By: Nigel Bankes
PDF Version: The Synthetic Transportation of Natural Gas
Case Commented On: Apache Canada Ltd v TransAlta Cogeneration LP, 2015 ABQB 650
In this decision Master Robertson concluded that the synthetic transportation of natural gas through a series of swap arrangements does not trigger the seller’s right of first refusal in a natural gas sales contract so as to allow the seller to re-acquire the gas, or that volume of gas, at the contract price and re-sell for its own account at the market price.
Apache agreed to sell natural gas to TAU for the specific purpose of fueling a cogeneration facility in Windsor, Ontario (the Windsor facility). The point of sale (i.e. where TAU took delivery of the gas) was Empress, Alberta. The contract had a 15-year term commencing in 1996. At that time, natural gas prices were depressed and Apache agreed to accept a fixed price with an escalation clause rather than a price determined by reference to an evolving spot market. Both parties clearly contemplated that TAU, having taken delivery of the gas at Empress, would transport that gas to its Windsor facility using TransCanada’s mainline and Union Gas’s facilities in Ontario. Indeed, the contract required TAU to arrange take-away pipeline capacity through agreements with “Buyer’s Transporters” (s.9.03) that were (at para 39):
By: Nigel Bankes
PDF Version: Interest Clause in a Drilling Contract Not a Penalty
Case Commented On: Precision Drilling Canada Limited Partnership v Yangaarra Resources Ltd, 2015 ABQB 649
This decision of Master Prowse follows on from his earlier decision on the merits of the dispute between the parties: Precision Drilling Canada Limited Partnership v Yangaarra Resources Ltd 2015 ABQB 433. The case involved so-called knock-for-knock provisions in a standard form drilling contract. My post on that decision is here and I note that it has also been the subject of a comment in The Negotiator here. This matter was back before Master Prowse because the parties could not agree on the terms of the formal judgement and in particular could not agree on two issues relating to Yangarra’s liability to pay interest on the amounts found to be owing. The contract provided for the payment of interest at 18% commencing 30 days after an invoice was tendered. If that clause were applicable Yangarra would be liable for approximately $2.4 million. Yangarra contested the validity or applicability of the interest provision on two grounds. First Yangarra argued that the clause operated as an unenforceable penalty. Second, Yangarra argued that a clause in the contract which afforded it the opportunity to contest an invoice meant that the interest clause was inapplicable so long as the invoices in question were subject to a bona fide dispute.
By: Nigel Bankes
PDF Version: Upstream UK Oil and Gas Contract Case of Interest to the Energy Bar
Case Commented On: Scottish Power UL Plc v BP Exploration Operating Company Ltd et al,  EWHC 2658 (Comm)
This case involved a long term agreement for the sale and purchase of natural gas between BP and its fellow working interest owners in the offshore Andrew field (Andrew owners\vendors) and Scottish Power, the purchaser. The dispute arose because the Andrew owners decided to shut-in the Andrew field and platform in order to allow the processing and related facilities to be reconfigured so as to permit resources from the adjacent Kinnoull field to be tied into the Andrew facilities and platform, as well as production from a deeper pool in the Andrew field. The entire project was referred to as the Andrew Area Development (AAD). The Andrew field was ultimately shut-in from 9 May 2011 – 26 December 2014 with full production not being attained until March 2015. During that period there were no deliveries to Scottish Power under the contract. The shut-in continued for longer than originally anticipated by the Andrew partners but nothing seems to turn on that. There was considerable common ownership in the Andrew and Kinnoull fields such that at the time of the litigation two of the Andrew owners (BP and Eni between them held a 79% interest in the Andrew field) also owned a 93% interest in the Kinnoull field.
The matter came on for hearing as a trial of certain preliminary questions. A central issue in the case was whether (assuming liability on the part of the Andrew owners) Scottish Power should be confined to the specific “default gas” remedies provided by the contract for default delivery or whether it could sue for damages at common law and claim, inter alia for the difference between the price of gas under the contract and the price it had to pay for make-up gas. The decision also discusses contractual interpretation issues (see discussion of the factual matrix at paras 24 et seq), force majeure issues and the reasonable and prudent operator standard. The post begins with this last issue.
By: Nigel Bankes
PDF Version: The Regulatory Treatment of Stranded Assets in Alberta
Case Commented On: Fortis Alberta Inc v Alberta (Utilities Commission), 2015 ABCA 295
The Court of Appeal has now handed down its unanimous decision on the appeal of the Alberta Utilities Commission’s (AUC) decision known as the Utility Asset Disposition (UAD) Decision in which the AUC endeavoured to provide guidance to both electric and natural gas utilities as to the implications of the Supreme Court of Canada’s majority decision in Stores Block, ATCO Gas and Pipeline Ltd v Alberta (Energy and Utilities Board), 2006 SCC 4. I posted on the AUC’s decision here. The Court, in a reserved judgment written by Justice Myra Paperny (Justices Rowbotham and Watson concurring), declined to interfere with the AUC’s decision. In its judgment, the Court of Appeal emphasized that Stores Block and its progeny (see below) were still good law in Alberta. Furthermore, even though other jurisdictions had been able to distinguish Stores Block based upon the language of their utility statutes, or to confine it to its particular facts and circumstances, that was not possible in Alberta. Indeed, the jurisprudential record suggested (Fortis at para 74) that the Court of Appeal in Alberta had not taken a narrow and restrictive approach to Stores Block but had instead “applied the principles set out in that case more broadly”. As a result (Fortis at para 76):
The Commission, and this Court, are bound by Stores Block and the subsequent decisions from this Court. Only legislative amendment, reconsideration, or a reversal of Stores Block by the Supreme Court of Canada can change that.
For ease of reference the Stores Block progeny are as follows: ATCO Gas & Pipelines Ltd v Alberta (Energy & Utilities Board), 2008 ABCA 200 (CanLII), 433 AR 183 (Carbon), ATCO Gas & Pipelines Ltd v Alberta (Energy & Utilities Board), 2009 ABCA 171 (CanLII), 454 AR 176 (Harvest Hills), ATCO Gas & Pipelines Ltd v Alberta (Utilities Commission), 2009 ABCA 246 (CanLII), 464 AR 275 (Salt Caverns I), ATCO Gas & Pipelines Ltd v Alberta (Utilities Commission), 2014 ABCA 28 (CanLII), 566 AR 323 (Salt Caverns II).
By: Shaun Fluker
PDF Version: The Fundamentals of Tribunal Standing and Bootstrapping in Judicial Review
Case Commented On: Ontario (Energy Board) v Ontario Power Generation Inc., 2015 SCC 44
In Ontario (Energy Board) v Ontario Power Generation Inc. the Supreme Court of Canada revisits the fundamentals of standing for a tribunal in a judicial review or statutory appeal of its impugned decision. The substance of this case involves utility regulation in Ontario, and my colleague Nigel Bankes has written on that substance here. The relevant facts for this comment are simply that the Ontario Energy Board disallowed certain labour costs submitted by Ontario Power Generation in its rate application to the Board. The Ontario Divisional Court dismissed an appeal by Ontario Power, but the Ontario Court of Appeal reversed this finding, set aside the Board’s decision, and remitted the case back to the Board for reconsideration. The Board appealed to the Supreme Court of Canada. No doubt in response to what then appears to be the Board attempting to defend its impugned decision before the Supreme Court, the proper role of the Ontario Energy Board in these proceedings was raised and my comment here focuses on what the Supreme Court of Canada decides in this regard.
By: Nigel Bankes
PDF Version: Methodological Pluralism: Canadian Utility Law Does Not Prescribe any Particular Prudent Expenditure or Prudent Investment Test that a Regulator Must Apply
Case Commented On: Ontario (Energy Board) v Ontario Power Generation Inc., 2015 SCC 44, (OPG) and ATCO Gas and Pipelines Ltd v Alberta (Utilities Commission), 2015 SCC 45 (ATCO)
The last two weeks of September 2015 saw the release of three important court decisions dealing with utility regulation, two from the Supreme Court of Canada, the OPG case and the ATCO case, and one from Alberta’s Court of Appeal, the Utility Asset Disposition case (UAD): Fortis Alberta Inc v Alberta (Utilities Commission), 2015 ABCA 295. The two Supreme Court cases (which were heard together) deal with a utility’s opportunity to recover operating costs and the application of prudency tests to those costs. Justice Rothstein is the principal author of both judgments. The ATCO case is unanimous while Justice Abella offers a dissent in the OPG Case. The UAD case deals with what I have previously referred to as the continuing fall-out from the majority decision of the Supreme Court in Stores Block (ATCO Gas and Pipelines Ltd. v Alberta (Energy and Utilities Board), 2006 SCC 4,  1 S.C.R. 140).
This post summarizes the holdings in the ATCO and OPG decisions and then offers some preliminary comments on their implications. The post begins with some general observations on utility regulation statutes. I will aim to do a separate post on the UAD case.
By: Emily Laidlaw
PDF Version: Legal or Social Responsibility? What are the Responsibilities of Internet Companies for Free Speech?
The current controversy concerning the new Calgary-based app Peeple which will allow users to rate anybody they know – from their colleagues, to their friends, to their exes and neighbours – raises many questions familiar to internet lawyers. What are the rights of the subject matters of these ratings? To privacy? To dignity? What rights of free speech exist for anyone using these apps? And what are the responsibilities of the app developer, legally or ethically? For more on this controversy, see here, here, and here. There are some that question whether the app is a hoax, and I question it myself. Regardless, the Peeple controversy serves as a useful platform for discussions of wider issues in Internet governance. While there is much to be analysed concerning the privacy and harassment implications of this app, with this post I am going to focus on a different aspect of the controversy and that is the social responsibility of technology companies for human rights. By shedding light on the discussions happening in the international community I hope it contextualizes why things like Peeple are so controversial; they strike at the core of larger problems concerning the roles and responsibilities of businesses for human rights and the line between law and voluntary commitments. My recent research on this topic has been focused on free speech, so I will discuss the issue here in that context.
By: Fenner Stewart and Tony Cioni
PDF Version: Risk Allocation in Operating Agreements for Unconventional Resources
Model contracts play a principal role in reducing transaction costs. They offer parties a series of rules, which allocates risk so that delays, disagreements, over-expenditures, and under-capitalizations can be managed (or avoided altogether). The best model contracts are highly responsive, quickly adapting to new realities. Accordingly, top drafters are pressed to doggedly re-evaluate whether or not their model rules are optimal in light of the ever-changing nature of law and technology.
Modern hydraulic fracturing is a disruptive technology that shifts the incentives within oil and gas joint venture projects. Drafters are adjusting their contracts to adapt. Experimentation with model rules is presently occurring in jurisdictions such as the United States, Canada and Australia, where unconventional resources abound.
By: Alice Woolley
PDF Version: Liability and Lawyers
Case Commented On: Mraz v Herman, 2015 ABQB 573
The recent decision of Justice W.P. Sullivan in Mraz v Herman succinctly disposes of claims made against two Alberta lawyers. The first claim, based on a real estate lawyer’s failure to make proper disclosure to his client, Mrs. Mraz, failed because the lawyer had discussed matters with Mr. Mraz, whom the Court found was Mrs. Mraz’s agent (at para 18). The second claim, based on advice allegedly received from a lawyer participating in the Law Society of Alberta’s lawyer referral service, failed because the plaintiff did not provide any evidence to demonstrate that the lawyer’s conduct fell below the standard of care (at para 77).
By: Nigel Bankes
PDF Version: “Contract Depth” Does Not Mean Optimal Depth
Case Commented On: Shallow Gas Drilling Corp v Legacy Oil and Gas, 2015 ABQB 606
It would be nice to know a little more about the facts of this case; but what appears to have happened on the basis of the rather cryptic record provided by Justice Bensler’s judgement is as follows. 1346329 Alberta Ltd (134) drilled a series of wells to earn interests in the Pierson properties. Earning was contingent on drilling the wells to contract depth which was defined as “a subsurface depth sufficient to penetrate 15 metres into the Spearfish.” The wells were drilled between late 2007 and January 2008. It was admitted that all of the wells were drilled to depths between 28.3 and 30.65 metres into the Spearfish.