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Alizadeh v Ontario: Directors Face Uphill Battle to Rebut a Presumption of Management and Control

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Written by Donna Shier, Partner and Certified Environmental Law Specialist by the Law Society of Ontario, with the assistance of Lauren Wortsman, Student-at-Law, Willms & Shier Environmental Lawyers LLP

Corporate directors and officers are presumed to have management and control of a corporation. As such, directors and officers may be named in Orders issued by the Ontario Ministry of Environment, Conservation and Parks (“MECP”) to address environmental contamination. The Ontario Environmental Protection Act, s. 18 provides the MECP with authority to issue an Order to any person who “owns or owned or who has or had management or control of an undertaking or property”.

The Environmental Review Tribunal (“ERT”) recently affirmed that the evidentiary burden on a corporate director to rebut a presumption of management and control of a corporation is extremely high. In Alizadeh v Ontario (Ministry of Environment, Conservation and Parks), the ERT held a former director personally liable for an Order after the director led insufficient evidence to rebut the presumption. Further, the director’s financial inability to comply with the Order did not warrant removal of the director’s name from the Order.

Facts
In Alizadeh, the company purchased a wood waste landfill site. In 2013, the MECP issued an Order requiring the company to conduct work on the landfill and leachate collection system. The company did not comply with the Order, and the company and its former director were prosecuted. The company was convicted and fined. The charges against the former director were withdrawn.

After the company was convicted, leachate from the landfill continued to discharge to a creek off site. In March 2018, the MECP issued another Order against the company. This Order also named the former director personally. The Order required the company and the former director to conduct work on the leachate collection system to inhibit the migration of leachate off site.

The former director argued that the Order improperly named him for two reasons:

  1. he was never a person in “management or control” of the company, and
  2. he had no financial ability to comply with the Order.

Presumption of Management and Control
The ERT confirmed that corporate officers and directors are presumed to have management and control of the company.

The ERT affirmed holdings from previous decisions:

  • In Rocha v Ontario (Environment and Climate Change), the ERT held that “control” includes both the power to make things happen and the power to prevent them from happening
  • In Currie v Ontario (Ministry of the Environment), the ERT held that a director who acts as a “point person” with respect to the MECP and has knowledge of the environmental issues at a site has management and control
  • In Caltex Petroleum Inc v Ontario (Ministry of Environment and Energy), the ERT held that the onus is on the officer or director to present convincing evidence to rebut the presumption of management and control.

In Alizadeh, the ERT stated that management and control is not limited to formal legal control by officers and directors. It also includes “de facto control”.  However, the ERT does not define “de facto control”.

The ERT said “Where those with formal legal control of a corporation deny their involvement, the Tribunal puts the onus on them to make a ‘convincing case’.”

The ERT concluded the former director had not led sufficient evidence to rebut the presumption of control. This was despite the fact that the former director:

  • was not a director at the time of the Order,
  • had no access to any corporate documents that might prove his position,
  • had no access to the site to comply with the Order, and
  • was prohibited by court-ordered bail conditions in an unrelated matter from contacting the other director to obtain access to the site.

The ERT cited the following factors to conclude that the former director did have management and control:

  • publically-available corporate filings indicate that the former director was the only
    director for much of the relevant time period,
  • the former director negotiated and signed the Agreement of Purchase and Sale for the
    property on behalf of the company,
  • the former director signed contracts on behalf of the company for work to be done on
    the leachate treatment system,
  • for five years, the former director held himself out to the MECP as the only person
    making decisions about leachate management on behalf of the company,
  • the former director made commitments to the MECP that the company would comply
    with the Order, and
  • the company’s environmental consultant took instructions from the former director.

The ERT concluded the former director had management and control.

Alizadeh affirms that the evidentiary burden to rebut the presumption of management and control is extremely high.

Financial Hardship
The ERT affirmed that financial hardship is not a reason to remove a director’s name from an Order. Three notices of assessment from the Canada Revenue Agency showing that the former director had limited income were insufficient to warrant removing the director from the Order.

The ERT rejected the director’s argument that the MECP should use financial assurance provided by the company to pay for the completion of the leachate treatment system. The ERT held that using the financial assurance for this purpose would mean there would be insufficient funds available to maintain the system in the future.

The ERT also noted that when the company had purchased the property, the vendor advanced funds to the company to be used to construct a leachate treatment system. Under the former director’s oversight, those funds were not used for this purpose.

Order Requirements
The ERT concluded that it is insufficient for a director to provide reasons for removal of their name from the Order without also addressing how the environmental objectives of the EPA will be met if the Order is revoked.

This articles has been republished with the permission of the author.  It was first published on the Willms & Shier website.

About the Author

With almost 40 distinguished years of experience practicing environmental law, Donna Shier is one of Canada’s leading environmental counsel to major industrial corporations. Donna is also frequently called upon by corporate, commercial and real estate lawyers to assist their clients with environmental legal issues, and provides environmental law expertise to external litigation counsel. Donna is a qualified mediator and is an accredited member of the ADR Institute of Canada. Donna is called to the bar of Ontario.

Environmental Liability Risk Faced by Directors of Dissolved Companies – Getting around the Gehring Defence

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Written by Una Rodaja, Harper Grey LLP

Once upon a time, you were a director of a company that owned a parcel of land in the Greater Vancouver area.  A dry-cleaner and an auto-repair shop operated on the property, but you were not too concerned about environmental liability.  This was the 80s after all and the rent was good!  Your tenants caused some environmental contamination, which you addressed when your company sold the site in 1990.  You dissolved your company a year later and forgot all about it.

The property is now owned by a developer who is seeking to build a residential tower on the property.  To do so, the developer is required to investigate and remediate contamination that remained on the property after your company sold it.  Standards have changed and the limited remediation your company did years ago no longer meets the applicable standards.  Your old tenants (both sole proprietorships) are long gone and the developer is seeking to hold you personally liable for the costs of remediation.  You did not personally operate on or own the property, so are you really at risk?  A recent BC Supreme Court case says you are.  Here we explain how and why.

Directors of existing corporations are “responsible persons”

Under BC’s Environmental Management Act[1], a director or officer of a company that owns or operates on, or has historically owned or operated on, a contaminated site is a “person responsible for remediation” of that site simply by virtue of their position with the company.[2]  Such directors and officers can be liable to pay reasonable costs of remediation incurred by anyone in respect of the site owned or operated on by their company, if they authorized, permitted or acquiesced to the activity that gave rise to the cost of remediation.[3]

Directors of dissolved corporations are not “responsible persons”

Although the language establishing the categories of “responsible persons” under BC law is very broad, it is not without limit.  For example, it does not include “persons” who have ceased to exist, such as dissolved corporations.  This was made clear by the BC Supreme Court in a seminal decision called Gehring[4].  The case has undoubtedly motivated many corporate dissolutions by directors and officers seeking to shield themselves from personal liability for contaminated sites owned or operated on by the companies they served.

Dissolved companies can be restored – then what?

However, in the recent decision of the BC Supreme Court in Foster v. Tundra Turbos Inc.[5], a director of a long-dissolved corporation that owned and operated on contaminated land faced exposure in an action to recover environmental remediation costs by virtue of an application to restore the company to the corporate registry.  The company in question, Tundra Turbos Inc., was incorporated in 1978, and was dissolved in 2000.  Prior to its dissolution, it had a single director, one Mr. Clarke. The Plaintiff sought to hold Mr. Clarke liable for the costs of remediation incurred in respect of the property, some 17 years after Tundra had dissolved.  The question before the court was whether it was appropriate to restore Tundra and reconstitute Mr. Clarke’s directorship to make it possible for Tundra and Mr. Clarke to be liable for the costs incurred by the Plaintiff in remediating the property owned by Tundra in the late 1980s and early 1990s.  Tundra and Mr. Clarke presented several arguments against the restoration, including that Mr. Clarke would lose the Gehring defence, a substantive right, and that Tundra’s records pertaining to its operations at the property were destroyed, given the length of time involved.  The court rejected these arguments and ordered the restoration.

In the court’s view, there was nothing inherently unfair in the fact that companies and directors may be exposed to liability under BC’s environmental legislation many years after their association with a contaminated property ended.  Further, the right of a company and its directors to avoid liabilities for which they would have been exposed but for the dissolution is not the kind of right protected by legislation.  In fact, a legitimate purpose of restoring a company is to facilitate the imposition of such liabilities.  While destruction of the dissolved company’s records may, in certain circumstances, result in the court rejecting an application to restore, in Tundra’s case there was no prejudice arising from the loss of records because it was clear, on the facts, that had Tundra not been dissolved, it would have been responsible for the costs of remediation.  If anything, the lost records caused more prejudice to the Plaintiff than Tundra’s director, Mr. Clarke, who had personal knowledge of Tundra’s activities on the site.

In addition, the fact that Mr. Clarke could potentially face personal liability even without Tundra being restored (on the basis that he personally had the right to control, was in control of or responsible for any operation on the site in question) did not have a bearing on the restoration application.  The court recognized that it was easier to hold Mr. Clarke liable if he was responsible solely by virtue of his status as director, which could only be done if the company was restored.

Implications of the Tundra Decision

The Tundra case is an important example of creative counsel work to get around the Gehringdefence.  However, notwithstanding the outcome in that case, there are arguments to be made in future cases to avoid the restoration and, ultimately, responsible persons status for the director in question.  Existence of a limitation defence and loss of evidence that would assist in the defence of the director in question, or unreasonable delay of the Plaintiff in bringing the restoration application, may well result in the application being denied.

For lawyers advancing cost recovery claims, the Tundra case is a good reminder of the need to look at dissolved corporations and their directors and officers, and the need to apply for restoration, in a timely fashion.  For those defending these claims, and restoration applications, finding prejudice, beyond the mere loss of the Gehring defence, will be key.

[1] S.B.C. 2003, c. 53 (“EMA”)

[2] EMA, ss. 39(1), 45

[3] EMA, ss. 47(5); Contaminated Sites Regulation, s. 35(4)

[4] Gehring v. Chevron Canada Ltd., 2006 BCSC 1639, para. 55

[5] Foster v. Tundra Turbos Inc., 2018 BCSC 563

About the Author

Una Rodaja is a partner in Harper Grey’s Commercial Litigation and Environmental Regulation & Disputes practice groups. Una frequently lectures on various aspects of contaminated sites law for the Pacific Business and Law Institute, BC Environmental Industry Association, the Environmental Managers Association, and the BC Continuing Legal Education Society.  She is the co-author of BC Environmental Management Legislation and Commentaryand the recipient of the 2017 Lexpert® Leading Lawyers Under 40 award. Una is recognized by the 2018 Canadian Legal Lexpert® Directory as a Leading Lawyer to Watch in the area of corporate commercial litigation and by Benchmark Canada® as a Future Litigation Star. She has also been recognized by Best Lawyers® in Canada 2019 as a “Leading Lawyer in the area of Environmental Law.