SASKATCHEWAN (ENERGY AND RESOURCES) V. AREVA RESOURCES CANADA INC., 2013 SKCA 79

This decision of the Saskatchewan Court of Appeal (SKCA) clarifies that a court will only intervene to overturn a determination by the Ministry of Energy and Resources (Ministry) with respect to royalty calculations under The Crown Minerals Act, S.S. 1984-85-86, c C-50.2 (Act) where such a determination is unreasonable.

Areva Resources Canada Inc. (Areva) mined uranium in Saskatchewan. Under the Act, Areva was required to pay annual royalties to the Crown, calculated as a percentage of the fair market value of Areva's gross uranium sales in that year. For arm's-length transactions, the fair market value was the actual sale price. For non-arm's-length transactions, the fair market value was deemed to be the average sale price of all arm's-length sales in that year.

The issue in this case was the manner in which the Ministry had calculated the average sale price of the arm's-length transactions, which Areva sought to have judicially reviewed. The judge in the court below provided an example of the difference between the Ministry's calculation methodology and that proposed by Areva:

...The parties' approaches can be illustrated using an example in which a producer, in a given year, has arm's-length sales of uranium under three contracts as follows:

- Contract 1 is for the sale of 1,000

pounds of uranium at $50 per pound.

- Contract 2 is for the sale of 2,000 pounds of uranium at $40 per pound.

- Contract 3 is for the sale of 3,000 pounds of uranium at $60 per pound.

Areva calculates the average sale price by adding $50, $40 and $60 and dividing by 3 ($150/3 = $50). Areva says that the result, $50 per pound, is the average sale price of all arm's-length sales - the average of the three contract sale prices.

The Ministry calculates the average sale price by first determining the total revenue for the uranium sold ($50,000 + $80,000 + $180,000 = $310,000). The Ministry then divides that total by the number of pounds sold ($310,000/6,000 = $53.33). The Ministry says that the result, $53.33 per pound, is the average sale price of all arm's-length sales.1

The SKCA first reviewed the decision of the Supreme Court of Canada in Dunsmuir v. New Brunswick,2 to determine whether a "correctness" or "reasonableness" standard of review applied. Of particular significance to a majority of the SKCA in selecting a standard of reasonableness was the fact that the Act explicitly denied a right of appeal from the Ministry's determination.

The SKCA went on to find that the Ministry's calculation methodology was a reasonable interpretation of the complex royalty scheme that fell within the acceptable range of possibilities.

ANGLO PACIFIC GROUP PLC V. ERNST & YOUNG INC., 2013 QCCA 1323

In this case, the Québec Court of Appeal considered the nature of a net smelter return (NSR) royalty granted by the holder of mining claims to a lender and the legal publicity regime applicable to such a royalty. It provides a reminder of the complexity of creating enforceable NSR royalties in Québec and underscores that particular attention that needs to be paid in drafting NSR royalties relating to Québec properties if the parties intend the royalty to constitute an ownership or property right. For more discussion, see "Recent Developments in Québec Mining Royalties" on page 47.

Footnotes

1. 2012 SKQB 205, paras. 4-6.

2. 2008 SCC 9

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