Commercial Litigation and Dispute Resolution Blog

A recent decision has expanded the scope of cost-recovery actions for contaminated sites under the Environmental Management Act, SBC 2003, c.3 (the EMA). The decision confirms that unpaid contractors who have provided remediation services can bring claims against former owners, operators, or other responsible persons (and not just the person who hired them to perform the services).

This unexpected decision provides an unusual additional legal avenue for environmental contractors wishing to get paid. It will be particularly useful where the person conducting remediation has become insolvent, or refuses to pay their contractors.

For parties with historical environmental liabilities, the decision is unwelcome and may increase the amount of litigation they are involved in, and involve them in disputes between subsequent owners and their environmental contractors.

Background

Typically, cost recovery actions under the EMA are commenced by owners of contaminated properties, or of neighbouring properties, where contamination has migrated.

In Cordy Environmental Inc. v. Obsidian Energy Ltd., 2023 BCSC 1198, the court addressed whether a contractor may bring a claim to recover its remediation costs under the EMA.

The defendant, Obsidian Energy Ltd. (“Obsidian”), held the lease rights and right of way to a pipeline in northeastern B.C. In 2015, there was a forest fire near the pipeline and several months later a spill was discovered as a result of the fire. The spill was reported and the pipeline was later deactivated. Obsidian sold their rights to a third party, who transferred the rights again to another third party (“Opsmobil”), who was placed into receivership. Prior to the receivership, Opsmobil had engaged the plaintiff, Cordy Environmental Inc. (“Cordy”) to remove contaminated soil from the area around the spill.

Cordy brought a claim under EMA to recover the costs for its remediation services from Obsidian as the previous owner of the site (likely because it was not going to recover from Opsmobil).

Decision

Obsidian and Cordy brought applications for summary judgment seeking dismissal of the claim and judgment respectively. The central question before the court was whether Cordy was a “person” who had “incurred costs of remediation” entitled to claim under the EMA to recover its reasonable costs of remediation.

The court analysed the wording of the EMA, determining that Obsidian was clearly a “responsible person,” and that the definitions of “person” and “responsible person” did not exclude a contractor such as Cordy. Further, the definition of person included an “employee or agent” of another person.

Accordingly, the court concluded that contractors such as Cordy were entitled to bring EMA cost recovery actions on the plain language of the EMA. The court also rejected the argument that it was Opsmobil who had “incurred” the costs in question, implicitly finding that both Cordy and Opsmobil had done so.

The court ultimately refused to grant Cordy judgment, as on the evidence submitted it was unable to conclude whether Cordy’s costs were reasonable. In particular, the evidence did not establish what type of equipment was used, the distances that Cordy’s truck hauled material, whether all of the excavated material was contaminated, and whether the rates charged by Cordy were industry standard.

Analysis

The court’s analysis relied on a literal interpretation of the language of the EMA which is clearly supportable. However, the result is difficult to justify on a principled basis and may create practical difficulties for former owners and operators.

The recognized purpose of the cost-recovery mechanism in the EMA is to provide that parties who have remediated historical contamination do not bear the cost (the “polluter pays” principle). It is unlikely that the legislature intended to provide environmental contractors with a way around the insolvency / receivership process, or make them a special class of creditor who can bring their own direct claims.

There does not appear to be any principled basis why these contractors should get special treatment in an insolvency situation. Responsible persons may find themselves dragged into payment disputes between third parties who it has no relationship with whatsoever.

On a practical level, there may be significant difficulties in how such claims are managed. EMA cost recovery actions typically involve an analysis of whether or not the costs were “reasonably incurred.” The court will hear expert evidence, review the environmental reports supporting the remediation strategy, and consider alternative options. It is difficult to see how this analysis can be done without the involvement of the party who controlled the overall remediation.

Defendants may seek to have such actions stayed or joined to prevent unfairness and unnecessary costs. There are also potential issues with the overlapping receivership process (in this case for example, Opsmobil, through its receiver, may have its own EMA claim which includes the costs Cordy is now claiming directly).

Key Takeaways

• Contractors who have incurred costs in remediating a site have an independent right to claim against responsible persons under the EMA;
• This decision increases the already significant ongoing liabilities a former owner, operator or other responsible person may face; and
• There are practical and evidential issues with the way in which these claims can be advanced.

If you have any issues related to contaminated sites, please contact one of our authors Tom Boyd or Jillian Epp.