Willms & Shier - Cross Border Litigation

Cross Border Litigation: Canadian companies can find themselves in American courts

Pollution does not respect international boundaries. Canada and the United States share the longest non-militarized border in the world, as well as the Great Lakes, Niagara Falls and the Rocky Mountains. We also share water and air pollution. Fortunately or unfortunately, we have recently seen many more cross-border environmental litigation disputes end up in Courts and before arbitrators on either side of the border.

In Dow Agrosciences, the company initiated arbitration against the Canadian government under NAFTA for the alleged unlawful ban on cosmetic use of the pesticide 2,4-D. The notice of intention to arbitrate alleges that the Province of Quebec banned the use of cosmetic pesticides without any scientific basis for doing so, but rather based on the "precautionary principle". The dispute is about whether the Government of Canada breached its Chapter 11 NAFTA obligations and, if yes, the quantum of compensation. Dow Agrosciences seeks $2M in compensation. A ban on lindane-based seed treatments by Canada's federal Pest Regulatory Management Agency has resulted in a similar $100M suit brought by U.S.-based Chemtura Corporation.

In February 2007, a private prosecution was launched under Canada's Fisheries Act against DTE Energy, the U.S. parent company of Detroit Edison. In January 2008, an Ontario Judge issued an order directing the Ontario Court of Justice to summon DTE Energy across the border to Canada to face charges for allegedly contaminating the St. Clair River with dangerous amounts of mercury from a coal-fired power plant operating in Michigan. Following issuance of the summons, DTE agreed to address its mercury emissions. Thereafter, the charges were withdrawn.

A recent water transfer ruling under the U.S. Clean Water Act is under fire in a U.S. Court where declaratory and injunctive relief is sought by the Province of Manitoba and nine U.S. States. The concern in this case is about the movement of large volumes of water from one water basin to another that could injure waters in Manitoba and elsewhere.

In the First Nations case of Pakootas v. Teck Cominco Metals, Ltd., a group of Aboriginal peoples in the State of Washington are seeking enforcement of a U.S. EPA administrative order made under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) against a Canadian company that owns and operates a lead-zinc smelter in Trail, British Columbia. The smelter is located 12 kilometres north of the U.S.-Canada border. Heavy metals and mercury have been discharged into the Columbia River (in B.C.) and flushed downstream into the U.S. Pakootas is the first use of CERCLA to address cleanup of a "hazardous waste site" created by discharges that originated outside the United States.

Bilcon Inc., a U.S. based construction firm, launched a NAFTA arbitration claiming $188M and alleging that a joint federal-provincial environmental review panel had an anti-foreign bias when it ruled against allowing a quarry in Nova Scotia. The New Jersey company proposed to quarry aggregate in Nova Scotia and ship it to the U.S.

There is one example of oppression remedies pleaded in an Ontario environmental case under Canadian business corporation statutes against U.S. parent companies, namely Manulife v. AFG. The oppression remedy offers a novel approach to seek recovery of damages against foreign companies for the alleged environmental acts of a Canadian incorporated subsidiary.

While final judgment is pending in several of these cases, they should all serve as a warning to Canadian companies. There is obviously a need to comply with Canadian laws. However, there is also a growing need to understand what kinds of environmental implications Canadian operations may have beyond Canada's borders and to what extent environmental laws may apply.

Last year Canada and the U.S. celebrated the 100th anniversary of the Boundary Waters Treaty of 1909. The treaty imposes obligations on both countries to not pollute boundary waters. The treaty provides several means of addressing transboundary disputes. The treaty led to the creation of the International Joint Commission.

Since 1909, our two countries have entered into many environmental agreements. A more recent instrument for resolving transboundary disputes is a NAFTA side agreement – the North American Agreement on Environmental Cooperation (1994). The NAFTA side agreement is intended to address regional environmental concerns and to promote enforcement of environmental laws. The North American Commission on Environmental Cooperation was born out of NAFTA.

The International Joint Commission and the Commission on Environmental Cooperation now play a more limited role in dispute resolution. This very much has to do with limitations in their respective authority.