Canada: British Columbia Court Of Appeal Adheres To "Polluter Pay" Principle

On November 20, 2015, the British Columbia Court of Appeal ("BCCA") demonstrated a steadfast adherence to the "polluter pays" principle underlying the Environmental Management Act (the "EMA"), by  dismissing the appeal in JI Properties Inc v PPG Architectural Coatings Canada Ltd, 2015 BCCA 472. The BCCA decision concerned the allocation of liability for the cost of the environmental remediation of a small island (the "Island"), located just off the Saanich peninsula that was the site of an explosives manufacturing plant for most of the 20^th century. Portions of the Island were contaminated with lead, mercury, trinitrotoluene, dinitrotoluene, and other hazardous substances.

PPG Architectural Coatings, originally known as ICI Canada Inc. ("ICI"), owned the Island and operated the explosives plant from 1954 to 1985. After ICI closed down the plant, it made remediation attempts on the Island. As there were no prescribed standards for remediation at the time, ICI consulted with the Ministry of Environment ("MOE") to determine the allowable levels of pollutants. The MOE issued a "comfort letter" acknowledging that ICI had remediated the polluted portions of the Island to the agreed upon levels, and stated that it did not perceive any further environmental concern. ICI then registered a restrictive covenant on the Island, prohibiting any owner from using the industrial areas for residential purposes.

JI Properties ("JIP") acquired the Island in 1994 with knowledge of the restrictive covenant, the contamination, and the Island's history as an explosives plant. Subsequently, the Waste Management Act (a statutory predecessor to the EMA) and Contaminated Sites Regulation ("CSR") came into force. This regulatory scheme provided specific standards for allowable contamination, and established how liability for contamination is allocated and apportioned. From 2004 to 2006, JIP further remediated the contaminated areas on the Island to meet the newly prescribed standards, and then, in 2009, JIP brought a lawsuit against ICI under the EMA to recover its remediation costs from ICI.

Supreme Court Decision

At the trial of the lawsuit, the British Columbia Supreme Court ("BCSC") ordered ICI to pay JIP $4.75 million as compensation for the costs of remediation. The trial judge ruled both JIP and ICI were "responsible persons" under the EMA, but allocated 100% of the liability to ICI. For a more detailed account of the findings at the BCSC, see our earlier post on that decision here.

Grounds of Appeal

At the appeal, ICI argued it was not responsible for remediating the site pursuant to an exclusion under section 46(1)(m) of the EMA, which provides an exemption from liability to a person who was a responsible person for a contaminated site for which a certificate of compliance ("CoC") was issued and for which another person subsequently proposed or undertook to change the use of the contaminated site. ICI argued the comfort letter was equivalent to a CoC. ICI also claimed that even if it was responsible for the cost of remediation, the trial judge should have adopted a "developer pays" principle, wherein a developer (i.e. JIP) is to pay the costs of additional remediation when the developer: is fixed with all material knowledge of past contamination and remediation; chooses to change the use of the land; and provides additional remediation to allow that change of use.

Further, ICI argued the trial judge failed to correctly apply the prescribed principles for allocating liability, because he did not consider common law and equitable defences, justness, and fairness, or JIP's potential to profit from the remediation.

Finally, ICI argued that JIP's action was statute barred by the now-repealed Limitation Act, and the trial judge incorrectly applied the six-year limitation period instead of the two-year period.

Reasons

The BCCA largely agreed with the trial judge's reasoning and upheld the trial judge's conclusion that ICI was ineligible for the exemption from liability under section 46(1)(m) of the EMA because the comfort letter did not meet the statutory definition of CoC. If the legislature intended to exempt persons who cleaned-up industrial pollution before the current regime was implemented, then it  would have expressly stated so. The BCCA disagreed with ICI's contention that section 46(1)(m) embodies a "developer pays" principle that applies to the allocation of liability for remediation costs. While the BCCA agreed that section 46(1)(m) incorporates a principle of liability, the section operates as a defence and applies solely to the determination of whether a party is liable, and not to how liability is allocated.

The BCCA further concluded that the trial judge properly considered all prescribed principles relevant to the allocation of liability and there was no evidence to suggest that a windfall profit had accrued to JIP. Had there been adequate evidence showing that JIP purchased the property at a discount on account of the pollution, and had it experienced a significant increase in value as a result of the remediation, it would have factored into the judge's allocation of liability. No such evidence existed. This suggests that the "developer pays" principle may be successfully argued in future allocation of costs, assuming a proper evidentiary basis exists to do so.

Finally, the BCCA affirmed the BCSC's ruling that JIP's action was subject to a six-year limitation period under the now-repealed Limitation Act.

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