[1] The Plaintiffs are holders of a production licence, PL No. 6, pursuant to Canada Petroleum Resources Act, R.S.C. 1985, c. 36 (2^nd Supp.), allowing them to develop and produce petroleum in a delta area of the MacKenzie River. The Plaintiffs, by way of a Statement of Claim issued 20 January 2003, dispute the assessment of royalties by the Crown, seeking to have the assessment vacated, alleging that it is calculated on an improper basis.

[2] At an earlier stage, pursuant to an amended defence, the Crown sought and was refused documents bearing on the knowledge or expectations of the Plaintiffs as to the rate at which they would have to pay royalties. This denial of documents led to a successful motion to amend the already amended defence.

[3] The Crown, having withdrawn on an earlier plea of rectification now, by way of an amended amended defence of 29 September 2004 pleads, among other things, rescission for unilateral mistake:

(v) Consequences of Plaintiffs' Knowledge

54. PL No. 6 should be rescinded for unilateral mistake, on the basis that the Plaintiffs knew or ought to have known that PL No. 6 did not accurately reflect Canada's intention and belief that any royalties payable to Canada by SDL No. 29 and PL No. 6 interest owners on oil and gas production from the Ikhil Land would be calculated and paid on the basis of the royalty regime set forth in the COGA, or that Canada was mistaken about the legal effect of PL No. 6 regarding the calculation and payment of royalties, or both.

This is an alternative approach and leads to new relief. Earlier the Crown had sought dismissal of the action, but now, in addition, seeks rescission of PL No. 6.

[4] By the present motion the Crown seeks documents from the Plaintiffs dealing with their knowledge or expectations as to the royalty rate:

The documents sought by the Defendant concerning the Plaintiffs' knowledge or expectations of the royalty rate payable on gas production from the lands subject to their production license are relevant and producible in the within action;

This relief is sought on the basis of the amendments dealing with rescission.

[5] Underlying all of this is a dispute as to whether royalties ought to be calculated on the basis set out in the Petroleum Resources Act, which is an explicit term of PL No. 6, or, according to the Crown, at the higher rate set out in the Canada Oil and Gas Act, R.S.C. 1985, c. O-6. To add interest to this dispute, for whoever will hear the case eventually, is the fact that the higher royalties depend upon the Canada Oil and Gas Act, which was repealed before PL No. 6 was issued. The Crown, to be fair, is caught in a difficult position: on the one hand a Final Agreement as to Lands the Western Arctic, an agreement of 5 June 1984, given effect by the Western Arctic (Inuvialuit) Claims Settlement Act of 28 June 1984, to which the Plaintiffs are not parties, requires calculations of royalties pursuant to the Canada Oil and Gas Act, at a higher scale; and on the other hand PL No. 6 requires calculation of royalties by way of the Canada Petroleum Resources Act, at a lower rate. I now turn to a consideration of the motion for additional documents.

CONSIDERATION

Production of Documents - General Principles

[6] Federal Court Rule 233, among other things, requires the production of relevant documents. The broad interpretation of relevancy, by the Court of Appeal in the Peruvian Guano Co. (1882) 11 Q.B.D. 55, has stood up well:

It seems to me that every document relates to the matters in question in the action, which not only would be evidence upon any issue, but also which, it is reasonable to suppose, contains information which may - not which must - either directly or, indirectly enable the party requiring the affidavit either to advance his own case^, or to damage the case of his adversary. I have put in the^. words either directly or indirectly," because, as it seems tome, a document can properly be said to contain information: which may enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary, if it is a document which may fairly lead him to a train of inquiry, which may have either of these two consequences : ...

(Page 63)

Further, relevance is not a matter of discretion, but rather the legal principle that a party must produce documents "which might reasonably be supposed to contain information which may directly or indirectly enable the party requiring production to advance his own case or to damage the case of his adversary, or which might fairly lead him to a train of inquiry that could have either of these consequences: ..." : Reading & Bates Construction Co. v. Baker Energy Resources Corp. (1988), 25 F.T.R. 226 (F.C.T.D.) at 230, in effect a modern pre-phrasing of the Peruvian Guano test. Relevance is, however, not quite as broad as all this for, as pointed out by the Federal Court of Appeal in Owen Holdings Ltd. v. Canada (MNR) (1997), 216 N.R. 381 at 388, relevance "must be assessed in light of the issues raised by the appellant in its pleadings.", however "... relevancy must be construed generously, or with fair latitude.".

[7] It might be quite possible to conclude that since the amendments to the defence, as to rescission, were allowed by Mr Justice von Finckenstein in his 15 September 2004 Reasons and Order, that is sufficient support for relevancy of document bearing on the knowledge or expectations of the Plaintiffs, for those concepts are part of the test for rescission of a contract. However such a shortcut overlooks the properly tentative view of the judge in allowing the amendment: "while I would be very surprised if the Defendant succeeded in successfully establishing the defence of mistake, I cannot say it is 'plain, obvious and beyond doubt that it will not succeed'." (paragraph 15). I would observe that this tentative view is not a bar to the present request for documents, but is a caution against ordering production without some consideration. Further, to take such a shortcut also overlooks the nature of a licence. A more comfortable route involves a further analysis of relevancy and usefulness of the material requested to be produced. First however there is a point raised by the Plaintiffs who feel the pleadings do not clearly and explicitly claim in contract.

Pleading of Contractual Claims

[8] The Plaintiffs submitted, during argument, that the current defence does not raise the issue of contract. This is an incomplete analysis of the defence and indeed of the law, for the newly added paragraphs in the defence lead naturally to various alternatives, including rescission. This is not relief sought in a vacuum, but is relief defined by the facts and issues set out in the defence as it now stands. To require a party to plead, unequivocally, the legal nature of a claim, is a throwback to an earlier age when there were forms of actions, one of which had to be selected, to the exclusion of all others, a disaster for the litigant if counsel chose the wrong form of action.

[9] The modern view, as explained by Odgers on High Court Pleading and Practice, 22^nd edition, 1981, Stevens & Sons of London, at pages 164 and 165, is that it is no longer necessary to state the form of action in the pleading; rather the parties state the facts upon which they rely; and the court will then declare the law which arises on those facts.

[10] The defence sets out the particulars of the underlying document and the facts leading to named alternative reliefs. That is sufficient.

Unilateral Mistake

[11] I will begin by observing that the approach of the Defendant of unilateral mistake, involving expectations and knowledge of the Plaintiffs, leading to rescission as possible relief, is very different from the canvassing of the views of an individual as to the interpretation of or applicability of a statute. The views of someone as to interpretation or application of a statute are not only irrelevant, but also inadmissible: see for example Smith, Kline & French Laboratories Ltd. v. Canada (AGC) (1982), 67 C.P.R. (2d) 103 (F.C.T.D.) at page 108, at principle 5. However, expectations or knowledge bearing on rescission are relevant and admissible: see Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., [2002] 1 S.C.R. 678 at 694 - 695. I will later expand on this aspect, but I will first turn to a consideration of the possibility of rescission of a licence.

[12] The appropriate approach is to begin with some understanding of the nature of a licence, broadly a permission to do what is otherwise restricted or prohibited or illegal, for example an authority to enter land without it being trespass. A licence may be coupled with a right to take something from the land, in effect a profit à prendre: in this instance the licence includes a right not only to enter, but also to extract petroleum. Usually such a licence is created by grant or by statute.

[13] There is also such a thing as a contractual licence, as pointed out in Halsbury's Laws of England, volume 9(1), fourth edition, at paragraph 981. This may be the sort of licence that Mr Justice Strayer, as he then was, commented upon in Comeau's Sea Foods Ltd. v. Canada (Minister of Fisheries and Oceans) (1992), 54 F.T.R. 20 (F.C.T.D.) at 27. There he considered the contention of the plaintiff that there was a contractual relationship with the Minister of Fisheries and Oceans whereby, in return for the Minister issuing offshore lobster licences, the plaintiff would outfit vessels and go into a lobster fishery in an area newly acquired by Canada. In effect it was to be an experimental fishery. Mr Justice Strayer had some difficulty with the contractual model but did not deny such as an impossibility:

[22] I have considerable difficulty in fitting this situation into a contractual model. Generally speaking, the relations between public officials who issue licences pursuant to statutory authority and those to whom licences are issued are governed not by the law of contract but by the provisions of the statute and general principles of administrative law. While a contractual relationship is not impossible, there should be clear evidence that the parties intended that contractual rights and duties were to flow from the application for, and grant of, a licence.

(Page 27)

In this passage we have two characterizations of a licence, one traditional, governed by administrative remedies and the other contractual, which could lead to contractual remedies, including injunctive relief or specific performance (see Halsbury, supra) and possibly, as claimed in the present instance, leading to rescission based upon unilateral mistake.

[14] Counsel for the Crown submits that actual or constructive knowledge of a material mistake is relevant in cases of unilateral mistake. Where a material mistake is established, a mistake known actually or constructively by the other side, leads to an unconsciousable result if the agreement is enforced, rescission may lie. Rescission was considered by the BC Court of Appeal in 256593 B.C. Ltd. v. 456795 B.C. Ltd. (1999), 171 D.L.R. (4^th) 470 (the Earl's Towing case). At page 479 the court set out the four elements necessary in order to obtain rescission on the basis of a unilateral mistake:

[28] All the elements for rescission on unilateral mistake are present here: (1) a mistake; (2) on a material term; (3) known actually or constructively by the non-mistaken party; and (4) an unconscionable result if the settlement agreement is enforced. It is my opinion that the mistake gives Ace a huge windfall that it had never bargained for and leaves Earl's with an outstanding debt while simultaneously transferring Earl's' interest in the very asset underlying that debt.

[15] The Crown fits the present alleged mistake into the Earl's Towing case requirements and goes on to elaborate on the nature of the present mistake, contending it relates to the legal effect of the production licence, and that if the Court rejects the primary argument that the higher loyalty rate under the Canada Oil and Gas Act has been incorporated into PL No. 6, then the Crown was mistaken as to the legal effect of the production licence in setting the applicable royalty rate. This type of mistake, relating to the legal effect of an instrument, may be a sufficient basis for rescission. Here counsel of the Crown refers to Can-Dive Services Ltd. v. Pacific Coast Energy Corp., [2000] 5 W.W.R. 683 (B.C.C.A.). Can-Dive involved rectification, however the test for rectification, as set out for example in Performance Industries Ltd. (supra) at 694 and following, involves actual or constructive knowledge of a mistake and is thus similar in its requirements to the remedy of rescission. In Can-Dive Justice of Appeal Braidwood allowed, as a basis for rectification, a mistaken interpretation of the meaning of a contract: see pages 767 and 768. The analogy here is that, just as rectification may be based upon a term used or a term omitted in a contract, in the mistaken belief that it bore a different meaning, from its correct meaning, a similar mistake may support rescission.

[16] Accepting this view of rescission it follows that rescission, as an equitable remedy, depends in part upon establishing actual or constructive knowledge, of the non-mistaken party, as to the alleged mistake.

[17] Counsel for the Crown correctly points out that evidence as to a defence based on mistake does not attract the parole evidence rule, referring to Treitel on The Law of Contract, 10^th edition, 1999, London: Sweet & Maxwell, at 178:

The rule prevents a party from relying on extrinsic evidence only as to the contents of the contract, and not as to its validity. Such evidence can therefore be used to establish the presence or absence of consideration or of contractual intention) or some invalidating cause such as incapacity, misrepresentation, mistake or non est factum. (Emphasis in the original text.)

The thrust of this passage is that the parole evidence rule does not prevent extrinsic evidence from being used where mistake, in a contractual matter, is at issue, in the context invalidating a contract.

[18] Similarly, Fridman on The Law of Contract in Canada, 4^th edition, 1999, Ont : Carswell, deals with the parole evidence rule and evidence of mistake, going to negate the validity of a contract, at pages 481 and 482 as follows:

It has been suggested that the parol evidence rule is intended to avoid injustice. Hence the existence of some exceptions to the rule: (a) to explain incomplete documents; (b) to prove that a condition precedent has been unfulfilled; and (c) to assist in ascertaining the intentions of the parties. In all those situations, the implication may be drawn, injustice would be perpetrated if the written document were accepted as the sole source of the contractual obligations of the parties. To judge by the situations in which parol evidence has been freely admitted by courts, despite the fact that the contract was in writing, the contrary argument can be made that the parol evidence rule is the potential cause of injustice, hence the need to qualify its rigidity in appropriate circumstances.

One obvious situation arises where a party alleges that the written contract was obtained by fraud, misrepresentation, mistake, or other vitiating conduct on the part of the other party; he may adduce evidence to establish his allegation, so as to have the written contract nullified at common law, or perhaps, if this would aid him, rectified in accordance with equitable principles. In such circumstances the party in question is not so much seeking interpretation of the written contract by extrinsic evidence as proving its invalidity, or at least its incorrectness as an expression in . writing of the intentions of the parties as manifested in their oral negotiations of which the written contract purports to be the result.

The admission of parol evidence in cases in which fraud, misrepresentation, and other reasons for upsetting a transaction may be alleged is not a true exception to the parol evidence rule. Such evidence does not affect the teens of the contract so much as to negate as validity....

Again, in the context of rescission, the important aspect of this passage from Fridman is that such extrinsic evidence does not go to explaining the terms of the contract, in the case of mistake, but rather to negating the validity of the contract.

[19] From this discussion of and accepting the possible approach of rescission of a contractual licence and the part played, in unilateral mistake, by the knowledge of the non-mistaken party, here the Plaintiffs, it follows that no only is the mistake of the Crown relevant, but also the knowledge, actual or constructive, of the Plaintiffs is relevant. This leads to production of additional documents.

[20] The further submission of the Defendant is that actual constructive knowledge of the proper royalty rate is relevant because of the principle that mistake based relief is not available in the absence of proof of reasonable expectations, here referring to a passage from Waddams on The Law of Contracts, 4^th edition, Canada Law Book Inc. at page 240:

Cases have already been mentioned where enforcement is refused on the ground that the party seeking enforcement knows of the other's mistake as to contractual terms .⁶⁷ Where the party's signature to a document is induced by a deliberate misstatement of the contents, there is no doubt that enforcement will be denied. "Fraud ... unravels everything" .⁶⁸ Similarly, where the party seeking enforcement actually knows of the other's mistake and remains silent, the court will also grant relief; 69 such conduct is often called "equivalent to fraud"⁷⁰ but this is not entirely a satisfactory expression since it may be thought to imply the need for a criminal onus of proof.⁷¹ It should be sufficient, it is suggested, to show that the party seeking enforcement had no reasonable expectation.

This points to the relevance of reasonable expectations in the present instance.

[21] Counsel for the Defendant, by letter to counsel for the Plaintiffs, of 21 May 2004, sets out a number of classes of documents and 13 specific documents, bearing on the knowledge or expectation of the Plaintiffs as to royalties, of which it requests production. Here the Defendant expresses its concern that the Plaintiffs, as a licencee, might allege at trial, or indeed the trial judge might find, that the relationship between the parties had contractual characteristics. The point here is that enforcement of a contract should be denied where the parties seeking to enforce the contract had no reasonable expectation on a particular benefit. Given the law as to mistake and rescission, the documents requested by the Defendant might reasonably be supposed to contain information directly or indirectly enabling the Defendant to demonstrate, on the part of the Plaintiffs, knowledge, expectations, assumptions, calculations or projections of the applicable royalty rate.

[22] The relevance of such documents is established both in the light of the Federal Court Rules and in the Peruvian Guano case (supra). The Owen Holdings case (supra) reinforces the concept that relevance is determinated by the pleadings. In support of this latter concept from Owen Holdings Chief Justice Isaac approved a passage from Cass on Discovery: Law, Practice and Procedure in Ontario, Ontario: Carswell, 1993 at page 11:

Note, however, that relevance in the discovery process is not to be confused with admissibility for evidentiary purposes. In the discovery process, everything is relevant which bears upon any issue raised by the pleadings. The authorities indicate that precise rules cannot be laid down at the discovery stage as to what is or is not relevant to the issues pleaded. If the documents have 'a semblance of relevancy', they will be declared producible, leaving it to the trial judge to make the determination of relevance at trial.

The reasoning by Chief Justice Isaac, in Owen Holdings, leads him to the conclusion that "[r]elevance must be assessed in light of the issues raised by the appellant in its pleadings." (page 388). Here I recognised that the Chief Justice was dissenting in part, however the basic principles he sets out are completely valid.

[23] It is also useful to refer to a British Columbia Court of Appeal decision, for a clear enunciation of the rule: "The scope of examination for discovery is governed by the issues raised by the pleadings." (Jackson v. Belzberg, [1981] 6 W.W.R. 273 at 275 - 276).

[24] The most recent amendment involved the basis upon which the royalty rate ought to be calculated. However, the pleadings as they presently stand add an additional relief option, that of rescission based upon an alleged reasonable expectation on the part of the Plaintiffs by way of constructive knowledge that the Defendant intended a higher royalty rate under the Canada Petroleum Resources Act. The knowledge aspect is now clearly defined, as a factor leading to rescission. Thus the documents requested are documents which may, directly or indirectly, allow the Defendant to advance its case for rescission or lead to a train of enquiry to that effect. Such documents, assessed in the light of the issues raised in the pleadings are relevant, whether or not one construes relevancy generously or with fair latitude.

CONCLUSIONS

[25] The Plaintiffs will produce a supplementary affidavit of documents dealing with the documents requested by the Defendant and, in proper time, produce the additional documents, being guided by these reasons.

[26] The Plaintiffs submit that if they are required to produce additional documents by reason of the latest version of the defence, the Defendant ought to be required to produce documents upon the same basis. Production of documents is an ongoing process. There is nothing in the material to indicate that the Crown will not produce any additional producible material.

[27] As to costs, the Defendant has been successful on this motion. The Crown looks for an indemnity. I am not prepared to go that far. The Plaintiffs contend that the failure on the part of the Crown to initially plead its case fully has resulted in additional work and in delay, brought about by the substantial change in the character of the action, some two years after it was commenced, complicating the straightforward issue of interpretation of PL No. 6.

[28] The Plaintiffs received the costs of the most recent motion involving amendment. That was clearly appropriate, for costs under the 1998 Rules are purely discretionary and may be awarded, forthwith to either party, regardless of success and regardless of the eventual outcome of the proceeding, particularly where the motion is discreet from the issues at trial.

[29] The present motion for documents, while it was split off from the amendment motion, stands on its own as a motion discreet from the issues at trial. It is generally appropriate to award costs to the successful party on the motion, keeping in mind the purposes of costs on a motion, which include the expedition of the litigation and the focusing of the minds of the litigants on the cost of litigation: see for example AIC Ltd. v. Infinity Investment Council Ltd. (1998) 148 F.T.R. 240 (F.C.T.D.) and Enterprise Rent-A-Car Co. v. Singer, an unreported 10 September 1999 decision, file A-345-98, [1999] F.C.J. No. 1687 (QL).

[30] In the present instance the Defendant having been successful on their motion, the Defendant will have the costs of the motion, mid-range in Column III.

[31] At the conclusion of the motion on 10 November 2004 there was general agreement that while a timetable should be set, amending an earlier direction as to a timetable, that should await the outcome and the present reasons. Either of the parties may apply to the Registry, by letter, requesting an ad hoc telephone case management conference to set a schedule.

(Sgd.) "John A. Hargrave"

Prothonotary

Vancouver, British Columbia

30 November 2004

FEDERAL COURT

NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET: T-85-03

STYLE OF CAUSE: Altagas Marketing Inc. et al. v. Her Majesty the Queen

DATE OF HEARING: 10 November 2004

REASONS FOR ORDER: Hargrave P.

DATED: 30 November 2004

APPEARANCES (BY TELECONFERENCING):

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

You are here

Altagas Marketing Inc. v. Canada, 2004 FC 1682

Citations2004 FC 1682

Case tabs

Citations
2004 FC 1682