(Judgment Day is a new feature profiling business-related Alberta court decisions.)
It may sound like the start of a joke, but these are the actual words in a recent court judgment: “A roughneck, two electricians and an accountant came up with the idea to create an oil refinery furnace pipe cleaning company.”
The company is Hydro Kleen Systems Inc. of Red Deer, which was founded in 1993. Problems (and lawsuits) arose two years later when William Park and Robert Brown (the electricians) left the company and started their own, in direct competition.
Hydro Kleen and the two other founding members, Robert Watts and Barry Pritchard, filed a suit against the electricians and their new company, claiming they breached fiduciary duty (an issue of trust) when leaving. Brown and Park responded with a counterclaim seeking relief on the basis of shareholder oppression and unfairness.
Last month, Court of Queen’s Bench in Calgary found Brown and Park, as founding shareholders, directors and key employees, did breach their fiduciary duty. To make amends, the court said, the pair should pay back the amount of their unjust enrichment.
Alas, there was not much left to give, as their new company faced mounting losses and was forced to close in its fourth year of business. Instead, the pair were ordered to pay Hydro Kleen by forfeiting their outstanding Hydro Kleen loans, amounting to roughly $50,000 for each man. All other claims were dismissed.
GAS PAINS
Mother Nature doesn’t care about lease agreements or licences, and gas molecules can’t be expected to follow our laws, so if a company produces gas that wasn’t specifically licensed to it, let it be, says an Alberta appeal court judgment.
Alberta Energy Company Ltd. (AEC) – now better known as oilpatch giant EnCana – had been producing from 16 bitumen (oilsands) wells for many years when it found itself facing a lawsuit by Goodwell Petroleum Corporation Ltd., which owned the rights for the natural gas in gas caps directly overlying those oilsands.
Goodwell contended that the gas-to-oil ratio being produced from those wells was high, and since it owned the rights to the gas, it should receive compensation. Goodwell also applied to the Alberta Energy Utilities Board (EUB) to shut in the 16 wells.
The EUB shut in four of the wells in March 2000, contending AEC, which hadn’t asked Goodwell for permission, was producing gas for which it did not have rights. The court agreed, and AEC appealed.
This month, the Alberta Court of Appeal found that AEC was fully within its rights. If it had a licence to recover the bitumen in the oilsands, then it was allowed to use all reasonable means to do so, the judgment said. If a gas cap existed above the bitumen, then production of some of that gas was inevitable, as Mother Nature doesn’t adjust its molecular flow based on licensing rights.
The EUB was ordered to reverse its decision and allow production to resume.
INSURER WINS APPEAL
A U.S. insurer that shelled out money for a Peace River pulp mill insurance claim won its appeal for the right to take legal action against the companies it believes are responsible for the mechanical failure that caused the claim.
Protection Mutual Insurance of Illinois paid out an insurance claim to Daishowa-Marubeni International, which built the pulp mill in 1988-1990. In 1995, a generator failed one year after it underwent routine maintenance, causing damage to the generator and loss of revenue for Daishowa, since it forced shut-down of the mill.
Protection, on behalf of Daishowa, filed a suit against Toshiba International Corp., which supplied the generator and supervised the maintenance, and Siemens Electric Ltd., which designed and supplied the parts required to monitor and protect the generator.
In 2000, the Court found Toshiba and Siemens were contractors, hence were covered by the insurance policy and could not be sued.
In a recent appeal, the Court reversed the original decision, finding the companies may have been contractors during the building phase, but were no longer at the time of the failure. As a result, the Court gave Protection permission to continue its action against Toshiba and Siemens.
