Court of Appeal for Ontario

Date: December 20, 2017

Docket: C62587

Judges: Laskin, Lauwers and Brown JJ.A.

Between

Weyerhaeuser Company Limited Plaintiff (Respondent)

and

Her Majesty the Queen as represented by the Ministry of the Attorney General Defendant (Appellant)

and

Resolute FP Canada Inc. Intervener (Respondent)

Counsel

Leonard Marsello, Tamara Barclay, and Nansy Ghobrial, for the appellant, Her Majesty the Queen as represented by the Ministry of the Attorney General

Christopher Bredt, Markus Kremer, and Alannah Fotheringham for the respondent, Weyerhaeuser Company Limited

Crawford Smith and Jeremy Opolsky, for the respondent, Resolute FP Canada Inc.

Heard: May 2 and May 3, 2017

On appeal from the order of Justice Glenn A. Hainey of the Superior Court of Justice, dated July 19, 2016, with reasons reported at 2016 ONSC 4652 and costs reasons reported at 2017 ONSC 1814.

BROWN J.A.:

I. OVERVIEW

[1] On August 25, 2011 the Ontario Ministry of the Environment issued a Director's Order requiring the respondents, Weyerhaeuser Company Limited and Resolute FP Canada Inc., to perform remedial work on an abandoned mercury waste disposal site near Dryden, Ontario. The respondents are two of the previous owners of the site.

[2] Weyerhaeuser and Resolute took the position they enjoyed the benefit of a December 1985 indemnity provided by the Government of Ontario to earlier owners of the Dryden pulp and paper facility, including the waste disposal site. As a result, they contended Ontario was obligated to indemnify them for any costs incurred to comply with the Director's Order.

[3] Ontario denied the 1985 indemnity had any such effect. It took the position the indemnity only covered third party claims resulting from mercury spills emanating from the Dryden property, not the regulatory compliance costs incurred by the owners of the waste disposal site. This litigation ensued.

[4] All parties moved for summary judgment, raising two issues: (i) whether the indemnity covers the costs of complying with the Director's Order; and (ii) if it does, whether Weyerhaeuser and Resolute are entitled to its benefit.

[5] The motion judge granted summary judgment in favour of Weyerhaeuser and Resolute, holding both were entitled to be indemnified by Ontario for the costs, losses, expenses, liabilities or obligations they had incurred and might incur as a result of the Director's Order.

[6] Ontario appeals, contending the judgment should be set aside because the motion judge's reasoning was marred by errors on certain extricable questions of law, as well as palpable and overriding errors of fact. Ontario seeks summary judgment in its favour. Ontario also seeks leave to appeal the motion judge's award of full indemnity costs in favour of the respondents.

[7] For the reasons that follow, I conclude the motion judge did not err in finding the 1985 indemnity covered the costs of complying with the Director's Order. That said, I conclude he erred in finding that the respondents are entitled to claim indemnification under the indemnity. I would allow Ontario's appeal in respect of Resolute: the motion judge erred in finding Resolute enjoyed the benefit of the indemnity as a successor of Great Lakes. I would grant judgment in favour of Ontario dismissing Resolute's claim.

[8] As to Weyerhaeuser, I would allow Ontario's appeal in part, set aside the dismissal of its summary judgment motion, grant a declaration that Bowater Pulp and Paper Canada Inc. (a corporate predecessor to Resolute) assigned the full benefit of the indemnity to Weyerhaeuser under a 1998 asset purchase agreement, and direct a final adjudication by the court below on the issue of what, if any, rights Weyerhaeuser possessed as assignee of the indemnity at the time the Director's Order was made in 2011.

II. CHRONOLOGY OF EVENTS

A. The Dryden operations

[9] In the 1960s, the Dryden Paper Company Limited ("Dryden Paper") owned and operated a pulp and paper mill in Dryden, Ontario. To secure a supply of the sodium hydroxide and chlorine used to bleach paper, Dryden Paper, through a related company, Dryden Chemicals Limited ("Dryden Chemicals"), operated a mercury cathode chlor-alkali plant on property near the paper plant.

[10] The chlor-alkali plant released untreated mercury waste into the English and Wabigoon Rivers. The contamination of the river system resulted in harm to the health of some in the area, the closure of the commercial fishery, and damage to the area's tourism industry. Many of those affected by the mercury waste discharge were members of the Grassy Narrows and Islington First Nations who lived on reserves downstream from the chlor-alkali plant.

[11] In 1971 Dryden Paper constructed a waste disposal site ("WDS") on lands it owned to serve as a burial site for mercury-contaminated waste from the chlor-alkali plant. From 1971 to 1981, eight concrete cells were buried at the WDS. The cells contained stabilized mercury contaminated sludge, as well as mercury contaminated rubble and equipment from the demolished chlor-alkali plant.

[12] When the WDS was created, six monitoring wells were installed. Three additional wells were installed in 2002 and a further one in 2010. The monitoring wells were sampled and analyzed twice a year for mercury, chlorides, pH, conductivity, and static water level.

[13] In 1976, Dryden Paper and Dryden Chemicals amalgamated to form Reed Ltd. ("Reed").

[14] Since 1977, the WDS has been subject to various certificates issued under the Environmental Protection Act, R.S.O. 1990, c. E.19, as amended ("EPA"). The initial Provisional Certificate of Approval required the monitoring of groundwater and surface water by the WDS owner.

[15] In June 1977, the two First Nations bands sued Reed, Dryden Paper, and Dryden Chemicals for damages for personal injuries, loss of jobs, and loss of way of life caused by the mercury waste contamination of the river (the "Grassy Narrows Litigation").

[16] In 1978, the Ministry of the Environment ("MOE") issued two further Provisional Certificates of Approval that required Reed to maintain the water monitoring program at the WDS.

B. The 1979 sale from Reed to Great Lakes

[17] Negotiations by Reed in 1979 to sell its Dryden pulp and paper operation encountered a problem. The interested purchaser, Great Lakes Forest Products Limited ("Great Lakes"), was reluctant to proceed in the face of the Grassy Narrows Litigation. On its part, Ontario was concerned that if the purchase did not proceed, the Dryden pulp and paper mill might close, hurting the local economy.

[18] A deal was struck. Ontario agreed to limit the combined liability of Great Lakes and Reed for any environmental damages caused by Reed prior to Great Lakes' purchase of the Dryden operations to $15 million. Great Lakes and Reed agreed to share the financial consequences of a settlement of, or judgment in, the Grassy Narrows Litigation up to that limit. Great Lakes also agreed to spend about $200 million to modernize and expand the Dryden facilities.

[19] Ontario's promise to limit the environmental liabilities of Reed and Great Lakes was contained in a November 6, 1979 letter from the then Treasurer of Ontario, Frank Miller, to the President of Great Lakes (the "1979 Indemnity"), which read, in part:

The continued viability of the Dryden facilities and the undertaking of major modernization expenditures with respect to them are of considerable importance to the people of this Province. The substantial and beneficial employment and economic effects that the operations of a modernized facility will have on the population and economy of Dryden is of real significance.

In the event that Great Lakes negotiations with the Reed group of companies are successful then in the event that Great Lakes is required to pay any monies as a result of any final decision of a court against Great Lakes, Reed Ltd. or any other person prior to the year 2010 in respect of pollution caused by Reed Ltd. or any of its predecessor companies in the Dryden area prior to the date upon which Great Lakes acquires the assets and undertaking of the Dryden complex of Reed Ltd. or in the event that any settlement with any claimant is made the amount of which settlement has been approved by the Attorney General of Ontario, I have been authorized by the Executive Council of Ontario to advise you that I will make a Recommendation to the Executive Council of Ontario that the Government of Ontario take effective steps to ensure that Great Lakes Forest Products Limited will not be required to pay any monies in excess of the maximum amount of $15 million referred to in paragraph 2 of this letter, provided that over the next three to four years Great Lakes expends in the order of $200 million for the modernization and expansion of the Dryden facilities.

[20] In his statement to the Ontario Legislature on November 6, 1979 announcing Reed's sale of the Dryden facility to Great Lakes, Treasurer Miller announced:

Members of this House are aware of the environmental problems of Reed Limited and its predecessors in the Dryden area. These have been a major impediment to the sale of the Dryden operation, because of possible liabilities for past environmental damages.

In order to resolve this matter, and to ensure the economic health of Dryden, the government has given an undertaking in the form of a letter to indemnify Great Lakes Forest Products Limited against possible liabilities over a stated amount.

[21] On December 4, 1979 the MOE issued another Provisional Certificate of Approval, this one requiring Reed to register the certificate against title to the WDS.

[22] The sale of the Dryden operations to Great Lakes closed in December 1979 pursuant to a Memorandum of Agreement made as of the 7th day of December, 1979 amongst Great Lakes, Reed, and Reed International Limited (the "1979 Dryden Agreement").

C. Events of 1980 through 1984

[23] In January 1980, the MOE issued a further Provisional Certificate of Approval that required Great Lakes to maintain the groundwater monitoring and testing program at the WDS.

[24] The Governments of Canada and Ontario engaged in mediation with the Islington and Grassy Narrows First Nations to address the problems caused by the mercury discharge. The Grassy Narrows Litigation formed part of the discussions. Great Lakes was reluctant to contribute to any settlement payment unless it obtained releases from liability. The impasse in negotiations led the then Minister for Resources Development, R. H. Ramsay, to write Great Lakes on January 28, 1982 stating, in part:

The purpose of this letter is to facilitate a settlement of current negotiations…

The Government of Ontario recognizes the distinct advantage of the Indian people obtaining a settlement in the very near future. Accordingly, the Government is prepared to indemnify Great Lakes Forest Products Limited against any claims related to mercury pollution such that the Company's total payments to all claimants in respect of damages awarded by any court or for any settlement approved by the Attorney General of Ontario attributable to the operations of Reed Paper Ltd. or any of its predecessor companies in the Dryden area will be limited to $15 million. The Government of Ontario will assume responsibility for any damages awarded by any court or for any settlement approved by the Attorney General of Ontario, after $15 million has been paid by the Great Lakes Forest Products Limited, Reed Ltd., Reed International Ltd., Dryden Chemicals Ltd. and Dryden Paper Co. Ltd. in connection with the above mentioned mercury pollution claims. Such claims include personal injury, property damage and economic claims of any claimants, including adults, minors and those yet unborn, related to mercury pollution.

It must be understood that any legal proceedings which could result in the Government of Ontario becoming liable to make payments pursuant to this undertaking must be brought to the attention of the Government of Ontario immediately upon such proceedings being launched, and the Government of Ontario shall have the right either to take carriage of or to participate in the defence and/or settlement of the litigation. Failure to give such notification or to allow the Government of Ontario to either take carriage of or to participate in the defence and/or settlement of the litigation will preclude the making of any payments by the Province with regard to the action in question.

(the "1982 Indemnity")

D. The 1985 Settlement

[25] The Grassy Narrows Litigation settled in late 1985. The settlement terms were contained in a November 22, 1985 Memorandum of Agreement entered into amongst Canada, Ontario, the Islington and Grassy Narrows First Nations, Reed, and Great Lakes ("MOA").

[26] The "issues" addressed by the MOA were defined in its first recital as the fact that:

The discharge by Reed and its predecessors of mercury and any other pollutants into the English and Wabigoon and related river systems, and the continuing presence of any such pollutants discharged by Reed and its predecessors, including the continuing but now diminishing presence of methylmercury in the related ecosystems since its initial identification in 1969, and governmental actions taken in consequence thereof, may have had and may continue to have effects and raise concerns in respect of the social and economic circumstances and the health of the present and future members of the Bands.

[27] Paragraph 1.1 of the MOA stated that "the parties agree, without admission of liability by any party and subject to the terms of this Agreement, that the settlement is to settle all claims and causes of action, past, present and future, arising out of the issues."

[28] The MOA's terms of settlement also included: (i) Great Lakes and Reed paying the First Nations $11.75 million; (ii) Canada and Ontario paying the First Nations $4.917 million; (iii) the creation of a mercury disability fund; (iv) the First Nations providing Canada and Ontario with covenants not to bring further suit for any claims in respect of the "issues"; and (v) the dismissal of the Grassy Narrows Litigation, with the Grassy Narrows First Nation providing releases to Great Lakes and Reed. As well, paragraph 2.4 of the MOA stated:

2.4 (a) Ontario shall provide to Great Lakes and Reed indemnities in respect of the issues.

(b) Great Lakes and Reed shall provide to Ontario releases in respect of the Indemnity.

[29] The "Indemnity" referred to in para. 2.4(b) was defined as the 1979 and 1982 Indemnities given by Ontario to Great Lakes.

E. The 1985 Ontario Indemnity

[30] The indemnities required by s. 2.4(a) of the MOA from Ontario to Great Lakes and Reed in respect of the "issues" were contained in a scheduled document to the settlement's December 16, 1985 Escrow Agreement entitled, "Ontario Indemnity," which was signed by Ontario, Great Lakes, Reed, and Reed International P.L.C. ("Ontario Indemnity"). The interpretation of this indemnity lies at the heart of this litigation.

[31] The recitals and s. 1 of the Ontario Indemnity state:

WHEREAS Great Lakes and Reed Ltd., a predecessor of Reed, were two of the parties to a Memorandum of Agreement (the "Dryden Agreement") made as of the 7th day of December, 1979 providing for the purchase and sale of the Dryden Business;

AND WHEREAS Her Majesty the Queen in Right of the Province of Ontario entered into an Indemnity Agreement indemnifying on certain specific terms Great Lakes and Reed for the purpose of facilitating the purchase and sale of a pulp and paper plant in Dryden and thereby enabling the modernization and upgrading of the plant in the community of Dryden as was deemed to be in the public interest;

AND WHEREAS both Great Lakes and Reed have agreed to contribute substantial sums of money toward the resolution of the issues which were the subject of the indemnity provided by Her Majesty the Queen in Right of the Province of Ontario.

NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the premises and other good and valuable consideration (the receipt whereof is hereby acknowledged) it is agreed by and between the parties hereto as follows:

1. Ontario hereby covenants and agrees to indemnify Great Lakes, Reed, International and any company which was at the Closing Date [December 17, 1979] [1] a subsidiary or affiliate company (whether directly or indirectly) of International, harmless from and against any obligation , liability, damage, loss, costs or expenses incurred by any of them after the date hereof as a result of any claim, action or proceeding, whether statutory or otherwise , existing at December 17, 1979 or which may arise or be asserted thereafter (including those arising or asserted after the date of this agreement), whether by individuals, firms, companies, governments (including the Federal Government of Canada and any province or municipality thereof or any agency, body or authority created by any statutory or other authority) or any group or groups of the foregoing, because of or relating to any damage , loss, event or circumstances, caused or alleged to be caused by or with respect to, either in whole or in part, the discharge or escape or presence of any pollutant by Reed or its predecessors, including mercury or any other substance, from or in the plant or plants or lands or premises forming part of the Dryden assets sold by Reed Ltd. to Great Lakes under the Dryden Agreement (hereinafter referred to as "Pollution Claims"). It is hereby expressly acknowledged and agreed that in respect of Ontario's covenant and agreement hereunder to indemnify Great Lakes that the term "Pollution Claims" shall include any obligation, liability, damage, loss, costs or expense incurred by Great Lakes as a result of any claim, action or proceeding resulting from or in connection with the indemnity agreement of even date herewith made between Great Lakes, Reed and International. [Emphasis added]

[32] Section 2 of the Ontario Indemnity requires Great Lakes or Reed to give Ontario prompt notice of their receipt of any notice of a Pollution Claim. It provides Ontario "shall have the right to elect to either take carriage of the defence or to participate in the defence and/or settlement of the Pollution Claim…" Section 3 requires Great Lakes and Reed to cooperate with Ontario in the investigation and defence of any Pollution Claim.

[33] Section 4 states: "The foregoing indemnity shall be valid without limitation as to time."

[34] Section 6 contains an enurement clause, which states: "The indemnity shall be binding upon and enure to the benefit of the respective successors and assigns of Ontario, Reed, International and Great Lakes, provided however that Ontario shall not be entitled to assign this indemnity without the prior written consent of the other parties hereto."

[35] As part of the settlement, both Reed and Great Lakes released Ontario from its obligations under the 1979 and 1982 Indemnities.

[36] The settlement of the Grassy Narrows Litigation by the MOA was approved by the Supreme Court of Ontario by judgment dated June 26, 1986.

F. Post-1985 events

Changes in corporate status

[37] Subsequent to the 1985 MOA, Reed amalgamated with other corporations. The successor corporation was dissolved in 1993.

[38] The post-1985 corporate history of Great Lakes is complex. For the purposes of this appeal, it suffices to note that in 1998 Great Lakes became Bowater, which in turn in 2010 became part of Abitibi-Consolidated Inc., which in 2012 became the respondent, Resolute.

Changes in ownership of the WDS and the Dryden paper plant

[39] In August 1998, Weyerhaeuser entered into an agreement with Bowater to purchase certain assets used in the Dryden pulp and paper business. The agreement closed on September 30, 1998.

[40] This transaction will be discussed in more detail later in these reasons. For present purposes, one need only observe that Weyerhaeuser initially sought to exclude the WDS from the purchased assets given the environmental liabilities associated with the site. Severance of the WDS property from the rest of the Dryden realty could not be obtained before closing of the agreement. As a result, Bowater conveyed title to the WDS to Weyerhaeuser, on certain terms, and Weyerhaeuser immediately leased it back to Bowater.

[41] Severance of the WDS property ultimately was obtained about two years later, at which time Weyerhaeuser reconveyed the WDS to Bowater on August 25, 2000. In the result, title to the WDS was registered in Weyerhaeuser's name from September 30, 1998 to August 25, 2000.

[42] Weyerhaeuser sold the Dryden paper plant to Domtar Inc. in 2007.

Bowater's 2009 financial difficulties

[43] In April 2009, AbitibiBowater Inc. and certain related companies, including the owner of the WDS, Bowater (by then named Bowater Canadian Forest Products Inc.), filed for protection under the Companies' Creditors Arrangement Act , R.S.C. 1985, c. C-36 (" CCAA ").

[44] As part of the CCAA proceedings, in October 2010 the Québec Superior Court granted a vesting order approving the transfer of the WDS from Bowater to 4513541 Canada Inc. ("451").

[45] On April 21, 2011 the receiver of 451, with court approval, abandoned the WDS and was discharged from any associated liability. In the Director's Order, the MOE described the consequences of that court order: "[T]he WDS is now an abandoned property that is owned by a company that is insolvent and that has no directors, officers, or employees."

G. The 2011 Director's Order

Site activity in the years immediately preceding the Director's Order

[46] As recounted in the Director's Order, in 2009 the MOE advised Abitibi of the need to install a new, tenth, ground water monitoring well at the WDS. Abitibi concurred and installed the well in August 2009.

[47] A 2010 report prepared for Abitibi concluded there was a potential for off-site chloride impacts to groundwater. However, the results did not indicate off-site mercury impacts to either groundwater or surface water.

[48] A 2011 report prepared for 451 concluded the contaminating lifespan of the WDS was 64 years from the date of its creation, leaving a remaining contaminating lifespan of 35 years. The report estimated the present value of continued ground and surface water monitoring work over the remaining contaminating lifespan of the WDS to be approximately $273,000.

The terms of the Director's Order

[49] The August 25, 2011 Director's Order was addressed to the last owner of the WDS, 451, Weyerhaeuser, several companies in the Abitibi/Bowater group, including Bowater, and certain directors of Bowater. Weyerhaeuser was included in the Director's Order as a former owner or person who had control or management of the WDS.

[50] The Director's Order imposed three main obligations on the named parties: (i) to repair certain site erosion, perform specified groundwater and surface water testing, and file annual reports containing specified information; (ii) to deliver to the MOE the sum of $273,063 as financial assurance in respect of the WDS; and (iii) to "take all reasonable measures to ensure that any discharge of a contaminant to the natural environment is prevented and any adverse effect that may result from such a discharge is dealt with according to all legal requirements."

[51] The Director's Order made clear that its requirements did not relieve the named parties from complying with any other applicable order or with future orders issued in accordance with the EPA , as circumstances might require.

[52] Weyerhaeuser filed a notice of appeal to the Environmental Review Tribunal seeking to revoke or amend the Director's Order.

[53] Weyerhaeuser commenced this action against Ontario in May 2013.

III. THE STANDARD OF REVIEW

[54] Ontario submits the motion judge's interpretation of the Ontario Indemnity contains legal and factual errors concerning the types of costs and expenses covered by it, as well as who benefits from the indemnity.

[55] The parties acknowledge the standard of review applicable to the contractual interpretation issues raised on this appeal is that set out by the Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, and subsequent decisions. That standard holds the interpretation of non-standard form contracts involves issues of mixed fact and law that are subject to deferential review on appeal and in respect of which appellate courts may not intervene in the absence of a palpable and overriding error. Although it may be possible to identify an extricable question of law in a contractual interpretation dispute, courts should be cautious about identifying such questions because of the close relationship between the selection and application of principles of contractual interpretation. The construction ultimately given to the contract means that the circumstances in which a question of law can be extricated from the interpretation process will be rare: Sattva , paras. 50 to 55; Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, at para. 24 ; Uniprix inc. v. Gestion Gosselin et Bérubé inc., 2017 SCC 43, at para. 41 .

IV. FIRST ISSUE: DOES THE ONTARIO INDEMNITY COVER THE COSTS OF COMPLYING WITH THE DIRECTOR'S ORDER?

A. The reasons of the motion judge

[56] The first contractual interpretation issue on this appeal concerns the meaning of the following language in s. 1 of the Ontario Indemnity:

Ontario … agrees to indemnify Great Lakes … harmless from and against any obligation … costs or expenses incurred … after the date hereof as a result of any claim, action or proceeding, whether statutory or otherwise … whether by … governments (including the Federal Government of Canada and any province…thereof or any agency, body or authority created by statutory or other authority) … because of … any damage … caused … by the discharge or … presence of any pollutant by Reed … from or in … lands or premises forming part of the Dryden assets sold by Reed Ltd. to Great Lakes…

[57] The motion judge concluded the Ontario Indemnity requires Ontario to indemnify the respondents for the costs, losses, expenses, liabilities or obligations they incurred and may incur as a result of the Director's Order.

[58] In reaching that conclusion, the motion judge started his analysis by examining the actual words used by the parties in the Ontario Indemnity. He concluded the ordinary and grammatical meaning of s. 1 of the Ontario Indemnity made "it clear that the Province agreed to indemnify Great Lakes for any costs or expenses resulting from any claim or proceeding, which may be asserted thereafter by a government, including any province or statutory agency with respect to the discharge or presence of any pollutant on the Dryden property": at para. 42.

[59] The motion judge held that the Director's Order was a "proceeding" because it was "a necessary procedural step for the MOE to assert its statutory rights under the [ EPA ]": at para. 44. He also found the Director's Order was a "claim" in that "it is a legal demand by the MOE pursuant to its authority under the EPA to require monitoring and remediation of the disposal site by Weyerhaeuser and Resolute": at para. 45.

[60] The motion judge held the wording of the Ontario Indemnity was clear and unambiguous, and the costs of complying with the Director's Order were covered by the plain and ordinary meaning of the words used in the Ontario Indemnity: at para. 46.

[61] The motion judge considered and rejected Ontario's submissions that: (i) the Ontario Indemnity only covered third party claims, as supported by the surrounding factual matrix at the time the indemnity was executed and by the notice of claim requirements in s. 2; and (ii) the Ontario Indemnity did not cover regulatory costs, as supported by similar language used in the 1979 Indemnity and the terms of Weyerhaeuser's 1998 purchase agreement with Bowater.

B. The issues stated

[62] Ontario submits the motion judge erred in interpreting the Ontario Indemnity as covering the costs incurred by the indemnitees to comply with the Director's Order. Ontario contends the Indemnity can only be construed as covering costs resulting from third party claims, not from a first party claim, such as one by Ontario or its agencies. Ontario argues the motion judge's interpretation to the contrary was marred by nine errors, which fall into three groups:

(i) he made errors on extricable questions of law by ignoring the factual matrix, failing to acknowledge the nature of an indemnity, and reaching an unreasonable interpretation;

(ii) he made palpable and overriding errors of fact relating to the factual matrix and the nature of the Director's Order; and

(iii) he erred in law by interpreting the Ontario Indemnity in a manner that indirectly fettered Ontario's legislative powers.

C. Governing legal principles

[63] Before considering the specific grounds of appeal raised by Ontario, it is important to recall the objective of contractual interpretation and the role played by the factual matrix in the interpretative exercise.

[64] The overriding objective of contractual interpretation is to determine "the intent of the parties and the scope of their understanding": Sattva , at para. 47.

[65] The general principles guiding adjudicators about "how" to interpret a commercial contract were summarized in Sattva , at para. 47, and by this court in two 2007 decisions - Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205, 85 O.R. (3d) 254, at para. 24 , and Dumbrell v. The Regional Group of Companies Inc., 2007 ONCA 59, 85 O.R. (3d) 616, at paras. 52-56 . When interpreting a contract, an adjudicator should:

(i) determine the intention of the parties in accordance with the language they have used in the written document, based upon the "cardinal presumption" that they have intended what they have said;

(ii) read the text of the written agreement as a whole, giving the words used their ordinary and grammatical meaning, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective;

(iii) read the contract in the context of the surrounding circumstances known to the parties at the time of the formation of the contract. The surrounding circumstances, or factual matrix, include facts that were known or reasonably capable of being known by the parties when they entered into the written agreement, such as facts concerning the genesis of the agreement, its purpose, and the commercial context in which the agreement was made. However, the factual matrix cannot include evidence about the subjective intention of the parties; and

(iv) read the text in a fashion that accords with sound commercial principles and good business sense, avoiding a commercially absurd result, objectively assessed.

[66] Consideration of the background circumstances surrounding the formation of the contract – the factual matrix – is one of several tools available to help an adjudicator understand the deal reached between the parties as expressed by the words they choose for their contract. As stated in Sattva , at para. 57:

The goal of examining such evidence is to deepen a decision-maker's understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract.

[67] But, there are limits to the use of evidence about the factual matrix. While such evidence assists in understanding the meaning of the words chosen by the parties, it is the written contract that expresses the parties' deal. As the Supreme Court continued in Sattva , at para. 57:

While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement … While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement…

[68] There are also limits on the type of evidence about the factual matrix an adjudicator may consider. As stated in Sattva , at para. 58: "It should consist only of objective evidence of the background facts at the time of the execution of the contract … that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting."

[69] Against the background of these general principles, I turn to consider each of the nine errors Ontario submits the motion judge made when interpreting the scope of the costs covered by the Ontario Indemnity.

D. Analysis

(1) Did the motion judge err in law by starting his analysis at the wrong place?

[70] Ontario submits the motion judge committed a legal error when he stated: "The first step must be to analyze the actual words used by the parties in the Ontario Indemnity": at para. 40. By starting with the language of the contract, Ontario argues, the motion judge failed to treat the factual matrix as an essential element in the interpretative process. Had he properly considered the factual matrix, he would have concluded the scope of the Ontario Indemnity should have been the same as the scope of the 1979 and 1982 Indemnities.

[71] I see no legal error in the motion judge's statement that the interpretation of a contract should start with the language of the contract. That is the logical place to start, especially since the jurisprudence requires the interpreter of a contract to determine the parties' intention in accordance with the language they used.

[72] Ontario submits this court's decision in Starcoll Inc. v. 2281927 Ontario Ltd., 2016 ONCA 275 stands for the proposition that it is an error of law to consider the words of the agreement and the surrounding circumstances in two distinct stages. Ontario argues the motion judge committed such an error.

[73] I do not agree, for two reasons.

[74] First, in Starcoll the application judge had held a court may only consider the factual matrix to resolve an ambiguity in the contract. On appeal, this court stated such an approach was in error because "the words of an agreement, and the context in which those words are used, cannot be separated and approached at different stages of the interpretative process": at para. 17. This court then re-iterated the proper approach to contractual interpretation is that enunciated in Sattva .

[75] In the present case, the motion judge did not fall into the error made by the application judge in Starcoll . Instead, he began his analysis by reminding himself of the interpretative approach directed by Sattva . The motion judge correctly stated the law, and he included in his contractual interpretation analysis a consideration of the factual matrix: at paras. 7 to 12, and 48.

[76] Second, I do not read Starcoll as telling motion judges they cannot start their contractual interpretation analysis by considering the plain meaning of the words chosen by the parties. To repeat: the plain meaning of the words in a contract is the logical place to start the contractual interpretation exercise.

[77] What Sattva and Starcoll remind decision-makers is that while the interpretation of a written contract must "be grounded in the text," an understanding of the circumstances surrounding the formation of the contract may well assist in interpreting the words in the contract. Sometimes the factual matrix will prove a valuable aid in interpreting the meaning of a contract's language; other times it will not. Regardless, the decision-maker must always turn his or her mind to the factual matrix when interpreting a contract.

[78] The motion judge's reasons disclose he did so. I therefore see no legal error in how he started his contractual interpretation analysis or where he placed the treatment of the factual matrix in his analysis.

(2) Did the motion judge make palpable and overriding errors of fact regarding the factual matrix?

[79] Ontario submits the motion judge made several palpable and overriding errors about the factual matrix. Specifically, the motion judge erred: (i) in finding the WDS discharged mercury into the nearby river system; (ii) in finding that in 1985 Great Lakes "continued to spend significant amounts of money to modernize the pulp and paper mill in Dryden"; and (iii) in describing the Director's Order as a "remediation order". I would give no effect to these submissions.

[80] A palpable and overriding error is one that is obvious and goes to the very core of the outcome of the case. As put by the Supreme Court of Canada, "[w]hen arguing palpable and overriding error, it is not enough to pull at leaves and leave the tree standing. The entire tree must fall": Benhaim v. St-Germain, 2016 SCC 48, [2016] 2 S.C.R. 352, at para. 38 , quoting South Yukon Forest Corp. v. R., 2012 FCA 165, 4 B.L.R. (5th) 31, at para. 46 per Stratas J.A. In the present case, to the extent the motion judge made any factual mistakes, they did not amount to palpable and overriding errors.

[81] Discharges from the WDS: In his reasons, the motion judge stated: "The mercury-contaminated waste was buried at a disposal site, which discharged mercury waste into the nearby river system." Later, he wrote: "It was well known that the disposal site posed a serious environmental liability." Ontario submits the motion judge's first statement was wrong, which led him to "erroneously conclude that ongoing mercury contamination from the WDS posed a 'serious environmental liability.'"

[82] I accept the motion judge was mistaken when he stated the WDS discharged mercury into the river. The evidence indicates it was the chlor-alkali plant that discharged mercury into the river. However, that mistake did not undermine the motion judge's unimpeachable finding that in 1985 it was known the WDS posed a serious environmental liability. The evidence disclosed all actors treated the WDS as such, both before and after the 1985 contract. I see no merit in this ground of appeal.

[83] Great Lakes' continued capital spend on modernization : In his discussion of the surrounding circumstances at the time of the 1985 contract, the motion judge stated: "The Ontario Indemnity replaced the 1979 Indemnity and was part of the settlement of the lawsuit in which Great Lakes agreed to pay millions of dollars, and also continued to spend significant amounts of money to modernize the pulp and paper operation in Dryden."

[84] Ontario submits the motion judge made an unsupported finding of fact that Great Lakes' agreement to continue to modernize the Dryden plant was part of the 1985 settlement. Ontario argues Great Lakes had fulfilled its modernization obligations by 1982. It contends this error by the motion judge improperly influenced his interpretation of the Ontario Indemnity.

[85] I do not accept this submission. It constitutes a fine parsing by Ontario of the motion judge's language while ignoring the "big picture" disclosed by the record, which supported the motion judge's reasoning.

[86] If one were to read the sentence in the way Ontario suggests, I acknowledge the motion judge would be mistaken to state post-1985 capital expenditures by Great Lakes on the Dryden plant constituted part of the consideration for the settlement. However, another reading of the passage is available when the broader record is considered. Great Lakes made capital expenditures on facility modernization from 1980 until 1985; the expenditures did not stop in 1982, as Ontario suggests. The 1982 letter from Minister Ramsay sought to bring Great Lakes back to the negotiating table with the First Nations after talks had reached "an impasse". It worked; Great Lakes came back. After rejoining the negotiations, Great Lakes continued to spend money on modernizing the Dryden plant, as disclosed in its 1983, 1984, and 1985 annual reports. When the record is viewed through this wider lens, an evidentiary basis existed to support the motion judge's conclusion, at para. 48, that:

Under the circumstances, it would be commercially absurd to conclude that the parties contemplated that the Province could at any time withdraw its commitment to protect Great Lakes and its successors from environmental liability arising from the disposal site and issue an order requiring Great Lakes or its successors to incur substantial costs to remediate the site.

[87] Characterization of the Director's Order: Throughout his reasons, the motion judge describes the Director's Order as a "remediation order". Ontario submits that mischaracterizes the true nature of the order by implying the financial consequences of the order to Resolute and Weyerhaeuser might be greater than they actually are.

[88] I fail to see how the motion judge's characterization of the Director's Order as a "remediation order" could amount to a palpable and overriding error. As noted at para. 50 above, the Director's Order contained several elements. One required the immediate remediation of certain slope erosion and fence defects. Another element, Item 13, contained a remediation component, requiring the named parties to "take all reasonable measures to ensure that … any adverse effect that may result from such a discharge is dealt with according to all legal requirements." The motion judge correctly treated the Director's Order as one imposing costs or expenses on the named parties. It was this cost-imposing effect of the Director's Order that was central to the motion judge's analysis.

(3) Did the motion judge err in law in his consideration of the factual matrix?

[89] Ontario submits the motion judge made a fundamental error in his treatment of the factual matrix – namely, he failed to interpret the scope of the costs covered by the Ontario Indemnity as similar in breadth to those contained in the earlier 1979 Indemnity, 1979 Dryden Agreement, and 1982 Indemnity. Had he done so, Ontario argues, it would be apparent the costs covered by Ontario Indemnity were those relating to third party claims, not regulatory orders.

[90] Specifically, Ontario argues the language of s. 1 of the Ontario Indemnity is "virtually identical" to that found in an environmental liabilities indemnity given by Great Lakes to Reed in s. 5.3(i) of the 1979 Dryden Agreement. Ontario argues that s. 5.3 of the Dryden Agreement must be interpreted in light of Ontario's 1979 Indemnity, which, by its terms, provided an indemnity in respect of amounts payable by reason of a court order or settlement. The 1982 Indemnity was limited in a similar manner. This factual matrix, according to Ontario, required the motion judge to interpret the scope of the Ontario Indemnity to cover only amounts payable as a result of court orders or settlements of court actions, not amounts payable by reason of regulatory orders.

[91] In a related argument, Ontario submits the motion judge made a palpable and overriding error of fact by not referring in his analysis to the 1982 Indemnity because the letter supported "the conclusion that the 1985 Indemnity was meant to address the potential risk posed by further third party actions and not against regulatory proceedings."

[92] I do not persuaded by these submissions. The motion judge was tasked with interpreting the Ontario Indemnity. His interpretation took into account the key events that led the parties to sign the 1985 MOA and Ontario Indemnity. In his reasons, the motion judge specifically referred to the 1979 Indemnity. Although he did not refer to the 1982 Indemnity, that omission does not constitute a palpable and overriding error. The 1982 Indemnity simply replaced the 1979 one, on similar terms. Accordingly, in his consideration of the factual matrix, the motion judge did not ignore Ontario's pre-1985 involvement in the issue of the pollution from the Dryden plants; he clearly took those background events into account.

[93] The motion judge considered and rejected Ontario's argument that the language contained in 1979 and 1982 Indemnities should have driven the interpretation of the Ontario Indemnity. At para. 48 of his reasons he wrote:

The Province's comparison of the language of the 1979 Indemnity and the Ontario Indemnity does not persuade me that Weyerhaeuser's and Resolute's interpretation of the Ontario Indemnity is incorrect. The Ontario Indemnity is a separate agreement and must be interpreted by considering the words used by the parties in it, not a previous agreement.

[94] I see no reversible error in that analysis.

[95] Ontario argues that since the indemnity contained in the 1979 Dryden Agreement (to which Ontario was not a party) did not include costs caused by regulatory orders, nor did the 1979 and 1982 Indemnities (which were unilateral promises made by Ontario, not jointly executed agreements), it follows the scope of the Ontario Indemnity must be the same.

[96] I would not accept this submission; it is based on an improper use of factual matrix evidence. By its terms, the Ontario Indemnity did not purport to amend the 1979 Dryden Agreement or the 1979 and 1982 Indemnities. Nor did it incorporate by reference the scope of the earlier indemnities. The Ontario Indemnity was a distinct deal. As such, its interpretation required focusing on the language used in that contract. That is what the motion judge did. I see no error in his use of the factual matrix; he used the evidence of the surrounding circumstances for the limited purpose identified in Sattva .

[97] Ontario also casts its submission too high by arguing the language of s. 1 of the Ontario Indemnity was "virtually identical" to that in s. 5.3 of the 1979 Dryden Agreement, which did not include an indemnity for regulatory costs. It was not. The language of the Ontario Indemnity differed in a critical respect, requiring indemnification of any costs incurred as a result of "any claim, action or proceeding, whether statutory or otherwise " (emphasis added). The presence of the phrase "statutory or otherwise" strongly influenced the motion judge's analysis, as is apparent from paras. 42, 46, and 47 of his reasons:

The ordinary and grammatical meaning of these words makes it clear that the Province agreed to indemnify Great Lakes for any costs or expenses resulting from any claim or proceeding, which may be asserted thereafter by a government, including any province or statutory agency with respect to the discharge or presence of any pollutant on the Dryden property.

I have concluded that the remediation order is covered by the plain and ordinary meaning of the words used in the Ontario Indemnity because of the following elements of its operative language:

• The remediation order is a statutory claim or proceeding,

• that imposes obligations, liabilities or future costs on Great Lakes' successors,

• which arise or were asserted by a statutory agency of a province,

• because of or relating to events and circumstances,

• caused by the presence of mercury deposited in the disposal site by Reed.

The wording of the Ontario Indemnity is clear and unambiguous. It can only mean that the parties intended it to apply to a statutory claim or proceeding brought by an agency of the Province such as the remediation order issued by the MOE.

[98] To summarize, the motion judge's reasons reveal he anchored his interpretative analysis in the language of the contract at issue, giving due consideration to the circumstances surrounding its formation. I see no reversible error in his treatment of the factual matrix.

(4) Did the motion judge err in law by ignoring the true nature of an indemnity?

[99] Ontario submits the motion judge erred in law by failing to acknowledge a general principle that an indemnity only compensates an indemnitee for losses caused by third party claims, unless specific language provides that it covers losses caused by the first party indemnitor. Ontario advances a related argument that the "more plausible interpretation" of the phrase "statutory or otherwise" in s. 1 of the Ontario Indemnity is that it covers statutory claims by the federal government and individuals, not by the Ontario government.

[100] I do not accept either submission.

[101] An indemnity may cover first party claims. Whether it does depends upon the language used in the indemnity. The law on this point was summarized by Lane J. in TransCanada Pipelines Ltd. v. Potter Station Power Ltd. Partnership (2002) , 22 B.L.R. (3d) 210, [2002] O.J. No. 429 (Sup. Ct.), at para. 35 :

[T]he case law does not establish a general principle that wherever words of indemnity are found, the obligation created is confined to responding to claims made against the indemnitee by third parties. Even where a provision is, in the words of Laskin J.A., in Powell Equipment Co. v. Lac Seul Land & Lumber Co. , [1967] 1 O.R. 103], "couched in language suggestive of indemnity, [it may be] more properly characterized as an exculpatory term of the overall transport agreement…". Thus, the presence of words of indemnity is not decisive, they must still be construed in context. If such a clause may in one context be an exculpatory term, there is no reason why, given the proper words, it may not also in another context include liability for direct loss. The principle exemplified by every case cited is that the obligation is governed by the words chosen, when placed and read in their context.

[102] This court affirmed Lane J.'s conclusion that the language of the indemnity in that case was "appropriately read more broadly than [covering] simply claims by third parties": TransCanada Pipelines Ltd. v. Potter Station Power Limited Partnership (2003) , 35 B.L.R. (3d) 62, [2003] O.J. No. 1879 (C.A.), at para. 27 .

[103] In the present case, the motion judge held the Ontario Indemnity contained clear and unambiguous language covering losses caused by the first party indemnitor. Further, the motion judge squarely addressed both arguments advanced by Ontario on this issue, stating at para. 48:

The Province submits that the Ontario Indemnity is limited to claims asserted by third parties and cannot apply to it. The plain and ordinary meaning of the words used by the parties does not support such an interpretation. In particular, the specific reference to "any province" and "statutory" claim and "proceeding" in s. 1 must be taken to refer to the Province of Ontario and its agencies such as the MOE. The only statutory claim or proceeding that could be asserted by a province against Great Lakes in respect of the Dryden Property would be a claim or proceeding asserted by the Province of Ontario. All of the other provinces lack the constitutional authority to pursue a statutory claim in Ontario.

[104] I see no palpable or overriding error in the motion judge's analysis.

(5) Did the motion judge err in law by failing to interpret s. 1 in light of all the terms of the Ontario Indemnity?

[105] Ontario next submits the motion judge committed an extricable error of law by failing to interpret s. 1 of the Ontario Indemnity in accordance with the terms of the contract as a whole. Ontario argues the notice of claim provisions contained in s. 2 signify the indemnity contained in s. 1 is limited to third party claims.

[106] I do not find this argument persuasive. The motion judge addressed the effect of s. 2 of the Ontario Indemnity at para. 48 of his reasons:

The Province submits that the notification provision in s. 2 of the Ontario Indemnity is inconsistent with Weyerhaeuser's and Resolute's interpretation. In my view, the requirement to notify the Province of any pollution claims cannot override the clear, unambiguous and broad wording of s. 1 of the Ontario Indemnity. This notification requirement is not inconsistent with the Province's obligation to indemnify Weyerhaeuser and Resolute for their costs of complying with the remediation order.

[107] I see no reversible error in that conclusion.

(6) Did the motion judge err in law by failing to interpret the Ontario Indemnity as at the date of its execution?

[108] Ontario submits the motion judge erred in law by failing to interpret the Ontario Indemnity as of the date of its execution. Had he done so, Ontario contends, he would not have interpreted the indemnity as covering statutory claims arising under future legislation, such as the 2011 Director's Order.

[109] I do not accept this submission, for two reasons. First, the plain language of the Ontario Indemnity contradicts it. Section 1 describes the obligation to indemnify as one in respect of costs incurred "as a result of any claim, action or proceeding, whether statutory or otherwise, existing at December 17, 1979 or which may arise or be asserted thereafter …" (emphasis added). In addition, s. 4 provides that "the foregoing indemnity shall be valid without limitation as to time."

[110] Second, at the time the parties executed the Ontario Indemnity, the EPA authorized the issuance of regulatory certificates and orders that could impose costs upon the owners of a site. For example, the certificates of approval issued in respect of the WDS prior to 1985 contained conditions requiring the site owner to install monitoring equipment and periodically sample ground and surface water. As well, amendments to the EPA that came into force in 1984 authorized the issuance of preventative measures orders compelling site owners to take certain actions: Environmental Protection Amendment Act, 1983, S.O. 1983, c. 52, s. 6. These 1984 amendments were the genesis of the Director's powers, now found in s. 18(1) of the EPA , to issue preventative measures orders. The 2011 Director's Order was made, in part, pursuant to s. 18(1) . Accordingly, preventative measures orders were a feature of the environmental legislative scheme at the time the parties entered into the Ontario Indemnity.

(7) Did the motion judge err by failing to draw an inference about the parties' 1985 negotiations?

[111] On November 29, 1985, after the parties had executed the MOA but before they signed the Ontario Indemnity, the "Spills Bill", S.O. 1979, c. 91, was proclaimed into force. The bill amended the EPA to create a statutory right of action for the government and third parties against polluters. Ontario submits the motion judge erred by failing "to consider whether the amendments caused the parties to insert the words 'statutory or otherwise' when they executed the 1985 Indemnity two weeks later," such that the indemnity would be limited only to third party claims for spills.

[112] I do not accept this submission. Canadian common law generally treats evidence of the parties' specific negotiations as inadmissible for purposes of interpreting a contract: Primo Poloniato Grandchildren's Trust (Trustee of) v. Browne, 2012 ONCA 862 , 115 O.R. (3d) 287, at para. 71 . In light of that principle (and until that principle of contract interpretation is changed as a matter of policy), evidence of the factual matrix cannot operate as a kind of alternate means by which an adjudicator constructs a narrative about what the parties must have discussed or intended in their negotiations. In other words, evidence of the factual matrix cannot be used to do indirectly that which the principles of contract interpretation do not permit doing directly. Therefore, contrary to Ontario's submission, it was not open to the motion judge to consider evidence of the parties' specific intentions or negotiations, including whether they discussed the Spills Bill during the negotiations that culminated in the execution of the Ontario Indemnity. (Here I must respectfully disagree with my colleague's analysis of this point set out in paras. 247 to 249 below.)

(8) Did the motion judge err in his treatment of the parties' post-execution conduct?

[113] Ontario submits the motion judge's interpretation of s. 1 of the Ontario Indemnity is in error because after 1985 neither Great Lakes, nor its successor Bowater, made any claims against Ontario for the costs of on-going surface and groundwater monitoring required by the various Certificates of Approval.

[114] The motion judge dealt with that argument stating, at para. 48: "The fact that Resolute and its predecessor did not seek indemnity under the Ontario Indemnity until now does not change the clear and unambiguous meaning of its words…"

[115] I see no reversible error in that conclusion.

[116] In Shewchuck v. Blackmont Capital Inc., 2016 ONCA 912 , 404 D.L.R. (4th) 512, at para. 46 , this court held that evidence of subsequent conduct should be admitted only if the contract remains ambiguous after considering its text and factual matrix. In arriving at that conclusion, this court stated, at para. 44:

Another danger is that evidence of subsequent conduct may itself be ambiguous. For example, as this court observed in Canada Square Corp. v. Versafood Services Ltd. (1981) , 34 O.R. (2d) 250 (C.A.), at p. 261 quoting from the writing of Professor Stephen Waddams, "the fact that a party does not enforce his strict legal rights does not mean that he never had them."

[117] In the present case, the motion judge found the language of the Ontario Indemnity was clear and unambiguous: at para. 47. Further, in its statement of defence, Ontario did not plead the respondents had waived or were estopped by their post-execution conduct from asserting a claim for indemnity. Consequently, evidence of subsequent conduct was not admissible to determine the parties' contractual obligations.

(9) Did the motion judge's interpretation of the Ontario Indemnity result in an unlawful fettering of legislative discretion?

[118] Before the motion judge, Ontario argued it could not enter into an agreement that fettered its legislative discretion. Although Ontario did not challenge the validity of the 1985 MOA or its schedules, such as the Ontario Indemnity, it submitted the Ontario Indemnity could not be interpreted to require the province to indemnify Weyerhaeuser and Resolute for the costs resulting from subsequent environmental legislation because that would amount to fettering its legislative powers.

[119] The motion judge rejected Ontario's argument, holding that the Ontario Indemnity did not offend the principle against fettering legislative powers because it was a business agreement that did not restrict the province's legislative functions: at paras. 51 to 53.

[120] Ontario submits the motion judge erred in so concluding. It contends the respondents, in effect, asked the motion judge to imply a term into the Ontario Indemnity that would protect them against the impact of future legislative acts. By accepting the respondents' argument, the motion judge departed from a principle Ontario submits was set down by the Supreme Court of Canada in Pacific National Investments Ltd. v. Victoria (City), 2000 SCC 64 , [2000] 2 S.C.R. 919, namely: a contractual obligation on the Crown to compensate for losses resulting from the exercise of a legislative power amounts to an impermissible indirect fetter on legislative power.

[121] I do not persuaded by this submission for several reasons.

[122] First, it is clear the motion judge did not imply any term into the Ontario Indemnity. His conclusion that the indemnity covers the costs of complying with regulatory directions was based on his reading of the express language of the contract.

[123] Second, no language in the Ontario Indemnity purports to fetter, in any way, Ontario's legislative powers.

[124] Third, I do not read Pacific National Investments as standing for the proposition advanced by Ontario. The issue in that case was not the provincial Crown's power to contract, but the contracting power of a municipality, a subordinate creature of provincial statute. The Supreme Court considered whether a municipality possessed the capacity to enter into a contract containing an implied term that it would compensate the counterparty in the event it changed municipal zoning by-laws. Since a municipality possesses only those powers granted to it by provincial legislation, the Supreme Court concluded the issue turned on the scope of the statutory powers possessed by the municipality at the time the contract was made. Based upon its review of the relevant provincial legislation in force at that time, the majority concluded, at para. 36, that the municipality did not have the capacity to make and be bound by the alleged implied contractual term.

[125] A case involving provincial contracting powers is Wells v. Newfoundland , [1999] 3 S.C.R. 199. Wells had been appointed to a provincial tribunal. Newfoundland subsequently passed legislation reducing the number of tribunal members. Wells lost his position. He sued for damages. The Supreme Court of Canada affirmed his right to sue for damages.

[126] In Wells , at para. 37 , the Supreme Court stated a minister of state cannot by means of contractual obligations entered into on behalf of the state fetter the freedom of the legislature to adopt legislation inconsistent with the contractual obligations. However, the Supreme Court emphasized that there was a crucial distinction between the Crown legislatively avoiding a contract and altogether escaping the legal consequences of doing so: at para. 41. The court further stated, at para. 46:

In a nation governed by the rule of law, we assume that the government will honour its obligations unless it explicitly exercises its power not to. In the absence of a clear express intent to abrogate rights and obligations – rights of the highest importance to the individual – those rights remain in force. To argue the opposite is to say that the government is bound only by its whim, not its word. In Canada this is unacceptable, and does not accord with the nation's understanding of the relationship between the state and its citizens.

[127] Since entering into the Ontario Indemnity, the Province has not sought by legislation to relieve itself from the financial obligations it assumed voluntarily in that contract. Absent such legislation, Ontario remains bound by the terms of the deal it struck.

E. Summary on the First Issue

[128] For the reasons set out above, I conclude the motion judge did not err in law, or commit a palpable and overriding error on any question of mixed fact and law or question of fact, in arriving at his interpretation of the scope of the Ontario Indemnity. Accordingly, I see no basis for appellate intervention with his conclusion that the Ontario Indemnity entitled an indemnitee to be indemnified for the costs, losses, expenses, liabilities, or obligations it incurred or might incur as a result of the Director's Order.

[129] I turn now to the issue of whether the motion judge erred in concluding that both Weyerhaeuser and Resolute were indemnitees which enjoy the benefit of the Ontario Indemnity.

V. SECOND ISSUE: DO THE RESPONDENTS ENJOY THE BENEFIT OF THE ONTARIO INDEMNITY?

A. The issue stated

[130] Whether Weyerhaeuser or Resolute enjoy the benefit of the Ontario Indemnity turns on the determination of the second issue of contractual interpretation raised in this appeal: the meaning of the enurement clause in s. 6 of the Ontario Indemnity. That section states:

The indemnity shall be binding upon and enure to the benefit of the respective successors and assigns of Ontario, Reed, International and Great Lakes, provided however that Ontario shall not be entitled to assign this indemnity without the prior written consent of the other parties hereto.

[131] The motion judge stated there was no dispute that Resolute, as the corporate successor to Great Lakes, has the benefit of the Ontario Indemnity as a "successor" within the meaning of s. 6 of the Ontario Indemnity: at para. 55. He also found Weyerhaeuser was entitled to the benefit of the Ontario Indemnity, both as an assignee pursuant to its 1998 purchase of the Dryden facility from Bowater and as a successor-in-title to the WDS property.

[132] Ontario appeals, arguing the motion judge erred in finding Weyerhaeuser was entitled to the benefit of the Ontario Indemnity. Alternatively, Ontario submits that if Weyerhaeuser is entitled to the benefit of the Ontario Indemnity, then Resolute is not as only one indemnitee can benefit at a time, not both.

[133] I will first review the motion judge's findings that Weyerhaeuser is entitled to the benefit of the Ontario Indemnity both as an assignee of the indemnity as a result of its 1998 acquisition of the Dryden business and as a successor to the title of the WDS. I conclude that: (i) Weyerhaeuser received an assignment of the full benefit of the indemnity in the 1998 acquisition, but I would remit to the court below the issue of what rights, if any, Weyerhaeuser possessed as an assignee of the Ontario Indemnity at the time the Director's Order was issued in 2011; and (ii) the motion judge erred in interpreting the word "successor" in s. 6 of the Ontario Indemnity to include Weyerhaeuser.

[134] I will next consider the motion judge's finding that Resolute enjoyed the benefit of the Ontario Indemnity as a "successor". I conclude the motion judge erred in so finding. As a result of the 1998 assignment of the full benefit of the Ontario Indemnity from Resolute's corporate predecessor, Bowater, to Weyerhaeuser, Resolute has no legal interest in the Ontario Indemnity upon which it can assert a claim against Ontario.

B. 1998 sale of the Dryden facility from Bowater to Weyerhaeuser

[135] I start by examining the 1998 sale of the Dryden facility from Bowater to Weyerhaeuser.

[136] By 1998, Great Lakes had changed its name to Bowater. By Asset Purchase Agreement dated August 4, 1998 (the "August 1998 APA"), as amended on September 30, 1998 (the "September Amending Agreement"), Bowater agreed to sell to Weyerhaeuser substantially all its property and assets used in connection with the Dryden pulp and paper business. (I shall refer to the August 1998 APA and September Amending Agreement collectively as the "1998 APA".)

[137] The August 1998 APA defined the WDS as the "Mercury Parcel". Certain provisions of the August 1998 APA made it clear Weyerhaeuser initially did not intend to include the WDS as one of the purchased properties or assets: (i) s. 3.2(v) identified the "Mercury Parcel" as an "excluded asset", which remained the property of Bowater; and (ii) s. 3.1, which described "purchased assets", removed from the purchased real property any "excluded asset".

[138] The parties agreed that prior to closing Bowater would seek the necessary approvals to sever the WDS from the other real property it was selling to Weyerhaeuser. If Bowater could not secure severance consents prior to closing, s. 13.1.9 of the August 1998 APA provided that Bowater would transfer title to the WDS to Weyerhaeuser on closing but, after closing, would continue to seek severance consent. Once such consent was secured, Weyerhaeuser would re-convey the WDS to Bowater.

[139] Bowater could not obtain consent to sever the WDS prior to the September 30, 1998 closing. As a result, the parties took three steps.

[140] First, they entered into the September Amending Agreement, which amended several provisions of the August 1998 APA, including the identification of "excluded assets". In further submissions requested by the panel, [2] Weyerhaeuser and Ontario agreed that one effect of the September Amending Agreement was to re-classify the WDS from an "excluded asset" to a "purchased asset", except for certain purposes under Article 10 of the August 1998 APA dealing with environmental matters.

[141] Second, Bowater and Weyerhaeuser executed a lease for the WDS under which Weyerhaeuser was the landlord and Bowater the tenant (the "Lease"). The term of the Lease was for the period until Weyerhaeuser could reconvey the WDS to Bowater in accordance with s. 13.1.9 of the 1998 APA. Section 9.01 of the Lease contained an indemnity from Bowater to Weyerhaeuser on the following terms:

The Tenant covenants to indemnify and save harmless the Landlord from all claims, actions, costs and losses of every nature arising during the Term or thereafter relating to or arising in any way from this lease of the [WDS] Lands and the Access Area except to the extent caused by the Landlord's negligence or wilful misconduct. The foregoing indemnity extends without limitation to all claims, actions, costs or losses arising out of or relating to:

(1) the presence or release of mercury and any other contaminant, substance or waste on or in the Lands;

The obligations of the Tenant to indemnify the Landlord under the provisions of this section are to survive the termination or expiry of this lease.

[142] Third, Bowater conveyed title to the WDS to Weyerhaeuser on closing.

[143] Almost two years after closing, Bowater obtained consent to sever the WDS. Weyerhaeuser thereupon re-conveyed the WDS to Bowater by deed of transfer registered August 25, 2000.

[144] In the Abitibi/Bowater CCAA proceedings, Weyerhaeuser filed a proof of claim for the present value of the work required by the Director's Order ($273,063), together with estimated legal costs ($100,000). Weyerhaeuser based its claim on the tenant's indemnity given by Bowater in the September 30, 1998 Lease of the WDS.

[145] The CCAA Monitor accepted the claim, for which Weyerhaeuser received a distribution of shares in Resolute Forest Products Inc., which it later sold.

C. The reasons of motion judge

[146] The motion judge found Weyerhaeuser was entitled to be indemnified under the Ontario Indemnity for a combination of two reasons.

[147] First, the motion judge was satisfied "from the plain and ordinary meaning of the words used in the indemnity that the intention of the parties was that the Province would indemnify future owners of the disposal site for any environmental liability that might arise": at para. 63. In reaching this conclusion, the motion judge relied heavily on this court's decision in Brown v. Belleville (City), 2013 ONCA 148 , 114 O.R. (3d) 561.

[148] Second, the motion judge found the Ontario Indemnity was assigned by Bowater to Weyerhaeuser under the 1998 APA. He then concluded, at para. 64: "I am of the view that this assignment combined with the enurement clause in s. 6 of the Ontario Indemnity makes it clear that Weyerhaeuser can rely upon the Ontario Indemnity as Great Lakes' assignee."

[149] The motion judge held that both Resolute and Weyerhaeuser "are entitled to be indemnified under the Ontario Indemnity for their costs of complying with the remediation order": at para. 65.

D. Analysis

(i) Did the motion judge err in holding Weyerhaeuser was an assignee of the Ontario Indemnity?

[150] Ontario submits the motion judge erred in concluding Bowater assigned the Ontario Indemnity to Weyerhaeuser under the 1998 APA. I would not accept that submission.

[151] The 1998 APA was an asset purchase agreement. Section 1.1 of the August 1998 APA defined "Business" as including the manufacturing and sale of product from the Dryden mill and "Purchased Assets" as the property and assets described in s. 3.1. In turn, that section identified the assets Bowater was selling to Weyerhaeuser stating, in part:

Subject to the terms and conditions hereof, the Vendor agrees to sell, assign and transfer to the Purchaser and the Purchaser agrees to purchase as, at and from the Effective Time the following property and assets of the Business:

(i) Real Property – all of the interests of the Vendor…in and to real and immovable properties owned by the Vendor or leased by the Vendor (or an Affiliate) pursuant to Leases and used exclusively in connection with the Business…except to the extent that any of such real and immovable property is or relates to Excluded Assets…

(vii) Agreements, Contracts and Commitments – the full benefit of all unfilled orders received by the Vendor relating to the Business and all right, title and interest of the Vendor in, to and under all agreements, contracts and commitments and other rights of or relating to the Business , whether written or oral, including, without limitation, the full benefit and advantage of all forward commitments by the Vendor for supplies or materials entered into in the Ordinary course of the Business which are exclusively for use in the Business whether or not there are any written agreements, contracts or commitments with respect thereto (individually a "Contract" and collectively, the "Contracts");

(xiv) Warranty Rights – the full benefit of all representations, warranties, guarantees, indemnities , undertakings, certificates, covenants, agreements and the like and all security therefor received by the Vendor on the purchase or other acquisition of any part of the Purchased Assets or otherwise .

[Emphasis added]

[152] The motion judge relied on ss. 3.1(vii) and (xiv) to find, at para. 64:

[U]nder the 1998 Agreement, Bowater expressly assigned to Weyerhaeuser "the full benefit of all representations, warranties, guarantees, indemnities" relating to the Dryden property. There was no restriction on Great Lakes' ability to assign the benefit of the Ontario Indemnity. I find that the Ontario indemnity was assigned by Bowater to Weyerhaeuser under the 1998 Agreement.

[153] Ontario advances three arguments in support of its submission that the motion judge erred in reaching that conclusion.

[154] First, Ontario contends that the absence of an express reference to an assignment of the Ontario Indemnity in the 1998 APA means no assignment took place. I see no merit in this argument. The degree of specificity used by parties to identify assigned assets is a matter of negotiation and choice. Here, the parties chose to use general language to describe the "purchased assets', including assigned contracts. The wording of ss. 3.1(vii) and (xiv) of the August 1998 APA was sufficient to capture the Ontario Indemnity without specifying that contract by name.

[155] Second, Ontario argues the motion judge misconstrued s. 3.1(xiv), which states that "purchased assets" include the full benefit of indemnities "received by the Vendor on the purchase or other acquisition of any part of the Purchased Assets or otherwise." Ontario quite correctly points out that the Ontario Indemnity was not an indemnity Great Lakes received "on the purchase or other acquisition of the Purchased Assets" – i.e. , when Great Lakes acquired the Dryden facility under the 1979 Dryden Agreement. Great Lakes received the Ontario Indemnity later, in 1985, upon the settlement of the Grassy Narrows Litigation.

[156] However, as Weyerhaeuser notes, s. 3.1(xiv) is not limited to indemnities received by Bowater/Great Lakes on the "purchase or other acquisition of any part of the Purchased Assets"; it also includes indemnities received "or otherwise". Weyerhaeuser submits that Great Lakes's acquisition of the Ontario Indemnity in 1985 as part of the settlement of the Grassy Narrows Litigation falls within the language "or otherwise." I accept Weyerhaeuser's submission. It accords with the plain and unambiguous language of s. 3.1(xiv).

[157] Third, Ontario submits the motion judge's interpretation of ss. 3.1(vii) and (xiv) as encompassing the Ontario Indemnity would result in a commercial absurdity because Weyerhaeuser negotiated a specific indemnity in respect of the WDS as part of the Lease it entered into with Bowater on the closing of the 1998 APA.

[158] I am not persuaded by that submission. The motion judge addressed the submission at para. 48 of his reasons:

[I]t makes commercial sense to obtain the maximum protection possible in respect of possible environmental liability. The fact that Weyerhaeuser wanted to obtain as much protection as it could from any liability arising from its acquisition of the Dryden property does not affect the clear and unambiguous wording of the Ontario Indemnity.

[159] The documents constituting the 1998 transaction clearly demonstrate Weyerhaeuser's reluctance to assume title to the WDS. Owning the WDS had no up-side; only down-sides, which included the expanded liability resulting from the 1990 amendment to the EPA making former owners of polluting sites liable under a variety of regulatory orders, such as preventative measures orders: Environmental Protection Statute Law Amendment Act, 1990, S.O. 1990, c. 18. That Weyerhaeuser would seek to maximize its protection against environmental liabilities associated with the WDS was commercially reasonable.

[160] Moreover, the 1998 APA made no provision for the benefit of any assigned indemnity to revert to Bowater upon the re-conveyance of the WDS once severance was obtained. Nor was the 2000 re-conveyance accompanied by any document purporting to re-assign the benefit of the Ontario Indemnity to Bowater.

[161] Accordingly, I see no palpable and overriding error in the motion judge's conclusion that the 1998 APA operated to assign the full benefit of the Ontario Indemnity from Bowater to Weyerhaeuser.

(ii) Is Weyerhaeuser entitled to claim indemnification under the Ontario Indemnity for the costs of complying with the Director's Order?

[162] The conclusion that Bowater assigned the full benefit of the Ontario Indemnity to Weyerhaeuser under the 1998 APA is a necessary, but not sufficient, finding to determine whether Weyerhaeuser can claim, as assignee, indemnification under the indemnity for the costs of complying with the Director's Order. There is more to the inquiry.

[163] In 2007, before the Director's Order was made, Weyerhaeuser sold the Dryden mill and other assets to Domtar. Consequently, Weyerhaeuser bears the burden of demonstrating that at the time the Director's Order was made in 2011, it possessed legal rights under the Ontario Indemnity entitling it to indemnification.

[164] Unfortunately, the record concerning the effect, if any, of the 2007 sale to Domtar on Weyerhaeuser's rights under the Ontario Indemnity is thin. The motion judge did not address the issue, no doubt because neither Weyerhaeuser nor Ontario dealt with the transaction in their pleadings. Weyerhaeuser's affiant, Charles Douthwaite, did not refer to the transaction in his affidavit in support of the summary judgment motion. However, answers he gave on his cross-examination disclosed that: (i) in the 2007 transaction, Weyerhaeuser "transferred the Dryden assets that we had to Domtar"; (ii) Weyerhaeuser posted the Ontario Indemnity and other documents about the 1985 settlement to its electronic due diligence data room for review by interested purchasers "because they were relevant to the assets at the Dryden site"; and (iii) the Domtar transaction documents were marked as an exhibit on Mr. Douthwaite's cross-examination, but Weyerhaeuser took the position they were not relevant to the summary judgment motions. The documents are not contained in the appeal record.

[165] The motion judge recited the fact of Weyerhaeuser's 2007 sale of the Dryden plant to Domtar, but he did not consider the effect, if any, of that transaction on the continuation of the legal rights Weyerhaeuser acquired under the 1998 APA concerning the Ontario Indemnity. Accordingly, without considering the effect of the 2007 transaction, it is unclear how the motion judge moved from his finding that Bowater assigned the Ontario Indemnity to Weyerhaeuser under the 1998 APA to his ultimate order that Weyerhaeuser was entitled, as assignee, to be indemnified for costs incurred as a result of the 2011 Director's Order. If the 2007 asset sale to Domtar involved Weyerhaeuser assigning the full benefit of all indemnities regarding the Dryden facility – and the Ontario Indemnity covered the Dryden facilities as a whole, not just the WDS – then an issue would arise about what rights Weyerhaeuser continued to enjoy as an assignee of the Ontario Indemnity when the 2011 Director's Order was made.

[166] The incomplete appeal record regarding the 2007 Domtar transaction is insufficient to permit this court to exercise its fact-finding powers under ss. 134(1) and (4) of the Courts of Justice Act, R.S.O. 1990, c. C.43 to determine that issue. What follows from that state of affairs I will address after considering the motion judge's additional finding that Weyerhaeuser was a "successor" within the meaning of s. 6 of the Ontario Indemnity.

(iii) Did the motion judge err in holding Weyerhaeuser was a "successor" under the Ontario Indemnity?

The parties' positions

[167] Weyerhaeuser is not a corporate successor to either of the contracting indemnitees to the Ontario Indemnity – Great Lakes and Reed. However, as a result of the 1998 APA, Weyerhaeuser held title to the WDS for a period of two years, until it was reconveyed to Bowater.

[168] The motion judge interpreted the enurement clause in s. 6 of the Ontario Indemnity as evidencing the parties' intention that "the Province would indemnify future owners of the disposal site for any environmental liability that might arise." He reasoned as follows:

(i) The enurement clause considered by this court in Brown v. Belleville (City) shared some of the language found in the Ontario Indemnity. In Brown, this court concluded the "broad and unqualified language of the enurement clause constitutes an express stipulation by the contracting parties that they intended the benefit of the Agreement to be shared by future owners of Mr. Sill's lands, as his successors or assigns": Brown , at para. 84 ;

(ii) Then, drawing on Brown , the motion judge concluded, at para. 63 of his reasons:

The same reasoning applies to the enurement clause in the Ontario Indemnity. I am satisfied from the plain and ordinary meaning of the words used in the indemnity that the intention of the parties was that the Province would indemnify future owners of the disposal site for any environmental liability that might arise.

The general principles

[169] I start my analysis by recalling the general principle that the term "successor", when used in reference to a corporation, "generally denotes another corporation which, through merger, amalgamation or some other type of legal succession, assumes the burdens and becomes vested with the rights of the first corporation": National Trust Co. v. Mead , [1990] 2 S.C.R. 410 at 423; Heritage Capital Corp. v. Equitable Trust Co., 2016 SCC 19, [2016] 1 S.C.R. 306, at para. 47 .

[170] The enurement clause in the Ontario Indemnity uses the term "successor" in reference to a corporation: "The indemnity shall be binding upon and enure to the benefit of the respective successors … of … Great Lakes". Yet, in interpreting that clause, the motion judge departed from the general principle that "successor", when used in reference to a corporation, means a successor corporation. Instead, he concluded it includes Weyerhaeuser as a successor-in-title to a specific piece of property – the WDS. Since the motion judge applied the reasoning in Brown to depart from the general principle and reach that result, a careful review of that case is required.

The decision in Brown v. Belleville (City)

[171] Brown involved a 1953 agreement between a farmer, Mr. Sills, and the local municipality. The town had constructed a storm sewer drainage system along the frontage of the farmer's lands. It required access to the farmer's lands to maintain the storm sewer. In 1953, the town and Mr. Sills entered into an agreement under which he granted the town the necessary access. On its part, the town undertook to maintain the storm sewer in good working condition "at all times" and make good "any and all damage caused the Owner either by virtue of the original construction of the said sewer interfering now or in the future with the Owner's use and enjoyment of his land in any way or as a result of lack of repair or of acts done at any time by the [town] in maintaining and repairing the said sewer": Brown , at para. 11 . The agreement further specified that it would "inure to the benefit of and be binding upon the parties hereto and their respective heirs, administrators, successors and assigns": Brown , at para. 13 .

[172] At some point, the municipality stopped maintaining the sewer system. The Sills farm was sold in 1973. The subsequent owners called on the municipality to honour the agreement; it refused. In 2003, the farm was sold again to new owners, the Browns. They too asked the municipality to honour its maintenance agreement; it refused. The Browns sued the municipality for specific performance of the maintenance agreement. The municipality contended the Browns lacked the standing to sue because they were not parties to the 1953 agreement.

[173] The 1953 agreement was not registered against title to the property. No express assignment of the maintenance agreement formed part of either the 1973 or 2003 sale of the farm.

[174] This court interpreted the enurement clause as giving the new owners standing to sue to enforce the 1953 agreement stating, at para. 84:

[T]he broad and unqualified language of the enurement clause constitutes an express stipulation by the contracting parties that they intended the benefit of the Agreement to be shared by future owners of Mr. Sill's lands, as his successors or assigns or by way of inheritance. The language of the enurement clause unequivocally confirms that the contracting parties intended and agreed that the benefit of the Agreement would extend to an aggregation or class of persons that includes successor landowners of Mr. Sills. On the admitted findings of the motion judge, the Browns are Mr. Sills's successors. In this sense, the Browns are not strangers or 'third parties' to the Agreement. Rather, they step into Mr. Sills's shoes and have standing to enforce the Agreement as against the City as if they were the original covenantee(s) to the Agreement: see Angela Swan and Jakub Adamski, Canadian Contract Law , at p. 169 and, generally, at pp. 163-226.

[175] In reaching that conclusion, this court relied, in part, on the parties' agreed interpretation of the 1953 agreement stating, at para. 87:

On the language of the enurement clause and the agreed proper interpretation of the Agreement as a whole, the City and Mr. Sills clearly understood that the continuing access sought by the City to the affected lands could only be provided by the property owner "whoever that may be from time to time". In consideration for such continuing access, the City undertook to maintain and repair the drainage system, indefinitely, for the benefit of the property owner.

[176] As is apparent, the circumstances in Brown differ from those in the present case in several material respects:

(i) The present case requires interpreting the term "successor" in reference to a corporation. Brown , on the other hand, dealt with interpreting "successor" in reference to an individual;

(ii) In Brown , the agreement contained language that led this court to conclude that the parties intended successors-in-title would benefit from it. Specifically, the litigants in that case agreed the town's obligation to "make good damage" was linked to future owners of the land – " to the property owner whoever that may be from time to time ": Brown , at para. 86 (emphasis in original). Weyerhaeuser cannot point to any similar language in the Ontario Indemnity that links the obligation to indemnify to the future owners of the WDS property; and

(iii) The subsequent owners of the property in Brown brought a claim under the contract for specific performance of the agreement at a time when they owned the property. In the present case, Weyerhaeuser did not own the WDS at the time it sought the benefit of the Ontario Indemnity; it had conveyed the WDS back to Bowater more than a decade before.

[177] The motion judge did not address any of these material differences. Nor did he explain what language in the Ontario Indemnity, or what circumstances in that contract's factual matrix, would justify departing from the general principle that the term "successor", when used in reference to a corporation, generally denotes a successor corporation that assumes the burdens and becomes vested with the rights of the prior corporation.

The decision in Heritage Capital Corp. v. Equitable Trust Co.

[178] Weyerhaeuser suggests that general principle did not survive the Supreme Court of Canada's decision in Heritage Capital . It submits that Heritage Capital stands for the proposition that the term "successor", when referring to a corporation, includes successors-in-title to particular property owned by the corporation unless the contract states otherwise.

[179] I do not accept this submission.

[180] The ratio in Heritage Capital was that a positive covenant requiring a municipality to make payments to a building owner for heritage restoration work did not run with the land, based upon the interpretation of the statute at issue. In obiter , the Supreme Court considered whether the same result would follow, as a matter of contractual interpretation, if some way could be found to circumvent the common law rule that no affirmative covenant requiring the expenditure of money could be made to run with the land, apart from statute. The court concluded the result would be the same because the agreement obliging the municipality to make the payments did not evidence an intention the payments would run with the land: at paras. 43-49.

[181] The Supreme Court also considered the agreement's enurement clause, which provided that "everything herein contained shall inure to the benefit of and be binding upon the parties hereto, their administrators, successors, and assigns respectively." The Supreme Court stated, at para. 47:

According to the master's interpretation, 604, which was merely a subsequent owner, cannot be considered an administrator, successor or assign of LBI. We agree. The term "successor" should be read to mean a corporate successor, considering that clause 8.3 refers to "successors in title" and "subsequent owners", of which 604 clearly is one, while clause 8.8 refers to "successors". "Contracting parties are presumed to intend the legal consequences of their words" (G. R. Hall, Canadian Contractual Interpretation Law (2nd ed. 2012), at p. 91). Meaning must be given to the choice to use one term in one clause and a different term in a different clause of the same agreement, and in this case, of the same section of an agreement (section 8 — General provisions ).

[182] I do not read this portion of Heritage Capital as altering the general principle enunciated by the court in National Trust . Instead, I read it as identifying other language in the agreement that confirmed the application of the general principle stated in National Trust . In the present case, Weyerhaeuser cannot point to language in the Ontario Indemnity that would justify departing from the general principle.

Conclusion on the Weyerhaeuser as "successor" issue

[183] I conclude the motion judge erred in his application of this court's decision in Brown to the interpretation of the enurement clause in the Ontario Indemnity. With respect, he failed to explain how the facts in this case, which differ so materially from those in Brown , could support an interpretation of the word "successor" in reference to a corporation as meaning something other than a corporate successor. I see nothing in the language of the Ontario Indemnity or in the circumstances surrounding the formation of the contract that could support such an interpretation. Accordingly, I conclude the motion judge made a palpable and overriding error in interpreting the word "successor" in s. 6 of the Ontario Indemnity to include Weyerhaeuser.

(iv) Conclusion on whether Weyerhaeuser can claim the costs of complying with the Director's Order under the Ontario Indemnity

[184] The record does not permit a final determination of whether at the time of the 2011 Director's Order Weyerhaeuser possessed rights as an assignee of the Ontario Indemnity entitling it to claim indemnification for compliance costs. Given that state of affairs, I would (i) allow Ontario's appeal from the summary judgment in favour of Weyerhaeuser to the extent of setting aside the order that Weyerhaeuser is entitled to be indemnified its costs resulting from the 2011 Director's Order, (ii) substitute a declaration that Bowater assigned the full benefit of the Ontario Indemnity to Weyerhaeuser under the 1998 APA, and (iii) remit to the court below the adjudication of what rights, if any, Weyerhaeuser possessed as assignee of the Ontario Indemnity at the time the Director's Order was made in 2011.

(v) Does Resolute enjoy the benefit of the Ontario Indemnity?

The issue stated

[185] The motion judge found that Bowater assigned the Ontario Indemnity to Weyerhaeuser under the 1998 APA. Given that finding, Ontario submits it was not open to the motion judge to hold that Resolute could also claim the benefit of the Ontario Indemnity as a "successor".

[186] Resolute advances two arguments in response. First, Resolute submits Ontario cannot raise that issue on appeal in light of the motion judge's finding that: "There is no dispute that Resolute, as the corporate successor of Great Lakes, has the benefit of the Ontario Indemnity": at para. 55. Resolute does not contend Ontario conceded that point below; instead, it submits the issue Ontario now advances was not argued below, with the result that Ontario cannot contest Resolute's right to access the indemnity.

[187] Second, Resolute argues that, in any event, by its terms the Ontario Indemnity enures to the benefit of both successors and assigns of Great Lakes. Since the parties agree Resolute is a corporate successor of Great Lakes, Resolute contends it follows that it enjoys the benefit of the indemnity regardless of whether Bowater assigned the Ontario Indemnity to Weyerhaeuser.

Analysis

[188] As a general rule, appellate courts will not entertain entirely new issues on appeal: Kaiman v. Graham, 2009 ONCA 77 , at para. 18 . The rationale for, and the application of, this general rule were summarized in Kaiman , at para. 18:

The rationale for the rule is that it is unfair to spring a new argument upon a party at the hearing of an appeal in circumstances in which evidence might have been led at trial if it had been known that the matter would be an issue on appeal… The burden is on the appellant to persuade the appellate court that "all the facts necessary to address the point are before the court as fully as if the issue had been raised at trial"… This burden may be more easily discharged where the issue sought to be raised involves a question of pure law… In the end, however, the decision of whether to grant leave to allow a new argument is a discretionary decision to be guided by the balancing of the interests of justice as they affect all parties… [citations omitted]

[189] Does fairness require, as Resolute submits, that this court not entertain Ontario's argument that once the motion judge found Bowater assigned the full benefit of the Ontario Indemnity to Weyerhaeuser, it was not open to him to then find Resolute enjoyed the benefit of the indemnity as a successor to Bowater? In my view fairness does not so require, for three reasons.

[190] First, Resolute candidly acknowledged in oral argument that before the motion judge Ontario did not formally concede that the company, as the corporate successor of Great Lakes, had the benefit of the Ontario Indemnity. Resolute puts the matter no higher than that the point Ontario now advances was not argued below.

[191] Second, I am satisfied that all the facts necessary to address the issue are before this court as fully as if the matter had been raised before the motion judge. The appeal record contains the Ontario Indemnity, the 1998 APA transaction documents, and the evidence Resolute filed below, including its corporate history. Resolute does not suggest that any additional evidence is required to consider the issue Ontario now raises.

[192] Third, the facts and the law support Ontario's submission that in light of the motion judge's finding that Bowater assigned the full benefit of the Ontario Indemnity to Weyerhaeuser, Bowater had no remaining legal interest in the indemnity that could be transmitted to a corporate successor.

[193] As a general principle, an absolute assignment of a chose in action, which leaves no interest in the assignor, extinguishes the assignor's right to later call on the obligor to perform the contract as the assignee has acquired the right to such performance: Milo Candy Co. v. Browns Ltd. (1915), 8 O.W.N. 99 (Ont. C.A.), at para. 10 ; Conveyancing and Law of Property Act, R.S.O. 1990, c. C.34, s. 53(1); Restatement (Second) of Contracts , §317 (1981); Aaron Ferer & Sons Ltd. v. Chase Manhattan Bank, Nat. Ass'n , 731 F.2d 112 , 125 (2d Cir. 1984). The assignee steps into the shoes of the assignor and has standing to enforce the contract as against the obligor as if it was the original convenantee: Brown , at para. 84 .

[194] Sections 3.1(vii) and (xiv) of the August 1998 APA provided that Bowater sold and transferred to Weyerhaeuser the "full benefit" of contracts and indemnities, which included the Ontario Indemnity. The assignment was absolute and unequivocal. As a result, Bowater's right to call on Ontario to perform the Ontario Indemnity was extinguished upon the closing of the 1998 APA.

[195] An enurement clause typically signifies the consent of the contracting parties to the transmittal of contractual rights – benefits and burdens – to designated third parties by any of the listed modes of transfer, such as corporate succession or assignment. In the present case, the parties to the Ontario Indemnity agreed in s. 6 that "The indemnity shall be binding upon and enure to the benefit of the respective successors and assigns of Ontario, Reed, International and Great Lakes..." However, this consent to transfer did not operate in a symmetrical fashion, for s. 6 went on to state that "provided however that Ontario shall not be entitled to assign this indemnity without the prior written consent of the other parties hereto."

[196] As mentioned, in National Trust Co. v. Mead the Supreme Court stated, at p. 423, that a reference to a successor corporation "generally denotes another corporation which, through merger, amalgamation or some other type of legal succession, assumes the burdens and becomes vested with the rights of the first corporation." It follows that if the first corporation has relinquished certain rights before a merger, amalgamation or some other mode of legal succession, then it has no interest left in those rights to pass on to its successor corporation.

[197] In the present case, Resolute bases its right to claim under the Ontario Indemnity solely on its status as a corporate successor to Great Lakes and Bowater. However, when Bowater assigned the full benefit of the Ontario Indemnity to Weyerhaeuser under the 1998 APA, it did not retain any right relating to the indemnity that it could pass on down the corporate family tree to a successor corporation by merger, amalgamation or some other type of legal succession. Nor can the word "and" in s. 6 of the Ontario Indemnity – "successors and assigns" – somehow operate to retain in Bowater rights it absolutely transferred to Weyerhaeuser under the 1998 APA, as Resolute contends. The assignment to Weyerhaeuser was absolute and complete. Accordingly, Resolute has no legal interest in the Ontario Indemnity upon which it can assert a claim against Ontario. As a result, the motion judge's order that Resolute is entitled to be indemnified for the costs, losses, expenses, liabilities or obligations it has incurred or may incur as a result of the Director's Order must be set aside.

VI. COSTS APPEAL

[199] In light of those dispositions, I would grant Ontario leave to appeal the motion judge's award of full indemnity costs to the respondents: $275,000, in the case of Weyerhaeuser; and $223,000, in the case of Resolute.

[200] I would set aside the award of costs in favour of Resolute and substitute an award of costs from Resolute in favour of Ontario for the summary judgment motion and the appeal. If Ontario and Resolute are unable to agree on the amounts, they may file very brief written cost submissions within 20 days.

[201] As to the costs relating to Weyerhaeuser's claim, Ontario has partially succeeded in this appeal but it remains to be determined which party will succeed in the cause. In those circumstances, I would fix the costs of this appeal, but make them payable in the cause. If Ontario and Weyerhaeuser are unable to agree on the amount of the appeal costs, they may file very brief written cost submissions within 20 days. In respect of the costs below, I would set aside the award in favour of Weyerhaeuser and leave the issue of all costs below to the judge who adjudicates the issue directed.

VII. DISPOSITION

[202] For the reasons set out above, I would set aside the motion judge's order.

[203] As to Resolute's claim under the Ontario Indemnity, I would grant Ontario summary judgment dismissing that claim.

[204] As to Weyerhaeuser's claim, in the place of the order I would (i) substitute a declaration that Bowater assigned the full benefit of the Ontario Indemnity to Weyerhaeuser under the 1998 APA and (ii) direct a final adjudication by the court below on the issue of what, if any, rights Weyerhaeuser possessed as assignee of the Ontario Indemnity at the time the Director's Order was made in 2011.

"David Brown J.A." "I agree. P. Lauwers J.A."

LASKIN J.A. (DISSENTING):

A. INTRODUCTION

[205] I have read the thorough reasons of my colleague, Justice Brown. We differ on the first and most important question on the appeal: does the 1985 Indemnity cover Weyerhaeuser's and Resolute's costs of complying with the Director's August 25, 2011 Order? That Order is preventive. It requires the two respondents to do maintenance, monitoring, and testing on the Waste Disposal Site ("WDS") near Dryden, which Great Lakes had done for years without objection. Justice Brown agrees with the motion judge and answers this question "yes". My answer is "no".

[206] Under the 1985 Indemnity, Ontario agrees to indemnify Reed and Great Lakes, and their successors and assigns, for "pollution claims". I need not decide whether the respondents are successors or assignees. I will assume that they are.

[207] Even so, to succeed on this appeal, the respondents have to overcome two hurdles: i) they have to show that the 1985 Indemnity covers first party claims, that is claims between the parties themselves, the two respondents on one hand and Ontario on the other; and ii) they have to show that the Director's Order gives rise to a "pollution claim", that is a claim for damages caused by the discharge of mercury or other pollutants. In my opinion they cannot overcome either hurdle.

[208] Typically, indemnity provisions cover only third party claims: see Stetson Oil & Gas Ltd. v. Stifel Nicolaus Canada Inc. [3] Undoubtedly, the 1985 Indemnity covers third party claims – pollution claims brought against the respondents by strangers to the Indemnity.

[209] An indemnity contract can, however, cover first party claims depending on the language of the document. The claim in dispute – the costs of compliance with the Director's order – is a first party claim. But both the context in which the 1985 Indemnity was given, and the words of the entire document, show that it was intended to cover and does cover only pollution claims brought by third parties. It does not cover first party claims. And even if does, the Director's order is not a "pollution claim".

[210] As the 1985 Indemnity is a contract, ordinary principles of contract interpretation apply. My colleague has summarized those principles. And, as the 1985 Indemnity is not a standard form contract, the motion judge's interpretation of its scope is entitled to deference on appeal. Appellate intervention, however, is justified if the motion judge's interpretation is tainted by errors of law or is unreasonable. I have concluded that his interpretation reflects both errors of law and is unreasonable.

[211] Respectfully, in interpreting the scope of the 1985 Indemnity to apply to the costs of complying with the Director's Order, the motion judge erred in the following three ways:

1. He made two significant errors of fact in his consideration of the circumstances surrounding the granting of the 1985 Indemnity;

2. He erred in law by reading the words of the 1985 Indemnity without properly, accurately, and fully considering the context in which the Indemnity was given. This context included the 1979 Indemnity, the 1979 Dryden Agreement by which Great Lakes purchased the assets of the Dryden operations from Reed, Minister Ramsay's 1982 letter, the 1985 Spills Bill, and the 1985 Memorandum of Agreement ("1985 MOA"); and

3. He erred in law by failing to consider the 1985 Indemnity as a whole. In particular he focused on the Indemnity itself in s. 1 but did not give effect to s. 2, which contained notification and control of defence clauses, and s. 3, which contained a cooperation clause. Notification, control of defence, and cooperation clauses are typical in indemnity contracts covering third party claims.

[212] Properly interpreted, the 1985 Indemnity covers only pollution claims brought by third parties against the respondents. It does not indemnify the respondents for the costs of complying with the Director's order.

B. FACTUAL OVERVIEW

[213] My colleague has summarized, with admirable clarity, the rather complicated chronology and key documents that gave rise to this litigation. I do not propose to repeat his summary. Instead, I will provide a brief overview to give some context to my analysis. My overview covers the period from 1976, when Reed acquired the pulp and paper mill and chemical plant near Dryden, until late 1985, when all parties – Ontario, Canada, Reed, Great Lakes, and the two Indian Bands that had started pollution claims – settled their disputes arising out of the discharge of contaminated mercury waste into the English and Wabigoon river systems.

[214] This discharge of contaminated mercury waste and other pollutants into the river systems raised social, economic, and health concerns among the members of the two affected Indian Bands, Grassy Narrows and Islington. In 1977, these two Bands started an action against Reed and its predecessors for damages caused by the pollution.

[215] The contamination of the English and Wabigoon rivers also became a matter of public interest and concern. In 1979, Ontario stepped in and issued a control order against Reed under the 1971 Environmental Protection Act . [4] The control order required Reed to do a number of things, including the following three:

• Modernize its operations to eliminate pollutants;

• Cease dumping existing mercury waste water into the river systems; and

• Use the WDS, which had been established on the Dryden property in 1971, to contain the existing waste and all mercury-contaminated equipment.

[216] Later in 1979, Reed decided to sell its Dryden operations to Great Lakes. But it faced the Bands' pollution claims litigation and Ontario's control order. Negotiations stalled. Ontario again stepped in and, to facilitate the sale, offered to cap Great Lakes' exposure for pollution claims at $15,000,000; any amounts over $15,000,000 would be Ontario's responsibility. Ontario's offer was set out in a letter from its Treasurer at the time, Frank Miller. This letter is the 1979 Indemnity. As I will discuss, the 1979 Indemnity is important context for the interpretation of the 1985 Indemnity.

[217] As consideration for Ontario's 1979 Indemnity, Great Lakes agreed to complete the purchase from Reed and to modernize the operations it was acquiring from Reed. The asset purchase agreement between Reed and Great Lakes – the Dryden Agreement – was signed in late 1979. Great Lakes completed its modernization of its operations in 1982.

[218] Under the terms of the Dryden Agreement, which I will also discuss in more detail later, Great Lakes agreed to indemnify Reed for any damages from pollution claims and to share the cost of any settlement of or judgment for pollution claims, to a maximum of $15,000,000. That maximum was consistent with Ontario's promise in the 1979 Indemnity. In 1982, in a letter, Minister R.H. Ramsay, the Provincial Secretary for Resources Development, reaffirmed Ontario's commitment under the 1979 Indemnity.

[219] In November 1985, all parties – Ontario, Canada, Reed, Great Lakes, and the two Indian Bands – entered into the 1985 MOA. This Agreement, too, is critical to understanding the scope of the 1985 Indemnity. The 1985 MOA settled the pollution claims litigation brought by the Bands. But it did much more. It created a Provincial and Federal legislative program to address health and social issues in the First Nations communities. This program included the creation of a Mercury Disability Fund and a Mercury Disability Board. The Fund and the Board continue to exist.

[220] The 1985 MOA also required Ontario to grant an indemnity pertaining to "the issues", a term defined in s. 1 of the Agreement. The 1985 Indemnity itself is contained in Schedule F of the Escrow Agreement to the 1985 MOA. The 1985 Indemnity and the Escrow Agreement were both signed in December 1985, about a month after the 1985 MOA. The Escrow Agreement released Ontario from its commitment under the 1979 Indemnity, but required the province to give an indemnity for potential pollution claims after 1985. This indemnity is the 1985 Indemnity. Its scope is the subject of this appeal.

C. THE 1985 INDEMNITY AND THE MOTION JUDGE'S REASONS FOR REJECTING ONTARIO'S POSITION

(a) The 1985 Indemnity

[221] The parties to the 1985 Indemnity are Ontario, Reed, and Great Lakes. Ontario was required to give this indemnity by Section 2.4(a) of the 1985 MOA, which states that: "Ontario shall provide indemnities to Great Lakes and Reed in respect of the issues " (emphasis added).

[222] As I have said, "the issues" is a defined term in the 1985 MOA. "The issues" focus on the discharge and continuing presence of mercury and other pollutants into the English and Wabigoon rivers. The definition is in s. 1 of the 1985 MOA, and states:

The discharge by Reed and its predecessors of mercury and any other pollutants into the English and Wabigoon and related river systems, and the continuing presence of any such pollutants discharged by Reed and its predecessors, including the continuing but now diminishing presence of methylmercury in the related ecosystems since its initial identification in 1969, and governmental action taken in consequence thereof, may have had and may continue to have effects and raise concerns in respect of the social and economic circumstances and the health of the present and future members of the Bands ("the issues").

[223] The actual indemnity given by Ontario to Reed and Great Lakes is contained in s. 1 of the 1985 Indemnity. It is a lengthy clause, but I have underlined those words especially important to the interpretation of its scope. These words give rise to two questions: Does the Indemnity cover first party claims against Ontario? And do the costs of compliance with the Director's order fall within the ambit of "pollution claims"? Section 1 reads as follows:

Ontario hereby covenants and agrees to indemnify Great Lakes, Reed , International and any company which was at the Closing Date a subsidiary or affiliate company (whether directly or indirectly) of International, harmless from and against any obligation, liability, damage, loss, costs or expenses incurred by any of them after the date hereof as a result of any claim, action or proceeding, whether statutory or otherwise, existing at December 17, 1979 or which may arise or be asserted thereafter (including those arising or asserted after the date of this agreement), whether by individuals, firms, companies, governments (including the Federal Government of Canada and any province or municipality thereof or any agency, body or authority created by statutory or other authority) or any group or groups of the foregoing, because of or relating to any damage, loss , event or circumstances, caused or alleged to be caused by or with respect to, either in whole or in part, the discharge or escape or presence of any pollutant by Reed or its predecessors, including mercury or any other substance , from or in the plant or plants or lands or premises forming part of the Dryden assets sold by Reed Ltd. to Great Lakes under the Dryden Agreement (hereinafter referred to as "Pollution Claims" ). It is hereby expressly acknowledged and agreed that in respect of Ontario's covenant and agreement hereunder to indemnify Great Lakes that the term "Pollution Claims" shall include any obligation, liability, damage, loss, costs or expenses incurred by Great Lakes as a result of any claim, action or proceeding resulting from or in connection with the indemnity agreement of even date herewith made between Great Lakes, Reed and International. [Emphasis added.]

D. DISCUSSION

(a) The two significant factual errors

[227] In his sixth reason for rejecting Ontario's position, the motion judge held that the "surrounding circumstances" to the giving of the 1985 Indemnity did not support Ontario's position. But his holding is based on two significant factual errors.

[228] The first error is the motion judge's finding that, as part of the 1985 settlement in which Ontario gave the Indemnity, Great Lakes agreed to pay significant amounts of money to continue to modernize its operations in Dryden. That finding is wrong. Great Lakes agreed to modernize its operation as consideration for the 1979 Indemnity. Its modernization was completed in 1982, three years before the 1985 Indemnity was given. Great Lakes gave no new or additional commitment to modernize the Dryden operations in the 1985 MOA.

[229] The motion judge's misunderstanding of the consideration given by Great Lakes to Ontario seems to have influenced his view of why the parties entered into the 1985 Indemnity. This factual error, relating to Great Lakes' end of the bargain, likely led him to conclude that Ontario should not be allowed to withdraw from what he understood to be the other end of the bargain – that is, Ontario's commitment to provide "very broad protection to Great Lakes and its successors from future environmental liability".

[230] The second error is even more significant. The motion judge found at para. 7 of his reasons that the Indian Bands' 1977 action, which was the impetus for the 1985 Indemnity, was prompted by mercury discharge from the WDS. Specifically, the motion judge found that "the mercury-contaminated waste was buried at a disposal site, which discharged mercury waste into the nearby river system". Relying on this finding, he concluded at para. 48 that the WDS "posed a serious environmental liability", and that it would therefore be "commercially absurd" to think Ontario could withdraw its commitment to protect Great Lakes from environmental liability arising from the WDS.

[231] The motion judge was mistaken in stating that the WDS discharged mercury into the river. There was no evidence before him that the WDS was a source of mercury discharge, or the discharge of any other pollutant. The evidence indicates that the discharges of mercury, which prompted the 1977 litigation, came from the chemical plant located near the paper mill and operated by Reed's predecessor, Dryden Chemicals.

[232] My colleague concedes the motion judge was mistaken, but says his error was minor. I disagree.

[233] The motion judge's mistaken finding that discharges of mercury from the WDS were an ongoing source of "serious environmental liability" undoubtedly drove his conclusion that these discharges could give rise to "pollution claims", and that unless the 1985 Indemnity covered first party claims, the respondents would be exposed to significant financial liability. His conclusion is wrong.

[234] The motion judge misconstrued the purpose and effect of the WDS. The WDS was not a source of ongoing mercury contamination or environmental liability. Its creation would not give rise to a pollution claim. Quite the opposite. The WDS was created and used as a solution to the mercury pollution problem, effectively as a burial site for mercury-contaminated waste. Again, there was no evidence of mercury-contaminated waste being discharged from the WDS. Neither respondent submitted otherwise.

[235] Moreover, the WDS could not in any sense pose a serious environmental liability. It has been subject to regular monitoring, maintenance, testing, and reporting prescribed by certificates of approval issued by the Ministry of the Environment. Great Lakes its successor, Bowater, and Bowater's successor, Resolute, have continually fulfilled their regulatory requirements.

(b) The context in which the 1985 Indemnity was given

[236] The scope of the 1985 Indemnity must be assessed not only from the words the parties used, but as well from the context in which they used those words. In Dumbrell v. Regional Group of Companies Inc . [5] , my colleague Doherty J.A. concisely stated the cardinal principle of contract interpretation:

The text of the written agreement must be read as a whole and in the context of the circumstances as they existed when the agreement was created. The circumstances include facts that were known or reasonably capable of being known by the parties when they entered into the written agreement.

See also: Sattva Capital Corp. v. Creston Molly Corp. [6]

[237] Although the motion judge stated this principle, I do not agree with my colleague that he correctly applied it. The motion judge's starting point for interpreting the 1985 Indemnity was to look at the words of the document in isolation, and then only secondarily at the "surrounding circumstances". His two-stage approach to the interpretation of the 1985 Indemnity is not the proper approach. Context controls meaning. Rarely can the words of an agreement be understood without some knowledge of their context. Thus, as Doherty J.A. said in Starrcoll Inc. v. 2281927 Ontario Ltd . [7] : "The words of an agreement, and the context in which those words are used, cannot be separated and approached at different stages of the interpretative process."

[238] Under s. 1 of the 1985 Indemnity, Ontario agreed to indemnify Great Lakes for damages as a result of "any claim, action or proceeding". Instead of interpreting those words against the relevant context, the motion judge relied on the broad meaning of those words – specifically "claim" and "proceeding" – in unrelated court decisions. Only then did he consider the "surrounding circumstances" (his sixth reason for rejecting Ontario's position), and in doing so, as I have already discussed, he made two significant factual errors. Additionally, he held that the language of the 1979 Indemnity – in my view, another "surrounding circumstance" – had no bearing on the interpretation of the 1985 Indemnity (his second reason). The earlier Indemnity between the parties, as well as other earlier documents not referred to by the motion judge, are highly relevant context for the interpretation of the later Indemnity.

[239] I agree that, looked at in isolation, the words "claim" and "proceeding" might lend support to the respondents' position. But interpreted in their context, they provide no support at all. They are limited to pollution claims and proceedings brought by third parties, not claims for the costs of complying with the Director's order, which are first party claims and are not "pollution claims".

[240] The relevant context for interpreting the 1985 Indemnity includes the 1979 Indemnity, the 1982 letter from Minister Ramsay, the 1985 "Spills Bill" [8] , the 1979 Dryden Agreement, and the 1985 MOA. Even if the motion judge did not engage in a two-stage approach to the interpretation of the 1985 Indemnity, he did not fully and accurately consider its relevant context.

(i) The 1979 Indemnity, the 1982 letter from Minister Ramsey, and the 1985 Spills Bill

[241] The 1985 Indemnity had its genesis in the 1979 Indemnity. Under the 1985 Indemnity, Ontario agreed to indemnify Great Lakes and Reed for "pollution claims". The 1979 Indemnity gives meaning to what was meant by pollution claims. As discussed in the factual overview, the 1979 Indemnity was contained in a letter from Ontario's Treasurer at the time, Frank Miller. The 1979 Indemnity, capping Great Lakes' exposure for pollution claims at $15,000,000, was given to facilitate Great Lakes purchase of the Dryden operations from Reed. The material parts of the 1979 Indemnity state as follows:

I am aware … of [Great Lakes'] concern over potential liabilities for environmental damages caused by Reed Ltd. in the Dryden area … I further understand that … Reed … and Great Lakes are willing to assume, on an equal basis, responsibility, up to a maximum of $15 million, for any environmental damages attributable to the operations of Reed … in the Dryden area prior to this acquisition by Great Lakes

The continued viability of the Dryden facilities and the undertaking of major modernization expenditures with respect to them are of considerable importance to the people of this Province. The substantial and beneficial employment and economic effects that the operation of a modernized facility will have on the population and economy of Dryden is of real significance.

In the event that Great Lakes negotiations with … Reed … are successful then in the event that Great Lakes is required to pay any monies as a result of any final decision of a court against Great Lakes [or] Reed … in respect of pollution caused by Reed … in … Dryden … or in the event that any settlement with any claimant is made the amount of which settlement has been approved by [Ontario], I have been authorized … to advise you that … Ontario … [will] ensure that Great Lakes … will not be required to pay any monies in excess of the maximum amount of $15 million … provided that over the next three to four years Great Lakes expends in the order of $200 million for the modernization and expansion of the Dryden facilities. [Emphasis added.]

[242] The key point about the 1979 Indemnity is that it is limited to indemnification for court orders or settlements resulting from environmental damages caused by Reed's pollution. The use of the words "damages", "court", and "settlement" shows that the 1979 Indemnity was not meant to cover the costs of regulatory compliance. The 1985 Indemnity, in substance, did no more than replace the 1979 Indemnity for future damages from pollution claims.

[243] Minister Ramsay's 1982 letter – which the motion judge did not refer to – restated Ontario's 1979 agreement to indemnify Great Lakes against damages arising from claims of mercury pollution:

The Government of Ontario recognizes the distinct advantage of the Indian people obtaining a settlement in the very near future. Accordingly, the Government is prepared to indemnify Great Lakes Forest Products Limited against any claims related to mercury pollution such that the Company's total payments to all claimants in respect of damages awarded by any court or for any settlement approved by the Attorney General of Ontario attributable to the operations of Reed Paper Ltd. … will be limited to $15 million. … Ontario will assume responsibility for any damages awarded by any court or for any settlement approved by the Attorney General of Ontario, after $15 million has been paid by the Great Lakes Forest Products Limited [or] Reed … in connection with the above mentioned mercury pollution claims. Such claims include personal injury, property damage and economic claims of any claimants, including adults, minors and those yet unborn, related to mercury pollution . [Emphasis added].

[244] Again, the Minister's letter does not include indemnification for the costs of regulatory compliance; it instead repeatedly limits indemnification to damages relating to mercury pollution. And, like the 1979 Indemnity, the Minister's letter refers to "damages", "court", and "settlement", further signalling that the costs of regulatory compliance are outside its scope.

[245] In support of his decision, the motion judge pointed to language in the 1985 Indemnity that is not contained in Ontario's commitment in 1979 and 1982. On appeal, the respondents also rely on this language. Under s. 1 of the 1985 Indemnity, Ontario agreed to indemnify Great Lakes and Reed from:

[A]ny obligation, liability, damage, loss, costs or expenses … incurred … as a result of any claim, action or proceeding, whether statutory or otherwise … whether by individuals, firms, companies, governments (including the Federal Government of Canada and any provinces …) … [Emphasis added.]

[246] Ontario's agreement to indemnify Great Lakes and Reed for statutory claims brought by the Federal Government or a province was not contained in the 1979 Indemnity or the 1982 letter. Relying on these additional words, the motion judge held that the 1985 Indemnity must have been intended to cover the costs of regulatory compliance because only Ontario or one of its agencies, such as the Ministry of the Environment, could assert a statutory claim.

[247] But the motion judge's analysis failed to take into account the "Spills Bill", which was proclaimed in force on November 29, 1985, over two weeks before the parties signed the 1985 Indemnity. This legislation created a broad, new statutory cause of action against polluters. The statutory cause of action was available to governments as well as individuals.

[248] My colleague and I disagree on whether the trial judge could consider the Spills Bill. In my view, evidence of the Spills Bill is not evidence of the parties' specific negotiations or subjective intentions during those negotiations – which, as my colleague correctly points out, is inadmissible. Instead, the introduction of the Spills Bill, and the statutory right of action it created, is an objective fact that would have or reasonably ought to have been known to the parties around the time the 1985 Indemnity was entered into. Evidence of such a fact is admissible to help determine the parties' meaning in using specific words – in this case the phrase "statutory or otherwise". As the Supreme Court explained at para. 60 of Sattva Capital Corp. v. Creston Moly Corp , 2014 SCC 53 , [2014] 2 S.C.R. 633:

The parol evidence rule does not apply to preclude evidence of the surrounding circumstances. Such evidence is consistent with the objectives of finality and certainty because it is used as an interpretive aid for determining the meaning of the written words chosen by the parties, not to change or overrule the meaning of those words. The surrounding circumstances are facts known or facts that reasonably ought to have been known to both parties at or before the date of contracting; therefore, the concern of unreliability does not arise.

[249] The timing of the Spills Bill relative to the 1985 Indemnity demonstrates that the Spills Bills was undoubtedly the reason why the 1985 Indemnity contained the added words relied on by the motion judge and the respondents

(ii) The 1979 Dryden Agreement

[250] Under the Dryden Agreement, Great Lakes bought the assets of Reed. Under s. 5.3 of that Agreement, Great Lakes agreed to indemnify Reed for damages caused by the discharge of mercury and other pollutants.

[251] The language used in s. 5.3 of the Dryden Agreement is virtually identical to language used in s. 1 of the 1985 Indemnity, save for the addition of the phrase "statutory or otherwise". As the two parties to the Dryden Agreement – Great Lakes and Reed – were also two of the three parties to the 1985 Indemnity, it is likely that the language of s. 1 of the 1985 Indemnity was intended to track that of s. 5.3 of the Agreement. But the Dryden Agreement, unlike the 1985 Indemnity, preceded the Spills Bill, explaining why the phrase "statutory or otherwise" was omitted from the Agreement, but included in the Indemnity.

[252] In s. 5.3 of the Dryden Agreement, Great Lakes and Reed agreed to share responsibility for the damages caused by mercury and other pollutants, up to an amount of $7,500,000 each. This amount was consistent with Ontario's 1979 agreement to indemnify Great Lakes for damages from pollution claims exceeding $15,000,000. Section 5.3 says nothing about indemnification for the costs of regulatory compliance.

[253] Although s. 5.3 of the Dryden Agreement does not address the costs of regulatory compliance, s. 11.4 of the Agreement does. In 1979, Ontario issued a control order against Reed. Section 11.4 is a response to that control order. Under s. 11.4, the parties expressly agreed that the indemnity in s. 5.3 did not cover the costs of compliance with the control order. Section 11.4 states:

The Vendor and the Purchaser acknowledge and agree that notwithstanding anything herein contained the Vendor shall have no obligation under the indemnity provided for in clause 5.3 hereof to the extent of any action taken or performed by the Purchaser after the Closing Date in compliance with the existing Control Order dated September 5, 1979 against the Vendor or in compliance with any Control Order which may be issued in substitution therefor following the sale of the Dryden Business to the extent that such substituted Control Order requires substantially the same action to be taken or performed by the Purchaser. It is further acknowledged and agreed that obligations of the Vendor under such Control Order constitute commitments of the Vendor which are to be assumed by the Purchaser hereunder without adjustment to the purchase price.

[254] Neither the 1979 Indemnity nor the 1985 Indemnity contains a specific "carve out" for regulatory costs. The respondents therefore submit that s. 11.4 is evidence that the costs of regulatory compliance fell within the definition of "pollution claims", and were covered by the 1985 Indemnity. The motion judge, too, relied on this carve out, although he mistakenly held it was in the 1979 Indemnity. It was not. It was in the Dryden Agreement, to which Ontario was not a party.

[255] I take a different view of the purpose and effect of s. 11.4. After the sale to Great Lakes, the only environmental matter that would bind Reed was the control order. To ensure that Reed would have no ongoing responsibility for the Dryden operations after 1979, the parties included s. 11.4 in the Dryden Agreement. This provision exempted the control order from the cost sharing in s. 5.3.

[256] In 1985, similar carve out language was not needed. By then, Reed had no obligations for the Dryden operations. And by 1982, Great Lakes had discharged its obligations under the control order. Thus responsibility for the control order did not need to be addressed in the 1985 Indemnity. The absence of any exemption for regulatory costs in the 1985 Indemnity does not mean that regulatory matters were included within the umbrella of "pollution claims". Such an inference is unreasonable.

(iii) The 1985 Memorandum of Agreement

[257] The 1985 MOA settled the dispute between the companies, the two affected Indian Bands, and the two governments, Ontario and Canada. As I have said, a term of the settlement required Ontario to give the 1985 Indemnity. Section 2.4 of the 1985 MOA specified that the 1985 Indemnity was to be given "in respect of the issues". "The issues" were defined in s. 1 of the 1985 MOA. For convenience I reproduce the definition:

The discharge by Reed and its predecessors of mercury and any other pollutants into the English and Wabigoon and related river systems, and the continuing presence of any such pollutants discharged by Reed and its predecessors, including the continuing but now diminishing presence of methylmercury in the related ecosystems since its initial identification in 1969, and governmental action taken in consequence thereof, may have had and may continue to have effects and raise concerns in respect of the social and economic circumstances and the health of the present and future members of the Bands ("the issues"). [Emphasis added.]

[258] As is evident from the wording of s. 1, "the issues" are limited to matters related to the discharge of mercury and other pollutants into the English and Wabigoon river systems.

[259] The 1985 Indemnity is limited to "pollution claims", which s. 1 of the 1985 Indemnity describes as relating to the "discharge or escape or presence of any pollutant by Reed … including mercury or any other substance, from or in the plant or plants or lands or premises forming part of the Dryden assets".

[260] Because the motion judge read s. 1 of the 1985 Indemnity in isolation, he erroneously concluded at para. 42 that s. 1 was intended to indemnify the respondents "with respect to the discharge or presence of any pollutant on the Dryden property". But the interpretation of the scope of the 1985 Indemnity must take account of the context provided by the 1985 MOA. And s. 1 of the 1985 MOA shows that it – and the Indemnity given under it – were not intended to address the mere presence of a pollutant on Dryden property, but rather the discharge of pollutants into the surrounding rivers, and their "continuing presence in the related ecosystems".

[261] The Director's Order requires the respondents to pay for the costs of maintaining, monitoring, and testing the WDS. The WDS does not cause the discharge of mercury and other pollutants into the river systems. It prevents their discharge. The Order itself states that: "[T]he requirements specified in this Order are necessary or advisable so as to prevent or reduce the risk of a discharge of mercury and other contaminants into the natural environment" (emphasis) added. And, as counsel to Bowater, Great Lakes' successor (and Resolute's predecessor), advised the Ministry of the Environment in 2010, "[t]he encapsulation and closure of the Dryden landfill … has been effective in containing substances including mercury and chloride", making the potential risk of failure "highly unlikely".

[262] Thus the costs of complying with the Order do not relate to the clean-up of any discharge, as there is none. They relate to the maintenance, monitoring, and testing of the WDS, which are necessary to prevent any discharge in the first place. These maintenance, monitoring, monitoring, and testing costs do not give rise to a "pollution claim" under the 1985 Indemnity. The motion judge erred by holding otherwise, an error that was compounded by his factual finding erroneously identifying the WDS as the source of mercury discharge.

(iv) Conclusion

[263] The context in which the 1985 Indemnity was given is essential to interpreting its scope. To summarize, this context includes:

• The 1979 Indemnity, which was the precursor for the 1985 Indemnity, and which provides indemnity not for the costs of regulatory compliance, but instead for court orders or settlements resulting from environmental damages caused by Reed;

• Minister Ramsay's 1982 letter, which reiterates the 1979 Indemnity and similarly limits indemnification to damages arising from court orders or settlements relating to mercury pollution;

• The 1985 Spills Bill, which created a new statutory cause of action available not just to governments but also to individuals, and which explains why the later 1985 Indemnity includes a reference to statutory claims;

• The 1979 Dryden Agreement, which in s. 5.3 uses language virtually identical to that in s. 1 of the 1985 Indemnity. Although s.11.4 of the Dryden agreement exempts the 1979 control order from s. 5.3, by 1985 all obligations under the control order had been satisfied, making a similar exemption in the 1985 Indemnity unnecessary;

• The 1985 MOA, which in s. 1 makes clear that the pollution claims indemnified by s. 1 of the 1985 Indemnity relate to the discharge and continued presence of pollutants in the rivers and ecosystems, not to maintenance, monitoring, and testing costs related to the WDS.

[264] This context shows that the 1985 Indemnity covers third party pollution claims, but not first party claims for the costs of complying with the Director's order.

(c) The 1985 Indemnity as a whole

[265] "The text of [a] written agreement must be read as a whole": Dumbrell , at para 53 . If the correct factual and contextual underpinnings of the 1985 Indemnity do not conclusively show that it covers only third party pollution claims, any doubt is resolved by looking at the 1985 Indemnity as a whole. Although the indemnity itself is in s. 1 of the 1985 Indemnity, ss. 2 and 3 are import indicators of its scope. Both sections contain clauses that are typical in indemnity contracts covering third party claims.

[266] Section 2 requires Great Lakes and Reed to notify Ontario if either receives a pollution claim, and entitles Ontario to take control of the defence of any claim. Section 2 states:

Upon receipt of notice of any Pollution Claim directed to Great Lakes or Reed or any predecessor in titled of Reed, Great Lakes or Reed or failing Reed, International, as the case may be, shall promptly notify Ontario in writing of receipt of such notice giving reasonable particulars thereof, and Ontario shall have the right to elect to either take carriage of the defence or to participate in the defence and/or settlement of the Pollution Claim and any proceeding relating thereto as Ontario deems appropriate.

[267] Section 3 requires Great Lakes and Reed to cooperate with Ontario in the investigation, defence, and settlement of any pollution claim. It states:

Where a Pollution Claim is brought against any of the companies referred to in paragraph 1 hereof, the said companies shall fully cooperate with Ontario in the investigation and defence and settlement of any such Pollution Claim and shall use their best efforts to obtain the cooperation of all personnel having any knowledge or information relevant to any such Pollution Claim and shall make available to Ontario all information.

[268] These mandatory notification and cooperation clauses, and the control of defence clause are meaningful only for third party claims against the respondents. They are utterly meaningless for first party claims for the costs of complying with the Director's order, which have now been brought by the respondents against Ontario. Contrary to the motion judge's view, I consider these clauses inconsistent with the respondents' claim.

[269] The motion judge did not refer at all to s. 3. He did refer to s. 2 in his second reason for rejecting Ontario's position. He held that s. 2 cannot override the broad wording of s. 1. In my view all three sections have to be read together. Sections 2 and 3 help define the scope of the indemnity in s. 1, and show that its scope is limited to indemnifying the respondents for third party pollution claims brought against them.

E. CONCLUSION

[270] I would allow Ontario's appeal and set aside the judgments granted by the motion judge. I would dismiss the respondents' motions for summary judgment and grant Ontario's motion for summary judgment.

Released: "JL" Dec 20, 2017

"John Laskin J.A."