Precision Drilling Canada Limited Partnership v Yangarra Resources Ltd, 2016 ABQB 365

Court of Queen ’ s Bench of Alberta Citation: Precision Drilling Canada Limited Partnership v Yangarra Resources Ltd, 2016 ABQB 365 Date: 20160630 Docket: 1201 03487 Registry: Calgary Between: Precision Drilling Canada Limited Partnership Plaintiff/ Defendant by Counterclaim - and - Yangarra Resources Ltd Defendant/ Plaintiff by Counterclaim - and - Devon Nec Corporation Defendant _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice E.C. Wilson _______________________________________________________

Appeal from the Decisions by Master J.T. Prowse, Master in Chambers Given on the 6th day of July, 2015 and the 14th day of October 2015 (2015 ABQB 433 and 2015 ABQB 649) Introduction [1] The Plaintiff/Defendant by Counterclaim (hereafter “Precision”) applied for

summary judgment against Yangarra ResourcesLtd (hereafter “Yangarra”) for work it did on three Yangarra wells. Devon Nec Corporation was not involved in that Application nor this Appeal. The Application was heard by Master J.T. Prowse. On July 6th 2015 he granted the Application. His decision is reported at 2015ABQB 433. [2] When the time came to finalize the wording of the formal Judgment, the issue of interest arose.

The parties were unable tocome to agreement and that issue was also brought before Master Prowse. [3] On October 14, 2015 he rendered his decision which is reported at 2015 ABQB 649. [4] Yangarra appeals both decisions. [5] For the reasons that follow, I dismiss both Appeals and confirm the decisions of the learned Master. A.

Summary Judgment Application [6] Precision’s application was brought pursuant to Rule 7.3 on the ground that there was no defence to the claim or part of it. [7] The test to be employed on such applications was recently expressed by Master J.B. Hanebury in Kidco Construction Ltd vGriffith, 2015 ABQB 814: [14] The test utilized by the court when considering an application for

summary judgment or dismissal is that the application should begranted where no genuine issue for trial exists. This occurs when the judge is able to make a fair and just determination on the meritswithout a trial, because the

summary judgment process allows him or her to make the necessary findings of fact, to apply the law to thosefacts and is a proportionate, more expeditious and just means to achieve a just result. Rule 7.3 provides that

summary judgment may begranted if a disposition that is fair and just to both parties can be made on the existing record: Maxwell v Walmart, 2014 ABCA 383, para. 12. [15]

Summary judgment is therefore no longer to be denied solely on the basis that the evidence discloses a triable issue. The question iswhether there is in fact any issue of “merit” that genuinely requires a trial, or conversely whether the claim or defence is so compellingthat the likelihood it will succeed is very high such that it should be determined summarily: WP v Alberta, 2014 ABCA 404 ,para. 26. I should also add that on such Applications the parties are expected to put their best foot forward with respect to the existence or non-existence of material issues to be tried.

Self-serving evidence is insufficient to give rise to a triable issue – Windsor v Canadian PacificRailway Ltd, 2014 ABCA 108, paragraph 21; Sprague Rosser Contracting Co Ltd v EOS Pipeline & Facilities Inc, 2016 ABQB 231 atparagraph 26. Standard of Review [8] The parties agree that the standard of review on these Appeals is correctness. The Master’s decisions are not entitled todeference – Bahcheli v Yorkton Securities Inc, 2012 ABCA 166 paragraphs 19 and 30.

The Facts [9] Based upon my review of the record, I am satisfied that the learned Master has provided an accurate overview of the facts inhis Reasons which I accordingly adopt in their entirety. Here is what he said: The factual record before the court [17] Here are the facts, which emerged from the evidence, with any conflict in evidence assumed to be as stated by Yangarra:

(

i) during the night shift on December 2 nd and early December 3 rd , 2011, a recently re-hired employee of Precision, Mr.

Lewis, mistakenly mixed sulfamic acid into the drilling mud of the well, instead of caustic potash, notwithstanding that the packages containing these different products were clearly marked, and notwithstanding that the physical appearance of the two products was quite different; (ii) during the rest of the night shift, and part of the day shift on December 3 rd , prior to the failure of the well, employees of Precision either neglected to test or carelessly tested the drilling mud, and wrongly advised Yangarra’s supervisor that the drilling mud was in order; (iii) at the beginning of the day shift on December 3 rd , one of Precision’s day shift employees, Mr.

Power, noted the empty packages of sulfamic acid and corrected the records to reflect that it had been added to the drilling mud and not caustic potash; (iv) Precision’s employees at the rig site should have advised Yangarra of the addition of the acid to the mud but failed to do so, thus robbing Yangarra of the opportunity to temporarily shut the rig down while changing out the defective mud. This is conceded by Precision for the purposes of this application notwithstanding that Precision will, if this matter proceeds to trial, attempt to prove that a warning was given to Yangarra; (

v) On December 3 rd at approximately 1:00 P.M. the drill string and bit being used by Precision became stuck in the hole, and could not be extracted.

It is assumed that the rig became stuck as a result of sulfamic acid having been added to the drilling mud; (vi) Precision attempted to extract some of Yangarra’s equipment from the well, but in the end approximately $300,000 worth of Yangarra equipment was lost and had to be left in the well, which was abandoned; (vii) It may be that Precision was not successful rescuing Yangarra’s equipment from the well because the weight indicator on Precision’s rig was not properly calibrated, and this resulted in Precision applying less tension or force to its rig attempting to complete the extraction than could have been applied if its weight indicator had been properly calibrated; (viii) Precision performed some work on the drilling of a relief well but another contractor in fact completed the relief well. [ 10 ] That Record has been augmented for the Appeal before me by Yangarra with the addition of the following: Affidavit of James Glessing (Tab 18); Affidavit of Amy Gamracy (Tab 27); transcript and exhibits from the questioning of Gerald Parchewski (Tabs 48 and 49).

No complaint regarding admissibility was advanced by Precision before me regarding these materials which came into existence subsequent to Master Prowse’s decision and they will, accordingly, form part of the Record before me. The Impugned Decision [ 11 ] Here is what the learned Master said: [ 1 ] Precision brings an application for

summary judgment to be paid for work it did on three Yangarra wells. [ 2 ] Precision claims fees for drilling work done on an initial (successful) well, fees for attempting to drill a second well which had to be abandoned, fees for trying to fish equipment out of the abandoned well, and finally fees for work on a third well, which well was only needed because the second well had to be abandoned. [ 3 ] Precision seeks to be paid for work on all three wells, without set-off or counterclaim, notwithstanding that the second well was abandoned, and the third well only became necessary, because of Precision’s failure to drill the second well in a good and workmanlike manner. [ 4 ] Precision’s seemingly audacious claim is based on the provisions of a written contact between it and Yangarra. [ 5 ] The contract is a standard form industry contract, the terms of which were negotiated between the Canadian Association of Oilwell Drilling Contractors and the Canadian Association of Petroleum Producers. [ 6 ] In these reasons when I quote from the contract I will insert the name Precision in place of “Contractor” or “Contractor’s Group” and the name Yangarra in place of “Operator” or “Operator’s Group”. [ 7 ] The standard form contract purports to allocate risks and liabilities between Precision and Yangarra in a manner which is markedly different from what one would normally expect at common law. [ 8 ] By the terms of the contract the parties have agreed to a bilateral assignment of risk, where each party generally bears the risk of damage to its own assets, rather than having risk allocated on the basis of fault.

With certain exceptions, it is primarily a “no fault contract”. [ 9 ] And so, under

article 10.1, Precision agrees to bear the risk to its own surface equipment even if that equipment is damaged or destroyed by the fault of Yanagarra.

Article 10.1 states: Except as provided in [other listed sections]... Precision shall at all times assume all of the risk of and be solely liable for any damage to, loss of, or destruction of Precision’s Surface Equipment, regardless of the negligence or other fault of Yangarra or howsoever arising and Precision specifically releases Yangarra in regard to any claims that Precision may otherwise have in regard thereto. [ 10 ] In other words, if an employee of Yangarra carelessly flicked a burning cigarette into a barrel of flammable liquid, and burnt Precision’s multi-million dollar drilling rig to the ground, Precision would bear the loss and could bring no claim against Yangarra.

[ 11 ] On the other side of the ledger, Yangarra agrees to bear the risk to its own assets, even if they are destroyed or damaged by the fault of Precision.

Article 10.3 states: Yangarra shall at all times assume all of the risk of and be solely liable for ...any loss, damage to or destruction of: (ii) Yangarra’s equipment ... (iii) the hole, reservoir or any underground formation ... regardless of the negligence or other fault of Precision or howsoever arising, and Yangarra shall defend and indemnify Precision from and against any and all actions, claims, losses, costs, damages and expenses resulting therefrom and specifically releases Precision from any claims Yangarra may otherwise make in regard thereto. [ 12 ] The result is completely different from a common law scenario where liability for the losses to Yangarra’s well and equipment would be assigned to Precision by way of breach of contract and/or tort. [ 13 ] The parties have entered into a bilateral no fault contract, and I see no reason to disregard that clear wording. [ 14 ] This is not a case where one party to a contract, perhaps in a situation of unequal bargaining power, attempts to enforce a clause relieving it from liability for damages caused by its fault. [ 15 ] This is a situation where two large commercial entities have chosen to enter into an industry negotiated form of bilateral no fault arrangement. [ 16 ] Accordingly, Precision is entitled to payment for its work without deduction by way of set-off arising from the fact that Precision’s faulty drilling caused monetary loss to Yangarra. [ 12 ] I note the interesting explanation for the oil and gas industry’s apparent desire to embrace these bilateral, no fault or “knock for knock” contracts found in Precision’s brief at paragraphs 16-22.

It provides, at least, some indication why parties might choose to enter such contracts in this industry. See also the Master’s remarks, for example, at paragraphs 43 to 45. Analysis [ 13 ] No matter how one slices or dices this case, it really is simply a case about contract

interpretation. Precision’s claims and Yangarra’s responses thereto, including its Counterclaim or “Set off”, are rooted in the parties’ respective

interpretations of the contract in question. [ 14 ] The learned Master provided a detailed analysis of that contract in the context of the submissions counsel were making in paragraphs 18 through to 113. [ 15 ] Yangarra offers numerous complaints concerning the learned Master’s

interpretation and respectfully submits that he committed numerous errors of law both in what he said and what he did not say. [ 16 ] It should be noted that, before me, Yangarra has added a further issue which relates to the implied contractual term of honesty and good faith arising from the case of Bhasin v Hrynew , 2014 SCC 71 .

Notwithstanding that Bhasin had been released by the Supreme Court some time prior to counsels’ last date for argument before the Master, it was not until after his decision was released that Yangarra moved to amend its claim to specifically include the allegation of implied good faith and has, accordingly, addressed this matter for the first time on appeal. [ 17 ] However I hasten to add that Precision has no difficulty with this “add on” to Yangarra’s appeal.

The Court has no difficulty with this at all inasmuch as both sides were able to address the matter both in their briefs and their oral submissions. [ 18 ] While Yangarra has detailed a litany of complaints regarding the Master’s

interpretations of this contract and of the conduct of Precision employees, it seems to the Court, with respect, that the heart of Yangarra’s submissions is that Precision employees’ conduct, which Yangarra describes as being either “gross negligence” or “fraudulent”, can never be protected or excused by an exclusionary clause or other contractual language. But Yangarra also takes issue with some related

interpretation issues. [ 19 ] For instance, at paragraph 68 of its brief, Yangarra faults the Master for failing to say anything about the rule of contractual

interpretation that if there are any ambiguities whether a particular loss falls within an exclusionary clause, such ambiguities are to be resolved in favour of Yangarrra. [ 20 ] The short answer to this complaint is that the Master found no such ambiguities either in that regard nor any ambiguities in the contractual language dealing with the assignment of liability in the exemption clauses.

Thus there was no reason for him to have said what he should have said had the contrary been the situation. [ 21 ] Yangarra’s brief spends much time arguing that effect cannot be given to exemption or exclusionary clauses if it would create an absurdity or defeat the contractual obligation of Precision to carry out its work with due care and diligence, in a good and workmanlike manner and in accordance with good drilling practices. [ 22 ] The same argument was advanced before the Master who dealt with it at paragraphs 50-65: (ii) presumption against interpreting an exemption clause so as to create an absurdity

or make the contract meaningless [ 50 ] Yangarra submits that the courts should not construe a risk assignment clause so as to create an absurdity, defeat or contradict the main purpose of the contract, or effectively absolve one party from all its duties and liabilities. [ 51 ] Yangarra argues that to interpret the contract as suggested by Precision will make Precision’s promise to drill in a good and workmanlike manner meaningless. After all, the main benefit which Yangarra hopes to achieve under the contract is for Precision to drill wells in a good and workmanlike manner. [ 52 ] Yangarra’s submits that, if articles 10.3(

a) and 10.4 relieve Precision from any responsibility for breaching this promise, why is this promise in the contract at all? And if this primary promise of Precision is not enforced, how is the contract in any way meaningful? [ 53 ] Some support for Yangarra’s position can be found in the English Court of Appeal decision in Seadrill Management Services Limited v.

OAO Gazprom , [2010] EWCA Civ 691, [2011] 1 All E.R. (Comm)1077. [ 54 ] In Seadrill , as in the case before me, a contractor (Seadrill) sued to collect for services provided, even though Seadrill’s negligence caused damage to a rig owned by the operator (Gazprom).

Seadrill’s counsel submitted that: ... the contract, viewed overall, reflected a desire on the part of the industry as a whole, and of these parties in particular, to avoid all legal wrangling by allocating responsibility for any loss and damage arising during the course of operations in accordance with well-defined rules. [ 55 ] This submission was rejected by the English Court of Appeal, which stated: ...

I think it would be surprising if parties were to enter into a contract of the present kind, which contains many obligations on the part of the operator and contractor, if their intention had been to allocate the risks of loss and damage without regard to them and without making it clear that what they had chosen to express as obligations were intended to do no more than identify their respective roles in the adventure. [ 56 ] With respect, when dealing with such a complicated and sophisticated contract, it seems to me incorrect to presume that it is absurd for one party (Yangarra) to release the other party (Precision) from Precision’s responsibility for ruining a well by careless drilling, without allowing the industry representatives who negotiated the provisions of this industry wide contract to give evidence as to the commercial motivation for such a provision.

Yet this type of evidence is inadmissible. [ 57 ] In my view, in the context of a bilateral no fault contract, the court should not presume that Yangarra’s releasing of Precision from some of the consequences of not drilling in a good and workmanlike manner is commercially absurd. [ 58 ] It is important to note in this context that Precision’s breach of its promise to drill in a good and workmanlike manner does have meaningful legal consequences under the contract. [ 59 ] Significantly, the contract expressly allows Yangarra to remove Precision from the site, and take over the operation of Precision’s drilling rig “in the event of a default by Precision in performing its obligations under a drilling program” (see

article 8.1) [ 60 ] As well, these parties have an ongoing commercial relationship pursuant to a Master Contract under which specific jobs are added from time to time. In addition to removing Precision from this specific job under

article 8.1, presumably Yangarra could also cease adding new jobs for Precision under the Master Contract. [ 61 ] In other words, the

interpretation I have given to this contract does not render Precision’s promise to drill in a good and workmanlike manner meaningless. There are negative legal and commercial consequences to Precision for breaching its covenant. (iii) interpreting the exclusion clauses in the context of the contract as a whole [ 62 ]

Article 10 of the contract deals with the allocation of risk and liability. [ 63 ] I will list the primary components of

article 10 in order to show the comprehensive nature of the clause. My conclusion is that the risk allocation provided in paragraph 10 was carefully thought out, and that the plain wording of those carefully worded provisions should be applied. [ 64 ] As this is a general

summary, various exceptions and qualifications contained in the clauses are not set out in full: 10.1 with certain listed exceptions, Precision assumes all risk for Precision’s surface equipment 10.2 as an exception to 10.1, Yangarra assumes risk for Precision’s surface equipment in certain narrow circumstances. 10.3(

a) Yangarra assumes all risk, with a certain listed exception, for Precision’s downhole equipment;Yangarra’s equipment, and the hole, reservoir or any underground formation 10.3(

b) Yangarra assumes all risk for any liability to any party arising during a take-over of the well by Yangarra; liability arising from the use of equipment, material and supplies supplied by Yangarra; 10.3(

c) Yangarra assumes the risk for the cost of gaining control of any blowout or wild well

10.4 Yangarra assumes risk for the cost of repairing or redrilling a lost or damaged hole, including the cost of fishing expeditions 10.5 Yangarra is responsible for choosing and preparing the well site 10.6 Precision is responsible for loss of life or injury to Precision employees 10.7 Yangarra is responsible for loss of life or injury to Yangarra employees 10.8 Precision assumes risk for all pollution or contamination above the surface of the ground associated with Precision’s equipment 10.9 Yangarra assumes risk for pollution or contamination not referred to in 10.8 10.10 Except as otherwise dealt with in

article 10, Precision shall indemnify Yangarra as a result of the negligent or wilful acts oromissions of Precision 10.11 Except as otherwise dealt with in

article 10, Yangarra shall indemnify Precision as a result of the negligent or wilful acts oromissions of Yangarra 10.12 Each party shall promptly notify the other of matters over which they will be claiming indemnity 10.13 Each party agrees that this

article 10 is to allocate certain risks between them and such allocation is in the place and stead of anyother allocation of risk 10.14 Under no circumstances will one party be liable to the other party for indirect or consequential damage [65] I do not find the allocation of risk provisions which I have interpreted, articles 10.3(

a) and 10.4 to be inconsistent with theother provisions of the contract, including the provisions of

article 10 summarized above. [23] Yangarra’s submissions have not satisfied me that the learned Master’s findings are wrong in law or otherwise mistaken.Indeed I find he was correct in his

interpretation. There is no absurdity or undermining of this contract created by his

interpretation. [24] I find that Precision’s brief at paragraphs 47 and 48 also helps to accurately describe the actual risks that were being run underthis contract should Precision fail to act in a diligent and workmanlike fashion: 47. First, while sections 10.2, 10.3 and 10.4 of the MDC do allocate all risks and liabilities to Yangarra for such items as the hole, itsown equipment, and wild wells, Precision itself retains a significant number of risks including for its own surface equipment section(10.1) and for pollution that arises above ground section (10.8).

Accordingly, Precision has a significant incentive to conduct itsoperations in a good and workmanlike manner. 48. Furthermore, pursuant to sections 10.10 and 10.11 of the MDC, unless a particular risk is identified and expressly allocated to eitherPrecision or Yangarra, they remain liable to one another for their own negligence or willful misconduct. For example, if Precisionnegligently fails to maintain its equipment and the rig breaks down for three days, it could be liable to Yangarra for damages caused bythis delay as this risk is not allocated to Yangarra under the MDC.

Accordingly, despite the bilateral allocation of certain risks toYangarra and Precision, each party continues to retain significant potential liability for any failure to conduct itself with due care anddiligence. [25] In the result I find there is no merit to Yangarra’s submission. [26] Next, Yangarra takes issue with the Master’s comment at paragraph 49 – “How can a court presume that the release was notintended to cover ... fraudulent misrepresentation?” Yangarra forcefully submits that not only can a court make such a finding, but thelaw requires that it do so. [27] As a general statement, I think that there is something to be said for Yangarra’s complaint with the Master’s comment. [28] While I agree with Precision that reliance upon cases alleging pre-contractual fraudulent misrepresentation are not of anypractical assistance here, (eg Opron Construction Co v Alberta, (1994) (AB KB), 151 A.R. 241 (Q.B.) at paragraph713), cases where the fraud occurs during the currency of the contract however, do assist when embarking upon contractualinterpretation – see Roy v 1216393 Ontario Inc, 2014 BCCA 429. [29] This is particularly so here where Precision offers this response to Yangarra at paragraph 63 of its brief: 63.

Furthermore, Yangarra’s argument again mischaracterizes the nature of the MDC as an attempt to exclude fraud. The bilateral no-fault provisions of the MDC make it clear that the parties have agreed to accept the allocation of risks in

Article 10 irrespective of thetheory of legal liability advanced by the aggrieved party. Furthermore, the parties have also agreed to expressly release each other forany such fault based claim. This is not an attempt to contract out of fraud but rather a contractual regime whereby the parties have agreedto accept certain risks and release one another from any claim based on any theory of legal liability whatsoever, including fraud. [30] But the decision in Roy renders Precision’s purported distinction of no moment. In Roy the fraudulent misrepresentationoccurred during the currency of the contract.

In that circumstance, the court simply gave no effect to the exclusionary clause on the basisof public policy, following Tercon Contractors Ltd v British Columbia, 2010 SCC 4 - see paragraphs 63-76 of Roy. [31] With respect, it seems to be only logical that if the parties crafted a contract to explicitly release one another from a claimbased in fraud, public policy requirements may intervene to give no effect to such language (see also paragraphs 48-53 following);subject to the theoretical possibility of contracting out of the duty of honest performance – Bhasin v Hrynew, 2014 SCC 71, paragraphs77, 78, 80 and 81.

[32] However even if one criticises the learned Master’s general statement as being wrong in law, it must also be recognized thathis was an obiter comment inasmuch as Yangarra hadn’t satisfied him that there was a case here of fraud or fraudulent misrepresentationassociated with this drilling mishap. [33] Yangarra’s failure to satisfy the Master in that regard enjoys no different result before me. [34] Yangarra makes some bold statements but, with respect, without evidentiary support. I completely agree with Precision’ssubmission at paragraph 65 of its brief: 65.

Yangarra’s fraud argument is based on an allegation that Precision employees “concealed” the Improper Mixing. However, there isno evidentiary basis to suggest that there was any intentional concealment, never mind fraud on the part of any Precision employee.Furthermore, while Yangarra argues that Precision employees Power and Dutkel failed to report the Improper Mixing to Yangarra anddespite the obligation to “put its best foot forward”, Yangarra elected not to question these witnesses. [35] Yangarra continues to assert there is some type of cover up going on here.

At paragraph 106 of its brief Yangarra suggests thatthe evidence points to Senior Managers at Precision being “in on it”. Having examined that “evidence” and Precision’s submission onthat “evidence” at paragraphs 66 and 67 of its brief, I find that Yangarra’s view is rooted only in speculation and conjecture with a milddose of melodrama thrown in. [36] I find that Yangarra has run afoul of the directions provided in Windsor v Canadian Pacific Railway Ltd, 2014 ABCA 108 atparagraph 21: [21] ... A party faced with an application for

summary judgment must put its best foot forward, and present evidence to show sufficient“merit” to establish a genuine issue requiring a trial with respect to the outstanding issues: Lameman at para. 19.

Speculating thatevidence might be available at a trial is not sufficient to create a genuine issue requiring a trial. [37] Accordingly, I find there is no merit to this complaint about fraud and fraudulent misrepresentation. [38] Next, Yangarra submits in its more recent claim that Precision breached its contractual duties of honesty and good faith in theexecution of this contract which warrants the matter proceeding to trial.

I disagree. [39] This claim of a lack of honesty and good faith really translates into a claim of dishonesty or bad faith which is simply anotherway of describing its complaint regarding fraudulent misrepresentation and, respectfully, is dismissed for the same reasons, ie theabsence of credible evidence to support the claim. [40] Next, Yangarra complains of the Master’s handling of the issue concerning gross negligence/wilful misconduct which it viewsas being practically synonymous (see paragraphs 122 and 123 of the Yangarra brief) – a view that is shared by the Court. [41] Here is what the learned Master had to say regarding gross negligence: (

i) presumption against contracting out of liability for gross negligence [40] A presumption against contracting out of gross negligence may well be appropriate where the contract arises in situations ofinequality of sophistication or bargaining power. [41] For example, in Robet v. Versus Brokerage Services Inc., (ON SC), 14 B.L.R. (3d) 72, 2001 CarswellOnt1240, the plaintiff Robet had opened a discount brokerage service account with the defendant brokerage.

The contract had exclusionclauses in favour of the brokerage, and the brokerage argued that those clauses protected it from suit, even where it had been grosslynegligent.

The court stated in Robet, at para 62: In my view, no one would knowingly or willingly make a contract with a party who reserved the right to be grossly negligent [42] This quote was cited by Yangarra in support of its position that the contract in question was not intended to release Precisionfrom claims arising from Precision’s gross negligence. [43] In my view, it is entirely sensible to contemplate Precision and Yangarra releasing each other from claims based on grossnegligence. [44] Let me illustrate this by referring back to the provision quoted at paragraph 9 of these reasons.

Clause 10.1, on its face, wouldseem to bar Precision from suing Yangarra for the loss of its drilling rig, even if that loss were caused by Yangarra’s gross negligence.Why would anyone knowingly make such a contract? [45] Perhaps it is because, over time, drilling companies and petroleum companies have found it cheaper in time and money toinsure their property and waive subrogated claims against the other, rather than retaining the right to sue the other? [46] This observation may be regarded as speculation, and it is speculation.

But if you are going to use as a presumption of lawthat no party would willingly make a contract with someone who reserved the right to be grossly negligent, do you not have to allow theparty against whom the presumption is being used to call as a witness its director of risk management to testify as to what in fact itsmotivation was in agreeing to waive claims for gross negligence? [47] Of course, I do not suggest calling as witnesses parties who wish to testify as to why certain provisions were drafted as theywere. This is clearly contrary to law. See Gainers Inc. v.

Pocklington Holdings Inc., 2000 ABCA 151 , 2000 CarswellAlta 508. [48] To me, rather than presuming one party’s intention, but refusing to allow them to call witnesses to rebut that presumption, it is

better to simply interpret the wording of the contract without the presumption. If the wording has the effect of waiving claims for grossnegligence then so be it. [49]

Article 10.4, for example, begins by releasing Precision from negligence. Then it releases Precision from “other fault”. Thenit includes in the release “or howsoever arising”. And finally, with the input from

article 10. 13, the release is then expanded toencompass “any other theory of legal liability”. In the light of this drafting, how can a court presume that the release was not intended tocover gross negligence ... [42] The learned Master’s reference to

Article 10.13 of the Contract warrants it being reproduced here in order to better appreciatehis conclusions: For greater clarity, Precision and Yangarra acknowledge and agree that: (

a) the purpose of this

Article X [ten] is to allocate contractually between Precision and Yangarra certain of the risks, responsibilities andpotential losses or liabilities associated with the operations and activities involved in drilling a well under a drilling program; and, (

b) such allocation shall prevail in the place and stead of any other allocation of risks, responsibilities, or potential losses or liabilities thatmight be made on the basis of the negligence or other fault of either party or howsoever arising or any other theory of legal liability andnotwithstanding the breach or alleged breach by either party of any provision of the drilling program not included in this

Article X [ten] [43] In my view this Contract plainly barred claims of gross negligence which is a well known “theory of liability” and which issimply a degree of negligence or “fault”. I agree with Precision that if the parties had chosen to impose liability for gross negligence,they could have easily done so as occurred in Adeco Exploration Co v Hunt Oil Company of Canada Ltd, 2008 ABCA 214.

Grossnegligence is not exactly a concept or theory of liability which is unknown to the Alberta oil and gas industry or their lawyers. [44] Yangarra also suggests that for reasons of public policy, parties should not be permitted to contract out of gross negligence. [45] Yangarra concedes that – absent one authority from Quebec and the provisions of the Quebec Civil Code – obiter commentsin Canadian cases support the contrary proposition that exclusion clauses can properly relieve against claims of gross negligence – TotemBuilding Supplies Ltd v Toronto Dominion Bank, 1999 ABQB 305 at paragraph 17; Horizon Resources Management Ltd v Blaze EnergyLtd, 2011 ABQB 658 at paragraph 991.

Ditto the ratio in the decision of the Federal Court of Appeal in Mackay v Scott Packing andWarehousing Co (Canada) Ltd, 1995 CarswellNat 1533 at paragraph 10. [46] Yangarra submits that none of those cases however took into account whether public policy should prevent effect otherwisebeing given to exclusionary clauses as was the blunt conclusion of the Quebec authority. [47] But the subsequent binding decision of Tercon Contractors Ltd v British Columbia 2010 SCC 4 , [2010] 1 SCR 69which was applied by the learned Master, helps resolve this public policy “override” suggested by Yangarra. [48] In Tercon, Binnie J set up the three step approach which provided an analysis when an exclusionary clause might be given noeffect on grounds of public policy.

At paragraph 123 he described the inquiry as follows: 123 If the exclusion clause is held to be valid and applicable, the Court may undertake a third enquiry, namely whether the Court shouldnevertheless refuse to enforce the valid exclusion clause because of the existence of an overriding public policy, proof of which lies onthe party seeking to avoid enforcement of the clause, that outweighs the very strong public interest in the enforcement of contracts. [49] A court’s narrow jurisdiction to override contractual terms in the name of public policy requires compelling facts.

Atparagraph 117, Binnie J, in commenting upon a 1938 decision of Duff, C.J. said this: 117 ... The residual power of a court to decline enforcement exists but, in the interest of certainty and stability of contractual relations, itwill rarely be exercised.

Duff C.J. adopted the view that public policy “should be invoked only in clear cases in which the harm to thepublic is substantially incontestable, and does not depend upon the idiosyncratic inferences of a few judicial minds.” [50] Binnie J provided some examples of such public harm as when it involves conduct “approaching serious criminality oregregious fraud” (paragraph 120).

See also Horizon Resources, above at paragraphs 1015-1017 [appeal dismissed 2013 ABCA 139]. [51] It its brief and in its submissions to the Court, counsel for Yangarra wants to ignore the “public” in “public policy” it seems.With respect, that word is there for a reason because, after all, this is otherwise a private contract between two private companies. Howdo their contractual duties, obligations and activities impact the public interest at all? [52] I note in the “Dictionary of Canadian Law” 3rd edition at page 1035 the words “public policy” are defined as follows; 1.

A highly indefinite moral value, usually resorted to as a principle of judicial legislation or

interpretation based on the perceived needsof the community. It is not usually dependent on evidence, but on judicial impression of what is or is not in the public interest. [53] That definition nicely comports with the examples cited by Justice Binnie when the public policy override has been triggered. [54] In support of its submission that public policy considerations must nullify exclusionary clauses, Yangarra relies onNiedermeyer v Charlton, 2015 BCCA 165. That case involved a form contract which contained broad exclusionary clauses. The contractrelated to zipline activities.

The exclusionary clauses did not just relate to the zipline activity or zipline equipment and the like. It alsopurported to extend to include the bus travel to and from the event location. Post-zipline activity, the participants were being drivenaway in the zipline company bus when a motor vehicle accident occurred, leading to Ms Niedermeyer’s injuries.

The Court of Appealconcluded that the exclusionary clause, as it purported to release the zipline company from any liability arising from a motor vehicleaccident, was contrary to public policy inasmuch as British Columbia had a universal, compulsory motor vehicle insurance programme

which people and companies were not free to ignore – see paragraphs 90, 91 and 93. [55] The facts and the applicable legislative context is so far removed from the situation at hand as to offer no assistance. [56] Yangarra’s submission parallels what occurred before the Master.

He dealt with it as follows: (iii) The assertion that it is against public policy to allow parties involved in industries involving dangerousgoods or services to enter into no fault contracts [101] Here is how Yangarra describes this argument: To permit a drilling company to engage in grossly negligent or unconscionable conduct and then to hide behind an exclusion clausewould be very harmful to the public interest. It would eliminate any degree of accountability on drilling companies and incentivize themto cut corners to reduce costs.

In turn, the safety of oil and gas workers and the public would be placed at risk, unsafe practices would beencouraged, and the industry and regulatory emphasis on safe drilling practices would be undermined. The court should restrain suchabuses of the freedom of contract by refusing to enforce the exclusion clauses. [102] If this argument is accepted, it would in effect amount to a ban prohibiting members of industry associations such as those inquestion here from entering into bilateral no-fault arrangements.

In effect, the argument is that the threat of civil litigation based on faultis necessary to advance safe drilling practices. [103] I do not accept Yangarra’s arguments in this regard. [104] Firstly, default by Precision in its drilling obligations does have adverse contractual consequences, by allowing Yangarra toterminate the contract, as discussed earlier. [105] Secondly, Precision has a commercial interest in conducting safe drilling practices. How happy is its customer Yangarra withwhat happened in this case?

What do other potential customers think? [106] Finally, there is a whole regulatory framework within which a drilling company works, with a legislative framework allowingregulators and the courts to shut down an unsafe driller and fine or imprison its executives. [107] For example, under the Occupational Health and Safety Act: (

i) stop work orders may be issued (section 9); (ii) licenses may be suspended (section 13); (iii) administrative fines may be imposed (section 40.3); (iv) officers of an employer may be fined and imprisoned (section 41). [108] Rather than focus on the more relevant Occupational Health and Safety Act, Yangarra advances, late in the day and without aproper evidentiary foundation, an assertion that the British Columbia apprenticeship papers held by the righand who made the mixingmistake might disqualify him to conduct that type of work under the Apprenticeship and Industry Training Act. [109] There is no proof that any such technical flaw, if it existed, played a

part in this incident. The righand, although new to thisparticular well-site, had worked for Precision for years. In addition, the Apprenticeship and Industry Training Act allows for finesagainst an employer if such a breach is established (sections 26 and 54). [110] I do not think that public policy requires that the court refuse to enforce bilateral no-fault contracts such as the one in questionhere. [111] The situation here is quite different from the case of Niedermeyer v.

Charlton, 2014 BCCA 165 , 2014 CarswellBC1136, where the court did hold that it was contrary to public policy to hold a customer using the services of a zip-line company to anexclusionary clause. [112] We are not dealing with an inequality of bargaining positions here, where a commercially sophisticated entity is seeking to takeadvantage of a less sophisticated customer. We are dealing with an industry wide bilateral no fault contract, adopted by two verysophisticated parties. [57] I adopt the learned Master’s comments as my own.

I find there is no fact nor combination of facts in this case which evenremotely engages any public policy concerns regarding the parties’ abilities to release each other from claims rooted in gross negligence. [58] Lastly, at paragraphs 152-160 Yangarra offers some submissions on contractual

interpretation and takes issue with some ofthe things said by the Master in that regard. However, I prefer the reasoning of Precision, as found in its response brief from paragraphs31-35. As a result, I find there is no merit to Yangarra’s submissions. [59] I find that Yangarra’s complaints, individually and cumulatively, lack merit. Accordingly the appeal is dismissed and thedecision of the learned Master granting

summary judgment is affirmed. B. The Master’s Decision on the Interest Clause

[60] The contract dealt with unpaid invoice interest as follows: Any sum not paid within 30 days after the date of receipt of the invoice shall bear interest at a rate of 18% per annum from such due dateuntil paid. [61] Yangarra’s representative testified that the contract was an industry standard. The “18% per annum” is part of that printedstandard contract.

The “30” days due date was filled in by the parties. [62] Due to the length of time from the date the invoice was received until the Master gave his decision, the unpaid interestamounted to $2.4million approximately. [63] Yangarra protested before the Master claiming the interest clause to be an “unenforceable penalty clause”. [64] The Master quoted H.F. Clarke Limited v Thermidaire Corp.

Ltd. (SCC), [1976] 1 SCR 319 at page 338where the Court adopted the doctrine applicable to determining whether a clause amounts to a penalty as follows: The sum will be held to be a penalty if it is extravagant and unconscionable in amount in comparison with the greatest loss that couldconceivably be proved to have followed from the breach. [65] The learned Master then said the following: [23] My observation is this: an agreed upon interest rate for payments in arrears saves both litigants’ time and the courts’ time.Otherwise, it would be necessary for an unpaid goods or services supplier, when suing for non-payment, to adduce evidence as to thingssuch as its average return on capital and its blended average cost of borrowing.

These figures would be constantly changing. [24] While there is no doubt that an agreed upon interest rate of 18% contains an element of ‘incentive’ in addition to an element ofcompensation, I find nothing extravagant or unconscionable about a goods or service provider charging 18% interest if they are not paidon time for goods or services provided.

In my many years of experience, interest charges are typically charged in such circumstances,and it is very common for such interest charges to range from 1.5% to 2% per month. [25] As further evidence of the widespread use of 18% interest for unpaid goods and services, I note that the provision for 18% interestin the contract between Precision and Yangarra is taken from an industry wide precedent. [26] I find nothing ‘extravagant or unconscionable’ in the 18% interest rate agreed to between Precision and Yangarra, and therefore findit to be enforceable. [66] Before me, Yangarra repeats its submission that this interest clause is an unenforceable penalty clause. [67] I dismiss this claim for the reasons expressed by the learned Master which I adopt as my own.

This is not an unenforceablepenalty clause. [68] I would add that the claim that at the time this contract was entered into there was some element of unconscionability lurkingabout is simply not sustainable.

See Cain v Clarica Life Insurance Company, 2005 ABCA 437 at paragraph 32. [69] What is at issue here – an unpaid invoice – bears little resemblance to cases where acceleration clauses or pre-determined costclauses for contract breaches are at issue. [70] The outstanding interest amount is only as large as it is because Yangarra has chosen not to pay the overdue invoice for anumber of years.Yangarra could have paid and reserved its rights. It chose not to.

It must live with the consequences of that decision. [71] Accordingly, the appeal from the decision regarding this “interest” issue is dismissed and the decision of the learned Master isaffirmed. Heard on the 25th day of May, 2016. Dated at the City of Calgary, Alberta this 29th day of June, 2016. E.C. Wilson J.C.Q.B.A.

Appearances: Brian P. Reid for the Plaintiff Trevor R. McDonald for the Defendant