The doctrine of illegality may not preclude pleading amendments based on breaches of prima facie illegal contracts.
On May 31, 2021, the Alberta Court of Queen’s Bench considered an application to amend a pleading which sought damages arising from the breach of a prima facie illegal contract. The Court found in favour of permitting the amendment after pitting the low threshold test for pleading amendments against the merits of a damages claim arsing from a breach of an agreement in conflict with an Act. (Indeed an Act that expressly contemplated paramountcy over such an instrument.) Rather than deeming the amendment hopeless, the Court held that unless the formation of the contract itself is prohibited under legislation, an agreement that conflicts with legislation may still be enforceable, even where the legislation states that the Act will prevail.
Enmax Power Corporation and its predecessor (collectively Enmax) have historically run transmission lines, governed by various Transmission Agreements with land owners, through lands located along the railway tracks running through downtown Calgary, Alberta (the Interlink Lands). The Interlink Lands were acquired by Remington Development Corporation (Remington) in 2002, who terminated the exiting Transmission Agreements, and initiated legal proceedings against Enmax for breach of contract, trespass, and unjust enrichment. The parties were embroiled in litigation for a number of years before entering into an agreement detailing a number of substantive and procedural dispute resolution steps (the Letter Agreement).
The material terms of the letter agreement were:
- Remington waived its right to pursue claims for damages other than those arising from Enmax’s unauthorized use of the Interlink Lands;
- Enmax agreed to have the issue of whether Remington could terminate the Transmission Agreements giving rise to Enmax’s liability resolved in a Special Chambers application;
- Enmax further agreed that if Remington was successful:
- It would make the appropriate application to the Alberta Utilities Commission (AUC) to remove the transmission lines from the Interlink Lands
- It would not seek to “circumvent the Court’s decision […] or reacquire any right of way or right of entry through [the Interlink Lands] pursuant to governmental or regulatory order or otherwise” 
Remington was substantively successful against Enmax in its Special Chambers application, and Enmax filed its application with the AUC application to relocate the transmission lines in August 2014. However, the AUC dismissed the application, determining it was not in the public interest to move the transmission lines. Effectively, the existence of Enmax’s transmission lines on the Interlink Lands gave rise to a continual state of alleged trespass. As such, Enmax applied to the Surface Rights Board to obtain a right of entry order to the Interlink Lands, and for a determination as to compensation owed to Remington. Remington asserts this application was in breach of the Letter Agreement wherein Enmax agreed not to pursue such a process.
In the original litigation between the parties, yet to be resolved, Remington sought a determination of damages owed arising from Enmax’s unauthorized use of the Interlink Lands. In the present application, Remington seeks to appeal a Master’s decision dismissing Remington’s application to amend its pleading to include damages arising from Enmax’s breach of the Letter Agreement. The test for amending a pleading establishes a low threshold, whereby amendments will generally be allowed unless:
(a) the amendments would cause serious prejudice not reparable in costs;—(b) the amendments are hopeless;—(c) the amendments are time-barred because of limitations; or—(d) the amendments are not pleaded or required in good faith.
Enmax opposes Remington’s amendment application, stating the amendment is hopeless because it seeks to enforce an illegal contract. Section 12 of the Surface Rights Act (the “SRA” or “Act”) provides that an operator has no right of entry to lands without the consent of the land owner or a right of entry order issued under the Act. Given the transmission lines cannot not be removed from the Interlink Lands without AUC approval, if Enmax complied with the provision in the Letter Agreement that it would not seek a regulatory access order, Enmax faced a state of alleged continual trespass. More simply stated, compliance with the Letter Agreement created a conflict to comply with the Act.
Section 2 of the Act states that:
If there is a conflict between this Act and anything contained in any grant, conveyance, lease licence or other instrument, whether made before or after the coming into force of this Act, with respect to right of entry in respect of the surface of any land incidental to any operations concerning mining, drilling, pipelines, power transmission lines or telephones lines, this Act prevails.
Enmax claims the Letter Agreement provision precluding Enmax from pursuing a right of entry order is in conflict with the Act. As the result, the effect of section 2 of the Act renders the Letter Agreement provision unenforceable and therefore any amendment to Remington’s claim pursuant thereto is hopeless.
Under the doctrine of illegality, contracts that are made contrary to an express legislative prohibition on their formation are void ab initio and unenforceable. If a contract’s purpose is not directly impugned by an Act, but rather is impliedly illegal, or the method of its performance is illegal, the application of the doctrine of illegality requires some further consideration of whether or not the contract is truly illegal.
In considering the application of the doctrine of illegality to the Letter Agreement, the Court held the SRA does not preclude the formation of a contract like the Letter Agreement; rather it states that if such an agreement comes into conflict with the Act, the Act will prevail. As such, the Letter Agreement more properly falls into the tranche of impliedly or operationally illegal contracts, which necessitates a policy-driven and circumstances specific analysis. The Court held that is was indeed the definition of an arguable issue, and therefore Remington’s proposed amendment was not hopeless.
The Alberta Court of Queen’s Bench held that because nothing in the SRA expressly precluded the formation of the Letter Agreement, the determination of whether the Letter Agreement was illegal necessitated further analysis under the doctrine of illegality.
Where a party seeks to amend a pleading to add a claim grounded in the enforceability or breach of a prima facie illegal contract, they may be successful unless the formation of the contract itself is expressly prohibited under the applicable legislation. Where the contract formation itself is not illegal, but the contract may be impliedly or operationally illegal, that will give rise to a sufficiently arguable issue to merit a pleading claim amendment grounded in the prima facie illegal contract.
In a regulatory context, parties entering into contracts whereby they waive their rights to pursue regulatory processes or remedies may need to carefully review the applicable legislation to ensure the contract is not void ab initio, and to better understand under what circumstances a court may hold the contract to be illegal.
 Remington Development Corporation v. Enmax Power Corporation, 2021 ABQB 261, [Remington].
 See Remington Development Corporation v. Enmax Power Corporation, 2019 ABQB 754 (Masters Chambers) at para 1. As noted by Master Roberston, “the superior courts have ruled that to some extent the provision in [the] agreement is unenforceable”.
 Remington at para 7.
 Remington at paras 12-13. The AUC further dismissed Remington’s subsequent review application.
 Remington at paras 2-4.
 Remington at para 29, citations omitted.
 RSA 2000, c.S-24.
 Remington at para 36.
 Remington at para 39.
 Remington at para 52.