The former directors and officers of the bankrupt company Northstar Aerospace (Canada), Inc. ("Northstar") were confirmed liable for interim remediation costs under a Ministry of Environment ("MOE") order when the Ontario Divisional Court recently rejected their appeals and judicial review applications.
Northstar operated a manufacturing facility, which impacted groundwater with trichloroethylene, requiring remediation. In August 2012, Northstar became bankrupt, its assets having been sold and remediation activities terminated. In November 2012, the MOE ordered the 13 former Northstar directors and officers to continue indoor air, soil vapour and groundwater treatment activities, as well as undertake various other remedial measures. Costs related to such work are approximately $1.4 million per year. The directors and officers appealed the order to the Environmental Review Tribunal ("ERT") on the basis that they did not cause the contamination or have the requisite degree of control of Northstar's activities and property so as to attract liability under remediation provisions of the Environmental Protection Act.
The directors and officers sought a stay of the MOE order to avoid remedial activities before their appeal was determined by the ERT. On March 22, 2013, the ERT refused to stay the order, requiring the directors and officers to undertake the interim remediation. In its reasons, the ERT stated that the directors and officers had failed to establish that irreparable harm would result from incurring remediation costs.
The directors and officers both appealed and sought judicial review of the ERT's decision to the Ontario Divisional Court. The appeals focussed on the inability of the directors and officers to defray or recover the cost of such interim work (either through Northstar's insolvency proceedings or in conjunction with the ERT hearing). The Divisional Court recognized that the ERT does not have jurisdiction to order reimbursement of such costs should the directors and officers succeed in disproving liability in the ERT hearing. However, the Court rejected the appeals on the basis that an interim decision of the ERT is not appealable, and the judicial review applications could only be made following a final determination by the ERT. As such, Northstar's former directors and officers must bear interim remediation costs in accordance with the MOE order until their liability is determined by the ERT.
The indemnification of directors and officers is a complex matter with respect to environmental issues, in large part because insurance companies often deny coverage for historic contamination. Protection for directors and officers is even more complicated in insolvencies where environmental liabilities may arise after the assets of the company have been distributed and the company has been liquidated (as in this case). While Northstar's former directors and officers may not ultimately be found liable for the remedial work ordered by the MOE, there is no clear remedy for them to recover interim remediation costs. The hearing in respect of the directors' and officers' liability has been scheduled for the fall.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
