Court Extends Limitation Period in Contamination Case

The Alberta Court of King's Bench has recently had opportunity to consider an infrequently invoked section of the Environmental Protection and Enhancement Act (“EPEA”), which provides an exception to the ultimate 10 year limitation period contained in the Limitations Act.

In 1998 the Plaintiff Lakeview Village Professional Centre Corporation (“Lakeview”) purchased a commercial building from Commonwealth Business Management Ltd. (“Commonwealth”). Lakeview was aware that from 1969 to the mid-1980s the property had been utilized as a gas station by Suncor Energy Inc. (“Suncor”) and requested an environmental assessment. Commonwealth commissioned a report that found no evidence of significant contamination and determined that no further investigation was required. In reliance on the environmental assessment, Lakeview proceeded with the purchase.

In 2013 Lakeview received an offer to purchase the property and commissioned a new environmental assessment. The second assessment found contamination at a level that required substantial remediation of the lands including the removal of piping, concrete and soil. Lakeview spent $400,000 on remediation, with further costs expected.

Lakeview sought to recoup its remediation costs and commenced an action against Commonwealth and Suncor. In order to overcome the 10 year ultimate limitation period contained in the Limitations Act (which would otherwise have operated to bar the action), Lakeview applied to the court for an order pursuant to section 218 of EPEA.

Section 218 permits a judge to extend a limitation period where the basis for the proceeding is that the release of a substance into the environment resulted in an adverse effect. Adverse effect is defined by EPEA as impairment of or damage to the environment, human health or safety or property. In exercising its discretion, section 218 requires a judge to consider a number of factors 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.

Noting the paucity of case law considering section 218, the court adopted the following two-step approach to determine whether the limitation ought to be extended in the circumstances:

  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.

Applying the two-step approach the court found that the time frame involved was not so significant that it would be unfair to allow the action to proceed against either Commonwealth or Suncor. With respect to due diligence, the court rejected Suncor’s assertion that Lakeview should have commissioned its own independent report when it purchased the property in 1998. The court ruled that due diligence requires the claimant to take reasonable steps in the circumstances and determined on a preliminary basis that Lakeview had met this standard by requesting the preparation of an environmental assessment. On balance, the court concluded that the limitation period should be extended, subject to a final determination of the issue at trial.

Because the two-step approach allows a court to conclude on a preliminary basis (subject to a final determination of the issue at trial) that the matter should proceed, there is risk that a Plaintiff could successfully obtain an extension pursuant to section 218 only to have the court rule at trial that the 10 year ultimate limitation period ought not be extended. Obviously, this level of uncertainty is undesirable for a party contemplating litigation. It remains to be seen what constitutes “sufficient evidence” to warrant an outright extension of the limitation period as contemplated by the court.

Nevertheless, the decision does provide some important guidance with respect to due diligence. Purchasers can take some solace from this decision when they rely on environmental assessments commissioned by vendors that are subsequently determined to have been incorrect.

Significantly, the court also rejected Commonwealth’s assertion that 218 was limited to parties that cause or contribute to the contamination of lands. It is now clear that section 218 can operate to extend the limitation period even against entities (e.g., subsequent purchasers) not responsible for the creation of an adverse effect.

To read the full decision, please click here.