The case involves a somewhat typical contaminated land dispute between neighbouring commercial property owners. The plaintiff conducted investigations on its property in support of a sale, only to discover contamination. The impacts were thought to be sourced from the commercial property next door. The interesting part of the action was that the alleged source activities were not activities from current commercial tenants, but allegedly from a one-time dry-cleaner who had not been a tenant at the site for over a decade or two. The plaintiff had owned its property for a long period of time, including during the operations of the former dry-cleaner. The landlord liability aspect of the case revolved around the former owner/landlord, who owned the property at the time of the dry-cleaning operations by its tenant. The former landlord brought a motion for summary judgment to dismiss the action against it, which was granted. The plaintiff appealed and the Ontario Court of Appeal affirmed the lower court decision, holding that absent knowledge of, or foreseeable risk of, harm resulting from the tenant’s operations, the landlord had no liability in nuisance or negligence, or under the Ontario Environmental Protection Act.
Contaminated land law suits tend to involve multiple parties on the defence side including owners, tenants, and former owners of an alleged “source” property – i.e. the source of contamination. The cast of defence characters in this case involved the current owner and the former owner, but not the former tenant. The current owner of the alleged source property had owned the land for several years. At the time of its purchase in 2007, environmental reports had been obtained in the course of its transactional due diligence period. The investigations had disclosed the existence of contaminants (chlorinated solvents). There was no indication in the environmental reports of an offsite migration issue, but there was information suggesting relatively low concentrations of chlorinated solvents, with groundwater movement in the opposite direction of the plaintiff’s property. The purchaser waived environmental conditions and purchased the property. Its lender was also aware of the environmental issues and agreed to lend on the purchase transaction.
The former owner of the alleged source property owned the property for many years prior to the 2007 sale. There was some evidence that the former owner had leased to a dry-cleaner for possibly a 5- or 10-year period in the early 1990s. There was also evidence that, other than the environmental reports obtained in the context of the 2007 sale, it had no information to suggest there was an environmental issue, and no knowledge of chemical usage by the former dry-cleaner tenant. The court accepted that the former owner/landlord had no reason to suspect an issue, and certainly not to suspect migration of contamination to the plaintiff’s property.
The dry-cleaner was not sued. The case is interesting in that respect, as it appears to be one of a few cases where the alleged polluter was not made party to the action.
The plaintiff sued both the former landlord and current owner of the alleged source property on various allegations of nuisance, negligence and s. 99 of the Environmental Protection Act. The former landlord defended on the basis that it sold the land to the current owner, on an “as-is” basis, with environmental disclosure, and that it had no knowledge of a potential issue arising from any tenancy during its period of ownership.
The Summary Judgment Motion
The former owner brought a motion for summary judgment providing uncontroverted evidence that it did not authorize any nuisance on its property, did not use, own or control chemicals, did not authorize any use of chemicals, did not bring chemicals onto its property, and did not have any knowledge of the use, spill, or migration of chemicals. There was no actual evidence of use of chemicals by the dry-cleaner, just speculation. Expanding on the absence of evidence to support the claim, the motion focused on the fact that the landlord:
- had no information that the dry-cleaner was using, storing, disposing of or emitting contaminants during its tenancy;
- had no reason to investigate the operations of the dry-cleaner;
- did not have knowledge of actual contamination by the dry-cleaner;
- did not obtain any knowledge of impact other than in the context of the sale; and
- that even after it became aware of the impact to its property, it did not have reason to suspect the contamination on its land was a potential source of contamination to the plaintiff (given information of groundwater flow direction opposite to the plaintiff’s property).
On the legal analysis of the relevant torts, the court agreed that there was a lack of evidence to support the claims. The appeal similarly upheld the findings and reasoning of the lower court. The motion’s court analysed the allegations of negligence, nuisance and statutory liability as follows:
The plaintiff alleged that the former owner owed it a duty of care. The former owner argued that in order to establish a claim in negligence, the plaintiff had to demonstrate proximity and foreseeable harm to the plaintiff. The Court in Sorbam held that there was no foreseeability of harm. “With no actual knowledge and no reason to be concerned about the operation of…the dry-cleaning tenant, it cannot be said that the defendant [is] in breach of a duty to act or, in fact, failed to act, to prevent the harm allegedly suffered.” The Court found that there was no evidence that the former landlord knew or ought to have known that the dry-cleaning operation could be considered highly dangerous or that the lease would be accompanied by a risk to their property or neighbouring property. There was no evidence of any breaches of environmental law (or otherwise) by the tenant and the landlord had no knowledge of any dangerous activity authorized by a lease or other agreement. The Court held that there was no evidence to find that leasing to a dry-cleaner in the 1990s carried with it a foreseeable risk of harm to the plaintiff.
The Court of Appeal similarly held that “the record indicated no more than the former owner leased their lands to a dry-cleaning business. That, standing alone, is not sufficient to trigger a duty to a neighbouring land owner to inspect or supervise the activity of a tenant.”
The motion court reasoned that unless the nuisance was plainly contemplated by the lease, and the activity was almost certain to create a nuisance, the landlord would not be found liable in nuisance. The motions judge found no evidence of the nuisance being plainly contemplated by the lease. The Plaintiff also led no evidence as to the timing of migration of the contamination, other than to concede it had no ability to determine that. It discovered the contamination in 2010 and had no prior investigative reports. The Court dismissed the nuisance claim and the Court of Appeal agreed.
3. Statutory Liability – S. 99 Environmental Protection Act
The motion court dismissed the statutory liability claim on the basis that the landlord was not an owner of the pollutant or in control of the pollutant prior to the discharge. This is in keeping with the plain language of s. 99 of the EPA, and the few cases that have interpreted this part of the statute. This aspect of the original judgment was not appealed.
This is a significant but fact-specific case. It is certainly not clear that all historical landlords with industrial or commercial tenants would be able to demonstrate lack of foreseeability of harm to their neighbours. What may be clearer is that historical owners may have some relief from multi-party litigation if they can show there was no objective information to demonstrate risk. Owners do have duties to their neighbours, but whether the facts in any given case support duties associated with their tenant’s operations will depend on many factors. Environmental sophistication of land owners/commercial landlords in the 1990s was quite different than what it is today. Some factors to consider in the demonstration of risk might include whether the landlord was ever notified of an environmental compliance issue, whether the landlord was ever notified of concerns expressed by other tenants on the property or adjacent properties, and whether the lease contained any restrictions on the use of chemicals or environmental compliance. Today’s leases tend to have significant environmental related clauses that are designed to protect both landlords and tenants and could well be relevant to neighbouring contaminated land claims.