A number of interesting environmental law decisions were released in 2013 and 2014. Among the highlights were a Supreme Court of Canada decision confirming that rock fragments may constitute "contaminants," a Federal Court ruling that conservation is not the paramount purpose of the Fisheries Act, and a very recent decision by the British Columbia Supreme Court with significant implications for the contaminated sites regime. BLG Vancouver's environmental group has summarized these developments in its 2013-2014 Environmental Law Update.
1. Contaminated Sites
(a) Recent British Columbia Supreme Court Decision Shakes Up the Contaminated Sites Regime
In J.I. Properties Inc. v. PPG Architectural Coatings Canada Inc., 2014 BCSC 1619, the owner of James Island, JI Properties Inc. ("JIP"), sought recovery of costs spent cleaning up contamination under the statutory cause of action created by s. 47(5) of the Environmental Management Act, S.B.C. 2003, c. 53 (the "EMA"), against PPG Architectural Coatings Canada Inc. (referred to as "ICI"), a previous owner of the property.
The island hosted explosives manufacturing and storage until at least 1985. ICI owned the island until 1988 and from 1986 to 1988, undertook remediation. No legislative standard existed in BC at the time, so ICI and the BC Ministry of Environment and Parks (the "Ministry") agreed upon criteria. In 1987, the Ministry stated the following in a letter:
...the agreed-to clean-up criteria are applicable to a specified land-use, i.e. airport, golf course or similar activity. Provided the use of the land remains as such, the designated clean-up criteria will not change. I see no reason at this time for us to impose different or more restrictive criteria on [ICI] to accommodate future changes to the special waste legislation or the adoption of provincial clean-up criteria.
If, however, the proposed land-use changes (either under [ICI] or another land owner) then different and/or more restrictive criteria might apply. It would be the responsibility of the land owner at the time to meet the designated clean-up criteria.
ICI undertook remediation following the guidelines established with the Ministry and submitted several reports detailing its efforts. The Ministry advised that the Deed of Title should identify historic use and development restrictions. A restrictive covenant was registered and the Ministry provided a letter (the "comfort letter") to ICI:
...we concur that the clean-up has been undertaken to meet the established criteria for total lead, total mercury, dinitrotoluene and trinitrotoluene...criteria was based on the proposed restricted use of this rehabilitated industrial area. We note that the restrictive covenant on the property identifies areas and restricted land use. Accordingly, we do not perceive any further environmental concerns.
The restrictive covenant explicitly gave notice to successors in title that the land was previously used for manufacturing explosives and batching chemicals, and carried a risk of contamination. It stated that no residential premises were to be erected upon areas previously used for industrial purposes, and that building non-residential structures required prior written consent from the Crown.
In 1988, ICI sold James Island. The restrictive covenant formed part of the Offer to Purchase.
In 1994, James Island was sold to Eagle River Inc. The Purchase and Sale Agreement (the "Agreement") mentioned the restrictive covenant and contained a condition precedent dictating the purchaser's obligation to satisfy itself as to the feasibility of developing and utilizing the property for its intended use, including reviewing environmental conditions and relevant regulatory requirements. This condition was waived and the purchase completed. Shortly thereafter, Eagle River Inc. assigned the Agreement to JIP, owned by the same person. Prior to JIP taking ownership, it reviewed a memorandum from an environmental consultant indicating that he had reviewed at least part of the restrictive covenant and some of ICI's reports delivered to the Ministry from its remediation project.
After purchasing James Island, JIP undertook further remediation from 2004 to 2006. By this time there were detailed standards set by government. Following remediation, JIP applied for and received a certificate of compliance pursuant to the EMA.
The first issue considered by the court was the applicable limitation period. As the remediation was carried out in 2004-2006 and the action was initiated in 2009, this issue was governed by the old Limitation Act, R.S.B.C. 1996, c. 266. Noting that the EMA is a remedial statue, the court found that the limitation period started to run when the last remediation cost was incurred, rather than separate causes of action accruing every time a remediation cost was incurred. As JIP continued to incur remediation costs after March 12, 2007 (i.e. two years before it commenced its action on March 12, 2009), all prior costs were aggregated and recoverable. Anticipating the possibility of indeterminate liability for 'responsible persons' based upon this result, the court suggested such persons can immunize themselves against liability through certificates of compliance. The court stated that exposure without a certificate is consistent with "the 'polluter pays' and retroactivity principles that are the primary drivers behind the cost recovery regime set out in the Act."
In the event that its conclusion regarding the date the cause of action arose was incorrect, the court went on to consider whether a two- or six-year limitation period applied. The court concluded that a six-year limitation period applied, as a cost recovery action under the EMA is not based on contract, tort, or statutory duty. The court found that the two-year limitation period set out in section 3(2)(a) of the Limitation Act for "injury to property" did not apply, because this refers to property damaged by extrinsic acts and not defects to property.
The second issue considered by the court was whether ICI or JIP qualified for an exemption under section 46 of the EMA. Section 46 exempts from liability for remediation costs holders of a certificate of compliance to a property that another person subsequently proposes or undertakes to change the use of. There is no prescribed form the certificate should take. ICI argued that, as its remediation efforts predated the province's contaminated sites regime, the "comfort letter" the Ministry provided in 1988 should be considered a certificate of compliance.
The court agreed that the comfort letter likely met the definition of a certificate of compliance under the 1995 Contaminated Sites Fees Regulation. However, the letter did not meet the current definition, nor was the site remediated to current standards. Furthermore, the court noted that if the legislature had intended for such letters to be 'grandfathered' into the regime, it could have done so. The court concluded that the legislature did not intend to grant immunity to historical polluters "even though such persons may have attempted to clean up the property in good faith and with input and approval from the relevant Ministry officials at the time". Accordingly, ICI did not qualify for the exception.
Section 46 also exempts "innocent acquirers" from liability for remediation. The court found that this exemption did not apply to JIP as JIP clearly had reason to suspect the existence of contamination when it purchased James Island.
The third issue considered by the court was the reasonableness of the remediation costs incurred. The court confirmed that the voluntary nature of remediation has little impact on its reasonableness, subsequent landowners' motives for remediation "are largely irrelevant." Both methods and costs must be reasonable.
The court gave great deference to the decisions made by consultants. ICI challenged the standards used by JIP's consultant. The court, however, stated that "it is entirely reasonable for a landowner in the position of JIP to rely upon a highly qualified expert consultant...to assist with the difficult technical issues and thereafter to follow the consultant's determinations and recommendations respecting the presence and remediation of contaminants." While a consultant will not necessarily immunize a landowner from criticism, "the selection and use of an appropriately qualified expert is a factor which bestows reasonableness upon the ensuing approach to remediation and the costs associated with same."
Furthermore, the court held that residential development could be considered a reasonable future use of James Island. It was therefore reasonable to undertake whatever remediation was necessary to secure a certificate of compliance with the Ministry, remove the covenant on title, and seek approval for any rezoning of the land necessary to permit or facilitate residential development. This assessment, in addition to the fact that when JIP purchased James Island much of the southern area of the island was already zoned as residential, militated in favour of a residential and urban parkland "primary use" determination and standards for remediation.
The court, though, did find that JIP's approach to the remediation of the TNT manufacturing area and trench had been unreasonable, accepting ICI's position that the approach adopted by JIP was "wrongheaded". Further emphasizing the importance of consulting experts in remediation projects, the court stated:
Just as I accept the reasonableness of the West Beach Berm remediation because it was recommended by a qualified expert, I conclude it was unreasonable for JIP not to seek the input of an explosives remediation expert when unexploded ordnance and other crystalline substances were unearthed.
Finally, the court considered the question of quantum and allocation of damages. ICI criticized the invoices supplied by JIP as evidence of remediation costs and demonstrated several deficiencies with them. ICI submitted that the claim should be dismissed in its entirety due to JIP's failure to meet its burden to prove actual costs, but the court rejected this argument, instead applying "a perhaps rough but fair discount to the total amounts claimed to account for the frailties in question."
As JIP was "a sophisticated entity and had no motive for incurring costs that were not necessary nor for paying for work that was not carried out", the court determined that discounts for "gray areas" in arithmetic and accounting, and for the flawed "remediation by detonation" approach, would ensure fairness.
The court emphasized that reasonableness informs "not only the approach to remediation but also whether the associated costs were themselves objectively reasonable" and highlighted the fact that ICI criticized the methodologies employed by JIP, but not the reasonableness of the amounts charged by consultants, contractors, and others.
The court noted that JIP was "very much an innocent party", as it had not contributed to the contamination of James Island. The court accepted in principle the argument that if the increased value of a remediated property exceeds the cost of remediation an award of remediation costs constitutes a windfall that should be considered in allocation. In this case, however, the court found that there was a "complete lack of proof" that the property had increased in value due to remediation. Therefore no evidentiary basis existed for allocating any portion of the reasonably incurred remediation costs to JIP beyond the aforementioned discounts. As a result, ICI was found to be fully responsible for reimbursing JIP its reasonably incurred remediation costs minus discounts for "gray areas" and remediation by detonation.
(b) "Owner Pay" Principle Trumps "Polluter Pay" Principle: Ontario Court of Appeal
Regular readers of the Annual Review of Law & Practice will be familiar with Kawartha Lakes (City) v. Ontario (Director, Ministry of the Environment). The case was heard by the Ontario Court of Appeal this year (2013 ONCA 310). The City of Kawartha Lakes appealed the Ontario Environmental Review Tribunal's (the "ERT") confirmation of a remediation order issued by the Director. The Director issued the remediation order in response to the release of several hundred litres of oil from the basement of a private property. The oil leaked into City storm drains, creating a risk of contamination to a nearby lake. The Director had initially ordered the landowners to remediate the damage, but they had limited financial means and their insurance coverage ran out before remediation of the City's property was complete. The Director then ordered the City to remediate the remaining damage and prevent further discharge, even though the City had played no role in the original leak.
Before the ERT, the City argued that, as an innocent property owner, it was unfair and unreasonable that it should have to pay the costs of remediation, and that this violated the "polluter pay" principle, which is one of the principles governing an order under the Ontario Environmental Protection Act (the "EPA"). The City also sought to introduce evidence and an argument relating to fault for the spill.
The ERT found that the Director had exercised his discretion in a manner consistent with what it found to be the fundamental purpose of the EPA: the protection of the environment. No other party could have remediated the problem or, more particularly, could have prevented further contamination. The ERT also found that the statutory regime specifically contemplated making innocent owners pay for the initial cleanup and to prevent further contamination. As the question of fault was not a relevant issue, the ERT ruled the City's evidence on this point to be inadmissible.
The City raised the same arguments on appeal to the Divisional Court in 2012, and again sought to adduce evidence going to fault. The court, however, upheld the ERT's decision, confirming that the operating principle under section 157 of the EPA is not that the polluter pays, but that the owner pays. Accordingly, evidence of fault is not relevant in this process, other than in "rare" circumstances that were not present in this case.
Before the Court of Appeal, the City once again raised the polluter pay principle and argued that the ERT's order excluding evidence that others were at fault for the spill denied it natural justice. The court rejected these arguments and upheld the rulings below that the order was a no fault order and that the legislative objective of protecting the environment trumped the polluter pay principle.
(c) Smith v. Inco Cost Reduction Upheld Because of Novelty of Case
Both the 2012 and 2013 editions of this chapter also included discussion of Smith v. Inco Ltd., 2011 ONCA 628. At trial, the court awarded $36 million in damages to the plaintiff class of Ontario residents living in the vicinity of a nickel mine operated by the defendant Inco Limited for the decade-long release of nickel particle emissions. The Court of Appeal, however, reversed the decision of the trial court, finding that: (1) the claimants had failed to establish Inco's liability under either private nuisance or the rule in Rylands v. Fletcher; and (2) even if the elements of either or both causes of action were made out, the claimants had failed to establish any damages. The Supreme Court of Canada refused leave to appeal, in reasons indexed at  S.C.C.A. No. 539.
This year, the case again came before the Ontario Court of Appeal on the issue of costs (2013 ONCA 724). The court had remitted the issue of costs back to the trial judge after its 2011 decision. The trial judge ordered costs of $1,766,000; a substantial reduction from Inco's claimed costs. One of the reasons given by the trial judge for the reduction was the fact that the case was Canada's first environmental action to be certified as a class proceeding, and the first such action to proceed to trial. When a court exercises its discretion in awarding costs, section 31(1) of the Class Proceedings Act, 1992, permits the court to consider whether the case raised a novel point of law.
Inco appealed the cost award, claiming that the trial judge erred in holding that the case raised novel points of law. The Court of Appeal disagreed, upholding the trial judge's decision to reduce the costs award.
Although the court upheld the trial judge's reduction of costs based on the novelty of the case, the Court of Appeal pointed to one other Canadian environmental class action that had been certified and proceeded to trial: St. Lawrence Cement Inc. v. Barrette, 2008 SCC 64. However, Barrette was decided under the Civil Code of Quebec. The issues in Smith v. Inco dealt with private nuisance and the rule in Rylands v. Fletcher, both of which are specific to the common law and were thus not relevant to Barrette. Therefore, although the trial judge erred in stating that this case was the first environmental action to be certified as a class proceeding and proceed to trial, the Court of Appeal agreed that the case was novel.
(d) NSCA Decertifies Sydney Tar Ponds Class Action
In Canada (Attorney General) v. MacQueen, 2013 NSCA 143, the Nova Scotia Court of Appeal overturned a class proceeding certification in the Sydney Tar Ponds litigation, which arose after the closure of the steel-making industry on Cape Breton. The defendants, including the Attorneys General of both Canada and Nova Scotia and Sydney Steel Corporation, had appealed the certification decision.
The appellants argued that the statement of claim did not disclose valid causes of action for Rylands v. Fletcher liability, trespass, battery, or nuisance. Further, the appellants claimed that the certification judge erred in his analysis of whether the issues were really common between the members of the class.
The court held that the authorized release of contaminants by industry does not constitute an "escape," within the meaning of the rule in Rylands v. Fletcher. Rather, the release of substances in the ordinary course of manufacturing is an intentional and continuous escape.
The court also held that the pleadings did not meet the requirements for a claim in trespass. Trespass requires that an intrusion be a direct interference. The pleadings alleged that contaminants were "deposited" on, and "migrated" to, lands owned or occupied by the plaintiffs in the class. However, the migration of contaminants is not sufficient to constitute a direct interference. The alleged deposit was also not sufficient to constitute a direct interference, as the deposit was not made directly onto lands owned or occupied by the plaintiffs.
Similarly, directness is a requirement for the tort of battery, and directness was not included in the pleadings. Accordingly, the court held that the claim in battery should also not have been certified.
The only claim sustained by the pleadings was in nuisance.
On this point, however, the court held that the certification judge erred by certifying all the common issues without conducting a separate analysis to determine whether the issues were common with respect to each cause of action. Although the issue of whether the contaminants were emitted by the steel company was common to the class, the class should not have been certified on the basis of that issue alone.
Because the court identified only one common issue, there would be no improvement in judicial economy by allowing the proceeding to continue as a class action. The individual nature of nuisance would require claimants to pursue their own claims. Certification would also not significantly mitigate the cost to each claimant of proving nuisance. Lastly, the court considered the potential for behaviour modification. The court concluded that this factor was not applicable to the facts of the case, as the steel plant and coke ovens had been closed since 2000. As a result, the court set aside the class certification order.
(e) Ontario Court to Consider Enforcement of $9.5 Billion Ecuadorian Judgment Against Chevron
In Yaiguaje v. Chevron Corp., 2013 ONCA 758, residents of rural Ecuador appealed a decision of the Ontario Superior Court declining to enforce a US$9.5 billion judgment against Chevron for environmental damage. The Ontario Court of Appeal allowed the appeal.
The Ecuadorian Court of Cassation had granted final judgment against Chevron in the amount of US$9.5 billion for harm caused by environmental pollution over the course of 18 years. The Ecuadorian plaintiffs commenced an action in Ontario in an attempt to enforce the judgment against Chevron's Canadian subsidiary after Chevron failed to satisfy the Ecuadorian judgment. Chevron brought a motion to stay the Ontario action for lack of jurisdiction. The motion judge granted the stay and found that the courts of Ontario did have jurisdiction, but issued a discretionary stay on his own motion because he considered that the plaintiffs' had no hope of successfully piercing the corporate veil of Chevron Canada.
The court agreed with the motions judge that Ontario courts had jurisdiction to enforce the Ecuadorian judgment. The court held that in recognition and enforcement actions relating to foreign judgments, the real and substantial connection test should focus exclusively on the foreign jurisdiction. A court should not conduct a secondary inquiry into the relationship between the dispute in the foreign country and the Canadian court. A real and substantial connection between the enforcing court and the subject matter of the litigation is not necessary.
However, the court held that the motions judge erred in granting a discretionary stay of proceedings. The court held that a discretionary stay will only be justified in extraordinary circumstances that were not present in this case.
Finally, the Court of Appeal disagreed with the motion judge's characterization of the enforcement action as an "academic exercise" that would be "an utter and unnecessary waste of valuable judicial resources." The court held that the Ecuadorian plaintiffs should be given an opportunity to enforce the judgment in a court where Chevron would be required to respond on the merits. The possibility that the plaintiffs may not ultimately succeed should not be considered in determining whether to grant a discretionary stay before the defendants have attorned to the jurisdiction of the Ontario court.
The court concluded that "[t]his case cries out for assistance, not unsolicited and premature barriers...After all these years, the Ecuadorian plaintiffs deserve to have the recognition and enforcement of the Ecuadorian judgment heard on the merits in an appropriate jurisdiction. At this juncture, Ontario is that jurisdiction."
(f) Certainty and Timing are Key Factors in Obtaining a Stay of a Remediation Order in CCAA Proceedings
In Nortel Networks Corp. (Re), 2013 ONCA 599, the Ontario Court of Appeal allowed an appeal by the Ministry of Environment ("MoE"), from the lower court's stay of MoE remediation orders. The remediation orders were stayed pursuant to a Companies' Creditors Arrangement Act (the "CCAA") proceeding. This was the first decision of the court applying the landmark Supreme Court of Canada ("SCC") decision in Newfoundland and Labrador v. AbitibiBowater Inc., 2012 SCC 67.
Nortel had owned contaminated properties in Belleville, Brampton, Brockville, Kingston, and London. Prior to filing for CCAA protection, Nortel disposed of the properties, but retained a minor interest in the London property. Critically, at the time of the CCAA filing, the MoE had not issued any remediation orders. The MoE only issued such orders following Nortel's CCAA filing. Nortel estimated it would cost $18 million to comply with the orders.
In finding the remediation orders were not stayed by operation of the CCAA, the court cited three requirements from the CCAA and the Bankruptcy and Insolvency Act:
- there must be a debt, liability or obligation to a creditor;
- the claim must be founded on an obligation falling within the time limit for CCAA claims; and
- it must be possible to attach a monetary value to the obligation, based on substance as opposed to form.
The court held that ongoing environmental remediation obligations may be stayed as CCAA monetary claims apply only where the province has performed remediation work and advanced a claim for reimbursement or the obligation may properly be considered a contingent or future claim because it is sufficiently certain the province will do the work and seek reimbursement. In this case, other unrelated parties named in the remediation orders were jointly and severally liable with Nortel for compliance costs, including the current owners of the properies. The MoE could also make future orders against subsequent owners. Accordingly, the court held that the MoE would not necessarily be forced to undertake remediation of four of the Nortel properties.
The court made an exception with respect to the London property, holding that it was sufficiently certain that the MoE would undertake Nortel's cleanup obligations and seek reimbursement. Nortel still retained some ownership and no other entity existed following Nortel's insolvency. The property had no value and was abandoned. Therefore, the MoE order for the London site could not be compromised as a claim under the CCAA process, shifting costs to taxpayers.
The court's decision seeks to balance multiple stakeholder interests in the CCAA process, including that of the general public. Not all remediation orders will be provable claims. In brief, MoE remediation orders will only be subject to a CCAA stay if it is reasonably certain that the provincial regulator "will ultimately perform remediation work."
Northstar Aerospace Inc. (Re), 2013 ONCA 600, was heard by the same division of the Court of Appeal that heard Nortel. Unlike in Nortel, the MoE had issued orders against Northstar before the company filed for CCAA protection. Northstar sold all of its assets except for a property in Cambridge, Ontario, which had extensive trichloroethylene contamination. Unsurprisingly, no willing purchaser stepped forward to buy the contaminated property. Northstar indicated its intention to stop remediation and abandon it.
On these facts, the court agreed with the lower court that the remediation order sought to enforce, in practical terms, a payment obligation. The MoE had no realistic alternative but to remediate the Cambridge property. No subsequent purchaser was available to become subject to MoE orders. As with Nortel's London property, the remediation order was a provable claim within the meaning of the CCAA, as it was sufficiently certain that the MoE would end up remediating the Cambridge site and would seek reimbursement from Northstar.
Read together, the Nortel and Northstar decisions indicate that the relative timing of CCAA protection and environmental remediation orders will likely be determinative in future cases. The regulator's stated intention and the liquidity of other parties named in a remediation order will also be important considerations.
(g) Remediation Orders are Interlocutory, not Final
In Baker v. Ministry of the Environment, 2013 ONSC 4142, the former directors and officers of Northstar were ordered by the MoE to remediate several contaminated properties. The MoE issued remediation orders against the former directors and officers after Northstar filed for CCAA protection. The former directors and officers appealed the director's order, and applied for a stay pending the appeal. The ERT heard and dismissed the motion to stay the proceedings.
The former directors and officers sought judicial review of the ERT's decision. At issue was whether the decision was a final or an interlocutory order, whether Ontario's EPA provides a right to appeal interlocutory orders, and whether the judicial review proceeding was premature.
The court held that the ERT's decision not to stay the proceedings was an interlocutory order. The order did not finally dispose of the appellants' rights, no final findings or dispositions were made, and the decision dealt with a collateral issue to the litigation.
The court went on to rule that the EPA does not provide a right to appeal interlocutory decisions. Section 145.6(1) of the EPA states:
Any party to a hearing before the Tribunal under this Part may appeal from its decision or order on a question of law to the Divisional Court in accordance with the rules of the court.
The court concluded that an order made pursuant to an application for a stay is not an order made "under this Part."
Judicial review is only available for decisions or orders that are final in nature. As the former directors and officers had not yet exhausted all available remedies in the administrative process, the court held that the application for judicial review was premature. The appellants could request that the ERT review the order. They could also bring a new motion to stay the director's order in light of new evidence and arguments that were not put forward on the first motion. The court noted that, in exceptional circumstances, a court can consider a judicial review application while administrative proceedings are ongoing. There was no authority before the court, however, to suggest that an order requiring the expenditure of money constitutes an exceptional circumstance. Even if the ERT committed an error of law in dismissing the application for a stay of the proceedings, that decision was not an exceptional circumstance.
Further, the court noted that the Tribunal does not have the jurisdiction to order a stay of a director's order pending an appeal. Prior to 1990, a director's order was automatically stayed pending an appeal. However, in response to a major fire at a tire facility, the legislature repealed the automatic stay pending appeals of ERT decisions. The legislature also limited the availability of stays. Consequently, persons who are subject to a director's order may be required to incur the costs of interim compliance. The court concluded that this was consistent with the purpose of the EPA, which is "to provide for the protection and conservation of the natural environment."
(h) Remediation "in a Timely Fashion" Does Not Mean as Quickly as Possible
In Western Forest Products Inc. v. New Westminster (City), 2013 BCSC 1001, a summary trial proceeding, the vendor plaintiff, Western Forest Products, sued the defendant, the City of New Westminster, for breach of contract concerning the sale of a contaminated former sawmill property. The contract permitted the City to withhold part of the purchase price to cover the costs of remediation. Once the remediation was complete, the City was required to remit the balance of the purchase price, minus the costs of remediation.
At the time of the trial, ten years had passed since the contract was signed, yet the remediation was still only partially complete. The vendor claimed that the City had not made reasonable efforts to complete the remediation diligently and in a timely fashion, and was therefore in breach of the contract. The City claimed that it had been reasonably diligent, and relied on the fact that there was no stipulation as to the allowable time for remediation in the contract. The language of the contract only required the City and its contractors "to take reasonable efforts to commence and complete the remediation of the Lands diligently and in a timely fashion."
The court held that although the City could have taken some steps more quickly, the contract did not require the City to proceed with the remediation as quickly as possible. The City was therefore not in breach of the contract. The court also noted that the fundamental reality underlying the contract was that the plaintiff had contaminated the property and it needed to be remediated before the City could use it. The plaintiff could have chosen other mechanisms to ensure the property was remediated in a timely fashion (e.g. by remediating the property itself). Because it did not do so, and because the contract did not specify that remediation had to occur as quickly as possible, or within a specific period of time, the plaintiff's claim was dismissed.
(i) Contaminated Site Class Action Partially Dismissed
In Windsor v. Canadian Pacific Railway Ltd., 2014 ABCA 108, the court considered an appeal from an order partially granting a summary dismissal application related to a class action proceeding. The appeal was brought by the defendant, CP, who sought to have additional claims dismissed.
Since the early 1900s, CP has operated a locomotive repair facility in Calgary known as the Ogden shops. In 1999, it was discovered that Trichloroethylene ("TCE"), a degreasing solvent, had leaked into the groundwater flowing beneath the Ogden shops from a settling pond on the lands and had migrated onto numerous surrounding residential properties. The affected properties could be divided into roughly two categories: (i) properties where measurable quantities of TCE exceeded Health Canada thresholds; and (ii) properties where TCE levels were below Health Canada thresholds without any remediation. CP installed sub-slab depressurization systems under the former category (approximately 70 properties), which effectively reduced their TCE concentrations below Health Canada thresholds.
Local landowners, the Windsors, brought an action for diminution in property values and loss of rental income allegedly caused by the presence of TCE in the groundwater. The action was based on negligence, nuisance, trespass, and the doctrine in Rylands v. Fletcher. The action was subsequently certified as a class proceeding.
CP applied to summarily dismiss the Rylands v. Fletcher and nuisance claims.
The case management judge dismissed the nuisance claim by the class members without sub-slab pressurization systems in place, but declined to dismiss the other claims.
Applying the test most recently set out in Smith v. Inco Ltd., 2011 ONCA 628, the court allowed the appeal with respect to the Ryland v. Fletcher claims. The test for liability under the doctrine in Rylands v. Fletcher has four requirements: (i) an extraordinary, special, or extra-hazardous use of the land; (ii) a substance brought onto the land that is likely to do mischief if it escapes (which entails at least some element of foreseeability); (iii) an escape; and (iv) damage to the plaintiff's property as a result of the escape. The court held that there was no genuine issue with respect to the first three requirements, and that it was accordingly not necessary to consider the fourth requirement except with respect to the nuisance claims.
First, there was nothing unusual about CP's use of its lands. The Ogden shops were at all times zoned for industrial use and "every railway obviously needs to have a facility to repair its rolling stock". There was also nothing "special" or "extra-hazardous" about the repair of locomotives or the use of TCE in this process.
Second, it was uncontradicted that the TCE had been used in accordance with the best practices available at the time, and that its use was not known to possess the harmful qualities that later emerged. Once the risk was understood, in 1982, its use was discontinued.
Third, the migration of the TCE was not an "escape" or the result of any sort of "accident or misadventure". While CP's conduct did not meet modern environmental standards, the discharge of the TCE into the settling pond and the resultant migration of the TCE into the surrounding groundwater was the result of deliberate conduct that was part of the repair process.
However, the court dismissed the appeal regarding the nuisance claims by landowners with sub-slab pressurization systems in place. The court held that not only was there evidence that the landowners ability to use, occupy, and enjoy their lands had been impaired by the effects of the TCE, but the very need to constantly mitigate those effects through sub-slab depressurization systems was itself a measurable form of non-trivial damage.
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