You’ve negotiated a surface lease with an oil company. After
protracted talks you’ve agreed that the surface lease does not grant
the company the right to put pipelines through the site at a later
date.
Nevertheless, a court decides that in spite of the contract, the
surface lease gives the company the right to install pipelines. Is this
fair?
This is a question that some landowners are facing as a result of a May
2000 Saskatchewan Court of
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Appeal decision. I first dealt with this issue in my Oct. 4, 2001
column. It produced many calls from Saskatchewan landowners who wanted
to know if this decision could be changed.
The Court of Appeal ruled that the provisions of the Surface Rights
Acquisition and Compensation Act overruled specific provisions of the
lease agreement. In the case in question, Best Pacific vs. Wheatland
Farming, the company sought to connect two well sites on the same land
to a battery site elsewhere on the land. The company had a surface
lease for both well sites. The lease in question provided that the well
site not be used for a pipeline without the landowner’s prior approval.
When the company and the landowner couldn’t reach an agreement to
install pipelines, the matter went to the Surface Rights Board. That
board made two compensation orders. One was to compensate for the flow
line outside the well sites. The other was to compensate for that portio
- of the flow line within the well site that was covered by the surface
rights lease.
On appeal the court overruled the Surface Rights Board order that
provided compensation for the pipeline within the well site. The court
concluded that once surface rights had been acquired, whether by lease
or board order, all rights were acquired. Further, the court stressed
that the act intended to avoid double compensa-tion. If an oil company
needed subsequent perm-ission, it would mean double compensation.
The impact of this decision was seen in a subsequent decision of the
Surface Rights Board in Meota Resources vs. Backman. As board chair
Richard Gibbons concluded, “the surface rights to construct a flow line
or service line on a well site is now deemed included in a private
agreement despite an apparent attempt to exclude the right in the
private dealings between the parties.”
One can disagree and criticize the court’s decision. In my opinion, it
was open to the court to come to the opposite conclusion. One can also
query as a matter of public policy whether courts should be able to
overturn private contracts. As a matter of law, courts have always held
that illegal or immoral contracts would not be enforced, but this case
does not fall into those guidelines. Nevertheless, this decision is
binding law in Saskatchewan. While there are landowners unhappy with
this decision, the options available to challenge this decision are
limited.
Only the Supreme Court of Canada can overrule the Saskatchewan court.
This particular case was not appealed to that court. Another
Saskatchewan case on this point would face an uphill legal battle to
get beyond the appeal court level. A Saskatchewan court would simply
rule that the issue has been settled.
However, the Saskatchewan decision is not binding in other provinces.
An Alberta court would undoubtedly consider the Saskatchewan case but
would not be bound by it. So an appeal on this point to the Supreme
Court could come from another province. However, there are differences
in legislation between provinces, so a Supreme Court decision on
Alberta’s legislation might not apply in another province.
The other alternative would be to lobby for changes to the Surface
Rights Acquisition and Compensation Act to ensure that contract
provisions take precedence. Parliament and provincial legislatures have
amended laws to overturn court decisions.
