In its decision released on Friday December 7 , 2012, the Supreme Court of Canada held that provincial environmental clean-up orders may be “claims” that can be  stayed and compromised under the federal Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 (“CCAA”).

In Newfoundland and Labrador v. AbitibiBowater Inc. (Q.C.C.A., May 18, 2010) (33797), the SCC dismissed an appeal by the province, which argued that its environmental clean-up orders were not “claims” and as such they should not be stayed or compromised under the  CCAA in AbitibiBowater’s insolvency.

The key question for the court was whether the clean-up orders, which were not expressed in monetary terms, could be translated into such terms.  The criterion to determine whether a contingent claim will be included in the insolvency process is whether the event that has not yet occurred is too remote or speculative.

In the context of an environmental protection order, this means that there must be sufficient indications that the enforcing regulatory body will ultimately perform remediation work and assert a monetary claim. If there is sufficient certainty in this regard, the court will conclude that the order can be subject to the insolvency process.

Speaking for the majority (7 to 2), Deschamps J. held that it was sufficiently certain that Newfoundland and Labrador would carry out the remediation.  Both McLachlin C. J. and LeBel J. dissented, disagreeing that the requisite level of certainty (which for the Chief Justice was a “likelihood approaching certainty”) existed.

The court did not view its decision as extinguishing environmental claims or overriding provincial inter-jurisdictional immunity. Newfoundland and Labrador’s claims were not extinguished or overridden, they were merely subjected to the insolvency process.

The reality of the decision for the province of Newfoundland and Labrador is that it is stuck with clean-up orders that it can no longer enforce and  with claims that will likely be diluted in the insolvency process. In the light of this decision, provinces will take another long hard look at their powers to pursue shareholders, directors and officers of insolvent companies.

To read the full decision please click here.