Environmental Protection Order issued by Alberta Government

Earlier this month, Alberta issued an environmental protection order to Locke Stock & Barrel Company Ltd. that outlined necessary steps to reclaim an oil and gas wellsite in the Municipal District of Foothills No. 31.

Under the environmental protection order, Locke Stock & Barrel Co. Ltd. must:

– conserve and reclaim the site in accordance with the 2010 Reclamation Criteria for Wellsites and Associated Facilities;

– remediate any contamination on site, or off-site which originated from the well or any of its activities;

– undertake soil and/or groundwater sampling at appropriate intervals to demonstrate acceptable remediation;

– submit a final report to Environment and Sustainable Resource Development (“ESRD”) summarizing all work that has been undertaken to remediate any contamination;

– apply to ESRD for a reclamation certificate for the well; and

– conduct weed spraying and maintenance on the site at least twice a year until ESRD issues a reclamation certificate to the company.

As the Environmental Law Centre recently noted, though, there were 16,975 wells abandoned between 1963 and 2002, and an additional 35,856 since 2002 in Alberta. Hopefully we will begin to see a lot more remediation orders issued in the coming months, and with greater diligence than in the past.

That begs the question: what is the effect of an environmental protection order in the case where the company or entity required to remediate declares bankruptcy? A recent Lexpert article noted:

“Many a stakeholder has been stunned by the broad powers of the Companies’ Creditors Arrangement Act (“CCAA”) to stay – and then compromise – nearly all clams against an insolvent company. This power has recently been confirmed to extend even over remediation orders issued by provincial ministries of environment (“MOEs”)…

“[The issue of insolvency vs. remediation orders is s]o hot that counsel for MOEs have suggested that CCAA is in danger of becoming a “regulatory car wash,” arbitrarily cleansing debtors of environmental obligations and leaving taxpayers to pick up the tab.”

The decision reached by the Supreme Court of Canada in Abitibibowater in 2012 set a worrying precedent. In that case, the Supreme Court held that there are three requirements orders must meet in order to be considered claims that may be subject to the insolvency process.

First, there must be a debt, a liability or an obligation to a creditor. The first criterion was met because the MOE had identified itself as a creditor by resorting to environmental protection enforcement mechanisms.

Second, the debt, liability or obligation must be incurred as of a specific time. This requirement was also met since the environmental damage had occurred before the time of the CCAA proceedings.

Third, it must be possible to attach a monetary value to the debt, liability or obligation. The Supreme Court determined that it was possible.

In Nortel Networks v MOE, litigation that has been working its way through the Ontario courts, the Ontario Court of Appeal lifted stays of remediation orders that had been put in place pursuant to the CCAA. Nortel applied for leave to appeal this decision to the Supreme Court, but last week Nortel’s application for leave was dismissed.

In assessing the Supreme Court’s reasoning in Abitibibowater the Ontario Court of Appeal summarized its interpretation of the ruling as follows:

“In determining whether a regulatory order is a provable claim, a CCAA court must apply the general rules that apply to future or contingent claims. As I read it, the Supreme Court’s decision is clear: ongoing environmental remediation obligations may be reduced to monetary claims that can be compromised in CCAA proceedings only where the province has performed the remediation work and advances a claim for reimbursement, or where the obligation may be considered a contingent or future claim because it is “sufficiently certain” that the province will do the work and then seek reimbursement.” [my emphasis]

In other words, if a province wishes to avoid the ‘car washing’ of its remediation order against a bankrupt polluter, it should not take steps to remediate the contaminated site itself, nor show any intent to remediate.

In terms of the Locke Stock & Barrel Co Ltd. environmental protection order, it is good to see Alberta utilizing some of the tools available to it to fix environmental problems. In some circumstances, however, it could be all for naught if the party subject to a remediation order declares bankruptcy and the obligation to remediate is “car washed” away by the CCAA. Remediation would likely then be left to the province in question, and, consequently, taxpayers like you.

By James Early