​In a previous post, BLG discussed Precision Drilling Canada Limited Partnership v Yangarra Resources Ltd., in which Master Prowse of the Alberta Court of Queen’s Bench granted summary judgment to Precision Drilling Canada Limited Partnership (“Precision”) for payment on work done, even though work done by Precision caused Yangarra Resources Ltd. (“Yangarra”) loss. In the decision at first instance, Master Prowse relied heavily on exclusion clauses which allocated various risks between Precision and Yangarra. In a recent decision, Justice Wilson of the Alberta Court of Queen’s bunch upheld Master Prowse’s decision, holding that this was essentially a case about proper interpretation of a contract, and Master Prowse’s interpretation of the exclusion clauses in issue was correct.

Background

Precision sued Yangarra Resources Ltd. (“Yangarra”) for payment on work it had done for Yangarra on three wells, one successful, one abandoned, and one drilled after the second was abandoned. Precision sought summary judgment asking the Court to force Yangarra to pay for work on the second and third wells, even though Precision had not drilled the second well in a good and workmanlike manner and the third well was only necessary because of Precision’s failure to drill the second well in a good and workmanlike manner. In response to Precision’s claim, Yangarra counterclaimed for the value of equipment lost in the second well. Yangarra also claimed that it was not required to pay for Precision’s services because Precision had not delivered a completed well.

After Master Prowse initially granted summary judgment, Yangarra appealed. On appeal, Yangarra raised a number of issues regarding the Master’s decision. Yangarra also amended its Statement of Claim to include an allegation of breach of duty of good faith in the performance of contractual duties.

The Decision

Justice Wilson accepted the facts as found by Master Prowse and noted that, essentially, the case was about the proper interpretation of the agreement between Precision and Yangarra. On appeal, Yangarra argued that the conduct of Precision’s employees could never be protected or excused by an exclusionary clause or other contractual language, and that exemption or exclusionary clauses could not be interpreted in a way that would create absurdity. Justice Wilson found that Yangarra had made the same arguments before Master Prowse and that Master Prowse’s interpretation of the exclusion clauses in issue was correct.

Yangarra also took issue with Master Prowse’s findings regarding gross negligence. Justice Wilson held that Precision and Yangarra agreed to exclude any liability for gross negligence, and adopted Master Prowse’s finding that public policy considerations do not preclude parties from excluding claims in gross negligence by agreement.

Implications

As Justice Wilson left Master Prowse’s decision intact, the Court has maintained that it will hold industry players to the wording of industry negotiated agreements, even though the result may be contrary to what might ordinarily be expected under tort law. As previously noted, industry participants should consider carefully whether an industry standard agreement is appropriate for their particular circumstances. While relying on an industry standard agreement may be faster and easier than negotiating a unique agreement for every situation, the parties must ensure they can live with all the terms included, including the outcome directed by the contract when things go wrong. Oil and gas operators might also consider whether, in these challenging economic times, it may be possible to obtain terms from service providers that are more favourable to the operator than those contained in standard form contracts like the CAODC standard form contract.