The dispute in Crombie Property Holdings v. McColl-Frontenac Inc. (Texaco Canada Limited), 2017 ONCA 16, centred around a property purchased in 2012, which was later discovered to be contaminated by an adjacent property. Justice van Rensburg, for the Court of Appeal, held that the motions judge had made two palpable and overriding errors in dismissing the Plaintiff’s action on the grounds of discoverability:

1.Equating the Plaintiff’s knowledge or suspicion of potential contamination with actual knowledge of contamination;

2.Ignoring the circumstances of the multi-property transaction.

Background

The property purchased by the Plaintiff/Appellant, Crombie Property Holdings (“Crombie”) was adjacent to (the “Property”). Testing was done in 2007 which confirmed that applicable Ministry of Environment (MOE) standards had been met.

Crombie bought the Property in 2012, as part of a transaction involving a total of 22 commercial properties. Stantec, an environmental consulting firm, was retained to assist with the environmental due diligence. Stantec’s 2012 report noted that there were no MOE standards for petroleum hydrocarbon fractions. It opined that the remaining concentrations were not considered a significant environmental concern and that no further environmental assessment was required. On March 8, 2012, Crombie waived the environmental conditions and proceeded to purchase all 22 properties. Due to changes in analytical methods, a further evaluation of soil and groundwater conditions was recommended in a March 20, 2012 report. Stantec then provided a draft report on May 9, 2012 with test results showing that petroleum hydrocarbon in soil and groundwater samples analysed on March 23 and March 30, 2012 exceeded MOE standards. The report was finalized on September 17, 2012.

A Notice of Action was issued on April 28, 2014. On a summary judgment motion, the motions judge dismissed the Plaintiff’s action, finding that if Crombie had suspicions of contamination in March 9, 2012 or alternatively, that it knew or ought to have known of its claim when lab results became available at the end of March, 2012.

Justice van Rensburg held that the motion judge had made a palpable and overriding error in equating a suspicion of potential contamination with actual knowledge of contamination. Referencing Van Allan v. Vos, 2014 ONSCA 552 at paras 33 and 34, she wrote at paragraph 35 that “the prospective plaintiff must have known or ought reasonably to have known of the material facts necessary for a claim. It is ‘reasonable discoverability’ and not ‘the mere possibility of discovery’ that triggers a limitation period.” Suspicions, or possible contamination, she found, were not sufficient, as s. 5(1)(a) of the Limitations Act required actual knowledge:

The suspicion of certain facts or knowledge of a potential claim may be enough to put a plaintiff on inquiry and trigger a due diligence obligation, in which case the issue is whether a reasonable person with the abilities and in the circumstances of the plaintiff ought reasonably to have discovered the claim, under s. 5(1)(b). Here, while the suspicion of contamination was sufficient to give rise to a duty of inquiry, it was not sufficient to meet the requirement for actual knowledge. The subsurface testing, while confirmatory of the appellant’s suspicions, was the mechanism by which the appellant acquired actual knowledge of the contamination.

Justice van Rensburg found that the second palpable and overriding error by the motions judge was in failing to consider the circumstances of the multi-property transaction. By March 13, 2012, Crombie had waived the environmental conditions. Justice van Rensburg noted that “once the conditions were waived, there was no urgency to confirming whether the Crombie Property was contaminated, as Crombie was required to close the purchase.” The motion judge should have considered “whether, a reasonable person in Crombie’s position, after the waiver of conditions, would have sought out and obtained the laboratory results before April 28, 2012.” She found that the fact that contamination was there to be discovered in the March 23 and March 30, 2012 results was not sufficient to start the limitations clock.

Justice van Renburg set aside the dismissal of the appellant’s action and fixed costs at $29,194.19, all inclusive.

Conclusion

In bringing summary judgment motions based on discoverability, counsel should ensure that reasonable discoverability or actual knowledge, and not the mere possibility of discoverability can be proven. Further, counsel should consider the circumstances of a transaction which could inform the reasonableness of the person’s actions.