Directors and officers have long since been subject to potential
liability for environmental remediation under the Ontario
Environmental Protection Act (EPA). With the recent resolution
of Baker et al v. MOE (Director), however, potential has
given way to actual, as a group of "innocent" directors
have found themselves forced to pay for a portion of a bankrupt
corporation's obligation to manage contamination.
BACKGROUND: DIRECTORS OF A COMPANY IN FINANCIAL DIFFICULTY
Northstar Canada operated a manufacturing and processing
facility in Cambridge, Ontario, that produced waste containing
heavy metals. Beginning in 2004, Northstar actively monitored
contamination at the site and undertook voluntary remediation. In
the late spring of 2012, the Ministry of the Environment (MOE),
concerned that Northstar would be unable to carry out the
remediation because of increasing financial difficulties, issued
two orders: one requiring Northstar to remediate the contamination,
and one requiring Northstar to post financial assurance. Shortly
thereafter, Northstar filed for creditor protection under the
Companies' Creditors Arrangement Act (CCAA). Northstar
ceased its remediation activities at the Cambridge site. In July
2012, the CCAA court held that the orders issued by the MOE were
stayed by the CCAA proceedings, and as a result, the MOE had to
carry out the remediation itself. All of the assets of the company,
with the exception of the Cambridge site, were sold, and Northstar
THE MOE LOOKS BROADLY
In November 2012, after the initial stay was made in the CCAA
proceedings, the MOE issued an order pursuant to sections 17 and 18
of the EPA, naming Northstar's directors as respondents. Among
other things, the order required the directors personally to carry
out the remediation of the Cambridge site, which was estimated to
cost approximately C$150,000 per month for several years, for a
total of approximately C$15-million. The order was issued by the
MOE even though most of the directors had not been directors with
Northstar when the event leading to the contamination had taken
place or at the time Northstar began actively monitoring the
contamination at the site. Some of the directors had resigned from
the board at the time the MOE issued the order against the
directors. From the MOE's perspective, the directors had
allowed the company to both file for CCAA protection and stop its
remediation efforts, which made them liable for the remediation
under the EPA.
AN OBLIGATION NOT EASILY SHED
The directors appealed the MOE's order to the Environmental
Review Tribunal (ERT) and also sought a stay of the order. The
directors' request for a stay was denied, despite the
likelihood that any money the directors spent on the remediation of
the Cambridge site would not be recoverable if the appeal was
successful. The directors' appeal of the dismissal of the stay
to the Ontario Superior Court was denied.
AN UNCERTAIN OUTLOOK
The day before the hearing of the appeal, having already spent
approximately C$800,000 on remediation, the directors settled with
the MOE. As part of the settlement, the directors agreed to provide
C$4.75-million as financial assurance to the MOE, in exchange for
the withdrawal of the MOE's order against them.
It's not clear whether the facts of this case would have
supported a finding of liability for remediation on the part of the
directors. Regardless, the potential for liability was sufficiently
tangible to cause the directors to settle with the MOE. The
directors' requirement to post financial assurance has been
approved by the ERT and has been included in an ERT order.
This case demonstrates that the MOE is willing to (and will)
look to all potential sources of liability to impose the costs of
remediating environmental contamination, whether or not the parties
were involved or caused the contamination in the first place.
Together with the recent Ontario Court of Appeal decision in
Kawartha Lakes (City) v. Ontario (Environment), which
upheld an MOE order issued against an "innocent"
landowner, the recent jurisprudence shows a willingness of the MOE
to issue orders, and of the ERT and reviewing courts to uphold
these orders, regardless of fault.
This case should encourage directors and officers to review the
environmental practices and policies of the companies on whose
boards they serve, as well as carefully consider the insurance and
indemnities available to them.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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