Orphan Well: Embracing statutory ambiguity

February 19, 2020

By Allyse Cruise

This case comment scrutinizes the decision of the Supreme Court of Canada in Orphan Well Association v. Grant Thorton Ltd. Many Canadians will be happy with the results of the case. However, the Supreme Court’s reasoning lacks coherence and provides little direction to lower courts tasked with reviewing ambiguous legislation.

On January 31, 2019, the Supreme Court of Canada ruled s. 14.06(4) of the Bankruptcy and Insolvency Act [1] did not provide a trustee with the authority to ignore regulatory orders through the abandonment of property from the estate they manage.[2] Orphan Well Association v. Grant Thornton Ltd saw two powerful Canadian industries, and likely their associated government lobbying efforts, pitted against one another.[3] The Alberta oil and gas industry regulations favoured flexible timing on well abandonment requirements with no upfront security deposit to cover the cost of end of life abandonment obligations.[4] This mechanism appeared to clash against the preferences of the banking and insolvency industries, which asserted that secured creditors should receive priority to the bankrupt’s funds prior to environmental remediation.[5]

Orphan Well and the lower court proceedings saw courts wrestle with the nature of the judiciary’s role in shaping Canadian policies. Strictly speaking, Chief Justice Wittmann of the Court of Queen’s Bench of Alberta stated “[i]t is not up to this Court to define policy.”[6] Yet policy subsequently infused and under laid each of the decisions that followed. All courts agreed it was not their role to override clear statutory intent by Parliament.[7]

A more contentious issue was if the wording of s. 14.06(4) was demonstrative of clear Parliamentary intent. This issue, however, was not articulated by the courts. The majorities at the Alberta Court of Appeal and the Supreme Court insisted that s. 14.06(4) was clear.[8] Ironically, the majority from each court disagreed on what the provision meant. This may lead a critical commentator to question whether the provision is truly as unambiguous as the courts would lead readers to believe. The author of this blog theorizes that embracing the ambiguity of s. 14.06(4) would have led the Supreme Court to the same conclusion and also resulted in a significantly more coherent decision.

Subsection 14.06(4) is more than three hundred words and can be described as a screed. No fewer than three interpretations of it were advanced by justices hearing the case. The appellate level judicial interpretations can be summarized as follows. Justice Martin dissented at the Alberta Court of Appeal, stating that s. 14.06(4) was irrelevant to the case, as the licenses the trustee sought to abandon were not the type of property which drew the application of the provision.[9] The majority of the Supreme Court, agreeing in the result with Martin J., disagreed with her interpretation of s. 14.06(4), declaring that it removed personal liability from a trustee who abandons property but that it did not remove estate liability.[10] The majority in the Alberta Court of Appeal, and the dissent at the Supreme Court, suggested the subsection allowed a trustee to abandon or disclaim property from the estate as an economic decision, thus removing responsibility to comply with regulatory orders tied to abandoned property during bankruptcy proceedings.[11] Additionally, both the Alberta Court of Appeal and the Supreme Court engaged in a tangential debate on the operation of the word “order” within the provision, and the relevance that it played in interpretation.[12]

Each level of court seemed to guard against accusations of shaping policy against Parliamentary intent. As such, judicial debate centred around distilling a clear intent from the provision. All sides purported that Hansard was demonstrative of their interpretation. What was not considered by either level of appellate court was that the assortment of reasonable interpretations advanced by justices and interveners were indicative of statutory ambiguity. The various plausible interpretations and the existence of multiple operative words within s. 14.06(4) was, in and of itself, enough to render the section ambiguous and allow the doctrinal concept of cooperative federalism to prevail.

As stated in Saskatchewan (Attorney General) v. Lemare Lake Logging Ltd,[13] “[i]n the absence of ‘very clear’ statutory language to the contrary, courts should not presume that Parliament intended to ‘occupy the field.’”[14] The Court in Lemare Lake also opined that “harmonious interpretations of federal and provincial legislation should be favoured over interpretations that result in incompatibility.”[15] Together these statements along with the various interpretations of s. 14.06(4) make it hard to comprehend why the Supreme Court did not accept the ambiguity of the subsection and thus determine that it must be read harmoniously with provincial legislation.

Instead, the majority of the Supreme Court chose to accept that s. 14.06 was incoherent,[16] while simultaneously describing the wording of s. 14.06(4) as “clear and unambiguous.”[17] These contrasting viewpoints make the majority’s decision appear internally inconsistent and can be read as results-based reasoning. In this choice, the Supreme Court missed a valuable opportunity to articulate cogently how unclear provisions would be read in the future. This would have reduced the incentive for Parliament (and lobbyist groups) to construct legislation which is open to various interpretations. The Supreme Court reached the correct result but utilized an incorrect methodology to arrive there. The Orphan Well decision does nothing to nudge Parliament towards creating clear legislation that is not conducive to expensive and protracted litigation. Many Canadians will be happy with the result of Orphan Well;[18] however, in light of the actual reasons given, it should not be viewed with enthusiasm. The Supreme Court missed an opportunity to provide clear guidelines to governments creating legislation and a lighthouse for lower courts attempting to navigate the legislative fog that often comes before their chambers.

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[1]           RSC 1985, c B-3 [BIA].

[2]           Orphan Well Association v Grant Thornton Ltd, 2019 SCC 5 at para 7, 430 DLR (4th) 1 [Orphan Well].

[3]           Supra note 2.

[4]           Ibid (Factum of the Intervener, The Canadian Association Of  Petroleum Producers at para 11).

[5]           Ibid (Factum of the Intervener, Canadian Association of Insolvency and Restructuring Professionals at para 18); ibid (Factum of the Respondent, ATB Financial at para 78).

[6]           Grant Thornton Ltd v Alberta Energy Regulator,2016 ABQB 278 at para 133, [2016] 11 WWR 716.

[7]           Ibid; Orphan Well Assn. v Grant Thornton Ltd, 2017 ABCA 124 at para 92, [2017] 6 WWR 301 [Grant Thornton ABCA]; Orphan Well, supra note 2 at para 88.

[8]           Grant Thornton ABCA, supra note 7 at para 95; Orphan Well, supra note 2 at para 86.

[9]           Grant Thornton ABCA, supra note 7 at paras 210-220.

[10]         Orphan Well, supra note 2 at paras 7, 102.

[11]         Grant Thornton ABCA, supra note 7 at para 68; Orphan Well, supra note 2 at paras 191, 202.

[12]         Grant Thornton ABCA, supra note 7 at para 71; Orphan Well, supra note 2 at para 92.

[13]         2015 SCC 53, [2015] 3 SCR 419 [Lemare Lake].

[14]         Ibid at para 27.

[15]         Ibid at para 21.

[16]         Orphan Well, supra note 2 at para 72.

[17]         Ibid at para 88.

[18]         See e.g. Tracy Johnson, “Supreme Court Rules Energy Companies Must Clean Up Old Wells – Even in Bankruptcy”, CBC (31 January 2019), online: <www.cbc.ca/news/business/supreme-court-redwater-decision-orphan-wells-1.4998995>, archived: <https://perma.cc/K4GU-ZKG8>.