The Rural Voice, 2019-03, Page 71 When a residential tenant vacates
a farmhouse, they may leave behind
personal items; they may leave
behind a mess. The landlord might
succeed in requiring the former tenant
to clean up, or the landlord himself or
herself might have to clean up. When
there’s a change in a farm land
tenancy, the landlord or the new
tenant may need to apply fertilizers or
pesticides, pick stones, or conduct
extra tillage to transition from the
previous tenant’s cropping practices
to new ones. But what happens when
an industrial tenant or occupant of a
farm property walks away or goes
bankrupt? What happens when an oil
well, a pipeline, or a wind turbine is
abandoned in place?
The Supreme Court of Canada
very recently addressed this question
in the context of orphaned oil wells in
Alberta. An orphan well is one for
which the cost of remediation
required for abandonment of the well
exceeds the actual monetary value of
the well. The Supreme Court was
tasked with deciding whether a
bankruptcy trustee, in administering
the estate of a bankrupt oil and gas
company, can renounce or disclaim
the company’s interests in orphan oil
wells (and walk away from
remediation obligations) while at the
same time selling off the company’s
other valuable wells and assets in
order to maximize the recovery by
creditors.
The case involved Redwater
Energy Corporation, a publicly traded
oil and gas company. In 2015,
Redwater’s principal secured creditor,
the Alberta Treasury Branches
(“ATB”), commenced enforcement
proceedings after Redwater couldn’t
meet its financial obligations. On
May 12, 2015, Grant Thornton was
appointed Receiver for Redwater
under the Bankruptcy and Insolvency
Act (“BIA”). In July, 2015, Grant
Thornton told the Alberta Energy
Regulator (“AER”) that it would be
taking control of only 20 of the 127
Redwater oil and gas licences. The
AER responded by issuing orders
“for environmental and public safety
reasons” requiring the abandonment
and remediation of the 107 wells that
the Receiver was looking to
“disclaim”. In October, 2015, a
bankruptcy order was issued for
Redwater. In November, 2015, Grant
Thornton, now trustee in bankruptcy
for Redwater, disclaimed the assets it
had previously renounced in its
capacity as Receiver, and indicated to
the AER that it did not intend to
comply with the environmental
remediation orders.
The AER and the Orphan Well
Association (“OWA”) brought court
applications for declarations that the
disclaimer was void. They also
sought an order compelling Grant
Thornton, as trustee, to comply with
the abandonment and remediation
orders issued by the AER. Grant
Thornton brought a cross-application
for approval of the sale of certain
assets, and a ruling on the
constitutionality of the AER’s
position. At first instance, the
Chambers Judge sided with the
trustee in bankruptcy. On appeal
before the Alberta Court of Appeal,
two of three judges sided with the
Trustee, while one judge would have
ruled that a portion of the sale
proceeds from the viable wells must
be set aside to meet the expected cost
of remediating the orphan wells.
The Supreme Court of Canada was
also split on the case (5-2), but this
time in favour of the AER position.
The majority found that the AER’s
use of its regulatory powers to require
remediation of the environment was
not in conflict with the BIA, so that
the doctrine of federal paramountcy
(which would resolve the conflict in
favour of the federal bankruptcy
legislation and against the provincial
energy and environmental legislation)
was not triggered. The Court found
that the BIA did not empower the
MARCH 2019 67
Who will clean up
when the tenant
walks away?
John D. Goudy
is a partner in
Scott Petrie
LLP Law Firm,
and also farms
north of
London.
Agrilaw