Date: 20040624
Docket: T-85-03
Citation: 2004 FC 910
BETWEEN:
ALTAGAS MARKETING INC.,
GYRFALCON HOLDINGS LTD.,
INUVIALUIT PETROLEUM CORPORATION
AND IPL HOLDS INC.
Respondents
(Plaintiffs)
and
HER MAJESTY THE QUEEN
Applicant
(Defendant)
REASONS FOR ORDER
HARGRAVE J.
[1] This action, from an examination of the Statement of Claim and the Amended Defence, involves the question of the appropriate legislation that ought to be applied in order to assess production royalties on natural gas produced from land held in fee simple absolute, subject to pre-existing sub-surface rights, the gas being extracted pursuant to a production licence, referred to as Production Licence No. 6.
[2] The Crown has assessed the royalties under the Canada Oil and Gas Act, R.S.C. 1985, c. O-6, assented to 18 December 1981. The Plaintiffs say that it is an explicit term of Production Licence No. 6, effective 23 June 1999, that royalties be assessed at a lower rate under the Canada Petroleum Resources Act, R.S.C. 1985, c. 36 (2nd Supp.), assented to 18 November 1986.
[3] At issue on this motion in writing, brought by the Crown, is a more complete affidavit of documents, which in the Crown's view should include the production of documents concerning the knowledge or expectations of the Plaintiffs as to the rate at which they would have to pay royalties. These documents might, in addition to correspondence and memos, include economic policies showing the knowledge and expectation of the Plaintiffs as to royalties and development plans. The motion is denied.
BACKGROUND
[4] This litigation has its general background in the Inuvialuit Final Agreement of 5 June 1984 and the grant of certain land in The Northwest Territories, as I have said in fee simple, to the Inuvialuit Land Corporation, subject to pre-existing sub-surface rights, to be administered by the Federal Crown. All of the Plaintiffs claim an interest in Production Licence No. 6, a licence granted by the Federal Crown.
[5] Royalties are referred to in the Inuvialuit Final Agreement of 5 June 1984, which was given effect by the Western Arctic (Inuvialuit) Claims Settlement Act assented to 28 June 1984. Royalties under that Agreement, to which the Plaintiffs are not parties, "shall be calculated on the basis of the laws and regulations in force on December 31, 1983 applicable to Crown lands in the Northwest Territories". To the contrary, there is a provision in Production Licence No. 6, effective 23 June 1999, that the Licence is "subject to the provisions of the Canada Petroleum Resources Act" and thus the Plaintiffs say that royalties are to be calculated under that legislation, which royalties would be at a lesser rate.
[6] This dispute, as to the applicable royalties and legislation led to an action being commenced 20 January 2003. On this motion for documents from the Plaintiffs, the pleadings thus become central as the issues raised there govern relevance of documents. I turn to an overview of the Statement of Claim.
[7] The Statement of Claim relies on the terms of Production Licence No. 6 and its date of issuance. The Plaintiffs point out that a term of Production Licence No. 6 is that it be subject to the Canada Petroleum Resources Act and that each holder of a share of that licence would pay the royalties prescribed by the regulations made under the Canada Petroleum Resources Act (paragraph 9 of the Statement of Claim). The Plaintiffs paid royalties on that basis, but were re-assessed for the period July 1999 through December 2000 on the basis of the Canada Oil and Gas Act scale.
[8] The Plaintiffs set out in their Statement of Claim that the Canada Oil and Gas Act and the regulations under that Act had long been repealed and were not in force when Production Licence No. 6 was issued in June 1999. Rather, Production Licence No. 6 issued, as set out in the Statement of Claim, subject to the Canada Petroleum Resources Act, could not make the production subject to the former legislation which had been repealed and is not mentioned in Production Licence No. 6. Rather, the Plaintiffs contend that the production from the Licence is stated to be and must be pursuant to the legislation in effect that time and still in effect, the Canada Petroleum Resources Act and regulations.
[9] The Plaintiffs go on to set out, in paragraph 21 of the Statement of Claim, that the Western Arctic (Inuvialuit) Claims Settlement Act of 1984 and agreements thereunder dealt with and contained terms as between the signatories to that settlement, to which the Plaintiffs were not parties, not with royalties payable under Production Licence No. 6.
[10] To the contrary the Defendants plead in paragraph 26A of the defence, added 12 May 2004 that:
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26A. At all material times, both before and after the acquisition of their respective interests in SDL No. 29, the Plaintiffs knew, ought to have known, expected, or assumed that any royalties payable by SDL No. 29 interest owners arising from oil and gas production on the lkhil Lands would be calculated and payable to Canada in accordance with the royalty regime set forth in the COGA.
[Underlining omitted]
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ANALYSIS
[11] As I have said relevance of documents is governed by the issues based in the pleadings, or as put by the Federal Court of Appeal in Owen Holdings Ltd. v. Canada (MNR) (1997), 216 N.R. 381 (F.C.A.) at 388, "Relevance must be assessed in light of the issues raised by the appellant in its pleadings.", although "... relevancy must be construed generously, or with fair latitude." (loc. cit.). The issue raised in the statement of claim is the application of a statue: evidence as to the expectations of the parties is irrelevant. As put by Mr Justice Addy in Smith, Kline & French Laboratories Ltd. v. Canada (Attorney General) (1982), 67 C.P.R. (2nd) 103 (F.C.T.D.) at 108, "... opinion evidence or a person's views regarding the interpretation or application of a statute are not admissible ...". Mr Justice Addy went on to observe that "[t]he court should not compel answers to questions which, although they might be considered relevant, are not at all likely in any way to advance the questioning party's legal position: ..." (loc. cit.).
[12] Counsel for the Plaintiffs goes on, in written argument, to agree, that in limited circumstances the knowledge or expectation of a party, as to the interpretation of a statute may be relevant where the pleadings raise issues of representation or reliance. Here the Plaintiffs do acknowledge that paragraph 26A of the defence alleges that the Plaintiffs "... knew, ought to have known, expected or assumed that any royalties payable ... arising from oil and gas production ... would be calculated and payable to Canada in accordance with the royalty regime set forth in the [Canada Oil and Gas Act]." This leads to the position of the Crown that there are two issues. In the view of the Crown the first issue is not so much statutory interpretation or application, but rather whether the more favourable royalty rate was incorporated by reference into Production Licence No. 6, thus overriding the reference to any lower rate under the Canada Petroleum Resources Act; and similarly, the second issue is whether, even if a higher royalty rate under the Canada Oil and Gas Act has not been incorporated by reference into Production Licence No. 6, the Plaintiffs can rely on the explicit terms of that production licence if they had no reasonable expectation by way of their knowledge or expectation at the relevant time, that the lower Canada Petroleum Resources Act rate was intended, by the Crown, to determine the royalty rate.
[13] Certainly the first question is one of statutory interpretation and thus knowledge or expectations play no part. As to the second issue, the argument for production of documents showing knowledge or expectations becomes somewhat complex. The Defendant characterizes, as a substantive question, the ability of a party to rely upon terms in the Production Licence, and particularly if that party does not have a reasonable expectation that the terms in the Licence are intended to apply to what is called "the special case of gas production from land belonging to the Inuvialuit people". Put more simply the second main issue, in the view of the Defendant, is whether the Plaintiffs are entitled to rely on Production Licence No. 6, and particularly whether the knowledge or expectations of the Plaintiffs may prevent them from relying upon terms in the Production Licence in a situation where the Plaintiffs have no reasonable expectation that the lower royalty rate under the Canada Petroleum Resources Act was intended. Here the Crown has set out, in paragraph 19 of the amended defence of 12 May 2004, that the Plaintiff, the Inuvialuit Petroleum Corporation, was told at an early and relevant stage that oil or gas production royalties would be calculated in accordance with the Canada Oil and Gas Act, but otherwise administration would accord with the Canada Petroleum Resources Act: the royalty set out in the former are greater than those set out in the latter.
[14] The outcome of this motion depends upon, given the pleadings and the law as to relevance, whether the action deals with the choice and application of one or the other of the two federal gas royalty-levying statutes to Production Licence No. 6, or whether the defence extends the scope of the action to the expectation of the Plaintiffs and indeed, whether the Plaintiffs can rely upon what is clearly set out in Production Licence No. 6. In effect, the Defendant seems to be arguing for a revocation of Production Licence No. 6, by way of a mistake, the mistake being a failure to refer to a statute which did not at the time exist. Here the Plaintiffs submit, even given the extension of the proceeding suggested by paragraph 26A of the defence, the extension, to expectations and assumptions, does not lead to any legal result. This is a submission which is reflected in Merck Frosst Canada Inc. v. Canada (Minister of Health) (1997), 80 C.P.R. (3rd) 550 (F.C.T.D.), a decision of Mr Justice Hugessen.
[15] In Merck (supra) Mr Justice Hugessen considered formal and legal relevance, in the context of cross-examination on affidavits and a judicial review application. However the concepts of legal and formal relevance and their consequences also extends to actions, pleadings and production of documents.
[16] Formal relevance, in the context of an action, is defined with reference to the issues delineated by the pleadings. A fact in the pleading, which has only formal relevance, is one which may be defined as having no bearing on the remedy. Facts have legal relevancy if it can assist in determining whether or not the remedy being sought can be granted: Merck (supra) at 556. Mr Justice Hugessen goes on to observe that a fact in answer to an irrelevant allegation does not make either set of allegations relevant: pages 556 and 557. All the more so, a fact in the defence, which does not found or lead to a substantive defence, or does not lead to a legal result, is purely a matter of formal relevance, lack legal relevance and is thus generally irrelevant, and particularly so when it comes to expanding or requiring production of documents.
[17] In the present instance the issue in the Statement of Claim is which gas royalty provision applies to Production Licence No. 6. That is a pure point of interpretation of statutes and Production Licence No. 6, on which points a mere expectation or assumption has no bearing on statutory interpretation (Smith Kline, supra), and as to the royalty rate, not being reduced to writing, such an expectation or assumption cannot be used to vary or contradict a complete document, with neither party alleging that the production licence needs extrinsic evidence in order to aid in interpretation. This is all the more so when the evidence is said to involve not negotiation leading to the Licence Agreement, but only a state of mind of the Plaintiffs, which plays no part in the royalty provisions which were explicitly incorporated from statute into Production Licence No. 6. The principle here is that a written document, which is intended by the parties as a final embodiment of their agreement, cannot be modified by evidence that adds to, varies or contradicts what is set out in writing. This principle, in most instances, operates to prevent a party to an agreement from introducing extrinsic evidence as to negotiations which occurred before or during the reduction of the agreement into a final written form. P.S. Atiyah, in his An Introduction to the Law of Contract, Oxford: Clarendon Press, 3rd edition, 1981, at pages 161 - 162, has this to say about the parol-evidence rule:
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The basic principle is often called the 'parol evidence rule', and according to this rule evidence is not admissible to contradict or qualify a complete written contract. The rule is usually stated in the form of a rule of evidence, but it is probably best regarded as a rule of substantive law. The question is not really whether evidence can be admitted which might vary the written document, but whether, if the evidence is admitted, it will have the legal effect of varying the document.
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It is interesting that Atiyah concludes with the thought that the principle or rule is not so much about admissibility of the evidence, but rather whether the evidence would have any legal effect and this is much the same analysis as used by Mr Justice Hugessen in Merck (supra), as to formal and legal relevance.
[18] As I have observed the parol-evidence rule usually operates to bar a party from introducing extrinsic evidence from negotiations. There are exceptions, such as the use of extrinsic evidence to explain an incomplete document, or to prove a condition precedent which has not been fulfilled, or to show the invalidity of a document, or as an aid to interpretation. None of these exceptions would seem to apply and indeed, none of these has been pleaded.
CONCLUSION
[19] There is neither a useful purpose nor a useful conclusion or remedy which could flow from the states of mind or the expectations of the Plaintiffs. Any relevance flowing from reference to the expectations or assumptions of the Plaintiffs, as to royalties which might be payable in future, is merely of formal relevance and not of legal relevance.
[20] The material requested has no legal relevance and need not be produced. Costs to the Plaintiffs in any event, payable at the end of the day.
(Sgd.) "John A. Hargrave"
Prothonotary
Vancouver, British Columbia
24 June 2004
FEDERAL COURT
NAMES OF COUNSEL AND SOLICITORS OF RECORD
MOTION DEALT WITH IN WRITING WITHOUT THE APPEARANCE OF PARTIES
DOCKET: T-85-03
STYLE OF CAUSE: Altagas Marketing Inc. et al. v. Her Majesty the Queen
REASONS FOR ORDER OF: Hargrave P.
DATED: 24 June 2004
WRITTEN REPRESENTATIONS BY:
H Martin Kay and Laurie A Goldbach FOR PLAINTIFFS
David E Venour FOR DEFENDANT
SOLICITORS ON THE RECORD:
Bennett Jones LLP FOR PLAINTIFFS
Barristers & Solicitors
Calgary, Alberta
Morris A Rosenberg FOR DEFENDANT
Deputy Attorney General of Canada
Department of Justice
Calgary, Alberta
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