Imperial Oil Resources Ltd. v. Canada ( Minister of Indian Affairs and Northern Development )
T-151-97
Rothstein J.
16/12/97
24 pp.
Judicial review of Minister's decision under Indian Oil and Gas Regulations-Between August 1, 1979 and December 31, 1985 predecessor in title to applicant, TCRL, leased, operated gas producing facility at Bonnie Glen, Alberta, on Pigeon Lake Reserve-Selling gas products to affiliated company, TCI, at plant gate-TCI undertaking to market said gas products, pay TCRL 95% of TCI's downstream sale price, netted back (i.e. after deducting transportation and other costs incurred beyond plant gate) to Bonnie Glen plant gate-Payment of 95% of TCI's resulting sale price netted back reflected 5% marketing fee deduction by TCI from final selling price-Royalties calculated on plant gate price i.e. 95% of TCI's selling price netted back to plant gate-Executive Director of Indian Oil and Gas Canada (IOGC) forming opinion 5% marketing fee should not have been deducted before calculation of royalties-Conducted formal audit of gas product prices prior to January 1, 1986-On review conducted under Regulations, s. 57(2), Minister concluding Executive Director having right to audit pre-1986 records of TCRL, TCI, 5% marketing fee improperly deducted-Apparent from agreement TCI to sell products "downstream" at "competitive market value" or at prices which could be realized "in an arm'slength sale transaction"-From these downstream fair market value prices, deductions were to be made to establish price to be received by TCRL at "point of delivery" (plant gate)-Deductions included transportation costs incurred by TCI and taxes (other than income tax) imposed on products after plant gate-TCRL's actual selling price based on realizing 95% of sale price realized by TCI netted back to point of delivery to enable TCI to cover 5% marketing fee, transportation, taxation or other after plant gate expenses-Executive Director, Minister treating TCRL, TCI as one entity-Relying on Regulations, Schedule I, s. 2(2), (4), then treated TCI's downstream selling price as if TCRL's actual selling price and 5% marketing fee as if expense of TCRL-As clearly not cost of processing, could not be deducted for royalty calculation purposes under s. 2(4)-Based on words "free and clear of any deduction whatsoever, except as provided under subsection (4)" in s. 2(2), concluded marketing fee could not be deducted for royalty calculation purposes-Minister not providing substantive reasons for finding 5% marketing fee had to be eliminated except to state record clear Imperial's predecessor improperly deducting 5% marketing fee-Apparently considering Alberta Crown's approach (not recognizing 5% marketing fee for royalty calculation purposes in transactions in which acted as lessor of lands from which natural gas extracted) as precedent to be followed when federal Crown lessor-Difficulty with precedent rationale that Alberta Crown's arrangement product of contractual negotiation, resolution i.e. TCRL agreeing, for consideration to eliminate 5% marketing fee deduction for royalty purposes-IOGC not entitled to disallow 5% marketing fee deduction after fact-Alberta Crown undertaking certain risks IOGC not undertaking-Federal Crown seeking price advantage Alberta Crown obtaining without accepting risks Alberta Crown undertaking, merely because Alberta Crown negotiated what federal Crown now considering to be more favourable than arrangements provided for under Regulations-Nothing in Regulations entitling IOGC to benefit perceiving Alberta Crown obtained-Alberta Crown precedent not justification for elimination of 5% marketing fee-While acknowledging marketing fees not deductible under Regulations by operator and that royalties calculated at 95% of downstream sale price netted back to plant gate, applicant not acknowledging 5% marketing fee deduction improper-Regulations not authorizing treating TCRL, TCI as one entity such that TCI's marketing fee considered to be expense of TCRL-Normal rule corporation separate and distinct legal entity from shareholders-No evidence separate legal entities, TCRL and TCI, used to defeat intent, purpose of Regulations or to convey false picture of independence between TCRL, TCI-Not case in which clear, compelling circumstances justifying displacing normal rule-When Parliament intending to treat affiliated corporations as one, does so expressly-Nothing in Regulations authorizing Minister, IOGC to treat separate corporate entities as one-Attempt to treat TCRL, TCI as one entity resulting in inconsistent treatment of beyond plant gate charges-1994 amendment to Regulations addressing issue of charges beyond plant gate for first time-Fiduciary obligation between federal Crown, First Nations not giving IOGC, Minister, Court authority to read words into Regulations-Regulations, s. 27(1) providing remedy to non-arm's-length situation-Where Executive Director of opinion sale will be at price less than fair market value, authorized to specify dollar value of gas that would be realized if sold in business-like manner at time, place of production in arm's-length transaction and lessee must then account for deficiency between fair market value and actual dollar value obtained-If Executive Director of view deduction of 5% marketing fee from downstream selling price reduced selling price at plant gate to less than fair market value, remedy under s. 21(7)-For some unexplained reason, Executive Director, Minister deliberately avoiding invoking obvious remedial provision, opting for approach not authorized by Regulations-Two issues arising from audit question: (1) whether IOGC may conduct audit; (2) whether audit including affiliates of operator-For same reasons precluding treating affiliates, operators as one entity to characterize selling price of affiliate as expense of operator, Executive Director of IOGC cannot audit records of affiliates of operator-No express provision in Regulations for doing so and scheme to contrary-S. 42(1)(b) permitting examination of records of operator at operator's location and at office of operator-Executive Director's authority under s. 21(7) to establish fair market value in comparison with actual selling price-Fair market value obtained from market place-Actual selling price obtained from operator-Neither requiring access to records of non-arm's-length affiliate-Absence of reference in s. 27(1) to access to records of persons other than operator supporting this view-Regulations indicating elaborate recordkeeping scheme-Governor in Council specific in delegating to Executive Director power to require, examine records-Had intent been to permit audit, would have been expressly stated-"Examine" not including "audit"-Significant that relevant period of time some 12 to 18 years in past-Regulations not envisaging formal audit of ancient records-Past practice not assisting in interpreting scope of Regulations-Fiduciary duty not basis on which to change meaning of relatively clear legislation, particularly when doing so will introduce uncertainty into business arrangements involving Indians, Indian land-Governor in Council can amend Regulations any time to confer power of audit on Executive Director and obligation to maintain records for specified period of time on operator-Regulations conferring right of inspection of records in existence on Executive Director, but not right to conduct audit-Right of inspection suggesting operator must maintain records for reasonable period of time-Practical approach for Executive Director to conduct examination, demand further information-Indian Oil and Gas Regulations 1995, SOR/94-753, s. 57(2)-Indian Oil and Gas Regulations, C.R.C., c. 963, ss. 2, 21, 42, Schedule 1, s. 2.