Category Archives: Contracts

The Freedom to Contract Your Terms of Business (aka Spread Costs, Consequential Damages, Knock for Knock and Contract Interpretation Principles)

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Case Commented On: Transocean Drilling UK Ltd v Providence Resources Plc [2016] EWCA Civ 372, [2016] 2 Lloyd’s Rep 51, 165 Con LR 1, [2016] BLR 360

This decision of the English Court of Appeal (Civil Division) which came out earlier this year (April 2016) is well worth reading both for its treatment of the exclusion of liability for consequential damages and also for its modern approach to the interpretation of commercial contracts. As recognized by the Court, the case “raises some interesting questions about the freedom of two commercial parties to determine the terms on which they wish to do business” (para 1).

Transocean Drilling UK Ltd (Transocean), the owner of a semi-submersible drilling rig, entered into a contract with Providence Resources Plc (Providence) to drill an offshore appraisal well for Providence. On 18 December 2011, Transocean suspended drilling operations due to a misalignment of part of the blow-out preventer. Transocean resumed operations on 2 February 2012. The trial judge determined that the delay was caused by Transocean’s breach of contract. There was no appeal on that point, but Transocean did appeal that part of the judge’s decision in which he allowed Providence to recover the ‘spread costs’ that it had incurred as a result of the delay. The ‘spread costs’ were described (at para 10) as “the costs of personnel, equipment and services contracted [by Providence] from third parties which were wasted as a result of the delay. Examples given by the judge are well logging, well testing and cementing, mud engineers and mud logging services, geological services, diving and ROV (remotely operated vehicle) services, weather services, directional drilling services, and running casings.” Continue reading →

Making Sense of Nonsense? Or Perhaps Not

By: Nigel Bankes and Heather Lilles

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Case Commented On: Eon Energy Ltd v Ferrybank Resources Ltd, 2016 ABQB 585 (CanLII)

What happens when two oil and gas companies enter into a joint operating agreement (JOA) to which is attached the 1981 CAPL Operating Procedure and the PASWC Accounting Procedure and then proceed to operate the properties according to a completely different set of arrangements? As one might expect, things are fine for so long as each perceives some benefit from these de facto arrangements. But when relations deteriorate it’s a mess; and then both counsel, and ultimately the Court, have to try and make sense of what has happened. And in this case that evidently proved difficult for all concerned and likely, very, very expensive. The hearing of this case took 16 days and then Justice Kim Nixon took two years to render this judgement. There were also interlocutory injunctive proceedings (unreported) and there will be a series of accounting issues to be addressed as a result of this judgement. The result is extremely unedifying. The judgement is long (53 pages), meandering, fact laden, and convoluted. Perhaps the best that can be said for it is that it might serve as a salutary warning to be used by lawyers acting for junior oil and gas companies: “this is what happens when you make things up as you go along and act as if the written agreement is a mere inconvenience.” The case is also another illustration of the hard reality that co-ownership is a messy business and fundamentally an institution for those who can get along together. Sometimes the costs of maintaining and fighting about the relationship are not worth the benefits to be obtained.

In one of the more enigmatic paragraphs of her decision Justice Nixon suggests that the parties are asking her to re-write their agreement (at para 260 and again at para 397). But the question all along is which agreement? The written agreement? Or the agreement evidenced by the conduct of the parties?

In what follows we will do our best to distill the essential facts and legal reasoning from Justice Nixon’s judgement. Continue reading →

Pre-Dynex Royalty Agreements Continue to Spawn Interest in Land Litigation

By: Nigel Bankes

PDF Version: Pre-Dynex Royalty Agreements Continue to Spawn Interest in Land Litigation

Decision Commented On: Re Walter Energy Canada Holdings, Inc., 2016 BCSC 1746 (CanLII)

In 2002 the Supreme Court of Canada handed down its decision in Bank of Montreal v Dynex Petroleum Ltd, 2002 SCC 7 (CanLII) in which it confirmed that a gross overriding royalty (GORR) carved out of a working interest in land was capable of subsisting as an interest in land as a matter of law. Whether any particular GORR created an interest in land, or simply a contractual claim, depends upon the intentions of the parties as revealed in the language adopted by the parties to describe the GORR. There is presumably no objection to expressing this intention with words such as “the parties intend that the right and interest created by clause x of this agreement is to be an interest in land” – so long as this intention is not contradicted by other language in the agreement when construed as a whole in accordance with the usual rules on the interpretation of contracts. See, Nigel Bankes, Private Royalty Agreements: A Canadian Viewpoint, Rocky Mountain Mineral Law Institute (2003). While Dynex definitively settled the issue of principle (can a GORR as a matter of law ever be an interest in land) it still requires an analysis of the intentions of the parties in any particular case, although this should be easier to demonstrate for post-2002 agreements than for pre-2002 agreements. That said, the matter had been widely litigated during the previous 40 years, and counsel should at least have been aware, well before then, of the need to use language appropriate to creating an interest in land rather than a contractual interest – if that was indeed the intention of the parties. Continue reading →

The Effect of a ‘Whole Agreement Clause’ on Pre-Contractual Misrepresentations

By: Evaristus Oshionebo

PDF Version: The Effect of a ‘Whole Agreement Clause’ on Pre-Contractual Misrepresentations

Case Commented On: Houle v Knelsen Sand and Gravel Ltd., 2016 ABCA 247 (CanLII)

This case raises a significant legal question regarding the effect of a ‘whole agreement clause’ (also referred to as ‘entire agreement clause’) on pre-contractual misrepresentations. Put differently, does a whole agreement clause in a written contract preclude liability for misrepresentations occurring in the course of negotiating the contract? Continue reading →

Oral Promises of Land and Controversial Issues in the Doctrine of Part Performance

By: Jonnette Watson Hamilton

PDF Version: Oral Promises of Land and Controversial Issues in the Doctrine of Part Performance

Case Commented On: Jordan v Skwarek, 2016 ABQB 380 (CanLII)

As Master John T. Prowse noted, the facts of this case are not unusual: “A family member, often a son, works on a family farm on the understanding that he will inherit it when the owner, typically his father or grandfather, dies. If he does not inherit the farm the son brings a claim for the farm, or in the alternative a claim for compensation based on the doctrine of unjust enrichment” (at para 2). As in similar cases, the understanding in this case appeared to be unenforceable because it was an unwritten one and therefore did not meet the requirements of section 4 of the Statute of Frauds. The decision is interesting because it points to disagreements among the Canadian courts of appeal about the correct test for part performance, what that test demands, and what evidence may be relied upon to prove acts of part performance to get around the requirements of section 4 of the Statute of Frauds. Continue reading →