Executive Summary: Key Legal and Evidentiary Issues

• Steelhead's undertaking to discontinue the patent infringement action was triggered when asserted claims of the 085 patent were invalidated in a separate proceeding (T-1488-20), but ambiguity arose over whether "asserted claims" encompassed dependent claims held partly valid.

• Cedar appealed the case management judge's (CMJ) December 31, 2025 order under rule 51, arguing the CMJ erred by granting leave to amend the statement of claim instead of dismissing the action entirely.

• Interpretation of the undertaking's scope became the central dispute — specifically whether Steelhead promised to forgo all future assertion of valid patent claims or only to discontinue claims found wholly invalid.

• The CMJ exercised discretion to strike the original statement of claim but permitted Steelhead to re-plead infringement based on patent claims previously held valid, finding this achieved the most just and expeditious outcome.

• Cedar alleged the CMJ applied the wrong legal test by relying on Sanofi (implied undertaking on discovery) rather than principles governing voluntary undertakings, and that the order sanctioned abuse of process by allowing "litigation by instalments."

• Justice Pallotta applied the deferential standard of palpable and overriding error and found no basis to intervene in the CMJ's discretionary decision.

The patent infringement action and the undertaking at its core

In July 2023, Steelhead LNG (ASLNG) Ltd. and Steelhead LNG Limited Partnership commenced an action in the Federal Court of Canada (Docket T-1420-23) against Cedar LNG Partners LP, Cedar LNG Partners (GP) Ltd., and Pembina Pipeline Corporation, alleging infringement or future infringement (including by inducement) of 33 claims of Canadian patent number 3,027,085 (the "085 patent"). The infringement allegations were based on Cedar's acts of design, development, and marketing for a facility that does not yet exist. Cedar moved to strike the statement of claim in August 2023, arguing the infringement allegations were legally untenable and mirrored claims already rejected in a related action, T-1488-20, the requirements of a quia timet cause of action were not met, and there were no acts of direct infringement to induce.

The proposal to stay proceedings and the undertaking

In October 2023, Steelhead's counsel sent an email to the Court proposing that the action and Cedar's motion to strike be held in abeyance pending the outcome of a validity decision in T-1488-20, which challenged the validity of every claim of the 085 patent and had just been heard by Justice Manson. In that communication, Steelhead stated that if all the asserted claims were held to be invalid, Steelhead would discontinue the action and the defendants' motion would be moot. Cedar did not agree to the proposed stay, and the case management judge (CMJ), Associate Judge Crinson, did not hold off on scheduling the motion. He directed that Cedar's motion to strike would be heard on November 14, 2023. Associate Judge Cotter heard the motion on November 14 and reserved his decision.

The T-1488-20 validity decision and the disagreement over the undertaking

On December 13, 2023, Justice Manson issued his decision in T-1488-20 on the validity of the 085 patent claims. He held that claims 24, 25, 27, 28, and 29 are valid; claims 26, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50, 51, 52, 53, 54, and 55 are valid insofar as they depend on claims 24, 25, 27, 28, and 29, directly or indirectly, and are otherwise invalid; and claims 1 through 23 and 56 through 84 are invalid. The parties then disagreed on what the condition "if all the asserted claims are held to be invalid" meant. Cedar contended that all 33 asserted claims had been invalidated because, while 11 of the 33 claims in the pleading (namely, claims 26, 36, 37, 41, 42, 44, 45, 46, 47, 48, and 49) were held valid insofar as they depend on claims 24, 25, 27, 28, and 29, those five claims were not asserted against Cedar and the factual elements of those valid claim dependencies had not been pleaded. Steelhead countered that not all asserted claims were invalidated, as 11 of them remained valid to the extent they depend on claims 24, 25, 27, 28, and 29, and Steelhead intended to amend their pleading to assert at least claim 24.

The CMJ's decision and order of December 31, 2025

After a case management conference and a written motion by Cedar to enforce the undertaking, the CMJ issued his decision on December 31, 2025. Since the parties did not dispute that Steelhead gave an undertaking, he identified the issues as: whether the terms of Steelhead's undertaking were met, whether Steelhead should be released from the undertaking, and what remedy was appropriate. On the first issue, the CMJ found that the 11 Enumerated Claims had not been asserted to the extent that they depend on the five Valid Claims because the elements of claims 24, 25, 27, 28, or 29 had not been fully pleaded, and concluded that no asserted claim had been held to be valid — meaning the precondition to the undertaking had been met. On the second issue, the CMJ found that the evidence did not establish that Steelhead should be fully released from the undertaking. However, the CMJ determined that the appropriate remedy was not outright dismissal. Recognizing that the undertaking arose in an unusual circumstance in which some claims of the 085 patent were held to be both invalid and valid depending upon which claim they depended from, the CMJ struck the statement of claim but granted Steelhead leave to amend it to allege infringement of 085 patent claims that were held valid in T-1488-20, within 30 days. He also ordered Steelhead to pay Cedar costs at mid-column V of the pre-December 2025 tariff, payable forthwith, as a sanction for failing to fulfill the undertaking voluntarily. On January 30, 2026, Steelhead served and filed an amended statement of claim alleging infringement of claim 24 and the 11 previously asserted claims as they depend directly or indirectly on claim 24.

Cedar's rule 51 appeal before Justice Pallotta

Cedar appealed the CMJ's order under rule 51, arguing it was premised on a succession of legal and factual errors. Cedar contended the CMJ applied the wrong jurisprudence by relying on Sanofi-Aventis Canada Inc v Apotex Inc, 2008 FC 320, a case about relief from an implied undertaking on discovery, rather than the test for relief from a voluntary and explicit undertaking to discontinue an action. Cedar further argued the CMJ mischaracterized the undertaking by suggesting Steelhead had only undertaken to no longer pursue infringement of the Enumerated Claims to the extent they were determined to be invalid — which Cedar said was difficult to comprehend since, as a matter of law, a patentee cannot pursue invalid patent claims. Cedar submitted that Steelhead necessarily undertook to forgo the right to pursue valid claims that they had not asserted in this action, otherwise Cedar's motion to strike would not be rendered moot. Cedar also alleged the order sanctioned abuse of process by permitting Steelhead to split their case and litigate by instalments, and that it set a troubling precedent of allowing successive allegations of infringement of different claims.

Steelhead's response to the appeal

Steelhead maintained that the CMJ made no error of law, and he made no factual errors — reviewable or otherwise — to warrant intervention on appeal. They argued the CMJ's decision was a discretionary exercise that should be given deference, that there is no legal distinction between implied and voluntary undertakings as both engage the Court's discretion in their enforcement, modification, or the determination of an appropriate remedy, and that the principles in Sanofi are not materially different from those in Juman v Doucette, 2008 SCC 8. Steelhead emphasized that the action was at an early stage and pleadings were not closed, and that the CMJ had discretion to proactively manage the litigation. They submitted the CMJ correctly stated that it remained open to Steelhead to assert infringement of remaining valid claims because they never undertook not to, and that the CMJ exercised discretion to afford partial relief and craft an appropriate remedy.

The ruling and its outcome

Justice Pallotta dismissed Cedar's rule 51 appeal on April 22, 2026. Applying the deferential standard of palpable and overriding error, the Court found that Cedar had not established an error that warrants intervention. Justice Pallotta held there was no merit to Cedar's allegation that the CMJ applied the wrong jurisprudence or legal test, and agreed with Steelhead that this allegation attempted to fabricate a legal error where there was none. The Court further found that the CMJ did not make findings that compelled a singular outcome or even any particular outcome, and that Cedar were wrong that the CMJ's findings ought to have led "inexorably" to a conclusion that the statement of claim should be struck without leave to amend. On the central argument regarding paragraph 19 of the CMJ's reasons, Justice Pallotta found the CMJ did not misunderstand or fail to appreciate the undertaking, and that there were no irreconcilable differences between the CMJ's statements and what Steelhead promised to give up. The Court agreed that the CMJ correctly held that Steelhead did not undertake to forgo the right to pursue Valid Claims or claims that depend on them, and that Steelhead's undertaking was not more than a promise to discontinue an action founded entirely on invalid claims. The abuse of process argument was rejected, as it was premised on assumptions that Steelhead promised to forgo rights to assert valid patent claims and that the CMJ ought to have dismissed the action. Steelhead, as the successful parties, were awarded their costs of the motion, in any event of the cause. The Court declined to order those costs payable forthwith, finding the motion did not lack a reasonable foundation, nor was it apparent from the outset that the motion had no chance of success. No exact monetary amount for costs was determined; the parties were given 5 days to jointly propose a disposition or alternatively propose a timetable for written submissions on the quantum.