Law Times

LAW TIMES • NOVEMBER 21, 2011 FOCUS Tribunal case sends shivers Original polluter responsible despite payment to new owner BY JUDY VAN RHIJN For Law Times ers through the business com- munity with a tough approach to polluters' responsibility to ensure that subsequent owners clean up the site. According to Superior Fine A Papers Inc. v. Director, Ministry of the Environment, even where the original polluter has paid for the cleanup and the new owner has assumed liability, the buck still stops with the original entity if no one does the work. In the case, the owners of a defunct paper mill in Th under Bay, Ont., received a cleanup order. Superior Fine Papers Inc. is the current and allegedly im- pecunious owner of the pulp and paper mill purchased from Th under Bay Fine Papers Inc. Th under Bay Fine Papers had gone into receivership after buy- ing the business from Cascades Inc. In fact, Cascades paid Th un- der Bay Fine Papers $4.5 mil- lion to assume responsibility for most of the environmental is- sues. It then paid an additional $500,000 for relief from the responsibilities that it still re- tained under the purchase and sale agreement. No one did the work, and Cascades was found to be at fault for not including in the contract a suffi cient guar- antee that subsequent owners would implement its responsi- bilities or security provisions to ensure the funds were for those obligation only. Lana Finney, an environ- at Davis LLP mental lawyer who represented Cascades in the litigation, believes the deci- sion signifi cantly increases the risk of selling a business like the mill as a going concern. "You have no confi dence even if you paid the purchaser that you won't be on the hook down the road to pay a second time if the purchaser goes bankrupt or just doesn't do the work." Marc McAree, a partner at Willms & Shier Environmen- tal Lawyers LLP, says there's no question that the decision to hold Cascades responsible was hard on the company but notes that one of the basic principles of environmental law is that a company can't contract out of regulatory liability. "Cascades recent decision of the Environmental Review Tribunal is sending shiv- 'Previous cases under the fair- ness principle have looked at the financial ability of the party to carry out the order,' says Marc McAree. tried to shift responsibility to the purchaser. What the tribunal is saying is that a former owner will not be able to contract out of regulatory liability but will continue to have responsibility for environmental aff airs." McAree says the type of indemnity provision that was the subject of the dispute is very common. "What is not so common is for the vendor to pay an amount in cash for the buyer to take on responsibility. Clearly, Cascades had an as- sessment done which factored heavily in paying the money it did." One of the arguments Cas- raised cades in its eff ort to persuade the tribunal that it shouldn't have to pay twice was the fairness principle. "Previ- ous cases under the fairness principle have looked at the fi nancial ability of the party to carry out the order," says McA- ree. "Sometimes if they are bankrupt or impecunious, the tribunal has excused the parties from paying obligations under the orders, but Cascades got no sympathy whatsoever for that argument. Th e tribunal saw it as a sophisticated corporation that had access to all kinds of advice and ought to have thought about how the money could be secured to ensure that it was used for its intended en- vironmental purpose." Finney believes this ap- proach builds on the line of authority stemming from the Kawartha Lakes decisions in 2009 in which the tribunal stated that the paramount consideration when deciding whether to relieve a company from its obligations is whether doing so will further the over- arching purpose of the En- vironmental Protection Act. "Th e tribunal has been scared away from fairness consider- ations and is purely looking at whether the director has juris- diction," she says. Th e case begs the question of whether everyone should do their own cleanup before they become a vendor. "Th at's what would happen in an ideal world," says Finney. "Th at's what the ministry would like, I'm sure, but it's not always practical. For example, a pulp and paper mill needs an on-site landfi ll. Th e way to clean it up is to properly decommission it: cover it up, put monitoring wells on it so that it is closed up and shut down. But without an operating landfi ll, you may not be able to sell the business as a going concern. "Th e purchaser would have to fi nd new land on the site to create a new landfi ll and get all the approvals for that. Both the decommissioning and getting the new site approved would be very costly, and the second piece of land probably won't have been used as a landfi ll be- fore, so that's bad for the en- vironment. It's not a practical result for anyone." McAree doesn't think the signifi cance of the decision will go as far as forcing presale clean- ups. "It goes to the question of how you structure the deal so that money paid for an environ- mental cleanup is spent for those purposes. Corporation manage- ment must turn their minds to fi nding a mechanism suffi ciently and clearly defi ned in the agree- ment. It is important that the agreeing party is in eff ect incen- tivized within the agreement to actually do the work." Rick Coburn, a partner at Borden Ladner Gervais LLP in Toronto, recommends that if a company is contracting the work out, it's in its interest to include some means of ensur- ing that the other party carries it out through, for example, pay- ment schedules linked to per- formance of obligations. "You can set aside the money in some form of trust that is advanced for remediation or you can hold back the money entirely and only pay when the work is paid for upon completion of the work or at various milestones." Coburn still believes remedia- tion agreements are good tools to use in conjunction with a transaction. "Th ese things need to be talked through in conjunc- tion with the indemnity itself, remembering that at the end of the day, the minister has an over- riding concern with the environ- ment and the private contrac- tual arrangements are secondary from the ministry's perspective." Finney's advice now is for vendors to estimate the value of the environmental liability still on the site and put that sum of money aside from the purchase proceeds in order to meet future environmental lia- bilities. Still, she concedes that this isn't always practical either. "It ties up a lot of capital and there is the added problem that you no longer have control of the property, so it's diffi cult to do environmental work on it. Th ere is also the risk that the purchaser may do something to make the environmental problems worse. I can envisage the [ministry] may still come knocking on the door of the vendor and say, 'You left your waste behind. You clean it up.'" What's also key is trying to foresee what might happen, says Coburn. "All things being equal, I am sure the ministry will try and follow the polluter-pays principle, but it's not always pos- sible. It's very complicated when there is past contamination and ongoing pollution from current uses. You need to attempt as best you can to know the parties and what they're capable of achiev- ing. If it's going to take a few years to perform the work, try to think of the eventualities and anticipate the things that might change in that time." NEW EDITION THE 2012 ANNOTATED INDIAN ACT AND ABORIGINAL CONSTITUTIONAL PROVISIONS SHIN IMAI PAGE 11 This edition features: • new headings of commentary under s.35, including the exercise of Aboriginal and Treaty rights on another nation's territory • new headings under s.89 including conditional sales and discussion of Benedict v. Ohwista Capital Corp (2011.ONT.S.C.J) • annual review, including summary of consultation and accommodation cases It also includes more than 150 new and amended annotations including: • The circumstances whereby guaranteed investment certificates may be found non-taxable is discussed in new Supreme Court of Canada decisions, Bastien Estate v. Canada (2011, S.C.C.) and Dubé v. Canada (2011 S.C.C.) • After having registered as Indians in 1985, a family of long- time Métis were refused registration as Métis under the Métis Settlement Act, which refusal the Supreme Court of Canada upheld: Alberta (Aboriginal Affairs and Northern Development) v. Cunningham (2011 S.C.C.) • The Federal Court of Appeal upheld the denial of exemption of a member's logging business, which had performed some work off-reserve and which had some customers from off the reserve in Pelletier v. Canada, (2011, F.C.A.) • Chief and Council's decision to remove a Council member in absentia was reversed by the Federal Court for having breached the duty of fairness in Laboucan v. Little Red River Cree Nation No. 447 (2011, F.C.A.) • Though First Nations were required to have absolute priority in allocation of fish for food, social and ceremonial purposes, the question of whether they should receive priority in time will hinge on the circumstances: R. v. Quipp (2011 B.C. C.A.) 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• Cover
• Monetary Penalties
• Repatriation Revisited
• Focus On Environmental Law