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Is “polluter pays” really a tenet of Canadian law?

Little good comes when the courts wade into issues of legislative policy; even less when the issue is neither fully argued by the parties nor given a balanced consideration in the decision of the court.

Drilling pump in Manitoba

The Supreme Court of Canada’s recent and much anticipated decision in Orphan Well Association, et al v. Grant Thornton Limited, et al,– more commonly known as Redwater – is a case in point.

At issue was whether bankruptcy law trumps provincial regulatory orders. Redwater Energy Corporation was an oil and gas developer in Alberta.  It held a number of development properties under the authority of the Alberta Energy Regulator (AER).  Things did not go well for Redwater. Its primary lender, Alberta Treasury Branches (ATB), called in its loan. ATB then appointed Grant Thornton LLP first as receiver and subsequently as trustee in bankruptcy of the estate of Redwater under the Bankruptcy and Insolvency Act (BIA).

Complicating matters, Grant Thornton learned of environmental site reclamation obligations that were associated with some of Redwater’s non-producing properties.  The trustee sought to realize on the valuable, producing wells and other assets and to renounce the remaining assets under the BIA. That had the effect of leaving the site reclamation to the Orphan Well Association (OWA), an industry-funded organization set up in Alberta to administer a fund established for the purpose of reclamation of so-called “orphan wells”.

The AER refused to allow the transfer of the productive licences. Instead, it issued abandonment orders requiring clean-up or posting of security for clean-up costs in relation to the renounced assets.

In the majority decision written by Chief Justice Richard Wagner, the Supreme Court applied the three-part test outlined in its 2012 decision, Newfoundland and Labrador v. AbitibiBowater Inc. The majority held that the reclamation claims were not a debt, liability or claim owing to a creditor and that they were too remote to attach a monetary value, thereby failing to satisfy the first and third criteria of the Abitibi test. Therefore the bankruptcy did not have the effect of undoing the orders and the trustee could not cherry pick the valuable assets while renouncing the rest.

That should have been it, but the majority went on to opine, “This regime has the advantage of aligning with the polluter-pays principle, a well-recognized tenet of Canadian environmental law.” The whole notion of the polluter-pays principle gets barely a mention in the appellant’s factum and nary a drop of ink in respondent’s materials. It is hard to see this principle as having been a live issue before the court. So just how well-recognized and how much of a tenet of Canadian law is “polluter pays”?

The adoption of the polluter pays principle in Canadian provincial and federal contaminated sites remediation legislation is much the result of the 1993 report of the Canadian Council of Ministers of the Environment (CCME) on contaminated sites liability That report set out 13 principles that the CCME said ought to apply. “Polluter pays”, although described as paramount, is only one of the five “underlying principles”, the others being “fairness”, “openness, accessibility and participation”, “beneficiary pays”, and “sustainable development” (i.e., integrating environmental, human health and economic concerns). Among the other seven “Specific Principles”, governments are encouraged to strive to achieve priority over all other claims or charges. However, in the 2006 restatement of the CCME principles there is express acknowledgement that, “Any provincial legislation establishing a priority in this area will be subject to federal priority in such matters as bankruptcy and other areas of federal jurisdiction.”

Arguably, Manitoba, in The Contaminated Sites Remediation Act (CSRA), is the only province that has adopted the polluter-pays approach. The CSRA establishes an allocation mechanism among potentially responsible parties (PRPs) and assigns several liability to those parties. The CSRA recognizes that “orphan shares” and “orphan sites” become the responsibility of the province.

The allocation mechanism for contaminated site clean-up in other provinces might better be described at “deepest pockets pays”, or, more typically, “last person standing pays.” Take, for example, the Ontario Environmental Review Tribunal case of Baker et al. v. Director, Ministry of the Environment (Northstar), in which former directors ultimately coughed up a $4.75 million settlement to fund major remediation costs. Even progressive British Columbia imposes several liability among PRPs, including current owners, leaving paying parties to seek recovery of remediation costs under a statutory right of civil action. As for stand-alone Manitoba, it is currently rethinking its polluter pays model, having realized the number of orphan shares associated with old sites, mostly rural, mom and pop gas stations.

The polluter-pays principle carries with it an inherent allocation of economic and social costs. Should former owners of properties and operators of factories as far back as a hundred or more years ago, if extant, be required to pay for environmental clean-up costs related to their polluting activities, even if they were carried out in accordance with the standard of the day? (One of my clients was very pleased when I tracked down the successor of the entity that polluted its property starting in 1919.) At what point should the state take responsibility for past environmental sins (which were not sins at the time) and spread the costs over the entire economy through taxation?

Now, strictly speaking, the reference in the majority decision comment can be considered as obiter. But it is Supreme Court obiter. The comment warranted the attention of Justice Suzanne Côté, for the minority, when she wrote that the majority decision instead results in a regime of “lender pays”.

Was it really necessary for the court to wade into “polluter pays” in such an off-hand way? I cite the example of R. v. Kingston (Corp. of the City), a 2004 ruling by the Ontario Court of Appeal, which deftly (and judiciously) skirted the morass of the “precautionary principle”.

Justice Russell Brown wrote in the 2018 Mikisew Cree decision,  “… an apex court should not strive to sew uncertainty, but rather to resolve it by, wherever possible (as here), stating clearly the rules.” That in mind, Redwater is a bit turbid.