The Ontario Court of Appeal has released its decisions in the
Ministry of the Environment's appeals from Justice Geoffrey
Morawetz in Re Nortel and Re Northstar. In both cases, Justice Morawetz
rejected MOE attempts to claim priority over secured creditors by
ordering insolvent companies to cleanup historic contamination. In
both cases, Justice Morawetz decided that the orders amounted to
unsecured financial claims, and were therefore to be funded only
after the secured creditors were paid. The Court of Appeal upheld
Justice Morawetz in Northstar (i.e. rejected the MOE claim),
because the province took over the cleanup after Northstar
Canada's bankruptcy, but allowed the MOE claim in Nortel,
because the province had not taken over the
cleanup. The utterly predictable, if perverse, result: the MOE
gets to claim priority over secured creditors for less
serious contamination, which could be ignored during the court
proceedings, but loses that priority if it has stepped in to
protect public health pending appeal, something it does only in
extreme cases. This is not a rational way to reconcile the
interests of insolvency law with those of environmental law.
Hopefully, both cases will go back to the Supreme Court, which will
abandon the flawed reasoning in its AbitibiBowater decision last
year, and adopt Justice Morawetz' reasoning instead. If the
court cannot fix this itself, Parliament will need to.
And both senior levels of government badly need to develop a
principled policy for how, when and who should pay for the cleanup
of historic contamination. The current mess is creating a lot of
collateral damage to the economy.
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