By Graham Hardy & Kristen Brewer
Fasken Martineau DuMoulin LLP
The British Columbia Supreme Court has issued a significant decision in the area of contaminated sites, reiterating the “polluter pays” principle. On August 25, 2014, it ordered the defendant to reimburse the plaintiff $4.75 million for reasonable incurred remediation costs, the largest award of its kind to date.
JI Properties Inc v PPG Architectural Coatings Canada Inc/PPF Revetments Architecturaux Canada Inc, 2014 BCSC 1619, is an action to recover costs associated with remediation of contaminated land. The plaintiff, JI Properties, spent approximately $5.3 million to clean up contamination on James Island, a small private Island near Victoria, BC. Pursuant to BC’s Environmental Management Act (EMA),1 JI Properties brought an action in 2009 against “responsible persons” to recover the “reasonably incurred costs of remediation” in accordance with the principles of liability set out in EMA. The court found the defendant, ICI Canada Inc. (now known as PPG Architectural Coatings Canada Inc.), which was the prior owner and historic polluter of the island, responsible for the majority of the remediation costs, and ordered the defendant to compensate JI Properties for $4.75 million in remediation costs.
History of the Site
The plaintiffs, JI Properties, purchased the land from ICI, which, though successive corporate entities, had manufactured explosives on James Island from 1913 to 1985. During the late 1980s, absent legislated remediation standards, ICI retained environmental consultants and engaged with the Ministry of Environment and Parks to remediate some of the contamination on portions of the island. The ministry and ICI agreed to applicable criteria for remediation of lead, mercury, TNT, and DNT in the soil, and the ministry indicated to ICI that the criteria were appropriate for the assumed future uses of the property. As directed by the Ministry of Environment and Parks, ICI filed a restrictive covenant in the Land Title Office for a portion of the island, giving notice to subsequent owners of the historic uses of the property and restricting them from using the industrial land for residential buildings. ICI sold James Island to a predecessor of Pacific Parkland Properties Inc. in September 1988 for $5 million.
JI Properties acquired the land from Pacific Parkland in 1994 for approximately $26 million. JI Properties was given notice of the restrictive covenant, and waived a condition precedent in the purchase agreement regarding environmental condition of the purchased property. JI Properties retained experts to assess the property and undertake remediation. Remediation of the southern “industrial land” portion of James Island was undertaken by SEACOR Environmental Inc. on behalf of JI Properties between July 2004 and September 2006. A “Certificate of Compliance” pursuant to EMA was issued by the Ministry of Environment in December 2006.
Determining Liability
EMA establishes the concept of “responsible person” and apportions absolute liability to anyone deemed to be a responsible person. Previous ownership of the land establishes this responsibility. More importantly, any person that “produces a substance” becomes responsible if that substance contaminates any land, regardless of causation. A responsible person is “absolutely, retroactively and jointly and separately liable to any person or government body for reasonably incurred costs of remediation of the contaminated site, whether incurred on or off the contaminated site” (EMA, s. 47(1)).
The court addressed two issues in determining ICI’s liability for the remediation costs. Both are instructive for future actions of a similar nature.
First, the court considered whether JI Properties’ claim was statute-barred by reason of being brought too late. Since the remediation took place between 2004 and 2006, the court applied the 1996 Limitation Act (now repealed), which provides for limitation periods of two or six years from the date the cause of action arose. Significantly, the court found that the limitation period does not begin to run until all costs of remediation are incurred, even though the costs may be incurred over a long period of time. The court concluded that the applicable limitation period was six years, because cost recovery actions under EMA are not actions in “contract, tort, or arising from a statutory duty.” Section 47 of EMA creates a statutory cause of action that is not a “statutory duty” in that it does not require a responsible person to remediate a site, but rather provides a right to recover remediation expenses.
Second, the court addressed the question of whether ICI and JI Properties were “responsible persons” for the purposes of EMA. Section 45 of EMA makes both current and previous owners of a contaminated site responsible for remediation. The absolute liability that the scheme promotes is difficult to avoid except by complying with Section 46 of EMA, which sets out the circumstances in which a person is not responsible. In this case, the relevant exceptions are for holders of a Certificate of Compliance and innocent purchasers.
ICI argued that the comfort letter obtained from the Ministry of Environment and Parks was akin to a Certificate of Compliance, because the statutory regime creating the Certificate of Compliance was not in place at the time of their remediation activities. The court rejected this argument on the basis that, if the legislature had intended to grandfather immunity for historical polluters, it would have done so. Therefore, even though historical polluters may have attempted to clean up a property in good faith and with input and approval from relevant ministry officials at the time, they are not entitled to immunity under the current legislation.
JI Properties argued that it was not a responsible person by virtue of the innocent purchaser exception. The court did not accept this argument either, noting that the purchaser of property fits the innocent purchaser exception only if it undertakes “all appropriate inquiries into the previous ownership and uses of the site and … other investigations, consistent with good commercial or customary practice at that time, in an effort to minimize potential liability.” JI Properties undertook some due diligence and was aware of the presence of some contamination, though not the extent of it. The court found that JI Properties took a calculated business risk in ignoring the possibility of greater contamination on the land, and therefore was a responsible person.
Determining Reasonableness
The court then addressed the question of what constitutes “reasonably incurred costs of remediation” that may be recovered under EMA. “Reasonableness” is a factor of both whether the remediation undertaken was reasonable, and whether the associated costs are themselves reasonable.
ICI argued that JI Properties had carried out unnecessary remediation in remediating the land to residential or parkland, as opposed to industrial standards, and that JI Properties had pursued such remediation in order to make the property more valuable. The court rejected this proposition, stating that:
“The whole purpose of the EMA regime is to ensure that the person who pollutes the land pays for the cost of its restoration. This is the so-called ‘polluter pays’ principle that animates the regime. The subsequent land-owners’ motives for remediation are largely irrelevant. So long as the remediation methodology and the associated costs are reasonable, the polluter can [be] held liable for those costs.”
Next, ICI attacked the reasonableness of the costs incurred in the remediation, arguing that a risk-based approach would have reduced costs substantially, and that alternate remediation strategies should have been investigated.
Importantly, the court focused not on resolving the varying expert opinions, but on the fact that JI Properties had sought advice from experts, and behaved reasonably in accepting and acting on their consultants’ advice and expertise in adopting the chosen remediation approach. The court deferred to JI Properties for having expended a commercially reasonable amount for the remediation, holding “the concept of reasonableness does not mandate the most cost-effective or cheapest option for remediation. Reasonableness requires consideration of all the circumstances of the case including reliance on the advice and recommendations of qualified experts.” After considering all costs incurred, the court determined that, of the $5,253,000 claimed, $4.75 million was reasonably incurred with respect to the remediation.
Allocation of Costs
While the court did conclude that JI Properties was a responsible person, the court also found that it was innocent to the extent that it did not contribute to the contamination on James Island. Further, there was no evidence that it had paid a discounted price for the property as a result of the contamination. As a result, the court allocated 100% of the liability to ICI.
ICI argued that this approach would result in a “windfall” for JI Properties, as the purchase price of the property would have been substantially higher had it been free of contamination at the time. The court declined to address this point, as no evidence had been entered to demonstrate that the property value had increased as a result of the remediation, however did comment that a basis for apportionment of costs may exist, if the remediation increases the value of the property in an amount that exceeds the remediation costs.
Takeaway Points
This case reiterates the importance of environmental due diligence in ownership or control of property in BC. A thorough understanding of the legislative regime, both current and past, is critical for assessing potential risks associated with contaminated land. In addition, an important component of due diligence is ensuring that remediation actions are guided by documented advice from qualified experts.
Companies dealing with land that has been remediated prior to the establishment of the contaminated sites regime under EMA (and its predecessor the Waste Management Act) should also understand the limitations of comfort letters and other steps taken to address historic remediation.
1SBC 2003, c 53.
2Para. 111.
3Para 132.
STP has recently published an update to its publication Canadian Environmental Law Guide and also publishes the following related guides:
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International Audit Protocols - Canada: British Columbia (Abridged)
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[U.S.] Environmental Compliance: A Simplified National Guide
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[U.S.] Environmental Auditing: Federal Air Quality MACT Standards for Site Remediation
About the Authors
Graham Hardy obtained a Juris Doctor degree from the University of British Columbia in 2013 and is currently an articled student with Fasken Martineau DuMoulin LLP.
Kristen Brewer is an associate with Fasken Martineau DuMoulin LLP, and Contributing Editor of the Canadian Environmental Law Guide. Kristen practices in the areas of energy, environmental, and Aboriginal law, and regularly advises clients on environmental permitting and due diligence in transactions and operational decision making.