Summary

Environmental contamination often goes undiscovered for many years, potentially making it difficult for plaintiffs to bring a claim to recover damages for environmental contamination within statutory limitation periods. Under the Limitations Act, RSA 2000, c L-12 (the “Limitations Act”), the limitation period applicable to remedial orders is two years from the date a claimant discovers a claim or ten years after the claim arose, whichever period expires first. However, the Alberta Environmental Protection and Enhancement Act, RSA 2000, c E-12 (“EPEA”) recognizes the difficulties in discovering environmental contamination and provides that the limitation period for an action claiming an “alleged adverse effect resulting from the alleged release of a substance into the environment” can be extended on application to the Court of Queen’s Bench. In a recent decision, Justice Martin set out a two-part test for determining when such an extension is warranted.

The mechanism to extend the limitation period for environmental contamination claims under EPEA has not been frequently used. However, this decision is a reminder of the availability of such an extension and clarifies the procedure that governs these applications. In the context of the purchase and sale of a property, the practical take-away from this decision is that parties should take steps to contractually allocate liabilities for environmental contamination to avoid the possibility of potential liability unlimited by statutory time constraints. This can be done through the use of carefully drafted representations and warranties and indemnities in purchase and sale agreements.

Background

In Lakeview Village Professional Centre Corporation v Suncor Energy Inc., 2016 ABQB 288, the defendant, Suncor Energy Inc. (“Suncor”), owned certain lands (the “Lands”) from 1969 until the mid-1980s. Suncor operated a retail gas station on the Lands.

In 1988, the defendant, Commonwealth Business Management Ltd. (“Commonwealth”), purchased the Lands. In 1998, Commonwealth sold the Lands to the plaintiff, Lakeview Village Professional Centre Corporation (the “Plaintiff”). At the time of purchase, the Plaintiff knew that a gas station was formerly on the site and, as a condition of its offer, the Plaintiff asked Commonwealth to provide information regarding the environmental status of the Lands. Commonwealth commissioned an Environmental Assessment Report which concluded that there was no evidence of significant contamination and no further investigation was warranted. Relying on this assurance, the Plaintiff acquired the Lands.

In 2013, the Plaintiff received an offer to purchase the Lands prompting another environmental assessment. This assessment found contamination at levels that required remediation of the Lands. The Plaintiff, wishing to recoup some or all the costs spent on remediation, brought an action against the Defendants as the former owners of the Lands.

Normally, the action would be out of time under the Limitations Act as the claim was well outside of the 10 year-ultimate limitation period. However, Section 218 of EPEA provides that a judge may extend the limitation period under certain circumstances.

Decision

Section 218 of EPEA authorizes a judge, on application, to “extend a limitation period provided by a law in force in Alberta for the commencement of a civil proceeding where the basis for the proceeding is an alleged adverse effect resulting from the alleged release of a substance into the environment”. EPEA defines adverse effect to mean “impairment of or damage to the environment, human health or safety or property”.

Section 218 sets out a number of factors for a judge to consider, including:

  • when the adverse effect occurred;
  • whether the adverse effect ought to have been discovered by the claimant through the exercise of due diligence;
  • whether the defendant will be prejudiced from maintaining a defence to the claim on the merits; and
  • any other relevant criteria.

However, there was no guidance in EPEA as to the procedure that governs applications under Section 218. In particular, there was no guidance on whether a Section 218 application was a final determination as to the availability of an extension or whether a limitation argument could still be left to trial.

The Court outlined the following two-step analysis for considering when a Section 218 extension should be granted:

  1. Is there sufficient evidence on the Section 218 factors to grant an extension of the limitation period?
  2. 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.

The Court noted that the test respects the purpose of Section 218 “while acknowledging the legitimate interest of a claimant to know whether to spend further resources on their claim” and “allows the court to extend the limitation period for obviously meritorious s 218 cases or to weed out cases that are attempting to ‘abuse the system’”.

Justice Martin found that, in this case, the time frame involved was not so long ago that it would be unfair to allow the action to proceed against either party, the Plaintiff exercised diligence in ascertaining the presence of the alleged adverse effect, there was no evidence that an extension of the limitation period would prejudice their ability to maintain a defence on the merit, and Commonwealth had not persuaded the court that Section 218’s scope is limited to parties that cause or contribute to the contamination of lands. Justice Martin held that the Plaintiff had shown a good arguable case on the Section 218 factors, and granted an extension of the limitation period subject to a final determination of the issue at trial.

Implications

Prior to this decision, there was very limited judicial consideration of Section 218 of EPEA and no guidance as to what procedure governed applications under Section 218 (some of the few cases considering an application for an extension under Section 218 are Wainwright Equipment Rentals v Imperial Oil Ltd., 2003 ABQB 898 and Jager Industries Inc. v Canadian Occidental Petroleum Ltd., 2001 ABQB 182). This created the risk that a plaintiff who discovered environmental contamination outside of the 10-year ultimate limitation period would need to expend significant resources in pursuing an action that could ultimately be barred by limitations. This decision sets out how a court will consider such actions and will provide certainty to plaintiffs in considering whether to pursue a claim. The decision also clarifies the requirements for a defendant to resist such an extension and clarifies that where there is insufficient evidence to support the Section 218 factors, and no arguable case for an extension, an extension can be denied prior to trial.

In the context of the purchase and sale of a property, parties can take steps to avoid the possible use of the extension under Section 218 by expressly allocating liability for environmental contamination in a purchase and sale agreement. This can be done through representations and warranties and indemnities in agreements that expressly provide for the timelines of liability of the vendor and purchaser of a property. Further, parties should take steps to assess potential environmental contamination on properties they are considering purchasing and use remediation certificates to lessen the associated risks. While such certificates do not directly limit potential liability for civil claims for migration of contamination to adjoining properties, they do serve as a mechanism to decrease contamination costs for the property granted a certificate. In practice, civil claims for contamination often follow a determination of regulatory liability as parties seek to recover costs spent for reclamation and remediation work. Accordingly, by managing regulatory risk, civil liability risk is in turn also managed to some extent.