Nexxtep Resources Ltd. v. Talisman Energy Inc., 2012 ABQB 708

Court of Queen ’ s Bench of Alberta Citation: Nexxtep Resources Ltd. v. Talisman Energy Inc., 2012 ABQB 708 Date: 20121114 Docket: 0601 03847 Registry: Calgary Between: Nexxtep Resources Ltd. Plaintiff - and - Talisman Energy Inc. as managing partner for Talisman Energy Canada, a partnership, Talisman Energy Canada, and Omers Energy Inc. Defendants And Between: Talisman Energy Canada, by its managing partner Talisman Energy Inc. Plaintiff by Counterclaim - and - Nexxtep Resources Ltd. Defendant by Counterclaim

_______________________________________________________ Reasons for Decision on Costs of the Honourable Mr. Justice G.H. Poelman _______________________________________________________ I. Introduction [ 1 ] I gave reasons for judgment in this case, following trial, on October 13, 2011.

The judgment roll was filed on February 22, 2012, in a form approved by counsel for both parties. [ 2 ] Both parties filed lengthy materials in support of their respective positions on costs, and oral argument was submitted during a special chambers hearing on October 25, 2012. [ 3 ] Nexxtep sought to exclude parts of an affidavit filed by Talisman in support of its position on costs; and the parties disagreed on most aspects of who was entitled to costs, for what issues, and how they should be calculated. II .

Application to Strike Evidence [ 4 ] Nexxtep filed an application to strike portions of the affidavit of Darwin Luft of Talisman, relying upon rule 3.68(4) of the Alberta Rules of Court . Nexxtep argues that the affidavit contains testimony and attaches exhibits which were available at trial but not adduced then, contain information about post-trial developments and contain allegations about damages sustained by Talisman that are not relevant because Talisman did not counterclaim for damages.

Nexxtep argues that I am functus officio with respect to these matters; that Talisman should have called all of its evidence when putting in its case; and that the finality of the judgment is being offended. [ 5 ] Nexxtep submitted authorities in support of its application, but none relate to a costs hearing. The functus officio doctrine does not apply to matters of costs, which fall within the province of a trial judge following judgment, under the court’s general jurisdiction and as made express in

Part 10, Division 2 of the Alberta Rules of Court. (The matter of costs was also expressly reserved in both my reasons for judgment and the judgment roll, although that would not be necessary to preserve jurisdiction.) [ 6 ] In exercising its power to deal with costs after trial, the court may consider any matter relevant to costs (rule 10.33). There are many matters that may be relevant to deciding costs that would not be relevant to determinations of liability and relief, and would be improper to introduce before judgment.

Material relevant to costs may be adduced in many ways, depending on the circumstances: often, by representations of counsel, but sometimes by affidavit and sometimes even viva voce testimony. [ 7 ] The basic question is whether Mr. Luft’s affidavit contains material irrelevant to deciding costs. I find that there is sufficient relevance in all of Mr. Luft’s evidence to make it admissable, although some (particularly, the post-trial developments and assertions about damages from the shut-in well) is of limited assistance to the questions before me.

Indeed, neither counsel made any reference to the disputed evidence in oral submissions, except in passing. [ 8 ] Therefore, the application to strike the affidavit or portions of it is dismissed.

III. Entitlement to Costs A. Talisman ’s Success in the Action [ 9 ] The initial question is whether Talisman is entitled to costs. Nexxtep’s position is that each party should bear its own costs (with the exception of costs related to hearings before the Energy Resources Conservation Board, to which I will turn presently).

In support of its position, Nexxtep argues that the basis of the judgment was not argued by either party, and amounts to divided success. [ 10 ] Nexxtep refers primarily to my finding that the Purchase and Sale Agreement, which conveyed oil and gas properties from Talisman to Nexxtep, “when interpreted as a whole and in its proper context, conveyed Talisman’s entire. . . working interest in the petroleum and natural gas rights below the base of the Mannville zone, but excluding the pool from which the vertical well produced” (para. 69).

Nexxtep contrasts this with the possibility that I might have found the entire zone in which the pool was contained to have been retained by Talisman. [ 11 ] Notwithstanding the limiting words in the reasons for judgment, the result was in favor of Talisman on all issues of substance between the parties. After the PSA, Talisman continued to produce natural gas from the vertical well. Nexxtep commenced this action alleging that Talisman’s operation of and production from the vertical well was a trespass on Nexxtep’s oil and gas interests.

That claim was dismissed, on the basis that the PSA, properly construed, did not convey the vertical well or the pool from which it produced to Nexxtep. [ 12 ] As Nexxtep’s counsel fairly acknowledged, there was no live issue at trial about “the formation” or “zone” below the base of the Mannville other than production from the vertical well. For example, there was no evidence or argument about the existence of producible hydrocarbons below the base of the Mannville zone in

section 16, other than the pool from which the vertical well produced, regardless of whether it was in communication with it. [ 13 ] The trial concerned Nexxtep’s allegation that Talisman trespassed on its property by producing from the vertical well. That claim was dismissed, on terms no broader than required to give effect to the contract.

Nexxtep’s assertion that it achieved a “partial victory” ignores the fact that its litigation was about whether Talisman retained the ownership rights to continue producing from the vertical well. [ 14 ] Thus, Talisman was entirely successful on the central issues in the action. As the authorities have repeatedly held, a successful party is presumptively entitled to its costs. There is no reason to depart from that result here. B. Provisional Damages Findings [ 15 ] Nexxtep referred to passages in the reasons for judgment in the context of a provisional ruling on damages, in support of its costs arguments.

My provisional findings have, at this stage, no effect on the result. Nexxtep still has no judgment. [ 16 ] Further, assessing damages seldom results in one party’s measure being accepted in its entirety. My provisional damages findings do not reflect the type of “divided success” that may justify apportioning of costs to ensure a reasonable and proper result. C. Costs of Board Proceedings [ 17 ] Both parties incurred significant costs in proceedings before the Board commenced by Nexxtep to redesignate the vertical well and shut in Talisman’s production from it.

Nexxtep acknowledges that the form of redesignation granted by the Board was not

exactly as sought, but I agree that the ruling clearly favored Nexxtep’s position over Talisman’s ​ with the result that the well was shut in. By consent order of November 2, 2010, the parties agreed to adopt the majority decision of the Board for the trial of this action. [ 18 ] Both parties claim costs of the Board proceedings. Nexxtep argues that it won on that issue.

Further, it argues that it was forced to take the proceedings because Talisman pleaded in defence of the trespass action that the existing Board designation showed the well producing from a zone not conveyed to Nexxtep, that designation was binding on the parties, and Nexxtep had not availed itself of procedures available to change the designation order.

Talisman argues that it is entitled to costs of the Board proceedings, because it was put to those expenses unnecessarily when the real issue was ownership, not technical clarifications of the source of production. [ 19 ] Board costs are typically born by the parties, because the Board has jurisdiction to award costs only to certain interveners. However, under

section 21 of the Court of Queen ’s Bench Act, [1] “the costs of and incidental to any matter authorized to be taken before the Court or a judge are in the discretion of the Court or judge and the Court or judge may make any order relating to costs that is appropriate in the circumstances.” [ 20 ] In my view, it is not appropriate to award costs of the Board proceedings here; each party should bear its own costs in accordance with usual regulatory procedures.

Nexxtep was unsuccessful in its suit; Talisman was unsuccessful in the Board proceedings; and ultimately the Board decision was not critical to this action, which turned on ownership issues rather than technical geological matters. IV. Amount of Costs A. Basic Level of Costs [ 21 ] Having determined that Talisman is entitled to costs of the action as a whole, it remains to determine the amount.

The parties have submitted voluminous authorities on how the amount should be determined, but of course it remains highly discretionary and heavily dependent upon the circumstances of each case. [ 22 ] While the parties differ on what level of costs is appropriate, both proceed from the starting point of some variation of the amounts set out in

Schedule “C” to the Alberta Rules of Court. In my view, that is the proper approach here. [ 23 ] Nexxtep submitted that, if costs are awarded to Talisman, they should be based on single column “5". Talisman requests a high multiple. In contrast to its current position, Nexxtep submitted in written trial argument (before judgment) that it should receive “an award of costs on a solicitor/client basis or a substantial multiple of column 5.” I am unconvinced by Nexxtep’s attempts to explain why costs on that basis should have been Nexxtep’s entitlement on success, but not Talisman’s. [ 24 ] As stated by Belzil J., it has become customary in Alberta to award multiples of

Schedule “C” in complex actions. [2] In my view the appropriate basis for calculation here is triple column 5, with allowance for second counsel. [ 25 ] Talisman requested allowance for third counsel, and the setting of fees targeting approximately 40% to 50% of its actual legal expenses. In my view, that would not generate reasonable and proper costs in this case. The trial time, amount involved and complexities were less than in cases where that approach has generally been used.

Further, caution is required in using a client’s actual legal expenses as a benchmark for setting party-and-party costs, because of the wide variation in costs of legal services which can give rise to unpredictable consequences for a party litigant at risk. Using a percentage of actual legal expenses is appropriate in some cases, and often valuable as a cross check, but I do not find it necessary to use that approach to arrive at reasonable and proper costs here. [ 26 ] The items and amounts proposed by Talisman in its version of

Schedule “C” costs, subject to my finding on the multiple, are approved with two exceptions. I agree with Nexxtep’s submission that there should be no recoveries for items 5(4) (preparation of and response to written questions) and 6(1) (signing of consent orders).

[ 27 ] Talisman also seeks elevated costs based on its allegations about Nexxtep’s conduct in the action, in regard to various evidentiary matters. I am not satisfied that Nexxtep acted on evidentiary matters in a way that would require additional costs. [ 28 ] Finally, I decline to elevate costs because of the nature of Nexxtep’s allegations of various forms of bad conduct by Talisman, generally put forward by Nexxtep in its attempt to obtain the “harsh” measure of trespass damages. I have taken into account the serious nature of the case in selecting a multiple of the highest column in

schedule “C”. B. Formal Offer [ 29 ] On December 20, 2006, Talisman served a formal offer to settle, and withdrew it after the minimum 45-day period. (The offer was made pursuant to the former rules 169(3), 170(5) and 174, replaced by current rules 4.24 and 4.29. The parties agree that whether there are costs consequences of the offer should be decided under the rules in force when it was served, but neither suggests that anything turns on the different wording.) [ 30 ] Talisman’s offer was for a dismissal of the action in its entirety, a declaration, and an order that each party bear its own costs.

Nexxtep’s main argument opposing Talisman’s request for double costs is that the declaration Talisman sought was ambiguous and would have left Nexxtep worse off than under my judgment. [ 31 ] The material part of the declaration Talisman requested in the formal offer was to declare that Nexxtep had acquired “only Talisman Energy Canada’s interests in

Section 16. . . below the geological formation, member or zone in which the [vertical well] was perforated and from which it produced or produces”. Nexxtep says that this phrase is uncertain and worse than the trial decision, which was based on Nexxtep not having acquired the pool from which the vertical well produced. [ 32 ] Based on a combination of factors, I conclude that Talisman is not entitled to double costs as a result of its offer to settle.

The factors relate, generally, to the form of declaration requested and the time when the offer was available for acceptance. [ 33 ] Talisman’s offer was available for acceptance from December 20, 2006 through February 5, 2007. By then, there had been some progress in the action (pleadings, affidavits of records and some examinations for discovery). Further, little of the evidence on which the ownership issues were determined would have been a surprise to Nexxtep. [ 34 ] However, the Board proceedings were not commenced until August 2007, and the Board’s decision was made on August 7, 2009.

Those proceedings involved extensive technical evidence regarding geology and production data, and led to the Board’s determination that, to quote from the consent order, “the [vertical well] has at all material times produced from a pool and interval that is Jurassic in age below the base of the Mannville formation and above the base of the Pekisko formation.” [ 35 ] As I have found, Nexxtep’s attempt to carve a partial victory from the fact that my reasons referred to ownership of a well and the “pool” from which it produced is unconvincing. However, an offer proposing a declaration must be precise.

Talisman’s offer contained too many alternatives, at a time when the geological issues remained undetermined. The fact that, at the end of the day, there was no evidence at trial of a practical difference for Nexxtep between the words “formation,” “member,” “zone,” or “pool” does not mean Nexxtep was not entitled to precision in the terms of an offer, particularly at the stage when it had to make its decision. [ 36 ] Finally, the judgment roll taken out by the parties does not include a declaration, but simply dismisses Nexxtep’s actions for trespass, conversion and contract.

That is not determinative of how to treat the offer, but it is a factor in Nexxtep’s favour because there is no formal declaration against which the offer can be measured. [ 37 ] For these reasons, I find that this is not a proper case to award double costs as a result of a formal offer to settle.

C. Expert Fees [ 38 ] Nexxtep argues that Talisman’s claims for expert charges should be significantly reduced, because of unclear or unhelpful contributions to the proceedings, lack of trial testimony by some experts, and excessive amounts. [ 39 ] I am satisfied that the expert charges claimed by Talisman as disbursements are reasonable and proper, under rule 10.31(2)(a). Each expert spoke (or wrote) about issues in dispute, and generally all experts retained by Talisman were matched by experts retained by Nexxtep.

The fact that an expert’s evidence was not referred to in my reasons or an expert did not testify (some expert reports were exhibited by agreement, without the need to call the witness), or that some were found not particularly helpful, is not determinative. [ 40 ] Looking at the costs as a whole, considering the nature of the case and the fees paid by Nexxtep for its experts, I am satisfied that the amounts claimed by Talisman are allowable. D. Miscellaneous Disbursements [ 41 ] I agree with the submissions of Nexxtep that certain disbursements should not, in this case, be recovered as part of Talisman’s costs.

Those are: 1. Meal expenses of $827.65; 2. Invoice paid to another law firm, of $1,153.50; 3. Agent charges of $554.25; and 4. Conduct money of $297.38 for a witness who did not testify. [ 42 ] The other disbursements, as set out in Exhibit 27 to Mr. Luft’s affidavit of October 4, 2012, are recoverable. V. Costs Hearing [ 43 ] In my view, Talisman is entitled to costs of the application to settle the amount of costs in this action. Consistent with my earlier findings, the amount of these costs will be $6,000.00, calculated as item 8(1) of

schedule “C” in column 5 multiplied by 3; plus disbursements, which I fix at $200.00. Heard on the 25 th day of October, 2012. Dated at the City of Calgary, Alberta this 14 th day of November, 2012.

G.H. Poelman J.C.Q.B.A. Appearances: Randall W. Block, Q.C., Michael A. Marion and Layne N. Thiessen Borden Ladner Gervais LLP for the Plaintiff G. Scott Watson and Shannon L. Kelley Parlee McLaws LLP for the Defendant [1] RSA 2000, c.C-31 . [2] 321665 Alberta Ltd. v. ExxonMobil Canada Ltd. , 2012 ABQB 76 , para. 43