Canadian companies have to face an uncomfortable new reality with respect to cross-border pollution: even if they conduct no activities whatsoever in the United States, the long arm of the U.S. Environmental Protection Agency ("EPA") can apply to them if their Canadian operations result in pollution south of the border. On January 7, 2008, the U.S. Supreme Court refused to reconsider a ruling by the Court of Appeal for the 9th Circuit that held that the U.S. "Superfund Law" (the Comprehensive Environmental Response, Compensation, and Liability Act) could be applied to companies whose Canadian activities result in pollution across the border.

The Superfund Law, in a manner similar to most Canadian environmental statutes, allows the EPA to issue mandatory clean-up orders to companies that have caused pollution. In addition, the Superfund Law qualifies certain sites for remediation that is paid for out of public funds. The issue of extraterritorial application of the Superfund Law was a non-issue until 1999, when a native group in the State of Washington, the Colville Tribes about 10 miles south of the border, noted that their land was polluted and petitioned the EPA to qualify it for Superfund remediation. The contamination was the result of Teck Cominco, a Canadian operator of a lead-zinc smelter close to the border, having released slag into the Columbia River from 1906 until 1995. During the entire time of the releases, Teck Cominco was complying with the British Columbia environmental laws then in place.

Rather than qualifying the land for Superfund remediation, the EPA decided in 2003 to issue an administrative clean-up order against Teck Cominco in Canada. With both parties unsure of whether such an order could be validly issued against a company outside the United States, Teck Cominco ignored the order and the EPA in turn took no steps to enforce it. This uncomfortable status quo was broken when two members of the Colville Tribes decided to bring a private citizen suit to enforce the clean-up order. As noted, they succeeded all the way to the U.S. Supreme Court.

The District Court decided that the clean-up order against Teck Cominco resulted in the extraterritorial application of a domestic U.S. statute. However, the Court reasoned that even though U.S. law contains a presumption against the extraterritorial application of domestic statutes, the Superfund Law overrides this presumption and the order was valid.

Following the decision of the District Court, the EPA and Teck Cominco settled out of court. However, because the two private individuals were not parties to the settlement and because there were ancillary issues to be determined that hinged on the validity of the order, the District Court decision was appealed. The Court of Appeal upheld the validity of the order, but for significantly different reasons than those of the District Court. Rather than deciding whether the clean-up order was a valid extraterritorial application of the Superfund Law, it reasoned that since the "release" of a contaminant in the United States was an issue independent of the "disposal" of substances in Canada, the clean-up order (which only dealt with the former) applied to an issue of purely domestic jurisdiction and was therefore perfectly valid.

On January 9, 2008, the U.S. Supreme Court refused to re-consider the Court of Appeal’s decision without providing reasons (as is their custom). Accordingly, for the time being the Court of Appeal’s decision is the last word on the application of U.S. environmental law to Canadian companies.

Although the Court of Appeal’s reasoning has received some criticism for creating a "legal fiction" by separating the release of contaminants from the polluting activity itself, it sets an important precedent with respect to cross-border pollution. The current Canadian environmental law regime has become significantly more sophisticated over the past 20 years, and any discharge of a pollutant now generally requires a permit. However, as this case makes clear, clean-up orders under the Superfund Law can be issued even if there is a valid Canadian discharge permit in place. What remains to be seen is whether the EPA will ever attempt to issue an administrative order also against a Canadian regulator for having granted a permit, or whether a company faced with an administrative order from the EPA will seek recovery against the agency that issued the company’s permit.

In any case, it is clear that Canadian courts do enforce validly issued Superfund orders, as several such orders have been enforced in the past. Canadian companies whose domestic activities may result in pollution south of the border should beware of their potential new liability in the United States. It appears that liability for cross-border pollution is here to stay.