Husky Oil Operations Limited v Scriber, 2013 ABQB 74

Court of Queen ’ s Bench of Alberta Citation: Husky Oil Operations Limited v Scriber, 2013 ABQB 74 Date: 20130204 Docket: 1114 00206 1114 00207 1114 00208 1114 00209 1114 00210 Registry: St. Paul Between: Docket: 1114 00206 Husky Oil Operations Limited Applicant - and - Thomas William Scriber (Owner), Lorna Faye Scriber (Owner), Farm Credit Corporation, The County of Vermillion River No. 24, Scriber Farms Ltd., Advantage Oil & Gas Ltd., Husky Oil Operations Ltd. and Alberta Treasury Branches Respondents And Between: Docket: 1114 00207 Husky Oil Operations Limited Applicant - and - Scriber Farms Ltd. (Owner) and Advantage Oil & Gas Ltd. Respondents

And Between: Docket: 1114 00208 Husky Oil Operations Limited Applicant - and - Peter Vincent Scriber (Owner), Scriber Farms Ltd., Phyllis Margaret Scriber, Farm Credit Corporation, The County of Vermillion River No. 24 and Canadian Natural Resources Limited Respondents And Between: Docket: 1114 00209 Husky Oil Operations Limited Applicant - and - Scriber Farms Ltd. (Owner), Farm Credit Corporation, The County of Vermillion River No. 24 Respondents And Between: Docket: 1114 00210 Husky Oil Operations Limited Applicant - and - Scriber Farms Ltd. (Owner), Farm Credit Corporation,

The County of Vermillion River No. 24 and Husky Oil Operations Limited Respondents _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice M.C.

Erb _______________________________________________________ [ 1 ] In these proceedings, the Applicant Husky Oil Operations Limited (Husky) exercises its statutory right of appeal of a May 5, 2011 decision of the Alberta Surface Rights Board (SRB) which awarded compensation to the Respondents (Scriber Farms) for Loss of Use of otherwise viable farm land now under lease for well sites, on a gross revenue basis. “Loss of Use” is one of the categories of compensatory relief for farmers permitted by section 25 (1) (

c) of the Surface Rights Act of Alberta, RSA 2000, c. S-24 (the Act ). [ 2 ] Scriber Farms holds 7,500 acres of land located northwest of Lloydminster, Alberta, of which 5,000 supports grain production and 2,500 is pasture. At issue are 19.065 acres occupied by five different well sites under lease to Husky which holds Right of Entry Orders granted by the SRB between October 30, 2009, and February 25, 2010. Issue on Appeal [ 3 ] Although the SRB’s award covers several heads of compensation, Loss of Use is the only one at issue in this appeal.

Specifically, the issue raised by Husky is whether the SRB in making its award to Scriber Farms should have deducted direct costs, also known as inputs or variable costs, thereby arriving at an award based on gross margin rather than gross revenue. [ 4 ] Scriber Farms take the position that an award based on gross margin would be contrary to long-standing SRB practices; that there is no reason to depart from those practices and that doing so would adversely affect thousands of similar leases throughout Alberta.

Factual Context [ 5 ] For the purposes of this appeal, the parties have conceded or accepted certain facts either in the filed Agreed Statement of Facts or during these and previous proceedings: The SRB found that the proper amount of compensation for Loss of Use for Scriber Farms is $480 per acre. Neither party contests this finding. The SRB based its finding on information disclosed by Scriber Farms indicating average pricing for the three-year period between 2008 - 2010 at $535 per acre.

In its award, the SRB discounted that amount by 10% (rounded to $55) per acre taking into account the “extraordinary prices achieved in 2008,” arriving at the per acre gross revenue at $480. The SRB set the loss of compensation at $180 per acre higher than what Husky negotiated with other local farms because Scriber Farms has produced yields significantly higher than neighbouring farms in their area.

Scriber Farms data on yields is confirmed by the records of the Agriculture Financial Services Corporation (AFSC) to which they, likeother farmers throughout the province, produce quarterly grain receipts indicating bushels of grain actually sold. The AFSC keeps suchrecords for crop insurance purposes. Scriber Farms acknowledges that direct costs to produce their yield overall is $185 per acre. If these direct costs were deducted from revenues and applied to the acres under lease to Husky, the gross margin compensation toScriber Farms would be $295 per acre for Loss of Use.

Husky’s negotiated level of compensation for Loss of Use paid to local farmers is $300 per acre (the “ local rate”). The fields on which the well sites repose are classified as cultivated land because they are seeded for grain crops. The Standard of Review [6] Notwithstanding that these proceedings are an appeal de novo rather than an administrative judicial review, the case law isclear that the same analysis is required to determine the appropriate standard of review. Langston J., succinctly stated this in CanadianNatural Resources Ltd. v.

Bennett & Bennett Holdings Ltd., 2008 ABQB 19, 436 AR 256, aff’d 2010 ABCA 91, 477 AR 2226 at para. 7: . . .in a recent decision, the Alberta Court of Appeal discussed the appropriate standard of review for appeals of compensation ordersissued by the [SRB]. While it was argued that because the [Act] states that appeals to the Court of Queen’s Bench are conducted as ahearing de novo the Pushpanathan ...pragmatic and functional analysis did not apply, the Court of Appeal disagreed.

The Court stated thePushpanathan analysis is required even when a statutory right of appeal from an administrative body exists by way of a hearing de novo(Imperial Oil Resources Ltd. v. 826187 Alberta Inc.) [2007 ABCA 131, 404 AR 212] ... [7] Both counsel agree that the standard of review applicable in this appeal de novo is “reasonableness”. I agree. Counsel forHusky cites Imperial noting that the Court conducted a full analysis of the appropriate standard of review and applied factors whichcounsel submitted, and I agree, are very similar here. Those factors are: i.

The applicable statutory provision is the same here and in Imperial; ii. The level of compensation was at issue in both cases and since that is the purview of the SRB, it is entitled to some deference; iii. The SRB composition is directly related to its expertise; iv. The principle of patterns of dealings and loss of use are questions involving mixed fact and law. [8] In considering these factors, it is also worth noting that the Supreme Court of Canada in Dunsmuir v.

New Brunswick 2008SCC 9 , [2008] 1 S.C.R. 190 at par. 57, found that “[a]n exhaustive review is not required in every case to determine the properstandard of review” particularly where existing jurisprudence has already made the determination in a similar case.

Here, the cases aresimilar, both involve compensatory claims under the s. 25 of the Act, although in Imperial, the issue was compensation for AdverseEffect and here Husky raises Loss of Use. [9] The Supreme Court of Canada described the reasonableness standard in another notable decision cited by counsel for Husky,in which the Court was called upon to set the standard of review for courts reviewing disciplinary bodies (Law of Society of NewBrunswick v.

Ryan, 2003 SCC 20 , [2003] 1 S.C.R. 247 at paragraph 55): A decision will be unreasonable only if there is no line of analysis within the given reasons that could reasonably lead the tribunal fromthe evidence before it to the conclusion at which it arrived. If any of the reasons that are sufficient to support the conclusion are tenable

in the sense that they can stand up to a somewhat probing examination, then the decision will not be unreasonable and a reviewing court must not interfere. . .This means that a decision may satisfy the reasonableness standard if it is supported by a tenable explanation , even if this explanation is not one that the reviewing court finds compelling. (Emphasis added). [ 10 ] Accordingly, a brief review of the four factors applied in Imperial will suffice. i.

Purpose of the Act [ 11 ] There is nothing before this Court suggesting that the purpose of the Act has changed over the many years during which it has empowered the SRB to deal with surface rights disputes. The purpose of the Act and its compensatory provisions are well stated by Langston J. in Imperial at paragraph 6: The Board is a specialized tribunal whose members are selected for their knowledge and experience in assessing compensation payable by an operator to an owner based upon the loss of use of the area under lease [ that] might be caused by or arise from or in connection with the operation.

It is intended to be an expeditious yet fair method of determining compensation based in part on land values, comparable patterns of dealing, loss of use and adverse effect. The Board is not called upon to make policy decisions but rather to resolve a lis between parties based on a procedure that is expeditious .(emphasis added). ii. Nature of the Dispute [ 12 ] The nature of the dispute here is whether the SRB should have made its compensatory award on a gross margin rather than gross revenue basis. There was no suggestion advanced that the issue was not properly before the SRB or that it lacked jurisdiction.

Setting compensation pursuant to the Act after granting Right of Entry orders is well within the SRB’s mandate. iii. Expertise of the SRB [ 13 ] The SRB clearly has expertise in setting compensation pursuant to the Act and has done so in many cases over a long period of time. This process requires expertise and for that reason, SRB decisions have been accorded deference in the past.

The Court of Appeal in Imperial at para. 15, noted the comments of the Supreme Court of Canada in Mattel Inc., v. 3894207 Canada Inc ., [2006] 1 S.C.R. 722 at para 37 and held that “the practical ramification is that the decision of a board ‘should not be set aside lightly considering the expertise of those who regularly make such determinations’.” iv. Patterns of Dealing [ 14 ] The SRB noted that neither party advanced an argument that a “pattern of dealings” had been established or was at issue regarding Scriber Farms’ claim for compensation.

The parties have agreed that Scriber Farms produces close to twice the yield of local farms in the area. In these proceedings, Scriber Farms has produced scientific evidence for review on Loss of Use which sets it apart from Husky’s pattern of dealings with other farms in the area. As a result, the pattern of dealing principle is no more applicable in these proceedings than it was during the SRB hearing. Conclusion on Standard of Review [ 15 ] Accordingly, the standard of reasonableness will be applied to a consideration of the issues here.

The Surface Rights Board Decision [ 16 ] The SRB considered the evidence proffered by the parties and the case law cited relevant to the issues particularly the Loss of

Use claim. i. The Evidence [17] After hearing the submissions of counsel and the evidence on the average yields which Scriber Farms produced over theprevious three years, the SRB set its per acre rate of compensation payable at $480 for Loss of Use on each of the five well sites. HuskyOil had advocated for a much long averaging period (17 years) but the SRB found that a three-year analysis was more reflective ofcurrent practices given the many advances in farming over the lengthier period of time.

The three-year average amounted to $535 peracre but the SRB reduced this by 10 % to rounded figures of $480 per acre because of the “extraordinary prices achieved in 2008.” [18] Applying the $480 per acre translates into Loss of Use compensation on a gross revenue basis totalling $ 9,151.16. Thecompensation for each well site follows: 3.980 acres at site L.S. 8 $1,910.40 4.120 acres at site L.S. 9 $1,977.60 3.707 acres at site L.S. 4 $1,779.36 3.398 acres at site L.S. 4 $1,631.00 3.860 acres at site L.S. 13 $1,852.80 [19] The SRB considered the issue of direct costs when it set compensation at this level.

The parties agree that to achieve itssuperior yield, Scriber Farms spent $185 per acre in input costs. If this level of input were factored in to assess compensation on a grossmargin basis, the result would have been $295 per acre for the Loss of Use.

This compares unfavourably for Scriber Farms to the $300which Husky negotiated on a gross revenue basis with other local farmers, despite its undisputed higher yields and correspondingrevenues. [20] The SRB reviewed the evidence of four witnesses on behalf of Husky, only one of whom was called in these proceedings.Scriber Farms called three witnesses, only one of whom also testified here. The evidence was considered by the SRB under specificheadings in its decision and it was cognisant of all aspects of the issue. ii.

Legal Authorities considered [21] The SRB also reviewed the case law, particularly Bennett, and the Alberta Court of Appeal decision in Whitehouse v. Sun OilCo 1982 ABCA 284 , [1982] 40 AR 380 (CA). In Whitehouse, the Court described Loss of Use at para. 19: . . .The Board’s practice . . is to make an allowance for lost revenue based on the established productivity of the land recognizing that thetaking of a small site out of agricultural production is, to all intents and purposes, a loss of income as the cost of maintaining a farmingoperation is not significantly reduced by the loss of that site.

Direct costs should, of course, be eliminated from this calculation... [22] In Whitehouse, the Court or Appeal focussed largely on other issues including the sufficiency of the reasons given by the SRBfor its 1978 award. The Court of Appeal was not content with the quality of the evidence quantifying compensation and rather thanreturning the issue to the SRB or to the Court of Queen’s Bench, it made its own calculation for Loss of Use by fixing compensationclose to what the SRB had found. In doing so, the Court of Appeal simply deducted the cost of seed to produce the yield from the grossrevenue.

There was no reference to anything else. [23] Husky advocated reliance on Whitehouse in its submissions before the SRB and later in these proceedings to support its

argument that input costs ought to be deducted from gross revenues thereby producing net or gross margin compensation. [ 24 ] The SRB also considered Langston J.’s approach in Bennett in which he declined to set aside the SRB’s decision on Loss of Use compensation on a gross revenue basis. The Court did not accept the gross margin approach achieved by deduction of direct costs proposed by the operator’s expert, Mr. Hoover, describing that approach as an “error”. Langston J., noted that the SRB five years previously in Talisman Energy Inc., v. Paziuk , 2003/016 had not accepted Mr.

Hoover’s evidence either using the same approach to Loss of Use and stated at para 125: The Board does not accept his [Mr. Hoover’s] evidence regarding loss of use. It has been the Board’s practice to award the gross amount except in cases of specialty crops wherein input costs may exceed net profit. [ 25 ] Justice Langston also noted that the role of experts and their reports is merely to assist the Court in assessing compensation.

That expert opinion does not necessarily reflect specific farming operations and tends to “broad brush” statistical analyses. [ 26 ] The SRB, having taken into account the evidence of the experts, the parties, the case authorities and its own practices as well as the debate over input deduction, came to this conclusion at page 12: . . . the Panel finds that while the Whitehouse case is authority for the deduction of direct costs, the longstanding practice of the Board not to deduct expenses as ratified by Langston, J., continues to be meritorious.

Although there are some exceptions to that practice such as the Breaker Energy case, to allow such a deduction would lead to an exacting and potentially invasive examination of land owners’ finances which is contrary to the intent of the Act , being to provide a reasonably cost efficient and expedient means of resolving the disputes which fall within the Board’s mandate. To allow the deduction of expenses would almost certainly lead to the protracted inquiry into all aspects of a land owners’ farming practices which fall beyond the scope of the Act.

Evidence on Appeal [ 27 ] In these proceedings, both parties called additional evidence beyond what was tendered at the SRB hearing. i. Evidence of Husky [ 28 ] Husky called its senior landman, Douglas Norman Hastings, who was in charge of the area where Scriber Farms is located, and Donald Lester Hoover, who was permitted to testify as an expert in land appraisal and loss of use compensation. [ 29 ] Mr. Hastings identified seed, fertilizer, burn-off sprays, post-emergent sprays, fungicides and herbicide sprays, as the direct costs affecting Scriber Farms. This was not disputed.

He also confirmed that all of the wells were fenced at the request of Scriber Farms because of prior experience with oil companies over a noxious weed issue. [ 30 ] Mr. Hastings acknowledged that the SRB had found as a matter of fact that the yield achieved by Scriber Farms was “almost double” the area average and he did not dispute that in the proceedings before this Court. He also acknowledged that better yields should attract higher compensation but that to achieve them, higher input costs are involved.

He testified that the local rate of $300 per acre which Husky had negotiated with area farmers was based on gross revenue without any deduction of direct costs. In cross examination, he confirmed that negotiations on Loss of Use in the past have been based on what appears to be fair. He also confirmed that Robert Telford, Husky’s expert at the SRB hearing testifying on the calculation of Loss of Use compensation, did not recommend to that input costs be deducted. [ 31 ] Although Mr. Telford’s reports were placed in evidence by agreement of the parties in these proceedings, he was not called to testify.

Rather, Husky called Mr. Hoover whose qualifications include a degree in agriculture, economics and animal science, from the University of Alberta (1964) and his work as an accredited land appraiser since 1970. He has worked for many years as an appraiser and consultant and operates a farm in the Peace River area. Although Mr. Hoover has been qualified as an expert in this Court on many

occasions, acceptance of his opinion on calculating Loss of Use not been well received. It is his view that oil companies should pay gross margin rather than gross revenue compensation for land occupied by well sites. His past conclusions appear to have been based on general farming principles, assumptions and statistics rather than on the particulars of specific farming operations. Mr. Hoover attempted to remedy this approach in these proceedings by providing information about his inspection of the well sites at Scriber Farms on January 14, 2012 and assessing the evidence produced by Scriber Farms. [ 32 ] Mr.

Hoover noted that some of the land had obstructions not caused by the wells and provided aerial mapping to demonstrate. However, he acknowledged that those areas were not included in the claim for compensation advanced by Scriber Farms. [ 33 ] Mr. Hoover described his approach to calculating loss of use by determining gross margin and acknowledged this has not been the SRB approach except for specialty crops such as sugar beets and vegetables grown on irrigated land. He described gross revenue as simply yield multiplied by the market price.

He stated that his reasoning for supporting the gross margin approach was to make the landowner “substantively equivalent and financially indifferent” because of the presence of the wells. [ 34 ] Mr. Hoover stated that in assessing compensation, it was his view that an equivalent number of acres being farmed elsewhere in the same field where the site is located can be used as a comparable. Yield in that “equivalent” site less inputs for crop production represents the loss. less inputs for crop production and that calculation represents the loss.

He said the direct/variable expenses on the area not farmed means that, because of the allotments in which seed and product are purchased, there would be left over amounts which would then be stored on the farm and used the following year resulting in an actual saving. It was his evidence that higher input costs tend to result in higher yields although that is not always the case. [ 35 ] In cross examination, Mr. Hoover conceded that more seed and product would actually be applied because of extra turns around the well site areas and headlands.

He acknowledged that extra seed was required around well sites for that reason and said he did only a rough calculation using “cowboy arithmetic” to arrive at his opinion that up to two acres of overlap would occur on a full quarter

section (160 acres), depending on the configuration of the well site. Mr. Hoover said that he used an obstruction mapper program that takes the width of the equipment, the size of the farm, the kind of rotation and inputs applied to calculate extra costs for adverse effect purposes, taking a holistic approach.

He disputed an RTK-GPS report prepared by Scriber Farms using its own equipment on the actual acreages at issue suggesting that the equivalent of 168 acres had to be seeded per quarter because of the presence of a well site. [ 36 ] He acknowledged in cross examination that he takes an holistic approach to compensation for Loss of Use and Adverse Effect, a separate compensatory heading under the Act .

He conceded that, if input costs were to be deducted in fixing compensation for Loss of Use, protracted inquiries might have to be made for farmers to prove actual costs on the parts of their farms where well sites are located.

In particular, he acknowledged that if input deductions became the norm for Loss of Use on standard agriculture crops, farmers would have to start giving evidence on types of seed they used, whether they pre-paid for it, and generally on whether they pre-paid for the seed and chemicals used in their farming operations and whether they got “good value on their purchases” and were engaging in “wise purchasing”.

It might also lead to farmers being required to mitigate losses, being questioned on their farming decisions and being required to produce otherwise confidential documents such as tax returns and financial statements. ii. Evidence of Scriber Farms [ 37 ] Scriber Farms called two witnesses: Craig Solberg whom this Court qualified as an expert in input costs analysis including the overlap of products in well site areas and handling of unused seed, fertilizer and chemicals; and Ted Scriber of Scriber Farms. [ 38 ] Mr. Solberg is a purveyor of seed, fertilizer and farm chemicals used in grain production.

He holds a degree in agriculture from the University of Alberta (1982) and has worked for 30 years in the agricultural retail input business for Andrukow Farm Sales Inc., in Wainwright. Wainwright is a heavy-oil field area similar to Lloydminster. Husky operates a heavy oil up grader near Lloydminster albeit on the Saskatchewan side of the provincial border. Mr. Solberg also serves as a member of the board of governors of Lakeland College which has had an agriculture school since 1913. [ 39 ] Mr.

Solberg testified that GPS readings routinely disclosed that on average, five percent more seed, sprays and fertilizers are required because of overlap due to extra turning around obstacles such as well sites. He disputed the position of Husky that a landowner could actually save money not farming a well site area because of left over seed, fertilizer and chemicals which could be stored and used

the following crop season or returned for rebates. [ 40 ] He said that in his experience more seed has been consistently required by farmers with well sites on their land because of overlaps caused by manoeuvring equipment around the sites. He also said that overlapping of seed and product can also reduce productivity in the those areas. [ 41 ] Seed, fertilizer and chemical products are sold in specified allotment sizes which do not necessarily accord to the acres to the planted. Mr.

Solberg also told the court that opened bags of product such as cereal seed which is sold in bulk cannot be returned to the supplier “for fear of contamination”. Suppliers do accept them for environmentally friendly disposal as a client courtesy but there is no rebate paid. If the bags are not opened, they may be accepted back for rebate but the product is returned to the manufacturer for quality control testing. [ 42 ] In cross examination, Mr.

Solberg acknowledged that overlaps may be caused by existing headlands, configuration of the field, natural deficiencies, drainage and slope whether or not a well site is present. [ 43 ] In his evidence, Mr. Scriber gave a detailed account of the farming practices employed by Scriber Farms including such things as preparing the soil, deciding what, where and when to plant, monitoring crop status at different points in growth, applying fertilizers, herbicides, fungicides and other chemicals.

It would appear from his evidence that Scriber Farms focusses on efficiencies in its operations with attention on maximizing crop yields and ultimately revenues. Common sense dictates that the application of inputs is spread over an entire field and not dedicated to a particular area. [ 44 ] Mr. Scriber’s evidence disclosed a careful, considered and sophisticated approach to farming which gave this Court a clear understanding about why Scriber Farms’ yields are “almost twice” the local production level. [ 45 ] Mr.

Scriber also presented data acquired from its use of RTK-GPS, a sophisticated system which he used to track inputs of the various applications of seed, fertilizers and chemicals to the fields. He confirmed what other witnesses testified to, that the RTK (Real Time Kinematic) GPS system is top of the line and costs in the range of $25,000 to $30,000. Mr. Scriber also advised the Court that Scriber Farms stays abreast of improvements in products and farming practices, tests the latest trends before implementing them. [ 46 ] Responding to Mr.

Hoover’s suggestion that left over seed and products is retained by farmers for use the following seeding years, Mr. Scriber confirmed that Scriber Farms does not retain opened bags of seed or product for future use because of storage challenges and risk of contamination and the fact the seed the following year may not be the same.

He confirmed that Scriber Farms uses only fresh product each year, perhaps another contributing factor to why it produces better yields. [ 47 ] It was his evidence that extra seed and products are needed when a well site is present and he supported his testimony with the use of an RTK -GPS. He produced data which demonstrated the results of measurements of seed, fertilizer and chemical inputs applied to the land on which Husky’s well sites are located. The results indicated that in the range of four times of seed and product were required on fields with well sites compared to what Mr.

Hoover estimated, relying on what he described as “cowboy arithmetic.” Mr. Hoover acknowledged in his evidence the effectiveness of GPS but expressed his disagreement with the results disclosed by it. [ 48 ] Mr. Scriber’s description of his personal operation of equipment and inputting seed and product gave this Court a great deal of confidence in his calculations and evidence about the extent of the overlaps. He demonstrated to this Court’s satisfaction that Mr. Hooper’s calculations on the extent of such overlap based on cowboy arithmetic were wanting by comparison. [ 49 ] Mr.

Scriber detailed the application of the preparation of the land to be seeded; the decisions made about what to plant and where, the use of different products including seed, fertilizers and chemical sprays and the numerous rounds on the field required for the applications at different stages of crop growth. Position of Husky

[50] A principal argument advanced by Husky in support of its position that direct costs should have been deducted once the SRBhad determined the appropriate level of gross income generated by Scriber Farms is the evidence of Ted Scriber. Mr. Scriberacknowledged at the SRB hearing, that direct costs in the amount of $185 per acre were “saved” because the acres surrounding the wellsites were not being farmed. Husky argues that this flat amount should have been deducted leaving proper loss of use compensationnetted out at $295 per acre.

In addition, Husky argued that because seed, fertilizers, fungicides and herbicides were not being applied tothe well sites areas, this translated into a saving of input costs because less product would have been purchased. Even if less inputs wererequired from bulk purchases from the suppliers, product could have been saved , stored and used the following crop season. [51] As noted earlier, Husky relied heavily on Whitehouse to support its position that gross margin should be the basis for the Lossof Use compensation on Scriber Farms.

Counsel argued that direct costs’ deductibility have been referenced by the SRB many times. [52] Husky also pointed the Court to Sawiak v. Paloma Petroleum Ltd, 1989 ABCA 324 , [1989] 71 Alta. L.R. (2d) 360(per: Stevenson J.A). The Court of Appeal found: “It is an error to over-compensate a landowner - indeed it is a contradiction of thestatue which only authorizes the award of compensation.” [53] In addition, SRB decisions in Conoco v. Reirson (2002/0027);ConocoPhillips Canada Resources Corp. v. Roes 92005/0062)and (2005/0063); AltaGas Ltd., v. Sorensen (2006/0079; Bear Ridge Resources Ltd., v.

Skrocki (2006/0125); and EOG ResourcesCanada Inc., v. Goertzen (2007/0001) all reference deduction of input costs using similar language: An Award for loss of productive use of the area granted should reflect the annual returns reasonably expectable from the area if underagricultural use, over the short term, with due consideration given to any saving of direct input costs which results from the exclusion ofthat area from the normal farming pattern (Reirson).

Position of Scriber Farms [54] Scriber Farms acknowledges the references by the SRB decisions cited by Husky about awards reflecting “any saving ofdirect input costs”. However counsel noted that the SRB did not actually award gross margin compensation by making any suchdeduction in any of the cases cited. [55] The SRB decisions also reference its “practice to award the gross amount except in cases of specialty crops wherein inputcosts may exceed net profit. ( eg. Talisman Energy Inc. v.

Paziuk (2003/0161). [56] Scriber Farms takes the position that there were no direct cost savings on the well site areas on its land and its evidencesupports that conclusion. Is Loss of Use on a Gross Revenue Basis an error? [57] Determination of this question requires consideration of two issues: (

i) Whether input costs were proven and should have beendeducted from the Scriber Farms gross compensation award; and (ii) whether the SRB’s practice of awarding gross revenuecompensation reflects the legislative purpose and contributes to expediency of the process. i. Proof of a saving of input costs [58] For the reasons which follow, I find that there is no convincing evidence that Scriber Farms saved input costs on those areasof its land where the well sites are located.

[ 59 ] Although Mr. Scriber told the SRB that $185 per acre was saved from not farming the well site area, I find that while extra inputs on land outside the well site are largely the purview of the Adverse Effect head of compensation, Mr. Scriber’s evidence also clearly demonstrated that there is no discernible “saving” to the landowner not farming the area of the well site, as Husky has suggested. I prefer the evidence before this Court that there was no such saving despite Mr. Scriber’s comment to the SRB.

His evidence at that time was not as informed as it was when he acquired the RTK-GPS data from the actual fields using the farms own equipment and brought it before this Court. [ 60 ] I accept Mr. Scriber’s evidence about Scriber Farms practices. Mr. Scriber was an intelligent, knowledgeable and highly credible witness. I do not accept Mr. Hoover’s evidence on Loss of Use given its less scientific nature, in particular, his application of “cowboy arithmetic”, to determine inputs in the presence of well sites. His general statements did not compare favourably to Mr..

Scriber’s RTK-GPS evidence and personal experience on the very fields at issue. [ 61 ] Further, this Court does not accept Mr. Hoover’s “holistic” approach to compensation for Loss of Use and Adverse Effect opining that they should properly be considered together. While both are affected by the same factors, the Act clearly separates the different kinds of losses for the purpose of compensation entitlement. Loss of Use is different from Adverse Effect. The focus of Loss of Use is the rea within the well site while Adverse Effect is on the surrounding land. ii.

SRB ’s Practise of Awarding Gross Revenue Compensation [ 62 ] Counsel for Husky has cited Sawiak in support of its position that failing to deduct direct costs amounts to over-compensation. Sawaiak stands for the proposition that over-compensation would be contrary to the Act . But surely under-compensating would be equally so. Deducting the inputs in this case would put Loss of Use for Scriber Farms at less than the local rate which would penalize the landowner for its better farming practices which produced the much higher yields. [ 63 ] The SRB has expertise in determining compensation.

In doing so here, it considered the relevant case law and all of the evidence produced. It gave sufficient reasons which included how the process might be complicated by the kinds of things Mr. Hoover acknowledged. It is the SRB’s role to ensure that the intention or spirit of the Act is upheld, not just its provisions. The SRB has done so in part by keeping firm control of the expediency factor in determining Loss of use in this and previous cases.

In making its award to Scriber Farms, the SRB made a considered and reasonable decision. [ 64 ] The SRB has taken an historically consistent, informed and practical approach to the compensation provisions of the Act which judicial decisions on its purpose clearly invite. The SRB is meant to be an expeditious yet fair method of establishing appropriate compensation for inter alia, Loss of Use. The emphasis is on procedurally expeditious resolution of conflicts. [ 65 ] This Court has carefully considered Husky’s approach and why it advocated for a gross margin calculation.

However, that approach is inconsistent with the purpose of the Act because it would complicate the process creating what might be termed an administrative nightmare. Mr. Hoover acknowledged that requiring proof of inputs would lead to requiring landowners to produce evidence of the kind provided by Scriber Farms involving use of expensive devices such as the RTK GPS. Not every landowner farms with such sophisticated and expensive equipment and might well be at a disadvantage if unable to produce actual input cost information. [ 66 ] Mr.

Hoover also, effectively, acknowledged that gross margin awards would also lead to operators peering into otherwise private documents and records and potentially interfering in farming practices by questioning such things as whether farmers have mitigated losses by economies that might make sense to an operator but not a landowner. This is evident from Mr. Hoover’s reference to some of the kinds of evidence which might be required such as whether a farmer got “good value on their purchases” , namely seed, fertilizer and product, and engaged in “wise purchasing”. iii.

Other Considerations [ 67 ] Input costs at $185 per acre are attributed to the Scribers Farm overall. By simply deducting this amount from the $480 per acre which the SRB set for gross revenue and ultimately compensation, would put Scriber Farms at $295 per acre in gross margin

compensation. This is less than the local rate of $300 per acre which Mr. Hastings confirmed Husky negotiated on a gross revenue, not gross margin basis. Husky acknowledged that the yield at Scriber Farms was “almost twice as much” as the locals had produced; this was confirmed by AFSC records. To set Scriber Farms’ compensation at less than the local rate would penalize it for employing superior farming practices. That cannot fit anyone’s definition of fairness or reasonableness. [ 68 ] Husky relies on the Whitehouse decision.

It is to state the obvious to say that in the more than 30 years since Whitehouse was decided, the difference in farming practices, equipment, seed and product quality is vast. GPS was not even imagined. Even attitudes towards farming have changed from the small family farm scratching out a crop to agribusiness. The approach taken in Whitehouse of simply deducting the cost of seed , is not workable given the sophistication of present day farming. Conclusion [ 69 ] Accordingly, this Court finds that the SRB did not err in fixing the Loss of Use compensation for Scriber Farms by making a gross revenue award.

The SRB is entitled to consider what it would accept to prove actual costs and whether doing so might open up a plethora of inquiries which would lead to protracted and inefficient SRB proceedings. [ 70 ] Not every landowner has access to expensive electronic devices to prove their actual compensatory claims and, as a result, would be at a disadvantage from the onset. The process would become expensive and riddled with expert evidence and details leading to protracted and inaccessible hearings. Further, inquiries could lead to operator interference with farming practices. Mr.

Hoover’s reference to the fact landowners could be called upon to address whether they exercise “wise purchasing”, for example, speaks volumes. It is not difficult to imagine the exercise leading to myriad inquiries about all sorts of farming decisions – what crops might have been planted, what fertilizers and chemicals could, should or would have been preferable, reasons behind farm decisions of a broad and varied nature, all designed to reduce compensatory payments by operators to land owners.

Surely landowners ought to have control over their own farms including decisions about crops and the inputs needed to produce the yield and ultimately revenue they seek without being dictated to by third parties who are in a sense guests on their land. [ 71 ] The SRB is no stranger to these issues as disclosed by the comments contained in the reasons it gave for granting Loss of Use compensation to Scriber Farms, reproduced in these reasons at paragraph 26.

It has honoured the purpose of the Act as Langston J., described it in Bennett by not allowing expensive, protracted and inaccessible proceedings to consume its hearing schedule. The SRB has a great deal of experience and is entitled to use it to determine how best to interpret and apply the compensatory provisions of the Act. [ 72 ] The standard of review of reasonableness calls for deference and this Court has no reservation in exercising it in favour of the expertise of the Surface Rights Board in this case. The decision is reasonable and the standard of review has been met.

There is “a clear line of analysis within its reasons that could reasonably lead the tribunal from the evidence before it to the conclusion at which it arrived.” The decision is “supported by a tenable explanation”.( Law Society of New Brunswick v. Ryan , para. 9 of these reasons). [ 73 ] Accordingly, this appeal is dismissed. [ 74 ] If the parties cannot agree, costs may be addressed within a reasonable period of time. Heard on the 14 th day of November, 2012 and 15 th day of November, 2012. Dated at the City of Calgary, Alberta this 30 th day of January, 2013.

M.C. Erb J.C.Q.B.A. Appearances: Thomas R. Owen for the Applicant Terry Roberts, Q.C. For the Respondents, Thomas William Scriber, Lorna Faye Scriber, Scriber Farms Ltd., Peter Vincent Scriber and Phyllis Margaret Scriber