On December 6, 2019, the Supreme Court of Canada (“SCC”) found in R v Resolute FP Canada Inc., 2019 SCC 60 (“Resolute”) that two forest-product companies, Resolute and Weyerhaeuser, are on the hook to pay for remedial work at a waste site in Northwestern Ontario.

Resolute and Weyerhaeuser are successors of the companies that abandoned the waste site decades ago. They sought to rely on an indemnity agreement from 1985 between the Government of Ontario and their predecessor companies to argue that they were not responsible for the site’s monitoring and maintenance.

The decision was split 4-3. The majority of judges found that the indemnity agreement did not protect the companies from the province’s remediation order. As a result, Resolute and Weyerhaeuser, and not the provincial government, were found to be responsible for the costs of compliance.

History of industrial activity, contamination and adverse health effects at the site

The history of this case dates back to the 1960s when a pulp and paper mill operated in Dryden, Ontario. The mill bleached paper using a process that involved mercury, which was dumped into the nearby English and Wabigoon rivers. The mercury waste flowed downstream, which resulted in harm to health of some local residents (including members of the Grassy Narrows and Islington First Nations) the closure of a commercial fishery and damage to the region’s tourism industry.[1]

In the mid-1970s, a company called Great Lakes Forest Products was interested in buying the properties where the pulp and paper mill were located from its owner, Reed Ltd. In an effort to ensure the mill remained operational and provided local jobs, the Government of Ontario entered into an indemnity agreement with Great Lakes Forest Products in 1979. Under the indemnity agreement, Great Lakes Forest Products agreed to spend $200 million to expand and upgrade the mill, and the Government of Ontario agreed to cover the costs of past pollution above $15 million.[2]

Meanwhile, the Grassy Narrows and Islington First Nations commenced litigation regarding the mercury contamination in 1977 that ended with a settlement in 1985. When the settlement was reached, the Government of Ontario granted a new 1985 indemnity agreement to Reed Ltd., Great Lakes Forest Products Limited and their successors and assigns for the mercury contamination.[3]

Ontario Ministry of the Environment issues a remediation order in 2011

Twenty-six years later, on August 25, 2011, Ontario’s Ministry of the Environment issued a remediation order for environmental monitoring and maintenance at the waste site where the mill had operated in Dryden, Ontario (“Remediation Order”).[4]

The Remediation Order was issued as a “Director’s Order” under what is now s. 18 of Ontario’s Environmental Protection Act, and imposed three main obligations:

1. to repair certain site erosion, perform specific groundwater and surface water testing, and file annual reports containing specified information;
2. deliver to the Ministry of the Environment the sum of $273,063 as financial assurance in respect of the waste disposal site; and
3. to “take all reasonable measures to ensure that any discharge of a contaminant to the natural environment is prevented and any adverse effect that may result from such a discharge is dealt with according to all legal requirements.”[5]

The property’s ownership had changed several times in that period. The Remediation Order was issued to two former owners of the property: Bowater (which later became Resolute) and Weyerhaeuser.

Weyerhaeuser and Resolute successful in courts below

In May 2013, Weyerhaeuser sought a declaration from the Superior Court of Justice that the 1985 indemnity agreement required the Government of Ontario to compensate for all of the costs of complying with the Remediation Order.[6] Resolute intervened. Ontario submitted that it was not responsible for compliance costs.

All three parties moved for summary judgment. The motions judge held that the 1985 indemnity agreement applied to the Remediation Order and granted summary judgement in favour of Weyerhaeuser and Resolute.[7] Ontario appealed.

The Ontario Court of Appeal agreed that the 1985 indemnity agreement applied to the Remediation Order; however, it applied that decision only to Weyerhaeuser and found that Resolute had assigned its benefit under the agreement.[8]

SCC decision: the 1985 indemnity agreement does not cover the Remediation Order

By a narrow margin of 4-3, SCC overturned the courts below and found that the 1985 indemnity agreement did not apply to Remediation Order, thereby leaving Resolute and Weyerhaeuser on the hook to pay for remediation costs.

The majority’s key findings include:

• The 1985 agreement only provided an indemnity for claims brought by “third parties.” The provincial government was a party to the 1985 agreement, and therefore cannot be considered a third party.
• The 1985 agreement was intended to cover only “pollution claims” (a term defined in the agreement). The Remediation Order is not a “pollution claim” since it requires monitoring and maintenance to prevent more pollution, and is not intended to stop ongoing pollution.[9]
• The 1985 agreement must be considered in the context of prior indemnities and the settlement with Grassy Narrows and Islington First Nations. This context indicates that the 1985 indemnity agreement should apply more narrowly and was not intended to provide protection against the costs of regulatory compliance.[10]

While the “polluter-pays principle” is not referenced explicitly in the decision, the SCC has interpreted the 1985 indemnity agreement in such a way as to hold successor companies liable for past environmental contamination, as opposed to requiring the provincial government to foot the bill.

Parallels to the recent decisions in Orphan Wells and HBBC

The Resolute decision comes less than a year after the SCC released its decision in Orphan Well Association v Grant Thornton Limited, 2019 SCC 5 (“Orphan Wells”), another case in which a successor entity was liable for historic environmental cleanup costs.

In Orphan Wells, the SCC held a bankrupt energy company’s estate liable for abandonment and reclamation obligations for certain old oil and gas wells. These environmental responsibilities were found to take priority over obligations to pay back creditors in the case of insolvency or bankruptcy. Like in Resolute, the SCC in Orphan Wells overturned the appellate court below and reached a decision ensuring that taxpayers were not left paying for environmental remediation.

Please refer to the article, “Redwater – SCC Delivers the Final Word”, for an in-depth summary and analysis of the Orphan Wells decision.

The issue of ongoing regulatory liability for contamination for “non polluters” and/or successor companies was also front and center in the Hamilton Beach Brands Canada, Inc.  v Ontario (Ministry of the Environment and Climate Change), 2018 ONSC 5010 (“HBBC”).

In HBBC the Ontario Ministry of Environment issued an Order to three parties to take steps to delineate and monitor (with the potential for future remediation) ground water contamination that had migrated from an industrial property to surrounding commercial, residential and municipal lands. The contamination had occurred decades early through actions of a prior lessee of the property. The Orderees were a corporate successor of a prior owner of the property, the current owner and the current Lessee of the property.

The Ontario Environmental Review Tribunal (“ERT”) dismissed the appeal of the Order, rejecting the argument that the Order under s. 18 of the Ontario’s Environmental Protection Act could not apply to off site contamination that was not caused by the Orderees.[11] The Ontario Divisional Court, on Review, upheld the ERT decision holding that there is no geographical constraint limiting orders to the source property of the contamination.[12] Leave to appeal to the Ontario Court of Appeal was sought and refused.[13]

What comes next

The Resolute decision has not quite ended the series of legal disputes that have plagued this Dryden, Ontario site for decades, but has provided clarity on how the 1985 indemnity agreement ought to be interpreted.

In a statement, Resolute indicated that it would continue its monitoring of the site and posting of financial assurance while an appeal of the Remediation Order proceeds to the ERT.

We can help

Our team at McCarthy Tétrault has experience navigating the legal and regulatory uncertainties that arise in environmental matters. If you would like more information on these developments and their potential impact on your business, we can help. Please contact Peter Brady or Claire Seaborn with any questions or for assistance..

 

[1] R v Resolute FP Canada Inc., 2019 SCC 60 at para 4.

[2] R v Resolute FP Canada Inc., 2019 SCC 60 at para 9.

[3] R v Resolute FP Canada Inc., 2019 SCC 60 at para 13.

[4] R v Resolute FP Canada Inc., 2019 SCC 60 at para 20.

[5] R v Resolute FP Canada Inc., 2019 SCC 60 at para 20.

[6] R v Resolute FP Canada Inc., 2019 SCC 60 at para 22.

[7] Weyerhaeuser Company Limited v Ontario (Attorney General), 2016 ONSC 4652.

[8] Weyerhaeuser Company Limited v. Ontario (Attorney General), 2017 ONCA 1007. Note that in dissent, Justice Laskin had found that the 1985 indemnity agreement only applied to claims brought by third parties, and not regulatory claims by governments.

[9] R v Resolute FP Canada Inc., 2019 SCC 60 at para 14-28.

[10] R v Resolute FP Canada Inc., 2019 SCC 60 at para 30.

[11] Hamilton Beach Brands Canada Inc. v. Ontario (Environment and Climate Change), ERT Case No. 17-025.

[12] Hamilton Beach Brands Canada, Inc. v Ontario (Ministry of the Environment and Climate Change), 2018 ONSC 5010.

[13] The Ontario Court of Appeal refused leave on December 12, 2018: http://www.ontariocourts.ca/coa/en/leave/2018.htm#refused.