Dec 29, 2017

ONTARIO COURT OF APPEAL SUMMARIES (DECEMBER 18 – DECEMBER 22, 2017)

Weyerhaeuser Company Limited v. Ontario (Attorney General), 2017 ONCA 1007 (CanLII)

[Laskin, Lauwers and Brown JJ.A.]

Counsel:

Leonard Marsello, Tamara Barclay, and Nansy Ghobrial, for the appellant, Her Majesty the Queen as represented by the Ministry of the Attorney General

Christopher Bredt, Markus Kremer, and Alannah Fotheringham for the respondent, Weyerhaeuser Company Limited

Crawford Smith and Jeremy Opolsky, for the respondent, Resolute FP Canada Inc.

Keywords: Environmental Law, Environmental Contamination, Liability, Director’s Clean-Up Orders, Environmental Protection Act, R.S.O. 1990, c. E.19, Contracts, Indemnities, Contractual Interpretation, Factual Matrix, National Trust Co. v. Mead, [1990] 2 S.C.R. 410, Brown v. Belleville (City), 2013 ONCA 148, 114 O.R. (3d) 561, Heritage Capital Corp. v. Equitable Trust Co., 2016 SCC 19

Facts:

On August 25, 2011, the Ontario Ministry of the Environment issued a Director’s Order requiring the respondents, Weyerhaeuser Company Limited and Resolute FP Canada Inc., to perform remedial work on an abandoned mercury waste disposal site near Dryden, Ontario. The respondents are two of the previous owners of the site.

Weyerhaeuser and Resolute took the position that they enjoyed the benefit of a December 1985 indemnity provided by the Government of Ontario to earlier owners of the Dryden pulp and paper facility, including the waste disposal site. As a result, they contended Ontario was obligated to indemnify them for any costs incurred to comply with the Director’s Order.

Ontario denied the 1985 indemnity had any such effect. It took the position the indemnity only covered third party claims resulting from mercury spills emanating from the Dryden property, not the regulatory compliance costs incurred by the owners of the waste disposal site. This litigation ensued.

All parties moved for summary judgment, raising two issues: (i) whether the indemnity covers the costs of complying with the Director’s Order; and (ii) if it does, whether Weyerhaeuser and Resolute are entitled to its benefit.

The motion judge granted summary judgment in favour of Weyerhaeuser and Resolute, holding both were entitled to be indemnified by Ontario for the costs, losses, expenses, liabilities or obligations they had incurred and might incur as a result of the Director’s Order.

As set out in further detail below, the court concluded (in a 101 page decision, Laskin J. dissenting) that the motion judge did not err in finding that the 1985 indemnity covered the costs of complying with the Director’s Order. That said, the court concluded that the motion judge erred in finding that the respondents are entitled to claim indemnification under the indemnity. The court allowed Ontario’s appeal in respect of Resolute: the motion judge erred in finding Resolute enjoyed the benefit of the indemnity as a successor of Great Lakes. Thus, the court granted judgment in favour of Ontario dismissing Resolute’s claim.

As to Weyerhaeuser, the court allowed Ontario’s appeal in part, set aside the dismissal of its summary judgment motion, granted a declaration that Bowater Pulp and Paper Canada Inc. (a corporate predecessor to Resolute) assigned the full benefit of the indemnity to Weyerhaeuser under a 1998 asset purchase agreement, and directed a final adjudication by the court below on the issue of what, if any, rights Weyerhaeuser possessed as assignee of the indemnity at the time the Director’s Order was made in 2011. Justice Laskin would have allowed Ontario’s appeal in full, determining that Weyerhaeuser could not enforce the indemnity.

Chronology of Events

In the 1960s, the Dryden Paper Company Limited (“Dryden Paper”) owned and operated a pulp and paper mill in Dryden, Ontario. In 1971 Dryden Paper constructed a waste disposal site (“WDS”) on lands it owned to serve as a burial site for mercury-contaminated waste from the chlor-alkali plant. From 1971 to 1981, eight concrete cells were buried at the WDS. The cells contained stabilized mercury contaminated sludge, as well as mercury contaminated rubble and equipment from the demolished chlor-alkali plant.

In 1976, Dryden Paper and Dryden Chemicals amalgamated to form Reed Ltd. (“Reed”).

In 1979, Great Lakes purchased Reed. Ontario agreed to limit the combined liability of Great Lakes and Reed for any environmental damages caused by Reed prior to Great Lakes’ purchase of the Dryden operations to $15 million.

Between 1980 and 1984, the Governments of Canada and Ontario engaged in mediation with the Islington and Grassy Narrows First Nations to address the problems caused by the mercury discharge. Great Lakes was reluctant to contribute to any settlement payment unless it obtained releases from liability.

The indemnities required by s. 2.4(a) of the Memorandum of Agreement (“MOA”) from Ontario to Great Lakes and Reed in respect of the “issues” were contained in a scheduled document to the settlement’s December 16, 1985 Escrow Agreement entitled, “Ontario Indemnity,” which was signed by Ontario, Great Lakes, Reed, and Reed International P.L.C. (“Ontario Indemnity”). The interpretation of this indemnity lies at the heart of this litigation.

The post-1985 corporate history of Great Lakes is complex. For the purposes of this appeal, it suffices to note that in 1998, Great Lakes became Bowater, which in turn in 2010 became part of Abitibi-Consolidated Inc., which in 2012 became the respondent, Resolute.

In August 1998, Weyerhaeuser entered into an agreement with Bowater to purchase certain assets used in the Dryden pulp and paper business. Severance of the WDS property from the rest of the Dryden realty could not be obtained before closing of the agreement. As a result, severance of the WDS property ultimately was obtained about two years later, at which time Weyerhaeuser reconveyed the WDS to Bowater on August 25, 2000.

Weyerhaeuser sold the Dryden paper plant to Domtar Inc. in 2007.

In April 2009, AbitibiBowater Inc. and certain related companies, including the owner of the WDS, Bowater filed for protection under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 (“CCAA”).

The Director’s Order made clear that the named parties were not relived from complying with any other applicable order or with future orders issued in accordance with the EPA, as circumstances might require.

Weyerhaeuser filed a notice of appeal to the Environmental Review Tribunal seeking to revoke or amend the Director’s Order. Weyerhaeuser commenced this action against Ontario in May 2013.

Issues:

(1) Does the Ontario Indemnity cover the costs of complying with the Director’s Order?

(2) Do the Respondents enjoy the benefit of the Ontario Indemnity?

(3) Did the motion judge err in holding Weyerhaeuser was an assignee of the Ontario Indemnity?

(4) Is Weyerhaeuser entitled to claim indemnification under the Ontario Indemnity for the costs of complying with the Director’s Order?

(5) Did the motion judge err in holding Weyerhaeuser was a “successor” under the Ontario Indemnity?

(6) Does Resolute enjoy the benefit of the Ontario Indemnity?

Holding: Appeal allowed.

Reasoning:

(1) Yes. The motion judge did not err in law, or commit a palpable and overriding error on any question of mixed fact and law or question of fact, in arriving at his conclusion that the Ontario Indemnity entitled an indemnitee to be indemnified for the costs, losses, expenses, liabilities, or obligations it incurred or might incur as a result of the Director’s Order.

There was no legal error in the motion judge’s statement that the interpretation of a contract should start with the language of the contract. The plain meaning of the words in a contract is the logical place to start the contractual interpretation exercise. The decision-maker must always turn his or her mind to the factual matrix when interpreting a contract and the motion judge’s reasons disclose he did so.

The motion judge also did not err in law by ignoring the true nature of an indemnity. The language of an indemnity is appropriately read more broadly than covering simply claims by third parties (TransCanada Pipelines Ltd. v. Potter Station Power Ltd. Partnership (2002), 35 B.L.R. (3d) 62). The motion judge held the Ontario Indemnity contained clear and unambiguous language covering losses caused by the first party indemnitor.

Finally, the motion judge’s interpretation of the Ontario indemnity did not result in an unlawful fettering of legislative discretion. The Province has not sought by legislation to relieve itself from the financial obligations it assumed voluntarily in the Ontario Indemnity. Absent such legislation, Ontario remains bound by the terms of the deal it struck.

(2) No. Whether Weyerhaeuser or Resolute enjoy the benefit of the Ontario Indemnity turns on the determination of the second issue of contractual interpretation raised in this appeal: the meaning of the enurement clause in s. 6 of the Ontario Indemnity.

(3) The degree of specificity used by parties to identify assigned assets is a matter of negotiation and choice. Here, the parties chose to use general language to describe the “purchased assets’, including assigned contracts.

(4) The incomplete appeal record regarding the 2007 Domtar transaction is insufficient to permit the Court of Appeal to exercise its fact-finding powers under ss. 134(1) and (4) of the Courts of Justice Act, R.S.O. 1990, c. C.43 to determine that issue.

(5) The motion judge erred in his application of Brown v. Belleville (City), 2013 ONCA 148, 114 O.R. (3d) 561 to the interpretation of the enurement clause in the Ontario Indemnity. With respect, he failed to explain how the facts in this case, which differ so materially from those in Brown, could support an interpretation of the word “successor” in reference to a corporation as meaning something other than a corporate successor.

(6) The Court held that Ontario never formally conceded that Resolute, as the corporate successor of Great Lakes, had the benefit of the Ontario Indemnity. When Bowater assigned the full benefit of the Ontario Indemnity to Weyerhaeuser under the 1998 APA, it did not retain any right relating to the indemnity that it could pass on down the corporate family tree to a successor corporation. Accordingly, Resolute has no legal interest in the Ontario Indemnity upon which it can assert a claim against Ontario.

Dissent [Laskin J.A.]

(1)No. Justice Laskin concluded that the motion judge’s interpretation reflects both errors of law and is unreasonable. Properly interpreted, the 1985 Indemnity covers only pollution claims brought by third parties against the respondents. It does not indemnify the respondents for the costs of complying with the Director’s Order.

Holding: Appeal allowed.