D&O liability for contaminated company property: Rocha revisited

As promised in our post Personal environmental liability for company property: Ontario’s ERT widens the net we have taken some time to review and reflect on the Environmental Review Tribunal’s decision and reasons  “Rocha“. We set out our observations below.

The Decision

The ERT issued its decision and reasons in Rocha v. Ontario (Environment and Climate Change) ERT Case No.: 14-043, on July 17, 2015.

That decision upheld orders by the Ministry of the Environment and Climate Change requiring preventative measures to be taken by Alberto Rocha regarding contaminated groundwater, including monitoring, recording and reporting on the contamination to delineate a plume of contamination and to contain it on-site, but not remediation.

Mr Rocha had claimed that he was merely an adviser and mortgagee to companies that owned and operated from the contaminated site, and as such was not a person having management or control of the site who should be named in the Ministry’s orders.

The Tribunal disagreed with Mr. Rocha and upheld the orders. It found that Mr. Rocha was a person with management or control of an undertaking or property and that the requirements in the orders were both necessary and advisable within the meaning of s. 157.1(1) of the Environmental Protection Act.

The Tribunal also found that, as a beneficiary only of the mortgage, Mr. Rocha was not a “secured creditor” or a “secured creditor representative” under s. 168.17 of the EPA and that, even if he were, his actions were not, for that reason alone, protected from a finding of management or control of an undertaking or property for the purpose of s. 157.1(1).

Key Issues

This is what the Tribunal had to say on some of the key issues

Did the Ministry and the Tribunal have jurisdiction to make the orders?

There is jurisdiction to issue an order under s.157.1(1) of the EPA over the “property” or the “undertaking”. Dealing with environmental issues can be on its own, and was in this case, an “undertaking” for this purpose.

This suggests that offsite environmental work could extend the Ministry’s jurisdiction to issue orders beyond the boundary of the property. The Tribunal stopped short of saying this, noting that the Appellant had refused to undertake and disputed liability for off-site the environmental work requested by the Ministry.

The Ministry may issue orders under s.157.1(1) to persons who have “management or control” over the property or undertaking.

The Tribunal drew a number of principles about the meaning of “management and control” from previous jurisprudence:

  • ““control” is not limited to direct supervision, oversight or ownership, but may be found where one person has the ability to strongly influence the conduct of another.” – P&L Tire Recycling (Environmental Appeals Board) and R. v. Sault Ste. Marie (Supreme Court of Canada)
  • It is not necessary to be the controlling mind of the company as a whole “it is only necessary that he be in a position of management or control of the undertaking that creates the risk of contamination [emphasis added] to attract liability ….” – Montague (Divisional Court)
  • “Control” [includes] de facto control by others in a position to significantly influence the management of the undertaking. It can incorporate control of the purse strings through means other than direct or daily participation in the corporation or its business” – Appletex (Environmental Appeals Board)
  • Control includes both the power to make things happen and the power to prevent them from happening – P&L Tire Recycling (Environmental Appeals Board)

Did Mr. Rocha have “management or control” of the property or undertaking?

A combination of Mr. Rocha’s dealings with the environmental issues, his loan to the company and beneficial interest (along with his wife) in the mortgage given in return, convinced the Tribunal that he had management and control of the “undertaking”.

It is not clear from the decision whether any of these considerations alone would have sufficed. The tribunal appears to have leaned heavily in drawing its conclusion on the influence of Mr. Rocha’s financial interest on his advice to the companies and his dealings with the Ministry but it remains unclear whether other more conventional advisers such as environmental consultants and lawyers need be concerned that they have “management or control” of the “undertaking” by virtue of their professional activities and advice.

Were Mr. Rocha’s activities exempt as a mortgagee?

The Tribunal rejected Mr. Rocha’s argument that his actions were those of a “secured creditor” or a “secured creditor representative” for the purpose of s.168.17 of the EPA, which did not therefore “for that reason alone” constitute “management and control”. Those expressions are defined in s. 1(1) of the EPA as:

“secured creditor” means a person who holds a mortgage, hypothec, pledge, charge, lien, security interest, encumbrance or privilege on or against property, but does not include a person who has taken possession or control of the property

“secured creditor representative” means, with respect to a secured creditor, an officer, director, employee or agent of the secured creditor, or a lawyer, consultant or other advisor of the secured creditor who is acting on behalf of the secured creditor

Taking a very narrow approach to the construction of these provisions, the Tribunal concluded that Mr. Rocha was, along with his wife, a beneficiary of the mortgage but not as such the holder of the mortgage nor a representative of the mortgagee.

In any event, Mr. Rocha’s  authority over and management of the environmental issues, his strong influence over decision-making regarding the environmental issues, coupled with his financial interest in the property, took Mr. Rocha’s activities outside those exempted by s. 168.17.

What is the Ministry’s Burden of Proof? 

The Tribunal rejected the Appellant’s submission that because of the serious consequences of a finding of management or control “there must be little doubt with respect to the control exerted by an orderee in order to conclude that [a] party is in management and control of a property.” The burden of proof is no higher than the ordinary civil burden of a balance of probabilities.

Our Conclusions and Observations

The Ministry did not allege that Mr. Rocha was directly involved in the chrome plating business that allegedly created the contamination and the plume. Effectively, therefore, Mr. Rocha appears to have been innocent of the contamination save for the suggestion that he refrained from providing further finance for the remediation.

This decision therefore continues a trend in Ontario’s jurisprudence (discussed in our previous posts) to impose personal liability for contamination of company property on individuals irrespective of whether they created it or, for that matter, whether it occurred on their watch.

The Tribunal rejected the suggestion that the orders may have a “chilling” effect on brownfields remediation but this does not really dispel the concern that this decision will dissuade directors and officers, investors, lenders and advisers from becoming involved in land contamination issues if

    • that involvement, without more, constitutes an “undertaking” that provides subject jurisdiction for Ministry Orders
    • the giving of advice, without more, may constitute “control” providing person jurisdiction for Ministry Orders
    • providing finance, without more, is a badge of “control’ providing person jurisdiction for Ministry Orders

Hopefully, the Tribunal’s acknowledgement that this case has an “unique confluence of management and financial control” means that “more” will always be required.

____________________________________________________________

Manning Environmental Law is a Canadian law firm based in Toronto, Ontario. Our practice is focussed on environmental law, energy law and aboriginal law. 

Paul Manning is a certified specialist in environmental law. He has been named as one of Canada’s leading Environmental Lawyers by Who’s Who Legal: Canada and ranked by Lexpert as one of Canada’s Leading Energy Lawyers.

As always, these posts  are provided only as a general guide and are not legal advice. If you do have any issue that requires legal advice please get in touch. Our contact details can be found here

 

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