The potential liability of a real estate brokerage for the cleanup of contamination at one of its listed properties has demonstrated, once again, the challenges faced by the Ontario Ministry of the Environment and Climate Change ("MOECC") in exercising judgement in the issuance of "no fault" compliance orders. It also begs the question of whether the Ontario Environmental Review Tribunal ("ERT") ought to revisit the tempering of no fault orders with a consideration of fairness.
An order issued to a real estate brokerage and its two directors in March 2015 has recently been revoked by the Director of the MOECC, and the proceedings dismissed by the ERT, on the basis that the Order was fully complied with by two other parties. A related order to pay costs and expenses issued by the Regional Municipality of Niagara ("Niagara") in September 2015 has also recently been revoked as against the brokerage and its directors. The twin revocations ended a year-long saga for the real estate brokerage, in which it was exposed to joint and several liability for both the characterization of a contaminated property in Fort Erie, Ontario and payment of over $3.6 million in off-site remediation costs incurred by Niagara.
On March 9, 2015, the Fire Chief of the Town of Fort Erie was driving along Helena Street when he observed discoloured surface water in the roadside ditch, adjacent to a property on which Carvern Petrochemical Co. Ltd. ("Carvern") had operated a fuel additives manufacturing business until the previous October. The roadside ditch, known as the Kraft Drain, discharged to Lake Erie approximately three kilometres to the south.
The property has been owned since 1999 by 1350095 Ontario Limited ("1350095"). Edwin Robertson, the sole shareholder, director and officer of 1350095, is a resident of the U.K. Robertson inherited 1350095, and with it the property, after his father passed away in 2012.
Ten days after the Fire Chief's discovery, the MOECC issued a Director's Order under sections 17, 18 and 196 of the Environmental Protection Act (EPA) to 1350095, Robertson, Carvern, three Carvern officers and directors (including McQuiston, after whom the case is named), a chartered accountant who held a power of attorney from 1350095 for the purpose of selling the property, the real estate brokerage and its two officers and directors. The Order included requirements to identify on-site sources of contaminants which may discharge off-site; to retain a professional engineer or professional geoscientist to develop a plan to delineate contamination at and near the site, assess environmental impacts and recommend actions to restore the natural environment; and to implement the plan once accepted by the Director.
All named parties appealed the Order to the ERT. Several parties sought a stay of the Order and subsequently agreed with the Director to the terms of a partial stay and amendments to the Order that narrowed the scope of the site investigations and plan. 1350095 and Robinson then proceeded to comply with the Amended Order. In February 2016, the MOECC advised the ERT that it was satisfied that the Amended Order had been fully complied with. The ERT then dismissed all of the proceedings.
Immediately following the Fire Chief’s discovery, Niagara proceeded with a cleanup of the Kraft Drain on the basis of section 100 of the EPA, which permits a municipality, where a pollutant is spilled, to do everything practicable to prevent, eliminate and ameliorate any adverse effects and to restore the natural environment. Niagara spent in excess of $3.6 million on the cleanup. On September 14, 2015, Niagara issued an order to pay costs and expenses under section 100.1 of the EPA to the same parties named in the original Director's Order, including the brokerage and its two directors. Once again, all named parties appealed the Order to the ERT.
In March 2016, after discussions with counsel for the real estate brokerage and the accountant, Niagara advised the ERT that there was no longer any basis for an order under section 100.1 to the brokerage, its two directors and the accountant, and gave notice that it intended to revoke the order to pay costs and expenses as against those parties. The ERT then dismissed the proceedings commenced by the brokerage and the accountant.
The Realtor’s Role
The real estate brokerage had been retained to sell the property in August 2014. The property was listed on MLS until the listing expired at the end of February 2015. As is standard practice in the real estate brokerage industry, the brokerage held keys for the property, one of which was secured in a lock box on the property gate. Over the course of the six month listing, the brokerage became the de facto local contact for the property, as Robinson lived in the UK and the accountant’s office was closer to Toronto. In November 2014, the brokerage was asked by the MOECC to provide access to the property for the purpose of investigating the potential presence of hazardous chemicals. Subsequently, the brokerage facilitated arrangements for the removal of chemicals from the property, although the accountant entered into the contracts with the waste contractor on behalf of 1350095. In order to move the chemicals off the property under waste manifest, the waste contractor needed a generator registered in the MOECC's Hazardous Waste Information Network (HWIN) registration system. Unbeknownst to the real estate brokerage, the contractor registered it as the generator, and signed the waste manifest on its behalf.
The Director's basis for naming the real estate brokerage in the Order was that it, "exercised care and control of the site", "is named in waste manifests as the generator of waste generated at the site" and "is a key-holder for the site." The basis for naming the two directors was that they were officers and directors of the real estate brokerage.
Management or Control Under Section 18 of the EPA
The Director's only legal basis for an order to the brokerage was that it had management or control of the undertaking or property. Section 18 of the EPA permits the Director to issue an order to "any person who owns or owned or who has had management or control of an undertaking or property."
The scope of “management or control” for the purpose of MOECC preventive orders has been the subject of a number of ERT decisions, including P&L Tire Recycling, Montague and Appletex. The issue has most recently been dealt with by the ERT in Rocha, in the context of adviser and lender liability. In Rocha, the ERT held that a combination of the appellant's decision-making role and his financial interest in the company was sufficient to support a conclusion that he was in management or control.
The Director's basis for concluding that the real estate brokerage was in management or control of an undertaking or property was threefold:
- First, the Director claimed that it "exercised care and control of the site." The brokerage's rights with respect to the property were limited to those enunciated in a listing agreement in the standard OREA form. It was entitled to "show and permit prospective buyers to fully inspect the Property."
- Second, the Director relied on the fact that the brokerage was named as the generator on the waste manifests. While this might be a compelling fact for the uninformed, the MOECC would have known that it was not, in fact, the generator of waste chemicals that had been sitting at the site for years, and that the most likely explanation for the brokerage appearing as the generator in the Hazardous Waste Information Network and on the manifests was that the waste contractor needed a generator to make the MOECC's own waste manifest system work. In any event, the MOECC could easily have asked before issuing the Director's Order.
- Finally, the Director relied on the fact that the real estate brokerage held a key for the site. If the test for management or control is as minimal as possession of a key for a property, then every real estate brokerage in Ontario may need to reconsider its standard listing practices.
The real estate brokerage had nothing to do with the property before August 2014. It bore no responsibility for any of the site contamination. It did nothing to exacerbate the contamination during the listing period and, in fact, provided assistance to the MOECC and the site owner to have potential sources of contamination removed from the site. Given all of this, and the ERT case law on the meaning of “management or control” in sections 18 and 157.1 of the EPA, it is difficult to see how the MOECC could have ever concluded that the brokerage was potentially responsible and could be named in a section 18 order.
Control Under Section 100.1 of the EPA
To recover its costs and expenses to cleanup the Kraft Drain, Niagara had to utilize section 100.1 of the EPA, which permits the issuance of an order to "the owner of the pollutant" and "the person having control of the pollutant." Both of these terms are defined by the EPA to mean the owner or person having charge, management or control of the pollutant immediately before the first discharge.
Assuming that Niagara can ultimately satisfy the ERT there was in fact a "spill" on, prior to and/or after March 9, 2015, it is difficult to see how a real estate brokerage could ever be found to have had control of that spilled pollutant. The fact that the brokerage facilitated the removal of hazardous chemicals from the property, which if anything prevented a spill, would suggest the complete opposite.
Implications for Realtors
This case has obvious implications for the real estate brokerage industry. Realtors should exercise caution before taking a listing for a known contaminated property. The listing agreement for a contaminated property should include some form of indemnity for the realtor in the event of an MOECC cleanup order. In order to stay off the MOECC’s radar, the realtor for a contaminated site may want to deflect any requests for access or other cooperation to the property owner.
Fairness and the Exercise of MOECC Discretion
This case is one in a series in which the MOECC has extended its regulatory reach under the guise of "management or control". Rather than letting its exercise of discretion be guided by its own Compliance Policy, or seemingly applying any fairness or reasonableness test at all, the MOECC’s practice seems to be to name anyone and everyone it knows of who might have anything to do with a contaminated property, and then let the ERT sort it all out. The problem is that the ERT since Kawartha Lakes in 2010 has refused to apply any fairness factors, on the theory that the MOECC is exercising discretion in accordance with the Compliance Policy. As the ERT stated in Rocha in explaining its limited two-stage analytical approach, "the Tribunal first considers jurisdiction to make the orders and then whether the requirements of the orders are necessary or advisable."
In addition to the implications for realtors discussed above, there are a number of general implications that flow from this developing practice:
- Innocent orderees are forced to defend themselves before the ERT, incurring legal costs that they have extremely limited ability to recover, and for which they may not be insured.
- As the primary defence will inevitably be the MOECC’s jurisdiction to issue the order in the first place, (part one of the ERT’s two-part test), it is likely that an increasing number of orderees will try to get out of the ERT proceeding early by bringing a motion for what is, in effect, summary judgement. This trend is already evident before the ERT, and has the potential to add further time delays to a process that is already very lengthy.
- We may start to see applications for costs against the MOECC pursuant to the power afforded to all tribunals under section 17.1 of the Statutory Powers Procedure Act, where the conduct of a party has been unreasonable, frivolous or vexatious, or a party has acted in bad faith.
The MOECC’s inability to exercise the discretion that the ERT’s current approach assumes also suggests that the ERT should consider revisiting application of the fairness factors that it applied between 1995 and 2010.