Danger, Will Robinson! Court docket Creates Typical Legislation Super-Precedence for Environmental Obligations | Understanding

The new decision from the Court docket of King’s Bench of Alberta (the “Court”) in Qualex-Landmark Towers Inc v 12-1- Cash Corp, 2023 ABKB 109 (“QL Towers*”) tremendously extended the protecting umbrella for fees affiliated with environmental reclamation obligations. Relying on situation regulation that has advanced from the Supreme Courtroom of Canada’s landmark selection in Orphan Properly Affiliation, Alberta Vitality Regulator v Grant Thornton Restricted and ATB Economic, 2019 SCC 5 (“Redwater”), the Courtroom granted an attachment buy and gave that order precedence around prior-registered mortgagees exterior of formal insolvency proceedings. The attachment get was granted against the defendant’s land to safe the approximated costs for remediating environmental contamination that had migrated from the defendant’s land on to the plaintiff’s land.

This is the first scenario that has applied 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 official insolvency proceedings. Ordinarily, a secured occasion this kind of as a mortgagee can relaxation certain that its protection will not get “primed” outside the house a formal insolvency continuing even so, the Court’s selection in QL Towers suggests that secured loan providers confront the possibility that their safety could be eroded by personal citizens who advance promises in relation to environmental contamination versus a land-owner. These promises are inherently unknowable and unquantifiable, producing a significant possibility to secured creditors in Canada. When we foresee that the QL Towers decision will be appealed, in the interim it has set a dangerous precedent of which all secured creditors, and in distinct real estate loan companies, really should be informed.

Qualifications Info

The Plaintiff, QL Towers Inc. (“QLT”) obtained lands (the “QLT Lands”) located instantly adjacent to lands owned by the Defendant, 12-10 Funds Corp. (“Capital Corp” and these types of lands currently being the “12-10 Lands”). Prior to the invest in of every single of the QLT Lands and the 12-10 Lands, subsurface investigations discovered that the 12-10 Lands have been environmentally contaminated (the “Contamination”).

Numerous many years later, Funds Corp. was directed by the provincial environmental regulator, Alberta Environment and Parks (“AEP”), to post an environmental web-site evaluation and to total a contamination delineation and remediation plan in regard of the Contamination . Although Capital Corp. initiated options to complete the delineation, it in the end in no way took put. In spite of further more stick to-ups from AEP, Money Corp. did not comply with AEP’s way.

QLT sooner or later learned that the Contamination had migrated from the 12-10 Lands onto the QLT Lands and commenced an action (the “Action”) in search of damages. Just after commencing the Action, QLT discovered that:

  1. the 12-10 Lands have been Money Corp.’s only asset
  2. Money Corp. had formerly attempted to offer parts of the 12-10 Lands having said that, the sale unsuccessful to close
  3. the approximated benefit of the 12-10 Lands was approximately equivalent to the quantities then secured by various mortgages registered on title to the 12-10 Lands and
  4. Money Corp. was insolvent on a balance sheet basis and experienced adverse money movement, although it experienced not entered any formal insolvency proceedings.

QLT grew involved that Capital Corp. would sell the 12-10 Lands and distribute all of the proceeds to the mortgagees, leaving no additional cash to fulfill a judgment from the Action, which QLT would use to remediate the Contamination that experienced migrated on to its Lands. For that reason, QLT utilized for an attachment order against Funds Corp. and asked for that the attachment order be applied to any gross sale proceeds of the 12-10 Lands and that it also rank in precedence to the home loans now registered on title.

The Court’s Conclusion

Nixon J. started his analysis by noting that a pre-judgment attachment get is an excellent solution and that there is a judicial abhorrence to granting pre-judgment execution. Under the Civil Enforcement Act, RSA 2000, c C-15, the Courtroom may possibly grant an attachment buy if it is glad that:

  1. there is a reasonable likelihood that the claimant’s assert towards the defendant will be founded, and
  2. there are sensible grounds for believing that the defendant is working with the defendant’s exigible home, or is very likely to deal with that house,
    1. in any other case than for the objective of assembly the defendant’s affordable and common company or living fees, and
    2. in a fashion that would be most likely to critically hinder the claimant in the enforcement of a judgment versus the defendant.

Capital Corp. correctly 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 order that ranks in priority to the mortgages that experienced been registered in opposition to the 12-10 Lands. Nixon J. disagreed.

In deciding that QLT experienced a “reasonable likelihood” of succeeding in getting a judgment that is paid out in precedence to all other lenders, Nixon J. relied on, and then expanded on, the ideas regarding environmental remediation obligations set out in Redwater and the caselaw that has followed it (this sort of as Manitok Energy Inc (Re), 2022 ABCA 117 PricewaterhouseCoopers Inc v Perpetual Electrical power Inc, 2021 ABCA 16 PricewaterhouseCoopers Inc v Perpetual Power Inc, 2022 ABCA 111 and Orphan Well Association v Trident Exploration Corp, 2022 ABKB 839). He famous that the prevailing law in Canada and Alberta presents that environmental remediation obligations might displace (i.e., rank in priority to) secured loan companies if those people obligations would or else not be satisfied. While these scenarios were being in the context of environmental regulatory orders issued to debtors in formal insolvency proceedings, Nixon J. stated “I am not persuaded at this juncture that these kinds of formalities are vital. Definitely, I do not know how significantly the super priority routine will increase.”

The Court also rejected Capital Corp.’s argument that only AEP in its capacity as the environmental regulator could have a assert that rated in priority to the mortgagees. Nixon J stated that:

“…the obligation of the polluter to remediate is a obligation owed to its fellow citizens. When a polluter complies, the end result is not the restoration of dollars by AEP or necessarily of a judgment for money. Monetary recovery is not the object of the course of action. Alternatively, it is simply the application of the standard regulation for the gain of the neighborhood for the purpose of making sure that environmental remediation obligations are dealt with.

As a consequence, when a polluter is located liable for nuisance or carelessness for failure to remediate environmental contamination in the context of personal civil litigation, the mother nature of the fundamental obligation is a public duty to all citizens.”


Nixon J. concluded his critique of this challenge by noting that regulators exist to implement public responsibilities, and when a bona fide neighbour seeks civil regulation recourse for the breach of environmental remediation obligations of a polluter, that neighbour must not be put in a even worse placement than a regulator to have those people obligations fulfilled. As a result, he held that QLT did not need to have to be a “regulator” to acquire a 1st-priority cost for the costs of remediating the Contamination on the QLT Lands.

Nixon J. also determined that Capital Corp.’s decision to market the 12-10 Lands and apply the proceeds of sale versus the initial-rating, valid home loans content the requirement that Capital Corp. was working with its exigible house exterior of normal business charges. He created this locating notwithstanding the truth that he also identified that Cash Corp. was a member of the Strategic Group of organizations, a authentic estate financial investment and improvement group.

Further, His Lordship established that if any this kind of sale and distribution were to consider location, QLT would be not able to enforce on any judgment award due to the fact Capital Corp was bancrupt and had no other belongings. This perseverance was made in the encounter of the respondents’ arguments that QLT would proficiently be in no worse a position if it had any judgment to enforce, as the priority routine delineated by all of the Civil Enforcement Act, Land Titles Act, and Personalized House Stability Act, would subordinate a registered writ to the earlier registered home loans.

In the outcome, Nixon J. exercised his discretion to grant an attachment order from Capital Corp. and directed that $2,006,500 (getting the estimated price to remediate the Contamination on the QLT Lands) from any sale of the 12-10 Lands be held in rely on by Cash Corp.’s counsel pending the consequence of the Action.

Implications and Conclusions

QL Towers is a notable and important extension of the principles set out in Redwater. Whilst Redwater and the circumstances that followed it address the intersection of regulatory orders and the priority distribution plan outlined in federal insolvency legislation, the Court’s selection in QL Towers seems to go significantly additional by generating a widespread legislation super-precedence for environmental obligations.

This choice poses considerable possibility to genuine estate creditors, as it undermines the dependability of the land titles registry. Loan providers may well advance resources to a borrower on the being familiar with that it will be secured by a to start with-position home finance loan, only to be subordinated some time afterwards by a personal citizen pursuing a civil claim towards the borrower because of to environmental obligations. These a declare could acquire yrs or even many years to take care of, and any sale proceeds from the lands may well be tied up for yrs pending resolution of the claim, assuming the functions could even promote the lands matter to this sort of promises. To mitigate the hazard posed by the QL Towers decision, loan providers may well tighten their lending guidelines from genuine residence to ensure that enough equity stays to account for any environmental remediation obligations that may well occur in the foreseeable future. In addition, creditors might have to have additional onerous environmental assessments of serious house before advancing funds to potential borrowers, thus rising the expenditures of borrowing.

If left undisturbed, the QL Towers decision is a dangerous precedent that could transform the total Canadian real estate lending marketplace on its head. 

The views and opinions expressed in this short article belong to the authors and ought to not be relied upon as a substitute for unbiased authorized advice. Really should you want to discuss the specific situation of a situation further, any a person of the members of Fasken’s Insolvency and Restructuring group would be content to do so with you.

*Qualex-Landmark Towers Inc. altered its identify to “QL Towers Inc.” in June 2020. The claim predates the title improve and as this sort of was not modified in the court choice. We understand that Qualex-Landmark™ does not have any curiosity in QL Towers Inc. nor the lands in dispute in the proceedings.

Sherri Crump

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