Law Times

PAGE 18 FOCUS September 29, 2008 • Law timeS Complex interaction between environmental and securities law BY JULIUS MELNITZER For Law Times more than $1.5 trillion in assets petitioned the Securities & Ex- change Commission to issue an interpretive release clarifying that material climate-related informa- tion must be included in corporate disclosures under existing law. They also asked the SEC I n September 2007, 22 lead- ing U.S. and European insti- tutional investors representing exclusion clause, but it is the first one to do so in the context of securities litigation," says David Kent of McMillan LLP's Toronto office, who represented Boliden. Liberty issued a directors' and officers' liability policy to Boliden, a mining company. The policy in- sured them against specified losses arising from claims made during the currency of the policy, includ- ing damages and defence costs. In April 1998, a dam at a to evaluate existing disclosure practices, maintaining that they required uniform disclosure practices to evaluate risk and balance their portfolios. This development, followed by SEC action on the matter, similar Congressional initiatives, and attendant developments in Canadian securities regulation, demonstrate that "show me the money" time is well on its way for climate change risk disclo- sure in the securities arena. Meanwhile, the Ontario Court of Appeal's April 2008 decision in an insurance case, Boliden Limited v. Liberty Mutual Insurance Com- pany, drives home just how com- plex is the interaction between environmental and securities law. "Boliden is not the first Cana- dian case to deal with a pollution Spanish zinc mine owned by a Boliden subsidiary collapsed, re- leasing toxic waste into 10,000 hectares of countryside. Boliden's share values collapsed. In the fall of 1998, Boliden at Boliden; that Boliden believed it would become the fifth largest zinc producer in the world when the Spanish mine reached speci- fied production levels in 1998; and that production estimates for the Spanish mine were four mil- lion tons of ore in 1998, increas- ing to 4.2 million in 2000. The pleading also alleged that the defendants omitted material facts, including the fact that the dam had not been properly con- structed or maintained, and that the company was aware of construction defects that made the dam unable to support the mining activity. At first instance, Justice shareholders in Ontario and Brit- ish Columbia sued the company, its officers and directors, and its lead underwriter for alleged misrepresentations in Boliden's offering prospectus. 'Boliden is not the first Canadian case to deal with a pollution exclusion clause, but it is the first one to do so in the context of securities litigation,' says David Kent. Boliden indemnified its direc- tors and offers for defence costs in the class action and sought to recover these costs from Liberty. But Liberty denied coverage on the basis of a pollution exclusion clause that excluded "payment for loss respecting a claim . . . for or in respect of a pollution loss." The policy also defined "pol- lution loss" as "a loss resulting from or attributable to or in any Trust [ Aleks Mladenovic | way involving, directly or indi- rectly . . . the actual, alleged or threatened seepage, discharge, dispersal, release or escape of pollutants" in contravention of statutory or common law. The claim in the designated lead class action, the B.C. action, alleged that the prospectus con- tained misrepresentations that en- vironmental protection and pol- lution prevention were priorities Francis Newbould of the Ontario Superior Court of Justice ruled that the exclusion clause applied to some, but not all, of the losses to be paid on account of each alle- gation of misrepresentation. "The sense that I take of the words 'in any way involving' is that it means in any way tied to or con- cerned with," Newbould wrote. "The issue then becomes whether the amount to be paid for each claim of misrepresentation can be said in any way to be directly or indirectly involved, or tied to or concerned with, pollutants." He concluded that the omit- ted facts relating to the construc- tion and maintenance of the dam were not so involved; rather, they were concerned with stability and structural defects rather than seepage of pollutants. Other omitted facts, however, did fall within the definition of pollution loss. The result was that the claim Every time you refer a client to our firm, you're putting your reputation on the line. It's all about trust well placed. involved both losses that were covered and losses that were ex- cluded. Newbould ordered that Liberty indemnify Boliden for 80 per cent of the defence costs in accordance with the allocation clause in the policy. Liberty's position that the exclu- sion clause be read as excluding all losses arising from a claim that relates to or involves a pollution loss. In his view, the clause exclud- ed pollution losses as opposed to pollution-related claims. "Any ambiguity as to whether the clause excludes pollution- related losses or pollution-related claims should be resolved in favour of the insured," LaForme wrote. Here, the wrongful acts re- lating to the construction and maintenance of the dam were capable of giving rise to liability irrespective of the dam collapse. "As Boliden observes in its fac- tum, a mining company's share price is affected by its ability to maintain estimated production volumes," LaForme wrote. "If mining were to be suspended because of structural problems with the [dam], produc- tion volumes could be affected even if the dam did not collapse." The pleadings also supported the conclusion that liability was related to allegations of misleading production estimates connected to undisclosed structural problems affecting the dam and not solely because of the dam collapse. Despite his client's success at first instance and on appeal, however, Kent says companies and their directors and officers should read Boliden carefully. "The lesson is that directors and officers who think they have comprehensive coverage when se- curities law and environmental law engage, should have another look at that coverage," he says. LT Luftspring of Toronto's Ricketts, Harris LLP, appealed. But Justice Harry LaForme, writing for a court composed also of Justices Eleanore Cronk and Robert Blair, dismissed the appeal. LaForme expressly rejected Liberty, represented by Gary Malach + Fidler LLP Mediation & Arbitration Services Richard Halpern | Sloan Mandel For over 70 years Thomson, Rogers has built a strong, trusting, and collegial relationship with hundreds of lawyers across the province. As a law firm specializing in civil litigation, we have a record of accomplishment second to none. With a group of 30 litigators and a support staff of over 100 people, we have the resources to achieve the best possible result for your client. Moreover, we are exceptionally fair when it comes to referral fees. We welcome the chance to speak or meet with you about any potential referral. We look forward to creating a solid relationship with you that will benefit the clients we serve. THOMSON, ROGERS Barristers and Solicitors 416-868-3100 Toll free 1-888-223-0448 www.thomsonrogers.com YOUR ADVANTAGE, in and out of the courtroom A Fair Settlement Is No Accident Jon Fidler, C.Med. David Dempster 439 University Avenue uit e 1401 S Toronto, Ontario M5 G 1Y8 (416) 598-1667 (416) 598-5222 (fax) Stephen Malach,Q.C. Ivan Luxenberg Uni t 30 Wertheim Court 6 L4 B 1B (905) 889-1667 e-mail: mediation@malach-fidler.com www.malach-fidler.com Untitled-4 1 www.lawtimesnews.com 8/18/08 10:21:02 AM Richmond Hill, Ontario 9 (905) 889-1139 (fax)

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