Law Times

Law timeS • September 16, 2013 Page 9 FOCUS Two decisions offer good news to oil and gas operators BY MICHAEL McKIERNAN For Law Times U pstream oil and gas operators enjoyed a fruitful summer away from the front lines after getting good news on their business practices from both the Competition Bureau and the Alberta Court of Appeal. First, the Competition Bureau announced a relaxation in its approach to merger information requirements. Then, the Alberta appeal court comprehensively overturned a $6-million damages award to a fluid hauling company that claimed an allegedly criminal joint purchasing agreement between two upstream operators had driven it out of business. The Competition Bureau slashed the amount of information it requires for merger transactions involving upstream parties in May as it did away with the need for detailed inventories of field assets as well as extensive third-party information for people who had an interest in or used the machinery. The bureau began requiring the information three years ago but has now changed course after getting an earful from upstream operators. As a result, it now only requires information on equipment where a gas plant is involved. "It's been very well received by upstream companies. This kind of information gathering on their end was very burdensome," says Rujuta Patel, a partner with Norton Rose Fulbright Canada LLP in Calgary, who says the policy didn't reflect the business reality for oil and gas outfits. She says operators struggled to track down information about equipment such as batteries, compressor stations, and proprietary gathering systems. The minor nature and small size of many of the subject items, combined with the remoteness of upstream operations, made it difficult to collect the information without being on the ground, according to Patel. Michael Osborne, a competition lawyer and partner with Affleck Greene McMurtry LLP, says the Alberta Court of Appeal decision in 321665 Alberta Ltd. v. Husky Oil Operations Ltd. also represented a recognition in part by the courts of the unique business conditions for upstream oil and gas companies. Husky was a joint owner with ExxonMobil Canada Ltd. of a number of oil and gas properties in Rainbow Lake, a community about 900 kilometres north of Edmonton. When the pair of oil giants decided to use a single fluid hauler as opposed to the two they had traditionally relied on, the ditched provider, known as Kolt, sued. A trial judge found the agreement violated the criminal provisions in s. 45 of the Competition Act by unduly lessening competition and awarded the hauler $5 million in damages plus a further $1 million in punitive damages split between the two defendants. But on June 14, a unanimous three-judge panel of the Alberta appeal court overturned the ruling. Osborne says the judges acknowledged that joint ventures and co-operation are common in the sector because of the remoteness of sites and the capital-intensive nature of the business. "The court was prepared to look at what's generally seen as an acceptable business arrangement," says Osborne. "That's not to say that 'everyone else is doing it' is going to be a good defence, but when they are evaluating how to apply competition law and whether a certain kind of behaviour was meant to be captured, courts will look at whether these are common and accepted business practices." It was late 1995 when Husky and Exxon decided to change their relationship from an "adversarial to a collaborative" one, according to the appeal court judgment. Shortly after, they identified fluid hauling costs as a prime candidate for improvement and invited their providers, Kolt and Cardusty Trucking, to discuss ways of cutting costs. Eventually, the oil companies decided to go with one provider and drew up an evaluation process. Kolt narrowly missed out but by the spring of 1997, following the loss of another major client, it had ceased operations and sold off its assets. The court based the $5-million damage award on 14-1/2 years of estimated lost business profits. However, the Court of Appeal took issue with the trial judge's finding that the agreement unduly lessened competition. It emphasized the "fair and equal opportunity" Kolt had to become the sole supplier. "We can discern no reason why Husky and Mobil should not be permitted to rationalize their operations, particularly when the purpose was to increase efficiencies and reduce unnecessary costs," the judges wrote. "They did not create any new structural change, nor did they attempt to use any market power they may have had to force down Kolt's price or level of services. Instead, they engaged in a genuine attempt to create 'synergies in the field' by drawing upon the expertise and experience of both companies to find improvements and to maximize the development and production from their depleting resource base. In sum, Husky and Mobil collaborated with one another in a manner that is common for oil and gas development." Although the government amended s. 45 of the Competition Act in 2010, Christopher Naudie, a partner at Osler Hoskin & Harcourt LLP in Toronto, says the Husky case could still be a good candidate for a Supreme Court appeal. With the deadline approaching, he understands an application for leave to appeal to the nation's top court is likely. "This is one of the few decisions that have considered the legality of joint procurement under the act. It's topical because in the oil and gas sector, they're becoming an increasingly common occurrence." LT New effort goes beyond immunity program Continued from page 8 Brock & Blackwell LLP in Toronto, sees the whistleblowing effort as the perfect complement to the Competition Bureau's successful immunity and leniency programs. The immunity program allows the first person to tip off the bureau about an undetected fraud to get immunity from prosecution in exchange for cooperation. The leniency program is for latecomers who co-operate but isn't binding on the director of public prosecutions. "The whistleblowing initiative is a bit different. It covers a whole new group of people because even though it existed before, your typical employee hasn't studied the Competition Act to see what they're allowed to do," says Ahmad. "It can be someone completely unconnected with a fraud like a secretary or work colleague who has seen something afoul. Now they can flag it without worrying about reprisals." The effort is available to any member of the public to provide information about violations of the criminal cartel provisions of the Competition Act. According to Campbell, that means customers and suppliers, as well as employees, may be able to take advantage of its protections. The bureau has provided a 1-800 number for tipsters to call with suspicions and guarantees their identity will remain confidential. The bureau can pass on the information provided only in very limited circumstances such as communications with law enforcement. Even in those cases, the bureau will protect the informant's identity. Under s. 66.2 of the Competition Act, employers can't "dismiss, suspend, demote, discipline, harass or otherwise disadvantage an employee or deny an employee a benefit of employment" who provides information to the Competition Bureau under its whistleblowing effort. Ahmad says the non-retaliation measures are particularly strong and should give otherwise-reticent employees comfort about coming forward. However, Katz says there could be practical difficulties for employers who discover an employee is the bureau source since any attempt to change the work duties could appear to be a reprisal. However robust the features of the program are, Campbell says they'll remain moot if nobody knows about them. "The protections appear strong and that's important in terms of creating an environment where people are confident using them, but it's no real guarantee people will come marching in," says Campbell. If uptake is slow, Campbell says the bureau could add an additional sweetener to the whistleblower pot through financial incentives. He says the Canadian government has shown a willingness to go down a similar route in other areas of the law such as its proposed reward program for tax-evasion tips. In the United States, the Securities and Exchange Commission also began paying out bounties last year to people who provide evidence of securities fraud. Katz says financial incentives are an interesting idea but suggests they're likely a lot further down the road because of the controversy they would cause. "When you start telling people not only will we keep your information confidential but you can make some money off this, that's a whole new ballgame. You're not just relying now on good citizens but ones with their own agenda. It's a tricky area already without the financial incentives." LT Get fast and easy access to l t yo ble to y u s and itt's availa s a day. 24 hour Canada's legal professionals! Canada's most comprehensive online directory of legal professionals gives you a direct route to the information you need. departments location and area of practice Visit www.CanadianLawList.com and find out how we're serving you better than ever. compiled by top Canadian legal researchers Untitled-1 1 www.lawtimesnews.com 13-01-03 9:02 AM

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