Court holds innocent party liable for someone else’s pollution

A recent Divisional Court decision poses a conundrum for lawyers advising property and business owners given its negative impact on innocent parties affected by environmental contamination.

In upholding the 2009 decision of first instance of the Environmental Review Tribunal, the court unanimously ruled in The Corporation of the City of Kawartha Lakes v. Director, Ministry of the Environment that innocent parties that own property that has become contaminated through no fault of their own are nonetheless responsible for cleanup costs and must seek recourse from those who are blameworthy by commencing civil litigation if necessary.

According to Dianne Saxe, a Toronto environmental lawyer, one practical consequence of the decision is that people will be less likely to report incidents to the ministry.

“If you are a homeowner, small-business owner or victim of a spill and call the Ontario Ministry of the Environment for help, you are now facing a very substantial risk that the response will be an order that you, the victim, pay for the cleanup,” she says.

“So what advice we give our clients if the ministry doesn’t know about the order is a very tricky decision and it might mean that sometimes things go unreported.”

Kawartha Lakes arose after a provincial officer made an order under s. 157.1 of the Environmental Protection Act requiring the City of Kawartha Lakes, Ont., to remediate and prevent any further discharge of furnace oil on its property.

The contaminant came from a local resident’s basement and entered the city’s storm sewer system and eventually a lake.

All parties agreed the city wasn’t at fault. Indeed, the ministry had previously ordered the resident to remediate the situation. The resident’s insurer commenced remediation in compliance with the order but the pollution continued to spread to the adjacent city land.

The city relied on the Divisional Court’s 1995 decision in Re 724597 Ontario Ltd., also known as Appletex. In that case, the court ruled that the Environmental Appeal Board (the tribunal’s predecessor) could apply considerations of fault, negligence, causation, and unjust enrichment in determining whether it should relieve innocent owners of liability.

But in Kawartha Lakes, the tribunal ruled the city couldn’t get relief from the order without proffering some evidence of a solution that was also consistent with the purposes of the Environmental Protection Act in the sense of being fair to the environment and those affected by the pollution. Here, the city had failed to do so.

But in holding that the tribunal’s decision wasn’t unreasonable, the Divisional Court didn’t go so far as to exclude the fairness factors from consideration.

“The Divisional Court noted that the director may take into account one or more of these factors in deciding whether to issue an order but is not required to do so,” says Jack Coop, an environmental lawyer at Osler Hoskin & Harcourt LLP.

“As a result, the Divisional Court appears to have accepted that fault or lack of fault may be considered to be an exceptional or unusual circumstance that militates in favour of altering the timing and content of an order but will not impact whether the order should be made in the first place.”

Still, Saxe is skeptical about the role of the fairness factors in the future.
“My impression is that going forward, neither fairness nor fault has any more than a trivial role to play in terms of who gets stuck with cleanup costs,” she tells Law Times.

Saxe also says that recovering from the party at fault isn’t a simple proposition.
“First of all, many guilty parties may have no money or may have left the jurisdiction,” she says.

“As well, going to court is an expensive and risky proposition, especially in light of recent jurisprudence that has narrowed the scope of negligence and nuisance claims in the environmental context.”

According to Saxe, environmental due diligence is the order of the day more than ever, particularly in light of tightened provincial standards that came into effect on July 1, 2011.

“People should be much more conscious about the risk when dealing with either industrial or residential properties because residential properties are also not uncommonly contaminated,” she says.

For his part, Coop offers the following suggestions in light of the ruling:
• Neighbours should be aware of any pollution problems and any steps taken by the ministry.

• Neighbours should remember that the current uncertain economic environment makes financial instability more likely among landowners.

• Municipalities must be especially vigilant and intervene early to prevent the spread of pollution because they’ll often be the default, deep-pocketed adjacent landowner.

• Owners should ensure they have adequate insurance coverage.

• Due diligence is now more important than ever for prospective purchasers.

• Innocent owners who find themselves before the tribunal will want to propose an environmental solution for the contamination problem that’s not only fairer in terms of liability allocation but also fully protective of the environment.

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