Canada: "Polluter Pays" Wins The Day: BC Court Of Appeal Decides Significant Contaminated Sites Case

The BC Court of Appeal has upheld a trial decision that requires the historical polluter of James Island to pay the current landowner $4.75 million for monies spent remediating a contaminated site on the island.  This award is the largest of its kind under BC's Environmental Management Act ("EMA").  The decision is significant for reinforcing that the concept of "polluter pays" under BC's contaminated sites legal regime is paramount, despite the polluter's attempts to negate or reduce its liability by pointing to its prior efforts to remediate James Island before selling it in 1988. 

In J.I. Properties Inc. v. PPG Architectural Coatings Canada Ltd., the plaintiff J.I. Properties Inc. argued at trial that it should recover all of its reasonably incurred remediation costs against the defendant and historical polluter PPG Architectural Coatings Canada Inc. ("PPG").  The trial court agreed, awarding $4.75 million.  For a summary of the trial decision, please see our previous bulletin.

PPG appealed this decision to the BC Court of Appeal, which affirmed the trial decision, and decided that:

• PPG's 1988 letter of comfort from the Ministry of Environment was not equivalent to a certificate of compliance under the EMA, and therefore did not shield PPG from the broad liability for remediation costs found under the EMA;
• the trial judge's allocation of 100% of the remediation costs to the polluter was not an error, and the appellant's 1988 letter of comfort did not impact that allocation; and
• the limitation period for cost recovery actions under the 1996 Limitation Act is six years.

Each of these points are expanded upon below:

Remediations Prior to EMA Regime Do Not Assist in Avoiding Liability

On appeal, PPG argued that it had remediated James Island in the 1980s before selling it to a third party, and obtained a 1988 comfort letter from the Ministry of Environment for that remediation.  The 1988 comfort letter confirmed PPG had remediated the historic industrial area of the island to standards accepted by the Ministry at that time.  PPG claimed that its 1988 comfort letter should be treated as a certificate of compliance under the EMA, and that, as a result, it should be exempt from liability under section 46(1)(m) of the EMA. 

Section 46(1)(m) allows an otherwise responsible person to avoid liability if a certificate of compliance is issued for a site, and afterward the site is remediated with a "change in use" of that site.  Section 46(1)(m) has not been considered in detail before by the courts. 

The BC Court of Appeal rejected PPG's attempt to rely on section 46(1)(m), and instead agreed with the trial judge, finding that PPG's 1980s remediation and 1988 comfort letter did not immunize it from liability under the EMA.  The Court noted that in 1997, contaminated sites law "radically" changed in BC with the introduction of the current EMA regime.  It further held that PPG's 1988 comfort letter was not akin to a certificate of compliance under the EMA, the latter being a statutory instrument only available to persons who remediate contaminated sites in compliance with the EMA's prescriptive conditions.  PPG's remediation in the 1980s did not meet those prescriptive standards.  The Court also noted a transition provision in the regulations allowed persons who had remediated sites prior to April 1, 1997 to obtain a certificate of compliance, "but only if the requirements of...the Act are otherwise satisfied".  The Court agreed with the trial judge that the legislature did not intend to immunize parties like PPG from liability under the EMA "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".

In rejecting PPG's claim under section 46(1)(m), the Court's reasoning is clear that unless a polluter's remediation complies with the prescribed standards of the EMA and a certificate of compliance was obtained, the polluter will still be caught by the EMA, even if they received assurances from the Ministry of Environment that their remediation was adequate at that time.

"Developer Pays" Not Applied in this Case, but Betterment Could be Argued Later

The BC Court of Appeal also upheld the trial judge's decision to allocate 100 percent of the reasonably incurred remediation costs to PPG, pursuant to the principle of polluter pays.  The Court rejected PPG's argument that the "developer pays" principle, which PPG said was found in s. 46(1)(m), should reduce PPG's allocation to zero.  The Court noted that s. 46(1)(m) acts as a defence to liability, but does not independently address the allocation of liability (different sections of the EMA govern allocation).  This finding is important for clarifying what factors are relevant to allocation of remediation costs under the EMA regime.

Although the Court rejected PPG's argument that J.I. Properties should bear all of the costs of remediation because its remediation was voluntary and it had notice of the contamination on the island, the Court left open the possibility of a claim of "windfall" or "betterment" if the facts support it.  In this case, there was no evidence to support PPG's claim that J.I. Properties obtained a discount on its purchase price, or otherwise benefited from the contamination. 

The Court also acknowledged that J.I. Properties was itself caught by the EMA's prescriptive regime, which required it to address any contamination on the site before it could subdivide.  The Court agreed with J.I. Properties that PPG should not be permitted to raise as a consideration of unfairness consequences that are the "direct result of the working of the interlocking statutory scheme".

In reaching these conclusions, the Court affirmed that the purpose of the contaminated sites legislation is to encourage the timely remediation of contaminated sites. The EMA regime accomplishes this, in part, by requiring owners to remediate before they can subdivide, rezone, or obtain permits for their land, and allowing them to sue through the statutory cost recovery action to recover their reasonably incurred remediation costs from persons responsible for the contamination.  The fact that an owner remediates to obtain subdivision, rezoning or permits otherwise restricted by the EMA regime does not, on its own, impact the allocation of liability.

PPG's case for betterment failed for want of proof.  However, should the facts support it in a future case, if a defendant can point to betterment that a plaintiff receives as a result of conducting a remediation, it remains open that the allocation of liability may shift to the plaintiff, in part or whole, due to this betterment.

Six Years to Bring a Cost Recovery Action (under the old Limitation Act)

The Court of Appeal also agreed with the trial judge that the appropriate limitation period for a cost recovery action under the 1996 Limitation Act is six years.  The Court agreed that a cost recovery action is a sui generis cause of action that is not for damages or for breach of contract, tort, or statutory duty, and as a result is governed by a six-year limitation period.

Due to the introduction of a new Limitation Act in 2013, this finding is limited in application only to cost recovery cases commenced prior to the coming into force of the new Act on June 1, 2013.

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