Executive Summary: Key Legal and Evidentiary Issues

• PetroChina sought an interlocutory injunction to extend a contractual option period pending arbitration regarding the acquisition of South Bow's pipeline interest.

• Dispute centers on whether the mutatis mutandis language in section 9.4(d) permits extending the 60-day option period beyond December 24, 2025, to obtain required governmental authorizations.

• The Court determined the injunction was mandatory in nature, requiring a "strong prima facie case" standard rather than the lower "serious issue to be tried" threshold.

• Arbitration Tribunal was conceded by South Bow's counsel to have jurisdiction to grant the exact remedy PetroChina seeks, undermining claims of irreparable harm.

• Relief from forfeiture and good faith arguments were insufficient to establish a strong prima facie case on the merits.

• No irreparable harm was established since loss of the option would result from arbitration outcome, not from denial of the injunction.

Background and ownership dispute

PetroChina Canada Ltd and South Bow Infrastructure (Canada) Ltd each own approximately 50 percent interest (by rounding up) in the Grand Rapids Pipeline, a 460-kilometre twinned pipeline facility connecting the producing areas in and around Fort McMurray with the terminals in the Edmonton area. The parties are governed by a Limited Partnership Agreement (LPA) and a Unanimous Shareholder Agreement (USA), which contain provisions that are almost identical and certainly identical in effect regarding share transfers and options.

The option trigger and timeline

It was agreed by the parties that the option was triggered on October 1, 2024, following a change in South Bow's ultimate parent. There was an intervening adverse claim to South Bow's shares by a third party, which was put to bed about the middle of August 2025. Ernst & Young (E&Y) was hired as a valuator in August 2025, delivered a first draft on October 8, 2025, and then a final report on October 22, 2025, resulting in a purchase price notification on October 23, 2025. This meant the 30-day period for PetroChina to exercise the option began to run on October 24, 2025, with Section 9.10(a) providing that if the authorizations are not complete, the option is exercisable for a further 30 days to obtain them.

The regulatory approval obstacle

PetroChina faced two mandatory governmental authorizations: dispensation under the Competition Act, RSC 1985, c C-34, due to the size and nature of the transaction, and a net benefit review under the Investment Canada Act, RSC 1985 c 28 (1st Supp), because PetroChina is a Chinese state-owned enterprise. PetroChina's position is that it was not commercially feasible to begin the approval process until the concerns of the third party were cleared and the actual purchase price known.

The parties' competing positions

On November 21, 2025, PetroChina formally served its Notice to Exercise Option on South Bow. In a second letter the same day, it tendered a draft purchase and sale agreement, and in a third letter, asked that the timeline for getting the authorizations be extended or that closing be made conditional upon the authorizations being put in place. South Bow responded on November 24, 2025, saying that it was not agreeing to any modifications of section 9.10 of the agreement, and that the Notice to Exercise given by PetroChina was non-compliant because the authorizations had not been obtained. South Bow's position was that PetroChina's purported exercise of the option was void as non-conforming, and that the option expires on December 24, 2025.

The contractual interpretation dispute

PetroChina argued that section 9.4(d) permits the 60-day timeline in section 9.10 to be varied as circumstances required due to the mutatis mutandis language, relying on an English language dictionary meaning "with the necessary changes having been made" or "with the respective differences having been considered." South Bow countered that the use of mutatis mutandis is merely a drafting device so that language in one section does not have to be repeated in another. South Bow relied on Supreme Court of Canada authority in R v Penunsi, 2019 SCC 39 (CanLII), and an Ontario case, Tehama Group Inc v Pythian Services Inc, 2024 ONSC 1819, to support this position.

The Court's analysis of injunction type

Justice Douglas R. Mah determined that the injunction sought was mandatory rather than prohibitive. The Court reasoned that what the injunction would have the effect of doing is temporarily rescinding South Bow's November 24, 2025 letter, making it restorative or undoing what PetroChina perceives is a wrong. Further, by granting an injunction even though there is no tolling agreement, the Court would be imposing a tolling provision on South Bow. This required the higher "strong prima facie case" standard under the RJR-MacDonald test.

Assessment of the merits

The Court found South Bow's contractual interpretation position to be the stronger, stating that the purpose of section 9.4(d) is to create congruence between transfers triggered by change in ultimate parent and transfers triggered by bankruptcy or involuntary transfer under section 9.10. The Court reasoned that using mutatis mutandis to confer a right in the case of a transfer because of change in ultimate parent that does not exist for transfer because of bankruptcy or involuntary transfer would be inconsistent. The Court concluded that the strength of PetroChina's case on the merits does not meet the threshold of strong prima facie case on this argument. The Court also could not find a strong prima facie case that either relief from forfeiture should be granted or that South Bow engaged in a lack of good faith.

Ruling and outcome

The application for an interlocutory injunction was denied. Counsel for South Bow had conceded, upon specific question from the Court, that the Arbitration Tribunal has the jurisdiction to grant the relief that PetroChina seeks. The Court found that any loss of the option would be attributable to the expiry of the option as determined by the Arbitration Tribunal, not to the lack of an injunction. With respect to costs, counsel have 30 days to reach agreement; if not achieved, South Bow may make written submissions within 45 days followed by PetroChina's response within 60 days. No specific monetary amount was ordered in this decision.