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Supreme Court to decide limits of pollution liability indemnification

October 18, 2018   by Greg Meckbach

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Does a pollution liability indemnification agreement made in 1985 by a provincial government apply when the same government tries to force companies to pay environmental remediation costs 26 years later?

Ontario judges disagree, so the question is now before the Supreme Court of Canada, which announced Thursday it is allowing Resolute Forest Products Inc. and the Ontario government to appeal a divided 2017 Court of Appeal for Ontario ruling.

Until the top court issues a ruling, there is bound to be some uncertainty for risk managers at corporations with some connection to polluted land.

Weyerhaeuser Company Limited v. Ontario (Attorney General) ultimately had its roots in a lawsuit – filed in 1977 by two First Nations bands – against a different firm, Dryden Paper Company Limited, which at the time operated a pulp and paper mill that released mercury during the 1960s.

That suit was eventually settled but a live issue today is who has to pay for environmental remediation of the land.

Resolute was previously known as AbitibiBowater, a successor company to Great Lakes Forest Products Limited, which had bought the Dryden mill from Dryden Paper in 1979.

In 2011, the Ontario Ministry of the Environment made an order to several parties, including Bowater, some directors and officers as well as to Weyerhaeuser, another forest products firm that bought some of the Dryden assets in 1998.

Weyerhaeuser opposed the order and ended up taking the Ministry of the Environment to court.

No one is saying either Weyerhaeuser or Resolute was responsible for the pollution but Weyerhaeuser had title to the disposal site, which was later transferred to Bowater, which no longer has title to it. The part of the site that Weyerhaeuser bought was sold in 2007 to another company.

Specialty insurance will sometimes cover the cost of complying with remediation orders, which can be quite high because in some cases the government orders a company or individual to pay the entire cost of pollution cleanup, which can sometimes be in the millions.

Ontario’s environment ministry has broad powers under provincial law to issue remediation and clean-up orders to any company or individual deemed to have management or control of a property, regardless of who is actually at fault.

In the case of Weyerhaeuser and Resolute, the companies and people named in the 2011 order were told by ministry officials to conduct environmental monitoring and make payments to the Ontario government.

But Weyerhaeuser said an agreement made in 1985 means it should not have to pay costs of complying with the 2011 remediation order.

Judge Glenn Hainey of the Ontario Superior Court of Justice agreed in his ruling, released July 19, 2016.

The Ministry of the Environment appealed. Two judges (Peter Lauwers and David Brown) hearing the appeal rejected most of the province’s arguments. Justice John Laskin (who retired this past March) dissented.

Despite their findings against the province, Lauwers and Brown did make findings against Resolute, which had intervener status at the time. They ruled that when Bowater sold assets used in the Dryden pulp and paper business to Weyerhaeuser in 1998, Bowater assigned the “full benefit” of the 1985 indemnity agreement to Weyerhaeuser. This, the majority found, means Bowater no longer has any right under that indemnity that it could otherwise have passed onto a corporate successor – in this case, Resolute.

That finding could be overturned if the Supreme Court of Canada rules in favour of Resolute.

In 1985, the Ontario government agreed to indemnify Great Lakes and Dryden Paper “from and against any obligation, liability, damage, loss, costs or expenses incurred” as a result of “the discharge or escape or presence of any pollutant … including mercury or any other substance, from or in the plant or plants or lands or premises” owned at the time by Dryden Paper.

This was part of the settlement agreement in which Dryden and Great Lakes agreed to pay more than $12 million.

In dissenting reasons, Judge Laskin sided with the Ontario government, arguing the indemnification agreement was “limited to pollution claims and proceedings brought by third parties,” rather than the costs of complying with an MOE remediation order which Judge Laskin says is a first-party claim, not a third-party claim.

But in ruling against the province in 2016, Judge Hainey said the province agreed to “indemnify Great Lakes for any costs or expenses resulting from any claim or proceeding, which may be asserted thereafter by a government, including any province or statutory agency with respect to the discharge or presence of any pollutant on the Dryden property.”

That part of Judge Hainey’s ruling was sound,  Judge Brown of the appeal court wrote for the majority.