Property owner liable for $1.8M in damages for environmental contamination

In what may prove to be an unsettling decision for property owners and business operators, the Ontario Court of Appeal recently held a property owner liable for adverse environmental effects resulting from actions that occurred between 1960 and 1974. The defendant, Fraser Hillary’s Limited (Fraser), operated a dry-cleaning business beginning in 1960. Fraser disposed of solvents by adhering to best practices at the time, which was to simply dump them out onto the ground. In 1974, new equipment was purchased which eliminated the solvent discharge. In 2003, an environmental assessment was conducted on the plaintiff’s property, which was located adjacent to Fraser’s property. It was discovered that the plaintiff’s property was contaminated, which precipitated a lawsuit against Fraser for both the common law tort of nuisance and compensatory damages under the Ontario Environmental Protection Act (EPA). The court of first instance initially found in favour of the plaintiff, and ordered Fraser to pay damages of over $1.8M. Fraser appealed, arguing that the relevant section of the EPA should not apply retroactively, and that the common law claim of nuisance required foreseeability of harm to succeed, which the defendant claimed did not exist in this case.

The Court of Appeal upheld the decision, finding that even though the applicable part of the EPA didn’t come into force until 1985, it imposed a duty on everyone that had previously owned or controlled a pollutant at the time it was spilled to attempt remediation of the contamination, irrespective of whether the pollution continued. By failing to do this, Fraser could be held liable. As the court stated, “Time does not freeze in 1974 for the purposes of liability under s.99(2)…In short, while the spills may have occurred before Part X of the EPA was enacted, Fraser’s obligations under that part of the legislation are ongoing”. Regarding the common law claim, the court clarified that the tort of nuisance does not require foreseeability of harm to succeed. As such, even though Fraser disposed of the solvents in accordance with best practices in place at the time, and the contamination to the plaintiff’s property was not foreseeable during the period in which the solvents were being disposed, the defendant could be held liable in nuisance so long as the plaintiff’s property was substantially and unreasonably interfered with as a result of the contamination.

For certain offences under the EPA, including those related to discharge of contaminants as was the case here, liability can be imposed upon directors and officers whether or not the corporation itself has been prosecuted or convicted. It’s also possible for individual board members or executives to be named in lawsuits alleging common law tort violations pertaining to adverse environmental effects. Ongoing developments to directors’ and officers’ (D&O) liability insurance policies have broadened coverage such that the primary policy may now respond, in certain instances under specific circumstances, to indemnify individual insureds should they be named in environmental contamination lawsuits. In some cases, D&O policies will also respond in the event the insured individual is responsible for costs flowing from a clean-up or remediation order issued by the Minister of the Environment. However, the extent of coverage varies widely in the marketplace and will not be available in all circumstances. An environmental liability insurance policy is still recommended as the preferable risk transfer option for environmental matters.