A gas facility operator was recently awarded summary judgment
for its unpaid invoices, even though the non-paying producer
disputed the amounts owing and claimed various set-offs. In
SemCAMS ULC v Blaze Energy Ltd,2015 ABQB 218
[SemCAMS], the Court accepted that the various contracts
between the operator, SemCAMS ULC, and the producer, Blaze Energy
Ltd., entitled SemCAMS to payment, albeit subject to Blaze’s
right to seek a future adjustment of amounts owing. The decision
confirms the “pay first, dispute later” structure of
many oil and gas industry agreements, and is likely to impact other
Alberta natural gas producers and facility operators to the extent
they are subject to similar contracts.
Blaze had five contracts with SemCAMS, the operator, for gas
transportation, gas processing, and facility operation services
(the Agreements). The Agreements required monthly invoicing based
on estimated costs and production volumes, with an annual
adjustment (sometimes called the 13th month adjustment)
based on actual costs and throughput. The Agreements provided for
the payment of invoices within 30 days of receipt, but also
included audit provisions for questioning the invoices. Certain of
the Agreements expressly provided that payment could not be
withheld even if the producer contested an invoice, while others
provided that the operator could sue on any overdue invoice as if
it were a liquidated demand, without any right of set-off or
counterclaim for the producer.
From July 2012 to April 2013, SemCAMS issued 11 invoices
totaling $6.1 million after agreed adjustments and set-offs. After
Blaze failed to pay, SemCAMS exercised an operator's lien over
the producer's interest in certain residue gas, recovering
approximately $1 million, and then sued for the total amount of the
unpaid invoices (approximately $6.14M), less an uncontested
SemCAMS argued it was entitled to summary judgment for the total
amount invoiced, notwithstanding the possibility of an adjustment
after an audit, on the basis that the parties did not intend to
allow the audit provision to delay payment. The Court agreed and
granted summary judgment for the total amount outstanding in the
amount of $5.1M. In reaching this decision, Madam Justice Strekaf
applied both the modern approach to summary judgment (summarized in
Myth of Trial No Longer Governs: Alberta Embraces New Summary
Judgment Test) and the Supreme Court of Canada’s recent
guidance on contractual interpretation (Sattva Capital v
Creston Moly, 2014 SCC
The Court did not accept the argument that this result was
commercially absurd. Instead, inferring that the operator needed to
be able to rely on a steady cash flow, the Court found that the
parties had reasonably allocated the risk of inaccurate monthly
invoices to the producer. Justice Strekaf held that the
parties’ contracts mandated this result, but acknowledged
that service providers will not ordinarily be able to obtain
judgment unless the amounts claimed are proven to be owing and not
simply billed. The Court highlighted the fact that the invoices
“were prepared in good faith in the ordinary course of
business” (para 50). As noted, the judgment preserved the
producer's right to seek contractual adjustments and to
maintain its Counterclaim.
Although SemCAMS largely turned on the wording of the
parties’ Agreements, the Court was clearly attuned to the
broader concept that commercial contracts reflect deliberate
decisions about risk allocation. Parties commonly adopt “pay
first, dispute later” arrangements so as to protect the
operator’s legitimate cash flow needs. SemCAMS
confirms that producers subject to similarly worded contracts may
not validly delay payment by requesting an audit.
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.
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