Can US Companies Be Held Liable for Environmental Violations by Canadian Subsidiaries?

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Canadian companies may face liability under US environmental laws under certain circumstances. (For more on a Canadian company’s risk of liability under another country’s environmental laws, see “Compliance 101: Must Canadian Companies Comply with Foreign Environmental Laws?” 01/09, p. 1.) But US companies may also be held liable under Canadian environmental laws. One example of this principle is when a US company is held liable for environmental damage in Canada caused by its Canadian subsidiaries. Here are two cases illustrating the scope of potential liability of a US parent for the environmental offence of a Canadian subsidiary.

US COMPANY LIABLE FOR REMEDIATION

FACTS

A Canadian subsidiary of a US company operated a wood treatment business on a BC site for more than 50 years. Several years after it stopped operating, the government learned that the property was contaminated. So the Ministry ordered the subsidiary and its US parent to remediate the site. The US company challenged the order, which was upheld by the Environmental Appeal Board. The US company appealed.

DECISION

The BC Supreme Court ruled that the US company had to comply with the Canadian remediation order.

EXPLANATION

The court explained that the BC Waste Management Act makes certain categories of persons responsible for remediating contaminated sites, including previous and current owners and operators. It defines “operator” as a “person who is or was in control of or responsible for any operation located at a contaminated site.” The Board had concluded—and the court agreed—that the US company qualified as a previous “operator” under the law due to the nature and extent of its control over the subsidiary’s operations at the site, including:

  • Its extensive financial control over the subsidiary;
  • Its control over the property’s lease;
  • The organizational and decision-making structures in place that lead to its hands-on management of the subsidiary’s operations;
  • Its involvement in the subsidiary’s environmental affairs; and
  • Its active involvement in defending the subsidiary against charges.

Beazer East Inc. v. Environmental Appeal Board, [2000] BCSC 1698 (CanLII), Nov. 24, 2000

US COMPANY LIABLE FOR ENVIRONMENTAL DAMAGE

FACTS

A malting business claimed that solvents and hydrocarbons used by a Canadian manufacturer on a neighbouring property had contaminated its groundwater and land. The business sued the manufacturer and its US parent company for $5 million in damages and an order requiring them to remediate the contamination. The US company asked the court to dismiss the lawsuit because it couldn’t be held liable for the actions of its subsidiary, which was a separate legal entity.

DECISION

The Ontario Superior Court ruled that the US company could be held liable for the damage.

EXPLANATION

The court explained that “piercing the corporate veil” is appropriate when a parent company exercises complete control over the subsidiary so that the subsidiary doesn’t function independently. It’s also appropriate to prevent claimants from being unjustly deprived of their rights. The malting business claimed that the US parent company “effectively controlled” the Canadian subsidiary because it:

  • “Managed, directed and controlled” the closure and cleanup of the property;
  • It represented that it was responsible for the environmental problem, that the subsidiary didn’t have authority to deal with the problem and that any and all decisions about the contamination would be made by it alone; and
  • After the contamination was discovered, it stripped all of the subsidiary’s assets, effectively depriving the malting business of any real relief from the subsidiary for the damage.

The court concluded that if the malting business could prove these claims at trial, the US company could be held liable. So it refused to dismiss the lawsuit.

United Canadian Malt Ltd. v. Outboard Marine Corp., [2000] CanLII 22365 (ON S.C.), May 5, 2000