newfoundland and labrador v. abitibibowater - seima issues symposium... · nature, could...

M PHERSON LESLI EAC

& TYERMAN LLP

LAW YERS

Newfoundland and Labrador v.

AbitibiBowater: What Remains When the Dust Has Settled?

Presented by Jeff Lee, Q.C.

M PHERSON LESLI EAC

& TYERMAN LLP

LAW YERS

� The information in this presentation is provided as an information service by MacPherson Leslie & TyermanLLP. The information is general in nature and does not constitute legal advice.

www.mlt.com Regina | Saskatoon | Calgary | Edmonton

LAWYERS

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Introduction

� We’ll focus today on the intersection of environmental law and insolvency law

� We’ll discuss the extent to which those environmental claims can and will be compromised

� What remains when the dust has settled.


LAWYERSAre Environmental Obligations Claims?

� Addressed in Newfoundland and Labrador v.

AbitibiBowater Inc.

Background

� December 4, 2008 Abitibi announced closure of last remaining mill in Newfoundland.

� On December 16, 2008, the Province introduced and passed the Abitibi-Consolidated Rights and Assets Act

which transferred most of Abitibi’s property to the Province, without compensation or redress.

� April, 2009 Abitibi filed a notice of intent to submit a claim to arbitration under NAFTA for its losses, as well as sought and obtained protection under the CCAA.

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� June, 2009, Province asked Abitibi to provide environmental site assessment reports.

� The Province eventually retained its own environmental consultants and the reports concluded 5 Abitibi sites suffered from extensive contamination in excess of standards.

� On November 12, 2009, the Minister of Environment and Conservation issued 5 ministerial orders against Abitibi pursuant to s. 99 of the Environmental Protection Act.

� 3 of the 5 contaminated sites were confiscated by the Abitibi Act and now belonged to the Province.

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� The Province also brought a motion to the CCAA Court (the Quebec Superior Court) for a declaration that the EPA Orders were not subject to the stay of proceedings granted to Abitibi and were not claims subject to compromise under any plan of arrangement to be filed by Abitibi in the CCAA proceedings.

� The Province argued that the EPA Orders required Abitibi to take steps to comply with its statutory obligations for the protection of the environment, which are public duties owed to the community in general.

� The Province stated, as the enforcing authority, therefore does not act as a "creditor" of the person owing the duty.

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Quebec Superior Court

�Province’s motion was heard by Gascon J. on February 24-26, 2010.

�Gascon J. concluded that the EPA Orders were "financial or monetary in nature" and dismissed the Province's motion.

�His conclusion was based primarily on his finding that compliance with the orders would require the expenditure of a considerable amount of money.

�Gascon J. placed considerable emphasis on the fact that the Province, having expropriated some of the lands, would wind up being the beneficiary of those expenditures.

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� Gascon J. therefore concluded that Abitibi's liability to perform the remediation work under the EPA Orders (at least for the three sites now owned by the Province) could be viewed as an asset for the Province.

� Gascon J. held that the EPA Orders were claims and thus subject to compromise under the CCAA.

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� Gascon J. also enumerated a number of additional factors:

� the Province likely never expected Abitibi to comply with the EPA Orders;

� on a previous motion in the CCAA proceedings, the Province had argued that it was, in fact, a creditor of Abitibi in part because of various environmental claim;

� with respect to one of the sites, the Province had begun the process of seeking third party tenders for the remedial work;

� the jurisdiction to make orders under the EPA is specifically couched in monetary terms.

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� Gascon J. concluded that the Province's attempt to fashion itself a "super-priority" for the satisfaction of its environmental claims was contrary to the principles of the CCAA and unjust vis-à-vis Abitibi's other creditors whose claims are stayed and will be compromised.

� Gascon J. essentially adopted Abitibi's position that the Province was acting in bad faith, and that the EPA Orders were not bona fide regulatory orders but rather a colourable attempt by the Province to create for itself a claim that would survive the CCAA process so it could be used to offset Abitibi's own NAFTA claim for compensation.

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� Gascon J.'s judgment has extremely far reaching consequences.

� This broad definition of claim would cover any environmental remediation order for lands not currently owned by a debtor company, or for which land the cost of remediation would exceed the increase in its net value.

� The definition would undoubtedly cover innumerable other regulatory orders, both within and outside the environmental context.

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Supreme Court of Canada

�The Province successfully obtained leave to appeal to the Supreme Court of Canada

�The appeal was heard November 16, 2011 and a decision was rendered by the Court December 7, 2012.

�Deschamps J, writing for the majority, dismissed the appeal.

�McLachlin C.J. dissented.

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� Conclusions to be drawn from the case:

� the regulatory body must issue an order as a prerequisite to establishing a claim;

� the regulatory legislation must have a debt-creating provision.

� Supreme Court of Canada leaves a number of questions unanswered:

� what factors may properly bear on the contingency analysis?

� who bears the onus of establishing "sufficient certainty"?

� In such circumstances, must the regulator seek, as the Province did here, a declaration that it does not have a claim in order to protect its interests post-emergence?

� Or should it be up to the debtor company to bring the claim within the insolvency proceedings to have it compromised?

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� Additional practical issues that may arise in the future include:

� the valuation of contingent environmental claims;

� the classification of regulatory creditors for voting purposes; and

� where a regulatory order is found not to be a contingent claim, whether the regulator is restricted in any way, post-emergence, from converting that obligation to a debt.

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LAWYERS

Summary: Are Environmental

Obligations Claims?

� Environmental remediation orders will be treated in one of three ways when a debtor company enters restructuring:

1. the regulator has issued the environmental remediation order andactually takes steps to perform the remediation work itself and claim a debt against the company, as the legislation entitles it to do.

2. where the regulator has issued the environmental remediation order, has not taken steps to perform the remediation work itself, but it is "sufficiently certain" that it will do so.

3. the regulator has issued the environmental remediation order, has not taken steps to perform the remediation work itself, and it is not sufficiently certain that it will do so.

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LAWYERS

Can Environmental Obligations by

Stayed?

� The Province focused much of its argument on whether the EPA Orders, which it asserted were not monetary in nature, could nonetheless be stayed by the CCAA court.

� Ultimately, the Court concluded that the EPA Orders were claims, so it was not necessary to consider this argument.

� In 2007, amendments were made to both statutes expanding the stay provisions to enable courts to stay non-monetary regulatory orders in certain circumstances.

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LAWYERS

Can Environmental Obligations by

Stayed?

� The new amendments:

� clarify that the general stay provisions do not affect regulatory orders, other than monetary orders.

� permit courts to stay regulatory order that are not monetary in nature if the necessary test is met.

� confer authority on the court to determine whether the order is monetary in nature such that the regulatory body is seeking to enforce its rights as a creditor.

� The new stay provisions may raise constitution issues.

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LAWYERS

The Liability of Court-Appointed Officers

for Environmental Obligations

� If the remediation order is not a claim, and is not otherwise stayed, the obligation to comply with the order may fall on a court-appointed officer who has taken possession and control of the debtor company's assets and operations.

� Parliament has clearly delineated the liability of court-appointed officer in such circumstances.

� To avoid personal liability for the costs of remediation, a court-appointed officer must either comply with the remediation order or abandon the property affected by the order.

� These provisions address only the personal liability of court-appointed officers, not the liability of the debtor company to comply with its ongoing regulatory obligations.

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LAWYERS

Conclusion: What Remains When the

Dust Has Settled?

� Abitibi's plan of arrangement was approved by the CCAA court September 2010 and it successfully emerged from CCAA protection December 2010.

� The Province never submitted a claim in the CCAA proceedings, and Abitibi's liability under the EPA Orders has been extinguished.

� Canada agreed to pay Abitibi US$130 million following their emergence from CCAA proceedings in full settlement of all claims against Canada under NAFTA arising out of the passage of the Abitibi Act.

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LAWYERS


Dust Has Settled?

� Remediation orders will be treated as claims where the regulatory authority has taken steps to perform the remediation work itself, or where it is "sufficiently certain" that it will do so.

� Where the regulatory authority has not taken steps to perform the remediation work, and it is not sufficiently certain that it will do so, the regulatory order is not subject to compromise under aplan of arrangement.

� However, the regulatory order may nonetheless be stayed by the court if the test set out in section 11.1(3) of the CCAA is met.

� This provision may, however, be subject to challenge on constitutional grounds.

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LAWYERS


Dust Has Settled?

� The CCAA and BIA provide what appears at first glance to be a clear roadmap for the treatment of environmental obligations in insolvency proceedings.

� To date the courts have provided little guidance for navigating the inevitable bumps that will be faced along the way.

� What remains when the dust has finally settled from the clash between Newfoundland and Abitibi is more questions than answers.

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newfoundland and labrador v. abitibibowater - seima issues symposium... · nature, could...

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