Several years ago, my colleague and I wrote an article with respect to how the Ontario Ministry of the Environment and Climate Change (MOECC) viewed environmental liability in an incident in Kawartha Lakes. We were certainly not the only one to express concern about this case. There is another environmental liability case that is getting plenty of attention.
The case, which has been forwarded to the Supreme Court of Canada, is a relatively-small bankruptcy case in Alberta. However, it is being watched by the Canadian environmental community, provincial governments, and even farmers.
Whose Environmental Liability?
At issue is Redwater Energy, a small oil and gas company that entered receivership in 2015. The receiver (Grant Thorton LLP) argued that, after review of Redwater Energy’s assets, the inactive wells should be abandoned to the well-drilling industry’s underfunded Orphan Well Association (OWA). The productive assets of Redwater would be sold to pay off company debts. Thus, payment to creditors and banks would take precedence over cleaning up the environmental impacts caused by Redwater Energy’s well drilling. Ultimately, the payment for cleanup could fall to taxpayers.
Polluter Pay Laws
The Alberta Energy Regulator (AER, a body that determines levies paid by energy development companies to OWA to drill wells) argued that the funds from the “good wells” should be used to pay for cleanup of the inactive well sites. However, the Alberta Court of Appeals agreed with the original decision that secured creditors have priority over environmental cleanup laws. The argument is that Federal insolvency laws take precedence over Provincial environmental (polluter pay first) laws.
Precedent Leads Others to Follow Suite
Since this decision, there have been reports of other receivers following the same path, resulting in more environmental liabilities defaulting to the OWA. We witnessed something similar from our US Office when the economy took a significant downturn in the late 2000s. Several large companies went bankrupt during this time period. There was a lot of negative press when it was learned that bankruptcy laws allowed these large companies (notably, some automotive companies) to have their environmental liabilities “forgiven.” This later resulted in the largest environmental trust in US history being established.
How This Impacts Farmers
Alberta farmers are concerned because they cannot refuse access to an oil-exploration company that wants to drill on their property (see Alberta Negotiating Surface Rights). When the oil-exploration company declares bankruptcy and abandons their environmental liabilities, this (financial liability) can affect farmers’ ability to leverage the value of their property to obtain loans. As some critics have noted, this decision leaves polluters and banks “immune from environmental consequences” (The Parkland Institute: “The Redwater legal case; The Supreme Court battle we should all be paying attention to,” November 7, 2017).
The Redwater Decision has potentially far-reaching consequences across Canada. Provincial governments and local governments, as well as the public, have personal interests in how environmental issues will be addressed and who will pay.
The case has been forwarded to the Supreme Court of Canada. You can read the summary, Orphan Well Association, et al. v. Grant Thornton Limited, et al. here. You can also see the Canada Supreme Court Hearing (February 15, 2018).
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