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
Jordyn Allan
Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
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