On October 28, 2013, the Ontario Environmental Review Tribunal
accepted Minutes of Settlement in the Baker v. MOE case,
resolving the clean-up order issued against former directors and
officers of Northstar Aerospace (Canada) Inc. (the "Directors
and Officers"). Pursuant to the settlement, eight of the
Directors and Officers will pay $4,750,000 to the Ontario Ministry
of the Environment ("MOE"). The funds are to be
used for remediation of Northstar's former manufacturing site
and neighbouring properties in Cambridge, Ontario. Releases
will be provided by the MOE to each party contributing to the
settlement and all appeals with respect to the order will be
Northstar had commenced voluntary remediation of the Cambridge
site and hundreds of neighbouring properties in 2005, subject to
oversight by the MOE. In 2012, when it became known that the
company was in financial difficulty, the MOE issued orders against
Northstar requiring further remediation work and the provision of
more than $10 million in financial assurance. The company
became insolvent and, in June 2012, was provided creditor
protection under the Companies' Creditors Arrangement
Act ("CCAA"). Northstar continued remedial
work until its assets were sold in July 2012. In August 2012,
due to human health concerns, the MOE took the extraordinary step
of undertaking the remedial work itself.
In November 2012, when the CCAA stay was lifted, the MOE issued
a remediation order against the Directors and Officers on the basis
that they had permitted the discharge of contaminants into the
environment (pursuant to section 17 of the Environmental
Protection Act, "EPA") and had management and
control of the site and remediation systems (section 18,
EPA). The Directors and Officers appealed the order,
asserting a variety of defences including that they had not been on
Northstar's board during the time of the discharge and had no
specific responsibility for environmental matters. However,
liability was imposed immediately as the Directors and Officers
failed to secure a stay of the MOE order and, as a result, had to
personally pay approximately $800,000 for interim remedial work
pending the appeal. Efforts of the Directors and Officers to
secure protection through the CCAA insolvency process were
unsuccessful and, as is typical, insurance coverage was denied for
Notwithstanding that legitimate defences appear to have
been available to some (if not all) of the Directors and
Officers, the settlement may best be viewed as a bargain by those
who faced the personal economic burden of refuting liabilities of
tens of millions of dollars, through lengthy and costly appeal
proceedings. Even if the appeal had been successful,
litigation and interim remediation costs would likely not have been
recoverable from the MOE at the Ontario Environmental Review
Tribunal (and perhaps not at higher appeal courts either).
The Baker settlement, and the precedent it sets, is an
unfortunate result for corporations in Ontario and across Canada
and the individuals serving on their boards. By issuing
indiscriminate orders against directors and officers and imposing
significant interim remediation and litigation costs on such
individuals, environmental regulators put directors and officers in
a position where a contribution to clean-up costs (on a no-fault
basis) results in less exposure, even when no wrongdoing has been
established. Without an adequate corporate response to
protect directors from these kinds of orders, Baker v. MOE
can be expected to make it more difficult for corporations to
recruit and retain experienced board members, with the result that
environmental protection will suffer.
Davies formulates strategic solutions to mitigate the risk of
personal exposure of directors and officers for remediation
liability, taking into account a variety of elements such as
insurance, trust structures and financial assurance.
Solutions are tailored to address our clients' specific
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.
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