The Supreme Court of Canada ruled in favour of the AER and Orphan Well Association’s (OWA’s) appeal of the Redwater decision.
From the May 2016 Redwater decision until January 30, 2019, receivers and trustees involved in 28 insolvencies renounced their interest in more than 10 000 AER-licensed sites (wells, facilities, and pipelines) with deemed liabilities of almost $335 million. In that same period, the OWA’s inventory of wells increased more than 300% from 768 to 3100.
We recognize that funds are limited in many insolvency cases and may be insufficient to address all end-of-life obligations, reinforcing the need for further changes. To address this, the AER has improved its liability management framework, which we believe will strengthen our existing system.
What was the Redwater Decision?
The 2016 Alberta Court of Queen’s Bench Redwater decision and the Alberta Court of Appeal decision, which were both overturned by the Supreme Court, would have allowed receivers and trustees of insolvent oil and gas companies to renounce (also referred to as “disclaim”) unprofitable assets and avoid a company’s end-of-life obligations. This would have allowed creditors to avoid legislative requirements that licensees would have had to follow if they were not in receivership or bankruptcy.
The AER released a public statement after the Alberta Court of Queen’s Bench decision in May 2016 and another in April 2017 after the Alberta Court of Appeal upheld the decision. We then took the fight to the Supreme Court of Canada, which announced in November 2017 that it would hear our appeal.
The Supreme Court determined that the AER was not a creditor and that while receivers and trustees are not personally liable for addressing end-of-life obligations, they cannot simply walk away from the environmental obligations of the debtor company they are appointed over. A key point in the ruling was that a receiver or trustee is considered a licensee and must meet regulatory obligations. The court also found no conflict between the Bankruptcy and Insolvency Act and provincial legislation.
A Timeline of the Redwater Decision
| May 17, 2016 | The Court of Queen’s Bench of Alberta issues its decision (the Redwater decision) on the AER’s challenge to Grant Thornton Limited’s (the receiver) ability to disclaim energy-industry liabilities. |
| May 27, 2016 | The AER files an appeal of the Court of Queen’s Bench of Alberta ruling. |
| April 24, 2017 | The Alberta Court of Appeal denies the AER’s appeal of the Redwater decision. |
| April 28, 2017 | The AER announces that it is seeking leave to appeal to the Supreme Court of Canada. |
| July 4, 2017 | The AER and Orphan Well Association (OWA) request leave to appeal to the Supreme Court of Canada. |
| November 9, 2017 | The Supreme Court of Canada agrees to hear the AER’s appeal. |
| February 15, 2018 | The AER and OWA appeal of the Redwater decision is heard by the Supreme Court of Canada. |
| January 31, 2019 | The Supreme Court of Canada issues its ruling, overturning the Redwater decision. |
