The Supreme Court of Canada has overturned the decision of the Ontario Court of Appeal in Resolute FP Canada Inc. v. Ontario (Attorney General) deciding that an indemnity given by the province to private corporations did not extend to the costs of complying with a provincial order to repair and test and to provide financial assurance for a waste disposal site.

Background

In the 1960s, there was a pulp and paper mill in Dryden, Ontario. A plant on the site produced chemicals to bleach the paper, which involved using mercury. At the end of the process, the waste was dumped into nearby rivers and the mercury flowed downstream, where it poisoned people. Residents of the Grassy Narrows and Islington First Nations suffered serious, long-term health effects. In 1977, two First Nations bands sued for damage from the mercury contamination.

By the late 1970s, the mill and plant were owned by a company called Reed. A site had been built to bury the waste safely. Samples were taken and tested regularly to make sure there were no leaks. Another company, Great Lakes Forest Products, was interested in buying the properties but was concerned about the lawsuit and didn’t want to be held responsible for past pollution.

Ontario’s provincial government was concerned that  the local economy would suffer if the pulp and paper mill closed and offered Great Lakes an indemnity, agreeing that it would cover costs above $15 million to settle legal claims for past pollution. In exchange, Great Lakes agreed to spend about $200 million to expand and upgrade the mill. The sale, with the indemnity agreement, closed in 1979.

The First Nations’ lawsuit was settled in 1985. As part of the settlement, the provincial government gave Great Lakes and Reed and their successors  a new indemnity to cover all claims due to previous pollution damage, including the mercury.

Ontario’s Regulatory Order

In 2009 Resolute’s corporate predecessor Bowater, which then owned the waste disposal site (now separate from the mill), filed for protection under the Companies’ Creditors Arrangement Act (“CCAA ”). In the course of the CCAA proceedings, the waste disposal site was abandoned with court approval, in 2011. But the Ontario Ministry of the Environment issued an order to Bowater and Weyerhaeuser (the previous owner).

This order 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) to 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”.

Lower Courts

Weyerhaeuser filed a notice of appeal to the Environmental Review Tribunal, seeking to revoke or amend the Director’s Order and, in May 2013, it commenced an action in Superior Court seeking a declaration that the terms of the 1985 Indemnity required Ontario to compensate it for the cost of complying with the Director’s Order.

Resolute sought leave to intervene. Ontario submitted it was not responsible for the costs of complying with the Director’s Order. All three parties moved for summary judgment.

The motion judge said the indemnity applied to the order and the government had to cover the cost. The majority at the Court of Appeal agreed that the indemnity applied but concluded, however, that Resolute was not entitled to indemnification and remitted the issue of Weyerhaeuser’s entitlement to indemnification to the Superior Court.

The Decision of the Supreme Court

The majority of judges at the Supreme Court (Justices Abella, Moldaver, Karakatsanis, and Martin) said the indemnity didn’t apply to the order. That meant Resolute and Weyerhaeuser had to cover the costs of complying with it.

The majority noted that the 1985 agreement was only intended to cover claims by third parties, not that the government would cover the company’s costs of complying with environmental regulation. The indemnity was not intended to cover claims between the government and the company.

The majority noted that the indemnity referred to “pollution claims.” But this wasn’t a pollution claim. There were no leaks and so no new pollution had occurred. The order was about monitoring and testing to prevent more pollution. The majority said the indemnity was meant to cover claims for new pollution or for mercury already present in the environment, not claims for mercury safely contained in the waste disposal site. The motion judge and the Court of Appeal had made a factual error in concluding that mercury was leaking from the site.

The dissenting minority: Justices Côté and Brown (Justice Rowe concurring) said first-party claims, such as the Ministry’s order, weren’t excluded based on the wording of the contract; they would have allowed Resolute’s appeal and dismissed Weyerhaeuser’s and Ontario’s appeals.

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 the World’s Leading Environmental Lawyers and one of the World’s Leading Climate Change Lawyers by Who’s Who Legal.

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