Environment Law: Residential Contamination and Innocent Purchasers

Case comment on Domovitch v. Willows, 2016 BCSC 1068

by Adam Way, Harper Grey LLP

Earlier this summer, the British Columbia Supreme Court rendered a decision in the case of Domovitch v. Willows, 2016 BCSC 1068, which considered a number of important issues in the context of a residential cost recovery claim.  Given that very few cases involving residential contamination go to trial, the decision provides insight into the interpretation and application of key sections of the cost recovery regime under the Environmental Management Act, S.B.C. 2003, c. 53 (the “EMA”).

The Facts

The plaintiff, Mr. Domovitch, purchased the subject property (the “Property”) in 2004 from one Mr. Hult.  Mr. Hult had purchased the property from the previous owner, and named defendant, Ms. Willows in 1991.  Ms. Willows bought the property in 1985 before selling the Property to Mr. Hult.  The house on the Property had an underground oil storage tank (“UST”) originally installed in the 1940s.  Ms. Willows was aware of the UST and, in fact, somewhat unusually, used the tank for the house furnace and hot water tank during her ownership.

When Ms. Willows sold the property to Mr. Hult she disclosed the presence of the UST on the Property. When Mr. Hult sold the property to the plaintiff, he also disclosed the presence of the UST, but advised that it was now inert.  To this end, as part of the plaintiff’s purchase of the Property, he was provided an inspection report issued by the Oak Bay Fire Department from March 24, 1999, indicating that the UST had been decommissioned.

The plaintiff eventually sold the Property in 2015.  As part of the sale, the plaintiff agreed to pay for the costs of removing the decommissioned UST from the Property.  However, when the plaintiff’s consultant proceeded with the removal of the UST, contamination was identified on the Property, as well as migration onto the neighbouring property.  The plaintiff incurred $38,845 in investigating and remediating the contamination, and subsequently commenced a cost recovery claim pursuant to the EMA.

The court considered two key issues in this case: (1) whether the plaintiff fell within the exemption to responsible person status under section 46(1)(d) of the EMA, often referred to as the “innocent acquisition” exemption; and (2) how the remediation costs ought to be allocated among the responsible persons.

Section 46(1)(d), EMA – The Innocent Acquisition Exemption

Pursuant to section 46(1)(d) of the EMA, a responsible person is exempt from responsible person status if, at the time of their purchase of the property:

  1. The property was contaminated;
  2. The person had no reason to know or suspect that the property was contaminated; and
  3. The person 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.

In respect to the last factor, section 28 of the Contaminated Sites Regulation ( “CSR”) sets out further criteria that ought to be considered including, for instance, the presence of any obvious indicators of contamination or the feasibility of detecting such contamination by appropriate inspection at the time of purchase.  The requirements of “all appropriate inquiries” and “other investigations” are, on their face, significant hurdles to overcome in order to fall within the exemption.

Notwithstanding, the plaintiff argued that he fell within the innocent acquisition exemption on the basis that when he purchased the Property he was advised by the previous owner that the UST had been decommissioned and was inert, as well as being provided an inspection report from the Fire Department confirming this.  Further, as part of his purchase of the Property from the previous owner, he required an express warranty in the contract of purchase and sale that the UST had been rendered inert and was on file with the Fire Department.  In short, the plaintiff argued that he undertook all appropriate inquiries and had no reason to believe that the Property was contaminated.

The court ultimately agreed with the plaintiff, concluding that on the basis of the information that the plaintiff was provided (namely, the 1999 inspection report) it was reasonable for the plaintiff to infer that this meant the Property was not contaminated as a result of the historical UST.  The court held that, despite knowing of the existence of the UST when he purchased the Property and the common fact that many historical USTs have contamination issues, without anything more, the plaintiff had no reason to suspect that the Property may have been contaminated nor was he required, in these circumstances, to make any further inquiries or investigations.  Accordingly, the plaintiff was found to be exempt from responsible person status.

Allocation of Remediation Costs

The court ultimately held that both Ms. Willows and Mr. Hult were responsible persons on the basis of their previous ownership of the Property.  For Ms. Willows, the court rejected that she too qualified as an innocent purchaser as she was the individual who for several years brought the contaminants – namely, the heating oil – onto the Property.  The fact that Ms. Willows used the services of a third party for this and had no reason to personally suspect that the UST had contaminated the Property did not assist.  As the court held, the legislation does “not either expressly or impliedly provide for immunity in such circumstances” (at para. 43).

In light of the fact that Ms. Willows and Mr. Hult were both responsible persons, the court was required to consider how the costs of remediation ought to be allocated between them.  Pursuant to section 35(2) of the CSR, the court is required to consider a variety of factors when allocating remediation costs among two or more responsible persons including, for example, the relative due diligence of the parties.  Unfortunately, in this case, the court ultimately engaged in very little analysis on this issue, simply observing that a “cursory review” of the factors suggested there would be little basis to differentiate apportionment (at para. 50).  Instead, the court simply allocated responsibility between the parties based on the duration of their relative ownership prior to the date the UST was decommissioned (i.e., 1999).  This rather straightforward approach has a certain appeal, especially in the context of residential contamination where there may be very little to differentiate the parties involvement with the contaminated site and the source of the contamination.

Lastly, the court also accepted that all of the costs incurred by the plaintiff in investigating and remediating the contamination were “reasonable” costs of remediation, as defined in the EMA. The court largely relied on the fact that the consultants retained by the plaintiff had considerable experience in removing and remediating contamination from residential USTs and, based on this, inferred that the costs were therefore reasonable.

Key Points

Domovitch is a helpful case in that the court engages in a fairly detailed analysis of the cost recovery regime under the EMA and considered a number of provisions often applicable in the context of a case involving residential contamination.  While the court appeared to be content to rely on the experience of the environmental consultants retained by the plaintiff in order to conclude that the costs incurred were “reasonable” costs of remediation (and therefore recoverable under the cost recovery provisions of the EMA), caution should be taken against assuming that this will be followed more generally.  The issue does not appear to have been contested by the defendants.  Therefore, it is still important that consultants be in a position to fully justify, from both a technical and cost perspective, the steps taken in investigating and remediating a contaminated site so as to make any future cost recovery action commenced by their client more likely to succeed.

Domovitch also provides an example of a case where the purchaser engaged in enough due diligence and sought sufficient information to fall within the parameters of the innocent acquisition exemption.  The court’s generous approach to the interpretation and application of the exemption suggests that purchasers, at least in the context of residential contamination, may be able to more readily rely on the exemption in the future.  However, it is likely that the courts will apply a more onerous standard (and one more consistent with the plain language of the legislation) to more sophisticated parties seeking to rely on the exemption.

Please contact:

Adam Way

Adam Way practices in the area of Environmental Law as an associate with Harper Grey LLP.