COURT FILE NO.: 5186/2011
DATE: 2012/01/06
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Tribute Resources Inc. (Applicant) -and- 2195002 Ontario Inc. (Respondent)
BEFORE: Justice A. Bryant
COUNSEL: Christopher Lewis, for the Applicant
William Mitches, for the Respondent
HEARD: November 16, 17 and 18, 2011
E N D O R S E M E N T
I. Background
[1] McKinley Farms Limited (“McKinley”) is a private corporation which owns 200 acres of land in the Township of Stanley, County of Huron. McKinley provides care to poultry breeder stock and leases out surplus lands. Tribute Resources Inc. (“Tribute”) is a publically traded company which carries on the business of gas exploration, production and storage.
[2] On October 13, 1977, Tribute (or its predecessor) and McKinley (or its predecessor) entered into the Tribute Oil and Gas Lease for oil and gas extraction. This lease was amended by the Unit Operation Agreement dated November 30, 1984. On September 24, 1998, Tribute and McKinley entered into a Gas Storage Lease to store gas beneath McKinley lands.
[3] On March 4, 2009, McKinley and 2195002 Ontario Inc. (“219 Ontario”) entered into an Oil and Gas Lease (“219 Ontario Oil and Gas Lease”) and a Gas Storage Lease (“219 Ontario Gas Storage Lease”). McKinley and 219 Ontario are related corporations.
[4] Tribute and McKinley’s disagreement on the interpretation and validity of these leases has resulted in litigation the subject matter of which is relevant to the current proceedings between 219 Ontario and Tribute.
II. Analysis and Decision
[5] In late 2008, McKinley took the position that the Tribute Oil and Gas Lease and the Tribute Gas Storage Lease were void. On December 10, 2008, Tribute filed an application in the Superior Court for: (1) a declaration that the Tribute Oil and Gas Lease is a valid and subsisting lease; and, (2) a declaration that the Tribute Gas Storage Lease is a valid and subsisting lease.
[6] On January 16, 2009, McKinley filed a cross-application in the Superior Court for: (1) a declaration that the Tribute Oil and Gas Lease was invalid and void; and, (2) a declaration that the Tribute Gas Storage Lease was invalid and void.
[7] On June 17 and 18, 2009, the two applications were argued together before Justice T. David Little. On June 29, 2009, the applications’ judge held that the Tribute Oil and Gas Lease terminated in 2001 and the Tribute Gas Storage Lease expired in 1999. Tribute appealed the decision of the applications’ judge to the Ontario Court of Appeal (“the Appeal”).
[8] On September 21, 2009, prior to the hearing of the Appeal, Tribute applied to the Ontario Energy Board (“Board”) under sections 36.1, s. 38(1), 38(3), 40(1) and 90(1) of the Ontario Energy Board Act, 1998, S.O. 1998, c. 15, Schedule B (“Act”). The applications, if granted, would allow Tribute to develop natural gas storage pools in the geographic areas of the County of Huron including the Stanley Pool, part of which is beneath the McKinley lands.
[9] On February 9, 2010, the Board issued Procedural Order No. 1 in relation to Tribute’s September 21, 2009 (as amended on December 15, 2009) application to the Board. The Board noted that on January 26, 2010, the Court of Appeal had heard Tribute’s appeal of the applications’ judge’s decision that the Tribute Oil and Gas Lease and Tribute Gas Storage Lease were void. The Board requested submissions from Tribute and McKinley regarding whether the pending proceedings before the Board with respect to the Stanley Pool should be stayed until the Court of Appeal’s decision on the Appeal.
[10] On February 12, 2010, Tribute requested the Board to stay the scheduled hearings pending the decision of the Ontario Court of Appeal. In Procedural Order No. 2, dated March 12, 2009, the Board reported that its staff supported the stay of the proceedings pending the decision of the Court of Appeal. The Board stayed Tribute’s application pending notification of the decision of the Court of Appeal.
[11] On April 7, 2010, the Ontario Court of Appeal released its judgment in Snopko v. Union Gas Ltd., 2010 ONCA 248, [2010] O.J. No. 1335. Sharpe J.A. held that under the Act, the Board has a broad jurisdiction to regulate the storage of natural gas, to designate an area as a gas storage area, to authorize the injection of gas into that storage area, and to order compensation to the owners of the property overlaying the storage area (para. 22). Sharpe J.A. recognized that the Board has the authority to hear and determine all questions of law and fact in all matters within its jurisdiction. He stated that the substance of the claim, and not its legal characterization, should determine jurisdiction. He held that if the substance of the claim falls within s. 38 of the Act, the Board has jurisdiction regardless of the legal label of the claim (paras. 24 and 27).
[12] The Court of Appeal, through John Kromkamp, Senior Legal Officer, requested counsel for Tribute and McKinley to file written submissions regarding the impact, if any, of the Court of Appeal’s decision in Snopko, supra, on the Appeal and whether counsel for the Board should be invited to make submissions regarding the jurisdiction of the Board to deal with issues central to the Appeal.
[13] Counsel for Tribute filed written submissions dated May 4, 2010, to the Court of Appeal. Counsel submitted that in Snopko, supra, the Board had issued an order in 1993 designating an area as a storage pool and that the Board had granted Union Gas’ application under s. 38(1) of the Act authorizing it to inject, store and remove gas from the designated storage areas. Counsel further submitted that the Board had made the designation under s. 38 of the Act because it had exclusive jurisdiction to determine all aspects of compensation in the absence of any agreement under s. 38(3). Counsel further submitted that the Board should not be invited to make submissions regarding its jurisdiction to deal with issues that are central to the Appeal.
[14] On May 6, 2010, Counsel for McKinley filed brief concurring written submissions. Counsel further submitted that the Snopko decision had no impact on the Appeal and that the Board should not be invited to make submissions regarding its jurisdiction to deal with issues that are central to the Appeal.
[15] On June 2, 2010, the Court of Appeal released its decision in Tribute Resources Inc. v. McKinley Farms Ltd. 2010 ONCA 392, [2010] O.J. No. 2293. The Court held that the Tribute Gas Storage Lease was terminated in 1999 but that the Tribute Oil and Gas Lease was valid.
[16] On April 20, 2011, Tribute withdrew its September 21, 2009, application to the Board and filed a fresh application to the Board for an order designating proposed storage areas, including the Stanley Pool, and other orders under the Act. On August 4, 2011, Tribute sought to amend its application for orders pursuant to s. 38(1) and s. 38(3). The amended applications were for: the development and operation of a proposed gas storage area referred to as the Stanley Pool; a proposal for the designation of the Stanley Pool as a gas storage area; and, a request for licenses to drill injection/withdrawal wells.
[17] The Board found that the application under s. 38(3) was incomplete and stayed the application. On August 24, 2011, Tribute pre-filed evidence and the Board amended the notices of application.
[18] On September 1, 2011, 219 Ontario filed an application in the Superior Court of Justice for: (1) a declaration that there are “no gas sands” in, on or under the lands owned by McKinley; (2) a declaration that the Tribute Oil and Gas Lease does not permit Tribute to store gas in or under McKinley lands; and, (3) a declaration that the 219 Ontario Gas Storage Lease permits the injection into, storage under, and withdrawal of, stored gas from beneath the McKinley lands. The Board has not made an order under sections 36.1(1), 38(1), 38(3) or 40(1) of the Act in relation to Tribute’s application as of September 1, 2011.
[19] On September 21, 2011, Tribute filed an application for: (1) a declaration that the Superior Court does not have jurisdiction to grant the relief sought by 219 Ontario in its September 1, 2011 application which application should be dismissed; and, (2) a declaration that the Ontario Energy Board has exclusive jurisdiction in respect of the relief sought by 219 Ontario in connection with the storage rights beneath the McKinley lands.
[20] On November 8, 2011, the Board stayed Tribute’s pending applications until the hearing and adjudication of Tribute’s jurisdictional application in the Superior Court.
[21] In my view, the Ontario Court of Appeal decision in Tribute v. McKinley, supra resolves the jurisdictional issue raised by Tribute. Tribute’s written submissions, dated May 4, 2010, to the Court of Appeal on the question of jurisdiction stated:
The issues in the pending Appeal involve the interpretation and validity of a Petroleum and Natural Gas Lease and Grant [Tribute Oil and Gas Lease and Tribute Gas Storage Lease] between Tribute and McKinley. The OEB has not made an order under s. 36.1 of the Act designating any part of the McKinley lands as a gas storage area nor has it made an order under s. 38(1) of the Act authorizing any person to inject gas into, store gas in and remove gas from a designated gas storage area involving McKinley lands. Because neither of these orders has been made by the OEB in connection with the subject matter of this pending Appeal, the privative clause set out in section 38(3) of the Act is not operative in respect of the issues before this Court in this Appeal. The issues in this Appeal do not include the issue of compensation payable under s. 38 of the Act. It is therefore submitted that the Snopko decision has no impact on this Appeal. This Court has inherent jurisdiction[^1] to deal with the issues on this Appeal, which jurisdiction is not displaced by section 38(3) of the Act.
As mentioned above, counsel for McKinley concurred with Tribute’s written submissions to the Court of Appeal.
[22] The Court of Appeal in Tribute v. McKinley, supra, at paras. 18 and 19 stated:
The parties are agreed that the recent decision of this court in Snopko et al. v. Union Gas Ltd., 2010 ONCA 248, does not apply to this case. In Snopko, this court examined the scope of the privative clause set out in s. 38(3) of the Ontario Energy Board Act, 1998, S.O. 1998, c. 15, Sched. B (the “Act”), which states as follows:
No action or other proceeding lies in respect of compensation payable under this section and, failing agreement, the amount shall be determined by the Board.
Section 38(1) provides that the OEB may make a designation order authorizing a person to “inject gas into, store gas in and remove gas from a designated gas storage area, and to enter into and upon the land in the area and use the land for that purpose” and such an authorized person is required under s. 38(2) to make “just and equitable compensation” for the right to store gas or for any damage resulting from the authority to do so. The substances of the claims in this case do not fall within the language of s. 38(2) as no designation order has been made by the OEB in relation to these lands. The court’s jurisdiction to determine the questions on appeal is not at issue.
[23] The pending application filed by 219 Ontario, dated September 1, 2011, requests a judge of the Superior Court to interpret the Tribute Oil and Gas Lease and the 219 Ontario Gas Storage Lease. The Board has not “designated a gas storage area” or “authorized a person to inject gas into, store gas in and remove gas from a designated gas storage area and to enter into and upon the land in the area and use the land for that purpose” or made a compensation order under s. 36.1, s. 38(1) s 38(2) or s. 38(3) of the Act. Although the Board has power to require the preparation of evidence prior to a hearing, the Board cannot make an order under the Act until it holds a hearing (s. 21(2)).
[24] In my view, the substance of the claims made by 219 Ontario in its application to the Superior Court for the interpretation of leases does not fall within the language of s. 36.1, s. 38(1) or s. 38(2) of the Act. I find that judges of the Superior Court regularly interpret leases and other contracts and have the jurisdiction to interpret the contracts at issue and to grant the relief sought by 219 Ontario. I further find that the interpretation of the leases is not within the exclusive jurisdiction of the Board because the Board has not made an order designating the proposed storage areas under s. 36.1 or 38 of the Act (Tribute v. McKinley, supra, at paras. 18 and 19).
[25] Tribute’s application is dismissed for the above reasons.
[26] The Court fixes costs in the amount of $13,000.00 payable forthwith.
“Justice A.W. Bryant”
Justice A. W. Bryant
DATE: January 6, 2012
[^1]: The Superior Court of Ontario has inherent jurisdiction but the Ontario Court of Appeal is a statutory Court (Courts of Justice Act R.S.O. 1990, Chap. C-43, s.2(1), 6(1) and 11(2)).