Stoney Tribal Council v Shell Canada Limited, 2017 ABQB 314

Court of Queen’s Bench of Alberta Citation: Stoney Tribal Council v Shell Canada Limited, 2017 ABQB 314 Date: 20170505 Docket: 0101 13608 Registry: Calgary Between: Stoney Tribal Council, Representing the Chiefs, Councils and Members of the Bearspaw, Chiniki and Wesley Bands Plaintiffs - and - Shell Canada Limited and Her Majesty the Queen in Right of Canada, Represented by Indian Oil and Gas Canada Defendants - and - Shell Canada Limited Third Party _______________________________________________________ Reasons for Decision of the Honourable Mr. Justice G.H. Poelman

_______________________________________________________ I. Introduction [ 1 ] Shell Canada Limited has been producing and selling gas from lands set aside as reserves for the Bearspaw, Chiniki and Wesley Bands. The mineral leases permitting production are between Shell and Her Majesty the Queen in Right of Canada. The leases, which incorporate statutory and regulatory provisions, require Shell to pay royalties to Canada in trust for the bands. [ 2 ] In 1997, Shell changed how it sold the gas.

The Stoney Tribal Council (“Stoney”) took the position that it was underpaying royalties and, in any event, did not provide adequate information for accurate calculations of the royalties by Canada and the bands. [ 3 ] Canada did not take action against Shell in a way satisfactory to the Stoney, nor did it sue Shell. As a result, in 2001, the Stoney sued Canada and Shell for the royalties. Canada denied liability to the Stoney, and issued a third party notice to Shell. [ 4 ] Shell now seeks

summary judgment dismissing the Stoney’s claim against it as a defendant, on the basis that only Canada has standing to sue on matters arising from the lease. II. Facts [ 5 ] Pursuant to Treaty No. 7 (1877) certain “Reserve Lands” were set aside for the use and benefit of the Bearspaw Chiniki and Wesley Bands.

By various instruments, the bands surrendered certain rights, title and interest in respect of the minerals located on the Reserve Lands to the Crown in trust for the use and benefit of the bands, and the Crown accepted the surrenders in trust for the use and benefit of the bands by orders-in-council. [ 6 ] On behalf of the bands, Canada entered into various mineral leases with Shell, pursuant to which Shell was permitted to explore for, drill for and produce natural gas and related products from the Reserve Lands.

By operation of law, the mineral leases incorporated provisions of the Indian Oil and Gas Act , RSC 1985 c I-7 and the Indian Oil and Gas Regulations, 1995, SOR/94-753. A royalty in kind was reserved to the bands on all gas obtained from or attributable to the Reserve Lands, and any such gas sold by Shell would include the Band’s royalty gas.

Monies due from Shell for sale of the royalty gas were to be calculated on the sale price of the gas without any deduction whatsoever, except certain processing costs filed by the Executive Director of Indian Oil and Gas Canada. [ 7 ] The Regulations require royalties to be paid on the greater of the “actual selling price” and the fair market value at the time and place of production (section 33(6) and

Schedule 1, s.4). [ 8 ] Until around June 1997, Shell sold gas from the Reserve Lands into a large market based on a corporate average price. It then made a contract with an affiliate, Coral Energy Canada Inc., to sell the gas to it with the price determined by a published index price known as AECO “C.” The Stoney alleges that sales to an affiliate are neither actual sales nor evidence of fair market value. [ 9 ] Through its counsel, the Stoney requested Canada to determine the selling price of the royalty gas and deem Shell to be in default of the leases (powers it had under the Regulations ).

On January 22, 2001, pursuant to section 33(6) of the Regulations , Canada deemed a price for gas produced from June 1997 to September 1999. In response, Shell paid additional royalty monies to Canada, which holds them in a suspense/escrow account pending final agreement between Shell and Canada.

None of these amounts have been paid to the Stoney. [ 10 ] The Stoney does not accept that either Shell or Canada have complied with their obligations, because the information necessary to determine actual selling price and fair market value has not been given to either Canada or the Stoney, and no funds have been paid to the Stoney. [ 11 ] This action was commenced by statement of claim on July 19, 2001. Statements of defence were filed by Shell (September 30, 2002) and Canada (November 14, 2002).

Canada issued a third party notice against Shell on May 5, 2003, and Shell filed its defence thereto on February 10, 2017. III. Principles for

Summary Judgment [ 12 ] As noted above, the Stoney seek

summary judgment. Rule 7.3(1)(

b) provides that defendants may apply for

summary judgment where “there is no merit to a claim or part of it.” [ 13 ] The parties agree on the applicable principles for

summary judgment. Nevertheless, it will be helpful to summarize them briefly. [ 14 ] The courts recently adopted a “modern” approach to

summary judgment applications. In Hryniak v Mauldin , 2014 SCC 7 , [2014] 1 S.C.R. 87, the Court at para. 2 encouraged “moving the emphasis away from the conventional trial in favour of proportional procedures tailored to the needs of the particular case,” holding at para. 5 that “summary judgment rules must be interpreted broadly, favouring proportionality and fair access to the affordable, timely and just adjudication of claims.” The broad principle was stated as follows at para. 49: There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for

summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the

judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result. [ 15 ] The Alberta Court of Appeal has held that the Hryniak v Mauldin approach is consistent with our modern rules, which call “for a more holistic analysis of whether the claim has ‘merit’, and is not confined to the test of ‘a genuine issue for trial’ found in the previous rules”: Windsor v Canadian Pacific Railway Ltd, 2014 ABCA 108 , 572 A.R. 317 at para. 14 . On a

summary judgment application, it must be determined “whether there is in fact any issue of ‘merit’ that genuinely requires a trial, or conversely whether the claim or defence is so compelling that the likelihood it will succeed is very high such that it should be determined summarily”: WP v Alberta , 2014 ABCA 404 , 588 A.R. 110 at para. 26 ; Pyrrah Design Inc v Plum and Posey Inc , 2016 ABCA 12 at para. 19 . IV. Standing A.

Introduction [ 16 ] The Stoney’s action is against both Canada and Shell for declaratory relief, an accounting and damages because Shell failed to pay the required value of the royalty gas and Canada failed to enforce Shell’s obligation. Its claim against Shell specifically is based on an alleged breach of its statutory duty and its fiduciary and good faith duties to the bands. [ 17 ] Shell seeks

summary judgment dismissing the action against it, on the basis that the Stoney does not have standing to sue it. The parties argued their positions on the basis of trust, fiduciary and contract principles (although with little authority on the latter aspect). [ 18 ] Central to both parties’ argument was the applicability of Stoney Tribal Council v Imperial Oil Resources Limited , 2012 ABQB 557 , 547 A.R. 369 (M), affd. 2014 ABQB 408 , 592 A.R. 145. Shell says Stoney v Imperial is applicable to this case and should determine the result.

The plaintiff argues that it is distinguishable or has been overtaken by later authority. [ 19 ] Thus, I will turn to the Stoney v Imperial case first. B. Stoney v Imperial 1. Facts [ 20 ] The underlying facts in Stoney v Imperial were largely the same as here. Imperial had leases from Canada to produce petroleum and natural gas from reserve lands, the mineral rights of which had been surrendered to Canada.

The leases were subject to a statutory and regulatory scheme as in this case – although the regulations were in an earlier form: Indian and Gas Regulations , S.O.R/77- 330. [ 21 ] The legal proceedings, however, were differently constituted. Three actions were commenced:

a) First, the Stoney sued Canada, alleging breach of trust and fiduciary obligations relating to, among other things, royalty interest payments. The Stoney argued that Canada failed to ensure that the Stoney received all of its royalties.

b) Next, the Stoney sued Imperial, seeking an accounting for all royalties due to the Stoney.

c) Finally, Canada (as trustee) sued Imperial seeking an accounting and judgment against Imperial for improper deductions of royalty payments. [ 22 ] The Canada v. Imperial action was settled by payment of funds and a release by Canada in favour of Imperial. Several years later, the Stoney v. Canada action was partially settled, the settlement relating to specified royalties. The Stoney were paid for underpayment of royalties for a number of wells. The Stoney released Canada in respect of claims for those specific royalties. [ 23 ] The proceedings before Master Hanebury were for

summary judgment dismissing the Stoney’s claim against Imperial in the Stoney v. Imperial action. Judgment was granted as requested, and affirmed on appeal by Mahoney J. 2. Judgments [ 24 ] In granting

summary judgment, Mahoney J. dismissed the Stoney’s claim against Imperial for substantially the same reasons as Master Hanebury. Their reasons may be summarized as follows:

a) The obligations of the Crown in relation to aboriginal people are sui generis , and the Crown’s role in collecting royalties is as a fiduciary rather than a trustee, as held in Ermineskin Indian Band & Nation v Canada , 2009 SCC 9 , 302 D.L.R. (4th) 577. However, the remedies under the common law of trusts may still apply even though the relationship is not a formal trust. Remedies against fiduciaries and trustees often overlap.

b) In the Stoney’s action against Imperial the common law of trusts can and should be applied.

c) Under trust law, beneficiaries have an in personam action against trustees for breach of trust but they cannot sue a stranger to the trust: Remmers v Lipinski , 2001 ABCA 188 , 293 A.R. 156 para. 57 .

d) In limited cases, the beneficiary of a trust (or a fiduciary in a trust-like relationship) may sue a stranger directly, if preconditions are met and the claims fall within recognized exceptions, as set out in Kwinter v Metrowest Development Ltd, 2007 ABQB 713 , 443 A.R. 86. The Stoney alleged that Canada’s settlement with Imperial may not have been adequate: that Canada’s payment to Stoney may not have

comprised all the royalties owed by Imperial; and that in any event, Canada’s payment to Stoney was for damages not to be credited against royalties owed. Master Hanebury and Mahoney J. found that the preconditions were not met because the Stoney had not exhausted its remedy against the Crown, and the Stoney had shown no reason why Canada could not be held responsible for any monies owing.

e) In addition, Mahoney J. considered whether any of the exceptions applied, but expressly considered only two of them (alleged fraud or collusion between Canada and Imperial and conflict of interest on the part of the Crown), and found that they did not. f) Section 4(1) of the Indian and Oil Gas Act , which requires payment of royalties to the Crown “in trust for the Indian bands concerned,” does not create an action against the minerals lessee – but at most, an action against Canada.

g) The possibility that the Stoney had a contractual basis for an action against Imperial was dismissed briefly at both levels. Master Hanebury merely stated “[i]t is acknowledged that there is no privity of contract between the Stoney and Imperial” (para. 31), and Mahoney J. found that “[t]he Stoney have not advanced any argument or legal authorities on appeal for the proposition that they may rely on privity of estate or privity of contract to assert standing” (para. 71). C. Trust-like Duties 1.

Applicability [ 25 ] The Stoney submit that in light of Samson Indian Nation and Band v Canada , 2015 FC 836 , affd. 2016 FCA 223 , 487 N.R. 306, leave to appeal to SCC refused [2016 S.C.C.A. No. 473], the decisions in Imperial should not be followed. [ 26 ] The Stoney point to the finding of Russell J. in Samson v Canada that Canada was not a “common law trustee” for the plaintiff bands as being a significant development in the law, meaning that the Imperial decision has little remaining applicability.

In Samson v Canada , whether the property claimed by the plaintiffs was “held on an express trust” was significant for determination of the limitation period.

The Federal Court of Appeal did not deal with this point, other than to dismiss the appeal on a number of issues for no demonstrated “error of law or any palpable and overriding error of fact or mixed fact and law” (para. 24). [ 27 ] Russell J. held that the band’s claims against Canada regarding royalties of lessees of mineral rights on reserve lands are properly characterized as “breach of fiduciary or trust-like duties” (para. 154), not as claims for breach of trust against a common law trustee (paras. 141, 142, 154, 157 and 244).

He stated that his characterization of the relationship between Canada and the bands was the same as made in Ermineskin and for the same reasons (para. 142), and quoted that case at length. [ 28 ] The courts in Ermineskin and Samson made their findings notwithstanding that section 4(1) of the Act provides for royalties to be paid “in trust for the Indian bands concerned.” The cases thus implicitly recognize that not all trust-like obligations are based on express trusts – a well-established principle. (See for example, Water’s Law of Trusts in Canada , 4th ed. (Toronto: Carswell, 2012), 19.) Further, the cases recognize that some restrictions on the powers of a trustee (such as not borrowing from the trust) could not apply to Canada because it held the funds in the Consolidated Revenue Fund.

But that did not mean no “trust-like” obligations could apply. [ 29 ] The decisions in Imperial characterized the relationship in the same way as did Samson v Canada , and both were based on the leading case of Ermineskin. As Master Hanebury put it, “ Ermineskin establishes that the Crown acts as a fiduciary rather than a trustee in relation to the collection of royalties.” Nevertheless, where warranted, “the common law of trusts could be found to be applicable to the relationship between the Crown and the band in this case” (para. 51).

Her reasons were accepted by Mahoney J. (para. 49). [ 30 ] Thus, Imperial found that even though Canada was not a trustee, it was in a sui generis relationship in which trust-like obligations could be imposed. That finding is consistent with the binding decision of Ermineskin , and also the subsequent Samson decisions (although they are not binding). [ 31 ] The Imperial decisions represent a new development in one respect.

Their characterization of the relationship between Canada and the bands is the same as in Erminsekin and Samson , but the effect of the characterization was different in each of the three cases. [ 32 ] For Ermineskin , the question was whether the Crown had a trustee’s duty to invest the royalties. The court held that the parties were in “a fiduciary relationship that is trust-like in nature” (para. 74) which meant the common law obligations to invest could apply (but did not, because of the limiting effects of legislation).

In Samson , if the Crown was an express trustee, the bands would have the benefit of a more liberal limitation period. [ 33 ] In this case, the question is whether the common law trust principles on standing to sue should be applied to this fiduciary, trust-like relationship. Both parties recognized that beneficiaries do not have standing to sue strangers to a trust, relying on the holding in Remmers v Lipinski that “[g]enerally, while beneficiaries have an in personam action against trustees for breach of trust, they cannot sue the debtor of a trust fund” (para. 57).

In Ermineskin , Rothstein J. for the court, saw no reason the common law duties of a trustee could not be applied to a fiduciary in a position similar to a trustee “if the nature of the relationship requires it” (para. 72) or “if that is what the particular situation warrants” (para. 73). [ 34 ] Thus, while Canada only has a fiduciary trust-like relationship, its duties may be the same as a common law trustee if the relationship and situation warrant that result. In Imperial and here, it is not a question of the Crown’s duties but restrictions on the bands that may result if trust-like obligations are imposed.

Imperial answered that question by finding that there was “no evidence led by the Stoney of anything arising from the history of aboriginals in Canada that would suggest it is inappropriate to apply the relevant common law of trusts to the facts in this case” (paras. 63 (Master Hanebury) and 50 (Mahoney J.)). [ 35 ] A justice of this court should follow decisions by other justices unless there are compelling reasons not to: R v Briscoe , 2012 ABQB 111 , 532 A.R. 13, para. 14 . I have not been persuaded that the Samson case (which in any event is not binding) represents a

development that would justify disregarding Imperial and I see no other reason to depart from its reasoning. [ 36 ] Whether the result in Imperial should apply here, however, is another question. That depends on how it compares to the facts before me. 2. Exceptions [ 37 ] The main precondition for a beneficiary suing a stranger to a trust is that it has exhausted its remedies against its trustee. The Stoney argue that if the trust principle that generally precludes beneficiaries from suing a stranger to a trust applies, then:

a) it meets the preconditions for suing under the Kwinter exceptions and

b) it comes within the exceptions. [ 38 ] Shell argues that Stoney has failed to exhaust its remedies against Canada and until that occurs it has no remedy against Shell. Its argument is based on a finding in Imperial that if the Stoney had any claims for amounts that remained unpaid, “[t]hey have shown no reason why the trustee could not or cannot be held responsible for any monies owing” (Master, para. 82) and “they have shown no reason why they could not or did not exhaust their remedy against the Crown” (para. 84).

Mahoney J. agreed with that conclusion (paras. 73 and 78). [ 39 ] Shell is in this action as a defendant at the Stoney’s instance, and as a third party at Canada’s. Its application would remove it as a defendant but leave it as a third party. (In oral argument, Shell indicated it may have defences to all or some of Canada’s third party notice, even if Canada is liable to the Stoney.) [ 40 ] Consideration of the preconditions raises the following important distinctions between this case and Imperial :

a) Canada was not a defendant in Imperial. Stoney sued it alone in an earlier action, which was partially settled.

b) Canada had sued Imperial, and recovered funds from it on the Stoney’s behalf.

c) The court had been shown no reason why Canada could not be held responsible for the amounts alleged to be still owed.

d) In this action, Canada is a defendant. It has taken no action against Shell except by claim over. In the Stoney’s affidavit (unchallenged), the evidence is that before commencing the action legal counsel for the Stoney unsuccessfully requested Canada to, among other things, determine the selling price of the royalty gas and deem Shell to be in default of its leases. While Shell did pay additional royalties to Canada, since 2001 they have remained in a suspense/escrow account pending final agreement between Shell and Canada. None of the monies have been paid to the Stoney, and they have not received the information they claim is necessary to determine adequacy of the payment.

e) In its statement of defence, Canada “denies that in the circumstances of this case, the Crown owed or owes at any time any fiduciary duties to the bands as alleged. The Crown further denies she was under any statutory or trust duty as alleged by the Plaintiffs” (para. 6). Further, Canada states that if there was a duty, it has been fulfilled and any breach is denied (para. 8). Finally, the Crown pleads in the further alternative “that if there has been an under-valuation of gas prices, which is denied, any damages, loss or interest charges flowing therefrom are the liability of Defendant, Shell Canada Limited or Coral Energy Canada Inc., or both of them” (para. 10).

f) In 2015, Canada applied to have the Stoney’s action against it dismissed for delay. It was unsuccessful. [ 41 ] Shell submits that the Stoney has not exhausted its remedies against Canada until its action has been unsuccessfully pursued through judgment and appeals. That is, in my view, too onerous a burden on a beneficiary of a fiduciary and trust-like relationship.

No authority of which I am aware goes that far in requiring a party to exhaust its remedies. [ 42 ] The passage in Waters relied upon (although not quoted) by Master Hanebury for part of her decision states (in the current edition): What if the trustee cannot or will not enforce this claim for the benefit of the trust? A recalcitrant trustee who has rights against a third party but will not enforce them can simply be joined as a defendant to the beneficiary’s action which also names the third party as a defendant. [ Waters, 1265, notes omitted.] Hayim v Citibank NA , [1987] A.C. 730 (Eng. Prob.

Ct.) , cited by Master Hanebury and quoted in Waters , holds “that a beneficiary has no cause of action against a third party save in special circumstances which embrace a failure, excusable or inexcusable, by the trustees in the performance of the duty owed by the trustees to the beneficiary to protect the trust estate or to protect the interests of the beneficiary in the trust estate” (at 748, quoted in Waters at 1265). [ 43 ] I am persuaded that in this case, the Stoney have shown its remedies against Canada have been exhausted to the degree necessary to allow an action against Shell.

In pursuing relief against Shell on behalf of the Stoney, on the only evidence before me Canada has been at least a “recalcitrant trustee” and has failed, excusably or otherwise, to perform its duty in securing additional royalties. The Stoney did not get the relief it sought before commencing an action, and in commencing an action has been met with Canada denying any remedy, and saying Shell is the responsible party for any shortfalls. Even the funds held in the account, obviously intended for the Stoney, remain unpaid.

By contrast, in Imperial , Canada was not a defendant and in the action in which it was a defendant had partially paid the claim. [ 44 ] As a matter of economy, nothing is gained by requiring the Stoney to sue only Canada through judgment and appeals and then, if unsuccessful, starting new proceedings against Shell. Doing so would, to the contrary, be highly inefficient if the suit against Shell ultimately had to be pursued and would be prejudicial to the Stoney.

[45] Shell also argued that it should be entitled to deal only with its contracting party, and not be subjected to dealings with thebeneficiary at the same time. But any prejudice to Shell is the type that can be compensated in costs, and would in any event, be minimalas it remains in the action as a third party. Further, the leases and the capital Regulations they incorporate are replete with situationswhere Shell must deal with the Stoney as well as with Canada. [46] It remains to consider whether one of the Kwinter exceptions apply.

The Stoney rely principally on the one based on Hayim vCitibank NA, paraphrased in Kwinter as “where there is a failure by the trustees in performing their duties as trustees to protect the trustof the estate or to protect the interests of the beneficiary in the trust estate” (para. 36, quoted in Mahoney J.’s judgment in Imperial atpara. 54). [47] In my view, the Stoney’s claim falls within that exception.

It is essentially the same as the requirement that a beneficiaryexhausts its remedies against the trustee or fiduciary. [48] Of course, it remains to be finally determined whether Canada has failed in its duties. That, however, is the subject matter ofthe claim, not to be judged here. Further, the Stoney have submitted evidence in support of its contention which has not been answered ordisputed by Canada, as it takes no position on this application.

The Stoney’s evidence that it was unsuccessful in requesting Canada totake a number of steps on its behalf and Canada’s statement of defence and attempts to extricate itself from this action satisfy me that theStoney have established a reasonable argument, adequate to fall within the exception, that there has been a failure by the trustees toprotect the beneficiary’s interest. D.

Contract [49] In light of my finding that the Stoney can bring an action against Shell (with Canada as a co-defendant), in the circumstancesof this case, it is not necessary to consider whether it also has an action in contract. [50] Its contract claim is based, briefly, on the fact that Shell has always known for whose benefit Canada leased the minerals toShell, and under the Regulations there are a number of ways in which Shell is required to deal directly with the Stoney. [51] I conclude it would not be helpful to provisionally decide this important question of law.

Shell did not address the issue in itsbrief, nor provide cases on the point.

The Stoney only refer to London Drugs Ltd v Kueahne & Nagel International Ltd, (SCC), [1992] 3 S.C.R. 299, 97 D.L.R. (4th) 261 (concerning whether employees could rely on a limitation of liability clause protectingtheir employer in a contract with a third party), to actions in which the Stoney’s standing has not been challenged on any grounds (andthus not decided), and Kiashke Zaaging Anishinaabnek v Shuniah Financial Services Ltd, 2006 FC 632, 21 B.L.R. (4th) 155, a trialdecision involving a third party manager of funds to be received and dispersed on behalf of the band. [52] The doctrine of privity and its modifications is a large subject, involving many lines of authority and distinguishing principles.It would be unwise to make findings on how it applies to the quasi-statutory leases made between Canada and Shell respecting Stoneylands, without full consideration of all the relevant authorities.

That decision is properly left to a time when the point must be decided todetermine the result. V. Conclusion [53] For reasons given above, I conclude that Shell has not shown that there is no merit to the Stoney’s claim as a matter ofstanding, to bring action against Shell. Therefore, its application for

summary judgment dismissing the claim is denied. [54] The parties may speak to costs if they cannot agree. Heard on the 14th day of March, 2017. Dated at the City of Calgary, Alberta this 5th day of May, 2017 G.H. Poelman J.C.Q.B.A. Appearances: L. Douglas Rae and W. Tibor Osvath for the Stoney Tribal Council

Raymond Lee for Her Majesty the Queen in the Right of Canada E. Bruce Mellett for Shell Canada Limited