Canexus Corporation v MEG Energy, 2017 ABQB 739

Court of Queen’s Bench of Alberta Citation: Canexus Corporation v MEG Energy, 2017 ABQB 739 Date: 20171201 Docket: 1401 09585 Registry: Calgary Between: Canexus Corporation Plaintiff - and - MEG Energy Corp. Defendant _______________________________________________________ Reasons for Judgment of J.T.

Prowse , Q.C., Master in Chambers _______________________________________________________ [ 1 ] The plaintiff, Canexus Corporation (now named Chemtrade Electrochem Inc.) applies for permission to amend the statement of claim which it issued on September 2, 2014. [ 2 ] For the reasons which follow: • I grant Canexus permission to amend its claim. • I deny the application of MEG to stay a portion of the amended proceedings as requested. • I decline to stay my decision pending appeal.

Background to the dispute [ 3 ] The following is taken from Canexus’ version of the events leading up to the present litigation between itself and MEG:

• In 2012, Canexus entered into a Pipeline Construction, Interconnection and Operating Agreement (the “Pipeline Agreement”) and a Terminalling Services Agreement (the “TSA”) with MEG as part of a $360 million expansion of Canexus’ NATO terminal and related facilities (“NATO”). • The primary and underlying purpose of the Pipeline Agreement was to allow for the connection of two major pipeline systems so that the NATO terminal would have access to two major sources of crude oil. This required that the Canexus pipeline be connected or “tied” into the MEG pipeline.

The purpose of the Pipeline Agreement was to require MEG to allow the tie-in to occur. • Canexus had contractual obligations to the third party shippers that required the pipeline to be tied-in and operational by September 1, 2014. • On August 20, 2014, MEG refused to allow Canexus to complete the tie-in.

MEG did so knowing that this would prevent Canexus from meeting its commercial commitments to have the pipeline tied-in and operational by September 1, 2014 and after having been expressly advised in writing by Canexus’ CEO that a refusal would cause Canexus irreparable harm. • MEG refused to allow Canexus access to complete the tie-in at a time when Canexus was vulnerable and for the purpose and intention of extracting from Canexus certain commercial advantages, including additional agreements which would have required Canexus to transfer valuable infrastructure to MEG at the tie-in site. • On September 8, 2014, Canexus was successful in obtaining a mandatory injunction requiring MEG to allow the tie-in.

In the decision of Madam Justice Hunt-McDonald, the Court ruled that MEG breached the primary purpose of the Pipeline Agreement. [ 4 ] Canexus now applies to amend the statement of claim which it issued on September 2, 2014, and MEG opposes the amendments. The amendments do not require evidence [ 5 ] Many of the proposed amendments are allowable because they simply clarify the existing allegations. Here is an example: Existing paragraph 3 and 4: 3. Canexus has four plants in Canada and two plants in Brazil from which it produces chemical products largely for the pulp and paper and water treatment industries.

Canexus also provides fee-for-service hydrocarbon transloading services to the oil industry from its terminal at Bruderheim, Alberta (the “NATO Terminal”) 4. The NATO Terminal has manifest and unit-train operations that are serviced by both CN and CP Railroads. Canexus began manifest transloading operations at the NATO Terminal in 2009. Proposed paragraphs 3 and 4: 3. At the relevant time, Canexus provided fee for service hydrocarbon transloading services (loading crude oil into rail cars for shipping) to the oil industry from its terminal at Bruderheim, Alberta (the “NATO Terminal”). 4.

The NATO Terminal has manifest (single or small groups of rail cars) and unit-train ( full train) operations that are serviced by both CN and CP railroads. Canexus began manifest transloading operations at the NATO Terminal in 2009. [ 6 ] These types of clarifying and particularizing amendments do not require any supporting evidence. As stated in Mikisew Cree First Nation v Canada , 2002 ABCA 110 , 2002 CarswellAlta 603, at para 26 : Some amendments to pleadings are trivial, or merely clarify wording or correct details.

They probably do not require any evidence. [ 7 ] Included in clarifying and particularizing amendments are the following: • allegations in new paragraphs 11 through 13, which are generally similar to and simply expand upon the allegations in old paragraphs 16, 19 and 20. • allegations in new paragraphs 17 and 34, which provide further allegations along the line contained in old paragraph 12 • allegations in new paragraphs 21, 22, 23, 26, 27, 28 and 29, which provide further detail to the allegations in old paragraphs 27, 29, 30 and 31. • allegations in new paragraphs 30 and 31, which deal with the injunction granted on September 8, 2014.

These allegations could not have been included in the original statement of claim which was filed on September 2, 2014. In addition, they are largely based on the court record and therefore do not require evidence. • allegations in new paragraphs 35, 36, 37, which provide particulars of old paragraphs34, 35 and 36.

MEG’s allegation of “new substantive facts” [ 8 ] During argument, MEG’s counsel cited with approval the following passage from Attila Dogan Construction & Installation Co. v AMEC Americas Ltd. , 2013 ABQB 525 , 2013 CarswellAlta 1979, at paragraph 14 : The evidentiary threshold for allowing amendments to pleadings is generally low. Where the proposed amendment is purely ancillary, no evidence will be required . However, a proposed amendment that alleges new substantive facts must be supported by evidence. [emphasis added]

[ 9 ] When asked what amendments MEG considered as adding ‘new substantive facts’ counsel indicated only two, namely: • Canexus’ assertion (paragraphs 40 and 41 of the amended statement of claim) that MEG’s refusal to allow it to make the tie-in resulted in a third party shipper terminating its take or pay contract, resulting in a loss of $134 million to Canexus. • Canexus’s assertion (paragraphs 42 to 45 of the amended statement of claim) that MEG’s refusal to allow the tie-in, and the resulting loss of the take or pay contract, forced Canexus to sell the NATO facility at a huge discount, resulting in a loss of $300 million to Canexus. [ 10 ] To put this amendment into context, the statement of claim was issued on September 2, 2014, six days prior to Canexus receiving an injunction requiring MEG to allow the tie-in. [ 11 ] Needless to say, on September 2, 2014, Canexus would not have known what damages might flow in the future, so its prayer for relief simply stated that it would be seeking: Damages in an amount to be determined and proven at trial resulting from MEG’s wrongful refusal to allow the pipeline tie-in to the MEG Lateral Line, breach of its contractual, fiduciary and good faith duties, breach of its confidentiality covenants, and intentional interference with Canexus’ economic and contractual relations. [ 12 ] Now that time has elapsed, Canexus’s amendments seek to assert the specific types of damages which it says flowed from MEG’s conduct. [ 13 ] In my view, these allegations could just as well have been provided on examinations for discovery when Canexus was asked what damages it had sustained.

These are not “new substantive facts” within the meaning of that phrase in the Attila Dogan decision. They add no substantive allegations and allege no additional wrongdoing. They merely particularize damages. [ 14 ] Given this, no evidence is necessary. In any event, Canexus has provided evidence [ 15 ] If I am wrong and some modest degree of evidence is necessary to support the amendments, sufficient evidence is found in the affidavit of Grant Van Shaik affirmed on October 26, 2017. [ 16 ] The level of evidence required is modest where, as here, limitation periods have not expired.

They have not expired because, effective July 29, 2016, the parties entered into a tolling agreement extending all limitations periods relevant to this litigation. [ 17 ] Discussing amendments sought within a limitation period, the court in Balm v 3512061 Canada Ltd. , 2003 ABCA 98 , 2003 CarswellAlta 458, stated at paragraph 29 : All of these analogies confirm the authorities above which say that a modest degree of evidence justifies an amendment to pleadings within the limitation period. And the analogies show that requiring a stiffer test to amend would be pointless, producing little or no practical result.

To require a stiffer standard for evidence to amend would produce a motion for

summary judgment in favour of the defendant, without requiring that the defendant swear to anything. That is contrary to all principle. MEG’s position that the proposed amendments are hopeless [ 18 ] The four usual grounds for resisting amendments are described in Attila Dogan at paragraph 13 as follows (

a) The amendment would cause serious prejudice to the opposing party, not compensable in costs; (

b) The amendment requested is hopeless; (

c) Unless permitted by statute, the amendment seeks to add a new party or new cause of action after the expiry of a limitation period; and (

d) There is an element of bad faith associated with the failure to plead the amendment in the first instance. [ 19 ] MEG asserts ground (b), namely that the amendments are hopeless. [ 20 ] I disagree with the assertion that the amendments sought are hopeless.

Certainly Canexus, at trial, will have to prove their damages, but it is not necessary for them to prove their damages in order for them to be given permission to claim their damages. [ 21 ] In fact, it is hard to envisage how particulars of damages can even be categorized as ‘hopeless’ in the context of an amendment application. [ 22 ] This query is borne out by the position MEG takes on this application.

It resists the particularization of damages amendment, not on the basis that that aspect is ‘hopeless’, but on the basis that the whole existing cause of action is hopeless. [ 23 ] The existing cause of action, found in the original statement of claim, is ‘hopeless’ according to MEG because that cause of action has allegedly been conveyed to another party. [ 24 ] That assertion is made notwithstanding that there is absolutely no evidence to support it. [ 25 ] If the whole cause of action is hopeless, MEG should not be contesting the amendment (particularization of damages) but

rather should be applying for

summary dismissal on that basis. [26] Further, MEG has supplied no authority for the proposition that, if a plaintiff has assigned its cause of action to someone else,then this provides a defence to the defendant until the assignee has provided notice to MEG that it now holds an assignment of the causeof action. I enquired of MEG’s counsel whether MEG had been notified by anyone that then now held this cause of action. He answeredin the negative. [27] Even it MEG was in fact contesting the amendment (as opposed to contesting the whole action) it is not at all clear that it caneffectively convene what is in essence a

summary dismissal hearing under the guise of resisting an amendment [28] When resisting an amendment, the assertion of ‘hopelessness’, according to some cases, means that the defendant must showthat the amendments, if allowed, could simply be struck out under Rule 3.68. [29] Justice McCarthy expressed this view in NOV Enerflow ULC v Enerflow Industries Inc., 2015 ABQB 759, 2015CarswellAlta 2248, at para 6: the amendment requested is hopeless [in that it would have been struck if it had been contained in the original pleading] [30] The words added in the parenthesis refer to a striking under Rule 3.68.

In other words, an amendment should not be allowedas ‘hopeless’ if it would simply be struck on the basis that (as worded in Rule 3.68): (

a) the Court has no jurisdiction; (

b) an [amendment] discloses no reasonable claim or defence to a claim; (

c) an [amendment] is frivolous, irrelevant or improper; (

d) an [amendment] constitutes an abuse of process; (

e) an irregularity in an [amendment] is so prejudicial to the claim that it is sufficient to defeat the [amendment]. [31] The observation in NOV Enerflow is consistent with the ruling in Balm v 3512061 Canada Ltd., 2003 ABCA 98, 2003CarswellAlta 458, at paragraph 13, where the court stated: It is for that reason that the court will authorize a party to amend his pleadings, even if he has given some examination for discoveryanswers inconsistent with that proposed amendment: Neogleous v Toffolon (No. 2), (1977), (ON SC), 17 O.R. (2d)453 (Ont. H.C.), 455. The appellants made just that objection here.

They do argue that the claim against 070 and Jonathon is hopeless,but try to do so on the basis of evidence as to lack of damage, especially a cross-examination admission by the plaintiff. This is not amotion for

summary judgment by the plaintiff. Doubt avails the appellants nothing. [emphasis in original text] [32] Even if MEG were able to convert its resistance to the amendments into, in essence, a

summary dismissal application, MEGhas no evidence to support

summary dismissal, let alone evidence that the claim of Canexus was highly likely to fail (which is the onusof proof required for

summary dismissal). MEG’s assertion that Canexus’ cause of action has been conveyed elsewhere [33] MEG notes, and the evidence supports, that Canexus has now sold and assigned some or all of the NATO facility and some orall of the contracts (between Canexus and MEG) which form the basis for Canexus’ claim. [34] And so, MEG speculates, perhaps the sale agreement vests in the new purchaser (an affiliate of Cenovus Energy) the cause ofaction. [35] The problem with this position is that: (

i) it is an assertion that the Canuxus action should be dismissed, not that anything is wrong with the proposed amendments. (ii) there is no evidence to support the speculation.

In fact, the evidence is to the opposite. (iii) the affiliate of Cenovus Energy has never served notice on MEG that the affiliate claims to be the assignee of the cause of action. [36] Dealing with item (ii), the sale agreement between Canexus and the affiliate of Cenovus Energy (“the Sale Agreement”) hasnow been put into evidence, and it specifically excludes from what is being sold, the “Retained MEG Action”. [37] The Retained MEG Action is a defined term in the Sale Agreement, and here is its definition: “Retained MEG Action” means the Court of Queen’s Bench of Alberta Action No. 1401-09585 [the subject action], being an action fordamages and application by Vendor for specific performance and which directed performance of, and an injunction restraining MEGfrom breaching the obligations set forth in the Pipeline Agreement (as defined in the statement of claim of such action), including thestatement of claim, defence, counterclaim, defence to counterclaim, and any and all future amendments thereto and the orders andjudgments of the Court rendered or to be rendered in connection with such proceedings.

MEG application regarding refused undertaking [38] In pursuit of its assertion that MEG’s cause of action has been sold to the affiliate of Cenovus Energy pursuant to the SaleAgreement, and notwithstanding the express exclusion of the “Retained MEG Action”, MEG notes that the Sale Agreement refers to a

letter containing representations and warranties given by Canexus as vendor to the Cenovus affililate as purchaser (the “Disclosure Letter”), and MEG speculates that this might somehow cast doubt on the clear express terms set out above. [ 39 ] Hence MEG sought an adjournment of this amendment application so that Canexus could first be compelled to produce the Disclosure Letter. [ 40 ] I rejected the application to adjourn to compel production of the Disclosure Letter because this request is in pursuit of MEG’s unwarranted position that, in effect, it can resist the amendment application by pursuing, in essence, a

summary dismissal application on the whole claim. [ 41 ] MEG is free to defend the amended claim on the basis that Canexus no longer holds the cause of action, but simply having an asserted defence to an action is no reason to deny the amendment. As the Court of Appeal stated in the Balm decision, quoted in paragraph 31 of these reasons “doubt avails the appellants nothing” MEG submission that amendments should be refused due to an agreement to arbitrate [ 42 ] MEG says the amendments set out in paragraphs 46, 47 and 49(

d) of the proposed Amended Statement of Claim, containing Canexus’s claim for $3,187,060 due under the TSA agreement, should not be allowed because the parties have agreed to arbitrate those allegations. [ 43 ] Canexus’s response, with which I agree, is that the potential for arbitration is not a ground to decline to allow the amendment. I agree with Canexus that this issue is determined by the decision in Dow Chemical Canada Inc. v Nova Chemicals Corp. , 2010 ABQB 524 , 2010 CarswellAlta 1778, at para 35 : Nova argues that the new claims are arbitrable and therefore Dow should not be granted leave to amend its Amended Statement of Claim. I disagree with that

interpretation of the interaction between the Arbitration Act and the Alberta Rules of Court. I am of the opinion that s.7 allows a party who is subject to an arbitration agreement to apply for a stay. The claims that are stayed are not rendered hopeless; they are just stayed, perhaps permanently or perhaps until an arbitrator or a court decides otherwise. The finding that claims are arbitrable should not necessarily lead to not allowing amendments.

Nova has not convinced me that, in this case, if the new claims are arbitrable, allowing the amendments would amount to allowing hopeless claims. [ 44 ] Further, the claim in question already exists in the original statement of claim, so MEG’s objection is really in essence a request for a stay of the TSA portion of Canexus’ claim, which I deal with directly below. MEG submission that a portion of the amended claim of Canexus should be stayed due to an agreement to arbitrate [ 45 ] The amended pleadings now contain the following claims of Canexus: (

i) amounts due and owing under the TSA agreement - $3,187,060 (ii) construction delay costs - $2,311,405 (iii) loss of take or pay contract - $134 million (iv) damages for undermining Canexus’ business and damaging the amount for which the NATO terminal was sold - $300 million. [ 46 ] MEG’s position is that because a claim between itself and Canexus under the TSA is being arbitrated (relating to apportionment of capacity at the NATO terminal in August and September of 2014), and that claim is inextricably linked to Canexus’ claim for amounts owing under the TSA, then Canexus’ claim under the TSA should be stayed pending the arbitration result. [ 47 ] In other words, MEG is seeking a stay of claim (i).

MEG is not seeking a stay of claims (ii), (iii) and (iv). [ 48 ] The difficulty with MEG’s position is that there is no evidence to suggest that an arbitrator’s ruling regarding the apportionment of capacity would answer any of the issues extant in Canexus’ claim (i). That being so, there is no purpose in staying that claim and I decline to do so.

MEG’s request for a stay of this decision [ 49 ] At the conclusion of the hearing I indicated that I was allowing Canexus’ amendment application, with these written reasons to follow. [ 50 ] Counsel for MEG requested that I stay my ruling pending appeal. [ 51 ] I decline to stay my ruling for two reasons. [ 52 ] The first reason is that, in my view, the grounds for opposing the amendment application were, with respect, extremely weak. [ 53 ] The second reason relates to the reason MEG gave for seeking a stay. [ 54 ] In effect, I took MEG to say that, as a public company, its continuous disclosure requirements under relevant securities legislation may compel it to make a disclosure of the amount of the amended claim outstanding against it, whereas if this decision is stayed, it may not need to make such a disclosure. [ 55 ] The problem I have with this request is, firstly, that there is no evidence before me from an expert in securities law to shed

light on questions such as: • whether MEG has a disclosure obligation resulting simply from learning of the quantum of the claim against it, regardless of whether Canexus’ pleading has been formally amended. • whether MEG would, as suggested, have an obligation to report the granting of permission to Canexus to amend if not stayed, but no obligation to report if a stay is granted. [ 56 ] Secondly, I think issues of disclosure should be left up to securities lawyers and securities regulators.

If the Court issues a stay specifically so that a public company need not make disclosure, does an investor who purchases securities in MEG without knowledge of the quantum of claim being pursued by Canexus against MEG have reason to later complain to the Court? I think it is very unwise for the Court to involve itself in ‘live’ reporting issues. Conclusion [ 57 ] As indicated at the outset: • I grant Canexus permission to amend its claim in the form attached as

Schedule ‘A’ to its application. • I deny the application of MEG to stay the ‘TSA’ (or any) portion of the amended action. • I deny MEG’s request for an adjournment in order to obtain disclosure of the Disclosure Letter. • I decline to stay my decision pending appeal. Costs [ 58 ] If the parties cannot agree on costs they may seek a ruling from me in that regard. Heard on the 29 th day of November, 2017. Dated at the City of Calgary, Alberta this 1 st day of December, 2017. J.T. Prowse, Q.C. M.C.Q.B.A. Appearances: Peter T. Linder, Q.C. Emi R. Bossio Peacock Linder Halt & Mack LLP for the Plaintiff Chris Simard David R. McKinnon Bennett Jones LLP for the Defendant