THE BLOG

Ontario Is Overpenalizing Owners of Contaminated Sites

04/14/2015 01:08 EDT | Updated 06/14/2015 05:59 EDT

Do you have a key to a contaminated site?

It's more and more dangerous (to one's pocketbook) to have ANYTHING to do with a contaminated site in Ontario. Who would have thought that an individual could face unlimited personal liability for the cost of investigating and cleaning up a contaminated site, just because that individual sits on the board of a corporate real estate broker, which listed the property for sale? Or that an accountant could face unlimited personal liability for contamination, because he held a power of attorney to sell the property for its owner?

The Ontario Ministry of Environment and Climate Change is throwing the net wider and wider in its ever-growing attempts to assure that someone pays for contaminated sites, whether innocent or not. And it is having considerable success.

Parent company independent directors?

Three years ago, the frontier of such liability was the $40+ million cleanup order issued to 13 former directors and officers of Northstar Canada and its parent company, Northstar Aerospace: Baker v. Director (Ministry of the Environment). The Ministry admitted that none of these individuals had caused the contamination. The Canadian subsidiary had purchased a contaminated site in Cambridge, Ontario in 1985, had discovered the contamination in 2005, and had spent about $20 million (which it could not afford) to clean it up.

When the court rebuffed the Ministry's attempts to get $15 million from the corporations' creditors, the Ministry went after the former officers and directors of both companies, including a corporate lawyer who had acted as assistant board secretary. These individuals faced a crushing financial squeeze when the Environmental Review Tribunal refused to stay the order pending appeal. They paid the Ministry a $4.75M settlement.

The Baker case sent a chill through many corporate boardrooms, but most people still cannot believe that such an order could actually happen to them. It could.

Advisors and agents?

The Ministry was delighted with the result of the Baker case, and is now issuing even more far-fetched orders. In Rocha v. Director, a cleanup order was issued to a person because he assisted a property owner with limited English skills to communicate with the Ministry and to arrange for consultants for a contaminated site. In McQuiston v. Ontario (MOECC), a cleanup order has been issued to (among others) the accountant who held a power of attorney to sell a contaminated site for an overseas client, and to the directors of a real estate company that listed the property for sale.

In McQuiston v. Ontario (MOECC), and a series of related cases now before the Environmental Review Tribunal, solvents were found in a roadside ditch that drains into a local watercourse and into Lake Erie. Ministry staff determined that the solvents came from a disused industrial site, at 833 Helena Street in Fort Erie. A long term tenant had vacated the site last fall and the property owner had put it up for sale. As the property owner's sole director lived in England, he gave a power of attorney to an Ontario accountant to manage the sale. The accountant signed a listing agreement with a local broker, who set up a lockbox containing a key. The accountant and the broker therefore controlled access to the site.

In the Ministry's view of the Environmental Protection Act, they can issue environmental orders to anyone who owns or owned or has or had management or control to a contaminated site. In this case, the Ministry quickly issued an investigation and cleanup order to all of the following, jointly:

1. Carven Petrochemical Co., the former tenant;

2. The former tenant's former site manager;

3. The officers and directors of the former tenant, one of whom is reportedly 81, ill, suffering from dementia, and bankrupt;

4. 1350095 Ontario Ltd. et al, the current property owner;

5. a British resident who inherited this company from his recently deceased father;

6. a Canadian accountant, who accepted a power of attorney from the absentee owner to sell the property;

7. DTZ Barnicke Niagara Limited, the listing broker, and

8. Two individual directors of that broker!

Nothing in the Order suggests that any of them knew about the contamination before it occurred, or that any of them did anything illegal.

Ontario real estate professionals should worry!

Ontario professionals who deal with real estate do not yet seem to understand the degree of personal risk that they face when property turns out to be contaminated. Judging from the ERT website, the DTZ Barnicke directors did not even appeal the order against them. They may now face enormous liability.

Why aren't real estate professionals up in arms about the endless creep of no-fault environmental liability? If this order stands up on appeal, and perhaps even if it does not, won't real estate practice in Ontario have to change? Who would agree to handle the sale of a potentially contaminated property, if they knew it was at the potential cost of all of their own assets? And how will the environment be better off if everyone is scared away from potentially contaminated sites? Do we really want to just fence them all off indefinitely?