Unloading in the evening

Unloading in the evening

Tuesday, December 17, 2019

Organized Pseudolegal Commercial Arguments. What?


If you think the title of this article is lawyer-speak or legalese, you’re right.  But the mental gymnastics required to understand the meaning of the term Organized Pseudolegal Commercial Argument (“OPCA”) pale in comparison to the effort required of Canadian judges to understand the OPCAs being advanced in cases before them.  Most often in an effort to avoid taxes or other financial obligations, OPCA litigants argue that they are a double or split person – one part being a physical human being and the other being a non-physical legal person or “juristic person”.  The physical human beings give notice to governments, creditors, and the Courts that they have relinquished and are separate from their non-physical legal persons and, therefore, are not responsible to follow government regulations, pay taxes, pay debts, etc.

In an oft-cited case called Meads v. Meads, Associate Chief Justice J.D. Rooke of the Alberta Court of Queen’s Bench took it upon himself in his reasons for decision to explore and challenge the OPCA movement, which he viewed as an abuse of Canada’s legal system.  Rooke A.C.J. explained:

This Court has developed a new awareness and understanding of a category of vexatious litigant. As we shall see, while there is often a lack of homogeneity, and some individuals or groups have no name or special identity, they (by their own admission or by descriptions given by others) often fall into the following descriptions: Detaxers; Freemen or Freemen-on-the-Land; Sovereign Men or Sovereign Citizens; Church of the Ecumenical Redemption International (CERI); Moorish Law; and other labels - there is no closed list. In the absence of a better moniker, I have collectively labelled them as Organized Pseudolegal Commercial Argument litigants [“OPCA litigants”], to functionally define them collectively for what they literally are. These persons employ a collection of techniques and arguments promoted and sold by ‘gurus’ (as hereafter defined) to disrupt court operations and to attempt to frustrate the legal rights of governments, corporations, and individuals.

Over a decade of reported cases have proven that the individual concepts advanced by OPCA litigants are invalid. What remains is to categorize these schemes and concepts, identify global defects to simplify future response to variations of identified and invalid OPCA themes, and develop court procedures and sanctions for persons who adopt and advance these vexatious litigation strategies.

One participant in this matter, the Respondent … appears to be a sophisticated and educated person, but is also an OPCA litigant. One of the purposes of these Reasons is, through this litigant, to uncover, expose, collate, and publish the tactics employed by the OPCA community, as a part of a process to eradicate the growing abuse that these litigants direct towards the justice and legal system we otherwise enjoy in Alberta and across Canada. I will respond on a point-by-point basis to the broad spectrum of OPCA schemes, concepts, and arguments advanced in this action by [the Respondent].

Meads v. Meads was decided in 2012; OPCA litigants hardly seem to have been deterred by the chastisement of Rooke A.C.J. and the consistent failure of their arguments in the years following.   In May of this year, the Court of Appeal for Ontario heard an appeal from the dismissal of an application by two individuals who maintained that various sections of the Income Tax Act, the Excise Tax Act, and the Ontario Business Corporations Act are of no force or effect because they infringe on the individuals’ rights to life, liberty and security of the person as guaranteed by Section 7 of the Canadian Charter of Rights and Freedoms.  The individuals sought repayment by the government of approximately $2.9 million in “withholdings”, $447,000 in HST, and $485,000 in accounting fees.  They also requested an award of “tort damages” of $1.925 million. 

In its reasons dismissing the appeal, the Court of Appeal summarized the OPCA relied upon by the applicants:

The appellants assert that while they are entitled to live in the geographic landmass known as Canada, they are not subject to any of the laws enacted by the Juristic Federal Unit Canada, or presumably provinces or municipalities that also enact laws, unless they consent. Arguably arbitrary designations or distinctions drawn by statutes, such as “residency,” or status as officers and directors of privately incorporated companies under provincial laws, do not apply to them without their consent. This, they say, flows from s. 7 of the Charter and also from their reading of Article 1 of the International Covenant on Civil and Political Rights, which binds the Juristic Federal Unit Canada. Consequently they are not subject to the provisions of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), the Excise Tax Act, R.S.C. 1985, c. E-15, or various other pieces of legislation such as Ontario’s Business Corporations Act, R.S.O. 1990, c. B.16.

In essence, the appellants claim the right to live in Canada, but to be free from the obligations and language of any laws they do not choose to accept. This they say is an implication of “[t]he right to choose as guaranteed by s.7 of the Charter”.

No doubt to the disappointment of OPCA litigants everywhere, the Court of Appeal concluded that: “At least as long as they continue to live in Canada, to reside here, the appellants are subject to federal and provincial laws that apply to residents of Canada, including the Income Tax Act.”  However, this decision and the many similar decisions that preceded it will likely do little to deter OPCA litigants from pushing on with the fight to live in Canada free of the burdens of law and government.

Monday, December 16, 2019

CER: A new acronym, but much the same old NEB for landowners


The Federal Government’s Bill C-69, legislation “to modernize” the National Energy Board and the Canadian Environmental Assessment Agency, was passed by Parliament and received Royal Assent in June, 2019.  The new Canadian Energy Regulator Act, which replaces the National Energy Board Act, came into force on August 28, 2019.  With that, the 60-year old National Energy Board (“NEB”) is no more; Canada’s energy regulator will now be known as the “Canadian Energy Regulator” or “CER”.  While much of the controversy about Bill C-69 has involved conflict between proponents and opponents of the oil and gas industry in the Western Provinces, the new CER and CER Act do have relevance for any Ontario landowner affected by federally-regulated pipelines or electricity transmission corridors.

In general, an energy project falls under federal regulation when it crosses provincial or international boundaries.  Enbridge’s Line 9 Pipeline might be the best known example of a federally-regulated pipeline in Ontario – it was originally constructed in the 1970s to carry oil received from Western Canada at Sarnia onto Montreal in the east.  Later the flow was reversed to carry oil from east to west.  In 2011, Enbridge applied to the NEB for permission to re-reverse a portion of Line 9 – Line 9A.  In 2012, Enbridge applied to re-reverse the balance of Line 9 – Line 9B – and to increase the capacity of the overall line.  The NEB approved both projects.

For any future federally-regulated pipeline or electricity transmission project planned for Ontario (think, TransCanada’s recent Energy East proposal), the CER will now be the body to receive and consider the project application.  From the perspective of landowners affected by proposed new projects, there is not likely to be much if any difference between dealing with the NEB and dealing with the CER.  Landowners whose lands are required for a project will still be able to apply to intervene in project application hearings in hopes of having some influence on the location and construction of projects.  It does not appear that the hearing processes for project approvals will change for landowners under the new legislation.

What has changed is the process for seeking compensation arising from federally-regulated pipeline projects.  The CER Act, like the NEB Act, provides that:

A company must, in the exercise of the powers granted by this Act or a Special Act, do as little damage as possible, and must make full compensation in the manner provided in this Act and in a Special Act to all persons interested, for all damage sustained by them by reason of the exercise of those powers.

Historically, compensation for damages suffered as a result of federally-regulated pipeline projects was addressed under the Railway Act.  A landowner could apply to have a County Court judge sit as arbitrator to determine the compensation to be paid for land rights acquired for a pipeline, or damages and losses sustained during and after construction of the pipeline.  More recently under the NEB Act, a claimant would need to apply to the Minister of Natural Resources for Canada to appoint an ad hoc (case-specific) Arbitration Committee to decide on compensation.  Under the new CER Act, the CER’s own Commission will hear compensation arbitration cases.  The Commission, currently composed of six commissioners, is the same quasi-judicial body that will hold hearings and make decisions on project applications for the CER. 

It remains to be seen what effect this transfer of responsibility for compensation to the CER Commission itself will have on landowner compensation cases.  Previously, the members of the NEB would make decisions on the approval of projects, and would grant Right of Entry Orders (expropriation) to lands where necessary, but would not deal with the issue of compensation.  Now, the Commissioners will be hearing claims for compensation as well.  Although compensation cases will still be handled separately from project approvals and Right of Entry applications, it may be that the experience of the Commissioners in compensation arbitrations will carry over into their dealings with pipeline landowners in project applications and Right of Entry applications, and vice versa.  The Commissioners may gain a better understanding than the members of the NEB had as to whether project impacts on landowners being considered at the project approval stage should be addressed through additional project mitigation measures or can adequately addressed through compensation. 

The Commission’s responsibility for pipeline landowner compensation may also make the process more accessible for landowners.  Under the NEB Act, landowners had to write to the Minister of Natural Resources for Canada and request that an arbitration committee be formed to determine compensation.  An arbitration committee would then be created to hear the specific case, assuming the Minister agreed that the landowner’s claim for compensation was covered by the NEB Act.  The CER Commission will be a more permanent and consistent body, perhaps with a new standardized application process and publicly-accessible decisions.  Access to decisions made by the Pipeline Arbitration Committees under the NEB Act has been severely restricted, meaning that landowners have had limited ability to rely upon past compensation decisions in their dealings with pipeline companies.  With a new process and enhanced access to past decisions, landowners would be in a better position to contest pipeline compensation through arbitration where necessary.

Tuesday, December 10, 2019

Reversing the regretted farm transfer and other uses of the resulting trust


Most often (but not always) with the best of intentions, a parent may transfer part of his or her ownership interest in a farm property to a child for little or no consideration.  In some cases, the parent intends to gift the ownership interest outright with the understanding that the child will be the true owner of the interest going forward.  In other cases, the transfer might be in connection with a plan to operate the farm with the child, who will contribute labour to the operation going forward in repayment to the parent.  Often the parent makes the transfer in contemplation of an estate plan or farm succession plan; for instance, a parent may add a child on title to a property as a joint tenant so as to avoid payment of probate tax in the future on the death of the parent, at which time the parent’s ownership interest will pass automatically to the child. 

Unfortunately, life after a gratuitous transfer of ownership can fall far below the expectations of the parent.  Parent and child may not get along as joint operators of a farm.  A child may turn out to be an unexpected prodigal.  Whatever the reason, parents sometimes come to regret having transferred the ownership interest and look for ways to reverse the transfer.  In certain circumstances, the law will allow the parent, the transferor, to recover ownership from the child, the transferee, on the basis of a “resulting trust”.

Canadian law presumes that the transfer of ownership results from a fair bargain, not a gift.  If a transfer is made without proper consideration in return (i.e. a gratuitous transfer), the law normally presumes a resulting trust in favour of the transferor.  The transferee is presumed to be holding legal title in trust for the transferor’s benefit – the transferee may be registered as legal owner of a certain interest on title to a property, but the transferor remains the beneficial owner of that interest, which is to be returned to the transferor on demand.  The presumption is rebuttable by the transferee, who may show on a balance of probabilities that the transferor had an intention to gift the ownership interest outright.  The transferee might also show that the transfer was not in fact gratuitous at all – that there was an exchange of consideration and a “fair bargain”.

If persuaded that a transfer of ownership was gratuitous, and that the transferor did not intend to make a gift, the Court may make an order setting aside the original transfer and restoring full legal ownership to the transferor.  Although the presumption of resulting trust is a legal tool of general application, the Court’s analysis is heavily fact-driven, and the outcome of each case will depend on its particular circumstances. 

Ontario’s Court of Appeal has found that the resulting trust continues to apply where assets are held within a corporation, and the transferee receives shares in the corporation without proper consideration; the focus of the analysis should be on the substance of the transaction, not the form.  The transferee’s interest in the assets as a shareholder in the corporation would be subject to the presumption of resulting trust, rebuttable by showing that there was an intention to gift the interest in the assets to the transferee.  Where the resulting trust is found to apply, the Court could order that legal ownership of the shares be restored to the transferor.

A resulting trust can also be presumed in situations where two parties acquire property jointly, but only one of the parties puts up the consideration paid in the transaction.  Depending on the circumstances, the party who paid the consideration may be entitled to the beneficial ownership of the entire property while the other non-contributing owner holds his or her legal ownership interest in trust for the other.

Claims based on a resulting trust argument sometimes arise in the context of estate proceedings, after the transferor parent has passed away.  As noted above, a surviving joint tenant will become the full owner of a jointly owned property where the other joint tenant dies; the jointly owned property does not become part of the estate of the deceased available for distribution to beneficiaries under a will or otherwise.  Those beneficiaries may argue that a jointly held property should nevertheless form part of the estate of a deceased parent on account of a resulting trust. 

Similarly, in bankruptcy proceedings, creditors of a bankrupt may argue that a certain property legally owned by another party forms part of the bankrupt’s estate (for purposes of satisfying the bankrupt’s debts) by way of a resulting trust.  And the opposite situation can occur as well, with creditors of an alleged beneficial owner of a property arguing against the inclusion of the property in the estate of the bankrupt legal owner so as to keep it out of the hands of the bankrupt’s creditors.

Wednesday, September 4, 2019

It’s time to part ways - breaking up co-ownership of property


In Ontario, the Partition Act allows a co-owner of property to apply to the Court to break up the co-ownership.  If two or more parties own a piece of land, and one wants out, that co-owner is generally entitled either to an order dividing the property itself or, more often, an order requiring the sale of the jointly held property and the division of the proceeds.  The Court has a discretion to refuse to grant partition or sale in circumstances of “malice, oppression, and vexatious intent”, but the bar for exercising this discretion is high.  Also, the Court may in certain cases award one owner a greater share of the property or proceeds of sale than the other co-owner or owners, in spite of the presumption that tenants in common with unspecified ownership interests are entitled to equal shares of the property or proceeds.  A common argument in favour of unequal division is that one co-owner contributed more to the property than another and should be compensated for it (based on the law of unjust enrichment).

In one recent case, the Ontario Superior Court of Justice addressed the question of whether a property should be divided in pieces or sold.   Two former brothers-in-law were disputing how their co-ownership of a 100-acre farm parcel (consisting of 64 acres of agricultural land, and 36 acres of woodlot) should be ended.  Brother-in-law O made the application to the Court for an order to sell the property and divide up the sale proceeds.  Brother-in-law M, who lived part of the year in a small house on the woodlot portion, asked the Court instead to divide up the land itself.  M proposed that he receive the 36-acre woodlot along with a continuing interest in the 64-acre balance.  The 64-acre section would then be sold with O receiving the largest portion of the proceeds of sale to compensate for M getting the woodlot.

As is the case in most partition applications, the Court ordered that the entire property be sold and the proceeds of sale divided between the two co-owners because the land could not be reasonably partitioned.  Firstly, the Court found that the local municipality would impose restrictions on the land if it was severed that would affect the value of the land, something that would prejudice of O.  Secondly, M's proposal would result in what would effective be a forced sale by O to M of the woodlot portion of the property, something that the Court does not have jurisdiction to grant.  Thirdly, M's proposal would compel the two co-owners to continue, at least for a time, in an "ongoing, untenable relationship"; avoiding that situation is a primary purpose of the Partition Act.  The Court rejected M’s proposal, and also ordered that O's costs of the application be payable out of M's share of the proceeds from the sale of the property. 

In another recent case, the Superior Court dealt with a request for an unequal split of proceeds of sale.   A mother, the Applicant, and her daughter, the Respondent, disputed the division of the proceeds from the sale of a property they had owned together.  The mother had purchased the property in the early-1980s with her then common law spouse, the father of the Respondent.  The father died in 2009 and left his share of the property to his daughter.  The property was sold in 2015, and mother and daughter agreed to split on an equal basis a portion of the proceeds of the sale (representing the 2009 appraised value of the property).  The remaining proceeds were held in trust to be disputed.  The mother brought an application seeking an order dividing the remaining proceeds equally between her and her daughter.

Relying on unjust enrichment, the daughter claimed an unequal share of the remaining funds – three-quarters of the remainder for her, and one-quarter of the remainder for her mother.  The daughter had acted as Estate Trustee of her father’s estate, and took the position that the increase in the value of the property between 2009 and 2015 was attributable to “her money, time and effort.”  She had entered into an agreement with a farmer to clear the property and install tile drainage, which rendered 35 acres workable.  As such, she argued, the mother was unjustly enriched at the expense of the daughter, without legal justification.

The judge hearing the case disagreed.  While she found that the increase in value benefitted the mother, it also benefitted the daughter.  And the judge was unable to put a monetary value on the efforts contributed by the daughter.  With respect to the agreement reached with the farmer who cleared and tiled the land, the judge questioned “whether the time required to achieve the agreement took 30 minutes, 30 days, or 300 days of negotiations.”  The land clearing and tiling may have contributed to the increase in value of the property, but the daughter’s only contribution to this was negotiating, creating and signing two agreements.  The judge ordered that the remaining balance of the proceeds of sale be divided equally between mother and daughter. 

Thursday, August 29, 2019

Assessing farmland value for property taxation - estimates alone aren't enough


The Municipal Property Assessment Corporation (“MPAC”) is tasked with assessing the value of land in Ontario for the purpose of municipal property taxation.  The Assessment Act, the legislation that governs the process, provides that the assessment of land is to be based on its current value.  Current value means, in relation to land, “the amount of money the fee simple, if unencumbered, would sell for in an arm’s length transaction between a willing seller and a willing buyer.”  Where an assessed owner disputes the valuation made by MPAC, the owner may appeal the assessment to the Assessment Review Board (“ARB”) and request that the assessed value be adjusted.  In an appeal to the ARB, MPAC has the burden to prove the correctness of its assessment of current value.

The ARB recently issued three appeal decisions involving three separate rural properties owned by the same owner.  One property was roughly 165 acres in size, classified as farmland without any buildings, and comprising about 129 acres of Class 6 farmland (rocky bush land and swamp/marsh land) and 36 acres of “Class 4 overgrown ‘pasture’ land”.  The second property was a 160-farm with outbuildings, comprising about 141 acres of Class 6 farmland (rocky bush land and swamp/marsh land), just under 8 acres of Class 4 “pasture”, and 11 acres of Class 2 farmland.  The third property measured just over 7 acres and was classified as a farm residence with farm outbuildings.  MPAC had assessed the value of the 165-acre parcel at $31,500 for the 2017 taxation year and $47,000 for the 2018 taxation year.  MPAC assessed the value of the 160-acre farm at $32,000 for 2017 and $54,000 for 2018.  The smaller farm residential parcel was valued at $148,000 for 2017 and $175,000 for 2018.

The owner of the three properties appealed the MPAC assessments in all three cases on the basis that the values were not representative of the “true, significantly lower, value that would be more appropriate”.  And, in all three cases, it appears that the owner did not put forward his own proposed current value for the lands; rather, he challenged the correctness of the MPAC valuations, which had resulted in significant increases in the assessed values over a span of only three years.  The owner did not believe the increased assessments were fair or supported by evidence.

In each appeal, evidence was given on behalf of MPAC by the Property Valuation Analyst who had reviewed the properties and determined the assessed value for MPAC.  In valuing farmland, MPAC uses the “cost approach”, which assesses the value of any improvements to the land, and then adds that value to the bare land value that is derived by comparing the land in question with other farms in the neighbourhood.  For the 165-acre and 160-acre parcels, MPAC had assigned specific per acre values to the Class 6 land, the Class 4 land, and the Class 2 land.  MPAC then checked those values by comparing the two parcels with other vacant and improved lands sold in the vicinity between 2008 and 2016 (parcels ranging in size from about 62 acres to 157 acres).  Historical sale prices were adjusted based on trends to provide current 2016 values for the comparison.

For the smaller farm residential parcel, MPAC also used the cost approach.  MPAC valued buildings on the property (a house and some outbuildings) at replacement cost, and then reduced those values for depreciation.  MPAC then added in values for bare land based again on specific per acre values for Class 4 and Class 6 farmland.  The resulting value for the property was checked for accuracy against the sales of four comparable properties in the neighbourhood – the same four comparables used in the assessment of the larger 165-acre and 160-acre parcels. 

Where MPAC’s assessment of current value is appealed, MPAC “must not only estimate a current value but must present evidence clarifying how that value was arrived at and why it is right.”  In all three appeals, the ARB came to the same conclusion about MPAC’s valuation – “there is no clear path from the four selected comparable farm properties and the value given the Subject Property.”  The ARB noted that: “There were different values given for different types of farmland, which is to be expected, but not when those values are inconsistent within the same soil classification without explanation.”  The ARB also noted, in connection with the farm residential parcel, that the comparable sales involved much larger properties.  MPAC had failed to prove on a balance of probabilities that its assessments of current value of the three properties were correct.

Where MPAC has failed to provide adequate evidence, the ARB is then to analyze the evidence provided by the owner to see whether it is capable of providing a particular current value.  However, as noted above, the appellant owner didn’t provide evidence that could support a specific value for any of his three properties.  Where neither party in an assessment appeal provides adequate evidence of current value, the ARB fixes the assessment at the last uncontested assessed value.  In these recent cases, the ARB applied the 2016 assessed values to taxation years 2017 and 2018.

Read the decisions at: Case 1, Case 2, Case 3.

Wednesday, August 28, 2019

REMINDER: CAFA - Farm Tax & Legal Update - Thursday, October 17, 2019 - Waterloo, ON

The Canadian Association of Farm Advisors will hold its Annual Farm Tax & Legal Update for 2019 at St. George's Banquet Hall in Waterloo, Ontario on Thursday, October 17, 2019.  For the agenda and registration information, visit:
2019 Farm Tax & Legal Update.

This year, I will be making a presentation on "Sowing the Seeds of Litigation - What's Trending in Farm Property Disputes".

Friday, July 5, 2019

Not all Drainage Act appeals are decided on a without costs basis


Ontario's Drainage Act provides mechanisms to municipalities and landowners to implement drainage solutions on a collective basis.  On petition by landowners, a municipality may be compelled to construct a municipal drain; a municipality may develop a municipal drain on its own initiative; an existing municipal drain may be reconstructed, improved, or maintained.  Costs associated with the municipal drain, including engineering costs, are generally shared by the owners of the lands that outlet to the drain, with each owner responsible for an amount proportional to his or her respective share of the total drainage area.

Disputes related to municipal drains are often the subject of appeals by affected landowners to the Agriculture, Food and Rural Affairs Appeal Tribunal.  Landowners may challenge the necessity for the drainage work being proposed by a municipality and its drainage engineer, the scope or extent of the drainage work, the cost of the drainage work, or the portion of the cost of the drainage work being charged to the landowner.  In the normal course, the parties to a drainage appeal before the Tribunal bear their own costs of litigation, such as legal fees and disbursements; cost awards against a party are exceptional.  However, no party should assume that an adverse cost award might not be made in the right circumstances.

The Tribunal's Rules of Procedure include the following commentary on appeal costs:

Costs are a sum of money ordered to be paid from one party to another party in order to cover only this party's expenses incurred for preparation and attending the proceeding. This may include such things as preparation and hearing time for counsel, consultant and witness fees, and travel expenses. It does not include business or personal financial losses. If the party's conduct caused such losses, however, this conduct may be included in considering a cost order.

A cost order may be made if a party requests it, if one party has in the Tribunal's opinion acted inappropriately, as in Rule 28.04. Such orders and the amount awarded are to discourage conduct that wastes a great deal of the Tribunal's and parties' time as well as other resources. Note that for matters under the Drainage Act, costs are awarded only as provided in that Act.

An order for costs is very rare. Recovery of costs is not standard as in court proceedings. It is only where the Tribunal finds that a party wrongly brought the appeal or participated unacceptably in preparation or hearing events, that an award of cost will be made. Only a party may make a request for costs. Participants, witnesses or others without official party standing can request or receive costs only in the most unusual circumstances. [emphasis added]

According to the Rules, a party to a drainage appeal may ask for an award of costs where another party has "acted clearly unreasonably, frivolously, vexatiously or in bad faith considering all of the circumstances."  Conduct that might warrant an award of costs can include failing to attend the hearing, changing a position without notice, failing to prepare adequately for hearing events, failing to present evidence, acting disrespectfully or maligning the character of another party, or knowingly presenting false or misleading evidence.

In a drainage appeal decision released in January of this year, the Tribunal ordered an appellant landowner to pay the respondent municipality nearly $6,000 in costs.  The landowner had brought an appeal challenging the quality of construction of drainage works, which is a proper issue for appeal under the Drainage Act.  However, the Tribunal found that the landowner provided no reliable evidence of any quality of construction issue and, in fact, that the landowner's true complaint was about the design of the drainage works.  The design of the works was not something that could be appealed to the Tribunal by that point in time, and the Tribunal dismissed the appeal.

The respondent municipality had communicated to the landowner early in the appeal process that the appeal did not actually raise quality of construction issues, and warned the landowner that the municipality might seek costs if the appeal continued.  This communication apparently resulted in a settlement between the landowner and the municipality, but the landowner almost immediately rescinded the settlement.  In its costs decision, the Tribunal concluded that the landowner understood the deficiencies in its appeal, but continued nevertheless, "using the appeal process and potential associated costs as a negotiating tactic to get the Township to fund some or all of its private drainage works of approximately $25,000."

The Tribunal ordered the appellant landowner to pay the municipality its legal costs and engineering costs related to the appeal incurred after the failed settlement, and authorized the municipality to enter the cost award immediately on the tax roll of any land owned by the appellant assessed under the particular municipal drain at issue.  The Tribunal found that the landowner had failed to produce any evidence in support of its quality of construction appeal and, more importantly, that the landowner had unreasonably reneged on its settlement with the municipality.  But for this conduct, the municipality would not have incurred the costs awarded by the Tribunal.

Read the decision at: Ellis Drain Branch 'A' 2017.

Monday, April 8, 2019

Who will clean up when the tenant walks away?


When a residential tenant vacates a farmhouse, they may leave behind personal items; they may leave behind a mess.  The landlord might succeed in requiring the former tenant to clean up, or the landlord himself or herself might have to clean up.  When there’s a change in a farm land tenancy, the landlord or the new tenant may need to apply fertilizers or pesticides, pick stones, or conduct extra tillage to transition from the previous tenant’s cropping practices to new ones.  But what happens when an industrial tenant or occupant of a farm property walks away or goes bankrupt?  What happens when an oil well, a pipeline, or a wind turbine is abandoned in place?

The Supreme Court of Canada very recently addressed this question in the context of orphaned oil wells in Alberta.  An orphan well is one for which the cost of remediation required for abandonment of the well exceeds the actual monetary value of the well.  The Supreme Court was tasked with deciding whether a bankruptcy trustee, in administering the estate of a bankrupt oil and gas company, can renounce or disclaim the company’s interests in orphan oil wells (and walk away from remediation obligations) while at the same time selling off the company’s other valuable wells and assets in order to maximize the recovery by creditors. 

The case involved Redwater Energy Corporation, a publicly traded oil and gas company. In 2015, Redwater's principal secured creditor, the Alberta Treasury Branches ("ATB"), commenced enforcement proceedings after Redwater couldn't meet its financial obligations.  On May 12, 2015, Grant Thornton was appointed Receiver for Redwater under the Bankruptcy and Insolvency Act ("BIA").  In July, 2015, Grant Thornton told the Alberta Energy Regulator (“AER”) that it would be taking control of only 20 of the 127 Redwater oil and gas licences.  The AER responded by issuing orders "for environmental and public safety reasons" requiring the abandonment and remediation of the 107 wells that the Receiver was looking to “disclaim”.  In October, 2015, a bankruptcy order was issued for Redwater.  In November, 2015, Grant Thornton, now trustee in bankruptcy for Redwater, disclaimed the assets it had previously renounced in its capacity as Receiver, and indicated to the AER that it did not intend to comply with the environmental remediation orders.

The AER and the Orphan Well Association ("OWA") brought court applications for declarations that the disclaimer was void.  They also sought an order compelling Grant Thornton, as trustee, to comply with the abandonment and remediation orders issued by the AER.  Grant Thornton brought a cross-application for approval of the sale of certain assets, and a ruling on the constitutionality of the AER's position.  At first instance, the Chambers Judge sided with the trustee in bankruptcy.  On appeal before the Alberta Court of Appeal, two of three judges sided with the Trustee, while one judge would have ruled that a portion of the sale proceeds from the viable wells must be set aside to meet the expected cost of remediating the orphan wells.

The Supreme Court of Canada was also split on the case (5-2), but this time in favour of the AER position.   The majority found that the AER’s use of its regulatory powers to require remediation of the environment was not in conflict with the BIA, so that the doctrine of federal paramountcy (which would resolve the conflict in favour of the federal bankruptcy legislation and against the provincial energy and environmental legislation) was not triggered.  The Court found that the BIA did not empower the bankruptcy trustee to walk away from the environmental liabilities of the estate it was administering.  Also, as the AER was not asserting any claims provable in the bankruptcy, the AER’s exercise of its authority did not upend the priority scheme established by the BIA.  The AER regulatory scheme and the federal bankruptcy scheme co-existed with and applied alongside each other.

As Chief Justice Wagner wrote:

Bankruptcy is not a licence to ignore rules, and insolvency professionals are bound by and must comply with valid provincial laws during bankruptcy. ... 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. … End-of-life obligations are imposed by valid provincial laws which define the contours of the bankrupt estate available for distribution.

Leases, easement agreements, and other similar land use agreements can and often do contain clauses requiring the tenant or occupant to remove its facilities and to restore the land to previous conditions once the tenant or occupant ceases operations and vacates the land.  However, the protection afforded to landowners in such clauses is only as good as the tenant or occupant – if operations have ceased, and there is no money left, the promise to clean up and restore the property is an empty one.  Wherever possible, landowners should require additional security to guarantee fulfillment of contractual clean-up and restoration obligations by tenants and occupants.  Landowners should not assume that government funds for orphaned and abandoned facilities will be sufficient or even available.

Read the Supreme Court's decision at: Orphan Well Association v. Grant Thornton Ltd.