written several times about the Supreme Court of Canada's
decision in AbitibiBowater v. Newfoundland, in
which insolvency law trumped environmental orders. Today, we want
to tell you more about the rule the court laid down, and why it is
likely to have perverse consequences. In short, the Supreme Court
ruled that environmental orders can jump the insolvency queue, and
take priority over other creditors, but only when the province is
NOT likely to pay for the work itself. For a brief video
explanation, click here.
As mentioned last time, the facts were extreme. When Abitibi
Bowater announced their intention to close their last paper mill,
Newfoundland expropriated virtually all of their assets in the
province, without compensation.
Abitibi Bowater sought protection under the
federal companies' creditors' arrangement.
The CCAA judge issued a claims bar order, to collect all financial
claims against the company, and began the complex process of
allocating the remaining assets among the many claimants.
Meanwhile, Abitibi filed a NAFTA (North American Free Trade
Agreement) claim against Canada for the expropriation.
Newfoundland's Toronto lawyers commissioned studies to show
that the expropriated assets were contaminated, thus creating a
cleanup cost claim to offset the NAFTA claim. Not all of the
contamination had been caused by Abitibi.
Newfoundland then ordered Abitibi, by unrealistic dates, to
remediate all the contamination. The trial judge ruled that the
orders were a cash grab, and were not intended to ensure
Abitibi's compliance with applicable environmental laws in
ongoing operations. On one property, the province did some
emergency work and put other work out to tender. However, the trial
judge found no evidence that the province would implement the rest
of the Orders, should Abitibi fail to do so.
The question that came to the Supreme Court was whether
Newfoundland should be able to use these cleanup orders to jump
ahead of other creditors as against Abitibi's other assets:
those not affected by or adjacent to the contamination AND not
already expropriated by the province.
Unfortunately, in my view, the Supreme Court did not give a
useful answer to this question. According to all three judgements
(the majority and 2 dissents), the pivotal factor is the likelihood
that the province will pay for the cleanup itself, if the insolvent
entity does not do so. Justice Deschamps ruled that it had to be
"likely"; the chief justice said that it had to be a
virtual certainty. Justice LeBel agreed with
Justice Deschamps on the legal test, but held that the
province might not itself spend the money that it was attempting to
extract from Abitibi. In this, he was almost certainly correct.
The Supreme Court's focus on whether the province will pay
for the cleanup, is, in my view, unhelpful. First, it
will rarely apply: the court seemed to be unaware
that provincial governments almost never cleanup abandoned private
contamination. Rather than spend their own money, the provinces
often ignore contaminated sites (especially the thousands that have
escheated to the Crown) or impose liability on increasingly
innocent parties, like the City of Kawartha Lakes.
Second, the rule is perverse, because it discourages the
provinces from intervening, at public expense, in those extreme
cases where we most need them to
intervene. Equally, it encourages the secured creditors to
refuse to make funds available, in the hope that the provincial
taxpayer will pick up the bill.
Third, this rule pays no attention to
Parliament's actual language, especially its decision to
provide provinces with a super priority over the contaminated site
and adjacent lands, to secure these very expenses, and NOT over
other corporate assets.
Fourth, the Abitibi example will make the test
puzzlingly hard to apply.
We agree with Justice LeBel: we can't understand why, under
the test articulated by Justice Deschamps,
Newfoundland couldn't enforce most of its
orders against the post- restructuring Abitibi. It is a sad irony
that Justice Deschamps held these orders to be provable claims, on
the ground that Newfoundland will pay for the work itself, when the
evidence was largely to the contrary, and Newfoundland has not
actually done so.
Fifth, nothing in the "will the province pay?"
test answers the central question: why, and to what
extent, should this particular environmental action take priority
over the legitimate financial rights and expectations of the other
creditors, on top of the super priority created by Parliament? Nor
does it recognize that not all environmental requirements are the
Ontario's Ministry of the Environment and Climate Change continues to roll out its Climate Change Action Plan with its proposed GHG guide for projects that are subject to the province's Environmental Assessment Act.
The Imperial Oil refinery pled guilty to one offence for discharging a contaminant, coker stabilizer, thermocracked gas, into the natural environment causing an adverse effect and was fined $650,000...
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).