February 16, 2006 Update: The Supreme Court of Canada has refused to hear an appeal of McAfee v. Imperial Oil.

Recently, the province’s Supreme Court has twice addressed issues relating to the clean up of contaminated sites. In one case the Court limited the City of Vancouver’s ability to impose development permit conditions on the owner of a remediated site. In the other, the Court allowed a Brownfield developer to recover the costs from a previous owner over 50 years after the pollution occurred. As Brownfield development becomes more common, cases like these are providing developers with some welcome clarity.

Court Limits What City May Require From Developer:
B.C. Supreme Court decision now affirmed by Court of Appeal

*Updated August 18, 2005*

The B.C. Supreme Court decision, March 18, 2005
As every land developer knows, the City of Vancouver has the power to impose or stipulate conditions when issuing a development permit. In Imperial Oil Limited v. City of Vancouver, the Supreme Court of British Columbia considered the ambit and limitations of that power. The decision will be especially helpful to those developing contaminated sites.

Imperial Oil owns the service station property at Fraser Street and E. 25th in Vancouver. In 2000, aware of hydrocarbon contamination, they decommissioned the existing service station, removed the pump islands and underground tanks, and applied to the City for a development permit to construct a new split island service station with accessory retail store.

The City made known its concerns about the environmental contamination from the site onto adjacent City property (i.e. the adjacent streets, owned by the City). The City was concerned about the effect of contamination on utility lines and on the health of people working in the utility corridors, and any costs to City taxpayers that could be associated with the contamination.

By May 2002, the City had approved the development permit application on conditions which included the following:

[that] clearance shall be received from the [City’s] Office of Environmental Protection upon approval of soil related items by the Ministry of Environment, Lands & Parks [now Water, Land & Air Protection]

Approval in principle was obtained under the Waste Management Act (now the Environmental Management Act ) in December 2003.

The City’s Office of Environmental Protection required that Imperial Oil execute an Off-Site Soils Agreement or OSA before it would give the clearance stipulated. Imperial Oil argued that the OSA would impose on Imperial Oil indeterminate liabilities to the City and third parties greatly exceeding the liabilities otherwise imposed by law in relation to contamination from the site. In its submissions, Imperial Oil summarized the effect of the OSA as follows:

The OSA requires [Imperial Oil] to agree that it is the “responsible person” for the contamination in question (s. 2.1), and obliges the oil company to remediate the contamination to “Acceptable Contamination Levels” that do not exceed the “City Standard” which may be unilaterally prescribed by the City (s. 1) and to monitor as required by the City’s engineer (s. 2.3). It allows the City to remediate the contamination and charge the cost to the oil company in certain circumstances (s. 3.9) and it requires the oil company to post a letter of credit to secure its obligations under the remediation plan (s. 8.1) which may be offset by the City against any “claims” and must be replenished by the oil company (s. 8.6, s. 1).

The key issue in this case was whether the City had jurisdiction to require this OSA as a condition to granting a development permit. The Court held that the City did not. Following are key excerpts from the Court’s reasons:

I do not agree with the City that s. 565A [of the Vancouver Charter] either expressly or by implication grants an unlimited authority to refuse development permits or impose conditions. I conclude that s. 565A contemplates that the powers in relation to development permits, including conditions to be attached to them, will be exercised only for reasons connected to the appropriateness and impact of the proposed development.

… The City notes that the OSA essentially ensures that the costs of environmental remediation are borne by the party responsible for the contamination, and not by the taxpayers of the City. However, municipal authority to require an OSA cannot derive solely from a municipal purpose, however compelling that purpose may be. Otherwise, the City could use its power in relation to development permits to compel the resolution of any issue it has with a developer. Imperial Oil submitted that this could allow even for expropriation without compensation, which, like the OSA condition here, could be described as for a municipal purpose and to the benefit of the City and its taxpayers.

Essentially, the Court held that the City could not leverage its position as regulatory approving body to advance its position as property owner (i.e. owner of the City streets) by forcing Imperial Oil to enter the OSA and to thereby take on liability relative to the contamination that would be above and beyond the liability Imperial Oil would otherwise have at law.

This decision obviously will be helpful for developers and is of particular interest for redevelopment of brownfield sites. However, it must be appreciated that the City and other regulatory approving bodies tend to be resolute in such matters, and if they can’t get what they want one way, they might be able to get it another way. In this case, the issue was merely a development permit, which the City might have been hard pressed to deny. If subdivision or re-zoning or a variance were required (which involve a broader ambit for discretion), the applicant might be waiting a long while for approval if it took issue with any conditions stipulated. The example referred to above about “expropriation without compensation” in practice, ironically, illustrates the opposite – any developer who has given up a part of their property, without compensation, for a street widening or a “corner cut” understands this. Even so, this case will be important in establishing the ground rules.

B.C. Court of Appeal
On August 4, 2005 the Court of Appeal affirmed the judgement of the Supreme Court. Following are key excerpts from the Court of Appeal reasons:

… In my view, it cannot be said that it is necessarily or fairly to be implied that s. 565A authorizes the City to impose a condition requiring the remediation of environmental contamination elsewhere [i.e. off-site] when exercising its authority to regulate the development of a particular parcel of land. The legislative intention in enacting s. 565A to authorize the City to regulate development cannot have been to authorize it to exercise authority beyond the scope of the general authority given.

… The authority given under Part XXVII of the Charter is to regulate development; it is not an authority for the remediation of environmental contamination per se. As is evident in the circumstances of this case, under the governing environmental legislation, that general authority falls within the purview of the office of the Minister of the Environment (formerly the Ministry of Water, Land and Air Protection) …

… To limit the word “conditions” in s. 565A(b) to conditions that bear upon the development in question, is not to stray from its ordinary and grammatical meaning. Rather, it is to give to that word the only reasonable meaning the context in which it is used permits. To broaden the term to allow the City to regulate the clean-up of off-site contamination would create disharmony within the Act as a whole and with the intention of the Legislature.

– Roy Nieuwenburg</

Brownfield Developer Recovers Clean-up Costs in
Downtown Vancouver

By the Commercial Real Estate Group at Clark Wilson LLP
March 6, 2003

Just last week the British Columbia Supreme Court ordered a previous owner of a polluted property in downtown Vancouver to reimburse 90% of the clean-up costs incurred by the current owner, in redeveloping such “contaminated site”.

In Workshop Holdings v. CAE Machinery, the Court both:

1. clarified the “cost recovery” provisions of the Environmental Management Act or EMA, and

2. resolved a number of liability issues in favour of the current owner/developer, and therefore against the previous industrial owner/polluter of the property.

Good News for Developers

In each respect, the Workshop case is good news for developers in B.C., particularly regarding old industrial, or ‘Brownfield’ sites.

1. Clarifying EMA Cost Recovery Provisions
   The EMA was formerly known as the Waste Management Act. An article, about insurance coverage for environmental contamination, and cost recovery actions, is pending (and will be available at Clark Wilson LLP’s Insurance Publications Site).Simply put, although the Act has been in force since 1997, in more or less its present form, the practical effect of the legislation has been largely unclear. Only a handful of court cases have considered the Act and, specifically, interpreted its provisions for private cost recovery actions against previous owners/operators of polluted property. That lack of clarity has included the respective rights and obligations of present owners and previous owners/operators, when contamination of the site is cleaned up.Workshop is the first case to squarely address those latter issues, and comes down firmly on the side of Brownfield owner/developers.
2. Resolving Practical Issues in Favour of Owner/Developers (and Reimbursing Pollution Clean-Up Costs)

The B.C. Supreme Court considered the following issues in Workshop:

• was the site “contaminated”?
• was CAE a “responsible person” under the Act?
• were Workshop, its principals or others also responsible persons?
• was the amount of Workshop’s claim excessive?
• was Workshop’s action barred by the 30-year ultimate limitation period?

The Facts of the Case

Before discussing those issues, however, a brief description of the facts in the case is appropriate.

In 1919, a company called Canadian Sumner Ironworks (“Canadian Sumner”) was incorporated. In 1924, Canadian Sumner purchased two lots, and leased the other two, located at 1216-1224 West Pender Street in what is now downtown Vancouver. Until 1949, Canadian Sumner operated an iron works and brass foundry on the property.

Historical business directories indicated that a company called Ace Welders had occupied the property in 1945, and a trucking company had operated there in the 1950s.

In 1964, Canadian Sumner changed its name to CAE Sumner, and in 1965, to CAE Machinery.

In 1960, Annar Klokstad bought the property, and in 1964, he demolished the old foundry and built a warehouse. Before erecting that building, he used some of the contaminated foundry soil as fill, spreading it around the property.

Between 1964 and 1996, Mr. Klokstad leased the property to various tenants, including an auto paint and repair operation and a scrap metal dealer.

In 1996, Mr. Klokstad died, and the property passed to his wife. In 1997, the Klokstads’ son incorporated Workshop for the purpose of redeveloping the property. His mother remained on title, as a bare trustee, and became a shareholder of Workshop. The company obtained to the right to develop and operate the property, and plans were made to stratify the property and build a 43 unit commercial building, complete with an underground parkade.

In 1997, Workshop retained an environmental consultant, which undertook both a preliminary and a detailed site investigation, and subsequently developed a remediation plan and obtained an approval in principle from the Province to proceed with the development. During its investigations, the consultant identified zinc and copper as soil contaminants on the property, as well as the chemical ‘signature’ of foundry sand. Zinc and copper are the constituent elements of brass, Canadian Sumner having operated a brass and iron foundry on the site.

When the underground parkade was excavated, the contaminated soils were required to be disposed of at designated landfill sites because they did not meet the WMA/EMAcriteria for residential fill.

Workshop therefore sued CAE for those increased fill disposal costs, as well as their consultants’ site investigation costs and related expenses, under the private cost recovery provisions of the Act.

The Issues Decided in the Case:

Was the site “contaminated”?

CAE’s first line of defence was that Workshop had to establish that the property was a “contaminated site” under the provisions of EMA. The Court made short work of this argument, holding that the consultant’s reports and Province’s approval in principal of their remediation plan provided ample evidence of contamination.

Was CAE a “responsible person” under the Act?

Second, CAE challenged the admissibility of corporate records put into evidence by Workshop, which connected CAE to Canadian Sumner. The Court rejected this argument too, relying as well on land title searches indicating Canadian Sumner’s previous ownership, and an affidavit by a former employee of Canadian Sumner/CAE.

Were Workshop, its principals or others also responsible persons?

Third, CAE argued that, even if it was liable, then the clean-up costs should be shared by Workshop itself, as well as the Klokstads and/or previous tenants of the property.

Regarding Workshop and its principals the Klokstads, CAE argued that, as “owners” of a “contaminated site”, and therefore also ‘responsible persons’ under the Act, Workshop was itself also jointly and severally liable for the clean-up costs. As such, any judgment against CAE should be reduced by apportioning some of the same to Workshop.

The Court dealt with that argument in two ways. One, it said that just because the Klokstads may have known about the previous use of the property – for the operation of a foundry – it does not mean they knew or suspected that the site was contaminated by copper and zinc in concentrations exceeding those permitted under the Act. As such, the Klokstads and Workshop were protected from “owner” liability by the ‘innocent acquisition’ provisions (section 46(1)(d)) of EMA.

Two, the Court held that the Klokstads and Workshop had not contributed to the contamination of the site by spreading foundry soil around the property as fill, before building the warehouse. The Court pointed out that the key to liability, under section 45 of the Act, is the introduction of contaminants onto a site, and that Workshop and the Klokstads had not introduced any new contaminants, but merely redistributed existing soil around the property.

As for liability of others, the Court held that CAE’s argument that previous tenants had contaminated the property by their auto paint and repair, and scrap metal operations, were purely speculative and simply not supported by any evidence.

Was the amount of Workshop’s claim excessive?

Fourth, CAE argued that not all of the approximately $117,000 in costs claimed by Workshop were attributable to cleaning up the polluted property.

The Court considered all of the consultants’ invoices, as well as soil testing and borehole drilling costs and soil disposal costs paid to the two landfill operators and a trucking company. Relatively minor amounts were held to be more properly attributed to removal of an underground storage tank and sump pump, glass and brick debris, and asbestos, as opposed to the contaminated soil.

However, the Court held that the amount claimed was generally reasonable, and ordered CAE to pay Workshop approximately $106,000 in damages; about 90% of the amount claimed.

Was Workshop’s action barred by the 30-year ‘ultimate limitation period’?

Finally, CAE relied on section 8(1) of the Limitation Act, which provides that an action may not be brought “after the expiration of 30 years from the date on which the right to do so arose.”

The simple answer to this was that Workshop’s claim was based on the private cost recovery provisions of WMA/EMA, which created an entirely new cause of action, and did not come into force until the 1990s. Therefore, Workshop’s cause of action did not arise until that time, when less than a third of the ‘ultimate limitation period’ had passed by the time it commenced proceedings against CAE.

Other Issues and Inquiries

The Workshop case does not answer all of the many questions surrounding private cost recovery claims under the Act. However, it does answer a number of them, and generally uphold the validity of such claims, by current owners against previous industrial owner/operators of polluted properties. All in all, this decision is very good news for developers seeking to recover their costs attributable to cleaning up contaminated, or Brownfield sites.