The Supreme Court of Canada Overturns Ontario’s Interpretation of the Great Lakes Indemnity Clause
On December 6, 2019, the Supreme Court of Canada released its decision in R. v Resolute FP Canada Inc, 2019 SCC 60. In a 4-3 decision, the Supreme Court overturned the Ontario Court of Appeal’s decision, with the majority finding that a contractual indemnity was limited to pollution claims advanced by third parties and could not be relied upon by a “first party” in the face of an order for remediation from the provincial authority.
In 1977, Grassy Narrows and Islington First Nations began litigation arising from the discharge of mercury into a local river system. The source of the mercury was a pulp and paper mill located in Dryden, Ontario (the “Mill”).
Prior to resolution of the litigation, Great Lakes Forest Products Limited (“Great Lakes”) expressed interest in purchasing the Mill but was concerned about the outstanding litigation. To alleviate these concerns the Government of Ontario granted indemnities to Great Lakes in 1979 and 1982 as against costs and damages arising out of the Mill’s past pollution.
In 1985, the litigation settled. As part of the resulting settlement agreement, the Government of Ontario entered into a new indemnity with Great Lakes and its predecessor, Reed Ltd. (the “Indemnity”), that replaced the earlier indemnity agreements between the parties.
On August 25, 2011, the Ontario Ministry of the Environment and Climate Change issued a remediation order requiring the maintenance, monitoring and testing of a mercury waste disposal site at the Mill (the “Order”). The Order was issued to both Great Lakes’ successor, Resolute FP Canada Inc. and Weyerhaeuser Company Limited, who had previously owned the waste disposal site.
Resolute and Weyerhaeuser (collectively, the “Defendants”) sought a declaration that the Indemnity applied to the waste disposal site, and as such the Government of Ontario (the “Government”) was required to compensate the Defendants for the costs of complying with the Order.
Decisions of the Lower Courts
The motion judge concluded that the Indemnity covered the costs of the Defendants complying with the Order and granted Summary Judgment. While the Indemnity only applied to defined ‘pollution claims’, the motion judge found the language of the Indemnity clear and unambiguous; the meaning of ‘pollution claims’ encompassed first party claims.
The majority of the Ontario Court of Appeal upheld the motion judge’s conclusion, agreeing that the Indemnity could apply to first party claims. In his dissent at the Court of Appeal, Justice Laskin found that the motion judge significantly erred in both fact and law by concluding that the Indemnity covered first party claims. Absent these errors, Laskin determined that the Indemnity was only to cover pollution claims brought by third parties.
Supreme Court Decision
In a 4-3 majority, the Supreme Court held that the Indemnity did not apply to the Order and that the Defendants were responsible for the costs of complying. The Court substantially relied upon and agreed with Laskin’s dissent, finding that the motion judge made palpable and overriding errors when interpreting the Indemnity. Ultimately, both Laskin and the majority of the Supreme Court focused on the following errors made by the motion judge in his interpretation of the Indemnity:
1. The motion judge erred in concluding the waste disposal site is a source of ongoing mercury pollution and therefore may give rise to a pollution claim. Rather, the waste disposal site was created as a solution to the mercury pollution and there was no evidence before the courts of mercury being discharged from the site. Thus, the costs associated with the waste disposal site were not pollution claims, as defined in the Indemnity.
2. The motion judge failed to consider the broader factual matrix and context that gave rise to the Indemnity. The Indemnity at issue was originally a schedule to the 1985 settlement agreement, thus its scope was limited to only the issues considered and defined in that agreement. The scope did not include the ‘mere presence’ of mercury at the waste disposal site, but rather only covered claims for new mercury discharge or the ongoing presence of mercury resulting from prior discharge. Additionally, the motion judge relied on the language of the two prior indemnity agreements between the parties to read commitments into the Indemnity that no longer exist between the parties.
3. The motion judge fixated on the language of the Indemnity’s first paragraph rather than considering the Indemnity as a whole. The second paragraph of the Indemnity requires that the Government be given notice of any pollution claim such that the Government could carry or participate in the litigation. Additionally, under the third paragraph, the parties of the Indemnity must cooperate in the investigation of any pollution claim. Laskin concluded, and the Supreme Court agreed, that these paragraphs would be meaningless and inconsistently applied if the Indemnity covers first party claims.
Past pollution and contaminated lands create unforeseeable risk for corporations, developers, and landowners. The purpose of an indemnity is to allocate that risk. The Resolute decision is a cautionary tale - a party cannot assume its indemnity agreement insulates it from all types of risk and liability. Rather, the Court in Resolute is clear that the terms of an indemnity must be express and unambiguous in defining both what claims and what parties are covered by agreement. Courts are not, it appears, willing to read-in liability and will broadly interpret contractual terms in such a manner.