Directors of Dissolved Companies: Getting Around Gehring – The Long Arm of the Law

13. June 2019 0

Under B.C.’s Environmental Management Act, a director or officer of a company that owns or operates on, or has historically owned or operated on, a contaminated site is a “person responsible for remediation” of that site simply in virtue of their position with the company.  Such directors and officers can be liable to pay the reasonable costs of remediation incurred by anyone in respect of the site owned or operated by their company, if they authorized, permitted or acquiesced to the activity that gave rise to the cost of remediation.

Although the language establishing the categories of “responsible persons” under B.C. law is very broad, it is not without limit.  For example, it does not include “persons” who have ceased to exist, such as dissolved corporations.  This was made clear by the B.C. Supreme Court in the seminal decision of Gehring v. Chevron Canada Ltd., 2006 BCSC 1639.  The case has undoubtedly motivated many corporate dissolutions by directors and officers seeking to shield themselves from personal liability for contaminated sites owned or operated on by the companies they served.

However, in the recent decision of the B.C. Supreme Court in Foster v. Tundra Turbos Inc., 2018 BCSC 563, a director of a long-dissolved corporation that owned and operated on contaminated land faced exposure in an action to recover environmental remediation costs by virtue of an application to restore the company to the corporate registry.  The company in question, Tundra Turbos Inc., was incorporated in 1978, and was dissolved in 2000.  Prior to its dissolution, it had a single director, one Mr. Clarke.  The plaintiff sought to hold Mr. Clarke liable for the costs of remediation incurred in respect of the property, some 17 years after Tundra had dissolved.  The question before the court was whether it was appropriate to restore Tundra and reconstitute Mr. Clarke’s directorship to make it possible for Tundra and Mr. Clarke to be liable for the costs incurred by the plaintiff in remediating the property owned by Tundra in the late 1980s and early 1990s.  Tundra and Mr. Clarke presented several arguments against the restoration, including that Mr. Clarke would lose the Gehring defence (a substantive right) and that Tundra’s records pertaining to its operations at the property were destroyed, given the length of time involved.

The court rejected these arguments and ordered the restoration.

In the court’s view, there was nothing inherently unfair with the fact that companies and directors may be exposed to liability under B.C.’s environmental legislation many years after their association with a contaminated property has ended.  Further, the right of a company and its directors to avoid liabilities for which they would have been exposed but for the dissolution is not the kind of right protected by legislation.  In fact, a legitimate purpose of restoring a company is to facilitate the imposition of such liabilities.  While destruction of the dissolved company’s records may, in certain circumstances, result in the court rejecting an application to restore, in Tundra’s case there was no prejudice arising from the loss of records because it was clear, on the facts, that had Tundra not been dissolved, it would have been responsible for the costs of remediation.  If anything, the lost records caused more prejudice to the plaintiff than Tundra’s director, Mr. Clarke, who had personal knowledge of Tundra’s activities on the site.

The Tundra case is an important example of creative counsel work to get around the Gehring defence.  However, notwithstanding the outcome in that case, there are arguments to be made in future cases to avoid restoration and, ultimately, responsible person status for the director in question.  Existence of a limitation defence and loss of evidence that would assist in the defence of the director in question, or unreasonable delay of the plaintiff in bringing the restoration application, may well result in the application being denied.  For lawyers advancing cost recovery claims, the Tundra case is a good reminder of the need to look at dissolved corporations and their directors and officers, and the need to apply for restoration in a timely fashion.  For those defending these claims and restoration applications, finding prejudice, beyond the mere loss of the Gehring defence, will be key.


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