Geophysical Service Incorporated v Plains Midstream Canada ULC, 2017 ABQB 462

Court of Queen’s Bench of Alberta Citation: Geophysical Service Incorporated v Plains Midstream Canada ULC, 2017 ABQB 462 Date: 20170726 Docket: 1401 00646 Registry: Calgary Between: Geophysical Service Incorporated Plaintiff - and - Plains Midstream Canada ULC, BP Canada Energy Group ULC, and Companies A-Z Defendants _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice K.M. Eidsvik _______________________________________________________ Introduction [ 1 ] This is an application by the Plaintiff, Geophysical Service Incorporated (“GSI”), for partial

summary judgment against the Defendants, Plains Midstream Canada ULC (“Plains”) and BP Canada Energy Group ULC (“BP Group”). GSI seeks fees allegedly owing from what it says was an unauthorized transfer of licensed seismic data in breach of the terms of a license agreement. [ 2 ] GSI’s application is part of a broader series of

summary judgment/dismissal applications brought by and against GSI in a number of actions (the “Sister Applications”). The decisions in the Sister Applications were filed concurrently with this one and include Geophysical Service Incorporated v Devon ARL Corporation , 2017 ABQB 463 , Geophysical Service Incorporated v Murphy Oil Company Ltd , 2017 ABQB 464 , Geophysical Service Incorporated v Suncor Energy Inc , 2017 ABQB 465 , and Geophysical Service

Incorporated v Encana Corporation , 2017 ABQB 466 . Factual background [ 3 ] GSI is a company involved in the acquisition, collection, production, reproduction, processing, reprocessing and storage of seismic data. GSI licenses its seismic data to oil and gas companies for substantial license fees. [ 4 ] GSI, as licensor, entered into a Master Seismic Data License Agreement (“MDLA”) with Plains and BP Group’s predecessor, BP Canada Energy Company (“BP Canada”) on March 15, 2002.

After signing the MDLA, GSI licensed and delivered to BP Canada certain seismic data pursuant to five Supplemental Agreements (the “Post 2002 Delivered Data”). [ 5 ] Prior to signing the MDLA, GSI had delivered to predecessors of BP Canada seismic data under prior licenses (the “Prior Licensed Data”). [ 6 ] In 2012, BP Canada and BP Group were wholly owned by Amoco International (“Amoco”). In April 2012, BP Canada sold its Canadian natural gas liquids (“NGL”) business to Plains through an entity sale, whereby Plains acquired all shares of BP Canada from Amoco.

Under the terms of the sale, Plains did not acquire the remainder of BP Canada’s business, namely its exploration and production business that included seismic data licensed from GSI. [ 7 ] In order to sell BP Canada as an entity without the non-NGL business and assets, BP Canada kept those assets separate and apart from the entity to be sold through a Keep Assets and Conveyance Agreement (the “KAC Agreement”), which became effective at 12:30 a.m April 1, 2012. Later that same day the share purchase between Plains and Amoco became effective.

Accordingly, Plains did not view, access, receive or acquire any seismic data of any kind in the sale transaction, whether that data was licensed from GSI or anyone else. Through the KAC Agreement, BP Canada transferred all of its non-NGL business, assets and liabilities, including the MDLA, to BG Group, an entity originally incorporated on December 6, 2010. [ 8 ] Neither BP Canada nor BP Group gave notice to GSI of the transfer. Mr. Einarsson indicated that GSI learned of the transfer in March 2014.

The seismic data was neither returned nor destroyed, indeed it remained physically in the same place and was used by the same people. There is no evidence that GSI attempted to negotiate a new licence with BP Group at any time. [ 9 ] In January 2013, BP Canada International Holdings B.V. acquired 100% of the shares of BP Group from Amoco. [ 10 ] GSI seeks

summary judgement for the license fees payable in association with the transfer of data from BP Canada to BP Group.

According to GSI’s Amended Application, it seeks amounts in the range of $2 to $4 million in respect of the Post 2002 Delivered Data and $12 to $24 million in respect of the Prior Licensed Data. [ 11 ] GSI submits the MDLA is clear that any transfer must be in strict compliance with the terms of the agreement, which most importantly, requires notice to GSI, and its consent of any such transfer, along with the payment of transfer fees. [ 12 ] The Defendants concede that they did not give GSI notice of the transfer, but they submit that BP Canada and BP Group were Related Entities, as that term is defined in the MDLA, such that they were exempt from paying any transfer fees.

The Defendants also dispute the application of the MDLA to the Prior Licensed Data. Finally, the Defendants argue that GSI has suffered no loss or damage from the failure to give notice of the transfer or from the failure of BP Group to enter into a separate license agreement, since no fees are owing for transfers between Related Entities. As such, the

summary judgement application should be dismissed. Issues [ 13 ] The issues in this

summary judgment application are as follows: 1. Are BP Canada and BP Group Related Entities, as that term is defined in the MDLA? 2. Is GSI entitled to damages for BP Canada’s failure to give notice of the transfer of GSI’s seismic data to BP Group? 3. Is GSI entitled to

summary judgment against Plains? 4. Does the MDLA apply to Prior Licensed Data? Legal principles

Summary judgment [ 14 ]

Summary judgment is governed by Rule 7.3 of the Alberta Rules of Court , Alta Reg 124/2010. A party may apply for

summary judgment in respect of all or part of a claim on the ground that there is no defence to a claim or part of it, or that the only real issue is the amount to be awarded. [ 15 ] In Hryniak v Mauldin , 2014 SCC 7 , the Supreme Court of Canada advocated increased use of

summary judgment as a relatively inexpensive, swift, efficient and expeditious manner of determining actions where the interests of justice do not require a trial. The court stated 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”.

[16] Following Hryniak, the Alberta Court of Appeal, in Windsor v Canadian Pacific Railway Ltd., 2014 ABCA 108 at para 13,reformulated the test for

summary judgment: “The modern test for

summary judgment is therefore to examine the record to see if adisposition that is fair and just to both parties can be made on the existing record.” [17] In P(

W) v Alberta, 2014 ABCA 404 at para 26, leave to appeal to the Supreme Court of Canada refused, the court stated thatsummary judgment is no longer to be denied on the basis that the evidence discloses a triable issue. The question is whether there is anyissue of merit that genuinely requires a trial, or conversely, “whether the claim or defence is so compelling that the likelihood it willsucceed is very high such that it should be determined summarily.” In other words, if the judge can make the necessary findings of factand apply the law to those facts, then

summary judgment is a proportionate, more expeditious and less expensive means to achieve a justresult than trial. [18] More recently, in Condominium Corporation No. 0321365 v Cuthbert, 2016 ABCA 46 at paras 27-28, the court commentedon the nature of the evidence required to grant

summary judgment. If material facts are in serious dispute, then the record will notsupport a fair and just disposition by

summary judgment. Thus, if there is evidence on the record that could defeat the applicant at trial,then

summary judgment will not be granted. If, however, there are no material facts in serious dispute, then the court may go on todetermine whether the claim is otherwise suitable for

summary determination. [19] In the case at bar, GSI submits that the record supports a fair and just disposition of its claim for transfer fees. There are nomaterial facts seriously in dispute. There are no unsettled or complex legal issues in play. This claim is to be resolved simply based oncontractual

interpretation. The Defendants agree that there are not material facts at issue, but state that the evidence shows that GSI’sclaim for transfer fees will not succeed at trial in that their defence is very strong, and as such GSI’s application should be dismissed. Principles of contractual

interpretation [20] The modern law of contractual

interpretation, until recently, was relatively well settled. Cases such as Consolidated BathurstExport Ltd. v Mutual Boiler & Machinery Insurance Co., (SCC), [1980] 1 SCR 888 have long established that the textof the relevant contractual clauses must be considered within the context of the contract as a whole. The court must search for aninterpretation that, from the whole of the contract, promotes or advances the true intent of the parties. The

interpretation must givepractical effect, and in commercial settings, give commercial or business efficacy, to the parties’ agreement. As such,

interpretations thatresult in absurd or unworkable consequences should be avoided. [21] Recently, the Supreme Court has emphasised that a trial judge has a duty to consider the relevant contractual matrix for thecontract even absent ambiguity. Nonetheless, the circumstances surrounding the creation of the contract must be used only to deepen thecourt’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract: Sattva Capital Corp.v Creston Moly Corp., 2014 SCC 53 at para 57. See also a good restatement of the law on contractual

interpretation as elucidated by ourCourt of Appeal in IFP Technologies (Canada) Inc. v Encana Midstream and Marketing, 2017 ABCA 157 at paras 79-89. Analysis 1. Are BP Canada and BP Group Related Entities, as that term is defined in theMDLA? [22] There are many provisions in the MDLA that GSI relies on to argue that it is owed transfer fees in this situation.

In particular,clause 3.1 is a general prohibition for the licensee to transfer the seismic data, but there are other clauses that allow such transfers to athird party with GSI’s consent (17.10) and a clause that deals with transfers between “Acquiring Entities” and between “Related Parties”(13). [23] Clause 13.1 sets out the transfer fees payable in the event of acquisitions and mergers: 13.1 Transfer Fees Acquisition/Mergers: If an Acquiring Entity acquires Ownership or Control of the Licensee or otherwise acquiresall or substantially all the assets of the Licensee, then such Acquiring Entity or any entity related to it shall be entitled to a transfer ofthis Agreement or, at the option of GSI, to obtain a license, utilizing GSI’s then current form of license agreement, to use the SeismicData... upon payment of the following transfer consideration to GSI: (

a) in the case of an acquisition of 100% of the outstanding common stock or other voting securities ... a transfer fee equal to 25% of thethen current licensing fees charged by GSI for the Seismic Data ...; (

b) in the case where Ownership or Control of the Licensee is acquired by a Related Entity, no transfer fee shall be payable; and (

c) in all other cases, a transfer fee equal to 50% of the then current licensing fees charged by GSI for the Seismic Data... [Emphasisadded.] [24] Clause 7.1 provides that even Related Entities must enter into a separate license agreement with GSI to view or make use ofthe Seismic Data, although no additional licensing fees will be charged. [25] GSI took various positions about what it should be paid for the transaction between BP Canada and BP Group.

It sought100% on the basis that the Defendants breached the clauses noted above (3.1, 7.1,13.5 and 17.10) or alternatively 50% on the basis of13.1 (c). [26] The Defendants argued that BP Group and BP Canada were Related Entities under the terms of the MDLA, making themexempt from any transfer fee payments. A “Related Entity” is defined as:

...any corporation, partnership, trust or other entity which (

i) is wholly owned by the Licensee, (ii) wholly owns the Licensee; or (iii) is wholly owned by an entity in (

i) or (ii) above. [ 27 ] The evidence presented in this

summary judgment shows that BP Canada and BP Group had the same parent corporation at the time of the transfer of GSI’s seismic data, thus satisfying part (iii) of the definition of Related Entity. At the time of the KAC Agreement, BP Canada, the Licensee, was wholly owned by Amoco, making Amoco an entity in (ii) a corporation that “wholly owns the Licensee”. BP Group was also wholly owned by Amoco, so it is a Related Entity to the Licensee BP Canada under (iii), by virtue of being “wholly owned by an entity in... (ii) above.” [ 28 ] Mr.

Einarsson was under the mistaken impression that BP Group was not wholly owned by the entity that wholly owned BP Canada, Amoco, but under cross examination he was not able to substantiate this misunderstanding. In my view, BP Canada and BP Group were “related Entities” as contemplated in the MDLA and clause 13.1 (b). [ 29 ] GSI argued however, that 13.1 (

b) did not apply since the time for determining whether or not the companies were Related Entities is as of the date of the MDLA. [ 30 ] GSI focused on the definition of an Acquiring Entity: “Acquiring Entity” means, as of and from the date hereof, an entity which is not a Related Entity and which directly or indirectly acquires (

i) all or substantially all of the assets of the Licensee (or its parent company) by purchase, combination, trade, bankruptcy, reorganization or otherwise including its rights to use the Seismic Data...or (ii) Ownership or Control of the Licensee, whether by purchase of voting securities, merger, bankruptcy or otherwise including the rights to use the Seismic Data... [Emphasis added.] [ 31 ] As I understand GSI’s argument, it suggests that BP Group is an Acquiring Entity for the purposes of Clause 13, but it was not a Related Entity “as of and from the date hereof”, meaning the date of the signing of the MDLA so that it cannot take advantage of clause 13.1 (b). [ 32 ] I have trouble with this argument.

I find nothing in the MDLA to suggest that the Related Entity must have existed at the time of execution of that agreement and in my view, GSI is misreading the definition of “Acquiring Entities”. The definition of “Acquiring Entities” is merely excluding “ Related Entities” in its definition since it is separately defined. [ 33 ] In my view, reading the

definitions of Related Entity and Acquiring Entity together with clause 13 means that an Acquiring Entity can be a Related Entity at the time of the transfer. There is no need to assess the status of the entities at the time of the MDLA, but rather, later, when the licensee is being acquired. This

interpretation also accords best with the commercial reality of the ongoing corporate dealings and reorganizations between subsidiaries in the oil and gas industry. [ 34 ] I also note that the prior licensing agreements attached as exhibits to the affidavit of Mr. Einarsson, GSI’s corporate representative and chief witness in this action, contain similar exceptions.

In those earlier agreements, the provisions state that the licensee may show data to a wholly owned subsidiary or parent company “which may be in existence at this time or any time thereafter.” [ 35 ] The language of these earlier license agreements is not dispositive, but it suggests an industry practice that I find matches the proper

interpretation of the MDLA. I also find that this

interpretation is appropriate on the facts of this case. The effect of the KAC Agreement was to keep the seismic data in-house with BP Group to be used by the same people in the same office for the same purposes as it had been used previously by BP Canada. The Seismic Data was not disclosed to any third parties by virtue of the transfer. [ 36 ] In sum on this point, in my view the Defendants have established that they were “Related Entities” at the time of the transfer. The consequences of this finding will be elaborated upon below. 2.

Is GSI entitled to damages for BP Canada’s failure to give notice of the transfer of GSI’s seismic data to BP Group? [ 37 ] Although BP Group may be a “Related Party” to BP Canada, the next question is whether it is exempt in this situation from paying any transfer fees to GSI. [ 38 ] GSI argues that even if the BP parties were “Related Entities”, through the KAC Agreement, BP Canada clearly disclosed, transferred, assigned and disposed of the licensed data to BP Group, without having strictly complied with the terms of the MDLA.

In particular, BP Canada arranged this transfer without notice to GSI and without its consent. In doing so, it deprived GSI of the protection of a new license agreement and potentially of license fees. [ 39 ] GSI argues that entry into an additional licensing agreement is a pre-condition to being exempt from the payment of licensing fees as set out in clause 13.1(b). GSI claims damages in the amount of 100% of the then current licensing fees for the failure to enter into such licensing agreement, relying upon clause 13.5.

This clause states: 13.5 General Restriction on Use : Except as expressly permitted in this Agreement , the right to view or use the Seismic Data, ...may not be ...transferred....without the prior consent of GSI which consent may, at GSI’s option, be conditional upon the payment of a fee... in an amount to be determined solely by GSI . (Emphasis mine) [ 40 ] Alternatively, GSI seeks 50% of the then current licensing pursuant to clause 13.1(c). [ 41 ] The Defendants agree that they failed to give notice to GSI of the transfer however they argue that GSI has suffered no damage since BP Canada and BP Group were Related Entities and there would have been no transfer fees owing in any event pursuant to clause 13.1(b).They disagree that it is a pre-condition to enter a licence in order to be exempted from the transfer fee.

[ 42 ] The Defendants further submit that putting GSI in the position it would have been in, but for the breach, involves the payment of zero dollars. It argues it makes no commercial or legal sense to award damages for which there is no legal entitlement. BP Group also states that it has, in all respects, treated the MDLA as subsisting between BP Group and GSI. [ 43 ] In my view, the plain reading of clause 13 of the MDLA speaks to an entitlement to a transfer if the licensee is acquired by a Related Party, or a new licence, at GSI’s option. In either case, pursuant to 13.1(

b) no transfer fee is payable. Clauses 13.5 or 13.1(

c) are not applicable to this situation since the transfer was between Related Entities, so the transfer was “expressly permitted in this Agreement”. There is no pre-condition to entering into a new licence to be exempt from the payment of transfer fees, it is only an option. [ 44 ] In this regard, the clause also presupposes that GSI should be notified of the change so that it can exercise this option if it so choses. BP agrees that it failed in this regard. So the breach of notice really amounted to GSI not having been given an option to prefer a new licence over a mere transfer of the existing licence.

Either choice would engender no new fees. [ 45 ] GSI learned of the BP arrangement in March 2014 but did not exercise its rights to have the BP Group enter in to a new licence. Instead, within a few months, it sued for transfer fees that were, as I have found, not owing under the MDLA in this situation. Notably, it did not sue for specific performance, and indeed there is no evidence that BP Group would have disagreed to enter into a new licence with GSI. [ 46 ] GSI’s alternative argument on damages is that BP’s breach of notice means that it has lost control of its data now. However, for this

summary judgement application, the evidence is lacking that this could not be remedied by GSI seeking a new licence agreement for no fee as contemplated in the MDLA, or that this lack of control has caused any damages. There is no evidence that BP has misused or improperly transferred this data – indeed the evidence on this point is to the contrary. [ 47 ] As such, in my view, GSI on the evidence provided, has not proven for

summary judgment purposes that it has suffered any damages caused by the notice breach of BP Canada and/or BP Group. The application is dismissed as against BP Group. 3. Is GSI entitled to

summary judgment against Plains? With respect to Plains, it never received any seismic data since it acquired only the NGL side of BP Canada’s business. As such, it has no obligation to pay transfer fees for seismic data it never received. This appears to be a complete defence to the claims and as a result GSI’s application for

summary judgment against Plains cannot stand. 4. Does the MDLA apply to Prior Licensed Data? [ 48 ] Considering that I have found that GSI is not owed transfer fees for the transfer of seismic data from BP Canada to BP Group, and that it has not shown any damages caused by any breach of notice, the issue about whether the MDLA covers prior licensed data need not be considered.

Nonetheless, in the event that I am wrong in my conclusions, I will deal with this issue briefly. [ 49 ] GSI relies primarily on the Entire Agreement clause at 17.8, which states: This Agreement sets forth the entire agreement between the parties hereto and supersedes all prior agreements, prior data licenses , understandings and communications between the parties hereto whether oral or written with respect to Seismic Data... [Emphasis added.] [ 50 ] GSI submits that the term “supersedes” means “replaces” such that the MDLA replaced all prior data licenses and all data licensed under those agreements became licensed under the MDLA. [ 51 ] In my view, the Entire Agreement clause, found in the “MISCELLANEOUS”

section of the MDLA, is but one component of the agreement as a whole and for the following reasons, does not operate to incorporate all prior licence agreements into the MDLA. [ 52 ] Firstly, the clause itself states that the agreement “supersedes all ... prior data licences ... with respect to Seismic Data.” Seismic Data is a defined term in the MDLA: “Seismic Data” means seismic, gravity or magnetic data whether in raw field formats, processed or otherwise that has been invoiced for or identified in all Supplemental Agreements entered into between the parties hereto during the term of this Agreement ... [Emphasis added.] [ 53 ] Secondly, the term of the MDLA is a period of 10 years from the Effective Date of March 15, 2002.

This suggests that Seismic Data is data that is licensed and delivered post-agreement. [ 54 ] Thirdly, other clauses support this

interpretation. Clause 5.1 explains the purpose of the Supplemental Agreements: During the term of this Agreement GSI and the Licensee will execute and deliver Supplemental Agreements to evidence the License of specific sets of Seismic Data ... [Emphasis added.] [ 55 ] The word “License” is itself a defined term: “License” means the non-exclusive, non-transferable, non-proprietary rights with respect to the Seismic Data... granted to the Licensee pursuant to, and for the specific uses described in, this Agreement and in any Supplemental Agreement.

For greater certainty, each Supplemental Agreement shall constitute a separate License hereunder . [Emphasis added.] [ 56 ] Given the clarification that “each Supplemental Agreement shall constitute a separate License”, one can conclude that if the parties had intended for the large number of prior data licenses to be subsumed under the MDLA, there would have been explicit reference to this possibility. The limited reference in the Entire Agreement clause that this Agreement supersedes all prior data licenses is

insufficient to bring in all the prior data licenses. [ 57 ] Fourthly, I also find that it does not accord with commercial reality to interpret the MDLA to include the Prior Licenced Data. The MDLA is a forward looking document. For example, clause 14.1 states that the “Licensee will pay to GSI all applicable license fees ... at the rates set forth in the Supplemental Agreement”, clearly a forward looking statement. [ 58 ] Clause 6 details the protection of Seismic Data, setting out disclosure restrictions and rules surrounding use by third parties, such as consultants and prospective venture participants.

It does not make commercial sense for these rules to be imposed retroactively on seismic data that had already been shared under the terms of prior data licenses. [ 59 ] Finally, I also note that many of the prior licence agreements between Amoco and GSI, attached as Exhibit P to Mr. Einarsson’s affidavit, were executed between 1971 and 1975, while others were executed in the mid-1980s and one as late as 1995.

In two of these agreements, the obligation to keep the information confidential is time limited. [ 60 ] In the “East Coast Canada 1971 Non-Exclusive” agreement dated December 17, 1981, clause 6.3 provides that the “participants may use such data and information in any manner, provided that, participants may not disclose it to anyone (except as hereinafter provided), without GSI’s prior written consent until September 1, 1981.” [ 61 ] The licence agreement for “Non-exclusive seismic data, Amauligak Survey, Beaufort Sea, Canada” dated November 1988, states that the company “shall hold confidential the seismic data received as outlined in this Agreement until January 1, 2003.” [ 62 ] These clauses suggest that each agreement must be governed by its own terms and that the language of the Entire Agreement clause in the MDLA is insufficient to supersede and replace these separately negotiated prior data licenses. [ 63 ] I also agree with BP that it is not appropriate to compare contracts with other parties, such as Petro-Canada, as an aid in interpreting the MDLA.

I note, however, that since I am hearing five Sister Applications, from time to time I might distinguish one of my decisions from the other based on similar wording and issues in similar contracts. This does not arise here. [ 64 ] In sum, in reading the MDLA and giving it a meaning that accords with business efficacy, I am unable to adopt GSI’s

interpretation of the Entire Agreement clause and the agreement as a whole. The MDLA does not relate to Prior Licensed Data and had I found that GSI had proven on a

summary judgement basis that BP Group owed transfer fees, it would not have owed them for any Prior Licensed Data pursuant to the MDLA. Conclusion [ 65 ] GSI’s application for partial

summary judgment is dismissed as against all Defendants. The Defendants have a good defence to GSI’s claim for transfer fees because the transfer occurred between Related Entities so that no fee was payable. Further, there was no transfer of seismic data at all to Plains which is a complete defence. Finally, GSI’s claim for damages for BP’s breach of notice cannot be decided on a

summary judgment basis as there is no evidence of any damages for such breach. Heard on the 16 th day of January, 2017. Dated at the City of Calgary, Alberta this 26 th day of July 2017. K.M. Eidsvik J.C.Q.B.A. Appearances: Timothy C. Platnich, Caron & Partners LLP for the Applicant James W. Rose, Q.C. & Matthew R. Lindsay, Q.C., Rose LLP for the Respondent BP Canada Energy Group ULC

David R. McKinnon, Bennett Jones LLP for the Respondent Plains Midstream Canada ULC