FINANCIAL SERVICES
COMMENTARY
June 23, 2015
ENVIRONMENTAL LIABILITY FOR SECURED CREDITORS IN
ONTARIO
Daniel Hirsh, LL.B and Greg Azeff, LL.B.
Introduction
Lenders and creditors worry about exposure to environmental risk or liability arising from the actions
or assets of their borrower or debtor. In addition to practical concerns about dealing with a debtor's
contaminated property, such as higher operational costs and lower realization value, creditors want
assurances that the lending relationship will not result in liability for environmental charges and
expenses. In Ontario, the responsibility for remediation of contaminated property is not limited to its
owner but rather extends to any person who may be "responsible" for such contamination by virtue of
the "management or control" of the property. There are, however, statutory provisions which define,
limit, and exculpate the liability of a creditor who did not cause or contribute to the contamination.
Dan Hirsh
Partner
t: 416.941.8855
[email protected]
Legislative Overview
In Ontario, there are three statutes which govern the liability, and protection from liability, of a secured
creditor of a debtor whose assets, or operations, may be subject to environmental contamination.
In response to this concern, the Brownfields Statute Law Amendment Act, 2001 (Ontario)
("Brownfields Act") introduced limited liability for municipalities, secured creditors, receivers,
trustees in bankruptcy, fiduciaries and property investigators. This statute was intended to assuage
the concerns of these parties respecting their liability for environmental contamination in order to
encourage them to be involved in redeveloping environmentally problematic property.
Finally, the Bankruptcy and Insolvency Act (Canada) ("BIA") was amended to provide that,
notwithstanding any other federal or provincial law, a trustee in bankruptcy is not personally liable for
any environmental condition or damage that occurred before the trustee's appointment, or after such
appointment unless such condition or damage occurred as a result of the trustee's gross negligence
or wilful misconduct. For the purposes of this immunity from environmental liability, the definition of
"trustee" also includes a receiver, interim receiver or other party appointed to take possession or
control of an insolvent person's property.
Environmental Liabilities Upon Enforcement
Every lender or creditor must consider, as part of their initial structuring of the debt, and as part of the
enforcement or realization of their collateral, possible environmental contamination of the debtor's
assets, products or operations. As a practical matter, the costs of rectifying environmental
contamination will reduce the realization value of assets pledged as collateral for a loan or debt.
Furthermore, the secured creditor must ensure that they do not exercise "charge, management or
control" of a contaminated process or property and therefore become a "person responsible". The
EPA provides the Ministry of the Environment ("MOE") with wide discretion to issue remediation
orders to any "person responsible" for contaminated properties.
However, the Brownsfields Act reduces the exposure of creditors under the EPA by creating certain
exemptions for secured creditors and their representatives. Simply put, a "Secured Creditor" is not a
"person responsible" or having "charge, management or control" of a contaminated property if the
actions taken are strictly for the purpose of:
i.
ii.
iii.
conducting an investigation of the property,
protecting, preserving, maintaining or securing the property,
responding to a health or safety issue emanating from the property.
The Brownsfields Act further provides that, even if a lender becomes the owner of a contaminated
property by virtue of a foreclosure action, the lender will not be subject to a clean-up order by the
MOE if the lender sells the property within 5 years of becoming owner.
The terms of the court order appointing a receiver or liquidator may, and often do, include express
terms protecting and exempting secured creditors and their representatives from environmental
liability not caused by their actions.
None of these exemptions protect a lender from their own gross negligence or wilful misconduct or in
the event of "exceptional circumstances" as determined by the MOE. Furthermore, none of the
exemptions or protections contained in the Brownsfields Act protect a secured creditor (or a trustee in
bankruptcy), who takes possession of mortgaged property, from liability for damages to third parties
arising from environmental contamination. For example, if environmental contamination migrates to
and contaminates a property adjoining a property seized by a secured party, the Brownsfields Act
Greg Azeff
Partner
t: 416.365.3716
[email protected]
Fogler, Rubinoff LLP
Lawyers
77 King Street West
Suite 3000, PO Box 95
TD Centre North Tower
Toronto, ON M5K 1G8
t: 416.864.9700
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foglers.com
does not preclude the adjoining property owner from suing the secured creditor and/or its
representative for environmental contamination.
Summary and Conclusion A lender or creditor in Ontario is not personally liable for environmental
remediation simply by virtue of extending credit to, or taking security from, a debtor who owns
contaminated property or operations. Ontario legislation provides a lender, or its representatives,
taking a charge over, or taking possession of, a contaminated property with certain protection and
exemption from the EPA provisions which impose personal environmental liability. Essentially, a
lender who takes control of a property for purposes of preservation and ultimate sale will be exempt
from an EPA order. However, a lender should conduct proper due diligence to understand and
assess any environmental issues affecting the property and take the following precautionary steps:
a.
b.
c.
d.
e.
take account of, and reserve for, identified environmental remediation costs,
take steps to ensure that the lender does not participate in or add to any environmental
contamination,
exercise control over a contaminated property through a court appointed representative or
trustee in bankruptcy,
ensure that the lender's actions do not constitute gross negligence, wilful misconduct, or any
contravention of the legislation, regulations, or permits, and
take steps to ensure that contamination of the property does not extend or migrate to a third
party.
This summary is intended as a general overview and does not constitute legal advice. Any
decision or action should be based on legal advice which takes into account the specific
circumstance, property or party involved.
This publication is intended for general information purposes only and should not be relied upon as legal advice.
©FOGLER, RUBINOFF LLP. ALL RIGHTS RESERVED. 2015
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