Case Law Summaries - Contracts

CANLIN RESOURCES PARTNERSHIP V. HUSKY OIL OPERATIONS LIMITED, 2018 ABQB 24

In this decision, the Alberta Court of Queen's Bench dealt with the interpretation of a right of first refusal contained in a joint venture agreement.

Canlin Resources Partnership, Husky Oil Operations Limited and Canadian Natural Resources Limited were joint venture participants in the Erith Dehydration and Flow Splitter Facility (Facility) and successor parties to the Construction, Ownership and Operation Agreement (Agreement) that governed the operations of the Facility. Between 2014 and 2016, Husky had shut down and decommissioned the dehydrator unit of the Facility and installed a "jumper" pipeline that bypassed the inlet separation and flow splitter unit. Since 2016, the gas that was previously processed at the Facility was flowed to, and processed at, a different facility instead. Although Canlin had pressed for the Facility to become operational and had expressed interest in assuming ownership and operations of the Facility, Husky firmly maintained its position that the Facility should remain in its current shut-in, non-operational status.

The joint venture agreement provided Canlin with a right of first refusal if either of the other joint venture parties wished to sell its interest in the Facility, subject to an exception: an owner may transfer all or a part of its interest in the Facility without providing a right of first refusal where the disposition made by the owner is "... of all or substantially all ... of its petroleum and natural gas rights in wells producing to the Facility ...." In September 2017, Husky gave Canlin notice of its intention to sell certain of its assets, including its interest in the Facility, to Ikkuma Resources Corp. Husky took the position that the exception applied to the Ikkuma transaction, such that Canlin was not entitled to a right of first refusal. Canlin disagreed, and sought relief in the Court of Queen's Bench.

The Court found in favour of Canlin, holding that Canlin was entitled to a right of first refusal notice and specific performance of that right. In so doing, the Court refused to read the phrase "wells producing to the Facility" as "wells associated with the Facility" as suggested by Husky on the basis of annotations to the model agreement that the Agreement at issue was based upon. Considering the ordinary and grammatical sense of the phrase, the Court held that "wells producing to the Facility" means wells that...