Canada: UPDATE: Stewart Estate v Taqa North Ltd

In November 2015, the Alberta Court of Appeal issued its decision in Stewart Estate v TAQA North Ltd, 2015 ABCA 357, which addressed a number of issues significant to the oil and gas industry. We previously commented on the Alberta Court of Appeal decision in STEWART ESTATE v TAQA NORTH LTD: Three Alberta Court of Appeal Justices Weigh in on Critical Oil and Gas Lease Issues. Since our previous commentary there have been further decisions and developments respecting this action.

Application for Leave to Appeal to the Supreme Court of Canada

In January 2016, ExxonMobil Canada Ltd. ("Exxon"), Nexen Inc. ("Nexen"), Bonavista Energy Corporation ("Bonavista"), Coastal Resources Limited ("Coastal") and Pengrowth Energy Corporation, as successor to Esprit Exploration Ltd. ("Esprit/Pengrowth"), filed applications with the Supreme Court of Canada for leave to appeal, citing the need for clarification of:

  1. the proper measure of damages in mineral trespass cases;
  2. the standard of review applicable to interpretation of oil and natural gas leases and clarification of Sattva Capital Corp. v Creston Moly Corp. 2014 SCC 53; and
  3. whether a gross overriding royalty (GORR) holder has a duty to account for GORR payments to the lessor under the lease from which the GORR is carved.

The Supreme Court of Canada decision on the leave application is expected shortly.

Court of Appeal Judgment Roll Decision

Clarification of GORR Holder Liability

On May 6, 2016, the Alberta Court of Appeal issued its decision in Stewart Estate v TAQA North Ltd, 2016 ABCA 143, respecting the form of the Judgment Roll. The draft Judgment Roll totaled $22,192,303.77 in damages, excluding interest and the decision addressed the following specific issues.

As discussed in our initial commentary of Stewart Estate v TAQA North Ltd, 2015 ABCA 357, the majority of the Court of Appeal (O'Ferrall J.A. and McDonald J.A.) concluded that a GORR carved out of the lessee's working interest and entitling the holder to receive a portion of the lessee's production revenue, is limited in duration to the life of the lease from which it is carved. The GORR expires once the lease expires. A GORR holder is not a working interest owner and is not jointly and severally liable for the value of natural gas wrongfully converted under an expired lease, but the GORR holder may have to account to the lessor for royalty payments received once the lease terminates.(para 465-467) In this case, the GORR holder (Esprit/Pengrowth) received benefits of production after the leases terminated. The majority of the Court of Appeal held that this benefit was something that had to be accounted for back to the lessor, either by the lessee (Bonavista) or the GORR holder (Esprit/Pengrowth).

In its more recent decision, the Court of Appeal clarified that the lessee (Bonavista) and the GORR holder (Esprit/Pengrowth) were jointly and severally liable to the lessors for the value of the royalty volumes in the aggregate amount of $1,357,703. The Court offered no further clarification on the cause of action giving rise to the GORR holders' liability but explained the liability to account to the lessor for the GORR payments as follows:

[12] Bonavista, as lessee, is liable for the tortious conversion of the lessors' natural gas and Esprit/Pengrowth, as the recipient of the value of a portion of the wrongfully converted property of the lessors are also liable to account. Bonavista and Esprit/Pengrowth are jointly and severally liable to their lessors, the persons suffering the loss. Esprit/Pengrowth must account for the value of that production; but if Esprit/Pengrowth defaults in accounting to the lessors for that value, Bonavista would be liable to account for those volumes. As between themselves, Bonavista and Esprit/Pengrowth may have a contract which provides for contribution and/or indemnity; but any such arrangement will not affect their joint and several liability to their lessors for the value of the royalty volumes.

[13] So, to answer Esprit/Pengrowth's question, the appellant-lessors do have a judgment against Esprit/Pengrowth for the royalty volumes and, in default, a judgment against Bonavista for those same volumes. Any disputes between Bonavista and Esprit/Pengrowth arising out of their contractual arrangements may be settled by the Court of Queen's Bench. But their liability for the royalty volumes to the appellant-lessors is joint and several.

[14] The gross overriding royalty payable to Esprit/Pengrowth was nothing more than a right to receive a portion of a lessee's production revenue (or a portion of the natural gas produced by the lessee). If Bonavista, as lessee, was not entitled to produce the natural gas, then the overriding royalty holder, Esprit/Pengrowth, was not entitled to receive a portion of it. The bottom line is that all of the wrongful production must be accounted for, including the royalty volumes. Hence the finding of joint and several liability for the overriding royalty volumes.

The Court further held that the GORR holder must account for the GORR proceeds for the same time period as the lessee is required to account for production as, "it would be illogical and unfair to require Bonavista to account for the production it received while not requiring the overriding royalty recipient (Esprit/Pengrowth) to account for the value of the production Bonavista paid to it during that same period." (para 19)

Clarification of Leave and License

The Court noted a corrigendum correcting paragraph 1 (e) of the Executive Summary of the initial decision, which clarified that the majority had agreed that the Irwin Group did not give leave and license from December 2005 to January 2007, and although superfluous to the issue before the Court, concluded that any leave and license was terminated when Coastal's predecessor was served with the Statement of Claim and Notice to Vacate.

[26] ... Coastal's predecessor, Unocal, from whom it acquired its interest, was served with the Statement of Claim in the Fall of 2005. Unocal was served because Coastal failed to register its interest on title. There is simply no basis on which to suggest that the Irwin Group consented to Coastal's continued receipt of the natural gas revenues attributable to the north 43 acres of the NE 1/4 of Section 25 after Unocal was served with the Statement of Claim and Notice to Vacate. That Unocal was served in the Fall of 2005 ends the matter; but the fact that Coastal was advised by Chevron (on behalf of Unocal) of the litigation by letter dated December 19, 2005 makes the argument completely untenable ...

Court of Appeal Costs Decision

On May 6, 2016, the Alberta Court of Appeal also issued the costs decision in Stewart Estate v TAQA North Ltd, 2016 ABCA 144 and confirmed that complex litigation may give rise to a multiplier under Schedule C: Tariff of Recoverable Fees. The Court further confirmed that in Alberta, an informal offer, if sincere, may give rise to double costs. The appellants and the cross-respondent, J. Timothy Bowes ("Bowes"), claimed trial and appeal costs and disbursements totaling $2,261,358.08. The appellants supported their claim by arguing:

[2] ... their unqualified success on appeal and cross-appeal; they were compelled to sue because of the respondents' tortious conduct and the litigation is ten years and counting; the suit was complex and they were pursuing five respondents each with a different approach to defending the claims against them at trial and on the appeal; the respondents' proposed bill of costs for the trial alone was 50% more than the appellants' claim for trial and appeal; the appellants bested a formal offer of $18 million made before trial; and there were three informal offers, two before the appeal, all of which were bested. The appellants request that we determine trial costs.

The respondents, TAQA North Ltd. ("TAQA"), Esprit, Bonavista, Triquest Energy Corp. ("Triquest"), Coastal, Nexen and Exxon argued that each party should be responsible for their own appeal costs given what they characterized as novel issues and submitted that the matter should be remitted back to the trial judge for determination. The respondents contended that the Court should exercise its discretion and award no costs on appeal because the lawsuit is a "leading case in oil and gas law" as it addressed important industry-wide issues for the benefit of oil industry participants and freeholder interest holders. Alternatively, they argued for significantly reduced costs. Their arguments were summarized as follows:

[3]... the lessors would be over-indemnified because they were never responsible for costs as a result of an agreement with a non-party (the top lessee) and a retainer agreement with their counsel. The respondents contend that trial costs are on reserve by the trial judge and should be decided by her (not by this court). They say the appellants pursued unmeritorious collateral issues at trial and used objectionable expert witness tactics.

Coastal and Bonavista argued that they were both in a unique position because of the time when they were added as parties and the fact that their legal relationship was arguably with a non-party (Snell Farms Ltd./Wheatland Farming Company Ltd.) Esprit also distinguished itself from the other respondents as its liability as a GORR holder was for disgorgement of GORR payments and arguably of a different nature.

The Court determined that it would be more expeditious and less costly for it to determine both the appeal costs and trial costs. In rejecting the respondents' contention that the parties should bear their own costs, the Court held that the appellants were successful in their appeal and that there were no mitigating factors in either the trial or the appeal. As a result, the only issue was whether the Court should award enhanced costs.

Costs Multiplier

The appellants argued that as a result of the complexity of the matter (which required them to respond to five counsels' submissions) and the fact that they were successful on virtually all grounds of appeal, they should be entitled to a four times multiplier of the tariff amount in column 5. The respondents argued that there should be no multiplier.

The Court held that application of a multiplier was not unprecedented and found that there was nothing in the case law to suggest that the analysis for a multiplier is altered in an oil and gas context. The Court confirmed that Alberta Courts have typically awarded a multiplier of the tariffs in column 5 in three circumstances (para 25): when the complexity of the action warranted it, when the amount in dispute significantly exceeded the $1.5 million threshold for column 5 or when the conduct of one of the parties warranted a multiplier. In addition, the Court will also rely on the considerations set out in Rule 10.33 in determining whether a multiplier should be applied.

Ultimately the Court awarded a two times multiplier. The Court based its decision largely on the complexity of the trial and appeals, more specifically, the volume of documents, multiple days of questioning, number of agreed exhibits, lay and expert witnesses, the volume of written argument as well as the number of respondents, the complexity and variety of issues and the length of the appeal hearing.

Counterclaim Costs claimed by Bowes (trial only)

Bowes sought costs in the Counterclaim. He was instrumental in the lessors signing the top leases but was not a party to the proceedings until he was made a party by the counterclaim of Nexen and Exxon. The counterclaim focused on a champerty and maintenance claim and was rejected by both levels of Court. Nexen and Exxon argued that Bowes' costs claim was unjustified as he was represented by the same counsel as the appellants and that there were few trial submissions and no witnesses, evidence or documents specific to the counterclaim. The Court awarded Bowes costs against Nexen and Exxon only, and in a reduced amount.


The Court concluded that Esprit/Pengrowth was not jointly and severally liable with the working interest owners for the value of the natural gas wrongfully produced and was not liable for costs on a pro rata basis. However, Esprit/Pengrowth was liable for the GORR payments received and therefore had unsuccessfully resisted the claim of disgorgement. The Court determined that Esprit/Pengrowth's liability "lay in the law of personal property (a person cannot acquire better title to a chattel than that of the person from whom it received the chattel), not the law of torts." The Court did factor in that Esprit/Pengrowth was successful in arguing that it was not jointly and severally liable for the wrongful production by the working interest owners.

Formal Offers to Settle

With respect to the formal offers to settle, made by the appellants prior to trial and which had been bested, Bonavista and Coastal argued that despite the offers they were compelled to continue producing because they owed a duty to their lessor. The Court disagreed, finding that in a pooled production spacing unit, the lessees had no right to produce as soon as any one of the lessors withdrew their consent to continued production. Accordingly, the Court held that there was no reason to deny the appellants, including Bowes, the cost consequences of besting their offer; the trial costs that followed their formal offer were therefore doubled.

With respect to the offers to settle made prior to the appeal being heard, the Court held that, although the informal offers were conditional, there was every indication that if the respondents accepted that would have led to the approval of all of the appellants. The Court held that the offers were a sincere attempt to settle the dispute without a lengthy appeal hearing, and again ordered a doubling of costs.


  1. Subject to clarification by the Supreme Court of Canada, GORR holders should remain cautious where GORR payments are received after a well has been shut-in and then placed back on production. In such circumstances, the GORR holder and the lessee of the lease from which the GORR is carved may be jointly and severally liable to the lessor, for any GORR payments received after the lease terminates. The GORR holder may be best advised to hold the payments in trust pending a title opinion or a re-granted lease.
  2. Acceptance of royalty payments or other encouragement to continue production may constitute leave and licence to continue production after lease termination and preclude a trespass claim, up until such time as the lessor provides a clear Notice to Vacate the property or commences and serves an action. Having taken such steps, a subsequent lessee, even one who has no direct knowledge of the Notice to Vacate and the commencement and serving of the action, may be precluded from alleging consent or leave and licence and may be liable for trespass.
  3. Read together with other recent Alberta decisions, the costs decision in this case confirms an ongoing trend of Alberta courts towards significant cost awards and costs awards which promote settlement. This case is a reminder that Alberta Courts will look favourably on sincere attempts to settle disputes before trial, and that even an informal offer may lead to double costs or elevated costs.

About BLG

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions