Nova Scotia

Province's agreement with Northern Pulp puts taxpayers at risk, says legal expert

An expert in Canadian contract law is calling the Nova Scotia government's agreement with Northern Pulp a conflict of interest and says it puts taxpayers at risk.

York University prof says she's 'never seen an indemnity agreement quite so one-sided'

The owners of Northern Pulp in Pictou, N.S., are waiting for the province to review their proposal for a new effluent treatment plan. (Jill English/CBC)

As the Nova Scotia government prepares to make a decision on the future of Northern Pulp, an expert in Canadian contract law is calling its agreement with the Pictou County pulp mill a conflict of interest, saying it puts taxpayers at risk.

"I've never seen an indemnity agreement quite so one-sided," Angela Swan, an adjunct professor at York University's Osgoode Hall Law School and the author of Canadian Contract Law, told CBC's Information Morning.

The province has until Dec. 17 to decide whether or not to approve Northern Pulp's proposal for a new treatment facility that would pump treated effluent into the Northumberland Strait. It would replace the Boat Harbour facility, which is slated to close by the end of next month.

The Nova Scotia government signed an indemnity agreement with the mill's former owner, Scott Maritimes Limited, back in 1995, which outlines what could happen if the mill closes or plans for a new facility are rejected.

The agreement protects Northern Pulp against loss or damages, and suggests the province would be entirely on the hook for the cost of cleaning up Boat Harbour and building the new treatment facility.

It also covers any legal claims made against Northern Pulp by a third party for compensation for pollution.

Swan has reviewed the 1995 agreement, and concluded that parts of it can be described as constituting a conflict of interest. 

But a spokesperson for Premier Stephen McNeil says the province is not in a conflict of interest, and that like any sitting government, it must deal with agreements made by governments that came before.

Agreement is 'extremely broad'

In most indemnity agreements, the party providing the insurance — in this case, the province — has the power to hire legal counsel and decide when to settle or when to go to court.

But Swan, a lawyer with Aird & Berlis in Toronto, said under this agreement, Northern Pulp "is very much in control."

"This is a very unusual one because it permits Northern Pulp to settle on any terms it feels like," Swan said.

She said the agreement suggests that the province was willing to hand over control in an attempt to save jobs and keep the mill operating.

She called the agreement "extremely broad."

"It's broader than I've ever seen an indemnity agreement because it effectively exonerates or protects Northern Pulp, or Scott Maritimes as it was known, from any liability for any environmental harm that they do."

Why the 'best efforts' clause matters

A clause in the 1995 memorandum of understanding says the province agrees to use "its best efforts" to assist the company in the construction of a replacement facility for Boat Harbour. 

That clause, according to Swan, is problematic because the province is also the judge of whether the new facility meets environmental standards.

The Liberals passed legislation in 2015 to close the Boat Harbour treatment lagoons by 2020 and clean up the site. The move requires a new treatment site for the Pictou County pulp mill's waste.

"I think it can be described as a conflict of interest," Swan said. "The province might be between a rock and a hard place. Damned if it does, damned if it doesn't."

"It's hard to see how you can make best efforts at the same time as you're acting against it."

The province might be between a rock and a hard place.- Angela Swan, lawyer with Aird & Berlis

But a spokesperson for the premier's office said the conflict of interest question has already been addressed.

"Neither the provincial environment department nor Minister Wilson is in a conflict of interest on this project," David Jackson wrote in an email to CBC News. 

"As minister of the environment, Minister [Gordon] Wilson is responsible to ensure this project is reviewed based on science and the best available evidence. Minister Wilson and the department take this role very seriously and are not involved in any issue around Northern Pulp other than those directly under the department's mandate."

Jackson said the province is "fully committed to the cleanup of Boat Harbour and have accounted for the full cost estimate." He said work on remediating the site is underway.

Last week, CBC News reported that Northern Pulp and an affiliate company also owe the province $85.5 million in loan repayments. It's unclear what happens to those loans if the company ceases to operate. 

Business Minister Geoff MacLellan said last week that his department won't comment on details about the loans until Wilson delivers his decision by Dec. 17.

The federal government, meanwhile, has until Dec. 20 to decide whether to pursue its own federal environmental assessment.

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With files from CBC's Information Morning and Michael Gorman

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