Court of Queen ’ s Bench of Alberta Citation: 677960 Alberta Ltd. v Petrokazakhstan Inc., 2013 ABQB 47 Date: 20130118 Docket: 0401 07521 Registry: Calgary Between: 677960 Alberta Ltd. Plaintiff - and - Petrokazakhstan Inc. Defendant Corrected judgment: A corrigendum was issued on February 11, 2013; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice R. G.

Stevens _______________________________________________________ [ 1 ] In March 1994, Canadian Occidental Petroleum Limited (“CanOxy”) and Hurricane Hydrocarbon Ltd. (“HHL”) acquired an oil and gas investment in the Republic of Kazakstan. [ 2 ] The parties have agreed to the essential facts as set out in Appendix A to this decision. The abbreviations used in the Appendix will be used in this decision.

[ 3 ] In addition to agreed facts, there was viva voce evidence: on behalf of the Plaintiff. Mr. Werner Wenzel, President of Wega- D and 677; on behalf of the Defendant Mr. Bryan Emslie. There was also read-in evidence of certain examinations for discovery, on behalf of the Plaintiff: Mr. John Komarnicki, former president and chief executive officer of HHL; Mr. Richard Norris, former chief financial officer of HHL and Ms. Xin Zhonglin, the corporate representative of PKI. Not much if anything turns on this evidence.

As such, I will discuss it only where applicable. [ 4 ] By way of background, in 1992 TPJE was formed under Kazak law to develop and produce oil and gas in Kazakstan. Four oil fields were involved: initially the opportunity included the Kzyl-Kiya, Aryskum and Maybulak (“KAM”) fields and later the South Kumkol field. [ 5 ] The initial participants in TPJE were: 1. Wega-D, an Alberta corporation, controlled by Werner Wenzel which had a 25% interest; 2. Technoex, a Turks and Caicos Islands corporation, controlled by Werner Wenzel which had a 25% interest; and 3.

Yuzneftegaz and Geologia, both Kazak legal entitles, which jointly owned a 50% interest. [ 6 ] In March 1994, CdnOxy and HHL acquired the interest of Wega-D and Technoex in TPJE. The transaction was implemented by Wega-D and Technoex assigning their interests in TPJE to TPCL. Each of CdnOxy and HHL caused subsidiaries to be incorporated in Cyprus. HHL’s subsidiary, HECL acquired 20% of the shares of TCPL from Wega-D.

The combined HHL/CdnOxy working interest in TPJE was 50% with the balance owned by Yuzneftegaz and Geologia. [ 7 ] In furtherance of the transaction, TPCL entered into two agreements in writing dated June 1, 1994 with Wega-D called the Net Profits Interest Agreement (“NPI Agreement”) and the Success Fee Agreement.

These two agreements are the subject of this action. [ 8 ] By the NPI Agreement TPCL promised to pay Wega-D, 2.5% of the net profits attributable to TPCL’s interest in TPJE. [ 9 ] Pursuant to the Success Fee Agreement, TPCL promised to pay a fee to Wega-D which was based upon the amount of crude oil production by TPJE and the price for which the crude oil was sold.

The maximum fee payable pursuant to the Success Fee Agreement was six million dollars (US). [ 10 ] Each of the parent companies of the parties holding equity interests in TPCL, provided a guarantee of the obligations of its subsidiary in favour of Wega-D in the following terms: Canadian Occidental Petroleum Ltd. and Hurricane Hydrocarbons Ltd., severally, to the extent of their respective direct or indirect equity interests in Turan Petroleum Cyprus Limited, guarantee the due and punctual performance by Turan Petroleum Cyprus Limited of Turan Petroleum Cyprus Limited's covenants and obligations set forth in this Agreement. [ 11 ] Prior to the closing of the transaction Mr.

Wenzel was the controlling shareholder and President of both Wega-D and 677. From June 1989 to April 1, 1999 he was a member of the board of directors of HHL. [ 12 ] By an Assignment and Novation Agreement dated March 21, 1996 Wega-D assigned its interests in the NPI Agreement to

677. Wega-D also assigned 60% of its interest in the Success Fee Agreement to 677, having previously assigned the remaining 40% interest to AOC. [ 13 ] By the end of 1996 the Republic of Kazakhstan withdrew or revoked the licences issued to TPJE to explore for or produce oil. The stated reasons were because of the failure of the licencee to comply with the conditions of the licences.

No oil had been produced from any of the four fields licenced to TPJE and no payments had been made by TPCL to Wega-D or 677 pursuant to the NPI Agreement or the Success Fee Agreement. [ 14 ] In 1996, the Republic of Kazakhstan privatized Yuzneftegaz, one of the Kazakh participants in TPJE.

A HHL subsidiary was the successful bidder and as such HHL acquired all of the voting shares in Yuzneftegaz. [ 15 ] Licences to the fields, which were subject of the TPJE licence revocations, were issued to Yuzneftegaz by the Republic of Kazakhstan. [ 16 ] In 1997, CdnOxy, HHL and its Cyprus subsidiaries entered into a settlement agreement whereby CdnOxy and its affiliates assigned all of shares in TPCL to HECL.

As a result, HHL then owned the entire beneficial interest in the four fields. [ 17 ] In response to an inquiry from AOC regarding its entitlement to 40% of the proceeds of the Success Fee Agreement, 677 responded by letter dated September 23, 1997 advising: Canadian Occidental et al did not bring these fields into production within a time period specified in the exploration licences granted by the government of Kazakhstan. The government of Kazakhstan thus revoked the development licences held by Turan Petroleum as per the attached decrees.

We thus foresee no revenue accruing from the Success Fee Agreement. [ 18 ] The South Kumkol field has been in production since December 1997; the other fields went into production later: August 2000 (Kzyl-Kiya) and November 2002 (Aryskum and Maybulak). [ 19 ] On May 14, 1999 HHL sought protection from its creditors under the Companies ’ Creditors Arrangement Act , RSC 1985, c C-36 (“ CCAA ”). By an order of this Court dated May 14, 1999 proceedings against HHL were stayed. [ 20 ] No notice of the CCAA proceedings was sent to either Wega-D or 667.

Neither of the Defendants was listed as a creditor of HHL on any CCAA filing. [ 21 ] By an Order dated June 11, 1999 this Court made an Order in HHL’s CCAA proceeding establishing a process and setting a deadline of June 30, 1999 for the proof of claims by creditors. The Order required publication of notice in various newspapers of the requirement to prove claims. The notices were published in accordance with the Order. [ 22 ] HHL submitted a Plan of Arrangement which was approved by the necessary majority of HHL creditors. By Order of February 28, 2000 this Court approved the Plan.

All of the conditions required by the Plan to be effective were met and the Plan’s effective date was established as March 31, 2000. [ 23 ] As at June 30, 1999 none of the obligations under either the NPI Agreement or the Success Fee Agreement had been triggered.

There had been no production from the KAM fields and there had not been sufficient production of oil or gas at sufficiently high prices from the South Kumkol field to require payment to 677. [ 24 ] During the course of the CCAA proceedings, AOC submitted a proof of claim claiming entitlement to payment pursuant to its assignment from Wega-D of 40% of the Success Fee Agreement. HHL disputed AOC’s claim.

[25] AOC commenced proceedings in the Court to enforce its claim. AOC’s claim was discontinued without costs by consent onOctober 7, 2005. [26] 677 did not submit a proof of claim to HHL in the CCAA proceedings, did not appear in those proceedings and did not attendor vote at the meeting of creditors held to approve the Plan. Indeed Mr. Wenzel said he was unaware of the proceedings. [27] HHL’s venture proved to be successful. After the CCAA proceedings were concluded, HHL was sold for in excess of fourbillion.

The company’s entire asset base was in Kazakhstan and as such, the name was changed to Petrokazakstan Inc. (“PKI”). HHL andPKI are the same legal entity. [28] The Plaintiff seeks judgment against PKI. The claim is founded in both contract and quantum meruit or unjust enrichment. Contract Obligations Parties’ Positions [29] The position of the Plaintiff is that the NPI Agreement and the Success Fee Agreement were never terminated, altered oramended at any time. Additionally the Agreements were not conditional upon the existence of the licences.

Indeed, no licences were inexistence when the Agreements were executed. The licences were negotiated later. Although the licences issued to TPJE were revoked,the licences to the four fields were re-issued to Yuzneftegaz. [30] The July 1997, Settlement Agreement between HHL and CdnOxy confirmed the two Agreements were existing whereas otherAgreements were terminated. Nothing in the Settlement Agreement required 677 or Mr.

Wenzel to release HHL from its obligationsunder the two Agreements and they did not. [31] The Plaintiff submits that the CdnOxy obligation under the two Agreements became the continuing obligations of HHL as theresult of HHL acquiring 100% of the equity interest in TPCL. The evidence of John Komarnicki, the CEO of HHL was that at the time ofthe Settlement Agreement, HHL intended to honour the two Agreements and to guarantee 100% of TPCL’s obligations as a result of thedeal with CdnOxy. According to Mr. Wenzel he was never told that HHL would do anything other than honour the two Agreements as to100%. [32] In

summary, based on the evidence of Mr. Komarnicki and Mr. Wenzel the Plaintiff says its reasonable expectations were thatHHL would fulfil its guarantees to the extent of 100% of TPCL’s obligations. [33] The position of the Defendant is that as a result of the termination of the licences, TPJE no longer had any right to produce oilfrom the four fields. On the plain language of the NPI Agreement and the Success Fee Agreement, no obligation to pay has ever arisen.And so, there has never been a breach of the guarantees. [34] The Defendant objects to the evidence of Mr. Komarnicki and Mr.

Wenzel regarding reasonable expectations. The Defendantsubmits that the obligations under the NPI Agreement and the Success Fee Agreement are clear and unambiguous. As such there is noneed to rely on extrinsic evidence to determine the reasonable expectations of the parties arising out of the Agreements. See, Wilde vArchean Energy Ltd 2007 ABCA 385, 422 AR 41 at para 43; Dow Chemical Canada Inc. v Shell Canada Ltd at para 20; Bank of BritishColumbia v Turbo Resources Ltd (1983), AR 264 at para 31; Amerada Minerals Corp of Canada Ltd. v Mesa Petroleum (N.A.) Co(1986), 1986 ABCA 177 , 73 AR 172 (CA) at para 11.

Analysis

[ 35 ] Both the NPI Agreement and Success Fee Agreement relate to a “Project” defined as “the petroleum exploration and development project for the Kzyl-Klya, Malbulak, Aryskum and South Kumkol fields conducted in the Republic of Kazakstan by Turan Petroleum J.E.” [ 36 ] Wega-D’s net profit interest was dependent upon TPJE earning “net profits attributable to its interest in the Project”. [ 37 ] Wega-D’s success fee interest was dependent upon a formula involving all oil sold by TPJE from the Project. [ 38 ] Both Agreements are clear and unambiguous.

While it is true that neither agreement was terminated (subject to the possible impact of the CCAA proceedings), the Project ceased to exist when the licences were terminated. As such no obligation to pay the Plaintiff has arisen. [ 39 ] It is not necessary to consider the “reasonable expectation” evidence of Messrs. Komarnicki and Wenzel as the parties’ intentions under the Agreements is clear. [ 40 ] Accordingly, the Plaintiff’s claim based on contract fails. Unjust Enrichment Whether 677 can rely upon the equitable principal of unjust enrichment?

Parties ’ Positions: [ 41 ] The Plaintiff submits that if the Court rejects its claim in contract, the Court should make a finding of unjust enrichment. If the Court finds unjust enrichment, the Plaintiff claims that consideration should reasonably extend to that portion which HHL acquired from CdnOxy: 80%. [ 42 ] The Defendant denies the Plaintiff’s claim for unjust enrichment on the basis that they did not raise the issue in its pleadings, the parties were not the same as those to the original contract, and the three essential elements of unjust enrichment are not present. (

a) Should the Plaintiff ’s claim for unjust enrichment be barred for failure to raise the issue in its pleadings?

Parties ’ Positions: [ 43 ] In closing arguments, counsel for the Defendant contested the Plaintiff’s claim for unjust enrichment on the grounds that the Plaintiff did not specifically plead unjust enrichment in its Statement of Claim or its Amended Statement of Claim. [ 44 ] In response, counsel for the Plaintiff argued that the Defendant willingly responded to the issue in its written submissions, failed to object to the issue at trial and engaged in discussion regarding the issue during pretrial dialogue. As such, the Plaintiff should not now be prevented from pursuing the issue.

In essence, the Plaintiff argues that the Defendant should be estopped from relying on the fact that the Plaintiff did not specifically plead unjust enrichment as they acquiesced to the argument during the proceedings.

[45] In support of its position, the Plaintiff directed the Court to para 54 of the Defendant’s written submissions where theDefendant responds to the substantive merits of the Plaintiff’s claim for unjust enrichment. Counsel pointed out that the Defendant notonly engaged in the unjust enrichment discussion but the Defendant did not assert that the issue was not properly before the Court. It wasnot until closing arguments that the Defendant claimed that unjust enrichment should not be in play.

Law with respect to failure to plead: [46] A party must plead all the material facts on which he intends to rely at trial: Wyman v Vancouver Real Estate Board (1957), (BC CA), 22 WWR 133 at 135 (BCCA); see also Klemke Mining Corp v Shell Canada (#1), 2008 ABCA 257, 433 AR172. [47] In Parlee v McFarlane (1999), (NB CA), 210 NBR (2d) 284 (CA) at para 33 the Court recognized theimportance of pleadings by stating, "I cannot fathom a situation where a trial judge could properly decide the case before him or her on abasis not raised in the pleadings or at trial.” [48] In MDI Industrial Sale Ltd v McLean, 2000 ABQB 267 AR 394 at para 7 Justice Action wrote: A pleading need only plead the facts which in law would create a certain cause of action.

It need not name the cause of action, or nameany cause of action, or give a legal conclusion, and may name a different cause of action, or the wrong cause of action: Fullowka v.Royal Oak Mines Inc. (1996), (NWT CA), 147 D.L.R. (4th) 531 (N.W.T. C.A.) (leave denied [1997] 2 S.C.R. xvi(S.C.C.)); Canada (Attorney General) v. Becker (1998), 1998 ABCA 283 , 64 Alta. L.R. (3d) 292 at 319 (Alta.

C.A.). [49] In Bartlett v Murphy, 2011 NBQB 139, a recent decision of the New Brunswick Court of Queen’s Bench, the Court reviewedan unjust enrichment claim in the context of family law where unjust enrichment itself was not pleaded.

The Court noted that aconstructive and/or resulting trust was pleaded and determined “that “unjust enrichment” was the equitable cause of action pleaded, for atrust declaration is but one of the flexible remedies available if unjust enrichment is proven. ”: See Sandhu v Sandhu, 2011 BCSC 294 atpara 194 cited in Bartlett at para 57. [50] Conversely, in Harelkin v McKay, 2009 SKQB 27 at para 37, the Court rejected a claim for unjust enrichment where thepleadings specifically plead unjust enrichment but did not set out sufficient facts to support a claim for unjust enrichment.

In particular,the pleadings failed to disclose how the applicants were enriched at the plaintiff's deprivation and no facts were pleaded to support theabsence of any juristic reason. [51] Similarly, in Morris v Makos, [2006] OJ No 2919 (SCJ), the Court found that there was no factual foundation for the claim inthe pleadings and therefore struck the pleadings with leave to amend within 30 days. [52] Finally, in Dancovich v Rast, 2002 ABQB 907 at para 39 Justice Park found that a Plaintiff could not succeed in its claim forunjust enrichment where the pleadings were “bereft of any reference to the remedy of unjust enrichment.” The Court noted that neitherthe Statement of Claim nor the Amended Statement of Claim made a claim for unjust enrichment.

The parties did not amended thepleadings and did not cross-examine the witnesses on unjust enrichment or call its own evidence on the matter. Analysis: [53] Although the law is clear that a party must plead all the material facts on which they intend to rely at trial, it is apparent thatpleadings need not name the specific cause of action. [54] The Plaintiff’s Amended Statement of Claim does not specifically plead unjust enrichment or make a claim for quantum

meruit. However, the pleadings tangentially refer to some of the supporting facts for a claim to unjust enrichment. Paragraph 19 of theAmended Statement of Claim refers to the enrichment of the Defendant as a result of the Plaintiff’s efforts.

It reads: By virtue of the fact that Hurricane acquired its right, title, and interest through its subsidiaries in the Oil Fields solely as a result of theefforts and introduction by the Plaintiff, the Plaintiff is entitled to be paid monies equal to or equivalent to the success fees and netprofits interest. [55] As for the second element of unjust enrichment, a corresponding deprivation to the Plaintiff, the Statement of Claim suggests,albeit weakly, a deprivation by virtue of the fact that the Plaintiff gave up a 20% equity interest in TPJE to HHL but has not received theadditional payments owing under the Success Fee and NPI Agreements.

In other words, they have only been partially compensated for itsefforts and contributions. [56] While the first and second elements of unjust enrichment might be gleamed from the pleadings, the Plaintiff does not disclosesufficient facts to support the final element of the unjust enrichment analysis, a lack of juristic reason for the deprivation. In its writtensubmissions, the Plaintiff argued that the lack of juristic reason arises from the expectations of the parties that HHL would perform theContracts. I see no reference to such facts in the Statement of Claim nor the Amended Statement of Claim.

In my view the Plaintiff failedto plead unjust enrichment in its Statement of Claim Should the Defendant be estopped from objecting to the Plaintiff’s failure to plead for failure to object sooner?

Law with respect to failure to object: [57] In Robert McAlpine Ltd v Woodbine Place Inc (1998), 37 CLR (2d) 38 (Ont Ct Just) at para 220 varied on damages (2001), (ON CA), 7 CLR (3d) 155 (ONCA), the Court found that there was no injustice where it was alleged that a partyfailed to properly plead a certain issue as it was clear from the outset of the trial that the issue was live. [58] In Brophy v Hutchinson, 2003 BCCA 21, 9 BCLR (4th) 46, the British Columbia Court of Appeal considered whether thePlaintiff’s failure to object to an issue at trial should prevent her from appealing on that same issue.

At paras 50 and 51, the Courtreviewed several authorities on the point. They noted that the courts have found that failure to object in a timely way to an allegedimpropriety is a significant consideration in deciding whether to grant a new trial. [59] In particular, the Court cited Sornberger v Canadian Pacific Railway Co (1897), 24 OR 263 (ONCA) for the principle thatfailure to object should be treated as a waiver of the right to object.

In that case, the Court reasoned that if an objection was not raised, itmust be accepted that the objection was not so serious at the time and the party should not then be allowed to raise the issue in light of averdict with which they disagree. [60] The Court ultimately concluded that while failure to make a timely objection must remain an important consideration indetermining whether there has been a miscarriage of justice, the Court should balance that consideration against “the nature andcharacter of the irregularity or impropriety complained of”: Brophy Hutchinson at para 55.

Analysis: [61] Having concluded that the Plaintiff’s pleadings were deficient, I now turn to the question of whether its claim for unjustenrichment should be barred as a result. [62] While I find that the Plaintiff’s pleadings were less than obvious on the point of unjust enrichment, I do not find that its failureto precisely and clearly plead unjust enrichment forecloses me from considering the merits of its claim.

[ 63 ] The Defendant’s written submissions reply at length to the substantive merits of the claim for unjust enrichment. Clearly, the Defendant was aware that the issue of unjust enrichment was on the table. Had ample opportunity to consider the issue and to reply to the Plaintiff’s position.

Yet despite this knowledge, it was not until closing submissions that the Defendant raised the issue that the Plaintiff had not pleaded unjust enrichment. [ 64 ] I find that there would be no prejudice to the Defendant in proceeding with the issue: see Robert McAlpine Ltd. at para 220 where the Court made a similar finding. [ 65 ] In Brophy the British Columbia Court of Appeal balanced the Plaintiff’s failure to object with "the nature and character of the irregularity or impropriety complained of" to determine whether there would be prejudice in allowing an appeal.

In my view, as the Defendant has not suffered as a result of the Plaintiff’s failure to properly plead the issue, I find that the balancing of the Plaintiff’s failure to plead and the Defendant’s failure to make a timely objection must weigh in favor of allowing the issue of unjust enrichment to proceed. Would it be fundamentally unfair not to invite the Plaintiff to amend its pleadings?

Law with respect to invitations to amend pleadings: [ 66 ] In Young v Saanich Police Department , 2003 BCSC 926 , the British Columbia Supreme Court decided not to invite a petitioner to amend its pleadings where the Court was convinced that the petitioners’ claims would not succeed. At paras 71 and 72 Justice Macaulay wrote : Because the petitioners are self-represented, I considered inviting an application to amend: either to add the CRHC as a party or to allege that it was acting throughout on behalf of the CRD, which is indisputably a government actor.

I then further considered referring any necessary factual issues to the trial list to avoid the problems associated with determining some aspects of the facts from conflicting affidavits. I decided not to take these steps as I am persuaded that the petitioners' claims cannot possibly succeed.

Even assuming that the CRHC was to be added as a party and that it was a government actor, taking the most favourable view possible of the evidence from the petitioners' perspective, the Charter challenges are still doomed to fail. [ 67 ] The Court’s decision against inviting the petitioner to amend was upheld on Appeal (leave to the Supreme Court of Canada refused: Young v Saanich Police Department , 2004 BCCA 224 , 26 BCLR (4 th ) 19.

The British Columbia Court of Appeal stated: In my view, the appeal fails because the chambers judge did not err when he found the Capital Regional District was not responsible for the conduct of the employees of The Housing Corporation, and that there was no point in permitting the appellants to add The Housing Corporation as parties to the proceeding.: Young v Saanich Police Department , 2004 BCCA 224 , 26 BCLR (4 th ) 19 at 17. [ 68 ] In J.

Michael Jensen Boat Sales Ltd v McAfee , 2004 BCCA 48 at paras 3-5 , the British Columbia Court of Appeal upheld the trial judge’s decision to refuse, in the absence of such an application being put forward, to permit the Defendants to amend its pleadings in support of an argument of estoppel raised at the conclusion of the trial. During the opening statements, the Court had made it clear to the parties that they could not argue the issue of estoppel unless it had been pleaded or the parties undertook an application to amend.

It was not in the pleadings and no such application to amend was filed. [ 69 ] In Burgener v Code Mortgage Investment Corp , 2008 ABQB 583 at paras 38-40 , Justice Lee found that the Plaintiff’s failure to take steps to amend its pleadings after an issue had been pointed out to them was irresponsible. Analysis:

[70] The proper course of action in circumstances such as this where there is a deficiency in the pleadings would normally be toinvite the Plaintiff amend its pleadings. However, it is not fundamentally unfair not to invite the Plaintiff to amend its pleadings. ThoughI turned my mind to this possibility, I am persuaded, as I discuss later, that the claim would not succeed in any event and that it wouldtherefore be pointless to invite an amendment. [71] In addition, I have found that the Plaintiff’s failure to plead was not fatal to the issue of unjust enrichment. Therefore, aninvitation to amend would not be necessary. (

b) Are the terms “unjust enrichment” and “quantum meruit”interchangeable? Parties’ Positions: [72] Counsel for the Plaintiff argued that “there was an express reference to quantum meruit” and that since quantum meruit andunjust enrichment are interchangeable, the reference to quantum meruit should suffice.

Law with respect to the terms “unjust enrichment” and “quantum meruit” [73] In Atir Enterprises Ltd v Briault, 2008 ABQB 520, 465 AR 1 Justice Moen explained the meaning of quantum meruit at paras15-16: Before addressing Atir's claim in unjust enrichment, I should clarify the law on quantum meruit for that is what was pled by Atir.Quantum meruit can be either contractual or restitutionary in nature. Contractual quantum meruit allows the court to determinereasonable remuneration for services provided under a contract that did not fix a precise sum for those services (Dome Construction Ltd.v.

Solarsystems Industries Ltd., (SK KB), [1984] S.J. No. 59, 36 Sask. R. 136 (Sask. Q.B.) at para. 54). Restitutionary quantum meruit is a remedy available in an action in unjust enrichment (Peter v. Beblow, (SCC), [1993]1 S.C.R. 980 (S.C.C.) per McLachlin J. (as she then was) at para. 3 ("Beblow")). For the purpose of Atir's claim, only the contractualquantum meruit principle applies. [74] In Kaiman v Graham (2007), 58 RPR (4th) 305 at para 26, aff’d 2009 ONCA 77, the Court stated: It is arguable that a claim based on quantum meruit is somewhat different from a claim based on unjust enrichment.

In ConsulateVentures Inc. v. Amico Contracting & Engineering

(1992) Inc. (cited above), Madam Justice Cronk, in addressing whether a claim basedon quantum meruit must be based on contractual relationships stated at para. 95: With respect, this misstates the test for establishing entitlement to restitutionary relief based on quantum meruit. Such a claim is notdependent on the existence of a valid contract. Rather, it is a discrete cause of action, separate and apart from claims grounded in contractor tort, which contemplates a remedy for unjust enrichment or unjust benefit: see Beatrice C. Deglman v.

The Guaranty Trust Companyof Canada (Administrator of the Estate of Laura Constantineau Brunet, Deceased), (SCC), [1954] S.C.R. 725 at 234-35. Analysis: [75] I am unable to find the express reference that the Plaintiff refers to. In any event I cannot agree with the submission that the

terms quantum meruit and unjust enrichment are interchangeable. The terms unjust enrichment and quantum meruit are not synonymous. While the terms are certainly related, they are not the same. [ 76 ] Whereas quantum meruit is a remedy, unjust enrichment is a principle or a cause of action: See Peter D. Maddaugh and John D.

McCamus, The Law of Restitution , (Aurora: Canada Law Book, 2010) at 2-14 & 2-15. [ 77 ] Quantum meruit can be either (1) contractual (where the court determines reasonable remuneration for services provided under a contract that did not specify a sum) or (2) restitutionary (where a remedy is available through unjust enrichment): see Atir Enterprises Ltd. The relationship between the two terms is that quantum meruit is one of the remedies to a claim for unjust enrichment. (

c) Whether the elements of unjust enrichment are present? [ 78 ] Now that I have determined that the claim of unjust enrichment can proceed I will consider the elements of the claim. Parties ’ Positions: Plaintiff ’s Position: [ 79 ] The Plaintiff argues that the three elements of unjust enrichment are present: 1) An enrichment or benefit to the Defendant - HHL was enriched by Wega-D as HHL would not have had the opportunity to explore and produce the KAM and South Kumkol fields in Kazakhstan without the support and guidance of the Plaintiff.

The Plaintiff alleges that the Defendant began as a corporation valued at approximately $3 million dollars and grew to a value of $4.18 billion as a result of its work in Kazakhstan. 2) A corresponding deprivation of the Plaintiff - The Plaintiff suffered a corresponding deprivation as it gave up rights to the fields and to participation in TPJE yet received nothing as consideration in return and; 3) There is no juristic reason for the deprivation - Neither revocation of the licences nor the CCAA proceedings constitute a juristic reason for the deprivation.

In addition to the contractual expectation that the parties would perform the Contracts, public policy considerations require that the Defendant not be permitted to avoid paying the Plaintiff for the opportunities that the Plaintiff provided. Defendant ’s Position: [ 80 ] To begin, the Defendant rejects that Wega-D made a significant contribution to its success. While the Defendant prospered in Kazakhstan, its success was a direct result of its purchase of Yuzneftegaz and its investments in the Yuzneftegaz properties, not the efforts of the Plaintiff.

Furthermore, while HHL acquired shares in Yuzneftegaz, it is Yuzneftegaz, not HHL, that has legal rights in the fields. The Plaintiff played no role in the Defendant’s acquisition of Yuzneftegaz. [ 81 ] The Defendant also denies that the Plaintiff has suffered a corresponding deprivation. The Plaintiff did not receive anything pursuant to the Success Fee and NPI Agreements because nothing became owing.

It did however, receive $1 million dollars in cash and other consideration pursuant to the March 25, 1994 agreement with CdnOxy, Technoex and HHL. [ 82 ] Finally, the Defendant submits that the written agreements of the Plaintiff with CdnOxy and TPCL, together with the guarantees provided by HHL, provide a juristic reason and a complete answer to any benefit that HHL may have obtained. Quantum

meruit should only be awarded where there is no contract or the contract is unenforceable at law. It should not be awarded where acontract simply results in an unfavourable outcome for one party. Law with respect to the elements of unjust enrichment: [83] In order to make a finding of unjust enrichment the Court must find: 1. An enrichment or benefit to the Defendant; 2. A corresponding deprivation of the Plaintiff; and 3. The absence of a juristic reason for the enrichment.

See Kerr v Baranow, 2011 SCC 10, [2011] 1 SCR 269. [84] A contract is among the enumerated categories of juristic reasons to deny recovery to a claimant based on an unjustenrichment: Kerr. The Alberta Court of Appeal has stated that “where the parties have occupied the field with contracts, the courtsshould be slow to find a gap to fill with unjust enrichment.”: Harris v Nugent, (1996), 1996 ABCA 388 , 193 AR 113, leave toappeal dismissed [1997] SCCA No 77 at para 40. [85] A quantum meruit award (given as a remedy to unjust enrichment) may be given in varying circumstances.

In all cases,however, it is given to compensate for the value of work, goods, or services supplied where contractual provisions for such compensationdo not exist, have been abandoned or have ceased to apply because of the rescission or termination of a contract: Foundation Co ofCanada v United Grain Growers Ltd (1997), (BC CA), 34 BCLR (3d) 92 (BCCA). Analysis: [86] I find that the Plaintiff does not have a strong argument on any of the three elements of unjust enrichment. 1.

An enrichment or benefit to the Defendant. [87] While the Defendant may have benefited from the efforts of Wega-D in introducing the Defendants to the Kazakhstan market,the success of the Defendant cannot be attributed to the efforts of Wega-D. In 1999, the Defendant was verging on the point ofbankruptcy. Since then, the Defendant has been very successful. Its success has been born under different licensing agreements thanthose envisioned in the Success Fee Agreement or the NPI Agreement.

The Plaintiff has played no role in this period of success.Although the Defendant may have initially benefitted from the experience of the Plaintiff, I do not see how the Plaintiff’s initial effortscould translate into a right to the Defendant’s current profits. 2. A corresponding deprivation of the Plaintiff. [88] The Plaintiff has not suffered a corresponding deprivation. The Plaintiff was compensated for its initial contributions to theDefendant’s business endeavors in Kazakhstan through a lump sum payment of $1,000,000 US dollars.

They chose to delay theremaining part of its original compensation through the Success Fee and the NPI Agreements. In doing so, they took a calculated risk. Ifthe oil fields had been a success, the Plaintiff would have greatly benefited. Unfortunately, its risk also opened the Defendants up to thepossibility that the fields under the Agreements would not turn a profit. That is what happened. The equitable claim of unjust enrichmentis not meant to provide a remedy to disappointing business ventures: Harris at para 40.

3. The absence of a juristic reason for the enrichment. [89] As evidenced by my discussion of the Plaintiff’s calculated business decision, there is a juristic reason for the Plaintiff’s“deprivation” - the contract. [90] While unjust enrichment can be found where there was a contractual relationship between the parties, the courts should beslow to intervene in a contractual relationship, Harris at para 40. To interfere, there must be evidence that the contract was deficient in itsprovision of compensation, was abandoned, or was terminated without reason: see Foundation Co of Canada.

Absent these deficiencies,parties are free to arrange their contractual relationships as they wish and they should live with consequences of doing so. [91] In my view, the parties agreed to a contract based on specific oil fields licences in Kazakhstan. When those licences were nolonger in existence, the contracts ceased to exist. The contract was not deficient in its provisions for compensating the Plaintiff and it wasnot unjustly terminated by the Defendant.

Companies’ Creditors Arrangement Act (“CCAA”) [92] As the Plaintiff has failed to establish its claim in contract or unjust enrichment it is not necessary to consider the impact ofCCAA proceedings. However had the Plaintiff established a claim in contract I would have found the CCAA proceedings operated toterminate the claim. I will briefly outline some of my analysis of the CCAA issues. Issue 1: Whether HHL’s proceedings pursuant to the CCAA operated to terminate its obligations to 677?

Parties’ Positions [93] The Plaintiff submits that its current claims under the Success Fee Agreement and the NPI Agreement are not barred by theCCAA proceedings. They argue that the Defendant did not provide them with adequate notice of the proceedings and they cannot bebound by the terms of an arrangement in which they did not have the opportunity to participate.

They also submit that its claim could nothave been properly dealt with by the CCAA process and therefore cannot be extinguished by it. [94] The Defendant argues that the Plaintiff’s claims are barred by the final order of this Court in the CCAA proceedings. Theysubmit that its obligations to the Plaintiff pursuant to the Success Fee Agreement and NPI Agreement ceased to exist in 1999 when therelevant fields licences were cancelled. As there was no contractual obligation, the Plaintiff was not a creditor and the Defendant had noobligation to provide them with notice of the CCAA proceedings.

In the alternative, if the Defendants did have an obligation to providenotice, public notice was sufficient and the Plaintiff’s claim should and could have been pursued through the CCAA proceedings. Law with respect to CCAA proceedings in general: [95] The purpose of the CCAA is to facilitate compromises and settlements between a debtor company and its creditors so as tomaintain the going viability of the debtor corporation. Campeau v Olympia & York Developments Ltd (1992), 14 CBR (3d) 303, 14 CPC(3d) 339 (Ont Gen Div) at 309.

The CCAA empowers the Court to make an order staying all proceedings against the debtor corporationin order to maintain the status quo and to allow the debtor to negotiate with and present a plan to all creditors having an interest in thedebtor’s affairs. [96] This purpose was described by the Ontario Court of Appeal in Nova Metal Products Inc v Comiskey (Trustee of) (1990), (ON CA), 1 OR (3d) 289 (ONCA) as follows at para 57:

The legislation is remedial in the purest sense in that it provides a means whereby devastating, social and economic effects of bankruptcyor creditor-initiated detriments of ongoing business operations can be avoided while court-supervised attempt to reorganize the financialaffairs of the debtor is made. (

a) Whether public notice in the form of newspaper advertisements of the proceedings was sufficient notice to the Plaintiff? Parties’ Positions: [97] The Plaintiff claims that they should have been provided with personal notice of the proceedings and that public notice in theform of newspaper advertisements was insufficient.

They maintain that they were not aware of the CCAA proceedings and its financialinterests cannot be terminated as a result of a process that they had no knowledge of. [98] The Defendant submits that even if the Plaintiff was a creditor, which they do not admit, public notice in the newspapers wassufficient notice and the Plaintiff should not be allowed to reopen the debt issue simply because they were not personally served. If thePlaintiff wished to commence a claim, it should have done so pursuant to the CCAA process.

Law with respect to notice in CCAA Proceedings: [99] Section 11(5) of the CCAA, as it was at the time of those proceedings, stipulates that a monitor must send a copy of the initialorder to every known creditor that has a claim against the debtor of more than $250. [100] In the circumstances of this case, the statutory notice requirement was augmented by the Claims Procedure Order granted June11, 1999 (“CPO”) which required the monitor to send notice to all “known creditors or potential creditors” and to place an advertisementannouncing the proceedings in the Calgary Herald, Edmonton Journal and Globe & Mail or National Post: See CPO paras 4 & 10. [101] There is mixed case law as to the sufficiency of Notice where a creditor is not provided with personal notice in accordance withthe CPO but announcements are placed in newspapers.

In Ivorylane Corp v Country Style Realty Ltd, [2004] OJ No 2662 (Ont SCJ) at paras 12-13; aff’d (2005), (ON CA), 7 BLR (4th) 15 at paras 5, 11, 14 and 22, the Ontario Superior Court of Justicefound that a newspaper advertisement did not constitute sufficient notice to bar the creditor’s claim. The Court noted that the debtorcould not escape breach of its notice obligations by pointing to the publication of the Notice to Creditors in the newspaper.

Unless thenewspaper notice was seen by the creditor, the prejudice caused by the failure of the debtor to provide adequate notice should fall uponthe debtor, not the ill-informed creditor: Ivorylane Corp.at para 45. [102] By contrast, in Lindsay v Transtec Canada (1994), (BC SC), 99 BCLR (2d) 73, the British ColumbiaSupreme Court noted that a creditor who failed to see a newspaper advertisement regarding the proceedings would likely be consideredbound by the plan.

The Court made a finding of fact that the Claimant was aware of the CCAA proceedings and chose not to participate.The end result was that the creditor’s claim was barred. [103] In Noma Co. (Re), [2004] OJ No 4914 (SCJ) at paras 57 & 83, the Ontario Superior Court of Justice found that a claim wasbarred where the Defendant sent notice to the Plaintiff by mail but the notice was not received and the Plaintiff failed to see thenewspaper advertisements. The Court noted that the debtor had complied with the notice requirements.

Analysis: [104] The determination of whether the Defendant provided adequate notice to the Plaintiff hinges on the question of whether theCCAA and/or the CPO intended that someone in the position of the Plaintiff would be entitled to notice and if so, whether the noticeprovided was adequate.

[ 105 ] For the reasons that follow, I find that the public notice provided was adequate in the circumstances. [ 106 ] Section 11(5) of the CCAA and paras 4 and 10 of the CPO required the Defendant to provide notice to creditors.

In addition to general public notice in newspapers, the CPO explicitly required that notice be given “...to all known creditors or potential creditors of Hurricane”. [ 107 ] Whether the Plaintiff qualified as a creditor or potential creditor must be considered in light of the objectives of the CCAA and the particular circumstances of this case. [ 108 ] The CCAA aims to facilitate compromises and settlements between a debtor company and its creditors so as to maintain the going viability of the debtor corporation.

Campeau at 309 . [ 109 ] CCAA plans of arrangement are final and its finality is essential to maintaining confidence in the CCAA process. Allowing creditors, without justifiable reason, to pursue claims after the final Plan has been established would erode the confidence of those creditors who participated and compromised its financial interests in the proper CCAA process. As such, creditors who wish to pursue ex post facto claims must provide good reasons for doing so. [ 110 ] The Plaintiff relies on the case of Ivorylane Corp .

While the facts of Ivorylane would appear to mirror the circumstances of the case before me, there is one pivotal difference on which I distinguish the case. In Ivorylane , the Court found that the creditor was an obvious, known creditor. The Court went so far as to say that there was “no doubt” that the Defendant knew that the Plaintiff was one of its creditors: see Ivorylane at para 37. Here, 677 was not an obvious creditor.

The Defendant specifically considered it’s notice obligations in relation to its prior relationship with the Plaintiff and concluded that the Success Fee Agreement and NPI Agreement were no longer operational at the time of the proceedings.

As such, they reasonably believed that the Plaintiff was not a creditor and that personal notice was not required or appropriate. [ 111 ] In addition to the belief that the Success Fee Agreement and NPI Agreement were no longer operational, the relationship between the Defendant and the Plaintiff was not direct. 677 was assigned the rights to the Agreements by the original party, Wega-D. [ 112 ] Given the distant relationship between the parties and the reasonable belief on the part of the Defendant that there was no contractual relationship, the Defendant could not be expected to provide the Plaintiff with personal notice of its CCAA status.

To do so would create an unreasonably high standard and an overburdensome requirement for CCAA companies to provide notice to an overly broad ambit of "creditors".

The law does not expect a creditor to provide notice to every person with whom the debtor has had a prior business relationship. [ 113 ] Having found that the Plaintiff did not fall within the ambit of those entitled to personal notice, I now turn to the question of whether public notice in the form of newspaper advertisements was adequate. [ 114 ] In compliance with the CPO, the Defendant (via the Monitor) published advertisements in the Calgary Herald, the Edmonton Journal, and the National Post.

The purpose of public notice is to provide notice to those creditors who fall outside the scope of those who deserve personal notice but who may nonetheless wish to assert an interest in the CCAA proceedings. [ 115 ] Mr. Wenzel testified that the Plaintiff company did not receive formal notice, did not see the public advertisements and was not otherwise aware of the Defendant’s CCAA proceeding. Having resigned from his position as a director of HHL effective April 1, 1999, he was not aware of the proceedings through the director role.

In addition to coping with ongoing health problems (including travel out of country for medical treatment), Mr. Wenzel did not subscribe to the Calgary Herald, the Edmonton Journal or the National Post and was not aware of any of the notices in these papers. I accept that Mr. Wenzel did not become aware of the CCAA proceedings until after the claims bar date. [ 116 ] However, while it is unfortunate that the Plaintiff did not see any of the advertisements published and did not otherwise receive

word of the CCAA proceedings, this does not mean that the Court should now hold the Defendant responsible. The Defendant was required to provide public notice and they fulfilled this duty. [ 117 ] The Defendant relied upon the cases of Lindsay and Noma Co. (Re) to argue that public notice was sufficient. While I find in favour of the Defendant with respect to notice, I do not find the cases they submitted to be relevant. [ 118 ] In Lindsay , the Court found as a fact that the Plaintiff was aware of the CCAA proceedings despite not being provided with personal notice.

That is not the case here. [ 119 ] In Noma Co. (Re) , the Court found that the Defendant made a good faith effort to send personal notice and to comply with the requirements of the CPO however the notice failed to be delivered. Here, the Defendant did not make an effort to send notice but rather concluded that personal notice was not required. [ 120 ] The Defendant turned its mind to the status of the Plaintiff and concluded that the Plaintiff was not a known or potential creditor.

After giving careful consideration to the status of the Plaintiff, they went on to comply with the public notice requirements set out in the CPO. In so doing, they gave the Plaintiff the opportunity to file a Notice of Claim. Conclusion [ 121 ] The Plaintiff’s claim is dismissed against PKI. [ 122 ] Costs are awarded to PKI. Heard on the 24th day of June, 2011. Dated at the City of Calgary, Alberta this 18th day of January, 2013. R. G. Stevens J.C.Q.B.A. Appearances: L. M. Sali, Q.C. and K. J. Drozdowski for the Plaintiff A. J. Jordan, Q.C. and C. M. Sutherland

for the Defendant _______________________________________________________ Corrigendum of the Reasons for Judgment of The Honourable Mr. Justice R. G. Stevens _______________________________________________________ Please be advised that the hearing date for this matter on page 19 of the Judgment has been changed to read: Heard on the 24th day of June, 2011. APPENDIX A AGREED STATEMENT OF FACTS 1. The Plaintiff ("677") and the Defendant ("PKI") enter into this agreement solely for the purpose of the trial of this action.

This agreement may not be used in evidence or relied upon in any other action or proceeding without further agreement between the parties. 2. PKI was formerly known as Hurricane Hydrocarbons Ltd. ("HHL"). The acronyms PKI and HHL are used interchangeably in this agreement and refer throughout to the same legal entity. 3. 677 claims against PKI pursuant to guarantees of two agreements that were assigned to 677 by Powerprobe Geophysics Inc., formerly called Wega-D Geophysical Ltd. ("Wega-D"). Authenticity of Documents and Translations 4.

The parties agree that documents described by the parties in the Affidavits of Records filed in this action are authentic. Where the document is or purports to be a copy of an original document, the parties agree that it is a true copy. If a document is in the form of a letter, memorandum or other message to a designated addressee, the letter or message was sent by its apparent author and received by its addressee(

s) in the normal course of mail or other form of transmission. 5. When a document described by either of the parties in its Affidavit of Records or included in the documents produced by it in this action purports to be a translation of a document, the original of which was not in English, the parties agree that the translation is accurate; provided, however, that either party may object to the accuracy of a translation by giving notice to the other party not less than thirty days prior to the commencement of the trial of this action. Any such notice shall be in writing and be accompanied by a translation of the document which the party giving the notice intends to rely upon.

Description of Documents 6. Whenever in this agreement the contents of an agreement or other document are described, either party may put into evidence the entire agreement or document, in which case the description of the content thereof in this agreement shall be for convenience only and the Court shall have regard to the language of the agreement or other document. Formation and Ownership of Turan Petroleum Joint Enterprise 7.

Turan Petroleum Joint Enterprise ("TPJE") was formed as a legal entity pursuant to the laws of the Republic of Kazakhstan on July 29, 1992, by the issue of a Certificate of Registration by the Ministry of Finance of Kazakhstan. 8. The original participants in TPJE were: (

a) Production Association Yuzkazneftegaz, also known as Production Association Yuzneftegaz ("Yuzneftegaz"); (

b) Production Geological Association Yuzkazgeologia ("Geologia"); (

c) Technoex Limited, a corporation formed under the laws of Turks and Caicos Islands, BWI ("Technoex"); and (

d) Wega-D, a corporation formed under the laws of Alberta. 9. Yuzneftegaz and Geologia were legal entities formed under Kazakh law and both belonged to the Republic of Kazakhstan when TPJE was formed. In May, 1994, Yuzneftegaz became a state joint stock company. 10. When TPJE was formed, Yuzneftegaz and Geologia jointly owned a 50% interest in TPJE. Technoex and Wega-D each owned a 25% interest. 11. The major purpose for the formation of TPJE was the development and production of oil and gas from three fields in South East Kazakhstan called the Aryskum, Maybulak and Kzyl-Kiya fields. 12.

In 1993 an agreement was entered into between TPJE and Yuzneftegaz regarding a fourth oil field called South Kumkol. Yuzneftegaz had the exclusive right to explore and develop the South Kumkol field. TPJE agreed to drill two exploratory wells and, if the wells were successful, the western partners (Wega-D and Technoex) would become entitled to 50% of the revenues from the South Kumkol field in exchange for providing 100% of the exploration and development financing. Yuzneftegaz would then be entitled to receive the other 50% of the revenues from South Kumkol. 13.

Prior to the formation of TPJE and the addition of the South Kumkol field to the TPJE, exploration activities had been carried out in each of the four fields, including drilling by Yuzneftegaz in the Aryskum, Maybulak and Kzyl-Kiya fields. In the Kzyl-Kiya field, thirty-three wells had been drilled. Eleven oil and three gas wells had been cased, equipped, production tested and suspended pending the construction of infrastructure. Twenty wells had been drilled in the Aryskum field. Four were completed as oil wells. Seven exploration

wells had been drilled in the Maybulak field. Three were completed as oil wells. By 1994, two wells in the South Kumkol field had been drilled and cased and were being tied into the Kumkol processing plant for treatment of the produced oil. 14. Mr. Wenzel, the President of Wega-D, was appointed by the directors of TPJE to be the President of TPJE. The directors also resolved to enter into an agreement with Wega-D to acquire rights to patented Wega-D PowerProbe geophysical technology in exchange for a payment of $10 million (U.S.) payable when TPJE became profitable.

Introduction of HHL and Canadian Occidental Petroleum Ltd. to TPJE 15. By letter agreement dated March 25, 1994 in the form of an offer from Canadian Occidental Petroleum Limited ("CdnOxy") to Wega-D, Technoex and HHL. CdnOxy offered to acquire a 40% beneficial interest in TPJE from Wega-D and Technoex, with HHL acquiring a 10% beneficial interest in TPJE. 16. This transaction was implemented by Wega-D and Technoex assigning its respective interests in TPJE to Turan Petroleum Cyprus Limited ("TPCL"), a company incorporated under the laws of Cyprus.

Each of CdnOxy and HHL caused subsidiaries to be incorporated in Cyprus, being respectively CXY Cyprus Limited and Hurricane Energy Cyprus Limited. CXY Cyprus Limited acquired 80% of the shares of TPCL and Hurricane Energy Cyprus Limited acquired 20% of the shares of TPCL from Wega-D and Technoex. 17. The consideration promised by CdnOxy under the March 25, 1994 letter agreement included the following: (

a) The reimbursement to Wega-D and Technoex and an unrelated German company for documented past costs incurred in evaluating and acquiring the rights held by TPJE, not exceeding $2,162,617 up to March 31, 1994; (

b) Recognition of the payment by HHL of expenses related to the evaluation and acquisition of rights held by TPJE, not exceeding $967,868 up to March 31, 1994, such costs to be recognized as contributions of HHL to the expenditures of TPCL and TPJE; (

c) The payment of $2 million (U.S.) to Wega-D and Technoex; (

d) Causing TPCL to grant Wega-D and Technoex an aggregate 5% net profits interest in the profit of TPCL; (

e) Causing TPCL to pay Wega-D and Technoex an aggregate success fee based upon the quantity and value of oil produced to a maximum of $12 million (US); (

f) A commitment by CdnOxy to expend not less than $15 million (inclusive of the payments to be made under paragraphs (

a) and (

c) above) in the twelve month period following CdnOxy's acquisition of an interest in TPCL (subject to operational practicalities and factors beyond its reasonable control); (

g) Using its best efforts to cause TPJE to contract with Technoex for the utilization of the Power Probe technology and the provision of geophysical services for an amount not in excess of $10 million U.S. 18. It was a term of the March 25, 1994 agreement that each of the parent companies of the parties holding equity interests in TPCL would provide a guarantee of the obligations of its subsidiary. Formation of Agreements

19. In furtherance of the March 25, 1994 letter agreement TPCL entered into two agreements in writing dated June 1, 1994 with Wega-D called the Net Profits Interest Agreement and the Success Fee Agreement. Those two agreements are the subject of this action. Substantially identical agreements were entered into between TPCL and Technoex. 20. By the Net Profits Interest Agreement TPCL promised to pay Wega-D 2 1/2 % of the net profits attributable to TPCL's interest in TPJE.

Pursuant to the Success Fee Agreement, TPCL promised to pay a fee to Wega-D which was based upon the amount of crude oil production by TPJE and the price for which the crude oil was sold. The maximum fee payable pursuant to the Success Fee Agreement was $6 million (US). 21.

HHL and CdnOxy guaranteed the obligations of TPCL to Wega-D under both the Net Profits Interest Agreement and the Success Fee Agreement in the following terms: Canadian Occidental Petroleum Ltd. and Hurricane Hydrocarbons Ltd., severally, to the extent of its respective direct or indirect equity interests in Turan Petroleum Cyprus Limited, guarantee the due and punctual performance by Turan Petroleum Cyprus Limited of Turan Petroleum Cyprus Limited's covenants and obligations set forth in this Agreement. 22.

Wega-D entered into an additional separate agreement with CdnOxy, dated June 27, 1994, by which CdnOxy agreed and undertook that upon a transfer of its or its affiliate's interest in any of the four oil fields, CdnOxy would require the transferee to assume all outstanding obligations owing to Wega-D and Technoex under the March 25, 1994 letter agreement and the agreements contemplated therein, including the Success Fee Agreement and the Net Profits Interest Agreement. HHL was not a party to that agreement and did not enter into a similar agreement with Wega-D. 23.

CdnOxy also entered into a separate undertaking to Wega-D and Technoex that if CdnOxy determined to surrender its interest in the undertaking referred to as the Turan Petroleum project, it would offer to assign it free of charge to Wega-D and Technoex. HHL agreed with CdnOxy's undertaking, but did not make the same undertaking. 24. CXY Cyprus Limited and Hurricane Energy Cyprus Limited entered into a unanimous shareholders' agreement pertaining to TPCL dated June 27, 1994.

That agreement provided, inter alia, that TPCL would enter into a service contract with CdnOxy under which CdnOxy agreed to provide a variety of technical and management services to TPCL. That service contract was entered into as of June 1, 1994. In turn, TPCL entered into a service contract with TPJE of the same date under which TPCL agreed to provide the services of CdnOxy to TPJE. 25. Prior to the closing of the transactions required by the March 25, 1994 letter agreement Mr. Mr. Wenzel was at all material times the controlling shareholder and President of both Wega-D and 677.

From June, 1989 to April 1, 1999 he was a member of the board of directors of HHL. Area of Mutual Interest Agreement 26. On June 27, 1994 Hurricane Energy Cyprus Limited and CXY Cyprus Limited entered into an Area of Mutual Interest Agreement pertaining to an area described as the South Turgai Basin. The four oil fields to which the action relates are all in the South Turgai Basin, as are the Kumkol field (divided into Kumkol North and Kumkol South, which is a separate field from South Kumkol) and other fields in which Yuzneftegaz had interests, by itself or as a participant in various joint ventures. 27.

The parties to the Area of Mutual Interest Agreement agreed that if either of them or its respective affiliates, as defined therein, acquired an "AMI Interest", as defined, it would offer to the other party a proportionate share of the interest so acquired, in proportion to the other party's shareholding in TPCL. Assignments to 677 and Alberta Opportunity Company

28. By an Assignment and Novation Agreement dated March 21, 1996 Wega-D assigned its interests in the Net Profits Interest Agreement to 677. Wega-D also assigned 60% of its interest in the Success Fee Agreement to 677, having previously assigned the remaining 40% of its interest in the Success Fee Agreement to Alberta Opportunity Company ("AOC"). TPCL, HHL and CdnOxy agreed to the novation of AOC and 677 into the relevant agreements. Privatization of Yuzneftegaz 29. In 1996, the Republic of Kazakhstan engaged in a process with a view to privatizing Yuzneftegaz, one of the participants in TPJE.

HHL's subsidiary, Hurricane Kumkol Limited, was the successful bidder in the privatization process, as a result of which it acquired all of the voting shares, comprising approximately 90% of the equity, in Yuzneftegaz. The shares of Yuzneftegaz were subsequently assigned by Hurricane Kumkol Limited to HHL. 30.

As part of the negotiations in respect of the privatization of Yuzneftegaz, the following provision was included in a resolution of the Inter-departmental Commission for the Privatization of Enterprises in the Oil and Gas Industry, dated August 8, 1996: The Government guarantees that on the date of the initial payment, as specified in paragraph 1, the Government shall instruct the Ministry of Geology to extend the validity of the YNS (sic) [Yuzneftegaz] licence, as well as the licences of the Joint Ventures of Kumkol-Lukoil, Turan Petroleum [the Joint Enterprise] and Kazgermunai.

In case the Government, by its action which is independent of the agreement determines to revoke the licence of the YNG [Yuzneftegaz], the licence of Turan Petroleum Joint Venture [TPJE], the Government shall cause all rights and interests in that licence to be transferred to Hurricane as the successor in interest to YNG. 31. Hurricane Kumkol Limited entered into a Share Sale - Purchase Agreement with the Republic of Kazakhstan dated August 28, 1996 concerning the sale of the common shares of Yuzneftegaz. Included as a part of the agreement was a covenant contained in

Article 2.7(

b) which embodied and elaborated upon the resolution described in the previous paragraph. 32. At various times in 1996 and 1997 the relevant government agencies of the Republic of Kazakhstan issued decrees withdrawing or revoking the licences issued to TPJE to explore for or produce oil from the four fields. The stated reasons were because of the failure of the licencee to comply with the conditions of the licences. 33. The decree by the Prime Minister of Kazakhstan relating to the licences for the South Kumkol field was issued on or about October 1, 1996.

This was prior to the closing of the purchase of the shares of Yuzneftegaz by Hurricane Kumkol Limited, which took place on December 12, 1996. 34. The decrees relating to the licences granted to TPJE for the Aryskum, Kzyl-Kiya and Maybulak fields were issued on July 10, 1997. 35. At the time of the decrees affecting the licences, oil had not been produced from any of the fields licenced to TPJE, and no payments had been made by TPCL to Wega-D or 677 pursuant to the Net Profits Interest Agreement or the Success Fee Agreement. 36.

Subsequent to the decrees referred to in paragraphs 33 and 34, certain licences were issued to Yuzneftegaz, which changed its name to Hurricane Kumkol Munai, by the Government of Kazakhstan pursuant to the obligation contained within the Share Sale – Purchase Agreement. 37. A licence for the South Kumkol field was issued to Yuzneftegaz on December 10, 1996. On April 21, 1997, the December 10, 1996 decision to grant a licence to Yuzneftegaz was confirmed. 38. A licence was issued on December 4, 1997 for the Maybulak field to Yuzneftegaz, by then called Hurricane Kumkol Munai. A

resolution of the Government of Kazakhstan was made on August 29, 1998 to issue licences to Hurricane Kumkol Munai for the Aryskum and Kzyl-Kiya fields and those licences were issued on September 8, 1998. 39. The licences issued to Yuzneftegaz all required that the licencee negotiate and enter into a contract with the competent authority within a fixed time. The Hydrocarbon Exploration and Production Contract dated June 9, 1997 is an example of such a contract, for the South Kumkol field. CdnOxy's Claim to South Kumkol 40.

When HHL first contemplated making a bid to acquire shares of Yuzneftegaz it was as a participant in a joint bid to be made by subsidiaries of HHL, CdnOxy and Chevron Corp. CdnOxy and Chevron Corp. withdrew from the proposed joint bid and Hurricane Kumkol Limited proceeded to make a bid on its own, ultimately resulting in its purchase of the shares of Yuzneftegaz. 41.

By letter of August 23, 1996, CXY Cyprus Limited wrote to Hurricane Energy Cyprus Limited asserting that an affiliate of Hurricane Energy Cyprus Limited was acquiring interests subject to the Area of Mutual Interest Agreement and saying that CXY Cyprus Limited intended to enforce rights under that Agreement. 42.

By letter of May 19, 1997 Canadian Petroleum Cyprus Limited (formerly CXY Cyprus Limited), which was a party to the Area of Mutual Interest Agreement with Hurricane Energy Cyprus Limited, gave notice of the exercise of its rights under that agreement to acquire an interest in the licence granted to Yuzneftegaz for the South Kumkol field. 43. After negotiations, CdnOxy and Canadian Petroleum Cyprus Limited entered into a settlement agreement dated July 29, 1997 with HHL and Hurricane Energy Cyprus Limited (the "Settlement Agreement").

Pursuant to the terms of the Settlement Agreement CdnOxy and HHL and its respective subsidiaries terminated its relationship regarding TPCL and TPJE, including the Area of Mutual Interest Agreement. 44. Included among the terms of the Settlement Agreement were: (

a) CdnOxy and its affiliates assigned all of its shares in TPCL to Hurricane Energy Cyprus Limited.; (

b) HHL and its affiliates exchanged releases with CdnOxy and its affiliates; (c) 677, Technoex and Mr. Wenzel each released CdnOxy and Canadian Petroleum Cyprus Limited of any obligations those companies had under a number of agreements including the Success Fee Agreement and the Net Profits Interest Agreement. 677, Technoex and Mr. Wenzel also agreed to indemnify the released parties with regard to any claim against them by AOC. 45.

HHL paid to CdnOxy the sum of $4 million (US) pursuant to a Sale of Notes Receivable Agreement, in exchange for notes payable by TPCL to Canadian Petroleum Cyprus Limited in the total principal amount of $24,327,600. 677's Correspondence to AOC 46. In response to an enquiry from AOC regarding its entitlement to 40% of the proceeds of the Success Fee Agreement, 677 responded by letter dated September 23, 1997 advising:

Canadian Occidental et al did not bring these fields into production within a time period specified in the exploration licences granted by the government of Kazakhstan. The government of Kazakhstan thus revoked the development licences held by Turan Petroleum as per the attached decrees. We thus foresee no revenue accruing from the Success Fee Agreement. Mr. Wenzel 47. At all material times Mr. Wenzel has been the President of Wega-D and 677. He was the President of TPJE from the time TPJE came into existence until June 27, 1994.

He was a member of the board of directors of HHL from about June, 1989 until on or about April 1, 1999. Hurricane Kumkol Munai's Development of the Four Fields 48. The South Kumkol field has been in production since December 1997. Kzyl-Kiya was put on production in August of 2000. Test production began on the Aryskum and Maybulak fields sometime in 2000 and both were producing by November, 2002. CCAA Proceedings 49.

On May 14, 1999 HHL and one of its subsidiaries (not relevant to this action) commenced proceedings in the Court of Queen's Bench of Alberta, Judicial District of Calgary, seeking protection from its creditors under the Companies' Creditors Arrangement Act ("CCAA"). By order of this Court dated May 14, 1999 proceedings against HHL were stayed. 50.

As at June 30, 1999, there had been no production from the Kzyl-Kiya, Maybulak or Aryskum fields, and there had not been sufficient production of oil or gas at sufficiently high prices from the South Kumkol field to require payment to 677 under the Net Profits Interest Agreement or the Success Fee Agreement, assuming, without agreeing, that a continuing legal obligation pursuant to those agreements existed as at that date. 51. No notice of the CCAA proceedings was sent to either Wega-D or 667 and neither of them was listed as a creditor of HHL on any CCAA filings, including HHL's list of creditors. 52.

By an order dated June 11, 1999, this court made an order in HHL's CCAA proceeding establishing a process and setting a deadline of June 30, 1999 for the proof of claims by creditors. The order required publication of a notice in various newspapers of the requirement to prove claims. The notices were published in accordance with the order. 53. HHL submitted a Fourth Amended and Restated Plan of Arrangement (the "Plan") to its creditors for approval. The Plan was approved by the necessary majority of HHL's creditors and was submitted to this Court for its approval. 54.

By order of February 28, 2000 this court approved the Plan. All of the conditions required for the Plan to become effective were met, and the Plan effective date was established as March 31, 2000. 55. During the course of the CCAA proceedings, AOC submitted a proof of claim claiming to be entitled to payment pursuant to its assignment from Wega-D of 40% of the Success Fee Agreement. HHL disputed AOC's claim, and AOC's claim was treated as a disputed claim amount in the Plan. 56. AOC commenced proceedings in this court to enforce its claim, by a Statement of Claim.

57. AOC's claim was discontinued, without costs, by consent, on October 7, 2005. 58. AOC granted a release dated September 14, 2005 to PKI of its claim in respect of 40% of the proceeds payable by TPCL under the Success Fee Agreement. 59. 677 did not submit a proof of claim to HHL in the CCAA proceedings, did not appear in those proceedings and did not attend or vote at the meeting of creditors held to approve the Plan. Legal Representation on behalf of HHL, Hurricane Kumkol Munai OJSC and Hurricane Energy (Cyprus) Limited 60.

The law firm of Code Hunter Wittmann acted as counsel and/or legal advisor to HHL and/or HHL's subsidiaries, Hurricane Kumkol Limited and Hurricane Energy (Cyprus) Limited, from time to time in connection with the acquisition of the shares in Yuzneftegaz, with regard to the Settlement Agreement with CanOxy and in respect of HHL's CCAA proceedings.