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May 13, 2013

No-fault Orders Dumping Clean-up Costs on Innocent Parties

With little public debate and virtually no media attention, several significant legal precedents are expanding the scope and financial impact of environmental obligations. Two recent court cases illustrate how the so-called “no-fault” provisions in Ontario’s environmental laws can saddle innocent parties, both corporate and individual, with millions of dollars of remediation costs, while a bankruptcy case in Newfoundland is forcing environmental agencies to pursue these innocent ‘deep pockets’ ever more vigorously to fund future cleanup projects.

Case #1: City of Kawartha Lakes

In 2009, the City of Kawartha Lakes was ordered by the Ministry of the Environment (MOE) to clean up a fuel oil spill it did not cause. Since then, the municipality has fought a series of legal battles to correct what it considers “a breach of natural justice.” Kawartha Lakes insists that before imposing a cleanup Order on an ‘innocent party,’ the MOE had a duty to first consider any other persons who may have been at fault for the spill or the off-site migration of the oil.  The MOE maintains it has the discretion to issue a preventative Order under section 157(1) of the Environmental Protection Act (EPA) to ensure prompt remediation and minimize any adverse effects without regard to fault. The Ministry had already issued a remediation Order on the responsible parties, but they had full expended their available insurance coverage.  Spilled oil had spread onto City property.  Therefore, a second Order could rightfully be issued to the Kawartha Lakes as the party that “owns or has management and control of an undertaking or a property,” even though it bore no fault for the original spill.  The City’s appeal of the remediation Order was denied by the Environmental Review Tribunal.  The City’s further appeal was heard by the Ontario Court of Appeal on May 1, 2013, and at this time, the Court has reserved its decision.

Case #2: Northstar Aerospace

MOE has issued orders to ensure that the directors and officers (D&Os) of a bankrupt aerospace company are personally responsible for a multi-million dollar groundwater cleanup project around one the firm’s former plants in Cambridge, Ontario.  On November 14, 2012, the Ministry issued a Director’s Order to continue remediation work against 13 former D&Os of Northstar Aerospace (Canada) Inc. and its parent company Northstar Aerospace, Inc. on the grounds that they had “management or control” of the contaminated site between 2003 and 2012.  However, it is likely that most or all of the groundwater contamination occurred prior to the tenure of any of the named D&Os.  The outstanding site monitoring and cleanup is expected to cost some $15 million over the next 10 years. In turn, 12 of the former D&Os have appealed the Order to the Environmental Review Tribunal (ERT) and filed a motion in the Ontario Superior Court requesting it determine the validity of the Order under the bankruptcy proceedings.  The ERT appeal has yet to be scheduled, while Superior Court hearing was held April 18, 2013, and the Court has reserved judgment. In the interim, the former D&Os must continue to pay the cleanup costs, estimated at $100,000 per month.

Case #3: AbitibiBowater Inc.

In a closely watched case, the Supreme Court of Canada has ruled that environmental cleanup orders issued by Newfoundland and Labrador on AbitibiBowater Inc. do not have priority over other claims in the bankruptcy queue.  The company, which now operates as Resolute Forest Products Inc., had instituted restructuring proceedings in 2009.  Subsequently, the province filed Ministerial remediation orders for five Abitibi sites and expropriated three of the properties.  The estimated costs of the cleanup ranged between $50 and $100 million.  The case was heard November 16, 2011, and the decision dismissing the appeal with costs was released December 7, 2012.While the decision is specific to the particular facts of this case, we expect that environmental ministries across the country will be considering the impact of the ruling and will be revising their enforcement policies (written or informal) accordingly.  The inexorable conclusion is that environmental ministries will be issuing cleanup orders sooner rather than later, ignoring questions of causation and fault, looking for ‘deep pockets’ to  pay the remediation costs, and making claims against both a company and its directors and officers.