In Canada, the federal (national) and provincial/territorial (regional) governments have responsibility for the protection of the environment. Federal laws generally apply to all projects or operations throughout the country, while provincial/territorial laws apply only to those projects or operations located within the specific province or territory.

The key federal laws governing environmental protection include:

• the Canadian Environmental Protection Act, 1999;
• the Fisheries Act;
• the Impact Assessment Act;
• the Transportation of Dangerous Goods Act;
• the Species at Risk Act; and
• the Canadian Navigable Waters Act.

Provinces bolster these laws with legislation within their jurisdiction, such as British Columbia’s Environmental Management Act or Ontario’s Environmental Protection Act. Territories also have legislation within their jurisdiction, such as Nunavut's Environmental Protection Act.

Each one of these acts is underscored by regulations, orders and guidelines designed to ensure compliance and further the goals of each respective act.

The key federal regulatory authorities in Canada include:

• Environment and Climate Change Canada;
• Fisheries and Oceans Canada;
• the Impact Assessment Agency of Canada;
• Crown-Indigenous Relations and Northern Affairs Canada;
• Transport Canada;
• Parks Canada; and
• Natural Resources Canada.

Other key regulatory authorities exist in each province or territory, many of which will co-ordinate their approach to regulation and enforcement with their federal counterparts.

Most regulatory authorities employ officers or other enforcement personnel, who are often granted the power to conduct inspections and investigations. These inspections and investigations may be routine or in response to suspected regulatory breaches. For example, a federal fishery officer may enter and inspect a facility or vessel if they have reasonable grounds to believe that federal fishery regulations are being breached. In this example, they may also open containers, examine fish or take samples of them, conduct tests, or take copies of documents. Regulatory officers investigating an offence may be required to obtain search warrants or may request voluntary disclosure.

The approach to the enforcement of environmental law varies according to the severity of the environmental incident or breach of the regulation. Whenever possible, Canadian authorities enforce environmental law through voluntary agreements and specific orders to comply. Canadian authorities will hold polluters responsible for the clean-up costs of pollution or contamination, and may seek further penalties where necessary.

Types of Permits

Environmental permits are issued by the federal and provincial/territorial governments, depending on the nature and location of the activity.

Environmental permits may be necessary for a wide variety of activities. For example, activities that may harm a threatened or endangered species will require a permit under the federal Species at Risk Act, while activities related to forestry will require a permit from the relevant provincial or territorial regulatory authority. While federal and provincial jurisdictions may not strictly overlap in this instance, environmental activities often require both federal and provincial permits and authorisations, thereby increasing compliance concerns for businesses. Some activities will also require municipal or regional permits and authorisations.

Depending on the circumstances, some projects may be able to obtain multiple environmental permits through a single process, but this is not always the case. Project proponents or operators in Canada will need to obtain permits from each of the responsible government authorities, at the federal and provincial/territorial levels, as required. As noted above, either federal or provincial environmental assessment (or both) may be required before permits may be issued.

Change of Control

Investors looking to purchase Canadian projects or operations will want to ensure they acquire the project’s associated permits. Most environmental permits can be transferred, but government consent may be required to do so. This can require a lengthy process in some circumstances, which may trigger consultation with Indigenous groups. Usually, change of control will not trigger the need for government consents, but the specific requirements of the applicable legislation as well as the language of the permit itself must be carefully reviewed to determine whether government consent is required.

Time Limit

Environmental permits are usually time-limited, but the duration of the authorisation will depend on the nature of the activity being permitted. Permits can often be renewed, but may require additional regulatory processes in order to secure a renewal.

Conditions

Permits typically contain conditions that accord with the requirements of the legislation under which they are granted.

Environmental permits are generally obtained by applying to the appropriate government authority with responsibility over the permitting scheme; for example, permits around fish or fish habitats will commonly be obtained from Fisheries and Oceans Canada.

In many cases, the applicable legislation explicitly states that environmental permits will only be granted to individuals or businesses that can show they are qualified to hold them. As an example, the federal Nuclear Safety and Control Act forbids transfers of licences unless the licensee can show that they are authorised to carry out the particular activity granted under the licence.

Appeals

Some permitting regimes, but not all, will allow for an appeal to a quasi-judicial authority (often an administrative tribunal) or a member of the federal government – ie, a minister. In all cases, the decision to grant or refuse a permit can be reviewed by the courts through an application for judicial review. Further appeals from these decisions may find themselves in courts of competent jurisdiction.

The key types of liability faced by project proponents or operators in Canada for environmental damage or breaches of environmental law include monetary fines, remediation orders, the loss of environmental permits and prosecution.

Environmental legislation, such as the Fisheries Act, includes a provision that makes it an offence to fail to comply with the legislation. Furthermore, the Fisheries Act and others like it state that any committed or continued offence that occurs over time will be considered a separate offence for each day the contravention occurred. The result is that offenders may be subject to multiple convictions and large monetary fines should environmental breaches continue. It is often possible for an employee, agent or a director or officer to be held personally responsible for an offence under environmental legislation.

Subject to available defences, a current or purchasing operator or landowner will be subject to liability if they acquire contaminated land. The Canadian liability regime is designed to ensure that liability always falls on either past or present owners or operators of land in order for federal and provincial governments to avoid incurring remediation costs.

Liability

Most environmental legislation in Canada operates on the “polluter pays” principle, which requires the party that caused the harm to the environment to bear the ultimate cost of any clean-up or remediation.

However, Canadian contaminated sites legislation can impose liability for historic environmental incidents or damage on a current operator or landowner of contaminated land; for example, if the new landowner is aware of the contamination and takes no steps to mitigate its spread, then the new landowner may be liable (subject to the various defences set out in the legislation).

There are several types of liability for environmental incidents or damage in Canada. Project proponents, operators, or suppliers and transporters of products may face liability for pollution or harm to the environment, for failing to comply with specific environmental regulations or permits; for the ownership, operation or control of contaminated sites; or for the supply of products to contaminated sites. They may also face claims of nuisance or negligence from private parties affected by contamination.

Defence

A defence of due diligence is normally available to parties accused of breaching environmental legislation, as well as various common law and equitable defences. However, there are some offences where due diligence is not available.

A Relevant Case

A case that demonstrates many of the key principles and issues in a contaminated sites context is JI Properties Inc v PPG Architectural Coatings Canada Ltd, 2015 BCCA 472. This appellate decision provides commentary on the legislative/regulatory regime, the status of pre-legislation comfort letters and due diligence by the defendants, the operation of limitation periods on environmental damage, and the scope of reasonably incurred remediation costs.

As previously noted, Canada has adopted the "polluter pays" principle for environmental liability, and this includes corporations. Corporate entities that damage the environment or breach environmental legislation will be liable for the harm caused. This can include damage caused by oil spills and sewage pollution, or breaches of regulations around wildlife, fisheries, the transportation of dangerous goods, the disposal of hazardous materials and contaminated sites.

It is uncommon in Canada for the shareholders or parent company of a polluting corporate entity to be held liable for environmental damage. However, Canadian contaminated sites legislation contains broad liability provisions that may apply to shareholders or a parent company that owns, controls, or manages a contaminated piece of property. Also, in very rare circumstances, a party or government may seek permission from the court to “pierce the corporate veil” and sue the parent company for actions taken by the subsidiary.

Several pieces of federal environmental legislation impose responsibilities on directors and officers for their company’s environmental performance. Penalties for environmental damage or breaches of environmental law can include:

• being fined or imprisoned for the corporation's pollution, even if the corporation has never been prosecuted or convicted;
• being fined for the corporation's failure to obtain the necessary permits or approvals, follow required environmental processes, or report spills;
• being prosecuted for failure to take all reasonable care to prevent the corporation from causing or permitting pollution;
• being heavily fined or imprisoned for the corporation’s contempt of court where there are repetitions of events that led to a previous environmental conviction; or
• being personally liable for the costs of remediating historic and current property contamination associated with any real estate that the corporation owns, controls or occupies, or formerly owned or controlled.

Most directors and officers in Canada rely on director and officer insurance to insure them against any errors and omissions made in the course of their duties. Given the serious consequences of potential environmental breaches, it is not uncommon for directors and officers to have coverage for environmental breaches as part of their insurance policies. However, such policies are often additional and expensive, as they are not traditionally included as part of standard policies.

Directors and officers may seek further indemnification from the company itself for any liability that arises from their role in the company; however, this may be of little help if the company becomes insolvent due to environmental penalties.

It is unlikely that financial institutions or lenders will be liable for the environmental damage caused by one of their clients. However, Canadian contaminated sites legislation contains broad liability provisions that may apply to a lender who owns, controls or manages a piece of property. For example, if a lender realises on security taken on real property assets that are contaminated, the lender may have sufficient "control" over the situation to incur liability for the clean-up.

To protect themselves from liability risk, lenders should investigate the potential environmental liabilities inherent in an undertaking before investing, and should ensure that money is allocated towards meeting environmental contingencies. Furthermore, lenders can make it a term of any lending agreement that the owner or operator of a site meets and/or exceeds any environmental regulations or policies in furtherance of the agreement. Finally, a lender could ask for an indemnity or for the provision of an insurance policy naming them an additional insured in order to further mitigate any potential fallout from an environmental offence.

Civil claims for compensation or other remedies can be brought through common law causes of action, such as nuisance, negligence, trespass, or loss of property value, or through statutory causes of action set out in environmental legislation.

Canadian courts of inherent jurisdiction almost always have jurisdiction to award exemplary or punitive damages. However, generally speaking, they are unlikely to award such damages unless the conduct in question is high-handed, malicious, arbitrary or highly reprehensible. The bar for awarding punitive damages is high, but punitive damages have been awarded in certain jurisdictions, such as Alberta, for breaches of environmental responsibilities.

Class actions are available for environment-related civil claims. However, class actions in Canada must first be “certified” by a court in order to proceed. This process ensures that the claim raises common issues and that a class proceeding is the preferred way to resolve those issues. However, few environment-related cases have made it past this initial threshold.

Two appellate decisions, released in 2013 and 2014, confirmed that class action regimes are not often appropriate to remedy environmental harms: Canada (Attorney General) v MacQueen, 2013 NSCA 143 and Windsor v Canadian Pacific Railway Ltd, 2014 ABCA 108. Although environmental causes of action may seem to involve common issues among class members, proof of those claims is often an individual issue.

Indemnities and other contractual arrangements can be used to transfer or apportion liability for environmental pollution or breaches of law, although the appropriate terms for each set of parties will be fact-specific. However, third parties – including regulators – are not likely to be bound by such agreements, and are entitled to prosecute or seek compensation from the party who is liable at law. Polluters relying on such indemnities and contracts must seek indemnification or compensation through those mechanisms on their own.

Most commercial general liability policies in Canada exclude pollution liability. Businesses can purchase an optional pollution liability extension, although such extensions will be subject to strict exclusions.

Instead, Canadian businesses may purchase an environmental liability policy from one of a variety of insurers in Canada. These policies can provide coverage for liability arising from a sudden or gradual pollution event, waste management services, storage tanks and contractors, among other things.

Jurisdiction over contaminated sites is divided between the federal and provincial/territorial governments in Canada. The federal government has some powers to issue remedial and preventative orders regarding water and soil contamination, and has jurisdiction over any federal lands. All other lands are governed by provincial contaminated sites legislation.

Provincial Contaminated Sites Legislation

This legislation details hazardous waste disposal and storage, site investigations, permitting and authorisations, pollution prevention, site remediation, administration, penalties, etc. All of these fall under provincial jurisdiction relating to the environment and property management.

Contaminated sites are defined as areas of land where the soil, sediment, vapour or groundwater contains a prescribed substance in quantities or concentrations exceeding risk-based criteria, standards or conditions. Prescribed substances generally include hazardous substances such as sulphur, petroleum hydrocarbons, heavy metals and chlorofluorocarbons (CFCs).

Remediation

When a “responsible person” has not remediated an identified contaminated site, a regulatory authority can issue a remediation order to ensure remediation is carried out. This could occur if the contamination is severe, or if the responsible person will not voluntarily carry out the remediation requirements.

Persons who may be liable for the costs of remediating a contaminated site include the current owner or operator of a site, a previous owner or operator of a site, persons who produced the prescribed substance found on the site, and persons who transported the prescribed substance found on the site.

Exclusions

Specific exclusions apply. For example, a prior owner or operator might not be found liable if they can demonstrate that the site was not contaminated at the time they owned or controlled it, and that they did not contribute to the contamination. Similarly, a current owner who can demonstrate that none of their conduct exacerbated or contributed to the costs of remediation may not be found liable.

Limiting liability

More than one person can be liable for remediation of contaminated land, with liability typically apportioned according to the degree of fault or contribution by the parties to the pollution. Gehring et al v Chevron Canada Limited et al, 2006 BCSC 1639 provides commentary on the allocation of remediation costs. The recent appellate case Victory Motors (Abbotsford) Ltd v Actton Super-Save Gas Stations Ltd, 2021 BCCA 129 confirmed that, at least in British Columbia, remediating parties may claim both litigation legal costs and legal costs incurred throughout the actual remediation of the contaminated site.

A person liable for remediating contaminated land can seek recourse from the original polluter or former landowner. Such actions may be available in contract law, in negligence, or through a statutory cause of action in some provinces.

A polluter or landowner can transfer liability for a contaminated site to a purchaser by way of contract. However, environmental legislation in most provinces permits regulators to order those who formerly owned or controlled contaminated property to carry out remediation measures. Parties seeking to rely on contractual terms to recover their costs or limit liability will need to seek a remedy through those mechanisms.

Although a large part of the Canadian economy is resource-based, the country’s economy varies greatly from coast to coast. The strategies to combat climate change have therefore been as varied as the economies in which they are implemented. As it currently stands, Canadian provinces have a patchwork of different environmental policies in play, with varying adherence to policies concerning carbon credits, renewable energy credits and emission standards.

The Canadian Net-Zero Emissions Accountability Act

Canada is a signatory to the major international climate change conventions. As a party to the Paris Agreement, Canada has committed to an economy-wide target to reduce greenhouse gas emissions by 40–45% below 2005 levels by 2030. The Canadian Net-Zero Emissions Accountability Act formalises Canada’s target to achieve net-zero emissions by the year 2050, and establishes a series of interim emissions reduction targets at five-year milestones towards that goal.

Although the federal government signed the Paris Agreement and has set emission targets, Canada is a federal system and the federal and provincial levels of government have jurisdiction to regulate matters concerning the environment.

Federal and Provincial Regulations

The Pan-Canadian Framework on Clean Growth and Climate Change

In recognition of the collaborative approach needed for progress on climate change, the federal and provincial ministers of the environment developed the Pan-Canadian Framework on Clean Growth and Climate Change, which required all provinces and territories to have carbon pricing initiatives in effect by 2018. However, the framework gives the provinces and territories the flexibility to design their own policies to meet emission-reduction targets through the different initiatives or mechanisms that best suit their individual economies.

A Healthy Environment and a Healthy Economy

The federal government subsequently issued a further climate plan in 2020 – A Healthy Environment and a Healthy Economy. The plan builds on the efforts that are currently underway through the Pan-Canadian Framework.

2030 Emissions Reduction Plan

Furthermore, in March 2022, the federal government introduced Canada’s 2030 Emissions Reduction Plan, which provides a road map for the Canadian economy to achieve 40–45% emissions reductions below 2005 levels by 2030, building upon the actions outlined in Canada’s previous climate plans.

Energy efficiency

Canada maintains a number of legal requirements with respect to energy efficiency. Regulations apply to a range of products, including appliances, light bulbs, heating and cooling systems, and vehicles. Many incentive programmes also exist to support the construction of energy-efficient homes and buildings, and the development of energy-efficient industries and businesses.

Carbon pricing

In 2017, the federal government announced that the provinces and territories in Canada had to develop their own carbon pricing system that met federal standards or the federal government would impose its own programme on the provinces and territories. Since 2019, every jurisdiction in Canada has had a price on carbon pollution, either their own pricing system tailored to local needs or the federal pricing system. If a province or territory decides not to price pollution, or proposes a system that does not meet the minimum standards set by the federal government, the federal system is put in place.

Clean Fuel Regulations

In June 2022, the Clean Fuel Regulations under the Canadian Environmental Protection Act, 1999 were registered. The Clean Fuel Regulations seek to reduce greenhouse gas emissions in Canada by requiring liquid fossil fuel suppliers to gradually reduce the carbon intensity of the fuels they produce and sell for use in Canada over time. The Clean Fuel Regulations set carbon intensity limits for fuel types and the fuel suppliers must lower the carbon intensity of the fuels they produce in accordance with those limits. Suppliers can maintain compliance with the established limits by participating in a credit market established by the Clean Fuel Regulations. Credits can be created by undertaking projects that reduce the carbon intensity of fuels, supplying low carbon fuels, or supplying fuel or energy to advanced vehicle technology (eg, electric or hydrogen vehicles). Overall, this new regulatory scheme aims to reduce emissions while simultaneously driving innovation in low-carbon and clean energy sectors. The carbon intensity reduction requirements under the Clean Fuel Regulations will come into force on 1 July 2023.

Legislation and History of Asbestos Usage

Asbestos management in Canada is governed by occupational health and safety legislation and environmental legislation. It is governed federally by legislation such as the Hazardous Products Act and the Canada Consumer Product Safety Act, and provincially by legislation such as the Workers' Compensation Act. The federal Prohibition of Asbestos and Products Containing Asbestos Regulations prohibit the import, sale and use of asbestos, as well as the manufacture, import, sale and use of products containing asbestos (with some exceptions).

The responsibility for removing or managing asbestos present in a building generally falls on the building owner. However, in some provinces the occupier of a building, such as a tenant or project developer, may also bear some responsibility.

Landowners or occupiers must conduct a pre-work assessment before commencing certain building work. Any asbestos found must be removed, enclosed, encapsulated, or carefully managed prior to renovations or alterations. The legislation mandates that specific procedures must be implemented during asbestos removal, relating to ventilation, waste containers and decontamination.

Asbestos was used frequently in Canadian insulation, fireproofing and construction until the 1980s. Canada was also an active producer of asbestos until 2011. As a result, Canadian exposure to asbestos has been relatively widespread, and asbestos-related diseases continue to be one of the top causes of workplace death in Canada.

Litigation

Despite this, asbestos litigation against employers is relatively uncommon. Canada has a socialised medical insurance system and most provinces operate a mandatory workers' compensation scheme, which means that the majority of workers injured by asbestos exposure will receive medical treatment and compensation without resorting to litigation.

Where asbestos litigation has been undertaken, it has been initiated by workers' compensation boards, the bodies responsible for administering the workers' compensation schemes, and brought against manufacturers of asbestos products to recover the costs of paying out compensation to workers and their families.

To establish a claim for damages for asbestos exposure, a litigant must demonstrate actual physical harm or injury. However, the long latency period of asbestosis and mesothelioma means that the injury or harm may not be realised, and litigation not commenced, for decades.

This has created challenges for Canadian courts. Litigants have often been exposed to asbestos from a variety of sources over a long period of time, making causation and the proper apportionment of liability a difficult issue. More recent jurisprudence suggests courts will take a more relaxed approach to causation in such cases; see Clements v Clements, 2012 SCC 32.

One of the leading cases with respect to asbestos liability in Canada is Privest Properties Ltd v The Foundation Co of Canada Ltd (1995), 11 BCLR (3d) 1 (SC), aff’d (1997), 31 BCLR (3d) 114 (CA). Privest was the first suit to be tried in Canada involving asbestos in buildings. The court rejected the plaintiffs’ position that the building in question had been contaminated by the presence of asbestos-containing spray fireproofing. The court concluded that the substance at issue was not an inherently dangerous product, because the fireproofing contained chrysotile, rather than crocidolite or amosite forms of asbestos. This decision set a meaningful precedent in Canada by constraining liability with respect to the use of asbestos in fireproofing and construction. It also departed significantly from decisions made by earlier US authorities.

In Canada, the responsibility for managing and reducing waste is shared among federal, provincial, territorial and municipal governments. The federal government regulates the export and import of waste and the interprovincial movement of waste, while the provinces regulate the use and disposal of waste. Both “extended producer responsibility” and “product stewardship” programmes are used to manage products at their end of life.

Whether or not a producer or consigner of waste retains liability for waste after it has been disposed of by a third party depends on the province in question. In some provinces, the legislation includes an automatic ownership transfer provision that is triggered once waste is accepted by an authorised waste management facility, which limits further liability of producers or consigners.

In provinces where such a provision does not exist, any past or present owner or person that possessed, controlled or managed the waste remains exposed to liability for the waste after it has been disposed of by a third party. However, generally speaking, some direct involvement in the release is necessary in order for the liability to crystallise. Under both schemes, producers or consigners remain liable for any damage caused while the waste was in their possession or in transport.

Producers in Canada are not generally required to take back, recycle or dispose of goods once they become waste. However, legislation across Canada is widely used to impose some or all of the costs of recovery, recycling and disposal of goods on the producers of waste. These laws are intended to incentivise producers to design products that can be disposed of responsibly.

Furthermore, in June 2022, the federal government published the Single-Use Plastics Prohibition Regulations under the Canadian Environmental Protection Act, 1999. Under these new regulations, the manufacture, import, export and sale of six categories of single-use plastics will be banned by the end of 2025, including checkout bags, cutlery and straws. The regulations adopt a staggered timeline to put the ban in place, beginning with prohibitions on the manufacture and import of the identified plastics for sale in Canada in the initial stage (effective December 2022–2023) to a more total prohibition on manufacture, import and export sales by the end of 2025.

There are requirements to self-report environmental incidents or damage to regulators in Canada. These requirements often apply to spills or releases of environmentally harmful substances such as oil, sewage and ozone-depleting substances. Larger spills or releases may also be required to be reported to the public at large.

In addition to legal requirements to report spills or other environmental breaches, a failure to notify may be used against an offender as evidence of conduct worthy of sanction via punitive damages or an increased fine for a conviction.

Canadian government agencies often publish environmental information on their websites. The public may also request government documents and information through access to information requests, which apply to nearly all public authorities and bodies and nearly all government documents.

The disclosure of environmental information in annual reports is still largely voluntary in Canada. However, under Canadian securities rules, reporting issuers (which are largely public companies) must disclose all material information, including material information about environmental and social issues. Report issuers may also have disclosure obligations under the policies of a particular stock exchange.

Environmental due diligence is typically conducted on M&A, finance and property transactions in Canada. The level of due diligence conducted may vary according to the level of risk a particular property may present (such as a gas station or dry cleaner).

Share Sale

In a share sale, all the assets and liabilities of the target company remain with the company, meaning that the buyer will absorb any outstanding environmental liabilities for historic environmental damage or breaches of environmental law.

Asset Sale

In an asset sale, the buyer typically does not inherit the pre-acquisition environmental liabilities associated with the purchased assets. However, by law, the buyer may inherit liability for the pre-existing environmental condition of the assets, especially in the case of a contaminated site. A buyer may also be liable where it takes over an ongoing situation of regulatory non-compliance.

Review of Studies, Reports, etc

Typically, a purchaser of Canadian shares or assets will request the relevant environmental studies, reports, permits, orders, key correspondence from regulatory authorities and other critical environmental documents from the vendor. A purchaser can also search public registries for information regarding the target company’s environmental compliance, conduct interviews with senior environmental employees of the target company, or obtain an environmental audit or site assessment.

Private companies may provide Phase I and Phase II assessments, with Phase I inspections consisting of database and visual searches while Phase II inspections consist of site inspection, sample collection and analysis, and often the provision of a review and recommendations regarding the site and potential remediation.

Disclosure

There is little legislation that mandates the disclosure of environmental information to a purchaser. In some jurisdictions, for example, provincial legislation will require a vendor of real property who knows or should know that the property has been used for an industrial or commercial purpose to provide a site disclosure statement to a prospective purchaser. More commonly, the requirement to disclose environmental information to a purchaser is built into Canadian contracts. Robust representations and warranties regarding the property or the company’s environmental status will create liability where those statements prove untrue.

Warranties and Indemnities

There are no "typical" environmental warranties, indemnities, or similar provisions in a share or asset sale; the allocation of risk depends on the parties themselves. However, it is common in Canadian business transactions to include representations, warranties and indemnities that will affect the allocation of environmental liability. Topics that may be covered by these provisions include the state of the property, the absence of contamination and the company’s environmental compliance status. Often, such warranties and indemnities will be limited in time.

In Canada, environmental taxes are imposed on activities or products that have a negative impact on the environment. They are designed to limit environmentally harmful behaviour through a price incentive, and are levied on the tax bases of energy, transportation, pollution and natural resources, among other things. Examples include federal and provincial fuel consumption taxes, and provincial taxes on mineral use, waste management and carbon emissions. Other provisions may allow businesses to recoup costs or receive accelerated depreciation write-offs for pollution control or energy conservation equipment and machinery.