Law Times

Page 10 March 17, 2014 • Law TiMes www.lawtimesnews.com Environmental headaches Little clarity on 'untidy intersection' between CCAA, cleanup orders wo Ontario Court of Appeal decisions have done little to clarify the "untidy intersection" of the Companies' Creditors Ar- rangement Act and Ministry of the Environment remediation or- ders, according to a Toronto com- mercial litigator. Ontario Superior Court Justice Geoffrey Morawetz coined the term as he described the compli- cated range of issues at play in the case of remediation orders issued to Nortel Networks Corp. in re- gards to various sites once owned by the company. Morawetz ruled the orders effectively amounted to an obli- gation to pay and were therefore subject to the stay of proceedings instituted under the CCAA. But the appeal court overturned his ruling, siding with the ministry in light of the intervening Supreme Court of Canada decision in New- foundland and Labrador v. Abitibi- Bowater Inc. However, in a companion de- cision concerning a Cambridge, Ont., property owned by bank- rupt parts manufacturer North- star Aerospace Inc., the appeal court dismissed the ministry's appeal. In Re Northstar Aerospace Inc., the court found the orders in that case could be reduced to monetary claims that were subject to the stay. "It doesn't make sense. It's made things way more complicated," says Tamara Farber, a partner in the Toronto office of Miller omson LLP. "You have a test from the AbitibiBowater decision, which is based on a very peculiar set of facts. And when the provincial court comes to apply it, what you get is this inconsistent and un- workable test where in Nortel they say no, it's not a provable claim in bankruptcy, but in Northstar, with very similar facts except the con- tamination is probably greater, you get the opposite result. . . . I think the test will be reworked." In the meantime, Farber says the ministry needs to review the Environmental Protection Act in order to prevent the law from de- veloping in a way that defeats the polluter-pays principle. Domenico Magisano, a part- ner in the Toronto office of Lern- ers LLP, says the contrasting re- sults in Re Nortel Networks Corp. and Northstar are a useful remind- er that the AbitibiBowater ruling wasn't going to be a one-size-fits- all decision. His colleague at Lerners, Shan- non Puddister, says the appeal court decisions could lead to at- tempts to manipulate events in future cases where bankruptcy becomes a possibility. "It's helpful to have a road map for the process but it could change the way that parties ap- proach things knowing the test they have to meet going forward," he says, adding "there are safety valves to prevent parties from abusing the test." In his companion Oct. 3 judgments in Nortel and North- star, appeal court Justice Russell Juriansz reviewed AbitibiBowa- ter, a case in which the Supreme Court set out a three-pronged test for determining whether a remediation order constitutes a provable claim that may be com- promised under the CCAA: • ere must be a debt, liability or obligation to a creditor. • at debt, liability or obligation must arise within the time limit for inclusion in the CCAA claims process. • It must be possible to attach a monetary value to the debt, li- ability or obligation. A party meets the third prong, Juriansz wrote, only where the province has already performed remediation work and seeks re- imbursement or if it's "sufficiently certain" that it will do so. In Nortel, the company began in the 1990s to conduct remedia- tion on a voluntary and contrac- tual basis at a number of former manufacturing sites, most of which it had sold to new owners. By the time it filed for CCAA pro- tection in January 2009, the com- pany had spent almost $30 million on remediation and held a partial interest in just one of the sites. e ministry then issued remediation orders for all of the sites. e CCAA judge ruled, before the release of AbitibiBowater, that since operations had ceased and the only way to comply involved the expenditure of money, the or- ders must be subject to the stay. Writing for the unanimous three-judge appeal court panel, Juriansz overturned the deci- sion, noting the ministry's orders affected the current and previ- ous owners of the impacted sites as well as Nortel itself. "It would seem reasonable to expect that the [ministry] would enforce the or- ders against other parties instead of undertaking the remediation itself. Indeed, the CCAA judge ob- served that subsequent purchasers of the properties may have unse- cured contractual claims against Nortel," wrote Juriansz. e one exception was the site in which Nortel still held a stake where Ju- riansz found it was "sufficiently certain" the province would carry out remediation there. In Northstar, the company operated a facility in Cambridge from about 1981 to 2009 that in- volved the use of a carcinogenic chemical and the production of heavy metal waste. Voluntary re- mediation began in 2004, but the ministry issued an order in 2012 when it became clear the com- pany was in financial difficulty. Later that year, Northstar sought protection under the CCAA and sold almost all of its assets. Juriansz wrote that the CCAA judge had "implicitly found" it was "sufficiently certain" the ministry would carry out remediation and seek reimbursement. In fact, the ministry began remediation aer the company went bankrupt and abandoned the site. It then pur- sued a group of former directors and officers as it sought to compel them to continue remediation. "It is certainly conceivable that the [ministry], aer commencing remediation work, is able to com- pel other responsible parties to take over the work and complete it. If the [ministry] is successful in doing so, the work will be done without the [ministry] expending funds. As far as the other respon- sible parties are concerned, the [ministry] will be acting in a pure- ly regulatory capacity. However, as far as the [ministry's] orders against Northstar are concerned, its commencement of the work in the circumstances of this case es- tablishes that the [ministry] orders are in substance a claim provable in the insolvency," wrote Juriansz. A settlement with the group of former officers and directors eventually saw them pay $4.75 million in order to get a release from the cleanup order. LT BY MICHAEL McKIERNAN For Law Times T The government should review the Environmental Protection Act in order to reinforce the polluter-pays principle, says Tamara Farber. eports of the death of the Companies' Credi- tors Arrangement Act are an exaggeration, according to insolvency practi- tioners. Concerns about the cost of the process and overlap with the re- structuring tools available under the Bankruptcy and Insolvency Act have resulted in periodic mus- ings about whether the end has come for the CCAA. In 2003, the Senate standing committee on banking, trade, and commerce considered merging the two statutes to create a com- prehensive U.S.-style bankruptcy code but concluded in its report that the "historic reasons" for the separation "continue to have im- portance today." "e CCAA appears to be rela- tively effective in assisting larger companies in their reorganization efforts, while the [bankruptcy act] FOCUS NEW EDITION DEFAMATION LAW: A PRIMER, SECOND EDITION RAYMOND E. 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