“Fairness” Principle Overturned by Environmental Review Tribunal

Dec 11, 2009

In a landmark decision issued November 20, 2009, the Ontario Environmental Review Tribunal (ERT) has effectively overturned the controversial Appletex decision rendered by the Environmental Appeal Board (EAB) some 14 years ago. In Corporation of the City of Kawartha Lakes v. Director, Ministry of Environment (Kawartha Lakes), the ERT accepted the Ontario Ministry of Environment’s (MOE) Compliance Policy. The Policy states that “fairness factors” –factors pointing to a lack of civil fault – are largely irrelevant for purposes of the Environmental Protection Act (EPA). As a result, persons faced with a clean up order from the MOE may no longer be able to argue that they should be relieved of liability due to their “innocence” or lack of civil wrongdoing.

Background

The Kawartha Lakes decision concerns a Provincial Officer’s Order against the municipal orderee, the City of Kawartha Lakes, requiring the City to prevent further discharge of, and to remediate the discharge of, furnace oil located on City property. The City did not cause the discharge. Rather, the furnace oil originated from the basement of a local residence. The MOE had previously ordered the homeowners to remediate and the homeowner’s insurer responded by commencing remediation. However, the homeowners’ insurance policy had run out so the remediation could not be completed. The furnace oil escaped from the homeowners’ property and entered the City’s municipal storm sewer system and culverts. From there, the oil was further discharged into a local lake. The City appealed the Provincial Officer’s Order to the ERT.

In the context of a preliminary hearing designed to identify the issues on the hearing, it became clear that the City intended to ask the ERT to relieve it of all liability under the Order based on the Appletex “fairness factors” – namely, that it was blameless of civil wrongdoing for causing the discharge. The City intended to adduce evidence at the hearing proving that the real wrongdoers who had caused the pollution were:

  1. the fuel company and/or the manufacturer who had caused the spill;
  2. the homeowners who did not report the spill quickly enough; and
  3. all of the parties (the homeowners, fuel company and provincial government) who failed to take immediate action to contain the spill, thereby causing damage to the City’s property.

In response to the City’s issues, the homeowners brought a motion seeking to restrict the scope of the City’s appeal. In a nutshell, the homeowners argued that Appletexwas no longer good law in Ontario and had been superseded by MOE’s policies expressly rejecting most of the Appletex “fairness” factors. The ERT agreed with the homeowners.

Findings of the ERT

In extensive reasons, the ERT made the following key findings:

  • The question to be determined was whether the Tribunal should hear evidence and argument regarding, among other things, who was at “fault for causing the spill”;
  • The EAB in Appletex sought guidance from the Canadian Council of Ministers of the Environment Report’s “liability allocation factors” even though the Report had not been adopted in Ontario. It did so primarily because of “an absence of legislative or policy guidance” from the MOE (a situation which has now been corrected);
  • Downplaying the significance of the Divisional Court appeal decision upholding the EAB ruling in Appletex, the ERT noted that the Divisional Court had merely found that the EAB had not committed a jurisdictional error when it considered “fairness factors” and exercised its discretion to limit the liability of the two appellants. (See: Ontario (Ministry of the Environment & Energy) v. 724597 Ontario Inc., [1995] 26 O.R. (3d) 423, leave to appeal refused 1996 CarswellOnt 737 (C.A.)) The ERT’s finding in this regard implies that nothing in the Divisional Court decision requires or compels the ERT to consider those factors. The remainder of the decision was devoted to showing why the “fairness factors” have now become largely irrelevant;
  • In contrast to Alberta legislation from the 1990s, the EPA does not list liability allocation factors. In fact, its singular focus is environmental protection. Some provisions even target  “innocent owners” to promote environmental protection;
  • In the amended Compliance Policy, the MOE seeks to
    avoid situations where the application of Appletex factors would have the result of undermining environmental protection or forcing immediate recourse to Ontario taxpayers [tax monies] in order to fund environmental measures... [Instead,] Ontario has opted for an approach where the first priority is on environmental protection, with an emphasis on measures being carried out by polluters, beneficiaries and/or owners.
  • As a result, the ERT concluded that
    the reasoning of the Board in Appletex... regarding the optional nature of environmental measures and the availability of public funds, has little present-day relevance. The Tribunal should not vacate an order against a properly named orderee if the effect of such action will thwart the purpose of the EPA.
  • The policy “gap identified in Appletex has now been partially filled by the present Compliance Policy.” Consequently, there is no longer an absence of legislative or policy guidance on “liability allocation factors.” In particular, looking closely “at the Compliance Policy demonstrates that there is no policy vacuum in regard to the issue of whether an owner should be named in an order.”
  • Concerning the weight to be given the Compliance Policy, the ERT stated:
    While the Compliance Policy is not a law or regulation, it nonetheless carries significant weight in the Tribunal’s deliberations... [and it should be given] more present-day  weight than the Appletex factors.
  • As noted in the Compliance Policy, the purpose of the EPA would be frustrated by a consideration of “fairness factors”:
    ...[T]he role for detailed Appletex-type inquiries is greatly diminished. The present focus is on prompt attention to environmental problems. Questions of ultimate liability, fault and other issues are generally left to arenas other than this Tribunal [i.e., the courts]. Fairness can still arise, as in the Compliance Policy, at p. 26, and Montague, supra, at para. 50, but to the extent that Appletex could be used as basis for the City’s proposal to embark on a detailed inquiry into fault and liability allocation, there is a strong rationale for the Tribunal declining to take such a course of action. A detailed inquiry into fault would prejudice the ability of the Tribunal (and perhaps the Provincial Officer or Director in the first instance) to deal with environmental problems in a prompt and efficient manner and would offer no corresponding benefit to the purposes of the environmental legislation.
  • Underscoring that the courts are the proper place for such determinations, the ERT ruled:
    While it may be interesting that others could have been named or that one party contributed to a problem less than others (or in the case of innocent owners, not at all), those are not really issues that are germane to the questions before the Tribunal. Those interesting issues are practically suited to resolution in another forum. Accordingly, the Tribunal finds that there is an obvious reason why many of the Appletex factors did not find their way into the Compliance Policy. The issuance of orders, and appeals therefrom, are not strictly speaking, meant to make final determinations of financial liability for contaminated sites. Some fairness issues, such as financial hardship, may continue to play an important role in appeals before the Tribunal but many of the other factors are better suited for consideration elsewhere.”
  • And, finally:
    Regardless of the City’s success in this appeal, ultimate liability may be determined in a civil action, a court proceeding under section 99 of the EPA, an order (and possible appeal) under section 100.1 of the EPA, or through a negotiated or mediated agreement among the relevant parties. If the Tribunal were to significantly expand its role to replicate or pre-empt civil actions and other proceedings aimed at determining who will ultimately pay (i.e., liability allocation) by thoroughly examining the factors listed in Principle 9 of the CCME Report, it is doubtful that it could do so in a “quick and specialised process” (Re Straza, supra, at 323). Instead, a more detailed and time-consuming inquiry would need to take place. Moreover, there would be nothing preventing the duplication of such a process in a forum, such as the Superior Court, where jurisdiction over liability allocation is clearer.”
  • The ERT concluded that:
    ...it would serve no useful purpose for the Tribunal to entertain evidence about the conduct of others. The conduct of others is irrelevant to, or beyond, the subject matter of the appeal.
  • Based on the above, the ERT ruled that:
    the City’s appeal should be restricted so as to exclude evidence and argument regarding fault for causing the spill and the reasonableness of the costs that have been incurred in remediating the spill.

Analysis

Although not mentioned in the decision, the amendments to the MOE’s Compliance Policy referenced in the ERT’s decision were first published by the MOE some fourteen years ago, immediately after the release of Appletex. Why they are only now being considered by the ERT is unclear.

However, the importance of this ruling cannot be overstated. In the past it was thought that, based on Appletex, persons named in an order due to their being at some point in time in “charge, management and control” of a contaminated property could always appeal their inclusion in the order on the basis that they were not “civilly at fault” as a (or the primary) cause of the pollution problem. The Kawartha Lakes decision represents a significant change in tribunal jurisprudence – one which, on its face, largely forecloses such a challenge.

Indeed, it is noteworthy that the ERT in Kawartha Lakes so fully rejected the Appletex “fairness factors” that it attached no significance to the fact that the appellant was a completely innocent owner of impacted, adjacent property. By contrast, in Appletex, the “innocent owners” who were relieved of liability owned the source property and, in fact, chose to purchase it in its contaminated state.

Although an administrative tribunal decision is not legally binding on future tribunals or the courts, one may reasonably infer from the very detailed reasons provided by the ERT that, absent a successful appeal to the Divisional Court, it is quite unlikely that the tribunal will depart from this approach in the future.

The implications of this decision may be twofold. First, by rejecting Appletex, it underscores that buyers of potentially contaminated real estate must exercise even greater due diligence both prior to and after a purchase. Such due diligence will be required to ensure that a buyer is not purchasing a liability for which the buyer may be held responsible as an owner, despite the fact that the buyer is an entirely “innocent owner.” Second, the decision makes clear that even innocent owners of impacted, off-site properties are exposed to potential preventive orders under section 18 of the EPA. Although at first glance there would appear to be little, if anything, such owners can do in advance to mitigate against the possibility of such an order, environmental and legal options to minimize risk may be available on a case-by-case basis.