Executive Summary: Key Legal and Evidentiary Issues

• Alberta Energy sought to collect pre-filing royalty arrears linked to Bellatrix despite previous confirmation of non-liability post-CCAA.

• The chambers judge ruled the claims were barred by the clear terms of the Vesting Order from May 8, 2020.

• Alberta Energy had affirmed in October 2021 that Bellatrix’s $710,392.13 deposit sufficed to offset the debt.

• The judge found Alberta Energy's collection efforts undermined the finality of the Bellatrix CCAA proceedings.

• Section 20(2.1) of the Mines and Minerals Act did not apply since the liabilities were extinguished by the Vesting Order.

• Leave to appeal was granted due to serious legal questions regarding the interplay between the Vesting Order and joint co-lessee liability under the MMA.

Background of the case

Spartan Delta Corporation (Spartan) acquired Bellatrix Exploration Ltd.’s (Bellatrix) interests in Crown mineral leases through court-approved insolvency proceedings under the Companies’ Creditors Arrangement Act, RSC 1985, c C-36 [CCAA], culminating in a Vesting Order dated May 8, 2020. The Crown leases, which included co-lessees such as Canadian Natural Resources Limited (CNRL), allowed for oil and gas extraction from Crown land subject to royalty payments to the Province under the Mines and Minerals Act, RSA 2000, c M-17 [MMA].

As per the Purchase and Sale Agreement, Spartan assumed liability only for obligations arising post-closing (June 1, 2020), while Bellatrix retained liability for pre-filing obligations. An $8.5 million holdback was maintained by the Monitor to cover post-filing claims. On June 11, 2020, Alberta Energy issued a notice citing Bellatrix for unpaid royalties from a pre-closing period. By October 2021, Alberta Energy advised that Spartan would not be pursued for these arrears and confirmed that Bellatrix’s royalty deposit of $710,392.13 was sufficient to cover the debt.

The holdback was later released, and a CCAA termination order was issued on July 7, 2022, with the Monitor formally concluding the proceedings on September 21, 2022.

Policy terms and legal instruments discussed

The legal dispute concerned the interpretation of the May 8, 2020 Vesting Order, particularly paragraphs 4 and 11, which the chambers judge found barred Alberta Energy’s claims. Alberta Energy later issued notices to Spartan and co-lessees including CNRL in November 2024, seeking recovery of pre-filing royalty arrears, with CNRL alleged to owe $255,848.88. Spartan sought directions from the Court of King's Bench that Alberta Energy be precluded from collecting such amounts and return any offset credits to third parties.

Alberta Energy maintained that its claims targeted third-party co-lessees whose interests were not conveyed in the Agreement, and thus were not released under the Vesting Order. It also argued that s 20(2.1) of the MMA allowed for joint responsibility for such obligations.

Chambers decision and reasoning

The chambers judge rejected Alberta Energy’s claims for three key reasons:

1. The Vesting Order expressly barred such claims against purchased assets, and Alberta Energy had been aware of the $8.5 million holdback for potential liabilities.

2. Alberta Energy’s conduct—particularly its 2021 assurance to the Monitor—constituted estoppel or waiver by acquiescence.

3. The claims undermined the finality and integrity of the CCAA process, relying on the principle of a “single procedure model” emphasized by the Supreme Court in Peace River Hydro Partners v Petrowest Corp, 2022 SCC 41.

Additionally, the judge held that there were no existing obligations under s 20(2.1) of the MMA, as the liabilities were expunged by the Vesting Order. The royalty arrears were at most contingent liabilities that could not crystallize after being extinguished.

The chambers judge granted Spartan’s application and directed Alberta Energy to cease collection efforts and return any payments or credits collected in respect of the Bellatrix royalty arrears.

Court of Appeal outcome

Alberta Energy sought leave to appeal, arguing that the chambers judge misapplied the Vesting Order and the MMA. It asserted that the Vesting Order only released Spartan and not third-party co-lessees from liability, and that its actions did not offend the CCAA’s single procedure model.

Justice Feth of the Alberta Court of Appeal concluded that leave was required under s 13 of the CCAA, as the chambers judge’s decision arose from and impacted the finality of the CCAA proceedings. Multiple factors indicated that the decision was made “under” the CCAA, including that it interpreted a Vesting Order issued under a CCAA process and addressed rights arising from it.

Leave to appeal was granted, with the Court recognizing the legal significance of interpreting standard form Vesting Orders and their intersection with the MMA. The appeal was permitted on two issues:

1. Whether the chambers judge erred in concluding that Alberta Energy’s claims for pre-filing Bellatrix royalty arrears could not be recovered from co-lessees.

2. Whether the chambers judge erred in concluding the same regarding post-filing royalty arrears.

Justice Feth concluded that Alberta Energy had raised serious and arguable issues warranting a full appeal before a panel of the Court.

No specific monetary award was granted at this stage.