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In a decision handed down on January 31, 2019, the Supreme Court ordered that a bankrupt oil and gas company fulfil its obligation to reclaim abandoned oil wells before paying any creditors. This decision has since sparked conflicting reactions across the country: first, because it gives clear precedence to environmental protection in the event of bankruptcy, and second, because of the influence it will likely have over business decisions in industries where environmental risks are involved. Moreover, the concrete impact this decision will have in Quebec, where environmental laws have recently undergone major reforms, remains to be seen. Background Redwater Energy Corp. is a publicly traded Alberta oil and gas company that obtained financing for part of its operations from Alberta Treasury Branches (“ATB”) in 2013. The latter held a security interest over Redwater’s assets. In 2014, Redwater experienced financial difficulties which resulted in its inability to fulfil its obligations to ATB, its primary secured creditor. In 2015, Redwater was placed under receivership. At that time, Redwater’s assets consisted of 127 oil and gas properties—wells, pipelines and facilities—and their corresponding licences obtained in 2009. Said licences were granted by the Alberta Energy Regulator (“AER”), subject to an obligation to reclaim wells and facilities as prescribed to make them environmentally safe. However, at the time Grant Thornton was appointed as its receiver, 72 of Redwater’s licensed wells and facilities were depleted and burdened with environmental liabilities in terms of abandonment and land reclamation, such that Redwater’s liabilities exceeded the value of the wells and facilities that were still producing. Upon being advised that Redwater was placed under receivership, the AER notified Grant Thornton that despite the receivership, it was under the legal obligation to fulfil abandonment and reclamation obligations for all licensed assets prior to distributing funds or finalizing any proposal to creditors. Grant Thornton replied that it was not taking possession and control of Redwater’s valueless facilities and that it therefore had no obligation to fulfil the environmental obligations associated with these renounced assets (the “Environmental Obligations”). In the summer of 2015, in response to Grant Thornton's reply, the AER issued abandonment orders under two Alberta laws directing Redwater to suspend the operation of the renounced assets, abandon them in accordance with the AER's rules and regulations, and obtain the reclamation certificates required by law. In the fall of 2015, a bankruptcy order was issued for Redwater and Grant Thornton was appointed as trustee. The AER filed an application to order Grant Thornton to comply with its Environmental Obligations before making any distribution to Redwater’s creditors, but the application judge and the majority of the Alberta Court of Appeal agreed with Grant Thornton and refused to issue the orders sought. In their view, agreeing with the AER would be tantamount to ignoring the orderly and equitable distribution scheme set out in the Bankruptcy and Insolvency Act (“BIA”). The AER appealed the judgment to the Supreme Court. On January 31, 2019, in a 5-2 majority decision, the Supreme Court allowed the AER’s appeal. 1- The trustee’s personal liability The first question the Court reviewed was whether section 14.06(4) of the BIA allows a trustee to escape the obligations imposed by Alberta law with respect to the reclamation of oil and gas facilities. Essentially, this question raises the fundamental issue of whether the BIA is in operational conflict with provincial laws. Section 14.06(4) of the BIA provides that the trustee is not personally liable for any failure to comply with any order to remedy any environmental condition or damage affecting a bankrupt property if the trustee abandons or renounces any right to the property in question. The majority of the Court interpreted this provision in a restrictive manner and concluded that, even if the trustee is not held personally liable, the bankrupt estate's assets remain subject to the order to remedy any environmental damage. Thus, the value of the bankrupt's assets must be used to fulfil its Environmental Obligations. 2- The notion of “provable claim” Grant Thornton further argued that, even if the bankrupt’s assets were to be used to fulfil Environmental Obligations, these should be paid as “provable claims” of an ordinary creditor, in other words, neither a secured nor a preferred creditor. Thus, the question of whether the AER could demand that Redwater’s Environmental Obligations be fulfilled before the value of the assets could be distributed to its creditors involves the concept of “claims provable in the bankruptcy” as defined by the BIA. One of the objectives of the BIA is to ensure the equitable distribution of the bankrupt’s property among creditors who have a “provable claim.” Said distribution is done according to a very precise order, established by law. However, if a claim is not “provable” within the meaning of the BIA, it nonetheless continues to be binding on the bankrupt and must be paid regardless of the distribution scheme provided for under the BIA. According to the Supreme Court in the 2012 AbitibiBowater1decision, a “provable claim” exists if three requirements are met: There must be a debt, liability or an obligation to a “creditor”; The debt, liability or obligation must be incurred before the debtor becomes bankrupt; and It must be possible to attach a monetary value to the debt, liability or obligation. If any one of these requirements is not met, there is no “provable claim.” Applying this analytical framework to the situation at hand, the majority of the Court determined that the AER is not a “creditor” within the meaning of the first requirement. According to the Court, the people of Alberta would ultimately benefit if Redwater and other companies like it met their Environmental Obligations: the province itself would not be gaining a financial advantage. Thus, the AER, when seeking to enforce Redwater’s public duties, is not a creditor within the meaning of the law. This was sufficient to conclude that its claim was not a “provable claim” subject to the distribution scheme provided for under the BIA2. The result, according to the Supreme Court, is that compliance with Environmental Obligations prevails over the payment of any provable claims of secured, preferred and unsecured creditors in the form of a first charge3. This conclusion does not conflict with the priority scheme under the BIA, nor does it contradict the goal of maximizing the realizable value of the assets, because all of Redwater’s valuable assets were subject to Environmental Obligations in any case. Such a decision raises several questions. First, as Justice Côté points out in her dissenting reasons, it may sometimes be difficult to know when the regulator is not acting in the public interest, suggesting that such a regulator can never be a creditor within the meaning of the law. Second, the adopted interpretation is likely to have consequences, in particular on the financing industry for companies exploiting natural resources. Faced with the existence of first charges that could remain unknown for a long time, lenders that finance the activities of such companies may have to reconsider the conditions under which they agree to finance them because of the increased risk of having the value of their investment or guarantees reduced. 3- What about the effects of this judgment in Quebec? It is particularly difficult to say with certainty what the effects of this decision will be in Quebec given the current legislative context in the areas of activity in question. Quebec legislation has undergone major reforms recently (in mid-2017 for the environment and at the end of 2018 for petroleum ressources) both in terms of environmental protection and the management of natural resources. The structure of the law, the conditions for obtaining operating licences and drilling authorizations and the powers of public authorities (in particular those of the ministers) have been changed to such an extent that we believe caution should be exercised before drawing hasty conclusions. In the case analyzed by the Supreme Court, the legislation in question, which made site remediation an obligation under the licenses issued, defined remediation to include decontamination. While this conclusion can apparently be drawn from the legislative structure applicable to mining operations, it is less obvious to do so with respect to petroleum resources development in Quebec. Moreover, although Quebec has legislative provisions to ensure that soil decontamination work is carried out in certain situations under division IV of the Environment Quality Act, the obligations to produce a characterization study, prepare a rehabilitation plan and carry out decontamination work do not apply in all cases. Although solely the production of a characterization study and a rehabilitation plan are required in some cases (cessation of activities), decontamination is only mandatory for the resumption of other activities, unless ordered by the Minister. Therefore, in cases where land decontamination is not a mandatory condition under the law, we must consider whether or not decontamination work otherwise performed may or may not qualify as “provable claims” within the meaning of the Bankruptcy and Insolvency Act. Thus, we should be careful before affirming that the Supreme Court’s decision in this case will automatically apply to Quebec in all situations. Analyzing situations on a case-by-case basis (as the Supreme Court said, incidentally) is the way forward, and understanding the Supreme Court's decision in the Redwater case properly will certainly be key. 4- Conclusion The Redwater decision raises diametrically opposed reactions depending on the audience. Some welcome the Supreme Court's effort to support provincial authorities responsible for overseeing environmental matters by adopting an interpretation of federal and provincial legislation that is broad, flexible and imbued with cooperative federalism. The Court's message that bankruptcy is not a licence to ignore environmental rules and that trustees are bound by valid provincial laws is also appreciated. Others, however, object to the business consequences that could result from this decision for companies operating in areas of activity that involve environmental risks, because access to financing may be more difficult. Where the full value of the assets is likely to be used to ensure compliance with environmental obligations, insolvency professionals who rely on the value of the assets to cover their own professional feess may be discouraged from accepting mandates when environmental issues are involved. Some are also concerned that companies in difficulty will abandon their assets to governments rather than attempting to restructure, thereby increasing the social burden of these problematic assets - a result that the majority decision seemed to want to avoid. In Quebec, as we pointed out above, the powers exercised and orders issued will require careful review to determine their immediate or potential regulatory or monetary nature. In the first case, Redwater suggests that a trustee would be forced to comply in accordance with the value of the assets, while, in the second case, the provincial authority's claim would be considered subordinate to the rights of secured and preferred creditors in the distribution scheme provided for in the BIA. Newfoundland and Labrador v. AbitibiBowater Inc.  3 SCR 443, 2012 SCC 67 (CanLII) However, the Court analyzed the third requirement set out in Abitibi and concluded that it is not possible to attach a monetary value to the debt in question, as it was not sufficiently certain that the organization would perform the work or claim its reimbursement. The dissenting judges concluded the contrary on this point. Which the Court equates with the one under section 14.06(7) of the BIA that the organization could not avail itself of in this case.
On February 1, 2016, the Superior Court of Québec rendered a significant decision in the area of civil liability in the context of the practice of a sport1. The judgment was widely reported in the media due, on the one hand, to the importance of the amount granted by the judge (8 million dollars) and, on the other hand, because it is closely related to the practice of the national sport of Canadians. Will this judgment, through which a junior hockey player who became quadriplegic after receiving a check from behind has been allowed such an important amount as compensation, change the rules of the game? The facts The plaintiff, Andrew Zaccardo (hereinafter, “Zaccardo”), who was 16 years old at the time of the events, was a junior amateur hockey player. On October 3, 2010, his life took a turn for the worse when he received a check from behind from another player, defendant Ludovic Gauvreau-Beaupré (hereinafter, “Gauvreau-Beaupré”), who violently hit him from behind. Zaccardo became quadriplegic. The video clip, filed as evidence at the trial, shows a sequence resembling those routinely seen by hockey fans in sports information bulletins (at 0:15 to 0:30 more specifically). Zaccardo instituted civil proceedings against Gauvreau-Beaupré, his insurer, as well as Hockey Québec and Hockey Canada, claiming damages, particularly for the costs and expenses related to the care required by his physical condition for the remainder of his life. Prior to the hearing, Zaccardo discontinued his action against Hockey Québec and Hockey Canada. The hearing showed that for many years both entities had systematically discouraged and condemned checking from behind. At the time of the hearing, the parties agreed to an admission as to the quantum of damages for an amount of 8 million dollars. Mr. Justice Daniel W. Payette came to the conclusion that Gauvreau-Beaupré had committed a fault and found him liable for the damages suffered by Zaccardo. The Judgment At the outset, Justice Payette stated that players participating in hockey games are subject to the law as any other citizens: [TRANSLATION] “an ice rink is not a law-free zone”2. Justice Payette reviewed the relevant case law, both from Quebec and the common law provinces and concluded that strictly speaking, “sports liability” does not exist as a separate area of liability: players are subject to the usual rules governing civil liability and are thus required to act like [TRANSLATION] “reasonable players placed in the same circumstances”. The judge also confirmed that the practice of hockey involves inherent risks which a player accepts by participating in a game, but that by doing so, he is not however deemed to accept unreasonable risks which he is not aware of. Accordingly, the violent check suffered by Zaccardo did not constitute a risk which he should have foreseen when participating in the game. Moreover, the judge noted that a breach of the rules of the game, whether sanctioned by a penalty or not during the game, will not always constitute a fault within the meaning of civil law. Therefore, the court ordered Gauvreau-Beaupré and his insurer to pay to Zaccardo the admitted amount of 8 million dollars. It must be noted that at the beginning of the hearing, Gauvreau-Beaupré’s insurer informed the court that it was not alleging the intentional fault of the insured and, accordingly, the judgment does not deal with this issue. In the circumstances, the court also ordered the insurer to indemnify Zaccardo for the damages he suffered. The surgical precision with which the judge dissected the sequence of the check shows that he no doubt has experience of the practice of hockey and leads one to believe that this may have influenced the conclusions of the judgment. In addition, the legal reasoning put forward confirms that the efforts made by Hockey Québec and Hockey Canada to promote the safe practice of hockey are still encouraged. Echoes beyond the legal sphere In addition to being the highest amount ever granted to a victim of an injury in such a context, at least in Canada according to our verifications, this judgment already echoes beyond legal circles. For the time being, it is difficult to determine the scope that this decision will have and whether it will impact sports in general. Indeed, despite the magnitude of the amount granted to Zaccardo which, again, had not been contested, the judge noted that each case is dealt with on its own merits and only involves the application of general civil liability principles. In that sense, each situation is to be considered according to its own set of facts. In an era where class actions are instituted by former professional athletes who suffered concussions3 and following numerous other cases of violent actions with serious consequences4this decision may have an impact on the prevailing culture of hockey, which is more than ever called upon to change. Lastly, it must be noted that on March 2 2016, Gauvreau-Beaupré and his insurer appealed the decision5. The conclusions reached by the judge regarding liability will therefore be reviewed in the following 18 to 24 months. Conclusion The judgment in favour of young Zaccardo and the impressive monetary compensation he was granted attest to the numerous efforts made during the last few years to raise players’ awareness to the risk of serious harm associated to the practice of contact sports. The often critical attitude of Justice Payette toward the aggressor also demonstrates that this awareness had at least already entered the mind of the judge. Despite the fact that all the calls for prudence, by-laws and increased sanctions have not succeeded in actualizing the culture of hockey6, it is to be hoped that the whistle blown by Justice Payette will accelerate the changes. Zaccardo v. Chartis Insurance Company of Canada, 2016 QCCS 398, appeal pending: 500-09-025937-160 and 500-09-025938-168. Paragraph 10 of the judgment. For illustration purposes, a group of over 100 former players of the National Hockey League filed an application to be authorized to institute a class action against the NHL for damages suffered as a result of repeated shocks received to the head while they played as professionals: http://www.cbc.ca/sports/hockey/nhl/grand-ledyard-nhl-lawsuit-1.3432273. Also see: http://www.nhlconcussionlitigation.com For example we may think about the action of Todd Bertuzzi against Steve Moore, following which Moore was unable to continue his professional hockey career: https://www.youtube.com/watch?v=Fz9RE9RGrVY. The hockey stick hit given by Marty McSorely to Donald Brashear constitutes another example: https://www.youtube.com/watch?v=eTOfsoJAij4 500-09-025937-160 and 500-09-025938-168. Only a few days ago, another young hockey player from the Montreal region suffered an injury to the neck following a check from behind by another player. However, the young man has been “luckier” than young Zaccardo since his spinal cord was not damaged: http://montrealgazette.com/news/local-news/local-midget-hockey-player-suffers-broken-neck-after-illegal-hit