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Alizadeh v Ontario: Directors Face Uphill Battle to Rebut a Presumption of Management and Control

Written by Donna Shier, Partner and Certified Environmental Law Specialist by the Law Society of Ontario, with the assistance of Lauren Wortsman, Student-at-Law, Willms & Shier Environmental Lawyers LLP

Corporate directors and officers are presumed to have management and control of a corporation. As such, directors and officers may be named in Orders issued by the Ontario Ministry of Environment, Conservation and Parks (“MECP”) to address environmental contamination. The Ontario Environmental Protection Act, s. 18 provides the MECP with authority to issue an Order to any person who “owns or owned or who has or had management or control of an undertaking or property”.

The Environmental Review Tribunal (“ERT”) recently affirmed that the evidentiary burden on a corporate director to rebut a presumption of management and control of a corporation is extremely high. In Alizadeh v Ontario (Ministry of Environment, Conservation and Parks), the ERT held a former director personally liable for an Order after the director led insufficient evidence to rebut the presumption. Further, the director’s financial inability to comply with the Order did not warrant removal of the director’s name from the Order.

Facts
In Alizadeh, the company purchased a wood waste landfill site. In 2013, the MECP issued an Order requiring the company to conduct work on the landfill and leachate collection system. The company did not comply with the Order, and the company and its former director were prosecuted. The company was convicted and fined. The charges against the former director were withdrawn.

After the company was convicted, leachate from the landfill continued to discharge to a creek off site. In March 2018, the MECP issued another Order against the company. This Order also named the former director personally. The Order required the company and the former director to conduct work on the leachate collection system to inhibit the migration of leachate off site.

The former director argued that the Order improperly named him for two reasons:

  1. he was never a person in “management or control” of the company, and
  2. he had no financial ability to comply with the Order.

Presumption of Management and Control
The ERT confirmed that corporate officers and directors are presumed to have management and control of the company.

The ERT affirmed holdings from previous decisions:

  • In Rocha v Ontario (Environment and Climate Change), the ERT held that “control” includes both the power to make things happen and the power to prevent them from happening
  • In Currie v Ontario (Ministry of the Environment), the ERT held that a director who acts as a “point person” with respect to the MECP and has knowledge of the environmental issues at a site has management and control
  • In Caltex Petroleum Inc v Ontario (Ministry of Environment and Energy), the ERT held that the onus is on the officer or director to present convincing evidence to rebut the presumption of management and control.

In Alizadeh, the ERT stated that management and control is not limited to formal legal control by officers and directors. It also includes “de facto control”.  However, the ERT does not define “de facto control”.

The ERT said “Where those with formal legal control of a corporation deny their involvement, the Tribunal puts the onus on them to make a ‘convincing case’.”

The ERT concluded the former director had not led sufficient evidence to rebut the presumption of control. This was despite the fact that the former director:

  • was not a director at the time of the Order,
  • had no access to any corporate documents that might prove his position,
  • had no access to the site to comply with the Order, and
  • was prohibited by court-ordered bail conditions in an unrelated matter from contacting the other director to obtain access to the site.

The ERT cited the following factors to conclude that the former director did have management and control:

  • publically-available corporate filings indicate that the former director was the only
    director for much of the relevant time period,
  • the former director negotiated and signed the Agreement of Purchase and Sale for the
    property on behalf of the company,
  • the former director signed contracts on behalf of the company for work to be done on
    the leachate treatment system,
  • for five years, the former director held himself out to the MECP as the only person
    making decisions about leachate management on behalf of the company,
  • the former director made commitments to the MECP that the company would comply
    with the Order, and
  • the company’s environmental consultant took instructions from the former director.

The ERT concluded the former director had management and control.

Alizadeh affirms that the evidentiary burden to rebut the presumption of management and control is extremely high.

Financial Hardship
The ERT affirmed that financial hardship is not a reason to remove a director’s name from an Order. Three notices of assessment from the Canada Revenue Agency showing that the former director had limited income were insufficient to warrant removing the director from the Order.

The ERT rejected the director’s argument that the MECP should use financial assurance provided by the company to pay for the completion of the leachate treatment system. The ERT held that using the financial assurance for this purpose would mean there would be insufficient funds available to maintain the system in the future.

The ERT also noted that when the company had purchased the property, the vendor advanced funds to the company to be used to construct a leachate treatment system. Under the former director’s oversight, those funds were not used for this purpose.

Order Requirements
The ERT concluded that it is insufficient for a director to provide reasons for removal of their name from the Order without also addressing how the environmental objectives of the EPA will be met if the Order is revoked.

This articles has been republished with the permission of the author.  It was first published on the Willms & Shier website.


About the Author

With almost 40 distinguished years of experience practicing environmental law, Donna Shier is one of Canada’s leading environmental counsel to major industrial corporations. Donna is also frequently called upon by corporate, commercial and real estate lawyers to assist their clients with environmental legal issues, and provides environmental law expertise to external litigation counsel. Donna is a qualified mediator and is an accredited member of the ADR Institute of Canada. Donna is called to the bar of Ontario.

Ontario: Asphalt Company Fined $175,000 for Environmental Violations

Ingram Asphalt Inc., located in Toronto, was recently convicted of five violations under the Ontario Environmental Protection Act and was fined $175,000 plus a victim surcharge of $43,750.  The company was given 24 months to pay the fine.

The convictions relate to permitting the discharge of Benzo(a)Pyrene, a contaminant that exceeded established standards, and for violating three ministry approval conditions, and for alteration of equipment without ministry approval.

Ingram Asphalt Inc. produces asphalt road pavement at a facility located on Ingram Drive in Toronto, within an industrial area shared with various businesses, and a commercial building with residential space.  Over the years there have been complaints regarding concerns about dust leaving the site and adversely impacting businesses and quality of life.

Breakdown on Fines

With respect to the prosecution on the discharge of Benzo(a)Pyrene into the air, the company was fined $100,000 for permitting the discharge for a specified averaging period and exceeding the acceptable levels under Section 20 (2) of Ontario Regulation 419/05 under the Environmental Protection Act, on December 11, 2017. The ministry was notified of the exceedance with reported levels in the air of 0.0000297 micrograms per cubic meter, compared to the allowable limits specified as 0.00001 micrograms per cubic meter, almost three times the allowed maximum.

Ingram Asphalt was fined $55,000 for three violations for non-compliance with a ministry approval for conditions outlined in the company’s December 2016 approval conditions specific to addressing concerns about air pollution. Despite efforts by the ministry to bring the company into compliance it was identified that the company was non-compliant in the following areas: (1) Condition No. 1 (5) restricts the height of storage piles to be less than the height of the associated barrier walls; (2) Condition No. 10 requires the installation of an opacity monitor in accordance with the requirements; and (3) Schedule “D” requires the company to submit a Source Testing Report in accordance with the requirements.

The company was fined $20,000 on one violation for altering the approved equipment by failing to connect pipe and duct work from the asphalt tanks to the batch dryer, which is part of the air pollution control equipment.

Benzo(a)Pyrene

 

Benzo(a)pyrene and other polycyclic aromatic hydrocarbons (PAHs) are widespread environmental contaminants formed during incomplete combustion or pyrolysis of organic material. These substances are found in air, water, soils and sediments, generally at trace levels except near their sources. PAHs are present in some foods and in a few pharmaceutical products based on coal tar that are applied to the skin. Tobacco smoke contains high concentrations of PAHs.

Major sources of PAHs in ambient air (both outdoors and indoors) include residential and commercial heating with wood, coal or other biomasses (oil and gas heating produce much lower quantities of PAH), other indoor sources such as cooking and tobacco smoke, and outdoor sources like motor-vehicle exhaust (especially from diesel engines), industrial emissions and forest fires.

 

Serving ‘Rough Justice’: Assessing Remediation Costs And Liability Allocation Pursuant To The British Columbia Environmental Management Act

Written by Menka Sull and Samuel Kim, Alexander Holburn Law Firm

The British Columbia Environmental Management Act, S.B.C. 2003, c. 53, and the Contaminated Sites Regulation, B.C. Reg. 375(96) (CSR), provide the framework for identifying, remediating, and determining responsibility for the remediation of contaminated sites in British Columbia.

There has been relatively little case law considering the EMA; however, a recent BC Supreme Court decision provides an instructive analysis of cost recovery actions. In doing so, Jansen Industries 2010 Ltd. v. Victory Motors (Abbotsford) Ltd., 2019 BCSC 1621 shed light on two key issues: (1) What costs are recoverable as part of remediation costs under the EMA, and (2) How will liability for the remediation be allocated among those considered to be “responsible persons” for contamination?

Factual Background

Between 2009 and 2010, two properties located in Abbotsford – the Jansen site and the Victory Motors site – were discovered to have been contaminated by leaking underground gasoline storage tanks (“USTs”). The contamination originated from the Victory Motors site which was used as a gas station from World War II to 1994.

Example of the leaking underground storage tank

Jansen Industries 2010 Ltd. (“Jansen”) and Victory Motors (Abbotsford) Inc. (“Victory Motors”), the respective owners of the two sites, each brought actions against Actton Super-Save Gas Stations Ltd. (“Super-Save”), which operated the gas station from 1982 to 1992. Chevron Canada Limited (“Chevron”) and Shell Canada Limited (“Shell”) were also previous operators on the site; however, they were released from the action before trial as they settled with the plaintiffs.

Before trial, plaintiffs carried out the required remediation to obtain certificates of compliance for the respective sites pursuant to section 53(3) of the EMA. It was agreed that Jansen was not a responsible party, so the main issues pertained to the scope of the recoverable remediation costs, and allocation of liability amongst the other entities, including Victory Motors, Super-Save, Chevron, and Shell.

Recoverable Remediation Costs

The parties agreed that the amount of $395,706 paid to an engineering consulting company to obtain certificates of compliance for the two sites were properly remediation costs.

In his reasons for judgment, Mr. Justice Sewell held a number of remediation costs claimed by the plaintiffs were not recoverable pursuant to the EMA given the facts of this case, including:

  1. Legal fees incurred in seeking contribution from other responsible parties;
  2. Loss of rental income with respect to a building on the Victory Motors site while remediation was undertaken; and
  3. Costs to defend an action for remediation of contaminants originating on the Victory Motors site.

Although these remediation costs were recoverable in principle, Justice Sewell held that the plaintiff failed to tender adequate evidence regarding these claims.

Stigma Damages

The plaintiffs also sought stigma damages against Super-Save on the basis that residual contamination decreased the value of the sites. Super-Save argued, and the Court agreed, that stigma damages cannot be recovered as remediation costs under the EMA. Only the cost of bringing a site into compliance with the requirements of the EMA were held to be recoverable in a cost recovery action, which, in this case, was the cost of obtaining the certificates of compliance for the sites. Any claim exceeding this cost would have to be recovered in tort, after showing that a property owner was precluded from making optimal use of that property.

Allocation of Fault

Justice Sewell then turned to allocating liability amongst Victory Motors, Super-Save, Chevron, and Shell, having regard to the factors set out in section 35(2) of the CSR.

Price Paid for the Property

Justice Sewell considered the proposition that a party should not be able to recover the full costs of remediation if the remediation increased the value of the property by an amount in excess of those costs.

Here, the facts were complicated. The current owners of Victory Motors struck a bargain when they bought out all of its shares from the previous owner in 2012. The building on the Victory Motors site was then renovated and leased out to high quality tenants. The Court declined to treat the purchase price of the shares as a de facto purchase price of the property. Therefore, the profits realized from purchase of the Victory Motors shares did not form a basis to modify the allocation of remediation costs.

Due Diligence, Amount of Contaminants, and Relative Degree of Involvement

There was little evidence before Justice Sewell that any of the responsible persons exercised due diligence on the sites. Super-Save’s ten-year operation did not have an adequate inspection regime to detect small leaks, which were found to be enough to place significant amounts of contaminants in the soil over time. Meanwhile, from 1994 to 2012, Victory Motors did not exercise any due diligence at all, despite knowing that the gasoline infrastructure had remained in place. As Chevron and Shell were no longer parties to the action, no evidence was tendered regarding their exercise of due diligence.

The Court also considered the relative periods of operation, the volumes and toxicity of gasoline sold, and the installation and use of USTs by each of the responsible parties.

Remedial Measures Implemented and Paid for by any Responsible Party

The only remedial measures were the costs to obtain the certificate of compliance, which involved decommissioning the infrastructure and pumping out the remaining USTs.

Any Other Factor Relevant to a Fair and Just Allocation

Here, Justice Sewell took into account the circumstances under which ownership of Victory Motors changed hands in 2012. As Victory Motors received the benefit of remediation costs while being a significant contributor to the contamination, a significant portion of the remediation costs was allocated to it. The Court held that Victory Motors ought to have known about the environmental consequences of allowing disused gasoline infrastructure to remain on the property for nearly two decades.

The lengthy period of time that had passed since the likes of Chevron and Shell operated on the site militated toward a lower allocation of responsibility relative to the parties of the litigation. However, the allocation of liability reflected that a Chevron-installed UST was only decommissioned in 2012.

In the end, responsibility for the majority of the remediation costs was shouldered by Victory Motors and Super-Save.

Takeaways

This decision is important for a number of reasons.

First, it highlights the importance of establishing a sufficient evidentiary basis for claiming remediation costs under the EMA. The costs sought by the plaintiffs were denied not because the categories of costs were inherently unrecoverable as remediation costs, but because the evidence did not adequately support the claims.

The decision also clearly identifies remediation costs under the EMA and stigma damages as occupying distinct territories, with differing rationales and legal tests.

Finally, this decision highlights the practical difficulties in litigating over the relative contributions to a site’s contamination over several decades. The courts may only be able to administer “rough justice”, with all the uncertainty it entails.

This article has been republished with the permission of the authors.  It was first published on Alexander Holburn’s website.


About the Authors

Menka Sull is a member of the firm’s Construction + Engineering, Insurance, Administrative Law and Environmental Practices. Her practice is litigation-focused and includes a variety of areas of law including contractual disputes, construction litigation, environmental contamination, occupiers’ liability claims and professional negligence and disciplinary matters. Within her professional liability practice, Menka specializes in representing the interests of engineers, architects and lawyers in litigation arising out of professional activities.

Samual Kim is a student at the firm.  He has a B.Sc. from the University of the Toronto and a Juris Doctor degree from the University of Victoria.

Diving deep into Redwater – Supreme Court Says Trustee in Bankruptcy can’t cherry pick Environmentally Clean Assets

Written by John Stefaniuk and Scott Birse, Thompson Dorfman Sweatman LLP

The Supreme Court of Canada released its much anticipated decision in Orphan Well Association v. Grant Thornton Limited (a case more commonly known as Redwater) on January 31, 2019. You might recall our article on the Alberta Court of Appeal’s decision in the same case.

In Redwater, the courts had to decide whether bankruptcy law trumped provincial regulatory orders issued in Alberta. Redwater Energy Corporation (Redwater) was an oil and gas developer.  It held a number of development properties under the authority of the Alberta Energy Regulator (AER).  With the slump in oil prices, Alberta Treasury Branches (ATB), Redwater’s primary lender, called its loan. ATB appointed Grant Thornton Ltd. first as receiver and subsequently as corporate trustee in bankruptcy of the estate of Redwater under the federal Bankruptcy and Insolvency Act (BIA).

In the course of examining Redwater’s realizable assets, Grant Thornton became aware of outstanding environmental reclamation obligations that were associated with some of Redwater’s non-producing properties.  Grant Thornton decided to put the valuable, producing wells and other “clean” assets up for sale, and to walk away from the remaining assets by renouncing them under the BIA. That resulted in putting the reclamation in the lap of the Orphan Well Association (OWA), an industry-funded organization set up in Alberta to administer a fund established for the purpose of reclamation of “orphan” properties.

The AER refused to allow the transfer of the productive licences. It issued abandonment orders requiring clean-up or posting of security for clean-up costs in relation to the renounced assets. The parties headed to court to see what would become of the value that could be realized for the retained assets. Both the trial court and the Alberta Court of Appeal would have allowed Grant Thornton to leave the liabilities behind.

In the majority decision written by Wagner C.J., the Court applied a three-part test found in another Supreme Court of Canada case decided in 2012, Newfoundland and Labrador v. AbitibiBowater Inc. The majority of the Court held that the reclamation claims were not  a debt, liability or claim owing to a creditor and that they were too remote to attach a monetary value. That meant that two of the three criteria in the Abitibi test were not met. The Court therefore held that the bankruptcy did not have the effect of undoing the orders and the trustee could not cherry-pick the valuable assets while renouncing the rest.

This was a bit of a surprise to many environmental law practitioners, including most of the ones I attended a conference with just a few weeks prior to the decision.

What then, is the upshot?

Ostensibly, this is good news for provincial regulators. It is more likely that their enforcement orders will be found to continue to be binding upon corporations in bankruptcy. While it does not make receivers or trustees in bankruptcy personally responsible for rehabilitation costs, it does mean that the proceeds of sale of the valuable assets may have to be put toward satisfying those orders before any of it is available to lenders and other creditors. That means less costs potentially borne by the provinces (and their taxpayers). Predictably, lenders do not seem to garner a lot of public sympathy.

On the other hand, (assuming no changes to the BIA) the decision means that lenders and other creditors will have to pay closer attention to the borrower’s unfunded clean-up and closure costs when extending and monitoring credit. If the lender no longer has the ability to deal with valuable assets and leave the “dirty” behind, it means that credit in environmentally sensitive sectors may become tighter, reporting requirements may become more onerous, and some lenders may become skittish.

The dissenting minority decision written by Côté J. said the majority decision was not based on “polluter pays”, but instead resulted in a regime of “lender pays”.  After all, it is always open to the provinces to require permittees and licensees to post better (and more) security to fund rehabilitation costs, and to carry out better monitoring and inspections to ensure that the security is really adequate to fund clean-up. On top of that, who is in a better position to monitor environmental compliance and reclamation costs, the regulator or the bank? Surely, the regulators have better expertise and, assuming proper funding from government, better resources to carry out the work. Indeed, the regulators also wield the bigger stick – fines and penalties – whereas the most that the lender can do is either refuse to lend, lend less, or call in a loan where potential trouble is spotted. By the time that issues are obvious, the lender may choose to let things ride, so long as payments are being made, rather than force a realization that could put its security at risk. It is difficult to see how that serves environmental protection.

In some respects, the decision can be seen as a bit of a “Get out of Jail Free” card for the provinces and their resource and environmental regulators. No doubt that is the way that ATB felt about it.

This article has been republished with the permission of the authors. It was first published on the TDL Law website.


About the Authors

John Stefaniuk engages in a broad practice with emphasis on environmental law, real estate and development law, natural resources and energy, commercial law and municipal law matters. He has particular experience in relation to contaminated sites, mining and mine rehabilitation, wind power development, natural resource development, environmental approvals and licensing, commercial real estate, leasing, financing and development, municipal approvals, taxation and assessment and business acquisitions. He appears regularly before government licensing bodies and administrative tribunals including the Manitoba Clean Environment Commission and Municipal Board, municipal councils, provincial legislative committees and in all levels of court in Manitoba and in the Federal Court in connection with environmental, resource, regulatory municipal, and property issues.

Scott Birse has a broad practice with a particular emphasis on environmental law, municipal law, real estate and development law, regulatory compliance, commercial law and related litigation. He has particular experience assisting clients in the areas of environmental liability in real estate transactions and business acquisitions, municipal planning and approvals, contaminated sites liability, environmental assessments, commercial real estate development and civil litigation. Scott has appeared before municipal tribunals, the Manitoba Court of Queen’s Bench and the Manitoba Court of Appeal. He has also advised clients with respect to municipal and environmental matters in Saskatchewan and British Columbia.

Supreme Court of Canada denies Leave to Appeal in the latest dry cleaner Contamination Case

Written by Marc McAree, Willms & Shier Environmental Lawyers LLP

On April 11, 2019, the Supreme Court of Canada denied the dry cleaner’s application for leave to appeal from the Ontario Court of Appeal’s decision in Huang v Fraser Hillary’s Ltd. 1

Huang confirms that Ontario courts are inclined to measure and assess damages in contaminated land lawsuits based on the cost to remediate contamination and that the statutory cause of action in Ontario’s Environmental Protection Act (“EPA”), 2 s. 99(2) is alive-and-well. Huang is the latest decision in what we expect will be an increasing number of claims brought pursuant to EPA, s. 99(2).

Fraser Hillary’s Limited (“FHL”) owns a dry cleaning business in Ottawa that has operated since 1960 near two neighbouring commercial properties owned by Eddy Huang. David Hillary is the president and sole corporate director of FHL. Mr. Hillary also owns a residential property situated near the FHL property. 3

Spills of dry cleaning solvents containing tetrachloroethylene (“PCE”) and trichloroethylene (“TCE”) were known to have occurred between 1960 and 1974 at FHL’s dry cleaning business. In 1974, FHL bought new equipment and deployed new practices that the trial court and Court of Appeal held virtually eliminated any possibility of spills thereafter. 4

In 2002, Mr. Huang discovered TCE at his nearby commercial properties. He sued FHL and Mr. Hillary.5 Mr. Huang relied on five causes of action that plaintiffs typically plead in contaminated land lawsuits:

  • liability pursuant to EPA, s. 99(2)
  • nuisance
  • strict liability
  • negligence
  • trespass.

Trial Decision

At trial, the Ontario Superior Court of Justice found that

  • FHL was liable pursuant to EPA, s. 99(2) as the owner and controller of a spilled pollutant. The trial court held that EPA, s. 99(2) applies prospectively to permit compensation for spills that happened before the statutory cause of action was promulgated into law in 1985.6
  • FHL was liable in nuisance because the TCE present at Mr. Huang’s property caused an interference with Mr. Huang’s use and enjoyment of land that was both substantial and nontrivial.7
  • FHL was not liable in negligence, trespass or strict liability.
  • Mr. Hillary was not liable under any cause of action. 8

The trial court considered various clean up options in assessing and awarding damages to Mr. Huang based on the cost to remediate his commercial properties. 9

Court of Appeal Decision

FHL appealed the trial court decision to the Ontario Court of Appeal.

Mr. Huang cross-appealed specific aspects of the trial court decision including that: (i) FHL was not liable in negligence, trespass, or strict liability, and (ii) Mr. Hillary was not liable as a nearby residential property owner.

Footnote

1 Huang v Fraser Hillary’s Ltd, 2018 ONCA 527, leave to appeal to SCC refused, 38282 [Huang ONCA].

2 Environmental Protection Act, RSO 1990, c E19, s 99(2) [EPA].

3 Huang v Fraser Hillary’s Ltd, 2017 ONSC 1500 at paras 1-4 [Huang ONSC]

4 Huang ONSC at para 23; Huang ONCA at para 7.

5 The claim against Mr. Hillary was in his personal capacity as the owner of a nearby residential property at 36 Cameron Avenue, not as a corporate director and officer of FHL; Huang ONSC at para 19.

6 Huang ONSC at paras 84, 97

7 Huang ONSC at para 124

8 Huang ONSC at paras 52-55, 61, 103, 147, 169.

9 Huang ONSC at paras 185-93.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

This article has been republished with the permission of the author. It was first published on the Willms & Shier Environmental Lawyers LLP website and can be found here.


About the Author

Marc McAree, B.A. (Hons.), LL.B., M.E.S., is a partner at Willms & Shier Environmental Lawyers LLP and certified as an Environmental Law Specialist by the Law Society of Ontario. Marc provides advice and solutions to a wide range of clients to overcome their environmental law and litigation issues.  Marc has significant environmental law expertise in contaminated land/brownfields clean ups, transactions and litigation, and environmental compliance and approvals.  Marc also helps clients reduce and manage environmental risks and liabilities. Marc is
recognized for his excellence representing clients in environmental civil
litigation at all levels of Ontario Courts, defence of clients against
environmental regulatory prosecutions, and appearances before Ontario’s
Environmental Review Tribunal and other administrative law decision-makers on
appeals and other hearings.  Marc has
particular experience litigating soil and groundwater contaminant impacts,
nuisance and odour issues.

Supreme Court of Canada refuses leave to appeal of dry cleaner liable for $1.8 million clean-up

The Supreme Court of Canada recently dismissed a Leave to Appeal from an Ottawa dry cleaner that had been held liable for $1.8 million in clean-up costs from spills of dry cleaning chemicals that occurred approximately 45 years ago.

In most legal cases, a party who wishes to appeal the decision of a lower court must obtain permission, or leave to appeal, from the higher Court.  Generally, the losing party in a lawsuit may appeal their case to a higher court. If the higher court denies the leave to appeal, the decision of the lower court stands. If the court grants the appellant leave to appeal, the appeal process continues.

In June of 2018, the Ontario Court of Appeal released a decision dealing with the case Huang v. Fraser Hillary’s Limited. The owner of contaminated property, Mr. Huang, had sued the owner of a dry cleaner business who contaminated Mr. Huang’s property, Fraser Hillary’s Limited (FHL). Mr. Huang owns two commercial properties in Ottawa that are directly south of FHL’s property.

FHL, 1235 Bank St., Ottawa (Photo Credit: Google Maps)

From 1960 onwards, FHL operated a dry cleaning business. Mr. Hillary, the president and sole director of FHL. Spills of dry cleaning solvents containing tetrachloroethylene (PCE) and trichloroethylene (TCE) were known to have occurred between 1960 and 1974 at FHL’s dry cleaning operation. Up to the mid‑70s, the adverse effects of dry cleaning chemicals were generally unknown or not clearly understoodty. In 1974, FHL bought new equipment and used new practices that eliminated the potential for subsequent spills.

In 2002, Mr. Huang discovered TCE at his properties after a an environmental site assessment. He subsequently sued FHL and Mr. Hillary for the cost of the environmental investigations and the clean-up of his property.

In 2017, the Ontario Superior Court of Justice awarded more than $1.8 million in damages to Mr. Haung to clean up his properties and reimburse him for the monies he paid for the environmental investigations conducted on his property. A summary of the 2017 decision can be found here.

After failing in his appeal to the Ontario Court of Appeal, Mr. Hillary applied for leave to the Supreme Court of Canada (SCC). On April 11th, the SCC announced it will not hear an appeal. The top court does not issue reasons for denying leave to appeal.

Ontario: Fine of Ammonia Release to the Environment

Air Liquide Canada was recently fined $100,000 for an offence under the Ontario Environmental Protection Act. The company was found by the court to have permitted the discharge of a contaminant (ammonia) into the natural environment, which was likely to cause an adverse effect.

Air Liquide is a major producer of gases, technologies, and services for Industry and Health Care sectors. Air Liquide is present in 80 countries with approximately 66,000 employees and serves more than 3.6 million customers and patients.

Air Liquide Canada operates a facility in the County of Lambton, near the City of Sarnia, which produces food grade carbon dioxide and is supplied with raw carbon dioxide from a neighbouring supplier. The carbon dioxide flows from the supplier through a dedicated pipeline, which is then liquefied and purified with the assistance of an ammonia-based refrigeration system.

The Air Liquide facility is staffed during daytime hours seven days a week but does not have staff on-site during the night.

On April 16, 2017, in the early morning hours when no staff were at the faciltiy, the flow of raw carbon dioxide unexpectedly increased. As a result, raw carbon dioxide exceeded the refrigeration capacity at the facility and caused approximately 815 kg of ammonia to vent through cooling system pressure release valves.

Ammonia can have corrosive effects on the respiratory system and can cause severe skin burns and eye damage.

At a distribution plant approximately one kilometer downwind from the facility, two employees were forced to seek shelter from the ammonia odour, leaving the distribution plant unattended and creating a potentially dangerous situation. One of the employees experienced eye and throat irritation.

The Investigations and Enforcement Branch (IEB) of the Ontario Environment Ministry investigated and laid charges resulting in one conviction.

Air Liquide Canada was convicted of one violation under the Ontario Environmental Protection Act and was fined $100,000 plus a victim fine surcharge of $25,000, with eight months to pay the fine.

United States: When Is Property Damage From A Release “Expected Or Intended”? Only After The Owner Learns Of The Spill And Ignores It

Written by Seth JaffeFoley Hoag LLP

Any good trial lawyer will tell you that the law is about telling stories.

Once upon a time, Timothy and Stacy Creamer bought a house.  Only after they closed did they realize that some strategically placed rugs were hiding the evidence that, “up from the ground come a bubblin’ crude.”

Unlike Jed Clampett, rather than finding themselves millionaires, the Creamers found themselves with a million dollar liability – literally.

This being a law story, of course the sellers were bankrupt.  The Creamers thus pursued the sellers’ insurer.  The case ended up in the Appeals Court, which held that the Creamers could pursue their claims under the policy.

The insurer, Arbella, made three arguments in support of its summary judgment motion.  The Court rejected them all.  In order, the Court held that:

  1. The property damage was caused by an occurrence.  Arbella argued that the damage was caused by the sellers’ fraud, not by the original release of oil.  However, as the Court pointed out, the Creamers’ had claims based on Chapter 21E, the Commonwealth’s superfund law.  Since Chapter 21E is a strict liability statute, the Creamers’ damages were caused by the release, not by the sellers’ fraud.  (But see number 3, below!)
  2. The loss occurred during the policy period.  Following precedent, the Court concluded that, so long as the property damage occurred during the policy period, it did not matter that the harm to the claimant did not occur until later.
  3. At least some of the damage was not “expected or intended.”  This is the most significant part of the case.  While preserving Creamers’ claims, the Court split the baby on this one.  It held that the original release was not expected or intended, but that, once the sellers discovered the spill without doing anything about it, any further damage was “expected” by the seller.  The Court thus remanded for a determination by the Superior Court how much of the total property damage was “expected.”

The Creamers will thus get their day in court, but, depending on when the sellers learned of the contamination, their recovery could be significantly limited.  They certainly will not get enough to move to Beverly Hills.  No swimming pools or movie stars for the Creamers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

About the Author

Seth Jaffe is recognized by Chambers USA, The Best Lawyers in America and Massachusetts Super Lawyers as a leading practitioner in environmental compliance and related litigation. He is one of the authors of the Law and the Environment Blog, www.lawandenvironment.com, which provides real-world perspectives on current developments in environmental law and regulation. Seth is a past President of the American College of Environmental Lawyers.

Seth works on a wide range of environmental law issues, representing clients in the permitting/licensing of new facilities and offering ongoing guidance on permitting and enforcement related matters under federal and state Clean Air Acts, Clean Water Acts, RCRA, and TSCA. He also advises on wetlands and waterways regulation. Seth’s clients include electric generating facilities, companies in the printing and chemical industries, and education and health care institutions.

When Is It Too Late to Sue for Environmental Contamination? The Alberta Court of Appeal Rules

Written by Laura M. Gill, Stephanie Clark, and Justin Duguay, Bennett Jones LLP

On February 6, 2019, the Alberta Court of Appeal (ABCA) released its first ever decision on section 218 of the Environmental Protection and Enhancement Act (EPEA), which may extend limitation periods applicable to environmental contamination claims.

By a unanimous decision in Brookfield Residential (Alberta) LP (Carma Developers LP) v Imperial Oil Limited, 2019 ABCA 35 [Brookfield], the ABCA upheld a lower court decision where the judge refused to exercise his discretion under section 218 of the EPEA to extend the limitation period for an environmental contamination claim. Extending the limitation period would have likely been prejudicial to the defendant’s ability to maintain a defence to the claim, as the alleged cause of the environmental damage occurred over 60 years ago. We previously discussed the 2017 Court of Queen’s Bench decision in an earlier post, When is an Environmental Contamination Claim Too Old to Extend the Limitation Period?

Background

Brookfield Residential (Alberta) LP (Brookfield) brought a negligence claim in the Alberta Court of Queen’s Bench (ABQB) against Imperial Oil Limited (Imperial) for environmental contamination from an oil well. Imperial drilled and operated the well between 1949 and 1950, and disposed of it in either 1950 or 1954. Multiple owners operated the well between 1950 and 1957 and then used it for salt water disposal between 1958 and 1961, at which point the well was decommissioned and abandoned. After several additional transfers of ownership, the site was issued a reclamation certificate in 1968. Contamination requiring remediation was not discovered until 2010, when Brookfield was preparing the site for residential development.

Brookfield brought an application under section 218 of the EPEA to extend the limitation period, and Imperial cross-applied with a summary dismissal application, asserting that the limitation period had expired. Since it was clear that the ten-year ultimate limitation period under the Limitations Act had expired, Brookfield’s negligence claim was entirely dependent on an extension of the limitation period under section 218. The ABQB refused to extend the limitation period and summarily dismissed the action against Imperial. Brookfield appealed.

The appeal was dismissed. In its reasons, the ABCA provided guidance on three important aspects of section 218 applications: (i) procedure and timing; (ii) the impact of the passage of time on prejudice to the defendant; and (iii) policy considerations relevant to the fourth factor in section 218(3).

1. Applications Under Section 218 of the EPEA Should Be Decided Prior to Trial

The ABCA in Brookfield ruled that applications under section 218 of the EPEA should be decided prior to trial, overruling the two-part test in Lakeview Village Professional Centre Corporation v Suncor Energy Inc, 2016 ABQB 288 [Lakeview]. In Lakeview, the ABQB set out a two-part approach to section 218 applications where the court may make a preliminary determination on limitations and allow the action to proceed subject to a final determination on the merits of the limitations issue at trial. Lakeview became the leading case on the procedure for section 218 applications.

In overturning the Lakeview test, the ABCA found two problems with the approach of deferring the decision on extending limitation periods until trial. First, the Lakeview approach “is inconsistent with the wording of section 218, which provides that the limitation period can be extended ‘on application'”. Second, the approach defeats the whole purpose of limitation periods because it forces a defendant to go through the expense and inconvenience of a full trial on the merits for a determination on limitations, notwithstanding that a limitation period is intended to eliminate the distractions, expense, and risks of litigation after the prescribed time has passed.

2. The Passage of Time Increases the Likelihood of Prejudice to the Defendant

The ABCA affirmed the approach of balancing the four factors in section 218(3), which in this case revolved primarily around the third factor (prejudice to the defendant). The ABCA found that it was reasonable for the ABQB to infer prejudice from the passage of time, noting that this is the presumption behind statutes of limitation. The allegations in Brookfield’s claim occurred over 60 years ago, and as such, witnesses and documentary evidence were difficult to identify and were no longer available. The passage of time also made it difficult to establish the proper standard of care. The ABCA agreed that attempting to determine 1949 industry standards and the standard of care at that time would prejudice Imperial.

3. The Competing Policy Objectives of the Limitations Act and the EPEA

The ABCA also provided guidance on the fourth factor listed in section 218(3), which grants judicial discretion to consider “any other criteria the court considers to be relevant”. The ABCA found that policy considerations behind limitations statutes were relevant criteria that should be weighed. In particular, the ABCA noted the policy objectives of statutes of limitations that actions must be commenced within set periods so that defendants are protected from ancient obligations, disputes are resolved while evidence is still available, and claims are adjudicated based on the standards of conduct and liability in place at the time. However, on the other hand, the ABCA highlighted that the EPEA has a “polluter pays” objective where a polluter should not escape responsibility by the mere passage of time.

Implications

The ABCA’s decision in Brookfield changes the procedure for extending limitation periods in environmental contamination claims. Rather than waiting until trial, parties must bring section 218 applications early on. As a result, plaintiffs in contaminated sites claims should also carefully assess the impacts on defendants of the passage of time in making section 218 applications. Brookfield reinforces that a court will likely presume greater prejudice from a longer passage of time, especially if witnesses and evidence may be difficult to identify and the standard of care may be difficult to assess. Going forward, Brookfield suggests that the Court will take a practical approach to assessing prejudice against a defendant when deciding whether to extend limitation periods in contaminated site claims where the ultimate limitation period has passed.


This article has been republished with the permission of the authors. It was first published on the Bennett Jones website.

About the Authors

Laura Gill is called to the bar in Alberta and British Columbia and has a commercial litigation practice specializing in energy and natural resources, First Nations issues, and environmental matters. Laura advises clients on disputes in a wide range of corporate matters, including complex breach of contract claims and joint ventures.

Laura’s experience in the energy industry includes litigating disputes involving leases, right-of-way agreements, ownership stakes, royalties, gas supply contracts, farmout agreements, and CAPL operating agreements. Laura also acts on appeals and judicial review proceedings following decisions of regulatory bodies, in particular with respect to regulatory approvals for energy-related projects in Alberta and British Columbia.

Stephanie Clark has a general commercial litigation practice. Stephanie has assisted with matters before all levels of the Alberta court system. During law school, Stephanie held a student clerkship with the Honourable Mr. Justice Nicholas Kasirer at the Court of Appeal of Quebec, competed in the 2015 Jessup International Law Moot, and was awarded with the Borden Ladner Gervais Professional Excellence Award. Stephanie articled with the firm’s Calgary office prior to becoming an associate. 

Justin Duguay is an articling student at Bennett Jones.

U.S.: Lessons Learned from Citizen Suits for Contamination of Property by Industry

by Seth Jaffe, Foley Hoag LLP

Two recent cases illustrate the potential scope of, and the potential limitations on, injunctive relief in RCRA citizen suits. 

First up, Schmucker v. Johnson Controls. Contamination was detected at the Johnson Controls manufacturing facility in Goshen, Indiana.  In response, Johnson Controls performed substantial remediation under the auspices of the Indiana Department of Environmental Management’s Voluntary Remediation Program.  Nonetheless, significant contamination remains at the site, including a groundwater plume running beneath residences.  In 2011, TCE was detected in indoor air at concentrations exceeding IDEM’s screening level.  Johnson Controls installed vapor mitigation systems at all affected residences, and concentrations were below screening levels in all the residences after installation of the mitigation.

Imminent and substantial endangerment, or not?  In a battle of the experts, the Court denied both sides’ motions for summary judgment.  First, the plaintiff’s expert’s opinion that there was a risk of future exposures, notwithstanding the mitigation, was enough to defeat Johnson Controls’ motion.  The Court did note that:

“Murphy’s law” is not sufficient to establish an endangerment where a party relies only on speculation that mitigation measures might fail.

However, the Court found that the plaintiffs’ expert was not simply speculating.

On the flip side, defendant’s expert said that the mitigation measures were sufficient to eliminate the endangerment.  That was enough to defeat plaintiffs’ motion.

Next up, Lajim v. General Electric.  The facts are somewhat similar to those in Johnson Controls.  There was a long history of industrial use, discovery of a groundwater plume – in this case, impacting municipal water supply wells – and the commencement of significant response actions.  Here, the work was supervised by Illinois EPA, pursuant to a 2010 consent decree.  Here too, nearby plaintiffs were not satisfied with the remedial plan, notwithstanding approval by the state agency overseeing the cleanup.  In another battle of the experts, the District Court denied plaintiffs’ request for injunctive relief.  The 7th Circuit Court of Appeals affirmed.  Here are the highlights:

  • District courts have discretion to deny injunctive relief under RCRA, even where the defendant has been found liable.  “It will usually be the case that injunctive relief is warranted,” but it is not mandatory.
  • RCRA is not a general cleanup statute; injunctive relief is only available where there may be an imminent and substantial endangerment.
  • Where plaintiffs failed, after an evidentiary hearing, to demonstrate that cleanup was necessary beyond that which GE was doing pursuant to the consent decree, no injunction need issue.

I think that there are two lessons from these cases, one substantive and one practical:

  1. RCRA’s citizen suit provision provides plaintiffs with a powerful hammer, but there are limits to the relief that courts will impose, particularly if a defendant is implementing a cleanup under state oversight.
  2. Good lawyering and persuasive experts still really matter.

About the Author

Seth Jaffe is recognized by Chambers USA, The Best Lawyers in America and Massachusetts Super Lawyers as a leading practitioner in environmental compliance and related litigation. He is one of the authors of the Law and the Environment Blog, www.lawandenvironment.com, which provides real-world perspectives on current developments in environmental law and regulation. Seth is a past President of the American College of Environmental Lawyers.

Seth works on a wide range of environmental law issues, representing clients in the permitting/licensing of new facilities and offering ongoing guidance on permitting and enforcement related matters under federal and state Clean Air Acts, Clean Water Acts, RCRA, and TSCA. He also advises on wetlands and waterways regulation. Seth’s clients include electric generating facilities, companies in the printing and chemical industries, and education and health care institutions.