ORPHAN WELL ASSOCIATION V. GRANT THORNTON LTD., 2019 SCC 5, [2019] 1 S.C.R. 150

Bankruptcy does not absolve a company from fulfilling its provincial environmental obligations.

Redwater was an oil and gas company based in Alberta. In Alberta, the Alberta Energy Regulator (the Regulator) issues a license to all those oil and gas companies which want to operate in Alberta. According to the license, these companies have certain “end of life obligations” which state that companies must “abandon” (take down) their structures pipelines, wells and other facilities indefinitely after they stop operations. They are also required to clean up the said land “reclaiming” it in the process. The Orphan Well Association (OWA) an independent, non- profit organization had been given the power to abandon and reclaim “orphans — oil and gas assets and their sites left behind in an improperly abandoned or un-reclaimed state by defunct companies at the close of their insolvency proceedings.” Although the OWA had no authority to seek a reimbursements of the costs borne by it, it can be reimbursed up to the amount of any security deposit that is held by the Regulator to the credit of the licensee of the orphans once it has completed its environmental work.

However Redwater declared bankruptcy in 2015 and Grand Thornton Ltd. (GTL) was appointed as its trustee (trustee). GTL decided to disown the useless, inactive wells and took possession of the active and successful wells.

The main two contentions that arose were: If the trustee could withdraw itself from the sites it did not take responsibility for by citing to Bankruptcy and Insolvency Act (BIA), which was a Federal law? And if the order of the province to remove the structures from the land came under the ambit of provable claims in the BIA. If they were proved to be so, then the profit earned by the successful wells would first be used to pay the creditors and the money left (if any) would be used to take the sites down.

The trial court and a majority in the Court of Appeal stated that the trustee could walk away and that abandonment claims came under provable claims.

The majority judges in the Supreme Court held that GLT could not walk away from the sites it disowned. They clarified the “payment order scheme” of BIA and said that it only meant that the trustee was protected from paying their own money to fulfil the environmental claims of the bankrupt company. The bench also stated that abandonment costs were not provable claims but were duties hence go beyond the purview of the payment order scheme. Thus, the federal and provincial laws did not clash.

Since GTL had already given up or sold all of Redwater’s assets, the money which was kept “in trust” was ordered by the Court to now be used to abandon and reclaim the land prior to paying it to Redwater’s creditors.