Cost Consequences – Considerations in the Context of Surface Rights Act Appeals

By the McLennan Ross Energy, Environmental & Regulatory Team

Introduction

Under Alberta’s Surface Rights Act (“Act”), when a landowner and an oil and gas company (“Operator”) cannot agree, the amount of compensation payable for the granting of surface rights is determined by the Surface Rights Board (“SRB” or “Board”). Compensation orders of the SRB may be appealed by either party to the Court of Queen’s Bench (“Court”). The Act has unique rules with respect to the costs of those appeals and those rules are the subject of an interesting decision recently issued by the Court.

In Lemay v Canadian Natural Resources Limited, 2020 ABQB 250, the Lemays, the Landowners, applied to the Board to increase the compensation payable under a surface lease of farmland. The SRB varied the rate of compensation downward from $5,450 to $5,400 per year. The Lemays appealed this ruling to the Court, which dismissed their appeal. The issue of costs was disputed by the parties, which resulted in the Court issuing a costs decision.

Section 26 of the Act provides that when an Operator appeals a compensation order, it must pay the Landowner’s costs, regardless of the outcome, unless there are “special circumstances to justify” the award of costs on another basis. Where the appeal is by the Landowner, section 26 provide for different costs depending on the outcome. If the Landowner is successful, the Operator must pay costs “on the basis of the lawyer’s charges to the client” (i.e., solicitor-client costs). But if, as was the case here, the Landowner appeals and loses, costs are payable under the Alberta Rules of Court (“Rules”) to the party, if any, that the Court in its discretion may direct. In other words, even if the Landowner loses, costs could be awarded against the Operator, or not awarded at all, and in any event the costs would not be on a solicitor-client basis but rather on a “party-party” basis (i.e., following the Tariff of Costs in the Rules of Court), which is generally much lower than solicitor-client costs.

The Arguments

CNRL’s position was that as the successful party it was entitled to costs in the amount of $42,848.12, pursuant to Schedule C, Column 1 of the Rules. The Lemays’ position was that each party ought to bear their own costs, but if the Court found that CNRL was entitled to costs, they should be awarded in the amount of $1,312.50, being 75% of Column 1, on the basis that the appeal was akin to a special chambers application rather than an appeal hearing.

The Decision

Ultimately, the Court awarded CNRL costs of $4,937.00, taking into consideration its authority and discretion under the appeal provisions of the Act, the factors to be considered pursuant to the Rules, and policy considerations. The award would have been even smaller had the Court not accepted CNRL’s argument that an inflationary adjustment of 25% should be made to account for the amounts in Schedule C of the Rules being outdated[1]. 

It is clear that one of the driving factors for awarding CNRL only a modest amount of costs was that the Court concluded that CNRL’s success on appeal was mixed. While CNRL was successful in opposing the Lemays’ request for an increase in compensation, it had argued for a substantial decrease, which argument was largely rejected by the SRB. 

CNRL sought second counsel fees for the appeal hearing, and costs for both counsel’s travel from Calgary to Grande Prairie for the appeal hearing. CNRL argued that they were entitled to elect to have their usual counsel represent them, as opposed to retaining local counsel, as CNRL has a lengthy solicitor-client relationship with its counsel who consequently have a unique understanding of the interplay of the appeal with CNRL’s broader corporate strategy. While the Court did not disagree that parties have the right to select counsel of their choice or to hire more than one counsel, it held that the ultimate question to be answered with regard to costs is whether the other side should be required to pay for those choices. In this case, the Court answered that question in the negative.

The Lemays argued that the Court needed to take into account the policy consideration that awarding CNRL the costs it sought would have a “chilling effect on landowners” bringing legitimate appeals to the Court and defeat “the fundamental objective of access to justice in situations that are akin to expropriations”. The Court accepted that the Act’s costs scheme does favour landowners, which it said “makes sense, given the impact of the statutory scheme on the landowners’ property rights, the significant disparity in resources of the average landowner compared to the average operator, and the small compensation amounts which may well be in issue”.

The Court also reflected on the foundational Rules with respect to resolving issues before the Court in a timely and cost-effective way. The Court reiterated that modern costs rules are designed to:

1. at least partially indemnify successful litigants for the costs of litigation;
2. facilitate access to justice;
3. discourage frivolous claims and defences;
4. discourage inappropriate procedural conduct by litigants; and
5. encourage settlements.

At the end of the day, the Court found that while success was mixed, it was the Lemays who filed the appeal, thereby necessitating “a minimum number of steps and a consequential amount of legal work” by CNRL in order to respond. The responsibility for reasonable costs in the normal course is the risk borne by an unsuccessful appellant in all litigation. However, the very modest amount of costs awarded to CNRL suggests the Court was influenced by both the unique “landowner friendly” costs provisions in the Act, and the related policy consideration of not restricting access to justice.

---

[1]  Effective May 1, 2020, the Alberta Rules of Court Amendment Regulation, AR 36/2020 will increase the individual Schedule C tariff amounts by approximately 35% to account for inflation since 1998. Column 1 will apply to claims up to and including $75,000.