Orphan Well Association v. Alberta Energy Regulator, 2019 SCC 5

SUPREME COURT OF CANADA Citation: Orphan Well Association v.

Grant Thornton Ltd., 2019 SCC 5, [2019] 1 S.C.R. 150 Appeal Heard: February 15, 2018 Judgment Rendered: January 31, 2019 Docket: 37627 Between: Orphan Well Association and Alberta Energy Regulator Appellants and Grant Thornton Limited and ATB Financial (formerly known as Alberta Treasury Branches) Respondents - and - Attorney General of Ontario, Attorney General of British Columbia, Attorney General of Saskatchewan, Attorney General of Alberta, Ecojustice Canada Society, Canadian Association of Petroleum Producers, Greenpeace Canada, Action Surface Rights Association, Canadian Association of Insolvency and Restructuring Professionals and Canadian Bankers’ Association Interveners Coram: Wagner C.J. and Abella, Moldaver, Karakatsanis, Gascon, Côté and Brown JJ.

Reasons for Judgment: (paras. 1 to 164) Wagner C.J. (Abella, Karakatsanis, Gascon and Brown JJ. concurring) Dissenting Reasons: (paras. 165 to 292) Côté J. (Moldaver J. concurring) Orphan Well Association v. Grant Thornton Ltd., 2019 SCC 5, [2019] 1 S.C.R. 150 Orphan Well Association and

Alberta Energy Regulator Appellants v. Grant Thornton Limited and ATB Financial (formerly known as Alberta Treasury Branches) Respondents and Attorney General of Ontario, Attorney General of British Columbia, Attorney General of Saskatchewan, Attorney General of Alberta, Ecojustice Canada Society, Canadian Association of Petroleum Producers, Greenpeace Canada, Action Surface Rights Association, Canadian Association of Insolvency and Restructuring Professionals and Canadian Bankers’ Association Interveners Indexed as: Orphan Well Association v.

Grant Thornton Ltd. 2019 SCC 5 File No.: 37627. 2018: February 15; 2019: January 31.

Present: Wagner C.J. and Abella, Moldaver, Karakatsanis, Gascon, Côté and Brown JJ. on appeal from the court of appeal for alberta Constitutional law — Division of powers — Federal paramountcy — Bankruptcy and insolvency — Environmental law — Oil and gas — Oil and gas companies in Alberta required by provincial comprehensive licensing regime to assume end-of-life responsibilities with respect to oil wells, pipelines, and facilities — Provincial regulator administering licensing regime and enforcing end-of-life obligations pursuant to statutory powers — Trustee in bankruptcy of oil and gas company not taking responsibility for company’s unproductive oil and gas assets and seeking to walk away from environmental liabilities associated with them or to satisfy secured creditors’ claims ahead of company’s environmental liabilities — Whether regulator’s use of powers under provincial legislation to enforce bankrupt company’s compliance with end-of-life obligations conflicts with trustee’s powers under federal bankruptcy legislation or with the order of priorities under such legislation — If so, whether provincial regulatory regime inoperative to extent of conflict by virtue of doctrine of federal paramountcy — Bankruptcy and Insolvency Act, R.S.C. 1985, c.

B-3, s. 14.06 — Oil and Gas Conservation Act, R.S.A. 2000, c. O-6, s. 1(1) (cc) — Environmental Protection and Enhancement Act, R.S.A. 2000, c. E-12, s. 134 (b)(vi) — Pipeline Act, R.S.A. 2000, c. P-15, s. 1(1) (n). In order to exploit oil and gas resources in Alberta, a company needs a property interest in the oil or gas (typically, a mineral lease with the Crown, which Canadian courts classify as a profit à prendre ), surface rights and a licence issued by the Alberta Energy Regulator (“Regulator”).

Under provincial legislation, the Regulator will not grant a licence to extract, process or transport oil and gas in Alberta unless the licensee assumes end-of-life responsibilities for plugging and capping oil wells to prevent leaks, dismantling surface structures and restoring the surface to its previous condition. These end-of-life obligations are known as “abandonment” and “reclamation”. The Licensee Liability Rating Program is one means by which the Regulator seeks to ensure that end-of-life obligations will be satisfied by licensees.

As part of this program, the Regulator assigns each company a Liability Management Rating (“LMR”), which is the ratio between the aggregate value attributed by the Regulator to a company’s licensed assets and the aggregate liability attributed by the Regulator to the eventual cost of abandoning and reclaiming those assets. For the purpose of calculating the LMR, all the licences held by a given company are treated as a package.

A licensee’s LMR is calculated on a monthly basis and, where it dips below the prescribed ratio, the licensee is required to bring its LMR back up to the prescribed level by paying a security deposit, performing end-of-life obligations, or transferring licences with the Regulator’s approval. If either the transferor or the transferee would have a post-transfer LMR below 1.0, the Regulator will normally refuse to approve the licence transfer. The insolvency of an oil and gas company licensed to operate in Alberta engages Alberta’s comprehensive licensing regime,

which is binding on companies active in the oil and gas industry, and the Bankruptcy and Insolvency Act (“ BIA ”), federal legislation that governs the administration of a bankrupt’s estate and the orderly and equitable distribution of property among its creditors.

Alberta’s Environmental Protection and Enhancement Act (“ EPEA ”) ensures that a licensee’s regulatory obligations will continue to be fulfilled when it is subject to insolvency proceedings by including the trustee of a licensee in the definition of “operator” for the purposes of the duty to reclaim and by providing that an order to perform reclamation work may be issued to a trustee. However, it expressly limits a trustee’s liability in relation to such an order to the value of the assets in the bankrupt estate, absent gross negligence or wilful misconduct.

The Oil and Gas Conservation Act (“ OGCA ”) and the Pipeline Act take a more generic approach: they simply include trustees in the definition of “licensee”. As a result, every power which these Acts give the Regulator against a licensee can theoretically also be exercised against a trustee. The Regulator has delegated the authority to abandon and reclaim “orphans” — oil and gas assets and their sites left behind in an improperly abandoned or unreclaimed state by defunct companies at the close of their insolvency proceedings — to the Orphan Well Association (“OWA”), an independent non-profit entity.

The OWA has no power to seek reimbursement of its costs, but it may be reimbursed up to the value of any security deposit held by the Regulator to the credit of the licensee of the orphans once it has completed its environmental work. Redwater, a publicly traded oil and gas company, was first granted licences by the Regulator in 2009. Its principal assets are 127 oil and gas assets — wells, pipelines and facilities — and their corresponding licences.

A few of its licensed wells are still producing and profitable, but the majority are spent and burdened with abandonment and reclamation liabilities that exceed their value. In 2013, ATB Financial, which had full knowledge of the end-of-life obligations associated with Redwater’s assets, advanced funds to Redwater and, in return, was granted a security interest in Redwater’s present and after-acquired property. In mid-2014, Redwater began to experience financial difficulties. Grant Thornton Limited (“GTL”) was appointed as its receiver in 2015.

At that time, Redwater owed ATB approximately $5.1 million and had 84 wells, 7 facilities and 36 pipelines, 72 of which were inactive or spent, but, since Redwater’s LMR did not drop below the prescribed ratio until after it went into receivership, it never paid any security deposits to the Regulator. Upon being advised of Redwater’s receivership, the Regulator notified GTL that it was legally obligated to fulfill abandonment obligations for all licensed assets prior to distributing any funds or finalizing any proposal to creditors.

The Regulator warned that it would not approve the transfer of any of Redwater’s licences unless it was satisfied that both the transferee and the transferor would be in a position to fulfill all regulatory obligations, and that the transfer would not cause a deterioration in Redwater’s LMR. GTL concluded that it could not meet the Regulator’s requirements because the cost of the end-of-life obligations for the spent wells would likely exceed the sale proceeds for the productive wells.

Based on this assessment, GTL informed the Regulator that it was taking possession and control only of Redwater’s 17 most productive wells, 3 associated facilities and 12 associated pipelines (“Retained Assets”), and that it was not taking possession or control of any of Redwater’s other licensed assets (“Renounced Assets”). GTL’s position was that it had no obligation to fulfill any regulatory requirements associated with the Renounced Assets. In response, the Regulator issued orders under the OGCA and the Pipeline Act requiring Redwater to suspend and abandon the Renounced Assets (“Abandonment Orders”).

The Regulator imposed short deadlines, as it considered the Renounced Assets an environmental and safety hazard. The Regulator and the OWA then filed an application for a declaration that GTL’s renunciation of the Renounced Assets was void, and for orders requiring GTL to comply with the Abandonment Orders and to fulfill the end-of-life obligations associated with Redwater’s licensed properties. The Regulator did not seek to hold GTL liable for these obligations beyond the assets remaining in the Redwater estate.

GTL brought a cross-application seeking approval to pursue a sales process excluding the Renounced Assets and an order directing that the Regulator could not prevent the transfer of the licences associated with the Retained Assets on the basis of, inter alia , the LMR requirements, failure to comply with the Abandonment Orders, refusal to take possession of the Renounced Assets or Redwater’s outstanding debts to the Regulator. A bankruptcy order was issued for Redwater and GTL was appointed as trustee. GTL invoked s. 14.06(4) (a)(ii) of the BIA in relation to the Renounced Assets.

The chambers judge and a majority of the Court of Appeal agreed with GTL and held that the Regulator’s proposed use of its statutory powers to enforce Redwater’s compliance with abandonment and reclamation obligations during bankruptcy conflicted with the BIA in two ways: (1) it imposed on GTL the obligations of a licensee in relation to the Redwater assets disclaimed by GTL, contrary to s. 14.06(4) of the BIA ; and (2) it upended the priority scheme for the distribution of a bankrupt’s assets established by the BIA by requiring that the provable claims of the Regulator, an unsecured creditor, be paid ahead of the claims of Redwater’s secured creditors.

The dissenting judge in the Court of Appeal would have allowed the Regulator’s appeal on the basis that there was no conflict between Alberta’s environmental legislation and the BIA . Held (Moldaver and Côté JJ. dissenting): The appeal should be allowed. Per Wagner C.J. and Abella, Karakatsanis, Gascon and Brown JJ. : The Regulator’s use of its statutory powers does not create a conflict with the BIA so as to trigger the doctrine of federal paramountcy.

Section 14.06(4) of the BIA is concerned with the personal liability of trustees, and does not empower a trustee to walk away from the environmental liabilities of the estate it is administering. Furthermore, the Regulator is not asserting any claims provable in the bankruptcy, and the priority scheme in the BIA is not upended. Thus, no conflict is caused by GTL’s status as a licensee under Alberta legislation. Alberta’s regulatory regime can coexist with and apply alongside the BIA .

Bankruptcy is not a licence to ignore rules, and insolvency professionals are bound by and must comply with valid provincial laws during bankruptcy. They must, for example, comply with non-monetary obligations that are binding on the bankrupt estate, that cannot be reduced to provable claims, and the effects of which do not conflict with the BIA , notwithstanding the consequences this may have for the bankrupt’s secured creditors.

Given the procedural nature of the BIA , the bankruptcy regime relies heavily on the continued operation of provincial laws but, where there is a genuine conflict between provincial laws concerning property and civil rights and federal bankruptcy legislation, the BIA prevails. The BIA as a whole is intended to further two purposes: the equitable distribution of the bankrupt’s assets among his or her creditors and the bankrupt’s financial rehabilitation. As Redwater is a corporation that will never emerge from bankruptcy, only the former purpose is relevant here.

The Abandonment Orders and the LMR requirements are based on valid provincial laws of general application — exactly

the kind of valid provincial laws upon which the BIA is built. There is no conflict between the Alberta regulatory scheme and s. 14.06 of the BIA , because, under s. 14.06(4) , a trustee’s disclaimer of real property when there is an order to remedy any environmental condition or damage affecting that property protects the trustee from personal liability, while the ongoing liability of the bankrupt estate is unaffected. This

interpretation is supported by the plain language of the section, the Hansard evidence, a previous decision of this Court and the French version of the section. The same concept is also found in both s. 14.06(1.2) and s. 14.06(2), which also specifically state that the trustee is not personally liable — it is impossible to coherently read s. 14.06(2) as referring to personal liability and yet read s. 14.06(4) as somehow referring to the liability of the bankrupt estate.

Even assuming that GTL had successfully disclaimed in this case, no operational conflict or frustration of purpose would result from the fact that the Regulator requires GTL, as a licensee, to expend estate assets on abandoning the Renounced Assets. Furthermore, no conflict would be caused by continuing to include the Renounced Assets in the calculation of Redwater’s LMR.

Finally, given the restraint with which the doctrine of paramountcy must be applied, and given that the Regulator has not attempted to hold GTL personally liable as a licensee for the costs of abandonment, no conflict with s. 14.06(2) or s. 14.06(4) of the BIA is caused by the mere theoretical possibility of personal liability under the OGCA or the Pipeline Act . T he end-of-life obligations binding on GTL are not claims provable in the Redwater bankruptcy. Not all environmental obligations enforced by a regulator will be claims provable in bankruptcy. The test set out by the Court in Newfoundland and Labrador v.

AbitibiBowater Inc. , 2012 SCC 67 , [2012] 3 S.C.R. 443 (“ Abitibi ”) , must be applied to determine whether a particular regulatory obligation amounts to a claim provable in bankruptcy: (1) there must be a debt, a liability or an obligation to a creditor; (2) the debt, liability or obligation must be incurred before the debtor becomes bankrupt; and (3) it must be possible to attach a monetary value to the debt, liability or obligation. Only the first and third parts of the test are at issue in the instant case.

With respect to the first part of the test, Abitibi should not be taken as standing for the proposition that a regulator is always a creditor when it exercises its statutory enforcement powers against a debtor. A regulator exercising a power to enforce a public duty is not a creditor of the individual or corporation subject to that duty. Here, it is not disputed that, in seeking to enforce Redwater’s end-of-life obligations, the Regulator is acting in a bona fide regulatory capacity and does not stand to benefit financially.

It is clear that the Regulator acted in the public interest and for the public good in issuing the Abandonment Orders and enforcing the LMR requirements and that it is, therefore, not a creditor of Redwater. The public is the beneficiary of those environmental obligations; the province does not stand to gain financially from them. Strictly speaking, this is sufficient to dispose of this aspect of the appeal.

As it may prove helpful in future cases, under the third part of the test, a court must determine whether there are sufficient facts indicating the existence of an environmental duty that will ripen into a financial liability owed to a regulator. In determining whether a non-monetary regulatory obligation of a bankrupt is too remote or too speculative to be included in the bankruptcy proceeding, the court must apply the general rules that apply to future or contingent claims.

It must be sufficiently certain that the contingency will come to pass — in other words, that the regulator will enforce the obligation by performing the environmental work and seeking reimbursement. In the instant case, the Abandonment Orders and the LMR requirements fail to satisfy this part of the test. It is not established by the evidence that it is sufficiently certain that the Regulator will perform the abandonments and advance a claim for reimbursement. This claim is too remote and speculative to be included in the bankruptcy process.

Furthermore, the Regulator’s refusal to approve licence transfers unless and until the LMR requirements have been satisfied does not give it a monetary claim against Redwater. In crafting the priority scheme of the BIA , Parliament intended to permit regulators to place a first charge on real property of a bankrupt affected by an environmental condition or damage in order to fund remediation. Thus, the BIA explicitly contemplates that environmental regulators will extract value from the bankrupt’s real property if that property is affected by an environmental condition or damage.

Although the nature of property ownership in the Alberta oil and gas industry meant that s. 14.06(7) was unavailable to the Regulator, the Abandonment Orders and the LMR replicate the effect of s. 14.06(7) in this case. Furthermore, Redwater’s only substantial assets were affected by environmental conditions or damage. Accordingly, the Abandonment Orders and LMR requirements did not seek to force Redwater to fulfill end-of-life obligations with assets unrelated to the environmental condition or damage.

In other words, recognizing that the Abandonment Orders and LMR requirements are not provable claims in this case does not interfere with the aims of the BIA — rather, it facilitates them. Per Moldaver and Côté JJ. (dissenting): GTL and ATB have satisfied their burden of demonstrating a genuine inconsistency between federal and provincial law under both branches of the paramountcy test, namely operational conflict and frustration of purpose. Accordingly, the appeal should be dismissed.

Because Alberta’s statutory regime does not recognize the disclaimers by trustees of assets encumbered by environmental liabilities as lawful by virtue of the fact that receivers and trustees are regulated as licensees who cannot disclaim assets, there is an unavoidable conflict between federal and provincial law. Alberta’s legislation governing the oil and gas sector should therefore be held inoperative to the extent that it does not recognize the legal effect of GTL’s disclaimers. An operational conflict arises where it is impossible to comply with both laws.

An operational conflict analysis is an exercise in statutory

interpretation: the Court must ascertain the meaning of each competing enactment in order to determine whether dual compliance is possible. This

interpretation exercise takes place within the guiding confines of cooperative federalism, which operates as a straightforward interpretive presumption — one that supports, rather than supplants, the modern approach to statutory

interpretation. Courts should favour an

interpretation of the federal legislation that allows the concurrent operation of both laws; however, where the proper meaning of the provision cannot support a harmonious

interpretation, it is beyond a court’s power to create harmony where Parliament did not intend it. In the instant case, reliance on cooperative federalism must not result in an

interpretation of s. 14.06(4) of the BIA that is inconsistent with its language, context and purpose. The natural meaning which appears when s. 14.06(4) is simply read through is that it assumes and incorporates a pre-existing common law right to disclaim property in the context of bankruptcy and insolvency. This right is in keeping with the fundamental objective of trustees, which is the maximization of recovery for creditors as a whole by realizing the estate’s valuable assets. It enables trustees to administer the estate in the most efficient manner and to avoid significant costs of administration that would reduce creditor recovery.

Section 14.06(4) expresses the disclaimer right in unqualified terms and emphasizes that a trustee may not be held liable whenever that right is exercised. Parliament did not intend to condition the right to disclaim property

on the actual existence of a risk of personal liability. Although the opening words of s. 14.06(4) refer to the personal liability of the trustee, when the words of the provision are read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act and the intention of Parliament, their meaning becomes apparent. Avoiding personal liability is not the only effect of the appropriate exercise of this power.

By properly disclaiming certain properties, the trustee is relieved of any liabilities associated with the disclaimed property and loses the ability to sell it for the benefit of the estate. The disclaimer right allows the trustee not to realize assets that would provide no value to the estate’s creditors and whose realization would therefore undermine the trustee’s objective of maximizing recovery. However, s. 14.06(4) does not relieve the estate of its liabilities or environmental obligations once a trustee exercises the disclaimer power.

The disclaimed property ultimately reverts to the estate at the conclusion of the bankruptcy proceedings, as is the case with unrealized assets. Whether the estate has sufficient assets capable of satisfying those liabilities at that point in time is a separate question that is unrelated to the underlying fact of ongoing liability. In accordance with the predominant and well-established modern approach to statutory

interpretation, courts must read statutory provisions in their entire context, as parts of a coherent whole. In s. 14.06(4) of the BIA , Parliament has expressly referred to this disclaimer power and spelled out the particular effects flowing from its proper exercise. By doing so, it has purposefully incorporated the disclaimer power into its statutory scheme to achieve its desired purpose. Courts must read statutory provisions in their entire context, and Parliament is presumed to craft sections and subsections of legislation as parts of a coherent whole.

The immediate statutory context surrounding s. 14.06(4), specifically, ss. 14.06(2) , (5), (6) and (7), as well as the Hansard evidence, confirms that a trustee’s right to disclaim property is not limited to protecting itself from personal liability. The power to disclaim assets provided to trustees by s. 14.06(4) of the BIA was available to GTL on the facts of this case. The statutory conditions to the exercise of this power were met: the Abandonment Orders clearly relate to the remediation of an environmental condition.

Additionally, the right of disclaimer is applicable in the context of the statutory regime governing the oil and gas industry. In delineating what interests may be disclaimed by a trustee under s. 14.06(4), Parliament used exceptionally broad language: the trustee is permitted to disclaim “any interest” in “any real property”. GTL sought to disclaim profits à prendre and surface leases, which can be characterized as real property interests. The requirement by the Regulator that GTL satisfy Redwater’s environmental liabilities ahead of the estate’s other debts contravenes the BIA ’s priority scheme.

The Province’s licensing scheme therefore should be held inoperative under the second prong of the paramountcy test, frustration of purpose. Even where dual compliance with both federal and provincial law is, strictly speaking, possible, provincial legislation or provisions will be rendered inoperative to the extent that they have the effect of frustrating a valid federal legislative purpose. The focus of the analysis is on the effect of the provincial legislation or provision, not its purpose.

In the instant case, if the environmental claims asserted by the Regulator (i.e., the Abandonment Orders) are provable in bankruptcy, the Regulator will not be permitted to assert those claims outside the bankruptcy process and ahead of Redwater’s secured creditors because this would frustrate the purpose of the federal priority scheme. In Abitibi , the Court established a three-part test, rooted in the language of the BIA , to determine whether a claim is provable in bankruptcy. The first prong of the Abitibi test asks whether the debt, liability or obligation at issue is owed by a bankrupt entity to a creditor.

The language of Abitibi admits of no ambiguity, uncertainty or doubt: the only determination that has to be made is whether the regulatory body has exercised its enforcement power against a debtor. Most environmental regulatory bodies can be creditors, and government entities cannot systematically evade the priority requirements of federal bankruptcy legislation under the guise of enforcing public duties. In the instant case, the first prong is satisfied.

There is no doubt that the Regulator exercised its enforcement power against a debtor when it issued orders requiring Redwater to perform the environmental work on the non-producing properties. It is neither appropriate nor necessary in this case to attempt to redefine the first prong of the Abitibi test by narrowing the broad definition of “creditor” as the majority does. There is no dispute that the second prong of the Abitibi test, which requires that the debt, liability or obligation be incurred before the debtor becomes bankrupt, is satisfied.

The third prong asks whether it is sufficiently certain that the regulator will perform the work and make a claim for reimbursement. In this case, it is sufficiently certain that either the Regulator or its delegate, the OWA, will ultimately perform the abandonment and reclamation work and assert a monetary claim for reimbursement. Therefore, the final prong of the Abitibi test is satisfied. The chambers judge made three critical findings of fact that easily support this conclusion.

First, he found that GTL was not in possession of the disclaimed properties and, in any event, had no ability to perform any kind of work on these assets because the environmental liabilities exceeded the value of the estate itself and Redwater had no working interest participants that would step in to perform the work. As a result, he concluded that there was no other party who could be compelled to carry out the work.

Second, in light of the fact that neither GTL nor Redwater’s working interest participants would (or could) undertake this work, the chambers judge found as a fact that the Regulator will ultimately be responsible for the abandonment costs, since it has the power to seek recovery of abandonment costs and has actually performed the work on occasion, and has expressly stated an intention to seek reimbursement for the costs of abandoning the renounced assets.

Third, the chambers judge found that the Regulator’s only realistic alternative to performing the remediation work itself was to deem the renounced assets to be orphan wells. In this circumstance, he found that the legislation and evidence shows that if the Regulator deems a well an orphan, then the OWA will perform the work. In light of these factual determinations, the chambers judge rightly concluded that the sufficient certainty standard of Abitibi was satisfied because at a minimum, either the Regulator or the OWA will complete the abandonment work.

The majority elevates form over substance in concluding that the sufficient certainty standard is not satisfied when a regulatory body’s delegate, as opposed to the regulatory body itself, performs the work. Considering the salient features of the OWA and its relationship with the Regulator, one must conclude that they are inextricably intertwined. When the Regulator exercises its statutory powers to declare a property an “orphan” under s. 70(2) of Alberta’s Oil and Gas Conservation Act , it effectively delegates the abandonment work to the OWA.

The majority’s alternative conclusion that it is not sufficiently certain that even the OWA will perform the abandonment work would permit the Regulator to benefit from strategic gamesmanship by manipulating the timing of its intervention in order to escape the insolvency regime and strip Redwater of its assets. Since it is sufficiently certain that the Regulator (or the OWA, as its delegate) will complete the abandonment and reclamation work, all three prongs of the Abitibi test are satisfied. The Regulator’s Abandonment Orders constitute “claims provable in bankruptcy”.

It would undermine the BIA ’s priority scheme and therefore frustrate an essential purpose of the BIA if the Regulator could

assert those claims outside the bankruptcy process — and ahead of the estate’s secured creditors — whether by compelling GTL to carryout those orders or by making the sale of Redwater’s valuable assets conditional on the fulfillment of those obligations. Cases Cited By Wagner C.J. Applied: Panamericana de Bienes y Servicios S.A. v. Northern Badger Oil & Gas Ltd., 1991 ABCA 181, 81 Alta. L.R. (2d)45; Newfoundland and Labrador v. AbitibiBowater Inc., 2012 SCC 67, [2012] 3 S.C.R. 443; approved: Nortel Networks Corp., Re, 2013ONCA 599, 368 D.L.R. (4th) 122; Strathcona (County) v.

Fantasy Construction Ltd. (Trustee of), 2005 ABQB 559, 256 D.L.R. (4th)536; distinguished: Alberta (Attorney General) v. Moloney, 2015 SCC 51, [2015] 3 S.C.R. 327; Northstar Aerospace Inc., Re, 2013ONCA 600, 8 C.B.R. (6th) 154; referred to: Berkheiser v. Berkheiser, (SCC), [1957] S.C.R. 387; Imperial Oil Ltd. v.Quebec (Minister of the Environment), 2003 SCC 58, [2003] 2 S.C.R. 624; Peters v. Remington, 2004 ABCA 5, 49 C.B.R. (4th) 273;Garner v. Newton (1916), (MB KB), 29 D.L.R. 276; Nortel Networks Corp., Re, 2012 ONSC 1213, 88 C.B.R. (5th)111; Husky Oil Operations Ltd. v.

Minister of National Revenue, (SCC), [1995] 3 S.C.R. 453; Saskatchewan (AttorneyGeneral) v. Lemare Lake Logging Ltd., 2015 SCC 53, [2015] 3 S.C.R. 419; Multiple Access Ltd. v. McCutcheon, (SCC),[1982] 2 S.C.R. 161; Canadian Western Bank v. Alberta, 2007 SCC 22, [2007] 2 S.C.R. 3; Quebec (Attorney General) v. CanadianOwners and Pilots Association, 2010 SCC 39, [2010] 2 S.C.R. 536; GMAC Commercial Credit Corp. — Canada v. T.C.T. Logistics Inc.,2006 SCC 35, [2006] 2 S.C.R. 123; Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, [2005] 2 S.C.R. 601; New Skeena ForestProducts Inc. v.

Don Hull & Sons Contracting Ltd., 2005 BCCA 154, 251 D.L.R. (4th) 328; Ocean Port Hotel Ltd. v. British Columbia(General Manager, Liquor Control and Licensing Branch), 2001 SCC 52, [2001] 2 S.C.R. 781; M. v. H., (SCC),[1999] 2 S.C.R. 3; R. v. Sappier, 2006 SCC 54, [2006] 2 S.C.R. 686; R. v. Elshaw, (SCC), [1991] 3 S.C.R. 24;AbitibiBowater Inc., Re, 2010 QCCS 1261, 68 C.B.R. (5th) 1; Strathcona (County) v. Fantasy Construction Ltd. (Trustee of), 2005ABQB 794, 261 D.L.R. (4th) 221; Lamford Forest Products Ltd. (Re) (1991), (BC SC), 86 D.L.R. (4th) 534;Daishowa-Marubeni International Ltd. v.

Canada, 2013 SCC 29, [2013] 2 S.C.R. 336; Alberta Energy Regulator v. Grant ThorntonLimited, 2017 ABCA 278, 57 Alta. L.R. (6th) 37. By Côté J. (dissenting) Newfoundland and Labrador v. AbitibiBowater Inc., 2012 SCC 67, [2012] 3 S.C.R. 443; Alberta (Attorney General) v.Moloney, 2015 SCC 51, [2015] 3 S.C.R. 327; Husky Oil Operations Ltd. v. Minister of National Revenue, (SCC), [1995]3 S.C.R. 453; Saskatchewan (Attorney General) v. Lemare Lake Logging Ltd., 2015 SCC 53, [2015] 3 S.C.R. 419; Canadian WesternBank v. Alberta, 2007 SCC 22, [2007] 2 S.C.R. 3; Multiple Access Ltd. v.

McCutcheon, (SCC), [1982] 2 S.C.R. 161;Reference re Pan-Canadian Securities Regulation, 2018 SCC 48, [2018] 3 S.C.R. 189; Canadian Pacific Air Lines Ltd. v. Canadian AirLine Pilots Assn., (SCC), [1993] 3 S.C.R. 724; New Skeena Forest Products Inc. v. Don Hull & Sons Contracting Ltd.,2005 BCCA 154, 251 D.L.R. (4th) 328; Re Thompson Knitting Co., Ltd., (ON CA), [1925] 2 D.L.R. 1007; BellExpressVu Limited Partnership v. Rex, 2002 SCC 42, [2002] 2 S.C.R. 559; Attorney General of Quebec v. Carrières Ste-Thérèse Ltée, (SCC), [1985] 1 S.C.R. 831; Mitchell v.

Peguis Indian Band, (SCC), [1990] 2 S.C.R. 85; GMACCommercial Credit Corp. — Canada v. T.C.T. Logistics Inc., 2006 SCC 35, [2006] 2 S.C.R. 123; Rizzo & Rizzo Shoes Ltd. (Re), (SCC), [1998] 1 S.C.R. 27; Panamericana de Bienes y Servicios S.A. v. Northern Badger Oil & Gas Ltd., 1991 ABCA 181,81 D.L.R. (4th) 280; Canada (Attorney General) v. JTI-Macdonald Corp., 2007 SCC 30, [2007] 2 S.C.R. 610; Morgentaler v. TheQueen, (SCC), [1976] 1 S.C.R. 616; R. v. L.T.H., 2008 SCC 49, [2008] 2 S.C.R. 739; Bank of Montreal v. Hall, (SCC), [1990] 1 S.C.R. 121; Century Services Inc. v.

Canada (Attorney General), 2010 SCC 60, [2010] 3 S.C.R. 379; TevaCanada Ltd. v. TD Canada Trust, 2017 SCC 51, [2017] 2 S.C.R. 317; Canada v. Craig, 2012 SCC 43, [2012] 2 S.C.R. 489; Housen v.Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; Nortel Networks Corp., Re, 2013 ONCA 599, 6 C.B.R. (6th) 159; Northstar AerospaceInc., Re, 2013 ONCA 600, 8 C.B.R. (6th) 154; Sydco Energy Inc. (Re), 2018 ABQB 75, 64 Alta. L.R. (6th) 156. Statutes and Regulations Cited Alberta Energy Regulator Administration Fees Rules, Alta. Reg. 98/2013. Bankruptcy and Insolvency Act, R.S.C. 1985, c.

B-3, ss. 2 “claim provable in bankruptcy, provable claim or claim provable”, “creditor”,14.06, (2), (4) [am. 1997, c. 12, s. 15(1)], 16 to 38, 40, 69.3(1), (2), 72(1), 80, 121 to 154, 169(4), 197(3). Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, s. 11.8(8). Conservation and Reclamation Regulation, Alta. Reg. 115/93. Constitution Act, 1867, ss. 91(21), 92(13), 92A(1)(c). Environmental Protection and Enhancement Act, R.S.A. 2000, c. E-12, ss. 1(ddd), 112 to 122, 134(b), 137, 140, 142(1)(a)(ii), 227 to230, 240, 245. Oil and Gas Conservation Act, R.S.A. 2000, c.

O-6, ss. 1(1)(a), (w), (cc), (eee), 11(1), 12(1), 18(1), 24(2), 25, 27 to 30, 68(d), 70(1), (2),73(1), (2), 74, 106, 108, 110. Oil and Gas Conservation Rules, Alta. Reg. 151/71, ss. 1.100(2), 3.012. Orphan Fund Delegated Administration Regulation, Alta. Reg. 45/2001, ss. 3(2)(b), 6. Pipeline Act, R.S.A. 2000, c. P-15, ss. 1(1)(a), (n), (t), 6(1), 9(1), 23 to 26, 51 to 54. Responsible Energy Development Act, S.A. 2012, c. R-17.3, ss. 2(1)(a), 2(2)(h), 3(1), 28, 29.

Surface Rights Act , R.S.A. 2000, c. S-24, ss. 1 (h), 15 . Authors Cited Alberta. Energy Resources Conservation Board. Directive 006: Licensee Liability Rating (LLR) Program and Licence Transfer Process , March 12, 2013. Alberta Energy Regulator. Licensee Eligibility — Alberta Energy Regulator Measures to Limit Environmental Impacts Pending Regulatory Changes to Address the Redwater Decision , June 20, 2016 (online: https://www.aer.ca/documents/bulletins/Bulletin-2016- 16.pdf; archived version: https://www.scc-csc.ca/cso-dce/2019SCC-CSC5_1_eng.pdf ). Bankes, Nigel.

Majority of the Court of Appeal Confirm Chief Justice Wittmann’s Redwater Decision , May 3, 2017 (online: https://ablawg.ca/2017/05/03/majority-of-the-court-of-appeal-confirms-chief-justice-wittmanns-redwater-decision ; archived version: https://www.scc-csc.ca/cso-dce/2019SCC-CSC5_2_eng.pdf ). Bennett, Frank. Bennett on Creditors’ and Debtors’ Rights and Remedies , 5th ed. Toronto: Thomson Carswell, 2006. Canada. House of Commons. Standing Committee on Industry. Evidence , No. 16, 2nd Sess., 35th Parl., June 11, 1996. Canada. House of Commons. Standing Committee on Industry.

Evidence , No. 21, 2nd Sess., 35th Parl., September 25, 1996. Canada. Senate. Proceedings of the Standing Senate Committee on Banking, Trade and Commerce , No. 13, 2nd Sess., 35th Parl., November 4, 1996. Goode, Roy. Principles of Corporate Insolvency Law , 4th ed. London: Sweet & Maxwell/Thomson Reuters, 2011. Grand Robert de la langue française , 2 e éd. Paris: Le Robert, 2001, “ ès ”. Klimek, Jennifer. Insolvency and Environment Liability . Toronto: Carswell, 1994. Lederman, Sidney N., Alan W. Bryant and Michelle K. Fuerst. The Law of Evidence in Canada , 5th ed. Markham, Ont.: LexisNexis, 2018.

Lund, Anna J. “Lousy Dentists, Bad Drivers, and Abandoned Oil Wells: a New Approach to Reconciling Provincial Regulatory Regimes with Federal Insolvency Law” (2017), 80 Sask. L. Rev. 157. Oxford English Dictionary (online: http://www.oed.com), “probably”. Robert & Collins (online: https://grc.bvdep.com/login_.asp), “ ès qualités ”. Silverstein, Lee. “Rejection of Executory Contracts in Bankruptcy and Reorganization” (1964), 31 U. Chi. L. Rev . 467. Stewart, Fenner L. “How to Deal with a Fickle Friend? Alberta’s Troubles with the Doctrine of Federal Paramountcy”, in Janis P.

Sarra and Barbara Romaine, eds., Annual Review of Insolvency Law 2017 . Toronto: Thomson Reuters, 2018, 163. Sullivan, Ruth. Statutory

Interpretation , 3rd ed. Toronto: Irwin Law, 2016. Sullivan, Ruth. Sullivan on the Construction of Statutes , 6th ed. Markham, Ont.: LexisNexis, 2014. APPEAL from a judgment of the Alberta Court of Appeal (Slatter, Schutz and Martin JJ.A.), 2017 ABCA 124 , 47 C.B.R. (6th) 171, [2017] 6 W.W.R. 301, 8 C.E.L.R. (4th) 1, 50 Alta. L.R. (6th) 1, [2017] A.J. No. 402 (QL), 2017 CarswellAlta 695 (WL Can.), affirming a decision of Wittmann C.J., 2016 ABQB 278 , 37 C.B.R. (6th) 88, [2016] 11 W.W.R. 716, 33 Alta. L.R. (6th) 221, [2016] A.J. No. 541 (QL), 2016 CarswellAlta 994 (WL Can.).

Appeal allowed, Moldaver and Côté JJ. dissenting. Ken Lenz , Q.C. , Patricia Johnston , Q.C. , Keely R. Cameron , Brad Gilmour and Michael W. Selnes , for the appellants. Kelly J. Bourassa , Jeffrey Oliver , Tom Cumming , Ryan Zahara , Danielle Maréchal , Brendan MacArthur-Stevens and Chris Nyberg , for the respondents. Josh Hunter and Hayley Pitcher , for the intervener the Attorney General of Ontario. Gareth Morley , Aaron Welch and Barbara Thomson , for the intervener the Attorney General of British Columbia. Richard James Fyfe , for the intervener the Attorney General of Saskatchewan.

Robert Normey and Vivienne Ball , for the intervener the Attorney General of Alberta. Adrian Scotchmer , for the intervener Ecojustice Canada Society. Lewis Manning and Toby Kruger , for the intervener the Canadian Association of Petroleum Producers. Nader R. Hasan and Lindsay Board , for the intervener Greenpeace Canada. Christine Laing and Shaun Fluker , for the intervener Action Surface Rights Association.

Caireen E. Hanert and Adam Maerov , for the intervener the Canadian Association of Insolvency and Restructuring Professionals. Howard A. Gorman , Q.C. , and D. Aaron Stephenson , for the intervener the Canadian Bankers’ Association. The judgment of Wagner C.J. and Abella, Karakatsanis, Gascon and Brown JJ. was delivered by The Chief Justice — I. Introduction [ 1 ] The oil and gas industry is a lucrative and important component of Alberta’s and Canada’s economy. The industry also carries with it certain unavoidable environmental costs and consequences.

To address them, Alberta has established a comprehensive cradle-to-grave licensing regime that is binding on companies active in the industry. A company will not be granted the licences that it needs to extract, process or transport oil and gas in Alberta unless it assumes end-of-life responsibilities for plugging and capping oil wells to prevent leaks, dismantling surface structures and restoring the surface to its previous condition. These obligations are known as “reclamation” and “abandonment” ( Environmental Protection and Enhancement Act , R.S.A. 2000, c.

E-12 (“ EPEA ”), s. 1 (ddd), and Oil and Gas Conservation Act , R.S.A. 2000, c. O-6 (“ OGCA ”), s. 1(1) (a)). [ 2 ] The question in this appeal is what happens to these obligations when a company is bankrupt and a trustee in bankruptcy is charged with distributing its assets among various creditors according to the rules in the Bankruptcy and Insolvency Act , R.S.C. 1985, c. B-3 (“ BIA ”). Redwater Energy Corporation (“Redwater”) is the bankrupt company at the centre of this appeal. Its principal assets are 127 oil and gas assets — wells, pipelines and facilities — and their corresponding licences.

A few of Redwater’s licensed wells are still producing and profitable. The majority of the wells are spent and burdened with abandonment and reclamation liabilities that exceed their value. [ 3 ] The Alberta Energy Regulator (“Regulator”) and the Orphan Well Association (“OWA”) are the appellants in this Court. (For simplicity, I will refer to the Regulator when discussing the appellants’ position, unless otherwise noted.) The Regulator administers Alberta’s licensing regime and enforces the abandonment and reclamation obligations of licensees.

The Regulator has delegated to the OWA, an independent non-profit entity, the authority to abandon and reclaim “orphans”, which are oil and gas assets and their sites left behind in an improperly abandoned or unreclaimed state by defunct companies at the close of their insolvency proceedings.

The Regulator says that, one way or another, the remaining value of the Redwater estate must be applied to meet the abandonment and reclamation obligations associated with its licensed assets. [ 4 ] Redwater’s trustee in bankruptcy, Grant Thornton Limited (“GTL”), and Redwater’s primary secured creditor, Alberta Treasury Branches (“ATB”), oppose the appeal. (For simplicity, I will refer to GTL when discussing the respondents’ position, unless otherwise noted.) GTL argues that, since it has disclaimed Redwater’s unproductive oil and gas assets, s. 14.06(4) of the BIA empowers it to walk away from those assets and the environmental liabilities associated with them and to deal solely with Redwater’s producing oil and gas assets.

Alternatively, GTL argues that, under the priority scheme in the BIA , the claims of Redwater’s secured creditors must be satisfied ahead of Redwater’s environmental liabilities. Relying on the doctrine of paramountcy, GTL says that Alberta’s environmental legislation regulating the oil and gas industry is constitutionally inoperative to the extent that it authorizes the Regulator to interfere with this arrangement. [ 5 ] The chambers judge ( 2016 ABQB 278 , 37 C.B.R. (6th) 88) and a majority of the Court of Appeal ( 2017 ABCA 124 , 47 C.B.R. (6th) 171) agreed with GTL.

The Regulator’s proposed use of its statutory powers to enforce Redwater’s compliance with abandonment and reclamation obligations during bankruptcy was held to conflict with the BIA in two ways: (1) it imposed on GTL the obligations of a licensee in relation to the Redwater assets disclaimed by GTL, contrary to s. 14.06(4) of the BIA ; and (2) it upended the priority scheme for the distribution of a bankrupt’s assets established by the BIA by requiring that the “provable claims” of the Regulator, an unsecured creditor, be paid ahead of the claims of Redwater’s secured creditors. [ 6 ] Martin J.A., as she then was, dissented.

She would have allowed the Regulator’s appeal on the basis that there was no conflict between Alberta’s environmental legislation and the BIA . Martin J.A. was of the view that: (1) s. 14.06 of the BIA did not operate to relieve GTL of Redwater’s obligations with respect to its licensed assets; and (2) the Regulator was not asserting any provable claims, so the priority scheme in the BIA was not upended. [ 7 ] For the reasons that follow, I would allow the appeal.

Although my analysis differs from hers in some respects, I agree with Martin J.A. that the Regulator’s use of its statutory powers does not create a conflict with the BIA so as to trigger the doctrine of federal paramountcy.

Section 14.06(4) is concerned with the personal liability of trustees, and does not empower a trustee to walk away from the environmental liabilities of the estate it is administering. The Regulator is not asserting any claims provable in the bankruptcy, and the priority scheme in the BIA is not upended. Thus, no conflict is caused by GTL’s status as a licensee under Alberta legislation. Alberta’s regulatory regime can coexist with and apply alongside the BIA . II. Background A.

Alberta’s Regulatory Regime [ 8 ] The resolution of the constitutional questions and the ultimate outcome of this appeal depend on a proper understanding of the complex regulatory regime which governs Alberta’s oil and gas industry. I will therefore describe that regime in considerable detail. [ 9 ] In order to exploit oil and gas resources in Alberta, a company needs three things: a property interest in the oil or gas, surface rights and a licence issued by the Regulator. In Alberta, mineral rights are typically reserved from ownership rights in land.

About 90 percent of Alberta’s mineral rights are held by the Crown on behalf of the public.

[10] A company’s property interest in the oil or gas it seeks to exploit typically takes the form of a mineral lease with theCrown (but occasionally with a private owner). The company also needs surface rights so it can access and occupy the physical landlocated above the oil and gas and place the equipment needed to pump, store and haul away the oil and gas. Surface rights may beobtained through a lease with the landowner, who is often a farmer or rancher (but is occasionally the Crown).

Where a landowner doesnot voluntarily grant surface rights, Alberta law authorizes the Surface Rights Board to issue a right of entry order in favour of an“operator”, that is, the person having the right to a mineral or the right to work it (Surface Rights Act, R.S.A. 2000, c. S-24, ss. 1(

h) and15). [11] Canadian courts characterize a mineral lease that allows a company to exploit oil and gas resources as a profit àprendre. It is not disputed that a profit à prendre is a form of real property interest held by the company (Berkheiser v. Berkheiser, (SCC), [1957] S.C.R. 387). A profit à prendre is fully assignable and has been defined as “a non-possessory interest in land,like an easement, which can be passed on from generation to generation, and remains with the land, regardless of changes in ownership”(F. L. Stewart, “How to Deal with a Fickle Friend?

Alberta’s Troubles with the Doctrine of Federal Paramountcy”, in J. P. Sarra and B.Romaine, eds., Annual Review of Insolvency Law 2017 (2018), 163 (“Stewart”), at p. 193). Solvent and insolvent companies alike willoften hold profits à prendre in both producing and unproductive or spent wells. There are a variety of potential “working interest”arrangements whereby several parties can share an interest in oil and gas resources. [12] The third thing a company needs in order to access and exploit Alberta’s oil and gas resources, and the one mostgermane to this appeal, is a licence issued by the Regulator.

The OGCA prohibits any person without a licence from commencing to drilla well or undertaking any operations preparatory or incidental to the drilling of a well, and from commencing to construct or operate afacility (ss. 11(1) and 12(1)). The Pipeline Act, R.S.A. 2000, c. P-15, similarly prohibits the construction of pipelines without a licence (s.6(1)). The profit à prendre in an oil and gas deposit may be bought and sold without regulatory approval.

However, it is of little practicaluse on its own, as, without the licence associated with a well, the purchaser cannot “continue any drilling operations, any producingoperations or any injecting operations” (OGCA, s. 11(1)), and, without the licence associated with a facility, the purchaser cannot“continue any construction or operation” (OGCA, s. 12(1)). [13] The three relevant licensed assets in the Alberta oil and gas industry are wells, facilities and pipelines. A “well” isdefined, inter alia, as “an orifice in the ground completed or being drilled . . . for the production of oil or gas” (OGCA, s. 1(1)(eee)).

A“facility” is broadly defined and includes any building, structure, installation or equipment that is connected to or associated with therecovery, development, production, handling, processing, treatment or disposal of oil and gas resources (OGCA, s. 1(1)(w)). A “pipeline”is defined as “a pipe used to convey a substance or combination of substances”, including associated installations (Pipeline Act, s.1(1)(t)). [14] The licences a company needs to recover, process and transport oil and gas are issued by the Regulator. TheRegulator is not an agent of the Crown.

It is established as a corporation by s. 3(1) of the Responsible Energy Development Act, S.A.2012, c. R-17.3 (“REDA”). It exercises a wide range of powers under the OGCA and the Pipeline Act. It also acts as the regulator inrespect of energy resource activities under the EPEA, Alberta’s more general environmental protection legislation (REDA, s. 2(2)(h)).The Regulator’s mandate is set out in the REDA and includes “the efficient, safe, orderly and environmentally responsible developmentof energy resources in Alberta” (s. 2(1)(a)).

The Regulator is funded almost entirely by the industry it regulates, and it collects its budgetthrough an administration fee (Stewart, at p. 219; REDA, ss. 28 and 29; Alberta Energy Regulator Administration Fees Rules, Alta. Reg.98/2013). [15] The Regulator has a wide discretion when it comes to granting licences to operate wells, facilities and pipelines. Onreceiving an application for a licence, the Regulator may grant the licence subject to any conditions, restrictions and stipulations, or itmay refuse the licence (OGCA, s. 18(1); Pipeline Act, s. 9(1)).

Licences to operate a well, facility or pipeline are granted subject toobligations that will one day arise to abandon the underlying asset and reclaim the land on which it is situated. [16] “Abandonment” refers to “the permanent dismantlement of a well or facility in the manner prescribed by theregulations or rules” made by the Regulator (OGCA, s. 1(1)(a)). Specifically, the abandonment of a well has been defined as “the processof sealing a hole which has been drilled for oil or gas, at the end of its useful life, to render it environmentally safe” (Panamericana deBienes y Servicios S.A. v.

Northern Badger Oil & Gas Ltd., 1991 ABCA 181, 81 Alta. L.R. (2d) 45 (“Northern Badger”), at para. 2). Theabandonment of a pipeline refers to its “permanent deactivation . . . in the manner prescribed by the rules” (Pipeline Act, s. 1(1)(a)).“Reclamation” includes “the removal of equipment or buildings”, “the decontamination of buildings . . . land or water”, and the“stabilization, contouring, maintenance, conditioning or reconstruction of the surface of the land” (EPEA, s. 1(ddd)).

A further dutybinding on those active in the Alberta oil and gas industry is remediation, which arises where a harmful or potentially harmful substancehas been released into the environment (EPEA, ss. 112 to 122). As the extent of any remediation obligations that may be associated withRedwater assets is unclear, I will not refer to remediation separately from reclamation, unless otherwise noted.

As has been donethroughout this litigation, I will refer to abandonment and reclamation jointly as end-of-life obligations. [17] A licensee must abandon a well or facility when ordered to do so by the Regulator or when required by the rules orregulations. The Regulator may order abandonment when “the Regulator considers that it is necessary to do so in order to protect thepublic or the environment” (OGCA, s. 27(3)).

Under the rules, a licensee is required to abandon a well or facility, inter alia, on thetermination of the mineral lease, surface lease or right of entry, where the Regulator cancels or suspends the licence, or where theRegulator notifies the licensee that the well or facility may constitute an environmental or safety hazard (Oil and Gas ConservationRules, Alta. Reg. 151/71, s. 3.012).

Section 23 of the Pipeline Act requires licensees to abandon pipelines in similar situations. The dutyto reclaim is established by s. 137 of the EPEA. This duty is binding on an “operator”, a broader term which encompasses the holder of alicence issued by the Regulator (EPEA, s. 134(b)). Reclamation is governed by the procedural requirements set out in regulations(Conservation and Reclamation Regulation, Alta.

Reg. 115/93). [18] The Licensee Liability Rating Program, which was, at the time of Redwater’s insolvency, set out in Directive 006:Licensee Liability Rating (LLR) Program and License Transfer Process (March 12, 2013) (“Directive 006”) is one means by which theRegulator seeks to ensure that end-of-life obligations will be satisfied by licensees rather than being offloaded onto the Alberta public.As part of this program, the Regulator assigns each company a Liability Management Rating (“LMR”), which is the ratio between the

aggregate value attributed by the Regulator to a company’s licensed assets and the aggregate liability attributed by the Regulator to the eventual cost of abandoning and reclaiming those assets. For the purpose of calculating the LMR, all the licences held by a given company are treated as a package, without any segregation or parcelling of assets. A licensee’s LMR is calculated on a monthly basis and, where it dips below the prescribed ratio (1.0 at the time of Redwater’s insolvency), the licensee is required to pay a security deposit.

The security deposit is added to the licensee’s “deemed assets” and must bring its LMR back up to the ratio prescribed by the Regulator. If the required security deposit is not paid, the Regulator may cancel or suspend the company’s licences ( OGCA , s. 25 ). As an alternative to posting security, the licensee can perform end-of-life obligations or transfer licences (with approval) in order to bring its LMR back up to the prescribed level. [ 19 ] Licences can be transferred only with the Regulator’s approval.

The Regulator uses the Licensee Liability Rating Program to ensure that end-of-life obligations will not be negatively affected by licence transfers. Upon receipt of an application to transfer one or more licences, the Regulator assesses how the transfer, if approved, would affect the LMR of both the transferor and the transferee. At the time of Redwater’s insolvency, if both the transferor and the transferee would have a post-transfer LMR equal to or exceeding 1.0, the Regulator would approve the transfer, absent other concerns.

Following the chambers judge’s decision in this case, the Regulator implemented changes to its policies, including the requirement that transferees have an LMR of 2.0 or higher immediately following any licence transfer: Alberta Energy Regulator, Licensee Eligibility — Alberta Energy Regulator Measures to Limit Environmental Impacts Pending Regulatory Changes to Address the Redwater Decision , June 20, 2016 (online).

For the purposes of this appeal, I will be referring to the regulatory regime as it existed at the time of Redwater’s insolvency. [ 20 ] As discussed in greater detail below, if either the transferor or the transferee would have a post-transfer LMR below 1.0, the Regulator would refuse to approve the licence transfer. In such a situation, the Regulator would insist on certain remedial steps being taken to ensure that neither LMR would drop below 1.0.

Although Directive 006, as it was in the 2013 version, required both the transferee and transferor to have a post transfer LMR of at least 1.0, during this litigation, the Regulator stated that, when licensees are in receivership or bankruptcy, its working rule is to approve transfers as long as they do not cause a deterioration in the transferor’s LMR, even where its LMR will remain below 1.0 following the transfer. The explanation for this working rule is that it helps to facilitate purchases.

The Regulator’s position is that the Licensee Liability Rating Program continues to apply to the transfer of licences as part of insolvency proceedings. [ 21 ] The OGCA , the Pipeline Act and the EPEA all contemplate that a licensee’s regulatory obligations will continue to be fulfilled when it is subject to insolvency proceedings. The EPEA achieves this by including the trustee of a licensee in the definition of “operator” for the purposes of the duty to reclaim ( s. 134 (b)(vi)).

The EPEA also specifically provides that an order to perform reclamation work (known as an “environmental protection order”) may be issued to a trustee ( ss. 140 and 142(1) (a)(ii)). The EPEA imposes responsibility for carrying out the terms of an environmental protection order on the person to whom the order is directed ( ss. 240 and 245 ). However, absent gross negligence or wilful misconduct, a trustee’s liability in relation to such an order is expressly limited to the value of the assets in the bankrupt estate (s. 240(3)).

The OGCA and the Pipeline Act take a more generic approach to applying the various obligations of licensees to trustees in the insolvency context: they simply include trustees in the definition of “licensee” ( OGCA , s. 1(1) (cc); Pipeline Act , s. 1(1) (n)). As a result, every power which these Acts give the Regulator against a licensee can theoretically also be exercised against a trustee. [ 22 ] Despite this, Alberta’s regulatory regime does contemplate the possibility that some of a licensee’s end-of-life obligations will remain unfulfilled when the insolvency process has run its course.

The Regulator may designate wells, facilities, and their sites as “orphans” ( OGCA , s. 70(2) (a)). A pipeline is defined as a “facility” for the purposes of the orphan regime ( OGCA , s. 68 (d)). Directive 006 stated that “a well, facility, or pipeline in the LLR program is eligible to be declared an orphan where the licensee of that licence becomes insolvent or defunct” (s. 7.1). An “orphan fund” has been established for the purpose of paying for, inter alia , the abandonment and reclamation of orphans ( OGCA , s. 70(1) ).

The orphan fund is financed by an annual industry-wide levy paid by licensees of wells, facilities and unreclaimed sites (s. 73(1)). The amount of the levy is prescribed by the Regulator based on the estimated cost of abandoning and reclaiming orphans in a given fiscal year (s. 73(2)). [ 23 ] The Regulator has delegated its statutory authority to abandon and reclaim orphans to the OWA ( Orphan Fund Delegated Administration Regulation , Alta. Reg. 45/2001 ), a non-profit organization overseen by an independent board of directors.

It is funded almost entirely through the industry-wide levy described above, 100 percent of which is remitted to it by the Regulator. The OWA has no power to seek reimbursement of its costs. However, once it has completed its environmental work, it may be reimbursed up to the value of any security deposit held by the Regulator to the credit of the licensee of the orphans. In recent years, the number of orphans in Alberta has increased rapidly.

For example, the number of new orphan wells increased from 80 in the 2013-14 years to 591 in the 2014-15 years. [ 24 ] At issue in this appeal is the applicability during bankruptcy of two powers conferred on the Regulator by the provincial legislation. Both are designed to ensure that licensees satisfy their end-of-life obligations. [ 25 ] The first power at issue in this appeal is the Regulator’s power to order a licensee to abandon licensed assets, which is accompanied by statutory powers for the enforcement of such orders.

Where a well or facility has not been abandoned in accordance with a direction of the Regulator or the rules or regulations, the Regulator may authorize any person to abandon the well or facility or may do so itself ( OGCA , s. 28 ). Where the Regulator or the person it has designated performs the abandonment, the costs of doing so constitute a debt payable to the Regulator.

An order of the Regulator showing these costs may be filed with and entered as a judgment of the Alberta Court of Queen’s Bench and then enforced according to the ordinary procedure for enforcement of judgments of that court ( OGCA , s. 30(6) ). A similar scheme applies with respect to pipelines ( Pipeline Act , ss. 23 to 26 ). [ 26 ] A licensee that contravenes or fails to comply with an order of the Regulator, or that has an outstanding debt to the Regulator in respect of abandonment or reclamation costs, is subject to a number of potential enforcement measures.

The Regulator may suspend operations, refuse to consider licence applications or licence transfer applications ( OGCA , s. 106(3) (a), (

b) and (c)), or require the payment of security deposits, generally or as a condition of granting any further licences, approvals or transfers ( OGCA , s. 106(3) (

d) and (e)). Where a licensee contravenes the Act, regulations or rules, any order or direction of the Regulator, or any condition of a licence, the Regulator may prosecute the licensee for a regulatory offence and a fine may be imposed as a penalty, although the licensee can raise

a due diligence defence (OGCA, ss. 108 and 110). A similar scheme applies with respect to pipelines (Pipeline Act, ss. 51 to 54) and theEPEA contains similar debt-creating provisions with respect to environmental protection orders. The EPEA also provides for theprosecution of regulatory offences in cases of non-compliance, with an available due diligence defence.

However, as noted, a trustee’sliability in relation to environmental protection orders is capped at estate assets, unless the trustee is guilty of gross negligence or wilfulmisconduct (EPEA, ss. 227 to 230, 240 and 245). [27] The second power at issue in this appeal is the Regulator’s power to impose conditions on a licensee’s transfer of itslicence(s). As when it initially grants a licence, the Regulator has broad powers to consent to the transfer of a licence subject to anyconditions, restrictions and stipulations or to reject the transfer (OGCA, s. 24(2)).

Under Directive 006 and its 2016 replacement, theRegulator can reject a transfer even where both parties would have the required LMR after the transfer or where a security deposit isavailable to be posted in compliance with LMR requirements.

In particular, the Regulator may determine that it is not in the publicinterest to approve the licence transfer based on the compliance history of one or both parties or their directors, officers or securityholders, or based on the risk posed by the transfer to the orphan fund. [28] Where a proposed transaction would cause the transferor’s LMR to deteriorate below 1.0 (or simply to deteriorate, inthe case of an insolvent transferor), the Regulator insists that one of the following conditions be met before it will approve thetransaction: (

i) that the transferor perform abandonment, reclamation, or both, thus reducing its deemed liabilities, or (ii) that thetransferor post a security deposit, thus increasing its deemed assets. Alternatively, the transaction may be structured to avoid anydeterioration of the transferor’s LMR by “bundling” the licences for spent wells with the licences for producing wells.

A transaction inwhich the licenses for spent wells are retained while the licences for producing wells are transferred will almost always cause aconsiderable deterioration in a company’s LMR. [29] During this appeal, there was significant discussion of other regulatory regimes which Alberta could have adopted toprevent environmental costs associated with the oil and gas industry from being offloaded onto the public. What Alberta has chosen is alicensing regime which makes such costs an inherent part of the value of the licensed assets.

This regime has the advantage of aligningwith the polluter-pays principle, a well-recognized tenet of Canadian environmental law. This principle assigns polluters theresponsibility for remedying environmental damage for which they are responsible, thereby incentivizing companies to pay attention tothe environment in the course of their economic activities (Imperial Oil Ltd. v. Quebec (Minister of the Environment), 2003 SCC 58,[2003] 2 S.C.R. 624, at para. 24).

The Licensee Liability Rating Program essentially requires licensees to apply the value derived fromoil and gas assets during the productive portions of the life cycle of the assets to the inevitable cost of abandoning those assets andreclaiming their sites at the end of those life cycles. [30] Ultimately, it is not the role of this Court to decide the best regulatory approach to the oil and gas industry.

What isnot in dispute is that, in adopting its current regulatory regime, Alberta has acted within its constitutional authority over property and civilrights in the province and over the “development, conservation and management of non-renewable natural resources . . . in the province”(Constitution Act, 1867, ss. 92(13) and 92A(1)(c)). Alberta has devised a complex regulatory apparatus to address important policyquestions concerning when, by whom and in what manner the inevitable environmental costs associated with oil and gas extraction are tobe paid.

Its solution is a licensing regime that depresses the value of key industry assets to reflect environmental costs, backstopped by alevy on industry in the form of the orphan fund. Alberta intended that apparatus to continue to operate when an oil and gas company issubject to insolvency proceedings. [31] However, the insolvency of an oil and gas company licensed to operate in Alberta also engages the BIA. The BIA isfederal legislation that governs the administration of a bankrupt’s estate and the orderly and equitable distribution of property among itscreditors.

It is validly enacted pursuant to Parliament’s constitutional authority over bankruptcy and insolvency (Constitution Act, 1867,s. 91(21)). Just as Alberta’s regulatory regime reflects its considered choice about how to address the important policy questions raisedby the environmental risks of oil and gas extraction, the BIA reflects Parliament’s considered choice about how to balance importantpolicy objectives when a bankrupt’s assets are, by definition, insufficient to meet all of its various obligations.

To the extent that there isan operational conflict between the Alberta regulatory regime and the BIA, or that the Alberta regulatory regime frustrates the purpose ofthe BIA, the doctrine of paramountcy dictates that the BIA must prevail. B. The Relevant Provisions of the BIA [32] Here, I simply wish to note the sections of the BIA at issue in this appeal. These sections will determine whether thedoctrine of paramountcy applies. I will discuss the purposes of the BIA and the various issues raised by s. 14.06 in greater detail below. [33] The central concept of the BIA is that of a “claim provable in bankruptcy”.

Several provisions of the BIA form thebasis for delineating the scope of provable claims.

The first is the definition provided in s. 2: claim provable in bankruptcy, provable claim or claim provable includes any claim or liability provable in proceedings under this Actby a creditor . . . [34] “Creditor” is defined in s. 2 as “a person having a claim provable as a claim under this Act”. [35] The definition of “claim provable” is completed by s. 121(1): All debts and liabilities, present or future, to which the bankrupt is subject on the day on which the bankrupt becomes bankrupt or towhich the bankrupt may become subject before the bankrupt’s discharge by reason of any obligation incurred before the day on whichthe bankrupt becomes bankrupt shall be deemed to be claims provable in proceedings under this Act. [36] A claim may be provable in a bankruptcy proceeding even if it is a contingent claim.

A “contingent claim is ‘a claimwhich may or may not ever ripen into a debt, according as some future event does or does not happen’” (Peters v. Remington, 2004ABCA 5, 49 C.B.R. (4th) 273, at para. 23, quoting Garner v. Newton (1916), (MB KB), 29 D.L.R. 276 (Man. K.B.), at

p. 281). Sections 121(2) and 135(1.1) provide guidance on when a contingent claim will be a provable claim: 121

(2) The determination whether a contingent or unliquidated claim is a provable claim and the valuation of such a claim shall be made in accordance with

section 135. . . . 135

(1.1) The trustee shall determine whether any contingent claim or unliquidated claim is a provable claim, and, if a provable claim, the trustee shall value it, and the claim is thereafter, subject to this section, deemed a proved claim to the amount of its valuation. [ 37 ] In Newfoundland and Labrador v.

AbitibiBowater Inc. , 2012 SCC 67 , [2012] 3 S.C.R. 443 (“ Abitibi ”), at para. 26 , this Court interpreted the foregoing provisions of the BIA and articulated a three-part test for determining when an environmental obligation imposed by a regulator will be a provable claim for the purposes of the BIA and the Companies’ Creditors Arrangement Act , R.S.C. 1985, c. C-36 (“ CCAA ”): First, there must be a debt, a liability or an obligation to a creditor . Second, the debt, liability or obligation must be incurred before the debtor becomes bankrupt .

Third, it must be possible to attach a monetary value to the debt, liability or obligation. [Emphasis in original.] [ 38 ] I will address the Abitibi test in greater detail below. [ 39 ] Once bankruptcy has been declared, creditors of the bankrupt must participate in one collective bankruptcy proceeding if they wish to enforce their provable claims.

Section 69.3(1) of the BIA thus provides for an automatic stay of enforcement of provable claims outside the bankruptcy proceeding, effective as of the first day of bankruptcy. [ 40 ] The BIA establishes a comprehensive priority scheme for the satisfaction of the provable claims asserted against the bankrupt in the collective proceeding.

Section 141 sets out the general rule, which is that all creditors rank equally and share rateably in the bankrupt’s assets. However, the rule set out in s. 141 applies “[s]ubject to [the BIA ]”. Section 136(1) lists the claims of preferred creditors and the order of priority for their payment. It also states that this order of priority is “[s]ubject to the rights of secured creditors”. Under s. 69.3(2), the stay of proceedings does not prevent secured creditors from realizing their security interest.

The BIA therefore sets out a priority scheme for paying claims provable in bankruptcy, with secured creditors being paid first, preferred creditors second and unsecured creditors last (see Alberta (Attorney General) v. Moloney , 2015 SCC 51 , [2015] 3 S.C.R. 327, at paras. 32-35 ). [ 41 ] Essential to this appeal is s. 14.06 of the BIA , which deals with various environmental matters in the bankruptcy context. I will now reproduce s. 14.06(2) and s. 14.06(4) , the two portions of the s. 14.06 scheme that are directly implicated in this appeal.

The balance of s. 14.06 can be found in the appendix at the conclusion of these reasons. [ 42 ]

Section 14.06(2) reads as follows:

(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. [ 43 ]

Section 14.06(4) reads as follows:

(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. [ 44 ] As I will discuss, a main point of contention between the parties is the very different

interpretations they ascribe to s. 14.06(4) of the BIA . I note that s. 14.06(4) (a)(ii), which is relied upon by GTL, refers to a trustee who “abandons, disposes of or otherwise releases any interest in any real property”. The word “disclaim” is used in these reasons, as it has been throughout this litigation, as a shorthand for these terms. [ 45 ] I turn now to a brief discussion of the events of the Redwater bankruptcy. C. The Events of the Redwater Bankruptcy [ 46 ] Redwater was a publicly traded oil and gas company. It was first granted licences by the Regulator in 2009.

On January 31 and August 19, 2013, ATB advanced funds to Redwater and, in return, was granted a security interest in Redwater’s present and after-acquired property. ATB lent funds to Redwater with full knowledge of the end-of-life obligations associated with its assets. In mid-2014, Redwater began to experience financial difficulties. Upon application by ATB, GTL was appointed receiver for Redwater on May 12, 2015. At that time, Redwater owed ATB approximately $5.1 million. [ 47 ] Upon being advised of the receivership, the Regulator sent GTL a letter dated May 14, 2015, setting out its position.

The Regulator noted that the OGCA and the Pipeline Act included both receivers and trustees in the definition of “licensee”. The Regulator stated that it was not a creditor of Redwater and that it was not asserting a “provable claim in the receivership”. Accordingly, notwithstanding the receivership, Redwater remained obligated to comply with all regulatory requirements, including abandonment obligations for all licensed assets. The Regulator stated that GTL was legally obligated to fulfill these obligations prior to distributing any funds or finalizing any proposal to creditors.

It warned that it would not approve the transfer of any of Redwater’s licences unless it was satisfied that both the transferee and the transferor would be in a position to fulfill all regulatory obligations. It requested confirmation that GTL had taken possession of Redwater’s licensed properties and that it was taking steps to comply with all of Redwater’s regulatory obligations. [ 48 ] At the time it ran into financial difficulties, Redwater was licensed by the Regulator for 84 wells, 7 facilities and 36 pipelines, all in central Alberta. The vast majority of its assets were these oil and gas assets.

At the time GTL was appointed receiver, 19 of the wells and facilities were producing and the remaining 72 were inactive or spent. There were working interest participants in several of the wells and facilities. Redwater’s LMR did not drop below 1.0 until after it went into receivership, so it never paid any security deposits to the Regulator. [ 49 ] By September 2015, Redwater’s LMR had dropped to 0.93. The net value of its deemed assets and its deemed liabilities was negative $553,000.

The 19 producing wells and facilities for which Redwater was the licensee would have had an LMR of 2.85 and a deemed net value of $4.152 million. The remaining 72 wells and facilities for which Redwater was the licensee would have had an LMR of 0.30 and a deemed net value of negative $4.705 million.

Given that Redwater was in receivership, the Regulator’s position was that it would approve the transfer of Redwater’s licences only if the transfer did not cause a deterioration in its LMR. [ 50 ] In its Second Report to the Alberta Court of Queen’s Bench dated October 3, 2015, GTL explained why it had concluded that it could not meet the Regulator’s requirements. GTL had concluded that the cost of the end-of-life obligations for the spent wells would likely exceed the sale proceeds for the productive wells. It viewed a sale of the non-producing wells — even if bundled with producing wells — as unlikely.

If such a sale were possible, the purchase price would be reduced by the end-of-life obligations, negating the benefit to the estate. Based on this assessment, by letter dated July 3, 2015, GTL informed the Regulator that it was taking possession and control only of Redwater’s 17 most productive wells (including a leaking well that was subsequently abandoned), 3 associated facilities and 12 associated pipelines (“Retained Assets”), and that, pursuant to para. 3(

a) of the Receivership Order, it was not taking possession or control of any of Redwater’s other licensed assets (“Renounced Assets”). GTL’s position was that it had no obligation to fulfill any regulatory requirements associated with the Renounced Assets. [ 51 ] In response, on July 15, 2015, the Regulator issued orders under the OGCA and the Pipeline Act requiring Redwater to suspend and abandon the Renounced Assets (“Abandonment Orders”).

The orders required abandonment to be carried out immediately where there were no other working interest participants and, by September 18, 2015, where there were other working interest participants. The Regulator stated that it considered the Renounced Assets an environmental and safety hazard and that s. 3.012 (

d) of the Oil and Gas Conservation Rules required a licensee to abandon wells or facilities so considered

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