Companies that transport dangerous goods should be aware of the implications and potential risks involved when dangerous goods are consigned for transportation, the scope of potential liability, and the steps that may be taken to mitigate potential liability.

On July 29, in the wake of the Lac-Mégantic disaster, the government of Quebec issued a broad order under Section 114.1 of the Environment Quality Act.  That order requires the companies named to recover the oil and all other contaminants in water and soil, to prevent oil and contaminants from spreading into the environment, to conduct an assessment of the effect of the contamination, and to submit an action plan to the government.

If the work is not completed, the government has stated that it will complete the work at the companies' expense.

Such orders are commonly made under environmental legislation across Canada, and while the order is onerous, it is not unusual.  What makes this order noteworthy is, first, that the order was made against not only the railroad but against the railroad's parent company, and second, that the order was made against both the company that owned the material spilled and its parent company.  

The making of an order against the two parent companies is interesting.  Section 114.1 provides as follows:

114.1. Where he considers that there is urgency, the Minister may order any person or municipality being the owner of certain contaminants or having had the custody or control thereof, to collect or to remove any contaminant dumped, emitted, issued or discharged into the water or onto the soil, accidentally or contrary to the provisions of this Act or the regulations of the Government, and to take the measures required to clean the water and the soil so that these contaminants cease to be spread or to propagate in the environment.

The authority to issue orders against shareholders is questionable.  It is not known whether the authority claimed by the Minister in this case is based on an allegation that those shareholders were the owners or in custody or control of the materials, or whether the intent of the Minister is to pierce the corporate veils of the two companies directly involved.  

The shareholder of the owner of the oil has stated that it has objections to the legality of the order and will be discussing those objections with the Minister.

The authority of the Minister to make an order against the owner of the spilled oil is  more clear, and should serve as a reminder to owners of hazardous materials who ship such materials on third party carriers in Canada that liability does not stop when materials are consigned for transport.  The authority of regulatory authorities across Canada to make these types of orders is varied across Canada, but it is generally very broad and includes both persons who have custody of hazardous materials (transporters) as well as the owners or previous owners of such materials.

Owners of hazardous materials should be aware of their potential liability for cleanup orders arising out of accidents that occur in transit.  In addition to the due diligence that such owners should take with respect to the quality of third party transporters, such owners  should also ensure that appropriate contracts and indemnities (backstopped by insurance) are in place to appropriately allocate the risk of an accident taking place during transport.