Lessons Learned from Cansearch Resources Ltd. v Regent Resources Ltd.


IN CANSEARCH   RESOURCES   LTD   V   REGENT RESOURCES LTD, (1) CANSEARCH RESOURCES LTD. (CANSEARCH) APPLIED FOR A DECLARATION that it had a first priority claim to proceeds realized from the sale of the interest held by Regent Resources Ltd. (Regent) in an oil and gas facility jointly owned by Cansearch and Regent.  Cansearch argued its priority arose either by way of an operator’s lien, or through a possessory lien under the Possessory Liens Act, RSA 2000, c P-19 (PLA). The decision in this case is instructive for operators facing non-payment by facility co-owners.

Factual Background

Cansearch   and   Regent   were   partners   under   an Operating Agreement for the facility, which incorporated by reference the 1999 Petroleum Joint Venture Association Operating Procedure (the Operating Procedure) and   the   1996   PASC   Accounting   Procedure (the   Accounting Procedure).  Cansearch was the operator of the facility and held an undivided 70.85% interest in the facility, while Regent held an undivided 29.15% interest.  The ownership interests were in each “Functional Unit” of the facility, with each Functional Unit including “all real and personal property of every nature and kind attached to, forming part of, or used in connection with, the operation [of the Joffre Facility]”. (2)
The Operating Procedure provided an operator’s lien for Cansearch in the event of non-payment by Regent:

Effective from the Effective Date, Operator shall have a lien and charge, which is first and prior to any other lien, charge, mortgage or other security interest, with respect to the Functional Unit Participations of each Owner in the Facility and such Owner’s share of Facility Products, to secure payment of such Owner’s proportionate share of the costs and expenses incurred by Operator for the Joint Account. (3)

The Operating Agreement allowed Regent to mortgage its ownership interest on certain conditions, including that the mortgagee must take its interest subject to the terms of the Operating Agreement and must assume all obligations of Regent upon acquiring an interest in the facility. (4) In 2012, Regent obtained a $28,000,000 mortgage from Alberta Treasury Branches (ATB).  Regent also provided a general security agreement (GSA) to ATB.  ATB registered the GSA at the Personal Property Registry (PPR) pursuant to the Personal Property Security Act, RSA 2000, c P-7 (PPSA). In 2015, Regent stopped paying its share of expenses for the facility, and in 2016, Regent was placed into receivership by ATB. Cansearch did not register an operator’s lien at the PPR.


The validity of the amounts owing to Cansearch by Regent was not in dispute.  The only issue was whether Cansearch was entitled to priority ahead of ATB for the proceeds of the sale of Regent’s ownership interest on the basis of either its operator’s lien or a possessory lien.

Operator’s Lien

The Court found that Cansearch’s operator’s lien was a “consensual and contractual lien created under the Operating Agreement to secure potential future indebtedness”, which qualifies as a security interest under the PPSA. (5) Because contractual liens are not afforded priority under section 32 of the PPSA, the normal “first in time” priority rules under section 35 of the PPSA applied. Under that provision, priority depends on when a security interest is perfected (either through registration or possession).
Because Cansearch did not register its operator’s lien at the PPR, perfection by registration did not apply. Cansearch therefore had to demonstrate that it had possession of “relevant property… held by Cansearch as collateral” to secure payment. (6) “Mere physical handling or custody is not sufficient” (7) for this purpose.
The Court held that in order to qualify as collateral, the Operating Agreement would have had to include a provision that Cansearch possessed the property at the facility as collateral, or to provide other evidence of this.  Having failed to do so, the requirements for perfection by possession were not met, and Cansearch therefore did not have priority over ATB on this basis.

Possessory Lien

A possessory lien is a common law lien codified by the PLA. The PLA provides the following (8):

  • A person has a particular lien for the payment of the person’s debt on a chattel on which the person has expended the person’s money, labour or skill at the request of the owner of it and in so doing enhanced its value. (A chattel is moveable property that is not real property);
  • Actual or constructive and continued possession of the property that is the subject-matter of the debt is essential to the existence of the lien; and
  • A lien extends over all the property on which the lienholder has expended the lienholder’s money, labour or skill, but no lien arises on account of a general balance due from the owner of the property to the lienholder.

The Court clarified that a possessory lien is a particular lien, meaning that it only pertains to claims that are related to the property in question, and not generally to unrelated property. (9) The Court held that:

…  [I]t is clear that, by its nature, a possessory lien is intended to cover a specific chattel on which someone has expended a discernable [sic] amount of time, effort or money that has enhanced the specific chattel’s value. (10)

Although an operator’s lien may apply to tangible, intangible, and real property, a possessory lien under the PLA must only apply to specific chattels (moveable property). Possessory liens existed in common law to protect artisans, repairmen and the like by allowing them to retain the chattel until they were paid. Accordingly, the Court held that:

Since a possessory lien is an artisan/repairman-type lien, I interpret the requirement for enhancing the value of chattels to be synonymous with maintaining, restoring or enhancing the subject chattel’s value.  In other words, a possessory lien would provide Cansearch with “a ‘particular’ lien over [specific chattel equipment] on which the lien holder has expended money, labour, or skill, provided that the lien holder maintains actual or constructive possession.” (11)

Cansearch argued that its possessory lien was established as a result of the nexus between certain component equipment situated on site at the facility and its role as an operator of the facility. Specifically, it argued that:

  • It expended money, labour, or skill maintaining the on-site equipment at the facility at Regent’s request, pointing to a list of equipment in the Operating Agreement that comprised a Functional Unit in the facility;
  • The value of the chattels was enhanced, and this was indicated in various operational invoices as evidence of unpaid expenses; and
  • It had maintained continued possession of the equipment pursuant to the Operating Agreement, which provided that Cansearch held an undivided interest in the whole of the facility, including each specific component that comprised Regent’s ownership interest.

The Court accepted that Cansearch maintained the facility and had expended some amount of money, labour, or skill in fulfilling its obligations under the JOA.  It also found that Cansearch may have enhanced the value of some equipment and may have maintained actual or constructive possession. However, the court held that “assuming that all of this is true, more is still required before Cansearch can establish a possessory lien.” (12)
The Court’s decision on this point is instructive for operators hoping to assert a possessory lien in similar circumstances.  The Court noted that the following would be required to establish a possessory lien claim:

  • Evidence of the specific equipment covered by the possessory lien; and
  • Evidence that money, labour or skill was expended in enhancing the value of that specific equipment.
  • Cansearch was not   able   to   provide   enough   evidence   to   prove that a possessory lien attached to specific equipment.  The Court held that a preliminary description of the equipment purportedly covered by the operator’s lien and generalized invoices from the operation of the facility for the unpaid expenses were insufficient to prove entitlement to a possessory lien. (13)

Accordingly, Cansearch was not entitled to a possessory lien.

Lessons Learned

There are two primary points to take away from this case.  First, operators wishing to retain their ability to assert an operator’s lien should register the lien at the PPR to ensure that it is perfected and will have priority over interests registered later in time.
Second, if an operator wishes to establish that it has a possessory lien, it must ensure that it can:

  • readily identify the specific chattels to which the possessory lien attaches;
  • specify the chattels that existed at the time the debt arose;
  • provide evidence of the enhancements to each chattel provided by the operator and the value of each enhancement;
  • demonstrate that the property to which the lien relates are chattels (moveable property) and not fixtures (a chattel that has been fixed or attached and can no longer be easily moved); and
  • trace all expenses claimed as part of the possessory lien to specific chattels.

Given the above, the preferable approach in most cases will be to register the operator’s lien to preserve its priority over subsequent interests, particularly where other participants in the facility may be facing financial difficulties.


  1. 2017 ABQB 535.
  2. Ibid at para 9.
  3. Ibid at para 11.
  4. Ibid at para 13.
  5. Ibid at paras 38-39.
  6. Ibid at para 45.
  7. Ibid at para 44.
  8. Possessory Liens Act, RSA 2000, c P-19, ss 2, 5-6.
  9. Supra note 2 at para 50.
  10. 10.Ibid at para 53.
  11. 11.Ibid at para 55 [citations omitted].
  12. 12.Ibid at para 60.
  13. 13.Ibid at para 61.


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First Published: January 2018 Negotiator