The Alberta Court of Appeal issued a decision on June 14, 2013, in a private action for damages under section 36 of the Competition Act, reversing the trial court’s decision that Husky and ExxonMobil, co-owners of certain oil and gas properties near Rainbow Lake, Alberta, had illegally conspired to lessen competition for purchases of fluid hauling services, contrary to section 45 of the Act.

In 321665 Alberta Ltd. v ExxonMobil Canada Ltd., the trial judge had held that Husky and ExxonMobil’s decision to single-source their acquisition of fluid hauling services at Rainbow Lake unduly lessened competition and violated section 45 of the pre-2009 Act. The Act has since been amended and the Crown no longer has to prove the impugned agreement led to or was likely to lead to an undue lessening of competition. To read more about the Alberta Court of Queen’s Bench decision, please see our earlier blog post here.

While Husky and ExxonMobil appealed the trial judge’s order to pay some $6 million in damages, including $1 million in punitive damages, the plaintiff cross-appealed the judge’s decision not to award additional damages and costs pursuant to section 36 of the Act. Section 36 provides a statutory cause of action to any person who has suffered loss or damage arising from the breach of any of the criminal provisions in Part VI of the Act.

Deciding on the merits, the Court of Appeal held the trial judge made a reversible error by finding Husky and ExxonMobil’s agreement to single-source their fluid hauling services had unduly lessened competition. The Court of Appeal held that the agreement between Husky and ExxonMobil was not a conspiracy and it had not unduly lessened competition.

The Court found the trial judge focused too much on the consequences of the agreement, and overlooked the fact that the plaintiff had also had the opportunity to become the sole service provider for Husky and ExxonMobil. In fact, once the decision had been made to single-source for their fluid hauling needs, Husky and ExxonMobil provided both the plaintiff and the ultimate supplier with a “fair and equal” opportunity to be chosen as the exclusive supplier.

The Court of Appeal disagreed that the co-owners of certain properties were obliged to continue their previous practice of dividing up their fluid hauling needs. Single-sourcing was a legitimate business decision by the co-owners that would increase Husky and ExxonMobil’s efficiencies and reduce unnecessary costs in the highly competitive oil and gas field even though not all affected properties were jointly-owned.

At both the Court of Queen’s Bench and the Court of Appeal, Husky and ExxonMobil argued a finding of conspiracy was precluded because their co-ownership of oil and gas facilities and assets in the Rainbow Lake region constituted a single economic entity. Although the Court of Appeal did not consider the structure of Husky and ExxonMobil’s ownership over their joint assets decisive on the issue of whether the two companies acted as one, it did consider the role co-ownership plays in the oil and gas field.

In particular, the Court acknowledged that co-owners of any assets must be able to agree as to how to properly manage their operations. As the appointed operator, Husky had a responsibility to consult with ExxonMobil in carrying out joint operations. As part of the consultation process, Husky and ExxonMobil legitimately decided to adopt a more strategic approach by drawing on both companies’ expertise and experiences. The Court of Appeal ultimately held the Memorandum of Agreement between Husky and ExxonMobil intended the companies to remain legally separate entities, and the trial judge had correctly proceeded on this basis. Since the Court of Appeal concluded the agreement was competitive, it was not contrary to the Act, even though the agreement applied to separately owned and operated properties.