Beware of Presumption of Management or Control of a Director

Case Comment: Alizadeh v Ontario

Howard Borlack,
Partner

January 2020

by Howard Borlack

In Alizadeh v Ontario (Ministry of Environment, Conservation and Parks) (“Alizadeh”), the Court highlighted the high evidentiary burden on rebutting a presumption of management and control by a director in a Director's Order, emphasizing the importance of meeting environmental protection objectives.

Background Facts

Mansteel New Liskeard Inc. (“Mansteel”) owns a property that included a wood waste landfill (“the Site”). The Ministry of the Environment, Conservation and Parks (“the Ministry”) claimed that toxic leachate was seeping from the Site, leaking from the pumping stations, overflowing from the ponds into groundwater, and potentially affecting drinking water sources. A director from the Ministry issued a Director's Order (“the Order”) against the directors of Mansteel, including Mr. Grant Erlick, a former Director, requiring action to be taken.

The orderees appealed the Order to the Ontario Environmental Review Tribunal (“the Tribunal”). Erlick argued that he should be removed from the Order for three reasons:

1. He was not in management or control of Mansteel;
2. He was not a director or officer of Mansteel at the time the Order was issued; and
3. He does not have the financial ability to comply with the order.

Management or Control

By way of section 18 of the Environment Protection Act, in determining whether to uphold the naming of a person in a director's order, it must be determined whether the director had jurisdiction to issue the order.^{1 2}

A director has jurisdiction to issue a director's order against a person that has management or control of the corporation. There is a presumption that a Director is in management or control of a corporation. To rebut that presumption, the evidentiary burden rests on the Director presumed to be in management or control.

The Tribunal asserted that Erlick's level of involvement was considered as “management and control” in two decisions:

• In Currie v Ontario (Ministry of the Environment), [2011] O.E.R.T.D. No. 26 (Ont. Environmental Review Trib.), a person in management and control was held to be someone who was considered the “point person” for the Ministry, had knowledge of the environmental issues at site and was in direct communication with the Ministry.
  
  
• In Rocha v Ontario (Environment and Climate Change) [2015 CarswellOnt 11189 (Ont. Environmental Review Trib.)], 2015 CanLII 43581, paras 26-29), a person in management and control was held to be someone retained by its principal to communicate with the Ministry and sign an agreement of purchase and sale for the property on behalf of the corporation.

The Tribunal cited the following factors as evidence that Erlick was in management and control of Mansteel:

• Erlick signed the agreement of purchase and sale for the property on behalf of Mansteel,
• Financial assurance was arranged by Erlick,
• Erlick was the only point of contact between the Ministry and Mansteel,
• Erlick held himself as being the only person who was making the necessary decisions on behalf of Mansteel with respect to the toxic leachate,
• Erlick participated in ongoing discussions and actions regarding the disposal of leachate,
• Contracts were signed by Erlick as the president of Mansteel, and
• Erlick was routinely included in the correspondence between the Ministry and  consultants to Mansteel.

In rebutting the presumption of management or control, Erlick submitted that he was not in management or control of Mansteel because he was instructed by the current director to complete his responsibilities. In support of his argument, Erlick provided the following evidence:

• A letter written by a current director that addresses Erlick's removal as officer and director in 2014 and 2016 and a prohibition on him accessing the site in the future,
• A letter written by Mr. Wilson, a consultant to Mansteel, that states Erlick was under the direction of a current director, and
• Two invoices regarding expenses and time expended on reviewing documents and organizing a meeting.

The Tribunal held that Erlick did not have enough evidence to rebut the presumption of management and control because the documents that Erlick provided did not corroborate his claim. The Tribunal, therefore, found that the Ministry director had jurisdiction under s.18 of the Environmental Protection Act to name Erlick in the Order.

The Tribunal also held that Erlick was still responsible for carrying out the responsibilities of the Order, even though he was not a director or officer of Mansteel at the time the Order was issued.

The Court's Discretion

Erlick argued that if he is named in the Order as a matter of law, the Tribunal should exercise its discretion to remove him from the Order because he is financially unable to pay for the work required. As evidence, Erlick provided copies of his CRA Notices of Assessment with respect to his income for three years.

The Tribunal held that Erlick's lack of financial ability was not a sufficient reason to rebut the presumption for two reasons:

• In determining whether to remove a person from a Director's Order, the Tribunal must focus on the purpose of the Environmental Protection Act, being to provide for the protection and conservation of the natural environment. The Court quoted sections of the Compliance Policy including:

  “In regard to issuance of orders, financial hardship on the part of the responsible person should not be accepted as a reason for not issuing an order to respond to an incident.”

• Erlick's tax returns were not sufficient evidence to demonstrate that he could not carry out the financial responsibilities of the Order because it provided an incomplete picture of Erlick's assets.

Going Forward

With this decision, the evidentiary burden on a director or officer rebutting the presumption of management or control remains high. A Tribunal will refuse to exercise its discretion to remove a director or officer from the Director's Order if it is not in line with the objectives of the Environmental Protection Act. Even so, where a former director has alleged that he cannot carry out the financial responsibilities of the order and that he no longer works at the corporation. This decision emphasizes that environmental protection cannot be ignored in addressing the financial responsibility of a director in management or control.

1. Rocha v Ontario (Environment and Climate Change) [2015 CarswellOnt 11189 (Ont. Environmental Review Trib.)], 2015 CanLII 4358.
2. Section 18 of the Environmental Protection Act provides the authority to name a director in a director's order.

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