Over the years, we’ve worked with several of our clients that were involved in mergers/acquisitions/divestitures with locations in Canada. So we read, with interest, an August 2016 article by the Osler law firm, Recent Trends in Cross-Border Canada-U.S. M&A Activity. In this article, they wrote, “It is evident from recent growth in M&A activity across the Canada-U.S. border that investment and deal-flow between the neighboring countries is strong. Aggregate Canada-U.S. cross-border M&A in the last twelve months rose to $187.5 [billion], up 14% from the twelve months prior.”
The article goes on to say that M&A activity is now more outbound (from Canada to the US) than inbound. And while the North American Free Trade Agreement (NAFTA) has been a talking point during the current national election cycle, the fact remains that Canada is our biggest trading partner.
While environmental assessments as part of M&A activity are far more nuanced than “just” a Phase I Environmental Site Assessment, this is a typical starting point for discussion. With this said, the first thing we tell our clients is that environmental site assessments in Canada, and specifically in Ontario, can be very different than the United States.
Environmental Assessments in Ontario, Canada
As a starting point, don’t think All Appropriate Inquiry (AAI) and Comprehensive Environmental Response and Liability Act (CERCLA) liability protection. Unfortunately, that kind of liability protection is not currently in place in Ontario. For a more detailed discussion on the environmental liability issue, see blogs on our Canadian website, “Innocence When It Comes to Environmental Liability Means Nothing” and “Environmental Contamination – Are You Personally Liable?”
While CERCLA innocent landowner defense isn’t available in Ontario, there are several considerations as you assess potential environmental liability issues with the purchase of property. Briefly, and very generally, here are some basic nuts and bolts relating to Phase I/One environmental site assessment in Ontario:
Record of Site Conditions (RSC): The goal of the RSC is to determine if the site meets acceptable standards for the specified land use.
In order to make this determination, the assessment process (assuming it is done properly) should allow you to determine if there were any Potential Contaminating Activities (PCA) in the past that have resulted in Areas of Potential Environmental Concern (APEC) on the property.
Accordingly, the RSC may involve only completion of a Phase One if no APECs are identified. However, in our experience, it often includes soil and/or groundwater investigation (Phase Two) and, in some cases, some limited remediation.
In an RSC Phase One, the study area is a minimum of 250 meters from the boundaries of the property, the database search is more extensive, and the title search is required to go back to the first development at the Phase One property, if possible.
The RSC is filed with the Ministry of Environment and Climate Change (MOECC). It doesn’t provide you with liability protection, but it does, at a minimum, document environmental conditions at the site.
An RSC must be conducted by a Qualified Person (QP), which is an Ontario designation. A QP can be either a Professional Geologist (P. Geo) or a Professional Engineer (P. Eng.) (NOTE: There is no reciprocity with US for professional designations).
The regulation for the RSC is found in Ontario Regulation 153/04 (Note: “One” not “I” is the term used in the regulations).
CSA Phase I ESA: The Canadian Standards Association (CSA) Phase I ESA – CSA Z2767-01 is a nationally-recognized program. Unlike the RSC, a QP is not required (which might be a reason for some concern), only a “competent person” is required. Other specifics are that the study area only includes properties adjacent to the site, the regulatory search is less extensive, and the title search doesn’t necessarily go back to the first development of the property.
Other Environmental Regulatory Concerns
Beyond the immediate concerns related to the environmental condition of the property, you may want to inquire about permitting issues, such as Environmental Compliance Analysis, National Pollutant Release Inventory Reporting, Designated Substance Surveys, and Toxic Substance Reduction Plans.
Mergers and Acquisitions will, no doubt, continue between US and Canadian companies. There are many similarities between our countries, including environmental regulations, but there are many differences and nuances as well.
Finally, as always, consult with legal counsel (lawyers not attorneys) in Ontario. We are happy to provide references to lawyers in Ontario.
If you need assistance with a Merger/Acquisition in Canada or the United States, contact me (jbolin@dragun.com) at 248-932-0228, ext. 125.