Bateman v Alberta (Surface Rights Board), 2023 ABKB 640

Court of King’s Bench of Alberta Citation: Bateman v Alberta (Surface Rights Board), 2023 ABKB 640 Date: 20231114 Docket: 2308 00025 Registry: Medicine Hat Between: Wayne Albert Bateman Applicant - and - Alberta Surface Rights Board and Minister of Justice and Attorney General for the Province of Alberta Respondents Corrected judgment: A corrigendum was issued on November 24, 2023; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Reasons for Judgment of the Honourable Justice N.M Carruthers _______________________________________________________ I. Introduction

[ 1 ] This is a dispute about payment for an oil producer’s access to an individual’s land. The Applicant, Wayne Bateman, was seeking recovery of unpaid compensation under a surface lease agreement with Lexin Resources Ltd. (“Lexin”) for the years 2015-2019. The Alberta Surface Rights Board (“SRB”) awarded compensation to Mr. Bateman in respect of his claim, but for only half of the amount owing. Mr. Bateman argues that this award is unreasonable and seeks judicial review. [ 2 ] Lexin was not represented on this application.

Counsel appeared for the Land and Property Rights Tribunal (the “Tribunal”), which has subsumed the SRB. Tribunal Counsel took no position, but limited her role to addressing the standard of review and providing information about Tribunal policy, practice and jurisdiction. II. The Surface Rights Regime [ 3 ] Mr. Bateman’s claim was made pursuant to

section 36 of the Surface Rights Act , RSA 2000, c S-24 (the “ Act ”). The purpose of the Act is to ensure that landowners are protected and properly compensated in the event energy companies enter their land to establish an oil or gas well. This is necessary as landowners are not entitled to refuse entry. [ 4 ] In his brief and submissions, Mr. Bateman’s counsel summarized the history and purpose of this legislation in Alberta. His position is that there has been a clear and consistent intent to make landowners whole.

Prior to 1972, operators were required by legislation to provide security sufficient to protect the owner’s rights. [1] Starting in 1972, the Act provided that the provincial treasurer would pay if an operator failed to make a payment due under a compensation order or surface lease. The legislation reflects an attempt to balance the rights of energy companies and landowners. Energy companies have the right to enter onto agricultural lands to develop Crown resources, while landowners have a right to fair compensation. A. Setting Compensation [ 5 ] Mr.

Bateman submits that the intention to make landowners whole is reflected in sections 23 to 27 of the Act , which establish a fair process for setting and reviewing the compensation payable by operators. If the parties are unable to agree on compensation, they may apply to the Tribunal to have it set. Section 25(1) of the Act sets forth a number of factors for the Tribunal to consider in setting the initial compensation, including: (

c) the loss of use by the owner or occupant of the area granted to the operator, (

d) the adverse effect of the area granted to the operator on the remaining land of the owner or occupant and the nuisance, inconvenience and noise that might be caused by or arise from or in connection with the operations of the operator… [ 6 ] Counsel advised that the Tribunal receives detailed evidence and will consider the types of crops grown on the owner’s property and their value, crop rotation practices, yields, farming practices and the equipment used. There is often expert evidence from appraisers, agrologists, agronomists, and others.

If the land is used for ranching or grazing, different considerations may be brought to bear. The focus remains on the loss of use and the adverse effect of the area granted to the operator on the remaining land, as well as the nuisance, inconvenience and noise that might be generated by operations on site. A separate amount is attributed to loss of use and adverse effect, respectively, for the purpose of determining the total lease payment. [ 7 ] Mr.

Bateman argues that Canadian Natural Resources Ltd v Bennett & Bennett Holdings Ltd , 2008 ABQB 19 sets out two approaches that have been developed to quantify the relevant factors. In the first, the parties may look at a pattern of dealings regarding standard compensation rates for certain types of lands or uses. The second approach calculates the actual loss of use and adverse effect arising as a consequence of the rights granted to the operator. [ 8 ] The second approach involves three steps.

First, the Tribunal will examine farming practices to quantify revenue per acre and how much is lost due to the surface lease. Second, the Tribunal will quantify the effect of the obstruction on the remaining land, as a landowner typically must farm around the lease site. Issues such as the need for weed control and the negative effect on soil are considered as part of this analysis.

Finally, the Tribunal considers intangible factors that contribute to an adverse effect, such as noise, nuisance and inconvenience. [ 9 ] The courts have considered the effect on compensation when landowners farm the lease site and obtain revenue from the crop. In Conocophillips Canada Resources Corp v Lemay , 2009 ABQB 72 , the Court held that compensation should be based on the premise that entire site is being used by the operator because, at any time during the lease, the operator can come on site and the landowner’s crop will be at risk of damage or loss.

The Court also assumed that landowners should be compensated for the gross crop revenue rather than net, particularly when the crop is not a speciality crop. (See also Funk et al v Ember Resources Inc , 2021 ABLPRT 516 .) [ 10 ]

Section 27 of the Act provides for a review of compensation every five years and indicates that the factors in subsections 25(1)(

c) and (

d) must be considered on this review. [ 11 ] Compensation continues to be payable until the land is reclaimed and turned back over to the landowner, pursuant to

section 144 of the Environmental Protection and Enhancement Act , RSA 2000, c E-12 (the “ EPEA ”). A reclamation certificate is required to establish that a surface lease has been surrendered. B. If the Operator Does Not Pay [ 12 ] The Act provides for the possibility that the operator will fail to pay the required compensation.

Section 36 states, in part, as follows:

(3) Where any money payable by an operator under a compensation order or surface lease has not been paid and the due date for its payment has passed, the person entitled to receive the money may submit to the Tribunal written evidence of the non-payment. ...

(4) On receiving the evidence, if the Tribunal considers that it satisfactorily proves the non-payment, the Tribunal shall send a written notice to the operator demanding full payment. ...

(6) If, within 30 days of the Tribunal sending a written notice to an operator under subsection (4), the operator has not proven to the Tribunal’s satisfaction that full payment has been made, the Tribunal may direct the Minister to pay out of the General Revenue Fund the amount of money to which the person referred to in subsection (3) is entitled. [emphasis added] [ 13 ] A party dissatisfied with a decision of the Tribunal may apply for a reconsideration pursuant to

section 29 of the Act and Rule 37 of the Surface Rights Board Rules . This is not an appeal or a judicial review, but a discretionary remedy that allows the Tribunal to reconsider a prior decision. Rule 37(3) establishes the following prerequisites for reconsideration:

(3) The Board may only decide to review a decision or order if one of the following basic requirements for review are met: (

a) the decision or order shows an obvious and important error of law or jurisdiction; (

b) the decision or order shows an important error of fact, or an error of mixed fact and law, in the decision or order that affects the decision or order; (

c) the decision or order was based on a process that was obviously unfair or unjust; (

d) the decision or order is inconsistent with an earlier Board decision or order, binding judicial authority, or provision of the relevant legislation, regulation, or rules; or (

e) there was evidence at the time of the hearing that was not presented because it was unavailable to the party asking for review, and which is likely to make a substantial difference to the outcome of the decision or order. [ 14 ]

Section 17 of the Land and Property Rights Tribunal Act, SA 2020, c L-2.3 (the “ LPRTA ”) contemplates judicial review of decisions of the Tribunal. The standard of review is set by

section 19 of the LPRTA : Standard of review 19 On an application for judicial review of or leave to appeal a decision or order of the Tribunal or on an appeal of a decision or order of the Tribunal, the standard of review to be applied is reasonableness. III. Background [ 15 ] The facts of this matter do not appear to be in dispute. Mr. Bateman owns a quarter

section of farmland in Vulcan County. Lexin was the operator of a 3.99 acre natural gas well site on the property and was to pay Mr. Bateman $2700 in annual compensation. Payment was not made from 2015 to 2019. Lexin is now bankrupt and has no valid corporate existence. [ 16 ] Mr. Bateman applied to the SRB for compensation pursuant to

section 36 of the Act . On July 16, 2020, the SRB issued Decision No. 2020/0591 (the “Decision”), cited as Bateman v Lexin , 2020 ABSRB 591 . The SRB found there was a valid surface lease under which annual compensation of $2700 was payable and that there was non-payment. However, it directed the Minister to pay to Mr. Bateman only 50% of the outstanding payments, totalling $6750. He was also awarded $347.59 in costs. [ 17 ] The SRB summarized its findings at paragraphs 13 to 16 of the Decision, as follows: The Applicant submits the Site consists of a midfield access road and well site on dryland cultivation.

The entrance to the access road is gravelled but the gravel only extends a short distance into the field; the balance of the road is undeveloped and the Applicant farms over it, but soil compaction is evident on the road. On the Site is also a well head, a fibreglass dome shack, a vent pipe, and valve risers with above ground piping. The equipment is on a small gravel pad and is surrounded by a low metal tech fence. There are four steel corner posts to protect the equipment from impact as well. The balance of the Site is farmed over to control weeds, which is a benefit to the Operator.

The Applicant submits he is not satisfied with the crop growth on the part of the Site that is farmed, therefore, the Applicant submits payment of the full amount of the Compensation for the Site is very justified. Based on the submissions, the Applicant does not have full use of the Site for high quality agricultural purposes but does farm the Site with under performing crops as well as preforms [ sic ] weed control on the Site. There is some Operator equipment on the Site requiring the Applicant to farm around the Site.

Therefore, on the balance of probabilities, the Panel finds the Applicant has use of most of the Site but not full use because of the presence of some equipment and compaction on the access road, and earns some income from the ability to farm over most of the Site. [ 18 ] The Tribunal reconsidered the Decision in Bateman v Lexin Resources Ltd , 2021 ABLPRT 893 and in Bateman v Lexin Resources Ltd , 2022 ABLPRT 604 (collectively, the “Reconsiderations”). Ultimately, the Tribunal confirmed the compensation ordered

by the SRB. IV. Issues [ 19 ] Mr. Bateman applies for judicial review. He seeks an order quashing the Decision and the Reconsiderations and directing the Tribunal to issue a direction to the Minister to pay the full compensation owing under the lease, plus costs. [ 20 ] The standard of review is not at issue. Mr. Bateman seeks judicial review on the grounds that the Decision is unreasonable. Mr. Bateman identified the following sub-issues in his brief: 1. Was the tribunals’ approach to

section 36 inconsistent with the wording and purpose of the Act ? 2. Did the tribunals misconstrue the test in Devon Canada Corporation v Surface Rights Board, 2003 ABQB 7 , and fail to follow binding precedent? 3. Was it unreasonable for the tribunals to exercise their discretion to reduce Mr. Bateman’s compensation? 4. Were the decisions of the tribunals arbitrary, or did they contain significant gaps in reasoning? 5. Did the tribunals depart from longstanding practices or established internal authority and, if so, did they justify their reasons for departure? 6.

Did the tribunals make factual findings in the absence of evidence, without providing Mr. Bateman a fair opportunity to submit additional evidence? 7. Were the Reconsiderations unreasonable? [ 21 ] In these Reasons, I have focused on the Decision. Nevertheless, the Reconsiderations provide necessary context with regard to the SRB’s and Tribunal’s process and policy considerations when determining

section 36 applications, and prior decisions made under

section 36 . V. Analysis A. Standard of Review [ 22 ] As noted above, the standard of review in this matter is reasonableness. The principles governing a reasonableness review are those set out by the Supreme Court of Canada in Canada (Minister of Citizenship and Immigration) v Vavilov , 2019 SCC 65 .

Reasonableness, as articulated at para 86 of Vavilov , “is concerned mostly with the existence of justification, transparency and intelligibility within the decision-making process”, as well as “with whether the decision falls within a range of possible, acceptable outcomes which are defensible in respect of the facts and law.” The Supreme Court held at paras 92-94 that a tribunal’s written reasons are to be reviewed with the decision-maker’s expertise in mind, as well as the context of the hearing, the history of decisions and the administrative body’s policies or guidelines. [ 23 ] In Vavilov , the Supreme Court identified some of the contextual elements that are relevant in evaluating a decision.

These include the governing statutory scheme (para 109), principles of statutory

interpretation (para 122), the evidence before the decision- maker (paras 125-126), the parties’ submissions (paras 127-128), the past practices and decisions of the administrative body (paras 129- 131) and the potential impact of the decision on the individual to whom it applies (paras 133-135). B. Mr. Bateman’s Position [ 24 ] The burden is on Mr. Bateman to establish that the Decision is unreasonable. As noted above, he sets out in his brief several sub-issues in support of his position. I will review his arguments first, then set out my conclusions in respect of the reasonableness of the Decision. 1. Was the Tribunal’s Approach to

Section 36 Inconsistent With the Wording and Purpose of the Act ? [ 25 ] Mr. Bateman submits that the Act does not give the Tribunal discretion to direct payment of anything other than full payment of the amount owed or, alternatively, no compensation. He asserts that

section 36 does not give the Tribunal authority to review and adjust the compensation in the manner contemplated in

section 27. [ 26 ] I do not agree that

section 36 mandates an “all or nothing” approach. In my view, this would unduly restrict the Tribunal’s discretion. In Provident Energy Ltd v Alberta (Surface Rights Board), 2004 ABQB 650 , this Court held that the Tribunal has discretion to direct a lesser amount of compensation to be paid by the Minister. I do agree with Mr. Bateman’s position, however, that the Tribunal did not exercise its discretion in a reasonable manner. [ 27 ] The purpose of

section 36 is to ensure unpaid landowners have a right of recourse.

Section 36 does not permit the Board to change the compensation under the lease between the owner and the operator, and that amount remains payable by the operator. In this case, the Minister was the only source of payment as Lexin was insolvent. Mr. Bateman objects to the extent to which the loss of use and adverse effect were considered under

section 36 to permit a reduction of what the Minister was required to pay as the result of the

operator’s default. Typically, those factors are considered in setting fair compensation, as between an operator and landowner. It isinconsistent with the purpose of the legislation to then reapply those factors when applying

section 36, in an effort to reduce the amountowing when it is being paid by the Minister. I will address Mr. Bateman’s submissions on this point in more detail later in these reasons. 2. Did the Tribunals Misconstrue the Test in Devon and Fail to Follow Binding Precedent? [28] The SRB relied on Devon as support for its

interpretation of

section 36 of the Act, permitting it to reduce the compensation tobe paid by the Minister. The SRB and the Tribunal also relied on Praskach Farms Ltd v Lexin Resources Ltd, 2020 ABSRB 85, whichwas decided by the SRB just five months prior to Mr. Bateman’s application. In addition, the Tribunal conducted a high-level review ofother cases in which claimants had been awarded either full or reduced compensation, most of which were recent and followed PraskachFarms. The Tribunal found, based on its review, that the SRB had not deviated from existing practice or precedent.

Pursuant to Rule 37of the Surface Rights Board Rules, this finding effectively precluded the Tribunal from reviewing the Decision. [29] It is necessary to consider the fact patterns set forth in the case law on which the SRB and Tribunal relied. The operator inDevon had hit a dry hole on the site. All holes had been filled in and no well equipment was ever installed. The operator obtained arelease from the owner with regard to the condition of the property and the owner was able to farm the land without restriction, andpresumably without any risk of damage to the crops as there was no activity on site.

The operator did not obtain a reclamation certificate.Subsequently, the landowner sought compensation for 24 years of unpaid rent.

The claim may have had the appearance of an attempt totake advantage of a technicality, arising from the fact that the operator had not obtained a reclamation certificate. [30] The Court in Devon described the purpose of the Act at para 22: “A mechanism was needed to provide for entry onto thelands, compensation for use of the lands, and reclamation of the lands upon the well expiring.” The purpose of the legislation is toprovide surface owners with an assurance that the operator will pay them and, when the well ceases to operate, that the condition of theland will be restored.

In that case, the SRB had determined that it could not consider anything other than the existence of a lease andunpaid rent. The decision was reviewed. At para 25, the Court stated: Justice Virtue in OH Ranch Ltd. v. Surface Rights Board (Alberta), (AB KB), [1994] 148 A.R. 315 referred to thisprocess guaranteeing payment to the surface owner of compensation to which it is entitled.

Although “guaranteeing payment” is correctin the usual case of a surface owner seeking payment from an insolvent oil company, I am not satisfied that the wording of s. 36 impliesa blanket guarantee of all cases by the provincial government. S. 36 provides a pragmatic, inexpensive remedy for a surface owner toobtain payment when an operator is wrongfully withholding payment or is insolvent. [31] Under the circumstances in Devon, the Court found that an award of rent arrears was absurd and would lead to the landownerbeing overcompensated.

The Court held at para 29 that if the claim “...is unjustified, is patently absurd or provides an unjust enrichment,the [SRB] should be able to use its discretion under s. 36(6) to refuse to direct that Alberta taxpayers pay the rental arrears.” The matterwas remitted to the SRB to consider what facts would be relevant in determining whether the province should be directed to pay 24 yearsof rental arrears.

Notably, the Court did not explicitly state whether the SRB has discretion to order payment of a portion of the rentalarrears. [32] Devon provides authority to reduce the amount payable when paying the full arrears is unjustified, patently absurd orprovides unjust enrichment. Accordingly, in my view, the threshold for reducing compensation appears to be higher than simplyreviewing factors related to loss of use and adverse effect.

It is also not correct to state that the Tribunal should look for any reason todirect the Minister to pay a reduced amount, as stated in the first Reconsideration. [33] Provident Energy, referred to above, was another case in which the operator had abandoned a dry hole and an owner appliedfor compensation after many years. The SRB ordered a reduced payment and the successor operator applied for judicial review,contending that it had no interest in the lease.

The award was confirmed and Justice Erb held at para 36 that the SRB was correct inexercising its discretion to reduce payments to reflect the actual loss incurred. Mr. Bateman submits that Devon was not properlycanvassed and that, therefore, Provident Energy is not useful when considering the exercise of discretion under

section 36. As notedabove, I do not endorse this aspect of Mr. Bateman’s argument. It is important, however, to keep the fact pattern in Provident Energy inmind. [34] In Praskach Farms, the SRB held that the applicant was not entitled to the full amount of rent from the government and setforth the factors it took into account. Paragraphs 10 through 13 of Praskach Farms are set forth below: There are two factors particularly important for considering annual compensation and whether directing the Minister to pay the fullamount owing is unjustified. When the Board reviews the rate of compensation under

section 27 of the Act, the factors consideredunder section 25(1)(

c) and (

d) are the loss of use by the owner of the area of the surface lease and the adverse effect of the lease on theremaining land of the owner. The Board also assesses the nuisance, inconvenience, and noise that might be caused by or arising from orin connection with the operations of the operator. As noted above, this is not a review of compensation under

section 27, however, theloss of use and adverse effect are components of fair compensation which the Board can consider when determining if directing theMinister to pay the full amount owing is justified. When considering the loss of use of the lease area, the Panel examines the status of the area taken and whether the Applicant is using thesite to generate income or otherwise. The Panel also considers the adverse effect on the remaining land or the nuisance, inconvenience,and noise that might be caused by or arising from or in connection with the operations of the operator.

The purpose of annualcompensation under the Act is to compensate the owner for loss and adverse effect arising from the surface lease and the operations ofthe operator. Where, at the relevant time, there is ongoing loss of use or adverse effect; equipment, fencing and facilities remain on site; the site iscompacted preventing production; or there are reclamation activities or other damages, it is less likely that there would be a reduction inthe amount that the Minister is directed to pay.

On the other hand, if the site is near reclamation and the owner has full use of it, the lossof use and adverse effect would be almost nonexistent and directing the Minister to pay the full amount owing under the lease would not

be justified. Likewise, if the site is reclaimed, but no Reclamation Certificate is issued, the Board may determine that there should be a significant reduction in the amount that the Minister is directed to pay. For example, in Provident Energy , in finding that the Board was correct in following Devon and exercising its discretion to reduce the payments to the landowners in an amount reflecting the loss incurred, the Court stated at paragraph 27: As Sirrs J. held in the Devon case, the application of

Section 36 is discretionary and even if a land owner shows sufficient evidence that a lease exists, the Board is not bound to order compensation. If the Board was bound to do so, this would amount to a fettering of its discretion. The Board may determine the amount the Minister is directed to pay by considering of a combination of factors relevant to loss of use and adverse effect.

Some compelling factors include facilities, fencing, and equipment remaining on the lease; operator activity on the lease; the condition of the land within the lease, including compaction, foreign materials, and changes of elevation; how the remaining land is used and how the site impacts this use; if and to what extent the owner is using the lease for production, including cropping and grazing; and the existence and extent of nuisance, inconvenience, and noise. [ 35 ] Once again, the facts of Praskach Farms are important to understand.

The wellsite was abandoned in 1998 and some incomplete reclamation work had been done five to seven years before the application. There was no equipment or fencing on site. It was cropped annually, and although the soil conditions negatively impacted farming operations to a minor degree, the applicant could not estimate the reduced yield. There was no evidence of adverse effect. On this basis, the panel directed the Minister to pay 25% of the unpaid rentals, as full payment would be “unjustified and would cause unjust enrichment”.

As with some of the other cases on which the Tribunal relied, the fact pattern is not similar to Mr. Bateman’s circumstances. I also note that it is not clear how the application of these principles to Mr. Bateman’s application would justify a reduction of his compensation. [ 36 ] Mr. Bateman asserts that Praskach Farms is not consistent with the overall intent of the Act . For example, the passage above suggests that one relevant factor in reducing compensation is the extent to which the owner uses the land for production. Mr.

Bateman submits that the fact that an owner farms part of the lease does not negatively impact the lease payment under a

section 27 review. As long as there is an existing lease, the crop is at risk of damage if the operator decides to access the site. In the case of an abandoned well, there may be damage from the Orphan Well Association entering the site to clean and reclaim the land. Mr. Bateman argues that reliance on this factor as a basis for reduction of

section 36 compensation is not consistent with the Act as a whole. Again, this submission will be addressed later in these reasons. 3. Was it Unreasonable for the Tribunals to Exercise Their Discretion to Reduce Mr. Bateman’s Compensation? [ 37 ] The reasonableness of the decision is a central issue and will be addressed more fully later in these reasons. I have, however, determined that the exercise of discretion was not reasonable. 4. Were the Decisions of the Tribunals Arbitrary or did They Contain Significant Gaps in Reasoning? [ 38 ] Mr.

Bateman submits that the SRB’s decision to reduce his compensation was arbitrary and that there were gaps in the reasoning. Mr. Bateman submits that, even if this Court agrees with the SRB’s conclusion, it cannot fashion its own reasons to buttress a decision based on an unreasonable analysis. The SRB’s findings are summarized in the four paragraphs set out in paragraph 17 of these reasons, and do not provide a clear justification for reducing Mr. Bateman’s compensation by 50%. The SRB observed that the owner farmed most of the site but also did weed control, which was the operator’s responsibility.

It stated that the weed control offset the benefit the owner received from the crop, but there was no evidence from Mr. Bateman about the crops grown or the income generated. It appears some reliance was placed on other case law that supported a 75% reduction in the first instance, though its application to Mr. Bateman’s situation was not explained, nor was there an explanation as how Mr. Bateman had been unjustly enriched. It does not clearly explain how it arrived at its compensation assessment in Mr. Bateman’s matter and does not explain how Mr.

Bateman’s circumstances placed him in a position to receive less than full compensation. The Decision appears to be somewhat arbitrary as a result. [ 39 ] The Reconsiderations provide further context for the SRB’s decision. [ 40 ] In the second Reconsideration, the Tribunal stated that the oil and gas sector had taken a downturn and the number of

section 36 applications rose dramatically. The Tribunal’s brief indicated that the number of

section 36 applications increased dramatically, rising from approximately 1800 in 2017 to over 6000 in 2021. The volume of decisions leaves the panels less time to craft lengthy and detailed written reasons. This is relevant to the context in which the Decision was made and to the practices of the Tribunal. At para 34 of the second Reconsideration, the Tribunal suggests that processes were changed to become more pragmatic and expeditious, but it does not explicitly justify reduced payments on the basis of increased numbers of

section 36 applications. It states instead that the process favours the landowner in the usual case and suggests that the panels are considering whether the evidence supports a finding of unjust enrichment. [ 41 ] With regard to the suggestion that process changes were introduced to improve efficiencies, Mr. Bateman noted that the claim forms were in fact changed to require more detail than had been required in the past. Historically, applicants had been required to provide only proof of a lease and of non-payment, as that is all that is required by

section 36 of the Act . The new forms require details about the well site condition. Mr. Bateman submits this information was used as a pretext for reducing compensation payable by the Minister in the event of the operator’s default. [ 42 ] As further evidence of the arbitrariness of the Decision, Mr. Bateman subsequently made a separate application for compensation related to the 2020 rent owing on this same property. The application materials were included in the Certified Record of Proceedings filed by the Tribunal. He was awarded the full amount of Lexin’s unpaid rent, in the sum of $2700.

The property had not significantly changed. Some equipment was removed, though that had only occurred late in 2020, which I note is after the crop season was over. Mr. Bateman continued to farm around the site and future rehabilitation of the soils and removal of a gravel pad was pending.

The later award to Mr. Bateman, in the full amount of Lexin’s unpaid rent, is inconsistent with the earlier decision to award him only 50% of the outstanding payment for the same land, and there seems to be no apparent reason for the different outcome. 5. Did the Tribunals Depart From Longstanding Practices or Established Internal Authority and, if so, Did They Justify That Departure? [ 43 ] Pursuant to Vavilov , parties involved in administrative processes are entitled to expect that like cases generally will be treated alike.

In the Reconsiderations, the Tribunal held that the SRB did not depart from longstanding practices and followed established internal authority. [ 44 ] As noted under the preceding heading, the change in approach followed a downturn which was coupled with increasing numbers of

section 36 applications. This does not justify the marked departure from the Tribunals’ practice of awarding full compensation, in light of the remedial nature of the governing legislation.

Section 10 of the

Interpretation Act, RSA 2000, c. I-8 , provides as follows: 10 An enactment shall be construed as being remedial, and shall be given the fair, large and liberal construction and

interpretation that best ensures the attainment of its objects. [ 45 ] Mr. Bateman took the position that it had been the SRB’s typical practice to award full compensation, in accordance with the objectives of the Act . He submits that the authorities on which the SRB and the Tribunal relied to justify a reduction in his compensation, specifically Praskach Farms and subsequent decisions that applied it, were not well-established. In the second Reconsideration, the Tribunal stated that the SRB’s decision to reduce Mr. Bateman’s compensation was an established practice and of a longstanding nature.

In reality, this line of authority appears to have arisen with Praskach Farms in 2020, only five months before Mr. Bateman’s matter. The justification for the departure from awarding full compensation is not clearly articulated, but seems linked to an implicit policy decision that was implemented in response to an industry downturn and increasing liability on the part of the government for unpaid lease payments. 6. Did the Tribunals Make Factual Findings in the Absence of Evidence Without Providing Mr.

Bateman Fair Process and an Opportunity to Submit Additional Evidence? [ 46 ] In the Reconsiderations, the Tribunal indicated that Mr. Bateman had the onus to provide sufficient evidence. However, he submits that only limited information was requested in the revised forms. Nothing was asked about crop income or other issues of potential relevance, as identified in the Tribunal’s reasons, nor was there any guidance about why the information sought was important or how it would be applied. The FAQ suffered from the same limitations.

The forms require information about the condition of the site, but not about income earned from crops or expenses associated with weed control. The panels appear to be making findings and assumptions about the use of the leased site and potential income, then determining compensation based on inadequate or non-existent financial information. C. Reasonableness [ 47 ] With these arguments in mind, I now turn to consider whether the Decision (and, by extension, the Reconsiderations) met the reasonableness standard of review as articulated by the Supreme Court of Canada in Vavilov . 1.

Justification, Transparency and Intelligibility [ 48 ] The rationale for the Decision to decrease the amount payable to Mr. Bateman was that he should be compensated for his actual loss of use and adverse effect arising from the surface lease. The SRB stated that payment of the full amount owing under the lease would result in an overpayment or unjust enrichment and, accordingly, directed the Minister to pay only 50% of the lease compensation to Mr. Bateman.

For the reasons that follow, I have found the Decision was unreasonable. [ 49 ] The SRB relied on Devon in exercising its discretion and on Praskach Farms to support a finding that reduced compensation was payable when the owner farmed the lease site. As noted above, the facts of both cases cited differ from those in Mr. Bateman’s application. The SRB also referred to and relied on Wildeboer v Goldenrod Resources Inc , 2019 ABSRB 639 . In that case, the lease site had been abandoned in 2015 and was fully farmed with alfalfa by 2019 when the matter was heard.

The compensation payable to the owner in that case was reduced by 75%. In my view, it is significant that the owners in that case prevented the Orphan Well Association from accessing the site to conduct the reclamation work necessary for obtaining a reclamation certificate. That did not appear to be considered by the SRB in its Decision, when it relied on Wildeboer as justification for the reduction in Mr. Bateman’s claim. [ 50 ] Despite the SRB’s reliance on these decisions, there is no consideration in the Decision of the factual differences between those matters and Mr. Bateman’s application.

This analysis is essential to address how a reduction in this case might be justified under

section 36 of the Act . [ 51 ] In Mr. Bateman’s case, there was some recognition of the factors that would support a finding of adverse effect, but the focus of the Decision seems to be the existence of a crop and Mr. Bateman’s efforts at weed control. The SRB found that Mr. Bateman had use of most of the site but not all of it, as full access was limited by site equipment and soil compaction. He earned some income from crops, though he was not satisfied with the crop growth on the part of the site that was farmed, and the crops were described as underperforming.

The SRB commented that no crop income information was available, implying that it should have been provided or that they would have relied on it had it been available. In my view, Mr. Bateman cannot be faulted for this on the basis of the submissions outlined above. [ 52 ] The application for compensation was made in writing and there was no oral hearing. The application forms are included in

the certified record of proceedings filed with the Court. These forms direct applicants to describe the condition of the leased area. There are specific questions about whether the site is fenced, whether equipment or structures are on site, and whether the site is still being visited by workers. Applicants are also asked to describe losses suffered because of the existence of the lease or because of activities on the leased area, including reclamation work. They are not asked directly for information about crop income or yields.

It is difficult to understand how the information requested can be used to justify such specific reductions in the compensation to be paid by the Minister, particularly when the process of setting the lease payments in the first instance is subject to a rigorous hearing process under

section 27 of the Act . [ 53 ] The Decision ultimately lacks a connection between the evidence and the conclusions. As Mr. Bateman was growing a crop on the site, the SRB appears to start from the assumption that payment should be reduced by 75% in the absence of other factors. The application of the 75% reduction as a starting point appears to be based on Wildeboer , another decision bearing little resemblance to Mr. Bateman’s circumstances. It appears that Mr. Bateman’s efforts at weed control, which was actually the operator’s responsibility, may have caused the SRB to set the reduction at 50% instead of 75%.

Nevertheless, the reduction appears arbitrary, as there was no information before the SRB about crop revenues, the type and amount of crop planted, or the cost and extent of weed mitigation. Neither is there any clear indication in the Decision of how loss of use or adverse effect factored into the calculation of the reduction, although both are referenced as factors in the decision. It is not enough to list the factors without then indicating how they are being applied. [ 54 ] This conclusion is further supported by the fact that, in 2020, Mr.

Bateman was awarded full compensation when the condition of the land was virtually the same. The inconsistency between these decisions points to arbitrariness. [ 55 ] The Tribunal’s counsel submitted that the volume of

section 36 applications and the need for timely decisions makes it difficult to craft lengthy and detailed reasons. The Tribunal’s submissions also state that the panel members have expertise and familiarity with surface rights matters. While the courts have recognized the SRB’s expertise, a decision maker is still required to issue reasons that are justifiable, transparent and intelligible and are sufficient to permit judicial review. [ 56 ] I find that the Decision was unreasonable, in that it was not justifiable, transparent, or intelligible.

There are gaps in the analysis that give the Decision the appearance of arbitrariness. There is a lack of connection between the information sought in the application form and the SRB’s analysis and decision. The 50% reduction is not justified or explained by the analysis, and is not transparent or explained in a manner that lends itself to judicial review. [ 57 ] The Reconsiderations are similarly lacking in transparency and rationality. I will address the Reconsiderations further below. 2.

Range of Possible, Acceptable Outcomes [ 58 ] As noted above, the Supreme Court of Canada, at paras 106-107 of Vavilov , identified contextual elements that are relevant in evaluating a decision, including the governing statutory scheme, principles of statutory

interpretation, the evidence before the decision- maker, the parties’ submissions, the past practices and decisions of the administrative body and the potential impact of the decision on the individual to whom it applies. The Supreme Court went on to say at para 108 of Vavilov that, while an administrative tribunal may have discretion in making a decision, that decision must comply with the rationale and purview of the statutory scheme under which it is adopted. At para 109, the Supreme Court stated: Although a decision maker’s

interpretation of its statutory grant of authority is generally entitled to deference, the decision maker must nonetheless properly justify that

interpretation. Reasonableness review does not allow administrative decision makers to arrogate powers to themselves that they were never intended to have, and an administrative body cannot exercise authority which was not delegated to it. ... [ 59 ] With this guidance in mind, I have addressed the following issues: a. whether the decision-maker has properly justified its

interpretation of its statutory authority; b. whether the decision is justified in relation to the factual and legal constraints that are relevant to the decision, including the governing statute and case law; and c. whether the decision-maker has departed from past longstanding practice or established internal authority, such that it must justify and explain the departure. [ 60 ] Mr. Bateman does not appear to have asked the Tribunal at the first Reconsideration to address the scope of the SRB’s discretion to order reduced compensation under

section 36 of the Act . The focus was instead on the issue of unjust enrichment. In the first Reconsideration, the Tribunal did not find an error in the SRB’s approach to its discretion, stating as follows at para 27: The reasons in the original decision clearly show that the original panel considered

section 36 of the Surface Rights Act and the case law as the appropriate framework within which to decide whether to direct the Minister to pay the full amount owed. The original panel clearly turned its mind to the scope of the Tribunal’s authority by considering the factors of loss of use and adverse effect in reaching the conclusion that paying the full amount would amount unjust enrichment or an overpayment. In this context, the original Panel was not required to show consideration of whether there was a benefit to one party, a corresponding deprivation to another party and the absence of juristic reasons.

Devon did not direct the Tribunal to adapt an equitable doctrine originating from the courts, rather it instructs the Tribunal to exercise its discretion and apply its expertise when doing so. The reference to unjust enrichment in the original panel’s reasons do not reveal an intention to adapt the doctrine of unjust enrichment arising from the common law. It was simply a conclusion that the full amount would result in an overpayment when taking into consideration the factors of loss of use and adverse effect. [ 61 ] The Tribunal maintained that Devon stands for the proposition that SRB has discretion under

section 36 to refuse to direct that Alberta taxpayers pay the full rental arrears in circumstances where a landowner would be overcompensated. Mr. Bateman argues that the SRB has no such discretion.

[ 62 ] As indicated above, I am satisfied that the SRB does have discretion under

section 36 of the Act to refuse to direct full payment of rental arrears in appropriate circumstances. The more relevant question is whether its approach to that discretion has changed from previous cases and whether that change is justifiable in the context of the governing statute. [ 63 ] The Tribunal acknowledged that consistency with past decisions is a relevant consideration. For the purposes of the second Reconsideration, Mr.

Bateman was directed to address whether there was a longstanding practice or established internal authority with respect to cases in which the landowner was using all or some of the site for farming. If so, the Tribunal would consider whether the Decision departed from the established authority and whether that departure was justified. Ultimately, the Tribunal found that the SRB had relied on longstanding practice and established internal authority in making the Decision. [ 64 ] The Tribunal began by considering Devon , then observed that there were relatively few

section 36 applications between 2003 and 2015. The decisions during that period in which reduced compensation was awarded appear to have arisen, for the most part, in circumstances where there was a long period of inactivity on the property. For example, in Juhar v Ocelot Energy Inc, 2012 ABSRB 308 , as one example, a well was spudded but abandoned within a week and there were no further activities or installations on the site. The applicants delayed applying for

section 36 compensation for 13 years, asserting that they were not aware of the legislation. They had not pursued the operator for payment. Accordingly, the applicants’ claim for compensation was reduced from $36,400 to $9,100. [ 65 ] The Tribunal then turned its attention to the period commencing in 2016, noting that the number of

section 36 applications had risen dramatically. The Tribunal asserts that it relied on Devon to implement a change in process, in which panels began to examine if there was any reason why they should direct the Minister to pay a reduced amount. The Tribunal indicated at para 34 of the second Reconsideration that the revised process had to favour the landowner and that full payment would be ordered in the absence of a reason to do otherwise. [ 66 ] The Tribunal stated that, beginning in 2020, Praskach Farms became a leading internal authority.

Based on that case, the SRB began to consider loss of use, whether an applicant could generate income from the site, and whether there was a continuing adverse effect on the remaining land. In determining these factors, the SRB would consider the equipment on site, fencing, facilities or buildings, soil compaction, presence of foreign material, changes in elevation, use of remaining land and impacts on its use, the extent to which the owner was using the lease for production or grazing, and the existence and extent of nuisance, inconvenience, and noise. While the SRB acknowledged in Praskach Farms that a

section 36 application is not a

section 27 compensation review, it used the same factors to determine whether it was justified to direct the Minister to pay the full amount of unpaid rent. [ 67 ] The Tribunal then listed numerous cases decided in 2020 or later in which lease payment reductions were ordered. The Tribunal did not review them all, expressing the obvious impossibility of conducting a meaningful detailed review and comparison of hundreds of cases. I selected one listed case to review, based on the reduction of 68% that the Tribunal had applied, though I later determined that the actual reduction was closer to 64%.

The matter of Henry-Ratcliffe v Canadian Oil & Gas International Inc , 2021 ABLPRT 418 , was decided after the Bateman Decision. The annual lease payment was $2900, but the operator was insolvent and had abandoned the lease in 2019. There was no evidence of any adverse effect once the well was abandoned, though no reclamation certificate had issued. The applicant had stated in the application form that there were no losses due to the gas well.

The Minister was directed to pay a reduced amount, to reflect the amount of $1850 per year that would otherwise have been payable under the lease for adverse effect during the 18 months since the well had been abandoned. Despite the panel’s findings that there were no crop losses, there was no reduction for loss of use. This matter is again factually dissimilar to the Bateman application and the outcome is not clearly justified.

It follows a different path of reasoning than what was employed in the original Bateman decision and gives separate consideration to the amounts of the lease payment that are attributable to loss of use and to adverse effect, respectively. That was not done in the Bateman decision, lending further strength to the suggestion that proceedings under

section 36 are somewhat random and do not follow any predictable path of reasoning. [ 68 ] The Tribunal ultimately declined to interfere with the Decision in Mr. Bateman’s matter. It found that the SRB had followed a longstanding practice in considering and determining the loss of use and adverse effect and the resulting impact on payments from the Minister. As a result, the Tribunal found it was not necessary to consider whether departure from precedent was justified. [ 69 ] In my view, the Tribunal’s conclusion with respect to longstanding practice is not reasonable.

As previously noted, Praskach Farms was decided only five months before the Decision. The longstanding practice that existed prior to Praskach Farms was to award full compensation in almost all

section 36 applications. The Tribunal offered no clear justification for the change in practice, other than the increasing number of claims. [ 70 ] While I accept that there is authority for the SRB’s discretion to decrease the amount of compensation payable by the Minister, it is important to note that neither the statute, nor the policy reasons behind compensating landowners, have changed. Yet the Tribunal suggests in the second Reconsideration that a decision was made to actively look for reasons to direct the Minister to pay reduced compensation.

While the Tribunal also stated that it adopted a more pragmatic and expeditious process to deal with the high volume of claims, in reality the new forms are more extensive and require information beyond proof of the lease and default on the payment, which is all that is required by

section 36. The same factors that are considered in awarding fair compensation to the landowner in a

section 27 review are now being reapplied on

section 36 applications, despite the explicit purpose and wording of the Act . I agree with Mr. Bateman that it is objectionable to rely on loss of use and adverse effect to reduce compensation when those factors have already been considered in setting a fair value for the compensation under a different process dictated by the Act . There is no justification for this approach or outcome in the authorities on which the Tribunal relied.

In circumstances where parties have agreed on a rent payment that reflects their commercial reality or where there has been a detailed hearing to set the amount of rent, that amount already has taken into account loss of use and adverse effect. It has been recognized in the cases cited that, as long as the operator or the Orphan Well Association has the right to enter the lease site when they wish, any crops the owner may have planted on the lease site are potentially at risk. Therefore, cultivation of the lease site is not a factor when setting compensation under

section 27 of the Act , as there is no guarantee the landowner will get to harvest the crop. It is therefore unreasonable to then use the existence of a crop on the lease site as the basis to reduce the amount payable under

section 36 . These factors are clearly absent from the wording of

section 36 , which requires only that the landowner provide proof of a lease and of non-payment.

[71] When I examined the evolution of the

section 36 decisions, I concluded that the more recent decisions appear to be deviatingfrom the purpose of the Act. In earlier decisions, such as Devon, compensation was reduced when landowners were seeking an award onthe basis of a technicality, when no real loss or inconvenience had been sustained. In Devon, no well equipment had ever been installedon site. In some cases, such as Wildeboer, the circumstances warranted a denial of payment, such as a refusal to allow the Orphan WellAssociation to access the property.

In those circumstances, it is reasonable to conclude that requiring the Minister to pay the outstandingrent is unjustified or absurd, or will unjustly enrich a landowner, applying the test in Devon.

These exceptional cases, however, are beingused as authority to justify reductions in compensation when the underlying fact patterns do not support a reduction. [72] In the Reconsiderations, the Tribunal indicated that a sharp increase in defaults and claims appears to have led to a change inprocess with the result that landowners will not be fully compensated if, for example, they derive any benefit from a crop on a lease site.Implicit in this change of process, there appears to be a policy decision to avoid making taxpayers responsible for a rapidly increasingvolume of claims caused by lagging market conditions in the oil and gas sector.

However, the legislation has not changed and theprotection that was intended to be in place for landowners is significantly diluted by the new approach. [73] Taking all of this into account, I find that the Decision was unreasonable. It does not align with the rationale and purview ofthe statutory scheme under which the SRB derived its authority. The statute guarantees lease payments when operators do not makethem, unless there are valid reasons for the SRB to exercise its discretion not to do so. I do not agree with Mr.

Bateman that this requiresan “all or nothing” approach; there is nothing in the Act to suggest that the only discretion the SRB may exercise is to pay the full amountor decline to order any compensation under

section 36. The case law supports the discretion to direct partial payment by the Minister incircumstances that would give rise to an absurdity, an unjustified payment, or an unjust enrichment. Refusal to allow access forreclamation or excessive delay in seeking compensation are two examples of situations which warrant a reduction in compensation. Thecircumstances in Devon also warranted a finding that compensation should be reduced or denied, as there was effectively no impact onthe landowner. In contrast, in Mr.

Bateman’s situation, equipment and facility structures were still on site, the operator was insolvent andhad failed to make the lease payments, and he sought payment in a timely way. These circumstances are not extraordinary and indeed areprecisely what is contemplated by

section 36. In these circumstances, and in the context of the purpose of

section 36 of the Act, theexercise of discretion to decrease his compensation is unreasonable. [74] I am not suggesting that the Tribunal is not entitled to look at background factors in exercising its discretion to set thecompensation payable under

section 36. However, I am not satisfied that Mr. Bateman’s circumstances were properly considered ineither the Decision or the Reconsiderations and the outcome was unreasonable. The Tribunal has not justified the deviation from thedecisions that predate Praskach Farms, with regard to the legal constraints that are present in the governing statute and case law. TheDecision and Reconsiderations also do not deal with the factual distinctions that exist in the cases cited and on which reliance is placedto justify the reduction in Mr. Bateman’s compensation. [75] I realize that this decision may have implications that go beyond this particular case, given the manner in which

section 36compensation applications appear to have been decided in recent years. It seems that the more recent decisions may have arisen as areaction to an increase in operator defaults, and the resulting

section 36 applications, and may reflect a concern that taxpayers should notbe funding payments to landowners who may have suffered little or no actual financial loss. Nevertheless, the statute remains unchangedand reflects a legislative policy decision to ensure that, absent extraordinary circumstances, landowners should be fully compensatedwhen an operator is in default of its lease payments. VI. Conclusion [76] In

summary, I have concluded that the SRB and the Tribunal unreasonably interpreted their statutory authority and that theDecision and the Reconsiderations are not justified in relation to relevant factual and legal constraints, including the governing statuteand case law. I am satisfied that the SRB has some discretion in determining whether full payment will be made under

section 36, andmay reduce payments in appropriate circumstances. However, the case law from the superior courts, and the purpose and language of theAct, do not justify the current approach of the SRB and the Tribunal to

section 36 applications. Even if the SRB and Tribunal hadproperly interpreted its authority, the SRB Decision suffered from a lack of justification, transparency and intelligibility in determiningthe reduction of Mr. Bateman’s compensation, for the reasons earlier stated. Accordingly, the Decision is quashed. [77] Rule 3.24 of the Rules of Court provides the Court with the following authority on judicial review: 3.24(1) If an originating applicant is entitled to a declaration that a decision or act of a person or body is unauthorized or invalid, theCourt may, instead of making a declaration, set aside the decision or act.

(2) The Court may (

a) direct a person or body to reconsider the whole or any part of a matter, (

b) direct a person or body to reconsider the whole or any part of a decision if the Court has set aside the decision under subrule (1), and (

c) give any other directions it considers necessary. ... [78] Ordinarily, having found that an administrative decision is unreasonable, the reviewing court should remit the matter forrehearing. There is, however, authority permitting the reviewing court to issue a decision on the merits if “...in light of the circumstancesand the evidence in the record, only one

interpretation or solution is possible, that is, where any other

interpretation or solution would beunreasonable”: Telus Communications Inc v Telecommunications Workers Union, 2014 ABCA 199 at para 36, citing CanadianAirlines International Ltd v C.A.L.PA. (BC CA), [1998] 1 WWR 609 (BCCA).

[ 79 ] In this matter, I have found that Mr. Bateman’s particular circumstances were not properly considered by the SRB, and there did not appear to be any reason to find that full compensation was unjustified, patently absurd or provided unjust enrichment. Indeed, on a subsequent application involving the same lease and same land, the Tribunal awarded Mr. Bateman full compensation for the nonpayment of the 2020 rent.

In such circumstances, there appears to be little utility in remitting the matter back to the Tribunal as the only logical conclusion is that it should also award full compensation for 2016 to 2019 in the amount of $13,500. [ 80 ] With respect to costs, I agree with the reasoning in Manawan Drainage District v Lutz , 2013 ABQB 217 at para 14 and I award Mr. Bateman solicitor-client costs, subject to review by the assessment officer if the parties are unable to agree on the quantum. If solicitor-client costs were not awarded, Mr.

Bateman’s compensation likely would be significantly eroded, despite his success on this judicial review. I understand, based on the submissions of counsel, that these costs will form part of the compensation award payable by the Minister. Heard on the 24 th day of March, 2023. Dated at the City of Medicine Hat, Alberta this 14 th day of November, 2023. N.M Carruthers J.C.K.B.A. Appearances: Keith Wilson, KC for the Applicant Shannon L.M.

Boyer for the Respondent _______________________________________________________ Corrigendum of the Reasons for Judgment of The Honourable Justice N.M Carruthers _______________________________________________________ Citation in Footnote on page 2 corrected to reflect accurate legislation.