Alberta – appeal court suggests parties arbitrate lingering dispute over chambers decision if lacking clarity – #454

In MEG Energy Corp v Canexus Corporation, 2021 ABCA 101, the Court of Appeal upheld a chambers judge’s analytical approach to determining ownership of disputed equipment but disagreed with his reliance on unsworn and insufficient evidence when applying the approach.  The Court left it to the parties to consider whether the chambers judge’s reasons provided “sufficient clarity” to determine ownership but, if not, (i) directed them to either return to the chambers judge or (ii) suggested they determine the issue by arbitration as set out in their contract.

MEG Energy Corp (“MEG”) and Canexus Corporation (“Canexus”) entered into a December 7, 2012 Pipeline Construction, Interconnection and Operating Agreement (“Pipeline Agreement”) which governed their agreement to connect MEG’s pumping station and pipeline to Canexus’ bitumen-by-rail trans-loading facility known as North American Terminal Operations (“NATO”).

The Pipeline Agreement is 52 pages long with an additional 29 pages of Schedules. It contains an “entire agreement” clause and a paramountcy clause, providing that the text of the Pipeline Agreement prevails over the Schedules in the event of any conflict or inconsistency. Among other things, the Pipeline Agreement sets out which of the parties owns which parts of the new pipelines and interconnection facilities”.

The Pipeline Agreement also contained an agreement to arbitrate.

The Pipeline Agreement comprised two (2) phases.  Regarding the second phase (“Interconnection Site”), the parties made certain construction decisions after having entered into the Pipeline Agreement, which resulted in the Pipeline Agreement omitting relevant details involving that construction. MEG and Canexus disputed ownership of facilities and equipment related to the Interconnection Site and filed an originating application and cross-application (“Applications”) in Alberta Supreme Court for declaration of ownership.  Their Applications proceeded on affidavit evidence and cross-examination.

The chambers judge issued a June 5, 2015 decision in MEG Energy Corp v. Canexus Corporation, 2015 ABQB 361 (“2015 Original Reasons”) in which he concluded that MEG owned all the items at the Interconnection Site except for the pig receiving trap.  The parties disagreed on the contents of the judgment roll and returned before the same chambers judge over three (3) years later, in November 2018.  Following written argument submitted in June and July 2019, the chambers judge issued supplemental reasons and a formal judgment roll in his August 28, 2019 decision in MEG Energy Corp v. Canexus Corporation, 2019 ABQB 671 (“2019 Supplemental Reasons”).  The Court of Appeal summarized each decision respectively at paras 15-23 and paras 24-26 of its own decision.

The chambers judge at para. 3 of his 2019 Supplemental Reasons confessed to an incomplete recollection of the parties’ submissions, given the passage of time, but did agree with MEG that the parties appeared to reargue the original question already settled.  He did acknowledge at para. 4 that his decision did not explicitly distinguish ownership of the pig facilities and he therefore issued supplemental reasons which made that distinction explicit.  His concluding paras 8-9 of his 2019 Supplemental Reasons set out the ownership by referring to equipment item by item. 

[8] I also agree with counsel for MEG that the Judgment Roll should be as precise as possible particularly given that the original reasons have provoked such controversy. Accordingly, I agree with the approach taken by MEG that the Judgment Roll ought to be as specific as possible to the many items of equipment that are in dispute.  MEG has submitted a construction drawing that lists 30 items which are alleged to be in dispute. In its letter of June 24, 2019 it has listed all 30 items with very specific submissions as to why each item is associated with the connection of the two lines or is essential to the Pigs and not the connection.  I agree with this approach.  Under this analysis it is alleged that all but items 1, 6, 13, 21, 22 and 23, are owned by MEG”.

Though not indicated in the 2019 Supplemental Reasons, the manner in which the chambers judge had proceeded prompted the Court of Appeal to consider that he had relied on insufficient information.  

Canexus appealed, for grounds set out at para. 27 of the Court of Appeal’s reasons, and MEG cross-appealed for those grounds set out at para. 28.  The Court of Appeal observed the limited scope of disagreement between the parties.

[9] The parties agreed that the Pipeline Agreement determines the ownership issue and proceeded on the basis that no material facts were in dispute. The parties disagreed on the interpretation of the Pipeline Agreement and on what evidence the chambers judge should have considered in interpreting it”.

Following its analysis at paras 32-50, the Court of Appeal dismissed both the appeal and the cross-appeal of the 2015 Original Reasons but allowed the appeal and cross-appeal relating to the itemized contents of the judgment roll.

The Court at para. 48 observed that the chambers judge had recognized the limitations of the evidence before him and provided the parties an opportunity to detail the list of disputed equipment and structures.  Though the Court agreed with the chambers judge’s approach to determining ownership and allocation of the equipment and structures, it disagreed with the chambers judge’s application of his determination to unsworn and insufficient evidence.

[49] When it came time to draft the judgment roll, the parties could not agree on which equipment or structures belonged to whom. In 2018, to seek resolution of the judgment roll, they appeared before the chambers judge. At his suggestion, they then met with their engineers and submitted written material. Both made submissions regarding the diagram common to [M]’s and [H]’s affidavits, and included information which was not part of the affidavits filed for the 2014 hearing. Both parties named a number of items shown in the diagram and made submissions about their functions. None of this new information was sworn. Counsel disagreed on the consequences of the new information.

[50] We find no basis to interfere with the chambers judge’s determination that ownership of equipment at the tie-in site is determined by its connective function and by his general allocation of the structures set out at paragraph 36 of [M]’s affidavit. However, we find he erred in directing that ownership of individual items of equipment be resolved by submissions only, and further erred in making a determination where the evidence was insufficient to support conclusions on each item’s connective function or lack thereof”.

In concluding its reasons on the appeal and cross-appeal, the Court paused to comment on anticipated follow up by the parties and proposed two (2) options. If the chambers judge’s reasons did not allow the parties to determine which party owned which equipment and structures, the parties could (i) return to the chambers judge to determine ownership or (ii) engage in arbitration provided in their Pipeline Agreement.

[52] The appeal and cross-appeal relating to the itemized contents of the judgment roll are allowed. If the chambers judge’s original reasons do not provide sufficient clarity as to which equipment and structures belong to each party, the issue must be returned to the Court of Queen’s Bench to be determined on such evidence as may be necessary or by such other procedure as may be jointly and expressly agreed by the parties. Alternatively, the issue could be determined through arbitration as provided by Article 22 of the Pipeline Agreement”.

urbitral notes – First, see the earlier Arbitration Matters note “Québec – parties urged to mediate/arbitrate to ‘avoid bogging down’ in ‘complex and costly judicial procedures’ – #279”. In Équipements de gardien de but Michel Lefebvre inc. v. Sport Maska inc., 2020 QCCS 44, Mr. Justice Frédéric Bachand dismissed an application for a provisional injunction but, in doing so, prompted the parties to seize the opportunity, already consented to in their contract, to undertake mediation and arbitration ‘to avoid bogging themselves down in complex and costly judicial procedures’.  Bachand J. also urged the parties to engage in less formal exchanges of information which may allow them to find a faster solution to their dispute.

Second, see the earlier Arbitration Matters note “Québec – parties ordered to mediate according to express, imperative agreement even if dispute not arbitrable – #222”. In Capital JPEG Inc. v. Corporation Zone B4 Ltée, 2019 QCCS 2986, Mr. Justice Babak Barin enforced the express terms of the shareholders’ agreement to mediate before they arbitrated, staying the court litigation pending the result of the mediation.  The court litigation sought dissolution of a corporation and, despite considering that dissolution could be arbitrated, Barin J. refrained from referring the parties to arbitration as that stage had not yet been reached or requested.  He held that parties could agree to mediate topics which could not also be arbitrated.