The Ontario Court of Appeal has ruled that innocent landowners can be subject to remediation orders even if they are not responsible for the contamination. In doing so, the Court upheld the Environmental Review Tribunal's finding that environmental protection pursuant to the Ontario Environmental Protection Act takes precedence over any concept of fairness based on the traditional "polluter pays" principle.

In Kawartha Lakes (City) v. Ontario (Environment), issued on May 10, 2013, the central issue on appeal was whether the Ministry of the Environment should appropriately consider "fairness" principles when making a clean-up order under the Environmental Protection Act (the Act). The case concerned a provincial officer's order against the City of Kawartha Lakes (the City) to remediate the adverse effects of a furnace oil spill. This spill originated in the basement of a residential home, but eventually travelled through municipal sewers to the municipal-owned lakefront. While the private property owners – from whom the spill originated – made an insurance claim, their funds ran out before the City property could be fully remediated. All parties agreed that the City bore no responsibility for the spill, but the MOE nevertheless issued the order against the City, relying on s. 157.1 of the Act, which provides that "[a] provincial officer may issue an order to any person who owns or who has management or control of an undertaking or property" requiring that person to take steps to "prevent or reduce the risk of a discharge of a contaminant into the natural environment from the undertaking or property" or "to prevent, decrease or eliminate an adverse effect that may result from" the discharge or presence of such a contaminant.

The City argued before the Tribunal that the Director's order was contrary to the "polluter pays" principle, which suggests that parties should only be liable for remedying the contamination for which they are responsible. However, the Tribunal relied on the MOE's Compliance Policy, which states that if multiple individuals are named in a s. 157.1 order, each ordered party is considered to be jointly and severally liable under the order. The policy also specifies that current landowners, innocent or not, should be named in an order. In light of these policy guidelines, the Tribunal found that "the Act specifically contemplated making innocent owners responsible for the cleanup and prevention of contamination if to do so would promote the fundamental purpose of the Act: to protect the environment." For this reason, the Tribunal dismissed the City's appeal.

The primary substantive basis of appeal to the Divisional Court was that the Tribunal erred in law by preventing the City from calling evidence that spoke to the "fairness factors" in support of its appeal. Previous jurisprudence had endorsed the consideration of "fairness" in issuing orders, suggesting that "innocent" non-polluters should not necessarily be the subject of clean-up orders. In reviewing these previous decisions, the Court found that the Director may take into account any of the "fairness" factors in deciding whether to make an order under s. 157.1, but neither case suggests that the Director must take any of these factors into account.

The Court of Appeal was decisive in upholding the Divisional Court decision, explaining that the case "turns entirely on whether the evidence sought to be tendered by the appellant was properly found to be irrelevant to the issue before the Tribunal." The Court went on to agree with the Tribunal and the Divisional Court that evidence regarding the fault of third parties is irrelevant to whether the order against the City should be revoked. The Court emphasized that the order was not premised on a finding of fault, but on the need to serve the objective of the legislation: "Evidence of the fault of others says nothing about how the environment would be protected and the legislative objective served if the Director's order were revoked."

This decision has significant implications for innocent landowners in Ontario. When buying property, landowners must be aware of the current and previous uses of all lands surrounding the site and should consider whether they have proper indemnification and whether their insurance coverage is adequate. There is clearly potential peril associated with purchasing or even taking possession of a contaminated site.