Banker Beware - Joint Operating Agreements And Trust Funds

Bankers to the oil and gas industry should be wary of applying customer’s funds held in accounts with the bank against obligations owed to the bank where the customer is known to be an "Operator" under a Joint Operating Agreement and where the possibility exists that those funds are impressed with a trust in favour of non-operators.

In Bank of Nova Scotia v. Societe General (Canada) (1988) 87 A.R. 133, the Court of Appeal of Alberta considered the nature of the relationship between an operator of certain oil and gas properties and the non-operators who each had a specifically defined interest in those properties. The non-operators alleged that the operator stood in a fiduciary relationship to them and that it held funds on deposit in its general account in trust for the benefit of the non-operators. The relationship between the two parties was governed by a 1981 CAPL agreement. The Court of Appeal concluded that under the terms of the 1981