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Oil Tank Spill - Ontario Court of Appeal upholds environmental cleanup order against Kawartha Lakes

Guthrie Insurance

The Ontario Court of Appeal last week upheld an environmental cleanup order made by provincial officials against a city in 2009 resulting from a spill of furnace oil from a residence whose owners had reached the limits of their insurance coverage.

The City of Kawartha Lakes was not at fault for the spill but was still on the hook for cleaning up the contamination on its land. The Court of Appeal noted the purpose of cleanup orders are to protect the environment and are not based on who's at fault. For its part, the city had argued that the orders violated the 'polluter pays' principle.

Feature story: Pushing the Limits

In December 2008, several hundred litres of furnace oil had leaked from the basement of a home on the shore of Sturgeon Lake, about 150 kilometres northeast of Toronto. The oil had entered the City of Kawartha Lakes's storm sewer system, which drains into the lake.

Although the home owner, Wayne Gendron, had contacted his insurance company, Farmers Mutual, and had been served with a cleanup order from the Technical Standards and Safety Authority (TSSA), court records indicate that by March 2009, the insurance coverage had reached its limit.

"However, contamination on the property owned by the City still had the potential to adversely impact Sturgeon Lake" according to background provided in a May 2012 decision by Ontario's Divisional Court, which sided with MOE. "As a result, on March 27, 2009, the MOE issued a Provincial Order to the City, requiring the City to take all reasonable steps to prevent discharge of contaminant from its own property and to remediate its property."

Because the city contended it was not at fault for the spill, it requested a review of the MOE cleanup order. MOE then issued a confirming order, which the city appealed to the Environmental Review Tribunal, a quasi-judicial body that hears appeals under provincial statutes. ERT dismissed the city's appeal in July 2010.

The City of Kawartha Lakes appealed the ERT ruling to Divisional Court, which upheld the ERT ruling, in a decision published May 28, 2012. The city then appealed the Divisional Court's ruling, which the Ontario Court of Appeal upheld in a decision published May 10, 2013.

The original ERT ruling "completely overturned all the advice" law firm Fasken Martineau had been giving its clients, one of the firm's lawyers said earlier.

Fasken Martineau partner Rosalind Cooper, who defends clients in environmental contamination cases, discussed the Kawartha Lakes case at the International Sites and Spills Conference in November 2012, before the Court of Appeal had heard its case. She was not representing any parties in the case.

At the time, Cooper noted there is no maximum limit on costs for a corporation (or a city) who has been issued an MOE environmental cleanup order but added that before the Kawartha Lake ruling in 2009, ERT had been interested in hearing arguments that someone served with an order should not have liability imposed on them.

But in light of the ERT ruling, she said at the time, "if you end up either owning, or occupying and or having charge, management or control of property you could be hit with a cleanup order and you will likely have to comply with it."

Cooper was alluding to Section 157.1 of the Ontario Environmental Protection Act, which stipulates that a provincial officer "may issue an order to any person who owns or who has management or control of an undertaking or property" if the officer "reasonably believes" the order is necessary to "prevent, decrease or eliminate an adverse effect that may result from ... the presence or discharge of a contaminant in, on or under the property."

During the ERT hearings with Kawartha Lakes, the city agreed that the environment ministry had jurisdiction to issue a cleanup order against the city because it owned property on to which oil had flowed. However, the city argued that in its case, the cleanup order was unfair and contrary to the 'polluter pays' principle, in which the party causing the pollution would be responsible for remediation.

In a separate action, the City has sought recovery from the home owner, the firm that delivered the fuel and the Technical Standards and Safety Authority. The Ontario Court of Appeal noted on May 10, 2013 that the city's lawsuit has not yet concluded. The original defendants in that suit also included the province, Farmers Mutual's adjuster (R. Ian Pepper Insurance Adjusters Inc.), a contractor hired to investigate the cause of the spill and remediate it both on and off the residential property (D.L. Services Inc.) and the manufacturer of the oil tank, Les Reservoirs D'Acier de Granby Inc.

In March 2012, the Ontario Superior Court of Justice dismissed the city's claim of breach of statutory duty under the Environmental Protection Act against Farmers Mutual, Pepper Insurance Adjusters and D.L. Services.

Despite the lawsuit it pursued separately, the city still wanted to make arguments before the ERT as to who was at fault.

"Essentially, the City argued that as an innocent owner and as a victim of inaction on the part of others who could have prevented the spill from contaminating its land, it was unfair and unreasonable that it should have to pay the costs associated with remediating the contamination," the Divisional Court wrote in background with its May 2012 decision upholding the ERT ruling.

But the Divisional court found that the ERT "did not refuse to hear any evidence" regarding fairness in the city of Kawartha Lakes's appeal.

"Rather, the Tribunal found that if the evidence spoke to issues of fault, that evidence was not relevant to the ultimate decision it had to make ..." wrote Madam Justice Harriet Sachs on behalf of herself and Judges Larry Whalen and Thea Herman. In trying to introduce evidence of who was at fault, the court found, "the City was seeking to turn the appeal before the Tribunal into a hearing wherein the Tribunal would determine who was actually at fault for the contamination."

In its ruling last Friday, the Ontario Court of Appeal agreed that evidence of fault is not relevant in whether an order against the city should be revoked.

"That order is a no fault order," Mr. Justice Stephen Goudge of the Ontario Court of Appeal wrote May 10, 2013 on behalf of himself and Judges Marc Rosenberg and Michael Tulloch. "It is not premised on a finding of fault on the part of the appellant but on the need to serve the environmental protection objective of the legislation."

Those objectives -- referred to in a 1998 Supreme Court of Canada decision cited by the Divisional Court in its May 2012 ruling -are "not simply to repair damage to the environment resulting from human activity ... but primarily to prevent contamination of the province's environment."

This objective, the Supreme Court of Canada wrote in 1998, "requires rapid and effective means in order to ensure that any necessary action is taken promptly."

By "inviting" the ERT "into a fault finding exercise, permitting the evidence might even impede answering the question in the timely way required by that legislative objective," the Court of Appeal wrote in the May 10 ruling.

Source: Canadian Underwriter

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