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Pakootas v. Teck Cominco Metals, Ltd.: Holding Canadian Companies Liable for Transboundary Pollution in the United States

On July 3^rd 2006, a US Federal Court of Appeal in San Francisco, California paved the way for Canadian companies to be held liable for the costs of cleaning up transboundary environmental damage in the United States.

Background

Teck Cominco operates a lead-zinc smelter in Trail, B.C., which until 1995 discharged approximately 145,000 tons per year of slag, a by-product rich in heavy metals, into the Columbia River. Travelling downstream, the slag accumulated in the northeast of the state of Washington, where, according to the United States Environmental Protection Agency (EPA), it has had adverse effects on the region’s environment. After negotiations between the EPA and Teck failed, the EPA issued an order directing Teck to conduct a remedial investigation/feasibility study under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), also known as the Superfund Act. Teck did not comply with the order, and the EPA did not seek to enforce it. Two members of the Coville Confederated Tribes, whose reservation borders the river, brought an action under the citizen suit provision of CERCLA to seek enforcement of the order and penalties for non-compliance.

The Federal Court’s Decision

The main issue before the courts concerned the extraterritorial application of CERCLA. Teck sought to have the suit dismissed on the grounds that CERCLA did not give U.S. courts jurisdiction over foreign companies’ activities outside U.S. territory. The district court dismissed the motion, holding that the presumption against extraterritoriality was overcome because "a failure to extend the scope of the statute to a foreign setting" would "result in adverse effects within the United States." The Court of Appeal affirmed the lower court’s dismissal, but did not confirm that CERCLA could be applied extraterritorially. Instead, it found that this case required only a domestic application of the statute.

The Court of Appeal’s decision turns in great part upon its interpretation of the provisions which define liability under CERCLA. The three conditions which trigger CERCLA liability are: 1) that the hazardous substance be "deposited…placed or otherwise come to be located" on a site which it calls a "facility"; 2) that there be a "release" or threat of release of the substance from the facility into the environment ; and 3) that the defendant belong to one of the four categories of persons who are subject to CERCLA liability. The Court of Appeal found that all three of these elements applied to the facts in a manner which gave them a domestic character.

With regard to the first element, the Court found that the "facility" where the hazardous substances had come to be located was the Upper Columbia River. This facility is located entirely within the United States.

With regard to the second element, the Court noted that three events could be characterised as a release in this case: the discharge from the Trail Smelter into the river in Canada; the escape of slag from Canada into the United States when it crossed the border; and the leaching of heavy metals from the slag into the Upper Columbia River’s environment. Only in the third case, where a release occurs from the facility, does CERCLA apply. The Court held that "release" includes the "passive migration" or natural movement of hazardous substances from the place where they are located into the environment. It therefore concluded that the release of hazardous substances had occurred at the facility, and was domestic.

Thirdly, the Court found that Teck belonged to one of the four categories of persons who can be subject to CERCLA liability. Teck had argued that "corporation" under the statute did not include foreign corporations. The Court rejected this argument, holding that the legislature had "intended to hold parties responsible for hazardous waste sites that release…hazardous substances into the United States environment".

Teck also argued that it was not a responsible party under CERCLA because it had not "arranged for disposal" of the hazardous substance by a third party, as one interpretation of the statute requires, but rather had disposed of the substances itself. The Court rejected this argument, holding that the legislature could not have intended that generators of hazardous substances escape liability because they have not involved an intermediary in the disposal of these substances.

Implications of the Teck case

The Teck decision must be understood in the context of American and Canadian courts’ increasingly globalized perspective on waste disposal. Already, Ontario courts have held that CERCLA judgments against American companies are enforceable against Canadian parent companies (see United States v. Ivey (1996)).

The facts of the Teck case are reminiscent of another, highly influential, decision involving almost the same actors. In the 1930s, the Trail Smelter produced increasing quantities of sulphur fumes which crossed the southern border and caused damage in the state of Washington. The incident escalated into an international dispute, and the governments of the United States and Canada finally agreed to have the matter settled by arbitration. The resulting arbitral decision is considered by many to be a turning point in international environmental law: in that it was the first decision which recognised that the "polluter pays" principle may have an extraterritorial reach.

Will the most recent Teck case have a similarly influential effect? Some U.S. companies fear – and some environmental activists hope – that this ruling will lead to retaliatory legislation from other countries, including Canada, to hold U.S. companies liable for transboundary environmental damage. Some believe that relying on negotiations is a better way of reaching positive solutions than applying domestic legislation extraterritorially. But parties may not have the chance to choose their method of dispute resolution. One of the most significant aspects of the Teck case is the fact that it was brought by private citizens, who were not content to let the EPA and Teck come to a settlement through diplomatic processes.

The Teck decision had the potential to affect the extraterritorial jurisdiction of U.S. courts over Canadian companies more generally, beyond the environmental context. This is why significant Canadian players such as the Canadian Chamber of Commerce and even the Canadian Government filed friends-of-the-court briefs with the Federal Court of Appeal. However, in light of the statute-specific reasoning of the Court, it is uncertain how much of a broader impact this decision will have on transborder jurisdiction generally.

Teck has announced that it is considering appealing the Court of Appeal’s decision. It has also confirmed that it will go ahead with a project negotiated with the EPA last month to pay for a US $20 million report studying the effects of the smelter’s discharges on human health.

In the meantime, this decision puts Canadian companies on notice that U.S. courts may find them liable for environmental damage, even if the activities originally causing the damage were entirely contained in Canada.