Ontario Court of Appeal Extends D&O Personal Liability for Corporate Contamination to Civil Actions

Section 99(2) of the Environmental Protection Act, R.S.O. 1990, c. E.19 (EPA) provides a statutory right of compensation to any person for loss or damage suffered as a direct result of a spill from the owner of the pollutant and the person having control of the pollutant.

In its recent decision in Midwest Properties Ltd. v. Thordarson[1], Ontario’s Court of Appeal held that s. 99(2):

  • Does not require proof of an actionable nuisance
  • Compensates the full cost of remediation; damages are not limited to the diminution in the value of the plaintiff’s property caused by the contamination
  • May operate against a corporate principal, director, or officer of a corporate landowner where that person is shown on the facts to be a “person having control of [the] pollutant”
  • Applies even where there is an existing enforcement order for clean-up against the defendant.

The Facts

The appellant, Midwest Properties Ltd. (“Midwest”), and the respondent, Thorco Contracting Limited (“Thorco”), own adjoining properties in an industrial area of Toronto.

Thorco stored large volumes of waste petroleum hydrocarbons (“PHC”) on its property for several decades. As a result of Thorco’s storage practices, PHC contaminated the soil and groundwater on its property. From 1988-2011, Thorco was in almost constant breach of its license and/or compliance orders issued by the Ontario government ministry now known as the Ministry of the Environment and Climate Change (“MOE”).

Groundwater flows from Thorco’s property into Midwest’s property, and contaminated the latter with significant concentrations of PHC. Midwest discovered the contamination after it acquired its property in December 2007. Midwest sued Thorco and its owner, John Thordarson, relying upon three causes of action: breach of s. 99(2) of the Environmental Protection Act, R.S.O. 1990, c. E.19 (“EPA”), nuisance, and negligence. Section 99(2) provides:

(2) Her Majesty in right of Ontario or in right of Canada or any other person has the right to compensation,

(a) for loss or damage incurred as a direct result of,

(i) the spill of a pollutant that causes or is likely to cause an adverse effect,

(ii) the exercise of any authority under subsection 100 (1) or the carrying out of or attempting to carry out a duty imposed or an order or direction made under this Part, or

(iii) neglect or default in carrying out a duty imposed or an order or direction made under this Part;

(b) for all reasonable cost and expense incurred in respect of carrying out or attempting to carry out an order or direction under this Part,

from the owner of the pollutant and the person having control of the pollutant.

The trial judge held that the respondents were not liable under any of the causes of action. She found that Midwest failed to prove that it had suffered damages, in particular because it had not proven that the PHC contamination lowered the value of its property.

In addition, she ruled that because the MOE had already ordered the respondents to remediate Midwest’s property, a remedy under s. 99(2) was not available to Midwest. In that regard, the trial judge found that the EPA should not be interpreted in an “expansive manner” that might permit double recovery.

The Appeal

Midwest appealed and sought judgment for the cost to remediate its property, approximately $1.3 million. The MOE intervened to contest the trial judge’s finding that its order to remediate precludes recovery under s. 99(2) of the EPA.

Delivering the judgment of the court, Hourigan JA., allowed the appeal and granted judgment to Midwest. In so doing, he rejected the trial judge’s approach to interpretation of the EPA and re-affirmed that a generous interpretation must be given to the preventive and remedial purposes of the EPA in protecting the environment.

Accordingly:

  • He did not accept that a finding of an actionable nuisance was a necessary precursor to liability under section 99(2)
  • In addition to common law decision such as Tridan[2] and Canadian Tire[3], where damages for full remediation had been awarded (rather than the traditional measure of damages by reference to the diminution in the plaintiff’s property value), “a plain reading of s. 99(2) of the EPAsuggests that parties are entitled to recover the full cost of remediation from polluters.
  • The two reported cases involving claims against corporate principals, directors or officers under s. 99(2): Bisson[4] and United Canadian Malt[5], establish that a finding that a corporate principal, director, or officer is a “person having control of a pollutant” will be dependent on the factual circumstances of the case. In this case, like the corporate defendant in Bisson, Thorco was a small business whose day-to-day operations were effectively controlled by Mr. Thordarson, who therefore had control of the PHC for the purpose of  s. 99(2), and was liable to Midwest  jointly and severally with Thorco
  • The existence of an MOE remediation order against Thorco, did not prevent an action for compensation under s.99(2): “The purposes of the EPA would be frustrated if a defendant could use an MOE order as a shield. Such an interpretation would also discourage civil proceedings, and may even discourage MOE officials from issuing remediation orders for fear of blocking a civil suit.

Observations

Although Midwest’s action included claims in nuisance and negligence, they were in the minor key. Mr Justice Hourigan did, however, go out of his way to make a finding of nuisance in order to allow him to make an order for punitive damages.

However, the Midwest case is notable mainly for the extension to civil actions, of jurisprudence that has to date mainly been applied to MOE enforcement orders under the EPA. In so doing, it adds a string to the bow of plaintiffs seeking damages to clean up contamination and increases the prospects for recovery of those damages by exposing directors, officers and others with sufficient control over the pollutant, to personal liability for the plaintiff’s damages.

The Court stopped short of requiring an unequivocal commitment from Midwest to carry out the remediation for which it has been awarded damages. Mr. Justice Hourigan appeared to be content with the MOE’s assurance that it “would be forced to redirect its remediation order in the event that the respondents were ordered to pay remediation damages to Midwest. Therefore, the potential for double recovery in this case has been eliminated.

It is not entirely clear how this will work. The MOE does not have the same powers to make clean-up orders against land owners as it does against polluters. For example, s. 17 of the EPA allows the MOE to make “remedial” orders against a person who “causes or permits” the discharge of a contaminant into the natural environment. By contrast, s. 18 of the EPA only allows the MOE to make “preventive” orders against a person who “owns or owned or who has or had management or control of an undertaking or property”.

Also, what happens if Midwest sells its property and Thorco’s contention that there has been no significant diminution in value turns out to be correct? Does Midwest keep the windfall?

We will doubtless see these and other issues raised as the jurisprudence unfolds.

To read the appeal decision in Midwest, please click here

[1] 2015 ONCA 819 (CANLII)

[2] Tridan Developments Ltd. v. Shell Canada Products Ltd. (2000), 35 R.P.R. (3d) 141 (S.C.), aff’d (2002), 2002 CanLII 20789 (ON CA), 57 O.R. (3d) 503 (C.A.), leave to appeal refused, 177 O.A.C. 399

[3] Canadian Tire Real Estate Ltd. v. Huron Concrete Supply Ltd.2014 ONSC 288 (CanLII)

[4] Bisson v. Brunette Holdings Ltd. (1993), 15 C.E.L.R. (N.S.) 201 (Ont. Gen. Div.)

[5] United Canadian Malt Ltd. v. Outboard Marine Corp. of Canada Ltd. (2000), 2000 CanLII 22365 (ON SC), 48 O.R. (3d) 352 (S.C.)

____________________________________________________________

Manning Environmental Law is a Canadian law firm based in Toronto, Ontario. Our practice is focussed on environmental law, energy law and aboriginal law. 

Paul Manning is a certified specialist in environmental law. He has been named as one of Canada’s leading Environmental Lawyers by Who’s Who Legal: Canada and ranked by Lexpert as one of Canada’s Leading Energy Lawyers.

As always, these posts  are provided only as a general guide and are not legal advice. If you do have any issue that requires legal advice please get in touch. Our contact details can be found here

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One Response to Ontario Court of Appeal Extends D&O Personal Liability for Corporate Contamination to Civil Actions

  1. On January 26, 2016, the respondents: John Thordarson and Thorco Contracting Limited filed an application for leave to appeal the decision of the Court of Appeal to the Supreme Court of Canada. Midwest and the MOE have 30 days in which to respond.

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