Canada: Ninety-Nine Problems: Ontario Court Of Appeal Releases Significant Decision For Environmental Civil Litigation

The Ontario Court of Appeal released a significant decision in the field of environmental civil litigation in the case of Midwest Properties Ltd. v. Thordarson, 2015 ONCA 819 (Midwest) on November 27, 2015. This decision is the first time the court has given such careful consideration to, and such an expansive interpretation of, the statutory right of compensation for spills under section 99 of the Ontario Environmental Protection Act (EPA). In the wake of Midwest, claims based on s. 99 of the EPA may proliferate. Additionally, this decision suggests that future courts could rely on s. 99 of the EPA to pierce the corporate veil, thereby increasing the spectre of individual liability.

Background

Midwest Properties Limited (Midwest) purchased an industrially-zoned property and building in 2007. Prior to the purchase of the property, Midwest retained an environmental consultant to conduct a phase one environmental site assessment. The consultant's report did not recommend sampling and testing of soil or groundwater at the property (known as a phase two environmental site assessment).

After acquiring the site, Midwest became interested in purchasing the neighbouring property, owned by a company called Thorco Contracting Limited (Thorco) and controlled by its principal, John Thordarson. Thorco's business involved the servicing of petroleum equipment and tanks and the property had been storing, among other things, waste petroleum hydrocarbons (PHCs) since 1974. Thorco permitted Midwest to conduct phase one and two environmental site assessments on its property, which disclosed PHC contamination in concentrations exceeding Ministry guidelines. Midwest then conducted sampling and testing on its own property and discovered similar PHC contamination.

Thorco's PHC storage activities were known to the Ontario Ministry of the Environment and Climate Change (the Ministry). From 1998 to 2011, Thorco was in almost constant breach of its environmental approval and orders issued by the Ministry relating to the waste PHCs stored on the Thorco property. In 2012, the Ministry ordered Thorco and Thordarson to remediate the Midwest property. The orderees did not comply. Separately, Midwest sued Thorco and Thordarson on the basis of negligence, nuisance and the statutory right to compensation under s. 99(2) of the EPA.

Trial Decision

As discussed in an earlier Osler update, the Ontario Superior Court of Justice dismissed Midwest's claim for damages for remediation costs stemming from the alleged migration of contaminants from the Thorco property. The court was concerned that awarding damages under the s. 99 statutory right of compensation would allow for "double recovery" where such remediation had already been ordered by the Ministry. Further, the trial judge found that Midwest had failed to prove its damages in negligence or nuisance because Midwest had not provided evidence of the environmental state of its property at the time it was acquired. Accordingly, Midwest could not prove that there had been any chemical alteration in the soil and groundwater, or that the value of Midwest's property had actually decreased.

Court of Appeal's Decision

Midwest appealed the trial decision to the Ontario Court of Appeal. Notably, the Ministry intervened in Midwest's appeal, arguing for a more liberal and expansive interpretation of s. 99 of the EPA.

The Court of Appeal allowed Midwest's appeal, set aside the trial judge's decision, and awarded damages of $1,328,000 against Mr. Thordarson and Thorco jointly and severally pursuant to s. 99 of the EPA. After further finding the respondents liable in nuisance and negligence, the court awarded $50,000 in punitive damages against Mr. Thordarson and $50,000 in punitive damages against Thorco Contracting Limited.

Recovery Under Section 99 of the EPA

The court disagreed with the trial judge's conclusion that there can be no recovery under the EPA's statutory right of compensation where there has also been an order to remediate. The court reasoned that the legislative objective of s. 99 was to establish a separate, distinct ground of liability for polluters because common law had proven to be inadequate. Importantly, the court recognized that the statutory right of compensation imposed strict liability on polluters by focussing only on the issues of who owns and controls the pollutant, and that this was a codification of the concept of "polluter pays". Further, the court held that the trial judge erred by interpreting the statutory right of compensation narrowly because this was inconsistent with the purposive and "generous" approach for environmental legislation mandated by the Supreme Court of Canada in cases such as R. v. Consolidated Maybrun Mines Ltd. and R. v. Castonguay Blasting Ltd.

Piercing the Corporate Veil

The Court of Appeal confirmed that the statutory right to compensation under the EPA allows for an action to be brought against "the owner of the pollutant and the person having control of the pollutant." While the company, Thorco, was clearly the "owner of the pollutant", the principal of Thorco, Thordarson, argued that he was not personally liable due to the "corporate veil" principle. The Court of Appeal explained that a finding that a corporate principal, director or officer as a "person having control of a pollutant" will be fact-specific. In this instance, the court found that Thorco was a small business whose day-to-day operations were effectively controlled by Thordarson, such that it was appropriate to hold Thordarson liable along with the company on a joint-and-several basis, as he was a person in control of a pollutant.

Diminution of Value versus Remediation Costs as Quantum for Damages

The court acknowledged the debate in the case law regarding the appropriateness of awarding damages based on diminution of value as opposed to the cost of restoration, and provided clarity on this subject, ruling that the appropriate measure of damages is the cost to remediate the property. More specifically, the court reasoned that the restoration approach was superior as an award, given diminution of value may not adequately fund a clean-up. Additionally, awarding damages based on restoration costs is more consistent with the environmental protection objectives of the EPA as it helps ensure that sufficient funds will be available to remediate contaminated properties. Further, this approach found support in the "polluter pays" principle which has been endorsed by the Supreme Court of Canada. That is, a remediation-based approach to damages ensures that polluters must reimburse other parties for costs incurred to remediate contamination.

Nuisance, Negligence, and Punitive Damages

Although the court had already granted damages under s. 99 of the EPA, it went on to analyze the claims of nuisance and negligence. This is because the plaintiff sought punitive damages, and a court cannot consider and award punitive damages without first determining whether there is a valid civil cause of action. The statutory cause of action under s. 99 only provides for compensatory damages.

The trial judge had dismissed the nuisance and negligence claims on the basis that Midwest had failed to prove it had suffered damages. The court concluded that the trial judge had committed a palpable and overriding error in reaching this conclusion, as there was uncontradicted evidence, albeit from a remediation expert and not a property valuation expert, on the impact to Midwest's property value resulting from the human health risk created by the contamination. Further, the court concluded that the elements of nuisance was made out on the facts. That is, the migration of contamination that posed a risk to human health onto Midwest's property was clearly a substantial and unreasonable interference with the plaintiff's use or enjoyment of the land. Further, the claim of negligence was also made out as there could be "no serious suggestion" that Thorco had actually complied with the standard of care expected of a reasonable landowner, considering it had permitted spills on its property and had failed to comply with Ministry approvals and cleanup orders.

As the objectives of punitive damages are "to punish, deter and denounce a defendant's conduct" the court found that an award of punitive damages "was clearly warranted." Thorco was almost constantly out of compliance with its Certificate of Approval, and its "utter indifference" to the environmental condition of its own property as well as surrounding properties demonstrated "a wanton disregard for its environmental obligations." What's more, "this conduct has continued for decades and is clearly driven by profit."

Discussion

The Court of Appeal's decision is the first time the court has given such careful consideration to, and such an expansive interpretation of, s. 99 of the EPA. The court's willingness to give effect to s. 99 suggests there may be a proliferation of plaintiffs seeking damages under s. 99 of the EPA. What is more, the Court of Appeal seems to have set the standard for success on such a claim much lower than the standard that exists for other claims like nuisance and negligence. The court specifically stated that when the legislature created the statutory right of compensation under s. 99, it "eliminated in a stroke such issues as intent, fault, duty of care, and foreseeability, and granted property owners a new and powerful tool to seek compensation." Additionally, this decision suggests that future courts could rely on s. 99 of the EPA to pierce the corporate veil, thereby increasing the spectre of individual liability. Whether future courts will limit the application of this decision to its specific and fairly egregious facts, or apply it more broadly, is unknown.

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