Canadian Natural Resources Limited v. Arcelormittal Tubular Products Roman S.A. (Mittal Steel Roman S.A.), 2013 ABQB 439

Court of Queen ’ s Bench of Alberta Citation: Canadian Natural Resources Limited v. Arcelormittal Tubular Products Roman S.A. (Mittal Steel Roman S.A.), 2013 ABQB 439 Date: 20130801 Docket: 0701 03377; 0701 03553 Registry: Calgary Between: Canadian Natural Resources Limited Plaintiff - and - Arcelormittal Tubular Products Roman S.A., formerly known as Mittal Steel Roman S.A., Mittal Steel North America Inc., Emco Corporation carrying on business under the firm name and style Westlund, Vass Pipe and Steel Co. Inc. and Arcelormittal XYZ Corp.

Defendants - and - Arcelormittal Tubular Products Roman S.A., formerly known as Mittal Steel Roman S.A., Arcelormittal USA Inc., Mittal Steel North America Inc. formerly known as ISPAT North America Inc., Vass Pipe and Steel Co.

Inc., Emco Corporation carrying on business under the firm name and style Westlund, Fluor Canada Ltd., BNB Trading Inc., Trident Steel Corporation, TIC Canada ULC, PCL Industrial Constructors Inc., Willbros Canada Holdings ULC, Canadian Natural Resources Limited, John Doe, ABC Company and XYZ Company Third Parties And Between: Docket: 0701 03553 Canadian Natural Resources Limited Plaintiff

- and - Arcelormittal Tubular Products Roman S.A., formerly known as Mittal Steel Roman S.A., Mittal Steel North America Inc., Vass Pipe and Steel Co. Inc., BHD Tubular Limited and Arcelormittal XYZ Corp. Defendants - and - Arcelormittal Tubular Products Roman S.A., formerly known as Mittal Steel Roman S.A., Arcelormittal S.A. Inc. formerly Mittal Steel, N.V., Arcelormittal USA Inc., Mittal Steel North America Inc., formerly known as ISPAT North America Inc., Vass Pipe and Steel Co.

Inc., BHD Tubular Limited, Fluor Canada Ltd., BNB Trading Inc., Trident Steel Corporation, Pioneer Steel & Tube Corp., TIC Canada ULC, PCL Industrial Constructors Inc., Willbros Canada Holdings ULC, Canadian Natural Resources Limited, John Doe, ABC Company and XYZ Company Third Parties _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice E.A. Hughes _______________________________________________________ I.

Overview [ 1 ] These actions, which are under case management, relate to two separate actions commenced by Canadian Natural Resources Limited (“CNRL”). [ 2 ] The actions concern carbon steel pipe (the “Subject Pipe”) that was supplied and installed in the upgrader facilities at CNRL’s Horizon Oil Sands Project (the “Horizon Project”). The Subject Pipe was to be manufactured to the American Society for Testing and Materials A106 Grade B Specification or Standard. CNRL alleges the Subject Pipe was defective and had to be removed and replaced. [ 3 ] A

summary of the actions and the parties is found at Canadian Natural Resources Limited v. Arcelormittal Tubular Products Roman S.A. (Mittal Steel Roman S.A.) , 2012 ABQB 679 at paras 5 through 12. The terms and names used in that decision will be used in this and all subsequent case management decisions.

[ 4 ] CNRL brings this application seeking an order that questions, records or information regarding the following are relevant and material: (

a) Concerns, complaints or issues regarding the quality of all A106 Grade B pipe manufactured by Mittal Roman at its Roman Mill between 1999 - 2006, including without limitation as follows: (

i) mill or pipe inspections, (ii) quality control assurances and procedures, (iii) inspection personnel, (iv) mill audits, (

v) mill test reports, (vi) quality of materials used in manufacturing A106 Grade B pipe, (vii) manufacturing, transportation and handling deficiencies, (viii) non-conformance to applicable specifications, (ix) customer, distributor, or end user pipe complaints or concerns, and (

x) pipe performance concerns or failures. (

b) Comments on, evaluations of, or actions (proposed or taken) to improve the quality of A106 Grade B pipe manufactured by the Defendant Mittal Roman at its Roman Mill. (hereinafter referred to as the "Non-Subject Pipe Records"). In addition, CNRL seeks an Order that the Defendants, Mittal, Emco and Vass, produce all records and answer questions relating to the above, and the Defendants, Mittal, Emco and Vass, serve a sworn supplementary Affidavit of Records. [ 5 ] The Respondents/Defendants to this application are Mittal, Emco and Vass. II.

Background Facts [ 6 ] CNRL purchased the Subject Pipe from Emco and BHD for its Horizon Project. Emco and BHD purchased the Pipe from Vass, who had in turn earlier purchased the Pipe from Mittal, the manufacturer of the Pipe. [ 7 ] Defects were found in two pieces of the Subject Pipe in November 2005. One piece of pipe had a through wall crack; the other failed hydro-testing. Shortly thereafter, CNRL placed a “hold” on all the Subject Pipe. Discussions and meetings took place, following which CNRL continued to install the Subject Pipe.

CNRL says the Defendants did not advise it of any risks in continuing to use and install the pipe. CNRL alleges that its further investigation and risk analysis caused it to remove the Subject Pipe in certain areas of the Horizon Project. [ 8 ] Through the document discovery process, CNRL obtained two email chains set out below. Both are in reference to the defects found in the two pieces of Subject Pipe and discussions, meetings and testing that followed. [ 9 ] The first email string is from Rajat (Neil) Jain at Vass to individuals employed with Mittal. The subject line refers to INA.

INA is Mittal Steel North America, one of the Mittal Defendants. The chain reads:

From: Rajat Jain [mailto:rai@vasspipe.com] Sent: Saturday, December 03, 2005 3:01 PM To: Trivedi, Manish; Goel, Sanjiv; Monreal, Jake J; Malychev, Serguei Cc: Butterbrodt, Daniel T; Paul, Regie Subject: Mittal Roman-cracks and wall thickness problems (out of tolerance) buoght [sic] from INA Chicago and directly from the mill Gentlemen, we want to put you on notice as follows: 1. These problems are serious and is creating a nightmare for us. Attached is recap of the problems to date, 5 different incidents as requested.

REDACTED Regards, Neil Neil Jain Vass Pipe & Steel 158 Third Street Mineola, NY 11501 Toll free: (800) 272-8277 x229 Local phone: (516) 741-8398 Fax: (516) 741-8210 From: Malychev, Serguei [mailto:Serguei.Malychev@mittalsteel.com] Sent: Saturday, December 03, 2005 7:26 PM To: raj@vasspipe.com; Trivedi, Manish; Goel, Sanjiv; Monreal, Jake J; neil@vasspipe.com Cc: Ovseica, Alin Subject: RE: Mittal Roman-cracks and wall thickness problems (out of tolerance) buoght [sic] from INA Chicago and directly from the mill Hello, Raj, Please take note that the claim is registered under ref. #120105_2.

Please find attached the claim form filled out as per initial feedback you provided us with.

Please take note that the following discrepancies were established between our records and claim details: 1) there was no heat# 13677 for 16" pipes shipped under 13714NJ; 2) 2pcs of 16"STD can not weight 49.120 NT; estimated weight would be about 2.5nt. Please take note that all material under claim appears to be from old shipments (Feb-March 05); they happened prior to introduction of third-party inspection at MS Roman, effective August 1st, 2005. Please find the scope of independent QA inspection attached herewith for your reference.

We’ve set up an appointment with Westlund Edmonton on Dec. 7 th to investigate the case and we’ll update you on the outcome accordingly. Hope it clarifies. Best regards, Serguei From: Rajat Jain [mailto:raj@vasspipe.com] Sent: Mon 12/5/2005 11:30 AM To: Malychev, Serguei; Trivedi, Manish; Goel, Sanjiv; Monreal, Jake J Cc: Ovseica, Alin Subject: RE: Mittal Roman-cracks and wall thickness problems (out of tolerance) buoght [sic] from INA Chicago and directly from the mill Serguei, Revised sheet is attached.

Please take note that costs only reflect material value, and do not include any additional handling, storage, and other costs that will be involved. The fact that material under claim was shipped prior to the introduction of 3rd party inspection is not a satisfactory explanation given the volume and seriousness of the claims. REDACTED Best regards, Raj From: Malychev, Serguei [mailto:Serguei.Malychev@mittalsteel.com] Sent: Tuesday, December 06, 2005 6:12 AM RE: Mittal Roman-cracks and wall thickness problems (out of tolerance) buoght [sic] from IN...

To: Trivedi, Manish; Goel, Sanjiv; Monreal, Jake J; Butterbrodt, Daniel T

Cc: Ovseica, Alin Subject: RE: Mittal Roman cracks and wall thickness problems (out of tolerance) buoght [sic] from INA Chicago and directly from the mill Hello, Alin, We need to sort out MS Roman pipes into three categories: 1)Produced and shipped to VASS prior to corrective measures implementation 2).Produced and shipped to VASS after corrective measures implementation but prior to BV [Bureau Veritas, a third party inspector] production audit 3).Produced and shipped after BV production audit implementation., after August 1st.

Please let me know by return what exactly l’VASS orders/shipments were done under new guidelines. REDACTED I’ll try to reach Manish tomorrow morning Texas time to discuss further.

Regards, Serguei From: Ovseica, Alin [mailto:alin.ovseica@mittalsteel.com] Sent: Wed 12/7/2005 9:56 AM To: Malychev, Serguei; Trivedi, Manish; Goel, Sanjiv; Monreal, Jake J; Butterbrodt, Daniel T Cc: Mandasescu, Doru; Diaconu, Ioana Subject: RE: Mittal Roman-cracks and wall thickness problems (out of tolerance) buoght from INA Chicago and directly from the mill Dear Serguei, Please find attached the status of shipments on 2005 and the quantities delivered to Vass Pipe on 2004, also the quantities and items inspected by Bureau Veritas and what we loaded on the last vessel (December 2005).

In the sheet “2005"- you can find the quantities delivered by us each month also the name of the vessel. The categories mentioned in your email are: 1.) Until July 2005 we can consider the material shipped as unsure. 2.) What was shipped in July 2005, the biggest part, was produced after the corrective measures was implemented but we can be sure for the quality of the products, if they want to retest the material we can’t object. 3.) Results of Bureau Veritas inspection can be seen on the file attached.

Also we can consider the quantities from the last vessel CHIOS SUN (end of November - beginning of December) as sure material. If you have any questions in understanding the file attached please do not hesitate to call me.

Best Regards, Alin Ovseica Key User - SAP SD MITTAL STEEL ROMAN S.A.

Phone No +40233701116 / Fax No +40233748405 Address: 611040 Roman, Stefan cel Mare No. 246 Neamt, Romania From: Malychev, Serguei [Serguei.Malychev@mittalsteel.com] Sent: Wednesday, December 07, 2005 5:23 PM To: Ovseica, Alin; Trivedi, Manish; Goel, Sanjiv; Monreal, Jake J; Butterbrodt, Daniel T Cc: Mandasescu, Doru; Diaconu, Ioana Subject: RE: Mtital Roman-cracks and wall thickness problems (out of tolerance) buoght [sic] from INA Chicago and directly from the mill Hello, Alin, Txs a lot for a good recap and just in time shipments report,I’ll need it for a meeting Rgds, Serguei From: Malychev, Serguei Sent: Friday, December 09, 2005 9:23 AM To: raj@vasspipe.com; Trivedi, Manish; Goel, Sanjiv; Monreal, Jake J; neil@vasspipe.com Cc: Butterbrodt, Daniel T; Paul, Regie Subject: RE: Mittal Roman-cracks and wall thickness problems (out of tolerance) buoght [sic] from INA Chicago and directly from the mill Attachments: Claim120105_2.xls Dear Neil, Please take note that our meetings with Westlund, CNRL and Fluor Daniel were very positive and informative.

It was established that initial rejections report was exaggerated as well as consequent reaction. Namely, there was only one not five joints that failed hydro-testing. Preliminary lab results indicate that in-transit damage was a root cause for pipe cracking. REDACTED

The only correctly reported non-conformance was about cracked pipe from heat #13677 and our investigation is under way. Given new circumstances, I don’t feel that there is a need to re-test all pipes still in VASS inventories; we’ll need though to put on hold all pipes of heat #13677 until investigation is completed. Hope it clarifies. Best regards, Serguei [ 10 ] The second email string is between an employee of the Defendant Emco, Roxanne Kits, and Mittal.

From: Roxanne Kits <RKits@emcoltd.com> To: Malychev, Serguei <Serguei.Malychev@mittalsteel.com>; neil@vasspipe.com <neil@vasspipe.com> CC: Guy Mersereau <GMersereau@emcoltd.com>; Ross Babcock <RBabcock@emcoltd.com>; Dan McCann <DMcCann@emcoltd.com> Sent: Fri Dec 16 15:35:37 2005 Subject: Communication with Fluor (Ref#120105_3) Serguei – please see the attached document. We would like you to confirm your verbal agreement with us on December 7, 2005, that Mittal Steel would be covering all costs for repair/replacement of pipe in regards to this situation.

In addition, you had mentioned to us in our conversation on December 7, 2005, that any material manufactured between the dates of December 2004 - March 2005 is suspect due to quality concerns experienced at the Roman mill. Could you please confirm this for us? Serguei - we are awaiting your response so that we can in turn, return the communication to our customer. Thanks for your help in this matter. Roxanne Roxanne Kits Quality & Technical Manager

Westlund From: Malychev, Serguei [SMTP:Serguei.Malychev@mittalsteel.com] Sent: Saturday, December 17, 2005 12:02 AM To: RKits@emcoltd.com; Przybylski, Jack A Subject: Re: communication with Fluor (Ref#120105_3) Hello, Roxanne, Please take note that Jack Przyblylski was put in charge of this matter since I was given a different assignment in Europe. This is to reiterate that Mittal Steel will cover expenses related to additional checking of two heats identified as suspect during our meeting with you/FD.

There were some quality issues late 2004/early 2005 but it would be an exaggeration to declare all material suspect. The fact that you used thousands km of it with no issues reported is yet another confirmation. Hope it clarifies. Regards Serguei [ 11 ] In CNRL's attempts to question on the redactions, the Defendants objected to any questioning or tried to explain such things as Mr. Jain's statement in his email that problems with the pipe are "serious" and "creating a nightmare." For example: Q: What did you mean by that phrase and what nightmare was being created for you?

A: The pressure from a customer to seek some type of solution; 'nightmare' being there's some material in question, and it's causing us issues, and it's diverting us from our normal business, which is to sell pipe and make a profit. That's the nightmare. ... Q: And then you indicated that the problems are serious. What was that in reference to? A: In reference to EMCO's complaints. Q: And so the complaints consisted of the cracked pipe from Ms. Kitts showing a through-wall crack on one end of a pipe produced from heat 13677; right? A: Yes. Q: And another pipe also referred to by Ms.

Kitts in her e-mail showing a pipe that had failed a hydrotest. A: Yes. Q: Which she described as the leaking pipe; right? A: Yes.

Q: And that was for heat 14298? A: Yes. [ 12 ] I find this explanation does nothing to change the meaning of Mr. Jain’s original email. [ 13 ] Mr. Jain also testified: Q: The reference in the subject line to “Mittal Roman-cracks,” what’s that relating to? A: The cracks referred to by EMCO. Q: That’s the crack in the pipe that we observed with the crack through the wall at the end of the pipe that Ms. Kitts sent you an e- mail about? A: Yes. Q: There is a Reference to “wall thickness problems” and “out of tolerance.” Do you see that? A: Yes. Q: What were you referring to there? ... Q: MR.

SHARPE: I had asked you a question, sir, before our discussion off the record, a brief adjournment, as to what you were referring to in your e-mail in the subject line with respect to “wall thickness problems (out of tolerance)”? A: The wall thickness problems is referring to some other pipe, it looks like. Q: Other pipe produced by Mittal Roman? A: Yes. Q: Other pipe sold to Vass by MSNA? A: Yes. Q: Was it A106 pipe? A: Yes. Q: Was it A106 pipe sold by Vass to EMCO or BHD? A: Yes. ...

Q: MR. SHARPE: Do you know whether this other pipe with wall thickness problems produced by Petrotub being A106 pipe purchased by Vass and sold to EMCO was manufactured by Petrotub under one of the 94 heat numbers at issue in this lawsuit? A: No. Q: You don’t know? A: It is not. [ 14 ] CNRL submits the below listed evidence is also relevant to this application: 1. The Roman mill, which manufactured the pipe, was built in 1957. 2. Mittal acquired the mill in October, 2003. 3. Mr.

Goel, the corporate representative of Mittal, testified in questioning: Q: Sir, I understood from what you described earlier that when Mittal Roman took over it had identified that the Roman mill was an old plant, right? A: It is an old plant. 1957. Q: And I think you indicated that because the Romanian government had been trying to sell the plant for an extended period of time that there hadn’t been any investments in new equipment that had been done in recent years; is that right? A: That’s possible. 4. The Subject Pipe appears to have been produced in 1999, 2002, 2003, 2004 and 2005. 5.

In the summer of 2005, Mittal arranged for all “USA cargos [to] ... be cleared by BV [Bureau Veritas] as third party inspection.” This inspection included all A106 Grade B pipe. Mr. Goel testified: Q: Is it fair to say the reason you did this [approving third party inspection of the pipe] is because you had complaints from customers in North America about the quality of the pipe manufactured by Mittal Roman?

A: As I said before, the product was meeting the customer’s specification but the look of the pipe and sometimes error in measurement was leading to these kind of updates, and to assure the customer we introduced a third-party inspector. ... Q: MR. STRAND: This record is a contract dated June 29 th , 2005? A: Yes. Q: MIT013212. And the contract is between Bureau Veritas and Mittal Steel; is that fair?

Q: MIT013212. And the contract is between Bureau Veritas and Mittal Steel; is that fair? A: That’s right. Q: This is the third-party inspection contract. A: That’s right. Q: Just turning to the second page of it, you’ll see a heading “5. Special Conditions”? A: Yes. Q: And under that are four different items, 5.1 through 5.4? A: Yes. Q: And 5.3 says, “Any nonconformity during inspection process will be communicated to the Beneficiary”? A: Yes. Q: And Mittal Roman is the beneficiary? A: Yes. Q: And I take it those communications would have been in writing? A: I believe so.

Q: And Mittal Roman would have kept the record of those communications; is that correct? A: I don’t know. 6. On February 7, 2006, Serguei Malychev of Mittal MSNA sent a letter to Neil Jain of Vass outlining the investigation in relation to the two pieces of defective pipe. In his conclusion he stated: Cross-checking of a number of production records and interviews with appropriate personnel at Mittal Steel Roman did not find any evidence of established procedures failure, neither on departmental nor functional level.

We believe that failure of two joints happened as a result of combination of factors, quality of billets and transportation/handling being the main ones. As a corrective measure, Mittal Steel Shipping tackles the issue of proper handling/transportation of MS cargo with respective shipping lines; Mittal Steel Roman works on streamlining billets sourcing. Apart from that and as a measure to reassure customers in quality of products of MS Roman origin, a third party Agency (Bureau Veritas) runs production audit of all US/CAN- bound orders, effective August,1st, 2005.

We again apologize for any inconvenience the case might have caused to you and thank you for having brought the issue to our attention.

We are confident that implement corrective measures will ensure that only prime material is shipped to our Customers from now on. [ 15 ] I acknowledge there is other evidence that may qualify some of the evidence CNRL relies upon to establish its evidentiary basis for this application. It is not my intention to weigh that evidence as I see that as the function of the trial judge.

Regardless, the evidence that comes from Mittal itself can be summarized as follows: • The mill that manufactured the pipe was built in 1957. • Mittal purchased the mill in 2003. • Prior to Mittal’s purchase of the mill, it is possible there had been no investment in new equipment as the mill had been for sale for an extended period of time. • There were quality issues in late 2004/early 2005 but it is “an exaggeration to declare all material suspect”. • Before July 2005, material shipped “can be considered unsure”. • Mittal brought into play corrective measures.

Material shipped in July 2005 was produced after the corrective measures were implemented. • Mittal retained Bureau Veritas, a third party, to inspect all material for North America commencing August 1, 2005. • CNRL discovered two defects in the Subject Pipe in November 2005. • Vass sent an email to Mittal on December 3, 2005 of a “recap of the problems to date, five different incidents as requested” in the context of “Mittal Roman - cracks and wall thickness problems”. • In February 2006, Mittal believed the defects occurred as a result of a combination of factors “including quality of billets and transportation/handling being the main ones”. [11] CNRL submits the email chains and the other pieces of evidence establish the Defendants, Mittal, Emco and Vass, have information about quality problems with similar grade pipe manufactured and supplied during the same time period as the pipe supplied to it, and this is relevant to the below issues, all of which are raised by the pleadings: 1.

Did Mittal Roman negligently manufacture the Subject Pipe? 2. What duties were owed to CNRL by the Defendants to warn about quality problems with the Subject Pipe manufactured by Mittal Roman? 3. Should CNRL have stopped using the Subject Pipe and replaced some of the pipe already used, and if so, when? [12] To date, the Defendants Mittal, Emco and Vass have refused to provide records or answer questions about A106 Grade B pipe other than the Subject Pipe, submitting such information is not relevant and material for a number of reasons including their definition of relevance being limited to the Subject Pipe.

For example, all the Defendants submit CNRL’s pleadings are too narrow to permit this application as the pleadings are limited to the Subject Pipe. Mittal says CNRL has approximately 9,000 metres of A106 Grade B pipe in its possession from 94 specific heat numbers and all relevant information respecting those heats. Thus, Mittal submits CNRL is in possession of all necessary evidence to prove their case and this application is “a fishing expedition”. The Defendants also submit the evidence sought is “similar fact” evidence, and have taken the position that as similar fact evidence, it is not admissible.

In addition, the Defendants submit CNRL’s application is overly broad. [13] The Defendant BHD provided CNRL the information it is seeking during the questioning of Kenneth Hesse; he was asked the following questions and gave the following answers:

Q: Prior to supplying the subject pipe in this case, had BHD had any experience whereby its customers had identified any concerns with respect to the quality of Petrotub pipe other than those complaints that we discussed this morning? A: I do remember one, after thinking about that. I did have one where I did do some testing on it, and I don’t remember what the start was, but I did test it to make sure it met A106 for a customer. And, again, that goes back ten years ago, and it did pass. But I did do one inspection or testing on it.

It would have been through somebody like – I believe it would be Canspec at the time. III. Issues [14] Are records and questions relating to the below issues relevant and material?: (

a) Concerns, complaints or issues regarding the quality of all A106 Grade B pipe manufactured by Mittal Roman at its Roman Mill between 1999 - 2006, including without limitation as follows: (

i) mill or pipe inspections, (ii) quality control assurances and procedures, (iii) inspection personnel, (iv) mill audits, (

v) mill test reports, (vi) quality of materials used in manufacturing AI06 Grade B pipe, (vii) manufacturing, transportation and handling deficiencies, (viii) non-conformance to applicable specifications, (ix) customer, distributor, or end user pipe complaints or concerns, and (

x) pipe performance concerns or failures. (

b) Comments on, evaluations of or actions (proposed or taken) to improve the quality of A106 Grade B pipe manufactured by the Defendant Mittal Roman at its Roman Mill. IV. Law and Analysis [15] The Rules of Court , Alta Reg 124/2010 , which apply to this application are the following: 5.6(1) An affidavit of records must ... (

b) disclose all records that (

i) are relevant and material to the issues in the action, and (ii) are or have been under the party’s control. 5.25(1) During questioning, a person is required to answer only (

a) relevant and material questions, and

... 5.2(1) For the purposes of this Part, a question, record or information is relevant and material only if the answer to the question, or the record or information, could reasonably be expected (

a) to significantly help determine one or more of the issues raised in the pleadings, or (

b) to ascertain evidence that could reasonably be expected to significantly help determine one or more of the issues raised in the pleadings. [ 16 ] During the discovery stage of litigation, relevance and materiality of documents and questioning is dictated by the pleadings. Certain evidence may be producible at the discovery stage and yet not be admissible at trial. The latter determination is the function of the trial judge.

In this application, my task, as the case management judge, is to define what is producible for the purposes of discovery, rather than what is admissible for the purposes of trial. [ 17 ] The scope of discovery is set by the Rules of Court .

In 1999, amendments to the Alberta Rules of Court , Alta Reg 172/1999, introduced Rule 186.1, which narrowed relevance on discovery from anything "touching on the matters in question" to only such information as was "relevant and material." Under the 2010 reworking of the Rules of Court , Rule 186.1 was replaced by Rule 5.2, which is identical to Rule 186.1. [ 18 ] The Defendant Vass, in its Brief of Argument, cites Mahamed v Matthews , 2011 ABQB 187 at para 12 [“ Mahamed ”], as authority for the proposition that Rule 5.2 is "much narrower than its predecessor." I find the "predecessor" referred to in Mahamed was not Rule 186.1, but rather Rule 186.1's predecessor, which allowed for discovery of all evidence "touching on the matters in question." There is no doubt that the 1999 change to the current wording was, as noted by the Court of Appeal in Johnston v Bryant , 2003 ABCA 169 , 327 AR 378 at para 12 , "intended to limit the scope of discovery from what it was under previous rules." [ 19 ] The Court of Appeal summarized the law relating to Rule 186.1 in both Mustard v Brache , 2006 ABCA 265 , 397 AR 361 [“ Mustard ”], and NAC Constructors Ltd. v.

Alberta Capital Region Wastewater Commission , 2006 ABCA 246 , 412 AR 272 [“ NAC ”]. Mustard spoke to the applicability of the Rule to document discovery; NAC set out the same principles respecting questioning at paras 11-13: In Johnston v. Bryant et al. (2003), 327 A.R. 378, 296 W.A.C. 378, 2003 ABCA 169 , the Court observed at para. 12 that "Rule 186.1 is intended to limit the scope of discovery from what it was under previous rules". It is "designed to limit ... tertiary lines of inquiry": Auer v. Lionstone Holdings Inc. et al. (2005), 363 A.R. 84, 243 W.A.C. 84, 2005 ABCA 78 , at para. 30 , citing Hiltz v.

Public Trustee (Alta) (2002), 303 A.R. 25, 273 W.A.C. 25, 2002 ABCA 29 . In Hepworth v. Canadian Equestrian Federation et al. (2000), 277 A.R. 138, 248 W.A.C. 138, 2000 ABCA 327 , at para. 12 , the Court held the disputed questions were proper under both the new and old discovery Rules . Issues raised in the pleadings are the basis for determining both relevance and materiality: D'Elia v. Dansereau (2000), 267 A.R. 157, 2000 ABQB 425 , at para. 17 .

Oral examination for discovery is now confined to eliciting facts of primary relevance, that is, facts that are directly in issue, or of secondary relevance, that is, facts from which the existence of the primary facts may be directly inferred. Both primary and secondary relevance are determined by reference to the issues raised by the pleadings. Questions seeking information that could reasonably be expected to lead to facts or records of secondary relevance (that is, questions asking for information that is only of tertiary relevance) need no longer be answered.

In addition to being relevant within the meaning of Rule 186.1, information sought on discovery must be material, that is, be reasonably expected to " significantly " help determine one or more of the issues raised in the pleadings. The materiality of evidence refers to its pertinency or weight in relation to the issue it is adduced to prove: Black's Law Dictionary , (6th Ed. 1990). Facts or documents may be relevant within Rule 186.1, but, either alone or in combination with other evidence, be of no significant help to the examining party in proving or disproving a fact in issue.

As Slatter J. observed in Weatherill Estate v. Weatherill et al. , (2003) 337 A.R. 180 , 2003 ABQB 69 , at para. 17 , "... relevance is determined by the pleadings while materiality is more a matter of proof ...". See also Tolko Industries Ltd. v. Railink Ltd. et al. (2003), 333 A.R. 270, 14 Alta. L.R. (4th) 388, 2003 ABQB 349 , at para. 6 [original emphasis].

[ 20 ] Judicial

interpretation of Rule 186.1 remains applicable to new Rule 5.2: Hunka v Degner , 2011 ABQB 195 at para 41 , and Toronto-Dominion Bank v Suitel Canada Executive Suites Corp, 2012 ABQB 699 at para 12 . [ 21 ] The Defendants have argued that the materials sought by CNRL are "tertiary" evidence. As noted by Slatter J. in Weatherill Estate v. Weatherill , 2003 ABQB 69 at para 18 , 337 AR 180: It is sometimes said that the new Rules prevent the discovery of "tertiary" issues. This is one way of saying that the 1999 amendments were intended to prevent excessive discovery.

However, as a working tool the search for "tertiary" issues is unhelpful in many cases. There is no clear dividing line between primary, secondary, and tertiary evidence. As I have indicated, some facts can only be proven by tertiary or even more remote evidence. A good example is an attempt to prove a negative.

The application of the new Rule to particular fact situations must be primarily pragmatic. [ 22 ] From my review of the pleadings relevant issues raised by them include the following: • Did Mittal negligently manufacture and/or supply the A106 Grade B Pipe purchased by CNRL for its Horizon Project? • Did Emco and Vass negligently procure and supply the Pipe? • Did the Defendants, Mittal, Emco and Vass, fail to warn CNRL as a customer or end user of the pipe? A. Negligence/Product Liability [4] In the text by Lawrence G.

Theall et al, Product Liability: Canadian Law and Practice , loose leaf (consulted on 30 July 2013), (Aurora, ON: Canada Law Book, 2012) the authors observe at p. P2-11: ... courts generally consider information relating to prior incidents involving the same product relevant to the issues of whether the product or model had inherent defects, and the defendant’s awareness of the same [notes omitted]. [5] In the above emails, redactions were made.

The clear inference from the emails is that the redacted information deals with problems relating to other A106 Grade B pipe, which is the same type of pipe as the Subject Pipe, but which fall outside the definition of relevance the Defendants have taken. [6] The authors discuss the issue of similar fact evidence in a product liability case at p. L8-15-17: As with evidence that a defendant took remedial measures following a plaintiff’s injury, evidence of other accidents or occurrences similar to the plaintiff’s can prove troublesome for the defendant and useful for the plaintiff in a product liability case.

The plaintiff may wish to introduce the evidence to establish a number of facts, including the defendant’s habitual negligence and the existence of a defect or unsafe condition. Almost always, the defendant will have a keen interest in keeping evidence of other accidents or defects involving its products out of trial for fear that it will prejudice the trier of fact against the defendant’s case. Evidence of a past defect or negligence might lead the judge or jury to wrongly assume that a defect or negligence must also exist in the present case.

As will be seen, admissibility of this evidence depends primarily on whether the evidence would be oppressive or unfair to the defendant. ... In determining whether to allow similar fact evidence, courts have developed separate tests for criminal and civil cases. In criminal matters, similar fact evidence is not admissible unless its probative value is so strong that the evidence should be received in the interests of justice. Even so, courts will reject the evidence if its admission would operate unfairly against the accused. The test for admissibility is not nearly as stringent in civil litigation.

As long as the similar fact evidence is logically probative, courts will receive the evidence unless its admission would be unfair or oppressive to the other party. Courts generally require fair notice to the other party to allow

sufficient time to prepare to met the evidence. ... The categories of cases where similar fact evidence will be permitted are not closed. Courts appear to admit the evidence whenever a realand substantial nexus exists between

an act or allegation in the case and the facts surrounding the similar event or transaction. ... Inproduct liability claims, plaintiffs often seek the admission of similar fact evidence to prove one of two conditions: the propensities of amanufactured product; or the state or condition of premises [notes omitted]. [7] The authors also observe at p. P2-10-11: Similar fact evidence can take many forms in a product liability case.

This information may include such things as reports of customercontacts or complaints regarding the product, reports on product quality issued by dealers and retailers, and field investigation reports.Chapter L8, “Common Evidentiary Issues in Product Cases”, considers the admissibility of similar fact evidence at trial. Although thesame principles are relevant to the question of whether similar fact evidence can form a proper basis for discovery requests, given thebroad scope of discovery, courts have developed additional principles for resolving this issue.

In many cases, the plaintiff will bepermitted to obtain discovery of information about prior incidents, even though the evidence may ultimately be held inadmissible at trial. Although the scope of discovery is very broad throughout Canada, the information sought must be relevant to the case, in the sense thatthe information must at least relate to a matter in issue. Relevance for discovery purposes is determined by the pleadings in the case... [8] Simply put, similar fact evidence is circumstantial evidence from which a trier of fact is asked to draw certain inferences andmake findings of fact.

This was clearly articulated in R v Batte (2000), (ON CA), 49 OR (3d) 321 at para 97, 145 CCC(3d) 449 (ONCA), albeit in the criminal law context in relation to bad character evidence: Propensity reasoning involves two inferences. First, one infers from conduct on occasions other than the occasion in issue that a personhas a certain disposition (state of mind). Second, one infers from the existence of that disposition that a person acted in a certain way onthe occasion in issue ...

Assuming the evidence can reasonably support both inferences, there is nothing irrational or illogical in usingpropensity reasoning to infer that an accused committed the act alleged.

Viewed in this way, the evidence of the accused’s discreditableconduct is a form of circumstantial evidence and meets the legal relevance criterion [notes omitted]. [9] This same rationale was articulated with respect to a product liability case by Wachowich A.C.J. (as he then was) in KN vAlberta, 1999 ABQB 270 at para. 23, 243 AR 94: With manufactured products, if something is wrong with a machine causing it to produce defective widgets, transmissions or Cessnas, ifthe plaintiff's same widget, transmission or Cessna is defective in the same way, then other instances of similarly defective productsproduced by the same machine are highly relevant and probative, as there is a substantial likelihood that the defect in the product wasproduced by the defective machine.

Human behaviour is, fortunately, not so predictable or immutable. [10] In Trans-Border Plastics Ltd v Leavens Air Charter Ltd (1982), 36 OR (2d) 731 at 735, [1982] OJ No 2565 (ON HCJ)[“Trans-Border Plastics”], the purchaser of a faulty Cessna airplane applied for an order requiring the defendant to produce "airplanecondition reports possessed by Cessna in relation to all 421C aircraft and relating to conditions complained of in the action." Thisincluded any reports on any 421C aircraft made at any time, which the defendant claimed was unnecessarily onerous and, therefore,subject to exclusion under the similar fact rule.

The Court stated at p. 735-36: … if defects of the nature complained of by the plaintiff are prevalent in other aircraft of the same model and manufactured pursuant tothe same plans such evidence is relevant in the determination of the issue of whether the 421C aircraft has inherent defects. Whethersuch evidence is admissible at the trial will be determined by the trial judge. I am, however, persuaded by the decisions of the Albertaand British Columbia Courts that information concerning defects in other machines or in the component parts is relevant and suchinformation should be disclosed at the discovery stage.

[11] The Alberta decision referred to was Tachit v Versatile Mfg Ltd (1978), (AB KB), 11 AR 544 [“Tachit”].In this case, the plaintiff claimed negligence in the manufacture of a tractor and sought any information regarding transmission problemsin other similar tractors.

McFadyen J. found this was relevant, and cited MacDonald J. in Busslinger v Bow Valley Machinery (Calgary)Ltd, (6 February 1975) Calgary 101405 (AB Sup Ct) [“Busslinger”], as follows: … it is relevant in this case, when the defectiveness of a machine and whether or not there was negligence in its manufacture, assembly,distribution or sale is in issue, that the plaintiff seek the defendants' information as to the quality of the machine in question gained as aresult of the tests that may have been conducted or similar things manufactured, assembled or distributed or sold by the defendants, andof the results of inspection of similar things, whether or not in any particular case such information is gained subsequent to the event inissue or not. [12] The Trans-Border Plastics, Tachit, and Busslinger cases are all "product liability" cases.

Although the cases predate thecurrent wording of Rule 5.2, all dealt with the question of what is relevant at discovery, and all found the information at issue to berelevant and producible.

I find the information in these cases falls within today’s definition of secondary relevance because theinformation ordered produced, was information from which the existence of primary facts could be directly inferred. [13] The Defendants have characterized the information being sought in this application as a search for tertiary or "similar factevidence." As such, they argue, it is inadmissible. [14] I agree with the Defendants that similar fact evidence is presumptively inadmissible. See R v Handy, 2002 SCC 56, [2002]SCR 908. That however does not make the information sought not relevant.

See for example R v Batte, supra. A number of otherevidentiary principles must also be remembered. First, evidence that is presumptively inadmissible for one purpose may be admissiblefor another purpose; see for example Cheyne v Alberta, 2003 ABQB 244. Second, the admissibility of evidence is dependant on thecontext of the other trial evidence. Therefore to my mind, the determination of admissibility of evidence is a function of the trial judge.

Itis not the function of the case management judge: see TW v University of Alberta Hospital, 2000 ABQB 387 at para 28, 267 AR 169. [15] One of the issues at trial will be whether the Subject Pipe was negligently manufactured; that makes this a “product liability”case. Thus, if defects of the nature complained of by CNRL are prevalent in other A106 Grade B pipe manufactured by Mittal at itsRoman Mill, such evidence may well be relevant in determining whether the Subject Pipe was negligently manufactured. [16] From the evidence before me it is clear that Vass notified Mittal of five other quality incidents.

Other emails refer to “qualityconcerns”, materials shipped prior to July, 2005 as “unsure”, and corrective measures being implemented. Mr. Goel testified Mittal hadretained Bureau Veritas on June 29, 2005 for its third party inspection of material for North America.

Those inspections began August2005. [17] If there were manufacturing issues and/or inherent defects respecting the A106 Grade B pipe manufactured by Mittal at theRoman Mill during the same time-frame as that when the Subject Pipe was being made, this is evidence which could give rise to a verystrong inference regarding the manner of the pipe's manufacture which could significantly help determine the negligence and breach ofcontract issues raised in CNRL's Statements of Claim, and as such it would qualify as "secondary" evidence as described by the Court ofAppeal in NAC Constructors.

Therefore, I find the information sought by CNRL is relevant. B. Duty to Warn [18] The following elements are necessary to prove tortious liability for failure to warn: 1. A legal duty of care owed by a defendant to the plaintiff, specifically with respect to the A106 Grade B pipe. 2. The defendant had a duty to warn the plaintiff and was negligent in meeting this duty.

3. The failure to warn caused damage to the plaintiff, see Dura-Lite Heat Transfer Products Ltd v CEDA Environmental Services,2008 ABQB 494, 453 AR 362, aff’d 2010 ABCA 12, 469 AR 350 [“Dura-Lite”].. [19] A duty to warn can be asserted as an independent duty of care arising between parties who are not bound by contract.

A dutyto warn arises when one actor knows or ought to know that a second actor, who is in a special relationship of sufficient proximity to thefirst actor, relies on the first actor for advice including advice about the potential harm that may arise if a product is unsafe for itsintended use: Rivtow Marine Ltd v Washington Iron Works (SCC), [1974] SCR 1189 at 1207; Dura-Lite at paras 119-120,123-124; Hollis v Birch, (SCC), [1995] 4 SCR 634 at paras 20-21 [“Hollis”]. [20] The Courts have recognized that duties are owed, and foreseeability of loss exists, to all parties along a product supply chain,including those who are not end-users but who may be required to refund purchase prices paid by consumers, and to parties acting on aconstruction project, including independent contractors: Knight v Imperial Tobacco Canada Ltd, 2011 SCC 42 at para 113, [2011] 3 SCR45; Canadian Western Natural Gas Co v Pathfinder Surveys Ltd (1980), 1980 ABCA 34 , 21 AR 459 at para 42 (ABCA);Quintette Coal Ltd v Bow Valley Resource Services Ltd (1986), 19 CLR 153 at 169, [1986] BCWLD 1806 (BCSC), leave to appeal to theCA refused, [1986] BCWLD 2458 at para 8. [21] In Hollis, the sole issue before the Supreme Court was whether the Court of Appeal had erred in finding Dow liable to theplaintiff for failing to adequately warn Ms.

Hollis’ implanting surgeon of the risk of post surgical rupture of breast implants. Inanswering the question, the court examined the two warnings provided to doctors by Dow prior to Ms. Hollis’ surgery, and a much moreexplicit warning Dow issued two years post surgery. The court asked the question at para 37 “whether Dow knew or should have knownof the risks set out in post surgery warning at the time of the plaintiff’s implant surgery”.

The court found the evidence established Dowhad such knowledge, relying upon complaints Dow had received over a ten year period prior to the surgery. [22] Applying the Dow circumstances to this case, the Plaintiff submits a key question is whether the Defendants knew or ought tohave known of risks associated with the pipe manufactured by Mittal. [23] The Defendant Mittal suggests in its written Brief that it has provided CNRL with all relevant information respecting its dutyto warn.

With respect, I find Mittal has taken an overly narrow view of the law as set out by the Supreme Court of Canada; taking itsargument to conclusion, Ms Hollis would have had to accept Dow’s position that it had met its duty. Obviously, that was not the case. [24] Accordingly, I agree with the position of CNRL. I find that questions, records or information that relates to complaintsreceived by the Defendants respecting the quality of A106 Grade B pipe may elicit facts of primary relevance that go to knowledge andthe duty to warn, and CNRL’s duty to mitigate, and are therefore relevant. C.

Proportionality and Prejudice [25] Mittal has argued that "the expense and effort of retrieving, reviewing and producing such records is too disproportionate totheir likely probative value”, and any Order requiring production would be contrary to the purpose of the Rules of Court. [26] Mittal relies upon the affidavit of Mr.

Goel, sworn December 20, 2011, to support its position. [27] The concept of proportionality is included in Rule 1.2(4) and is accepted by our Court of Appeal, see Innovative Health GroupInc v Calgary Health Region, 2008 ABCA 219 at paras 23-27, 433 AR 312. [28] CNRL seeks records and information from 1999-2006. The Subject Pipe was manufactured between 1999-2005. CNRLsubmits records and information respecting 2006 are also relevant because 2006 was the year CNRL considered whether to use orreplace some of the Subject Pipe.

[ 29 ] The evidence suggests that two lengths of the Subject Pipe were manufactured in each of 1999 and 2002, 18 lengths were manufactured in 2003, and none was manufactured in 2000 and 2001; the majority of the Subject Pipe was manufactured in 2004 and 2005. [ 30 ] I note at the time the affidavit was sworn, Mittal believed CNRL sought documents spanning 50 years. Mittal’s Brief is premised on the time period 1999-2006. [ 31 ] Mr. Goel’s affidavit evidence relates specifically to Mittal Roman. However, another Mittal Defendant is Mittal Steel North America Inc. (“MSNA”). MSNA was described by Mr.

Goel as helping the Roman mill sell its product in North America. It has a sales office, books orders and was described as being “the middle man between a pipe distributor and Mittal Roman.” [ 32 ] Mr. Goel’s questioning established Mittal Roman and MSNA had a system with a number of steps for claims made by North American customers including customer names. Obviously, Vass and Emco are customers of MSNA.

However, no evidence was elicited respecting proportionality vis-​-vis MSNA. [ 33 ] No evidence was tendered by either Emco or Vass on this issue. [ 34 ] I find CNRL’s application is too broad in seeking records, information or questions respecting “concerns, complaints or issues”. A concern or a complaint of another Mittal, Vass or Emco customer, without more, would do little, if anything, to advance this litigation.

Rather, the records, information or questions must relate to defects that go to the quality of other A106 Grade B pipe, or other A106 Grade B pipe that failed in testing, manufactured by Mittal at its Roman Mill, as well as actions proposed or taken by Mittal to improve the quality of A106 Grade B pipe at the Roman Mill. [ 35 ] At this juncture, I cannot accept the Time Frame put forward by CNRL with respect to all the questions, records, and information it seeks in light of how little of the Subject Pipe was manufactured between 1999-2003, taking into account the concept of proportionality and the evidence of Mr.

Goel. I do accept the time period between 2004-2006 with respect to all of the questions, records and information as I have described above. This is a major claim. Millions of dollars are issue. Mittal has provided evidence that it has a formal quality control policy which sets out extensive procedures for collecting, categorizing, cross-referencing and maintaining exactly the kind of records sought by CNRL in this matter. [ 36 ] In addition, Mittal must produce any actions proposed or taken by Mittal and/or Petrotub to improve the quality of A106 Grade B pipe at the Roman Mill between 1999-2006.

I believe this limit allows CNRL to obtain relevant information without unduly burdening Mittal. [ 37 ] Records, information and questions after the date CNRL made its decision to replace some of the Subject Pipe in 2006, are not relevant. V.

Conclusion [ 38 ] I declare to be relevant and material any information in the possession or control of any of the Defendants relating to defects that go to the quality of other A106 Grade B pipe, or other A106 Grade B pipe that failed in testing, manufactured by Mittal at its Roman Mill, in 2004-2006, as well as actions proposed or taken by Mittal and/or Petrotub to improve the quality of A106 Grade B pipe at the Roman Mill between 1999-2006; the Defendants are ordered to produce any records previously withheld or redacted which fall within the ambit of what I have declared to be producible. [ 39 ] The Defendants are directed to serve a sworn supplementary Affidavit of Records.

If the parties cannot agree on a date, they may apply to me for a specific date. [ 40 ] The Defendants must produce at their own expense the witnesses and corporate representatives already examined to answer

questions about the above. [ 41 ] Costs may be spoken to. Dated at the City of Calgary, Alberta this 1st day of August, 2013. E.A. Hughes J.C.Q.B.A. Appearances: Jeff E. Sharpe/David H. Strand/Julie J. M. Inch Burnet, Duckworth & Palmer LLP for the Plaintiff Canadian Natural Resources Limited Stanley Carscallen, Q.C./Lillian Y. Pan/Hema Ahuja Carscallen LLP for the Defendants/Third Parties Arcelormittal Tubular Products Roman S.A., formerly known as Mittal Steel Roman S.A., Arcelormittal USA Inc., Mittal Steel North America Inc. formerly known as ISPAT North America Inc. Mendy M. Chernos/Michael D. Briggs/Lars L.

Herwig McCarthy Tétrault LLP for the Defendant/Third Party Emco Corporation Warren P. Foley Gowling Lafleur Henderson LLP for the Defendant/Third Party Vass Pipe and Steel Co. Inc.