Canada: Linear Property Tax Claims Are Unsecured In Alberta

Last Updated: February 26 2019
Article by Kyle Kashuba and Gino Bruni

The Alberta Court of Appeal dismissed the appeal of three Alberta municipalities in Northern Sunrise County v Virginia Hills Oil Corp, 2019 ABCA 61 (Virginia Hills).1 2 The dismissal confirms the June 20, 2017 Order of Justice Yamauchi of the Alberta Court of Queen’s Bench3 (QB Order) that held the Municipalities’ claims for taxes in respect of linear property (linear property taxes) against two oil and gas companies in receivership are unsecured claims under the Bankruptcy and Insolvency Act (BIA).4

What you need to know

  • Provincial legislatures can override secured interests but only if this is the plain and unambiguous meaning of the provision intending to override such interests in its legislation. In Virginia Hills, the Court of Appeal held that section 348(d)(i) of Alberta’s Municipal Government Act (MGA), did not meet this test because if the section provided a special lien for unpaid linear property taxes, it would be ambiguous as to what “land and any improvements to the land” the special lien attaches.
  • Furthermore, it would mean the lien could attach to the land upon which the linear property (pipelines, powerlines, etc.)5 is situated without justification or create the manifestly unjust result where it attached to the linear property when the owner of this property and the operator of the linear property, who is the “assessed person” for linear property taxes under the MGA, are not the same person.
  • Rather, the interpretation that the Court of Appeal accepted—that section 348(d)(i) does not create a special lien for linear property tax arrears—is consistent with the entire scheme of the MGA and the delineation of the taxes related to land and the taxes not related to land in the remedy provisions of the Act.
  • This decision has positive implications for secured lenders in Alberta in terms of their net-recovery in a case where there borrower is in an insolvency proceeding. However, this has negative implications for municipalities in Alberta regarding their ability to collect linear property taxes from insolvent operators of linear property. This decision will likely weigh most heavily on those municipalities that depend greatly on linear property for their tax assessment base, such as those in rural areas that have oil and gas operations.

Court of Appeal decision

The respondents, Alvarez & Marsal Canada Inc. (Receiver)6 and the Bank of Nova Scotia, argued that the Court of Appeal should not address the substantive issue raised by the appellants for two reasons. First, the appeal was moot because the funds of the receivership were distributed in accordance with the QB Order and prior to the filing of the notice of appeal. Second, the appeal was an abuse of process because the Municipalities had failed to attend the hearing for the QB Order or file a secured proof of claim in the receivership process, despite having received notice for both.

The Court of Appeal readily dismissed the respondents’ mootness argument, finding the mere fact the funds had been distributed by the Receiver did not render moot an appeal of the order authorizing the distribution.

On the contrary, the abuse of process argument was not as readily dismissed. The Court of Appeal raised concerns about the Municipalities’ failure to file proof of claims in the receivership proceedings and to attend the hearing for the QB Order. The Court of Appeal found that the Municipalities’ explanation for failing to take these steps was “unsatisfactory” and commented that taking a position on appeal that is contrary to its position in a proof of claim and not attending a hearing on the same issue “can be extremely problematic in the insolvency context where certainty, speed and efficiency are necessary to maximize recovery for everyone.”7

Despite these comments, the Court of Appeal held that the substantive issue in the appeal was of such importance for municipalities and receivers that it warranted consideration.

The substantive issue

In short, the Court of Appeal held that section 348(d)(i) of MGA does not create a special lien for linear property tax arrears.

The Municipalities argued that “property tax” in section 348(d)(i) of the MGA includes linear property tax and therefore grants them a special lien “on land and any improvements to the land” for their unpaid linear property taxes. The Court of Appeal did not accept this argument, finding that it is not supported by plain and unambiguous meaning in section 348(d)(i) of the MGA, citing the principle in Lloyds Bank Canada v International Warranty Company Limited that a provincial legislature can create a statutory lien that takes precedence over the claims of secured creditors but only if “the plain and unambiguous meaning of the section…deprives a properly secured creditor…of all or part of its security without compensation, for the purpose of paying another debt entirely unrelated to the security.”8

The Court of Appeal agreed with the Receiver that section 348(d)(i) was too ambiguous to create such a statutory lien because it was unclear to whose or what land the lien attaches. The Receiver, and ultimately the Court of Appeal in its decision, emphasized this was a point the Municipalities could not agree on. Northern Sunrise County suggested that the special lien should apply to all of the debtor’s land in Alberta, an interpretation that has recently been rejected for the “on land and any improvements to the land” wording in section 348(d)(i) in a case before the Court of Queen’s Bench on a different issue.9 Northern Sunrise County also argued in the alternative that the lien could attach to the assessed land, while the Municipal District of Opportunity No. 17 and Lamont County argued that the wording is broad enough in the section such that the lien attaches to the linear property itself.

In response to these arguments, the Court of Appeal held that there is no justification for attaching the lien to the parcel of land upon which the linear property is situated or the linear property itself, noting the latter interpretation creates the manifestly unjust possibility that the lien could attach to the linear property, affecting the owner of this property, when the operator of the linear property, who is the assessed person for linear property taxes under the MGA, is a different person.

Furthermore, the interpretation argued for by the Municipalities would be inconsistent with the MGA as a whole. Specifically, the Court of Appeal agreed with the Receiver that when one looks at the provisions governing the collection of taxes under the MGA there is a clear delineation between recovery for taxes related to land in Division 8 of Part 10 of the MGA and recovery for taxes not related to land in Division 9 of Part 10 of the MGA and this delineation should inform the interpretation of section 348(d)(i).

This categorization of the taxes related to land and the taxes not related to land led the Court of Appeal to conclude that the special lien “on land and any improvements to the land” created by section 348(d)(i) does not apply to linear property taxes. Rather, the Court of Appeal concluded that the language in section 348(d)(i) “more closely mirrors that of Division 8, which expressly refers to remedies against parcels of land, and which do not apply to linear property tax arrears.”10 Furthermore, the fact the operator is designated as the person liable for linear property taxes and the operator is not necessarily connected to the land where the property is situated, provided the Court of Appeal with further support that section 348(d)(i) does not include taxes for linear property.

As such, the Court of Appeal dismissed the appeal of the QB Order, confirming that municipalities in Alberta are unsecured creditors under bankruptcy proceedings when it comes to claims for linear property taxes.

Implications and what’s next

Virginia Hills is a significant victory for trustees (accounting firms and specialized restructuring firms) and lenders. This is a welcome decision in Alberta during a time when such positive developments have been rare for the oil and gas industry, especially given the implications of the recent Supreme Court of Canada decision in Redwater.11

At date of publishing, the Municipalities have not sought leave from the Supreme Court of Canada to appeal Virginia Hills. The Municipalities have 60 days from the date of the decision (February 12) to do so.

In terms of a potential legislative change, we noted in our July 12, 2017 bulletin that the Alberta Association of Municipal Districts and Counties (AAMDC) filed a resolution in the spring of 2015 with the Government of Alberta requesting it to amend the MGA and also requesting the Government of Canada to amend the BIA.

Interestingly, the Court of Appeal in Virginia Hills noted “parenthetically” that the interpretation they adopted for section 348(d)(i) is consistent with the relief sought in the AAMDC’s resolution. The Court also noted that the changes called for by the resolution from the AAMDC were not made in the most recent amendment to the MGA, Alberta’s An Act to Strengthen Municipal Government. Nevertheless, and given the dollar amounts at stake for municipalities in Alberta, we would not be surprised if these municipalities continue to lobby both the provincial and federal governments for legislative changes to the MGA and BIA to recognize their linear property tax claims as secured claims.


1 See

2 Northern Sunrise County, the Municipal District of Opportunity No. 17 and Lamont County (the Municipalities).

3 See “ Alberta clarifies status of linear property tax claims under Bankruptcy and Insolvency Act.”

4 See Court of Queen's Bench of Alberta's decision.

5 Linear property is defined under the MGA to include, among other things, electric power systems, street lighting systems, telecommunications systems and pipelines that do not include land of buildings.

6 The receiver and manager of the two debtor oil and gas companies, Virginia Hills Oil Corp. and Dolomite Energy Inc.

7 Virginia Hills at para 31.

8 Virginia Hills at para 38 citing Lloyds Bank Canada v International Warranty Company Limited, 1989 ABCA 155 at para 10.

9 See Alberta Treasury Branches v Cogi Limited Partnership, 2019 ABQB 94.

10 Virginia Hills at para 45.

11 See “ SCC says orphan wells cannot be ignored.”

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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