ORPHAN WELL ASSOCIATION v. GRANT THORNTON LTD., 2019 SCC 5

Under BIA, oil and gas companies have an obligation to fulfill their responsibilities to the environment before satisfying any claims.

In this case, Redwater was an oil and gas company based in Alberta. This company owned many pipelines and facilities, before it went bankrupt in the year 2015. The cases of bankruptcy fall under the Bankruptcy and Insolvency Act, hereinafter referred to as “BIA” in which the responsibility of managing the process lies in the hands of the trustee. The people who state that such bankrupt company owes money towards them have to file a claim and this claim is known as the “claim provable in bankruptcy”. When such claim is proved, the process is initiated and the company will have to clear such claims. Since the company is already gone into bankruptcy, such claims are sorted through the company’s estate, i.e. the leftover money and property.

The BIA is a federal law and only the federal government has the power to make laws on bankruptcy. At the same time, there are some residuary powers on the exercise of which the provinces of Canada can also make laws and this power extends to the rights pertaining to natural resources and property rights. Alberta made it mandatory for all oil and gas companies to get a license before coming into operation. A set of conditions are also attached along with this that once the companies are done with their projects, they are to “abandon” wells, pipelines, and facilities. Companies also need to get an environmental clean-up done. When Redwater went bankrupt, it had not done any environmental clean-up and the trustees did not even have any intention to do so as restoration of land would have costed millions of dollars and basically decided to disown the wells and sites where it worked earlier.

The Regulator argued that Redwater is not permitted to abandon the site under the BIA or the provincial law. There were two main issues before the trial judge. First, whether the trustee of the company could ignore its responsibility under the BIA and second, whether the provincial orders to remove structures from the land were provable claims under the BIA. The trial judge adjudicated in favor of the Redwater company and stated that the trustee was not wrong from abandoning the sites and that the abandonment costs were provable claims. The same judgment was upheld by the Court of Appeal. However, it was overturned by the Supreme Court. The Hon’ble Supreme Court said that the trustees cannot walk away from the sites without any environmental clean-up. It elucidated BIA’s objective that it was formulated to restrict the trustees from the burden of paying the bankrupt companies’ claims from their own funds but that didn’t mean that Redwater was qualified to evade from its environmental obligations. The Court, by relying on Saskatchewan (Attorney General) v. Lemare Lake Logging Ltd. 2015 SCC 53: [2015] 3 S.C.R. 419, also explicated the difference between the stature of BIA and other provincial statutes and said that when a conflict arises, the BIA would always trump provincial acts in priority. The majority bench concluded that the claims were also not provable.