On October 28, 2013, the Ontario Ministry of the Environment
(MOE) announced that it had reached a settlement with the former
directors and officers of Northstar Aerospace whereby those former
directors and officers agreed to pay $4.75 million for costs
associated with the remediation of contaminated lands owned by the
now-bankrupt company. The Environmental Review Tribunal approved
the Minutes of Settlement at the hearing held on October 28.
As reported in a previous Osler Update, in June 2013, the Ontario Divisional Court
and the Environmental Review Tribunal (ERT) held that the former
directors and officers were responsible for all interim costs in
respect of monitoring, reporting and remediating (at an estimated
cost of $1.4 million per year), at least until the ERT had heard
and decided the appeal of the MOE Director's Order.
According to a report in the Globe & Mail, the MOE
hailed the settlement as a victory, noting that "this is the
first time the ministry has held corporate directors of a publicly
traded company personally responsible for an environmental cleanup
after a company has gone bankrupt."
As a result of this settlement, observers have been deprived of
any further insight into the extent to which the ERT or any
appellate court would be willing to uphold an order by the MOE
against former officers and directors of a bankrupt company. Given
the MOE's statement above, it would appear that this settlement
has emboldened the MOE in its campaign to exercise its discretion
under the Environmental Protection Act to identify and
name potential "pockets" for environmental remediation
The settlement amount is significantly less than the
approximately $15 million originally sought by the MOE. A number of
factors may have influenced the decision to settle at a lesser
amount, including the following:
financial capacity of the directors;
prospects of any ruling on the merits of the appeal from the
ERT or from an appellate court that would diminish the
directors' and officers' ultimate liability (quite apart
from their interim liability to pay while the appeal was
availability of insurance to fund the amount claimed; and
scope of resources available to the MOE to devote to a novel
What is abundantly clear from the settlement is that directors
and officers are currently at risk of being named in environmental
protection orders and to being exposed to personal liability for
costs. Prudence would dictate that appropriate
environmental-compliance and contamination-mitigation measures be
put in place to minimize the likelihood of an environmental
incident (these measures are commonly implemented through an
environmental management system). Further, it would be prudent to
proactively consider obtaining directors' and officers'
insurance (specifically including coverage for environmental
liability) and other available protections to ensure that directors
and officers are protected from the spectre of personal liability
for environmental orders.
Should the MOE continue the practice of issuing cleanup orders
against former directors and officers, it will be interesting to
see if the ERT and the courts revisit the erosion of the
application of the so-called fairness factors that occurred in the
Kawartha Lakes appeals (see Osler Update on the Kawartha Lakes appeals).
The facts involved in this dispute – namely, that certain
directors began their terms well after the contamination was
alleged to have occurred and had nothing to do with the pollution
– may have been ripe for reconsidering whether fairness
should be a factor in appealing environmental cleanup orders.
Without the clarity of a decision on the MOE Orders, the lingering
uncertainty and the possibility of personal liability caused by the
MOE's actions in this matter may discourage qualified people
from participating on corporate boards, particularly on boards of
struggling companies most in need of help.
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