Canada: Purchaser Of Contaminated Site Loses Case Against Own Lawyer

Last Updated: June 30 2015
Article by Dianne Saxe

I continue to be surprised by how many people knowingly purchase a contaminated site, and regret it afterwards. Buy in haste, repent at leisure?

Sometimes the purchaser of a contaminated site is merely unlucky, or suffers from a change of rules or approach by government regulators; sometimes I see incompetence by purchasers' consultants, and/or lawyers. But sometimes the problem is due to the purchasers themselves.

In 6038212 Canada Inc. v. 1230367 Ontario Ltd., 2014 ONCA 415, a Mr. Yang (an experienced businessman and PhD chemist) bought a commercial plaza. The property was contaminated by tetrachloroethylene (perc) from a dry cleaners' that had been operated by a former tenant. Chlorinated solvent contamination of soil and groundwater is common at drycleaning sites and can be astonishingly expensive to remediate.

At the time of the purchase, the vendor had three environmental reports. A Phase I non-intrusive environmental site assessment ("ESA") concluded that there were no apparent environmental concerns associated with the property. Two later reports, based on subsurface drilling, had identified groundwater contamination exceeding applicable Ministry of the Environment criteria, and had provided a preliminary budget for remediation of $100,000 to $150,000. Mr. Yang negotiated a $200,000 reduction in the purchase price, and rejected his lawyer's written advice to get a proper environmental assessment of the property.

A few years later, a neighbouring property owner sued, claiming damages for groundwater contamination. Mr. Yang then sued his vendors and his own lawyer, claiming he had had no idea that the Plaza was contaminated when he bought it.

Yang claimed that the vendor had breached a duty to disclose the contamination. He also claimed that his lawyer had been  negligent in failing to request environmental information from the vendor, and in failing to ensure that an environmental warranty was included in the agreement of purchase and sale.

The trial court and the Ontario Court of Appeal threw out both these claims, with costs. The court concluded that Mr. Yang had known about the contamination, and that the seller had provided Mr. Yang with all three environmental reports before purchase. Mr. Yang had used that knowledge to obtain the $200,000 purchase price reduction, even though he had provided only the Phase I report to his bank.

Mr. Yang's lawyer, Zheng Anderson, had not been negligent:

[10] ... The agreement of purchase and sale included a condition permitting the purchaser to satisfy itself respecting the environmental condition of the property, and included a requirement that the vendor provide any existing environmental reports upon request of the purchaser. Ms. Anderson testified that Mr. Yang had undertaken to deal with the conditions in the agreement, and that he had ultimately waived the conditions, including the environmental condition. Ms. Anderson had the Phase I ESA report in her files, which she could only have received from Mr. Yang, and she confirmed that she had faxed this document to his lender, CIBC. Prior to the closing, Mr. Yang signed a waiver/consent, acknowledging that Ms. Anderson had specifically recommended undertaking the environmental assessments as stated in the agreement of purchase and sale, that it was his decision not to do the assessments, and that he had instructed his lawyer not to order any new environmental reports "as [he] already received one which has been accepted by the mortgage company". All of this is consistent with Ms. Anderson's evidence that Mr. Yang had undertaken to address the environmental issues in relation to the property himself, and that he had decided that no further investigations were necessary.

[11] In these circumstances, the trial judge made no error in finding that the respondent Anderson met the appropriate standard of care. There was no error in the trial judge's rejection of the opinion of the appellants' expert witness [Sybil Johnson-Abbott] that she had breached the standard of care, which depended on a number of assumptions that were not borne out by the evidence. We would also reject the appellants' assertion that the waiver/consent signed by Mr. Yang required Ms. Anderson to specifically request environmental reports from the vendor, even in the absence of any instructions from Mr. Yang. The evidence as a whole fully supports the conclusion that Mr. Yang was satisfied with the extent of his knowledge about the environmental condition of the property, and, notwithstanding the advice of his counsel, was unwilling to conduct any further investigations.

Bottom line: Having chosen to buy the contaminated site without a thorough investigation, Mr. Yang had no one to blame but himself.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Dianne Saxe
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