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A judge has ordered the trustee of bankrupt Sequoia Resources Corp. to pay Perpetual Energy Inc. chief executive Susan Riddell Rose nearly $600,000, saying the trustee’s vice-president engaged in misconduct by failing to adequately investigate any involvement she may have had in the insolvency before suing her.

The trustee, PricewaterhouseCoopers (PwC), must also post more than $1.6-million in security for costs related to its remaining legal action against Calgary-based Perpetual, which sold Sequoia its initial natural gas properties in 2016.

Alberta Court of Queen’s Bench Justice D. Blair Nixon said PwC partner Paul Darby did not give Ms. Rose the opportunity to give her side of the story related to how the sale of assets to the company that became Sequoia was structured. Mr. Darby also did not let Ms. Rose know she would be the target of a $220-million lawsuit before launching it in August, 2018, he concluded. The trustee sued both Ms. Rose and Perpetual.

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"I find the trustee effectively took no steps to investigate the merits of the allegations against Ms. Rose that it included in the August 2018 statement of claim in respect of the release. He just made assumptions,” Justice Nixon said in his ruling, delivered in court in late August. The transcript was released last week.

When it filed its initial action, PwC made several allegations against Perpetual and its chief. It claimed they knew the Alberta assets – which carried more than $130-million in environmental cleanup liabilities – would cause the insolvency of Sequoia. Sequoia, which was owned by directors Wentao Yang and Hao Wang, went on to acquire more high-liability assets for nominal sums of money before going bankrupt in March, 2018.

Last year, the judge rejected all but one of PwC’s allegations against Perpetual, ruling that a release signed between the sale parties was done properly. He tossed out all the claims against Ms. Rose, including an allegation that she benefited personally from the transaction. One remaining aspect of the case against Perpetual is due to be heard on Oct. 1.

Justice Nixon awarded Ms. Rose $581,000, representing 85 per cent of her legal costs. “I make this determination because I find the trustee exercised very poor judgment that equates to positive misconduct," he said.

Mr. Darby said he was unable to comment because the matter remained before the court.

The Sequoia case has been front and centre in the issue of environmental liability in the oil patch, where the bill for future cleanup costs has climbed into the tens of billions of dollars. Many of the company’s assets are at risk of being added to an already-large tally to be reclaimed by the industry-funded Orphan Well Association (OWA). Taxpayers now also bear the some of the costs, after the federal and Alberta governments earmarked hundreds of millions of dollars to decommissioning inactive wells.

The OWA has registered as an intervenor in the coming hearing in PwC’s action against Perpetual, in which the trustee argues Perpetual engaged in a transfer at undervalue – the sale of an asset at less than its fair-market worth by a subsidiary it claims was insolvent. Canadian Natural Resources Ltd., Cenovus Energy Inc. and Torxen Energy Ltd. will also appear in support of the trustee.

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In his ruling, Justice Nixon said PwC must also post security of costs of $1.3-million plus disbursements of $349,000 for three experts to give testimony. He said he would not award costs pending his decision on the remaining issue in the case.

Ms. Rose said in a statement: “It was disappointing and disturbing to have my integrity challenged and for that reason I am very pleased the court found the trustee’s conduct to be inexcusable and egregious and that the court’s decision has provided for a substantial recovery of costs.”

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