An indemnity agreement may relieve a property owner of responsibility for historic pollution on a site, but not necessarily of regulatory compliance costs and ongoing monitoring, according to the Supreme Court of Canada in a recent decision.
Indemnity agreements are sometimes entered into when an asset changes hands. They’re meant to shield the purchaser from liability arising from things that took place before the asset was sold. But they have their limits, according to the Supreme Court in Resolute FP Canada Inc. v. Ontario (Attorney General).
In that case, the indemnity agreement was between the government of Ontario and Great Lakes Forest Products Limited. In 1979, Great Lakes agreed to purchase a paper mill in Dryden, Ontario and its waste disposal site from Reed Ltd. and invest $200 million to expand it. The province was eager for the sale to go through despite pending lawsuits against the mill, and agreed to cover the cost of past pollution above $15 million. Those agreements were renegotiated in 1982 and 1985 to address lawsuit settlements, but they retained the essential provision that the province would cover the cost arising from pollution-related lawsuits from third parties above $15 million.
The mill changed hands several times, but the indemnity agreement remained in effect. What came to be disputed, however, was responsibility for the costs of complying with a 2011 remediation order against the waste disposal site from the Ministry of the Environment. The order was issued to Bowater, a company in bankruptcy that owned the site at the time, and Weyerhaeuser, the previous owner. The province said repair and monitoring remained the responsibility of Bowater, which later became Resolute Forest Products, and that of Weyerhaeuser. Resolute and Weyerhaeuser disagreed.
Lower courts mostly sided with Resolute and Weyerhaeuser, but not the Supreme Court of Canada. By a narrow 4-3 majority, the Supreme Court ruled that the indemnity agreement referred only to “pollution claims” from “third parties.” The remediation order was not a “pollution claim,” said the Supreme Court. There was no evidence of pollution. The order was merely intended to ensure that no pollution occurred. Nor was the Ontario government a “third party,” as it was a party to the indemnity agreement.
The Supreme Court’s decision does not put an end to the matter, however. Resolute has stated that it will comply with the remediation order, but will also return to Ontario’s Environmental Review Tribunal to appeal it.