JANUARY 2014 ENERGY

Energy LawyersTransactionalCuthbertson, q.c., John H. jhc@bdplaw.com .............. 403-260-0305Calder, Cassandra ccalder@bdplaw.com .............. 403-260-0252Houston, Mark T. mth@bdplaw.com .............. 403-260-0375Jensen, Justin jjensen@bdplaw.com .............. 403-806-7808Johnson, q.c., Cal D. cdj@bdplaw.com .............. 403-260-0358Koper, Alison akoper@bdplaw.com .............. 403-260-0159LaBranche, Brittney N. blabranche@bdplaw.com .............. 403-260-0344Money, Stuart J. jsm@bdplaw.com .............. 403-260-0312Morin, Bryan P. bmorin@bdplaw.com .............. 403-260-0381Pettie, q.c., Alan T. atp@bdplaw.com .............. 403-260-0127Quesnel, Alicia K. akq@bdplaw.com .............. 403-260-0233Quinton-Campbell, Patricia pqc@bdplaw.com .............. 403-260-0308Saffery, Hazel hsaffery@bdplaw.com .............. 403-260-0173Twa, q.c., Allan R. art@bdplaw.com .............. 403-260-0221Weldon, Ashley aweldon@bdplaw.com .............. 403-260-0125Wivcharuk, Jody L. jlw@bdplaw.com .............. 403-260-0129Wright, Carolyn A. caw@bdplaw.com .............. 403-260-5721

LitigationBatty, Trevor A. tbatty@bdplaw.com .............. 403-260-0263Beke, Paul A. pbeke@bdplaw.com .............. 403-260-0216Burron, Kevin S. kburron@bdplaw.com .............. 403-260-0189Chiswell, Paul pchiswell@bdplaw.com .............. 403-260-0201Crump, Barry R. brc@bdplaw.com .............. 403-260-0352Donaldson, Michael J. mjd@bdplaw.com .............. 403-260-0228Fader, Susan sfader@bdplaw.com .............. 403-260-0343Haigh, q.c., David H. drh@bdplaw.com .............. 403-260-0135Hannan, Kelly khannan@bdplaw.com .............. 403-260-0126Hayes, Shannon shayes@bdplaw.com .............. 403-260-0237

Joyce, Emily ejoyce@bdplaw.com .............. 403-260-0198McDonald, q.c., Daniel J. djm@bdplaw.com .............. 403-260-5724McDonald, Trevor R. trm@bdplaw.com .............. 403-260-0378McGillivray, q.c., Douglas A. dam@bdplaw.com .............. 403-260-0349Mills, Douglas G. dgm@bdplaw.com .............. 403-260-0226Morgan, Sonya sam@bdplaw.com .............. 403-260-0322Murphy, James D. jdm@bdplaw.com .............. 403-260-0152Novinger Grant, Louise lng@bdplaw.com .............. 403-260-0163Quinton-Campbell, Patricia pqc@bdplaw.com .............. 403-260-0308Rojas, Romeo A. rrojas@bdplaw.com .............. 403-260-0293Sharpe, Jeff E. jes@bdplaw.com .............. 403-260-0176Steele, Richard F. rfs@bdplaw.com .............. 403-260-0051Strobl, Marika mstrobl@bdplaw.com .............. 403-260-0270Sunter, Andrew asunter@bdplaw.com .............. 403-260-0283Tallman, Scott stallman@bdplaw.com .............. 403-260-0273Taylor, Julie J. jtaylor@bdplaw.com .............. 403-806-7808Teetaert, Melanie mteetaert@bdplaw.com .............. 403-260-0384Turnbull, Jocelyn jturnbull@bdplaw.com .............. 403-260-0264Varzari, Jennifer K. jkv@bdplaw.com .............. 403-260-0286Wray, Shannon L. slw@bdplaw.com .............. 403-260-0245

Energy and other issues of On Record are available on our web site www.bdplaw.comIf you would prefer to receive your Newsletter electronically, please contact the Managing Editor.

Energy, Editors-in-ChiefJohn H. Cuthbertson, q.c.jhc@bdplaw.com403-260-0305Alicia K. Quesnelakq@bdplaw.com403-260-0233

Energy, Managing EditorRhonda G. Wishartrwishart@bdplaw.com403-260-0268

Contributing Writers and Researchers:Hazel Saffery, Brittney LaBranche, Craig Alcock, Bryan Morin, Alison Koper, Cassandra Calder, Jocelyn Fink and Jon Ozirny

ContactFor additional copies, address changes, or to suggest articles for future consideration, please contact the Managing Editor.

General NoticeOn Record is published by BD&P to provide our clients with timely information as a value-added service. The articles contained here should not be considered as legal advice due to their general nature. Please contact the authors, or other members of our Energy team directly for more detailed information or specific professional advice.

If you would like any further information on any members of our team, such as a more detailed resume, please feel free to contact the team member or the Managing Editor. You may also refer to our website at www.bdplaw.com.

On Record Contents:

Directors and Officers Take Note – Risk of Liability for Environmental Damage

Page 1

Planning to Temporarily Withdraw Water in the Green Area? Be Sure to Apply for a TDL.

Page 2

Important Changes to the Occupational Health and Safety Act

Page 3

Canada Tightens Anti-Bribery Legislation

Page 4

That’s No Conspiracy: Recent Guidance From The Alberta Court Of Appeal

Page 6

What We’ve Been Up to

Page 7

So That’s What That Means: The Entire Agreement Clause

Page 8

2400, 525-8th Avenue SW, Calgary, Alberta T2P 1G1Phone: 403-260-0100 Fax: 403-260-0332

www.bdplaw.com

A recent series of regulatory and court decisions in Ontario could change the landscape of personal liability for directors and officers for environmental damage.

Northstar Aerospace (Canada) Inc. (“Northstar”) operated a helicopter manufacturing facility in Cambridge, Ontario. In 2004, it became aware of environmental contamination on the site that had entered groundwater, affecting more than 500 homes. Northstar voluntarily reported the contamination and provided an Interim Remedial Action Plan (the “IRAP”) to the Ministry of Environment (the “Ministry”) in 2006. Northstar then carried out investigations, mitigation and remediation of the site until 2012. At the beginning of 2012, the Ministry became aware that Northstar was having financial difficulties and the Ministry issued environmental protection orders (“EPOs”) under Ontario’s Environmental Protection Act requiring Northstar to continue monitoring and remediating the site (to the same degree, and in compliance with the IRAP). Northstar was also required to provide over $10 million in financial assurance to ensure that remediation efforts could be continued in the event of Northstar becoming bankrupt or insolvent. Before that payment became due, Northstar applied for and

received protection under Canada’s Companies’ Creditors Arrangement Act (“CCAA”). After failing to have the remediation costs classified and considered as a liability under the CCAA proceedings, the Ministry issued an order against the current and former directors and officers of Northstar, requiring them personally to perform the same remediation.

The directors and officers brought an application to the court in charge of the CCAA proceedings requesting a stay of the Director’s order, which was refused. The directors and officers appealed this order and made an application to the Environmental Review Tribunal (the “ERT”) for a stay of all the requirements of the order. The ERT denied the application, stating that it did not have the jurisdiction to grant a stay and that it could not grant a stay where remediation was necessary and ongoing. The directors and officers appealed the ERT decision to the Ontario Superior Court of Justice (the “Court”), and at the same time requested a judicial review of the order. The Court quashed both applications, stating that a stay cannot be granted where the environment is at risk, and that; in any event, a stay is not available for an interlocutory order, which it deemed the EPO to be. In a separate proceeding, the directors and officers applied to

have the Court adjudicate the $15 million claim against them, rather than the ERT, but this too was rejected.

Before the issue of liability could be determined by the ERT, the directors and officers personally settled with the Ministry for the amount of $4.75 million. Unfortunately, this leaves open the question of whether or not directors and officers can be held personally liable for environmental damage, and secondly, whether they need to be in “control” of the corporation when such damage occurs.

The legislation in Alberta, Saskatchewan, and British Columbia all appear to permit orders and findings of liability personally against directors and officers. However, a case of this occurring is yet to be tried, with the exception of a few cases involving sole directors with a high-degree of control over operations of the corporation.

The best means of protecting against personal liability for environmental damage is to perform an ongoing assessment of potential environmental liability and to ensure the corporation has the resources to perform its obligations with respect to such liabilities. Insurance is also highly recommended if available in the circumstances.

1

DIRECTORS AND OFFICERS TAKE NOTERisk of Liability for Environmental Damage?

By Hazel Saffery and Jon Ozirny, Student-At-Law

2 ENERGY

On March 25, 2013, Alberta Environment and Sustainable Resource Development (“ESRD”) released Information Letter 2013-01 which clarified the requirement for temporary water diversion licenses in the non-settled areas of the province (the “Green Area”). Renewed focus on the need for temporary water diversion licenses in the Green Area is a result of anticipated increases in water use associated with hydraulic fracturing operations. The Information Letter was released to ensure that government and industry are on the same page with respect to understanding and implementing this requirement.

In Alberta, a license must be obtained prior to the diversion and use of surface water or groundwater unless otherwise authorized under the Water Act.1 A Temporary Diversion Licence (“TDL”) provides a licensee with short-term (up to one year) authority for such diversion and use. However, certain types of temporary diversions do not require a TDL. In the Green Area, as clarified by Information Letter 2013-01, a temporary water withdrawal without a TDL is permitted when all 3 of the following conditions are met (the “Green Area Exemption”)2:

a) there is a surface disposition issued by ESRD that expressly permits the diversion and use of the water and specifies the time period for that diversion and use (an “Applicable Disposition”);

b) the amount to be diverted is no more than 5,000 cubic metres per disposition; and

c) the diversion and use is not for hydrostatic testing.

If one or more of the conditions above is not satisfied, an operator does not fall under the Green Area Exemption and must apply for a TDL.

The Information Letter goes on to provide that temporary diversion and use of water, including temporary diversion and use of less than 5,000 cubic metres of water in the Green Area, must be authorized by a TDL as ESRD will not issue an Applicable Disposition until appropriate regulatory and authorization systems are in place. Thus, condition (a) above cannot be satisfied unless the operator has a pre-existing Applicable Disposition (and it has not been normal practice for ESRD and its predecessors to issue Applicable Dispositions). Failure to obtain a TDL in these circumstances may result in enforcement action under the Water Act, which prohibits the diversion of water for any purpose unless done pursuant to a license or otherwise authorized under the Water Act or regulations (e.g., in accordance with the Green Area Exemption). Mechanisms for enforcement can include warning letters, administrative penalties, investigations, enforcement orders and prosecution.

The design and implementation of appropriate regulatory and authorization systems will be considered once the Alberta Energy Regulator (the “Regulator”) assumes ESRD’s energy related regulatory functions and responsibilities in respect of both the disposition and management of public lands (under the Public Lands Act3) and the conservation and management of water (under the Water Act). While the Regulator already assumed ESRD’s energy related functions in respect of public lands on November 30, 2013,4 it is not expected to assume ESRD’s energy related functions in respect of water until the Spring of 2014. At this time, ESRD and the Regulator will be in a better position to identify synergies and efficiencies in the various regulatory and authorization systems. This process will ideally enable them to design and implement systems appropriate for the issuance of Applicable Dispositions. Such systems would be aimed at placing the Regulator and ESRD in a position to efficiently and effectively monitor and track water usage in the Province.

Given the absence of regulatory and authorization systems appropriate for the issuance of Applicable Dispositions, operators should exercise vigilance when temporarily diverting and using water in the Green Area by first applying for a TDL to ensure compliance with the Water Act and regulations.

Footnotes

1 RSA 2000, c W-3.2 Water (Ministerial) Regulation, AR 205/98, Schedule 4, Section 2.3 RSA 2000, c P-40.4 OC 357/2013.

Planning to Temporarily Withdraw Water in the Green Area?

Be Sure to Apply for a TDLBy Alison Koper

Government of Alberta 2012

National Parks

Green Area

White Area

On October 1, 2013 several important changes to Alberta’s Occupational Health and Safety Act1, (the “OH&S Act”) came into force. These changes bridge the gap between compliance orders and prosecutions through the courts, which were the two main options under the previous version of the OH&S Act.

A compliance order can still be issued by an OH&S officer if he or she is of the opinion that work is being carried out in an unhealthy or unsafe manner. The order can take the form of a stop work order, or the order can specify that certain steps be taken to remedy the unhealthy or unsafe condition. With the new administrative penalties available under the OH&S Act, the consequences of failing to comply with an order are potentially greater.

Administrative PenaltiesThe new provisions allow an OH&S Officer to order that a contractor, employer, prime contractor, supplier, or worker—all regulated persons under the OH&S Act—pay an administrative penalty for contraventions of the OH&S Act, regulations or code. Administrative penalties may also be issued for failing to comply with an order made under the OH&S Act, or a failure to comply with an approval under an adopted code.

Administrative penalties may not exceed $10,000 per occurrence, or $10,000 per day for a continuing contravention. The assessment of an administrative penalty appears to be somewhat subjective. In determining the amount of the administrative penalty the officer must consider:

(a) the seriousness of the contravention or failure to comply,

(b) the potential harm resulting from the contravention or failure to comply, and

(c) any other factor the officer considers relevant.

Administrative penalties must be levied within two years of the alleged contravention, and must be paid within 30 days of the offence. A person who pays an administrative penalty cannot be later prosecuted for the same offence. In the event that the administrative penalty is appealed, the appeal operates as a stay of the administrative penalty. Contrast this with an appeal of an order or cancellation of a license, which does not operate as a stay.

As an overly simplistic example, an administrative penalty could be levied against an employer for failing to ensure that a drilling rig was equipped with a properly supplied first aid kit or other standard safety equipment.

New Ticketing PowersWhile the ability to assess an administrative penalty is a new tool in the OH&S Officer’s tool box, it is not the only one of which a contractor, employer, prime contractor, supplier or worker should be aware. On January 1, 2014, we anticipate the coming into force of provisions of the OH&S Act that will grant an OH&S Officer the power to issue tickets to employers and workers for sixty different contraventions of the OH&S Code. Fines are anticipated to range from $100 to $500 per offence. These tickets are similar to traffic tickets in that there is a prescribed amount for each of the various offences, and an individual may voluntarily plead guilty and pay the assessed fine, or appear on the date noted on the face of the ticket to enter a not guilty plea.

The amendments discussed in this article are not the only changes to the OH&S Act, but they are the ones that are likely to have the greatest impact.

Footnotes

1 RSA 2000, c O-2

3

Important Changes to the Occupational Health and Safety ActBy Craig O. Alcock and Jocelyn Fink, Student-at-Law

BackgroundIn recent years Canada has received strong international criticism for its failure to adequately combat bribery and to abide by the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the “Convention”). The Convention came into existence in 1997 through the Organization for Economic Co-operation & Development (“OECD”), an organization to which Canada belongs. Canada has been chastised for its weakness in combating bribery, particularly when compared with the robust and far more onerous US

and UK anti-bribery legislation. For example, only 4 violations were successfully investigated and prosecuted by Canadian officials under the former Corruption of Foreign Public Officials Act (the “CFPOA”), enacted in 1999. In May 2011, Transparency International ranked Canada among 21 countries with “little or no enforcement of the OECD Convention”.

Canada has recently addressed the inadequacies of its legislation and on June 19, 2013, Bill S-14: An Act to amend the Corruption of Foreign Public Officials Act, brought into force significant changes to the CFPOA (“Bill S-14”).

Canada Tightens Anti-Bribery LegislationBy Cassandra Calder

4 ENERGY

5

The Bribery OffenceSection 3(1) of the CFPOA prohibits any person from offering, promising, or giving a loan, reward, advantage or benefit of any kind, whether directly or indirectly (through an intermediary), to a foreign public official, to influence or cause the official to act (or refrain from acting), in the performance of official duties, in order to obtain an advantage in the course of business. (emphasis added)

The Amendments The recent amendments resulted in the following six key changes to the CFPOA:

1) Expanded jurisdiction beyond Canada

2) Broader definition of “business”

3) Eventual prohibition of facilitation payments

4) Creation of an accounting offence

5) Increased sentences for individuals

6) Tightened law enforcement jurisdiction

1) Expanded jurisdiction beyond CanadaThe amendments move the CFPOA’s jurisdiction from a territoriality to a nationality basis. Previously, the jurisdiction of the CFPOA was limited to circumstances where the prohibited activity had a real and substantial connection to Canada. Now, section 5 extends the CFPOA to cover activities of Canadian companies, citizens, and permanent residents, regardless of where the bribe takes place. Section 5(2) grants jurisdiction to Canadian courts to prosecute in Canada as if the offence had been committed in Canada.

The nationality basis for jurisdiction has been challenged in the US as exercising “extraterritorial jurisdiction”, by improperly taking jurisdiction without any real connection to the US. Similar challenges will likely arise in Canada, thus the effectiveness of this amendment remains to be seen.

2) Eventual prohibition of facilitation paymentsOne of the most significant changes from a practical perspective is that Bill S-14 proposes the eventual elimination of the facilitation payments exception.

The CFPOA currently allows facilitation payments to be made to a foreign public official for work permits, licenses, visas, and for services normally provided to the public, such as telecommunication, power, and water supply. Importantly however, facilitation payments do not include a decision by the foreign public official to award new business or continue business with a particular party, including decisions regarding the terms of that business or encouragement of another person to make any such decision.

The Government intends to eliminate this facilitation payment exception at a date to be determined by Cabinet, to provide an adjustment period for Canadian companies to align their internal controls and operations in compliance with the CFPOA. This adjustment period is also apparently to ensure Canadian companies are not at a competitive disadvantage in international markets.

While the UK Bribery Act does not provide for a facilitation payments exception, the US Foreign Corrupt Practices Act does. Therefore Canadian companies may be at a disadvantage when competing with US companies.

3) Broader definition of “business”Previously, the definition of “business” required the enterprise be carried on “for profit”. Now, “for profit” is removed from the definition to ensure the CFPOA applies to all businesses, regardless of whether the enterprise is “for profit”. This will result in greater exposure for Canadian non-profits operating overseas, such as international charities and development organizations, as they are also now subject to the CFPOA.

4) Creation of an accounting offenceTo bring the CFPOA in line with UK and US law, it’s now a criminal offence to falsify or conceal records and payments relating to the bribe of a foreign public official.

5) Increased sentences for individualsCommitting bribery is a criminal offence, therefore individuals and corporations charged under the CFPOA face fines with no maximum limit, and individuals also face imprisonment. Significantly, there is no statute of limitations for charging individuals or corporations under the CFPOA.

With the amendments, the maximum length of imprisonment was extended from 5 to 14 years for both the bribery and accounting offences. This change reflects the government’s increased focus on prosecuting individuals as well as organizations, which places significant risk on directors, officers, and employees of companies doing business abroad.

6) Tightened law enforcement jurisdictionThe RCMP now has exclusive jurisdiction to investigate and lay charges under the CFPOA. This eliminates jurisdictional conflicts between federal and provincial law enforcement agencies.

Future InitiativesOn June 12, 2013, Prime Minister Stephen Harper introduced a new transparency initiative requiring Canadian companies in the extractive industries, including oil and gas, to disclose all payments made to domestic and foreign governments. The Canadian initiative follows similar measures in the EU and US, both of which are already implementing mandatory payment reporting requirements for their mining and oil and gas companies.

The US Dodd-Frank payment disclosures require companies listed on US stock exchanges to disclose all payments made to host governments in their annual reports. According to the SEC the reporting requirement affects more than 1,100 companies, including approximately 90% of internationally operating oil companies.

It was not disclosed when this initiative will be implemented in Canada or what it will require, but it will likely be similar to the US Frank-Dodd initiative.

ConclusionThe CFPOA has been strengthened with the recent amendments, and will be further tightened with those amendments to come, such as the elimination of the facilitation payment exception and the new transparency initiative for oil and gas companies. In light of these amendments it is advisable that all companies who conduct business with foreign entities are educated on the CFPOA, particularly in relation to who is subject to it and what behavior is prohibited. In addition, companies should ensure that appropriate anti-bribery policies and procedures are in place to avoid or reduce liability.

With the amendments, the maximum length of imprisonment was extended from 5 to 14 years for both the bribery and accounting offences.

6 ENERGY

In the recent Alberta case of 321665 Alberta Ltd. v. Husky Oil Operations Ltd.1 (“Husky Oil”), the Alberta Court of Appeal (the “Court of Appeal”) unanimously overturned a controversial decision which had found that the joint procurement activities of two oil producers were an unlawful conspiracy. The decision interpreted the pe-2010 section 45 and section 36 of the federal Competition Act2 (the “Act”). The pre-2010 section 45 was a criminal conspiracy provision, which made it a criminal offence to conspire or agree to unduly prevent or lessen competition in the production, manufacture, purchase, sale or supply of a product. Section 36 provides a right of recovery to any person who has suffered loss or damage due to an infringement of the criminal sections of the Act.

Background The Defendants, Husky Oil Operations Ltd. (“Husky”) and ExxonMobil Canada Ltd., (“Mobil”) collaboratively decided to sole source a fluid hauling contract to reduce their hauling costs and increase the value of properties that were both jointly and individually owned and operated in the Rainbow Lake area of northwestern Alberta. At the time, there were two fluid hauling companies competing for business in the Rainbow Lake area, 321665 Alberta Ltd., doing business as Kolt Oilfield (“Kolt”) and Cardustry Trucking (“Cardustry”). Cardusty was ultimately selected as the exclusive supplier following an extensive evaluation process involving the participation of both suppliers. Kolt’s business was severely impacted and within a year Kolt ceased operations and closed its doors. Kolt held Husky and Mobil responsible for its decline in business and brought a civil action against them based on the criminal conspiracy provisions of the Act.

In granting Kolt’s application, the lower court determined that Husky and Mobil had enormous degrees of market power over fluid haulers in the Rainbow Lake area and held that their conduct unduly limited competition by denying Kolt an opportunity to compete in the market. The lower court also found Husky and Mobil liable for the torts of conspiracy and interference with business relations and awarded damages at large of $5 million (for loss of profits over the next 14 years), punitive damages of $1 million and $75 thousand for investigative costs under section 36 of the Act.

The Court of Appeal Decision The Court of Appeal overturned the lower court decision and held that Husky and Mobil’s agreement to single source their fuel hauling services did not, and was not likely to, “unduly lessen competition”. The Court of Appeal held that the lower court focused too much on the ultimate consequences for Kolt and neglected to consider Kolt’s failure to distinguish itself in a genuine and competitive evaluation process. If Husky and Mobil had decided to meet their fuel hauling needs by installing a pipeline, the consequences to Kolt would remain the same and there would be no argument that the decision was anti-competitive. Of essential importance to the Court of Appeal, both Kolt and Cardusty were provided with a fair and equal opportunity to be selected as the exclusive supplier. The focus of the evaluation was not on the price or volume of work but rather on the quality and suitability of each candidate. The Court of Appeal found no evidence that Husky and Mobil attempted to reduce the suppliers’ profit margins, prices charged or volume of work.

In the opinion of the Court of Appeal, the purpose of the Act was to provide participants with a fair opportunity to compete for business and not to guarantee that a company will successfully continue in perpetuity. Husky and Mobil’s joint sole sourcing agreement was held to be a legitimate business decision that was both common and necessary for oil and gas development. The Court of Appeal stressed that Husky and Mobil were permitted to take steps to increase efficiencies and reduce costs, and that joint owners must, “by necessity”, be able to agree how to best manage their co-owned operations. This sort of collaboration is not considered an abuse of market power under the Act.

In overturning the lower court decision, the Court of Appeal took care to reject Husky and Mobil’s argument that they were unable to infringe section 45 as con-conspirators because they were joint owners and functioned as a single economic unit. The Court of Appeal declared that having joint operations will not insulate parties from the application of the Act and also pointed to Husky and Mobil’s individually held properties in the Rainbow Lake area.

That’s No Conspiracy: Recent Guidance From The Alberta Court Of AppealBy: Brittney LaBranche

Implications of the Decision Section 45 of the Act has since been amended to a per se offence, meaning the requirement to prove the anti-competitive effects of the conspiracy has been removed and the mere engagement in the infringing conduct is the offence. Parliament has also created a new, separate civil conspiracy provision under section 90.1. In its Competitor Collaboration Guidelines, the Competition Bureau has indicated that joint procurement arrangements will only be addressed by the civil provisions of the Act and that the criminal provisions will be reserved only for the most egregious forms of cartel agreements. The Court of Appeal’s decision in Husky Oil is consistent with this policy shift and suggests that civil actions for damages brought under section 36 will be infrequent. While Husky Oil was decided under the former conspiracy provision, it should provide comfort to parties participating in joint venture activities with legitimate business purposes. The case illustrates that joint refusals to deal with a business can be efficient and pro-competitive. This is particularly relevant to the ancillary restraints and economic efficiencies defenses available under the new sections 45 and 90.1, which are meant to ensure that strategic and legitimate collaborations between competitors will not be treated as criminal.

Footnotes

1 2013 ABCA 2212 RSC 1985, c C-34

7

What We’ve Been Up To•Alicia Quesnel was a guest speaker at the University of Calgary’s School of Public Policy State-Owned Enterprise Conference, Calgary, December

10-11, 2013.

•The Energy Group and Steven MacKinnon of Hill+Knowlton presented a joint panel discussion on November 14, 2013 entitled At the Crossroads: The Uncertainty of SOE Investment in Canada’s Resource Sector. BD&P’s panel members included Alicia Quesnel, Jody Wivcharuk and Brittney LaBranche.

•Alicia Quesnel was a Panel Member for Investment Canada Act: Investor Confidence or More Uncertainty, Canadian Bar Association Federal Investment Review Conference, Toronto, June, 2013

•Carolyn Wright is a Director of the Canadian Energy Law Foundation (CELF) and President for 2013-2014; was a panelist on the CELF Energy Fundamentals Seminar in Canmore, AB in February, 2013 and is a Course Instructor in Rights of First Refusal for the Canadian Association of Professional Landmen.

•Ashley Weldon is a Director-at-Large, Legal, of the Petroleum Joint Venture Association, a Course Instructor in Rights of First Refusal for the Canadian Association of Professional Landmen and a Course Instructor in Freehold Lessor Estates for the Canadian Association of Land Administrators. Ashley is also a member of the Planning Committee for the 2014 CELF Jasper Seminar.

•Brittney LaBranche has been seconded to Nexen Inc. from September 2013 - March 2014 as Legal Counsel in the Oilsands Group. Brittney is Chair, Pace Kids Programs for Children with Motor Disabilities Society.

•David R. Haigh Q.C. has been involved in 2013 as an arbitrator in a number of international arbitrations in Singapore, London, New York and Paris involving natural resources subject matter such as coal mining operations, oil and gas production, international oil deliveries and the construction and operation of a coal fired electricity plant.

•Hazel Saffery is a Course Instructor for the Canadian Association of Land Administrators.

•Justin Jensen is a member of the Planning Committee for the 2014 CELF Fundamentals Seminar.

•John Cuthbertson, Q.C. is a Director of Calgary Legal Guidance.

•Alicia Quesnel is a Director, Wings of Hope Breast Cancer Foundation.

•Stuart Money is a Member of the Board of Directors, Vertigo Theatre.

•Doug Mills is Executive Director, Youville Women’s Residence Society.

•Andrew Sunter is a Board Member, Potential Place Society.

As one can imagine, the lead up to a final binding contract between parties involves, more often than not, the exchange of various oral and written discussions, statements and documents. At its heart, the purpose of the boilerplate “entire agreement” clause found in many commercial agreements is to exclude much of these exchanges, limiting each party’s obligations to what is reduced to writing in the final contract between the parties. In short, the rationale behind the use of the entire agreement clause is certainty. Commercial dealings require certainty which is enhanced by the exclusion of extrinsic evidence or negotiations.

A common entire agreement clause is as follows:

Except for the agreements expressly contemplated in this Agreement, this Agreement supersedes all previous agreements or understandings between the Parties concerning the subject matter of this Agreement and states the entire agreement between the Parties in respect of such subject matter.

The entire agreement clause is basically an attempt to reinforce the parole evidence rule, a long established rule in the law of contracts which provides that if a contract has been reduced to writing,

[V]erbal evidence is not allowed to be given of what passed between the parties, either before the written agreement was made, or during the time that it was in a state of preparation, as to add to or subtract from, or in any manner to vary or qualify the written contract.1

This means that when parties to a contract dispute the terms of a contract, the entire agreement clause and the parole evidence rule are used together to prevent the admission into evidence of prior exchanges which may vary or contradict the express terms of the written agreement. In other words, a party is prevented from arguing that it entered into the agreement because of something that was said prior to signing the final contract but was not included in the contract.

Canadian Case LawThe rule of thumb, with a few exceptions, is that courts will uphold an entire agreement clause and exclude extrinsic evidence. The Ontario Court of Appeal stated:

Trite as it may be, it is appropriate to begin by repeating the well known rule that where parties have set out the terms of this contract in a written document, as a general rule, extrinsic evidence is not admissible to add to, vary or subtract from or contradict the terms of the written instrument.2

The Entire Agreement Clause vs. Negligent MisrepresentationEntire agreement clauses come before the courts most often in relation to circumstances where the underlying claim relates to an alleged negligent misrepresentation by one of the parties. By way of background, a negligent misrepresentation occurs where:

• The parties have a special relationship (e.g. agreeing to be bound to a contract);

• The statement or “representation” made was untrue, inaccurate or misleading;

• The person saying the statement did so negligently (i.e. in a manner which creates an objectively unreasonable risk of harm);

• The party hearing the statement relied on the statement; and

• The party relying on the statement is harmed in some way by the statement.3

The General RuleThe general rule is that an entire agreement clause excludes liability for all misrepresentations. An illustrative case is Hayward v. Mellick4 where the Ontario Court of Appeal reviewed an agreement for the purchase of farm land which had an entire agreement clause. There was no term in the agreement as to the acreage of workable land, but the seller orally advised the buyer that the farm contained 65 workable acres of land. The farm in fact only had 51.7 workable acres of land. The Court of Appeal held that the verbal statement about acreage was in fact a negligent misrepresentation which would have been a valid claim in court but for the entire agreement clause which excluded liability for all misrepresentations not expressed within the agreement in writing.

Another illustrative case is J.I. Case Threshing Machine Co. v. Mitten5 where the buyer of an engine refused to pay the purchase price, claiming that the seller had misrepresented that the engine would operate on both kerosene and gasoline. The Supreme Court of Canada determined that the entire agreement clause found in the contract precluded the effects of any statements made to them which were not written in the agreement.6

Cases Deviating from the General RuleUnfortunately, the presence of an entire agreement clause is not always decisive. Despite the general rule stated above, courts do not always strictly interpret these clauses to exclude extrinsic evidence. In some cases, courts have looked at whether the statement forms part of the “subject matter” of the contract or if it outside the terms of the contract. If the statement forms part of the subject matter of the contract, the entire agreement clause applies; if the statement does not, the entire agreement clause does not apply.7

An illustrative case is Beenham v. Rigel Oil & Gas Ltd.8 (“Beenham”) where, a consulting engineer, contracted with Rigel Oil & Gas to provide services relating to the purchase and development of cogeneration projects. Before signing the final agreement, a representative from Rigel told Beenham that the company had a huge appetite for cogeneration projects and that providing money for such a project would be no problem. In fact, approval by the board of directors was necessary for any expenditure of money and the board approval did not happen. When Beenham sued for negligent misrepresentation, Rigel attempted to rely on an entire agreement clause to exclude the statement made by the Rigel representative.

So That’s What That Means

The Entire Agreement ClauseBy Bryan P. Morin

The Court in Beenham held that the entire agreement clause should be interpreted strictly against the party whom it benefited and found that the clause in the agreement only purported to exclude statements dealing with the “subject matter” of the contract. The contract did not address Rigel’s corporate commitment to acquiring and developing cogeneration projects. Accordingly, the statement did not form part of the subject matter of the contract and the entire agreement clause did not apply.

In other cases, courts have made an almost stand-alone rule that entire agreement clauses do not oust a claim for negligent misrepresentation unless the clause specifically states that it excludes liability for negligence and is brought to the attention of the party which it affects.9 However, there is still evidence of courts strictly interpreting entire agreement clauses. There exists a competing line of cases where courts have used an entire agreement clause to exclude negligent misrepresentation even where the clause does not specifically exclude negligence.10

Take-AwayIt is fair to say that entire agreement clauses continue to be enforceable and can protect parties against the uncertainty of oral and written discussions during negotiations being considered part of the terms of the final agreement. However, circumstances exist in which entire agreement clauses are not upheld by the courts such as in the case where the statement or discussion seeking to be relied upon falls outside the subject matter of the contract.

It may be preferable to specify in the entire agreement clause the actual prior agreement or documents to be excluded. However, where there are many prior agreements or documents between the parties, there is an increased risk that a missed and therefore non-referenced document may be interpreted as not being excluded. If this is the case, it may actually be preferable to broaden the application of the clause from “the subject matter of this contract” to a less restrictive description such as “the subject matter of this transaction”.

In a situation where there are heavy negotiations and with it various verbal statements between the parties, it may be advisable to add specific reference to negligence or negligent misrepresentations in the entire agreement clause.

Footnotes

1 Gross v. Lord Nugent (1833), 110 E.R. 713 at 7162 TransCanada Pipelines v. Northern & Central Gas Corp. Ltd. (1983), 136 D.L.R. (3d) 293 at 296 (Ont. C.A.); see also Hawrish v. Bank of Montreal, [1969] S.C.R. 515

3 40 Sunpark Plaza Inc. v. 850453 Alberta Inc. (2007), 413 A.R. 200 (Q.B.) at para 47; see also Queen v. Cognos Inc., [1993] 1 S.C.R. 87

4 Supra note 3.5 (1919), 59 S.C.R. 1186 Supra note 7, at 1207 Anderson Consulting Ltd. v. Canada (Attorney General) (2001), [2002] 150 O.A.C. 177 at para 21 (C.A.)

8 (1998), 67 Alta L.R. (3d) 206 (Q.B.)9 Zippy Print Enterprises Ltd. v. Pawliuk (1994), [1995] 3 W.W.R. 324 (B.C.C.A.)10 Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., [1997] 3 S.C.R. 1210;

Air-Nova v. Messier-Dowty Ltd. (2000), 128 O.A.C. 11 (C.A.)

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The Entire Agreement ClauseBy Bryan P. Morin

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