Talisman Energy Inc v Questerre Energy Corporation, 2016 ABQB 618

Court of Queen’s Bench of Alberta Citation: Talisman Energy Inc v Questerre Energy Corporation, 2016 ABQB 618 Date: 20161107 Docket: 1101 07520 Registry: Calgary Between: Talisman Energy Inc. Plaintiff/Respondent - and - Questerre Energy Corporation Defendant/Appellant _______________________________________________________ Memorandum of Decision of the Honourable Mr. Justice G.C. Hawco _______________________________________________________ Appeal from the Decision by J.T. Prowse, Master in Chambers Dated the 7 th day of December, 2015 ( 2015 ABQB 775 , Docket: 1101 07520) [ 1 ] Questerre Energy Corporation (“Questerre”) appeals a December 7, 2015 decision of Master J.T. Prowse, QC granting

summary judgment to the Plaintiff, Talisman Energy Inc. (“Talisman”) in the amount of $5,909,490.07 as well as costs, relating to

various wells located in the province of Quebec. [ 2 ] The facts are fully set out in Master Prowse’s decision and may, perhaps, be briefly summarized as follows. [ 3 ] Talisman and Questerre had entered into a farmout agreement in October, 2005. That agreement incorporated the CAPL operating procedure which provided, among other things, that Talisman could maintain an action for any unpaid accounts without any resort to set-off or counterclaim. [ 4 ] Talisman sent a letter Questerre in early 2010 inviting them to participate in the drilling of two wells in the Province of Quebec.

Questerre initially declined to participate, but was convinced by Talisman that they should do so. It is Questerre’s position that, pursuant to a number of letters and discussions between the companies, Questerre agreed to participate in the program after Talisman agreed that it would drill and complete the two wells known as the Fortierville and Ste. Gertrude wells.

That agreement between the parties was arrived at pursuant to letters of May 5, May 6 and May 7 th , 2010. [ 5 ] Talisman did, indeed, agree to drill and complete the wells but says it was unable to complete them for a number of reasons, including regulations passed by the Quebec provincial government. [ 6 ] Talisman has presented Questerre with invoices totalling over $6 million relating to the Fortierville and Ste. Gertrude wells, as well as two other wells.

These invoices purport to be directly related to Questerre’s obligation to pay 25% of the cost of the wells as contemplated by the agreements between the parties. [ 7 ] Questerre agrees that it failed to pay its proportionate share of drilling costs but claims that it was entitled to do so because of the collateral agreement entered into between the parties to the effect that Talisman would drill and complete the two wells and that they failed to do so. [ 8 ] Talisman issued a statement of claim for the drilling costs relating to the Fortierville and Ste. Gertrude wells, and included other costs for other wells.

Questerre filed a statement of defence to the claim and a counterclaim with respect to the cost of completing the two wells and for damages arising as a result of the failure to complete. [ 9 ] Talisman brought an application before Master Prowse for

summary judgment. Questerre argued that it had a legitimate counterclaim with respect to what it claimed to be Talisman’s agreement and that both matters should be tried together. [ 10 ] The Master granted Talisman

summary judgment. The following statement by Master Prowse best summarizes his position: [11] Talisman acknowledges that a trial of Questerre’s counterclaim is necessary to determine to what extent Talisman may have made a binding commitment to Questerre ( to complete the Fortierville and Ste. Gertrude wells), whether it breached that commitment, and what if any damages have resulted from this breach.

However, Talisman says that it is clear that Questerre signed AFEs for the drilling work on these wells, it did that drilling work, and its claim falls under the 1990 CAPL operating agreement, which contains a ‘no set-off’ clause. I agree with Talisman’s position in that regard. [ 11 ] Questerre’s position is that it would not “buy into” the cost of drilling of these two wells if the wells were not to be completed. It argues that this is not a situation where a joint operator is taking issue with the quantum of the costs.

It is taking issue with having to pay anything until it can be determined what damages it will suffer if Talisman continues to refuse to complete the wells. [ 12 ] That very issue is set for trial in December of 2018. Talisman’s position is that the parties entered into a farmout agreement which incorporated the CAPL operation procedure. The parties have agreed that the joint operator (Questerre) would not refuse to pay its share of drilling costs and would not resort to set-off or counterclaim with respect to those costs. As such, it is entitled to

summary judgment for the drilling costs. [ 13 ] As stated, the Master agreed with that position. Questerre appeals that decision. With great respect to Master Prowse and his considerate analysis of the law, I must disagree with him. I would allow the appeal. Reasoning [ 14 ] It seems to me that Master Prowse placed considerable weight upon Justice Strekaf’s decision in SemCAMS ULC v Blaze Energy Ltd , 2015 ABQB 218 .

That decision was recently confirmed by the Court of Appeal in SemCAMS ULC v Blaze Energy Ltd , 2016 ABCA 113 . [ 15 ] I agree with Justice Strekaf’s decision and, of course, the Court of Appeal, but I do not believe that it is applicable to the matter before me. [ 16 ] It seems to me that the crux of the SemCAMS decision was that the parties in that case had agreed that a certain process would be followed with respect to certain costs (in that case drilling costs). They decided that if they did not agree upon the “correctness of a bill” that process would be followed.

Justice Strekaf recognized that the matter before her was a somewhat unusual

summary judgment application, but was satisfied that the parties had agreed to the fact that the bills presented must be paid without any entitlement to adjustment prior to resolution of any dispute. (See para 49 of Justice Strekaf’s decision). [ 17 ] The Court of Appeal agreed with her that “business efficacy considerations” supported her

interpretation of the clause. [ 18 ] What makes this case very different is that, as determined by Master Prowse, there was a collateral agreement made in this case. Perhaps, more properly, Master Prowse assumed that there was a collateral agreement between the parties. See para 8 of Master Prowse’s decision.

[19] While he did not spell out the terms of that contract, I have assumed that they included terms to the effect that Questerre wasoffered participation in the drilling program by Talisman. It declined unless Talisman agreed to not only drill the two wells, but tocomplete them. [20] This agreement postdated the farmout agreement, which contained language similar to that which was examined by the Courtin SemCAMS . The Defendant was not and does not dispute the nature or the quantum of the actual drilling costs.

It was and is sayingthat Talisman cannot have these costs paid until it complies with its agreement and completes the wells.

Having been advised or becomeaware of Talisman’s decision to not complete, they have a legitimate claim which should be adjudicated. [21] As pointed out by Master Prowse, Talisman actually acknowledges that a trial is necessary to determine to what extentTalisman may have made a binding commitment to Questerre to complete the wells and whether it breached that commitment and what,if any, damages have resulted. [22] Master Prowse went on to state, however, that he had agreed with Talisman’s position that Questerre did agree to the drillingwork on the wells and that the work was done and that its claim must fall under the CAPL operating agreement, which contained a noset-off clause. [23] My difficulty with this decision is that, assuming, as he did, that there was a collateral contract Master Prowse then proceedsto award

summary judgment under one contract without giving due consideration to the other contract which he has assumed occurred. [24] I very much appreciate the Supreme Court’s urging of trial judges to be more open to using the

summary judgment rules as itdid in Hryniak v Mauldin, 2014 SCC 7 , 2014 1 SCR 87 and for trial judges to use the process whenever we can in order thatcourts do not become compromised through protracted trials. As the Court said in his opening remarks in paras 1 through 5, andsuccinctly set forth in the headnote on p 88, while protracted trials, with unnecessary expense and delay are to be avoided, the process ofadjudication must be fair and just.

Where, as here, the terms of one part of the agreement (the original farmout agreement) will beimpacted by the second agreement (assuming there was one) to drill and complete, the matters should, in my respectful view, be heard sothat there be a fair and just resolution of the disputes between the parties. [25] Justice Brown (as he then was) in Orr v Fort McKay First Nation, 2014 ABQB 111 spent some time on the matter ofsummary judgments in paras 22 – 29. In para 25 he quoted this para from Canada v Lameman, 2008 SCC 14: The

summary judgment rule serves an important purpose in the civil litigation system. It prevents claims or defences that have no chanceof success from proceeding to trial. Trying unmeritorious claims imposes a heavy price in terms of time and cost on the parties to thelitigation and on the justice system. It is essential to the proper operation of the justice system and beneficial to the parties that claimsthat have no chance of success be weeded out at an early stage.

Conversely, it is essential to justice that claims disclosing real issues thatmay be successful proceed to trial. [My emphasis] [26] There is an issue to be resolved. The quantum of the drilling costs is not in dispute, but if the Defendant’s counterclaimsucceeds, the Plaintiff may not be entitled to any of its drilling costs whatsoever. [27] Questerre also raised, as they did with Master Prowse, issues of misrepresentation and mistake.

While I need not deal withthem here, I will say that neither argument has, in my respectful view, any merit. [28] The cases relied upon with respect to the misrepresentation argument concerned representations made which were known tobe false when made. There was no evidence to support this in this matter. [29] The argument on mistake may well be raised and dealt with at the trial. It is not something which would particularly bolstertheir argument that

summary judgment ought not be granted. In the end result, I allow the appeal. Questerre is entitled to its costs. Heard on the 23rd day of September, 2016. Dated at the City of Calgary, Alberta this 7th day of November, 2016. G.C. Hawco J.C.Q.B.A. Appearances: Michael P. Theroux/Christine Plante for the Plaintiff/respondent

David Tupper/Ian Breneman for the Defendant/appellant