Canada: Ontario Court Rejects Damage Recovery In Contamination Claim, Adopting A Strict Analysis That May Hinder Future Claims

In Midwest v. Thordarson (Midwest) 2013 ONSC 775, the Ontario Superior Court of Justice dismissed a property owner's claim for damages for remediation costs stemming from the alleged migration of contaminants from a neighbouring property. Somewhat surprisingly, the Court adopted a restrictive damages analysis in the context of private nuisance, concluding it is not enough to establish that contaminants can pass or even have passed from one contaminated property to another. Nor is it enough for a plaintiff to establish that contaminants present on the property exceed Ministry of the Environment (MOE) criteria. According to the Court, if a party purchases contaminated land and claims damages against its neighbour, the purchaser must demonstrate that, during the tenure of its ownership, the level of contamination actually increased as a result of the neighbouring owner's actions. Whether the Court's more restrictive analysis of a plaintiff's burden of proof will be adopted in other decisions remains to be seen.

In Midwest, the plaintiff Midwest Properties Ltd. (Midwest) brought a claim for damages for nuisance, negligence, punitive damages and for statutory compensation under section 99 of the Ontario Environmental Protection Act (EPA) against the owner of the adjacent property, Thorco Contracting Limited and its principal, John Thordarson (collectively, Thorco). Thorco had used its property as a storage site for petroleum hydrocarbon (PHC) waste since 1973. During testing on Midwest's property (which occurred after the purchase by Midwest had been completed), experts retained by Midwest discovered certain pockets of PHC contamination in exceedence of applicable MOE guidelines.

The MOE ordered Thorco to investigate and remediate Midwest's property. However, despite the remediation order, Midwest also brought a claim for damages against Thorco for the cost of a proposed remediation that they developed in consultation with their experts.

Midwest relied on – and the Court accepted – expert evidence concluding that groundwater flowed from Thorco's property to Midwest's property and that contamination on Thorco's property would necessarily migrate onto Midwest's property. However, Midwest could neither establish when the contamination occurred, nor, specifically, whether that contamination had occurred before or after Midwest had purchased the property in 2007. When Midwest bought the property, it conducted a Phase I environmental site assessment (ESA) but did not test the soil or the groundwater, so evidence establishing the condition of the property upon purchase was not available to the court.

Midwest argued that proof of contamination on its property was sufficient to establish liability against Thorco, and that Midwest needed only to establish that its remediation plan was reasonable. Midwest also argued that it should not have to wait for Thorco to comply with a MOE cleanup order to be compensated for its damages, and that there was no guarantee Thorco would ever comply.

Statutory Claim for Damages

The Court first examined Midwest's claim for statutory compensation under section 99 of the EPA, holding that the presence of contamination, by itself, was not enough to establish "loss or damage." Rather, a plaintiff must introduce evidence of loss or damage "such as actual loss in property value or its inability to use its property or operate its business on its property, or business losses." No such evidence was adduced.

Equally, the Court was reluctant to recognize that Midwest had suffered a loss given that the MOE had ordered Thorco to remediate Midwest's property; the Court reasoned that Midwest would receive a "double recovery" if it was awarded damages equivalent to its proposed remediation costs and then Thorco cleaned up the contamination pursuant to the MOE order. Midwest's concerns about delay or non-performance of the MOE order were not addressed by the court.

Private Nuisance and Negligence

In dismissing Midwest's claim in nuisance, the Court noted, "There is no evidence that Midwest acquired a property which was not already damaged (as there is no evidence of the environmental state of the property when it was acquired)." As a result, in the court's view, Midwest could not establish that "any chemical alteration in the soil and groundwater has occurred in its property." The Court found that "[i]f Midwest purchased a contaminated property it must prove that there has been an increase in the contamination level of property caused by the Defendants." According to the Court, Midwest could not prove that its property had actually been damaged.

Of significance, Midwest had not taken any legal action against the vendor of the property or against the environmental company it had retained to conduct the Phase I ESA. 

Similarly, Midwest's failure to establish actual damage on its property proved to be fatal to its claim against Thorco in negligence.

Discussion

This decision provides helpful insight into the evidentiary requirements that a court may impose when assessing claims for damages stemming from the migration of contaminants between neighbouring properties. It may not be enough to establish that contaminants can pass (or have actually passed) from a contaminated property to a neighbouring property. Rather, according to this decision, if a party purchases contaminated land and claims against its neighbour for damages, the purchaser must demonstrate that, during the tenure of its ownership, the level of contamination actually increased as a result of the neighbouring owner's actions. Furthermore, a plaintiff must lead evidence to establish an actual loss in property value, an inability to use its property or operate its business on its property, some business losses, or some other physical manifestation of harm. It is not enough to demonstrate the presence of contaminants in excess of MOE guidelines to successfully establish "loss or damage".

The Court's restrictive damages analysis is somewhat surprising given the accepted expert evidence that contaminants had migrated from Thorco's property to Midwest's property and given the MOE's order against Thorco to remediate Midwest's property. Although not specifically expressed in the decision, perhaps the Court was concerned that Midwest did not investigate the actual condition of the property through a Phase II ESA before completing its purchase, and that, by failing to do so, Midwest was deemed to have accepted the condition of the property at the time of purchase. Essentially, Midwest got what it bargained for.

Whether the court's strict application of the plaintiff's burden of proof will be adopted in other decisions remains to be seen. 

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