An upcoming Environmental Review Tribunal (ERT) case in
Ontario will provide an important precedent on the critical
questions of liability of parent corporations and directors for
environmental clean ups in Ontario.
The Ontario Ministry of the Environment (MOE) has issued
three Director's Orders to a now-insolvent Canadian company
(General Chemical) requiring investigation and clean up of a
former General Chemical site in southwestern Ontario. The clean
up cost estimates range into the tens of millions of
The interesting feature of the case is that the
Director's Orders have also been issued to the US parent
company of General Chemical, as well as to several individuals
who were or are directors of one or both of the Canadian and US
companies in question. A particularly unusual feature of the
Orders in this case is that the Orders have been issued to
three lawyers at a prominent Toronto law firm who served as
directors of General Chemical and its Canadian holding
Certain provisions of the Ontario Environmental
Protection Act (EPA) permit an MOE Director to issue clean
up or preventive measures orders, including to persons who have
or had "charge, management or control" of an
undertaking or property. The MOE is relying upon these
provisions in this case to issue the Orders against the US
parent company, as well as the Canadian and US individual
directors. The Director asserts that all of the named parties
have or have had charge, management and control of the site and
responsibility for operation of the undertaking for several
The US parent company is resisting the Orders, as are the
individual directors, on the basis that none of them owned or
"controlled" the site in question within the meaning
of the EPA. In the case of the US parent company, the Orders
have been appealed on the basis that the US parent
company's sole interest in General Chemical was as a
shareholder and that it is a basic principle of corporate law
that shareholders of a corporation are not responsible for the
obligations of the corporation.
The US parent company asserts in its appeal of the Orders
that the type of corporate control a shareholder has by virtue
of owning shares of a corporation is not the type of operating
management or control contemplated by the applicable provisions
of the EPA. Rather, it asserts that the business of General
Chemical, including the manufacturing operation at the site in
question, was undertaken by employees of the Canadian company.
General Chemical's US parent argues that the fact that it
provided financial support and certain administrative services
to the Canadian subsidiary, and that some of its employees also
served as officers and directors of the Canadian company, do
not give it or them the type of "charge, management or
control" upon which liability is intended to be founded
under the EPA.
With respect to the individual directors named in the MOE
Orders, the Canadian lawyers take the position that they were
elected as directors of General Chemical solely to satisfy the
requirements under Canadian corporate statutes for Canadian
resident directors. Their role was nominal and generally
limited, they assert, to executing corporate resolutions from
time to time, as well providing outside legal advice on various
matters. The US directors of General Chemical named in the
order argue that they did not exercise any direct management or
control over the plant site at any time.
McCarthy Tétrault Notes:
Somewhat surprisingly, very few Canadian cases have
considered the potential liability of parent corporations and
individual directors for environmental clean ups, particularly
in circumstances involving large and complex corporate
organizations. The MOE has issued similar orders in the past,
but they have usually been resolved in some fashion prior to
the ERT and the courts being asked to consider the issues
involved. The relatively sparse ERT case law that does exist on
these issues suggests that the ERT may set the liability bar
The MOE has always taken the position that, as a matter of
public policy, it is appropriate for the Ministry to seek to
impose liability on potentially responsible parties in such
circumstances, rather than asking the taxpayers of the province
to foot the bill. The appellants in the General Chemical case
argue that the Director's Orders, in addition to being
contrary to recognized principles of limited corporate
liability, are beyond the jurisdiction of the Ministry, are
unfair and constitute an abuse of its powers.
Barring a last-minute settlement, this case will provide
some important guidance on which of these two views is correct,
at least with regard to the facts of this case. It bears
careful watching and will be covered in a future issue.
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Ontario's Ministry of the Environment and Climate Change continues to roll out its Climate Change Action Plan with its proposed GHG guide for projects that are subject to the province's Environmental Assessment Act.
The Imperial Oil refinery pled guilty to one offence for discharging a contaminant, coker stabilizer, thermocracked gas, into the natural environment causing an adverse effect and was fined $650,000...
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).