The Interplay Between Summary Judgment And Allegations Of Gross Negligence In The Oil And Gas Industry

In Bernum Petroleum Ltd v Birch Lake Energy Inc, 2014 ABQB 652 [found here], the Alberta Court of Queen's Bench was faced with an application to summarily dismiss a counterclaim alleging gross negligence against an operator both in relation to its oil and gas operations as well as in relation to its failure to renew leases, obtain drilling permits, and offer participation rights to a joint-operator. This is one of the first cases in which an Alberta court had to apply the culture shift in the application of summary judgment principles, as mandated by the Supreme Court of Canada in Hryniak v Mauldin, 2014 SCC 7 [found here] and the Alberta Court of Appeal in Windsor v Canadian Pacific Railway, 2014 ABCA 108 [found here], to an oil and gas dispute.

Implications

This decision has several important elements. It is an example of how difficult it is and will be under the 2007 Canadian Association of Petroleum Landmen Operating Procedure (the "2007 CAPL") for joint operators to allege gross negligence in relation to oil and gas operations, and illustrates that these claims may be subject to dismissal and excision from litigation. On the other hand, in areas where there are interactions between the parties, or non-operational allegations of gross negligence, the case supports the notion that it may be easier to establish real issues which require a trial. The case is also significant because it illustrates a willingness of courts to allow one party to a dispute to obtain and enforce a judgment against the other party while the other party's counter claim continues in litigation provided there is no irreparable harm in doing so. Interestingly, the Court also enforced a particular clause of the 2007 CAPL which entitled the operator to expedited and enhanced remedies not available to an ordinary creditor and in turn did not allow the defendant to file counterclaims to "stall or frustrate a plaintiff's claim and to provide some negotiating leverage where none might otherwise exist". Finally, the decision is further confirmation of the evolution of CAPL Operating procedures being drafted increasingly for the benefit and protection of oil and gas operators.

Background

The parties in this case, Bernum and Birch Lake, entered a joint operation agreement to acquire petroleum and natural gas leases to certain lands west of Calgary. Bernum was the operator and held a 60% working interest. Birch Lake held a 40% working interest in the drilling and exploration...