Executive Summary: Key Legal and Evidentiary Issues

• Loyal Energy ceased paying RN Cardium Oil its 30% share of net revenues from their joint venture, citing Canada's Special Economic Measures Act and the Special Economic Measures (Russia) Regulations as the legal basis for the prohibition.

• RN Cardium Oil is a wholly owned subsidiary of Rosneft, whose controlling shareholder Rosneftegaz is wholly owned by Russia and listed on Schedule 1 of the Russia Regulation, thereby triggering broad prohibitions under sections 3 and 5 against dealing in Cardium's property.

• The JVDA incorporates a supremacy clause providing that in any conflict between the agreement and applicable regulations, the regulations prevail, effectively modifying Loyal's payment obligations.

• Constitutional challenges under sections 7, 8, and 11 of the Charter were dismissed, as section 8 protects privacy rather than property rights, section 7 applies only to human beings, and section 11 applies only to persons charged with an offence.

• Cardium's Canadian Bill of Rights arguments failed because administrative remedies under SEMA — including designation reconsideration and ministerial exemption — were available but never pursued.

• The Court declined Cardium's cross-application for payment of funds into court, finding no evidentiary basis for concerns about dissipation and no useful purpose given the summary dismissal of the action.

The joint venture and the parties' relationship

RN Cardium Oil Inc. ("Cardium") and Loyal Energy (Canada) Operating Ltd. ("Loyal") are parties to a joint venture development agreement ("JVDA") for the production and sale of hydrocarbons. Under the JVDA, Loyal holds a 70% working interest and serves as the operator, while Cardium holds the remaining 30%. As operator, Loyal produces, processes, delivers, markets, and monetizes the hydrocarbons on behalf of itself and Cardium, and then accounts for those activities and distributes to each party its proportionate share of the net revenues. Since taking on the operator role in 2020, Loyal paid Cardium its 30% share of net revenues approximately quarterly until November 2022, when payments stopped.

Loyal's cessation of payments and reliance on the Sanction Laws

Twice in February 2023, Cardium wrote to Loyal requesting payment. On February 21, 2023, Loyal responded that it could no longer pay Cardium "due to ... the sanctions regulations," referring to the Special Economic Measures Act, SC 1992, c 17 ("SEMA") and the Special Economic Measures (Russia) Regulations SOR/2014-58, as amended (the "Russia Regulation"), which the Government of Canada enacted in condemnation of Russia's "illegal occupation and attempted annexation of Crimea." Despite ceasing payments, Loyal maintained that it continued to account for Cardium's share of all production revenue, account for all costs and expenses, accumulate and hold Cardium's share of the funds, and ensure those funds are available for payment to Cardium, but only "if and when permitted by law."

Cardium's lawsuit and the claims advanced

On March 17, 2025, Cardium commenced a lawsuit against Loyal, alleging breach of contract for not remitting the funds, breach of the duty of good faith performance of the JVDA, breach of trust, and breach of fiduciary duties. Cardium claimed damages for these breaches estimated at $6,000,000, unquantified punitive damages, and $60,000,000 in damages for conversion of its property to Loyal's own use. Cardium also filed a Notice of Constitutional Question challenging the constitutionality of the Sanction Laws under sections 7, 8, and 11 of the Canadian Charter of Rights and Freedoms, and further asserting that those laws are inoperative to the extent they infringe Cardium's property rights and procedural rights pursuant to sections 1(a) and 2(e) of the Canadian Bill of Rights. Cardium also cross-applied pursuant to Rule 6.25 for an order directing Loyal to pay the funds into court and for an accounting and audit of the joint interests.

The corporate ownership chain and application of the sanctions regime

The central factual question concerned Cardium's corporate ownership structure. Cardium is a wholly owned subsidiary of PJSC Rosneft Oil Company ("Rosneft"), which was listed on Schedule 3 to the Russia Regulation. Rosneft's controlling shareholder is JSC Rosneftegaz ("Rosneftegaz"), which is wholly owned by Russia and is listed on Schedule 1 to the Russia Regulation. Rosneftegaz holds 40.4% of all issued and outstanding Rosneft shares but commands no less than 57.81% of all actual shares voted by person or proxy at shareholder meetings. Just under 70% of all issued and outstanding shares actually participate in any vote; 10.36% of Rosneft's shares are owned by wholly owned subsidiaries of Rosneft and are not voted, and on February 27, 2022, BP, PLC decided to "exit" its 19.7% shareholding in Rosneft, and BP's shares also do not get voted at any of Rosneft's shareholder meetings. Equally significant is the de facto board control: as of June 2023, 6 of Rosneft's 11 board directors are listed in Schedule 1, including Mr. Igor Sechin, Rosneft's CEO. Through this chain of ownership and control, the Court found that Cardium is indirectly controlled by persons listed on Schedule 1, making it subject to the broad prohibitions under sections 3 and 5 of the Russia Regulation.

The JVDA's contractual framework and the Sanction Laws

The JVDA itself contains a clause providing that in the event of any conflict or inconsistency between the agreement and applicable "Regulations" — defined in the 2007 CAPL Operating Procedure as "all statutes laws rules orders directives and regulations in effect from time to time and made by governments or their agencies with jurisdiction over Joint Property Operations or the Parties" — the Regulations prevail and the agreement is deemed amended accordingly. The Court found that paying the funds to Cardium would not only violate the Sanction Laws but would also breach the JVDA itself, because the contract incorporated the Sanction Laws and subordinated its own provisions to them.

Cardium's arguments and the Court's responses

Cardium advanced several arguments in resistance. It contended that it is a British Columbia corporation, extra-provincially registered in Alberta, and that its parent company Rosneft was listed on Schedule 3 — not Schedule 1 — to the Russia Regulation. Cardium argued that Schedule 1 is the schedule triggering the prohibitions in sections 3 and 5, not Schedule 3, and that the Government of Canada's awareness of Cardium's ownership without placing it on any schedule meant Canada did not intend Cardium to be subject to the prohibitions. The Court rejected this, finding that the absence of Cardium from Schedule 1 is not dispositive. The SEMA's Deeming Provision, introduced on June 22, 2023, was enacted precisely to ensure that prohibitions extend to property held or controlled by entities that are themselves controlled by sanctioned persons. Accepting Cardium's interpretation would render the Deeming Provision superfluous, contrary to basic principles of statutory interpretation. Cardium also argued that Loyal selectively complied with the Sanction Laws by continuing to produce from the jointly owned wells while withholding payments and accounting information. The Court acknowledged this as a complex "Joint Property Issue" but held it was not a question on which the parties joined issue in the action and was not necessary to resolve the core question of whether Loyal was prohibited from paying the funds.

The constitutional challenge

The Court systematically dismissed each constitutional ground raised by Cardium. Section 8 of the Charter protects privacy rights; it does not protect against restrictions on the enjoyment of property absent some superadded impact on privacy rights occurring in the context of administrative or criminal investigation, and is therefore not engaged in this case. Section 7 of the Charter protects the right to life, liberty, and security of the person, but only human beings can enjoy these rights, as established in Irwin Toy Ltd v Quebec (Attorney General), [1989] 1 SCR 927; this is not a right that Cardium, a corporation, can assert. Section 11's presumption of innocence applies only to a "person charged with an offence," which Cardium is not. Under the Canadian Bill of Rights, section 1(a) protects the rights of "the individual," a term that does not include bodies corporate as held in Smith, Kline & French v Canada (Attorney General), [1986] 1 FC 274. Section 2(e) was not violated because Cardium had not been deprived of a fair hearing — administrative processes were available, including the right under section 8(1) of the Russia Regulation to apply to the Minister of Foreign Affairs to have a designation reconsidered, and the right under sections 4(4) and (5) of SEMA to seek an exemption. There was no evidence that Cardium, Rosneft, Rosneftegaz, or any of the listed persons pursued any of these remedies in the three years since Cardium learned of Loyal's reasons for withholding payment.

The cross-application for payment into court

Cardium's cross-application for payment of the funds into court was declined. While the parties agreed that the funds belong to Cardium, the Court found that ownership was never in issue — the dispute was about possession, and possession had been determined in Loyal's favour. There was no evidence of dissipation, no evidence of Loyal heading towards insolvency, and no evidence of Loyal using the funds for its own purposes. Loyal's evidence to the contrary was unchallenged by Cardium. The Court also expressed concern that approving ongoing payments into court from future production could be construed as condoning Loyal's continued production from the joint property in the face of the Russia Regulation prohibitions — a broader issue the Court deliberately left unresolved.

The ruling and overall outcome

Justice P.R. Jeffrey of the Court of King's Bench of Alberta granted Loyal Energy's application for summary dismissal and dismissed RN Cardium Oil's entire action. The Court found there were no facts in dispute and that the issues were purely matters of statutory, contractual, and constitutional interpretation suitable for summary resolution. Cardium's cross-application for payment into court and an independent audit and accounting was also declined. No specific monetary amount was awarded to either party; the successful outcome for Loyal was the complete dismissal of all claims against it. The parties were permitted to speak to costs if they could not agree, provided they contacted the Court within two weeks of the date of the decision. The Court noted that February 19, 2026 amendments to the Russia Regulation, which among other things added Rosneft to Schedule 1 and deleted it from Schedule 3, made it "even more certain" that the prohibitions apply going forward. However, because that amendment does not expressly have retroactive effect, the Court completed its decision to address the claims for the time prior to February 19, 2026. The decision was dated at Calgary, Alberta, on March 27, 2026.