SRA - S36: Recovery of Compensation

Citation:

Date: File No.: Decision No.: Municipality:

LAND& PROPERTY RIGHTS TRIBUNAL

LAND AND PROPERTY RIGHTS Main v Ember Resources Inc, 2022 ABLPRT 768

2022-06-07 RC2021 .1428 LPRT2022/SR0768 Kneehill County

The Surface Rights Board ("SRB") is continued under the name Land and Property Rights Tribunal ("Tribunal"), and any reference to Surface Rights Board or Board is a reference to the Tribunal.

In the matter of a proceeding commenced under section 36 of the Surface Rights Act, RSA 2000, c S-24 (the "Act")

And in the matter of land in the Province of Alberta within the: NW 1⁄4-19-31-24-W 4M as described in Certificate of Title 141 242 456 + 1, particularly the area granted for a well site and access road, Alberta Energy Regulator Licence No. 0356045 (the "Site").

Between:

Before:

Lana Yakimchuk (the "Panel")

Ember Resources Inc. and Bumper Development Corporation Ltd.

-and -

Rita Marian Main,

Operator,

Applicant.

Appearances by written submissions: For the Applicants: Paul Vasseur, Representative For the Operator: Tara Rout, Owen Law, Counsel for Ember Resources Inc.

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DEMAND FOR PAYMENT AND ORDERS SUSPENDING AND TERMINATING ENTRY RIGHTS

THE TRIBUNAL DEMANDS that the Operator pay ONE THOUSAND THREE HUNDRED and 00/100 DOLLARS ($1,300.00) (the "Compensation") to the Applicant.

IT IS ORDERED that if the Tribunal does not receive satisfactory evidence that the Compensation has been paid in full to the Applicant(s), then without further notice Ember Resources Inc.'s and Bumper Development Corp. 's right to enter the Site shall be suspended and terminated under section 36(5) of the Act at 4:30 p.m. on the dates below. This shall not affect any of the Operator's obligations in regards to the Site, nor any other person's rights against the Operator(s). The Surface Lease or Tribunal Right-of-Entry Order remains in place for purposes of shutting-in, suspension, abandonment, and reclamation.

• Suspension effective from June 22, 2022, lasting 15 days. • Termination effective from July 7, 2022.

DECISION AND REASONS

BACKGROUND [1] On May 9, 2021 the Applicant filed an application under s. 36 of the Act seeking recovery of unpaid compensation due under a surface lease agreement dated September 13, 2005. The Applicant claims $1,300.00 unpaid compensation due on September 13, 2020.

[2] As evidence of rental rate, the Applicant submitted a May 29, 2020 offer letter from Ember Resources Inc. The letter confirmed the annual rate of $3,200.00 per year.

[3] The offer was not signed by the Applicant. [4] A cheque for $1,900.00 compensation for the subject well site was sent to the Applicant by Ember Resources Inc. on September 2, 2020.

[5] A notice of proceedings was sent by the Tribunal to each of Ember Resources Inc and Bumper Development Corp. on June 6, 2021 .

[6] On July 22, 2021 Ember Resources Inc. asked that the Tribunal hear more extensive submissions on the factors to be considered in exercising its discretion under subsections 36(5) and 36(6) of the Suiface Rights Act.

ISSUES [7] The issues before the Panel are: (1) Which corporations are Operator(s) for the purposes of s. 36 of the Act? (2) Is there money past due that has not been paid by the Operator(s) to the Applicant(s) under a surface lease or compensation order?

(3)

Should the Tribunal suspend and terminate the Operator(s) entry rights under s. 36(5) of the Act?

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(4)

(5)

Decision No. LPRT2022/SR0768

Should the Tribunal direct the Minister to pay the Applicant(s) any of the money past due that has not been paid by the operator(s) out of the General Revenue Fund under s. 36(6) of the Act?

Should the Tribunal award costs under section 39 of the Act, and if so in what amount?

DECISION [8] The Panel decides: (1) For the purposes of s. 36 of the Act, the Operators are Ember Resources Inc. and Bumper Development Corp.

(2)

(3)

(4 )

(5)

The Compensation is payable to the Applicant by the Operators and the written evidence satisfactorily proves that it has not been paid.

If the Operators have not complied with the Demand Notice and paid the Compensation in full to the Applicant, Ember Resources Inc.'s and Bumper Development Corp. ' s entry rights shall be suspended and terminated on the dates in the attached Order.

If the Tribunal does not receive satisfactory evidence that the Compensation has been paid in full to the Applicant, then without further notice the Tribunal may direct the Minister to pay Compensation of $1,300.00 out of the General Revenue Fund.

The Operators shall pay to the Applicant costs in the sum of ONE HUNDRED THIRTY ONE and 25/100 DOLLARS plus GST ($125.00 plus GST of$6.25).

ANALYSIS [9] In making this decision, the Panel agreed with the analyses in the following decisions, and referred to them in writing the support for this decision:

Poffenroth v Ember Resources Inc., 2022 ABLPRT 30 (CanLII), <https://canlii.ca/t/jlmq0>, J & D Land Ltd. v Ember Resources Inc., 2022 ABLPRT 135 (CanLJD, <https://canlii.ca/t/jlw4t> George v Ember Resources Inc., 2022 ABLPRT 106 (CanLID, <https://canlii.ca/t/jlr8d>

1. Who is an operator for the purpose ofs . 3 6 oft he Act? [10] For the purpose ofrecovery of compensation applications, the definition of the word operator is set bys. 36(1) and (2) of the Act. Specifically, s. 36(1) and (2) expands the definition of operator so that it has a broader meaning than in the rest of the Act.

Section 36{1)(c)-AER Licence Holder [11] Under s. 36(1)(c) the holder of a license issued by the Alberta Energy Regulator (AER) is an operator. This includes the person who held the license on the due date and successors to the license. AER Well Licence No. 0356045 for the Site is in the name of Ember Resources Inc. The Panel finds that Ember Resources Inc. is an operator under s. 36(1)(c) on September 13, 2020.

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Section 36(1){d) - Working Interest Participants [12] Under s. 36( 1) ( d) working interest participants are operators. The Panel finds that Ember Resources Inc. and Bumper Development Corporation Ltd. are operators under s. 36(1 )(d ) on the 2020 due date because AER Well Summary Report dated June 3, 2021 for AER Well Licence No. 0356045 shows Ember Resources Inc. and Bumper Development Corporation Ltd. were 75% and 25% working interest participants at this site. The Panel finds that Ember Resources me. and Bumper Development Corporation Ltd. are operators under s. 36(1)(d) on September 13, 2020.

Section 36(1)(e)- Holder of a surface lease or right of entry order [13] Under s. 36(1 )(e ) the holder of the Surface Lease or Right of Entry Order for the Site is an operator. This includes persons who held the surface lease at the time of non-payment and their successors. The Panel finds Ember Resources me. is an operator for the purpose of s. 36(1)(e) on the 2020 and 2021 due dates because a copy of correspondence from Ember Resources Inc. and a caveat listed on Certificate of Title No. 141 242 456 + 1 confirms the surface lease. As well in its submission, Ember acknowledges that it is the surface lease holder for the site.

[14] Bumper Development Corp. also has a caveat registered on the title as a leaseholder. [15] The Panel finds that Ember Resources me. and Bumper Development Corp. are holders ofa surface lease as described ins. 36(1)(e) and are operators.

2. Is there money past due and unpaid by the Operator to the Applicants under a surface lease or compensation order?

[16] Certificate of Title No. 141 242 456 +1 shows that Rita Marian Main is the Owner and the compensation is supported by the application and supporting documentation. The rate of compensation is $3,200.00 per year, as stated in the May 29, 2020 letter from Ember Resources me. to the Applicant. The Applicant reported receipt of $1,900.00 compensation for 2020. This leaves a total outstanding payment of $1,300.00 for 2020. The Applicant declared in writing that this Compensation has not been paid.

[17] By letter on May 29, 2020 Ember Resources me. offered the Applicant a change in rate from $3,200.00 to $1 ,900.00 per year, but the Applicant did not accept that change. There is no record of a s. 27 Tribunal decision ordering a reduction in compensation for this lease, nor of an agreement between the Applicant and the Operator to a reduction.

[18] Section 27 of the Act sets out the process for either party to a surface lease to trigger a review of the annual compensation rate associated with that surface lease. Section 27(14) states:

(14) The operator shall give a notice that complies with subsection (5) to the other party on or within 30 days after every 5th anniversary date after the date notice should have been given under subsection (4) for as long as the surface lease or right ofe ntry order, as the case may be, is in effect and subsections (6) to (13) apply to that notice.

[19] If Ember Resources me. wished to have the rate of compensation reviewed, s. 27 provides it the opportunity to issue its required notice under s. 27 and enter into negotiations with the Applicant. Then if the parties did not agree to a rental rate, Ember Resources Inc. could apply to the Tribunal to determine the rate of compensation. If the Tribunal issued a compensation order, the order would operate to amend the surface lease with respect to the compensation only, notwithstanding anything contained in the surface lease. The May 29, 2020 letter alone does not vary the rate of compensation and it appears to fall outside of the notice requirements under s. 27(4) ands. 27(14) to initiate a review effective 2020. The Panel

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refers to Shepstone v. Alberta (Surface Rights Board), 2000 ABOB 1003: [13J It seems logical that ifn othing is done within the proverbial reasonable time and the operator did not give the notice required pursuant to s. 27(4) then the rental established for the prior 5-year time period of the lease would prevail for the next 5-year period of the lease (barring of course a mid-term amending agreement being reached by the parties).

[20] Since Ember Resources Inc. did not avail itself of the provisions of the Act, and specifically s. 27, the only option available to adjust the annual compensation rate is for the parties to do so via a mutual agreement, and no evidence was provided that this occurred.

[21] The Panel finds that the payment proposed and made by Ember Resources Inc. for the September 13, 2020 payment due date was a unilateral decision made by Ember Resources Inc. based on Ember Resources Inc.' s opinion of what the annual compensation should be and did not operate to vary the rate of compensation payable under the surface lease. No evidence was presented by either party related to any efforts made to engage in discussions, exchange of information or negotiations prior to or subsequent to the May 29, 2020 letter. The rate paid by Ember Resources Inc. for the 2020 payment due date was not negotiated with or agreed to by the Applicant. There is no evidence before this Panel to show that the contract annual rental rate of $3,200.00 was altered by mutual agreement.

3. Should the Tribunal suspend and terminate the Operator's entry rights under s. 36(5) of the Act? [22] On July 22, 2021 Ember Resources Inc. asked that the Tribunal hear more extensive submissions on the factors to be considered in exercising its discretion under subsections 36(5) and 36(6) of the Surface Rights Act. Sections 36(5) and 36(6) address the issues of suspending and terminating an operator's right to enter a site and the Tribunal's ability to direct the Minister to pay the money owed if the operator does not comply with the compensation order. Ember Resources Inc. 's submission is silent with regard to the issue of whether the Operator made appropriate payment for the 2020 payment due date.

[23] Ember Resources Inc. seeks to make submissions but it does so while refusing to pay the compensation it owes to the Applicant. Ember Resources Inc. misunderstands the purpose of s. 36, which is to ensure that the Owner is paid what is owed. Operators should not be encouraged to simply fail to pay the full amount of compensation so that they can then make submissions through the s. 36 hearing process on the amount of compensation the Minister should pay. If Ember Resources Inc. wishes to make submissions on the appropriate rate of compensation, it can pay the full amount of compensation it is required to pay to the Applicant and then seek a review of the rate of compensation under s. 27.

[24] Section 36 requires the Tribunal make a determination of whether non-payment has occurred, and if so, to issue a written notice to the operator demanding full payment. Only if the operator does not comply with the notice demanding full payment does the Tribunal have the ability to direct the Minister to pay. The direction for payment to the Minister occurs only after the Tribunal has not received satisfactory evidence that the operator has complied with the notice and direction to pay.

[25] The Panel considered s. 36 within the context of the Act. Once the operator is determined under s. 36(1) and (2), s. 36(4) requires:

(4) On receiving the evidence, if the Tribunal considers that it satisfactorily proves the non­ payment, the Tribunal shall send written notice to the operator demanding full payment.

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[26] The Panel notes thats. 36(5) allows the Tribunal to suspend and terminate an operator's right to enter the site affected by the lease only if the operator has failed to comply with the notice demanding full payment under s. 26(4). It is true that this is a discretionary authority, however Ember Resources Inc. has not satisfied the Panel that its authority should not be exercised in this case. The operator has not provided satisfactory evidence of payment to the Tribunal within the specified time (c ompliance with the notice and demand to pay), has not provided any evidence that the amount demanded was not owed, or that there was an error. The Panel is not satisfied that the contract has been amended. Even if the operator had sought a review of the rate of compensation under s. 27, it is not entitled to pay less than the contractual amount until it obtains a new compensation order from the Tribunal.

[27] Where the operator who is responsible for the non-payment does not comply with the notice demanding payment, s. 36( 5) then allows the Tribunal to suspend and terminate the operator's rights under the surface lease. This is the authority allowed under the Act to enforce the notice for demand of payment where the Tribunal finds evidence of non-payment. The Panel finds such a consequence reasonable under the circumstances where the operator has ceased (for whatever reason) to pay compensation as required under the surface lease. If the operator is not complying with the terms of the surface lease as negotiated between the parties, then the operator should no longer have the right to access that site and benefit from its production.

[28] Section 36 provides a remedy in the case where an operator has ceased making payments as required under a surface lease agreement, a contract between two parties. This position is supported by Devon Canada Corporation v Alberta (Surface Rights Board), 2003 ABOB 7,337 AR 135 ("Devon"). The Tribunal merely enforces this agreement under s. 36. Section 36( 4) does not introduce any other factors, such as public interest, but is a simple determination of whether non-payment under a surface lease has occurred.

[29] Ember Resources Inc. has been notified of this proceeding and has had time to make the payment. Ember Resources Inc. will have another opportunity following this decision to make the payment, failing which a suspension order will issue. If Ember Resources Inc. and Bumper Development Corp. continue to refuse to make the payment a termination order will be in effect.

[30] Unless the Tribunal receives satisfactory evidence that the Compensation has been paid in full to the Applicant, the Operator's entry rights shall be suspended and terminated according to the preceding order.

4. Should the Tribunal direct the Minister to pay the Applicants any of the money past due that has not been paid by the operator out oft he General Revenue Fund under s. 36(6) oft he Act?

[31] With regard to s. 36( 6), the Operator argued, "Ember (Resources Inc) takes the position that for the purposes of s. 36(6), the Tribunal must assess what proper compensation would be under the Leases, and that this should be the limit which the treasury should be ordered to pay to the Lessors.

Ember (Resources Inc) submits that the Tribunal's function under s. 36(3) is not to enforce payment under a Lease, but to ensure that the Landowner is fairly compensated for any loss. Payment beyond this would constitute unjust enrichment at the expense of the taxpayer.

Ember (Resources Inc.) submits that the rental payments it has made under these Leases represent fair compensation for the actual loss ofu se and adverse effect on the Landowner.

Given that the funds paid under this section. are taken from the public purse, Ember (Resources Inc.) submits that the public interest is also engaged in this analysis, and that the Tribunal must consider this in its reasoning.

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Ember (Resources Inc.) submits this does not prejudice the lessors as they still have available to them the usual civil remedies for enforcing the lease as a commercial contract through the courts in order to recover any outstanding balance. " (parentheses added)

[32] In Devon Canada Corporation v Alberta (Surface Rights Board), 2003 ABQB 7, 337 AR 135 ("Devon"), the Court of Queen's Bench considered the Tribunal's responsibility when considering an order under s. 36(5) and (6) and held at paragraph 29:

... the function of subsections 36(5) and 36(6) appears to me to provide the surface owner with some assurance that if they cooperate with providing the oil industry access to their lands, they need not fear the operator will not pay them.

The sections provide a pragmatic solution whereby the surface owner need only prove the existence ofa lease and that rent has not been paid. Upon proofo fs uch, in most cases, the province would then pay the rent and the operator would then face the province, seeking reimbursement from the operator.

... if the .. . owner 's claim is unjustified, is patently absurd, or provides an unjust enrichment, the Board should be able to use its discretion under s. 36(6) to refuse to direct that Alberta taxpayers pay the rental arrears.

[33] According to Devon, the Panel's decision to direct the Minister to pay out of the General Revenue Fund is discretionary. This was confirmed by the Alberta Court of Queen's Bench in Provident Energy Ltd v Alberta (Surface Rights Board), 2004 ABQB 650.

[34]

Section 36(9) speaks to what occurs if the Minister is directed to pay. (9) Where the Minister pays money under subsection (6) or (7), (a) the amount paid and any expenses incurred, whether by the Crown or by a private agency, in collecting or attempting to collect the money owing, constitute a debt owing by the operator to the Crown, and (b) a written certificate issued by or on behalfo ft he Minister certifying the payment oft he amounts referred to in clause (a), including expenses, may be entered as a judgment oft he Court ofQ ueen's Bench for those amounts and enforced according to the ordinary procedure for enforcement of a judgment and that Court.

[35] In a recent decision, Praskach Farms v Lexin, 2020 ABSRB 85 ("Praskach"), the Tribunal concisely summarizes the scope of authority under s. 36 of the Act, the factors to consider direct the Minister to pay either the full amount of Compensation owing or a reduced amount if payment if the full amount is unjustified. The Tribunal held (at paragraphs 10):

[ 10J There are two factors particularly important for considering annual compensation and whether directing the Minister to pay the full amount owing is unjustified. . .. this is not a review of compensation under section 27, however, the loss ofu se and adverse effect are components off air compensation which the Board can consider when determining ifd irecting the Minister to pay the full amount owing is justified.

and this Panel adopts and applies the reasoning from Praskach. [36] The Applicant has stated that the site is still being visited by workers. The well is still operational and there is still equipment on the site.

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[37] There is no evidence to convince the Panel that payment of the full Compensation is unjustified, patently absurd or would result in overpayment to the Applicant. Ember Resources Inc.' s submission does not address the quantum of the compensation in any detail, other than to opine that it is excessive. It was open to Ember Resources Inc. to provide submissions more specific to the Site but it chose not to do so and did not explain why. Even if Ember Resources Inc. succeeded in convincing the Panel that it should not direct the Minister to pay the full amount owed under the surface lease, this finding would not absolve Ember Resources Inc. of its obligation to pay the full amount under the surface lease agreement.

[38] Ember Resources Inc.'s submission concluded by asking for a further delay in the proceeding; "that the Tribunal hear more extensive submissions on the factors to be considered in exercising its discretion under these two subsections" [s. 36(5) and 36(6)].

[39] The Panel finds that Ember Resources Inc. provided a submission in response to the Notice and Demand for Payment triggered by the Application. Ember Resources Inc. had the opportunity to include a fulsome response to the Application, including disputing anything in the Application Ember Resources Inc. did not agree with, providing evidence to support Ember Resources Inc.'s position, and any argument to support its position. The submission addressed the Tribunal's discretion with regard to section 36(5) and 36(6) and there was nothing preventing Ember Resources Inc. from providing supporting documentation, arguments, or detail. Ember Resources Inc.' s submission did not provide any evidence to demonstrate that the Minister should pay less than the current rate of compensation for the Site. The Panel finds that providing another opportunity for Ember Resources Inc. to make submissions on this same topic is unfair to the Applicant, as it merely extends the process without a good reason to do so, and results in an undue delay to receiving payments due. Section 36 provides a relatively inexpensive avenue for lessors to obtain compensations payments they are due under surface lease agreements or amendments to the annual compensation rate that may occur between the parties. The Panel finds that the full amount outstanding is due and payable. As with the Suspension and Termination orders, the Direction to the Minister to pay will only issue if Ember Resources Inc. and Bumper Development Corp. fail to pay the amount owing as outlined above.