Court of Queens Bench of Alberta  
Citation: Hudson King v Lightstream Resources Ltd, 2020 ABQB 149  
Date: 20200227  
Docket: 1001 11801  
Registry: Calgary  
Between:  
Eugenia Hudson King, James Christian Custis Hudson, Andrew Case Hudson, ACH  
Holdings, LLC  
Plaintiffs  
- and -  
Lightstream Resources Ltd. (formerly named Petrobakken Energy Ltd.), Lightstream  
Resources Partnership, Crescent Point Energy Corp. and Crescent Point Resources  
Partnership  
Defendants  
_______________________________________________________  
Reasons for Judgment  
of the  
Honourable Madam Justice A. Woolley  
_______________________________________________________  
Introduction  
[1] William H. Hudson was a Texas entrepreneur and businessman. His son Chris described  
him as a “wildcat” entrepreneur, someone willing to take on high risk ventures with the hope of  
big gains. While Chris isn’t quite sure why, at some point in the 1960s his father became  
interested in Canada, and in the development of oil and gas resources here.  
Page: 2  
[2]  
Ultimately Mr. Hudson discovered hydrocarbons in a reservoir near Rocanville,  
Saskatchewan (“Rocanville Properties”). Lacking the capital necessary to develop his discovery,  
Mr. Hudson through his company Rocanville Corporation entered into agreements with  
another Dallas based company, Triton Petroleum Limited (“Triton”), to allow the Rocanville  
Properties to be developed and for him to profit from his discovery. Triton’s President and Chair,  
Mr. William Lee, was another Texan and a friend of Mr. Hudson’s.  
[3]  
On or about June 3, 1977, the Rocanville Corporation assigned its interests in the  
Rocanville Properties to Triton in exchange for $900,000 (“Rocanville Agreement”).  
[4] In addition, Mr. Hudson and his wife Betty Upton Hudson created a trust for the benefit  
of their three children, Mr. Andrew Hudson, Mr. Chris Hudson and Ms. Eugenia Hudson (now  
Eugenia Hudson-King): the W.H. Hudson Childrens’ Trust (“Childrens’ Trust”; “Childrens’  
Trust Agreement”). The Childrens’ Trust Agreement provided that when the children reached 21,  
they would personally take over the interests of the Childrens’ Trust.  
[5]  
And, finally, the ChildrensTrust entered into a net profit interest agreement with Triton  
with respect to the Rocanville Properties (“NPI Agreement”). The NPI Agreement required  
Triton to drill on the Rocanville Properties at its own risk and expense. If it discovered resources,  
then 50% of any net profits from selling those resources would be transferred to the Childrens’  
Trust. If it acquired other assets within the area covered by the NPI Agreement (“NPI Area”),  
those assets would be subject to the NPI Agreement, with net profits realized from those other  
assets shared between the parties.  
[6]  
The NPI Agreement had no set termination date; it still operates today for the benefit of  
its current counterparties, Chris Hudson, Andrew Hudson through his holding company ACH  
Holdings LLC (“ACH Holdings”) and Eugenia Hudson-King, and Crescent Point Resources  
Partnership (“Crescent Point”).  
[7]  
The case before me arises from a dispute over the NPI Agreement. The Plaintiffs claim  
that the various counterparties to the NPI Agreement, including Crescent Point, did not properly  
account for profits earned on the Rocanville Properties between 1999 and 2015. They claim that  
the Defendants have breached the NPI Agreement, including their duties of good faith and  
honest performance. They further claim that the Defendants are fiduciaries and have breached  
their duties as fiduciaries. And, finally, they claim that the Defendants have acted negligently so  
as to wrongfully injure the Plaintiffs.  
[8]  
The Plaintiffs say that the Defendants have improperly failed to account to them for  
profits earned on the Rocanville Properties in the following ways:  
a) By deducting as operating expenses amounts properly characterized as overhead  
from the revenues earned from the Rocanville Properties;  
b) By deducting taxes paid pursuant to sections 3(1.1) and 13.1 of The Corporation  
Capital Tax Act, SS 1979-1980, c C-38.1, as amended (“CCTA Tax”) from the  
revenues earned from the Rocanville Properties;  
c) By adjusting the NPI Agreement accounts in 2006 for amounts that should have  
been accounted for between 1999 and 2006 in relation to the acquisition of assets  
in the NPI Area from Cherry Hill Resources Inc. (“Cherry Hill”); and  
d) By overcharging for the costs and expenses incurred when acquiring assets within  
the NPI Area from Arista Energy Limited (“Arista”).  
Page: 3  
[9]  
As explained in the reasons that follow, the Plaintiffs have made out their claim in  
significant part. The Defendants breached the NPI Agreement when allocating costs and  
expenses incurred when acquiring assets from Arista. The Defendants also breached the NPI  
Agreement by deducting the CCTA Tax from revenues earned from the Rocanville Properties.  
The Hudsons’ claim in relation to the CCTA Tax is, however, statute barred for any amounts  
charged prior to August 6, 2008. Further, the Plaintiffs’ claim in relation to the Cherry Hill  
allocation is statute barred. Finally, the Plaintiffs have not shown that the Defendants violated the  
NPI Agreement when accounting for overhead expenses.  
[10] I base my decision on the terms of the NPI Agreement. The Defendants breached those  
terms in relation to the Arista acquisition and the CCTA Tax. The Plaintiffs have not shown,  
however, that the Defendants acted negligently. Moreover, the Defendants did not have or breach  
any fiduciary obligations to the Plaintiffs.  
[11] Based on the terms of its Assignment and Novation Agreement to become a party to the  
NPI Agreement, I find that Crescent Point is liable to the Plaintiffs for the breaches of the NPI  
Agreement, and direct it to adjust the NPI Agreement account to correct for the improper  
deductions that were made between 2008 and 2015.  
Background Facts  
The NPI Agreement  
[12] The NPI Agreement was one of three agreements dated June 3, 1977 which began the  
legal relationships at issue in this litigation.  
[13] Through the Rocanville Agreement, the Rocanville Corporation assigned its interests in  
the Rocanville Properties to Triton in exchange for $900,000. Specifically, the Rocanville  
Agreement provided:  
The Assignor [Rocanville] hereby sells, assigns, transfers, conveys and sets over  
unto the Assignee [Triton], and the Assignee hereby purchases and accepts  
directly from the Assignor, the entire right, title, estate and interest of the  
Assignor in and unto the Hydrocarbon rights [“right, title and interest…in and to  
petroleum and natural gas and other related hydrocarbons…in the lands described  
in Schedule ‘A’”] for the total purchase price of Nine Hundred Thousand  
($900,000.00) dollars in lawful money of Canada, the receipt of which sum the  
Assignor hereby acknowledges. TO HAVE AND TO HOLD the same unto the  
Assignee henceforth to its own exclusive benefit absolutely, free and clear of all  
adverse claims and demands whatsoever of all persons claiming through, by or  
under the Assignor…  
[14] Through the Childrens’ Trust Agreement William and Betty Upton Hudson created a  
trust for the benefit of their three children until the children turned 21, at which point the children  
would personally hold the ChildrensTrust’s assets. The motivation for creating the Childrens’  
Trust was estate planning; by 1986 all three children were 21, and the Trust was wound up. Since  
that time, Andrew and Chris Hudson, and Eugenia Hudson-King, have been the counter-parties  
to the NPI Agreement, with ACH Holdings becoming the assignee of Andrew’s interest in 2009.  
[15] Finally, Triton entered into the NPI Agreement with the ChildrensTrust. The NPI  
Agreement provided that within one year from closing of the Rocanville Agreement, Triton  
Page: 4  
would drill two wells on the Rocanville Properties and, if the drilling was successful, it would  
continue drilling up to an additional six wells so long as the wells that it had previously drilled  
were producing oil in commercial quantities: NPI Agreement, Clause II.  
[16] The NPI Agreement provided that Triton would bear all “of the risks, costs and expenses  
of operations conducted by Triton” and that Triton would indemnify the Childrens’ Trust for any  
liability arising from the operations: NPI Agreement, Clause II.D.  
[17] Clause III of the NPI Agreement set out the terms for the distribution of revenue, costs  
and expenses associated with developing the property within the Rocanville Agreement. In  
particular, it provided:  
A. If, as and when TRITON, and its successors and assigns, recover from the  
proceeds of production attributable to the properties and interests acquired by it  
pursuant to the Rocanville Agreement, or any renewals or extensions thereof, and  
from the income defined in Section D of this Paragraph III a sum equal to the total  
of:  
(a) all of the costs and expenses incurred by TRITON in the  
acquisition thereof, including the consideration paid to Rocanville  
Corporation therefor and interest paid by TRITON on loans and  
advances made to it by a lending institution for funds paid to  
Rocanville Corporation as such consideration, and  
(b) all of the costs and expenses of whatsoever nature incurred by  
TRITON and its successors and assigns in exploring, developing,  
drilling, testing, completing, equipping, operating and maintaining  
such properties and interests and marketing the production,  
therefrom, and in conducting the business defined in Section D of  
this Paragraph III,  
HUDSON shall be entitled to receive and TRITON will pay to HUDSON, an  
amount equal to one-half (1/2) of the net profits thereafter realized by TRITON,  
its successors and assigns, from the development and operation of such properties  
and interests and the conduct of such business.  
B. “Net profits”, as such term is used in this Paragraph III shall be the amount by  
which the total of:  
1. Proceeds actually paid to TRITON, its successors and assigns,  
for oil, gas and other minerals produced, saved and sold from the  
attributable to the SUBJECT PROPERTIES (after deducting  
therefrom (i) all payments made on royalties, overriding royalties,  
and other payments out of production to which the same are  
presently subject, and (ii) all taxes thereon other than income  
taxes);  
2. Consideration paid to TRITON, its successors and assigns, for  
personal property and equipment constituting a portion of the  
SUBJECT PROPERTIES (including equipment in or on the  
properties described in Part I of Exhibit Ato the Rocanville  
Agreement, but excluding such oil[,] gas and mineral properties);  
Page: 5  
3. Sums paid in cash to TRITON, its successors and assigns, as dry  
hole or bottom hole contributions to the cost and expense of  
operations conducted on the SUBJECT PROPERTIES, to the  
extent such sums are paid by parties not owning an interest in or  
participating in such operations; and  
4. Credits allowed or payments made to TRITON, its successors  
and assigns, by the Province of Saskatchewan, Canada, for  
operations conducted by TRITON, its successors and assigns, on  
the SUBJECT PROPERTIES if and to the extent that such credits  
or payments are funded from the production attributable to the  
properties and interests covered by this agreement.  
exceeds the total of the costs and expenses incurred by TRITON, its successors  
and assigns, in exploring, developing, drilling, testing, completing, equipping,  
operating and maintaining the SUBJECT PROPERTIES.  
All of such proceeds, costs and expenses shall be acculated [sic].  
C. There shall be charged as cost and expense for the purposes hereof the sum of  
$1250 (Canadian) per month, in lieu of any other charge for administrative  
supervision and overhead. There shall not be considered a cost and expense  
incurred by TRITON and there shall not be charged as cost or expense for the  
purposes hereof (i) any other cost or expense incurred by TRITON in maintaining  
its corporate offices, or (ii) the salaries of any officers or employees for time not  
actually expended on the properties.  
E. Not less frequently than quarter-annually after the date of closing the purchase  
and sale provided by the Rocanville Agreement, TRITON will furnish to  
HUDSON a statement in detail setting forth the revenue received, the costs and  
expense incurred, and the status of such net profits account. Payment for such net  
profits realized during each particular quarter-annual period shall be made to  
HUDSON within 30 days after the expiration of the quarter-annual period during  
which the same were realized.  
[18] Clause IV of the NPI Agreement provided:  
If while there remains in force and effect any lease acquired by TRITON pursuant  
to the Rocanville Agreement TRITON acquired any additional interest in the oil,  
gas or other minerlas [sic] in and under lands within two (2) miles of any of the  
lands covered by and of the leases described in Part I of Exhibit “A” to the  
Rocanville Agreement, such additional interest shall constitute a part of the  
SUBJECT PROPERTIES for all purposes hereof, including the computation of  
net profits pursuant to Paragraph III hereof, and the cost and expense incurred by  
TRITON in the acquisition thereof shall constiture [sic] a cost and expense in the  
computation of net profits.  
[19] For the purposes of this dispute, the key contractual provisions are Clause III.C which  
caps overhead expense deductions at $1250; Clause III.B.1which allows for the deduction as  
expenses the taxes paid on the proceeds earned on the oil produced from the Rocanville  
Page: 6  
Properties; and Clause IV which allows Triton to deduct amounts for the “cost and expense” it  
incurs when acquiring assets within the NPI Area.  
[20] The Plaintiffs argue that some amounts deducted as operating expenses were properly  
characterized as overhead within the meaning of Clause III.C and thus subject to the $1250 cap.  
They argue that the CCTA Tax is functionally a capital tax, not a tax on the proceeds earned  
from the Rocanville Properties, and thus not deductible within the meaning of Clause III.B.1.  
They argue that while the Cherry Hill transaction amounts were properly calculated, they were  
not allocated at the appropriate time period. Finally, they argue that the amounts charged to the  
NPI Agreement account for the Arista acquisition did not reflect the costs and expenses incurred  
in the acquisition of the assets covered by the NPI Agreement; as a result, the charges breached  
Clause IV of the NPI Agreement  
The parties  
[21] The original counterparties to the NPI Agreement were Triton and the ChildrensTrust.  
In 1986, when Ms. Hudson-King turned 21, the Childrens’ Trust was wound up, and the Hudson  
children became direct counter-parties to the NPI Agreement.  
[22] In 2009 Andrew Hudson created a company called ACH Holdings to manage his  
financial interests and made his brother-in-law Frank-Paul King the manager of that entity. By  
way of an agreement dated November 11, 2009, he assigned his interest in the NPI Agreement to  
ACH Holdings. Since that time, Andrew Hudson’s interest in the NPI Agreement, now held by  
ACH Holdings, has been managed and monitored by Mr. King on his behalf.  
[23] Mr. King also took responsibility for managing and monitoring his wife Ms. Hudson-  
King’s interests in the NPI Agreement. During the time period at issue in this litigation, Mr.  
King had employees of his companies King Strategic and King Capital Partners, Wade Wegner  
and Peggy Thomm-Trout, assist him with the management and monitoring of the NPI Agreement  
accounts.  
[24] The Hudsons and Mr. King are all well-educated; all have university degrees.  
Additionally, Chris Hudson is a lawyer and Mr. King has an MBA.  
[25] Mr. King has extensive business experience in the area of securities and finance,  
including in relation to the oil and gas sector. Along with his interest in his company King  
Capital Partners, he is Chair and Chief Executive Officer of Four Star Energy Company and  
President and Chief Executive Officer of TFO Holdings.  
[26] Chris Hudson currently works as a lawyer and has done so since his graduation in 1989,  
except for a period between 2000 and 2007 when he worked managing his then wife’s business  
and real estate holdings. Chris Hudson has also worked in various business capacities, including  
holding a 50% interest in a company called Technical People Incorporated for a time.  
[27] Andrew Hudson has worked in various business ventures since he graduated from  
university in 1983, although he has had some financial struggles over the years, which is what  
led him to create ACH Holdings and to pass management of his financial and business affairs to  
Mr. King.  
[28] Ms. Hudson-King had a variety of work experiences prior to starting her family. Since  
1995 she has worked as a homemaker and parent. She had the benefit of Mr. King’s expertise  
and experience in relation to the management of her interests in the NPI Agreement account.  
Page: 7  
[29] In general, the Hudsons and Mr. King have education sufficient to allow them to  
understand the accounting statements provided to them with respect to the NPI Agreement, and  
to ask questions and make inquiries in relation to those statements. They are though neither  
accountants nor active in and knowledgeable about the Canadian oil and gas sector. At no time  
did they have access to information and knowledge, or an ease of understanding, equivalent to  
the various entities who were their counterparties on the NPI Agreement.  
[30] In terms of those entities, Triton, which in 1988 amalgamated and continued as Triton  
Canada Resources Ltd., changed its name in 1993 to Transwest Energy Inc. On March 1, 1998  
Transwest Energy Inc. sold and assigned its entire interest in the NPI Agreement to Real  
Resources Inc (“Real Resources”).  
[31] In August 2007 Real Resources Partnership entered into a plan of arrangement with  
Tristar Oil & Gas Ltd. It changed its name to TOG Partnership and continued operations as  
Tristar Oil & Gas Ltd (“Tristar”).  
[32] Tristar was a junior oil and gas company actively engaged in growth and expansion; it  
had both an active drilling program and an active interest in acquisitions. It pursued 1 to 2  
acquisitions per month, although not all of them came to fruition. From its foundation in 2006,  
TriStar actively expanded, going from producing approximately 1000 barrels of oil per day to  
producing 25,000 per day by 2009. The President of TriStar was Brett Herman. The Chief  
Financial Officer was Jason Zapinsky. Eric Strachan was the Vice President Exploration, Filippo  
Angelini was the Controller, Graham Kidd was the Vice President Engineering and Brian Purdy  
worked as a corporate development analyst. Jeremy Wallis was the Vice President Lands. At the  
time it acquired Real Resources in 2007, TriStar had approximately 15 employees; however, it  
kept on the majority of Real Resource’s technical and administrative staff and by 2009 had about  
150 employees.  
[33] Organizationally TriStar had a group responsible for land the contracts and  
administration department which included surface and mineral landmen working in area teams.  
The contracts and administration department was supervised by Mr. Wallis, who had worked at  
the company from when it was incorporated until it was acquired by Petrobakken in 2009. After  
the acquisition of Real Resources it also had land managers, first Perry Green and then Lawrence  
Fisher. Mr. Fisher was the Manager of Land and Business Development from 2008 until 2017  
and reported to Mr. Wallis. Mr. Fisher was Lightstream’s corporate representative for the  
purposes of this litigation. Working under the land managers in relation to the NPI Agreement  
were Shyanne Way (then Woroniuk) and Shawn McDonald.  
[34] TriStar also had an accounting group, a number of whom had previously worked for Real  
Resources. One of those, Kristin Clark, was responsible for the accounting associated with the  
NPI Agreement from 2006 until September 2014, except for the period from January 2011 to  
February 2012 when she went on maternity leave.  
[35] TriStar also had reserve engineers and evaluators, one of whom was Luke Kimber, who  
came to TriStar from Starpoint Energy Trust. Mr. Kimber’s role at TriStar involved the  
performance of reserve evaluations related to acquisition and investment decisions.  
[36] On October 1, 2009 Tristar amalgamated with the Canadian Business Unit of  
Petrobakken Energy and Resources Ltd. It continued as Petrobakken Energy Ltd.  
(“Petrobakken”). The TOG Partnership changed its name to PBN Partnership. From that time  
Page: 8  
Petrobakken was the managing partner and agent of PBN Partnership in respect of the NPI  
Agreement.  
[37] Ms. Clark, Mr. Fisher, Mr. McDonald and Ms. Way all continued to work at the company  
after it was acquired by Petrobakken. Mr. Wallis did not.  
[38] On May 22 2013 Petrobakken changed its name to Lightstream Resources Ltd. and PBN  
Partnership changed its name to Lightstream Resources Partnership (“Lightstream”).  
[39] On September 30 2014 Lightstream Resources Partnership sold and assigned its entire  
interest and obligations in the NPI Agreement to Crescent Point. Crescent Point Energy Corp. is  
the managing partner and agent of Crescent Point in respect of the NPI Agreement.  
[40] The Assignment and Novation Agreement between Lightstream and Crescent Point set  
out the nature of the obligations undertaken by Crescent Point as the “Assignee” of the NPI  
Agreement and in particular to any defined “Third Party” which, in this case, were ACH  
Holdings, Chris Hudson and Eugenia Hudson-King. Specifically, the Assignment and Novation  
Agreement provided:  
2. Assignee herby accepts the assignment herein provided and covenants and  
agrees with Assignor and Third Party to assume as of the Effective Date, and  
thereupon and thereafter to be bound by and observe, carry out and perform and  
fulfill all of the covenants, conditions, obligations and liabilities of Assignor  
under the Agreement, to the same extent and with the same force and effect as  
though Assignee had been named a party to the Agreement as of the Effective  
Date in the place and stead of Assignor.  
3. Third Party hereby consents to the assignment and accepts Assignee as a party  
to the Agreement, and hereby covenants and agrees that as of the Effective Date,  
Assignee shall be entitled to hold and enforce all of the benefits, rights and  
privileges of Assignor under the Agreement as if Assignee had been originally  
named as a party to the agreement, and from and after the Effective Date, the  
Agreement shall continue in full force and effect with Assignee substituted as a  
party thereto in the place and stead of Assignor.  
4. As of and from the Effective Date, Third Party hereby expressly releases,  
relieved and discharged Assignor from all its duties, obligations and liabilities  
arising out of or accruing under the Agreement; PROVIDED however that  
nothing herein contained shall be construed as a release of Assignor from any  
obligations or liability under the Agreement, which obligations or liability  
accrued prior to the Effective Date…  
6. for the benefit of Third Party only, Assignee expressly acknowledges that in all  
matters relating to the Agreement, subsequent to the Effective Date and prior to  
the delivery of a fully executed copy of this Agreement to Third Party, including  
but not limited to all accounting, conduct of operations and disposition of  
production thereunder, Assignor has been acting as trustee for and duly authorized  
agent of Assignee. For the benefit of Third Party only, Assignee expressly ratifies,  
adopts and confirms all acts or omissions of Assignor in its capacity as trustee and  
agent, to the end that all such acts or omissions shall be construed as having been  
made or done by Assignee  
Page: 9  
[41] The current counterparties to the NPI Agreement are thus Chris Hudson, Eugenia  
Hudson-King, ACH Holdings and Crescent Point.  
[42] In terms of the issues raised by the Hudsons, the claims regarding overhead and the  
CCTA Tax cover the entire period from 1999-2015 that is, the time when Real Resources,  
TriStar, Lightstream, Petrobakken and Crescent Point were variously the named counterparties to  
the NPI Agreement. The Arista acquisition claim arises from the period when TriStar and  
Petrobakken were the counterparties to the NPI Agreement, because the amounts in relation to  
that acquisition were allocated to the NPI Agreement account in 2008 (by TriStar) and in 2010  
(by Petrobakken). The Cherry Hill transaction issue arises from the period when Real Resources  
was the counterparty to the NPI Agreement.  
[43] The liability of Crescent Point in relation to the CCTA Tax charges prior to 2014, and in  
relation to the Arista acquisition charges, turns on the interpretation of the Assignment and  
Novation Agreement, and on what obligations Crescent Point incurred by virtue of having “been  
named a party to the Agreement as of the Effective Date in the place and stead” of Lightstream  
and having been bound to “carry out and perform and fulfill all of the covenants, conditions,  
obligations and liabilities” of Lightstream as of that time.  
[44] In terms of the trial before me, the witnesses for the Plaintiffs included the Hudsons, Mr.  
King and Mr. King’s employee, Mr. Wegner. The witnesses for the Defendants included Mr.  
Wallis, Ms. Clark, Mr. Kimber, Mr. McDonald, Ms. Way and Mr. Fisher, along with a  
representative of Crescent Point, Ms. Shelley Witwer.  
Overview of the Operation of the NPI Agreement: 1977-2015  
[45] This section provides the background facts with respect to the following:  
a) The Defendants’ general accounting practices in relation to the NPI Agreement;  
b) The Defendants’ management of their legal obligations under the NPI Agreement,  
including their perception of, and attitude to, the NPI Agreement;  
c) The Plaintiffs’ approach to, and management of, their interests in the NPI  
Agreement; and,  
d) A chronology of key events.  
[46] Specific facts related to the accounting for overhead and the CCTA Tax, and the  
allocation of amounts for the Arista acquisition and the Cherry Hill transaction, will be set out in  
the sections of the judgment analyzing those issues.  
NPI Agreement Accounting General  
[47] Under the NPI Agreement, the Defendants were required to provide quarterly statements  
“setting forth the revenue received, the costs and expenses incurred, and the status of” the NPI  
Agreement accounts: Clause III.E.  
[48] The Defendants calculated the NPI Agreement account on a cumulative and accrual  
basis. The NPI Agreement explicitly directed cumulative accounting; it referred to proceeds,  
costs and expenses being “acculated”, but all witnesses agreed this was a typo and that the  
parties meant “accumulated”: Clause III.B.  
[49] The cumulative accounting meant that while any positive balance would be paid out on a  
50% basis to the NPI Agreement holders in the month it was earned, any negative balance in one  
month was carried over to the next.  
Page: 10  
[50] The accrual accounting meant that expenses would be booked as soon as they were  
incurred, but the account would be adjusted once the company received invoices so as to reflect  
the actual amount of the cost. The accrual accounting contributed to delays in issuing the NPI  
Agreement revenue statements and also resulted in adjustments to those statements.  
[51] The Defendants regularly adjusted the NPI Agreement accounts. Those adjustments  
could be for a year or two but, as was the case in the Cherry Hill transaction, could occur as long  
as 7 years later.  
[52] When adjusting the NPI Agreement accounts, the Defendants did not identify where the  
change arose or explain why it had occurred. In her testimony Ms. Clark, the accountant in  
charge of the NPI Agreement accounts, explained that it was not practical to identify or explain  
every adjustment because the numbers changed too frequently. Ms. Clark also said that she did  
not inform the Hudsons of any time limit on when adjustments could be made and that she  
herself did not understand there to be any such limit. In Ms. Clark’s view, an amended statement  
was intended to be relied upon as the correct statement, and the previous statement should be  
viewed as incorrect.  
[53] The Plaintiffs received two types of accounting documents from the Defendants with  
respect to the NPI Agreement accounts. Revenue statements listed the gross revenues received  
over the reporting period and the amounts deducted from those revenues for transportation, the  
CCTA Tax (called the “Saskatchewan Gov’t Surcharge”), royalties, including the Freehold  
Production Tax, operating expenses and overhead in the amount of $1250. It listed, but did not  
deduct, the actual amounts of overhead expenses incurred by the Defendants in relation to the  
Rocanville Properties. The revenue statements also recorded the amounts charged by the  
Defendants for costs incurred in relation to the acquisition of properties within the NPI Area in  
those reporting periods in which such costs were incurred. Because those acquisition costs were  
often high, and given the cumulative nature of the NPI Agreement account, the acquisition costs  
could be carried forward for many months or even years.  
[54] The Plaintiffs also received a monthly operating summary (also called a lease operating  
statement/lease op) from the Defendants from time to time. The monthly operating summary  
provided a more detailed month by month breakdown of revenues and expenses, including how  
revenue was calculated, a list of costs associated with authorizations for expenditure for the  
Rocanville Properties, the type of royalties payable, and the categories of expenses charged to  
the NPI Agreement account. The monthly operating summary did not describe the nature of the  
expenses charged beyond headings such as “Equipment Rentals”.  
[55] To create the monthly operating summaries Ms. Clark would run a query in the company  
accounting system based on a well list provided to her by the contracts and administration  
department, the cost centres assigned to each well, and any authorizations for expenditure  
associated with the wells. The revenue and royalty amounts came from the production  
accounting group who recorded those amounts. If there were land or reserve acquisition amounts  
those were provided to Ms. Clark by someone in the contracts and administration department.  
[56] One challenge with the NPI Agreement accounting was the division of responsibility  
between the accounting and contracts and administration departments; the Defendants did not  
have any person or group responsible for all aspects of the NPI Agreement and its accounting.  
Ms. Clark testified that she did not read the NPI Agreement; she relied on the landmen to provide  
her with the information she needed to do the accounting in accordance with that Agreement. At  
Page: 11  
the same time, however, Mr. McDonald and Mr. Fisher testified that they had no involvement  
with Ms. Clark’s work other than to deliver allocations of costs and expenses associated with  
acquisitions. They did not review her work to determine if it was being done in accordance with  
the terms of the NPI Agreement. While Mr. Fisher testified that he understood the contracts and  
administration department to be responsible for the interpretation of the NPI Agreement and  
ensuring that it was complied with, he did not have any personal knowledge of how the NPI  
Agreement accounting was done other than knowing that it was done on an accrual basis.  
[57] Ms. Way, who for some time was the landman in charge of the NPI Agreement, testified  
that she had responsibility to determine what was and was not included in the NPI Agreement  
accounting. She also, however, said that she did not know how Ms. Clark prepared the NPI  
Agreement accounts. She reviewed the accounts to be aware of what they said but did not  
scrutinize the numbers they contained. She did not review Ms. Clark’s work in any way. It was  
not clear from her testimony how, as a matter of practice, she ensured that the NPI Agreement  
accounting complied with the NPI Agreement.  
[58]  
This is one of the significant points in relation to the general approach taken by the  
Defendants to the NPI Agreement accounting: the organization and approach of the Defendants  
created risks of gaps in ensuring that the accounting complied with the terms of the NPI  
Agreement.  
[59] Also significant is the extent to which the accounting for the NPI Agreement largely  
flowed from the general accounting practices and approaches of the Defendants. While certain  
specific facts about the NPI Agreement determined how the accounting was done the $1250  
cap on overhead, the properties to which it applied, and the ability to charge for asset  
acquisitions within the lands covered by the NPI Agreementfor the most part the Defendants  
approached the NPI Agreement accounting in accordance with the procedures they used for other  
properties in which they had an interest; in, for example, how they identified overhead  
expenditures, how they coded operating expenses and how they allocated operating expenses  
between different properties.  
[60] Finally, the Defendants determined how to interpret and apply the general principles set  
out in the NPI Agreement, without input from, or consultation with, the Plaintiffs. That was  
consistent with the structure of the NPI Agreement but is nonetheless significant for  
understanding the accounting practices at issue in this trial. It was the Defendants alone who  
determined what would properly be characterized as overhead and subject to the $1250 cap, what  
would be included in “Proceeds actually paid…after deducting therefrom…all taxes thereon”,  
what amounts should be characterized as a cost and expense incurred “in exploring, developing,  
drilling, testing, completing, equipping, operating and maintaining” the Rocanville Properties,  
and how to calculate the “cost and expense” incurred when acquiring interests within the lands  
covered by the NPI Agreement. Significantly, the NPI Agreement did not incorporate the more  
extensive accounting guidelines published by the Petroleum Accountants Society of Canada  
(“PASC” – formerly the Petroleum Accountants Society of Western Canada (“PASWC”)) that  
are commonly incorporated in oil and gas joint operating agreements. The only direction given  
for the accounting was that contained in the NPI Agreement itself, and the interpretation of that  
Agreement was done by the Defendants.  
Page: 12  
NPI Agreement Land Management  
[61] As noted, the contracts and administration department was responsible for interpreting  
the NPI Agreement. It was also responsible for assessing the relationship between the NPI  
Agreement and the financial and corporate interests of the Defendants.  
[62] The NPI Agreement was unusual and, for most of the employees in the contracts and  
administration department, was one of only a few such agreements they encountered in their  
career. Mr. Fisher observed that he had managed well over 1000 land contracts, but only three of  
those were net profit interest agreements  
[63] In general, the contracts and administration department viewed the NPI Agreement  
negatively. They viewed it as a drag on the financial and corporate interests of the Defendants  
and one which created excessive administrative work and complexity. My impression from the  
record was that the department viewed the NPI Agreement as fundamentally unfair, requiring the  
Defendants to share with the Plaintiffs profits that by rights should have been theirs.  
[64] In 2006 Ms. Way referred sarcastically to the “wonderful NPI”. She also suggested in a  
draft e-mail dated November 3, 2006, “before we drill too many wells in Rocanville, it would be  
worthwhile to try and buy these guys out again”. In the final e-mail sent to management on  
November 9, 2006, she said “the longer we hold out paying them anything, the better are [sic]  
chances are in making a deal with them to buy out their interest.  
[65] In an e-mail from 2007, in response to a request from Mr. King to discuss the Agreement,  
Ms. Way said “before we chat with the Hudson crew, I do not want us playing up the fact that we  
have spent all this money on seismic which will guarantee drilling. If they think we are going to  
drill, they will hold out from selling their NPI interest. At some point this year, I would like to  
approach the Hudson’s [sic] with a buyout offer. As discussed, shooting seismic, buying land,  
etc. is part of our business and how we evaluate our properties”.  
[66] In another 2007 e-mail Ms. Way said that the “agreement has been a headache and  
definitely messes up the economics for the area”.  
[67] Mr. Strachan, the Vice-President Exploration of TriStar, described the NPI Agreement as  
“pretty harsh” and having the potential to “impact our drilling here in the future”.  
[68] Ms. Way expressed the view that the Hudsons should not be provided with information  
beyond that contemplated by the NPI Agreement that is, quarterly statements. She also noted  
the advantages that accrue to the Defendants when the NPI Agreement account was in a negative  
position, suggesting that the company might want to drill a new well because the well “if  
successful will come on strong and then decline allowing TriStar to maximize the production  
revenue that goes into our pocket w/o having to pay the Hudson’s 50% of the net profit.”  
[69] In another e-mail from 2007, the TriStar area geologist, Sandy Denton, reiterated Ms.  
Way’s point about the negative account position allowing new wells to be drilled without having  
to pay out funds to the Hudsons; he also suggested that “by far the best option here is to buy the  
NPI holders out. They would likely be more amenable to an offer now that their $75,000 a month  
cheques have been cut off”.  
[70] In 2008 Mr. McDonald considered in more detail the possibility of buying out the  
Hudsons or converting their interest to a 1% non-convertible gross overriding royalty. He  
discussed that possibility with Mr. Wallis. The goal was to remove the NPI Agreement as an  
Page: 13  
encumbrance on the property, which Mr. McDonald viewed as desirable because the size of the  
property it covered and because of its indefinite duration. Mr. McDonald also had concerns with  
the administration associated with the NPI and the fact that it created a relatively archaic  
encumbrance on the land, and one which is poorly understood. Mr. Wallis testified that he also  
had concerns with the accounting complexities created by the NPI Agreement.  
[71] Ultimately, however, Mr. Wallis and Mr. McDonald concluded that a buyout was not  
financially feasible, although they did discuss the possibility with the Hudsons in early 2009.  
[72] Shortly prior to the Plaintiffs filing the claim against the Defendants, Ms. Way had a  
conversation with Mr. Wegner about the NPI Agreement account. In May 2010 she told Mr.  
Wegner that Petrobakken had no obligation to send the Hudsons records related to the  
acquisition. In Mr. Wegner’s summary, which Ms. Way agreed was accurate, he says,  
Shyanne pushed hard for us to think about selling the Hudson NPI interest to  
Petrobakken. She then insinuated that given their policy of no data sharing and  
their acquisition history in the area, the Hudson NPI interest may never see  
‘positive’ status again since the allocation of costs between Petrobakken and the  
Hudson interest is somewhat at the discretion of Petrobakken.  
[73]  
In her testimony Ms. Way said that these comments were based on her interpretation of  
the NPI Agreement, and on the guidance of Mr. Fisher.  
[74] In their testimony before me Mr. Wallis, Mr. McDonald, Mr. Fisher and Ms. Way all  
suggested that the correspondence here simply reflected the ordinary practices of the contracts  
and administration department to review existing agreements and to consider acquisition  
opportunities; Mr. McDonald said that he was always trying to increase the company’s interests  
in existing areas through acquisitions or otherwise. All of them denied taking steps to  
deliberately keep the NPI Agreement in a negative position so as to force the Hudsons to accept  
a buy-out. They emphasized that no formal buy-out offer was ever made.  
[75] I did not have any significant issues with the credibility of these witnesses, all of whom I  
thought answered the questions put to them in accordance with their recollections and beliefs  
about what took place. Based on the record before me, I do not find that any of them deliberately  
or wilfully sought to subvert the Defendants’ contractual obligations to the Hudsons. On the  
other hand, I also thought that each of them sought to characterize their approach to the NPI  
Agreement as having a probity that the contemporaneous documentation did not support. That  
documentation shows a consistent hostility to the NPI Agreement, and a failure to recognize the  
legitimacy of the Plaintiffs’ rights to share in the profits from the Rocanville properties. That  
hostility and failure, even if it did not cause them to deliberately or wilfully breach its terms,  
increased the likelihood that they would fail to act consistently with what it in fact required.  
[76] In my view the general attitude of the contracts and administration department to the NPI  
Agreement is relevant to assessing the conduct of the Defendants, particularly with respect to the  
acquisition of the costs and expenses arising from the Arista acquisition, and their duty of honest  
performance.  
NPI Agreement The Plaintiffs’ Interests and Management  
[77] The Hudson children only became aware of their interest in the NPI Agreement in the  
mid-1990s when they first received net profits payments. This may have been because the lands  
Page: 14  
did not become profitable until that time or, as Chris Hudson suggested, because the profits had  
been retained by William Hudson personally prior to that time.  
[78] The Hudsons testified that the payments from the NPI Agreement were valuable and  
important to them; between 1995 and 2006, for example, Ms. Hudson-King calculated receiving  
$1,278,227.58USD in net profit payments. Collectively, in 2003 the Hudsons received $422,484;  
in 2004 they received $696,906; in 2005 they received $476,002; and in 2006 they received  
$483,107.50.  
[79] During the time when they were receiving regular payments from the NPI Agreement, the  
Hudsons did not put much time into reviewing the documentation received in respect of the NPI  
Agreement.  
[80] As noted, Mr. King managed the NPI Agreement on Ms. Hudson-King’s behalf. From  
approximately 1992, when she first received payment under the NPI Agreement, until  
approximately 2006, he reviewed the statements and monitored in a general way activities in the  
Rocanville area by, for example, looking for press releases that identified such activities. He or  
one of his employees prepared documentation to record and track the revenues received by Ms.  
Hudson-King, taxes paid on the revenues and the conversion rate from Canadian to US dollars.  
Mr. King testified that he was fastidious about a careful review of the numbers. He noted as an  
example an e-mail dated August 10 2006 in which his employee Peggy Thomm-Trout corrected  
a $260 dollar error made by the operator in the Hudsons’ favour and wrote that “My boss makes  
me balance to the penny or know the difference”.  
[81] Prior to 2009 Andrew and Chris Hudson were responsible for managing their interests in  
the NPI Agreement; however, the Hudson brothers were less actively engaged with the issues  
than Mr. King, and they obviously relied on him and his employees to monitor and assess how  
the NPI Agreement account was managed by the Defendants. After 2009, with the creation of  
ACH Holdings, Andrew Hudson transferred the management of his interest in the NPI  
Agreement entirely to Mr. King.  
[82] Towards the end of 2006, the Plaintiffs stopped receiving payment under the NPI  
Agreement. This was because the operator, which by that time was Real Resources, had spent  
$3,600,000 shooting 3D seismic, and that expense had been charged to the NPI Agreement  
account, putting it in a deficit position.  
[83]  
The cessation of payments under the NPI Agreement concerned all of the Hudsons. At  
that time Andrew and Chris Hudson each had challenging financial circumstances and relied  
upon the income received through the NPI Agreement. Mr. King and Ms. Hudson-King did not  
have the same financial challenges as Andrew and Chris Hudson; however, once the NPI  
Agreement moved into a negative position, Mr. King increased his activity and involvement in  
monitoring the NPI Agreement accounts.  
[84] Mr. King, Chris and Andrew Hudson had a number of discussions with Real Resources  
and its representatives in relation to the seismic issue. They wanted to receive more information  
about the results obtained from the 3D seismic data, and the reason for seeking that data. They  
also wanted to have more information about the land covered by the NPI Agreement. Real  
Resources declined, however, to provide them with much of the information requested. The  
Hudsons and Mr. King could see, and were later provided with, a copy of a plat map indicating  
the land covered by the NPI Agreement, but Ms. Way advised them that they were not allowed  
Page: 15  
to see the 3D seismic data because the NPI Agreement did not entitle them to receive it. The  
refusal to share the seismic data troubled Mr. King, particularly the extent to which the operator  
was permitted to incur costs and include them in the NPI Agreement accounts without any input  
from the Hudsons.  
[85] At this time the Hudsons also had concerns about the frequency with which they were  
receiving statements from Real Resources and with the accuracy of the statements. The NPI  
Agreement accounts were regularly adjusted, amended and reissued, but those amendments  
occurred much more frequently after 2000. Mr. King testified that between 2000 and 2006  
amendments or updates occurred once or even twice a month, and often applied to multiple  
reporting years. The amendments were generally to correct mathematical errors or to provide  
updated information about expenses incurred. Sometimes the amendments would date back  
several years.  
[86] At that time, in late 2006/early 2007, Mr. King and the Hudsons considered retaining  
legal counsel or seeking an audit of the NPI Agreement accounts. Mr. King made inquiries of a  
contact he had in Calgary, Allan Ross of Ross Smith, with respect to identifying a suitable  
accountant to complete the audit and Calgary’s “best Oil and Gas litigation attorney”. Mr. King  
also hoped that Mr. Ross might be able to arrange a meeting between Mr. King and the President  
of Real Resources, but that did not occur. Mr. Hudson was given a recommendation for a  
Canadian lawyer, Mr. Carsten Jensen QC, in an e-mail from Mr. Ross dated October 23, 2007.  
Ultimately, however, the Hudsons were not willing to undertake the expense of an audit or  
obtaining legal advice at that time.  
[87] In 2008 the Hudsons again considered the possibility of an audit. In January 2008 Mr.  
King contacted the Hudsons to say that he thought “it would be beneficial for the four of us to sit  
down and see if it makes sense to work on a plan for clearing up the situation in Canada with  
TriStar”. He said that he thought the accounting was inaccurate, that a joint interest audit would  
be appropriate and that they could “recover a significant amount of money from TriStar if we are  
able to correct the accounting”. Mr. King estimated that an audit would cost $90-150,000, and  
they would each have to pay one-third of that cost. At around this time Chris Hudson also had  
discussions with Greg Draper, a forensic accountant at Meyers Norris Penny LLP, about the  
possibility of a forensic audit.  
[88] Again, however, the Hudsons decided against doing an external audit because of the  
expense and because they were not sure how beneficial it would be. Andrew Hudson also  
expressed concern about undermining the relationship with TriStar; he thought it would be  
preferable for them to do the analysis themselves. It was thus agreed that King Strategic would  
undertake a review of the NPI Agreement accounting documents, and other publicly available  
information, to assess the NPI Agreement accounts. King Strategic agreed to complete this  
review for $125USD per hour up to a maximum of $3000USD, with the cost to be shared evenly  
between the Hudsons.  
[89] Mr. King confirmed the scope of the review in an e-mail dated January 17, 2008. He was  
to determine whether the “50% Net Profits Interest has been accounted for properly [and] in  
accordance with the 1977 Net Profit Agreement” and the Hudsons’ “rights as assignees to the  
1977 Net Profit Agreement”.  
[90] Following this exchange King Strategic began its review. The review consisted of  
analyzing all of the NPI Agreement account statements that had been received over the past  
Page: 16  
decade and doing a comparative analysis in which they looked at production, expenses, the  
amount of expenses as a portion of revenues, and royalties as a portion of revenues. They looked  
at how oil prices had changed over time, and how that compared to the price being paid for  
production. They also compared third-party production data to the data they had been given in  
the NPI Agreement account statements. Mr. Wegner described the model as intended to track  
revenue, expenses and activities related to the capital account. It relied on external sources of  
information and such information as they were able to obtain from the Defendants.  
[91] In June, 2008 King Strategic completed its review and reached the following conclusions:  
There is not sufficient evidence suggesting that significant accounting errors exist  
in the joint interest payments and billings generally. This conclusion is based on a  
number of observations, of which the most important are:  
o There exist little variance between the production reported by the operator  
for the wells applicable to the NPI and the production reported by third-  
party data sources for the last ten years.  
o There exist little variance over time in the operating costs of the wells  
applicable to the NPI. In fact, operating performance has generally  
improved over the last ten years.  
o There exist little if any decline in the wells applicable to the NPI over the  
last ten years. This suggests that the operator has done an excellent job of  
perpetuating the production through a combination of workovers,  
recompletions, and additional drilling.  
However, there remains a significant question as to the applicability of the Area  
of Mutual Interest (“AMI”) concept which has been applied in the determination  
of the capital expenditure allocation to the NPI. While we have considered the  
AMI question in the general context of our review of the accounting data, a more  
thorough lands review is required in order to determine whether or not the current  
90 square mile AMI, as determined by the operator, is in keeping with Section  
IV of the original Rocanville Agreement…  
Lastly, while we have not been provided 2008 accounting data by the operator,  
2007 production levels and 2008 commodity price levels would support the  
retirement of the current NPI deficient of approximately $2 million around year  
end 2008 assuming no significant capital expenditures. [Emphasis in original]  
[92] At the time of this review neither Mr. King nor Mr. Wegner realized that the Arista  
acquisition had occurred, and that additional properties within the NPI Area had been acquired.  
They also did not identify or analyze issues related to the CCTA Tax, the Cherry Hill allocation  
or whether operating expenses were being properly distinguished from overhead, although Mr.  
Wegner later included the Cherry Hill acquisition in his model.  
[93] After the first allocation of $8,977,000 associated with the Arista acquisition to the NPI  
Agreement account in August 2008 Mr. Wegner and Mr. King did not have any significant  
concerns, although they did ask follow-up questions and request further information from  
TriStar, as discussed below.  
Page: 17  
[94] In October of 2008 Mr. King told Chris Hudson that he had engaged a lawyer at the  
Miller Thomson firm in relation the interpretation of the NPI Agreement. It does not appear,  
however, that the Hudsons followed through with that engagement.  
[95] During the period from 2008 to 2010 the Hudsons did have some conversations with  
TriStar and Petrobakken with respect to the purchase of the NPI Agreement; however those  
conversations do not appear to have achieved any degree of seriousness.  
[96] Mr. Wegner continued to update the models he had created in the 2008 review of the NPI  
Agreement, and to monitor the NPI Agreement in that way. He also sent requests for further and  
better information from TriStar from time to time, such as for information about how oil  
transportation costs were calculated, and their relationship to sales revenues. At one point he  
asked for information about increases in the CCTA Tax, although he testified that he had no  
concerns with respect to that amount being included in the NPI Agreement account.  
[97] During this time period Andrew Hudson expressed unhappiness to Mr. King about the  
situation with the NPI Agreement and, in particular that no funds were being paid out; he  
expressed the view that TriStar should be increasing production in the NPI Area. Mr. King  
responded to Andrew Hudson in an e-mail dated March 20, 2009 in which he noted that “They  
are in control and we have NO power in this deal unless they break the contract. There is NO  
evidence at this time that they have ever broken the contract. Therefore, all questions, concerns,  
suggestions, etc about what they should have done, could have done, should do, etc. are a waste  
of time”.  
[98] In May 2010 Petrobakken added an additional negative amount to the NPI Agreement  
account to adjust for amounts associated with the Arista acquisition that they said ought to have  
been included previously, as well as amounts associated with another acquisition. The further  
Arista adjustment, not including land value, was $5,387,000. These changes caused significant  
concern to the Hudsons, Mr. King and Mr. Wegner. They immediately made inquiries of Ms.  
Clark and Petrobakken for information about this adjustment and took steps that ended up being  
preparatory for commencing this litigation, which they did by filing their Statement of Claim in  
August 2010.  
[99] The approach of the Hudsons, Mr. King and his employees to the NPI Agreement reveals  
that the Plaintiffs did attempt to manage their interests responsibly, although they did not seem to  
have the ability to ask the right kinds of questions, or to be as critical as they needed to be in  
reviewing the information that was provided to them.  
[100] The Hudsons and Mr. King knew that the counterparties to the NPI Agreement had the  
ability to make decisions in relation to the Rocanville Properties, the NPI Area and the  
accounting for the NPI Agreement. They knew that they had no input into those decisions and  
only minimal information. They did not, however, take more forceful or assertive steps to obtain  
information, and to review and assess whether the counterparties were making decisions in  
accordance with their legal obligations under the NPI Agreement.  
[101] This was the case even though the Hudsons and Mr. King were aware that decisions were  
being made that did not necessarily advance their interests, and that might not be consistent with  
the terms of the NPI Agreement. They went so far as to explore the possibilities of obtaining an  
audit or retaining counsel on more than one occasion. Their reasons for not doing so were  
Page: 18  
primarily financial, the concern that the cost of that outside advice outweighed the benefits that it  
could bring.  
[102] What could be described as a lack of effectiveness and assertiveness by the Hudsons  
combined unfortunately with the unilateral structure of the NPI Agreement, the Defendants’  
hostility to the NPI Agreement and the Defendants’ skepticism towards the Hudsons’  
entitlements under that Agreement. In combination, the approaches of the parties increased the  
likelihood that the NPI Agreement would not be complied with, and that the non-compliance  
would not be identified.  
Brief Chronology  
[103] A timeline for some of the key events related the NPI Agreement and this litigation is as  
follows:  
1. June 3, 1977: Rocanville Agreement assigns Rocanville Corporation’s  
interests in the Rocanville Properties to Triton.  
2. June 3, 1977: W.H. Hudson ChildrensTrust created.  
3. June 3, 1977: NPI Agreement.  
4. 1986: ChildrensTrust wound up and Andrew, Chris and Eugenia Hudson  
become counterparties to NPI Agreement.  
5. 1988: Amendment to the Corporation Capital Tax Act, SS 1979-1980, c.  
C-38.1, as amended, to include a resource surcharge in the calculation of  
the corporate tax.  
6. 1992 (approx.): First payments to Hudson children under NPI Agreement.  
7. March 1, 1998: Transwest (formerly Triton) sells and assigns interest in  
NPI Agreement to Real Resources.  
8. 1999: Acquisition of assets in the NPI Area from Cherry Hill Resources  
Inc.  
9. 2006: Real Resources shoots 3D seismic and charges $3.6M for that  
seismic to the NPI Agreement account, putting the account into a deficit  
position.  
10. 2006: Real Resources adjusts the NPI Agreement account to reflect the  
Cherry Hill acquisition.  
11. 2006: Real Resources moves from monthly to quarterly accounting for the  
NPI Agreement.  
12. August 2007: Real Resources enters into a plan of arrangement with  
TriStar.  
13. December 17, 2007: TriStar announces arrangement to acquire Arista.  
14. January 18, 2008: Closing of TriStar’s acquisition of Arista.  
15. March 2008: Sproule and Associates Limited (“Sproule”) completes its  
evaluation of the oil and gas assets acquired from Arista.  
Page: 19  
16. August 7, 2008: TriStar advises the Plaintiffs of a $8,977,000 allocation to  
the NPI Agreement account in respect of the Arista acquisition.  
17. October 1, 2009: Tristar amalgamates with the Canadian Business Unit of  
Petrobakken Energy and Resources Ltd.  
18. May 17, 2010: TriStar advises the Plaintiffs of a further $5,387,000  
allocation to the NPI Agreement account in respect of the Arista  
acquisition for a total allocation of $14,364,000 for the Arista acquisition.  
19. August 6, 2010: Commencement of this litigation.  
20. September 30, 2014: Crescent Point acquires Lightstream’s interests in the  
NPI Agreement and enters into the Assignment and Novation Agreement.  
21. September 9, 2019: Commencement of the trial of this action.  
Issues  
[104] Resolving this dispute requires me to answer the following questions in relation to the  
period from January 1, 2000 to December 31, 2015:  
1. Did the Defendants owe fiduciary duties to the Plaintiffs in relation to the  
discharge of their duties under the NPI Agreement?  
2. How does the contractual duty of good faith and honest performance apply  
in the context of the NPI Agreement?  
3. Are the Defendants liable to the Plaintiffs in tort?  
4. Did the Defendants’ allocation of expenses as operating or overhead  
violate the NPI Agreement or any other legal duty owed to the Plaintiffs?  
5. Did the Defendants’ allocation of the CCTA Tax violate the NPI  
Agreement or any other legal duty owed to the Plaintiffs?  
6. Did Real Resources’ 2006 allocation of the costs and expenses of the  
November 17, 1999 acquisition of assets from Cherry Hill Resources Inc.  
to the NPI Agreement accounts violate the NPI Agreement or any other  
legal duty owed to the Plaintiffs?  
7. Did TriStar and Petrobakken’s allocation of costs and expense to the NPI  
Agreement accounts with respect to the Arista acquisition violate the NPI  
Agreement or any other legal duty owed to the Plaintiffs?  
8. If the Defendants breached any of their legal duties in any of these  
respects what is the appropriate remedy?  
Contractual Interpretation and NPI Agreements  
[105] The substantive issues in this case turn on the interpretation of the NPI Agreement. As  
such, they require me to apply the law governing the interpretation of contracts. They also  
require me to consider the interpretive significance, if any, of this agreement being a net profits  
interest agreement.  
Page: 20  
[106] Judges must interpret a contract through the words it uses, giving those words their  
“ordinary and grammatical meaning”. They must interpret each term of the contract in the  
context of the agreement as a whole, not in isolation. They must look at the contract practically  
and through the lens of common sense. The point throughout is to identify the intention of the  
parties, objectively speaking, as revealed through the language they used and in light of the  
surrounding circumstances known to the parties at the time of formation of the contract”:  
Creston Moly Corp v Sattva Capital Corp, 2014 SCC 53 at para 47; IFP Technologies  
(Canada) Inc v EnCana Midstream and Marketing, 2017 ABCA 157 at paras 65 and 80;  
Tercon Contractors Ltd v British Columbia (Transportation and Highways), 2010 SCC 4 at  
para 64.  
[107] Surrounding circumstances refers to objective evidence about background facts which  
existed when the parties entered into the contract and which they knew or could reasonably be  
said to have known at that time: Sattva at para 58. They include things such as the purpose of the  
agreement, the nature of the relationship it created or “the nature or custom of the market or  
industry in which the contract was executed”: IFP Technologies at para 83.  
[108] Contracts should also be interpreted “in a positive and purposive manner, trying to make  
it work”: Humphries v Lufkin Industries Canada Ltd., 2011 ABCA 366 at para. 15. This  
includes taking into account its commercial purpose and good business sense: IFP Technologies  
at para 88. As the Court of Appeal put it in Humphries at para 15:  
The court must presume that these business people intended that the contract work  
in substance and frankly, beyond the nominal or technical. The court must not be  
too quick to find gaps or flaws in a commercial contract’s wiring which prevent  
power from reaching all its operative parts. The parties are presumed not to have  
been wasting ink on an academic exercise. Therefore, where one possible  
interpretation will allow the contract to function and meet the commercial  
objective in view, and the other scarcely will, the former is to be chosen.  
[109] It should be acknowledged, however, that neither the surrounding circumstances nor  
good business sense can be used to deviate from the text of the agreement. The Court may not  
discount or dismiss what the contract says: IFP Technologies at para 89.  
[110] The burden of proof for establishing the breach of a contract lies with the party alleging  
the breach and requires that the breach be established on the balance of probabilities: Grafikom  
Speedfast Limited v Heidelberg Canada Graphic Equipment Limited, 2013 ABCA 104 at para  
21; C(R) v McDougall, 2008 SCC 53 at para 49. If that party establishes the breach on the  
balance of probabilities then, “as a practical matter, however a Defendant may face an  
evidentiary burden in the sense that if he does not displace all or part of the Plaintiff’s case, he  
will lose”: Panarctic Oils Ltd v Menasco Manufacturing Co (1983), 41 AR 451 (CA) at para  
28. That practical observation does not, however, change the central point that the party alleging  
a breach must prove the breach on the balance of probabilities.  
[111] Special considerations apply to interpreting standard form contracts, and in interpreting  
terms that have a “common meaning to participants in a given industry”: IFP Technologies at  
para 61. Those considerations do not usefully inform the interpretation of the NPI Agreement,  
however, because net profit interest agreements do not follow a standard form or employ  
collectively established industry precedents. Net profit interest agreements exist in legislation  
and as part of regulatory schemes, but as evidenced by the testimony before me, they do not  
Page: 21  
routinely arise as a matter of private contractual relations in the oil and gas context (Re  
regulatory schemes see: Nigel Bankes, “Payout under Alberta’s Oil Sands Royalty Regulation”  
ABlawg.ca, November 20, 2018).  
[112] In addition, very little case law from either Canada or the United States has considered  
net profit interest agreements and how to interpret them: Eugene Kuntz, “Classifying Non-  
Operating Interests in Oil and Gas” Canadian Institute of Resources Law Discussion Paper,  
April 7, 1988 at pp. 16 and 22. They do not contain “legal terms of art” arising from case law  
having “a common meaning to participants in a given industry” to guide my interpretation: IFP  
Technologies at para 61.  
[113] As a result, each net profit interest agreement must be interpreted on its own terms, as a  
whole and in lights of its own surrounding circumstances. As the Court of Appeal noted with  
respect to net profit interest agreements, “in each particular case, the interest conveyed is to be  
found by interpreting the agreement as a whole and within its context”: Bank of Montreal v  
Dynex Petroleum Ltd, 1999 ABCA 363 at para 33.  
[114] That being said, certain general structural features of net profit interest agreements,  
including this NPI Agreement, are relevant to, and important for, resolving the dispute between  
the parties. The NPI Agreement allocates risk and control in relation to the development of the  
Rocanville Properties. On the one hand, and unlike a gross overriding royalty agreement, the net  
profit interest holder has no entitlement to revenues from production unless the production is  
profitable. The net profit interest holder receives revenues only on a net basis, not a gross basis,  
thereby sharing in the risks of an oil property proving not to be commercially viable. The net  
profit interest holder will have disposed of the rights they had in the properties (here the  
Rocanville Properties) but the amount of the purchase price depends on the properties being  
profitable on a net basis. On the other hand, the net profit interest holder only shares in risks to a  
limited extent; if the operator incurs expenses that are never recovered, the net profit interest  
holder does not have to pay a portion of those expenses.  
[115] In this way the net profit interest holder occupies a place between a joint operator, who  
fully shares in the risks and rewards associated with oil and gas production, and a royalty holder,  
who does not share the risks and participates in the rewards only to a relatively modest extent. As  
J.N. Sherrill explained in “Net Profits Interests – A Current View” in Proceedings of the  
Nineteenth Annual Institution on Oil and Gas Law and Taxation (New York: Matthew  
Bender, 1968) at p. 170:  
The bundle of rights which we have equated to a net profits interest make it a  
hybrid. It is like an override, since it is a nonoperating interest continuing for the  
life of the property, and its holder is subject to no personal liability for  
development, operation, and abandonment of the property. But, like a working  
interest, the ultimate value of a net profits interest is a function of production from  
the property and of the efficiency of its operation; thus, the net profits interest has  
value only when its supporting working interest has value (See also: Canpar  
Holdings Ltd v Saskatchewan (Minister of Energy & Mines), 1987 60 Sask R  
128 (SKCA) at para 59).  
[116] At the same time, however, the hybrid nature of the NPI Agreement does not extend to  
operations; with respect to operations a net profit interest holder generally has no involvement or  
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right to participate in or make decisions. For this reason, Mr. Sherrill concludes his analysis by  
noting:  
In spite of its hybrid characteristics, a net profits interest should be considered as  
a type of overriding royalty interest, since its primary working interest aspect of  
being reduced by operating expenses is less substantive than its overriding royalty  
similarities of duration and absence of operating rights or obligations.  
[117] What all of this means is that a net profit interest agreement can and this NPI  
Agreement did create difficult situations for both sides. On one side the operator (here the  
Defendants) has the burden and responsibility for operating the properties, and it has risks that it  
alone bears. Yet at the end of the day it has to share 50% of its net profits with the net profit  
interest holder. On the other side the net profit interest holder (here the Plaintiffs) has no control  
over the operation of the properties; it has no ability to reduce or limit the expenses incurred to  
generate profits from the properties. It gets to share in the profits, but without any control or  
input, and with only limited knowledge of how those profits are generated or calculated.  
[118] A net profit agreement also, however, has the ability to create a relationship of mutual  
benefit and synergy. Unlike a gross overriding royalty the operator does not have to make  
payments unless and until the properties actually generate profits. Notably, under Clause III.A of  
the NPI Agreement, no payments were made until Triton had recovered all of the costs and  
expenses incurred by it in acquiring the Rocanville Properties and in exploring and drilling on  
those Properties. The operator also enjoys independent control and decision-making authority.  
[119] And for its part, and to its benefit, the net profit interest holder enjoys the right to  
participate in a significant share of the profits from the properties, with limited downside risk  
should the properties prove to be expensive to operate or give rise to unforeseen liabilities or  
problems.  
[120] Further, because both parties ultimately have an interest in maximizing the profits from  
the properties, they have an agreement that has the potential to capitalize on their mutual self-  
interest in earning as much from the properties as possible. This allows the possibility for an  
effective and profitable commercial relationship for both sides.  
[121] This general structure both its benefits and risks informs the interpretation of the NPI  
Agreement. Looking at the language of the NPI Agreement in the context of the contract as a  
whole, its surrounding circumstances and commercial reality requires me to interpret the NPI  
Agreement in a way that allows the parties to it to achieve the benefits it is designed to create,  
while also constraining the risks inherent in its structure so as to allow those benefits to be  
realized. It means allowing the operator independence in the management and operation of the  
properties. It means allowing the operator to deduct any legitimately incurred expenses  
associated with “exploring, developing, drilling, testing, completing, equipping, operating and  
maintaining” the properties, unless the expense is excluded by other provisions of the NPI  
Agreement.  
[122] It also, though, means protecting the net profit interest holder from abuse or exploitation  
by the operator arising from the operator’s unilateral power and control over the operation of the  
properties and the expenses it incurs and accounts for. That is, the interpretation of the NPI  
Agreement, and the identification of what constitutes a breach of its terms, must recognize that a  
net profit interest holder differs from a royalty owner, because a royalty owner can accurately  
Page: 23  
and easily track the legitimacy of the payments they receive, since those payments are a function  
of independently verifiable factors, namely the quantity of production and (in some cases) its  
price. By contrast, the net profit interest holder relies and depends on the operator’s competence,  
efficiency and honesty in operating the properties and accounting for the expenses it incurs. The  
NPI Agreement must be interpreted to ensure that the operator cannot use its unilateral authority  
and power to avoid its obligations to the net profit interest holder as set out by the NPI  
Agreement. This latter point is of particular importance in interpreting the duty of honest  
performance that the NPI Agreement necessarily contains, and which is discussed further below:  
Bhasin v Hrynew, 2014 SCC 71 at para 93.  
[123] While the structure of net profit interest agreements in general, and of this NPI  
Agreement in particular, must inform the interpretation of its terms, less assistance can be  
obtained from the circumstances in which the NPI Agreement was negotiated. The parties to this  
litigation had no direct or indirect knowledge of the circumstances which led Mr. Hudson and  
Mr. Lee, the President of Triton, to enter into the agreements they did on June 3, 1977. Other  
than by reviewing the NPI Agreement and the Rocanville Agreement, I have no information  
about what Mr. Hudson and Mr. Lee, or Rocanville and Triton, intended to accomplish when the  
agreements were negotiated and executed. I received no testimony or other evidence about the  
practices or norms of Texas oil and gas executives of that time, which might have provided some  
information about this agreement since, while it pertained to Canadian properties, it was entered  
into by two Texan oil and gas executives and two Texas based companies.  
[124] The Plaintiffs relied on the evidence of Chris Hudson that Mr. Lee and Mr. Hudson were  
friends as a surrounding circumstance relevant to the interpretation of the NPI Agreement. I  
reject that submission. Even if I had robust evidence of a friendship between Mr. Lee and Mr.  
Hudson which I do not, since it was only a point mentioned in passing by Chris Hudson in his  
testimony this contract was not entered into between Mr. Lee and Mr. Hudson. It was entered  
into between their corporations (Rocanville Agreement) and between one of the corporations and  
a family trust. It was for a significant sum of money. Triton was a company with a wide range of  
international interests and developments. That the executives were also friends does not create a  
basis for understanding the Rocanville Agreement or the NPI Agreement as creating anything  
other than the commercial relationship which its terms set out.  
[125] The Plaintiffs also relied, with respect to the interpretation of overhead, on expert  
evidence about the customs and practices of the western Canadian oil and gas industry at that  
time, and in particular the PASWC accounting standards applicable in 1977. In my view this  
evidence is of limited assistance given the terms of the NPI Agreement and the parties to the NPI  
Agreement; this point will, however, be discussed in more detail in the section of this judgment  
dealing with the overhead issue.  
[126] To summarize, in interpreting the NPI Agreement my focus will be on the words of the  
NPI Agreement understood in the context of the NPI Agreement as a whole and its surrounding  
circumstances, including its structure and the benefits and risks it creates for the parties to it.  
Do the Defendants owe Fiduciary Duties to the Plaintiffs?  
[127] In Elder Advocates of Alberta Society v Alberta, 2011 SCC 24 the Supreme Court  
clarified the test for establishing a fiduciary duty. It identified three central requirements for a  
fiduciary duty to be imposed. First, the alleged fiduciary must have given “an undertaking of  
Page: 24  
responsibility to act in the best interests of the fiduciary”: Elder Advocates at para 30. The party  
asserting the duty must be able to point to a forsaking by the alleged fiduciary of the interests of  
all others in favour of those of the beneficiary, in relation to the specific legal interest at stake:  
Elder Advocates at para 31; See also, Roussy v Savage, 2019 BCSC 1669 at para 278; Nature  
Conservancy of Canada v Waterton Land Trust Ltd, 2014 ABQB 303 at para 529.  
[128] Second, the alleged fiduciary must owe a duty “to a defined person or class of persons  
who must be vulnerable to the fiduciary in the sense that a fiduciary has a discretionary power  
over them”: Elder Advocates at para 33.  
[129] Third, the power held by the alleged fiduciary must be such as to “affect the legal or  
substantial practical interests of the beneficiary”: Elder Advocates at para 34.  
[130] These second and third components of fiduciary duties have been explained by  
University of Saskatchewan scholar Robert Flannigan as reflecting the conventional account of  
fiduciary duties. Specifically, fiduciary duties prevent opportunistic behaviour by persons who  
have access to and control over the assets of another. Where one party has “access to the assets  
of the other” and the ability to make decisions with respect to those assets, there is a risk of  
opportunism and abuse; by imposing a duty to act in the best interests of the person to whose  
assets the fiduciary has access, the fiduciary duty limits (and can correct) that potential abuse:  
Robert Flannigan, “The Core Nature of Fiduciary Accountability” [2009] New Zealand Law  
Review 375 at 385.  
[131] Professor Paul Miller has a different but related perspective on the central feature of a  
fiduciary relationship, which is that it arises where a fiduciary exercises a legal discretion and  
power that would otherwise be exercised by the beneficiary as a result of the beneficiary’s own  
legal capacity. The fiduciary in this sense stands in substitution for the beneficiary: Paul B.  
Miller, “The Fiduciary Relationship” in Andrew S. Gold and Paul B. Miller eds, Philosophical  
Foundations of Fiduciary Law (Oxford: Oxford University Press, 2014). In Miller’s account,  
the fiduciary has authority “derived from the legal capacity of another personwhich gives the  
fiduciary “discretionary power over the significant practical interestsof the person from whom  
it is derived: Paul B. Miller, “Justifying Fiduciary Duties” (2013) 58 McGill Law Review 971 at  
1015 and 1011.  
[132] I neither endorse nor adopt Professor Flannigan or Professor Miller’s views; I note their  
analysis, however, because they emphasize an aspect of Elder Advocates and earlier cases that  
risks being overlooked: to have a fiduciary obligation it is not enough that the fiduciary is  
powerful and the beneficiary vulnerable; the fiduciary’s power must be in relation to the  
beneficiary’s legal or substantial practical interests. A fiduciary exercises a specific and  
particular type of power, and the beneficiary has a specific and particular type of vulnerability,  
both of which relate to the fiduciary’s ability to affect and control something belonging to the  
beneficiary.  
[133] In this case I am not satisfied that the Defendants owed a fiduciary obligation to the  
Plaintiffs because the Defendants did not undertake to act in the interests of the Plaintiffs, and  
because the power the Defendants exercise is not a power in relation to the legal or substantial  
practical interests of the Plaintiffs.  
[134] With respect to the undertaking, the Defendants entered into contracts where they  
acquired interests in the Rocanville Properties in return for which they agreed to share profits  
Page: 25  
with the Plaintiffs. But the terms of the agreements suggest that the Defendantsintention was to  
pursue their own self-interest, not to protect or act with loyalty towards the interests of the  
Plaintiffs. The NPI Agreement contemplates that the Defendants’ pursuit of their own self-  
interest in maximizing the profits earned at the Rocanville Properties will benefit the Plaintiffs; it  
does not contemplate the Defendants “renounc[ing] their own interests and those of all others in  
favour of those of the beneficiary”, which is what the duty of loyalty requires: Roussy at para  
278. As explained by Justice LaForest in Lac Minerals Ltd v International Corona Resources  
Ltd [1989] 2 SCR 574 at 646-647 (para 28): “The obligation imposed may vary in its specific  
substance depending on the relationship, though compendiously it can be described as the  
fiduciary duty of loyalty and will most often include the avoidance of a conflict of duty and  
interest and a duty not to profit at the expense of the beneficiary”. The Defendants here cannot  
reasonably be understood to have undertaken not to profit at the expense of the Plaintiffs except  
in the specific way defined by the NPI Agreement itself.  
[135] In terms of the power of the Defendants and the vulnerability of the Plaintiffs, the  
Defendants have power because they alone operate the Rocanville Properties, they alone  
determine what expenses need to be incurred for the operation, development and maintenance of  
the Rocanville Properties, they alone determine what assets within the lands covered by the NPI  
Agreement to acquire, and they alone account for revenues and expenses to the Plaintiffs. The  
amount of profits received by the Plaintiffs depends on the decisions of the Defendants. In that  
sense the Defendants have power and authority, and the Plaintiffs are vulnerable to that power  
and authority.  
[136] The Defendants’ power is not, however, in relation to the legal rights or substantial  
practical interests of the Plaintiffs in the sense that would properly give rise to a fiduciary  
obligation. The Rocanville Corporation sold all of its “petroleum and natural gas and other  
related hydrocarbon” rights in the Rocanville Properties to Triton (Rocanville Agreement, clause  
1(a) and Clause 2). Triton then entered into an agreement to share profits with the Hudson  
ChildrensTrust. This is not a case where the Rocanville Corporation, Mr. William Hudson, the  
ChildrensTrust, or the current Plaintiffs, retained their legal rights and interests in relation to  
the Rocanville Properties while granting power over those interests to the Defendants. Rather,  
they transferred those legal rights and interests and then entered into a contract under which they  
could receive a revenue stream without the risks, responsibilities or liabilities connected to  
ownership or development of their hydrocarbon rights.  
[137] The Plaintiffs’ ability to receive that revenue stream depends on the Defendants’  
compliance with the terms of the NPI Agreement, and the structure of that NPI Agreement gives  
the Defendants the power to make decisions that can have a positive or negative effect on the  
amount of money that the Plaintiffs receive. At the same time, however, the NPI Agreement sets  
out the obligations of the Defendants and the limits on their conduct, and if the Defendants fail to  
comply with those obligations or to respect those limits, as alleged by the Plaintiffs here, an  
action for breach of contract arises. But the nature and structure of the duties is contractual, not  
fiduciary. The Defendants have power and authority that affects the Plaintiffs, but not in relation  
to the Plaintiffs’ legal or substantial practical interests other than as created by the NPI  
Agreement itself.  
[138] To put it slightly differently, the legal interest with respect to which the fiduciary acts  
will not usually be a legal interest created by the duties said to be fiduciary, otherwise the test  
would be circular: you have agreed to do something for me and because I have a legal interest in  
Page: 26  
you doing that thing you are now my fiduciary because acting in relation to my legal interests.  
That circular logic cannot be sufficient to create a fiduciary duty. The legal and practical interest  
should exist independently and be subject to the power of the alleged fiduciary, not be a legal  
interest arising from the power alleged to be fiduciary.  
[139]  
I find helpful in this respect the observations of Justice Conrad in Luscar Ltd v  
Pembina Resources Ltd, 1994 ABCA 356 at para 68:  
While I accept that there may be fiduciary aspects of the duties of an operator, not  
every duty is fiduciary. The mere fact a contract imposes responsibilities on one  
party upon which another relies, does not mean the first party is automatically a  
fiduciary with respect to the duty created. Moreover, where a specific term of a  
contract addresses an issue, the contractual remedy may properly redress the  
wrong, thereby reducing any vulnerability.  
[140] I also note that while fiduciary duties can arise in arm’s length commercial transactions,  
they are rarer in that context: Lac at 595; Roorda v MacIntyre, 2010 ABCA 156 at para 16.  
[141] The Plaintiffs provided me with a number of cases in support of the fiduciary obligation;  
I do not, however, find those cases persuasive in relation to the obligations of the Defendants  
here. In West Care Pharmacy Ltd v SwiftRx Ltd, 2008 ABQB 473 the Court imposed a fiduciary  
obligation in the context of a net profit interest agreement. SwiftRx had acquired a small mail  
order pharmacy business developed by a pharmacist who continued as an employee of the new  
company until her employment was terminated. This case provides little guidance here, however,  
because of the personal dynamic flowing from the pharmacist continuing to work with the  
company, because SwiftRx acknowledged that it owed a fiduciary duty and because the case  
predates the more recent Supreme Court decisions like Elder Advocates but also Perez v  
Galambos, 2009 SCC 48, which also emphasized at para 71 the significance of an undertaking  
by the alleged fiduciary. A more applicable American case dealing with net profit interest  
agreements provided by the Defendants rejected the existence of a fiduciary duty, as did a  
decision from Alberta related to royalty agreements: Garfield v True Oil Co, 667 F.2d 942 (10th  
Cir. 1982); Western Oil Consultants Ltd v Bankeno Resources Ltd, [1995] 6 WWR 449 (Alta  
QB).  
[142] A number of other cases provided by the Plaintiffs also predate Elder Advocates and  
Galambos (e.g., Great Northern Petroleums & Mines Ltd v Merland Exploration Ltd, [1983]  
AWLD 362, 19 ACWS (2d) 357 (Alta QB), aff’d [1985] AWLD 157; Powermax Energy Inc v  
Argonauts Group Ltd, 2003 ABQB 71) or have facts that distinguish them from this one. For  
example, that one party managed funds for another (Bank of Nova Scotia v Societe generale  
(Canada), [1988] 4 WWR 232 (ABCA); Eon Energy Ltd v Ferrybank Resources Ltd, 2016  
ABQB 585, aff’d 2018 ABCA 243), that the beneficiary owns the property controlled by the  
fiduciary (Trilogy Resource Corp v Dome Petroleum Ltd [1990] 6 WWR 726 (Alta QB); rev’d  
on other grounds, 1991 ABCA 284), or that the contract expressly imposes duties of loyalty and  
non-competition (Indutech Canada Ltd v Gibbs Pipe Distributors Ltd, 2013 ABCA 111).  
[143] The Plaintiffs placed particular reliance on a recent decision of the Manitoba Court of  
Appeal in Filkow v D’Arcy and Deacon LLP, 2019 MBCA 61. In that case the estate of a  
former law firm partner had reached a settlement agreement with the former law firm about the  
payment of funds owing to the estate. They subsequently ended up in a dispute with respect to  
how the law firm had paid out some of the funds owed. The Court of Appeal held that the law  
Page: 27  
firm and the estate had a fiduciary relationship. In my view, however, the facts of Filkow  
substantially differ from the facts here. In particular, the Court found an implied undertaking in  
significant part because of the prior fiduciary relationship between the deceased and the law  
firm, including the provisions in the partnership agreement which created entitlements for the  
estate. In addition, in that case the power to affect the legal interests of the beneficiary was based  
on the law firm’s failure to disclose information during the negotiation of the settlement  
agreement that is, it arose prior to the contractual relationship, not by virtue of the relationship.  
[144] I have some doubts about the Manitoba Court of Appeal’s analysis on this issue; I would  
have thought that non-disclosure during a contract negotiation was more properly analyzed  
through the law governing misrepresentation than by being equated to the exercise of power over  
another party’s legal interests. In addition, the Manitoba Court of Appeal both finds the fiduciary  
duty because of the power arising in relation to the disclosure of information, and then finds the  
breach of the fiduciary duty in the non-disclosure; this is the sort of circular reasoning which  
strikes me as problematic. Even if I accept the Court’s analysis, however, it does not assist the  
Plaintiffscase. Because here the Defendants have no power, and the Plaintiffs have no legal  
interests, outside the terms of the NPI Agreement itself.  
[145] In reaching this conclusion I do not intend to diminish the duties owed by the Defendants  
to the Plaintiffs. The nature of those duties is, however, established and controlled by the terms  
of the NPI Agreement, not by the law of fiduciary obligations.  
The Contractual Duty of Honest Performance in the Context of the NPI Agreement  
[146] The Defendants owe the Plaintiffs a duty of honest performance: Bhasin at para 93. That  
duty precludes the Defendants from lying or knowingly misleading the Plaintiffs about matters  
related to their performance of the NPI Agreement or from acting in a manner that undermines  
the Plaintiffs’ legitimate interests under that Agreement: Bhasin at para 73; IFP Technologies at  
para 192.  
[147] The content of the duty beyond that basic premise has been articulated in different ways.  
[148] Some recent court of appeal decisions have focused on the duty’s narrow scope. In Styles  
v Alberta Investment Management Corporation 2017 ABCA 1 at para 47 the Court emphasized  
that the duty was “a very narrow concept, which does not create any duty of loyalty, disclosure,  
or forgoing of contractual advantages”. In Greater Vancouver Sewerage and Drainage District  
v Wastech Services Ltd., 2019 BCCA 66 at para 71 (leave granted: [2019] SCCA No 123  
(SCC)), the Court emphasized that the duty is “concerned substantially with conduct that has at  
least a subjective element of improper motive or dishonesty”. In CM Callow Inc v Zollinger,  
2018 ONCA 896 at para 17 (leave granted: [2019] SCCA No 13 (SCC)), the Court emphasized  
that the duty does not create a “unilateral duty to disclose information” and, at para 18, that the  
duty must be linked to the obligations arising from the contract itself.  
[149] On the other hand, in Bhasin itself, at para 65, the Court said that the duty requires a  
party to “have appropriate regard to the legitimate contractual interests of the contracting  
partner”. In Potter v New Brunswick (Legal Aid Services Commission), 2015 SCC 10 at para 99  
the Court held that the duty requires a party to be “honest, reasonable, candid and forthright”. In  
IFP Technologies Chief Justice Fraser emphasized at para 189 that the duty requires a party to  
have “appropriate regardto the legitimate contractual interests of its contracting partner. She  
Page: 28  
said that the duty prevents one party to a contract from performing the contract “in a manner  
which undermines the interests of the other party”: IFP Technologies at para 192.  
[150] In my view, however, these varying Court of Appeal and Supreme Court authorities can  
be reconciled. The duty of honest performance must be connected to the obligations contained in  
a contract. It does not create free-standing obligations of moral probity on the parties to a  
contract and nor does it turn contracting parties into quasi-fiduciaries in relation to one another.  
The contract defines the substantive obligations of the parties and, consistent with those  
obligations, the parties may pursue their own commercial interests.  
[151] At the same time, however, the duty of honest performance requires more than that the  
parties not lie to or knowingly mislead one another. If the duty required only that, it is difficult to  
see what it would add to the law beyond the existing legal prohibitions on fraud and  
misrepresentation. As noted by the Supreme Court in Potter, the duty of honest performance  
requires “candour”: that a party provide a sufficiently full and accurate account of their conduct  
such that the other side is not misled about whether the contract has been fulfilled.  
[152] Further, the duty also requires that a party to a contract make a meaningful effort to fulfill  
the duties the contract imposes. Where a party has a contractual duty to do something, that party  
has an obligation to do it, to not shirk or evade those responsibilities in a way that “undermines  
the interests of the other party”: IFP Technologies at para 192.  
[153] In this sense the duty can be understood as analogous to the concept of purposive  
interpretation which ensures that a statute will fulfill its intended objectives: Re Rizzo and Rizzo  
Shoes [1998] 1 SCR 27 at para 27. The duty of honest performance inheres in the obligations  
undertaken by the parties in entering into a contract; its function is to ensure that those  
obligations are in substance fulfilled, not undermined through dishonesty, evasion, avoidance or  
incompetence. It does not require a contracting party to be generous, or to undertake obligations  
for which they did not bargain; but it does require that party take the steps necessary to keep up  
their end of the bargain they have made.  
[154] In the context of the NPI Agreement, this duty thus does not change the fundamental  
obligations of the Defendants in terms of the rights and responsibilities they have in relation to  
the calculation of revenues from the Rocanville Properties, and the accounting of those revenues  
to the Plaintiffs. It does not require them to not charge for expenses legitimately incurred and  
chargeable in accordance with the terms of the NPI Agreement. But it does mean that the  
Defendants had to make an effort to ensure that the decisions they made were consistent with  
what the NPI Agreement required. Further, they had to communicate honestly and candidly with  
the Plaintiffs; their communications could not mislead the Plaintiffs to think the NPI Agreement  
had been complied with when it had not been.  
[155] For the reasons set out below, I find, in addition to violating Clause IV of the NPI  
Agreement, the Defendants’ allocation of the Arista acquisition to the NPI Agreement account  
violated the duty of honest performance. The allocation itself did not show appropriate regard to  
the Plaintiffs’ interests under the NPI Agreement, and the communication about the allocation  
was misleading and lacking in candour.  
Page: 29  
Liability in tort  
[156] To find the Defendants liable in tort I must find, inter alia, that they owed the Plaintiffs a  
duty of care, and that their conduct fell below the standard of care.  
[157] By virtue of the proximity created by the NPI Agreement, the Defendants owed the  
Plaintiffs a duty of care: Where the defendant undertakes to provide a representation or service  
in circumstances that invite the plaintiff’s reasonable reliance, the defendant becomes obligated  
to take reasonable care. And, the plaintiff has a right to rely on the defendant’s undertaking to do  
so: Deloitte & Touche v Livent Inc (Receiver of), 2017 SCC 63 at para 30.  
[158] I am not satisfied, however, that the Defendants’ conduct, even where contrary to the NPI  
Agreement, fell below the standard of care. The onus of establishing a breach of the standard of  
care rests with the Plaintiffs: McDougall at para 46; Waap v Alberta, 2008 ABQB 544 at 29-31.  
The Plaintiffs have not discharged this onus.  
[159] As noted by the Defendants, the Plaintiffs provided no evidence or argument as to what  
would be reasonably be expected of an operator in the context of a net profit interest agreement  
with respect to accounting and operating the properties subject to that agreement. Indeed, in their  
argument the refer to the standard of care only once in noting it as an essential element of tort  
liability. They refer to negligence three times, but only as a simple allegation, and never with an  
explanation or submission as to what it is that the Defendants did that constituted a violation of  
the standard of care that could have been expected of them as parties having the duties they did  
under the NPI Agreement. In their Reply Argument they say only that the standard “is informed  
by the NPI Agreement” and that “Once the Court has interpreted the NPI agreement and decides  
how the accounting should have been done, it will be obvious whether the Defendants were  
negligent and no additional technical evidence is required”.  
[160] The problem with this submission, however, is that it essentially equates proof of contract  
breach with proof of negligence, which is an error. In this case, for example, the parties disagree  
about the nature of the CCTA Tax, and whether it is chargeable under the NPI Agreement. My  
finding that it is not chargeable amounts to a resolution of that issue in the Plaintiffs’ favour, but  
it does not show that the Defendants acted contrary to what reasonably could have been expected  
of an operator by taking a different view. Disagreement about what a contract requires, even  
after this Court finds one party’s view to be incorrect, does not demonstrate that holding that  
view fell below the standard of care.  
[161] It is fair to say that my finding that TriStar and Lightstream acted contrary to the duty of  
honest performance in how they allocated the costs and expenses of the Arista acquisition may  
support a finding that they also violated the standard of care it may make that conclusion  
“obvious” as the Plaintiffs put it. At the same time, however, I am reluctant to say that the  
Plaintiffs fell below the standard of care in the absence of any evidence about what the standard  
of care requires of a party to the NPI Agreement. Otherwise the conclusion of negligence  
becomes akin to “and another thing!”, adding emphasis to the conclusion of contractual breach,  
rather than reflecting independent analysis of legal deficiencies in the Defendants’ conduct.  
Page: 30  
Overhead Accounting  
Introduction  
[162] Clause III.C of the NPI Agreement limits the ability of the operator of the NPI area assets  
to charge overhead costs. For ease of reference, Clause III.C provides:  
C. There shall be charged as cost and expense for the purposes hereof the sum of  
$1250 (Canadian) per month, in lieu of any other charge for administrative  
supervision and overhead. There shall not be considered a cost and expense  
incurred by TRITON and there shall not be charged as cost or expense for the  
purposes hereof (i) any other cost or expense incurred by TRITON in maintaining  
its corporate offices, or (ii) the salaries of any officers or employees for time not  
actually expended on the properties…  
[163] The Plaintiffs allege that the Defendants have improperly included overhead expenses as  
operating expenses and charged them to the NPI Agreement account. The Plaintiffs submit that  
overhead and operating expenses must be understood substantively as those terms were  
understood in 1977. If an item would have been treated as overhead in 1977 such as employees  
working out of field offices not on the lands covered by the NPI Agreement then it ought to be  
treated as overhead today. This is the case, the Plaintiffs submit, even if industry standards and  
accounting principles today would not treat that item as overhead. The Plaintiffs argue that the  
meaning of “overhead” in the NPI Agreement was fixed in 1977 and is not subject to evolution  
with industry practices or accounting principles. As they put it in their argument, “The types of  
charges that are allowed or not allowed by the NPI Agreement do not change over time even if  
industry practice may change.  
[164] Further, the Plaintiffs submit that the approach to overhead in 1977 that informs the NPI  
Agreement is in substance the same as the approach published in the 1976 accounting procedure  
developed by PASWC for use in joint operations (“PASWC 1976 Accounting Procedure”). This  
is the case even though the PASWC 1976 Accounting Procedure was not incorporated by  
reference into the NPI Agreement. The Plaintiffs submit that the practices and principles set out  
in the PASWC 1976 Accounting Procedure reveal industry practices and accounting principles  
as they were in 1977, and those industry practices and accounting principles inform and  
constrain the scope of “overhead” as that term is used in the NPI Agreement.  
[165] Finally, the Plaintiffs submit that following the principles of the PASWC 1976  
Accounting Procedure and industry practice in 1977, and reviewing the undertaking responses  
provided by the Plaintiffs, demonstrates that the Plaintiffs have improperly charged for overhead.  
Specifically, as calculated by their expert Mr. Derek Malcolm, they assert that between 2003 and  
2015 the Defendants included $1,750,050 of non-chargeable overhead expenses as operating  
expenses, and improperly deducted those amounts from revenues in calculating the 50% profits  
owed to the Plaintiffs.  
[166] The Plaintiffs acknowledged in oral argument that if I reject their interpretation of the  
NPI Agreement and find as the Defendants submit that the scope of “overhead” evolves with  
industry practice and accounting procedures, I do not have an evidentiary basis for impugning  
the Defendants’ approach to calculating overhead.  
[167] The Defendants respond that Clause III.C limits the capped overhead to the enumerated  
categories, specifically, “(i) any other cost or expense incurred by Triton in maintaining its  
Page: 31  
corporate offices, or (ii) the salaries of any officers or employees for time not actually expended  
on the properties”.  
[168] In addition, even if not so limited, the scope of “overhead” reflects evolving industry  
practices and accounting procedures. Because the Defendants have identified overhead and  
operating expenses consistent with industry practices and accounting procedures as they exist  
today, they have satisfied their obligations under the NPI Agreement.  
[169] As a result, the Defendants submit that they have properly identified overhead consistent  
with current industry practice and accounting procedures.  
Factual Background  
[170] The Defendants’ fact witnesses testified about how overhead was determined for the NPI  
Agreement accounts.  
[171] The monthly NPI Agreement revenue statements provided to the Plaintiffs listed an  
amount for “Overhead charged”, generally in the range of $3000-5000 per month, and then listed  
an amount for “Overhead allowed” in the amount of $1250 as contemplated by Clause III.C.  
[172] The accounting department and its systems generated the amount of “overhead charged”.  
[173] First, costs were categorized and allocated by accounting personnel in the ordinary  
course. This resulted in the Rocanville Properties being allocated costs attributable to those  
properties, including some costs categorized as overhead. Second, Ms. Clark ran a query in the  
accounting system for the Rocanville Properties. Running this query allowed Ms. Clark to  
identify the categorized and allocated costs associated with the Rocanville Properties and to  
create monthly operating statements reporting those costs by category, along with details of  
revenues. Third, Ms. Clark took the amounts from the monthly operating statements and collated  
them to be reported in the revenue statement. This included taking all costs categorized as  
overhead, adding them together, and reporting them as “Overhead charged” on the revenue  
statements.  
[174] While responsible for the NPI Agreement accounts for many years, Ms. Clark did not  
review the NPI Agreement to see if the methodology she used was consistent with the specific  
requirements of that Agreement; she simply accepted the accounting system’s categorization of  
expenses as related to overhead or operations, and the system’s allocation of expenses to the  
Rocanville Properties, and then used those to generate the monthly operating statements and  
revenue statements.  
[175] At the same time, the individuals in the contracts and administration department  
responsible for the NPI Agreement, like Mr. McDonald, did not review the overhead accounting  
to determine if it was consistent with the requirements of the NPI Agreement.  
[176] In essence, the Defendants treated the NPI Agreement as requiring accounting in the  
ordinary course the “overhead charged” was overhead as defined by industry practice and  
ordinary accounting procedures. The Defendants did not turn their mind to this point and make a  
considered decision to approach the NPI Agreement accounting this way; this just was how they  
approached their accounting in the ordinary course, and they applied that ordinary course  
accounting to the Rocanville Properties and the NPI Agreement accounts.  
Page: 32  
Expert Evidence  
[177] Both the Plaintiffs and the Defendants provided expert evidence with respect to the  
overhead issue. Mr. Moller testified for the Plaintiffs, and Ms. LaRocque for the Defendants.  
Ib Moller  
[178] Mr. Moller, an engineer, was qualified as an expert with respect to industry custom in the  
oil and gas industry in 1977 and in particular in respect of the treatment and understanding of  
overhead and administrative supervision, and the charging of direct and indirect costs and  
expenses to a joint account in operator/non-operator relationships.  
[179] Mr. Moller testified that oil and gas joint venture operating agreements normally include  
an accounting procedure or attach such a procedure as a schedule; those procedures will be part  
of the business deal negotiated by the parties. Earlier in the history of oil and gas developments  
in Canada, however, joint venture agreements were somewhat more variable, often having  
unique accounting procedures based on the practices of one of the parties to the agreement.  
[180] The first model accounting procedure was developed in 1953 by PASWC. It was subject  
to several revisions prior to the publication of the PASWC 1976 Accounting Procedure. The  
PASWC 1976 Accounting Procedure followed the publication of the Canadian Association of  
Petroleum Landman’s (CAPL) model operating procedure for joint operators (“CAPL 1974  
Operating Procedure).  
[181] By 1977 joint ventures for large properties or facilities in Canada were generally  
governed by the CAPL 1974 Operating Procedure with the PASWC 1976 Accounting Procedure  
attached. Companies that developed their own accounting procedures based it on the PASWC  
1976 Accounting Procedure. In addition, joint venture operating agreements drafted by land  
departments for exploration and development of lands typically used the PASWC 1976  
Accounting Procedure. It did take some time for the use of model agreements and procedures to  
be accepted and used by industry, particularly for foreign multi-nationals; however, by 1977 use  
of the PASWC 1976 Accounting Procedure would have been very extensive.  
[182] The PASWC 1976 Accounting Procedure defined overhead in Clause 301 as:  
the cost to the Operator of salaries, wages, employee benefits and all other  
expenses of employees other than those covered by Paragraphs 202 (labour) and  
206d (construction design services), and the cost of maintaining and operating  
offices, camps, housing and other facilities that are not Joint Property other than  
those costs covered by Paragraphs 212 (housing for chargeable labour) and 213  
(labour for central production control).  
[183] Its explanatory text provided:  
“Overhead” provides for those costs which are covered by the overhead  
assessment and are therefore not directly chargeable. Such costs include, except  
where specifically provided for in the Accounting Procedure or where specific  
approval is obtained from the Non-Operators to charge directly, offsite function  
costs directly attributable to the staffing, maintaining and operating of the  
Operator’s District Office (being the Operator’s field production office or  
suboffices supervising the operations in a specific district or area), the Operator’s  
Head, Home, Divisional or Regional Office or Offices and Camps, housing and  
Page: 33  
other facilities not owned by the Joint Property. The overhead assessment also  
includes those costs incurred within the Operator’s control which are of prime  
benefit to the Operator and the total scope of his operations.  
[184] Based on the 1976 PASWC Accounting Procedure, and what he understood to be the  
typical approach of joint venture operating agreements prior to 1996, Mr. Moller opined that  
overhead expenses included costs of a general nature, that were not attributable to a particular  
property or well.  
[185] More specifically Mr. Moller testified that overhead included the costs associated with  
field offices and district offices. Only production offices physically on the site of the joint  
operation could be included as operational expenses.  
[186] He testified that, in the 1970s, communication costs were only partially recoverable as an  
operating expense; any incoming communication to the joint operation would be treated as  
overhead. He supported this opinion by noting that the PASWC 1976 Accounting Procedure  
defined communications in Clause 211 as “outgoing communications incurred by Operator  
directly from the Joint Property” and the explanatory text said that communications originating  
other than from the joint property are “considered to be covered by the Operator’s overhead and  
are not acceptable direct charges to the Joint account”.  
[187] With respect to labour charges, Mr. Moller observed that under the 1976 PASWC  
Accounting Procedure an operator could normally recover as operating expenses only  
supervision costs with respect to the salaries and wages of first level supervisors in the field –  
that is, supervisors whose “primary function is the direct supervision of other employees and/or  
contract labour directly employed in a field operating capacity”.  
[188] Using the 1976 PASWC Accounting Procedure, and his knowledge of industry custom in  
1977, Mr. Moller reviewed charges included in the NPI Agreement monthly operating  
statements. In his opinion the Defendants had included as operating expenses amounts that,  
based on industry practice in 1977 and the 1976 PASWC Accounting Procedure, ought to have  
been treated as overhead.  
[189] Mr. Moller acknowledged that accounting for overhead has evolved since 1977. He also  
recognized that oil and gas operating practices in the 1970s were different than they are today.  
For example, operators communicated from the field by radio or telephone and did not have the  
benefit of cell phones. They did not have the capacity for remote monitoring, and the ability to  
rely on sensors and alarms. Mr. Moller also acknowledged other industry changes such as the  
increased centralization of operations and horizontal drilling technology.  
[190] Mr. Moller accepted that he has no knowledge about or involvement with the negotiation  
or drafting of the NPI Agreement. He acknowledged that it was not a joint operating agreement  
and did not incorporate the PASWC 1976 Accounting Procedure. He said that the chargeability  
of costs ultimately depended on the terms of the NPI Agreement, and that he was not purporting  
to interpret that Agreement.  
Katrina LaRocque  
[191] Ms. LaRocque was qualified to provide expert evidence in the field of oil and gas  
accounting, including practices in oil and gas accounting from 1977 to the present.  
Page: 34  
[192] Ms. LaRocque began by reviewing the nature of net profit interest agreements, which she  
described as non-operating, in the same way as a royalty agreement. The difference between a  
net profit interest agreement and a gross overriding royalty agreement is simply that the net  
profit interest shares profits rather than revenues. As a consequence, net profit interest  
agreements normally operate at a higher percentage.  
[193] Ms. LaRocque noted that net profit interest agreements lack well defined accounting  
procedures or standardized terms. Accounting under a net profit interest agreement is governed  
by that agreement’s own provisions.  
[194] With respect to overhead, Ms. LaRocque said that overhead in the oil and gas industry  
has been long understood “to mean those general costs attendant to executive and administrative  
functions incurred by an operator in its home division, region, or other administrative office  
above the operating level indirectly serving the development and producing operations”. In her  
view, “overhead relates to high level, head office costs which provide general corporate support  
services which are more corporate administrative in nature rather than operational”. In testimony  
she defined overhead as indirect costs that cannot be attributable to a specific business process,  
product or service.  
[195] Ms. LaRocque observed that joint venture agreements have standardized methods for the  
chargeability of overhead, but that net profit agreements do not. She suggested, however, that the  
NPI Agreement gives “unusually clear and concise direction in respect to overhead”. In her view,  
the two sub-clauses of Clause III.C define and limit what can be included in overhead to “any  
other cost or expense incurred by TRITON in maintaining its corporate offices” and “the salaries  
of any officers or employees for time not actually expended on the properties”.  
[196] Ms. LaRocque viewed the NPI Agreement as permitting all costs except those  
specifically excluded. In her opinion that distinguishes the NPI Agreement from a normal joint  
venture agreement which will list permitted costs, and exclude any cost not listed. She also  
testified, however, that even if Clause III.C excluded all overhead expenses that would not  
change her opinion.  
[197] Ms. LaRocque rejected the position that accounting ought to be done in accordance with  
the 1976 PASWC Accounting Procedure. It was not incorporated in the NPI Agreement, and the  
NPI Agreement is not a joint venture arrangement. Rather, the accounting for overhead should be  
governed by what she described as the “clearly defined” provisions in the NPI Agreement, which  
in her opinion provide “sufficient direction” about what costs to include and exclude.  
[198] Ms. LaRocque acknowledged that she was not qualified to provide a legal opinion with  
respect to the meaning of the NPI Agreement, and that interpretation of Clause III.C was the  
responsibility of this Court.  
[199] With respect to the particular NPI Agreement accounts, Ms. LaRocque opined that the  
categories claimed by the Plaintiffs to be overhead were in fact properly treated as operating  
expenses. She reviewed the various accounting categories and identified their relationship to the  
operation and maintenance of the specific properties subject to the NPI Agreement. In her view  
the costs within these categories are “operational or technical in nature” and not properly treated  
as overhead. She analyzed the nature of the costs incurred based on the monthly operating  
statements, her knowledge of industry practices and standards, and Joint Account Data Exchange  
(“JADE”) reports that had been prepared by the Defendants in connection with this litigation and  
Page: 35  
an audit requested by the Plaintiffs. She also reviewed undertaking responses where necessary  
for clarification purposes. She did not look at any underlying invoices or documents, nor did she  
review any audits that had been prepared.  
[200] Ms. LaRocque said that her review did not give rise to any obvious concerns; the  
expenditures accounted for seemed typical for well operations  
[201] In response to a question from the Court Ms. LaRocque said that she understood the  
nature of the costs within each of these accounting categories because the categories are  
computer generated and used with consistency across the industry, although she acknowledged  
that there can be some variation within a company.  
Did the Defendants Breach the NPI Agreement with respect to overhead?  
[202] The task of interpreting Clause III.C of the NPI Agreement rests with this Court. To the  
extent that the expert witnesses gave evidence on the interpretation of Clause III.C I disregard  
that evidence.  
[203] The question before me is, then, given the ordinary and grammatical meaning of the  
words of Clause III.C in the context of the NPI Agreement as a whole, and in the surrounding  
circumstances, what does “overhead” include?  
[204] As a starting point, I reject the Plaintiffs’ position that overhead is defined by the  
PASWC 1976 Accounting Procedure or constrained by industry practices as they were in 1977.  
[205] The PASWC 1976 Accounting Procedure is not incorporated into the NPI Agreement. It  
and the industry practices about which Mr. Moller opined can only inform the interpretation of  
the NPI Agreement if they can be considered a surrounding circumstance to that agreement.  
[206] In my view the evidence does not support the inference that the PASWC 1976  
Accounting Procedure, or Canadian industry practices in 1977, were such a surrounding  
circumstance. I accept that the PASWC Accounting Procedure existed in 1976, which was prior  
to the negotiation and executed of the NPI Agreement in 1977. I also accept Mr. Moller’s  
evidence that this document was important and influential in the Canadian oil and gas industry  
with respect to accounting and joint operations during this time period, and that it reflected  
industry practices at that time. I accept that it was used by foreign multi-nationals in Canada.  
[207] That that is the case, however, does not tell me that the norms and practices contained in  
that document would have been within the knowledge or contemplation of two Texas based  
companies negotiating an agreement in 1977, or part of the industry norms and practices which  
would have informed the negotiations between Mr. Hudson, Mr. Lee and the companies they ran.  
The PASWC 1976 Accounting Procedure was from a different community (Canada) and used in  
a different context (joint ventures not net profit interest agreements). The evidence before me  
does not connect it to the negotiation of a different type of agreement by American companies  
and businessmen. That the properties and interests about which the parties were contracting were  
in Canada does not make them or the milieu in which they negotiated Canadian.  
[208] This is particularly so given that Mr. Moller’s evidence does not require me simply to  
apply norms or general principles from the PASWC 1976 Accounting Procedure; it requires me  
to apply the rules in that Accounting Procedure. While he and the Plaintiffs acknowledged that  
the NPI Agreement did not incorporate the PASWC 1976 Accounting Procedure, such that it  
could not be treated as part of the NPI Agreement’s terms, their submissions in substance  
Page: 36  
required that I do just that. Indeed, they suggested that the rules in that document should be  
applied without regard to any operating or technological changes that have occurred since that  
time.  
[209] That de facto incorporation requires persuasive evidence that the PASWC 1976  
Accounting Procedure and the industry practices it reflects were background facts known or  
reasonably known to the parties when the NPI Agreement was negotiated and executed. It  
requires more than speculation that they might have been because they existed at that time and  
reflected practices of Canadian industry in the joint operations context.  
[210] As noted above, surrounding circumstances are the background facts which the parties  
knew or could reasonably be said to have known at the time they entered into a contract,  
including “the nature or custom of the market or industry in which the contract was executed”:  
IFP Technologies at para 83; Sattva at para 58. I do not have an evidentiary basis sufficient to  
allow me to infer that the PAWSC 1976 Accounting Procedure and the industry practices it  
reflects were known (or reasonably could have been known) to the original parties to the NPI  
Agreement, or that it was a custom of the market or industry in which the NPI Agreement was  
negotiated.  
[211] Even if, however, I treat the PAWSC 1976 Accounting Procedure as part of the  
surrounding circumstances that is, even if we analyze Clause III.C “consistent with” the  
PAWSC 1976 Accounting Procedure it does not support the constrained approach to overhead  
relied on by the Plaintiffs.  
[212] I find it helpful to think about overhead as something that functions at different  
conceptual levels:  
i) As a general definition to distinguish overhead from operation costs. Here, we  
provide a basic definition: general executive and administrative costs above the  
level of operations and only indirectly related to operational activities like  
production and development.  
ii) As a series of rules to allow an accountant to determine on a categorical basis  
whether expenses relate to overhead or operations. Here, an accountant will use  
something like the PASWC 1976 Accounting Procedure, generally accepted  
accounting principles, corporate guidelines or accounting software.  
iii) To characterize particular expenses incurred as either overhead or operational.  
This characterization would flow from an identification of the type of an expense  
in light of the accounting rules and practices of the party accounting for them,  
with the goal of identifying whether the expense was (or was not) overhead as that  
term is generally understood.  
[213] By saying “administrative supervision and overhead” in Clause III.C of the NPI  
Agreement the parties incorporated only the most general concept of overhead. They did not  
intend to incorporate the rules contained in PASWC 1976 Accounting Procedures, or to restrict  
the NPI agreement operator to industry practices as they were specifically understood in 1977.  
[214] Administrative supervision and overheadis general and un-specified and should be  
understood as defining overhead in a general and un-specified way: that is, as general executive  
and administrative costs above the level of operations and only indirectly related to operational  
activities like production and development. They parties did not intend to go below that general  
Page: 37  
definition to refer to time-and-industry-specific rules and practices, such as those contained in  
the PASWC 1976 Accounting Procedure. There is nothing in the language of the provision, or in  
the NPI Agreement as a whole, to suggest that the parties meant something other than overhead  
as generally understood and defined.  
[215] Further, the instances of overhead given in the second part of Clause III.C, whether or not  
they exhaust the meaning of overhead, confirm that the parties intended to refer only to this basic  
concept when referring to “administrative supervision and overhead”. Costs associated with  
corporate offices, or the time of employees not actually expended on the properties, are costs  
above the level of operations and only indirectly related to production, as captured in the basic  
concept of administrative supervision and overhead. But they do not go in any meaningful way  
beyond that basic concept; they are in no way akin to the industry specific and more granular  
requirements set out in PASWC 1976 Accounting Procedures, in generally accepted accounting  
principles or in accounting software. Rather, they are garden-variety examples of overhead,  
generally defined.  
[216] I note in this respect that the general understanding of overhead has not changed since  
1977. As the Plaintiffs said in their submissions, “[t]he experts agree that overhead includes costs  
associated with general services provided in respect of joint properties, that are not specifically  
attributable to any specific property or well”.  
[217] I do not see anything in the words of Clause III.C, either in “administrative supervision  
and overhead,or in the specific examples it provides, that suggests the parties intended to freeze  
the understanding of what was included in administrative supervision and overhead to a series of  
rules reflective of industry practices and accounting procedures at a particular time. Rather, the  
general reference to administrative supervision and overhead coupled with some basic examples,  
suggests that the parties intended that whether an expense was overhead should be defined based  
on the general concept of overhead and the nature of the specific expense whether, at the time  
it was incurred and in light of accounting procedures at that time, it was a general executive and  
administrative cost above the level of operations and only indirectly related to production and  
development. The test is not whether the expense would have been properly categorized as  
overhead at some other time and in light of some other accounting practice.  
[218] As discussed earlier, the structure of the NPI Agreement creates benefits and risks for  
each party. In general, it should be interpreted to allow the operator to deduct any legitimately  
incurred expenses associated with “exploring, developing, drilling, testing, completing,  
equipping, operating and maintaining” the properties, unless the expense is excluded by other  
provisions of the NPI Agreement. At the same time, the NPI holder ought to be protected from  
abuse or exploitation by the operator.  
[219] A definition of overhead which reflects the general understanding of that concept, and  
which allows particular expenses to be characterized based on industry practices and accounting  
procedures as they evolve over time, is consistent with this overall structure. It ensures the  
operator can deduct all legitimate expenses associated with operating the Rocanville Properties,  
while also ensuring the net profit interest holder does not get treated unfairly, through being  
charged with what are essentially administrative and corporate costs. Freezing the meaning of  
overhead at a point in time would not accomplish this goal; it risks creating a windfall to either  
the operator or the net profit interest holder, depending on the particular rule and the particular  
expense in question. Accurate and fair calculation of the net profits is what the NPI Agreement  
Page: 38  
aims to achieve, and this approach to overhead helps ensure that it does so. Linking the NPI  
Agreement to a dated set of rules and practices that it does not in fact incorporate, would not.  
[220] The Defendants also relied on the interpretation of Clause III.C advanced by Ms.  
LaRocque, that the two examples in the second half of the clause constitute the entirety of the  
overhead that is recoverable.  
[221] In my view Ms. LaRocque’s interpretation is not consistent with the language of Clause  
III.C read in its entirety, and in the context of the NPI Agreement as a whole. The effect of it  
would be to render the first sentence of the Clause largely superfluous, since what would be  
included in the $1250 cap is not administrative supervision and overhead, but only those two  
particular types of expenses. In addition, while not artfully drafted, Clause III.C seems intended  
to follow the ordinary drafting structure of a general proposition followed by illustrative  
examples. In my view that is what the parties intended: to cap the charges for administrative  
supervision and overhead, including but not limited to the specific exclusions enumerated in the  
second half of the Clause.  
[222] As a consequence of my interpretation of the NPI Agreement, the Plaintiffs have not  
discharged their onus of demonstrating a breach by the Defendants with respect to the charging  
for overhead. The evidence from Mr. Moller and in the form of undertaking responses shows that  
the Defendants did not comply with the PASWC 1976 Accounting Procedures and his  
understanding of industry practices in 1977, but it does not establish on the balance of  
probabilities that the Defendants otherwise included overhead in operating expenses.  
[223] I note in this respect that the Defendants benefit here from the lack of considered  
attention they gave to their obligations under the NPI Agreement. Clause III.C of the NPI  
Agreement required them to apply ordinary industry practices and accounting procedures and, in  
part because the contracts and administration department did not review the accounting, and the  
accounting group did not receive guidance from the contracts and administration department  
about what the NPI Agreement requires, the Defendants did just that.  
[224] I also observe that in reaching this conclusion I am not in a position to make a positive  
determination that the Defendants have properly ensured that overhead expenses, as defined  
here, were not included in operating expenses. Drawing that conclusion would require evidence  
about what constitutes appropriate accounting for administrative supervision and overhead based  
on industry practice and accounting procedures today, as well as more detailed information about  
the particular expenses allocated between overhead and operating by the Defendants. It would  
require something analogous to an audit, which the evidence before this Court does not permit.  
[225] Nonetheless, and to reiterate, I find that the Plaintiffs have failed to discharge the burden  
of showing that overhead expenses were improperly included in the NPI Agreement accounts.  
[226] Because of this conclusion, I do not analyze or consider the Defendants’ position that the  
Plaintiffs’ overhead claim is statute barred for the period prior to August 2008.  
Page: 39  
CCTA Tax  
Did the Defendants breach the NPI Agreement by charging the CCTA Tax to the  
NPI Account?  
[227] Throughout the period in dispute the Defendants have deducted from resource revenue  
amounts payable under the Saskatchewan Corporation Capital Tax Act, SS 1979-1980, c. C-  
38.1, as amended, which they called the “Saskatchewan Gov’t Surcharge”, but which I think is  
more precisely described as the CCTA Tax.  
[228] The Plaintiffs dispute the inclusion of these amounts. They submit that Clause III.B.1,  
which defines the proceeds incorporated in “net profits”, permits only taxes on production to be  
deducted from the profits payable. Further, they submit that the CCTA Tax is not a tax on  
production.  
[229] The Defendants largely agree with the Plaintiffs’ interpretation of Clause III.B.1,  
although they also submit that any interpretation that would result in the Plaintiffs receiving a  
windfall ought to be rejected that is, the NPI Agreement ought not to be interpreted so as to  
result in the Defendants paying increased taxes as a result of production from the Rocanville  
Properties, while being unable to pass those tax payments on to the Plaintiffs.  
[230] The Defendants’ primary submission, however, is that the Plaintiffs have  
mischaracterized the CCTA Tax. The Defendants submit that the CCTA Tax is a “tax thereon”  
with respect to the “Proceeds actually paid” and thus deductible pursuant to Clause III.B.1.  
[231] I agree with the parties that Clause III.B.1 only permits the deduction of taxes on  
production. Clause III.B.1 says:  
B. “Net profits”, as such term is used in this Paragraph III shall be the amount by  
which the total of:  
1. Proceeds actually paid to TRITON, its successors and assigns, for oil, gas and  
other minerals produced, saved and sold from the attributable to the SUBJECT  
PROPERTIES (after deducting therefrom (i) all payments made on royalties,  
overriding royalties, and other payments out of production to which the same are  
presently subject, and (ii) all taxes thereon other than income taxes)…  
[232] The word “thereon” has an ordinary meaning: in plain language it just means “on”.  
Clause III.B.1 permits the deduction of taxes on the “proceeds actually paid” to the Defendants.  
[233] The question, and where the Plaintiffs and Defendants I think would disagree, is as to  
whether taxes on the proceeds includes only taxes where the proceeds are the subject matter of  
the taxation, or whether it also includes taxes affected by the amount of proceeds. That is, to be  
chargeable under Clause III.B.1, is it sufficient that the proceeds affect the amount of tax, or  
must the proceeds be the subject matter of the tax?  
[234] In my view, in drafting Clause III.B.1 the parties intended that proceeds be the subject  
matter of the tax, and not merely affected by it. That intention can be seen in the exclusion of  
income taxes. Income taxes are taxed affected by the amount of proceeds received by the  
Defendants, but they are not taxes on the proceeds, and are thus not properly deducted.  
[235] The Defendants might respond by saying that the exclusion of income taxes means,  
rather, that income taxes are taxes on the proceeds; however, the parties decided to exclude them  
Page: 40  
for other reasons. Thus, taxes on proceeds otherwise includes taxes like income taxes, that are  
affected by the amount of production; it excludes only income taxes by virtue of having done so  
explicitly.  
[236] While I agree that Clause III.B.1 is not carefully drafted, in my view the parties expressly  
excluded income taxes not because they are taxes on proceeds but are nonetheless excluded;  
rather, they excluded income taxes to communicate, by reference to the most obvious and  
important example of this type of tax, that taxes simply affected by the amount of production do  
not fall within the scope of Clause III.B.1.  
[237] I find support for this interpretation in the fact that Clause III.B.1 deals with royalties,  
“other payments out of production” and taxes. Read in its entirety, the purpose of the provision is  
to permit the deduction of charges levied directly on production, namely royalties, payments out  
of production, and taxes on production; taxes merely affected by production, like income taxes,  
cannot be deducted.  
[238] I also find support for this interpretation in the overall structure of the NPI Agreement.  
Permitting the deduction of taxes directly on the proceeds ensures that the operator can deduct  
legitimately incurred expenses associated with producing from the Rocanville Properties; at the  
same time, however, excluding taxes incurred by the operator that are affected by production, but  
that are also affected by factors unrelated to production, protects the net profit interest holders  
from incurring risks or costs unrelated to the actual production. Taxes on proceeds are likely to  
be straight flow through costs and relatively transparent; other taxes that are merely affected by  
the proceeds, like income taxes, are not.  
[239] That leads to the next question, which is as to the nature of the CCTA Tax. In my view,  
the CCTA Tax is not a tax on production of the type deductible under Clause III.B.1 of the NPI  
Agreement.  
[240] Identifying the nature of the CCTA Tax requires identifying “the intent of the legislator  
having regard to the text, its context, and other indicators of the legislative purpose”: Canada  
Trustco Mortgage Co v R, 2005 SCC 54 at para 40. The Courts must identify the purpose of the  
provisions by taking “a unified textual, contextual and purposive approach to statutory  
interpretation”: Lipson v R, 2009 SCC 1 at para 26.  
[241] Taking this approach shows the CCTA Tax to be a corporate tax determined by reference  
to the resource corporation’s production, and not to be a tax on production per se.  
[242] The CCTA creates a statutory scheme for taxing corporations based on their size and  
their relationship to Saskatchewan.  
[243] Under the CCTA corporations must pay taxes based on the amount of their taxable paid-  
up capital, with different calculations being used for resident corporations and non-resident  
corporations: CCTA ss 3, 7-9, 13. Pursuant to s. 13.1, resources corporations must pay, “in  
addition” to the tax payable on its taxable paid-up capital, a percentage of its “value of resource  
sales in the fiscal year”: CCTA s. 13.1. For fiscal years commencing after July 1, 2008, the  
amount of tax payable by the resource corporation is the difference between “3.0% of the  
resource corporation’s value of resources sales in that fiscal year or portion of that fiscal year”  
and the “tax payable, if any, by the resource corporation pursuant to this Act determined in  
accordance with subsection 13(1)…for the corresponding year”: CCTA s. 13.1. Corporations file  
an annual return with respect to the corporate taxes owed, including resource taxes, and make  
Page: 41  
payments based in monthly installments as estimated by the corporation: CCTA s. 17 and s. 24.  
Corporations with gross assets of less than $100,000,000 can make additional deductions from  
the taxes owing under the CCTA (whether based on capital or resource production) based on the  
percentage of their employees employed in Saskatchewan: CCTA s. 14.1; Corporation Capital  
Tax Act Regulations, C-38.1 Reg 1, s. 8.1.  
[244] The CCTA creates a unified statutory scheme for charging taxes to corporations, based  
on measures for assessing the size and activities of the corporation in Saskatchewan, which for  
resource corporations includes their paid-up capital and their resource production. Under that  
scheme resource production is a metric for assessing the size and activities of the corporation for  
the purposes of taxing that corporation; production is not itself the subject of the taxation.  
[245] Support for this perspective on the CCTA Tax can be found in the Hansard debates from  
that time. While Hansard debates are of limited weight, they are admissible as relevant to the  
background and purpose of the legislation: HL v Canada (Attorney General), 2005 SCC 25 at  
para 106. When the CCTA was first introduced in 1980, the Hansard debates indicated that the  
government was motivated to ensure “that large oil and gas companies” contribute “their fair  
share to the general revenues of government”. Then, when the resource surcharge was introduced  
in 1988, the government noted that this was to address the problem that arose because of  
“interprovincial corporations allocating income and capital to lower taxing jurisdictions”. Those  
debates confirm what the statutory structure of the CCTA reveals, which is that the scheme of  
the CCTA, including the resource surcharge, was to create a methodology to ensure that resource  
corporations operating in Saskatchewan contributed to government revenues.  
[246] To put it slightly differently, s. 13.1 of the CCTA creates a tax on corporations that  
produce resources, and that tax is affected by the amount of resources they produce, but it is not  
a tax on the resources themselves. It is a corporate tax, not a resource tax. Section 13.1 itself  
makes this clear the tax is calculated as the difference between the resource surcharge and the  
capital tax. It can also be seen in the structure of the CCTA as a whole, which creates an overall  
scheme for the taxation of corporations, and in particular resource corporations, operating in the  
province of Saskatchewan.  
[247] The Defendants describe characterizing the CCTA Tax through the overall scheme of the  
CCTA as a “triumph of form over substance” (citing Crown Parking Company Ltd v Calgary  
(City), 1994 ABCA 244 at para 14 but with emphasis added by Defendants). That seems to me,  
however, to ignore the clear direction from the Supreme Court that statutory interpretation must  
always look at provisions in their statutory context. Section 13.1 does not exist or operate in  
isolation; it is fully integrated with the other provisions of the CCTA, and its purpose and subject  
cannot be identified without considering the legislation as a whole.  
[248] Further, this approach to characterization of the subject-matter of the CCTA Tax is  
consistent with the approach set out by the Supreme Court in AG BC v Canada Trust Co, [1980]  
2 SCR 466 at 486 (para 47). While in a very different context, that case emphasized that to  
characterize the subject-matter of the tax, the Court must consider not just the charging  
provisions, but also the legislation as a whole. It also seems analogous to the point made by the  
Supreme Court in Kerr v Canada (Superintendent of Income Tax), [1942] SCR 435 at 439  
(para 12). where the Court said when concluding that an income tax is a tax on a person, not on  
income: “In that case the income is used merely as just standard or yard-stick to use the  
expression of counsel for the Attorney-General of Alberta for computing the amount of the tax”.  
Page: 42  
Here, similarly, the resource amounts are a standard or yard-stick used to tax the corporation, and  
are not themselves the subject-matter of the tax. See also: Victuni Aktiengesellschaft v Quebec  
(Minister of Revenue), [1980] 1 SCR 580 at 583.  
[249] I acknowledge the Defendants’ point, that the context of these cases is very different.  
None of them is directly on point or governs the characterization of the CCTA Tax, and some of  
them rely on factors not applicable here. Nonetheless, they do two things that are important.  
First, they show that in assessing the subject-matter of a taxation statute the analysis cannot stop  
at the thing which affects the amount of the tax (e.g., income or production). Second, they show  
that assessing the subject-matter of a taxation statute must be based, as with statutory  
interpretation in general, on the charging section looked at in light of the statute as a whole.  
When that is done, the subject-matter of the CCTA Tax, which is the corporation itself, becomes  
clear.  
[250] The Defendants emphasize, I think fairly, that the reality under the CCTA is that the  
taxes payable under that statute are entirely (at least for a larger corporation) set by the taxes  
calculated on production, by virtue of the fact that since 2008 the capital tax rate has been zero  
percent. Under s. 13.1 of the CCTA, the difference between the resource surcharge and the  
capital tax is always equal to the resource surcharge, because the capital tax is zero.  
[251] That current choice to set the capital tax rate at zero even if it has now persisted for  
over a decade does not, however, change the overall structure and intent of the statutory  
scheme which gives rise to the CCTA Tax. The option remains open to the Saskatchewan  
government to set the capital tax rate at the level they choose, and the provision in s. 13.1 to  
calculate the tax owing as the positive difference between the two amounts remains in effect. The  
nature of a statutory scheme cannot change over time depending on the tax rate used by the  
government. A zero rate is not equivalent to repeal or statutory amendment, and the Defendants’  
argument would make it so.  
[252] The Defendants also dispute the relevance of the small business deduction given under s.  
14.1 of the CCTA for showing that the CCTA Tax is a tax on corporations, not a tax on resource  
proceeds. They note the various ways in which taxation statutes can offer deductions unrelated to  
the tax itself. I accept their general observation on this point and agree that this deduction is not  
determinative of the characterization of the CCTA Tax. I also accept the Defendants’ point that  
the payment of the CCTA Tax by instalments, and the absence of lien rights, are not  
determinative. But they are all relevant. And they, along with the rest of the CCTA, and  
especially the terms of s. 13.1 making the tax payable dependent on both the resource surcharge  
and the capital tax, reveal that the CCTA Tax is part of the Saskatchewan government’s scheme  
for taxing resource corporations, not part of a scheme for taxing resources produced in  
Saskatchewan.  
[253] The Defendants accuse the Plaintiffs of irrationality because the Plaintiffs challenge the  
resource surcharge but accept the Freehold Production Tax. The Defendants submit that the two  
taxes are “virtually identical” (emphasis in original) so that it makes no sense to challenge one  
but accept the other. Even if the Defendants are correct, however, I am not sure how that is  
relevant to, or advances, my interpretation of the subject matter of the CCTA Tax, and its  
inclusion in the NPI Agreement. Answering that question depends on the interpretation of the  
NPI Agreement and the CCTA, not on its similarity to, or difference from, the Freehold  
Production Tax, or on whether the Defendants are acting irrationally or inconsistently.  
Page: 43  
[254] I also am not persuaded by the Defendants’ reliance on Cogema Resources Inc v R, 2004  
TCC 750 at para. 15, aff’d 2005 FCA 316. In that case the Tax Court held that the CCTA Tax is  
a tax on resource sales, not a “tax paid in relation to production” and non-deductible from  
income taxes by virtue of s. 18(1)(m) of the Income Tax Act RSC 1985 c. 1 for the 1996 taxation  
year. Justice Beaubier relied on provisions that show that the tax is levied at the point of sale not  
at the point of production. He noted that if the producer kept the resource in that case  
yellowcake and used it to manufacture another product, such as uranium rods, the surcharge  
would not be applicable.  
[255] In making that decision, however, Justice Beaubier did not consider the issue before me,  
which is the subject matter of the CCTA Tax. The issues are wholly distinct. Had he reached the  
opposite result, deciding that the tax was calculated on production not sales, the Defendants’  
submissions would not change; they would simply submit that the CCTA Tax is a tax on  
production, and not a tax on corporations. The Plaintiffs’ submissions would also be unchanged;  
they would say that the CCTA Tax is a tax on corporations and not a tax on production. I am not  
assisted in answering the question before me is the CCTA Tax a tax on the resource or a tax on  
the corporation by the specification that the calculation of the CCTA Tax depends on sales not  
production. Either answer to that question is consistent with either answer to the one before me.  
[256] What Cogema does suggest, however, is why the parties to the NPI Agreement excluded  
taxes not directed at resource proceeds from Clause III.B.1. Because it indicates that, at least in  
1996, the CCTA Tax may have been deductible from the payor’s income taxes. If that was and  
remains the case, then it is possible that the Defendants were able to deduct the CCTA Tax from  
the income taxes they paid, including the CCTA Tax that they also charged to the NPI  
Agreement account. I emphasize that I have no idea how the Defendants dealt with the CCTA  
Tax in relation to their income taxes. But the point is, neither do the Plaintiffs, and neither could  
the Plaintiffs. Taxes on a corporation rather than on proceeds are affected by a multiplicity of  
complex factors; the ultimate liability of the payor will be affected by facts specific to the payor  
and to the interaction of a variety of schemes of taxation. There is no transparent or clear way to  
ensure that the cost of those sorts of taxes are accurately passed through to the net profit interest  
agreement holder. Structurally and through the language of Clause III.B.1 the NPI Agreement  
protects the net profit interest holder from the flow through of those opaque and unspecified  
types of charges.  
[257] In sum, therefore, I find that the CCTA Tax was not properly included as a deduction  
from proceeds of the Rocanville Properties production in the NPI Agreement accounts, and that  
the Defendants breached the NPI Agreement by doing so.  
Is any or all of the CCTA Tax Claim Statute Barred?  
[258] Section 3(1) of the Limitations Act, RSA 2000, c L-12 provides.  
Subject to subsections (1.1) and (1.2) and sections 3.1 and 11, if a claimant does  
not seek a remedial order within  
(a) 2 years after the date on which the claimant first knew, or in the  
circumstances ought to have known,  
(i) that the injury for which the claimant seeks a  
remedial order had occurred,  
Page: 44  
(ii) that the injury was attributable to conduct of the  
defendant, and  
(iii) that the injury, assuming liability on the part of  
the defendant, warrants bringing a proceeding,  
or  
(b) 10 years after the claim arose,  
whichever period expires first, the defendant, on pleading this Act as a defence, is  
entitled to immunity from liability in respect of the claim.  
[259] This provision means that a claim must be brought within two years of the claimant  
knowing or being “reasonably able to discover that: (i) the injury occurred; (ii) the injury was  
attributable to the conduct of the defendant; and (iii) the injury warrants bringing a proceeding”:  
De Shazo v. Nations Energy Co., 2005 ABCA 241 at para 28.  
[260] The claimant must know sufficient facts on which an action could be brought, or those  
facts must be discoverable: Riddell Kurczaba Architecture Engineering Interior Design Ltd. v  
Governors of the University of Calgary, 2018 ABQB 11, aff’d 2019 ABCA 195, at para. 69.  
[261] This does not require that the claimant have clear or perfect information, but only that  
they have sufficient knowledge to warrant making reasonable inquiries. At that point the  
claimant must make reasonable inquiries in assessing and pursuing its claim: Geophysical  
Service Incorporated v Encana Corporation, 2018 ABCA 384 at para 20, citing Canadian  
Natural Resources Limited v Jensen Resources Ltd., 2013 ABCA 399 at para 41.  
[262] The clear information must, however, be more than mere suspicion that something has  
occurred; the claimant must have “some support for his suspicion” for the limitation period to  
begin: Stack v Hildebrand, 2010 ABCA 108 at para 14.  
[263] Once the relevant knowledge of the injury, that it was attributable to the defendant, and  
that it would be worth pursuing in law – has been established, the claimant’s “lack of knowledge  
of the law giving rise to a right to sue” will not excuse their lack of due diligence in pursuing  
their claim: Stewart Estate v 1088294 Alberta Ltd., 2015 ABCA 357 at para 175.  
[264] Having said that, however, if a claimant makes inquiries of the other side, and is given  
inaccurate or deceptive information, that must be taken into account in determining when the  
limitation period begins: Milota v Momentive Specialty Chemicals Canada, Inc, 2019 ABQB  
117 at para 84-85.  
[265] In a case of an ongoing contractual relationship with periodic payments, generally  
speaking each failure to make a payment in accordance with the contractual obligations is a new  
injury beginning a new cause of action: Fernandes v Jennings Capital Inc, 2016 ABQB 594 at  
para 80-82. Whether that is the case, however, depends on the particular circumstances of the  
case and contract: Pedersen v Soyka, 2014 ABCA 179 at para 17.  
[266] Applying this law to the CCTA Tax, I find the Plaintiffs’ claim to be statute barred for  
the period prior to August 6, 2008. The injury they suffered was that the Defendants charged  
them for the CCTA Tax when doing so was not permitted by the terms of the NPI Agreement.  
Page: 45  
All of the facts relevant to that injury were known to them at the time that it occurred that the  
amounts were being charged, that they were arose from a surcharge imposed by the  
Saskatchewan government, and the terms of the NPI Agreement that governed whether those  
amounts were properly recoverable. The only thing that they did not know was a matter of  
contractual interpretation and the law the proper interpretation of Clause III.B.1 of the NPI  
Agreement, and whether the CCTA Tax could properly be characterized as a tax on the proceeds.  
Those things were easily followed up on through consultation with a lawyer, and through legal  
research.  
[267] The parties had some dispute before me over the admissibility of a preserved website  
from the time period in question. While I tend to agree with the Defendants that that website was  
admissible, it ultimately does not matter. Because law is, as a matter of principle and practice,  
publicly available and reviewable. The website might speak to the effortlessness with which it  
could be discovered, but the discoverability requirement is not one of effortless discoverability; it  
is one of discoverability after the exercise of some diligence on the part of the claimants.  
[268] The claimants in this case, while not immersed in the Canadian oil and gas industry, were  
sophisticated and educated, and one of them was a lawyer. They considered retaining legal  
counsel and decided not to do so largely because of cost. In my view once the Plaintiffs knew  
that a surcharge from the Saskatchewan government was being included on the NPI Agreement  
accounts they had the facts necessary to know that they had been injured, that the injury was by  
the Defendants and that it was worth pursuing in a proceeding. They could be expected at that  
point, as a matter of due diligence, to review the NPI Agreement and to investigate the  
Saskatchewan law, consulting with a lawyer if necessary, to decide whether to bring the claim.  
[269] There are, however, multiple limitation periods for the purposes of the CCTA Tax.  
Every time the Defendants charged the Plaintiffs for the CCTA Tax contrary to the terms of  
Clause III.B.1, they committed a new legal wrong and inflicted a new injury on the Plaintiffs. As  
a result, and as acknowledged by the Defendants, the Plaintiffs claim is not statute barred in  
relation to any amounts deducted with respect to the CCTA Tax for the period after August 6,  
2008. The CCTA Tax was not a one-time breach of the NPI Agreement, it was a recurring  
periodic breach, and each time it occurred a new limitation period began.  
[270] The Plaintiffs make six arguments against the application of the limitation period here.  
[271] First, they say that the conduct of the Defendants misled the Plaintiffs about the nature of  
the CCTA Tax, which extends the limitation period. They rely on Mr. King’s evidence that he  
inquired in 1995 about the nature of the surcharge and was told that it was a “resource tax”. They  
also rely on how the CCTA Tax was presented in the NPI Agreements accounts, as a deduction  
from revenue, as contributing to a misimpression that the tax was properly included as akin to a  
production tax. As a result of those inaccurate and misleading representations, the two-year  
limitation period ought not to apply.  
[272] Second, they rely on the various steps taken by Mr. King and his employee Mr. Wegner  
to review and verify the amounts incorporated in the NPI Agreement account, and submit that  
their failure to identify this problem (and the issues related to the Cherry Hill Transaction and  
overhead) demonstrate that due diligence could not in fact reveal that the Defendants had caused  
an injury that was worth pursuing in law.  
Page: 46  
[273] Third, they submit that every time an NPI Agreement account was reissued, the limitation  
period restarts for every item on the reissued account, even if that particular item was not  
adjusted.  
[274] Fourth, even when a statement is not reissued, they argue that because the NPI  
Agreement account is cumulative, every new account statement incorporates and reiterates the  
past accounting, thereby effectively restarting the limitation period in relation to that past  
accounting. They argue that, as a consequence, the only limitation period applicable to the  
Plaintiffs’ claim is the ultimate 10-year limitation set out in s. 3(1)(b).  
[275] Fifth, and relatedly, they submit that when Crescent Point took over the NPI Agreement  
in 2014, it had an obligation under the newly created contract to confirm and verify the  
accounting. As a result, the limitation period in relation to Crescent Point did not commence  
until it acquired its interest in the NPI Agreement and failed to complete the proper accounting.  
[276] Finally, the Plaintiffs rely on the fact that the Defendants took the position that they could  
adjust any prior NPI Agreement account statement without regard to the passage of time. They  
note that in some cases NPI Agreement accounts have been adjusted as much as seven years after  
they were originally issued.  
[277] In my view none of those arguments extend the limitation period for the CCTA Tax.  
[278] The statement made to Mr. King, and the way the CCTA Tax was recorded on the NPI  
Agreement accounts, do not change the fact that the Plaintiffs knew that a Saskatchewan  
government surcharge was being deducted by the Defendants, or remove the obligation of the  
Plaintiffs to review the legitimacy of amounts being incorporated. The public availability of the  
law on the CCTA Tax, and that the Plaintiffs had the NPI Agreement, meant they had the ability  
from the time the CCTA Tax was first included to independently ascertain its legitimacy, and  
they ought to have done so.  
[279] The statements made by the Defendants to Mr. King, and the inclusion on the NPI  
Agreement account, reflect the Defendantsview of the resource surcharge. The statements were  
not deceptive, and accurately reflected the Defendants’ own assessment, even if mistaken. They  
also did not take away the knowledge that the Plaintiffs had or could have easily obtained: that  
these amounts were being charged by the Defendants and ought not to have been charged given  
the terms of the NPI Agreement and of the CCTA. As such, the statements to Mr. King and the  
treatment of the resource surcharge on the NPI Agreement accounts do not remove the Plaintiffs’  
obligation to exercise due diligence with respect to the legitimacy of those charges. They do not  
stop the limitation period from operating as it otherwise would.  
[280] I also do not see the Plaintiffsunfortunately ineffectual efforts to review the NPI  
Agreement as proof that more effectual efforts were impossible, or that the errors could not  
reasonably have been ascertained by persons in their position. The Plaintiffs chose not to retain  
counsel or conduct an audit, in significant part because of the expense; that was their choice to  
make, but that choice does not shield them from the obligation of due diligence or from the  
ordinary operation of the two-year limitation period.  
[281] I do not accept the Plaintiffs’ argument that any time an NPI Agreement account is  
reissued, the limitation period restarts for every item included on the reissued statement, even if  
unchanged from what was there before. I cannot see any reason why the adjustment of one item  
on an account statement would shift the ordinary operation of limitation periods for the amounts  
Page: 47  
not corrected. It does not change the pre-existing knowledge of the claimant necessary to start  
the limitation period from running and it does not undermine or shift the claimant’s obligation to  
exercise due diligence in relation to those claims. Once the limitation period has otherwise  
started to run because of the claimant’s knowledge, and nothing has changed about the nature of  
the particular claim, the claimant’s ability to pursue that claim is not prejudiced or affected by  
the issuance of a statement adjusted for unrelated reasons. As noted in Riddell, the claimants  
need sufficient facts, they do not need perfect facts.  
[282] I agree with the Defendants that a relevant aspect of the limitations analysis is that the  
claims made by the Plaintiffs relate to categories of costs, not to the calculation of specific costs.  
The knowledge required to identify the injury, attribute it to the Defendants and assess the worth  
of proceeding does not depend on any particular revenue statement issued by the Defendants; the  
knowledge arises once the inclusion of the disputed category of costs has been identified. As a  
consequence, the reissuance of account statements, unless adjusting the CCTA Tax itself, does  
not restart the limitation period.  
[283] I also agree with the Defendants that there is no need for the purpose of limitations for  
the Plaintiffs to have final and conclusive information about the NPI Agreement accounts. As  
earlier noted, they simply need to have “sufficient facts [that are] known or discoverable upon  
which an action could be brought”: Riddell at para 69. Given the nature of the claims in this case  
which dispute categories of costs, not particular cost calculations sufficient knowledge was  
held by the Plaintiffs when the initial NPI Agreement revenue statement showing the deduction  
of the CCTA Tax was issued; final account statements for the relevant time period did not affect  
the substance and nature of the Plaintiffs’ claim (unlike in Pederson v Soyka, 2014 ABCA 179)  
and were not required for s. 3 of the Limitations Act to apply.  
[284] For similar reasons, I also do not accept that the cumulative nature of the NPI Agreement  
account means that every time a new NPI Agreement revenue statement that incorporates earlier  
accounting is issued the limitation period restarts. That interpretation requires, in essence, a  
finding that in issuing the new revenue statement the Defendants commit a new and distinct legal  
wrong. That position is unsustainable. It artificially extends and overstates the wrong the  
Defendants commit. Yes, the Defendants breached the contract in including the CCTA Tax. And  
until that contract breach is corrected it will be reflected in some way in the cumulative account.  
But that the injury is ongoing and not corrected does not create a new injury; it is the  
continuation of a prior legal wrong, not the commission of a new one.  
[285] The Plaintiffs say that each time a new revenue statement is issued “a new ‘injury’ is  
suffered” so as to restart the limitation period. However, s. 3(1)(a)(i) of the Limitations Act does  
not refer to an “injury”, it refers to “the injury for which the claimant seeks a remedial order”. In  
this case, the injury for which the Plaintiffs seek a remedial order is the Defendants’ inclusion of  
the CCTA Tax in the NPI Agreement accounts; they do not seek a remedial order for the  
reissuance of accounts reflecting that original inclusion. The limitation period thus runs from the  
injury suffered at the point of the original inclusion of the CCTA Tax, not from the point of each  
statement in some way affected by that inclusion.  
[286] With respect to Crescent Point, as discussed below, the Assignment and Novation  
Agreement dated September 30, 2014 makes Crescent Point liable for the breaches of contract  
established by this litigation. The Plaintiffs seem to be arguing, however, that Crescent Point has  
a broader liability – “There can be no limitation defence to claims against CPG”. While the basis  
Page: 48  
for this argument is not entirely clear, the allegation seems to be that Crescent Point had an  
obligation to do a historical accounting and audit to identify and correct the previously existing  
contract breaches at the point that it entered into the Assignment and Novation Agreement. That  
it failed to do so creates new injury that gives rise to a new limitation period.  
[287] This argument suffers, however, from the same problem as did the Plaintiffs’ submission  
on the reissuance of the accounts. The injury for which the Plaintiffs seek a remedial order is the  
original inclusion of the CCTA Tax; it is not Crescent Point’s failure to complete a historical  
accounting. In short, while I am satisfied that Crescent Point is as liable as Lightstream was  
under the NPI Agreement, I see no basis for saying that they have greater liability, or that they  
caused an additional injury relevant to the calculation of the limitation period by failing to redo  
all of the NPI Agreement accounts to that point.  
[288] The Plaintiffs rely on the decision of this Court in United Canso Oil & Gas Ltd v  
Washoe Northern Inc, [1992] AWLD 180; however at least in this respect the case is  
distinguishable. In United Canso the Court did not allow the successor corporation to benefit  
from the limitation period in part because the successor corporation did not take on the liabilities  
of the prior contracting party: “The Husky defendants transferred no liabilities to Asamera and  
Asamera transferred no liabilities to Lasmer save as related to the Gas Purchase Contract.  
Neither Asamera or Lasmer can shelter under any limitation defence that the Husky defendants  
may have had regarding its own liabilities during its period of managing operatorship”: United  
Canso at para 289.  
[289] Here, by contrast, Crescent Point has taken on the liabilities of Lightstream by virtue of  
Clause 2 of the Novation and Assignment agreement. As a result, it can benefit from limitation  
period defences to that liability in the same manner as was available to Lightstream. That it did  
not independently identify or correct errors at the time it took over the NPI Agreement does not  
change the analysis because, as noted, it does not create a distinct injury for which the Plaintiffs  
have sought a remedial order. The 4th Amended Statement of Claim states that Crescent Point  
has adopted the previous accounting, but it does not allege an independent legal wrong and  
injury by Crescent Point in relation to the failure to correct and update the prior accounting.  
[290] Finally, with respect to the Defendants issuing updated NPI Agreement accounts and  
revenue statements for periods of time greater than two years, I do not accept that that alters the  
application of the Limitations Act. This argument goes beyond the claim that a revised NPI  
Agreement revenue statement restarts the limitation period. It amounts to an argument that, by  
issuing revised NPI Agreement revenue statements more than two years after the statements  
were originally issued, the Defendants have waived the application of the Limitations Act. The  
Plaintiffs as I read it assert waiver of the limitation by the conduct of the Defendants and  
detrimental reliance by the Plaintiffs – “The parties’ practice confirms that the Hudsons would  
never reasonably expect that they had to commence a claim within any particular time-frame to  
preserve limitations”.  
[291] To put it slightly differently, the Plaintiffs claim that the Defendants are estopped from  
relying on the application of the limitation period by virtue of their conduct in reissuing NPI  
Agreement revenue statements, and by the Plaintiffs’ reliance on the representation implicit in