Hazard, Will Robinson! Court Creates Prevalent Legislation Tremendous-Precedence for Environmental Obligations | Expertise

The the latest conclusion from the Court of King’s Bench of Alberta (the “Court”) in Qualex-Landmark Towers Inc v 12-1- Funds Corp, 2023 ABKB 109 (“QL Towers*”) tremendously extended the protective umbrella for expenses involved with environmental reclamation obligations. Relying on circumstance law that has advanced from the Supreme Court of Canada’s landmark determination in Orphan Properly Affiliation, Alberta Electrical power Regulator v Grant Thornton Minimal and ATB Fiscal, 2019 SCC 5 (“Redwater”), the Courtroom granted an attachment get and gave that get precedence in excess of prior-registered mortgagees outside the house of formal insolvency proceedings. The attachment get was granted from the defendant’s land to safe the estimated charges for remediating environmental contamination that experienced migrated from the defendant’s land on to the plaintiff’s land.

This is the 1st situation that has utilized the reasoning in Redwater to a personal dispute amongst two citizens, somewhat than the enforcement of environmental remediation obligations by a regulator versus a debtor in formal insolvency proceedings. Generally, a secured celebration this sort of as a mortgagee can relaxation confident that its security will not get “primed” exterior a official insolvency proceeding nonetheless, the Court’s conclusion in QL Towers suggests that secured loan providers face the risk that their stability could be eroded by non-public citizens who progress promises in relation to environmental contamination towards a land-operator. These claims are inherently unknowable and unquantifiable, resulting in a really serious threat to secured loan providers in Canada. Though we anticipate that the QL Towers decision will be appealed, in the interim it has set a risky precedent of which all secured creditors, and in individual genuine estate creditors, should really be conscious.

Qualifications Info

The Plaintiff, QL Towers Inc. (“QLT”) acquired lands (the “QLT Lands”) situated specifically adjacent to lands owned by the Defendant, 12-10 Capital Corp. (“Capital Corp” and this sort of lands remaining the “12-10 Lands”). Prior to the invest in of every single of the QLT Lands and the 12-10 Lands, subsurface investigations disclosed that the 12-10 Lands had been environmentally contaminated (the “Contamination”).

A number of a long time later on, Funds Corp. was directed by the provincial environmental regulator, Alberta Setting and Parks (“AEP”), to post an environmental website assessment and to complete a contamination delineation and remediation prepare in respect of the Contamination . While Funds Corp. initiated ideas to perform the delineation, it finally in no way took location. Inspite of even further comply with-ups from AEP, Cash Corp. did not comply with AEP’s way.

QLT finally found out that the Contamination had migrated from the 12-10 Lands on to the QLT Lands and commenced an action (the “Action”) seeking damages. Just after commencing the Action, QLT learned that:

1. the 12-10 Lands were Funds Corp.’s only asset
2. Money Corp. experienced formerly tried to provide parts of the 12-10 Lands having said that, the sale failed to close
3. the estimated value of the 12-10 Lands was roughly equal to the amounts then secured by various mortgages registered on title to the 12-10 Lands and
4. Funds Corp. was insolvent on a balance sheet basis and had negative dollars circulation, although it experienced not entered any formal insolvency proceedings.

QLT grew concerned that Cash Corp. would provide the 12-10 Lands and distribute all of the proceeds to the mortgagees, leaving no even further resources to fulfill a judgment from the Action, which QLT would use to remediate the Contamination that had migrated onto its Lands. Therefore, QLT utilized for an attachment get in opposition to Capital Corp. and asked for that the attachment get be utilized to any gross sale proceeds of the 12-10 Lands and that it also rank in priority to the home loans previously registered on title.

The Court’s Selection

Nixon J. commenced his investigation by noting that a pre-judgment attachment order is an remarkable treatment and that there is a judicial abhorrence to granting pre-judgment execution. Below the Civil Enforcement Act, RSA 2000, c C-15, the Court may perhaps grant an attachment purchase if it is satisfied that:

1. there is a reasonable likelihood that the claimant’s assert towards the defendant will be proven, and
2. there are fair grounds for believing that the defendant is working with the defendant’s exigible house, or is most likely to offer with that home,
   1. or else than for the reason of assembly the defendant’s affordable and ordinary small business or dwelling charges, and
   2. in a method that would be possible to seriously hinder the claimant in the enforcement of a judgment against the defendant.

Cash Corp. successfully conceded that the Contamination on the QLT Lands originated from the 12-10 Lands, but argued that there was no foundation for granting an attachment get that ranks in priority to the home loans that experienced been registered versus the 12-10 Lands. Nixon J. disagreed.

In identifying that QLT experienced a “reasonable likelihood” of succeeding in getting a judgment that is paid in precedence to all other creditors, Nixon J. relied on, and then expanded on, the ideas concerning environmental remediation obligations established out in Redwater and the caselaw that has followed it (this sort of as Manitok Power Inc (Re), 2022 ABCA 117 PricewaterhouseCoopers Inc v Perpetual Strength Inc, 2021 ABCA 16 PricewaterhouseCoopers Inc v Perpetual Electricity Inc, 2022 ABCA 111 and Orphan Properly Association v Trident Exploration Corp, 2022 ABKB 839). He famous that the prevailing legislation in Canada and Alberta delivers that environmental remediation obligations may well displace (i.e., rank in precedence to) secured loan providers if all those obligations would normally not be contented. Even though all those situations were in the context of environmental regulatory orders issued to debtors in formal insolvency proceedings, Nixon J. said “I am not convinced at this juncture that these formalities are needed. Definitely, I do not know how much the tremendous precedence routine will increase.”

The Courtroom also turned down Funds Corp.’s argument that only AEP in its capacity as the environmental regulator could have a assert that rated in precedence to the mortgagees. Nixon J said that:

“…the obligation of the polluter to remediate is a responsibility owed to its fellow citizens. When a polluter complies, the final result is not the restoration of revenue by AEP or necessarily of a judgment for money. Monetary recovery is not the item of the method. Fairly, it is merely the software of the general law for the benefit of the group for the intent of guaranteeing that environmental remediation obligations are resolved.

As a result, when a polluter is uncovered responsible for nuisance or negligence for failure to remediate environmental contamination in the context of non-public civil litigation, the mother nature of the fundamental obligation is a general public obligation to all citizens.”

Nixon J. concluded his review of this situation by noting that regulators exist to enforce public responsibilities, and when a bona fide neighbour seeks civil legislation recourse for the breach of environmental remediation obligations of a polluter, that neighbour ought to not be place in a worse situation than a regulator to have people obligations fulfilled. As a consequence, he held that QLT did not need to have to be a “regulator” to get a initial-precedence charge for the charges of remediating the Contamination on the QLT Lands.

Nixon J. also identified that Cash Corp.’s choice to market the 12-10 Lands and implement the proceeds of sale against the to start with-ranking, valid home loans satisfied the necessity that Funds Corp. was working with its exigible house outside of standard enterprise expenses. He manufactured this acquiring notwithstanding the point that he also observed that Money Corp. was a member of the Strategic Group of firms, a real estate expenditure and advancement team.

Even more, His Lordship established that if any this sort of sale and distribution were to acquire location, QLT would be unable to enforce on any judgment award because Money Corp was bancrupt and experienced no other belongings. This willpower was manufactured in the deal with of the respondents’ arguments that QLT would properly be in no even worse a position if it had any judgment to implement, as the precedence routine delineated by all of the Civil Enforcement Act, Land Titles Act, and Personal Property Security Act, would subordinate a registered writ to the earlier registered mortgages.

In the final result, Nixon J. exercised his discretion to grant an attachment buy towards Funds Corp. and directed that $2,006,500 (staying the believed charge to remediate the Contamination on the QLT Lands) from any sale of the 12-10 Lands be held in trust by Cash Corp.’s counsel pending the outcome of the Action.

Implications and Conclusions

QL Towers is a noteworthy and major extension of the rules set out in Redwater. While Redwater and the situations that followed it deal with the intersection of regulatory orders and the priority distribution plan outlined in federal insolvency laws, the Court’s decision in QL Towers seems to go a great deal further by building a popular law super-precedence for environmental obligations.

This selection poses considerable possibility to true estate loan companies, as it undermines the dependability of the land titles registry. Lenders might progress money to a borrower on the knowing that it will be secured by a first-rating home loan, only to be subordinated some time later by a non-public citizen pursuing a civil claim in opposition to the borrower because of to environmental obligations. These a claim might just take years or even a long time to solve, and any sale proceeds from the lands might be tied up for yrs pending resolution of the declare, assuming the parties could even offer the lands subject to these types of statements. To mitigate the hazard posed by the QL Towers decision, loan companies may tighten their lending guidelines from true property to ensure that enough fairness continues to be to account for any environmental remediation obligations that might arise in the foreseeable future. In addition, creditors might demand additional onerous environmental assessments of authentic assets in advance of advancing money to possible debtors, therefore raising the expenses of borrowing.

If remaining undisturbed, the QL Towers decision is a hazardous precedent that could convert the complete Canadian real estate lending marketplace on its head. 

The views and thoughts expressed in this posting belong to the authors and really should not be relied upon as a substitute for independent legal advice. Really should you wish to discuss the specific instances of a scenario even further, any a person of the customers of Fasken’s Insolvency and Restructuring workforce would be satisfied to do so with you.

*Qualex-Landmark Towers Inc. transformed its name to “QL Towers Inc.” in June 2020. The assert predates the identify change and as these types of was not modified in the court docket determination. We understand that Qualex-Landmark™ does not have any desire in QL Towers Inc. nor the lands in dispute in the proceedings.