Divisional Court Affirms the Decision of the Environmental Review Tribunal in Kawartha Lakes

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[authors: Jack Coop, Daniel Kirby, Jennifer Fairfax, Lindsay Rauccio]

In its recent decision in The Corporation of the City of Kawartha Lakes v. Director, Ministry of the Environment (Kawartha Lakes) issued on May 28, 2012, the Divisional Court affirmed the reasoning of the Environmental Review Tribunal (the ERT) issued on November 20, 2009 (the ERT Decision). In doing so, the Divisional Court confirms that innocent parties who are not responsible for discharging pollution into the environment, and even those who merely own neighbouring properties that become contaminated due to the acts or omissions of adjacent property owners, may nonetheless be ordered by the Ontario Ministry of Environment (MOE) and the ERT to remediate the contamination which has impacted their properties through no fault of their own. As a result, these innocent owners of adjacent lands are left to seek recourse from blameworthy parties by commencing civil litigation. 

Background Facts and the Appeal to the ERT

This case involved an appeal from a decision of a panel of the ERT, which upheld an order issued by a Provincial Officer of the MOE under the Ontario Environmental Protection Act (the EPA).

As previously discussed in an earlier Osler Update, the facts of this case concern a Provincial Officer’s Order, made pursuant to s. 157.1 of the EPA against the City of Kawartha Lakes (the City), which required the City to remediate and prevent any further discharge of furnace oil which had impacted City property (the Order). The furnace oil originated from the basement of a local residence and entered the City’s municipal storm sewer system and culverts, and was further discharged into a local lake. All parties agreed that the City was not to blame for the discharge.  In fact, the MOE had previously ordered the homeowners to remediate and the homeowner’s insurer commenced remediation, but the pollution nevertheless spread to the adjacent City land.

In reliance on the Divisional Court’s 1995 decision in Re 724597 Ontario Ltd. (Appletex), the City appealed the Order to the ERT. Appletex provided that the ERT’s predecessor, the Environmental Appeal Board, could relieve owners of liability for cleanup orders made under an EPA if the owners did not cause the contamination, based upon civil liability principles of fault, negligence, causation and unjust enrichment. These principles became known as the Appletex “fairness factors.” In its appeal to the ERT, the City argued that it should be relieved of liability based upon a consideration of these “fairness factors.”

Prior to the hearing on the merits, the ERT heard a motion by the homeowners to exclude certain evidence which the City had proposed to adduce in order to prove that the contamination was the fault of the homeowners and various other parties.  The ERT found that any evidence adduced by the City in relation to the civil blameworthiness of other parties was irrelevant to challenging the Order, for the following reasons:

  1. The Appletex “fairness factors” thwarted the purpose of the EPA, which is predicated upon the protection and conservation of the natural environment. 
  2. Any consideration of “fairness factors” must yield to the importance of furthering the purpose of the EPA and responding quickly to environmental problems. 
  3. Appletex was decided in a policy vacuum, which has now been filled by the MOE’s Compliance Policy (the Policy), which provides guidance to Ministry staff in exercising their authority under statutes administered by the MOE.  The Policy is clear that if there are two or more persons to be named in an order, the provincial officer should not apportion liability among the orderees and each orderee should be jointly and severally liable under the order.  Furthermore, the Policy contemplates that orders can and should be made against victimized or innocent owners, but that the timing and content of the order can be adjusted to reflect unusual and exceptional circumstances.
  4. The City could find recourse in the courts to resolve questions of fault and ultimate liability.

On the merits of the appeal, the ERT rejected the City’s argument that the Order was contrary to the “polluter pays” principle.  The EPA specifically contemplates that innocent owners can be held responsible for the clean-up and prevention of contamination, if it promotes the fundamental purpose of the EPA of protection and conservation of the natural environment. 

The ERT went on to state that the City cannot be relieved from compliance with the Order on the basis of “fairness,” without presenting some accompanying evidence of a solution that is also fair to the environment and fair to those affected by the pollution at issue. The City failed to present any evidence of an environmentally responsible solution, consistent with the purpose of the EPA, in support of a revocation of the Order. Arguments aimed at revoking a cleanup order must transcend notions of civil liability (the “fairness factors”) and, instead, further the purposes of the EPA.

The Divisional Court Dismissed the City’s Appeal and Affirms the ERT Decision

The Divisional Court considered two principal issues on appeal:

  1. Whether the ERT erred in law by excluding evidence establishing the relative blameworthiness of the parties on the basis that it was not relevant to an order requiring someone to remediate environmental damage; and
  2. Whether the ERT breached the rules of natural justice by excluding such evidence and then determining that the City failed to put forward an environmentally responsible solution in support of a revocation of the Order. 

The Excluded Evidence

On the first issue, the Divisional Court did not accept that the ERT committed an error in law, thereby supporting the ERT’s finding that evidence pointing to fault was irrelevant for the purposes of evaluating the Order.

However, in reviewing Appletex, the Divisional Court noted that the Director may take into account any one or more of the “fairness factors” in deciding whether to issue an order under s. 157.1 of the EPA; the Director is simply not required to do so. In other words, there is no binding precedent that stands for the proposition that the ERT is required to consider evidence of fairness or fault. Notably, the Divisional Court stopped short of stating that considering fault is irrelevant altogether. As a result, the Divisional Court appears to have accepted that fault (or the lack thereof) 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. 

The Decision on the Merits

On the question of whether the ERT’s decision on the merits was unreasonable in that it violated the “polluter pays” principle, the Divisional Court endorsed the reasoning of the ERT, noting that s. 157.1, the section pursuant to which the Order was made, can be accurately described as an “owner pays” mechanism that gives no consideration to fault. In other words, to argue that the Order was unfair or unreasonable is really a complaint directed against the Legislature, since the Legislature, in enacting s. 157.1, ultimately accepted that some unfairness to innocent owners was justifiable in order to protect the environment. 

The Divisional Court, therefore, affirmed the ERT’s findings that the MOE exercised its discretion in a reasonable manner that was consistent with the purpose of the EPA and the Policy.

Natural Justice

Finally, the Divisional Court dismissed the City’s argument that a violation of natural justice had occurred:  a lawful ruling on the relevance of proposed evidence cannot constitute a violation of the rules of natural justice. In fact, the Divisional Court commented that it had been open to the City to call evidence about how the environment would be protected if the Order against it were revoked. The ERT did not preclude the City from doing so. 

Implications of the Court’s Decision

There are significant implications to the new direction taken by the ERT in this case, now upheld by the Divisional Court:

  1. Adjacent landowners  – who are blameless for causing a pollution problem and who have no opportunity to take measures to prevent a spill or mitigate the impact of a spill on a source property when it occurs (neighbours) – are now exposed to significant risk. Now, more than ever, neighbours must stay well-informed about any pollution problems in their vicinity and MOE cleanup orders or other regulatory steps taken in respect of same. Neighbours should request from the polluter and the MOE all studies or reports identifying: the source of the pollution, the success of any cleanup which is undertaken, and the likelihood that the pollution may spread to adjacent properties.
  2. Neighbours must be vigilant and need to keep in mind that with the current uncertain economic environment, even apparently financially stable adjacent land owners could become insolvent and, if contaminants that could cause harm to the environment have migrated from the adjacent  property, the innocent neighbour of the impacted property could be required to pay the costs of clean-up.
  3. Neighbours should put the MOE on notice that if it fails to contain an adjacent pollution problem due to regulatory delay, inadequate monitoring of cleanup progress, or a failure to intervene and cause the work to be done by the MOE where it appears the responsible party has insufficient funds to complete a cleanup (thereby exposing the neighbour to a cleanup order), the neighbour may seek civil redress from the MOE.
  4. The decision has special implications for municipalities, who will often be the default, deep pocketed land owner in the vicinity of a pollution problem that is caused by others located within the city limits.  Municipalities need to be specially vigilant of such pollution problems and related MOE activity within their jurisdiction, and if necessary need to intervene early on to prevent the spread of pollution to municipal lands.
  5. Owners may wish to ensure that they have sufficient insurance coverage for pollution impacts to their property caused by adjacent landowners and others.
  6. More broadly, the decision reinforces the potential liability of any owner, however innocent, to a cleanup order.  Prospective purchasers must continue to exercise careful and thorough due diligence prior to any purchase to avoid inheriting regulatory liability for environmental contamination caused by previous owners.
  7. Innocent owners who find themselves before the ERT in similar circumstances to the City, are well-advised to propose an environmental solution for the contamination problem that is not only fairer in terms of the allocation of liability, but also fully protective of the environment.

Please contact the authors of this Update if you have any questions arising out of this decision.

Published In: Civil Procedure Updates, Civil Remedies Updates, Environmental Updates, Residential Real Estate Updates, Toxic Torts Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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