NEP Canada Awarded $185 Million Judgement in Post-Acquisition Dispute
Overview of the Dispute
The assets which are the subject of this dispute involve a number of oil fields in Alberta. Those assets included wells, pipelines and facilities in the Pembina field, the Leduc-Woodbend field and others.
NEP acquired the equity (associated with the assets) for $175 million through a Share Purchase Agreement with MEC dated August 18, 2011, which closed on September 30, 2011.1 Shortly after closing, NEP discovered that among other things, the assets were plagued by numerous longstanding regulatory non-compliances. 2
The review of the pipeline infrastructure acquired by NEP revealed that MEC OpCo "(i) had operated pipelines in contravention of its licences; (ii) had not properly discontinued or abandoned pipelines; and (iii) had not maintained proper depth of cover on a number of pipelines. The evidence is that approximately 90 percent of MEC OpCo’s pipelines were improperly licensed."3 "NEP also discovered that MEC OpCo had not discontinued or properly abandoned pipelines that were no longer in operation."4
The Court found that NEP had proven, on a balance of probabilities, that i) there was a breach of contract, for which NEP was entitled to damages; ii) that half-truths and positive misrepresentations by the Defendants amounted to fraudulent misrepresentations and deceit in respect of the Share Transaction; and, iii) "that Merit breached its duty to perform in good faith when it failed to disclose ongoing regulatory non-compliances within MEC OpCo to NEP."5
Damages – Loss of Opportunity
The Court noted that "NEP’s underlying claim is that had it been able to follow its expressly intended plan, it could have sold the Transaction Assets at their Fair Market Value in 2014. However, because of deceit and misrepresentation by Merit, NEP was not in a position to monetize the Transaction Assets until 2016 at the earliest, by which time commodity prices had dropped dramatically and the oil and gas business environment had changed substantially." 6
To read more about the case decision click here.
1: NEP Canada at para 232 and 699
2: NEP Canada at para 233
3: NEP Canada at para 239
4: NEP Canada at para 251
5: NEP Canada at paras 750, 924, 973
6: NEP Canada at para 1165