Polluter Still Pays: BC Court of Appeal Upholds Award of Damages Against Historical Polluter

March 16, 2016

The British Columbia Court of Appeal upheld a lower court decision ordering ICI Canada Inc. (now PPG Architectural Coatings Canada Ltd) to pay $4.75 million in remediation costs following a trial which enforced the "polluter pays" principle that underpins the Environmental Management Act (EMA). We previously discussed the 2014 trial decision of the British Columbia Supreme Court in an earlier post (see BC Supreme Court Stresses Polluter Pays in Awarding Damages for Remediation of Contaminated Site).

Background

This case involved a property known as James Island, which lies just off the Saanich Peninsula and has a long history of use for the manufacture and storage of explosives. ICI owned and used the property for activities relating to explosives between 1954 and 1988 and remediated portions of the island in consultation with the B.C. Ministry of Environment and Parks in the mid-1980s. At the end of the remediation project, the Ministry provided ICI with a so-called "comfort letter" confirming that it had met the agreed criteria and that the Ministry "did not perceive any further environmental concern". In September 1988, ICI registered a restrictive covenant on a portion of the island which stated, among other things, that some soil may be contaminated despite rehabilitation measures.

In 1994, JI Properties Inc. (JIP) purchased the island with full knowledge of its history of contamination, including the restrictive covenant. Between 2004 and 2006, JIP undertook remediation work to permit residential development of a portion of the island. After obtaining a certificate of compliance pursuant to the EMA and expending nearly $5.3 million, JIP initiated a statutory cost-recovery action under the EMA to recover its remediation expenses from ICI. At trial, the Court held that the 1988 comfort letter did not qualify as a certificate of compliance and ICI was ordered to compensate JIP for $4.75 million in remediation costs.

Decision

ICI advanced three major issues on appeal, all of which were dismissed as set out below.

1. Did the 1988 comfort letter qualify as a certificate of compliance under the EMA?

• The EMA provides that the director may issue a certificate of compliance if a contaminated site has been remediated in accordance with prescribed standards in the regulations. A certificate of compliance operates as a defence to liability for future remediation costs.
• First, the Court found that the comfort letter was not a certificate of compliance because the remediation was not completed to the prescribed standards in the regulations. The relevant regulations did not exist at the time, and the standards agreed to between the Ministry and ICI "are not the same" as those incorporated in the regulation. Enforcement of the current standards mandated by the regulatory regime incorporate the "foundational principle" that the polluter pays, but is also intended to compel the timely remediation of contaminated sites.
• Second, the Court upheld the trial judge's reasoning that the Legislature did not intend to bestow immunity upon historical polluters such as ICI (even if the remediation was undertaken in good faith and with the approval of relevant Ministry officials at the time). The Court noted that earlier legislation did in fact indicate an intention to grandfather historic polluters, but was later repealed.

2. Did the trial court error in apportioning costs between ICI and JIP?

• Regulations under the EMA mandate certain factors to be taken into account when determining an appropriate allocation of remediation costs, including the price paid for the property, the relative degree of involvement and attributable contamination, any remediation measures implemented, and "other factors relevant to a fair and just allocation".
• ICI argued that the trial judge overlooked the relevance of "fairness and justice" in allocating costs, which it said was relevant for a number of reasons in the circumstances, including that ICI remediated to standards approved by the Ministry and that JIP was aware of the contamination when it purchased the island.
• The Court found that the trial judge had considered the primary legal and equitable issues bearing on a "fair and just allocation". In particular, the trial judge found that there was no evidence to support that JIP benefitted or received a windfall arising from ICI's remediation of the island. Further, the Court noted that it would be contrary to the objectives of the EMA if disclosure of historic remediation grounded a complete defence to the reimbursement of remediation costs. However, the Court suggested that further factors affecting a fair and just allocation of remediation costs may arise in "an appropriate case."

3. Was JIP's action barred by the Limitation Act?

• The Court agreed with the trial judge's determination that the applicable limitation period for a cost recovery claim for remediation costs under the now-repealed Limitation Act (in force prior to June 1, 2013) was six years.

Future Implications

The decision provides significant guidance on the overriding principles that the Court will apply to statutory cost recovery actions to recover remediation costs under the EMA. Specifically, the Court may apply the provisions of the EMA (as it did in this case) in a manner that gives effect to the polluter pay principle, even in circumstances where the contamination is caused by historic polluters through activities that were not prohibited at the time or whether remediation occurred before the EMA regulatory scheme came into force.

In this particular case, the Court found that there was no evidence to indicate that JIP benefitted or received a windfall from ICI's remediation of the site. It is difficult to know whether the result would have been different had such evidence been offered, such as evidence that the purchase price had been reduced to account for the contamination. However, the Court signaled that it may be open in the future to considering other factors that may inform a fair and just allocation of remediation costs between responsible persons, but suggested that any such a case would require a strong evidentiary foundation to support a request for legal or equitable relief from the absolute and retroactive nature of liability under the EMA.

If you have any questions about the decision and how it may affect you or your business, please contact Mike Theroux, Brad Gilmour, or Laura Gill.

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