O n December 6, 2019 the Supreme Court of Canada released its decision in Weyerhaeuser Company Limited v. Ontario (Attorney General). The Court held that a 1985 indemnity granted by Ontario to Reed Ltd. and Great Lakes Forest Products Limited, and intended to apply to their successors and assigns did not protect Weyerhaeuser, a subsequent owner, from a director’s remediation order issued by what is now the Ministry of Environment and Climate Change (MOECC) under the Environmental Protection Act (EPA).

As part of a 1985 settlement of the Grassy Narrows English and Wabigoon river mercury contamination litigation, the Government of Ontario agreed to provide Great Lakes an indemnification from further liability related to its pulp and paper mill in Dryden, ON. Great Lakes in turn released Ontario from 1979 and 1982 indemnities, given at those times to encourage its acquisition, upgrading and continued operation of the mill.

The relevant bits of the indemnity provision read as follows:
Ontario hereby covenants and agrees to indemnify Great Lakes, Reed, International and any … subsidiary or affiliate company …, harmless from and against any obligation, liability, damage, loss, costs or expenses incurred by any of them after the date hereof as a result of any claim, action or proceeding, whether statutory or otherwise, existing at December 17, 1979 or which may arise or be asserted thereafter…, whether by individuals, firms, companies, governments (including the Federal Government of Canada and any province…) … because of or relating to any damage, loss, … caused by or with respect to, either in whole or in part, the discharge or escape or presence of any pollutant by Reed or its predecessors, including mercury or any other substance, from or in the plant or plants or lands or premises forming part of the Dryden assets sold by Reed Ltd. to Great Lakes under the Dryden Agreement (hereinafter referred to as “Pollution Claims”). … “Pollution Claims” shall include any obligation, liability, damage, loss, costs or expenses incurred by Great Lakes as a result of any claim, action or proceeding resulting from or in connection with the indemnity agreement…

In August 2011 (26 years after the agreement), MOECC issued a director’s order requiring Weyerhaeuser and Resolute to perform remedial work and monitoring on an abandoned mercury waste disposal site associated with the mill. Each of Resolute (as corporate successor to Great Lakes Forest) and Weyerhaeuser had owned the site for a time. They objected to the order and pointed to the indemnity. They took the position that Ontario was obligated to pay any costs of compliance with the director’s order. A judge of the Ontario Superior Court agreed, as did a majority of the Ontario Court of Appeal, on appeal.

In a 4-3 split decision, the majority of the Supreme Court of Canada agreed with the dissenting judge of the Ontario Court of Appeal. They decided that neither Resolute nor Weyerhaeuser could rely upon the indemnity to place the cost of compliance with the director’s order in the lap of Ontario.

The majority looked at both the “factual matrix” under which the indemnity came about, as well as the language of the indemnity as a whole.

In terms of the facts, the majority thought that the lower courts had missed the boat on the reason for and scope of the indemnity. Unlike the earlier indemnities, there was no additional investment being proposed in 1985 that would require additional protection. Further, the 1979 and 1985 indemnities were given in response to ongoing litigation that had already been commenced by affected First Nations; the new mill owner was looking for protection from those claims.

In terms of the language of the indemnity, the majority noted that there is a starting presumption that indemnities apply to claims made by third parties, not to claims made between the parties to the agreement themselves. It should have been read to apply to pollution claims that might be advanced by nearby First Nations and others (even the federal government). That reading would be consistent with other provisions in the indemnity, such as the one that required the former owners to give prompt notice to Ontario of any claim (which would not make sense if Ontario could be a claimant).

The other three judges thought that Resolute should be allowed the protection of the indemnity, but not Weyerhaeuser. They excluded Weyerhaeuser because it did not show that it was entitled to the benefit of the indemnity, as being either a corporate successor of Great Lakes, or assignee of the contract.

As for Resolute, the three dissenters emphasized that the intent of interpreting the contract was to ascertain the objective intentions and reasonable expectations of the contracting parties with respect to the meaning of the contractual provision. The court needs to look at “language that the parties employed to express their agreement, objective evidence of the background facts that was or reasonably ought to have been within the knowledge of both parties
at or before the date of contracting, and the principle of commercial reasonableness and efficacy” when deciding what a contract means. According to the minority three, the factual matrix cannot govern over the other considerations.
So, what are the takeaways? First off, if 10 judges cannot agree on the meaning of an indemnity, it should be a signal that enormous care must be taken in drafting these provisions to ensure that they achieve the desired intent. Second, if you are a new party in town and intend to rely upon an existing indemnity, make sure you know what it covers and make sure that it is properly assigned to you or is otherwise enforceable by you (since you are not a party to the original agreement). Third, be sure to follow the terms of the indemnity strictly and in a timely manner if you intend on enforcing it in respect of a claim or potential claim; failing to do so may let the indemnifier off the hook. Finally, remember that it is almost impossible to envision all potential future sources of liability (like changing responsibility in contaminated sites law) and realize that there may still be risks.

About the author
John Stefaniuk practices environmental
and natural resource law with Thompson
Dorfman Sweatman LLP.