Canada: Buyer Can’t Expect Compensation For Pre-Existing Contamination

Ontario Superior Court of Justice has reaffirmed that buyers of contaminated property cannot expect compensation from their neighbour for the contamination that existed on the date of purchase.

In Midwest v. Thordarson  (2013 ONSC 775), Midwest claimed damages under the spills compensation provision in s. 99 of the Environmental Protection Act (EPA), nuisance and negligence, plus $100,000.

Since 1973, the defendants, Thorco Contracting Limited used their property to store petroleum hydrocarbon waste. Some contaminants (including free product) entered the soil and groundwater and migrated into an adjacent property that Midwest purchased (with only a Phase I Environmental Site Assessment) in 2007. Midwest's expert said that the contaminated groundwater was continuing to flow into its property at the date of trial.

The Ministry of the Environment ordered Thorco to delineate and remediate the contamination on Midwest's property. Midwest sued Thorco for substantial damages anyway, including the cost of doing the remediation itself. At the time of trial, neither party seems to have remediated the contamination.

Thorco successfully argued that:

  1. as the Ministry had ordered Thorco to remediate the Midwest site, Midwest had suffered no recoverable loss, and
  2. Midwest did not prove that that the level of contamination had worsened since 2007, when Midwest acquired their property.

The court dismissed Midwest's lawsuit, with costs to Thorco:

Section 99 EPA – Midwest did not show evidence of actual loss in property value or any inability to use the property for its business operations. The EPA cannot be interpreted to allow the damages contemplated under s. 99 to include  remediation costs where the Ministry has already ordered the responsible party to perform the remediation.  If the Court awarded a sum to Midwest for the proposed remediation and the property were remediated as required by the Ministry order, this would amount to double recovery arising from the same legislation.

Nuisance – 

No evidence was led to show the environmental state of the property when it was purchased by Midwest. To succeed in nuisance, Midwest would have to demonstrate that contamination levels have increased since it purchased the contaminated property, and that the defendants caused that further contamination:

[24] The parties agree that an actionable nuisance has been defined as " ... causing physical injury to land or substantially interfering with the use or enjoyment of land or an interest in land, where, in the light of all the surrounding circumstances, this injury or interference is held to be unreasonable."

[25] Midwest submits that an escape of hydrocarbons contaminating its soil and water is a clear nuisance [Ball v. Imperial Oil Resources Ltd., 2008 ABQB 765, paras. 117-118]. Similarly, the Defendants allowed a noxious substance to escape onto its property, thereby damaging Midwest's land or property.

[26] With respect to this nuisance claim, the Defendants allege that the Plaintiff failed to prove requisite damages, which is similar to the argument made in respect to the EPA claim.

[27] I agree with these submissions. There is no evidence that Midwest acquired a property which was not already damaged (as there is no evidence of the environmental state of the property when it was acquired). The Plaintiff, therefore, cannot establish that any chemical alteration in the soil and groundwater has occurred in its property. The Plaintiff did not take action against the vendor of the property, or the environmental company that did the Phase I testing on the property.

[28] If Midwest purchased a contaminated property, it must prove that there has been an increase in the contamination level of property caused by the Defendants.

Negligence– Midwest failed to prove that it suffered actual damage as a result of Thorco's breach of a duty of care.

Punitive damages – The evidence did not support any finding of malicious, oppressive and high-handed misconduct that may trigger the award of punitive damages.

Midwest is very lucky indeed that the Ministry of the Environment ordered Thorco to cleanup its property. Such orders are by no means automatic, especially for careless purchasers, though the presence of free product helps. And perhaps they won't buy any other commercial properties based only on a Phase I ESA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Dianne Saxe
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