Redwater Energy Corporation (Re), 2016 ABQB 278

Court of Queen ’ s Bench of Alberta Citation: Redwater Energy Corporation (Re), 2016 ABQB 278 Date: 20160519 Docket: 1501 04793, BK01 094570 Registry: Calgary In the Matter of Redwater Energy Corporation Docket: 1501 04793 Between: Grant Thornton Limited Applicant - and - Alberta Energy Regulator Respondent Docket: BK01 094570 and Between: Alberta Energy Regulator and Orphan Well Association Applicants - and - Grant Thornton Limited Respondent _______________________________________________________ Reasons for Judgment

of the Honourable Chief Justice Neil Wittmann _______________________________________________________ I. Introduction [ 1 ] This case raises several issues of importance to the energy industry, the financial industry and the Alberta public, in terms of the potential environmental and financial repercussions when abandoned wells of a bankrupt energy company are renounced by a trustee or receiver in bankruptcy. The extraction of oil and gas and the operation of pipelines in Alberta are regulated by the Alberta Energy Regulator (“AER”).

Considering the current uncertainty of the economy of this province, the law needs to be clarified regarding the protection of trustees and receivers where environmental concerns arise, the ability of the trustee or receiver to sell and disclaim licensed assets and the rights and priority of creditors where the AER is actively involved in the distress sales process. [ 2 ] The AER, the Orphan Well Association (“OWA”) and Grant Thornton Limited as the Receiver and the Trustee of Redwater Energy Corporation (the “Trustee” or “Receiver” unless otherwise specified) have filed two applications.

First, there is a joint application by the AER and the OWA responding to the Trustee’s renunciation of certain AER licensed assets of Redwater Energy Corporation (“Redwater”). Second, there is a cross-application on behalf of the Trustee seeking the approval of a sales process that excludes the renounced assets. The cross-application raises constitutional issues that are detailed in a Further Amended Notice of Question of Constitutional Law.

Those details surround the alleged conflict between provincial and federal legislation and the frustration of purposes of the federal legislation, which engage the doctrine of paramountcy. [ 3 ] Redwater was a publicly listed oil and gas corporation and holds a number of AER licensed properties in Alberta, which are licensed under the Oil and Gas Conservation Act , RSA 2000, c O-6 (“ OGCA ”) and the Pipeline Act , RSA 2000, c P-15. The AER was established by the Responsible Energy Development Act, SA 2012, c R-17.3 (“ REDA ”) and acts as the single regulator of all upstream oil and gas activities in Alberta.

The AER’s mandate includes providing “for the efficient, safe, orderly and environmentally responsible development of energy resources in Alberta through the Regulator’s regulatory activities”: REDA , s 2(1)(a). The provincial legislation and rules provide for when and how a licensee must suspend, abandon, or reclaim wells and pipelines.

Under the OGCA and the Pipeline Act , trustees and receiver-managers are licensees and, as such, they are subject to the statutory and regulatory obligations of the AER. [ 4 ] Redwater’s principal secured lender, Alberta Treasury Branches (“ATB”) has demanded repayment of Redwater’s indebtedness. Following an application by the ATB, Grant Thornton Limited (“GTL”) was appointed Receiver by this Court on May 12, 2015, under

section 243 of the Bankruptcy and Insolvency Act , RSC 1985, c B-3 (“ BIA ”). On October 16, 2015, the AER was served with a copy of an application on behalf of ATB seeking a bankruptcy order with respect to Redwater and appointing GTL as Trustee of the Redwater estate. On October 28, 2015, Romaine J. granted the bankruptcy order.

GTL is generally referred to as the Trustee in this decision, whether or not it was active as the Receiver when certain steps were taken, unless the context requires otherwise. [ 5 ] Under Alberta legislation, the transfer of oil and gas well licences from the well licensee to another party is subject to the approval of the AER: OGCA , s 24; Pipeline Act , s 18. It appears that the AER will not approve such a transfer in cases where a transaction includes valuable and producing wells and excludes non-producing “shut-in” wells, unless conditions are imposed on such transfers.

With respect to non-producing wells, their value is typically less than the costs that will need to be incurred in order to meet the abandonment, remediation and reclamation obligations required by the AER. In other words, the AER can block a sale by withholding the transfer of the licences unless the transfer conditions it imposes are met. These conditions relate to certain ratios that need to be met which, in the case of an insolvent debtor, will rarely be met unless certain steps are taken, such as posting security. The reality is that potential buyers are not inclined to buy non-producing wells.

In an insolvency and bankruptcy context, the seller may not be in a situation where it can post security required by the AER or it may not make economic sense – generally, or for lack of financial resources – for a Trustee to post security. The Trustee has not submitted transfer applications at this time. [ 6 ] This case raises the issue of whether the Trustee has the ability to disclaim property that is non-producing; in other words, whether it can pick and choose realizable property.

It also raises the issue of whether the AER, a provincial regulator, can effectively create a priority for abandonment and environmental liabilities in bankruptcy by approving the transfer of licences subject to conditions, which are detrimental to some creditors, and if so, whether this creation or reordering of priority is contrary to the BIA . [ 7 ] In the context of these applications, the terms “abandon” and “abandonment” refer to two different concepts.

Under provincial legislation ( OGCA and Pipeline Act ), the terms relate to the environmental obligation to render the well or facility environmentally safe.

Section 14.06 of the BIA also contains the same terminology, but there it relates to the renouncement or disclaimer of assets by the trustee in a bankruptcy (or proposal) and includes an interim receiver and a receiver within the meaning of section 243(2) of the BIA . [ 8 ] The AER and the OWA seek a declaration that the disclaimer by GTL as Receiver of a portion of the licensed assets of Redwater is void and unenforceable and contrary to

section 2 of the initial order appointing GTL as Receiver. They also seek an order compelling the Receiver to comply with the closure and abandonment orders issued by the AER in relation to a portion of the assets of Redwater, using the funds in the estate. In addition, the AER and OWA seek an order compelling the Receiver to fulfill its statutory obligations as licensee in relation to abandonment, reclamation and remediation of all Redwater licensed properties. [ 9 ] The Trustee and Receiver seeks a dismissal of the AER/OWA Application.

The Trustee requests the approval of the sales process to market and sell certain of Redwater’s property and assets, requiring that the AER not consider or condition its approval on the

direct or indirect payment of any financial claims of the AER, and declaring that the Trustee is entitled to renounce some of the licensed assets of Redwater, namely the non-producing wells and facilities. II. Factual Background [ 10 ] In 2013, ATB advanced funds to Redwater pursuant to two commitment letters dated January 31, 2013, and August 19, 2013. [ 11 ] In mid-2014, shortly after a loan was granted by ATB, Redwater experienced some difficulties after a number of acquisitions and unsuccessful drilling initiatives depleted its cash.

As a result, in late 2014, Redwater and ATB an agreement that provided that Redwater would carry out a sale of assets to obtain sufficient proceeds to fully repay ATB in exchange for a deferral of interest payments until April 30, 2015. The sale process did not generate any offers sufficient for full repayment of Redwater’s secured loan. Redwater was also unsuccessful in obtaining financing to repay the loan. [ 12 ] Following an application by ATB with respect to the debtor Redwater, GTL was appointed Receiver by the Court on May 12, 2015, under

section 243 of the BIA . A. Receivership Order and developments subsequent to the appointment of the Receiver [ 13 ] The following paragraphs of the Receivership Order, which is substantially similar to the form of the Alberta Template Receivership Order approved by the Court, were specifically referred to by the parties to these Applications. [ 14 ] Paragraph 2 of the Receivership Order provides: 2.

Pursuant to section 243(1) of the Bankruptcy and Insolvency Act , RSC 1985, c B-3 (“BIA”), Grant Thornton Limited is hereby appointed Receiver, without security, of all of the Debtor’s current and future assets, undertakings and properties of every nature and kind whatsoever, and wherever situate, including all proceeds thereof (the “ Property ”). [ 15 ] Paragraph 3(

a) provides as follows regarding the powers of the receiver: 3. The Receiver is hereby empowered and authorized, but not obligated, to act at once in respect of the Property and, without in any way limiting the generality of the foregoing, the Receiver is hereby expressly empowered and authorized to do any of the following where the Receiver considers it necessary or desirable: (

a) to take possession of and exercise control over the Property and any and all proceeds, receipts and disbursements arising out of or from the Property; [ 16 ] Paragraph 8 relates to proceedings against the debtor or the Property: 8. No Proceeding against or in respect of the Debtor or the Property shall be commenced or continued except with the written consent of the Receiver or with leave of this Court and any and all Proceedings currently under way against or in respect of the Debtor or the Property are hereby stayed and suspended pending further Order of this Court, provided, however, that nothing in this Order shall: (

i) prevent any Person from commencing a proceeding regarding a claim that might otherwise become barred by statute or an existing agreement if such proceeding is not commenced before the expiration of the stay provided by this paragraph 8; and (ii) affect a Regulatory Body’s investigation in respect of the debtor or an action, suit or proceeding that is taken in respect of the debtor by or before the Regulatory Body, other than the enforcement of a payment order by the Regulatory Body or the Court. “ Regulatory Body ” means a person or body that has powers, duties or functions relating to the enforcement or administration of

an Act of Parliament or of the legislature of a province. [ 17 ] Paragraph 9 provides the following regarding the exercise of rights and remedies: All rights and remedies (including, without limitation, set-off rights) against the Debtor, the Receiver, or affecting the Property, are hereby stayed and suspended except with the written consent of the Receiver or leave of this Court, provided however that nothing in this paragraph shall (

i) empower the Receiver or the Debtor to carry on any business which the Debtor is not lawfully entitled to carry on, (ii) exempt the Receiver or the Debtor from compliance with statutory or regulatory provisions relating to health, safety or the environment, (iii) prevent the filing of any registration to preserve or perfect a security interest, or (iv) prevent the registration of a claim for lien. [ 18 ] Paragraph 15 of the Receivership Order provides the following regarding environmental liabilities: 15. (

a) Notwithstanding anything in any federal or provincial law, the Receiver is not personally liable in that position for any environmental condition that arose or environmental damages that occurred: (

i) before the Receiver’s appointment; or (ii) after the Receiver’s appointment unless it is established that the condition arose or the damage occurred as a result of the Receiver’s gross negligence or wilful misconduct. (

b) Nothing in sub-paragraph (

a) exempts a Receiver from any duty to report or make disclosure imposed by a law referred to in that sub- paragraph. (

c) Notwithstanding anything in any federal or provincial law, but subject to sub-paragraph (

a) hereof, where an order is made which has the effect of requiring the Receiver to remedy any environmental condition or environmental damage affecting the Property, the Receiver

is not personally liable for failure to comply with the order, and is not personally liable for any costs that are or would be incurred by any person in carrying out the terms of the order, (

i) if, within such time as is specified in the order, within 10 days after the order is made if no time is so specified, within 10 days after the appointment of the Receiver, if the order is in effect when the Receiver is appointed, or during the period of the stay referred to in clause (ii) below, the Receiver: A. complies with the order, or B. on notice to the person who issued the order, abandons, disposes of or otherwise releases any interest in any real property affected by the condition or damage; (ii) during the period of a stay of the order granted, on application made within the time specified in the order referred to in clause (

i) above, within 10 days after the appointment of the Receiver, if the order is in effect when the Receiver is appointed by, A. the court or body having jurisdiction under the law pursuant to which the order was made to enable the Receiver to contest the order; or B. the court having jurisdiction in bankruptcy for the purposes of assessing the economic viability of complying with the order; or (iii) if the Receiver had, before the order was made, abandoned or renounced or been divested of any interest in any real property affected by the condition or damage. [ 19 ] On May 14, 2015, the AER confirmed the receipt of notification that GTL had been appointed as a Receiver of the property of Redwater.

The confirmation provides: The Alberta Energy Regulator (AER) confirms receipt of notification on May 13, 2015 that Grant Thornton Limited (Grant Thornton) has been appointed as Receiver of the property of Redwater Energy Corp. (Licensee). As you may know, the Licensee currently holds a number of AER licences or approvals (Licences). “Licensee” is defined in both the Oil and Gas Conservation Act (OGGA) and Pipeline Act (PA) to include a trustee or receiver-manager of the property of a licensee. Please note the AER is not a creditor of the Licensee and does not assert a provable claim in the receivership.

Rather, the AER has a statutory mandate to regulate the oil and gas industry in Alberta, which includes enforcement of the Acts, Regulations and Rules that it administers. As such, we advise that notwithstanding the receivership, the Licensee remains obligated under the OGCA and PA to comply with and fulfill all regulatory requirements associated with the Licences, including all applicable regulations, rules and AER directives.

These include responsibility for care and custody of all AER licensed wells, pipelines and related facilities, including but not limited to, emergency and incident response and obligations relating to the Alberta One-Call system, and fulfilment of all applicable suspension and abandonment obligations in relation to all AER licensed wells, pipelines and related facilities, which includes posting of any applicable security under AER liability management programs.

The AER takes the position that Grant Thornton is legally and statutorily obligated to fulfill these obligations, and must do so prior to distributing any funds or finalizing any proposal to creditors, secured or otherwise. The AER is of the view that the current law in Alberta and federally supports this position and notes that suspension and abandonment address primarily public safety issues as opposed to environmental concerns, and constitute a carrying out of a duty owed by the licensee to the public.

While the AER is prepared to work with Grant Thornton to facilitate administration of the Licensee’s AER licensed assets, please note that any agreements made by Grant Thornton with third parties to transfer ownership of AER licensed wells, pipelines or related facilities do not effect the transfer of the associated AER licences. Transfer of AER licences requires application to and approval by the AER.

When application for transfer is made, the AER assesses both the transferor’s and transferee’s ability to fulfil all applicable regulatory obligations then determines whether to approve the transfer of applicable license and approvals. In connection with your appointment, we refer you to the attached list of AER licences, permits and approvals held by the Licensee. Please provide the following to the undersigned no later than June 15, 2015 : [...] 2.

Written confirmation that Grant Thornton has taken possession of Redwater Energy Corp.’s AER licensed properties, is providing care and custody of the properties and is taking steps to ensure compliance with the Licensee’s responsibilities and obligations under the OGCA and PA, associated regulations and rules and all applicable AER directives.[...] [...] Please note that failure to provide the information requested above may result in the AER suspending the licences through the issuance of AER orders and ultimately requiring the properties to be abandoned. [...] [ 20 ] A document dated May 29, 2015, authored by Jaqueline Gauthier (account manager with the Asset Management Department of ATB) was prepared following a review of the Redwater file regarding sales information and packages, which were put together by Redwater after December of 2014.

It lists a few options for secured creditors, referring to pros and cons of each option. One option listed is to sell the good wells and disclaim the others : 1. Attempt to sell only the producing assets (and selected suspended wells on the same land plat) included in the previous offer from interested party at $XXX (amount sealed). Refuse to take possession of or disclaim our interest in the rest of the licensed wells and

facilities. a. Pros: i. Can probably close a deal quickly assuming that it is made unconditional ii. Highest possible dollar value realized from sale iii. Assumed Court win over AER on distribution proceeds has implications on other files, if not appealed by AER and if legislation not changed. b. Cons/Risks: i. AER has already indicated they will fight it 1. We may lose the fight 2. We may win the fight, but only after spending a large amount of time and money on it, while buyer may lose interest (see Alston file) ii. AER will only transfer licenses if Redwater LLR is ≥1:1 post sale.

Based on Redwater’s current LLR the LLR deposit that would be required to be retained from the sales proceeds is estimated at $1.2 million at May 1 (and rising monthly by roughly 500K for near-term). The greater risk (and with higher likelihood) is that AER will require sufficient funds be withheld for the gross (not just net) LLR liability of remaining licenses, estimated at $(amount sealed), effectively eliminating any recovery for ATB. [...] iii. Potentially leaving some value on the table re: disclaimed wells and facilities that weren’t part of formal sales process.

Subordinate creditors could argue this point, but if ATB taking a hit on the deal tougher for them to argue. See also June 9, 2015 ATB update. [ 21 ] On June 25, 2015, the AER advised the Receiver that the AER required independent confirmation from the Receiver that it had taken possession and control of all of the assets of Redwater before the AER would consider any proposal dealing with the sale of assets. [ 22 ] On July 3, 2015, the Receiver responded to the AER and advised that in relation to paragraph 3(

a) of the Receivership Order, the Receiver took possession and control of only the AER licenses, permits and approvals relating to approximately 20 of the 127 AER licensed properties. In fact, the Receiver took possession of Redwater’s most valuable assets and opted to disclaim the rest of Redwater’s assets. [ 23 ] The AER responded to the estate of Redwater by closure/abandonment orders dated July 14, 2015, and August 7, 2015 (the “Abandonment Orders”), regarding the AER licensed assets for which the Receiver indicated that it did not assume possession.

The following is from the letter dated July 15, 2015, which was sent by the AER to GTL and Wescan Energy Corp., with the orders with respect to Redwater licensed properties. It provides as follows: [...] As a result of the foregoing, the AER believes that Redwater is unable to provide care and custody of the Licensed Properties and as such, believes that these licenses pose an environmental and safety hazard. Therefore, the AER believes that the Licensed Properties should be closed and abandoned for environmental and public safety reasons.

Section 3.012 (

d) of the Oil and Gas Conservation Rules (OGCR) requires a licensee to abandon its wells and facilities if the Regulator notifies the licensee that in the opinion of the Regulator the well or facility may constitute an environmental or safety hazard. [...] Take Notice [...] 2. Should Redwater fail to comply or WIP s [“Working Interest Participants”] fail to abandon their respective properties by the date identified in the attached Closure/Abandonment Orders, the AER will, without further notice, use its process to have the properties abandoned.

The AER will exercise all remedies available to it to recover costs from the liable parties. 3. Should the AER subsequently abandon the properties because the licensee, and WIP s fail to act on the Closure/Abandonment Order, the AER may initiate the procedure of Named Individual in accordance with

section 106 of the OGCA and apply consequences to those individuals as outlined. [...] [ 24 ] On November 2, 2015, GTL disclaimed the Renounced Licensed Assets in its capacity as Trustee. The Trustee does not intend to comply with the orders issued by the AER as it submits that it has legitimately renounced the properties to which the orders attach. B. Licensee Liability Rating and Liability Management Ratio [ 25 ] When exercising the AER’s discretion to approve or refuse the transfer of licences under

section 24 of the OGCA and

section 18 of the Pipeline Act , the AER considers the rules and guidance set out in Directive 006: Licensee Liability Rating (LLR) Program and

Licence Transfer Process , effective May, 2013, (“ Directive 006 ”) and Directive 011:Licensee Liability Rating (LLR) Program: Updated Industry Parameters and Liability Costs , effective August 1, 2015 (“ Directive 011 ”); see also OGCA , s 10.

The AER’s decision to refuse approval may be appealed to the AER and the Court of Appeal (with the permission of the Court of Appeal on a question of jurisdiction or on a question of law): REDA , ss 38 and 45. [ 26 ] The AER will only approve the sales process if it is conducted in a manner that does not deteriorate Redwater’s Licensee Liability Rating (“LLR”) as outlined in AER Directive 006 .

Directive 006, along with Directive 011, are intended to prevent costs associated with suspension, abandonment, remediation and reclamation of AER licensed properties (well, facility or pipeline) in the LLR Program from being borne by the public of Alberta should a licensee become defunct.

As well, the intent is to minimize the risk to the Orphan Fund administered by the OWA. [ 27 ] According to 7.1 of Directive 006 , which relates to orphan sites, a well, facility, or pipeline in the LLR program is “eligible to be declared an orphan when the licensee of that licence becomes insolvent or defunct.” The AER will designate it as an orphan once “it determines a well, facility, or pipeline meets the criteria outlined in Section 70(2) ” of the OGCA , at which time it will be considered an orphan for all aspects of the LLR program, namely, suspension, abandonment, remediation, and reclamation. [ 28 ] In her affidavit sworn on August 13, 2015, Patricia Johnston, Executive Vice President and General Counsel for the Regulator, explains that under the LLR program, “the AER conducts a liability assessment for each licensee, which is based on the estimated costs to suspend, abandon, reclaim and remediate the AER licensed properties of that licensee.” She adds that “[b]ased on that assessment, the AER assigns a liability management ratio (LMR) to each licensee,” which is the ratio of the licensee’s eligible deemed assets as compared to its deemed liabilities.

This is accomplished through the monthly calculation and on receipt of transfer applications to transfer existing AER licenses. As noted on a Liability Management Program Results report dated September 5, 2015, “the [LMR] provided for licensees reflect the results of a comparison of their deemed assets to their deemed liabilities for all Liability Management programs.

This ratio is based on information reported to the AER and the calculation of deemed assets and deemed liabilities as specified in AER Directives”: Directive 006 ; Directive 024: Large Facility Liability Management Program (LFP) (“ Directive 024 ”) and Directive 075: Oilfield Waste Liability (OWL) Program (“ Directive 075 ”). If either party’s post-transaction LMR is lower than 1.0, the AER will either deny the transfer application or will require additional security.

If a licensee’s deemed liabilities exceed its deemed assets in addition to any previous security posted, the AER will consider the security adjusted LMR to be below 1.0. The AER will require the licensee to either conduct abandonment of some or all of its AER licensed properties as a means of increasing its LMR above 1.0 or post security in the amount of the difference. [ 29 ] Upon questioning on her affidavit, Ms. Johnston explained that in Redwater’s case its LMR rating is at 0.93, thus below 1.0.

The AER’s practice is that a company not in receivership would not see its transfer approved unless it meets the required minimum LMR of 1.0. [ 30 ] Ms. Johnston further explained that if there was a sale presented to the AER regarding a well transfer licence application in which the LMR deposit of Redwater was to be worsened (i.e. below 0.93), in order to secure the consent of the AER regarding the transfer the receiver would have a number of options.

The receiver could: 1) post a security deposit (in order to reduce the liability); 2) abandon and reclaim some licensed properties so that it would reduce the liability (to perform abandonment operations on some of the licensed assets to cause deemed liabilities to decrease); or, 3) transfer some liabilities of one or more of the licensed properties, subject to the AER’s consent (sell asset packages bundled in a way that essentially bad assets balance out the good assets so the LMR does not worsen). [ 31 ] The Receiver’s Second Report, dated October 3, 2015, indicates that as of September 2015, Redwater’s total deemed liabilities exceeded the deemed assets, indicating an LMR deficiency of over $552,000.

Its LMR rating was at 0.93 – significantly lower than in May 2015 when the Receiver was appointed, at which time its LMR was 1.06. [ 32 ] In this case, the AER already waived strict enforcement of its rules as set out in Directive 006 in order to facilitate a sales process by the Receiver. The AER has not waived all of its requirements, which it acknowledges may reduce the proceeds realized through the sales process.

However, as I will refer to below, the AER submits that its actions do not frustrate or conflict with any provisions of the BIA , as it argues that there is no entitlement under the BIA to maximize sales proceeds at the expense of compliance with a public duty. C. Orphan Well Association [ 33 ] The OWA is a non-profit organization that operates as a financially independent entity under authority delegated by the AER. The OWA is set up with a separate board from the AER.

The OWA is overseen by a board of directors comprised of representatives from the Canadian Association of Petroleum Products (“CAPP”), the Explorers and Producers Association of Canada, the AER and Alberta Environment and Parks. Its primary purpose is to conduct abandonment or site reclamation activities on specific properties designated by the AER as “orphans” under section 70(2) of the OGCA . The OWA fund is established under the OGCA and administered by the AER.

It is not an insurance scheme. [ 34 ] The OWA has limited resources and establishes priorities in order to determine which properties should receive abandonment work first. It aspires to have all of the current sites reclaimed or abandoned over the next 10 to 12 years. Although the OWA has received some funding from the Provincial Government, it is largely funded by the industry through an annual orphan fund levy prescribed and collected by the AER on behalf of the OWA.

The levy is calculated by taking into account a number of things including the total number of wells, facilities and unreclaimed sites: OGCA , s 73; Directive 006 ; see also Oil and Gas Conservation Rules , Alta Reg 151/71. One hundred percent of the levy is remitted to the OWA. The OWA has no powers to seek reimbursement of its costs from the licensee.

However, in circumstances where the AER holds a security deposit on behalf of a licensee, the OWA is eligible to be reimbursed for its expenditures once the abandonment is completed or the reclamation certificate obtained, up to the amount of the deposit. [ 35 ] The OWA noticed that recently there was a large increase in the number of wells designated as orphans. For instance, the OWA 2014/2015 Annual Report indicates that the OWA had received a total of 591 new orphan wells from the AER for abandonment

for that fiscal year when it had received 80 new orphan wells in the prior year. III.

Legislation [ 36 ] Under the OGCA , the definition of licensee includes receivers and trustees: 1(1) In this Act, [...] (cc) “licensee” means the holder of a licence according to the records of the Regulator and includes a trustee or receiver-manager of property of a licensee; [ 37 ] Similarly, under the Pipeline Act , the definition of licensee also includes receivers and trustees: 1(1) In this Act, [...] (n) “licensee” means the holder of a licence for a pipeline according to the records of the Regulator or the holder of a licence for purposes of a gas utility pipeline according to the records of the Alberta Utilities Commission and includes a trustee or receiver-manager of the property of a licensee; [ 38 ]

Section 14.06 of the BIA provides: No trustee is bound to act 14.06

(1) No trustee is bound to assume the duties of trustee in matters relating to assignments, bankruptcy orders or proposals, but having accepted an appointment in relation to those matters the trustee shall, until discharged or another trustee is appointed in the trustee’s stead, perform the duties required of a trustee under this Act. Application

(1.1) In subsections (1.2) to (6), a reference to a trustee means a trustee in a bankruptcy or proposal and includes (

a) an interim receiver; (

b) a receiver within the meaning of subsection 243(2); and (

c) any other person who has been lawfully appointed to take, or has lawfully taken, possession or control of any property of an insolvent person or a bankrupt that was acquired for, or is used in relation to, a business carried on by the insolvent person or bankrupt. No personal liability in respect of matters before appointment

(1.2) Despite anything in federal or provincial law, if a trustee, in that position, carries on the business of a debtor or continues the employment of a debtor's employees, the trustee is not by reason of that fact personally liable in respect of a liability, including one as a successor employer, (

a) that is in respect of the employees or former employees of the debtor or a predecessor of the debtor or in respect of a pension plan for the benefit of those employees; and (

b) that exists before the trustee is appointed or that is calculated by reference to a period before the appointment. Status of liability

(1.3) A liability referred to in subsection (1.2) is not to rank as costs of administration. Liability of other successor employers (1.4) Subsection (1.2) does not affect the liability of a successor employer other than the trustee. Liability in respect of environmental matters

(2) Notwithstanding anything in any federal or provincial law, a trustee is not personally liable in that position for any environmental condition that arose or environmental damage that occurred (

a) before the trustee’s appointment; or (

b) after the trustee’s appointment unless it is established that the condition arose or the damage occurred as a result of the trustee’s gross negligence or wilful misconduct or, in the Province of Quebec, the trustee’s gross or intentional fault.

Reports, etc., still required

(3) Nothing in subsection (2) exempts a trustee from any duty to report or make disclosure imposed by a law referred to in that subsection. Non-liability re certain orders

(4) Notwithstanding anything in any federal or provincial law but subject to subsection (2), where an order is made which has the effect of requiring a trustee to remedy any environmental condition or environmental damage affecting property involved in a bankruptcy, proposal or receivership, the trustee is not personally liable for failure to comply with the order, and is not personally liable for any costs that are or would be incurred by any person in carrying out the terms of the order, (

a) if, within such time as is specified in the order, within ten days after the order is made if no time is so specified, within ten days after the appointment of the trustee, if the order is in effect when the trustee is appointed, or during the period of the stay referred to in paragraph (b), the trustee (

i) complies with the order, or (ii) on notice to the person who issued the order, abandons, disposes of or otherwise releases any interest in any real property, or any right in any immovable, affected by the condition or damage; (

b) during the period of a stay of the order granted, on application made within the time specified in the order referred to in paragraph (a), within ten days after the order is made or within ten days after the appointment of the trustee, if the order is in effect when the trustee is appointed, by (

i) the court or body having jurisdiction under the law pursuant to which the order was made to enable the trustee to contest the order, or (ii) the court having jurisdiction in bankruptcy for the purposes of assessing the economic viability of complying with the order; or (

c) if the trustee had, before the order was made, abandoned or renounced or been divested of any interest in any real property, or any right in any immovable, affected by the condition or damage. Stay may be granted

(5) The court may grant a stay of the order referred to in subsection (4) on such notice and for such period as the court deems necessary for the purpose of enabling the trustee to assess the economic viability of complying with the order. Costs for remedying not costs of administration

(6) If the trustee has abandoned or renounced any interest in any real property, or any right in any immovable, affected by the environmental condition or environmental damage, claims for costs of remedying the condition or damage shall not rank as costs of administration. Priority of claims

(7) Any claim by Her Majesty in right of Canada or a province against the debtor in a bankruptcy, proposal or receivership for costs of remedying any environmental condition or environmental damage affecting real property or an immovable of the debtor is secured by security on the real property or immovable affected by the environmental condition or environmental damage and on any other real property or immovable of the debtor that is contiguous with that real property or immovable and that is related to the activity that caused the environmental condition or environmental damage, and the security (

a) is enforceable in accordance with the law of the jurisdiction in which the real property or immovable is located, in the same way as a mortgage, hypothec or other security on real property or immovables; and (

b) ranks above any other claim, right, charge or security against the property, despite any other provision of this Act or anything in any other federal or provincial law. Claim for clean-up costs

(8) Despite subsection 121(1), a claim against a debtor in a bankruptcy or proposal for the costs of remedying any environmental condition or environmental damage affecting real property or an immovable of the debtor shall be a provable claim, whether the condition arose or the damage occurred before or after the date of the filing of the proposal or the date of the bankruptcy. [ 39 ] Further legislation is set forth in the Appendix to these reasons. IV. Positions of the Parties

A. AER [ 40 ] One main issue in this case is whether the Trustee and Receiver can disclaim certain assets. The AER’s submission is that it cannot properly disclaim some of the licensed assets, as it was appointed as receiver and manager of all assets held by Redwater. The AER argues that the Trustee is not permitted to pick and choose as a means of avoiding a licensee’s statutory obligations and that regulatory orders must be complied with. It adds that the provincial legislature clearly intended trustees to assume licensee responsibilities by expressly including them in the definition of the licensee.

The AER submits that the Trustee cannot avoid its public duty in relation to care and custody and end of life obligations of the licensee by disclaiming assets of the debtor, unless there is a significant risk that it may be personally liable for the environmental condition and for failure to comply with any order requiring it to remedy the same. [ 41 ] It submits that the AER’s legislation is clear that accompanying the issuance of a licence is the obligation to abandon, reclaim and remediate.

Relying on PanAmericana de Bienes y Servicios SA v Northern Badger Oil & Gas Ltd (1991), 1991 ABCA 181 , leave to appeal to SCC refused, 22655 (16 January 1992) (“ Northern Badger ”) , the AER submits that these obligations are inchoate in licences from the date the wells are drilled and are included in the obligations and expenses inherent in the nature of the properties assumed by the Trustee.

It argues that if the Trustee is permitted to disclaim assets and avoid its regulatory obligation, it will create a situation where there is no responsible party for the purposes of care and custody obligations, abandonment, reclamation and remediation of the debtor’s licensed assets.

The AER says that this, in turn, poses a threat to the health, safety and environmental security of Albertans. [ 42 ] The AER submits that in this case the orders are clearly of a regulatory nature, not monetary, which means that compliance of GTL as Receiver and Trustee is required and that the orders are not a provable claim under the BIA . The AER submits that the intent is to ensure that as many wells as possible fall into the category of being sold and removed from the Orphan Well inventory.

It argues that its insistence that the Trustee comply with the AER’s orders is rooted in its position that licensees are not entitled to enjoy the benefits of licensing while avoiding the burdens of licensing. It submits that the obligation to abandon, reclaim and remediate was known by Redwater at the time that the licenses were obtained, by ATB at the time it advanced its funding to Redwater, and by the Trustee when it accepted its appointments.

The AER argues that to permit the Trustee to disregard the licensing regime would set a dangerous precedent and undermine the entire regulatory regime. [ 43 ] The AER argues that the fact that the Trustee is continuing operation of and receiving production from some of Redwater’s AER licensed properties further supports that it is the licensee. It adds that once a party becomes a licensee, it cannot choose to be a licensee for the purposes of some AER licensed assets while disregarding others.

The benefits and obligations of each AER licence flow to the licensee of those assets. [ 44 ] The AER submits that the Trustee and Receiver cannot rely on the Receivership Order, nor on

section 14.06 of the BIA to refuse to take possession of or disclaim any of Redwater’s AER licensed properties. The AER submits that to do so would amount to permitting a licensee in receivership to ignore its statutory obligations and would be in direct conflict with the AER’s legislation. It submits that disclaimer of properties in reliance on paragraph 3(

a) of the Receivership Order permits trustees to disclaim properties in circumstances that would not otherwise be permitted under paragraph 15 of the Receivership Order or

section 14.06 of the BIA . The AER says that those provisions permit trustees to disclaim properties in cases where there is a concern about personal liability for the environmental impacts or damage. The AER argues that neither the template receivership order nor

section 14.06 of the BIA were intended to permit a receiver to avoid its statutory obligations and public duties regarding end of life obligations of the licensee, and any attempts by the Trustee and Receiver to do so should not be permitted. [ 45 ] The AER submits that one cannot ignore the wording “real property” specifically used by Parliament in

section 14.06 of the BIA . The AER also refers to

section 14.06(7) and notes that the super priority only applies against the land. The AER’s position is that a licence is personal property, not real property. For instance, the Trustee could disclaim the lease, but not a licence. The AER says that the obligation to abandon is only with the licensee and not the real property. The AER argues that what can be renounced under

section 14.06 of the BIA is the real property that has been remediated. The AER adds that as a result there is no constitutional issue, because GTL is not entitled to disclaim the licence. [ 46 ] The AER submits that paragraphs 2, 8 and 9 of the Receivership Order are premised on the Receiver providing care and control over all property and complying with statutory and regulatory requirements relating to health, safety or the environment to the extent the receivership estate permits.

The AER submits that paragraph 2 makes it clear that the Receiver was appointed over all of Redwater’s “current and future assets, undertakings and properties [...]”, which means all of the assets including the disclaimed licences at issue as opposed to a portion of the assets. [ 47 ] The AER argues that the Receiver’s disclaimer is an attempt to avoid its statutory obligation as a licensee, which is contrary to paragraphs 8 and 9 of the Receivership Order.

The AER specifically refers to paragraph 8, which provides that “nothing in this Order shall [... ] (ii) affect a Regulatory Body’s investigation in respect of the debtor or an action, suit or proceeding that is taken in respect of the debtor by or before the Regulatory Body, other than the enforcement of a payment order by the Regulatory Body or the Court.” The AER also refers to paragraph 9, which provides that “however that nothing in this paragraph shall [...] (ii) exempt the Receiver or the Debtor from compliance with statutory or regulatory provisions relating to health, safety or the environment [...].” [ 48 ] Regarding paragraph 15 of the Receivership Order, the AER refers to the Alberta Template Receivership Order Explanatory Notes (Revised December 2012), at 12-13, where the Alberta Committee comments on the differences between Ontario orders and Alberta orders: Paragraph 15 of the Ontario Order contains a provision that nothing shall require the Receiver to occupy and take control, care, charge or possession of any property of the debtor subject to the Receivership Order.

Further, the Receiver shall not, as a result of the Receivership Order, or anything done in pursuance of the Receivership Order, be deemed to be in possession of any of the property, unless the Receiver is in actual possession of the property. Slatter J. in Big Sky [2002 ABQB 659] commented on a similar provision in the proposed Order before him at para 48:

The initial problem with the proposed environmental provisions in the Order is that they contradict other provisions of the Order. Paragraph 2 of the Order places all of the assets of the debtor under the power of the Interim Receiver. Paragraph 28 then provides that the Order does not vest in the Interim Receiver care or control of any property which “may be” environmentally polluted. This latter clause is unacceptable, because at best it creates great uncertain[t]y as to which properties are under the control of the Interim Receiver, and at worst it gives the Interim Receiver some sort of ex post facto right to elect whether it has been in control of property or not. Sections 14.06(4)(

c) and 14.06(6) contemplate the abandonment of contaminated proper[t]y by the receiver, which is the process that should be followed if this later becomes necessary. Section 240(3) of the Alberta Environmental Protection and Enhancement Act , R.S.A. 2000, c.

E-12 (“EPEA”) provides: Where an environmental protection order is directed to a person who is acting in the capacity of executor, administrator, Receiver, Receiver/Manager or trustee, that person’s liability is limited to the value of the assets that person is administering unless the situation identified in the order resulted from or was aggravated by the gross negligence or wilful misconduct of the executor, administrator, Receiver, Receiver/manager or trustee.

In addition the EPEA defines a “person responsible” for a substance or thing containing a substance, as someone who has or has had ownership, charge, management or control over a substance, or that person’s Receiver. This would clearly override the provisions in paragraph 15 of the Ontario Order, as under the EPEA, a Receiver is a “person responsible” regardless of the Receivers’ actual possession of property.

As a result, in the Alberta Committee’s view the wording in paragraph 15 of the Receivership Order is consistent with the existing statutory provisions and jurisprudence in the Province of Alberta, and is therefore supportable. If some additional protection is required, then an applicant would be expected to satisfy the Court that is warranted by the facts and is supported by some judicial authority. [ 49 ] The AER submits that the orders issued do not require, nor do they demand, payment of funds, but rather require the licensee to abandon, remediate and reclaim the properties named in the orders.

It emphasizes that it is very unlikely that the AER would conduct the abandonment work itself and, in fact, has no intention for doing so, as it is not in the business of abandoning wells, but the OWA is. The AER submits that there is no evidence before this Court that shows that the AER performs the abandonment work and that it would seek costs from the Trustee, notwithstanding that the letter quoted above provides otherwise. The AER acknowledges that the remedy exists, but adds that its practice is not to enforce that remedy.

The AER submits that once the Trustee and Receiver has been discharged and the AER has exhausted all of its statutory enforcement mechanisms, the AER may designate the properties subject to the orders as orphans under

section 70 of the OGCA . It adds that orphaning should, however, be viewed as a last resort. B. OWA [ 50 ] The OWA submits that their interest in these proceedings is to minimize the number of wells that become orphans, which would increase its costs, and which it fears will become significant. [ 51 ] The OWA submits that it is clear from the case law that many regulatory obligations are not provable claims.

Relying on Northern Badger , the OWA argues that the law in Alberta, which may differ from other jurisdictions such as Ontario and Newfoundland, is that the inherent part of the licence is the obligation to deal with end of life liabilities. The OWA submits this means that the responsibility of the licensee to comply with abandonment and reclamation orders is therefore a regulatory obligation. The OWA submits that this is consistent with

section 14.06 of the BIA and has not been overruled by Newfoundland and Labrador v AbitibiBowater Inc, 2012 SCC 67 (“ AbitibiBowater ”). [ 52 ] The OWA argues that the inherent or inchoate obligations in licences were not part of the property with which the Supreme Court of Canada was concerned in AbitibiBowater . The OWA argues that end of life obligations in the Alberta oil and gas industry are different than environmental liabilities in the rest of Canada. The licensee is responsible for abandonment, reclamation and remediation.

The OWA adds that it is not an obligation imposed on a property, but is an incident of a licence to drill and explore. It further argues that the AER is enforcing the general law against a licensee and the responsibility to abandon and reclaim is an incident of the property itself, which is a highly regulated predictable common activity in Alberta.

Thus, the OWA argues that the Supreme Court in AbitibiBowater did not overrule Northern Badger . [ 53 ] The OWA submits that the fact that these liabilities are paid out of the estate of a debtor in advance of other creditors is not a matter of super priority, but rather a matter of ensuring the preservation of a cohesive and expansive regulatory regime with benefits and obligations.

The OWA argues that AbitibiBowater is distinguishable from this case as the issue here is the Trustee’s regulatory obligations at the beginning of its mandate, not whether a public authority having basically expropriated property is still in the position of a regulator with respect to that property. [ 54 ] The OWA argues that in light of Northern Badger, it is clear that the Trustee and Receiver cannot “pick and choose” the assets. The OWA adds that the Receiver of Redwater was appointed over all of the debtor’s property and it should be dealing with obligations that attach to all of it.

The OWA notes that following that case, legislation was amended to provide that licensees include trustees and receiver managers. [ 55 ] The OWA submits that the clear purpose of section14.06 of the BIA is to provide trustees with protection from personal liability, not to thrust more environmental liabilities on the public purse or on the OWA. The OWA agrees with the Minister of Justice and Solicitor General of Alberta (“Alberta”) that

section 14.06 was enacted to limit liability of insolvency professionals so that they would accept mandates notwithstanding environmental issues. The OWA adds that it is not a purpose of the legislation to create a mechanism whereby a trustee can renounce assets and remove liability from the estate for the benefit of secured creditors. It argues that if the legislature intended such a consequence, it would have used specific language to do so. [ 56 ] The OWA acknowledges that there is a question as to whether the provincial legislation limits personal liability and how it interacts with

section 14.06 of the BIA , as raised by other parties, but it argues that this question is not currently before the Court.

[ 57 ] The OWA argues that although some of the wording found in

section 14.06 is awkward, especially referring to “abandon, disposes or otherwise releases any interest” the proper

interpretation of

section 14.06(4) is not that the Trustee can shed or abandon liability. The OWA argues that

section 14.06(4)(a)(ii) means that the Trustee can take a step to notify the AER that it will not be personally liable for certain properties, not that it can completely shed its liability. The OWA emphasizes that the qualifying words “not personally liable” are the key to understanding this

section and that it only removes personal liability regarding property that it “abandons, disposes of or otherwise releases”. [ 58 ] The OWA submits that its

interpretation of

section 14.06(4) is consistent with 14.06(6), which provides:

(6) If the trustee has abandoned or renounced any interest in any real property, or any right in any immovable, affected by the environmental condition or environmental damage, claims for costs of remedying the condition or damage shall not rank as costs of administration . [emphasis added] [ 59 ] The OWA submits that the meaning of

section 14.06(6) and “claims for” is that a third party, such as the government or a working interest owner, cannot bring a claim against a trustee for the costs of remedying property that is renounced and ask a trustee or court to have that claim rank as a cost of administration. The OWA adds that, however, if a trustee does remediation or applies funds from the estate to do so, there is nothing in this

section that says those costs are not costs of administration with the priority set out under

section 136 of the BIA . It argues that in fact they must be, as a trustee is not personally liable for these costs. The OWA argues further that the plain meaning of

section 14.06(6) is that a third party cannot assert its claim to be a cost of administration, but provides that these costs are not costs of administration, with the priority set out in

section 136. [ 60 ] The OWA submits that

section 14.06(8) of the BIA acknowledges the reality that there will be times when the Government or other authorities such as the AER intervene and conduct clean-up procedures, and make a claim against the estate. It adds, however, that what this subsection does not say is that regulatory or inherent obligations like those that exist in Alberta regarding abandonment and reclamation are always claims.

In fact, AbitibiBowater provides guidance to determine when a regulatory obligation is a “claim” as opposed to a mere regulatory obligation. [ 61 ] The OWA submits that in light of AbitibiBowater this involves regulatory obligations that are not in the nature of a claim. [ 62 ] The OWA argues in the alternative that, in this case, there is insufficient certainty in the regulatory orders sought to be enforced. Thus, they cannot amount to a “claim.” C. Canadian Association of Petroleum Producers [ 63 ] CAPP, representing petroleum producers, supports the position of the AER and the OWA.

The members of CAPP ultimately fund the Orphan Well fund through levies that are administered through the AER. CAPP argues that it is important to note that the Orphan Well fund is not an insurance scheme, but a result of an agreement between the government, the AER and the industry to put in place a mechanism to operate as a last resort in cases where no one can be held liable for cleaning up certain wells.

CAPP emphasizes that it is in the public interest that those wells be cleaned up. [ 64 ] CAPP argues that there are benefits and burdens that are attached to the licence, including abandonment, remediation and reclamation. CAPP adds that when funds are advanced to companies, they are lent against all of the assets including the benefits and the burdens, and which means the value in the production as well as the obligation to clean-up after production is completed.

CAPP argues that, as a result, no unfairness arises. [ 65 ] CAPP submits that if the Court accepts the Trustee’s argument, the whole regime around the Orphan Well fund will need to be revisited and may even collapse. D. Receiver and Trustee [ 66 ] The Trustee relies on the constitutional doctrine of federal paramountcy. It submits that dual compliance with the two legal regimes is not possible.

The AER requires the Trustee to comply with the AER orders even if the Trustee renounced the licensed property to which the orders attach. [ 67 ] The Trustee also argues that the provincial legislation frustrates the legislative purposes of the BIA and should be inoperative to the extent of the frustration. [ 68 ] The Trustee submits that one important issue in this case is whether the Northern Badger duties (to comply with the law, including the OGCA and the Pipeline Act) can override

section 14.06(4) of the BIA . The Trustee submits that the effect of the 1997 BIA amendments to

section 14.06 is that Northern Badger does not have any continuing effect, at least with respect to the ability to renounce, considering that this ability was specifically added by way of statutory amendments. [ 69 ] The Trustee submits that

section 14.06 of the BIA is a result of a considerable amount of consultation and that it balances various stakeholder interests. It argues that as Receiver it has validly renounced the licensed assets under

section 14.06(4) (

c) by refusing to take possession of them. The Trustee submits that in light of

section 14.06, once the Receiver has renounced licensed assets, it cannot be compelled to comply with later abandonment orders or to complete Redwater’s abandonment obligations. It submits that, upon renunciation, the estate owes no further obligations except to the extent that the AER has valid financial claims to be dealt with in accordance with their appropriate priority. In this case, the abandonment orders were issued after GTL was appointed, but before the determination of priorities of claims for distribution purposes (a step that has yet to occur).

The AER and OWA request that this Court order the Receiver to comply with abandonment orders issued by the AER after the Receiver declined to take possession of various shut- in properties and renounced its interest in such properties under

section 14.06(4) (

c) of the BIA . The Trustee renounced its interest in the renounced licensed assets within 10 days of its appointment, which it submits complies with

section 14.06(a)(ii) of the BIA .

[ 70 ] The Trustee takes the position that the conflict arises from the fact that under

section 25 of the Pipeline Act and

section 29 of the OGCA , it remains liable as a licensee for abandonment, reclamation and remediation obligations with respect to the renounced licensed assets, despite the fact that it renounced them under

section 14.06(4). The Trustee notes that under the provincial legislation, no provision permits a renunciation of assets. A licensee who contravenes the provincial legislation or an AER order is liable to a fine: OGCA , s 110; Pipeline Act , s 54. The Trustee argues that, as a result, and notwithstanding the statements to the contrary by the AER, the OWA and Alberta, there is a very real potential for personal liability in this case for the Trustee.

The Trustee also notes that, under the relevant provincial legislation, rules, regulations, directives or orders, there is no limitation on the liability of the licensee up to the value of its property and assets, and argues that as a result a licensee’s obligation is, on its face, a personal liability. [ 71 ] Regarding the AER’s argument that a licence is personal property as opposed to real property, thus excluding the application of

section 14.06 of the BIA , the Trustee submits that what the AER requires it to do under the abandonment orders relates to the interest of Redwater in the lands, wells and facilities. The Trustee argues that these are obligations that attach to the lands, notwithstanding that the statutory scheme uses the concept of licence to attach liabilities that relate to the interest in the lands held by the Trustee who is a licensee under the OGCA and Pipeline Act . The Trustee’s submission is that if the province may, by licence or by statutory drafting, cause the Trustee to continue to have a remediation liability, notwithstanding the valid exercise of a right or renunciation under BIA

section 14.06(4), there is a direct conflict between

section 14.06(4) and the relevant provincial legislation resulting from the definition of licensee. [ 72 ] The Trustee argues that if the AER is successful on its application to force compliance with the Abandonment Orders, the costs of compliance with the orders will result in costs of administration of a little over $5,000,000, which amounts to the deemed liabilities for the renounced non-producing assets (72 wells and facilities). The Trustee submits that the non-producing assets have no realizable value, but notes that the deemed value was set to approximately $547,000.

In its Second Report, dated October 3, 2015, the Trustee explains at page 7 that the deemed asset value will ultimately decrease to zero over the ensuing months. The Trustee explains that if the AER’s application is granted, GTL will seek its discharge as Receiver and Trustee since it is operating on borrowed money of less than $1.5 million. [ 73 ] The Trustee disagrees that

section 14.06(04) only refers to personal liability concerns. The Trustee submits that upon the issuance of a remediation order, a trustee can comply with it, contest it, apply for a stay, or renounce the property. The Trustee argues that, on the one hand,

section 14.06(4) permits a trustee to renounce the property in two circumstances. First, if there is an order made, it can renounce on notice within the period provided for. Second, if no order has been made, the trustee can simply renounce the property, which has the legal effect of freeing both the estate and the receiver from liability, subject to claims under

section 14.06(7) and (8) of the BIA . The Trustee argues that under sections 14.06(4) (a)(ii) and (c), and 14.06(6) of the BIA neither a receiver nor a trustee can be held personally liable for costs relating to abandonment, remediation and reclamation, and nor can they be required to pay these costs as costs of administration in the receivership or bankruptcy. The Trustee adds that these provisions expressly operate notwithstanding federal and provincial law to the contrary. It notes that orders are specific to remediate real property, but the remediation obligation flows out of the licence regime.

The Trustee argues that in deeming a trustee as licensee, the provincial legislation conflicts with the federal right to renounce and the protection from being exposed to personal liability. The Trustee submits that, on the other hand, neither the OGCA nor the Pipeline Act contain any provision under which a trustee is entitled to renounce licensed wells, associated facilities and pipelines. A licensee can only sell the assets and transfer the licence, or suspend, abandon, reclaim or remediate them in accordance with the OGCA and the Pipeline Act . [ 74 ] The Trustee submits that the correct

interpretation of

section 14.06 of the BIA is that there is no precondition of personal liability. It argues that it does not see, for instance, how a receiver could be concerned with personal liability if the property is already abandoned property under

section 14.06(4) (

c) and no order has been issued. The Trustee argues that

section 14.06(4) does not distinguish between regulatory orders and financial orders. It adds that if Parliament had intended to exclude non-monetary regulatory orders from

section 14.06(4) , it could have done so. In any event, the Trustee argues that the orders at issue here are financial in nature and constitute “provable claims” under

section 14.06(8) of the BIA and AbitibiBowater . Thus, the Trustee is not required to comply with them. [ 75 ] The Trustee also disagrees with the AER and OWA’s

interpretation of

section 14.06(6). It submits that under subsection 6, claims for the costs of remedying the condition or damage cannot rank as costs of administration. It argues that since all expenditures by a trustee incurred in administering the debtor’s property or estate are costs of administration, this can only mean that a trustee cannot expend estate funds to remediate renounced affected property. E. ATB [ 76 ] The ATB supports the Trustee’s application for approval of the sales process.

The ATB submits that the AER’s position is contrary to the express mandate of the LLR program to prevent costs from being borne by the Alberta public and to minimize the risks to the Orphan Fund. The ATB agrees with the Trustee that if the sales process is not approved in a case like this one, receivers will either refuse to take mandates or will request a discharge. [ 77 ] The ATB argues that if the AER’s position is to be accepted, the distribution scheme and certainty provided to creditors under the BIA will be jeopardized.

The ATB submits that the AER has nothing to gain by opposing the transfer of the retained licenses, other than as leverage to improve the priority of its claim for the posting of security. The ATB submits that the AER’s exercise of its public duty is being used to grant the AER a priority that it does not have under either its own legislation or the BIA . [ 78 ] ATB disagrees with the AER’s position that

section 14.06 is not triggered where a trustee’s personal liability is not at issue with respect to abandonment orders. The ATB notes that the provincial legislation does not limit the liability of a trustee licensee to the value of the assets. It also adds that according to the AER’s

interpretation of the provincial legislation, the abandonment does not relieve obligated parties, but the obligations apply against responsible parties in perpetuity. [ 79 ] The ATB agrees with the Trustee that the Abandonment Orders are monetary in nature. The ATB submits that the renounced assets have been shut in and pose no safety risk at this time. The ATB submits that AER requires security deposits posted to cover

abandonment liabilities before they will agree to the transfer of any licences. It submits that, as a result, this is clearly monetary in nature. The ATB adds that, contrary to the AER’s assertions, neither the Trustee nor the ATB has enjoyed the benefits of the renounced assets, as those assets were shut-in prior to the Trustee’s appointment. [ 80 ] ATB notes that, although the AER submits that they are not in the business of performing the abandonment work, the 2013- 2014 OWA report shows that in one year the AER actually abandoned more wells (27) than the OWA (18).

The ATB submits that there is sufficient evidence to demonstrate that the AER will have a provable claim for the abandonment work. It adds that the claim should not be left to the “subjective choice of the creditor to hold the claim in its pocket for tactical reasons.” [ 81 ] Answering the AER’s submission that the ATB knew the risks associated with advancing funds to Redwater including regarding the abandonment liabilities, the ATB submits that this is irrelevant. It adds that what is relevant is that the ATB secured the loan with a first priority charge against all the assets, subject to statutory exceptions.

The ATB also took specific secured registration against each of the leases on the individual property. The ATB adds that the only thing it had in its possession regarding abandonment liabilities was a reserve report. F. Alberta [ 82 ] The intervener, Alberta, agrees with the AER that the Trustee cannot rely on

section 14.06 of the BIA , as the licences at issue are not “real property” as required under that section. Alberta submits that the interest in real property that a receiver or a trustee can abandon, dispose of or release under

section 14.06 is the interest in a parcel of land. It argues that this is reinforced by the comments of Dianne Saxe in “ Trustees’ and Receivers’ Environmental Liability Update ”, (1998) 49 CBR (3d) 138 at 139 : Land which was taken as security may be worth little or nothing if it is “contaminated”. Strict decommissioning guidelines typically prevent redevelopment of contaminated land until most of the “contaminants” have been removed, or otherwise rendered harmless.

This may cost far more than the land is worth. [ 83 ] Alberta adds that the Trustee’s argument regarding the possibility of personal liability should be disregarded as it is hypothetical and not before the Court. Alberta submits that the Court should not decide in a factual vacuum. G. Canadian Association of Insolvency and Restructuring Professionals (“CAIRP”) [ 84 ] CAIRP is a non-profit organization. It has approximately 980 members who are licensed trustees in bankruptcy, monitors and receivers. While it does not have intervener status, CAIRP asked to speak at the hearing and was granted permission.

It supports the Trustee’s application. It submits that if a regulator is entitled to use its regulatory power to enforce a monetary or provable claim, it will make it more difficult and, in some cases, impossible for its members to discharge their duties under the federal legislation. V. Issues [ 85 ] Several issues arise in this case and involve the

interpretation of and interaction between the OGCA , the Pipeline Act and the BIA . The constitutional issue is whether it is possible to comply with both the provincial legislation and the BIA , and also, whether the operation of the provincial law frustrates the purposes of the BIA. In particular, one issue is whether legislation the Trustee can abandon or renounce certain Redwater licensed oil and gas wells and pipeline assets in the context of the bankruptcy proceedings, the Receivership Order and provincial legislation, which imposes end of life obligations.

Another issue is whether the Receiver and Trustee is required to take possession and control of all of the Licensed Assets of Redwater. Also at issue is whether the Trustee is required to fulfil the statutory obligations of Redwater under the OGCA and the Pipeline Act (including rules and directives) to abandon, reclaim and remediate Redwater’s Licensed Assets.

The issue of the AER’s status arises – specifically whether it is a regulator or creditor of Redwater under the BIA , and in particular, whether the security deposits, the Abandonment Orders and abandonment, reclamation and remediation obligations are provable claims under the BIA . Lastly, I must decide the issue of whether the AER can refuse the applications to transfer licences of the retained licensed assets as a result of Redwater’s LMR or by relying on the OGCA , the Pipeline Act and Directive 006 in the context of bankruptcy. VI. Analysis A. Paramountcy i.

Generally [ 86 ] In this case, the Trustee relies on the doctrine of federal paramountcy. Its main argument is that there is an operational conflict between

section 14.06 of the BIA and the

definitions of licensee under the OGCA and Pipeline Act . The Trustee argues that by its effect, the provincial legislation imposes obligations on the Trustee to comply with the AER’s orders and imposes obligations on it personally, while

section 14.06(4) provides that the Trustee has no personal liability upon renunciation. Thus, the Trustee submits that it cannot effectively comply with both. It also argues that the provincial legislation frustrates the purpose of the federal legislation. [ 87 ] The Trustee seeks a declaration that the Abandonment Orders are invalid to the extent that they would have the effect of requiring the Trustee to comply with or provide security deposits in respect of the renounced licensed assets, which conflicts with or

frustrates the legislative purpose of

section 14.06(6) . In light of the provincial legislation, the AER is entitled to either refuse applications to transfer licences, or to require the Trustee to post security or that Abandonment Orders be complied with prior to the AER approving such transfers. The Trustee submits that the AER’s position with respect to its claim in respect of the LMR deficiency and the Abandonment Orders would effectively create for these claims a super priority ranking before all other claims. [ 88 ] For any of those claims to be paid, the sale proceeds would have to exceed the amount of the security deposit.

In other words, the Trustee submits that if the sale proceeds arising from the sales process are less than the security deposit, then, assuming the AER even agreed to approve the licence transfer applications in those circumstances, it would obtain the entire benefit of the sale and bear none of the costs. The Trustee submits that there is a direct operational conflict between sections 14.06(4) (a)(ii), 14.06(4)(c), 14.06(6) , 14.06(7) , 14.06(8) , 86(1) and 141 of the BIA , sections 24(1) , 24(2) and 106(3) of the OGCA , section 18(1) and 18(3) of the Pipeline Act ,

Article 6 of Directive 006 and

Article 4, 8 and 10 of Appendix 2 of Directive 006 , and the forgoing provisions of the BIA must prevail to the extent of the conflict. The Trustee argues that it is impossible for it to comply with those priority provisions in the BIA , yet pay the security deposits or comply with the Abandonment Orders in the context of securing the AER’s approval of its application to transfer licences. [ 89 ] The Trustee submits that complying with the orders using funds of the estate would be costs of administration in breach of

section 14.06(6), because the BIA provides that the costs of remediating an environmental condition affecting or environmental damage to real property renounced by a trustee shall not rank as costs of administration. Thus, the only other alternative for the Trustee is to pay for the cost of compliance personally. The Trustee adds that, in that case, if it pays for the cost of compliance personally, its rights under

section 14.06(2) and (4) are violated because it should not be personally liable, absent gross negligence or wilful misconduct. The Trustee adds that the Abandonment Orders frustrate the legislative purpose of

section 14.06(4) by effectively denying both the professionals and the estate the benefits of renunciation. The Trustee also submits the legislative purpose of

section 243 of the BIA is frustrated by the AER preventing a sale of the retained licensed assets. The Trustee says that it also frustrates the purpose of

section 14.06(4) , (6) , (7) and (8) as well as subsections 86, 87, 136, 141 of the BIA by requiring compliance with the Abandonment Orders or the payment of security deposits in priority to any other claim against Redwater. [ 90 ] The Trustee submits that the BIA provisions stipulate that the claims of the AER for payment of the security deposits are ordinary unsecured claims, which under

section 141 of the BIA are only entitled to be paid rateably with all other ordinary unsecured creditors. The provisions of the OGCA , the Pipeline Act and Directive 006 have the effect of requiring payment of the security deposits before any other claims and without regard to their priority under the BIA . The Trustee argues that, as a result, this is a clear and direct conflict with the BIA . [ 91 ] The AER and Alberta argue that, considering

section 14.06 of the BIA permits a trustee to disclaim an interest in real property owned by the debtor when the trustee is concerned that it might incur personal liability for cleaning-up a contaminated site,

section 14.06 has no application on the facts of this case. Alberta submits that there is no evidence that Redwater owns any real property. AER and Alberta add that the property that the Trustee purports to disclaim is Redwater’s property interest in regulatory licences. In addition, they submit that the Trustee has not been asked to comply with the orders in its personal capacity, but only as a trustee of the estate.

As a result, there can be no operational conflict between federal and provincial legislation in this case. [ 92 ] Alberta argues further that the Trustee has adopted an inconsistent position with regard to the definition of licensee. It submits that the Trustee wishes to continue to operate and collect revenue from some of the wells and pipelines under the Redwater licences.

Alberta contends that if the definition of licensee were declared to be inoperative in bankruptcy and receivership situations, there would be no mechanism to allow a trustee to continue to operate and collect revenue. [ 93 ] In this case, the parties agree that both federal legislation and provincial legislation relevant to this case are validly enacted. I note that the federal government is not an intervener in this case.

The Trustee concedes that in the absence of an insolvency that engages the provisions of the BIA , the OGCA and the Pipeline Act are validly enacted and intra vires of the province. [ 94 ] The Parliament of Canada has jurisdiction over bankruptcy and insolvency: Constitution Act, 1867 , (UK), 30 & 31 Vict c 3, reprinted in RSC 1985 Appendix II, No 5, s 91(21) (“ Constitution Act, 1867 ”).

The legislature of each province has the power to enact legislation and to regulate the exploration for and development, conservation and management of non-renewable natural resources such as oil and gas: Constitution Act , 1867 , s 92A(1).

The provincial legislature also has the power to enact laws with respect to licences pursuant to its power over property and civil rights: Constitution Act, 1867 , s 92(13). [ 95 ] The doctrine of federal paramountcy provides that when otherwise validly enacted federal and provincial legislation cover the same or similar subject matter, but there is a conflict or genuine inconsistency between the legislation or the operational effects of the provincial legislation are incompatible with federal legislation, the federal legislation prevails and the provincial law is rendered inoperative to the extent of the conflict or inconsistency with the federal law: Alberta (AG) v Moloney , 2015 SCC 51 at paras 16 & 29 (“ Moloney ”); Saskatchewan (Attorney General) v Lemare Lake Logging Ltd , 2015 SCC 53 at para 16 (“ Lemare Lake ”); see also Janis P.

Sarra, “ Of Paramount Importance: Interpreting the Landscape of Insolvency and Environmental Law ”; Janis Sara & The Honourable Barbara Romaine, eds, Annual Review of Insolvency Law (Toronto: Thomson Reuters Canada Limited, 2012). [ 96 ] There are two branches of the paramountcy test. One relates to operational conflict between laws and the other relates to the frustration of purpose of the federal enactment: Moloney at para 18 ; Lemare Lake at para 17 .

The question to determine if there is an operational conflict is whether it is possible to apply the provincial law while complying with the federal law: Moloney at paras 18-19 ; 407 ETR Concession Co. v Canada (Superintendent of Bankruptcy) , 2015 SCC 52 at para 22 (“ 407 ETR ”). Generally, where dual compliance is possible because federal legislation can be interpreted so as not to interfere with provincial legislation, that

interpretation should be preferred: Moloney at para 27 ; Lemare Lake at paras 20-21 . In Moloney , Gascon J. emphasized that a provincial intention to interfere with the federal jurisdiction is neither necessary nor sufficient in the assessment of the legislative inconsistency. He explained at paragraph 28: The focus of the paramountcy analysis is instead on the effect of the provincial law, rather than its p

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