CWC Energy v Acquisition Oil Corp., 2023 ABKB 461

Court of King’s Bench of Alberta Citation: CWC Energy v Acquisition Oil Corp., 2023 ABKB 461 Date: 20230808 Docket: 2201 09127 Registry: Calgary Between: CWC Energy Services Corp. operating as CWC Ironhand Drilling Plaintiff - and - Acquisition Oil Corp. Defendant _______________________________________________________ Reasons for Decision of the Honourable Applications Judge J.T. Prowse _______________________________________________________ [ 1 ] CWC provided well drilling services for Acquisition Oil Corp.(“AOC”). It has not been paid in full. It sues for $1,666,711.21 and seeks

summary judgment. [ 2 ] AOC’s defence is by way of set-off, deriving from a drilling failure which occurred on February 18, 2022 when a drill string in one of the wells being drilled by CWC sheared off within a well hole. Fishing operations were undertaken to retrieve the part of the well string lost in the hole, but were unsuccessful and the well was abandoned. AOC seeks set-off in the amount of $5,103,924.00. [ 3 ] In a usual contractual situation the Court would embark on an evaluation of whether CWC was negligent or in breach of

contract with respect to the drilling failure leading to AOC’s loss. [ 4 ] This is not a usual contractual situation. [ 5 ] As AOC itself notes in its written brief: The agreement [between CWC and AOC] is based on a standard form contract that was prepared by the Canadian Association of Oilwell Drilling Contractors (CAODC).

The CAODC Contract contains a so-called ‘knock-for-knock’ or no-fault regime, which allocates risk for losses and damages according to ownership or control, rather than fault. [ 6 ] The contract generally places the risk for above-ground losses on the driller, CWC, and places the risk of under-ground losses (such as occurred here) on the operator, AOC.

That allocation of risk “shall prevail in the place and stead of any other allocation of risks, responsibilities, or potential losses or liabilities that might be made on the basis of negligence or other fault of either party or howsoever arising or any other theory of legal liability and notwithstanding the breach or alleged breach of any provision of the drilling program not included in this

article X”. (emphasis added) [ 7 ] This form of contract was considered in a case involving Precision Drilling, mentioned below. [ 8 ] In Precision Drilling Canada Limited Partnership v. Yangarra Resources Ltd. , 2015 ABQB 649 , 2015 CarswellAlta 1922, (which I will refer to as “Precision #1) I awarded

summary judgment for unpaid drilling fees to the negligent driller whose negligence ruined a well. This was based on the no fault provisions of the same contract as was used here. [ 9 ] On appeal, in Precision Drilling Canada Limited Partnership v. Yangarra Resources Ltd ., 2016 ABQB 365 , 2016 CarswellAlta 1279, (which I will refer to as “Precision #2”) Wilson J. upheld my decision, again applying the no-fault provisions of the contract. [ 10 ] On further appeal, in Precision Drilling Canada Limited Partnership v.

Yangarra Resources Ltd. , 2017 ABCA 378 , 2017 CarswellAlta 2336, (which I will refer to as “Precision #3) the Court of Appeal overturned Precision #1 and Precision #2. The Court of Appeal decided there is a triable issue as to whether the ‘no-fault’ regime applies if one of the contracting parties committed fraud or fraudulent misrepresentation. [ 11 ] Whether fraud/fraudulent misrepresentation would be an exception to no-fault regime was not determined by the Court of Appeal.

What was decided is that, where the evidence before the Court raises the prospect of fraud or fraudulent misrepresentation, then a triable issue exists as to whether the ‘no fault’ provisions of the contract would bar recovery against the party guilty of the fraud/fraudulent misrepresentation. [ 12 ] It is important to note that the Court of Appeal did not comment adversely on the no-fault conclusions contained in Precision #1 and Precision #2 except insofar as cases of fraud or fraudulent misrepresentation. [ 13 ] The potential fraud/fraudulent misrepresentation in Precision (

i) arose during the course of the drilling contract and (ii) involved a fact. [ 14 ] The fact was described as follows by the Court of Appeal (at para 3) During the nightshift on December 2, 2011, a Precision employee mistakenly mixed sulfamic acid instead of caustic potash into drilling mud. For the rest of the shift and into the day shift of December 3, 2011 Precision advised Yangerra that the drilling mud was in order when it knew or should have known it was not. [ 15 ] In this case, representations (

i) arose during negotiations leading up to the contract and (ii) involved intentions i.e. how CWC intended to carry out the contract.

The details of these representations will be discussed later in these reasons. [ 16 ] In the contract, CWC agrees “ to perform the work pursuant to each drilling program with due care and diligence, in a good and workmanlike manner , in accordance with good drilling practices ...” In slightly different terminology, and with more particulars, this is the gist of the representations made by CWC’s salesperson to AOC during negotiations leading up to the contract. [ 17 ] If the drilling failure in question resulted from CWC breaching the “good and workmanlike” covenant contained in the contract, AOC could not sue CWC for damages, due to the ‘no-fault’ allocation of risk provisions in the contract. [ 18 ] However, AOC asserts, because essentially the same promises as are contained in the contract were said by CWC’s salesman to AOC’s representative prior to the contract being entered into, CWC is liable for the $5.0 million loss which occurred. [ 19 ] There is no evidence that AOC asked for these pre-contractual representations to be placed in the contract and exempted from the “no fault” regime. [ 20 ] For AOC to succeed in its set-off claim at trial AOC would at a minimum need to persuade the Court that CWC’s salesperson knew, when he made these pre-contractual statements, that CWC was either unable to, or planned not to, drill the wells in question in a good and workmanlike manner, or at least that the statements were recklessly made. [ 21 ] However, this onus does not fall on AOC in this

summary judgment proceeding. All that is necessary is for the Court to conclude that sufficient evidence of fraudulent misrepresentation exists to raise a triable issue. [ 22 ] My conclusion, for the reasons set out below, is that there is insufficient evidence to raise a triable issue. [ 23 ] I will now review the evidence that leads me to that conclusion.

Evidence regarding the misrepresentations allegedly made, and whether CWC’s salesperson knew that they were untrue when made (or were recklessly made) (

A) Representation re quality of pipe [ 24 ] AOC’s witness, Mr. Witwer, says that, prior to the execution of the agreement, CWC’s sales representative, Mr. Maser, represented to him that the equipment being supplied by CWC, including drill pipe, was of a suitable quality and fit for its intended purpose. Specifically, Mr. Witwer requested that Mr. Maser advise when the last inspection was done on the drill pipe, the mileage on it, and repair expectations with respect to the drill pipe.

Witwer says, in response, that Maser of CWC represented that the drill pipe would: (i) “be freshly inspected”; and (ii) “be good premium pipe”; and (iii) “have 95% wall thickness remaining”. [ 25 ] The evidence submitted indicates that Mr. Maser’s representations were true. Mr. Maser testified on cross-examination that the drill string was premium grade drill pipe, purchased in November of 2021, that had zero meters of drilling on it since last inspected.

The packing list for the 598 joints of pipe used in Acquisitions drilling program indicate that it was used premium pipe with 95% wall thickness. [ 26 ] When Mr. Maser was cross-examined, two pre-contract inspection reports were produced by way of undertaking – and it is presumed that the 598 joints of pipe were among the larger groups of pipes which were the subject of these two reports. [ 27 ] AOC suggests that these reports showed that some of the joints inspected had less that the promised 95% wall thickness.

However, there is no evidence that those thinner joints were part of the 598 joints supplied to this job. [ 28 ] AOC did not seek to further cross-examine Mr. Maser after the two reports were provided as undertakings, to test the theory, that AOC now advances, that Mr. Maser either read these reports and knew the pipe being supplied was thinner than promised, or that Mr. Maser was reckless if he had not read these two reports. [ 29 ] CWC obtained a different report on the failed pipe after the incident.

That report did not specifically address wall thickness of the drilling pipe, but did arrive at the following general conclusion after examining the pipe which failed: There was no evidence that substandard material contributed to this failure. [ 30 ] The evidence regarding misrepresentation regarding the quality of pipe to be supplied is so weak that it does not, in my view, raise a triable issue concerning that allegation that Mr. Maser fraudulently misrepresented the quality of pipe that CWC intended to use on this project.

B. representations as to the quality of Rig #3 [ 31 ] Another alleged misrepresentation alleged is that, prior to the execution of the agreement, Mr. Maser represented that Rig 3 had approximately 1.1% repair time and had experienced zero incidents over an operating period exceeding 200 days. [ 32 ] AOC submits evidence that during the time Rig 3 was working on its job, it experienced higher repair time. This does not indicate in any way that the 1.1% figure reported by Mr.

Maser was false. [ 33 ] AOC submits evidence concerning 5 ‘incidents’ during the course of CWC’s drilling, but only one involved the need for medical treatment, which Mr. Maser testified was the meaning of the word ‘incident’ when he used that expression. [ 34 ] In any event, without having to adjudicate the meaning of the word ‘incident’ when used in this context, even if there were more than one incident during the drilling operations, this does not provide evidence that Mr. Maser’s statements as to experiences with Rig 3 prior to the contract were false.

C. representation as to services to be performed by CWC [ 35 ] AOC’s representative Witwer says that, prior to the execution of the agreement, Mr. Maser represented to him that the services provided throughout the drilling program would be performed with proper care and skill by properly trained, qualified, and experienced employees and contractors. Witwer says he was specifically advised by Mr.

Maser that CWC would utilize “Rig 3”, and Jessie Vandenbrink would serve as rig manager during the drilling program. [ 36 ] The evidence is that Jessie Vandenbrink was the rig manager when the drilling failure in question occurred. [ 37 ] AOC then says that perhaps when another individual named Darryl Addey had acted as rig manager on earlier shifts he had managed the rig improperly and caused damages to the drill string. This is complete speculation without any evidentiary foundation.

Conclusion regarding evidence [ 38 ] As set out above, my conclusion is that there is insufficient evidence on the record to raise a triable issue of fraudulent misrepresentation, and accordingly, I allow CWC’s application for

summary judgment. [ 39 ] If I had concluded that there was sufficient evidence to raise a triable issue, I would have nevertheless have allowed CWC’s application for

summary judgement based on the entire agreement clause contained in the contract.

The entire agreement clause [ 40 ] I am aware that the Court has the power to not enforce an entire agreement clause if it makes a finding of fraudulent misrepresentation, but every case must be evaluated in its commercial context. [ 41 ] Here is the commercial context: • AOC was faced with the prospect of a typically used ‘no fault’ drilling contract. This has an obvious downside to AOC in that it waives potential claims for potentially catastrophic down hole losses such as occurred here.

The upside is that presumably the pricing provided by CWC reflects CWC’s immunity from down hole claims. • In the negotiations leading up to the contract, AOC asked for a representation as to how CWC intends to carry out the contract. It then sought and obtained statements from CWC’s sales representative of generally the same nature as would be in the contract , to the effect that CWC will perform its work with due care and diligence and in a good and workmanlike manner, which I believe encompasses not supplying substandard drilling pipe, or rigs or crews. • Now AOC can have its cake and eat it too.

It gets the benefit of pricing that the driller supplies based the lack of the driller’s exposure to catastrophic claims arising from down hole failure, but it can sue for such catastrophic losses by asserting that the statements made by CWC’s salesperson leading up to the contract are fraudulent misrepresentations. • There is no evidence that AOC said to CWC during contractual negotiations that it was unwilling to agree to ‘no fault’ provisions, but rather wanted an amendment to the contract to allow it to claim for catastrophic down hole losses if: (

i) the pipe is not of a certain quality, (ii) the rig is not of a certain quality, and (iii) a specified rig manager is not used. [ 42 ] How can CWC protect itself against such an approach?

In this case, by relying on the following clause in the contract: 18.1 Each Drilling Program shall constitute the entire agreement between Operator and Contractor in connection with the subject matter hereof and shall supersede all prior agreements, arrangements, negotiations, representations or understandings by or between them, whether written or otherwise. [ 43 ] In my view, in the commercial context of this case, which (unlike Precision Drilling) deals with representations made during contractual negotiations concerning how one party intended to carry out its contractual obligations, this entire agreement should be enforced and

summary judgment allowed, even if there had been evidence which might lead to a finding of fraudulent (including reckless) misrepresentations made during negotiations. Heard on the 04 th day of August, 2023. Dated at the City of Calgary, Alberta th is 08 th day of August, 2023. J.T. Prowse A.J.C.K.B.A. Appearances: Craig O. Alcock/Florence Hogg Burnet, Duckworth & Palmer LLP for the Plaintiff Craig Brusnyk DLA Piper (Canada) LLP for the Defendant