Canada: The Interplay Between Summary Judgment And Allegations Of Gross Negligence In The Oil And Gas Industry

In Bernum Petroleum Ltd v Birch Lake Energy Inc, 2014 ABQB 652 [found here], the Alberta Court of Queen's Bench was faced with an application to summarily dismiss a counterclaim alleging gross negligence against an operator both in relation to its oil and gas operations as well as in relation to its failure to renew leases, obtain drilling permits, and offer participation rights to a joint-operator.  This is one of the first cases in which an Alberta court had to apply the culture shift in the application of summary judgment principles, as mandated by the Supreme Court of Canada in Hryniak v Mauldin, 2014 SCC 7 [found here] and the Alberta Court of Appeal in Windsor v Canadian Pacific Railway, 2014 ABCA 108 [found here], to an oil and gas dispute. 


This decision has several important elements. It is an example of how difficult it is and will be under the 2007 Canadian Association of Petroleum Landmen Operating Procedure (the "2007 CAPL") for joint operators to allege gross negligence in relation to oil and gas operations, and illustrates that these  claims may be subject to dismissal and excision from litigation. On the other hand, in areas where there are interactions between the parties, or non-operational allegations of gross negligence, the case supports the notion that it may be easier to establish real issues which require a trial. The case is also significant because it illustrates a willingness of courts to allow one party to a dispute to obtain and enforce a judgment against the other party while the other party's counter claim continues in litigation provided there is no irreparable harm in doing so. Interestingly, the Court also enforced a particular clause of the 2007 CAPL which entitled the operator to expedited and enhanced remedies not available to an ordinary creditor and in turn did not allow the defendant to file counterclaims to "stall or frustrate a plaintiff's claim and to provide some negotiating leverage where none might otherwise exist". Finally, the decision is further confirmation of the evolution of CAPL Operating procedures being drafted increasingly for the benefit and protection of oil and gas operators.


The parties in this case, Bernum and Birch Lake, entered a joint operation agreement to acquire petroleum and natural gas leases to certain lands west of Calgary. Bernum was the operator and held a 60% working interest. Birch Lake held a 40% working interest in the drilling and exploration projects that it chose to participate in. If Birch Lake chose not to participate, it was subject to production penalties. Ultimately, Birch Lake ended up indebted to Bernum for operating costs associated with certain well sites and refused to pay. Bernum sought summary judgment for the debt owed to it under an Area of Mutual Interest Agreement (the "AMI") and 2007 CAPL. Birch Lake resisted summary judgment on the basis that Bernum's operation of a particular well (the "4-3 Well") was grossly negligent. Birch Lake also argued that Bernum had breached its duty of care and was grossly negligent in failing to negotiate an extension of certain leases (the "Leases").

The Master's Decision

Master Robertson, who first heard the matter, held that there was no evidence supporting Birch Lake's allegation that Bernum was grossly negligent in its operations of the 4-3 Well and ultimately granted Bernum summary judgment. The Master also held that Birch Lake's Claim for damages relating to the Leases should go to trial. Finally, since Birch Lake had an arguable case for equitable set off, Master Robertson ordered that Bernum's judgment be stayed until the earlier of July 31, 2014 or the determination of Birch Lake's Counterclaim for damages in relation to the Leases.

The Alberta Court of Queen's Bench Decision

The question facing the Alberta Court of Queen's Bench on appeal was whether the following issues could be determined fairly and justly on the record or whether there was an issue of merit that genuinely required a trial: (1) was Bernum grossly negligent in its well operations; (2) did Bernum owe Birch Lake a duty of care in relation to its dealings on the Leases and whether Bernum was grossly negligent or breached its fiduciary duty in that regard; (3) was there was a reasonable prospect that equitable set-off would be the determination at trial with respect to Birch Lake's counterclaim for damages, and (4) if summary judgment was granted to Bernum, should the Court should exercise its inherent discretion and impose a stay pending determination of Birch Lake's Counterclaim.

The Court, citing Hryniak v Mauldin and Windsor v Canadian Pacific Railway Ltd, began its analysis by explaining that summary judgment rules were now less stringent, should now be interpreted broadly, and that the modern test for summary judgment is to examine the record to see if a disposition that is fair and just to both parties can be made on the existing record. 

Gross Negligence in the Operation of the Wells

Following the application before Master Robertson, Birch Lake adduced new evidence pertaining to another well site, the 16-19 Well, and on appeal claimed that Bernum was liable to it for gross negligence in its operation of both the 16-19 Well and the 4-3 Well. More specifically, Birch Lake argued that the mud system Bernum used was inadequate and that its decision to use that mud system at the 16-19 Well, after experiencing problems with that same system at the 4-3 Well, amounted to gross negligence. Birch Lake also complained of a number of other problems, including, among other things, the fracking methods Bernum used.

The Court granted summary dismissal of the allegations of gross negligence regarding the operation of the wells. The Court noted that the oil and gas industry is a high risk, speculative business and that many things can go wrong during the course of drilling, which can result in unanticipated delays and cost overruns.  The Court was not convinced that there was sufficient evidence of the necessary "intentionality or conscious indifference" to ground gross negligence or wilful misconduct.  In coming to this conclusion, the Court gave little weight to the opinion of Birch Lake's expert on the basis that the expert had simply provided his personal opinion on the very factual decision the Court was to make.

The Court also relied on the fact that Birch Lake was informed of the use of the mud system during the drilling process and noted that if it had concerns it could have expressed them at the time.

Gross Negligence, Wilful Misconduct or Breach of Fiduciary Duty in Relation to the Leases

With respect to the second issue, the parties had previously acquired leasehold interests in certain lands through assignments to the above-mentioned AMI agreement. Under the AMI agreement, Bernum was obligated to Birch Lake to negotiate lease renewals, commence drilling operations, and keep Birch Lake informed until the expiry of the agreement in December 2010. Sometime after this date, Bernum, assuming that the AMI agreement had expired, chose not to renew the Leases. However, at a later date, Bernum changed its position and decided to renew some of the Leases. Bernum did not include Birch Lake in this subsequent lease renewal. Upon discovering this, Birch Lake contended that the AMI agreement had not expired, but instead was actually continued by way of conduct and agreement. Birch Lake alleged that Bernum was liable for damages as a result of failing to renew the Leases, failing to obtain drilling licences, and failing to offer Birch Lake participation rights on the Leases.

On this issue, the Court held  that the evidence presented by Birch Lake amounted to an arguable case that Bernum had failed to communicate, or worse, misled Birch Lake on the true status of the Leases, thereby obtaining an advantage at Birch Lake's expense. The Court upheld Master Robertson's finding that this was an issue that should be determined at trial.

Equitable Set Off and Stay

Regarding the final issue, the Court pointed out that an important clause in the 2007 CAPL (5.05(B)(d)) was not previously raised in front of Master Robertson, and therefore invited both parties to provide submissions as to the effect of the clause. In essence, the clause entitled an operator, such as Bernum, to expedited and enhanced remedies not available to an ordinary creditor, including a right to maintain actions against non-operators "without any right of that Non-Operator to set-off or counterclaim". The Court found that this clause precluded Birch Lake's attempt to set-off the amounts it owed to Bernum against the potential amounts Bernum may owe it under its counterclaim.

The Court then decided that a stay of Bernum's judgment against Birch Lake should not be granted. In so doing, the Court referred to the well-known tripartite test for stays which requires the party applying to show: (1) it has an arguable issue (2) that it will suffer irreparable harm if the stay is not granted (3) the balance of convenience between the parties favours the granting of a stay. The Court found that while Birch Lake had demonstrated an arguable issue on portions of its Counterclaim, it had not demonstrated irreparable harm if the stay was not granted. More specifically, the Court explained that there was no evidence that Birch Lake was in such a financially precarious situation that it faced insolvency and an inability to prosecute its counterclaim. The Court further opined that to impose a stay would not only undermine the provisions of the 2007 CAPL that the parties agreed to be governed by, but would also undermine the goals in Rule 1.2 of the Rules of Court, which provides that the purpose of the Rules of Court is to allow for just and fair resolution of disputes, achieved in a timely, efficient and economical way.

About BLG

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 Topics
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions