Toyota Tsusho Wheatland Inc v Encana Corporation, 2016 ABQB 209

Court of Queen ’ s Bench of Alberta Citation: Toyota Tsusho Wheatland Inc v Encana Corporation, 2016 ABQB 209 Date: 20160412 Docket: 1501 10484 Registry: Calgary Between: Toyota Tsusho Wheatland Inc. Plaintiff - and - Encana Corporation and PrairieSky Royalty Ltd. Defendants Corrected judgment: A corrigendum was issued on May 4, 2016; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice J. Strekaf _______________________________________________________ I. Introduction

[ 1 ] These cross-applications demonstrate the competing complexities that can occur in disputes which involve parties to an arbitration agreement as well as third parties who are not subject to that arbitration agreement.

Tensions often arise between, on the one hand, the legislative direction that limits court intervention in arbitration proceedings to permit parties the contractual autonomy to have their disputes determined by arbitration, and on the other, the interests of third parties who are not subject to arbitration agreements to have their disputes resolved in a timely and appropriate manner as well as the societal interest in avoiding a multiplicity of proceedings and the potential for inconsistent results. [ 2 ] The principal issue to be determined on these cross-applications is whether the dispute that has arisen amongst Encana Corporation (“Encana”), Toyota Tsusho Wheatland Inc (“TTWI”), and PrairieSky Royalty Ltd (“PrairieSky”) should be determined through arbitration, litigation or a combination of both. [ 3 ] Encana and PrairieSky are also seeking to strike out the affidavits of Nigel Bankes and Steven Cole filed on behalf of TTWI on the grounds that they are not proper expert evidence. [ 4 ] Finally, a sealing order granted on February 3, 2016 with respect to a Confidential Affidavit of Justin Calon filed on behalf of Encana will be reviewed.

II. Background [ 5 ] Encana is a publicly traded company with its head office in Calgary, Alberta that is engaged in the exploration, development, production and marketing of natural gas, oil and natural gas liquids. In 2012, it owned fee simple mineral title and held Crown and third party leases to oil and gas interests in Clearwater County, Alberta (“Clearwater Lands”). [ 6 ] TTWI is a wholly owned subsidiary of Toyota Tsusho Corporation (“Toyota”) that was incorporated under the laws of the Province of New Brunswick on April 12, 2012 to acquire a royalty interest in the Clearwater Lands from Encana.

It was extra- provincially registered in the Province of Alberta on April 12, 2012. [ 7 ] PrairieSky is a former wholly-owned subsidiary of Encana that is now a publicly traded company with its head office in Calgary, Alberta. [ 8 ] On April 19, 2012, Encana and TTWI entered into several agreements (collectively referred to as the “TTWI Agreements”): i. the New Royalty Conveyance Agreement pursuant to which Encana granted a 32.5% royalty (“Royalty”) to TTWI on natural gas and related substances produced from approximately 4000 existing wells on the Clearwater Lands (“Royalty Lands”) in consideration of the payment of $100 million; ii. the Royalty Extension Agreement (“REA”) pursuant to which TTWI agreed to pay Encana up to $502 million to fund a development program to drill approximately 1500 new wells on the Clearwater Lands and which extended the Royalty to the new wells drilled; and iii. the Royalty Agreement, which is

Schedule B to the New Royalty Conveyance Agreement, and governed the terms of the Royalty. [ 9 ] On the same day, Toyota and Encana entered into the Guarantee Agreement pursuant to which Toyota guaranteed the payment and performance of TTWI’s obligations under the REA. [ 10 ] The Royalty Agreement and the REA contain arbitration clauses.

The Royalty Agreement provides that neither Party would dispose of all or any portion of the Royalty, the Royalty Lands or any interest in the Royalty Agreement without “the prior consent in writing of the other Party, which shall not be unreasonably withheld” and “unless the proposed assignee shall deliver an agreement agreeing to be bound by and to assume and comply with the provisions of this Agreement with respect to the assigned interest” (section 7.01(a)(iii)). [ 11 ] Encana advised TTWI in November 2013 that it was proposing a corporate restructuring that would include transferring fee simple title to the Royalty Lands to a newly formed subsidiary (which became PrairieSky) and taking back leases in a manner that would enable Encana to continue with the development program and to pay the Royalty to TTWI.

Between November 2013 and May 2014, TTWI and Encana were negotiating a tri-partite agreement to address the relationship amongst the parties with respect to the rights granted under the TTWI Agreements.

Drafts were exchanged but no agreement was reached. [ 12 ] On May 22, 2014, Encana transferred its fee simple title in the Royalty Lands to its wholly-owned subsidiary PrairieSky pursuant to the Royalty Business Purchase and Sale Agreement (“RBPSA”). [ 13 ] On May 29, 2014, Encana completed an Initial Public Offering (“IPO”) in relation to PrairieSky reducing its ownership in PrairieSky to 46% and raising approximately $1.5 billion. On September 19, 2014, Encana completed a secondary public offering (“SPO”) pursuant to which it sold its remaining interest in PrairieSky for approximately $2.6 billion.

The RBSPA, IPO and SPO are collectively referred to as the “PrairieSky Transactions”. [ 14 ] On August 14, 2015, TTWI purported to terminate the REA for Encana’s failure to remedy alleged breaches of the REA and of

section 7.01(a)(iii) of the Royalty Agreement. Encana responded by purporting to terminate the REA on the grounds that TTWI’s termination was invalid as it takes the position that TTWI unreasonably withheld its consent to the RBPSA. [ 15 ] On September 9, 2015, TTWI commenced this action against Encana and PrairieSky seeking specific performance, declaratory relief and damages in which it alleges that the disposition to PrairieSky was a breach of the Royalty Agreement and that Encana and PrairieSky made negligent and/or fraudulent misrepresentations, deceived TTWI, were unjustly enriched, conspired and

breached duties of good faith and honesty (“Action”). [ 16 ] On October 9, 2015, TTWI commenced arbitration proceedings against Encana seeking a declaration that the its termination of the REA as a result of the PrairieSky Transactions was valid and effective and seeking damages or restitution for unjust enrichment, breach of fiduciary duty, and breach of the duty of honest and good faith contractual performance (“Arbitration”). [ 17 ] On November 18, 2015, Encana applied to stay the Action and to refer all issues in the Action to arbitration pursuant to the mandatory arbitration clauses in the Royalty Agreement and the REA (“Encana Stay Application”). [ 18 ] On December 16, 2015, TTWI brought a

summary judgment application on its specific performance claims against Encana and PrairieSky (“TTWI

Summary Judgment Application”) and filed affidavits of Toru Kobayashi, Nigel Bankes and Stephen Cole in support of that application and in opposition to the Encana Stay Application. [ 19 ] On December 18, 2105, PrairieSky brought an application to stay the Arbitration (“PrairieSky Stay Application”). [ 20 ] A sealing order was granted on February 3, 2016 to seal the Confidential Affidavit of Justin Calon, filed on behalf of Encana, and any other documents that reveal the contents of that Affidavit. III.

Positions of the Parties [ 21 ] Encana has applied pursuant to the International Commercial Arbitration Act , RSA 2000, c I-5, as amended (“ International Act ”) to stay the Action and to refer TTWI’s claims against it in the Action to arbitration. Encana submits that the International Act is the governing legislation. Encana also seeks a temporary stay of the entire Action, including TTWI’s claims against PrairieSky, pending determination of the Arbitration. [ 22 ] PrairieSky is a defendant in the Action but is not a party to the Arbitration.

PrairieSky opposes Encana’s application to stay all or portions of the Action and seeks to have the Action proceed. PrairieSky has cross-applied to stay the Arbitration with respect to issues that are common to those in the Action. PrairieSky submits that the Alberta Arbitration Act , RSA 2000 c A-43, as amended (“ Domestic Act ”) is the governing legislation. [ 23 ] TTWI agrees with Encana that the International Act governs.

It opposes both stays and submits that both the Arbitration and the Action should proceed as it is seeking different relief in each proceeding that is not available to it in the other proceeding. [ 24 ] The positions of the parties regarding the applications to strike the Bankes and Cole Affidavits and the sealing order will be addressed below. IV. Issues [ 25 ] The issues to be determined are as follows: (

a) Is the Arbitration governed by the Domestic Act or the International Act ? (

b) Should the issues in the Action which relate to Encana be referred to arbitration? (

c) Should be Action be stayed, either in its entirety or against Encana? (

d) Should be Arbitration be stayed? (

e) Should the Bankes and Cole Affidavits be struck? (

f) Should the Sealing Order be continued? V. Analysis a. Governing Legislation [ 26 ] The first issue to be determined is whether the Arbitration is governed by the Domestic Act or the International Act . It is somewhat unusual that both parties to TTWI Agreements and to the Arbitration, Encana and TTWI, agree that the Arbitration is subject to the International Act whereas the non-party, PrairieSky, submits that it is subject to the Domestic Act . [ 27 ] Section 2(1) of the Domestic Act states that it applies to an arbitration conducted under an arbitration agreement or authorized or required under an enactment unless “(

a) the application of this Act is excluded by an agreement of the parties or by law, or (

b) Part 2 of the International Commercial Arbitration Act applies to the arbitration.” [ 28 ] Encana and TTWI submit that the dispute is governed by the International Act under both parts of this test because: (

a) the parties agreed to exclude the Domestic Act in favour of the International Act as a matter of contract

interpretation pursuant to

section 1.03 of the Royalty Agreement; and

(

b) the International Act applies to international arbitrations as defined in Article 1(3) of the Model Law and the Arbitration qualifies as an international arbitration because Encana and TTWI had their places of business in different States when the TTWI Agreements were concluded. i. Is the Arbitration an international arbitration? [ 29 ] I will first consider whether the International Act applies because the Arbitration qualifies as an international arbitration.

Part 2 of the International Act provides that the United Nations Model Law on International Commercial Arbitration (“Model Law”) that is set out in

Schedule 2 of the International Act applies to international commercial arbitration agreements (section 4(2)). Article 1(3) of the Model Law defines when an arbitration is international. It states: 1(3) An arbitration is international if: (

a) the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different States; or (

b) one of the following places is situated outside the State in which the parties have their place of business: i. the place of arbitration if determined in, or pursuant to, the arbitration agreement; ii. any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected; (

c) the parties have expressly agreed that the subject-matter of the arbitration agreement relates to more than one country. [ 30 ] Article 1(4) states in part: 1(4) For the purposes of paragraph (3) of the article? (

a) if a party has more than one place of business, the place of business is that which has the closest relationship to the arbitration agreement; [ 31 ]

Section 12 of the International Act provides that the International Commercial Arbitration Analytical Commentary published in the Alberta Gazette can be used as an aid interpreting the International Act .

Section 24 of the Analytical Commentary states that the criterion to determine the parties’ places of business is modelled on the test of internationality adopted in article 1(1) of the United Nations Convention on Contract for the International Sale of Goods (Vienna, 1980) (“UNCCISG”) which uses as a determining factor the location of the places of business of the parties to the arbitration agreement and states that other characteristics such as a party’s nationality or place of incorporation are not determinative. [ 32 ]

Section 3 of the UNCITRAL 2012 Digest of Case Law on the Model Law on International Commercial Arbitration states: Article 1(3)(

a) defines an arbitration as international if “the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different States”. Article 1(4) provides for guidance in the situation where “a party has more than one place of business” or where “a party does not have a place of business”. The vast majority of situations commonly regarded as international will meet the criterion referred to in Article 1(3)(a).

The term “place of business” has been considered in some courts to include any location from which a party participates in economic activities in an independent manner. It should thus include activities such as the establishment of a production plant, sales/marketing base, distribution, transport, or the place where the financial and administrative functions of the business are carried out.

Ascertaining the place of business may be difficult if a respondent refuses to disclose its own identity or its place of business. [ 33 ] The point in time to determine where the parties had their places of business for the purpose of determining whether the International Act applies is at the time of the conclusion of the arbitration agreement.

As the arbitration agreement is contained in the TTWI Agreements, that date is April 19, 2012, when those documents were executed. [ 34 ] Encana’s place of business at April 19, 2012 in respect of this dispute for the purpose of the International Act is Canada. [ 35 ] TTWI was incorporated in New Brunswick on April 12, 2012 as a wholly owned subsidiary of Toyota for the purpose of acquiring the royalty interest contemplated in the TTWI Agreements. TTWI had no office, no employees and no corporate decision makers in Canada at, or prior to, the execution of the TTWI Agreements on April 19, 2012.

The evidence of TTWI’s founding director and Senior Vice-President, Mr. Toru Kobayashi, at questioning on his Affidavit was that “(b)efore Mr. Obi arriving (which was sometime after April 2012) , the businesses related to Toyota Tsusho Wheatland Inc were conducted either from Tokyo or from Houston.” [ 36 ] PrairieSky submits that TTWI carried on business in Canada prior to and at the time that the TTWI Agreements were executed for several reasons. Presentations or meetings were held in Calgary on TTWI’s behalf regarding the potential transaction that culminated in the TTWI Agreements.

TTWI used a Calgary-based reserves evaluation firm to evaluate the transaction and had lawyers conduct due diligence on the Royalty Lands and review agreements at Encana’s offices in Calgary. TTWI was registered as an extra- provincial corporation in Alberta on April 12, 2012 and, by implication, had commenced carrying on business in Alberta because

section 279 of the Alberta Business Corporations Act , RSA 2000, c B-9 , as amended, requires an extra-provincial corporation to be registered in Alberta within 30 days after it commences carrying on business. TTWI represented in the TTWI Agreements that it was “authorized to carry on business in Alberta”. TTWI attended the closing of the transaction at Encana’s offices in Calgary and executed the TTWI Agreements which relate to the development of oil and gas interests in Alberta and are governed by Alberta law.

[ 37 ] I am satisfied that TTWI did not have a place of business in Canada until sometime after the TTWI Agreements were executed on April 19, 2012. TTWI’s place of incorporation or extra-provincial registration is not determinative, nor is a representation that it is “authorized to carry on business in Alberta”. It was not established on the evidence that any of the acts of attending in Calgary to review the potential transaction were undertaken by TTWI after it had been incorporated, rather than by TTWI’s parent, Toyota.

In any event, such actions or the execution of agreements in Calgary does not mean that TTWI had a place of business Canada at the time the TTWI Agreements were executed. Prior to execution of the TTWI Agreements, all of the business decisions on behalf of TTWI were made in Tokyo or Houston. In the absence of other indicia, TTWI’s place of business is where its business decisions were being made, which on the evidence was either Tokyo, Japan or Houston, USA, or possibly both. [ 38 ] TTWI also submitted that the Arbitration was international pursuant to Article 1(3)(

b) on the basis that a substantial part of the obligations between TTWI and Encana were to be performed outside Canada since the Royalty Agreement required all notices to be served on TTWI in the United States. It further submitted that the Arbitration was international pursuant to Article 1(3)(

c) because the parties agreed that the subject-matter of the Arbitration related to more than one country when they referred it to the “I nternational Centre for Dispute Resolution in accordance with its International Arbitration Rules, (to) apply …the International Commercial Arbitration Act (Alberta) ”(emphasis added). I do not find either of these arguments to be persuasive. [ 39 ] I am satisfied that the Arbitration is an international arbitration pursuant to Article 1(3)(

a) of the Model Law as the parties had their places of business in different States at the time that the TTWI Agreements were executed. As a result, the Arbitration is governed by the International Act rather than by the Domestic Act pursuant to the provisions of the International Act and section 2(1)(

b) of the Domestic Act . ii. Is the Domestic Act excluded? [ 40 ] The arbitration clause in

section 1.03 of the Dispute Resolution Procedure in

Schedule B of the Royalty Agreement states in part: If a Dispute has not been resolved by the procedures described in Clause 1.02, the Parties agree that any such Dispute shall be settled by binding arbitration in accordance with the following: ….. (

c) The arbitration shall be administered by the International Centre for Dispute Resolution (in this Clause 1.03, the “ICDR”) of the American Arbitration Association in accordance with its International Arbitration Rules, applying substantive laws of the Province of Alberta, including the provisions of the International Commercial Arbitration Act (Alberta) , except as modified by this Agreement or as the Parties otherwise agree; (

d) The arbitration shall be heard by a single arbitrator, who is neither a Canadian national nor a Japanese national, and who is appropriately qualified…. [ 41 ] I am satisfied that the parties intended to have the Arbitration governed by the International Act , rather than the Domestic Act .

When the arbitration provisions in the Royalty Agreement are read as a whole and construed in the overall context of the TTWI Agreements and the factual matrix that existed at the time that the TTWI agreements were executed, it appears that the parties viewed the arbitration as international and intended to have the International Act apply to the arbitration of a dispute under the Royalty Agreement. The Arbitration is to be administered by the International Centre for Dispute Resolution of the American Arbitration Association in accordance with its International Arbitration Rules.

The Arbitration is to be presided over by a single arbitrator, who is to be neither a Canadian nor a Japanese national. The arbitration provision makes specific reference to the arbitration “applying substantive laws of the province of Alberta, including the provisions of the International Commercial Arbitration Act (Alberta) ”.

There would be no reason to refer specifically to the International Act in this fashion unless it was anticipated that it would apply. [ 42 ] In view of my conclusion that the Arbitration qualifies as an international arbitration for the purposes of the International Act and that the Domestic Act does not apply pursuant to section 2(1)(b), I need not decide whether section 2(1) (

a) of the Domestic Act applies or whether the parties could agree to have the International Act apply to the Arbitration if it did not otherwise qualify as an international arbitration as defined in the International Act . I also need not decide whether PrairieSky, as a non-party to the Arbitration, has standing to argue which Act applies to the Arbitration. b.

Should the issues in the Action against Encana be referred to Arbitration? [ 43 ] Encana seeks to have the issues raised against it in the Action referred to arbitration on the basis that the issues fall within the scope of the arbitration provisions in the Royalty Agreement. TTWI and PrairieSky oppose doing so as both take the position that the Royalty Agreement contemplated that the issues in the Action should be dealt with in the Court of Queen’s Bench pursuant to

section 6.04(

e) of the Royalty Agreement. [ 44 ]

Article II(3) of the Convention provides: The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. [ 45 ] Article 8(1) of the Model Law provides: A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests no later

than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreementis null and void, inoperative or incapable of being performed. [46] Article 16(1) of the Model Law provides that “an arbitral tribunal may rule on its own jurisdiction, including any objectionswith respect to the existence or validity of the arbitration agreement.” [47] In EPCOR Power LP v Petrobank Energy and Resources Ltd, 2010 ABCA 378, 499 AR 193 the Alberta Court of Appealupheld a referral by the court to arbitration to determine whether a limitation period had expired, thereby barring the arbitration.

TheCourt of Appeal stated at paragraphs 16 – 20: As a matter of law and policy, the role of the courts in relation to arbitration has been one of non-intervention. The objective ofarbitration legislation and the jurisprudence interpreting it is to promote adherence to agreements, efficiency and fairness and to lendcredibility to an important dispute resolution process. Courts are instructed to be mindful of this overarching purpose in any exercise ofdiscretion. The discretion seems to be framed in the negative, as one "not to refer", a distinction intended to emphasize the legislativepreference for arbitration.

These parties have agreed that disputes arising from the contract may be submitted to arbitration.

Article A11.1 states that anycontroversy may be submitted, and provides mandatory principles once notice of a controversy has arisen. The chambers judgeconcluded that the parties had chosen broad language stating that arbitration is available for "any controversy". The controversy hereclearly arises under the contract. It is also clear that clause 5.7 dealing with the price mechanism has a mandatory referral to arbitration.

Section 6 of the Arbitration Act, RSA 2000, c A-43 sets out when a court may intervene in matters governed by the Act. The startingpoint is non-intervention, subject to a stated list of fairly narrow and discrete exemptions to be interpreted in accordance with theexpressed legislative purpose. In Dell, the Supreme Court of Canada considered this interplay and set out general principles governing it:

(1) As a general rule in anycase involving an arbitration clause, a challenge to the arbitrator's jurisdiction must be resolved first by the arbitrator.

(2) A court shoulddepart from the rule of systematic referral to arbitration only if the challenge to the arbitrator's jurisdiction is based solely on a questionof law.

(3) If the challenge requires the production and review of factual evidence, the court should normally refer the case to arbitrationas arbitrators have for this purpose the same resources and expertise as courts.

(4) Where questions of mixed law and fact are concerned,the court hearing the referral application must refer the case to arbitration unless the questions of fact require only superficialconsideration of the documentary evidence in the record.

(5) Even when considering one of the exceptions, the court might decide thatto allow the arbitrator to rule first on his or her competence would be best for the arbitration process (emphasis added). It is apparent from the language employed by the Supreme Court of Canada that the discretion available to not refer a matter toarbitration is circumscribed, and applies to narrow circumstances: only on a pure question of law alone that can be readily resolved onsuperficial material and will expeditiously dispose of the entire dispute between the parties.

Even if the court can resolve an issue itself, itmay still choose not to do so and instead refer the matter to arbitration. [48] This case is governed by the International Act, where the legislative direction for limited judicial intervention is perhapseven stronger than under the Domestic Act.

Article 5 of the Model Law provides that “(i)n matters governed by this Law, no court shallintervene except where so provided in this Law.” [49] The Alberta Court of Appeal in Kaverit Steel and Crane Ltd v Cone Corporation, 1992 ABCA 7 , [1992] 120 AR346 clearly directed that disputes which are subject to an arbitration agreement that is governed by the International Act must bereferred to arbitration, even where third parties may be involved: The power to grant or withhold a reference under the International Commercial Arbitration Act is very limited, and the statute does notpermit a decision on the test invoked by the learned chambers judge, which resembles the forum conveniens test.

For the purpose ofargument, I accept the possibility (albeit I suspect very slim) of two suits at the same time, and even contradictory findings. Nevertheless,that is the method chosen by the parties. The Act directs me to hold them to their bargain. Section 2(1) of the International CommercialArbitration Act makes the Convention part of the law of Alberta.

It says that the Convention "applies in the Province." The ConventionArticle II s. 3 provides that: 3 The court of a Contracting State shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the saidagreement is null and void, inoperative or incapable of being performed. [Emphasis added] The learned chambers judge relied upon the qualifying words. He held that an inconvenient reference was an "inoperative" one. I do notagree. It may not operate conveniently, but it cannot be said to be inoperative.

The view taken by the learned chambers judge adds agloss to the word that it cannot, in all the circumstances, reasonably bear. It is common ground that the evident purpose of Alberta's acceptance of the Convention is to promote international trade and commerceby the certainty that comes from a scheme of international arbitration. As Justice Potter Stewart said in Scherk v. Alberto-Culver (1974)417 U.S. 506 (1974) at p. 516: Uncertainty will almost inevitably exist with respect to any contract touching two or more countries, each with its own substantive lawsand conflict-of-laws rules.

A contractual provision specifying in advance the forum in which disputes shall be litigated and the law to beapplied is, therefore, an almost indispensable precondition to achievement of the orderliness and predictability essential to anyinternational business transaction. That purpose would not be served by adopting an

interpretation that puts the entire scheme at risk. The forum conveniens test almostalways would defeat arbitration because, as Justice Stewart said in Scherk, it would invite "unseemly and mutually destructivejockeying". Indeed, one argument of the learned chambers judge relied upon the fact that, after arbitration, the parties might regurgitatesome issues during enforcement proceedings in Alberta.

[50] PrairieSky submits that this Court has the discretion not to refer the issues in the Action which also involve it to arbitration based on the approach adopted by the Ontario Court of Appeal in Ontario v Imperial Tobacco Ltd, 2011 ONCA 525, 338 DLR (4th)282.Even if I were to find that approach attractive, that option is not available as I am bound by the Alberta Court of Appeal’s decision inKaverit Steel. [51] The question then becomes whether the issues advanced by TTWI against Encana in the Action are subject to arbitration orwhether the aspects of the dispute between TTWI and Encana that are raised in the Action fall within the scope of

section 6.04(

e) of theRoyalty Agreement, which carved out a limited right for TTWI to bring an action for specific performance against Encana in this Court. [52]

Section 8.11 of the Royalty Agreement provides that “(any) dispute or need of

interpretation arising out of this Agreementshall be resolved pursuant to the Dispute Resolution Procedure”, which is attached as

Schedule B. The Dispute Resolution procedurestates that “the Parties agree to use and follow the dispute resolution procedures of this

Schedule B for all Disputes under thisAgreement” (clause 1.01). If Senior Management is unable to resolve a Dispute within 30 days, “the Parties shall resort to arbitration inaccordance with Clause 1.03 of this

Schedule B” (clause 1.02). [53] Dispute is defined in broad terms in

section 1.01(

h) of the Royalty Agreement: “Dispute” means any dispute, controversy or Claim (of any and every kind or type, whether based on contract, tort, statute, regulation, orotherwise) arising out of, relating to, or connected with this Agreement, including any dispute as to the construction, validity,interpretation, enforceability or breach of this Agreement, but shall not include any failure to pay any undisputed amount that has becomedue and payable hereunder but which has not been paid in full. [54] Similar clauses have been interpreted to apply to claims for conspiracy and negligence: Kaverit Steel, 2009 ABQB 170, 463 AR 1at paras 24-36; Lamb v AlanRidge Homes Ltd, 2009 ABQB 170, appeal to CA statute barred 2009 ABCA 343, leaveto appeal to SCC refused [2009] SCCA No. 520. [55] Despite the broad definition of Dispute, Encana and TTWI nonetheless agreed that certain matters would be dealt with in thisCourt, rather than by arbitration, as

section 6.04(

e) of the Royalty Agreement provided in part: Nothing in this

Article 6.00 will be deemed to release the Grantor from any liability for any breach of the terms and provisions of thisAgreement or to impair the right of Royalty Owner to compel specific performance by the Grantor of its obligations under this Agreement.

Grantor further acknowledges that an award of monetary damages would be an inadequate remedy to protect and compensateRoyalty Owner against any actual failure to perform or satisfy, or threatened intention to perform or satisfy, any obligations of Grantorunder this Agreement and, Grantor agrees and irrevocably consents to the granting of an order by the Court of Queen’s Bench of Albertarequiring Grantor to specifically perform its obligations set forth in this Agreement, and to a mandatory injunction compellingGrantor to perform such obligations. [56] As the Royalty Agreement stated that Disputes would be dealt with by arbitration, subject to applications for specificperformance against the Grantor which could be brought in the Court of Queen’s Bench, these provisions must be interpreted in acoherent fashion in the context of the Royalty Agreement read as a whole in order to give effect to the parties’ intentions.

The question ishow the parties contemplated that applications for specific performance would be handled. For example, if an action for specificperformance was brought, did the parties anticipate that all of the issues that needed to be decided to determine if that remedy wasappropriate would be decided by the Court, including questions of law as to how the Royalty Agreement should be interpreted, questionsof disputed fact as to what occurred and questions of mixed fact and law as to whether that conduct (as determined) constituted a breachof the Royalty Agreement (as interpreted)?

If this was the case, then, despite stating in

section 8.11 that “any dispute or need ofinterpretation” would be determined by arbitration, the parties have effectively agreed to also give the Court the ability to interpret theRoyalty Agreement and decide disputes, so long as those matters relate to a claim for specific performance. [57] On the other hand, did the parties anticipate that

section 6.04 was limited to giving the Court the ability to order specificperformance as a remedy, in lieu of damages, after an arbitrator determined that there had been a breach of the Royalty Agreement? Ifthis was the case, then to the extent that

section 6.04 contemplates addressing a “threatened intention” by the Grantor to fail to satisfy itsobligations, how did the parties anticipate that meaningful relief could be provided by the Court in a timely fashion if the parties had tofirst proceed to arbitration? [58] TTWI submits that the former

interpretation should be adopted and that parties agreed to carve out the entirety of any specificperformance actions by TTWI against Encana from the arbitration provisions in the Royalty Agreement, that the narrower clause takesprecedence over the general referral of Disputes to arbitration and that because specific performance is the primary remedy soughtagainst Encana in the Action, the issues raised in the Action should not be referred to arbitration. [59] Encana prefers the latter

interpretation. Moreover, it questions whether specific performance is the primary remedy TTWI isseeking against it in the Action and notes that

section 6.04(

e) was not specifically plead. Encana submits that, at most,

section 6.04(e)applies to an application to have it specifically perform its obligations in the Royalty Agreement, that the causes of action alleged andrelief claimed against it in the Action go well beyond that and that

section 6.04(

e) does not apply to claims for conspiracy, fraudulent andnegligent misrepresentation, deception, unjust enrichment, declaratory relief, damages (including punitive, aggravated or exemplarydamages), and restitution, all of which are sought against it in the Action. Encana also denies that specific performance is still anavailable remedy that the Court could grant in the Action because it has already transferred the Royalty Lands to PrairieSky. [60] In my view, the issues raised in the Action against Encana are to be referred, at least in the first instance, to arbitration for thearbitral tribunal to determine.

The arbitrators have the jurisdiction to determine the scope of their jurisdiction pursuant to Article 16(1) ofthe Model Law and it appears that at least some of the issues advanced in the Action fall within the scope of the arbitration provisions inthe Royalty Agreement. While the parties carved out an action for specific performance requiring Encana to perform its obligationsunder the Royalty Agreement, the determination of what those obligations are will require an

interpretation of the Royalty Agreement.As the parties expressly agreed that “any…need of

interpretation arising out of this Agreement” shall be resolved by arbitration, that is

where such matters should be decided, at least in the context of an application for specific performance in this case where theinterpretation of the Royalty Agreement will be a key issue. [61] When the Royalty Agreement is read as a whole, I am satisfied that the parties contemplated that arbitration was their agreedupon method to determine how the Royalty Agreement should be interpreted and whether it had been breached.

Section 6.04(

e) was notintended to provide an alternate route to have the Court interpret the Royalty Agreement and decide whether a breach had occurredsimply because specific performance was sought as a remedy. Rather,

section 6.04(

e) was merely intended to enable the Court to provideancillary remedial relief by way an order for specific performance (in lieu of damages) after it was determined through arbitration that abreach had occurred or was threatened. This

interpretation permits sections 6.04(

e) and 8.11 and the Dispute Resolution Procedure inSchedule B of the Royalty Agreement to be read together in a complementary fashion. It is also consistent with Encana’s obligation insection 6.04(

e) to “consent” to an order for specific performance, which suggests that the Court would not be expected to decide acontested application but simply grant the remedial relief on a consent basis. [62]

Article 17 of the Model Law provides the arbitral tribunal with the power to grant interim measures. For the purposes of thisapplication, I need not decide whether

section 6.04(

e) contemplated that emergency interim relief could be available from the Court inthe event of a threatened breach by Encana without first commencing arbitration (when the delay associated with doing so would likelyrender the relief nugatory). Those are not the circumstances in this case. [63] I make no comment on whether specific performance is available to TTWI notwithstanding that Encana has disposed of itsinterest.

Having regard to the approach adopted in Canadian Long Island Petroleums Ltd v Irving Industries Ltd, (SCC), [1975] 2 SCR 715, affirming 1973 ALTASCAD 54 , [1973] 5WWR 99 (AB), such questions can best be left to bedetermined in due course. [64] PrairieSky submits that the Court is not bound to refer the dispute to arbitration pursuant to

section 8 of the Model Lawbecause there is an apparent conflict in the Royalty Agreement between sections 6.04(

e) and 8.11 and that the Royalty Agreement istherefore inoperative or incapable of being performed. As already indicated, agreements are to be interpreted in a coherent fashion andwhere they can be sensibly interpreted in a fashion that avoids finding inconsistencies, that should be done, as is the case here. I rejectthe suggestion that the Royalty Agreement has been rendered inoperative or incapable of being performed. [65] As a result, the claims advanced against Encana in the Action are referred to arbitration including the

interpretation of theRoyalty Agreement, except for the remedial relief sought pursuant to clause 6.04(

e) for specific performance of Encana’s obligationsunder the Royalty Agreement following

interpretation of the Royalty Agreement and determination of the dispute through arbitration. c. Should the Action be stayed, in whole or in part? [66] Encana seeks a stay of the entire Action pending completion of the Arbitration, which is opposed by both TTWI andPrairieSky. [67]

Section 10 of the International Act states: Where, pursuant to

article II (3) of the Convention or

article 8 of the International Law, a court refers the parties to arbitration, theproceedings of the court are stayed with respect to the matters to which the arbitration relates. [68] This issuance of a stay of the Action is mandatory under the International Act where a reference to arbitration is made withrespect to the matters between Encana and TTWI to which the Arbitration relates. As PrairieSky is not a party to the Arbitration and isnot bound by the Award,

section 10 of the International Act does not require any part of the Action to be stayed against PrairieSky.However, the court may stay those claims pending arbitration if they are “derivative”, if “the arbitration will effectively resolve theclaim against them” or when “it would appear just and equitable to do so”: Kaverit Steel at paras 12, 14 and 21. [69] As a result, the issue to be determined becomes the scope of the stay and whether: (

a) the Action should be stayed only against Encana, with the Action against PrairieSky permitted to proceed; or (

b) the entire Action should be stayed, as is sought by Encana. [70] The Alberta Court of Appeal recognized the court’s jurisdiction to stay judicial proceedings in favour of a party to an actionpending the outcome of a related arbitration in UCANU Manufacturing Corp v Calgary (City), 2015 ABCA 22 at paragraph 7: The parties agree that the Court of Queen's Bench has the jurisdiction to grant a stay of proceedings in favour of a party to an actionpending the outcome of a related arbitration, in that regard see: Western Oil SandsandYaworksi v Gowling Lafleur HendersonLLP,2013 ABCA 21.

As was noted by the court in Western Oil Sands, the remedy is discretionary and must be exercised in accordancewith established principles. The factors to be considered are: i. whether the issues in the arbitration are substantially the same as the issues in the action, ii. the defendant must satisfy the court that the continuance of the action would work aninjustice, and, iii. the stay must not cause an injustice to the plaintiff.

In that case Wittmann ACJ (as he then was) noted that the court must bear in mind the efficient resolution of disputes and the efficientmanagement of the resources of the court and the parties. In the Yaworski decision, this Court concluded that the combination of section7 of the Arbitration Act,

section 18 of the Judicature Act, RSA 2000, c J-2, and the court's inherent jurisdiction to control its own

process to avoid unnecessary and duplicitous proceedings provide a chambers judge with the jurisdiction to stay a third party suit pending a related arbitration: at para 23. [ 71 ] While that case was subject to the Domestic Act , similar principles are applicable with respect to whether a stay should be granted in respect of court proceedings which are related to an arbitration governed by the International Act . [ 72 ] Encana submits that the entire Action should be stayed because the issues are substantially the same and involve the threshold issue of whether Encana breached the TTWI Agreements by concluding the PrairieSky Transactions.

It suggests that some or all of the dispute between Encana and TTWI could be rendered moot if the Arbitrator concluded that Encana did not breach the Royalty Agreement. Further, Encana would suffer an injustice if its personnel were required to attend as witnesses and produce documents in the Action and it would be an inefficient use of court resources. [ 73 ] TTWI and PrairieSky both wish the Action to proceed, even if the Arbitration is also proceeding. [ 74 ] I have considered the three factors identified in UCANU: 1.

The issues in the Arbitration and in the Action are substantially similar as the key issue in both proceedings is whether the PrairieSky Transactions constituted a breach of the Royalty Agreement. 2. Encana may be inconvenienced if it is required to produce witnesses or documents in the Action or if it is third partied by PrairieSky as it could be subjected to duplicative processes and be required to participate simultaneously in both proceedings.

It might also face the prospect of inconsistent decisions in the Action and in the Arbitration, although as other courts have noted, this is unlikely: Kaverit at para 47. While Encana may suffer some inconvenience, it has not demonstrated that continuance of the Action would cause it to suffer significant substantive injustice.

When parties elect to enter into broadly drafted arbitration agreements, they are presumably aware that those agreements will not bind third parties who may be involved in dispute that may arise and that litigation proceeding at the same time as the arbitration may be required to resolve those disputes. 3. Both TTWI and PrairieSky will be delayed in having the serious issues between them that are raised in the Action determined if the Action is stayed.

Moreover, if the Arbitration is decided, it will not determine the rights and obligations as between TTWI and PrairieSky or any third party claims between PrairieSky and Encana, so there is little reason in the circumstances for postponing the Action as between them pending the Arbitration. [ 75 ] TTWI and PrairieSky would suffer significantly greater prejudice if the Action were stayed between them, than would Encana if the Action against PrairieSky is permitted to proceed.As a result, the Action will be stayed only against Encana pending the determination of the Arbitration.

The Action against PrairieSky may proceed, including any third party proceedings that may be commenced by PrairieSky against Encana. d. Should the Arbitration be stayed? [ 76 ] PrairieSky’s application for a stay of the Arbitration is brought pursuant to the provisions of International Act , the Judicature Act and the court’s inherent jurisdiction.

PrairieSky made clear at the hearing of this application that it is seeking only a temporary stay of those portions of the Arbitration which relate to issues arising out of the PrairieSky Transactions. [ 77 ] PrairieSky submits that as it is not a party to the TTWI Agreements and not subject to the arbitration clauses contained therein, it cannot be compelled to participate in the Arbitration, the Arbitration will not decide all of the issues in the Action, many of the factual and legal issues in the Action and the Arbitration are common to both and are inextricably linked and the Action is the only forum available to PrairieSky and the only forum in which all of the issues between TTWI, Encana and PrairieSky can be resolved.

It argues that a stay of the Arbitration would avoid a multiplicity of proceedings and the associated inconvenience, costs, delay, duplication and other prejudice and the prospect of inconsistent findings and that it would be prejudiced if the Arbitration is permitted to proceed at the same time as the Action.

While PrairieSky will not be bound by an award made in the Arbitration, as it is not a party to the Arbitration, it may be impacted from a procedural perspective if the Arbitration proceeds. [ 78 ] While Encana and TTWI differ about the scope of issues that are covered by the arbitration agreement contained in the Royalty Agreement, both agree that the Arbitration should proceed.

It is PrairieSky, which is not a party to the Arbitration, that is seeking to have the Arbitration stayed to the extent that it involves the same or related issues as those in the Action. [ 79 ] PrairieSky submits that there is a growing trend for courts to exercise a supervisory role to ensure that the rights of third parties are protected, where they are not subject to arbitration agreements but are involved in a dispute with parties who have agreed to arbitrate their disputes. [ 80 ] I need not address whether there might be greater scope to consider staying the Arbitration if it had been governed by the Domestic Act as this application is governed by the International Act .

The latter contemplates a limited role for judicial intervention in arbitrations to which it applies.

Article 5 of the Model Law states: In matters governed by this Law, no court shall intervene except where so provided in this Law. [ 81 ] The only provision in the International Act or in the Model Law that contemplates a stay of arbitration proceedings is section 8(1)(

c) of the International Act , which states: 8(1) The Court of Queen’s Bench, on application of the parties to 2 or more arbitration proceedings, may order …. (

c) any of the arbitration proceedings to be stayed until after the determination of any other of them.

[82] In Western Oil Sands Inc v Allianz Insurance Co of Canada, 2004 ABQB 79, 353 AR 355, Hawco J concluded that a stay ofan arbitration could be granted under this

section only with the consent of all of the parties to the application (para 28). He rejected thesubmission that the Court had jurisdiction to grant a stay of arbitration under section 5(3)(

f) of the Judicature Act at paragraphs 30 – 31: Finally, Western argues that s. 5(3)(

f) of the Judicature Act and Rule 440 provide the court with inherent jurisdiction to prevent amultiplicity of proceedings. Leaving aside the issue of whether the Judicature Act or the Rules apply to arbitration proceedings, it isclear that the inherent jurisdiction of the court may be limited by legislation. In this case it is limited by the International CommercialArbitration Act. Indeed,

Article 5 of the Model Law specifically provides:

Article 5. Extent of court intervention In matters governed by this Law, no court shall intervene except where so provided in this Law. Casey restates this provision at p. 4-2: In other words, for a court to have any jurisdiction respecting the arbitration process, it must be found in the relevant Arbitration Act,and not in any other Act or rule governing court procedure [83] PrairieSky’s application to stay the Arbitration is dismissed. e. Should the Bankes and Cole Affidavits be struck? [84] The Bankes and Cole Affidavits were filed in support the TTWI

Summary Judgment Application and in opposition to theEncana Stay Application. They were not referred to in the hearing of the cross-applications and, therefore, it is not necessary to determineif those affidavits, or any portion, should be struck in order to decide the cross-applications before me. Those applications are adjournedsine die as they can be determined more efficiently in due course in the event that the TTWI

Summary Judgment Application proceeds. f. Should the Sealing Order be continued? [85] On February 3, 2016 I granted a sealing order sought by Encana with the consent of TTWI, on which PrairieSky took noposition.

I directed that the Affidavit of Justin Calon filed on behalf of Encana and any other questioning transcripts, written submissions,memorandum or other documents filed with the Court that reveals the contents of that Affidavit be sealed and not disclosed to any personother than the parties, their counsel, the Court, Court personnel and other persons with consent of the parties or by Court order. [86] The result of that order has been to have the following documents sealed to date: the Affidavit of Justin Calon affirmed onJanuary 27, 2016; the Transcript of oral questioning of Justin Calon filed on February 12, 2016; the Transcript of oral questioning ofToru Kobayashi filed on February 5, 2016; the Transcript of oral questioning of Stephen Cole filed on February 5, 2016; the Transcriptof oral questioning of Amber Vrataric filed on February 12, 2016; the Main Brief, Response Brief and Rebuttal Briefs of Encana; theBrief, Reply Brief and Surrebuttal Brief of PrairieSky; and the Reply and Sur-Reply Briefs of TTWI. [87] The Supreme Court of Canada in Sierra Club of Canada v Canada (Minister of Finance), 2002 SCC 41 , [2002] 2SCR 522 directed that a confidentiality order should be granted in civil and commercial cases where (para 53): (

a) such an order is necessary in order to prevent a serious risk to an important interest, including a commercial interest, in thecontext of litigation because reasonable alternative measures will not prevent the risk; and (

b) the salutary effects of the confidentiality order, including the effects on the right of civil litigants to a fair trial, outweigh itsdeleterious effects, including the effects on the right to free expression, which in this context includes the public interest in open andaccessible court proceedings. [88] Encana submits that a permanent sealing order is appropriate and that the Sierra Club test has been met because thecommercial interests at stake are the encouragement of arbitration as a form of alternative dispute resolution, preservation of the parties’reasonable expectation of privacy in an ongoing arbitration and contractual obligations of confidentiality of commercially sensitiveinformation.

Encana submits that the proposed sealing order is proportional as it has now identified in Appendix A to its March 11, 2016correspondence specific references in the above materials over which it claims confidentiality. Encana asserts that denying public accessto that material would have a minimal deleterious effect on the open court principle. [89] I have reviewed the confidentiality claims that have been advanced by Encana.

Having regard to the information already onthe public record in the Action, I am of the view that only the following items should continue to be sealed: • Affidavit of Justin Calon, sworn January 27, 2016, Exhibits E, F and G which are the Notice of Arbitration, Answer toNotice of Arbitration and Counterclaim and Reply to Answer to Notice of Arbitration, and Answer to Counterclaim; • Encana Main Brief, filed February 5, 2016, paragraphs 32-33; • Brief of Law of PrairieSky, filed February 12, 2016, paragraphs 4, 27, 30, 59(last two sentences only), Tabs D,E and Fwhich are the Notice of Arbitration, Answer to Notice of Arbitration and Counterclaim and Reply to Answer to Notice of Arbitration,and Answer to Counterclaim; and • Reply Brief of TTWI, filed February 12, 2016, paragraphs 43, 106(b) (third sentence only), footnotes 27 and 71 (lastbracketed portion only).

VI Conclusion [ 90 ] In

summary: (

a) The claims advanced against Encana in the Action are referred to arbitration, except for the remedial relief sought pursuant to clause 6.04(

e) for specific performance of Encana’s obligations under the Royalty Agreement. (

b) The Action will be stayed against Encana only, pending the determination of the Arbitration. The Action against PrairieSky may proceed, including any third party proceedings that may be commenced by PrairieSky against Encana. (

c) PrairieSky’s application to stay the Arbitration is dismissed. (

d) PrairieSky and Encana’s applications to strike the Bankes and Cole Affidavits are adjourned sine die. (

e) The Sealing Order is varied. [ 91 ] Success on these applications has been divided. If the parties are unable to agree on how costs should be addressed, they are at liberty to make written submissions within 30 days. Heard on the 29 th day of February and the 1 st day of March, 2016. Dated at the City of Calgary, Alberta this 12 th day of April, 2016. J. Strekaf J.C.Q.B.A. Appearances: Neil Finkelstein, Douglas T. Yoshida, Layne Thiessen and Brandon Kain McCarthy Tetrault LLP for the Plaintiff Colin Feasby and Kelly Osaka Osler, Hoskin and Harcourt LLP for the Defendant, Encana Corporation Michael A.

Marion and Chidinma Thompson Borden Ladner Gervais LLP For the Defendant, PrairieSky Royalty Ltd.

_______________________________________________________ Corrigendum of the Memorandum of Decision of The Honourable Madam Justice J. Strekaf _______________________________________________________ Some of counsels’ names in the Appearances

section were incorrectly stated representing the incorrect parties and should read Neil Finkelstein, Douglas T. Yoshida, Layne Thiessen and Brandon Kain of McCarthy Tetrault LLP for the Plaintiff; Michael A. Marion and Chidinma Thompson of Borden Ladner Gervais LLP for the Defendant, PrairieSky Royalty Ltd.