Hold a POA for Property? Beware of Statutory Environmental Liability
Should a person who is not responsible for the pollution of a property be liable for its cleanup simply because he holds a limited power of attorney relating to its potential sale? Don’t be too quick in answering “No!”
Recently I acted for a CPA who had been retained by the offshore director of a corporate property owner to assist with the sale of the property. The retainer arrangements included the director providing a power of attorney (POA) to the CPA limited to permitting him to undertake the steps required to sell the property, such as retaining a local real estate broker (which he did). Unknown to the CPA (and the director and property-owner for that matter), the property had become badly contaminated with solvents during its previous occupation by one or more commercial tenants. In March 2015, a coloured liquid later determined to be solvent-bearing water was observed draining from the property into an adjacent municipal ditch. The Ontario Ministry of the Environment and Climate Change (MOECC) was called and after conducting inspections issued a preventative order to the CPA, the property owner, its director, previous tenants and the real estate broker, essentially requiring the characterization of contamination and abating its movement off the property.
Section 18 of the Environmental Protection Act (EPA) empowers a Director of the MOECC to issue preventative orders to those who own or owned or who have or had management or control of an undertaking or property to undertake steps to prevent or reduce the risk of pollution of the natural environment. The Director must have reasonable and probable grounds that the requirements of the order are necessary to prevent or reduce the risk of pollution or its effects. But fault for the contamination or risk thereof is not a prerequisite to being named in the order.
In a situation of serious contamination (as was the case here) and even less-so, innocent parties are left exposed to substantial joint and several liability related to compliance with the requirements of the order. If they fail to comply, the MOECC can undertake the work itself and seek recovery from the named parties. Non-compliance also leaves the parties exposed to penal prosecution and large fines and/or jail.
Here the Director concluded that the CPA was in management or control because he allegedly informed an unnamed provincial officer that he held a POA in relation to the property. There was no issue that the CPA held a POA. But it was limited and limited to the extent that it could not constitute or management or control of the property. The MOECC undertook no effort to obtain a copy of the POA before issuing the order. Had it done so, naming the CPA to the order could have been averted.
The grounds for naming the real estate broker were also tenuous. Months before the contamination was discovered, and within the context of simply readying the property for sale, it had completed paperwork required for the disposal of wastes that had been located on the property for many years. To expedite the disposal of the wastes the broker had identified itself as its generator. The MOECC could have easily determined that it was not the generator. Yet, this fact, in addition to the realtor’s possession of the keys to the property, was enough to satisfy the MOECC that the broker was in management or control.
Subsequently, the owner of the contaminated ditch, the Regional Municipality of Niagara, issued an order under s.100.1 of the EPA to the CPA and other parties who were allegedly the owner or person having charge, management or control of the pollutant immediately before its first discharge. The order relied on the same bases in the s.18 order for including the named parties and sought recovery of the Region’s costs and expenses relating to the ditch clean up. Parallel to s.18 orders, fault or responsibility for the contamination at issue is not a prerequisite to being named in an s.100.1 order.
The CPA appealed both orders to the Environmental Review Tribunal (ERT). Fortunately, after some months of delay, the MOECC agreed to request that the ERT withdraw the s.18 order on the basis that the property owner had complied with the order and the requirements therein had become moot. As to the s.100.1 order, after substantial disclosure from the CPA, the Region agreed to request that the order be withdrawn against him on the basis that neither could be considered in management or control. The real estate broker obtained the same result on both orders.
However inequitable, the wording in ss.18 and 100.1 makes no mention of fault as a requirement before naming a party. If “no-fault” was the intention of the legislature, it underlines the importance of ensuring that exposure to liability is limited, strictly, to the classes the legislature identified – owners (past and present) and those who the MOECC has concluded are or have been in management or control. Although there are thresholds (reasonable and probable grounds) related to naming parties in other order-making provisions in the EPA, there are none in ss. 18 and 100.1. There should be, otherwise it leaves the use of these powerful provisions open to careless use if not outright abuse. Requiring the Director or municipality to attend before an independent party, such as a member of the ERT, to satisfy the member that there are reasonable and probable grounds to include the parties named in the order, would further reduce the risk of misuse.
Unless and until such clarifications are made to the EPA, CPAs and other parties who may be requested to accept POA appointments for property should exercise care. If you are not familiar with the past or existing uses of the property, ask, and avoid engagements that may leave you exposed. At a minimum, consult a lawyer to ensure the conditions of the POA are drafted narrowly to minimize the risk of an interpretation indicative of management or control. Do not act in relation to the property beyond what is authorized in the POA. Consider requesting an indemnity from the client in the event contamination is discovered.