3.2: How to start an action

Case Summary

In 2005, Shell Canada Products and Shell Canada Limited (“Shell”) and Rancher’s Beef Ltd. (“Ranchers”) entered into a purchase and sale agreement (“Agreement”) for the SW quarter of a section of land owned by Shell. The Agreement required additional consideration to be paid to Shell if Shell sold any of the other three quarters in the section for an amount more than their previous appraised value, as long as those quarters were unimproved. In 2007, Rancher’s sought creditor protection under the Companies’ Creditors Arrangement Act. As part of the liquidation of assets, the caveat Shell registered against the SW quarter claiming an interest under the additional consideration clause was discharged from a portion of the lands in order to facilitate the sale of that portion to a third party. In return for the partial discharge, Ranchers confirmed that the additional consideration secured by the lien remained recoverable from the remaining lands. Sunterra Beef Ltd. (“Sunterra”) purchased the remaining lands in the SW quarter subject to existing encumbrances. Shell sold the other quarter sections at a price higher than previously appraised and sought payment from Sunterra which Sunterra refused.

Shell brought an Originating Application pursuant to old Rule 410 (current Rule 3.2) seeking a declaration that Shell’s lien was valid. The Chambers Justice held that Shell’s vendor’s lien was valid. Sunterra appealed the Chambers Judge’s decision arguing, inter alia, that the Chambers Justice erred in determining that Shell’s Application for a declaration was properly brought by way of an Originating Notice. Sunterra argued further that there was a factual dispute which required a trial. The Court noted that Rule 3.2 is similar to former Rule 410: an Originating Application may be used to commence an Action, but a Statement of Claim must be used if there is a substantial factual dispute. The Court held that there was no factual dispute; the dispute was over the interpretation of the additional consideration clause. The Appeal was dismissed.

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