​On April 24, 2017, the Alberta Court of Appeal issued a decision in Orphan Well Association v Grant Thornton Limited, 2017 ABCA 124. The decision is arguably the past year’s most hotly anticipated and discussed decision in Alberta, despite involving bankruptcy proceedings of a relatively small junior oil and gas company. The Court of Appeal, in a 2-1 split, upheld the trial judge’s decision that a receiver can disclaim or renounce uneconomic assets that are subject to costly environmental liabilities. The effect of this decision is that a receiver can elect to only package and sell assets of its choosing, possibly leaving responsibility for the clean-up of uneconomic assets to Alberta’s Orphan Well Fund which results in implications for a wide variety of stakeholders across industry (discussed by BLG previously in Where do we go from here? Alberta Court approves renouncement of AER-licensed assets by Trustees and Receivers to avoid monetary environmental obligations, Shifting Environmental Liabilities after the Redwater Decision​ and Impact of Redwater outside of Alberta: a British Columbia perspective). The decision maintains the new reality that stakeholders have been grappling with since the trial decision was released, but the fallout is likely not over yet. The Alberta Energy Regulator (the AER) has already taken significant steps to address the implications from the trial decision (discussed by BLG in The Alberta Energy Regulator Reacts to the Redwater Decision – Who Suffers? and Alberta Energy Regulator Reiterates Position on Interim Measures post-Redwater but Indicates Some Flexibility on 2.0 LMR Requirement), and more changes can be expected in the energy sector as stakeholders re-evaluate their respective risk profiles in light of the decision.


​A receiver was appointed for Redwater Energy Corporation (Redwater), a publicly listed oil and gas company, when it defaulted on debts owing to the Alberta Treasury Branch. The receiver took possession of Redwater’s most valuable assets and sought to disclaim or renounce certain assets subject to costly environmental liabilities and obligations. The Court confirmed that receivers and trustees of licensees in bankruptcy are permitted under the Bankruptcy and Insolvency Act (BIA) to renounce such assets and that the AER and the Orphan Well Association do not have priority over the other creditors of a bankrupt licensee. For a detailed summary of the trial judge’s decision, see BLG’s previous post (found in Where do we go from here? Alberta Court approves renouncement of AER-licensed assets by Trustees and Receivers to avoid monetary environmental obligations).

​In the trial decision, the Honourable Chief Justice Wittm​ann held that an operational ​conflict existed between the federal BIA and Alberta’s Oil and Gas Conservation Act (OGCA) and the Pipeline Act (PA) with respect to c​ertain rights of trustees and receivers of licensees of the AER. Pursuant to federal paramountcy rules, where a conflict exists, the federal legislation prevails. The trial judge found that such a conflict did arise between Section 14.06 of the BIA, which permits a Trustee to renounce assets and not be responsible for environmental abandonment and remediation work, and provisions of the OGCA and PA which do not allow a trustee (which is considered a “licensee” under the legislation) to do so.

The Orphan Well Association and the AER appealed the trial decision. Grant Thornton Limited, the receiver in the bankruptcy, and Alberta Treasury Branches, the lender, were Respondents on appeal. Four intervenors were granted rights to participate in the appeal, the Canadian Association of Petroleum Producers, the Attorney General for Saskatchewan, Her Majesty the Queen in Right of the Province of British Columbia as represented by the Ministry of Natural Gas Development and the British Columbia Oil and Gas Commission and the Canadian Association of Insolvency and Restructuring Professionals (the decision to allow the intervenors was discussed by BLG in Alberta Court of Appeal Grants Intervener Status to Four Participants in Appeal of Re Redwater Energy Corp.).


The issues on appeal were the priority of environmental claims and whether a receiver or trustee in bankruptcy must address the liabilities inherent in the remediation of the wells in priority to the claims of secured creditors. The Court of Appeal reviewed these questions of law on the standard of correctness.

The majority held that the Regulator cannot mandate that the Trustee satisfy environmental claims in priority to the claims of the secured creditor under the BIA. To the extent that the interpretation of the provincial legislation leads to a different result, the paramountcy doctrine is engaged. The majority rejected the arguments by the Appellants and some intervenors that public policy and fairness considerations should factor into its decision, holding that bankruptcy court has no ability to create exceptions to the statute based on general considerations of fairness or public policy.

In Justice Martin’s dissenting opinion, she concluded that there was no conflict between the federal and provincial legislative schemes and, accordingly, found that there was no issue with respect to paramountcy. Her analysis was largely based on statutory interpretation of the words of Section 14.06. She found there was no conflict between the federal and provincial legislation as the majority read the provisions of the federal legislation too broadly.


The decision does not alter the current status quo, which was shaped by the outcome of the trial decision. As BLG previously discussed in Where do we go from here? Alberta Court approves renouncement of AER-licensed assets by Trustees and Receivers to avoid monetary environmental obligations​ and Shifting Environmental Liabilities after the Redwater Decision, ​there are widespread implications for the energy industry, the lending industry, principals, bankrupts, the AER and the public as a result of this decision. The AER has already revised some policies with respect to abandonment and liability in an attempt to better secure payment from oil and gas companies for liabilities. In the bankruptcy context, the template receivership orders have already been amended in response to the trial decision in Redwater (see for example receivership orders granted in the cases of Northpoint Resources Ltd., LGX Oil + Gas Inc., and Nordegg Resources Ltd.).

While there is a possibility of a further appeal to the Supreme Court of Canada, leave to appeal is required and is difficult to obtain. In the interim, this decision will bring greater clarity to stakeholders. Absent any further appeal, it is likely that there will be a future legislative and regulatory framework review by the Regulator for addressing abandonment and reclamation liability.