The recent decision of the British Columbia Court of Appeal (“BCCA”) in Victory Motors (Abbotsford) Ltd. v. Actton Super-Save Gas Stations Ltd.,^[1] provides important clarification of the law pertaining to the recovery of legal costs reasonably incurred during the remediation of contaminated sites under the Environmental Management Act^[2] (“EMA”) and the Contaminated Sites Regulation.^[3] Prior to this decision, plaintiffs were generally thought to be limited to the recovery of legal costs that were incurred during the litigation process itself as assessed under the Supreme Court Civil Rules.^[4] The BCCA has now confirmed that remediating parties may claim both litigation legal costs and legal costs incurred throughout the actual remediation of the contaminated site.

The Facts

Jansen Industries 2010 Ltd. (“Jansen Ltd.”) owned two commercial properties adjacent to a site owned by Victory Motors (Abbotsford Ltd.) (“Victory Motors”). Numerous gas stations historically occupied Victory Motors’ premises, including Accton Super-Save Gas Stations Ltd. and Phil Van Enterprises Ltd., a company controlled by Super-Save Gas (Collectively, “Super-Save”), Shell Canada Ltd. (“Shell”), and Chevron Canada Ltd. (“Chevron”). For over forty years, contaminants migrated from the Victory Motors site to the Jansen Ltd. sites. The contamination was exacerbated by Victory Motors’ failure to remove buried gasoline storage tanks since 1994.

On August 7, 2011, Jansen Ltd. commenced an action against Victory Motors after discovering the contamination. Jansen Ltd. then purchased all shares of Victory Motors on advantageous terms, and had direct control over both sites and the corresponding litigation. After undergoing remediation, Jansen Ltd. and Victory Motors were each issued Certificates of Compliance under the EMA. On October 31, 2012, Victory Motors and Jansen Ltd. commenced an action against Super-Save, Shell, and Chevron for recovery of the remediation costs and legal fees of approximately $400,000 and $150,000, respectively. Victory Motors further claimed the costs of removing the gasoline storage tanks, loss of rental income during the remediation period, and potential costs incurred as a result of future litigation.

The plaintiffs settled their claims with Chevron and Shell and went to trial against Super-Save. No evidence was led to particularize the legal expenses. Rather, the plaintiffs sought reference to the Registrar for an assessment of costs, relying on section 47(3)(c) of the EMA which states that for the purpose of recovery, “costs of remediation” is to mean all costs and includes legal and consultant costs associated with seeking contributions from other responsible persons. The trial judge awarded the consulting costs but refused to award legal fees as recoverable costs of remediation. Victory Motors and Jansen Ltd. appealed.

The BC Court of Appeal

Chief Justice Bauman highlighted the distinction between legal costs incurred in effecting the actual remediation of the property (“Remediation Legal Costs”) and legal costs incurred in launching and prosecuting the claim for recovery of remediation costs (“Litigation Legal Costs”). The Court clarified that the remediating party may claim both sets of costs and held that allowing indemnity of all costs of remediation “reasonably incurred”, including Remediation Legal Costs, is more consistent with the underlying principles of the legislation, including “polluter-pays”, prevention of pollution and deterrence, and speedy remediation of contaminated sites. The court stated that only allowing partial recovery of potentially significant legal costs would foster an environment that decreases the likelihood of prompt remediation.

The Court provided a non-exhaustive list of Remediation Legal Costs:

1. Advising the remediating client;
2. Negotiating with governmental authorities;
3. Navigating the client through the creation of an acceptable remediation plan (including its execution and obtaining final regulatory approval);
4. Costs for legal services engaged in the investigation of other responsible persons;
5. Negotiations with those persons; and
6. Drafting and preparing agreements for joint remediation and cost sharing.

To avoid issues respecting solicitor/client privilege, the Court advised parties to set up distinct files and time-keeping protocols for each set of costs.

Assessing Remediation Legal Costs v. Litigation Legal Costs

While Litigation Legal Costs should continue to be assessed under the Rules, Remediation Legal Costs should be assessed at the discretion of the trial judge on an evidentiary basis, based on the circumstances of the case. The Court noted that section 71 of the Legal Profession Act^[5] may help guide the assessment of such costs. These factors include:

1. Fees, expenses and disbursements for services rendered reasonably necessary to conduct the business to which they relate;
2. Fees, expense and disbursements rendered unnecessary but calculated to advance the interests of the client;
3. The complexity, difficulty or novelty of the legal issues;
4. Skill, specialized knowledge and responsibility required of the lawyer;
5. The amount being claimed; and
6. Time reasonably expended by counsel.

Implications for Remediating Parties and Potential Defendants

This decision broadens the scope of potential recovery considerably for plaintiff landowners under the EMA and serves as a cautionary note to potential defendants. Engaging in negotiations promptly may help minimize exposure to legal costs as the Court has made it clear that responsible parties can be liable for a fresh head of potentially significant costs.