Supreme Court of Canada Overturns Alberta Court of Appeal in Redwater Decision

On January 31, 2019, the Supreme Court of Canada (SCC) released its decision in Orphan Well Association, et. al. v. Grant Thornton Limited, et. al. – a case commonly known as Redwater.

The majority overturned the Alberta Court of Appeal’s decision and found that certain sections of the Oil and Gas Conservation Act (OCGA) and Pipeline Act (PA) do not conflict with the scheme of distribution set out in the Bankruptcy and Insolvency Act (BIA). In the majority's view, section 14.06(4) of the BIA is concerned only with the personal liability of court-appointed trustees and does not permit a trustee to walk away from the environmental liabilities of the estate it is administering. Accordingly, the Alberta Energy Regulator may use the provincial legislative scheme to prevent the abandonment or renunciation of an insolvent debtor’s assets by a trustee and require the trustee to satisfy certain environmental claims in priority to the claims of secured creditors.

In dissent, Justices Moldaver and Côté would have dismissed the appeal. The dissent reasoned that, by virtue of the doctrine of federal paramountcy, certain sections of the OGCA and PA are inoperative to the extent of their conflict with the scheme of distribution set out in the BIA.

This decision creates uncertainty for secured lenders to oil and gas producers, as well as secured lenders to other industries with potential for significant environmental liability. If you would like to discuss the decision or its possible effects on your business, please contact the authors. Further updates on the SCC’s decision and Alberta’s oil and gas licensing regime will be provided as they become available.

For more background, please see our previous publications, including our May 2017 Blakes Update: Court of Appeal Affirms Unconstitutionality of Alberta’s Oil and Gas Licensing Regime, and May 2016 Blakes Bulletins: Alberta’s Oil and Gas Licensing Regime Found to be Unconstitutional.

For further information, please contact:

Kelly Bourassa                                      403-260-9697
Ryan Zahara                                         403-260-9628
Brendan MacArthur-Stevens                403-260-9603
Vanessa Williams                                 403-260-9788

or any other member of our Restructuring & Insolvency group.