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Precision Drilling Canada Limited Partnership v. Yangarra Resources Ltd., 2015 ABQB 433: You can get

The recent summary judgment decision from Master J. T. Prowse involved Precision Drilling making a claim for unpaid fees associated with drilling work done for Yangarra. Precision Drilling’s first drilled well was unsuccessful, the second well had to be abandoned due to actions of Precision Drilling and ultimately resulted in Yangarra incurring approximately $2.5 mil in costs for drilling a third well and incurring approximately $720,000 of equipment ($300,000) and fishing operations. The contract between Precision Drilling and Yangarra was a standard industry contract established between CAODC and CAPP that included a very broad worded bilateral indemnification and exculpatory clause: subject to certain specific exceptions, each party was to bear the risk of damage to its own assets, being effectively a “no-fault” contract. Despite Precision Drilling being at fault for the damage to the equipment and the requirement to drill a third hole, Precision Drilling was successful in its claim for well fees relate to work on all three wells. Some key points that I read in this decision are:

  1. While some court decisions in the past may have alluded to the concept that parties, even if they use broad language in exculpatory clauses, really meant that there were still defined limits and the exculpatory clause did not apply to negligence or gross negligence. However, this decision illustrates that parties may very well exclude all liability against one another and such interpretation is not absurd; commercial realities exist that are motivation for the parties to act in a certain way, such as future work, reputation or losing the remaining work in the event the work is not being performed in a “good and workmanlike manner”. Courts recognize this fact and will give effect to the words used by two sophisticated parties.

  2. A party may be barred from the argument that they were deprived of that for which they bargained if the services scope in the contract do not support the argument: in this case, Precision Drilling was successful in its claim because the contracted services were “drilling per day”, not completed wells; if one party wants completed wells, it is best to be clear about exactly what the party wants in the contract. The description of the scope of work is the key starting point where two parties can be at odds with fault and associated costs for errors.

  3. A party could not only be barred from recovering costs for lost equipment or having to redo the contracted work, but also be required to pay for negligently performed work if the contract contains a sufficiently broad exculpatory clause – you might be paying for negligent work. A contractor with a solid reputation and history of quality work is just as important as a well-drafted contract;

  4. The presumption that contracting parties never intend to contract out of liability for gross negligence unless the phrase “gross negligence” is expressly used could be incorrect – if you want to recover for the other party’s gross negligence, state it in the contract;

  5. A plain and broadly worded exclusion of liability clause could be enforced to absolve one party of liability for almost any acts, contrary to some previous case law that suggests when the language becomes too broad, the clause should be interpreted as applying to third party damage claims only, i.e.: parties relying on decisions such as Erehwon Explortion Limited v. Northstar Energy Corp. (which held that certain, very broad exculpatory clauses were only applicable to damage to third party property, even though third parties may not have been mentioned as being expressly contemplated) to move negotiations along in the face of a broad exclusion clause may truly be giving up all rights to recover for damages, regardless of the cause.

  6. The principles of public policy and unconscionability do not necessarily prevent the enforcement of a bilateral, no fault contract. You will get what the contract says you bargained for, regardless of how much risk exposure you may have taken on.

Finally, this case does not discuss (whether because not raised or not included) the Bhasin v. Hrynew decision that imparts a general duty of good faith on contracting parties. Taken to the extreme, it appears from this case that two parties could draft a contract (and in fact parties have in the past) that creates a simple business decision for one party to make on whether to continue performing or continue performing in a workmanlike manner, or simply walk away or provide shoddy work due to costs or a bad bid estimate. While Bhasin is still in its infancy, there is some suggestion in Bhasin that doing so, walking away, could be in bad faith. However, I suggest that the fact Master Prowse acknowledged other commercial realities could reconcile the two decisions. Either way, make very sure you know the scope for which you are contracting, the theoretical limitations on liability and the practical application of what the exculpatory clauses could mean, as well as what it could mean to invoke them.

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