Introduction
Companies operating in the oil and gas sector take note. Standard limitation periods for third party environmental claims can be extended, at the discretion of the Court, under the Environmental Protection and Enhancement Act1("EPEA").
The majority of legal actions must be started within two years from the time the injured party discovers that they have suffered a loss. However, under section 218 of the EPEA, claims regarding environmental contamination are subject to extended limitation periods. The purpose of section 218 is to extend the time period within which civil proceedings can be initiated for damages to the environment as harmful effects of contamination are not always immediately evident. A court may extend the limitation period for these types of claims "where the basis for proceeding is an alleged adverse effect resulting from the alleged release of a substance into the environment."
A recent decision from the Alberta Court of Queen's Bench, Lakeview Village Professional Centre Corporation v Suncor Energy Inc,2 provides an analysis of the factors that a court will consider when deciding whether or not to extend the limitation period in an action for environmental contamination.
Facts
In 1998, Lakeview Village Professional Centre Corporation ("Lakeview") purchased land in Calgary from Commonwealth Business Management Ltd. ("Commonwealth"). Lakeview was aware that the land had previously been owned and used as a gas station by a predecessor of Suncor Energy Inc. ("Suncor") from 1969 until the mid 1980s. Commonwealth took ownership of the land in May 1988 and by 1998 the gas station had been removed along with the underground tanks.
As a condition of its offer, Lakeview requested that Commonwealth provide information regarding the environmental state of the property including any issues with contamination of the property In response, Commonwealth commissioned a Phase II Environmental Assessment Report from a third party environmental consultant which found no evidence of significant contamination on the property and concluded no further investigation was warranted at the time.
In 2013, Lakeview received an offer to purchase the property. The buyer commissioned Phase I and Phase II Environmental Assessments which discovered environmental contamination at a level requiring remediation.
Lakeview subsequently commissioned a Phase III Environmental Assessment and began remediation work in excess of $400,000. To recuperate these costs Lakeview filed a lawsuit against the previous owners of the property, Commonwealth and Suncor.
Lakeview's claim would have otherwise been be precluded by the Limitations Act,3 so it sought an extension of the limitations period under section 218 of EPEA.
Analysis
A court has discretion under section 218 and must consider a number of factors based on the information available. The factors include when the alleged adverse effect occurred, whether the alleged adverse effect ought to have been discovered by the claimant had the claimant exercised due diligence in ascertaining its presence, whether the claimant exercised that due diligence and whether extending the limitation period would prejudice the defendant's ability to maintain a defence to the claim on the merits.
In some instances, the granting of an extension under section 218 will be mixed with merit-based considerations such as the determination that the claimant has exercised due diligence. If a court makes a final determination on these issues when granting an extension it may be problematic if new facts emerge at trial. To alleviate this concern, the Court provided a two step approach to determine if an extension of the limitations period is appropriate:
- Is there sufficient evidence on the section 218 factors to grant an extension of the limitation period?
- If there is not enough evidence to make that determination, or if there is sufficient evidence but an issue for trial could be determined prematurely, has the claimant shown a good arguable case for an extension? If so, the claimant is entitled to an extension of the limitation period subject to a final determination of the issue at trial.4
This approach allows courts to extend the limitation for meritorious cases and exclude cases that are attempting to abuse the extension while acknowledging the claimant's interest to know whether or not it should pursue the claim further. When the Court applied this test to the facts it concluded that at the preliminary stage it was appropriate to grant an extension because Lakeview had a "good arguable case" which was grounded on some evidence and was not invented.5
In this case, the Court found that providing an extension under section 218 was appropriate, but made its findings subject to a final determination of the issue at trial as further evidence adduced at trial could change the analysis. The Court also found that there was no prejudice to Commonwealth or Suncor as a result of extending the limitation period as neither gave evidence to that effect. The Court also allowed the action to proceed against Commonwealth even though it did not cause or contribute to the contamination. EPEA expressly contemplates the liability of former owners for remediation in its definition of "persons responsible" for a contaminated site under section 107.
Concluding Thoughts
This decision clarifies the considerations that govern a section 218 application. Where an applicant demonstrates a "good arguable case" but there is some uncertainty regarding the evidence, the granting of an extension of the limitation period on a preliminary basis is an appropriate compromise.
Prospective buyers should be vigilant when purchasing property that may be subject to environmental contamination. It is vital that the buyer conducts sufficient environmental due diligence to ensure that it is eligible to make a section 218 application if contamination is discovered at a later time. Parties to a purchase and sale of property may wish to exclude the possibility of a section 218 application through representations expressly allocating liability for environmental contamination. However, such steps will only be effective between the parties to the purchase agreement and will not be effective in limiting the liability of past owners or protecting from actions by subsequent owners.
In addition, this case demonstrates that companies operating in industries where there is a risk of environmental contamination, such as the oil and gas industry, face some continuing uncertainty regarding third party environmental claims despite the passing of the standard limitations periods.
Footnotes
1. RSA 2000, c E-12.
2. 2016 ABQB 288 [Lakeview].
3. RSA 2000, c L-12.
4. Lakeview, at para 19.
5. Lakeview, at para 20.
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