2015 In Review: Top 10 Judicial Decisions Of Import To The Canadian Oil And Gas Industry

Last year's list of the top ten judicial decisions of import to the Canadian Oil and Gas Industry (found here) illustrated that 2014 was a high-water mark for important judicial decisions affecting the oil and gas industry. In 2015, we have seen several of the key 2014 cases applied, confirmed or addressed, in particular in relation to Aboriginal title, contract interpretation, and the use of summary judgment as a realistic option to resolve oil and gas disputes. However, 2015 also provided us a wealth of important cases focused on a myriad of areas of interest to all stakeholders in the oil and gas industry: enforcement of foreign judgments, mergers and acquisitions, the use of experts, the interplay between federal bankruptcy legislation and provincial legislation regulating oil and gas activity, freehold lease termination issues, and recovery of damages related to environmental contamination and associated costs.

In this post, we highlight ten of the most important judicial decisions of 2015, and related trends, of import to oil and gas industry participants, for 2016 and beyond.

1. Chevron Corp v Yaiguaje (SCC)1 (Enforcement of Foreign Judgments)

   This case (found here) involved a multi-billion dollar trial judgment awarded by an Ecuadorian court in relation to environmental damage arising out of oil and gas activities in Ecuador. The successful plaintiffs commenced an action in Ontario to have the foreign judgment enforced against both Chevron Corp. and its Canadian subsidiary. Chevron raised a jurisdictional challenge claiming the Ontario court had no jurisdiction over the enforcement action because, among other things, there was no real and substantial connection between Ontario and the subject matter of the dispute and Chevron.

   The Supreme Court of Canada, noting among other things principles of international comity, found that Ontario did have jurisdiction over the enforcement action, and took a generous approach in favour of foreign judgment creditors on the threshold jurisdictional issue. In doing so, it held that there was no requirement that there be a real and substantial connection between the enforcing court and the original dispute or defendant. As a result of this case, it will be difficult for defendants to challenge the jurisdiction of Canadian courts to adjudicate foreign judgment enforcement actions.

   While this is an important case because it sends the message that the door is open in Canada for Canadian courts to hear foreign judgment enforcement actions, the Supreme Court was clear that it was only passing judgment on the threshold jurisdictional issue. The more compelling issues of greater implication in this case are yet to come. For example, it may still be open to defendants in the enforcement action to defend the enforcement of a foreign judgment on the basis that the action should be stayed, or because the original judgment was obtained through fraud or denial of natural justice, or because enforcement is contrary to Canadian public policy. While these are difficult defences to establish, they may very well be relevant in Chevron or in future cases relevant to the oil and gas industry where international oil and gas operations are conducted in jurisdictions with dramatically different legal systems which may be corrupt or otherwise offend Canadian public policy.

   Another important issue we expect to be addressed in Chevron is the ability to enforce a judgment, obtained against one corporate entity, against a subsidiary or other affiliated or related corporation which was not party to the foreign action. It remains to be seen whether, or in what circumstances, a Canadian court would pierce the corporate veil or otherwise enforce a judgment against related corporations that were not parties to the foreign action. The attempt by the foreign plaintiffs in Chevron to obtain recovery from related corporations is part of a developing trend we have been following. For example, (see our blog posts here and here), we have commented on attempts by a group of Guatemalan citizens to obtain judgment against a parent corporation for conduct of its subsidiaries operating a mine in Guatemala.

   For companies operating internationally, Chevron signals the willingness of Canadian courts to entertain foreign judgment enforcement actions. It should also, however, serve as a warning that obligations incurred in foreign states cannot necessarily be avoided by segregating assets in other jurisdictions. Oil and gas industry participants should closely monitor the ongoing proceedings in Chevron and similar cases.

2. The Supreme Court of Canada Bankruptcy Trilogy (Paramountcy of Bankruptcy and Insolvency Act)

   In two of three cases in this trilogy, Alberta (Attorney General) v Moloney2 (available here), 407 ETR Concession Co. v Canada (Superintendent of Bankruptcy)3 (available here), Saskatchewan (Attorney General) v Lemare Lake Logging Ltd4 (available here) the Supreme Court of Canada held that a provision of a provincial regulatory statute was inoperative under the doctrine of federal paramountcy because the provision in question conflicted with the federal Bankruptcy and Insolvency Act (BIA). In, the Supreme Court of Canada applied the doctrine of federal paramountcy, but concluded that no conflict between provincial and federal legislation existed. This trend toward recognizing paramountcy of federal bankruptcy legislation has increased importance given the current economic environment, and this is even more so in the oil and gas industry given stubbornly low commodity prices and the increased bankruptcy and insolvency of oil and gas companies presently being experienced in Alberta and other oil and gas producing provinces. So, while the specific provisions in issue in these three cases may not be directly applicable to energy industry players, the principles expressed will likely guide future decisions that directly impact the oil and gas industry.

   Examples of the interplay between federal bankruptcy and provincial legislation directly related to the oil and gas industry have already arisen in 2015. For example, in Lemke v Petroglobe5(available here, and previously blogged by BLG here), Alberta's Surface Rights Board ruled that an application by a landowner for the Surface Rights Board's assistance under Alberta's Surface Rights Act in obtaining payment of overdue annual payments to them could not continue in the face of the statutory stay under section 69.3 of the BIA. The Surface Rights Board has already had to render several decisions in the Petroglobe matter.6

   A more recent and relevant example is the court proceedings in Red Water Energy Corp.7 in which, in December 2015, the Alberta Court of Queen's Bench heard argument and reserved its decision. The central issue in Redwater is the interplay between bankruptcy legislation and provisions of Pipeline Act, the Oil and Gas Conservation Act and the Alberta Energy Regulator's Directive 006 (Licensee Liability Rating (LLR) Program and Licence Transfer Process), including the AER's authority to order and enforce abandonment orders and to refuse to transfer licences. In particular, the Court was asked to consider whether it is appropriate in certain circumstances for the AER to refuse to transfer licences. We expect a decision in 2016 and, likely, an expedited trip to the Alberta Court of Appeal. Regardless of the outcome, this decision will have a significant impact on the oil and gas industry. If the AER is successful, and its enforcement provisions can be used notwithstanding bankruptcy...