• The Moot Times UCalgary Law

It’s Not Just Redwater: Can the Energy Sector's ADVISORS Keep Up?

Updated: Nov 14, 2021

By Heidi J. T. Exner


It has been almost 3 years since the Redwater decision, in which the SCC ultimately decided that a defunct Alberta-based energy company could not place the bill to clean up its environmental messes on par with its bill to creditors. The SCC was clear that the provincial Alberta Energy Regulator was a debt to the “public good” and was therefore not so much a creditor, but a representative of the public. This was a big win for the environment, property owners, wildlife, and taxpayers alike.


Since Redwater, countless smartypants lawyers have chomped on the proverbial bit to provide their two cents about its implications to lending to the energy sector, liability considerations around Canada’s orphan wells, and other standard legal smartypantsery. I am surprised, however, that with all the attention this case attracted, almost nobody saw an opportunity to examine the role of the actual named party in the case, which was the multi-national tax and bankruptcy advisory firm Grant Thornton LLP. Prior to Redwater, Alberta energy companies and those who served them hedged their bets for years, and neglected, or assisted companies in fun new ways to neglect, their provincially-mandated duties to clean up their environmental messes. The same year the Redwater decision was released, the CD Howe Institute estimated the potential taxpayer cost for well liabilities to be as high as $8 billion. In the following year, 2020, Alberta’s energy sector generated negative (yes, negative!) $212 million in tax revenue, and it continues to receive more tax breaks now. It’s fun and easy to vilify our energy sector, but let’s talk about the companies that service them (eg: their tax advisors).


The Redwater case provides a multi-faceted illustration of how, in the event that a company enters into bankruptcy, advisors such as Grant Thornton can effectively adopt similar responsibilities as directors and officers of corporations. In the context of this case, Grant Thornton essentially played a dual role: it was both an independent advisor to the energy company and a decision-maker to that same decision-maker. Read that again. Yes. This acrobatic dual role invites discussion about decision-making in both of Grant Thornton’s capacities, which shows us that the separate industries of the energy sector and those who serve them are not exactly siloed. Advisors, and possibly other types of businesses that serve the energy sector, can impact – and even steer the ship – of decision-making for the companies they serve. They can also wind up making headlines as named parties in lawsuits for these decisions. It’s time that advisors who service the energy sector understand what is going on with our changing social and legal attitudes in Canada.


In recent years there has been a global paradigm shift toward a wider understanding of how corporate decisions affect all stakeholder groups, instead of merely the financial benefits or losses of shareholders. This philosophical shift arguably culminated in the Business Roundtable’s 2019 Statement on the Purpose of a Corporation, in which 181 American business leaders overturned a 22-year-old policy statement that defined a corporation’s principal purpose as maximising shareholder profit, and instead committed to stewardship that would benefit their employees, suppliers, customers, communities, and shareholders alike. We have seen this quietly shifting in Canada, too. How? Well, let’s take a look at the Canadian Business Corporations Act and its Albertan counterpart, for starters. Bear with me, because this requires a little bit of historical context to appreciate in all its glory.


Canada’s first corporations in the seventeenth century up until the mid-twentieth century were intended to secure resources for the benefit of the British empire. Such entities required a Royal Charter, which was issued by the British sovereign. (I am leaving a lot out to keep this on point, but if you find this as fascinating as I do, UCalgary Law’s own Professor Fenner Stewart wrote a book chapter about it.) When the United States became independent from Britain in 1776, it opted to use a statutory registration scheme to replace the Royal Charter system. It took Canada almost two centuries to fully adopt statutory corporate registration via the Canada Business Corporations Act, which was enacted in 1974. This statute was largely modelled after the United States’ statutory regime to create corporate entities, though our lovely Canadian Constitution Act mandates both federal and provincial oversight of Canadian corporate affairs (division of powers issues boggle my mind: I did not have a lot of patience for my 1L Constitutional Law class). Canada took an exceptionally long time to develop a statutory regime to create corporations compared to its international contemporaries, so legal questions over the entity-nature of the corporation, shareholder rights, and other such dynamics do not have a fulsome body of applicable jurisprudence compared to other common law nations. When we talk about shareholder rights, this naturally brings us to discussions about shareholder primacy and stakeholder theory. This would be the “paradigm shift” I referenced earlier.


Recent changes to the Canadian Business Corporations Act that came into effect January 1, 2020 codified the 2008 SCC ruling from BCE, which holds that fiduciary duty is owed to the corporation itself and not to any other particular constituency (shareholders, they were looking at you!). However, the court qualified this by stating:

“In considering what is in the best interests of the corporation, directors may look to the interests of, inter alia, shareholders, employees, creditors, consumers, governments and the environment to inform their decisions. Courts should give appropriate deference to the business judgment of directors who take into account these ancillary interests, as reflected by the business judgment rule.”

The best interests of the company, according to the Canadian Business Corporations Act, now include consideration of the best interests of stakeholders in addition to shareholders. While consideration of these parties is not mandatory, each of these parties is now enumerated nearly verbatim to BCE in s. 122 of the Canadian Business Corporations Act, which previously stated:


Duty of care of directors and officers

122 (1) Every director and officer of a corporation in exercising their powers and discharging their duties shall

(a) act honestly and in good faith with a view to the best interests of the corporation; and

(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.


The 2020 revision of the document includes the following annex to s. 122 (1):


Best interests of the corporation

(1.1) When acting with a view to the best interests of the corporation under paragraph (1)(a), the directors and officers of the corporation may consider, but are not limited to, the following factors:

(a) the interests of

(i) shareholders,

(ii) employees,

(iii) retirees and pensioners,

(iv) creditors,

(v) consumers, and

(vi) governments;

(b) the environment; and

(c) the long-term interests of the corporation.


(Emphasis added).


Most provincial legislation has followed suit to the Canadian Business Corporations Act, with the notable exception of Alberta. The relevant section in Alberta’s Business Corporations Act, which was most recently revised on March 26, 2021 remains unchanged; to me, this indicates Alberta legislators may not yet be willing to open the door to codifying stakeholder theory principles into corporate law. While the Alberta Business Corporations Act only governs provincially registered entities, I cannot help but wonder if this is a potential legal “loophole” for Albertan energy companies. We have yet to see a claim brought to the courts based on breach of these duties, so only time will tell. This does seem to align with the fact that all of Alberta’s courts agreed with Grant Thornton’s interpretation of the Bankruptcy and Insolvency Act that money owed to clean up environmental messes (ie: governments and the environment – and note that the environment even got its own subsection in the Canadian Business Corporations Act!) was samesies as money owed to creditors. Our SCC Justices were not having any of that noise, though.


The thing is, what I just described is just a sliver of the significant legal and regulatory updates that point to this paradigm shift in Canadian corporate law. And this is in a country that lacks the depth of jurisprudence that other nations possess, to boot. One other significant example is that within the last decade we have seen updates to the Canadian Environmental Protection Act (and its Alberta counterpart). In this instance, provisions in both Acts increase the likelihood that a director or officer of a corporation may attract personal liability for corporate decisions that negatively impact the environment.


When we look at all of this collectively, not only could this interact with corporate decision-making – it absolutely will. As we have seen in Redwater, advisors and others who service corporate actors, by virtue of their roles, are a mere stone’s throw away from exposure to this liability. The bad press that is part-and-parcel to these types of legal cases is another related potential concern. Are they paying attention, though? Or are they too busy trying to please their clients?



Special thanks to Professor Kristen van de Biezenbos, whose LAW 509 (Business Associations) course covered material which ultimately planted the seed for these thoughts about Redwater. Take this class, peeps!

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