Canada: Pay First, Dispute Later (Or Trial Now, Pay Later)?

In Talisman Energy Inc. v Questerre Energy Corporation, 2017 ABCA 218 the Alberta Court of Appeal considered the pay first, dispute later provisions common in oil and gas joint operating agreements. These provisions generally provide that invoices issued under an operating agreement are a liquidated demand and a party receiving an invoice has no right to set-off or counterclaim. In another recent case, SemCAMS ULC v Blaze Energy, 2016 ABCA 113 ("SemCAMS") (discussed by BLG here, here and here), the Court of Appeal enforced one of these provisions, upholding an award of summary judgment against a non-operator for unpaid invoices notwithstanding that the non-operator disputed the operator's accounting methods. However, in this case the Court of Appeal distinguished SemCAMS and denied summary judgment to recover amounts pursuant to unpaid invoices in favour of Talisman Energy Inc. ("Talisman") on the basis that the issues were complex and warranted a trial. In particular, the Court of Appeal found that the facts were unclear as to which agreement the parties were operating under.

This case is significant as it demonstrates that the pay first, dispute later provisions are not always appropriate for determination through the summary judgment process and can warrant a trial in certain circumstances. The case also highlights the limits on the utility of summary judgment in resolving issues expeditiously and in a cost-effective manner.

Background

Talisman and Questerre Energy Corporation ("Questerre") were parties to a farmout agreement (the "Farmout Agreement") with respect to two properties in Quebec. The Farmout Agreement incorporated the 1990 CAPL Operating Procedure by reference and included a clause which allowed Talisman to:

... maintain an action or actions for such unpaid amounts and interest thereon on a continuing basis as such amounts are payable, but not paid by such defaulting Joint-Operator, as if the obligation to pay such amounts and the interest thereon were liquidated demands due and payable on the relevant dates such amounts were due to be paid, without resort of such Joint-Operator to set-off or counterclaim.

In early 2010, Talisman proposed to drill the Fortierville well and issued an Independent Operations Notice (an "ION") to Questerre for the well, enclosing an Authorization for Expenditure ("AFE"). If Questerre elected to participate it would be required to pay 25% of the well costs and failure to participate would result in Questerre being in penalty for the well. The ION did not include completion costs.

Talisman and Questerre traded several apparently ambiguous communications about the AFE. Questerre advised Talisman that it would not participate in the Fortierville well unless Talisman agreed to complete, test and evaluate the well as part of a comprehensive program and would run microseismic monitoring as part of the completion program on the well. After the expiry of the ION, Talisman sent a letter stating that it would drill and complete the well but it did not issue an ION or an AFE with respect to both drilling and completion. Questerre subsequently executed the original AFE.

In May 2016, Questerre sent an email to Talisman stating that it was interested in joint operations with respect to the Ste. Gertrude well on the same basis as the Fortierville well. Talisman issued an ION and AFE for the Ste. Gertrude well and this AFE also included the drilling of the well, but not its completion.

Talisman proceeded to take steps to complete both wells and then sought to recover 25% of the costs of that work from Questerre. Questerre refused to pay the amounts outstanding, stating that completion required a supplemental AFE.

In its action against Questerre, Talisman sought to recover liquidated damages for Questerre's proportionate share of the costs of the drilling and completion of both wells and the drilling costs for four other wells that it had drilled with Questerre's participation. Questerre defended Talisman's claim, and counterclaimed for breach of Talisman's promise to complete both wells. Questerre's position was that the correspondence between the parties was a collateral contract whereby the parties agreed that Questerre would only pay for costs if Talisman agreed to both drill and complete the wells.

Queen's Bench Decisions

Master Prowse granted summary judgment to Talisman for the drilling costs claimed by Talisman but declined to award summary judgment for the completion costs on the basis that a trial would be required to determine whether the correspondence between the parties regarding the completion costs evidenced the existence of a collateral contract. On appeal, Justice Hawco found a trial was required with respect to the entirety of Talisman's claim given that a finding that there was a collateral agreement might have impacted Talisman's claim with respect to the drilling costs.

Court of Appeal Decision

The Court of Appeal upheld Justice Hawco's decision, finding that a trial was necessary to determine the nature, scope and effect of the alleged collateral agreement. The Court of Appeal held that ordinarily Talisman would be entitled to summary judgment for the drilling costs claimed by Talisman with respect to the other four wells, but it found that because Talisman continued to exercise its operator's lien over those wells until the litigation concerning the other two wells was resolved it "brings the fate of the four other wells into the ambit of the litigation, where a trial is necessary to resolve the outstanding issues".

Implications

The case is significant as it demonstrates a limit on the immediate recourse an operator has under the pay first, dispute later provisions of the CAPL operating procedures. A joint-operator can take the position that the provision does not apply to the operation in question in order to resist a summary judgment application. The scenario where the scope of an agreement is unclear is not that uncommon in the oil and gas industry where there are often a multitude of different agreements that govern jointly owned lands and an abundance of correspondence between the parties, including AFEs, that could arguably amend existing agreements or constitute separate collateral agreements. This can make it difficult to determine what, if any, agreements apply in specific circumstances.

As BLG commented here, while summary judgment is an appealing alternative to the trial process, due to the fact that a summary judgment or dismissal action is heard first before a Master, is subject to a right of appeal, and then there is the possibility of a further appeal to the Court of Appeal, its usefulness in speeding up the trial process and providing for a less costly avenue to resolve disputes is somewhat compromised. In this case, Master Prowse initially issued his decision in December 2015. The Court of Appeal's decision was issued in June 2017 and now, if the parties proceed to trial, they will be looking at scheduling likely at some point later in 2018 at the earliest. That is a significant delay and presumably proceeding directly to a trial from the outset would have been led to a faster and more final resolution of the matters in dispute. While an accounting dispute under a CAPL operating procedure may seem like an appropriate dispute for summary determination, this case demonstrates that a summary judgment application could in fact cause more cost and delay than proceeding with the regular trial procedure.

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 Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
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

Mondaq.com (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 www.mondaq.com

To Use Mondaq.com 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.

Disclaimer

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.

General

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