A New Approach to Contaminated Land Disputes

Posted on: Monday, February 6th, 2017

On May 26, 2016 the Supreme Court denied leave to appeal the decision in the seminal case of Midwest Properties Ltd. v. Thordarson (“Midwest”). This denial validates the reasoning from the Court of Appeal (“CofA”) and supports the use of s. 99(2) of the Environmental Protection Act, R.S.O. 1990, c. E.19 (“EPA”), which focuses on the right to compensation for spills, as a separate, distinct ground of liability under which compensation for remediation costs can be claimed without having to prove intent, fault, a duty of care or foreseeability. The convincing judgment from the CofA, written by Justice Hourigan, reaffirms the Supreme Courts view as espoused in R v. Castonguay Blasting that environmental legislation, such as the EPA, must attract an expansive approach and generous interpretation in order to ensure adequate protection of our natural environment.

In Midwest, three overarching claims were advanced: 1) damages under s. 99(2) EPA; 2) nuisance; and 3) negligence. While the trial judge denied liability under all three causes of action, the CofA reversed this decision and confirmed that damages should be awarded for all three claims.

Briefly, the facts revolve around the contamination of two adjoining properties; one owned by Midwest, and one owned by Mr. Thordarson’s company Thorco. Thorco had stored large volumes of petroleum hydrocarbons (“PHC”) on its property for an extended period of time resulting in substantial contamination. Over the decades, Thorco had been subject to requirements under a Certificate of Approval, a number of MOE orders, as well as a court order to remove the contamination; none of which were properly adhered to. Midwest was interested in obtaining all, or part of Thorco’s property, but after learning of the contamination they decided to proceed with a Phase II Environmental Site Assessment on their own adjacent property. The Phase II report revealed contaminated soil and groundwater that exceeded MOE guidelines. An MOE order was issued to Thorco and Thordarson to cleanup Midwest’s property and Midwest brought a claim on the above-noted grounds.

On appeal, the main issues to be considered were whether the Trial Judge erred in: 1) finding that the MOE order precluded recovery under s.99(2); 2) finding that no damage under s. 99(2) was established; and 3) dismissing the nuisance and negligence claims and the claim for punitive damages. Additionally, the CofA had to consider the personal liability of Mr. Thordarson as owner of the property. Each issue will now be discussed in turn.

At trial, the Judge reasoned that s. 99(2) of the EPA cannot be interpreted to include damages for the cost of remediation where an MOE order had already been made. The MOE intervened in the appeal to contest this fact, noting that its order to remediate does not preclude recovery under s. 99(2) of the EPA. Additionally, if damages for remediation costs were ordered, the MOE agreed that it would have to withdraw its order and likely redirect it to Midwest thus eliminating the possibility for double recovery. Ultimately, the CofA determined that there is no support for the notion that a party cannot advance a claim under this section where an MOE order is already issued; the two matters are not mutually exclusive. This, it was said, would frustrate the purpose of the EPA by allowing a defendant to effectively use the order as a shield from liability. As such, the court decided to award compensation under s. 99(2) despite the existence of the order.

This raised the question of how to best assess the award of damages. Within the case law and amongst legal professionals, there are conflicting views with regard to whether damages should be assessed based on diminution in property value or the costs of remediation. In this case, Justice Hourigan held that the restoration approach is to be preferred as it aligns with the objectives of the EPA and provides a greater degree of environmental protection. Oftentimes, when property is contaminated, the costs of restoration far outweigh the relative loss of property value. This means that damages based on diminution may fail to adequately fund the cleanup process. By awarding costs of remediation, cleanup is far more likely to occur. Additionally, by forcing the defendant to pay for these costs, the firmly entrenched principle in environmental law of “polluter-pays” is upheld. Accordingly, damages were awarded in the amount of $1,328,000 based on expert evidence put forth by Midwest about the reasonable costs of remediation.

It was further held that the trial judge had erred in dismissing the nuisance and negligence claims on the basis that damage had not been established. Justice Hourigan deemed this to be a “palpable and overriding error” as the trial judge failed to consider the uncontradicted evidence of physical and material harm to Midwest’s property, which also presented a number of human health risks. Following an application of the tests for nuisance and negligence, the CofA affirmed that Midwest was entitled to damages under both claims. Given that liability was established under these claims, the CofA was able to award punitive damages to condemn the actions taken by Thorco and Mr. Thordarson. The ongoing and obvious disregard for their environmental obligations, which was clearly motivated by profit, was particularly egregious behaviour which substantiated the claim for punitive damages.

Finally, the CofA determined that the wording in s. 99(2) indicates that both the party or entity that owns the pollutant, and the person or people responsible for management and control of the pollutant, can all be held liable. Mr. Thordarson was deemed to have had control of the PHC and thus joint and several liability was imposed on Mr. Thordarson personally and on his company.

This decision and the interpretation of s. 99(2) now provides a new strategic cause of action which can be advanced in effectively all environmental claims relating to contaminated land disputes. Plaintiffs’ can now bring claims under this section based solely on evidence of contamination and, depending on the circumstances of the case, they may be able to claim the full costs of future remediation. Due to this expansive treatment of damages, it is likely that this will become a primary cause of action in many cases moving forward. This will arguably lead to an increase in reliance on expert evidence pertaining to the methods and costs of remediation. While it is remains unclear whether the courts will always award damages on the basis of remediation costs, or revert to the diminution approach, it is clear that this case has important implications within the environmental field as it provides a flexible statutory cause of action that superimposes liability over the common law.

The full case can be accessed by clicking here.
To read our summary of the previous decision out of the Ontario Superior Court which was overturned in the 2016 decision please review our June 2013 Newsletter.

The content of this Blog is intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.

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