TotalEnergies EP Canada Ltd v Suncor Energy Inc, 2023 ABKB 59

Court of King’s Bench of Alberta Citation: TotalEnergies EP Canada Ltd v Suncor Energy Inc, 2023 ABKB 59 Date: 20230201 Docket: 2201 15118 Registry: Calgary Between: TotalEnergies EP Canada Ltd Applicant - and - Suncor Energy Inc, Suncor Energy Operating Inc, Teck Resources Limited and Fort Hills Energy Corporation Respondents _______________________________________________________ Memorandum of Decision of the Honourable Justice R.J.

Hall _______________________________________________________ [ 1 ] The three main combatants in this matter are TotalEnergies EP Canada Ltd. (“TEPCA”), Teck Resources Limited (“Teck”) and Suncor Energy Inc. (“Suncor”). They are the only three owners of a bitumen mine and extraction facility in Fort Hills, near Fort McMurray, Alberta.

The facility is operated by Suncor Energy Operating Inc., a wholly owned subsidiary of Suncor. [ 2 ] There is, amongst the parties, a Unanimous Shareholder Agreement (“U.S.A.”), and also a Limited Partnership Agreement (“L.P.A.”). [ 3 ] At present, Suncor owns 54% of the partnership, TEPCA owns 24.5%, and Teck owns 21.5% (rounded). [ 4 ]

Section 11 of the Limited Partnership provides a Right of First Refusal (“ROFR”) to each partner.

Section 11.1(

b) of the L.P.A. deals with those rights.

[ 5 ] It provides that, if any of the partners proposes to dispose of its interests under the L.P.A. and U.S.A., it shall advise, by notice, the other partners of its intention. Those other partners shall have a ROFR by which the other partner or partners may give notice to the partner who intends to dispose of its interests, that they, or either of them wishes to purchase those interests at the offered price. They must do so within 180 days of receiving notice of the intended disposition. That 180 days expired Thursday, January 26, 2023. I gave my oral decision on January 25, 2023.

These are my written reasons for that decision. [ 6 ] Clause 11(1)(b)(i), (ii) and (iii) are of significant importance to this matter. I reproduce them here: (

b) Right of First Refusal: Subject to the prohibition in

Section 11.1(a), if a Limited Partner (other than a Defaulting Partner) wishes to Transfer all or a portion of its Partnership Interest, the following provisions shall apply: (

i) The Transferring Partner shall, by notice (the "ROFR Notice"), advise each other Partner of its intention to make the disposition, including in such notice a description of the Partnership Interest proposed to be disposed (such Partnership Interest together with its Corresponding Shares being herein called the "ROFR Interest"), the identity of the proposed assignee, the price or other consideration for which it is prepared to make such disposition, the proposed effective date and closing date of the transaction and any other information respecting the transaction which it reasonably believes would be material to the exercise of the other Partner's rights hereunder. (ii) If the consideration described in the ROFR Notice cannot be matched in kind and the ROFR Notice does not include the Transferring Partner's bona fide estimate of the value, in cash, of such consideration, the other Partners may, within seven (7) days of their receipt of the ROFR Notice, request the Transferring Partner to provide such estimate to them, whereupon the Transferring Partner shall provide such estimate in a timely manner and the election period provided herein to the other Partners shall be suspended until such estimate is received by them.

If there is a Dispute as to the reasonableness of an estimate of the cash value of the consideration described in the ROFR Notice provided, the matter shall be dealt with in accordance with the Dispute Resolution Procedure and the election period provided herein to the other Partners shall be suspended until such matter is resolved by settlement or determination. (iii) Within the later of: (

i) ninety (90) days from the receipt of the ROFR Notice, as modified by any suspension pursuant to

Section 11.1(b)(ii); or (ii) if applicable, fifteen (15) days from any determination or settlement reached pursuant to

Section 11.1(b)(ii), a Partner may give notice to the Transferring Partner that it elects to purchase the ROFR Interest described in the ROFR Notice for the applicable price (in this

Article called a "Notice of Acceptance"). A Notice of Acceptance shall create a binding contractual obligation upon the Transferring Partner to sell, and upon the Partner giving a Notice of Acceptance to purchase, for the applicable price, all of the ROFR Interest included in such ROFR Notice on the terms and conditions set forth in the ROFR Notice.

However, if more than one Partner gives a Notice of Acceptance, each such Partner shall purchase the ROFR Interest to which such notice of acceptance pertains in the proportion its Participating Percentage bears to the total Participating Percentages of all such accepting Partners. [ 7 ] Suncor and Teck reached an agreement.

Suncor would purchase all of Teck’s interest in the Fort Hills project; as well as Teck’s interest in other agreements not forming part of Teck’s Fort Hills interest (the “Non-ROFR Agreements”) for $1 billion. [ 8 ] The Purchase and Sale Agreement reached to accomplish this sale assessed a value of $5.00 for Non-ROFR Agreements being purchased, with the remainder of the $1 billion being the purchase price for the interests that are subject to the ROFR. [ 9 ] The Purchase and Sale Agreement included a covenant by Teck that, before the purchase and sale agreement was consummated, Teck would vote in favour of operating budgets (referred to as the Budget Approval Covenant): “the Vendor will unconditionally and irrevocably ... vote at such meeting ... to approve Management Committee resolutions for each of [the Revised Budget for 2021] and [the Annual Budget for 2022], and [the proposed Budget for 2023]. [ 10 ] This management meeting was in fact convened and Teck honoured the covenant by voting in favour of the 2021 Annual Budget, the 2022 Annual Budget, and the 2023 Annual Budget.

The result, under the L.P.A. and U.S.A. was that, by a vote of 2 partners/shareholders (Suncor and Teck) to 1 (TEPCA) those budgets were purportedly approved. [ 11 ] The annual budgets put forth by Suncor’s operating arm SE0I, had been hotly contested among the three partners for a number of years. [ 12 ] In each case, both TEPCA and Teck had repeatedly voted against the Budgets, with the result that those budgets were not approved and operations had to revert to the last approved budget of 2021. This was a matter of consternation.

The parties had embarked upon a mediation seeking to resolve that conflict. [ 13 ] On October 14, 2022 while the Budget dispute mediation was ongoing, Teck and Suncor made their agreement, and, on October 28, 2022, Suncor wrote to TEPCA, giving it notice of the impending transaction, including providing to TEPCA the whole of the Purchase and Sale Agreement between Suncor and Teck. [ 14 ] TEPCA, in this Originating Application, asks the Court to declare: (

a) The October 28 letter is not a valid ROFR notice and, without a valid ROFR notice provided by Teck to TEPCA, the Intended Transaction will be void. (

b) In addition, or in the alternative, when TEPCA wrote its Dispute Notice to Teck and Suncor on November 18, 2022, requesting a valuation of the Non-ROFR contracts being purchased plus the harm to TEPCA from the Budget Approval Covenant, its effect was to suspend the ROFR Election Period until resolution of the dispute as to the reasonableness of the estimate of the Cash Value of the consideration for the purchase of the ROFR assets. [ 15 ] Suncor and Teck first take the position that this matter is not suited for determination by Originating Application, because material facts are in issue that need to be determined by a trial.

[16] They argue that the details of the budget dispute need to be addressed for the Court to make a determination; they argue thatthere is a dispute between experts as to the value of the Non-ROFR contracts being purchased, that needs to be determined by the Court,in order to assess the parties’ contractual rights. [17] As to the former, the Court is not asked in this Originating Application to resolve the budget disputes; and therefore the Courtneed not determine those disputes. The details of the dispute are not material to the contractual

interpretation, or the remedies beingsought. [18] As to the latter, it is clear from reviewing the affidavits of each of the opposing experts who have provided opinions on thevalue of the Non-ROFR assets that their values are very much in dispute. Mr. Bloennigen, the expert hired by TEPCA gave these assetsa value of between $17.2 million and $76.6 million, on the information TEPCA was able to provide to him (Teck having refused toprovide further details of these contracts to TEPCA). Mr.

Tolleff, the expert hired by Suncor/Teck, gave his opinion that those contractshad negative values; of - $198 million to - $391 million. Each has been cross examined on their opinions and transcripts have beenprovided. [19] Suncor and Teck say, in order to determine the matter of contract

interpretation, the Court must first make a determination ofthe actual value of these Non-ROFR contracts; something that cannot be done under an Originating Application. [20] Again, I do not agree with this assertion by the Respondents. [21] What has been made clear to me is that there is a genuine dispute between the parties, as to the value of the Non-ROFRcontracts. They may have a positive value of some significance; they may have a negative value. [22] In the Purchase and Sale Agreement, Teck and Suncor valued them at $5.00. That is a nominal valuation. It is not an actualvaluation.

Clearly, Teck wanted to get fully and finally out of the oilsands business and was therefore selling its ROFR interests andNon-ROFR interests, for a total of $1 billion. [23] It matters to TEPCA, as to what the value is of the Non-ROFR assets. If TEPCA is to exercise its ROFR, what price must itpay? Is there a value to the Non-ROFR assets? TEPCA says, the price of the acquisition should be reduced to reflect that value; but whatis that value? It is hotly disputed. [24] I am called upon to determine: 1.

Have Teck and Suncor violated the requirement to act in contractual good faith by their valuation of Non-ROFR contracts at anominal $5? 2. Is the Budget Approval Covenant part of the ROFR? 3. Does the inclusion of the Budget Approval Covenant amount to bad faith, and thereby void the ROFR Notice? 4. Do the provisions in Clause 11.1(b)(ii) of the Limited Partnership Agreement act as to suspend the election notice period untilresolution of the dispute as to the value of the Non-ROFR Contracts? I.

Has the Applicant TEPCA proven an Absence of Good Faithby the Respondents, in Valuing the Non-ROFR Assets? [25] The Applicant argues that the Respondents have not acted in Good Faith in assessing the Non-ROFR contracts, as havingonly a nominal value, i.e. $5. [26] The Applicant’s expert, Mr. Bloennigan gave his opinion that, based upon the information he was able to review regardingthe Non-ROFR contracts, they were worth between $17 million and $76.6 million.

The Applicant says, therefore, that its evidence showsthat the valuation in the Purchase and Sale Agreement of $5 is not a good faith estimate; it is wholly unreasonable. [27] However, in response, the Respondents provided an expert report by Mr. Tolleff. There, Mr. Tolleff provided his opinion thatthe Non-ROFR contracts had a negative value to Teck, of between -$198 million and -$391 million. The Applicants point out that Mr.Tolleff was not made aware of the Toll Settlement Agreement reached between Suncor and Teck to ameliorate the effect of the high tariffin Teck’s agreement with Keystone.

Still the Court is left with two very different expert valuations. [28] Teck has also provided an affidavit from its Senior Vice President, Nicholas Hooper. Mr. Hooper states that the Non-ROFRcontracts collectively represent a substantial liability to Teck. He states that in performing its due diligence, Suncor was so concernedabout the tariff in the Keystone contract, that it insisted that Teck execute the Toll Settlement Agreement to ameliorate some of thatnegative effect to Suncor of assuming that contract with this high tariff.

He states that, because the Non-ROFR contracts were asubstantial liability, they were given only nominal values in the Purchase and Sale Agreement. [29] In the trial decision in Chase Manhattan Bank of Canada v Sunoma Energy Corp 2001 ABQB 142 , [2001] AJ No245, Justice LoVecchio of this Court dealt with a similar allegation of a lack of good faith in assessing the value of the ROFR interests ina packaged offer. There the applicant presented two valuations of the ROFR assets, one by its president and one by a consultingcompany, which valued the ROFR assets at far less than purchase price.

Justice LoVecchio stated at para 36: With respect, these different valuations do not, in themselves, prove bad faith. This was the only evidence that supported Best Pacific’s

position on the second issue. Best Pacific did not produce evidence of an independent valuation of any or all of the other properties in Parcel 6. Such evidence might have supported its contention that the value of the [ROFR] assets was grossly distorted in the Notice. ... Best Pacific has not met the evidentiary hurdle of showing that the Receiver or Eravista breached their duty of good faith. ... [ 30 ] Here, the Applicant has presented an independent expert evaluation of the value of the Non-ROFR contracts. But it is met with a contrary expert opinion; and it is met by the evidence of Mr.

Hooper that these Non-ROFR contracts constituted a liability to Teck that Teck wanted Suncor to assume. [ 31 ] Given that evidence, I am not prepared to say that the Respondents failed to meet their good faith obligation in valuing the Non-ROFR contracts at a nominal $5. The Applicant has failed to discharge its evidentiary onus. II. Is the Budget Approval Covenant part of the ROFR Notice? [ 32 ] Clause 11.1(b)(

i) of the Limited Partnership Agreement specifies what is to be included by the Transferring Partner in the ROFR notice: 1. Its intention to sell; 2. A description of the Partnership Interest proposed to be disposed; 3. The identify of the proposed assignee; 4. The price or other consideration for which it is prepared to make the disposition; 5. The proposed effective date and closing date of the transaction; 6.

Any other information respecting the transaction which it reasonably believes would be material to the exercise of the other Partner’s ROFR rights. [ 33 ] On October 28, 2022, Teck sent such a letter to TEPCA and Suncor.

It enclosed a copy of the Purchase and Sale Agreement. [ 34 ] From its review of the Purchase and Sale Agreement, TEPCA learned of the Budget Approval Covenant of the vendor, Teck, which was a condition precedent to closing the transaction. [ 35 ] TEPCA maintains that the ROFR notice attached the Purchase and Sale Agreement, which contains and includes the vendor’s Budget Approval Covenant; that the granting of the Covenant fails the requirement to exercise voting discretion in good faith; and that therefore the ROFR notice is invalid. [ 36 ] It is to be noted that the Budget Approval Covenant is a Vendor’s covenant, wholly to the benefit of the purchaser. [ 37 ] Therefore, should TEPCA wish to exercise its Right of First Refusal, it is not called upon to give any such covenant, nor would it be required to exact such a covenant from the Vendor. [ 38 ] In other words, TEPCA is offered the option to purchase its pro rata share of Teck’s interest in the project for that pro rata share of the purchase price of $1 billion. [ 39 ] The existence of the Budget Approval Covenant is of no consequence to TEPCA, in terms of its ability to exercise its ROFR. [ 40 ] I find that the Budget Approval Covenant does not form part of the terms of the offer to TEPCA to purchase its proportionate share of the Teck interests.

TEPCA is attacking the Budget Approval Covenant in the PSA; not the ROFR offer. [ 41 ] The parties have specifically stated in this hearing that the validity of the Budget Approval vote of November 28, 2022 is not a matter before me. [ 42 ] In the result, I do not express my view as to whether the covenant to vote to approve the Budgets, or the actual vote, was good faith performance of the U.S.A. and the L.P.A. That issue is simply not relevant to my determination herein. [ 43 ] TEPCA must decide whether to exercise its ROFR on the information provided.

If it is of the view that it has been unfairly treated, it can pursue resolution by other means. III. Does the inclusion of the Budget Approval Covenant amount to bad faith and void the ROFR Notice? [ 44 ] As I have determined above that the Budget Approval Covenant does not form part of the ROFR Notice, I need not determine whether that covenant was in bad faith. I am not called upon to determine the validity of the Budget Approval Vote, and I decline to do so.

IV. Do the provisions in Clause 11.1(b)(ii) of the Limited Partnership Agreement act such as to suspend the election notice period until resolution of the dispute as to the value of the Non-ROFR contracts? [ 45 ] The proper reading of clause 11.1(b)(ii) of the Limited Partnership Agreement is squarely in issue here. [ 46 ] The Applicant says the first sentence of that clause relates to a situation where part or all of the consideration for the purchase of the ROFR interest is in kind, rather than in cash. The parties agree that is not the case here.

However, I set it out here again: (ii) If the consideration described in the ROFR Notice cannot be matched in kind and the ROFR Notice does not include the Transferring Partner's bona fide estimate of the value, in cash, of such consideration, the other Partners may, within seven (7) days of their receipt of the ROFR Notice, request the Transferring Partner to provide such estimate to them, whereupon the Transferring Partner shall provide such estimate in a timely manner and the election period provided herein to the other Partners shall be suspended until such estimate is received by them. [ 47 ] The Applicant focusses on the second sentence of that clause: If there is a Dispute as to the reasonableness of an estimate of the cash value of the consideration described in the ROFR Notice provided, the matter shall be dealt with in accordance with the Dispute Resolution Procedure and the election period provided herein to the other Partners shall be suspended until such matter is resolved by settlement or determination. (Underlining added) [ 48 ] The Applicant maintains that sentence is independent of the topic of the first sentence.

The second sentence does not refer to consideration “in kind”. It does not refer to “the” estimate referenced in sentence 1, but to “an” estimate. [ 49 ] The Applicant states the dispute as to the value of the Non-ROFR Agreements amounts to “a Dispute as to the reasonableness of an estimate of the cash value of the consideration described in the ROFR notice”; therefore, until the dispute is settled and determined, the 90 day election period is suspended. [ 50 ] The Respondents dispute that

interpretation. They say the Dispute discussed in the second sentence refers to a disagreement in the circumstances described in the first sentence, i.e. where the consideration cannot be matched in kind; and where the ROFR holder requests, within 7 days, a bona fide estimate of the value, in cash, of such consideration. [ 51 ] The Respondents argue that it is a principle of contractual

interpretation that: Each word in an agreement is not to be “placed under the interpretive microscope in isolation and given a meaning without regard to the entire document and the nature of the relationship created by the agreement.” Courts should not strain to dissect a written agreement into isolated components and then interpret them in a way that – while apparently logical at one level – does not make sense given the overall wording of the document and the relationship of the parties: ( Bell Canada v The Plan Group, et al 96 O.R. (3d) 91 , Ont C.A., para 38.

They also reference Amberber v IBM Canada Ltd , 2018 ONCA 571 at para 59 : ... In my view, the individual sentences of the clause cannot be interpreted on their own. Rather, the clause must be interpreted as a whole. [ 52 ] I agree with the Respondents. Clause 11(1)(b)(ii) does not address, nor attempt to address a situation such as is before me in this matter, where the ROFR assets are part of a package of ROFR assets and Non-ROFR assets being purchased. [ 53 ] That is consistent with our Court of Appeal’s finding in Best Pacific Resources Ltd v Eravista Energy Corp , 2002 ABCA 286 .

There, a similar clause was in the ROFR provisions contained in the CAPL Operating Procedure. There the clause related to an offer for the subject interest which could not be matched in kind, and provided, “in case of dispute as to the reasonableness of the estimate (underlining added) the matter shall be referred to arbitration.” The Alberta Court of Appeal said the clause only applied when the consideration in the offer “cannot be matched in kind”.

It did not apply, nor were there any applicable provisions, for resolving a dispute about the purchase price where ROFR interests and Non-ROFR interests were being sold in a package. [ 54 ] Reading clause 11(1)(b)(ii) as a whole , I am not prepared to say that the use of the word “an” results in a materially different reading as is suggested by the Applicant.

Had the parties wished to address the situation of an evaluation dispute in a packaged offer, they could have done so explicitly, not hidden in the difference between the words “the” and “an”. [ 55 ] If this second sentence was to be applied to packaged deals, it would not refer to “cash”, nor to “estimate”, words which are carried forward from the first sentence in the clause. [ 56 ] I find that here, as in Best Pacific , the parties have not addressed packaged deals in the ROFR provisions of clause 11of the L.P.A. [ 57 ] Therefore, clause 11(1)(b)(ii) does not act to suspend the election period pending resolution of the dispute as to the value of the Non-ROFR contracts.

Conclusion [ 58 ] In the result, the Application is dismissed. [ 59 ] If the parties cannot agree as to costs, they may address me. Heard on the 23 rd day of January, 2023 to the 24 th day of January, 2023. Dated at the City of Calgary, Alberta this 1 st day of February, 2023. R.J. Hall J.C.K.B.A. Appearances: Bryan C. Duguid KC/Laura Warner/David Marshall/Robyn Graham for the Applicant Dalton W. McGrath, KC/Michael O'Brien/Tom Wagner for the Respondents, Suncor Energy Inc and Suncor Energy Operating Inc Eliot N. Kolers/Geoffrey D. Holub/Genna Wood for the Respondent, Teck Resources Limited