Terasen Pipelines (Corridor) Inc. v R&M Schroter Enterprises Ltd., 2012 ABQB 741

Court of Queen ’ s Bench of Alberta Citation: Terasen Pipelines (Corridor) Inc. v R&M Schroter Enterprises Ltd., 2012 ABQB 741 Date: 20121203 Docket: 0603 15034 Registry: Edmonton Between: Terasen Pipelines (Corridor) Inc. Appellant/Respondent - and - R&M Schroter Enterprises Ltd., Robert Schroter, ATCO Gas and Pipelines Ltd., The County of Strathcona No. 20, Encana Pipelines Ltd., Helen Simmons, ATCO Midstream Ltd., Marwood Cedar Homes Limited, G.F.M.

Construction Ltd., Grace Slater, J-Dan Farms Ltd., Avrum Wright, Cold Lake Pipeline Limited, and Karyl Wright Respondents/Applicants Corrected judgment: A corrigendum was issued on December 4, 2012; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice J.M.

Ross on Admissibility of Evidence _______________________________________________________ Introduction [ 1 ] This is an application by three of the Respondents, Helen Simmons, Grace Slater and Avrum Wright (collectively the “Applicants”) seeking an Order that the “Addendum Report (Pattern of Dealings)” dated December 20, 2011, prepared by Mr. John Wasmuth (“POD Report”) be deemed inadmissible in the within appeal brought by Terasen Pipelines (Corridor) Inc (the “Appellant” or “Terasen”) against the decision of the Surface Rights Board (“SRB”) dated October 26, 2006.

Background facts [ 2 ] In 2001 and 2002, Right of Entry Orders (“ROEs”) were granted to Terasen Pipelines against a number of properties, including the four properties that are the subject of this appeal: SW 36-54-22-W4M - Grace Slater SE 23-54-22-W4M - Avrum Wright SW 23-54-22-W4M - Helen Simmons SE 31-53-22-W4M - R&M Schroter Enterprises Ltd. [ 3 ] In 2002 and 2003, Terasen constructed a dual pipeline system between Fort McMurray, Fort Saskatchewan and Sherwood Park (“Corridor Pipeline Project”), crossing the four properties. [ 4 ] On April 19, 2006, the SRB held a hearing on the issue of compensation in relation to the involved properties.

Mr. Wasmuth’s Appraisal Report, dated July 19, 2002, was entered in evidence before the Board on behalf of Terasen. The Respondents filed a “Compensation Analysis” prepared by Gettel Appraisals Ltd. at the hearing before the SRB. [ 5 ] In this appeal, Terasen seeks to enter in evidence the POD Report which was prepared in 2011 to provide information on a “pattern of dealings” (POD) for pipeline rights of way (ROWs) and workspace in the proximity of Corridor Pipeline Project.

The POD Report indicates that a pattern of dealing existed at the time and location of the ROEs. [ 6 ] The Applicants’ objection to the admissibility of the POD Report was heard at the commencement of the appeal hearing. I ruled at that time that the POD Report was admissible, with reasons to follow. I reserved my decision regarding the admissibility of portions of the POD Report that refer to transactions post-dating the ROEs. This Memorandum of Decision includes both the promised reasons and the reserved decision.

Relevant legislation [ 7 ] The Surface Rights Act , RSA 2000, c S-24 ( SRA ) provides, inter alia : 25(1) The Board, in determining the amount of compensation payable, may consider (

a) the amount the land granted to the operator might be expected to realize if sold in the open market by a willing seller to a willing buyer on the date the right of entry order was made, (

b) the per acre value, on the date the right of entry order was made, of the titled unit in which the land granted to the operator is located, based on the highest approved use of the land, (

c) the loss of use by the owner or occupant of the area granted to the operator, (

d) the adverse effect of the area granted to the operator on the remaining land of the owner or occupant and the nuisance, inconvenience and noise that might be caused by or arise from or in connection with the operations of the operator,

(

e) the damage to the land in the area granted to the operator that might be caused by the operations of the operator, and (

f) any other factors that the Board considers proper under the circumstances. ... 26

(6) An appeal to the Court shall be in the form of a new hearing.

(7) The Court (

a) has the power and jurisdiction of the Board in determining the amount of compensation payable and the person to whom the compensation is payable, (

b) shall determine the amount of compensation payable and the person to whom the compensation is payable, (

c) shall (

i) confirm the order of the Board, or (ii) direct that the compensation order be varied in accordance with its judgment, and (

d) shall make directions as to costs of the appeal in accordance with subsection (9). ...

(9) The costs of an appeal under this section, (

a) when the appeal is by the operator, are payable by the operator on the basis of the lawyer’s charges to the client regardless of the result of the appeal, unless the Court finds special circumstances to justify it to award costs on any other basis ... ...

(10) A judgment of the Court of Queen’s Bench or the Court of Appeal shall be served on the Board, and the Board without any further proceedings shall vary its order in accordance with the judgment. Issue of admissibility of evidence [ 8 ] The Applicants advance four grounds on which the POD Report is inadmissible. They argue that: (

a) it is new evidence that could have been tendered at the hearing before the SRB;

(

b) the evidence is irrelevant; (

c) the majority of the documents appended to the Addendum Report relate to compensation that was awarded or negotiatedsubsequent to the ROEs at issue in this appeal; and are therefore irrelevant because compensation is determined for expropriated surfacerights on the effective date of the ROE; and (

d) the evidence contains over 1,000 documents and hearsay evidence provided by Terasen; and their review will consume aninordinate amount of court time which is not commensurate with its probative value.

New evidence [9] The Applicants submit that although SRA, s 26(6) provides that an appeal to this Court shall be in the form of a “newhearing”, it does not imply a full trial de novo as the appeal/new hearing is constrained by deference to the Board’s expertise; and theBoard’s findings of fact and analysis should be accorded substantial weight: Lamb v Canadian Reserve Oil & Gas, (SCC), [1977] 1 SCR 517 at 527, 8 NR 613 [Lamb].

The Alberta Court of Appeal has held that the standard of review on an SRB appealis reasonableness: Imperial Oil Resources Ltd v 826167 Alberta Inc, 2007 ABCA 131 at paras 8, 18, 404 AR 212 [826167 Alberta Inc].The Applicants argue that, given the limited nature of this Court’s jurisdiction, new evidence should be permitted on appeal only inexceptional circumstances.

In particular, new evidence should not be permitted where the evidence could have been but was not calledbefore the SRB. [10] Terasen agrees that the standard of review is reasonableness, but submits that this does not change the form of the appealwhich is by way of a new hearing with new evidence. That submission is, in my view, quite correct. Neither the Supreme Court ofCanada in Lamb nor the Alberta Court of Appeal in 826167 Alberta Inc suggested otherwise, in fact both courts specificallyacknowledged that the appeal judge could hear new evidence.

As stated by the Supreme Court in Lamb at 528: [The appeal judge] hears evidence, and, it may be, fresh evidence. He can assess the credibility of the witnesses, but in determining landvalues, the adverse effect on other land resulting from right of entry and compensation for nuisance, he should have some regard for theopinion of the Board. The Alberta Court of Appeal in 826167 Alberta Inc at para 14, described the form of appeal as follows: An appeal that contemplates a decision on a de novo basis is a broad right of appeal on facts and matters of mixed fact and law as well ason legal questions.

This suggests a high level of scrutiny but not one that takes place in a vacuum, that is absent consideration of thedecision below and the basis for making it. When fresh evidence is adduced, depending on its nature and its weight, the evidentiaryrecord is broadened and an appellate judge may be required to proceed more by way of a fresh hearing than a simple appeal (see PhillipMorris Inc. v. Imperial Tobacco Ltd. (No. 1) (1987), 17 C.P.R. (3d) 289 (F.C.A.).

While, as noted above, the right of appeal under theTrademarks Act does not contain the phrase hearing de novo, the case law that has dealt with standard of review in that context isinstructive. The Supreme Court in [Mattel Inc. v. 3894207 Canada Inc., 2006 SCC 22] noted that

section 56 of the Trademarks Actsuggests a legislative intent that there be a full reconsideration not only of legal points but also of issues of fact and mixed fact and law.The scope of the right of appeal here supports a similar conclusion.

Arguably, the fact that the appeal from the Surface Rights Board isexpressly said to be by way of a new hearing indicates an even stronger intent that there be a full reconsideration. [11] The Supreme Court of Canada and the Alberta Court of Appeal thus held that, notwithstanding the statutory direction that anappeal be by way of a new hearing, which may include fresh evidence, deference to the SRB decision is required.

The Applicants seek toturn around these decisions, arguing that, if deference is required, new evidence should be permitted only in exceptional circumstances.That is a misapplication of the Lamb and 826167 Alberta Inc decisions and it flies in the face of the statutory direction that the appealproceed by way of a new hearing. [12] The Applicants point to comments which suggest that it may be contrary to the purposes of the SRA to enter new evidence on

appeal that could have been placed before the SRB: Esso Resources Canada Limited v North Edmonton Gas Co-Op Ltd., 1981 ABCA214 at paras 9-10, 18 Alta LR (2d) 200, per McClung JA, concurring; Lomond Grazing Assn v Pancanadian Petroleum Ltd (1985) 63AR 120, at para 15. The purpose of the SRA cannot overcome the clear statutory direction for a new hearing.

Perhapsthis is why Justice McClung observed that “while such evidence may be admissible at the appellate stage”, it “should be approachedwith caution.” In other words, late admission of evidence goes to weight, not admissibility. [13] Given the statutory direction under SRA, s 26(6) that this appeal is in the form of a new hearing, it would not be appropriate tolimit the introduction of new evidence to exceptional circumstances or to prohibit evidence which could have been presented to the SRB.So long as the evidence is relevant to an issue that was before the SRB, which in effect is an issue on this appeal, the evidence isadmissible.

The deference due to the SRB, and the fact that the evidence could have been but was not presented to the SRB, are mattersthat go to the weight of the evidence. Relevance of evidence [14] The POD evidence, according to the Applicants, is irrelevant because it pertains to a different method of valuation than wasadvanced by Terasen before the SRB. The earlier testimony and opinion of Mr. Wasmuth in his 2002 valuation report was thatcompensation for workspace should be based on its rental value. [15] While Mr.

Wasmuth’s preferred method of valuation of workspace is rental value, both Alberta courts and the SRB haverecognized POD evidence in determining compensation under the SRA: 826167 Alberta Inc at para 21; Corridor Pipeline Ltd v SmithPark Farm Ltd (Decision Nos. 2002/0125 to 2002/0136 [Smith Park]. Before the SRB, counsel for Terasen argued that Smith Parkrecognized a POD which should be followed in this case, namely that compensation for workspace should be valued at 50% ofcompensation for ROW. The SRB decision not to follow that approach is the central issue in this appeal.

The POD Report is relevant tothis issue. New evidence post-dating ROEs [16] The Applicants note that the SRA, s 25(1) stipulates that in determining the amount of compensation payable, the Board mayconsider (

a) the amount the land granted to the operator might be expected to realize if sold in the open market by a willing seller to awilling buyer on the date the right of entry order was made, (

b) the per acre value, on the date the right of entry order was made, of thetitled unit in which the land granted to the operator is located, based on the highest approved use of the land. They argue that a largeportion of the POD Report consists of ROW agreements and compensation orders that post-date the date of the ROEs and the SRB’sdecision, and is irrelevant on this basis. [17] Terasen submits that the focus of its argument is that there was both before and after the issuance of the ROEs an establishedPOD in which compensation for workspace was valued at 50% of compensation for ROW.

The POD Report is aimed at demonstratingthis industry practice, which is argued to be independent of specific values. The practice is relevant, and is not time sensitive in the sameway as the value would be. [18] The Alberta Court of Appeal in Ranger Oil Limited v Ferguson, 1997 ABCA 52 at para 27, 47 Alta LR (3d) 346 [RangerOil] stated that: [29] ... [I]n Palley et al v. Sulpetro of Canada Ltd. 1983 ABCA 55 (1983), 44 A.R. 57 (C.A.) this Court accepted as valid the fact that aQueen’s Bench judge had taken into account evidence of certain events post-dating the Board hearing.

There, a well had been abandonedand some of the compensation issues related to the success or otherwise of subsequent reclamation efforts and, in particular, the effect onfarming operations of the spring flooding on an access road. The Court of Appeal found no error in the trial judge’s use of this evidence,noting that the Board did not and could not have had such evidence. [30] The relevant provision of the Act, s. 25(1), is worded permissively. That is, it sets out a list of factors that the Board “may” considerin determining the amount of compensation payable.

It is true that the first two matters mentioned, in ss. 25(1)(

a) and (b), concerning anopen market test pertaining to the value of land and the value of the land based upon the highest use, refer specifically to the “date theright of entry order was made”. However, s. 25(1)(

f) permits the Board to consider “any other factors that the Board considers properunder the circumstances.” Thus, the legislation provides a wide scope for the evidence to be taken into account.

[31] There may be cases where it would not be appropriate to take account of post-entry evidence, but ... this is not one of them. (emphasis added) [19] In addition, the Court of Appeal in Ranger Oil at paras 24-25, found no error on the part of the trial judge who concluded thathe could “consider [some leases that post-dated the right of entry orders], but would do so only to the extent that they supported [theexpert’s] overall approach.” [20] I accept that there is a distinction between evidence relating to the amount the land would realize on the open market or theper acre value of the land, which must be specific to the date of the ROEs, and evidence about industry practices in methods of valuingcompensation, which may be another factor that may be considered under s 25(1)(f).

I note as well that the reference to post-entryevidence in the POD Report, in the view of the expert, supports his conclusion regarding a POD that existed at the time of the ROEs. Onboth these grounds, I find that the evidence referred to in the POD Report of ROW agreements and compensation orders that post-datethe ROEs is admissible. New evidence as hearsay evidence [21] The POD Report contains a compilation of information found in more than 1000 ROW agreements and compensation orders.Mr. Wasmuth obtained this information from Terasen and from various land agents.

The Applicants submit that the documents and agentinformation are inadmissible hearsay evidence. [22] The admissibility of expert opinion based on hearsay evidence was canvassed by the Supreme Court of Canada in R vLavallee, (SCC), [1990] 1 SCR 852, [1990] 4 WWR 1, and the following principles were distilled by Wilson J, at para66: 1 An expert opinion is admissible if relevant, even if it is based on second-hand evidence. 2.

This second-hand evidence (hearsay) is admissible to show the information on which the expert opinion is based, not as evidencegoing to the existence of the facts on which the opinion is based. 3. Where the expert evidence is comprised of hearsay evidence, the problem is the weight to be attributed to the opinion. 4.

Before any weight can be given to an expert’s opinion, the facts upon which the opinion is based must be found to exist. [23] Sopinka J refined the test summarized above and stated that any inherent contradiction or defects in them can be resolved “inthe practical distinction between evidence that an expert obtains and acts upon within the scope of his or her expertise [and] evidencethat an expert obtains from a party to litigation touching a matter directly in issue”: Lavallee at para 82.

In relation to Sopinka, J’s furthercomments in that case, our Court of Appeal concluded that “[i]n brief, the tests to be applied are whether the evidence is reasonablynecessary and reliable”: Ranger Oil at paras 15-16. [24] While the weight of the POD Report is yet to be determined, I have already concluded that it is relevant and it is thereforeadmissible, even though it is based on hearsay.

It is clearly necessary to base an expert report of this sort, which attempts to characterize apattern in a very large number of transactions, on hearsay; it would be nearly impossible to prove each transaction through the evidenceof the persons involved in it. The reliability of the hearsay has been addressed in cross-examination, and may be considered when theweight of the evidence is assessed. Probative value of evidence and cost benefit for trial process

[ 25 ] The Applicants argued that the POD Report would consume an inordinate amount of court and parties’ time not commensurate with its probative value. The time needed for cross-examination of Mr. Wasmuth and examination of other witnesses relating to the hearsay evidence on which the report is based was expected to, and did, take several days.

The Applicants submit that at the end of the day, the POD Report will have little weight on the issue of whether the SRB decision was reasonable. [ 26 ] Terasen submits that the probative value of the POD Report cannot be assessed in a vacuum, but only after it has been fully heard by the Court, and considered in light of the submissions of the parties. Terasen also argues that it would be prejudiced in advancing its case if the POD Report were found to be inadmissible.

On the other hand, the Applicants have not demonstrated prejudice from the admission of the evidence. [ 27 ] I agree with Terasen that the probative value of the POD Report is difficult to assess in advance. I also agree that there is no significant prejudice from hearing this evidence when compared with its potential relevance. Adequate court time was scheduled to accommodate the Applicants’ cross-examination and witnesses. The Applicants are not prejudiced from a costs perspective as they do not bear the costs of this appeal.

SRA , s 26(9) provides: “[t]he costs of an appeal ... when the appeal is by the operator, are payable by the operator on the basis of the lawyer's charges to the client regardless of the result of the appeal, unless the Court finds special circumstances to justify it to award costs on any other basis.” Conclusion [ 28 ] I conclude that the POD Report, including the post-entry evidence, is admissible. Heard on the 11 th day of September, 2012. Dated at the City of Edmonton, Alberta this 3 rd day of December, 2012. J.M. Ross J.C.Q.B.A.

Appearances: Karen O’Keeffe Erin Runnalls Gowling Lafleur Henderson LLP for the Appellant/Respondent (Terasen Pipelines (Corridor) Inc) Karin Buss

Klimek Law for the Respondents/Applicants (Helen Simmons, Grace Slater and Avrum Wright) Debbie Bishop Bishop Law for the Respondents (R&M Schroter Enterprises Ltd., Robert Schroter) _______________________________________________________ Corrigendum of the Memorandum of Decision of The Honourable Madam Justice J.M. Ross on Admissibility of Evidence _______________________________________________________ Under Appearances, Erin Runnals has been changed to read Erin Runnalls.