Bill 2, the Responsible Energy Development Act and the Enforcement of Private Surface Agreements

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Proposal commented on: Bill 2, the Responsible Energy Development Act

Bill 2, the Responsible Energy Development Act (REDA) if enacted will afford the Regulator an entirely new jurisdiction over the enforcement of “private surface agreements.”  This comment discusses the following questions: (1) What is the status quo and what are the problems with the status quo?  (2) What will the Bill do?  (3) If change was necessary, why was this jurisdiction accorded to the Regulator and not the Surface Rights Board?  Focusing on question # 3 my general argument will be that it would be a better “fit” to accord this additional jurisdiction to the Surface Rights Board which already has considerable expertise in these matters.

What is the status quo and what are the problems with the status quo?

Bill 2 defines (unhelpfully) a private surface agreement to mean a “private surface agreement as defined in the rules” (s 62(e)).  Under REDA a rule may be made: (a) “by or on behalf of the Regulator” as authorized under REDA or “an energy resource enactment” or (b) by the Lieutenant Governor in Council (LGiC) (see definition of Rule, s 1(1)(r) & s 68).  In this case section 64 contemplates that the rules will be made in the first instance by the Regulator.  We can expect that the term will be defined to include surface leases and pipeline rights of way and easements as well as similar agreements relating to transmission rights.

How are such agreements enforced now and in what forum?  The answer is that they are enforced by way of action in the ordinary courts.  Such agreements are contracts and both the Provincial Court and the Court of Queen’s Bench might assume jurisdiction (although in the case of the provincial court the maximum amount that might be claimed by way of damages is $25,000 (Provincial Court Civil Division Regulation, Alta Reg 329/1989 as am.) and the Provincial Court has no authority to order specific performance or an injunction.  For an example of a surface lease matter being taken to Provincial Court see Muntean v Advantage Oil & Gas Ltd., 2006 ABPC 318; for an example of a matter proceeding before the Court of Queen’s Bench see 1103785 Alberta Ltd. v Exxonmobil Canada Ltd., 2008 ABQB 581 (CanLII).

In addition, special remedies are already available where the breach in question is the failure to pay compensation under the terms of section 36 of the Surface Rights Act, RSA 2000, c S-24.  Under this remarkable provision, the Surface Rights Board may suspend and even terminate an operator’s rights under a surface lease (defined to include both surface rights  and pipeline and transmission line rights of way) and, if payment is still not forthcoming, authorize payment to the landowner or occupant out of the General Revenue Fund of the province.  In other words, the province acts as an insurer of compensation payments for private agreements at no cost to the land owner or occupant.  See, for example, Pethelen Resources (1973) Limited v Molnar, 2008 CanLII 88603 (AB SRB) (authorizing an order of some $30,000 against the GRF); Devon Canada Corp. v Surface Rights Board, 2003 ABQB 7 (judicial review of an award of $28,000).

However, the Regulatory Enhancement Task Force (see here) was clearly convinced that the combination of laws of general application and the special rules of the SRA were inadequate.  The Task Force reported as follows (at 19)

A concern raised by landowners is the lack of an efficient and effective mechanism to obtain redress when a company has either failed to perform or performed poorly with respect to agreements reached with the landowner at the time consent to enter the property was obtained.

Landowners enter into agreements with oil and gas companies that allow for the construction and operation of oil and gas projects on their lands.  Often they are negotiated strictly between the landowner and the oil and gas company.  In the majority of cases, landowner-company agreements are clear and each party understands its rights and responsibilities.  However, when misunderstandings arise in regard to these agreements, landowners have expressed frustration in making sure companies fulfil their obligations created by the agreement.

It is recommended the Surface Rights Board or another body be given jurisdiction to examine and resolve such disputes through mediation or arbitration.  Following the resolution of the dispute, the single regulator would be authorized to enforce the agreement using its regulatory tools.

What will the Bill do?

The Bill provides that the owner or occupant of land for which there is a private surface agreement may register that agreement with the Regulator (s 63), and, where the owner or occupant believes that the “holder of the agreement” is not complying with the agreement, may request the Regulator to make an order directing that person to comply (s 64).  Since some such agreements may contain confidentiality clauses, section 65 stipulates that the statute will override any conflict with the terms of the agreement and that any confidentiality undertaking will be unenforceable.  Section 64(2) is at pains to preserve “the right of an owner or occupant to pursue any other remedy that the owner or occupant has” in respect of the agreement.  Thus, the owner or occupant will still have all the remedies available to it under general law and any special remedies under the SRA as discussed above (and presumably if the alleged breach is non-payment the owner\occupant should proceed under the SRA because of the default liability of the GRF under that statute).

In performing this role the Regulator at a minimum will need to determine the following: (1) Is there a registered private surface agreement in force between the parties?  (2) What, properly interpreted, did the holder of the agreement promise to do?  (3) Is the holder of the agreement in breach?  (4) Have these issues already been raised and dealt with in another forum?  (i.e. a possible res judicata argument see the recent decision in Schmidt v Twin Butte Energy Ltd., 2012 ABQB 649.

An order of the Regulator may be enforced by way of an administrative penalty (see section 70(b) which may be further enforced as a judgement of the Court (s 75)).

If change was necessary, why the Regulator and not the Surface Rights Board?

If one accepts the premise that it was necessary to create an additional remedy for surface owners affected by energy operations occurring on their lands it is still important to address the question why it was appropriate to give this function to the Regulator and not the SRB?  Even the Task Force seemed to think that the single-window mantra was not enough of a justification to give this jurisdiction to the new regulator rather than the SRB.  And I think that there are good reasons for thinking that this jurisdiction, if necessary in the first place, should have been conferred on the SRB.  After all, it is the SRB that is familiar with the terms of surface leases and easements and the issues facing landowners in their dealings with the energy industry.  While the SRB is principally concerned with issuing rights of entry orders and associated compensation orders it does have additional responsibilities.  I have already referred above to its remarkable section 36 jurisdiction; but in addition to that it also has concurrent jurisdiction with the ordinary courts to make compensation awards for damage that an operator might cause off the lands for which it has a right of entry (see Nykolaishen and Bankes, “The Jurisdiction of the Surface Rights Board under Section 30 of the Surface Rights Act” (2011), 49 Alta L Rev 1).  In sum, the subject matter of “private surface agreements” falls directly within the expertise of the SRB; at the very least the onus should be on the Minister to explain why this matter is being sent to the new Regulator rather than the Surface Rights Board.

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4 Responses to Bill 2, the Responsible Energy Development Act and the Enforcement of Private Surface Agreements

  1. Graham Gilchrist says:

    I would make the following observations. The surface lease needs connecting to the licence. In the discussion above, yes , non-payment can be addressed through the SRB. Non-monitary performance can not.
    Notwithstanding all the other issues of process with Bill 2, this allows a landowner to obtain an order for the company to perform as agreed to under a surface lease.
    Graham

  2. Nigel says:

    Thanks Graham. Absolutely correct. The principal question I was addressing was whether it is better to give the authority to make the order to the SRB or the new regulator? What do you think? I think that you’re suggesting that the authority should be given to the new Regulator because then the non-compliance can be tied to the [well] licence and perhaps further tied in to the the Regulator’s overall ladder of non-compliance. An interesting point – it certainly raises the stakes for the operator – which from the landowner’s perspective can only be a good thing.

    nigel

  3. Marion Leithead says:

    I find that Bill 2 enshrines and reinforces the “centralized control” set out in ALSA (Bill 36… which “prevails” over all other legislation – Does that not also include Bill 2?), which states that a Minister and/or the Plan controls what happens to the landowner, who (still) has no recourse to an “independent” hearing or the Courts.

    Bill 2 REDA sets up the same sort of scenario where the “single regulator” decides if the landowner’s “statement of concern” is valid and/or will be considered… and then the concern may go to the “appointed” panel (who will toe the “party line” and may/ may not have any expertise).
    How is that an “improvement” over the current system?

    I also want to know what “adversely affected” means, and who determines who is adversely affected. We were prevented from presenting at the EATL Hearings because ATCO dictated who was “adversely affected,” dictated the 800 metre limit, and dictated what could and what could not be “presented.”
    I have it in writing that ATCO told AUC not to let us “present.” We claimed that if we have to “pay” for EATL, we are “adversely directly affected.” And that would include ALL Albertans.

    So, first of all, who under Bill 2, determines what “adversely/directly affected” means … and, who determines which landowners are thus affected.

  4. Nigel says:

    Hi Marion,

    You raise a number of questions, some of which relate to this Bill 2, post and others which relate more directly to the post by my colleague Shaun Fluker. I will try and provide some responses.

    First, the Regulator will have to comply with ALSA and ASLA approved plans. There is no real change here. The ERCB is similarly subject to ALSA approved plans. And in my view that is entirely appropriate if we are serious about landscape level plans and the management of cumulative impacts. I realize that some view ALSA as the devil incarnate but I am not one of them (and there are lots of ALSA posts on Ablawg that attest to that position).

    Second, landowners will continue to find it easier to establish standing before the Regulator (just as they did before the Board), than pretty much anybody else. My principal concern with both the current standing rules and the proposed standing rules is not that they don’t protect landowners – they do. The problem is that they don’t afford standing to persons who want to raise important questions of public interest rather than private interest. Such persons will continue to find it almost impossible to gain standing. And that is a problem that this Bill should fix.

    Third, does Bill 2 improve the position of landowners? The answer is unequivocally yes. Landowners get an additional remedy against a surface lessee, the right to bring this enforcement action (described in this blog) against a lessee.

    Fourth and finally, I doubt very much that the AUC “did as it was told” by ATCO. It might have had its own reasons for agreeing with ATCO’s position (I don’t know enough about the matter) but that is different from doing what it is told. If it said “we will do what ATCO told us to do” or anythinglie that, then it clearly committed an error. But I doubt that is what the AUC said.

    Nigel

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