Manitok Energy Inc (Re), 2021 ABQB 335

Court of Queen’s Bench of Alberta Citation: Manitok Energy Inc (Re), 2021 ABQB 335 Date: 20210428 Docket: B201 332583, B201 332610, B201 335351 Registry: Calgary In the Matter of the Notice of Intention to Make a Proposal of Manitok Energy Inc. In the Matter of the Notice of Intention to Make a Proposal of Raimount Energy Corp. In the Matter of the Notice of Intention to Make a Proposal of Corinthian Oil Corp. Between: Alvarez & Marsal Canada Inc. in its capacity as the Court-appointed receiver and manager of Manitok Energy Inc. Applicant - and - Persist Oil and Gas Inc.

Respondent _______________________________________________________ Endorsement of the Honourable Madam Justic e B.E. Romaine _______________________________________________________ [ 1 ] This application involves a mistake that was made with respect to the conveyance of certain gross overriding royalties (the "GORRs") in the context of a bankruptcy. Two parties submit that they are entitled to the GORRs.

One, Persist Oil and Gas Inc., applies for rectification of the purchase and sale agreement ("PSA") it entered into with the Trustee in bankruptcy of Corinthian Oil Corp. by adding the GORRs to the definition of "Assets" to be conveyed.

[2] The Trustee, Alvarez & Marsal Canada Inc., supports the claim of the second purchaser, Convega Energy Ltd.

Unlike theagreement with Persist, Convega’s purchase and sale agreement with the Trustee includes the GORRs as assets to be purchased. [3] Rectification is an equitable remedy, and the rectification sought by Persist would be to the prejudice of Convega, aninnocent third party that acquired the GORRs and took action based on the PSA between it and the Trustee: Consortium Capital ProjectsInc. v Blind River Veneer Ltd (1988) (ON SC), 63 OR(2d) 761 at para 15. [4] While the facts of Consortium Capital involve the question of whether a third party relied on the agreement sought to berectified, I do not agree that an equitable ban to rectification should be constrained to those limited facts as suggested by Persist.

I notethat the Supreme Court authority relied up in Consortium Capital makes reference, with approval, to an Ontario Court of Appeal case inwhich the Court refused rectification when it would affect a third party purchaser who had no

part in the error that was made, but wouldlose property if the error was rectified. [5] Persist submits that Convega is not an innocent third party, saying that it should have reviewed the PSA between Persist andthe Trustee as part of its diligence prior to completing the transaction. As noted by Convega, it relied on a property report provided bythe Trustee that listed the GORRs as payable to Corinthian, not Persist. [6] It would be unreasonable to find that Convega’s diligence should have extended to reviewing the PSAs of previous sales bythe Trustee to ensure that the GORRs had not been conveyed.

Even had Convega done so, it may only have noted that the definition of“Assets” in the Persist PSA did not include the GORRs. While there may be ambiguity in the Persist PSA with respect to references tothe GORRS, including specifically the fact that they were listed on a

schedule of property that forms part of the PSA, Persist’sapplication for rectification recognizes that the PSA does not clearly include the GORRs. [7] The mistake that Persist submits was made would also have been discoverable through Persist’s diligence. Persist’s PSA isessentially the same as Convega’s PSA, with limited representations and warranties by the Trustee, and the obligation for investigationresting solely with the purchaser.

It would be inequitable to hold Convega to a higher standard of diligence. [8] As noted in Performance Industries Ltd v Sylvan Lake Golf & Tennis Club Ltd, 2002 SCC 19 at para 36: I referred earlier to the four conditions precedent, or “hurdles” that a plaintiff must overcome. To these the appellants wish to add a fifth.Rectification, they say, should not be available to a plaintiff who is negligent in reviewing the documentation of a commercialagreement.

To the extent the appellants’ argument is that in such circumstances the Court may exercise its discretion to refuse theequitable remedy to such a plaintiff, I agree with them.

To the extent they say the want of due diligence (or negligence) on the plaintiff’spart is an absolute bar, I think their proposition is inconsistent with principle and authority and should be rejected. (emphasis added). [9] Thus, while negligence in reviewing the documentation of an agreement is not an absolute ban, it is a factor to be consideredin cases such as this one involving the rights of an innocent third party. [10] As submitted by counsel to Persist, the issue in this case is whether Persist or Convega should bear the consequences of theerror that Persist seeks to rectify.

In the circumstances, I find that Persist must do so. [11] If I am incorrect in this, I would decide the issue on the basis that Persist has not satisfied the test for rectification set out inPerformance Industries at para 38.

Even assuming that Persist has established that there was a prior agreement with terms that aredefinite and ascertainable, it has not established either that the Trustee knew or ought to have known of the mistake in reducing the termsof that agreement to writing in the formal agreement. “It is only where permitting [the Trustee in this case] to take advantage of the errorwould amount to ‘fraud or the equivalent of fraud’ that rectification is available”. [12] Persist does not allege that the Trustee’s reliance on the executed PSA would be fraud or equivalent of fraud but submits thatthis is not a case of unilateral mistake, in which case the conditions to rectification set out in Performance Industries would apply, but ofmutual mistake, where the less rigorous test set out in Canada (Attorney General) v Fairmont Hotels Inc, 2016 SCC 56 at para 38applies.

That test only requires that:

a) the parties reached an antecedent agreement with terms that are definite and ascertainable;

b) the antecedent agreement was still effective when the instrument was executed;

c) the instrument failed to record accurately the agreement reached; and

d) the instrument would carry out the agreement reached if rectified as proposed. [13] The Fairmont case, and other cases like it, involve rectification of tax mistakes unopposed by the parties to the agreement.While the Ontario Court of Appeal in Royal Bank of Canada v El-Bris Limited, 2008 ONCA 601 implies that the test for mutualmistake is not limited to cases where rectification is unopposed, that was a case where a trial judge made a finding of fact that both sidesto an agreement had a common intention with respect to the meaning of an agreement, a finding that the Court found reasonable as it wassupported “by the documents, the oral evidence of the parties and even by the parties’ later conduct”: para 20.

Representatives of bothsides to the contract gave evidence supporting the common intention, and the parties’ later conduct was consistent with that commonintention.

The Appeal Court noted that the final decision “turns narrowly on its facts”, and that permitting the bank to rely on the termsof the contract would unjustly enrich the bank: para 36. [14] While Persist may have established a prior agreement on the basis of emails and draft schedules, the evidence does notestablish that the Trustee shared a common intention up to the point of the executed agreement, and the Trustee’s subsequent conductdoes not support such a common intention. [15] Therefore, I find that this is a case of unilateral mistake, subject to the conditions set out in Performance Industries.

[ 16 ] This is not a case where the Persist sale and vesting order determines the resolution of the matter, as there are two such orders, and only one can prevail. [ 17 ] Given my decision, it is not necessary to interpret the Relentless farmout agreement or to decide whether the evidence establishes an antecedent agreement. [ 18 ] I dismiss Persist’s application for rectification, and confirm that the GORRs were properly acquired by Convega. [ 19 ] If the parties are unable to agree on costs, they may make submissions to the Court. Dated at Calgary, Alberta this 28th day of April, 2021. B.E. Romaine J.C.Q.B.A.

Appearances: Howard A. Gorman, QC, and Gunnar Benediktsson for the Trustee in Bankruptcy of Corinthian Oil Corp. Caireen E. Hanert and Tom Cumming for Persist Oil and Gas Ltd. Nicole T. Taylor-Smith for Convega Energy Ltd.