The City of Kawartha Lakes (the “City”) must clean up contamination that seeped into its municipal storm sewer system from a neighbouring basement, even though it was not responsible for causing the contamination. On May 28, 2012, the Ontario Divisional Court found that the Environmental Review Tribunal (the “Tribunal”) was correct in upholding the clean-up order issued by the Director of the Ministry of the Environment.¹

Facts
In late 2008, several hundred litres of furnace oil leaked from a basement of a property located in the City. The property owner’s insurance company retained a consultant to begin remediation, during which it was discovered that furnace oil had entered into the City’s municipal storm sewer system and culverts, and was being discharged into Sturgeon Lake. The consultant notified the Ministry of the Environment, and the Ministry, in turn, ordered the property owner to eliminate adverse effects caused by the spill and to restore the natural environment.

Section 157.1 of the Environmental Protection Act (the “Act”) gives the provincial officer the power to order “any person who owns or has management or control of an undertaking or property” 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.²

By March 2009, the property owner’s insurance coverage became insufficient to cover any clean-up efforts beyond the property boundary. By then, the property itself had sufficiently been remediated but contamination on the City’s property still had the potential to impact Sturgeon Lake. Accordingly, in late March 2009, the Ministry issued an order against the City to take all reasonable steps to prevent discharge of the contaminant from its property. The City requested a review of this order by the Director who then confirmed the order on April 9, 2009.

The Tribunal Decisions
At the Tribunal level, the City unsuccessfully tried to argue that the clean-up order should not have been issued against an innocent party because it was unfair and contrary to the “polluter pays” principle.

In November 2009, the Tribunal granted the property owner’s motion which prevented the City from leading evidence relating to the parties’ fault and the reasonableness of any costs incurred in remediating the spill.³

The Tribunal heard the City’s appeal in April 2010 and dismissed the case in July 2010.⁴ It found that the Act clearly contemplates some potential unfairness to innocent owners by “saddling” them with initial liability to carry out remediation.⁵ In the context of a migrating contaminant on the City’s property, the appropriate action under the Act is for the City to take immediate measures to safeguard Sturgeon Lake and to leave questions about ultimate financial liability to another forum.⁶ The Ministry did not need to be satisfied that reimbursement to the City would be guaranteed before acting and, therefore, the clean-up order was sensible within this context.⁷

The Divisional Court Decision
By the time the City’s appeal of the Tribunal’s decision reached the Divisional Court in April 2012, it was moot as the City had already completed remediation in accordance with the clean-up order out of public interest. Both the City and the Ministry urged the Court to hear the appeal to help give guidance for future situations.

The City raised two main arguments on appeal:

• The Tribunal erred by limiting the City from calling evidence that spoke to the “fairness factors” when making a clean-up order.
   
• The Tribunal breached natural justice when it refused to allow the City to lead certain evidence then held that it had not put forward an environmentally responsible solution in support of a revocation of the order made by the Director of the Ministry of the Environment.

The Divisional Court found that the Tribunal did not err and was reasonable for the following reasons:

1. Fault Not Required Consideration in Clean-Up Order

The City argued that it should have been permitted to lead evidence on who was at fault for causing the contamination. By finding this evidence irrelevant, the City argued, the Tribunal ignored earlier Divisional Court decisions with respect to fairness considerations in the Director’s issuance of clean-up orders.

The Divisional Court rejected the City’s argument. The Tribunal did not refuse to hear any evidence regarding the “fairness” factors. Rather, it held that if the evidence spoke to fault, that evidence was irrelevant to the decision it had to make which was to decide whether the Director’s order should be confirmed. There was no need for the City to call such evidence to establish its innocence, as this was not in dispute.⁸

Previous decisions such as Appletex and Montague confirm that the Director may take into account the “fairness” factors in deciding whether to make an order under section 157.1 of the Act against a person who owns or has management or control of an undertaking or property. However, nothing holds that the Director must consider one or more of these factors in issuing a clean-up order.⁹

Section 157.1 of the Act makes no reference to fault and can be described as an “owner pays” mechanism.¹⁰ The Tribunal was entitled to guide its discretion to issue clean-up orders by following the Ministry’s Compliance Policy. The policy clearly states that when a clean-up order is issued to more than one person, it is not the role of the statutory decision-maker to make findings of fault.¹¹

To the extent that this violates the “polluter pays” principle, the Divisional Court found the Tribunal to be correct in finding that the City’s complaint lies with the legislator who drafted the Act, rather than with the statutory decision-makers whose mandate is to act in accordance with the law.¹² Here, the provincial officer was facing a migrating contaminant and an insolvent owner of the adjoining property where the contaminant had come from. The provincial officer acted reasonably by ordering the City – an innocent party - to do the clean-up. The Tribunal was reasonable in refusing to revoke the order by finding that the Ministry had exercised its discretion in a purposive manner consistent with the Act’s purpose.¹³

2. Natural Justice Not Breached

The City then argued that the Tribunal breached the rules of natural justice by precluding it from leading certain evidence, then finding that the City had not led evidence of an environmentally responsible solution in support of a revocation of the clean-up order.

The Divisional Court rejected this argument. The Tribunal did not preclude the City from calling evidence about how the environment would be protected if the order were to be revoked. The proposed evidence relating to fault would not assist the Tribunal in coming up with an environmentally responsible solution if it revoked the clean-up order. Accordingly, the Tribunal made no error in making this ruling.

Additional Remedies for Municipalities
When faced with seeping pollutants, innocent property owners may recover clean-up costs through civil litigation. However, municipalities also have additional remedies available to them by virtue of their municipal status. Section 100.1 of the Act allows a municipality to recover the costs for cleaning up a spill that it did not cause by issuing an order for payment to the owner of the pollutant or the person having control of the pollutant.¹⁴

In this case, the City issued cost recovery orders against the owner of the property where the contaminant originated, the fuel provider and the Technical Standards and Safety Authority.¹⁵ In 2010, the City also commenced civil litigation to recover costs from the parties. These parties appealed the City’s order to the Tribunal which had the effect of staying the order. This appeal was adjourned pending resolution of the civil action. In March 2012, the Superior Court dismissed one part of the City’s claim while allowing the negligence claim to continue against the insurance company, the adjuster and the environmental consultant.¹⁶

The decision serves as an important reminder to property owners that they can be ordered to undertake costly environmental remediation even if they have no part in causing the pollution in the first place. Unlike a regular property owner, however, municipalities also have additional remedies available to them by virtue of their municipal status.

¹ 2012 ONSC 2708 (Div Ct) [Divisional Court decision].
² Ibid at para 14.
³ 2009 CarswellOnt 7495, 48 CELR (3d) 95 (Env Rev Trib).
⁴ 2010 CarswellOnt 5518, 52 CELR (3d) 273 (Env Rev Trib).
⁵ Ibid at para 41.
⁶ Ibid at paras 42-45.
⁷ Ibid at paras 43-45.
⁸ Divisional Court decision supra note 1 at paras 57, 61-62, 66.
⁹ Ibid at para 58.
¹⁰ Ibid at para 77.
¹¹ Ibid at para 72.
¹² Ibid at para 78.
¹³ Ibid at paras 79-80.
¹⁴ Ibid.
¹⁵ Ibid at para 17.
¹⁶ See Kawartha Lakes (City) v. Gendron, 2012 ONSC 2035 (Sup Ct).