Commercial Litigation and Dispute Resolution Blog

In a recent decision concerning invoices issued under several petroleum facilities agreements, Harvest Operations Corp. v. Obsidian Energy Ltd.,^[1] the Alberta Court of King’s Bench held that the limitations period starts running from the reasonable date by which the invoices ought to have been issued, not from a shorter contractual deadline for issuance.

The Court also held that, if it was wrong in its determination of when the limitations period began running, there were admissible statements from the defendants acknowledging their debt to the plaintiff which would have served to extend the limitations period.

Harvest Operations highlights the importance that industry practice can play in the courts' assessment of when limitation periods start to run.

This case also emphasizes the importance of choosing one’s words carefully. To be protected by settlement privilege, a party must always make sure that their statements constitute a good-faith effort to arrive at a settlement, and not merely a bare assertion of rights, or an unreserved acknowledgment or acceptance of a debt the party allegedly owes.

Background

Harvest Operations Corp. and Obsidian Energy Ltd. were parties to four petroleum facilities agreements. Some of these agreements provided that Harvest would perform certain adjustments and issue equalization invoices at the end of each calendar year.^[2] Contractually, invoices were supposed to be issued within 180 days.

The relationship between the parties deteriorated, and Harvest commenced an action for unpaid invoices for the years 2012 to 2016, in the amount of approximately $2.9 million.

The main issues in this case were whether all or a portion of Harvest’s claims were barred by the Limitations Act and if so, whether there was admissible evidence of an acknowledgment of debt that prevented the limitations period from expiring.

At law, a limitations period is the deadline by which a party must file a lawsuit. Generally, a party has two years to file a lawsuit, starting from the date that they were aware, or ought to have been aware, that they had a claim against the other party. Should a party miss its limitations deadline, the opposing party can plead the missed limitation period as total defense to the claim. In this case, the parties mutually agreed to extend the limitation period to four years, instead of the default two-year period.

Decision

Obsidian argued that the limitations clock began running on the day the invoices were due, and thus the claims for the 2012 and 2013 invoices were out of time, as they were commenced more than four years after the 180 day invoice issuance deadline under the parties’ contracts. Harvest argued, and the Court agreed, that the limitations clock should only begin running after a reasonable time had elapsed for the issuance of the invoices, not the contractual deadline.^[3]

In coming to this decision, the Court accepted evidence from Harvest’s expert that the 180 day deadline for the issuance of equalization invoices is rarely complied with in the oil and gas industry. Taking into consideration the complexity of performing these adjustments and compiling the invoices, the Court concluded that Harvest had issued the 2012 and 2013 invoices within a reasonable time, albeit after the 180 day contractual deadline. Accordingly, because Harvest commenced its lawsuit against Obsidian less than four years after the 2012 and 2013 invoices were issued, Harvest’s claim was not statute-barred by an expired limitation period.^[4]

Alternatively, the Court also considered whether there was any admissible evidence of an acknowledgment or acceptance of debt that would serve to extend the limitations period. Under the Alberta Limitations Act, acknowledging a debt restarts the limitations clock from the date of the acknowledgement.

In response to an August 3, 2017 letter from Harvest outlining the 2012 to 2016 equalization invoices, an employee of Obsidian sent an email to Harvest on August 30, 2017, which included the following statement:

 “We have been and are willing to pay the [operating expense] portion of the [equalization invoices] in short order and without delay…”

Later that day, the Obsidian employee sent an email claiming that Obsidian’s acceptance of the operating expense portion of the equalization invoices was contingent on an agreement on another point of dispute. Ultimately, Obsidian claimed that this correspondence was not admissible, because it was protected by settlement privilege.

The Court noted that settlement privilege is established when the following elements are in place:^[5]

• The existence, or contemplation, of a litigious dispute;
• An express or implied intention that the communication would not be disclosed to the court in the event negotiations failed; and
• The purpose of the communication was to attempt to effect a settlement.

The Court concluded that Harvest’s August 3, 2017 letter setting out the equalization invoices for the years 2012 to 2016 constituted an unconditional assertion of rights, not protected by settlement privilege. As regards Obsidian’s response, the Court found that while it hinted at negotiations, it ultimately constituted an acknowledgement of this portion of the debt, which would serve to extend the limitations period.^[6] Obsidian’s after-the-fact attempt to make this acceptance contingent did not affect the nature of the earlier statement as an acknowledgement of debt.^[7]

_{[1] Harvest Operations Corp v. Obsidian Energy Ltd., 2022 ABKB 848 (Harvest Operations).}

_{[2] Harvest Operations at para 8(c).}

_{[3] Harvest Operations at paras 26 and 27.}

_{[4] Harvest Operations at paras 27-32.}

_{[5] Harvest Operations at para 39.}

_{[6] Harvest Operations at para 46.}

_{[7] Harvest Operations at para 47.}