Schmidt v. Twin Butte Energy Ltd., 2012 ABQB 649

Court of Queen ’ s Bench of Alberta Citation: Schmidt v. Twin Butte Energy Ltd., 2012 ABQB 649 Date: 20121022 Docket: 1101 10568 Registry: Calgary Between: Reinhold Schmidt and Elaine Schmidt Plaintiffs - and - Twin Butte Energy Ltd. Defendant _______________________________________________________ Memorandum of Decision of K.R. Laycock, Master in Chambers _______________________________________________________ Background [ 1 ] The plaintiffs, as joint owners of a quarter

section of land in southern Alberta, entered into a surface lease with Palmer Ranch

(1984) Inc. (hereafter Palmer) on May 28 th 2002 which was negotiated through Palmer’s agent, McNally Land Services Ltd. The lease replaced an earlier surface lease dated September 10, 1951. [ 2 ] As a result of a series of assignment agreements the defendant obtained the lessee’s interest and operates a sour waste injection and disposal well on the lands.

[ 3 ] The plaintiffs applied to the Surface Rights Board pursuant to

section 27 of the Surface Rights Act for a review of the compensation payable under this lease. The application was heard between March 22 and 24 th 2010. A written decision was issued on October 5, 2010 which determined the rate of compensation payable should be varied from $3200.00 annually to $5534.00 annually affective on and after May 28 th 2007. [ 4 ] The plaintiffs commenced this proceeding on July 29, 2011 and allege that the defendant is in breach of various provisions of the surface lease and that the defendant has trespassed upon the plaintiffs’ land. The defendant denies the allegations contained in the plaintiffs’ statement of claim and applies for

summary judgment to dismiss some or all of the claims. The Berm [ 5 ] There is a berm on or adjacent to the lease site which the plaintiffs want removed. It is difficult in reading the pleadings to see where the plaintiffs have asked that the berm be removed. However, the application for

summary judgment proceeded on the basis that there was such a claim and that it should be dismissed because the issue is either res judicata or barred by the Limitations Act . [ 6 ] The berm is dealt with in

schedule “A” in subparagraph 2 of the lease agreement which states: Notwithstanding Palmer Ranch

(1984) Ltd., can find no indication that the berm, on the said lands situated near or adjacent to the south boundary of the well site LS 6-1-4-W4M, had anything to do with the oil and gas operations of the well herein referred to, without any admission of liability the said Company will however, make all efforts necessary to remove the berm in cooperation with the Lessor, provided such removal complies with the Environmental Act and Regulations as set out in the laws of the Province of Alberta under a farm operation and not an oil and gas activity.

Lessor to provide a location for disposal of the berm material. [ 7 ] The defendant argues that the plaintiffs have not provided a location for the disposal of the berm material. The plaintiffs denied this and Reinhold Schmidt states at paragraph 17 of his affidavit that the location was dealt with in June 2007. [ 8 ] The defendant argues that the alleged breach of the agreement to remove the berm was known from the start and certainly in June 2007 and June 2008 when they complained of such a breach to the prior lessor.

They argue that the claim is statute barred. [ 9 ] The Limitations Act s. 3(1) states: Subject to

section 11, if a claimant does not seek a remedial order within (a) 2 years after the date on which the claimant first knew, or ought in the circumstances to have known, (

I) that the injury for which the claimant seeks a remedial order have occurred, (ii) that the injury was attributable to conduct of the defendant, and (iii) that the injury, assuming liability on the part of the defendant, warrants bringing a proceeding,

or (b) 10 years after the claim arose, whichever period expires first, the defendant, on pleading this Act as a defence, is entitled to immunity from liability in respect of the claim. [ 10 ] The plaintiffs do not dispute the defendant’s allegation that they knew of the injury and that it was attributable to the conduct of the defendant or prior lessees in June of 2007. The plaintiffs argue that an action was not warranted to enforce this breach because they continued to have discussions with the various lessees who continued to promise to take action.

Exhibit “C” attached to the affidavit of Reinhold Schmidt is a letter from the prior lessee dated June 26, 2007 promising to correct the failure to remove the berm. Further Mr. Schmidt states in paragraph 21: “... the defendant expressly promised through its employees and officers to remove the berm which is one of the subject matters of our action but has failed to do so.” The defendant acquired its interest in the lease sometime in 2009. It is uncertain when the promise was made and when the work was to be undertaken.

There is insufficient evidence for me to conclude that this claim is statute barred. [ 11 ] The second issue with respect to the berm has to deal with compensation. Again it is difficult to read into the pleadings that the plaintiffs are claiming compensation for the mere existence of the berm. However, the same issue was raised before the Surface Rights Board. The plaintiffs claimed that the existence of the berm outside of the lease cost extra driving time to get around the berm with his equipment. He claimed $4,350.00 per year in compensation.

In its written decision, on page 23, the Board accepted that one acre of the berm existed outside of the lease site and assessed compensation of $250.00 per year based on a loss of use for pastureland. [ 12 ] The defendant argues that the claim for compensation was made by the plaintiffs to the Surface Rights Board and a decision was rendered which was not appealed, therefore the issue is res judicata . [ 13 ] In Spencer Bower and Hadley Res Judicata , 4 th ed. the authors state the principle at para. 1.01 as follows: Res judicata is a decision pronounced by a judicial or other tribunal with jurisdiction over the cause of action and the parties, which disposes once and for all the fundamental matters decided, so that, except on appeal, they cannot be re-litigated between persons bound by the judgment. [ 14 ] The Surface Rights Board is an administrative tribunal with jurisdiction over the parties and the issue of compensation, and the Board disposed of the matter.

Chief Justice Wittmann in Lloyd v. Imperial Oil Ltd., 2008 ABQB 379 , [2008] A.J. 695 referred to the Supreme Court of Canada decision Danyluk v. Ainsworth Technologies Inc ., 2001 SCC 44 , [2001] S.C.J. No. 46 in concluding that there is a strong preference for parties to use the administrative process where it is available.

He confirmed that the doctrine of res judicata can apply to administrative tribunal decisions. [ 15 ] In Danyluk the Court concluded that an administrative tribunal decision is final for the purposes of issue estoppel based on a two part test: 1) whether the applicant establishes the preconditions of issue estoppel; and 2) whether, as a matter of discretion, issue estoppel ought to be applied. [ 16 ] In this case the defendant has established the preconditions for issue estoppel. The parties are the same.

The question that was decided was the same and the decision was both judicial and final. [ 17 ] In my view, issue estoppel ought to be applied. The Board, by legislation, was granted the authority to hold hearings and make determinations as to the rate of compensation.

The plaintiffs have a full and fair hearing in front of the Board, the Board has expertise with respect to the issue of compensation and there is no evidence to suggest that the application of issue estoppel in this particular case would work an injustice. [ 18 ] It is my conclusion that, to the extent there is a claim for compensation contained in the plaintiff statement of claim, it is dismissed based on the doctrine of res judicata .

Oral Agreement [ 19 ] In paragraphs 9 to 14 of the statement of claim, the plaintiffs allege that there was a breach of an oral agreement that preceded the execution of the written surface lease. They alleged that the lessee was to pay them compensation for the new taking of land by the lessee in paragraph 10. They alleged that the lessee was to reclaim a portion of the lands granted so as to reduce the area from 10.66 acres to an area 4.09 acres.

Rent for the reduced acreage was to be adjusted. (Paragraph 11) [ 20 ] The plaintiffs allege that the defendant as assignee of the written lease must also be responsible for the breach of the oral agreement entered into by the prior lessee. No law or argument was presented by the plaintiffs in support of this proposition. There is no evidence to support such an oral agreement.

There is much correspondence between the plaintiffs’ lawyer, the Energy Utility Board and the lessee in the period leading up to the signing of the new surface lease, but nothing points to any separate verbal agreement. [ 21 ] In addition to arguing that there is no evidence of an oral agreement, the defendant also refers to the Statute of Frauds , 1677 (UK), 29, Car 2

Chapter 3. S. 4 which reads: No action shall be brought whereby .... to charge any person .... upon any contract or sale of lands ..... unless the agreement upon which such action shall be brought, or such memorandum or note thereof, shall be in writing, and signed by the party to be charged therewith, or some other person thereunto by him lawfully authorized. [ 22 ] In Peters v.

Wilson Estate , 2011 ABQB 665 , [2011] A.J. 1207, Justice Hall concluded that, while an oral agreement had been reached and reduced to writing, it could not be enforced because the written agreement was not executed. [ 23 ] In this case there is insufficient evidence to conclude that there was an oral agreement and even if there was, it was never reduced to writing or signed by the party to be charged and can not be enforced. The allegations of the plaintiffs contained in paragraphs 9 to 14 of their statement of claim are dismissed.

Duress [ 24 ] In paragraph 12 of the statement of claim, the plaintiffs alleges that the surface lease agreement executed on May 28, 2002 was “presented to the plaintiffs for execution under duress”. The pleadings do not ask for the agreement to be rescinded or set aside because of duress. There is no evidence of duress and counsel made no argument in opposition to the defendant’s application for

summary judgment dismissing any possible claim based upon duress. Accordingly there shall be

summary judgment dismissing the plaintiffs’ claim against the defendant based upon duress. Reclamation Outside of the Fence [ 25 ] In

Schedule “A”, para (1) of the surface lease agreement, the lessee undertook to conduct a “Phase 1" environmental assessment in the spring of 2002, to conduct a “detailed site assessment”in the spring of 2002 of the lands outside the fence surrounding the well site and to complete reclamation of the lands outside the fence surrounding the well site within five years of the date of the lease agreement.

There has never been an environmental assessment or a site assessment and the area outside the fence has not been reclaimed. [ 26 ] It is alleged, in paragraph 8 of the statement of claim, that the defendant took over the obligations of the prior lessees. The plaintiffs allege that the defendant is in breach of its contractual obligations and claims, in paragraph 19(b), damages estimated in the amount of $50,000. [ 27 ] The defendant argues that any such claim is statute barred. The assessments were to be completed in the spring of 2002 with

[ 27 ] The defendant argues that any such claim is statute barred. The assessments were to be completed in the spring of 2002 with the reclamation completed on or before May 28, 2007. It is evident that the plaintiffs knew of the breach and who was responsible by June of 2007. The correspondence leading up to the signing of the surface lease confirms that the plaintiffs believe this to be a serious issue. Accordingly when the agreement was breached an action was warranted. The time for commencement of such a proceeding would have expired May 28, 2009. This claim against the defendant is therefore statute barred and the defendant is entitled to

summary judgment dismissing such claim. Trespass [ 28 ] The plaintiffs allege, in the statement of claim, paragraphs 15, 16, 17, and 19(a), that the defendant has been trespassing upon their land. The basis of the claim is that the roadway to the well site extends beyond the boundaries of the lease. Attached to the lease is a survey showing the location of the roadway and the well site.

It is generally accepted that the roadway was not perfectly contained within the described area. [ 29 ] The allegation is not that human or vehicular traffic passes over the plaintiffs’ property, but that the roadway itself is partially constructed outside the boundaries of the lease. As such the plaintiffs argue that there is continuous trespass. [ 30 ] The plaintiffs argue that because of the continuous nature of the trespass this claim is not barred by the Limitations Act . No authority was provided. [ 31 ] The defendant bases its argument for

summary judgment upon the Limitations Act s. 3(1). Counsel argues that the road has been in continuous use for over 50 years. The plaintiffs have been owners of the property since July 28, 1998 and they knew or ought to have known of the trespass since its purchase.

The defendant argues that if they did not know of the issue immediately, at the very latest they had knowledge of the trespass in December 2001, when they were expressly advised of the road location. [ 32 ] The defendant argues that if a claimant has actual knowledge of the injury, then section 3 (1) of the Limitations Act and the two-year limitation period applies: R.P. Choma Financial and Associates Inc. v. McDougall , 2008 ABQB 359 . The Court in that case determined that the test for the ultimate limitation period in section 3(1)(

b) was based on the accrual of the cause of action. Counsel argues that even if the claimant did not have actual knowledge, the cause of action would have accrued for them when they obtained title to the property in 1998 and the 10 years under the ultimate limitation period has also expired. [ 33 ] The defendant further relies upon Meek (Trustee of) v. San Juan Resources Inc . 2005 ABCA 448 for the proposition that knowledge, as described in section 3 (1), is not nullified by a continuing course of conduct.

The defendant argues that applying that proposition to our facts would suggest that every day the road exists outside the lease would not restart the limitations clock. Damages may flow for every day of the trespass, but that does not re-start the limitations period. [ 34 ] In Meek, the defendant was unaware of its royalty obligations and the plaintiff was unaware that the royalties had not been paid. When the plaintiff became aware of the fact they started an action. The trial judge concluded that the non-payment of royalties was a continuing course of action pursuant to s.3(3)(

a) and that the need to assert the claim had not yet arisen. [ 35 ] The Court of Appeal confirmed that discoverability principles do not apply to the ultimate limitation period. The ultimate limitation period begins with the accrual of a claim and most claims accrued as a result of the defendant’s conduct. The trial judge had determined that the claim arose as defined in s. 3(3)(

a) and each missed payment restarted the limitations clock. The Court of Appeal disagreed. It concluded the applicable provision was s. 3(3)(b), which states: For the purpose of subsection (1) (b), (

a) a claim or any number of claims based on any number of breaches of duty, resulting from a continuous course of conduct or a series of related acts or omissions, arises when the conduct terminates for the last act or omission occurs;

(

b) a claim based on a breach of a duty arises when the conduct, act or omission occurs; [ 36 ] The Court of Appeal referred to the Alberta Law Reform Institute report which concluded that subsection (

b) applies “to any claim which includes damage ... it is immaterial whether the duty is based on tort, contract, statutory duty or otherwise.” The Court of Appeal pointed out the flaw in the trial judges reasons at para 45: This result would fly in the face of the purpose of the ultimate limitation period. It would mean that their claim had not yet arisen, despite their actual knowledge of the cause of action in May 2002 and their lawsuits commenced a few months later.

It would also mean that there would be no effective limitation period in the case where the breach of duty consists of a series of failures to make periodic payments. Defendants would have no protection from ancient obligations. I cannot accept that such an outcome serves the purpose of the ultimate limitation period. [ 37 ] Applying the reasoning of the Court of Appeal, the day-to-day continuation of the existence of the road outside the designated road allowance does not restart the limitations clock.

Because the plaintiffs had knowledge of the trespass the limitations period is calculated in accordance with s. 3(1)(a). [ 38 ] Given the plaintiffs knowledge of the existence of the trespass, the appropriate limitation would be 2 years from the date that: they knew of the injury, knew who it was attributable to and that it warranted a proceeding. That time has long passed and accordingly the defendant is entitled to

summary judgment dismissing the plaintiffs’ claim for trespass. [ 39 ] In

summary, to the extent that there is a claim for the removal of the berm contained in the pleading, it may continue. The balance of claims are summarily dismissed. Costs may be spoken to, if counsel can not agree. Heard on the 01 st day of October, 2012. Dated at the City of Calgary, Alberta this 22 2nd day of October, 2012. K.R. Laycock M.C.C.Q.B.A. Appearances: Frank Llewellyn Stringam Denecky LLP for the Plaintiffs

Brittany Earl Burnet, Duckworth & Palmer LLP for the Defendant