asked about the possibility of a hydrate plug.

June 13, 2001: • Rig matting was hauled to the site; this continued until June 18, 2001. • On Safety Boss’ recommendation, Petrobank retained Mr. Grace. • Mr. McCrank requested financial information and proof of blowout insurance from Petrobank. June 14, 2001: • Work was delayed by H 2 S until 7:00 a.m. The site was evacuated twice over the course of the day. • Mr. Grace sent several emails to Mr. LaPrade. He asked for flow rates to be measured using a pitot tube (a mechanism developed in the aircraft industry for measuring flow velocity).

He recommended that the Well be killed on the first try to avoid adverse effects of the Well flowing back water or kill mud. • Mr. Mikalauskas received instructions from Mr. Miller to have the Special Services Work Order signed. He met briefly with Mr. LaPrade, who signed the Special Services Work Order. June 15, 2001: • The Safety Boss crew held a safety meeting at 4:00 a.m. Because of high H 2 S levels, helicopters were unable to land at the site until 5:30 a.m. • Multiple H 2 S readings were recorded through the day, ranging from 1.3% to 2%. H 2 S is lethal at .07%.

June 16, 2001: • The site was evacuated at least twice because of high H 2 S levels. • Wireline equipment was rigged up and pitot tube flow readings were taken. June 17, 2001: • There were several site evacuations because of H 2 S levels and the crew was forced to work “under mask” when onsite. • Tanks to hold kill fluid were hauled in by helicopter. • Mr. Grace emailed Mr. LaPrade saying that he suspected the flow was from the upper Keg River formation and that “something is terribly wrong with the 5½” casing”. June 18, 2001: • There were further delays because of H 2 S.

Safety Boss recorded an 8% H 2 S reading. • Mr. LaPrade was appointed incident commander of the operation and relocated to Rainbow Lake. He learned that methanol had been pumped and that there was now pressure in the tubing and casing. • Petrobank made a wire transfer of $500,000.00 to Safety Boss.

June 19, 2001: • There were multiple evacuations because of H 2 S. • Paint was pumped in an unsuccessful attempt to discover the flow path. • A wireline test showed that the tubing was intact at least to 1700 m. • A gas bomb test for H 2 S was performed and the samples sent to AGAT Laboratories for analysis. • Mr. LaPrade and Mr. Huculak faxed a “tentative well control program” setting out several go-forward steps to Mr. McCagherty. June 20, 2001: • The crew was evacuated for most of the day because of high H 2 S levels.

June 21, 2001: • Operations were halted in the morning and again in the afternoon because of H 2 S levels. • The AGAT analysis revealed that the H 2 S levels were 37.46% in the tubing and 16.78% in the casing. • The decision was made to ignite the gas flow.

June 22, 2001: • The gas flow was ignited and a heat shield was installed to protect the wellhead. • A temperature log and a spinner survey were run. • A Safety Boss crew was stranded at the site overnight because of low cloud. • A Safety Boss staff member in Calgary was sent to Petrobank’s Calgary office with an invoice, which Petrobank’s receptionist put into normal account processing. At 4:00 p.m., Mr. Miller called Mr. McCagherty demanding immediate payment of the invoice, but it was too late for a wire transfer.

June 23, 2001: • The Lonkar analysis showed the gas was coming from below 1730m. • Petrobank tried to source a coil tubing unit. A 2" unit was not readily available, but a 1½” unit was located, as was an inflatable packer. June 24, 2001: • Mr. Grace sent faxes to Mr. LaPrade and Mr. Huculak recommending a 2" coil tubing unit and saying that he had found the same in Houston. • Mr. Miller sent a letter to Mr. McCagherty setting out payment terms, namely that Safety Boss was to receive payment each time Petrobank’s outstanding balance exceeded $500,000.00. June 25, 2001: • Mr.

Mikalauskas brought a new invoice to Petrobank’s offices to replace the one from June 22. Mr. Miller now demanded payment of $1,000,000.00. Mr. McCagherty paid Safety Boss $500,000.00 by wire transfer. Mr. Miller called Mr. McCagherty demanding another $500,000.00. He said that Safety Boss would walk off the job if payment was not made. • The 1½” coil tubing unit arrived and kill mud was hauled to the site by helicopter.

• The crew had to stop work at 6:00 p.m. because of high SO 2 levels. June 26, 2001: • The Well started to produce salt water, making it more difficult to keep the gas flow lit. • Safety Boss began rigging up the 1½” coil tubing unit. • There was a heated exchange between Mr. Miller and Mr. McCagherty about payment. Petrobank paid another $500,000.00, but wrote “under protest” on the cheque. June 27, 2001: • An attempt was made to run in the 1½” coil tubing unit and the inflatable packer, but crews could not get it past 96 m. • Mr. McCagherty contacted Mr. Graefer seeking a meeting with Key Safety.

June 28, 2001: • Both Mr. Miller and Mr. Davison, Safety Boss’ counsel, contacted Mr. McCagherty seeking payment. Mr. McCagherty discussed this with Mr. Wright. Mr. McCagherty met Mr. Mikalauskas on the street to deliver a handwritten cheque, saying that payment was made under protest. • Mr. Jackson and Mr. Graefer met with Mr. McCagherty. Mr. McCagherty said that he wanted to retain Key Safety if the kill attempt that day was unsuccessful. • On Mr. McCagherty’s instructions to Mr. LaPrade, the 1½” coil tubing unit was run in to 96 m and kill mud was pumped down the Well in an attempt to kill it. Both Mr.

LaPrade and Mr. Grace doubted that this attempt would be successful. The kill attempt failed and most of the kill mud came back through the surface casing vent. June 29, 2001: • Petrobank released Safety Boss and retained Key Safety, who began mobilizing to the site. June 30, 2001: • Key Safety staff and equipment were mobilized to the site. Work began on the design and fabrication of a diverter.

July 1 - 5, 2001: • Key Safety rigged up a pump to direct lit diesel fuel at the gas flow to keep it lit without needing firewood. • On July 4, a production tank and flare stack were brought to the site and tied in to the wellhead. A 2" coil tubing unit was also brought to the site. • On July 5, the site was evacuated because of wind conditions and a failed air compressor that could not refill air bottles. July 6, 2001: • The diverter was installed, directing the effluent through a separator and out through a flare stack. This removed the fire and toxic emissions at the wellhead.

July 7, 2001: • The H 2 S level was measured at 30%.

• The 2" coil tubing unit was rigged in. July 8, 2001: • Equipment and kill mud were prepared for a kill attempt the next day. July 9, 2001: • The 2" coil tubing unit was run to 597 m. July 10, 2001: • Kill fluid was pumped down the Well, successfully killing it. July 11 - 17, 2001: • Key Safety demobilized. [ 42 ] The rest of the relevant facts of this matter are more conveniently discussed in the context of these Reasons. III. Issues [ 43 ] This matter is, in many ways, highly complex.

It consumed some 38 days of trial, followed by written arguments over a hundred pages long by each side and four days of oral submissions. Eleven expert reports were filed - primary, rebuttal and surrebuttal. Much time was spent in dealing with technical issues and in examining the details of the events on the days in question. [ 44 ] And yet, at its heart, this matter resolves to three allegations: breach of contract, negligence and breach of fiduciary duty. It is in the analysis of these issues that the complexity of the matter shows.

Therefore, to allow the analysis to unfold logically and to put the facts, both agreed and disputed, in their proper context, I will analyse the facts and the law issue-by-issue. IV. The Contract [ 45 ] The first of Petrobank’s allegations was that the parties had a contract, which contract was breached by Safety Boss. The formation, terms and performance of this alleged contract were all in dispute. A. Formation of Contract [ 46 ] Of contract formation, both sides referred to the following passage from G.H.L.

Fridman’s The Law of Contract in Canada , 5 th ed. (Toronto: Thomson Canada Limited, 2006) at page 15: Constantly reiterated in the judgments is the idea that the test of agreement for legal purposes is whether parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract. The law is concerned not with the parties’ intentions but with their manifested intentions.

It is not what an individual party believed or understood was the meaning of what the other party said or did that is the criterion of agreement; it is whether a reasonable man in the situation of that party would have believed and understood that the other party was consenting to the identical terms...

[47] Petrobank’s position was that the parties formed an oral contract at the First Meeting by which Safety Boss and Millerundertook to perform such services as would be reasonable in the circumstances and in the industry to control the Blowout and to securethe Well. Petrobank would pay for these services. Petrobank said that Safety Boss showed an intention to accept the retainer bybeginning work at the Well site. [48] Safety Boss’ position was that the agreement at the First Meeting was that Safety Boss would attend at the Well, assess theBlowout and help in arriving at a “go forward” plan.

It argued that it performed the assessment on June 12, 2001 and had severaldiscussions with Petrobank which resulted in the “go forward” plan. It then determined its charges for the services it was to provide andgave instructions to Mr. Mikalauskas to have a work order (the “Special Services Work Order”) signed, which it was on June 14, 2001.Safety Boss’ position was that there was no “meeting of the minds” until this point. [49] During his examination for discovery, Mr.

Miller was asked if “...the message you were receiving during the course of and atthe conclusion of [the First Meeting] was that [Petrobank] wanted to retain Safety Boss in relation to this problem that had arisen” and heresponded “Yes.” Mr. Badick also admitted in examination for discovery that he understood at the end of the First Meeting that SafetyBoss was hired or retained by Petrobank to assess the situation and, significantly, to gain control of the Well. While the existence of acontract is, of course, a question of law, Mr. Miller’s and Mr.

Badick’s admissions are persuasive evidence of their understanding. I donot find the assertion that Safety Boss agreed merely to assess the situation credible. I find that Mr. Miller and Mr. Badick knew at theend of the First Meeting that Safety Boss had been retained to control the Well. If Safety Boss personnel had gone to the site on June 12,2001 and discovered that they could not handle the Blowout, they could so have told Petrobank.

It could then have replaced Safety Bosswith another well control specialist. [50] I find that a contract was formed between the parties at the First Meeting: Safety Boss would provide services to Petrobank toassess and control the Blowout. Safety Boss would have and exercise the skill of an average specialist in the field of well control.Petrobank would pay the Safety Boss’ charges for these services. Safety Boss acted from the start as if its task was to assess and controlthe Well. Its conduct was consistent with a contract to assess and control the Well. [51] This leads to identifying the terms of the contract.

B. Terms of Contract [52] The parties disagreed about the terms of the contract, both express and implied. Some of the disputed terms were as follows. 1. Implied term about reasonableness of charges [53] Petrobank asserted that certain terms may be implied into a contract where the circumstances so require. In this case, it arguedthe contract between Petrobank and Safety Boss included an implied term that the latter’s charges would be reasonable.

Petrobank’sposition at para. 287 of its brief was that a term implying reasonable charges and method of payment may be implied into this contract togive it business efficacy. [54] In support of this position, Petrobank cited M.J.B. Enterprises Ltd. v. Defence Construction

(1951) Ltd., (SCC), [1999] 1 SCR 619, where Iacobucci J. stated at para. 27: The general principles for finding an implied contractual term were outlined by this Court in Canadian Pacific Hotels Ltd. v. Bank ofMontreal, (SCC), [1987] 1 S.C.R. 711.

Le Dain J., for the majority, held that terms may be implied in a contract: (1)based on custom or usage; (2) as the legal incidents of a particular class of contract; or (3) based on the presumed intention of the partieswhere the implied term must be necessary “to give business efficacy to a contract or as otherwise meeting the ‘officious bystander’ testas a term which the parties would say, if questioned, that they had obviously assumed” ... [55] Iacobucci J. also cautioned that the court’s focus must be on the intentions of the actual parties, rather than those ofreasonable parties.

He stated that, for this reason, the implied term must have a degree of obviousness to it.

[56] As well as this authority, I find helpful these comments from G.H.L. Fridman, The Law of Contract in Canada, 5th ed., supra,at pp. 465-8: There are circumstances in which a court is entitled to conclude that everything agreed by the parties is not contained in the writtendocument or documents, or the oral statements of the parties, that appear to make up the contract. Some additional term or terms must beimplied. ... Such an implication can be made only if the parties intended to imply the term in question, e.g., for the purpose of businessefficacy.

A term cannot be implied simply on the ground of “fairness”. ...

One illustration of this is where it is necessary to imply the suggested term or terms to make the transaction effective, to give it what hasbeen called “business efficacy”, and thus to prevent such a failure of consideration as cannot have been within the contemplation of eitherside. ... the alleged implied term must be one that is reasonable, necessary, capable of exact formulation, and clearly justified having regard tothe intentions of the parties when they contracted. [57] I have found that a contract was formed between Petrobank and Safety Boss at the First Meeting.

The contract was notreduced to writing and there is no evidence before me of any statement made at the First Meeting that would support a term requiringreasonable charges. For such a term to be implied, I would have to find that it is necessary to give business efficacy to the contract. [58] I do not find it necessary to imply a term of reasonableness of charges to give business efficacy to the contract. At the FirstMeeting, Petrobank was dealing with an emergency. Its goal was to urgently secure the services necessary to resolve the emergency.

I amsatisfied that it was aware that the well control operation would be expensive. This was not a time for bargain shopping. I find nothing inthe evidence to justify implying a reasonable charge term between Petrobank and Safety Boss. But, as will be discussed below, SafetyBoss took advantage of the urgency to charge prices even above its own price list, a list it refused to disclose to Petrobank, and for whichit demanded immediate payment. These prices were premium prices. Safety Boss could be expected to perform a premium service. 2.

Implied term about time of the essence [59] In addition, Petrobank argued that the contract between the parties included an implied term that time was of the essence. Theabove authorities have application here, too. As well, Petrobank relied on the Supreme Court of Canada’s judgment in Sail Labrador Ltd.v. Navimar Corp., (SCC), [1999] 1 SCR 265. The Court in that case held there is no general presumption that time is ofthe essence in a contract.

Such a term, if not expressed, will be implied only if necessary given the circumstances, for example, if thesubject matter of the contract is a perishable commodity. [60] This case did not involve a perishable asset in the conventional sense. Yet the emergent circumstances justify implying a termthat time was of the essence. Petrobank retained Safety Boss to handle an emergency.

The well was spewing a poisonous, corrosive gas.Though it may not have been discussed at the First Meeting that production of salt water would become an issue, there can have been nodoubt by either party that the Blowout needed to be resolved as quickly as possible. Mr. Miller testified that he had worked in the Zamaarea for several years, looking after “hundreds of wells like this”. Therefore, I find that time of the essence was an implied term of thecontract. 3. Payment terms [61] Safety Boss alleged that it was concerned at the First Meeting about Petrobank’s ability to pay for the services requested.

Thisconcern was aggravated by Mr. Miller’s and Mr. Badick’s impressions of the offices at the First Meeting and by their knowledge therewas a receivership involving Barrington. Petrobank acknowledged that Safety Boss requested information respecting Petrobank’sfinancial position. It said that it provided Safety Boss and Miller with information showing Petrobank’s financial health and, as notedabove, advised that it carried enough blowout insurance to cover the cost of dealing with the Blowout. Mr. Miller denied that Safety Bossreceived reassurance from Petrobank that it would receive payment for its services.

[62] Mr. Miller testified that Safety Boss had lost money before in providing services to financially unstable companies. Hetestified further that he knew the former president of Barrington and was aware there was a bankruptcy involving Barrington. Therefore,Mr. Miller’s sensitivity on this issue is understandable. He testified that his concerns about Barrington’s financial condition, coupledwith his assessment of the Blowout on June 12, led him to decide to extend to Petrobank a line of credit only up to $500,000.00.

Oncethat amount was reached, Safety Boss would expect payment to clear the line of credit. [63] This immediate payment expectation was conveyed to Petrobank in a letter from Mr. Miller to Mr. McCagherty dated June 24,2001: It is our understanding that our account would be cleared by progress payments as it reached each $500,000.00 level. ...

Whilerecognizing this is a large and unexpected burden to your company, we feel we are demonstrating substantial goodwill and good faith bygranting a $500,000.00 credit line to Barrington. ...[the credit line] is also a necessary limit with regard to our own financial resources and risk management. We do not wish to be offensive about payments but we hope you recognize that while this is a once in a lifetime event for most junior oilcompanies for us it is a frequently occurring situation.

We have never failed to respond to these emergency events and because of that wehave over the years suffered significant losses. [64] The difficulty with this for Safety Boss is that there is no evidence that this payment expectation was conveyed to Petrobankat the time the contract was formed at the First Meeting.

Even had I found that the contract was not formed until the execution of theSpecial Services Work Order, there is nothing in that document setting out this expectation. [65] The Special Services Work Order contains the following provision: Customer ... hereby agrees upon receipt of invoice to pay [Safety Boss] ... the invoice price for such services and the reasonable value ofany materials furnished, equipment destroyed or lost, and any loss sustained by reason of equipment damaged in the performance orattempted performance of the requested services. [66] However, that document also provides, as do the invoices delivered by Safety Boss, that the customer has 30 days to remitpayment before any interest penalty is triggered.

Therefore, there is no clearly expressed term requiring the interim payments. Just theopposite. [67] I note, too, that this arrangement is not standard practice in the oil and gas industry. Mr. McCagherty testified the usualpractice is for invoices to be provided and for payment to be made later, with 45 days being a standard time frame. He testified that hehad never experienced these kinds of demands for immediate payment. [68] Therefore, I do not find that the credit line limit of $500,000.00 was a term of the contract between the parties. 4.

Duty of good faith [69] Petrobank submitted that the contract imposed on Safety Boss a duty of good faith. It cited Mesa Operating Ltd. Partnershipv. Amoco Canada Resources Ltd. (1994), 1994 ABCA 94 , 149 AR 187 (CA), leave to appeal refused (1994), 21 Alta LR (3d)xxxvii (SCC) and Gateway Realty Ltd. v.

Arton Holdings Ltd. (1991), (NS SC), 106 NSR (2d) 180 (TD), aff’d. onother grounds (1992), 1992 NSCA 70 , 112 NSR (2d) 180 (CA) and asserted that “...bad faith conduct occurs when one party,without reasonable justification, acts in relation to the contract in a manner where the result would be to substantially nullify thebargained objective or benefit contracted for by the other, or to cause significant harm to the other, contrary to the original purpose and

expectation of the parties.” Though it is not specified in either Petrobank’s written brief or in its oral argument, it appears thatPetrobank’s complaint has to do with Safety Boss’ demands for payment. [70] Safety Boss argued, first, that there was no duty of good faith and, second, that there was no basis for the assertion that SafetyBoss did not act in good faith. [71] On its first point, Safety Boss pointed to National Courier Services Ltd. v.

RHK Hydraulic Cylinder Services Inc., 2005ABQB 856, 390 AR 158, where Topolniski J. made these comments at paras. 26, 27 and 32: The law in Alberta does not recognize a general duty of good faith between contracting parties. Such a duty can arise in contracts where the relationship mandates good faith dealings; for example, in insurance matters (Kantolic v.Peace Hills General Insurance Company (2000), 259 A.R. 319, 2000 ABQB 59) and in employment dismissals (Vorvis v. InsuranceCorp. of British Columbia, (SCC), [1989] 1 S.C.R. 1085; Wallace v. United Grain Growers Ltd.(SCC), [1997] 3 S.C.R. 701).

Neither is the case here. ... In my view, the law in Alberta does not yet recognize a general duty of good faith in the performance of a contract and this case does notfit within the category of special relationship cases where such a duty is acknowledged. [72] Safety Boss also referred to these comments made by O’Connor A.C.J.O. in Transamerica Life Canada Inc. and AgeonCanada Inc. v.

ING Canada Inc. (2003), (ON CA), 68 OR (3d) 457 (CA) at para. 53: ... courts have implied a duty of good faith with a view to securing the performance and enforcement of the contract made by the parties,or as it is sometimes put, to ensure that parties do not act in a way that eviscerates or defeats the objectives of the agreement that theyhave entered into... [73] Safety Boss argued that no stand-alone duty of good faith arose from its contract with Petrobank.

It further argued that theparties understood that Petrobank would pay Safety Boss for services rendered under the contract and that, by demanding payment forthose services, Safety Boss did not “... nullify the bargained objective or benefit contracted for by the other, or to [sic] cause significantharm to the other, contrary to the original purpose and expectation of the parties” and did not try to “recapture opportunities foregoneupon contracting”. [74] I agree with Safety Boss’ point on this issue.

While its retainer by Petrobank imposed certain obligations on Safety Boss, themost obvious of which was to provide the necessary services, I see nothing in this case that would justify imposing a stand-alone duty ofgood faith. This case is not what Topolniski J. called the “category of special relationship cases” that would give rise to such a duty.Further, even had I found such a duty, while Safety Boss’ repeated demands for payment may have been objectionable, I do not thinkthey nullify the benefit contracted for. I do not find a stand-alone duty of good faith. 5.

Special Services Work Order [75] There were two threads of argument about the Special Services Work Order: rectification and the exclusion clause. [76] The rectification issue arose because the Special Services Work Order was in the name of SBL rather than Safety Boss. Mr.Badick testified that this was a clerical error made when the work order forms were printed. Safety Boss asked that this Court grantrectification of the Special Services Work Order “so that it conforms to the real agreement between” Petrobank and Safety Boss.

[ 77 ] Safety Boss referred to authorities, both judicial and academic, all of which are to the effect of these comments from Guaranty Properties Limited v. Edmonton (City of) , 2000 ABCA 215 , 261 AR 376 (CA) at para. 29 : ...

A claim for rectification is typically granted only in the case of common mistake where it can be established that both parties had continually agreed on the term, but that term was erroneously and/or inaccurately expressed in the written document... [ 78 ] Safety Boss also pointed to evidence which it suggested makes clear that the parties had agreed that “Safety Boss” would provide the requested services and that it was Safety Boss Inc. that did so. [ 79 ] For its part, Petrobank argued that rectification is an equitable remedy that may be granted where parties have agreed on the terms of a contract, but have recorded them wrongly.

Petrobank objected to rectification in this case on these grounds: (

i) the oral contract between [Petrobank] and Safety Boss was concluded at the [First] Meeting.

Rectification has no applicability to a contract that is wholly or partly oral; (ii) the [Special Services] Work Order does not constitute any element of the oral contract between the parties; (iii) Safety Boss has waited over 10 years to seek rectification; [and] (iv) Safety Boss is seeking rectification after it has breached the contract. [ 80 ] The exclusion clause issue arose because the following clause was contained in the Special Services Work Order: Customer further agrees as follows: ... that Company shall in no way be liable to Customer for any act or omission, whether or not the same be negligence, in performing or attempting to perform the services above described or which may be hereafter requested, and Customer expressly disclaims any damages which may accrue to it by reason of any such act or omission; ... [ 81 ] Safety Boss cited authorities, including Tercon Contractors Ltd. v.

British Columbia (Transportation and Highways) , 2010 SCC 4 , [2010] 1 SCR 69, in support of its position that this clause absolved it of liability for any negligence on its part. [ 82 ] Petrobank denied that the exclusion clause protected Safety Boss. It relied, first, on the reference in the Special Services Work Order to the wrong corporate entity. Second, it asserted that enforcement of the exclusion clause would be unconscionable because it was presented to Petrobank only after the well control operation was well underway and Safety Boss had already issued to Petrobank invoices totalling $171,545.50.

Third, Petrobank argued that the Special Services Work Order was a standard form document and that the exclusion clause was not brought to the attention of Mr. LaPrade either by the document itself or by Mr. Mikalauskas. [ 83 ] Safety Boss countered by saying that Mr. LaPrade’s signing the Special Services Work Order meant either the contract was not complete at the conclusion of the First Meeting or the parties agreed to add further terms. [ 84 ] I am satisfied that delivery of the Special Services Work Order in the name of Safety Boss Ltd. rather than Safety Boss Inc. is of no moment.

In my view, at the time the contract was formed, Petrobank neither knew nor cared which Safety Boss corporate entity it was dealing with. This, however, does not address the greater problem. [ 85 ] As I found above, the contract for well control services between Petrobank and Safety Boss was formed during the First Meeting. The exclusion clause did not form any part of that oral contract. The parties did not form a new contract with the Special Services Work Order. Rectification cannot be used to add to a contract a term that was not agreed to by the parties.

Therefore, I find that the exclusion clause contained in the Special Services Work Order is not enforceable against Petrobank. The Special Services Work

Order did not constitute nor modify the contract formed at the First Meeting V. Negligence [86] Petrobank also advanced a claim against Safety Boss in negligence. The Supreme Court of Canada in Central Trust Co. v.Rafuse, (SCC), [1986] 2 SCR 147 articulated the following principles on concurrent liability in contract and tort: 1. The common law duty of care is not confined to relationships that arise apart from contract. 2.

The nature and scope of the duty of care that is asserted as the foundation of the tortious liability must not depend on specificobligations or duties created by the express terms of the contract. 3. A concurrent or alternative liability in tort will not be admitted if its effect would be to permit the plaintiff to circumvent orescape a contractual exclusion or limitation of liability for the act or omission that would constitute the tort. A.

Duty of Care [87] Petrobank asserted that Safety Boss owed it a duty of care because of a relationship of proximity between them such that itwas reasonably forseeable that Safety Boss’ actions could cause harm to Petrobank. Safety Boss did not argue against this either in itswritten brief or in oral submissions and I find that Safety Boss owed a duty of care to Petrobank. B. Standard of Care [88] The law on standard of care in this case is no more controversial than the duty of care. Safety Boss pointed to the followingpassage from G.H.L.

Fridman, The Law of Torts in Canada, 2d ed. (Toronto: Carswell, 2002) at pp. 385: The standard is to be determined by the trial judge having regard to what kind of action was reasonable in all the circumstances ... thestandard to be maintained is that of the ordinary, reasonable, cautious and prudent person in the position of the defendant ... a standard ofperfection is not imposed on [the defendant]... [89] Given the specialized nature of Safety Boss’ field, the parties were agreed the appropriate standard must reflect that. SafetyBoss quoted Wilson v.

Swanson, (SCC), [1956] SCR 804 at 817 for the proposition that “It is the duty of a specialist ...,who holds himself out as possessing special skill and knowledge, to have and exercise the degree of skill of an average specialist in hisfield.” [90] Petrobank painted the application of the standard as a balancing exercise, stating as follows in its brief: In determining what standard of care should be applied, the Court should consider both the likely risk of injury, and the likely gravity ofsuch injury. These factors must be multiplied and then balanced against the cost of avoiding the risk.

This balancing will provide theframework to allow the trier of fact to judge whether the defendant’s actions meet the requisite standard. [91] Safety Boss pointed out the onus is on the plaintiff to prove on a balance of probabilities that the defendant’s conduct hasfallen below the standard, citing Kehler v. Myles, (1986) (AB KB), 74 AR 259 (QB).

[92] Safety Boss also argued that errors of judgment do not necessarily constitute negligence, quoting Wilson v. Swanson at pp.812-3: An error in judgment has long been distinguished from

an act of unskillfulness or carelessness or due to lack of knowledge. Althoughuniversally-accepted procedures must be observed, they furnish little or no assistance in resolving such a predicament as faced thesurgeon here. In such a situation a decision must be made without delay based on limited known and unknown factors; and the honestand intelligent exercise of judgment has long been recognized as satisfying the professional obligation. [93] Finally, Safety Boss submitted that its conduct must not be judged with the benefit of hindsight, citing Sopinka J. in terNeuzen v.

Korn, (SCC), [1995] 3 SCR 674 at para. 34: It is also particularly important to emphasize, in the context of this case, that the conduct of physicians must be judged in the light of theknowledge that ought to have been reasonably possessed at the time of the alleged act of negligence. As Denning L.J. eloquently stated inRoe v. Ministry of Health, [1954] 2 All E.R. 131 (C.A.), at p. 137, “[w]e must not look at the 1947 accident with 1954 spectacles”. Thatis, courts must not, with the benefit of hindsight, judge too harshly doctors who act in accordance with prevailing standards ofprofessional knowledge.

This point was also emphasized by this Court in Lapointe, supra, at pp. 362-63: ... courts should be careful not to rely upon the perfect vision afforded by hindsight. In order to evaluate a particular exercise of judgmentfairly, the doctor’s limited ability to foresee future events when determining a course of conduct must be borne in mind. Otherwise, thedoctor will not be assessed according to the norms of the average doctor of reasonable ability in the same circumstances, but rather willbe held accountable for mistakes that are apparent only after the fact. C.

Causation [94] Both parties reviewed in some detail the test for causation. Both referred to Snell v. Farrell, (SCC), [1990] 2SCR 311 in which the Supreme Court of Canada said at p. 326: Causation is an expression of the relationship that must be found to exist between the tortious act of the wrongdoer and the injury to thevictim in order to justify compensation of the latter out of the pocket of the former... [95] Petrobank acknowledged that, generally, the test for causation is that the injury would not have occurred “but for” thedefendant’s negligence. However, Petrobank went on to cite Athey v.

Leonati, (SCC), [1996] 3 SCR 458 for theproposition that in circumstances with both tortious and non-tortious causes, the courts require only that the defendant’s negligence“materially contributed” to the plantiff’s injury. [96] Safety Boss, however, noted the Supreme Court of Canada in the more recent case of Resurfice Corp. v. Hanke, 2007 SCC 7,[2007] 1 SCR 333 at paras. 20-23 has limited the use of the “materially contributed” test by confirming that the “but for” test remains thestarting point: Much judicial and academic ink has been spilled over the proper test for causation in cases of negligence.

It is neither necessary norhelpful to catalogue the various debates. It suffices at this juncture to simply assert the general principles that emerge from the cases. First , the basic test for determining causation remains the “but for” test. This applies to multi-cause injuries. The plaintiff bears theburden of showing that “but for” the negligent act or omission of each defendant, the injury would not have occurred. Having done this,contributory negligence may be apportioned, as permitted by statute. This fundamental rule has never been displaced and remains the primary test for causation in negligence actions.

As stated in [Athey] at

para. 14 , per Major J., “[t]he general, but not conclusive, test for causation is the ‘but for’ test, which requires the plaintiff to show that the injury would not have occurred but for the negligence of the defendant”. Similarly, as I noted in Blackwater v.

Plint , at para. 78, “[t]he rules of causation consider generally whether ‘but for’ the defendant’s acts, the plaintiff’s damages would have been incurred on a balance of probabilities.” The “but for” test recognizes that compensation for negligent conduct should only be made “where a substantial connection between the injury and the defendant’s conduct” is present. It ensures that a defendant will not be held liable for the plaintiff’s injuries where they “may very well be due to factors unconnected to the defendant and not the fault of anyone”... VI.

Expert Reports [ 97 ] I cannot make findings on either breach of contract or negligence without guidance about what reasonably could be expected of Safety Boss in the circumstances. Therefore, it will be convenient at this point to summarize the expert reports filed by each party. [ 98 ] I pause here to note there were also reports filed that had been prepared by officials of the AEUB. I believe that they cannot be used either for or against either party’s position. The reports express opinions about several of the events in question, but it is common ground that they are not expert opinions.

Further, the reports were prepared based on the AEUB’s review, rather than being prepared contemporaneously by a person who was directly involved. Therefore, I decline to place any weight on the AEUB reports. A. Expert Report of Daniel Eby [ 99 ] Petrobank’s expert, Daniel Eby, filed a detailed report which reviewed not only the Blowout, but the oil and gas and well control industries in general. In response to my questioning during oral argument, Petrobank pointed to Mr. Eby’s report as evidence of what would constitute “standard practice” in the well control field. The critical points of Mr.

Eby’s report may be summarized as follows. [ 100 ] Mr. Eby described the well control process as involving five stages: (

a) assess the situation; (

b) clear debris and/or prepare the area; (

c) gain wellhead access; (

d) repair or replace wellhead; and (

e) cap or kill the well. [ 101 ] According to Mr. Eby, the assessment phase is used to determine and diagnose, to the extent possible, the source and cause of the blowout and to determine a path forward to bring the well under control. This is done through direct observation of the blowout, review of the available records and interviews with the operator’s personnel. [ 102 ] The main goal of the clear debris /preparation stage is to make the wellhead accessible and to make the site safe, secure and usable for the personnel who will be working there.

The activities necessary at this stage will depend on the particulars of the wellsite. [ 103 ] Gaining wellhead access is necessary for capping or killing the well. According to Mr. Eby, if the well control specialist can physically touch the wellhead, there is a high likelihood the well can be successfully brought under control. This may require drilling a relief well.

[ 104 ] The next stage requires determining if the wellhead is usable for the control operation. Mr. Eby’s view was the wellhead should be cut off only “in unique and limited circumstances” and only if it has been significantly damaged. Alternatively, a diverter can be installed to allow the well to flow to a location a safe distance from the wellhead. The advantage of a diverter is that it keeps the pressure on the wellhead to a minimum, thus reducing the potential for an underground blowout. Mr.

Eby stated that once the flow has been diverted, “it is safer, easier and more efficient to work around the well and install equipment on the well for the kill operation”. [ 105 ] The last of Mr. Eby’s stages is capping or killing the well. This, he stated, involves pumping fluid of sufficient density down the well to stop the flow and is best carried out by pumping the kill fluid from the bottom of the well to the surface. Various types of tubing can be used, depending on the well. [ 106 ] Mr. Eby’s report stated that H 2 S wells require special considerations because of the toxicity of the gas.

He outlined two methods of dealing with H 2 S. One is to ignite the flow from the well. This produces SO 2 which, while still toxic, is less dangerous than H 2 S. However, Mr. Eby’s view was that a well generally should be ignited only if people are in danger. An alternative is to install a temporary production separator and flare stacks and a diverter. This allows the gas to be burned off at a safer location. [ 107 ] Mr. Eby offered his opinion on several points. First, he said “Petrobank retained Mr. Miller and Safety Boss for the purpose of discussing the Blowout, and having Mr.

Miller and Safety Boss assess the situation and bring the Well under control.” Since that determination is within the province of this Court, rather than a party’s expert, I will disregard Mr. Eby’s conclusion on this point. [ 108 ] I will, however, consider Mr. Eby’s opinion “Safety Boss and Mr. Miller failed to provide the care, skill and attention to competently address the Blowout.” Mr. Eby arrived at this overall conclusion based on the following ten more specific conclusions. [ 109 ] First, Mr. Eby said there was a failure properly to assess the Well. He noted that Mr.

Miller stated in examinations for discovery that he never concluded from where the flow was coming. Mr. Eby’s view was the Well file should have alerted Mr. Miller and Safety Boss that the Blowout was originating from a deep formation (probably Keg River), which in turn should have alerted them to a possible downhole packer failure. Mr.

Eby stated that making an accurate assessment of the Blowout at the early stages would have allowed more accurate planning for dealing with it. [ 110 ] Second, Safety Boss failed to anticipate the “likely” production of salt water if the Well were not brought under control in a timely fashion. He stated, “Mr.

Miller and Safety Boss should have appreciated the urgency of bringing the Well under control to avoid the escape of salt water and the likely ramifications for environmental damage”. [ 111 ] Third, there was a failure to diagnose the cause of the Blowout and to provide a plan to bring the Well under control. Mr. Eby stated “[d]iagnostic work is critical to determine the nature of a well downhole”. This diagnostic work must be done during the control effort and should have included examination of H 2 S samples to determine the source of the flow, rather than only to address safety concerns.

Safety Boss also should have tested for possible hydrate plugs and pumped methanol down the Well to clear them if necessary. [ 112 ] Fourth, Mr. Miller and Safety Boss failed to document any assessments or findings and any proposed procedures. Documentation was limited to daily invoices. This resulted in a lack of formal advice to Petrobank about the course of the control and kill effort. Mr.

Eby argued that record keeping should be considered an important part of the well control specialist’s responsibilities, particularly because of media and government scrutiny and legal ramifications. [ 113 ] Fifth, Safety Boss failed to design and implement a diverter system at an early stage. Mr. Eby disagreed with Mr. Miller’s expressed opinion that the flow velocity was too high to install a diverter. He noted that Key Safety actually used its diverter as a control device and that Safety Boss had a diverter built, but never brought to the site.

He asserted that a diverter not only allows safe access to the wellhead, but also can increase the chances of a successful kill attempt because it reduces the blowout flow rate. [ 114 ] Sixth, Safety Boss failed properly to obtain and interpret H 2 S readings. As noted above, Safety Boss used the H 2 S readings solely to assess safety, rather than to determine the source of the Blowout.

[ 115 ] Seventh, Safety Boss made inappropriate recommendations, including cutting off the wellhead and igniting the flow. In Mr. Eby’s view, both of these actions, potentially, could have increased the length and complexity of the well control operation. [ 116 ] Eighth, Mr. Miller and other senior representatives of Safety Boss failed to provide leadership in the well control operation. Mr.

Eby asserted that Petrobank took the dominant role in leading the well control effort and that Safety Boss regarded its role as ensuring the safety of personnel on site, rather than devising and implementing the well control strategy. This, in Mr.

Eby’s view, increased the length and cost of the effort and increased the associated environmental damage. [ 117 ] Ninth, the services provided by Safety Boss were limited in large part to securing the site and personnel, rather than to assessing the situation and bringing the Well under control. [ 118 ] Finally, Safety Boss failed to exhibit an appropriate sense of urgency. This was particularly problematic in preventing environmental damage. [ 119 ] In the last part of his report, Mr. Eby set out on a day-by-day basis his recommended steps for bringing the Well under control.

While I will not set out those steps in detail, Mr. Eby estimated successful completion of the operation in 17-20 days. B. Expert Report of Peter McLelland [ 120 ] Petrobank tendered a report headed “Blowout Control Cost Assessment” prepared by Mr. Peter McLelland. This report included an analysis of both the well control operation and the cost of that operation. [ 121 ] Mr. McLelland stated in his Executive

Summary, “A review of the daily operations indicates there was an absence of methodology between the first response blowout control specialist and the crisis management team that resulted in an inappropriate methodology accompanied with additional delays.” Mr. McLelland’s conclusion was that the well kill operation should have required twenty-one days, plus four days for demobilization. [ 122 ] Under the heading “Technical Considerations”, Mr.

McLelland stated, “In order to execute a safe and properly engineered blowout control program, it is paramount to understand the history of the well and to identify the potential problems that could hinder or prohibit a successful well kill operation or possibly jeopardize the safety of the on-site personnel.” Mr. McLelland stated that test results available from industry databases “immediately confirm the potential to incur severe environmental damage in the event the well commences to produce water, which is common among wells in the Rainbow Lake Sub-Basin.

Chloride content of produced water in the range of 4000 ppm will cause minimal environmental damage but extreme concentrations similar to those from the 5-31 well will literally ‘burn the earth’ and severely impact growth rates for an extremely long time.” [ 123 ] Mr. McLelland asserted that Safety Boss should have undertaken a more complete analysis of the pressure and H 2 S readings it obtained.

He also said that Safety Boss should have started by analysing the Well’s history: As a well control management consultant familiar with these operations, the initial step would have been to evaluate the working history of the 5-31 well contained in the well file and to identify the root cause of the surface casing vent failure. The presence of a high pressure sour gas influx exiting from the surface casing vent introduced numerous problems with logistics.

The origin of the flow, the potential failure mechanisms leading up to the release of the gas and the potential to encounter secondary structural failures during the circulation of kill mud made this a dangerous and challenging blowout control problem. [ 124 ] Mr. McLelland’s opinion was that it was important to identify the source of the flow to proceed properly with the kill operation. He stated that circulating weighted kill mud into the Well required confirmation of both the structural integrity of the tubulars and the

origin and depth of the gas flow. [ 125 ] Mr. McLelland agreed with Mr. Eby that installation of a diverter would have been prudent: The well file clearly identified the potential to encounter hydrogen sulfide in concentrations exceeding 30% and production records for the area signalled the propensity for the Keg River to produce salt water if the well was permitted to flow for an extended period. Both of these situations could have been addressed with the installation of a diverter affixed to the surface casing vent to control the gas/fluid release and production testing equipment consisting of separators and a flare stack(

s) to accept flow from the 139.7 mm x 73.0 mm annulus. The installation of this equipment would have significantly reduced the uncontrolled hydrogen sulfide releases experienced during changing wind conditions and simultaneously drawing down the reservoir pressure to facilitate the circulation of kill mud. [ 126 ] Mr. McLelland asserted that lighting the well is not equivalent to diverting the flow and then lighting it: Flaring of natural gas containing acid gases does not achieve complete combustion, with pure natural gas producing a by-product of carbon dioxide and hydrogen sulfide producing sulfur dioxide.

Sulfur dioxide is a colorless, nonflammable gas with a strong pungent odour that, when mixed with water, creates hydrosulfuric acid (referred to as “acid rain”) which is detrimental to human health and the environment. Safety Boss utilized a flare pit to burn the natural gas and hydrogen sulfide resulting in suspended operations June 25 due to a plume of sulfur dioxide engulfing the 5-31 location. The combustion efficiency of natural gas directed to a flare pit will be lower than the combustion efficiency achieved with the use of more controlled burning through a flare stack.

Flare stacks are affixed with flare tips designed to produce higher efficiency burns which in turn are accompanied with increased heat and a more buoyant plume rise. Conversely, burning natural gas containing hydrogen sulfide using a flare pit will increase ground-level concentrations of toxins. The installation of production equipment and a flare stack(

s) would have significantly reduced the stoppages and/or slowdowns due to safety concerns referenced in the Petrobank Daily Workover Reports for June 19, 20, 21, 25 and 26. [ 127 ] Mr. McLelland took the view that it was Safety Boss’ responsibility to develop the well control approach, notwithstanding the need to seek Petrobank’s approval of any proposal: Experienced well control teams are required to evaluate all options and select the best option for controlling the flow until such time as the flow can be stopped.

Selecting the best option involves a risk-based analysis for the kill attempt, a minimum risk to on-site personnel, and viable economics - all of which should be discussed with the Operator to ensure all parties are aware of the methodology of the plan and the potential to encounter problems on a go-forward basis. [ 128 ] Mr. McLelland, like Mr.

Eby, reviewed the timeline of events, but he arrived at a slightly different conclusion: I have reviewed the Cudd Well Control report prepared by Dan Eby and consider the proposed eighteen day timeline to regain control and stop the flow of natural gas and wellbore fluids with two days for de-mobilization to be a functional timeline but potentially optimistic. ... In my opinion, the proposed timeline for the 5-31 well could be based on incorporating the contributions of each well control specialist company but utilizing a more appropriate methodology to control, contain and stop the flow of fluids.

Safety Boss as first responder effectively prepared the 5-31 site with matting from June 12 to June 20. Thereafter, valuable time was spent airlifting and installing Halliburton pumps, mud supplies and cement which should have been undertaken subsequent to the installation of the diverter and production equipment. Timelines can be prepared mapping out the sequential operations and objectives during well control operations but must be regarded as a best effort guideline.

The 5-31 well control operation is different from other blowouts in that two blowout specialist companies were involved in the control operations. Acknowledging the contributions from each company while adhering to the previously referenced methodology, it is my opinion a reasonable timeline and execution of operations would have required 21 days to stop all flow from the well with 4 additional days to de-mobilize. [ 129 ] Mr. McLelland then gave an estimate of what the well control costs should have been given his estimated timeline.

He assumed that operations after June 20 would have involved installing production equipment and a diverter. He further stated, “...it is reasonable to accredit Safety Boss with their well control costs for June 22, June 24, June 25, June 26 and June 27”.

[ 130 ] Mr. McLelland’s estimated cost was $10,020,106.20, which he said: “should have been adequate to have regained control of the 5-31 blowout”. He stated, “Actual well control costs for the 5-31 well appear to total $13,220,984.77", leaving a difference of $3,200,878.57, which he said “resulted from the use of an inappropriate methodology, unnecessary downtime and the costs incurred from an additional mobilization and demobilization”. C. Expert Report of Robert Grace [ 131 ] The Defendants’ expert, Mr. Robert Grace, was involved personally in the Well control operation, as he acknowledged in his report.

This unusual circumstance of having someone appear as both a lay and an expert witness resulted in a voir dire on the admissibility of Mr. Grace’s report. My ruling was that Mr. Grace’s report would be admitted; any conflict of interest arising from his personal involvement would go to the weight I might give to his opinion. [ 132 ] Mr. Grace took a different view of Safety Boss’ role in the well blowout operation than did Mr. Eby and Mr. McLelland. Mr. Grace’s view was: “At all times, Petrobank was the operator and was in charge of the blowout operations and directed the work.

Other consultants such as Safety Boss only offered recommendations and Petrobank made the decisions. Therefore, Safety Boss cannot be held responsible for the time required to control the blowout.” Mr. Grace took issue with Mr. Eby’s and Mr. McLelland’s attempts to propose a reasonable timeline for the well control operation, stating, “In my opinion, it is foolish to attempt to predict how many days will be required to control a blowout.” He noted that Mr. Eby and Mr. McLelland disagree with each other about how long it should have taken to control the well.

However, he went on to state, “In my opinion, the blowout was controlled within a reasonable length of time and at a reasonable cost.” [ 133 ] Mr. Grace thought that Safety Boss and Mr. Miller performed their work in a competent and capable manner. He said that Safety Boss and Mr. Miller “were confident of the condition of the well from the beginning and knew what had to be done.” He stated that it was obvious from the beginning that the flow was likely from the Keg River formation.

He went on to say that it “was equally obvious that the only reasonable approach to killing the well would be to run inside the tubing in the blowout well with another string of tubing and kill the well with heavy mud by circulating the heavy mud to the bottom of the blowout well.” Mr. Grace asserted “control of the well at the surface is not possible and control of the well must be accomplished from the bottom.” He continued, “Accordingly, Safety Boss proceeded to organize the infrastructure necessary to implement the plan to kill the well using coil tubing.

In addition, with my input and suggestions Petrobank and Safety Boss performed the diagnostics necessary and required to define the problem.” [ 134 ] Mr. Grace stated that he recommended against the kill attempt using 1½” tubing and an inflatable packer. He said, “this kill attempt had absolutely no hope of success” because by that point the original tubing string had parted and it was not possible to run the 1½” tubing inside the original tubing. His calculations showed that a successful kill attempt would need larger tubing to be run further into the hole. [ 135 ] While Mr.

Grace recognized that it was Key Safety that finally killed the well, he argued, “Safety Boss assembled the infrastructure and performed all the diagnostics. Key Safety did a good job. However, essentially all Key Safety did was execute the well control plan.” He noted the kill program executed by Key Safety used the recommended 2" tubing which Petrobank had obtained by that time. [ 136 ] I do not find that Mr. Grace’s relationship with Safety Boss and with Mr. Miller affected his opinion. I am satisfied that Mr. Grace’s views are his views irrespective of that relationship.

While I do not accept his opinion on all points, I find that he was not biased and that weight may be given to his opinion. [ 137 ] With that in mind, the contrast between Mr. Eby’s report and Mr. Grace’s report is striking. Mr. Eby’s report ran to 58 pages; Mr. Grace’s was fewer than four. Prolixity itself is not a virtue. However, in a technically complex case like this, I expect a more detailed analysis. Mr. Eby reviewed the timeline of events and commented on the various steps taken and not taken.

While, as will be discussed later in these reasons, I find some of his conclusions lacking, such as a failure to connect H 2 S testing with the timetable, he provided very helpful comments on technical details such as testing methods and appropriate equipment. While Mr. Grace’s report also contained some such comments, it was overall rather too general and I did not find it as useful. D. Expert Report of Dick Bissett

[ 138 ] Safety Boss also filed a report prepared by Mr. K.R. (Dick) Bissett. Mr. Bissett’s report is organized by five “Questions Relating to Emergency Response”: • Question 1 - Who was doing what? • Question 2 - Who was in charge of what? • Question 3 - Was there a plan or plans, developed during the response? • Question 4 - Who approved the plans developed as a result of suggestions, input and discussion? • Question 5 - Was there a process in place to assess and adjust if necessary, the ongoing actions based on the reasonable strategies and objectives? [ 139 ] On his Question 1, Mr.

Bissett stated that between June 11 and June 13, Petrobank assigned personnel to fill responder positions as set out in what he called the Incident Command Response Team Organization Chart. In this chart, he placed Mr. LaPrade and Mr. McCagherty at the top as Emergency Managers/Incident Commanders with a notation that Command (Boss) “is responsible for all Incident Command Response Team response actions”. Safety Boss’ personnel, Mr. Miller, Mr. Badick and Mr.

Brausen, were further down on the chart as Well Control Task Forces with a notation that Operations (Doers) are “responsible for directing the tactical operations, both on-site and off-site, to meet incident objectives. Tactical on-site operations are physical activities conducted at the site to directly mitigate the incident or protect human life, health, property and/or the environment from the physical impact of an incident (e.g. stopping the source of a release, rendering on-site medical aid, etc)”. [ 140 ] This hierarchy was discussed under Mr. Bissett’s Question 2. Mr. Bissett stated that Mr.

LaPrade and Mr. McCagherty “were responsible for all response team actions, to regularly report to [Petrobank] management regarding well control operations and to ensure any direction received from [Petrobank] management was followed”. He characterized several individuals as Petrobank’s “On-site Supervisors” who were responsible for supervising, coordinating, overseeing, supporting and directing on-site operations to meet well control objectives and reported to the Emergency Manager. [ 141 ] Having characterized Safety Boss as the Well Control Task Force, Mr.

Bissett stated that it was to perform and carry out operations on-site under the direction of Petrobank’s On-site Supervisors and was responsible to provide assistance in on-site well intervention operations. It is clear, then, that Mr. Bissett’s opinion was that Safety Boss was to act at the direction of Petrobank. [ 142 ] For his Question 3, Mr. Bissett noted that for the first seven well control incident days (June 11 to June 17, 2001), the Corporate Crisis Centre and Incident Command Post were located at Petrobank’s Calgary office, after which it was moved to Rainbow Lake. Mr.

Bissett stated that it appears that operational meetings were held at the end of each day, though there are no records of who attended these meetings. Mr. Bissett notes that many well control plans were generated at these meetings, including by Mr. Grace. He goes on to say, “Although an organizational framework to freely exchange information is not explicitly documented, I cannot locate any evidence that would lead me to believe that there were any roadblocks preventing anyone from making suggestions, contributing input or participating in the evening operational meetings.

In my experience, contributions from all participants are welcome, encouraged and supported during any emergency.” [ 143 ] Mr. Bissett’s response to his Question 4 makes it clear that, in his view, Petrobank was responsible for approving orders, directives, resource requests and status changes: The Emergency Managers (Rene Laprade, assisted by Ken McCagherty) had the authority of [Petrobank] to approve and implement operational plans that were developed by the Incident Response Team.

There may have been restrictions placed upon individuals dependent upon their position in the corporate hierarchy that would require [Petrobank] management approval, such as spending restrictions.

[ 144 ] Finally, in answering his Question 5, Mr. Bissett considered whether Petrobank used what he calls the four “Management by Objectives Tools”: (1) know your emergency response plan; (2) establish incident objectives; (3) select an appropriate strategy for the response; and (4) apply the tactical resources. Under this category, Mr. B

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