Calgary company entitled to withhold profits from B.C. partner due to Canadian sanctions against Russia, judge rules
In a written decision, Justice Paul Jeffrey said RN Cardium Oil Inc.’s links to a Russian government-owned entity made it subject to Canada’s sanctions
By Kevin Martin
Last updated 7 hours ago
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A Calgary oil and gas company’s decision to withhold profits from a B.C. partner due to Canadian-imposed sanctions against Russia over its invasion of Ukraine is justified, a city judge has ruled.
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In a written decision, Justice Paul Jeffrey said RN Cardium Oil Inc.’s links to a Russian government-owned entity made it subject to Canada’s sanctions.
As a result, the Calgary Court of King’s Bench judge dismissed Cardium’s lawsuit against Loyal Energy (Canada) Operating Ltd., which has stopped paying the B.C. company’s 30 per cent interest in a joint hydrocarbon venture.
Cardium and Loyal entered into a joint venture to develop wells to produce and sell hydrocarbons, with the former receiving 30 per cent of the revenues, and Loyal acting as operator and receiving 70 per cent of the profits.
“Loyal paid Cardium its 30 per cent share of the net revenues approximately quarterly since taking on the operator role in 2020,” Jeffrey noted.
“After paying Cardium in November 2022, Loyal stopped paying.”
Despite requests from Cardium for payment since then, Loyal has held onto the cash.
Loyal responded to Cardium on Feb. 21, 2023, “that it could no longer pay Cardium ‘due to . . . the sanctions regulations.’ ”
Jeffrey said Loyal has continued to produce from the jointly owned wells but not pay Cardium its 30 per cent share.
“Loyal says it continued to account for Cardium’s share of all production revenue, account for all costs and expenses relating to their joint project, accumulate and hold all Cardium’s shares of the funds and ensure those funds are available for payment to Cardium, but only ‘if and when permitted by law.’ ”
On March 17, 2025, the B.C. company filed a lawsuit against Loyal alleging it breached their contract, claiming damages of $6 million, plus a punitive award for $60 million.
“Loyal does not deny suspending its payments to Cardium and its informing it under the (joint venture development agreement), but says it was prohibited by the sanction laws from doing so,” Jeffrey noted.
Those Canadian sanction laws, whose purpose “is to freeze the assets of individuals and entities supporting or enabling Russia’s violation of Ukraine’s sovereignty,” list individuals and corporations, and include entities owned, held or controlled by Russia.
Among those, Jeffrey said, is JSC Rosneftegaz, a company managing assets in the oil and gas industry.
Despite being based in B.C., Jeffrey determined Cardium can’t avoid its Russian connections.
“Cardium is a wholly owned subsidiary of PJSC Rosneft Oil Co.,” the Calgary judge wrote.
“Rosneft’s controlling shareholder is Rosneftegaz, which itself is wholly owned by Russia.”
Jeffrey dismissed suggestions by the B.C. company that Rosneftegaz didn’t control Rosneft, and therefore Loyal was in violation of their agreement by withholding the funds.
“Cardium maintains it is contractually entitled to payment from Loyal under the JVDA,” the judge said.
“It is not. By constituting a violation of the federal sanction laws, paying Cardium in these circumstances would be contrary to the (joint agreement).”
Jeffrey also dismissed an application by Cardium for him to order Loyal to deposit the withheld funds into the court to ensure their preservation, saying, “There is no evidence of Loyal dipping into them.”
