Teck Cominco Decision May Open Door To Cross-Border Environmental Claims

Friday, April 1, 2005 - 01:00

An important decision of the U.S. District Court for the Eastern District of Washington ( Pakootas v. Teck Cominco Metals, Ltd.1 ) could extend the reach of U.S. environmental law to Canadian companies that are alleged to have caused pollution in the United States - even when a company's activities take place wholly within Canada and are subject to Canadian regulatory oversight. The case, now on appeal to the U.S. Court of Appeals for the Ninth Circuit, is being closely watched by companies in all three NAFTA countries. If affirmed, it could open the door to direct private party claims in U.S. courts to resolve cross-border environmental harms.

Under well-established principles of customary international environmental law, countries have the sovereign right to exploit their natural resources, but also have the concurrent responsibility to ensure that activities within their jurisdiction or control do not cause damage to the environment in other states. This rule, long thought to reflect customary international law, was articulated in Principle 21 of the 1972 Stockholm Declaration, and reiterated (with increased emphasis on a state's right to pursue development objectives) in Principle 2 of the 1992 Rio Declaration. In a 1996 advisory opinion, the International Court of Justice concluded that "the general obligation of the States to ensure that activities within their jurisdiction and control respect the environment of other States É is now a part of the corpus of international law relating to the environment." The U.S. Restatement of Law of Foreign Relations (Third) also concludes that a state "is obligated to take such measures as may be necessary, to the extent practicable under the circumstances, to ensure that activities within its jurisdiction and control É are conducted so as not to cause significant injury to the environment of another state."

States have traditionally resolved disputes arising under customary international law through diplomatic channels or through international arbitration agreed to by the relevant countries. The best-known example of this was an international arbitration agreed to by the governments of the United States and Canada involving the same smelter that is now at issue in Teck Cominco . During the 1920s, apple growers in Washington State claimed that air pollution originating from the Trail smelter in Canada was ruining their crops. The smelter, then owned by Consolidated Mining and Smelting Company of Canada, was emitting sulfur dioxide that was alleged to be crossing the U.S.-Canadian border at significant levels and causing damage to apple crops in Washington State. Because of jurisdictional limits in effect at that time, the apple growers were prevented from bringing suit either in a U.S. or a Canadian court. They turned to the U.S. government, which took up their cause through diplomatic channels. This eventually led the U.S. and Canadian governments to submit the issue to an arbitral panel constituted under the U.S.-Canadian International Joint Commission, a body created under the Boundary Waters Treaty of 1909. This arbitral panel concluded that the smelter was responsible for monetary damages to the apple growers' crops, and made other recommendations regarding needed improvements to the smelter. Further arbitration took place before a second panel created under a special convention signed by the U.S. and Canadian governments. That second arbitral panel ultimately ordered the Canadian government to require the smelter facility to make capital improvements worth more than $20 million. Although the Trail smelter arbitration is well-known in the annals of international environmental law, it required a joint decision by the U.S. and Canadian governments to submit the dispute to international arbitration. In the absence of mutual agreement by the states, private parties have had to look toward other avenues of relief.

When the North American Free Trade Agreement (NAFTA) was ratified by the governments of the United States, Canada and Mexico, these countries also adopted the North American Agreement on Environmental Cooperation (commonly known as the Environmental Side Agreement) to address concerns that environmental degradation would result from increased trade between the NAFTA countries. Article 14 of the Environmental Side Agreement allows private parties and non-governmental organizations to file citizen petitions asserting that one of the NAFTA countries is failing to effectively enforce its environmental laws. If such a submission is accepted by the Commission on Environmental Cooperation (CEC), which administers citizen petitions, the matter is investigated, and a factual record analyzing the allegations may be prepared and released to the public. However, because the CEC has no power to order direct relief, the citizen submission process has been criticized as not providing effective remedies to private parties. Furthermore, although the NAFTA allows matters to be submitted to arbitration upon mutual agreement of the NAFTA countries, no environmental arbitration has taken place under these provisions.

The current Teck Cominco case developed against this background. Teck Cominco Metals, Ltd., a Canadian corporation, currently owns and operates the Trail smelter in British Columbia. According to allegations made by the U.S. Environmental Protection Agency (EPA), the smelter discharged hazardous substances into the Columbia River in Canada over a period of years; those substances allegedly flowed downstream into the United States, and allegedly polluted the Upper Columbia River and Lake Roosevelt in Washington State. In 2003, EPA asked Teck Cominco to enter into an administrative consent order (ACO), through a U.S. subsidiary, to conduct a remedial investigation and feasibility study (RI/FS) under the Superfund law. Teck Cominco offered to pay $13 million for independent studies, but declined to submit to the formal Superfund process; it took the position that EPA did not have regulatory authority to reach beyond U.S. borders and compel a Canadian company to submit to the Superfund process. In December 2003, EPA issued a unilateral order under Superfund against Teck Cominco, demanding that the company investigate the full extent to which the Upper Columbia River site had been contaminated by Teck Cominco's pollutants from Canada. Teck Cominco again declined to submit to the Superfund process. The Canadian government filed a diplomatic protest with the U.S. State Department. The two governments are reportedly attempting to resolve the dispute through diplomatic channels.

The standoff between EPA and Teck Cominco, and the resulting diplomatic efforts of the two governments, did not end the matter, however. Members of the Confederated Tribes of the Colville Reservation brought a citizen suit against Teck Cominco under the Superfund law seeking court enforcement of EPA's order. Teck Cominco moved to dismiss the suit, asserting that the EPA's order could not be enforced against a Canadian corporation. The salient legal issue raised by the case, and which may significantly influence the scope of environmental liability for Canadian firms in the future, is whether the Superfund law allows EPA or private parties to reach beyond U.S. borders.

Absent any congressional intent to the contrary, federal or state legislation is presumed not to have extraterritorial application. That presumption does not apply, however, when failure to extend the reach of U.S. law will cause adverse effects in the United States. The District Court concluded that Congress unequivocally expressed its intent that Superfund remedy "domestic conditions." However, it concluded that, as a practical matter, environmental impacts to the Upper Columbia River Site in the United States would not be remediated unless EPA's remediation order could reach Teck Cominco in Canada. This led the Court to conclude that Superfund's reach can extend into Canada to deal with impacts in the United States.

The District Court cited earlier precedent holding that foreign firms can be liable under Superfund, but in those cases the actual polluting activity took place exclusively in the United States. What was different in Teck Cominco was that the actual polluting conduct first occurred in Canada. Because of Superfund's emphasis on remediating "domestic conditions," the Court concluded that if the pollution came to rest in the United States, the Superfund law should provide relief.

In so holding, the District Court emphasized that EPA was not trying to regulate or direct Teck Cominco's discharge of hazardous substances at its facility in Canada; nor was it trying to tell the Canadian government how to regulate the environmental aspects of businesses in Canada. Such direction, the Court concluded, must remain within the exclusive province of Canada's environmental laws and regulatory authorities. The Court held, however, that Canadian environmental laws do not apply to remediation of contamination in the United States even if it was caused by a Canadian company such as Teck Cominco. And even though extending Superfund to Teck Cominco might have an incidental or indirect impact on the way the company conducts its water discharges in Canada, the Court concluded that such an indirect result did not conflict with Canadian regulatory authority.

The Chamber of Commerce of the United States, the Canadian Chamber of Commerce and other business interests have argued in papers filed with the Ninth Circuit Court of Appeals that the District Court's opinion is an unwarranted expansion of Superfund, is contrary to Supreme Court precedent requiring federal laws to be construed in a manner that does not interfere with the sovereign authority of other nations, is contrary to congressional intent, and interferes with diplomatic efforts to resolve cross-border environmental disputes. These organizations also argue that if Superfund is found to apply to industrial conduct that originates in Canada but has impacts in the United States, Canadian authorities or private parties in Canada may well seek recourse in Canadian courts against U.S. companies that are alleged to be causing adverse environmental impacts in Canada.

The Teck Cominco case illustrates the complex and uncertain interaction between domestic environmental laws on both sides of the border and international environmental law. It also illustrates that, unless the courts reject such claims, private parties, tribal authorities and other interested parties can be expected to utilize domestic environmental remedies to address impacts that originate in another country. It remains to be seen whether U.S. courts will recognize such a cause of action in Teck Cominco or other cases. Whatever the outcome in Teck Cominco , companies operating in Canada, the United States and Mexico would be prudent to analyze the potential cross-border impacts of their operations and assess the extent to which regulatory authorities, citizen groups or private parties in bordering countries could assert claims against them under applicable domestic laws.

1 Pakootas v. Teck Cominco Metals, Ltd., 59 ERC (BNA) 1870; 2004 U.S. Dist. LEXIS 23041 [Teck Cominco].

Jeffrey Gracer is a Partner in the Environmental Group at Torys LLP in New York. Along with his colleagues Len Griffiths and Dennis Mahony in Toronto, he has counseled clients on the implementation of cross-border environmental compliance strategies involving facilities in Canada and the United States. Zachary Silbersher is an Associate in Torys' Litigation Department in New York. His practice focuses on a variety of business litigation matters, including employment, construction, commercial contracts, real property and bankruptcy.

Please email the authors at jgracer@torys.com or zsilbersher@torys.com with questions about this article.