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Update on Blue Box Arbitration

Arbitrator Renders Decision in Stewardship Ontario vs AMO and City of Toronto

The decision regarding the arbitration case between the Association of Municipalities (AMO) and the City of Toronto, and Stewardship Ontario regarding the 2014 steward obligation for the Blue Box Program was released this week. The decision is available here.

Retired Justice Robert Armstrong rendered a 122-page decision in the arbitration over the amount of money owed by stewards to municipalities for Blue Box recycling in 2014. The arbitrator validated all of Stewardship Ontario’s key legal arguments surrounding the legitimacy of stewards’ efforts to limit their payments to reasonable costs, but in the absence of a negotiated agreement between Stewardship Ontario and AMO/City of Toronto, the arbitrator set the steward obligation to municipalities at an amount higher than Stewardship Ontario had requested—at $115M v. $95.7M.

Stewardship Ontario is reviewing options on how it will finance the additional obligation and related payment options for stewards.

The most significant component of the Arbitrator’s decision is that in accordance with section 25(5) of the Waste Diversion Act, Stewards are legally intended to pay only “reasonable” costs for Blue Box recycling. In arguing this point, Armstrong had the following to say:

“It cannot, in my view, as a matter of common sense, have been in the contemplation of the Legislature that the Stewards be obliged to fund 50 per cent of the actual net costs without a limitation of reasonableness.”

He also stated unequivocally that:

“In conclusion I find that under section 25(5) of the Act, the obligation that Stewardship Ontario pay 50 per cent of the total net costs incurred by the municipalities as a result of the program is limited by the requirement that costs be reasonable.” (emphasis added)

While upholding cost containment for stewards, the Arbitrator was not sufficiently persuaded that the method used to determine reasonable costs (known as the “best practice cost model” or “baseline cost model”) was appropriate in this instance and allowed the municipalities a higher award stating:   “I want to make it clear that by rejecting the use of the model for the determination of the 2014 Steward Obligation, I do not reject the principles of cost containment and the objective of attempting to pursue best practices as a means of containing costs….Specifically, I have only rejected the utilization of best practice cost bands, to the extent they are incorporated into the best practices cost model, which I have found wanting due to the insufficiency of the evidence supporting its use.”

Next Steps

Stewardship Ontario appreciates that the Arbitrator upheld the legitimacy of cost containment and the concept of reasonable costs for assessing stewards’ obligations. We are committed to moving forward collaboratively with AMO and the City of Toronto to determine stewards’ future obligations in accordance with the Blue Box Program.

The Minister of the Environment recently announced that he will table new EPR legislation in 2015 and Stewardship Ontario will continue to work with AMO and City of Toronto to develop a suitable legislative framework for the Blue Box Program that will work in the interests of all parties.

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