Environmental Harm: The Polluter Pays

By: V. Ross Morrison

Soil contamination is a serious and an increasing concern of purchasers in a real estate transaction.

Some agreements of purchase and sale include a representation and/or warranty of the vendor that the property is free of contamination.  Some allow the purchaser a period of time to exercise its own “due diligence” to satisfy itself.

But what happens if toxic chemicals and contaminants, e.g. petroleum hydrocarbons (“PHC”), fuel oil and such, deficiently stored and/or managed contaminate the soil and ground water and thereby migrate from a neighboring property onto your own property?

In a recent decision of the Ontario Court of Appeal PHC’s had contaminated the soil and groundwater on the defendant’s property.  Groundwater flowed from the defendant’s property onto the plaintiff’s adjoining property and contaminated it with significant concentrations of PHC.

The Plaintiff sued for the cost of remediating its property, approximately $1.3 million dollars.

Somewhat surprisingly, the trial judge dismissed the plaintiff’s action.

However, the Court of Appeal allowed the appeal in full, relying on Section 99(2) of the Ontario Environmental Protection Act (the “EPA”).

Section 99(2) provides for a right to compensation for loss or damage incurred as a result of the spill of a pollutant.

The Court of Appeal observed that despite the fact that the legislation has been in force since 1985 there is very little case law interpreting Section 99(2).

The Court of Appeal noted that “the purpose of enacting Section 99(2) was to provide a flexible statutory cause of action that superimposed liability over the common law…This new cause of action eliminated in a stroke such issues as intent, fault, duty of care and foreseeability, and granted property owners a new and powerful tool (italics added) to seek compensation.”

In calculating the loss or damages arising out of this new statutory cause of action, the Court of Appeal weighed the merits and demerits of the restoration approach to the diminution in value approach and stated as follows:

“The restoration approach is superior from an environmental perspective, to the diminution in value approach.

Awarding damages under Section 99(2) based on restoration cost rather than diminution in property value is more consistent with the objectives of environmental protection and remediation that underlie this provision…

This approach to damages reflects the ‘polluter pays’ principle, which provides that whenever possible, the party that causes pollution should pay for remediation, compensation and prevention…

In summary, restricting damages to the diminution in the value of property is contrary to the wording of the EPA, the trend in the common law to award restorative damages, the polluter pays principle and the whole purpose of enacting Part X of the EPA.”

As if to put the exclamation mark to this “new” statutory cause of action, the Court of Appeal went on to confirm that

“The party or entity that owns the pollutant and the person or people, including employees and agents, who manage or control the pollutant can all be held liable under this provision.  In other words, parties with control of a pollutant cannot rely on separate ownership of the pollutant to shield themselves from liability.”

When suing for damages for contamination the lessons to be learned from this significant decision of the Court of Appeal include the following:

  1. Frame your legal action around the wording of Section 99(2) of the EPA;
  2. Aggressively pursue and marshall evidence as to the costs of restoring and remediating the property since they are the appropriate measure of damages in cases of environmental harm;
  3. Sue not only the corporate entity but also the principals and/or persons who control the corporation since they cannot expect to shield themselves from personal liability.

For more information on litigation and other dispute resolution matters, contact V. Ross Morrison by phone at (416) 368-0600 or email at vrmorrison@businesslawyers.com.

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