Significant decision on remedies for breach of freehold oil and gas lease obtained by Billington Barristers

Justice D. Miller of the Court of Queen’s Bench of Alberta has rendered judgment in a significant case clarifying the remedies that are available to the owners of freehold oil and gas rights when operators continue to produce from their land after the lease has expired.

Canpar Holdings Ltd. and Petrovera Resources v. Petrobank Energy and Resources Ltd. considered the rights of the owner of freehold oil and gas rights after a lease to produce from their land had expired, yet the former lessee continued to produce from the land. The Plaintiffs, represented by Richard N. Billington, Q.C. and Monique Morin of Billington Barristers, sought and obtained a wide range of remedies in contract, tort and equity, including an injunction, a declaration that the lease had expired, and damages for miscalculation of royalty payments prior to the expiry of the lease. Most significantly, they also obtained judgment for damages for trespass and conversion for the Defendant’s continued operations from the land after the lease had expired and for an accounting for all sums produced from the land after the lease had expired.

In awarding an accounting, the Court directed that the Defendant must pay to the Plaintiffs the entire value of all substances produced from the land since the time the lease expired, deducting only the actual cost of production. In addition, the Court determined that the Defendant must also pay damages for its actual trespass on the land in the sum of the royalty that it previously was required to pay under the lease. The decision recognized that there had been not only a breach of contract, but that the Defendant had committed separate torts of trespass and conversion.

The decision was also precedent setting in upholding a “no deductions” clause that gave the freehold owner substantially better lease terms than were found in standard industry agreements.

Richard N. Billington, Q.C., lead counsel for the Plaintiffs, commented on the successful result: “This decision develops a line of recent authority in western Canada that those who produce hydrocarbons from freehold land after the lease has expired cannot merely contend that they felt the lease was still valid. The Court will hit them with an injunction, strip them of the entire amount of revenue that they hoped to produce from the land, and then award additional damages to deny them the amounts that they thought they would have to pay by way of royalties had their interpretation of the lease been upheld. This case has also provided the first judicial interpretation and support to the ‘no deductions’ clause contained in the Plaintiffs’ freehold mineral lease. Despite the contention of the Defendant that such a clause is contrary to industry practice, the terms of the lease prevail. ‘No deductions’ means just that, that no deductions shall be made for fuel gas necessary to carry out operations, nor for any other purpose not expressly allowed under the lease.”