Date: 19990112
Docket: T-1033-95
BETWEEN:
THE SAHTU SECRETARIAT INCORPORATED,
Plaintiff,
- and -
HER MAJESTY THE QUEEN IN RIGHT OF CANADA,
Defendant.
REASONS FOR JUDGMENT
DUBÉ, J.
[1] By this action the plaintiff seeks a declaration that the amount payable to the defendant, pursuant to clause 18 of an agreement between the defendant and Imperial Oil Limited dated July 21, 1944 (the "Proven Area Agreement" and "Imperial Oil"), is a royalty as defined in the Sahtu Dene and Metis Comprehensive Land Claim Agreement (the "Sahtu Dene Agreement").
1 - THE TWO AGREEMENTS
[2] By virtue of the Sahtu Dene and Metis Land Claim Settlement Act 42-43 Elizabeth II c. 271, the Parliament of Canada approved and gave effect to a comprehensive land agreement between the defendant and the Dene and Metis people of the Sahtu Region in the Northwest Territories. Clause 10.1.1 of that Agreement provides as follows:
| "Government shall pay to the Sahtu Tribal Council annually an amount equal to 7.5% of the first $2 million of resource royalties received by the Government in that year and 1.5% of any additional resource royalties received by the Government in that year.". |
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[3] The plaintiff is the designated Sahtu organization selected by the Sahtu Tribal Council under the provisions of section 7.1.6(a) of the Sahtu Dene Agreement to receive payments herein above described.
[4] Resource is defined in the Sahtu Dene Agreement as "mines or minerals whether solid, liquid or gaseous". Royalty is defined in that Agreement as follows:
| ""royalty" means any payment, whether in money or in kind, in respect of production of a resource in, on or under the Mackenzie Valley, including the Norman Wells Proven Area described in chapter 9, paid or payable to government as owner of the resource, but does not include any payment for a service, for the issuance of a right or interest or for the granting of an approval or authorization.". |
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[5] Pursuant to clause 18 of the Proven Area Agreement, as amended and renewed from time to time, the defendant receives an annual payment on March 20th of each year, representing 33"% of the total well-head price of all petroleum and natural gas produced, saved and sold from the Proven Area (as defined in the Proven Area Agreement) less certain charges and expenses. The plaintiff claims that the payments received by the defendant through that Agreement are payments to the Government, as owner of the petroleum and natural gas in the Proven Area and are resource royalties as described in clause 10.1.1 of the Sahtu Dene Agreement.
[6] The defendant has refused to pay royalty on it. In its defence, the defendant alleges that, by virtue of the Proven Area Agreement, the defendant owns one-third and Imperial Oil two-thirds of the petroleum and natural gas produced and saved from the Proven Area; that the Proven Area is operated as a unit for the production of the petroleum and natural gas by Imperial Oil on behalf of itself and the defendant; and that the payments in question are not royalties within the meaning of the Sahtu Dene Agreement.
2 - PRELIMINARY DETERMINATION
[7] Both parties applied for a preliminary determination on whether or not the word "royalty" as defined in the Sahtu Dene Agreement is ambiguous. Associate Chief Justice Jerome, as he then was, ruled that the term was not ambiguous. In his Reasons for Order2, the learned Judge said as follows:
| "The payment, any payment, must be made in respect of production of a resource. The production of a resource must mean more than simply the resource. It includes among a plethora of processes, surveying, drilling, extracting, and storing of the product. "Production of the resource" is the resource (the minerals in the ground) plus something else, namely the processes involved in extracting the minerals from where they lay. This production results in a produced resource that may later be sold. |
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| Within the definition of "royalty" the "any payment" must be "paid to the government as owner of the resource". On its face the literal meaning of the phrase "owner of the resource" is, owner of the land on which the mines and minerals (solid, liquid or gaseous) are found. It does not mean owner of the produced resources. The definition properly narrows the scope "any payment" when it states that only payments made to the government as "owner" of the resources, or more clearly, owner of the land on which those resources are found, come within the definition of "royalty". |
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| I am satisfied that these phrases within the "royalty" definition are sufficiently clear to determine the specific meaning of that term. The contractual definition of "royalty" is in itself a proper and sufficiently clear literal definition and does not require a contextual interpretation to further clarify its meaning. There is nothing ambiguous about the definition." (page 2). |
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3 - ANALYSIS OF THE ESSENTIAL ELEMENTS OF THE TERM "ROYALTY"
[8] Neither party appealed the decision. The plaintiff was satisfied that the term "royalty" was not ambiguous and the defendant was satisfied with the reasons given for that decision. The parties agree that in order for the payments in question to be "royalty" within the meaning of the Sahtu Dene Agreement, they must meet the following five criteria:
| (a) it must be "any payment, whether in money or in kind"; |
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| (b) the payment must be "in respect of production of a resource"; |
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| (c) the resource must be "in, on or under the Mackenzie Valley, including the Norman Wells Proven Area described in chapter 9 [of the Sahtu Dene Agreement]"; |
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| (d) the payment must be "paid or payable to government as owner of the resource"; and |
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| (e) the payment must not be "for a service, for the issuance of a right or interest or for the granting of an approval or authorization.". |
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[9] It is common ground that criteria (a) and (c) are met. Both parties also agree that the annual payments do not fall within the exceptions under criterion (e), however the defendant alleges that these payments are not in respect of production of a resource, nor are they paid or payable to government as owner of the resource. Thus those two criteria of the definition must be analyzed specifically.
i. In Respect of Production of a Resource
[10] The defendant claims that the payments in question are not made in respect of production of a resource but in respect of the sale of a resource. The defendant submits that the 5% royalty payment that Imperial Oil pays to the Crown under the Proven Area Agreement (clauses 7 and 8) on the substances "produced and saved" are indeed payable in respect of production but, that the one-third payments only become due and payable after the substances have been produced, saved and sold. The following clauses 6, 7 and 8 of the Proven Area Agreement read as follows:
| 6. Imperial shall have the right to use, free from payment or royalty or other charge, such of said substances produced from the proven area as it may require for production and development purposes on said proven area. |
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| 7. Except as provided in Clause 6 hereof, all of said substances produced and saved from the proven area shall as to one-third thereof be owned by His Majesty and as to two-thirds thereof be owned by Imperial. |
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| 8. Imperial, during the term of this agreement, shall pay to His Majesty a royalty of five (5) per centum on the two-thirds of the said substances or any of them owned by Imperial as provided in clause 7 hereof, and in addition Imperial shall unless and until otherwise directed by His Majesty collect from the Government of the United States of America for account of His Majesty an amount equivalent to a royalty of five (5) per centum on that portion of the said crude oil which is purchased by the United States Government and deemed to have been sold from the said substances owned by His Majesty as provided in Clause 13 hereof. |
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The second and third paragraphs of clause 18 of the Proven Area Agreement read as follows:
| On or before the twentieth day of March in each year, Imperial shall forward to the Minister a statement showing the total quantity of the said substances or any of them produced, saved and sold from the proven area during the immediately preceding calendar year and the well-head price received for the said substances or any of them together with a statement showing for said year the reasonable and proper costs, charges and expenses, as hereinafter defined actually incurred for or properly chargeable to the development of the proven area and the production, saving and handling of the said substances or any of them from the proven area. |
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| Accompanying the said yearly statements shall be Imperial's cheque, made payable to the Receiver General of Canada, in an amount equal to one-third of the total of the well-head price so received less one-third of such costs, charges and expenses and also less ten per cent (10%) of such one-third of such costs, charges and expenses as a management fee. In the event that the said yearly statements show a debit balance then Imperial shall carry forward such debit balance in its said books of account as a non-interest bearing account receivable which is to be deducted from the balances standing to the credit of His Majesty in any future settlement or settlements, but His Majesty shall not be otherwise liable to pay the same. |
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[11] As reported in his Reasons for Order (supra), Jerome, A.C.J., said, at page 2, that "the production of a resource must mean more than simply the resource. It includes among the plethora of processes, surveying, drilling, extracting, and storing of the product.". He added that the "Production of the resource" includes "processes involved in extracting the minerals from where they lay.".
[12] In Texaco Exploration Company v. The Queen, [1976] 1 F.C. 323 (T.D.), the late Collier, J. of this Court defined the "production of oil [or] gas" as follows at page 333:
| "In my opinion, the "production of oil [or] gas", in this suit, means the bringing forth, or into existence and human realization, from underground, a basic substance containing gas, and at the same time, other matter.". |
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[13] Pursuant to the Proven Area Agreement, the Crown owns all of the land comprising the Norman Wells Proven Area. Imperial Oil has been given the exclusive right to drill for, mine, win and extract all of the petroleum and natural gas in the proven area, as well as full control of the development and operation of the proven area. All of the said substances produced are to be owned one-third by His Majesty and two-thirds by Imperial Oil. With respect to the two-thirds to be owned by Imperial Oil, the latter is obligated to pay the Crown a royalty of 5%. As to the one-third owned by His Majesty, Imperial Oil is to sell the substances and to remit to the Crown an amount equal to one-third of the well-head price received less one-third of the associated costs and expenses and a 10% management fee. In the Proven Area Agreement, the 5% payable on the two-thirds of the substances owned by Imperial Oil is described as a "royalty", but the yearly payments payable by Imperial Oil for the one-third owned by His Majesty is not so described. Consequently there is a clear distinction between the two payments in the Proven Area Agreement.
[14] However, such is not the case with respect to the Sahtu Dene Agreement where no such distinction is made. And the Sahtu Dene Agreement includes a royalty clause which does not refer specifically to any of the two types of payment. "Royalty" is defined as "any payment" in respect of production of a resource. The annual payments under clause 18 of the Proven Area Agreement have not been specifically included or excluded in the "royalty" definition of the Sahtu Dene Agreement. But the description of "royalty" in the Sahtu Dene Agreement specifically excludes other types of payments.
[15] In my view, the mere fact that clause 18 refers to substances "produced, saved and sold" does not result in the exclusion of the annual payments of clause 18 from the "royalty" definition which refers only to "production". Clearly there must be production before the resource can be sold. That the definition of "royalty" in the Sahtu Dene Agreement contemplates a broad reach is made clear by the use of the words "any payment". Since "production" is a necessary precondition for the "payment" the words "in respect of" must be interpreted in the broadest possible manner.
ii. Paid or Payable to Government as Owner of the Resource
[16] In paragraph 4 of its Statement of Defence, the defendant admits that "the defendant owns one third and Imperial Oil Limited owns two thirds of the petroleum and natural gas produced ...". Clause 7 of the Proven Area Agreement provides that "all of the said substances produced and saved from the proven area shall as to one-third thereof be owned by His Majesty and as to two-thirds thereof be owned by Imperial".
[17] However, in his Reasons for Order (supra), Jerome, A.C.J., wrote that "On its face the literal meaning of the phrase "owner of the resource" is, owner of the land on which the mines and minerals (solid, liquid or gaseous) are found. It does not mean owner of the produced resources.". Then he goes on to say that "The definition properly narrows the scope "any payment" when it states that only payments made to the government as "owner" of the resources, or more clearly, owner of the land on which those resources are found, come within the definition of "royalty".". Clearly, in this instance, the government is both owner of the land and the one-third resource under it. And the definition of "royalty" in the Sahtu Dene Agreement refers to "government as owner of the resource".
[18] With all due respect, the finding of the learned judge that the term "royalty" refers to government as owner of the land, as opposed to owner of the resource, does not conform to the literal interpretation of the definition of "royalty", which definition has been declared not to be ambiguous.
[19] Both parties and the Court are bound by the Order to the effect that the word "royalty" as defined by the Sahtu Dene Agreement is not ambiguous, but we are not bound by the Reasons for Order. Subsection 27(1) of the Federal Court Act stipulates that an appeal lies with the Federal Court of Appeal from any final judgment, judgment on a question of law, interlocutory judgment, or determination as referenced by a federal board. Reasons for orders or judgments are not appealable. As Mahoney, J.A. said in Carlile v. Minister of National Revenue (1993), 161 N.R. 139 (F.C.A.) at page 141, the Federal Court of Appeal "has no jurisdiction at all to entertain an appeal from reasons for judgment.".
iii. The Double Compensation Argument
[20] In its written submissions before Mr. Justice Jerome, the defendant argued that there was latent ambiguity in the definition of "royalty". The ambiguity would be with respect to payments pursuant to clause 18 of the Proven Area Agreement: therefore the parties should be entitled to tender evidence at trial as to the course of negotiations leading to the Sahtu Dene Agreement. As mentioned earlier, the defendant did not appeal Jerome, J.'s decision that there was no ambiguity, patent or latent. Still the defendant referred to previous agreements in principle to show that there was a capital transfer payment in respect of the Norman Wells Proven Area included in chapter 8 of the Sahtu Dene Agreement. Thus, according to the defendant, if "royalty" was found to include the Imperial Oil one-third payment, then the Sahtu Tribal Council would be compensated twice.
[21] In fact, the 1988 and 1990 Agreements in Principle provided at clause 8.1.3 that the capital transfer payment "includes 75 million dollars ... in respect of the Norman Wells Proven Area.". That clause does not appear in the 1993 Sahtu Dene Agreement. Clause 8.1.1 therein merely stipulates that "Canada shall make a transfer ... in accordance with the schedule.". There is no evidence of what was traded away and what was gained by either party during the course of the intervening negotiations. Thus the two previous Agreements in Principle do not serve as an interpretive guide for the final version of the Sahtu Dene Agreement.
[22] If the defendant intended to exclude the annual payments in question from the all-embracing "any payment" paid or payable to government as owner of the resources under the "royalty" definition, because of the so-called capital transfers, the defendant ought to have said so. The definition clearly excludes "any payment for service, for the issuance of a right or interest or for the granting of an approval or authorization.". It is silent with reference to the annual payments paid or payable to government by Imperial Oil.
3 - DISPOSITION
[23] Consequently, a declaration will issue to the effect that the amounts payable to the defendant pursuant to clause 18 of the Proven Area Agreement are resource royalties described in clause 10.1.1 of the Sahtu Dene Agreement. The defendant is also ordered to produce an accounting of all sums payable to the plaintiff by the defendant to date pursuant to clause 10.1.1 of the Sahtu Dene Agreement.
[24] Interest and costs payable to the plaintiff by the defendant.
(Sgd.) "J.E. Dubé"
J.F.C.C.
Vancouver, British Columbia
12 January 1999
FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF SOLICITORS AND SOLICITORS ON THE RECORD
COURT FILE NO.: T-1033-95
STYLE OF CAUSE: THE SAHTU SECRETARIAT INCORPORATED
- and -
HMQ
PLACE OF HEARING: Vancouver, British Columbia
DATE OF HEARING: January 6, 1999
REASONS FOR JUDGMENT:
DUBE, J.
DATED: January 12, 1999
APPEARANCES:
MR. MICHAEL P. CARROLLFOR THE PLAINTIFF
MR. JAMES PEACOCKFOR THE DEFENDANT
SOLICITORS OF RECORD:
DAVIS & COMPANYFOR THE PLAINTIFF
VANCOUVER, BC
MR. JAMES PEACOCKFOR THE DEFENDANT
CODE HUNTER WITTMANN
CALGARY, AB
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1 S.C. 1994, c. 27
2 Action T-1033-95 (F.C.T.D.), June 13, 1997.
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