Executive Summary: Key Legal and Evidentiary Issues

• The central dispute focused on the calculation of Dow’s direct damages resulting from NOVA’s breaches, specifically excluding indirect or consequential damages, as directed by the Court of Appeal.

• Interpretation and application of exclusion clauses in the Operating and Services Agreement (OSA) were critical, particularly regarding the definition of “Excluded Damages” and the impact of findings of gross negligence or wilful misconduct.

• The legality and remedial effect of the Ethane Pooling covenants, found to be anti-competitive, required the Court to determine the appropriate severance and whether NOVA’s preferred remedy would cause prejudice or unfairness to Dow.

• Procedural and evidentiary issues, including disclosure obligations and the admissibility of expert testimony, were extensively litigated, especially concerning the process for dissolving the Ethane Pool and the division of contracts.

• The Court addressed complex issues of currency conversion, interest calculation, and the timing of judgment for damages, ultimately favoring conversion at the date of judgment and periodic exchange rates for allocation damages.

• Costs were awarded on a solicitor and own client basis for Dow, reflecting the scale and complexity of the litigation, with adjustments for specific issues and phases.

Background and context

This litigation arose from a joint venture between Dow Chemical Canada ULC and Dow Europe GmbH (Plaintiffs) and NOVA Chemicals Corporation (Defendant) for the operation of the E3 ethylene plant in Alberta. The dispute traces back to the late 1990s, when Union Carbide (later acquired by Dow) and NOVA entered into a series of agreements to construct and operate E3, with NOVA responsible for sourcing ethane feedstock through a pooling arrangement (“the Pool”). The Operating and Services Agreement (OSA) contained exclusion clauses limiting liability except in cases of gross negligence or wilful misconduct, and included covenants restricting Dow (as successor to Union Carbide) from acquiring ethane independently in the Pool Area.

First remand: Damages and exclusion clauses

The trial court found NOVA liable for gross negligence and wilful misconduct, awarding Dow damages for lost ethylene production up to December 31, 2012. The judgment roll directed that Dow Europe would have judgment against NOVA for the period concluding December 31, 2012, in the total amount of $1,388,799,032, and Dow Canada would have judgment against NOVA for the period concluding December 31, 2013, in the total amount of $41,226,947. On October 10, 2019, NOVA paid $41,266,947 to Dow Canada, $1,040,725,511.50 to Dow Europe and the remaining amounts owed to Dow Europe ($348,073,520.50) to the Canada Revenue Agency as a result of withholding tax obligations. NOVA appealed, and the Court of Appeal, in its decision dated September 16, 2020, directed that Dow's damages were to be recalculated on the basis of "direct damages resulting from the ethylene shortages," excluding indirect or consequential damages. The appellate court clarified that exclusion clauses should be interpreted according to their natural meaning, and that only direct losses—specifically the value of the lost ethylene minus production costs—were recoverable. The trial court, on remand, recalculated damages accordingly, using expert evidence to quantify Dow’s direct losses and applying the appropriate currency conversion and interest calculation methodologies as directed by the appellate court. Judgment on the first remand was issued on April 7, 2025.

Second remand: Illegality of the Ethane Pooling covenants

The Court of Appeal found that the Ethane Pooling covenants in the OSA were illegal under the Competition Act, as they unduly restricted competition. The remedial effect of this illegality was remitted to the trial court. NOVA’s preferred remedy was to dissolve the Pool and sever related obligations, arguing this was the presumptive remedy unless Dow could demonstrate prejudice or unfairness. Dow argued that such a remedy would cause operational and commercial harm, particularly if the process for dividing Pool contracts was not equitable or transparent. The trial court found that Dow had met its burden to show prejudice on a balance of probabilities, and therefore NOVA’s preferred remedy was not presumptive.

Procedural and evidentiary issues

The litigation involved extensive procedural disputes over disclosure, the admissibility of fresh evidence, and the scope of the remand hearings. The court confirmed that, given the complexity and the need to assess prejudice or unfairness, it was appropriate to admit fresh evidence and require disclosure of relevant Pool contracts and operational information. The court also managed the process for expert testimony and limited pre-hearing questioning, emphasizing efficiency and relevance.

Costs and final outcome

The court awarded Dow substantial damages, including pre-judgment interest. The judgment roll provides that Dow Europe shall have judgment against NOVA in the amount of $1,924,884,477 together with pre-judgment interest in the amount of $1,566,034,925, for a total of $3,490,919,403. Dow Canada shall have judgment against NOVA in the amount of $38,255,390 together with pre-judgment interest in the amount of $31,896,924, for a total of $70,152,314. After credit for payments made on October 10, 2019, the outstanding amounts as of April 7, 2025, were $1,605,843,179 in favor of Dow Europe and $14,193,219 in favor of Dow Canada. The court also awarded Dow solicitor and own client costs for claims arising from NOVA’s gross negligence and wilful misconduct as Operator, and party-and-party costs for claims between co-owners. The final amounts and costs awarded to Dow are directly supported by the court’s findings and the judgment roll.

In summary, Dow was the successful party, obtaining judgment for direct damages, interest, and costs, while NOVA’s counterclaims and preferred remedies regarding the Pool dissolution were rejected.