Canada: Limitation Periods In Contaminated Land Cases: Ontario Court Of Appeal Provides Some Answers But Leaves More Questions For Environmental Lawyers And Their Clients

On January 11, 2017, the Ontario Court of Appeal issued its decision in Crombie v. McColl-Frontenac Inc. We had previously commented on the decision of the motions court that granted summary judgment in the matter. The OCA reversed the motions court decision. In doing so, and as so often happens, it answered some of the questions raised by the lower court decision, opened up some new questions and left some longstanding questions unanswered.

A quick recap of the facts

The plaintiff, Crombie, was in the midst of purchasing a property. Phase I information available to Crombie from the early days of the transaction disclosed that a neighbouring property was a gas station that had been decommissioned some years before. A Record of Site Condition had been obtained for the former gas station property confirming the property had been remediated to standards applicable at the time. Crombie also had older Phase II information for the property being considered for purchase, indicating the property had some petroleum hydrocarbon contamination that complied with the site condition standards applicable at the time of the report. The standards had since changed and Crombie was advised by his consultants that a new Phase II report would be required to determine whether the proposed Crombie Property met the currently applicable standards.

Crombie commissioned a new Phase II but decided to go firm on the purchase before a new Phase II report was issued.

Crombie claimed to have found out the site exceeded the applicable standards after going firm on the deal and sued the neighbour and former owner and operator claiming both negligence and continuing negligence.

The Defendants were successful at first instance in obtaining summary judgment. The motions court found that Mr. Crombie had actual knowledge of the contamination more than two years before the claim was issued. The motions court also granted summary judgment on the continuing tort claim thus bringing all of Crombie's claims to an end.

The Court of Appeal decision

The Court of Appeal reversed the motions court decision on the grounds that two palpable errors of law had been made by the motions court. First, the court concluded that "it was a palpable and overriding error for the motion judge to equate knowledge of potential contamination with knowledge of actual contamination". Secondly, the court found that it was also a "palpable and overriding error for the motion judge to fail to take into consideration the multi-party transaction and Crombie's waiver of conditions, in her assessment of what Crombie knew or ought to have known about hydrocarbon contamination at the property two years before it commenced its action."

Commentary

One key area of disagreement between the motions court and the Court of Appeal was on whether or not Crombie had actual knowledge of the Phase II results before April of 2012. The motions court found that he had and made what amounts to a finding of credibility against Crombie on this point. The Court of Appeal disagreed.

It is not productive to argue over which court made the correct finding of fact on the evidence before it. Courts will of course differ on such facts but the very disagreement does highlight an area of frailty in a summary judgment procedure that tries to evaluate questions of credibility in the context of affidavit evidence on a motion. More important, however, are the implications of how the Court of Appeal chose to deal with the underlying legal principles including the ones it elected to make no comment upon.

Did Crombie Have a Cause of Action at all?

A longstanding principle of law, referred to by the Latin maxim "Volenti non fit injuria" is that if someone willingly places themselves in a position where harm might result, knowing that some degree of harm might result, they are not able to bring a claim against the other party in tort. Neither the motions court nor the Court of Appeal decision contains any discussion of this principle and its implications for Crombie's claim. If, as found by the motions court, Crombie knew or should have known of the contamination before going firm, then was he not voluntarily assuming the risk of such contamination in deciding to buy the property anyway? Conversely, if one accepts the Court of Appeal's finding that Crombie decided to go firm after ordering a Phase II report but before becoming aware of the results, did Crombie, in doing so, not therefore voluntarily assume the risk that the results of the Phase II might be unfavourable? Under either scenario, has not Crombie voluntarily assumed the risk the property would be contaminated? If so, then why does the principle of Volenti non fit injuria not act as an absolute bar to Crombie's right to assert a claim in the first place?

Since the issue was not touched upon by either court, one assumes the principle might still be open to argument at trial.

Is there a different standard of transactional due diligence for multi-property purchases?

Much emphasis was placed by the Court of Appeal on the failure of the lower court to take into account the "context" of the acquisition by Crombie in establishing what was reasonable for him to have known under the circumstances. In particular, the Court of Appeal found it was significant that the property in question was one of 22 being acquired and criticised the lower court for not taking this into consideration:

"The problem with this reasoning is that it ignores completely the circumstances of the multi-property transaction Crombie was involved in, the due diligence process and the waiver of conditions. Nowhere in her reasons did the motion judge refer to the fact that Crombie was involved in purchasing 22 properties. This was part of the context in which Crombie's knowledge ought to have been assessed, and the failure to mention such circumstances was an important omission. Further, although the motion judge referred to March 9, 2012...as the date when Crombie waived conditions and proceeded with the purchase of the property (later she referred to this as a waiver of the "environmental condition"), she did not factor Crombie's waiver of conditions into her assessment of its conduct."

The implications of this approach could prove to be rather far-reaching in the context of an analysis of what constitutes due diligence in the context of purchase of land and possible other fields as well. Is the court suggesting that a purchaser of multiple properties is to be held to a lower standard of care in conducting due diligence on properties being acquired than a purchaser of a single property? If this is part of the "context" to be taken into account in assessing constructive knowledge (and therefore due diligence), where does it end? Would such reasoning serve to suggest that a large corporation with hundreds of employees is to be held to a lower standard of care in exercising its health and safety due diligence obligations than an employer of, say, only six people? Is this an invitation to start down a slope that leads to willful blindness on the part of purchasers of real estate portfolios? Put bluntly, should how busy someone chooses to make themselves be relevant to the due diligence they are expected to exercise?

Has the standard for establishing constructive knowledge been raised?

In parsing through the Court of Appeal's reasoning on the issue of constructive knowledge, it might be useful to revisit an older decision of the same court involving the purchase of land – a 1996 decision often referred to as 'Tony's Broadloom". In that case, the purchaser elected not to make various environmental inquiries before closing but brought an action against the vendor upon discovering contamination post-closing. In Tony's Broadloom, the Ontario Court of Appeal made the following finding:

"A reasonable inspection of the property, reasonable inquiries of the respondents, and reasonable inquiries of the local and provincial authorities would have put the appellants on notice of the existence of the contaminant. Indeed, had the appellants pursued the taking of soil samples with reasonable diligence after the respondents had permitted them to take those samples, they would have learned of the existence of the contaminant before closing. Instead, the appellants chose not to disclose their intended use of the property and to take no steps to satisfy themselves that the property could be used for that purpose."

While there are a number of special rules that apply in the context of a dispute between a vendor and purchaser of land that do not apply to a dispute between a purchaser and a neighbour, one would expect the principles of constructive knowledge in the context of a real estate acquisition to be consistent regardless of whether the buying plaintiff is suing the vendor or a neighbour.

Yet Tony's Broadloom appears to suggest a much more liberal test for imputing knowledge than that applied in Crombie. It is remains to be seen whether Crombie is the beginning of a trend requiring a much higher standard for finding constructive knowledge in the context of the purchase of contaminated lands.

Who has the onus of proof of a continuing tort on a summary judgment motion?

While the Court of Appeal chose not to comment on the question of the onus of proof in continuing tort cases, it did refer, without any comment, to the decision in Sanzone v. Schechter from earlier in 2016 as having been cited to it by the Plaintiff. That decision is consistent with the view that, absent any evidence by either party on a point pleaded in the claim, summary judgment should not be granted against the plaintiff on that point. Such a result is contrary to the finding made by the motions judge but, as explained in our earlier commentary on the motions decision, appears to be consistent with first principles and the principle that a party bringing forward a properly made pleading is entitled to a trial unless challenged by appropriate evidence.

Conclusion

The Court of Appeal's decision in McColl v. Frontenac is the latest word on the question of the discoverability of an environmental claim in the context of the purchase of land. Trite though it may be to say so, it is unlikely to be the last.

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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