Canadian Natural Resources Limited v Campbell, 2018 SKCA 67

Court of Appeal for Saskatchewan Docket: CACV2898 Citation: Canadian Natural Resources Limited v Campbell , 2018 SKCA 67 Date: 2018-08-24 Between: Canadian Natural Resources Limited Appellant (Respondent) And Merrill Ross Campbell, Kathleen Amelia Campbell and Wenton Farms Ltd. Respondents (Applicants) Before: Richards C.J.S., Whitmore and Schwann JJ.A. Disposition: Appeal allowed; Cross-appeal dismissed Written reasons by: The Honourable Chief Justice Richards In concurrence: The Honourable Mr.

Justice Whitmore The Honourable Madam Justice Schwann On Appeal From: C.B. 3/15, Kindersley Appeal Heard: June 7, 2018 Counsel: Murray Douglas for the Appellant No one appearing for the Respondents Richards C.J.S. I. Introduction [ 1 ] This is an appeal from an order made by the Saskatchewan Surface Rights Board of Arbitration [Board]. [ 2 ] The order in question required the appellant, Canadian National Resources Limited [CNRL], to pay compensation to the respondents, Merrill and Kathleen Campbell and Wenton Farms Ltd., for certain surface rights acquired by CNRL.

CNRL submits the Board committed a number of errors of law in coming to its decision. [ 3 ] As explained below, I conclude that several of CNRL’s arguments have merit. The Board erred by (

a) ignoring or failing to consider evidence with respect to the crop rotations on the land in issue, (

b) improperly rejecting evidence with respect to land rental rates, (

c) ignoring or failing to consider evidence with respect to the annual compensation payable for second and subsequent wells located on a property, and (

d) failing to give reasons for the amount of compensation payable for additional wells. As a consequence, the question of the compensation payable by CNRL to the respondents must be remitted to the Board for reconsideration.

II. the governing statutory regime [ 4 ] These proceedings are grounded in The Surface Rights Acquisition and Compensation Act , RSS 1978, c S-65 [ Act ]. [ 5 ] As explained in Fletcher Challenge Energy Canada Inc. v Sulz , 2001 SKCA 11 , [2001] 6 WWR 476 [ Fletcher Challenge ], the Act balances the need to provide access to land for the objective of recovering minerals with the interests of those who hold surface rights in the land. The purposes of the Act are stated as follows in s. 3 : 3 The purposes of this Act are: (

a) to provide for a comprehensive procedure for acquiring surface rights; (

b) to provide for the payment of just and equitable compensation for the acquisition of surface rights; (

c) to provide for the maintenance and reclamation of the surface of land acquired in connection with surface rights acquired under this Act . [ 6 ] An operator must pay compensation for the right to enter upon, use and occupy land in order to drill for, produce or recover petroleum or natural gas.

Section 28 of the Act provides that, where there is no agreement about the matter, the amount of compensation shall be determined by the Board on the application of the owner, occupant or operator. [ 7 ] The factors the Board must consider in determining the compensation to be paid for surface rights are set out in s. 29(1) of the Act . It says this: 29(1) For the purpose of determining the compensation to be paid for surface rights acquired by an operator, the board shall consider the following matters: (

a) the value of the land and the loss of use of the land or an interest therein acquired by the operator; (

b) the area of land that is or may be permanently or temporarily damaged by the operations of the operator;

(b.1) the nature, type and quantity of any machinery, equipment and apparatus mentioned in clause 23(b.1) to be established, installed or operated by the operator; (

c) payment or allowance for severance; (

d) the adverse effect of the right of entry on the remaining land by reason of severance; (

e) payment or allowance for nuisance, inconvenience, disturbance or noise, to the owner and occupant, if any, or to the remaining land, that might be caused by, arise from or likely to arise from or in connection with the operations of the operator; (

f) where applicable in the opinion of the board, interest at a rate to be fixed by the board; (

g) any other matter peculiar to each case, including the cumulative effect, if any, of the surface rights previously acquired by the operator or by any other operators under a lease, agreement or right of entry existing at the time of acquisition of the surface rights with respect to the land; (

h) such other factors as the board deems proper, relevant and applicable. III. factual background [ 8 ] The Campbells own approximately 2,000 acres of land. Their farming operations are conducted through Wenton Farms, a family-owned corporation. Wenton Farms rents land from the Campbells and approximately 1,000 additional acres from Mern and Grant Key. [ 9 ] Negotiations between CNRL and Mr. Campbell regarding a surface lease for a new wellsite on land described as SE 18 were not successful. This led CNRL to seek and obtain a right of entry order.

CNRL then drilled five wells on SE 18 between February and September of 2014. [ 10 ] The compensation hearing took place in December of 2015. Mr. Campbell was the only witness for the respondents. He testified about their lease arrangements, their cropping practices and the impact of the wells on field operations. CNRL called four witnesses. They described CNRL’s negotiations with Mr. Campbell, the drilling of the five wells and the compensation paid to other land owners under comparable circumstances. IV. the decision of the board [ 11 ] The Board delivered a written decision dated April 26, 2016.

It confirmed that compensation for the use of 6.6 acres was in issue.

The Board then worked through each of the matters it saw as being relevant to the compensation question and did so under the following headings: land value; crop loss; severance, adverse effect and nuisance; and additional wells. [ 12 ] In the end, the compensation awarded by the Board can be summarized as follows: First Year Land value (6.6 acres @ $1,426.23) $9,413.12 Loss of use (6.6 acres @ $491.73) 3,245.42 Severance, adverse effect and nuisance 3,000.00 Compensation for additional wells 4,000.00 (4 wells @ $1,000.00) Total $19,658.54 Second and Subsequent Years Loss of use (6.6 acres @ $491.73) $3,245.42 Severance, adverse effect and nuisance 3,000.00 Compensation for additional wells 2,400.00 (4 wells @ $600.00) Total $8,645.42 V. issues [ 13 ]

Section 71 of the Act allows any person affected by an order of the Board to appeal to this Court, with leave, on a question of law or jurisdiction. [ 14 ] CNRL appeals from the Board’s decision pursuant to an order of Jackson J.A. granting it leave to appeal. CNRL frames its appeal around the following issues:

(

a) Did the Board err in law by basing its award for loss of use on a crop rotation which the Board found, as fact, did not exist? (

b) Did the Board err in law by ignoring or disregarding evidence of the rental rates for cultivated land utilized between therespondents and in the surrounding area? (

c) Did the Board err in law by ignoring or disregarding the pattern of dealings evidence as it related to compensation for loss ofuse? (

d) Did the Board err in law by ignoring or disregarding evidence reflected in comparable agreements of the annualcompensation for second and subsequent wells? (

e) Did the Board err in law by failing to provide any or adequate reasons relating to its award for annual rent of $600 per yearper additional well? [15] The respondents were given leave to cross-appeal. However, they have chosen not to participate in these proceedings. As aresult, the cross-appeal is dismissed as having been abandoned. There is no need to deal with the issues raised in it. VI. analysis [16] I will address each of the issues raised by CNRL. A. Ignoring or failing to consider evidence about crop rotation [17] Section 29(1)(

a) of the Act requires the Board, in determining the compensation to be paid for surface rights, to consider “lossof use of the land”. This led the Board, quite properly and as per Fletcher Challenge, to consider the value of the crop lost annuallybecause of CNRL’s occupation of the 6.6 acres in issue. [18] In this regard, Mr. Campbell testified that of the 3,000 acres seeded by the respondents in 2014, 600 acres were seeded towheat and the balance to canola. He also testified that SE 18 had been seeded to canola. In cross-examination, Mr.

Campbell testifiedthat canola had probably been seeded on SE 18 in 2013, 2014 and 2015. He also indicated that wheat had been probably seeded on it in2012. [19] The Board specifically rejected Mr. Campbell’s evidence that SE 18 had been seeded to canola in 2014. It did this byreferencing a photograph taken of part of SE 18 in the spring of 2015. That photograph showed the stubble from the 2014 crop. TheBoard determined, on the basis of the photograph, that the crop planted in 2014 had been a cereal. It explained all of this as follows underthe heading “Crop Loss”: 11. The Board also challenges [Mr.

Campbell’s] testimony regarding his crop rotation of three consecutive years of canola. Thephotos from Operator Exhibit No. 1, Tab 48-C from April 2015, of stubble from fall of 2014, clearly shows cereal stubble vs. canola. The48-A photos seem to indicate canola stubble (thicker stocks out of the snow) from the fall of 2013. … [20] However, notwithstanding this finding, the Board went on to value the 2014 crop loss as if the crop in question had beencanola. This was significant because canola is a more valuable crop than wheat.

The Board purported to take this approach because itwas unclear what specific cereal crop had been grown in 2014. It reasoned as follows: 11. … [T]he Board would have to make the assumption on what cereal crop was grown and then use values from public data.Therefore while the integrity of the testimony is questionable in regards to crop rotation, the crop loss will be based on 3 years of canola.… [21] CNRL submits the Board’s reasoning on this front was legally flawed because it overlooked or ignored its own factualfinding that the crop grown in 2014 was not canola and because it overlooked or ignored Mr.

Campbell’s evidence that, in 2014, therespondents had grown only wheat and canola. Given Mr. Campbell’s evidence, CNRL says it follows as a matter of logical necessitythat, if the crop grown on SE 18 in 2014 was not canola, it must have been wheat. [22] I accept CNRL’s argument on this point. Overlooking or ignoring relevant evidence is an error of law. See: P.S.S.Professional Salon Services Inc. v Saskatchewan Human Rights Commission, 2007 SKCA 149 at para 68, [2008] 5 WWR 440, leave toappeal to SCC refused, ; Fletcher Challenge at para 122.

The Board clearly overlooked or ignored the evidence aboutwhat crops the respondents had grown in 2014. In so doing, it committed an error of law. B. Improperly disregarding evidence about rental rates [23] CNRL contends that, in considering s. 29(1)(

a) of the Act, the Board also erred by disregarding or rejecting the evidencegiven by Mr. Campbell about land rental rates. In this regard, Mr. Campbell testified that the rent paid to the Campbells by WentonFarms in 2014 was “[p]robably around $50 an acre”, that Wenton Farms also rented land from Mern and Grant Key in 2014 at the rate of$50 per acre and that the $50 per acre paid to the Keys was “a little bit low” compared to some of the rates in the area. The Boardrejected this evidence on the basis that the rental agreements in question were verbal and non-arm’s length.

As explained by CNRL inthis Court, the rental rates could have been used by the Board to calculate “loss of use” if the Board had believed the evidence about croploss was not adequate to determine the compensation payable to the respondents. [24] I am persuaded by CNRL’s argument on this point. It is apparent that the Board had concerns about the credibility, andperhaps reliability, of Mr. Campbell’s testimony. It did not accept his evidence that SE 18 had been seeded to canola in 2014. Further, it

did not accept his evidence about the yields of the respondents’ crops. In this latter regard, the Board placed a “weight” of ten percent on Mr. Campbell’s claim that the yield was 66.67 bushels per acre and a 90 percent “weight” on CNRL’s evidence that the yield would have been 40.6 bushels per acre. However, the Board did not reject Mr. Campbell’s evidence about rental rates because it found his testimony to be lacking in credibility or reliability.

Rather, it did not accept his testimony simply because the rental rates in question were established by way of verbal agreements and, also, because the agreements were not arm’s length. [ 25 ] There are two problems with the Board’s decision to reject Mr. Campbell’s evidence because the rental agreements in question were verbal. The first is that a verbal agreement says just as much about the amount of the income loss suffered by the respondents as does a written agreement. In other words, and as CNRL contends, the verbal nature of the agreements, in and of itself, was not a legitimate basis for rejecting Mr.

Campbell’s evidence about rental rates. The second problem with the Board’s approach is that, although Mr. Campbell gave evidence that the agreements he and Kathleen Campbell had with Wenton Farms were not written, there was no testimony about how the rental agreement between Wenton Farms and the Keys was, or was not, documented. As a result, the Board had no evidentiary basis on which to conclude the agreement was unwritten. [ 26 ] As for the idea that Mr.

Campbell’s evidence should be rejected because the leases in question were not arm’s length, this too involves a failure by the Board to consider the evidence. It is obvious, of course, that the leases between the Campbells and their family- owned corporation, Wenton Farms, were not arm’s length. However, all indications are that the relationship between Wenton Farms and the Keys was arm’s length. Accordingly, the Board erred by choosing to reject the evidence of the rental rates paid to the Keys on this basis. C.

Ignoring or failing to consider loss of use evidence [ 27 ] CNRL further submits the Board erred by ignoring or failing to consider so-called “pattern of dealings” evidence about the compensation paid in similar circumstances for the loss of use of the land in issue. This evidence was to the effect that such compensation was typically $300 per acre. [ 28 ] I do not accept this branch of CNRL’s argument. The reality is that the Board made specific reference to the pattern of dealings evidence at page 9 of its decision, under the heading “Severance, Adverse Effect and Nuisance”.

It then went on to explain as follows: 10. Both parties in this hearing made arguments regarding the weight of pattern of dealings evidence vs. site specific evidence. Various legal precedents were presented to the Board. It is the practice of this Board to use both of these approaches, as it did with this hearing. While patterns of dealings establish a clear direction to the Board, site specific evidence must always be considered to be fair to that respective party as well as to present a case for possibly a new pattern of dealing.

Without the latter, compensation may never change. [ 29 ] It is apparent, therefore, that the Board did not ignore or fail to consider this aspect of CNRL’s pattern of dealings evidence. It might not have given effect to this evidence in the manner suggested by CNRL, but that is something quite different than overlooking such evidence. D.

Ignoring or failing to consider evidence about additional wells [ 30 ] As noted above, the Board awarded the respondents one-time compensation of $1,000 for each of the four additional wells drilled in 2014 and an extra $600 for each such well (for a total of $2,400) in each subsequent year. CNRL contends that, in so doing, the Board ignored or overlooked pattern of dealings evidence about the appropriate annual payment for additional wells. [ 31 ] CNRL’s submission on this point is well-founded.

It presented the Board with evidence concerning the compensation payable for additional wells on 11 properties located in the same area as SE 18. For each of those 11 properties, $1,000 of compensation had been paid in the first year and $500 was payable in each year thereafter. This was self-evidently relevant evidence. While obviously not locked into the amount of $500 per annum for additional wells, the Board was nonetheless obliged to consider the evidence presented by CNRL. [ 32 ] The Board made no reference of any kind to the pattern of dealings evidence concerning compensation for additional wells.

In my view, it is fair to conclude that the Board simply overlooked that evidence. As explained above, this was an error of law. E. Failing to provide reasons about compensation for additional wells [ 33 ] CNRL’s final argument is that the Board breached the Act by failing to provide reasons for its decision to award annual compensation of $600 for each of the four additional wells it had drilled on SE 18. [ 34 ] This submission is also compelling. Section 10(3) of the Act requires the Board to provide reasons for its decisions. It reads as follows:

(3) The decisions of the board and the reasons therefor shall be in writing. But, the Board gave no reasons whatsoever for awarding compensation at the rate of $600 annually for additional wells. It simply declared its decision in that regard and did so notwithstanding evidence suggesting a lower rate of compensation might be appropriate. [ 35 ] In order to satisfy s. 10(3) of the Act , the Board must offer an explanation for each element of a compensation decision. That explanation need not be long or complex.

However, it must demonstrate that the Board considered the important features of the relevant evidence and allow the parties to understand how, why or on what basis it reached its conclusion. The Board failed to do that here in

relation to the issue of compensation for additional wells and, as a result, it failed to meet its obligation under s. 10(3). [ 36 ] It might also be argued that the Board failed to satisfy its common law obligation to give reasons for its decision with respect to the annual compensation payable for additional wells. In light of my conclusion about s. 10(3) , it is not necessary to consider this issue. VII. conclusion [ 37 ] I conclude that the Board made several errors of law in its decision.

As a result, the question of the compensation payable to the respondents must be referred back to the Board for reconsideration. [ 38 ] This appeal is of far more significance to CNRL, given the scale of its operations, than it is to the respondents. Indeed, as noted, the respondents elected not to file a factum or present oral argument. In light of these circumstances, there will be no order as to costs. [ 39 ] As indicated above, the cross-appeal is dismissed. There will be no order as to costs in relation to it. “Richards C.J.S.” Richards C.J.S. I concur. “Whitmore J.A.” Whitmore J.A.

I concur. “Schwann J.A.” Schwann J.A.