In December 2008, a residential property leaked fuel oil in the
City of Kawartha Lakes (the "City"). The fuel oil sank
into the ground, quickly migrated across the property onto
adjoining municipal land, and from there seeped into Sturgeon Lake.
Unfortunately, the $1 million dollars of insurance coverage held by
the residential property owners was not enough to pay for the
entire clean up. When it became clear that more funds were needed,
the Ontario Ministry of the Environment ordered the City to step in
to remediate the contaminated public property (the
"Order"). The City appealed the Order to the
Environmental Review Tribunal (the "Tribunal") on the
basis that it was not a cause of the pollution. The appeal was
ultimately denied. The Tribunal found that evidence of fault was
not relevant when considering whether or not an Order should apply,
so the City launched a judicial review of the Tribunal's
decision. In the meantime, the City paid more than $400,000 to
clean up the public property. In June 2012, the Divisional Court
dismissed the City's judicial review application.
The Divisional Court decided that the fault of the City was not
a consideration when deciding whether or not the City should be a
party to the Provincial Officer's Order because the City could
not establish how relieving it of the Order would be consistent
with the purpose of the Environmental Protection Act's
(the "EPA") . The City did not show how
relieving it from the Order would be fair to the environment or
those impacted by the pollution.
Even though the City never owned the oil or caused it to spill,
the well-known "polluter pays principle" was not offended
because the EPA and the Ministry of the Environment's
Compliance Policy specifically contemplated holding innocent owners
responsible for cleanup if it furthers the fundamental purpose of
the legislation: protecting the natural environment. While the
Divisional Court does not rule out fairness arguments in future
clean-up order appeals, the importance of environmental response
must be taken into account. Protecting the natural environment
after the oil spill was not furthered if the City was let out,
because it had the ability to pay for cleaning up the public
The City's Cost Recovery Actions
The City is currently pursuing two other avenues to recuperate
the clean-up costs. First, it issued its own orders pursuant to
Section 100.1(1) of the EPA against the residential
property owners, the Technical Standards and Safety Authority and
the fuel companies. The City issued these orders on June 15, 2010,
which were appealed by all parties to the Tribunal (the "s.
100.1(1) Appeals"). Secondly, it commenced a civil action a
month and a half later in the Ontario Superior Court of Justice in
Lindsay, Ontario concerning the same clean-up costs (the
"Civil Action"). The Tribunal adjourned hearing the s.
100.1 (1) Appeals in March 2011 pending the decision in Civil
The City brought a motion returnable February 16, 2012 to alter
the Tribunal's adjournment decision in the s. 100.1(1) Appeals
pending the outcome of the Civil Action. However, the Tribunal
denied the City's request to move the matter forward promptly,
finding that s. 100.1(1) of the EPA is part of a larger
statutory scheme aimed at the prompt remediation of spill. The
Tribunal refused to accept the City's argument that the
Tribunal should move forward with the s. 100.1(1) Appeals promptly
so that the City could recover its costs as soon as possible. The
Tribunal also noted the City's previous conduct in appealing
the original clean up Order and how it delayed doing the required
work. Since the City did not make any efforts for prompt
environmental recovery, it could not succeed in its argument that
its present efforts at the Tribunal for cost recovery trumped all
other interests at play. However, the main factor was the
relationship between the issues in the Civil Action and the s.
100.1(1) Appeals. Adjourning the s. 100.1(1) Appeals while the
Civil Action continued avoided unnecessary duplication and waste of
Tribunal and party resources. On November 7, 2012, the Tribunal
ordered 12 month adjournment on the s. 100.1(1) Appeals.
Directors and their corporations may be at a loss to understand what they must do to minimize their risk of environmental liability in light of the recent Ontario Ministry of Environment order and settlement agreement concerning Northstar Canada.
In the aftermath of the Northstar case, it is more important than ever for directors and officers to manage environmental issues proactively and implement policies to help minimize their risk exposure.