QUEEN’S BENCH FOR SASKATCHEWAN Citation: 2014 SKQB 116 Date: 2014 04 21 Docket: Q. B. 577/2004 Judicial Centre: Regina BETWEEN: HUSKY OIL OPERATIONS LIMITED and HER MAJESTY THE QUEEN IN RIGHT OF THE PROVINCE OF SASKATCHEWAN AS REPRESENTED BY THE MINISTER OF FINANCE FOR SASKATCHEWAN and SANJEL CORPORATION, TRICAN WELL SERVICE LTD., BJ SERVICES COMPANY CANADA THIRD PARTIES Overview Procedural Background Pleadings The Position of the Parties 18 Legislation 21 Issue 96 Analysis 97 Burden of Proof 97 Law in Relation to Interpretation of Tax Legislation 101 Saskatchewan Statutory Framework 107 Has Husky Established There Was an Agreement Between Saskatchewan Finance and the Third Parties to Have Husky Pay the PST on Contracts? 115 The Well Transaction Contracts 118 a) Has Husky proved the contracts for each well transaction? 118 b) What can be determined about the nature of the contracts in relation to the evidence produced? 122 Is Husky the user or consumer of cementing materials under the legislation? 140 Were the contracts between Husky and the the third parties supply and install contracts? 151 The manufacturing and processing cases 168 Has there been mistake of law in the payment of the PST by Husky? 171 Is the decision Burlington Resources Canada Ltd. v. British Columbia, 2013 BCSC 292, determinative of the issues? 176 Conclusion 179 QUEEN’S BENCH FOR SASKATCHEWAN Citation: 2014 SKQB 116 Date: 2014 04 21 Docket: Q. B. 577/2004 Judicial Centre: Regina BETWEEN: HUSKY OIL OPERATIONS LIMITED and HER MAJESTY THE QUEEN IN RIGHT OF THE PROVINCE OF SASKATCHEWAN AS REPRESENTED BY THE MINISTER OF FINANCE FOR SASKATCHEWAN and SANJEL CORPORATION, TRICAN WELL SERVICE LTD., BJ SERVICES COMPANY CANADA THIRD PARTIES Counsel: George McKenzie, Q.C./Kurt G. Wintermute for the plaintiff Sharon Pratchler, Q.C./Barbara Mysko/Thomson Irvine for the defendant Laurie Goldbach/Curtis Stewart/Alison Gray/Sheena Owen for the third parties JUDGMENT DAWSON J. April 21, 2014 [1] The plaintiff, Husky Oil Operations Limited, seeks refund from the defendant, Her Majesty the Queen in Right of the Province of Saskatchewan, of Saskatchewan Provincial Sales Tax it paid on well cementing contracts it had with the third parties, Sanjel Corporation, Trican Well Services Ltd. and BJ Services Company Canada for the period of 1996 to 2001. [2] The plaintiff, Husky Oil Operations Limited, (“Husky”) carries on the business of oil and gas exploration and development in Saskatchewan and elsewhere in Canada. In the course of its business, Husky engages contractors to perform various services on oil well sites. These contractors include the third parties, Sanjel Corporation (“Sanjel”), Trican Well Service Ltd. (“Trican”) and BJ Services Company Canada (“BJ Services”) (collectively “the third party contractors” or “cementing contractors”) who cement casing into the well bores. The third party contractors carry out their work by blending dry cement with additives, transporting it to the well site and mixing it with water to make slurry, which slurry is then injected around the casing in the well bore using high pressure pumps. Cement is also used in the servicing and repair of oil and gas wells and in the abandonment of non-producing wells. [3] Husky claims that between January 1, 1996 and February 28, 2001, the third party contractors improperly collected from Husky $393,289.73 in Saskatchewan Provincial Sales Tax (hereafter “PST”) which was remitted to the defendant, Her Majesty the Queen in Right of the Province of Saskatchewan as represented by the Minister of Finance for Saskatchewan (the “Saskatchewan Government”). The PST was paid by Husky to the third party contractors on cement and additives supplied and used by the third party contractors in the performance of their well cementing services as indicated in the third party invoices. The third party contractors collected the PST based on the invoices it charged to Husky and remitted it to the Saskatchewan Government. Husky sought refund of the PST it paid to the Saskatchewan Government. The Saskatchewan Government denied Husky’s refund. Husky then commenced this claim. [4] Husky claims that the cement and additives injected into the well bore constituted “tangible personal property” consumed or used by the third party contractors during the carrying out of supply and installation contract on the oil wells. Accordingly, Husky asserts that there was no sale of tangible personal property by the third party contractors to Husky, and, therefore, the PST collected from Husky and remitted by the third party contractors on the cement and additives was improperly collected and paid. Husky claims for the refund of the PST as against the Government of Saskatchewan. [5] The governing legislation during that period was The Education and Health Tax Act, R.S.S. 1978 c. E-3, as replaced by The Provincial Sales Tax Act, R.S.S. 1978, c. P-34.1 on June 27, 2000 (the “PST Act”). Those statutes imposed an obligation to pay PST on every consumer or user of tangible personal property purchased through retail sale in Saskatchewan. [6] The defendant, Her Majesty the Queen in Right of the Province of Saskatchewan as represented by the Minister of Finance for Saskatchewan (“Saskatchewan Government”), imposed PST under The Education and Health Tax Act (now The Provincial Sales Tax Act). The Saskatchewan Government denies Husky’s claim and asserts that the third party contractors properly levied and collected PST from Husky. [7] The Saskatchewan Government has joined the cementing contractors as third parties in this action. The Saskatchewan Government claims that if Husky was not liable to pay the PST, the third party contractors owe the Saskatchewan Government PST, in undetermined amounts, on materials they consumed in the performance of their contracts with Husky. [8] Sanjel, Trican and BJ Services, the third party contractors, deny the Saskatchewan Government’s third party claims and raise three defences: 1) that they relied on the Saskatchewan Government representations and interpretations in collecting and remitting the PST; 2) that the Saskatchewan Government’s claim against them is barred by ss. 50(4) of The Revenue and Financial Services Act, S.S. 1983, c. R-22.01 and The Limitation of Actions Act, R.S.S. 1978, c. L-15 (rep. by The Limitations Act, S.S. 2004, c. L-16.1); and (3) they say that the claims against them are without merit because Husky was the final user and consumer of the materials provided pursuant to the contracts between the third party contractors and Husky. [9] The main issue in this case is whether Husky is statutorily entitled to refund of the Saskatchewan Provincial Sales Tax it paid on well servicing contracts with the third parties during the claim period. PROCEDURAL BACKGROUND [10] Throughout the period of 1996 to 2001 (the claim period) Husky paid PST to the third party contractors on materials supplied by the third party contractors on the cementing contracts. The third party contractors remitted the PST to the Saskatchewan Government. [11] On October 27, 1999, Husky wrote to the Saskatchewan Government claiming $240,199.02 as refund of PST which Husky claimed it had paid in error for the period of January 1, 1996 to September 30, 1999, on materials supplied and installed by the third party contractors in the performance of well cementing services. [12] On November 29, 1999, the Saskatchewan Government denied Husky’s refund claim. [13] On October 26, 2001, Husky wrote to the Saskatchewan Government claiming $179,765.67 as refund of PST which Husky claimed it had paid in error for the period of October 1, 1999 to February 28, 2001 on materials supplied and installed by the third party contractors in the performance of well cementing services. [14] On July 23, 2002, the Saskatchewan Government denied Husky’s refund claim. [15] Husky filed its statement of claim in this action on March 26, 2002. At that point, it sought refund of PST in the amount of $419,964.69 for the period January 1, 1996 to February 25, 2001. The Government of Saskatchewan filed statement of defence on October 9, 2003. The Government of Saskatchewan filed its third party claims against each of the third parties on April 8, 2004. [16] On July 21, 2005, Husky filed an amended statement of claim wherein it reduced the amount claimed as refund of PST to $393,289.73. It reduced the amount of the claim by eliminating its claim involving other contractors. [17] The Government of Saskatchewan filed an amended statement of defence on January 22, 2007. [18] On October 28, 2004, Trican and Sanjel each filed statement of defence to the third party claim. On December 29, 2004, BJ Services filed statement of defence to the third party claim. [19] On November 28, 2005, the Government of Saskatchewan filed an amended notice of third party claim against each of the third parties. The third parties did not file any amended statement of defence to the amended third party claims. [20] It is also of note that on November 5, 2004, this Court ordered that the issue of calculation of the PST payable by the third parties on the third party claims, if any, was stayed until liability, if any, of the Government of Saskatchewan to pay Husky was determined. [21] On March 24, 2010, the third parties issued fourth party claim against Husky pursuant to the order of this Court dated March 4, 2010. At the same time, the issue of the third parties’ fourth party claim against Husky was stayed until the issues of liability and calculation of PST owing by the third parties, if any, had been determined. [22] The third parties brought an application to the court to be allowed to defend the liability of the Government of Saskatchewan to Husky at trial. An order was made, and the third parties were allowed to defend the liability of the Saskatchewan Government to Husky at the trial. [23] At trial, the matters to be adjudicated on the pleadings are whether Husky is entitled to refund of PST from the Saskatchewan Government, and if Husky is successful in that claim, whether the amount to be refunded to Husky is to be reduced by virtue of the limitation period set forth in s. 56 of the Department of National Revenue Act, R.S.C. 1985, c. N-16 (rep. by Canada Customs and Revenue Agency Act, S.C. 1999, c. 17). [24] The pleadings are of significance in this proceeding. Husky’s Amended Statement of Claim [25] Husky’s amended statement of claim states the following: 4. In the course of the Business, the Plaintiff contracts with: (a) drilling contractors to drill oil or gas wells and install casing in the hole being drilled; and (b) cementing service contractors to cement the casing in the hole; ... 5. The cementing service contractors supply and install cement (the “Cement”) to hold the casing in the well bore. 6. The Cement is mixture of water, dry cement and special additives which is manufactured, largely on site, by the cementing service contractors. 7. The Cement is injected into the well bore and around the casing by the cementing service contractors utilizing special high-pressure pumps. 10. The cementing service contractors and the reservoir stimulation service contractors (hereinafter collectively referred to as the “Contractors”) invoiced the Plaintiff for tax in the amount of $419,965.69 $393,289.73 (the “Sales Tax”) under The Education and Health Tax (now The Provincial Sales Tax Act, S.S. 2000, c. P-34.1, as amended) (the “Act”) in respect of the Cement and Materials. 11. From January 1, 1996 to February 28, 2001 the Contractors collected from the Plaintiff and remitted to the Defendant Sales Tax in respect of the Cement and Fracturing Fluid used by the Contractors in the performance of their services to the Plaintiff. 12. The Contractors are licensed under section of the Act. 13. On or about October 28, 1999 and October 13, 2001, the Plaintiff notified the Saskatchewan Minister of Finance (the “Minister”) in writing that the Sales Tax on the Cement and Fracturing Fluid had been charged to and paid in error by the Plaintiff and the Plaintiff asked that the Sales Tax be refunded with interest. 14. The Minister has failed or refused to refund the Sales Tax to the Plaintiff. 15. The Plaintiff pleads and relies upon, inter alia, sections 3(1)(c), 3(1)(h), 3(1)(i), 3(1)(m), 3(1)(o) and subsections 5(1), 5(2) and 5(6) of the Act and section 56 of The Revenue and Financial Services Act, S.S. 1983 c.R-22.01, as amended. 16. The Plaintiff is not liable for the payment of Sales Tax in respect of the Cement and Fracturing Fluid used by the Contractors in the performance of their contracts with the Plaintiff. 17. The contracts between the Plaintiff and the Contractors provide for the supply and/or installation of the Cement and Fracturing Fluid by the Contractors in the well bore or reservoir of the Plaintiff. 18. In the course of performing their contracts with the Plaintiff, the Contractors supplied and/or installed the Cement and Fracturing Fluid manufactured and consumed by them into the real property of the Plaintiff and the Contractors are deemed to be the consumer or user of the Cement and Fracturing Fluid for the purposes of the Act. 19. There is no sale of the Cement or Fracturing Fluid by the Contractors to the Plaintiff for the purpose of the Act. 21. The Plaintiff seeks judgment against the Defendant in the amount of $419,964.69 $393,289.73, representing the Sales Tax paid in error by the Plaintiff to the Defendant. 22. The Plaintiff seeks interest on the amount claimed from the date of payment of the Sales Tax to the date of judgment at the rate and in the manner prescribed by the regulations under The Revenue and Financial Services Act. ... Saskatchewan Government’s Amended Statement of Defence 2. The Government of Saskatchewan admits paragraphs 1-5, 7-8, 13, 14 of the Claim. 3. In reply to paragraphs and of the Claim the Government of Saskatchewan puts the Plaintiff to strict proof of where the cement and the fracturing fluid was manufactured. 4. In reply to paragraphs 10 and 11 of the Claim, the Government of Saskatchewan puts the Plaintiff to strict proof of the amounts of sales tax paid by the Plaintiff to the Contractors. 5. In reply to paragraph 12 of the Claim, the Government of Saskatchewan puts the Plaintiff to strict proof of the licensing of the Contractors. 6. In reply to paragraphs 16-20 of the Claim, the Government of Saskatchewan says that the contracts entered into between the Plaintiff and the Contractors provided for the distinct sale of both services, and tangible personal property as that term is defined in The Provincial Sales Tax Act, and that this was the intention of the Plaintiff and the Contractors in entering into the contracts. The Government of Saskatchewan specifically pleads that the contracts between the Plaintiff and the Contractors consist of more than the documents referred to in the Plaintiff’s Reply to the Government of Saskatchewan’s Demand for Particulars. The Government of Saskatchewan specifically pleads that the contracts referred to in the Plaintiff’s Reply to the Demand for Particulars are ambiguous, and that the true and full intention of the Plaintiff and the Contractors is not contained exclusively in the terms and conditions of those contracts. The Defendant specifically pleads that other documents outside the contracts referred to in the Reply to the Demand for Particulars form part of those contracts and set out additional terms and/or, set out the intentions of the Plaintiff and the Contractors in entering into the contracts. And as such, the Contractors properly levied and collected tax from the Plaintiff on the sale of the tangible personal property pursuant to section of The Provincial Sales Tax Act. 8. The Government of Saskatchewan pleads section 56(4) of The Revenue and Financial Services Act, and says that the portion of the Plaintiff’s Claim prior to March 26, 1998 is statute barred by virtue of the expiration of the limitation period contained therein. Amended Notice of Third Party Claim 1. The Defendant, Her Majesty the Queen in Right of the Province of Saskatchewan as represented by the Minister of Finance for Saskatchewan (hereinafter the “Government of Saskatchewan”) asserts this Claim against Sanjel Corporation, Trican Well Service Ltd., BJ Services Company Canada, Fracmaster Ltd., Redmen Services Ltd., Reedhycalog International (Canada) Limited operating under the business name and style of “Reda Services”, Flint Field Services Ltd., Tryton Tool Services Ltd., Haliburton Group Canada Inc., and Tucker Wireline Services Canada Inc. 2. The Claim of the Plaintiff against the Defendant and the Defendant’s Defence thereto, appear in the Plaintiff’s Statement of Claim dated March 26, 2002, the Defendant’s Demand for Particulars dated January 29, 2003, the Plaintiff’s Reply to the Demand for Particulars dated May 9, 2003 and the Defendant’s Statement of Defence dated September 9, 2003, and the Plaintiff’s Amended Statement of Claim amended July 20, 2005. 3. In the Amended Statement of Claim, the Plaintiff alleges that: (a) during the course of the Plaintiff’s business of oil and gas exploration and development it entered into contracts with various cementing and reservoir service contractors for the supply and installation of various materials at their well sites; (b) the various cementing and reservoir services contractors invoiced the Plaintiff for provincial sales tax (hereinafter “PST”) on the contracts’ materials in the amount of $393,289.73 $419,964.69, collected the PST on the Plaintiff’s behalf and remitted the same to the Defendant pursuant to The Education and Health Tax Act, now The Provincial Sales Tax Act, (hereinafter the “Act”); (c) in the course of performing their contracts with the Plaintiff, the various cementing and reservoir service contractors supplied and/or installed materials manufactured and consumed by them into the real property of the Plaintiff and therefore the various contractors are deemed to be the consumer or user of the materials for the purposes of the Act, and for this reason there is no sale of materials by the contractors to the Plaintiff leading to the result that it is the contractors and not the Plaintiff who are liable to PST under the Act; and (d) it is therefore entitled to refund of the $393,964.69 of PST collected by the contractors from the Plaintiff in error. 4. The Government of Saskatchewan repeats and adopts as if set out herein the facts and matters referred to in its Statement of Defence to the Statement of Claim. 5. Sanjel Corporation is an extra-provincial corporation duly registered to carry on business in the Province of Saskatchewan in the nature of oil and gas well servicing, and has its registered office in Calgary, Alberta, and is one of the various cementing and reservoir service contractors referred to in the Plaintiff’s Statement of Claim. 6. Trican Well Service Ltd. is an extra-provincial corporation duly registered to carry on business in the Province of Saskatchewan in the nature of the servicing of oil and gas wells, and has its registered office in Calgary, Alberta, and is one of the various cementing and reservoir services contractors referred to in the Plaintiff’s Statement of Claim. 7. BJ Services Company Canada is an extra-provincial corporation duly registered to carry on business in the Province of Saskatchewan in the nature of well cementing and stimulation, and pumping services and materials, and has its registered office in Halifax, Nova Scotia, and is one of the various cementing and reservoir service contractors referred to in the Plaintiff’s Statement of Claim. 8.15. If the Government of Saskatchewan is liable to refund PST to the Plaintiff collected and levied in error by Sanjel Corporation, Trican Well Service Ltd., BJ Services Company Canada, Fracmaster Ltd., Redmen Services Ltd., Reedhycalog International (Canada) Limited operating under the business name and style of “Reda Services”, Flint Field Services Ltd., Tryton Tool Services Ltd., Haliburton Group Canada Inc., and Tucker Wireline Services Canada Inc. (hereinafter “the Third Parties”) on their various contracts with the Plaintiff as referred to in the Plaintiff’s Statement of Claim, then the Government of Saskatchewan, pursuant to section 50(2) of The Revenue and Financial Services Act, is entitled to payment of PST from the Third Parties in yet undetermined amounts, on the basis that the Third Parties were liable under the Act to pay PST on the materials they consumed in performance of their contracts with the Plaintiff, together with interest on such amounts as permitted and prescribed by section 57(10(b) of The Revenue and Financial Services Act and the Regulations thereto. Third Party Sanjel Statement of Defence 1. The Third Party, Sanjel Corporation (“Sanjel”), denies the allegations contained in the Plaintiff’s Statement of Claim dated March 26, 2002, the Defendant’s Demand for Particulars dated January 29, 2003, the Plaintiff’s Reply to the Demand for Particulars dated May 9, 2003 and the Defendant’s Statement of Defence dated September 9, 2003. Sanjel specifically denies that the Plaintiff is entitled to judgment against the Defendant in the amount of $419,964.69, plus interest as alleged in the Statement of Claim or at all. 2. Sanjel denies the allegations contained in the Third Party Claim. 4. Sanjel admits the allegations of fact contained in paragraph 5. Sanjel further admits that it is one of the cementing and reservoir stimulation service contractors referred to in general terms in the Plaintiff’s Statement of Claim and in more particular terms in the Plaintiff’s Reply to the Demand for Particulars dated May 9, 2003. 6. In response to paragraph 15 of the Third Party Claim, Sanjel states, and the fact is, that by refusing or failing to refund the PST to the Plaintiff, Husky Oil Operating Limited (“HOOL”), as described in paragraphs 13 and 14 of the Statement of Claim, the Defendant/Third Party Claimant (the “Government of Saskatchewan”) represented that the PST was properly imposed on HOOL and that Sanjel was liable to collect and remit the PST to the Government of Saskatchewan. Sanjel was entitled to and did implicitly or explicitly reply on the Government of Saskatchewan’s position and actions in this regard and relied on the fact that such position and actions were taken in good faith. Interpretation Bulletins and other statements and positions authored or issued by the Government of Saskatchewan are consistent with this position. 7. In the alternative and in further response to paragraph 15 of the Third Party Claim, Sanjel states, and the fact is, if the Government of Saskatchewan is entitled to payment of PST, or PST and interest, on such amounts from Sanjel, Sanjel states that as the Government of Saskatchewan knew or ought to have known at least four years prior to March 22, 2004 that: (a) it was entitled to payment of some or all of the PST, or PST and interest, claimed; (b) Sanjel had not remitted some or all of the PST, or PST and interest, claimed; and (c) that failure to remit some or all of the PST, or PST and interest, warranted bringing proceeding and this action was not commenced until March 23, 2004, this action is statute-barred. In this respect, Sanjel pleads and relies upon the RFSA, including without limitation subsection 56(4), and upon The Limitations of Actions Act, R.S.S. 1978, Chapter L-15, as amended. 8. In the further alternative and in further response to paragraph 15 of the Third Party Claim, Sanjel states, and the fact is, if the Government of Saskatchewan is entitled to payment of PST or PST and interest on such amounts from Sanjel, Sanjel states that as the Government of Saskatchewan knew or ought to have know at least six years prior to March 22, 2004 that: (a) it was entitled to payment of some or all of the PST, or PST and interest, claimed; (b) Sanjel had not remitted some or all of the PST, or PST and interest, claimed; and (c) that failure to remit some or all of the PST, or PST and interest, warranted bringing proceeding and this action was not commenced until March 23, 2004, this action is statute-barred. In this respect, Sanjel pleads and relies upon The Limitations of Actions Act, R.S.S. 1978, Chapter L-15, as amended. 9. In further response to paragraph 15 of the Third Party Claim, Sanjel states, and the fact is, even if the Government of Saskatchewan is entitled to payment of PST from Sanjel, the Government of Saskatchewan’s claim for interest on the amount of PST allegedly owing is without merit, in whole or in part, particularly in light of the Government of Saskatchewan’s previous actions and representations as plead herein and their delay in advancing claim for such amounts as against Sanjel. Third Party BJ Services Statement of Defence 1. The Third Party, BJ Services Company Canada (“BJ Services”), denies the allegations contained in the Plaintiff’s Statement of Claim dated March 26, 2002, the Defendant’s Demand for Particulars dated January 29, 2003, the Plaintiff’s Reply to the Demand for Particulars dated May 9, 2003 and the Defendant’s Statement of Defence dated September 9, 2003. BJ Services specifically denies that the Plaintiff is entitled to judgment against the Defendant in the amount of $419,964.69, plus interest as alleged in the Statement of Claim or at all. 2. BJ Services denies the allegations contained in the Third Party Claim. 4. BJ Services admits the allegations of fact contained in paragraph 5. BJ Services further admits that it is one of the cementing and reservoir stimulation service contractors referred to in general terms in the Plaintiff’s Statement of Claim and in more particular terms in the Plaintiff’s Reply to the Demand for Particulars dated May 9, 2003. 6. In response to paragraph 15 of the Third Party Claim, BJ Services states, and the fact is, that by refusing or failing to refund the PST to the Plaintiff, Husky Oil Operating Limited (“HOOL”), as described in paragraphs 13 and 14 of the Statement of Claim, the Defendant/Third Party Claimant (the “Government of Saskatchewan”) represented that the PST was properly imposed on HOOL and that BJ Services was liable to collect and remit the PST to the Government of Saskatchewan. BJ Services was entitled to and did implicitly or explicitly reply on the Government of Saskatchewan’s position and actions in this regard and relied on the fact that such position and actions were taken in good faith. Interpretation Bulletins and other statements and positions authored or issued by the Government of Saskatchewan are consistent with this position. 7. In the alternative and in further response to paragraph 15 of the Third Party Claim, BJ Services states, and the fact is, if the Government of Saskatchewan is entitled to payment of PST, or PST and interest, on such amounts from BJ Services, BJ Services states that as the Government of Saskatchewan knew or ought to have known at least four years prior to March 22, 2004 that: (a) it was entitled to payment of some or all of the PST, or PST and interest, claimed; (b) BJ Services had not remitted some or all of the PST, or PST and interest, claimed; and (c) that failure to remit some or all of the PST, or PST and interest, warranted bringing proceeding and this action was not commenced until March 23, 2004, this action is statute-barred. In this respect, BJ Services pleads and relies upon the RFSA, including without limitation subsection 56(4), and upon The Limitations of Actions Act, R.S.S. 1978, Chapter L-15, as amended. 8. In the further alternative and in further response to paragraph 15 of the Third Party Claim, BJ Services states, and the fact is, if the Government of Saskatchewan is entitled to payment of PST or PST and interest on such amounts from BJ Services, BJ Services states that as the Government of Saskatchewan knew or ought to have know at least six years prior to March 22, 2004 that: (a) it was entitled to payment of some or all of the PST, or PST and interest, claimed; (b) BJ Services had not remitted some or all of the PST, or PST and interest, claimed; and (c) that failure to remit some or all of the PST, or PST and interest, warranted bringing proceeding and this action was not commenced until March 23, 2004, this action is statute-barred. In this respect, BJ Services pleads and relies upon The Limitations of Actions Act, R.S.S. 1978, Chapter L-15, as amended. 9. In further response to paragraph 15 of the Third Party Claim, BJ Services states, and the fact is, even if the Government of Saskatchewan is entitled to payment of PST from BJ Services, the Government of Saskatchewan’s claim for interest on the amount of PST allegedly owing is without merit, in whole or in part, particularly in light of the Government of Saskatchewan’s previous actions and representations as plead herein and their delay in advancing claim for such amounts as against BJ Services. Third Party Trican Statement of Defence 1. The Third Party, Trican Well Service Ltd. ("Trican"), denies the allegations contained in the Plaintiff's Statement of Claim dated March 26, 2002, the Defendant's Demand for Particulars dated January 29, 2003, the Plaintiff's Reply to the Demand for Particulars dated May 9, 2003 and the Defendant's Statement of Defence dated September 9, 2003. Trican specifically denies that the Plaintiff is entitled to judgment against the Defendant in the amount of $419,964.69, plus interest as alleged in the Statement of Claim or at all. 2. Trican denies the allegations contained in the Third Party Claim. 4. Trican admits the allegations of fact contained in paragraph 6. Trican further admits that it is one of the cementing and reservoir stimulation service contractors referred to in general terms in the Plaintiff's Statement of Claim and in more particular terms in the Plaintiff's Reply to the Demand for Particulars dated May 9, 2003. 6. In response to paragraph 15 of the Third Party Claim, Trican states, and the fact is, that by refusing or failing to refund the PST to the Plaintiff, Husky Oil Operating Limited ("HOOL"), as described in paragraphs 13 and 14 of the Statement of Claim, the Defendant/Third Party Claimant (the "Government of Saskatchewan") represented that the PST was properly imposed on HOOL and that Trican was liable to collect and remit the PST to the Government of Saskatchewan. Trican was entitled to and did implicitly or explicitly reply on the Government of Saskatchewan's position and actions in this regard and relied on the fact that such position and actions were taken in good faith. Interpretation Bulletins and other statements and positions authored or issued by the Government of Saskatchewan are consistent with this position. 7. In the alternative and in further response to paragraph 15 of the Third Party Claim, Trican states, and the fact is, if the Government of Saskatchewan is entitled to payment of PST, or PST and interest, on such amounts from Trican, Trican states that as the Government of Saskatchewan knew or ought to have known at least four years prior to March 22, 2004 that: (a) it was entitled to payment of some or all of the PST, or PST and interest, claimed; (b) Trican had not remitted some or all of the PST, or PST and interest, claimed; and (c) that failure to remit some or all of the PST, or PST and interest, warranted bringing proceeding and this action was not commenced until March 23, 2004, this action is statute‑barred. In this respect, Trican pleads and relies upon the RFSA, including without limitation subsection 56(4), and upon The Limitations of Actions Act, R.S.S. 1978, Chapter L‑15, as amended. 8. In the further alternative and in further response to paragraph 15 of the Third Party Claim, Trican states, and the fact is, if the Government of Saskatchewan is entitled to payment of PST or PST and interest on such amounts from Trican, Trican states that as the Government of Saskatchewan knew or ought to have know at least six years prior to March 22, 2004 that: (a) it was entitled to payment of some or all of the PST, or PST and interest, claimed; (b) Trican had not remitted some or all of the PST, or PST and interest, claimed; and (c) that failure to remit some or all of the PST, or PST and interest, warranted bringing proceeding and this action was not commenced until March 23, 2004, this action is statute‑barred. In this respect, Trican pleads and relies upon The Limitations of Actions Act, R.S.S. 1978, Chapter L‑15, as amended. 9. In further response to paragraph 15 of the Third Party Claim, Trican states, and the fact is, even if the Government of Saskatchewan is entitled to payment of PST from Trican, the Government of Saskatchewan’s claim for interest on the amount of PST allegedly owing is without merit, in whole or in part, particularly in light of the Government of Saskatchewan’s previous actions and representations as plead herein and their delay in advancing claim for such amounts as against Trican. THE POSITION OF THE PARTIES [26] Husky asserts that the PST had been improperly charged, collected and remitted in respect of the supply of the cement from the third parties to Husky as disclosed on the third parties’ invoices. Husky takes the position that there was no purchase or sale of the cement between Husky and the third party contractors at any time. [27] Husky asserts that the contractors had been charging PST on the cement listed in their invoices by virtue of an arrangement that they, the third party contractors, made with Saskatchewan Finance. Husky says this arrangement enabled the third party cementing contractors to avoid the need to self-assess PST in respect of the cement imported by them into Saskatchewan, for the third parties’ use when they performed well cementing services for Husky. Husky says there is no provision in the PST Act which imposes the liability for PST on Husky. Husky asserts that the denial of the refund claims on the basis of this long standing arrangement is not founded in law and cannot be sustained in this action as the basis for denying the refund claims.[1] [28] Husky asserts that the Saskatchewan Government denied the refund claims on the basis of long standing arrangement made between Saskatchewan Finance and the third party contractors, which allowed the third parties to collect PST from Husky, even though it was the third party contractors who were legally obligated to self-assess and pay PST. Husky asserts that it is this long standing arrangement alluded to in Plaintiff Third Party Exhibits 46 and 52 which was the basis of Saskatchewan Government’s decision to charge the PST to Husky and deny the tax to Husky refund. Husky asserts that there is no legislative authority to impose the PST on Husky and deny the refund. [29] It is Husky’s further position that the contracts between Husky and the third party contractors were service contracts. Husky asserts the contracts were clear and unambiguous. Husky asserts the contracts do not provide for the distinct sale of both services and tangible personal property. Husky says further that even if the contracts were not clear and unambiguous, the evidence discloses that the conduct and intention of the parties was that these were contracts for services and not separate contracts for the sale of tangible personal property and services. [30] It is Husky’s further position that the contracts between Husky and the third parties were supply and install contracts as referred to in ss. 5(6) of the PST Act and as such, the third parties are liable for the payment of the PST to the Saskatchewan Government. [31] It is Husky’s further position that it paid the PST in error. [32] The position of the Saskatchewan Government is that the third party cementing contractors sold tangible personal property to Husky and provided services to Husky at the same time. Saskatchewan Government asserts that Husky is obligated to pay the PST on the tangible personal property that it purchased from the third parties. Saskatchewan Government denies that there was any arrangement between the third party contractors and Saskatchewan Finance. Saskatchewan Government asserts that Husky and the third party contractors structured their agreements and contracts as they saw fit. Saskatchewan Government asserts that it simply acquiesced to the contractual choices of the parties. [33] Saskatchewan Government asserts that based on the nature and form of the agreements, the goods and services provided, and the conduct of the parties, Husky is responsible for the PST. Saskatchewan Government asserts the claim should be dismissed. [34] Saskatchewan Government asserts that if Husky was not the party responsible for the PST, then the third party contractors are liable for the payment of PST. [35] The third parties’ position is that Husky, and not the third parties, is liable for tax. The third parties assert that Husky was the final user and consumer of the materials provided, pursuant to the contracts between Husky and the third parties. The third parties assert this position is consistent with the allocation of risks and responsibilities in the contracts for which they bargained, as well as the long-standing industry practice that was followed by Husky and each of the third parties. The third parties submit that Husky’s claim, and in turn the Crown’s third party claim, should be dismissed.[2] [36] The third parties assert the contracts with Husky were not supply and install contracts. [37] The third parties assert that Husky was responsible to pay PST on the goods Husky purchased from the third parties on the well cementing contracts. LEGISLATION [38] During the period for which Husky claims refund, January 1, 1996 to February 28, 2001, the governing legislation was The Education and Health Tax Act, R.S.S. 1978, c. E-3 as replaced by The Provincial Sales Tax Act, S.S. 2000, c. P-41 in 2000. Subsections 5(1), (2) and (6) of the former The Education and Health Tax Act are identical to subsections 5(1), (2) and (6) of the PST Act. For ease of reference in the judgment, will refer to the legislative provision as the PST Act. [39] The relevant portions of the PST Act state: 3(1) In this Act: ... (b) "consideration" means money paid or agreed to be paid, property delivered or exchanged or agreed to be delivered or exchanged, things done or agreed to be done, rights or any other consideration whatsoever and includes service charge, transportation charge, or any other cost, or tax, levy or duty imposed by any level of government other than the tax imposed pursuant to Part IX of the Excise Tax Act (Canada), as amended from time to time, in respect of the sale of taxable service or tangible personal property whether or not the charge, cost, tax, levy or duty included is shown separately on any invoice or in the books of the seller or of the purchaser; (c) “consumer” means person who within the province purchases from vendor tangible personal property at retail sale in the province: (i) for his own consumption or for the consumption of other persons at his expense, or on behalf of, or as the agent for, principal who desires to acquire the property for consumption by the principal or other persons at the expense of the principal; ... (h) “retail sale” means sale, including sale by auction, of: (i) tangible personal property to consumer or user for the purposes of consumption or use and not for resale as tangible personal property; (ii) taxable services to user for the purpose of use and not for resale; (iii) tangible personal property to consumer or user who purchases the tangible personal property for the purpose of providing taxable service therewith; or ... (i) “sale” means: (i) any transfer, exchange, barter or lease, conditional or otherwise in any manner or by any means whatsoever, of tangible personal property for consideration; (ii) the furnishing of taxable service for consideration; and includes an agreement for sale of tangible personal property or taxable service whether absolute or conditional; (iii) the production, fabrication, processing, printing or imprinting of tangible personal property for consideration for person who furnishes either directly or indirectly all or part of the tangible personal property consumed or used in the production, fabrication, processing, printing or imprinting; or (iv) the transfer for consideration of the title to or possession of tangible personal property that has been produced, fabricated, processed, printed or imprinted to the order of the purchaser; (j) “tangible personal property” means personal property that can be seen or touched and includes gas used in the operation of internal combustion engines and turbines, and electricity; ... (m) “user” means any person who within the province: (i) purchases or leases from vendor tangible personal property at retail sale in the province for his own use or for the use of other persons at his expense, or on behalf of, or as the agent of, principal who desires to acquire the property for use by the principal or other persons at the expense of the principal; (ii) purchases or leases from vendor tangible personal property at retail sale in the province for the purpose of providing taxable service with such tangible personal property; (iii) purchases or leases taxable service from vendor for consideration for his own use or for the use of other persons at his expense, or on behalf of, or as agent of, principal who desires to acquire the taxable service for use by the principal or other persons at the expense of the principal; or (iv) purchases from vendor tangible personal property at retail sale in Saskatchewan for the purpose of promotional distribution, to the extent that the value of the property is greater than any payment intended to be and subsequently specifically made for that tangible personal property by the person to whom the property is to be provided; ... (o) “vendor” means any person who, within the province and in the course of his business or in the course of continuous or successive acts: (i) sells or leases tangible personal property to consumer or user at retail sale in the province for purposes of consumption or use, and not for resale; (ii) sells or leases taxable services to user at retail sale in the province for purposes of use and not for resale; or (iii) sells tangible personal property to consumer or user to be used by the consumer or user for the purpose of promotional distribution. (2) person to whom licence has been issued under this Act shall be deemed to be vendor unless the licence has been surrendered by him to the minister or has been cancelled or suspended by the minister. 4(1) No vendor shall sell any tangible personal property in the province at retail sale unless he holds licence to do so issued to him by the minister and the licence is in force at the time of the sale. (2) No vendor shall sell any taxable service in the province at retail sale for consideration unless he holds licence to do so or licence under subsection (1) issued to him by the minister and the licence is in force at the time of the sale. (3) The licence shall be issued without fee and, if required by the regulations, shall be kept posted, in the manner prescribed thereby, in the place where the vendor carries on his business. (4) The minister may cancel or suspend the licence of vendor for his failure to comply with any of the provisions of this Act or the regulations or Part III of The Revenue and Financial Services Act or the regulations made pursuant to that Part, and thereupon any other licence of the vendor issued by any authority in the province authorizing him to carry on his business shall become and be cancelled and of no effect. 5(1) Subject to subsections (9), (18), (20) and (21), every consumer of tangible personal property, purchased at retail sale in Saskatchewan shall pay to Her Majesty the Queen for the raising of general revenue, at the time of making his purchase, tax in respect of the consumption of the property and such tax shall be computed at the rate of 5% of the value of the property to be consumed. (2) Subject to subsections (9), (18), (20) and (21), every user of tangible personal property purchased at retail sale in Saskatchewan shall pay to Her Majesty the Queen for the raising of general revenue, at the time of making his purchase, tax in respect of the use of the property, and such tax shall be computed at the rate of 5% of the value of the property to be used. (6) Subject to the regulations, where contractor or manufacturer enters into contract for the supply and installation of tangible personal property and during the carrying out of the contract consumes or uses tangible personal property produced, fabricated, processed, printed or imprinted by him the contractor or manufacturer shall be deemed to be consumer or user of the tangible personal property and to have purchased the tangible personal property at retail sale in the province at the time of consumption or use at value that includes the total cost of the tangible personal property together with the total cost of its production, fabrication, processing, printing or imprinting to the time of such consumption or use. (9) Every person residing or ordinarily resident or carrying on business in Saskatchewan who brings into the province or who receives delivery in the province of tangible personal property for his own consumption or use, or for the consumption or use of other persons at his expense, or on behalf of or as agent for principal who desires to acquire the property for consumption or use by the principal or other persons at his expense, shall immediately report the matter to the minister or his appointee and forward or produce to him the invoice, if any, in respect of the property and any other information required by him with respect to the property and shall pay the same tax in respect of the consumption or use of the property as would have been payable if the property had been purchased at retail in the province at the price that would have been paid in Saskatchewan if the tangible personal property had been purchased at retail in the province. (12) The expression “price” in subsections (9) and (9.2) includes the value of the tangible personal property, transportation costs and any other costs whatsoever incurred in bringing the property into Saskatchewan and in preparing the property for use or consumption in Saskatchewan, borne or to be borne by the user or consumer or any person at his expense or on his behalf or as his agent. [40] The Revenue and Financial Services Act, S.S. 1983, c. R-22.01provides for the refund to taxpayer of an overpayment of PST and penalties for non-payment: 56(1) Subject to subsections (2) and (3), where collector or taxpayer has made an overpayment of tax, the minister: (a) shall refund the amount of the overpayment to the collector or taxpayer; and (b) may pay interest at the rate and in the manner prescribed in the regulations. (4) Notwithstanding The Limitations Act, no action may be brought to recover an overpayment after the expiration of: (a) in the case of tax payable pursuant to The Corporation Capital Tax Act, within four years from the date on which the corporation is required to file return pursuant to section 17 of that Act for the fiscal year in which the overpayment occurred; (b) in the case of tax payable pursuant to any other Act, four years from the date on which the overpayment occurred. 57(1) collector who fails to forward tax collected or deemed to be collected by him as required pursuant to this Part or any revenue Act or taxpayer who fails to pay tax payable by him as required pursuant to this Part or any revenue Act is liable to pay to Her Majesty, in addition to any other penalty: (a) penalty of 10% of the amount of the tax not forwarded or not paid to maximum penalty of $500 per return period; and (b) interest, at the rate and applied in the manner prescribed in the regulations, on the amount of tax not forwarded or not paid from the day on which it was required to be forwarded or paid. (2) Sections 60 to 64 apply mutatis mutandis for the purpose of recovering the amount of the penalty and interest imposed pursuant to this section. 58(1) Notwithstanding section 57, collector or taxpayer shall pay the penalty and interest set out in subsection (1.1) if: (a) an audit is performed on the collector or taxpayer pursuant to this Part or revenue Act; and (b) as result of that audit, the collector or taxpayer is assessed for tax collected, deemed to be collected or payable pursuant to this Part or any revenue Act. (1.1) In the circumstances mentioned in subsection (1), the collector or taxpayer is liable to pay to Her Majesty, in addition to any other penalty: (a) one of the following: (i) penalty equal to 10% of the amount of tax assessed; (ii) if collector has collected, but not remitted, any tax as required by this Part or revenue Act, penalty equal to 25% of the amount of tax assessed; (iii) if the minister is satisfied that collector who has collected tax has wilfully failed to remit the tax as required by this Part or revenue Act, penalty equal to the amount of tax assessed; and (b) interest, at the rate and applied in the manner prescribed in the regulations, on the amount of tax assessed, from the day on which the tax was required to be forwarded or paid. (2) Sections 60 to 64 apply mutatis mutandis for the purpose of recovering the amount of the penalty and interest imposed pursuant to this section. [41] The parties filed admissions for the purposes of the trial. These admissions were amended over the course of the trial and revised admissions were filed by the parties at the end of the trial. This admission document articulates the agreement of the parties as to the facts admitted, the documents admitted, and in respect of each document, the extent of the admission and/or the agreed use that the court may make of the admission. have used the admissions as agreed to by the parties. [42] Husky Oil Operations Limited is corporation registered to carry on business in Saskatchewan. It is in the business of oil and gas exploration and development. Husky has its head office in Calgary, Alberta. It also carries on business elsewhere in Canada. [43] The Government of Saskatchewan imposed PST under The Education and Health Tax Act, R.S.S. 1978, c. E-3 as replaced by The Provincial Sales Tax Act, R.S.S. 1978, c. P-34.1) (the PST Act) during the period of this claim. [44] Each of the third parties, Sanjel, Trican and BJ Services, was well servicing corporation that provided well cementing materials and services to Husky during the period of the claim. The third parties are referred to as contractors or third party contractors. [45] The Canadian Association of Petroleum Producers (CAPP) is member group representing Canadian’s oil and natural gas industry. Approximately 170 member companies belong to CAPP. During the claim period, Husky Energy Inc., Husky’s parent corporation, was member of CAPP. CAPP was involved in discussions with the Saskatchewan Government regarding the application of PST on well cementing contracts, including those involving Husky. [46] The Petroleum Services Association of Canada (PSAC) is an oil industry organization. It represented the service, supply and manufacturing sectors within the petroleum industry. It was an industry advocate group. Each of the third parties was member of PSAC and participated at times in its activities. PSAC was involved in discussions with the Government of Saskatchewan regarding the application of PST on well cementing contracts, including those involving Husky. The actions of PSAC did not bind its members. [47] SPIN Tax Solutions Inc. is tax consulting group. It provided tax advice to various corporations. SPIN Tax was involved in preparing and advocating for Husky’s refund claim from the Saskatchewan Government. [48] Husky is large corporation which undertakes the drilling of oil wells in many places. The business unit of Husky determined where Husky would drill wells. The business unit researched areas for oil exploration, acquired the land, and determined, in terms of budget, whether oil and gas wells could be drilled on certain lands. [49] Drilling completions of wells are done in two phases. Drilling is the initial well construction. Completion is the phase of bringing the oil and gas to the surface for sale. This lawsuit relates to the drilling phase or initial well construction phase of well. [50] William Ellsworth is chemical engineer who was employed by Husky in Calgary, Alberta as the Frontier Manager, Exploration and New Ventures. Mr. Ellsworth was the engineering technical leader and engineering manager in the Drillings and Completions Department of Husky in the period 1996 to 2001. The Drilling and Completion Department of Husky was responsible for the design of oil and gas wells, the cost estimating of gas wells, and the technical monitoring of the well and the sub-surface. That department was also responsible for the soliciting of bids for oil well drilling, quotes for services, analyzing of the bids, and making recommendations for the acceptance of bids. That department, during the period of Husky’s claim, had approximately 16 employees, which included drilling engineers, completion engineers and completion technicians. [51] Husky’s drilling engineer was responsible for conducting the research of an area where Husky was considering drilling campaign. That individual would design the oil wells on paper and consider contracting services for the wells. After the services were completed, this same person was the individual in charge of paying the invoices. [52] The engineering group of Husky was the group that dealt with the contractors for well sub-surface; that is from the wellhead down. The engineering group contracted with the drilling and the completions group for sub-surface services. The engineering group designed the casing and selected the type of casing attachments for wells. The engineering group also contracted for cementing services and drilling fluid services. [53] Once Husky determined that it would drill or build well, Husky engaged contractors to build the well on the locations. Such contractors would include earth movers, drilling contractors and cementing contractors like the third parties. [54] During the period of 1996 to 2001, Husky was drilling wells in the Lloydminster area. These wells were “heavy oil wells” with typical depth of about 600 metres. The drilling process for single heavy oil well in the Lloydminster area took approximately three days. This type of drilling involved two casing strings. One was the surface casing, which went down to depth of about 100 metres from the surface, and the second was the production casing, which went down to depth of about 600 metres from the surface. Such oil and gas wells were drilled in campaign, that is, numerous wells were drilled at one time to reduce costs. [55] In the period of 1996 to 2001, the average cost to build heavy oil well in the Lloydminster area was around $130,000.00. The average cost of cementing such well was between $4,000.00 and $7,000.00 per well. The wells in the Lloydminster area were less complex than other locations, because they were relatively shallow wells, with the depth being only 600 metres. [56] Once Husky had decided to build campaign of wells, it set about to contract with contractors for the drilling and cementing of the wells. The third party contractors were contractors which cemented wells for Husky. [57] The process through which Husky contracted with the third parties for the cementing was similar for each well. The first step in the process of contracting with third party cement contractor was for Husky to ask contractors to submit bid for the well cementing. This type of request from Husky was sent to the third party contractors. In such requests, Husky invited the third party contractors to submit bid to Husky for the price the contractor would charge Husky for goods and services to cement the well or campaign of wells. Husky usually provided the contractors with the detailed specifications for the cementing of the well when it sought these bids. In many cases, but not all cases, Husky sent the contractors specific document requesting bid which was contained in document titled “Request for Quotation”, often referred to as an “RFQ”. In other cases, Husky simply contacted the third party contractors, either in writing or by telephone, and asked the contractors to submit bid based on the specifications that Husky identified. [58] Husky’s evidence respecting their requests or invitations to the third party contractors seeking the submissions of bids for the cementing of the wells which are the subject of this claim is not complete. Husky did not enter into evidence any document for the year 1996 wherein it sought bid from the third parties. single request for bid (not an RFQ), for the year 1997 was entered into evidence (Exhibit D7). That request was letter from Husky Oil, Lloydminster office, to Nowsco requesting Nowsco to supply bid for what might be described as remediation work. That invitation sought bids from Nowsco for pumper and service set-up charges, mileage, cement blends, including the prices for any specialty cement blends, directed at remediating gas migration and any other additional hourly costs. [59] Husky submitted into evidence numerous RFQs for the period of 1998 to 2001 and asked the court to consider them as representative of the RFQs which Husky was using in 1996 and 1997. [60] As well, there was no evidence before the court as to which invoices from the third party contractors related to which RFQs nor which invoices were not based on RFQs but based on purchase orders. [61] Most of the RFQs, in the time period of 1998 to 2001, were similar in their wording, although not identical. The following is summary of the RFQs tendered into evidence: October 10, 1997, GM remediation 15 well program, Husky Lloydminster office letter requesting price quote from Nowsco, Exhibit D7 November 30, 1998, Surface and Production Casing, Husky Calgary office RFQ to Trican, Exhibit PT 132 Undated by replies are to be received by December 7, 1998, Primary Cementing, Husky Calgary office RFQ to Trican, Exhibit PT 133 February 26, 1999, Abandonment program 90 Saskatchewan locations and up to Alberta locations, Husky Lloydminster office RFQ to Nowsco, Exhibit D11 May 5, 1999, CAL 99-1478 Surface Casing Hussar area, Husky Calgary office RFQ to Nowsco, Exhibit PT 139 May 25, 1999, CAL 99-1483 Lloydminster Surface and Production Casing, Husky Calgary office RFQ to Nowsco, Exhibit D13 September 16, 1999, CAL 99-1517 Lovett River Alberta location Surface and Production Casing, Husky Calgary office RFQ to Nowsco, Exhibit D21 September 13, 1999, CAL 99-1509 Lloydminster Surface and Production, Husky Calgary office RFQ to Nowsco, Exhibit D14 (Same as PT 64) April 4, 2000, RDB-018-2000 Up to Alberta locations and 100 Saskatchewan locations Abandonment, Husky Lloydminster office RFQ to Nowsco, Exhibit D15 (D28 is the same document; PT 144 is partial copy) March 2, 2001, RDB-015-2001-P Abandonment 100 Saskatchewan wells, Husky Lloydminster RFQ to Trican, Exhibit PT147 [62] The following are the dates and identification of the bids in response to RFQs tendered into evidence: January of 1997, Rush Lake Surface and Production, Nowsco bid [Exhibit] T19 (Same as D5) April 7, 1997, Abandonment, Trican bid from Erv Nixdorf, [Exhibit] 9A Acceptance of bid with bid attached January 13, 1998, Surface and Production, Trican bid from Dale Dusterhoft, [Exhibit] 11A April 22, 1998, Abandonment, Trican bid from Erv Nixdorf, [Exhibit] 12A November 23, 1998, Lloydminster Surface and Production, Nowsco bid from Calvin Ross, [Exhibit] December 4, 1998, Surface Casing, Trican bid from Dale Dusterhoft, [Exhibit] 134 December 7, 1998, Lloydminster Surface and Production, Nowsco bid from Calvin Ross, [Exhibit] 24A (D and PT 67 are redacted versions) December 9, 1998, CAL 98-1444 Surface and Production Casing, Trican bid from Dale Dusterhoft, [Exhibit] PT 135 December 9, 1998, CAL 98-1438 Surface and Production Casing, Trican bid from Dale Dusterhoft, [Exhibit] 13A February 26, 1999, GM remediation 15 well program, Nowsco bid, [Exhibit] 10 March 10, 1999, RBD-004-99 Abandonment, Nowsco bid from Jeff Latos, [Exhibit] 12 March 10, 1999, RBD-004-99 Abandonment, Trican bid from Dale Dusterhoft, [Exhibit] 14A May 12, 1999, CAL 98-1478, Trican bid from Leonard Berglund, [Exhibit] PT 140 (Bid is not attached; only the cover letter) May 12, 1999, Abandonment Option #1, Trican bid from Dale Dusterhoft, [Exhibit] PT 150 May 12, 1999, Abandonment Option #2, Trican bid from Dale Dusterhoft, [Exhibit PT 149] May 13, 1999, Surface and Production, Trican bid from Dale Dusterhoft, [Exhibit] PT 18 (Same as 6) May 26, 1999, Production, Nowsco bid from Calvin Ross, [Exhibit] 17 (Same as PT 68) (Exhibit of the Defendant Government’s Brief) [63] The Request for Quotation document, was standard type document. As stated, it was request to third party contractors to provide quote for cementing services to Husky for the campaign of wells. [64] The RFQ was prepared by the purchasing department of Husky with technical input from the Drilling and Completions Department on every project. An RFQ would typically go to three or more contractors (referred to as bidders in the RFQ) because Husky had requirement to have minimum of three bidders on any contract. [65] The RFQ provided instructions to bidders in relation to the way in which the third party contractors were to submit their bids. The RFQ described the scope of the work to be undertaken; described the terms and conditions for the bid; and included an acknowledgement form. [66] In this case, in relation to the first period of time for which Husky sought refund of PST, Husky sent an RFQ to cementing contractors for campaign of 150 to 300 wells it intended to drill in the Lloydminster area in September of 1999. Husky asked the third parties to provide quote for cementing services for heavy oil and gas wells in the Lloydminster area. The RFQ was approximately 12 pages long and it contained various information. (Plaintiff Third Party Exhibit 64) (Plaintiff Third Party Exhibit 132 is request for quotation to Nowsco on September 13, 1999.) [67] In the RFQ Exhibit 64, under the pre-submission information, the scope of work to be undertaken by any successful third party cementing contractor was described in the document. 1.1 Scope of the Project The purpose of this Request for Quotation (RFQ) CAL 99-1509 is to invite Bid Proposals from interested firms for the supply of Cementing Services for our Lloydminster Area Program. Please submit two separate proposals Bid One for 150 Wells and Bid Two for 300 Wells. [68] The RFQ also articulated the evaluation criteria. That is, it identified for the cementing contractors the evaluation criteria Husky used in determining the successful contractor. In the RFQ, Husky asked the cementing contractor to address: the cost benefit to Husky of awarding the contract to that contractor; the experience of the cementing contractor; the equipment that the cementing contractor possessed to accomplish the job; whether the contractor was physically able to conduct the work to the satisfaction of Husky; and, the contractor’s ability to deliver product. The evaluation criteria included, as set out in para. 1.3(a), (b), (c) and (d), the following: 1.3 Evaluation Criteria a. Financial cost/benefit to Husky Oil. b. The bidder’s organization and technical capability to provide services c. The bidder’s ability to deliver product and/or service in timely manner. d. Other types of value added services the bidder could provide. [Emphasis added] [69] Paragraph 1.6 of the RFQ indicated that the successful bidder would be required to enter into subsequent legal agreement with Husky. Paragraph 1.6 stated: 1.6 Legal Agreement The successful Bidder will be required to enter into legal agreement with Husky Oil. Such legal agreement will be prepared by Husky Oil and will embody the terms of the RFQ, the enclosed Terms and Conditions and any subsequent negotiations and clarification. Any exceptions to these documents shall be clearly identified in your response. The law applicable to this RFQ and any subsequent Husky purchase agreements shall be the law in effect in the Province of Alberta. Except for an appeal from an Alberta Court to the Supreme Court of Canada, no action in respect to this RFQ or any subsequent Husky purchase agreements shall be brought or maintained in any court other than in court of the appropriate jurisdiction of the Province of Alberta. Method of payment is governed by Husky Oil Policy as well as applicable Federal and Provincial Laws. [Emphasis added] As will be outlined in due course, despite this clause in the RFQ that the parties were required to enter into further legal agreement, Husky and the third parties did not always enter into subsequent legal agreements. Where they did enter into such agreements, they were titled Service Agreements, but the parties referred to them as Master Services Agreements (MSAs). The RFQ, and the Terms and Conditions of the RFQ, were to be embodied in the further legal agreement, the MSA. [70] The RFQ also included other instructions to bidders. Paragraph 2.1.11 of the RFQ stated that the bidder was encouraged to submit alternate bids: 2.1.11 Bidder is encouraged to submit alternative bids in addition to it’s base bid, where it considers the alternative to be technical and/or an economic improvement over the base requirements. Alternative bids shall be clearly identified indicating technical and/or economic differences from the base bid. [71] In para. 2.1.12, the RFQ specified that the contractors should identify what discount off the contractor’s list price (the contractor’s book price) Husky could expect to receive. It stated the following: 2.1.12 All prices should reflect list price and Husky’s current discount level off list price. With market conditions as they are today, it is our expectation to see additional discounts to reflect these condition periods. It is obvious from the terms of the RFQ that Husky sought to receive the best price from the third parties and it is clear Husky was aware that the third parties had book prices for materials which they utilized in bidding the contracts. [72] The RFQ also set out the scope of the work, which in this case was heavy oil and gas cementing services in the Lloydminster area. In the fourth quarter of 1999, Husky sought bid for 50 wells, and in 2000 for 250 wells. [73] The next part of the RFQ document identified the particular and specific details of the scope of work Husky sought. Plaintiff Third Party Exhibit 64 RFQ was entitled “Hog Cementing Q4-1999 2000 Routine Hog Well”. Husky, in this portion of the RFQ, identified to the cementing contractors (the bidders) that the wells that they were expecting to drill would be generic, regularly designed wells with nothing special attached. [74] This part of the RFQ contained the specifications for the wells. Husky indicated the dimensions of the surface hole and the size of the surface hole and identified the diameter of the drill bit that would need to be used. The RFQ also identified the production casing specifications, including the open hole size, the casing size and the casing depth. Husky expected that the third party cementing contractors would use this information to calculate the volume of cement needed for each job, based on the specifications provided by Husky in the RFQ. [75] The next thing that was included in the specifications in the RFQ was the blend of cement. Husky identified the particular blend of cement that Husky wanted the contractor to provide. The blend identified was usually what Husky had typically used as surface casing recipe or the cement blend typically used in cementing job. The RFQ set out the blend of cement and the additives required by Husky and which the cementing contractor would provide if it successfully bid the campaign. [76] Each cementing contractor had variations in their blends of cement and variations in the yield of the cement. In the RFQ, Husky asked the contractor to take the base information about the wells and do their own calculations on the amount of cement the contractor believed was required. [77] In the next part of the RFQ, Husky instructed the bidders to bid the contract by providing breakdown of the various bid charges for routine wells. The RFQ stated as follows: Breakdown of Bid Charges (for routine wells only) Price per tonne FOB location to be constant throughout the Lloyd area (one price) including all additive and blending charges. For the case of an abandonment, please include the cost per tonne of Right Angle Set cement. Fixed set-up charges to be constant throughout the Lloyd area, regardless of depth. specify the pumping time included with the set-up charge Fixed mileage rate independent of the number of vehicles by cementing company used Fixed plug charges No additional charges other than those in the specified additional charges section. [78] Here, the RFQ asked for bid for cement based on price per tonne, FOB location. This meant Husky wanted the contract to be bid on price per tonne for the cement delivered to the location of the well. The price of cement delivered included all of the third party cement contractor’s transport charges. It was the cost per tonne of cement that the contractor would bid for cement delivered to Husky at the Husky well site. [79] The RFQ demanded that the price bid by the contractors for the cement to be FOB location and wanted one price per tonne, that is, constant price per tonne throughout the Lloydminster area. That is, Husky wanted bid of one price for all the wells. That one price per tonne was to include all additives to the cement and the blending charges. So Husky sought one price, per tonne of cement, for all cement bids for all wells, no matter what additives the contractor chose. In addition, if the contractor was bidding an abandonment well, Husky asked that the contractor bid the price per tonne for right angle cement set, which was price for only cementing the well head of an abandoned well to close the well. [80] As well, in the breakdown of the bid charges, Husky demanded fixed set up charge, which meant Husky sought bid for the one price for each set up, no matter where the well was. The contractors were to specify the pumping time, including set up charge, which was price for the time to mix and pump the cement slurry to finish the job. [81] Husky, in the RFQ, also asked that there would be specified pumping time included with the set-up charge in the bid. That referred to how long the cement contractor estimated it would take to mix and pump the cement slurry to complete the job. Husky wanted to know how long they would have these service contractors on location at the well site before the contractors would start adding additional charges. [82] Husky, in seeking breakdown of the bid in this manner, was aware that the third party contractors blended the cement with their proprietary additives at the cementing contractor’s bulk station before the cement was loaded and shipped to the well site. [83] The RFQ asked for the bid to be broken down between price for cement and charge for set-up. Husky was estimating the type of well conditions that they expected. However, the actual conditions at the well were often variable and Husky were attempting to control costs. [84] Husky’s RFQ’s asked the contractors to bid for one component that was fixed (price per tonne of cement) and one component that was variable (the amount of cement). Husky did not ask the contractors to bid for single fixed price for the completion of the cementing job. Husky did not seek to contract with the contractors for single price for the completion of the well because Husky believed that contractors would add cushion into the proposed price to cover off the risk to the contractors of additional materials being needed or longer time being needed to complete the cement job. Husky wanted the contracts with the third party contractors to be structured in the fashion set out in the RFQ. Husky intended to, and did, assume all the risks associated with building the well in return for lower cost to build the well. [85] As stated, when Husky requested bid be quoted as “FOB”, freight on board location, Husky asked for price per tonne of the dry cement blend delivered to the well site. The contractors included the blending and hauling charges for the cement in this one price per tonne, which was price per tonne for the blended cement delivered to the well site. This allowed Husky to make easy comparisons between the bids. [86] While Husky chose not to structure the contracts with the third parties as single fixed price for the completion of the cementing job, it is clear that Husky’s primary purpose in contracting the cementing contractors was to have the well cemented. Husky would not buy cement from the third parties independently from engaging the contractors to cement the wells. Nor would Husky engage the contractors to cement the well independently from purchasing the cement and additives from the contractors. [87] The RFQ also required the contractors to provide bid for any additional charges. These additional charges might be incurred in situations where the cementing contractor arrived at the well site, but the casing had not yet been installed, and the contractor had to wait for period of time. The RFQ required the contractors to identify how long the contractors would wait before they would start to charge Husky extra for the waiting time. As well, if the job took longer than estimated in the bid, Husky wanted to know what Husky would be charged as an additional pumping charge per hour. [88] The RFQ also required the bids to be submitted for alternate cement blends. While Husky instructed the contractors to submit bid for the particular cement blend that Husky identified, Husky also asked the cementing contractor to identify if it had an alternate cement blend that it deemed appropriate. Husky asked the contractor to bid the cost for any alternate blend in addition to the cement blends requested by Husky. Mr. Ellsworth indicated that in preparation for drilling, the Husky engineers would have researched the area and come up with what they thought was the appropriate cement blend to use in the cementing of the surface casing and the production casing. In this part of the RFQ, Husky was requesting that if the cementing contractors had alternate experience in the area, and if the contractors identified alternate cement blends that would help Husky improve the process of drilling the wells, the contractor should identify that and submit an alternate bid for use of the alternate cement blend. As well, Husky asked for the cement contractors to include in the bid any value added to Husky if Husky used the proposed cement blends recommended by the contractor. Here, Husky was looking for lower cost or better product, including, for example, product that would reduce the problems with gas migration. [89] In the RFQ, at the end of the Scope of Work section, Husky, under “Other Issues”, included request for percentage off book price. Husky was aware that all cementing contractors had book price, which was catalogue for their standard prices for products. Husky wanted the contractors to identify what reduction off its book price the contractor was prepared to give Husky in the bid. [90] The RFQ also included, in part 4.0, bidder acknowledgement form. There, the bidder acknowledged that they would quote for the job and the bidder signed the form. [91] The RFQ sent out by Husky for bids for abandonment wells Plaintiff Third Party Exhibit 144) contained similar wording. The scope of the project was as indicated in para. 1.1, and stated the following: 1.1 Scope of the Project The purpose of this Request for Quotation RFQ RDB- is to invite Bid Quotations from interested firms for the supply of cementing requirements for the 2000 abandonment program. [92] Paragraph 1.3 of Exhibit 144 set out evaluation criteria, which was similar to the RFQ for cementing wells. It sought the bidder’s organization and technical capability to provide services; the bidder’s ability to deliver product and/or services in timely manner; and other types of value-added services the bidder could provide. [93] In all of the RFQs, Husky required that sales tax was to be set out separately in the bid. That is, Husky dictated that the PST was to be identified and set out separately in the bid. [94] It appeared that at the end of all of the RFQs was section of the document known as “Terms and Conditions”. These were the standard terms and conditions that were attached to the RFQ. In Exhibit D13, the Terms and Conditions were set out at s. 5.0. The Terms and Conditions state: 1. Entire Agreement This Request for Quotation, including these Terms and Conditions, any specifications and drawings attached, and any additional Terms and Conditions incorporated into and attached hereto, when accepted by the Vendor shall constitute the entire agreement between the parties (the “Agreement”). Husky Oil Ltd. (and/or its subsidiaries) shall be referred to as Husky throughout this Agreement. The Vendor’s written acceptance of this Agreement, the shipment of any goods by the Vendor or the Vendor’s commencement of performance of work hereunder shall constitute an acceptance of this Agreement. The Agreement shall not be altered, amended or modified in any way whatsoever without Husky’s written approval. Compliance Vendor warrants that all goods and services provided hereunder shall have been produced, sold, delivered and furnished in strict compliance with all applicable laws and regulations. Vendor shall execute and deliver such documents as may be required to effect compliance. 4. Warranties and Guarantees Vendor warrants it will have unfettered right to sell the goods and services at the time the title is to pass; Husky will have quiet possession of the goods and services free of any charge or encumbrance; all goods and services to be furnished hereunder conform and will conform to the specifications, drawings or other descriptions furnished by Husky and will perform as specified therein; the goods and services will be fit and sufficient for the purpose intended not withstanding [sic] that the goods and services or any of them or any part thereof are described in patent or by trade name; Vendor will, at Vendor’s expense either repair, or at Husky’s option replace, any part of the goods and services furnished under this Agreement and accepted by Husky in which defects in workmanship, materials or design are discovered within one year from the date on which such goods and services are employed by Husky and, at Husky’s option, shall repair or bear the cost of repairing any damage caused by any such defect. This warranty period shall be extended by the time during which any of the goods and services supplied were out of service by reason of defects which Vendor is required to repair or replace. Repairs shall be done at Husky’s convenience and at Husky’s option on its premises unless the repairs are of such of nature as to require repair facilities that are not or cannot be made available on Husky’s premises. Repairs shall be done expeditiously. The foregoing warranties shall apply to all repairs or replacements. All expenses attendant upon such repair or replacement including any freight, custom duties, and brokerage fees shall be for Vendor’s account. The Vendor’s obligation to repair or replace shall extend to defects which were revealed or should have been revealed on Husky’s examination prior to acceptance. [Emphasis added] The terms provided in the RFQ and any additional terms incorporated constituted the entire agreement between the parties. [95] The Terms and Conditions attached to the RFQs included reference, in para. 16, to “taxes and duties”. The document stated: All invoices submitted by the vendor shall show separate item applicable Duty, Goods and Services Tax (GST) and Sales tax. The Vendor shall furnish to Husky all documentation required for GST purposes. The Vendor shall furnish to Husky, upon request, all documentation required for duty drawback purposes and all customs invoices, declaration and evidence of import costs as may be reasonably required for any goods and services provided hereunder. [Emphasis added] Paragraph 22 of Terms and Conditions section stated as follows: 22. Inspection: Husky or its representatives shall have the right to inspect the goods and services provided hereunder at any time during the performance of the Agreement, to perform final inspections and to reject non-conforming goods and services at any time. [96] As stated, when Husky sent out an RFQ, they identified for the cement contractor the specifications of the bid, including the number of wells, the hole size, the casing size, and even the kind of cement pumper that was needed. They also set out the blend of cement that they were looking for. For instance, in the Hog Cementing Routine Hog Well (Plaintiff Third Party Exhibit 64), Husky was requesting “thixotropic blend with some fluid loss and gas blocking agents”. Thixotropic is standard type of cement blend. Husky also asked for “thermo thixotropic blend”. So Husky was asking for two options for cement blends and Husky required bidders to quote prices on each type of cement blend. While Husky set out the blend, Husky left it up to the contractor to decide the kind and amount of fluid loss, and what kind of gas blocking agent the contractor would put into the blend. [97] The cement contractors understood that Husky was asking for price per tonne FOB location. This was standard for Husky, FOB meaning “Freight on Board”. As stated, what this really meant is that Husky wanted cost per tonne of blended cement delivered to the well head. This required the contractor to bid price for the cement that took into account the cement, the chemical additives, their blending charges and hauling charges and to combine it and roll it into one price per tonne of cement. By requiring the contractors to bid this way, Husky was able to compare prices across the board of all bidders. So, in the end, the cement contractor would supply bid for: price per tonne of cement, which included the cost of cement, the cost for blending the cement, and the cost for delivery to the site. This would be presented as price per tonne of cement. The amount of cement would vary from well to well. The contractors were also to provide their bid for service charges and charges for additional waiting time. The contractor would also provide what they might suggest was better or different cement blend that they suggested would give better results to Husky. [98] As stated, PST was set out separately and was added to the price per tonne of cement and other property being provided to Husky. [99] In some of the RFQs, Husky inserted what has been referred to as “Year 2000 Warranty”. This “Year 2000 Warranty” was included in the May 25, 1999 Request for Quotation sent to Nowsco Well Service (Exhibit D13) as well as the September 13, 1999 Request for Quotation sent to Nowsco (Plaintiff Third Party Exhibit 64) (Exhibit D13 as well as September 16, 1999 RFQ (Exhibit D21). The “Year 2000 Warranty” stated: 1.7 Year 2000 Warranty Vendor represents and warrants to Husky, and confirms Husky is relying on the accuracy of each such representation and warranty in connection with the purchase of the Goods, and any and all Goods shall by Y2K Compliant at all times during the term of this Agreement and thereafter. Goods shall be deemed to be “Y2K Compliant” if the performance, accuracy and functionality of the Goods, or any part or component of the Goods, will not be adversely affected by the use of the Goods after September 8, 1999, nor by the input into the Goods or use of any dates by the Goods which bear date which falls after September 8, 1999 .. [Emphasis added]. [100] The RFQ dated February 26, 1999 (Exhibit D11), was an RFQ issued by the Husky Lloydminster office (where the other RFQs appear to have been issued by the Husky Calgary office) to Nowsco for an abandonment program. This RFQ is different from the other RFQs. This RFQ (Exhibit D11) stated: 1. Entire Agreement This Request for Quotation, including these Terms and Conditions, any specifications and drawings attached, and any additional Terms and Conditions incorporated into and attached hereto, when accepted by the Vendor shall constitute the entire agreement between the parties (the “Agreement”). Husky Oil Ltd. (and/or its subsidiaries) shall be referred to as Husky throughout this Agreement. The Vendor’s written acceptance of this Agreement, the shipment of any goods by the Vendor or the Vendor’s commencement of performance of work hereunder shall constitute an acceptance of this Agreement. The Agreement shall not be altered, amended or modified in any way whatsoever without Husky’s written approval. Compliance Vendor warrants that all goods and services provided hereunder shall have been produced, sold, delivered and furnished in strict compliance with all applicable laws and regulations. Vendor shall execute and deliver such documents as may be required to effect compliance. 4. Warranties and Guarantees Vendor warrants it will have unfettered right to sell the goods and services at the time the title is to pass; Husky will have quiet possession of the goods and services free of any charge or encumbrance; all goods and services to be furnished hereunder conform and will conform to the specifications, drawings or other descriptions furnished by Husky and will perform as specified therein; the goods and services will be fit and sufficient for the purpose intended not withstanding [sic] that the goods and services or any of them or any part thereof are described in patent or by trade name; Vendor will, at Vendor’s expense either repair, or at Husky’s option replace, any part of the goods and services furnished under this Agreement and accepted by Husky in which defects in workmanship, materials or design are discovered within one year from the date on which such goods and services are employed by Husky and, at Husky’s option, shall repair or bear the cost of repairing any damage caused by any such defect. This warranty period shall be extended by the time during which any of the goods and services supplied were out of service by reason of defects which Vendor is required to repair or replace. Repairs shall be done at Husky’s convenience and at Husky’s option on its premises unless the repairs are of such of nature as to require repair facilities that are not or cannot be made available on Husky’s premises. Repairs shall be done expeditiously. The foregoing warranties shall apply to all repairs or replacements. All expenses attendant upon such repair or replacement including any freight, custom duties, and brokerage fees shall be for Vendor’s account. The Vendor’s obligation to repair or replace shall extend to defects which were revealed or should have been revealed on Husky’s examination prior to acceptance. 9. Termination at Option of Husky ...Upon termination by Husky under this Clause, Husky shall pay to Vendor the price of all goods and services which have been provided in accordance with this Agreement ... 10. Termination for Default of Vendor If Vendor refuses or fails to make deliveries of the goods and services specified in this Agreement ... 11. Force Majeure If, for reasons beyond its reasonable control, Husky is prevented from proceeding with the project for which the goods and services has been procured ... Forms The parties acknowledge that invoices and other documentation of the Vendor may contain various contractual terms relating to goods and services provided by the [V]endor. When the parties have executed Husky Goods Agreement or Husky Services Agreement, such Husky Goods Agreement or Husky Services Agreement shall always override and govern in the case of conflict with the terms hereof, however, where the parties have not executed Husky Goods Agreement or Husky Services Agreement, the parties agree that this Agreement shall contain the only provisions of the Agreement between the parties, notwithstanding anything else contained or implied in any such invoices or other documentation of the Vendor, and shall override any and all invoices or documentation related to the goods and services provided by the Vendor. [Emphasis added] [101] These types of RFQs (that contained the Year 2000 Warranty) did not state, as some of the other RFQs did, that the parties were required to enter into legal agreement. This RFQ said that invoices and other documentation may contain contractual terms but if Husky Goods or Services Agreement was in place, and there was conflict between terms, the Husky Agreement would govern. This paragraph also stated that where no such Husky Services Agreement was in place, then the RFQ would govern. [102] The RFQ in Exhibit D11 also included the following terms in paras. 15, 16, 20 and 22: 15. Price and Payment Unless otherwise expressly stated, the price herein specified shall include all taxes, duties, charges and services of any kind which either party is required to pay with respect to the state of the goods and services covered by this Agreement. The time for payment of invoices or for accepting any discounts offered, shall run from the date correct invoices are received by Husky. ... 16. Taxes and Duties All invoices submitted by [V]endor shall show as separate item applicable Duty and Goods and Services Tax (GST) and Sales Tax ... 20. Excess Material: Goods and services supplied in error or in excess of the amounts ordered hereunder may be returned by Husky to the Vendor and the Vendor shall pay all shipping and return freight costs and shall reimburse Husky for such items. 22. Inspection: Husky or its representatives shall have the right to inspect the goods and services provided hereunder at any time during the performance of the Agreement, to perform final inspections and to reject non-conforming goods and services at any time. [Emphasis added] [103] It appears that the Lloydminster office of Husky was using different form of agreement than what was reflected in the other RFQs in evidence. Clearly, in Exhibit D11, the request for the quotation appears to have contemplated contract for goods and services. [104] Husky sent the requests for bids (in whatever form) to the third party contractors. After receipt and review of the RFQ, or after receipt of request for bid not contained in an RFQ, the cementing contractors prepared their bid. The cementing contractors prepared bid proposal for the cementing of the well in accordance with the method and specifications demanded by Husky in the RFQ or in the request for bid. The bid proposal was prepared by the cementing contractors themselves. It was their bid document. It was structured to address the bid requirements set out by Husky in the RFQ or the request. Tab 67 of the Plaintiff’s Third Party documents was such bid document prepared by Nowsco, which was the predecessor to BJ Services. (BJ Services is the company that acquired all of the shares of Nowsco, as set out in the agreed summary of corporate histories of the third parties.) The Nowsco bid document set out the details of the surface casing cement job and the production casing cement job. These bid documents were always prepared by the contractors well in advance of the performance of cementing jobs. [105] The cement prices in the bids were set out as price per tonne. The bid identified the particular cement blend. In bidding contract, the contractor would set out the quantity of cement blend it estimated was needed to complete the work, the price per tonne (the unit price) and the total cost. [106] All of the third party contractors had price books. These were proprietary documents which contained what they referred to as their book prices. They each used their book prices to bid the contracts. The price books are published to provide customers with pricing on the different kinds of services and products that go into cementing job. This would include chemicals, cement and additives. Each of the price books contained part called terms and conditions. For example, in Plaintiff Third Party Exhibit 120, pps. 39 and 40 contained terms and conditions. The Sanjel terms and conditions included the following: TERMS CONDITIONS Sanjel Corporation (hereinafter called Sanjel) and Sanjel’s Customers expressly understand and agree that Sanjel will not be bound by any other agreement not herein contained, and no agent or representative employed directly or indirectly by Sanjel has authority to alter or amend the terms of this agreement. In consideration of the prices to be charged as set forth in Sanjel’s Published Price Schedule and the performance of services and supplying of materials, the Customer agrees to the following terms and conditions. ... Selling prices of materials and services exclude GST at the rate normally applicable. ... WARRANTIES LIMITATION OF LIABILITY Sanjel warrants only title to the product, supplies and materials and that the same are free from the defects in workmanship and materials. ... [107] According to Sanjel, once Husky has signed off on the service ticket, the service ticket refers to the terms and conditions contained in Sanjel’s price book. [108] Once Husky sent out request for quotes to the third party contractors, bid was prepared. Sanjel would then, by way of example, respond to bid with program document. An example of program document is at Plaintiff Third Party Exhibit 124. In Plaintiff Third Party Exhibit 124, Sanjel’s sales office wrote to Husky in respect of the Lloydminster area hog cementing services saying the following: Thank you for the opportunity to provide the following quotation for primary cementing services and materials for the above referenced location. Service and materials are provided on Price Book less discount basis from Sanjel’s service location at Lloydminster, AB, ... Provincial and Federal taxes, where applicable, are additional. [109] So, it was clear that in bidding the contract, the third party contractors did not include PST as part of the bid document. It was clear that the bid placed by the third party contractors was price for services and materials and that PST would be added in addition on the materials. [110] It is of note that Sanjel also does business in British Columbia. In British Columbia, during the period of time in which the British Columbia government Ministry of Finance instructed the third party contractors to self-assess, they began to self-assess tax on the cost of materials. In that self-assessment, the pricing structure of Sanjel then changed. They included an extra charge to accommodate for the increased cost of doing business in British Columbia due to the fact that they were required by the government to self-assess PST. [111] The bid included all of the goods and material to be provided to Husky and all of the services to be supplied by the contractor. This would include the quantity and unit price of plugs, cement foamer, the amount of the cement, the amount of calcium chloride and the unit price for each. The bid also included price for the handling and blending of the material; price for the travel; price for the bulk cement delivery; and set-up fee. The bid included price for surface casing and production casing, including prices for set-up, extra time on location for pumping, extra time on location for standby, the amount of tonnage of the particular cement blend, the price per tonne and the total costs. Some of the bidders provided price and the indication of the percentage off their book price. [112] Every bid in every case and every well cemented by the contractors during the period of Husky’s claim included price per tonne for the cement and additives as well as price for services. The bid proposal took into account all of the specifications set out by Husky. As stated, the product and treatment used in cementing particular well was always determined by Husky. [113] There is no dispute that Husky, as indicated earlier, requested that when the cement contractors bid the cement contracting jobs, they set out price for materials and price for services and requested that each of the materials and services were to be shown separately on the bid. The contractors did not bid cementing jobs on lump sum basis. They quoted the cementing job on the basis of quote for materials (cement and other goods) and quote for services, as required by Husky. Husky required the bid to be submitted in this manner. The reason for breaking down the materials and services was because of the variability of those materials and services on any well site. The depth of the well bore and the volume of materials needed to cement the well bore varied from well site to well site. Sometimes Husky required less materials, and sometimes more materials than it had originally requested, because the well bore was of different depth than anticipated. [114] Husky acknowledged that the reason they asked for the bids to be based on separation of materials supplied and services supplied, and the reason that they paid the cementing contractors in this way, was to save Husky costs. The evidence indicated that Husky had considered contracting on fixed price (that is price for completed well), but chose not to. Husky was concerned that fixed price contract would result in higher costs to Husky than contract that contained variable amount for the amount of goods purchased and variable price for the services rendered. It was Husky that sought to contract with the third parties in this manner. [115] Husky acknowledged that the invoices sent by the cement contractors to Husky after the completion of the transaction reflected the way in which Husky had structured the contracts. The structure of the transaction, as reflected in the bids and the invoices, was as Husky requested. The contracts were structured this way and PST paid on the materials throughout the period of time in question. In fact, PST had been charged on materials and paid by Husky without question or complaint for as long as any of the witnesses could remember. The BJ Services representative suggested that since he started with BJ Services in 1979, this was the way in which the contracts were bid, invoiced, completed and the way in which PST was charged. [116] As indicated, the contractors submitted their bids to Husky. Husky then reviewed the bids and accepted the bid of the successful contractor. [117] In some instances, after contract was awarded to contractor, Husky and the contractor would enter into further legal agreement. There were two types of agreements that Husky typically had the cementing contractors enter into: one was purchase order and the other was Services Agreement. purchase order would be used if there was no Services Agreement in place. It appears that if contract was awarded to contractor for small number of wells, purchase orders for each well might be used. However, Husky indicated that when they were drilling 150 or 300 wells, Husky would not want to do 300 individual purchase orders. Rather, Husky would prepare an overriding Services Agreement. However, the evidence, in this case, did not establish that for every well or series of wells there was Services Agreement or purchase order. [118] In some cases, Husky had standard form contracts with some contractors. Such documents entered into evidence were titled Services Agreements. The parties referred to them as “Master Services Agreements”. Husky drafted the Master Services Agreements (also referred to as “MSA”)for use with variety of contractors. So, in some circumstances, after Husky awarded contract to contractor, the next document that Husky prepared was an MSA. Some of these MSAs were signed for specific period of time, while others were signed with no end date on the contract. Husky referred to the MSAs signed without an end date as “Evergreen contracts”. Those Evergreen contracts continued in force without specified end date. However, over time, Husky moved to change Evergreen contracts to annual contracts. In yet other instances, there was no MSA in place. [119] The purposes of Master Services Agreement, according to Husky, was to set out the terms of the contract for the cementing contract. The successful bid from cementing contractor became “Schedule A” to the Master Services Agreement. The Request for Quotation, in whatever form had been used and the contractor’s submission/bid, became Schedule “A” or Addendum “A” to the Master Services Agreement. However, in Husky’s view, the cementing contractors contracted with Husky on the same basis, whether or not Master Services Agreement was signed between the parties. [120] Plaintiff Third Party Exhibit is Master Services Agreement between BJ Services and Husky. This Master Services Agreement HDC96-98 was for an indefinite term commencing January 1, 1996. Paragraph of the Master Services Agreement stated that Husky retained contractor for the purposes of performing such work and services which were set forth in Schedule A. As stated, the Request for Quotation and the successful bid from the cementing contractor was attached as Schedule A. [121] Paragraph of the Master Services Agreement HDC96-98 stated: 4. Supply of Personnel, Material etc.; The Contractor shall, at is sole risk, cost and expense, supply all personnel, labour, services, materials, supplies, tools, equipment, machinery and all other things to be used, directly or indirectly, in the performance of or in connection with the Services, other than such items thereof as Corporation specifically agrees to furnish and the Contractor agrees to hold Corporation harmless from and indemnify the Corporation against all claims, liens and demands in connection therewith.[Emphasis added] 5. Billing: Contractor shall invoice Corporation at the end of each calendar month setting out detailed monthly summary of the Services provided for the month just ended and such other supporting documentation as Corporation may reasonably request including, without limiting the foregoing, copies of daily service tickets and receiving reports. Corporation shall pay all invoices within thirty (30) days after receipt thereof from Contractor, provided however that, if Corporation disputes any invoice of contractor, Corporation shall, within twenty (20) days after receipt of such invoice notify Contractor of the item in dispute, specifying the reason therefor. Payment of disputed amounts shall be withheld until settlement of such dispute. 7. Performance of Services: Contractor shall perform the Services expeditiously and in careful, diligent and workmanlike manner to Corporation’s reasonable satisfaction and in accordance with the terms of this Agreement, prudent industry practices and procedures and all applicable laws and regulations prescribed by any governmental or administrative body having jurisdiction over the provision of the Services hereunder. 8. Warranty: Contractor warrants the provision of goods and services provided hereunder for period of three (3) months after acceptance thereof by the Corporation and Contractor shall correct, at its own cost, risk and expense, any defect of goods and materials which may become evidence during the said warranty period. This provision is in addition to, and not in substitution for, any other right or remedy which the Corporation may have at law or equity or under this Agreement. [Emphasis added] 15. Liability: ... (b) Where this Agreement is used in conjunction with drilling, well servicing or completions the following terms shall be applicable: (i) Contractor will not be liable for: (A) damage or loss of any well; (B) damage to or loss of any reservoir or production formation; (C) any other subsurface damage or loss, including surface damage arising from subsurface damage; or (D) any property damage or loss of oil or gas due to blowout or fire therefrom or other loss of control of the hole, any of which results from any of Contractor’s operations while performing Services hereunder unless such damage or loss is due to the negligence of willful act or omission of Contractor, its employees, agents or servants. (ii) If Contractor’s downhole equipment is lost or damaged while in the hole for reasons other than the negligence or willful act or omission of Contractor, then Contractor shall invoice Corporation for the value of such downhole equipment at the depreciated book value of such downhole equipment or the repair cost, whichever is less. (c) For the purposes of this clause “negligence” or “willful acts or omissions” of either party shall not include any act or omission done or omitted in accordance with the express written direction of the other party. 21. Entire Agreement: (a) The terms of this Agreement represent the entire understanding and agreement between the Contractor and the Corporation regarding the performance of the Services and no other terms or conditions shall apply. Except as provided in clause one (1), no amendment of the terms of this Agreement shall be binding upon party unless it is evidenced in writing and executed by both parties. (b) Both Corporation and Contractor may continue to execute usual field work orders, service contracts, purchase orders and/or tickets customarily required by Corporation or Contractor in connection with the request for or the performance of Services hereunder, with the understanding on the part of both parties that irrespective of the terms of such field work orders, service contracts, purchase orders and/or tickets, the terms and conditions of this Agreement shall apply in determining the rights and liabilities of the parties. [Emphasis added] [122] Schedule “A” to the Master Services Agreement HDC96-98 stated: SCHEDULE “A” THE SERVICES ATTACHED TO AND MADE PART OF SERVICES AGREEMENT NUMBER HDC 96-68 BETWEEN HUSKY OIL OPERATIONS LTD. AND NOWSCO WELL SERVICE LTD. DATED THE 1ST DAY OF JANUARY, 1996. LOCATION: DESCRIPTION OF THE SERVICES TO BE PROVIDED: BASIS OF PRICING: [123] While Husky identified that Schedule “A” was the place where the requests for quotations and the bids were to be attached, no such bid was attached to Plaintiff Third Party Exhibit 1. The evidence indicated that often the requests for quotations and successful bids were not formally attached to the Master Services Agreement, despite the fact they formed part of the agreement. [124] The evidence indicated that there were two Master Services Agreements in place between Trican and Husky for portions of the claim period. One Master Services Agreement was in place from January 1, 1998 for one year term for specific group of wells. This was MSA HDC 97-23 (Plaintiff Third Party Exhibit 2). second was in place commencing May 15, 2000, which was terminated by Husky on April 27, 2001(Services Agreement 4600000405) (Plaintiff Third Party Exhibit 13). The evidence established that Trican was involved in well transactions with Husky prior to January 1, 1998 because Trican was rendering invoices to Husky prior to January 1, 1998. In fact, in 1996 there was 121 invoices rendered from Trican to Husky and in 1997 there were four invoices rendered. After the expiration of the 1998 MSA, there was no new Master Services Agreement entered into between Trican and Husky until May 15, 2000. That agreement had no end date. However, again, the scope of that agreement was restricted to Lloydminster completion work, such that it would not have included primary cementing. In the period of January, 1999 to May 15, 2000 (when there was no MSA), there were 113 invoices rendered from Trican to Husky. After May 15, 2000, when the new Master Services Agreement was in place, there were only four transactions. So, in the period between 1996 and 2001, there were total of 369 transactions between Husky and Trican. However, only 131 of those transactions were covered by Master Services Agreement. So clearly in relation to those other transactions, the Master Services Agreement was not the overriding contract between the parties, because, in fact, there was no MSA. [125] Husky’s evidence with respect to Sanjel is similar. There was also Master Services Agreement in place between Sanjel and Husky for an indefinite period of time beginning May 15, 2000 (MSA 4600000404) (Plaintiff Third Party Exhibit 10). Husky identified that this was the single agreement with Sanjel. This Master Services Agreement was limited to completions work in the Lloydminster area. Unfortunately, Husky did not identify which specific invoices from Sanjel related to completions work versus the primary cementing work such that am unable to determine how many of the invoices from Sanjel were covered by this Master Services Agreement. [126] In relation to Nowsco, there was one Master Services Agreement in place between Nowsco (predecessor to BJ Services) which had no termination date (HDC 96-96) (Plaintiff Third Party Exhibit 15). [127] Both the MSA with Sanjel, MSA4600000405 (Plaintiff Third Party Exhibit 13), and the MSA with Nowsco, MSA 4600000404 (Plaintiff Third Party Exhibit 10), said the following: 1. Services: CORPORATION hereby retains CONTRACTOR for the purposes of performing such work and services, (the “Services”) which services: (a) are set forth in your rate schedule and quotation (b) may be specified by CORPORATION pursuant to the written instructions given by CORPORATION to the CONTRACTOR from time to time during the term of this Agreement. Written instructions from CORPORATION shall be given to CONTRACTOR in the form of revised rate schedule, or in the form of CORPORATION’S Standard Agreement Order. Each time that rate schedule is revised it shall show the effective date. 2. Term: This Agreement shall continue in force and effect until terminated by either party by the giving of at least fifteen (15) days notice in writing to the other party. 3. Rates: CORPORATION shall pay CONTRACTOR the amounts set forth in the attached rate schedule or, if no such rate schedule is attached, the amounts shown in Schedule “A”, attached hereto. No change in the rates shall be effective until thirty (30) days after CORPORATION shall have received and approved in writing, copy of the amended rate schedule from CONTRACTOR. [Emphasis added] 4. Supply of Personnel, Material, etc.: The CONTRACTOR shall, at its sole risk, cost and expense, supply all personnel, labour, services, materials, supplies, tools, equipment, machinery and all other things to be used, directly or indirectly, in the performance of or in connection with the Services, other than such items thereof as CORPORATION specifically agrees to furnish and the CONTRACTOR agrees to hold CORPORATION harmless from and indemnify the CORPORATION against all claims, liens and demands in connection therewith. [Emphasis added] 5. Billing: CONTRACTOR shall invoice CORPORATION at the end of each calendar month setting out detailed monthly summary of the Services provided for the month just ended and such other supporting documentation as CORPORATION may reasonably request including, without limiting the foregoing, copies of daily service tickets and receiving reports. CORPORATION shall pay all invoices within thirty (30) days after receipt thereof from CONTRACTOR; provided however that, if CORPORATION disputes any invoice of CONTRACTOR, CORPORATION shall, within twenty (20) days after receipt of such invoice notify CONTRACTOR of the item in dispute, specifying the reason therefor. Payment of disputed amounts shall be withheld until settlement of such dispute. 8. Warranty: CONTRACTOR warrants the provision of goods and services provided hereunder for period of three (3) months after acceptance thereof by the CORPORATION and CONTRACTOR shall correct, at its own cost, risk and expense, any defect of goods and materials which may become evidence during the said warranty period. This provision is in addition to, and not in substitution for, any other right or remedy which the CORPORATION may have at law or equity or under this Agreement. [Emphasis added] 20. Entire Agreement: (a) The terms of this Agreement represent the entire understanding and agreement between the CONTRACTOR and the CORPORATION regarding the performance of the Services and no other terms or conditions shall apply. Except as provided in clause one (1), no amendment of the terms of this Agreement shall be binding upon party unless it is evidenced in writing and executed by both parties. (b) Both CORPORATION and CONTRACTOR may continue to execute usual field work orders, service contracts, purchase orders, service contracts, purchase orders and/or tickets customarily required by CORPORATION or CONTRACTOR in connection with the request for or the performance of Services hereunder, with the understanding on the part of both parties that irrespective of the terms of such field work orders, service contracts, purchase orders and/or tickets, the terms and conditions of this Agreement shall apply in determining the rights and liabilities of the parties. (c) The headings of the clauses herein and in the Schedules are inserted for convenience of reference only and shall not affect their construction or interpretation. [128] All of the MSAs between Husky and the third parties that were in evidence contained terms similar to those referred to herein. [129] It is clear that for each well transaction that was undertaken between Husky and the third parties, there was series of documents that reflected the transaction. However, Husky has failed to tender into evidence all of the documents relating to each transaction or to identify which documents related to each transaction. [130] Husky chose to introduce into evidence what it called representative documents rather than proving the particular documents or agreements that related to each contract Husky had with each third party. The difficulty with this is that it is difficult to trace through the documents relating to each well transaction. There was no explanation as to why the documents with respect to each transaction were not entered into evidence. [131] Husky is sophisticated party with detailed record keeping yet it offered no explanation for the deficiency in its evidence. [132] It must be remembered that Husky bears the onus of proof. It is clear that in some cases, the documents entered as representative documents were not representative of the transactions, as the same agreements or form of agreement was not used for every transaction. [133] Turning first to the Request for Quotations. Husky has not tendered all of the request for bids nor the RFQs into evidence. Nor has Husky identified when purchase orders were used instead of RFQs. Likewise, while Husky takes the position that Master Services Agreements governed all of the contracts that it had with the third parties, it has failed to identify for each of the transactions the specific Master Services Agreements that may or may not have been in place. [134] Master Services Agreements which were entered into evidence without the attached Appendix A, which was where the bid from the third party contractor would normally be placed, are of limited assistance to the court. There were invoices entered into evidence for which certain Master Services Agreements related to. The plaintiff has not established that there was Master Service Agreement in place for all the transactions with the third parties during the period of the claim. [135] It is clear from the MSAs in evidence that these MSAs were not agreements that stipulated that the parties were required to contract with each other. As stated, the parties contracted and worked with each other and the third party contractors provided services and materials to Husky even in the absence of an executed MSA. [136] In all situations, after Husky awarded the contract to third party contractor, Husky prepared the drilling program. This drilling program outlined the detailed procedure for drilling the well. The detailed drilling program would set out the location and the particular wells to be drilled, the special drilling instructions, the drilling order and any special considerations. It also gave instructions for the surface casing, production casing, and the steps to be undertaken for the drilling of the well. drill plan summary was also included. Attached to the drilling program would be the cementing contractor’s cementing program, which contained the detailed procedures and reporting requirements required for the well construction project. The detailed drilling program included the number of tonnes of surface cement needed and the price for the cement FOB to the well site. The document often set out that the quantities for the cement were estimated and subject to change, depending on actual amounts used. It also reflected that PST was to be charged as an addition to the cost where applicable. Plaintiff Third Party Exhibits 18 and 19 are examples of the detailed drilling program with the Trican and Nowsco (BJ Services) cementing procedures. [137] While wells were being drilled, Husky employed well site supervisor who remained on the location of the well. The site supervisor was not an employee of Husky, but rather contractor or contract employee of Husky. The site supervisor reported to the drilling superintendent, who was Husky employee, located in Calgary, Alberta. Other employees in the Husky office who were involved in the well drilling were drilling engineers and drilling technicians who reported to the engineering technical leader. The drilling superintendent reported to the drilling manager. This team employed several contractors of various kinds, all of whom were contracted prior to the beginning of the well being drilled. [138] will now describe the drilling process for these wells. The actual drilling process was the same for every well. Once well was to be drilled, the drilling contractor moved its equipment onto the particular well location. The drilling contractor had hoisting equipment, mud tanks, mud pumps and all the equipment necessary to drill the well. The drilling contractor used particular bit to drill the hole into the ground. Such bit is round and has hole in the center of it. The drill bit was lowered from the work platform (the floor of the drilling well), and it penetrated the ground to drill the well bore. Drilling fluid, which was mixture of water and bentonite, was pumped down the center of the drill pipe, through the bit. It pumped the dirt and rock that was drilled (which was referred to as the cuttings), up through the outside of the drill pipe and back up to the surface. This process of drilling down by joints of drill pipe took from 12 to 14 hours. Once the depth of 100 metres was reached, the bit was pulled up and then casings (steel straw) were screwed together and run down into the bottom of the well. Once the casings were in the well, drilling fluids were circulated down through the inside of the casing, around the outside of the casing, and all of the dirt and rock (cuttings) were removed from the well bore. The bore was then ready for cementing. [139] Blow out preventers were attached to the top of the casing bowl, which controlled the unwarranted flow of fluids from the well bore and also provided conduit for the drilling fluids. smaller sized bit was then attached to drill pipe which ran down the center of the surface casing and was used to drill all the way to the total depth of the well, which was around 600 metres. [140] The term “drilling fluid” and “mud” are used interchangeably. Drilling fluids were used to remove the cuttings. Cuttings were the rock and the dirt, which are drilled up by the drilling bit from the well bore. Drilling fluids were used to lubricate the bit and to provide primary well control. Primary well control means that the density of the drilling fluids was greater than the formation pressure, so that oil and gas in the formation cannot flow into the well bore while the well was being drilled. [141] The drilling fluid, or drilling mud and all those products, were supplied by drilling fluid contractors. During this process, the surface casing went down to about 100 metres. [142] It is of note that these drilling contractors worked on day work contract. For every day that they worked, they were paid for that particular day of service. That day work contract included all personnel to operate the drilling pipe, the pumps and the mixing equipment, including the mud pump to pump the mud or the drilling fluids. Husky chose to contract with drilling contractors on per day contract basis. Husky chose different way of contracting with the drilling contractors as compared to the cementing contractors. [143] Once the well was drilled, the well site was ready for cementing. The cementing contractor would be contacted by Husky six to twelve hours before the cement was required. Husky would specify to the cementing contractor the volume of dry cement blend needed for the job. The volume of cement was determined by the caliper measurement of the well bore. [144] The cementing contractor would then blend the dry cement. The dry cement was blended with the specific additives according to the bid contract. The contractor would create dry volume of the cement mixture. [145] The contractors did not manufacture the cement powder. They purchased the cement powder from suppliers. But the contractors did develop specific chemical additives that they blended with the dry powder to meet the specifications of the program as requested by Husky. The additives included number of things, depending on the particular characteristics needed at the well. The particular cement blends, that is cement powder and additives, were the object of research and development by individual cement contractors. The formulas for the blend of cement and additives were the contractor’s proprietary property. These proprietary properties addressed issues like gas migration, loss circulation, thickening time, etc. Cementing contractors had research and development departments that created these cement blends. [146] After the call from Husky identifying that cementing of the well would begin in six to twelve hours, the contractor then took the dry bulk cement blend to the well site. At the well site, the cement contractor connected its pumping unit, which mixed the dry cement blend with water to form what is known as slurry. The slurry was then pumped down the well. [147] At the well site, the truck with the dry blended cement or the container with the dry blended cement was situated near the well head. Close to the cement truck was the water tank or water truck. The water was supplied by Husky. The water truck was connected to the pump truck. [148] The cement contractor pre-flushed the well bore with water or mud. After the water or mud went down the well bore, the cement contractor used chemical spacer for cleaning. That spacer was supplied by the cement contractor. Following the chemical spacer was rubber wiper plug which separated the chemical spacer from the cement slurry. [149] The cement contractor, after putting in the wiper plug, took bulk cement from the bulk truck and pneumatically blew it into the cement pumper. Once the cement contractor began creating the slurry, it was imperative not to stop, as the cement started to develop quickly. In addition, there could be well bore problems if the contractor stopped pumping the slurry. As long as the fluid was moving down and up the well bore, the well bore was usually stable. So, at this point, the slurry was continuously mixed and pumped, going down the inside of the casing, coming out the bottom of the casing, and going up the casing well bore annulus. The contractor pumped the prescribed amount of volume and followed with another wiper plug behind the cement. At that point, the contractor began pumping drilling mud or another fluid to displace the plug and slurry to the bottom of the casing string. [150] It is important to note that once the dry cement blend was mixed with the additives in accordance with the request by Husky, the dry cement blend with additives was not able to be sold to another customer. So, even if all of the dry cement blend was not used for the drilling program, Husky would be billed and paid for the full amount ordered. [151] It was Husky who assumed the risk associated with the well site and the well bore. The well site supervisor for Husky had the ultimate decision making power on the well site. The cement contractors were hired to do the cementing job, but ultimately it was the well site supervisor, Husky, who had the final decision on all issues, including the cementing of the well. [152] As explained, the cement slurry was blended by the contractors. The contractors devised mixture of dry powder cement, additives and water. The amount, and the composition of the cement additives and water varied from job to job. The blending of the dry cement and additives usually took place at the contractor’s bulk plant. The cement, as blended, was transported from the contractor’s facility to Husky’s well site and mixed with water at the site. Husky supplied the water. This created slurry and it is the slurry that was pumped into the well by the third party contractor. [153] These cement slurries used by the cementing contractors had three basic components: cement, additives and water. Slurries are different by their design and their application, but primarily by their additives. The additives control how fast the cement sets up and how much viscosity the cement has. Viscosity refers to how thick the cement is when it is piped and how much free water is in the cement. The cement type used also controls gas migrations or has special additives for special problems in any well bore. [154] There were several different types of slurry for well bore in the Lloydminster area. While the cementing contractors made suggestions, ultimately it was Husky who made the final decision as to the slurry. The cementing contractors were the persons knowledgeable with respect to the cement. They made recommendations as to the types of cement used on each individual project. But it was Husky who made the ultimate decision on the type of cement used. [155] The cementing contractor (the third party contractors here) provided all of the equipment for the cementing of the well. This included cement mixer, cement pumper, bulk truck, storage bins, data vans and pickup trucks. The cement contractors also provided all cement and additives necessary for the job, with the exception of water. The cementing contractor delivered bulk cement to the location, either by bulk truck or by cementing bin, both of which were owned by the third party cementing contractor. As well, the third party contractors also used mixing and pumping unit, also owned by the cementing contractors. The mixing and pumping unit mixed and pumped the cement down the hole, through the casing, and into the well bore. [156] During the cementing process, the cement was connected to the casing by what is known as treating iron. The cementing contractors connected the mixing unit and the pumping unit by this treating iron. The treating iron was made of steel and it was supplied by the cementing contractor. The only item that Husky supplied during the cementing process was the water. [157] So, the process for cementing Husky’s well involved the following: the Husky well site supervisor called and gave the cementing contractor notice of the job; at that point, the third party contractors coordinated delivery of the cement and the cement crews to the location in time for the work; all testing of the equipment and the cement was done by the cementing contractors; the cementing contractor attended to the well site two to three hours before the cementing began; the third party contractors brought the dry cement to the well site, along with its cementing crew; the general cementing crew would include minimum of three individuals: the driver, who coordinated the delivery of the cement; second person the cement mixer, who operated the cementing truck; and the third person was the supervisor, who supervised the job. [158] The well site supervisor, who was Husky employee, was on site when the cement contractor and his crew attended. When the contractor arrived, the contractor and the well site supervisor discussed the technical details of the job. They reviewed the volume of the slurry to be mixed, the rate at which the slurry was to be mixed, and the pressure and the rate at which the slurry was to be pumped. [159] This was the way in which all the wells were cemented and have been cemented for numerous decades. The cementing contractor prepared his equipment for the cementing. The cementing contractor took water onto his truck and the water was pumped up to the rig floor to complete pressure test. When the pressure test was completed, the valve cementing head was opened and the cement began to be mixed by the cementing contractor. The cement was mixed in tub and was transferred to high pressure pump on the cementing contractor’s equipment. It was pumped down through hole, through the inside of the casing, down to the bottom of the well, out through the bottom of the casing. The cement travelled up through the outside of the well bore back to the surface. The cement was mixed in continuous process and as it was being mixed, it was pumped down the hole. The cement did not get mixed with water if it was not going to be pumped. It was Husky that decided how much cement was brought to the well site. It was very important that sufficient cement was mixed and pumped by the contractors. [160] Once the slurry had been pumped, the slurry that came up on the outside of the metal casing was excess cement. This slurry took between four to six hours to harden. The metal casing was held stationary while the cement set. The metal casing was left on top of the well until the cement set. After the surface casing set, the cementing contractor was released from the location. At that point, welder was brought onto the location and he cut the surface casing off at ground level and welded it onto the casing bowl. At the top of the casing bowl, blow out preventers were attached and the drilling process continued. The casing bowl formed the foundation for the well head for the remainder of the life of the well. [161] Once the well was drilled down to its full depth, the drill pipe was recovered to the surface. At that point, another contractor was brought on to run wire line logs. These wire line logs record rock properties, the bottom hole temperatures, the purosity, and the volume of oil and gas that are in the rock. The purpose of that was to identify the conditions in the area where Husky hoped to produce oil and gas. At that point, the hole was still called an open hole. Only the surface casing had been installed. From the wire line logs, two critical pieces of information were obtained for further cementing work. They were the bottom hole temperature and the volume the hole that had been drilled. [162] At this point, the production casing was placed in by the production contractor. Each joint of production casing was typically 12 metres long. Each production casing joint had threads on the ends and those threads were connected and screwed in place and then lowered into the well bore by the drilling contractor. This casing was supplied from Husky. The production casing was lowered into the well bore inside the surface casing. The production casing was smaller in diameter than the surface casing. It was typically seven inch outside diameter, whereas the surface casing was typically nine inch casing. The production casing ran all the way from the surface down to the bottom of the well. [163] The production casing was then cemented. The process for cementing the production casing involved the same cementing contractor that performed the surface casing. When Husky contracted with the cementing contractor to cement well, the contract included both cementing for the surface casing and cementing for the production casing. The cement used for cementing the production casing was similar to the cement used for the surface casing, with some variation in additives. Again, the cementing contractor recommended blend of cement for production cementing but it was Husky’s decision as to the actual blend of additives for the cement. [164] While Husky had the ultimate authority over the cementing process, Husky did not handle the cement at the well site. [165] At the well site, the third party cementing contractors prepared field service ticket or cementing services orders. Examples of such documents were Plaintiff Third Party Exhibit and Plaintiff Third Party Exhibit 121. The field service ticket was prepared by the third party cementing contractor at the site. The field service ticket recorded the “material and equipment used” on the cementing job. The service ticket included the type and amount of cement used in the project, the price of the cement per tonne, the travel charges, the service charges, the cementing additives and chemicals and the pricing for each of those. PST was recorded as separate charge on the field service ticket. [166] As stated, the service ticket was prepared at the well site. The service ticket was produced to the Husky representative at the well site and the Husky representative signed the ticket. The document stated that the signature of the Husky representative indicated that Husky accepted all the terms and conditions of the project and that Husky acknowledged that the work was done as recorded and the goods were supplied as recorded. It was document which documented the events of the completed job. [167] On the reverse of the service ticket was what was called “stimulation and remedial cementing service report”. This was document which documented the events of the cementing. It was record of what was done by the third party contractor at the well site. The size of the well bore, the volume of chemicals, when the equipment arrived, and when the job was finished were all recorded on this document. The service tickets for the period of 1994 to 1998 contained the following acknowledgement which stated the following: CONTRACT CONDITIONS (This order must be signed before work is commenced). To Sanjel Cementers Ltd. The undersigned, as customer, has read the instructions set forth above and agrees that they are correct in all respects. The above job shall be under the general supervision and control of the owner, operator, or his agent, whose signature appears below; however, it is expressly understood and agreed that Sanjel Cementers Ltd., will perform the work as an independent contractor and not as employees of the owner, operator, or his agent. It is understood and agreed that because of uncertain and/or unknown conditions existing in all wells, Sanjel Cementers Ltd., does not guarantee the results of the work performed under this agreement. Customer agrees that should any of the Sanjel Cementers Ltd., equipment be lost or destroyed, customer will use all reasonable efforts to recover the said equipment or reimburse Sanjel Cementers Ltd., for the reasonable value thereof. It is expressly understood and agreed that Sanjel Cementers Ltd., will not be bound by any other agreement not herein contained, and no agent or representative employed directly or indirectly by Sanjel Cementers Ltd., has authority to alter or amend the terms of this agreement. have read, understood and accept the foregoing conditions and represent that am authorized to sign this order as the agent of the owner or contractor. (Plaintiff Third Party Exhibit 17) [168] In 2000, the following was contained on the service ticket of Sanjel signed by Husky: Warranties Limitation of Liability Sanjel warrants only title to the product, supplies and materials and that the same are free from defects in workmanship and materials. THERE ARE NO WARRANTIES EXPRESSED OR IMPLIED OF MERCHANTABILITY, FITNESS OR OTHERWISE WHICH EXTENDS BEYOND THOSE RATED HEREIN. Our liability and the Customer’s exclusive remedy in any cause of action (whether in contract, tort, breach of warranty or otherwise) arising out of the sales or use of any products, supplies or materials is limited to the cost of such products or services with no punitive or consequential damages. Failure to enforce any or all of the above terms and conditions in particular shall not constitute waiver thereof or preclude subsequent enforcement. It is expressly understood and agreed that Sanjel will not be bound by any other agreement not herein contained, and no agent or representative employed directly or indirectly by Sanjel has authority to alter or amend the terms of this agreement. [emphasis in original] (Plaintiff Third Party Exhibit 117) [169] The third party field service ticket was then sent by the third party contractor to the third party contractor’s head office for use in producing the final invoice for Husky. As stated, the field service ticket contained the amount of “materials used” on the job, such as the tonnage of cement, additives and other materials. [170] This service ticket or service order was then used by the contractor to generate an invoice from the cementing contractor to Husky. The accounting department of the cementing company took the service ticket order and the quote and then prepared an invoice for Husky. The invoices provided by the cementing contractors included breakdown of the amount charged for cement, calcium chloride and separate amount for services. The invoice set out the volume of cement and additives that was used for the job and it identified price per tonne for the cement blends. On the invoice, PST on the materials was charged. No PST was charged, collected or remitted in respect of any of the services performed. It is clear from the invoices that PST was only charged on the materials provided. [171] The methodology of these contractor invoices was not affected by any Master Services Agreement. That is the invoices were the same whether Master Services Agreement was in place or not. There was no dispute that Husky has paid the PST to the contractors’ invoices without dispute. They paid the invoices and PST without questioning the applicability of the PST until they wrote to the Saskatchewan Government in 1999. [172] It is important to note that the invoice did not reflect charge for the amount of slurry pumped. Rather, the invoices billed Husky for the amount of dry cement and additives used by the contractors to create the slurry. The PST was charged on the cement and additives used by the contractors. PST was not charged on the set up charges. According to the cement contractors, the PST was charged on the dry cement blend and additives on the basis that those materials had been sold to Husky. [173] The third party contractor then prepared an invoice for Husky. The invoice was sent to Husky by the third party contractor. The invoice broke down the charges for the services and the materials used to cement the well. The PST was added separately on the materials used in cementing the well and charged to Husky. [174] While not all documents have been entered with respect to each transaction in the claim period, the evidence is consistent throughout the period of time covered by Husky’s claim that the request for quotation, as well as the bid submitted by the third party contractors, the service ticket prepared by the third party contractors, and the invoice of the third party contractors, all had breakdown of services and materials. As well, all of the documents added PST to the materials used in the cementing. So the single service charge for cementing, plus the cement at price per tonne, the additives at price per tonne, as well as other materials used at price per unit, was included on all documents, including the invoices, and PST was added to those materials charged. [175] Throughout the term covered by this lawsuit all of the third party contractors collected PST on all the materials it supplied to Husky. The third party contractors remitted that PST to the Saskatchewan Government. Throughout the period of time, the third party contractors always invoiced and charged PST and Husky paid the PST to the third party contractors, who submitted it to Saskatchewan Finance. [176] The evidence is clear that this is the way that the contracts were constructed. The parties conducted themselves this way throughout the entire period of the lawsuit. During that period, the PST was always paid by Husky without complaint and no issues were ever raised. Throughout the period of this claim, Husky paid the PST to the third party contractors and all of the third party contractors remitted that PST to the Saskatchewan Government. [177] In and around 1999, Husky retained the services of tax consulting firm known as SPIN Tax. Up until Husky’s introduction to SPIN Tax, Husky had never raised the issue of the charging of the PST on well cementing contracts. At the same time that SPIN Tax was consulting with Husky, SPIN Tax was also involved with the CAPP Indirect Tax Sub-Committee. SPIN Tax communicated on behalf of CAPP with the Saskatchewan Government directly for period of time with respect to this tax issue. Husky had authorized SPIN Tax to deal directly with Saskatchewan Government on the issue. Husky had never questioned the practice of how they had been invoiced for the PST up until that time. [178] At some point, Husky determined it was going to seek refund of the PST it had paid on the well cementing transactions. On October 27, 1999, Husky wrote to Saskatchewan Finance, Revenue Division, seeking refund of PST: We hereby apply under section 56 of the Revenue and Financial Services Act for refund of tax we paid in error under the Education and Health Tax Act on materials used or consumed by contractors. Reference materials that support our position that refund is due, include the following: Section of the Education and Health Tax Act Section of the Education and Health Tax Regulations Saskatchewan Information Bulletin No. EH-13 Choiceland Dehydrating Ltd. v. Minister of Finance for Saskatchewan, QBS September 19, 1975 No. 3973 Cairns Construction Limited v. The Government of Saskatchewan, Supreme Court of Canada, (1961) 35 W.W.R 251– (SCA) [sic] 950613 As you may be aware, whenever an oil gas well is drilled the hole is lined with pipe or casing from the start of drilling to the end. During the drilling and completion process, the drilling contractor runs several strings of casing into the hole. Each casing string fits inside the last, so each string is smaller in diameter than the one set before it. The first string is the “conduction casing” which keeps the top part of the hole from caving in during drilling. The second string is the “surface casing” which prevents drilling mud and hydrocarbons from contaminating the ground water used for drinking and irrigation. The next string is the “intermediate casing” which allows high pressure drilling to take place at much deeper formations. The final string is the “production casing” which runs to the bottom of the hole to begin the completion process. specialized cementing contractor cements each string of casing in the hole, utilizing special high-pressure pumps to inject the cement into the hole. The cement and related additives injected by the cementing contractor are specifically designed to suit the conditions presented by the environment surrounding the particular hole. Cementing the casing in the hole serves to seal the hole and make the casing solid immovable part of the real property. In the Saskatchewan Information Bulletin No. EH-13, contractor providing reservoir stimulation and cementing services must collect the tax from its customers on the selling price of all materials used, including fracturing sand or similar propping agents, acidizing chemicals, liquefied gases and concrete. This appears to be inconsistent with legal requirements for the payment of tax under the Education and Health Tax Act. In the Saskatchewan Information Bulleting No. EH-13 it states: The tax does not apply to the charges for services, such as seismic surveys, drilling, coring, logging and performing. However, the tax must be paid by the contractor on the cost of any materials used in providing these services, including drill bits, casing, tubing, drilling fluids, welding rods, explosives, sealants, lubricants and solvents. The drilling contractor supplying and installing the casing must pay tax on the cost of the material. This is consistent with section of the Education and Health Tax Act. The drilling contractor who installs tangible personal property on, or incorporates it into, real property for others is considered to the user or consumer of the tangible personal property. The cementing service done by cementing contractor must be treated the same way under the Education and Health Tax Act. The contractor who installs tangible personal property on, or incorporates it into, real property for others is considered to the user or consumer of the tangible personal property under section of the Education and Health Tax Act and section of the Education and Health Tax Regulations. Section of the Education and Health Tax Act does not impose tax on the contractor’s customer where the materials were installed by the contractor into real property. Therefore, the tax paid by the customers of these contractors on the selling price of all materials used by the contractors in providing reservoir stimulation and cementing services has been paid in error. Further support for this can be found in the above mentioned cases, “Choiceland ...” and “Cairns ...”. The courts held the contractor was the consumer and user of the tangible personal property since the tangible personal property lost its identify when it was incorporated into the real property by the contractor. Please find enclosed the schedules outlining the tax we paid in error on materials used or consumed by contractors providing reservoir stimulation and cementing services. The amount of this refund application for the overpayment of tax under the Education and Health Tax Act is $240,199.02. We also wish to inform you that Michael McCourt of SPIN Tax Solutions has been authorized by us to discuss, review and correspond with the Saskatchewan Finance Revenue Division and he will be making representations on our behalf on this issue. [179] Barbara Fraser, Supervisor of the Saskatoon Audit Office of Saskatchewan Finance, responded to Husky November 29, 1999 and rejected the request for the refund. Saskatchewan Finance wrote: Thank you for your recent submission requesting refund of Education and Health Tax paid to various firms. In your letter you outline that you believe this tax should be refunded as it was invoiced by contractor incorporating tangible personal property into real property and as he was the consumer of these goods, tax should not have been shown on the invoice. Saskatchewan Finance has had long-standing arrangement allowing the oil industry to bill in this manner. The oil producers wanted firms (including fracturing and cementing firms) working for them to provide details of all charges on their invoices. We allowed this billing procedure, as we were advised materials were always billed at or near cost. The result of this method of billing allows firms, such as yours, to be aware of all charges that are included in the price of the job. You do not pay any additional PST by this method of billing, you have merely been shown the tax paid on items such as cement or fracturing chemicals. For these reasons, we must deny your refund request. Our auditor, Chuck Toy, will be contacting you shortly for finalize his audit of your firm. [180] During the period of time that Husky was corresponding with Saskatchewan Finance seeking refund of the PST it had paid, there were discussions between the Saskatchewan Government and CAPP and PSAC with respect to the provincial sales tax legislation. [181] In the 2000 provincial budget, the Saskatchewan Government announced substantial reductions to personal income tax in Saskatchewan. In order to support the reductions in income tax, the Government looked to other sources of revenue, including the PST. The Government expanded the base of the PST legislation to include certain goods that had not previously been subject to tax, and added range of services that had never been previously subject to tax. Because this was budgetary announcement in the provincial budget, there was no prior consultation with the public or affected parties. When the changes were announced, the Saskatchewan Government’s revenue division was responsible for contacting the new taxpayers who had been added to the tax roll. It was this division’s role to explain to those taxpayers who were now subject to tax their obligation and to discuss with those taxpayers the ways of implementing the tax. [182] Saskatchewan Finance had to implement the tax base expansion in short period of time. Some of these tax changes impacted CAPP and PSAC members and so those organizations were contacted and asked for input on how Saskatchewan Finance should administer these expansions and new taxes as they applied to their businesses. In 2000 and 2001, CAPP and PSAC were having these discussions with Saskatchewan Finance. [183] As result of the expansion of the tax, revisions were made to Saskatchewan’s PST interpretation bulletins. Interpretation bulletins were prepared as guidelines to assist businesses who work at the particular kinds of business covered by the information bulletin, with view to helping them understand their function in administering the tax. In drafting an information bulletin, the Saskatchewan Government often had discussions with industry to see what they would like in the bulletin and, if they were able, the Saskatchewan Government incorporated those suggestions into the bulletin. The Saskatchewan Government did not impose the process on industry but used the process to help develop an information bulletin. [184] As result of the expansion of the tax base in the 2000 Provincial Budget, revisions were made to PST Bulletin 13 and PST Bulletin 14. As PST Bulletins 13 and 14 were being revised, Saskatchewan Finance discussed these matters with CAPP and PSAC. During this expansion of PST, there was no contemplation by Saskatchewan Government to change the definition of real property or tangible personal property by the legislation. [During this period of time, of course, it is important to remember that for most of the time covered by Husky’s refund claim, the sales tax was known as the Education and Health Tax, or the E&H tax. Starting as of this budget announcement of March 30, 2000, the tax became known as the Provincial Sales Tax or the PST.] [185] The Saskatchewan Government, in having discussions with the oil producer industry, dealt with the oil and gas companies through CAPP, as CAPP represented, at the time, about 170 oil and gas companies. Utilizing CAPP was an effective way for oil producers to have discussions with the Saskatchewan Government. The government also dealt with, and had discussions with PSAC, who represented the various oil industry service contractors. [186] PST Bulletins 13 and 14 dealt with different activities in the oil industry, one being an interpretation bulletin for the oil producer and the other being an interpretation bulletin for the service contractors. [187] After an initial draft of PST Bulletin 14, the Saskatchewan Government provided CAPP with the draft of the Bulletin 14 for discussion purposes. On September 19, 2000, CAPP replied to Saskatchewan Finance with some of CAPP’s submissions on PST Interpretation Bulletin 14. In that correspondence, CAPP took an opportunity to raise concerns about well cementing contracts. CAPP said the following in para. on p. of their September 19, 2000 correspondence to Saskatchewan Finance: D. Contractors 2. Service Contractors Reservoir stimulation and cementing service contractors should be treated in the same fashion as supply and install contractors. In this respect, tax should be calculated on the contractor’s costs, not the mark-up included material portion of the contract price. This was the first that CAPP had suggested that the cementing contractor should be treated as supply and install contractors. [188] Saskatchewan Finance’s understanding or view of the difference between “supply and install contract” and the “sale of tangible personal property” was explained by Saskatchewan Government’s witness, Mr. Dobson. Mr. Dobson testified that the Saskatchewan Government interprets “supply and install contract” such that the subject matter of the sale is sale of real property or an improvement to real property, such that in the course of delivering that sale or improvement, the contractor was the consumer of the materials used in building that real property or in the improvement to real property. Mr. Dobson indicated that the Saskatchewan Government did not view these transactions as supply and install contracts. [189] As stated, the Saskatchewan Government was also in discussions with PSAC. On September 25, 2000, PSAC wrote to Saskatchewan Finance respecting the draft Bulletin PST 13. Saskatchewan Finance responded to PSAC’s request to review the draft of PST 13. Saskatchewan Finance provided draft Bulletin 13 for discussion purposes to PSAC. The following was included in that draft bulletin at para. (Plaintiff Third Party Exhibit 87): C. EXEMPT SERVICES Tax does not apply to charges for contract services, such as drilling, seismic surveys, coring, logging and perforating. However, the tax must be paid by the contractor on the cost of any materials used in providing these services, including drill bits, casing, tubing, drilling fluids, welding rods, explosives, sealants, lubricants and solvents. ... E. TAXABLE SALES 1. Fracturing and Cementing Services It has become normal practice in the oil and natural gas industry for contractors providing reservoir stimulation and cementing services to itemize their charges to the customer and collect tax on the material portion of their service contracts. [190] On September 27, 2000, Saskatchewan Finance wrote to PSAC and asked PSAC to provide comments on the draft Bulletin 13 by October 16, 2000. [191] PSAC provided its comments on the proposed revisions to PST 13 in letter dated October 17, 2000. [192] At this same time, while SPIN Tax was providing tax advice to Husky about the payment of PST, SPIN Tax was also providing tax advice to PSAC in relation to the PST issues in Saskatchewan. In fact, SPIN Tax assisted the PSAC in preparing PSAC’s October 17, 2000 response to Saskatchewan Finance. On October 17th, PSAC responded to Saskatchewan Finance with commentary on the advised information Bulletin PST 13. The PSAC response to the draft Bulletin 13 was as follows: ... C. EXEMPT SERVICES Tax does not apply to charges for contract services, such as drilling, seismic surveys, coring, logging and perforating. However, the tax must be paid by the contractor on the cost of any materials used in providing these services, including drill bits, casing, tubing, drilling fluids, welding rods, explosives, sealants, lubricants and solvents. Why are contract services such as cementing, well stimulation, MWD, under-balance drilling not included in this list for exempt services? These services, including drilling and perforating, are real property contracts where the contractor uses or consumes materials in providing these services. [Emphasis added] ... E. TAXABLE SALES 1. Fracturing and Cementing Services It has become normal practice in the oil and natural gas industry for contractors providing reservoir stimulation and cementing services to itemize their charges to the customer and collect tax on the material portion of their service contracts. This appears to be inconsistent with the other real property contracts where contractor supplies and installs materials for the improvement to real property. The cementing service and well stimulation service contractors are the user and consumer of the materials used or consumed in his performance of the real property contract. These contractors want to be treated the same as any other contractor. [Emphasis added] ... This response by the PSAC, prepared with SPIN Tax advice, supported Husky’s suggestion that these were supply and install contracts. [193] At some point after October 2000, the members of PSAC became aware that SPIN Tax was or had worked with several of the producer companies, including Husky to file refund claims for PST on contingency basis. PSAC also understood SPIN Tax was providing advice to Husky and other producers seeking to be paid by percentage of the refund claims. PSAC became uncomfortable as to whether SPIN Tax was giving PSAC impartial advice. PSAC chose to stop working with SPIN Tax. [194] PSAC then got advice from chartered accounting firm with respect to the proposed sales tax amendments. PSAC was concerned whether the proposed sales tax amendments being contemplated by Saskatchewan Finance would have any impact on the “Manufacturing and Processing Tax Credit” they were receiving from the Federal Government for federal income tax purposes. PSAC became concerned that changes to the commercial arrangements with producers would have negative effect on the service contractor’s Federal “Manufacturing and Processing Tax Credit”. [195] In about February of 2001, the Saskatchewan Government notified the PSAC that certain of the producers had made claims to Saskatchewan Finance for refund of the PST charged by the cementing contractors for materials provided in the 1996 to 2001 period. PSAC was advised that Saskatchewan Finance had denied the application for the refund. PSAC had been unaware of the producer’s claim for refund of PST. [196] In March of 2001, PSAC responded to Saskatchewan Finance advising that the matter was under consideration and they would respond in due course. [197] At that point, it became clear that the producer, Husky, and the cementing contractors were describing the contracts differently to Saskatchewan Finance. Husky sought to characterize the cementing contracts as supply and install contracts such that the cementing contractors would pay the PST on the materials. The cementing contractors continued to take the position that the cementing contracts, and the manner in which the contracts had been dealt with by the parties over the years, should be maintained, such that they separated materials and services required to complete their contracts. Through these discussions, the Saskatchewan Government proposed legislative amendment that would result in the producers being deemed to be the consumers of the materials. If this amendment were implemented, Husky would have to abandon its refund claims. [198] Throughout these discussions, Saskatchewan Finance advised the producers and the cement contractors that Saskatchewan Finance took the position that the contractors had properly applied the provisions of the PST Act in accordance with the contracts between producers and contractors. On October 9, 2001, Saskatchewan Finance wrote to the PSAC advising that PSAC members should continue to apply and administer the PST in the way it had. [199] While these discussions were ongoing with Saskatchewan Finance, nothing changed between the parties in terms of the way in which they dealt with the contracts between the producers and the cementing contractors. The request for bids continued; the bids continued; Master Service Agreements continued, or not; the invoicing continued; and the undertaking of the work continued, all in the same way it had for years. The third party contractors continued to charge PST on the materials. [200] On October 26, 2001, Husky submitted second refund claim. Again, Husky wrote to Saskatchewan Finance making claim for refund of PST. Husky wrote the following: Please be advised that the provincial sales tax paid by Husky Oil Operations Limited (Husky) on materials used by well service contractors (the Contractors) in performing reservoir stimulation and cementing services on our properties in Saskatchewan, is in dispute. The Provincial Sales Tax Act (the Act) deems the Contractor to be the consumer of the materials used in the performance of these services. Consequently, Husky has no obligation under the Act to pay any tax on these materials. Please consider this letter as notification to the Minister of Finance that Husky has paid tax in error on these materials and of our request for that tax paid in error to be included in your audit. We have enclosed the schedules outlining tax in the amount of $179,765.67 paid by Husky in error under the Act on materials used or consumed by contractors providing reservoir stimulation and cementing services. summary of all sales tax paid in error by Husky and its predecessors related to this issue, is also enclosed. We also wish to inform you that Michael McCourt and Garth Thompson of SPIN Tax Solutions Inc. have been authorized by us to discuss, review and correspond with the Saskatchewan Finance Revenue Division on our behalf on this issue. [201] On July 23, 2002, Saskatchewan Finance denied the second refund claim. On that date, Barbara Ames, CMA, Supervisor of the Saskatchewan Audit Office, wrote the following to Husky, with copy to Jim Nelson and SPIN Tax Solutions: Your letter of October 26, 2001, addressed to Mr. Jerome Latos, has just been forwarded to me; apologize for the lengthy delay in this response. Saskatchewan Finance has had long-standing arrangement allowing the oil industry to bill in this manner. The oil producers wanted firms (including fracturing and cementing firms) working for them to provide details of all charges on their invoices. We allowed this billing procedure, as we were advised materials were always billed at or near cost. The result of this method of billing allows firms, such as yours, to be aware of all charges that are included in the price of the job. As you are aware, Saskatchewan Finance has held meetings and is presently corresponding with both the Canadian Association of Petroleum Producers (CAPP) and the Petroleum Services Association of Canada (PSAC) to attempt to reach resolution on this matter. If you have any further questions or require further information please contact me at: [202] None of the third party cementing contractors were parties to any of the correspondence between Husky and Saskatchewan Finance. [203] On December 7, 2001, Husky Energy wrote to Saskatchewan Finance advising the following: This will serve as notice that we are exercising our option to not pay PST in respect to materials used or consumed by well service contractors in the course of providing their services to Husky Oil Operations Limited (Husky). This option is specifically stated in Saskatchewan Finance’s Information Bulletin PST-14 2000/12, Section and was outlined in more detail to Husky and other industry representatives at meeting with Saskatchewan Finance officials at the offices of the Canadian Association of Petroleum Producers (CAPP) approximately year ago. In accordance with the Saskatchewan Provincial Sales Tax Act (the Act) and Regulations, the consumer or user of tangible personal property (TPP) is obligated to pay the provincial sales tax (PST) on TPP they use or consume. The well service contractors (the Contractors) provide cementing and well stimulation services to Husky on oil and gas properties in Saskatchewan and use or consume materials such as cement and fracturing fluids in the performance of these services. Most of these materials are produced or processed by the Contractor rather than being purchased and consumed by the Contractor. Under these circumstances, the Contractor is deemed to be the consumer or user of the materials by subsection 5(6) of the Act. Since the Contractor is liable for the PST on the consumption or use of these materials, Husky has no obligation to pay any tax on these materials. Although Saskatchewan has also administratively allowed Contractors to charge the PST on these materials to companies such as Husky, we have also notified the Minister [sic] Finance that we consider this to be tax paid in error by Husky. This notification was given on October 4, 1999. We respectfully request that this tax paid in error be refunded to Husky. We have informed our well service contractors by letter (copies attached) that we will be following the alternative method found in Information Bulletin PST-14, which recognizes the contractor as the user or consumer of the materials in their performance of cementing or well stimulation services. We hereby authorize Messrs. Peter Mitchell, Don Biberdorf and Blair Nixon of Felesky Flynn to represent us in dealings with Saskatchewan Finance in respect of this matter. Garth Thompson and Michael McCourt of SPIN Tax Solutions Inc. have already been authorized by us to deal with Saskatchewan Finance on this matter. [204] On that same date, Husky wrote to Sanjel, Trican and BJ Services, the third party contractors in this action, requesting that each of them stop charging the PST on the materials on well cementing contracts. In this letter, Husky purported to indicate that they were exercising an option provided to Husky by the Saskatchewan Government. That December 7, 2001 correspondence stated the following: Enclosed is copy of letter dated December 7, 2001, to Mr. Rob Dobson, Director of Provincial Sales Tax of Saskatchewan Finance regarding the Provincial Sales Tax (PST) collected on materials used in reservoir stimulation and cementing services in Saskatchewan. Husky has reviewed Saskatchewan Finance’s policy found in Information Bulletin PST-14 [2000/12 Section D] with respect to taxation of materials consumed or used in real property improvements made by contractors on our properties in Saskatchewan. It states that the well service contractor (the Contractor) is the consumer of materials used in the business of constructing, altering, repairing or improving real property for others where the contractor agrees to supply and install the materials under an agreement between Husky and the Contractor for the improvement of real property. In addition to this policy, the Contractor, who produces or manufactures materials used in the performance of these real property contracts, is deemed to be the consumer of these materials by subsection 5(6) of the Provincial Sales Tax Act (the Act) and is responsible for payment of the PST. This deeming provision is not related to any income tax issues for your company. Based on the Saskatchewan Finance’s police and the Act in this matter, Husky asks that you stop charging and collecting the PST on the materials supplied and used in the performance of these real property contracts. We recommend you contact Mr. Rob Dobson at (306) 787-7785 of Saskatchewan Finance for any further clarification on this matter. [205] On December 24, 2001, Saskatchewan Finance responded to Husky and said the following: Thank you for our letter of December 7, 2001, which was received in this office on December 17, 2001. In that letter, you provided us with notice of your intention to exercise the option of no longer paying Provincial Sales Tax (PST) on the materials invoiced to Husky Energy by well service contractors for contracts performed in Saskatchewan. With respect, you seem to have misunderstood the “option” that Saskatchewan Finance (Finance) has presented to the petroleum industry regarding these contracts. As you know, there is an ongoing dispute with respect to the proper application of PST to the contracts currently used by the petroleum industry for these services. The current method of tendering, contracting and invoicing for these services is ambiguous for PST purposes. Although these are prima facie services provided in respect to real property, those documents are drafted in terms of separate sale of labour and separate sale of materials. For several years, the service contractors have levied, and the petroleum producers have paid, PST on the separate charges for the materials used or consumed in carrying out these well servicing contracts. In the hopes of resolving this dispute, senior officials from Saskatchewan Finance (Finance) have met with you and other representatives of the petroleum industry. Finance invited the service contractors and petroleum producers to revise their form of contract to more clearly specify that these are services in respect of real property and that both parties agree that the service contractor is the consumer of the materials used in providing these services. This is the “option” that was presented by Finance during our meetings in Calgary and that is set out in Information Bulletin PST-14. We have also suggested that, should the petroleum industry adopt standardized and consistent manner of contracting for these services that clearly specifies who is the consumer of the materials, Finance would be prepared to negotiate settlement of the refund claims that have been filed. At the time of our meetings, there appeared to be some interest in clarifying these contracts and Saskatchewan Finance offered to review any revised documentation in order to confirm the sales tax consequences. To date, we have not received any requests to review revised documentation and, to the best of our knowledge, the industry continues to contract for these services, and to account for the PST, in the same manner that has been used for the past several years. On July 20, 2001, sent letter to the tax consultants representing some of the refund claimants setting out Finance’s position with respect to this issue. Copies of this letter were sent to the Canadian Association of Petroleum Producers (CAPP) and to the Petroleum Services Association of Canada (PSAC). In response to that letter, we received letter, dated September 27, 2001, from PSAC indicating that it is the intention of the members of that association to continue to structure these contracts as separate sale of materials and separate sale of labour services for the installation of those materials on real property. It is now apparent that it has been the intention of the service contractors all along that those contracts consist of separate sale of materials and separate sale of installation labour. According to PSAC, the service contractors have deliberately structured their commercial relationships with their customers in this manner for reasons set out in the following Court cases: Haliburton Services Ltd. v. R. (1985) 85 D.T.C. 5336 (Fed. Trial Div.) and Nowsco Well Service Ltd. v. Canada (1990) 90 D.T.C. 6313. PSAC has further advised that they will support any legislative framework which clarifies those relationships for PST in manner that is consistent with the findings of these cases. As mentioned during our meetings, and in subsequent correspondence with the parties involved in this dispute, it is Finance’s opinion that we are not in position to dictate how parties structure or arrange their commercial transactions. Furthermore, the assertion that subsection 5(6) of The Provincial Sales Tax Act overrides contractual provisions between the parties to deem service-provider to be the consumer of materials in all cases is inconsistent with long history of sales tax administration in Saskatchewan and other jurisdictions. We agree that subsection 5(6) of The Provincial Sales Tax Act deems supply and install contractor to be the consumer of materials used to carry out improvements to real property in the absence of evidence to the contrary. would be pleased to provide you or your legal representatives with examples of situations where contractual provisions have been used to alter or avoid the application of subsection 5(6). In our view, Finance is now caught in the middle of what is essentially dispute between one party alleging that they are making sale of tangible personal property and the other alleging that they are purchasing services in relation to real property. If Finance were to acknowledge that these are services to improve real property and consequently require the service contractors to account for tax on the materials, it is possible that PSAC would commence lawsuit against Finance to obtain declaration to the contrary. Finance will consider legislative amendment if it is felt that this dispute may jeopardize PST revenues or compromise the consistent and fair administration of the PST. Finance is still interested in resolving this dispute amicably. However, in view of the divergent positions taken by the service contractors and the petroleum producers with respect to these contracts, it seems that such resolution is now unlikely. trust that have made our position in this matter is [sic] clear. would be pleased to discuss this further if you wish. In the meantime, must advise you that taxpayer does not have an option as to whether or not to pay tax. Vendors of tangible personal property have legal obligation to collect and remit tax on the goods they sell and taxpayers have duty to pay tax on the goods they acquire. Any vendor or taxpayer who fails to comply with this statutory duty may be assessed for the tax that is not collect [sic] or paid. will be forwarding coy of this letter to PSAC and CAPP, as well as those service contractors to whom you wrote on December 7, 2001 so that they are aware of our position in this matter. will also be providing copy to Garry Moran, our solicitor at Saskatchewan Justice. Should your legal representative wish to contact him, Mr. Moran may be reached at (306)787-7444. Finally, thank you for continuing to communicate with us regarding this issue. Please contact us at any time if you feel we may be of assistance with regard to this issue or any other PST matter. ... [Emphasis in original] [206] On that same date, December 24, 2001, Saskatchewan Finance wrote to the third party contractors saying the following: am writing further to the letter that was sent to you on December 7, 2001 by Hugh Magill of Husky Energy. In that letter, Mr. Magill provided you with notice that Husky has chosen to no longer pay Provincial Sales Tax (PST) on the materials billed to Husky for well servicing contracts in Saskatchewan. am writing to advise you that such an option is not available to Husky Energy. As you may know, the application of PST to well servicing contracts is the subject of an ongoing legal dispute. At issue is the determination of which party is the consumer of the materials used in carrying out those contracts. The background to that dispute, as well as Saskatchewan Finance’s position with respect to this issue, is set out in the enclosed letter. Pending resolution of this dispute, you may continue to apply and invoice PST as you have in the past. If it is your company’s intention that your contracts are comprised of separate sale of materials and separate sale of labour, clear provision to that effect in your contracts and invoices may help to provide support for this manner of applying PST to your contracts. Conversely, if it is your intention to provide service involving the improvement of real property, provision acknowledging that your company is the consumer of the materials will assist in providing clarification. If this is your intention, you will be required to self-assess PST to the manufactured cost of the materials consumed in carrying out your services and PST should not be applied to the amount invoiced for your services. [207] Saskatchewan Finance indicated to the third parties and Husky that Husky appeared to have elected to have exercised an option that did not exist, without change to the structure or format of the transactions between Husky and the third party contractors. Saskatchewan Finance took the position that Husky did not have the option of discontinuing to pay the PST, unless there was change in the structure of the transactions between Husky and the cementing contractors. [208] At the same time, on December 17, 2001, each of the third parties wrote to Husky advising that they would not be changing their practice with respect to the PST on well cementing contracts. The third parties indicated they would continue to apply the PST to the invoice price of materials until Saskatchewan Finance advised them to do otherwise. [209] In early 2002, various producers and contractors met to attempt to put together proposal that they could submit to Saskatchewan Finance in an attempt to resolve this matter in manner that was acceptable to all parties. In the end, no change occurred. [210] It is clear that the third parties were not bound by the discussions amongst PSAC, CAPP and SPIN Tax and the Saskatchewan Government, nor were they bound by the representations made by PSAC. [211] The issue to be determined is who bears the liability for Saskatchewan PST in the context of well cementing contracts between Husky and the third parties. Is Husky entitled to judgment against the Government of Saskatchewan for refund of the PST paid on the well cementing contract? ANALYSIS Burden of Proof [212] Husky asserts the burden of proof in this case is the burden of proof set out in an appeal of an assessment for tax. That is, Husky asserts that Husky, as the taxpayer, bears the initial onus of contesting the Minister of Finance’s assessment. Husky submits the taxpayer has the onus to demolish the facts on which the taxation is based (Johnston v. Canada (Minister of National Revenue), 1948 CanLII (SCC), [1948] S.C.R. 486). Husky asserts that the assumptions of fact made by the Minister of Finance, upon which the Minister of Finance determines that the tax is owing, has the effect of reversing the burden of proof and casting on the taxpayer the onus of disproving the facts which the Minister has assumed (Anchor Pointe Energy Ltd. v. Canada, 2003 FCA 294 (CanLII), 308 N.R. 125). [213] Husky takes the position that it is therefore incumbent on the Saskatchewan Government to set forth in its defence pleadings of the facts upon which it relied in denying the refund claims. Husky asserts the facts relied on by the Saskatchewan Government must be accepted as fact, unless they are contested by the taxpayer (Johnston, supra). Husky goes on to assert that if the statement of defence does not contain specific allegations setting forth the facts or assumptions on which the denial of the refund claim is based, Husky is entitled to establish what facts were assumed or relied on in denying the refund claim (David Tobias v. M.N.R., (1978) 78 D.T.C. 6028 (F.C.T.D.)). Husky indicates that the Government of Saskatchewan’s statement of defence in this action did not identify the specific assumptions of fact relied on by the Saskatchewan Government when it denied the refund claims. Husky asserts that because the Saskatchewan Government failed to plead the assumptions of fact relied on when it denied the refund claims, the Saskatchewan Government does not have the benefit of the reverse onus (Bowens v. R., (1994) 94 D.T.C. 1853 (T.C.C.)). [214] Husky goes on to suggest that the refund claims here were denied on the basis of the facts set forth in the two letters written by officers of the Saskatchewan Government when the Saskatchewan Government denied Husky’s refund claims: the November 29, 1999 letter and the July 23, 2002 letter. Husky then says it has three options to deal with the facts relied on by the Saskatchewan Government: (1) challenge the Minister’s allegations that he did assume these facts; (2) assume the onus of showing that one or more of these assumptions was wrong, or (3) contend that even if the assumptions were justified, they do not support the assessment (Minister of National Revenue v. Pillsburys Holdings Limited, (1964) 64 D.T.C. 5184 (Ex.Ct.). Husky asserts that it is entitled to succeed in its appeal of the denial of the refund claims if it is able to establish the facts upon which the refund claims were denied do not themselves support the denial under the PST Act. [215] The Saskatchewan Government does not accept that the burden of proof is as suggested by Husky. The Saskatchewan Government suggests that the burden of proof is that set out in civil trial, as articulated by the Supreme Court of Canada in F.H. v. McDougall, 2008 SCC 53 (CanLII), [2008] S.C.R. 41. The Saskatchewan Government argues that the appropriate standard of proof is proof on balance of probabilities, and that Husky bears the onus of proof. The Saskatchewan Government submits that this Court, in determining if Husky has met the onus, must scrutinize the evidence with care in order to determine whether the evidence is sufficiently clear, convincing and cogent to satisfy the balance of probabilities test. [216] The third party contractors do not accept that the burden of proof is as suggested by Husky. The third parties suggest the onus here is on the taxpayer Husky and the standard of proof remains civil balance of probabilities. The third parties indicate that the onus and standard has been accepted for the purpose of provincial tax appeals and refer the court to the cases of Johnston v. Minister of National Revenue, supra, Hickman Motors Ltd. v. Canada, 1997 CanLII 357 (SCC), [1997] S.C.R. 336, [1997] S.C.J. No. 62 (QL); Northland Properties Corp. v. British Columbia, 2010 BCCA 177 (CanLII), B.C.L.R. (5th) 63; Spie Construction Inc. v. Ontario, [2005] O.J. No. 2291 (QL)(Ont. Sup.Ct.). [217] There were considerable submissions, comments and discussion by the parties on the standard of proof relating to tax appeals, even in the context of provincial tax appeals. However, this case is not an appeal of provincial tax assessment. In this case, Husky paid the tax to the Saskatchewan Government. It did so based on the way in which Husky’s transactions with the third party contractors were structured. Husky later suggested to the Minister of Finance that Husky improperly paid this tax and that Husky had not had an obligation to pay that tax despite the fact that it had paid without question. Husky then sought re-assessment. The Minister of Finance refused to re-assess the tax. Husky did not appeal that refusal to re-assess, as was the case in Northland Properties Corp., supra, and Spie Construction Inc., supra. Husky took no appeal from the position of the Minister of Finance. Husky took no appeal from the refusal to re-assess. Rather, Husky sued, in this civil action, for refund of the tax, which it said it paid improperly to the third party contractors. The plaintiff’s pleadings in paras. 13, 14, 21 and 22 state: 13. On or about October 28, 1999 and October 13, 2001, the Plaintiff notified the Saskatchewan Minister of Finance (the “Minister”) in writing that the Sales Tax on the Cement and Fracturing Fluid had been charged to and paid in error by the Plaintiff and the Plaintiff asked that the Sales Tax be refunded with interest. 14. The Minister has failed or refused to refund the Sales Tax to the Plaintiff. 21. The Plaintiff seeks judgment against the Defendant in the amount of $419,964.69 $393,289.73, representing the Sales Tax paid in error by the Plaintiff to the Defendant. 22. The Plaintiff seeks interest on the amount claimed from the date of payment of the Sales Tax to the date of judgment at the rate and in the manner prescribed by the regulations under The Revenue and Financial Services Act. [218] Husky has commenced civil action where it seeks to prove that the PST was paid in error, or improperly paid, by Husky. This action is not an appeal of an assessment or re-assessment. It is civil action for judgment of monies which Husky alleges it paid in error. [219] The Supreme Court of Canada, in F.H. v. McDougall, supra, said the following about the standard of proof in civil case: 40 Like the House of Lords, think it is time to say, once and for all in Canada, that there is only one civil standard of proof at common law and that is proof on balance of probabilities. Of course, context is all important and judge should not be unmindful, where appropriate, of inherent probabilities or improbabilities or the seriousness of the allegations or consequences. However, these considerations do not change the standard of proof. am of the respectful opinion that the alternatives have listed above should be rejected for the reasons that follow. 44 ... In my view, the only practical way in which to reach factual conclusion in civil case is to decide whether it is more likely than not that the event occurred. ... 46 Similarly, evidence must always be sufficiently clear, convincing and cogent to satisfy the balance of probabilities test. But again, there is no objective standard to measure sufficiency. In serious cases, like the present, judges may be faced with evidence of events that are alleged to have occurred many years before, where there is little other evidence than that of the plaintiff and defendant. As difficult as the task may be, the judge must make decision. If responsible judge finds for the plaintiff, it must be accepted that the evidence was sufficiently clear, convincing and cogent to that judge that the plaintiff satisfied the balance of probabilities test. ... 49 In the result, would reaffirm that in civil cases there is only one standard of proof and that is proof on balance of probabilities. In all civil cases, the trial judge must scrutinize the relevant evidence with care to determine whether it is more likely than not that an alleged event occurred. [220] conclude that Husky bears the onus of proving that Husky is not liable for the payment of the PST. The standard of proof is proof on balance of probabilities. am required to scrutinize the evidence with care to determine whether the evidence is sufficiently clear, convincing and cogent to satisfy the balance of probabilities test, and in this case, whether it is more likely than not that Husky is not liable for the payment of the PST. Law in Relation to Interpretation of Tax Legislation [221] The issues before the court involve the interpretation of tax legislation as it relates to the transactions between Husky and the third party contractors. [222] In Canada Trustco Mortgage Co. supra, the Supreme Court of Canada set out the approach to interpreting legislative provision. The court said, at para. 10 It has been long established as matter of statutory interpretation that "the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament": see 65302 British Columbia Ltd. v. Canada, 1999 CanLII 639 (SCC), [1999] S.C.R. 804, at para. 50. The interpretation of statutory provision must be made according to textual, contextual and purposive analysis to find meaning that is harmonious with the Act as whole. When the words of provision are precise and unequivocal, the ordinary meaning of the words play dominant role in the interpretive process. On the other hand, where the words can support more than one reasonable meaning, the ordinary meaning of the words plays lesser role. The relative effects of ordinary meaning, context and purpose on the interpretive process may vary, but in all cases the court must seek to read the provisions of an Act as harmonious whole. [223] In Placer Dome Canada v. Ontario (Minister of Finance), 2006 SCC 20 (CanLII), [2006 ]1 S.C.R. 715, the Supreme Court acknowledged that where provision admits more than one reasonable interpretation, emphasis must be placed on the scheme, context and purpose of the relevant Act. [224] In this situation, Husky and the third parties structured the transactions. The Government of Saskatchewan had no involvement in the structure of the transactions. As the result of the legal relationship that was created between Husky and the third parties, PST was applied to the sale of cement in the transactions. [225] It is well established that parties are entitled to structure their legal relationships and legal arrangements that they have with other parties as they see fit. It is clear that taxpayer’s legal relationship with others must be respected in tax case. The Supreme Court of Canada, in Shell Canada Ltd. v. Canada, 1999 CanLII 647 (SCC), [1999] S.C.R. 622, 178 D.L.R. (4th) 26, confirmed this view. At paras. 39 and 45, Chief Justice McLachlin said the following: 39 This Court has repeatedly held that courts must be sensitive to the economic realities of particular transaction, rather than being bound to what first appears to be its legal form... But there are at least two caveats to this rule. First, this Court has never held that the economic realities of situation can be used to recharacterize taxpayer's bona fide legal relationships. To the contrary, we have held that, absent specific provision of the Act to the contrary or finding that they are sham, the taxpayer's legal relationships must be respected in tax cases. ... 45 However, this Court has made it clear in more recent decisions that, absent specific provision to the contrary, it is not the courts' role to prevent taxpayers from relying on the sophisticated structure of their transactions, arranged in such way that the particular provisions of the Act are met, on the basis that it would be inequitable to those taxpayers who have not chosen to structure their transactions that way... The courts' role is to interpret and apply the Act as it was adopted by Parliament. Obiter statements in earlier cases that might be said to support broader and less certain interpretive principle have therefore been overtaken by our developing tax jurisprudence. Unless the Act provides otherwise, taxpayer is entitled to be taxed based on what it actually did, not based on what it could have done, and certainly not based on what less sophisticated taxpayer might have done. [226] So it is clear that parties are able to construct their agreements in whatever form they choose to. The court must determine whether the tax is payable, based on the agreements as constructed. [227] The jurisprudence discussing the interplay of tax legislation and the interpretation of sophisticated transaction also provides guidance. In Newfoundland Telephone Co. v. Newfoundland (Attorney General), (1992) 1992 CanLII 7303 (NL SC), 102 Nfld.& P.E.I.R. 288, [1992] N. J. No. 188 (QL) (Nfld. S.C.), the Newfoundland Trial Division highlighted the difficulty in analyzing the exact nature of transaction. This case was situation where the appellant telephone company utilized digital multiplex system switches. Their function was controlled by software comprising operational and application software. The telephone company used the application software under licence and alleged the software was not taxable as tangible personal property, but rather was provision of services or transfer of expert knowledge. The province taxed the software on the basis that it was billed separately. The Newfoundland Supreme Court Trial Division dismissed the taxpayer’s appeal on the basis that tangible product was supplied by the software enabling the switch to perform its pre-determined function and therefore the software was taxable. The Newfoundland Court said the following: ... the distinction between product and service is not always easy to discern. There are of course very few service contracts which do not involve the transfer of tangible personal property and many sales include elements of service. The test to determine the character of the transaction is the essence of the transaction or primary purpose test. By its nature this is vague test. ... One should expect to find, as in this case, if there is service the cost of the tangible is insignificant when compared to the value of the knowledge or skill of the person providing the service (eg. the paper on which is presented professional opinion). However, as noted above, it is not unusual to find there is great deal of skill, time and money involved in producing product in which the raw materials make up only small part of its value. Of course all of these indicia are consistent with the existence of service but are not determinative. Is the primary purpose of the transaction between Northern Telecom and Newfoundland Telephone the transfer of product or provision of services, incidentally to which property in goods passed from one party to another? conclude what Newfoundland Telephone wanted and got from Northern Telecom was product, set of instructions, which enabled its DMS switch to perform certain specified functions. [228] Parties are free to negotiate and structure their contracts as they see fit, having regard to their businesses and the agreements that they are undertaking. The structure of the parties’ agreements matter. The Federal Court of Appeal, in Friedberg v. Canada, [1992] C.T.C. 1, 135 N.R. 61 (F.C.A.), was case where taxpayer made donation and claimed it as deduction. Documents were created which documented the arrangement. The court noted that in taxation matters, documentation is important. The court said that the intention of the party may clarify the situation, but intention is not determinative and such an intention cannot be used to correct documents which point in another direction. The court also indicated that while intention can be used as clarification, later corrections may not be acceptable. [229] Likewise, in Damon Developments Ltd. v. Canada (Minister of National Revenue), [1988] C.T.C. 2266, 88 D.T.C. 1128 (T.C.C.), the Tax Court of Canada commented that allocations which are made in an executed agreement of purchase and sale were conclusive on the issue of whether certain purchases were capital assets or current and deductible expenses. The court said that an allocation made in an executed agreement of purchase was conclusive. Any acceptance of subsequent allocation by only one of the parties was not decisive, because it ignored the viewpoint of the other party. The court went on to say that the allocation in the agreement of purchase and sale as was reported in the taxpayer’s return was not arrived at through mistake, but through negotiation between the parties. The court said it would be inappropriate in that circumstance to rely on evidence provided by the corporation to set aside such an allocation, which was arrived at deliberately between the parties and relied on in preparing their returns. [230] In Preload Company of Canada v. Regina (City), (1958) 1958 CanLII 186 (SK CA), 24 W.W.R. 433, 13 D.L.R. (2d) 305 (Sask. C.A.), the Saskatchewan Court of Appeal identified that whether contract is one for the sale of goods or one for work or services depends on the essential character of the agreement. This approach was endorsed by the Saskatchewan Court of Appeal in CIC Mining Corp. v. Saskatchewan Government Insurance, 1994 CanLII 4565 (SK CA), [1994] 10 W.W.R. 1, 123 Sask. R. 219 (Sask. C.A.). Chief Justice Bayda, in concurring decision, said the following at para. 60 After summarizing some English and Canadian cases on the point to illustrate the "variation in the views expressed" by the courts, Professor Fridman in his Sale of Goods in Canada, 3d ed., (Toronto: Carswell, 1986) states his preference for the Preload approach, an approach consonant with that taken by the English Court of Appeal in Robinson v. Graves, [1935] K.B. 579 (C.A.), and paraphrases the approach in these words (p. 22): In other words, if the primary object of the contract is the transference of property in something which was not originally the property of the "buyer", the contract will be one of sale of goods, but if the primary purpose of the parties is the performance of certain work, or the provision of services, incidentally to which property in goods is to pass from one party to the other, the contract will not be one of sale of goods. [231] It is also important to note that courts have concluded that contracts can provide for the provision of both goods and services. The courts have indicated that where there is provision of both goods and services in contract, those components can be separated such that tax can be applied to the sale of goods. In Craftsman Collision Ltd. v. British Columbia, 2007 BCCA 170 (CanLII), 65 B.C.L.R. (4th) 381at para. 29, the British Columbia Court of Appeal said: 29 The Province referred to this Court's decision in Continental Commercial Systems Corp. v. British Columbia (1982), 1982 CanLII 458 (BC CA), 138 D.L.R. (3d) 503, 37 B.C.L.R. 297 (C.A.). That case concerned the sale of cheque‑guaranteeing business. part of the purchase price was allocated to each of computer hardware and computer software. This Court decided that for taxation purposes, the software was separable from the hardware, notwithstanding that the two were sold together. This decision seems to contradict the Crown's position. Similarly, in Ikon Solutions Inc. v. British Columbia, [1998] B.C.J. No. 1408 (S.C.), leave to appeal dismissed (1999), 99 G.T.C. 7083, 1999 BCCA 89 (CanLII), the taxpayer internally allocated the contract price between taxable goods and non‑taxable services according to formula. Notwithstanding the all‑inclusive price, the Court found that the taxpayer had fairly determined the portion of the price representing the goods supplied and properly charged its customer tax on that portion. Thus, it cannot be said that different components of an agreement cannot be separated or "unbundled" in the absence of express statutory provisions. [232] In Ikon Office Solutions Inc. v. British Columbia, (1998) 98 G.T.C. 6282, [1998] B.C.J. No. 1408 (QL) (B.C.S.C.) (leave to appeal dismissed 1999 BCCA 89 (CanLII), [1999] B.C.J. No. 284 (QL)), the British Columbia Supreme Court determined that allocation in an invoice of the contract price between goods and services is bona fide. The court said that PST was properly applied to the portion of the invoice which was allocated to the sale of the goods, even though, on the face of the contract, it was not separate sale of goods from services. At para. 8, the court said the following: ... It is conceded that the issue turns on the interpretation of the contracts between Ikon and its customers. Ikon internally allocated the contract price between goods and services according to formula which accurately reflected the proportion of goods to services supplied, albeit on an average basis. It charged sales tax on that portion to its customers and the tax charged is identified as such on the customer's invoice. The price to the customer, apart from tax, was an all inclusive price and there is no additional charge for toner or parts. However, no additional charge is not the same as no charge. There was charge included in the price, confirmed by the tax billed, which was only levied on goods and not services.... [233] Parties are free to negotiate and structure their contracts as they see fit. The documents created in the transaction are relevant to the interpretation of the transaction, as it pertains to the tax legislation. contextual and purposive analysis of the tax legislation must be undertaken. In doing so, the legal relationship of the parties must be respected. Saskatchewan Statutory Framework [234] The Province of Saskatchewan imposes the PST on all purchases, of goods within the province. The Province of Saskatchewan is only entitled to impose direct taxes. They do not have the constitutional authority to impose indirect taxes. As such, the PST must be imposed on the ultimate or final user or consumer of the goods, in order for it to be valid tax enacted within the Province’s taxing powers. These constitutional principles must be respected in the form, interpretation and application of the legislation. Tax is triggered when the last sale, for the purposes of consumption, occurs. [235] review of the legislative history of the various sections of the PST Act reveals that no material changes to the sections were made which would affect the issues of the time frame covered by this action (1996 to 2001). [236] The taxing provision in the PST Act is contained in s. 5. Subsections 5(1) and 5(2) are the general charging provisions of the PST Act. Those sections impose PST on consumers and users of tangible personal property. As stated, these sections did not change during the period of the claim, although the name and other parts of the legislation changed. Subsections 5(1) and 5(2) provide as follows: TAX ON CONSUMER OR USER Tax 5(1) ... every consumer of tangible personal property, purchased at retail sale in Saskatchewan shall pay to Her Majesty the Queen for the raising of general revenue, at the time of making his purchase, tax in respect of the consumption of the property and such tax shall be computed at the rate of 5% of the value of the property to be consumed. (2) ... every user of tangible personal property purchased at retail sale in Saskatchewan shall pay to Her Majesty the Queen for the raising of general revenue, at the time of making his purchase, tax in respect of the use of the property, and such tax shall be computed at the rate of 5% of the value of the property to be used. [237] The provisions of the PST Act and the definitions contained in the PST Act impose tax on users and consumers of tangible personal property in circumstances where that tangible personal property was not purchased for resale, but was purchased by the final user or consumer. [238] The applicable rate of PST varied over the time between 1996 to 2001, but the obligation was always set by s. of the PST Act. [239] Subsections 5(1) and 5(2) of the PST Act impose tax on every consumer and user of tangible personal property purchased at retail sale in Saskatchewan. As such, the relevant analysis here is whether there was retail sale of tangible personal property and whether it is Husky or the contractors that used or consumed the material. Husky argues that the contractors did not purchase the materials for resale to Husky and as such, the contractors were liable for the PST on the material. Husky argues that the contractors used and consumed the materials. [240] Section 3(h) defines retail sale as “sale of tangible personal property to consumer or user for the purposes of consumption or use and not for resale as tangible personal property”. It is clear that one of the parties is responsible for paying PST when tangible personal property is used and consumed. The question here is which party is the user or consumer of the property that bears the incidence of the tax. [241] Subsection 3(1) of the PST Act sets out the definitions on which the s.5 charging provisions rely. The relevant portion of such definitions are as follows: 3(1) In this Act: (c) "consumer" means person who within the province purchases from vendor tangible personal property at retail sale in the province: (i) for his own consumption or for the consumption of other persons at his expense, or on behalf of, or as the agent for, principal who desires to acquire the property for consumption by the principal or other persons at the expense of the principal; (ii) for the purpose of providing taxable service with the tangible personal property; or (iii) for the purpose of promotional distribution, to the extent that the value of the property is greater than any payment intended to be and subsequently specifically made for that tangible personal property by the person to whom the property is to be provided; [emphasis added] [242] Consumer is given broad definition in the PST legislation. Consumer means person who purchases, from vendor, tangible personal property at retail sale: 1) for his consumption or for the consumption of other persons at his expense; 2) for the purpose of providing taxable service with the tangible personal property; or 3) for the purposes of promotional distribution. [243] User is defined in ss. 3(1)(m). The definition of user, again, is broad definition and includes many different types of transactions and structure. The definition of user is: 3(1) ... (m) "user" means any person who within the province: (i) purchases or leases from vendor tangible personal property at retail sale in the province for his own use or for the use of other persons at his expense, or on behalf of, or as the agent of, principal who desires to acquire the property for use by the principal or other persons at the expense of the principal; (ii) purchases or leases from vendor tangible personal property at retail sale in the province for the purpose of providing taxable service with such tangible personal property; (iii) purchases or leases taxable service from vendor for consideration for his own use or for the use of other persons at his expense, or on behalf of, or as agent of, principal who desires to acquire the taxable service for use by the principal or other persons at the expense of the principal; or (iv) purchases from vendor tangible personal property at retail sale in Saskatchewan for the purpose of promotional distribution, to the extent that the value of the property is greater than any payment intended to be and subsequently specifically made for that tangible personal property by the person to whom the property is to be provided; [emphasis added]; [244] As stated, the definition of user is fairly expansive. User means any person in the province who 1) purchases from vendor tangible personal property at retail sale for his own use, or 2) for the use of other persons at his expense or on behalf of principal who desires to acquire the property for his use or other persons at his expense. [245] Tangible personal property is defined as follows under ss. 3(1)(j): 3(1) ... (j) "tangible personal property" means personal property that can be seen or touched and includes gas used in the operation of internal combustion engines and turbines, and electricity; [246] The definition of “retail sale” and “sale” are found in ss. 3(1)(h) and (i) of the PST Act. Retail sale is defined as follows: 3(1) ... (h) "retail sale" means sale, including sale by auction, of: (i) tangible personal property to consumer or user for the purposes of consumption or use and not for resale as tangible personal property; (ii) taxable services to user for the purpose of use and not for resale; (iii) tangible personal property to consumer or user who purchases the tangible personal property for the purpose of providing taxable service therewith; or (iv) tangible personal property to consumer or user to be used by the consumer or user for the purpose of promotional distribution; [247] Sale is defined as follows: (i) "sale" means: (i) any transfer, exchange, barter or lease, conditional or otherwise in any manner or by any means whatsoever, of tangible personal property for consideration; (ii) the furnishing of taxable service for consideration; and includes an agreement for sale of tangible personal property or taxable service whether absolute or conditional; (iii) the production, fabrication, processing, printing or imprinting of tangible personal property for consideration for person who furnishes either directly or indirectly all or part of the tangible personal property consumed or used in the production, fabrication, processing, printing or imprinting; or (iv) the transfer for consideration of the title to or possession of tangible personal property that has been produced, fabricated, processed, printed or imprinted to the order of the purchaser; [248] As can be seen, “retail sale” and “sale” include number of features. Retail sale includes sale of tangible personal property to consumer or user for the purposes of consumption or use and not for resale. sale includes any transfer or exchange of tangible personal property whether conditional, or in any manner, or by any means, for consideration. [249] As can be seen, the provisions of the legislation impose tax on users and consumers of tangible personal property where it is purchased by the final user or consumer. [250] The term vendor is also defined in the PST Act as follows: 3(1) ... (o) "vendor" means any person who, within the province and in the course of his business or in the course of continuous or successive acts: (i) sells or leases tangible personal property to consumer or user at retail sale in the province for purposes of consumption or use, and not for resale; (ii) sells or leases taxable services to user at retail sale in the province for purposes of use and not for resale; or (iii) sells tangible personal property to consumer or user to be used by the consumer or user for the purpose of promotional distribution. [251] vendor means person who sells tangible personal property to consumer or user at retail sale for the purposes of consumption and not for resale. Subsection 3(2) of the PST Act deems person licenced under the PST Act to be vendor. Section of the PST Act imposes an obligation on anyone who sells tangible personal property at retail sale to hold licence issued by the Minister. It is common ground that each of the third parties here are licenced vendors under the PST Act during the period of 1996 to 2001. [252] Subsection 5(5) of the PST Act is deeming section. That deeming section applies in circumstances where person consumes or uses tangible personal property at resale that is manufactured, processed or produced by that person. Husky has not plead ss. 5(5) in this action. [253] Husky has plead ss. 5(6). Subsection 5(6) of the PST Act states the following: 5(6) Subject to the regulations, where contractor or manufacturer enters into contract for the supply and installation of tangible personal property and during the carrying out of the contract consumes or uses tangible personal property produced, fabricated, processed, printed or imprinted by him the contractor or manufacturer shall be deemed to be consumer or user of the tangible personal property and to have purchased the tangible personal property at retail sale in the province at the time of consumption or use at value that includes the total cost of the tangible personal property together with the total cost of its production, fabrication, processing, printing or imprinting to the time of such consumption or use. [254] Subsection 5(6) is deeming provision as well. It provides for circumstances where contractor or manufacturer enters into contract for the supply and installation of tangible personal property and where, during the carrying out of that supply and install contract, the contractor consumes or uses tangible personal property that was produced or processed by the contractor. In such cases, pursuant to ss. 5(6), the contractor is deemed to be the consumer or user of the tangible personal property. Husky argues that s. 5(6) deems the third party contractors to be the consumers of the tangible personal property in the well cementing contracts. [255] In order to determine whether Husky or the third parties is user or consumer of the cementing materials, the context of the contracts between the parties must be remembered. In order to determine who is the ultimate user or consumer of the products, the factual context within which the transactions took place must be examined in relation to the legislation Has Husky Established There Was an Agreement Between Saskatchewan Finance and the Third Parties to Have Husky Pay the PST on Contracts? [256] Husky asserts that the PST was improperly charged and collected and remitted because there was no purchase and/or sale of the cement between Husky and the third party contractors. Husky asserts that the third party contractors are liable to pay PST but were charging the PST on the cement in their invoices by virtue of an arrangement which the contractors had with Saskatchewan Finance. Husky asserts that Saskatchewan Finance had this arrangement with the contractors so that the contractors avoided the need to self-assess the PST in respect of the cement. Husky asserts that such an agreement cannot form the legal basis upon which Husky must pay PST. [257] Husky asserts that Saskatchewan Finance’s correspondence to Husky of November 29, 1999 and July 23, 2002 is evidence of this agreement. The 1999 Saskatchewan Finance correspondence stated: Saskatchewan Finance has had long-standing arrangement allowing the oil industry to bill in this manner. The oil producers wanted firms (including fracturing and cementing firms) working for them to provide details of all charges on their invoices. We allowed this billing procedure, as we were advised materials were always billed at or near cost. The result of this method of billing allows firms, such as yours, to be aware of all charges that are included in the price of the job. You do not pay any additional PST by this method of billing, you have merely been shown the tax paid on items such as cement or fracturing chemicals. For these reasons, we must deny your refund request. Our auditor, Chuck Toy, will be contacting you shortly for finalize [sic] his audit of your firm. [258] Saskatchewan Finance’s 2002 correspondence to Husky said: Saskatchewan Finance has had long-standing arrangement allowing the oil industry to bill in this manner. The oil producers wanted firms (including fracturing and cementing firms) working for them to provide details of all charges on their invoices. We allowed this billing procedure, as we were advised materials were always billed at or near cost. The result of this method of billing allows firms, such as yours, to be aware of all charges that are included in the price of the job. As you are aware, Saskatchewan Finance has held meetings and is presently corresponding and with the Canadian Association of Petroleum Producers (CAPP) and the Petroleum Services Association of Canada (PSAC) to attempt to reach resolution on this matter. [259] Husky asserted that Saskatchewan Finance correspondence of November 29, 1999 and July 23, 2002 is evidence of the agreement between Saskatchewan Finance and the third parties. [260] Husky presented no direct evidence of such an agreement between Saskatchewan Finance and any cementing contractor. Saskatchewan Finance witnesses testified there was no such agreement. The third party contractors testified they knew of no such agreement. There was complete lack of direct evidence to support the assertion Husky suggested. [261] Husky argued that it was this agreement between Saskatchewan Finance and the cementing contractors that altered the real nature of the agreements such that Husky was improperly forced to pay the PST on cementing transactions. However, there was no evidence that Saskatchewan Finance and the third party contractors entered into an agreement to alter the nature of the contracts so that oil producers, such as Husky, paid the tax when they otherwise would not have been legally obligated to pay the PST. To the contrary, the evidence established that Husky determined the way in which the bids were submitted in response to the requests for bids and the way in which Husky was invoiced. [262] Saskatchewan Finance’s correspondence of November 29, 1999 and July 23, 2002, is not evidence of an agreement between Saskatchewan Finance and the third parties. Rather, these two letters indicate Saskatchewan Finance’s understanding of the business arrangements between the third parties and Husky as an oil producer. The letters establish no more than that Saskatchewan Finance acquiesced to the billing arrangements arrived at between the oil producers and cementing contractors, including Husky’s desire to construct the contracts in the manner contained in the documents and Husky’s requirement that there be breakdown of the charges between materials and services. [263] Husky has failed to prove there was an agreement between Saskatchewan Finance and the third parties. The Well Transaction Contracts a) Has Husky proved the contracts for each well transaction? [264] The Government of Saskatchewan argues that Husky has failed to prove the contracts or documents that apply to all the well cementing transactions during the period for which Husky sues for the return of the PST. The Government of Saskatchewan argues that Husky has failed to meet the onus of proving the contracts in relation to its claim and, as such, the claim must fail. [265] Husky has not produced or proven all of the documents that record and reflect the transaction for each well for which refund of PST is claimed during the period of this lawsuit. Rather, Husky has filed representative documents. There are samples from various transactions, including some wells in Alberta (which are not applicable to this Saskatchewan claim). There was no explanation from Husky as to why the documents that reflect each transaction for each well or campaign of wells were not filed. [266] Husky argued that the contracts were the same for each well regardless of the documents executed in relation to particular well. Mr. Ellsworth testified that, in Husky’s view, an MSA applied to each well transaction, whether an MSA was signed or not. This was contrary to the evidence. The evidence established that in some instances, third parties refused to execute an MSA. [267] Husky failed to establish that there was Master Services Agreement in place for all of the transactions entered into with each third party between 1996 to 2001. [268] The evidence indicates there were two Master Services Agreements tendered into evidence between Husky and Trican. The first agreement, which is Exhibit PT-2 dated January 1, 1998 was for one year for the period to December 31, 1998. This particular Master Services Agreement had time limit, and it was also project specific, that is, it was specific to group of wells Husky contemplated drilling for heavy oil and gas. There was no Master Services Agreement with Trican prior to January 1, 1998, although Trican was providing invoices to Husky prior to January 1, 1998. After the January 1, 1998 MSA (Exhibit PT-2), there was no evidence of an MSA between Trican and Husky until May 15, 2000. further Master Services Agreement (Exhibit PT-13) was entered into on May 15, 2000 and this Master Services Agreement had no termination date. However, that Master Services Agreement was restricted to the Lloydminster Completions Project. This would have included well abandonment, remedial squeeze and well servicing work. It did not include primary cementing according to the evidence of Mr. Ellsworth. [269] There is no evidence that there was Master Services Agreement in effect with Trican from 1996 to January 1, 1998, or from January 1, 1999 until May 15, 2000. There were many transactions between January 1, 1999 and May 15, 2000, but no applicable Master Services Agreement. It appears that there was approximately 113 invoices during that period, so one would infer in that time period there were at least 113 well transactions that were contracted with Trican where no MSA was in place. [270] Of the 369 transactions with Trican during the period of the claim, only 131 were covered by Master Services Agreement. In 1996, there were 121 invoices which were the subject of the claim but there was no Master Services Agreement in effect. In 1997, there were four invoices but no Master Services Agreement in effect. In the period of 1998, there were 121 invoices and there was Master Services Agreement in effect. In 1999, there were 112 invoices but no Master Services Agreement in effect. Between January and May 14, 2000, there was one invoice and no Master Services Agreement in effect. Between May 15 and December 31, 2000, there were four invoices and Master Services Agreement, but limited to Lloydminster completions. In 2001, there were six invoices limited to Lloydminster completions. [271] It is clear that the records of Husky indicate that the majority of transactions between Husky and Trican were not covered by any Master Services Agreement. [272] Likewise, with respect to Sanjel, there was only one Master Services Agreement in place between Sanjel and Husky during the period of this claim. That was Master Services Agreement entered into between the two parties on May 15, 2000. This was an agreement signed by the Husky Lloydminster offices and was limited to completion work. There was no other Master Services Agreement between Husky and Sanjel. [273] Husky did not produce evidence to show what specific invoices from Sanjel related to completions work that would be covered by the May 15, 2000 Master Services Agreement, as opposed to primary cementing work. The evidence did not establish how many of the invoices from Sanjel were covered by the Master Services Agreement. [274] Likewise, there was only one Master Services Agreement in place with Nowsco (BJ Services) (Plaintiff Third Party Exhibit 21) and it had no termination date. The Master Services Agreement with Nowsco had no Schedule attached which described the contracts that it applied to. [275] It is clear Husky did not enter into evidence all of the Requests for Quotations. It is also clear that Husky did not identify which invoices related to which RFQs. Nor did Husky identify which invoices related to purchase orders. [276] Husky did not present the documents for each well, nor did it identify the contracts for each well. Husky failed to prove the request for bids for each well. It failed to identify all the invoices that related to particular RFQs. [277] It is established that Husky paid PST on the invoices. However, Husky has failed to identify the contracts that apply to each invoice. Husky failed to prove all of the successful bids for each well. There are no bid documents for 1996 and only one from 1997. Husky has failed to produce evidence to establish what the contracts were for each well and/or transaction. In short, Husky seeks refund without proving the well cementing contracts for each well and without establishing that the terms of the transactions were the same for each well. [278] The absence of evidence regarding agreements, invoices and other documents is troublesome. However, it does not raise an adverse inference against Husky that other documents reflect substantially different agreements. In the circumstances, will determine the nature of the agreements on the basis of the documents and evidence presently before the court. b) What can be determined about the nature of the contracts in relation to the evidence produced? [279] As stated, Husky has not proved the contracts for each well or campaign of wells. Evidence was presented with respect to some of the well cementing transactions between Husky and the third parties. If one assumes those documents represent the terms of the contracts between the parties, it is possible to glean from that evidence the nature of the agreements between the parties. [280] What is apparent from the evidence is that the agreements between Husky and the third parties for well cementing were not contained in single contract. There were number of documents that must be read together in order for the nature of the well cementing transactions to be determined. [281] In this case, Husky called no evidence about the intentions of the parties at the time of the parties entering into the agreements. Mr. Ellsworth and the third parties did testify that it was Husky who dictated the structure and terms of the agreements. It was Mr. Ellsworth’s evidence that Husky did this to control costs. [282] It appears clear that in relation to every agreement between Husky and the third parties, request for bid was sent out by Husky. Husky demanded in its request for bids that the contractors provide considerable detail in the bids to be submitted by the cementing contractors. It is clear that Husky required the bids submitted by the contractors to include the following items and information: breakdown of bid charges, including price per tonne of cement FOB location, which was to be constant throughout the area of the wells; bid price for all additives to the cement and blending charges; the price for abandonments and the list price per tonne of right angle set cement; price for fixed set-up charges which, again, was to be constant throughout the area regardless of the depth and pumping time included; fixed mileage rate, which was independent of the number of vehicles used; fixed prices for plug charges; and additional charges other than those specified in the additional charges section. Those additional charges could include the number of free waiting hours or waiting time and additional pumping rates. Husky also required the contractors, in their bid, to provide an alternate cement blend, and to address other issues the contractor thought appropriate. Husky required contractors to set PST out separately in the bid document. Again, this is relevant because Husky contemplated the sale of goods when it referenced requirement of PST to be in addition. [283] In requesting price to be quoted for FOB (freight on board location), Husky was seeking the contractor to bid price per tonne of the dry cement blend delivered to the well site. This was required in every request for bids. The evidence was clear that the cementing contractors bid the contract on the basis of price for the dry cement blend, which included the contractors blending and hauling charges, in this one price. This practice made comparing of the bids easier for Husky. Husky never requested bid for the price of slurry. [284] Husky never sought the bid for the completed installation of the well bore. It was because of Husky’s requirement that the bids were prepared this way. It is of interest that the request for bid and the bids reflected the price book structure of the third party contractors. [285] It is clear from the evidence that the first step in the process was this request for bid from Husky. The same requirements were demanded by Husky, whether Husky used an RFQ or not. Husky has failed to prove all of the RFQs that were involved in the contracts between the parties in relation to this claim. What can be gleaned from the evidence is that Husky solicited bids for well cementing services from the contractors and invited bid proposals for particular project. Husky advised that the bids from the cementing contractors would be evaluated on several bases: on financial cost benefit to Husky; on the bidder’s ability to provide the service to Husky; on the bidder’s ability to deliver product and services in timely manner; and, on the types of services that the bidder could provide. This was the same whether an RFQ was used or not. [286] In the instances where there was an RFQ, the RFQ sometimes indicated that the successful bidder would enter further legal agreement with Husky. The RFQ stated that the legal agreement would be prepared by Husky and would embody the terms of the RFQ, including the terms and conditions contained in the RFQ, and any subsequent negotiations and clarification. Despite the fact that some RFQs included this clause, such further legal agreement (an MSA) was not always executed between the parties. [287] In other RFQs, the RFQ stated that where there was further legal agreement, such agreement would govern, but those RFQs did not require such an agreement. [288] RFQs were entered into evidence for 1998 to 2001, although as stated, it appears not all RFQs that were used for this period for well cementing were entered into evidence. [289] In the instances where an RFQ was issued, all the RFQs made reference to goods being provided to Husky by the contractors. While will discuss this later, it is of note that the parties were using “sale of good” terminology in the RFQs. The RFQs referred to the bidder’s ability to deliver products and services. The RFQs refer to “delivery” which is consistent with the delivery of product. The RFQs, where used, attached spreadsheet for bidders to complete. This required the contractors to separate the cost for services from the cost for cement and additives. [290] The RFQ from February 26, 1999 (Exhibit D11) used different format than the RFQs in evidence. This RFQ was issued by the Lloydminster office. This RFQ contained references to goods, both under the Compliance, Warranties, Termination, Force Majeure, Price and Payment, Forms and the Terms and Conditions sections. In the RFQ at Exhibit D11, there are the following references to goods being supplied by the contractors: 1. Entire Agreement .. The shipment of any goods by the Vendor ... shall constitute an acceptance of this Agreement ... Compliance Vendor warrants that all goods and services provided hereunder shall have been produced, sold, delivered and furnished in strict compliance with all applicable laws ... 4. Warranties and Guarantees Vendor warrants it will have unfettered right to sell the goods and services at the time the title is to pass; Husky will have quiet possession of the goods and services free of any charge or encumbrance; all goods and services to be furnished ... the goods and services will be fit and sufficient for the purpose intended not withstanding [sic] that the goods and services or any of them or any part thereof are described in patent... 9. Termination at Option of Husky ...Upon termination by Husky under this Clause, Husky shall pay to Vendor the price of all goods and services which have been provided in accordance with this Agreement ... 10. Termination for Default of Vendor If Vendor refuses or fails to make deliveries of the goods and services specified in this Agreement ... 11. Force Majeure If, for reasons beyond its reasonable control, Husky is prevented from proceeding with the project for which the goods and services has been procured ... 15. Price and Payment Unless otherwise expressly stated, the price herein specified shall include all taxes, duties, charges and services of any kind which either party is required to pay with respect to the state of the goods and services covered by this Agreement. The time for payment of invoices or for accepting any discounts offered, shall run from the date correct invoices are received by Husky. ... Forms The parties acknowledge that invoices and other documentation of the Vendor may contain various contractual terms relating to goods and services provided by the [V]endor... [Emphasis added] In addition, the RFQ indicated that the third party contractor would show PST as separate item on invoices: 16. Taxes and Duties All invoices submitted by [V]endor shall show as separate item applicable Duty and Goods and Services Tax (GST) and Sales Tax ... [emphasis added]. [291] Mr. Ellsworth was unable to provide any evidence about the Lloydminster practices or contracts. There was no evidence as to which contracts the Lloydminster office had in place (that is, whether they only utilized an Exhibit D11 type of RFQ or utilized other types of requests) in relation to wells cemented. There was no evidence as to how many other RFQs took the form of Exhibit D11. The only evidence is Exhibit D11 which characterizes the sale and delivery of goods. [292] Most of the RFQs in evidence included “Year 2000 Warranty” clause that clearly relates to the sale of goods. Exhibits PT132, PT133, PT 139, D13, D21 and D14 include the following Year 2000 Warranty: 1.7 Year 2000 Warranty Vendor represents and warrants to Husky, and confirms Husky is relying on the accuracy of each such representation and warranty in connection with the purchase of the Goods, and any and all Goods shall by Y2K Compliant at all times during the term of this Agreement and thereafter. Goods shall be deemed to be “Y2K Compliant” if the performance, accuracy and functionality of the Goods, or any part or component of the Goods, will not be adversely affected by the use of the Goods after September 8, 1999, nor by the input into the Goods or use of any dates by the Goods which bear date which falls after September 8, 1999 ... [emphasis added] [293] The RFQs identified and contemplated goods being provided by the third parties to Husky. The RFQs are Husky documents. Husky requested the contractor to bid the contract by identifying cost for goods and services. [294] The RFQs with the Year 2000 Warranty clause clearly contemplated Husky purchasing goods from the third parties. Only three RFQs were entered into evidence by Husky which did not contain the Year 2000 Warranty clause. Exhibit D7 (which was letter to Nowsco for remediation work), Exhibit D15 (which was the same document as Exhibit D28; PT 144) and Exhibit PT 147. These did not contain the Year 2000 Warranty clause. [295] All of the RFQs referred to price for cement. The RFQs with the Year 2000 Warranty clause refers to Husky purchasing goods from the third parties. [296] The RFQs entered into evidence all made reference to either the sale or purchase of goods or materials. The RFQs referred to bid for cement based on price per tonne, FOB location; the RFQ spoke of the third parties delivering product; in the Terms and Conditions section, the RFQ language included reference to “shipment of goods”, “right to sell goods” and “warranty of goods”. In the RFQs with Year 2000 Warranty, the language included “purchase of goods”. [297] All bids by contractors, which were prepared in response to Husky’s request for bids, were broken down between charge for materials (cement with additives and other materials) and service charges. The bids contained variable charges, which were the charges for the cement. The bids contained fixed charges, which were for the set-up charge. It is clear that Husky only bought cement from the contractors when it also engaged services from an individual contractor. [298] As stated earlier, no bid documents were proven for 1996. One was proven for 1997 and it contained price per tonne price for dry cement. [299] As stated, submissions of bid to Husky by the third parties were prepared in response to the request for the bid. The contractor’s bid documents were drafted in manner to reflect the information requested by Husky. The bid documents in evidence show that the bids itemized the amounts for the cement and additives, and the services. It is clear that in preparing bid, the cementing contractors would assess the relevant data and produce their technical program for the wells. The technical program outlined how much cement the contractors estimated would be required for the particular job. The preparation of the bid usually involved bidding the contract on the basis of discounted price from the contractor’s price book. The contractor’s price book contained proprietary price for cement and additives. Again, the bid was broken down between services to be provided, which was static or fixed price cost, and the materials to be provided, which was variable cost. [300] It is clear that when the cementing contractors made bid, Husky was not able to accept only part of the bid. That is, they were not able to accept the bid for services, but not accept the bid for cement supplied. Likewise, Husky could not accept the bid for cement supplied without accepting the bid for services. The third party cementing contractors only bid the contract on the basis that the bid, as whole, was accepted or rejected. [301] It is also clear that the submission of the bid or pricing to Husky by the third parties did not include an amount for PST. The PST was always contemplated to be in addition to the prices quoted, and only charged on the materials provided. Again, the parties appear to have contemplated the sale of property by reference to the application of PST. [302] Husky then analyzed the bids. Once the bids were analyzed, Husky awarded the contract to the chosen well cementing contracting company. [303] After the awarding of the contract, in some cases, services contract was prepared by Husky and the parties signed it. These contracts, as stated, were referred to as the Master Services Agreement (MSA). In other cases, an MSA may have already been in place between the parties. In some situations, an MSA was in place for period of distinct time. If so, and if the MSA related to the area and type of work undertaken, the MSA formed part of the written contract. In yet other cases, there were no MSAs in place. [304] Husky’s witness, Mr. Ellsworth, suggested that the MSA was the controlling contractual document with respect to all well cementing contracts, regardless of whether there was signed MSA in place. Of course, that is not the case. The MSAs only applied if one was signed and the well cementing contract took place under such an MSA. [305] Husky took the position that the MSA was the controlling document for each transaction and was service contract. Husky argues this is evidence that the well cementing contracts did not include term for the sale of materials. However, this is not true reflection of the commercial relationship between Husky and the third parties. This characterization does not reflect the commercial realities of the contracts in evidence nor even the evidence of Husky’s witness, William Ellsworth. [306] Husky has not established that an MSA was in place throughout the entirety of the claim period with each of the third party contractors. As well, an MSA was only relevant when work had been awarded by Husky to particular third party cementing contractor and an MSA had been signed between the parties for the period of time in which the well cementing was undertaken, and for the work undertaken. An executed MSA did not obligate Husky to award work to the cementing contractor. As well, nothing in an MSA required the third party cementing contractors to provide work to Husky. [307] So what has been established is that in each and every case, when work was undertaken, Husky issued request for bid or an RFQ and in response, the third party cementing contractors submitted bid. Thereafter, on the basis of that bid, Husky would award the cementing contracts. It is only when the work was awarded to the third party cementing contractor that the RFQ, the bid and the acceptance of the bid became Schedule to the MSA, if there was an applicable MSA. It was at that point that an MSA, if one was executed between the parties and related to the particular well cementing program, became operative as part of the well cementing contract. [308] In instances where no MSA was in place, but where the third party cementing contractor’s bid was accepted by Husky, field work order was prepared and the field work order became part of the agreement between the parties. [309] Where there were MSAs in place, Husky prepared the MSA. The MSA was Husky’s document. As stated, in some cases, the Master Services Agreement was in place for period of time and so such Master Services Agreement would not have been re-executed by the parties if Husky awarded further contract for the cementing of further wells to the third party contractor. [310] If no MSA was executed between the parties, Husky continued to contract with the third parties. By way of example, on April 25, 2001, Husky sent Master Services Agreement to BJ Services for execution. In that case, BJ Services refused to execute the agreement. BJ Services, which was an American owned company, took objection to the Master Services Agreement and did not sign such agreements. However, Husky continued to work with BJ Services and contract with them for well cementing despite BJ’s refusal to execute an MSA. Plaintiff Third Party Exhibit 72 was an example of contract not signed by BJ Services. [311] In cases where there was an MSA, the MSA itself referenced that the third parties were to supply services, materials and supplies. The MSA sought warranty from the third party contractors on the goods provided under the agreement. The MSA, where one was used, attached the RFQ and bid by the contractor to the MSA and made the RFQ bid part of the agreement. The RFQ and the bid, in every instance for every well, set out price to be paid by Husky for the materials provided by the contractor. [312] After there was an award of bid, whether or not an MSA existed, Husky always prepared detailed drilling program, which included the well cementing programs as prepared by the contractor in their bid. The detailed well cementing program contained the detailed procedures and reporting requirements required for the well construction project. This drilling document was prepared by Husky. As stated, it set out in the document the detailed cementing program from the third party contractor. The document included the number of tonnes of surface cement, tail cement, surface casing, and other materials that were to be supplied. It also included the FOB price for the cement delivered to the location, based on per tonne of cement. The document indicated that all quantities of cement were estimated and subject to change, depending on the actual amounts used. This drilling program also provided instructions for how the cementing was to be done. The drilling program was Husky’s program. Husky designed the well, the drilling and controlled the cementing process. [313] The other document that was always prepared in respect of each well was field services ticket or service order. The third party cementing contractors always prepared field service ticket. Examples of such field service tickets are at Plaintiff Third Party Exhibit and Plaintiff Third Party Exhibit 121. Field services tickets contained the prices, services charges, travel charges, cementing additives, chemicals and pricing used in the cementing of well. It also included an extra charge for PST on the document. The service ticket was prepared by the contractors in the field at the well site. It itemized the actual materials used in the job. The field service ticket was produced to Husky and the Husky representative signed it at the well site. The signature of Husky stated “the signature confirms that have read and complied with all of the terms and conditions as noted on the reverse of this document.” The MSA documents recognized the use of service tickets and in fact required the contractor to provide field ticket to Husky as verification for invoices, even where an MSA was in place. One of the purposes of the field ticket was to identify and verify for the parties the amount of cement delivered to the well site, which was used later for verification of invoice amounts. [314] On the reverse of the field ticket was “stimulation remedial cementing services report”. This was document of the events and recording of what was done by the third party contractor at the well site. The cementing service report was started to be prepared by the contractor before the job started. It was completed by the contractor at the end of the job, at the well site. The size of the well bore, the volume of chemicals, when the equipment arrived, and when the job was finished, were all recorded on this service ticket. The tickets for the period of 1994 to 1998, in relation to Sanjel, contained the following on the back of the service ticket: CONTRACT CONDITIONS (This order must be signed before work is commenced). To Sanjel Cementers Ltd. The undersigned, as customer, has read the instructions set forth above and agrees that they are correct in all respects. The above job shall be under the general supervision and control of the owner, operator, or his agent, whose signature appears below; however, it is expressly understood and agreed that Sanjel Cementers Ltd., will perform the work as an independent contractor and not as employees of the owner, operator, or his agent. It is understood and agreed that because of uncertain and/or unknown conditions existing in all wells, Sanjel Cementers Ltd., does not guarantee the results of the work performed under this agreement. Customer agrees that should any of the Sanjel Cementers Ltd., equipment be lost or destroyed, customer will use all reasonable efforts to recover the said equipment or reimburse Sanjel Cementers Ltd., for the reasonable value thereof. It is expressly understood and agreed that Sanjel Cementers Ltd., will not be bound by any other agreement not herein contained, and no agent or representative employed directly or indirectly by Sanjel Cementers Ltd., has authority to alter or amend the terms of this agreement. have read, understood and accept the foregoing conditions and represent that am authorized to sign this order as the agent of the owner or contractor. [315] All of the parties agreed that Husky had complete control of the well cementing. The field ticket confirmed that Husky controlled the well cementing. [316] Later, when Sanjel utilized 2000 ticket, the following was contained on the back of the service ticket: ... Warranties Limitation of Liability Sanjel warrants only title to the product, supplies and materials and that the same are free from defects in workmanship and materials. THERE ARE NO WARRANTIES EXPRESSED OR IMPLIED OF MERCHANTABILITY, FITNESS OR OTHERWISE WHICH EXTENDS BEYOND THOSE STATED HEREIN. Our liability and the Customer’s exclusive remedy in any cause of action (whether in contract, tort, breach of warranty or otherwise) arising out of the sale or use of any products, supplies or materials is limited to the cost of such products or services with no punitive or consequential damages. ... It is expressly understood and agreed that Sanjel will not be bound by any other agreement not herein contained, and no agent or representative employed directly or indirectly by Sanjel has authority to alter or amend the terms of this agreement. (p. 39, Plaintiff Third Party Exhibit 120) [emphasis added] [317] After the well completion, the third parties invoiced Husky. The invoices contained price for cement based on price per tonne FOB. The PST amount was separately indicated on the invoice. Husky paid the PST based on the invoiced amount. [318] The determination of which party is liable for the PST must be based on the well transaction documents and what was undertaken between the parties. The factual context within which the transactions took place between Husky and each of the third parties must guide the analysis. [319] The request for bids, RFQs, the bid proposals, the MSAs, where they existed, and purchase orders field tickets, where no MSA existed, must be read together as forming the well cementing contract. Each and every one of those documents reflects breakdown of services and materials during the period in question. In fact, Husky requested that the contractor separate the cost of services from the cost of materials in its bid proposals sent in response to the request for quotation. Husky requested the contractor separate the costs of services. The invoices were to mirror the accepted bid proposal. [320] It is clear that Husky wished to have the bids broken down between services and material, because the services were billed by depth and the materials were billed by volume. In any particular well, the exact volume and depth of the well bore could not be determined until the time of drilling. Requesting that the bids be submitted in the form that Husky sought allowed Husky to compare its bids across the various companies bidding for the job. [321] The evidence does establish the following: 1. With respect to every contract between the third party cementing contractors and Husky, request for work from Husky was issued. In certain instances, the request for work was through formal RFQ document, some of which we have seen in the evidence. However, at other times, the request for work came informally, through Husky representatives contacting the sales person of the third party contractors directly. It is also clear that in each and every case, the request for work asked the third party cementing contractors to provide bid for the services to be provided and bid for the materials to be used, including cement and additives. In every case, PST was to be in addition to the price bid for the materials provided. 2. Each of the RFQ documents referred to materials being supplied. The RFQ included reference to the shipment of goods by the third parties, the third parties’ right to sell goods to Husky and the third parties’ warranty of goods. The majority of RFQ documents in evidence included the Year 2000 Warranty clause which referred to the “purchase” of goods by Husky. 3. It is also clear that the third party contractors provided submission of bid or submission of pricing for materials to Husky. price per tonne FOB of cement was part of the bid. In each of those submissions or bids, prices for the materials did not include PST. This was contemplated in each and every case to be in addition to the prices quoted for the materials. 4. In some instances, there was an MSA in place. The MSAs were titled Service Agreements but they referred to the acquisition of “materials” by Husky from the third parties. 5. Husky designed the well cementing program and had control of the well cementing process. 6. After the well was complete, Husky signed the service ticket. The service ticket contained all of the pricing for the amount of materials supplied to Husky. The ticket was signed by Husky, and then it was sent to the third party contractor’s head office to produce final invoice. The field service ticket contained information as to the actual materials used in the job. The Husky representative signed the document. The field ticket was reflection of what happened at the well site. Where no MSA was in place, the field ticket might be considered part of the contract. 7. After the field service ticket went back to the third party contractor, the third party contractor prepared an invoice. On the invoices of all third party contractors, the charges were itemized by charges for service and charges for materials that were associated with particular job. 8. All third party contractors and Husky indicated that in the entire time covered by this lawsuit, the request for quotations, the bid, the service ticket and the invoice all had breakdown of services and materials and all added PST to the materials used in the cementing. 9. Throughout the term of this lawsuit, the third parties collected PST on all of the materials it supplied to Husky and remitted that PST to the Saskatchewan Government. Throughout the time, the third parties always invoiced and charged PST and Husky paid the PST. [322] The evidence established that the transactions were structured as they were for numerous reasons, including that Husky wanted to maintain control of the construction of the wells and wanted to pay the least cost possible in relation to the transactions. [323] Husky asserts that the contracts entered into between Husky and the third party contractors were service contracts. They assert that the contracts are clear and unambiguous and did not provide for the distinct sale of both services and tangible personal property. Husky relies primarily on the MSAs to assert this position. Husky also asserts that it was not the intention of the parties when entering into the contract that it was contract for goods and services. [324] Husky argues that even if the contracts between itself and the contractors are not clear or unambiguous, the evidence discloses that the conduct and intention of the parties was consistent with the finding that these were contracts for services and not separate contracts for services and the sale of tangible personal property. Husky argues that structuring the contracts as separate sale of cement would have had no business purpose and would have caused Husky to pay more PST than would have been the case if the contractors self-assessed PST in respect of the cement. [325] However, while Husky makes that argument, the evidence establishes Husky sought the bid to include price for the service and price for the materials so that Husky would pay less for the contract. The contractors bid the contract based on price for services and price for materials, and PST was added on to the price of the materials. Third party contractors bid the contract that way, submitted their invoice that way and Husky paid the invoice including the PST throughout the period of time covered by this claim as they directed. [326] The request for quotations and bids referred to the acquisition of materials by Husky. The majority of RFQs entered into evidence refer to the purchase of goods by Husky. The MSAs also have features applicable to the sale of materials. The RFQs, the bids, the MSA and/or field tickets where applicable, form the contracts between the parties. Those contracts must be interpreted in relation to the legislation. Is Husky the user or consumer of cementing materials under the legislation? [327] It is clear that ss. 5(1) and 5(2) of the PST Act impose the obligation to pay tax on the user or consumer of tangible personal property purchased at retail sale in Saskatchewan. The starting point, then, must be what is the definition of sale pursuant to the PST Act. Section 3(1)(i) defines sale for the purposes of the PST Act as any transfer, exchange, conditional or otherwise, in any manner or any means whatsoever of tangible personal property for consideration. [328] It must be remembered that parties are free to structure their contracts in any manner they wish. In Shell Canada Ltd. v. Canada, 1999 CanLII 647 (SCC), [1999] S.C.R. 622, 178 D.L.R. (4th) 26, the Supreme Court of Canada noted that even if the structure of the transaction was determined by desire to minimize the amount of tax payable, the courts must be sensitive to the economic realities of particular transaction rather than being bound to what first appears to be its legal form. At paras. 39, 40 and 45, McLachlin J. (as she then was) said the following: 39 This Court has repeatedly held that courts must be sensitive to the economic realities of particular transaction, rather than being bound to what first appears to be its legal form: .... But there are at least two caveats to this rule. First, this Court has never held that the economic realities of situation can be used to recharacterize taxpayer's bona fide legal relationships. To the contrary, we have held that, absent specific provision of the Act to the contrary or finding that they are sham, the taxpayer's legal relationships must be respected in tax cases. Recharacterization is only permissible if the label attached by the taxpayer to the particular transaction does not properly reflect its actual legal effect: ... 40 Second, it is well established in this Court's tax jurisprudence that searching inquiry for either the "economic realities" of particular transaction or the general object and spirit of the provision at issue can never supplant court's duty to apply an unambiguous provision of the Act to taxpayer's transaction. Where the provision at issue is clear and unambiguous, its terms must simply be applied: ... 45 However, this Court has made it clear in more recent decisions that, absent specific provision to the contrary, it is not the courts' role to prevent taxpayers from relying on the sophisticated structure of their transactions, arranged in such way that the particular provisions of the Act are met, on the basis that it would be inequitable to those taxpayers who have not chosen to structure their transactions that way. This issue was specifically addressed by this Court in Duha Printers (Western) Ltd. v. Canada, 1998 CanLII 827 (SCC), [1998] S.C.R. 795, at para. 88, per Iacobucci J. See also Neuman v. M.N.R., 1998 CanLII 826 (SCC), [1998] S.C.R. 770, at para. 63, per Iacobucci J. The courts' role is to interpret and apply the Act as it was adopted by Parliament. Obiter statements in earlier cases that might be said to support broader and less certain interpretive principle have therefore been overtaken by our developing tax jurisprudence. Unless the Act provides otherwise, taxpayer is entitled to be taxed based on what it actually did, not based on what it could have done, and certainly not based on what less sophisticated taxpayer might have done. [329] Likewise, the jurisprudence confirms that parties to transaction can construct an agreement for the acquisition of component materials and for the provision of services in the same contract. In Burrard Yarrows Corp. v. British Columbia (Minister of Finance), (1984) 1984 CanLII 779 (BC CA), 55 B.C.L.R. 178, [1984] B.C.J. No. 15 (QL) (B.C.C.A.), the following was said at para. 28: 28 agree with the appellant's contention that the parties to the contract intended and provided in the document for, and indeed implemented, two aspect agreement: one for the acquisition of component materials in the name of Norsk by Burrard as its agent and the other for the provision by Burrard of fabrication services. Consequently the barges as they emerged were the continuing property of Norsk and the delivery of the finished vessels against payment of the agreed cost, not being transfer of property, did not constitute sale of tangible personal property within the meaning of the Act. [330] One of the issues to be resolved is whether the nature of the contracts establish “sale” of tangible personal property. Canadian jurisprudence has interpreted the word sale in two ways: it has been limited to its legal meaning under commercial sale of goods law or it has been given broader meaning which includes any transfer of property for consideration. [331] The Supreme Court of Canada, in the Will-Kare Paving Contracting Ltd. v. Canada, 2000 SCC 36 (CanLII), [2000] S.C.R. 915 case, which was decided in the context of the Income Tax Act, R.S.C., 1985, c. (5th Supp.)], is instructive on the interpretation of the term sale with respect to taxing statutes. In Will-Kare, the Supreme Court of Canada noted that tax law takes business transactions as they find them. In Will-Kare, the taxpayer operated paving business. In order to obtain asphalt to be used in such business at lower rates, the tax payer constructed its own asphalt plant. Will-Kare claimed various income tax deductions on the basis that the plant was used for the manufacturing or processing of goods for sale. The Supreme Court of Canada denied the claim for manufacturing and processing deductions under the Income Tax Act. In doing so, it examined the lines of authority on whether activities constituted manufacturing and processing of goods for sale. [332] One of the lines of authority considered by the Supreme Court in Will-Kare was that arising out of the decisions in R. v. Nowsco Well Service Ltd., (1990) 90 D.T.C. 6312 (F.C.A.) and R. v. Halliburton Services Ltd., 85 D.T.C. 5336 (F.C.T.D.), aff'd 90 D.T.C. 6320 (F.C.A.). The operation of the taxpayers in Nowsco and Halliburton were almost identical to the business carried on by the third party contractors in the case before me. In fact, BJ Services is the successor corporation to Nowsco. In those cases, the Federal Court of Appeal determined that the well cementing qualified for tax treatment as manufacturing and processing. The court determined good was being produced for sale applying the broad interpretation of the word sale. The provision of service in conjunction with supply of manufactured good was considered sale of goods in the context of the Income Tax Act. It is noted that this line of authority interpreted the term sale to include any transfer of property for consideration. Justice Urie, in Nowsco, said the following at p. 6319: am of the opinion that common‑sense, realistic and business‑like appreciation of all of the foregoing indicates that the Respondent does not enter into pure service contracts, but, rather processes goods to the operator/customer's specification which it utilizes to perform the specialized services required of it by its customer. It does so by means of what the Trial Judge described as 'mobile factory' which utilizes the various materials, mixtures and blends produced for delivery to the well bore for the purposes required by the customer. Contrary to the argument of counsel for the Respondent, believe that determining the particular time at which and where title to the goods passes, is of little importance, on the facts of this case, in the determination of the relationship between the parties. However, what is of some significance, think, is that since the products furnished are produced to the particular specifications of the operator/ customer and must be paid for by it whether completely used or not (subject to some limited contractual exceptions), it may well be that title passes when the mixing and blending is effected. At whatever point the transfer is effected, adopting the modern principle of statutory interpretations that 'the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, and the intention of Parliament'..., am of the opinion that the processing activities of the Respondent fall within the meaning of processing of goods for sale in paragraph 125.1(3)(a) of the Act. [333] The other line of authority considered by the Supreme Court in Will-Kare, was the approach taken in R. v. Crown Tire Service Ltd., [1984] F.C. 219 (F.C.T.D.). In that line of authorities, the Court defined the scope of the manufacturing and processing incentives by reference to sale of goods law. Justice Strayer, in Crown Tire, concluded that the tread used to repair tire casings was supplied through contract for work and materials and not for sale of goods. The Court found that the customer’s ownership of the tire casing throughout the contract was most important factor in characterizing the contract as contract for work and materials. [334] The Supreme Court, in Will-Kare, supra, ultimately adopted the reasoning in the Crown Tire line. It is perhaps true as submitted in Will-Kare and is noted in Halliburton, supra, at p. 5338, that the use of sale of goods law sometimes yields the anomalous result that the provision of services in connection with manufactured and processed goods will disqualify property that, but for the services, would qualify for the incentives. [335] Will-Kare, is an important decision for the proper interpretation of the word “sale” in the context of the Income Tax Act. However, the Income Tax Act, unlike the PST Act, does not define the term sale. The Supreme Court adopted the meaning of “sale” under sale of goods law where there was no legislative definition. Under the PST Act, there is definition of sale: the definition of “sale” in the PST Act is extremely broad and is not restricted to the commercial law meaning as taken in Will-Kare. [336] Again, the starting point, then, must be what is the definition of sale pursuant to the PST Act. Section 3(1)(i) defines sale for the purposes of the PST Act as “any transfer, exchange, barter or lease, conditional or otherwise, in any manner or any means whatsoever, of tangible personal property for consideration”. [337] One must also contrast the definition of “sale” under the PST Act with the definition of “sale” under The Sale of Goods Act, R.S.S. 1978, c. S-1. It is clear that the scope of the definition of sale under the PST Act is much broader than it is under The Sale of Goods Act. This definition under The Sale of Goods Act imposes limitations that do not exist in the application of the PST Act. sale under The Sale of Goods Act says that an agreement to sell only becomes sale when the time elapses or the conditions are fulfilled, subject to which the property or interest in the goods is transferred. However, the definition of sale under the PST Act includes any “transfer, conditional or otherwise”, such that sale may take place before the conditions are fulfilled. [338] Likewise, there is difference in the definition of sale between the PST Act and the Income Tax Act. As stated, the Supreme Court of Canada, in Will-Kare, supra, the term sale was not defined in the Income Tax Act. Therefore, one must be cognizant of the definition of sale under the PST Act. The definition of sale in Will-Kare is not the same as that in this case before me. sale under the PST Act includes an agreement to sell, whether absolute or conditional. There is no other condition that the agreement to sell has to meet. There is no requirement in the PST Act as to when title passes or how it passes between the parties. There is no requirement in the PST Act that title to the property pass before the PST is due and owing. The definition of sale under the PST Act is not limited by any reference to the time or location of the sale. There is no such express reference in the definition. [339] Husky argues that it must be determined when the time of sale at the well site happens, but the PST Act does not require this fact to be identified. Having said that, the contractual terms of the well cementing agreement refer to the price of cement FOB so the contracts themselves identify the time of the transfer of the materials. [340] The meaning of the term FOB location was discussed by the British Columbia Court of Appeal in Re Grainex Canada Ltd., 1987 CanLII 2679 (BC CA), [1987] W.W.R. 385, 34 D.L.R. (4th) 646 (B.C.C.A.). The British Columbia case said the following: ... Moreover, customary international usage of the "F.O.B." term contemplates its use in the sense of "F.O.B. port of shipment" ... Used that way it indicates that property and risk pass at the ship's rail upon loading. As used by Canbra and Grainex, the term meant that property passed upon the arrival of laden railcars at their destination. The "F.O.B. destination" usage was accepted as conveying that meaning in Beaver Specialty Ltd. v. Donald H. Bain Ltd., 1973 CanLII 29 (SCC), [1974] S.C.R. 903, ... In that case, the Supreme Court found that FOB location meant that title to the property in the goods passed upon the arrival of the product at its destination. [341] G.H.L. Friedman, Sale of Goods in Canada, 6th ed. (Toronto:Carswell, 2013) discusses the use of the term FOB at p. 137: Contracts which are f.o.b. are different. Delivery of documents will not suffice. In such transactions the seller undertakes that the goods will be shipped “free on board”. The goods must arrive at the place of intended delivery before delivery is complete. Hence, if delivery to such place is impossible for causes outside the control of the seller the contract may be frustrated and the seller immune from liability. [citations omitted] Friedman notes that contracts which are FOB are different from those without that reference. [342] Husky required the materials/cement to be priced FOB location. Use of that terminology arguably meant that title to the materials passed to Husky when they reached the well site. [343] The use of the terminology FOB location suggests the sale of goods. It suggests that the subject matter being referred to in the transaction is the sale of cement and that the property and the product transfers to Husky when it reaches the location. [344] The parties to these transactions are sophisticated parties. The evidence established that Husky is sophisticated corporation which pays attention to cost controls. Husky has legal department and tax department. It was Husky that utilized the terminology FOB, which terminology contemplates sale of goods. [345] The evidence indicates that all of the indicia of sale are present. The tangible personal property is the dry cement and additives. The price for the dry cement delivered FOB is the consideration. The sale appears to be conditional sale; that is, conditional on the cement being pumped into the well bore. [346] The documents refer and reflect sale of goods. Husky, not the third parties, was the builder of the wells. Husky controlled all aspects of the well construction. Husky had particular business reasons for organizing the transactions as it did: to control costs and to control the building of the well. The third parties characterized and relied on the transactions as both sale of goods and as service contract. This was consistent industry practice. The third parties were registered vendors for the collection of PST. PST was paid by Husky and collected on the cement delivered to Husky by the third parties. [347] Here, under the PST Act, there is broad definition of the term sale. Unlike the Income Tax Act where there is an absence of definition, broad approach must be taken. When broad approach is taken to the meaning of sale, the focus is not on the timing of the transfer of the legal title but rather to the purchase of the materials by the final consumer. [348] In C-W Agencies Inc. v. British Columbia, 2003 BCCA 52 (CanLII), 177 B.C.A.C. 201, lottery companies applied for refund of PST. The Court referred to the definition of sale in the British Columbia sales tax legislation. It noted that sale, in the British Columbia legislation, included conditional sale, transfer of title or possession, conditional or otherwise, sale on credit or for instalments, an exchange, barter or any other contract by which, at price or other consideration, person delivers tangible personal property to another. The Court, in that case, went on to say the following at paras. 20 From these provisions, it is apparent the Legislature intended to capture for taxation purposes every transfer of good between persons for economic consideration, without regard to its form or to the amount or mode of payment. Otherwise, there would be no need for s. 17. ... ... 23 In my view, the lottery companies are purchasers who acquired tangible personal property ... under contract for consideration ... for their own use ... in British Columbia. ... [349] Clearly, the British Columbia court’s interpretation of the definition of sale in C-W was based on the rule of statutory interpretation that non-exhaustive definition connotes an expansion of the commercial meaning of the word, rather than restriction thereof. [350] Throughout the transactions between Husky and the third party contractors, there was reference to dry cement and additives. The third party contractor’s price book refers to certain types of cement and additives and the description of the product as dry cement. This is some extrinsic evidence that assists in the interpretation of the contracts. The request for quotations asked for bids to be submitted on the price of cement on per tonne basis. The RFQs referred to materials and the majority of RFQs in evidence referred to Husky’s purchase of materials. The bids were submitted on the basis of sale of materials and the provision of services. The contract was then awarded on the basis of the bid. At the well site, the service ticket was prepared based on the amount of product, that is dry cement and additives used. Thereafter, an invoice was prepared and forwarded to Husky. This invoice referenced the amount of dry cement and additives used. In all of those instances, PST was in addition to the amount of the product, that is, the dry cement and additives. [351] Husky argues that the contracts are clear and unambiguous. Husky argues that the evidence confirms that the contract was for service where the charge for the well cementing service was comprised of charge for services and charge for cement used in providing services. Husky argues it retained the contractors to perform work and services and that the contract was for well cementing service. Husky argues the MSA required the contractors to provide all personnel, labour, services and materials and equipment in the performance of or in connection with the service to be provided to Husky. Husky argues that it is service contract, and not contract for the sale of cement. Husky argues that what must be looked at is whether the main purpose of the contract is to sell goods or to sell services, and that determination depends on the essential character of the agreement. It argues that if the primary object of the contract is the transference of property in something which was not originally the property of the buyer, the contract will be for the sale of goods. Husky argues that on the other hand, if the primary purpose of the parties is the performance of work or the provision of services, incidentally to which property in the goods is to pass, then the contract will not be one for the sale of goods. Husky argues while cement is necessary component of the well cementing service, the contract is not primarily for the sale of cement. [352] While at first blush that position seems persuasive, the contracts here, which are comprised of requests for bids, or RFQs, bids, MSAs, where they exist, purchase orders and/or field tickets, if there are no MSAs, certainly do suggest that the contract provides for sale of goods and of the provision of services. It is true that there is not an independent sale of cement to Husky and that the sale of cement is tied to the provision of services, but the agreements identify sale/purchase of materials. [353] The Year 2000 Warranty clause, which was included in the majority of RFQs in evidence for these transactions, gives some indication of the intentions of the parties. The Year 2000 Warranty clause in the contract said the following at Exhibit D-13: 1.7 Year 2000 Warranty Vendor represents and warrants to Husky, and confirms Husky is relying on the accuracy of each representation and warranty in connection with the purchase of the Goods, any and all Goods shall be Y2K Compliant at all times during the term of this Agreement and thereafter. Goods shall be deemed to be “Y2K Compliant” if the performance, accuracy and functionality of the Goods, or any part or component of the Goods, will not be adversely affected by the use of the Goods after September 8, 1999 ... [Emphasis added/Emphasis in original] [354] Husky argues that the time for transfer must be identified in order to determine if there was sale of tangible personal property. sale under the PST Act does not identify the time for sale. Sale includes “transfer ... by any means”. The contracts refer to the goods being bid on the basis of price per tonne FOB location. This is an indication that the parties’ intention was that the title to the goods and materials passed to Husky when the goods and materials arrived at the well site. However, there is no limitation that the time of acquisition must be identified in the concept of “sale” under the PST Act. There is no pre-condition that the sale has to meet. There is no requirement in the legislation as to when title passes for the transaction to be considered sale of tangible personal property such that PST is to be paid. [355] There is no dispute in the evidence that dry cement is tangible personal property for the purposes of the PST Act. The legislation requires that tax be paid on retail sale, by consumer or user of tangible personal property for consideration. The contractual documents reflect the sale of cement. The RFQs refer to the sale, purchase or acquisition of goods/materials as between Husky and the third parties. Where an MSA was in place, the MSA was structured as service contract, but the MSA itself referred in every case to the supply of materials, provision of goods and warranty for materials and the MSA incorporated the RFQ, the request and the bid into the MSA and those documents all referred to sale. [356] The contracts between Husky and the third parties all contain provisions and terms which provide for the sale of materials to Husky. On the basis of the contracts, there was sale of tangible personal property under the PST Act. Were the contracts between Husky and the third parties supply and install contracts? [357] Husky argues further that even if the contracts appeared to include terms for the sale of cement, the contracts were, in fact, supply and install contracts and that the third party contractors were the users of cement. [358] The PST legislation does not consider the ultimate use of the tangible personal property as one of the criteria for determining whether or not sales tax is payable. Rather, it considers what is being sold. It is the subject matter of the sale of the contract that is relevant. The contracts appear to reflect sale. However, it is necessary to consider Husky’s argument to determine whether the essence of the transactions were supply and install contracts such that the contractors were the final users of the cement. [359] Husky pleads that the contractors are liable for the PST pursuant to ss. 5(6) of the PST Act, because the contracts should be interpreted as being for the supply and installation of tangible personal property in the course of which the contractors used or consumed the materials. Husky asserts the contracts were supply and install contracts and the third parties are the user or consumer of the materials in these contracts. Husky asserts, therefore, that the contractors are liable for the PST on the materials. [360] Husky also argues that because the cement is ultimately attached in the well bore to the property, it is an improvement to real property and PST should not be paid by Husky. However, the fact that the tangible personal property is ultimately attached to real property does not mean that there was not sale of tangible personal property under the PST Act. The nature and subject matter of the transaction is determinative. [361] In order for ss. 5(6) of the PST Act to apply to deem the contractors to be liable for the PST, the third party contractors must fall within the definition of “contractor” or “manufacturer”, the parties must have entered into contract for the supply and installation of tangible personal property, and the third party contractors must consume or use the tangible property manufactured or processed by them. [362] The terms “supply” and “installation” are not defined in the PST Act. [363] The third parties acknowledge that they could be characterized as meeting the definition of “contractor” under the PST Act. They also acknowledge that they may also meet the definition of “manufacturer” insofar as they may be regarded as manufacturing the materials provided in connection with the services rendered. [364] The third party contractors blend the dry cement that is mixed with the water supplied by Husky, that is made into slurry, and pumped down the well. However, while the third parties acknowledged they meet the definition of contractor or manufacturer, they take the position they are not the “user” or “consumer” of the dry cement mixture as required by the PST Act. The third parties also take the position that they did not enter into supply and install contracts with Husky. [365] Husky takes the position that because they pay one single payment for the work and materials provided by the third parties, and because they would not purchase the materials separately from the service, and because they argue they do not purchase the cement at the time the materials arrive on the well site, the contracts are supply and install contracts. [366] In examining the contracts, one must look at the objective intent of the contract. In Eli Lily Co. v. Novopharm Ltd., 1998 CanLII 791 (SCC), [1998] S.C.R. 129, 161 D.L.R. (4th) 1, the Supreme Court of Canada considered the proper approach to interpretation of the contract there in issue: 52 In order to ascertain whether the supply agreement conferred or had the effect of conferring sublicence upon Apotex, it is first necessary to consider the proper approach to the interpretation of such contract, and, in particular, the evidence which may be considered in this respect. In Consolidated‑Bathurst, supra, at p. 901, Estey J., writing for himself and Pigeon, Dickson, and Beetz JJ., offered the following analysis: Even apart from the doctrine of contra proferentem as it may be applied in the construction of contracts, the normal rules of construction lead court to search for an interpretation which, from the whole of the contract, would appear to promote or advance the true intent of the parties at the time of entry into the contract. Consequently, literal meaning should not be applied where to do so would bring about an unrealistic result or result which would not be contemplated in the commercial atmosphere in which the insurance was contracted. Where words may bear two constructions, the more reasonable one, that which produces fair result, must certainly be taken as the interpretation which would promote the intention of the parties. Similarly, an interpretation which defeats the intentions of the parties and their objective in entering into the commercial transaction in the first place should be discarded in favour of an interpretation ... which promotes sensible commercial result. ... 56 When there is no ambiguity in the wording of the document, the notion in Consolidated‑Bathurst that the interpretation which produces "fair result" or "sensible commercial result" should be adopted is not determinative. Admittedly, it would be absurd to adopt an interpretation which is clearly inconsistent with the commercial interests of the parties, if the goal is to ascertain their true contractual intent. However, to interpret plainly worded document in accordance with the true contractual intent of the parties is not difficult, if it is presumed that the parties intended the legal consequences of their words. This is consistent with the following dictum of this Court, in Joy Oil Co. v. The King, 1951 CanLII 41 (SCC), [1951] S.C.R. 624, at p. 641: in construing written document, the question is not as to the meaning of the words alone, nor the meaning of the writer alone, but the meaning of the words as used by the writer. 57 In my view, there was no ambiguity to the contract entered into between Apotex and Novopharm. No attempt was made to disguise the true purpose of the arrangement, or the circumstances surrounding its drafting. Clearly, the agreement was meant to minimize the deleterious effects of the amendments to the Patent Act, which were expected to and did eventually place severe restrictions on the former scheme of compulsory licensing, by maximizing the access of each party to as wide variety of patented medicines as possible. This was to be accomplished by obliging each party to obtain such material for the other in the event that one party possessed licence which the other lacked and could no longer readily obtain. All of this is evident on plain reading of the recitals to the supply agreement. Leaving aside the question of circumventing the legislation, which has no bearing on the interpretation of the contract, the parties' intentions are clear on the face of the agreement. Accordingly, it cannot properly be said, in my view, that the supply agreement contains any ambiguity that cannot be resolved by reference to its text. No further interpretive aids are necessary. [Emphasis added] [367] In Dumbrell v. Regional Group of Companies Inc., 2007 ONCA 59 (CanLII), 85 O.R. (3d) 616, the Ontario Court of Appeal said the following at paras. 48 In Eli Lilly, supra, at paras. 52‑54, Iacobucci J. refers to Consolidated‑Bathurst, supra, with approval. He clarifies, at para. 54, what is meant in Consolidated‑Bathurst by "the true intent of the parties" for contractual purposes: The trial judge appeared to take Consolidated‑Bathurst to stand for the proposition that the ultimate goal of contractual interpretation should be to ascertain the true intent of the parties at the time of entry into the contract, and that, in undertaking this inquiry, it is open to the trier of fact to admit extrinsic evidence as to the subjective intentions of the parties at that time. In my view, this approach is not quite accurate. The contractual intent of the parties is to be determined by reference to the words they used in drafting the document, possibly read in light of the surrounding circumstances which were prevalent at the time. 49 On the approach taken in Eli Lilly, supra, the focus is on the meaning of the words used in the contract. Evidence of the subjective intention of the parties has "no independent place" in the interpretative process: Eli Lilly, at para. 54; see also Staughton, "How Do the Courts Interpret Commercial Contracts?", supra, at 304‑306; Investors Compensation Scheme Ltd. v. West Bromwich Building Society, [1998] All. E.R. 98 at 114‑15 (H.L.). 50 In my view, when interpreting written contracts, at least in the context of commercial relationships, it is not helpful to frame the analysis in terms of the subjective intention of the parties at the time the contract was drawn. This is so for at least two reasons. First, emphasis on subjective intention denudes the contractual arrangement of the certainty that reducing an arrangement to writing was intended to achieve. This is particularly important where, as is often the case, strangers to the contract must rely on its terms. They have no way of discerning the actual intention of the parties, but must rely on the intent expressed in the written words. Second, many contractual disputes involve issues on which there is no common subjective intention between the parties. Quite simply, the answer to what the parties intended at the time they entered into the contract will often be that they never gave it moment's thought until it became problem: see Kim Lewison, The Interpretation of Contracts, 3d ed. (London: Sweet Maxwell, 2004) at 18‑31. [368] The Saskatchewan Court of Appeal, in SaskPower International Inc. v. UMA/B&V Ltd., 2007 SKCA 40 (CanLII), 293 Sask. R. 66, quoted from Consolidated Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., 1979 CanLII 10 (SCC), [1980] S.C.R. 888 wherein the Court said, ... [T]he normal rules of construction lead court to search for the interpretation which, from the whole of the contract, would appear to promote or advance the true intent of the parties at the time of entry into the contract. Consequently, literal meaning should not be applied where to do so would bring about an unrealistic result or result which would not be contemplated in the commercial atmosphere in which the [contract was entered into]. Where words may bear two constructions, the more reasonable one, that which produces fair result, must certainly be taken as the interpretation which would promote the intention of the parties. Similarly, an interpretation which defeats the intentions of the parties and their objective in entering into the commercial transaction in the first place should be discarded in favour of an interpretation ... which promotes sensible commercial result. [369] In Rana v. Maduck, 2000 SKQB 318 (CanLII), 196 Sask. R. 54, the Saskatchewan Court of Queen’s Bench acknowledged that the surrounding circumstances are relevant to the interpretation of contracts. That is, they are relevant in determining what was contemplated by the parties. The background and context in which the parties were operating assists in determining the intention of the parties and does not offend the parol evidence rule. Extrinsic evidence has always been admissible, however, as Justice Wilkinson stated in Cinabar Enterprises Ltd. v. Bertelson, 2000 SKQB 229 (CanLII), 193 Sask. R. 161, the intentions and expectations of the parties are to be assessed objectively and not subjectively. Applying the extrinsic evidence, Justice Wilkinson noted that in allowing extrinsic evidence, one speaks objectively when speaking of the intention of the parties, that is, what must be ascertained is what reasonable persons would have intended if placed in the position of the parties. [370] In this case, there is no evidence of the intentions of the parties at the time of entering into the contracts. The evidence relates to the actions of the parties in performing their obligations under the contracts. [371] Here, the terms of the contracts speak for themselves. In considering the contracts here, which include the request for bids or RFQs issued by Husky, there was no provision which would describe the contract as supply and install contract. Certainly, the RFQs made references to product and/or services being supplied. This appears to be consistent with the position that the contract was for the provision of product and related service. The RFQ did not refer to supply and install situation. Clearly, the RFQ demanded that the bid be made on the basis of price per tonne for cement FOB location including additive and blending charges. FOB location is used consistently through the documentation between Husky and each of the third party contractors. FOB is term that refers to the sale of goods. The cement product was not going to be re-stocked back to the third party contractors if it was not used at the well. Husky paid for the cement whether it was used or not. Husky expressly requested that the bid price per tonne of cement be provided FOB location and the responses to the bids did the same. [372] The MSAs, when there were MSAs, did not make any reference to supply and install. They were titled service contracts which incorporated the terms of the RFQs or requests for bids and the bids into the terms of the MSA. [373] The bids supplied by the third parties contained price per tonne of cement. This bid price was based on the third party contractors price book which set out their price per tonne of various cement blends. [374] After completion of the well, the field ticket set out the amount of cement and cementing materials delivered to the well. The invoice contained charge for materials plus PST, none of which is consistent with supply and install contract. It is also of note that the time at which the sale takes place is not relevant to the fact of sale for PST purposes. [375] In examining the contracts, there is not single reference to the term “supply and install”. These are sophisticated parties. Husky is sophisticated oil producer with legal department and tax department. Had the parties, or even Husky alone, contemplated that these transactions were supply and install contracts, the terminology or something akin to that terminology would have been included in the various documents produced by Husky in the transactions. [376] Husky also suggests that even though the contracts themselves do not identify the contracts as supply and install contracts, the essence of the transactions are supply and install contracts. Husky argues that Husky is not the consumer or user of the materials, because once the cement materials are mixed with the water and pumped into the well bore, the materials lose their identity as tangible personal property and become integrated into the well bore. Husky relies on Cairns Construction Ltd. v. Saskatchewan, 1960 CanLII 59 (SCC), [1960] S.C.R. 619, 35 W.W.R. 241 to support that position. [377] In Cairns, supra,, the issue of who was the consumer or use in the context of service contracts was considered by the Supreme Court of Canada. In that case, determination of consumption and use was complimentary to the determination of whether there is sale for the purposes of the PST Act. [378] In Cairns, the materials used or consumed were prefabricated houses. They were acquired for incorporation into real property: the house. [379] Here, it is clear that the third parties were not selling to Husky completed improvement to real property. The evidence does not support the assertion that the third party contractors were bidding on completed well bore. [380] Husky was building the well. Mr. Ellsworth acknowledged that Husky did not think of the third parties as building the foundation for well. Rather, Husky viewed the cementing contractors as being component of Husky’s building of the well. Husky was the party building the wells. At no time did Husky ever consider that any of the third parties were building the oil well or even component part of the oil well. That was not the role that Husky assigned to the third parties. [381] Further, Husky exercised all discretion in relation to the well. Husky managed the construction and the exercise of all discretion in respect of the well. Husky was responsible for the overall design, construction and management of the construction of the well. If changes were made to the well, those were to be made by Husky. [382] Husky developed the plans and the specifications for the construction of the well site and exercised all discretion in determining the specifications. [383] It is clear from Mr. Ellsworth’s evidence that Husky viewed itself as the builder of the oil well. In fact, Mr. Ellsworth described Husky as the general contractor. Husky did not view the third parties as being involved in that responsibility. [384] Husky’s documentation indicates that there were detailed plans for the construction of each well. There were detailed budgets and daily costs associated with the construction of each and every well. Prior to Husky sending out request for quotation, it prepared detailed specifications and information for its cementing program for each well. That information was supplied to the third party contractors. The purpose of that was to elicit the bids for the cement and services of the pumping. Husky’s drilling program revealed what types of equipment would be used in the cementing process, in addition to the equipment supplied by the third parties. In some instances, extra cementing tools were required and Husky would arrange for that contract with another third party. By way of example, Mr. Ellsworth indicated that stage cementing tool would often be necessary for two stage cement job when conditions in the well bore did not allow full column of cement from the total depth of the well to the ground level. The third parties did not make arrangements for this or provide for that component. Rather, that was arranged by Husky. Husky then contracted with this other third party to supply the personnel on site to ensure that that tool was used properly. The third party contractors did not operate this tool. Husky did not ask the third parties to contract with the company that had the tool. In this regard, Husky’s actions were not consistent with Husky contracting with the third parties for the completed concrete wall or foundation for the well bore. It appears that Husky was asking third party contractors to provide the specific components, that is, the materials and the services, the product of the dry cement, the mixing of the cement with the water at the well site and the pumping of the slurry down the hole. [385] The documentation also indicated that it was Husky who initiated and prepared all of the details of all of the cementing programs. The cementing program set out the well specifications, the dimensions, the volume of the pre-flush, the type and quantity of cement to be supplied as well as surface production procedures. The third parties used this information, supplied by Husky with respect to Husky’s specifications, in bidding the contract. As well, the drilling supervisor was in charge of confirmation of cement volumes at the well site. [386] Husky’s evidence was that Husky controlled the pace of construction at the well site. In fact, as stated, Mr. Ellsworth likened the site supervisor as construction foreman on housing project, like general contractor. It was Husky who obtained the license to drill the well as the operator. It was Husky who prepared the drilling program and the drill plan summary for how the well was to be constructed. [387] Likewise, Husky made the determination of the dimensions of the well in their drill plan summary for the specifications of the well. Husky planned the type of well to be built and initiated the process of building the well. Husky prepared its overall budget for the cost of constructing the well and then created plan for where the well will be located. [388] Husky contracted with all contractors prior to the well being commenced and set out specific and detailed information for the drilling crew. The third party contractors were given specific drilling instructions and detailed directions in terms of what process to use to pump the cement into the well bore. It is also of note that if there was excess casing, it was cut off by an independent welder. This was not service undertaken by the third parties at the well site. It is clear that cementing the casing was not complete until the excess casing was cut off by the welder. As well, despite the fact that the third party contractors made recommendations on the types of cement and additives, it was Husky who made the final decision with respect to the type of cement blend to be used on the well site. The evidence was that Husky’s geologist made the final decision on what type of casing was necessary. Likewise, Husky controlled the exact content of the cement concentration pumped into the well. Husky supplied water for the dry cement to be mixed into slurry at the well site and pumped into the well bore. Husky also determined where the third parties’ equipment was to be situated while pumping was being undertaken and reviewed the technical details with the third parties. [389] Husky often ordered excess cement to ensure that there was sufficient cement for the completion of cementing job. Husky asked for and received daily drilling reports, including report on the cement. Husky bore legal responsibility and liability for the cementing of the well bore, including environmental requirements such as protection of ground water and the need to separate hydrocarbons underground. Husky also hired the waste disposal company to dispose of cement returns from the well site. [390] The third parties’ obligations under the contracts was restricted to the following: third parties followed the exact specifications of Husky; third parties provided the type and exact amount of dry cement as specified by Husky; the third parties made recommendations with respect to cement, but Husky made the final decision; and, the third parties pumped the cement. Husky made the final determination of which product would be used. Husky made its own calculations independent of the third parties’ calculation of the amount of cement that was necessary. The third parties pumped the dry cement mixed with the water formed into slurry into the well bore, using the amount of pressure which Husky had specified in the drilling program. Third parties did not attend to the well site until Husky called them to deliver the product. At the well site, if there were problems, it was Husky who had the authority and responsibility for any issues. The third parties were required to follow Husky’s directions at the well site as Husky directed. Husky maintained the supervision for the construction of the well site. The third parties’ participation ended when they finished pumping the last of the mixed cement into the well bore. The third parties did not clean up the well site nor did they cut off the casing. Ultimately, Husky assumed all risks associated with building their oil well and Husky maintained control over that construction. It is clear from the evidence that Husky was building the well. [391] Husky organized the cementing of the well and the constructing of the contract so that Husky had complete control and authority over the well. [392] John Wilson testified on behalf of BJ Services. He indicated that BJ Services was selling cement products, chemicals and services associated with pumping those products and chemicals. As far as Mr. Wilson was concerned, the role of BJ Services’ sales team was to sell the products and services that BJ Services offered. [393] Mr. Wilson testified that the pricing structure used by BJ Services did not take into account any risks that would be associated with supply and install contract. Mr. Wilson was aware that had BJ Services undertaken supply and install contract, then BJ would have had to assume risks associated with cementing the well bore. The risks associated with cementing well bore include fluid oozing into the well bore (which means you would have to re-drill the well) and environmental and safety issues. Husky assumed the risk on the well bore because Husky owned the well bore. At the well site, Husky or its agent had the ultimate decision-making power on that well site. The third party contractors bid the contract on the basis that they did not have any of the risks associated with the contract and testified that their pricing would have been different had the contract been one for which they were obligated to assume the risk. [394] This is not situation where the evidence establishes that the parties intended supply and install contract and Saskatchewan Government assessed PST on the basis that the contracts represented something different. The evidence indicates the parties conducted themselves in accordance with their view of the intention of the contracts, which included sale of tangible personal property. [395] In Re Mobile Concrete Services Ltd. v. Nova Scotia (Minister of Finance and Economics), (1973) 1973 CanLII 1245 (NS SC), 38 D.L.R. (3d) 465, 11 N.S.R. (2d) 206 (N.S.S.C.), the Nova Scotia court rejected the argument that the concrete company, by placing the cement, was the user of the cement. In that case, the evidence established that Mobile’s primary contracts were with suburban home builders and farmers close to the plant. Orders came to the plant and the cement was then delivered directly to the site. Mobile paid placers for their services then billed the owners who were constructing the buildings. As well, Mobile had pumping equipment and the customer was charged fee for this service. The hose attached to the pump was moved from point to point as required by the placers and Mobile was paying the placers for the work. The Court said the following at p. 471: The minister maintains that Mobile is using the goods in placing cement and therefore liable to the tax. The tax is payable, if at all, at the time of purchase. Under the statute Mobile is exempt on the purchase of the cement. Having regard to the evidence, find that Mobile is in the business of selling cement. This is the primary object of the company. In order to accomplish this end the company must work in close cooperation with builders and contractors on delivery because of the nature of the product. substantial quantity of the product is delivered directly to the site to contractors or owners who in fact are responsible for placement. In those cases where Mobile arranges for placers, the accounts show distinct charge for those services. Clearly, these persons are not employees of Mobile. This function is service one for the convenience of the owner. am unable to find on the evidence that Mobile is in the business of erecting concrete or that it is using cement for that purpose. [396] In Mobile, supra, the placing of the cement through the pumping did not change the nature of the transaction, it was still sale of goods. [397] Throughout the term of the agreements during the period in question in this lawsuit, the contractors and Husky treated the cementing services as sale of tangible personal property. The contractors treatment of the well cementing services was consistent with the plain language of the PST Act. There is nothing in the documents tendered in evidence at trial that suggest they were supply and install contracts. It is clear Husky did not view it as supply and install contract, nor did any of the third party contractors. [398] The MSA documents, the RFQs, the field tickets, and the service tickets all contradict Husky’s argument that these were supply and install contract. All of the documents contain provisions which limit the third party contractor’s liability. They identify Husky as the party building the well. Husky assumed all risks associated with the construction of the well. The third parties did not include cost for risk into their pricing. [399] The conduct of the parties after the formation of the contract, that is, evidence of the parties post-contracting performance of their contractual obligations, can be admitted as an aid to interpretation if the contract or provision being interpreted is ambiguous (Wagman v. Obrigewitsch, 2010 SKQB 84 (CanLII), [2010] W.W.R. 462). So, if it is found that the contract here is ambiguous, then the conduct of the parties post-formation of their contracts can give us assistance. [400] In this instance, the Government of Saskatchewan simply accepted the transactions as they were structured by these parties. The parties structured the contracts such that Husky was responsible for the payment of the PST on the materials supplied in the contracts. The third parties collected the tax from Husky, and Husky paid it without objection, and then the third parties remitted it to the Provincial Government. The contracts were not supply and install contracts. [401] The tax under the PST Act really focuses on the ultimate user or consumer of the product. Husky structured these contracts in order to control costs and maintain control at the well site. It was clear from Mr. Ellsworth’s evidence that Husky undertook very detailed analysis of cost implications when it contracted for the drilling of well. Mr. Ellsworth was clear that Husky wished to use the lowest cost approach to construction. It is clear from all of the evidence of all witnesses that had the contract been constructed such that it was supply and install contract, such that the third parties had control and bore responsibility for the well, it would have been significantly more costly undertaking for Husky. It is clear that all of the parties constructed the contracts in the way in which they identified separate sale of goods. It is clear that at the time that the contracts were constructed, Husky made deliberate decision as to how to maintain control over the well sites and to have the contracts structured in way that would reduce their costs. [402] The evidence establishes that Husky determined the profitability of building the well; prepared budget for the well; obtained the licence to drill the well; prepared the detailed drilling program; determined the dimensions and specifics of the well; assessed the bids on the basis of cost; gave specific and detailed instructions on the drilling; and, gave specific and detailed instructions to the third parties for the pumping of the cement and employed other contractors, such as welders, to complete the cementing. Husky had the ultimate decision on the cement blend to be used and the content of the cement concentration pumped into the well. Husky always purchased extra cement to ensure sufficient materials. Again, this decision or authority did not rest with the third parties. Husky did not rely on the third parties to make this decision. Husky supplied the water to mix with the cement for the slurry. Husky supervised the entire cementing. It instructed the contractors when to attend and had the ultimate decision-making authority in relation to the cementing of the well. Husky arranged for disposal of excess cement returns from the well. [403] After the well was cemented, Husky prepared the cementing and casing summary. Husky prepared and submitted the drilling report to Energy and Mines. It was Husky, not the third parties, who bore legal responsibility and liability for environmental issues such as protecting ground water. [404] The third parties were required to follow the exact specifications of Husky with respect to the type and amount of cement. [405] The third parties could make recommendations on the type and amount of cement but Husky relied on their own determinations and calculations, independent of such recommendations. The third parties had no role in the planning of the building of the well and only attended to the well site shortly before cementing began and only when called to attend by Husky. The third parties pumped the cement mixed with Husky’s water with the amount of pressure instructed by Husky. The third parties were supervised and controlled by Husky at the well site. The third parties were subject to Husky’s direction, even in relation to the cementing. If there were problems with the cementing, Husky decided the solution and the third parties had to follow Husky’s direction. [406] The third parties’ role ended when pumping of the mixed cement was finished. They did not clean up. That was Husky’s obligation and it contracted with another party to do that. Husky hired other contractors to provide additional equipment for the cementing or to assist in the cementing of the well. [407] Husky was the user or consumer of the cement. Husky was constructing the oil wells. The third parties were providing materials and services to assist in construction of the well. Husky has failed to establish the contracts were supply and install contracts. [408] The PST Act focuses on the ultimate user or consumer of the tangible personal property. Husky was the ultimate user and consumer of the tangible personal property sold by the third parties to Husky. The manufacturing and processing cases [409] Husky also argues that the fact that the third parties are entitled to Manufacturing and Processing Incentives under the Income Tax Act is evidence that these transactions were supply and install contracts. [410] This issue was considered in series of cases relevant to the present facts and some of which were previously referred to: Halliburton, supra, Nowsco, (1988) 88 D.T.C. 6300, aff’d (1990) 90 D.T.C. 6312 (F.C.A.), and Will-Kare Paving, supra. [411] The comments of Reed J. in Halliburton in the Federal Court Trial Division have been discussed in the subsequent cases. Although the Crown strenuously argued that the contracts were contracts for the provision of services, the court found for the taxpayer. At p. 5338, she stated: have considerable difficulty with this line of argument [that the sale of goods distinction between contract for the sale of goods and contract for work, labour and materials applies]. In the first place, it is based on distinctions developed for purposes of the sale of goods legislation, not with respect to subsection 125.1(3)(b) of the Income Tax Act. do not read subsection 125.1(3)(b) as requiring that taxpayer's profit has to arise out of contract for sale of goods as defined by the various Sales of Goods Acts. Subsection 125.1(3)(b) does not talk of sale of goods. It talks of profit arising out of the processing of goods for sale. There is no doubt that the products in question are sold to the Plaintiff's customers in the sense that the invoices list the cost of the various components which go into each product and the blending and processing charges are specifically detailed in the invoice. Secondly, do not find any requirement that the contract which gives rise to the taxpayer's profit must be of particular nature, eg: one for the sale of goods and not one of more extensive nature involving work and labour as well as the goods or material supplied. In my view it is the source of the profit, (arising out of processing) that is important for the purposes of section 125.1(3)(b), not the nature of the taxpayer's contract with its customers. [412] The Federal Court of Appeal adopted that language in Nowsco which was released at the same time as the appeal decision in Halliburton. Nowsco is the predecessor company of BJ Services. It stated at 6318: am of the opinion that common-sense, realistic and business-like appreciation of all of the foregoing indicates that the Respondent does not enter into pure service contracts, but, rather processes goods to the operator/customer’s specification which it utilizes to perform the specialized services required of it by its customer. It does so by means of what the Trial Judge described as “mobile factory” which utilizes the various materials, mixtures and blends produced for delivery to the well bore for the purposes required by the customer. Contrary to the argument of counsel for the Respondent, believe that determining the particular time at which and where title to the goods passes, is of little importance, on the facts of this case, in the determination of the relationship between the parties. However, what is of some significance, think, is that since the products furnished are produced to the particular specifications of the operator/customer and must be paid for by it whether completely used or not (subject to some limited contractual exceptions), it may well be that title passes when the mixing and blending is effected. At whatever point the transfer is effected, adopting the modern principle of statutory interpretations that “the words of an Act are to be read in their entire context and in the grammatical and ordinary sense harmoniously with the scheme of the Act, and the intention of Parliament” [Driedger, Construction of Statutes, 2nd ed., 1982 at p. 87], am of the opinion that the processing activities of the Respondent fall within the meaning of processing of goods for sale in paragraph 125.1(3)(a) of the Act. [Emphasis added] [413] The Federal Court of Appeal upheld the decision of the trial judge and allowed the taxpayer to claim the manufacturing and processing goods credit. [414] In Will-Kare, supra, the Supreme Court of Canada discussed two approaches taken to the interpretation of “manufacturing and processing goods for sale”: 19 Canadian jurisprudence to this point has adopted two divergent interpretations of the activities that constitute manufacturing and processing goods for sale. Without canvassing these authorities exhaustively, it may be helpful to outline briefly those cases which delineate these two distinct approaches. 20 One point of view is expressed in Crown Tire Service Ltd. v. The Queen, [1984] F.C. 219 (T.D.), where the court imports common law and provincial sale of goods law distinctions in defining the scope of the manufacturing and processing incentives' application. Only capital property used to manufacture or process goods to be furnished through contracts purely for the sale of such goods qualifies. Property used to manufacture or process goods to be supplied in connection with the provision of service, namely through contract for work and materials, is not viewed as being used directly or indirectly in Canada primarily in the manufacturing or processing of goods for sale, and as such, does not qualify for either the accelerated capital cost allowance or the investment tax credit. ... 22 second line of authority departs from the point of view in Crown Tire and declines to apply statutory and common law sale of goods rules in delineating that capital property to which the manufacturing and processing incentives apply. Rather, these cases advocate literal construction of "sale" such that the provision of service incidental to the supply of manufactured or processed good does not preclude receiving the benefit of the incentives. Any transfer of property for consideration would suffice. See Halliburton Services Ltd. v. The Queen, 85 D.T.C. 5336 (F.C.T.D.), aff'd 90 D.T.C. 6320 (F.C.A.), and The Queen v. Nowsco Well Service Ltd., 90 D.T.C. 6312 (F.C.A.). 23 Halliburton and Nowsco considered the form of contract entered into between the taxpayer and customer to be irrelevant. In both cases the Federal Court of Appeal quoted with approval language from Reed J.'s decision in Halliburton at the Trial Division that appears to suggest an alternative test based upon the source of the taxpayer's profit. As stated by Reed J., at p. 5338: ... do not find any requirement that the contract which gives rise to the taxpayer's profit must be of particular nature, eg: one for the sale of goods and not one of more extensive nature involving work and labour as well as the goods or material supplied. In my view it is the source of the profit, (arising out of processing) that is important ... not the nature of the taxpayer's contract with its customers. ... 37 The principles enunciated in Crown Tire and Hawboldt Hydraulics, to the extent they dictate reference to common law and statutory definition of sale, offer guide preferable to the broader interpretation of sale described in Halliburton and Nowsco. [415] The case law arising from the manufacturing and processing issue is not determinative of the PST Act. The PST taxing provision does not mirror the manufacturing and processing tax credit provisions. The definitions of the relevant terms in the PST Act are not present in the Income Tax Act. The fact that the third parties have obtained the income tax credits does not affect the application of the PST to these transactions. Has there been mistake of law in the payment of the PST by Husky? [416] Husky’s pleadings allege that it paid PST on the cementing contracts in error. Husky has not plead mistake of law, but the Saskatchewan Government suggests that pleading amounts to pleading of mistake of law. The pleadings here allege that the PST was paid in error and as such, mistake of law must be considered. If there was mistake of law, rectification is the equitable remedy. [417] In Canada (Attorney General) v. Juliar, (2000) 2000 CanLII 16883 (ON CA), 50 O.R. (3d) 728, [2000] O.J. No. 3706 (QL) (Ont. C.A.), (leave to appeal refused), the Ontario Court of Appeal set out the governing principles with respect to rectification for mistake of law. Juliar was case where the shareholders of corporation had made an agreement to transfer their shareholdings to holding corporation. The accountant that structured the transaction believed that it would not matter whether the transaction was structured in one way or another. However, it turned out the method that was used exposed the shareholders to significant tax liability. The Court was asked to rectify the agreement to eliminate the tax liability. The Court of Appeal adopted the four following governing principles for rectification based on mistake of law: 1. The Court has discretion to rectify where it is satisfied that the document does not carry out the intention of the parties; 2. Parties are entitled to enter into any transaction which is legal, and, in particular, are entitled to arrange their affairs to avoid payment of tax if they legitimately can; 3. If mistake is made in document legitimately designed to avoid the payment of tax, there is no reason why it should not be corrected. It would not be correct exercise of discretion in such circumstances to refuse rectification merely because the Crown would thereby be deprived of an accidental and unexpected windfall; and 4. Rectification need not be refused because the sole purpose of seeking it is to enable the parties to obtain legitimate fiscal advantage, when it was their common intention to obtain that advantage at the time of the execution of the document. [418] In Juliar, supra, the Court of Appeal rectified the agreement so that the expected tax consequences could occur. [419] In the case of Juliar, supra, there was no dispute between the parties over the terms of the agreement, and had it not been for the rules of the Income Tax Act, R.S.C. 1985, c. (5th Supp.), they would have been free to amend the agreement to achieve the result they wished. In Juliar, the evidence was clear and all the parties agreed that the final agreement did not carry out the parties’ intention. [420] In Binder v. Saffron Rouge Inc., (2008) 2008 CanLII 1662 (ON SC), 89 O.R. (3d) 54 (Ont.Sup.Ct.), the Ontario Superior Court of Justice declined to follow Juliar in case where applicants sought to have documents under which class of shares had been issued rectified so that they could avoid certain tax disadvantages. The trial judge distinguished Juliar on the ground that in Binder, there was not, as there was in Juliar, common continuing intention that the transaction, the issuance of the shares, be effected in manner that would preserve the applicant’s tax advantage. [421] Here, Husky entered into evidence various documentary evidence dealing with the agreements between Husky and each of the third party cement contractors. William Ellsworth, Husky’s main witness, indicated that the contracts were structured as they appeared when he took over the position as Engineering Manager in the Drilling and Completions Department. Hugh Magill, the Commodity Tax Coordinator for Husky indicated that he had nothing to do with the making of these contracts. Both of the witnesses acknowledged that these contracts were always structured as we saw them and PST was paid on these contracts. The RFQs and the MSAs were Husky documents. No witnesses involved in the making of the contracts were called and no witness from Husky testified to suggest that Husky intended the contracts to be supply and install contract. No witness for Husky testified that the contracts were intended by Husky or by the third party contractors to be something other than how they appear. [422] John Wilson of BJ Services testified that he was not familiar with the phrase supply and install contract between 1996 and 2000. Mr. Wilson confirmed that at no time did Husky ask BJ Services or its predecessors to bid on supply and install contract. As well, Andreas Wienecke, from Sanjel, and Michael Kelly, from Trican, testified that they would not characterize these contracts as supply and install. [423] All of the witnesses for the third parties testified that there was never an intention by the third parties to enter into supply and install contract in relation to the cementing transactions. Their evidence was that had there been any suggestion by Husky that they were undertaking supply and install contract, the third parties’ bids and conduct in the transactions would have been different. The intention of the third parties throughout the transactions was always to contract for the provision of materials and services and the written contracts reflected that intention. [424] The evidence here does not establish that Husky and the third party contractors had common intention to structure their contracts as supply and install contracts. Husky’s view of the contracts now differs from the third party contractors, but the evidence does not establish that Husky’s intention and the third parties’ intention at the time of making the contracts was for supply and install contract. More importantly, the evidence fails to establish that the parties intended the contracts to be supply and install contracts, but mistakenly drafted them in another way. The evidence does not establish the parties mistakenly drafted the contracts such that Husky paid the PST when the parties actually intended the third parties to pay the PST. [425] Husky failed to establish, on balance of probabilities, that mistake was made in the agreements. Husky has failed to establish that the agreements did not carry out the parties’ intentions. There is not, here, as there was in Juliar, supra, evidence of common continuing intention that the transaction be effected in the manner as is now suggested by Husky. [426] Further, with respect to the burden of proof, this is not situation where the Minister has undertaken re-assessment of the tax based on contract submitted by the parties. Here, the parties structured their contracts and their agreements in certain way and pursuant to those arrangements, the third party contractors collected the tax from Husky. Husky paid the tax to the third party contractors and the third party contractors remitted the same to the Minister of Finance. Subsequent to this, Husky sought to re-assess that application of the tax and when the Minister declined to undertake re-assessment, based on the position of Husky that an error had made in the characterization of the contract, Husky commenced this law suit. The third parties disagree with Husky’s position there has been mistake. The Minister, here, has not substituted his view for that of the parties. The Minister simply received the tax based on the way in which the parties had constructed their contract. Is the decision Burlington Resources Canada Ltd. v. British Columbia, 2013 BCSC 292 (CanLII) determinative of the issues? [427] The Supreme Court of British Columbia released the decision of Burlington Resources on February 26, 2013. The parties came back before me subsequent to the release of that decision to make further submissions. Husky argued that the Burlington Resources case, which is British Columbia decision involving the same issues as those before me, is determinative of the issues. [428] The Burlington Resources case was an appeal from decision of the British Columbia Minister who affirmed an assessment of provincial sales tax as against Burlington Resources, an oil producer, in relating to well cementing services provided by BJ Services. The court identified that the issues involved question of whether the contracts between Burlington and BJ Services were properly characterized as service contracts to which the provision of materials was incidental, or were they contracts by which BJ Services sold materials to Burlington. [429] While the burden of proof in Burlington Resources was different from the case before me, the issues raised in that tax appeal were similar to those before this Court. [430] However, an examination of the facts in the Burlington Resources case identifies number of factual differences which result in the Burlington Resources case being distinguishable. [431] One of the most important differences is the nature of the contracts between Burlington Resources and BJ Services. It is clear in the Burlington Resources case that the contracts involved in the transactions always involved Master Services Agreement. The MSA in the Burlington Resources case included Special Purchasing Contracts (SPC) or Work Orders. The SPCs, Work Order and the MSA constituted the parties’ entire agreement. The RFQs and bids were not determined to be part of the agreement in Burlington Resources. [432] The MSA in the Burlington Resources case included provision that the risk of loss remained with BJ Services until title passed on Burlington’s acceptance. This was contained in para. 2.34 of the MSA. This provision regarding risk of loss was in the same section of the MSA as para. 2.31, which stated that BJ Services was to decide how the services were to be performed and that Burlington had no control over the manner, method or details of BJ’s performance. [433] This provision regarding risk of loss was not contained in any MSA in the contracts between Husky and the third parties. Further, the contracts in Burlington Resources did not refer to the delivery of the cement FOB location. The court, in Burlington Resources, found that the contracts between those parties were such that the cement remained in the possession of BJ Services until the well bore was cemented. The court found that BJ Services had control of the cementing pursuant to the terms of the contracts. [434] Further, the MSA in Burlington Resources indicated that BJ Services determined how the services were to be performed. In Burlington Resources, the MSA indicated that Burlington had no control over the manner or method of BJ’s performance. In the Burlington Resources case, the materials at the work site were only within the control of BJ Services and Burlington was subject to BJ Services’ decisions about the cementing. This is significantly different from the contracts between Husky and the third parties here. Husky controlled the design of the well, the amount of cement and ultimately controlled the cementing process at the well site. While Husky relied on the third parties’ expertise, Husky had the ultimate control of the cementing at the well site. The cementing contractor here did not have the same element of control as the cementing contractor in Burlington Resources. [435] It is also of note that in the Burlington Resources analysis, the trial judge made reference to the British Columbia interpretation bulletins dealing with time and materials or cost-plus contracts and the legislation. The court indicated that the time or transfer of the materials was relevant to the issue of determining whether sale had occurred and/or whether Burlington was the user of the materials. On the facts, the court held that Burlington did not acquire the incidents of title to the materials when they arrived at the well site, or even when the materials were pumped into the well head, because BJ Services had complete control of the pumping. As well, in the Burlington Resources case, BJ Services was not paid if the materials delivered to the well site were not used. Again, these facts are distinguishable from the case before me, where Husky paid for the cement whether it was used or not. [436] The other distinguishable feature was the British Columbia legislation and regulations. [437] In the end, find that Burlington Resources is not determinative of the case before me. CONCLUSION [438] I find that Husky has failed to satisfy me on a balance of probabilities that Husky is entitled to a refund of the PST it paid on well cementing contracts between itself and the third parties during the period of the claim. [439] The claim of Husky is dismissed. [440] Costs of the action are reserved to be determined upon application of the parties. J. C. L. DAWSON [1] p. 68 of Husky’s Brief of Law filed January 5, 2011 [2] p. of Third Parties’ Written Submissions
Tax Law – Contract for Services – Payment of PST The plaintiff has the onus of proving it is not liable for the payment of PST on a balance of probabilities. Parties are entitled to structure their legal relationships as they see fit. The Court must determine whether the tax is payable based on the agreements as constructed between Husky and the third parties. There was no evidence that Saskatchewan Finance and the third party contractors entered into an agreement to alter the nature of the contracts so that Husky paid PST when it would not otherwise have been obligated to pay. The evidence established that Husky determined the way in which bids were submitted and the way Husky was invoiced. In each contract, Husky required that the bid include a price for service and price for materials. In each case, it was contemplated that PST was in addition to the price bid for the materials provided. The contracts between Husky and the third parties all contain provisions and terms that provide for the sale of materials to Husky. On the basis of the contracts, there was a sale of tangible property under the PST Act. Husky was the user or consumer of the cement. The third parties were providing materials and services to assist in the construction of the oil well. Husky has failed to establish that the contracts were supply and install contracts. Husky was the ultimate user and consumer of the tangible personal property. Husky is not entitled to rely on mistake of law. Husky has failed to establish on a balance of probabilities that it is entitled to a refund of the PST it paid on well cementing contracts between itself and third parties. The claim is dismissed.