On November 27, 2015 the Ontario Court of Appeal ("ONCA") released its decision in Midwest Properties Ltd. v. John Thordarson and Thorco Contracting Limited, providing the first appellate consideration of the private right of action to compensation for spills contained in s. 99(2) of theEnvironmental Protection Act ( the "EPA").

The decision is significant in several respects and provides guidance on:

  1. the timing and scope for proof of damages under section 99 of the EPA;
  2. when findings of personal lability and punitive damages are warranted in environmental matters; and
  3. the burden of proof plaintiffs must meet when making environmental damages claims against their neighbours in negligence.

The Ministry of the Environment and Climate Change ("MOE") intervened in the appeal. The outcome, along with other Ontario appellate decisions in the past few years, supports the MOE's continued initiative to obtain a broad reading of environmental legislation and judicial support for protection of the environment. It also appears brings Ontario closer to the cost recovery regime under British Columbia's Waste Management Act.

Background

This case involved two adjoining properties in an industrial area of Toronto. The successful appellant, Midwest Properties Limited ("Midwest"), obtained a complete reversal of the trial decision denying all damages for environmental contamination caused by its neighbour.

Midwest's neighbour, Thorco Contracting Limited ("Thorco"), had stored large volumes of petroleum hydrocarbon ("PHC") waste on its property for several decades. The environmental condition of Thorco's property was the subject of significant MOE attention. From 1988 to 2011 Thorco was "in almost constant breach of its licence and/or compliance orders" issued by the MOE.

Midwest purchased the property on the strength of a Phase I environmental site assessment and it is implied that the environmental consultants did not recommend a Phase II, intrusive environmental assessment. As a result, Midwest did not learn about the environmental issues Thorco was causing until after it purchased the property next-door (the " Midwest Property") in December 2007. Upon discovery, Midwest sued Thorco as well as its sole director, John Thordarson, in his personal capacity (the "Thorco Defendants") for the costs to remediate the Midwest Property. Midwest relied on three causes of action: statutory compensation for spills under s. 99(2) of the EPA, nuisance and negligence.

The trial judge had found that the Thorco Defendants were not liable to Midwest because Midwest failed to show it suffered any damages (and in particular because Midwest did not prove that the PHC contamination from the Thorco property lowered the Midwest Property's purchase price). The trial judge also concluded that no additional remedy was available to it under s. 99(2) because the MOE had already ordered Thorco to remediate the Midwest Property. Section 99(2) could not be interpreted to allow for such double-recovery.

The Scope of Section 99(2) of the EPA

The ONCA clarified that there is no limitation against seeking statutory compensation under s. 99(2) because there is already a remedial order in place. The trial judge's interpretation was contrary to both the plain language and purpose of the legislation. Significantly, such a limitation was found to undermine the EPA's legislative objective of establishing a distinct, no-fault ground of liability for polluters that overcomes the difficulties of proof at common law. The ONCA confirmed that the issuance of an MOE order and entitlement to recover under section 99(2) were not mutually exclusive; moreover, the potential for double recovery was not present in that case, given the intervention of the MOE in the civil matter.

While the trial decision applied a strict buyer beware analysis to Midwest's claim, the ONCA clarified that there is no limitation period for environmental claims that are undiscovered and no requirement under s. 99(2) of the EPA for a claimant to establish that the property was clean before the claimant bought the property. This represents a significant expansion of the property owner's rights. Instead of being limited to damages for the extent to which the property became worse post-purchase, section 99(2) provided Midwest with full compensation for its damages. Where no investigation was undertaken pre-purchase, it can be very difficult, if not impossible to establish that the property condition worsened within the two-year limitation period prior to commencing the action.

In affirming the polluter pays objective of the EPA, the ONCA confirmed that Thordarson should not be able to rely on its lengthy history of non-compliance to limit the amount of damages payable. In any event, Midwest brought the claim against the Thorco Defendants within two years of purchasing the property and discovering the contamination.

Personal Liability

Section 99(2) creates a right of compensation from the owner of a pollutant, and a person having control of a pollutant. The ONCA found Mr. Thordarson personally liable to Midwest for its damages because he was "a person having control of a pollutant" under the EPAHe had sole control of Thorco at the relevant time; he was also the owner of the pollutants. The corporate veil was not a shield to environmental statutory liability.

Nuisance

While there was no change to the law of nuisance arising from the appeal, the ONCA reversed the outcome on the facts of the case, finding that Midwest was entitled to damages in nuisance as a result of the contamination caused by the Thorco property. The trial judge had failed to acknowledge that there was evidence that showed the contamination on Midwest's property worsened after it was purchased. Free product was present in 2011, in two locations where none had been detected in 2007. The invasion of contamination onto Midwest's property was in such a concentration that it could "no longer dissolve in groundwater". The contamination also posed a risk to human health of the occupants of Midwest's building. The interference could not be classified as “trivial, insubstantial or reasonable”, particularly given the significant cost to Midwest to remediate and undo the damage. The contamination from the Thorco property therefore interfered with Midwest's use and enjoyment of its property. The ONCA found it was unreasonable to expect Midwest to bear this interference in the name of being a "good neighbour."

Negligence

The ONCA also provided some further articulation of the interplay between statutory liability and the law of negligence. In reversing the trial decision, the ONCA explained that a duty of care will be owed by a landowner when that landowner actively, persistently and intentionally breaks the law causing contamination to migrate offsite to the detriment of its neighbour.

There was no serious suggestion that the Thorco Defendants met the standard of a reasonable landowner in the circumstances. The excessive amounts of waste materials stored on the Thorco property by the Thorco Defendants "in conditions that easily allowed the contents to be infiltrated by rainwater and escape to the natural environment" and the constant lack of compliance with the MOE's Certificate of Approval fell below the standard of care expected of a reasonable landowner.

Restoration Damages under s. 99(2) of the EPA

The ONCA rejected the loss in value approach to assess damages under section s. 99(2), awarding damages to Midwest based on the restoration costs. The restoration approach was found to be superior from an environmental perspective since the restoration approach may exceed the value of the property and not adequately fund a clean-up. This approach to damages under s. 99(2) was consistent with the "polluter pays" principle and fit within "the EPA's broad and important goals of protecting and restoring the natural environment."

Punitive Damages

Finally, the ONCA found that punitive damages were warranted against Thorco and Mr. Thordarson because of the "history of non-compliance" with regulatory approvals and orders and the "utter indifference to the environmental condition of its property and surrounding areas, including Lake Ontario". The long-standing non-compliance was driven by profit and deserving of punitive sanction. Thorco and Mr. Thordarson were each ordered to pay $50,000 each in punitive damages to Midwest.

Although it is currently unknown whether an appeal of this decision to the Supreme Court of Canada will be attempted, it is noted that recent defendants have received a cool reception for disregarding their environmental obligations and parties should expect to be guided by the ONCA's findings.