In Obsidian Energy Partnership v. Grizzly Resources Ltd, 2019 ABQB 406, Master J.T. Prowse, Q.C. referred exclusively to the parties’ arbitration agreement to exercise discretion and refuse a stay because the dispute was a proper one for summary judgment. The contractual terms mirrored section 7 of Alberta’s Arbitration Act, RSA 2000, c A-43 but Master Prowse made no reference to the legislation in refusing to stay the litigation.
Grizzly Resources Ltd. (“Grizzly”) purchased oil and gas interests from Obsidian Energy Partnership (“Obsidian”) in 2011. As part of the purchase agreement, Grizzly undertook to pay a 2.75% royalty to Obsidian. After seven (7) years, a dispute arose as to whether Grizzly should pay its royalty calculated on 100% of the production or on Grizzly’s 56.25% working interest.
“[19] The relevant contractual documentation consists of a document entitled “Undeveloped Acreage Conveyance”. That document refers to another document, entitled “Royalty Agreement”, and one of the schedules to the Royalty Agreement is the 1997 CAPL Overriding Royalty Procedure.
[20] Schedule A to the Royalty Agreement says “royalty calculated on 100%” but Grizzly asserts that this is ambiguous because it does not specify whether this is 100% of production or 100% of working interest.”
For seven (7) years after the purchase, Grizzly paid the royalty on 100%. The payment calculation had been inputted immediately after the purchase by Grizzly’s CFO at the time. Grizzly conceded the CFO was “a trained financial professional, knowledgeable of oil and gas accounting matters, with experience in gross overriding royalties, that she was a reliable CFO and that she was not sloppy.”
A newly hired employee reviewed the contractual documents and concluded that the payment rate was in error. Grizzly began to withhold payments to reduce what it pays in order to correspond to a royalty on 56.25%.
Obsidian sued Grizzly in court and Grizzly responded by applying for a stay. Master Prowse stated the following as Grizzly’s grounds for the stay:
“[28] Grizzly argues that this action should be stayed pending arbitration pursuant to a provision found in the CAPL procedure incorporated into the contractual terms of the Royalty Agreement.
[29] That contractual provision states that:
7(1) If a party to an arbitration agreement commences a proceeding in a court in respect of a matter in dispute to be submitted to arbitration under the agreement, the court shall, on the application of another party to the arbitration agreement, stay the proceeding.
(2) The court may refuse to stay the proceeding in only the following cases:
(a) a party entered into the arbitration agreement while under a legal incapacity;
(b) the arbitration agreement is invalid;
(c) the subject‑matter of the dispute is not capable of being the subject of arbitration under Alberta law;
(d) the application to stay the proceeding was brought with undue delay;
(e) the matter in dispute is a proper one for default or summary judgment (emphasis added)”
That contractual provision is identical to section 7 of Arbitration Act, RSA 2000, c A-43.
Without reference to the Arbitration Act, Master Prowse relied on the closing words of the contractual provision to refuse a stay on the basis that the dispute was “a proper one for … summary judgment”.
Grizzly argued that the phrase “royalty calculated on 100%” was ambiguous and submitted evidence on its intentions and the negotiation of the terms. Master Prowse questioned the admissibility of Grizzly’s evidence on its intentions and its inconsistent position regarding Obsidian’s own attempts to adduce evidence on the negotiations.
“[17] When questioned why the agreement did not state that the royalty was to be paid based on Grizzly’s working interest, Mr. Park’s evidence was: “No idea. Poor drafting”. Essentially this is a concession that the document as drafted and signed does not support Grizzly’s current interpretation.”
Master Prowse did not consider either party’s evidence on intention or negotiations “to be of assistance”, concluding that the “wording of the agreements is clear and validates Obisidian’s position that it is entitled to royalties on 100% of production, as in fact were paid by Grizzly for 7 years”.
Master Prowse appeared to rely exclusively on the “contractual provision” to refuse a stay, given that the contractual terms referred to gave him a discretion to refuse a stay.
“[30] This dispute is obviously one suitable for summary judgment, and I exercise my discretion (the existence of which flows from the use of the word ‘may’) to decline to stay this action. The parties have already made their argument in full and it is appropriate to conclude this litigation, as I have done, by way of summary judgment.”
urbitral note – If the applicable arbitral legislation did not grant a discretion to the court to refuse a stay, does the Alberta decision then confirm that a court can refuse a stay based exclusively on the parties’ own bargain which grants the court that discretion? The answer is unclear on the facts of this case as the contractual grant is identical to the legislation but Master Prowse did not refer to the legislation in refusing the stay.
Refusing the stay is only the first part of the analysis, completed by the court’s decision to grant summary judgment. A Master’s authority to grant summary judgment does not rely on the parties’ grant but stems from legislation such as section 9(1) of the Court of Queen’s Bench Act, RSA 2000, c C-31. Section 9(3)(b) does suggest that the parties’ agreement may be a condition to dispose of a matter in chambers without a full hearing.