Knock-for-Knock Decision Affirmed by Court of Queen’s Bench

By: Nigel Bankes

PDF Version: Knock-for-Knock Decision Affirmed by Court of Queen’s Bench

Case Commented On: Precision Drilling Canada Limited Partnership v Yangarra Resources Ltd, 2016 ABQB 365 (CanLII)

This matter, involving the interpretation of a standard form drilling contract, originally came on before Master Prowse as an application for summary judgement by Precision, the drilling contractor. My post on the Master Prowse’ decision, 2015 ABQB 433, is here and my post on Master Prowse’s further judgement, 2015 ABQB 649, on the “interest clause as penalty” issue is here. Both decisions favoured Precision, and Yangarra appealed both. In this decision Justice E.C. Wilson dismissed both appeals and affirmed Master Prowse’s decisions largely by quoting extensively from the learned Master’s reasons.

The only new argument before the Court was based on Bhasin v Hrynew, 2014 SCC 71 (CanLII) and to the effect that there was an implied contractual term of honesty and good faith which Precision had breached. But, just as the Court rejected Yangarra’s argument based on fraudulent misrepresentation on the basis that there was no evidence to support the claim, so too did it reject (at paras 38 – 39) Yangarra’s claims based upon this head:

[38] Next, Yangarra submits in its more recent claim that Precision breached its contractual duties of honesty and good faith in the execution of this contract which warrants the matter proceeding to trial. I disagree.

[39] This claim of a lack of honesty and good faith really translates into a claim of dishonesty or bad faith which is simply another way of describing its complaint regarding fraudulent misrepresentation and, respectfully, is dismissed for the same reasons, ie the absence of credible evidence to support the claim.

As a result Justice Wilson did not have to rule on (at para 31) “the theoretical possibility of contracting out of the duty of honest performance” (Bhasin at paras 77, 78, 80 & 81).

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The majority of the Court of Appeal (per Justices O’Ferrall and Veldhuis) has allowed an appeal by Yangarra of the summary judgement in this case: Precision Drilling Canada Limited Partnership v Yangarra Resources Ltd, 2017 ABCA 378 (CanLII), http://canlii.ca/t/hnb4x The basis of the judgement on appeal is that Yangarra had alleged fraudulent misrepresentation in its pleading and provided some evidentiary basis for that claim. The majority concluded that this was not an appropriate case for summary judgment. It was palpable and overriding error to find that there was no evidence of fraud and the chambers judge erred both in the conclusions he drew on the issue of fraudulent misrepresentation, and also by failing to identify and apply the, proper test for fraud. The majority deliberately refrained from addressing the issue of contractual interpretation (i.e. – whether the knock for knock provisions extended to cover liability for fraud) in allowing this appeal. Thus, even if Yangarra could establish fraud, it would be necessary to determine if the contract excluded liability for fraud and further, if it did, whether such an exclusion would be contrary to public policy and thus void. “A determination as to whether public policy would intervene in the circumstances would best be made by a trial judge on hearing evidence relevant to the issue.”

Justice Paperny dissented. She was not persuaded that the Chambers judge had misstated or misapplied the law of fraudulent misrepresentation and would have deferred to his conclusion that there was no evidence of fraud on the record. As a result she too found it unnecessary to deal with the contractual interpretation point.

1 Comment

Nigel Bankes

The majority of the Court of Appeal (per Justices O’Ferrall and Veldhuis) has allowed an appeal by Yangarra of the summary judgement in this case: Precision Drilling Canada Limited Partnership v Yangarra Resources Ltd, 2017 ABCA 378 (CanLII), http://canlii.ca/t/hnb4x The basis of the judgement on appeal is that Yangarra had alleged fraudulent misrepresentation in its pleading and provided some evidentiary basis for that claim. The majority concluded that this was not an appropriate case for summary judgment. It was palpable and overriding error to find that there was no evidence of fraud and the chambers judge erred both in the conclusions he drew on the issue of fraudulent misrepresentation, and also by failing to identify and apply the, proper test for fraud. The majority deliberately refrained from addressing the issue of contractual interpretation (i.e. – whether the knock for knock provisions extended to cover liability for fraud) in allowing this appeal. Thus, even if Yangarra could establish fraud, it would be necessary to determine if the contract excluded liability for fraud and further, if it did, whether such an exclusion would be contrary to public policy and thus void. “A determination as to whether public policy would intervene in the circumstances would best be made by a trial judge on hearing evidence relevant to the issue.”

Justice Paperny dissented. She was not persuaded that the Chambers judge had misstated or misapplied the law of fraudulent misrepresentation and would have deferred to his conclusion that there was no evidence of fraud on the record. As a result she too found it unnecessary to deal with the contractual interpretation point.

November 19, 2017