Ninety-nine problems: Supreme Court of Canada denies leave to appeal Ontario Court of Appeal’s decision in Midwest Properties Ltd. v. Thordarson, Risk of environmental spill liability remains for Ontario officers and directors

Supreme Court of Canada Docket for John Thordarson, et al. v. Midwest Properties Ltd.

2016-05-26 Decision on the application for leave to appeal, Abe Ka Br, The application for leave to appeal from the judgment of the Court of Appeal for Ontario, Number C56758, 2015 ONCA 819, dated November 27, 2015, is dismissed with costs.
Dismissed, with costs

Summary

Keywords
Environmental law – Damages, Unjust enrichment.

Environmental law — Interpretation of s. 99 of the Environmental Protection Act, R.S.O. 1990, c. E.19 — Caveat emptor — Damages — Unjust enrichment — Whether s. 99 applies to historical contamination — Whether s. 99 of the Act should be interpreted to apply to historical contamination even where there is no identifiable spill event — Whether historical contamination is properly classified as a “spill” — Whether a purchaser can circumvent caveat emptor by suing its neighbour — Whether purchasers are relieved from conducting due diligence and investigating — Whether a plaintiff can recover both civilly and statutorily for the same restoration costs — How are damages measured in environmental contamination cases — Whether a plaintiff is entitled to have its property remediated by administrative order and to receive damages for the cost of remediation — Whether courts can take “stigma,” restoration costs, and diminution in property value into consideration — What weight each factor should be given.

In 2007, the respondent Midwest Properties acquired property zoned “industrial”.

The neighbouring property had been owned by the applicant Thorco Contracting Limited, which is owned and operated by the applicant John Thordarson, since 1973.

Thorco used the property for servicing petroleum handling equipment and lining tanks. Various materials and wastes, including petroleum hydrocarbons (“PHCs”) were stored on Thorco’s property.

Prior to the purchase, Thorco provided Midwest with environmental reports on the Thorco property. It also allowed Midwest to conduct environmental studies. PHC contamination was disclosed and Thorco was found to have been convicted of offences under the Environmental Protection Act in 2000. Thorco had not complied with the resulting orders and had continued to store waste improperly.

Midwest then completed an environmental assessment of its own property and discovered PHC contamination of the soil and groundwater, along with a risk that PHCs could pose a health risk in its building.

Experts indicated that remediation would cost $1,328,000. In 2012, the Ministry of the Environment ordered Thorco to take the steps necessary to restore the contaminated property, including Midwest’s property. When Thorco did not comply, Midwest sued Thorco and Mr. Thordarson for damages in negligence and nuisance, damages under s. 99(2) of the Act, and punitive damages.

The action was dismissed at trial, but the respondents succeeded on appeal. 

[Emphasis added]

Risk of environmental spill liability remains for Ontario officers and directors by Julius Melnitzer, June 10, 2016, Financial Post

Ontario officers and directors will remain personally liable for environmental spills after the Supreme Court of Canada refused to hear a challenge.

The Supreme Court last month denied a request that it review an Ontario Court of Appeal decision called Midwest Properties Ltd. v. Thordarson.

The December 2015 appellate judgment held that environmental spills may expose individual directors and officers to personal liability.

The SCC, as it its practice, gave no reason for the refusal. That effectively allows Midwest to remain the law in Ontario.

The Court of Appeal took a broad view of the right to compensation. It ruled that plaintiffs do not have to establish fault, intent, a duty of care, or reasonable foreseeability on the part of the defendant.

Because the Environmental Protection Act allows for claims against “the owner of the pollutant and the person having control of the pollutant,” the facts of ownership and control of a property are sufficient to establish liability.

The defendant in the Midwest case argued that the “corporate veil” protected him and that he was not personally liable. But the court found that the defendant company was a small business whose daily operations were effectively controlled by Thordarson. This made him a person “having control” of the pollutant.

According to a client bulletin from Osler, Hoskin & Harcourt LLP, the Court of Appeal’s reasoning suggests that future courts could rely on the EPA to “increase the spectre” of individual liability. But just how far judges will go remains to be seen.

“Whether future courts will limit the application of this decision to its specific and fairly egregious facts, or apply it more broadly, is unknown,” the bulletin states. [Emphasis added]

Ninety-nine problems (continued): Supreme Court of Canada denies leave to appeal Ontario Court of Appeal’s decision in Midwest Properties Ltd. v. Thordarson by Jack Coop, Paul Morassutti, Jennifer Fairfax, Patrick G. Welsh, Rebecca Hall-McGuire, May 26, 2016, Osler [Company representing Encana in Ernst vs Encana]

On May 26, 2016, the Supreme Court of Canada denied leave to appeal the decision of the Ontario Court of Appeal in Midwest Properties Ltd. v. Thordarson, 2016 ONCA 819 (Midwest). Accordingly, the Court of Appeal’s significant decision regarding the statutory right to compensation for spills under section 99 of the Ontario Environmental Protection Act (EPA) remains the law of the land in Ontario. 

As discussed in more detail in our previous Osler Update, “Ninety-nine problems: Ontario Court of Appeal releases significant decision for environmental civil litigation,” the Court of Appeal confirmed in Midwest that section 99 creates a separate, distinct ground of liability for polluters that does not require a plaintiff to establish intent, fault, a duty of care or foreseeability, but instead focuses on the ownership and control of the pollutant.

Furthermore, a successful claim under section 99 entitles a plaintiff to damages calculated on the basis of cost of remediating the pollution from a property, as opposed to diminution of value of the contaminated property.

Finally, the Court of Appeal used the concept of ownership and/or control of a pollutant to pierce the corporate veil to hold the principal of the polluting company in Midwest personally liable.

With the Supreme Court effectively blessing the Ontario Court of Appeal’s decision in Midwest,  claims under section 99 of the EPA may become the primary cause of action in any contaminated lands dispute due to the preferable and expansive treatment of damages (i.e., the cost of restoration) that section 99 unlocks. However, given the fairly egregious facts of Midwest, this debate may be far from settled. [Emphasis added]

PHC contamination was disclosed and Thorco was found to have been convicted of offences under the Environmental Protection Act in 2000. Thorco had not complied with the resulting orders and had continued to store waste improperly.

Midwest then completed an environmental assessment of its own property and discovered PHC contamination of the soil and groundwater, along with a risk that PHCs could pose a health risk in its building.

Experts indicated that remediation would cost $1,328,000. In 2012, the Ministry of the Environment ordered Thorco to take the steps necessary to restore the contaminated property, including Midwest’s property. When Thorco did not comply, Midwest sued Thorco and Mr. Thordarson for damages in negligence and nuisance, damages under s. 99(2) of the Act, and punitive damages.

The action was dismissed at trial, but the respondents succeeded on appeal. 

[Emphasis added]

Ninety-Nine Problems: Ontario Court of Appeal Releases Significant Decision for Environmental Civil Litigation by Jack Coop, Jennifer Fairfax, Patrick G. Welsh, Rebecca Hall-McGuire, Dec 7, 2015, Osler

The Ontario Court of Appeal released a significant decision in the field of environmental civil litigation in the case of Midwest Properties Ltd. v. Thordarson, 2015 ONCA 819 (Midwest) on November 27, 2015.  This decision is the first time the court has given such careful consideration to, and such an expansive interpretation of, the statutory right of compensation for spills under section 99 of the Ontario Environmental Protection Act (EPA).  In the wake of Midwest, claims based on s. 99 of the EPA may proliferate.  Additionally, this decision suggests that future courts could rely on s. 99 of the EPA to pierce the corporate veil, thereby increasing the spectre of individual liability.

Background

Midwest Properties Limited (Midwest) purchased an industrially-zoned property and building in 2007.  Prior to the purchase of the property, Midwest retained an environmental consultant to conduct a phase one environmental site assessment.  The consultant’s report did not recommend sampling and testing of soil or groundwater at the property (known as a phase two environmental site assessment).

After acquiring the site, Midwest became interested in purchasing the neighbouring property, owned by a company called Thorco Contracting Limited (Thorco) and controlled by its principal, John Thordarson.  Thorco’s business involved the servicing of petroleum equipment and tanks and the property had been storing, among other things, waste petroleum hydrocarbons (PHCs) since 1974. Thorco permitted Midwest to conduct phase one and two environmental site assessments on its property, which disclosed PHC contamination in concentrations exceeding Ministry guidelines.  Midwest then conducted sampling and testing on its own property and discovered similar PHC contamination.

Thorco’s PHC storage activities were known to the Ontario Ministry of the Environment and Climate Change (the Ministry).  From 1998 to 2011, Thorco was in almost constant breach of its environmental approval and orders issued by the Ministry relating to the waste PHCs stored on the Thorco property.In 2012, the Ministry ordered Thorco and Thordarson to remediate the Midwest property.  The orderees did not comply. 

Separately, Midwest sued Thorco and Thordarson on the basis of negligence, nuisance and the statutory right to compensation under s. 99(2) of the EPA.

Trial Decision

As discussed in an earlier Osler update, the Ontario Superior Court of Justice dismissed Midwest’s claim for damages for remediation costs stemming from the alleged migration of contaminants from the Thorco property. The court was concerned that awarding damages under the s. 99 statutory right of compensation would allow for “double recovery” where such remediation had already been ordered by the Ministry. [What recovery when Thorco ignored/ignores Ministerial Orders to remediate?] Further, the trial judge found that Midwest had failed to prove its damages in negligence or nuisance because Midwest had not provided evidence of the environmental state of its property at the time it was acquired.  Accordingly, Midwest could not prove that there had been any chemical alteration in the soil and groundwater, or that the value of Midwest’s property had actually decreased.

Court of Appeal’s Decision

Midwest appealed the trial decision to the Ontario Court of Appeal.

Notably, the Ministry intervened in Midwest’s appeal, arguing for a more liberal and expansive interpretation of s. 99 of the EPA. 

The Court of Appeal allowed Midwest’s appeal, set aside the trial judge’s decision, and awarded damages of $1,328,000 against Mr. Thordarson and Thorco jointly and severally pursuant to s. 99 of the EPA. After further finding the respondents liable in nuisance and negligence, the court awarded $50,000 in punitive damages against Mr. Thordarson and $50,000 in punitive damages against Thorco Contracting Limited.

Recovery Under Section 99 of the EPA

The court disagreed with the trial judge’s conclusion that there can be no recovery under the EPA’s statutory right of compensation where there has also been an order to remediate. The court reasoned that the legislative objective of s. 99 was to establish a separate, distinct ground of liability for polluters because common law had proven to be inadequate.

Importantly, the court recognized that the statutory right of compensation imposed strict liability on polluters by focussing only on the issues of who owns and controls the pollutant, and that this was a codification of the concept of “polluter pays”.  Further, the court held that the trial judge erred by interpreting the statutory right of compensation narrowly because this was inconsistent with the purposive and “generous” approach for environmental legislation mandated by the Supreme Court of Canada  in cases such as R. v. Consolidated Maybrun Mines Ltd. and R. v. Castonguay Blasting Ltd.

Piercing the Corporate Veil

The Court of Appeal confirmed that the statutory right to compensation under the EPA allows for an action to be brought against “the owner of the pollutant and the person having control of the pollutant.”  While the company, Thorco, was clearly the “owner of the pollutant”, the principal of Thorco, Thordarson, argued that he was not personally liable due to the “corporate veil” principle.  The Court of Appeal explained that a finding that a corporate principal, director or officer as a “person having control of a pollutant” will be fact-specific.  In this instance, the court found that Thorco was a small business whose day-to-day operations were effectively controlled by Thordarson, such that it was appropriate to hold Thordarson liable along with the company on a joint-and-several basis, as he was a person in control of a pollutant.

Diminution of Value versus Remediation Costs as Quantum for Damages

The court acknowledged the debate in the case law regarding the appropriateness of awarding damages based on diminution of value as opposed to the cost of restoration [How does one restore the Rosebud aquifers Encana illegally fractured?], and provided clarity on this subject, ruling that the appropriate measure of damages is the cost to remediate the property. More specifically, the court reasoned that the restoration approach was superior as an award, given diminution of value may not adequately fund a clean-up.Additionally, awarding damages based on restoration costs is more consistent with the environmental protection objectives of the EPA as it helps ensure that sufficient funds will be available to remediate contaminated properties.

Further, this approach found support in the “polluter pays” principle which has been endorsed by the Supreme Court of Canada.

That is, a remediation-based approach to damages ensures that polluters must reimburse other parties for costs incurred to remediate contamination.  

Nuisance, Negligence, and Punitive Damages

Although the court had already granted damages under s. 99 of the EPA, it went on to analyze the claims of nuisance and negligence. This is because the plaintiff sought punitive damages, and a court cannot consider and award punitive damages without first determining whether there is a valid civil cause of action.  The statutory cause of action under s. 99 only provides for compensatory damages.

The trial judge had dismissed the nuisance and negligence claims on the basis that Midwest had failed to prove it had suffered damages. The court concluded that the trial judge had committed a palpable and overriding error in reaching this conclusion, as there was uncontradicted evidence, albeit from a remediation expert and not a property valuation expert, on the impact to Midwest’s property value resulting from the human health risk created by the contamination.

Further, the court concluded that the elements of nuisance was made out on the facts.

That is, the migration of contamination that posed a risk to human health onto Midwest’s property was clearly a substantial and unreasonable interference with the plaintiff’s use or enjoyment of the land.Further, the claim of negligence was also made out as there could be “no serious suggestion” that Thorco had actually complied with the standard of care expected of a reasonable landowner, considering it had permitted spills on its property and had failed to comply with Ministry approvals and cleanup orders.

As the objectives of punitive damages are “to punish, deter and denounce a defendant’s conduct” the court found that an award of punitive damages “was clearly warranted.”

Thorco was almost constantly out of compliance with its Certificate of Approval, and its “utter indifference” to the environmental condition of its own property as well as surrounding properties demonstrated “a wanton disregard for its environmental obligations.” What’s more, “this conduct has continued for decades and is clearly driven by profit.”

Discussion

The Court of Appeal’s decision is the first time the court has given such careful consideration to, and such an expansive interpretation of, s. 99 of the EPA. The court’s willingness to give effect to s. 99 suggests there may be a proliferation of plaintiffs seeking damages under s. 99 of the EPA. What is more, the Court of Appeal seems to have set the standard for success on such a claim much lower than the standard that exists for other claims like nuisance and negligence.

The court specifically stated that when the legislature created the statutory right of compensation under s. 99, it “eliminated in a stroke such issues as intent, fault, duty of care, and foreseeability, and granted property owners a new and powerful tool to seek compensation.”

Additionally, this decision suggests that future courts could rely on s. 99 of the EPA to pierce the corporate veil, thereby increasing the spectre of individual liability. Whether future courts will limit the application of this decision to its specific and fairly egregious facts, or apply it more broadly, is unknown. [Emphasis added]

[Refer also to:

‘Polluter Pays’ Principle Results in Liability for $4 Million in Remediation Costs
September 11, 2014, OHSInsider, A Safety Smart Service

Bottom line: The importance of the polluter pays principle in Canadian environmental law can’t be underestimated. So if your company wants to be protected from liability for remediation costs, which may not be incurred until years and years after the contamination occurs, it should focus on not causing any pollution at all in the first place.

[Emphasis added]

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