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 dismissed.
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 historic contamination.
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 circumstances
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