Canada: Sidestepping Contracts: The Expansion Of Environmental Liability Where The Contractor Is Not Paid

The British Columbia Supreme Court's decision in Cordy Environmental Inc v Obsidian Energy Ltd ("Cordy Environmental") opens the door for contractors to pursue former owners and operators of contaminated sites with whom they have no contractual relationship to recover their unpaid fees.¹ The mechanism used by the contractor in this case to sidestep the standard fee recovery route was the cost-recovery provisions under British Columbia's Environmental Management Act (the "EMA"). Owners, operators and other parties responsible for contaminants should take note of the potential for this decision to broaden the scope of liability for contaminated sites when an environmental contractor is not paid.

In this Bulletin, we examine the findings in Cordy Environmental and its implications in environmental remediation matters in both British Columbia and other Canadian jurisdictions with similarly worded statutes, such as Ontario and Saskatchewan.

Cordy Environmental is currently under appeal. We will provide an update to this bulletin once a decision is rendered.

Cordy Environmental – Case Summary

This case involves the statutory rights of an environmental contractor, Cordy Environmental Inc., ("Cordy") to recover the costs of their remediation work after the corporation that hired them went bankrupt. A summary of the key background facts are as follows:²

• 2015: A pipeline spill occurred. The pipeline was owned by Obsidian Energy Inc. ("Obsidian").
• June 2017: Obsidian sold the pipeline to Predator Oil BC Ltd. ("Predator").
• July 2017: The British Columbia Oil and Gas Commission (the "Commission") issued a general order that the area contaminated by the spill needed to be remediated by the operator and permit holder of the pipeline.
• September 2017: Predator transfered its leasing rights to the pipeline to Opsmobil Energy Services Inc./Ranch Energy Corporation ("Ranch"). Ranch then hired Cordy to remove contaminated soil around the area of the spill in accordance with the Commission's order.
• March-April 2018: Cordy removed the contaminated soil and invoiced Ranch for its services, but Ranch did not pay Cordy's invoices.
• July 2018: Ranch is placed into receivership.

Cordy was unable to receive any distribution from Ranch's insolvency as an unsecured creditor.³ As a result, Cordy commenced a claim against Obsidian and brought an application for summary judgment under section 47 of the EMA to recover its service costs on the basis that Obsidian was the owner of the site at the time of the spill and thereby had a statutory duty to remediate the contamination.⁴

In response, Obsidian argued that it would be unduly harsh to hold it jointly and severally liable as the environmental liabilities arising from the spill were accounted for in the purchase price when it sold the site to Predator.⁵

Section 47(1) of theEMAprovides that:

A person who is responsible for remediation of a contaminated site is absolutely, retroactively and jointly and separately liable to any person or government body for reasonably incurred costs of remediation of the contaminated site, whether incurred on or off the contaminated site.⁶

The Court found that Cordy was a "person" who had "reasonably incurred costs of remediation of the contaminated site" and that Obsidian as a former owner of the property was a personal "responsible for remediation of a contaminated site".⁷

While the Court held that Cordy was entitled to bring the claim against Obsidian under the EMA, it referred the claim to trial rather than granting summary judgment on the basis that Cordy had not established the scope of its remediation work and that its costs were reasonable.⁸The Court further entitled Obsidian to assert all defences available to it at trial and to seek contribution for any other responsible person, which is anticipated to be Predator on the basis that it agreed to indemnify Obsidian for claims such as this one.⁹

Implications of Decision – British Columbia

Cordy Environmental may open the door for a contractor involved in remediating a contaminated site to recover its costs from a responsible person listed under section 45 of the EMA, even it was not the person who retained the contractor.

While the Court's finding that Obsidian, as the owner of the pipeline at the time of the spill, retained responsibility for remediation of the site may not be unexpected given the extensive development of the polluter-pays principle in Canada, the ability of contractors to recover costs from former owners and occupiers of the site for which it has no contractual relationship certainly poses new challenges for responsible persons under the EMA.

It should be noted that section 46(1) of the EMA provides some exceptions to who is a responsible person under the EMA, which we expect will form part of Obsidian's defence at trial.¹⁰

Implications of Decision – Other Provinces

The environmental legislation in most provinces only provides the government (as opposed to private parties) with a statutory right to recover remediation costs, with the exception of Ontario and Saskatchewan where the environmental legislation contains language similar to British Columbia's EMA.

Section 99(2)(b) of Ontario's Environmental Protection Act (the "EPA") provides that any person has the right to compensation from the owner of the pollutant and the person having control of the pollutant for all reasonable costs incurred in carrying out work related to a spill remediation order.¹¹ Accordingly, if the fact scenario inCordy Environmentalwere to take place in Ontario, it is reasonable to expect that Obsidian could be liable for Cordy's costs under the EPA.

We have yet to see any cases in Ontario brought by contractors to pursue this particular avenue of relief. However, the Ontario Court of Appeal has held that the purpose of section 99(2) is to "ensure that parties that suffer damage through the discharge of pollutants are compensated by establishing a statutory right to recovery from parties that owned and controlled the pollutant."¹² Cases addressing this right to date have focused on claims from neighbouring landowners whose properties became contaminated by a nearby spill and claims brought by current landowners against the owners at the time of the spill.¹³

In Saskatchewan, section 65(3) The Environmental Management and Protection Act, 2010 (the "EMPA") entitles any person who carries out a site assessment or remediation work on an environmentally impacted site to recover the reasonable costs of that work from one or more responsible persons.¹⁴ Compared to Ontario, the EMPA casts a wider net for persons who may be held responsible for the cost of environmental work.

Section 12 outlines that landowners are responsible for contaminated sites even if they became an owner or occupier after the contaminant was discharged.¹⁵ Section 12(3) relieves subsequent landowners of this responsibility if they could not reasonably have been expected to know about the contamination or if a notice of site condition was filed with respect to the site.¹⁶ Therefore, while the scope of responsibility is not as clear cut as Ontario, the Cordy Environmental decision potentially has similar implications in Saskatchewan.

Key Takeaways

Going forward, the Cordy Environmental decision may alert unsecured creditors of a new way to recover remediation costs if in circumstances where there is an insolvency. This is yet another example of the complexities surrounding liability for environmentally contaminated sites in Canada.

Property owners and occupiers in British Columbia, Ontario and Saskatchewan should particularly take note of this case. Where environmental contractors or service providers go unpaid for their remediation work, the environmental legislation in these provinces may provide a statutory right to recover remediation costs from other responsible parties.

Footnotes

1 Cordy Environmental Inc. v. Obsidian Energy Ltd., 2023 BCSC 1198[Cordy Environmental]

2 Cordy Environmental at paras 3-13.

3 Cordy Environmental at para 38.

4 Cordy Environmental at para 19.

5 Cordy Environmental at para 67.

6 Environmental Management Act, SBC 2003, c 53, s 47(1) [EMA].

7 Cordy Environmental at para 50, 57-64.

8 Cordy Environmental at para 76.

9 Cordy Environmental at paras 67, 83.

10 EMA, s 46(1)(d).

11 Environmental Protection Act, R.S.O. 1990, c. E.19, s.99(2)(b).

12 Midwest Properties Ltd. v. Thordarsonat, 2015 ONSC 819 at para 45

13 See for example: Huang v Fraser Hillary's Limited, 2018 ONCA 527; Gagnon & Associates Inc v Genier et al, 2014 ONSC 3019

14 Environmental Management and Protection Act, 2010, S.S. 2010, c. E-10.22, s.65(3).

15 Ibid, s.12(2).

16 Ibid, ss.12(3)(d)(ii) and 12(3)(e).

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2024