On May 21, 2009, after almost seven years of litigation, the Supreme Court of Canada denied Enron's application for leave to appeal. In 1995, Marathon Canada Limited and Enron Canada Corp. entered into a gas supply agreement in which Marathon agreed to provide Enron with natural gas at a fixed price for 20 years. Under the agreement, each party had the right to terminate on two days notice after a “Triggering Event”. When Enron's US parent corporation, Enron Corp. ran into financial difficulties in the fall of 2001 and their credit rating dropped below investment grade, Marathon wrote to Enron alleging a Triggering Event (a Material Adverse Change) and issued a termination notice. Marathon then bought an action for $560,000 for unpaid gas. Enron counterclaimed on the basis that a Material Adverse Change had not occurred or, even if it had, a Material Adverse Change did not give Marathon the right to terminate. Enron argued that Marathon was obligated to give Enron an opportunity to cure the Material Adverse Change and claimed damages of upwards of $126,000,000. This action involving Marathon was one of many actions which were brought in Alberta involving Enron following the collapse of Enron Corp in late 2001. Justice McMahon of the Alberta Court of Queen's Bench found that a Material Adverse Change had occurred which entitled Marathon to give notice of termination. Justice McMahon dismissed Enron's arguments that it was entitled to time to cure the Material Adverse Change, finding this was not a term of the contract or an established industry practice. Marathon was awarded damages for the unpaid gas and the counterclaim was dismissed. Enron appealed this decision. The Court of Appeal for Alberta dismissed the appeal in January 2009 and held that the trial judge's findings were reasonable and that a Triggering Event had occurred under the terms of the agreement, and that there was no industry practice or commercial context which demanded that Marathon should have held back on its contractual rights. McLennan Ross represented Marathon, its parent Marathon Oil Company and Husky Oil Operations Limited, throughout a four month trial, before the Alberta Court of Appeal and the Supreme Court of Canada. This update is a general overview of the subject matter and cannot be regarded as legal advice. For further information on the details contained within this email alert please contact Jim Lebo, Q.C., Don Dear, Jamie Flanagan, or Chuck Russell, Q.C. |
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