On October 3, 2013, the Court of Appeal for Ontario issued two significant decisions1 on the interplay between provincial environmental remediation and federal insolvency orders. The cases are of interest to environmental and insolvency lawyers across Canada. They are equally of interest to taxpayers who foot remediation costs shifted through insolvency.
BACKGROUND
In Nortel2, the Ontario Superior Court had stayed Ministry of Environment (MOE) orders pursuant to a Companies' Creditors Arrangement Act (CCAA) insolvency priorities process. The judge rejected MOE's submission that environmental cleanup orders only become a CCAA "claim" upon transformation into a payment obligation. A similar result was then applied in Northstar3 by the same judge. Each lower court decision was released prior to the Supreme Court of Canada (SCC) landmark AbitibiBowater4 decision addressing similar issues.5
MOE WINS NORTEL
The Ontario Court of Appeal allowed the MOE's appeal in Nortel.
Nortel had owned contaminated properties in Belleville, Brampton, Brockville, Kingston and London. Prior to Nortel filing for CCAA protection, it disposed of each site apart from a minor interest in the London property. Critically, at the point of CCAA filing, the MOE had not issued any remediation order. The MOE issued orders following Nortel's CCAA filing. Nortel estimated it would cost $18 million to comply.
In finding the MOE orders were not CCAA-stayed, the Court of Appeal noted the following stay requirements:
1. There must be a debt, liability or obligation to a creditor;
2. The claim must be founded on an obligation falling within the time limit for CCAA claims; and
3. It must be possible to attach a monetary value to the obligation, based on substance as opposed to form.
The Court of Appeal held that ongoing environmental remediation obligations may be reduced to compromisable CCAA monetary claims only where: (i) the province has performed remediation work and advanced a claim for reimbursement; or (ii) the obligation may properly be considered a contingent or future claim because it is sufficiently certain the province will do the work and seek reimbursement.
In brief, MOE orders will only be stayed under a CCAA order if there is sufficient reliability that the provincial regulator "will ultimately perform remediation work", thus entitling it to seek reimbursement by means of a monetary claim.
In AbitibiBowater, the SCC had indicated not all regulatory environmental orders will fit into the CCAA definition of a "claim". Nortel has provided the first such example in Ontario.
The Court of Appeal's decision seeks to give effect to the balancing of multiple stakeholder interests in the CCAA process including the general public. Not all environmental regulatory orders will be provable claims.
Unlike in AbitibiBowater, in Nortel other unrelated parties named in the MOE orders including the current owners6 were jointly and severally liable with Nortel for compliance costs. The MOE also had power, legally and practically, to make future orders against subsequent owners. Accordingly, it was not sufficiently certain the MOE would be forced to undertake remediation of four of the Nortel properties because other responsible persons besides Nortel existed.
With respect to the London, Ontario property, the Court of Appeal made an exception. On the facts it was sufficiently certain the MOE would undertake Nortel's cleanup obligations and seek reimbursement. Nortel still retained some ownership and no other entity existed following Nortel's insolvency. The property had no value and was abandoned. Therefore, the MOE order for the London site was compromisable as a claim under the CCAA process, shifting costs to taxpayers.
MOE LOSES NORTHSTAR
The same Court of Appeal panel heard the MOE's appeal in Northstar. Unlike in Nortel, the MOE made orders against Northstar before it filed for CCAA protection. Northstar sold all of its assets except for a property in Cambridge, Ontario, which had extensive trichloroethylene contamination. Unsurprisingly, no willing purchaser stepped forward for the contaminated property. Northstar indicated its intention to stop remediation and abandon it.
On these facts, the Court of Appeal agreed with the lower court that the MOE order sought to enforce, in practical terms, a payment obligation. The MOE had no realistic alternative but to remediate the Cambridge property. No subsequent purchaser was available to become subject to MOE orders.
As with Nortel's London property, the MOE order became a CCAA provable claim, it being sufficiently certain the MOE would end up remediating the Cambridge site and seeking reimbursement from Northstar.
LOOKING FORWARD
MOE remediation orders are now being judicially characterized as either regulatory (not folded into a CCAA stay order) or CCAA provable claims (stayed under the CCAA statute).
Accordingly, relative timing of CCAA protection and MOE remediation orders becomes crucial. The regulator's stated intention and liquidity of other parties named in a cleanup order also are key considerations.
Read together, these two decisions demonstrate the current confluence of Canadian insolvency and environmental law, providing greater clarity on whether a regulator's cleanup order will be subject to a CCAA stay of proceedings.
CCAA stays of MOE orders impact Ontario taxpayers left with the remediation tab. Those with contaminated sites need expert legal assistance in order to avoid unexpected results.
Footnotes
1 Re Nortel Networks Corporation, 2013 ONCA 599; Re Northstar Aerospace Inc, 2013 ONCA 600.
2 Re Nortel Networks Corp., 2012 ONSC 1213.
3 Re Northstar Aerospace Inc., 2012 ONSC 3323.
4 Newfoundland and Labrador v. AbitibiBowater Inc., 2012 SCC 67.
5 BLG's summary of the AbitibiBowater decision is available at: http://www.blg.com/en/NewsAndPublications/Documents/Publication_3224.pdf
6 In AbitibiBowater, Newfoundland and Labrador owned the properties and it was reasonable to expect they would remediate.
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.
