Of Formal Offers and Multipliers: Court of Appeal Explains Costs Consequences in Key Oil and Gas Decision
June 7, 2016
In Stewart Estate v. TAQA North Ltd, (Decision) the Alberta Court of Appeal (Court) released its costs decision after a complex and lengthy appeal involving multiple appellants and respondents involved in a dispute regarding the termination of oil and gas leases and wrongful production. The Decision has important and discrete implications regarding the determination of costs sustained during the course of litigation, both at trial and at the appellate level, particularly in respect of oil and gas litigation. The Decision also has important costs implications for informal settlement offers that will likely resonate and have broader implications for litigation strategy on files.
Determining Trial Costs on Appeal
The first question for the Court to consider was whether it could even determine the issue of both appeal costs and trial costs, despite the fact that the trial judge had already heard submissions on costs (that decision was in reserve). The Court ultimately concluded that it would be “less costly and more expeditious for all parties” to determine the issue of trial costs on appeal. The Court justified this on the basis that since the trial judge’s costs decision might be appealed, the Court would be called upon at some point to make a determination on that issue.
Multiplication of Costs
Under the Alberta Rules of Court (Rules) and the jurisprudence that has developed in this area, there are various factors a court will consider when making a costs award. However, as stated by the Court, such awards are “ultimately at the discretion of the judge” and are “highly dependent on the unique facts and circumstances of each case.” In some instances, particularly involving prolonged and complex trials where the quantum of damages is significant, a costs award can be multiplied. Here, the Court’s discussion regarding the multiplication of costs awards is instructive.
Notably, the Court summarized 12 of the leading cases on the use of a multiplier on costs and confirmed that there are three situations where Alberta courts have generally awarded a multiplier of costs in column 5:
- When the complexity of the action warrants it
- When the amount in dispute significantly exceeds the C$1.5-million threshold for column 5
- When the conduct of one of the parties warranted a multiplier
Taking into consideration the factors required by the Rules, particularly the complexity of both the trial and the appeal, the Court awarded a two times multiplier. Interestingly, the Court completely rejected any argument that costs should be reduced (or that no costs should be awarded) because of the novelty of the case or the fact that it has been described as a “leading case in oil and gas law.”
Discussion of Settlement Offers
In the context of considering settlement offers prior to trial and prior to the appeal, the Court made a number of significant comments with important implications:
Formal vs. Informal Offers
The Decision involves an important discussion between formal and informal offers to settle, and how informal settlement offers can have double cost consequences. Having made two informal offers (and having bested those offers), the appellants sought to double their costs on appeal. The respondents, however, argued the appellants’ informal offers were inadequate because they were not made using Form 22 (Formal Offers to Settle under the Rules), lacked certain required information, and were conditional. The Court agreed with the appellants and ordered double costs on the appeal hearing noting that “these informal offers were a sincere attempt to settle the dispute without the need for a lengthy appeal hearing.”
The Court also rejected the argument made by two of the respondents that they should avoid the costs consequences associated with a formal offer because of their obligations as lessees. The respondents argued that, notwithstanding the appellants’ settlement offers, they were “compelled to continue producing because they owed a duty to their lessors who at that point had not told them to vacate and who were not parties to the litigation.” The Court rejected this argument, and clarified the law with respect to the obligations of lessees: “Bonavista and Esprit, like the other lessees, had no right to produce as soon as any one of the lessors withdrew their consent to continued production. If one lease in a pooled production spacing unit is terminated, the remaining leases do not necessarily terminate; but production must cease.”
The Court also rejected the argument that certain respondents were required to continue producing because a notice to vacate was not provided to them by the lessors. The Court reaffirmed that while there is no obligation on a natural gas lessee to produce a leased substance, a lessee cannot produce property that it does not have the right to produce, after the owner of a tract in a pool withdraws consent to production.
The Decision provides helpful insight into the Court’s approach to the multiplication of costs, including the Alberta decisions that are relevant and persuasive to that analysis. Further, the Decision provides valuable assistance on the use of informal settlement offers to obtain costs benefits if those offers are bested. Finally, the Decision also provides insight into the obligations of natural gas lessees and how these questions can intersect with, and potentially affect, costs awards.
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