Nugas Ltd. v. Canada
T-1692-90
Strayer J.
9/11/92
19 pp.
Action for declaration plaintiff incurred "eligible expenses" within Canadian Exploration and Development Incentive Program Act (CEDIP) re: Phases Three, Four of gas well drilling program in Brooks, Alberta, in 1989 -- Also seeking mandamus requiring defendant Minister to requisition certain incentive payments from Consolidated Revenue Fund -- Act to provide incentive payments for exploration and development for production of hydrocarbons other than coal -- Minister of Finance abruptly cancelling program, subject to payment of subsidies in respect of expenses incurred for wells "spudded" before that date or pursuant to "binding commitments" entered into before April 27, 1989 -- In May 1988 plaintiff commenced drilling, in four phases, 97 gas wells in Brooks area on lands, mineral rights in which belonged to PanCanadian Petroleum Limited -- Chevron Associates holding joint interests in PanCanadian minerals on Phase Four lands -- On September 30, 1988 Minister announced instead of planned reduction of incentive payment, payments would continue at rate of 25% for expenses incurred up to June 30, 1989, to decrease thereafter until end of 1989 when program would terminate -- Plaintiff entering agreement with PanCanadian, evidenced by exchange of correspondence and formalized in documents entitled "natural gas lease", in respect of lands in Phase Three in January 1989 -- Document not typical of "natural gas lease" commonly used in industry under which owner of mineral rights grants right to petroleum company to explore for and extract natural gas and retains no role for itself -- As to Phase Four, while correspondence indicating plaintiff and Chevron Associates intended to enter "farmout" arrangement, plaintiff's proposal never accepted -- As of date of announcement of cancellation of CEDIP, plaintiff and Chevron Associates had binding agreement whereby plaintiff could proceed with drilling on terms set out in plaintiff's proposal of February 6, 1989 -- Full arrangement not finally committed to writing until later (signed February 1990) -- As of date of cancellation plaintiff had incurred obligations to third parties to proceed with drilling of Phase Three and Four wells -- Failure to proceed would have resulted in varying degrees of liability with third parties and with PanCanadian and Chevron Associates -- In May 1989 plaintiff received draft guidelines for phasing out of CEDIP -- Indicated eligible expenses would have to be incurred under contractual obligations "in writing" entered into before April 26, 1989 -- Based on Minister's announcement, plaintiff's applications for CEDIP incentive payments to June 30, 1989 refused because expenses not incurred pursuant to written agreement -- Regulations adopting retroactive amendment to definition of "eligible expense" not adopted until January 25, 1989 -- Definition provided eligible expense must be undertaken pursuant to written agreement under which had unconditional obligation to incur expense -- Issues: (1) as to Phase Three, whether "lease" between plaintiff and PanCanadian outside "written agreement" because "freehold lease"; (2) as to Phase Four, whether any written agreement; (3) whether Minister estopped from refusing to pay for expenses incurred after announcement due to information provided to plaintiff as to eligibility of expenses incurred from May 1989 -- Laws adversely affecting citizen's rights to be construed strictly: Morguard Properties Ltd. v. City of Winnipeg, [1983] 2 S.C.R. 493 -- (1) Well established by cases petroleum and natural gas leases not "lease" but "profit à prendre" or licence permitting lessee to explore for and remove petroleum and natural gas from lands with respect to which lessor owns mineral rights -- Drafter of regulations presumably familiar with case law and if wished to exclude agreements for profit à prendre would have said so -- Form of "natural gas lease" used by PanCanadian re: Phase Three lands having many provisions typical to farmout agreements -- Even if standard oil and gas lease elements falling within meaning of "freehold lease" in regulations, agreements containing other elements which could not -- Expenses incurred in respect of Phase Three from January 27 to December 31, 1989 constituted eligible expenses for purposes of CEDIP -- (2) Expenses incurred during same period re: Phase Four not eligible unless plaintiff having unconditional obligation to incur expenses in respect of seismic field work under "written agreement" with Chevron Associates -- As of April 26, 1989 correspondence among four parties not amounting to written agreement, even if consensus and common understanding of respective roles -- Court prepared to accept written agreement could consist of several documents exchanged among parties if collectively showed consensus ad idem, but no such set of documents herein -- (3) As plaintiff would have gone ahead with drilling even if clear no subsidies available under CEDIP, plea of estoppel cannot succeed as cannot demonstrate acted to its detriment based on defendant's conduct or representations -- Canadian Exploration and Development Incentive Program Act, R.S.C., 1985 (3rd Supp.), c. 15 (as am. by R.S.C., 1985 (4th Supp.), s. 27 -- Canadian Exploration and Development Program Regulations, SOR/87-514, ss. 2 (as am. by SOR/90-96, s.1), 4 (as am. idem, s. 2).