Widening the Net – Increasing Risks of Ownership, Management and Control under the EPA
By Lynn Dramnitzki 2015/08/31
The Environmental Protection Act provides that the Ministry of the Environment (Ministry) may issue orders to prevent or reduce the risk of a discharge of a contaminant into the natural environment and/or to prevent, decrease or eliminate an adverse effect that may result from the presence of or discharge of a contaminant in, on or under the property. The Environmental Protection Act provides that Orders can be made against anyone who owns, owned or who has or had management or control of an undertaking, property or source of discharge of a contaminant into the environment which has an adverse effect on the environment. Failure to comply with a Ministry Order can result in criminal sanctions for failure to comply.
In 2013, the Ontario Court of Appeal in Kawartha Lakes (City) v. Ontario (Director, Ministry of the Environment) held that the provisions with respect to Orders issued pursuant to the Environmental Protection Act are “no-fault,” and accordingly, a party is required to comply with a Ministry of the Environment Order issued against them even if they are innocent in respect of any discharge of contamination onto their property.
The Ministry of the Environment takes a very broad interpretation with respect to who it considers to have or have had ownership and control of an undertaking, property or discharge of a contaminant into the environment.
In Baker v. Ontario (Ministry of the Environment), the Ministry of the Environment issued orders against former officers and directors of Northstar Aerospace Canada and its U.S. parent company personally, Northstar Aerospace Inc., to continue to pay for the clean-up of its property in Cambridge, Ontario after Northstar Canada and Northstar Aerospace filed for creditor protection and Northstar Canada made an Assignment in Bankruptcy. Northstar Canada owned lands in Cambridge, Ontario and operated a factory which built helicopters on the property from 1974 to 2009. In the early 2000s, it was found that Trichloroethylene was migrating off of the Cambridge property onto neighbouring properties. Starting in 2004, Northstar Canada, with the assistance of Northstar Aerospace, voluntarily undertook a clean-up, monitoring and reporting program (the “remediation program”) with respect to the migration of the contaminant off of its property. In 2009, Northstar Canada and Northstar Aerospace, who were experiencing financial difficulties, closed the Cambridge facility; however, they continued with the environmental program. In early 2012, the Ministry of the Environment became concerned about the financial viability of Northstar Canada and in April 2012 they issued Orders against both Northstar Canada and Northstar Aerospace to continue the remediation programs it had voluntarily undertaken to that point. In June 2012, it issued an Order requiring both Northstar Canada and Northstar Aerospace to provide $10 million in financial assurances. After the June 2012 Order was
issued, both companies, who did not have the financial resources to comply with the June 2012 Order, sought protection from creditors and in August 2012, Northstar Canada made an Assignment in Bankruptcy. All of the directors and officers resigned in favour of the court-appointed monitor in June 2012. In August 2012, the Ministry of the Environment took over responsibility for payment of the costs of the remediation program. In November 2012, the Ministry of the Environment issued Orders against all of the former officers and directors of both Northstar Canada and Northstar Aerospace, including directors and officers who had been appointed after 2009, when the Cambridge plant was closed, and directors and officers who did not have any authority with respect to the Cambridge facility or the environmental issues at that property. The Ministry’s rationale was that the new directors had exercised management and control by causing the companies to seek creditor protection in June 2012. The directors and officers immediately appealed the Order to the Environmental Review Tribunal (the “ERT”) and asked for a stay of the Order pending the appeal. The ERT refused to grant a stay and the Ontario Superior Court of Justice refused to deal with the matter. As a result of the refusal of the ERT to grant a stay pending the appeal, the directors and officers were required to continue to comply with the Order to continue the remediation at a cost of $150,000.00 per month. The remediation costs were not recoverable even if it was ultimately found that the Ministry of the Environment had improperly issued the Order. Given the ongoing costs of complying with the Order, and the high costs of litigation, the directors ultimately agreed to settle the matter by paying approximately $4 million towards the cost of the remediation of the property. As the matter settled, no tribunal or court decision was made with respect to the personal liability of the officers and directors.
Recently, the Ministry of the Environment has issued an Order in the case of a discharge of contaminants that ran into the local drainage system from a former petrochemical plant in Fort Erie, Ontario. The Order was issued not only against the corporation who owned the property, but also its former director (now deceased), its current director (his son who inherited the company) and the petrochemical company which operated a business at the site between 1974 and 2014 and its directors and officers. It also included the accountant who held the Power of Attorney for the purpose of selling the property, and the real estate brokerage company and its officers and directors who were retained to sell the property. The rationale given for making the Order against the real estate brokerage and its directors is that they maintained a lockbox on the property and had arranged for a waste management company to attend at the property. The Order is currently under appeal to the Environmental Review Tribunal, and it is not yet known what the result of the appeal will be. News reports indicate that the costs of clean-up are approximately $45,000.00 per week.
These two recent cases demonstrate the Ministry of the Environment is casting a wide net when making Orders in respect of discharges of contaminants into the environment, and until the Environmental Review Tribunal or Court determines whether such Orders are valid, it should be assumed that the Ministry of the Environment will continue to make such Orders. The financial consequences of such orders are devastating. Anyone purchasing or dealing with any property or business should be extremely cautious and exercise thorough due diligence with respect to environmental risks associated with any property or business before taking on any role which might be deemed to give them ownership, management or control of that property or business.
Lynn Dramnitzki is a lawyer at SorbaraLaw and has defended her clients’ interests in matters involving environmental, property, and personal injury law. She has also assisted in matters involving municipal governance, planning and zoning, land assembly and by-law enforcement.