Canada: Blue Box Funding Arbitration Final Argument

Last Updated: July 23 2014
Article by Dianne Saxe

The massive Blue Box funding arbitration enters the final stretch this week, with closing arguments starting today. Our firm will file read our written argument of why Ontario Blue Box stewards owe municipalities more than $144 million this year, under the Waste Diversion Act. Separate closing arguments will be delivered on the "in kind" newspaper advertising deduction, which Stewardship Ontario claims should be more than $6 million this year.

In a nutshell, the municipalities say:

  1. Stewards sell a vast amount of packaging, which is increasingly expensive to recycle, into the Ontario market, for their own profit. Consumers and businesses discard the packaging and paper into the municipal waste stream. Municipalities have no say over the design, type or amount of packaging and paper waste they are forced to handle.
  2. As a matter of public policy, the Ontario Ministry of the Environment (MOE) directs municipalities to divert large amounts of this waste from landfill. Waste diversion has important economic and environmental benefits for the province as a whole, and limits the consumption of landfill space.[1]
  3. Ontario municipalities have risen to the challenge. Their collective Blue Box (BB) programs are among the best in the world.[2] They divert huge and growing amounts of BB waste from landfill. This costs money.
  4. All of these costs have already been paid for with taxpayers' dollars. These numbers have been verified by Waste Diversion Ontario (WDO)[3] and appear to be conceded by Stewardship Ontario (SO)[4] (except for part of the prior year adjustment).[5]
  5. How much of the $228,144,644 must SO reimburse, to comply with WDA s. 25(5)? [6]

(5) A waste diversion program developed under this Act for blue box waste must provide for payments to municipalities to be determined in a manner that results in the total amount paid to all municipalities under the program being equal to50 per cent of the total net costs incurred by those municipalities as a result of the program.

  1. The plain, ordinary meaning of s. 25(5) is that stewards must pay 50% of the costs that have, in fact, been incurred; the Legislative history and witnesses concur. If the Legislature had meant to limit municipalities to "reasonable" costs, it would have said so. Stewards' attempts to tie the payments to an "efficiency" standard were repeatedly rejected.
  2. An extra $1.1 million should be added to this sum, and the entire amount must be paid in money, for the reasons set out by Mr. Chu (his written argument to follow).
  3. Municipalities deserve reimbursement for the public money they have spent managing stewards' wastes. They run efficient programs using best practices, where possible, and their cost claims are heavily scrutinized and verified. Costs are rising because of steward packaging choices, demands for increasing diversion, and other factors that are generally beyond municipal control. Theoretical alternative systems are irrelevant.
  1. The CCP is not a legal document, did not amend the Blue Box Program Plan, and could not have altered the Steward Obligation in any case. Its ambiguous wording is best interpreted as a reference to the Municipal Funding Allocation Model.
  2. SO wants to pay only $95,679,612, 41.9% of the $228,144,644, based on the alleged output of a computer model that:
    1. has not been filed in evidence;
    2. was based on a 2012 version that had been force-fit to a pre-determined number;
    3. was run only to permit an "in kind" calculation as part of a failed negotiation;
    4. is incomplete, e.g. does not include interest on municipal capital;
    5. has been repudiated by both its authors;
    6. is not supported by expert evidence;
    7. is neither required nor authorized by the WDA, the BBPP, the CCP or the Minister, and
    8. if "best practice costs" is a meaningful and relevant concept, does not represent "best practice costs".
    9. Stewards' proposal that cost bands should limit their Obligation is not only contrary to 25(5); it was traded, in 2003, for an annual cap on municipal administrative costs.[7] That cap is still in place, and is not in issue in this arbitration. It has cost municipalities and their taxpayers tens of millions of dollars. SO cannot both have its cake and eat it too.
    10. MIPC never had jurisdiction to cut down the Obligation. The negotiations that happened there had no legal basis, and don't apply to 2014. Both parties had agreed that the 2012 baseline cost model would be replaced by a new approach for 2014.[8]
  1. This Closing Statement reviews the relevant facts, then addresses:
  2. Issue 2- Verified Net Costs, starting at para  155;
  3. Issue 1A- the Statutory Right, starting at para  167;
  4. Issue 1B- Has the Statutory Right been cut down? starting at para  193;
  5. Issue 4: The Irrelevant Cost Model, starting at para  262;
  6. In the alternative, whether municipal costs are reasonable, starting at para  311;
  7. Credibility, starting at para  337;
  8. Conclusion and Order Requested, at para  349;
  9. Suggestions for future years, as requested by WDO, starting at para  352.
  10. Attachments include an updated Chronology and Glossary; a two volume compendium of document excerpts; a compendium of transcript excerpts; and a Book of Authorities.

[1] 152_2009-05-19 Environmental Benefits of BB, MHSW and WEEE at p. III-IV.

[2] 438_2013-01-01 SO BBP Backgrounder; SO Doc 115 at pp. 2-3, 5 (SO 2011 Annual Report); Affidavit of M. Birett at paras. 27-29.

[3] Affidavit of R. Findlay at paras. 23-52. [Through an elaborate Datacall and verification process].

[4] Transcript Compendium, Tab 9, at p. 2072-2073, on June 5, 2014 [Mr. Sutton stated "We don't dispute the Datacall numbers....It is the way the math is done after you have the totals. You don't have to go behind them."].

[5] SO asks you to exclude half of the prior year adjustment, $2,249,102, see Affidavit of A. Chan at para. 19.

[6] 2002, S.O. 2002, c. 6 [emphasis added] [This statutory right has never been interpreted before].

[7] SO Doc 5, at pp. 1-3 (2003-10-23 Cost Containment Sub-Committee Meeting Minutes); Testimony of G. Zecchinni, Transcript Compendium, Tab 18, at p. 3640-3642.

[8] 315_2012-05-23 Final WDO-MIPC Meeting Notes at p. 2.

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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Dianne Saxe
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