A tale of misrepresentation, negligence and cost recovery
Awareness of environmental damage and lawsuits over responsibility for clean up of contaminated sites has led the principle of "buyer beware" in residential land transactions to become watered down during the past few years.
"Buyer beware" in its original form meant that absent a serious misrepresentation about the state of the property in question or failure to disclose a dangerous latent defect, the buyer had little recourse against a seller for buying "defective" land.
The Environmental Management Act, SBC 2003, c. 53 (the "EMA") contains a cost recovery action which gives purchasers of contaminated land a statutory shortcut around the "buyer beware" principle. It allows purchasers to try to recover common law damages incurred as a result of having to deal with the contamination and clean up.
This section of the EMA was recently applied to Aldred v. Colbeck by the British Columbia Supreme Court in January 2010.
The case arose from soil contamination caused by oil leakage from an underground oil storage tank at a residential property in West Vancouver, BC.
The defendants, the Colbecks, bought the residential property in question in 1998. Before committing to the purchase, they obtained a building inspection report. It warned them that there was evidence of a buried oil tank on the property and advised them to locate the tank, test for residual oil and then to dispose of the tank in accordance with the applicable legal requirements. The Colbecks bought the property despite the report. They did nothing in relation to the tank until November 2000, when they decided to sell the property.
In anticipation of the sale, the Colbecks hired a local contractor, Mr. Scotland to remove or decommission the tank. Mr. Scotland did some work in relation to the tank on one day in November 2000, but later died.
The Colbecks and Ms. Aldred (the plaintiff) began discussions regarding the sale of the property. The Colbecks advised Ms. Aldred of their 1998 inspection report and stated that they had done some work in conformity with its recommendations in November 2000. They also stated that no additional inspection would be required. They provided Ms. Aldred with a copy of the 1998 report. She accepted this assurance and bought the property, closing the sale in January 2001.
Ms. Aldred decided to sell the property in 2007. Her realtor advised her to retain another local contractor to inspect the property. In March 2008, the contractor located an oil tank at the location specified in the 1998 report.
Ms. Aldred then hired another contractor to remove the tank and remediate the land. This work was completed and she sold the property. She then sued the Colbecks to recover the remediation costs as well as other damages associated with the land contamination.
She claimed that she was induced to purchase the property by the Colbecks' negligent misrepresentation respecting the status of the oil tank. She also claimed that, whether or not the Colbecks made a negligent misrepresentation, they were liable for the costs of the remediation pursuant to the EMA.
The BC Supreme Court found that contrary to Ms. Aldred's evidence, the Colbeck's never told her that the tank had been removed from the property. Instead, the court found that they told her that the tank had been decommissioned. The judge went on to hold that the reasonable meaning to be accorded to the Colbecks' statement that the tank had been decommissioned by Mr. Scotland, and the meaning they intended to convey, was that "the tank had not damaged the property, and did not threaten the environmental integrity or safety of the property."
Ms. Aldred's consultant provided evidence that, in 2007, the tank contained oil and sludge, and that the property was contaminated. The court held that the Colbecks' representation was false and that it was made negligently. Mr. Scotland's description to the Colbecks of the decommissioning work he had done, the small amount of time he took to complete the work, and the price he charged the Colbecks ($900) were sufficient to raise a suspicion that the work was not properly done and that he had misrepresented the extent of what he had done.
Further, the 1998 inspection report recommended testing (presumably of soil) for residual oil products associated with the tank. There was no evidence that the Colbecks inquired of the testing done by Mr. Scotland or the results derived from such testing.
The court held that, in the circumstances, the Colbecks negligently misrepresented the status, safety and integrity of the oil tank at the property, thereby inducing Ms. Aldred to enter into the contract of purchase and sale. Her reliance on their misrepresentation was reasonable. Accordingly, the Colbecks were held liable for the associated damages. They were also held liable as "responsible persons" under the EMA for the remdediation costs incurred by Ms. Aldred. Ms. Aldred was exempt from the responsible person status on the basis of section 46(1) of the EMA.
Aldred v. Colbeck is an important decision for both buyers and sellers of residential property in British Columbia. The decision clarifies that sellers should be very careful about the types of representations they make to prospective buyers about the status of an oil tank on their property. A representation that the tank was decommissioned may well be held to include an implied representation that the tank has been decommissioned properly and that it has not contaminated the property, potentially giving rise to liability on the part of the seller for negligent misstatement if contamination is later found by the buyer.