BLG Environmental Law Update – 2013-2014

A number of interesting environmental law decisions were released in 2013 and 2014. Among the highlights were a Supreme Court of Canada decision confirming that rock fragments may constitute "contaminants," a Federal Court ruling that conservation is not the paramount purpose of the Fisheries Act, and a very recent decision by the British Columbia Supreme Court with significant implications for the contaminated sites regime. BLG Vancouver's environmental group has summarized these developments in its 2013-2014 Environmental Law Update.

CASE LAW

1. Contaminated Sites

(a) Recent British Columbia Supreme Court Decision Shakes Up the Contaminated Sites Regime

In J.I. Properties Inc. v. PPG Architectural Coatings Canada Inc., 2014 BCSC 1619, the owner of James Island, JI Properties Inc. ("JIP"), sought recovery of costs spent cleaning up contamination under the statutory cause of action created by s. 47(5) of the Environmental Management Act, S.B.C. 2003, c. 53 (the "EMA"), against PPG Architectural Coatings Canada Inc. (referred to as "ICI"), a previous owner of the property.

The island hosted explosives manufacturing and storage until at least 1985. ICI owned the island until 1988 and from 1986 to 1988, undertook remediation. No legislative standard existed in BC at the time, so ICI and the BC Ministry of Environment and Parks (the "Ministry") agreed upon criteria. In 1987, the Ministry stated the following in a letter:

...the agreed-to clean-up criteria are applicable to a specified land-use, i.e. airport, golf course or similar activity. Provided the use of the land remains as such, the designated clean-up criteria will not change. I see no reason at this time for us to impose different or more restrictive criteria on [ICI] to accommodate future changes to the special waste legislation or the adoption of provincial clean-up criteria.

If, however, the proposed land-use changes (either under [ICI] or another land owner) then different and/or more restrictive criteria might apply. It would be the responsibility of the land owner at the time to meet the designated clean-up criteria.

ICI undertook remediation following the guidelines established with the Ministry and submitted several reports detailing its efforts. The Ministry advised that the Deed of Title should identify historic use and development restrictions. A restrictive covenant was registered and the Ministry provided a letter (the "comfort letter") to ICI:

...we concur that the clean-up has been undertaken to meet the established criteria for total lead, total mercury, dinitrotoluene and trinitrotoluene...criteria was based on the proposed restricted use of this rehabilitated industrial area. We note that the restrictive covenant on the property identifies areas and restricted land use. Accordingly, we do not perceive any further environmental concerns.

The restrictive covenant explicitly gave notice to successors in title that the land was previously used for manufacturing explosives and batching chemicals, and carried a risk of contamination. It stated that no residential premises were to be erected upon areas previously used for industrial purposes, and that building non-residential structures required prior written consent from the Crown.

In 1988, ICI sold James Island. The restrictive covenant formed part of the Offer to Purchase.

In 1994, James Island was sold to Eagle River Inc. The Purchase and Sale Agreement (the "Agreement") mentioned the restrictive covenant and contained a condition precedent dictating the purchaser's obligation to satisfy itself as to the feasibility of developing and utilizing the property for its intended use, including reviewing environmental conditions and relevant regulatory requirements. This condition was waived and the purchase completed. Shortly thereafter, Eagle River Inc. assigned the Agreement to JIP, owned by the same person. Prior to JIP taking ownership, it reviewed a memorandum from an environmental consultant indicating that he had reviewed at least part of the restrictive covenant and some of ICI's reports delivered to the Ministry from its remediation project.

After purchasing James Island, JIP undertook further remediation from 2004 to 2006. By this time there were detailed standards set by government. Following remediation, JIP applied for and received a certificate of compliance pursuant to the EMA.

The first issue considered by the court was the applicable limitation period. As the remediation was carried out in 2004-2006 and the action was initiated in 2009, this issue was governed by the old Limitation Act, R.S.B.C. 1996, c. 266. Noting that the EMA is a remedial statue, the court found that the limitation period started to run when the last remediation cost was incurred, rather than separate causes of action accruing every time a remediation cost was incurred. As JIP continued to incur remediation costs after March 12, 2007 (i.e. two years before it commenced its action on March 12, 2009), all prior costs were aggregated and recoverable. Anticipating the possibility of indeterminate liability for 'responsible persons' based upon this result, the court suggested such persons can immunize themselves against liability through certificates of compliance. The court stated that exposure without a certificate is consistent with "the 'polluter pays' and retroactivity principles that are the primary drivers behind the cost recovery regime set out in the Act."

In the event that its conclusion regarding the date the cause of action arose was incorrect, the court went on to consider whether a two- or six-year limitation period applied. The court concluded that a six-year limitation period applied, as a cost recovery action under the EMA is not based on contract, tort, or statutory duty. The court found that the two-year limitation period set out in section 3(2)(a) of the Limitation Act for "injury to property" did not apply, because this refers to property damaged by extrinsic acts and not defects to property.

The second issue considered by the court was whether ICI or JIP qualified for an exemption under section 46 of the EMA. Section 46 exempts from liability for remediation costs holders of a certificate of compliance to a property that another person subsequently proposes or undertakes to change the use of. There is no prescribed form the certificate should take. ICI argued that, as its remediation efforts predated the province's contaminated sites regime, the "comfort letter" the Ministry provided in 1988 should be considered a certificate of compliance.

The court agreed that the comfort letter likely met the definition of a certificate of compliance under the 1995 Contaminated Sites Fees Regulation. However, the letter did not meet the current definition, nor was the site remediated to current standards. Furthermore, the court noted that if the legislature had intended for such letters to be 'grandfathered' into the regime, it could have done so. The court concluded that the legislature did not intend to grant immunity to historical polluters "even though such persons may have attempted to clean up the property in good faith and with input and approval from the relevant Ministry officials at the time". Accordingly, ICI did not qualify for the exception.

Section 46 also exempts "innocent acquirers" from liability for remediation. The court found that this exemption did not apply to JIP as JIP clearly had reason to suspect the existence of contamination when it purchased James Island.

The third issue considered by the court was the reasonableness of the remediation costs incurred. The court confirmed that the voluntary nature of remediation has little impact on its reasonableness, subsequent landowners' motives for remediation "are largely irrelevant." Both methods and costs...