Summary

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C. The Arbitration Questions

Two questions have been submitted to arbitration. First, PetroChina seeks an arbitral declaration that it validly exercised the option on November 21st, 2025, and that the period of closing the option transaction remains open until PetroChina has either received or has been finally denied the authorizations. In doing so, it relies on the wording of section 9.4(d) which provides that the option to purchase is in accordance with the procedures set forth in section 9.10 mutatis mutandis.

Second, and in the alternative, if the agreement cannot be amended, then PetroChina seeks relief from forfeiture in the form of allowing it time to get the authorizations.

Basically, the primary remedy sought is the extension of the 30 days to get the authorizations. That is, the second 30 days should be extended to whatever period is required to either obtain the authorizations or get a final denial of them with PetroChina acting reasonably.

South Bow's position is that sections 9.4(d) and 9.10, read correctly, are not capable of the construction urged by PetroChina. South Bow also says there has been no breach of agreement on which PetroChina can rely to obtain relief from forfeiture. Since, in South Bow's view, PetroChina has not validly exercised the option, it has acquired no rights to which relief applies.

Obviously, the arbitration panel will be asked to interpret the agreement and make a final ruling on whether PetroChina is right in its construction of sections 9.4(d) and 9.10 such that the option, due to the circumstances, continues to live.

D. Respective Roles of the Court and the Arbitration Tribunal

Now, I wanted to speak about the role of the Court versus that of the Arbitration Tribunal.

All disputes arising under the agreement, including interpretive disputes, are to be decided by arbitration under section 14.2 of the agreement. At paragraph (f) of section 14.2, a niche of jurisdiction is reserved for the Court. It says that injunctive relief will not be sought from the arbitration panel, and that the parties may seek injunctive relief from the Court. And that is why PetroChina has brought South Bow before me now.

The niche of jurisdiction may apply to any issue of dispute arising from the agreement, and not just the matter of how the transfer of shares occurs. It is fair to say that the agreement itself governs every aspect of relationship between owners of the pipeline enterprise.

I am cognizant that in all injunction cases in Canada, the Court must apply the Supreme Court of Canada decision in RJR-MacDonald Inc v Canada (Attorney General), 1994 CanLII 177 (SCC) (RJR-MacDonald), which contains a three-part test, the first of which involves some level of inquiry into the merits of the Applicant's claim. There is controversy here about what type of injunction is actually being sought and therefore, how closely I should be scrutinizing PetroChina's case, and I will get to that later.

I do realize the Court and the Arbitration Tribunal have separate roles. I am asked to give interim interlocutory relief; the Arbitration Tribunal is asked to make full and final pronouncement on the merits and give final relief.

I acknowledge that I am not to interfere with the work of the Arbitration Tribunal. The roles are complementary. The spheres of jurisdiction should not be overlapping, and I certainly should not be making the arbitrators' decision for or in place of them.

I understand that whatever factual findings I might care to make, and any findings regarding the merits of the dispute before the arbitration panel, constitute my views only made on a limited record and no other evidence and after only a half-day of argument. Even the briefs presented were, in part, based on what one side thought the other side would argue. There was not enough time in the compressed litigation timeline to exchange briefs in accordance with the Commercial Practice Note.

I am not trying to make excuses for myself, but rather I am trying to explain why the arbitration panel is entitled to come to a different conclusion than me on the merits of the interpretive dispute. The panel that is to be appointed will no doubt be experienced, qualified, and competent as adjudicators who can easily disabuse themselves of anything I might say. Even in injunction cases taking place totally in the Courts, injunctions are vacated or varied all the time by a subsequent judge on a different and better record.

All to say that nothing I say today should be considered binding upon, or even influence, the Arbitration Tribunal in its work. The Arbitration Tribunal will make the final and binding decision regarding whether the option has been validly exercised and whether the option period continues until the authorizations are in hand.

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