Canada: Potentially Interesting Decision On Royalty Interests In CCAA Comes Down To The "Interest In Land" Question

Last Updated: January 19 2017
Article by David Gerecke and Jordyn Allan

To date, there has been little treatment of mineral royalties in Companies' Creditors Arrangement Act (Canada) ("CCAA") proceedings. Given the current weakness in the oil and gas and mining sectors, any case law that informs what assets will be available to benefit creditors and how royalty interests will be treated will be of value.

In a recent decision, the British Columbia Supreme Court shed some light on the treatment of mineral royalties. If the "rooting interest" is to have the Court grapple with the most interesting problem possible, the decision in Walter Energy Canada Holdings, Inc. (Re), 2016 BCSC 1746 ("Walter Energy Canada"), manages to fall somewhat short. Nonetheless, there is some guidance to be taken from Madam Justice Fitzpatrick's reasons.


Walter Energy Canada Holdings Inc. ("Walter Energy"), owned three mining properties in British Columbia and was under CCAA protection. It applied for court approval of a going-concern sale of its mining properties to a company called Conuma Coal Resources Limited ("Conuma") pursuant to section 36(1) of the CCAA.

The transaction contemplated the sale to Conuma of real property, mineral tenures, buildings, equipment, current assets, water rights, intellectual property and other assets. Certain contracts were to be assigned to Conuma but there also were certain "excluded contracts" that would not be assumed by Conuma.

All stakeholders but one supported the sale. The objecting party was Kevin James ("James"), who held a royalty concerning one of the mines, Wolverine. James argued that his royalty rights ran with the land, such that Walter Energy could not transfer the Wolverine coal licenses to Conuma without regard for those rights and that an approval and vesting order could not extinguish his rights. Walter Energy's position was that the royalty was merely a contractual right to be paid monies on the production and sale of coal by Walter Energy.

The "Interest in Land" Question

Much of the analysis in Walter Energy Canada focused on the characterization of the royalty – whether it did or did not create an interest in land – the alternative being that the royalty would represent a mere contractual interest. Such analysis is common in cases involving mineral royalties and Justice Fitzpatrick followed the existing case law and determined that the royalty held by James was merely a contractual right.

In so doing, Justice Fitzpatrick dismissed arguments by James that the royalty represented a perpetual obligation, that it was stated to be binding on successors and assigns, and that there were provisions requiring his consent to any assignment:

[69] ... These clauses do not detract from the essential nature of the right granted to Mr. James found in clause 2.1, nor do they enhance his ability (or lack of ability) to control the petitioners' disposition of the Properties after his transfer of them.

The Court further observed that James could have used other means to control further disposition of the properties, noting that another royalty holder, Pine Valley Mining Corporation ("PVM") had agreements that included a restriction on the sale of interests subject to their royalty, required that any purchaser of the properties assume the royalty obligations to PVM, and also included a grant of security interest to PVM in respect of certain mineral titles. The question of whether PVM's royalties represented interests in land was not before the Court, as PVM had "reserved its rights in relation to its royalty agreement pending anticipated negotiations between PVM and Conuma", but the contrast drawn by the Court may be telling.

Dealing With a Contractual Royalty

The transaction contemplated that Conuma would not assume the royalty agreement, and thus would not have any obligation to pay the royalty to James. Having characterized the royalty as merely a contractual right, the Court classified the agreement as an executory contract for the purposes of CCAA proceedings.

An executory contract is one where neither party has fully performed their obligations and where contractual obligations are linked so that performance by one party is not required unless the other party is willing and able to perform (i.e. payment for coal production between the parties).

The significance of the Court having classified the royalty sharing agreement as an executory contract, is that the CCAA gives rise to the statutory power for a debtor company to disclaim a royalty sharing agreement pursuant to s. 32 of the CCAA. If disclaimed, a royalty owner then has a provable claim pursuant to section 32(7) of the CCAA that is addressed in the CCAA process along with any other stakeholder claims.

Thus, once his royalty agreement was found to not create interests in land, James was on a weak footing. He argued that it was unfair for the Court to approve a sale without protection of his rights. While Madam Justice Fitzpatrick did not entirely dismiss the impact on James as a valid consideration, she also found that it did not override the benefit to the overall group of stakeholders:

[78] I also see no unfairness in the Conuma transaction being approved without reference to Mr. James' rights under the [Royalty Sharing Agreement]. As in any such transaction, a purchaser will assess the cost/benefit of assuming any contracts held by the debtor and make a determination on that basis. While Mr. James has been on the losing end of that assessment by Conuma in relation to the [Royalty Sharing Agreement], that does not mean that the process was unfair or unreasonable.

[79]It certainly does not lead to the conclusion that the Conuma transaction is not supported by the CCAA, s. 36 factors, as alleged by Mr. James. I agree that the RSA is a consideration for the court in the context considering that transaction. However, in the overall context of the APA, and the admittedly overwhelming benefit to the entire stakeholder group (which includes Mr. James), Mr. James' disappointment in the outcome cannot rule the day.

Given the current weakness in the energy and mining sectors, royalty-holders may wish to examine their agreements closely to evaluate how they might fare if the operators obligated to pay the royalties become insolvent. Depending on whether the royalty grant language stands up to traditional "interest in land" scrutiny, they may not have what they think they have.

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.

David Gerecke
In association with
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.