Canada: Contaminated Site Update: Rough And Ready Allocation Of Liability

On May 5, 2016, the Supreme Court of British Columbia released its decision in Domovitch v. Willows, 2016 BCSC 1068 (CanLII) in which the court allocated liability amongst a number of "responsible persons" under the Contaminated Sites provisions of the B.C. Environmental Management Act, S.B.C. 2003, c. 53 (the "EMA").

Despite the reasons for judgment being pronounced orally, the decision in Domovitch contains a rare, succinct and clear treatment of a number of provisions in the EMA, including the "innocent purchaser" exemption from liability and the allocation of liability amongst responsible persons.

Innocent purchaser exemption

To be entitled to the "innocent purchaser" exemption under the EMA, a party must establish that:

  1. at the time of purchase:

a. the property was contaminated;

b. the purchaser had no reason to know or suspect that the property was contaminated; and

c. the purchase undertook all appropriate inquiries into the previous ownership and use of the property and also undertook other investigations consistent with good customary practice at that time in an effort to minimize potential liability;

2. the purchaser did not transfer title to any party without disclosing known contamination to the transferee; and

3. the purchaser did not by any act or omission cause or contribute to the contamination.

With respect to satisfying the requirements in 1(c) above respecting appropriate inquiries, the Contaminated Site Regulations require the court to consider:

  1. any personal knowledge or experience of the purchaser respecting contamination at the time of acquisition;
  2. the relationship between the purchase price and the value of the property uncontaminated;
  3. commonly known or reasonably ascertainable information about the property at the time of purchase; and
  4. any obvious presence or indicators of contamination or the feasibility of detecting such contamination by appropriate inspection at the time of purchase.

Given the multiplicity of the requirements to establish entitlement to the exemption, such exemptions are rarely established and have generally been upheld in the context of residential purchasers of properties contaminated by heating oil from underground tanks. The only decision we are aware of that addresses the exemption in an industrial context is in Workshop Holdings, 2005 BCSC 631, which provides light guidance on the application of the exemption in an industrial context.

In Domovitch, the plaintiff successfully relied on the "innocent purchaser" exemption to avoid sharing the liability for remediation costs. The critical facts held to entitle the plaintiff to rely on the exemption were that, at the time of the purchase, the plaintiff knew that there was an underground storage tank but had received confirmation from the local fire department that the tank had been decommissioned five years earlier and that the tank had been rendered inert, and amended the purchase agreement to include a warranty to that effect. Somewhat surprisingly, the court held that this was sufficient to allow the purchaser to establish that he had "no reason to suspect" the property was a contaminated site. In doing so, the court relied on a previous decision in Aldred v. Colbeck, 2010 BCSC 57 (CanLII) to similar effect.

Allocation of Liability

In Domovitch, as in most contaminated site decisions to date, the court embarked on a rather simple crude allocation of liability in which the court allocated liability amongst the "responsible persons" based on the relative number of years that each of them owned the property during the time that the tanks were used for storing heating. In this regard, years or ownership were used as a crude proxy for each parties contribution to the contamination. This allocation was not adjusted for any consideration of the fact that the tank likely discharged more contamination during its later years of operation than during the early years before corrosion had compromised the integrity of the tanks. The simple basis used to allocate amongst responsible persons may simply have been a function of the limited damages at stake ($39,000). One day, the court will likely be asked to consider and embark upon a more nuanced approach to allocation taking into consideration all of the various allocation factors articulated in the Contaminated Sites Regulation.

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