Canada: BC Court Of Appeal Allows Recovery Of Legal Fees As Remediation Costs

Introduction

Last year, the British Columbia Court of Appeal ("BCCA") rendered its decision in Victory Motors (Abbotsford) Ltd. v. Actton Super-Save Gas Stations Ltd., 2021 BCCA 129, providing that legal costs reasonably incurred in connection with the remediation of a contaminated site could be recoverable as "remediation costs" under section 47 of the Environmental Management Act ("EMA").

Victory Motors (Abbotsford) Ltd. ("Victory Motors") was the owner of a site from which Super-Save, Shell, and Chevron had previously operated a gas station (the "Victory Motors Site"). Over the years, contaminants had migrated from the Victory Motors Site to a commercial site owned by Jansen Industries 2010 Ltd. ("Jansen").

Consequently, Jansen commenced an action against Victory Motors, Super-Save, Shell, and Chevron, while Victory Motors commenced an action against Super-Save, Shell, and Chevron (as the former operators of the Victory Motors Site). Chevron and Shell settled the claims against them before trial, entering into a BC Ferry Agreement through which their liability was limited to a fixed amount, with Victory Motors and Jansen agreeing not to seek recovery of any damages ascribable to Chevron or Shell from any other party¹.

View a flow chart highlighting which entities Jansen and Victory Motors each sued and which claims were settled prior to trial.

At trial, Jansen and Victory Motors together claimed $150,000 in legal costs allegedly incurred in connection with the remediation of the contaminated sites. However, rather than adducing evidence to support their claim, they sought a reference to the registrar for an assessment of the costs, relying on section 47(3)(c) of the EMA.

The trial judge held that referring such a matter to the registrar was not appropriate, and dismissed the claim due to a lack of supporting evidence. Jansen and Victory Motors appealed to the BCCA.

The BCCA was then faced with two questions. Firstly, were the legal fees incurred by Jansen and Victory Motors in connection with the remediation of the contaminated sites recoverable as remediation costs? Secondly, how should responsibility for the contamination be allocated as between Super-Save and Victory Motors?

Are the appellants' legal fees recoverable as remediation costs?

While the BCCA upheld the decision to dismiss the claim due to a lack of evidence, the Court proposed for the first time that legal costs reasonably incurred in connection with the remediation of a contaminated site may be wholly recoverable as "remediation costs" under section 47 of the EMA².

In making this conclusion, the BCCA drew a distinction between legal costs incurred in effecting the remediation ("remediation legal costs" as per the Court), and legal costs incurred in litigation where recovery of the remediation costs is sought ("litigation legal costs")³. The Court also recommended that parties establish "distinct files and time-keeping protocols" to keep the two types of legal costs separate, thereby avoiding the issue of waiving solicitor-client privilege for litigation legal costs⁴.

The BCCA also held that previous jurisprudence which suggested that legal costs were not recoverable as remediation costs was incorrect. The Court observed that there is nothing indicating that the words "all costs of remediation" under section 47(3) of the EMA cannot include "full indemnification" for reasonably incurred remediation legal costs⁵.

On the question of how the reasonableness of such costs would be assessed, the Court held that this ought to be assessed on a "proper evidentiary basis," with the relevant considerations depending on the circumstances, and falling subject to the trial judge's discretion⁶.

As examples of remediation legal costs, the BCCA cited costs incurred in "advising the remediating client, negotiating with governmental authorities, and navigating the client through the creation of an acceptable remediation plan, its execution, and obtaining final regulatory approval"⁷. The Court found that legal costs associated with a responsible person seeking contributions from other responsible persons, which are referenced at section 47(3)(c) of the EMA, are also remediation legal costs. These could include costs for "legal services engaged in the investigation of other responsible persons, negotiations with those persons, and drafting and preparing agreements for joint remediation and cost sharing"⁸.

Litigation legal costs, the Court held, remain recoverable pursuant to the court tariff.

How should responsibility for the remediation costs be allocated?

On the issue of how to allocate responsibility for the remediation costs as between Super-Save and Victory Motors, the BCCA disagreed with the trial judge's decision to allocate more responsibility to Victory Motors on the basis that it had benefitted in obtaining a Certificate of Compliance for the Victory Motors Site (the "Certificate"). The Court provided that taking this Certificate into account in allocating responsibility could discourage an owner who was also a "responsible person" from remediating its contaminated site in a timely manner⁹.

The Court ultimately remitted this issue to the trial judge, however, so that the trial judge could determine the appropriate allocation of responsibility while bearing in mind the Court's reasoning¹⁰.

Moving forward

In light of the Court's determination that legal costs reasonably incurred in connection with the remediation of a contaminated site may be fully recoverable, the range of costs potentially recoverable under the EMA could increase moving forward. Although the claim for legal costs was dismissed on evidentiary grounds, meaning that the Court's decision is not binding, the Court's reasoning will likely be adopted nevertheless, given that it was a unanimous decision issued by the BCCA's Chief Justice. As a result, property owners and others involved in remediating contaminated sites should be mindful of the Court's recommendation that separate accounts be maintained for their remediation and litigation legal costs. This will assist parties in recovering a greater proportion of their legal costs and will potentially avoid an inadvertent loss of privilege if invoices and other documents relating to the remediation legal costs need to be produced.

Footnotes

1. Victory Motors (Abbotsford) Ltd v Actton Super-Save Gas Stations Ltd, 2021 BCCA 129 at para 16.

2. Ibid at paras 107, 141.

3. Ibid at para 84.

4. Ibid at para 103.

5. Ibid at para 97.

6. Ibid at para 107.

7. Ibid at para 94.

8. Ibid at para 99.

9. Ibid at para 56.

10. Ibid at para 69.

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