Alberta – court allows amendments to court proceedings despite potential subsequent application to stay – #042

The Alberta Court of Queen’s Bench in Canexus Corporation v. MEG Energy, 2017 ABQB 739 allowed amendments to a Statement of Claim despite claims that the contract on which the claims were based provided for arbitration.  The court dealt with the interplay between Alberta’s Arbitration Act, RSA 2000, c A-43 and the Alberta Rules of Court, distinguishing between an initial decision to allow amendments and a later decision as to whether the claims should be stayed in favour of arbitration. 

Plaintiff, Canexus Corporation (now renamed Chemtrade Electrochem Inc.) (“Canexus”) applied to amend its Statement of Claim first filed September 2, 2014.  Defendant, MEG Energy Corp. (“MEG”) objected, arguing grounds familiar to those undertaking civil litigation in the court system.

The underlying facts are summed up by J.T. Prowse, Q.C., Master in Chambers, in one paragraph and are worth reproducing to give context to two of MEG’s objections.

[3] The following is taken from Canexus’ version of the events leading up to the present litigation between itself and MEG:

In 2012, Canexus entered into a Pipeline Construction, Interconnection and Operating Agreement (the “Pipeline Agreement”) and a Terminalling Services Agreement (the “TSA”) with MEG as part of a $360 million expansion of Canexus’ NATO terminal and related facilities (“NATO”).

The primary and underlying purpose of the Pipeline Agreement was to allow for the connection of two major pipeline systems so that the NATO terminal would have access to two major sources of crude oil. This required that the Canexus pipeline be connected or “tied” into the MEG pipeline. The purpose of the Pipeline Agreement was to require MEG to allow the tie-in to occur.

Canexus had contractual obligations to the third party shippers that required the pipeline to be tied-in and operational by September 1, 2014.

On August 20, 2014, MEG refused to allow Canexus to complete the tie-in. MEG did so knowing that this would prevent Canexus from meeting its commercial commitments to have the pipeline tied-in and operational by September 1, 2014 and after having been expressly advised in writing by Canexus’ CEO that a refusal would cause Canexus irreparable harm.

MEG refused to allow Canexus access to complete the tie-in at a time when Canexus was vulnerable and for the purpose and intention of extracting from Canexus certain commercial advantages, including additional agreements which would have required Canexus to transfer valuable infrastructure to MEG at the tie-in site.

On September 8, 2014, Canexus was successful in obtaining a mandatory injunction requiring MEG to allow the tie-in. In the decision of Madam Justice Hunt-McDonald, the Court ruled that MEG breached the primary purpose of the Pipeline Agreement.

The case is of interest to commercial arbitration practitioners because of two of the objections MEG raised.

First, MEG argued that the amendments contained a claim for $3,187,060.00 due under the TSA and that Canexus should not be allowed to add those allegations because the parties had undertaken to arbitrate those allegations.  Canexus replied that a potential for arbitration is not a ground to refuse an amendment.

Master Prowse agreed with Canexus, relying on the reasoning in Dow Chemical Canada Inc. v. Nova Chemicals Corporation, 2010 ABQB 524.

Nova argues that the new claims are arbitrable and therefore Dow should not be granted leave to amend its Amended Statement of Claim. I disagree with that interpretation of the interaction between the Arbitration Act and the Alberta Rules of Court. I am of the opinion that s.7allows a party who is subject to an arbitration agreement to apply for a stay. The claims that are stayed are not rendered hopeless; they are just stayed, perhaps permanently or perhaps until an arbitrator or a court decides otherwise. The finding that claims are arbitrable should not necessarily lead to not allowing amendments. Nova has not convinced me that, in this case, if the new claims are arbitrable, allowing the amendments would amount to allowing hopeless claims.

In addition, Master Prowse noted that the same claim had already been included in the original Statement of Claim and was essentially a request by MEG to stay that portion of Canexus’ claim.  Having noted the overlap between the litigation and the potential arbitration, Master Prowse referred that argument to the next ground raised by MEG.

Second, MEG argued that not only was there an agreement to arbitrate disputes under the TSA but the parties were currently engaged in an arbitration under the TSA.  That arbitration dealt with an apportionment of capacity at the terminal in the months of August and September 2014.  MEG argued that the claim was “inextricably linked” to Canexus’ claim for amounts owing under the TSA.  As a result, MEG applied that the proposed claim should be stayed pending the result on that arbitration.

Master Prowse noted that MEG sought to stay only one of four claims.  If the amendments were permitted, the new Statement of Claim would contain the following four claims:

(i) amounts due and owing under the TSA agreement – $3,187,060;

(ii) construction delay costs – $2,311,405;

(iii) loss of take or pay contract – $134 million; and,

(iv) damages for undermining Canexus’ business and damaging the amount for which the NATO terminal was sold – $300 million.

Master Prowse dealt with MEG’s objection as follows:

“[48] The difficulty with MEG’s position is that there is no evidence to suggest that an arbitrator’s ruling regarding the apportionment of capacity would answer any of the issues extant in Canexus’ claim (i). That being so, there is no purpose in staying that claim and I decline to do so.

Master Prowse made no mention of the manner in which or the extent to which the TSA claim had already been included in the original Statement of Claim and did not seem to be influenced, at least not overtly, in the relative size of the claims made under the TSA and the other heads identified in (iii) and (iv).