On May 10, 2013, the Ontario Court of Appeal rendered its decision in the case of Kawartha Lakes (City) v. Ontario, Director, Ministry of the Environment. In doing so, the Court of Appeal has affirmed that innocent owners of contaminated land can be liable for the full costs of remediating such land, notwithstanding that they did not cause or contribute to the contamination in any manner.

The Facts of the Case

The case involved the overfilling of a tank located in the basement of a residence in the City of Kawartha Lakes. The furnace oil escaped from the residential property and entered into the City’s municipal storm sewer and culverts, and was further discharged into a local lake.  The Ministry of the Environment had ordered the residential property owners to remediate and their insurance policy responded but, eventually, the policy limits were exhausted and remediation could not be completed.

The Ministry then issued a Provincial Officer’s Order against the City of Kawartha Lakes, requiring the City to prevent further discharge and remediate the furnace oil located on its property, notwithstanding that it did not cause or contribute in any manner to the contamination.

Basis for Appeal by the City

When the City received the Provincial Officer’s Order, it appealed to the Environmental Review Tribunal. At the preliminary hearing before the Tribunal, the City indicated that it was seeking to have the Tribunal relieve it of liability based on previous cases that had come before the Tribunal and which had relied on the principle of “fairness” in deciding whether orders against innocent parties should be upheld. The City intended to produce evidence regarding the fuel company that had caused the spill, as well as other parties that bore some culpability with respect to the discharge that occurred.

In response, the property owners sought to restrict the scope of the City’s appeal and argued that the previous decisions that were issued by the Tribunal had been overruled by subsequent Ministry of Environment policies that rejected the fairness factors previously considered by the Tribunal.

Tribunal’s Decision

The Tribunal agreed with the property owners. The Tribunal ruled that it would not vacate an order issued against a properly named recipient, where the effect of so doing would be to thwart the purposes of the Environmental Protection Act. The Tribunal held that, although there were others that were responsible for the contamination that could have been named in the order, it was not a matter that was appropriate for the Tribunal to consider. Rather, that issue was more suited to resolution in another forum, namely, the courts. The Tribunal did state that some fairness factors, such as financial hardship, could continue to play an important role in appeals before the Tribunal, but many of the other factors were better situated for consideration elsewhere.

Judicial Review Application

The City decided to bring an application for judicial review of the Tribunal’s decision and, on May 28, 2012, the Divisional Court affirmed the reasoning of the Tribunal. The Divisional Court held that innocent parties that are not responsible for the discharge of contaminants or pollution of the environment (including those who merely own neighbouring property that becomes contaminated due to the acts and omissions of others) may be ordered by the Ministry to remediate contamination that has impacted their properties. The Court held that those innocent parties can seek redress from the culpable parties through litigation.

In reaching its decision, the Divisional Court considered whether the Tribunal had erred in law by excluding evidence that established the culpability of other parties on the basis that it was not relevant to an order requiring remediation. The Divisional Court also considered whether the Tribunal had breached the rules of natural justice by excluding such evidence.

The Divisional Court did not agree with the City that the Tribunal had committed an error in law and supported the Tribunal’s conclusion that evidence that pointed to fault was irrelevant for the purposes of an appeal of the Ministry’s order. The Divisional Court noted that the Director may take into account other fairness factors in deciding whether to issue an order, but the Director is not required to do so.

In commenting on the obvious violation of the “polluter pay” principle by the Tribunal, the Divisional Court endorsed the reasoning of the Tribunal, noting that the provisions of the Environmental Protection Act (pursuant to which the Order was issued) is an “owner pays” mechanism that does not consider fault.  Essentially, the Divisional Court held that the legislature had enacted a provision which expressly acknowledged that, in certain circumstances, innocent owners could be required to remediate property notwithstanding the lack of culpability.

Court of Appeal Decision

The Court of Appeal issued a very brief decision in response to the arguments advanced by the City that the Tribunal had not adequately considered the “polluter pay” principle and had erred in holding that the primary objective of the Environmental Protection Act takes precedence over the “polluter pay” principle. The Court of Appeal dismissed the City’s appeal and agreed with the decisions of both the Tribunal and the Divisional Court that evidence of culpability was irrelevant for the purposes of upholding or revoking the Ministry order, because the order was a “no fault” order that could be issued without regard to culpability.

This case has significantly impacted the advice given to innocent owners of contaminated land. These owners were told that, while there was statutory exposure to liability, previous decisions of the Tribunal indicated that orders against innocent property owners would likely be revoked on an appeal based on “fairness” principles.  That is clearly no longer the case.