Canadian Natural Resources Limited v ShawCor Ltd, 2016 ABQB 21

Court of Queen ’ s Bench of Alberta Citation: Canadian Natural Resources Limited v ShawCor Ltd, 2016 ABQB 21 Date: 20160111 Docket: 1001 01541 Registry: Calgary Between: Canadian Natural Resources Limited Plaintiff - and - ShawCor Ltd., Shaw Pipe Protection Ltd., IMV Projects Inc., Flint Field Services Ltd., and Transline Ltd. Defendants - and - Ram River Pipeline Outfitters Ltd., and Dunn Hiebert & Associates Ltd. Third Party _______________________________________________________ Reasons for Judgment of the

Honourable Chief Justice Neil Wittmann _______________________________________________________ Introduction [ 1 ] Canadian Natural Resources Limited (“CNRL”) brought an action against ShawCor Ltd., Shaw Pipe Protection Ltd. (“ShawCor”), IMV Projects Inc. (“IMV”), Flint Field Services Ltd. and Transline Ltd. (“Flint”). CNRL alleges that the defendants negligently provided a pipe coating and insulation system related to a 32 kilometer underground pipeline owned by CNRL in north- eastern Alberta.

ShawCor issued a third party claim against Dunn Hiebert & Associates Ltd. (“Dunn Hiebert”) and Ram River Pipeline Outfitters Ltd. (“Ram River”). In addition, ShawCor claimed against its co-defendant Flint and Flint claimed against its co-defendants ShawCor and IMV. Details of the Allegations [ 2 ] CNRL has claimed that IMV was the main engineering and procurement contractor for the pipeline with primary responsibility for design, specification, procurement and selection of the appropriate insulation system.

Further, CNRL alleges that ShawCor is in the business of providing pipe insulation and corrosion barrier systems and that it provided and supplied the insulation system for use on the pipeline. CNRL further alleges Flint acted as the primary construction contractor for the pipeline.

The details of the allegations include a coating failure and resulting defects in the pipeline, necessitating the removal and replacement of the pipeline, including a new insulation system, the cost of which is estimated to be 65 million dollars. [ 3 ] As against IMV, CNRL claims breach of contract, negligence and negligent misrepresentations with respect to the design and procurement recommendations for the appropriate insulation and corrosion protection system.

As against ShawCor, CNRL alleges breach of contract, negligence and negligent misrepresentation in failing to provide an insulation system consistent with operating environment and compliant with professional, statutory and industry standards and codes. [ 4 ] As against Flint, CNRL states that Flint failed to ensure the pipeline was safely installed and failed to protect the pipeline’s insulation system from damage during construction; that Flint engaged in faulty installation practices and contributed to the failure. [ 5 ] ShawCor alleges its work was completed in the spring of 2008 and denies any wrong doing and indicates that its manufacture and supply of the coating was based on IMV’s directions, instructions and design specifications.

ShawCor further claims that the pipeline problems were caused by the out of scope pipeline operation by CNRL. In addition, or in the alternative, ShawCor says a number of factors caused or contributed a loss, including improper construction, installation, storage, handling; improper pre-stressing construction and other construction issues.

ShawCor also alleges inadequate design, management, coordination and direction of the pipeline project. [ 6 ] As against Dunn Hiebert, ShawCor claims Dunn Hiebert was engaged by CNRL to provide inspection services in relation to the pipeline and Dunn Hiebert was to inspect and examine the coating and approved it on several occasions. Further, ShawCor alleges that if the coating degraded or failed, it wasn’t caused by the actions of ShawCor, but by the acts or omissions of Dunn Hiebert. IMV has denied any fault in the design, construction or operation of the pipeline.

Iit says that its involvement in construction was limited to providing construction work packages to Flint and it had no other involvement in the application of the coating or transportation, handling and storage of pipe joints or otherwise. Further, IMV alleges that CNRL operated the pipeline at temperatures in excess of its design rating and claims contributory fault on the part of CNRL. [ 7 ] Flint admits it was the construction contractor but had no design obligations with respect to the pipeline or coating system and that the construction work was performed in a good, safe and proper manner.

Flint alleges that CNRL knew or should have known that using the pipeline for purposes other than designated in the design, or at temperatures and pressures exceeding the design, would result in damage to the pipeline, including the coating system.

Flint’s claim against Ram River is that it sub-contracted to Flint to install forms, spray foam insulation and installing outer sleeves and casing and that if there was any breach of the construction obligations by Flint, it was as the result of the Ram River work. [ 8 ] In its defence to the third party claim of ShawCor, Dunn Hiebert denies any role with respect to design or specifications of the pipeline coating, or approval or quality control. It further denies any obligation or engagement to conduct any inspection of the pre- coating process.

Dunn Hiebert further alleges that its role was limited to field inspection of the normal pipeline construction activities, such as ditching, backfill, and welding phases of the pipeline installation. With respect to field coating, which amounted to only 2% of the total coating on the pipeline, Dunn Hiebert’s role was allegedly limited to observing that ShawCor’s specifications and guidelines were followed.

Dunn Hiebert further alleges the failure of the pipeline coating was throughout its length, which shows the failure was caused by either faulty design or operating the pipeline at higher than design temperatures or some other improper use. The Applications [ 9 ] In January of 2014, IMV brought an application for an Order directing the questioning of Tom Dunn of Dunn Hiebert pursuant to the Alberta Rules of Court (“ ARC ”) 5.18.

The same day, an application was brought by Flint for an Order to question Dunn Hiebert, pursuant to ARC 5.18 and “for such evidence to be treated as though it were evidence of an employee of CNRL”. On February

19, 2014, the Court issued an Order that the applications be adjourned sine die and that: 2.

Any party who declares themselves adverse to Dunn Hiebert may question the representative or employees of Dunn Hiebert without prejudice to any position which may be taken by such party at a future application pursuant to Rule 5.18 in respect of that Questioning. [ 10 ] In the result, questioning occurred of Tom Dunn, an owner of Dunn Hiebert who provided services to CNRL as the Chief Inspector for the pipeline project, Bill Smith who provided services through Dunn Hiebert as the Assistant Chief Inspector on the pipeline project and Sursad Jamil, who provided services to CNRL through Dunn Hiebert to inspect the insulation system applied in the field during construction of the pipeline project. [ 11 ] IMV has now revived its application for an Order, pursuant to ARC 5.18(4) that the evidence of Dunn, Smith and Jamil be treated as if it were the evidence of employees of CNRL.

Flint has made an identical application. Briefs were filed by CNRL, IMV and Flint and the applications were heard October 28, 2015. The Alberta Rules of Court People who may be questioned 5.17(1) A party is entitled to ask the following persons questions under oath about relevant and material records and relevant and material information: (

a) each of the other parties who is adverse in interest; (

b) if the party adverse in interest is a corporation, (

i) one or more officers or former officers of the corporation who have or appear to have relevant and material information that was acquired because they are or were officers of the corporation, and (ii) the corporate representative; (

c) if a litigation representative is appointed for a party, (

i) the litigation representative, and (ii) with the Court’s permission, the person on whose behalf the litigation representative is appointed if that person is competent to give evidence; (

d) one or more other persons who are or were employees of the party adverse in interest who have or appear to have relevant and material information that was acquired because of the employment; (

e) an auditor or former auditor engaged by a party adverse in interest, but not an auditor or former auditor engaged solely for the purpose of the action; (

f) if a partnership is a party adverse in interest, a partner or former partner of the partnership; (

g) in an action with respect to a negotiable instrument or chose in action, (

i) an assignor of the negotiable instrument or chose in action, (ii) a prior endorser, drawer, holder or maker of the negotiable instrument, and (iii) an employee or former employee of an assignor of the negotiable instrument or chose in action, and if the assignor is a corporation, an officer or former officer of the corporation.

(2) If a questioning party questions more than one person of a party adverse in interest under subrule (1) and the person questioned is (

a) an officer or former officer of a corporation described in subrule (1)(b)(i), (

b) an employee or former employee of the party adverse in interest described in subrule (1)(d), (

c) an auditor or former auditor described in subrule (1)(e), (

d) a partner or former partner of a partnership referred to in subrule (1)(f), or (

e) an employee, former employee, officer or former officer described in subrule (1)(g)(iii), other than a corporate representative, the costs of questioning the second and subsequent persons are to be paid by the questioning party unless (

f) the parties otherwise agree, or (

g) the Court otherwise orders.

(3) This rule applies whether the person to be questioned is within or outside the Court’s jurisdiction. Persons Providing Services to Corporation 5.18(1) Subject to subrules (2) and (3), if (

a) a party cannot obtain relevant and material information from an officer or employee or a former officer or former employee of a corporation that is a party adverse in interest, (

b) it would be unfair to require the party seeking the information to proceed to trial without having the opportunity to ask questions about the information sought, and (

c) the questioning will not cause undue hardship, expense or delay to, or unfairness to, any other party or to the person to be questioned, the party may question, under oath, a person who has provided services for the corporation and who can provide the best evidence on the issue.

(2) A person described in subrule (1) may be questioned only (

a) by written agreement of the parties, or (

b) with the Court’s permission.

(4) Evidence from a person questioned under this rule is to be treated as if it were evidence of an employee of the corporation. Acknowledgment of corporate witness’s evidence 5.29(1) The evidence given by a corporate witness during questioning may not be read in as evidence at trial unless a corporate representative of the corporation, under oath, acknowledges that the evidence forms some of the information of the corporation.

(2) Subject to subrule (3), the corporate representative may refuse to acknowledge some or all of the evidence of the corporate witness and, if so, must state why, but is not entitled to refuse to acknowledge the corporate witness’s information just because the corporate representative disbelieves or disagrees with it.

(3) If the corporate representative disbelieves or disagrees with some or all of the evidence of a corporate witness, the corporate representative (

a) must acknowledge the evidence as information of the corporation unless it is inadmissible under the laws of evidence, and (

b) may then qualify the acknowledgment with further evidence that is contrary to or inconsistent with the corporate witness’s evidence if the further evidence is based on either or both of the following: (

i) the corporate representative’s personal knowledge; (ii) a record prepared by the corporate representative or provided to the corporate representative by a person having personal knowledge of the issue in question. Use of transcript and answers to written questions 5.31(1) Subject to rule 5.29, a party may use in support of an application or proceeding or at trial as against a party adverse in interest any of the evidence of that other party in a transcript of questioning under rule 5.17 or 5.18 and any of the evidence in the answers of that other party to written questions under rule 5.28.

(2) Evidence referred to in subrule (1) is evidence only of the questioning party who uses the transcript evidence or the answers to the written questions, and is evidence only against the party who was questioned.

(3) If only a portion of a transcript or a portion of the answers to the written questions is used, the Court may, on application, direct that all or each other portion of the transcript or answers also be used if all or any other portion is so connected with the portion used that it would or might be misleading not to use all or any other portion of the transcript or other answers. Position of the Parties

A) IMV and Flint [ 12 ] As indicated, the relief asked for on behalf of IMV and Flint is identical. So too are their positions. First, that there is no relevant and material information available from a current or former officer or employee of CNRL and thus, ARC 5.18(1)(

a) is complied with. Second, it does not matter if Dunn Hiebert is adverse in interest to CNRL, in terms of the application of ARC 5.18(1)(

b) and (

c) but in any event, all of the evidence of the Dunn Hiebert witnesses with respect to construction management and inspection services is

aligned with the interest of CNRL. Third, ARC 5.29 provides a framework for dealing with the corporation’s disagreement or disbelief ofthe evidence of an employee or former employee and the corporation may qualify the acknowledgement of the former employees’evidence with further evidence, in that event. Also, that the Dunn Hiebert witnesses provided services to CNRL within the meaning ofARC 5.18, which gives rise to their ability to be examined. Further, that there is no undue hardship expense or delay or unfairness toCNRL; the questioning has already occurred.

Flint and IMV say it would be unfair for those parties to proceed to trial without the abilityto use relevant and material information, including for read-in purposes. Finally, Flint and IMV submit that the Dunn Hiebert witnessesgive the best evidence as to inspections and construction management.

B) CNRL [13] CNRL takes the position that the purpose of ARC 5.18 is to allow strangers to the action to be questioned and their evidenceused as if they were employees of a corporate party. CNRL states that ARC 5.18 does not apply when the entity sought to be examined isalready a party and its officer, employees and former employees have been examined.

The argument of CNRL is that all of the availableevidence and information has been made available to all of the parties to the action by the examination of the Dunn Hiebert witnesses.CNRL argues the purpose of ARC 5.18 is to permit questioning of those who have the best knowledge of the matters in issue, and thishas already been done. [14] CNRL says that Flint and IMV have all of the necessary information needed but that they “seek a tactical advantage againstCNRL” and by doing so, “impute an inapplicable secondary purpose to the Rule”.

CNRL further argues that Flint is adverse in interest toDunn Hiebert, that Dunn Hiebert and CNRL, as parties to the litigation, will “inevitably testify at trial and that there is no unfairness toIMV or Flint by not allowing them to use the evidence of Dunn Hiebert as if it were given by an employee of CNRL.” Finally, CNRLargues that Dunn Hiebert and CNRL are fully adverse on the issue of the allegation that CNRL’s conduct permitting high temperatureemulsion to enter the pipeline caused the failure and that therefore permitting self-serving evidence of Dunn Hiebert would unfairlyprejudice CNRL at the trial.

Authorities Relied on by The Parties [15] By IMV: Petro-Canada Products Inc v Dresser-Rand Canada Inc, 2004 ABCA 144; ARC 5.17, 5.18, and 5.29 and 5.31; EssoResources Canada Ltd v Stearns Catalytic Ltd. (1993), (AB KB), 156 AR 178 (QB); Austec Electronic Systems Ltd. vMark IV Industries Ltd, 2002 ABQB 349; Murphy Canada Exploration Co v Novagas Canada Ltd, 2009 ABQB 585; Rennick & DiPinto v Coopers & Lybrand, 2002 ABQB 902; AMEC Americas Ltd v Attila Dogan Construction and Installation Co, 2015 ABQB 366;Cogent Group Inc v EnCana Leasehold Limited Partnership, 2011 ABQB 335.; Adams v Norcen Energy Resources Ltd, 1998 ABQB913. [16] By Flint: ARC 5.18; Cogent Group Inc, supra; Alberta Law Reform Institute, Rules of Court Project, ConsultationMemorandum No. 12.2 “Document Discovery and Examination for Discovery” (October 2002); Petro Canada Products Inc, supra;Briggs Bros Student Transportation Ltd v Collacutt, 2009 ABCA 17; Tang v Labrocca, 1999 ABQB 832; CCS Corporation v.

SecureEnergy Services Inc, 2013 ABQB 662; Rennick & Di Pinto, supra. [17] By CNRL: Cogent Group Inc, supra; Trizec Equities Ltd v Ellis-Don Management Services Ltd, (ABKB), [1996] AJ No 699; Briggs Bros Student Transportation Ltd, supra; Sisters of St Joseph v Hilsden & Co

(1963) Ltd, (SK KB), [1976] 3 WWR 220; Duxbury v Calgary (City), (AB KB), [1939] 3 WWR 586 (SC); Jacobson v Sveen,[1995] AJ No 288 (QB); Collacutt (Next friend of) v Briggs Bros Student Transportation Ltd, 2008 ABQB 505. Factual Issues

A) Construction Management and Inspection Services [18] There is overwhelming evidence that construction management and inspection services evidence could not be obtained froman officer or employee or a former officer or former employee of CNRL within the meaning of ARC 5.18(1)(a). As submitted by IMV,Dunn Hiebert, through the Dunn Hiebert witnesses, were the eyes and ears of CNRL, insofar as construction management and inspectionof the pipeline was concerned.

The evidence demonstrates that the firsthand evidence given by the Dunn Hiebert witnesses could not beobtained from an officer or employee or former officer or former employee of CNRL. The evidence referred to, in the IMV brief and theFlint brief, conclusively demonstrates this. Moreover, CNRL does not dispute this factual issue.

B) Adverse In Interest [19] CNRL submits that Flint is adverse in interest to Dunn Hiebert and much of the argument surrounded the meaning of thatphrase. In multi-party litigation, each defendant may be adverse to another defendant on some issues and aligned with that samedefendant on others. So too might a plaintiff and a defendant be aligned or adverse on different issues against another defendant. In allcases, fair practice requires vigilance by the Court to ensure that, in a trial, there is no “sweetheart” cross-examination occurring.

Thatkind of an examination occurs where one party is allowed to cross-examine another party’s witness where their interests are aligned, notadverse. In Trizec Equities Limited, Mason J. of this Court, reviewed a number of authorities which indicate that the overarchingprinciple is fairness and that a Court must identify when and on what issue a party is adverse in interest to determine what kind ofquestioning, at a trial, is allowed. I accept that Flint and Dunn Hiebert are adverse in interest on the issue as to the proper inspection ofthe coating system.

I do not accept that Dunn Hiebert or the Dunn Hiebert witnesses are adverse to CNRL on the constructionmanagement and inspection issue with the possible exception of different evidence on the placement of bag weights in the field. CNRLalleges that Dunn Hiebert is adverse in interest to CNRL because Dunn Hiebert has alleged that CNRL permitted high temperature

emulsion to pass through the pipeline causing the failure of the coating system. On this issue, Dunn Hiebert and CNRL are adverse in interest. But there is no evidence before me that the Dunn Hiebert witnesses provided any firsthand information on this issue during 9 days of questioning. Furthermore, the phrase at the end of ARC 5.18(1)(a) “... of a corporation that is a party adverse in interest” refers to the corporation being the party adverse in interest, not the officer or employee or the former officer or employee. CNRL is adverse in interest to IMV and Flint. Analysis [ 20 ] As stated, IMV and Flint have complied with ARC 5.18(1)(

a) in that relevant and material evidence of construction management and inspection services on the pipeline project cannot be obtained from an officer or employee or former officer or former employee of CNRL. [ 21 ] The questioning of the Dunn Hiebert witnesses by IMV and Flint after they had “declared” themselves adverse in interest to Dunn Hiebert was appropriate in the circumstances. IMV and Flint are adverse in interest to Dunn Hiebert on all of the main issues presented, save and excepting the allegation that CNRL “cooked” the pipeline causing the coating failure.

But, as stated earlier, there is no evidence before me that the Dunn Hiebert witnesses had any firsthand knowledge about the carriage of high temperature emulsion through the pipeline. A party that has pleaded something need not have personal knowledge of it. [ 22 ] The Dunn Hiebert witnesses have been produced by Dunn Hiebert because Dunn Hiebert is a party to the action and questioning has been conducted by any party that has declared themselves adverse in interest to Dunn Hiebert.

As put by CNRL, all of the “information sought by IMV and Flint has been obtained through the questioning of the Dunn Hiebert witnesses”. Thus, it is not unfair to IMV or Flint to require them to proceed to trial without the information because they have the information. [ 23 ] However, according to IMV and Flint, the unfairness arises because they cannot treat the evidence of the Dunn Hiebert witnesses as if it were given by employees of CNRL without the relief asked for. If granted, IMV and Flint will meet the threshold for the application of ARC 5.29 and 5.31.

The purpose of questioning, formerly known as oral discovery, is not only to obtain information from an opposite party or a party adverse in interest, but also to obtain admissions against the interest of that opposite party or party adverse in interest that can be read-in at the trial. Flint and IMV say it is unfair for them not to be able to do this, if they find it necessary. [ 24 ] The Court is well aware of the practice that rarely do defendants find it necessary to read-in excerpts from the questioning of a plaintiff at trial. CNRL argued this.

The dominant use of the questioning at trial by a defendant, whose case is usually not started until the plaintiff’s case is in, is to confront witnesses who have been questioned under oath or affirmation, with a previous inconsistent statement pursuant to the procedure mandated in the Alberta Evidence Act, RSA 2000, c A-18, s.22. In other words, the transcript is used for the purpose of cross-examining the plaintiff’s witnesses who have been subject to questioning by defence counsel.

Notwithstanding this practicality, the Court cannot anticipate whether a defendant, IMV or Flint, may choose to read-in questioning evidence against the plaintiff, as part of that defendant’s case against the plaintiff.

It would be wrong to base any decision on the basis that the practice rarely occurs. [ 25 ] In short, the Court sees no unfairness to CNRL by allowing the application of ARC 5.18 to occur even where the persons providing the services or the entity providing the services, within the meaning of ARC 5.18, is a party to the action. [ 26 ] The Court acknowledges that in The Alberta Law Reform Institute’s Consultation Memorandum 12.2 , this situation was not contemplated.

The Court agrees with CNRL that what was contemplated in the Consultation Memorandum is that it would apply to persons or entities not a party in an action. CNRL argues ARC 5.18 was intended to apply only to “a stranger to the action”. [ 27 ] In Petro Canada Products Inc, employees of Dresser US were involved in doing the work contracted by Dresser-Rand Canada Inc. and the Court ordered those persons to be examinable under the old ARC 200 as being “akin” to employees. Dresser US was the sister company of Dress-Rand Canada.

Accepting this case is codified somewhat by ARC 5.18, it contemplated not a stranger, but a member of the family, but nevertheless a non-party. The stated purpose encompasses all situations where a service provider has the only available evidence, stranger or not. [ 28 ] With respect to ARC 5.18(c), there is no undue hardship, expense or delay to CNRL or to any other person with respect to the questioning of the Dunn Hiebert witnesses. That has already occurred.

Again, the alleged unfairness by CNRL is the ability of Flint and IMV to treat the evidence of the Dunn Hiebert witnesses as if that were evidence of employees of CNRL. [ 29 ] During oral argument, the Court posed this question to counsel for CNRL: If Dunn Hiebert were not a party to the action, would there be any argument that ARC 5.18 would not apply? Counsel for CNRL conceded that perhaps no valid argument would exist, but stated “that’s not what we have here.” The Court agrees. But does the fact that Dunn Hiebert is a party change anything?

Not in the circumstances of this case. [ 30 ] If a read-in answer is attempted in any case before a trial judge, the party may object that the answer is incomplete: ARC 5.31(3). Moreover, by making the declaration that the evidence of the Dunn Hiebert witnesses is to be treated as if it were the evidence of employees of CNRL, the Court is not ruling on any aspect of ARC 5.29. The Court acknowledges that in the IMV brief, it is stated that CNRL has refused to acknowledge the evidence of the Dunn Hiebert witnesses as some of the evidence of CNRL’s corporate witness.

Conclusion [ 31 ] The Court grants the applications of IMV and Flint. The evidence of the Dunn Hiebert witnesses is evidence from persons questioned under ARC 5.18 and its to be treated as if it were evidence of employees of CNRL: ARC 5.18(4). [ 32 ] In light of the declaration the Court has made, an inquiry should be made again of CNRL to ascertain whether the corporate

representative of CNRL still refuses to make the acknowledgement contemplated in ARC 5.29(2) with respect to the evidence of the Dunn Hiebert witnesses. Thereafter, if a dispute arises between the parties, a further application to the Court may be made. Fairness to CNRL will be achieved by the proper application of ARC 5.29 and 5.31. [ 33 ] As this appears to be a case of first instance on the application of ARC 5.18 when the evidence in question is given by a party as opposed to a non-party, each party will bear their own costs. Heard on the 28 th day of October, 2015.

Dated at the City of Calgary, Alberta this 11 th day of January, 2016. Neil Wittmann C.J.C.Q.B.A. Appearances: Munaf Mohamed and Christine A. Viney for IMV Projects Inc. Jeffrey Sharpe and Robert Martz for Canadian Natural Resources Limited Alisha Hurley for Flint Field Services Ltd. and Transline Ltd. Joshua Sadovnick for Dunn Hiebert & Associates Ltd.