Canada: Application For Leave To Appeal Set Off Decision Denied In SemCAMS Proceeding

The Alberta Court of Appeal recently denied an application by Celtic Exploration Ltd. ("Celtic") for leave to appeal a decision from a Companies' Creditors Arrangements Act (Canada) ("CCAA") proceeding involving Celtic and SemCAMS ULC ("SemCAMS"). The CCAA court found that the parties' gas purchase agreement had been suspended as of July 2008, and as a result, Celtic could not set off amounts it owed to SemCAMS after that date against indebtedness arising under the agreement.

SemCAMS is the operator and joint owner of natural gas processing plants and related gas gathering lines in Alberta.

The plant at issue in this case was the Kaybob South Amalgamated Plant ("KA Plant"). This plant operates pursuant to a Construction, Ownership and Operation Agreement ("CO&O Agreement") by which each joint owner is entitled to use a share of the throughput capacity in proportion to its ownership interest. When excess capacity is not used by the joint owners, it is used to process natural gas owned by third parties pursuant to Gas Processing Agreements. Both joint owners and third party users make monthly payments to SemCAMS as operator based on their projected use of the plant. At the end of the year, a "thirteenth month adjustment" reconciles projected throughput to actual throughput ("Thirteenth Month Adjustment").

Celtic is a natural gas producer who originally processed its gas at the KA Plant as a third party user under a Gas Processing Agreement. However, in 2006, Celtic and SemCAMS terminated their Gas Processing Agreement and entered into an Inlet Gas Purchase Agreement ("IGPA"). Under the IGPA, Celtic sold its natural gas to SemCAMS and, therefore, title to the gas transferred to SemCAMS at the KA Plant. This allowed SemCAMS to process the natural gas using its capacity and priority rights as a joint owner and permitted Celtic to avoid the risk of being shut out if the joint owners used their full capacity.

On July 22, 2008, SemCAMS was granted an initial order pursuant to section 11(1) of the CCAA ("Order"). The CCAA process permits a company to continue operating while it restructures its business and financial affairs in a court-supervised setting. Following July 22, 2008, Celtic continued to deliver raw natural gas to the KA Plant. However, SemCAMS believed that the IGPA had been suspended as of the date of the Order. Accordingly, SemCAMS thought they were accepting the deliveries of gas from Celtic in their capacity as operator pursuant to standard third party terms and not as a joint owner pursuant to the IGPA.

At the time of the Order, SemCAMS owed Celtic approximately $32 million, including $1.4 million owed pursuant to the Thirteenth Month Adjustment provision under the IGPA. Following the Order, SemCAMS as operator invoiced Celtic monthly for standard gathering and processing fees charged to third party users. In October 2009, Celtic purported to set off the Thirteenth Month Adjustment owed to it by SemCAMS against the gathering and processing fees Celtic owed to SemCAMS as operator.

SemCAMS then applied for a declaration that the IGPA had been suspended when the Order was granted in July 2008 and, as a result, Celtic could not set off amounts owed to SemCAMS after that date against indebtedness arising under the IGPA. The CCAA court found evidence that both parties had in fact agreed to the suspension of the IGPA and, therefore, the Court held that Celtic was not entitled to set off. The full text of the CCAA court's decision can be found here.

Celtic sought leave from the Alberta Court of Appeal to appeal this decision. Among other things, Celtic proposed that the CCAA court erred in determining that the IGPA was suspended and that Celtic was not entitled to set off. In relation to suspension of the IGPA, the Court of Appeal found that Celtic had not demonstrated any error of law or fact in the decision of the CCAA court and, therefore, leave to appeal could not be granted on this issue.

Further, since the Court of Appeal denied leave to appeal on the issue of suspension of the IGPA, it followed that they must also deny leave on the issue of contractual set off. The CCAA court did not permit contractual set off because the IGPA was suspended as of July 22, 2008, and, therefore, the delivery by Celtic and acceptance by SemCAMS of raw natural gas arose under a new and distinct contractual obligation. This new obligation could not be set off against an obligation arising pursuant to a different contract, namely the IGPA.

However, Celtic argued that even if contractual set off was not permitted, equitable set off should have been found by the CCAA court. Equitable set off may be found when the debts sought to be set off arise from closely-related contracts. Here, Celtic sought to set off the Thirteenth Month Adjustment owed to it by SemCAMS as joint owner against amounts Celtic owed to SemCAMS as operator. Although both the IGPA and the third party gas processing agreement related to the processing and sale of natural gas, the benefits that both parties derived from these agreements were distinct. As a result, the CCAA court found that Celtic had not met the burden of establishing a close connection between the cross-claims. At the Court of Appeal, Celtic was unable to demonstrate that the CCAA court had erred in reaching this finding and, therefore, leave was also denied on this issue.

As a result, the Court of Appeal rejected all of Celtic's proposed grounds of appeal and the application for leave was dismissed. The full text of the Court of Appeal's decision can be found here.

In denying leave to appeal, the Court of Appeal followed their previous decision to deny leave in another SemCAMS proceeding involving set off and Trilogy Energy LP. We previously reported on this case here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.