Appeal Court Confirms That Innocent Party Must Clean Up Pollution

Author(s): Lindsay Rauccio, Paul Morassutti, Jennifer Fairfax, Daniel Kirby, Jack Coop

May 13, 2013

In a decision in Kawartha Lakes (City) v. Ontario (Environment),¹ on May 10, 2013, the Ontario Court of Appeal unanimously dismissed the appeal of the City of Kawartha Lakes (the City), which sought to overturn a decision of the Divisional Court. The Divisional Court had upheld a decision of the Ontario Land Tribunal, which in turn had upheld a provincial officer’s order requiring the City to clean up pollution that was migrating onto the City’s property from a neighbouring contaminated property and, further, through the City’s property and into Sturgeon Lake. (For more information on the Divisional Court decision, see our Osler Update here.)

Brief Facts

Fuel oil was spilled on a residential property owned by the Gendron family in December 2008. The Gendrons began remediating their property but ran out of funds. The spilled oil migrated onto and through adjacent property owned by the City and into Sturgeon Lake. Faced with the prospect of no avenue for clean-up or environmental redress, the Ontario Ministry of the Environment (MOE) ordered the City to remediate the adverse effects of the spill by means of an order under section 157.1 of the Environmental Protection Act (the EPA). Under that power, the provincial officer “may issue an order to any person who owns or who has management or control of an undertaking or property” if the officer reasonably believes that the order requirements are necessary “to prevent or reduce the risk of a discharge of a contaminant to the natural environment from ... the property.” The City appealed the MOE’s order to the ERT, arguing that the spill was not its fault.

The ERT ruled on a preliminary motion, prior to deciding the merits of the City’s appeal, that the City could not introduce evidence showing who was at fault for the spill because the MOE’s order against the City was a “no-fault” order under s. 157.1. The ERT held that evidence of blameworthiness is relevant in some cases, but would be irrelevant to the ERT’s task of determining whether the MOE order should be upheld. (For more information on the ERT’s ruling on the preliminary motion, see our Osler Update here.)

Upon hearing the appeal on its merits, the ERT concluded that it was not enough for the City to rely on its status as an innocent landowner; rather, to avoid the imposition of an order, the City had to introduce evidence showing that an alternative solution would address the environmental problem at hand, even in the absence of an order against the City. The City did not introduce any such evidence. Therefore, the ERT dismissed the City’s appeal and upheld the MOE’s order. The Divisional Court also dismissed the City’s appeal.

Arguments Made to the Ontario Court of Appeal

The Court of Appeal quickly dismissed the City’s argument that the ERT erred in law by not adequately considering the polluter-pays principle: the ERT had explicitly found that the primary objective of the EPA (i.e., the protection of the environment) takes precedence over the polluter-pays principle.

The City also argued that the ERT’s order excluding the City’s evidence on fault was tantamount to a denial of natural justice because it prevented the City from fully making its case that it should be relieved of liability under the polluter-pays principle. The Court of Appeal agreed with the ERT and the Divisional Court that evidence of blameworthiness was irrelevant for the purposes of upholding or revoking the MOE’s order because the order in this case was a no-fault order. The Court of Appeal remarked that “by inviting the [ERT] into a fault finding exercise, permitting the evidence [of fault] might even impede answering the question [of how the environment would be protected] in the timely way required by that legislative objective.”²

Discussion

Several important implications may emerge from Kawartha Lakes as a result of the Appeal Court’s decision to uphold the ERT’s decision:

1. Deep pockets: The MOE turned to the deepest pocket available – the City’s – when the Gendrons ran out of funds to pay for remediation of its property. Despite the fact that the City was not at fault and was defenceless against the migration of contaminants caused by the negligence of an adjacent property owner, the Court sanctioned the MOE’s actions by agreeing that in the case of no-fault orders, the paramount consideration is the protection of the environment, not making the polluter pay. Kawartha Lakes confirms that the MOE may turn to innocent landowners when pursuing its ultimate goal of protecting the environment, even if this leads to “unfair” outcomes against innocent parties.
2. Heightened sensitivity to conditions on neighbouring properties: In commercial transactions whereby property will be acquired, leased or financed, purchasers, tenants and lenders all need to be more aware of environmental conditions at nearby properties. More diligence may be required to identify potential sources of contamination that are off-site, particularly on neighbouring properties that are suspected or known to be contaminated or may be subject to environmentally sensitive uses. In many circumstances, due diligence in this regard may be limited by the lack of information regarding conditions at adjacent properties. Moreover, all owners now have increased incentive to ensure that environmental conditions on neighbouring properties that might migrate onto their own property are being adequately addressed. This may lead to an increase in neighbour-on-neighbour reporting of spills.
3. Another blow to the polluter-pays principle: The decision in Kawartha Lakes deals another blow to the polluter-pays principle. By concluding that this principle cannot trump clear legislative intent – namely, the protection of the environment, the Court has signalled that it will not give elevated effect to the concept of polluter pays. Indeed, the utility of arguing the polluter-pays principle appears to be wearing thin, given its status as not much more than a policy objective.

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¹  2013 ONCA 310 [Kawartha Lakes].