In the red: towards a complete regime for cleaning up environmental messes in the face of bankruptcy.
I. INTRODUCTION II. THE PROBLEM OF ENVIRONMENTAL RECLAMATION AT BANKRUPTCY i. Re Redcorp Ventures Ltd ii. Harbert Distressed Investment Fund, LP v General Chemical Canada Ltd iii. Newfoundland and Labrador v AbitibiBowater Inc III. THE ATTEMPTED COMMON LAW AND STATUTORY SOLUTIONS TO ENVIRONMENTAL RECLAMATION AT BANKRUPTCY i. The Alberta Court of Appeal's Solution in Panamericana ii. The Solution Attempted in the 1997 and 2007 Amendments to the BIA and CCAA iii. The Inadequacy of Other Environmental Protection Tools IV. THE ENVIRONMENTAL PROVISIONS OF THE CCAA AND BIA: CLARIFYING UNCERTAINTIES V. THE FIRST PROPOSED SOLUTION: A SUPER-PRIORITY CHARGE OVER ALL THE PROPERTY OF THE BANKRUPT i. Environmental Harm is Reduced ii. Secured Lending Principles Suggest that a Super-Priority Charge is Fair to Secured Creditors iii. A Super-Priority Charge Burdens a Company Less Than a Reclamation Fund or a Reclamation Tax VI. THE SECOND PROPOSED SOLUTION: THE COURT SHOULD GIVE DUE WEIGHT TO THE ENVIRONMENT IN ALLOWING AND EXTENDING CCAA STAYS i. The Protection of the Public Interest is a Key Purpose of the CCAA ii. The Protection of the Public's Interest in the Environment is a Purpose of the CCAA VII. CONCLUSION
"The goal is shut down, walk away. This will be a flat spot," said the Project Manager of the Redcorp Ventures Ltd ("Redcorp") mine development in northwestern British Columbia. (1) When Redcorp began the project its end-plan for the mine site was to seal off the acid-generating rock, restore the topsoil, and allow the area to re-seed naturally. (2) In reality, Redcorp went into receivership in 2009. (3) The CEO resigned, (4) the receiver took possession of the assets to pay off the secured creditors, (5) and the site was abandoned. (6) The site did not become a flat-spot. (7) Rather, it continued to leak toxic effluent (8) into the Tulsequeah River--a major tributary to the largest salmon run in southeastern Alaska. (9)
The Redcorp story is one piece of a larger history of environmental degradation in Canada. There are approximately 10,000 abandoned mines in Canada alone (10) many of which pose health threats. (11) Abandoned sites also exist in numerous other key Canadian economic sectors such as forestry, oil production, and heavy manufacturing. (12) In 2005, the federal government earmarked $3.5 billion to clean up sites across Canada over 15 years. (13) These funds are likely insufficient: The cost of cleaning up a single mine site in the Northwest Territories ballooned to $903 million for that site alone. (14) In the United States, the cleanup of abandoned and inactive waste sites will cost as much as $100 billion and require roughly 50 years to complete. (15)
Different techniques are used in Canada to prevent companies from abandoning their site before paying remediation costs. Environmental enforcement officers can issue cleanup orders to a polluting company. (16) Some jurisdictions also establish trust funds at the outset of development. (17) Other jurisdictions tax the entire industry and create an industry-wide pollution fund. (18) In addition, the Bankruptcy and Insolvency Act (19) and the Companies' Creditors Arrangement Act (20) give the federal and provincial Crown a super-priority charge over the contaminated real property and contiguous real property of the bankrupt to be used to pay for cleanup costs.
Despite these techniques, Canada's current scheme of allocating the cost of environmental reclamation upon bankruptcy is environmentally harmful and fundamentally unjust. At bankruptcy, financially distressed companies do not comply with expensive environmental cleanup orders. Environmental trust funds and the super-priority charge have repeatedly proved grossly insufficient to fund the massive clean costs of contaminated sites. Finally, the courts have under-utilized the CCAA as an environmental remediation tool.
In Part II of this article, I highlight the problems with the Canadian remediation scheme using three cases: Redcorp, Harbert Distressed Investment Fund, LP v General Chemical Canada Ltd (21) and Newfoundland and Labrador v AbitibiBowater Inc. (22) Although the courts and Parliament have devised rules to ensure bankrupt companies fulfill their environmental duties, these three cases illustrate that these rules are inadequate. Three common themes arise in these three cases: (1) the value of Crown's super-priority charge is often worthless given that it applies to contaminated property; (1) the prevalence of secured lending typically leaves no funds for the unsecured creditors after bankruptcy; and (3) companies with environmental contamination issues have nonetheless been able to attract financing from secured lenders by carefully limiting their security to uncontaminated personal property. In Part III, the common law and legislative attempts at a solution are outlined. It will be shown that neither of these solutions has been effective. Judicial attempts to provide a solution have been limited by Parliament and have been fraught with unworkable distinctions. Parliament's creation of the super-priority charge has also proven useless given the negative value of contaminated real property. I will also explain why legislative tools outside of the bankruptcy field are useless when the responsible company is facing bankruptcy. In Part IV, I will address central uncertainties in the environmental cleanup provisions of the BIA and CCAA and I will attempt to provide clarifications. In Part V, a more complete solution to environmental cleanup at bankruptcy is presented. Specifically, this article proposes that Parliament amend section 14.06(7) of the BIA and section 11.8(8) of the CCAA such that the Crown is given a super-priority charge for environmental remediation that extends over all the assets of the bankrupt rather than just the contaminated real property and contiguous real property. I will argue that this is the preferred solution for three reasons: A priority charge over all the assets of the bankrupt (1) reduces environmental harm; (2) is fair to secured creditors; and (3) relieves ailing companies of the burden of reclamation trust funds and reclamation taxes. In this section I will also provide reasons why the courts can also decrease the prevalence of abandoned sites by placing more weight on environmental concerns during the CCAA process.
II. THE PROBLEM OF ENVIRONMENTAL RECLAMATION AT BANKRUPTCY
The problem with Canada's environmental reclamation regime at bankruptcy is simple: At bankruptcy the cost of cleanup is often transferred from the bankrupt company to the public. Therefore, there is an incentive for companies to neglect their environmental obligations before bankruptcy. The cases of Redcorp, General Chemical, and AbitibiBowater illustrate the difficulty of assigning the cost of reclamation at bankruptcy to the person responsible and the common causes of this misallocation.
i. Re Redcorp Ventures Ltd
When Redcorp filed for creditor protection under the CCAA in March 2009, their mine site in northwestern British Columbia was leaking bright orange effluent into the Tulsequah River. (23) Acute lethality testing of the effluent found that it caused 100% mortality in fish in less than three hours. (24) Flow data indicated that the effluent was annually depositing into the watershed 23,861 pounds of zinc, 5,099 pounds of copper, 122 pounds of lead, 97 pounds of cadmium, and 49 pounds of arsenic. (25) Redcorp sought an extended period of protection in May 2009. (26) Redcorp claimed that more time would allow it to install an interim effluent-treatment facility and find a buyer for the mine. (27) It was obvious to the Court that there were no interested buyers. (28) The Court lifted the creditor protection and appointed a receiver. (29) Redcorp's secured assets fell into receivership for distribution to the creditors, (30) the CEO resigned, (31) and the leaking site was abandoned. (32)
Despite the intentions of Redcorp, the provincial government, and the federal government, the tools used to ensure environmental reclamation of the site all failed to provide the funds required to clean up the site. From the outset of development, it appeared that Redcorp intended to restore the site to its natural condition. (33) Redcorp acquired the site from Cominco Ltd in 1992 and as part of this purchase Redcorp accepted the environmental liabilities associated to the site. (34) Redcorp set up a $1.2 million escrow fund to pay for the treatment of the acid effluent. (35) The government was also aware of the environmental liabilities and established four different lines of defence to ensure cleanup of the mine site. First, the operating permit granted to Redcorp by the province at the outset of development stipulated that Redcorp must clean up the mine site. (36) However, upon bankruptcy, compliance with this permit became financially impossible for Redcorp. Second, prior to bankruptcy, the province also required Redcorp to place $1.7 million in a restricted account to be used for reclamation costs for the final cleanup of the site at the conclusion of operations. (37) However, upon bankruptcy, it became clear that interim cleanup facilities for the acid water treatment facilities alone would cost $6 million to construct and $1 million a year to operate and the permanent cleanup and reclamation costs were unknown. (38) Third, as early as 2002, Environment Canada issued an environmental cleanup order under section 38 of the Fisheries Act. (39) This line of defence was also ineffective as Redcorp never complied with the order prior to bankruptcy and, after bankruptcy, Redcorp did not have the assets to comply with the order. Finally, upon bankruptcy, section 14.06(7) of the BIA and section 11.8(8) of the CCAA also gave the provincial and federal Crowns a super-priority charge on Redcorp's contaminated real property and real property "contiguous" to the contaminated real property. However, based on the actions of buyers and secured creditors, the real property was likely more liability than asset. During the CCAA process Redcorp actively solicited buyers but no one was interested. (40) The secured creditors also specifically avoided Redcorp's real property and only took security over Redcorp's personal property. (41) Furthermore, during the CCAA stay, the President of Redcorp offered security over the real property and the creditors refused it. (42)
In an effort to clean up the property as much as possible before bankruptcy, the provincial and federal Crowns argued that the Court should extend the CCAA stay to give Redcorp time to install an interim water treatment facility. (43) The secured creditors successfully fought the stay and Redcorp fell into receivership before the treatment plant became operational. Since Redcorp was significantly in debt at the time of bankruptcy, the result of the removal of the CCAA stay was that the receiver took possession of Redcorp's assets for distribution to the secured creditors at less than 100 cents to the dollar. (44) Nothing was left for the unsecured creditors. (45) The public would not receive any of the proceeds of the sale of the personal property to pay for the reclamation costs. The super-priority charge over the real property was likely worthless because the contaminated real property likely had negative value. Despite the fact that Redcorp had accepted the environmental liabilities upon purchasing the mine site, promised to clean it up in getting a permit, and was ordered to clean it up, Redcorp abandoned the site.
ii. Harbert Distressed Investment Fund, LP v General Chemical Canada Ltd
Redcorp is only one example of Canada's flawed reclamation regime. Until 2004, General Chemical Canada Ltd ("General Chemical") operated a calcium chloride plant in Amherstburg, Ontario. (46) Similar to the situation in Redcorp, the Ontario Ministry of the Environment ("MOE") required General Chemical to create a $3.4 million bond to ensure there were funds available to reclaim the plant in case of a bankruptcy. (47) The plant site contained a soda-ash settling basin that had a capacity of 9.7 million cubic metres. (48) The bond amount was calculated on the assumption that the plant would be operational for a number of years and the bond could collect interest. (49) However, a year later General Chemical became bankrupt. (50) The MOE was able to secure a settlement for a further $17 million from the plant in 2009 but the public was nonetheless left with the remaining $44 million of reclamation costs. (51) The MOE was entitled to the super-priority charge over all the contaminated real property of General Chemical pursuant to section 14.06(7) of the BIA. However, since the cost of reclamation was $64 million, the real property had negative value. (52) The motions judge described the real property as "... more liability than asset." (53) Sampling analyses of on-site wells indicated that the concentration of chloride exceeded compliance levels. (54) The MOE argued that General Chemical had a statutory duty to remediate the site that must be paid before payment to the secured creditors. (55) The Court disagreed and held that section 14.06(7) of the BIA provides the MOE with a super-priority charge that is limited to the contaminated real property of the bankrupt. (56) With regard to the proceeds from the sale of the personal property of General Chemical, the MOE merely ranks as an unsecured creditor behind the secured creditors. Not surprisingly, the secured creditor's security did not extend to the contaminated real property. (57) Rather, it expressly excluded it. (58)
In 2009, a situation similar to General Chemical almost unfolded in the northern Ontario town of Marathon. Marathon Pulp Inc owned and operated a major pulp mill in Marathon until it went bankrupt in 2009. (59) The site held over 900,000 US gallons of black and green liquors. (60) In this case the former co-owner of the mill, Tembec Industries Inc, agreed to manage the waste. However, if Tembec were to fall into bankruptcy Tembec could leave the public with massive reclamation costs. The MOE had only required that Tembec establish a $75,000 contingency fund. (61) In 2010 there were reports of 50m long plumes of black liquor that had leaked from the pulp mill into Lake Superior. (62)
iii. Newfoundland and Labrador v AbitibiBowater Inc
AbitibiBowater presents a unique example of the government issuing environmental orders to an insolvent company to clean up an environmental mess and failing to get compliance. In 2008, AbitibiBowater announced the closure of its last remaining mill operation in Newfoundland. In response, the province passed a law expropriating most of AbitibiBowater's assets in the province without compensation. (63) AbitibiBowater filed for creditor protection under the CCAA in the Quebec Superior Court. In addition to seizing most of AbitibiBowater's assets in Newfoundland, the province issued ministerial orders under the Environmental Protection Act stating that AbitibiBowater was responsible for the remediation of sites where it had operated. (64) The Quebec Superior Court estimated the cost of reclamation at potentially over $100 million. (65) AbitibiBowater's site had elevated levels of lead in the water and there were elevated levels of lead in the local population. (66) The province argued that their environmental order did not constitute a "claim" (67) under the CCAA and therefore the province could force AbitibiBowater to remedy the site despite the CCAA stay. (68) According to the province, AbitibiBowater had a statutory non-monetary obligation to remedy the site and this type of obligation did not constitute a "claim" under the CCAA.
The Quebec Superior Court held that the environmental orders were "claims" under the CCAA because the orders were "... in substance financial or monetary in nature ..." (69) as opposed to "regulatory orders" where the government insists that the person fulfill his or her statutory duties. (70) In finding that the orders were monetary orders, the Court relied on the following five factors: (1) the definition of "claim" in the BIA and CCAA is very broad and includes contingent claims for remediation work not yet performed; (71) (2) the province did not "realistically" (72) expect AbitibiBowater to comply with the orders because the province had taken possession of the sites, the province had not issued orders to other companies with liability in the area, the deadline for completion given to AbitibiBowater was unrealistically short to complete the required cleanup, and AbitibiBowater's access to funds was limited by its creditors; (73) (3) given that the province did not realistically expect AbitibiBowater to comply with the orders, the province's only remedy was to do the remediation itself which would create a debt under section 102(3) of the EPA; (74) (4) since the province now owns three of the contaminated sites, the province stood "as the direct beneficiary, from a monetary standpoint, of Abitibi's compliance with the EPA Orders;" (75) and (5) the timing of the orders, the behaviour of the province in previous hearings and the comments of the Premier of the province in a newspaper article suggested to the Court that the orders were being used to offset AbitibiBowater's NAFTA (76) claims arising out of the expropriation. (77) The Quebec Court of Appeal refused the province's leave to appeal. (78)
The province appealed to the Supreme Court of Canada who granted leave (79) but dismissed the province's appeal in a 7:2 decision. (80) Deschamps J, writing for the majority, held that the motions judge was correct to look beneath the face of the orders to determine if the "true purpose" (81) of the orders was monetary in nature and therefore could be comprised by the CCAA restructuring process. (82) She held that the CCAA gave specific and limited priority to environmental claims. (83) Specifically, section 11.8(8) gives the province a super-priority charge for the costs of remedying a site. Therefore, the motions judge could look to the true purpose of the orders because otherwise the province could use regulatory orders to artificially [create] a priority higher than the one conferred on the claim by federal legislation." (84)
Deschamps J identified two situations in which a remediation order would constitute a "claim" that could be compromised under the CCAA. First, the province creates a claim if it performs the remediation itself since section 102 of the EPA creates a "debt" in favour of the province if the province performs the work. (85) Second, the province creates a "claim" if the province does not complete the work but it is "sufficiently certain" (86) that the province will perform the remediation thus creating a debt. (87)
To determine whether it is "sufficiently certain" the province would perform the work, Deschamps J held that a motions judge could look to indicators such as whether the environmental activities are ongoing, whether the debtor is in control of the property, whether the debtor has the means to comply with the order, the effect that requiring the debtor to comply with the order would have on the insolvency process, and whether the province earmarked money for remediation. (88) On the facts of the case, while the Quebec Superior Court did not explicitly find that it was "sufficiently certain" that the province would perform the remediation, Deschamps J held that most of the motion judge's findings "... clearly rest on a positive answer to this question." (89) Deschamps J agreed that the factors considered by the motions judge were appropriate, such as the statements of the Premier in the newspaper, (90) AbitibiBowater's lack of funds, (91) the unrealistic timetable for cleanup, (92) the fact that other companies were not issued orders, (93) and the fact that AbitibiBowater was not in possession of some of the sites. (94) Deschamps J also justified her decision on various policy considerations that are addressed in Part V of this article.
In separate dissenting judgements, McLachlin CJ and LeBel J disagreed with the majority's finding that it was "sufficiently certain" the province would perform the remediation. (95) McLachlin CJ agreed that the CCAA and the BIA drew a distinction between monetary claims and ongoing regulatory obligations owed to the public. (96) She agreed that remediation work performed by the province would be a monetary claim. (97) She also agreed that remediation not performed by the province is a monetary claim where there was sufficient certainty. (98) Contrary to the majority and to LeBel J, McLachlin CJ held that, in the environmental context, the "sufficient certainty" standard should be interpreted as "likelihood approaching certainty." She held that the work already done by the province was a monetary claim but that "... there is simply nothing on the record to support the view that the Province will move to remediate the remaining properties." (99) Therefore, she held that the orders for the non-remediated sites should not have been stayed under the CCAA and the obligation should have continued to be on AbitibiBowater after the CCAA restructuring. LeBel J agreed with the Chief Justice but held that the standard of "sufficient certainty" should not be raised to the "likelihood approaching certainty" standard. (100) Even applying this lower standard, LeBel J held that "... there is no evidence that the Province intends to perform the remedial work itself." (101)
AbitibiBowater is similar to both Redcorp and General Chemical because in all three cases the government attempted to ensure the company responsible for cleanup performed the cleanup. In all three cases, the public was left with the cost of cleanup. However, the decision in AbitibiBowater rests on very unique facts. In AbitibiBowater the province had already expropriated approximately $300 million in assets including assets unrelated to the contaminated site. This fact greatly influenced the Quebec Superior Court who saw Newfoundland as trying to "... having [its] cake and eat it too." (102)
Overall, the problem of environmental reclamation at bankruptcy is clear: the current Canadian regime does not assign the cost of environmental cleanup to the company responsible. Rather, the costs are borne by the public. As I discuss in Part V, this creates an incentive for companies to neglect their environmental obligations before bankruptcy. Redcorp, General Chemical, and AbitibiBowater provide examples of the consequences of this neglect. Redcorp, General Chemical, and AbitibiBowater also illustrate three recurring factual realities that undermine the current reclamation regime: (1) the super-priority charge applies to worthless land and therefore cannot compensate the public for the reclamation costs; (2) the prevalence of secured lending typically leaves no funds for unsecured creditors; and (3) secured creditors are able to loan money to environmentally risky companies by limiting the security to uncontaminated personal property. Part III discusses in detail the range of solutions devised by the courts and Parliament to ensure the person responsible pays for cleanup and shows how each solution has proven ineffective at bankruptcy.
III. THE ATTEMPTED COMMON LAW AND STATUTORY SOLUTIONS TO ENVIRONMENTAL RECLAMATION AT BANKRUPTCY
i. The Alberta Court of Appeal's Solution in Panamericana
In Panamericana de Bienes y Servicios SA v Northern Badger Oil & Gas Ltd the Alberta Court of Appeal was forced to rule directly on the problem of how to allocate a bankrupt's unpaid environmental liabilities. (103) Northern Badger Oil & Gas Ltd ("Northern Badger") was licensed to operate 31 oil and gas wells in Alberta. (104) Panamericana de Bienes y Servicios ("Panamericana") was a secured creditor with security interests over certain Northern Badger assets including the 31 wells. (105) After Northern Badger was petitioned into bankruptcy, the receiver was able to sell all of the 31 wells except seven. (106) The seven wells were not operational and five needed to be reclaimed so that they would be environmentally safe. (107) The receiver sought to abandon these seven wells since they were more liability than asset. (108)
The Alberta Energy Resources Conservation Board ("ERCB") ordered the receiver to reclaim the seven wells pursuant to the Oil and Gas Conservation Act. (109) However, if the secured creditors' interest in the assets of the estate were to take priority over the ERCB's order to reclaim the wells, there would be insufficient assets in Northern Badger's estate to satisfy the reclamation costs. Panamericana argued that their security interest took priority over the ERCB's order for reclamation. (110)
The Alberta Court of Appeal held that the reclamation order should be paid before the secured creditors. (111) However, the Court did not say the order constituted a priority claim in bankruptcy. Rather, the Court held that the order was not a "claim" at all under the BIA. (112) The Court held that the order was an order outside of the bankruptcy process because the receiver had a public duty to comply with it. (113) The Court explained that
[t]he statutory provisions requiring the abandonment of oil and gas wells are part of the general law of Alberta, binding every citizen of the province ... [b]ut the obligation of the citizen is not to the peace officer, or public authority which enforces the law. The duty is owed as a public duty by all the citizens of the community to their fellow citizens. When the citizen subject to the order complies, the result is not the recovery of money, nor is that the object of the whole process. Rather it is simply the enforcement of the general law. The enforcing authority does not become a "creditor" of the citizen on whom the duty is imposed. (114)
Therefore, the order had to be paid out of the bankrupt's assets before the secured creditors.
The Court's solution was an effective way of ensuring that the cost of reclamation is internalized by the debtor rather than passed onto the public. However, there are four problems with the Panamericana solution. First, it did not fully address the issue of fairness to the secured creditors. In Panamericana, the cost of reclaiming the wells was effectively transferred from the public to the secured creditors. There was no discussion regarding whether it is fair for secured creditors to bear the cost of the bankrupt's obligations. I set out a principled basis for transferring the costs of the cleanup to the company and its creditors in Part V.
The second problem with the Panamericana decision is that subsequent amendments to the BIA limited the liability of receivers such that receivers could abandon a site in a way that they could not in Panamericana. (115) Panamericana held that a regulatory body could impose environmental liability on a receiver. In the Panamericana case for example, the ERCB imposed the order on the receiver and, as a result, the receiver allocated approximately $200,000 from the funds realized on the sale of the bankrupt's assets to the remediation of the abandoned wells. (116) Once the remediation funds were allocated, there was very little money left for the secured creditors. (117) However, in 1992, Parliament enacted section 14.06(2) of the BIA which protected the trustee from personal liability for the "environmental condition" of a site unless the condition was caused by the trustee's own gross negligence. (118) This protection is also available to receivers and interim-receivers. (119) In 1997, Parliament expanded this protection to the costs of cleanup. (120) Pursuant to section 14.06(4), if a regulatory body imposes an order on the receiver, the receiver is not personally liable for the order if the receiver (1) cleans up the property or (2) "abandons" the contaminated real property and releases the rights to that property. (121) The same protection exists in the CCAA for monitors. (122) Given the worthlessness of contaminated real property, the net effect of these amendments is that the receiver would choose to abandon the contaminated property rather than clean it up using the proceeds from the sale of the bankrupt's assets. Contrary to the situation following the Panamericana decision, the amendments provide the receiver with a simple avenue for abandoning the contaminated property and absolving itself of environmental liability. The amendments appear to encourage abandonment of the contaminated property.
The third problem with the Panamericana decision is that it drew a questionable distinction between cases in which the public performs the remediation and cases in which it does not. (123) The Court in Panamericana noted that the environmental order is only a duty to the public if the regulatory body has already performed the remediation itself and created a "debt." In situations where the public performs the remediation the obligation becomes financial and subject to the CCAA and BIA claims process.
Although this distinction is correct on an ordinary reading of environmental legislation that creates a "debt", this distinction is contrary to the "polluter-pay" purpose of the legislation itself. Such debt-creating sections allow the public to ensure the polluter pays for remediation that it did not do. The purpose of these provisions was not to relieve the polluter of their public duty simply because the public was forced to move in and do the remediation itself. If the cleanup obligation can become a "claim" that can be compromised under the BIA and CCAA, this provides an incentive to failing companies to dishonour environmental orders.
In addition to being contrary to the purpose of environmental legislation, there are strong policy reasons against this distinction. This distinction creates a disincentive for the public to move in and clean up the most dangerous sites quickly. AbitibiBowater presents a stark example. In AbitibiBowater, the province decided to act quickly at some of the sites because some sites posed an immediate risk to human health due to high levels of lead and other contaminants in the soil and water. (124) Adults tested in the area of the Buchans site had elevated levels of lead in their blood. (125) There was also a structurally unsound dam. (126) Absurdly, the costs arising from these most pressing cleanup activities were the first costs that the Court automatically compromised under the CCAA whereas the less serious environmental concerns could have been classified as a "duty to the public." A polluting person should not benefit directly or indirectly from the dire environmental situation of his or her property. Unfortunately, the distinction between work performed and work not performed by the public in Panamericana was carried into subsequent amendments to the CCAA (127) and BIA (128) and into the decision in AbitibiBowater such that it is now entrenched in the law and remediation performed by the public that creates a "debt" is automatically compromised by the CCAA and BIA claims process. As a result, amendments to the CCAA and BIA are suggested in Part V.
The final problem with the solution in Panamericana is that it has been further limited by the majority's decision in AbitibiBowater, which introduced an unworkable distinction between "monetary" orders and "regulatory" orders. Despite the amendments to the CCAA and the BIA, Panamericana remains the authority for the proposition that an unperformed environmental order can be a duty to the public that the company cannot compromise in the CCAA or BIA process. However, in AbitibiBowater, Deschamps J held that even unperformed environmental obligations can be compromised in the bankruptcy process where it is "sufficiently certain" the public will perform the remediation. In addition, the court can "look behind" the formal purpose of the environmental order to determine whether its "true purpose" is monetary or regulatory.
This "monetary/regulatory" distinction analysis is unworkable. All intra vires environmental orders are aimed at protecting the environment. At the same time, an environmental order will also always have a monetary element: forcing companies to pay for their pollution inevitably requires outlays of money. A regulatory body that seeks compliance with its order will find its orders compromised by this highly subjective analysis that does not appear to operate on the basis of any underlying principles.
This analysis is also subject to control by the secured creditors. In attempting to provide guidance on the monetary/regulatory analysis, Deschamps J created a list of factors for a CCAA motions judge to look at, such as statements of government officials, the amount of funds available to the company, the effect of complying with the order on the insolvency process and whether the government has put aside money to do the work. (129) The problem with these factors is that many of them are controlled by the company and its creditors. As demonstrated in Redcorp, General Chemical, and AbitibiBowater, given the prevalence of secured lending, at bankruptcy all the remaining valuable assets are part of the secured creditors' security. Furthermore, the company and creditors can always argue that significant environmental costs must be compromised under the CCAA or there will not be a restructuring agreement. While the government controls whether it sets aside money for cleanup, an adverse inference should not be made against the public for putting aside funds to deal with environmental consequences. The Court also considered that the environmental legislation at bar contained a debt-creating provision. However, all major environmental legislation for water pollution, (130) land contamination, (131) and ocean spills (132) contain debt creating provisions. These factors give little guidance to motions judges and penalize the public for setting aside cleanup funds.
Overall, despite the limitations imposed by the AbitibiBowater decision, the ratio in Panamericana remains significant because it allows a regulatory body, in very limited situations, to continue to impose an environmental order on the company despite the CCAA restructuring or despite the BIA discharge. In the best case scenario, the company will respond to the order and use its available funds to clean up the site. However, resource extraction industries are capital intensive and can be heavily reliant on debt financing. Therefore, when commodity prices fall, the solvency of the company falls dramatically and the company is quickly unable to comply with such orders. The secured lenders can obtain a receivership order and remove the value from the company. Therefore, given the developments in the law since 1992, Panamericana no longer provides an effective means for assigning the cost of cleanup to the person responsible.
ii. The Solution Attempted in the 1997 and 2007 Amendments to the BIA and CCAA
Sections 14.06(4)-(8) of the BIA were enacted in 1997. (133) The Parliamentary debates and government materials from 1997 state that these amendments had two purposes: (1) to limit the liability of the trustee/receiver so they would be comfortable administering bankruptcies with environmental liabilities and (2) to nonetheless provide the public with an avenue to recover the cost of environmental reclamation. These amendments were part of Bill C-5, (134) tabled by Minister of Industry John Manley. When questioned in debate about these amendments and about "... whether any action has been taken to prevent the dumping of contaminated buildings and worksites on local governments ..." (135) the Minister stated:
We have given claims which stem from environmental damage priority over those of other creditors, both secured and unsecured, so that dealing with contaminated properties and properties that are adjacent to the property where the damage occurred and linked to the activity that caused the environmental damage will be able to be used as a priority claim in order to effect the cleanup. This will not only relieve some of the responsibility from local governments, but it will also ensure that trustees are willing to move in and take on some of these very difficult files. (136)
Virtually identical provisions were added to the CCAA to give the Crown a super-priority charge in the CCAA process for its environmental cleanup costs. (137) Liberal MP Ron MacDonald stated in regards to these identical amendments to the CCAA:
We were concerned because we did not want companies to be able to walk away because of environmental liabilities and leave effectively the crown or the trustee or the municipality with the burden. I am very pleased to see that basically there is a type of super-priority given to environmental clean up of these orphaned sites. (138)
In Industry Canada's "Sustainable Development Strategy" publication, it stated that the 1997 amendments further sustainable development because they.".. will help to avoid 'orphan site' problems, alert environment ministries quickly to environmental problems and provide available funds from the estate to help finance the cleanup." (139) Overall, it appears from the Parliamentary debates and government publications that the purpose of the 1997 amendments was to protect the trustee and to relieve the public of some of the cost of cleaning-up abandoned sites.
The amendments serve the first purpose well. Section 14.07(4) of the BIA and section 11.8(4) of the CCAA limit the liability of monitors, trustees, and receivers for the cleanup costs of the company. In Panamericana for example, if the remediation costs exceeded the value of the secured assets, the receiver could have been personally liable for the difference. However, following Panamericana, the monitors and receivers avoided liability in Redcorp, General Chemical, and AbitibiBowater. Overall, the amendments appear to have served the first purpose as monitors, trustees, and receivers appear to be willing to take on these "difficult files."
Unfortunately, regarding the second purpose, the amendments do nothing to relieve the public of the cost of reclamation given the extraordinary costs of cleaning up a site. The Crown's super-priority charge pursuant to section 14.06(7) of the BIA and section 11.8(8) of the CCAA only applies to the contaminated real property of the debtor and any contiguous real property to this contaminated real property. (140) Commentators have noted that such real property will not just be worthless but that it will likely have a negative value. (141) The Crown has no super-priority charge over the other property of the debtor. The Crown's claim on the debtors' remaining assets ranks merely as an unsecured claim which is divided pro rata among all the other unsecured claims. (142) The current prevalence of secured lending generally leaves no assets for the unsecured creditors. (143)
General Chemical is an example of the uselessness of the section 14.06(7) super-priority charge to relieve the public of the cost of environmental reclamation. The Ontario Crown had a super-priority charge pursuant to section 14.06(7) to reclaim General Chemical's soda-ash settling basin. However, since the cost of reclamation was $64 million, the real property had negative value. (144) Therefore the MOE argued that it should also have a priority charge over the secured personal property of the bankrupt based on Panamericana. (145) This argument was dismissed on the basis that the 1997 BIA amendments have overwritten the Panamericana reasoning. (146)
In 2007, Parliament enacted section 69.6 of the BIA, which appeared to give regulatory bodies more power to enforce their laws. (147) Section 69.6 of the BIA states that the automatic statutory stay that arises under the BIA does not affect "... actions, suits or proceedings ..." carried out by a regulatory body against the insolvent person. (148) Nearly identical provisions were added to the CCAA. (149) Section 11.1 of the CCAA states that the CCAA stay does not apply to "... actions, suits or proceedings ..." of the regulatory body. (150) These provisions would appear to allow the regulatory body to "pierce" the CCAA and BIA process to force clean up of the site before the stay falls and the creditors remove all the assets. Therefore, a regulatory body could potentially force an insolvent company to clean up its site while the other creditors cannot remove their assets because of the BIA or CCAA stay. Effectively this would give the Crown an environmental cleanup super-priority over that of secured and unsecured creditors.
However, a gauntlet of limitations is placed on these amendments. First, section 69.6 of the BIA and section 11.1 of the CCAA only come into effect when the insolvent company seeks to continue operations and actively triggers a BIA or CCAA stay against its creditors. If the company has no hope of continuing business, these stays may never be triggered in the first place and the secured creditors could then apply for a receivership order and begin to remove the assets from the property.
Second, BIA stays and CCAA stays may be too short for a company to clean up the site. For example, the initial CCAA stay lasts for 30 days at most (151) and an extension (152) is difficult to obtain and typically does not last more than a couple of months. In AbitibiBowater, the CCAA stay lasted for approximately a year but when the province attempted to impose a one year deadline on the cleanup, the Court found that this cleanup deadline was unrealistic and actually used this deadline to support a finding that the order was monetary in nature and compromised by the CCAA. (153) As discussed in Part V, the section 11.1 CCAA amendment would be more useful if courts were more willing to view environmental harm as a reason for extending CCAA stays.
The third limitation on these amendments is contained within the amendments themselves. The amendments do not apply if the regulatory body is seeking to force the company to pay the regulatory body money. (154) The amendments give the judge authority to declare whether the regulatory body should be treated as a creditor seeking to enforce payment. (155) As noted above, this inquiry is highly subjective.
The amendments also give the judge the authority to stay the regulatory orders if (1) the order would deny the possibility of a CCAA rearrangement or a BIA proposal (156) or (2) if it is in the public interest to stay the order. (157) The first limit places the power to stay the order in the hands of the company and creditor since the company and creditors could hinge the restructuring agreement or proposal on a stay of the environmental order. The second element gives the motions judge highly discretionary authority to stay environmental orders.
Overall, the 2007 amendments are limited in a similar manner as the solution in Panamericana: remediation work already performed by the public is automatically compromised by the CCAA and the BIA. Furthermore, the court is given the power to compromise unperformed remediation work. Even if the regulatory order survives the CCAA and BIA gauntlet, the company will not likely have sufficient funds to perform the cleanup.
iii. The Inadequacy of Other Environmental Protection Tools
A bankrupt company with outstanding environmental obligations presents a unique problem that cannot be effectively solved through traditional environmental protection tools. There are four classic approaches to mitigating environmental damage from resource extraction companies. The first line of defence is the environmental assessment. (158) The purpose of an environmental assessment is to predict environmental problems that are posed by a potential project and make recommendations to mitigate those problems. (159) Often, as a result of an environmental assessment, the Crown can make compliance with the recommendations a precondition to the ongoing right to carry out their business (160) and the Crown can charge the company with an offence if the company fails to comply with the preconditions. (161) Ideally, if a company violates the conditions imposed by the environmental assessment, the issuing body can threaten revocation of the company's operating certificate and the environmental mess would be remedied. (162) However, this environmental remediation tool is ineffective when a company faces bankruptcy. At bankruptcy, the company simply does not have the funds to comply with its operating conditions. Environmental assessment recommendations are typically expensive to comply with. (163) When a company faces bankruptcy, they may be the first expense to be jettisoned.
The second line of defence is basic criminal and regulatory law. (164) Ideally, an environmental officer would detect the non-compliance, issue an environmental order and the company would comply. This approach is ineffective at bankruptcy because, as discussed above, the company can neglect the environmental orders and, upon bankruptcy, argue that the orders should be considered claims and that they should be compromised by the CCAA or BIA process. Furthermore, it may be difficult to attach criminal or civil liability to the directors. Even if directors are found liable, it is highly unlikely that their personal funds could pay for the environmental remediation of an entire company site.
The third line of defence is a reclamation trust fund where the company sets aside money in trust or the company provides the Crown with cash security for the future reclamation of the site. (165) Ideally, a regulatory body could perfectly predict the amount of money required to remedy a future environmental mess and then require the company to set aside those funds. This approach is ineffective because, even if a trust fund is established, the regulatory body often vastly underestimates the requisite amount. There are three reasons for this underestimation. First, it is impossible to predict exactly the nature and extent of any future environmental damage. Even where the environmental damage exists at the outset of development there are innumerable factors affecting cleanup costs. Redcorp is an example where the damage was known at the outset of development and the cost of cleanup was nonetheless underestimated. Second, it is also impossible to predict if or when a company will go bankrupt. In General Chemical, a $3.4 million bond was created. (166) This amount was calculated on the basis that General Chemical would be operational for many years and the bond would collect interest over that time. (167) In reality General Chemical became insolvent 17 months after the bond was created. (168) Finally, regulatory bodies do not want to overestimate the size of the trust fund because this would unnecessarily reduce the company's capital base. These funds are often very significant and can assist a company in staying solvent and allow the company to better meet its obligations to its creditors. (169) In the analysis of Redcorp's economic viability, the restructuring monitor explicitly considered the inability of Redcorp to access the $3.4 million reclamation fund. (170) Therefore, the tensions and uncertainties inherent in reclamation trust funds make them a poor tool for environmental cleanup at bankruptcy.
There is also the risk that the reclamation trust will be compromised in the CCAA and BIA process. Money that is "deemed" to be held in trust by statute is nonetheless considered to be part of the bankrupt's estate that can be distributed to the creditors. (171) To be excluded from the distribution of the bankrupt's estate, the trust must meet the common law elements of a trust. (172) This can be difficult where the trust funds have been mingled with other funds or where the evidence of an intention to create a trust is lacking. (173)
The final line of defence is an industry-wide taxation scheme. (174) Such a scheme places a tax on the revenue of an entire industry and creates an industry-wide pollution fund. When a company goes bankrupt with outstanding environmental liabilities, the government can withdraw from the fund to remedy the site. Alberta, for example, uses a reclamation tax to pay for the reclamation of orphan oil wells. (175) However, reclamation taxes suffer from the same estimation problems as reclamation trusts. In Alberta, for example, in 2006 the industry wide oil well reclamation tax rate was calculated to produce a $13 million fund. (176) Suddenly, in 2013, the government increased the contribution rates 20-fold to create a $297 million fund. (177) Like reclamation trust funds, reclamation taxes are typically underestimated because such taxes have negative economic and environmental consequences. Reclamation taxes unfairly burden environmentally responsible companies with another financial obligation. This reduces a company's ability to grow economically. When the oil industry in Alberta was struggling in 2009, the government decided to inject $30 million of public money into the fund. (178) A reclamation tax also has negative environmental consequences because it does not properly internalize the cost of pollution. In other words, a company may pollute more than other companies and withdraw more money from the industry-wide fund despite that the company pays the same rates into the fund as non-polluting companies. Therefore, there would be an incentive for a company to neglect its environmental externalities since these costs will be borne by the industry in general.
Overall, the problem of environmental cleanup at bankruptcy is unique to bankruptcy and it must be squarely addressed within the bankruptcy apparatus. As will be shown in Part V, the bankruptcy tool of a super-priority charge is the most effective tool for this problem. It secures an accurate amount of money for future environmental cleanup requirements without burdening the company. It can be applied across industries at a low cost to regulatory agencies. It also prevents environmental damage from occurring in the first place by creating a disincentive to pollute.
IV. THE ENVIRONMENTAL PROVISIONS OF THE CCAA AND BIA: CLARIFYING UNCERTAINTIES
Before arguing for a super-priority charge with larger scope, I attempt to clarify the uncertainties regarding the scope of the existing super-priority charge. Commentators have noted that there are uncertainties in the language used in section 14.06(7) of the BIA. (179) Similar language is contained in section 11.8(8) of the CCAA. Since there are no reported cases that have yet awarded the Crown this priority charge, the scope of this section remains unclear. There are two questions of scope: what is the scope of costs that the Crown can seek to recoup and what is the scope of real property on which the Crown can place a charge?
On the first question, section 14.06(7) of the BIA gives the Crown a super-priority charge for only a narrow type of cleanup costs. Section 14.06(7) is explicit in that it only applies to the costs of remedying the environmental damage that affects the real property of the debtor. This limit can have significant consequences. Pollution is very mobile and typically affects properties that are not owned by the debtor. Despite the fact that the debtor may be responsible for environmental damage to Crown land, the Crown could not use the superpriority charge to recoup the cost of remediating damage to its own land. The Supreme Court of Canada in AbitibiBowater has also clarified the scope of the costs that the Crown can recover. As noted in Part III, the Court held that the Crown can claim both past cleanup costs for remediation that it has performed and future cleanup costs that have not yet been incurred but where it is sufficiently certain that the Crown will perform the remediation. (180)
On the second question, the scope of the charge is likely limited to (1) the real property on which the contamination is located; (2) real property that physically touches the contaminated real property; and (3) immovables on those two types of real property. Section 14.06(7) of the BIA gives the Crown a charge over the real property "affected" by the environmental damage and the real property that is "contiguous" with that real property and that is related to the activity that caused the environmental damage. Different interpretations of the word "contiguous" can have vastly different consequences on the size of the charge given to the Crown. According to the Oxford Canadian Dictionary, "contiguous" can either mean "touching" or it can mean "in close proximity." (181) These two possibilities can give rise to very different charges. Consider two pieces of private land separated by a right of way or a highway where one of the pieces of land is contaminated. (182) If contiguous means touching then the charge only applies to the contaminated portion. However, if it means proximate, then it applies to both pieces of land. A review of the use of the word "contiguous" in federal statutes suggests that Parliament intends "contiguous" to mean touching. All federal statutes that use the word contiguous refer to two areas that touch. (183) Therefore, the funds available to the Crown for cleanup are severely limited by the narrow scope of the section 14.06(7) super-priority charge.
V. THE FIRST PROPOSED SOLUTION: A SUPER-PRIORITY CHARGE OVER ALL THE PROPERTY OF THE BANKRUPT
This article proposes that Parliament should amend section 14.06(7) of the BIA and section 11.8(8) of the CCAA such that a super-priority charge is placed over all the property of the bankrupt. This charge would rank above secured and unsecured creditors. There are three central justifications for this solution: A super-priority charge over all the assets of the bankrupt reduces environmental harm, treats secured creditors fairly, and relieves ailing companies of the burden of reclamation trust funds and reclamation taxation schemes.
i. Environmental Harm is Reduced
A super-priority charge over the entire estate reduces incidents of environmental harm because it internalizes the cost of environmental harm. (184) The internalization of environmental costs reduces the environmental harm in two main ways: (1) Companies have an incentive to make investments in environmental protection and (2) secured creditors have an incentive to add and enforce environmental terms in their loan agreements.
Where the cost of environmental reclamation takes priority over secured creditors, secured creditors are faced with a new risk. If the creditors view the company as posing a low risk to the environment, that lower risk will be reflected in the form of lower interest rates. (185) Therefore, companies would have an incentive to make investments in environmental protection because they could attract credit at lower interest rates. (186)
Once risks are internalized, creditors can place a significant degree of pressure on companies to make investments in environmental protection. In Your Business, Your Bank and the Environment: An overview of how banks address environmental risk in the credit review process, the Canadian Bankers Association list three specific ways in which they assess risk: questionnaires, environmental management plans and environmental risk assessments. (187) The Canadian Bankers Association gives examples of what it considers before extending credit:
* [The] business' commitment to reducing or eliminating the use of hazardous materials in its processes and in its discharges into the environment. If [the] business uses hazardous materials, [the business plan] should outline how they are managed from introduction to final disposal
* What environmental management systems are in place to ensure and measure compliance with all applicable legal and regulatory requirements
* The nature and frequency of [the] business' environmental audits in monitoring performance and detecting problems before they occur (188)
A bank's environmental risk assessment can be rigorous. It may include risk management staff or independent consultants that gather information about the business. (189) The bank may require a Phase I and Phase II Environmental Site Assessment wherein the site is inspected, records are reviewed, management is interviewed, and samples of soil water and air emissions are analyzed. (190) An "environmental compliance audit" may also be required wherein the business' operating practices are reviewed to ensure they adhere to the best industry practices and regulatory requirements. (191)
By contrast, the current section 14.06(7) priority claim over only the real property gives companies less incentive to make investments in environmental protection. Under the current BIA, secured creditors can still obtain priority over reclamation costs if they obtain a security interest in the personal property of the company. Therefore, the risk of environmental harm poses no risk to secured creditors with an interest in the company's personal property. The company has little incentive to improve its environmental practices because it can still receive low interest credit despite unsound behaviour. Redcorp and General Chemical demonstrate how the current BIA does not provide the proper incentives. In both Redcorp and General Chemical the secured creditors limited their security exclusively to personal property. (192) By limiting their security to personal property, a secured creditor can avoid the environmental risk and the super-priority of section 14.06(7).
Internalizing the cost of reclamation can also have indirect environmental benefits. Although the increased cost of production may harm competitiveness in the short-term, it will encourage research and development in more environmentally-sound practices which can have beneficial impacts in the long-term. (193) The second way a super-priority charge internalizes costs is by influencing secured creditors to encourage environmental compliance in their loan agreements. Where the costs of reclamation take priority over secured creditors, the risk presented to secured creditors encourages them to add environmental terms into the loan agreement that require environmentally sound conduct. (194) There is a similar incentive for secured creditors to enforce these terms. Where the creditor is of the opinion that the company is not respecting these terms, the creditor can withdraw funding from the company. (195) Where the company is insolvent, the creditor could also force the company into bankruptcy, halting the entire operation before the debtor's misconduct creates severe environmental damage.
In AbitibiBowater, the majority apparently overlooked the tool of internalizing environmental harm as a means of ensuring the polluter pays. Deschamps J stated:
[The Province and interveners] argue that treating a regulatory order as a claim in an insolvency proceeding extinguishes the debtor's environmental obligations, thereby undermining the polluter-pay principle ... In the insolvency context, the Province's position would result not only in a superpriority, but in the acceptance of a "third party-pay" principle in place of the polluter-pay principle. (196)
With respect, there are two difficulties with this argument. First, as set out in this Part, a super-priority charge ensures the polluter pays in the long-term by internalizing costs. The polluter pays because, when pollution occurs, the price of credit will increase until the pollution stops or is reversed. Second, although advocating against a "third-party pays" principle, the effect of the Court's decision is to place the brunt of the costs of remediation on a third party: the public. In most cases the public would be left with the vast majority of costs of remediation as an unsecured lender compromised by the CCAA.
ii. Secured Lending Principles Suggest that a Super-Priority Charge is Fair to Secured Creditors
A super-priority charge over the entire estate of the debtor necessarily conflicts with the interests of other creditors because it gives the Crown a right to the property of the debtor over that of other creditors. Such a charge may be unfair to secured creditors and could have spin-off effects on the availability of capital and the economic feasibility of many important Canadian industries. Secured creditors are typically banks that are acting in the interest of a significant percentage of the public. An appropriate solution must balance the interests of the public, the company, and the creditors. Indeed, Parliament's decision to limit the super-priority charge to the bankrupt's real property through section 14.06(7) was likely an attempt to balance the interests of the public and the secured creditors. (197)
However, secured lending principles suggest that a super-priority charge over all the assets of the bankrupt is fair to secured creditors. The justification for the priority of secured creditors over unsecured creditors is based on two main principles: consent and bargain. (198) First, the priority of secured creditors is justified because unsecured creditors implicitly consent to this priority. (199) To "perfect" a security interest, typically a secured creditor must record it in a public registry or take possession. (200) This gives potential creditors notice that a charge has been placed over the assets of the debtor. Based on this notice, potential unsecured creditors are able to adjust the terms of their credit or can refuse to supply credit altogether. (201) Creditors who supply unsecured credit have accepted that their claim may be subordinated to secured creditors at bankruptcy and they can compensate for that risk with higher interest rates. Therefore, it is fair that they lose priority to secured creditors.
Second, secured creditors are entitled to priority to the secured assets because they pay for that right. Secured creditors provide credit on the condition that they are given preference to those assets. The creditor must pay for this preference. (202) Typically, the creditor pays for the priority through the form of lower interest rates. (203) An unsecured creditor does not bargain for the right of priority. Therefore it is fair that they lose priority to secured creditors.
The principles of consent and bargain support a super-priority charge for environmental reclamation. A super-priority regime would provide notice to subsequent creditors because it would be in legislation. The super-priority charge also satisfies the bargain requirement because the Crown "loans" companies the cost of clean up either for a past cleanup or for a future contingent cleanup. Furthermore, this "loan" is given at the lowest interest rate of all secured creditors: zero per cent. When the company goes bankrupt, the Crown would call in its "loan" of the costs of cleanup and would only ask for the principal. Therefore, the principles of consent and bargain support a priority charge for environmental reclamation. Creditors would be able to evaluate the risk that the Crown's super-priority charge presents before they decide to lend.
Not only is a super-priority charge fair to secured creditors, but the current absence of a super-priority charge is unfair to the public as a creditor. Under the current reclamation regime, if the reclamation fund is insufficient to pay for reclamation, the Crown is thrust into the role of "involuntary lender." (204) If the company were to go bankrupt and has outstanding environmental obligations, the Crown is forced to supply the cleanup services as a credit to the bankrupt. Furthermore, the Crown is forced into the role of creditor at the worst possible time: the moment when the debtor is guaranteed to be unable to fulfill its environmental obligations.
By forcing the Crown into the role of involuntary creditor, the current reclamation regime violates the two secured lending principles. Unlike other unsecured creditors, the Crown does not consent to being a subordinate creditor. (205) Therefore, since the priority of secured lending is justified on the basis of consent, the secured lender should not have priority over the Crown where the Crown is an involuntary creditor.
The bargain principle is also violated when the Crown is an involuntary "creditor." Unlike unsecured creditors, the Crown is unable to adjust the terms of its "credit" as the debtor grants more security to secured creditors. (206) The Crown's "credit" is fixed at the cost of reclamation. Unlike secured creditors, the Crown cannot vary the interest on this "credit" or refuse to supply it. Therefore, the basic principles underlying
the preference given to secured creditors over unsecured creditors suggest that the Crown should be given a super-priority preference.
A super-priority charge over the secured creditors can also be justified on the basis of recent amendments to the BIA. In 1992, the BIA was amended to give unpaid suppliers the right to repossess recently delivered goods. (207) This right is given super-priority over other competing security interests in the goods. (208) One of the rationales behind the 1992 amendments was to discourage harmful conduct. (209) Debtors who are insolvent or who on the eve of insolvency may order excessive amounts of supplier goods immediately before bankruptcy. (210) Therefore, by giving suppliers a super-priority to these goods, this behaviour could be discouraged.
The same rationale can be applied in the Crown's claim for environmental reclamation costs. Currently, when a company becomes insolvent or is on the eve of insolvency, they have a financial incentive to defer their environmental liabilities. For example, a mine or a pulp mill has little incentive to pay the high cost of effluent treatment if the company knows that the public will clean it up if there is bankruptcy. It is easier for the company to discharge the waste or stockpile the waste and let the public clean it up. A super-priority charge would ensure that the cost of this activity is not transferred to the public.
Parliament has been increasingly prepared to limit the rights of secured creditors in favour of certain groups. In 2005 Bill C-55 amended the BIA to give employees a priority charge over all the assets of the employer for unpaid wages and certain pension contributions. (211) Prior to these amendments, employees were merely preferred creditors. (212) By virtue of this status employee claims were often worthless since all the employers assets were typically subject to the priority of secured creditors. (213)
In a paper prepared for Industry Canada in 1998, Kevin Davis and Jacob Ziegel illustrate how a priority charge for unpaid employees would be supported by the principles of consent and bargain. (214) They note that employees may not be said to consent to extending credit to the employer because they do not anticipate non-payment of their wages. (215) Even if employees can anticipate that risk, they are not able to bargain for a risk premium because they have little knowledge of the employer's financial information. It is also far more difficult for an employee to decide to cease extending credit since this means quitting their job. (216)
The same principles of consent and bargain support a super-priority charge over all the assets of a company for environmental reclamation. The Crown does not consent to supply credit to companies who have not met their environmental obligations. Also, since the cost of reclamation is fixed and the company is bankrupt, the Crown is unable to bargain for better terms.
In AbitibiBowater, the majority apparently overlooked these principles. Deschamps J stated:
[The Province's and interveners'] objection demonstrates a misunderstanding of the nature of insolvency proceedings. Subjecting an order to the claims process does not extinguish the debtor's environmental obligations any more than subjecting any creditor's claim to that process extinguishes the debtor's obligation to pay its debts. It merely ensures that the creditor's claim will be paid in accordance with insolvency legislation. Moreover, full compliance with orders that are found to be monetary in nature would shift the costs of remediation to third-party creditors, including involuntary creditors, such as those whose claims lie in tort or in the law of extra-contractual liability. (217)
There are two oddities in this portion of the decision. First, the Court appears to say that the environment (an involuntary creditor) should be treated the same way as voluntary creditors. Second, the Court then advocates against shifting costs onto third party involuntary creditors despite that the effect of the Court's decision is to shift the costs onto a third party involuntary creditor: the public.
Some commentators have launched economic counter-arguments against the idea of a super-priority charge over all the assets of the bankrupt for the purpose of environmental cleanup. (218) These commentators have stated that such a superpriority charge would cause a "lending chill." (219) The heart of this argument is that the benefits to the environment from a super-priority charge would be outweighed by the detrimental effects to the economy. It is argued that a superpriority charge would increase the costs of production because it would increase the price of credit. It would also require companies to engage in expensive environmental audits to satisfy creditors that their company is environmentally sound. It is argued that this increase in production costs would (1) make some operations unviable which would reduce jobs and revenue; (2) harm consumers because it would increase the cost of products; and (3) harm banks and the public's deposits in those banks.
A consideration of economic principles shows that this argument is fundamentally flawed. Economic principles demonstrate that externalities result in an overall deadweight loss of societal wealth. (220) Where the true cost of production is not fully borne by an industry, that industry will produce more than the optimal rate of production. In turn, there is an overall loss of societal wealth because the costs of the higher rate of production outweigh the benefits of that production. (221) In the case of environmental reclamation, the debtor company does not internalize the cost of reclamation. The company and the secured creditor benefit from this situation because they benefit from the operation but they do not bear the environmental risk of the operation. The costs of this risk are passed onto the Crown, which leads to an overall decrease in societal wealth.
Therefore, the contention that a super-priority charge would cause some lenders to refuse to extend a loan is true but such a result is economically appropriate. (222) Companies that cannot meet their obligations to their creditors should not receive credit. This is true whether the creditors are all banks or a mix of banks and governments.
The Canadian Bankers Association ("CBA") accepts that the bank should bear the credit risks associated with a debtor's environmental obligation. On the issue of credit risk and the environment the CBA has stated:
... relief from direct liability risk would not relieve a lender from the credit risk caused by environmental liability. The lender must still contend with the possibility that a borrower may be a polluter and that cleanup obligations imposed on the borrower could cause the value of its security to be eroded or eliminated. The borrower's cash flow may be insufficient to pay for cleanup and still service the debt. For this reason, lenders will undertake due diligence procedures whenever they have a concern that a borrower's business may pose an environmental risk. (223)
Therefore, the argument that a super-priority charge over all the assets of the debtor is economically harmful is rebutted by economic principles and the view of the lending community itself.
iii. A Super-Priority Charge Burdens a Company Less Than a Reclamation Fund or a Reclamation Tax
A super-priority charge provides much more financial flexibility than a reclamation trust fund. Typically, the company has little control over the size of the fund. Furthermore a reclamation trust fund typically requires that the company set aside millions of dollars in a separate account. (224) The company cannot use these funds or leverage them to raise capital. A super-priority charge may also reduce the company's access to debt financing because creditors may be wary of the super-priority charge hanging over the property of the bankrupt. However, if the company demonstrates that it is financially responsible, it can minimize the effect of the super-priority charge. Unlike a reclamation fund, a company can have unrestricted access to all of its assets if it behaves in an environmentally responsible manner.
A super-priority charge also burdens companies less than a reclamation tax. Since taxes are general in nature, a reclamation tax either overtaxes or under-taxes some companies. Companies that are environmentally responsible must pay the same tax rates as negligent companies. "Good" companies must bear the cleanup costs of "bad" companies. In this way, a reclamation tax does not properly internalize the cost of reclamation; the environmental costs of an activity are divorced from the companies producing the damages and therefore they are encouraged to neglect more of their environmental liabilities. In order for a tax to fully internalize the cost of reclamation of each company, it must apply a specific tax equal to the cost of reclamation for that particular company. This is essentially what a super-priority charge is able to achieve. A super-priority charge assigns the cost of cleanup specifically to the company responsible. While a reclamation tax would still be useful where a super-priority charge over all the property of the bankrupt is insufficient to cleanup a site, such cases would be rare. In Alberta, for example, the value of the property of a single oil company can be far greater than the entire reclamation fund itself.
VI. THE SECOND PROPOSED SOLUTION: THE COURT SHOULD GIVE DUE WEIGHT TO THE ENVIRONMENT IN ALLOWING AND EXTENDING CCAA STAYS
Even if Parliament does not expand the scope of the super-priority charge given to the Crown under section 14.06(7) of the BIA and section 11.8(8) of the CCAA, the court can still exercise its authority under section 11.1 of the CCAA to prioritize cleanup during a restructuring. When the court orders a CCAA stay, the debtor company is temporarily able to continue operations. Pursuant to section 11.1 of the CCAA, a regulatory body may be able to force a company to comply with an environmental cleanup order while there are still assets available to the company to perform the work. However, the courts have been slow to factor in environmental concerns when deciding whether to order an initial stay order or to extend a stay order. In Redcorp for example, the Court decided to terminate the CCAA stay even though Redcorp submitted that it was in the process of installing an interim water treatment facility to treat the toxic effluent that was flowing into the Tulsequeah river. (225) When the stay fell, the creditors striped the assets from Redcorp and Redcorp never installed the treatment facility. (226)
The reason for the Court's struggle to incorporate environmental concerns into its CCAA decision is because the judge has a difficult role under the CCAA. The judge must balance the desire of the company, employees and community to keep the company alive and the desire of the secured creditors to retrieve the assets that are owed to them. The following analysis illustrates that the public interest in general has been a factor considered by the courts in allowing the stay to be granted and, in turn, for the creditors' security to be eroded. The following analysis also illustrates that the environment is increasingly being considered by the courts in CCAA proceedings. Based on these cases and the Supreme Court of Canada's pronouncements on the environment, CCAA judges should place more weight on the environment in deciding whether to allow or extend a CCAA stay.
i. The Protection of the Public Interest is a Key Purpose of the CCAA
In addition to providing a structured environment for the negotiation of compromises between a specific debtor company and its creditors, (227) the purpose of the CCAA is also to protect the public more generally. (228) Canadian courts have consistently held that one of the purposes of the CCAA is to avoid the harmful social and economic consequences that result from a halt in operations caused by forcing a company into bankruptcy. (229) The CCAA provides a mechanism for restructuring the company so that it carries on business in such a way that it minimizes harm to the creditors, employees and greater community.
Chief Justice Lesage's decision in Algoma Steel Inc (Re) (230) illustrates the importance of protection of the public interest through the CCAA. In deciding to approve Algoma Steel's Plan of Arrangement, the Chief Justice noted:
that this is the second time in a decade that Algoma has had to seek insolvency protection under the CCAA. It has been operating in difficult markets in unsettled times. But that is inherent in the nature of competitive markets. Everyone involved will have to do their part--in fact go the extra mile--to ensure to the maximum human possibility that Algoma survives--and prospers, that it is strongly competitive, innovative, flexible and able to withstand temporary adversity. It will take a cooperative team effort. The cost of failure to this beautiful northern Ontario community and the spillover to the three levels of government (including environmental concerns, welfare payments, tax losses, unemployment claims, etc.) would be immense. The benefits of success are obvious to those directly affected--employees, shareholders, pensioners, creditors--but as well there is the positive multiplier effect for the community as well as the breathing space for the three levels of government to look at flexibility and diversification programs. So in closing, I would say: "Remember the past--but build for the future." (231)
A stay order is a protective device--it is designed not only for the benefit of the debtor corporation, but also for a broad constituency of stakeholders. (232) Although the grant of an initial stay order and the grant of an extension of a stay order are distinct, they both require consideration of the public interest: the test for an extension of a stay order requires that such an order be "appropriate" (233) and the court has held that decisions regarding "appropriateness" should take into account the public interest. (234) Therefore, both the decision to make an initial stay order and the decision to extend the stay order should be considered with the public interest in mind. The Court has repeatedly held that there is a broader public dimension that must be considered and weighed in the granting or denying of a stay order. (235) Where the effect on the public interest is severe, the courts have found that the needs of the public outweigh the interests of particular creditors. For example, in Quintette Coal Ltd v Nippon Steel Corp, the British Columbian Court of Appeal observed that an important consideration in sanctioning an arrangement plan was the public's interest in having the company survive, given the significance of coal to the British Columbia economy. (236) Similarly, in Skydome Corp (Re), Blair J held that the social and economic ripple effect of the closure of the Skydome outweighed all other considerations and decided to grant Skydome Corp an initial stay order. (237) Finally, in Skeena Cellulose Inc (Re), Brenner CJ extended a stay order because, among other things, the termination of the stay order would directly affect employees, contractors and residents in northwestern B.C. (238) This determination was made despite that the extension would erode $3.5 million of creditor security. (239)
ii. The Protection of the Public's Interest in the Environment is a Purpose of the CCAA
Courts applying the CCAA have put increasing weight on the environment in its stay decisions. Environmental protection was a consideration in the decision to extend a stay order for an ailing mine in ScoZinc Ltd (Re). (240) ScoZinc was a mining corporation seeking to extend their stay order after it had already been extended 60 days. In addition to finding that ScoZinc was acting in good faith and that market conditions were improving, the Court considered ScoZinc's environmental situation:
[CEO] Mr. Felderhof's affidavit and the monitor's report demonstrate a commitment by ScoZinc to properly securing and stabilizing the mine assets and minimizing the environmental concerns that are obviously in need of addressing. The monitor in his report writes: Since the date of the Second Order, ScoZinc's management has worked diligently to continue operations of the mine and mill site, has worked to secure an investment to address concerns of the stakeholders as well as commenced the North Wall stabilization project for the purpose of securing the mine assets. Consequently, it is the Monitor's opinion that the Company has acted and is acting in good faith and with due diligence and that the proposed extension to the Stay Termination Date is appropriate and in the best interest of its stakeholders. I have no hesitation in concluding that the test for an extension of the stay has been met. The order is granted. (241)
Furthermore, Chief Justice Lesage's reasons in Algoma Steel (Re) also indicated that environmental protection is a listed consideration in the decision to grant a stay order. (242) These cases illustrate that, where environmental concerns are at issue, the motions judge should give them due weight in a decision to grant or deny a stay order. The more serious the environmental circumstances, the more heavily the environment should weigh in the decision to grant or deny a stay order.
The public's interest in the environment is widely recognized by the Supreme Court of Canada. In People's Department Stores Inc (Trustee of) v Wise (243) and BCE Inc v 1976 Debentureholders (244) the Court listed the stakeholders that company directors must consider when performing their duties and the Court explicitly included "... shareholders, employees, creditors, consumers, governments and the environment" (245) More generally, in Friends of the Oldman River Society v Canada (Minister of Transport), La Forest J noted that the environment is a diffuse subject matter, inextricably inter-related with economic, social and health issues. (246) He has also stressed that "the environment has become one of the major challenges of our time" (247) and, in R v Hydro-Quebec, he emphasized that environmental protection relates "... to a public purpose of super ordinate importance." (248)
The flexible nature of the CCAA presents an opportunity to quickly and effectively address serious and ongoing environmental damage. The CCAA was drafted in the context of an economic depression and has been an effective tool for protecting employees and their communities. (249) The Supreme Court of Canada has twice noted that "[e]veryone is aware that individually and collectively, we are responsible for preserving the natural environment ... environmental protection [has] emerged as a fundamental value in Canadian society." (250) More decisions to uphold stay orders for environmental concerns would not only preserve the natural environment but it would also uphold the public interest purpose of the CCAA.
Parliament and the courts can prevent and reduce environmental harm by assigning the cost of environmental damage to the person responsible. A super-priority charge for environmental reclamation ensures that the person responsible "pays the price" for environmentally unsound conduct because a priority charge increases the price of credit for environmentally risky operations. Of all the environmental protection tools, a super-priority charge for environmental reclamation over all the property of the bankrupt is the most effective tool for preventing outstanding environmental liabilities at bankruptcy. The cases presented in this article have shown that Parliament's decision to limit the super-priority charge to contaminated real property and contiguous real property failed to consider the realities of environmental cleanup and secured lending in the resource extraction context. In the resource extraction context, the cost of cleanup far outweighs the value of the real property. Furthermore, the prevalence of secured lending generally leaves no assets for the unsecured lenders and environmentally irresponsible companies are still able to attract credit by limiting the security they offer to creditors to uncontaminated personal property.
In Redcorp, for example, a super-priority charge might have succeeded where the reclamation fund and the regulations failed. From the beginning of the development, the operating permit required environmental remediation of the leaking site. The commencement of the Redcorp mine project was highly dependent on debtor financing. Redcorp managed to attain $142 million in secured loans. (251) If there were a super-priority charge in favour of environmental reclamation, the secured creditors would not likely have supplied Redcorp with loans unless they were ensured the site would be cleaned-up. Otherwise, due to the super-priority charge, the cost of the cleanup would derive from their security upon bankruptcy.
The Redcorp story also has a post-script. Chieftain Metals Inc purchased the Tulsequah mine site and another mine site from Redcorp for $15.5 million (252) in 2010, "debt-free." (253) The former president of Redcorp is the executive vice-president of Chieftain. (254) Like Redcorp, Chieftain assumed the environmental responsibilities of the site. (255) Also like Redcorp, Chieftain's operating permit contains environmental obligations. (256) Chieftain installed a $9 million water treatment plant that costs $4 million a year to operate. (257) In 2012, Chieftain shut down the plant due to financial difficulties and will not be able to comply with federal regulations. (258) This is also a violation of the operating permit. (259) There are also concerns about the financial viability of the operation. (260) An Alaskan senator remarked, "We were led to believe the financing was secure ... We spent a whole day, the task force, talking to the folks at Chieftain. We had assurance that their main focus was the treatment plant, that everything is hunky dory, but everything is not hunky dory." (261) Kyle Moselle of the Alaskan department of natural resources stated, "The state isn't happy until the mine is properly closed and reclaimed. Everyone agrees, but I wish I had a crystal ball for how we are going to get there." (262)
In Canada, it is especially critical to ensure the cost of reclamation is efficiently assigned. The Canadian economy is founded upon extractive industries that pose constant environmental risks. Given the importance of the environment to Canadians, the current inability of the CCAA and BIA to efficiently internalize the cost of reclamation to prevent environmental damage is unacceptable.
(1) Kate Golden, "After 50 years of toxic seep, mine cleanup to begin soon", Juneau Empire (19 October 2008) online: Morris Communications Corporation <http://www.juneauempire.com> [Golden, "After 50 years"] (Redcorp was the parent company of Redfern Resources Ltd which owned the mine site).
(3) See Re Redcorp Ventures Ltd and Redfern Resources Ltd (29 May 2009), Vancouver S091670 (BCSC) [Redcorp].
(4) See Kate Golden, "Bankrupt mine company ordered to cleanup acid", Juneau Empire (27 May 2009) online: Morris Communications Corporation <http://www.juneauempire.com> [Golden, "Bankrupt mine"]; Affidavit #5 of Terence E Chandler, Sworn 21 May 2009 at para 1 filed in Redcorp (the CEO was also the President of Redcorp and a director of Redcorp).
(5) See Redcorp, supra note 3; Receivership Order dated 29 May 2009 filed in Redcorp, supra note 3; Alvarez & Marsal Canada ULC, Redcorp. Ventures Ltd and Redfern Resources Ltd: Assets Offered for Sale, online: Alvarez & Marsal Holdings LLC <http://www. amcanadadocs.com>.
(6) See James Munson, "Redcorp's bankruptcy threatens salmon-rich Taku" Yukon News (31 July 2009), online: Yukon News <http://www.yukon-news.com>.
(8) See Redcorp, supra note 3 at paras 15-16; Affidavit of Wade Comin, Sworn 25 May 2009 at para 3 filed in Redcorp, supra note 3; Munson, supra note 6.
(9) See Munson, supra note 6.
(10) See Natural Resources Canada, National Orphaned/Abandoned Mines Initiative: 20022008 Performance Report (Ottawa: Natural Resources Canada, 2009) at 5, online: <http:// abandoned-mines.org>. See also Bill Mackasey, "Abandoned Mines in Canada" (Presentation delivered at NOAMI Orphaned/Abandoned Mines in Canada Workshop, Winnipeg, 26 June 2001) online: <http://abandoned-mines.org>.
(11) See National Round Table on the Environment and the Economy, State of the Debate on the Environment and the Economy: Greening Canada's Brownfield Sites (Ottawa: NRTEE, 1998) at 3.
(12) See Canadian Council of Ministers of the Environment, Guidance Document on the Management of Contaminated Sites in Canada (Winnipeg: CCME, 1997) at 1.
(13) See Government of Canada, Federal Contaminated Sites Portal, online: Government of Canada <http://www.federalcontaminatedsites.gc.ca>.
(14) See Bob Weber, "Giant Mine's high cleanup bill shakes up policy on toxic sites", The Globe and Mail (2 April 2013) online: The Globe and Mail Inc <www.theglobeandmail.com>.
(15) See Scott Wilsdon, "When a Security Becomes a Liability: Claims Against Lenders in Hazardous Waste Cleanup" (1987) 38 Hastings LJ 1261 at 1261, n 5; Stephen N Moelis, "CERCLA and Lender Liability: Why the Search for 'Deep Pockets' Leads to Small Change" (1990) 12 Cardozo L Rev 213 at 213, nn 1-2, cited in Jimmy Y Levy, "Landlord and Lender Liability for Hazardous Waste Cleanup: A Review of the Evolving Canadian and American Case Law" (1992) 10 Can Bus LJ 269 at 269.
(16) See e.g., Fisheries Act, RSC 1985, c F-14, s 38(6) [Fisheries Act]; Environmental Protection Act, SNL 2002, c E-14.2, s 99 [EPA].
(17) See e.g., Mines Act, RSBC 1996, c 293, s 12; Environmental Protection Act, RSO 1990, c E19, ss 131-36.
(18) See e.g., Oil and Gas Conservation Act, RSA 2000, c O-6, ss 68-77; Marine Liability Act, SC 2001, c 6, s 77.
(19) RSC 1985, c B-3, s 14.06(7) [BIA].
(20) RSC 1985, c C-36, s 11.8(8) [CCAA].
(21) 2007 ONCA 600, 35 CBR (5th) 163 [General Chemical].
(22) 2012 SCC 67, 352 DLR (4th) 399 [AbitibiBowater].
(23) See Redcorp, supra note 3 at para 15; Golden, "After 50 years", supra note 1; John Tompson, "A fresh start for Tulsequah Chief" Yukon News (26 January 2011), online: Yukon News <www.yukon-news.com>.
(24) See Affidavit of Wade Comin, Sworn 25 May 2009 at para 3 filed in Redcorp, ibid.
(25) See Golden, "Bankrupt mine", supra note 4.
(26) See Redcorp, supra note 3 at paras 19-21.
(27) See ibid at paras 21-26.
(28) See ibid at para 22.
(29) See ibid; Receivership Order dated 29 May 2009 filed in Redcorp, ibid.
(31) See Golden, "Bankrupt mine", supra note 4.
(32) See ibid.
(33) See Golden, "After 50 years", supra note 1.
(34) See Rob Robertson, "Redcorp anticipates green light for Tulsequah Chief" The Northern Miner 88:18 (24 June 2002), online: Business Information Group <http://www. northernminer.com>.
(35) See ibid; Monitor's First Report, KPMG at 15 filed in Redcorp, supra note 3.
(36) See Golden, "After 50 years", supra note 1.
(37) See Monitor's Third Report, KPMG at 17 filed in Redcorp, supra note 3 (This fund was set up pursuant to section 10 of the Mines Act, supra note 17, which allows the chief inspector, as a condition of issuing a permit, to require security. The federal government also required Redcorp to deposit $0.5 million as cash security as a condition for the authorization to alter habitat pursuant to s 35(2) of the Fisheries Act, supra note 15); Monitor's First Report, KPMG at 15 filed in Redcorp, supra note 3.
(38) See Monitor's Third Report, KPMG at 11 filed in ibid.
(39) See Affidavit #4 of Terry Chandler, Sworn 21 May 2009 at Exhibit B filed in Redcorp, supra note 3.
(40) See Redcorp, supra note 3 at para 22.
(41) See ibid.
(42) See Affidavit #4 of Terry Chandler, Sworn 21 May 2009 at para 59, filed in Redcorp, supra note 3.
(43) See Redcorp, supra note 3.
(44) See ibid at para 9.
(45) See ibid.
(46) See General Chemical, supra note 21 at para 7.
(47) See ibid at para 39.
(48) See Affidavit of Ian Parrot, Sworn 22 August 2005 at para 11 filed in General Chemical, supra note 21.
(49) See ibid at para 71.
(50) See General Chemical, supra note 21 at para 9.
(51) See General Chemical Industrial Products Inc v Director, Ministry of the Environment (26 February 2009), ERT Decision, 05-122 to 05-130, 06-216 to 06-224 at 5, online: ERT <http://www.ert.gov.on.ca/English/decisions/index.htm>.
(52) See Factum of the Ministry of the Environment at para 34 filed in General Chemical, supra note 21.
(53) Harbert Distressed Investment Fund, LP v General Chemical Canada Ltd (2006), 22 CBR (5th) 298 at para 16, 23 CELR (3d) 184 (Ont Sup Ct J) [Harbert Ont Sup Ct J].
(54) See Factum of the Ministry of the Environment at paras 35-41 filed in General Chemical, supra note 21.
(55) See General Chemical, supra note 21 at paras 54-56.
(56) Ibid at para 57.
(57) Ibid at para 42.
(59) See Tembec Industries Inc v Director, Ministry of the Environment (24 December 2009), ERT Decision, 09-144, online: ERT <http://www.ert.gov.on.ca/English/decisions/index. htm>.
(60) See ibid at 5.
(61) Ibid at 10.
(62) See Carl Clutchey, "New chemical concerns" The Chronicle Journal (22 January 2010) online: Continental Newsarticles Canada <http://www.chroniclejournal.com>.
(63) Abitibi-Consolidated Rights and Assets Act, SNL 2008, c A-1.01.
(64) See EPA, supra note 16, s 99.
(65) AbitibiBowater Inc (Arrangement relatif a), 2010 QCCS 1261 at para 6, 68 CBR (5th) 1 [AbitibiBowater QCCS].
(66) See AbitibiBowater, supra note 22 at para 6.
(67) CCAA, supra note 20, s 2(1).
(68) See AbitibiBowater QCCS, supra note 65 at paras 120-30.
(69) Ibid at para 130.
(70) Ibid at paras 120-30.
(71) Ibid at paras 146-48.
(72) Ibid at para 202.
(73) Ibid at paras 192-211.
(74) Ibid at paras 237-40.
(75) Ibid at paras 171-73.
(76) North American Free Trade Agreement Between the Government of Canada, the Government of Mexico and the Government of the United States, 17 December 1992, Can TS 1994 No 2, 32 ILM 289 (entered into force 1 January 1994).
(77) See AbitibiBowater QCCS, supra note 65 at paras 178, 188-91, 212-36; Mike Blanchfield & Sue Bailey, "AbitibiBowater Supreme Court Ruling: Bankrupt Company Can't be Forced to Clean up Site", Huffington Post (7 December 2012) online: Huffington Post <http://www. huffingtonpost.ca> (the federal government subsequently paid AbitibiBowater $130 million for the settlement of the NAFTA claim).
(78) See Newfoundland v AbitibiBowater Inc, 2010 QCCA 965, 68 CBR (5th) 57.
(79) See Newfoundland v AbitibiBowater Inc,  SCCA No 269.
(80) AbitibiBowater, supra note 22.
(81) Ibid at para 19.
(85) See ibid at para 2.
(86) Ibid at para 37.
(88) Ibid at paras 38, 58.
(89) Ibid at para 51.
(90) Ibid at para 52.
(92) Ibid at para 54.
(93) Ibid at para 55.
(94) Ibid at para 53.
(95) Ibid at paras 64-102.
(96) Ibid at para 72.
(97) Ibid at para 82.
(98) Ibid at para 83.
(99) Ibid at paras 86, 92.
(100) Ibid at para 99.
(101) Ibid at para 101.
(102) AbitibiBowater QCCS, supra note 65 at para 168. See also AbitibiBowater QCCS, supra note 65 at para 286.
(103) 81 Alta LR (2d) 45, 81 DLR (4th) 280 (Alta CA) [Panamericana].
(104) See ibid at para 3.
(105) See ibid at para 4.
(106) See ibid at para 11.
(107) See ibid.
(108) See ibid.
(109) RSA 1980, c 0-5, s 7; see ibid at para 17.
(110) Panamericana, ibid at para 14.
(111) Ibid at para 66.
(112) Ibid at paras 30-36; BIA, supra note 19, s 2.
(113) Panamericana, ibid at para 32.
(114) Ibid at para 33 [emphasis added].
(115) BIA, supra note 19, s 14.06; CCAA, supra note 20, s 11.8(8).
(116) See Elaine L Hughes, Alastair R Lucas & William A Tillman, Environmental Law and Policy, 3d ed (Toronto: Emond Montgomery, 2003) at 339.
(117) See ibid.
(118) Bill C-22, An Act to amend the Bankruptcy Act and to amend the Income Tax Act in consequence thereof, 3rd Sess, 34th Parl, 1992, cls 13-14.
(119) BIA, supra note 19, s 14.06(1.1).
(120) Ibid, s 14.06(4). Section 14.06(4) was enacted in 1997: Bill C-5, An Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act and the Income Tax Act, 2nd Sess, 35th Parl, 1997, cl 15.
(121) Ibid, s 14.06(4).
(122) CCAA, supra note 20, s 11.8(1)-(8).
(123) Panamericana, supra note 103 at para 35.
(124) AbitibiBowater, supra note 22 at para 89.
(127) CCAA, supra note 20, ss 11.1(4), 11.8(9).
(128) BIA, supra note 19, ss 14.06(8), 69.6(4).
(129) Ibid at paras 38, 58.
(130) See e.g., Fisheries Act, supra note 16, s 42.
(131) See e.g., Environmental Management Act, SBC 2003 c 53, s 59.
(132) See e.g., Canada Shipping Act, 2001, SC 2001 c26, s 180.
(133) Bill C-5, An Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act and the Income Tax Act, 2nd Sess, 35th Parl, 1997, cl 15.
(135) House of Commons Debates, 35th Parl, 1st Sess, No 269 (1 December 1995) at 17087 (Reg Alcock).
(136) House of Commons Debates, 35th Parl, 1st Sess, No 269 (1 December 1995) at 17087 (Hon John Manley).
(137) Bill C-5, supra note 133, cl 15.
(138) House of Commons Debates, 35th Parl, 2nd Sess, No 088 (22 October 1996) at 5544 (Ron MacDonald).
(139) Industry Canada, Sustainable Development Strategy (Ottawa: Industry Canada, 1997) at 9.
(140) BIA, supra note 19, s 14.06(7).
(141) See e.g., Dianne Saxe, "Trustees' and Receivers' Environmental Liability Update" (1998) 49 CBR (3d) 138 at 162; Dianne Saxe, "Throwing the Net Wider: Can Parent Companies and Lenders be Held Liable for Contaminated?" (1991) 3 Windsor Rev Legal & Soc Issues 21 at 22.
(142) See BIA, supra note 19, s 141; General Chemical Ont Sup Ct J, supra note 53 at paras 46-60.
(143) See Duggan et al, Canadian Bankruptcy and Insolvency Law: Cases, Text and Materials, 2d ed (Toronto: Edmond Montgomery Publications Limited, 2009) at 406.
(144) See Factum of the Ministry of the Environment at para 34 filed in General Chemical, supra note 16.
(145) General Chemical, supra note 21 at para 45.
(146) Ibid at para 46.
(147) Bill C-12, An Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, the Wage Earner Protection Program Act and chapter of the Statutes of Canada, 2005, 2nd Sess, 39th Parl, 2007, cl 37.
(148) BIA, supra note 19, s 69.6(2).
(149) Bill C-12, supra note 147, cl 65.
(150) CCAA, supra note 20, s 11.1.
(151) See ibid, s 11.02(1).
(152) See ibid, s 11.02(2)(a).
(153) See AbitibiBowater, supra note 22 at para 54.
(154) See CCAA, supra note 20, s 11.1(2).
(155) See ibid, s 11.1(4).
(156) Ibid, s 11.1(3)(a).
(157) Ibid, s 11.1(3)(b).
(158) See e.g., Canadian Environmental Assessment Act, 2012, SC 2012, c 19; Environmental Assessment Act, RSO 1990, c E18; Environmental Assessment Act, SBC 2002, c 43.
(159) See Canadian Environmental Assessment Act, 2012, SC 2012, c 19, s 4(1). See also Roger Cotton & Paul D Emond, "Environmental Impact Assessment" in John Swaigen, ed, Environmental Rights in Canada (Toronto: Butterworths, 1991) at 247, cited in Friends of the Oldman River Society v. Canada (Minster of Transport),  SCJ No 1,  1 SCR 3 at 71 [Oldman River Society]. See also Meinhard Doelle, The Federal Environmental Assessment Process: A Guide and Critique (Markham: LexisNexis, 2008) at 2.
(160) See e.g., Environmental Assessment Act, SBC 2002, c 43, s 37(1); Environmental Assessment Act, RSO 1990, c E18, s 9.
(161) See e.g., Environmental Assessment Act, SBC 2002, c 43, s 41(1); Environmental Assessment Act, RSO 1990, c E18, s 38.
(162) See e.g., Environmental Assessment Act, supra note 160.
(163) See Environmental Assessment Sourcebook Volume I: Policies, Procedures, and Cross-Sectional Issues, World Bank Technical Article Number 139 (1991), The World Bank, Washington DC at 20 (the cost of implementing environmental mitigation measures from an environmental assessment can range from 0-10 per cent of total project cost with 3-5 per cent of total project costs being common).
(164) See e.g., Canadian Environmental Protection Act, 1999, SC 1999, c 33, ss 274(1)-(2); Environmental Protection Act, RSO 1990, c E19, s 124(1)(b); Environmental Protection and Enhancement Act, RSA 2000, c E-12, s 126.
(165) See e.g. Mines Act, supra note 48, s 12; Environmental Protection Act, RSO 1990, c E19, ss 131-36.
(166) See Affidavit of Ian Parrot, supra note 21 at para 71.
(167) See ibid.
(168) See General Chemical, supra note 21 at paras 39-41.
(169) See e.g., BP Global, BP Establishes $20 Billion Claims Fund for Deepwater Horizon Spill and Outlines Dividend Decisions (16 June 2010), online: BP Global <http://www.bp.com> (BP $20 billion fund for the Deepwater Horizon spill).
(170) See Monitor's Third Report, supra note 37 at 17.
(171) See ibid, BIA supra note 19, s 67(1)-(2).
(172) See British Columbia v Henfrey Samson Belair Ltd,  2 SCR 24.
(173) See ibid.
(174) See e.g., Oil and Gas Conservation Act, RSA 2000, c O-6, ss 68-77; Marine Liability Act, SC 2001, c 6, s 77.
(175) See ibid, Oil and Gas Conservation Act.
(176) See Scott Haggett & Peter Galloway, "Alberta regulator plans massive fee boost for well reclamation" Reuters Canada (12 March 2013) online: Thomson Reuters Corporate <http:// ca.reuters.com>.
(178) See Government of Alberta, News Release, "Province announces three-point incentive program for energy sector" (3 March 2009) online: Government of Alberta <http://alberta. ca>.
(179) See e.g., Saxe, "Trustees' and Receivers' Environmental Liability Update", supra note 141 at 162.
(180) See AbitibiBowater, supra note 22 at paras 2, 37.
(181) The Oxford Canadian Dictionary, thumb index ed, sub verbo "contiguous."
(182) See e.g., Saxe, "Trustees' and Receivers' Environmental Liability Update", supra note 141 at 162.
(183) See Mackenzie Valley Resource Management Act, SC 1998, c 25; Yukon Environmental and Socio-economic Assessment Act, SC 2003, c 7; Interpretation Act, RSC 1985, c I-21; United States Wreckers Act, RSC 1985, c U-3; Oceans Act, SC 1996, c 31.
(184) See Kathryn R Heidt, "Cleaning Up Your Act: Efficiency Considerations in the Battle for the Debtor's Assets in Toxic Waste Bankruptcies" (1988) 40 Rutgers L Rev 819; Ernst & Young, Lender Liability for Contaminated Sites: Issues for Lenders and Investors (Ottawa: National Roundtable on the Environment and the Economy, 1992) at 27-29; Levy, supra note 15 at 302-04.
(185) See Lucian Arye Bebchuk & Jesse M Fried, "The Uneasy Case for the Priority of Secured Claims in Bankruptcy: Further Thoughts and a Reply to Critics" (1997) 82 Cornell L Rev 1279 at 1319-20; Heidt, ibid at 839-41.
(186) See Bebchuk, ibid; Heidt, ibid.
(187) Canadian Bankers' Association, Your Business, Your Bank and the Environment: An overview of how banks address environmental risk in the credit review process (Toronto: Canadian Bankers' Association, 2000) at 3-6.
(188) Ibid at 4-5 [emphasis added].
(189) See ibid at 5.
(190) See ibid at 6.
(191) See ibid.
(192) Redcorp, supra note 3 at para 6; General Chemical, supra note 21 at para 14.
(193) See Heidt, supra note 184 at 833-34.
(194) Bebchuk, supra note 185 at 1316-17.
(195) Ibid at 1317-18.
(196) AbitibiBowater, supra note 22 at para 40.
(197) See ibid at para 32.
(198) See Royston M Goode, "Is the Law Too Favourable to Secured Creditors?" (1984) 8 Can Bus LJ 53 at 57; Bebchuk, supra note 185 at 1287-1301.
(199) See Bebchuk, ibid at 1287; Goode, ibid.
(200) See Duggan, supra note 143 at 344; Personal Property Security Act, RSO 1990, c P10, s 23.
(201) See Bebchuk, supra note 185 at 1295-99.
(202) See Duggan, supra note 143 at 175.
(203) See ibid at 175.
(204) See Bebchuk, supra note 185 at 1284-87, 1293-99.
(205) See Bebchuk, ibid at 1293-1299.
(206) See Bebchuk, ibid at 1293-1299.
(207) Bill C-22, supra note 118 at cl 38.
(208) BIA, supra note 19, ss 81.1, 81.2; see Roderick L Wood, Bankruptcy and Insolvency Law (Toronto: Irwin Law, 2009) at 131.
(209) See Wood, ibid at 132.
(210) See ibid.
(211) Bill C-55, An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts, 1st Sess, 38th Parl, 2005, cl 67. See BIA, supra note 19, s 81.3-81.5. Similar provisions were added to the CCAA in 2007 which came into force in 2009: Bill C-12, An Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, the Wage Earner Protection Program Act and chapter of the Statutes of Canada, 2005, 2nd Sess, 39th Parl, 2007, cl 78. The types of pension contributions given a super-priority are: "(1) contributions deducted from employees' salaries but not remitted to the pension fund, (2) contributions owed by an employer for the cost of benefits offered under the pension plan, excluding amounts payable to reduce an unfunded pension liability, and (3) contributions owed by an employer to a defined contribution plan. Obligations relating to unfunded pension liabilities, including special payments or solvency payments ordered to be paid by a regulator but not remitted to the pension fund, are not intended to be captured by the reform and will not be given a higher priority. If an unfunded pension liability exists and a claim is made, it would be treated as an unsecured debt.": Industry Canada, Corporate and Insolvency Law and Policy, CCAA: Treatment of tax, wages and pensions claims, Clause by Clause Briefing Book, (Ottawa: Industry Canada, 6 September 2011), online: Industry Canada <http://www. ic.gc.ca>. Regarding the lower priority of unfunded pension liabilities, see also Sun Indalex Finance, LLC v United Steelworkers, 2013 SCC 6 at para 81, 354 DLR (4th) 581.
(212) See Wood, supra note 208 at 135.
(213) See ibid; Duggan, supra note 143 at 406.
(214) Kevin Davis & Jacob Ziegel, "Assessing the Economic Impact of a New Priority Scheme for Unpaid Wage Earners and Suppliers of Goods and Services" (Prepared for Industry Canada: Corporate Law Policy Directorate, 1998) at 13-15. See also Duggan, supra note 143 at 40506.
(215) Davis, ibid.
(216) See ibid.
(217) AbitibiBowater, supra note 22 at para 40.
(218) See e.g.,Barry Spiegel, "Proposed Environmental Super Lien May Cause Lending Chill" (25 May 2001) online: Willms & Shier Environmental Lawyers LLP <http://www.willmsshier.com>.
(220) See Nicholas G Mankiw et al., Principles of Microeconomics, 2d ed (Toronto: Thomas Canada, 2002) at 205-11.
(221) See ibid at 210-11.
(222) See Bebchuk, supra note 185 at 1320-21.
(223) Canadian Bankers Association, Sustainable Capital: The Effect of Environmental Liability in Canada on Borrowers, Lenders and Investors (November 1991) at 13 [emphasis added].
(224) See e.g., Redcorp, supra note 3.
(225) Redcorp, supra note 3 at 17-18.
(226) See Munson, supra note 6.
(227) See Re Lehndorff General Partner Ltd (1993), 17 CBR (3d) 24 at para 5, 9 BLR (2d) 275.
(228) See Stelco Inc (Re), (2005), 9 CBR (5th) 135 at paras 32ff, 2 BLR (4th) 238, (Ont CA); Metcalfe & Mansfield Alternative Investments II Corp, (Re), 2008 ONCA 587 at paras 44-61, 45 CBR (5th) 163, (Ont CA); Cliffs Over Maple Bay Investments Ltd v Fisgard Capital Corp, 2008 BCCA 327 at paras 27-29, 296 DLR (4th) 577; Chef Ready Foods Ltd v Hongkong Bank of Canada (1990), 51 BCLR (2d) 84 at para 22, 4 CBR (3d) 311, (BCCA) [Chef Ready]. See also Janis Sarra, Rescue! The Companies' Creditors Arrangement Act (Toronto: Thompson Carswell, 2007) at 9.
(229) See e.g., Chef Ready, ibid; Sklar-Peppler Furniture Corp v Bank of Nova Scotia (1991), 8 CBR (3d) 312 at 314, 86 DLR (4th) 621, (Ont Gen Div) [emphasis added]. See also Sarra, ibid at 9.
(230) 30 CBR (4th) 1, 2002 CanLII 49571 (Ont Sup Ct Jus).
(231) Ibid at para 8 [emphasis added].
(232) See Chef Ready, supra note 118.
(233) CCAA, supra note 10, s 11.01.
(234) See Skeena Cellulose Inc (Re) (1001), 1001 BCSC 1413 at para 10, 19 CBR (4th) 157, (BCSC).
(235) See Skydome Corp (Re) (1998), 16 CBR (4th) 118, 1998 CarswellOnt 5911, (Ont Gen Div); Quintette Coal Ltd v Nippon Steel Corp (1990), 1 CBR (3d) 303, 51 BCLR (1d) 105, (BCCA) leave to appeal refused (1991), 7 CBR (3d) 164, 135 NR 317 (note) (SCC) [Quintette].
(236) See Quintette, ibid.
(237) Supra note 135.
(238) Supra note 234.
(239) See ibid at para 12.
(240) 2009 NSSC 108, 52 CBR (5th) 200.
(241) Ibid at paras 15-17 [emphasis added].
(242) Supra note 230 at para 8.
(243) 2004 SCC 68 at para 42,  3 SCR 461.
(244) 2008 SCC 69,  3 SCR 560 at para 39.
(245) Peoples Department Stores Inc (Trustee of) v Wise, supra note 239 at para 42; BCE Inc v 1976 Debentureholders, ibid at para 39 [emphasis added].
(246) Oldman River Society, supra note 169 at para 39.
(247) Ibid at para 1.
(248) R v Hydro-Quebec,  3 SCR 213 at para 85, 118 CCC (3d) 97.
(249) See Chef Ready, supra note 228.
(250) Ontario v Canadian Pacific Ltd,  2 SCR 1031 at para 60, 125 DLR (4th) 385 cited in 114957 Canada Ltee (Spraytech, Societe d'arrosage) v Hudson (Town), 2001 SCC 40 at para 1, 200 DLR (4th) 419.
(251) See Redcorp, supra note 3 at para 8.
(252) See Joan Kuyek, "Risk Analysis of the Chieftain Metals Tulsequah Chief Mine Proposal" Rivers Without Borders (20 February 2012) online: Rivers Without Borders <http://www. riverswithoutborders.org>.
(253) "Tulsequah mine's opening plans revived", CBC News (5 January 2011) online: CBC <http://www.cbc.ca>.
(254) See John Tompson, "A fresh start for the Tulsequah Chief" Yukon News (26 January 2011) online: Yukon News <http://www.yukon-news.com>; ibid.
(255) See Chris Zimmer, "Chieftain Metals' Tulsequah Chief Mine Proposal Faces Major Obstacles Despite New Chinese Partner" Rivers Without Borders (3 October 2012) online: Rivers Without Borders <http://www.riverswithoutborders.org>.
(256) See ibid.
(257) See Russell Stigall, "State to Chieftain: Keep us in the loop" Juneau Empire (20 July 2012) online: Morris Communications Corporation <http://www.juneauempire.com> [Stigall, "State to Chieftain"]; "Groups raise alarm after mine shuts down water treatment", CBC News (28 June 2012) online: CBC <http://www.cbc.ca>.
(258) See "Groups raise alarm after mine shuts down water treatment", CBC News (28 June 2012) online: CBC <http://www.cbc.ca>.
(259) See Zimmer, supra note 255.
(260) See ibid.
(261) See Russell Stigall, "Chieftain Metals raise questions with legislators, partner" Juneau Empire (1 August 2012) online: Morris Communications Corporation <http://www.juneauempire. com>.
(262) See Stigall, "State to Chieftain", supra note 257.
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|Publication:||University of Toronto Faculty of Law Review|
|Date:||Mar 22, 2011|
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