Indemnity Fails: Paying Twice For A Cleanup

Illustrating the adage that an indemnity is only as good as the person giving it, a recent case from the Ontario Environmental Review Tribunal demonstrates the serious exposures a vendor may encounter when contaminated property is sold subject to a contractual indemnity without adequate security.

In Superior Fine Papers Inc. v. Director, Ministry of the Environment [2011] O.E.R.T.D. No. 22, the vendor had entered into an agreement to sell a paper manufacturing site with known environmental issues. The business was sold as a going concern, but the transaction was structured so that the vendor paid the purchaser $4.5 million to acquire the site and assume all but a specified number of obligations. This assumption of liability was duly documented in an Environmental Indemnity. The purchaser took the money, failed to clean up the site, and subsequently went into receivership. Along came a new buyer, who paid for the property and even assumed the obligations of the